Answers to Answers

I thought I had better explain some of my sketched material in previous Posts. The first item of examination might be my desire for a Flat Income Tax of 24% without any Tax reductions except true Business Costs of the current Year, but with inclusion of Local, State, and Entitlement taxes in the total estimate of 24%. Depreciation of Capital can be determined as it was under the old Tax system, before the Devotees of the Kennedy Cuts developed the sculpted Accounting system in use Today. Income does not have to be split into originating segments in order to be taxed; it can hold to the old Adage: If you made it, you Pay! The next Statement is easy to understand, but possibly detested: If any Entity insists on the power to accrue liabilities and assets within the economy, they can and must be considered a taxable Entity with an independent Income. Local, State, and Entitlements taxes can be integrated into federal taxation by standardized Average payments per Income Group of each State; this Process may seem complicated, but really is quite an easy Accounting procedure, especially when aided by State provision of Statistics. The importance comes in the theory of Tax inclusion and limitation, not in individual cries that true Income tax limitation is not being maintained to the last Cent.

The next item must be my position on Keynesian theory of Government need to maintain Economic performance, especially Employment, through Deficit Spending. I have never believed this Thesis, but I also lacked any belief that Free Market forces could maintain the Demand for Consumer Goods sufficient to realize any Full Employment cycle in the Economy. Deficit Spending by Government simply worsens an already bad situation, by generating the effective equivalent of Printing Dollar bills; Treasuries are simply larger and Prettier. They propel the same effect, which is Inflation; a substance which will not deflate until those Treasuries disappear. Government Deficit Spending will not have long-term economic value to an economy, and not even a Short-term effect if non-funded Government Spending exceeds 3% of GDP ( We are not talking total Government Spending here, only non-funded Government Spending). The real Solution to the Great Depression was the simplest, therefore ignored, but Government should of bought those filled Warehouses of Goods, and hired men to scrap out those Consumer Products. They would not even had to tinker with the Money Supply. Incredible Expense?–probably only about 30% of what the New Deal cost, and without the development of Keynesian thought. lgl

Real Change

Lawrence Mishel of the EPI testified before the Ways and Mean Committee today, and the EPI investigation of American labor losses due to Trade probably are the best so far (with least axe to grind in favor of Trade). I wonder, though, about the curative proscriptions. Most who read my blog know that I don’t favor Trade that much, and like Trade agreements even less (they are simply instruments to destroy Trade Advantage in the first place). My position is basically bolstered by the knowledge that none of the World’s individual economies can afford the Transport Costs of massive Trade volumes. The shift from Rail traffic to Semi-Tractors of Transport volume over the last 50 years probably accounts for a 50% increase in Diesel fuel consumption in this Country. Gasoline Costs have probably risen by 15% as a result. Commercial Air Transport of Goods assuredly has increased total Aircraft traffic by at least 20%, and Aircraft fuel Costs by at least 30%. Trade must account for at least 40% of all total Transport Costs in this Country, without consideration of the Transport Costs of transferring Import or Exports Goods across the oceans. The fact is $50/barrel of Oil will strangle Trade; it will simply take a little time. What We do as We wait, though, can affect the final Outcome.

The EPI, itself, has been captured by the mystique of the Free Traders. Their first proscription for improvement is entirely wrong, as they advocate a devaluation of the Dollar. The Standard of Living of Americans will never be improved, by a devaluation of the value of their production. The real solution remains a complete opposite of this Proposal; i.e., concentrated efforts to increase the value of the Dollar. Why is this the Answer? It resolves almost all of the problems afflicting the American economy. It requires bringing the Federal Budget into balance, and more importantly, return to a program to pay off the Public Debt. It raises the Cost of American Exports in foreign markets, inciting a counter-cyclical rise in the Price of Imported Goods in the United States; the best spur to American manufacturing to be found. It forces return of American Capital Investment to domestic enterprise, especially if Tax Credits are removed from foreign investments by Americans.

Repayment of the Federal Debt will generate deep deflationary pressures (I estimate by the ratio of Debt Service/TM) until the Federal Debt is repaid in entirety (Al Greenspan is most decidedly wrong to imagine We need Debt to regulate the Money Supply; all We need is a consistent Interest rate of 4.25% on the Overnight rate). We need restructuring of the Tax system, both to pay off the National Debt, and to pay for essential Government Services; I could endure a Flat Rate Income Tax of 24%, if it was a Flat Rate, meaning that Local, State, and Entitlement taxes are taken off the Top with the Federal Government receiving the remainder. This form of Taxation requires and insists on literally not Tax Exemptions, Tax Credits, or Tax remissions. I have not did the Bean-Counting on this (being a Theorist), but seriously estimate it will triple federal Tax revenues if Local and State assessments can be restrained. People become defeated by the total mess, but there are rational lines to adopt to resolve these issues. lgl

The Way It Was (is?)

Hersheys is subcontracting Production in Shanghai to the S. Korean Lotte Confectionary for sale in China. Candy is probably the best Ton-weight Transport product to be shipped. This means you get the best ‘Bang for the Buck’ in transfer, which require only Cool conditions higher than refrigeration. The major difficulty of Transport comes only after arrival in China, where lack of adequate Road networks and Air-Conditioned Retail outlets inhibit Sales of Candied Products. Lotte Confectionary need only supply the Production facilities, while Hersheys still need insure sufficient Sales. It sounds like Expansion Fever without adequate evaluation of the difficulties, but can One tell? I hope Hersheys plans to spend heavy Advertising funds in the developed Asian markets as well as China.

Jeff Cornwall gives a nice Overview of the extra Cash out there for use as Venture capital. The Real Estate market has been a disappointment to the Venture Capitalists, while an alternative to Venture capital, i.e., Hedge Funds, exhibit a marked tendency to be too expensive in managerial terms, with little better Returns than the Open Market. Funds are drifting from the Hedge Funds, adding to the Venture Capital. Entrepreneurs would do well to get their projects online this year.

Felix Salmon gives a good review of articles dealing with Milton Friedman. There is to be a new biography on the man on PBS tonight. The entire Process bores me, like chewing on the bones of the Dead; something which Milton Friedman never did. Milton came, saw, and conquered whether he was right or wrong; never bothering to glance behind himself at the Dead. The best thing, to me, which could be said about Milton Friedman was that he could find three Excuses for being Right, and twice that many for being Wrong. Gad, but I do miss him! lgl

Types of Graft

Both David Altig and Mark Thoma pursue an article in the WSJ about the costs of regulations on financial markets performance. Mark does not seriously comment on the article, simply lets the article speak for itself. David takes the position such regulations are harmful for Markets’ performance. I take the contradictory view, thinking the elimination of fraud, advertent and inadvertent, is worth the time-delay and Accounting Costs. Altig’s views are formed in the Profits dramatization of a financial boom, but the downturn of the Housing market and deteriorating aspects throughout the rest of the financial markets may outline the value of established assets in determination of Investment advantage. It is in a way like this Post by Dean Baker on the Inflation-Scoring of actual Oil prices. Everything Dean say is the truth about Oil prices in that actual increase in Oil prices is only about 70%, but he leaves out the Inflation-Adjusted direction of Production Costs for Oil over the intervening Period; this leaves up in the Air the question of whether Oil production are obtaining economic profits in the Process.

William Polley and Ben Stein may have it right in their claim that Greed can only flourish if there is a limit to that Greed. Corporate CEOs and Hedge Fund managers may have to learn this lesson the hard way. I possess an old-fashioned Mutual Fund, originated to please my now-deceased parents, but kept for reasons of nostalgia. The fact is it has not grown in Years, though I still make contributions to it on a monthly basis; the rationale behind this is the ever-increasing Managerial fees charged by the Fund. It is obvious I should sell my Holdings, and a few more Statements of such derogatory Accounting may lead me to take action. Such Fund managers, and CEOs towards their Stockholders, rely on the inertia of Investors to maintain the current system. Their Customers, like myself, find such behavior becoming so egregious We may have to divest ourselves of such chicanery. This is what William Polley and Ben Stein perceive, and on which I agree.

Brad DeLong tries to define the long-term Health Care Cost Drivers. The truth states he is wrong, but only because basically his focus is fallacious. He would support the basic Status Quo of Health Care, which We all realize is endemic in fault. Where is the disease in Health Care? It is again Greed, and again at all levels. Everyone wants economic profits at every level. Doctors will not accept Set Salaries and/or standard Workweeks. Health Care Providers and Insurers insist on huge administrative staffs, rather than a common Schedule of Payments for provided Services. Drug companies insist on unlimited royalties for Drugs, often which work no better than unpatented Drugs, and buy a medical staff to proscribe them by underhanded graft provision to Doctors. Hospitals resent Demands that they present an Averaged Day Cost for Hospital Services in total, as it would prevent inline Accounting Profit-taking. Does this Situation fit in with the rest of this article? lgl

Minimum Wage Effect

Frederic Sautet makes the claim that Economics should be axiomatic in this article. He uses as reference a Becker/Posner article in the WSJ. Sautet searches for certainty in a profession which has none. Take the Becker/Posner position: They basically claim that Minimum Wage increases will reduce Employment of low-Skilled labor, alter Capital Inputs, and lead to higher Prices. No One asks, though, if this is an Immediate Effect, Intermediate Effect, or Long-Term Effect. The market for Unskilled Labor has the irreverent habit of increasing Employment after a Minimum Wage increase. Is this a suggestion that such losses are not an Immediate Effect, but a Intermediate Effect, even possibly a Long-Term Effect? This might bear some examination.

