Unlike Global Warming the Science of Evolution has Evolved

Posted by PITHOCRATES - January 26th, 2014

Week in Review

Devout global warming alarmists say the science is done.  There is a scientific consensus.  Manmade global warming is real.  Case closed.  And if you deny that global warming exists you are going against settled science.  There is only one problem with this.  There is no such thing as consensus in science.  And science is never settled (see 7,000-Year-Old Human Bones Suggest New Date for Light-Skin Gene by Tia Ghose posted 1/26/2014 on Yahoo! News).

An ancient European hunter-gatherer man had dark skin and blue eyes, a new genetic analysis has revealed.

The analysis of the man, who lived in modern-day Spain only about 7,000 years ago, shows light-skin genes in Europeans evolved much more recently than previously thought.

The findings, which were detailed today (Jan. 26) in the journal Nature, also hint that light skin evolved not to adjust to the lower-light conditions in Europe compared with Africa, but instead to the new diet that emerged after the agricultural revolution, said study co-author Carles Lalueza-Fox, a paleogenomics researcher at Pompeu Fabra University in Spain…

The finding implies that for most of their evolutionary history, Europeans were not what many people today would call ‘Caucasian’, said Guido Barbujani, president of the Associazione Genetica Italiana in Ferrara, Italy, who was not involved in the study.

Instead, “what seems likely, then, is that the dietary changes accompanying the so-called Neolithic revolution, or the transition from food collection to food production, might have caused, or contributed to cause, this change,” Barbujani said.

In the food-production theory, the cereal-rich diet of Neolithic farmers lacked vitamin D, so Europeans rapidly lost their dark-skin pigmentation only once they switched to agriculture, because it was only at that point that they had to synthesize vitamin D from the sun more readily.

This is science.  We had one theory.  And replaced it with another.  As we may do again.  Because science is never settled.  And there is no such thing as consensus.  Which is why global warming is not science.  It’s politics.  Because politicians say there is a consensus.  And that it’s settled.  But in science we don’t take a vote.  We hold one theory true.  And spend our time trying to prove that theory is wrong.  And when a theory withstands all of these efforts to disprove it that theory is a pretty strong theory.  But it doesn’t mean we stop trying to find a better one.  As proven here.

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If only Global Warming Required the Same Level Scrutiny of Real Science

Posted by PITHOCRATES - November 19th, 2011

Week in Review

Now this is science.  A second experiment was done showing particles moving faster than the speed of light.  Yet some are still skeptical (see Second experiment confirms faster-than-light particles by Brian Vastag posted 11/17/2011 on The Washington Post).

While the second experiment “has made an important test of consistency of its result,” Ferroni added, “a final word can only be said by analogous measurements performed elsewhere in the world.”

That is, more tests are needed, and on other experimental setups. There is still a large crowd of skeptical physicists who suspect that the original measurement done in September was an error.

Should the results stand, they would upend more than a century of modern physics.

Imagine that.  Twice now they’ve sped particles past the speed of light in a laboratory environment.  But some are still skeptical.  And yet global warming is a scientific fact.  Even though global warming is pure conjecture.  With no way possible to test this theory in the laboratory.  And no way to review empirical data going back through the previous ice ages to see if this ‘warming’ is any different from warming that pushed glaciers some thousand miles or more.  Because there is no empirical data that predates modern man.

So what’s the difference between these two?  One is science subjected to rigorous testing.  The other is not.  But rather something accepted on faith.  So they can implement environmental regulations.  Create silly things like carbon trading.  So they can collect a lot of fines and fees.  While making our lives more difficult.

If only global warming required the same level scrutiny of real science.

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Keynesian Tax and Spend Monetary Policy will Never Overcome Ruinous Fiscal and Regulatory Policy

Posted by PITHOCRATES - September 23rd, 2011

No Theory is Sacrosanct in the Scientific Method, Even if it’s Albert Einstein’s Theory

Albert Einstein‘s Theory of Relativity has held in the scientific community for some 106 years.  It hasn’t been accepted as a matter of faith, though.  It has been tested thousands of times in attempts to debunk it.  Right up to today.  Where it now appears we may be close to debunking it (see “Faster than light” particles may be physics revolution by Robert Evans posted 9/23/2011 on Reuters).

