2010 February 28 Sunday
Santa Barbara County Crime Wave?

The Daily Sound reports the tragic details.

The spike in crime is particularly intense with murders and attempted murders, which have risen 588 percent in the last decade, according to the number such cases filed by the district attorney’s office.

“I think the numbers do really speak for themselves,” said Ann Bramsen, the county’s acting district attorney. “Nobody has to be in a position to exaggerate anything. [The numbers] just sort of are what they are and we are working vigilantly to prosecute the cases and hold the offenders accountable for the violent crimes they’re committing.”

Meanwhile the county has a $40 million budget deficit and is cutting law enforcement spending. I saw a public access channel county supervisors budget hearing and the cost per county employee has gone from below $90k in the 2004-2005 FY to almost $120k this year. They signed union deals that make total personnel costs surge. Non-union employees have got freezes and cuts. Union employees are getting raises. Of course this leads to cuts in personnel - including law enforcement personnel.

Ron Unz argues that once one adjusts for age Hispanics are not notably lawless. Okay, so then is the Santa Barbara County Hispanic gang crime wave problem atypical? Or does the county have an especially young Hispanic population? Or are criminals just attracted to the nice weather?

Update: Santa Barbara's crime rate seems stable. However, since the population is aging that probably indicates a rise in criminality for people 18-29. Since Carpinteria seems to have a third the crime rate one could always flee to the suburbs.

By Randall Parker 2010 February 28 05:16 PM  Immigration Crime
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Kenneth Rogoff On China And Greece

Kenneth Rogoff believes China's asset bubble will pop sometime in the next 10 year.

China, set to surpass Japan as the second-largest economy this year, has helped pull the world out of its deepest postwar slump. Record lending, soaring property values and accelerating economic growth prompted the government to begin retracting stimulus measures implemented during the global recession.

“Their response to the latest financial crisis clearly raised the risk that they have a debt-fueled bubble in the economy,” said Rogoff, who in 2008 predicted the failure of big American banks.

I happen to be reading and highly recommend This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff. It is about the financial bubbles over centuries and the recurring pattern of claims that the bubbles weren't really bubbles because "this time is different". Nope, just another bubble.

For rapidly growing China the collapse of an asset bubble does not mean an economic contraction. Instead of growing at 9-10% per year growth will just slow down to 2-3% for about 18 months. China's long term prospects are very bright.

A collapse would depress output gains to 2 to 3 percent, a “very painful” period which would persist for about a year and a half, Rogoff said. The slowdown won’t lead to a Japan- like “lost decade,” he added. In a speech earlier yesterday, he said China will do “very well this century.”

Now that a big financial bubble has popped with widespread damage to financial institutions Rogoff sees worse troubles for other countries in the form of sovereign defaults.

Following banking crises, “we usually see a bunch of sovereign defaults, say in a few years,” Rogoff, a former chief economist at the International Monetary Fund, said at a forum in Tokyo yesterday. “I predict we will again.”

Europe is getting all the attention in terms of sovereign default risk with the PIIGS (Portugal, Iceland, Ireland, Greece, and Spain) getting the bulk of the attention. But other Eastern European countries as well as countries in Central and South America and Asia certainly must pose some risk. I'd like to know what the top sovereign default risks are globally.

Rogoff thinks the US might face a crisis similar to Greece's within 50 years.

GHARIB: What is the scary part?

ROGOFF: The scary part is we look at what's happening in Greece and we look at what's happening in the budget of our country. We wonder, you know, if within five years we might be having similar problems tightening our belts.

I expect America's coming sovereign debt crisis will follow California's pattern. Years of political gridlock over whether to cut spending or increase taxes will escalate for a few more years. Then a huge increase in sovereign debt costs will cause an acute crisis that forces huge cuts in the US federal budget across most categories of spending. Even entitlements will cease to be sacred. At the federal level tax increases will play a larger part of the solution. But the US government is clearly overextended and cutbacks will come in military spending, old age entitlements, medical spending for the poor, and assorted pork projects.

If the US sovereign debt crisis hits around the time world oil production starts declining then the spending cuts will have to be savage in scope as each year tax revenues plunge even if tax levels are increased.

Rogoff thinks it unlikely Greece will avoid a default in the long run.

GHARIB: What do you think is the timetable? I know it's hard to gauge. What is the timetable to resolve a crisis of this magnitude? Are we talking about months or years?

ROGOFF: Years. This is a drama in many acts. Probably they'll bring in the International Monetary Fund and then have to bring them in again. This tends to take a long time to play out. There will be ups and downs, but I think it's going to be very difficult for Greece to avoid a default in the long run.

GHARIB: So explain this to people who are listening in on this conversation. Is this really a Wall Street issue or is this a Main Street problem?

