2011 April 30 Saturday
Denmark Saves Money With Strict Immigration Rules

Here's a way to help close budget deficits in Western countries:

Denmark's strict immigration laws have saved the country 6.7 billion euros, a government report has claimed. Even though Denmark already has some of the toughest immigration laws in Europe, right-wing populist politicians are now trying to make them even more restrictive.

The financial crises of Western countries will last for decades. The Left's stranglehold on irresponsible immigration policies must be broken because we can no longer afford them.

More savings are possible. Can't we have some of these savings in America? The Obama Administration and Congress ought to adopt an immigration crack-down as a way to help close the US budget deficit.

Denmark's strict immigration laws have saved the country billions in benefits, a government report has claimed. The Integration Ministry report has now led to calls among right-wing populists to clamp down further on immigrants to increase the savings.

We can even use a smart analysis on which immigrants from which countries are most likely to collect welfare to target our cost-cutting measures as precisely and efficiently as possible. We can also cut the number of single parent households. Massive deportation of the least skilled non-citizens could help bring about this end.

By Randall Parker 2011 April 30 07:19 PM  Immigration Costs Welfare
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Marriage And Prenuptial Agreements

Guys, if you feel compelled to get married against my better judgment then check out PrenuptialAgreements.org.

I came across that site in an LA Times article entitled Six situations in which you may need a prenup.

Vastly disparate income: Earning more or less than your spouse generally isn't an issue while you're married, because there's a presumption that both people share and share alike. But in the event of a split, a prenuptial agreement can set a limit — either a minimum or a maximum — on the amount the higher-wage earner pays or the lower-wage earner would get. One caveat is that state court judges have been known to toss out prenuptial agreements that appear patently unfair to the lower-wage earner, particularly in long-term marriages, according to PrenuptialAgreements.org. You can write an agreement that says "no alimony under any circumstances," but enforcing it could be another issue.

Even if you sign a prenup today that is compatible with court rulings in your state that does not mean the prenup will still be respected by courts 5, 10, 20 years from now. So there's a risk with prenups no matter what you put in them. Conventional business contracts are much less risky.

By Randall Parker 2011 April 30 07:09 PM  Economics Family
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Debt Ceiling Hold-Outs As Monetary Terrorists

Mark Steyn picks up on a recent comment by former US Treasury Secretary Paul O'Neill on jihadists against a larger national debt.

Anyway, Secretary O’Neill popped up the other day on Bloomberg Television to compare debt-ceiling holdouts to jihadists. “The people who are threatening not to pass the debt ceiling,” he said, “are our version of al-Qaeda terrorists. Really.”

Really?

Absolutely.

“They’re really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk.”

Mark makes some mostly obvious observations like pointing that running a huge (and unsustainable) budget deficit (now about 10% of GDP) already puts American national credit at risk. He also points out at the whole purpose of a credit limit in the first place is to increase credibility with creditors. Well, that credibility only exists as long as there's a real ultimate ceiling for how big the debt can be allowed to grow. So trying to act like there's a real debt ceiling adds up to terrorism how exactly?

I expect Congress will eventually do debt ceiling increase that their spendthrift ways (fully supported by most of the electorate) made necessary. That some Congresscritters at least use the occasion of a vote on the debt ceiling to draw attention to our national folly strikes me as helpful though not sufficient and certainly not terrorism.

This reminds me of something else I just read about monetary terrorism. When Bernard von NotHaus was recently convicted in a US District Court in Statesville North Caroline for making a Liberty Dollar from silver as an inflation-safe alternative to the real dollars (and did anyone buying the Liberty Dollar think they were buying real US currency?) US Attorney Anne Tompkins accused him of domestic terrorism for undermining the US dollar.

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Anne Tompkins said. “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.”

When counterfeiters just print money they are expanding the money supply the expense of everyone else. The Federal Reserve, in its Quantitative Easing programs, has basically generated cash out of thin air. First the Fed bought up dubious credit from banks. Now it has graduated to buying up US Treasury debt, again with money the Fed generates out of thin air. Like counterfeiters. Really, The Fed is doing something qualitatively different how exactly? The monopolist says "but on me it looks good".

By Randall Parker 2011 April 30 06:31 PM  Economics Government Debt
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Pockets Of High Unemployment

While looking for news stories about the latest changes in US national unemployment rate I came across a grim story about unemployment rates in some California counties.

In Lake County, unemployment was at 19.5 percent in March, up from 19.2 percent in February and up from the 19 percent recorded in March 2010, the state reported.

...

Lake County's most recent unemployment rate earned it a statewide rank of 49 out of 58 counties, the same as its February rank.

So 10 other counties in California have unemployment rates higher than 19.5%. How would you like to find yourself living in such a county? This brings to mind Victor Davis Hanson's essay about two Californias. Colusa County's unemployment rate is 26.7%.

Lake's neighboring counties registered the following unemployment rates and statewide ranks: Colusa, 26.7 percent, No. 58; Glenn, 18.6 percent, No. 46; Yolo, 14.8 percent, No. 33; Mendocino, 12.5 percent, No. 22; Napa, 10.3 percent, No. 9; and Sonoma, 10.4 percent, No. 11.

