Farewell to the year of the bailout

Now that 2009 has come and mostly gone, we can all feel a little bit older and a little bit more indebted. This year saw the stimulus package, the first trillion dollar annual deficit, and the worst unemployment in a generation. Hopefully with the new year some sense will be restored to the financial principals of this nation.

What to look forward to in the new year?:

The tallest building known to man will be opened
The Winter Olympics in Vancouver
The World Cup in South Africa
The final Space Shuttle mission
The Boy Scouts of America turn 100
The Decennial Census
The Midterm Elections on November 2


Here's to hope in 2010

One instance where centralization is beneficial

Amidst many stories about continuing unemployment, Tiger Woods and his seven mistresses, and the mindless stories about the shopping season, I found an interesting story courtesy of Bloomberg. In this tale of wonder, a country sees impending trouble from overinvesting as an economy recovers and decides to take action, limiting the amount of lending in the coming year to avoid an investment bubble. This country has a neighbor who lived across a pond and saw the same thing several years ago, but instead gave out extra money thinking that everyone would contiue growing forever. In fact, this neighbor actually lowered interest rates when the economy was booming, while removing any regulations on risky investing in collateralized debt obligations and mortgage-backed securities.

Can you believe the first country is China and the second is us?

The moral of the story is that some regulations make sense if there is irrational behavior going in a market. The first message should be that when an economy grows the amount of money needs to grow slower to prevent inflation. Doing the opposite, ie lowering interest rates during expansion, overheats the economy and causes bubbles to form as riskier and riskier moves become necessary to "beat" the market since inflation cuts down on real gains. The second message is that the completely unregulated financial world in the US is not something the rest of the world is emulating us on, and it is to our detriment that we continue down a course of lax regulation and unfree trade while the rest of the world does not.

A Quick Thought

Today someone asked how economic can be a field where the same data results in two totally different theories. The answer is that economic systems are ultimately based on individuals, and not all will act rationally and in their own self interest. In a perfect world, everyone would be a profit maximizer who did all of their actions to maximize benefit compared to cost, however that is not true for societies of millions upon millions of people. People become swayed by emotion, confuse short term and long term goals, and make decisions with the interests of others in mind. Since these actions are a part of human behavior, economic models must deal with such variables and there is a discord between the theoretical and the practical.

A Seedy Business Perhaps?

Browsing through the financial stories today I came across a particularly interesting storyi nvolving the largest US seed manufacturer, Monsanto. The United States DOJ is investigating whether their use of patented seed results in antitrust by having users controlled by the seed supplier. For example, the soybean crop in the United States uses 96% Monsanto seeds, so anyone wishing to produce the crop is pretty much reliant on a single supplier. This is called monopsony.

Monopsony is the same principle as a monopoly, but reflecting a single buyer(IE inelasticity in the supply curve) versus the single seller (inelasticity in the demand curve) of a monopoly. Frequently monopsonies arise from issue where government is the sole buyer, such as a universal healthcare system, research funding, and in analysis of labor markets for welfare economics. One example of a monospony would be the labor market in a small town with one major ocmpany, say a Wal-Mart or a mine, for instance. Since the single employer has no outside competition, since there is no store which can compete with the company becuase there is some economic factor preventing competition, the employer can charge below market wages since they have price-making power. This difference in wage at the the output level of the monopsonist is exploitation, since a free(completely competitive) economy would pay a worker W(higher) while the wage taker pays (W(monopsony). In other words, by controlling the ability to hire in a market, the monopsonist firm get more money out of each worker since they know the worker cannot easily leave the market.

If you want to read through an econometric research paper on the topic which reaches the conclusion that Wal-Mart is a monopsonist in rural areas and in the South, while having reducing monopsony power in areas where they facor labor criticisms and competition on the West Coast and Northeast, here it is courtesy of the University of Connecticut.

Cuba discovers profit

In a move over sixty years too late, the Cuban government has announced plans to allow farmers to cultivate unused land and sell as much as they can produce. The interesting thing is that it took so long and so much denial of history for the Cuban government to realize reducing output for agricultural goods makes them less profitable to sell when coupled with state-mandated price controls at or below costs. The same policies have been tried in Venezuela, the former USSR, and assorted other failed states. In the Soviet Union the agricultural policy killed nearly a million Ukrainians and led to the worst starvation in the history of Europe. Why would anyone continue such failed policies?

Perhaps the mindset from a third-world nation is such that they see that as more and more people are, sometimes forcibly, placed on formerly vacant land that the output will rise even if the price is set near cost. In the short term this might happen, but in the long term a decline happens because the productivity of farming decreases since the lack of a profit motive means that no investment is made to make the land more fertile. Add into this outright fraudulent agrarian scientific work and you end up with an unsustainable agricultural system.

Well what about the United States you ask? WE are on the other end of the spectrum in that this nation subsidizes food production to the point where a crop like corn is used in everything becuase it is so cheap to produce. In the US system of farm subsidies, over production becomes a bigger problem because the subsidies drop down the cost of production to a point below the completely competitive equilibrium, which results in overproduction of some crops and underproduction of others. To see an example of this phenomenon, look at all of the products containing corn bbyproducts. From sodas to batteries to plastics, this single grain exists in every consumer good at some point in the production process. Why? Because it is cheap and the subsidies that already existed for decades were supplemented by further subsidies for ethanol so corn was produced in even larger amounts.

In short, this is a simple economics lesson. Ceteri parabus, the more you subsidize a behavior or item, the more of it you get. The more you tax an item the less of it you get. This is true for most things, however in some instances the societal cost of reducing a tax may outweigh the benefit. These shall be discussed later.

the answer to healthcare, beg for it!

The joy of walking

On a completely different tnagent than this blog is normally on, I wish to convey the joy of walking. I never realized how great longs walks in the evening were until living in a hilly area with good weather. It really gives one time to relax and think at the end of each day. I highly recommend it

A great mystery of sorts

As I prepare in the coming weeks to get my first paycheck in about five years subject to a state income tax, I ask myself where the money goes. The state I am now living and working in is now bankrupt and the roads are terrible. I ask myself how a state of over thirty million people can have roads that are in the same shape as the least meaintained roads back home, where there is no income tax. What does the money go towards?

I wonder this question when I drive to the beach and it is ten dollars jsut to drive in and wlak around, far more than in other areas I passed through to get there. If this state does not pay to maintain its roads and charges so much for parks, where is the money going? This state has proposed to close up to a hundred state parks, which would save something on the orders of 0.01% of the amount needed to close the deficit, while it has an unholy amount of taxes and fees. I do not object to the taxes, I want to know what return the taxpayer is getting on their money. It is disgraceful that a state with a GDP in the top 8 in the world, cannot maintain their roads and are contemplating releasing prisoners to put some stop to the fiscal bleeding. The schools are poorly rated year in and year out, so where is the money going? All I know is that it is not going to basic needs for the state.

RIP Norman Borlaug

Since I have been out of contact with the world for stretches being the netless nomad, I did not get a chance to comment on the passing of one of the more influential and unknown human beings of the 20th Century, Norman Borlaug. The 1970 Nobel Prize winner for his work on creating high yield wheat, his work allowed billions to live and reduced the amount of land required to be cultivated to support the world's food supply. His work angered the usual elitist environmental groups who decried the use of chemicals to increase crop yields, to which he reponded :

“Some of the environmental lobbyists of the Western nations are the salt of the
earth, but many of them are elitists. They’ve never experienced the physical
sensation of hunger. They do their lobbying from comfortable office suites in
Washington or Brussels. If they lived just one month amid the misery of the
developing world, as I have for fifty years, they’d be crying out for tractors
and fertilizer and irrigation canals and be outraged that fashionable elitists
back home were trying to deny them these things.”

