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Sunday, November 30, 2008

Desperately Seeking Sunshine

SEARCH BLOG: WEATHER

Just before evening, the sun poked through the clouds that had covered the area for the last two weeks and lit the top of the trees so that they looked like they were covered with orange leaves... even though the branches were bare.


The small patch of snow at the right was left over from a week ago.

Winter started the 2nd week of November. It will be a long one this year.

ADDENDUM

And the brief teasing of sunshine is over.

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Saturday, November 29, 2008

Individuals Make War Not Governments

SEARCH BLOG: ECONOMICS

I understand the desire of bloggers to have catchy post titles, hence the title of this post. I was actually doing a title parody of a post at Carpe Diem: People and Businesses Trade, Not Countries.

It's a simple, but overlooked point: Countries don't trade, individual American consumers make voluntary decisions to buy products produced by foreign companies (e.g. check the country of origin on the tags/labels on your clothes), and individual American businesses voluntarily buy from, and sell to, foreign firms and consumers. Most of the discussion about trade focuses on aggregate trade statistics at the "country level," like reports of a $56.5 billion U.S. trade deficit in September, a $700 billion U.S. trade deficit for 2007, a $195 trade deficit with China this year, or a $14 billion trade surplus with Netherlands this year.

Like Walter Williams points out, those aggregate trade data can disguise the fact that it was individual American consumers and businesses making voluntary decisions on buying and selling products every day that result in some country-level trade deficit or surplus when trade data between the U.S. and other countries is aggregated at the end of a month, quarter or year.

Bottom Line: People trade, not countries. Therefore, any restrictions on trade in the form of protectionism hurt American people, i.e. U.S. consumers, and the workers and shareholders of U.S. businesses. A tariff on Japanese-made products is not a tariff on the country of Japan,it is really a tax on American consumers and businesses who voluntarily decide to buy products made by Japanese producers.
Of course, the title is perfectly accurate because a "country" is composed of individuals including those who run businesses... but the title is somewhat misleading when the author tries to equate actions of individuals with those of multinational corporations and governments [yes, comprised of individuals].

My responses to the article and some other comments about the article. This:
Countries don't trade, but governments facilitate trade through treaties that are either enforced or not.

When you go to the store to purchase an item, you probably don't look at the country of origin. You don't look for the "made with child labor" label. You don't read the "prices kept low through currency manipulation" disclaimer. You don't read the part of the owner's manual that tells you "designed by carefully copying quality products."

Individuals do NOT engage in trade... well, 99.9999% don't... they purchase available products. Small businesses do NOT engage in trade... they purchase available products from suppliers. Large corporations with resources to specifically source as they want DO engage in trade. Governments that award contracts based on price DO engage in multinational sourcing... DO engage in trade.
And this:
For those who wish to equate purchases at a local store with arranging for large volumes of goods to be brought in from other countries for distribution, sale, or incorporation into a larger product/assembly, then I concede the concept that individuals trade. But beyond such superfluous and meaningless comparisons, the argument is specious.

Qi, trade does not necessarily enrich all. The Chinese, for example, have siphoned billions... perhaps trillions... of dollars from U.S. companies through intellectual theft... THEFT. You can call that trade if you wish, but counterfeiting and intellectual property theft is just another form of Barbary pirating.

Economists want to view the world through "principles" of trading and thereby lose credibility with those who truly understand the actual interchanges.

Now, if placing boundaries around what is considered acceptable is "an infringement on my freedom allowing to choose who I want to trade with," perhaps your freedom should be re-examined.

Going back to the original point; individuals make purchases or exchange their labor or knowledge for payment... a micro form of "trade" in a loose semantic way. But trade, in the sense of transactions impacting nations, is far upstream of those individual purchases which are "an infringement on my freedom allowing to choose who I want to trade with" by driving out of business through unethical practices [by our standards and laws] those local and national businesses with whom they compete.

But you might save a buck at Wal-Mart as a result.
Further reading here.

... and individuals fire weapons and fly planes and sail ships... not governments.... Governments don't make war.

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Friday, November 28, 2008

Screw Middle America

SEARCH BLOG: POLITICS

Now that the 2008 elections are over, I have had a chance to evaluate some of the political dynamics that were in play.

Democrats:

  • Effectively used slogans to generate enthusiasm for old programs and policies
  • Convinced uncritical voters that things would be changed the way they personally wanted even if what was said had no relationship to what they wanted
  • Helped create economic problems and then claimed only they could solve the problems by being allowed to take charge
  • Opposed U.S. military actions, but claimed that it was their prodding that enabled the U.S. to be in a position to leave the Middle East in a stable situation
Republicans:
  • Could not express a clear view of their plans for the future; McCain tried to out-Democrat the Democrats
  • Tried to satisfy disparate religious and business factions that had no real common base
  • Ignored the problems of the U.S. industrial and consumer sectors in favor of the financial sector
  • Failed to communicate well how specific foreign policy and military spending in the Middle East was beneficial to Americans allowing the Democratic Party to point to money spent in Iraq when the U.S. economy was faltering
The Democratic Party was able to portray George Bush as incompetent and out of touch because he simply could not communicate a convincing message about America despite military success in Iraq and Afghanistan.
When the economy began to deteriorate, the Republicans tried to ignore the situation and convince the public that there was no problem and that the Republicans policies were responsible for great prosperity... a fatal strategic error that had turned the first George Bush out of office and would do the same to his son's party.
I did and still do hold the position that Nancy, Harry, and Barack are equivalent to sideshow carnival hacks... like the carnival barkers of old they are able to draw a crowd and get them to pay their money. The problem is that the Republican leadership is long on market and military principle and short on pragmatism.

The Republican leaders claim to believe in free trade and open markets, but conveniently ignored the currency manipulations and treaty violations of the Asian governments as long as cheap goods and stock prices were riding high. When the financial sector abuses began to emerge as bad loans and a potential for investment firms to fail, the Republicans first tried to ignore the problem and then came up with a call for an emergency $700 billion for unspecified use by the financial sector.

As the Bush administration winds down, the Republicans have continued to show a general insensitivity to the plight of the consumers and even more so the industrial sector... especially the automotive manufacturers which represents one of the few major heavy industries remaining based in the U.S. Meanwhile the Democratic Party is seizing the opportunities to expand the involvement of the federal government in the industrial sector by tying any loans to equity positions and a say in the way the businesses are run...
something that private credit institutions do not do... and something not required of the financial institutions that are scheduled for 60 times the amount of money that the automotive companies are asking for... $700 billion plus an additional $800 billion... $1.5 trillion versus $25 billion!
And the no-strings-attached money hasn't begun to get the credit markets back in shape.

