Only the Lonely

I know little about the minutiae of Trade, but I do know that the United States will never export their way out of our financial difficulties. The NYTimes reports that the Trade imbalance is shrinking, though Business Week reports the non-oil Trade deficit widened in August. The fact outstanding in the data consists of a lack of Manufacturing capacity in the United States, which is a factor that must not continue for any length of time. The lessening of the value of the Dollar is not the method to curtail American dependence on foreign products. I think the economic community may be witnessing the horrors of elimination of tariffs.

I cannot decide whether I believe in the toxicity of Nobel Prize awards, yet it simply reflects common desires to honor Those who advocate what the majority wants to do anyway. Hayek himself failed to outline the hazards and limitations of Information, all of which in one way or another is Gated. That Gating process always has a model signature, eliminating real comparison value. Pablio Triana may have the right idea, but it is only a theory after all. I would not crucify individuals, models, and fancy words solely because some unknown quantity known as economic participants did not respond in the manner proscribed. One has to forgive the Fool for his sins, and Economists work with gross totals.

I would be the last to call Tyler Cowen’s logic faulty, though I see some potential holes in it. Unless the Stimulus had created a series of new Jobs, the length of unemployment will not change in either scenario, no matter the length of actual unemployment. This is because in either case there has been no Job Creation, only Job prolongation. Unemployment insists that there is more than one Candidate for any specific Job, and the conquest on the Job by one Candidate means continuing unemployment for the losers. Stimulus without Job Creation only delays the day of reckoning. Recalculation seemingly always must include increases in efficiency, and I wonder How such efficiency can possibly result in Job Creation, without a profound increase in Productivity. The later will not occur without an increase in Demand; yet it is the loss of Demand which has called forth the Recalculation. I speak perhaps little Truth, but am great about presenting facts which are hopefully true. I do not find Recalculation a panacea for our troubles. lgl

I have no real bias against Barack Obama, but I almost feel insulted by this award. I know that the Nobel Commission felt that they had to award Obama as the first black American President as a sort of fashion statement. I know that they must have felt that they needed to get the Award in his hands, before Obama himself blew it, and became another antisocial character on the World stage. This, though, was too fast and too early, and cheapens the entire process. I know of no better way to nominate or award Candidates, but it is like the old song, "You may be here to Sing and Play, But you ain’t doing it thataway!"

Otherwise, I have found my link to my favorite source of material broken this morning. I will have to reestablish a viable context, but will wait until tomorrow, as today is my birthday; and I do not wish the level of frustration. I cannot even get a sensible Google formation to that which I desire, so I may upgrading soon; except I have done so already recently, which may in itself be the reason I have lost some of my sources. All I know is that it is too much for me today, especially on top of Obama’s Nobel prize. I applaud All who believe that I am simply getting too old for all This; maybe they make the most Sense. lgl

Honor and Contempt

I hope that my Readers can get more out of this Post from Mish than I have myself, as it is a relative good overview of the economic models; he confusing me somewhat with his length of Post in consideration of his central theme. I do agree that Inflation has arrived for the leading economic indicators much before it has reached the Money. The Recovery seems to be the last man in the race, and I think it is stopping for a Coffee Break. It brings up a Concept which has not been considered by Others: Is there a point where Stimulus is actually counterproductive? What I am implying is the question of whether there are adverse tendencies to Stimulus which overpower the effect of Stimulus; Mike Shedlock presents material suggesting that the impact of Stimulus alters in force quite regularly, dependent upon the amount of Stimulus and exact placement. All I know for sure can be summed up as that the traditional economic models are expressing wayward properties not seemingly tied to actual performance of the economy.

There is always much interest in exactly who will receive the Nobel Prize for Economics, and Greg Mankiw has presented the odds as calculated by Ladbrokes. One may ask what this has to do with the previous paragraph, but the Nobel Commission is as worried about the equity of the economic models as the rest of Us. This being the Case, they are under extreme pressure not to nominate an individual, whose effort will receive future malignment. It reflects the uncertainty of the Times, that there is no clear leader for the accolades. One can ask Why there has to be an annual award, instead of a reward whenever Someone has provided a clear advance to Economics based upon the research. I will state before I am asked that I have no favorite, and think that William Nordhaus or Paul Romer will be the major Contenders.

I ran across this Post after I had written the previous comment, and am somewhat gratified that Others may agree with me to some degree. It is known that the Commission is unlikely to make a controversial choice in this era of exploding economic concepts. I trust in the fortunes of War as well as Economics, and believe there will be more of destruction than actual gain from any choice here, and do not relish any candidate chosen. Reversion to the first paragraph will inform that the Words will always come back to haunt All of Us, and no one can determine the exact point of attack. lgl

The schizophrenia of Economics

Melinda Pitts defines the problem quite well, though still not citing the base causation of a lack of Consumer Demand for Product. Small Business will not survive if the Public corrals its discretionary Income as Savings for sudden surges in Price from Necessities. Small Businesses rarely provide Necessity Product, though it presents considerable Service industry; they having somewhat of an advantage in the later, with lower Overhead Costs and short Carry Credit. It is still not an environment where added labor would seem rapidly necessary, as Consumers put off even basic Maintenance Costs. The decline in real physical Sales means no Hiring will be done in the immediate future, and if the Christmas Season is poor, will likely mean the end of the Small Business engine for Employment. The decaying dollar will not even begin to bring the Export Sales necessary to counteract the decline in domestic Sales, a great share of which have already been processed.

This Movement has all the creepiness of those economic adventures originally designed in the 1970s. It is a Tax Credit which will not even be considered in an atmosphere of shortening Store hours, and switching full-time Help to Part-Time; all due to lack of presence of Customers. The first comment made must be that there will be absolutely no effect until it is passed. This means it will do nothing for the current Quarter. The new year presents almost no Production or Construction contracts for new Work, probably only about 40% of normal years. The Tax Credit will not take effect until the next Boom starts in real truth; then it will be impossible to get rid off–exactly like nonentity Interest rates. We are getting close to paying Business to not produce, as they have to pay less and less, the more and more that they do less.

There is a serious element of economic thought which wonders whether there is any rational expectations connected to markets. Every burst bubble ending most Booms are always established by irrational expectations. Every Investment advisor suggests that Investors adopt a long-term program of Investment, and the average time it takes for Stocks to return to previous Price after a Recession is something over 3 years; yet, there are always cries of great calamity with every Recession. Economists tear their hair out, trying to find some model to restart the economy, though Recovery almost invariably takes the Ageing of Intermediate necessary Product–somewhere around 3 years. The trouble with the economy may be that We invest with a Trader’s mentality, when worthwhile Investments generally reach real fruition only after about 5 years. I may possibly be in the irrational expectations camp. lgl

How to explain Stimulus

One needs to read all the links to this link, before an understanding of the argument can be made; so be sure to follow all sourcing. Arnold Kling’s Recalculation theory is relatively simple to follow, as is the Schumpeter Quote provided by Krugman. Tyler Cowen gives some history as to previous development behind Arnold’s theory. It is here from which I will depart, outraging everyone with a modification of Arnold’s theory to be called the Recalculation Drain theory. I simply have to find some Point to start from in this quest for perfect theory, which may have literally nothing to do with Reality; nothing really works in economic theory except that which has been proven to work.

I guess the place to start would be that Statement that every Boom has some number of sectors that are particularly more successful than the greatest majority of sectors. This is the source of bubbles, with the outrageous growth of Price in the Products produced. Everyone talks about the bubbles which burst, but no one talks about what doesn’t burst. This consists of the Labor and Capital which has been devoted to production in the previously rising sector; the burst bubble insists on the plug being pulled on this concentration of economic assets. This is not your basic Recalculation, but a very real drain of assets from a sector. The Recalculation preforms whether the previous described drain has started as yet. The process uses new Labor and Capital if the described drain has not been accomplished. Here is the difficulty, and where Government Stimulus can be very harmful to the Employment and Production picture. The greater delay which is introduced into the draining process, the greater will be the underemployment of previous gainful economic assets, who have been sidelined by Recalculation effects ignoring these elements.

Government Stimulus can be harmful if the Recalculation to other sectors has utilized substandard Labor and/or Capital reserves, because the drain has been resisted by the Stimulus. The recalculated sectors not only do not utilize drained economic assets, but may be subjected to the employment of substandard performers in the production process. It is especially bad under consideration that the previous employment in the bubble sector had employed the most superior of economic elements–now left in limbo because of Stimulus efforts. The drain of the bubble sector must be accomplished before or keep pace with the Recalculation effort, or the economy will suffer from substandard employment, poor production performance, and a repayment schedule for the Stimulus effort which is very unreliable. I hope I have adequately confused everyone; I will not call Stimulus bad, simply piss-poor! lgl

Truth in Borrowing as well as Lending

I found this Post by way of Jeff Cornwall, both should be read carefully as they state fundamental business belief in the country today; I particularly like the commentary in the first Post. My trouble lies in my disbelief in the assessments reached. I have rarely found Producer types impeded by any level of business or tax bias. The fact of the matter that these types organize simply to make their own pile, and little can be done to stop their operation. Government policy mostly has nothing to do with their success or failure, they far more dependent on provision of desired service or product to the Consumers at an effective Price. I will join the Producer types in complaints about regulation levels, but would condemn them to live a couple years in the 1940s or 1950s when they complain about taxation; those proved to be very productive decades. I also find it hard to listen to Producer complaints about health care Cost, when they have major elements in their personal Portfolios invested in the health care industry, all because of the high Profits in the area.

