Democrats and Unions are impoverishing American Cities

Posted by PITHOCRATES - December 21st, 2013

Week in Review

Detroit had a massive public sector.  Lots of union government jobs.  With very generous benefits.  Then the city began losing population.  As the city shrank the public sector did not.  As the city could no longer support the public sector on tax revenue they turned to borrowing.  At her bankruptcy her pension obligations were in the billions.  And were just unsustainable.  With a lot of those retirees going to see huge cuts in their retirement benefits.  A first for a public sector union.  And one that may set a precedent for other impoverished cities (see Cities where poverty is soaring by Michael B. Sauter and Thomas C. Frohlich,, posted 12/16/2013 on Yahoo! Homes).

Many of these cities show a symptom of the regions hit hardest by the recession — a significant decline in real estate value. Nationally, the average home value during the three-year period of 2010-2012 was down by 9% compared to the previous three-year period. In eight of the 10 cities with soaring poverty rates, property values fell by at least 10%. Homes in Eastpointe lost nearly half of their value. In Inkster, Michigan, another city where poverty grew substantially, an average of 43.3% of homes were worth less than $50,000 between 2010 and 2012, compared to just 11.8% of homes during the 2007-2009 period…

Several of these cities were already struggling prior to the recession, in part because of their reliance on manufacturing. The industry had been declining for years, and the recession only made matters worse. In Salisbury, North Carolina, employment in manufacturing fell from 15.5% of all jobs to 8.3%. Goshen, Indiana, another city with a major increase in poverty, is heavily dependent on the auto industry — more than a third of the working population was employed in manufacturing between 2010 and 2012. According to Joe Frank at the Indiana Department of Workforce Development, this dependence had particularly dire consequences during the recession.

The Democrats are all Keynesians.  Who believe in government spending.  And keeping interest rates artificially low to stimulate the economy.  To encourage people to buy big expensive houses.  Just because interest rates are low.  So people did.  With mortgages so cheap everyone was getting them.  And as these buyers flooded the market housing prices soared.  Creating a great housing bubble.  Which collapsed when interest rates rose.  Resetting the rates on those subprime adjustable rate mortgages (ARMs).  Raising monthly payments.  Beyond what some people could afford.  Forcing them into bankruptcy.  Creating the subprime mortgage crisis.  And the collapse of housing prices.

The UAW made American cars so expensive people started buying the less expensive imports.  As most people don’t have UAW contracts giving them a fat paycheck and generous benefits.  Leaving them to get by on less than UAW workers.  Which meant they turned to the less costly imports.  Built by companies that didn’t have those great legacy costs of years of overly generous contracts that became unsustainable.  Pension costs and health care for retirees (which outnumbered active workers) forced GM and Chrysler to ask for a government bailout to avoid bankruptcy.  Asking the taxpayer to help them pay the generous pensions and health care costs of others.  Instead of bringing these benefits into line with the rest of America.

Democrats are Keynesians.  They believe in government intervention into the private sector economy.  And they protect their friends in unions to get their votes.  Raising costs for everyone else.  These policies, though, are just impoverishing American cities.  At least the ones dominated by unions and/or Democrats.


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Inventory to Sales Ratio and Labor Force Participation Rate (1992-2013)

Posted by PITHOCRATES - November 12th, 2013

History 101

Just-in-Time Delivery lowers Inventory Costs but risks Manufacturing Interruptions

Carrying a large inventory is costly.  And risky.  First of all you have to warehouse it.  In a secured heated (and sometimes cooled) building.  With a fire alarm system.  A fire suppression (i.e., sprinkler) system.  A security alarm system.  You need lighting.  And people.  Safety training.  Safety equipment.  Forklifts.  Loading docks.  Delivery trucks.  Insurances.  Property taxes (real and personal).  Utilities.  Telephone and Internet.  A computer inventory system.  Etc.  It adds up.  And the larger the inventory the larger the cost.

Then there are the risks.  Fire damage.  Theft.  Water damage (say from a fire suppression line that freezes during the winter because some kid broke a window to let freezing air in that froze the water inside the sprinkler line with the expanding ice breaking the pipe and allowing water to flow out of the pipe onto your inventory).  Shrinkage (things that disappear but weren’t sold).  Damaged goods (say a forklift operator accidentally backed into a shelve full of plasma displays).  Shifts in consumer demand (what was once hot may not be hot anymore which is a costly problem when you have a warehouse full of that stuff).  Etc.  And the larger the inventory the greater the risks.

In the latter half of the 20th century a new term entered the business lexicon.  Just-in-time delivery.  Or JIT for short.  Instead of warehousing material needed for manufacturing manufacturers turned to JIT.  And tight schedules.  They bought what they needed as they needed it.  Having it arrive just as it was needed in the manufacturing process.  JIT greatly cut costs.  But it allowed any interruption in those just-in-time deliveries shut down manufacturing.  As there was no inventory to feed manufacturing if a delivery did not arrive just in time.

A Rising Inventory to Sales Ratio means Inventory is Growing Larger or Sales are Falling

There are many financial ratios we use to judge how well a business is performing.  One of them is the inventory to sales ratio.  Which is the inventory on hand divided by the sales that inventory generated.  If this number equals ‘1’ then the inventory on hand for a given period is sold before that period is up.  Which would be very efficient inventory management.  Unless a lot of sales were lost because some things were out of stock because so few of them were in inventory.

Ideally managers would like this number to be ‘1’.  For that would have the lowest cost of carrying inventory.  If you sold one item 4 times a month you could add one to inventory each week to replace the one sold that week.  That would be very efficient.  Unless four people want to buy this item in the same week.  Which means instead of selling 4 of these items you will probably only sell one.  For the other three people may just go to a different store that does have it in stock.  So it is a judgment call.  You have to carry more than you may sell because people don’t come in at evenly spaced intervals to buy things.

We can look at the inventory to sales ratio for the general economy over time to note trends.  A falling ratio is generally good.  For it shows inventories growing as a lesser rate than sales.  Meaning that businesses are getting more sales out of reduced inventory levels.  Which means more profits.  A flat trend could mean that businesses are operating at peak efficiency.  Or they are treading water due to uncertainty in the business climate. Doing the minimum to meet their current demand.  But not growing because there is too much uncertainty in the air.  A rising ratio is not good.  For the only way for that to happen is if inventory is growing larger.  Sales are falling.  Or both.