Anyone who would call out the hypocrites in the so called "green movement" who live in mansions while complaining about high yield crops gets praise from me. RIP to the great humanitarian, Norman Borlaug.

Wal Mart seeks to expand and crush the last bit of competition in retail

Wal Mart, otherwise known as 'retail cancer' has metastasized by over a thousand percent in the last decade, and keeps growing. It is now publically announcing its intention to destroy what remains of retail in this country through a new expansion campaign called "Project Impact." By creating a more efficient layout and targetting pharmacy and crafts, Wal Mart believes it will take out more businesses and continuing its massive expansion. What to make of a company which is already the largest retailer in the US seeking to expand further?

First, a firm like Wal Mart uses economies of scale to knock out competitors since they use their larger size to cover fixed costs over more and more stores. By doing so, they can expand and sell at a loss to take out competitors by selling at a loss at newly opened stores then making up the cost in other profitable stores elsewhere. The net benefit in terms of lower prices soon become a burden as the loss of jobs caused by smaller competitors closing drains on the local tax base. According to Iowa State University economic research, for each gain in sales from a Wal Mart there is a corresponding loss in sales from competitors. Now, that does not seem so bad, right? People just spend all of their money at one store instead of ten, right?

In theory that would be correct, but in practice no such thing will happen. Let's suppose there are ten local competitors employing 10 people each prior to the opening of the big box store. Those 100 workers all pay taxes to the local area, purchase goods from the other stores, etc. The local box store opens and employs 75 people because they consolidate their staff to be able to cover multiple areas so this one massive store is 25% more efficient than the ten small stores combined (in terms of labor efficiency). Suddenly the same area has 25 people without work and 9 fewer employers. Since there is a correpsonding loss of sales in surrounding areas due to the big box stores, they find it harder to relocate to work, and suddenly are drawing on the welfare state. These 25 workers went from paying taxes to draining tax revenue, so the city becomes worse off on a whole. However, you can save 25 cents on a toaster, so it all works out, right?

finally some good news in American manufacturing

I found a story about a manufacturing company which moved its plants from China to Houston. The main rationale had to do with the number of knockoff products produced in China, with the company spending half a million dollars a month fighting counterfeit goods. His factory is also using automation to reduce the need for workers, which I foresee as the big trend in manufacturing. Automation advances coupled with decreasing relative cost per worker in the US as the dollar drops will lead to more manufacturing returning to the US since the cost per worker here will be a good deal when other variables such as quality and worker loyalty are factored in.

Well, here's a toast to one company doing the right thing. May many more follow

The Invisible Boot has kicked Facebook

Everyone on Facebook, if you enjoy this site please become a fan and spread the word. Just search for "The Invisible Boot" if you have nay issue with the link. Thanks

Does the minimum wage cause unemployment to rise?

I have frequently heard the argument made that increases in the minimum wage should always cause unemployment to rise since it increases the minimum cost of employing a worker. How true it is this statement and what variables affect the validity of the question?

The first two points to be examines are 1) is the state or city raising minimum wage in a situation in which there is a shortage(above equilibrium wage) or surplus(below equilibrium wage) of workers and 2) how many people are affected by the minimum wage increase compared to the total labor market. On the first point, places with a shortage of workers will not see a strain on hiring enforced by minimum wage increases as the market price of labor is already in excess of the minimum wage. This would be the case in a city like New York City where the cost of living makes lower-wage workers scarce because there is nobody willing to work at minimum wage when it is not enough to cover basic goods. On the converse, in a place with a flood of workers compares to employers such as a small town, the wages are below equilibrium so increases in minimum wage will cause unemployment as workers are costing more than the market will bear. The former case is illustrated by the above chart where the equilibrium price for a worker (P*) is above that of the minimum wage (P1). As a result, the quantity of workers desired by businesses(q1) is higher than those who will realistically work at said wages(q2). As a result, and increase in the minimum wage up the equilibrium point will have the effect of actually raising employment levels because some marginal workers will be desiring to work at the higher wages than at the previous minimum wage. Comparisons of employment rates in both low and high minimum wage states shows that there is little difference in employment levels between states which pay the minimum, such as Texas, and states which pay more, such as California and Oregon. The reason has to do with the low number of workers who make the minimum wage in the United States. which is 3% of all hourly workers in the United States. AS a result, the change in minimum wage ends up making 97% of all workers relatively less expensive since they are making less in real terms since the lowest level of compensation rises.

Comparing states with high than Federal minimum wage and those with lower than federal minimum wage on employment levels reveals the following (data taken from the Bureau of Labor Statistics) shows that the thirteen states plus DC which have higher than federal minimum wages average 10.25% unemployment. The nine with lower minimum wages than federal average 8.8% unemployment. While this is a bit higher, it also reflects a difference in the characteristics of the two types of states which deflates the unemployment figures. The higher wage states tended to be more adversely affected by the housing collapse and outsourcing of manufacturing becuase they were more urbanized and industrial states such as MI, CA, RI, OH while the low wage states are Southern states and other states with larger farm populations which are not in the unemployment numbers such as AR, KS, WY, AL, LA, MS. Of the high wage state 43% were below the national unemployment rate and 55.6% of low wage states were below the national unemployment rate. In short, there is a slight increase in unemployment caused by minimum wage on the aggregate level, but it is mostly a function of low wages in a lot of the nation and it is not universally true that unemployment causes increased unemployment in all situations

simple economics-supply and demand

Here is the world's simplest supply and demand explanation

My apologies for the delayed postings

I am transitioning to a new stage in my life so I will be a bit busy for about two months and will post as I can until I get done. I am glad for all of my readers and hope you enjoy the blog.

296 trillion in debt controlled almost exclusively by five firms.

Per CFO.com today comes this sobering statistic:

Members of Congress probing threats to the global financial system —
especially the threat of concentration of risk — will have a lot to ponder
in
newly mandated disclosures highlighted by a Fitch Ratings report issued
this
week. While derivatives use among U.S. companies is widespread, an
"overwhelming
majority of the exposure is concentrated among financial
institutions,"
according to the rating agency's review of first-quarter
financials.
Concentrated, in fact, among a mere handful of
financial-services giants. About 80% of the derivative assets and
liabilities
carried on the balance sheets of 100 companies reviewed by Fitch
were held by
five banks: JP Morgan Chase, Bank of America, Goldman Sachs,
Citigroup, and
Morgan Stanley. Those five banks also account for more than
96% of the
companies' exposure to credit derivatives.

...For the repot, the rating agency reviewed first-quarter 2009 filings of
the companies, which come from a range of industries and represent almost $6.4
trillion in aggregate outstanding debt. The companies also recorded a
total notional amount of derivative positions of more than $296 trillion.

How does a small group of companies come to issue debt at nearly five times the GDP of the entire world? If anything this should be the final nail in the coffin to the view that markets are self-regulating creatures which will stop before melting down. With five companies being given such power, how can anyone talk about a free market when banks and investment houses are issuing more debt than the world's government?

The Carousel of Chicanery Rides On

Today the man whose resume includes such sterling leadership roles as the collapsed shares of Home Depot stock and the complete failure that is Crysler has been hired as a business adviser to the vulture capital group Cerberus. To understand the level of incompetence rewarded, you have to understand that this guy made his two previous employers lose huge amounts of market share and one went bankrupt. In hiring this fellow, Cerberus has done the business equivalent of hiring a pyromaniac to watch over your house while you are on vacation. What compels companies to continually rehire such failures? You would think with 16.9% real unemployment that there would be someone maybe more qualified than a three time loser who got himself huge golden parachutes?

