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

Greenspan vs Klein on Democracy Now

Just an FYI related to recent postings here. Democracy Now for 9/24 has about a 38 minute discussion with both Naomie Klien and Alan Greenspan. The remaining minutes is with Jeremy Scahill.

This particular exchange caught my attention:

AMY GOODMAN: Alan Greenspan, you write in the end of your book, “A Federal Reserve System that will be confronted with the challenge of inflation pressure and populist politics that have been relatively quiescent in recent years” is something that is very significant. You say the year — the United States in 2030 is likely to be characterized by populist politics that have been relatively quiescent in recent years. How important is populist politics, and what do you envision those to look like?

ALAN GREENSPAN: Well, remember what populist politics is. It’s a very special brand of short-term focus, which invariably creates very difficult long-term problems. A goodly part of the book, as you know, is written about how populism has gripped, say, many Latin American countries to their detriment. And the term “populist politics” is essentially another way of saying short term versus longer term. And people who emphasize short-term benefits for long-term costs end up with very little in the way of economic growth and prosperity.

Personally, I have never viewed populism as short term viewing. Infact, I read nothing at Wikipedia that suggested such.

Populism is a political doctrine or philosophy that purports to defend the interests of the common people against an entrenched, self-serving or corrupt elite.

I think Mr. Greenspan has a little projection (in pysch terms) happening here. Naomie Klein furthers the question and raises his policies as playing a part in the rise of economic populism. His answer, we have bad education. She follow up on his example of Latin America:

But you also mentioned economic populism in Latin America in your book, and you blame it for inflation episodes and the collapse of regimes and the toppling of governments, and one of your examples was Chile in the 1970s. Was Chile — was Salvador Allende’s regime toppled because of inflation, or didn’t the CIA have something to do with that?

ALAN GREENSPAN: Well, look, let’s — I’m using Latin America as an example. The key question is not Latin America. Let’s get back to the United States. Let’s get back to the world at large and face the issue of populism here. Remember, the populist issue in Latin America goes back to the roots of Spanish and Portuguese colonization.

I’m sorry, but if that answer wasn’t a classic “troll” response I don’t know what is.

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Growth, more than freedom of capital

We have been discussing a lot of economics through the political viewer lately. And I certainly have laid my point of view out there, but I also like the theory discussion. I like to think and know how stuff works or how someone interprets what they see. I believe discussing theories leads to better political discussion. With that, I hope this might inspire some tangent topics into the political here at AB.

This is a paper out of France by Robert U Ayres & Benjamin Warr titled: Accounting for Growth: The role of physical work

They suggest the increasing extraction of work from energy do to the increasing development of energy use is the missing factor that explains our growth.

“However the major result of the paper is that it is not `raw’ energy (exergy) as an input, but exergy converted to useful (physical) work that – along with capital and(human)labor – really explains output and drives long-term economic growth.” “However, if we replace raw energy as an input by `useful work’ (the sum total of all types of physical work by animals, prime movers and heat transfer systems) as a factor of production, the historical growth path of the US is reproduced with high accuracy from 1900 until the mid 1970s, without any residual except during brief periods of economic dislocation, and with fairly high accuracy since then.”

There key concept is the definition of exergy.

“The formal definition of exergy is the maximum work that could theoretically be done by a system as it approaches thermodynamic equilibrium with its surroundings, reversibly. Thus exergy is effectively equivalent to potential work. There is an important distinction between potential work and actual work done by animals or machines. The conversion efficiency between exergy (potential work), as an input, and actual work done, as an output, is also an important concept in thermodynamics. The notion of thermodynamic efficiency plays a key role in this paper.
To summarize: the technical definition of exergy is the maximum work that a subsystem can do as it approaches thermodynamic equilibrium (reversibly) with its surroundings.”