The Labor Force Participation Rate has been in a Freefall since President Obama took Office

When inventories start rising it is typically because sales are falling.  Businesses are making their usually buys to restock inventory.  Only people aren’t buying as much as they once were.  So with people buying less sales fall and inventories grow.  Rising inventories are often an indicator of a recession.  As unemployment rises there are fewer people going to stores to buy things.  So sales fall.  After a period or two of this when businesses see that falling sales was not just an aberration for one period but a sign of worse economic times to come they cut back their buying.  Draw down their inventories.  And lay off some workers to adjust for the weaker demand.  As they do their suppliers see a fall in their sales and do likewise.  All the way up the stages of production to raw material extraction. 

Retailers typically carry larger inventories than wholesalers or manufacturers.  To try and accommodate their diverse customer base.  So when their sales fall and their inventories rise they are left with bulging inventories that are costly to store in a warehouse.  They may start cutting prices to move this inventory.  Or pray for some government help.  Such as low interest rates to get people to buy things even when it may not be in their best interest (for people tend to get laid off in a recession and having a new car payment while unemployed takes a lot of joy out of having a new car).  Or a government stimulus program.  Make-work for the unemployed.  Or even cash benefits the unemployed can spend.  Which will provide a surge in economic activity at the consumer level as retailers and wholesalers unload backed up inventory.  But it rarely creates any new jobs.  Because government stimulus eventually runs out.  And once it does the people will leave the stores again.  So retailers may benefit and to a certain degree wholesalers as they can clear out their inventories.  But manufacturers and raw material extractors adjust to the new reality.  As retail sales fall retailers and wholesalers will need less inventory.  Which means manufacturers and raw material extractors ramp down to adjust to the lower demand.  Cutting their costs so their reduced revenue can cover them.  Which means laying off workers.  We can see this when we look at inventory to sales ratio and the labor force participation rate over time.

(There appears to be a problem with the latest version of this blogging software that is preventing the insertion of this chart into this post.  Please click on this link to see the chart.)

(Sources: Inventories/Sales Ratio, Archived News Releases

Cheap money gave us irrational exuberance and the dot-com bubble in the Nineties.  And a recession in the early 2000s.   Note that the trend during the Nineties was a falling inventory to sales ratio as advanced computer inventory systems tied in over the Internet took inventory management to new heights.  But as the dot-com irrational exuberance came to a head we had a huge dot-com economy that had yet to start selling anything.  As their start-up capital ran out the dot-coms began to go belly-up.  And all those programmers who flooded our colleges in the Nineties to get their computer degrees lost their high paying jobs.  Stock prices fell out of the sky as companies went bankrupt.  Resulting in a bad recession.  The fall in spending can be seen in the uptick in the inventory to sales ratio.  This fall in spending (and rise in inventories) led to a lot of people losing their jobs.  As we can see in the falling labor force participation rate.  The ensuing recession was compounded by the terrorist attacks on 9/11.

Things eventually stabilized but there was more irrational exuberance in the air.  Thanks to a housing policy that put people into houses they couldn’t afford with subprime mortgages.  Which lenders did under threat from the Clinton administration (see Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on Pithocrates).  Note the huge spike in the inventory to sales ratio.  And the free-fall of the labor force participation rate.  Which hasn’t stopped falling since President Obama took office.  Even though the inventory to sales ratio returned to pre-Great Recession levels.  But there is so much uncertainty in the economic outlook that no one is hiring.  They’re just shedding jobs.  Making the Obama economic recovery the worst since that following the Great Depression.


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October 2013 Employment Situation Summary

Posted by PITHOCRATES - November 11th, 2013

Economics 101

Although there were 204,000 New Jobs in October 720,000 Workers left the Labor Force

The worst economic recovery since that following the Great Depression continues (see Employment Situation Summary by the Bureau of Labor Statistics posted 11/8/2013).

Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today…

Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in October…

The civilian labor force was down by 720,000 in October.

If the Obama administration was an employment agency that found people jobs someone would have fired the management team by now with numbers like this.  204,000 new jobs for 11.3 million unemployed people is a success rate of 1.81%.  Worse, although there were 204,000 new jobs 720,000 workers left the labor force.  Which means that for every new job we lost 3.5 existing jobs.  So for one step forward in fixing the economy the administration takes 3.5 steps backwards.  Which means we’re moving in the wrong direction with the economy.

After a near-trillion dollar stimulus bill and quantitative easing up the wazoo what do we have to show for it?  Not a whole hell of a lot.  Other than more debt.  And inflationary pressures just waiting to be unleashed.  Taking us back to the stagflation and misery of the Seventies.  The heyday of Keynesian economics.

Solid Economic Growth starts at Raw Material Extraction

Before John Maynard Keynes gave us Keynesian economics the economy hummed along based on classical economic principles.  Including, but not limited to, thrift.  Savings.  Investment.  A sound banking system.  And a strong currency.  People saved their money.  Banks accumulated their savings into investment capital.  Banks made this capital available to investors.  And interest rates were determined by our savings rate.  The more we saved (i.e., the more thrifty we were) the lower interest rates were.  These are the economic principles that made the United States the number one economy in the world.

Another key concept of classical economics is the stages of production.  From the extraction of raw materials to manufacturing to wholesale goods to retail goods.  In a healthy economy there is growth at all stages.  And solid economic growth starts at raw material extraction.  For this feeds manufacturing.  Which feeds wholesale goods.  Which feeds retail goods.  Where consumers spend their money.  The fatal flaw of Keynesian economics is that it focuses only on consumer spending.  Not at these higher-order stages of production.  And when Keynesians try to end a recession while ignoring them they fail.  And get job numbers like these.

Employment in retail trade increased by 44,000 in October, compared with an average monthly gain of 31,000 over the prior 12 months…

Manufacturing added 19,000 jobs in October, with job growth occurring in motor vehicles and parts (+6,000), wood products (+3,000), and furniture and related products (+3,000). On net, manufacturing employment has changed little since February 2013…

In October, employment showed little or no change elsewhere in the private sector, including mining and logging, construction, wholesale trade, transportation and warehousing, information, and financial activities.

This is not the picture of an improving economy.  Consumers are spending money.  Thanks to low interest rates and a record amount of government benefits.  But the economic activity is greatest at the consumer level.  As evidenced by the largest increase in jobs at the retail level.  There are fewer job gains at manufacturing.  And even less at the whole sale level and raw material extraction.  Meaning the new economic activity is greatest at the consumer level.  Because of cheap (and free) money.  But there are no new jobs at the highest stage of production.  Raw material extraction.  Because they see no real economic recovery.  Only Keynesian ‘hot’ money that will cause a surge in consumer spending.  And a surge in inflation.  Leading to a continued sluggish economic recovery.  Or a fall back into recession.  And the last thing they want should that happen is higher costs.  Or more debt.  So they don’t spend more or invest during periods of Keynesian stimulus.