I will go a step further than just complaining and offer my (sarcastic of course) recommendation for the job. I would want someone who can sell anything, has years of experience with a variety of products and has a good television appeal. In short, I want Ron Popeil, the inventor of such contraptions as the Showtime Oven and Hair in a Can Spray. The man alone has created more products than half of the individual companies in the United States. With such experience, he seems a natural businessl eader for a vulture capitalist firm such a Cerberus. He could even go to boardrooms and present charts and say "that's not all, if you do this you also get these results included at no extra charge." It would be pure brilliance, just look at an informercial with the guy to see how he could be a titan of industry.

Golden Parachutes Still Manage to Allow A Soft Landing

With massive unemployment, a company that just went into bankruptcy, and plants lcosing left and right, how does GM decide to move forward as a company? By paying its ex-CEO a $10,000,000 retirement, of course. The guy was making millions a year for decades, couldn't he have been expected to save some in a retirement vehicle like the rest of us schmucks? It's very unfortunate as that ten million dollars could have employed over 150 people at 65,000 a year. That could have paid for an entire department to maybe discover why the Aztek was such a horrible idea, or maybe look into ways to not make vehicles which get reasonable gas mileage.

What is missing in all of these stories about the ridiculous pay going to these bigshots is the opportunity cost of the money. By paying out millions while the company is faltering, that money is not going to invest in the technology and manpower needed to produce the new products which will return the company to greatness. Instead, it goes to buy a fifth car and a seventh mansion in Montauk. I guess it does stimulate the polo equipment market as well as the diamond dog collar industry.

Make it go away

Sen. Smalley is here

After a long, and largely pointless, legal battle by Norm Coleman a milestone in the march towards idiocracy has been reached. We have a "comedian" whose highlight in life is playing an effeminate talk show host and writing books with such brilliant titles as "Rush Limbaugh is a Big Fat Idiot." Naturally his opponent was not much better, as Coleman's claim to fame has been marry an actress nobody has ever heard of and defeat one of the worst performing presidential candidates years after his prime. After spending millions of dollars in campaign contributions to try to overturn the election, the national GOP looks even more inept that was previously thought possible. It is no wonder sane people do not run for politics when you think about the system in place.

Bernie's outta here

Glorious day everyone, I have finally seen justice done for Bernie Madoff. Like the truly evil being he is, Madoff only said he was sorry when he was sentenced. I can only pray that a few more of these crooks meet the same fate.

He Madoff like a bandit

For once in this time of financial chicanery can I say I see the government giving a proper response to one of these crooks. By charging all of Bernie Madoff's assets as well as those of his wife as part of the fraud conviction, the government finally said that marrying a rich crook does not make you a clean person. Contrast this with the way Lehman Brother CEO Dick Fuld "sold" a multimillion dollar Florida home to his wife for $100. I'm not mathematician here, but at a price of $14 million, he sold it for 0.00071% of the value. I don't think even the worst crack house, with homeless people smoking crack in the doorway, missing half the floors, and on fire, would lose that kind of value. There should be joint liability in financial crimes between husband and wife. It's not like these wives just sit at home oblivious to the work of their husbands, they need to know what is going on to keep the gravy train rolling.

Idiocracy upon us

A rapper was invited to sing in the Louisiana State House about having sex with Halle Berry. How this embarrassment is allowed is beyond me.

huge volume lately

I have noticed a giant upswing in volume to this blog despite not having posted anything in at least a week. Well, on the good side I feel the economy is probably bottoming out and hiring is going to start up again once the consumers feel that they can spend without worrying about being homeless the next week.

On the news front, I am awaiting the Federal Open Market Committee meeting tomorrow to see what the Fed does with the prime rate. Since it is pretty much zero, they can only raise it or do nothing. The Fed will also be releasing some policy statements, so it will be closely watched by economics nerds like myself.

My apologies for not writing more often, I am quite busy studying Spanish, taking the GRE to start my masters in economics, and working full time. Once some major economic news comes out, expect a steady flow of posts.

tough crowd

In between investors complaining about banks repaying the massive bailout known as TARP and the bankruptcy of the American auto industry, I notice nobody posts comments though I get a regular stream of visitors. I like getting comments because they allow me to tailor the posts to what you want to hear about.

Anyhow, I got bored reading about Maine considering becoming the second state to have a unicameral legislature and thought about what would happen if Texas did the same. I proposed therefore a grand scheme in which it would work on the same principles as the US Congress, but in reverse. Instead of having that popular votes divided up by individual districts to give more populous areas more votes, the individual administrative units would each get a vote as in the Senate. Since Texas has 254 countries ranging from the 67 people who live in Loving County to the nearly 4,000,000 in Harris, a wide range of rural to urban representation is possible. To balance out such a plan, urban areas will be given one extra representative for each hundred thousand people within the county, so Harris County(Houston) would have 37 total seats (1+3,693,000/100000). In total this system would have a total of 407 seats, with 45% of the votes in urbanized counties and 55% rural. It would make for interesting elections when you had some rancher from West Texas representing his 67 people just the same as the 37 for Houston. Since the county lines are not redrawn every decade, this would prevent gerrymandering and create a greater voice for the smaller, less populous parts of Texas.
The county seat of the future most powerful county in Texas

Thought on the GM bankruptcy

While I hear words like socialist and fascist thrown around by the drones on talk radio, the reality is that the GM bankruptcy and government takeover are symptoms of a problem which has been festering for decades. Beginning in the 1970's when airlines were deregulated, companies began to get larger and larger through mergers and political connections, so that they help political sway over the "representatives of the people" in this country.

As this political control deepened, the companies became more and more inefficient, such that the firms began extorting money from government in the form of bailouts and favorable deals to avoid bankruptcy. Arguments such as the loss of jobs, the loss of money, that there would no longer be an American company leading in x industry, these canards all spewed forth from firms like GM, United, Chrysler, Ford, etc. Chrysler was the first to go with tin cup in hand to beg for an monetary indulgence for their sin of making poor quality cars, and Iaccoca got his wish for $1.5 billion in loan guarantees. In the 1980's there were bank bailouts such as the Continental Illinois National Bank and the S&L scandal (not to be confused with the SNL scandal, how can a show that once had Adam Sandler and Chris Farley now be so unfunny). In the 1990's there were scandals which were covered up by the media such as the sale of oil from the naval reserves to a company with intimate ties to the vice president's family. The new decade brings with it TARP, the GM and Chrysler bailouts, the stimulus package(mostly a state government and social program bailout, along with bailouts of alternative energy producers by keeping the PTC in place).

This crony capitalism has been going on since the early days of the US, when men like Leland Stanford used connections to government to buy land where the railroads would be built to profit immensely. There has never been, and never will be a truly free market. Anyone who tells you otherwise is naive or trying to get something out of deregulation.

Negative interest rate?

I was reading about a comment made by Harvard economist Gregory Mankiw in which he stated that a negative interest rate might be what is needed to avert a recession. I do not understand how that would avert a recession because it would destroy all incentive to save money and cause lending to businesses to stop completely since the negative rate would mean that you would lose the principle as a result of lending under the best terms.

What is more likely to happen is that massive inflation hits when the economy recovers, due to the printing presses being in high gear the past two years, and the Fed will be forced to raise interest rates. I would appreciate that since my I bonds have a negative real rate and CD's are getting 2% interest. At those rates, I would get better returns filling up a container of gas and then reselling it to a neighbor in a couple of months.