“It is premature to comment on this,” Professor Stephen Hawking, the world’s most well-known physicist, told Reuters. “Further experiments and clarifications are needed…”

“When an experiment finds an apparently unbelievable result and can find no artifact of the measurement to account for it, it is normal to invite broader scrutiny….it is good scientific practice,” he said…

Einstein’s theory has been tested thousands of times over the past 106 years and only recently have there been just slight hints that the behavior of some elementary particles of matter might not fit into it…

Ereditato, a physicist who also works at the Einstein Institute in the University of Berne, said the potential impact on science “is too large to draw any immediate conclusions or attempt physics interpretations…”

“Only when the dust finally settles should we dare draw any firm conclusions,” said Professor Forshaw. “It is in the nature of science that for every new and important discovery there will be hundreds of false alarms.”

This is the scientific method.  No theory is sacrosanct.  Even one by the great Albert Einstein.  Even if it’s been around for 106 years.

Quite the contrast to the theory of global warming.  Accepted by government scientists as indisputable fact.  Even though it has never been given serious scientific scrutiny like that given to one of the world’s greatest scientist.  Albert Einstein.

Considering the Economics, Only a Fool would Bet Against the Chinese in the area of Solar Panels

But Al Gore is smarter than Albert Einstein.  For he says that global warming is a scientific fact.  Even though we still call Einstein’s Theory of Relativity a theory after 106 years.  But not the theory of global warming.  No.  That theory is not a theory.  It’s fact.  So certain a fact that world governments have been killing economic activity everywhere to stop the ravishes of global warming.  Even investing in companies that promise to give us renewable green energy of the future.  Like that one that just ripped off the American taxpayer to the tune of half a billion dollars (see Solyndra haunts other government-backed solar firms by Steve Hargreaves posted 9/23/2011 on CNN Money).

At least three other government-backed solar firms face the same challenging market conditions that brought down Solyndra, the now bankrupt solar panel maker that could cost taxpayers over $500 million…

The company’s downfall is generally thought to have been caused by the declining price of silicon.

Solyndra didn’t use silicon. But many of its competitors did — traditional solar firms like Sunpower (SPWRA), Trina Solar (TSL), Yingli (YGE) and Jinkosolar (JKS). Solyndra was banking that high silicon prices would give it a competitive advantage…

Are they also doomed? Experts say that if they can further develop their technology they may have a fighting chance but market conditions in the near-term are working against them…

An Energy Department spokesman said the agency was not worried about these companies failing, saying it conducts rigorous reviews of all the ventures it funds.

Of course.  There’s nothing to worry about these other companies failing.  Because the Energy Department conducts a rigorous review of all the ventures they fund.  Except Solyndra apparently.  Or they did review them rigorously.  And the Energy Department just sucks at its job.

China’s investment in silicon as well as its huge investments in solar panel makers, combined with weaker demand worldwide as subsidies expire in Europe, caused the price of traditional solar panels to plummet.

In the last year alone they fell some 40%.

All across the globe, solar panel makers, especially ones that were developing more advanced technology, are finding it hard to compete with the Chinese as the price of solar panels drops.

I guess the Energy Department just sucks at its job.  I mean, imagine you’re an investor for a moment.  And you want to invest in a store that sells home improvement stuff.  Do you invest in the Home Depot?  Or the mom and pop hardware store?  The Home Depot is much bigger.  Has a greater variety of stuff.  And sells that stuff for 40% less than Mom and Pop.  Which store would you invest in?  Of course, you would invest in the Home Depot.  But the Energy Department, the geniuses that they are, would invest in Mom and Pop.  And then act shocked when they go belly up in the face of that fierce competition.

Considering the economics, only a fool would bet against the Chinese in the area of solar panels.  Then again, no one in Washington seems to understand economics in the least.

Cheaper panels mean more people will switch to the clean technology. Work has been booming for solar installers, project developers, and financiers. Just this week the industry said solar power capacity in the United States jumped 69% in the second quarter compared to the same time last year.

