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

What the Oil money is doing

This is an article by the Washington Post: Oil Price Rise causes Global Shift in Wealth.

It looks at how different countries are responding based on whether the oil money is flowing in or out. Some countries are spending, but not necessarily to diversify their economies. Some are flexing their muscles now that their financial’s are healthy. Some are adapting, some are having problems adapting.

“With crude oil prices nearing $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world’s gross domestic product.”
“The benefits, to the tune of $700 billion a year, are flowing to the world’s oil-exporting countries.”

Some particulars that caught my eye that is looking through the lens of global competition:
Referencing Russia who is using their new wealth to flex there mucsles:

less than two years after the collapse of the ruble and Russia’s default on its international debt, the country’s policymakers worried that 2003 could bring another financial crisis. The country’s foreign-debt repayments were scheduled to peak at $17 billion that year… Russia’s gold and foreign-currency reserves have risen by more than that amount just since July. The soaring price of oil has helped Russia increase the federal budget tenfold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $425 billion.

In China, the citizens are hurting and starting to get distrustful as the government raises the price.

Rumors circulated that gas stations or the government was hoarding fuel in anticipation of further price increases, prompting the official New China News Agency to warn that anyone caught spreading rumors about fuel-price increases will be “severely punished.”
Yet it still subsidizes fuel. As a result, consumption this decade has skyrocketed at an 8.7 percent annual rate despite soaring prices and concerns about the environmental impact of profligate fuel use.


Yet Japan has been weaning itself off oil for years. It now imports 16 percent less oil than it did in 1973, although the economy has more than doubled. Billions of dollars were invested to convert oil-reliant electricity-generation systems into ones powered by natural gas, coal, nuclear energy or alternative fuels. Japan accounts for 48 percent of the globe’s solar-power generation — compared with 15 percent in the United States. The adoption rate for fluorescent light bulbs is 80 percent, compared with 6 percent in the United States.

President Carter had us on a program to be 20% solar by 2000. Then Reagean got in and removed the solar panals from the White House. And we all have heard about Brazil.


Britian national average gasoline price topped 1 pound per liter, or about $8 a gallon, for the first time this week because of record oil prices.
“It’s different from the United States. Here, everyone has just accepted that it is
While British drivers are feeling the pinch, the government is gaining revenue, Skrebowski said, because about 80 percent of the cost of gas is tax. Because Britain produces almost all the oil it consumes, its economy has been cushioned against increasing oil prices, Skrebowski said.

Their production is going down so they are going to have to change. As I have read they are changing in that they have two wave generator plants running and not as models.

I think we need a different energy policy.

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Why Stop at 1990 for E/P Ratio?

We have a long history. Why not see what this nation was truly use to before we decide whether the opportunity (chance?) to be employed is good, bad or indifferent? I went to the department of labor site and used their graphing for the following charts.
First 1948 to 2007 E/P Ratio.

What we see is 3 distinct groupings. 1948 to 1960 vacillation within a range of 1 point (55 to 56). Then the nation got use to an ever increasing E/P ratio from around 1960 to 2000. But, if we start with 1990, then yes, we are seeing a new level of vacillation. Thus, we have 30 years of ever greater (opportunity for) employment for our citizens changing to approaching 20 years of hit or miss. So, using the last 17 years, Brad and PGL are on safe ground. Using the full series, citizens are not seeing it so good as to their future. Have we not moved down the rankings of upward mobility?

Lets break it out male vs female, 20 years and older.

This is the Male labor force, 20 yrs old and up.

This is the Female labor force, 20 yrs old and up.

Very similar curves other than the female starting at a lower number.

But, here are their E/P ratios.

This is the Male EP ratio.

This is the Female EP ratio

The men go from a high of 86.6 to a low of 70.6 in 1983 and hovers 1 point +/- at 73 although the over all trend since 1990 has been down.
The women go from a low of 30.1 in 1948 to a high of 58.6 2000 and 2001 and did not go below 57.1 after. But even for women, since 1990 the climb has been shallower with a flattening since 1996.

Wonder where the disconnect has been? I think we’re seeing it. As a family, 2 people working were climbing from the 60’s to 1990. Since then, and especially after 1996 with the female curve flattening, it just seems that the American citizen is not interested in working? Or maybe they realize that working more is not getting them any more. Maybe they have decided not to participate in the race to the top. Or maybe this reflexs the lack of jobs making working worth the effort. What ever it is, we’re flat and not growing.

