So why, if everyone out there seems to agree that the bi-partisan "stimulus package" is basically a phony one-time giveaway gimmick for the election season is there no objection to it. Why? Because the money is going to us.
It is also interesting that the op-ed writers who consistently state that cutting taxes to stimulate growth is an outdated, unsound, discredited, and naive economic theory seem to have no problem with this giveaway, which is being touted as a tax rebate, but is really going to anyone below a certain income level. If giving people money cures all economic woes, why not just cut a check to every American for $50,000?
The truth is that buying things from China does not make us richer. It may improve our lives a bit, but all this giveaway will do is send more money abroad or perhaps make one month's mortgage payment and that is about it. Then, after a month, we are all a little more in debt with nothing to show.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Tuesday, January 29, 2008
Monday, January 28, 2008
Hyperinflation on the way?
We already know that the Fed is contributing to inflation by lowering interest rates again in an effort to artificially expand credit in the market. And we know about the recently signed tax "rebate" deal. Beware of government when both parties agree to something. It usually involves spending money with no purpose.
But these superficial measures, while they will likely have a detrimental effect on the economy and inflation, are not the elephant in the room. The question is whether or not more countries will stop using the U.S. dollar and T-Bills as a safe haven for money. Now that the Euro has been established for a decade, there are indication that more countries are moving to Euro as a safe haven. But here is the prisoner's dilemma. Those countries with enormous U.S. currency reserves cannot sell them without setting off a panic that will wipe out there value before they are even sold.
The best that any of these countries can do is gradually shift their reserves to the Euro, the Pound of something else. But with Japan and China and other mercantilist nations, they apparently have no choice but to continue buying T-Bills as a store of value with the extra dollars their central banks retain in order to keep their currency value artificially low to encourage export and discourage imports. The question is what happens when the U.S. ceases to be their largest market? So long as we are their biggest trading partner, mercantilist policy dictates that they keep their currency pegged to the dollar. What happens though when Europe's buying power exceeds the U.S. as it likely will in the near future?
Will they start pegging their currency to the Euro, or is there enough momentum in enough markets to keep them from switching from the dollar any time soon. Keep in mind that the dollar is now the de facto currency in many nations and even the official currency in nations like Ecuador.
So in short, I don't know the answer. The factors are there to make hyperinflation happen, but it appears that there is still too much vested interest in the rest of the world to keep the dollar propped up. It may only take a minor event to convince the rest of the world to abandon the dollar. When that happens, our market is going to be flooded with dollars and that will be when hyperinflation occurs. In the short term, however, we can almost certainly expect inflation to get much worse.
But these superficial measures, while they will likely have a detrimental effect on the economy and inflation, are not the elephant in the room. The question is whether or not more countries will stop using the U.S. dollar and T-Bills as a safe haven for money. Now that the Euro has been established for a decade, there are indication that more countries are moving to Euro as a safe haven. But here is the prisoner's dilemma. Those countries with enormous U.S. currency reserves cannot sell them without setting off a panic that will wipe out there value before they are even sold.
The best that any of these countries can do is gradually shift their reserves to the Euro, the Pound of something else. But with Japan and China and other mercantilist nations, they apparently have no choice but to continue buying T-Bills as a store of value with the extra dollars their central banks retain in order to keep their currency value artificially low to encourage export and discourage imports. The question is what happens when the U.S. ceases to be their largest market? So long as we are their biggest trading partner, mercantilist policy dictates that they keep their currency pegged to the dollar. What happens though when Europe's buying power exceeds the U.S. as it likely will in the near future?
Will they start pegging their currency to the Euro, or is there enough momentum in enough markets to keep them from switching from the dollar any time soon. Keep in mind that the dollar is now the de facto currency in many nations and even the official currency in nations like Ecuador.
So in short, I don't know the answer. The factors are there to make hyperinflation happen, but it appears that there is still too much vested interest in the rest of the world to keep the dollar propped up. It may only take a minor event to convince the rest of the world to abandon the dollar. When that happens, our market is going to be flooded with dollars and that will be when hyperinflation occurs. In the short term, however, we can almost certainly expect inflation to get much worse.