Within-county high points of unemployment go even higher with the Clearlake Oaks area of Lake County Califora at 28.5%

In Lake County, Clearlake Oaks was the area with highest unemployment, 28.5 percent, followed by Nice, 27.8 percent; the city of Clearlake, 27.4 percent; Lucerne, 20.5 percent;

So what about the rest of the United States? How bad does it get? A county-level table of unemployment for all the US from the US Bureau of Labor Local Area Unemployment Statistics (LAUS) has some pretty high unemployment numbers. For the national high Mackinac County Michigan was at 29.0% in February 2011 and 28.2% in March. Here's a graphical view by county:

twmcort.gif

That picture is a view into our future when Peak Oil causes such high oil prices that the US economy slips into a depression.

By Randall Parker 2011 April 30 05:50 PM  Economics Labor
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2011 April 25 Monday
Obama Blocks Arctic Oil Drilling

As the price of oil approaches levels guaranteed to bring on a recession the Obama Administration has decided to block approval of drilling for oil in the Arctic Ocean.

Shell Oil Company has announced it must scrap efforts to drill for oil this summer in the Arctic Ocean off the northern coast of Alaska. The decision comes following a ruling by the EPA’s Environmental Appeals Board to withhold critical air permits. The move has angered some in Congress and triggered a flurry of legislation aimed at stripping the EPA of its oil drilling oversight.

Shell has spent five years and nearly $4 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas. The leases alone cost $2.2 billion.

This decision won't affect Peak Oil Recession #2 (coming soon), or #3, or even #4 or #5. Exploration and creation of oil production infrastructure will takes years. Even if the the Obama administration didn't use air quality permits as a convenient excuse (the drilling site is 70 miles from closest human village of Kaktovik) we probably can't expect a substantial amount of oil from Arctic offshore for 10 years. Well, in 2021, definitely after world oil production peaks, exports from oil-producing nations will go down so much that oil from Alaska will be worth far more than it is today and it will make a big difference in our (lower) living standards.

Obama's opposition to Arctic oil development will only delay the inevitable. Once the price of oil goes above $150 per barrel and stays there the public will swing much more strongly in favor of oil drilling. This delay might even turn out to benefit us if we still haven't developed much better substitutes for oil by 2030.

By Randall Parker 2011 April 25 11:03 PM  Economics Energy
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Finding Your Lost Money

Lou Pagnucco sent me a link to an article showing examples of loss of freedom in America as we become the Land of the Regulated. Some of the examples are infuriating. One link led to an article article about aggressive "lost" property seizures by states. In an era where people are extremely easy to find via Facebook, LinkedIn, and assorted sites on the internet that know amazing amounts of of stuff about most of us the state governments are declaring money lost from inactive accounts and spending it themselves. But that article has one useful bit of information at the end:

If you want to search for unclaimed property in your name, you do not need to pay other people to do it for you. Check out the following links for more information:

National Association of Unclaimed Property Administrators

www.missingmoney.com

So you might want to check out whether you have some money sitting in an unclaimed property account.

By Randall Parker 2011 April 25 09:39 PM  Useful Your Money
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2011 April 24 Sunday
China Economy To Surpass America In 2016?

The International Monetary Fund projects that in Purchasing Power Parity terms China will surpass the United States in 2016.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

Put that in your calendar.

I mourn the passing of the country I was born into. So much has been lost and so much more will be lost. We live at the end of an era in more ways than one. As Brett Arends points out, the change has come very rapidly.

Just 10 years ago, the U.S. economy was three times the size of China’s.

Whether this happens so soon depends in part on whether the Chinese can soft-land their enormous real estate bubble. Jim Chanos is skeptical and other observers think China's growth rate can't be sustained. But the US isn't going to grow very either.

In 2009 China surpassed the US as the world's top energy consumer. It did this using coal, which accounts for % of their total energy production. This makes China much less vulnerable to high oil prices.

The IMF is also projecting world economic growth of about 4.5% per year over the next 5 years. As Stuart Staniford explains at that link, that's so not going to happen. That level of economic growth would require world oil production to grow at 3% per year. Yet oil production is about where it was in 2005 and International Energy Agency chief economist Fatih Birol says the age of cheap oil is over. Only recession can lower energy prices. The economies of the world are becoming increasingly constrained by resource limitations. US economic growth has slowed to only 1.8% due to high energy and commodity prices. This is the new resource-limited normal.

So what's the net effect of resource limits on the relative standing of the US and China? The Chinese have one thing going for them: Oil makes up a much smaller percentage of their total energy usage than is the case with the US. So the Chinese economy is less dependent on oil. China's heavy reliance on coal makes Peak Oil much less a problem for China than it is for America.

Coal makes up 71 percent of China's total primary energy consumption, and China is both the largest consumer and producer of coal in the world.

China's 18+ million per year car production (and growing) is making the Chinese more vulnerable to oil price shocks. But China's economy is still not structured around oil unlike America. For this and other reasons I expect China to continue to catch up and eventually surpass the US as an economic power.

By Randall Parker 2011 April 24 07:42 PM  China Economy
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Syria Destabilization And Saudi Oil Production

While Hillary Clinton refrains from calling for the ouster of Syrian President Bashar al-Assad the US government is clearly working to support opponents to the Syrian regime. Will this strategy lead to another recession?