The Immediate Effect of a Minimum Wage increase seem obvious to increase Labor desire to work at such occupations, as they will receive greater recompense. The wider choice of Applicants for such work allow for greater discernment by Employers of proper labor cadres at less Cost of evaluation, and with the better choice of Labor, lower Job Training Costs. Capital Inputs may be lessened by the Wage increase, but to what degree does this impact the Business concern; it could actually lower total Capital Costs, by fully exploiting the Life Expectancy of all Capital Inputs without degrading the Business quality. Product Price increases have a distinct Shock Effect on Economists, though there are Questions to be asked: Are current Product Prices what is called Market-Ready?–this means have they previously been advancing in common rate with the total mix of Product pricing, or have they been enjoying an economic profit from falling in relationship to other Prices? Will there be a disadvantageous Jerk in the Product Price increases, or will it be a natural flow upward to conform to the General Product pricing? What does all This impact on Our study of Immediate Effect of Minimum Wage increases?

We must turn now to the Intermediate Effect of Minimum Wage increases. Business firms who have integrated the Minimum Wage increases will express no impact, Business firms who cannot integrate the Minimum Wage increases will fail, while Business firms organized after the Minimum Wage increases will not feel the increases at all. The major impact of the Minimum Wage increases on Business comes within the scope of competing within the new Product Price schedules, or incapacity to restart effective reCapitalization; new firms being immune to this effect else they would not have started in the first place. Business firms capable of integrating the Increases obviously possess a operational format based upon an effective Product list. Business firms which could not integrate the Wage increases obviously were already operating on marginal Profits sufficiently inadequate that reCapitalization would probably have incited failure anyway. Capital formation rates would suggest that Business entrance (new firms) remain relatively unaffected by total Production Costs, so the total number of Business firms will remain relatively stable or increase. It seems the Intermediate Effect of Minimum Wage increases demand simply greater Business efficiency, without much impact upon Business Debt Service.

The Long-Term Effect of Minimum Wages increases does indeed seem to reduce Minimum Wage employment, but for reasons which appear beneficial. Employers tend to utilize Incentive Pay increases to a greater degree with their previously Hired to retain them, the higher Minimum Wage costing firms a higher Price in lower Productivity from untrained labor. The other major push comes in Minimum Wage labor learning greater skills, and moving on to better employment which suits their career goals. I, as an Individual and as an Analyst, have no trouble with either of these effects. lgl

Economics for Economists

Here is another Tract calling for resumption of Trade Talks, claiming dire need before Bush loses his ‘Fast Tracking’ authority in July. Many cannot understand that the Trade Talks are a dead issue with the Farm States aligned to Vote down any Treaty which touches their farm supports before Bush’s authority lapses in July. Those pleading the Case for Free Trade fail to understand that the Opposition positions of the EU, Brazil and India, and the United States are all based upon refusal to make further Concessions in areas which are their basic Trade strengths; EU could not control the flow of Goods into their respective Countries, Brazil and India would be faced with a Consumption market which they cannot finance, and the United States would lose its real Trade advantage of Food Grains. Evaluative study would conclude surrender of any of the major positions would wreck havoc in the economies involved, with only marginal gains to be made by Anyone. The EU, Brazil, and India would face a Trade imbalance functionally equal to that presently endured by the United States, while the United States would lose its last real Trade position in the World beside Boeing. Economists need to forget Trade theory, and examine Trade balances.

Robert Bohannon might develop a reputation as horrendous as the Columbian Cocaine Cartel, with his design to caffeinate baked Goods. Turning such a Power over to the Corporate structure might unbalance the entire American Dietary network. I can see it now: ‘I will have the uncaffeinated Cheesecake, please! And a Cup of Coffee on the side. The Caffeinated Cheesecake always gets me Wired.’ We will be holding Congressional Hearings to determine how much Caffeine is being added to Our Pound cake. State Legislators might as well start debates on the proper Minimum Age for children to have access to Caffeinated Baked Goods. The FDA will be ordered by Congress to come up with the correct labeling format for Donuts and Pies. Oh, the legislative effort which will be required to insure the proper levels of Caffeine for Cookies!

Laurence Kotlikoff thinks We, as Americans, may be saving too much money for Retirement; and actually, he is probably right. Americans do not need a multiplex of new Investment plans and planning systems, We need a universal Pension system. We have Social Security, and though it has had its detractors since its inception, has still provided more People with more financial security than any other effort in history. Social Security would still be sound, and paying its obligations for the next 40 years, if We could convince Congress to raise its own taxes, and invest Social Security revenues in sound Banking nodules. Economists, and Taxpayers, should understand the great Entitlements Crisis has been caused by Politicians and Lobbyists, not by the revenue-generating Economy We all live within. lgl

Modern Economics

Tim Haab finds new hope for hydrogen fuel with developments in Australia. His only problem comes in the concentration on small units. I picture a closed power system for vehicles carrying about 10 gallons of pure water in source tank, a hydrogen holding tank, an electrolyser, and a Drop-In Battery source–where placement automatically makes the connection with the Power unit. Commercial Solar Power stations would own the batteries and rent them Charged for an appropriate fee. These Power stations would utilize a combination of Solar cells and Magnifiers of Sunlight to produce Power. Burned hydrogen would collect as water in the water tank. The Electrolyser would work continually until the hydrogen tank was full. Battery Charge would be considered sufficient with 300 miles per Car, and 75 miles for a Semi-Trailer. Insistence on an integral Battery system will defeat any Electric or Hybrid vehicle design. Battery replacement must consume less than 3 minutes of time, and Charge levels must be uniform across stations.

Ambitious Bloggers should read this article by Arnold Kling. It highlights the fact that blogging is a Sensation-Junkie industry, where one has to capture the interest of the Readers immediately. Does this detract from blogging? I do not think it does. Readers search for Bloggers whose words they can trust and understand, and return to the same Blogs because they receive a level of competence fit for themselves. Does this sound patronizing–it should not; Bloggers are themselves Readers, and the gist of their message changes to conform to basic tenets that flow across all the Blogs. Arnold brought in the subject of citations and links, but Bloggers must also deal with contrary opinions–if they expect to keep their Readership. One has to ask, like Arnold, if academia suffers from a bias on the Internet. I doubt it seriously! Academics present the most reasoned arguments, which other Bloggers must respond to, and present an academic style which Bloggers must aspire to or be considered inept. I think the flow of ideas is good for All.

Don Boudreaux again presents an attack on Minimum Wage legislation which is a non-Contender. He cites France, where Minimum Wages is a lot closer to the Average Wage than is the fact in the United States. He states that married French women have far less labor participation than American wives; this ignores the statement by most young American wives that they would stay home and take care of their children, if they could afford it. It also ignores the possibility that the higher Wages in France affords young French wives and mothers a right to a traditional household. His quote of the unemployed levels among French residence Muslims as being near 40% forgets the unemployment levels of intercity Black and Hispanic youth. Why do Economists accept and approve of all Cost increases to Restaurants except Pay Hikes for already disadvantaged Youth? lgl

Playing with Externalities

Why does this article make sense to me? The externalities of City life have been known since early American times. Why has it taken so long to devise a plan of rubberized panels for Sidewalks which can be lifted and tree roots removed? Speculation might center on many concerns; the previously cheaper Cost of Concrete, the greater beauty of Concrete over ground tires, the shortage of sufficient numbers of discarded tires, the fact City budgets could not handle tree root destruction of Streets and tree root destruction of Sidewalks simultaneously, because kids can run too fast to be caught with the added spring of rubber sidewalks, or because Adults found too much bounce in their lives with rubber under their heels. I personally have always favored elevated Sidewalks, where you could meet your girlfriend eye-to-eye when engaging in the practice of Serenading. I worry about the odor of scorched rubber on those hot July days.

Political Calculations has a good piece on Minimum Wage increases (actually quite a number of them–check the bottom of the Post). It doesn’t highlight one of the greatest aspects of a Minimum Wage increase; the effect of Minimum Wage upon Creative Destruction. Millions of Jobs are eliminated and created every Year, Economists calling the process Creative Destruction. The Process purportedly has vast benefit for the economy, redirecting labor assets to their most optimum allocation. It is surprising that most Economists so rapidly abandon this relevant economic theory, as soon as it touches the range of low-Wage unskilled Labor. It again is only a process of Creative Destruction, where cheap labor is being destroyed; business practice will have to advance to greater efficiency, or be eliminated. Will such Jobs losses be permanent to the Market? Will the Business sector be abandoned with the exit of unprofitable firms? The Answer is No in both Cases, and Minimum Wage increase is only increased sharpness of the mechanism of Creative Destruction.

