Relevant and even prescient commentary on news, politics and the economy.

Moves Afoot in the Gulf Cooperation Council

From Arab News, the official organ of this guy…

(Image from here.)

No, not that one. The other one… or maybe of both of ’em. In any case, Arab News is now reporting:

JEDDAH, 1 December 2007 — The pressure on the Gulf Cooperation Council (GCC) countries is growing to drop their pegs to the tumbling US dollar with the Dec. 3-4 GCC Summit expected to take a decision on the matter in order to stop soaring inflation in the region.

The latest call for depegging from the dollar came from Jassem Al-Mannai, chairman of the Arab Monetary Fund (AMF), who urged the GCC states to lift their pegs to the dollar, saying revaluations would not solve the problem of rising inflation. Speaking at an economic seminar in Abu Dhabi, he advised the GCC that groups Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the UAE, to switch to a managed float or peg their currencies to a basket, including the euro, sterling and yen.

Mannai said there was no harm in linking GCC currencies with a basket of currencies as many countries have successfully adopted this monetary measure in the past.

“There is no currency exchange system suitable for all ages and places … In the past GCC economies were negligible and now they have to adopt polices that suit their economic progress,” he said.

Mannai called upon the GCC states to adopt an exchange rate based on a basket weighted on currencies of their main trade partners, including the euro, dollar, sterling and yen. The European Union is now the main trading partner of the GCC accounting for 35 percent of their foreign trade, followed by Asian countries 30 percent and the US 10 percent.

The UAE, the second largest economy in the GCC after Saudi Arabia, called this month for all Gulf oil producers to switch from fixed exchange rates to currency baskets. According to some sources, Saudi Arabia could consider revaluing its currency for the first time in 21 years without dropping its peg to the dollar.

I honestly don’t think anyone has quite thought through all the implications to the US if the dollar becomes just another currency.

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And after the Seventh Great Extinction

Somewhere, I forgot where, I remember Bertrand Russell describing a masochistic god. God gave man all kinds of wayward impulses, but gave him an injunction not to follow them. And when, as Russell describes it, man had become perfect in self-renunciation, God caused a huge comet to crash into the earth, destroying His creation.

And God said, “It was a good play. I will have to perform it again sometime.”

With a little changing, that story is apropos of our time. We can dispense with a great deity, substituting instead Nature, the cosmos, whatever. We can also dispense with self-renunciation. In its place, we will allow the dictates and impulses of Nature full scope. Life will follow its own logic.

For life to survive it must procreate; it must hone its feeding techniques. Each species evolves in this fashion; each species is, in a profound, sense competing with all others. Sometimes partnerships are formed, dependencies. Romantics like to think of it as a complex web of interdependencies. In their view, life, collectively, is unitary, an answer to the unthinking, inanimate universe.

We, I suspect, are on the brink of breaking those interdependencies, of leaving the Romantic visionaries behind. We have donned the mantle of gods and stepped forward, embarking upon refashioning the world in our own image. All things must give way as we create a world for our procreation and our stomachs and our pleasure. We have already embarked on projects to re-engineer fish, fowl, plant…all life…to suit our ends. Even the lowly bacterium is not beyond our reach or our interest.

As we slowly move our hand across the world, more and more species are being threatened with extinction. One-quarter of all birds in the U.S.—178 species—are imperiled. And those are just birds…not other life forms. And that is just in the territorial land mass of the U.S.

The earth has already experienced six great extinctions; this may well be the beginning of the seventh. (An interesting Biblical number, if you think about it.)

Our response is already apparent: We will farm those species we need; bio-engineer those we can make more economical. It is all part of the great refashioning of the world.

As for climate change and global warming, that, too, we will re-engineer. Pour iron into the oceans; scatter erosols in the atmosphere.

The latter seems practical, low cost. Already some economists are benignly smiling on this possibility. Our growth must not be impeded. Our stomachs must be fed; our progeny increased; out pleasures multiplied.

There is little doubt in my mind that we are set on a path that will require geo-engineering and bioengineering on a scale that only gods should contemplate.

I am not interested in the moral dilemma of Faust or the hubris in creating our own Tower of Babel. My question simply is: Do we know enough? There may well come a time when we will know enough. I, for one, believe in that time. But are we truly ready now?

Anyone who reads scientific journals as I do must be astounded at the advances in knowledge. Daily we hear of this discovery or that advance. It is dazzling, like some great firework display encompassing the sky. Nothing seems beyond our vision.