ROGOFF: Oh, this is a Main Street problem. I mean, we are in a very delicate global recovery. Unemployment is still very high. We don't want the economy to get shaken up. I mean, best guess is this is worse for Europe than the United States, but you don't want your biggest trading partner stumbling just as you're in a fragile recovery.

An excellent article in the New York Times about prospects for a Greece bail-out from Euro zone countries highlights some of the politics of whether Greece will get an EU bail-out or an IMF bail-out.

Germany is reluctant to sanction any bailout knowing that, as the euro zone’s biggest economy, it will bear the brunt of the cost. But France and Germany also believe that any recourse by Greece to the International Monetary Fund would damage the prestige of the euro, highlighting its inability to sort out internal problems.

Moreover, France’s president, Nicolas Sarkozy is said to be particularly reluctant to see a rescue orchestrated by the monetary fund, which is led by Dominique Strauss-Kahn, a Frenchman and a potential rival in the next presidential elections.

The political leaders in Germany need to show Germans that the Greeks are imposing a lot of suffering on themselves in order to justify to the German public a bail-out using German money. Will the Greeks raise their retirement age to German levels? Will they do more cuts in public sector wages and more tax increases? What's within the realm of the politically possible in Greece?

By Randall Parker 2010 February 28 04:08 PM  Economics Sovereign Crises
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2010 February 21 Sunday
Household Formation Down Two Thirds

Harvard econ prof Edward L. Glaeser says it is hard to work off the surplus in housing when household formation is half the rate of new home construction.

The only way to get through the excess is if households form at a faster rate than houses are built.  We completed 800,000 units last year, and if the rate of household formation had continued at its past rate of 1.34 million new households a year, then we would have absorbed 700,000 excess homes (assuming a depreciation rate of 200,000 units a year).   But the rate of household formation was not anywhere near 1.34 million.

According to the Current Population Survey, only 400,000 new households formed from March 2008 and March 2009.   While there were about a million new families, the number of nonfamily households dropped by almost 600,000.  The number of 18- to 24-year-olds living at home increased by 300,000.

A large and growing portion of America's labor force lacks the skills needed to work as knowledge workers. Meanwhile, the number of people needed to do manual and less skilled work isn't going to grow much. Expect more downward pressure on wages of the least skilled and chronic unemployment for millions.

By Randall Parker 2010 February 21 10:02 PM  Economics Family
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High Chronic Unemployment In America

One of the worst developments in the US economy in the last couple of decades has been the growth of a chronically unemployed population. This has many causes including outsourcing, automation, and immigration.

Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

As a graphic attached to this article demonstrates the rise in long term unemployment has hit blacks especially hard. That is to be expected because low skilled (mostly illegal) Hispanic immigration has flooded the market for jobs which blacks have done historically. It is an amazing fact of American politics that a part-black President who makes a big point of wanting to help blacks favors immigration policies that severely hurt blacks in the labor market and our worthless elites do not make a peep about it.

Jobs recovery has gotten much slower after recent recessions.

During periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 percent a year, according to an analysis of Labor Department data by Lakshman Achuthan, managing director of the Economic Cycle Research Institute, a research firm. During expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

“The pace of job growth has been getting weaker in each expansion,” Mr. Achuthan said. “There is no indication that this pattern is about to change.”

As a result of slow hiring the number of months it takes for the economy to replace lost jobs after a recession has increased from 21 months to 46 months in the last recession. Given that this current recession is deeper and the economy is beset by more problems (e.g. sick banks, debt-burdened consumers, higher oil prices) the recovery from the current recession will take far longer. In fact, I think it very unlikely that a full recovery will occur before the next recession starts.

Steve Sailer points out that immigration is making the problem far worse.

For example, Ed Rubenstein has been tracking on VDARE.com for years the closest the federal government will come to measuring the impact of immigration on jobs: the ratio of Hispanic to non-Hispanic jobholders. Last Tuesday, Ed reported that Hispanic employment is up 22.4 percent since January 2001, while non-Hispanic employment is down 2.5 percent.

Steve points to a new piece by Don Peck in The Atlantic entitled How a New Jobless Era Will Transform America. In a nutshell: high male joblessness is breaking down all taboos against single motherhood (which used to be called having illegitimate babies back when it was seen as illegitimate to do so). Even the white lower class is becoming highly dysfunctional.

We could at least stop the immigration of low skilled workers. But what to do about the effects of automation? They'll become even more pronounced in the future as robotics enables even more tasks to be fully automated.