Don Boudreaux comments on the Tyler Cowen article in the NYTimes. The gist of the argument of both men amuse me, because of the externality existent here as well. Don even lays claim to a justification for regressive taxation, though he fails to explore the area. Tyler’s argues that We should continue attempts to advance the opportunity of lower Incomes; why then does he not advocate a Minimum Wage increase to say $12/hour? The Boudreaux argument against Progressive taxation combined with the Cowen argument for Opportunity could only insist on consistent, and massive, increases in the lower Income ranges. I, like these two Economists, believe the only acceptable progressive taxation which is realistic must be increasing Wage scales. Do We have agreement here? lgl

The Electric State of the Union Address

I agree with Aeon McNulty and Tyler Hamilton when they are not excessively thrilled about the claims that a new ultracapicator power system will replace current electrochemical batteries. I am not as sure about the utility (or lack of it) in the new powders being developed to store Energy. I see such Designed powders as the answer to Solar power continuity. A correct-composition powder could be the large underground storage batteries for Solar power through the night. These powders must possess the capacity to absorb massive amounts of electrical energy with very minute additions of Water vapor, and release vast amounts of electricity with only minute Drying capacity. Connected to Solar panels, the massive absorption capacity of such powders when moistened could vastly increase the Solar generation capacity of Solar panels because of the rapid absorption of Ions, while Energy use to produce Electricity during the Night would require only a Moisture evaporator at the battery. Science has already proven somewhere that electrical absorption rates are high under extremely Dry conditions, with only a minor increase of Humidity. It might work.

Cactus at Angry Bear chose not to watch the State of the Union Speech. He was far from being alone. Blogger after Blogger admits to not having watched the Speech; I myself did not. I checked around my immediate environment this morning; even Those most likely to watch such political pronouncements did not watch the Speech. It may easily have the lowest Viewer Air share of any TV programming all week. What does it all mean? G.W. Bush first took Office in an era when the United States was basically at Peace with the rest of the World (except for a few fringe fanatics). Today: most of the World is mad at the United States, and even Americans blame Bush for what he has done, and what he has not done. Americans are simply tired of listening to George W. Bush, as he continuously bombards Us with Problems in the hope of gaining American support; Everyone knowing he will never provide a resolute, effective Solution to any of those Problems.

The NeoCon Republicans have again brought the American people back to despair. The Bush Tax Cuts, initially so attractive, have long since lost their appeal; the Cuts generating more Public Debt than Jobs, and Tax Costs seeping back to previous levels for all but the Wealthy. The Wars, Afghanistan and Iraq, started with such great fanfare; now they grind out only Casualties and Death with no end in sight. Bush policy has did much to create this Situation as well. The huge sums spent in Iraq and Afghanistan have all went to American Corporations demanding American Profits-Taking at all levels; Afghans and Iraqis could have rebuilt their own Countries with those funds, at far less Cost, and with far less Unemployment amongst their native Labor elements. One of the greatest Angers of both Afghani and Iraqi is the fact that the Bush administration did as much for their economies, as he has for the American economy–only Injury. Now Bush wants to gut the Social Security administration and Benefits, and grant more Tax breaks for the Wealthy. Would you want to watch George W. Bush speak? lgl

The Paranoia Club

(the Post I attributed to Felix Salmon was actually written by Mark Thoma. My only Excuse consisting of a Statement that they are both so gifted and prolific that my brain gets confused)
Felix Salmon (really Mark Thoma) gifts Us with an excellent montage of links of Authors evaluating the new Bush health plan. The Genus of the Bush plan concerns me more than the other Authors included in the Salmon(Thoma) Post. Utilization of a Standard Deduction instead of a far more sensible Expense Justification Deduction begs for rationality; a Tax Credit of such magnitudes proposed makes more sense than a Standard Deduction–which is a straight reduction of the Tax rate open to Anyone needing further reductions of the Tax rates–only the Wealthy. A Tax Credit would not impel health care coverage among the Poor, but would at least be a boost to Consumption. A Standard Deduction would not generate better health care coverage, as the Young would purchase the Cheapest to Pocket the greatest difference (Ezra Klein link). A Standard Deduction vastly increased the number of non-Tax-Paying Income Earners in this Country (as Philips of the Tax Foundation notes in the links), and gives Business the opportunity to finally dump Employer-Paid Health insurance.

What is George W. Bush attempting with this health plan?

He cannot seriously be contemplating this Plan will resolve the mighty Health Cost problem in this Country. Business abandonment of Employer-Paid health insurance will bring on more uninsured numbers, even if the Plan was turned into a Tax Credit as Mankiw proposes. Bush cannot expect Health Care insurance premiums to attain higher national levels with this Plan; there are extensive reasons why the total level of premiums paid for health insurance will drop under this Plan. Bush has only Two years left in office, and cannot have any expectation that he can forestall any resolution of the health care crisis in this Country after his Leave-taking, with a preemptive strike using such a worthless initiative. Bush cannot expect the Health Care Expenses of Federal, State, and Local Government agencies will decrease under such a Plan. He certainly does not expect this Plan could possibly raise Tax revenues for the Governments involved, or actually benefit any of Those actually in need of health care insurance.

Is there a hidden malignancy within this Plan?

Could the Answer be that Bush desires to generate a Credit Crisis for the United States? No One has crunched the Numbers as yet, but I would estimate this Plan would reduce Federal Tax revenues by an additional 11-20% of total revenues. The Dollar is already losing value against foreign currencies, and no one could expect foreign central banks really desire to increase their holdings of Dollars. International Corporations, which George W. Bush so capably represents, are awash in liquid assets; garnered, to large degree, with previous Bush Tax polices. Could Bush possibly be inciting another Great Depression, so that the International Corporations can buy out the rest of the industrial capacity of the World at extremely depressed Property values? Could Anyone be so diabolical and Evil as to plan and work for such an Event? On the other hand, could Anyone be so paranoid as to so question the motivations of American leadership? (This Advertisement brought to you from the Man who is paranoid, and proud of it). lgl

Unworkable Trade Agreements

The current NABE survey (National Association of Business Economists) may provide light to the expectations for the current year. Rising material costs has lessened in intensity, but Price increases appear stickier. A bad note states that Goods-producing firms were still reducing labor rolls, while a majority of firms intended to hire within the next six months. Capital Spending was down in most firms, reflecting most business enterprise was positioned to hire more labor without repositioning. The report states that Profit margins are generally improving, but I have some doubts on this, as I smell a major Cost shifting to the coming year by business, who want a heavy-loaded Expense Accounting in the face of a Democratic Congress. The only fault with the Report may be the lack of a developing Capital Investment trend.

The United States is again under fire for its Farm Support programs. The American Farm program has much domestic defense what with Business and Politicians covetous of the Voting power of the agricultural States in Congress. It is not an Issue which can be cured easily, like previously in removal of Steel tariffs. I have always been passively opposed to the WTO and multilateral Trade Agreements in general, and specifically for this reason: The United States was bound to be outvoted in international Trade associations, it being the wealthiest Trading partner in the World. He who has the most at stake should not pursue General Agreement about anything.

The United States will undoubtedly face eventual Trade sanctions, as Farm States refuse to surrender their Farm supports, but the United States is outvoted in the WTO. The United States Government will be able to do little, except to attempt to separate the small American farmers from the major Agribusiness corporations, then continue the Farm Supports to the majority of Voters in the Farm States while insisting the Corporate structure assume natural Business practice free of Supports. The hazard here (like playing Golf, only worse) is formed by the fact that Congressional Farm States Votes are actually controlled by Agribusiness–not the majority small farm Voters. If the reverse were true, a reasonable deal could be worked out; small farmers being the most pragmatic of people–I know, as I used to be one. The Corporate structure, on the other hand, will resist any relinquishment of Profits whether earned or criminal in nature. I personally would state, no fan of multilateral Trade Agreements, that the United States should unilaterally withdraw from any Trade organization which backhandedly reimposes a tariff system upon the United States, simply because of cultural and political practice in existence prior to the Trade organization. lgl

Health Care Costs

Greg Mankiw, along with my other Economists, may miss the most important aspect of the Health insurance, here, here, and here. What is the major element wrong with their thinking, which apparently even includes the current Administration? It consists of two Parts, both vital for any benefit to accrue to health care insurance regulation. The first states that any attempt to restrict Consumer choice, without an attempt to limit health care Costs, will not curb Health Care Expenses or satisfy cancellation of overdraft of insurance services; something all three articles pretend Wish to curb. The second Part insists that any Change in health care insurance must be understood by the Users of such insurance, to get any change in their behavioral use of the insurance. Most Consumers, under these Proposals, will not even notice any regulatory change.

How can there be curbs placed on Health Care Costs through regulation?

Instead of making all Health Care insurance premiums Tax-deductible, or the opposite, making even employer contributions non-Tax deductible, One could take a positive role and define exactly what Type of Health Care insurance can be sold: I suggest three basic of Types of Health Care polices be allowed, each of which would give a separate Rate schedule set payment for each policy use: Doctor Visit, Hospital Stay, or Procedure payment; the three separate Types separated by set Dollar amounts for each service. The policies would be issued for say $25, $50, or $100 per Doctor’s visit, Hospital Day rate of $250, $500, or $750. Procedure rates would again be set on specific payment rates in Dollar terms. The Health Insurance policies themselves have been expressed in terms all Consumers can understand. They will easily grasp what policy Type provides their best Risk-avoidance avenue in relation to their own Income level. This translates into instant awareness of health care insurance regulation change.

