I Ain't Sayin Nuthin. Get Me My Mouthpiece

First, a bit of history.  I had a blast with high school chemistry, so decided that would be my life's work.  Then, I had (for non-academic reasons) to transfer to a small liberal arts college whose chem labs were outdated in the 1950's.  As a result, Pchem lab kicked the stuffing out of me.  Time to find a new major.  I think that went: english, philosophy, economics.  The last one is correct, because that's what the degree says.  Off to graduate school to do econometrics.  And thence, in the middle of a lousy recession, a job.  Not much of a job, as it turned out.

After a few years, it became clear to me, although I wasn't employed either as an academic economist or as a funded research version, that the field had devolved into a lawyer-like profession.  The client wants a defense of some action or proposed action or behaviour, and the "independent economist" gins up a study proving that what the client (almost always a Big Corporation, no one else has the money) wants is what's best for the USofA.  May be even the entire planet.  Mouthpiece for hire.  No accountability to facts or truth or anything.  Even in my backwater Federal agency, that's how I was expected to do.  Not what I set out to do.

So, I took a look around and decided that the profession was basically Evil, and took up databases and statistics. 

Today brings a bit of a revelation:  the American Economics Association is proposing a code of ethics.  Naturally, the Right Wingnuts oppose, basically because the Right Wing fringe of economics asserts that economics is devoid of value judgment or morals.  Yeah, you read that right.  I'm not even going to attempt to pull a few juicy quotes; there's nothing but such in the article.  You should read it, with care.  The Right Wingnut hypocrites don't get called out by the author, just be aware of that.  No, I haven't seen the movie, but will if it shows up here in Northern RedneckVille.

Take Your Lies and Shove 'em

I get tired of redoing the litany of why we got where we are, so I've written up a few sentences that get to the kernel.  I hereby release all copyright to the public domain, and encourage all to use this words in email forums, mailing lists, or anywhere Right Wingnuts spout lies.  Peace.



It was the Right Wingnuts from Reagan to BushII that gave us a Great Recession.  And they ran at least 3/4 of the government for 22 of those 28 years.  The reason "gummint don't work" is that for those 22 years, the Right Wingnuts actively sabotaged Government.  It was they who repealed Glass-Steagall, and let the finance corporations rape the Middle Class.   Get your facts straight.  And they were the ones who made it easy to ship our jobs overseas.  Get that fact straight, too.  Have a nice day.

Turning Japanese

There's that song from the 1980's, "Turning Japanese" (I recalled it as "Going", but Wikipedia saved me from embarrassment).  I, among many others, have been pointing to the "Japan Problem" since the beginning of The Great Recession as an object lesson in how not to handle the problem.  Japan has, basically, done nothing to restore equity in its median income, and so continues to slide.  Today brings another story, relating the history as well as the likely course of events in the near future. 

It is not a comforting story.  The pundits, as they have here for decades, recommend eliminating manufacturing.  What such dunderheads ignore is that consumers buy STUFF.  It's corporations that buy SERVICES; consumer service buying remains along the lines of shave and a haircut.  Put another way, who are the buyers of the services that MBA's are trained in?  Answer that question, and you'll see.

Tiny Morsels [UPDATE]

A couple of morsels, neither long enough for a post.

The population shift from the census.

As I was considering the text for this section, this story popped up in Yahoo!.  If you look at the map, you'll see the issue:  the highest failure rates are in the Redneck States that are said to be "growing".  A nation of yahoos; just what we need to lead the Free World.  Of course, there's this:  "...about one-fourth are obese, making them medically ineligible.  In 1980, by comparison, just 5 percent of youth were obese."  The lemmings headed for the dry, unfertile South will lead to a water war before the next census.  It will likely mean that the Right Wingnuts will use the excuse of their Southern begetting as the justification for taking what ain't their's, and is reason enough not to live in deserts. 


The kerfuffle over net neutrality.

Last time I checked, the www depends on the Internet Backbone.  To the extent that commercial interests control it (they do), they control the www.  This regulation will only increase that level of control.  The bifurcated www is here.

To some extent, I'm OK with that; the NetFlixes of the world should be forced to pay the marginal cost of their services.  Riding for free on the www of web pages is perverse incentive. 

There are these two notions of net neutrality:  those that wish to ride for free (or at least substantially below their inherent marginal cost), and those that wish to avoid commercial control of the www.  The latter is a long lost cause.  The former should never have been allowed.  If you read the history, you'll see that the original net was co-opted by commercial interests, which were more than happy to ride for free.


UPDATE

Unemployment improves.

Well, sort of.  Today (23 Dec) was the weekly unemployment numbers, and continuing claims are down 103,000.  This is not good news, and it's not good news for the simple reason that the main phalanx of the Great Recession Unemployed began their ejection from the workforce two years ago.  What you're seeing now is these folks being ejected from the last bit of income they had.  I wouldn't be surprised to see this number reach into the 200,000 level over the next six months.  And with that, the Double Dip begins.  You read it here first.

For reference, the week of 26 December 2008 had 586,000 initial claims.  I found that from a contemporaneous blog posting.  Note the prediction/assertion that the unemployment rate would reach 8.3%.  I know nothing of this blog, it was just the first in the search that had the number.  The wildly Right Wingnut assertion about the ultimate unemployment rate is instructive.  (You can see the data here.)

Obama, who hasn't shown much interest, needs to pay attention.  He won't of course, and the Lefties will end up taking the heat for the mess, which will usher in President Palin, and then the slide dumps us over the cliff.  The Palinistas will, of course, blame all those greedy hungry poor people.

Satin, Satan, What's the Difference?

Well, the PPI came out yesterday and the CPI today.  .3% and .1% respectively.  The PPI being not next to zero is due to lack of materiel, as it always is.  The CPI is next to zero, and below the predicted .2% (not so much different from zero).  And don't forget it's Christmas time (and Kwanza and Hanukkah/Chanukah) when money, to the extent there is any, floods the markets.

Happy Holidays, all you theists out there, I'm going to down a goblet of goat's blood.

Balls Cried the Queen

If I'd two, I'd be King.

This past Tuesday, I'd had enough.  So I sent off the following to the White House, which has a web page where you can write to Obama, with a 2,500 word maximum.  Sure.  You have to pick a subject, of which "You're a Dumb Shit" isn't a choice, so I picked Economy.


Well, not just the economy.  Fact is, you're displaying a level of gutlessness not seen since Carter; more gutless as the days go by.

For you, compromise is you reneging on your pledge and on those who voted for you.

At this point, it would have been better to have voted for McCain. Yes, he would have screwed things up such that the country would be worse off now.  BUT, it would be impossible for even thick headed rednecks to ignore who's responsible.  2010 would have ushered in a fully Democratic Congress, and 2012 a Democratic President (Hillary ?).  Your gutlessness has enabled and encouraged the Right Wingnuts to lie, cheat, and steal from under your nose; foisting responsibility on you. 

What, exactly, do you think this posture accomplishes.

Regards,
Robert Young


So, today being Friday, it's Krugman time, and he expounds along the same lines.  It's increasingly clear that Obama was a horrible mistake.  "If you try to please everyone, you end up pleasing no one."  His avowed bi-partisanship depends on the Other Side being willing to compromise, if only a little.  How any sentient being could convince himself that the Right Wingnuts have anyone's interest at heart beyond the One Percenters is impossible to warrant.  He'll end up implementing the Right Wingnut agenda, making life worse for the Ninety Nine Percenters, and marking Democrats as the villains.

Such a fool.

And by the way, the jobs numbers:  Private payrolls went up by more that total payrolls, in other words, the Right Wingnuts will complain, but they're getting what they want, reduction in government employment.  Let's see if they admit that. 

Wide, But Not Deep

T. S. Eliot wrote "The Hollow Men" way back in 1925.  Now we have, courtesy of Nick Carr, the Shallow Men.  Whilst reading my dead trees NY Times on Sunday, I skimmed an article which mentioned, not pleasantly, Carr's writing.  It was just now that I visited, and found that he had seen it too.  As he says, it's horseshit.

Saturday Night Social

The first rule of capitalism:  seek to socialize cost and privatize profit.  On further refraction, that's the only rule; all other behaviours are in furtherance of it.

So, over the last week, we find that FDA is listening to some part of the country and takes a draw a line in the sand stance with regard to the alcohol/caffeine drinks.  But no good deed goes unpunished.  The Redneck Tea Baggers go have a shit fit.  The Gummint is telling us what we can do!!!!!!

Fine.  Do what you want, but the new rule:  if your behaviour leads to costs, you don't get the service.  Doesn't matter if you have "insurance", you don't get medical aid, since doing so raises the price for everybody.  You bad, you die.  If you down a six pack of Four Loko, wipe out your Pinto, and wind up in a coma, you don't get any further medical service.  If you can't eat, you die.  If you can't breathe, you die.  And so forth.  If the makers of Four Loko decide to pay for some medical aid, well they should, shouldn't they?  You ended up in the hospital because of their shit. 

Same goes for idiots ride motorcycles without a helmet.  Crash, and you get left by the side of the road.  Take care of yourself.  Odd, but the Tea Baggers never seem to make the connection, from Dot A to Dot B. 

[UPDATE]: Dee Feat is in Dee Flation, Part 8

For those who are following along on the guitar, here's the latest.  As before, deflation is what's happenin' baby!!!

The quote:
Excluding the volatile food and energy categories, the so-called core index fell by 0.6 percent, the most in more than four years.

"there was little sign of inflation in the report" means, which this article didn't print, the inflation number for October was 0.  That's right a goose egg.  Nada.  Nuthin'.