Peak Oil is coming too and that'll bring on a downturn more like the Great Depression with much higher unemployment rates. However, a larger fraction of the goods still consumed in the US during that downturn will be manufactured in the US. In his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (see chapter 5) Jeff Rubin makes the argument that bulk products with low value per unit weight (e.g. cheap furniture) will no longer get shipped across oceans once Peak Oil hits. You can also see an article he co-authored in May 2008 when he was chief economist at CIBC World Markets: Will Soaring Transport Costs Reverse Globalization? Ignore the Adobe Acrobat error and advance to page 4.

By Randall Parker 2010 February 21 08:12 PM  Economics Labor
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David Brooks On Poor Performance By Elites

Writing in the New York Times former neocon David Brooks points out that the replacement of the WASP establishment with a much more meritocratic and smarter elite doesn't appear to have made American society run better.

Yet here’s the funny thing. As we’ve made our institutions more meritocratic, their public standing has plummeted. We’ve increased the diversity and talent level of people at the top of society, yet trust in elites has never been lower.

It’s not even clear that society is better led. Fifty years ago, the financial world was dominated by well-connected blue bloods who drank at lunch and played golf in the afternoons. Now financial firms recruit from the cream of the Ivy League. In 2007, 47 percent of Harvard grads went into finance or consulting. Yet would we say that banks are performing more ably than they were a half-century ago?

Government used to be staffed by party hacks. Today, it is staffed by people from public policy schools. But does government work better than it did before?

Among the reasons he cites for the poor performance of our meritocracy: It is less inbred. There are fewer loyalties among the elites. This reminds me of Robert Putnam's research on diversity leading to lower social capital and lower trust. We are well on our way toward a lower trust society with an elite that has fewer connections and loyalties to the rest of the population.

By Randall Parker 2010 February 21 03:42 PM  Elites Betrayal And Incompetence
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2010 February 17 Wednesday
8 Airport Security Stages In Toronto Bound For US

8 stages of security checking in Toronto for US-bound flights.

To get through airport security in Toronto for a flight to the United States, you now have to go through eight different screening lines or ID checks. Most passengers either get a pat-down or have their carry-on bags unpacked on tables, with every toiletry kit and pajama pair carefully checked.

Imagine that ethnic profiling, age profiling, nationality profiling, sex profiling, and psychological profiling were all used. There's be no need for 8 stages of security checks for the vast bulk of the passengers.

Arrive 3 hours early - or just stay home?

Passengers are told to show up early for flights to the U.S.—often three hours or more, even for 90-minute flights from Canada and Mexico. And the light passenger loads have made it easier on security screeners.

Supporters of high speed passenger rail ought to repeatedly state: Security procedures in train stations are very light. No 8 levels of checking.

I wish I was wealthy like Al Gore and could travel on private jets. Al doesn't have to go thru all this security as he flies around the world telling people not to burn up fuel flying around the world.

By Randall Parker 2010 February 17 10:43 PM  Terrorists Western Response
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Secret Cities And Apple Computer Products

Apple suppliers create the equivalent of company towns to wall off their employees from people who might try to get them to leak secrets of Apple products.

Inside the walled city -- one of several compounds run by Foxconn International, a major supplier for Apple Inc -- employees are provided with most of their daily needs. There are dormitories, canteens, recreation facilities, even banks, post offices and bakeries.

The rank-and-file within the compound have little reason to venture outside. That reduces the likelihood of leaks, which in turn lessens the risk of incurring the wrath of Apple and its chief executive, Steve Jobs, whose product launches have turned into long-running, tightly controlled media spectacles.

Didn't Neal Stephenson or Bruce Sterling (or someone else?) write a novel where engineers and scientists left jobs in corporations by being extracted by military-style specialized extraction teams? Anyone remember the science fiction novel I'm thinking of?

By Randall Parker 2010 February 17 10:26 PM  Economics Labor
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Standard Tests In 8 States For Early High School Graduation

This is a step in the right direction.

Dozens of public high schools in eight states will introduce a program next year allowing 10th graders who pass a battery of tests to get a diploma two years early and immediately enroll in community college.

But really smart kids might already know enough to pass the battery of tests at the end of 8th or 9th grade. Also, taking the tests earlier would give students a measure of what they most need to study.

If a student fails at the end of 10th grade then a repeat attempt is allowed a year later.

Students who pass but aspire to attend a selective college may continue with college preparatory courses in their junior and senior years, organizers of the new effort said. Students who fail the 10th-grade tests, known as board exams, can try again at the end of their 11th and 12th grades. The tests would cover not only English and math but also subjects like science and history.

This once-a-year shot at early graduation is too long a time interval between tries. Students should be able to take trial tests online any time of the day or night all year around. That way students can track their own progress in real time. This will give them faster feedback and therefore greater incentive to try to improve their scores.

A student who fails at the end of 10th grade ought to be able to spend all summer learning and then take another official stab at early graduation before starting 11th grade. Quarterly tests would be even better.