Tuesday, January 15, 2008
Pat's Problems
Subprime Nation - Pat Buchanan
As always, the ever insightful Pat Buchanan points out the obvious problems with our nations foreign, domestic, and personal spending problems. These are problems which most Americans ignore or dismiss and problems which politicians either don't understand or don't want to mention. He doesn't offer solutions in this column, but he has already done so on numerous occasions. I tend to agree with him on foreign policy, but on domestic and economic policies, he is essentially a moralist and a populist. This puts his heart in the right place for the most part, but his policy recommendations would lead to more problems than than they would solve in our economy.
The one dilemma that comes up time and time again concerns free trade. Almost every country is guilty of some form of mercantilism. We seem to do it a lot less in this country compared to other nations though. Many free traders say that mercantilism does more harm than good to the economies that practice that policy and so we should not be upset if free trade appears to be very one-sided in nature. I believe the argument goes that in the long term, the free trade economy will always win. I'm not sure if that is the case or if that is even the argument, but it sure does appear at first glance to be a problem and potential downfall for a nation extolling the virtues of free trade if no one else is practicing it.
I believe that we have to pursue free trade however because that is the only way our economy will survive. The rest of the world will pass us by at some point if we keep competition out and markets closed. Right now, our markets are relatively open and free. The question is though whether we should join the WTO and insist that other countries abide by Free Trade, or if we can just ignore mercantilist policies with perhaps only the faith (maybe proof exists) that in the end, we will be better off with or without the WTO and trade negotiations.
As always, the ever insightful Pat Buchanan points out the obvious problems with our nations foreign, domestic, and personal spending problems. These are problems which most Americans ignore or dismiss and problems which politicians either don't understand or don't want to mention. He doesn't offer solutions in this column, but he has already done so on numerous occasions. I tend to agree with him on foreign policy, but on domestic and economic policies, he is essentially a moralist and a populist. This puts his heart in the right place for the most part, but his policy recommendations would lead to more problems than than they would solve in our economy.
The one dilemma that comes up time and time again concerns free trade. Almost every country is guilty of some form of mercantilism. We seem to do it a lot less in this country compared to other nations though. Many free traders say that mercantilism does more harm than good to the economies that practice that policy and so we should not be upset if free trade appears to be very one-sided in nature. I believe the argument goes that in the long term, the free trade economy will always win. I'm not sure if that is the case or if that is even the argument, but it sure does appear at first glance to be a problem and potential downfall for a nation extolling the virtues of free trade if no one else is practicing it.
I believe that we have to pursue free trade however because that is the only way our economy will survive. The rest of the world will pass us by at some point if we keep competition out and markets closed. Right now, our markets are relatively open and free. The question is though whether we should join the WTO and insist that other countries abide by Free Trade, or if we can just ignore mercantilist policies with perhaps only the faith (maybe proof exists) that in the end, we will be better off with or without the WTO and trade negotiations.
Wednesday, January 2, 2008
Open Space
After turning the idea around in my head some more, I believe that Open Space preservation or whatever government wants to call it, should never be done at anything higher than the municipal level. Even that strikes me as being a bit opposed to the simple morality of the free market, but at least at the municipal level those who enter such a program against their own better judgment will at least receive some benefit since they are located close to the open space. People in a developed end of the county will not, however, receive a benefit from preserving open space in another part of the county.
So, in summary:
Spending taxpayers money to preserve open space is wrong for two reasons:
1. It takes money away from people against their will for something they do not support and that is not an essential function of government.
2. It makes government a player in the market for real estate (and probably the largest at that) albeit it in a more passive role than, for example, a developer.
3. It,like all government programs, is open to abuse and bad decision making based on things other than market forces; in fact, there really isn't any criteria for determining what should be preserved.
So, in summary:
Spending taxpayers money to preserve open space is wrong for two reasons:
1. It takes money away from people against their will for something they do not support and that is not an essential function of government.
2. It makes government a player in the market for real estate (and probably the largest at that) albeit it in a more passive role than, for example, a developer.
3. It,like all government programs, is open to abuse and bad decision making based on things other than market forces; in fact, there really isn't any criteria for determining what should be preserved.
