Posted tagged ‘Economy’

Is America Behind in Not Having High Speed Rail?

January 31, 2010

With the State of the Union Address and President Obama’s chat with the Republicans there is an ocean of … well, call it stuff to sort through. In the mix is the idea of building a high speed rail system to both create jobs and strengthen the country’s infrastructure. The pundits who have been feasting on Obama’s pronouncements have largely come up short on this subject. In my view, high speed rail is (1) a wondrous thing, (b) expensive, © best suited to densely populated countries, and (d) perhaps impossible to implement here. If it can be done at all, jobs would probably be a decade away.

A Wondrous Thing

I have been an enthusiastic user of the Japanese high speed rail system. It is reliable, comfortable, and hassle-free. Air travel was once pleasant, but is now an ordeal of long lines, intrusive searches, and horrendous service. Airplanes have no room, no food, and no ventilation. Terrorists cannot be forced to hold uncomfortable postures, but air travelers can. As air travel deteriorates, the calm space of a high speed train is more appealing than ever. One sips tea as the landscape whooshes by, and you end up in the heart of your destination city, not at a remote airport where another hassle awaits. It is a grand vision.

Alas, it is not a cheap vision. Rail fares for any reasonable distance are slightly more expensive than air. Even that does not cover the costs. High speed rail systems are almost always built with government funds that are never repaid. Roads are built with public monies, but users pay gasoline taxes and license fees in compensation. Air travelers pay ticket taxes that more than repay airport costs. Airlines and highway users have to buy their own vehicles. The high prices for rail tickets only keep up with operating costs and do not pay the capital costs.

Rail Is Economic For Dense Populations

In Europe and Japan, high speed rail connects to local mass transit systems. Mass transit then takes travelers to their ultimate destination. In the U.S., the more common model is to rent a car at an airport to complete travel. There are a few U.S. cities that have useful urban mass transportation systems, but most do not. The reason is that most of our urban centers are too thinly populated.

To be effective, there must be a transit stop within walking distance of the ultimate destination. If a neighborhood is mostly ten story buildings, then there will be many more destinations within walking distance of station that if there are two or three story buildings. If each building has a large parking lot around it, then the number of destinations within walking distance from a station drops further. As density drops, the number of transit stations must increase and the transit lines must stretch to cover the thin landscape.

Urban areas of the U.S. are thinly populated in comparison to Europe or Asia. Sure, New York and Chicago are well-suited, but they are exceptions. Most of Silicon Valley has a law against four-story buildings. Even Los Angeles has only a small city center amid a vast sprawl. that’s the rule for American cities.

One of the more-discussed rail projects is to link Orlando with Tampa. Both have small city centers. The model for travel would be driving to the train station, taking the high speed rail link, then renting a car. The trip by car alone takes about an hour-and-a-half. The rail link itself might take only half an hour, but with the termination car rental, the prospect is to pay something like a hundred dollars for a trip that is no faster.

One may find viable routes, like San Francisco to Los Angeles, and the obvious Washington to Boston corridor that already has a form of high speed rail. These are exceptions.

American Exceptionalism in Transit Systems

As the rail links become longer, high speed rail becomes less attractive. The drive-fly-drive paradigm allows for cross-country travel between suburban locations in perhaps twelve hours. By high speed rail, it might be done in thirty hours, and it could be expected to cost whole lot more. That’s not a realistic alternative, yet advocates say we cannot have mere isolated rail links, but rather a whole country wide system.

My point is that America is not like other countries in important aspects related to transit. Long distances and sprawling cities limit prospects. It’s no more reasonable to suppose that America is behind the rest of the world in rail systems than to suppose that the rest of the world is behind us in domestic air transportation. The goal is to find what best suits the situation.

The Steps to Completion

There is another bit of American exceptionalism that may rule out high speed rail altogether. That would be the legal system. The time sequence for building a rail link comprises: (1) pick the route, (2) perform an environmental study, (3) fight lawsuits over the politics of the route, (4) fight lawsuits over the environmental impact, and, if the legal barriers are overcome, (5) lay tracks.