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Some Election Economics

I check out Robert Reich’s blog on occasion being that he is a person who was involved in the past. Yesterdays:

Over a decade ago when, as Secretary of Labor, I hollered about the scandal of widening inequality in America, I’d get phone calls from Democratic officials who politely asked me to shut up. After all, I was part of the administration, and my complaints made it seem as if the administration wasn’t doing nearly enough. It wasn’t. We hadn’t delivered on Bill Clinton’s 1992 election promises. An expanded Earned Income Tax Credit helped the poorest but the old working class was going nowhere.

Well, what’d yah know? Clinton’s progressive first run rhetoric was fluff.

He says there are 2 thoughts in this country; trickle down and bottom up.

In a global economy, investments don’t trickle down; they trickles out to wherever on the planet the rich can get the highest return. If trickle down worked as advertised inequality wouldn’t be widening so fast.

Bottom up means giving all Americans what they need to be productive – universal and affordable health coverage, good schools, a chance to attend college, job retraining, affordable child care, and good public transportation to and from the job, for starters. But as we learned a decade ago, this requires money – even more, now. So the question is how the nation can afford it…


The only way is to stop obsessing about balancing the budget and start pushing for a serious tax hike on the rich. Yet all Democratic presidential candidates are styling themselves “fiscal conservatives” and none has suggested raising the marginal tax rate on the richest beyond the 38 percent rate it was under Bill Clinton. They may talk bottom-up economics but they’re still wedded to trickle down.

I think someone is feeling betrayed. So, what are the candidates talking?
I give you an interview by Charlie Rose of 3 economic advisors to 3 democratic candidates.
And, just for good measure here is an interview with Leo Hindrey, Mr. Edwards econ adviser.

A teaser from the interview:

In 1981 the Business Roundtable noted that CEOs have multiple constituencies, but in 2004 – after Enron, WorldCom, Adelphia, the NYSE, etc. – that very same Business Roundtable narrowed CEO responsibility back to “shareholders only”. How wrong they are! Unless and until CEOs acknowledge obligations as well to employees, customers, communities and the nation, misbehaviours will continue – and, by the way, management is not a constituency unto itself.

My favorite line from the interview (cause I’ve noted here, and implied here the same question although Walmart is just his example):

The question Wal-Mart simply needs to ask itself is “when is enough, enough?”

What was that Mr Bogle was saying about enough?

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Some visual aids to answer how much is it?

This is just a little visual fun. Think about that saying “a billion here, a billion there, soon you’re talking about real money”.

Personally, I think visuals like this need to be circulated more frequently so that people have a better understanding when the government or business speaks dollar amounts. It might help them pause about whether they think something such as a war is really getting them a better life. Or just how much of a relative tax break they are getting.

But for the war, we’re talking trillions so:
Here is some perspective on TRILLION:
Trillion = 1,000,000,000,000.The country has not existed for a trillion seconds.Western civilization has not been around a trillion seconds.One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe.

Here is another one I like: The L Curve

Last but not least is this one that is actually a presentation being made to our legislators concerning our military budget.
The Oreo Cookie

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Free Trade vs the World Bank

This concept of Comparative Advantage hits a big wall if we accept the World Bank’s study on what generates wealth.

If comparative advantage is about what comes natural to a given nation, it has to include what the study referred to as natural capital. This is only 40% of the wealth generation for a poor nation but drops to 20% for a rich nation and is 5% overall world wide. Produced capital accounts for only 18% world wide.

77% of wealth creation is from “intangible capital”. Intangible capital is the results of societies efforts to improve it’s self as a society (making us better people). It is legal, it is education. It is civil rights, it is (or was here) free education to including college, it is management of our environment, it is (or was) the enlightenment, it is adaptation of knowledge for the betterment of living life. None of these things are the results of nature. They are the results of will and money. The money being spread for the benefit of all.

So, we look at China or India and see that they have taken steps to improve their society via education and legal. The comparative advantage however is still more in the natural capital. What is their “natural” capital? It is low relative wages as compared to the rich nations. Is there any naturally comparative advantage? I think not. It’s not like they are selling us natural resources. What they are selling are the results of moving the know how and productivity generating tools (using a hammer drill to drill a hole in concrete vs a star drill and hammer) to their countries. Their natural capital is in their labor.

