Tuesday, October 31, 2006

I Got Mine Versus We Got Ours

I posted this as part of discussion in today's Cafe Hayek:

I think you just struck the heart of the differences:

From your point of view there are NO NATIONAL INTERESTS, only economic decisions that favor you.

From my point of view, there is a national interest in ensuring a competitive system that is not RIGGED by one of the players to irrevocably harm the other players... especially when those actions, on a global scale, weaken the ability of U.S. industries (and suppliers, and associated service industries, and associated professionals, and associated communities) to remain economically viable.

I do not believe that "I got mine" is a viable economic strategy for the members of any group, population, nation, when the rest of the group, population, nation is in jeopardy.

Addendum quote:
So far, the only player guilty of "protectionism" is China which government has been actively working to expand many of its industries through subsidies and other favorable operating conditions.

And that really seems to be working for them. The strategy is relatively simple: create an artificial imbalance that will temporarily benefit some portion of a competitor's industries while gradually eliminating others. Once competition in one sector has been crippled, target another. That way, while the targeted industry is being crippled, the other industries remain silent because they are temporarily benefitted.

It's classic divide and conquer.

But don't worry... you got yours... for now.

Monday, October 30, 2006

The Eve of Destruction

Back in the 1960s, there was a popular anti-war song entitled Eve of Destruction by Barry McGuire.

Paul Craig Roberts writes:

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy. The total number of private sector jobs created over the five year period is 500,000 jobs less than one year’s legal and illegal immigration! (In a December 2005 Center for Immigration Studies report based on the Census Bureau’s March 2005 Current Population Survey, Steven Camarota writes that there were 7.9 million new immigrants between January 2000 and March 2005.)

The economics profession has failed America. It touts a meaningless number while joblessness soars. Lazy journalists at the New York Times simply rewrite the Bush administration’s press releases.

Mr. Roberts resume:

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: This article originally appeared at and is published in the Baltimore Chronicle with permission of the author.
Tip of the hat to Martin Kelly.


Sunday, October 29, 2006

Updated Blog

I spent a good part of today revising the look and content of this blog to, hopefully, make it a little more readable and organized using the new "Blogger beta" version.

One of the really nice features that had been missing previously are "labels" (categories) for each posting. You might want to explore them. One of my favorites is "Futurescape."

Saturday, October 28, 2006

How Economists Think

From Cafe Hayek:

Bruce, if all of us are better off by trading with China, where are the victims? Are you saying that at some time in the future, China is going to say "Okay, we now know how to make your products without you. Now go away and we will continue to sell into the US."? If they're going to steal IP, they don't really need anybody's help. Reverse-engineering is a fairly well-developed art. And if it's legal for China to sell something into the US, then it's legal for Iowa to sell it into New York. Are you going to suggest that New York needs to put up protectionist barriers against Iowa?

Posted by: Russell Nelson | Oct 28, 2006 1:59:24 AM

My response:


I don't believe I ever made the case that we are all better off dealing with China... others have stated that as their belief.

My position is clear: China represents an economic threat to the U.S. because it is a wholly unethical trader.

If I steal something that you make and then sell it back to you for less than you can make it, does that make it a bargain for you? If you believe so, then we should do a lot of business. I can make you very pleased with those new economics.

The fact that China provides cheap labor in the short run does not offset the economic harm done to businesses that have their products and processes usurped by China. It does not make up for the costs of research and development that are lost as a result of counterfeiters not only destroying the market opportunities in China of those whose products or processes were taken, but also undermining those companies in the U.S. by becoming "competitors" as they sell their knock-offs in the U.S. You might actually read some of the examples I cited earlier rather than giving totally hypothetical examples of how we benefit by being undermined.

What you've basically said is that since the Chinese are going to steal from us, we might as well buy from them to make up for it. Wow, that is really obtuse! Just because a corrupt government in China looks the other way doesn't mean that we should. Or is all fair in economics and war?

I lose your analogy to Iowa and New York completely. Are the Iowa farmers ripping off the research and development and processes and products of the New York businessmen?

Posted by: Bruce Hall | Oct 28, 2006 10:46:14 AM

Friday, October 27, 2006

How China Competes

I have written about how China uses currency manipulation to create a "low-cost labor" image around the world. But there is a more insideous side of China's economic policy: theft.

For those who argue it is simply "free trade" and "good economics" to source in China, perhaps they might want to read the following:

China's national industrial policy facilitates forced technology transfer to Chinese industries. One new mechanism is the so-called CCC safety certification. Every electronic component or piece of equipment to be sold in China must be submitted to the Chinese government body overseeing the CCC certification. The process requires the foreign manufacturer to give Chinese officials full access to engineering drawings and schematics and to provide a complete finished product for evaluation. In addition, the applicant companies must pay for Chinese officials to visit and inspect their factories outside of China.
I'm not sure if those economists are ignoring this issue because it is inconvenient to fit it into their "free trade" philosophy or because they view it as unimportant. Either way, this is an example of how China steals jobs, business, and profits from the world... especially the U.S.