So, all you righteous Right Wingnuts who want the Fed to clamp down on runaway inflation:  shut the hell up.

[UPDATE]
The CPI number is out:  core = 0%.  (Here's a Reuters feed).

Down the chute we go.  OK, Tea Baggers, what you got to say about this?

A Capital Idea, Again

As the Limeys would say, "such a capital idea".  The subtitle of this endeavor is an allusion to the fact that Capitalism has no theory of distribution, only one of acquisition:  winner takes all.  As Marx wrote more than 100 years ago, such a state of affairs cannot sustain.  I have written a few times, somewhat less famously, as have BOKO, especially his series on Zombie Capitalism.

Now, the Mainstream Media, in the form of my beloved NY Times (even though they can't manage to deliver it with anything like regularity) has written that entire countries have figured out that Capitalism, the unfettered, virulent variety, is a problem.

My favorite quote:
"The world has learned about the perils of free market finance -- global financial liberalization just does not work as advertised," said Dani Rodrik, a political economy professor at the John F. Kennedy School of Government at Harvard. "Just as John Maynard Keynes said in 1945 -- capital controls are now orthodox."

I commend both BOKO and the Times to y'all.

Post Mortem

My message to the fools who voted with their sphincters yesterday.

Yeah, and the Right Wingnuts from Reagan to the BushBoys did so well by the country?????  The top 1% went from 8% of national income to 25%.  That's a banana republic, not a democracy.  Invading countries that didn't attack us.  That's fascism.  Historically (Clinton, last) the economy does better with Democrats in charge.  Short sighted idiots never manage to figure that out, of course.  The Second Great Depression now begins.  I hope you're really, really happy.

Dee Feat is in Dee Flation, Part 7

For those who are following along on the guitar, here's the latest.  As before, deflation is what's happenin' baby!!!

The quote:
The Fed is expected to inject more money into the economy through bond purchases, and that view was bolstered by the consumer data, which showed no inflation pressure in the economy.


"No inflation pressure" means, which this article didn't print, the inflation number for September was 0.  That's right a goose egg.  Nada.  Nuthin'.

So, all you righteous Right Wingnuts who want the Fed to clamp down on runaway inflation:  shut the hell up.

Jane, You Ignorant Slut

We all have monsters under our beds, don't we?  One of mine is a furry little critter; furry because it's base, little because it's base, and a critter because it's base.  It's otherwise known as the American economic structure.  Humans generally either seek to maximize pleasure (the Darwinist approach) or minimize pain (the McElhone approach; you likely haven't heard of him, but that's OK).  The maximizing capitalists control how our economy is structured, what goods and services we, as a group, produce.  They decide, through the allocation of capital, what it is that we do.  There is in economics a substudy, known as Input-Output Analysis.  This consists of some fairly hairy linear programming, but also the resulting matrix, which is pretty simple and shows what industries produce what using what resources.  Here's the WikiPedia article.

It's been way too long since I was a practicing economist, so I don't have to hand decadal copies (1950 - 2010, although 2010 isn't likely calculated by anyone yet) to bolster my belief that there's a furry little critter under my bed.  The furry little critter looks like a robust producing economy in 1950, but merely a cotton candy cone in 2010.

How do we measure the decline of a society?  How do we define decline, in the first instance?  My furry little critter's most salient attribute is triviality.  The capitalists have reduced us to producing mostly trivial shit most of which is just virtual shit at that, while we import ever more of the necessaries.  I had considered this for some time, and I explicitly never expected to see foreign refrigerators and washing machines; too expensive to ship.  Yet, Samsung is flogging them to beat the band.  That's just plain wrong.

What has motivated this epistle is, naturally enough, a story in today's Times.  It recounts the birth and youth of Twitter and its founder.  Here, with all the sarcasm it deserves, is the money quote:  "The founders likened Twitter to ice cream: not that useful, but 'a fun thing for family and friends when they are not in the same place,' Mr. Williams says."  So, what the US economy is about is a bunch of twits.  Oh my.

I'd say that it's high time that capitalists be brought to heel.  They've done so much damage.  We make military weapons of mass destruction, financial weapons of mass destruction, and silly software.  No wonder the world laughs at our bitching and moaning that life's not fair.  And Christine O'Donnell is just like us, and wants to be a Senator.  No child left behind? 

Promise Not to Tell?

The subject of today's epistle: vocabulary.  We deal with synchronicity, serendipity, coincidence, karma.  Any one will do to describe my meeting with the NY Times (dead tree edition).  I don't make a point of reading the obit pages, they just come around on the guitar eventually.  If there's someone I've heard of (increasingly true as one ages), or someone who'd worked in some field that is of interest, I'll pay attention.

Today, there is a cartoon in the middle of the obit page, so it's hard to walk on by.  (The one on the page, isn't on the on-line page, but is the second slide in the linked slide show.)  It's a New Yorker cartoon, and quintessentially so.  Which drew me in, and what I found explicates the vocabulary. 

I'm glad I read the piece.  Mr. Cullum explains how it was that he became a cartoonist, although not a full-time professional one from the way I read it.  No matter; he clearly got The New Yorker, and vice versa.  He was a pilot by profession, having flown during Vietnam.  Ummm.  Do you sense something coming?

There's been minor kerfuffles the last few days:  WikiLeaks outing our stupidity, and Karzai himself doing so with the admission that he's on Iran's payroll.  Secrets are only secrets from the population who might object to decisions by the powerful, if only they knew what the people on the ground have long known.  We aren't keeping secrets from the enemy, only from ourselves.

The quote that matters:

In 1966 he was sent to Vietnam, where he flew 200 missions, most in support of ground-troop operations, but at one point he flew secret bombing runs over the Ho Chi Minh Trail in Laos. "Who these were secret from I'm still not sure," Mr. Cullum told Holy Cross magazine in 2006. "The North Vietnamese certainly knew it wasn't the Swiss bombing them."

Obama might consider this.

One for You, Three for Me. Two for Me, One for You.

There's been more noise these days about a Right Wingnut takeover in Congress, and what that might mean.  Some have gone so far as to hope that they get both houses; the theory being that Obama will finally get the balls to put the blame where it belongs.  Good luck with that.

Then, there's the pleasant cognitive dissonance about unemployment, employment, and retirement; spurred on, no doubt, by the mess in France.  The bottom line (so to speak) is that, once again, it's the Distribution, Stupid.  On the one hand, the Right Wingnuts destroyed defined benefit retirement plans, forcing folks into becoming investment experts for their 401(k)s.  We can see how well that worked out.  It's the old divide and conquer ploy.  In this case, individuals are not only alone in solo lifeboats, they don't have the necessary information.  With professional investment directors managing the large funds, it's much easier to level out the ups and downs and still meet the needs of the plans.  Well, if the directors are not corrupt. 

Pressure to raise the retirement age is presented as the panacea to Social Security (and Medicare, although not spoken) difficulties.  But what happens when all those 60 somethings have to keep working?  Where will the jobs be?  Unless the Feds make it illegal to fire a 60 something, and give absolute preference to 60 somethings in hiring, we'll just see them (us) dying off at an earlier age, increasingly.  Which, of course, is the whole point.  No income, no healthcare; just die.

The problem with that, which the Right Wingnuts haven't the brains to figure out, is that the non-financial part of the US economy is increasingly healthcare.  It's kind of hard to outsource hospitals and nursing homes.  Not so easy to outsource doctoring, although it's been tried (diagnostics and the like shipped to India).  By punishing the general population, the short term profitability blooms, but the medium to long term contracts.

Which brings me around the main point, once again:  It's the Distribution of income which determines the health of an economy.  What follows is a model.  A model, in the scientific/engineering sense (not the luscious babe one), simply removes the extraneous noise from the real world situation, and asks "what happens next?".  Einstein's relativity was a model, which he referred to as a thought experiment.  Much the same.

In our model, we'll state that the population is 1,000 humans, that the only commodity produced and consumed is bread, and that there are some number of companies employing the 1,000 humans.  I'll call this place Little World.  At the outset, the humans produce 1,000 loaves a day, and earn enough to buy 1,000; one per human.  Equality reigns.  The companies earn enough in the process to remain in business, but each is small enough to be unable to affect the price of bread or the wages paid to workers.  Equality reigns.

Now, let's disturb the model by asserting that the companies collude and reduce wages to the 1,000 humans by 10%.  What's likely to happen?  We'll assume, for the moment, that a Police State exists such that conformance is mandatory (think, "Robo Cop").  Unless the companies reduce the price of bread, they'll only sell 900 loaves; there isn't sufficient money in the economy to buy the 1,000 loaves previously.  Who goes without?  We'll assert some random number of 100, and that once in the No Bread group, one remains there.  Let's assert that one can only survive a week in the No Bread group, so at the end of one week, we're down to 900 humans.

Can the 900 humans make 1,000 loaves?  Possibly, but there's no demand for the extra 100, since there's no extra cash; thus the companies have no incentive to make the extra 100.  They could then reduce the price, but there's no need for the extra 100, since there aren't any additional consumers (bread, in the model, has no bling factor, no conspicuous consumption vector).

The companies have now permanently reduced both the population and their business. 

Let's look at what happens in our Real World with respect to enforced wage reductions and tax giveaways to corporations, from the perspective of our Little World.  Well, we've already seen that enforced wage reductions merely lead to contraction of both population and profits for the companies; rather than selling 1,000 loaves, they now sell 900.  What happens if the Police State, after the time that population has reduced to 900, agrees to reduce the companies' taxes by 10% (taxes pay for roads to and from the bread factories and homes, and a squad of Robo Cops; you thought I'd forget, eh?)?  Is there any incentive for the companies to either reduce price of bread or hire more humans?  Well, no.  There are only 900 humans, and they're not totally stupid; they'll not breed until they're convinced that there will be enough bread for another 100 (just to pick a number at random).