The first blog criticizes the American tax system on business, which may appear ludicrous if examined carefully. The American Corporate tax system is so full of holes that real taxation practically disappears, and there has been previous Stimulus awards which have turned that taxation into a reverse Income tax system for businessmen; a factor no economist has ever shed Light upon. The real tax impact on business and Corporation may be among the lowest in the World, especially as Property taxes from State and Community has been shifted greatly to the Homeowner through efforts to promote business in the Community. It is genteel to define normal taxation as prosecution of industry, though you can even convince people that Day is equal to Night if you have enough shine; ask any Eskimo about that.

We need a real increase in the real Tax impact upon Business, which will not materially affect the Business desires, or the resultant Job Hiring practices of those desires. They want their own business, and they need the labor to achieve that business. Their being taxed is not the Problem, as We live in one of the most business-friendly countries in the World. What We need is funded Consumer Demand, which no one is proposing to create. Here is where the Problem resides, and none except myself accepts the notion that this Demand must also be fueled occasionally. It is the Consumer who needs a Tax break, not some mythical business which will not occur until it has an operating list of Consumers. lgl

Where did it go? The good Lord only knows!

Tyler Cowen possesses a intuitive grasp of economic concepts which may sometimes elude the rest of Us. He has a series of Posts which take some translation for those of Us who must endure with less education and brilliance. Here is a Post on general substitutability of Product, where people has alternate levels of desire for Product. Prices are set by this competition of desires for Product, which in aggregate should make the process simple. It is far from that! People have different patterns of desires, have different levels of Product fulfillment, and their own desires for Product differ from factors of their own Income, level of previous gratification, their channeled buying patterns of purchase and repurchase, and their own level of debt. Traditional economic theory has always suggested that aggregate purchase patterns cancel out these effects, as there is always alternate Product desire. We are finding this not to be the case, and find little example where it has ever proven true.

The above discussion becomes pertinent when discussing the methodology of handling the current financial and economic crises. The first has incited the second, though Tyler thinks it is a continuing shock propelling the economic crisis, while I have some doubts that it is still the problem. The initial financial shock was the inability to get continuing funds from failing financial institutions, not exactly the levels of debt; something which had an impact on the later economic crisis and on the financial crisis, but in varying level and scope. The real drive behind the economic crisis remains the altered desire of Consumers for Product, faced as they are with both huge debt and lack of viable Credit. The fact which is reality, though most economists would deny it, consists of the reduction of desire for all and any Product not necessarily committed to the maintenance of their current lifestyle. Here is the real drive behind the economic crisis today, and the one which economists find most hard to amend.

Scott Sumner’s easy money will not be the Solution, what with Tyler’s statement that there was a profound loss of money velocity. Neither deal with the real lack of desire for Product, which is the underlying force behind the economic crisis. This is why I called for a serious reduction of the levels of personal Income tax yesterday; an attempt to get unfettered funds into the hands of the Consumer. The reason I use the term ‘unfettered’ is simply to say that there is already too much Consumption debt, and too much financial paper out there; the basic reason for the alteration of Consumer preference which We face. I called for the increase in business taxes to start to eliminate all those Middleman Paper Profits which have inflicted huge Product Costs, and all of the snarl of the financial crisis. Readers can find huge numbers of Business and Economic critics of this position, but it may well prove the only real Solution to both crises. lgl

Why my rich Peers hate me!

I typed a whole lot of numbers to link this piece, so the Readers can understand that the basic function of Stimulus proves a failure. Milton Friedman and Franco Modigliani were wrong about their ‘life cycle’ consumption, but only by length; there is a definite decade cycle which can be discerned–all based up expected Earnings from point of Income increase. Robert Barro gives additional material as to the lack of Gain from Stimulus. One has to understand that the current economic policies are costing an extreme amount of public funds, and retrieving little in terms of economic gain.

A degree of honesty must prevail at this time. All Economists and Business pin their hopes upon Investment, and I cannot understand Why. There is a remarked loss of Consumer Demand–both total Consumption and in sector consumption, especially that which is dependent on Name branding. Truth would say that is already too many vested businesses, with too much Production capacity, with too few Sales. The vested businesses are building up too much debt, and additional Start-ups would only increase the competition for Consumer dollars. Investment will only worsen these effects. We have whipped that horse to death!

I propose an alternate approach, where We re-introduce the concept of real business taxation. You hear uproar from Word one on this proposal, yet it was the traditional form of taxation back before there was even an personal Income tax. It has certain benefits which should be re-examined. The Consumer will not be censured for Consumption in money terms for his Expenditures, while business has to pay nothing without accumulating Profits. State and Local Sales taxation presents sufficient criticism of Consumer Spending, and We need Consumers to feel affluent. I will suggest that personal Income taxes be reduced by 10%, Capital Gains taxation returned to 22% for Now, and business taxes permanently increased by 10% across the board. It is bound to anger all sorts of officialdom–Private Sector, Government, and Academia. Still, it may be the way to restart the economy. lgl

The reality of modern life

I sit here this morning utterly frustrated by the factor that my cable server moves like some of my friends in a local Rest home. It takes forever to access anything, and it reminds me of the horror of relying on small pieces of metal flying around in a Space populated by debris and Solar flares. I imagine that the difficulty is much more local and closer to home, but cannot tell as there is failue in attaining my news sources. I do know there is a lack of backup systems in Technology throughout the World, and that someday We will pay for that lack. Difficult will become Disaster Someday, bloody Someday. My only Hope consists of the desire that it really not be bloody.

I cast around for material to write about where there is no news source, and think I should turn to something about economic theory. My thought processes turn to consideration of the mandatory conditions necessary to establish a Market. The traditional theory holds that you need only Buyers and Sellers, along with some common medium of exchange. The altered perception states there must be sufficient Sellers, and/or Buyers, that not one Buyer or Seller can alter the flow pattern of competition for each Good. The altered, altered perception states that every Buyer and Seller must effect the Market, in order for there to be a market; this means that anytime the desires of Buyers or Sellers are nullified, then there is no market, only a Price schedule set by forces outside a normal market structure. Then there is the philosophically dire belief that such constraints are actually normal market behavior (I pray for their poor Souls).

An unknown philosopher once stated his doubt as to the morality of morals; he unknown because of everyone’s inability to comprehend such drivel. It might have some bearing in the case of markets, because every market position stands reflective of the economic power of the Participant. Inflicting model behavior on the market consists of a monopoly position in itself, denying the economic sway of some of the Participants. Readers can understand the difficulty of establishing the moral high ground for markets; and all this is before consideration the successful operation of the market. This later success remains mandatory to accurately establish the Reward system which the market is supposed to establish in a proper allocation. Well, I have composed a Note for my Readers, while answering no Questions and offering no Solutions; a relative Good Day, all things considered. lgl

Real Belief

Study this Release and ask if We could possibly be an the correct path? No one considers the real implications of the material as they read. Debt equivalent to 300% of GDP would lead to the Dollar being as valuable as the Japanese Yen is today. The Process will lower real American Wages until We are even with Indian labor, below European and China labor, but equal to basic South American and African Wages. The sorrow of the situation resides in the absolute idiocy of the impulse behind the trend. Simple reversion to the Tax scales of pre-Bush Tax Cuts would probably reverse the Trend over the century. American output is massive, and normalized Tax rates should handle most of the problem, with restraint of Congress and Legislative Spending canceling the rest of the Effect. This is accomplishable Now, and will probably be available for another decade, though there is a Point where normal correctives will fail; solely due to the actual magnitude of the Debt itself.

Educated people like to blame the debacle upon Medicare and Medicaid, and their creation of huge Costs which cannot be paid. I will not enter into a tirade about the artificiality of those listed Costs, except to mention that the interaction of Medicine and Corporate style of business has led to vast inflation within the health sector. Drug and medical equipment royalties are extremely outsized in relationship to the provable benefit. The Production Cost of the average Drug is less than $.50 per pill, and less than $2 per vial. Rarely does the Production Cost of any Injection exceed $4. The average qualified medical technician can give around 80 Injections per day under pressure, and normally average about 3 Injections per Day. Education must be considered prime, but there is existent threat of monopoly pricing in Medicine. It is a real element of the total problem, but not the generative cause.

