Archive for December, 2008

Economy as Environment

Saturday, December 27th, 2008

Dear Friends,

It seems to me that if we look at the “economy” as an aggregate, it is an analog of an ecosystem. Individual markets and industries are like organisms in that ecosystem.

This organic way of looking at the economy and markets gives us the ability to contextualize the historic trends and events that have shaped our economy. With this insight we can then extrapolate into the future to try to minimize government’s unhelpful tinkering with the economy.

Take the Great Depression. In this period the Hoover administration poisoned the economy then compounded that toxic spill of regulation with anti trade legislation. Roosevelt then ran as a conservative claiming that he would back off on government spending and over regulation. After he won, he doubled down on Hoover’s foolishness, and kept the economy in the toilet with constant tinkering, regulation, tax changes and such unconstitutional acts as the NRA and AAA. Roosevelt continued to rain toxic waste on the economic environment until the Second World War. A war that was made inevitable by the anti trade tariffs and legislation that cut Germany from international trade while the German Republic shouldered the burden of the Treatise of Versailles‘s reparations. “When goods don’t cross boarders armies will.”

Markets are like organism’s in many ways. They are born, live some natural life span and then become obsolete and die. Buggy whips are the classic example. With the advent of the buggy, buggy whips were invented, to improve the driver’s control of his animals. The buggy whip saw a steady series of improvements, and eventually became obsolete when the automobile came into wide spread use. A market can get cancer as well.

The railroads are an example of industrial cancer. When the tracks were mostly laid. The railroad magnates began a trade war. This trade war almost bankrupted them. It’s now a well known phenomenon. Networks are especially vulnerable to this form of market cancer. They are expensive to build but cheap to maintain and use. When competition becomes mature it then must become monopoly or else begins to grow into perfect competition. Government legislation prevents monopoly so when perfect competition is established the profit margin is squeezed and squeezed until everyone in the industry is poor. From the magnate, to the laborer, destitution is universal. The modern airlines are another example.

I believe that this tool for understanding the economy and markets is easier for the average person to understand. With a better understanding of history and economics the electorate can make wiser decisions about our economic future.

Madoff’s Effects on our Economy

Saturday, December 20th, 2008

Dear Friends,

It seems to me that with the economy in shambles and the banking sector a ruin, the SEC would at least have the common sense to come out and reassure the American people that the investment sector is healthy and the Madoff issue is an aberration.

But I haven’t heard a single word of reassurance from the SEC. They are big on excuses but they haven’t said that there are not more like Madoff out there. Every investor in the USA and the world that is invested in the USA now has better reason to fear. How many more $54,000,000,000.00 ponzy schemes are waiting to be discovered?

A political philosopher once said, what makes a king a king is simply public opinion. In other words if the world was to wake up and forget the king is the king he would no longer be king. The apparatus of the crown would evaporate. So another way to look at it is that what makes a recession is simply public opinion. The means to fully employ the workforce is at hand. The minerals are still in the ground. The people are still in need of employment and goods. The machinery of civilization is still functional and the knowledge base is still available to run it. The only thing in the way is public opinion.

What affects public opinion better than an old fashioned scandal? This new slap in the face of the investor only serves to further diminish public opinion. Leading to a deepening of the recession. It is the job of the SEC not only to find and punish this behavior but to assure the investing public that the system is fair and safe.

It appears that the SEC has dropped the ball on all three fronts. If a private firm were to be guilty or simply look this guilty, the hew and cry for heads to roll would be deafening. Lets listen to the roar of indignation leading to heads at the SEC rolling. Hopefully the crickets won’t be too loud to hear it.

By the way, I have yet to hear about anyone in the unbiased media asking about the House Banking and Finance Oversight Committee’s dropping the ball in the banking scandal. Let alone anyone asking for an investigation. (Other than I). I guess the crickets cacophony drowned out that roar…

Recession

Sunday, December 14th, 2008

Dear Reader,

It seems to me that recession sows the seeds of it’s own demise. Those seeds are “pent up demand.”

What I mean by pent up demand is that, when there is talk or actual recession, people naturally put off buying. When we do this we still want the item. We only put off, so to speak, the purchasing of the item. Thus demand is pent up it doesn’t go away.

As this pent up demand grows people are more willing to spend on the wanted goods and services and in some cases needed items. When this tension of pent up demand out powers the resistance of recession the economy comes out of recession. Springing into too fast growth.

This can be seen by the recession of 200-2001. The economy had largely replaced every computer with a new Y2K compliant computer. When the millennium came the market was saturated with computers and other digital equipment. Demand fell off the table. When that happened, the driver of the economy (the semi conductor industry), went south, causing the rest of the economy to go south as well. In doing so the semiconductor market dragged the rest of the economy into recession.