This summarizes their theories development:

The supposed link between factor payments and factor productivities gives the national accounts a direct and fundamental (but spurious) role in production theory. In reality, however, (as noted in the introduction) the economy produces final products from a chain of intermediates, not directly from raw materials or, still less, from labor and capital without material inputs. In the simple single sector model used to `prove’ the relationship between factor productivity and factor payments, this crucial fact is neglected. Allowing for the omission of intermediates (by introducing even a two-sector or three-sector production process) the picture changes completely. In effect, downstream value-added stages act as productivity multipliers. This enables a factor receiving a very small share of the national income directly, to contribute a much larger effective share of the value of aggregate production, i.e. to be much more productive than its share of overall labor and capital would seem to imply if the simple theory of income allocation were applicable [Ayres 2001a].

If this is true, then we have a bigger problem concerning how to keep this boat floating than subprime lending and fed rates. We have a policy problem. And that speaks to all the work Cactus has done about presidents.

Related to Cactus’ work, this chart from the this paper is interesting. It is the unexplained portion of growth by their theory.

Note that this phenomenon begins right about where we see the lowest point of the top 1% share of income, just after we see the split of productivity from wages and the beginnings of the supplyside policies and a change to a net debtor nation. The authors suggest some of this is do to conservation.

“We conjecture that a kind of phase-change or structural shift took place at that time, triggered perhaps by the so-called energy crisis, precipitated by the OPEC blockade. Higher energy prices induced significant investments in energy conservation and systems optimization.”

They further refine the explanation with:

“The marginal productivity of capital has started to increase whereas the marginal productivity of physical work – resulting from increases in the efficiency of energy conversion – has declined slightly.”

Could this marginal capital productivity increase be a result of our policy focus on capital as the driver of growth? Money from money? Are we seeing in their explanation that part of our growth that is borrowed from our future, thus artificially created?
As I read this paper it made me think about the European economies who have been focusing on alternative energy development, wind in Denmark, solar in Germany, (Japan), wave generation in England and northern parts, geothermal in Iceland/Greenland. This paper to me suggests that this coming election has at the core of all our topical issues (health care, war, inflation) energy. As the authors conclude keeping in mind peak production issues and the declining output of Saudi’s fields:

“From a long-term sustainability viewpoint, this conclusion carries a powerful implication. If economic growth is to continue without proportional increases in fossil fuel consumption, it is vitally important to exploit new ways of generating value added without doing more work. But it is also essential to develop ways of reducing fossil fuel exergy inputs per unit of physical work output (i.e. increasing conversion efficiency). In other words, energy (exergy) conservation is probably the main key to long term environmental sustainability.”

Is China in trouble? There is a start of a discussion about peak oil and it’s potential effect here.

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Never thought I’ld make it to the aristocrat class

We have a lot of discussion about the moral hazard of Iraq, related to life (the trump card), but I think we need more discussion concerning the policies related to the flow of money because after all, this is an econo blog. Thus, these two articles. The first one: The Great Iraq Swindle (RollingStone) and the second one: The Mercenary Revolution (The Indypendent).
First, are you an aristocrat?

Both of these are reporting on the extent of privatization that has taken place concerning our security. I’ll get right to my point of the question: We are paying people dirt to do our dirty work. We have collectively become a nation that insulates it’s responsibility for all that is a military involved exercise by buying our war making. We just go to War is Us, sign a contract and wah la, we have the fight’n 9th or 99th or 101 or what ever and no one has to ever worry again about that little question of “did you serve?” Nope, we can now without the risk of harm to our person or our mind bench race our wars. And the race is not about winning the ideologic battle of democracy vs something else. No, it’s about getting yours.
From the first article, The author’s sums it up:

It was an invasion of the federal budget, and no occupying force in history has ever been this efficient.
In Iraq the lines between essential government services and for-profit enterprises have been blurred to the point of absurdity — to the point where wounded soldiers have to pay retail prices for fresh underwear, where modern-day chattel are imported from the Third World at slave wages to peel the potatoes we once assigned to grunts in KP, where private companies are guaranteed huge profits no matter how badly they fuck things up.
This is the triumphant culmination of two centuries of flawed white-people thinking, a preposterous mix of authoritarian socialism and laissez-faire profit­eering, with all the worst aspects of both ideologies rolled up into one pointless, supremely idiotic military adventure — American men and women dying by the thousands, so that Karl Marx and Adam Smith can blow each other in a Middle Eastern glory hole.