The real problem causes come from the Business world. Business personnel hate to pay Taxes or Interest on their Credit. They support policies which reduce their Taxes, and incite Inflation to levels where they do not have to pay real Interest on their debt. This is very advantageous to themselves, as they can retain all Profits from their industry in-house. The trouble with this venue lies in their switching these Costs onto the greater economy by the Inflation, which impacts their Income far less than Labor; it is all a question of the greater ease in raising their own Prices in comparison to Labor’s ability to demand Wage increases. The actuality exists that the Business world insulates themselves from Cost payment, by the destruction of the stability of Everyone else–Stable Incomes, the Elderly who lose the value of their previous labor, and Workers who cannot realistically organize to gain Wage advantage.

The stressed inequality of such Taxation cannot be long maintained, without long-term injury to the economy. The most obvious Sign of this damage is the huge debt ratios–by both Government and the Private Sector. The second, hidden Sign must be the loss of Consumer Demand for Product; something which can be marked not by compilation of total Dollar Sales, but by quantities of actual Product sold. Am I simply a Scare-Monger who does not understand the modern economic forces in play? I doubt it! I am an old man who is likely to be dead in a decade by statistical measure. The kids should be told, even if they will not believe. lgl

Wrong Approaches

I ran across this Post this morning, and believe that all positions tend to poorly constructed discussing an obtuse point in data base construction. I would start my own evaluation by consideration of the technological support level per Child necessary to morally bring a human life in existence in any area. The basic thesis of technological growth based upon population becomes corrupted when local areas must be considered overpopulated; the place where human life can only be maintained by injection of foreign aid from outside the sized community. Population increase in these substandard subsistence areas lead to loss of educational opportunities, loss of natural intelligence due to nutritional deficiencies, and incapacities in foreign aid provision. It is of course probable that some of the population will survive with enhanced economic skills, but at what Cost? A lack of family planning can induce new waves of piracy and huge numbers of guerillas no better than bandits; none of which provides any growth potential for humanity, with a very real loss of humanity. It is all about What exactly that We teach to children in real terms, not academic discussion.

I like this argument from Paul Krugman; now, if only I believed it. I don’t believe in the Crowding Out effect; but likewise I don’t trust the Crowding In effect. Paul relies on economic models to come to the conclusion that the fed fund rate should be -5%. It reminds me of the old line from farmers that the new Milking machine could handle 20 Cows at a time, if only he had more than 8 Cows. Fiscal policy does not inject Income into individual households at the same rate as it is spent; and though Public Spending does aid Capital construction, it only leads to a higher level of competition for the missing Consumption dollar after the Public funds are finished. The worst aspect to the entirety of Public expenditures may be the misapplication of Investment funds by both Government and the Private Sector. It is what brought down the Soviet Union, and could well bring down the American economy.

Here is another example of trying to provide a Curative to a problem by the wrong methodology. Credit Cards should not be issued except upon provision of a Surety of some kind; which could replace any failure of payment conditions. Interest rates should be relatively uniform, else there is too great a venue for usury in all its classic splendor; I would love to see it be maxed at twice the current fed fund rate (has Business and Paul Krugman suffered heart problems yet), which would be an automatic stimulus without need of financial or fiscal policy. The Question of Age is ridiculous, as even Ten-Year Olds need Plastic. The problem lies in the fact that they need Debit Cards, not Credit Cards, and the transition between the Two should be forbidden; the best venue would be different size and style Cards of only singular purpose. A possible Solution may be Government mandate that all Credit Cards must print the Interest rate on the Cards themselves, and Card companies must cancel future Transactions if they do not like the listed rate of Interest. Who am I to introduce Reason into a drunken brawl where no one cares about tomorrow, only on getting what they want today. lgl

The Bad, the Worse, and the flat Ugly

One has to read this thing, though Arnold Kling should be required to submit a complete bibliography to this Post. I will inform my poor Readers that they should not worry if they cannot follow the entire line of argument; no one could without the proper number of Graduate courses in economics. I agree with Arnold on his emphasis on (b) with little resort to (a), thinking it was Bernanke and Paulson shouting in the crowded theater who were responsible for (a). These Two, responding to the anxiety of their old friends, began to have Nightmares and spread those bad dreams. It was the theater ushers who started the Panic. The credit crunch was more the imagery of Bankers who feared a loss of the whale profits of their youth, than it was a lockup of the basic Credit foundation. I would stipulate for the rest of Arnold’s work that Money is the exact medium where temporary value is translated into permanent value, where it can be compared with other values which have been transposed. As such, Money should be minimized as to alternate value in and of itself, as it clouds the evaluation context. There forms inconsistency every time One starts to consider Money as a Product, rather than as a Price Tag. Keep it simple, and you will not need to know and understand all the terrors of the Night like Arnold.

Here I am back to analyzing Arnold again, and I hope he takes no offense to my scribbles, as I am only trying to understand this whole process myself. Derivatives are Sidebar bets on whether the Shooter can make his Point; it helps if One has played Craps previously. They need to have minimal contact with the original Participants, and are only a means to hedge against bad prior judgement by the Participants. The trouble comes that they avoid this risk by transferring it to Others, who often do not understand the degree of difficulty involved in achieving their Point and repayment. A lot of people want to criticize the lack of information, a lot of people want to condemn the rating agencies, a lot of people would seek death for the Investment banks; all because the Money was whisked from the table, and Few knew where it went. I really don’t care, because I risk at the Craps table, where life is simple and you can watch the Croupier pocket your Money; knowing full well that God wills it.

I will diverge from the previous program to this short missive, though the only real input is in the postscript by rdan. I do this in order to avoid another long monologue about the injustice of the health care system from my primary care physician. Health Care provision is like derivatives in that people like to bet on whether they will need health insurance to the full magnitude potential. The health care industry love that they can make high Profits from Patient residual fears, and maintain above-normal Price structures. Patients do not realize they underwrite excessive Profits formation from health care by their insistence on health care insurance of total fulfillment, and Businessmen perceive the ability to institutionalize monopoly profits. I only know that I have went on way too long today, and placed myself behind schedule. lgl

Some Do not like what I say!

Mike Shedlock hopes for Change in a bureaucratic structure dependent upon several other bureaucracies of longstanding intransigence. No one expects or believes in Change, though All mouth it. Remember that Great Britain lead the fight against Slavery, yet almost went to war with the Union, because of the Embargo of the South. The United States is not going to take any Steps to limit the national debt, or free up Agricultural Products because of the power of the Midwestern Senators. China and India will not follow in revamping internal obstacles to Trade, or allow the increase of Imports to their domestic markets. The EU is still maintaining old world Trade barriers, with absolutely no pressure on its members to alter their positions when domestic opposition appears. Great Britain points to the United States every time there are financial requests from suffering Third World nations. France is so constituted that the French leadership has only to make a few Calls to get whatever demonstration desired from Students, Labor, Farmers, Business, or Banking. The German government agrees to anything and everything, then doesn’t even bother to report it domestically. Japan remains the only nation willing to engage in a serious cooperation with the United States, but also wants to flood American markets with Japanese products, often produced below Cost. The G-20 is only a Vacation event for government leadership!

Jeff Cornwall still believes that the entrepreneurial spirit can be unleashed. One important statistic works against him and his argument. The Consumers are buying less Product at greater Price. We are overstaffed with Small Business under this numeric, and new Capital will only reduce the Product Sale Spread among the businesses. There is no indication that Consumers will have any increase in Disposable Income anytime soon, and Export Sales cannot be expected to increase by any wide margin especially for Small Business. The World is growing larger, and splitting in Parts, at least for your average businessman; the weakening of the dollar is no panacea, due to the disparate spread between Imports and Exports. We are all waiting for something to happen, but the drawing boards are empty!

I wanted to finish today with a response to a Question about my statement made yesterday that fiscal policy which injected Spending without debt acquisition was the only real Stimulus. The whole Point is that Stimulus must alter the relationship of Spending and Capital Investment, with Consumption increasing 2-3% against Capital Investment. The later can diminish, stay stable, or increase. Government debt creates Capital Investment; Government simply spends the Money, but promises to repay the funds in the future. That promise of repayment is what creates the Investment increase, so that the funds must be spent twice, with the provision of Interest throughout the loan period. Fiscal policy will stimulate if and only if Consumption increases in ratio against Capital Investment, so that Tax revenues must increase for Stimulus to take place effectively. Most Economists and all Bankers do not want to believe this face. lgl

Understanding your local Economist--Lesson 1

I generally would not require my Readers to exam such a long Post, which I presuppose takes too many bites of too many subjects all at once. The fact stands that it is somewhat logically constructed, and capable of analysis. I attempted, since I started to read myself, to find some method to critique the material. I finally decided to state the end result, then go back and list the material from the Start. The End states basically that everyone wonders whether any type of macroeconomic monetary or fiscal policy will have effect, as the structure of a an extended economy possesses curtailing environs to cancel any structural impact, before that force can inflict stress elsewhere throughout the structure. Foresight of such impacts will minimize such resultant stresses even more rapidly, and can be implemented prior to the policy initiative to the greater adverse reaction to the force. What this means can be outlined that the economy considers Government action to be predictable and intrinsic to economic activity, so that the economy has integrated government performance into itself with the production of constraint boundaries.

