Fixing Eruope’s Budget Mess

This is both simpler, and harder, than Fixing America’s Budget Mess.

It is simpler because any of several political bodies can just “do what it takes”. To fix the USA mess will take action by an agreed collective of US States sufficient to revert the Constitution to a form that recognizes the ills of Democracy and puts back in place the checks and balances on spending, devolving power back to the States, and diminishing the push to Socialism.

It is harder because most of the possible “fixes” are very messy and unpleasant. Worse, those that ARE proposed are often very poorly matched to the problem and unlikely to fix it in any case.

The Problem

The problem is a structural one. Germany has a larger stronger productive capacity than the other nations of the EU. It also has a stronger work ethic and more tightly focused and controlled economic structure. Basically they work harder, smarter, and save their money. In the merger of nations that made the EU, Germany essentially got a built in Mercantilist Advantage.

Normally in a trade zone with free trade and different currencies, any trade imbalance would be met with a change of relative exchange rates for the respective currencies. The producer that “wins” too much, has their currency rise in price. Their goods become relatively more expensive (so fewer bought) in the other countries. The less effective economies have their currency erode. Their products become relatively cheaper, so more are sold. This set of lower sales by the “winner” and larger sales by the “loser” eventually leads to a new equilibrium between the two countries on exchange.

In a case like China, where they have pegged to the $US, such exchange rate changes are prevented, or slowed to a crawl. This builds in a structural advantage in marketing goods. Businesses in the “target” of the mercantilism gradually die out under the continued pressure from lower cost goods. Yet no adjustment can happen in the currency. The economy practicing mercantilism gains a growing and robust economy, but at the cost of lower effective labor rates being paid to their citizens and less import of foreign goods. (There will also be inflationary pressures inside their country if the other country floods liquidity. Essentially, the peg causes the action of the target country Central Bank to have effect in the mercantilist country instead. That is why as the US Fed eased money, China had inflation spike up. The easy money flows to the mercantilist and has impact there.)

So in the EU, the “winners” continue to win and will push very hard against any tendency to inflate the currency as much of that effect would show up in their part of the economy.

Often the USA will be held up as an example for the EU to emulate. What this misses is that within the USA there are effectively no barriers to the movement of industries and population from region to region. If one State, such as California today, has a crazy high budget deficit, is raising taxes, and promising benefits that can never be sustained; the people will just pack up and leave. (At present, even the Illegal Aliens from Mexico have been net returning home…) There are no language barriers to leaving. No cultural barriers. Companies can close factories with little notice and low penalties. The major employer in my old home town, a peach cannery, simply closed up and left town. The local peach farmers, with many orchards established, were told to find some other cannery to use their fruit. (The nearest being a fairly long truck haul away). That kind of flexibility is not available in the EU.

So, at present, Texas is growing like crazy with loads of folks flooding in from California. North Dakota has an economy thriving on new oil finds and exploitation. Folks building new facilities in large numbers. Detroit has shrunk dramatically with a loss of about 1/2 of their population and a large cut in local industry.

Would the EU be “happy” with Athens shrinking by 1/2 in the next decade and those folks moving to Munich and Bonn? Would the French be happy with the local canneries and food packers just shuttering operations and moving them to Greece? Would they remove the laws that prevent that kind of rapid change?

That is a “cost” of economic integration that I think the EU has not yet realized.

Financial Integration

Without that mobility and flexibility, the US style “let a region just deal with the consequences” will not work in Europe.

The ghost towns of the Old West, the Gold Rush of the ’49rs to California, the post W.W.II diaspora, and so many more all have their ongoing equivalent. Detroit is shrinking by leaps. Stockton, in California, a bedroom community boom town 2 decades ago has now filed for bankruptcy. Would the EU be “OK” with Madrid filing bankruptcy and walking away from public debt and obligations? That apparent chaos is a structural norm in the USA. It is also an essential consequence of having all our regional economies ‘joined at the hip’ via one currency.

California can not depreciate away its public debt, nor can it depreciate the California Ruble to make the pensions it must pay “cheaper” in foreign exchange earned from sales of fruits and vegetables to Texas. It can only either cut services and the budget (“austerity”) or raise taxes that will drive even more population and jobs / industry out of the State. (So far they have been resistant to cutting expenditures and benefits, and the loss of business and population and the tax base that goes with them continues…) They have been just borrowing more money, but are reaching the point where borrowing costs are prohibitive.

A few years back, before things got really really bad:

http://latimesblogs.latimes.com/money_co/2009/03/california-may.html

High yields in California bond sale could tempt investors
March 20, 2009

California may be forced to pay some rich yields next week to sell $4 billion in tax-free general obligation bonds.

That could present an opportunity for income-hungry investors in mid- to upper-income tax brackets.

As of Thursday, the talk in the market was for annualized yields of about 4% on the five-year bond in the deal and about 5% on the 10-year issue, just to give two examples.

So 5% Bonds then. Rather close to 6% bonds now in some EU states with “issues”…

In my opinion, this is clear evidence that tying closely together State (or Nation State) economies under one currency with one Central Bank does nothing to remove the effects of State over spending on benefits, government pensions, and social programs. Nor does it reduce their borrowing costs. Nor does is solve the loss of jobs and industries.

It would be far worse if the people of California could not (or would not) leave for places like Texas and North Dakota. Or if the folks from Detroit could not move to Florida.

I would suggest to folks in the Euro Zone who think that “Tighter Financial Union” would solve the problems to take a long slow look at California, our present Greek Like trajectory to financial ruin, and our debt problems and bond costs. It is not significantly improved compared to Spain, or Italy, or… We are still faced with a choice of “Austerity” or “Higher Taxes – with more job loss” or runaway borrowing costs and economic collapse. We may get to find out if a State can declare bankruptcy in some way. None of that is any different here, with tight fiscal union.

These are the same choices facing Greece today.

Eurobonds

As these do not actually exist, it is a bit hard to figure out exactly how they might work.

http://www.breakingviews.com/euro-bonds-will-be-hard-for-investors-to-swallow/21021978.article

Uses a model of a Eurobond that is based on the proportion of GDP of each economy in the union. This is, essentially, saying that everyone can borrow on the common credit card, but obligation to pay will be apportioned according to ability to pay. (Classical Socialist Mantra: From each according to his ability, to each according to his need.) Unfortunately, it is entirely unclear how the payment is made, or by whom, in the case of default. The immediate effect would just be to dramatically raise borrowing costs in Germany. ( Who just had a debt quality downgrade based on the belief that they will at most get back about 1/2 of the money they have already loaned to the PIIGS.) When fully joined, this would be like allowing California to borrow by selling US Treasuries. All that would happen is California would go even more into debt faster and the US Treasury rate would start rising. Perhaps fairly fast.

It is worth noting that even in the USA the States can NOT issue a US Treasury. We have a common currency, but each State has its own bonds and debt. Integrating the European banks (rather like US Banks) does nothing to change how sovereign bonds are handled, even inside the USA. (Interstate banking only started here a few decades back. When on my honeymoon in Hawaii, I could not deposit a check in my California account in a Hawaiian bank. That’s changed now. But I think that shows that it is not banking integration that made the USA what it is.)

So exactly what integration of financial activity would do to let Spain borrow more is very unclear to me. The only one that “works” for Spain, is a German Credit Card with a German Payment behind it. But if THAT is what is done, all it will achieve is to drain more money from Germany and ruin their credit rating and bond rate as well.

So Germany can loan money to Spain, Greece, and Italy (and get downgrades and higher interest rates) or it can let Spain, Greece and Italy directly borrow on the German Credit line with he same effects. Nothing gained. (PIIGS interest rates would drop a little, until the combined rate rose again, but thats a small window.)

What I see looks like further financial integration is a political goal, not one that fixes the economic problems.

Austerity

This WILL fix the budget mess. But at a political cost that most likely can not be survived. The basic problem is over spending and under working. Austerity reduces the spending. (That will also cause less spending and less economic activity by the folks who lose there jobs and pensions, so there’s a bit of a feedback loop until the crash completes).

It is presently being demanded and presently being found politically unacceptable. Even in a very tight financial integration, the net effect of Austerity will remain the same.

IMHO, some cut backs in various expenditures is a requirement for any solution. It is 1/2 of the whole problem (and perhaps more in some places).

Essentially, a country can have a ‘take’ of about 30% of the GDP and survive, but it works best at about 20%. When total taxation / government expenditures exceed 40% to 50%, economies stagnate and then collapse. Folks just stop working and line up for the dole.

So government programs and pensions need to fit inside that 30% or less band to work well (and preferably 20% or less). Given present Greek and Spanish expenditures, that means some Austerity.

More Taxes

Angela Merkel wants a Tobin Tax or Financial Transaction Tax. These have been around in a variety of forms since long ago and Keynes advocated for wider use. (That right there ought to give some pause…)

The year 1694 saw an early implementation of a financial transaction tax in the form of stamp duty at the London Stock Exchange. The tax was payable by the buyer of shares for the official stamp on the legal document needed to ratify the purchase. As of 2011 it is the oldest tax still in existence in Great Britain. In 1936, in the wake of the Great Depression, John Maynard Keynes advocated the wider use of financial transaction taxes.

