FT133: “Liberal Democrats want to run our lives because they are far smarter than the people voting for them.” —Old Pithy

Posted by PITHOCRATES - August 31st, 2012

Fundamental Truth

People like to Laugh and not get Weighed Down with the Serious Issues so they Watch the Fake News and SNL

Those on the Left are suave.  Hip.  Cool.  Funny.  And boy are they full of self-confidence.  They are so sure of themselves that they sound like they know everything.  That they are smarter than the average person.  Especially when they speak with arrogance and condescension.  When they laugh with all-knowing condescension and smirk they just seem like people we should agree with.  And many do.  For they sound so smart that they must know what they are talking about.  Besides, these people are the suave, hip, cool and funny people on television we so enjoy watching who are saying this.  We like these people.  And want to be like them.  So we make disparaging comments about conservatives like they do.

The people who get their ‘hard news’ from Jon Stewart on the Daily Show or from Stephen Colbert on the Colbert Report are probably like the people in their audiences.  Who laugh longer and harder when the humor is more derogatory.  Disparaging conservatives.  Or Republicans.  They are there for the laughs.  And they love the conservative insults.  Those watching at home laugh, too.  Because they have been conditioned for so long to laugh at conservatives.  From listening to their classmates in schools.  Their teachers.  Their professors in college.  Movies.  And, of course, television.  From the fake news shows.  To Saturday Night Live.  That made belittling conservatives an art.

These people like to laugh.  To enjoy life.  And not get weighed down with the serious issues.  Which is why they watch the fake news and SNL.  To escape.  And enjoy a good laugh.  But because they don’t like getting weighed down with the serious issues they typically don’t watch serious news.  So most of the news they get is from the fake news shows.  SNL.  And the liberal talking heads on the opinion/news shows that are more opinion than news.  And even on these opinion/’news’ shows they take cheap potshots at conservatives.  Laugh.  And smirk.  Which reinforces what they saw on the fake news shows.  Giving these derogatory attacks on conservatives more legitimacy.  Making them mainstream.  Normal.  And, therefore, correct.

Do those on the Left know their Idol, JFK, was a Tax-Cutter like Ronald Ragan?

As you watch these shows and hear these guffaws at the expense of some conservative have you ever wondered how much these people understand the underlying issue that their lampooning the conservative about?  Do they have a fundamental understanding of economics?  Can they differentiate Keynesian economics from the Austrian school of economics or the Chicago school?  Do they understand the connection between monetary policy and inflation?  Do they understand the affect of the population growth rate on government spending?  Here’s a hint.  Think of why Social Security and Medicare are going bankrupt in the very near future.  What’s the connection?  If the number of taxpayers grows at a slower rate than those retiring from the workforce you get what we have today.  And no amount of taxing the rich can change that.

Can they name the Founding Fathers?  Do they know what each did to help found the nation?  Other than own slaves?  Do they understand that they abandoned a slave-based economy in the North because it was a very inefficient economic model?  As well as immoral.  Slavery didn’t make the nation rich.  It only made a few southern plantation owners rich.  Do they understand why there was slavery in a nation built on liberty?  It was the only way to get the southern plantation owners to join the union.  And the southern plantation owners held power in the southern states.  If the large union failed there would have been smaller unions of states.  In the northeast.  The middle states.  The south.  In the west.  With the British, French and Spanish at their borders.  Had the northern states had their way on the issue of slavery at the Founding there would not have been a United States.  But more of the Old World in the New World with the constant fighting that has plagued the Balkans.  Don’t believe that?  Well, it has happened.  America’s bloodiest war, the American Civil War, was a war between sectional interests.  Which the South lost because they and their slave-economy was poorer than the non-slave North.  And finally on the issue of slavery do they understand that it was the Republicans that ended slavery?  That the Democrats pushed the Jim Crowe Laws?  That the Democrats filibustered the Civil Rights Act of 1964?  And that more Republicans voted for that act than did Democrats?  I’m guessing when those on the Left who call Republicans racists do not know the history of the United States.

Do those on the Left know their idol, JFK, was a tax-cutter?  Who favored trickle-down economics?  It’s true.  His policies of tax cuts produced an economic boom.  Just like they did when Ronald Reagan continued the work started by JFK.  Which was rudely interrupted by LBJ, Richard Nixon, Gerald Ford and Jimmy Carter.  Do they understand that using corn for fuel leads to higher grocery prices?  And more hunger in the less developed world?  Do they understand that if everyone drove an electric car that it would be equivalent to adding one air conditioner on the electric grid for each car?  And the only way to meet that additional demand is by adding more coal-fired power plants?  Producing more air pollution than the cars they replaced?  Of course they don’t know this.

People tend to Vote Conservative because of what they Know not what they Feel

Those on the Left have little understanding of what their policies will do.  As they’ve littered the nation with the unintended consequences of their best intentions.  Which typically makes whatever problem they’re trying to fix worse.  Such as trying to help single mothers with AFDC.  Aid to Families with Dependent Children.  That relieved fathers of their parental responsibilities by having the state be husband and father.  Which destroyed poor families in the inner city.  But despite their failures the Left continues with more of the same.  Resorting to the same old attacks on conservatives.  Knowing that those on television will take their cheap potshots, laugh, smirk, disparage and condescend.

They hate conservatives.  Not for any rational reasons.  They just have been conditioned to.  And those on television are wealthy enough that they don’t have to live in the real world where they have to deal with those unintended consequences.  Insulated from the fallout of horrible policy they can go through life whistling a happy tune.  Knowing that even though the policies they support have failed they can feel good about themselves because they had the best of intentions.  That they care.  They are so sure of themselves that they could never conceive that they could, perhaps, be wrong.  And the reason why they are so arrogant, condescending and downright mean is that conservatives don’t accept their infallibility.  While these uppity conservatives dare to believe they could actually be right.