The State Department has secretly financed Syrian political opposition groups and related projects, including a satellite TV channel that beams anti-government programming into the country, according to previously undisclosed diplomatic cables.

The recent revolutions in northern Africa and the US support for the rebels in Libya have encouraged anti-government protests in Yemen, Syria, Bahrain, Morocco, and even Saudi Arabia. Since American promotion of democracy leads to outcomes that provide examples of successful regime change this policy is an existential threat to the Saudi royal government. The Princes in Saudi Arabia have got to be wondering whether the Obama Administration will turn its regime destabilization machine toward them or will a substantial number of Saudi citizens decide to copy the Egyptian, Tunisian, and Libyan examples even without further US prodding?

What can the Saudis do about it? They are not without cards to play. Notably, (as suggested by Greg Cochran) the Saudi decision to cut oil production could be tied to a (quite understandable) desire on their part to see regime change in Washington DC rather than in Riyadh. The party in power always loses in a recession. A US recession therefore could help protect the Saudi royal family's hold on power.

Can will the Saudi princes survive in power long enough to drive Obama from office? Depends on how big an oil weapon they can wield. The connection between oil prices and recessions seems strong, especially when you view it from the perspective of percentage changes in oil prices as compared to a preceding period. Robert Rapier believes a double dip recession is a best case scenario with a "Long Recession" as a more likely future.

So double dip or long recession? Richard Batty of Standard Life Investments says a 100% increase in oil prices in a year is needed to cause a recession and so we will only hit an economic downturn above $150 per barrel. Not sure if that is true. The economic recovery so far has been very weak. So the amount of decrease in economic activity needed to put the US economy back into recession is not large.

Before you rush to criticize the Saudi strategy (which also provides them with more money in the short term to buy off a restive population) consider what would happen to the US and world economy if the Saudi government was overthrown. The price of oil would skyrocket. $200 a barrel is within the realm of what might happen with oil prices as Saudi oil fields shut down as they have in Libya. The result would be economic depression as unemployment would soar far above a starting level that is already 8.8% (with a large shadow group of unemployed who have given up job searching). An overthrow of the Saudi royal family runs the high risk of putting you, your family, friends, and neighbors out of jobs and out of the homes you all live in.

By Randall Parker 2011 April 24 07:34 PM  Economics Energy
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2011 April 19 Tuesday
Student Loans The New Debt Peonage

Student load debts have surpassed credit debts in the United States.

Student loan debt outpaced credit card debt for the first time last year and is likely to top a trillion dollars this year as more students go to college and a growing share borrow money to do so.

“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, including federal and private loans.

This sets up a whole generation of students for debt servitude. Student loan debt is very hard to discharge in bankruptcy.

Gradually, bankruptcy law changed. In 1998, Congress ruled that federal student loans were not allowed to be discharged except under the undue hardship provision. In 2005, private loans, which can carry terms up to 25 years, came under the same regulations.

With the new debt peonage college graduates are bound in servitude to spend many years paying off their college debts. The law makes escape from that debt very difficult. Kids growing up are taught a myth about how education will put them on the road to wealth. This primes them to accept the debt peonage.

Mish Shedlock says Obama wants to kid some kids a debt servitude deal working for the government as a way to pay oft their debts. My advice: avoid college debts in the first place and then you won't have to become a debt servant.

Obama's solution is for kids to graduate from school deep in debt work 10 years in public service to get out of debt. At the end of 10 years, whatever education the kids got in school would be useless.

The solution involves slashing education labor costs by delivering video feeds (live or recorded) of college lectures and standardized tests cheaply purchasable. Automated online education is key to avoiding debt peonage.

By Randall Parker 2011 April 19 10:59 PM  Education Costs
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2011 April 17 Sunday
Saudis Cut Oil Production To Reduce Oversupply

We have too much $105 per barrel oil? (funny, I know) What to do? Cut supply. Make a virtue out of a necessity. Saudi Arabia’s Oil Minister Ali al- Naimi demonstrates his keen sense of wit.

“Our production in February was 9,125,100 barrels a day,” al-Naimi said, as he arrived in Kuwait for a conference. “In March, it was 8,292,100 barrels. It will probably go a little higher in April. The reason I mention these numbers is to show you the market is oversupplied.”

The US economy is at risk of falling back into a recession due to rapidly rising oil prices draining off so much consumer cash. Why isn't the claimed swing supplier (hint, it sits on a big peninsula next to a gulf) boosting oil production to prevent Peak Oil Recession #2? Recall that less than 2 months ago Saudi Arabia was dropping strong hints it would compensate for lost Libyan oil production by exporting more oil. Yet as Stuart Staniford points out, Saudi Arabia did not make up for lost Libyan oil and now the Saudis admit they actually cut production in March. Give that rapidly rising Saudi internal consumption is leaving less oil for exports and Saudi oil exports peaked in 2005 we can not expect Saudi Arabia to provide relief for high oil prices.