We’re taking about profit­eering at the expense of the commons. It is our budget going to hell. It is our future spent today. It is our children carrying us. To me, it is selfishness to the extreme. It is what I think of with the use of the word aristocrat. That it is done in our name being that we are the government means we are aristocrats in persona.
As aristocrats, we are keeping it close to family:

[Bush] named Jim O’Beirne at the relevant evaluation desk in the Department of
Defense….he sent a twenty-four-year-old who had never worked in finance to
manage the reopening of the Iraqi stock exchange, and appointed a recent graduate of an evangelical university for home-schooled kids who had no accounting experience to manage Iraq’s $13 billion budget. James K. Haveman, who had served as Michigan’s community-health director under a GOP governor, was put in charge of rehabilitating Iraq’s health-care system and decided that what this war-ravaged, malnourished, sanitation-deficient country most urgently needed was . . . an anti-smoking campaign.

Throughout the article there is the theme of exemption, exception, and favoritism. Are these not the means of play by aristocrats? Referring to the Custer Battles company:

The Bush administration not only refused to prosecute the pair — it actually tried to stop a lawsuit filed against the contractors by whistle-blowers hoping to recover the stolen money. The administration argued that Custer Battles could not be found guilty of defrauding the U.S. government because the CPA was not part of the U.S. Government.

A judge set aside the jury’s guilty verdict. Oh the life of an aristocrat.

There is more, read the article. Half way through it is suggested that these activities are a result of a lack of patriotism. But, aristocrats are very patriotic. One might say super patriotic. Are we not?

None of this could take place without the removal of the responsibility for the physical execution of a military exercise via privatization of the military. Why do we not see more protesting? Because we are all allowed to be aristocratic in our relationship to this military adventure. From the second article:

If you think the U.S. has only 160,000 troops in Iraq, think again. With almost no congressional oversight and even less public awareness, the Bush administration has more than doubled the size of the U.S. occupation through the use of private war companies. There are now almost 200,000 private “contractors” deployed in Iraq by Washington. This means that U.S. military forces in Iraq are now outsized by a coalition of billing corporations whose actions go largely unmonitored and whose crimes are virtually unpunished.

The single largest U.S. contract for private security in Iraq was a $293 million payment to the British firm Aegis Defence Services, headed by retired British Lt. Col. Tim Spicer, who has been dogged by accusations that he is a mercenary because of his private involvement in African conflicts. The Texas-based DynCorp International has been another big winner, with more than $1 billion in contracts to provide personnel to train Iraqi police forces, while Blackwater USA has won $750 million in State Department contracts alone for “diplomatic security.”

We’re even paying people outside the military to guard our generals!

What is unique about this period of aristocratic war playing is that the aristocrats are not just hiring out the war labor, but are the company them self and thus as is consistent with aristocratic play, exempt them self and by extension anyone they pay from the hell they create.
We are holding no one responsible.

Dozens of American soldiers have been court-martialed — 64 on murder-related charges alone — but not a single armed contractor has been prosecuted for a crime against an Iraqi. In some cases, where contractors were alleged to have been involved in crimes or deadly incidents, their companies whisked them out of Iraq to safety.
Rep. Jan Schakowsky (D-Ill.), a leading member of the House Select Committee on Intelligence, which is responsible for reviewing sensitive national security issues, explained the difficulty of monitoring private military companies on the U.S. payroll: “If I want to see a contract, I have to go up to a secret room and look at it, can’t take any notes, can’t take any notes out with me, you know — essentially, I don’t have access to those contracts and even if I did, I couldn’t tell anybody about it.”