I would only point out that a similar “Stamp tax” on tea contributed to the American Revolution…

Politicians like to think that taxes have no effect other than generating revenue. That is never true. Take the California 9+% Sales Tax. A person only has a fixed amount of ‘disposable income’. Taking nearly 10% for the State, means that first off, that person has 10% less “stuff” to enjoy. This causes some of them to move to Texas or Oregon (where there is no sales tax). It also means that tire stores sell 10% less tires, and restaurants 10% less dinners and… This is a simple necessity of having that money not available to the people to spend. 10% is just not spent. The state may spend it, but that money is more likely to go to things like debt service out of State and leave the economy of the area. But even to the extent it spends in State, what is sold is different. More paper and pens, less lunch at Taco Bell.

So putting on a Financial Transaction Tax will cause changes. It may be that financial transactions simply leave the EU. If I can route a trade via London or via Tokyo or via New York, I’ll route to the one that has the lowest costs. If a load of hidden costs are in the EU financial system, they WILL end up in final prices. Tourists will stay shorter periods, or just not come. Some of that is already visible in the costs of visiting the EU. At present prices, I’m not going. Make them higher, my spouse will likely stop asking to go ;-)

Would a Financial Services Tax fix the basic problem? Only if the “problem” is too little money for the Government to spend…

It will not reduce excessive pension, benefits, and Social Welfare Program costs. It will not stop the government from continuing to spend. It MIGHT have a small reduction in debt carrying costs; but ONLY if the various nations actually used the money to pay down debt.

So far, I’ve only seen more taxes used for more spending and more Government payrolls. It might help with some symptoms but not with the disease. California has an initiative on our ballot for November, IIRC, to raise taxes. The legislature could not agree to pass the tax hike, so they are asking the people to do it. If it passes, even more folks will leave the state. That will not help. The Laffer Curve says that once at too high a tax rate, higher rates result in lower tax revenues. We are already well past that peak revenue point. So higher taxes will not make for higher revenues as economic activity will reduce in proportion.

So What Will Work?

There are a couple of things that are known to work. Not too surprising, they are the opposite of what is being proposed.

Throughout time, having floating currency exchange rates has been a common solution to such things. The debtor country devalues their currency, the folks holding that debt lick their wounds, and the local economy picks up as their goods are now cheaper in foreign markets.

Part of the basic problem facing Greece, Italy, and Spain is that they are overpriced, being in German dominated Euros. Furthermore, if they can not practice Austerity and cut their expenditures, the only alternative is to repudiate those expenditures and debts. (Higher taxes will not work, thanks to the Laffer Curve). That repudiation can be a formal default, but that is highly disruptive. Still, it has been done. The more polite mode is the slow default of inflation; but that can only be done if the currency inflates.

IF Germany could be persuaded to let the Euro inflate (and take the inflationary problems that will bring to Germany) then the PIIGS could get some relief. At least until the lenders noticed and added an inflation premium to loan rates…

LESS Financial integration would work. Basically, the PIIGS could leave the Euro and get their own currencies. Then the regional pressures are absorbed into exchange rate changes and the debt overhang can be inflated away without an impact on Germany and other EU countries.

The PIIGS could CUT taxes (cutting back to the other side of the peak in the Laffer Curve stimulates MORE tax revenue and an economic expansion). So look at the counties (in the Baltic countries and some others like Russia and Hong Kong) that have cut tax rates. They boom. Tax revenues rise, payments for unemployment drop.

It is the other half of the “more taxes drive more folks away”; less taxes cause more economic activity and growth. The “underworking” part of the problem is solved. So if you lower taxes, and get more economic growth and tax revenues, then you can reduce Social Welfare Programs without quite so much pinch from the Austerity. Essentially, if you cut government and taxes, the private economy more than makes up for it. This is not a hypothetical. It has been done many times in economic history. Most recently in the Baltic states. This does not solve their German Mercantilism problem, though.

So to fix the ‘internal mercantilism’ that happens with a shared currency and to reduce the need for internal mobility and chaotic change; the more helpful thing to do is to break the bonds to the Euro. Go back to a national currency.

To deal with the insufficiency of tax revenues and economic stagnation, CUT tax RATES (and revenues will increase) while cutting the size and scope of government and removing as much regulatory burden as possible.

That only leaves the issue of the existing bonds and debt. Ideally, the country would simply declare the old debt redominated in their new currency. As this had to be done when they went INTO the Euro, they clearly know how to do this. (It is less clear what laws apply and if it is legal for any given issue.)

FWIW, I don’t expect any of those answers to be what the EU does. I expect the EU will instead go for more taxes, more interventionist central government policies, more tight integration and less flexibility. That won’t work, but it is what I expect they will do. Germans are sure that they can fix things if only they had more control, and the PIIGS are sure that holding tight to the EU and Germany will bring more German money. All of them are sure that they can fix things with enough higher taxes. None of them will want to take the “risk” that a cold plunge into lower taxes and freer economies would entail. Fear and greed. Fear of market solutions and greed for others peoples money.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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61 Responses to Fixing Eruope’s Budget Mess

  1. David says:

    Somewhere in the mix, in the EU and USA, throw in cheap energy and I think you got it. Also I like the comparison of how the US adjusts to a common currency, vs how the EU, once again through central regulation, prevents natural market forces from working.

    What I still cannot grasp is how does this ever become hyper inflation, or even rampant inflation. It appears to me that the world economy is teetering on the edge, There is, and has been a tremendous increase in dollars created, which are either absorbed into debt, or “pushing on a string” never get into the hands of the common consumer, or if they do it is through some “unsubtainable govt program that produces no wealth, and so must be ever fed. I sometimes think that if the several trillion dollars of stimulus had just been literally dropped into each family bank account, we would have had more effective stimulus, But now it appears that the purse strings are loosened, the banks have more funds available, investment money moves into speculation, prices move up a bit until consumers cut back on those inflating items, (gas for instance) demad drops ad prices fall, rinse, wash and repeat. Wages are stagnant and down, savings are not increasing (they were briefely) so I do not grope how inflation accelerates, more then briefely, without consumer power.

  2. hillrj says:

    EM you say “…, a country can have a ‘take’ of about 30% of the GDP and survive, but it works best at about 20%. When total taxation / government expenditures exceed 40% to 50%, economies stagnate and then collapse.” My understanding is that the Nordic countries operate well above 30%.

  3. From around 1990, with reunification, the Germans went through a period of austerity themselves – they know it is painful, they know it works in the end and funnily enough the average German wage is around 20% less than the average Greek, Spanish, Italian one. In Germany there is no minimum wage, either. So the Germans can look at the rest and say “we did it so why can’t you?”.

    Reducing taxes would be the best stimulus to the economies. Making the regulations simpler would encourage more start-ups – to think of starting a business now means getting the best accountants you can, and not worrying about the quality of the engineers so much.

    To me it seems that both taxes and regulation have only one direction – growth, and we never see them cut back. Ignorance of the law (or ignorance of a tax) is no excuse and you have to pay anyway, and those costs rise since you spend ever more time not on product development but on observing the regulations.

    Barclays has just been fined around £290M for fudging the Libor and Euribor rates – in the news item about this it was mentioned that the derivatives market alone is worth $360 trillion, which is around 10 times world GDP. Such numbers seem impossible to me – that money and the bets with it cannot be real value, and thus since a lot of other things depend on this valuation then the whole financial system is a house of cards waiting for someone to notice that the Emperor really is naked after all. It’s looking somewhat like another 2008 crash but without a bottoming out, so all debts will be wiped out or paid at a vast discount in “new dollars” or whatever. In this crash, the thing that retains its value is the land and production capability – if we’ve let all the manufacturing go to China then we won’t be able to buy things from them so life will be a bit hard for a while.

    I’d hoped that cheap energy would help to solve these problems, but even that won’t be enough to solve the problem of banks acting like casinos, playing with pretend money that nevertheless translates into real losses of productive capacity.

  4. oldtimer says:

    The architects of the EU and the euro have an explicit objective of “ever closer union”. It is based on the worthy idea of precluding future conflicts like WW1 and WW2 that destroyed so much of Europe and killed millions of people. You have, however, described the problem well. Europe is not the USA – there are multiple languages, cultures, social structures which make it the most unlikely and unsuitable candidate for a political and monetary union. Someone, I cannot find the link, has compared the EU with current and past groups of countries and found it the most unsuitable candidate of all, worse than the Ottoman Empire, the USSR or even a notional union of Commonwealth countries like the UK, Canada, Australia and New Zealand.