Robert Rapier actually sees a double dip recession as the optimistic scenario. He expects what he calls a Long Recession where the economy stagnates for several year. I think it is going to be more like the Long Depression. My advice: Lower your living standard before the lowering becomes unavoidable. Adjust to less oil before circumstances force that adjustment. If you make changes on your own schedule the changing will be much easier to do. Prepare for what's to come. The warning lights are flashing brighter. Change jobs, change dwellings, change your lifestyle before you have to.

By Randall Parker 2011 April 17 04:47 PM  Economics Energy
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2011 April 15 Friday
Peter Thiel: The Faith-Based Education Bubble

PayPal co-founder Peter Thiel says the big remaining bubble is over-priced and over-revered education.

Instead, for Thiel, the bubble that has taken the place of housing is the higher education bubble. “A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

The education bubble is built upon the (still very strongly embraced) Blank Slate fantasy of human nature. The faith or elites profess in this fantasy represents a combination of many myth into one big super-myth. The Horatio Alger self-made man myth is one of the foundations for the super-myth. The idea that with a sort of will-to-power we can make ourselves into anything fits well with the idea that given sufficient training anyone can do anything, that the possibilities for achievement are limitless.

The faith in education is also built upon a modern version of a belief in natural human equality of ability and ambition. Whereas in a previous era our equality was seen as a result of our all having souls and all having equal standing in the eyes of god today belief in god is out of favor. So the equality myth needs a new foundation. Today our equal standing is seen by secular believers in equality as the product of the environment. Educational institutions have sold this modification of one of America's founding myths because this newer myth so serves the interests of colleges and universities. They can keep raising their prices, building new buildings, and raising their salaries. What's not to like?

This bubble, like all bubbles will come to an end. Thiel thinks college graduates, going back to live with parents while saddled with debts (that can't be dumped in bankruptcy court - college debt is like serfdom), are sending a message to society at large that the myth is exaggerated. Thiel is offering money to a small group of talented people to drop out of college and start businesses. I appreciate the symbolism. But people are still going to want to get skills. Also, Thiel's recruitment of only the very best for his scheme still leaves what he's promoting as an elite phenomenon. The biggest problem isn't elite kids going to Ivy Leagues (though that is a lot of money wasted). No, the biggest problem comes from all the kids of less than top ability trying to copy the smartest by going to very expensive colleges for 4 years to learn skills that do not do enough (or anything in most cases) to raise their productivity.

While rapidly rising college tuition prices are well known it still amazes me to find that the cost of higher education in the United States has doubled since the year 2000. Only energy has gone up faster. The energy cost problem looks pretty hard to solve. By contrast the education bubble can be popped with sufficient political will to shift toward an educational system that replaces most labor in schools with automation.

Cut out most of the labor costs using online delivery of cheap pre-recorded lectures on basic subjects, online tests to check your skills, proctored tests for certified knowledge on specific topics. Break up schooling into many pieces where lectures, course material, tutorials, and tests are all available for purchase separately. Use computer automation to greatly reduce the labor needed to deliver courses. Labor is the biggest cost in education. So automate most of what humans now do. The result will be higher quality and lower costs.

By Randall Parker 2011 April 15 09:55 PM  Education Incentives
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Peter Thiel: The Faith-Based Education Bubble

PayPal co-founder Peter Thiel says the big remaining bubble is over-priced and over-revered education.

Instead, for Thiel, the bubble that has taken the place of housing is the higher education bubble. “A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

The education bubble is built upon the (still very strongly embraced) Blank Slate fantasy of human nature. The faith or elites profess in this fantasy represents a combination of many myth into one big super-myth. The Horatio Alger self-made man myth is one of the foundations for the super-myth. The idea that with a sort of will-to-power we can make ourselves into anything fits well with the idea that given sufficient training anyone can do anything, that the possibilities for achievement are limitless.

The faith in education is also built upon a modern version of a belief in natural human equality of ability and ambition. Whereas in a previous era our equality was seen as a result of our all having souls and all having equal standing in the eyes of god today belief in god is out of favor. So the equality myth needs a new foundation. Today our equal standing is seen by secular believers in equality as the product of the environment. Educational institutions have sold this modification of one of America's founding myths because this newer myth so serves the interests of colleges and universities. They can keep raising their prices, building new buildings, and raising their salaries. What's not to like?

This bubble, like all bubbles will come to an end. Thiel thinks college graduates, going back to live with parents while saddled with debts (that can't be dumped in bankruptcy court - college debt is like serfdom), are sending a message to society at large that the myth is exaggerated. Thiel is offering money to a small group of talented people to drop out of college and start businesses. I appreciate the symbolism. But people are still going to want to get skills. Also, Thiel's recruitment of only the very best for his scheme still leaves what he's promoting as an elite phenomenon. The biggest problem isn't elite kids going to Ivy Leagues (though that is a lot of money wasted). No, the biggest problem comes from all the kids of less than top ability trying to copy the smartest by going to very expensive colleges for 4 years to learn skills that do not do enough (or anything in most cases) to raise their productivity.

While rapidly rising college tuition prices are well known it still amazes me to find that the cost of higher education in the United States has doubled since the year 2000. Only energy has gone up faster. The energy cost problem looks pretty hard to solve. By contrast the education bubble can be popped with sufficient political will to shift toward an educational system that replaces most labor in schools with automation.