President Obama’s Greatest Supporters are suffering some of the Greatest Unemployment

The October 2013 Employment Situation Summary paints a grim economic picture.  People continue to leave the labor force.  And the government’s efforts to stimulate economic activity isn’t stimulating anything above the consumer level.  As the higher stages of production fear the coming inflation.  And possible recession.  This after 5 years of President Obama’s Keynesian economic policies.  Further proving the futility of Keynesian economics.  And the failure of the Obama administration.  Whose policies have stalled new hiring.  And pushed people from full-time to part-time.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 8.1 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

Those individuals who had their hours cut or can’t find a full-time job are in large part due to the Affordable Care Act (Obamacare).  Which is not only destroying any economic recovery.  But the Affordable Care Act is also making health insurance unaffordable.  Which will make these economic numbers worse as the carnage spreads to employer-provided health insurance.  As people will have to both pay for health insurance AND pay for all of their health care out-of-pocket thanks to those high deductibles.  Which won’t help the unemployment numbers.  For as consumer spending falls so does hiring.

Among the major worker groups, the unemployment rates for adult men (7.0 percent), adult women (6.4 percent), teenagers (22.2 percent), whites (6.3 percent), blacks (13.1 percent), and Hispanics (9.1 percent) showed little or no change in October. The jobless rate for Asians was 5.2 percent.

It is interesting, or rather ironic, that the president’s greatest supporters are suffering some of the greatest unemployment.  Teenagers.  Blacks.  And Hispanics.  Who seem to never lose their faith.  No matter how much President Obama’s policies favor old white men and women.  And Asians.  It’s not for the lack of spending, either.  For the Obama administration has spent more domestically than any other president.  But it is only his rich Wall Street cronies who are doing well.  And other rich people.  Not the rank and file Obama supporters.  Yet they remain Obama supporters.  So far, at least.  These continual bad job numbers AND the unaffordable Affordable Care Act may change things.  Especially when these continue to fall disproportionally on teenagers, blacks and Hispanics.


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Family Farms, Big City Factories, Fertility Rates and Federal Debt

Posted by PITHOCRATES - July 9th, 2013

History 101

The Mechanization of the Farm began a Migration from the Country to the Cities

Before the Industrial Revolution (1760-1830ish) if you worked you most probably farmed.  For most everyone from the dawn of civilization on the Nile, the Euphrates & Tigris, the Indus and the Yangtze farmed.  To produce food for the civilization for the good times.  And food surpluses for the bad times.  For having enough to eat was never a sure thing.  And surviving the winter was a challenge.

What early civilizations needed were a lot of people to work the land.  For large-scale farming could produce large harvests.  Enough to feed everyone during the good times.  During the winters.  And even the occasional drought.  But it could be a risky game to play.  Because a lot of people to work the land also meant a lot of mouths to feed.  Which meant everyone worked the fields.  Men.  Women.  And children.  Anyone who ate worked.  As they did on the family farm.  Which is why they had large families.  For the more children they had the more land they could work.  Allowing them to eat during the good times.  During the winters.  The occasional drought.  While having large food surpluses to sell.  Allowing them to build wealth.  Just like the landowners in the Old World.  The aristocracy.  Only instead of peasants working the land it was family.

But with the Industrial Revolution came change.  The steam engine mechanized farming.  Allowing fewer people to produce more.  Also, steam power allowed factories away from rivers.  As they no longer needed moving water to turn a waterwheel.  So factories filled our cities.  Creating a lot of jobs.  This and the mechanization of the farm requiring fewer hands to work the land began a migration.  Of people from the country.  To the cities.

The Migration from the Family Farm to the Big City got People used to Bigger Government and Taxes

The world modernized in the 1800s.  Food was never more plentiful.  Allowing more people to leave the farm.  And think about other things.  Like electrical engineering.  Nikola Tesla gave us AC electric power.  And the AC electric motor.  Changing manufacturing forever.  Those little spinning machines filled our factories.  And operated the machines in those factories.  Everything we ever made we made better and more efficiently thanks to the electric motor.  Allowing us to manufacture more than ever.  And manufacture more complex things.  Factories grew.  With many levels of manufacturing contained within.  Packing more people than ever in these factories.

The common perception of this industrial world is of sweatshops.  Child labor.  Soot and smoke casting a pall over overcrowded cities.  Where people packed into overcrowded housing.  Thanks to that migration from the family farm to the big city factories.  Which changed things.  Instead of people raising a large family on a large farm where there was plenty of room and plenty of food to eat these families were living in cramped apartments in the crowded city.  And they had to pay for the food they ate.  And the more mouths they had to feed the more money it took.  This was a big change.  Whereas on the farm a large family meant more food.  And more wealth.  In the city, though, more children meant less food for everyone else to eat.  And more poverty.

The growth of cities also caused another change.  When people lived on scattered farms they didn’t need any government services.  But in the crowded cities they did.  Homes had utilities.  And sanitation.  Cities also had streets.  Which the city needed to maintain.  Eventually there was street lighting.  And traffic signals.  Police departments.  Fire departments.  Schools.  And teachers.  All of these things cost money.  And we paid for them with taxes.  Getting people used to bigger government.  And bigger taxes.  Then the progressives entered government at the federal level.  Who wanted government to do at the federal level what it did at the local level.  Be mother to the people.  Instead of just doing those things the Constitution said it should do.

A Falling Fertility Rate forced the Government to go into ‘World War’ Debt just to pay for Social Security and Medicare

The fertility rate (the number of children a woman has during her child-bearing days) fell all during the 1800s.  As large families went from being wealth producers on the farm to poverty inducers in the cities.  While federal debt from the American Revolutionary War fell during the early 1800s.  The debt fell because there wasn’t a lot of federal spending.  So it wasn’t hard to retire that debt.  But that federal restraint didn’t last.  There was a spike in federal debt (as a percent of GDP) following American Civil War (1861-1865) as they had to borrow heavily to pay for that war.  But after the war the debt level did not fall back to pre-war levels.  A trend that would continue.  As we can see here.