So, what happens to the tax "incentive"?  It gets pocketed by the companies, of course.  They get more, the humans get less.

What happens if the Police State, realizing that its existence depends on a growing community of humans, instead grants bread to the humans?  Well, if the 900 humans believe that the increase in bread is real and sustained, they'll demand (in the economic sense of not just wanting, but have the cash to buy) this additional bread.  In our Little World, breeding is speedy, so presto-changeo, we now have 1,000 humans consuming 1,000 loaves. 

So, putting demand in the hands of humans leads to growth of Little World, while giveaways to companies in Little World leads to contraction.  And so it is in our Real World; where breeding is almost as speedy. 

The moral of the story:  taking from the many and giving to the few leads, inexorably, to destruction of the whole society.  Perhaps not in the week of Little World, and that's too bad.  Americans are sufficiently stupid that they don't even remember that their mess was caused by Right Wingnuts.  Hell, even that Christiane Amanpour, who was supposed to be smarter than Boy George, let McConnell lie about which folks implemented the bank bailouts.  For those readers who don't remember either:  it was the Right Wingnut Republicans.  If acts of stupidity brought retribution immediately, perhaps we could rid ourselves of so many stupid people.

The Scales of Justice Be Crooked

Reuters has published a very long story demonstrating that it's the distribution.  The author quotes all of the usual suspects.  I hope this story gets very wide circulation.

This quote:  "One bright red flag that policymakers seem to have missed pre-crisis was the disconnect between swiftly rising house prices and stagnant wages for most middle-class workers." is a tad misleading, in my opinion.  The red flag wasn't "missed" by accident or stupidity.  It was ignored, because to acknowledge it would be to demand action.  Georgie Porgie and his minions weren't about to show the populace that the emperor is naked.

I'ma No Lika Dat Pill

For those old enough to remember the 1960's and early 1970's, and were of college age or thereabouts, may recall a poster oft displayed in undergraduate female dorms (and de rigueur in coed dorms).  Think of the Uncle Sam Army recruitment poster, with the bearded fellow pointing his pointy finger at you saying, "I want you for the US Army".  Well, this other poster (and I just went and let my fingers do the searching, and didn't come with anything, but I swear I'm not hallucinating; don't listen to that bunny!) showed that skinny Paul VI pointing his pointy finger at you saying, "I'ma no lika dat pill!".

Which brings us to recent news, demonstrating, once again The South Shall Rise Again.  Well, the middle leg is always rising it seems down there.  Stupid people breeding like rabbits.  Call me Eliteist, but when I was young and poor, poor folks knew that the only way for their kids to get out of poverty was to have as few as possible.  Feed, clothe, and *educate* the bejesus out of those few was the cure.  But, stupid people who listen to venal religiosity stay poor and stupid.  They buy guns, teach creationism, breed, and stay poor and stupid.  I guess they think that Christine O'Donnell is qualified to be a Senator just because she's just as stupid as they are.  They wouldn't take their busted up car to an idiot mechanic for fixing, but they'll vote for idiots.

A Baker's Dozen

The speech Obama should give, but hasn't the brains or balls to.

Good Evening.

The Right Wingnuts, led by John Boehner, have been telling America that all would be well, and full employment will happen overnight, if workers would just accept poverty wages and the US government give ever more tax breaks to business and the already well off.  That wouldn't happen, and I have a fable to show why.

Mr. Baker owns, not surprisingly, a bakery.  He employs Mr. Jones as a baker.  The bakery bakes bread, from 8 am to 8 pm.  Between the two bakers, they sell all of the bread they can bake.  Mr. Smith arrives at 7:59 pm to get his late night snack bread, and buys the last loaf.

What would happen if the Right Wingnuts get their way, by either forcing the Mr. Jones's to work for less or giving tax breaks to the Mr. Baker's?  Would Mr. Baker higher more bakers?  No, of course not.  There is no demand for more bread than he and Mr. Jones can bake.  Any decrease in Mr. Jones's wages enforced by Right Wingnut policies would simply go into Mr. Baker's pocket.  The same for tax breaks.  Straight to Mr. Jones's bank account.  No more bakers are employed, and the ones that are employed earn less.

If, and only if, Mr. Baker finds that he runs out of bread at 6 pm day after day for rather a while will he hire another baker.  He will do this at the prevailing wage for bakers, since doing so makes him more money from the additional bread he bakes and sells.  The only way for that to happen is if more Americans can afford to buy more bread.

Do not listen to Mr. Boehner.  He is full of shit, and seeks only to increase the incomes of the Mr. Baker's at the expense of the Mr. Jones's.  It's that simple.

Dee Feat is in Dee Flation, Part 6

There has been continuing discussion of the Great Recession, without much understanding of the fundamental driver.  I offer up the answer.  Galbraith had the real answer (to all investing decisions):  Genius is a rising market.  Few, without insider information or a fat margin account (shorting), make money in a falling market.  There are those, humble self included, who've concluded that the Great Recession resulted not so much from the banksters evil, but the now widespread availability of retail shorts.  Deflation, which is all a falling market is, is self-fulfilling when everybody can drive down prices.

The fact that the market rebounded so fast and high from March 2009, as all that shorted stock was bought back is prima facia evidence.

Max Goolis

In the late 1950's and until the Beatles, there appeared, in the wake of McCarthyism, a pabulum form of folk music much despised by purists.  I liked it; then again, I was a decade younger than the target audience, college students.  My favorite was, and still is, the Limeliters.  One of their songs was "Max Goolis", a parody of "John Henry".  Some, I gather, found the song's very existence objectionable.  It told the tale of a race between Max (a street sweeper with a broom) and an "automatic garbage truck", a vehicle which I guess is a street sweeper.  Max ends up losing to the truck, with much humour to be heard in the lyrics and commentary along the way.

So, a race between human and machine.  It's a metaphor that's been around for at least a few hundred years.  My native New England was home to mills employing women and children in conditions about like what can now be found in China and India; although many factories in those two countries are much less lethal than what the God fearing white men of 19th century Massachusetts and New Hampshire built and ran.

Well, O'Reilly (what??? not the NY Times!!) recently had a story about the fact that Apple seems to make much more money (selling far fewer units) by segmenting its market, than do the other phone makers who engage in a "race to the bottom", as noted in the comments.  Is Apple doing a good thing?  No.  There should be a race to the bottom, if you're really a Right Wing Capitalist Smithian.

Say What??

The Right Wingnuts always trot out Adam Smith whenever they desire to increase profit at the expense of employees or the environment or any other claimant.  What they either ignore or prevaricate is that Smith was all about a race to the bottom.  Smith's thesis, boiled down, was that capital earned just enough money to keep the capital engaged.  Capital was not some superior input.  Labour was to earn its marginal value.  And markets *couldn't* be segmented or discriminated; producers had no such monopoly power.  The dirty little secret is that what Apple does is due to monopoly power.  Now, it's couched in patent terms, but that's just another reason to get rid of patents generally and software patents particularly.

The race to the bottom meme has been trotted out frequently these days, particularly with regard to HP.  The Oracle of Larry excoriates HP for dumping Hurd, while HP-ers (not for attribution, of course) are glad to see him go. Why?  Because he embraced the race to the bottom; makes lots for cheap.  In a tech company, that is always a problem, especially from a Smithian point of view.  Recall, he published the book in 1776; a fact ballyhooed by Right Wingnuts as more important than The Declaration of Independence.  Tech was pretty primitive back then, and its place in an economy not anything like what it is today.  Not to mention the elephant:  software patents are like being allowed to patent air.  Making better tech means someone, either your company or one you can buy, has to push to envelope.  In order to do that, you can't scrimp on R&D.  In order to do that, you can't win the race to the bottom.  Smith's example was pin manufacture, a variety of capital use which was settled art.  Doesn't apply now.

Dee Feat is in Dee Flation, Part 5

  As regular readers will remember, I've taken the time in the past to argue that the boogie man of the Right Wingnuts (and Fatmen craving a famine), inflation, isn't in the cards, and won't be.  The reason is straightforward:  in order for there to be inflation caused by either the TARP or stimulus money, said cash has to find its way into the hands of consumers.  Now, consumers aren't just the you's and me's; businesses that buy machines and raw materials are also consumers.

But that hasn't been where the money went.  That was clear from the start, certainly for the TARP money.  The stimulus has worked out about the same.  So, courtesy of today's Times, is another story confirming my earlier musings.

Here's a delicious quote:
"...the panic amounted to a sudden shrinking of the money supply. That does not show up in official statistics, because no one knows how many repos are done, and repos are not counted in the current measures. But Mr. Gorton argues that repos are money and that the shrinking of that market had economic effects. If so, that impact continues."

So, what's happened is that all that money that left has been replaced.  But, there is some danger:  if we do as the Yale professor recommends, we'll not only have replaced the runaway cash (with TARP and stimulus) once, but twice.  That'll be a problem.  Leave well enough alone.

The Land of Stupid People

I've lived in Boston, which is to say anywhere from the Habah to Route 128 (or may be 495 these days) a few times over the years.  One time was for a software company in Lexington.  One of my colleagues was Phil, who lived in Brockton.  The commute was not fun, but when he was in the mood buy a house (some years before then) interest rates were sky high.  In the event he ended up in Brockton.  We all have stock phrases we inject into both writing and conversation; one of Phil's favorites was his reference to Brockton:  "The land of Stupid People". 

