Saturday, November 24, 2012

Politicians Take Note

                                            Arizona Rangers and Tucson Police

 Economic Dilemma Brought on by Changing Conditions 

Prior economic analyses of economic systems may have posited a less dense population and cheap real estate and unlimited raw materials.  Manifest Destiny is the epitome of this idea which is now expressed in the 'forever growth' economic system posited today.  Real Estate is a finite quantity but growth proponents would increase the birthrate.  A smaller and smaller piece of real estate per person is the mathematical progression of that system.  Does this growth policy guarantee that real estate will forever increase in price?

Officials have mentioned that perhaps metals and other finite substances are reaching a time when no more is available and societies must compete for control of the reserves.  Metals are the new currency and a new source of metals would bring riches, much like historical Spain looting the Americas.  Exploration of the solar system is now possible and private enterprise is cooperating with the government to develop technology.  

I propose that present conditions are unique in the history of the world and that prior economic musings did not include the circumstances of the present.  I tend to look at things from a free market point of view because that is my cultural history.  We need a new understanding of the economy.     Dogma of the past will no longer suffice

Economic issues sometimes come with assumptions so built in they seem like reality.  Four of these assumptions will be discussed here:

      One huge assumption concerns rising prices for housing, which is touted to be good because people can then tap the quick equity in the home and blow the money and maybe lose the home later because they cannot pay the two payments, particularly if an ARM kicks in.   Bubble think with a narrow segment of the business community benefitting while others pay inflated prices.  Why would stable housing prices and mortgages be such a disaster?
       Debt is not always ok.  Moneylenders are soliciting borrowing from government entities and the foolish politicians and petty bureaucrats are so enamored of their own power, they borrow on behalf of the taxpayers.  Huge sums of taxpayer money is diverted to moneylenders just so these people can spend huge sums immediately instead of waiting for the funding stream to accumulate.  I estimate a loss of one third on tax streams that are 'bonded'.  How is that good business?  Incremental accomplishment on projects based on actual revenue would favor small contractors over the huge construction companies who now lobby for quick projects based on governmental debt.  Debt has become a policy. 
       Union demands are not sustainable in some cases.  Short term thinking controlled long term contracts, which resulted in agreements guaranteed to bankrupt the business, particularly if there is an economic downturn.  Union power to make unsustainable agreements helps nobody in the end because the source of the money to pay the benefits dries up, jobs are lost and retirees are stricken.  Contracts need language that allows for adjustments that protect the business in downturns while being fair to workers.   
      Politicians can incur huge public debt without a vote.  Debt is now magically called a 'Certificate of Participation' and bureaucrats and politicians can easily access huge sums that will have debt service decades after they are long gone.  Perhaps politicians should only be able to only incur debt for the term of their election and no more.  Large projects can have continuum planning for new administrations, possibly delegated by a public vote.      

Economic adaptations are required to survive in the present due to these new conditions.  In the past a microcosm of what is happening can be deduced through the study of the rise and fall of cultures.  Population pressure has been impetus for many a conqueror and immigration on a grand scale. 

As the conjunction of 2012 heralds the ending of one baktun, a mathematical observation replicable in visible space a change is predicted.  The previous baktun 394.26 years encompassed the glory of the Americas and the ascendency of man to the beginning of the space age.  The next baktun must continue the exploration of our visible universe and the Earth population must be stabilized at a size compatible with usable resources while preserving quality of life and employment.  If War burgeons, a descent into barbarism will be deserved and will occur.  We must plan for the future, not just let it happen to us. 

As the new Baktun approaches in December 2012 there are choices to be made.  September 2012 has brought to the world an outbreak of anger and the possibility of war on so many fronts the world would be devastated if they all occurred. 

Rioting Muslims blame the USA for the ugly production by a Coptic Christian Egyptian immigrant criminal who abuses our trust in freedom of speech.  He yelled 'FIRE' in a crowded theater and people have been trampled to death.  I think he should be deported to his native Egypt.  We don't need criminals like that here.  Netanyahu and Ahminjad are trading threats again.  Riots bloom in Lisbon over austerity measures 'needed' to address debt payments.  Marches against austerity in Paris.  China and Japan disputing islands.  Hassles all over the world amid rising food prices again.

It is time to choose our future course.

The cause of many of these disputes are historical of long time standing.  The insistence of Muslims that everyone abide by their code of conduct does not have the fresh breath of freedom.  Are they so insecure in their beliefs that they cannot weather criticism or even ridicule?  Are they afraid that an alternative world view will have credence?  If their beliefs are so strong then no alternative opinion would be noticed as a credible threat.  Instead, every possible infraction of their own code of conduct by outsiders, is responded to as if it were a mortal wound.  Muslims should have so much strength of belief that they are steadfast, no matter what is said.  They cannot control the world.  Nothing will allow Muslims to control the world and force all populations to say what they decree.  I would hope the peoples of the world are free of such barbarism.  That is the meaning of freedom of speech is that you will hear what you do not like but you must respect the right for it to be said above all else, lest you lose your freedom of speech also.