Wednesday, October 25, 2006

Diesel Power

There was an article about a new turbo-diesel powered car from Honda in The Detroit News today. That was hailed as a breakthrough because Honda has always focused on gasoline-powered cars.

There was also an article about a new, turbo-diesel Mercedes in that same paper. The engine was praised for its power, economy and cleanliness.

The reason I bring this up is two-fold: 1) I had brought up the issue of turbo-diesels as a lower-cost, better performing, more durable alternative to ethanol (E-85) in a discussion yesterday and 2) I have written about this a couple of times in this weblog:

It's not that big of a stretch to understand why. Turbo-diesels offer better mileage and performance than most alternatives and the technology and fuel are readily available. There is also a potential environmental advantage over hybrids: no expensive battery packs to dispose of after they fail.

Sure, diesel fuel is oil based. But diesel engines can cut consumption significantly and be produced in large numbers by all manufactureres. That Mercedes is rated at 26 mpg city/37 mpg highway. Not bad for a larger car considering the numbers for that same car with a gasoline engine is 19/26. That's better than a 1/3 improvement in fuel economy... or a lot of barrels of oil.

And the key word here is clean.

Tuesday, October 24, 2006

Striking a Nerve

Today was a bit chilly and windy, but I got together with some friends and played golf. Surprisingly, keeping a winter golf hat and gloves on kept me comfortable enough to play and I did reasonably well striking the ball. About an hour into the round, I got a call from home with a message that the BBC (yes, those people in London) wanted me to participate in a discussion panel at a Detroit radio station that would be linked up to their broadcast in England. Apparently, the BBC had gotten wind of my previous post which was also forwarded to the Detroit Free Press which publish an abbreviated version of it. Unfortunately, they only gave me a couple hours notice, so I had to pass on the opportunity.

The subject was the whole cultural conflict between the West and Muslim (read Arab) world as symbolized by the reaction to women wearing a veil during meetings and trials and other public events where a discussion or dialog was supposed to take place "face to face."

It seems trivial, on the surface, for a veil to cause so much concern. But apparently, the veil is striking a nerve in the West as a symbol of what seems to be irreconcilable differences between cultures. Unfortunately, what is perceived as Muslim culture is only the culture, religion and politics as practiced by some Muslims... but that point is a little too subtle for too many. Some is too many, it seems.

Sunday, October 22, 2006

Freedom of Religion or Anarchy?

Does Freedom of Religion trump everything else?

Not according to a local judge who dismissed a woman's claim against a car rental agency because she refused to remove her veil in court.

Now, I don't really know if that is fair or not. It was up to the judge's discretion. But last year, a student at the University of Detroit was allowed to openly wear his dagger on the grounds that it was an integral part of his religious belief.

I suspect that the anti-Muslim sentiment prevailing in the U.S. might have had something to do with the judge's decision. There is an uneasiness and distrust around someone who hides their face from the world. It is a cultural thing in the West: "you have something unsavory to hide."

And that is the crux of the issue: distrust. As Jack Straw said: "I felt uncomfortable about talking to someone 'face to face' who I could not see."

Let's face it, the veil has little to do with what people are saying or doing. It boils down to this: the West does not trust Islam; it does not consider Islam to be a legitimate religion because so many of its adherents use covert, violent actions against so many in the West. If a Buddhist woman chose to wear a veil in court, the judge would not have had one qualm about it. But a Muslim woman is part of a religion that tolerates or, in some areas, fosters intolerance and violence.

The judge's reaction was not a matter of law; it was simply a reaction to a symbol that is, increasingly, seen as anti-Western.

Friday, October 20, 2006

Good, no Bad, no Good!, no Bad!

Two interesting views of the economy:

Why can't we all just get along?
- Rodney King

Thursday, October 19, 2006

China - The Replacement for the U.S.?

Oh, I'm not talking about the next big democracy.

Take a look at this article from Inc. Magazine... the entrepreneurial magazine.

It is an excellent presentation of many the facets of the emerging China. Back some time ago, I pondered how someone making 45-cents per hour could live so well in China. This article answered that and confirmed my position: it's funny money.

But that's not really the importance of this article. Take the time to read it. Then go to Cafe Hayek and read all of the comments about how U.S. business is so inefficient that it has to outsource to China and that it is so good for us to do so.

Then, if you still feel like going to Wal-Mart to by some "China-priced" goods... have at it.

Wednesday, October 18, 2006

Opposition is Easy

Two blogs I enjoy reading are Cafe Hayek and Reich's Blog. The most recent posts were about opposing... health care for the poor in the former and all things Bush in the latter.