Liberals believe that not only can they be right but that they always are right.  Because they are so much smarter than the average person.  Which is why they believe they should run our lives.  People have other things to worry about.  Like sitting in the audience of a fake news show.  These people need help.  Because they can’t get by in life without a progressive government looking out for them.  Life is complicated.  And hard.  They need help.  They need smart people looking out for them.  So these people vote liberal.  To leave the governing to experts.  So those who can’t live without the help of smarter people providing for them decide who those smarter people are.  Even though they are the least qualified to do so.  For it’s not the people who have a fundamental understanding of economics voting for liberals.  People who understand our history.  Those who run small business.  The fiercely independent with rugged individualism.  The people who have built this nation.  No.  These people tend to vote conservative.  Because of what they know.  Not what they feel.  Like others do.  Like those who vote liberal.  Because they don’t know any better.  But feel good about who they vote for.

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Little Ice Age, Protestant Reformation, Louis XIV, Enlightenment, Seven Years’ War, American Revolution and French Revolution

Posted by PITHOCRATES - August 30th, 2012

Politics 101

King Louis XIV remained Catholic as Protestantism was Breaking Out in Europe and Britain

It’s been awhile since the last ice age.  In fact the last time we had a real ice age predated the first civilizations.  We still wore animal skins and hunted and gathered our food.  Long before we first farmed.  But it would get cool again.  Shortly after the Black Death (during the 1300s) it did get unseasonably cool.  So cool that we now call it the Little Ice Age (from 1350 to 1850 or thereabouts).  The glaciers didn’t cover Europe.  But it was cold.  And wet.  The spring took forever to change into summer.  While summer was quick to turn into fall.  Which led to short growing seasons.  Poor harvests.  Hunger.  And famine.

Martin Luther was no fan of the Pope.  Especially because of the indulgences he was selling.  A shortcut to heaven.  For those with money.  Which is what the Pope wanted.  Money.  For he was doing some costly renovations in Rome.  So in 1517 Martin Luther nailed up his Ninety-Five Theses to the church door demanding reform.  And kicking off the Protestant Reformation.  Well, the Catholic Church wasn’t interested in reform.  So Luther set up a new church.  With a new religion.  Protestantism.  A more plain religion.  With masses in the common language of the people.  Instead of Latin.  And no fancy things in the church.  No altars.  No stain glass.  No icons.  Just the word of God.  With over a thousand years of Catholicism already under their belt, though, a lot of people took offense to this.  And their offense offended the new Protestants.  So they went to war with each other for a few centuries or so over their religious differences.

King Louis XIV was one of the great French monarchs.  Under his rule France was the dominant European power.  The Sun King believed in the divine right of kings.  Absolute monarchism.  Doing pretty much as he pleased.  Which included a few wars.  And growing an empire with oversea colonies.  It cost a pretty penny.  And a lot of lives.  Louis remained Catholic as Protestantism was breaking out in Europe.  And in England.  For a couple hundred years or so England and France were bitter enemies.  Contesting colonial lands throughout the globe.  And defending the true faith.  Catholicism.  Or Protestantism.  The Catholic-Protestant battle lines stretched across Europe.  And to distant lands across the globe.  Including the New World.  Where they would both spend fortunes in waging war.

For the French the American War of Independence had nothing to do with the Americans

The Enlightenment, or the Age of Reason, gave the French Voltaire.  One of the great Enlightenment philosophers.  When Benjamin Franklin was in France the French were eager to bring two of the world’s greatest Enlightenment philosophers together.  And did.  The French also gave us the great Charles-Louis de Secondat, baron de La Brède et de Montesquieu.  The greatest influence on the Founding Fathers as they drafted our Constitution.  So there was some great thinking percolating in France.  Thoughts that focused on science and reason.  Not tradition and faith.  Even questioning some long-held beliefs about the Catholic Church, the aristocracy and the absolute monarchy.

Louis XIV built a great French empire.  The French seemed invincible.  Until Louis XV took over.  Who lost the Seven Years’ War to the British.  And saw French North America become British.  (And the Louisiana Territory go to Spain.)  That was tough having their eternal foe humiliate them.  The Protestant British.  It was a blow to French pride.  French commerce.  And French finances.  The near-perpetual state of war that had existed between Britain and France had cost both nations a lot of money.  The British decided to recoup some of that money by taxing their American colonies.  Which didn’t go over well with the Americans.  For unlike France the British had a constitutional monarchy.  Where the Parliament restricted the king’s powers.  That great institute of the people.  Which the Americans had no representation in.  Leading to their rebellion.  Because they didn’t like being treated like second-class subjects of the British Empire.  Which brought about the American Revolutionary War.

After the Americans defeated a British army at the Battle of Saratoga the French joined the Americans in their fight for independence from the oppression of a constitutional monarchy.  Which seemed rather odd being that the French at this time was still an absolute monarchy (though now ruled by Louis XVI).  Which was far more oppressive than the constitutional variety.  But for the French the American War of Independence had nothing to do with the Americans.  It had to do with French interests.  It was a chance to strike back at their eternal enemy.  The Protestant British.  And more importantly, when they won they could get back all their colonies they lost in the Seven Years’ War.

The French were Intoxicated with all of those Enlightenment Ideals and the American Win over an Oppressive Monarchy

The Americans won their independence.  But the French didn’t get anything they wanted.  All they got was a lot of debt.  To add to the enormous pile of debt they already had.  One of the French conditions for their alliance was that the Americans would not make a separate peace with the British.  Which is what the Americans did.  Why?  Because the French and the Spanish were conspiring against the Americans during the peace talks.  So they could expand their holdings in North America at the expense of the British and the Americans.  The French were even willing to trade American Independence away.  The British, who would rather have Americans on their former lands than the French or Spanish, made a separate peace with the Americans.