The Republicans give the party line that they are being fiscally responsible and free-marketers when it comes to the automotive manufacturers, but conveniently ignore that for the financial sector. The Democratic Party has reluctantly supported the notion of a $25 billion loan for the automotive manufacturers... as long as they get to call the shots for future vehicle plans... and because the unions would blow a metaphorical head gasket if the Democrats don't come through with money to save jobs.

So, from where I sit, the Republicans have taken care of their buddies in the financial firms while being content to work out high-profit deals with foreign companies and governments. Meanwhile, the Democrats have been focused on their broken social and dubious environmental engineering programs and will use them against businesses and individuals who don't toe the line.

I don't see either party standing up for middle America... the businesses and individuals who are responsible, bill-paying, tax-paying, ethical, and law-abiding... the strength of America.
Nevertheless, I'm willing to listen to arguments to dissuade me of that notion.
Step right up to the microphone.

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Thursday, November 27, 2008

Thanksgiving

SEARCH BLOG: HOLIDAYS

We can all find something for which we can be thankful... even when economic times are difficult.

Our best wishes for a Happy Thanksgiving Day.

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Wednesday, November 26, 2008

Lansing Michigan Mayor Speaks Out

SEARCH BLOG: AUTOMOBILES

No pulling punches here.

Now Is The Time To Bankrupt Old Energy and Old Transportation

SEARCH BLOG: ECONOMY and POLITICS

If your goal is change, you make your move when what you want to change is weakest.

The Democratic Party has vowed to change our energy and transportation sectors into what I call the "California Model." More specifically, the San Francisco Model. This is built on the assumption that humans should be restricted:

  • in their power to manage their environment,
  • to small geographies... preferably high-density urban settings,
  • and to minimal energy consumption.

    This is accomplished by erecting barriers to:
  • electricity production
  • fuel production
  • vehicle production
until the San Francisco Model is met. This Model requires:
  • non-fossil fuel sources of electricity
  • non-fossil fuel sources of fuel
  • vehicles that do not use fossil fuels
I agree with these goals. We've given people more than two centuries with freedom of choice and that hasn't worked. It's time for change.

Then what's the issue here; why are some other people so reluctant to change? Two words: the means. At issue is whether the means justify the ends. Should the means include "bankrupting coal?" Should the means include artificially restricting supply of fuel? Should the means include forcing manufacturers and consumers to use technologies that are very expensive and possibly unmarketable at a price necessary to cover costs?

At present, every alternative source of energy and fuel requires massive governmental or business subsidies. Every alternative source of energy to fossil fuels is either erratic, unreliable, or far more expensive. Nuclear power is as or more reliable than fossil fuels for electricity production, but does not meet the San Francisco politically correct test... and it has been an expensive alternative.

It appears that either bankrupting or the threat of bankrupting old energy and old transportation is the preferred means to achieve the San Francisco Model. While this might be an economic inconvenience for tens of millions of non-San Franciscans, it can be effective in achieving the ends.

ADDENDUM

Well, it doesn't take long for a "good" idea to get around. From The New Republic:
As it turns out, a recession isn't a bad time to get started on climate legislation. Even if Congress raced to pass a cap-and-trade bill in 2009, it would take some time--likely a few years--just to set up a complex new regulatory regime. Moreover, as David Wheeler, a climate-policy expert at the Center for Global Development, points out, an economic slump actually offers a prime opportunity to start trading: If Congress sets the initial economy-wide cap at pre-recession levels, then pollution permits will be exceedingly cheap as long as the economy--and hence energy use--is still shrinking. (Indeed, the downturn in Europe has caused the price of carbon to hit rock-bottom levels.) This would give companies time to learn the system and plan for the future without being assailed right away by high prices.
... a complex new regulatory regime ... now that's the ticket to prosperity.

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Tuesday, November 25, 2008

Where's Waldo - Where's Warming?

SEARCH BLOG: WEATHER

The big challenge for NOAA this month will be to justify calling November "near normal."

There has been absolutely nothing "near normal" about it so far. If the Arctic is warming, it's only because all of the cold has entered the U.S.


This prediction for the whole month was fitting for the first week... and then the temperatures plummeted. In our "warmer than average" southeastern Michigan, the first week was 5-6°F above "normal." The weather for the next two weeks was so cold that the cumulative... including that very warm first week... was several degrees below normal. And the last week will continue that. Actually, the "average" daily temperatures were below the "normal low" temperatures. It has been more like December-January than November.

But don't worry, Dr. Hansen at NASA will run a few algorithms through the computer and history will be restated and "normal" will be lowered... and we will have had a much more pleasant than normal November.

I'll publish the final November data for this location in a week, but the story won't be changing.

Where the hell is global warming when you really need it? I guess we'll just have to set the thermostat back to 62° at night to keep the heating bills lower... until winter comes. Then we might have to keep it there day and night.

It's not just here in Michigan. My nonagenarian mother in Orlando was a bit peeved about the weather there, too. The normal high in mid-November is 79° and the low is 59°. This is what they had last week.

Global warming didn't go there either.
Yup, the heat must have bypassed the "lower 48" and gone straight to the Arctic.
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Monday, November 24, 2008

Eating Your Young

SEARCH BLOG: ECONOMICS

Let's ask a basic question: why do individuals, companies, and states engage in trade? We like to think that it is because there is mutual advantage in doing so. We also like to think that free trade and open markets are how trade works. We also like to believe in Santa Claus... even if for one day a year.

Trade is done for one reason: to gain an advantage. Implicit in that, is leveraging what we have, to get what we don't have, but that is not necessarily the reason... only one possible outcome.

When Great Britain became great, it was because they leveraged their naval power to establish foreign sources of items not readily available domestically. That included foreign labor at negligible costs. And they went after products not available domestically... spices for example... that could be sold for very high profit margins. Along the way, they picked up military control of vast sections of the world and literally siphoned off the wealth of those areas. Trade was simply a nice by-product of leveraging power.

Trade was that in name only. The give was far less than the take. But eventually, the give, while unintentional, became more important than the take as western science, methods, and processes were transferred to these domains.