Route planning involves legislators who demand that the link go through their district as a condition for supporting it and, at the same time, cities and towns who do not want their tranquility shattered by a whooshing train. These factors seem to about double or triple the cost over what it might be. The cheapest way to get from A to B is through empty land, but empty land has no voters. The train from San Francisco to Los Angeles will probably have to be routed through Fresno to get political support, but that will at the same time make it likely to raise someone else’s objections along the populated route.

Rail lines cover lots of ground. That increases the chances that the line will cross the habitat of a listed endangered species. Anyone can sue to stop a project and the Courts are empowered, indeed required, to stop any project that threatens. A massive flood gate that might have saved New Orleans was funded for construction when a court order killed the project. Closing the gates during a hurricane might have interfered with the breeding habits of certain fish, and that was pre-emptive. Too bad for New Orleans, but no tradeoffs are allowed.

I wonder if it is possible to build any large construction project like a rail line. It seems doubtful. Anything large is bound to cross paths with an endangered moth or lizard. If construction is possible at all, figure a decade to settle the legalities. If there were no legal obstacles the ordinary surveying and engineering of a few hundred miles of rail line would take at least two years, but the politics of routing and the legal challenges will not vanish, so figure a good decade.

Why are we discussing high speed rail right now? Because, we are told, it would create jobs to lift us out of recession. The business cycle is roughly a decade, so if we jump on this thing, the jobs might appear in time for the next recession.

Left-wing Think Tank Acknowledges Failures of TARP, But Advocates Wrong Ammendments

November 21, 2009

The Center for Economic and Policy Research, a “progressive” (liberal) economic advocacy group’s director, Dean Baker, criticizes TARP, but for the wrong reasons[1]. Instead of criticizing the practice of malinvesting taxpayer money in failing companies, the testimony focuses on advocating restrictions on the few aspects of the banking industry not controlled by government. However, such restrictions would only cripple the financial market further.

The CEPR suggests a rule that would force banks to allow people to live in foreclosed homes as “renters”. Presumably, the way this would work is that the homeowners would have their houses foreclosed but they would have a right to continue living in the same house, and so the banks would not be able to auction off the real estate. Besides the fact that this would drive up home values due to a decreased supply of cheap foreclosed housing, such a regulation would limit a bank’s ability to pursue profit, and banks would experience more losses. And bank losses began the financial crisis.

Another suggested regulation on the financial industry was a cap on executive pay. Because such a cap would only apply to our country and because executives can afford to move, it is likely that this would cause the best of the executives to seek working in foreign markets. Because this regulation, as currently proposed, would only affect the financial sector, the best executives would leave the financial sector in search for higher pay elsewhere. The CEPR does not understand that there is a competitive market for effective executives, in the interest of company profit.

The CEPR also mistakenly asserts that bank executives decide their own pay. This is absurd. If the bank is a corporation, then a board of trustees decides executive pay. If the bank is owned by the executive, then executive pay is determined entirely by the profit of the bank. Else, the executive is an employee whose way is determined by his/her employer. The wages of an executive are not a drain on the company, but a necessary investment. to ensure the efficiency of a company.

The CEPR also mistakenly asserts that regulations are not interference with the market. Any regultion is an interference with the market if it has any effect at all.

The CEPR is correct in asserting that banks are not forced or pressured into making loans it would otherwise make, because such loans would constitute a loss. However, when we cross apply this premise to some of the policies they advocate, such as expansionary monetary policy, the contradiciton is certain. Expansionary monetary policy necessarily encourages banks to give out loans because the Federal Reserve interest rate decreases and more loans become profitable. The bubble is then formed which the CEPR next criticises as the cause of the recession. If this bubble was most certainly the cause of recession, and it was, and this bubble was caused by expansionary monetary policy, and it was, shouldn’t the CEPR change their advocacies?

The CEPR will not change their advocacies because they are dedicated neokeynesians who believe that individuals are incapable of effectively and efficiently controlling their own actions in the pursuit of their own welfare. This is absurd, for the only thing that keeps individuals from doing this is the hand of government.