Such was the widely held view by most folks, not just Phil.  Brockton was in the abandoned inner city, former manufacturing, desolatevilles class of city.  Newark, Detroit, and such.

Until today.

Here's the link to a Times story that demonstrates a number of factoids.  Here they are:
- as Napoleon is reputed to have said, "there are no bad soldiers, only bad generals"
- organizational failure, despite the blathering of Right Wingnuts, is caused by incompetent management, not workers
- the problem with education is The Teacher's Union
- small schools are the answer

That's a lot of factoids.  The story makes clear that the solution to the education problem, and we're talking here about a 4,100 student inner city high school, came not from management, but worker bees.  To its credit, management didn't stonewall.  To its credit, the union didn't either.  The impetus came from an informal (in the beginning) group of (as I read the story) *experienced* teachers.  I stress the experienced, because the Wifey at one time decided that she would be a teacher as a career change.  She went through the process, but became one of the majority of new teacher who leave rather than hang around for the cushy retirement (that's sarcasm, it isn't).

The main reason she left was that management set off on an explicit policy of shunting aside any teacher with experience, in favor of young girly girls.  They "relate" better to the students.  Yeah, right.  A good tight ass always helped me concentrate on calculus.  I know that sounds outrageous, but that's what happened.  Brockton lucked out; it still has experienced teachers who care about students and teaching.

The group developed teaching methods which are known to work by anyone who's over 40.  These methods were not the curriculum jujubees from consultants and central office.  It was clearheaded thought.

Barnes is Ignoble

So, I went into my local Barnes & Noble, here in right wingnut Connecticut, to have a look at Charlie Pierce's "Idiot America".  For those not in the know, Charlie is a regular on NPR's "Wait, Wait, Don't Tell Me" (which no one should miss:  it's generally on late morning Saturday and, someplaces, Sunday), and his intro mentions the book.  I'd been meaning to have a look, but hadn't got around to it until yesterday.

Well.

Not only didn't they have it in stock, THEY'RE NOT PERMITTED TO STOCK IT.  Three walls of right wing religiosity and another two of Obama bashing.  But not allowed to stock "Idiot America". 

Boycott Barnes & Noble.  They're just another Right Wingnut fascist corporation.  Enough is enough.  If the only books idiots get to read are lying idiocy, they'll surely believe it.  No child left behind, my ass.

Dee Feat is in Dee Flation, Part 4

The CPI numbers just came out.  Ready?  Overall up .3%.  Core (excludes energy and food) was FLAT.  Not explicit Dee Flation, but on the razor's edge.  The Right Wingnuts will, of course, say that InFlation is looming because the gross CPI was up a smidge, but they're lying, of course; they always do. 

Core represents demand pull InFlation, a rise in prices NOT connected to either intrinsic cost increase (that's energy, which is oligopoly pricing and necessary given the structure of the society, and food, which is necessary and largely inelastic demand) or wage push.  Not surprisingly, median income is not moving, either, so there's no wage push in the equation.  Core prices (ex. energy/food) go up when demand pull is in effect; that is, when the masses have more money to spend on some fixed amount of goods and services (not these days, me hearties).  In the case of energy, well, there is that monopoly thing going on.  With food, supply is a function of weather and the cost of fuel and fertilizer.  Note that those last two are driven by our friend energy. 

So, the Right Wingnuts are still wrong.  They can't quite get us into a Japanese DeFlationary spiral with their ludicrous propaganda (although there are enough inbred knuckleheads in Delaware these days; who knew?).  Yet.  Stupid people are easy to flummox, especially if you can spin your evil through the Bible and the Second Amendment.  The Fatmen in Famine scenario is just what the Right Wingnuts want.  Think, Goldfinger; he would make his stockpile of gold more valuable by destroying the US's stockpile.  Same thing here:  drive down overall prices by 1%, and your monetary holdings instantly gain 1% in value, WITHOUT YOUR DOING ANYTHING USEFUL.  Such a deal.

Don't be a Stooge

Don't shoot yourself in the foot.  Yet another news piece discussing the housing market, interest rates, and bankers urging folks to take advantage of really low interest rates.  Really low interest rates don't help you.  The total package (house price and interest) is fixed to median income; when one goes up, the other goes down. 

The gloriousness of your house is determined by your income, and that of your townsfolk.  If, in the next five or ten years, median income rises in your town, so will house prices (interest rates unchanged) and you'll make a killing.  If not, then house prices will bounce around the value they have today; unless, of course, median income continues to fall and/or interest rates rise.  If you're old enough, or can find folks who are, remember what happened to folks who bought houses in the late 1970's.  Interest rates where very high, prices were very low, and as interest rates fell, prices rose.  All that unearned capital gain fell into their laps.

Never forget the Prime Directive:  the bankers/builders/sellers intend to suck up the entirety permitted mortgage payment, and they trade principal (the house price; to the builder/seller) for interest (to the bankster).  There's nothing you can do about that.  They can, and will, and do, take every last morsel.

Mea Culpa

A few posts back I made reference to Recursive Economics(tm) as a term of art, invented by me.  Alas, out of curiosity, I let my fingers do the searching, and it turns out that the term has existed in economics curricula since, at least, the late 1980's.  The use appears to be somewhat different from the notion I was attempting to propose.  But the term isn't mine.

Here is a syllabus I found which provides a readable (that is, without the maths) description of what the economics profession means by Recursive Economics.  I may read one the the texts mentioned to see whether there's much overlap, but I doubt it.  Reading reviews of some of these texts on Amazon, I saw that many allowed as how there was copious use of semi-advanced maths (from the point of view of a math Ph.D) in a naive way, but little economics insight.  Once again, the reason I abandon the field.

Split the Baby in Half

David Leonhardt's article in yesterday's NY Times made my little heart go pit-a-pat.  I commend it to you.  He fleshes out my argument about housing prices with a lot of data and interviews.  He doesn't quite get the point, but comes closer than I've read from the Mainstream Pundit Brigade.  Do, I suppose, to almost getting it, I was moved to email him, and lay out my argument.  It ended up being two, since I forgot an important bit the first time.  I've edited them together here for simplicity.


Yes, I do read the Times, and thus you, each day.  I find your writing less fawning toward Business than most of your business section colleagues (that may be insult or compliment), thus I saw the headline, and dove in, sure that there would be insights that I haven't found elsewhere.

And there were, but I had to wait to nearly the last graph to find the nugget which explains the whole Great Recession:  it's about median income.

My degrees are in economics (the 1970's), and I learned early on that there are few absolutes in economies (or life, as well); intelligence and income particularly.  When housing prices began diverting from the historical ratio with median income (about 2003), I knew something was up (or corrupt).  I didn't have any public outlet as I do now, but the motivation and consequences were clear.

The motivation:  by regulation and prudent lending practice, *monthly mortgage payment* is effectively fixed as a percentage of median income.  It may fluctuate a bit from time to time and place to place, but not by amounts sufficient to justify housing price appreciation seen from 2001 on.  The only way such prices could be supported is if the lenders (turns out to be mortgage companies, principally) were fiddling the contracts.  Median income, as you know and have written, has been stagnant (more or less) for decades.  Housing is, strictly speaking, a capital expenditure.  I, and others more prominent, have written that housing as real physical investment is an oxymoron, but that is another column.

Quel fromage!!!!  The contracts were fiddled.  Incomes couldn't possibly support the prices.  I've long concluded, but haven't dug through the data, that the only winners in all of this were the Pulte's and Toll's; or at least the CEO's and others gifted with options.

The consequences:  a Great Recession.  It was also clear (being a saltwater economist) that the only thing holding up the economy during Bush II was home equity loans; folks were burning unearned appreciation on consumption.  They certainly weren't garnering higher incomes; well except the top 1 or 2 percenters (II's friends).

I just hoped that your article, as well as your interviewees, would have pursued the relationship between median income and expenditures.  For pure consumption, it's more difficult to say what will be a winner or a loser in the short term, but for housing it's a wash, unless the numbers are fiddled.

I also question the quality of data which contradicts an inverse correlation between interest rates and housing prices.  The problem is the confounding with the fiddling we've been experiencing.  Builders and bankers aren't stupid, though they be sly.  SMSA income data has been available for decades, and the B & B's can easily determine (within whatever margin of error they're willing to pay for) the median mortgage payment that can be supported.  Said mortgage payment is divided between the B and the B; as interest rates fall, house prices will rise to consume the full mortgage payment available.  Conversely, when interest rates rise, housing prices have to fall; there is only so much mortgage payment to be had.  While an undergraduate, 1970, one of my economics professors had a consulting gig with a local/regional bank in western Massachusetts.  Using the SMSA data, he developed an analysis engine he called Shift and Share Analysis.  It was used for just this purpose.

Later in the 1970's I lived in the Boston area, and folks were buying houses at rates above 10%.  Those are the folks who made out very well indeed.  Now is the absolute wrong time to sign a mortgage.  Interest rates can only go up, and unless median income rises (won't happen unless the Democrats hold government for at least three Presidential terms), prices must fall.

Let Them Eat Cake

It really is the distribution, stupid.

I started this endeavor when I discovered, not caring a fig earlier, that one could blog without having one's own web site and server to match.  Who knew that Blogger, WordPress, Open Salon, and the like existed?  As the Great Recession deepened, I found more and more to write about.