This act of diplomacy stunned the French.  For they had assurances from the American Congress that they would take the lead in the peace talks.  The Americans double-crossed them before they could double-cross the Americans.  This wasn’t supposed to happen in the world of European diplomacy.  Especially with rubes like the Americans.  But it did.  And the French were now in a world of hurt.  Broke.  And facing bankruptcy.  Desperately needing new tax revenue King Louis XVI called an Assembly of Notables.  The nobility and clergy.  But they didn’t want to pay any more taxes.  So the king called the Estates-General of 1789.  Which included the clergy, the nobility and everyone else (i.e., the Third Estate).

Meanwhile there was widespread hunger and malnutrition.  Poor grain harvests (in part due to the Little Ice Age) pushed the price of bread out of reach for many.  People were cold, hungry and poor.  In the Third Estate, that is.  For though they may have been suffering they saw that the nobility and the Catholic clergy were not.  In fact, they were living rather well.  Which inflamed the masses.  Who became intoxicated with all of those Enlightenment ideals.  And that American victory over an oppressive monarchy.  It got the people thinking.  That they didn’t need a nobility any more.  The Catholic Church.  Or a king.  And the people would get rid of these things.  For awhile, at least.  With something called the French Revolution.

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Overhead High Voltage Power Lines, Lightning Rod, Grounding Conductor, Ground Rods, Flashover and Underground Duct Bank

Posted by PITHOCRATES - August 29th, 2012

Technology 101

Electricity always wants to Take the Path of Least Resistance to Ground

Have you ever noticed bright-color globes on overhead high voltage power lines?  Do you know why they are there?  Because it’s hard to see those wires.  Which could be a problem for ships with tall masts traveling a river where these wires cross.  Or to low-flying aircraft.  Which is why you see them around airports.  And many hospitals.  Why?  Helicopters.  So when helicopter pilots are bringing critically injured patients to a hospital they will be able to see these bright-color globes and take evasive action to avoid flying into these wires.

Of course, not everything takes evasive action to avoid these lines.  One thing in particular tries its hardest to purposely hit these overhead high voltage power lines.  Lightning.  Why?  For the same reason you get a static electric shock after sliding over your cloth seats to get out of your car.  It creates a potential difference between you and your car.  So as your hand approaches your car handle to close your door a little spark jumps between you and your car.  To rebalance that unbalanced charge.  And send those ‘stripped’ electrons back home.  Which is a how a lightning strike occurs.  Only with the clouds being a much, much larger butt sliding across a car seat.  And anything sticking out of the ground being your finger.

Electricity wants to flow to the ground.  But if it flows straight to ground it can’t do much work for us.  So we try to prevent that from happening.  Which can be a struggle as electricity always wants to take the path of least resistance.  Instead of turning a motor it would much rather flow directly to the ground.  And it sometimes happens.  And when it does it can be dangerous.  For if the same amount of energy that can accelerate a subway train is shorted directly to ground there will be arcs and sparks and smoke and even a little welding as that electric discharge melts metal and ionizes the gas into an explosion of heat and noise.

So Overhead Cabling is Simpler and More Convenient to work with and Requires Fewer Power interruptions

Now these are the last things you want to happen to our electric grid.  Explosions of ionized gases and molting metal.  Because they tend to interrupt the flow of electricity in the power lines to our homes and businesses.  And thanks to work started by Benjamin Franklin we can do something to try and prevent this.  After Franklin made his wealth he became a scientist.  Because it interested him.  He studied the new field of electricity.  And he proved that lightning was in fact electricity.  So he invented the lightning rod.  To attract that lightning and help it go where it wants to go.  To the ground.  Instead of hitting the structure below the lightning rod.  And starting it on fire.

If you look at our overhead high voltage transmission lines you will notice a set of three wires.  Supported horizontally from a tower.  Or two sets of three wires supported vertically from a tower.  These are the high voltage transmission lines.  Above these lines you will see smaller lines.  At the very top of the transmission tower.  These wires are the lightning rods for the power lines below them.  They either terminate to the metal transmission towers.  Or there is a grounding wire running from these wires down a nonconductive pole to the earth.  At the base of the tower these conductors terminate to ground rods driven into the earth.  In the case of a metallic tower there are conductors connecting the base of the tower to ground rods.  So if lightning strikes at these grounding conductors or towers it will take the path of least resistance to go where it wants to go.  Along these grounding conductors to earth.

Low flying aircraft, tall ships and lightning?  Seems like overhead transmission lines give us a lot of trouble.  Wouldn’t it be smarter to bury these lines?  Yes and no.  While it is true it would be difficult for a plane, ship or lightning to hit a buried power line there are other considerations.  Such as infrastructure cost.  Overhead conductors need towers on small plots of land evenly spaced underneath.  Underground conductors need a trench, conduits, manholes, sand, rebar, concrete, etc., wherever the conductors go.  Also, overhead wires are bare.  Because they are in the open air separated from other conductors.  Conductors underground need insulation to prevent short circuits between phases.  Because the three cables of a 3-phase circuit are pulled into one conduit.  And these cables touch each other.  So the insulation, conduit, concrete and sand make it difficult to ‘tap’ a feeder to feed, say, a new substation.  Requiring power interruptions, excavating, cutting and splicing to tap an underground feeder.  Whereas tapping a bare overhead conductor requires none of that.  They can simply attach the new substation feeders to the live overhead wires.  Then close a switch in the new substation to energize it.  So overhead cabling is simpler and more convenient to work with.  And some voltages simply make overhead lines the only option.