Fertilty Rate versus Debt as Percent of GDP

There was another spike in federal debt following World War I (1917-1918).  But the debt level never fell back to pre-war levels.  Then the Great Depression and the New Deal (1930s) began another spike in Federal debt.  That World War II took to record highs.  And once again after the war the federal debt did not fall back to pre-war levels.  Then came President Reagan.  Who had the guts to call communism what it was.  A failed economic system that oppressed its people and was the greatest killer of the 20th century.  To push the Soviet Union into the ‘ash heap of history’ Reagan forced them to spend more than they could afford.  By ramping up defense spending to a level the Soviets couldn’t match.  Which ultimately won the Cold War (1947-1991, with Reagan delivering the knockout blow during his presidency (1981-1989) ).  But federal debt levels, once again, did not fall back to pre-war levels.  In fact, despite the peace dividend President Clinton inherited he still raised federal spending.  Just at a reduced rate than it was during the Cold War.  President Bush gave us Medicare Part D (drugs for seniors).  Then came 9/11.  And the War on Terror.  Then President Obama.  Who despite ending the Iraq War had the greatest budget deficits of any president.  As he spent more than any other president.  As he tried to transform the country into a European social democracy.  Sending out debt soaring to new heights.

FDR gave us Social Security in 1935.  At the tail-end of a long decline in the fertility rate.  Promising great benefits to future retirees.  Which LBJ added to during the Sixties with his Great Society.  During the post-war baby boom.  Perhaps assuming that increasing fertility rate would provide a lot of new taxpayers in the future when the weight of all these new government programs (FDR’s and LBJ’s) would be felt.  But then two things happened that they didn’t quite plan on.  The birth control pill and abortion created a baby bust following the baby boom.  Worse, thanks to modern medicine people were living longer into retirement.  Consuming more Social Security and Medicare benefits than anyone had ever imagined.  And just when the full force of those baby boomers was going to hit there were going to be fewer taxpayers around to pay for it.  Thanks to that baby bust.  More retirees paid for by fewer taxpayers.  A recipe for disaster.  Which is why debt soared towards World War II highs following the Cold War.  Even though there was no world war.  Because the cost of all those government benefits far exceeded the tax revenue.  Forcing the government to go into ‘world war’ debt just to pay for Social Security.  Medicare.  And everything else the federal government was providing so they could play mother to the American people.


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Labor and Energy Costs

Posted by PITHOCRATES - July 1st, 2013

Economics 101

If you want to Destroy an Industry and Kill Jobs all you have to do is Raise the Cost of Labor

What happened to American manufacturing?  The Industrial Revolution swept through the United States and made America an industrial superpower.  By the beginning of the 20th century the United States became the world’s number one economic power.  Immigrants poured into this country for those manufacturing jobs.  Even though some of these jobs may have come out of a Dickens novel.  Because being able to eat had it all over starving to death.  And in America, with a good factory job, you could put food on your family’s table.

Most of those manufacturing jobs are gone now.  Why?  What happened to the once booming textile industry?  The once booming steel industry?  The once booming automotive industry?  Unions happened to them.  That’s what.  These jobs were so horrible and unfit for humans that unions stepped in and organized them.  But the jobs never got better.  Based on the ever more generous union contracts they kept demanding.  Increasing the cost of labor more and more.  Which chased the textile industry out of the country.  And much of the steel and automotive industries as well.

Is there anything we can learn from this?  Yes.  If you want to destroy an industry, if you want to kill jobs, if you want to damage the economy, all you have to do is raise the cost of labor.  The largest cost to most businesses.  Which is why many businesses have been replacing people with machines.  Advanced machines.  Computer-controlled machines.  Robots.  Because they can work 24/7.  They’re never late.  Never hung over.  Never out sick.  They don’t take lunch.  And they will work as fast as possible without ever complaining.  This is why businesses like machines.  For they let them lower their costs.  Making them competitive.  So they can sell at prices lower than their competitors.  Allowing them to remain in business.

Uncompetitive American Manufacturers go to Emerging Economies where they can be Competitive

Labor is a big cost of business.  Especially in an advanced economy.  With a high standard of living.  Where people own houses and cars.  Where those houses have central heat, air conditioning, televisions, sound systems, kitchen appliances, washers and dryers, etc.  These things cost money.  Requiring paychecks that can afford these things.  As well as pay for clothes, groceries, gasoline, utilities, etc.  Common things in an advanced economies.  But not all that common in an emerging economy.  Where factory workers aren’t accustomed to those things yet.  And don’t demand paychecks that can pay for those things.  Yet.

Still, people in developing economies flock to the new factories.  For even though they are paid far less than their counterparts in advanced economies these factory jobs are often the highest paying jobs in their countries.  And those who have these jobs have a higher standard of living than those who don’t.  Even when the occasional factory burns to the ground or collapses killing everyone inside.  As sad as that is.  But if you want to eat and provide for your family these factories often offer the best opportunity.

So this is where American manufacturing jobs go to.  Where labor costs are lower.  Allowing business to stay competitive.  Because if they can’t be competitive no one will buy what they are selling.  And without any revenue they won’t be able to pay their suppliers.  Their employees.  Or their energy costs.  Another large cost of business.  Especially for manufacturers.

Unions and Regulatory Costs haven’t made Emerging Economies Uncompetitive Yet

A lot of houses today come with a 200-amp electric service.  Assuming a house uses about 100 amps on average that comes to 24,000 watts (100 amps X 240 volts).  Now consider a large manufacturing plant.  Like an automotive assembly plant.  That can have anywhere around 8 double-ended unit substations.  Which are pieces of electrical distribution equipment to feed all of the electrical loads inside the plant.  Each substation has two 13,800 volt 3-phase primary electrical services.  If you’re looking at one you will see the following from left to right.  A 600-amp, 15,000 volt switch, a transformer to step down the 13,800 voltage to 480 voltage, a 480-volt main switch, a bunch of 480-volt switches to feed the electrical loads in the plant, a ‘tie’ switch, another bunch of 480-volt switches, another 480-volt main switch another transformer and another 600-amp switch.

The key to a double-ended unit substation are the two 480-volt main switches and the tie switch.  Which normally distributes the connected electric load over the two primary services.  With both 480-volt main switches closed.  And the tie switch open.  If one service fails because a car knocks down a cable pole these switches will sense the loss of that service.  The 480-volt switch on the side of the failed service will open.  And the tie switch will close.  Feeding both sides of the unit substation on the one live primary service.  So each primary service carries half of the connected load.  Or one primary service carries the full connected load.  Assuming each unit substation uses 600 amps on average (2 services at 300 amps or 1 service at X 600 amps) that comes to approximately 13,194,070 watts (600 amps X 13,800 volts X √3 X .92 PF).  Where we multiply by the square-root of 3 because it is three phase.  And assume a 0.92 power factor.  If a plant has 8 unit substations that comes to 105,552,562 watts.  Which equals approximately 4,398 houses with a 200 amp service.  Now to further our crude mathematical approximations let’s take a typical electric bill for a house.  Say $175 on average per month.  If we multiply this by 4,398 that comes to a monthly electric bill for this manufacturer of about $769,654.  Or $9,235,849 per year.