This is not Bush et al alone. He is only the elected executive with an elected board (congress) representing us in our governance of us. So, as he and they act in an aristocratic style, we are too acting in an aristocratic style. Sounding convoluted? Yes, it is what comes of a means constructed to immune one’s self from one’s actions.

The article also discusses the business model for our new privatization of all that is military. It is consistent with what we have discussed concerning globalization. It is referred to as the “branding” of the military, “a hollow company like Nike”. And as would be expected, they are doing it on the cheap by outsourcing the labor. Literally hiring military personal from defunct 3rd world dictatorships.

On so many levels, morally, ethically, what ever you call it, not being responsible for your own actions is wrong. Some may think they are exempt from being labeled an aristocrat because all these aristocratic actions Bush et al are doing are considered to be outside the government by Bush et al. If it were only so easy. Darn government of, for and by the people!

But, let’s consider what we have created with our aristocratic attitude that is more germane to this blog. From The New Yorker, Hendrik Hertzberg reports:

At a forum on foreign policy, Lorelei Kelly, a former Capitol Hill
national-security aide who blogs at Huffington Post and democracyarsenal…

In that connection, she made another point that was new to me. The military-industrial complex produced by the Cold War …was and is able to prosper in the absence of actual fighting. The purpose of piling up all those missiles targeted on the Soviet Union, after all, was to avoid using them. But the kind of privatization represented by the gun-toting Iraq war contractors has created what she called “a live war military-industrial complex”—that is, an industry that depends for its profits, even its existence, on hot wars, wars that kill people. “Free-market conservatives have given us this,” she said. “In conversations with military people, it’s an opening to all sorts of other issues.”

We created this now multibillion dollar, job creating, money making new addition to our GDP — how do we now get rid of it when Iraq is done?

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Make a better election choice

Just want to let everyone here know of this web site I heard about. It is My Election Their opening statement:

Isn’t your vote for President worth more time than a game of Sudoku?

This site helps you learn which candidates most agree with you. The creators of the site have taken statements made by all the presidential candidates and classified them into 18 categories. You then check off the statements you agree with. You are blinded as to which candidate made the statement.

I have done 2 categories that each had 3 pages of statements. When you click Finish, you are taken to a page that has a bar chart showing you the relationship of agreement you have with each candidate. As you complete a category, it adjust your chart to reflect the summation of agreement with each candidate.

I have completed On Taxes, Spending and Fiscal Policy and On Trade and Globalization. Interestingly, so far I have agreement on 8 Clinton statements, 7 Ron Paul, 5 each for Dodd, Hunter, Richardson and Tancredo. It goes down from there with the other candidates to where I have only 1 statement of agreement with Biden and Brownback. I have to say, some of the statements I agreed with I did not expect to have been made by the particular candidate. You are shown in the results who made each statement and the percent of agreement to date of all those who have completed said category.

You can also see what the cumulative is for all those who have completed all the categories based on topic, gender or most popular category. Currently the leading candidate at 27% based on topic is Dodd. At 23% is Kucinich, Hunter, and Huckabee. Clinton is at 11% as is Gravel!

I think this site is just what has been missing in our modern elections. It give one an opportunity to work through all the candidates’ positions while minimizing the prejudice you might have already assigned to a candidate. It is a way of cutting out the coloring that our media adds to our learning about a candidate.

I encourage you to give it a run. But, as they suggest, only pick one or 2 categories to start. You can go back anytime and pick up where you left off. I think you’ll be pleasantly surprised. Enjoy.

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Guess we don’t want all that Globalizing has to offer?

By way of Crooks and Liars comes an article about our declining international tourism industry. This article is a personal account of stopping in the US as the author travels from London to New Zealand.
The first paragraph is the econ specifics:

The travel and tourist industry is one of the United State’s biggest money-makers, generating $103 billion in tax revenue every year. Without this tax revenue, every American household would pay nearly $1,000 more in taxes every a year. But while the travel business is flourishing internationally, tourism to America has been on a steep decline, dropping 36 percent between 1992 and 2005, with a loss of $43 billion in 2005 alone. The nation’s international tourism balance of trade declined more than 70 percent over the past 10 years – from $26.3 billion in 1996 to $7.4 billion in 2005.