Monday, December 31, 2007
The Great Ethanol Conspiracy
Ethanol
We know that ethanol use in this country was based on the needs of national politicians, all of whom want to be president, to cater to Iowa corn farmers. This is why the nation that is supposed to be for "free trade" and NAFTA has a 54 cent tariff per gallon of much cheaper sugar-based ethanol that comes primarily from Brazil. This is also why we all use corn syrup instead of sugar even though California and Hawaii are both sugar producing states.
Here is a great conspiracy to consider though. We are told that we need to use ethanol to reduce our dependence on foreign oil and clean up the air. Here is the problem. It requires twice as much farmland to produce corn-based ethanol than sugar-based ethanol. We have already seen food prices jump recently because of the increase price of corn which was brought about, at least in part, by an increased demand for ethanol (actually an increased requirement since consumers would not buy it of their own free will). Higher prices for corn should mean that increased production will become more lucrative. This, combined with the increased demand for ethanol means that a lot more land will come into production for producing corn. Keep in mind that right now we pay corn farmers not to grow to keep prices propped up.
So now more land in the U.S. will be farmed to produce corn which in turn will need to go through a manufacturing process in order to turn it into ethanol. What will power the tractors, the delivery trucks, and the manufacturing facilities? That's right, more fossil fuels. Not only that, but it may likely take more than a gallon of fossil fuels to produce a gallon of ethanol. This means that the gasoline will be burned quicker and our fossil fuel pollution would actually go up due to ethanol. In the meantime, agricultural production, which would be better used as food than fuel, will be diverted away from food markets, resulting in higher prices for food. This will mean that more land will need to be brought into production to make up for the shortfall in demand for food - requiring more fossil fuel.
If I were an oil company, where would I want to sell more fuel? Probably the place that buys the most, the U.S. And how could I get the U.S. to increase its demand for fossil fuels, thereby driving up prices? I could come up with a scheme that requires an increased use of fossil fuels across the board. And what is seemingly the least likely way to do that which would be completely undetected or unbelieved by the public? Push the production of an alternative fuel that will actually require more fossil fuels to produce.
It sounds fun and obviously like an overboard conspiracy, but have you heard a single oil producing company complain about the U.S. push to switch to ethanol? If each gallon lost at the pump to ethanol represented two new gallons sold toward production, would you complain?
We know that ethanol use in this country was based on the needs of national politicians, all of whom want to be president, to cater to Iowa corn farmers. This is why the nation that is supposed to be for "free trade" and NAFTA has a 54 cent tariff per gallon of much cheaper sugar-based ethanol that comes primarily from Brazil. This is also why we all use corn syrup instead of sugar even though California and Hawaii are both sugar producing states.
Here is a great conspiracy to consider though. We are told that we need to use ethanol to reduce our dependence on foreign oil and clean up the air. Here is the problem. It requires twice as much farmland to produce corn-based ethanol than sugar-based ethanol. We have already seen food prices jump recently because of the increase price of corn which was brought about, at least in part, by an increased demand for ethanol (actually an increased requirement since consumers would not buy it of their own free will). Higher prices for corn should mean that increased production will become more lucrative. This, combined with the increased demand for ethanol means that a lot more land will come into production for producing corn. Keep in mind that right now we pay corn farmers not to grow to keep prices propped up.
So now more land in the U.S. will be farmed to produce corn which in turn will need to go through a manufacturing process in order to turn it into ethanol. What will power the tractors, the delivery trucks, and the manufacturing facilities? That's right, more fossil fuels. Not only that, but it may likely take more than a gallon of fossil fuels to produce a gallon of ethanol. This means that the gasoline will be burned quicker and our fossil fuel pollution would actually go up due to ethanol. In the meantime, agricultural production, which would be better used as food than fuel, will be diverted away from food markets, resulting in higher prices for food. This will mean that more land will need to be brought into production to make up for the shortfall in demand for food - requiring more fossil fuel.
If I were an oil company, where would I want to sell more fuel? Probably the place that buys the most, the U.S. And how could I get the U.S. to increase its demand for fossil fuels, thereby driving up prices? I could come up with a scheme that requires an increased use of fossil fuels across the board. And what is seemingly the least likely way to do that which would be completely undetected or unbelieved by the public? Push the production of an alternative fuel that will actually require more fossil fuels to produce.