This article refers to

On the Utility of Economic Liberty

October 23, 2009

Economic liberty means the ability of the individual to choose the use of his property, whether this means production, consumption, modification, or exchange. The motivation for this use is to improve one’s welfare, physical, mental, or emotional, either in the present or in the future. The result of this liberty is a society in which property is manipulated in a way that most benefits each user.

Movivation is not necessarily outcome, but this motivation can be demonstrated significant in this manner. In the process of making decisions, the individual can, and often does, obtain information necessary to reach a desired result. This itself reduces the tendency for random error in the market; however, even more truths confirm the market’s efficiency in maintaining utility, as will be shown below.

An exchange occurs because multiple individuals find it in their best interest to trade property. Again, the motivation for making an exchange does not necessarily mean that both parties will benefit; however, in the interest of benefitting, both parties of the exchange will release information significant ot guarantee confidence to ensure that the other party will agree to the exchange.

Production occurs in a market because individuals wish to implement their person and property in a manner that will allow a return (through exchange of the produced goods and services). This return is necessarily greater when the goods exchanged meet the most urgent and significant wants of the consumer; therefore, the individual will seek to produce goods and services that the potential purchasers will desire most.

As with exchange, the intents of satisfying the population with production are not necessarily the results; however, the burden of absense of individual demand is significant enough to reallocate goods and services other percieved demands of the consumer. Production is always tending towards meeting the demands of the consumer.

The result of this individualist liberty is naturally a greater utility for society, a general welfare out of chaos. Violence, or coercion, on the other hand, necessarily forces a change in the above criteria and necessarily lower the utility and welfare of society. This economic violence must cease to the highest degree possible if true prosperity is to be witnessed.

Predicting the Effects of Expansionary Monetary Policy on an Economy in Recession

October 21, 2009

The Obama Administration has enacted both of Keyne’s creeds: Expansionary Monetary Policy and Deficit Spending. This article will focus on the former.

Expansionary monetary policy is enacted to lower interest rates in times of deflation. This encourages investment, and ideally improves the economy and brings it out of recession. However, this Keynesian analysis is limited. After the economy recovers due to a particularly large session of EMP, hyperinflation occurs. Hyperinflaiton is inflation to the point where interest rates rise as if deflation were occuring. This is due to the fact that interest rates must necessarily be above that of the inflation rate, or banks face immediate deficits.

This increased interest rate necessarily passes the inflationary burden onto businesses. This pushes them into deficits of their own, and many businesses have to lay off workers in order to restore their profits. This is the harmful effect of hyperinflation, which can occur if enough EMP is enacted at once.

Though hyperinflation is destined to occur to this recession, there are other harmful effects of EMP that happen every time expansionary monetary policy is implemented. Any time interest rates are artificially lowered, more loans are taken out and less money is saved. This often leads to a “boom”, like the one of 2002 to 2006. However, when the market over invests poorly as a result of this policy, the result is always the same: the economy lurches into recession. Savings have been consumed and most people have spent and invested themselves into large loans. The recession then ensues.

What then, occurs when, as we are now, we implement EMP during a recession? Such an event causes a double-dip recession. The economy spends itself even more up to a point, and then the economy collapses in debt again. This has happened more than once since it happened in the Great Depression.

Expansionary monetary policy is necessarily a harmful policy to implement on society in mass quantities at any time. The proper solution is to let the market painfully recover from its government-stimulated overinvestment. Haste makes waste.

Can Government Compete Fairly?

September 23, 2009

I think it is possible for government to compete fairly with private enterprise, although I cannot think of an instance where it has happened. When the question is posed, what first comes to mind are subsidies by taxpayers to the government operation. That’s true, but there are also issues of access to and the cost of capital, costs of building market share, equatable rules of competition, and the risk of failure. All of these factors must be taken into account when considering if there is level playing field. I’m here to help.