I began professional life as an economist, and not the sort I would have liked; working, if even menially, at Brookings.  Eventually, I segued into statistics and computers, and did OK, until the Great Recession, as for so many others.  I keep an eye out for those in the Profession who write the facts.  They often do so for The NY Times, an assumed to be Liberal Media, and if so, about the only one.  Well, not counting "Mother Jones".

Today's installment comes courtesy of Robert Reich, Clinton Labour Secretary.  Read the whole piece, if you would.  What follows are a few quotes for those who don't.


[C]onsumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven't kept up with what the growing economy could and should have been able to provide them.

The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

When American families couldn't squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless - as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income.


All points I have been making in the course of this endeavor.  Reich, in the balance of the piece, has some prescriptions.  He also, I feel, has missed out a key sociological component.  So far as I recall, this insight is mine alone; which is unfortunate, in that I lack the visibility of Reich, Clinton, or Obama.  The growth, and its shared nature, during the 1950's and 1960's (ending in 1973 with the first oil embargo) was due mostly to a residual Socialism engendered by the shared sacrifice of World War II.  For about 20 years, or about a generation, Americans as a whole understood and accepted the notion "that we're all in this together".  Thus, a truly progressive tax system was accepted as necessary.  The forced inclusion of Civil Rights, the divisiveness of Vietnam, and the evil of Republicans put an end to that. 

Stupid white folks have been looking to blame Others ever since.  And they'll keep on doing that until they start a real civil war, again.

Mad Men

And in today's news, a drug company factoid of which I was unaware:

In 2009, companies spent a vast $4.8 billion to reach out to consumers in the United States -- the only country besides New Zealand that allows direct-to-consumer advertising -- up from nearly $4.7 billion the year before, according to tracking firm Kantar Media.


I'm not sure why we stand (or grovel) alone with a meaningless(!) country like New Zealand, but there you are.  In the rest of the civilized world, pharma has to convince doctors that it's stuff actually works.  Of course, they've been caught fiddling there, too.  Fact is, I've always wondered why pharma spends the money.  Do they really think that Dr. Welby will prescribe some Love Potion Number 9 just because Fred Flintstone has been brain washed into craving it??  May be it works.  Which is worse:  the waste of money on such adverts if they don't work, or the waste of money and perversion of prescribing if they do????

Beautiful Bermuda

Another letter from (well, to) Bermuda.  A letter writer there, anonymously, wrote to blame the island's economic woes on the wage earning work force.  Some other writers then chimed in.  I've no way of knowing what the balance of writers was, only what the Editor chose to print.  So, I was moved to offer a volley.  Which is below.


Neither "neither a construction worker or a lawyer" nor the various letter writers (well, those you've decided to print) understand the sources of inflation.  Inflation exists over time (the usual way people think of it), but also from place to place.  Here in the US, the metro Washington, DC area costs more to live in to a non-trivial level than the national average.  Places in Appalachia, less.

Bermuda's cost of living is not a function of wages paid to blue collar (a US term) non-skilled and skilled workers.

The three drivers of inflation are:  cost push, wage push, and demand pull.

Cost push:  when the cost of goods on the market rise without regard to local wages or monetary policy; petrol is a prime example.

Wage push:  when cost of goods on the market rise due to wage growth beyond productivity growth; allegedly happened in the US in the 1960's.

Demand pull:  when prices of goods on the market rise due to increase of cash available to buyers, generally attributed to machinations by the nation's monetary authority, but only when the cash is distributed to the consuming public (the recent bailout monies distributed in the US went to financial institutions, which goes some way to explaining why the bailout was not only not inflationary, but with increasing obviousness, deflationary).

So, where does Bermuda fall among the three?  From my stay, it is clearly cost push.  The islands are essentially uninhabitable from local sustenance.  Wages to workers simply reflect the cost of stocking goods.  Reducing their wages to that of, say a sharecropper in Alabama, won't reduce the cost of living in Bermuda.  With sufficient police state effort, you might be able to enforce greater poverty on this class of citizen, but if you do, the level of unrest clearly visible on your pages will grow geometrically.  That may be what some Bermudians want.

I'm A Back Door Man

There's been a good deal of chattering, mostly puzzled, around the Intel buy of McAfee.  Some think that this is Intel's move to freeze McAfee Antivirus from other platforms.  That's the hand they want you to watch.  Putting "security" into hardware is the ultimate backdoor Man.

McAfee, and the rest, are already "proprietary" to windoze, which runs on x86.  If one mean's to stuff AMD, may be, but the larger spilt isn't Intel/AMD, but windoze/linux. 

And anyway, the purpose is to give the DoD, and the rest of the gummint the Right Wing allegedly hates, a hardwired backdoor to snoop on any machine with Intel Inside.  Soon enough, only Intel machines can be procured by the Feds, or any company or other gummint which gets Fed money.

By the time this all gets around to being implemented, the Right Wingnuts expect to be in power, and then they'll unleash their version of 1984 and that animal farm.  And then all those stupid poor white folk will really be able to blame that black guy who was president a few years back. 

Mark this post.

The Name is Bond, James Bond

There's been a renewed cacophony about the market and home buying, both revolving around interest rates.  It is said that small time (retail) investors are abandoning stocks, and buying bonds.  It is also said that there's never been a better time to buy a house.

Phooey on both your houses.

Buying bonds when interest rates are near zero is silly, if you're interested in appreciation.  It's just OK if you're interested in perceived rate of return.  Bonds have a fixed coupon, and the implied interest rate results from bond price.  Bond price and perceived interest rate fluctuate with controlled interest rates, notably, of course, what our Fed does.  Greenspan started the current insanity years ago.  Once interest rates return to normal (whatever that is, and long term hasn't always been higher than short term in our country's history), bond prices will plummet.

As I have mentioned before, the folks who made out like bandits with housing were those who bought while interest rates were at 10%+.  Why, you may ask?  Because as interest rates returned to more normal levels, prices appreciated (that old inverse relationship, again).  With rates at "historic" lows, but median income still in the toilet, prices are about as high as they can get.  The only pressure to raise prices will have to come from rising median income, and with the Tea Baggers flummoxing the Obamanauts, that's not going to happen in the lifetime of anyone currently alive.  Interest rates can only go up, thus driving down prices.  Today is the time to rent.  Don't buy.

Baazeball

"Baazeball hab been berry, berry goo to me."

Jeff Passan, of Yahoo! sports has a new article on corporate welfare, baseball division.

It's enough to make you hurl. But it does demonstrate the thesis of this endeavor: making rich folks richer doesn't make the rest of the economy and society any better off. Read it, you'll be fascinated. Some economists over the years have done peer-reviewd studies which demonstrate the same thing: subsidizing sports teams does nothing for the town, state, or country. I may do a study some day to determine whether the governments that approve such wealth transfers are largely Republican or Democrat. I have a strong suspicion.

The Other Gecko

We have "Animal Farm" (not "Animal House", you sot) to thank for the observation that all pigs are equal, but some pigs are more equal than others. It has been the driving thesis of this endeavor that until we move toward a more equitable distribution of the nation's income and wealth, the economy and society will be mired in mud. Once again, the NY Times comes to the rescue with a story dredging up data, and an unlikely ally, to support the thesis.

Mind, I view the proposition as axiomatic, not empirical. Any (honest) data will affirm the thesis, just as for all right triangles, a² + b² = c². As I have mentioned, the two prior Great Depressions, of 1873 (called The Panic of) and 1929 were preceded by a period of massive transfer of wealth from the many to the few.

Today's Times brings us the story of a Harvard Business School professor. The B School is known not to be a hotbed of flower power liberalism. To the contrary, there's that large statue of Gordon Gecko in the main auditorium, which re-animates during graduations to intone "Greed, is Good". Yet one of The Chosen has looked at the numbers, and lo and behold, may be those rich folks and market geniuses aren't quite so smart.

You Won't Have to Lift a Finger

One of my favorite database sites is simple-talk, where I've just posted a comment to an editorial. The subject is more about economics and society than databases, so here is a slightly edited version.



I'm rather an admirer (and more than a little jealous that he got published, which makes it more difficult for me) of Nick Carr. I recently stopped by his blog, and found this older post (I hadn't been aware of the news before seeing this post).

Which has led me to consider, not for the first time, the implications of automation generally and in systems building narrowly. Would we want some software that "empowered" managers and business analysts to create applications as easily as they brush their teeth? Would they not build systems that destroy economies ever more adroitly than the ones built by Quants (who really had been rocket scientists before going to Wall Street and The City)? Is the ultimate COBOL a goal we *should* pursue?

The whole notion that "machines" can take over all of our thinking, and thus make our lives easier and better, is right out of "2001", "Blade Runner", "Robo Cop", or "Soylent Green". For those who've seen clips of newsreels and tv spots from the 1950's (or are old enough to have seen them in real time), machines would take over all the drudge work, and *all of us* would have more *well paid* leisure time. And it hasn't turned out that way. The major problem with the notion is that, we have no theory of distribution in economics; none, at least, that satisfies the Right Wing elements.

What has happened with the efforts so far, is that the owners of these wondrous devices, be they hardware or software, accrue to themselves the monetization of the productivity gain, leaving the rest of us poorer in real terms. At some point, there will be no "skilled" work left with which to earn sufficient income to consume all the largess these machines (sans human intervention) produce. Well, except to explicitly take from the rich to give to the poor, who then buy the production so that the rich can continue to run the machines. I know, I'll call it Recursive Economics(tm). Japan is nearly to the point; no other solutions have worked.