It sounds fun and obviously like an overboard conspiracy, but have you heard a single oil producing company complain about the U.S. push to switch to ethanol? If each gallon lost at the pump to ethanol represented two new gallons sold toward production, would you complain?
Monday, November 26, 2007
Neverending L in Philly
Urban Warrior | 'I CAN'T TAKE IT MUCH LONGER'
This is an interesting article and could raise several points for discussion.
The "L" isn't named for fact that the line looks like an "L" on a subway map, but rather because it is an "elevated" rail platform for the paltry city subway. The idea behind these types of elevated railways is that they are much less expensive and much quicker to build (in theory) than actual subways such as the NYC system.
The problem here is that the city has apparently been taking forever to reconstruct the L which has apparently been in bad need of repair for years. Merchants along the L are demanding money to reimburse them for business losses generated by L reconstruction.
Given that the reconstruction has hurt these business (it seems pretty clear), what are we to make of this crisis?
One question is whether an early investment in an underground subway system in this part of the city would have paid off now by not interfering with established businesses that have grown up around the subway system. The L itself is a tremendous eyesore and my impression is that its presence actually makes the neighborhood uglier and more dangerous to drive in. Compare this with DC where nearly everything is underground and I think it is obvious that while the city may have saved a ton of money in initial construction, the economic fallout is much worse. Another thought. If an L style railway is so great, why did they only use it in the poorer neighborhoods of West Philly instead of the whole system?
Another question is whether this crisis is the result of SEPTA and the City avoiding basic maintenance and thereby making the problem much worse when if finally came time to decide to make the repairs. The answer is probably yes.
Another question is that why should the government pay to help private businesses that are hurt by this reconstruction. This is actually a moral question. Obviously the business owners have taken a hit, but is this really a government taking? They have obviously benefited from the presence of the L, although they have likely paid for it with hire rents and property taxes. The question is whether this is a place to draw a line.
This crisis does tend to show what happens when government takes over too much control of something. A corporation running the system could theoretically do the same thing, but the corporation has a much stronger motivation to get the system repaired quickly because they lose money just as much as anyone else when there is less L traffic. On this point, though, I'm not sure if L traffic has gone down or that the lost foot traffic is from local neighbors who are going to other business that aren't near the L even though they still commute using the L.
Yet another question is whether the L would have been better run by a private company. I've taken the L. It isn't horrible, but it isn't all that great either. Every few years SEPTA makes a bad decision regarding the cars they purchase and then never seem to learn form their mistakes. They tend to get dirty and the stations themselves are pretty horrendous as far as cleanliness and associated businesses go. I'm not sure if a private company could make the line profitable, but I'm sure they could do a much better job than SEPTA and the City. The repairs would have been done a long time ago as well.
Back to article.
For one thing, the customers have not likely disappeared. Since it is appears that a reduction in pedestrian traffic is what has cost these businesses, chances are the customers have started going to other establishments. This means, of course, that when the L is back up and running, those businesses will suffer from a loss of customers. Does the city need to compensate them? I'm sure we'll be reading articles along those lines some time.
An irony here, of course, is that the City is now shelling out more money as direct welfare payments to hurt businesses just to keep them afloat because of its decision to save money by constructing an L instead of an underground subway, by not performing timely maintenance, and by being its usual corrupt, inefficient self when it comes to spending money on public works.
We all know that Philly is a bottomless pit for state and federal funding and that any money that gets spent there usually winds up in the hands of everyone except the people it is intended to help, but this is a fairly egregious case of the city ineptness. L construction should have been done years ago. It's continued problems are a beacon for how poorly run the City is.
This is an interesting article and could raise several points for discussion.
The "L" isn't named for fact that the line looks like an "L" on a subway map, but rather because it is an "elevated" rail platform for the paltry city subway. The idea behind these types of elevated railways is that they are much less expensive and much quicker to build (in theory) than actual subways such as the NYC system.
The problem here is that the city has apparently been taking forever to reconstruct the L which has apparently been in bad need of repair for years. Merchants along the L are demanding money to reimburse them for business losses generated by L reconstruction.
Given that the reconstruction has hurt these business (it seems pretty clear), what are we to make of this crisis?