The Energy Department, as part of its plan to fund R&D and commercialization of renewable and clean energy technology, has backed or is considering backing loans to 42 firms across the sector totaling $39 billion in funding.

The manufacturers are taking it on the chin.  But the installers are installing these cheap Chinese solar panels like there’s no tomorrow.  You’d think the Energy Department would be happy that these silly things are being installed and get out of the investment business.  But no.  They’re going to piss away another $39 billion to fund firms that won’t be able to compete against the Chinese either.

By a show of hands who wants the Republican president to abolish the Energy Department in 2013?

One Gets the Feeling that Government Likes Wasteful Spending as it Adds to the Deficit

We really need to cut the government off.  They just aren’t responsible with our money.  If it ain’t throwing money away on solar panels, they’re throwing it away on dead people (see Gov’t paid $600 million in benefits to dead people by Sam Hananel posted 9/23/2011 on the Associated Press).

The federal government has doled out more than $600 million in benefit payments to dead people over the past five years, a watchdog report says.

Such payments are meant for retired or disabled federal workers…

In one case, the son of a beneficiary continued receiving payments for 37 years after his father’s death in 1971. The payments – totaling more than $515,000 – were only discovered when the son died in 2008.

If you owe a dollar in taxes you can bet the IRS will find you wherever you are.  But when it comes to spending our money it’s a different story.  As they are probably afraid of any close scrutiny that might show other mishandled funds.

Last year, government investigators found that more than 89,000 stimulus payments of $250 each from the massive economic recovery package went to people who were either dead or in prison.

There’s another $22 million pissed away by Uncle Sam.  $22 million here.  $600 million there.  And $16 muffins.  Where does it stop?  They are so ruthless when it comes to taxing us.  But once they get our money they apparently don’t give a damn about what happens to it then.

One gets the feeling that they like this waste.  As it adds to the deficit.  And the greater the deficit is the greater the need for new revenue.  Higher tax rates.  And getting the rich to pay their fair share.  I say let’s raise the tax rates on those doing such a poor job handling our money.  If they have such a cavalier attitude about taxpayers’ money, let them belly up to the bar and pay for their waste with their own damn money.

If You Want Real Stimulus Repeal Dodd-Frank.  That Alone will Create 30,000 Jobs at One Bank.

So the government is horrible at picking investment winners.  And is about as responsible as a teenager with money.  But Obama is looking to spend another $450 billion in stimulus.  To create jobs.  Unlike that $800 billion stimulus that failed to create jobs.  So they don’t know how to create jobs either.  Worse, they only thing they seem to be good at is destroying jobs (see The Dodd-Frank Layoffs posted 9/13/2011 on The Wall Street Journal).

Bank of America appears to have provided part of the answer by announcing yesterday that the nation’s largest bank will cut 30,000 jobs between now and 2014…

The Fed dutifully ordered banks to cut their fees almost in half. Bank of America disclosed in its most recent quarterly report that this change will reduce the bank’s debit-card revenues by $475 million in just the fourth quarter of this year. The new rules take effect on October 1, so BofA seems to have sensible timing as it begins to shed workers from a consumer business that has become suddenly less profitable by federal edict…

But given the real-world results for bank employees, politicians should not be allowed to pretend that there are no consequences when they deliberately reduce the profitability of employers. Mr. Obama proposed last week to spend some $450 billion more in outlays or tax credits to create more jobs, but it would have cost a lot less to save these 30,000.

If they want real stimulus they should repeal Dodd-Frank.  That alone will create 30,000 jobs.  At one bank.  If this happens at other banks you’re looking at hundreds of thousands of jobs.  Now that’s stimulus.

If they really want to create jobs they ought to go big.  Abolish the EPA.  And the Energy Department.  For a start.  With that kind of uncertainty removed just think of the explosion in economic activity.  Creating jobs galore.  Hundreds of thousands.  Perhaps millions.  The oil and coal industries alone would probable wrest this country from recession.

The Economy is not Just Monetary Policy.  It’s Fiscal and Regulatory Policy, too.