This creates a dilemma for the free traders who think it is only a matter of stuff and things in exchange for currency. If 40% of poor nations wealth generation is natural capital, and produced capital is 18% of the wealth generation, then that leaves 42% of China’s wealth generation intangible. This is competing against us with numbers that most likely look closer to the world overall, 5% natural, 18% produced, 77% intangible. Being that our advantage is our society, and our society was created by creating a better distribution of wealth, then how are NAFTA, CAFTA etc. without emphasis on labor, rights, and environment promoting our comparative advantage?

This dilemma of promoting trade agreements on only the 2 tangible sectors of the 3 sectors that drive wealth creation ignoring that a rich country as moved vastly beyond the ratio of the 3 sectors to where investment in ones society is the dominating sector by far, is what is wrong with applying models that discuss comparative advantage as some kind of sliding scale based on only the tangibles. Wine vs wool was it?

We’re loosing the trade wars as a nation because we’re writing trading agreements to our partners advantage. That’s what comes of letting people who only think about business, do the trade agreements. They only think in terms of the natural capital and created capital. It is why the models are wrong when they say there will be or has to be “losers”. Bull crappy on that.

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Doing the Economy One Better

Seems there is a movement afoot to do the economy one better. There will be a conference Beyond GDP held in Brussels in November.

GDP is the best-recognised measure of economic performance in the world, often used as a generic indicator of progress. However, the relationship between economic growth as measured by GDP and other dimensions of societal progress is not straightforward. Effectively measuring progress, wealth and well-being requires indices that are as clear and appealing as GDP but more inclusive than GDP—ones that incorporate social and environmental issues. This is especially important given global challenges such as climate change, global poverty, pressure on resources and their potential impact on societies.

The purpose:

The European Commission, European Parliament, Club of Rome, OECD and WWF will host a high-level conference with the objectives of clarifying which indices are most appropriate to measure progress, and how these can best be integrated into the decision-making process and taken up by public debate.

This link is to a list of indicators that are being discussed.

While people look to come up with a better measurement, there is a movement coming to your town that has happened throughout the rest of the world: The Solidarity Economy Network.

The Solidarity Economy offers an alternative economic framework to that of neoliberal globalization – one that is grounded in solidarity and cooperation, rather than the pursuit of narrow, individual self-interest.• It promotes social and economic democracy, equity in all dimensions (e.g. race, class, gender…) and sustainability.• It is pluralist and organic in its approach, allowing for different forms and strategies in different contexts, and is open to continual change driven from the bottom up whether in civil society or the marketplace.

Of course, a move to do the economy one better would not be complete without a discussion of the “corporation”.
There is a Summit at Faneuil Hall, Boston asking: Are Corporations equipped for the 21st century?

The Summit…is inspired by the growing tension between the emergence of the corporation as the world’s most powerful and innovative social institution and the growing severity of social and environmental problems that plague billions of people. As the tension between these two realities grows, the roles, responsibilities and rights of business are the subject of increasing controversy, as are the relationships of the corporation to government and civil society.

The Summit marks an historical moment for considering how the most influential social institution of our time can serve the broader public interest essential to its own long-term prosperity, and to begin designing corporate forms that recognize the reciprocity between private and public interests.


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Human capital is where it’s at!

Continuing from my last posting, I stated the World Bank has seen the light. It has put out a report: Where is the Wealth of Nations?
Reason Online has an interview with the prime author Kirk Hamilton.

Oil, soil, copper, and forests are forms of wealth. So are factories, houses, and roads. But according to a 2005 study by the World Bank, such solid goods amount to only about 20 percent of the wealth of rich nations and 40 percent of the wealth of poor countries.

So what accounts for the majority? World Bank environmental economist Kirk Hamilton and his team in the bank’s environment department have found that most of humanity’s wealth isn’t made of physical stuff. It is intangible…Hamilton’s team found that “human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”

The World Bank study defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and nonrenewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most of us think of when we think of capital: machinery, equipment, structures (including infrastructure), and urban land. But that still left a lot of wealth to explain. “As soon as you say the issue is the wealth of nations and how wealth is managed, then you realize that if you were only talking about a portfolio of natural assets, if you were only talking about produced capital and natural assets, you’re missing a big chunk of the story,” Hamilton explains.

The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.”