So here is another way to destroy an industry, kill jobs and damage the economy.  By increasing the cost of electric power.  Which is already a very large cost of business.  And ‘going green’ will make it even more costly.  As the Obama administration wants to do.  With their war on coal.  The cheapest source of electric power we have.  By increasing regulations on coal-fired power plants.  Even implementing some kind of a carbon tax.  To punish these carbon emitters.  And to subsidize far more costly green energies.  Such as solar.  And wind.  Going from the least costly to the most costly electric power will greatly increase a business’ electric utility costs.  Easily adding 15%.  30%.  40%.  Or more.  A 40% increase in our example would increase the electric utility cost by $3,694,340 each year.  If a plant has 1,200 workers that’s like adding another $3,000 per worker.  And we’ve seen what higher labor costs have done to companies like General Motors.  Chrysler.  And the textile industry.  By the time you add up all of these new regulatory costs (Obamacare, green energy, etc.) businesses will be so uncompetitive that they will have to follow the textile industry.  Out of the country.  To a country that will let them be competitive.  Such as an emerging economy.  Where unions and regulatory costs haven’t made them uncompetitive.  Yet.


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Housing Boom, Bubble and Bust

Posted by PITHOCRATES - April 15th, 2013

Economics 101

Building and Furnishing Houses creates Great Economic Activity

Central to any booming economy are healthy home sales.  For home sales unleash great economic activity.  From the first surveys of a new subdivision.  To the new sewers and water systems.  Gas and telephone.  Cable television and broadband Internet.  Concrete for basements, driveways and sidewalks.  Structural steel (that beam in the basement and steel poles holding up the house).  Rough carpentry.  Electrical work and plumbing.  Drywall, windows and roofing.  Painting, flooring, doors and hardware.  Heating and air conditioning.  Lighting and plumbing fixtures.  Brick, siding and landscaping.  Etc.

All of this takes manufacturing to make these construction products.  All these manufacturers need raw materials.  And raw material extraction needs heavy equipment and energy.  At all of these stages of production are jobs.  Extracting raw materials.  Processing raw materials.  Manufacturing products out of these raw materials.  Building this production equipment.  Interconnecting these stages of production is every form of transportation.  Rail, Great Lake freighter, river barge and truck.  Requiring even more jobs to build locomotives, rolling stock, ships and trucks.  And jobs to operate and maintain them.  And build their infrastructure.  Filling all of these jobs are people.  Earning a paycheck that will let them buy a house one day.

Then even more economic activity follows.  As people buy these homes and furnish them.  Washers and dryers.  Refrigerators, stoves, microwaves, food processors and coffee makers.  Furniture and beds.  Light fixtures and ceiling fans.  Rugs, carpeting and vacuum cleaners.  Telephones, televisions, music systems, modems and computers.  Curtains, drapes, blinds and shades.  Shower curtains, bath mats, towels and clothes hampers.  Mops, buckets, cleaning supplies and waste baskets.  Lawnmowers, fertilizers, hoses and sprinklers.  Snow shovels and snow blowers.  Cribs, highchairs, diapers and baby food.  Etc.  All of these require manufacturers.  And all of these manufacturers require raw materials.  As well as transportation to move material and product between the stages of production.  And to our wholesalers and retailers.  More jobs.  More people earning a paycheck.  Who will one day buy their own home.  And create even more economic activity.

Bill Clinton pressured Lenders to Lower their Requirements and Subprime Lending took Off

This is why governments love housing.  And try to do everything within their power to increase home ownership.  Which is why they changed the path to home ownership.  After World War II when the building of subdivisions took off there was the 3-6-3 savings and loan.  Where savings and loan paid 3% interest on savings accounts.  Loaned money to home buyers at 6%.  And were on the golf course by 3 PM.  And the mortgage was the 30-year conventional mortgage with a 20% down payment.

The conventional mortgage was the mortgage of our parents.  Who had no problem putting off their wants to save money for that 20% down payment.  They prioritized.  And planned for the future.  But the conventional mortgage has an obvious drawback.  It limits home ownership to those who can save up a 20% down payment.  Pushing home ownership further out for some.  Or just taking that option away from a large percentage of the population.  So the government stepped in.  To help those who couldn’t save 20% of the house’s price.

Mortgage Qualification Decreasing Down Payment

As we lowered the down payment amount it allowed lower-income people the opportunity of home ownership.  But it didn’t get them a lot of house.  That is, those who could afford a 20% down payment could buy more house for the same monthly payment than those who couldn’t afford it.  And a house in a better neighborhood.  Which some said was unfair.  Some in government even called it discriminatory.  As Bill Clinton did.  Who pressured lenders to lower their lending requirements to qualify the unqualified.  His Policy Statement on Discrimination in Lending helped to fix that alleged problem.  And kicked off subprime lending in earnest.  Leading to the subprime mortgage crisis.  And the Great Recession.

Conventional Wisdom was to Pay the Most you could Possibly Afford when Buying a House

But lowering the down payment wasn’t enough.  Even eliminating it all together.  The people needed something else to help them into home ownership. And to generate all of that economic activity.  And this was something the government could fix, too.  By printing a lot of money.  So banks had a lot of it to lend.  Thus keeping interest rates artificially low.  And we can see the effect this had on home ownership combined with a zero down payment.  It allowed people to buy more house for the same given monthly payment.  Even more than those buying with the 3-6-3 conventional mortgage.

Mortgage Qualification Decreasing Mortgage Rate

Falling interest rates bring in a lot more people into the housing market.  Which is good for sellers.  And good for the economy.  A lot more people than just those who could afford a 20% down payment can now buy your house.  As people bid against each other to buy your house they bid up your price.  Raising home prices everywhere.  Increasing the demand for new housing.  Which builders responded to.  Creating a housing boom.  As builders flood the market with more houses.  At higher prices.  That new homeowners move into.  And max out their credit cards to furnish.  Creating a lot of debt people are servicing at these artificially low interest rates.  But then the economy begins to overheat.  And other prices begin to rise.  Leaving people with less disposable income.  The housing boom turns into a housing bubble.  House prices are overvalued.  Those artificially low interest rates created a lot of artificial demand.  Bringing people into the market who weren’t planning on buying a house.  But decided to buy only to take advantage of those low interest rates.