So it’s clear the government doesn’t know the first thing about stimulating economic activity.  They just can’t figure that out.  But what they can do is destroy jobs.  They’re real good at that.  And the reason for all of this is that they’re Keynesians.  They worship at the altar of Keynesian Economics.  Despite its horrendous track record.  Almost three years and counting for the current administration.  But they refuse to lose faith.  Instead, when they fail, they just choose to fail again.  By pursuing more of the same failed policies (see Markets tumble after Fed says it will buy longer-term bonds to try to boost economy by Neil Irwin posted 9/23/2011 on The Washington Post).

The announcement that the Fed would buy $400 billion in long-term Treasury bonds immediately achieved its intended effect, pushing rates on these securities and other investments to their lowest level in decades.

But the stock market rendered a sharply negative verdict. The Standard & Poor’s 500-stock index tumbled almost 3 percent on the Fed’s discouraging statement that its leaders see “significant downside risks” for the economy. Asian markets closed down between 2 and 4.85 percent, and key European indexes were trading more than 4 percent lower at midday.

No one wants to borrow money.  Businesses.  Or consumers.  Because there is just too much economic uncertainty with the Obama administration.  Everybody is hunkering down.  Deleveraging.  And hoarding cash.  Until better economic times.  Times with less uncertainty.  Probably starting sometime after 2012.  When there’ll be a new Republican president.  And hopefully a Republican House and Senate.  To undo those things causing all of this uncertainty.  Dodd-Frank.  Obamacare.  Etc.

The Fed action, which capped a two-day meeting, is focused squarely on lowering mortgage rates in an effort to strengthen the ailing housing market and lighten the load of the tremendous debt weighing on consumers. The move could also make it cheaper for businesses to borrow money for investments and push more dollars into the stock market.

The housing bubble create a surplus of houses that’ll be around for a long, long time.  The country is dotted with empty homes that banks have foreclosed on.  And the banks own a whole bunch more that will be hitting the market soon.  It’s a buyer’s market out there.  But it sure sucks to be a seller.  Especially if your mortgage is under water.  Homes have lost so much value after that bubble burst that anyone selling now will lose tens of thousands of dollars.  So they’re not selling.  Or buying.  No matter how cheap mortgage rates are.

The bond-buying program that ended in the summer, though massive in scale, failed to keep economic growth from sputtering. The disappointing result showed the limits of what the Fed can accomplish at a time when consumers are struggling with enormous debts and the U.S. banking system remains traumatized. The new initiative could face the same constraints.

Quantitative easing 2 failed.  And there’s no reason to think that quantitative easing 3 won’t fail as well.  So why do it?  Because they’re Keynesians.  And their scripture says that’s what you do.  Weak demand?  Why you fix that with cheap money.  But they don’t understand that the economy is not just monetary policy.  It’s fiscal policy, too.  And their fiscal policy is killing the economy.  And what their fiscal policy doesn’t kill their regulatory policy will.

The Only Way to Fix this Economy is to Get Rid of Keynesian Policies

Tax and spend Keynesian policies are strangling the economy.  Stimulus spending doesn’t work.  If it did the economy would be reaching record heights due to that record spending.  But it’s not.  The tax and spend Keynesians explanation for this record of dismal failure?  They didn’t spend enough.

The economic malaise has a lot more to do with uncertainty than weak demand.  It’s that out of control spending.  You eventually have to pay for it.  And every business owner knows that ultimately you pay for spending with taxes.  And they see the Obama administration is hell-bent on raising taxes on anyone earning more than $200,000 a year.  Which will be a tax hike on most small business as their earnings pass through to their personal tax return.

And while they’re waiting for punitive taxes to come down the pike they’re being hammered by regulatory compliance costs.  The big one scaring the bejesus out of them is Obamacare.  And Dodd-Frank is not just for Wall Street bankers.  Not to mention the EPA’s enormous impact on business operations.  They’re being bitch-slapped left and right by these regulations.  And they are terrified by what’s next from this administration.

You see, Big Government Keynesian politicians don’t understand economics.  Or business.  They see business as cash piñatas.  That they can whack at their pleasure.  They have no idea how they make money.  But they assume that they will go on making money no matter what they do in Washington.  And being the Keynesians they are, they believe that businesses make money for government first.  And then, after government takes what they want, what they deem fair, then and only then can they use whatever they earn for their own selfish wants and pleasures.  The selfish rich bastards they are.  Those contemptible business owners.