The idea that the tests should be administered at the end of the school year is based on the assumption that kids should learn from professional teachers in bricks-and-mortar buildings. What's needed are online lectures and course material for high school subjects. Let the more motivated kids learn at any hour of the night or day 365 days of the year. Let them create their own structure for learning.

Accelerated online learning has the potential to save parents and students enormous amounts of money and to enable young people to avoid starting out their work lives burdened with heavy debts that take many years to pay off. Growing public discontent with high college costs can be addressed by automation and accelerated education.

Online learning and tests for college credit can help avoid the nightmare of big college debts. One medical doctor has loans that'll take until she's at least 70 years old to pay off.

When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.

It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency.

"Maybe half of it was my fault because I didn't look at the fine print," Dr. Bisutti says. "But this is just outrageous now."

By Randall Parker 2010 February 17 10:08 PM  Education
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2010 February 15 Monday
Krugman Wrong On Political Union For Euro Woes

Paul Krugman argues that the bigger problem with the Euro is that incompatible countries got placed into a currency union. Then he argues (incorrectly) that the currency problems can be solved with a political union that more tightly binds the nations of Europe together.

No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.

Agree about the arrogance of the policy elites. Then he goes on to portray Spain as fairly prudent before the financial crisis caused the property bubble to burst (though allowing a property bubble to run isn't prudent).

Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen. Its debts were low — 43 percent of G.D.P. in 2007, compared with 66 percent in Germany. It was running budget surpluses. And it had exemplary bank regulation.

Krugman describes the housing bubble that hit Spain so hard driven by lots of money flowing into the country. Then Spanish exports became uncompetitive as workers shifted over into housing (and likely finance as well). When the housing boom crashed so did tax revenues.

He blames Spain's milder version of Greece's sovereign debt problem on the bursting housing bubble and its aftermath.

Then the bubble burst. Spanish unemployment soared, and the budget went into deep deficit. But the flood of red ink — which was caused partly by the way the slump depressed revenues and partly by emergency spending to limit the slump’s human costs — was a result, not a cause, of Spain’s problems.

Okay, all plausible. He even says that if Spain had its own currency still it could loosen monetary policy to speed recovery. This might all be true. But where does Krugman go with this line of argument? Closer political union as the solution to the Euro problem:

Now, if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks.

But Spain isn’t an American state, and as a result it’s in deep trouble. Greece, of course, is in even deeper trouble, because the Greeks, unlike the Spaniards, actually were fiscally irresponsible. Greece, however, has a small economy, whose troubles matter mainly because they’re spilling over to much bigger economies, like Spain’s. So the inflexibility of the euro, not deficit spending, lies at the heart of the crisis.

This argument is very wrong and very ivory tower. Why would a much closer political union solve economic problems in Europe's labor market? Think about it. European people can't migrate around the continent in huge numbers on the scale that Americans do because they speak different languages and have much more distinctive national cultures. The huge US migrations into Florida, Nevada, and other recent targets of inward migration were possible because when people got out of their cars and applied to work at banks, gas stations, stores, mortgage companies, government offices, and large numbers of other businesses the people interviewing the job applicants spoke the same language.

Get down to the level at which an economy functions and we see some movement of upper managers and engineers who all can speak English together. Also, we see movement of people who can work in construction teams where foremen can be bi-lingual. But this approach doesn't scale up to an entire economy - at least not efficiently.

The single currency for both southern and northern Europe was a bad idea that is not fixable. It will continue to cause serious problems for decades to come.

I do not have a solution to offer on Europe. Pulling a few nations out of the Euro might well cause an even bigger recession. But leaving them in will set the stage for more sovereign debt crises and popular unrest.

Update: The US had a real estate bubble in Florida, Nevada, California, and Arizona. A political union didn't prevent it. We handled it differently (not clear if better) because the Federal Reserve doesn't share the attitudes of (heavily German influenced) European central bankers. We also have a much greater sense of shared nationhood because we've been a nation for over a couple hundred years. We could absorb European immigrants gradually into an existing culture. Trying to negotiate a common culture between rival nations is a far far larger job - an idea that only out-of-touch elites (hello Mr. Krugman) would entertain.

By Randall Parker 2010 February 15 09:08 PM  Europe Monetary Union
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2010 February 12 Friday
Europe Might Bail Out Greece After All

German chancellor Angela Merkel really does not want to bail out the spendthrift Greeks. But fear of a larger debt crisis that would engulf the PIGS (Portugal, Italy, Greece, Spain) and possibly some eastern European countries like Estonia or Latvia have caused Germany to reconsider. Still at the moment all we've gotten is a big joint statement saying basically that Greece needs to be helped.