For a Given Current you can use a Smaller Conductor in the open Air than you can use Underground

Current flows when there is a voltage differential.  The greater the voltage difference is the greater the current flow.  In 3-phase AC power generators push and pull an alternating current through a set of three cables.  Think of the reciprocating gasoline engine.  Where the up and down motion of the piston is converted into useful work.  Turning the wheels of a car.  When the current is equal in each of the three cables the 3-phase circuit is balanced.  Which means when current is moving away from the power plant on one cable it is returning to the power plant on another cable.  In North America a complete cycle of current on one conductor happens 60 times a second.  During that second voltage rises and falls as the current flows.   Think of three pistons going up and down.  The crankshaft turns at the same speed for all three pistons.  But the pistons don’t go up and down at the same time.  As it is in a three-phase feeder.  Current leaves the power plant in one conductor.  When it’s one-third of the way through its cycle current leaves in the second conductor.  When the first current is two-thirds of the way through its cycle, and the second current is one-third of the way through its cycle, current leaves in the third conductor.

Current and voltage are both zero twice in each cycle.  Just like the speed of a piston is zero twice a cycle (at the top and the bottom of its stroke).  But it’s never zero at the same time in more than one conductor.  In fact, the voltage is never the same in any two conductors at the same time.  Which means there is always a voltage differential between any two of the three conductors in a 3-phase circuit.  So a current will always flow between two phase conductors if they come into contact with each other.  And if the voltage is high enough the current will arc across the air gap (or flashover) between two conductors.  If they get too close to each other.  And the higher the voltage of these feeders the greater the distance required between the phase conductors to prevent any flashover.  On some of the highest voltage feeders (765 kilovolt) the conductors are more than 50 feet apart.  With one conductor in the middle and one on either side 50 feet away that’s 100 feet minimum distance required for a three-phase 765 kV feeder.  To put these underground would require a very wide trench.  Or cables with very, very thick insulation.  Requiring large conduits.  Deep and wide trenches.  And great cost.

Cables in open air have another advantage over underground cables.  High currents heat cables.  If a cable gets hot enough it can fail. There are only two ways to prevent this heat buildup.  Use thicker cables.  Or cool the cables.  Which can happen with overhead cabling.  The open air can dissipate heat.  Conductors in an underground duct bank have no air blowing across these cables to cool them.  Which means for a given current load you can use a smaller conductor in the open air than you can use in an underground duct bank.  Bigger cable means bigger costs.  On top of all the other additional costs.  And the inconvenience of excavating, cutting and splicing to make a tap.  So despite the risk of a ship, aircraft or lightning hitting our electric grid going overhead just makes more economic sense that going underground.  Because they are less costly.  And are easier to work on.  For replacing a failed overhead cable is a lot easier than replacing a failed underground cable.  Especially if you can’t pull the old cable out.  And don’t have a spare duct to pull a new cable in.  If that happens then you have to install new duct bank before you pull in new cable.  Which will be more expensive than the cable itself.

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Post Office, Telegraph, Telephone, Cell Phones, Texting, Technology, Productivity, Savings, Investment, Japan Inc. and Eurozone Crisis

Posted by PITHOCRATES - August 28th, 2012

History 101

Ben Franklin’s Post Office struggles to Stay Relevant in a World where Technology offers a Better Alternative

Once upon a time people stayed in touch with each other by mailing letters to each other.  Benjamin Franklin helped make this possible when he was America’s first Postmaster General of the United States.  And it’s in large part due to his Post Office that the American Revolutionary War became a united stand against Great Britain.  As news of what happened in Massachusetts spread throughout the colonies via Franklin’s Post Office.

In America Samuel Morse created a faster way to communicate.  (While others created this technology independently elsewhere.)  Through ‘dots’ and ‘dashes’ sent over a telegraph wire.  Speeding up communications from days to seconds.  It was fast.  But you needed people who understood Morse code.  Those dots and dashes that represented letters.  At both ends of that telegraph wire.  So the telegraph was a bit too complicated for the family home.  Who still relied on the Post Office to stay in touch

Then along came a guy by the name of Alexander Graham Bell.  Who gave us a telephone in the house.  Which gave people the speed of the telegraph.  But with the simplicity of having a conversation.  Bringing many a teenage girl into the kitchen in the evenings to talk to her friends.  Until she got her own telephone in her bedroom.  Then came cell phones.  Email.  Smartphones.  And Texting.   Communication had become so instantaneous today that no one writes letters anymore.  And Ben Franklin’s Post Office struggles to stay relevant in a world where technology offers a better alternative.

As Keynesian Monetary Policy played a Larger Role in Japan Personal Savings Fell

These technological advances happened because people saved money that allowed entrepreneurs, investors and businesses to borrow it.  They borrowed money and invested it into their businesses.  To bring their ideas to the market place.  And the more they invested the more they advanced technology.  Allowing them to create more incredible things.  And to make them more efficiently.  Thus giving us a variety of new things at low prices.  Thanks to innovation.  Risk-taking entrepreneurs.  And people’s savings.  Which give us an advanced economy.  High productivity.  And growing GDP.

Following World War II Japan rebuilt her industry and became an advanced economy.  As the U.S. auto industry faltered during the Seventies they left the door open for Japan.  Who entered.  In a big way.  They built cars so well that one day they would sell more of them than General Motors.  Which is incredible considering the B-29 bomber.  That laid waste to Japanese industry during World War II.  So how did they recover so fast?  A high savings rate.  During the Seventies the Japanese people saved over 15% of their income with it peaking in the mid-Seventies close to 25%.

This high savings rate provided enormous amounts of investment capital.  Which the Japanese used not only to rebuild their industry but to increase their productivity.  Producing one of the world’s greatest export economies.  The ‘Made in Japan’ label became increasingly common in the United States.  And the world.  Their economic clot grew in the Eighties.  They began buying U.S. properties.  Americans feared they would one day become a wholly owned subsidiary of some Japanese corporation.  Then government intervened.  With their Keynesian economics.  This booming economic juggernaut became Japan Inc.  But as Keynesian monetary policy played a larger role personal savings fell.  During the Eighties they fell below 15%.  And they would continue to fall.  As did her economic activity.  When monetary credit replaced personal savings for investment capital it only created large asset bubbles.  Which popped in the Nineties.  Giving the Japanese their Lost Decade.  A painful deflationary decade as asset prices returned to market prices.