This is how Big Government Keynesians think.  And this is why they fail miserably at creating jobs.  And economic activity.  The only way to fix this economy, then, is to get rid of Keynesian policies.  And the only way to do that is to get rid of the Keynesians.  At the voting booth.  By voting conservative.  And in our two-party system, that means voting Republican.

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FUNDAMENTAL TRUTH #70: ” There is no such thing as ‘consensus’ in science.” -Old Pithy

Posted by PITHOCRATES - June 14th, 2011

Science is not an Exact Science

Science is not an exact science.  It’s a process.  It starts with observation.  You see something.  Hear something.  Feel something.  And it makes you curious.  So you start asking questions.  Why did that happen?  How did that happen?  And will it happen again?  So you start a longer process of observation.  You record data from these observations.  Called empirical data.  And you start seeing patterns in the data.  You start to see order.  Some cause and effect.  You note that whenever ‘A’ happens, you observe ‘B’.  And when ‘C’ happens, you observe ‘D’.  You start to experiment.  You make ‘A’ happen.  And, sure enough, you get ‘B’.  And when you make ‘C’ happen, you get ‘D’.

You can now reliably predict what will happen.  You form a hypothesis.  You break down what you saw through empirical observation and your experimentation into a mathematical formula.  And you discover something.  The formula you put together holds true under a wide set of conditions.  You now see that a lot of things can be accurately predicted by your formula.  Which leads you to a theory.  You do more experimentation.  And more empirical observation.  You’re on to something.  And it’s pretty big.  You test your hypothesis over and over again.  And you always get the same results.  You’ve discovered something.  If your observations and experimentation are correct.  If you haven’t made any false assumptions.  Or conducted your experiments in an uncontrolled environment.  You don’t think you have.  You’re pretty confident you did everything to the highest of scientific standards.  So you publish your results.  And have your peers review your work.

Your peers are very interested.  Some have been working on similar experiments.  They want to compare your work to theirs.  Interest spreads in the scientific community.  And they put your work to the test.  Through more experimentation and empirical observation.  They will push your research to the limits to see if it always holds true.  If it breaks down under certain conditions.  Or if they can find a critical flaw in your logic and/or experimentation that undoes all of your work.  After the peer review, if no one disproves your conclusions, your theory will hold in the scientific community.  Until disproven later.  Because science is not an exact science.  Things can change.

The Scientific Inquiry Never Ends

The scientific process never ends.  Because science isn’t exact.  But it’s often close enough to be useful.  Some theories have problems.  They don’t always hold true.  Then on further research these theories may be refined to fix some of the problems they had.  For example, we once thought the orbits of the planets were circular.  The theory was pretty accurate under empirical observation.  But there were problems.  The planets didn’t always travel in circles.  Then Johannes Kepler came along.  He theorized that the planets moved in elliptical orbits, not circular orbits.  Subsequent empirical observations showed that the planets indeed traveled in ellipses around the sun.  But there were still some observations that Kepler’s Laws didn’t explain.  Isaac Newton then improved on Kepler’s Laws by introducing the force of gravity into his equations.

Each step in the development of these theories improved on the past theory.  This is the scientific process.  The scientific inquiry never ends.  We continually test theories via experimentation and empirical observation.  We never accept past theories as scientific fact.  Every part of science is open to inquiry.  And we often have to revise long held theories based on new discoveries. 

Some of our old theories did quite a lot for us.  They took us to the moon and back.  Gave us jumbo jets.  And smart phones.  Incredible advances in technology.  Yet, we’re revising the science that gave us these things.  Because the scientific process never stands still.  No matter how right or how sure we think we are.  The work of Newton and Einstein was pretty good.  But some think we can improve on them.  Using Quantum field theory.  And String theory.  Which may be able to explain how everything works by looking at subatomic particles.   It could change everything.  But planes will still fly.  And smart phones will still work.  They may just do these things better.