George Papandreou told Le Monde that it was important that the eurozone countries acted together to address the crisis. Papandreou said he expected fellow European leaders to support his efforts to cut Greece's debt, which is expected to hit 120% of GDP this year.

Britain, though, had already ruled out contributing to any rescue. The chancellor, Alistair Darling, said there was no plan to use UK taxpayers' money to support Greece. "The other members of the euro group want to monitor and manage the situation very carefully, they may have fresh proposals to make," Darling said.

If Greece is the canary in the coal mine then we are descending the mine shaft.

"In a way, the Greek case signals that we are in a new phase of the global financial crisis where the forefront issue becomes fiscal sustain-ability rather than exiting the recession," Pier Carlos Padoan, chief economist at the OECD said in an interview with Reuters yesterday.

Based on projections from the International Monetary Fund, the average ratio of G20 government debt-to-GDP will reach 118% by 2014. The United States, the group's biggest member, will see its debt exceed 100% of GDP in two years' time. Its federal deficit already adds up to 10% of GDP.

Imagine what happens to US debt costs when 10 year Treasury bond interest rates go over 7%. The US government would need to pay the equivalent of over 7% of GDP just on interest costs. That'd run about $1 trillion per year. Welcome to the approaching era of high taxes and low levels of government services.

As the US sovereign debt grows the US government runs the risk of an acute crisis where suddenly the market dries up for new Treasury notes.

We are going to experience declining living standards due to accumulating government debt, the need to stop running trade deficits, a worsening demographic picture with an aging and dumbing down population, and Peak Oil.

By Randall Parker 2010 February 12 08:38 PM  Economics Sovereign Crises
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Middle East Surge Applied To Salinas California

Troy Senik has a piece in the City Journal which portends a sort of domestic dividend for America's wars in the Middle East. See his article: The Surge Comes to Salinas: A plan to apply counterinsurgency doctrine to gang violence.

I see many advantages to this idea. For example, it saves fuel. No need to fly soldiers half way around the world along with jet fighters, US Navy carrier groups, and bombers. A domestic counterinsurgency push would only need cars, helicopters, and occasionally a light armored vehicle for an assault on a hardened target.

Decades of crazy immigration policy have accidentally (unless this was planned) created conditions much closer to home where the US government can fight challenges to its own sovereign control rather than fighting on behalf of some Shia tribal leaders in Iraq or whatever factions we are backing in Afghanistan.

Communities beset by seemingly unbreakable cycles of violence; law enforcement overmatched to the point of essentially ceding sovereignty to an organized and heavily armed resistance; citizens so intimidated by thugs that they won’t report them to authorities, for fear of retribution. Eight years into the War on Terror, this scenario sounds familiar. But its location isn’t the Sunni Triangle in 2006 or southern Afghanistan today; it’s a farm town on California’s Central Coast.

California’s Central Coast also features a much milder climate than Iraq, Afghanistan, or Iran. Shouldn't we open our next front on terror in California rather than Persia?

Think of the training potential for US troops patrolling Salinas before shipping out to Helmand province. The transition will be a lot less jarring if Salinas serves as a sort of half-way house in reverse.

In Salinas—a predominantly Hispanic, blue-collar community best known for producing John Steinbeck—violence has spiraled out of control. With a population of under 150,000, the city’s homicide rate has rocketed to three times that of Los Angeles, largely the result of fighting between the rival Norteños and Sureños gangs. With murders at an all-time high in 2009 (29 as of late December), residents are understandably frightened. When the police go searching for answers in the aftermath of a gang killing, self-interest prevails. Citizens more confident in the gangs’ ability to retaliate than in the cops’ ability to protect them stay mum.

Finally a chance to get a domestic benefit from all the lessons learned at such a heavy price fighting in the Middle East.

Salinas’s mayor, Dennis Donohue, and his new police chief, Louis Fetherolf, want to reverse this vicious cycle. They think that they may have found a solution 7,500 miles to the east and 17 miles to the west. Those are the distances to Iraq, where General David Petraeus’s counterinsurgency strategy, generally known as “the surge,” saved a nearly failed state from implosion; and to the city of Monterey, where the Naval Postgraduate School (NPS) hosts students and faculty eager to apply the surge’s lessons to Salinas. A team of NPS volunteers is combing through the city’s law enforcement data in granular detail. Once the work is complete, they plan to recommend ways that Salinas can apply counterinsurgency strategy to its pervasive violence.

Immigration enthusiasts should be excited by this proposal. If it works then we'll have a solution to the gang violence which Hispanic immigration has brought and immigration enthusiasts will be able to point to Salinas as a reason to open our southern border to anyone who wants to cross over, confident that the US military or a heavily militarized police can handle the consequences.