Because the Germans have been so Responsible in their Economic Policies only they can Save the Eurozone

As the world reels from the fallout of the Great Recession the US, UK and Japan share a lot in common.  Depressed economies.  Deficit spending.  High debt.  And a low savings rate.  Two countries in the European Union suffer similar economic problems.  With one notable exception.  They have a higher savings rate.  Those two countries are France and Germany.  Two of the strongest countries in the Eurozone.  And the two that are expected to bail out the Eurozone.

While the French and the Germans are saving their money the Japanese have lost their way when it comes to saving.  Their savings rate plummeted following their Lost Decade.  As Keynesian economics sat in the driver seat.  Replacing personal savings with cheap state credit.  Much like it has in the US and the UK.  Nations with weak economies and low savings rates.  While the French and the Germans are keeping the Euro alive.  Especially the Germans.  Who are much less Keynesian in their economics.  And prefer a more Benjamin Franklin frugality when it comes to cheap state credit.  As well as state spending.  Who are trying to impose some austerity on the spendthrifts in the Eurozone.  Which the spendthrifts resent.  But they need money.  And the most responsible country in the Eurozone has it.  And there is a reason they have it.  Because their economic policies have been proven to be the best policies.

And others agree.  In fact there are some who want the German taxpayer to save the Euro by taking on the debt of the more irresponsible members in the Eurozone.  Because they have been so responsible in their economic policies they’re the only ones who can.  But if the Germans are the strongest economy shouldn’t others adopt their policies?  Instead of Germany enabling further irresponsible government spending by transferring the debt of the spendthrifts to the German taxpayer?  I think the German taxpayer would agree.  As would Benjamin Franklin.  Who said, “Industry, Perseverance, & Frugality, make Fortune yield.”  Which worked in early America.  In Japan before Japan Inc.  And is currently working in Germany.  It’s only when state spending becomes less frugal that states have sovereign debt crises.  Or subprime mortgage crisis.  Or Lost Decades.

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Saving, Investing and the Paradox of Thrift

Posted by PITHOCRATES - August 27th, 2012

Economics 101

Healthy Sales can Support just about any Bad Decision a Business Owner Makes

“Industry, Perseverance, & Frugality, make Fortune yield.”  Benjamin Franklin (1744).  He also said, “A penny saved is a penny earned.”  Franklin was a self-made man.  He started with little.  And through industry, perseverance and frugality he became rich and successful.  He lived the American dream.  Which was having the liberty to work hard and succeed.  And to keep the proceeds of his labors.  Which he saved.  And all those pennies he saved up allowed him to invest in his business.  Which grew and created more wealth.

Frugality.  And saving.  Two keys to success.  Especially in business.  For the business that starts out by renting a large office in a prestigious building with new furniture is typically the business that fails.  Healthy sales can support just about any bad decision a business owner makes.  While falling sales quickly show the folly of not being frugal.  Most businesses fail because of poor sales revenue.  The less frugal you’ve been the greater the bills you have to pay with those falling sales. Which speeds up the failing process.  Insolvency.  And bankruptcy.  Teaching the important lesson that you should never take sales for granted.  The importance of being frugal.  And the value of saving your pennies.

Saving and frugality also hold true in our personal lives.  Especially when we start buying things.  Like big houses.  And expensive cars.  As a new household starting out with husband and wife gainfully employed the money is good.  The money is plentiful.  And the money can be intoxicating.  Because it can buy nice things.  And if we are not frugal and we do not save for a rainy day we are in for a rude awakening when that rainy day comes.  For if that two income household suddenly becomes a one income household it will become very difficult to pay the bills.  Giving them a quick lesson in the wisdom of being frugal.  And of saving your pennies.

The Money People borrow to Invest is the Same Money that Others have Saved

Being frugal lets us save money.  The less we spend the more we can put in the bank.  What we’re doing is this.  We’re sacrificing short-term consumption for long-term consumption.  Instead of blowing our money on going to the movies, eating out and taking a lot of vacations, we’re putting that money into the bank.  To use as a down payment on a house later.  To save for a dream vacation later.  To put in an in-the-ground pool later.  What we’re doing is pushing our consumption out later in time.  So when we do spend these savings later they won’t make it difficult to pay our bills.  Even if the two incomes become only one.

Sound advice.  Then again, Benjamin Franklin was a wise man.  And a lot of people took his advice.  For America grew into a wealthy nation.  Where entrepreneurs saved their money to build their businesses.  Large savings allowed them to borrow large sums of money.  As bank loans often required a sizeable down payment.  So being frugal and saving money allowed these entrepreneurs to borrow large sums of money from banks.  Money that was in the bank available to loan thanks to other people being frugal.  And saving their money.

To invest requires money.  But few have that kind of money available.  So they use what they have as a down payment and borrow the balance of what they need.  The balance of what they need comes from other people’s savings.  Via a bank loan.  This is very important.  The money people borrow to invest is the same money that others have saved.  Which means that investments are savings.  And that people can only invest as much as people save.  So for businesses to expand and for the economy to grow we need people to save their money.  To be frugal.  The more they save instead of spending the greater amount of investment capital is available.  And the greater the economy can grow.

The Paradox of Thrift states that Being Frugal and Saving Money Destroys the Economy

Once upon a time this was widely accepted economics.  And countries grew wealthy that had high savings rates.  Then along came a man named John Maynard Keynes.  Who gave the world a whole new kind of economic thought.   That said spending was everything.  Consumption was key.  Not savings.  Renouncing centuries of capitalism.  And the wise advice of Benjamin Franklin.  In a consumption-centered economy people saving their money is bad.  Because money people saved isn’t out there generating economic activity by buying stuff.  Keynes said savings were nothing more than a leak of economic activity.  Wasted money that leaks out of the economy and does nothing beneficial.  Even when people and/or businesses are being frugal and saving money to avoid bankruptcy.