One question is whether an early investment in an underground subway system in this part of the city would have paid off now by not interfering with established businesses that have grown up around the subway system. The L itself is a tremendous eyesore and my impression is that its presence actually makes the neighborhood uglier and more dangerous to drive in. Compare this with DC where nearly everything is underground and I think it is obvious that while the city may have saved a ton of money in initial construction, the economic fallout is much worse. Another thought. If an L style railway is so great, why did they only use it in the poorer neighborhoods of West Philly instead of the whole system?
Another question is whether this crisis is the result of SEPTA and the City avoiding basic maintenance and thereby making the problem much worse when if finally came time to decide to make the repairs. The answer is probably yes.
Another question is that why should the government pay to help private businesses that are hurt by this reconstruction. This is actually a moral question. Obviously the business owners have taken a hit, but is this really a government taking? They have obviously benefited from the presence of the L, although they have likely paid for it with hire rents and property taxes. The question is whether this is a place to draw a line.
This crisis does tend to show what happens when government takes over too much control of something. A corporation running the system could theoretically do the same thing, but the corporation has a much stronger motivation to get the system repaired quickly because they lose money just as much as anyone else when there is less L traffic. On this point, though, I'm not sure if L traffic has gone down or that the lost foot traffic is from local neighbors who are going to other business that aren't near the L even though they still commute using the L.
Yet another question is whether the L would have been better run by a private company. I've taken the L. It isn't horrible, but it isn't all that great either. Every few years SEPTA makes a bad decision regarding the cars they purchase and then never seem to learn form their mistakes. They tend to get dirty and the stations themselves are pretty horrendous as far as cleanliness and associated businesses go. I'm not sure if a private company could make the line profitable, but I'm sure they could do a much better job than SEPTA and the City. The repairs would have been done a long time ago as well.
Back to article.
For one thing, the customers have not likely disappeared. Since it is appears that a reduction in pedestrian traffic is what has cost these businesses, chances are the customers have started going to other establishments. This means, of course, that when the L is back up and running, those businesses will suffer from a loss of customers. Does the city need to compensate them? I'm sure we'll be reading articles along those lines some time.
An irony here, of course, is that the City is now shelling out more money as direct welfare payments to hurt businesses just to keep them afloat because of its decision to save money by constructing an L instead of an underground subway, by not performing timely maintenance, and by being its usual corrupt, inefficient self when it comes to spending money on public works.
We all know that Philly is a bottomless pit for state and federal funding and that any money that gets spent there usually winds up in the hands of everyone except the people it is intended to help, but this is a fairly egregious case of the city ineptness. L construction should have been done years ago. It's continued problems are a beacon for how poorly run the City is.
Tuesday, November 20, 2007
Clueless Casey
Casey says Pa. facing urgent business challenges
Often, politicians decry things that they know they cannot change.
Often, politicians support legislation that they know will never pass for the sake of looking like they are doing something.
Often, politicians pass legislation that appears to do something, but in actuality accomplishes nothing.
Sometimes, politicians start speaking about complex issues that they do not understand and make it very clear that they are utterly unqualified for their positions. Witness the statements of Bob Casey in this article.
I have always thought the man sounded rather slow-witted, but I figured that was just his style. His old man seemed to be pretty sharp, but I was perhaps a little less critical of politicians back in the day. I am now convinced that Casey is a full-fledged incompetent at being a U.S. Senator. Sure he won the race for the Senate and is likely in their for years, but he is unfortunately a complete lightweight.
A U.S. Senator who has completely failed to understand the basics of U.S. monetary policy and the consequences of what he is saying is just an absolute embarrassment to the state and the country. Fortunately his rhetorical style is slightly less enthusiastic than a Ben Stein's professor character, so he will likely be ignored by everyone including the sleeping members of the audience.
I'll save the analysis for tomorrow.
Often, politicians decry things that they know they cannot change.
Often, politicians support legislation that they know will never pass for the sake of looking like they are doing something.
Often, politicians pass legislation that appears to do something, but in actuality accomplishes nothing.
Sometimes, politicians start speaking about complex issues that they do not understand and make it very clear that they are utterly unqualified for their positions. Witness the statements of Bob Casey in this article.