By Randall Parker 2010 February 12 02:06 PM  Immigration Societal Decay
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2010 February 11 Thursday
Incentives On Doctors For Expensive Treatments

An article in the Wall Street Journal points to examples where scientific research finds more expensive treatments are no more effective but get used anyway.

The study, known as "Courage" and published in the New England Journal of Medicine in 2007, shook the world of cardiology. It found that the most common heart surgery—a $15,000 procedure that unclogs arteries using a small scaffold or stent—usually yields no additional benefit when used with a cocktail of generic drugs in patients suffering from chronic chest pain.

The article also points to examples of drugs that cost more, work less effectively than cheap generics, but get used more than cheap generics. This demonstrates the influence of pharmaceutical company marketing operations.

Stents are overused given their relative benefits.

Steven Nissen, then chairman of the American College of Cardiology, called the study a "blockbuster." Shares of leading stent maker Boston Scientific Corp. fell on the day the news broke, as many doctors and investors expected stent usage to fall off.

For a brief while, they were right. U.S. stent implants declined 13% in the month after the study's release. But as the headlines about Courage faded, stentings soon began to rise again, and are now back at peak levels of about one million a year, according to hospital surveyor Millennium Research Group.

"Most [cardiologists] haven't voluntarily incorporated the Courage criteria into their practice," says Dr. Boden. "What's going to continue to drive practice is reimbursement."

We can ill afford such waste. In the United States medical spending has now reached 17.3% of GDP.

Reporting from Washington - In a stark reminder of growing costs, the government has released a new estimate that healthcare spending grew to a record 17.3% of the U.S. economy last year, marking the largest one-year jump in its share of the economy since the government started keeping such records half a century ago.

The almost $2.5 trillion spent in 2009 was $134 billion more than the previous year, when healthcare consumed 16.2% of the gross domestic product, according to an annual report by independent actuaries at the federal Centers for Medicare and Medicaid Services, or CMS, scheduled for release Thursday.

Medical spending is projected to hit 20% of US GDP by 2020. It could hit 25% eventually. Though I expect by then the pressures to cut costs will grow too great. The US economy will probably be contracting due to Peak Oil and a US sovereign debt crisis will cause big cuts in many types of spending.

Next year the US government will pay more than half of total medical costs. The US government is on the road to a sovereign debt crisis and medical costs are one of the reasons why.

For the first time, government programs next year will account for more than half of all U.S. health-care spending, federal actuaries predict, as the weak economy sends more people into Medicaid and slows growth of private insurance.

In California one big medical insurance company just raised individual medical policy costs by as high as 39%. Astounding. People will start moving to states that have lower medical insurance costs. Anyone know a good ranking for individual medical insurance policy costs by state?

Anthem Blue Cross customers got a shock this week when the health insurer informed thousands of individual policyholders that their premium rates will jump as much as 39 percent on March 1.

I'd like to know how much of these rate increases are due to people aging into higher risk categories. The news stories on big rate hikes quote lots of people in their 50s and 60s who are also at much higher risk of getting sick.

John McClave of San Francisco opened his mail this week to learn Health Net had jacked up his monthly premium from $345 to $462 on March 1 - a nearly 34 percent increase. This was on top of an 18 percent increase he received last year.

"I do intend to shop around, but with others raising their rates at the same time I am not too optimistic," said McClave, 57, a freelance marketing and communications consultant.

The Democrats are demonizing the medical insurance companies. But when total medical costs are $2.5 trillion the $12.2 billion in profits for the top 5 insurance companies is chump change by comparison.

The report released Thursday said the five biggest insurance companies had an average profit last year of 5.2 percent — for a combined total of $12.2 billion.

Demonizing insurance companies avoids the real problems. One of the biggest problems is the total amount of medicine getting practiced and the lack of incentive to lower costs.

By Randall Parker 2010 February 11 09:53 PM  Economics Health
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Obama Lends Brazil For Offshore Oil Drilling

While the Democrats block offshore oil drilling off most US coastlines the Obama Administration is going to lend money to Petrobras to drill deep offshore.

The U.S. is going to lend billions of dollars to Brazil's state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil's Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil's planning minister confirmed that White House National Security Adviser James Jones met this month with Brazilian officials to talk about the loan.

Does this mean that Barack has become a Peak Oiler? Why would Petrobras need to borrow money from the US to develop Tupi? In a recession with 10% unemployment oil is going for $75 per barrel. Prices will go higher even if US growth does not resume as rising Asian demand hits up against flat production. US government loans for drilling make no sense to me.

By Randall Parker 2010 February 11 07:10 PM  Economics Energy
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2010 February 08 Monday
China Outbids US For Saudi Oil

Move over and make room for China in the oil market.

Jan. 28 (Bloomberg) -- Saudi Arabian Oil Co., the world’s biggest crude producer, is exporting about 1 million barrels a day to China, more than to the U.S., Chief Executive Officer Khalid al-Falih said.