Eventually, Great Britain began to loosen and lose control over these domains and it found that, while it was a great consumer, it didn't do very well as a "trading partner." Sure, it had a vast amount of accumulated wealth, but after two world wars and a government disposed to "sharing the wealth," it became apparent to most of the world that Great Britain had reverted to Britain.
Even its world-class universities and intellectual storehouse were insufficient to arrest the slide into second-class citizenship. It was just easier to watch its domestic manufacturers slide into oblivion or be taken over by foreign countries.
The U.S. hasn't taken quite the same path. We didn't colonize other nations for their wealth (if you don't count taking over the areas that are now part of the "states"), but we certainly used our military strength to encourage low cost trade with countries that might not otherwise be so concerned about a relationship with the west. Oil from the Middle East continued to flow after Great Britain's departure; Nigeria and Venezuela were also willing "partners" in trade. We took their natural resources and shipped them finished goods... and flourished as unskilled workers became educated and productive and well-off through jobs in our factories.

Then we discovered that we could trade jobs for cheap labor. We could still make goods elsewhere, but increase profit margins. Fair enough. U.S. citizens could find other jobs... nice service jobs. U.S. companies still controlled the products and manufacturing processes.

But wait! Why bother with the risk of manufacturing when we could just import what we needed. We could just brand the products and everyone would be comfortable buying the stuff. Who cares if Eddie Bauer western wear is made in China or Sears flat-screen TVs are from Japan and Korea? If some of the manufacturers used child labor or created unsafe conditions or provided goods that were unsafe after awhile, that was an acceptable risk.
But then some of those foreign nations figured out that if they were supplying the labor and the materials and the manufacturing, why not control the distributing and selling? Just hire Americans at lower pay than their U.S. companies employed counterparts. Honda design, Honda engineering, Honda components and assemblies, Honda assembly plants, Honda managers, Honda profits sent to Honda. The Great Britain model! They control everything and we supply the cheap labor to put the pieces together.

We'll even give away land and abstain from collecting taxes as did the great State of Alabama just to get those foreign "traders" to come in and give us jobs and tell us what to do... eh, Sen. Shelby? And we'll tax our U.S. industries more heavily to make up for it.

Why have those expensive domestic manufacturers when it doesn't take much to lure one of those "labor-efficient" ones from Japan or Korea or China? And... we won't have all of those damned, evil, well-paid executives in our country.

Also, our pension funds wouldn't have to buy stocks in those risky domestic manufacturers. The Chinese stock exchange will let us buy some shares of their industries... and we wouldn't even have to waste our time voting for boards of directors or management or environmental proposals.
Strange how that works out. Just like South Africa and Ceylon [Sri Lanka] and Nigeria we get the benefit of all of that foreign expertise and control.

No, it doesn't have to be that way... it's just so much easier to be that way. Ask Great Britain... I mean Britain.
It's not, as some would suggest, about trading steel for bananas or computers for oil. We don't seek to trade for mutual benefit... or just the things we can't make or grow more efficiently. We purchase from others because it's easier to not do things for ourselves. It's easier to let our "trading partners" siphon off our wealth and future for an inexpensive now. It doesn't matter if you are blue collar in Buffalo or white collar in Wichita. A good deal at Wal-Mart is all that matters.

And, strangely, those foreign nations and their companies seem more than willing to accommodate our desires. It's as if they think that they are getting a good deal.
Who cares if American industry goes bankrupt and goes away? As a nation, we don't need heavy manufacturing... unless you want to be able to make large, technically-complex things.
Look at a country like Switzerland. They make some watches and have some banks and cook up some pretty good chocolate products. We could be like Switzerland.

Look at Argentina. They make some nice wines and grow a lot of cattle. They don't produce submarines or aircraft. We could be like Argentina.

We don't have to be the world's policeman anymore. Europe doesn't need us. Asia is now peaceful and China will keep things that way. The UN will work just fine for keeping the Middle East peaceful and we are going to have one helluva diplomatic system with our new President and Secretary of State. So all of those tanks and bombers and missiles we use to make are pretty much artifacts of the past.
No, we can get by with a lot less. We don't really need all of those suburbs and cars and trucks and airplanes for CO2-producing trips... not with all of those available half-empty cities, practically-free houses, and welfare programs that keep on giving. We don't need all of that air-conditioning and heating and big buildings for working and shopping... not when we can take off or add clothes as needed and cardboard is very cheap and can be taped together easily as our space requirements grow. We don't need a lot of things. And we certainly don't need to obtain it or make it ourselves.
We can get it from Japan or Korea or China or India. Just ask Great Britain... Britain. They'll tell you how easy it is.
All we have to do is eat our young... give away their futures for an inexpensive today. Turn our fortunes over to the control of foreign companies and nations. Redistribute any productive U.S. energies to those who are perpetual "cultural victims."
Steel, textiles, televisions, automobiles, aircraft. Who needs to have them made by American companies when we can have McDonalds... or Burger King if you want it your way?

Gone!
That's what Vietnamese workers are for.

Gone!
We can send the Japanese some chicken tacos in exchange... okay beef tacos... they like beef as long as there is no mad cow... and ash wood for baseball bats [until the Emerald Ash Borer from China kills all of those trees... just another trade victim].

Mostly gone!
The Chinese do it cheaper and they don't need all of those safety and pollution regulations!

Going fast!
Let the Koreans make them... they need the jobs

May never get here.
We don't need this anyway... and, if we do,
we can get this for 1/3 the price from India... they have all of the Ph.Ds now.

I know, I know... I'm just being dramatic. The issue is really much too small to be of concern.

Besides, life is good... just ask him.
Don't need no stupid job....

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Sunday, November 23, 2008

What's The Difference?

SEARCH BLOG: ECONOMY and AUTOMOBILES

There are times when philosophy defies reason. If you accept a certain premise, then you can be logical in your conclusions... but not necessarily reasonable.

Some bloggers and politicians and economists... philosophers all... see nothing wrong with allowing the American automobile [and truck and tank and military transport] manufacturers go into bankruptcy and take the automotive supply base with them. It will allow a "fresh start" if there is anything remaining. It's the hypothetical "free market" in action!

The argument is given that since the airlines survived bankruptcy, why not the automobile manufacturers? First of all, have you ever heard of apples and oranges... or producers and consumers?

The airlines are consumers, not producers. Northwest and American and United don't make anything. Boeing and Lockheed manufacture aircraft... and missiles... and space craft. Any comparison with aircraft and automobile manufacturing should be between GM, Ford and Chrysler... and Boeing and Lockheed... not Northwest and American.
I just finished commenting at one site that saw no real reason why bankruptcy wasn't a good option for the American automobile manufacturers. You can read a more detailed argument here, but my comments on that site are below:
There are always alternatives.