You may ask how this could limit excessive Health Care Costs, or excessive use of insurance benefits?

The Government could, under such a Sea Change in issuing Insurance, regulate far more than Consumer use of benefits. It can insist on hard Accounting, with Insurance industry justification of premiums and Costs. It can insist on major elimination of Administration Costs, demanding Insurance Coverage cover the listed Rate schedules. It can pass regulation which states Tax-deductibles will be issued only to cover the Costs of the cheapest Type of Insurance offered, stating it is up to the Consumer to further insure against health risk. Such a program of regulation will incite Health Care Providers to minimize their Charges in pursuit of higher Patient Turnover, when it is known that higher Charges will vacate Patient utilization of health services. No Change at one end of the Health Care Payment system will resolve the issue of high Health Care Costs; both ends must be assaulted effectively by regulation. lgl

Musgrave and Cheney?

Richard Musgrave has died, one of the last monuments (if not the last) of the Great Economists prior to the mathematical revolution in the Economic profession. David Warsh has an excellent article on Musgrave’s contribution. It would be nice to say I had read all of Musgrave, but actually I have only read his first article from 1939 (one of those History Term Paper research projects). I say this regretfully, as he and I probably hold most of the same precepts dear to our hearts. Musgrave would agree with me in the statement there is never sufficient time to pursue all that one wished to do; there being simply too much good Work out there to explore.

This Post by HedgeFundGuy somewhat ties in with the work of Musgrave, and may be a Must-Read for Any adventurous enough to consider teaching macroeconomics. His statement that macroeconomics is more of a History course rather than a study of Economics holds a vital truth. Macroeconomics almost always devolves into a pursuit for the major concepts advanced by the premier Economists, Musgrave most assuredly being one of the Esteemed. HedgeFundGuy has his own axe to grind, claiming the absolute need for protection of Property Rights, which might not be the most essential Concern; I personally favor an intrinsic enforced Deserved Pay system, often at odds with entrenched Heritage transfers of Wealth to heirs. Growth theory can be reduced down to a simple statement in my mind: Growth is dependent upon Educated Labor; who are propellent for Growth development opportunities. The downside here lies in the fact there exists Diseconomies of Scale to Education, where too great numbers of Educated labor generate decreasing Marginal utilities for Labor under constrained resources.

This Post by PGL at Angry Bear may also have a bearing on the discussion. PGL’s basic critique is of Dick Cheney’s performance in office; reinforced by many other Sources, and consideration of Cheney’s Character by the Public. The real element relating to the Above comes in Cheney’s likely incitement of vast expenditures of Public Funds for potentially personal ends of a petty nature. Musgrave’s major contribution to economics may be the assertion that there must be a moral justification to Public Finance, and such Expenditures must be rationally devised within the Public forum. lgl

What Works and What Doesn't

I agree with Mark Thoma that liberalization of markets are not the causation of The Great Moderation. The Educational levels of Labor, plus the availability of packaged Skill programs for elements necessary to establish a business, have allowed Labor to create their own Jobs; if traditional Business programs fail to do so. ‘How To’ Studies can be accessed in library or online for completion of all forms of business organization, from writing a Prospectus for a loan to Cost Accounting for a Business. Many Small Business personnel even locate their own Advertising avenues, and do their own Withholding Accounting. Simply put: Small Business has learned to complete those aspects of Business organization which previously had to be outsourced to expensive Agents. This Cost-Cutting has undoubtedly doubled the Profit margins of small business, and made independent Job creation much safer.

Ecelectecon has a good Post on cartel theory, but misses a central point. The article would imagine that with 23 Players in the cartel, a reduction of Supply could be achieved. All are perfectly aware of the Prisoner’s Dilemma, and realize that few in the cartel will meet the agreed reduction. Now Maximization of Profits provides additional inputs to the game theory, and realization there are additional Profits to be made, by increasing Output to maintain the current Production level and Price. Eleven out of the 23 Producers are expected to maintain their Production schedules without change, and 7 can be expected to actually increase their Production schedules. None of the rest of the 23 can be expected to meet the quoted reduction. Welcome to real life cartel theory.

Brad DeLong tries to support both Minimum Wage and the EITC (Earned Income Tax Credit), stating both forms are relatively necessary for the reduction of Poverty. He points out, though, that the Minimum Wage is practically self-enforcing, while the EITC is very difficult to administer and doubtful in reaching the right people (recipients who manage to satisfy eligibility requirements likely do not list their professional help as Income). Brad states the IRS is better served by enforcing tax law on rich people–I agree wholeheartedly. The EITCs suffer a much greater defect as well: the inability to effectively track Income through multiple Jobs, a necessary criterion for any program designed to aid low-Income laborers. Minimum Wage increases pressure Incentive Wage increases throughout the lower Income structure, and thereby aid far more Workers than simply Those working for Minimum Wage. EITCs were a fancy academic idea sounding great on Paper, but unenforceable in practice. lgl

Soak the Rich??---Me!!!

This Author will not verify that several names have been ascribed to himself since his last Post, but he would like to clarify his position on Taxation. I would first like to establish the fallacy of claims of lack of Investment, if Taxes were raised. Investment stands as the only means by which Individuals and Business can make further Profit from excess funds coming to them from Labor or Business operation. Investment will exist, and at the same equivalent levels, no matter what the Tax rates are set at. Economists will claim Investors will Consume more than investing with higher Tax rates; here is the essential fallacy, as Consumption is beneficial for the Profits of existent Business operations, and impels Businesses to increase Productivity levels and hire additional labor. Business will benefit, no matter how the Funds are allocated. Suppression of Tax rates aid only in building individual wealth, whether by Households, Partnerships, or Corporations. Any Economy with the prerequisite financial institutions need not fear any loss of Capital aggregation. The United States has the absolute least threat to Capital aggregation of any nation in the World.

I will next turn to the steps by which I would reintroduce Taxation in it’s proper form to this Country (here is where you can be glad I am only a blogger, who can be left unread). The Steps necessary to limit Government Costs as well as introduce genuine Taxation are simple, with little alteration of law, or with little Paperwork in legal definition or Collections procedure. Here is my List:

1) No Investment Tax Credits, or the total accreditation of such Investment credits, will exceed $10,000 per Taxpayer, $20,000 per Joint Return, or $50,000 per Business, Partnership, or Corporation per year. Standard Tax rates will be implemented against the rest of all Income.

2) Any established Foundations must pay at least 50% of the applicable Inheritance tax normally associated with the death of an Individual, when the Benefactor of said bequeath dies.

3) Any Charity which employs a Fund-Raising staff consuming over 20% of total Contributions gathered by such Charity, must pay all requisite Taxes associated by such Business of such total Income.

4) Patent Rights are a convention to incite Research and Development, but the nature of Patent Rights are the prerogative of the Issuing Agent. American Patent Rights will be altered so as to not exceed 10% of the actual Production Cost of the Product or Service. All Patent Rights will be grandfathered at the previous issuance, but no such Patent will exceed 16 years in duration from passage of the new Patent law; future Patents will be for 100 years but receiving the stipulated award, while renewed Copyrights will conform to the stipulated awards.

5) All Contractors receiving Public payments or Funding (including all Health Care Providers) are forbidden to utilize Sector Accounting, or subdivision of Profits except through the umbrella parent organization, who must list and account for all such awards before they receive any payment of Service Costs by any Government agency. Bonuses must never exceed 16% of total Labor Costs on any Government contract by law. lgl

Time of Taxation

Mark Weisbrot has a good article in the International Herald Tribune Opinion section and another at the TPM Café (courtesy of Felix Salmon). The two Posts reflect one aspect of the situation, but portray the Period from 1970-2005 in a bad light, one which can be easily be explained by evaluating the Population Growth in Latin America throughout this Period. The Past in Latin America has been one of economic growth attempting to keep pace with the Population Growth. The new regimes remain utterly necessary to the reduction of Poverty in the area, but only in the sense of breaking the Traditional caste systems in the Countries involved. It is more of a question of breaking the Strangle-holds of the Past, than implementation of vital, vigorous economic policies. Chavez and his fellow travelers in Latin America will find the old economic policies of the Communist Left were discredited for sound economic rationale, and have not improved with transplantation or tweaking the mechanics. On the other hand, the IMF and other financial institutions supporting the Traditional castes were equally at fault (check this later Post of Felix’s).

Dean Baker presents a good Post which in a way validates my previous paragraph. Ben Bernanke, as spokesperson of the Traditional caste system in the United States, had suggested that Social Security should be restructured and Benefits reduced (Baker implies Bernanke is only following the Kirchner example in Argentina of defaulting on the Public debt, Our's held by American labor). Dean, though, goes on to say this default should be extended to holdings of the Privileged as well. I would say, and Dean Baker as well probably, that it is the Tax system which should be restructured, and that the funded Pension Plan be allowed to pay its Benefits until such time as contributions run out. The fact that the American Wealthy will be forced to pay Taxes, which they have skipped paying since Reaganomics, should not be germane to the Issue.