The most appropriate and awesome video

Trickle down poverty

Today the Bloomberg News released an article about the impact of people moving from six figure high powered job to working menial jobs for low pay. This trend has been going on for years, but only once it started to hit the big earners did it get any attention. Back when the factories were being moved to Mexico by GM and Ford in the Eighties the talking heads in the media said it would be a blessing for the American consumer to have cheaper cars. Well first came the cars, then every manufactured good, and suddenly there is no need to financial workers here because all of the wealth is leaving the country. Shocker of the year, I know. Of course these same people who move their addresses to Switzerland and the Cayman Islands to avoid paying taxes sure don't renounce their citizenship to also stop enjoying the protection of the military that everyone else's tax are paying for.

Cafe Oy Vey

Today's CAFE standards rise will end up causing the cost of vehicles to rise since the standards are being put into place within a framework of safety features which weigh down vehicles. There are only two ways to get more mileage out of a conventional engine, either reduce the weight or improve the engine efficiency. Since the internal combustion engine is pretty peaked in the efficiency we can get out of it, and the safety features won't go, then the next best course of action is to experiment with new materials to cut weight. These carbon fiber parts will greatly reduce the weight, but will cause the price to sky rocket since carbon fiber has higher manufacturing costs than plain steel.

Further, the CAFE standards include trucks, which means that some creative accounting is gonna occur to get the numbers to add up to an average of 36 MPG. Most likely what will happen is that small cars and hybrids will shoot up the numbers and trucks will gain maybe one or two MPG, since there is not a lot of gain without sacrificing torque. In short, the long term impact on auto prices from CAFE standard increases is to raise the price of automobiles for the sake of saving fuel. This will not make economic sense since the fuel savings for small passenger car drivers from an upgrade, even to a Prius, is just not there. Driving 12,000 miles per year, at $4 a gallon, you are looking at a longer time than the vehicle life to break even if you switch from a used Civic to a Prius. Sounds like a bad deal to me.

One more reasons to remove church tax exemption

Churches, since they are not in the business of making money, have been laying off workers since donations have slowed down. Naturally those workers want to collect unemployment after years of service, only to be denied. Apparently the same laws which allow churches to collect money tax free and allow megachurches to house their pastors in mansions and fly in private jets also allow the churches to avoid paying unemployment. There's something ironic about the whole thing that an institution claiming to be about helping the less fortunate tries to save a buck by shafting its workers. At least the local Diocese has some self insurance, but why should churches be allowed to sell wares and not be taxed on them?

Eu tu Prius?

Finally some competition has entered the electric hybrid market after the Prius swamped previous entrants such as the, better looking in my opinion, Honda Civic Hybrid. Toyota plans to announce a new $22,000 Prius to compete with the Honda Insight. All is well and good with competition in this segment, though it is going to be a rough ride for car makers until consumer spending responds positively. I personally would much rather see something like a hydraulic hybrid truck which would give huge amounts of horsepower boosts along with a mild fuel savings. For me a hybrid makes no sense since the fuel savings do not add up against the additional cost of a new vehicle. I am pretty sure that is true for most people, and that is why they occupy such a small part of the auto sales pie.

Sweden is so socialist, the CEOs fire themselves

Glorious moment all cubicle dwellers! In the merry land of beautiful blonde socialists, a CEO has resigned in order to keep half the workforce from being fired. In this country, one of the Olympians would have decreed from on high that certainly half the workforce should be cut, and then have a bonus equal to their salary given to him. Such brilliance, it can only come from a mind polished at Wharton and refined by fine parchment of many a financial self help book.

I am a believer in companies who are in financial trouble making all of the workers and management feel the pinch, rather than just laying people off. At least it sets an example if there is a top down tightening. However, when a firm gives bonuses to the top while cutting pay and laying off on the bottom, how can morale possibly be good?

My apologies

I am sorry for not posting more frequently lately. I have been ill for the past three days.

RIP label man

I will read the nutritional labels twice today in honor of the late lobbyist for nutritional values being reported. How else would we ever know that Twinkies contain nothing that can even be considered in the same universe as healthy?

Real Unemployment Fell For Once

The U6, the real measure of unemployment taking in underemployed and marginally unemployed workers fell for the first time in ages between March and April 2009. This could be a result of either discouraged workers simply giving up (more likely), or that more part time workers are becoming full time (very unlikely). I can only hope there is so of the latter occurring since the economy is so consumption based on that has fallen off a cliff on the news that people without jobs tend not to buy much.

On another note, I have heard anecdotally that some businesses related to people taking shorter vacations closer to home have done well. Places like local wineries, bed and breakfasts, and day spas have seen stable to increased business, likely because nobody can afford/wants to take the risk of their job not being there from taking a long vacation. Maybe this will help build back some of the main streets which have been decimated by big box stores, just maybe.

Stress test mess

Tomorrow we will hear that the big banks lack the capital to survive a prolonged recession as the stress test report is released. Of course the same banks such as Citi and Bank of Failmerica reported that they had a profit not but a few weeks ago. How is it that banks can not make money with FDIC insurance and centralized banking? The easy answer is that the leveraging is beyond ridiculous. Ratios as high as 50:1 exist where for each dollar that is in a bank 50 are in various investments through margin accounts and so on.

Banking has historically been one of the easiest businesses to succeed in, with great families such as the Medicis and the Rothschilds amassing enormous fortunes that gave them control of nations. In the New World, however, banking was more of a wild frontier, with so called Wildcat banking in the West. With these banks, like the modern day grifters, they leveraged highly in order to make a huge profit. Of course this only worked so long as deposits kept coming in to cover withdrawals and no run occurred. Since they offered deposits which had no gold backing them, the likelihood of losing all of one's wealth was high. However, as history has shown through episodes such as the Tulip Madness, people will blindly follow crowds who promise riches. After panics in 1837, 1873, 1893, 1896, 1929 people still do not understand the need for financially conservative practices. Yawn

One difference between Carter and Obama

is that Obama will get to name someone to the Supreme Court. The appointment of the Souter replacement will not change the court much because the ideological balance will remain 4-4 with Kennedy the deciding vote. The main thing that Souter's departure means is that it is likely either Ginsburg or Stevens will also probably be replaced during the next four years to try to replenish the bench, since Thomas, Alito, and Roberts are all fairly young for the Supreme Court and Scalia is 63, so he has a decent shot at staying through the term. All in all, nothing will change too drastically from the Souter departure unless one of the conservatives has to quit. Then things will get interesting.

Dispatches from the Swine Flu Front

Apparently everyone but me here is concerned about the swine flu, with prodigious amounts of sanitizer being dispensed everywhere I go, schools closing, and the media talking about swine flu like the world is ending. However, instead of running around like a chicken, I went to a mass on May Day for St. Joseph the Worker, which was in German. It was an amazing experience and makes me feel weird that I observe both Labor Day and May1st. Maybe I have more in common with the recently mocked "Christian Capitalist wearing a union jacket" guy than I think!

On an economic note, the Chrysler bankruptcy seems like such a strange spectacle. Chrysler, a company known for making gas guzzling POS's, will merge with a car company known for making matchbox size cars. Granted, Fiat does have some ownership of good car companies such as Ferrari and Maserati, but those operate autonomously. Fiat has this monstrosity which shows they are compatible with the lack of design that is Chrysler:


Well, the best thing about that car is that its hideous facade could be used to scare away the swine flu. This Chrysler bankruptcy is an amazing animal. The only people who seem to be putting any money up are the US taxpayer, to the tune of eight billion big ones. Maybe it is because I am just a provincial bumpkin, but doesn't a firm have to put down money to purchase another firm, or am I living in some kind of backwards utopian world? Next thin you will know, I will be believing in such fantasies as student loans cause tution to rise, leading to more student loans.