    The EZ cannot survive in its present form. Keeping it in one piece requires transfer payments from the better off countries (notably Germany) to the worse off (eg Greece and others). Germany is not wealthy enough to fund the welfare systems that others presently enjoy (on borrowed money) and want to retain. German politicians will demand very tough terms for contemplating further monetary and political union, and in the event that something can be negotiated, will not take the decision themselves – they will put it to German voters. Will German voters then be the turkeys who vote for Xmas? It is a big ask.

    Breakup of the EZ , probably by individual countries splintering off, seems to me to be the most likely outcome. That will involve a return to national currencies and the devaluation solution. It will be painful – as it already is for many under the present regime. After that the outlook is entirely unpredictable. The outcome will require cool heads and wise judgement. It is unclear to me who will provide these necessary ingedients.

    Meantime it is reported that welfare centres in London are already in danger of being swamped by refugees from elsewhere in the EU.

  5. philjourdan says:

    Couple of typos to point out and several comments. The typos:

    “Folks just top working and line up for the dole.” – I think the 3rd word should be stop.
    “We are already will past that peak revenue point.” – I think the 4th word should be well.

    “So, at present, Texas is growing like crazy with loads of folks flooding in from California. North Dakota has an economy thriving on new oil finds and exploitation. Folks building new facilities in large numbers. Detroit has shrunk dramatically with a loss of about 1/2 of their population and a large cut in local industry.”

    Ironically, Arizona, the bane of the current federal administration, is reaping the rewards of the California foolishness as well.

    “We may get to find out if a State can declare bankruptcy in some way.”

    I have been thinking long on this subject. The US does not really have any mechanism for a state to declare bankruptcy. Unfortunately I see only 2 possible solutions. One is for the state to revert to territorial status. Thus the debts would be the Federal governments problem. However, that would disenfranchise the voters of the new territory since they would no longer be represented in congress or be able to vote for the President.

    The second option would be far worse however. It would entail the federal government to simply assume the debt of the state. But that would basically mean the abolition of the sovereignity of the states. They would then clearly be the vassals of the monstrous federal government and the constitution would be null and void.

    As far as the overall article. I like your thought lines and for the most part agree with your opinions when offered. But I had another thought, and it may be totally off base. So if so, please debunk it.

    The EU is not like the United States. It is like the Confederated States of America (not to be confused with the Confederacy). In other words, they are looking for a common currency, but with no way to enforce common valuation. A loose confederation of states that can each set their own fiscal policy that as we see is dooming the weaker ones to failure. Germany, with all its economic might, cannot sate the excesses of the smaller states that have no compulsion to rein in their excesses.

    The solutions are as you have laid them out. In the end, the only one that will work is Austerity. Sadly, I do not see that happening, here or in Europe. California will continue to descend into insolvency until it precipitates a Constitutional crises. The way the US handles the crises will dictate whether we remain the “United States” or simply become another country called “America”.

    Europe is actually in a better position than us. Their crises will not cause a basica collapse of their identity. It will be just as painful, perhaps more so. But cutting off a finger is not as drastic as open heart surgery. Greece (and the other PIIGS) are extremities, not the heart.

  6. Phil – you missed the title (Eruope), but we sort of skip seeing such things unless in proofreading mode. For my reports in the past, I read them several times onscreen, and then printed it and re-read it. The change in format shows up more errors than I saw in a careful screen reading.

    Parts of Europe are better than the States, others worse. The main problem I see in Europe is the desire to set social standards first without first making sure that there are enough people earning money to pay for it. Most countries here have a burgeoning debt, even though they say they are being more austere. The manufacturing jobs and agriculture jobs disappear while the government jobs, sales jobs and warehousing jobs increase. This is clearly not indefinitely sustainable. If I as an individual did what the governments routinely do then I would be in jail with no possibility of ever getting a bank account again.

    Austerity itself isn’t the answer, at least in the way austerity is currently practised. The solution is more one of living within your income, and if the income goes down then reduce the outgoings to suit. Individuals have to do this, and governments should also be constrained constitutionally to do this. This in general means that people would be far more self-reliant rather than relying on the government to fix things. We would have to make our own pension arrangements and healthcare arrangements. This has its downsides, of course, and at US healthcare costings could be a crippling bill. In the currently less-litigious Europe it is not such a steep amount, since doctors do not need to pay such high malpractice insurances.

    Sometime we may need to address the problem of what peoples’ expectations are. We expect our kids to have a better life than we do, to make more money, do more things – this may not be possible for a while. In the UK around 15 years ago, I was told that if a family house wasn’t double-glazed with central heating, or that there wasn’t a family holiday abroad each year, then that family was officially “deprived”. Seems I grew up extremely deprived, but didn’t know it. We need to decide what is sufficient for us, and work till that’s sorted, rather than borrow money to pay for it now.

  7. Pascvaks says:

    Fixing Europe – It never has happened. It isn’t happening. It will never happen. Europe is Europe is Europe! Forget Europe! Europe’s a Duce in the deck! Watch China and India, they’re Aces. Russia is a Joker, and will remain so until it’s population hits the billion mark (which probably won’t happen before the start of the next Ice Age, which I think started 10 years ago). Europe (aka “Rome”) is a sleezy little run down ruin of an empire, Constantinople (the Middle East) is gone the way of Rome. The US? It seems to be falling apart before our very eyes; wouldn’t bet on anything ‘hopeful’ coming out from inside the Beltway. I have a feeling ~10% of the 50 states will be around in a hundred years, and Texas will conquer and absorb Mexico and California and leave the Union.

    @philjourdan – I think you’re ‘limiting’ the scope of your imagination if you think that some politicians (and a majority of others) can’t come up with a unique solution at the drop of a hat. I don’t see your either/or limiting anyone but yourself. Laws can be changed and created overnight, like money.

  8. philjourdan says:

    @Simon Derricutt says: 28 June 2012 at 1:12 pm
    Simon, I did not miss the title. But E.M. was making comparisons to the United States (I write it out so the comparison is a bit clearer). I merely expounded on some of the comparisons, not on every point made. Overall, I agree with E.M. and both his conclusions and opinions.

    You then go on about possible solutions, missing the elephant in the room in so doing. If man were perfect, and motives pure, all things would be possible. But as neither is true, I do not see any hope in propigating a failed system, hoping to find some messiah that will maintain false premises and then fix the issues.

    The problems in Europe are not solvable by doing the same things that got them into the situation in the first place. Call it cynicism if you like. I have seen too many good intentions perverted and all have lead to the problem. More of the same is not the solution.

  9. philjourdan says:

    @Pascvaks says: 28 June 2012 at 1:29 pm

    Pascvaks – I may be limiting myself. But I am also a citizen of the real world. I have seen promises made and promises broken. “CAN” they be fixed by altruistic politicians? Sure. But where I do not agree is in those people existing.

    As I told Simon, perhaps it is cynicism. I no longer believe such people exist, or will exist. Insanity is doing the same thing over and over, expecting a different result each time. I may be a cynic, but I am not insane.

  10. Pascvaks says:

    @philjourdan –
    “But where I do not agree is in those people existing.”
    I hope you are wrong. I think you are right.
    “I may be a cynic, but I am not insane.”
    Me too! (At least, I think so and hope I’m right;-)

  11. adolfogiurfa says:

    EU only way out is TO REPUDIATE such New World Order concoction NOT MADE BY THEM. It shows, once more, that any intellectual pretense of changing the laws things does not work, and that trying to change the laws of nature, irremediably fails; and if by any chance it succeeds, it will ALWAYS be the awesome success of Cancer cells: The unavoidable DEATH of the body which sustained them.

  12. philjourdan says:

    @Pascvaks says: 28 June 2012 at 2:25 pm

    I wish I was wrong. I no longer hope I am.

  13. adolfogiurfa says:

    There is no such a country called Europe and it will never be, as it was proved in the Balkans: The organism represented by the human society does not work that way. We like to gather in TRIBES (Entiende?, Capisce?) As simple as that.
    No possible one world governance at all, so hey guys, forget about that silly dreaming of you of a global central bank owned by you. It´s over kids!

  14. adolfogiurfa says:

    One tribe trying to rule upon all tribes?

  15. Phil – In general I find I’m in agreement with EM, except when it’s something I know nothing about (rather than just not enough) and I have no opinion. Sadly I also agree with you that more of the same is not going to solve the problem – we’ll be kicking this particular can down the road a bit until something breaks really badly.

    It would be nice if the politicians did the job they are paid to and sorted the problems. Maybe the start of it would be to really admit the scale of the problems rather than pretend the fix can be painless. Like you I expect politicians to lie to me, though I used to know one who didn’t (it was a long time ago).

    So I expect “austerity” programs where each government actually borrows more each year whilst cutting back on all services and increasing taxes, and the various euro economies to tank, even putting strains on the top economies like Denmark and Germany. Banks will end up owning all the property and land, and life is not going to be that easy for any of us.

  16. omanuel says:

    I sincerely doubt the economic mess in formerly “Free West” nations is an accident.

    There are remarkable similarities in those nations today, with observations I made in Nov 1980 on the other side the “Iron Curtain.”