For under developed or undeveloped countries you can see what direction they have to go in. But what about our country? We have had discussions about infrastructure. We have talked about the need for education. When I skimmed the report (200+ pages), savings was a must in order to be able to invest in the intangible capital. We have debated the share of benefit a person receives from the country’s infrastructure and institutions based on the wealth and/or income they control. We always argue about where growth comes from such that it raise all boats. (Sing that jingle!) And there is the “free market” debate revolving around regulation. Oh that nasty governance issue! If only we hadn’t signed on to form a more perfect union.

My quick assessment of this report is that it is a testament to the misdirection of our policies. We do not make money from money even though we have been trying to. You did catch the reference to “labor”. These breakouts of wealth suggest that there is a bottom limit to taxation as taxation reflects our investment in us. In the study, European countries dominate the top wealth and England is not in the top 10. This report implies that the wealthy do benefit more from the country’s structure and investment because the majority of their wealth is from this “intangible capital”. The few of the wealthy have accumulated their wealth from the investment of the many in the intangible. It also means capital gains should be tax equal to labor if not higher.

Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.

With only 18% of wealth from produced capital and less from natural resources as a country becomes wealthier, freeing up money to produce money as we have been promoting is very poor investment strategy it would seem when 77% of our wealth is from the human element. In a broad sense, we are talking about what ideology concerning the conduct of human life works best to produce wealth.

An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth. For example, Switzerland scores 99.5 out of 100 on the rule of law index and the U.S. hits 91.8. By contrast, Nigeria gets a score of just 5.8, while the war-torn Democratic Republic of the Congo obtains a miserable 1 out of 100.

It is not just that we need to invest in education,or just have a legal system or just fix the bridges. These can be measured as noted in the World Bank Doing Business chart.

“Trust” seems to be the real intangible the report is talking about. We as a whole can be educated to the hilt, but if we can’t trust that our efforts will be put to constructive use, we have problems. Think habeas corpus, FISA, election fraud, threatening of the press, intimidation of speech, extension of free speech to none human entities, the equating of one voice-one vote to spending of one’s money, K Street project, etc. Think of the use of fear. If only a few are educated to the hilt or have access to the governance, we can not build capital.

If the country is 100 people large, but only 10 trust each other to do for each other, then how much wealth can they actually build if 93% of the 77% of intangible capital is related to law access (trust) and education (the removal of fear; trust) of the populace? But then, our founders seemed to have already reasoned this. Jefferson started the free education to including college!

So why should this report seem so “new”. This makes me think of the years of government bashing we have been hearing from the republican side. Reagan’s infamous “nine most dangerous words in the English language: I’m from the government and I’m here to help you.” It makes me realize we have to dump the Bush/neocon ideology here and in our foreign policy if only to remove the fear so that trust can return.

Mr. Hamilton’s example of the difference in thinking is in when he discusses pollution as a resource management issue:

It’s not a pollution problem; it’s a natural resources management problem. How do you maintain soil quality? How do you generate profits with the assets that you have, which in this case is land that can be invested in other things? The problem in China is they’ve figured out how to grow 9 percent a year pretty successfully but they’re now facing the environmental consequences of uncontrolled growth.

This is policy that he is talking about. Policy of what to spend on and policy governing relationships both boiling down to regulation. (What was that Milton quote the other day?)We’re talking government. I interpret this report as making a case that shrinking government to where it can be drowned in a bath tub is not the way to build wealth. The market will not solve our problems of growth for us. It is not the answer to Save the Rust Belt’s question of how to save the rust belt? We have to do it and we have to do it in a manor that is inclusive for that is the only way to maximize the “intangible capital”. It also means we have to do as Cactus is attempting to do; qualify our policy results related to specific ideology. Just charting to see what GDP is doing or just looking at supply and demand theory won’t do it. That’s just bench racing.

The World bank has done some qualifying and changed their ideology:

Hamilton: In the old days, we thought if you built the infrastructure then development would come-the Field of Dreams model of development. It turns out to be a lot harder than that.

Dare I suggest that the World Bank has discovered that an economy exists for our benefit and not for it’s own sake? Maybe they read our Declaration and our Constitution.

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Money from money? Not good.

On September 28th Bill Moyers’ guest was John Bogle. You can see the interview or read the transcript from here.

The setup for the interview is about private equity firms and he mentions the Sunday NY Times front page article: At Many Homes, More Profit and Less Nursing.

His introduction of Mr. Bogle is:

It’s this kind of capitalism that drives John Bogle up the wall, as you’re about to learn. John Bogle believes owners should be in charge — and accountable. He’s known and respected world-wide as the father of index funds and the founder of The Vanguard Group, one of the largest mutual funds anywhere, with over a trillion dollars in assets.