Don’t stop there. Read about how the author’s fellow passengers were cataloged via photo and finger prints even though they were not visiting the USA. They were just stopping over for fuel. Is it any wonder we are seeing such a decline in tourism? One passenger summed it up:

‘You bloody Yanks seem to think terrorism is something new and only ever happens to Americans,’ he groused to me… ‘We’ve had the IRA and the French have the Algerians and the Spanish have ETA. Now you know what the rest of Europe’s been living with for the last few hundred years. Why don’t you lot just grow up?’

I know our reputation in the world has become suspect via what is reported, but people with first hand accounts such as what these passengers experienced I would assume are more probative when judging us. What these passengers experienced is the results of setting policy as driven by paranoia. I personally do not want to be associated with such a mind set. At the same time, what the heck happened to all that we learned from the focus on paranoia and it’s harm in the 60’s? I can recall many bands having songs about it as we became aware of how it was driving policy then. This is one of my favorites:
Grand Funk Paranoid:

Did you ever have that feeling in your life That someone was watching you? You don’t have no reason that’s right But still he’s there watching you Someone is waiting just outside the door To take you away

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Social Security, the new method of income redistribution

Get this. The problem is that globalization is being threatened, all that good could be lost. The solution; Social Security.

In the July/August issue of Foreign Affairs (published by the Council of Foreign Relations) is an article: A New Deal for Globalization by Kenneth F. Scheve is Professor of Political Science at Yale University. Matthew J. Slaughter is Professor of Economics at the Tuck School of Business at Dartmouth.
Seems some people somewhere are getting concerned that their pet project might be getting derailed.

Advocates of engagement with the world economy are now warning of a protectionist drift in public policy. This drift is commonly blamed on narrow industry concerns or a failure to explain globalization’s benefits or the war on terrorism. These explanations miss a more basic point: U.S. policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes.”

The authors say they don’t know why the incomes are falling, that there are no clear answers:

“Over the last several years, a striking new feature of the U.S. economy has emerged: real income growth has been extremely skewed, with relatively few high earners doing well while incomes for most workers have stagnated or, in many cases, fallen. Just what mix of forces is behind this trend is not yet clear, but regardless, the numbers are stark.”

First — “new feature”? Did they not read about the early years of the rise of the industrialists and the division in income way back when? Or is it that they as others took for granted that those making the money via globalizing their operations were going to be nice to those who worked for them at home and share the spoils via wages. Now that would have been a “new feature”. Being nice that is. I know, maybe they just thought everyone could and would outsource their own labor.

Actually, they do know about the old days:

“By some measures, inequality in the United States is greater today than at any time since the 1920s.”

What’s the solution to rising protectionism talk? Well, first what is not going to work (read carefully all you who think it’s just a matter of the populace getting off their intellectually lazy butts):

“They must also recognize that the two most commonly proposed responses — more investment in education and more trade adjustment assistance for dislocated workers — are nowhere near adequate. Significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect.”

So, go to school, get a job is not it. Darn! The solution envelop please, (I’m so nervous):

“The best way to avert the rise in protectionism is by instituting a New Deal for globalization — one that links engagement with the world economy to a substantial redistribution of income. In the United States, that would mean adopting a fundamentally more progressive federal tax system.”


“The notion of more aggressively redistributing income may sound radical, but ensuring that most American workers are benefiting is the best way of saving globalization from a protectionist backlash.”

And they said they didn’t know why “income growth had been extremely skewed.” Well, if they didn’t know, then how is it they are channeling what was proposed before? They are even referring to it in it’s historically correct name: New Deal.