I have always thought the man sounded rather slow-witted, but I figured that was just his style. His old man seemed to be pretty sharp, but I was perhaps a little less critical of politicians back in the day. I am now convinced that Casey is a full-fledged incompetent at being a U.S. Senator. Sure he won the race for the Senate and is likely in their for years, but he is unfortunately a complete lightweight.
A U.S. Senator who has completely failed to understand the basics of U.S. monetary policy and the consequences of what he is saying is just an absolute embarrassment to the state and the country. Fortunately his rhetorical style is slightly less enthusiastic than a Ben Stein's professor character, so he will likely be ignored by everyone including the sleeping members of the audience.
I'll save the analysis for tomorrow.
Thursday, October 4, 2007
Phony Giuliani
GIULIANI HANGS UP ON PHONIES
My mind is pretty much set against Giuliani as being anything other than an opportunist politician. I believe that he handled the 9/11 crisis well from a political perspective (as opposed to say Nagin and the governor of New Orleans in their political handling of Katrina). But as far as what he did in actual work on the ground as mayor, historians will have to sort that out since I've heard both positive and negative. A friend also reminded me that he was basically despised prior to 9/11 although I think Dinkins and Koch were not all that popular at times either. New Yorkers, after all, love to complain even more than the average American.
Here is my favorite quote from the brief article:
"If I had chased all of these frivolous issues, I never would have turned around the deficit in New York City. I never would have reduced crime . . . welfare . . . and I wouldn't have been able to handle Sept. 11," he said.
Besides his usually schtick of riding the corpses of the victims of 9/11, he is doing something that every politician who was fortunate enough to serve in the 90s has done - taken credit for something they had nothing to do with. I stand by my theory that every politician in the US got a free ride in the 90s because of the economy doing so well. Is it just coincidence that the national, state, and local governments all ran surpluses in the 90s? Did we suddenly elect perfect and brilliant leaders who knew how to make things happen? No. They all got lucky because for whatever reason (to be explored later) the US economy boomed in the 90s. Philadelphia eliminated its deficit, Pennsylvania eliminated its deficit, New York City eliminated its deficit, the national government eliminated its deficit, every local school district ran a surplus in the region except a handful. County government didn't need to raise taxes in the 90s.
Now Rendell is in the governor's mansion and we are running a huge deficit. Where is his magic? The batch of politicians from the 90s have all moved up the ladder but the magic seems to be gone. Why? Because they all got lucky. None of them will ever admit this publicly because the public will believe them when they say that they turned around the governments they lead. The truth is that spending, as always, kept increasing, but that tax revenue increased faster than they could spend it. Now that the economy has gone back to its normal pace, we are back to deficits.
As for Giuliani reducing crime and welfare, these are just as much results of an improving economy as turning around deficits and he knows it. But we will eat up anything we hear if it is said with a smile. Giuliani is not by far the only one guilty of this lie, but he is certainly one of the most prominent liars right now.
I'm now convinced that basic practical economics should be a part of every high school curriculum just so students can learn a little bit more about the way the real world works. By that I mean an explanation of government spending, revenue, the consequences of FIAT money, the role of Federal Reserve, and the use of the Dollar as a currency peg for other currencies. That is just as if not more important that basic civics lessons about how government is supposed to work. Especially in the day and age when most "legislation" is actually passed in the form of an executive order. Who cares about the details of the legislative process? The more important thing is what factors influence how the government makes its decisions and passes laws.
My mind is pretty much set against Giuliani as being anything other than an opportunist politician. I believe that he handled the 9/11 crisis well from a political perspective (as opposed to say Nagin and the governor of New Orleans in their political handling of Katrina). But as far as what he did in actual work on the ground as mayor, historians will have to sort that out since I've heard both positive and negative. A friend also reminded me that he was basically despised prior to 9/11 although I think Dinkins and Koch were not all that popular at times either. New Yorkers, after all, love to complain even more than the average American.
Here is my favorite quote from the brief article:
"If I had chased all of these frivolous issues, I never would have turned around the deficit in New York City. I never would have reduced crime . . . welfare . . . and I wouldn't have been able to handle Sept. 11," he said.