One might study this Post by Menzie Chinn which itself contends, though he might contest this statement, that the Wealthy in this Country should restart to pay those Taxes sooner than later, as the Public Debt has shifted to foreign Creditors. The Well-to-Do in this Country may be contemplating transferring their citizenship and residence to foreign shores, to leave lesser Americans to pay the Federal debt, but I suggest that We tax them now before they go. lgl

Ecological Awareness

Daniel O’Connor has posted a very good article clarifying the elements of environmental economics and Decision-Making. It concisely defines all the troublesome aspects of economic decision-making in the pursuit of a sustainable economic ecosystem (one which can propagate itself over and over so as to avoid Resource depletion). He outlines the problems of achieving a fair distribution of economic benefit, so that while social classes will still exist, economic oppression will be minimized. My Take on this Issue remains what it has always been: an informed Tax policy rigorously enforced will produce the best result.

We must devise a sustainable economy for Our progeny, though some of Us older often wonder why. Greg Mankiw will be immediately amused because of his promotion of the Pigou Club, but taxation must extend beyond the simple precepts of the Pigou Club. There must be a Mining Tax, and One imposed upon the Consumers of mined materials of all types, not just on energy or materials in shortage. It must be a Business tax, a Surtax upon Production which overuses set industrial standards established by the Taxing agent. I would advocate a 9% Mining Tax on all mined material used in Production, with a 1% increase in the Surtax for every 5% use of mined materials above 12% of all materials used. This places an obvious premium upon reclamation of materials (a boon to Everyone, not just Junkyards). There will be much Comment that the added Taxes will only be passed on the Consumer, but that is exactly this Author’s intent.

An effective, enforced Tax schedule applied to Product Durability must also be applied in my estimate. Business Production will be taxed (by added percentage increase on Production Income tax) based upon the durability of the manufactured Products. An Example: A pair of denim jeans whose average Product life does not exceed 3 years will pay an additional 8% in Income tax. Some would say 8% is too high a added Tax, but it seemed to me to be a relevant Surtax for provision of inferior product anywhere in the Economy; negating the increased Costs of quality Product provision. Product Durability Schedules would be set by industry experts paid by the Industry Associations themselves, but requiring appointment by Congress. These Committees or Commissions would set industry standards which had to be approved yearly by Congressional Committee after Expert testimony Hearings.

An equitable Tax policy obviates much of competition between Private Sector and Government policy decision-making debates. Testing procedures for Products would be set up by industry experts and Standards set, but under the supervision of Government to insure Consumer protection is paramount. The Economy is redirected towards a more ecologically-friendly economy closer to sustainability, while Business does not have to bear the total burden for the Shift. lgl

AMCs and G8

There is a major effort going on to get G8 funding for Advanced Market Commitment (AMC) for vaccine to combat disease in the developing world. The scheme basically pays Pharmaceutical companies to develop vaccines to stop malaria, HIV-AIDS, and tuberculosis. The current discussion is for a Grant of around $6 billion. Andrew Farlow, the head of Economics at Oriel College, Oxford, is writing a Paper stating this methodology will only generate low quality vaccines which will not actually cure the diseases in question (think of the use of Antibiotics and the evolution of Drug-resistant strains of the disease). He will also claim that the lack of infrastructure in these developing nations will forestall proper utilization of whatever vaccines are developed. Farlow asserts that the G8 should fund traditional methods for combating these diseases, and the creation of infrastructure to provide such treatments. Thanks to the Private Sector Development Blog for the link.

ScientificAmerican.com published this article examining the Issue of the lack of demand in developing nations for the products of Pharmaceutical companies to combat the known extreme diseases. The trend of the articles sympathizes with the big Drug companies, rather than with the poor developing nations; who may be so rude as to consider these Drugs overpriced and relatively worthless to handle major crises within their own nations. Developing nations’ major complaint at the big Drug companies consist on the ineffectiveness of the drugs involved, the lack of provision of qualified Administrative personnel to adequately supervise drug applications, and the ridiculous Prices demanded for the drugs. I personally tend to side with the Developing nations.

The entire issue of AMCs remind myself of the Proscription D debacle. The great advance in American health protection granted vast Tax relief to Big Pharma immediately, and short-term immediate relief to Social Security recipients. Insurers also made great Bonuses in signing up the Elderly in such Plans. One has only to examine the increases in Insurance rates and Drug prices to estimate Recipients of the great Plan may be paying as much for their Drugs as they were before the Plan, by some Period shortly after Bush’s Leave-taking of Office. Who knows? Maybe Big Pharma needs a few more billions in Profits.

AMCs could be easily substituted by a Plan which stated G8 nations would guarantee $3 per dosage for any effective Drug or Vaccine with an Administrative fee Payment of $200 per 200 administrations of a Drug or Vaccine if and only if Pharmaceutical companies provided On-Site qualified Medical Staff to administer such Drugs or Vaccine. But wait: Where is the big-time money in that? lgl

The Minimum Wage Debate

Phil Miller and the link he connects with imply that Minimum Wage increases are the sole cause restaurants raise their Menu prices. It is a sentiment which Business owners would like to foster among the general Public. Wrong! These restaurants probably endured a 7% increase in Food prices since the last Menu Price rise, a 12% increase in Utility Cost, also about an equal raise in State and Local Property taxes, and with an estimated 8% increase in Taxes from the new California health plan. The Minimum Wage bill paid by these restaurants (both before and after the Raise) undoubtedly remain the lowest sum in Cost, behind Taxes, Capital, Utilities, Food, and even total Managerial salaries. The Senate thinks to hang up a national Minimum Wage increase because Restaurant owners cannot get a Tax Credit to make up for the lost expense of paying their labor a Living Wage. We cannot risk those vital Profit Margins.

Robert P. Murphy blasts Robert Reich’s commentary on NPR. It is a remarked lucid account, and tackles Reich on specific Point after Point. The trouble stands as his arguments do not invalidate the Reich Points at all:

1) Reich states small Business will not suffer drastically, as these businesses do not compete at a national or international level, and all business must pay the same Wage increase. Murphy states these businesses must compete across sectors, and will lose their part of the total Consumer share. Consumers allocate their expenditures according to their own Consumption schedules, and are unlikely to move from an increased Cost business sector under any adjustment period, if the Consumption is necessary to their daily Work schedule or Standard of Living. Advantage: Reich.

2) Reich states the Minimum Wage has been degraded by years of Inflation, and it will only be a return to previous levels. Murphy states the Minimum Wage degradation aided small business in maintaining low Prices. This is the old argument that discrimination against one segment of Those involved in the economy is Good For Business. It ignores the American desire for a level Playing Field. Advantage: Reich.

3) Reich states that the Minimum Wage would actually help small Business, in the provision of a large Labor pool willing to work at the higher Wages offered. Murphy claims that this purported benefit will decline if all small business are forced to pay this increase. Does it really? The Minimum Wage increase will excite additional laborers to enter the labor force, but in a manner what small business hates; they must accept lower Profit margins and be forced to provide greater Product and Services to maintain their Profit levels (ahh, they have to work harder for the same Pay). Advantage: It’s a Toss-up! lgl

A Recession--Boring!

Ritholtz at the Big Picture provides a short form of Doug Kass’ Possible Surprises for 2007. The interesting element of the list this year comes in the thought We may be missing key Variables in the Market. 2007 could be a terrible year, but no one pays attention. I will paraphrase an old adage, and ask: What if they called a Depression, and no one came (kids, the adage is What if they declared a War, and no one came). We are awash in Money (except for the Federal Treasury), and in unpaid Mortgages. Paper Financial instruments are as profuse as leaves on the ground, and they could become a dead Write-off over the next 2-3 years; not complete loss, but possibly without Profits or scheduled Repayment plans completed. Would this be so bad?

The Bush Tax Cuts produced the huge Profits, and removed any Tax from these Profits to absorb the quick buildup of the Money Supplys. The funds are out there, seeking investment, but in the wrong hands; labor needing the funds to pay off the mortgages and Consumer Credit. The other end of the spectrum, though, shows a alternate pattern. Retailers could suffer a 5% loss of Sales for the next couple of years, and We might still get an increase in Employment of an additional 2 million Jobs. I expect I had better explain the Reasoning.

The United States has been enduring a rapid increase in Population in recent years. It is totally immaterial whether this Population increase comes from the Birth Rate or Immigration, in that massive numbers of Households have to be established for Immigrants or High School Graduates. Household construction requires initial Purchases, repayment, then upgrading followed by further repayment procedures; a Buying pattern which takes around 12 years, Many attesting it takes a lifetime. Retailers have had record years in Sales, much of it in the high-end Purchasing of high-tech Products. Such Sales will drop in recessive conditions, as the nuevo Rich decide they must return to sound Spending practices, after they find record Dividends disappearing and they cannot get their Homes sold on schedule. Their lack of Consumption will be counter-balanced by the new Household building process. But why do I say that Employment rates will increase?