I like to oppose as well. It's fun to wield the needle. But, then you have to propose something in place of what you oppose.

In the case of the Cafe Hayek post about health care for the poor, it was to let things stay as they are... the poor must not need health care. I pointed out that we have public education that may not be necessary for middle and upper classes, but a private alternative for the lower-income strata is not an option. It is more expensive for ME, but then I benefit from not having masses of uneducated people clogging the streets. Likewise, I would benefit from having people would could not afford the high cost of health care (due in part to the lawyers who have sued the hell out of the medical profession and raised the costs for everyone else), have some form of care that does not require them to seek attention at expensive emergency rooms where the cost is then passed on to everyone else... and service reduced as well.

In the case of Reich's Blog, he made some reasonable points about the political conundrum facing the Democrats and some issues about hedge fund abuses.... Then he went on to make a blatantly false accusation that Cheney wants to start bombing Iran and North Korea's nuclear facilities. This has no basis in anything reported by anyone credible... other than some speculation by fringe Democrats.

"Cheney wants to bomb Iran's and North Korea's nuclear facilities. He's become even more hawkish than before, and Rice is no match for him. He's the president of American foreign policy. He figures he has only about 18 months left to do what needs to be done, to ensure his and Bush's legacy and make the world safe from the axis of evil. He also figures Iran and North Korea are becoming ever more dangerous, that no one else is willing to do anything about them, that the US has the fire power to do what needs to be done, and only whimps are putting up a fight inside the Administration. All he needs to do is convince Bush, who is coming around."
They say it isn't so when the Koreans were testing a long range missile and again when they were testing the nuclear bomb:
My response to Bob Reich was "what SPECIFIC ACTIONS do you recommend" since he needs to make up false positions about Bush/Cheney. After all, North Korea has been researching and developing a nuclear weapon for at least 2 decades and probably more.

We need a proposal here, not just an opposal.... Come on, Bob!

Tuesday, October 17, 2006

Rights or Wrongs

In today's Cafe Hayek, Dr. Boudreaux references an article he wrote for The Christian Science Monitor about health care. With regard to the notion that healthcare was a right, he wrote:

Sounds noble. But not everything that is highly desirable is a right. Most rights simply oblige us to respect one another's freedoms; they do not oblige us to pay for others to exercise these freedoms. Respecting rights such as freedom of speech and of worship does not impose huge demands upon taxpayers.

Healthcare, although highly desirable, differs fundamentally from these rights. Because providing healthcare takes scarce resources, offering it free at the point of delivery would raise its cost and reduce its availability.
He then went on to explain that the government is inept and would bungle the process and make it too costly.

Well, there is some truth to that perhaps, but one often weighs the cost of government provided services versus no services. If you are a successful professor of economics at a prestigious university, your perspective may be somewhat different from a poor, single mother or a poor, elderly person. My response was:

Interesting argument.

Now substitute "education" for "health care".

Now substitute "social security" for "health care".

It's beginning to sound very 18th century. "Let them eat cake."

Oh, by the way, Dr. Boudreaux's university is state supported!

Friday, October 13, 2006

Ethnic Divisiveness - Europe Running Out of Patience

Back in August 2005, I wrote that:

Muslims seem to have forgotten that the recent decades of Western European tolerance is really not part of their history... quite the contrary. First Spain, then Denmark, now Britain; these are strategic mistakes by the Islamic radicals.
A couple of days ago, The New York Times featured an article by their European correspondents that stated:
BRUSSELS, Oct. 10 — Europe appears to be crossing an invisible line regarding its Muslim minorities: more people in the political mainstream are arguing that Islam cannot be reconciled with European values....

For years those who raised their voices were mostly on the far right. Now those normally seen as moderates — ordinary people as well as politicians — are asking whether once unquestioned values of tolerance and multiculturalism should have limits.

Former Foreign Secretary Jack Straw of Britain, a prominent Labor politician, seemed to sum up the moment when he wrote last week that he felt uncomfortable addressing women whose faces were covered with a veil. The veil, he wrote, is a “visible statement of separation and difference.”

So strong is the fear that Dutch values of tolerance are under siege that the government last winter introduced a primer on those values for prospective newcomers to Dutch life: a DVD briefly showing topless women and two men kissing. The film does not explicitly mention Muslims, but its target audience is as clear as its message: embrace our culture or leave.

Perhaps most wrenching has been the issue of free speech and expression, and the growing fear that any criticism of Islam could provoke violence.

In France last month, a high school teacher went into hiding after receiving death threats for writing an article calling the Prophet Muhammad “a merciless warlord, a looter, a mass murderer of Jews and a polygamist.” In Germany a Mozart opera with a scene of Muhammad’s severed head was canceled because of security fears.