    For reasons explained elsewhere, it appears society has been guided toward a totalitarian, one-world government since 1945, an agenda that escaped public notice until world leaders and leaders of the news media and scientific community “tipped their hand” by trying to justify or excuse global temperature manipulation in the 2009 Climategate emails and documents.

    https://omanuel.wordpress.com/about/#comment-142

    Oliver K. Manuel
    Former NASA Principal
    Investigator for Apollo
    http://www.omatumr.com

  17. John F. Hultquist says:

    Good post, EM and comments too. Three thoughts:

    The State of Washington has a non-food sales tax but no income tax. Oregon has an income tax but no sales tax. Circumstances influence which is a better choice but it is likely other considerations are more influential. In both, demographics are going to put a strain on government as populations age. The expansion of Medicare will not help.

    Would you move to Detroit? If you, EM, did not live in CA, would you move to CA?

    Greece has many problems. One that comes to mind is that there is little that is produced there that I want – even at a lower price. When is the last time you bought a bottle of Retsina? Thought so.

  18. Last I looked, Greece’s main product is Olive Oil – still a good food item and I do buy it. Feta cheese and yoghourts are the other food that comes to mind, but I’d rather have local products. I don’t know any major hardware item that Greece produces, but tourism is around 10% of the GDP according to news over here. Who’d want to visit a country with possible riots? As such, I’d suspect that 10% will be a lot less this year.
    With so few in farming/fishing, what is the other 90% of GDP consisting of?

    The only bright light I can see for Greece is if Defkalion can get their LENR systems into manufacture Real Soon and start earning Greece a lot of money. Unfortunately although the reports are looking hopeful there’s still no hard data on when they will have a successful product that can be sold. There’s talk of “end 2012” but no hard data to back it up.

  19. Tony Hansen says:

    Simon,
    “It would be nice if the politicians did the job they are paid to and sorted the problems”.
    ‘You started me wondering about ‘the job they are paid to do’.
    The only answer I’ve come up with so far is ‘to keep out of the way’ because they have made most of the problems.

  20. Pascvaks says:

    Thought –
    Re: “It would be nice if the politicians did the job they are paid to and sorted the problems”.

    Most politicians, when ‘glumped’ together and taken as a whole, do the job the people who elected them are paying them to do. The politicians really do reflect the people better than most of us think.

    Back in the Good Old Days of the American Revolution the split between the people of the several states, those “Pro” and those “Con”, was very much then as it is now. We’ve always been divided. That’s the way we are. And that division is not unique to US. It is a permanent fixture in each and every country on the planet. (It is true that in Africa, the Middle East, China, Russia, Indonesia, and a few other places as well, the ‘split’ can be more ’90-10′ rather than ’49-51′;-) Ain’t life a beach! People are people! People are the root of all Good and Evil!

    PS: Back in Days of Yore, when Goppers and Dems respected their Office more then they do now, things were a lot more civil. The same was also true within the US Population. Now there is no respect for the office, they fight like girls in a mud wrestling pit and curse like truck drivers, and the same is also true of the US Population. What came first? We had a lot more than just the Evil Empire on our backs in the Days of Yore, what made us change from who we were then into who we are now? Imagine what the world would be like today if the Founding Fathers were in office now. Would the world change, or would they?

  21. E.M.Smith says:

    @David:

    Inflation mechanisms is a long topic…. There is “demand pull” which is what you describe when excess money is in consumer hands and there is “cost push” from times like The Arab Oil Embargo and everything was shoved up in price as it all depends on oil. The short answer to your “Why not now?” is that the “Stimulus” (as you noted) did not go to the people.

    Huge chunks went to Friends Of Democrats bailing out their investment in stupid things like Agenda 21 Friendly boondoggles in solar facilities. That money went directly to bond holder bank accounts and was not spent. Similarly, bank bailouts were supplied that Congress expected to be used for loans to stimulate the economy (as their “reserves”, meaning loan portfolio on bad CRA driven mortgages, were no longer worth enough to show well on a balance sheet; and the stupid “Mark To Market” rule requires they be priced at whatever you can get at a firesale today…). Except at the same time, Congress and the government made Bank Regulations and Reserve Requirements so stringent (along with a big push for ‘tighter loan standards’) that the banks just put the money in the vault. That gives them more “reserves” and avoids violating any new tough loan requirements.

    It all comes down to “Velocity Of Money”. During a recession the velocity of money drops. The Central Bank provides more money (so Quantity x Velocity is back about where it was in good times) to make up for the drop of V. In this case, the money provided went into bank vaults as reserves, rich connected folks pockets, and other places where it stops moving. This is what happens when political goals get mixed with economic goals… (There are some other secondary effects as well. One is that the METHOD by which funds are stimulative is – assuming they got to the people – the purchase of stuff. Yet now, lots of what we buy – almost all the stuff – comes from China. So more ‘stimulus’ here results in more jobs in China. And more inflationary pressure there. That mercantilist effect from the two currencies being pegged together. So even the money that DID make it to the public, had more stimulus effect in China than in the USA.)

    In short, the funds went to places with near zero V, not to people who would spend them (have larger V).

    That’s why we’re in a stagnant to recession mode even after huge ‘stimulus’ and have not (yet) had large inflation. IFF the Velocity Of Money ever picks up, watch out for a giant jump then. Classically the “stimulus” is withdrawn (again to keep Q * V constant) but I just don’t see folks suddenly sucking back a couple of $Trillion…

    Why Q * V? The sum total of all goods and services bought is the product of the cost of each and how many transactions in a year. The first is Q and the second is V. If you want to keep the total economic activity the same, you need the same number of transactions (Q) with a lower rate of transactions (V). Thus QV needs to be held closer to constant. This is a generalization, but most of economics is.

    Going to a Global Integrated Economy with international transfers in the mix just causes some of the Classical Tools to behave in unexpected ways ( like China getting the demand growth from stimulus in the USA) and IMHO our fiscal and monetary policy toolkit has not caught up with those effects ( i.e. we need more understanding of them in Congress and The Fed…)

  22. EM – many thanks for that explanation. Things suddenly make a lot more sense to me.

    One thing strikes me that in real terms the cost of transport has reduced massively, and whereas imported items were expensive when I was a kid, they are now cheaper than the same thing made just down the road. Although I personally like the low costs of transport, I think this is what is driving the globalisation of everything (manufacture, money movements, people) and thus making it hard for local businesses to survive.

    The financial stimulus would maybe have worked better if it had reduced taxes instead, maybe better still if the tax breaks had been aimed at small/medium businesses. That way, the money would have remained local and been faster-moving, and by increasing the competitiveness of the small businesses might even have brought more money in than was given out. More people employed, more people buying stuff.

    There’s not much point in aiming tax breaks at the large multinational companies. They already have teams of accountants reducing their tax-liabilities to near-zero anyway.

  23. adolfogiurfa says:

    @E.M.: What you explain it is easy to understand by any human being who has had the “luck” of experimenting excessive money printing, inflation, devaluation, not to say the professional economists. Then, we must suppose that the guys in charge of such policies were perfectly aware of what it was going to happen: So they knew that an easy way to exchange worthless currency (not backed by production of goods), which they issued in calculated but astronomic amounts, with hard and real currencies, and, finally, with assets like Gold or Land, would be to EXPORT all those worthless papers to places where production and markets are currently growing, like China in Asia, or Peru in South America, to name just two of them. There they would accomplished what they did BEFORE in the US and the EU: To pump out of the pockets of working people the capital gains of their hard work, while, accomplishing their political goals of markedly and rapidly impoverishing the people of the US and EU, so as to make them ask to be “saved”from their ordeal: There it comes their final goal: A “Brave New World” where they will be the only owners of all world assets. Of course, in order to do this they had to control the central banks of those countries, where their faithful (and “initiated”) clercks would buy those newly printed papers with the official purpose of using them as currency “reserves”. This is what is right now happening.

  24. E.M.Smith says:

    @Hillrj:

    Couple of things. A country can operate at well over 40%, and be operating very sub-optimally. The tax RATE can be far in excess of 50%, it is the tax REVENUES that fall off and limit. Finally, there can be significant error in just what the “Tax Take” is for any given country.

    The wiki article has a graph claiming 40%-50% ranges over recent years for Sweden (the highest):

    While putting the USA at about 25%. Yet clearly for folks in California with income tax of 11% and sales tax of 9%+ there’s another chunk to add to that to get total tax to government (which is what matters for the effects).

    Then we find other sources (not OECD based but World Bank based) that say Sweden is much lower:

    http://www.tradingeconomics.com/sweden/tax-revenue-percent-of-gdp-wb-data.html


    The Tax revenue (% of GDP) in Sweden was 21.63 in 2009,
    according to a World Bank report, published in 2010. The Tax revenue (% of GDP) in Sweden was reported at 21.65 in 2008, according to the World Bank. Tax revenue refers to compulsory transfers to the central government for public purposes. Certain compulsory transfers such as fines, penalties, and most social security contributions are excluded.