And yet…and yet…is this the final act of one more species, our species, upon which, after the final earth-shuddering bang of our last firecracker, the curtain descends in darkness? Only to have someone, somewhere whisper: “It was a good show. I want to see it again sometime. “

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income mobility

The WSJ took the data from this study and created this graphic:

The reason that I posted the data below on how age distorted this study is simply because
this data massively overstates the degree of income mobility in the US.

It is one of the most blatant misrepresentations I have ever seen on the WSJ editorial page.

All I trying to do is show why the WSJ article is a misrepresentation because it never said a word about how aging distorts the data.

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It’s the tax code stupid!

One of my issues with our economy and the shift in share of income has been the tax code. I have consistently stated that something other than the tax rate changed in the code back in 1981 or so when the first change took place. Labor went from being an asset to a liability and thus the rush to reduce all cost related to employees. Messing with the rates won’t do it. In fact, during Clinton’s term the share of income to the top 1% rose 6 points. It only rose 4 points with Reagan/Bush.

Well I was right…sort of. Bill # H.R.3876:

To amend the Internal Revenue Code of 1986 to limit the deductibility of excessive rates of executive compensation.


Income Equity Act of 2007 – Amends the Internal Revenue Code to: (1) deny employers a tax deduction for payments of excessive compensation to any employee (i.e., more than 25 times the lowest compensation paid any other employee); and (2) require such employers to file a report on compensation paid to their employees with the Secretary of the Treasury.

This will be put in under

:(a) In General- Section 162 of the Internal Revenue Code of 1986 (relating to deduction for trade or business expenses) is amended by inserting after subsection (h) the following new subsection:

So, back in 1986 when they raised the rates they also allowed the top to shift the income they were paid so that it would be taxed less. Yup that was real “fair” sharing of the Reagan debt.

It’s not just about rates and it never has been. It is about definitions, and this makes me wonder what else is not in that tax code that use to be. All this bickering about entitlements, and the transfer of income, and welfare etc, etc, etc is just smoke and mirrors. The truth is we can solve our problems as soon as we go back to (return to the pre 1981 code) making it more profitable for the company to pay the help as oppose to keeping it for them self. And when I say for them self, listen to the big CEO’s refer to the company as their company! It also means that any arguments suggesting there is a free market idealism practiced in the labor market are wrong. What is part of determining what a fair wage should be comes from the sections of the tax code that control the definitions of taxable income to whom.

I still believe there were things done in the first change. You can read the reps statement here.

Update: To be clear, the bill linked to here will undo the tax break of 1986 that promoted paying excessive income to the upper company employees. It is a start toward removing the economic royalty of our nation.

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income mobility

The Treasury recently came out with a study of income mobility in the US that is receiving a lot of play in the Wall Street Journal and in several blogs.

Income mobility studies are very difficult to do properly and often are very misleading because they incompletely adjust for different factors.

The biggest factor driving income mobility in the US is age. People start working as young people and as they gain experience and earn promotions they receive higher incomes. The Census Bureau reports data that shows how this process. According to their data in 2006 median incomes by age bracket were:




% ch















0VER 65



2006 is typical or normal. If you looked at the data in 1975, 1985 or 1995 or any year in-between you would find a very similar pattern of income growing sharply as people age and starting to fall after the age of 55 and falling very sharply after age 65 when most individuals retire.

The Treasury study looked at income tax returns of people over 25. In this way they avoided the problem of showing the Doctors daughter making $5,000 at age 20 with her summer job as a life guard at the country club and $50,000 at age 30 as a drug company representative.

Income mobility is commonly described as an escalator moving everyone on the escalator up over time. It is a good analogy, and the three factors drive this move. One is economic growth. If you take a snapshot of everyone on the escalator in 1995 and another snapshot in 2005 you can see how the average has changed and get a picture of how economic growth influence the location of the escalator.

The second factor is the aging of the population. This is what dominates this Treasury study. They took a sample of the population in 1995 and came back and looked at the same individuals in 2005 when everyone in the sample was ten years older. This approach deals with some of the problems in the first methodology where the comparison between 1995 and 2005 would look at different people. In the first methodology in 2005 the people in the 15-24 year old age bracket were not included in the 1995 snapshot and the 15-24 year olds are now in the 25-34 year bracket.