In the Keynesian world when people save they don’t spend.  And when they don’t spend then businesses can’t sell.  If businesses aren’t selling as much as they once were they will cut back.  Lay people off.  As more businesses suffer these reductions in their sales revenue overall GDP falls.  Giving us recessions.  This is the paradox of thrift.  Which states that by doing the seemingly right thing (being frugal and saving money) you are actually destroying the economy.  Of course this is nonsense.  For it ignores the other half of saving.  Investing.  As a business does to increase productivity.  To make more for less.  So they can sell more for less.  Allowing people to buy more for less.  And it assumes that a higher savings rate can only come with a corresponding reduction in consumption.  Which is not always the case.  A person can get a raise.  And if they are satisfied by their current level of consumption they may save their additional income rather than increasing their consumption further.

Many people get a raise every year.  Which allows them to more easily pay their bills.  Pay down their credit cards.  Even to save for a large purchase later.  Which is good responsible behavior.  The kind that Benjamin Franklin would approve of.  But not Keynesian economists.  Or governments.  Who embrace Keynesian economics with a passion.  Because it gives them a leading role.  When people aren’t spending enough money guess who should step in and pick up that spending slack?  Government.  So is it any wonder why governments embrace this new kind of economic thought?  It justifies excessive government spending.  Which is just the kind of thing people go into government for.  Sadly, though, their government spending rarely (if ever) pulls a nation out of a recession.  For government spending doesn’t replicate what has historically created strong economic growth.  A high savings rate.  That encourages investment higher up in the stages of production.  Where that investment creates jobs.  Not at the end of the stages of production.  Where government spending creates only inflation.  Deficits.  And higher debt.  All things that are a drag on economic activity.

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The Drought and Methanol Mandates decimate Corn Crops and High Quality Prime Cuts of Beef

Posted by PITHOCRATES - August 26th, 2012

Week in Review

Restaurants are one of the greatest job creators.  Because there are so many of them.  And if they open for breakfast, lunch and dinner that’s a lot of food servers, chefs, cooks, barkeeps busboys, dish washers, supervisors and managers.  Running a restaurant is hard.  It’s the number one business that fails.  Because margins can be thin.  And the amount of competition great.  But the people who mortgage their homes to open up a restaurant put a lot of people through college.  Gave single parents flexible hours to work around their kids schedules.  And let some people just do what they love.  Work with people.  Create great food.  And provide exceptional service.

This recession has been hard on restaurant owners.  As eating out is one of the first expenses a family cuts in their family budget.  Now things are going to get even harder (see Peter Luger Steak Prices May Soar as Drought Culls Herds by Peter S. Green and Esmé E. Deprez posted 8/21/2012 on Bloomberg).

The worst Midwest drought since 1956 has scorched crops and sent the price of corn, the main ingredient in livestock feed, up 62.8 percent since mid-June. Ranchers are culling herds to avoid feed costs, flooding the market with cheap supplies of beef.

There’s a parallel decline in the quantity of animals that yield the highest-quality prime cuts, which require months of extra feeding. The shift will be felt in steakhouse menus down the road.

So prices will go up and the quality of the meat will go down.  Which raise the prices on their menus.  And drive patrons away.  Because they, too, are facing higher costs in their lives.  And they can’t afford to pay more for less.

The drought prompted President Barack Obama to help farmers with $170 million in government meat purchases.

“We’ve got a lot of freezers,” Obama told a campaign rally in Council Bluffs, Iowa, on Aug. 13. The government is also considering cuts to ethanol mandates after livestock producers complained that too much grain is being diverted to make fuel.

“We’ve got a lot of freezers.”  The government has trillion dollar deficits in all four years of Obama’s presidency and he’s still spending money that he doesn’t have.  Which isn’t very smart.  And will do little.  For how is buying this meat going to solve the problem everyone is having in the food industry?  The high price of feed corn?

Why not just do the easy thing?  The thing that doesn’t increase the debt?  Don’t consider cutting methanol mandates.  Do it.  Cut them all.  Eliminate every last one.  Let gasoline be gasoline.  And food be food.  If we don’t divert 40% of the corn crop to the methanol industry that will nearly double the corn crop.  Now that would make an impact that would go a long way in lowering food prices for every American.  From eggs to chicken to milk to cheese to hamburger to prime cut steaks.  Lower prices for everyone.  And more economic activity.  From the extra money households don’t have to spend on groceries.  So they can go out during the week for dinner and a movie.  Helping all those restaurants.  And all the people who work in them.

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The U.S. and Japan assailed Argentina’s Mercantilist Trade Policies at the World Trade Organization

Posted by PITHOCRATES - August 26th, 2012

Week in Review

International trade can be a funny thing.  For mercantilist ways of the past are hard to give up.  Especially the misguided belief that a trade deficit is a bad thing.  Some nations are better at some things than other nations.  And have a comparative advantage.  And it would be foolish to try and produce something another nation can produce better.  It would be better for nations to do the things they are best at.  And import the things that others are better at.  Just as David Ricardo proved with his law of comparative advantage.  Still everyone still wants to export more than they import.  Still believing that their mercantilist policies are superior to the capitalistic policies that are characteristic of advanced economies.  While mercantilist policies can rarely advance beyond emerging economies.  Case in point Argentina (see Argentina says to file WTO complaint against U.S by Tom Miles and Hugh Bronstein posted 8/21/2012 on Reuters).

The United States and Japan assailed Argentina’s import rules as protectionist at the World Trade Organization on Tuesday, putting more pressure on the country to revamp policies that many trading partners say violate global norms.