Conventional wisdom was to pay the most you could possibly afford when buying a house.  For all houses gained value.  You may struggle in the beginning and have to make some sacrifices.  Say cut out steak night each week.  But in time you will earn more money.  That house payment will become more affordable.  And your house will become more valuable.  Which will let you sell it for more at a later date letting you buy an even bigger house in an even nicer neighborhood.  But when it’s cheap interest rates driving all of this activity there is another problem.  For printing money creates inflation.  And inflation raises prices.  Gasoline is more expensive.  Groceries are more expensive.  As prices rise households have less disposable income.  And have to cut out things like vacations.  And any discretionary spending on things they like but don’t need.  Which destroys a lot of economic activity.  The very thing the government was trying to create more of by printing money.  So there is a limit to the good economic times you create by printing money.  And when the bad consequences of printing money start filtering through the rest of economy the government has no choice but to contract the money supply to limit the economic damage.  And steer the economy into what they call a soft landing.  Which means a recession that isn’t that painful or long.

The Price of Artificially Low Interest Rates is Inflationary Booms, Bubbles and Great Recessions

As interest rates rise home buying falls.  Leaving a lot of newly built homes unsold on the market.  And that housing bubble bursts.  Causing home values to fall back down from the stratosphere.  Leaving a lot of people owing more on their mortgage than their houses are now worth.  What we call being ‘underwater’.  And as interest rates rise so do the APRs on their credit cards.  As well as their monthly payments.  And those people who paid the most they could possible afford for a house with an adjustable rate mortgage saw their mortgage interest rates rise.  As well as their monthly payment.  By a lot.  So much that these people could no longer afford to pay their mortgage payment anymore.  As a half-point increase could raise a mortgage payment by about $50.  A full-point could raise it close to $100.  And so on.

Increasing Monthly Payment dur to Increasing Mortgage Rate

With the fall in economic activity unemployment rises.  So a lot of people who have crushing credit card debt and a house payment they can no longer afford lost their job as well.  Causing a rash of mortgage foreclosures.  And the subprime mortgage crisis.  As well as a great many personal bankruptcies.  Causing the banking system to struggle under the weight of all this bad debt.  Add all of this together and you get the Great Recession.

This is the price of artificially low interest rates.  You get inflationary booms.  And bubbles.  That burst into recessions.  That are often deep and long.  Something that didn’t happen during the days of 3-6-3 mortgage lending.  And the primary reason for that was that the U.S. was still on a quasi gold standard.  Which prevented the government from printing money at will.  The inflationary booms and busts that come with printing money.  And Great Recessions.


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Microeconomics and Macroeconomics

Posted by PITHOCRATES - September 10th, 2012

Economics 101

Keynesians cannot connect their Macroeconomic Policies to the Microeconomic World

Economics can be confusing.  As there are actually two genres of economics.  There’s microeconomics.  The kind of stuff most people are familiar with.  And is more common sense.  This is more of the family budget variety.  And small business budget.  Where if costs go up (gasoline, commodities, food, insurance, etc.) families and businesses make cuts elsewhere in their budget.  When revenue falls (a decline in sales revenue or a husband/wife loses their job) people cut back on expenses.  They cancel the family vacation.  Or cancel Christmas bonuses.  Straight forward stuff of living within your means.

Then there’s macroeconomics.  The big economic picture.  This is the stuff about the national economy.  GDP, inflation, recession, taxes, etc.  Things that are more abstract.  Unfamiliar.  And often defy common sense.  Where living beyond your means is not only accepted.  But it’s national policy.  And when some policies fail repeatedly those in government keep trying those same policies expecting a different outcome eventually.  Such as using Keynesian economic policies (stimulus packages, deficit spending, printing money, etc.) to get an economy out of recession that never quite works.  And then the supporters of those policies always say the same thing.  Their policies only failed because they didn’t spend enough money to make them work.

Keynesian economics focuses on macroeconomics.  And cannot connect their macro policies to the micro world.  There is a large gap between the two.  Which is why Keynesians fail.  Because they look at the macro picture to try and effect change in the micro world.  To get businesses to create jobs.  To hire people.  And to reduce unemployment.  But the politicians executing Keynesian policy don’t understand things in the micro world.  Or anything about running a business.  All they understand, or all they care to try to understand, are the Keynesian basics.  That focus on the demand side of economics.  While ignoring everything on the supply side.

When the Economy goes into Recession the Fed Expands the Money Supply to Lower Interest Rates

Keynesians have a few fundamental beliefs.  And one of the big ones is the relationship between interest rates and GDP.  In fact, it’s the center of their world.  High interest rates discourage people from borrowing money.  When people don’t borrow money they don’t build things (like factories).  And if they don’t build things they won’t create jobs and hire people.  So the higher the interest rates the lower the economic output of the nation (GDP).

Low interest rates, on the other hand, encourage people to borrow money.  So they can build things and create jobs.  The lower the interest rates the more people will borrow.  And the greater the economic output of the nation will be.  This was the driving factor that caused the Great Recession.  The central bank (the Fed) kept interest rates so low for so long that people bought a lot of houses.  A lot of expensive houses.  The demand for housing was so great that buyers bid up prices.  Because at low interest rates there was no limit to how much house you could buy.  All this building and buying of houses, though, oversupplied the market with houses.  As home builders rushed in to fill that demand.  They built so many houses that there were just so many houses available to buy that buyers had a lot of choice.  Making it a buyers’ market.  So much so that people had to slash their asking price to sell their house.  Which popped the great housing bubble.

The Fed lowers interest rates by increasing the money supply.  They create new money and inject it into the economy.  By giving it to bankers.  Banks have more money to lend.  So more people can borrow money.  This is what lowers interest rates.  Things that are less scarce cost less.  More money to borrow means it’s less scarce.  And the price to borrow it (i.e., the interest rate) falls.  If the Fed wants to increase interest rates they pull money out of the economy.  Which makes it a little harder to borrow money.  Because more people are trying to borrow the limited amount of funds available to borrow.  And this is the basics of monetary policy.  Whenever the country enters a recession and unemployment rises the Fed expands the money supply to encourage businesses to borrow money to expand their businesses and create jobs that will lower unemployment.

Keynesian Economic Policies hurt the Higher Stages of Production where we Create Real Economic Activity

If low interest rates create greater economic activity why in the world would the Fed ever want to raise interest rates?  Because of the dark side of printing money.  Inflation.  Increasing the money supply gives people more money.  And when they have more money they try to buy what everyone else is buying.  As the money supply grows greater than the amount of economic output there is more money trying to buy fewer goods and services.  Which raises prices.  Just like those low interest rates did in the housing market.  The fear is that if this goes on too long there will be an economic crash.  Just like after the housing bubble burst.  From boom to bust.  Higher prices reduce consumer spending.  Because people can’t buy as much when prices are high.  As consumers stop spending businesses stop selling.  Faced with overcapacity in a period of falling demand they start cutting costs.  Laying off people.  People without jobs can buy even less at high prices.  And so on as the economy settles into recession.  This is why central bankers raise interest rates.  Because those good times are temporary.  And the longer they let it go on the more painful the economic correction will be.

