2008 January 29 Tuesday
Hispanic Immigrants Lower Black Wages And Raise Black Unemployment

Steven Malanga describes rising black opposition to Hispanic immigration and what it costs blacks.

This Latino “tsunami,” as Los Angeles–based Hispanic-American writer Nicolás Vaca calls it, has intensified the well-founded feeling among blacks that they’re losing economic ground to immigrants. True, early research, conducted in the wake of the big immigration reforms of the 1960s, suggested that the arrival of newcomers had little adverse impact on blacks—one study found that every 10 percent increase in immigration cut black wages by only 0.3 percent. But as the immigrant population has in some places grown six or seven times larger over the last four decades, the downward pull has become a vortex. A recent study by Harvard economist George Borjas and colleagues from the University of Chicago and the University of California estimates that immigration accounted for a 7.4 percentage-point decline in the employment rate of unskilled black males between 1980 and 2000. Even for black males with high school diplomas, immigration shrank employment by nearly 3 percentage points. While immigration hurts black and white low-wage workers, the authors note, the effect is three times as large on blacks because immigrants are more likely to compete directly with them for jobs.

Blacks don't get deported as the Hispanics flood in. The blacks are still here in even worse shape than they were before. It is ridiculous to think we all come out ahead when our most impoverished group becomes even more impoverished and more idle.

Blacks used to be able to get jobs in janitorial work. It is low status work. But it is real necessary work. In LA the blacks have been replaced by Hispanics.

A case study of Los Angeles janitorial services cited in a Government Accounting Office report captures the enormity of the shift. It began in the late 1970s, as several small firms began hiring Mexican janitors at low pay, prompting building owners to drop contracts with the companies that employed blacks in favor of the cheaper upstarts. As the immigrant-dominated firms grabbed more business, industry wages slipped from a peak of $6.58 an hour in 1983 to $5.63 an hour in 1985. The number of black janitors in L.A. plummeted from about 2,500 in the late 1970s to only 600 by 1985. Today, the city’s janitorial industry, like apparel manufacturing and hotel services, is almost entirely immigrant.

We've already got the consequences of globalization where lower paid manufacturing work such as in the garment industry has mostly been sent abroad. For the remaining low paid work to get shifted over into the hands of a newly arrived group just makes a bad situation worse.

Body shop work used to earn a decent hourly wage in LA but no more.

Former mechanic Anderson felt the effects of low-wage immigrant competition in his old line of work. “I used to sell parts to body shops, and I knew Americans who were making $20 an hour repairing dented fenders,” he says. “Now, 95 percent of South Central L.A. body-shop jobs are held by recent immigrants making $7 or $8 an hour.” Says Joe Hicks, former chair of Los Angeles’s Human Relations Commission and now head of the nonprofit Community Advocates: “It’s hard to find a black face on a construction site or in a fast-food restaurant around here any more. People from the black community have noticed.”

The poor folks are going to vote for Robin Hood taxes that will make the open borders libertarians quite unhappy. Yet many of the libertarians will avoid connecting the dots, being strong in faith.

Blacks are getting ethnically cleansed from LA.

The Latino influx into formerly black-majority urban neighborhoods has sparked deadlier kinds of conflict. While most violent crime in these areas is still black-on-black or Latino-on-Latino, interethnic violence is mounting, and in some locales, much of it—perhaps surprisingly, given high overall black crime rates—is Hispanic-on-black. In the heavily mixed-race community of Harbor Gateway in Los Angeles, for example, Latinos now commit five times more violent crimes against blacks than vice versa. Countywide numbers are just as startling. Though blacks make up just 9 percent of L.A. County’s population, they were the victims of 59 percent of all racially motivated attacks in 2006, while Latinos committed 52 percent of all racially motivated attacks.

The problem for blacks looking to leave is to figure out where to go to. Huge growth in Hispanics in the Old South makes those states less appealing though probably still the best bet.

By Randall Parker 2008 January 29 08:30 PM  Immigration Economics
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Dollar Drop Cuts Allure Of US For Third World Immigrants

US dollars sent abroad don't buy as much back in the home country.

Cambridge, Mass. - Working in the kitchen at a mid-priced restaurant in Cambridge, Mass., Jose Lucas managed to cover all the expenses of his wife and three kids in his native Brazil. But that changed when the real appreciated 60 percent against the US dollar in the past three years.

"I had to get more hours at work so I could send more money," says Mr. Lucas. "I used to work 40 hours a week. Now, I work 56." So far, the extra hours have made up the difference.

Across the US, the falling dollar value has sent ripples through immigrant communities that send money to family overseas. As some currencies for developing countries have risen substantially against the dollar, many immigrant workers are increasing their workweek by up to 20 hours or taking second jobs. If the dollar's slide continues, the US may become less attractive to migrant workers, analysts say.

Although it's too early to tell whether this will cause a major shift in immigration, a number of migrants in Ecuador, Peru, and Bolivia are already choosing Spain over the US.

Fewer will come. Low wage jobs in the US don't generate enough extra income to make it worth the effort. But since some of those here are sending home more dollars I wonder what the net effect has been so far. But in the longer run the weaker dollar will reduce immigration and increase the number who return.

By Randall Parker 2008 January 29 06:03 PM  Immigration Economics
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Mark Krikorian: John McCain A Multiculturalist

Mark Krikorian of the Center for Immigration Studies

We all know John McCain is terrible on immigration. For years he held America’s sovereignty and security hostage to amnesty and increased immigration, and his newfound support for “enforcement first” is so insubstantial and transparently insincere that it insults our intelligence. He’s so bad that Americans for Better Immigration ranks his performance in office as the worst of all the presidential candidates — including Hillary Clinton and Barack Obama. (See the GOP grid here and the Democratic one here.) And as Robert Rector of the Heritage Foundation has pointed out, passage of McCain’s bill “would represent the largest expansion of the welfare state in 30 years.”

But his support for de facto open borders is merely one manifestation of a larger problem — John McCain is a multiculturalist.

Krikorian argues that McCain is an ideological multiculturalist who supports special rights for minority cultures. This is highly problematic because if values diverge too radically we will end up with a very corrupt system of ethnic spoils and a low trust society with little social capital.

I don’t mean he eats tacos at the Cinco de Mayo parade (nothing wrong with that!) — I mean he’s an ideological multiculturalist. Francis Fukuyama has described (PDF) the ideology of multiculturalism this way: “not just as tolerance of cultural diversity in de facto multicultural societies but as the demand for legal recognition of the rights of ethnic, racial, religious, or cultural groups.” At almost every turn over his entire public career, John McCain has supported the pluribus over the unum.

Take bilingual education. McCain has been an enthusiastic proponent of this divisive and discredited program for years. He was honorary co-host of the 1995 convention of the National Association for Bilingual Education; The New Republic reported that he wrote to convention participants that “[t]o reject a native language as a tool for teaching as well as enriching our national heritage makes learning all the more difficult and makes us a poorer nation.”

In 1998 he said, “I have always supported bilingual education programs to help students learn English. Proposals to restrict the use of languages other than English are always divisive.” That was the year that California voters approved Proposition 227, “English for the Children,” which (sort of) abolished bilingual education there.

Prop. 227 leader Ron Unz went on to organize successful efforts restrict or abolish "bilingual" education in many other states. It is important to emphasize that bilingual education as practiced by the ethnic Left in educational systems isn't just a way to balkanize the nation. It is a really stupid and inefficient way to get non-English speaking youngsters to become proficient at English. Younger kids can learn a new language if they are immersed in it. The best way to convert Spanish speaking 6 year olds into fluent English speakers is to expose them only to English.

Krikorian also reports that in 1996 McCain lobbied Arizona state legislators to vote against a proposed state law that would abolish racial preferences. There's a reason why McCain is the favorite Republican of the liberal national press: when they look at McCain they see a kindred spirit.

I'm not sure who would be a worse president, Huckabee or McCain. At this point Romney seems least bad. Anyone agree, disagree? Have specific reasons why?

Update: McCain’s “Hispanic outreach director” feels primary loyalty toward Mexico, not the United States.

“I want the third generation, the seventh generation, I want them all to think ‘Mexico first.’ ” These are the words of Juan Hernandez, John McCain’s “Hispanic outreach director,” on Nightline June 7, 2001.

The blogosphere has been abuzz over the news of Hernandez’s position in the McCain campaign, thanks to the spadework of Michelle Malkin (see here, here, and here) and Jerry Corsi. Thanks also to the power of the Internet, McCain was actually asked about this at an event in Florida Sunday, though he tap-danced his way out of answering directly.

I'm thinking McCain will make a worse President than Hillary Clinton.

By Randall Parker 2008 January 29 05:37 PM  Cultural Wars Western
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2008 January 27 Sunday
Illegal Aliens Play Big Role In Virginia Gangs

A new report from the Center for Immigration Studies looks at illegal alien gangs active in Virginia.