The two complaints mirrored litigation brought by the European Union in May and triggered a swift reaction from Argentina’s center-left government, which vowed to challenge U.S. rules on lemon and beef imports.

Argentina is seen by many fellow Group of 20 nations as a chronic rule-breaker since it staged the world’s biggest sovereign debt default in 2002. It remains locked out of global credit markets and relies on export revenue for hard currency.

They have inflated their currency so much that it is nearly worthless.  They can get little of foreign currency in exchange for it.  So they depend on the foreign currency buying their exports for their money needs.  For they can’t destroy foreign currency with their inflationary policies.  Only the wealth and savings of those in Argentina who don’t have access to these foreign currencies.

In the old days the mercantilist empires brought gold and silver into their countries.  They had their colonies ship raw material back to the mother country.  The mother country manufactured them into a higher valued good.  Then exported it for gold and silver.   Today we don’t use gold and silver anymore.  So Argentina just substituted foreign currency into the formula.  While keeping the rest of it in place.

Argentina began requiring prior state approval for nearly all purchases abroad in February. Imports have since fallen compared with last year’s levels, boosting the prized trade surplus but causing some shortages of goods and parts and sharply reducing capital goods imports.

EU and U.S. officials say Argentina has effectively restricted all imports since the new system came into place…

On Monday, Argentina hit the EU with a separate WTO complaint, alleging discriminatory treatment by Spain against Argentine shipments of biodiesel.

“This measure, like others taken by the European Union and other developed countries for decades, effectively aims to keep our industries from rising along the value chain, limiting the role of developing countries to the provision of raw materials,” the Foreign Ministry said in a statement…

Latin America’s No. 3 economy relies heavily on a robust trade surplus, which is used to help fatten central bank foreign reserves tapped to pay government debt. The government has also moved to curb imports to protect local jobs, while imposing capital and currency controls to keep dollars in the country.

“Import growth has halted, which we should have done long before,” Foreign Trade Secretary Beatriz Paglieri was quoted as saying on the presidential website last weekend…

Argentina has also been criticized for a policy of “trade balancing,” which forces an importer to guarantee an equal value of exports. That has spawned offbeat deals whereby a car producer, for example, must ship a large amount of rice out of the country in return for a consignment of vehicle components.

Mercantilist to the core.  Which will forever trap them into being an emerging economy.  For they’ve been doing this for decades.  And they’re still an emerging economy.  Juan Peron rose to power with the same mercantilist arguments.  He was a Justicialist.  Today’s president is a Justicialist.  President Cristina Fernandez.  And little has changed since World War II.  Argentina is still an emerging economy.  Thanks to their mercantilist policies.  If they’d only give capitalism a chance their economy would explode with economic activity.  At least, based on history.  For the most advanced economies today are NOT based on the current Argentine model.  They’re based on the free trade of capitalism.  And David Ricardo’s comparative advantage.

In countries with free trade people enjoy higher standards of living.  Their governments give them this good life by doing as little for them as possible.  Letting the free market shower them with wealth and happiness.  Which brings us back to the funny part about international trade.  The countries that try to do the most for their people by restricting free trade give their people a lower standard of living.  Except, of course, for the few in power.  Or for those connected to power.

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Republicans are such Old Fogies that they aren’t Expected to Take in the Naked Ladies of Tampa

Posted by PITHOCRATES - August 26th, 2012

Week in Review

The Republican National Convention will be in Tampa.  A city famous for one thing one would normally not associate with Republicans.  Naked ladies.  The Democrat Party of Bill Clinton, perhaps.  But the Republicans?  Not quite (see Tampa’s strip-club king ready for Republicans by Tamara Lush, The Associated Press, posted 8/20/2012 on The Vancouver Sun).

More than sunshine, cigars or the rollercoasters at Busch Gardens, Tampa is known for its naked ladies.

Tampa and strip clubs are often mentioned together, like New York City and the Statue of Liberty. Or San Francisco and the Golden Gate Bridge. Or St. Louis and the Arch.

And the man in the thick of this spectacle is Joe Redner, who almost single-handedly made Tampa’s adult entertainment world famous. He’s a wiry 72-year-old with an amused smile and skeptical brown eyes who owns what is arguably the most notorious of Tampa’s all-nude clubs: Mons Venus.

The club — located less than six miles from where the Republicans will gather to nominate former Massachusetts Gov. Mitt Romney as their presidential candidate — isn’t much to look at. The blue-and-purple building sits on a busy stretch of road next to a Taco Bell and near where the NFL’s Buccaneers play home games. There’s a sign outside that says “Home of the Most Beautiful Women in the World,” and another: “Live NUDE Shows.”

“I don’t expect the RNC to be as busy as Super Bowl,” Redner said, with a dismissive wave of his hand. “I don’t think those people are coming to party.”

Must be that Republican war on women.  The Republicans must hate women so much that they won’t even support young women (many who are the same age as their daughters) dancing naked for tips.  No wonder women vote Democrat.  Not only do Republicans have old fashioned views on how to treat women they won’t even go 6 miles for a little fun with young naked nubile women grinding into their laps.  Heck, if Republicans had their druthers they’d like to close places like this.  And stop the objectification of women into mere sexual objects.  Talk about being out of touch with American women.

It is interesting that the women who vote Democrat vote for the same candidates that strip club owners and pornographers vote for.  Who make their money by objectifying young women into sexual objects.  Which is worse than anything they can accuse the Republicans of.  Other than making women buy birth control pills.  Sure, that’s pretty awful and Neanderthal-like.  But does it rise to the level of paying women only for their ability to look good in the nude?