Since the IBM PC and all of its successors have entered the workplace, income and wealth inequality have increased. Part of that is clearly (in the USofA, at least) due to Political machinations (whether these machinations are directly tied to the machines is a longer story), but also in large part to the concentration of computing resources in financial sectors of the economies, starving others. It is known and documented that people working in the hard sciences left for Wall Street and The City; it looked like the work paid better. May be so, but the macro effects of such accumulated micro decisions was a disaster.

If there were such an Oslo, the end result would likely be that, since it would no longer require much brainpower to build systems, those most adept at corporate hijinx would get to build those systems; the Ladder Climbers, Glad Handers, and Back Stabbers. Where 100 really smart engineers would toil for a year to make a system, 3 MBAs (and we now know how smart those guys are) would knock one out in a weekend's pub crawl. I'm not sure that's a measure of progress toward meritocracy.

Crooks, Liars, and Hypocrites

The only useful purpose of a Free Press is to expose the crooks, liars, and hypocrites, whether they be public or private. Given our country's historical allowance of secrecy to corporations, news gatherers most often find these folks in the public sphere. It's much safer to leak about someone who can't take you to court for telling the truth. Mostly.

The New York Times is one of the few news organs that still does the job. Today's edition has this front page (dead trees version) story about all those fun loving haters of the Federal Gummint. I've written about the general tenor of the Hypocrites of the North on occasion, but this is just too much pass up.

The money quote (and this time, it's not just a metaphor):
Alaska's appetite for federal dollars has always been voracious and is not confined to the stimulus. A study by Prof. Scott Goldsmith of the University of Alaska, Anchorage, noted that an "extraordinary increase" in federal spending drove the state's pile-driver growth of the last 15 years.

In 1996, federal spending in Alaska was 38 percent above the national average. Thanks to the late Republican Senator Ted Stevens, who was Senate appropriations chief for several years, and to the military, which keeps expanding its bases here, Alaska's share now is 71 percent higher than the national average.


All those hardy, we don't need no stinkin' Gummint, morons. By the bye, the story also mentions, but not with sufficient emphasis, that each and every man, woman, and child in the state gets a cut of the oil profits. It's $1,300 this year. That's called socialism. Oh, no, I forgot, it's just free money. Hypocrites.

Weaving a New Net

The kerfuffle over the Google/Verizon "deal" has moved me to leave my weekly lair to make one point. It follows.

But, the 600 lb. gorilla still sits in the room: how to apportion the highly disparate costs of 1) surfing pages to look at and buy stuff and 2) streaming audio/video content in real time. The argument has been going on for years. With iPhone and now iPad, the argument has to be joined. Should the vast majority who just surf subsidize those who stream? If so, then the network (physical stuff) has to be socialized, however that is done.

Isn't it odd that "net neutrality" amounts to demanding that all users must contribute a small per user fee, in order that a few wastrels can slurp up gobs of resources, yet we aren't allowed to make the equivalent demand of health care? People are funny.

This Was the Week That Was: 13 August 2010

For the next little while, I'm going to just keep notes during the week, and post on Friday; since this is Friday the 13th, and the stock market has been playing Vomit Comet, there's been just too much going on to have enough time to deal with it all. I didn't keep written notes, of course, just having gotten the notion into my head, as a result, this missive is extemporaneous.

The two highlights of the week were the continuing braying from the Right Wingnuts about "Inflation is Coming, All Poor People Must Be Starved to Death", and Oracle's apparent unmasking as the Evil Monolith.

About Inflation. Regular readers have waded through three installments of Dee Feat, but it all bears repeating: inflation happens for any of three reasons; a commodity gets scarce and expensive (aka, the stagflation of the 1970's when the hated Arabs cut off the oil) which is Cost Push, when labor gets enough power to impose wage increases beyond productivity (alleged to have happened in the 1960's, but I don't buy it) which is Wage Push, and when there is excess money just floating around in the system chasing a stagnant output level which is Demand Pull (there are historical cases in other countries, but none here that I can recall here off the top of my head). It is alleged now, by the Right Wingnuts, that the stimulus and TARP before it, will cause inflation, but they're wrong so far, and will be wrong in the future. THE ONLY WAY YOU CAN GET CASH DRIVEN INFLATION IS IF THE MONEY IS IN THE HANDS OF CONSUMERS. Rinse, repeat until understood. That hasn't, and won't be, happening. The money, both TARP fur shur, and much of the stimulus, went to the Financial Services Industry; which caused the mess in the first place. Wages continue to decline, even for the employed, and the ranks of the 99ers grow each week.

There are, one may note, localized versions of Demand Pull; localized in place, time, or commodity. You see where this is going? The housing bubble is localized inflation. Prices in the Washington, DC metro is localized inflation. The Chinese and whoever, dumped cash into the mortgage market and rocketed prices up. But only by getting the money into hands of consumers.

The last few weeks have seen rising new unemployment counts, but steady or declining total unemployment and unemployment rate. And wonder of wonders, some Mainstream Media mention, in passing, that this is due to folks being tossed off the rolls. Real unemployment is getting worse. The stock market then gets scared because there's no demand for goods, and it goes into a tail spin. As this endeavor has preached from the beginning, you don't improve an economy by making more people poorer. Well, the fascist ones like the idea. But the USofA isn't fascist, is it?

And, since April, the stock market has been falling. Why? Money is being withdrawn by both retail (what few there are) and hedge funds; ergo, overall prices fall. There are occasional increases, but as money is taken out of the game, consumers (stock gamblers) have less to spend, so prices overall fall. It's that simple. It can't last for too long. The cash has been injected, and won't disappear. The cash won't be transferred to regular consumers, the riff raff on Main Street, so falls are temporary. Remember, buying stocks in companies is gambling, not investing in the companies. Roll the dice, Nathan. Even if the "new normal", as the condition is coming to be called, is 10% unemployment and little demand for goods, the Fed and EU continue to keep money interest rates near zero, so you might as well pump up stock prices and earn a lot more. It beats working for a living.


The other interesting note is Oracle suing Google over some aspect, not yet public, of Google's use of java. For the non-tech types, Oracle got into some hot water when it went to buy Sun over the way java would be manipulated by Oracle if the sale was approved. Eventually, Oracle flummoxed both our DoJ (not so difficult) and the EU (thought to be tougher) into approving. Right now, the Cassandra's look right.

Beware the Slippery Slope

As the saying goes, "Pay back's a bitch". The thrust of this endeavor has been the inexorable truth that the distribution of income and wealth for a stable, democratic society must be more level than slanted. With slanted distributions, police states emerged as the necessary control of the disadvantaged population. Naturally, the slant is always toward having a few rich, rather than having a few poor.

Today, The Wall Street Journal gets it. Here is the story. May be now the Right Wingnuts will get a clue?? Nah, they'll blame it on the reporter marrying some black/hispanic/bi-sexual/child molesting predator.

Mr. Optimist versus Mr. Pessimist

In today's NY Times is an article contrasting Mr. Optimist and Mr. Pessimist in the economists' dog fight.

Here's a quote from the beginning of the article:
Instead, the [monthly employment] numbers will be a clue as to which of the two economists is right about where the American economy is headed. Their sharp disagreement over that question adds yet another twist to the fierce rivalry between the firms, Wall Street's version of the New York Yankees and the Boston Red Sox.

And from the end of the article:
As for Friday's numbers, Mr. Berner is calling for a private sector gain of 145,000 jobs versus Mr. Hatzius's prediction of 75,000 new jobs.

Now for the actual number:
71,000

Remember: It's the Distribution, Stupid. While profits continue to grow, with the rich getting richer, the poor get poorer, and the middle class disappears into the lower class. The Fatman in Famine is happy to see wages drop and deflation get a stronger foothold. But once the Golden Goose (aka, the middle class) is finally dead and gone, the Fatman will eventually perish, too. With no one left to buy up all that output from no workers, the Fatman's world collapses, much like a black hole.

Dee Feat is in Dee Flation, Part 3

Some of you may have read my earlier posts, Dee Feat is in Dee Flation (since this is posted various places, I'm too lazy to have to maintain multiple links, check 19 May and 15 July on this site to refresh your memory). Perhaps not. Today's NY Times has two articles in the business section, one about an inflation hawk who has had the scales fall from his eyes, and the other about why this recession is, in fact, different (and thus more dangerous). Since the Times is an acquired taste, this time I'll do some quoting in the event that some of you Dear Readers don't want to spend time at such a communist rag.

I'll, briefly, reiterate the point of view of myself, and the Saltwater Economists. It's the distribution, stupid does about sum it up. From historical evidence, going back to the beginning of industrial societies, economic depressions are always preceded, and motivated, by large shifts in wealth and income from the many to the few. The rich get richer and the poor have kids. The logic of why this course of events is always inevitable can be stated very simply: as one gains wealth and income, less of that income is needed for sustenance. Since the rich spend a lower proportion of their income, $1,000,000 in one household generates (multiplies) less economic activity than $10,000 in 100 households.

As income concentrates, demand for goods diminishes, and likewise prices and consumption of these goods. Lowered production leads to lower employment and wages. This is deflation. Japan is *still* stuck in that mire going on 20 years. It's the distribution, stupid. It is a downward spiral to hell. What makes it worse for the USofA is that, thanks to idiots like Reagan and the Bushies, a much higher proportion of our economy is now dedicated not to producing stuff for us, but financial manipulations that aren't consumable by most folks. We are further from a self-sufficient society than at any time in our history. Mark that.

Now for some review of what was written today in the Times.

The Fed article tells us how a traditional inflation hawk, James Bullard, has finally realized that what we face is deflation. The article doesn't say that Mr. Bullard has reached his epiphany based on distributional considerations, alas. But he has changed his mind.