- American steel is as vibrant as ever... well maybe not
- American television manufacturers are as vibrant as ever... well maybe not
- American textiles are as vibrant as ever... well maybe not
- American balance of payments are as strong as ever... well maybe not
- American middle class is growing and prospering... well maybe not
- American per-capita wealth is growing faster than any place else in the world... well maybe not
- America is producing the highest percentage of the world's Ph.Ds than ever... well maybe not

There is a difference between self-sufficiency and self-delusion. America no longer sees value in producing what it needs. Rather it seeks to find the next get-rich-quick scheme... dot-coms... flipping houses... oil stocks.

You are correct. We don't have to produce trucks and cars. We can allow the system to collapse and the Japanese and Koreans and Europeans will continue to state-sponsor their own industries. Likewise, we don't have to manufacture our own aircraft because the French and British and Russians and Chinese will be happy to do so.

Likewise we don't have to produce our own energy or food. The Saudis and Venezuelans will handle the oil while we can get our food from South American and Latin America.

Why, we don't have to do anything except blog and take vacations and consume and have university professors talk about CO2 and politicians talk about sharing the wealth.

And then we live happily ever after... well maybe not.
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Saturday, November 22, 2008

Alarmist Henry Waxman To Save U.S. From Global Warming

SEARCH BLOG: GLOBAL WARMING

As more scientists are concluding that global warming simply is not taking place, the U.S. Congress has selected avowed alarmist Henry Waxman to chair the House Energy and Commerce Committee.

Mr. Waxman believes our greatest danger is CO2, rather than lack of reliable fuel for electricity and vehicles and commerce. He sees himself as a visionary, but the reality is that he has distorted vision. That makes his leadership of that committee doubly dangerous.

Perhaps that is from living in California... a malady shared by Nancy Pelosi. Certain Californians believe that their state should be the model for the rest of the United States.

For those working men and women who voted for the likes of Obama, Pelosi, and Waxman on the premise that they would provide a path to a better life, you are about to see what happens when ill-informed idealists gain power.

God help us!

PELOSI-WAXMAN CALIFORNIA SUPER-HYBRID

There's a "viability plan" for everything.

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Friday, November 21, 2008

U.S. Aircraft Manufacturers Declare Bankruptcy

SEARCH BLOG: ECONOMY and GOVERNMENT

U.S. Congress ... this one's for you.

  • Suppose the economy goes into a protracted tailspin [good metaphor for this]
  • Then suppose U.S. airlines decide to consolidate and not purchase new planes
  • Then suppose our new president is successful at disengaging our military from the Middle East and keeping it out of any other conflicts.
  • Then suppose the new Congress [you] decides that the military budget is better spent on developing hydrogen gas facilities in New Mexico and North Dakota [something like that was proposed the other day in the Senate/House hearings on aid to automobile manufacturers]
  • Then suppose other nations' state-sponsored aircraft manufacturers decide that they will eliminate taxes imposed on their manufacturers and provide manufacturing subsidies for materials and labor expenses in order to give their manufacturers a worldwide competitive advantage
  • Then suppose the U.S. aircraft manufacturers are in a cash deficit position and they can't get financing due to the poor economy and the collapse of their markets
  • Then suppose they come to Congress [you] and say that they will have to liquidate if they don't get help.
What do you suppose the response from Congress [you] would be? Why?
  • Which of you will ask to let the free market work knowing full well that the domestic airlines can buy their planes from Britain or France or Russia or China instead of U.S. manufacturers?
  • Which of you will say that it doesn't matter if the U.S. military has to buy its planes and logistical support for the aircraft from those countries? ...the same ones who say those things about U.S. automobile manufacturers?

    The Boeing Company and Lockheed Martin have teamed to perform studies and system development efforts including collaborative research and development in pursuit of the anticipated U.S. Air Force 2018 Bomber program

  • Is there an inherent difference between two high-tech, massive industries that have both civilian and military application... and cannot be replaced domestically?
Our economists and government officials have shown themselves to be anything but prescient about the economy. Why do you think they are making more sense now with regard to the impact of not helping U.S. automobile manufacturers?
  • Pelosi: "We're talking about the need for accountability, the need for viability" not the source of money to help automakers.
  • Reid says automakers must develop bailout proposal that can pass congressional muster during week of December 8. [source]
In other words... read our minds and tell us what we are thinking... if we are thinking.

Well, how is this for a viability plan:
  • Congress takes action against Asian countries who have been manipulating their currencies for decades by adding import tariffs and penalties equal to the imputed undervalued amount of the imports plus the avoided taxes on the imputed undervalued amount and uses that money to assist its U.S. manufacturers
  • Congress restricts the U.S. marketplace share for all Asian countries that have actively restricted their markets... equal to the market share achieved by all foreign brands in each of those markets; for example, if foreign brands equal 10% of the restricted Japanese market, then limit the Japanese imports (value of complete vehicles and components) to 10% of the U.S. market. *
  • Congress assumes all health care costs for U.S. manufacturers employees as Asian nations do for their automobile manufacturers [that's part of the next administration's agenda anyway]
  • Congress assumes all unemployment costs for the employees temporarily or permanently laid off by the U.S. manufacturers
  • Congress directs all banks to stop hoarding their own bailout money and begin normal commercial lending immediately

    or

  • Congress recognizes that its own failure to enforce treaties and police currency manipulation has contributed greatly to the plight of the U.S. manufacturers... and does the right thing... recognizing that the U.S. companies and the UAW have taken enormous strides to be competitive players in a rigged game... and that our high-tech, heavy industry is vital to the national interests.
That's a plan for viability. Okay, I was being a little facetious... a little. But if Congress is looking for the reasons a plan is needed, start with a mirror.
And, no, the aircraft manufacturers have not declared bankruptcy... yet.
See, we don't need no stupid American aircraft manufacturers.
The Russians will trade us military aircraft for our American-built, high-definition, flat-screen televisions (oops).
__________
*
What restrictions? Sure we can buy from Japan... and now Korea... and China? Isn't that the viable plan that Congress has been working on for two decades?
3. H.CON.RES.78 : Urging the reduction of barriers to Americans trading with or investing in Japanese companies.
Sponsor: Rep Sundquist, Don [TN-7] (introduced 2/27/1991) Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 4/5/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

5. H.RES.133 : To express the sense of the House of Representatives regarding agreements between the United States and Japan with respect to trade in semiconductors.
Sponsor: Rep Mineta, Norman Y. [CA-13] (introduced 4/24/1991) Cosponsors (46)
Committees: House Ways and Means
Latest Major Action: 5/1/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

8. H.RES.331 : Expressing the sense of the House of Representatives regarding the opening of Japanese markets, and for other purposes.
Sponsor: Rep Bruce, Terry L. [IL-19] (introduced 1/28/1992) Cosponsors (15)
Committees: House Ways and Means
Latest Major Action: 2/4/1992 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

Sales of imported vehicles by all foreign car makers totaled 14,406 in August [2007] [about 168,000 annually], down from 15,249 in the same month last year. Among the top three foreign brands by sales volume, Volkswagen saw sales drop by 1.5 percent on the year and BMW sales fell 21.3 percent. Mercedes Benz saw an increase of 3.3 percent. [Note: Japan's population is approximately 42% of the U.S.]