Science by Consensus is not Science

One thing science isn’t is a democracy.  There is no voting.  No consensus.  Some early scientists were attacked when they challenged accepted beliefs.  By their fellow scientists.  And even the church.  It was these lone scientists against the world.  Like Galileo.  Who agreed with Copernicus that the earth revolved around the sun.  Not that the sun revolved around the earth.  Got Galileo in a lot of trouble with the church.  And spent the rest of his life under house arrest for trying to advance this view.  Because it wasn’t the accepted consensus of the time.  The church would later vindicate Galileo.  But it goes to show you that science isn’t a democracy.  Majority opinion doesn’t validate scientific beliefs.  And that a consensus in science is more politics than science.

Science by consensus is not science.  And it can be a very dangerous thing.  It was the accepted consensus that blacks were inferior to whites.  Which justified whites owning blacks as slaves.  It was the scientific consensus in Nazi Germany that the Germans were the master race.  That the Jews were an inferior race.  Subhuman.  And should be exterminated.  A lot of people bought into this ‘science’.  Happy to go along with the scientific consensus.  And it got a lot of people to do some pretty awful things.

Science by consensus is nothing more than mob rule.  It’s a tool to organize the masses.  To use for political gain.  Or for social or financial gain.  Because people will do things more readily if they believe there is a valid reason.  You just have to give them something to believe in.  And there are few things better than junk science.  Like the Alar scare (listed as a carcinogen after mega doses in test animals caused cancer).  Or the Saccharin scare (listed as a carcinogen after mega doses in test animals caused cancer).  And then there’s DDT.  Which almost eradicated malaria from the world.  Few things killed mosquitoes better.  But we also used it as a pesticide in agriculture in much higher doses.  Which apparently made egg shells thin, threatening species of birds.  And ‘possibly’ caused cancer in humans.  So we don’t use this wonder chemical anymore.  And malaria is alive, well and spreading today.  Because of the consensus that it was harmful to the environment.  And to people.  And millions of people die of malaria because of this consensus.

Good Science is built on Experimentation and Observation 

Some people accept some theories as fact.  Like the theory of evolution.  But it’s still called a theory.  Because it’s impossible to submit it to scientific inquiry.  The theory states that life evolved over hundreds of millions of years.  Even billions.  Fossil evidence can provide some information about the past.  But there is no way to test under laboratory conditions a process that occurred over such a vast time period.  So it remains a theory.

Global warming is another theory.  It, too, is impossible to submit to scientific inquiry.  Events happen over too great a time period.  And there are far too many variables involved.  It is difficult to accurately predict tomorrow’s weather let alone the next 10 years of climate.  And even if they have some empirical data that says the earth is warming the data is itself questionable.  Because the same data once predicted the earth was cooling.  And for all the doom and gloom of life-ending climatic changes, the earth went through far greater changes before man ever discovered coal.  The earth has cooled and warmed numerous times.  Great glacial ice sheets advanced and receded over land that became our great cities.   And here we are today.  Still here.

And it’s these big theories that we should be most careful with.  Because good science is built on experimentation and observation.  And if you can’t do either it’s just not science.  It’s only consensus.  Which makes it political.  And though politics can be fascinating, they have no place in science.

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FUNDAMENTAL TRUTH #27: “Yes, it’s the economy, but the economy is not JUST monetary policy, stupid.” -Old Pithy

Posted by PITHOCRATES - August 17th, 2010

DURING UNCERTAIN ECONOMIC times, people act differently.  If business is down where you work, your company may start laying off people.  Your friends and co-workers.  Even you.  If there is a round of layoffs and you survive, you should feel good but don’t.  Because it could have been you.  And very well can be you.  Next time.  Within a year.  In the next few months.  Any time.  You just don’t know.  And it isn’t a good feeling.

So, should this be you, what do you do?  Run up those credit cards?  By a new car?  Go on a vacation?  Take out a home equity loan to pay for new windows?  To remodel the kitchen?  Buy a hot tub?  Or do you cut back on your spending and start hoarding cash?  Just in case.  Because those unemployment payments may not be enough to pay for your house payment, your property taxes, your car payment, your insurances, your utilities, your groceries, your cable bill, etc.  And another loan payment won’t help.  So, no.  You don’t run up those credit cards.  Buy that car.  You don’t go on vacation.  And you don’t take that home equity loan.  Instead, you hunker down.  Sacrifice.  Ride it out.  Prepare for the worse.  Hoard your cash.  Enough to carry you through a few months of unemployment.  And shred those pre-approved credit card offers.  Even at those ridiculously low, introductory interest rates.