Cut out most of the labor costs using online delivery of cheap pre-recorded lectures on basic subjects, online tests to check your skills, proctored tests for certified knowledge on specific topics. Break up schooling into many pieces where lectures, course material, tutorials, and tests are all available for purchase separately. Use computer automation to greatly reduce the labor needed to deliver courses. Labor is the biggest cost in education. So automate most of what humans now do. The result will be higher quality and lower costs.

By Randall Parker 2011 April 15 09:55 PM  Education Incentives
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2011 April 14 Thursday
China Winning On Cyber-Espionage

China? Winning. America? Losing. Check out this Reuters article. China is doing a better job of stealing American secrets than vice versa. But how could it be otherwise? The US has far more secrets worth stealing. Plus, China's lacking the sort of moral code that would tend to discourage massive theft of intellectual property.

Though it is difficult to ascertain the true extent of America's own capabilities and activities in this arena, a series of secret diplomatic cables as well as interviews with experts suggest that when it comes to cyber-espionage, China has leaped ahead of the United States.

According to U.S. investigators, China has stolen terabytes of sensitive data -- from usernames and passwords for State Department computers to designs for multi-billion dollar weapons systems.

The American people are really behind the curve in grasping how much China's industrial development combined with super cheap communication changes the nature of the game. China and the United States compete for the same natural resources. That natural resource competition is a zero sum game. Plus, the rapid diffusion of practical knowledge is reducing the return on investment from intellectual creations and therefore lowering living standards in the developed countries.

The Chinese military's systematic efforts to steal secrets just makes a bad (for the West) situation worse. Also, Western corporate efforts to utilize cheap mind workers in China, India, and other countries speeds up the knowledge flow. In the short term this boosts corporate profits. But in the long term corporations are training their future competitors.

Update: The Chinese have $3 trillion in foreign reserves.

By Randall Parker 2011 April 14 11:06 PM  China Mercantilism
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2011 April 13 Wednesday
Trump: Why Spend Our Money To Protect Others?

It would be great to have a President who would ask "what's in it for us" before charging around globe spending blood and money on causes. But would Donald Trump really govern that way if elected?

He singled out the recent trade pact with South Korea, signed after a military showdown with communist-ruled North Korea, saying it was a "joke" with insufficient benefits for the United States.

"We go over there, we protect them, we protect them with our ships ... Did anyone pay us for this? No! So, what is happening is mind-boggling."

Imagine the election of a populist with a strong focus on the national collective interest (as distinct from the interests of assorted ethnic groups, investment bankers, or assorted idealists). If someone actually tried to govern based on a rational calculation of national interest the press and elites would attack such a President mercilessly. He's be labeled racists for not wanting to bomb African or Middle Eastern countries. He'd be labeled a threat to the economy if he demanded no more currency manipulation by major trading partners.

America's foreign policy of the last couple of decades amounts to living beyond our means and without a rational calculation of the national interest.With a budget deficit on the order of 10% of GDP we can't afford an irrational and expensive foreign policy. If Trump would make serious steps in the direction of demanding clear net benefits to our Defense and State budgets (with large cuts due to their excesses) and foreign aid spending I'd vote for him.

By Randall Parker 2011 April 13 10:24 PM  Foreign Policy Net Benefits
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France And Britain Too Weak To Overthrow Gaddafi?

Check out this Reuters article on how Gaddafi can't be overthrown without A-10 Warthogs and C-130 gunships.

(Reuters) - U.S. re-engagement in combat operations in Libya could help break a stalemate between rebels and Libyan leader Muammar Gaddafi forces, but Washington appears reluctant to step back fully into an already messy conflict.

Only the US has the air power needed to precisely hit at Gaddafi's troops, who are moving around in civilian vehicles that are hard to identify as transporting soldiers. My guess is the Western allies need to wait for Gaddafi's men to get out and start shooting and then hit them precisely in small groups. Much harder to do, especially without some of their own troops on the ground to call in more precise air strikes.

Of course, the French could send in their Foreign Legion like they did against Libya in Chad in the 1980s (and note the former Foreign Legion guys discussing their fighting in Chad then). If France was willing to commit fighters on the scale of the 1600 Foreign Legion troops it sent into Libya in 1986 then they could take down Khadafy's regime. Plus, they could get a pretty good movie made about it.

Obama really needs for the Libya war to end in a favorable manner. He wants to get reelected and a war that drags on would hurt his prospects. So is he going to send in CIA trainers or maybe funnel money to some other country to hire some really professional mercenaries? Or will he continue to try to distance the US from the war by claiming it is a NATO operation - as if the US isn't the most powerful and influential member of NATO? Maybe. After all, Americans aren't clear on the details of US alliances and he's not above conducting a paper-thin deceit with the help of liberal press supporters to conduct smoke screen operations for his benefit.

The bizarreness of the Libya war: The US, France, and Britain want regime overthrow. Why? Not clear. But they do. Yet the US isn't even willing to use full air power and all of them won't use soldiers on the ground. Why? Why not just get it over with fast? I hate pussy half measures.