I make no bones about it. My opinion is that the focus is currently wrong 1. as it relates to purpose of an economy and 2. by the philosophy that studies it: economics. The focus of understanding resulting in the judgment of an economy, should be in how successful it is in fulfilling these two aspects of the constitution: insure domestic tranquility, promote the general welfare.

I’ll put it this way: to what purpose is there to knowing how to make horse power, greater efficiency, greater durability, the relationship of the parts in motion, the chemistry of fuels, the metallurgy, flow dynamics, etc., etc., etc. if not to serve people? Just because? Just to make more?

So picture me in my recliner (be kind), suspicious of what I will hear when Mr. Moyers asked:

BILL MOYERS: What should be the dominant? What is the job of capitalism?

JOHN BOGLE: Well, ultimately, the job of capitalism is to serve the consumer.

WHAT?!!!!!!!! There is someone with more money than God that thinks like me? But…is there a but? Don’t tease me like this. I’m the one saying we are making money from money and that such is of no substance especially as it relates to our purpose (see US Constitution).

Within his answer is:

But, we’ve moved from that to a big capital accumulation — self interest — creating wealth for the providers of these services when the providers of these services are in fact subtracting value from society. So, it doesn’t work.

You can mail my PhD diploma — thank you very much, to: … : )

He notes that Lord Keynes has gotten “misshapen”. How?

JOHN BOGLE: Well, it’s gotten misshapen because the financial side of the economy is dominating the productive side of the economy…We’ve become a financial economy which has overwhelmed the productive economy to the detriment of investors and the detriment ultimately of our society.

How bad is it?

It’s just gotten totally out of hand. My estimate is that the financial sector takes $560 billion a year out of society. Five hundred and sixty billion.

Did I hear this right, focusing on making money from money is not where it’s at? It’s hurting us?

I want to come back to the difference between the financial system and the productive system. The productive system adds to the value of our economy. And, by and large, the financial system subtracts. And, yet, it’s growing and growing and growing. And this short term thing where short term orientation in which trading pieces of paper is regarded as a social value. It is not a social value.

But what about labor? Do those at the top really get what they deserve?

And they get enormous amounts of pay for actually doing very little. I’m a
businessman. Listen, we all– we chief executives get an awful lot of credit
that we don’t deserve. Real work in companies is done by the people who are
getting themselves together and doing the hard work of making companies grow–

So, Milton knew of externalities, and a need for governance. Although it’s already in the constitution and should not be debatable. Cactus’ is showing us ideology matters. And now a person who makes money from money is telling us the current ideology has gone to far. What’s next? The World Bank seeing the light? Glad you asked. That is exactly what is next.

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Doing Business, World Bank ranking

Just a little break from the usual. Did you know you can pay your taxes easier in Iraq than in the US?

I stumbled across this today. It is the World Bank page on Doing Business. It ranks 178 countries on 10 topics. You can resort the order depending on 3 different settings. When you initially open the page you see the overall order.

Interestingly, the US with it’s over all ranking of 3, under ease of paying taxes: 76th. Iraq ranked 37 under this topic and is not even at the bottom over all! It even ranks 40th on registering property. But it is 164th on starting a business and once you start it, you probably can’t close it as that topic ranks 178 (the bottom).

Have fun.

Update: There is a report that goes along with this. Doing Business in 2005

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Even earlier Cheney

I have intentionally let others post about the politics of this war wanting to keep the focus on economics as that is what attracts me to this blog. BUT…for all the postings here that have resulted in supportive comments for the war, please explain this.

Dick Cheney at the Economic Club of Detroit in 1992 (2 years earlier than the 94 Cheney). Note that Cheney refers to the objectives and achieving them. Note the mention that going in would have resulted in the “disintegration of the Arab coalition”. “The world was with us” was not a post 9/11 phenomenon. It was who we always were.

“It’s not the kind of situation where you could pull up in front of the presidential palace and say common Saddam you’re going to the slammer.”

“For the 146 Americans who were killed in action and for their families it was not a cheap or a low cost conflict.”

I new when Bush was first running he wanted a war. It was in what he was saying. My sweety and I wonder how those supporting him could not see this assuming a reasonable person would not want a war talking president when there was no war potential in sight.

So please (I’m being polite here) tell me how this current war was undertaken for my benefit? Before you hit that comment button, read this too.

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