Household construction is unlike high-Tech Purchasing. The Former requires large Purchases which are not easily transportable, unlike the Later Purchases. Retail staff is required to deliver these larger purchases, so layoffs in the Retail arena will not project the same rate of decline as elsewhere; though Retail staff may become younger and stronger. The larger purchases will also change the matrix of Trade, as Household products present a much-reduced Profit margin. Larger, more difficult Trade product, combined with lower Profit margins, may lead to a marked increase in domestic production at the expense of foreign Trade products. The added domestic production will require additional labor elements. The increased need for Labor will bring higher Wages and sustained Retail Sales, though at a lower level than the current record Sales years.

American Business will have to return to Production efficiency to obtain their Profits, surrendering their addition to sell foreign products. It will also have to surrender the practice of Wage suppression to achieve Profitability, foregoing the delight of quick Profits in Offshoring production. A bad note appears in the greater American dependence on foreign Energy, but with a sharp decline in American purchase of foreign products, there may even be a permanent drop in Oil prices (increased Production coupled with less foreign demand). People may ask exactly when this will occur? The Answer states that it might have already started in August of 2006. Does it matter? lgl

Overcompensation

George Reisman remains a very articulate Author, as this latest Post so clearly expresses. He shares the flaw, though, of many Conservative Writers; the intent to vilify Those who do not agree with their economic agenda. His spite currently has turned on the New York Times in accusations that the Paper is using the Class Warfare Card. Reisman himself links to some previous attempts to discredit the Newspaper. It is not mentioned by Reisman or the NYTimes, but the issue is the overcompensation of Business leadership in the American economy.

Compensation is supposed to incite all Labor to greater and more creative efforts to further the interests of their Employers. This all well and good; but is it? Or more precisely, what happens when Business leadership effectively captures the ability to set their own Pay Packages? The NYTimes article states that the five largest Wall Street firms

expected to award an estimated $36 billion to $44 billion worth of bonuses to their 173,000 employees, an average of between $208,000 and $254,000, "with the bulk of the gains accruing to the top 1,000 or so highest-paid managers."

which Reisman felt compelled to restate. Now here is the thing: No one doubts that either the Paper or Reisman is wrong on the numbers. Reisman does not even attack the estimate by the Paper that the bulk of the Bonuses would go to the top 1000 highest-paid managers. Reisman and the Times also add numeral middle Fifth Income range of averaging $56,200 in 2004. No one mentions that the averaged Bonuses of the firms was some 4 times the averaged Income of the middle Fifth Income range in 2004. It leads One to speculate how high Salaries average at these Wall Street firms, and how much of the Bonuses go to the upper 1000 managers of these firms.

It would be beneficial if I had researched the average Salary of the 172,000 Employees at the Wall Street firms. I must state my belief that at least half of these Employees belonged to the middle Fifth Income bracket or less, and almost none of the 172,000 lower Employees exceeded $200,000 per year in Salary, though they live in a very high-Rent area. All of these lower-ranked Employees will feel immensely grateful for a Bonus range from $5-30k, which I believe the vast majority will receive. Whatever the Bonus range is for these Employees, I believe this to be the normal range for Bonus compensation to incite active performance from Employees engaged in such work.

Why does upper-Management require such additional wealth to achieve active performance. There is the Incentive to rise to the Top to gain such Salaries and Bonuses; but is not rising dependent more upon the old practice of Kiss-Ass, rather than upon superior performance. Most of upper Management might be replaced, if their Jobs depended upon superior performance (check the Pay packages of even major CEOs who are fired). This Free-For-All of upper management grabbing the Cash might have to be constrained by some Federal regulation. I would pass legislation stating all Business labor can be divided into Five segments set by the national Income divisions normally used, and no Business can get Tax exemption for Salary or Bonuses which is more than double the previous Income bracket, with Bonuses no greater than 5 times the Bonuses given to the lowest Employee bracket in the firm. lgl

New Military

Cactus at Angry Bear and William Kristol write two articles sharing much of the same opinion of Bush’s new strategy. Neither will come out and state that it is Crap, though this author lacks such inhibitions. The addition of Troop levels (ask military minds about the value of piecemeal attack) will bring a greater entanglement while Troops will still be spread too thin on the ground; this insuring greater Casualties. Any form of Withdrawal will become more complicated, and American losses will rise with staying the course. Cactus does not provide any policy suggestions to Kristol’s query as to what Congress should do, but what advocation holds any value?

The first thing that must be established is American responsibility for any military deployment of U.S. Troops. There should be an Congressional Resolution (passed over the Objection of the President if need be) stating a defined percentage (at least 25%)of Reserves will be Activated, under any American military deployment in excess of 20% of American Active Troop Complement. This simply to inform American families when Reserves will be called, and for what length of time (until the Deployment is over). It will make American Presidents more wary of military adventures, and Congress will automatically notice the increased Cost of military expenditures; to say nothing about Business anger at loss of trained Employees. Those inside the Beltway will realize that American families have a vested interest in Peace.
This Country needs greater military Reserves even more than more Active Duty troops. Check out my Post, The Military Option, for an idea of what must be done to secure American military fortunes. Many Congressmen would claim such a Program too expensive though it is not. Full implementation of the Program would cost a likely $20-30 billion per year in Training and Pay, and hopefully generate a Reserve level of 2 million Troops. The two measures, if passed, would automatically add a probable $100 billion in military expenses per year with the advent of any major American military deployment.

A third measure could greatly deter both American Presidents and Congress: American Weapons Development programs which are not predicted to provide sustainable Weapons systems in the currently-run Conflict will be placed on Hold, with Funding stopped, until after the end of the Conflict with Withdrawal of the majority of Troop complement of the Deployment. This later measure is probably unpassable, in the light of current Congressional context; but, passage of two out of three would better American military posture, and more clearly identify American national interests. lgl

Overreach? Think not!

Dave Inverson writes a decent Post with good links which set me to contemplating the state of the World. So many of the World’s problems are actually interrelated, and the common Engineering practice of ‘Division Down’ of Problems into soluble elements may be working against Us in the search for Solutions. We need a unifying thread to unite all disparate elements into a systemic resolution of all Problems. Iverson and Michael Briggs talk on the desirability of farming algae, rather than Food Crops, for biodiesel. Briggs’ work is indeed very important, and he has probably found the best source for raw material for biodiesel production. Here is where they would leave it.

Readers might ask why not leave it at this Point? The Answer states this venue provides no incentives to fund the Production facilities necessary for algae production and biodiesel refining. No amount of Research holds value, unless it can eventually draw in Governmental or Commercial capital construction; the later being the most viable and sustaining source. Unification of Scientific projects can bring a Solution to the Funding problem.

One of the best feed sources for algae production remain animal waste. Municipalities throughout the World possess an almost overwhelming problem in Waste disposal. Concentration of Waste and transport to an algae production facilities may be the cheapest long-run solution to City Waste Disposal. They can even be induced to foot the entire bill of Concentration and Transport themselves. Element One. The next element states Commercial investment in algae production is assured, if a Market is developed for the algae produced. Science: the heavy oils in algae not only make it a prime candidate for biodiesel production, but also as a prime agricultural fertilizer in concentrated form; further, land reclamation of desert can be accomplished by spreading algae on the desert, and pumping Seawater over the algae. Successive layering of algae and seawater over a period of maybe 20 years would likely produce arable farmland at a Cost range of $2000 per acre. Does this sound futuristic?

Let’s look at the entire situation. Government will fund the Waste Disposal, especially if it is the cheapest alternative. Commercial funding will build the Plant, if a Market can be developed. Agriculture, faced with the increased Cost of petroleum, will adopt algae fertilizers if Science can develop them into high-Crop production fertilizers at reasonable Cost. Government will fund a Land Reclamation project if it can be Cost-effective. Seawater can be pumped to desert areas at reasonable Cost, if the energy source for Pumping the seawater is Greenhouse gases. Now, there would be an never-ending demand for algae production, there would be an never-ending supply of Animal Wastes as material source for algae production, there would be a massive reduction in Greenhouse Gas emissions, and We could bring desert land back under cultivation while refilling underground Aquifers through the massive pumping of seawater to land surface. lgl

Real Meaning of the Laffer Curve

Tim Worstall makes my day, as he always chooses an important Subject, and then presents a good Counterpoint to what I can comment. The current subject being the Laffer Curve, which consists of the graph of the points of Tax revenue maximization where Tax rates interact with Income. Anything above or below this Curve will be less than Tax revenue maximization. The major error in the Laffer Curve comes in it’s refusal to accept any impact from Inflation, the reality of Resource Consumption, or remedial impact of previous Tax years and pressure generated on later Tax years.

The real problem with the Laffer Curve comes in the overall denial of the drive to economic equilibrium. The total Economy must always respond to the Laffer Curve tenant of Tax revenue maximization; how it does this is through Inflation, or through reduced Productivity. The real impact of the Laffer Curve states that an Economy is most effective and successful, which holds to the real, rather than nominal, position of the Laffer Curve of Tax revenue maximization. Any other position will either produce Inflation or loss of Productivity.