The article is very basic thinking and made me wonder why does it take 2 professors writing for 6 pages to state what I was taught under the lesson of morals: that is to share and share alike,
And then under the lesson of civics: that is social commons,
Then what I learned in history: Ford paying the help and Roosevelt’s New Deal. Why?

I think the answer is because then they could not write as if skewed income distribution is “a striking new feature” and thus suggest as an example of effecting redistribution by targeting the last remaining New Deal concept expressed in the program commonly called Social Security. They specifically rule out that other monster of a New Deal brain storm:

This does not, however, mean making the personal income tax more progressive, as is often suggested. U.S. taxation of personal income is already quite progressive. Instead, policymakers should remember that workers do not pay only income taxes; they also pay the FICA (Federal Insurance Contributions Act) payroll tax for social insurance. This tax offers the best way to redistribute income.”

Well if that is not the ultimate bastardization of the purpose of Social Security. It’s now proposed to use it as an income redistribution machine.

Think I’m being to distrusting?

“In many ways, today’s protectionist drift is similar to the challenges faced by the architect of the original New Deal. In August 1934, President Franklin Roosevelt declared:
“Those who would measure confidence in this country in the future must look first to the average citizen. . . .”

See, they know the answer. They know exactly what they are doing here. By the way esteemed professors, stupid is not written on our foreheads.

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What’s old is New Again

This NY Times piece is making a comparison to yesteryears when those mansions in Newport, RI were built. It starts with Sanford I. Weil of Citigroup and how he compares to Andrew Carnegie.

First, how does this period compare:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics. (I have posted from their data in the past.) Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash.

Mr Weil view:

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” “I want to give away my money rather than have somebody take it away,”

We have Mr. Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared:

“The money is a byproduct of a passionate endeavor.”
“We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.” “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Such positions are summed up with:

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York. and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Really? They are the Trustees?

Can it be anymore egocentric? Why yes they can:

Lew Frankfort, chairman and chief executive of Coach the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument. “The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.” (Like this was not needed in the past?)

Please note, Mr. Frankfort is not emphasizing the manufacturing, he is emphasizing the marketing.

What would be the “problematic circumstances” of being more progressive in the tax structure? Why do they not want to pay the help that they acknowledged got them where they are? Even in the good old days of Carnegie, paying the help was not considered a charitable thing to do.

I have posted that things have changed. We make money differently today. The article notes:

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

The article does offer counter opinions to this self aggrandizement. I’ll leave it to you to read the rest except for this which I think sums up the counter opinion (in a more polite manor than I would have):

“I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

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Buffet wants to "soak the rich" too?

Well, at least equalize the rates at a minimum. But as you read from CNN, he seems to be suggesting something more at least for a certain means of income earning.

From the Washington Post:

Buffett cited himself, the third-richest person in the world, as an
example. Last year, Buffett said, he was taxed at 17.7 percent on his
taxable income of more than $46 million. His receptionist was taxed at about 30 percent.
A populist tone permeated the 70-minute talk with the billionaire
investor and philanthropist in Manhattan on Tuesday night. The
talk, given to about 600 Wall Street bankers and money managers, raised at least $1 million for Clinton’s presidential campaign,…
Buffett said that he and other privileged Americans must do more to help the less fortunate.
“We have the chance in 2008 to repair a lot of damage,” Buffett said.

CNN has this take on the speech:

The … chairman touched on a variety of issues in a question and answer session
with Clinton, including his disdain for private equity firm power brokers.

“The people that earn their living doing that should be subject to taxes that reflect their labors,” he said in the gathering at a hotel in midtown Manhattan.
Buffett said he makes $46 million a year in income and is only taxed at a 17.7 percent rate on his federal income taxes. By contrast, those who work for him, and make considerably less, pay on average about 32.9 percent in taxes – with the highest rate being 39.7 percent.
“I’m willing to bet anyone in this room $1 million that those rates are less than the secretary has to pay,” said Buffett.