Toyota and Honda
, excluding other Japanese brands, sold over 240,000 vehicles... in the month of September, 2008.
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Thursday, November 20, 2008

Thaddeus McCotter's Statement In Support Of Loan To Automobile Manufacturers

SEARCH BLOG: AUTOMOBILES



Thanks to the McCotter staff.

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Not There Yet

SEARCH BLOG: ECONOMY

Bill sent me another email yesterday:

DOW 6400 or lower

More Twists & Turns to Come?
http://www.cnbc.com/id/15840232?video=932115326&play=1

Good video interview. I agree.

DOW 4500 is my projected worst floor. DOW 6500 is likely to be a sure bet. Not much to keep the DOW from sliding that much during the next 12 months.
I responded:
Think of the buying opportunities. [discussion about investments] Houses on the other hand....

It is possible that we might have a deflationary period given the energy price pullback and the collapsing consumer sector. Last November 29, I projected oil at $51 per barrel [and Goldman Sachs said $200]. It is now $53; an easy call. Good news for fixed income folks... assuming they keep their fixed incomes. Taxes will have to skyrocket after Obama's honeymoon is over.

The Dow is roughly where it was a decade ago when all of the bubbles began. We've added a few million people since then, so that tells me things are worse. We've had a decade of inflation, so that tells me that things are quite a bit worse. In real terms, the Dow is probably 40-50% less than 1998... maybe around 5000 in 1998 $. If it gets to 5000 in today's $, we are looking at a minimum of a 10-year recovery... which is why I have been comparing this to the Japanese recession in the 1990s...

Obama wanted to be president. Careful what you wish for; you might get it.
Now there are many calling for the bankruptcy of General Motors, Ford, and Chrysler. Again... be careful what you wish for....



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Wednesday, November 19, 2008

It's A No Brainer

SEARCH BLOG: AUTOMOBILES

Professor Jeffrey D. Sachs, Director, The Earth Institute;
Quetelet Professor of Sustainable Development and Professor of Health Policy and Management, Columbia University

Take 3.7% of the $700 billion and avoid a depression... it's a no brainer.

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Thaddeus McCotter

SEARCH BLOG: AUTOMOBILES

Just listened to Thaddeus McCotter, representative from Michigan's 11th district, speak about the issue of loans for the automobile industry.

If anyone can find a video segment of this, please let me know where it can be obtained.

It is, perhaps, the most succinct, rational statement regarding this issue that I have heard in two days.

ADDENDUM

In the absence of a video of Rep. McCotter's statement before the House hearing...

Wednesday, Nov 19, 2008

Rep. McCotter Defends Auto Industry on WWJ Morning Drive Radio

Download this episode (6 min)
Congressman McCotter defends auto makers and auto workers, especially those living and working in southeastern Michigan, as he prepares for the Financial Services hearing.

From Rep. Thaddeus McCotter's site.

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Senate Auto Hearings

SEARCH BLOG: AUTOMOBILES



I spent the better part of the afternoon watching the Senate hearing with the "Big 3" auto executives... Messrs. Mulally, Nardelli and Wagoner... plus the UAW's Ron Gettelfinger, making their case for money, while Peter Morici, a business professor at the University of Maryland, played devil's advocate for bankruptcy.

I believe it was professor Morici who pointed out that it was basically the American companies [that were hindered by our government's failure to address currency manipulation and treaty violations] versus a combination of foreign countries and their national companies that work as one.
For the most part, the meeting was cordial on the surface. Rick Wagoner seemed a little uncomfortable at times in his role and got a little testy with Sen. Corker from Tennessee. Alan Mulally was a bit reluctant to divulge what he felt was "proprietary" financial information at one point, but was otherwise comfortable and cooperative. Robert Nardelli was properly humble, but very professional.

The senators had their own agendas. Sen. Dodd seemed to be an advocate for the companies although he had his obligatory pronouncements about the "bad old days" of the auto industry fighting Congress. He was not that open to the idea of bankruptcy and even praised the auto industry for paying UAW workers 95% of their normal pay when plants were shut down for extended times... a point that Sen. Corker found objectionable.

Sen. Shelby from Alabama had no problem with the idea of the American companies going bankrupt. Why loan money to those companies when only a few million jobs may be affected? After all, those companies should have known the financial network was going to require saving and should have done something about it. He didn't seem impressed by the massive restructuring and contract renegotiations with the UAW that have occurred over the past five years.
If the federal government had done the same thing over the past five years, we'd all get a huge tax break... but that's another story.
Sen. Tester from Montana brought the good old farmer shtick and wondered why there hadn't been big improvements in the fuel economy of big pickup trucks. Mr. Mulally offered to provide information about the improvements. Sen. Bennett from Utah played the wise old philosopher who talked about how "patient public money" was needed now that impatient private money was in short supply... but wanted assurances that it was going to be used well and repaid.

Sen. Casey from Pennsylvania reminisced about the steel industry demise and how important it was to not let the industrial base get clobbered again... and lose all of the associated jobs. He did like the idea of pushing the green agenda.

The three executives were not very receptive to increasing the CAFE standards that were just agreed to citing the fact that they were already "stretch" objectives and based on some iffy technology implementation.

The upshot was that Sen. Dodd thought that while the money was truly needed, he didn't have much confidence that it would be available until the next session of Congress. Messrs. Nardelli and Wagoner testified that they could well run out of money by the end of the year, while Mr. Mulally said Ford might be able to handle things through 2009 unless the economy worsened significantly.

The executives made their case. The senators listened and made their personal positions known... some in support and some quite skeptical. Let's just say that I would not like to be Mr. Nardelli or Mr. Wagoner right now. Mr. Mulally has a little more flexibility because, under his leadership for just two years, Ford did a whole lot better preparation for the worst... which has arrived.