Controlling responses to ridicule and cultural differences is necessary in a civilized society that respects freedom of speech.  So if somebody makes a video you disagree with, make your own answering video.  Ridicule the religion of the maker, if you must.  That is how conflict is resolved.   I don't want the world to flame out over such intolerance and avarice fueled disagreements.

The shallowness of 'leaders' never fails to amaze.  QE will now be extended in an attempt to return the economy to bubble betting on real estate, which is falling flat due to actual lending standards in place, the paucity of jobs and a wariness on the part of investors.  Tech is the new moneymaker but our leaders cannot cut back on union construction worker demands.  Construction can no longer rule the economy.  The retreading of construction workers should be encouraged through the use of cut rate tuition.  The excess of workers in the construction industry must be recognized.    

Encouraging the trading of equities before any new businesses  upon which equities are based are created is even more bubble talk.  I think Dr. Bernanke is making a mistake in that he does not know that the economic succession must begin with the creation of a usable object, the trade or sale of the object, the investing profits back into the business to improve it, and the paying of an affordable wage for workers.  That is the process by which real equities in businesses that produce jobs are created.  No other way will suffice.  Anything else is bubble talk.  Think Apple!

In today's economy, the production of a very real I Phone is producing jobs.  The trading of derivatives produces no tangible object and produces no jobs but creates huge income for a few while tying up money.  Gambling with cards is essentially non-productive but money is exchanged.   In today's economy innovation of a new object will create jobs, not gambling.  I think the mortgage backed securities should be banned, along with all the derivatives.  At least give them status in Vegas, where that kind of betting is encouraged. 

As for the government, why not fund innovation?  I remember the fifties, when the Russians orbited above us and suddenly the schools went all scientific and government backed research and development because of the cold war and the threat of attack from outer space.  We were the first to the moon and the space program created many jobs over decades.  I like the current meld of government and private enterprise development of off planet resources.  I believe that tangible assets are to be had in the form of mineral resources off planet.  We are like migrating humans wading across the straits and looking towards Alaska and all to the South.   They did not turn back and nor should we.  This is an opportunity for investment in the future that would pay off for our descendents and the younger ones among us.  We must consider the future if there is to be one.      

Planning for the future must include basic changes in the use of resources in order to provide for population growth as the Earth nears human population saturation.  The slowing of population growth is needed, due to the number of adults lacking employment and the scarcity of land and water.  In addition to population growth changes, other considerations for surviving the future must be addressed. 

Needed Adaptations 

Climate change equals crop change.  Mexico has been in the forefront of agricultural adjustment based on climate change and other nations should do the same.  At least study what would be possible, like pineapples in Arizona.  We need data on crop possibilities if global warming continues to pick up speed.

Supply and demand patterns are changing.   Witness the growth of Apple.  Even in a slow economy, people will spend to buy the new item they can use.  Controlling the resources needed to make the new object is a factor in price control, which is a hassle about rare earth minerals needed for electronics.  Known rare earth minerals are located mostly in China and Greenland.  If new sources of these minerals could be located, possibly the prices of electronics would go down.   Educational trends should indicate courses of study in electronics every step of the way from fabrication to maintenance, so we maintain our preeminence in that market creating the electronics we use so much.  Money and jobs and creativity.  Invent a nice little vehicle that gets phenomenal mileage of a power source and construct them for a reasonable price.  I wonder how many Volts would have been sold if they were sold at $10,000-12,000 instead of plus $40,000?   The cost per unit has to come down to bargain rates before it is going to be a best seller.  What is jacking up the cost of the Volt?  Work to solve that and it would be a winner.  

 Recycling will increase.  All metals should be recycled in this country in order to provide jobs and to keep the precious resources within reach.  We also need to recycle paper products here, manufacture new items here and sell them here in order to provide jobs.  How about an export tax on recyclables in an effort to use the materials here?  Every shipload that leaves a port takes jobs with it.  Semi loads of copper ingots leaves Morenci every year, leaving no copper even for locals and their possible cottage industries, but plenty mess left behind and a played out resource and no jobs.