Does he really mean it? I think he does. Unfortunately, just raising the tax rates is not going to solve the problem when the problem is pay. Raising the rates is a start, it will help with the deficit issue but it will do little for those who are earning a majority of their income via wages (which is 95% of the citizens if you recall my posts of the past). It does nothing to reverse the shift in share of income. If people in Mr. Buffet’s income bracket are truly concerned about the people, they can start by paying their help more. Doing such would be a true expression of the founders concept of freedom, that is the economic freedom part of the concept. Unfortunately I do not read anywhere of anyone suggesting that. Instead they seem to be focusing on a paternal benevolent model of helping the less fortunate (those earning less than the Wall Street Bankers).

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Any thoughts on the fuel costs?

I was tanking up the other day. The Caravan fortunately and not the truck (33 gallons) when I noticed that diesel was about $0.20 less than regular. That seemed unusual from my recollection and got me wondering. So, I found this site by our government titled Energy Information Administration.

You can down load all sorts of spread sheets. I picked the ones that had pricing and gallons sold in total and by US refiners.

First the total sold.
The black line is gasoline, the red is diesel. Both are millions of gallons times 100.

Rather slow rising trends here. Infact, our gasoline use has only risen 39.53% from March 1994 to a peak in June 2005 at 39.53. Diesel peaked at 14.33 in June 2006. An increase from March 1994 of 53.1%.

Next is US refiners output.
Again., black is gasoline, red diesel in million of gallons times 100.

Notice the decrease? Interesting that diesel was declining first. Gasoline output peaks at 6.54 in the last quarter of 1998 and the same in June 2001. It comes close in June 2002 at 6.49. The grandaddy is June 2003 at 6.68. From there it’s down hill to levels below the June 1996; 5.74 in March of this year, 5.78 in June 1996. Diesel peaks at 2.44 in March 2001 and never sees past 2.0 after March 2002. The only other time we saw less than 2.0 was December of 1994.
Did we suddenly start loosing refineries? We were putting out more every year until “everything changed”. Hummmmmmmmmmm.
And now for the money. Gasoline is black, diesel is red.

Here is the world crude oil price by year.
It does look like the gasoline and diesel price lines. Your thoughts?

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Longer view of savings vs disposable income

Updated below.

Cactus’ post got me thinking. And, holding true to my thought that we have changed our focus I decided to take a longer view.
First is at chart by year from 1929 to 2006 of the savings % of disposable income.

Notice the WWII years? This is the same time income from entrepreneurship was peaking. But, we don’t see the same relationship during the 90’s.

Income from interest looks similar too. As I noted in a prior post, the interest income curve followed the Fed Rate curve. The interest income peak coincides with the percentage peak of savings in the first chart. The savings % of disposable income peaks in 1982 at 11.2 and the income from interest peaks in 1981 for all 3 groups. (Note the scale range is different so that the peak for interest looks greater.)