“We are already exporting more to China than to the U.S.,” he said today in an interview in Davos, Switzerland. “We are prudent and careful about where to invest but our eyes are focused on China and we will continue to look for all opportunities.”

China's growing buying power means it is displacing the United States as oil buyer on the international market. The day will come when China becomes top oil importer. US oil imports will decline sharply because we won't be able to afford to buy at the prices China will be able to afford. The US runs a big trade deficit. China runs a trade surplus. The Chinese economy has been growing faster than the US economy for decades and will continue to do so (leaving aside periods of possible deep recessions in China).

US energy policy ought to be aimed at reducing our need for oil. We ought to shift to pluggable hybrids and pure electric cars for most transportation uses. We can afford to generate as much electricity as we need at prices not much higher than we are paying today. Electric power from nukes and wind can keep our cars and trains moving.

By Randall Parker 2010 February 08 09:24 AM  Economics Energy
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2010 February 07 Sunday
Obama Continues War Hawk Military Spending

Republican war hawk Obama continues the military adventure spending of his war hawk predecessor.

WASHINGTON, Feb 1 (Reuters) - U.S. President Barack Obama on Monday proposed another two years of hefty spending in Iraq and Afghanistan, seeking Congress' approval for about $160 billion this year and again in fiscal 2011 to pay war costs.

Obama's big restraint has been to cut back from fellow Republican war hawk Bush's $185 billion for 2008 and $171 billion for 2007.

If you are in the war hawk camp you can relax. Don't worry. Even a $1.6 trillion deficit doesn't provide enough pressure to make a substantial reduction in US military interventions.

The US is overextended in many ways. We have an unsustainable budget deficit, an unsustainable trade deficit, and large unfunded liabilities for old age benefits. Ultimately health care costs will rein in military spending and Peak Oil will force big cuts in health care. But the party continues for now.

By Randall Parker 2010 February 07 06:26 PM  Economics Government Costs
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2010 February 06 Saturday
Will EU Stop Bankruptcy For Greece?

If investors stop buying Greek, Portuguese, or Spanish bonds then another financial contagion panic might be in the cards.

LONDON -- Governments in Athens, Madrid and Lisbon struggled on Friday to quell fears of a looming debt crisis in Europe that is pummeling the euro and rippling across global markets, as authorities vowed to impose fiscal austerity and plug their yawning budget deficits. The problem, however, is that investors don't appear to believe them.

On the one hand the French and German governments do not want a Greek loan default and probably will intervene to prevent it. On the other hand, they are reluctant to intervene and take pressure off the Greek government to cut spending and/or increase taxes. So we get to watch a game of chicken between Greece, France. Germany, and bond investors. Who will blink first?

What, me worry? Why are the markets getting worked up when Greece should be able to avoid bankruptcy for several months yet?

Senior officials at the major rating agencies on Friday played down the risk of an immediate debt crisis, saying even nations such as Greece have enough reserves to put off for months a day of financial reckoning.

Greece shows Americans our future.

With debt piling up to 113% of the economy, investors fear Greece won't pay its debts, in the form of government bonds — or will need a lifeline from other EU countries to meet its 54 billion euro ($74 billion) borrowing needs this year.

In spite of a long distinguished history of economic mismanagement continuing to this day Italy has failed to get the markets to take its rickety finances as seriously as those of Greece and Portugal. It seems unfair somehow. What do the Italians need to do to get attention?

Economy Minister Giulio Tremonti likes to remind Italy that it has "the third highest public debt in the world without having the world's third biggest economy".

Portugal, Italy, Greece, and Spain are now referred to in some financial circles as PIGS. The PIGS financial crisis. But not all analysts see their fates as so tightly bound together. What about contagion? Goldman Sachs says Greece stands above all others in financial recklessness. Ireland, Spain, Portugal, and Italy do not warrant the same degree of attention.

Ireland has made a “solid start” to consolidating its finances, Spain’s plans are “realistic and credible,” Portugal’s 2010 budget is “a beginning,” and Italy has “stronger balance sheets,” Nielsen said.

But Nouriel Roubini thinks Spain is still a competitor in the race to cause another financial crisis.

Spain has relatively low debt, but high unemployment and weak banks, and after the bursting of the housing bubble it can no longer rely on construction and inflated asset prices to propel growth.

These aspects, together with the larger size of the Spanish economy, had led Nouriel Roubini, a professor at New York University, to suggest this week that Spain is a bigger threat to the euro zone than Greece.

Writing in the New York Times Gretchen Morgenson assures us there's no way a financial contagion will spread off-planet. Your investments in asteroid mining operations and private sector Mars penal colonies are safe.