There is nothing wrong with this methodology and it deals with some of the problems in the first approach. It is a valid approach. But you have to be careful in evaluating what the results mean. For example, if you look at what happens to the income of the lowest quintile you see that their income grows very rapidly. Their incomes will grow rapidly because of three factors. One is overall economic growth that moves everyone higher. A second is age which will move everyone in the 25-34 age bracket into the 35-44 age bracket, etc (See below).. A third is what we normally think of as economic mobility as individuals through hard work, education and good fortune or luck improve themselves. But since this study is dominated by people aging the lowest income group of the 25-34 age bracket in 1995 and in the 35-44 age bracket in 2005. Given that it is normal for the average income of the 35-44 age bracket to be around 25% higher than the 25-34 age bracket the study finding that over half the individuals in the lowest quintile moved to another quintile is not surprising. What is surprising to me is that about half of the lowest quintile were still in the lowest quintile ten years later.
















over 65


The problem with the Wall Street Journal and several blogs analysis of this data is that they tend to credit all the change from 1995 to 2005 to overall economic growth and/ or
individual economic mobility. But this is misleading as the dominant factor driving the changes reported in the Treasury study is the aging of the population. But we do not have the data to age adjust the data to see how much of the reported improvement was due to this factor.

This is not to say that there is anything wrong with the Treasury study, It is a common shortcoming of many such studies. That is the reason why the best studies on income mobility are the new series of studies that look at lifetime earnings and compare lifetime earnings of one generation to the lifetime earnings of their parents generation.

But it does mean that many of the advances in average income reported and incomes of the lowest income quintiles emphasized in the Wall Street Journal discussion of the study are misleading. They are attributing the sharp growth in the income of the lowest income brackets to overall economic growth and income mobility when it is largely due to people moving into the next age bracket. But they conveniently fail to point this out.

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Therapist1 on Issues in Parts of the African-American Community

This post is by Therapist1. I’ll be honest, I would have phrased things a bit differently, but that said, the issues raised are worth discussing.


For those of you who believe that it is taboo or un-PC to discuss matters of race in a frank open and honest manner, do not read further. What I am about to say may infuriate you and there is no need going on if you do not wish to anger yourselves.

First a little history about the writer: I am a white male in my early thirties and a life long Washingtonian. I have lived my entire life in a section of this area which is predominantly middle class to upper middle class African-American. I have seen many of the changes that have occurred through out this area. I saw the “white flight” of the 70’s and early 80’s, and was subsequently bussed to different school districts from 8th grade onward to “get a better education” and to integrate certain schools. My schools were 80% African-American or higher and I am currently one of 3 white families on my street of 22 homes. As I said earlier, this area is predominantly middle class to upper middle class African-American home owners living within one mile of the capital beltway.

The county, in which I live, leads the nation in murders where there is no large or medium sized city (as a state, Maryland is #2 per capita). My particular county averages one murder every 63hrs.

However, the vast majority of murders in the state occurred in one of two places, Baltimore City or Prince George’s County. Almost all of these involve black males killing black males, and nation wide this is an epidemic! Homicide is the number one killer of black males ages 15-24. 1 in 30 will die by homicide. In an area that is predominantly middle class to upper middle class, the next logical question is; Why?

It appears that even when you are a multimillionaire rap star like Tupak Shakur or a well educated football player like Sean Taylor, it does not take you outside these statistics. Some may point to gun control as the necessary remedy, but that will not solve the core issue of the willingness of African American males to kill each other. This is something that the African American community must take a hard look at, for their men are becoming an endangered species. When certain celebrities like Bill Cosby try and address the issues they are shouted down by the black establishment of Al Sharpton and Jesse Jackson who quickly point to the history of African-American peoples in the U.S.A. This is interesting because it does not explain the disparity between African-American females and males. What it does is create and perpetuate a litany of excuses and removes control from the only people who can change this phenomenon, African-Americans themselves.

As I said earlier, my schools were majority African-American and I heard those African-Americans that were aspiring to greater educational heights chided for “talking white”, being an “Oreo”, and trying to “be white” or they had to “be hard”. More often than naught, I witnessed my middle class friends engage in the “thug life.” My neighbor dealt drugs until his cousin was gunned down. It is as if they have to be uneducated, “hard” “thug(s)” to be truly considered African-American males.

Notice I do separate African-American as it appears to be more of a phenomenon that is segregated from Africans that have immigrated to the U.S. This is a problem, and one of the results I am witnessing is the “black flight” out of my area. However what I am seeing is that the geographical cure does not solve anything when it is a cultural phenomenon. My hope is that more successful African-American males will mentor their brethren, offer a different definition of what it is to be an African-American male and place more of an emphasis on education. An article in the Washington Post does discuss the process and points to some hope.