    It includes a large a detailed breakdown by type of revenue source, an looks more accurate to me than the Wiki version (and is at least more detailed).

    So two things:

    It is well inside my stated “rule of thumb” using either measure ( over the range of 40%-50% economies stagnate and collapse). That they top out at that range and then wobble sideways kind of confirms “this far and no farther.”… Also the sale of Swedish goods globally has not be setting markets on fire. The tax burden is limiting economic performance. They are concentrated in high value fields already ( Engineering, Telecom (Ericsson), pharma) and there isn’t much room left to move up the ‘proprietary and higher competitive barriers such as patents and trademarks’ ladder).

    So yes, they “Operate” at higher nominal levels than the USA; but not at optimal rate of economic activity and once the nominal is inspected, it looks a lot more like they are not all that different after all.

    IMHO, they are more an argument for the ability to substitute things like Socialized Medicine and Education for Military Expenditures. The USA spends buckets of money on the Military and we get the biggest in the world. Sweden spends more per capita on human services, so gets more of them. For the USA, states like California and New York have total tax burdens close to Sweden and are stagnating economically. (California is collapsing).

    In short: That Sweden has a total tax take about the same as USA + California in percentages and they spend it on “stuff for people” while we spend it on “stuff for war” (and both economies are pretty much limited in growth) is not all that surprising.

    http://www.tradingeconomics.com/sweden/gdp-growth

    The Gross Domestic Product (GDP) in Sweden expanded 0.8 percent in the first quarter of 2012 over the previous quarter. Historically, from 1993 until 2012, Sweden GDP Growth Rate averaged 0.6800 Percent reaching an all time high of 2.3000 Percent in March of 2010 and a record low of -3.9000 Percent in December of 2008.

    So if you want 0.x % growth rates and not much military, you, too, can build a modern welfare state…

    In economics, the Classic way of stating this trade off is “The Guns and Butter” problem:

    http://www.investopedia.com/terms/g/gunsandbutter.asp#axzz1zC0wayru

    So it’s not like folks haven’t realized for a long time that you can trade one for the other…

    (Please note: I am not advocating for EITHER path. I want lower military and lower welfare state spending. Let the folks keep their money. Then all sorts of good things happen… and we don’t have to run around the world being the UN Volunteer PC Oppression Squad… I’ve also said many times that I can make a better case for a Lange Type Socialism than free market unregulated competition; modulo the fact that Socialisms are not long term stable. They can be GREAT places to live; for a little while… Especially if you have a neighbor Military Sugar Daddy so you don’t have to spend so much on guns… USA Military spending is more than everyone else on the planet. Effectively, much of Europe gets a free ride on military costs of peace in Europe, so gets a lot more butter. Part of WHY I want less US Military overseas. To level those costs.)

    In short: They ARE inside my guidelines (barely), and enjoy a “military subsidy” via USA expenditures on military, so can spend more on welfare systems. Even with that, they are not growing like China. Long term viability of the Nordic Welfare States has not been demonstrated ( it takes about 100 years…) but it can be great for 50 years scale intervals ….

  25. adolfogiurfa says:

    The morals: If the capital gains of any person/ business it is not exchanged with real assets it will be taken away by the “Elite”.

  26. E.M.Smith says:

    @Simon:

    Generally, yes.

    I’d only point out that “Derivatives” are largely in matched sets. One bet for “higher” matched against an offset for “lower”. It isn’t like $200 Trillion is all bet on “Wheat goes up” so we’re one ‘wheat goes down’ away from financial ruin.

    In fact, most of those contracts are deliberately designed to ‘expire worthless’. I may have a “long contract” on $1 Million in wheat, and decide to exit, but for a variety of reasons actually selling it might be problematic. (Taxes, terms, no buyers). So I just by a “short contract” to cancel it, net, and wait for expiration. Counting that as $2 Million of “derivatives” is just silly; yet that is what the statistics do.

    Every month there is an options expiration. Every quarter there is a “Triple Witching” and sometimes a “Quadruple Witching” event. http://www.investopedia.com/terms/q/quadruplewitching.asp#axzz1zC0wayru

    I can’t even begin to guess how many total $$$$ of derivatives suddenly all go POOOF! on that one day. Do we even notice it?

    http://seekingalpha.com/article/275497-how-a-quadruple-witching-works

    has it as $Hundreds of Billions just in the S&P replication funds.

    So I’d not get too worked up about it.

    @Oldtimer:

    Bingo! That “mobility issue”…

  27. E.M.Smith says:

    @PhilJourdan:

    Typo’s fixed, thanks.

    Oddly, the reason there is so much Federal Land in other states (like California) and so little in Texas is that the other states handed it to the USA to get the USA to assume their old debts. (Texas did not, so lots of folks bought land…)

    So the precedent for “bail out” goes the other way. Hand collateral to the Feds to become a State on assumption of debts. As we’re already a state, we’ve “shot the wad” on that one. Not much we can hand over now.

    IMHO the TWO paths open are “Austerity” (i.e. spend less by government) or “Repudiation” (either openly or via inflation). Once puts the pain on the voters, the other on the lenders.

    Also, IMHO, common Fiscal Policy has not done a whole lot to make California immune to borrowing induced failure, so common Fiscal Policy can’t fix the problems with Greece and Spain either.

    Oh, and The Supremes just decided that unlimited Federal Power to dictate how you spend your money is just dandy. While I’d like to think we are the “United States”; the facts on the ground now are “Federal Mandate Of America”…

    @Simon:

    While I’d broken the topics into USA and Europe in two different threads, I mostly did it for convenience in the writing. There is a lot of technical overlap in the economics of it. So some “cross talk” is OK. (Probably a ‘compare and contrast’ is valuable.).

    Both side of the pond, for example, suffer from “Decide the goodies first; figure out not enough money later.”

    “Austerity” is, IMHO, exactly “living within your means”. What of “as currently practiced” do you see as different from that? (I.e. what is actually going on in the EU that we don’t see over here when they use the word “Austerity”?)

    FWIW, I typically don’t look for the answer but for which possible answers. Then sort by desirability. So Austerity IS an answer, but one that might be rejected due to other pain and suffering caused.

    The tendency for Government to get a free pass on things that for the individual are crimes, in the economic arena, has two roots. One reaches back to the perfection of Kings, divine rights, and Sovereign Immunity. The other to Keynes. In particular, Keynesian Economics holds that in a business cycle downturn, the Government is the only party that can do countercyclical spending (as it can create currency out of nothing).

    So it is EXPECTED in a Keynesian model that the Government will explicitly not ‘live within its means’ during recessions. What is forgotten in all modern instantiations of Keynes is that during times of economic boom, the Government is supposed to run large surpluses that are NOT SPENT and are used to pay off any past debt and build up excess for the next recession / deficit spending episode. So, during the dot.com bubble years when ROTH Conversions were raking in loads of extra tax take, ALL the extra ought to have gone to debt reduction. Instead a lot of it went into new spending. (“Exactly wrong” pro-cyclical behaviour).

    In essence, in stead of government running exactly out of phase with the business cycle and running deficits in recessions and surpluses in boom times; we run out of cycle in recessions and pro-cycle in booms. This enhances the “boom” (of the ‘boom and bust cycle’) and makes the following “bust” all that harder to deal with. With ever larger debt and the eventual lack of response to deficit spending “stimulus”. Where we are now.

    So Keynesian Economics is the justification for governments spending with abandon, even money they will never have. To end that, you must get rid of the Keynesian Mindset…

    Per Healthcare:

    A fundamental fact of health care is that the largest consumption, by a dramatic amount, comes at the end of life stage.

    A second fundamental fact is that we can spend an infinite amount of money in healthcare for ever decreasing returns.

    It is quite easily done for a person in the end of life stages to consume more total cost of healthcare than their entire lifetime net productivity. Extend that to the entire population, it says that we can consume more healthcare than the entire economic productivity.

    The simple facts of reality are that rationing is fundamental to health care economics.

    HOW that rationing is done is the core issue. Yet nearly never stated that way.

    1) USA pre-1970 model: Consumption ‘rationed’ by how much money you have.

    2) USA Health Insurance Model (post ’70s): Consumption rationed by coverage rules.

    3) Socialized Medicine Model: Consumption rationed explicitly by Medical Boards.

    4) Obamacare Model: A bastard mix of rules strangling #2 and boards doing some of #3 with some spanking rules to force #1 folks into #2. Also “soaks the young” by forcing them to buy medical insurance at the same rates charged to old folks sucking down the costs.

    Everyone (especially Socialist / Progressive politicians) loves to talk about “access” to health care. Not one of them likes to admit the dirty little fact that it is really about rationing and redistribution so that more money comes from young and healthy folks to be redistributed as services to old and sicker folks; and all of them will have their “access” rationed in the process.