"On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed's policies were putting the economy at risk of becoming 'enmeshed in a Japanese-style deflationary outcome within the next several years.'"

The article closes with:
"The outcome could be an 'unintended steady state' like Japan's slow-growth economy. 'The U.S. is closer to a Japan-style outcome today than at any time in recent history,' he wrote."

In the course of the article, the other side is noted, in particular Thomas Hoenig of Kansas City Fed who has the temerity to compare this situation with the 2003 bad recovery and fears of deflation then, which didn't happen. Well, deflation didn't happen then because the housing bubble was on its way, and folks were spending the equity in their houses in substitute for stagnant wages. Some people do love to lie by omission. Hoenig is classic.

The second article, which references the authors of a book whose title is delicious, "This Time Is Different", largely debunks the nonsense of the inflation hawks mentioned in the Fed article. Whether the juxtaposition is coincidence? Not likely.

"Earlier this year, some economists projected stronger growth rates in part because they were looking at recessions in the early 1990s and the early 1980s. The problem with such analogies is that the latest recession was precipitated by a financial crash rather than more cyclical boom-and-bust factors."

Well, yeah. This is the mistake (well, willful ignorance) made by the Fed's inflation hawks. They likely took a course in business cycles whilst undergraduates, and assume that such is the only and entire story. This Great Recession really is different, at least since 1929 or 1873. Cyclical expansion/contraction is driven by imbalances in real economic activity. The Great Recession was caused by financial manipulations not connected to the real economy, except that one tentacle: your house. Rather than a macro-economic failure, it was a micro-economic failure which metastisized.

For the first time, a Real Pundit gets it right (that I've seen):
"Many Wall Street economists and investors have 'been too willing to see this as a normal cyclical event distorted by some crazy things going on in housing,' said Ian Shepherdson, chief United States economist at High Frequency Economics, 'whereas this was almost entirely driven by what was going on in the financial markets and houses.'"

Back on 12 April and 12 May I wrote that housing is not an investment. It's just a place to hang your hat. The fact that you, or your parents more likely, saw ridiculous appreciation in a 2 bedroom ranch is not a given. Unless, and until, most folks get more income, there can be no growth. Remember, one more millionaire has little effect on growth. 100 poor folks with another $10,000 makes a whole lot growth. They spend that money on pizzas and clothes and used cars. The mechanics at the used car dealers get more hours, or more mechanics. They spend more. And so on, round and round. It is a virtuous circle of growth. Much nicer than a death spiral of deflation. Pray the Thought Leaders in Washington get some sense.

The Blind Leading the Hopeful

It is my MO to avoid the Great Mass of Important Pundits, and to think and write as I see the world. I assiduously attempt to avoid becoming part of the Blogosphere Echo Chamber. I do read the news, of course, to know what's going on in the world and of that, what is fair game for commentary. Shirley Sherrod qualifies.

The lesson here, is as I have been saying for some time: the Democrats generally, and the Obama wing specifically, have got to grow a set of balls. The source of the smear was a known Right Wingnut liar. They KNEW this from the very beginning. Yet, they all swallowed the bait in one big gulp. These guys (and a few gals) are supposed to be the Progressive/Liberal leaders to the Promised Land. Yet they can't avoid an obvious setup. It is just bloody pathetic. The Best and the Brightest?? Nah. Dumb and Dumber. Dumbo on steroids. Keystone Kops of the Potomac.

If they didn't know it before, the Right Wingnuts started the war. They will continue it, whether or not Obama continues to spout Bipartisanship is the Way Forward. It ain't. We won, they die. The stalling on any and all efforts to improve the job situation between now and November is transparent. But not a peep out of either the White House or the DNC. IT'S THEIR FUCKING JOB.

Dee Feat is in Dee Flation, Part 2

[UPDATE 15 July]
Well, the Producer Price Index was just released, and it's in the minus world. Deflation is here. How long it stays is anybody's guess, but if Obama caves to the Right Wingnut Fatmen, the Famine will last a long time. Fatmen like it that way.

Despite the continuing braying from the Right Wingnuts that Inflation is On The Way, Right Now, I'm Telling You, You Must Listen to Me; well, it isn't. Today's CPI shows that Core prices are down, again. The Core CPI has been bouncing back and forth between slightly up and slightly down for some time. They ain't no flation no how.

The Wingnuts/FreshWater economics crew must be having apoplexy. Inflation just won't happen. What they won't admit is that it has happened, but only in the limited arena where all the money went: the stock market. And, in just irony, the stock market has been experiencing deflation the last month or so. And not because there's any real economic reason, but because deflation is a self-fulfilling prophecy, particularly in a stock market. Buying a stock isn't buying any "thing", just a chit that you've bet that the share price will move up (or down) in the future; which future might be a few minutes, hours, days, etc.

Deflation is mostly propelled by the willingness to postpone consumption; in the depths of a Great Depression it will occur because consumers have less income, but that's rare. (The stagnant median income period of Reagan/Bushies would have been deflationary but for all that smart money housing equity, but that's another episode.) For real goods and services, postponing consumption leads to real loss: you don't get to play with the tchotchke. Stock market purchases, on the other hand, are only valuable unless they're appreciating (well, if you're not shorting, but that's for another episode) in value. Not even Buffett made his money from the dividends; he, along with the rest of the trading crowd, was/is into "buy low, sell high". So, if the share prices drop a bit, that's enough incentive to stop buying. People stop buying (take money out of the market) and all share prices go down. Note, that nothing bad has happened in the real world. Just some traders who've decided to enter into a death spiral.

Both the Obamanauts and the Tea Baggers use the line about Wall Street being separate from Main Street. It always has been, and always will be. What happens on Wall Street is fundamentally a world apart, and should be. It has no real connection to the Real World; no more than any casino does.

Another Capital Idea, Watson

There has been much ink spilled and breathless commentary spoken recently about how to expand the economy through the usual Right Wingnut means: giving away more money to Haves while strangling the Have Nots. Krugman deserves praise for devoting columns to outing such nonsense. I'm not going to repeat his words here (so far as I know), rather, I'm going to repeat my own.

One the more blatant demands from the Right is to reduce (eliminate, in a future wet dream) yet again the capital gains tax. Some of the so-called Democrats are, for reasons unknown, jumping on this honeywagon. The cheer from all aboard: "we don't want to penalize INVESTORS!!!!!!!!!" Such Bullshit.

As I have stated previously, when you buy $1,000 of Ford, not a dime of that money ends up in Ford's (the corporation) coffers to buy equipment or build a plant or buy supplies. Not one red cent. Nada. Nothing. You haven't INVESTED in Ford, you've GAMBLED that you bought those shares from some FOOL who doesn't know that Ford's share price is going to go up. None of your money is helping Ford. Now, Ford executives may benefit if enough of you GAMBLERS drive the share price nicely above their option strike price, such that they are blessed with an instant capital gain, FOR DOING ABSOLUTELY NOTHING USEFUL.

There was, until recently, Little Orphan Annie, both the comic strip and the weird eyed character. Her benefactor was Daddy Warbucks, stock speculator. Until, I'll guess, Ronnie it was generally acknowledged that money put into stocks was always, and only, SPECULATION. Folks who bought stocks were referred to as Stock Speculators. Then, with the destruction of defined benefit retirement plans and the contemporaneous replacement of them with 401(K)s, putting money in stocks was, by definition INVESTMENT. It would be impolitic to call a spade a spade then, since doing so would serve only to highlight the bait and switch trick that had been played. Those who retired in 2006 or 2007, believing that their INVESTMENT 401(K) would support them nicely discovered the truth: Joe Sixpack is not equipped to be an investment guru.

Stocks (bonds to a lesser extent) are GAMBLING, not investment. There is no economic benefit (to the national economy, and society) to tax GAMBLING at below the level of regular income. The only capital gains that should get such a benefit are those realized from buying stocks at Public Offering, and holding in toto until sale. Those funds did go to Ford; those funds were available to buy equipment, buildings, or supplies. That they likely went to pay the executives bonuses is bad, but not on the part of the buyer of the shares.

Capital gains is just a Ponzi scheme, nothing more. Never was anything more, never will be anything more. We, as a society, ought not to reward SPECULATORS. Just don't do that.

LeBron's Not the Problem, You Are

I'll begin with the admission that I have no use for LeBron James. Certainly not as a basketball player, highly overrated. Not much better as a human being, recent events determine. But the piling on by the media and "fans" is utter hypocrisy.

These same media and regular folk, not to mention Dan Gilbert and Jesse, have failed, utterly, to hold those responsible for the Great Recession to anything resembling the same standard. I'll grant that the media will occasionally do a piece on the spreading inequality of wealth, income, and opportunity, but not nearly adequately. I define adequately to mean: all those guns 'n God yahoos finally get a clue that they've been duped.

The very notion that a person who can toss a basketball around is worth tens of millions of dollars, or that owners of basketball teams (which own virtually no physical assets, and the players aren't physical assets they own) ought to "earn" hundreds of millions of dollars is sheer lunacy. We've squandered our capital on such frivolity. The idea that there should be one "king" who takes massive amounts of money for just playing a kids game, while the rest of the nation ekes out a subsistence living is pure evil.

We accept this notion in LeBron's case, but we (well, some of us) take the Wall Street Banksters to task for doing exactly the same thing. Again, read "What's the Matter With Kansas". We've (the mass of stupid guns 'n God folk) hoodwinked ourselves into believing that which is quite perverted. We allow a vanishingly small few to take a massive amount of our production, and wonder why we're facing depression and deflation and mass unemployment. As if one is unrelated to the other. Well, they are related. They have been related at least since 16th century. The relation gets stronger as production becomes more industrial, which is the base reason why we're in the mess we are. It really is the Distribution, you Stupid Shit.