Sen. Levin from Michigan indicated earlier that the auto executives should be willing to leave the companies in exchange for the aid.
Sen. Levin has conveniently forgotten that when the federal government fails in running within budget and economic constraints... as it does frequently when legislating pet projects... that it simply prints more money... something that automobile executives cannot do. Perhaps all of those government "executives" should be willing to resign.
Let's hope that other senators have more common sense. Alan Mulally at Ford, for one, has turned an impossible situation into a possible one... and that's something I'm certain the honorable senator from Michigan could not have done in his place.
CSPAN had the 4 hours of video on their site and it may still be there.

Struggling Auto Industry

Today

Auto executives from GM, Ford and Chrysler testify on the challenges facing their companies and ways to stabilize & strengthen the industry at a Senate Banking hearing. Chairman ChrisDodd (D-CT) has been a supporter of giving some of the $700 billion Federal Intervention funds to help the automobile industry.



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Tuesday, November 18, 2008

It Will Take More Than Hope To Have Positive Change

SEARCH BLOG: ECONOMICS

The problem facing the economy is that it's difficult to see where things can or will turn positive over the next six months. Hoping and wishing won't do anything. Planning and scheming are nice, but won't change the facts.

Over the past decade, there have been too many negative changes to be absorbed and for which adjustments must be made.

  • The only long-term growth sectors have been the federal government and health care
  • Four major economic dislocations have occurred: dot-coms, housing, credit, and energy
  • Personal investments have been stagnant or negative since 2000
  • The bridge between the unskilled or semi-skilled and the middle class has been deteriorating as well-paid manufacturing jobs have been exported
The wealth of the 21st century's first decade has proven to be largely illusory and home and financial investment values have plunged more than 1/3... perhaps closer to 1/2 in some areas. Any recovery will not be lead by consumers.

Without consumers leading the way back, manufacturers will have to allow inventories to be depleted to conserve resources. This will only extend the recession. Once inventories are exhausted, businesses will begin producing to meet the lower level of demand. For many businesses, the question of survival is greater than the question of return to healthy profits. Any recovery will not be lead by business.

The government has been spending money like a drunken sailor. Over the past decade, the growth of the federal government has been focused on both the war effort and social experiments. Regulation and de-regulation have been implemented without a central strategy and have resulted in ambiguities, inconsistencies, and outright conflicts.
For example, while making domestic manufacturing more difficult in the U.S. due to a variety of regulations with marginal economic value, the same government has opened up pathways for importing products from China that are inferior and unsafe and manufactured in highly-polluting and dangerous processes. While this has temporarily reduced the purchase price of products bought in the U.S., it has undercut manufacturing and associated employment thereby eroding the basis for a sustainable economy.
Any recovery will not be lead by government.

What is more likely is a protracted period of aborted recoveries based on the hope that this or that program... such as bankrupting coal to push inefficient wind and solar energy... will provide the necessary spark.
The U.S. likely will experience a 1990s Japanese recession that results in a smaller, less dynamic economy.
Businesses and individuals will become more dependent on government for direction and credit and security.

Any real recovery will come only after it becomes painfully obvious to all that the double-digit growth of government has been the source of our economic problems. Onerous regulations, excessive spending, mismanagement of resources, political gamesmanship, special interests, and blatant ignoring of the law itself have been the products of our governments. Social and economic deconstruction are now the legacy.

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December Cancelled

SEARCH BLOG: WEATHER

Due to the poor economy, Mother Nature has agreed to skip the December holidays and go directly into January. Perhaps we can get things going with the clearance sales.

Monday, November 17, 2008

Auto Companies Loan Money To The Government

SEARCH BLOG: AUTOMOBILES

For decades, the automobile manufacturers have loaned billions of dollars out of their profits to Washington in order to produce a government that was not wasteful and would strengthen the interests of American business throughout the world.

Unfortunately, the government has failed miserably in that task, choosing to give that money to corrupt and questionable regimes, organizations, and unworkable causes while allowing the home market of American automobile manufacturers to be overrun by foreign manufacturers whose own home markets are protected against those American companies. This combination of continually requiring large loans from the American automobile manufacturers as their markets are fragmented, while simultaneously creating burdensome regulations for them, has left the American automobile manufacturers with serious deficits in operating capital.

Additionally, state governments also have required large annual loans based on the property value of these companies... whether these properties are actually making money for the companies or not. Instead of using these loans to improve the educational level of their residents and, thereby, provide a pool of knowledgeable, highly-skilled potential employees, these states have allowed these loans to be used by educational systems that barely graduate 2/3 of their students... and then more wasteful state welfare programs are required to support these dropouts... programs that require more loans from the American automobile manufacturers.

The problem was the failure of the American automobile manufacturers to set conditions on these loans. The primary condition should have been a preferred equity position in the government with priority given to any issues deemed important to those manufacturers. I'm sure the Democratic Party would have concluded that was a reasonable and fair condition.

Alas, the American automobile manufacturers did not demand this condition as part of the decades of loans to the federal and state governments. Consequently, now that these manufacturers have their own cash flow problems, they have little leverage in getting a portion of those loans repaid.
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Sunday, November 16, 2008

I Seriously Do Not Believe That

SEARCH BLOG: GLOBAL WARMING

In the Detroit Free Press:

Violence could mount as Earth's temperature rises
Food shortages, disasters to fuel war, experts say

BY SCOTT CANON • MCCLATCHY NEWSPAPERS • November 16, 2008

KANSAS CITY, Mo. -- A warmer planet could find itself more often at war.

The Earth's fast-changing climate has a range of serious thinkers -- from military brass to geographers to diplomats -- predicting a spate of armed conflicts driven by the weather.

Shifting temperatures lead to shifting populations, they say, and that throws together groups with long-standing rivalries and thrusts them into competition for food and water.

"It's not hard to imagine violent outbursts," said Julianne Smith of the Center for Strategic and International Studies.

I think there is more likelihood that battles may be fought over scarce energy sources as people are faced with ill-advised government policies that make heating homes prohibitively expensive.


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Old School Military Thinking

SEARCH BLOG: AUTOMOBILES

From The New York Times:

AMERICA’S automobile industry is in desperate trouble. Financial instability, the credit squeeze and closed capital markets are hurting domestic automakers, while decades of competition from foreign producers have eroded market share and consumer loyalty. Some economists question the wisdom of Washington’s intervening to help the Big Three, arguing that the automakers should pay the price for their own mistakes or that the market will correct itself. But we must act: aiding the American automobile industry is not only an economic imperative, but also a national security imperative.

When President Dwight Eisenhower observed that America’s greatest strength wasn’t its military, but its economy, he must have had companies like General Motors and Ford in mind. Sitting atop a vast pyramid of tool makers, steel producers, fabricators and component manufacturers, these companies not only produced the tanks and trucks that helped win World War II, but also lent their technology to aircraft and ship manufacturing. The United States truly became the arsenal of democracy.