If an ordinary citizen has identified a market and wants to start a business to serve it, one of the first concerns is securing the capital to buy facilities and hire employees. Few business start making money on day one, so financing is needed. If it’s very small business, the capital might come out of your saving or from a loan from Uncle Harry. The government isn’t going to do anything small, and, lord knows, it doesn’t have any savings. The avenue is then to write a business plan showing how much money is needed and how it will be repaid. Investors will then consider the risks and potential rewards, and decide if they will put up the capital.

That is usually a non-starter for government. Private markets would never risk the capital needed to legitimately fund a gigantic government operation like a health insurance venture, at least not without guarantees of the full backing of taxpayers. Backing by the taxpayers, however, would be unfair competition. Nonetheless, we don’t want to kill the idea of government ventures at the starting gate. Instead, we will charge the venture at the interest rates prevailing to commercial ventures comparable in size to the new government venture.

Taxpayers should receive not just the rate on government bonds, but rather the rates appropriate to risky commercial ventures. For a health insurance venture, we can use the rates at which large health insurance companies are borrowing money. That’s not quite fair, because the existing companies have a track record. But charging the rates at which, say, the government lent money to AIG will be close enough.

Usually, a new competitor starts small and builds market share slowly by establishing a record of positive performance. A new insurance company would have to start in one state, then expand later if and only if they were successful. It would be a good idea for a government venture to follow that route, and fair competition dictates that they must. Of course, that’s not how government works. So again we are forced to make allowances if they are to have a chance. We can put an additional charge on their books that taxpayers will get back for building market share. Ventures like FedEx, CNN, and USA Today lost money for years before they reached the scale needed to break even. We’ll just estimate the cumulative debt and put it on the books of the government venture.

Now we get to the rules of equitable competition. It would be grossly unfair for a government insurer to offer policies across state lines without private insurers being given an equal opportunity to do so. In that vain, if private insurers are subject to onerous state regulations and reporting requirements, then the Feds must operate under an equal burden. The is no need to make allowances, the Feds get the same regulations.

In the interests of equity, the government venture should conform to all the Securities and Exchange Commission regulations, Sarbanes-Oxley requirements and so forth that are imposed upon large corporation. the venture should fill out all of the tax forms and be subject to audit by all the government agencies whose job it is to audit them. The taxpayers ought to get all of this information anyway, since they are in effect the stockholders.

Ordinarily, the Feds get special treatment for lawsuits. They cannot be sued without their permission. That would have to be waived in the interests of fair competition.

Government ventures do not ordinarily pay local real estate taxes, sales taxes, or income taxes.Fair competition dictates that any government venture pay real estate and sales taxes or equivalent fees in lieu of taxes. While ventures like the Postal Service commonly exempt themselves from local taxes, there is precedent with some military installations paying equivalent fees. It can be done.

Private insurance companies do not to keep all of their profits. They pay state and federal income taxes, at the rate of forty to fifty percent of profits. thus private health insurance includes payments to states and the federal government into general revenues. If those taxes are not paid it would be unfair to taxpayers who would have to pick up the slack. Consequently, for fairness, a government venture ought to make payments in lieu of income taxes. Those payments could be keyed to the taxes paid by the private sector as a percentage of their revenues. If the private sector has a bad year and pays little income tax, then the government venture would be spared as well.

Private corporation cannot require customers to use their services, not can they impose price controls on their suppliers, so there will be none of that in the new era of fair competition by government. Hospitals, physicians, and nursing homes will be allowed to decline accepting patients at government rates, and customers can decline coverage at government rates.

Under present Medicare rules, investigations of gross fraud are charged to the Justice Department. Such investigations would only be charged to the Justice Department if similar fraud investigations are so chrged by private insurers. Otherwise, they are charged to the government insurance venture directly.

Ordinary ventures fail if they do not turn a profit or at least break even. Consequently, the length of time required for government failure will be established at the outset, and the government venture will close down or be sold off if the criteria are not met. Five years would be reasonable, since the operation starts at full scale. This avoids the trap of the Postal Service and public transit agencies that lose money virtually every year forever, but never go into bankruptcy. Fair competition requires that they be allowed to fail, and their assets taken over or liquidated on the open markets if they cannot compete.