This is why Keynesian stimulus spending fails to pull economies out of recession.  Because Keynesians focus only on the demand curve.  Consumption.  Consumer spending.  Not supply.  They ignore all that economic activity in the higher stages of productions.  That activity that precedes retail consumer sales.  The wholesale stage (the stage above retail).  The manufacturing stage (above the wholesale stage).  And the furthest out in time, the raw commodities stage (above the manufacturing stage).  As economic activity slows inventories build up.  Creating a bulge in the middle of the stages of production.  So manufacturing cuts back.  And because they do raw commodities cut back.  These are the first to suffer in an economic downturn.  And they are the last to recover.  Because of all that inventory in the pipeline.  When Keynesians get more money into consumers’ pockets they will increase their consumer spending.  For awhile.  Until that extra money is gone.  Which provided an economic boost at the retail level.  And a little at the wholesale level as they drew down those inventories.  But it did little at the higher stages of production.  Above inventories.  Manufacturing and raw material extraction.  Who don’t expand their production or hire new workers.  Because they know this economic activity is temporary.  And because they know all that new money will eventually create inflation.  Which will increase prices.  Throughout the stages of production.

The Keynesian approach focuses on the macro.  By playing with monetary policy.  Policies that ultimately hurt the higher stages of production.  At the micro level.  Where we create real economic activity.  If they’re not hiring then no amount of stimulus spending at the retail level will get them to hire.  Because giving the same amount of workers (i.e., consumers) more money to chase the same amount of goods and services only causes higher prices in the long run.  And it’s the long run that raw commodities and manufacturing look at.  They are not going to invest to expand their businesses unless they expect improving economic conditions in the long run.  All the way up the stages of production to where they are.  When new economic activity reaches them then they will expand and hire people.  And when they do they will add a lot of new consumers with real wages to go out and spend at the retail level.

One of the most efficient ways to achieve this is with tax cuts.  Because cuts in tax rates shape economic activity in the long run.  Across the board.  Unlike stimulus spending.  Which is short term.  And very selective.  Some benefit.  Typically political cronies.  But most see no benefit.  Just higher prices.  And continued unemployment.  Which is why Keynesian policies fail to pull economies out of recessions.  Because politicians use them for political purposes.  Not economic purposes.


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FT125: “Welfare states fail because economic systems based on slavery don’t create enough stuff.” -Old Pithy

Posted by PITHOCRATES - July 6th, 2012

Fundamental Truth

In the Barter System the Only Way to Get Something you Wanted was to create Something of Value Yourself

What’s more important?  Money?  Or stuff?  Stuff, of course.  Because people work to earn money to buy stuff.  They don’t work just for the money.  Because you can’t eat money.  You can’t drink money.  You can’t smoke money.  You can drive money.  You can’t watch or listen to money.  You can’t live in money.  You can’t surf the Internet with money.  No.  The only thing money is good for is buying stuff.  It’s the stuff we buy that makes our lives more enjoyable.  Having money helps.  But it is only a means to an end.  That end being stuff.  And someone has to make that stuff.  For if no one does then all the money in the world is worthless.

Early economies were barter economies.  People traded stuff.  Stuff they created, dug up, grew, manufactured, etc.  Instead of working to earn money to buy stuff they created stuff and traded it for other stuff.  So the only way to get something you wanted was to create something of value yourself.  Money didn’t change this.  Money just made trading with other people more efficient.  By being a temporary storage of wealth.  Because the barter system had a serious flaw.  High search costs. 

It took time to bring two people together to trade their stuff.  If a toolmaker wanted a pottery vase he had to find a potter who wanted a tool the toolmaker made.  This could take awhile.  Hence the high search costs.  Because while these people were seeking each other out they couldn’t make anything else of value.  With money, though, you could accept money in trade.  And then go and trade that money for what you wanted.  This greatly reduced search costs.  Because all you had to do was find the things you wanted.  And trade your temporary storage of wealth (i.e., money) for them.  Allowing them to spend more time creating value.  And less time searching.

The North won the American Civil War because the North practiced Free Market Capitalism while the South Didn’t

Advances in agriculture allowed larger and larger food surpluses.  Which, in turn, allowed more and more people to do something other than farm.  This unleashed human capital.  Allowed people to think about other things.  Create new things.  And improve existing things.  This created a middle class of artisans.  Craftspeople.  The people that created goods and services and brought them to the market place.  Creating the complex economy.  These people became entrepreneurs.  They efficiently used resources and sold things in the market place the people were demanding.  Not out of the goodness of their hearts.  But because they were pursuing profits.

This is free market capitalism.  The economic system that ushered in the modern world.  Free people thinking freely.  Creating.  Bringing their bold new ideas into reality.  Giving us the steam engine.  The railroad.  Machine tools.  Electric power.  The assembly line.  Free market capitalism brought us these things and improved our standard of living.  Because they were free to enter the market place.  And make profits.  Providing a powerful incentive to make the world a better place for everyone else.  Because when they took risks and worked hard to make the world a better place they could get rich in the process.

This is why the North won the American Civil War.  Because the North practiced free market capitalism.  While the South did not.  Their economy was a slave economy.  Instead of an expanding middle class working and contributing to the economy they had an expanding slave population.  That didn’t contribute to the economy.  They worked in the fields.  With all the proceeds from their labors going to a few plantation owners.  Slaves in general didn’t tinker or bring new things to market to enrich their masters.  For they had no incentive to do so.  They did have an incentive to do as they were told and work the fields.  To avoid punishment.  And they had no wages to spend in the market.  So there was less demand for manufactured goods in the South (in some states of the Deep South slaves made up to a third to half of the population).  So there was less manufacturing in the South.  Far less.  This is why the North exploded in manufacturing.  Entrepreneurs could bring things to market.  And the manufacturing workers earned wages they could use to buy those things.  As well as mass-produce the implements of war.  Unlike they could in the South.  Because of the economic superiority of the North it was just a matter of time before the South was overwhelmed.  And lost. 

When the Roman Empire turned into a Welfare State they had to Force People to Make Stuff Against their Will

Governments can print money.  They can tax people.  They can borrow money.  But the one thing they can’t do is create stuff.  If they could create stuff (i.e., economic activity) simply by printing money then the South would have matched the North in economic output.  But they did not.  Which is why they ultimately lost the war.  Because they could print Confederate dollars.  But that didn’t make muskets, bullets, canon, shoes, food, ships, steam locomotives or railroad track.  Creative people had to make these things first before the Confederate government could procure them.  Which is why the government didn’t procure them.  Because no one made them.