During the 1950s, advances in aviation, missiles, satellites and electronics made Detroit seem a little old-fashioned in dealing with the threat of the Soviet Union. The Army’s requests for new trucks and other basic transportation usually came out a loser in budget battles against missile technology and new modifications for the latest supersonic jet fighter. Not only were airplanes far sexier but they also counted as part of our military “tooth,” while much of the land forces’ needs were “tail.” And in those days, “more teeth, less tail” had become a key concept in military spending.

But in 1991, the Persian Gulf war demonstrated the awesome utility of American land power, and the Humvee (and its civilian version, the Hummer) became a star. Likewise, the ubiquitous homemade bombs of the current Iraq insurgency have led to the development of innovative armor-protected wheeled vehicles for American forces, as well as improvements in our fleets of Humvees, tanks, armored fighting vehicles, trucks and cargo carriers.

In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didn’t have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.

More challenges lie ahead for our military, and to meet them we need a strong industrial base. For years the military has sought better sources of electric power in its vehicles — necessary to allow troops to monitor their radios with diesel engines off, to support increasingly high-powered communications technology, and eventually to support electric propulsion and innovative armaments like directed-energy weapons. In sum, this greater use of electricity will increase combat power while reducing our footprint. Much research and development spending has gone into these programs over the years, but nothing on the manufacturing scale we really need.

Now, though, as Detroit moves to plug-in hybrids and electric-drive technology, the scale problem can be remedied. Automakers are developing innovative electric motors, many with permanent magnet technology, that will have immediate military use. And only the auto industry, with its vast purchasing power, is able to establish a domestic advanced battery industry. Likewise, domestic fuel cell production — which will undoubtedly have many critical military applications — depends on a vibrant car industry.

To be sure, the public should demand transformation and new standards in the auto industry before paying to keep it alive. And we should insist that Detroit’s goals include putting America in first place in hybrid and electric automotive technology, reducing the emissions of the country’s transportation fleet, and strengthening our competitiveness abroad.

This should be no giveaway. Instead, it is a historic opportunity to get it right in Detroit for the good of the country. But Americans must bear in mind that any federal assistance plan would not be just an economic measure. This is, fundamentally, about national security.

Wesley K. Clark, a retired Army general and former supreme allied commander of NATO, is a senior fellow at the Burkle Center for International Relations at the University of California at Los Angeles.
What is wrong with this article? Several things.
  • Gen. Clark is retired and old and white... he doesn't have a functioning brain anymore.
  • The vast majority of U.S. voters [52%] elected a president who sees the military budget as bloated and is dedicated to peaceful, diplomatic resolution of any future disagreements.
  • We have shown that it is not necessary to actually produce anything in the U.S. in order to have a vibrant economy... further, we can outsource our military transportation needs to China which can produce cheap Hummer knockoffs for much less than GM.
Besides, just how far do you think an electric powered military vehicle could go before it ran out of a charge? Where would they plug in the damn things in the middle of a desert?

[HT George Lowe]
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Cheap At Any Price

SEARCH BLOG: HOUSING


You know the economy is not well when the foreclosures section is larger than the rest of the Sunday paper.

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Saturday, November 15, 2008

It's Much Hotter Now That We Revised History

SEARCH BLOG: CLIMATE

This first came to my attention earlier this month in Icecap. Anthony Watts then turned it into an animation.



These are images from NASA data in which historical temperatures were made colder and recent temperatures were made hotter.
See, all you need is a computer to make global warming.
Go back and read the articles at the two links above.

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U.S. Economy At A Glance

SEARCH BLOG: ECONOMY

From the Bureau of Labor Statistics... industry rank by employment change.

Top Ten Growth... health care and government...

  1. Ambulatory health care services
  2. Hospitals
  3. Federal, except U.S. Postal Service
  4. Food and beverage stores
  5. Social assistance
  6. Support activities for mining
  7. Motion picture and sound recording industries
  8. Sporting goods, hobby, book, and music stores
  9. Nursing and residential care facilities
  10. Amusements, gambling, and recreation

Top Ten Losers... production and transportation...
77. Administrative and support services
76. Transportation equipment
75. Specialty trade contractors
74. Motor vehicle and parts dealers
73. General merchandise stores
72. Durable goods
71. Construction of buildings
70. Credit intermediation and related activities
69. Food services and drinking places
68. Fabricated metal products
That's a fairly representative picture of things... a sick nation run by the federal government.

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Friday, November 14, 2008

Let The Big 3 Drown

SEARCH BLOG: AUTOMOBILES and ECONOMY


... another perspective.

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What Were the Causes of Japan's "Lost Decade"

SEARCH BLOG: ECONOMICS

Could the U.S. be facing a protracted economic recession such as the one that hit Japan in the 1990s? It is a legitimate question given the similarities of a massive economic bubble in real estate and tech that sent Japan into a deflationary cycle that even 0% interest rates didn't affect for many years.

The following is a high-level, but technical analysis of the Japanese experience. When you get to the conclusion, you can decide for yourself how relevant it is for the U.S. I can see a direct parallel for Michigan.

What Were the Causes of Japan's "Lost Decade"

KOBAYASHI Keiichiro

KOBAYASHI Keiichiro's Photo

Fellow, RIETI

With concerns about a deflationary spiral and a financial crisis largely over, it seems the Japanese economy has almost returned to normal. But we have yet to see a commonly accepted and clear-cut theory as to what factors were responsible for the prolonged economic recession that lasted for more than a decade.

In this column, I present the results of an analysis of the Japanese economy using a method called "business cycle accounting (BCA)" and examine what factors were crucial contributors to the prolonged economic recession (for detailed analytical results, refer to the RIETI Discussion Paper: "Business Cycle Accounting for the Japanese Economy").

What is business cycle accounting?

Even if we do not know the exact cause of a particular recession, we can obtain clues to infer the cause of and solutions to the recession by measuring the "wedge" distortions that occur in various sectors of the economy such as the investment, labor and fiscal sectors. Business cycle accounting has been proposed by a group of economists at the University of Minnesota (V. V. Chari, P. J. Kehoe and E. R. McGrattan) as a way of measuring these wedges.

Assuming an economy can be approximated by a neoclassical economic growth model, we can derive a relational equation that is theoretically valid when each sector is efficient. For example, provided that labor inputs remain efficient, the marginal rate of substitution between consumption and leisure (MRS, i.e., the increase in consumption for which a consumer is willing to work by sacrificing one extra unit of leisure) should theoretically be equal to the marginal productivity of labor (MPL, i.e., the increase in production from each additional unit of labor). However, when labor inputs become inefficient for whatever reason, MRS and MPL do not match. The degree of discrepancy between MRS and MPL shows the size of the wedge for labor input. We can measure the wedges for investment and productivity in the same way.