So there you are. There are ways for government to compete fairly with the private enterprise. The question is whether proponents of fair competition from the government step up to the challenge.

Recession Update: Economy Worsens

August 7, 2009

CNN made a decieving headline today: “Jobless rate down for first time in a year”. What is perhaps comical is that the only “jobless rate” that was down was the number of jobs being lost (“only” 247,000 jobs were lost in July). What the headline implied was that the unemployment rate had decreased, when in reality,  unemployment is still on the rise. Indeed, we are in the middle of the deflationary spiral. The same CNN article acknowledges that the national unemployment rate will likely increase to the double digits.

While it may be a little early to call Obama’s economic policy a failure (seeing as most of those “shovel-ready” projects will not begin until the end of next year), there certainly has been little to no recovery. In the middle of July, when the markets usually boom due to the spending of savings on family vacations, the only good news was that fewer jobs were lost than the month before and the unemployment rate fell 0.1%.

Obama’s manipulation of the the banking industry doesn’t appear to have done too much help, either. According to Fox Business, due to continued real-estate deflation and instability, banks are continuing to experience significant losses. Of course, Obama’s solution to this problem is another bailout, this time of the real-estate industry. Based off of our experience of past bailouts, the real-estate bailout will likely shift the instability elsewhere, while keeping the real problem in place.

Confidence in Washington Falling Considerably

July 25, 2009

According to the Bureau of Labor Statistics, thirteen states now have double digit unemployment rates. As a result of the lack of improvement, many Americans are now questioning Washington’s ability to combat this problem. In fact, a new Fox News Poll indicates that a majority of Americans doubt that the Obama Administration has any clear plan for fixing the economy. The poll results also indicate that 73% of Americans doubt that Congress has such a plan either.

As of Healthcare, the poll indicates that most Americans don’t believe that major health care reform can occur without increasing taxes and the budget deficit. In fact, 64% of Americans would rather have their ailments treated by private health insitutions than by the federal government. Further, only 3% of Americans consider thier current healthcare quality poor.

What was perhaps most interesting about this poll was the last question:  “Do you think members of Congress should be required to read and know the details of legislation before they can vote on it — even if the bill is thousands of pages long?” The bipartisan answer was a resounding 92% yes.

So what does this all mean? It means that America has lost confidence in Washington. America has even lost confidence in Obama. Change has failed. Hope has backfired. What do we have left?

No Stimulus Here

July 11, 2009

This week I went to a presentation on Stimulus Opportunities for Small Business, one of a series around the country slated to run through next February. One might think that talking about stimulus opportunities a year after passage might be too late, but not to worry, the stimulus rollout will take years. In fact, we were told that the plan was not designed to have an immediate impact, but rather to accrue slowly over time.

Depending upon who is adding up the numbers, about 10% of the stimulus money has actual gone into the economy since it was passed this past February. I’m sure that you remember how it was an emergency that could not wait a day. A Congressman was rushed from Ohio on a stretcher to vote. There was no time to read the bill, let alone obey Obama’s campaign pledge to post it for public critique. That was was right before the two day delay in signing in necessitated by arranging a proper ceremony in Colorado for the occasion.

Of the money that has gone out so far, nearly all has been in tax cuts and aid to the states to bail out Medicaid. Very few of the shovel ready projects are yet ready to receive funding. Projections are that by year end, optimistically 24% of the money will be spent, including continuation of tax cuts and such. The tax cuts officially end at the end of the year; Obama having promised to cut middle class taxes, but not for very long.

The emergency pretense under which the bill was passed was based upon the assumption that the economy needed an immediate boost. No one argued that spending a week reading the bill would produce the disastrous effect of having the money hit in the third week of July next year rather than the second week. So the question is then whether Obama and Congress actually realized the Stimulus Bill was not going to provide stimulus, or whether they actually thought the shovel-ready projects were shovel-ready.