April site report

I am pleased to say that more people have been kicked by the invisible boot than any other month since this blog started. On both an absolute and per day basis, my page views have been rising and I am grateful to my readers.

Idiocracy:the press conference

Watching Obama's press conference bit where he was speaking about the need to cover your nose and mouth when you cough and stay home if you have a flu made me feel sad for this country. Have we really stooped to the point where the leader of the free world has to give advice kindergartners should know during a national speech? Will he next tell us that sticking metal objects into light sockets is a bad idea, or maybe that jumping in traffic makes on more likely to get hit by a car. Coming soon to a nation near you:

Need a job? Just bankrupt one firm to get hired at another

With such a high unemployment rate in this country, one would think that there are plenty people more qualified with lower lower salary requirements than the guy who ran the last gasps of Bear Stearns. Of course this hiring of failure is a hallmark of American oligopoly, with tenure of less than a year bringing in millions. The world seems to have gone mad is all I can say when I read such idiocy.

The book is thrown at Chrysler, however this one starts at chapter 11

It looks like the inevitable is coming as Chrysler is going to file chapter 11 and become Fiat's problem. Hopefully some Italian style will permeate the car company whose most popular models now are a midget clown car and the car with a truck front known as the 300. It also had Dodge which had a decent truck lineup, and little else. Jeep lost its normal client base, women who want a giant vehicle and men who need to compensate but do not want people to ask them to move, and found them moving to larger land yachts such as the GMC Yukon and the Cadillac Escalade. All in all, they had one decent car, the Dodge Neon, but it's early smiley face appearance never made me want to get one.

Working for the weekend

The question was asked in a comment about the morality of bailouts. The simplest answer is that they are immoral on any level other than some kind of sociopathic Randian viewpoint that all actions in self interest are inherently moral. There are two basic reasons I would give to this assertion, the first being the effect on society from subsidizing failure and the second being the individual's loss of integrity from accepting such a bailout.

On the first point, society is always worse off when the costs of an action are bourne by society but the benefits are privatized. This is the worst of all possible solutions to a problem because the risk incentive is taken out when a third party, namely you and I, pays for the failures of someone else. Instead of bailing out GM and Chrysler, society would be better off with the same money having been used to incentivize new American car companies to create new cars to compete with foreign cars. In my own experience the problem the American car makers have is two fold: one is that they made SUVs because of bad government policy to give tax breaks for SUV's which were labelled flex fuel and also because of short term greed. This led to a model lineup from the two failing firms which got abysmal mileage. The Chrysler PT Cruiser got an EPA estimated 19 MPG in the city. In fact, it had no model in 2007(used as that was when gas prices rose quickly) which got over 30 mpg. Neither did GM in any of its lines other than Saturn(which is ironically the main one they have scrapped). Ford at least had the insight to market a mileage competitive vehicle in the Focus, which is why Ford looks like it could survive without the bailouts. I drive a Mazda because it gets good gas mileage at a low cost myself, and once I can say the same for an American car in the future I will get one. Ford also has a good truck business which has kept it afloat since the F150 is still close to the top of best selling vehicles in the US.

The second reason the bailouts are bas is because they destroy the integrity of the individuals and firms. Once a firm ceases to operate on the profit motive, their purpose for existence as a business is gone. A firm which operates in order to get government money no longer has anything to offer the market, so subsidizing it causes money to be wasted that could go elsewhere, aka opportunity costs. It should be a mark of shame to accept a bailout, instead the car companies clamor for more.

Someone call the irony police

Let's see, we have a sign stating that an economic philosophy that wealth should be concentrated in the hands of the owners of capital and then mentioning a religion which preaches opposition to avarice, while wearing a union jacket. I am confused.

Minimum wage, the short version

Economists tend to fall into one of two camps on minimum wage. One camp, the classically liberal, view minimum wage as always above the equilibrium price since someone will always work at a lower price than the one mandated by government. The other camp, the heterodox, view minimum wage levels as a function of the prevailing labor market, in which it is a minimum set so low that few people if any ever work for it.

Under this view, the minimum wage sets a benchmark which prevents workers from being as victimized by oligopsony and monopsony(few buyers of an input and only one buyer of an input). When there is no minimum wage, then the labor market in rural areas turns into de facto serfdom because the lack of employers means that labor is always undervalued. The friction between the company and the worker in the 19th century in rural areas led to the often violent confrontation between management and labor. Setting boundaries such as a minimum wage helps reduce this strife by keeping workers from being paid the lowest possible wage the market allows, while as the cost of keeping some of the least skill unemployed.

Happy Easter

history repeats itself

This country has once again had a problem with Muslim pirates off the coast of Africa again, which reminds me of the Barbary Wars between 1801 and 1815. The difference two hundred years later is that the US navy, instead of attacking Algiers, is floating around doing nothing. Why not put these ships to some use instead of floating there and have them escort the cargo ships going around Somalia?

I will write on economics some time this weekend, if I can muster the energy after a long first week.

Good news

Today is my first day of work at my new full time job. Just before I leave, I saw some more good news I wish to share. Sallie Mae has decided to move 2,000 jobs back to the US from overseas. Though I have chastised them for their bailout money, I give credit to them for doing the right thing this time.

News from the home front

Today I unveil a new recurring section for this blog in honor of the previous president: The "Childrens Do Learn" Education Series. In it I will bring up stories about the education, or lack thereof, occuring in the government schools in this fine country.

With that in mind, today's material brings an auspicious start to the new series, with parents complaining that needing a grade of 70 is too difficult. My favorite part of this article is the parent saying that a 70 is a high grade. I was about the laziest student around, and I got a 79 in AP English without turning in a single homework assignment one semester. Perhaps the problem is not the grading system, but a steady diet of loafing and playing Xbox. Considering that some of the remedial math courses covered seventh grade math concepts such as factoring binomials and basic linear algebra, I do not understand how there are complaints.

The solution is not to lower grades, but to remove athletics from schools. I know this will never happen, since high school football is enshrined in the Texas Constitution, along with idiotically comparing A & M to UT. Why not remove the facade of education in Texas schools and simply have nerds fans the football players and burn the books in an oven to heat the gym? It would save money and finally get our priorities in line with what the average person wants out of a school?

On an upward trend

While my lymph nodes are swollen up and I am dealing with an illness, I will just post that March was the best month yet for the site in terms of hits. Please refer your friends if you like the site.

Hold on to your grandkid's wallets

The money pit is hungry again, this time on the claim that banks need to go back to taking greater risks. Wasn't that part of the reason why so many of them are on government feeding tubes? Perhaps the problem is that banks are not being run in the conservative manner they were for centuries because shareholders demand record profits every quarter rather than long term capitalization. For example, under the mindset of the short term investor, laying off X workers to have a one time savings of 10% is less valuable than a 9% rate of return on assets backed up with reserves and based on sound lending. It's almost like a mental deficiency, that any big number is accepted and suddenly becomes the standard no matter how unsustainable, then when things go south the short term herd flees in the opposite direction, seeing a one time loss and believing the sky is falling. Risk and high yields are correlated, so the higher the returns to a bank, the more leveraged and risky the position. Perhaps a small rate of growth is the best for stability?