Both Freshwater and Saltwater schools of economics have found themselves embarrassed by Recessions, and both found themselves stymied after the input of their proclaimed curatives which exhibited little real observable performance within the economy after application. The Real Business School suffers especially because of their insistence that economies cannot suffer Recession without government policy. Recessions will always occur naturally because the length of the Boom period generates too many Participants into Production, who overproduce for the Market size simply to maintain their own personal Profit ratios. Recession is the only natural mechanism to cancel the over-appropriation of Capital resources to production areas. Most economists have real difficulty in acceptance that Recessions are natural corrections, and should be left alone to perform their function. I know that I will hear about this discussion.

Economists nevertheless should occupy their time not with forestalling Recessions, but the study of How to restart economies after Recessions; economies sometimes amazingly slow at restarting prime production conditions. Some economists will immediately state that I am claiming the superiority of fiscal policy over monetary policy–that is untrue. First, fiscal policy is only beneficial if it is funded; this means that money is taken out of the hands of people who will not spend, and spent—this means Taxation. One need recognize that Recessions are basically a function of overInvestment; further Investment will not be a Solution which will work, even if it is in government securities. The Spending by market participants is the cure to Recession, whether government inspired or Private. This Spending must rise higher in relationship to Capital creation to be effective, so government increase of securities issuance is actually counterproductive. Only when there is greater Consumption in contrast to Capital creation do We find market participants willing and able to fund a Boom. This is the Happy Place for Economists. lgl

Moral Hazard and Slack

It seems incredibly moronic to discuss Moral Hazard in discussion of the rules of Banking, be it government-sponsored or Private. Anytime Anyone extends loans of Others’ ownership, then the pursuit will always be to the benefit of management, not ownership. As the rights of ownership are always condemned within this Scenario, the theft of those rights have already been accomplished. The funds owned will rarely ever leave the Banking system again, so Bankers feel totally justified in completely ignoring the complaints of Depositors. This stands as the real rationale for regulation of the Banking system by government, and fails miserably when it is accompanied when the government itself extends funds or guarantee of funding; the Bankers simply concluding that the government has become another Depositor. They have been too long effectively stealing from such Depositors to ever feel fright of them. It all means that there will be no real alteration of interior lending practice, or the award or infliction of Interest rates upon all concerned.

A fairly good presentation of Slack and it’s implications shows an positively wrong attitude towards Inflation. Inflation has never been restricted by suppression, and the enforced suppressed Interest rates with maintained business profits only has established enterprise funds to pay the higher Production Costs when they appear; which will be at such time that the Fed allows the Interest rates to rise. The only thing accomplished has been to establish flush Investment funds while curtailing all forms of Consumption Demand Income. The Fed has yet to comprehend that using the concept of banks being too big to fail has made the Fed, the Treasury, and the FDIC too small to survive. No one can save Thieves from their own destruction, especially if those Thieves insist on continuing previous depravation.

Fed and Treasury have only a few machinations which they can utilize to cancel already deviant financial policy. The first thing is to insist on FCIC replenishment of Fund by further taxation of banks, and not turn it into a further Profit-making endeavor for banks. The second thing is to set a tight schedule for repayment of all TARP funds with their return to the Treasury. The third thing would be to establish a Bank Bonding system where Banks could not exceed normal established Reserves of 8% without providing further Bond payment (non-refundable) of 1% of the magnitude of the extended loans paid to the Treasury to assure there will never be future need for any form of TARP procedure. The fourth element passage of a law stating all banking officials who have issued loans which fail in excess of 20% of their total loan extensions in Dollar terms must spend a mandatory 3 years in prison if proven guilty. The fifth and last component will be passage of law with banishment from employment or practice of financial affairs for life, if any false reporting is made to Employer or Government regulatory agency. The Bankers may come to understand the irritation of both Government bureaucrat and American citizen over their behavior. lgl

Are We There Yet?

Arnold Kling attempts to define the differences between Fresh, Salty, and the Real Business Cycle. I calculate that Recalculation is not as polished a process as Repeat programs on a computer. Remember that wrapping function of Sines and Cosines which they tried to implant in my head as a child? That there was no real difference between one wrap and the next fifty? Still don’t believe it, but that is another story; my Mother always loved her father more than me as well, I got over it. We now come to Arnold, with his elves, helicopters, and a Real Business Cycle which also thinks that a wrapping function makes sense; somehow I think these people didn’t have enough Toys as children. What I dislike about the new wrapping functions is the destructive Salt thrown in the gears of the Stable Income population, who are denuded of Buying capacity just when they most need it; don’t even ask me what it does for Those trying to package domestic debt, and sell it in on foreign markets. Stimulus has begun to engender a bitter taste in my mouth, as I conceive it does not do more than recharge the Vibrators for some people; a Product which I do not use. I would like to specify, though, the Post has a very good Point developed, and should be read carefully.

My Readers must read this thing because this guy is really smart; at least, in terms of traditional economics. There is a renegade class of economist who insist that assets cannot be attributed to be assets until they have developed a Resale price. This somewhat contracts the argument utilized, just as the Profits of a Garage sale never lives up to expectations. The Assets Ideal is further tarnished by the fact that increased sale of used equipment will vastly reduce the Sale value of this Product. We should understand that debt acquisition has some relationship to Resale value, and that value lessens upon Resale (Everyone will protest this one, but think of Credit Default Swaps and foreign sale of domestic debt as Resale items). My only real Comment must be that Debt and Assets are far closer to one to one (1:1), than they are in the spread described.

Remember back to the days when I said that the EU would be about as effective as the Articles of Confederation in the United States, where a weak central administration was left shouting at powerful States, who would ignore any unpleasant suggestions coming from the center. I hope you don’t, else you might be old enough to comment that I am full of it. The current Crisis, though, will be a crucible which will temper the EU into a powerful unit, or it will limp along like the League of Nations throughout its history. Fractures are beginning to appear also among the membership of the WTO, and there will probably not be a repeat of Koyoto. Are We at the ‘Peace on Earth, Good Will towards Men" yet? lgl

Taxes, Anyone?

Laurence Copeland has a valid point in the assertion that Banks are too big, and I feel justified in support of his findings. I simply do not agree with his policy. Any division of Banks cannot be based upon any regulatory system; never efficient, and always employed post-disaster. Laurence complains about only banks, but I take issue with the entirety of the Internationals. Whether We are in a discussion of Policy, Taxation, or Pollution, all Internationals evade whatever Restrictions which cost Money through travel; which all such regulation does cost. I would advocate the proper usage of Taxation, this means graduated Business taxes based upon Income; the concept of Kind–sole proprietorship, Partnership, or Corporation–being totally unnecessary or desirable. The Grade levels should be sharp, with real impact against excessively large Incomes.

The Readers will automatically assume desire for what percentage rates I deem effective under such a system of Taxation. I would first state that only normal Expense Accounting should be utilized in the establishment of Net Income, without favoritism Tax breaks for specific activities or responsibilities. One has to employ universal application in order to achieve a universal tax system. This said, and without further ado about nothing, I will suggest acceptable tax rates for a graduated Business tax system:

Zero–$10 million 12%
$10 million–$100 million 22%
$100 million–$1 billion 32%
$1 billion–$10 billion 42%
$10 billion–Up 52%

Employee, Management, and Stockholder of Enterprise will quickly come to understand the suppression of Size, especially when the Tax law stipulates that Net Income for taxation must be ascertained and Tax paid, before Bonuses or Dividends can be awarded. A singular, universal Tax Credit for Investment which will not exceed more than $1 million will be granted to Businesses making less than $100 million per year. Competition between nations on Tax rates will be minimized by Treaty arrangement, and by refusal of Product sales to Businesses which do not pay such tax on such Sales within this Country. Many in the economic profession will laugh at my program, but I can assure it is a serious proposition which must someday be introduced; all simply to forestall such Crises as We have seen since 1950. lgl

What is wrong with what We do

I would advise to read the Review, but not the book; this stuff has the ability to confuse, at least me. Keynes was a distracting Voice in the Wilderness after WWI, and Some would claim that has not changed much with the years. I think his critique of the Versailles Treaty was his best work, and slipped a little thereafter. Greg Mankiw might place me in the detractor column for that comment, but he really should not do that. I think John Maynard Keynes did the best he could which the situation he faced, and current economists fail of that consideration in our own Time. Keynes had the guts to build an economic model based on the conditions of his Time, and despite its potential failings, was a guide to policymaking within his own era. Where is the economic genius of our own Time, who would present new theory without claim of precedent? Are We not somewhat cowardly in our insistence on maintaining traditional flow?