Until there is less finger pointing at “the man” and more control of their own destinies is taken into their hands, the cycle of Sean Taylor(s) will continue. With hard work and a bit of luck, there will be less 18 month old children growing up fatherless. Please talk amongst yourselves.


This post was by Therapist1. I’d like to add a few thoughts. A good friend of mine is from Sierra Leone, and he’s (mildly) Republican. He came to the US with nothing, and has through hard work achieved upper middle class status. He has three kids – the eldest at West Point, the others in college or college-bound. His kids are very well-behaved, do well in school, and have a future. I credit his wife for keeping all four children (and Harry, if you’re reading this, you know who the fourth child is!) in line. And he says this. Using more or less the same language.

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A Return to the Wage and Benefits Issue

A few weeks ago, I commented about a post at the Skeptical Optimist which claimed that though wages are stagnant, its costing employers more to provide benefits which means we’re all getting more in total compensation.

I noted that the percentage of Americans with employer provided health insurance is declining… which leads to this argument: if fewer people get a benefit that is more costly to provide, it doesn’t mean that more people are better off.

I wandered over to the Skeptical Optimist site yesterday and found a link to my post, and this response:

In the three days since I posted the article below this one, I’ve had to revise my opinion about employee benefits. Specifically, I’ve had to revise downward my estimate of the number of people who actually consider them beneficial to employees.

My assertion in that article was that when an employer pays an expense for an employee—one that would otherwise have been shouldered by the employee—that is “compensation” that is ignored when one talks of “wages” in isolation. The reaction, most of it coming from those who apparently would rather keep the discussion of workers’ compensation confined to money wages (my educated guess: for political reasons), ranged from honest objections at this blog, all the way to primitive name-calling—ironically, by people who prefer to remain anonymous—at other blogs.

But, as I said, I’ve had to revise my estimate. Benefits apparently aren’t benefits to those whose political talking points get more difficult if employee benefits are assumed to benefit employees. If the cost of health insurance increases, and a company pays part or all of the increase, guess what: that doesn’t “benefit” the employee; sure, it cushioned the blow, or even eliminated it, but somehow that’s not good enough to be classified a “benefit.” (Makes one wonder how many employers realize that any extra money they’d pay out for health insurance cost increases would not be considered of “benefit” to their employees.)

How difficult is it to understand? A benefit, no matter how costly to provide, that someone doesn’t receive is not a benefit to them. Those who are not getting health insurance from their employer any more are not better off because the insurance provided to the executives is getting more expensive to provide. In fact, that employee is worse off two ways – he/she lost his/her insurance, and now has to pay his/her higher healthcare costs.

But the Skeptical Optimist still has another argument up his sleeve:

I’ve been called an “idiot” for that thought process; if it’s true, I’m in good company. A brief search turned up a column by George Will from last year: Prosperity Amid the Gloom. Here’s an excerpt:

It is said that workers’ compensation has been stagnant. But to tickle that bad news from the statistics you must treat “compensation” as a synonym for wages, and then ignore the effect of taxation on individuals’ well-being.

Kevin Hassett and Aparna Mathur of the American Enterprise Institute, writing in National Review, say annual wage growth since 2000 has been 0.6 percent, but the annual increase in real hourly compensation, including benefits — and if you do not include them, why are they called benefits? — has been 1.3 percent. And taxes — particularly those paid by middle-class families with children — have declined substantially.

I don’t think I called the SO an idiot. That must have been someone else. But the fact that he’s got George Will agreeing with him on wage issues, or looks approvingly at Kevin Hassett does make me wonder.

Update… I correct the link to the data on employer provided health insurance figures. And I’d like to add a point…

Turns out I was wrong… its not “employer provided” – its “employment based” health insurance. Here’s the definition of that:

Employment-based health insurance is coverage offered through one’s own employment or a relative’s. It may be offered by an employer or by a union.

And as noted above, the percentage of Americans with employment-based health insurance is dropping.

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CNN Covers the GOP Debate – the Fair Tax

So the GOP faithful went wild when the Fair Tax was brought up. This morning CNN asked Ali Velshi to explain this proposal. First of all, why ask someone who admits his head hurts when he has to think about tax policy. For example, watch how Ali confuses 23% and 30%:

And then everything you buy will have a built-in tax which will be equivalent to 23 percent of the total price you buy. It will be 30 percent more expensive than it is right now. So something today that costs $20, it should cost you about $24.60. But your tax is only at the end.