The Following is my own Work and Estimates; therefore, the results must be rigorously questioned. I have found that no more than 82% of entrepreneurial Profits can be redirected back into the Economy without the production of intense Inflationary pressure; this entailing that the real Capital Gains Tax should never be lower than a real 18%. My second thesis states that Governmental functions (Security and Welfare transfers) must absorb a real 18% of these Profits, or the Inflationary pressures generated are not harmlessly released. I have previously written on the effects of Public Debt acquisition, which expand the Money Supply, and whose Interest on the Debt constitutes the equivalent increase in Resource Costs due to Resource overuse through Government expenditures.

What does this All say?

Here is where I begin to get Scalped! Taxes, and the devotion of Taxes to specific purpose, should be altered for economic clarity of purpose. National Security and Infrastructure should be financed solely by taxation on Labor Income. Education, Welfare transfers, and support for Science and the Arts should be financed by Property taxes, Business taxes, and Capital Gains taxation; which should also be tasked with elimination of Public Debt. The Later, of course, should be eradicated, except for specific Infrastructure mortgages. I will now accept charges of being a Communist from the Conservative, and charges of being Fascist from the Liberals. lgl

Economic Consensus

Dean Baker has a very short Comment which is a Must-Read, whether you are an advocate or opponent to the Minimum Wage. Dean points correctly to the fact that the raise in the Minimum Wage means only 4% fewer Minimum Wage hours worked, not 4% fewer Minimum Wage Jobs; all with an overall real increase of 35.1% higher Wages. Dean doesn’t point to any Studies which relate fewer Work hours offered to increased Training demand. I have always utilized a very unmathematical Rule of Thumb of 3:1 in percentage terms, so the 4% fewer Minimum Wage hours worked would generate 12% more Training acquisition hours in an educational format for these Workers. Many Economists may state I am all wet with that Rule, but I like to think it works out.

Cactus at Angry Bear asks the serious questions about the Bush Tax Cuts. Were they indeed more beneficial than harmful? He wonders about leaving the Tax Cuts in place after the slowdown is over; is this beneficial? I ask the question of how one fuels the Economy in the next Recession, if the Tax Cuts are not removed? What bothers me about the pro-Tax Cut argument is that everyone takes the beneficial aspect of Tax Cuts for granted.

Do Business reform business practice, and clean out losing management procedures, if Tax Cuts cover the Costs of this poor practice? Why does no one examine the inflationary impact of the acquisition of Public Debt? Can Anyone explain the exact difference between printing Dollars, as contretemps printing of Treasuries? Why is the former bad, but the later allowable? How does each practice impact the Money Supplys? If Public Debt is to be considered as a mortgage on the Country, why are We collecting a mortgage on Our assets inside a booming economy; and should not the Public Debt and Debt Service be considered a economic dead loss subtracting from overall economic performance? A lot of Economists would review these questions and laugh, but what the hell do they find funny about it? lgl

Threat of China

HedgeFundGuy tends to be a little too hostile Conservative for my taste, but I fear he is far too accurate with this Post. Hugo Chavez has always been somewhat of a political problem, and shows every indication of becoming a major economic problem. The Bush administration’s crude attempt to oust Chavez early on, and later support for the Strike of the Oil Workers against him, produced a hatred of the Bush administration in Chavez and an aura of invincibility in him. The worst aspect presents itself: a 10-year reign by Chavez will tie Venezuela to China; the later rapidly building infrastructure which will technologically bind nations to the Chinese economy. Both the Chavez and Bush administrations are too stupid to realize they are being played by adverse World influences, and their economic options are being constrained.

Arnold Kling trails the true root of the problem described above concerning China. The natural order of the Chinese state since its origins some 4000 years ago has been a limited-access order of specified Elites controlling the State and its economy; i.e., a decentralized, autonomous Civil Service drawn from an educated aristocracy led by totalitarian leadership in the form of an Emperor (who served more as supreme Judge rather than Head of State). All indications coming from China exhibit the tendency of reestablishing this mode of Government, freed of the democratic and social trappings of the Twentieth Century. Historic Chinese foreign policy always asserted a egocentric orientation of self-service, ignoring the plight of peoples forced to deal with the indifferent Chinese policies.

I find that Cactus at Angry Bear also wrote on China today, suggesting that many of the worries Americans possess are overblown, but also linking to this article describing the New China. What is American xenophobia, and what is Chinese xenophobia? The article by Will Hutton describes how little China has changed from the traditional structure. The Chinese State still invades successful industry (remember China is the progenitor of ‘Salt Taxes’: read my book FORMS OF TAXATION at iUniverse) demanding partnership, still conceals accountability of taxation, still impounds Savings of Workers; all under the guise of central authority (Emperor) through venue of an educated aristocrat bureaucracy. China is again posed to assume a leadership in the World, but still under the same regime which before demanded Servant State conditions from its neighbors. lgl

Consumption patterns

John Quiggin always manages to deliver a good argument within an unusual context, as is this latest from him. His basic assumption, at least as I understand the argument, assumes that the choice to Consume cannot be optimally rational, because Consumption choice will always be based upon current desires under the impact of a necessary condition of equality. The bequest necessary will always be found to be wanting under conditions of current equality, and the replacement value will never be Zero, so that the aggregate consumption can never be constant. The final result states that future Generations will always resent the consumption patterns of the current Generation, no matter what mix of Consumption and bequest is chosen. At least this is what I think he is implying.

Cactus at Angry Bear has a good piece discussing the nature of Labor Demand, which rarely resembles an economic graph of Demand/Supply Curves. His basic statement says there is no direct correlation between Wages and Labor Employed. Most miss this highly relevant fact. It also leaves the basic Employment graph up in the air. What almost no one recognizes is the nature of the Demand and Supply curves in operation which determine Wage scales.

The Supply curve utilized here is the Labor available for employment under some viable Living Wage condition, where labor can be induced to work. The Demand curve in use is not set by the Production Costs of Wages, but the Production Costs of other components of Production. Wage increases regularly come only after there have been significant increases in the Utilities Cost of Production, though other Costs like Transportation, Energy, and Crude Material Costs are also factored in the matrix. Business knows a certain level of Production and Sales must be generated to pay those Production Costs outside of Wages, and that Employment levels can be adjusted to keep Wage Costs within the Production Costs spectrum, no matter the level of Wage. Business further knows that basic increases in Production Expenses require a certain increase in Wage levels, to maintain a consistency of Demand for their Production; employment levels being much less relevant to this necessity of maintaining Production Sales. lgl

Study of Household Debt

A great method for understanding Economics consists of comparison between different economies, especially going beyond the macroeconomic levels to consider individual households. This is why David Smith posted such a gem in this article. It is a comparison of Household Debt between nations, study of new wealth in compared nations, and who actually holds the Debt. It shows very interesting highlights in the overall Debt picture in the Developed Countries.

Now to get to theory from what Smith provided:

The first element to be outlined is the probable fact that Debt-Holding by Households is reserved for a minority of Households; i.e., there is a planned madness to Debt accumulation, and most Households manage to overcome the Debt load which they assume. This would be easier to understand if there was detailed data out there in the blogosphere on the average Ages of the Debt. People mostly manage to pay off their Debt load, and within the structure of the Debt. Still, a small minority exhibit a truly expansionary Debt load; they being the most likely to wind up in Bankruptcy. Smith does not provide the data, but these Households may be composed of ‘Type A’ Heads of Households, who are determined to increase the net wealth of the Household in the long-term.

It is these expansionary Households who are most likely to incur insolvency from an increase of Interest rates; they pushing the Envelope with high Debt Service to Income. They, though, obtain the greatest net wealth if they can survive the path past Bankruptcy. These Households are also the most likely to have the least recourse to alternate forms of revenue (aid from Parents, or other elements of Debt-shifting). They are still the driving force of almost every Generation. An increase of Interest rates is a direct assault upon these Households, who if they survive, will evolve into the primary leadership of their own Generation. One has to ask if Policy Managers actually desire to drive these Households into Bankruptcy?

It is also interesting that Italy holds among the highest levels of Debt, but also the highest levels of net wealth. This is speculative, but it likely has the highest level of Residential Cost to Income, and the least level of Product mix (smallest distribution of Product variety, and highest Average level of variance between High and Low Pricing between competing Products). This creates the greatest distinction between Income levels and Living Styles. lgl

Timing

Brad DeLong starts a debate when he argued that the New Deal brought Us out of the Great Depression. HedgeFundGuy provides the best rebuttal to DeLong, while the best link given by him may be Cole and Ohanian which is easily accessible; be sure to read the commentary under the HedgeFundGuy post. Tyler Cowan, from which I initially entered the debate, presents his own estimate. Peter Boettke at the Austrian Economists suggests reading Robert Higgs, which I haven’t because of Price.

My trouble with the whole debate about the recession of 1937 lies in two different factors:

1) it occurs within the range it takes for a macroeconomic policy to take full effect–approximately three years; and

2) my belief that the Production of 1935-6 still lacked an existent Consumption market.

There was much wrong with New Deal economic policy, especially the high rates of Taxation imposed, but not of sufficient magnitude to bring the Production downturn of 40%; something which would have required a lack of a Market.