WASHINGTON (January 2008) — Immigration law enforcement has been a key ingredient in the success of criminal gang suppression efforts in Virginia, says a new report by the Center for Immigration Studies.  As state lawmakers consider steps to address the illegal immigration problem this session, they should give high priority to institutionalizing partnerships between state and local law enforcement agencies (LEAs) and federal immigration authorities (ICE), as well as to immigration’s fiscal costs.  A large share of those involved with the immigrant gangs active in Virginia, such as MS-13, Surenos, and 18th Street, are illegal aliens.  Their illegal status means they are especially vulnerable to law enforcement, and local authorities should take advantage of the immigration tools available in order to disrupt criminal gang activity, remove gang members from the streets, and better protect the public.  Once explained, these measures are generally supported in communities around the state, including immigrant communities where much of the immigrant gang violence and crime occurs  Among the findings:

  • 25-50% of all gangsters arrested in northern and western Virginia are estimated to be deportable aliens.  Gang investigators estimate that 90% of the members of MS-13, the most notorious immigrant gang, are illegal aliens.
  • More MS-13 members have been nabbed in Virginia than any other ICE jurisdiction in the country (261 arrests out of an estimated population of 2,000 in the state).  Nearly 80% of the 341 ICE gang arrests in Virginia were members of MS-13.  The remainder belonged to 28 other gangs.
  • Immigrant gangsters are responsible for serious and often violent crimes in Virginia.  Nine of those arrested by ICE in the last three years were murderers, and six were sex offenders.  Their most common crimes were assault and robbery/larceny.
  • Gangsters tend to work by day in construction, landscaping, farming, and day labor, and at night are involved in organized crime including drug dealing, prostitution rings, theft, and extortion.

They also work in day jobs. Yes, legal work doesn't prevent them from getting into a life in crime. The authors of the report point out that increasing enforcement of laws against illegal employment will reduce the ability of criminal gangs to become established in an area.

Mild proposal: round up all the illegal El Salvadorians. Also, stop immigration from El Salvador.

  • 62% of alien gangsters arrested in Virginia by ICE were from El Salvador, 12 % were from Mexico, and 10% from Honduras.
  • Immigration law provides powerful investigative authorities not available to local or even other federal LEAs.  In addition, federal immigration law provides special measures to encourage cooperation of witnesses and informants, and to protect victims of crime. 
  • Researchers found no “chilling effect” on the reporting of crime as a result of partnerships with ICE.  Immigrant community leaders do have an important role to play in reinforcing the message that crime victims and witnesses are not targets of immigration law enforcement. 
  • Immigrant gangs are multiplying and spreading out across the state, and both ICE and state and local LEAs believe they would benefit greatly from receiving more formal training in immigration law, documentation and related issues that apply to criminal aliens.

Every state and local law enforcement officer interviewed welcomed a partnership with ICE and most praised local ICE agents for responsiveness and assistance.  However, some jurisdictions have restricted police ability to make inquiries about immigration status or verify identity of minor lawbreakers, and in some cases refuse to support federal immigration law enforcement.  A number of more rural or distant jurisdictions have seen increasing illegal settlement and immigrant gang activity, but have little exposure to immigration issues and little contact with ICE.  In addition, ICE’s limited resources, its primary focus on terrorism, and the resulting neglect of routine immigration law enforcement causes frustration in communities facing significant fiscal and economic costs from illegal immigration.  ICE’s inability to respond on a consistent basis has fostered complacency and cynicism about immigration law enforcement among some local LEAs.  

The report includes a number of recommendations including checking immigration status of all people taken into law enforcement custody.

By Randall Parker 2008 January 27 08:57 PM  Immigration Crime
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Huge Costs Seen From Flight Delays

Air flight delays are not just irritating and fatiguing. Time is money and so flight delays cost travelers a lot of money.

During the first 11 months of last year, 1.6 million passenger flights were at least 15 minutes late. The total delay time added up to 170 years -- up steadily from 98 years lost on 1 million flights during all of 2003. The average delay of a late flight has grown from 49 to 56 minutes during that period, the data show.

With the U.S. economy stumbling, regulators and lawmakers are turning their focus to the economic toll of such delays. In a speech to the Aero Club of Washington on Tuesday, Transportation Secretary Mary E. Peters estimated that flight delays cost the U.S. economy $15 billion a year. In an interview, she said she thought that figure was probably low.

"It is incredible," Peters said. "It means a loss to our economy, a loss to our productivity; it also means a loss in quality of life."

When you have to wait in long queues (e.g. waiting in an airplane to get clearance to pull back from the gate or circling overhead waiting for permission to land) it is usually sign that market forces have been blocked somehow. Certainly that is the case with airport take-off and landing slots. Huge delays in take-offs and landings are a result of lack of a bidding mechanism for those slots. Resources aren't allocated by price and therefore they are allocated by making people wait in long lines.

Robert Poole of the Reason Foundation points to an obvious solution: congestion pricing.

Today, airports charge a fee based solely on the weight of the plane. That means a 767 carrying 300 people pays about 10 times as much as a 35-passenger regional jet. Both planes use the same air traffic control resources and runways, but the smaller plane is lighter and thus pays a fraction of the fee.

A much smarter way is to charge all planes the same amount to use the runway (since they use the same resources) and to make that price much higher during rush hours and lower at off-peak times.

Such congestion pricing would cause airlines to move some flights out of the busiest periods, reducing delays. Small jets that jam runways during rush hours without consequence would be forced to choose cheaper, off-peak times or make sure passengers are willing to pay the significantly higher ticket prices that come with rush hours.

For Kennedy, a recent Reason Foundation study estimates that during the morning peak, the departure price should be $1,800 to $1,900 per plane. In the afternoon peak, prices would be up to $2,000 per flight.

Congestion pricing would also stimulate "up-gauging" - meaning airlines would reduce flights but use bigger planes to ensure they could carry the same number of passengers as they do today. For example, there are 30 flights a day between Kennedy and Baltimore-Washington International. Ten of those flights are on small regional jets during peak hours. The same number of passengers could be handled by about 20 flights using larger jets, cutting air traffic by one-third.

For a 200 passenger airplane the $2000 cost would be $10 per passenger to leave at peak times. There'd be a cost of leaving at other times but it would be lower. Well, let pricing push airplane size up and less time sensitive passengers toward cheaper times.

Some business travelers want to get paid for delays.

It's no wonder 81 percent of business travelers surveyed by Directravel, a corporate travel management company based in Mahwah, think airlines should give them at least a partial refund when their flights are late. The longer the delay, the higher the refund should be.

The problem with such a scheme is that by itself it doesn't create all the incentives needed to eliminate delays. I think revenues raised from a congestion pricing scheme could be used to fund an upgrade of the air traffic control system and that would address two causes at once.

The reason the congestion pricing proposal wasn't implemented years ago is that the airlines don't want to pay more to leave at peak times.

In slamming the department's proposal, Air Transport Association President James C. May made the good point that the plan "does nothing to fix the primary cause of delays: our nation's increasingly antiquated air traffic control system."

I'm not sympathetic to the airlines. Sure, we need a better air traffic control system. But that won't eliminate delays because we will still have limits on how many airplanes can take off or arrive at the busiest times of the day. Scarce resources should be handed out based on price unless there's a compelling reason to use some other mechanism. I do not see any reason to make people wait longer periods of time in terminals and airplanes.

By Randall Parker 2008 January 27 08:17 PM  Economics Transportation
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McCain On Earmarks Versus Iraq War

John McCain deludes himself that he's taking the moral high ground.

A Republican presidential candidate, Senator John McCain of Arizona, is campaigning on his record as a longtime foe of earmarks. In wartime, he said, “it is especially egregious to squander money on special-interest pet projects.”

But isn't the Iraq war a special interest pet project? How exactly is it in the general public interest?

Seems to me we could withdraw from Iraq, cut one really big line item in the current US budget, and reduce the future outlays that will otherwise come from long term care of soldiers who haven't been injured yet.

By Randall Parker 2008 January 27 04:03 PM  Mideast Iraq Exit Debate
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Tsar Vladimir Sidelines Kasyanov From Managed Election

The Tsar of Russia has decided that a Mikhail Kasyanov candidacy for the to-be-ceremonial Russian Presidency would only confuse the loyal masses.

MOSCOW, Jan. 27 -- Former prime minister Mikhail Kasyanov, a political opponent of President Vladimir Putin, was barred Sunday from running for president after the Central Election Commission said it had found tens of thousands of forged signatures among the 2 million gathered by his campaign to get his name on the ballot.

Opinion polls indicated that Kasyanov posed no political threat to Putin's chosen successor, Dmitry Medvedev, the overwhelming favorite in the March 2 vote, and his disqualification will immediately raise questions about the Kremlin's willingness to face any competition or debate. As a candidate, Kasyanov would have enjoyed some access to state-controlled national television stations, which rarely mention him and only then to attack him as corrupt or declare him irrelevant.

The Tsar is knowing and wise. Surely as a good Tsar he is doing what is best for the Rodina and the Russian people. No patriot can question his decision in good conscience. Russia has democracy just like the West and the West is therefore no better. Russia even has a better form of democracy that eliminates the damage caused by divisive candidates who do not place the interests of the people first.

By Randall Parker 2008 January 27 10:18 AM  Russia
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Ethnic Cleansing And Population Growth In Kenya

One month ago Kenya had an election. In some circles elections are held to be a sort of universal balm or cure for what ails a society. Terrorism? Elections will cure it. Poverty? Just need elections. Corruption? Elections will throw the bums out. Well, in reality elections sometimes tear a society apart into warring tribes.

NAKURU, Kenya — Nairobi, the capital of Kenya, may seem calm, but anarchy reigns just two hours away.

In Nakuru, furious mobs rule the streets, burning homes, brutalizing people and expelling anyone not in their ethnic group, all with complete impunity.

On Saturday, hundreds of men prowled a section of the city with six-foot iron bars, poisoned swords, clubs, knives and crude circumcision tools. Boys carried gladiator-style shields and women strutted around with sharpened sticks.

The police were nowhere to be found.

The "international community" ought to consider a partition of Kenya. But partition is anathema. It is an acknowledgment that we can't all just get along. If ethnic groups aren't compatible in Iraq or Kenya, heck, they might not be compatible in Brixton or in the suburbs of Paris. So deny that one with venomous vehemence.