Alex Rosenberg gives Insight to his views on functional shape of Chicago Fresh Water v. Sea Water. I always enjoy when economists begin to assume the baggage of Poetry. Rosenberg does not invest in catch words, only in an intellectual argument which has substance, but is betrayed by too much logic. I know, and Most know, that Investors are not ordinary participants within an economy; and individuals who tend to be optimistic. There is potential Gain from Investment, potential Loss from divestment, and lack of desire in realization of Loss. All Conditions incite Investors to be irrational in the actual practice of their investment, yet Chicago still expects a rationality in what is basically Gambling–even if of higher security. The reluctance to actually accept losses will always introduce irrationality, and so much of the Chicago thesis is transposed.

One can do little with the human reactions within the economic spectrum. One can only wish that the prevalent ‘Herd Instinct’ will be moderate under most conditions. Such moderation limits the magnitude of both Booms and Busts, without perjuring recovery methods. It is the Panic attacks which are the real fear of the markets, because of the extreme level of damage incurred. It is only under such conditions that great fortunes are destroyed; fortunes utterly necessary to regenerate moderate recovery. The financial crisis was triggered by immoderate response to the bad leverage position of Investment Banks; government response was equally as immoderate, and now, We have the problem of separating Government and Banking. Do not ask me for Solutions; I might think of Some, and then We would really be in trouble! lgl

Fresh Air

I cannot conceive where any value can be found from this Post, except perhaps to establish a Rogues List. First, I will warn my kids that it discusses truly great Thinkers coming out of Chicago, where resides the great distrust of Keynesian theory. The place reeks of Nobel prizes! The major element which the Reader should use when reading consists of two facts; the Chicago school was the major counter-argument to Keynesian theory, and both arguments failed of experimental test, at least in the opinion of Most. Keynes and Friedman each acknowledged their theory’s Shortcomings in their own lifetime, which most following economists failed to study. It showed the dangers of leading any revolution; most people do not understand that Keynes was at heart a basic Conservative, while Friedman was at heart a Populist liberal. All economists cited in the article have spread a sincere advance of economics, yet are crippled by previous articulations. I often feel empowered by the fact that no one pays attention to myself.

This article may bring the Reader down to earth after the previous Trip through the Ozone. The real element which the Reader should focus on consists of the fact that after about eighteen months of Risk-Threat and Talk, the Country’s banking system still has no more Reserves or Program to reduce such Risks. Everyone talks, and no one acts! The trouble comes from the ideation that not-acting may be the proper course to adopt. Chicago school will say that things will work themselves out, if left alone. Keynesians would attest that Regulation is the Salvation. I doubt either, thinking there must be original thought brought to the issues involved.

My View of the Crisis would acclaim that the problems with the economy are systemic. The only way to better the operation of the economy is to alter the basic failures in the system. The first mandatory need would be to introduce a successful Tax system. An consistently applied Tax system would tax all Income levels at different but constant rates, with no opportunity or method to lessen the Tax impact. Many would disagree with me, but this would eliminate most of the desire to accept most unusual Risk levels. Higher Income levels will bring higher Tax payments without escape. Sudden Windfall gains become much less attractive, while the Cost of failed Risk amplify, as Taxes require a lengthier Period to recoup losses. This is the most important element I can find to improve the current economy, and will be the one element which will lead to long-term return to a growing economy. lgl

Sticky Prices

This Post by Nick Rowe led to this Post by Paul Krugman. My Travels with Charley brought me to this Post by Mark Thoma. This is all information which the ageing Student should know, even if there be no way that he can use it. It all seems that Samuelson and Thoma are raging Centerists, and a Flight to Safety would demand a lot of Cash; a substance which must actually be printed, even if only on Computer. I will tell my Readers that I give no credence to Right, Left, or dead Center. I will try to present a more rational, off-the-scope evaluation, but where can one start?

Economists love to talk about Money flows and Sticky Prices. The later is more a question of human behavior than it is a vast hidden schematic. No one likes to lessen their Income, because this always lead to a sharp revision of Budget schedules. This is true for Labor, Employer, Investor, Banker, Corporation, or Union. Increases in Income are easy to endure, but decreases cause duress even when they are mild. No one wants to go there! It is the reason Why all economic models utilize some form which allows for advancing Income, not declining Income. The trouble with almost all economic models, therefore, is that they don’t account a very real Scenario of declining Income for all Participants. All Recessions will entail some decline in previous Highs of Income for all Participants, and economic models attempt to sidestep such injury. This element produces economic model failure in the face of the reality of declining Income which Recessions make reality.

Everyone wants a better World, one where economic models will work perfectly–it will not happen. No matter how complicated or beautiful any economic model is designed, it will fall short of desires. This is because any replacement of Income designed will fail to reach some Participants in the economy–even if it is only the Poor. This lack of universal provision of greater Income will eventually defeat all economic incentives to restore the economy, generating only Inflation and skewed Price schedules inhibiting Sales. The proper Recession correction may be consistent universal Tax schedules of continuous application (no Tax breaks), and continual operation of minimal Income schedules from Welfare measures. Of course, I could be as far off as Everyone else. lgl

Fortunes Won and Lost

I made the decision that my Readers needed to read this Post, even though I have several reservations about it and Say’s Law. I would first google Say’s Law to get a good grasp of the principle, then accept my contention that Public Spending negates Say’s Law immediately. Government Choice remains somewhat independent of production facilities, can suppress demand for Goods, and has the ability to manipulate the Money Supply. All three activities have tendency to engender greater Production than there exists Demand for those Goods at higher Price than Private Sector Consumers can sustain. The entire discussion of Say’s Law usually leads me to the point of vomit, as graduate Students are led to believe there is a mystical significance to its enumeration. It is one of the great ‘Say Nothing’ elements of economics.

I first thought not to mention this Post from Arnold Kling, but I then perceived that Everyone must confront their own impasse. People are either Rational or Irrational, though either can be invoked or ignored. Rationality is not a default, but equally it might not even be a consideration. It reminds me of the Irrationality expressed in the first movie ‘Fun with Dick and Jane’. I expressed my own Irrationality of not viewing the second movie of the same name, expecting it to be inferior to the original, without any collaboration evidence to support that view. The real thing which should be considered consists of whether Anyone consults theory within their own self-operation, or relies simply on a exploitation of opportunities available at the moment; I specifically refer to a Bernie Madoff, who violated some of the law and regulations he himself helped design. There is little doubt that people understand they are entering ‘Grey Areas’ of great Risk for relatively little Reward, yet they still charge ahead. Is it over-evaluation of Self, or a simple masochistic rejection of success?

There is little confusion about the causation of this effect. The desire to understand why the economy operates finds a foil in the expectation that Government and Private Sector will pay less in the future for confusion in economic expression. Those engaged in altruistic investigation flock to the upper reaches of economics, while Those wanting an individual Pay Raise seek the higher reaches of economics much less fervently. Economics, like most scholastic subjects, must assume the mantle of Prophet to elicit higher Pay. The inconsistencies in the field cost the profession real Dollars, and college students have traditionally wielded advance radar and interpretive skill at avoiding losing professions. We will see whether the fortunes of economics fare better than the fortunes of the Market. lgl

Study of Obese Economics

I will leave this Post from Tim Haab for Those who are masochistically inclined, though I will confidently state that I know relatively nothing about such things through deliberate design. I will comment that Marginal Benefits cannot equal Marginal Costs at any given Point, due to a combination of the value of Money itself (the Inflation thing) and lack of perfect Information on the part of the Producer. Review of the other Equations induces the speculation that one of the defects of economic knowledge may be the placement of Value within economic equations. I could also give honorable mention to a Statement claiming a real lack of desire for equilibrium in the presence of an externality–One has to ask what is the exact composite of a Operational Cost. I had one Instructor claim that economics was a science trying to bring Order from Chaos; I know it is Chaos trying to define itself.

I will present this list for Those who seem destined to learn about the fortunes of bubbles. The Student should define the precise relationship of bubbles to Booms; essentially it is the former simply grown crazy. There must be the foundation underpinning for a growth expansion for a Boom, and bubbles consist simply of pushing that foundation to extremes. Too Much of a Good Thing is especially appropriate in economics, the later basically concerned with maintaining a proper March cadence through a growth cycle. The trouble comes in the fact no one knows what the proper rate of March is, which varies with the assumed growth and established capital of the economy. Now you understand Why economists argue so much!