No – 30% of the $20 is $6 so that total price tag is $26 not $24.60. But let’s back up and check out how Ali introduced this proposal:

You wouldn’t pay income tax. There would be no corporate tax, no Medicare, no AMT, no payroll taxes, no estate taxes, no gift taxes, no capital gains taxes, no Social Security. If you earn $40,000, you’ll get, you know, your every 26-week installment of your paycheck.

If you think this is less than you are paying the Federal government now, you are correct. Think about it this way. Consumption is often touted to be two-thirds of GDP and this tax will take 23% of consumption. Clearly, the Fair Tax cannot cover Federal spending as tax realizations would be far less than Federal tax revenue under the current system. And current Federal tax revenue falls short of Federal spending.

But Ali Velshi is not capable of mentioning this reality. And it also seems that he is assuming people’s paychecks will not have state and local tax deductions. The revenues from the Fair Tax would likely capture no more than half of what the various Federal, state, and local governments will spend. But it would seem Ali Velshi is not aware of this budget reality. So why on earth did Tony Harris end with this nonsense:

HARRIS: Well, good. When you figure it out, because you’re the man, will you let us know?

I’ve said this before – CNN has really awful coverage of economic issues. And Ali Velshi may be their worst business reporter. So why is he “the man”?

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Weeds and Pharmacology

Dan’s post got me to thinking about something my father told me a while back. There are all sorts of plants and so forth that supposedly have medicinal properties. Let’s say one of them is the real deal. Maybe some weed that you can find growing in empty lots in the average cities, when made into a tea and consumed as such, reduces the pain felt by sufferers of one or other type of cancer. Or perhaps it even goes some way toward combating the cancer.

If a doctor were to notice such an effect and start suggesting this weed’s properties should be investigated… who has an incentive to put up the money to do the investigation? Certainly not the pharmaceutical companies – a weed that grows by itself on empty lot won’t get much protection from patents, as anyone can go and grab some for him/herself or grow their own. My guess is most doctors at the NIH and CDC and universities (i.e., the folks operating on the public dime) also don’t – the system is set up, I imagine, so that they make money if they can make money for pharmaceutical companies. Perhaps a hospital system – but the costs of such tests are huge, and the expected reduction in costs that would come about even if the tests proved that the weed had the desired properties might not be enough to justify the costs of running the tests.

So… does anyone have an incentive to look into something like this? If not, does it make sense and how can the system be changed?


Update… I modified the sentence about companies and patents.

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Meds and blogs

Brain chemistry analysis is being born as I write.

Scientists have understood something of the chemical imbalances underlying mental health problems, but making meaningful chemical measurements in the brain has not always been easy because of the small size of synapses and the inaccessibility of the brain.
Recent breakthroughs are now advancing knowledge. In 2006, University of Michigan scientists developed a sensor that will monitor levels of neurotransmitters in a patient’s brain. The device has enabled them to study chemical changes associated with behaviour and disease.
Last year, researchers at the University of Cambridge identified specific biomarkers for schizophrenia. The team looked for psychosis-associated changes in the fluid which circulates around the brain and spinal cord. Their results showed that levels of some proteins and peptides were elevated in schizophrenic patients. They also saw characteristic changes in samples taken from patients with depression.
The identification of specific biomarkers could redefine the diagnosis of psychotic disorders, which is currently very subjective. Biomarkers may also help to distinguish between different mental health conditions which is not always possible to do at present.
The future potential of the discovery of biomarkers for mental illnesses is immense. Improved treatments and preventative medicines might all develop from such early research.

The author of the article is being a little hyperbolic about actual interpretations of diagnostic abilities at the moment. Like the research on ADHD, interpretation is still primitive and not predictive, much less confirming, but is a significant step.

Claims to treat depression for instance describe serotonin uptake this and dopamine that are not based on brain chemistry or levels, but blood levels and outward behavior and reporting. Great strides yes, and invaluable for many, but hardly accurate and measured as regards brain chemistry.

The pushing of meds as a cure for what ails you has become a standard we all use, and is something I have written also in comments. What often is missed in conversation about the economic part of big pharma profits schemes and payments and doctor ‘collusion’ or ‘acceptance’ is the ethical standard of prescribing medications on such a huge scale, often for non-researched age groups, off label uses, and as a first line treatment without good lengthy histories, informed consent, family supports and such that are necessary as well.

Patients come and request certain meds as well, which requires the same evaluation if the doc has time.

It reminds me of throwing round dice sometimes as we claim knowledge we do not have.

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