In large area of Kenya - including Nairobi - ethnic cleansing is turning ethnically mixed neighborhoods into ethnically pure neighborhoods. This is happening at a faster pace than what we've seen in Baghdad. Without American troops dying to prevent it the ethnic cleansing plays out much more rapidly..

Nakuru, the biggest town in the beautiful Rift Valley, is the scene of a mass migration now moving in two directions. Luos are headed west, Kikuyus are headed east, and packed buses with mattresses strapped on top pass one another in the road, with the bewildered children of the two ethnic groups staring out the windows at one another.

Some UN-organized mission could go into Kenya and move the ethnic groups away from each other with trucks.

Part of Kenya's problem is that population growth increases competition between ethnic groups for limited resources.

In only 80 years, Kenya's population has jumped from 2.9 million to 37 million. Had America grown at the same rate since 1928, when it had 120 million people, it would now have 1.56 billion citizens.

Kenya belongs to a group of some 40 countries that have extremely high population growth - rates of increase that I call "demographic armament." In a typical nation of this group, every 1,000 males aged 40 to 44 are succeeded by at least 2,500 boys aged 0 to 4. In Kenya there are 4,190 such boys.

Most of the world's population growth is occurring in countries that generate little or no new technology or science. They are firmly in the column "Part Of The Problem" and in no way in the column "Part Of The Solution". So the Problem is becoming bigger. Oh, and you might want to go see any endangered species you've ever wanted to see now because all those hungry human mouths are doing to devastate the remaining wild habitats. Good bye other species.

A Christian Science Monitor reporter says if a Democrat wins the US presidency then US policy might shift toward more support for population growth control.

If a Democratic president enters the White House about a year from now, some experts in family planning anticipate a boon for mankind: a greater effort by the United States government to restrain world population growth.

As it is, when a baby born today enters kindergarten, the number of people in the world will have grown by more than 300 million. That's on top of the 6.7 billion individuals alive today. That four-year population-growth projection is comparable to the 303 million people now living in the US – the third most populous nation in the world after China and India.

I think Barack Hussein Obama would have a hard time convincing himself that Kenya's most pressing issue is birth control. He's got a big need to feel ethnically authentic and politically correct on race. So how's he going to admit that more Kenyans is a bad thing? That's like saying that more Kenyans are not a blessing and not valuable resources. Why would that be? He won't like some of the obvious answers to that question.

So could Hillary bring herself to make a serious effort at birth control in Africa? On the one hand, she can win points with her feminist supporters by supporting a woman's right to an abortion. On the other hand, if she tries really hard she opens herself up to charges of racism since birth control for the poor people of the world ends up focusing on non-white peoples. What, we need fewer non-white people? Heresy! "The inquisition, lets begin. The inquisition, look out sin."

By Randall Parker 2008 January 27 08:58 AM  Democracy Failure
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Mexicans Versus Canadians At The Border

99% of the people making false claims at US borders are trying to come in from Mexico, not Canada.

In announcing an end to the "honor system" under which Americans and Canadians can enter the United States simply by presenting a driver's license or declaring their citizenship, Chertoff wrote to lawmakers that people had made 1,517 false claims of U.S. citizenship at land crossings in the past three months. That included one man with an outstanding arrest warrant for a homicide charge in California.

A spokesman for U.S. Customs and Border Protection acknowledged this week, however, that only 20 of the recent cases -- and 210 out of 31,060 false claims in the past three years -- occurred at the border with Canada. The other 99 percent came at the Mexican border.

One wonders about the 210 on the Canadian border though. How many were Muslims?

The people on our southern border have less respect for the law than the people on our northern border. I think immigration law enforcement policy should reflect that fact. We need to finish and enhance the US-Mexico border barrier so that illegal entry becomes difficult and very rare.

By Randall Parker 2008 January 27 08:29 AM  Immigration Law Enforcement
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2008 January 24 Thursday
Was Recent Prosperity Illusory?

An article in BusinessWeek captures the mood among business writers and an increasing portion of the general public in an article entitled How Real Was the Prosperity?

Sometimes consumers would get ahead of the economy for a few years, and sometimes fall behind, but never for very long.

That pattern changed in the 1990s. As of the third quarter of 2007, the 10-year growth rate for consumption was 3.6%, vs. GDP growth for the same period of 2.9%. This difference represents an enormous gap.

That adds up to $3 trillion dollars worth of living beyond our means. I've been writing about this problem for years and now I take no joy out of finding more agree with me. The seriousness of the problem outweighs being right about it. It is ultimately dissatisfying to watch people wake up to the economic fears that a smaller group of us have been voicing for years. The horse has left the barn as suddenly the business press is writing about our economy in ways reminiscent of Warren Buffett's term for America: Squanderville. Suddenly Buffett isn't just rich. His views have become conventional wisdom.

Some optimists pointed to higher corporate earnings as an argument for why we could afford to run up our debts. But turns out the improvement in profit margins were concentrated in the financial industry. Well, how many of those profits were due to temporary luck of investing in a financial bubble?

Corporate Earnings. Yes, there's been a profit boom in recent years. Corporate earnings, as measured by government statisticians, have averaged 8% of GDP over the past decade, up from a low of 6.5% in the early '90s. That has helped propel stocks upward.

But here's an unfortunate truth—the profit surge has been mainly in one area, financial services. Financial institutions have benefited from the consumer credit boom, the proliferation of new financial instruments, and relatively low rates. By contrast, the earnings of nonfinancial companies over the past decade have averaged about 5.3% of GDP, about the same since the mid-1980s. There are few signs of any acceleration, even after years of restructuring.

Will financial companies regain their position as high profit earners? Or will they end up losing as much as they earned in recent years?

David Leonhardt of the New York Times examines how much of the last 10 years of economic growth came from improvements in fundamentals in an article entitled Worries That the Good Times Were Mostly a Mirage.

The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.

The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.”

Leonhardt says three factors argue for a deeper and longer lasting recession: Wall Street financial institutions still haven't revealed the full depth of their losses; stock and home prices are still above their historical norms; and consumer debt has accumulated to levels that will require a substantial period of lower spending to pay down what's owed.

If the correction comes slowly it will last longer like Japan's downturn that started in the early 1990s and lasted well into this decade (and some argue is still in effect). Attempts by political leaders to cushion the downturn could make the downturn last longer. Then again, intervention by the US Federal Reserve might prevent a depression too. Hard to say.

Certain rickety but key components of financial markets have attracted a lot of regulatory attention as governments seek to prevent vicious cycles of failures of financial institutions. Notably, regulators are looking to prevent failures of bond insurance companies.

Regulators fear a possible chain of events in which the troubled bond insurers, MBIA and Ambac, might be unable to keep their promise to pay investors if borrowers default on their debt.

That could leave the buyers of the bonds — including many banks and pension funds — on the hook for untold billions of dollars in losses, shaking confidence in the financial system.

To avoid a possible crisis, insurance regulators met with representatives of about a dozen banks on Wednesday to discuss ways to shore up the insurers by injecting fresh capital, much as Wall Street firms have turned to outside investors recently after suffering steep losses related to subprime mortgages.

A New York Times article by Floyd Norris also captures the mood of the day: Familiarity Breeds Gloom Among Financial Experts

But the pessimism is much greater among those closest to the financial system. While some take a functioning financial system for granted, in the same way they view highways or indoor plumbing, others see a system in crisis.

“We’re entering a perfect storm, a period of financial turbulence and very limited capital,” said one executive, whose company needs to borrow money to grow.

“What’s driving everyone crazy,” another executive said, “is, you don’t know who you can trust.” Both are well-known executives who did not want to call attention to themselves.

The commercial bankers and investment bankers are going to emerge from current events looking pretty dangerous. They've set up houses of financial cards that now require government intervention to prevent cascades of failures. I'm not going to forget this. Are you?

By Randall Parker 2008 January 24 08:53 PM  Economics Business Cycle
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Peter Schiff Proposes Debit Cards As Fiscal Stimulus Tool

Peter Schiff C.E.O. and Chief Global Strategist of Euro Pacific Capital, Inc. makes a modest proposal for a powerful government fiscal stimulus tool with cash cards.

Fortunately, the government has very modern and effective tools available to deliver funds and micromanage spending. Just recently, the Treasury Department launched a program to streamline Social Security payments through the use of debit cards. The same idea could be used for fiscal stimulus. The Government could distribute millions of "Economic Stimulus Cards" to citizens, which could function more like retailer gift cards rather than debit or credit cards. Here's how they would work:

When the government wants a quick, fast stimulus, it authorizes expenditures on the cards which can only be used for consumer purchases and only for a set time frame. Knowing that they must use or lose their newly authorized funds, Americans will run to their nearest retail outlet and spend, spend, spend. The beauty of the system is that the consumers will spend exactly how much the Government deems necessary. What's more, the government could decide to direct the spending to specific areas of the economy that it deemed particularly strapped. For example, it might target specific types of merchandise that may be purchased or particular retailers where those expenditures would be authorized, with the political benefits being the icing on the cake.

Debit cards would allow governments to translate more of a fiscal stimulus into actual spending. Plus, by controlling what can be purchased the cards could selectively boost demand for domestically produced products so that the resulting sales don't just swell the trade deficit.

Mind you, I don't think that government attempts to stimulate spending are a good idea. The US government is already too in hock to the world. But if the government is going to hand out cash it might as well do this in a way that boosts demand for domestically produced goods and services.

By Randall Parker 2008 January 24 07:02 PM  Economics Business Cycle
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2008 January 23 Wednesday
Mickey Kaus: Death Of Reagan Coalition Was Avoidable

Mickey Kaus argues George W. Bush destroyed a coalition that didn't have to fall apart. But Mickey, Reagan's choice of Bush Sr. as VP set up W. to win and wreck what Reagan had built. We are now in the final year of George W "Wrecking Ball" Bush.