With respect to the measured wedge of each sector in the economy, model simulations can also be performed to show how economic performance would change with or without the wedge. If there is little difference in the results with or without investment wedge, for example, we can conclude that distortion in the investment sector had little impact on the economic performance. Thus, by performing simulations, we can infer which wedges were crucial contributing factors to the so-called lost decade in Japan.

Accounting for the prolonged economic recession of Japan

Figure 1 below shows the results of simulations for various sectors in the Japanese economy. First, we calculated the degree of distortion in labor input, capital investment, change in productivity, and change in government expenditure - the labor, investment, efficiency and government wedges, respectively - as plausible factors contributing to the recession. The contribution of these wedges to the change in gross national product (GNP) is shown in Figure 1.

figure1

The bold line (1) shows real economic output as measured by GNP. The straight line (2), which represents the benchmark, shows GNP held at a constant, based on the assumption that all the four wedges - labor, investment, efficiency and government - remain at their respective values in the 1980s. This is the benchmark for measuring fluctuations in economic performance from the 1990s onward. Lines (1) and (3)-(6) indicate relative values against a benchmark GNP of 100 (1981=100).

The government wedge, that is, the impact of changes in government expenditure on the economy, is shown by line (3). Line (3) stays above the benchmark throughout the 1990s, which means that fiscal expenditure continued to have a stimulative effect on the economy in the 1990s. It should be noted that this effect was not lost even in 1997 when the consumption tax rate was raised to 5%. Thus, the conventional view that the consumption tax hike triggered the deterioration of the economy does not match the BCA results.

The efficiency wedge, which is the change in output attributable to changes in productivity, is shown by line (4). The shape of this line resembles that of line (1), which represents actual output, but line (4) remained above the benchmark until the late 1990s, the time when Japan was hit by a financial crisis. This suggests that the depressive effect of the decline in productivity was not so strong during the early and mid 1990s. One widely held theory attributes the prolonged recession to an unexplained decline in productivity. But the BCA results point to the possibility that the decline in productivity might have not been a major contributor to the prolonged recession.

The investment wedge - the change in the economy attributable to distortions in capital investment - is shown by line (5). This line remained close to the benchmark in the 1990s, suggesting that a decline in private-sector capital investment was not a major cause of the deterioration of the economy. This also contradicts somewhat the generally accepted notion that underinvestment by the private sector, which arose as many companies suffered from debt overhangs and the credit crunch, was responsible for the recession. According to the BCA results, the investment channel might not have been inefficient.

What is apparent is that distortions in labor input were a major factor in the recession. Line (6) shows the depressive effect of labor input on the economy. We can see that the labor wedge deteriorated sharply from the beginning of the 1990s. When we compare this with the other wedges, it is clear that distortions in labor input were the biggest contributor to the prolonged recession.

Why did labor input deteriorate?

The BCA results show that the increased distortion in labor input (i.e., the increasing discrepancy between MRS and MPL) contributed to the prolonged recession. There are several possible explanations for this increasing inefficiency of labor input.

One is that distortions in labor input occurred as a result of long-term structural changes in the Japanese economy. If so, changes in the labor wedge must have been occurring long before the recession, that is, independent of the recession. One illustration of this is when employees' bargaining power in wage negotiations is increasing as a result of a rise in their social status. This may be reflected in the data in the form of increasing distortions in labor input.

figure2

Figure 2 shows the change in the labor wedge over the last two decades. We can see that the labor wedge (shown by the light gray line) began to deteriorate in 1984. However, this may be the result of measurement error. Indeed, recalculation using a modified production function1 gives the bold line, which shows that the deterioration of this modified labor wedge began only after the recession. It is therefore possible that the original finding - that the deterioration of the labor wedge began prior to the onset of the recession - is the result of measurement error.

If the deterioration of the labor wedge and the recession began at the same time, what caused the deterioration of the labor wedge? A standard explanation points to sticky wages (or downward rigidity). This wage rigidity, combined with a deflationary shock, such as a contractionary monetary policy, pushes up real wages, resulting in inefficient labor input. This explanation fits with what actually occurred in the early 1990s: The Bank of Japan tightened monetary policy sharply in the final phase of the bubble economy. But the explanation appears to contradict the data from the latter half of the decade. Although the labor wedge continued to deteriorate throughout the 1990s and afterward, real wages began to fall in the mid-1990s. Had the rise in real wages contributed to the deterioration of the labor wedge, the rise in real wages should have continued in the second half of the 1990s.

What then can account for the continued deterioration of the labor wedge in the latter half of the 1990s? My preferred hypothesis is that declines in land and share prices may have aggravated the labor wedge, with this negative impact coming in the form of collateral constraints. When collateral constraints are incorporated into a standard neoclassical growth model, a decrease in collateral values depresses consumption, causing a decrease in labor input. That is, it appears that in an economy where collateral constraints exist, the labor wedge deteriorates when asset prices continue to fall. This hypothesis seems convincing given that loans backed real estate are the primary means of financing in Japan and that land prices continued to fall in the second half of the 1990s and afterward.

BCA analysis of the Great Depression in the U.S. also shows that the labor wedge sharply deteriorated from the 1930s onward. The deterioration of the labor wedge thus appears to be significantly associated with the occurrence of a Great Depression-type slump. Clarifying why the labor wedge deteriorates during such slumps is a major challenge in establishing a viable economic theory of prolonged recessions.

September 6, 2005
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How Organized Crime Works

SEARCH BLOG: CRIME

Organized crime has been involved in a variety of efforts from drugs, to alcohol, to prostitution, among others. They are involved because 1) there is an illegal market and 2) there is a high financial reward despite a high risk. But there is one time-tested, profitable activity that requires neither offering a risky product nor having an illegal market: extortion.

It works something like this:

  1. target an individual, business, or industry that has a large wealth base
  2. create a situation that places financial strain on the target through added costs that are extraneous to normal business
  3. when the target is sufficiently weakened financially, offer to provide financial assistance for a high payment
  4. take control when the target is unable to continue operating under the burden of the artificially imposed financial drain
A real-life example. And in case you missed it... this.

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Can"t Find It?

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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CO2 Cap and Trade

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

FEDERAL RESERVE & HOUSING

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."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"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."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
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 Economy.com. "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

My photo
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)