YOU know we’re in trouble when we’re told that the economic problems in Greece, Portugal and Spain, the most indebted countries in the euro zone, are likely to remain safely contained in those nations.

After all, we heard the same nonsense in 2007 from United States financial leaders talking about the subprime mortgage mess. Both Ben S. Bernanke, the chairman of the Federal Reserve Board, and Henry M. Paulson Jr., then the Treasury secretary, rolled out to reassure concerned investors that troubles in mortgage land wouldn’t permeate the rest of the economy.

As we all now know, mortgage woes were contained — to planet Earth. And so it may be with overleveraged nations in Europe.

Morgenson makes a number of good points about the failures of US policy makers in handling mortgages. I agree with her. The US government doesn't want to own up to the scale of the needed debt liquidation.

By Randall Parker 2010 February 06 03:46 PM  Economics Sovereign Crises
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2010 February 03 Wednesday
Moody's Threatens US Government Bond Rating

Okay, I know the little boy cried wolf lots of times over the years and the wolf never came. But, hey, isn't there a later point in the story where the wolf finally shows up? The US government is yet another dubious borrower.

"Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in [President Obama's Feb. 1 budget] will at some point put pressure on the AAA-government bond rating," Moody's said in a report Tuesday.

The debt trajectory isn't sustainable.

"The debt trajectory is clearly continuously upward if further measures are not implemented," Mr. Hess said.

I do not want to live thru hyperinflation or a depression. But we seem on course for some kind of economic disaster.

For the next 10 years the US Congressional Budget Office expects 2014 to be the best year with a $475 billion deficit. CBO expects the deficit to grow worse after 2020.

For the shorter-term, the CBO sees deficits of $980 billion in FY'11, $650 billion in FY'12, $539 billion in FY'13, and $475 billion in FY'14 and $480 billion in FY'15.

Looking further forward, the CBO sees deficits of $521 billion in FY'16, $525 billion in FY'17, $542 billion in FY'18, $649 billion in FY'19, and $687 billion in FY'20.

You might think that surely the US government won't let total government debt reach 100+% of the GDP. But I would have thought 10 years ago that the current debt and deficit levels would be politically impossible. Yet here we are with Obama and Congress trying to create massive new spending on health care on top of the Medicare drug benefit that George W. Bush and Congress put into place on an already financially rickety medical program.

If your retirement planning for the 2020s or 2030s includes government funding of a large part of your retirement and almost all your health care costs then think again. Expect higher taxes even in your retirement and means testing of more benefits. Also expect higher age requirements for retirement. You will work longer and pay more taxes.

By Randall Parker 2010 February 03 10:49 PM  Economics Sovereign Crises
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2010 February 02 Tuesday
Silicon Valley Never Regained 2000 Peak

Silicon Valley peaked in 2000.

Santa Clara County and neighboring communities had 544,387 high-tech jobs in 2000. By 2004, that number had dropped more than 25 percent to 403,994. Silicon Valley bounced back over the next four years, bringing the number of high-tech jobs in 2008 to 435,958. That number, though, was still more than 19 percent below the total in 2000.

The average annual tech wage in year 2000 dollars was $120,064. That dropped 15.8 percent to $101,057 in 2004, then climbed back only slightly to $103,850 in 2008, down 13.5 percent from 2000.

The Valley has a lot of energy start-ups. But even if some of them take off I expect their photovoltaics plants and battery plants will get built elsewhere and most of the engineers for those companies will eventually work at other locations where labor costs, housing costs, and taxes are lower.

Jobs are being moved out of the Valley in order to lower costs.

Amar Mann, a regional economist for the B.L.S. who is based in San Francisco, said that in 2008 — even before the recession hit bottom — there were 108,000, or 19.9 percent, fewer high-tech jobs in the Bay Area than in 2000, when the bubble reached its peak. During that same period, inflation-adjusted average incomes fell by 13.5 percent in the Valley, while high-tech workers elsewhere in the country enjoyed a 1.3 percent gain.

In the course of his research, Mr. Mann said, he encountered a recurring theme: High-tech companies, looking to cut costs, moved out of the region. That said, he added, the outflow of companies and jobs is difficult to quantify.

The very communications technology revolution that Silicon Valley did so much to foster has enabled shipment of jobs and tasks abroad. Software developers and engineers can collaborate on the same problem across time zones. Technical support personnel do not need to be in the same location as product developers. Email, virtual private networks, and internet web sites enable information to flow outside of small geographical areas. The Valley has a harder time maintaining any sort of sustained advantage in knowledge and ability.

Given the high costs of coastal California the US needs another place with sustainably lower costs to become the entrepreneurial and venture capital center.

By Randall Parker 2010 February 02 10:00 PM  Economics Venture Capital
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