Interesting historical development

Britain is considering removing the prohibition on the royal family marrying Catholics. Maybe one day they will see that have hereditary tax burdens are redundant and antiquated. Baby steps first, I guess.

This is long overdue since the Anglican church has been decreasing in membership for generations and no longer is the largest religious group(nominal) in the UK. Centuries of history are undone by a few years of the EU and opened labor markets.

Today's most pointless and vapid column is...

here. Why anything involving a product which makes one look like a cloistered monk or cult member ever gets press in this country is beyond me. I guess these guys are getting creative in their methods of coping with being shut out of power?

Caveat emptor

Just a word of advice, if you are buying million dollar pieces of art, make sure the person selling them actually owns them. This is sage advice up there with:

"No Nigerian prince actually has a million dollars to give you"
"Sending an item in exchange for payment later to a stranger is idiotic"
"You cannot make one hundred thousand dollars a month working from home through an advertisement"

Excellent documentary on the debt

Frontline's episode Tuesday really is a good explanation on the reasons behind the massive debt and the political paradox of desiring low taxes and expanded government programs.

IBM should no longer be known as an American company

According to Yahoo, IBM has as many workers in foreign nations than in the US and is cutting another 5,000 US workers. I want a company to be upfront in their avarice and quit outsourcing to an expensive labor market like China and go straight for the bottom. I am talking about investing in the untapped labor markets of Somalia and Zimbabwe.

Just think of the possibilities with 70% unemployment and ramptan inflation, you do not even need to pay in currency! Instead of a paycheck, you can get a programmer in Harare to write code all day for a bowl of rice and a quarter of a chicken. The wonders of free trade! Imagine Mogadishu going from a land or warring factions to a land of warring call centers, staffed by people being paid in food scraps and maybe as a bonus they can get a bottle of clean water. The efficiency will be off the charts. Perhaps some might even explore the relatively untapped(except by Arab dictators and herdsmen) market for African slaves, seeing as they only cost $50 a head. Look at the potential, the entire laid off staff at IBM can be hired for only $250,000 and then never paid again! Talk about a human resources department's wet dream.

There's a call center waiting to happen

(The following is satirical in case you have never read this blog before)

I fear my national debt counter will break after two Obama terms

The CBO is forecasting over $9,000,000,000,000 in additional debt in the next ten years. That will be nearly more deficit spending than every president before him combined. We can believe in that kind of change, since belief will be all our change wil be worth if this prediction comes true.

Another day, another run on the printing press

Apparently banks which can afford corporate jets and hundreds of millions in bonuses to complete morons who have run companies into the ground are suddenly afraid to lend money. This slight detail has not evaded the administration, who are now proposing another $400,000,000,000 into the black hole that is big business to increase lending. I have stopped keeping track of the waste that the government has shoveled between these corporations and the bailouts. Much of this debt is already being monetized since foreign lenders are concerned for the solvency of the US, so expect inflation to rise up again as more dollars are chasing fewer goods.

I notice the British have a lot of cartoons on this topic, but over on this side of the pond we seem to be lacking in good political cartoons on printing money. I guess it is one more area in which we have lost our competitive advantage.

Washington Mutual, Boohoo

Sometimes you think that the financial firms cannot sink any lower and a story like this arrives hot off the presses. To sum up the lawsuit, Washington Mutual is suing the FDIC for selling them too cheaply when their banking business collapsed and for a "cryptic disallowance?!" This is a new spin on the fail for profit business, one which can be summed up by this business model:That sums up the modern "too big to fail business plan." Do not examine risky leveraging, then fail, have the taxpayers bail you out, then continue the same behavior which ruined the company in the first place. Lather, rinse repeat. Another thing that bothers me about all of these lawsuits over failed investments is that the same people suing because they lost their money would be talking about the glory of the free market when times were good. For a supposedly capitalist economic system, we sure have a lot of elites who have used legalisms and legislation to prevent competition and loss.

This national debt goes to 11

WE finally broke the eleven trillion dollar mark on the national debt counter. It's like ten, just with more debt.

On a related note, two bailed out companies are suing each other. It's like they know they have access to other people's money or something.

Health Care Options in the US, Bankruptcy or Death?

As one of the followers of this blog asked, I shall comment on my views on the pernicious state of health care in this country. First, the ground level must be established, which is that the US spends the most money in the world of any nation on health care, in both absolute and per capita terms. We are the only industrialized nation on the planet without a universal system, and with a very weak public health care system. On the positive side, those with the means to pay can get the best care in the world.

Given these realities, what causes the inequality between the the health care system for the average American versus the wealthy and how to correct this imbalance. A first problem arises in the nature of the insurance system. Insurance acts as a subsidy, so it pushes the demand for insurance to the right. This makes perfect sense, since consumers who are paying less than full costs will consume a larger amount to gain greater satisfaction, and hospitals will charge more because insurance will cover it. For those without insurance the cost of health care is priced out of the range they can afford, so the options for care are bankruptcy or death. Some social darwinists will argue that this is a price to be paid for being poor, and that the poor have medical care-namely the emergency room.

This makes a lot of sense when a visit to the ER, with nothing more than talking to a doctor for ten minutes costs 500-1000 dollars. So let's do a little math exercise here. Suppose that individual X works part time while going to college at ten dollars an hour. Their pay for the year before taxes is around 20,800. Let's subtract the circa 15% that all of the taxes and social security and unemployment insurance taxes out and we are down to $17,680. A single visit to the ER can costs 5% of their take home pay or more for the year. Subtracting the costs of a car, food, housing, and this figure rises to 15-20% or more. How is that any kind of equitable system?

My main issue is the insurance system which is used here. First, there is no real choice because individuals who have any kind of serious conditions are unable to be accepted by insurance within an affordable price range after they are dropped for a pre-existing condition here. In Israel, this is solved by having four nationally regulated HMOs, so individuals who pay into a health care plan there have transferability between jobs and the result is that individuals are not trapped to their jobs for insurance as happens in the US. Further, there are no mechanisms to prevent the denial of service on the basis of pre-existing conditions, so companies have a monetary obligation to drop individuals who will cost them more money. Why cover someone with cancer when they are costing more than they pay in?

Another problem is that we have little choice in how the public money we pay for health care is used. Finland uses a system I prefer the most, which is a publically funded healthcare system with the ability to use the taxes paid for part of a private plan if an individual so desires. They have higher taxes than here, but since nobody has guaged the actual tax levels paid between federal, state, city, Social Security, unemployment, worker's compensation, registration fees, etc. we do not know how much more these countries really pay. Considering that medical expenses are the number one cause of bankruptcy in the US, perhaps paying higher taxes is not as onerous as Rush Limbaugh and other corporate mouthpieces would lead us to believe.

I would write more, but it is 4 AM and dealing with the insanity that is the US insurance system casues great fatigue.

Finally

Madoff is finally in jail, which could not have come soon enough. His ability to live in a penthouse mansion while ordinary theives are thrown in the slammer was a miscarriage of justice. We will see in June what becomes of the biggest Ponzi scammer this side of Social Security.

Dead Cat Bounce?

If you have been conscious today you probably heard somewhere about the giant rise in the world stocks today due to Citibank reporting a profit. How much of that profit comes from the $45 billion dollars in bailout money from the taxpayers is a topic for another day. At least it is a good break from the depressing news of the past two weeks.

Anatomy of a Recession

There is a really cool graphic from the New York Time with unemployment by county that has a lot of variables to sort out what you look at. Be glad you don't live in Skagway, Alaska with a quarter of the labor force unemployed.

Steal $1.65, get fired. Steal $50 million, get promoted.