To help hammer home this point, you think of your friends who lost their jobs.  Who are behind on their mortgages.  Who are in foreclosure.  Whose financial hardships are stressing them out to no ends.  Suffering depression.  Harassed by collection agencies.  Feeling helpless.  Not knowing what to do because their financial problems are just so great.  About to lose everything they’ve worked for.  No.  You will not be in their position.  If you can help it.  If it’s not already too late.

AND SO IT is with businesses.  People who run businesses are, after all, people.  Just like you.  During uncertain economic times, they, too, hunker down.  When sales go down, they have less cash to pay for the cost of those sales.  As well as the overhead.  And their customers are having the same problems.  So they pay their bills slower.  Trying to hoard cash.  Receivables grow from 30 to 45 to 90 days.  So you delay paying as many of your bills as possible.  Trying to hoard cash.  But try as you might, your working capital is rapidly disappearing.  Manufacturers see their inventories swell.  And storing and protecting these inventories costs money.  Soon they must cut back on production.  Lay off people.  Idle machinery.  Most of which was financed by debt.  Which you still have to service.  Or you sell some of those now nonproductive assets.  So you can retire some of that debt.  But cost cutting can only take you so far.  And if you cut too much, what are you going to do when the economy turns around?  If it turns around?

You can borrow money.  But what good is that going to do?  Add debt, for one.  Which won’t help much.  You might be able to pay some bills, but you still have to pay back that borrowed money.  And you need sales revenue for that.  If you think this is only a momentary downturn and sales will return, you could borrow and feel somewhat confidant that you’ll be able to repay your loan.  But you don’t have the sales now.  And the future doesn’t look bright.  Your customers are all going through what you’re going through.  Not a confidence builder.  So you’re reluctant to borrow.  Unless you really, really have to.  And if you really, really have to, it’s probably because you’re in some really, really bad financial trouble.  Just what a banker wants to see in a prospective borrower.

Well, not really.  In fact, it’s the exact opposite.  A banker will want to avoid you as if you had the plague.  Besides, the banks are in the same economy as you are.  They have their finger on the pulse of the economy.  They know how bad things really are.  Some of their customers are paying slowly.  A bad omen of things to come.  Which is making them really, really nervous.  And really, really reluctant to make new loans.  They, too, want to hoard cash.  Because in bad economic times, people default on loans.  Enough of them default and the bank will have to scramble to sell securities, recall loans and/or borrow money themselves to meet the demands of their depositors.  And if their timing is off, if the depositors demand more of their money then they have on hand, the bank will fail.  And all the money they created via fractional reserve banking will disappear.  Making money even scarcer and harder to borrow.  You see, banking people are, after all, just people.  And like you, and the business people they serve, they, too, hunker down during bad economic times.  Hoping to ride out the bad times.  And to survive.  With a minimum of carnage. 

For these reasons, businesses and bankers hoard cash during uncertain economic times.  For if there is one thing that spooks businesses and banks more than too much debt it’s uncertainty.  Uncertainty about when a recession will end.  Uncertainty about the cost of healthcare.  Uncertainty about changes to the tax code.  Uncertainty about new government regulations.  Uncertainty about new government mandates.  Uncertainty about retroactive tax changes.  Uncertainty about previous tax cuts that they may repeal.  Uncertainty about monetary policy.  Uncertainty about fiscal policy.  All these uncertainties can result with large, unexpected cash expenditures at some time in the not so distant future.  Or severely reduce the purchasing power of their customers.  When this uncertainty is high during bad economic times, businesses typically circle the wagons.  Hoard more cash.  Go into survival mode.  Hold the line.  And one thing they do NOT do is add additional debt.