Besides his usually schtick of riding the corpses of the victims of 9/11, he is doing something that every politician who was fortunate enough to serve in the 90s has done - taken credit for something they had nothing to do with. I stand by my theory that every politician in the US got a free ride in the 90s because of the economy doing so well. Is it just coincidence that the national, state, and local governments all ran surpluses in the 90s? Did we suddenly elect perfect and brilliant leaders who knew how to make things happen? No. They all got lucky because for whatever reason (to be explored later) the US economy boomed in the 90s. Philadelphia eliminated its deficit, Pennsylvania eliminated its deficit, New York City eliminated its deficit, the national government eliminated its deficit, every local school district ran a surplus in the region except a handful. County government didn't need to raise taxes in the 90s.
Now Rendell is in the governor's mansion and we are running a huge deficit. Where is his magic? The batch of politicians from the 90s have all moved up the ladder but the magic seems to be gone. Why? Because they all got lucky. None of them will ever admit this publicly because the public will believe them when they say that they turned around the governments they lead. The truth is that spending, as always, kept increasing, but that tax revenue increased faster than they could spend it. Now that the economy has gone back to its normal pace, we are back to deficits.
As for Giuliani reducing crime and welfare, these are just as much results of an improving economy as turning around deficits and he knows it. But we will eat up anything we hear if it is said with a smile. Giuliani is not by far the only one guilty of this lie, but he is certainly one of the most prominent liars right now.
I'm now convinced that basic practical economics should be a part of every high school curriculum just so students can learn a little bit more about the way the real world works. By that I mean an explanation of government spending, revenue, the consequences of FIAT money, the role of Federal Reserve, and the use of the Dollar as a currency peg for other currencies. That is just as if not more important that basic civics lessons about how government is supposed to work. Especially in the day and age when most "legislation" is actually passed in the form of an executive order. Who cares about the details of the legislative process? The more important thing is what factors influence how the government makes its decisions and passes laws.
Thursday, September 13, 2007
Cospicuous Consumption or Capital Investment?
Dubai Tower Now World's Tallest Building
Eventually the oil will run out in the Middle East. Not any time real soon, of course, but almost certainly in the next 50 years. It will likely start declining in the next 30 years, maybe sooner, but as someone who has heard and read such predictions of a sudden shortage occurring in 10 years for roughly the last 30 years, I don't want to make to rash a prediction.
Here is the question though regarding the recent construction of the world's tallest building. There is something called "Dutch Disease" by economists, somewhat unfairly against the Dutch, but it applies primarily to countries that have large natural resource reserves. What appears to happen in these countries is that because so much wealth initially flows from natural resources, the economy develops around exportation of those resources at the expense of manufacturing or other productive industries. The resulting economy is therefore built on a foundation that will ultimately one day collapse through the disappearance of a limited resource.
The problem can witness right now in countries like Iran where, ironically, gasoline is relatively expensive, because so much of the refining of their oil is actually done outside of the country. Other oil wealthy countries seem to suffer the same problem of a lack of other industries because everything is focused on the oil. A roughly similar problem happened historically with Spain. It was noticed that Spain was a wealthy country that was buying up and importing from other countries in Europe and the world beyond, but that this was based primarily on the wealth being taken from Latin America, primarily in the form of gold and silver. Because of this Spain's economy moved to one dependent solely on that supply of money (which was not even produced from other capital such as farming or manufacturing). When the supply of money eventually ran out, Spain's economy collapsed because their natural resource in the form of gold and silver dried up.
The question with Dubai is this: is this building (and the other development in Dubai) really adding to the assets and capital of the country or is just conspicuous consumption. The question is who is going to be occupying those offices and apartments. If they are all solely connected to the oil wealth, than this will be an empty shell in about 50 years. If, on the other hand, Dubai hopes to become a Honk Kong or Singapore (which it can undoubtedly do with the leverage it has now) then we may see a wealthy Arab country looking toward its future.
The problem now with most if not all of these wealthy Arab countries is that they use their money to buy consumer goods and luxury housing for themselves. They do not actually produce anything but oil. This has made the owners of the oil and those closely connected to the owners wealthy, but it has resulted in a country where cheap labor has to be imported from other countries and where there are very few modern jobs in other sectors of the economy.