By Randall Parker 2011 April 13 07:55 PM  MidEast Insurgencies
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Chump Change And Budget Cuts

In so many ways America's best years are behind it. Granted, technology is still advancing and so we'll get neater gadgets in the future. But demographically and financially the nation's headed down. Another sign of this: The recent budget deal. Before the recent budget deal between Obama and Congressional Republicans Boston U econ prof Laurence Kotlikoff pointed out the stakes they are fighting over are so small compared to the problem that it is hard to take the differences seriously.

The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot.

Kotlikoff was close but a bit optimistic: the final deal cuts US federal spending by $38 billion. We'll go over the fiscal ledge about 5 minutes later.

But wait, Philip Rucker of the Washington Post reports that some of that $38 billion in cuts are just accounting gimmicks. Note the use of "worst-sounding" about social program cuts. Worst-sounding to who?

But some of the worst-sounding trims are not quite what they seem, and officials said they would not necessarily result in lost jobs or service cutbacks. In several cases, what look like large reductions are actually accounting gimmicks.

The imaginary $4.9 billion cut:

The legislation includes $4.9 billion from the Justice Department’s Crime Victims Fund, for instance, but that money is in a reserve fund that wasn’t going to be spent this year. Crime victims would receive no less money than they did before the deal.

You might ask: Is the US government headed for a fiscal disaster? Yes. Are we going implement the severe cuts needed to avoid it? Nope. Not gonna happen. Remember that run-away train in one of the Back To The Future movies that went plunging into a canyon? That's America's future. You'll need some sort of floating boogie board to get off in time before it takes the plunge.

By Randall Parker 2011 April 13 06:36 PM  Economics Squanderville Thriftville
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Chump Change And Budget Cuts

In so many ways America's best years are behind it. Granted, technology is still advancing and so we'll get neater gadgets in the future. But demographically and financially the nation's headed down. Another sign of this: The recent budget deal. Before the recent budget deal between Obama and Congressional Republicans Boston U econ prof Laurence Kotlikoff pointed out the stakes they are fighting over are so small compared to the problem that it is hard to take the differences seriously.

The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot.

Kotlikoff was close but a bit optimistic: the final deal cuts US federal spending by $38 billion. We'll go over the fiscal ledge about 5 minutes later.

But wait, Philip Rucker of the Washington Post reports that some of that $38 billion in cuts are just accounting gimmicks. Note the use of "worst-sounding" about social program cuts. Worst-sounding to who?

But some of the worst-sounding trims are not quite what they seem, and officials said they would not necessarily result in lost jobs or service cutbacks. In several cases, what look like large reductions are actually accounting gimmicks.

The imaginary $4.9 billion cut:

The legislation includes $4.9 billion from the Justice Department’s Crime Victims Fund, for instance, but that money is in a reserve fund that wasn’t going to be spent this year. Crime victims would receive no less money than they did before the deal.

You might ask: Is the US government headed for a fiscal disaster? Yes. Are we going implement the severe cuts needed to avoid it? Nope. Not gonna happen. Remember that run-away train in one of the Back To The Future movies that went plunging into a canyon? That's America's future. You'll need some sort of floating boogie board to get off in time before it takes the plunge.

By Randall Parker 2011 April 13 06:36 PM  Economics Squanderville Thriftville
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2011 April 10 Sunday
Food And Energy Inflation Hits Poor Hardest

Economist Mark Thoma draws attention to a Cleveland Fed study on household income and food and energy expenditures by income quintile.

Households in the top 20 percent of the income distribution spend 11.6 percent of total expenditures on food and energy, which adds up to 7.9 percent of disposable income. For the bottom 20 percent these shares rise to 20.4 percent of expenditures and a whopping 44.1 percent of after-tax income!

The poor obviously are hit much harder by food and and oil price rises. This result illustrates a more general point: We do not all experience the same rate of inflation. People with chronic illnesses experience a much higher inflation rate due to the higher rate of inflation for medical services and drugs. People who live in an apartment in a moderate climate and who walk to work experience much less energy price inflation than the average.

But you might be wondering how people could have much higher expenditures than they have after-tax income. Several reasons:

For those astutely wondering why food and energy expenditures are a larger fraction of total expenditures than of total income for the bottom 20 percent, there is a much higher fraction of households in this quintile which may be using savings and credit markets to consume above their annual income. Likely categories are the unemployed, business owners with temporary losses, students living on loans, and retirees drawing down their nest eggs.

I'd like to see the same analysis for working age people who are not in school. In particular, how do the chronically poor people spend their money? Since the incomes of median working age males have already been trending downward for decades the food and energy price inflation have got to be hitting them very hard.

It strikes me that the people who we refer to as the "middle class" are not really the people in the middle. In America the popular image of the middle class are home owners who fairly comfortable. They work hard and have decent living standards. But it is hard to look at the median working age males income trend and conclude that the median is still the "middle class" as we come to understand it. Demographic trends with growing fractions of economically lower performing black and Hispanic populations will only only widen the gap between the "middle class" and the median.

By Randall Parker 2011 April 10 10:49 AM  Economics Living Standards
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2011 April 09 Saturday
Yet Another Financial Crisis In 2011?

For some years now I've been predicting economic conditions for the US and other industrialized countries will be somewhere between bad and worse for the 2010s. Developments of recent months unfortunately provide plenty of evidence for my expectation. Simon Derrick of BoNY Mellon sees lots of storm clouds building on the horizon.