    All that really changes is the method of the rationing and WHO gets to decide to cut off your “access” when you consume more than the average…

    Want cheaper medical care costs? Build more medical colleges and nursing colleges and get the AMA out of the business of “Occupational Birth Control”. Increase the supply of medical providers. There is no shortage of folks wanting to be a Doctor. There is a great big road block in the process of getting the degree. (So effective has the AMA block been that many medical doctors in the USA are now imported from India. Mine among them. It has moved “source of supply” offshore… So why not just build a lot more USA Medical Schools? Or how about an expanded medical H1b visa program, eh? Perhaps The Doctors Union can answer….)

    @Pascvaks:

    Why on earth would Texas want California? ;-)

    One thing I left off my ‘Fix USA’ posting was the idea of an explicit constitutional amendment to make clear the right of secession. Might make Congress and The Federals a mite more respectful of States with “Any State my secede from this Union at any time.”.

    This has a parallel issue in the EU where some folks are arguing that it is a ‘one way trap door’. You can check in, but you can never leave…

    @Philjourdan:

    My solution to that strain between “can” and “will” is to state what could be, what ought to be, then note at the end that it will not be… Not saying that’s the best way to handle it, but it lets me stay a bit more centered…

    @Omanuel:

    The world has always tipped toward one central totalitarian government. It is at the core of being of those folks who grasp after power. We’ve tried (since the Enlightenment) to craft a government that would constrain that human nature. It takes no conspiracy to explain failing at it. (Nor does it say that the mechanism of that failure was not just such a conspiracy…)

    So look at history. From Rome to Darius to Alexander The Great to the Pharaohs. From Stalin and the USSR to Mao in China and Chen before him. The Inca, Maya and Aztec empires in the Americas and even the British Empire that spanned the entire globe. (Not to mention the French Empire and the Spanish Empire that also tried to win that race).

    It’s one long litany of Power Hungry World Emperor Wanabees. Nothing is really different now other than that they battle has moved to the formation of the Lead Dog Seat by stealth and political manipulation rather than open battle. (Other than under the banner of an official indulgence from the UN or NATO…)

    I think you need a wider horizon to how broad and deep in history power lust and Evil Bastards run…

    @Adolfo:

    Watch the “tribe” innuendo. A bit close to the “12 Tribes” and you are ‘under watch’ in that context.

    @John F. Hultquist:

    I would not move to Detroit. Too cold ;-)

    I would move to California if I was poverty stricken so as to suck down the social welfare programs. I would not move here to work, and would actively leave here to form a business.

    I like Greek Olives, and they make an orange marmalade / jam that is to die for…

    But my suggestion for economic growth was just to make it Drachma Land and have Disney run it. Turn in your real money at the border, spend funny money like play money, and have a load of entertainment and parties and beach events and restaurants and… I think it could work ;-)

    @Simon:

    Ohhh, yes! Olive oil and feta cheese! How could I forget ….

  28. adolfogiurfa says:

    @E.M.: @John F. Hultquist: I would not move to Detroit. Too cold…
    Watch birds: They fly southwards..
    As for the “tribes” issue: It is not a certain “tribe” but a certain newly formed and very small tribe of people who behave like cancer cells: They want to own all world assets, not by working but by gambling. The rest of the whole 12 tribes will become only a homogenized one: the “gammas” of a Brave New World. A kind of Global Kaliphornia! :-) where only the “SOMA” (A.K.A.: Weed) makes gammas forget their condition.

  29. E.M.Smith says:

    @Tony Hansen:

    Oh my, good one! ;-)

    Unfortunately, accurate too…

    I note in looking back on it, many of my suggestions for Fixing the USA are of the form “Stop politicians from doing things”…

    IMHO, politics is the art of looking important and claiming / seeming to demonstrate Action to Fix Things while breaking things…

    @Pascvaks:

    What made us change, IMHO, comes down to a mix of:

    1) Loss of religion. (Early USA was highly Christian).
    2) Public education. ( Less education from locals and with local norms).
    3) TV ( Cultural norms set by Liberal Arts Majors in NYC and LA / Hollywood).

    There may be a few more items, but those are, IMHO, the big lumps. You still find some of the “way we were” in pockets. They tend to be religious groups isolated from #2 and #3 by their local focus / introspective natures. FWIW, The Federales have taken to attacking the more ‘fringe’ of such groups; so one can only wonder how long The Amish and Seventh Day Adventists can hold out. ( The main line Mormons already folded to Federal pressure).

    I’d also give a Honorable Mention to “The Progressive Movement” and the Communist Manifesto that deliberately set out to destroy religion, private education, and traditional cultural norms. They have now also parasitized classical enlightenment bodies such as the Royal Society and pretty much corrupted all of the Science magazines near as I can tell.

    While the early Progressive Movement had much to recommend it (such as getting the unbridled Evil Bastards of the Robber Barron ilk to hand over some benefit to the workers…) the later coopting by International Socialists pretty much has ended that phase.

    @Simon:

    You are most welcome. Also looks like you have a handle on the economic drivers now.

    Yes, reduced transportation costs drive globalization of manufactured goods. Giant ships are incredibly cheap per ton-mile. Same reason the British Empire grew, only more so…

    Cutting tax rates as economic stimulator has worked very well in the Baltic nations. It directly focuses the money into the hands of people inside the borders and encourages investment rather than sitting on the money. Basically it pushes V more and keeps Q more local…

    @Adolfo:

    On Malice vs Stupidity in the issue of how monetary policy works internationally, what is taught in school to the political class running things is the “stupid” version. So one must appeal to Hanlon’s Razor and find “Never attribute to malice that which is adequately explained by stupidity”. So you need more than a Good Story for your conspiracy theory. You need some documentation of evil intent.

    The world has a whole lot of stupid in it. Intelligence not so much…. A conspiracy of the scale and subtlety you propose would require a large quantity of intelligence… “Fact not in evidence”….

    What you miss by your harping on “Elites” is just this:

    It is largely the will of the MASSES that results in excess spending on consumption (social welfare systems) and under investment in growth of productive capacity. In large part, the “leaders” are just riding on the shoulders of the mob. Whatever direction it runs.

    Who wants Socialized Medicine (and all the costs it causes)? The PEOPLE. ( It does nothing to benefit any ‘elite’ to have grandma get a CAT Scan…)

    Who wants Welfare Payments (and all the costs it causes)? The Poor People. ( It does nothing to benefit any ‘elite’ to have the Welfare Queen have a 7th kid and higher food stamps).

    Who wants Free Education or Subsidized Student Loans? The PEOPLE. ( It does nothing to benefit any ‘elite’ to have educated those under them.)

    It’s a very long list of Goodies that THE PEOPLE want for themselves….

    So that whole “Dominating Elite” argument “has issues” based on cause and effect and expected behaviours in a self serving environment.

    I think you can see echoes of it in how those programs demanded by The People are set up and operated. What gets taught in Public Education and what gets demanded in exchange for “free” healthcare for granny; but that is derivative not causal as near as I can tell.

  30. EM – One of your posts a while back sent me on a surf which turned up a graph of %GDP government debt over the last decade or so for various countries – I should have bookmarked it but didn’t. Despite “austerity” all the graphs were on a pretty continuous upward slant, without any changes in slope as “austerity” kicks in. Although I also regard government austerity as living within the available income (thus not borrowing more, at least) it looks like that is not the politicians’ viewpoint. The attitude seems to be more one of “shut the libraries and the Washington Monument” so they can be seen to be hurting people, while the budgets do not really go down very much.

    In the UK you hear of a lot of cuts happening, yet the government borrowing is still rising.

  31. E.M.Smith says:

    @Simon:

    Ah, I see. Appearance of cutting back on spending vs Reality of borrowing and spending more and calling it ‘austerity’…

  32. adolfogiurfa says:

    @E.M. ( It does nothing to benefit any ‘elite’ to have grandma get a CAT Scan…) :-)

    Sure?

  33. E.M.Smith says:

    @Adofo:

    Yes.

    Grandma got several CAT scans at Kaiser. ( I got to sit there through many of them). “Grandma” being my kids grandma.

    The machine was not bought by the “elite”, nor paid for by the “elite”. Kaiser is an HMO and not profitable to the “elite”. She had health care coverage through here retirement AND through Medicare. Both did not benefit the “elite”. The doctors are on staff as salaried employees. The CAT scan did not benefit them, even, nor the managers of the hospital (as Medicare doesn’t pay much and Kaiser is not a big profit making cash cow.)

    I could go on, but it’s only interesting when you are sitting for hours with nothing else to think about while Kaiser slowly grinds through the process of getting a CAT scan… Yes, I’ve spent hours contemplating that kind of thing then… “Who wins and who loses”.

    The one who won was Grandma. She got more medical care and better care. The ones who lost were those paying for it. Present workers and tax payers. In between was a modestly large amount of bureaucratic cruft, but most of it poorly paid.