What is most interesting, is that share of income from wages is peaking just after this for the top 5%. The 95 to 99 group at 76.4 in 1983, the to 1% at 66.1 in 1984 and the top 0.1% at 53.9 in 1984. Only the top 0.1% see an greater peak after this and it’s in 2000 at 58.2 % of their income from wages.
Income from rents and dividends decline from the mid to late 20’s until rent income starts to rise in 88/89 and dividends income changes direction in 2000.
I would say that savings is a function of income from wages (updated) and interest rates. There could be a factor related to people investing in entrepreneurship, but it is a special circumstance. That the trend for savings is down after the Reagan revolution continues to suggest to me that we have changed our thinking about how to make money.
As to Cactus’s concern about increased savings in a down turn, I looked a the individual quarters of each recession (years prior to 1947). Overall, savings goes down during the recession. When it goes up, it is an oddity. They are 1969, 1980 and 1990. The 1969 is truly odd in that the rise is a change of 1.5 where as the other two are only 0.5. And they we have 2001 with it’s one quarter that has a freakish increase followed by a death dive.
Recessions via NBER
8/1929 to 3/1933 43 months 4.5 to -1.5 (4.5, 4.1, 3.9, -0.9, -1.5 by year)
5/1937 to 6/1938 13 months 6 to 2 by year
2/1945 to 10/45 8 months 20.4 (years around the war 41 to 46: 12.2, 24.1, 25.6, 26.1, 20.4, 9.6)
11/1948 to 10/1949 11 months 8.0 down to 4.3 (8, 5.9, 4.7, 5, 4.3)
7/1953 to 5/1954 10 months 8.4 down to 7.4 (8.4, 8.4, 8.6, 7.4)
8/1957 to 4/1958 8 months 8.6 down to 8.3 (8.6, 8, 8.4, 8.3)
4/1960 to 2/1961 10 months 7 to 8 (7, 7.4, 7.1, 8)
12/1969 to 11/1970 11 months 8.5 to 9.9 (8.5, 8.4, 9.5, 10, 9.9)
11/1973 to 3/1975 16 months 11.7 to 9.8 (11.7, 11.2, 10.2, 10.1, 11, 9.8)
1/1980 to 7/1980 6 months 9.5 to 10 (9.5, 9.9, 10)
7/1981 to 11/1982 16 months 11.5 to 10 (11.5, 12.2, 11.6, 11.8, 11.4, 10)
7/1990 to 3/1991 8 months 6.9 to 7.3 (6.9, 6.9, 7.3)
3/2001 to 11/2001 8 months 1.9 to 0.5 (1.9, 1.2, 3.4, 0.5)
Cactus mentions GW’s worst years. It is interesting when we look at interest, rent, dividends and entrepreneurship.
For the 90 to 95 group we see their income coming from dividends (1.5 rise to 1.9) and rent (.03 rise to 1.2). Are we seeing the effects of investing in 401K’s and real estate? Interest goes down from 2.1 to 1.8% of total income.
The 95 to 99 group is the same. Dividend rise from 3.2 to 4.7 and rent from 1.8 to 2.2 with interest income declining from 3.9 to a low of 2.9.
Even the top 1% is similar. Dividend income rises from 4.2 to 6.6. Rent rises from 2.5 to 2.7 and interest declines from 5.1 to 4.8.
Income from interest is at it’s lowest in 2004 for all 3 groups.

But, when we look at the top 0.1% we see the greatest rises here. Dividends goes from 5.2 to 10. Rents don’t rise as great as the lower 2 groups going from 2.9 to 3.1. However, interest income does the opposite of what we saw, it rises from 6.7 to 7.1. The other groups fell.

The key to the puzzle I believe is in the income from entrepreneurship and the amount of income in the top 1%. For the lowest 2 groups income from entrepreneurship rises. 5.0 to 7.4 in the 90 to 95 group, 18.9 to 21.5 in the 95 to 99 group. The top 1% has a healthy change from 26.5 to 29.1, but the top 0.1% only rises form 31.3 to 35.1. As a % change this is the smallest.

The income in 2005 for the top 1% was approximately 2.5 trillion dollars. In 2005 the top 1% has about 22% of the income, the top 0.1% has 11%. We are talking a lot of money in the top 0.1%. I think it is enough to influence savings when you consider that the 0.1% group is earning a rising percentage of income from saving type investments than from income generating investments. They are the only group with an increase in income from interest. The rest of the people, mainly the 90 to 99% group are putting their money into things that make income. That is business, income generating real estate and stocks .
Thus, what we are seeing is a trend that as income goes up (with the majority from wages for all) people put their money in to savings vehicles of less risk. The 0.1% crowd is packing it away in interest bearing stuff. Those at the lower end will try to increase their income via income generators; entrepreneurship and rents. Being that equity does not count as savings, such only shows up in rents. Entrepreneurship would not show up in the savings rate either. It appears we have a transition from trying to increase income via work through entrepreneurship and real estate to more passive income of dividends to just plain playing it safe with interest when you have income that puts you in the stratospheres (about $5.5 million per year) as oppose to the $96K entry fee to the top 10%.

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