The Reagan Coalition didn't die of natural causes: It's now steel-vault CW that the tripartite Reagan Coalition (national security conservatives, social conservatives, economic conservatives) has sundered. There's a tendency to portray this as some sort of inevitable process, a working-out of an ideological dialiectic. Hence Fred Thompson was just a fool to run on a Reaganite platform--the old coalition doesn't exist and can't exist.

There is at least one sense in which the coalition was a victim of its own success: by successfully pursuing elimination of the welfare (AFDC) entitlement, the Gingrich Republicans removed a major reason for public distrust of liberal "affirmative government." But that merely meant the R.C. was fighting an increasingly unfavorable battle against Democrats who wanted the non-welfare welfare state to expand (i.e., to provide health care). It didn't mean the Coalition had fractured.

It took President Bush to accomplish the latter, through two willful decisions: a) the decision to invade Iraq and b) the decision to pursue an ambitious immigration reform that included mass legalization. The former decision discredited Republicans and cost them the support of conservative realists. The latter split businessmen and libertarians from both social and law-and-order conservatives. Neither decision was in any way inevitable. To explain them, the internal dialectic of the Bush family (effectively described in Jacob Weisberg's new book) is more useful than any grander diagram of political or social tensions. [But the business wing of the GOP would have been mad if Bush had opposed the immigrant legalization "reform"--ed. Bush didn't have to make a big issue of immigration at all. And it wouldn't have been one if he hadn't. A few stronger border-security measures to placate the base and the whole dilemma would easily have been kicked past his term in office. The real demand for "comprehensive reform" came from intellectuals, ethnic interests and political strategists who saw a transformative potential in winning the Latino vote. Like Iraq, it was a war of choice. In the event, it turned out businesses didn't care nearly as much about it as Karl Rove, John McCain and Tamar Jacoby. Bush was reduced to urging businessmen to lobby for his plan.]

Bush is a large part of the problem. But he had a lot of help on Iraq and immigration from the neocons. At this point we need to get the neoconservatives out of power. A victory by a Republican aligned with the neocons would be a disaster.

On immigration and Iraq McCain looks like the worst choice. Hillary would probably be better on Iraq and probably won't be any worse than McCain on immigration and might even be better. Where does Romney stand vis a vis the neocons? I do not see any big neocons supporting him. But I'm not watching him closely enough to know for sure.

Update: McCain strongly supports the same positions which tore apart the Reagan Coalition when Bush supported those positions. If McCain wins the Republican nomination the lack of support for McCain from key elements of the Republican base could assure Hillary a victory in the general election. But while Romney won't alienate the Republican base on these issues his Mormon beliefs will keep many fundamenalist Christians home on election day. The Republicans might just manage to put Hillary in the White House.

By Randall Parker 2008 January 23 09:42 PM  Politics American Domestic
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Privatized Toll Roads Create Large External Costs

Yet another "privatize profits and socialize costs" story.

Privatizing toll roads in the U.S. may result in significant diversions of truck traffic from privatized toll roads to "free" roads, and may result in more crashes and increased costs associated with use of other roads, according to a new study.

Peter Swan of Penn State – Harrisburg and Michael Belzer of Wayne State University will present the findings of their study, "Empirical Evidence of Toll Road Traffic Diversion and Implications for Highway Infrastructure Privatization" on Jan. 14 at the 87th annual meeting of the Transportation Research Board in Washington, D.C.

The study used data from the State of Ohio, the Federal Highway Administration, and the Ohio Turnpike to predict annual Turnpike truck vehicle miles traveled, and therefore diverted vehicle miles, based on National truck traffic and Turnpike rates. The researchers then compare estimated truck traffic diverted from the Turnpike to truck traffic on Ohio road segments on possible substitute routes.

Both economic models support the hypothesis that rate increases divert traffic from toll roads to "free" roads.

"While recently privatized roads do not have enough history to determine how high actual rates will rise, adequate data do exist to determine what happens when toll rates increase dramatically on state-run toll roads," says co-author Peter Swan, Assistant Professor of Logistics and Operations Management at Penn State's Harrisburg campus.

The study concludes that if governments allow private toll road operators to maximize profits, higher tolls will divert trucks to local roads, depending on the suitability of substitute roads. The authors estimate that for 2005, a for-profit, private operator of the Ohio Turnpike could have raised tolls to roughly three times what they were under the public turnpike authority, resulting in about a 40% diversion of trucks from the Ohio Turnpike to other roads.

"The Ohio Turnpike substantially increased tolls during the 1990s to help finance construction of a third lane in each direction over substantial portions of the Turnpike," the researchers say. "Because the Ohio Turnpike raised its rates for trucks in the 1990s and later lowered them again, sufficient data exist to calculate a demand curve for the Turnpike based on demand and the toll rate. We then use the resulting demand curve to estimate diversion of trucks caused by the changes in the toll rates and to forecast how toll rates might affect Turnpike truck revenue."

The number of diverted trucks is important to both the State of Ohio and the Nation for economic and social reasons.

First, many of the substitute roads are two-lane highways with crash rates many times that of the Turnpike. Second, the increased traffic has reduced the quality of life for communities located along diversion routes and dramatically increased the maintenance costs of many of these roads, say the researchers.

Finally, higher truck tolls have two negative effects on the economy. Motor carriers eventually pass all tolls to consumers in the form of higher prices for goods. While higher toll rates may not decrease the efficiency of non-diverted trucks, they have raised costs.

Furthermore, diversion reduces the efficiency of these trucks because they clearly are taking a second-best route. The resulting loss of efficiency can stifle economic activity, according to the study.

Many of these economic and social costs may not be considered in future leases or sales, especially when such costs are paid by people in states other than the one making the lease agreement.

The study researchers question whether it makes good policy sense to substitute the existing fuel tax-based system of funding road infrastructure with a system that uses widespread tolls and to grant long-term leases to private enterprises that will operate them for profit.

External costs are inconvenient for advocates of extreme laissez faire economics because such costs argue against a purely private market. In this case a publically owned toll road might minimize total costs. But that keeps the state involved in operating highways and therefore reduces the extent of privatization. Hence the desire to ignore inconvenient external costs.

By Randall Parker 2008 January 23 08:32 PM  Economics Transportation
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2008 January 22 Tuesday
US Federal Reserve Freak Out On Interest Rates

We have to go back over 23 years for a similar rate cut.

"It's a once-in-a-generation event," Mark Zandi, chief economist at Moody's Economy.com, said. In recent years, the Fed has rarely acted between scheduled meetings of the committee, and almost always in increments of one-quarter or one-half point. It was the biggest single cut since October 1984.

You'll be able to tell your grandchildren "They don't make rate cuts the way they used to. Before the world Borg mind took over the economy things didn't use to be such smooth sailiing. Why I remember that big rate cut the US Federal Reserve made in January 2008. There's been nothing like it since except for the bigger one they made in response to the world depression that came later".

The Times of London argues that the Fed made its move due to the threat of a looming bond insurance market implosion.

Fears that America’s bond insurance market could implode triggered the US Federal Reserve’s biggest interest rate cut for more than a quarter of a century, Wall Street economists claimed yesterday.

Market analysts said that Wall Street had spent last week gradually realising the grave consequences of a major bond insurer defaulting on its commitments and attributed the surprise rate cut to averting such a crisis.

As soon as some bond insurer goes bust all of the bonds it has insured up to an A, AA, or AAA status have to get sold by institutions that are only allowed to own highly rated bonds. This will cause big bond price drops and more financial institutions to fail. There's a real fear of a domino effect. Um, shouldn't we have financial markets that are not built up like dominoes? I'm just asking.

Allan Sloan of Fortune thinks the Fed responded to what it perceives as a market panic.

Forget all those rational explanations about why foreign stocks markets, especially in Asia, have been melting down for two days. Despite what you've read, seen and heard, those declines weren't caused by fears of what a recession in the U.S. would do to the profits of companies whose stocks trade in places like India, China and Russia.

Rather, the meltdowns were flat-out market panics, where rationality gets tossed out the window as everyone tries to head for the door at once and gets trampled. Go-go markets, especially in Asia, had risen to ridiculous heights - they were going up because they were going up, and momentum fed on itself. Now, they're going down because they're going down, and momentum is feeding on itself again.

The fact that the Federal Reserve Board announced an emergency cut of 0.75 percent in short-term rates shows that the Fed thinks the problem is a market panic rather than economic fundamentals.

That is worrisome. Panics and the madness of the crowds are scarier than mere inflation or a correction of an over built sector of the economy. But maybe the panicking is rational. Maybe lots of financial institutions are in worse condition than we know so far. That's certainly been the trend of the last year.

Do you think this recession might catalyze a critical mass in the growing opposition to globalism? Some think so.

As the prospect of a U.S. recession overshadows a tense and drawn-out election campaign in the world's most emblematic market economy, a corrosive cocktail of factors is eating away at old certainties: Power is steadily leaking from West to East. Income inequalities are rising in rich countries.

And signs of a protectionist backlash are multiplying as worries about climate change, the rise of state-run investment funds and the bursting of the recent credit bubble give novel ammunition to those in the West who question free markets and clamor for more shelter from globalization.

What exactly will emerge when the dust settles is hard to predict, economists and executives say. But this much seems clear: With the frontier between state and market once again up for grabs, the era of easy globalization is over - and big government in one form or another is back.

"The pendulum between market and state is swinging back," Pascal Lamy, director general of the World Trade Organization, said by telephone before traveling to Davos. "The year 2008 is a crucial year that could end up setting the tone for some time to come. What we need is an ideological mutation without falling into the trap of protectionism."