2011 is beginning to look very like 2008 before the collapse of Lehman Brothers—except the numbers involved are much bigger this time around, according to Simon Derrick, the chief currency strategist at Bank of New York Mellon.

In Derrick's view the eurozone debt crisis, China's currency manipulations, and the oil price spike all work against continued economic growth.

Well-known currency strategist Simon Derrick is concerned that the global recession of 2007-2009 could come back with a vengeance. Analyzing where ‘real money’ comes and goes on a daily basis at the Bank of New York Mellon, Derrick fears that the eurozone debt crisis, crude oil above $100 a barrel and China’s managed currency spell doom for the global economy

Oil in April 2011 is at similar prices as oil in April 2008. In 2008 the US and world economy was already heading into a recession. Now the US economy and other Western economies are slowly (by historical standards for economic recoveries) coming out of a recession. Why? One really big reason: the global economy is now so big that global economic growth pushes up commodities prices. Economic growth bumps up against resource limitations.

Donald Luskin argues the economy can absorb even higher prices before falling back into recession. I hope so. I hope the economy can absorb enough of an oil price increase that Peak Oil Recession #2 does not start until 2012 or 2013. But 2013 seems an excessively optimistic hope given commodities prices. Also on the optimistic side: the housing price-to-rent ratio is much less out of whack than it was in 2006. So we do not still have a large housing bubble to pop.

If we go into another recession in the next 12 months (or even the following 12 months) we will go into it from a lower weaker starting point in several respects. Unemployment is still quite high, governments at all levels are having hard times balancing their budgets (at least those trying to balance their budgets), total public debt has soared, and the percentage of mortgages that are underwater (for more than the house's value) is still quite high. Living standards have declined. For example, 5 years since the 2006 peak US rail freight traffic still hasn't revisited 2006 highs and yet the US population has grown by almost 5% in the last 5 years. So in per capita terms freight traffic (and therefore living standards) has dropped.

Frankly, I do not see how we avoid a premature recession. For every month the global economy can sustain growth the demand for oil will grow faster than supply. There's no supply-side relief for high oil prices in sight. Rising oil prices are already cutting into personal consumption spending. So GDP growth has slowed. Will consumers shift their behavior toward lower energy usage lifestyles fast enough to take enough pressure off of further oil price rises? We should be so lucky.

Richard Heinberg makes the same point I keep making about our perilous economic state: we no longer have the capacity to respond to another recession like we responded to the last one. Peak Oil Recession 1 was (and still is) a very expensive affair.

During the past three years, the Fed’s balance sheet has swollen to more than $2 trillion through its buying of bank and government debt. Actual expenditures included $29 billion for the Bear Sterns bailout; $149.7 billion to buy debt from Fannie Mae and Freddie Mac; $775.6 billion to buy mortgage-backed securities, also from Fannie and Freddie; and $109.5 billion to buy hard-to-sell assets (including (MBSs) from banks. However, the Fed committed itself to trillions more in insuring banks against losses, loaning to money market funds, and loaning to banks to purchase commercial paper. Altogether, these outlays and commitments totaled a minimum of $6.4 trillion.
 
Documents released by the Fed on December 1, 2010 showed that more than $9 trillion in total had been supplied to Wall Street firms, commercial banks, foreign banks, and corporations, with Citigroup, Morgan Stanley, and Merrill Lynch borrowing sums that cumulatively totaled over $6 trillion. The collateral for these loans was undisclosed but widely thought to be stocks, CDSs, CDOs, and other securities of dubious value.

We can't afford to do the financial and fiscal injections in Peak Oil Recession 2 that we need for Peak Oil Recession 1. Once Peak Oil Recession 3 hits our response to Peak Oil Recession 1 will seem luxurious and wasteful.

The stimulus-bailout efforts of 2008-2009—which in the U.S. cut interest rates from 5 percent to zero, spent up the budget deficit to 10 percent of GDP, and guaranteed $6.4 trillion to shore up the financial system—arguably cannot be repeated.

Future rounds of Quantitative Easing (QE3, QE4, QE5) can certainly be repeated. It is just the cost of those rounds will be high inflation. One of the biggest questions about the next 10 years is which governments will try to combat Peak Oil recessions with monetary inflation? I want to know because I want to get my finances and my person out of harm's way.

Update: To predict when rising oil prices will cause the next recession watch energy expenditures as a percentage of consumer spending. In February it was at 5.98%. If energy costs go up another 17% from February then the percentage would go over 7% and I think we'd be in recession territory. That does not mean a 17% rise in oil prices will put us into recession. Consumers use electric power and natural gas. Gasoline and heating oil are just part of the equation.

Update II: Pedro Noronha, a fund manager at Noster Capital in London, says the economy is more like at the 2007 stage rather than already at 2008 stage. That sounds right. The stock market is fully or over valued. Oil prices still have a way to go up yet.

By Randall Parker 2011 April 09 06:26 PM  Economics Business Cycle
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2011 April 07 Thursday
Gasoline Prices Biggest Threat To Obama Reelection

An article in the LA Times reports that the White House has figured out their biggest economic threat comes from energy prices. Gotta agree with them on that. Obama wants us to believe he has a solution to higher gasoline prices. If he really believes this he's seriously dreaming.