  34. John F. Hultquist says:

    “cruft”

    The meaning is clear enough but still I had to look it up. The meaning continues to evolve from uncertain origins.
    My sister says, say the word, spell the word, and use the word in a sentence – and it will be yours for life.
    So: When cruft overwhelms any activity that activity is doomed.
    Okay, it likely won’t be as famous as Murphy’s Law, or Moore’s, or Godwin’s, or the Law of Averages – but I like it.

  35. E.M.Smith says:

    @John F. Hultquist:

    Sorry about that…. Cruft is a word that I’ve used, well, functionally ‘forever’ it seems. As far back as college I think. It is jargon, so I ought to only use it that way, but it is just such a good word…

    Things that are reworked too much, accumulating irrelevant bits of crap and wear… Eventually losing value and function in the middle of that slow slide into decay. It comes from “crufty code” in computer jargon. Computer programming that has been reworked, repurposed and generally hacked on by enough hands and over enough years that it is hard to read, full of bits of ‘dead code’ that are never activated, and with conflicting styles and a messy confused presentation.

    http://onlinedictionary.datasegment.com/word/crufty

    Though I don’t buy the Harvard connection in that definition. I’ve not been anywhere near Harvard and they were not the center of the universe of computing… I think it came from variation on a theme of sounds. Crud, cruft, crappy, crufty. There was a time when saying “crappy” and even “crud” in school was not acceptable… so you slide the sounds a few syllables over…

    You can see how well it fits with the way government organizations slowly crap up, slow down, become unpleasant to deal with and confusing… All in 5 letters. Cruft.

  36. Pascvaks says:

    Is a craft outsourced to a foreign country ‘cruft’ or do you have to wait until someone in the country that originally crafted the product buys the imported product at WalMart?;-)

  37. E.M.Smith says:

    @Pascvaks:

    Cruft is crufty as soon as someone says “Yuck!” ;-)

    As in:

    Obamacare is crufty, just like Hillarycare was written. So complicated and backassward that the cruft is just sliming out of it.

    ( Computer programmers can speak in some rather odd ways… like ‘leet’
    http://www.internetslang.com/LEET.asp
    or even just bent usage like verbing a noun as in “sliming out” above)

    I usually try to limit my usage to ‘special times’ but, well, sometimes it just slips out…

    I think it is a side effect of a profession where you are constantly creating new nouns (variables) and verbs (operators / functions / subroutines) and even whole languages (compiler writers) so after a while it is pretty easy to just do it in natural languages too. Frankly, part of why I find spelling Nazis and grammar Nazis a bit disjoint. They clearly think that there is A right way and any good programmer knows that there are MANY right ways and you can invent a few more if you work at it ;-)

    So things like “I’m snarfing the bagel” while formally meaning “eating it quickly” can also mean “I’m grabbing it to eat it quickly” and could just as easily be used in “I’m toast and going home to snarf some ZZZs” even though it violates defined usage.

    http://dictionary.reference.com/browse/snarf

    Or the Very Idea that there is Only One Way to do capitals. I mean REALLY, how narrow and limited…

  38. Pascvaks says:

    “Small Town America” has morphed into “Small Blog World” and if/when the lights go out in Georgia, or anyplace else, it get’s mighty damn lonely mighty damn fast;-)

  39. Pascvaks says:

    Ever notice, paradigm shifts are like earthquakes, some big, some small, but they all change the landscape a little; someone needs to invent a Paradigmograph (POG;-). Wonder where they’d stick it first for greatest effect?

  40. EM – I hadn’t realised that cruft was purely programmer-speak and not understood by other people – not that I really used it much with other people anyway. Each specialism has its own sub-language (slang, sub-lang, sub-language?) since it has to describe specific items of the art. My daughter has a whole sub-language of her own (based in Forest, French and now Scottish) where I do a double-take to work out what she really means.

    The point of language is to be understood by the person to whom you’re speaking at the time. In English, which is a bastard collection of a lot of other languages anyway, there are a lot of ways of saying things and often many different words for the same thing. Since we’re not limited as to word-placement to get the meaning across, there are a lot of ways of ordering a sentence to get an approximate meaning, and several to get an exact meaning. Whereas in science it helps to be pedantic, in discussions it’s nice to have a bit more poetry in the way things are said. Reading James Joyce may get this point across – he murdered grammar and the dictionary to get the mind-pictures he wanted, yet is lauded as a great writer. e. e. cummings also had fun losing capitals in his writings (again lauded).

    Limiting what is written to only the “approved” format would take a lot of fun out of life, and would also stop people from being stretched to understand what is said. Without that stretching, the language and the culture would become moribund. It’s nice to have definitions now and again, but otherwise, unlimited vocabulary is much better.

  41. adolfogiurfa says:

    Watching all the sufferings you have to bear, it is not only needed a new paradigm to erase all the lies taught to several generations of your people but a brand new kind of exorcising gadgets, way better than silver bullets to kill these devils.

  42. Pascvaks says:

    Adolfo-
    Ahhhhhhhh.. you bit the bait.. now I’ve got you!;-)….
    Most human PQ’s (aka “Paradigm Shifts”) happen at such a low scale and tremor that they go un-noticed, just like Geo Earthquakes (aka EQ‘s). People tend to not notice until, one day, they realize that what was true yesterday is no longer true today (or so it seems;-). We call many of these “Generational Shifts”, “Time Shifts”, “Fashion”, and a number of other things that older humans usually start and end with several four letter words that we don’t need to say here in mixed company. But there are also Big Shifts, and Bigger Shifts, and Catastrophic Shifts, and Ginormous Shifts, Humongous Shifts, and Act of God Shifts; and probably a few thousand more that haven’t been classified or noticed yet. Many are personal, I’ve had several myself. Many are social. Many are political. Presidents, Prime Ministers, Popes, Dictators, Kings, and pastry chefs, computer programmers, etc. cause the bigger shifts all the time. The bottom line may be that they can be just as damaging and destructive as the geological shifts and we’re not that good yet at forecasting or building economies and social systems that can stand the shocks of the big ones. (I believe there’s a few out there who think of themselves as Futureologists, whatever that means;-)

    PS: Thanks for the bite!

  43. adolfogiurfa says:

    @Pascvaks: All under the common name of “Apocalypse”. Change of paradigms usually happen about 370 years:
    Abstract. A solar activity cycle of about 2400 years has until now been of uncertain origin. Recent results indicate it is caused by solar inertial motion. First we describe the 178.7-year basic cycle of solar motion. The longer cycle, over an 8000 year interval, is found to average 2402.2 years. This corresponds to the Jupiter/Heliocentre/Barycentre alignments (9.8855 ´ 243). With-
    in each cycle an exceptional segment of 370 years has been found characterized by a looping pattern by a trefoil or quasitrefoil geometry. Solar activity, evidenced by 14C tree-ring proxies, shows the same pattern. Solar motion is computable in advance, so this provides a basis for future predictive assessments. The next 370-year segment will occur between AD 2240 and 2610.

    http://www.giurfa.com/charvatova.pdf
    You see?. The last one was about 1700: American & French Revolutions….And as the movement of the Sun really happens following a developing spiral, we are at the same Z coordinate than the previous spiral:
    It is interesting to note that in 1990 the Sun will have a retrograde motion relative to the center of mass
    http://www.giurfa.com/jose.pdf
    BTW: What did it happen in 89-90: The Berlin Wall fell down.
    A famous british economist, whose name I don´t remember now, has found also a cycle of this length for economic activities.

  44. p.g.sharrow says:

    “Paradigm Shifts” Are not always bad, WE need to create good ones and slip them into the stream of life. pg

  45. Pascvaks says:

    @Adolfo – Yhep! The Fall of the Evil Empire was a GREAT ONE. Did we anticipate it very well, did we react to it very well? I had the feeling, during those days, that there was a lot of surprise, confusion, wait-and-see, what-do-we-do-next, where-do-we-go-from-here, and then little things started happening, the political ground began to shake and crack, some ‘faults’ went up, some went down, some mountains rose, some fell, cracks in plaster began to appear, light fixtures began to sway. I didn’t get the impression the West, the Blessed Holy Empire, did anything but sit in a rocking chair and fall asleep on the front porch, for several years, and when they woke up they were surprised how much everything had changed. A fella named Rip Van Winkle comes to mind. (Yes, I’m exagerating, but not much;-)

    @pg – I don’t think there’s very likely anything inherently ‘good’ or ‘bad’ about paradigm shifts, but I do find that the older I get I seem to be enjoying them less and less. (I guess a point I’m making, in very vague terms: I should have anticipated, I should have looked around at all the old codgers and noticed, and asked questions, and not been surprised when I was knocked flat on my ass, out of the blue, with that hurricane force gust of hot-cold flashy climate change; who knew that one day I would be at the peak power, intellect, vigor, and macho-drive, and the next day falling down the mountain, and why didn’t someone tell me? Everybody tells little kids what’s around the corner; I guess I wasn’t listening, or I didn’t believe it was my time yet. When you’re young time is toooooooo sloooooooooow, when you’re old it tofast. Again, we know but don’t plan well enough, I think American’s are worse than most at this, take the @#%$^&$#@##@ economy…… ;-)

  46. adolfogiurfa says:

    @Pascvaks: It was not a surprise for some, ya know. Do you remember Gorbachev´s “Glassnost” =transparency movement?. That was an original creation of the “Open Society” organization, which also developed South Africa´s “Commision for the peace and Reconciliation”, and afterwards exported it to Argentine, Chile and Peru, while “transparency” (Glassnost) is dedicated to supervising “elections” all over the world…..Their existence is but a construction destinated to control politically and thus economically all countries.
    Now it happens that all this building has grown up too much, menacing the existence of their designers, though they expect China, India, Brazil and South Africa will be able to “process” the excess currency they inundated the world in order to pump out from the people of the world pockets all the capital gains possible and convert them into assets.
    Land property and not falling prey of the enchantment of their media (including academia´s theories, from the “big bang” to Climate Change) all the time struggling for changing/obliterating our traditional values, specially by alienating our children with a totally biased education (Agenda 21).