Germany has a major debate underway because a company has fired a cashier of over three decades due to accusations she stole $1.65. This is the modern world, where laws and responsibility are only for the little people. One quote from the article sums is up perfectly:

"I don't understand how a cashier can be fired because of 1.30 euros while managers who lose billions of euros can keep their jobs," Seehofer told a rally in Bavaria on Wednesday.

I can understand, it is because we are living in a kleptocracy.

Shame is so bouregeoise

In light of gaining new competition in the ridiculous amounts of money stolen category, Bernie Maddoff has decided to show that he is twice the scumbag of his nearest white collar theft rivals by claiming $62 million dollars in assets and his penthouse are actually in his wife's name. Of course, since we little people have to pay full value on used cars, we should be glad that our barons can transfer assets like $13 million dollar homes to spouses for $100. This brings the question of when people will wake up to the theft of their country that has been done by crooks like Madoff, Dick Fuld, the head of any company which is firing the workforce and giving management bonuses. The worst part is that places like AIG are being rewarded out of the treasury for failing. If you or I were losing money quarter after quarter, we would have to declare bankruptcy. Nobody would give us money unless they were going to buy us out, but then again we mere mortals.

The New York federal courthouse, where the Madoff has so far eluded justice

Today's lesson: Consumer and Producer Surplus

After weeks of depressing economic news, I figured a new economics lesson is needed to get one's mind off the madness that is this country's current financial situation. Today's lesson focuses on an important microeconomic principle, the consumer and producer surpluses. These two things are vital to any economic system working in ways which shall be explained and are vital to understanding how goods are rationed within an economy.

For starters, in definite terms the two surpluses are called so because they are the difference between the market price and either the demand/MR(consumer surplus) or supply/MC(producer surplus). This difference is what a person is willing to pay to buy and a firm is willing to pay to produce. This is illustrated by the first chart to the right of the opening paragraph. At the equilibrium (P* and Q*) there is a surplus of zero because every unit has both a buyer and a seller. Why do competitive markets tend to move towards equilibrium instead of a point to the left where there are willing buyers at a lower marginal cost?

The answer lies in the greed of others. If a firm operates at a point to the left of equilibrium they will make an economic profit(ie, the opportunity cost of being in business if less than the revenue being collected). This does not mean that a firm at equilibrium is not making a profit in the accounting sense, just that the opportunities for the firms at equilibrium would have made as much in other ventures also. Why is this? The next chart will explain why competition drives the surplus to zero. The chart on the right shows that when the market for watches is small, at an output of five units, then the and consumer surplus combined is the sum of taking the CS, 22.5({[7-4]*15}/2) and the PS({[4-2]*15}/2), 15. This 37.5 is the additional benefit to trade. At this first level of output, the firm makes a profit of 25, (the difference between the MR=7, and the MC=2, multiplied by the number of units).

As a result of the economic profit new firms will desire to enter the market, which will increase output to deal with the high demand. In chasing profits, the new firm will cut into the profit of the industry by doubling output, reducing CS to 10([6-4]*10}/2) and PS to 5. The profit decreases from 25 to 15({[6-3]*10}/2). The loss in surplus is the light blue and light green areas, which show how trading benefits both parties because the consumer gets more goods at a lower price while the producer has higher output.

However, for a firm they would ideally wish to reduce consumer surplus as much as possible. Since their profit is the Pmax-Pmin times output or (MR-MC)*Q the difference between the supply and demand curves is important. There are a number of ways for a firm to maximize this difference such as a monopoly, a two tiered pricing system(where units are sold at one price but an entrance fee is charged to reduce the consumer surplus to zero for the most inelastic customers, Costco or Sam's Club would be an example), or forms of price discrimination. Tell me if this made any sense and if you got anything out of it.

Blog News

I have now allowed anyone to comment who feels like it, instead of the previous registered users. I have been taking a break from posting too much as there is little more than depressing economic news and I do not feel like being someone who takes credit for stating the obvious.

Gonna party like it's 1999

Actually stocks are at a low of two years earlier than that today. At the rate it will be more useful to blow your nose with shares of Citibank or GM than trade them.

Where your tax money goes

I try not to comment too often on news outside the scope of this blog, but today I found a real gem that illustrates there is no shortage of funding for colleges. Here's a quote of brilliance from the modern day Galileo and Copernicus combined:

"This is just the first study which was focused on the idea that men of a certain age view sex as a highly desirable goal, and if you present them with a provocative woman, then that will tend to prime goal-related responses," she told CNN.

Truly groundbreaking stuff there, Fiske. I have some ideas for your future writings such as "Thirsty people tend to drink water faster than non thirsty people" and "Catholicism and the Pope, a scholastic study on the Catholicism of the Papacy." Really, people are dying of malaria and our tax money goes to this?? Here's a study I am gonna work on, titled "Scantily Dressed Beautiful Woman Gets Attention." Time to get busy writing that grant proposal.

New Scam Artist Emerges

The tiny Caribbean island of Antigua brings today's multibillion dollar fraud allegations. While this Stanford fellow's $8,000,000,000 fraud allegations pale in comparison to the $50,000,000,000 allegedly bilked from investors by Bernie Madoff, this is just one in a string of bad financial men busted in the last year and a half. All of these new allegations coming up now make me wonder where the SEC was all of these years. For all of the money they spent prosecuting Martha Stewart over a tiny fraction of these amounts one would surmise that they could spend some resources tracking down multibillion dollar frauds and ponzi schemes.

I have a dream, that one day we will manufacture our own products

There's a joke I was told by a former coworker one that the best thing about having an economics degree is that one can tell the people in the unemployment line with them why they are out of work. Like a truly bored nerd, I decided to look at economic data from the Federal Reserve at 2AM and found this interesting little publication titled Industrial Production and Capacity. It shows a comparison with recent historical numbers and the utilization of industrial capacity by sector. Reading through it, one notices a lot of negative signs and that the lows for recent recording periods are above current numbers in most cases. This is a result of underutilizing the manufacturing ability in this country, which should be no shock to anyone who has purchased anything other than food and water in the past year. Finding American made products ranks in difficulty with writing a thesis on relativity, making it into the NBA as an armless midget, and draining the ocean with an eye dropper.

In case you wish to see data that will ensure you have a very lonely future, here is the chart

Finally some good news from the economy

Upon reaching 2,000 hits I decided I must post something to celebrate the growth of this fledgling blog. Well today I present to you some good news from the world's economy: that Russian oligarchs have lost so much money that their high end stores are closing. If only some of the wealth they stole from buying oil control during the transition from the Soviet Union would only find its way to improve the lot of their countrymen instead of purchasing yachts and English football teams would be nice.

Too tired to post

It looks like tomorrow will be the day the "stimulus package" passes the Senate. Then it is on to the conference committee to be worked out the differences and then revoted and to the president's desk.

Related the the post below

I found this gem on Failblog, it made me conflicted between laughing and crying.



It makes me even sadder to be unemployed and these two idiots are not.

Reason Idiocracy Will Become A Reality in Our Lifetimes No. 45123

Today I found this great story on the website Fark.com about the desire for Black firefighters to have the system of testing for promotions changed. According to the article, the claimants believe multiple choice testing to be disadvantageous to blacks, basing this on other studies showing Blacks tend to do worse on "high stakes" tests due to an inferior education. According to the attorney for the suing firefighters:

“This is systemic discrimination,” said the firefighters’ attorney, Dennis Thompson. “Selection rates for African-Americans are abysmally smaller than for white candidates.”