I’m inclined to think they knew well that the effects would be a year or more down the road. The life cycle of a government project comprises (1) decide what the government wants to do, (2) prepare detailed specifications and bid documents, (3) put the contract out to bid, (4) select and qualify a vendor, (5) sign a contract, (6) have the contractor assembly the people, equipment, and materials to do the job, (7) start work, and (8) receive payment for work accomplished. If (1) has been accomplished, then getting to (8), which when the money flows in quantity, takes 18 months if the skids are greased. If a contractor has been awarded a contract and awaiting funding to start work, it would only be through an accident of timing. No one stands poised above their shovel awaiting a go ahead. If there are Congressmen too poorly informed to know this, there is no shortage of experienced bureaucrats and Congressional staff who would surely tell them.

Moreover, Obama knew there was really no rush, hence his unnecessary delay in signing. Now, the word is at the Opportunities seminar is that it was designed to roll out in 18 to 24 months. The reason for the story of it being an emergency was to cut off debate on what the $755 billion would actually accomplish. On top of that, there is an unspoken belief that having government spent money is “doing something” and that “doing something” is the wand that delivers government magic.

The history of past recessions is that recovery is likely to start around now. Perhaps this recession is much worse, so it won’t be until the fourth quarter or even the first quarter next year. So the stimulus is not likely to arrive until well after it would be a useful element in recovery. At the time the money is spent, the government will be competing with private enterprise to borrow the funds, burdening the productive private sector with higher interest rates. The government may alternatively print the money, causing inflation and still higher interest rates.

One may counter that, never mind stimulus, investment in infrastructure is a good long term investment. If so, then the hodge podge of projects assembled in a panic without debate is the wrong way to go about it. Investments should be shown to make a positive return. No one has bothered with any such analysis.

So what are the opportunities for small business? Nothing special, just register and bid on government contracts as usually. Most of the stimulus money will end up in construction projects unsuitable for small business. We did learn that the demand for small business loans is exceeding the supply, because many of the banks are not making the loans. The Small Business Administration only guarantees the loans to the banks, it doesn’t originate loans.

The Stimulus Bill was not designed to provide stimulus, so it is not surprising that it has provided negligible stimulus effect. So now we are hearing that is a good reason to enact another Stimulus Bill.

Government Intervenes With Over 9 Trillion in Spending: Will this help?

May 31, 2009
Or will it end all hopes of recovery?

According to CNN, the government has allocated over$ 9,542,000,000,000 with the intention of stimulating the economy. The large majority of this money is trying to stabilize banks and “make credit more accessible”. The logic behind this is that in times of economic growth, interest rates are low.

However, interest rates cannot sink below inflation rates without massive bank failure. This is because the rate at which the real value of loans decreases due to inflation and the rate at which the real value of loans increase due to interest balance when these rates are equal. So, banks can only make wealth when their interest rates are higher than the inflation rates.

We should now realize that the intervention in our banking industry will NOT help the banks, but rather cause permanent damage. While curing temporary illness, the government has injected a poison: inflation. With an approaching fivefold increase in total currency in circulation and with artificial competition in the banking industry, not only will inflation rates increase rapidly, but banks will not be able to raise interest rates to keep up.

The federal government has already applied regulations that will prevent the banking industry from increasing suddenly and steeply. The result of this will be bank failure, followed by hyper inflation and ridiculous interest rates, and then ultimately the fall of the global economy.

It is a sad thing to predict, but no other result can come from this print-and-spend government and its attempted control of the credit market.

Inflationary Stimulus

March 26, 2009

According the the Federal Reserve Board, the federal government has nearly quadrupled the money flowing through our economy in the last five months…

While in the short term programs and people can pay down their debts, in the long term price inflation is expected to reach the double digits according to Dick Morris. What does this mean? Well, all those who were saving their money for harder times will see the value of their savings drop quickly. Further, interest rates will rise, making it harder to get a loan and start a business.

So, with diminishing savings and a halt in entrepreneurship, what can we see happening soon? Well, nothing good.