  47. adolfogiurfa says:

    is the way to oppose their design.

  48. E.M.Smith says:

    @R. De Haan:

    Very nice article. Pretty much sums up how the mess is likely to go (which is none of the things I’d said would actually fix it…)

    @Adolfo:

    their design“? Having a bit of a paranoia binge? ;-)

    Yes, there are Evil Bastards. Lots of them. Yes, they love to infest Socialist Governments as those give the most power-bang for the position-buck. Yes, they even like to cooperate and form various sorts of cartels, consortiums, aliances, commissions, and even parliaments. No, that doesn’t make a “them”… It makes a gaggle of normal human beings doing what people do due their ordinary human failings.

    Any conspiracy theory is best examined in that light. The ordinary outcome of folks of average or slightly lower than average morals, character, and wisdom acting from normal levels of greed and non-empathy. Doesn’t take much more than that. It isn’t tied to any race, religion, ethnicity, nationality, or history. It infests every government from Africa to South America to the whole of the Northern Hemisphere with a growing presence in Australia and New Zealand.

    So there is no “their design”. There are thousands of individuals and small groups pushing for competing designs. Yes, some, like the Socialist International, have broad scope of influence. Yet others are in conflict with them. The overall pattern makes more sense when viewed as a set of “cooperating fiefdoms” that are occasionally in conflict. Alliances that shift and change over time. The Muslim Brotherhood pushing one way (with loads of OPEC Arab’s oil money) and the Socialist International, that does not like religion, pushing in another; while the Catholic Pope pushes in a third… No single “them” and no single “their design”. Just a subtle cultural war with winners and losers.

    @Pascvaks:

    Interesting point… How long before “Virtual Villages” disintegrate if the power goes out? Hmmm….

    Like the PQ idea… need to think on it… So folks from Einstein to The Beatles caused various PQs in society… (the English Invasion in USA music of the ’60s and ’70s; our view of the cosmos and atomic products – with real quakes when released suddenly in a ‘gadget’…)

    @Simon:

    Lots of new vocabulary starts in one field as jargon and spreads. Cruft was “almost unknown” about 40 years ago; now more generally entering mainstream usage.

    @Adolfo:

    Hershel is credited with the first observation of grain prices vs sun spots. Jevons then did load of data analysis on British Empire data (including a load from India) to prove it.

    http://www.economictheories.org/2008/08/jevons-theory-of-sunspot-empirical.html

    Jevons was interested in discovering the cause of trade or business cycles that led to fluctuations in prices. Because cyclical behavior did not seem related to individual utility maximization behavior, he thought there must be a cause in nature—some natural phenomenon that led to fluctuations. Preliminary investi­gation led him to believe that the cause of fluctuations in economic activity probably had something to do with the weather. He focused on sunspots (fluctuations in the activity of the sun) as the probable cause.

    Jevons’s specific hypothesis was that sunspot cycles occur with a periodicity of 11.1 years and these cycles lead to weather cycles that, in turn, lead to business cycles. To test his theory, Jevons looked at agricultural data, about fluctuations in the harvests, that were available from the thirteenth and fourteenth centuries. He then tried to relate those harvest fluctuations to nineteenth-century estimates of sunspot activity that suggested the 11.1-year periodicity. Making the assumption that the length of the sunspot cycle had not changed, he compared the two by laying out his data on a grid representing eleven years, eyeballing his data. He noticed a relatively good “fit”; the cycles seemed to match. He then looked at cycles in commercial credit during the nineteenth century and discovered an average cycle of 10.8 years. He concluded that the likely cause of the business cycle was sunspots.

    https://chiefio.wordpress.com/2009/05/12/jevons-paradox-coal-oil-conservation/

  49. adolfogiurfa says:

    @E.M. There is a conspiracy and that´s the UN. How do you explain Global Warming, then called Climate Change, and now turned into “Sustainability”, and other delicacies, simultaneously propagandized in every country?

  50. @adolfogiurf

    The conspiracy to “save the world” from destruction by “nuclear fire” was a noble goal in 1945, when the United Nations was first established.

    That noble goal was implemented by less than noble means in 1946 – deceit that undercut the basic right of citizens to have reliable information in order to exercise their Divine right to self-governance.

    Deceit that started innocently on the energy (E) stored as mass (m) in the cores of stars, gradually expanded to corrupt astronomy, astrophysics, climatology, cosmology, geology, nuclear, particle, planetary and solar physics before being exposed in Climategate emails and documents in November 2009.

    Deceit that started in 1946 has blossomed into a major threat to the founding principles of our government.

    See: http://judithcurry.com/2012/07/01/epidemic-of-false-claims/#comment-214346 and https://omanuel.wordpress.com/

  51. E.M.Smith says:

    @Adolfo:

    Well, given that the Czechs and Russians are not playing along all that well right now… I’d say it IS a conspiracy, but one of limited scope and with multiple parties dissenting. Adequately explained by The Usual Suspects of greed, self serving power lust, etc. Not needing a New World Order of shadow folks to make it happen. (Though not requiring that they NOT exist either).

  52. hillrj says:

    EM, have you any opinion about Bitcoin? (poss replacement for gold in finance)

  53. Jerry Franke says:

    EM,
    As a former Californian in the late 1980’s, I recall that a taxation scheme was “floated” for consideration by the revenue strapped state government. The scheme suggested that a capital gains tax be imposed on the unrealized capital gains on real estate that had appreciated in value. It never came close to being put into a bill but illustrates how innovative your state is when it comes to taxation.
    You suggested that California could not “devalue” its unfunded pension liabilities. I disagree. Although the pension liabilities could be considered to a contractual obligation that cannot be changed, there is a way to devalue the liability. Simply impose a very high income tax rate on the the pensions. Pensioners could not escape the tax by moving to a another state because the income originated in California. This scheme could also bail out the cities, counties and school districts by imposing the pension tax on their pensioners. The state could rebate the proceeds back to the local entities. Such a “clawback” is being used in the resolution of the Madoff ponzi scheme so why can’t it be applied to government workers who had improperly used their political power to obtain over-generous pensions.

  54. adolfogiurfa says:

    There is a place to go:

  55. R. de Haan says:

    Germany will choose to bail EU rather bail it out…. France according to this article makes the line.
    If the crises spreads to France, Germany is out. My conclusion: France is dead already and it’s banks can’t be saved. D-marks anyone?
    http://www.zerohedge.com/contributed/2012-07-04/germany-will-choose-bail-eu-rather-bail-it-out

  56. adolfogiurfa says:

    @R.de Haan: Then “Deutschland Über Alles”….., But “their” plans involve instead a new world currency

  57. adolfogiurfa says:

    @R.de Haan:
    http://www.imf.org/external/np/fin/data/rms_five.aspx
    UN……from AH1 vaccines to oil, We have it all!

  58. E.M.Smith says:

    @Hillrj:

    Looks like an interesting idea. A bit too convoluted for my tastes, though. As it is based on encryption and work units, it is in a race condition with Moor’s Law and will eventually be cracked and hacked. Not all that keen on it…

    @Jerry Franke:

    The State of California already tried taxing pensions paid to out of state recipients. It was tossed out in court… (My sister lives in Nevada and gets such a pension so was quite interested in how the case would end…)

    @R. de Haan:

    Speaking of Race Conditions….

    We have a race condition between the German Government desire to buy more power over others and the German People desiring to have some money left….

    At some point, the price of buying whores becomes too high… Then Germany will stop. Until that point, they will buy power over others to get what they want. After that point, they will go home and wonder why they did such a thing and wish they had the money back (while trying to figure out how to sell it to the ‘folks at home’ that it really wasn’t a waste of money…)

  59. oldfossil says:

    EMS, it’s amusing to see a rational skeptic like you getting into a voodoo science like economics.

    [Reply: Nothing “vodo” about it. BTW, I have a degree in Economics, so not “getting into it”. Been there for a long time, in depth. -E.M.Smith ]

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