Reporting from Fairless Hills, Pa.— For much of President Obama's term, White House aides were convinced the main barrier to his reelection was the worrisome unemployment rate. But even as the economy bounces back, a new political obstacle has emerged: rising gas prices.

Trying to defuse the issue, the White House has arranged a slew of speeches and public events to reassure Americans that Obama has a plan for cutting gas prices.

He might have a plan. But he does not have a solution to high oil prices. Between now and the election in November 2012 the only thing that'll pull down gasoline prices is another economic recession. Peak Oil is near. Economic growth can not be sustained.

Obama's problem is that not only do high gasoline prices lower living standards but they also help cause recessions. If oil prices go up far enough before the presidential election then the resulting recession will cause the party in power of the White House to lose. Obama's biggest reelection enemy is therefore an oil price spike.

The key practical question: how high do oil prices have to go to cause the next recession? A faltering economy is going to be the enemy of every US president running for reelection from now until about 2030. With total US federal debt nearing the 90% of GDP level at which Kenneth Rogoff and Carmen Reinhart think economic growth the accumulating national debt is another weight on economic growth that undermines the party in power. So second terms are going to become the exception.

Update: Jeff Rubin says Only recessions can deliver Obama's energy targets. This gets to the heart of the matter. Only high prices will provide incentives to get people to change their lifestyles to use less energy. If we are very lucky the prices will go up slowly enough and gradually enough that we do not have to go thru repeated recessions to cut our oil consumption fast enough.

But people only very reluctantly change their ways. In spite of the oil price rise that peaked in July 2008 people went back to buying bigger cars after oil prices plummeted in the recession. People will adjust to Peak Oil too slowly until they realize the high prices are permanent. I suspect we are still a few years away from mainstream realism on oil supplies.

By Randall Parker 2011 April 07 06:57 PM  Economics Political
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2011 April 03 Sunday
Wal-Mart: Serious Inflation Coming To United States

Wondering when the big US Federal Reserve bond buying sprees would cause consumer price inflation? Or are you more like me and wondering when the meat price increases and clothing price increases you have seen will get reflected in mainstream media discourse? Wal-Mart's US CEO has an unhappy message to deliver: You are going to get poorer.

Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."

Inflation is already going up faster than earnings. Hard to sustain an economic recovery unless oil prices stop rising.

Average hourly earnings in March were flat compared to the previous month for the second time in a row. On an annual basis, income increased by just 1.7 percent.

Meanwhile, consumer price index data released two weeks from now could show a jump in prices of as much as 2.6 percent year-over-year, according to an estimate from the Bank of Tokyo-Mitsubishi UFJ.

Energy prices are eating up wage increases and then some. So consumer spending can not power an economic recovery. There's a substantial risk of falling back into a recession.

Mark Zandi, an economist for Moody's Economy.com, just met with some consumer products company executives and found they are all getting ready to jack up prices. By June the surges in producer prices, driven by commodity price spikes, will filter thru to the retail level. You have been warned.

"They were all on the verge of jacking up their prices," he said. Price increases are not always seen as bad though. When companies have pricing power, it often means there is some traction in the economy, but it's a fine balance.

So if you were thinking about buying something this summer you might want to buy it now - at least if you think you can count on your job still being there. Which leads me to a quantitative blog I just came across. Cheryl Russell of Demo Memo finds a decline over the last decade in the percentage who think it "not likely" they will lose their job in the next 12 months.

2010: 52%
2008: 59%
2006: 64%
2004: 64%
2002: 63%
2000: 71%

This ties in with why wages are not keeping up with inflation. With a huge world supply of labor capital has the upper hand in wage negotiations.

"Companies are in the dominant bargaining position," said Paul Ashworth, chief U.S. economist at Capital Economics, a consultancy. "They don't have the added problem of paying more for their wages as well."

But even if capital did not have the upper hand Peak Oil is going to cause a big decline in living standards.

The inflation rate in South Korea is almost identical to the inflation rate in the United States in 1971 when Richard Nixon imposed wage and price controls.

In March, the consumer price index rose 4.7% from a year earlier, accelerating from the preceding month's 4.5% rise, according to data from Statistics Korea.

Europeans have greater trust in the Euro central bank's dedication to control inflation than Americans have. Will the European Central Bank keep inflation down even at the lost of losing some Euro zone members? In spite of that faith Euro zone inflation is now well above the under 2% target of the European Central Bank. Also, in the most recent 3 months inflation has been galloping along at 5% due to energy prices.

Annual euro-zone inflation rose to 2.6% in March from 2.4% the previous month, European Union statistics agency Eurostat said, surprising many economists who had expected no change from February.

Euro zone interest rates are going to go up. The Fed has a choice to either follow or let inflation get out of hand. In the next recession caused by an oil spike we are going to into it in much worse shape than we went into the last recession. Governments will be too poor to use fiscal stimulus. It'll be all they can do just to pay unemployment benefits while cutting old age benefits. Will they raise taxes in a recession or slash welfare state spending? Will policy makers opt for inflation to unload some of their debts?

By Randall Parker 2011 April 03 02:03 PM  Economics Business Cycle
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