I don't want a severe recession or depression. It is not clear to me, however, that all the central banks are as powerful and wise as they are supposed to be.

Did you notice my (at least till this point) total lack of mention of details of a certain Congressional and Presidential plan to stimulate the economy? That was intentional. I do not think it will matter at all.

By Randall Parker 2008 January 22 09:26 PM  Economics Business Cycle
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Mortgage Defaults And Foreclosures Soar In California

Bad news for people who bought at the peak of the real estate bubble:

La Jolla, CA.--The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than fifteen years, a real estate information service reported.

Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.

Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.

But the decline in home prices is good news for renters who want to buy.

"Foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than it's market value, setting the stage for default if there is mortgage payment shock, a job loss or the owner needs to move," said Marshall Prentice, DataQuick's president.

The median price paid for a California home peaked at $484,000 last March and declined to $402,000 by the end of 2007, although much of that decline was caused by significant shifts in the types of homes that were sold.

Of course, this downturn in real estate will put some prospective home buyers out of a job. But if you can manage to stay employed and even increase your income home owning is becoming more affordable.

The Bay Area has the lowest rate of mortgage defaults. My guess is that Silicon Valley is doing well.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.

The percentage of defaults which end up as foreclosures has risen.

Fewer homeowners in default are able to hold on to their property. An estimated 41% of those in default are now able to avoid foreclosure by bringing their payments current, refinancing or selling their home to pay off their loan, DataQuick reported. A year ago, 71% of homeowners in default were able to recover.

Foreclosures are up 5 fold.

Actual foreclosures statewide rose fivefold in the quarter, to 31,676, DataQuick said.

That's only about an eighth of a million households per year evicted from their mortgaged homes in a state with 12 million households total. So that works out to about 1% of the population. Then there's a separate group who are evicted for inability to pay rent. But they attract far less attention and sympathy.

By Randall Parker 2008 January 22 08:27 PM  Economics Housing
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2008 January 18 Friday
Milder Brain Injuries Among Many Iraq War Veterans

We don't just throw away $3 billion dollars a week and lost lives on a pointless war that does nothing to improve American security. Lots of soldiers come back with missing limbs, debilitating injuries in muscles and joints, and brain damage (traumatic brain injury or TBI) with varying degrees of severity.

WASHINGTON, Jan. 18, 2008 – An Army report released yesterday outlines how the service can better identify and help soldiers who have suffered traumatic brain injuries.

The report contains some 47 recommendations to help the Army better prevent, screen, diagnose, treat and research traumatic brain injury, said Brig. Gen. Donald Bradshaw, who led the task force charged with investigating TBI. Bradshaw is commander of Southeast Regional Medical Command and Eisenhower Regional Medical Center, at Fort Gordon, Ga.


The general said 80 percent of those who suffer from mild TBI, commonly known as a concussion, recover completely. Some 10 to 20 percent of soldiers and Marines returning from Iraq and Afghanistan with experience in combat may have suffered symptoms consistent with mild TBI.

I am skeptical that 80% recover completely. Brains can't heal as well as other parts of the body. The Army is studying longer term effects. But without before and after cognitive testing with testing done periodically after return we aren't going to know how long lasting the concussion effects are.

The task force applauded the brain-injury program at Fort Carson, Colo., where 17% of returning soldiers have shown signs of the injury. As a result, the Army is replicating Fort Carson's program at other installations.

The task force said most soldiers suffering mild brain injury recover completely. Army Col. Robert Labutta, a neurologist and member of the task force, added that research is underway to determine long-term effects.

TBI is in addition to Post Traumatic Stress Disorder.

TBI is classified as mild, moderate, severe or penetrating, depending on the severity and nature of the injury. Mild TBI, commonly known as a concussion, may affect 10 to 20 percent of Soldiers and Marines redeploying from combat in Iraq and Afghanistan. It is not the same as Post Traumatic Stress Disorder, although the two conditions may produce similar symptoms, such as sleep problems, memory problems, confusion and irritability. Other mild TBI symptoms include headache, dizziness, nausea and light-sensitivity. More than 80 percent of patients treated for mild TBI recover completely.

You can read the full Traumatic Brain Injury Task Force Report (PDF).

By Randall Parker 2008 January 18 11:34 PM  Mideast Iraq Costs
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Places Australians Should Not Travel

The government of Australia has a Smartraveller web site with two lists of special interest: We advise against all travel to these countries:

Central African Republic

The theme? Muslim countries of the Middle East and African countries. No surprise.

Then there is their list of less bad but still pretty bad countries you really ought to avoid if you wish a long and healthy life: Destinations for which we advise you to reconsider your need to travel:

Côte d'Ivoire (Ivory Coast)
Democratic Republic of the Congo
East Timor
Saudi Arabia
Sri Lanka

Saudi Arabia is an interesting entry on that list. Do the Aussies see its oppressive legal system a danger even to people who obey the laws in the Kingdom? There's certainly enough evidence available to support that view.

Leave aside even more Muslim Middle Eastern countres and African countries. What else do we see? East Timor and Indonesia. East Timor used to be part of Indonesia and they have a rather bloody history. Indonesia is Muslim and an amalgamation of lots of incompatible ethnic and religious groups. The market dominant minority Chinese get treated in ways that affirm the threat that market dominant minorities face and their treatment there serves as warning about continued immigration of low IQ ethnic groups into the United States.

Haiti is basically a messed up African country transplanted to the Caribbean. The move didn't help.

Burma is the oddest entry on the list, perhaps demonstrating that the legacy of communism and socialism still has some very small role to place in making countries very messed up places. But most of the remaining big problems are caused by Islam and low I.Q.

By Randall Parker 2008 January 18 09:30 PM  Chaotic Regions
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2008 January 15 Tuesday
US Government Expands Criminal Immigrant Deportation Program

The New York Times reports that the Bush Administration is massively scaling up (finally) the deportation of criminal immigrants.

Federal authorities expect to identify and deport more than 200,000 immigrants this year who are convicted criminals serving time in prisons and jails across the country, the country’s top federal immigration enforcement official said Monday.

Imagine how much lower the crime rate would be today if illegal immigrants had been kept out and all legal immigrants turned criminals had been deported starting 10 years ago.

The effort to speed the deportation of foreign-born criminals is part of a campaign by the Immigration and Customs Enforcement agency to help federal and state prisons reduce the costs of housing immigrants, the official, Julie L. Myers, assistant secretary of homeland security and head of the agency, said in an interview.

It is a measure of the failure of our elites that in 2006 only 64,000 immigrants were identified behind bars. If the government can identify 200,000 in 2008 surely it could have done so in 2006.

In 2007, Ms. Myers said, the agency, known as ICE, brought formal immigration charges against 164,000 immigrants who are behind bars nationwide for crimes committed in this country. Many of those immigrants are still in the United States and are also slated for deportation this year, she said. By comparison, in 2006, the agency identified 64,000 immigrants behind bars, most of whom were deported.

This demonstrates the value of complaining loudly to the US Congress which has appropriated $200 million to deport criminal immigrants in 2008. They hear us. So stay mad about immigration and make your views known.

But I am puzzled by these numbers. What fraction of all immigrants behind bars are there for less than a year? There'd have to be a pretty high turnover to reconcile the report above with something Edwin Rubenstein observed a couple of weeks ago: Hispanics make up about 300 thousand of those behind bars.

But this begs the question ofHispanic criminality per se. It’s clear, based on national incarceration data [William J. Sabol, Heather Couture, and Paige M. Harrison, "Prisoners in 2006," Bureau of Justice Statistics Bulletin, December 2007. Appendix tables 7 and 8. PDF], that Hispanics are far more likely to be in prison than non-Hispanic whites.

In 2004 (latest available data) there were 290,500 Hispanic males in state or federal correctional facilities. That’s an incarceration rate of 1,281 per 100,000 population.

The puzzle becomes even greater when we consider Steve Sailer's observation that the far higher crime rate of native born HIspanics should mean that few of the Hispanics in prison are immigrants.

Why is it a good thing that the next generation of American-born Hispanics has so much higher crime rates than their dads? Linda Chavez trumpeted a study implying that American-born Latinos are eight times more likely to be criminals than Latino immigrants. Aren’t the problems posed by the first generation of immigrants supposed to diminish in the second and third generations, not increase? Overall, the Hispanic imprisonment rate is 2.9 times the white rate.

So how to reconcile all these numbers? The US government and state governments do not do a good job of tracking Hispanic criminal behavior separate from whites. You can see this in the FBI Uniform Crime Reports which fail (at least last I checked) to even report Hispanic crime as a category separate from white crime. This is done to make Hispanics look better and whites look worse.

Has the US government found many more immigrant criminals now that it has started trying to identify them? Or is the turnover rate of prisoners serving short terms so high that 200,000 can be identified from far larger pool of short term servers?

Update: Also see Audacious Epigone on the immigrant crime numbers. My own guess: The number of crimes committed by immigrants is underestimated due to the reluctance of the US government to track Hispanic crime and immigrant crime. The pressure on the government to track down and deport illegal aliens and immigrant criminals has turned up a lot more immigrant criminals than previously published estimates would cause one to expect.

By Randall Parker 2008 January 15 07:46 PM  Immigration Crime
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2008 January 13 Sunday
Francis Crick Agreed With James Watson On Race

Francis Crick and James Watson famously discovered the structure of the DNA double helix back in 1954. This made them 2 of the biggest figures in 20th century biology. More recently Watson indicated he believes large differences in cognitive ability exist between the races. He was widely attacked for these comments and found few defenders. His attackers did not bother to examine whether the evidence really does support Watson's contentions. Well, Watson and Crick are portrayed as very different personalities and Crick has been portrayed as the smarter of this dynamic duo. So where did Crick (who is already dead) stand on racial differences? Crick's views were very similar to Watson's and Steve Sailer has the details.