Population growth continues.  Higher unemployment rates plus the rise in population as workers come of age requires the creation of several hundred thousand jobs a month just to break even.  As of 2012 the economy is producing job gains at a slow rate but about 8% of the workers are still unemployed.  The issue of population growth is addressed in a pro growth population policy in the tax code.  Each child costs the system but the parents can bring in as many as they desire.  Taxpayers are subsidizing population increase, which is detrimental to the economy with a high unemployment rate.  I believe that the USA should have for each adult a tax deduction for one child and a tax penalty for each child claimed thereafter, in a effort to create population stability.  Public schools should have the same policy.  Persons could still have as many children as they want but they would have to pay into the system for the children instead of expecting the collective to subsidize their large families. 

Immigration policy must be reviewed.   Nations with no effective family planning must not be allowed to use the USA or any other country as a population overflow.  Nor should our immigration policy encourage population dumping in this country.  Illegal immigration is tied in with population growth and the lack of jobs for the new workers so they come to the USA to work.  If the USA attracts the brains from other countries, so be it.  

Economic corrections are needed.  The system must be malleable enough to adapt to new conditions without floundering.  Currently, there are too many construction workers.  Residential and commercial real estate stands empty and prices have dropped.  The current housing boom is over yet the unions and developers lobby for more construction spending.  More new houses, more new roads......  Perhaps a focus on maintenance of all these properties and roads would be a steady job.  Redevelopment of moribund properties should be encouraged.  Tax breaks for foreclosures should be discouraged, which would force the lenders to accept reasonable deals on properties.  Jacking up the price of properties does not help the economy.  It's a constant inflationary draw.  Housing is a huge expenditure for many and the lauding of constant inflation in housing prices is contrary to the common good.   

Moral hazard  comes out in stated policy vs. real purpose and then in the corrupt 'mortgage products'.  The stated policy was to get more qualified buyers into home ownership but the real policy became a push for as many mortgages as possible that would then be sold in bundles as derivatives.  The slip between the cup and the lip was that the people rewarded with mortgages so often could not pay the debt.  The lenders didn't own the mortgages when they went under, so they just kept cranking out more.  The plan was that the repossessors would now own a property worth more than the mortgage amount due to the incessant escalation in prices.  After the housing crash, all these financial shenanigans showed up like octopus ink in the tidepool.  Another problem with the whole derivatives scam was that the major investment concerns had policies that touted returns over other considerations on performance evaluations.  Instead of forwarding financial transactions that give a fair return and do no damage to the system, anything to make a buck became the moral hazard.   

The background of housing bubble was just greed and lax lending practices, that led to a surplus of housing and a large number of foreclosures.  Empty units sit all over town and the number of homeless has grown.  The results of housing bubble continue today but the true pain is the debt load that keeps rents high even when real estate prices are low.  The stabilization of housing costs  through the free market could be achieved by using adequate lending standards but the huge debt load carried by all the 'underwater' homeowners  is forcing people to pay more than the housing is worth when the original appraisals were questionable and often controlled by the lender.  The buyers were stuck with the bubble bill.  I think it's atrocious that buyers who escaped the excessive debt burden through default are prohibited from obtaining a mortgage for years afterwards.  That's an economic slowdown.   

More economic adjustments could be made.  A number of rules, regulations, and unions prevent wage adjustments during recessions or during times when a business must be restructured to survive.  These policies have been developed to protect the worker but some of this 'protection' has become a racket, with the worker receiving pay and benefits that exceed the ability of the business to provide on a long term basis.  Unions often focus on short term gains but ignore the long term ramifications of assured ever increasing pay and benefits on a business navigating the open market.  Unions are even tapping into workers' pay through the workplace in order to maintain their power.  Union intransigence and demands have hastened the closure of businesses.  An open shop Federal regulation and the ending of the practice of unions drawing on workers pay at the workplace would help control union power.  Workers should retain the ability to unionize if there is a need.  

Reviews of zoning and permitting show a need for more flexibility.  Currently in Arizona people 'own' their homes but are not permitted to use the properties to make a living.  The system requires only residential and then commercial properties are pricey and larded with expensive regulations so that only the wealthy have enough money to start a business.  Also, the locals have to drive or take the bus to these expensive commercial properties to shop.  Automobiles and isolated commercial districts for all necessities is a burden on our society and is bound to get more expensive as the cost of fuel rises.  Zoning changes are needed to allow for clean cottage businesses in residential areas.  Why not allow lawyers, dentists, candy sellers, hot dog vendors, seamstresses and other clean businesses operate out of homes with a minimal fee paid to the city?  We need more flexibility in our planning and zoning that does not shut out small business entrepreneurship.   How about a tax break for these home based businesses?  No tax on these.  If the developers and honchos downtown get a tax break, how about spreading it around to home based businesses?

New economic conditions never before seen in our recorded history are confronting our leadership.  Some of these are listed and bear further discussion.   