I realize I don't have any facts to back this up, but when is the last time you saw or heard of anything for sale manufactured in Saudi Arabia? Why are there no major stock exchanges or financial international companies in the Arab World? We all know about Arab sheiks who own luxury real estate in this country and who gamble in Monte Carlo and Vegas, but even what they own eventually will depreciate. Even real estate can become a drain on finances if it is a white elephant not generating any rental income.
I have referred to this type of conspicuous consumption in the oil-rich states as "Elvis Syndrome" because they, like Elvis, suffered from the problem of getting too much wealth too quickly with relatively little effort. Those who don't work hard enough for their money tend to spend it on extravagances that border on the tasteless and gaudy. Gold-plated everything, diamond studded dog collars, etc. Things that scream, look at me, I'm rich! The problem is that most of these items are almost worthless as soon as they are created because they could never be resold at for the same value at which they were purchased.
The question is whether building the world's tallest building is just the cherry on top of a serious investment in Dubai's future or a multi-stories Graceland without the musical heritage.
Eventually the oil will run out in the Middle East. Not any time real soon, of course, but almost certainly in the next 50 years. It will likely start declining in the next 30 years, maybe sooner, but as someone who has heard and read such predictions of a sudden shortage occurring in 10 years for roughly the last 30 years, I don't want to make to rash a prediction.
Here is the question though regarding the recent construction of the world's tallest building. There is something called "Dutch Disease" by economists, somewhat unfairly against the Dutch, but it applies primarily to countries that have large natural resource reserves. What appears to happen in these countries is that because so much wealth initially flows from natural resources, the economy develops around exportation of those resources at the expense of manufacturing or other productive industries. The resulting economy is therefore built on a foundation that will ultimately one day collapse through the disappearance of a limited resource.
The problem can witness right now in countries like Iran where, ironically, gasoline is relatively expensive, because so much of the refining of their oil is actually done outside of the country. Other oil wealthy countries seem to suffer the same problem of a lack of other industries because everything is focused on the oil. A roughly similar problem happened historically with Spain. It was noticed that Spain was a wealthy country that was buying up and importing from other countries in Europe and the world beyond, but that this was based primarily on the wealth being taken from Latin America, primarily in the form of gold and silver. Because of this Spain's economy moved to one dependent solely on that supply of money (which was not even produced from other capital such as farming or manufacturing). When the supply of money eventually ran out, Spain's economy collapsed because their natural resource in the form of gold and silver dried up.
The question with Dubai is this: is this building (and the other development in Dubai) really adding to the assets and capital of the country or is just conspicuous consumption. The question is who is going to be occupying those offices and apartments. If they are all solely connected to the oil wealth, than this will be an empty shell in about 50 years. If, on the other hand, Dubai hopes to become a Honk Kong or Singapore (which it can undoubtedly do with the leverage it has now) then we may see a wealthy Arab country looking toward its future.
The problem now with most if not all of these wealthy Arab countries is that they use their money to buy consumer goods and luxury housing for themselves. They do not actually produce anything but oil. This has made the owners of the oil and those closely connected to the owners wealthy, but it has resulted in a country where cheap labor has to be imported from other countries and where there are very few modern jobs in other sectors of the economy.
I realize I don't have any facts to back this up, but when is the last time you saw or heard of anything for sale manufactured in Saudi Arabia? Why are there no major stock exchanges or financial international companies in the Arab World? We all know about Arab sheiks who own luxury real estate in this country and who gamble in Monte Carlo and Vegas, but even what they own eventually will depreciate. Even real estate can become a drain on finances if it is a white elephant not generating any rental income.
I have referred to this type of conspicuous consumption in the oil-rich states as "Elvis Syndrome" because they, like Elvis, suffered from the problem of getting too much wealth too quickly with relatively little effort. Those who don't work hard enough for their money tend to spend it on extravagances that border on the tasteless and gaudy. Gold-plated everything, diamond studded dog collars, etc. Things that scream, look at me, I'm rich! The problem is that most of these items are almost worthless as soon as they are created because they could never be resold at for the same value at which they were purchased.
The question is whether building the world's tallest building is just the cherry on top of a serious investment in Dubai's future or a multi-stories Graceland without the musical heritage.
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