Watson has, of course, been in the news lately, getting dumped from his post as chancellor of the Cold Springs Harbor Laboratory. Now, a reader has pointed out to me that Watson's elder partner, Crick (1916-2004), was also guilty of holding the same views on race and IQ.

Some of the Francis Crick Papers are now online, and they are certainly illuminating. For example, during the controversy in 1969-1971 over IQ and race launched by Arthur Jensen's 1969 Harvard Education Review article and William Shockley's call for financial incentives and penalties to encourage higher IQ reproduction, Crick, a strong supporter of Jensen, threatened to resign as a Foreign Associate of the American National Academy of Sciences if steps were taken to "suppress reputable scientific research for political reasons."

In contrast, in 2007 almost nobody stood up for James Watson.

Steve excerpts some of the letters where Crick engages other scientists regarding scientific flaps about race in the 1970s. Here's an excerpt of a letter that Crick wrote to another scientist on 22 February 1971 in response to a letter this scientist had signed.

Dr. John T, Edsall
Fogarty International Center
National Institutes of Health
Bethesda, Maryland 2 0014

Dear John,

I have been very distressed to see the letter to the President of the National Academy by you and six other Academy members regarding a Proposal by Dr. [William] Shockley [Nobel laureate in physics]. Like you I have not published anything on the population problem, but f have become fairly familiar with the literature of the subject. I have also talked to Dr, Jensen when he visited the Salk Institute recently.

Unlike you and your colleagues I have formed the opinion that there is much substance to [Berkeley psychologist Arthur] Jensen’s arguments. In brief I think it likely that more than half the difference between the average I.Q. of American whites and Negroes is due to genetic reasons, and will not be eliminated by any foreseeable change in the environment. Moreover I think the social consequences of this are likely to be rather serious unless steps are taken to recognize the situation.

While any present conclusions are tentative, it seems likely that the matter could be largely resolved if further research were carried out. I should thus like to know two things. Would you and your colleagues please state in detail why they think the arguments put forward by Jensen are either incorrect or misleading. Secondly, would they please indicate what research they think should be done to establish to what extent "intelligence" is inherited. This is surely the important point, and is equally valid for a country without a racially mixed population.

The most distressing feature of your letter is that it neither gives nor refers to any scientific arguments, but makes unsupported statements of opinion, This, I need hardly remind you, is politics, not science. The voice of established authority, unsupported by evidence or argument, should have no place in science, and I am surprised to find that you, of all people, should put your name to a letter of this character written to the Academy on a matter of scientific research. I am cure you will realize that if the Academy were to take active steps to suppress reputable scientific research for political reasons it would not be possible for me to remain a Foreign Associate.

Again, these are two of the greatest minds in 20th century biology.

By Randall Parker 2008 January 13 10:35 PM  Human Nature
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Liquified Natural Gas Not Replacement For Declining Reserves?

Currently the wholesale cost of natural gas in the United States is below $8 per million BTU. US natural gas production is in decline. Most natural gas in the world is used fairly near where it is produced or is only transported by pipeline. Matthew Simmons of Twilight In The Desert fame (arguing that the official Saudi oil reserves are greatly above the actual and that the Saudi oil production is near peak) says in an interview that cooled liquified natural gas transported by ship might never scale up as a replacement for domestic natural gas production declines.

BC: We’re probably in more serious a situation than most people would realize, and it’s no better with natural gas. Switching gears for a moment, do you think the rise of LNG will be enough to keep up with declines in natural gas discovery and subsequently in natural gas production?

MS: Well, first of all, the problem with LNG is that if we try to develop a spot market out of LNG, the odds of it ending in bankruptcy are about 90%.

BC: Who goes bankrupt?

MS: All the players. The cost to produce and distribute LNG is so high that to make LNG work in any sort of financial reality, you would need a 25- or 30-year guaranteed supply. And then you can amortize it over 25 or 30 years. If you’re going on a spot supply, you’ve got to write it off over 10 years and then you’ll need $40 per million BTU to make the economics work. The other thing is that about 35% of the hydrocarbon value gets chewed up in the process of cryogenically freezing natural gas, transporting it, and then re-gassing it.

BC: In your opinion then, LNG is not an economically viable solution. We won’t do it.

MS: We shouldn’t do it. But it turns out that high-quality natural gas – sweet, high-quality natural gas – is just like sweet oil. It’s basically in decline.

The more I learn about what is known about fossil fuels reserves the more pessimistic I become about the economy in the next 10 years.

To create LNG processing facilities requires capitalists at two different ends of a shipment path to agree to a massive investment in facilities which would take decades to pay back. So one needs to be very certain that a supply is going to exist at an originating end before plunking down big bucks at the receiving end. European OECD natural gas production might peak in 2008. Worse, Russia is the major external source of natural gas for Europe and Russian oil and natural gas fields look like they are approaching production peaks as well. LNG requires a large reservoir of natural gas at the originating end. Even if such a reserve or two exists in the Middle East the United States is not the only potential customer for that natural gas. China seems more likely to put together the capital needed to get it because the Chinese can make the investment as a political decision.

If natural gas can't replace oil then how about coal? In the United States the combined reserves of coal companies are less than a quarter of the coal reserves the US government thinks the US has. The Energy Watch Group expects world coal production to peak around 2025. Similarly, CalTech professor David Rutledge thinks coal production will come much sooner than official reserves numbers would lead one to expect. Well, coal is the cheapest fossil fuel source of electric generation energy and accounts for over half of US electricity while natural gas accounts for almost another 20%. Coal and natural gas production won't just collapse. Their production declines will happen gradually. But can we build up nuclear and wind as replacements at the rate at which coal and natural gas will decline? The answer is not clear to me.

I used to just be worried about Peak Oil. Now my worries extend across the entire range of fossil fuels.

By Randall Parker 2008 January 13 04:16 PM  Economics Energy
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2008 January 12 Saturday
Car Loan Finances Show People Living Beyond Their Means

I always wonder how some people I see driving nice expensive cars can afford to drive those cars. Answer? They are living beyond their means. People are routinely buying cars that depreciate in value faster than they pay off the loans.

Gone are the days of the three-year car loan. The length of the average automobile loan hit five years, four months in October, up more than six months from 2002, according to the Federal Reserve. And nearly 45% of loans written today are for longer than six years. Even some staid lenders owned by the carmakers, such as Toyota Financial Services and Ford Credit, are offering seven-year financing. And a few credit unions, particularly in the West, are tinkering with the eight-year note.

At the same time, the amount of money drivers owe on their cars is soaring. In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade, according to the Fed. More troubling, today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold -- up from $3,529 in 2002, according to industry analyst Edmunds.

But Marty Jerome at the Wired blog says the numbers might overstate the size of the problem.

Not mentioned in the "Times" article is that the "average" amount owed on a car is hugely skewed by luxury makes (and utility trucks). A relatively small percentage of individuals and companies are assuming extravagant amounts of debt on auto loans for various reasons, including tax write-offs.

He doesn't provide any evidence for these assertions. Also, he still thinks the trend in auto loans is "unsettling".

My biggest problem with the debt nation is that people who live beyond their means their entire working lives will demand more from government (i.e. from people still working and paying more in taxes) in their retirement. Worse, the US government (and not a few other ones) has over promised on what it can hope to deliver to retirees. The currently retired are getting a great deal where they get far more in benefits than they paid in as taxes. Younger folks are going to get shafted on this and the economy will bog down with taxes to try to pay welfare benefits to baby boomer retirees.

By Randall Parker 2008 January 12 04:59 PM  Economics Transportation
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Export Controls On Energy And Food Show Commodity Shortage Trend

Remember when the bigger obstacle to international trade was restrictions on imports? Here is a sign of the times. Countries are cutting off natural gas exports under various pretenses in response to a cold winter and rising demand.

Turkmenistan has halted daily deliveries of up to 23 million cubic meters to Iran since Dec. 31 because of ""technical problems"" and the need to undertake emergency repairs.

Turkmenistan cut off natural gas exports to Iran which cut off natural gas to Turkey which cut off natural gas exports to Greece. The last node in energy distribution networks is not the place to be.

On Jan. 8, Iran stopped all natural gas exports to Turkey as worsening weather boosted domestic demand, forcing Ankara to use as much as a third of its stored fuel. The following day, Turkey halted the flow of Azeri gas to Greece because of the suspension of gas supplies from Iran. Adding to Turkish anxieties, Russia, Turkey’s other main supplier of natural gas, also reduced exports, citing severe weather.

In the future Turkey will also be able to hold back Iraqi natural gas from Europe.

Turkish Energy and Natural Resources Minister Hilmi Guler says the natural gas produced in Iraq will be exported to Europe via Turkey.

Parenthetically, when Russian natural gas exports start declining Germany's opposition to the continued use of nuclear power is going to turn out as incredibly foolish. The big run-up in grain prices driven in part by demand for biomass energy already has Russia restricting grain exports.

The Russian government’s decree imposing a 40 percent export duty on wheat, meslin (wheat and rye mixed), and barley, but not less than EUR 0.105 per 1kg, will take effect on January 29, 2008. The document was signed by Prime Minister Viktor Zubkov on December 28. The measure, which almost quadruples Russia’s protective duties on grain exports, will apply until April 30, 2008.

On October 8, the Russian government decided to introduce export duties on wheat and barley, at the same time lowering import duties on milk, butter, cheese and sour cream. The export duty on grain was set at 10 percent of contract price but not less than EUR 22 per tonne, and at 30 percent for barley, but not less than EUR 70 per tonne.