This is why governments just can’t print money and give it to the people.  They could.  But it would be pointless.  Let’s say they gave everyone $100,000 a year.  So no one would ever have to work again.  A lot of people would vote for the politician that promised that.  Of course if no one works who will create all the stuff to buy with that $100,000?  Having money is one thing.  But if there is nothing to buy with it then that money is worthless.

This is why the welfare state will ultimately fail.  As more people collect welfare benefits instead of creating stuff there will be less stuff to buy.  When supply shrinks while demand increases prices rise.  Higher prices that everyone has to pay.  People who create.  And people who don’t.  So they will raise taxes on those who work to pay for the benefits for those who don’t.  So those who don’t work can afford the higher prices, too.  Higher taxes are a great disincentive to create.  Or to become an entrepreneur.  Some may just choose the easier path.  Stop creating.  And start collecting that government money, too.  Further reducing supply and increasing demand.  Raising prices further.  Reducing overall economic activity.  And reducing the standard of living.

This happened in the Roman Empire as they kept raising taxes and debasing their coin to pay for their excessive government spending.  It got so bad that people quit their jobs because they couldn’t make any money.  Creating great shortages of goods.  And food.  So the Romans passed laws forbidding people from leaving their jobs.  Even tied people and their descendants to the land they farmed.  Which grew into European feudalism.  And Russian serfdom.  Economic systems little better than the slavery of the Deep South.  Which stunted innovation.  Lowered the standard of living.  And led to the fall of the Western Roman Empire.  But it was the only way the Romans could get the stuff they needed.  By forcing people to make it against their will.  Which is what they had to do when the Roman Empire turned into a welfare state.  And the creators quit creating.


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Some 2.15 Million won’t be Smart Enough to go to College in China this Year

Posted by PITHOCRATES - June 9th, 2012

Week in Review

There’s no diversity when it comes to going to college in China.  It is a pure meritocracy.  Only the smartest 6.85 million will go to college.  Which means 2.15 million will have to make other plans (see Pens down for 9 million students sitting China’s college entrance exams by AFP posted 6/7/2012 on The Australian).

MORE than 9 million students are sitting China’s notoriously tough college entrance exams, with “high-flyer” rooms, nannies and even intravenous drips among the tools being employed for success.

With just 6.85 million university spots on offer this year, competition for the top institutions is intense, and attempts to cheat are rife – more than 1,500 people have been arrested on suspicion of selling transmitters and hard-to-detect ear pieces.

Parents and students this year are also resorting to some outlandish but legal methods to ensure nothing goes wrong in the make-or-break two-day exam.

Students have reportedly been given pre-exam injections and intravenous drips designed to boost energy levels, while girls have resorted to hormone injections and birth control pills to delay menstruation.

“There are situations where girls take pills to delay their periods until after the exams,” a gynaecologist at Beijing’s Chaoyang Hospital, who declined to give his name, told AFP…

The nation’s public security ministry said in a statement Monday that police had busted over 100 gangs suspected of selling cheating equipment, rounding up 1,500 people with the seizure of some 60,000 devices such as ear pieces.

Exam authorities said they would use wireless signal jammers and frequency detectors to prevent cheating, as well as fingerprint scanners to verify exam-takers’ identity.

It’s nice to see the Chinese women as competitive as the Chinese men.  What with all those sex-based abortions for unwanted daughters.  They may discriminate against women in the womb but when it comes to college entrance exams even that doesn’t count.  Everyone has an equal chance of going to college.  All they have to do to get into college is to be smarter than the bottom 2.15 million.

Talk about your overachievers.  I bet that once they do get into college they will take a lot of math and science.  And study.  Instead of taking courses like women’s studies, minority studies, family studies, American studies,   communications, film, psychology or philosophy.  Degrees that are less demanding.  A little more fun.  And leave a lot more free time to enjoy college.  Pursuing other past times.  Such as drinking.  Partying.  And intimate relations.  And by that I mean a lot of casual sex.  The way college should be.  If the education part of college isn’t that important to you.

The U.S. has lost much of its manufacturing to the Chinese.  But manufacturing makes up a smaller and smaller part of our economy.  America continues to dominate the smart, thinking part of the international economy.  Designing the high-tech world.  But thanks to these overachievers in China and the underachievers in some of our universities these days the future doesn’t look good for that smart, thinking part of the international economy.  If you’re an American, that is.  It looks great if you’re Chinese.


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The Wind Turbine Industry about to go the Way of Solar Panel Manufacturers like Solyndra

Posted by PITHOCRATES - April 7th, 2012

Week in Review

Solyndra failed because of the Chinese.  Solyndra was working on a tubular technology to avoid using a silicon-based flat panel design.  At the time of product launch silicon was a costly commodity giving Solyndra a cost advantage.  And that cost advantage lasted until the Chinese brought so much silicon to market that the price for silicon imploded.  As did the price of flat-panel solar panels.  Which the Chinese also flooded the market with.  Good for people wanting to install solar panels.  Bad for people wanting to manufacture solar panels.  And now it’s happening with wind turbines (see Wind power market to lose puff this year by Liu Yiyu posted 4/5/2012 on China Daily USA).

China’s wind market bubble will deflate as the industry enters the worst year in its history, said the Spanish wind turbine maker Gamesa.

“The first half of 2012 is the worst time in the last four years, triggering a faster industry consolidation,” said Jorge Calvet, chairman of the company…

China’s wind industry has excessive capacity, going from 10 to 12 manufacturers in 2005 to more than 85 in 2011, according to Calvet.

Jobs of the future?  I think not.  Installing them, perhaps.  But this technology won’t do a thing for our manufacturing base.  What President Obama was going to revitalize with the technology of the future.  Green technology.  Smart technology.  Instead of those high-paying jobs of the past in the oil industry.  Which, incidentally, is something the Chinese can’t take away from us.  Only our president can.  By pursuing his jobs of the future.  Those manufacturing jobs the Chinese are taking away from us left and right.

Perhaps it would be better to pursue those jobs of the past.  There is a demand for fossil fuels.  We have fossil fuels buried within our American borders.  Which means only Americans can bring these fossil fuels to market.  And build and maintain the infrastructure that bring these fossil fuels to market.  All of those good, high-paying, benefit-laden jobs of the past.  In other words, the jobs people want.  The kind that don’t disappear when the Chinese ramp up protection.  The kind that will improve the employment picture.  Bring the cost of gasoline down.  And make America more energy independent.  All good things for the American people.  And things we should do for the American people.  Especially when it’s your job to look out for the American people.


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