Bermuda, We Hardly Knew Ya

I've mentioned, occasionally, that I was inveigled into cruising to Bermuda a few hurricane seasons ago. I've been reading the Island's major paper, The Royal Gazette, ever since. Both social unrest and water shortage have gotten worse since my visit. The Leaders' response to these conditions have been the usual tepid rhetoric, ignoring the underlying cause. Today's paper reported yet another shooting, which prompted me to write yet another Letter to the Editor, which is below.


I visited a few years ago, and loved the Islands. In fact, when the "new curriculum" was announced, I wrote and asked to be considered for a position.

However, in the time I have been away the Great Recession has occurred and Bermuda's existence as an isolated island (among the most isolated with a developed economy) has led it to be, perhaps unknowingly to Bermudians, a lab experiment in socio-economic structure. For what it may be worth, I have a blog in my name where I have been discussing the general problem, not specific to Bermuda, for some time.

The water problem and social unrest problem were clear when I visited, and have only escalated in severity since. I get no sense from reading the Gazette each and every day, that leaders (both political and economic) have any stomach for the solutions to the two problems. Really, there is a single solution to the underlying cause of both problems.

The issue is income/wealth distribution. Given that Bermuda has a slave history (much like the US states directly west, and to which Bermuda has historic ties), and a remaining plantation mentality, the solution is clearly not acceptable to the controlling class of Bermuda.

No society can persist for very long with the many very much poorer than the few. The few always say something like, "but our poor aren't as poor as Haiti (or whatever place is au courant)", as if that fact were relevant. Wealth, along with all other attributes of human kind, is relative. When the gap in wealth between rich and poor (and the numbers of people in each group diverge widely) becomes obviously rigged and grotesque, the poor lash out. That has been true throughout human history.

It is no accident that the Scandinavian countries, which as "tribes" determined to not allow such gaps to develop, have the most stable societies. And it is also true that these countries are quite productive. Some cavil that they are able to do this because they have homogeneous racial makeups, but that is just racist blathering; as if skin color matters.

The water problem results from the inequality problem due to the fact that the well off would rather import visitors, and put increasing stress on the ecosystem, than to develop a domestic economy. Developing a domestic economy would require fully integrating, and utilizing, all the peoples of Bermuda, and that's just distasteful. Australia is another island nation, though a tad larger. It is the driest inhabited continent (although classified an island when I was in school), and has had a water shortage situation for a very long time. Now they are going about building desalination plants, which some view as foolish. There are 22 million Australians, and some Australians see that the water supply of the island can support that many humans, and "growing" the population simply to grow, is beyond the ecosystem's capacity. Bermuda, while smaller and thus even more fragile, needs to face the same fact.

So, Bermuda faces, in microcosm, the Great Decision: will Bermuda have a future of growing equality and peace, or growing inequality and a police state? The rich few will have to relinquish some perks in life in order for the poor to have opportunity. Or the rich can hire on more police with yet more armament enforcing ever more stringent laws.

It's your choice. Choose wisely.

The rich are different: they are more ruthless

It was Warren Buffett who observed that there is a class war in progress, started by the rich, and the rich are winning. So, it should come as no great surprise to read in today's NY Times a story about the plight of million dollar defaulters.

The title of this post is a quote from the economist who compiled the data for the Times.

The money quote:
The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default. The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

I can already hear the RushBoys bleating, "you're just crying because you want a class war, and you're poor". Sort of the same crap that Paul was spewing about criticizing BP. Where, oh where, is the call for personal responsibility? None, of course, since the point of being rich is that, as Fitzgerald said, "the rich are different". Now, if only we could get them to just pay what they owe, the rest of us wouldn't have keep paying all the sub rosa welfare to them. Fat chance.

And a short observation, which might be expanded someday into a full post, about the Times. I have been waiting years, literally, for the Big Time Pundits to figure out the implications of the shift in advertising from newspapers to the likes of Google. So, I guess it's left to me. It was known for decades that much of the revenue that supported newspapers came from classified ads. If you're under age 30, you may not even know what that means. Translation: all those Craig's List ads for used cars and appliances once got printed at the back of your local newspaper. The sex treats ones, not so much; those are a Craig's List "innovation".

The loss of classified advertising revenue has two implications. The first is that the replacement money has to come from other forms of advertising or price rises. The second is more subtle and insidious; classified adverts are influence neutral, while other advertising (as history has shown) and price are not. To the extent that the Right Wingnuts control all news dissemination, is the extent to which they control elections and the courts and, well everything that matters. There are reports that Yahoo!, Google, AOL, and such are "personalizing" news displays to fit the user. Stupid news for stupid people.

If we lose the Times, it's Robo Cop Time. While I wanted to live to 104 as my karate teacher's teacher did (he got at least that far), a Robo Cop world may not be worth it.

Supreme Failure

I have, on one more than one occasion, pointed out that the Gummint (which polls assert the populace hate, well until the populace needs something, see Gulf Coast) which put us in this mess took some time to get us here. I start counting with Reagan, although one might start with Nixon, but Reagan makes for a neater cut and eliminates the OPEC oil embargo anomaly. I have pointed out that for the 28 years from the start of Reagan to the end of Bush II, the Right Wingnuts held at least 2 of the 3 elected branches of government for 22. Not having put in the effort to quantify, I have guessed that the Supreme Court was in the Right Wingnuts' pocket since at least Burger.

The just retired justice Stevens had this to say:
"Including myself, every judge who's been appointed to the court since Lewis Powell has been more conservative than his or her predecessor. Except maybe Justice Ginsburg. That's bound to have an effect on the court."

For a very detailed dissection of the fall, see this article.

Toyota Trouble

May be that all that vaunted superiority of Toyota was just lies. May be that Toyota was just better at playing the hide-it game than everybody else. The recent stories, including yesterday's make it clear that this Emperor really does have no clothes. May be they've forgotten all that Deming showed them 50 years ago, in the rush to be more like the USofA. Be careful who you emulate, you could immolate.

We Dodged the Bullet, Barely

Well, we dodged the bullet. Nonfarm payrolls were down overall, but private sector hires were positive, although not quite as many as hoped. Due to the perversity of the calculations, unemployment is down .2%, to 9.5%; almost certainly (I haven't seen the detailed report; likely won't) due to folks getting tossed off the rolls. It is true that once tossed off, one can continue to report and continue to be counted; few do. It will be interesting to see what the "real" unemployment rates did. My supposition is that they're still going up.

And the Right Wingnuts want the unemployed to starve; yeah, that'll get the economy moving again. Obama was/is stupid. There are just two choices: either prod an economy to do more of what it isn't doing, but did do up to the crash; or steer the economy to do other things and employ folks doing those things. In the case of The Great Recession, we can create more jobs for Banksters and Redneck Nail Hammerers all over again, or we can create other work for the math inclined and muscle inclined which are actually socially useful. I know, the S word. But it is one society, and we either treat it as such, or we adopt the P word: PoliceState. Take your pick.

So Soon You Forget, eh??

Well, that didn't take long.

A couple of days after the G-20 Monkeys asserted that their Best Plan was to repeat the stupidity of 1937, we get data which shows that 1937 is well on its way to returning; with a vengeance. Kindly refer to my Fat Man in Famine post for the reasons why. Obama?? Hillary wouldn't have been suckered by the Banksters, that much is now clear.

Charlie Chan(nels) Dr. Keynes

I have argued more than once in the course of this endeavor that the Chinese government's economic decisions have been counter-productive as economic policy, although plausibly effective as warfare sans guns. Today's NY Times offers a double barrelled confirmation. First, some reporting from China.

So, the money quote:
These days, the workers are crucial for China's economy in another way: They must start buying the very products they manufacture, spending their paychecks on lipstick and lingerie, plastic lawn chairs and plasma television sets. Officials see them as the linchpin of China's move away from a lopsided economic model that relies too heavily on foreign consumption.


The government, likely being forced by the Foxconn mess as anything else, has finally figured out Econ. 101; trading with other countries only is beneficial if the trade is for physical goods (and possibly, a few services). China has used trade to simply collect foreign currencies, while denying the goods to its own people. As I pointed out in earlier posts, historically, foreign trade has been undertaken to sell surplus output to other countries, which in turn send back their surplus outputs. China's attempt to move goods to smaller markets overseas, only to collect paper bills, is ultimately foolish. They will pay the piper sooner or later. It looks like sooner. Despite what Econ. 101 teaches, comparative advantage makes sense only in a world of no monopolies, oligopolies, and manipulated currencies. Such a world does not exist today, nor did it when David Ricardo proposed the notion.

Speaking of manipulating currency, Dr. Krugman takes on that issue. Suffice it to say, he provides a bit more detail to my argument. In a nutshell, China treats currencies (other countries have done so, and will do so) like produced widgets, and strives to drive down its currency's value vis-a-vis others, principally the Almighty Dollar. This makes its exports cheap, and its imports expensive.

The two pieces dovetail nicely. The reporting shows that the government finally sees that exporting the bulk of its production is wasteful, and the analysis shows that the currency games only make sense if it were to continue to do that. Mao is reputed to have said, "Who cares if the west dropped a few nuclear bombs on china, a few hundred million chinese killed. We are china with a population of a billion, so we have a few hundred million to spare." That attitude, with the addition of nearly a United States worth of Chinese, no longer applies.