DEBT IS A funny thing.  You can lay off people.  You can cut benefits.  You can sell assets for cash.  You can sell assets and lease them back (to get rid of the debt while keeping the use of the asset).  You can factor your receivables (sell your receivables at a discount to a 3rd party to collect).  You can do a lot of things with your assets and costs.  But that debt is still there.  As are those interest payments.  Until you pay it off.  Or file bankruptcy.  And if you default on that debt, good luck.  Because you’ll need it.  You may be dependent on profitable operations for the indefinite future as few will want to loan to a debt defaulter.

Profitable operations.  Yes, that’s the key to success.  So how do you get it?  Profitable operations?  From sales revenue.  Sales are everything.  Have enough of them and there’s no problem you can’t solve.  Cash may be king, but sales are the life blood pumping through the king’s body.  Sales give business life.  Cash is important but it is finite.  You spend it and it’s gone.  If you don’t replenish it, you can’t spend anymore.  And that’s what sales do.  It gets you profitable operations.  Which replenishes your cash.  Which lets you pay your bills.  And service your debt.

And this is what government doesn’t understand.  When it comes to business and the economy, they think it’s all about the cash.  That it doesn’t have anything to do with the horrible things they’re doing with fiscal policy.  The tax and spend stuff.  When they kill an economy with their oppressive tax and regulatory policies, they think “Hmmm.  Interest rates must be too high.”  Because their tax and spending sure couldn’t have crashed the economy.  That stuff is stimulative.  Because their god said so.  And that god is, of course, John Maynard Keynes.  And his demand-side Keynesian economic policies.  If it were possible, those in government would have sex with these economic policies.  Why?   Because they empower government.  It gives government control over the economy.  And us.

And that control extends to monetary policy.  Control of the money supply and interest rates.  The theory goes that you stimulate economic activity by making money easier to borrow.  So businesses borrow more.  Create more jobs.  Which creates more tax receipts.  Which the government can spend.  It’s like a magical elixir.  Interest rates.  Cheap money.  Just keep interest rates low and money cheap and plentiful and business will do what it is that they do.  They don’t understand that part.  And they don’t care.  They just know that it brings in more tax money for them to spend.  And they really like that part.  The spending.  Sure, it can be inflationary, but what’s a little inflation in the quest for ‘full employment’?  Especially when it gives you money and power?  And a permanent underclass who is now dependent on your spending.  Whose vote you can always count on.  And when the economy tanks a little, all you need is a little more of that magical elixir.  And it will make everything all better.  So you can spend some more.

But it doesn’t work in practice.  At least, it hasn’t yet.  Because the economy is more than monetary policy.  Yes, cash is important.  But making money cheaper to borrow doesn’t mean people will borrow money.  Homeowners may borrow ‘cheap’ money to refinance higher-interest mortgages, but they aren’t going to take on additional debt to spend more.  Not until they feel secure in their jobs.  Likewise, businesses may borrow ‘cheap’ money to refinance higher-interest debt.  But they are not going to add additional debt to expand production.  Not until they see some stability in the market and stronger sales.  A more favorable tax and regulatory environment.  That is, a favorable business climate.  And until they do, they won’t create new jobs.  No matter how cheap money is to borrow.  They’ll dig in.  Hold the line.  And try to survive until better times.

NOT ONLY WILL people and businesses be reluctant to borrow, so will banks be reluctant to lend.  Especially with a lot of businesses out there looking a little ‘iffy’ who may still default on their loans.  Instead, they’ll beef up their reserves.  Instead of lending, they’ll buy liquid financial assets.  Sit on cash.  Earn less.  Just in case.  Dig in.  Hold the line.  And try to survive until better times.

Of course, the Keynesians don’t factor these things into their little formulae and models.  They just stamp their feet and pout.  They’ve done their part.  Now it’s up to the greedy bankers and businessmen to do theirs.  To engage in lending.  To create jobs.  To build things.  That no one is buying.  Because no one is confident in keeping their job.  Because the business climate is still poor.  Despite there being cheap money to borrow.

The problem with Keynesians, of course, is that they don’t understand business.  They’re macroeconomists.  They trade in theory.  Not reality.  When their theory fails, it’s not the theory.  It’s the application of the theory.  Or a greedy businessman.  Or banker.  It’s never their own stupidity.  No matter how many times they get it wrong.

www.PITHOCRATES.com

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