An old adage among professional Readers in economics says when the economic terms start to blur from excess, find an newspaper article; the trash Talk in the article will bring one around. I will give my Readers this article is such tradition, and hope that the article has some relationship to the previous discussion. It also provides a Then and Now comparison of the search for regulation of Wall Street and Banking. Then was peppered with a search for criminal behavior amongst even the Innocent, and a distrust with the proposition that Anyone could make that type of Money without indulging in fraud. I still hold such doubts myself Today. One can only suppose there will be regulation of such entities if and only if, We again turn it into a circus, and nominate a Ringmaster who cares nothing about his own future. lgl

Automatic Hatred

I feel real bad about this Post because Strauss-Kahn is one of the intelligent leaders existent in a field increasingly unnoted for such. I must go back to basics here. We must start at the fact that no matter how large an economy may have become, it exists in a spectrum of limited Capital and Resources. This means that the levels of Stimulus must be limited, else all Price schedules within the economy will become skewed; None will reflect actual economic conditions or the scarcity of resources involved. Study of that Notion will eventually reach the Understanding that levels of Stimulus must float, said levels being inverse to the productivity of the economy. This means that Stimulus must decrease in the face of economic performance, and it is time for current Stimulus to melt before We lose rationality in market pricing.

The whole principle behind Stimulus is Government absorption of lost Consumer Demand by its own Spending; the Concept being more Spending than Taxes. Any practical political scientist will inform that this is a very dangerous ideation for Politicians, individuals relatively unrestrained by any inhabitation with principles of budget management. The real problem derives from the matrix of politics itself; the conflict between Liberalism and Conservatism eventually evolving into Spending which satisfies both parties, which means Each gets exactly what they want, even though it means intrinsic deficit. This trend finds reenforcement by a Judicial position that all benefits must be maintained, once granted. The Reader might begin to understand that Government will always fail of budget procedure, and it will get progressively worse until some collapse will occurs. The trouble here consists of the huge magnitude of the system failure necessary to return to normal.

There stands no real Solution to the above problem. Politicians show real reluctance to control themselves, and Voters have an irritating habit of eliminating Those who would hold to financial restraint. One could pass Constitutional amendments at both National and State levels prohibiting Government assumption of debt, but this is a curtailment of financial practice which would bring Government to a standstill; sheer intermediate transfers insist on some level of debt, as Accounting procedures remain too slow to fund suppliers who have to uphold short-term Pay Schedules. I have contemplated a system where all Government Spending must be funded by debt, the Treasury is restrained from devoting Tax revenues to anything other than Government debt, and Government is restrained from manipulating Interest rates. This system would constitutionally prohibit Government paying any Interest above a certain limit, and this would automatically dictate an increase in Taxation as Interest rates rose. It is specifically counter to the entire idea of Stimulus, though, and Opposition to such a system would be extreme. lgl

Worn Phrasing

I read Tyler Cowen’s column and would basically consider it a typical conservative rant against the extension of public policy; except, I agreed with the entire article. The real problem is the barter system established by Congress with Special Interests, and especially now that We have a beginning Senator as President; One who has not the experience to realize the limitations of the barter system in Congress, along with insufficient time in D.C. to have wide acquaintance with the bureaucracy and its politics. The later idiocy consists of sheer protection of territory, with avoidance of any assignment of responsibility for the irresponsibilities of office expressed. Can the new President eventually learn to handle lack of concern for the Public Good? Yes, but it is a learning process the Country can hardly afford. We will have to give Obama a second term solely to avoid the hazards of training a new President all over again, which is a damned poor rationale for choice of leadership.

Arnold Kling takes a long trip through Mark Thoma as initial source. It seems that economists outside the Beltway has much different opinion of the financial crisis, than do the bureaucracy economists in Washington. The major trouble I perceive with federal policy will be long-term instability in the finance sector, as Government sanction and underwriting becomes a mandatory convention to get financial instruments sold. Everyone but the current Regulators are beginning to be frightened by this tendency to obviate Risk in this manner. The indications reflect that these aberrant activities are scheduled to worsen.

My only real worry must be the health care issue will combine with the financial mismanagement, and bring Us to a loss of Credit, both Internationally and domestic. I seriously believe that We are approaching a Point where the Treasury will not even be able to handle Debt service alone, without increasing the Debt levels. The adage that all Saturated Economies are suffering from the same Government overhang and debt, so the whole system cannot fail is about as satisfying as stating that the Great Depression would not have happened if the Fed had adopted a loose Money policy. Government must eventually draw financial resources from a Tax base, else there will be nothing but Inflation. I think We are getting to the levels where the term ‘To Big to Fail’ will become the sad lament of old men watching their World disintegrate. lgl

Darkest Matter

Some would claim that I know as much about Dark Matter as I know about Keynesian Thought, which I believe to be flat rude; I believe the proper current term is Discouraged Student (I always wondered Who was doing the discouraging). I can state for the Record that I read considerably on John Maynard Keynes before a Car Accident destroyed much of my memory some 30 years ago, and it returns only in slight wisps on the Night air. Still, it has led me to make several observations: Paul Samuelson was wrong, and there is not a clear Math solution to every economic problem; Probability theory is improbable as it is stated; and elasticities can always be stretched. I will turn to Dark Matter in such vane (vain??).

Dark Matter devotees all assume that Dark Matter must be repellent to ordinary matter. My imagination suggests that there would be several Big Bangs rather than One, if the later were the Case. I like to think of Dark Matter in terms of Elements and Compounds. It seems like a much greater advantage in understanding, with infinite options for combination. Elements, as We know them, combine with Elements of Dark Matter as We do not know, to form combination Compounds which We cannot imagine as yet. Here We have a very viable Construct of the Universe, without necessary appendant conditions to excuse aberrant Results in the system.

I do not claim to be an Expert on the Issue, but I think Thomas Edison said something about the only Expert is the One who comes up with the correct Answer. Before I leave the Reader to contemplate his Navel this Weekend (I know, I never got that either), I would urge the Readership to consider How far off standard knowledge can be; One does not have to establish a Probabilities curve with statistical anomalies. One has only to ask if any specific theorem seems to fit, or whether there are too many caveats attached to make the proposition worthwhile. I find little Gold in a pan fill of gravel. lgl

The trouble of filling Copy!

Gavin Kennedy tries to protect the terribly good name of Adam Smith here, though it is not as much a slight to Smith, as it is a condemnation of the political process. Personal debate stands attacked and injured by personal insult, no one actually accepting responsible debate resolution. When did all political issues devolve from debate to the War of Slogans. No one comes up with an idea which has not been mouthed at least fifty thousand times previously, and never first presented without having been highly vetted by Advertising agents. Sound-Bite technology has replaced any real debate, and often, has nothing to do with the real position of either Side. No one suggests there will ever be a better day, though One has to listen to grandiose plans every day. One of the reasons they are so great in design stands as assurance that such Plans will not actually be implemented. Neither Democrat or Republican actually want what they propose; they only desire for the Status Que to remain static.

Richard Gordon tries the new course of informing his Peers, without infuriating the political wing of the economists’ union. He mentions there will be weak hiring and strong productivity growth; Translation: The Consumption markets have lost about 20% of their Dollars, and about 50% of the Consumer desire for status consumption. Gordon believes Hiring will occur much faster than it did in the last Recession, stating there will be much less reliance on intangible capital. I agree with the contempt for capital which actually does not produce Profits, but for the life of me, cannot see How Gordon could equate this with increased Hiring. It is far more indicative of a double-dip recession progressing, than it would be for assumed risk of massive Hiring. The only element I can see to improve Employment is the creation of shortages of Product, highly doubted in the current economic matrix.

Paul Krugman is now proposing a Selective Service for Mathematics (I am teasing, Paul). What he is saying consists of a Statement that economic precepts must work out in both Math and logical Proof, in order to be sound. The difference between Sound and Truth stands that Sound should be Right, while Truth has little to do with Math models; did you not notice the degrees of Accuracy always associated with such models. Sound means that you possess a stable assertion, capable of being assumed without further proof. Sound economic principles also have a somewhat discredited history in economics, but We can leave that for another time. lgl

The evil ways of the World

David Merkel asks Us all what economic stories are not being told. I agree that China is way overinvested in stimulus, with their publicly owned companies being a complete loss with no possibility of repayment–either in financial return or in economic production generation. Eastern European nations are deeply in Debt, but possess the residual capacity to eventually repay their loans; something which western European nations may have great difficulty in fulfilling such a program. David says there are Water shortages in China, but does not include the United States, Europe, and Latin America; understand that the Fresh Water problem is looming, affecting almost Everyone, and will not go away easily. He tries to say that Bailouts equates to the ‘Kiss of Death’, a subject which cannot be proven or dis-proven as yet; I still would not bet against him though. Principal forgiveness in mortgages is the "kiss of Death’, a slippery slope where all financial contracts face exterior revision–most undesirable. The insinuation of some banks being insolvent is totally unnecessary, as they eventually must recapitalize, or blow away in the Wind. Study of just these Stories indicate that the world economy is in much deeper trouble that pictured by most Pundits, and much retributive reconstruction must be done.