Russia is not alone in placing restrictions on food exports.

All national governments are keenly aware of the possibility of civil unrest in the event of severe food shortages or famine, and many have taken minimal steps to ease the crisis in the short term, such as reducing import tariffs and erecting export restrictions. On December 20, China did away with food export rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and Argentina have also implemented export controls.

Argentina is restricting energy exports.

A threat this week from Argentina's top price controller to cut off fuel exports could further complicate Exxon Mobil's (XOM) widely reported bid to sell its Argentine assets.

Argentina is also restricting food exports.

Argentina's independent farm sector, famed as religiously laissez-faire and for bitter railing against U.S. and European Union subsidies and barriers, is no more.

Over the past year, the government has consolidated its hold on the sector, taking advantage of sky-high international commodity prices to raise export taxes on grains. While the rising grain values have been a boon to state coffers and flooded the Pampas with wealth, rising domestic food prices have challenged a government that has made controlling inflation a major element of its economic policy.

The government now opens and closes the grain export registries like a tap. Companies must register all grain exports before shipping the goods. When the government feels that domestic supply is close to being threatened, the nozzle is shut.

It also limits beef exports to 70% of 2005 levels. In addition, the export tax on soybeans was raised to 35% from 27.5%

What will go down faster? Food exports or oil exports or natural gas exports? Remember, crops have become sources of both food and energy. So as energy prices rise the demand for crops to make biomass energy rises and therefore so do grain prices and other food prices. Populations will respond to rising food prices by demanding restrictions on food exports. They'll do the same with energy exports.

By Randall Parker 2008 January 12 02:44 PM  Economics Energy
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2008 January 09 Wednesday
Hoarding Mindset To Keep Up Oil Prices In Recession?

Jim Kingsdale does not expect the coming recession to lower oil prices by much because oil producers will cut back production to maintain prices as part of their new hoarding mindset.

I would bet that if prices do fall sometime soon, maybe after the peak winter demand season, exporters will cut back fairly quickly to try to keep the price above $80 or so. Further, when prices eventually begin to rise again, perhaps in the Spring or Fall of 2008, exporters will then be slow to raise production, having just experienced lower prices. So I think a possible reduction in the oil price next year would be shallow and would likely be followed by a counter trend leg up that will probably bring the price well above $100.

My thesis is based in part on the hoarding mindset that now dominates the oil market and is hardly ever discussed. Exporters (read OPEC, particularly KSA, UAE, Kuwait, and Venezuela) are now addicted to high and rising oil prices. Their ever increasing cash flows from oil have led to their making huge future capital commitments; they are not willing to see falling oil prices endanger those commitments. They also know that due to tight global supplies relatively minor production cuts are sufficient to raise prices. Finally they now believe that oil in the out years will only get more expensive. Thus near term production cuts will also be rewarded because the oil not sold now can be sold later for more money. In summary, exporters today have their hands on a hair-trigger for raising the oil price and they will not hesitate to pull it if the price falls much below $85. I summarize this series of attitudes on the part of oil exporters as the “hoarding mindset.”

If oil producers respond in this way then the demand destruction in the United States will be greater. The recession won't take as much pressure off of inflation.

Continued high oil prices in a recession will speed the development of new energy technologies, both for increased efficiency and to produce energy from non-fossil fuels energy sources. Nuclear and wind power development should accelerate. Also, as the public comes to expect long term high energy prices they will make more lifestyle changes to lower their energy usage.

By Randall Parker 2008 January 09 11:26 PM  Economics Energy
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2008 January 08 Tuesday
Minnesota Governor Proposes Illegal Immigrant Crackdown

Governor Tim Pawlenty of Minnesota has just signed a series of executive orders designed to crack down on illegal aliens and the employment thereof.

Among the executive orders Pawlenty signed:

• Minnesota law enforcement officers will work with U.S. Immigration and Customs Enforcement (ICE) to help enforce immigration laws. Seifert said that’s primarily state-level law enforcement, such as Bureau of Criminal Apprehension.

• New state employees and contractors doing business with the state will be required to verify their citizenship through an Internet-based system operated by the federal government, known as E-Verify.

• The Department of Public Safety will conduct a review of Minnesota’s driver’s license database to catch duplicate photos and study them for possible fraud.

• The DPS will conduct summits for law enforcement, including local law enforcement officers, to provide training in targeting criminal activity related to illegal immigration.

The legislative parts of his proposal face an uphill battle.

He also proposed several measures that lawmakers would have to approve, including stiffer penalties for identity theft and a ban on so-called sanctuary ordinances that prevent police from asking about immigration status. He described his ideas as "reasonable steps to help combat illegal immigration."

"These are legitimate concerns both in Minnesota and across the country. Other states are moving to address them and we have been as well, but more needs to be done," Pawlenty said, flanked by GOP lawmakers, police chiefs and state commissioners.

Most of Pawlenty's illegal immigration plan failed two years ago, when Republicans controlled the House. Prospects for the latest package appear even worse now that Democrats rule both legislative chambers. Key Democrats were panning the plan minutes after the governor's news conference wrapped up.

Growing popular support for illegal immigration crackdowns have turned similar proposals into state law in other states. Maybe trends in Minnesota will eventually result in enough pressure on the state legislature to get these proposals passed as well.

By Randall Parker 2008 January 08 11:38 PM  Immigration Law Enforcement
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2008 January 06 Sunday
George MacDonald Fraser On Political Correctness

Successful British novelist and screenplay writer George MacDonald Fraser (Flashman, Octopussy, The Three Musketeers) has recently died of cancer at age 82. He wrote a final essay on the evils of political correctness and Fraser argues that the politically correct have taken freedom of speech from themselves and the rest of us.

It's the present generation with their permissive society, their anything-goes philosophy, and their generally laid-back, inyerface attitude I feel sorry for.

They regard themselves as a completely liberated society when in fact they are less free than any generation since the Middle Ages.

Indeed, there may never have been such an enslaved generation, in thrall to hang-ups, taboos, restrictions and oppressions unknown to their ancestors (to say nothing of being neck-deep in debt, thanks to a moneylender's economy).

Regarding the moneylender's economy: Indebtedness used to be considered a thing to avoid and minimize. Now liberal politicians argue that the poor and the blacks can't be discriminated against in access to credit. If such discrimination existed it did people a favor and prevented debacles like the sub-prime mortgage crisis. Today the ability to be irresponsible in one's personal economic affairs is better protected than the right to speak one's mind.

We were freer by far 50 years ago - yes, even with conscription, censorship, direction of labour, rationing, and shortages of everything that nowadays is regarded as essential to enjoyment.

We still had liberty beyond modern understanding because we had other freedoms, the really important ones, that are denied to the youth of today.

We could say what we liked; they can't. We were not subject to the aggressive pressure of special interest minority groups; they are. We had no worries about race or sexual orientation; they have. We could, and did, differ from fashionable opinion with impunity, and would have laughed PC to scorn, had our society been weak and stupid enough to let it exist.

Basically, the Left holds correct leftist thinking as more important than freedom of speech. We need to undo this damage done.

Read the whole thing. He makes some excellent points. I'll make another one: People let themselves become unfree. They were too polite or too cowardly to challenge the forces of leftist dogma. Why did the forces of political correctness win? Also, will political correctness stay ascendant? Or will the rise of a real science of human nature tear it to shreds?

By Randall Parker 2008 January 06 09:51 AM  Civilizations Decay
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2008 January 04 Friday
Growing Opposition To Economic Globalization

Robert Samuelson sees the return of mercantilist trade policies.

Here's today quiz. What do the following have in common: (a) Vladimir Putin; (b) China's currency, the renminbi; (c) the U.S.-Peru trade agreement; and (d) Hugo Chávez? Answer: They all reflect the "new mercantilism." It's an ominous development affecting the world economy. Even as countries become more economically interdependent, they're also growing more nationalistic. They're adopting policies intended to advance their own economic and political interests at other countries' expense. As practiced until the mid-19th century, mercantilism aimed to do just that.

Samuelson fears that rising resentment toward China's currency manipulation and trade surplus combined with a recession could lead to tariffs and import quotas. My own take is that economic interdependence can go too far and cause people to feel lots of resentment about decisions taken by foreign governments. The economists seem to discount the desire to feel in control of one's life. But it is a very real need and a practical one.

Supporters of free trade in the United States would gain more credibility if they acknowledged the accuracy of many criticisms made about globalization.

But would a global slowdown change that if other countries blamed Chinese exports for destroying their domestic jobs? Would import quotas or tariffs follow? Already, China has turned from the world's largest steel importer to the largest exporter, says Lardy. In the United States, the present pattern of global trade is viewed with increasing hostility: U.S. deficits are seen as eroding industrial jobs while providing surplus countries with the dollars to buy large pieces of American firms.

How can making goods cheaper or more expensive via currency manipulation not be as bad as doing it with tariffs? Yet the advocates of lower tariffs rarely argue against currency manipulation. Why is that?

A rising percentage of the US population sees free trade agreements as harmful.

The 2008 presidential candidates can see that voters are in a sour mood on trade. An NBC News/Wall Street Journal poll earlier this year found that 46 percent of adults thought that free trade agreements hurt the United States, 16 points more than in 1999. Protectionist sentiment seems to be growing fastest among Republicans. In a September NBC/Wall Street Journal poll, 59 percent of Republican primary voters said trade has been bad for America.

Many of this year's major presidential candidates — nearly all Democrats and Republican populist Mike Huckabee — have responded by promising tough trade negotiations to give American workers a break and raise standards worldwide.

"We need trade without tradeoffs for America," former Sen. John Edwards, D-N.C., said in a speech at an Iowa union hall on Aug. 6. He vows, if elected, to put "regular families" ahead of the interests of multinational corporations.