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Birth Control and Abortion have reduced Tax Revenue and House Values for Seniors

Posted by PITHOCRATES - August 26th, 2012

Week in Review

Birth control and abortion will bankrupt Social Security and Medicare.  And they will bring down Obamacare, too.  When Social Security became law we had a growing birth rate.  More people were being born each year.  So the population was expanding.  And the Roosevelt administration thought it would keep expanding.  So they created a Ponzi scheme.  Social Security.  Where more young people (i.e., taxpayers) pay into the system than retirees (i.e., tax consumers) collect from the system.  A foolproof system.  As long as the population continues to expand.  Keeping the base of the pyramid growing larger than the top of the pyramid.

Well their assumptions didn’t hold.  Women stopped having babies beginning in the Sixties.  Just as the Johnson administration gave us the Great Society and Medicare.  Based on the previous assumption that women would keep having babies.  So the funding mechanism was a flawed as it was for Social Security.  And now Obamacare is going to expand the Medicare model.  In the face of what is now a declining population growth rate.  Meaning the number of taxpayers will dwindle as the number of tax consumers retiring will explode.  Causing the aforementioned bankruptcies.  And that declining birth rate is causing even more financial damage (see Is Our Aging Population Partly to Blame for the Slow Recovery? by Philip Moeller posted 8/21/2012 on U.S. News & World Report).

As the unusually weak economic recovery continues, you’ve at least got to wonder if future studies of what ails us will include our aging population as a material cause. Simply stated, older people tend to liquidate assets to fund their retirements. Younger people tend to acquire financial assets as their personal wealth rises and they build their own nest eggs.

The United States has enjoyed nearly 40 years where the number of people acquiring assets was greater than the number of people disposing of them. This condition is being turned on its head. We now face roughly 40 years where there will be more people in this country wanting to sell financial assets than buy them. This supply-demand shift could put a lid on asset values and depress overall economic growth.

So on top of the government failing us in our retirement even our own retirement savings are going to fail us.  It will be like being on the far side of a housing bubble after the bust.  Where seniors want to sell their houses to finance their retirement.  Only to get tens of thousands of dollars less than they had planned.  For just as there are fewer taxpayers to pay the taxes to support an aging population there are fewer homebuyers (as well as other asset buyers) to buy the houses of an aging population.  Lower demand means lower selling price.  And a less comfortable retirement.  All because of that generation of greed and selfishness.  The baby boomers.  Who were all about sex, drugs, rock & roll, birth control and abortion.  And not so much about raising children.  Of course they, too, will suffer the effects of their selfish ways.  As there will be fewer taxpayers to support them in their retirement.  Or to buy their houses.

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The High Cost of Labor Contracts and Environmental Regulations cause Planes to Run Low on Fuel

Posted by PITHOCRATES - August 26th, 2012

Week in Review

Here is a lesson in basic economics.  There is a tradeoff between costs and safety in aviation.  You could hire thousands of additional mechanics to give an airplane a complete overhaul after each flight.  And double their pay rate just to make sure they are especially happy workers.  You can have a couple of chase planes follow a passenger airliner on every flight to observe the outside of the aircraft so they can warn the pilot of any problems.  And you can top off every fuel tank on an airplane just to be extra safe.  These things would make flying safer.  But they would also make it very expensive to fly.  So expensive that few people would fly.  Thus reducing the amount of airplanes in the sky.  As well as the number of flight and maintenance crews.  Which illustrates the ultimate cost of generous union contracts.  The more they ask for the more they put themselves out of a job.

But these unions are powerful.  Margins are so thing in aviation that a strike could turn a profitable year into a money losing year.  So to avoid a strike they cut costs where they can.  And the one cost that gives them something to work with is their fuel costs.  Because an airplane only needs enough fuel to fly from point A to point B.  Plus some reserves.  So they are very careful in calculating the fuel requirements to get from point A to point B.  But sometimes weather can enter the picture and add a point C.  And this can sometimes cause a fuel emergency (see Pilots forced to make emergency landings because of fuel shortages by David Millward posted 8/20/2012 on The Telegraph).

Pilots have had to make 28 emergency landings because they were running low on fuel according to figures compiled by the Civil Aviation Authority…

Although the total represents of fuel-related emergency landings is a reduction on 2008-10, when there were 41 such incidents, some pilots have warned the airlines are operating on very narrow margins as they seek to cut operating costs…

One retired pilot told the Exaro website that he and his colleagues were under pressure from airlines because of the industry’s need to keep costs down.

“There is pressure on pilots by airlines to carry minimum fuel because it costs money to carry the extra weight, and that is quite significant over a year…

“The way in which aircraft are being developed in becoming more fuel efficient, there is less need for fuel.

We make jet fuel by refining petroleum oil.  And two things make this an expensive endeavor.  Higher environmental regulations.  And reductions in supply.  Often due to those same environmental regulations.  If they allowed the American oil business to drill, baby, drill, it would be safer to fly.  Because fuel would be less expensive.  And airlines could more easily afford to carry the extra fuel weight.

Airlines don’t have much power over controlling the price of jet fuel.  It is what the market says it is.  They have a little more luck in keeping their capital costs down thanks to the bitter rivalry between Boeing and Airbus.  Who are both eager to sell their airplanes.  Cutting their labor costs is another option they have but it comes with great political costs.  Usually it takes the specter of bankruptcy to get concessions from labor.  So when it comes to cutting their operating costs the least objectionable route to go is to cut fuel costs.  By loading the absolute bare minimum required by regulations.  And for safety.  Airlines want to save money.  But having planes fall out of the sky to save fuel costs will cost more in the long run.  In more ways than one.  (It’s hard to get people to fly on an airline that has a reputation of having their planes fall out of the sky.)

So there are only two practical options to fix this problem of skimping on the fuel load.  Either you drill, baby, drill.  Or you get labor concessions to lower you labor, pension and health care costs.  The very same things that are bankrupting American cities.  So you know the costly union workers are all in favor of drill, baby, drill.  Because the lower the cost of jet fuel the less pressure there is on their pay and benefits.

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