Business didn’t need to buy any new computers for several years. So business couldn’t be the driver of the economy. People put off purchasing goods because of the talk of recession. But when people didn’t see the dire predictions come true they began to buy the goods and services that they had put off. Springing the economy into too fast growth.

Some will argue that the Great Depression didn’t produce any pent up demand in ten years. The Great depression was an anomaly in many ways. It was the congruence of many factors…To name a very few; The dust bowl in the US bread basket, The nations of the world choked off international trade, the US government as well as most nations in Europe turned to socialistic overly powerful governments, taxes were raised and regulation was chaotic. These are some examples of why the world struggled to come out of the depression of the 1930’s. The people were newly out of the time when they had to live by their own wits. The peasant farm in Appalachia and the other rural areas of the US were well entrenched and easy to fall back into. Demand for new technology was suppressed by the 24-7 need to survive.

Too fast growth always outstrips the ability of the market to absorb the goods and services produced and quenches demand. Aggregate supply outstripping aggregate demand. Demand is elastic however. As is supply. This leads naturally to periods of too fast growth and too slow growth (recession). It is the natural frequency of the market economy as it is any organism.

When You Get Lemons…

Tuesday, December 9th, 2008

Dear Reader,

It seems to me that if we want to really mitigate the carbon dioxide output of coal fired power plants we would use the carbon dioxide to make oil. This way we could actually re-burn the coal… With a little help.

Bubbling the carbon dioxide through algae filled water, using the proper strain of algae, we could then process the algae into oil. Oil that could be burned in diesel engines. Remember, scientists think the oil we have is the remnants of vast algal mats that spread for miles, millions of years ago. They died, fell to the bottom, were covered, became rock, and voila!

Algae factories could revolutionize the energy paradigm. Factories could be built near power plants. The business plan is most promising to find an old dirty plant that is vital. Charge them through the teeth to process the smoke and then sell your output (oil) at the market price.

The idea of sequestering carbon dioxide underground, to me, is quite scary. Talk about potential unintended consequences. What potential aquifers are we potentially turning into carbonic acid? Or the plot of a mediocre horror flick, millions of cubic yards of pure carbon dioxide is suddenly released in an urban setting. They told them, but they didn’t listen and blasted for the new subway, thousands are suffocated, a few try to get away, this is their story…

Of course, the whole presupposition that global warming or potentially global cooling, is man made is foolish. Not that, I don’t think that it is possible, in the future, with due diligence, to terraform another planet. But that is another blog…

Taliban in India?

Thursday, December 4th, 2008

Dear Readers,

It seems to me that if the terror attacks in Mumbai were not done by the insurgents in western Pakistan (Taliban) it should have been. They are the principle beneficiaries.

The tensions between Pakistan and India over the terror attacks has drawn attention from the terrorists in western Pakistan to the terrorists in Kashmir. With the world’s attention turned on the new crisis the Taliban can rest and refit.

If India does indeed go onto a war footing with Pakistan it would necessitate the removal of all Pakistani troops from western Pakistan. The Taliban would greatly benefit under this scenario. The facing off of two nuclear powers would rivet the world’s attention. The war on terror would be pushed to the back.

The one thing that always rivets the attention of the people in a nation is an outside threat. People instinctively come together when there is a valid menace at the gate else they are often all killed. It’s bred into us. This would put the moderates and even agnostics into the extremist camp in Pakistan.

At the least we can expect India to expand it’s operations in Afghanistan. Antagonizing Pakistan. Afghanistan is the elephant in the room. Although it is on the other side of Pakistan it’s shadow darkens the entire mess. Anything that happens on the Indian boarder with Pakistan has a greater effect on the Afghani side. The fulcrum is Pakistan…in more ways than one.

Terror in India

Thursday, December 4th, 2008

Dear Readers,

It seems to me that if the terror attacks in Mumbai were not done by the insurgents in western Pakistan (Taliban) it should have been. They are the principle beneficiaries.

The tensions between Pakistan and India over the terror attacks has drawn attention from the terrorists in western Pakistan to the terrorists in Kashmir. With the world’s attention turned on the new crisis the Taliban can rest and refit.

If India does indeed go onto a war footing with Pakistan it would necessitate the removal of all Pakistani troops from western Pakistan. The Taliban would greatly benefit under this scenario. The facing off of two nuclear powers would rivet the world’s attention. The war on terror would be pushed to the back.

The one thing that always rivets the attention of the people in a nation is an outside threat. People instinctively come together when there is a valid menace at the gate else they are often all killed. It’s bred into us. This would put the moderates and even agnostics into the extremist camp in Pakistan.

At the least we can expect India to expand it’s operations in Afghanistan. Antagonizing Pakistan. Afghanistan is the elephant in the room. Although it is on the other side of Pakistan it’s shadow darkens the entire mess. Anything that happens on the Indian boarder with Pakistan has a greater effect on the Afghani side. The fulcrum is Pakistan…in more ways than one.