I asked myself what major Stories are not being discussed on the Internet. The first is my decision that Employment declines remain unscored, and there is no rational scenario for it to increase in the next decade. Stimulus packages are actually counterproductive, and especially further Tax Cuts. Actual Stimulus cannot work without expansion of the Tax base, and there will be none. Tax Cuts themselves remain quite destructive, simply denuding Us of necessary public funding, while likewise disabling business operations; I am trying to set up a economic model expressing the fact that Tax Cuts do not help new business ventures, and aid established business to actually curtail labor assets profitably; allowing them to only offer Specialty Products of limited Production runs, all without loss of overall Profits. My difficulty here in lack of information access, and failure of Time resource–I am quite lazy by most standards (I do have alternate Time sequencing which adsorbs my availability).

Case in Point is my current attempt to finish this Post, as I am already about 15 minutes behind Schedule. I will conclude by telling the Reader that most of the actual Conversation which should be taking place is not being conducted, as there is substantial efforts being made to buy off All who would introduce debate about Issues not desired by Government and Corporation. One cannot fault poor Bloggers for acceptance of Advertising or Job opportunities. I continue only because no one has thought to advance a bribe sufficient for myself to change my general themes. lgl

Baby, The Rain must fall

I sit at my Computer and review what the Night produced as potential source material for my daily message. I ran across this article, which presents a good evaluation as to the ability of the renminbi–called Pricing power–to deal as a Currency in foreign trade. I have some doubts that the Yuan will be much more successful than the Yen, and feel that the Dollar will regain much of its Pricing power lost because of flagrant borrowing practices of Americans. The real importance here lies in the openness of the American economy, where everything can be researched and with little being hidden. Nowhere else can information be gained on the general working structure of domestic production, and this element may be the greatest weight in accepting a Currency as a Trading value.

Cactus tries to explain why Layoffs often lose the better Help, keeping the bad Seed. He tries to do this in a manner which is relatively obscure. A functionality in this process lies in the combination of Training Costs and Position level. Incompetent Help have already been delegated to the scrapheap of endeavor, doing the Jobs with the least chance of mistakes. Training Costs, though, can remain as expensive as for any Employee. Qualified personnel quickly learn the lack of potential of this labor, and will rapidly opt out of such Jobs if assigned to them. Managers often find themselves still saddled with the same level of incompetence to fill such positions, and seek to avoid the high Training Costs of searching for greater qualification. Managers finally descend to utilizing Plug-Ins who are expected to spend a full lifetime in the niche position, while the more transitory good Help are let go.

Here is the Post which may tie the two previous paragraphs together. Both Currency and Skilled Labor is threatened by long-term Unemployment and Recessionary conditions. There will always be a degradation of Job Skills under lengthy unemployment, and the loss of such Skills will reflect in the quality of product in Trade, and the resultant value of Currency. The real problem comes in the fact that such Job Skill losses most impact heavy Producer economies, so Japan and China both suffer increased effects of Unemployment. The Dollar as international Currency may not be under great threat, but the United States gets to suffer all the defects of such denomination; while losing most of the benefits of such system under recessionary times. lgl

The New Capitalism??

I fear that Arnold Kling expects a viable response from modern economies; something which becomes more unlikely as Inputs approach the tails of the Bell curve of economic activity. I like to establish ratios which to contemplate the extremes in economics. Case in Point: What percentage of yearly Minimum Wage Income of full-time labor is the current Cost of providing health care to the average Worker? Another is How many hours must a medical GP work at $70/hour to pay off the Student Costs to get his degree? A third Question might be How many medical degrees given actually work in actual medical care provision? Answer to these style Questions could bring Us closer to the determination of the real default elements which make private sector health care unworkable in this Country. Health Care Costs and Rewards remain firmly in the upper-end tail of economic performance, while real Wages in this country have been bulking in a skewed Bell curve to the lower-end tail. Arnold actually believes that Order can come from Chaos, but I imagine that actual collapse must come before there will be a reversion to economic stability. It is something on which Government will not move swiftly enough to avert.

Nancy Folbre tries to explain Why market information is unreliable data to perform serious evaluation of economic performance. Too much is hidden beneath unpaid compensation, and too little attention has been paid to the greatest Inflation generator–which is corporate Price scheduling. There is far too much emphasis placed upon quality products and luxury Good pricing in all economic models, and the old-style forecasting of the average Price of any American meal is ignored. It would be nice to define what price Americans paid for Labor Day lunch on Average. It would equally nice to find what Tonight’s Dinner will cost the Average American. I promise I won’t ask Anyone how much their blouse cost, though I might ask about their Bra. It is exactly this type of information Economists must get back to, and find just how poorly We are doing.

I disagree with Richard Berner and his approach to the late financial crisis–which is not so late, but coming. He proposes a scrap-iron recovery system for regulation, where the crisis of continual failing enterprise is allowed continuance. He methodology would allow the Skim Artists free rein to come in and scam the funds, with regulators picking up the pieces and soothing the Investors who were fleeced. Government involvement would only make things worse all around, with no one punished unless actually caught with their hands in the till. The Money-Changers still want to work the Temple because of the huge Profits to be made. One has to ask, though, if We are not getting tired of losing Money? lgl

The real Job loss

I started out reading this article feeling somewhat outraged, but ended feeling only sadness. Jeffrey Tucker blames Government for the loss of effective Jobs, when Government is also the victim. Technology stands as the actual Oppressor, pushing Productivity so far ahead that reduced numbers of labor can produce more than sufficiently for Demand. It actually creates a surplus of Product, which lack Sale because of the absence of Wages to pay for the Price of that Product. Government actually attempts solely maintain the condition that people who do work possess the Wage capital capable of purchase of the Product. Most of the rest of Jeffrey’s claims are correct, which brought on the sadness within.

What really bothers me is the fact that another decade will bring a reversal of the trend. Skilled Labor is going to become more important with each year past 2015, and stay that way for some 30 years. There are simply not going the physical hands to do all that need be done within the economy at that time. The real problem will actually be that what hands are there will be insufficiently trained and experienced to serve adequately. Our educational system fails of performance, and it is not really their fault. Educational facilities would like to expand, yet they can find no one with the capacity willing to fund that expansion. What can be done is unknown, but Someone should come up with Solutions soon.

I often like to think of the United States as being in the same spot as the Roman Empire in the 4th Century AD. We possess a superior civilization and technology, but too Few engaged in the perpetuation of that civilization. Huge Monuments were being created in the Roman world, but at huge Cost, and only by a minute segment of the total Labor Force. Romans became used to the amenities of City life, and avoided the rigors of more adventurous life, so the Empire collapsed internally. The periphery held longer than the center, but only because the robust elements of the Empire traveled to the fringe of the Empire to acquire wealth and reward. The United States needs a new Goal beyond the gratification of their own desires, and will likely find nothing. I seriously think We are in the Decline stage of civilization. lgl

My Sermon of the Day (Woke up feeling sour)

Can Anyone recognize Truth if they see it? You can put four Answers on a Board, two within the established parameters, two outside the parameters established. Can you ascertain which Answer is correct? Can Anyone devise the likelihood of every Answer being True? Is there Anyone who would like to bet that the correct Answer will lie within the parameters set up? Can the Answers even be justified by naming them as ‘elasticities’? Economistmom searches for her navel; I play an intricate Game of flipping a Coin. It would help the Student to understand that Economists achieve Renown by drafting pretty Graphs accompanied by exquisite mathematical models of beautiful precision, none of which has any need to for a relationship with Reality.

My old friend Arnold Kling dreams of an older, simpler system of Banks acting like Banks. I agree with every point Arnold makes, but he attempts to push back the onslaught of the new economics. The notion of Public Good has disappeared from the Public Forum. We are now in the Age when the Goal is not to provide stability; it consisting of the ability to skirt the Intent of the Law to personal advantage, without scurrilous descent into Fraud. Everyone seeks that great Cash Cow which shows one potentiality of success, no matter how low a probability of outcome; all so One can claim that it is not fraudulent. I call This the ‘Noble Image even though the Heart is Black’.