The continued large US trade deficits and the currency manipulation that helps to cause them make quite a few people (myself included) skeptical of the idea that low tariffs equal free trade. How can going into hock to the world be a good development? How can large scale intellectual property theft be a good development?

Republican and Democratic Presidential candidates have gotten much more critical of aspects of globalization. This makes the elites sniff with disdain. The New York Times sees critics of large US trade deficits as supporters of protectionism.

Democrats have been most tempted by the protectionism. John Edwards likes to talk about how trade agreements like Nafta “have hurt workers and families while helping corporate insiders.” Senator Hillary Clinton has suggested that the economic theories underpinning the cause for free trade no longer hold, and has said she would review all of the United States’ trade agreements.

Even Republican candidates — normally staunch supporters of expanding trade — can sound skeptical. “I don’t want to see our food come from China, our oil come from Saudi Arabia and our manufacturing come from Europe and Asia,” complained Mike Huckabee. Mitt Romney defends globalization’s record of improving living standards, but cannot resist drawing an applause line by adding that the government should negotiate better with other countries to make sure “the American worker gets a fair shake.”

I think we need to stop going further into hock to the rest of the world. I also think that the trade agreements have created the conditions that help us go deeper into hock. But the editors of the New York Times fear that the criticisms of globalization's consequences could get translated into real policies.

It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.

Free traders are losing the argument.

The most bellicose rhetoric has come from John Edwards, the third-placed Democrat whom polls have shown surging back into contention ahead of tomorrow's Iowa caucuses. He has called for "trade without trade-offs" that puts the interests of "regular families" ahead of multinational corporations.

His message has found a receptive audience among grassroots Democrats who worry about a decline in US manufacturing jobs, wage stagnation and the perceived economic threat posed by China and India. Free trade advocates hope the protectionist rhetoric is a temporary phenomenon as candidates pander to the party base ahead of caucuses and primaries. But there is no guarantee the successful nominee will shift back to the centre before November's election because opinion polls show concern about free trade spreading beyond Democrats. A recent Wall Street Journal/NBC poll found 58 per cent of Americans think globalisation has been bad for the US, up from 42 per cent a decade ago.

Free traders should think less dogmatically and try to look for policies that will allow a substantial amount of international trade to continue while at the same time addressing some of the objections quite reasonable people make about trade deficits, environmental harm, loss of sovereignty, and other concerns.

As Phyllis Schlafly points out globalization comes with international bureaucracies that reduce national sovereignty.

"WTO" now stands for "World Trade Outrage" rather than its original name, World Trade Organization. The World Trade Organization just ruled that the Caribbean nation of Antigua and Barbuda can freely violate American copyrights and trademarks in order to punish the United States for laws prohibiting Internet gambling.

Congress passed the Unlawful Internet Gambling Enforcement Act in 2006 after finding that "Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry." The social and financial costs of gambling would be greatly increased if the United States permits Internet gambling.

The World Trade Organization ordered this punishment because it says U.S. laws interfere with free trade in "recreational services." The foreign tribunal ranks free trade as more important than the intellectual property rights Americans have enjoyed since the U.S. Constitution was written.

I don't want to be ruled by international trade tribunals. Do you? I don't want all internal policies determined by international agencies. I think people should be able to adjust their local and national governments to allow and disallow that which they locally think should be allowed or disallowed. Give people control of their local environments.

By Randall Parker 2008 January 04 11:26 PM  Politics Globalization
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Obama And Huckabee Win In Iowa

Barack Obama won the Iowa Democratic caucus with a total of 93k votes (38%) versus John Edwards 74k (30%) and Hillary Clinton with 73k votes (29%). Okay, the Democratic Party's race changed direction because of only 93k votes. Evan Thomas says that now Obama will jump to the lead in New Hampshire. The purpose of the Iowa caucuses was to create winners and losers and now Obama is the biggest winner.

Isn't it bad that a single state at the outset plays such a big role in the final choices of party nominees? On second thought, the deeper problem seems to be that even with just a single state to hold an election in we can't get better candidates to show up and campaign for months before the caucus election. We are stuck with the likes of these people.

57% of those under 30 went for Obama. He got 35% of women versus 30% for Clinton. Even John Edwards beat Hillary. What does this say? Hillary is not a likable person. Even in a caucus of fairly activist Democrats Hillary can't manage to get more than 29%.

On the Republican side Huckabee won with 34% versus Romney with 25%, Thompson at 13% and then McCain slightly lower at 13%, Ron Paul at 10%, and Rudy Giuliani at 3%. I am not surprised by this result. Lots more liberal Democrats are eager to vote for a black man than Christian Republicans will vote for a Mormon. Also, as for Giuliani I never saw how Christians would vote for a guy on his third marriage. 60% of the Republicans who came out were born again Christians and Huckabee got 45% of them.

The Christians are why Romney has dismal prospects.

In the Republican contest, born-again or evangelical Christians comprised six in 10 Republican caucus-goers, and 46 percent of them favored Huckabee. Only 19 percent favored Mitt Romney, a Mormon who has been viewed skeptically by some religious conservatives.

The Christians who vote for Huckabee demonstrate the power of identity politics. It doesn't matter that Huckabee wants a huge immigration amnesty that the overwhelming majority of the Republican base oppose. That Huckabee is one of them in religious belief trumps mere policy positions - never mind how damaging those policy positions might be for his supporters.

Can some Republican besides Huckabee make big inroads among Christian voters?

The movement's old leadership, which looked as tired and confused as the conventional wisdom suggested, splintered. Pat Robertson stunned some in the movement by endorsing Mr. Giuliani, despite his three marriages and support for abortion rights. Paul Weyrich and Bob Jones III, both leaders among Christian conservatives, endorsed Mr. Romney, a Mormon. Sen. Sam Brownback, a Christian conservative favorite, endorsed Sen. McCain after his own candidacy flamed out.

And when former Sen. Fred Thompson entered the race, much of the punditry world figured he would be the man to consolidate conservative Christian support.

But what happened in Iowa was that the foot soldiers moved out on their own, without regard to where their leaders were heading. They singled out Mr. Huckabee, and turned him from afterthought to front-runner.

I like Fred Thompson's supposed laziness. Bush is lazy in the "I'm not going to bother to understand the real world before march off on some crazy campaign" way. Fred is more of the "I'm lazy and so I won't go marching off" way. I prefer the latter in Presidents. Do less. Mess up less stuff.

By Randall Parker 2008 January 04 12:49 AM  Politics American Presidency
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2008 January 02 Wednesday
Oil Finally Hits $100 Per Barrel On NYMEX

A lot of people have gotten hot in anticipation. We aren't $100 per barrel oil virgins any more.

NEW YORK - The price of oil on Wednesday hit 100 dollars a barrel for the first time in history, providing a new jolt to oil-dependent economies, particularly the United States, dealers said.

On the New York Mercantile Exchange (Nymex) at 1720 GMT, a barrel of "light sweet crude" for February jumped 3.48 dollars to 99.46 dollars. Shortly before it had reached the exact price of 100 dollars a barrel.

In inflation-adjusted terms you will find a range of estimates between $96 and $103 for what oil in the early 1980s peaked at. So it is not clear whether we have exceeded the record price in inflation-adjusted terms. We might need another $5 increase to surpass the earlier record.

OPEC can't increase oil production in line with expected economic growth.

A new report by the Organization of Petroleum Exporting Countries indicates the group will be more hard pressed than previously thought to meet the world's surging oil needs and could fail to supply its share of global oil markets by 2037.

The report in the December issue of the OPEC Review, published by the organization's Vienna-based Secretariat, also says Kuwait is likely to be an extremely inconsistent and unstable supplier and questions Saudi Arabia's assertion it is capable of meeting world oil demand for the next 50 years.

Do the Saudis lie about their oil reserves or are they deluded?

The report's author actually has what seems to me a very optimistic outlook on OPEC oil production increases.

The author of the report, Ayoub Kazim, the executive director of Dubai Knowledge Village, a government-run education center, writes that the "more realistic" scenario assumes OPEC's average oil production will grow annually by 5 percent to meet a "drastic increase in oil demand from industrializing countries, such as China and India in the next two decades."

Under that scenario, Indonesia, Algeria and Nigeria will fail to produce their share by 2009, 2022 and 2026, respectively, forcing other countries to make up the difference.

Most OPEC members are going to fail to keep up, let alone increase, their production sooner than that.

What I most want to know about: the rate of demand destruction. There's a big delay between an increase in oil prices and a resulting demand destruction. But rising prices do eventually curtail demand. Last time this happened in the late 1970s high prices caused a decline in world oil demand from 63 million barrels per day in 1979 to 55 million per day in 1983. The decline would have been steeper had prices not declined.

On the one hand, we have lots of technologies we can use to reduce our energy demand. On the other hand, Asian economic growth is increasing the number of oil users. So while higher prices will cut some sources of demand other sources of demand are popping up every day. As incomes rise in China and India so does buying power for gasoline and diesel fuel. So I think we need higher prices to achieve the same amount of demand destruction as we saw in the early 1980s.

Oil inflation and the rush to biomass energy is fueling food inflation. The 2007 price increases of palm oil and soybean oil are almost the same as that of petroleum oil in percentage terms.

Agricultural products have been among the best-performing commodities this year. Palm oil has gained 56 percent, soybeans 75 percent and soybean oil 62 percent. Goldman Sachs raised its 12-month forecast for soybeans by 61 percent to $14.50 a bushel from $9 a bushel in a Dec. 11 report.

The choice becomes between food or fuel. Fuel seems to be winning.

By Randall Parker 2008 January 02 11:03 PM  Economics Energy
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