With each incident, mainstream leaders are speaking more plainly. “Self-censorship does not help us against people who want to practice violence in the name of Islam,” Chancellor Angela Merkel of Germany said in criticizing the opera’s cancellation. “It makes no sense to retreat.”
Yes, Europe is beginning the process of isolating and removing the Muslim culture from its boundaries. It is not going to be pleasant, but it is wholly expected.

Thursday, October 12, 2006

Excessive Spending - Keep Minimum Wages Down

Yes, keep minimum wages down. That's what is advocated in Cafe Hayek, a site moderated by two George Mason University professors.

As a direct response to that, I wrote the following comment on their site:

"Let them eat cake."

I believe that was spoken by a French economist who didn't understand the connection between economic theory and political reality.


Then, Cafe Hayek had another post that expanded on the notion that raising minimum wages nationally makes companies uncompetitive and forces layoffs.

My response was:

If keeping wages low were the key to competing, then Costco would not be able to compete with Wal-Mart/Sam's Club. The fact that Costco not only competes, but pays significantly higher wages AND has higher customer satisfaction shows how spurious the argument against raising minimum wages is.

The number of employees affected would be a small fraction of total employment, but the positive impact to those employees would be significant.

Coffee shop tales notwithstanding, the fact is that minimum wage rates have never been the measure of any company's ability to compete.

They also quoted the "Coyote Blog" where the following was stated:

"In a number of locations, we have been forced by rising minimum wages and associated costs (particulalry workers comp.) to switch some of our cleaning and landscaping duties from our live on-site employees to local contractors. These contractors may pay their workers more than minimum wage, but the workers are often twice as productive as ours, yielding a cost savings for us. When minimum wages are $5.15 an hour, these contractors can't compete with our own workers, but when minimum wages rise over $7.00, as they are across the west coast, this option starts to become attractive."

My response to that post was:

Hmmm. As a small business owner, I would have to say that you are just making excuses for your own business inefficiency. After all, these contractors will have to pay the same minimum wages, so why can they do it and succeed when you do it and fail?

The argument about "affordability" is a red herring.

In an email to Prof. Russell of GMU, I wrote:
Perhaps, instead of railing against a few extra dollars an hour, you and your fellow economists can devise a workable roadmap from subsistence to success that can be taken to the single parents in the poor sections of Detroit and similar cities... one where money really doesn't matter. Of course, one could always say economics deals with the larger picture and creating workable "roadmaps" is not part of that process. Too many variables, etc. Yes, one could say that... and that increasing the minimum wage is a bad thing for the recipients... and it is okay to create a Catch-22, where you need a better education to get out of poverty, but it costs too much to get that education if you are earning "minimum wages"... and it's good for the poor to have competition between U.S. workers and Chinese workers for the entry-level jobs that are the path out of the minimum-wage trap.

One could say those things... and nothing is solved... but the macro numbers look good. At some point, there is a need for both business and government to recognized that leaving a permanent underclass to its own devices may be more expensive in the long run than creating and managing processes to address the situation. Lowering corporate taxes and outsourcing entry-level jobs has helped corporations, but not necessarily translated into opportunity for those on the lowest economic rung in the U.S. So, if increasing the minimum wage is too costly as a first step, what is the first step?
The U.S. has a healthy overall economy (despite pockets of recession like Michigan). Capitalism is the engine of the economy. But if capitalism has no room for compassion, then perhaps we must question its tenets. A system that care only for the winners does not necessarily reflect the founding principles of this country.

The pilgrims did not operate their settlements on the basis of "I got mine."

Thursday, October 05, 2006

Not Like Detroit

After a short visit and some 300+ photos later, I've returned from San Francisco with another perspective about Detroit and southeastern Michigan. Some history first:

  • Detroit area was settled in the early 1600s; San Francisco started with a Franciscan mission around 1776.
  • Detroit reached a peak population of 1.8 million in 1950 and has declined to about 880,000 or less; San Francisco has had a relatively stable population of about 750,000 restricted by space and cost of housing.
  • Detroit's population is about 87% black and 13% white; San Francisco is about 50% white, 30% Asian, 8% black, and the remainder miscellaneous.
  • In 2003, Detroit had 29,000 violent crimes; San Francisco had less than 6,000.
  • In 2002, Detroit had a median income of $30,000; San Francisco had a median income of almost $60,000.
Detroit, unfortunately, represents the worst of what comprises a large, American city; San Francisco represents the best. San Francisco has some natural advantages over Detroit, but not as many as you might think to make the difference between the two cities.

You can click on the photos to see a larger image. Then use your "back" button to come back to this blog.

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Use the SEARCH BLOG feature at the upper left. For example, try "Global Warming".

You can also use the "LABELS" below or at the end of each post to find related posts.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)