It is the intersection of these two Trends which have brought Us to our current state. Can anything be accomplished, when no one searches beyond their own personal Gain? I blame most of this upon Richard Nixon, though Most would not consider my reasoning as just. Nixon was actually a truly good Governor and President, though he really lost points as a Legislator, legal purist, and as human being. Children who watched his rise and fall acquired an leadership example of expedient self-serving, where any misconduct was justified; simply because no one could have sufficient impact to disturb a system with the catchphrase of ‘too big to fail’. No one considers a system where all of the leadership is devoted to like self-service, a Rot from the Top Down. How can Anyone motivate the children, when the leadership is deviant? Here is where the total trouble resides. lgl

Legal Abandonment

Every once in a while I run across one of those economists who can only speak with a Calculator in their hand. This is a Case in Point. There are economic model tests which sometime have a relevance, and sometimes study only the inconsistencies of God. I believe that the real constant factor revealed must be the continuous nature of basic Living Costs; they little affected by either the total Income attained, or Hours worked. There may be some other correlation I do not recognize, but I don’t recognize a lot of things.

Is this a re-run of the S&L Bailout? Those with a sense of history may think so. This last Boom, like the not so successful Period in the mid-1980s, had identical Mind-sets; commercial venders desirous of the loans for the Tax advantages, with little Thought as to the long-term practicality of the loan structure. Everyone wanted the Tax Breaks, without consideration of the implications of repayment of the loans. Everyone wanted the Jobs and the Profits, no one wanted to worry about the fact that the loan structure could not support any sound commercial endeavor. The Result was to be expected, and Bankers now assume the attitude of violated Virgins, when Everyone knows they are experienced Street-Walkers. Children–Don’t Ask!

Simon Johnson seems to have the correct grasp of the activity of the financial sector, which I could possibly extend to the entirety of the corporate world. Financial innovation is the basic term utilized for the Trend of expanding the Risk for Investors, for the advantage of corporate managers. The Trend first appeared in the late 1970s, and began to roar in the 1980s; not really reducing withing the Period since. Corporate structure is run for the benefit of corporate managers, no one else. Bonuses are given for every Gain to Everyone, except Investors. Stock Options are given to Everyone, except Stockholders. Corporate growth generates greater issuance of Stock, ensuring that Stock price remains stable; the normal Profits generation for Stockholders is long-term gain in Stock prices. Investors must handle increased Risk, for corporate managers will assume none. Great Risks are taken by these managers, who get all additional Profits, and none of the additional Risk. Study modern Stock Exchange regulation: Stockholders get blamed for all mistakes, but are legally restricted from running the companies they own in Name only. It is a beautiful Shell Game, is it not? All you have to be is a corporate manager. lgl

The Big Picture

I will follow the lead of the Economic Policy Institute, and will give my Readers vital data the day they become null. The interesting factor in the blaze of information lies in the fact that 25 million people have had their Jobs affected by the current recession, whether that adversity is apparent or hidden within some format. There are some 1 in 6 Workers who have lost real-time Income in this Recession, while nominal inflation must be considered to be over 7% since the beginning of the Recession (the later is unconfirmed by Anyone except myself). Economists and Bankers act confused about the troubles of the Mortgage markets, but the Act is wearing somewhat thin. Americans are starting to get worried about the lack of information from their leadership, as the recessive grind continues to eat away at their financial stability. It is time for Someone to step up to the Plate, and admit the failure of the current policies, if Today brings more adverse information.

Paul Krugman makes a creditable attempt at an apology for the fallacies which Economists may have perpetuated, even though I disagree with many of his postulates. Paul places great faith in Keynes, while John Maynard Keynes has always aroused doubts in my own mind from the first Read of the material. I also doubt the immutable benefits of the Market system, but from the other side than an artificial belief system. The relevant point I would make is that Markets are systemic chaos, resembling an animal responding by Instinct–specifically not according to pattern. Market reactions are always new, because of magnitudes of resources involved, and the advancement of technologies. Economists will never find any underlying thread of pattern more than the immediately obvious.

Stefen Deeran presents a short article expressing doubt about small business Startups within the current Recession. I like his presentation, but think a little more enlightenment could aid the process. Service and Product provision was relatively saturated prior to the Recession, with the creation of new Business only attainable with a dilution of sustainable Profitability. The Recession has brought huge cutbacks in the purchasing power of at least one-quarter of the population; my estimate would place the previous number at approximately 60% of the population, bearing with the Fear factor, the disinclination to purchase large-ticket items, and worry about their previous portfolios. The Reality is that American Consumers are still buying, but at a rate about 20% less than the previous totals, and almost every Household is setting up to cut their Consumption far more drastically if the situation warrants. Timothy Geithner’s assertion that all it will take is more Capital may be far from the Truth. lgl

What happend

Simon Johnson explains the financial crisis for us in simple terms. There are several points which he could of added, though they might have ventured far afield of the central theme. The first major point not mentioned is the integration of financial sector leadership and political leadership, so that the financial sector is actually designing the economic policy of the Government. Conservative Republicans first made the term 'Civil Service’ a dirty Word, and started the draft of Private Sector Executives to run the Government, initially the Oil industry, but later from the finance sector. Johnson also did not bring up the term ‘Leverage’–a good definition of Leverage is Banker refusal to abide by the same level of collateral liability, as they demand from Those who would borrow from themselves. Bankers promise to pay Stockholders, Depositors, and cover the financial demands of Businesses; both without the residual Cash on hand, or any sound medium to raise that Cash. Their chosen option is to run a legalized Ponzi scheme where they take huge amounts of Investment Cash from Others, with the promise that they will actually pay back this huge amount with high Percentage of Cash Profits.

Here is where the problem became obvious. Interest, or Cash Profits, on Debt must come out of the Profits of Business operations or individual debtors. Individuals will not starve to pay off personal debt, and Business employees will not work for nothing. This means that payment of debt is totally dependent on the minimization of Production Costs to the degree that the sums necessary for debt service can be drawn from Business operations. It is the obtentially proscribed duty of financial lenders to ensure that this payment schedule can be realized without impediment. This was the downfall of the financial sector and cause of the crisis.

The leadership and employees of the financial sector were paid to make loans on a Bonus basis, while they were paid nothing to ensure that the loans could be repaid. Leverage, which is basically borrowing against previous loan obligations made by the financial sector, relies upon all loans being repaid from the ground up; with leverage sometimes 35-40 the amount of initial capital. This constitutes multiple points where Production Costs must be maintained in line to pay the required debt service, or the whole framework would start to unravel. Leverage decreed that diligent care be exercised in the issuing of loans due to the greater assumed Risk, but bankers and employees sought the bonuses rather than Safety. This is Why the American Taxpayer gets to pay off bad loans made before the Taxpayer Wages and Profits made the funds liable for the Tax. It is not pretty! lgl

Catch me if you can!

Brad Delong again criticizes the credentials of another economist, namely Allan Meltzer, all over the issue of Governmental Spending–Some call it Stimulus. I actually have difficulties with both Sides of the argument, and will actually report that technically I am not an Economist; One cannot enjoy the title unless One has endured the proper number of boring graduate courses. I will not enter into a real discussion of this limiting factor, simply alluding to the loss of intellectual material, while turning to the issue of Government Spending.

Economists expend a great deal of time talking about Bubbles, but may miss some serious considerations in their discussion of them. Almost all economists would agree that Bubbles are bad, inciting sharp Inflation, raising Consumption debt, and placing Wages and Salaries permanently behind Business Profits; to the Student, Business can always sell the Product for better price than the Schedule under which the Product was produced. The trouble comes in that Consumption becomes striated under these conditions, with bursts of Consumption later redeemed with much higher debt service Costs. Now We return to Earth, and state that macroeconomics seeks to permanently enclose the Bubbles within the economy, with the insistence that total GDP return to levels once reached with the Bubbles in operation; even though recessions are the instrument which bursts such Bubbles (actual GDP levels insist on a Growth ratio not previously found).

One can study this effect, and simply ignore it; something which Delong-style Keynesians chose to do. Conservative economists, like Meltzer, believe that Government Spending be held low, and let the Markets develop new Bubbles. I would agree with these economists, except for their insistence that Businesses be given Tax advantages to incite these new Bubbles, a factor which I find way over the Top. I have long been convinced that both Groups are wrong, but have never found a way to explain my Thoughts adequately to face the outrage it is expected to achieve when advanced. Still, I will try; and endure the reaction.

My thesis simply states that every Recession releases about 6-8% of excess Money flows due to the burst Bubbles, which makes Consumer pricing perfectly Sticky; while at the same time, the burst Bubble eliminates Private Sector business initiatives on which Profits can be made. The purchase of Government debt is the obvious solution, but does nothing about the excess funds within the economy; a circumstance producing both Wage Pressure and Product Price maintenance. The trouble comes from the Bubble funds, with no one doing anything to free the economy from the debt service Costs of maintaining these funds. My Proposal is to actually raise Taxes, in order to eliminate these funds and their debt service from the economy; Conditions where larger Government Spending patterns are more acceptable because they are funded to greater degree. This Proposal has the distinct advantages of a direct refutation of Keynesian Thought, while at the same time informing business Conservatives that I want to raise their Taxes. I am only lucky that they would have to come to the Midwest to shoot me! lgl