Two problems with this case come to mind. The first problem is that it is taking one result, lower test scores academically and assuming this to be the case for this specific case. I would venture to say that a multiple choice test to be a firefighter contains questions about, oh fighting fires. To compare results on this to say the SAT are disingenuous because the scope of the results are different. On the SAT there is a definite cultural bias towards upper class whites, if there were not the vocabulay section would not be emphasizing five hundred words working class people would never use such as crepuscular and obstreperous. Having not seen the fire fighters test I cannot say for certain whether they are asking questions about Chester Worthington III's resplendent day at the regatta, but I am going to go out on a limb here and think the answer's no.

The second problem is there is no defnition of what an abysmal rate of passage means. According to the article roughty one sixth of the fire fighters are Black (700/4200). That means in proportion to their population, sixteen percent should be in the higher ranks asuming there is relative parity in promotion. With affirmative action, the percentage is probably higher so let's say that a quarter of the passages are accomplished by Blacks, the argument could stil be made that the respresentation is too low because 75% of those passing are not black. It's a statistical slippery slope, because the population is small regardless of results, so the case can always be made no matter how the test goes. Further, I am going to go on a limb here and say that most fire fighters are not academically inclined, and I mean that in no disrepect, so the test probably is tailored entirely to be skills based. I don't know what how one can complain about the results on a test over how to operate machinery, basic management, and occupational skills.

Finally, I am troubled by the basic premise of the argument-that Blacks are less capable of being fire chiefs than Whites. By changing the use of a test because of performance, the Fire Department will be giving in to that statement. They will be doing so not because the test has not worked, but because one segment of society claims it is too hard. A better solution might be for all individuals trying to get promoted, whether Black or White or Gay Eskimos, to study and try to find out why they have struggled on the test. I am going out on a limb here and assuming there are Black fire chiefs who can help out up and coming Black firefighters to move up because they already know how to advance in the system.

In conclusion, this case creates one more example of trying to move the goalposts closer and closer as a society. Whether we stop handing out letter grades, promoting failing students, and lowering standards, the results are the same:a societal loss as incompetent people move up and crowd out the market for talent. It is little wonder our students perform at the same level as such powerhouses of science and industry as Slovakia and Azerbaijan.



The future if this continues.

Interesting stories not being covered in the mainstream media

Since the bailout and the Obama presidency are taking all of the headlines, I have decided to post some stories from outside of the normal scope of media coverage. Give your thoughts on them.

Sri Lanka comes closer to ending 20-plus year civil war

Political violence in Venezuela as pro-Chavez forces attack the Vatican's embassy and earlier violence against a synagogue

Farmers protest falling prices in Europe

Floods in Australia wash snakes and crocodiles onto streets

Those are just a few stories that are interesting in this world that are scarcely reported. The flooding in Australia reminds me of the 2002 European floods which drenched large parts of Central Europe.

I can finally call myself cyclically unemployed!

After applying for jobs since before the layoff, let's put the start date at Dec. 1, I can announce the results of over two months of sending out resumes, calling, job fairs, interviews with recruiters, etc. In this span I have received one interview for a job paying under $200 a week, one call from a warehouse manager asking why I applied with my resume, a three hours after applying rejection letter, and one job posting that turned out to be a scam site. Good thing we spent $700,000,000,000 to stabilize the economy!

One honorable congressman

Out of 435 representatives, only a handful had the fortitude to stand up to the multi-trillion dollar bailouts from both Bush and Obama. In honor of Ted Poe speaking the truth about the incredible debt this country is going to be buried under, I bring his two speeches on the two bailouts.

From September 2008





From January 2009

The Law of Unintended Consequences

One of the primary problems in any policy question is how to deal with externalities, the non price costs/benefits of enacting a policy. Some examples include pollution, noise, increased or decreased value, etc. Well while riding my bike I came across a perfect example of an externality and the problem with policy's not truly reflecting the costs versus the benefits.

Here in San Antonio, the city decided last year to stop euthanizing dogs at the pound. This movement was headed up by wealthy women from areas where dogs are strictly regulated such as the posh old money nighborhood of Alamo Heights. So these women, who I will refer to as party A, the benefit of being able to appease their morality is greater than the cost to them, which is close to zero. On the other side of town, in the poor areas of the southwest, citizens who wish to walk or ride their bike encounter feral dogs on a regular basis. For these people, let's call them party B, the benefit to the policy is close to zero and the cost is much higher due to their being no space to put newly found strays in the shelter since the space that would be freed up by euthanization is taken.

Why is it that party A is able to pass a law which helps a very tiny minority of people while hurting most individuals? Simple, the role of money internalizes the cost for the city councilors representing the poor areas. The money from party A offsets the costs in potential lost voters from party B, so the MB>MC so the motion passes. The second reason is that while many poor people are adversely affected by having rabid dogs wandering their neighborhoods, they do not vote to reflect this. Thus the sum of all MB>sum of all MC when it comes to voting.

As a result, poor policy decisions occur which hurt most individuals, but politically make sense. This often leads to the titular law of unintended consequences as the poor decisions spill over into other areas such as the increased number of strays from a no kill policy, increased housing prices due to homeownership programs, and increased health care costs due to insurance.

Today's Cartoon in Honor of Remittances to Mexico Declining

Today's lesson, the equation of exchange

In today's Senate confirmation hearing, Treasury Secretary Timothy Geithner talked about how restoring the banking system could require spending "trillions of dollars." The result of such a large scale increase in the money supply is that inflation will occur due to the formula known as the Exchange of Equation. This formula, MV=PQ states that the number of dollars in circulation(M) times the number of times they change hands in a year(V) is equal to the average price of all goods sold during the year(P) times the number of goods sold during the year(Q). By definition velocity is relatively constant and only moves greatly during a recovery or a depression when people are afraid to spend money.

Using this formula, by increasing the money supply X dollars means that those X dollars are spread out by the percentage change in the money supply equalling the percentage change in price. The previous statement presupposes that Q is unchanged or drops, which is likely given the economic slowdown occurring. As a result, those trillions of dollars in new spending will end up translating into fractions of dollars and cents on goods to spread out the increased money supply over the goods produced and sold in the country. (If Q increased it would be simple arithmetic to find if P rose or fell by having %(delta)M=%(delta)P+%(delta)Q) A little inflation is a given in an economic system because goods are scarce so over time the value should rise do to increasing marginal costs to produce.

When the money supply greatly increases relative to GDP growth, however that is when problems occur. When that happens the costs of doing business increase faster than a firm can deal with so people get laid off or their real wage falls.

The Bike Saga Continues

Well the next chapter in the struggle to get a good biking experience continues as I borrowed a bike, which was also made in China, and rode my customary 8.25 mile trip. This bike seemed worlds apart from the previous bike, despite the fact that it was purchased at a lower price and used.

For starters, the new bike had solid metal on the entirety of the pedals and on the gears. As a result, I could ride it uphill offroad without fear of the pedals breaking off. Secondly, it was built much heavier and was a much easier bike to ride offroad as a result because it got a lot of momentum from the weight. Finally, the wheels kept the air better than the other bike, which is nice because I am a big rider so I pump them up every couple of runs.

In conclusion, the difference between the two bikes is most likely due to very different specifications between factories. This is one of my theories as to why there are so many recalls of Chinese products, since many American companies likely will not put total effort into product specification as they figure it is cheaper to have a few recalled than to increase the labor costs by having more training for the workers.

As far as the bike is concerned, I found a local bike repair place, so I shall just get the parts changed out for better quality Western components. The good part of the story is that I have a greater appreciation for the differences in bicycles and have gotten into the habit of casual bike riding.