·         Population size is now greater than anytime in recorded history.  Overcrowding, unemployment, scarce land and water resources and wars resulting from these issues are now capital problems. 

·         Technology is more advanced than in our recorded history.  Instant communications all over the world are creating a world beat, a world society through the internet and telephones and all the new electronics.  A direct result of federally funded research and development is the change in our lifestyle due to computer and electronics technology.

·         Transportation is available to almost anywhere there are human settlements.  People with the means can travel quickly and efficiently, which spreads both ideas and disease in the global community. 

·         Climate change is happening and our politicians must recognize the implications and turn to long term planning.  Shoreline flooding has begun to be a problem in some areas of lower elevation.  Less rainfall is creating drought conditions affecting agricultural yields negatively.  A lack of water may inhibit growth in some areas.  Politicians must deal with these and other issues in order to insure survival of our culture.  

·         Space exploration is the new frontier.  A current public/private partnership is yielding results as a payload was successfully delivered to the space station.  Minerals and special free fall constructs of drugs and other compounds are possibilities for riches.  Titanium and other valuable metals are on the moon and asteroids there for the taking.  All we need is the technology to survive out there and many nations are developing that technology.  Lest the USA be left behind, government funded research and development is vital to our military and national security.   

·         Financial manipulation is a different sort of problem.  I call it the myth that debt is ok as a policy while cities, counties,  states and nations are edging closer to default as the debts mount and bailout costs far exceed their income.  I would hate to inhibit free enterprise, but the ceaseless recruitment of clients for the lenders from among gullible politicians should be controlled in some way.  I don't like a system that allows a politician to indebt an entire community without a vote.  What happened to voting for debt in the public sector for a project?  Borrowing by another name is still debt.   Part of that is that tax exempt status is given to municipal investors, who reap tax free profit from the huge debt load.  Maybe that loophole should be closed.  Financial manipulation also extends to the 'Wall Street' types as they create imaginary financial  products  to sell to each other that benefit no one else.  These 'securities', derivatives, insurance schemes and hedgers are parasites that produce no real benefit to society as a whole, only to a select few, kind of like the Madoff phenomena except that they were allowed to dip into tax money to rescue them from their gambling losses.  I call that a power grab.

·         The 1% and the 99% has the will to become a huge problem for the politicians if social unrest increases as a result of unemployment and the social problem of huge gaps in income, something like the French Revolution could happen.  The 'austerity' required to pay debt service to the 1% may be the undoing of the 'investors' who expect to remain in control during the debt period.  A default might be more pleasant than a revolution. 

·         Immigration is traditionally caused by war, drought, and overpopulation.  Using another country's area to absorb excess population is to be discouraged.  If religion, ignorance or tradition encourages ultimate breeding production even when economic conditions dictate otherwise, then that problem should be handled inhouse, not exported to their neighbors. 

·         No more cheap land has economic consequences beyond just challenging the myth that the economy must forever grow in a finite space.  Well, not if you base your economy on real estate.  The growth of population increases population density and the theory is that each new person diminishes land area per person.   This kind of 'growth' could be counterproductive as the habitat shrinks and the crime rate rises

·         Arctic exploration and settlement might be the next boom.  The Arctic and Greenland have other resources than oil, which has been the focus.  Climate change brings opportunities as well as problems so how about arctic farming, fisheries, tourism, university studies, and pizza on demand?  The USA owns a large slice of the arctic, the next frontier.  Let's get out there with the Russians, Canadians, Danes and who else?  Open the first saloon. 

·         Different crops could be more lucrative or less so, depending on the prior planning.  Perhaps the dry land wheat fields would shift north but we fear the desert latitudes will expand.  The desert southwest needs more greenhouses and intensive agriculture.  Local production of food lowers costs and adds to local sustainability, which is a desirable goal.  There is a thriving greenhouse industry in Arizona, a start for more investment in a needed industry.

·         Greenhouse gases could be a dangerous new reality and if human activity is speeding up the rate of global warming, then changing our energy production systems must occur.  Economic changes are inherent in any change of this scale.  Study global warming data for conclusions.  Alternate energy systems are investment possibilities. 

These are just a few of the changes confronting our leadership, both in the government and in the private sector.   If 2012 is indeed the beginning of a new era, then we must assess the opportunities and hazards of the future in order to survive and thrive.   The role of government is crucial and it is the responsibility of candidates for office to be cognizant of issues related to the perpetuation of our nation.  The  corruption surrounding political campaigns is distressing because special interests often have short term financial goals rather than acting for the common good.  If politicians are beholden to special interests rather than to the higher goals of assisting in the survival of the society, then we are in peril.