The recession of 1937 was going to occur, no matter what macroeconomic policy had been adopted. Even the introduction of Easy Credit institutions would have taken at least a decade to alter Consumers’ economic perceptions. The slashing of personal funds with the Stock Market Crash of 1929, plus the consumption of remaining funds in it’s aftermath, barred a Consumption market of sufficient magnitude to incite a rapid return to Production. The real end to the Great Depression came with the buildup for WWII, when a major new market was created for the Product of American and World manufacturing. The blame cannot be laid on New Deal policies, but Supply Side advocacy remains equally as fallacious. lgl

The Great Mirage

James Galbraith has written such an excellent article that I hate to attack his basic premise, namely, that George W. Bush’s only real economic accomplishment were his Tax Cuts. I attempt to keep my Writings articulate and clear, but I must use the appellation ‘Horsecrap’ on this one. The Bush Tax Cuts were nothing more or less than Government welfare for high-end, specialized labor and Wealth at the time, and continuing today, not reducing until they fade into the Sunset.

What economic impact did the Bush Tax Cuts produce?

It first insured there would be no restraint upon Those with the means to set their own Earnings: check the Salary and Benefit increases of CEOs, Fund managers, Doctors, Dentists, Accountants, Lawyers etc. Ask Somebody good with numbers to establish an Index of Income increases for all labor over the Bush years, so you can understand the true welfare benefits of the Bush Tax Cuts. The second major impact of the Cuts comes in the form of a shift in the Consumer markets, the upper 30% of Income Earners buy in luxury markets, but look for high value in their Purchases; luxury Retailers turn to foreign Suppliers faster than other Retailers, and rapidly increase the Trade Deficit in the search for Quality differentiated Product. Ordinary and Discount Retailers operationally lose the high-end of their Consumers, and think to increase their Market share with the supply of cheaper Product; they again turning to cheap foreign Production. The third impact of the Bush Tax Cuts consist of domestic Manufacturers' loss of Consumer share, not because of Production inefficiency, but by the accumulative impact of the three directional Trends cited above. Blue Collar and Middle-Rank skilled Labor found themselves inside a shrinking Labor market for their skills, and forced to shift to lower-paying alternate employment.

It is a profound wish on my part that Someone will one day realize the adverse consequences of the Bush economic policy. His shift to Government welfare for Wealth and Specialized Labor actually brought normal economic activity to an end; raising Health Care Costs, upper Management salaries, and suppressing the normal Labor market, all while creating an adverse National Debt, vastly increasing the Trade Deficit, and artificially suppressing the Wage rates of about 80% of the American Labor force. Do I sound unhappy? I am, basically because the vast majority of Economists still think the Bush Tax Cuts were of great benefit to the American economy. lgl

Another View of Minimum Wage

A Joe Fullmer sets forth an analysis for George W. Bush’s support of the Minimum Wage; it would seem to have some holes in it, and frankly, must be discounted. It does express the Hinterland paranoia about the motivations of Our elected Officialdom. It also expresses an unheard Business paranoia as well; the later tying their Wage schedules to the Minimum Wage, raising the Minimum Wage also raises the incentive packages Business must offer their Workers. This is the possible real root of the Business dilemma, not a supposed worry about the Minimum Wage workers they would be forced to lay off. Hint: Minimum Wage labor is necessary to do the work which other Employees resent to do, or outright refuse to do.

George Will and Mark Steckbeck exhibit the later paranoia with the claim that Employers make Minimum Wage workers the best employment offers they can make. I wonder at Employers who consistently grant themselves Bonuses of about 30% of their Salary, who cannot even risk some 20% of that Bonus to pay the expected increased Minimum Wage. I realize suddenly that I have ventured into the hallowed ground of Returns for vibrant entrepreneurship.

PGL at Angry Bear takes George Will to task on the issue of treating Labor as a Commodity. There is also the statement that the BLS itself reports some 1.4 million Workers actually draw less than the Minimum Wage, because Steckbeck’s best Employer Job offers are excused from meeting Minimum Wage standard; loopholes which this Democratic Congress might think to close. No one mentions that a Minimum Wage increase could generate added economic growth by a greater expenditure of that Minimum Wage labor which are not under the Poverty line; not denying that the Poor might think to pay more of their bills. lgl

Originality

Some acerbic comments from purported Readership questioned when I was going to come up something of my own, instead of relying on the original work of others. I pose the question of how can One be original, when his pursuit is economic theory. You depend upon the reactions of Participants in the Economy to formulate what you perceive as directional trends. Your job is basically one of description and advocation, not developing new industries or Products. Still, it presents me with opportunity to prophesy on future economic trends.

I see an vast new countercyclical economic movement, not so much against Globalization, as against concentration of economic power. I believe a new Township economy will develop, still tied to the greater economy in provision of specific Products, but one where local businesses with localized labor will provide the majority of Product and Service. Agribusiness will undoubtedly suffer the greatest in this trend; but it must suffer so, given it’s unwarranted major use of energy. We already see beginning movement to localized Food provision, somewhat disguised by calling it Organic. Fleeting images already arise where local Garages are contracting with major Automakers to service their vehicles, without actually being Dealerships; but undoubtedly capable in the future of specialty order of vehicles. A new, younger group of small town Entrepreneurs find no opportunity after Training which allows them to stay in their preferred home area, and choose (and will continue to choose) to create their own opportunity; they finding quick and efficient service will find Profitability with Customers who want personal contact. Most Economists would laugh at my Township economy, but it will come to be.

Why do I hold such faith in this Concept?

The primary reason for my belief resides in the distortion between Globalization labor demands and the increasing cadres of skilled Labor throughout the Developed Countries; most of this labor simply does not fit comfortably within the Globalization labor mode. Such Labor do not desire to leave their Extended Family abode, or do they wish to submit to the impersonal, unprotected nature of cutthroat Global employment without any safety net. There is even indication that big-city style medical practice is beginning to be shunned, replaced with small clinic personal service. I am awaiting some heavy money to move into revamping the small Newspaper industry; localized Papers trying to defy the big Paper losses, with unification of local Advertising and pulling Stories off the International Wires. Restauranteurs have always depended upon a localized market, but will soon be joined by other small business which only look to the greater economy for primary Products.

Energy and Transport Costs will eventually defeat Globalization, though not the national economies. One should think of Globalization like you do Computerization. I remember one of the major initial Claims for Computerization was that it would allow for reduction of administration staffing. The major claim of Globalization states Everyone can purchase the best Products at the least Price worldwide, according to the Ricardo tenets. Enter the real life practice of Patent protection and other paraphernalia, and where is the Cheapest and the Best? Economies evolve, and most often they even return home. lgl

Medical Practice

Ritholtz at The Big Picture expresses that the Inflationary push of the last several years comes from Health Care Costs. No Business can afford to match the rate of increasing medical costs in their Wage schedule, when their Price schedules are suppressed by Import threat. Active measures must be taken to curb the expansion of health care Costs; in actuality, such Costs must be rolled back in order for the current Standard of Living to be maintained (only about 22% of Those affected by medical cost increases are impacted in the initial year of Cost increase). There are several venues to decrease medical costs; do not think medical costs are a Gordian knot.

A Medical Service law can be enacted holding several curtailing provisions. Doctor Salaries can be regulated in such a way to provide access with support. Establishment of a Medical Commission to set Medical Service Set rates across the Country. Doctors will be informed they can only draw Fees to a certain magnitude from the Public Sector, before they are considered to be Employees of the Government, and must maintain a certain set Patient load from Public medical programs; without further reimbursement. A set rate for a Clinic visit will be established for the entire Country, varying only according to the medical specialty extended by the Clinic; medical equipment payments will be extended to Clinics who provide a set level of medical services for Publicly funding Patients. Hospital Room rates will be set and uniform throughout the Country; again with medical equipment payments, this time allocated by area access to medical services.

A Medical Insurance law should also be enacted, where the One-Payer concept of Insurance will be utilized. The Medical Commission previously set up would set a Deductible for all medical insurance policies throughout the Country, and which will never be increased even by the rate of Inflation without Congressional action. Medical underwriting will include all Services approved by the Medical Commission–based upon the Fee schedule set by the Commission each year, and further Charges cannot be ordered or accepted by any medical Patients. There will be special leeway over the later, as the number of medical services should be limited, and a special sub-Commission of the overall Commission must approve all medical procedures exceeding $20k in Cost. Private Insurance will pay for the expensive procedures approved, without recourse to legal action or delay; it being a condition of their license to sell medical insurance. This sub-Commission is tasked with determination of likelihood of a certain level of success by examination of the Patient’s health and condition; and forbidden to extend Payments when the Probability of success does not meet the necessary criterion.

What does all this mean? It means that the provision of medical services will be taken out of the hands of the Patients and their families, who are afflicted by personal desires; and it will be taken out of the hands of Private Insurers whose major concern is sustained Profitability. It is even taken from the hands of Medical Practitioners, who could be influenced by personal relationships, or a personal pride which refuses to let any Patient go. It will be determined by Medical professionals who have separation of personal involvement, and must rely solely upon medical charts and statistical tables to allocate funds of high Cost. Will it make a difference? It should reduce American medical Costs to a consistent level achieved by other Developed Countries facing like medical problems. lgl