(From left to right) VJ Arjan, Andrew Wang, Jeff Harrington, Jason Pullen, and Tommy Schultze. (Click on the picture to get a larger image)
GM and Bailout
If GM gets the $25 billion from the government:
a) A) Nothing will happen, GM will still go bankrupt. It has -$60 billion in net owners’ equity, and there is very little chance it can recoup while holding on to the demands of the UAW. Expected value, therefore, is 0.
b) B) The bailout will directly finance GM’s investment in future car technologies (alternate fuels, electric cars, etc.), and will therefore serve to bring it to the forefront of the auto industry.
In either case, they will have to wait until the Obama administration gets into office, which is in February. However, GM has already announced that they will run out of cash by this January. So, it is a waiting game. Our consensus is that $25 billion cannot and will not turn around GM entirely, and that the funds are just one of many demands to come.
Stimulus Package
President-elect Obama will probably initiate a stimulus package as soon as he assumes office. The effectiveness of the package will be determined by how it is distributed. Jeff Harrington suggested that the stimulus package should go to the essential industries, i.e. roads, bridges, highways (projects that are utilized by everyone). The construction workers and engineers receiving this money will then spend in other areas of the economy, and essentially stimulate from the bottom-up. Giving funds to corporations will result in what is occurring currently with the financial bailouts, very little.
It is interesting to note that Jeff’s supposition sounds much like FDR’s New Deal, but it is important to stress that how they go about this will make the most difference. Jason Pullen brought up economist Friedrich Hayek’s contention that if a central control agency has all available and relevant information, then the execution and the effect is more readily achievable. He gave an example of the military being such an organization, citing the military’s role in World War II to stimulate the economy. The lack of information in government administrations and the inefficiencies in the distribution of information (chokehold of government bureaucracy) may be responsible for government policies being implemented very ineffectively.
FED’s Magic Trick
Up until the 1980’s, corporations would willingly buyout unprofitable corporations to use the losses on its balance sheet to write off their taxes in the future. This changed with Section 382 in the 80s, which forbade this practice. However, Jeff Harrington noted that the FED has just this September conveniently changed and reversed section 382 to allow the recent mergers of financial institutions (Bank of America & Countrywide, Wachovia and Wells Fargo) so host companies can write off their taxes with the gargantuan losses suffered by its colonies. Did you see it?
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html
The U.S. Debt
The truth of the matter is that a large part of our debt post-WWII has been in the underwriting of securities and emerging technologies worldwide. Let’s take an example. The government uses our tax dollars to research and develop a vaccine for cancer. This is then distributed throughout the world. The world benefits although there is no monetary payback. Then why more debt? (Hint: Inflate away the U.S. debt with more debt; solve the problem of debt by inflation with more inflation)
http://goldnews.bullionvault.com/inflate_inflating_away_debt_continentals_weimar_inflation_051720082
War In Iraq Is Good News To Russia And China
Russia’s invasion of Georgia while America was at war in Iraq was not a coincidence. As America is distracted at the moment, Russia has its chance to fool around and bully a rapidly westernizing Georgia into submission. In fact, many of us feel that Vladimir Putin is striving to impose a stranglehold on former Soviet Union colonies to further his personal ambitions. His puppet, Medvedev, has recently extended the term for Presidency from 4 years to 6, which means 12 more years instead of 8 for Putin.
China is also doing things it would not normally do. Andrew Wang talked extensively about mainland China, the country he is originally from. He also stated that China has been recently paying other countries to stop recognizing Taiwan as a separate entity from China. For example, it just gave Costa Rica $5 billion to do just that.
Agricultural Foodstuffs
The government’s fling with ethanol may be causing the rise in most livestock commodities. Corn feeder which was being used to feed animals, is now being used to produce ethanol.
(http://tfc-charts.w2d.com/)
Conagra and World Hunger
As I have studied and am very passionate about the problem of world hunger, I thought I’d bring up what I explained to the other members at our meeting. Currently 35,000 children under the age of 5 are dying of starvation every hour. When I first heard the statistic, the enormity really did not sink in. What is more interesting is that the hunger epidemic did not even exist before the 1950s. So what happened?
Defendants of major corporations usually say that there simply is not enough food in the world and that the high birth rates in hunger-striken countries only make the problem worse. This is what is not being told. Let’s take agricultural monolith Conagra, for instance. It has for the last 4 decades gone into third world countries and has bought up farmland en masse there. What does it do with that land? Nothing. Larger supplies of crops decrease the prices of foodstuff, so by eliminating potential sources of supply, they are able to charge more for their products and be more profitable. In fact, Conagra is notorious for flooding a market with below-market prices to take out local competitors and then raising the prices once the local farmers are forced to sell their land to them. Essentially, Conagra and other foodstuff corporations like it, have artificially created a shortage of food. For more information, please read World Hunger: 12 Myths by Lappe, Collins, and Rosset.
Technology and Work
We discussed extensively the role of technology in our future. We are at a point wherein a majority of jobs that we have, can be automated even today if corporations put their greed and differences aside and instead work together to do so. Capitalism functions, however, based on human desire for self-interest, even at the expense of the rest of society. Corporations have time and again programmed into the system designed obsolescence to maximize profits. For example, lightbulbs, the patents for which are owned by General Electric, can last lifetimes if they are built correctly. An original lightbulb produced by Thomas Edison is still burning bright in Washington D.C., a hundred or so years after being created. To maximize profits, GE has deliberately designed lightbulbs to fail every 6 to 9 months. The same goes for cars, which are programmed to start failing in about 5 years, the average note on a car loan. If, however, the world decides to put first the common good and welfare of mankind and use technology accordingly, the standard of living of the entire world would skyrocket. As one cannot pay a machine a salary and a machine does not tire, it is possible to create things in complete abundance very cheaply. Everything from homes to clothes to airplanes is currently being built by robots.
Scarcity is a myth. There is no scarcity of oil, just as there is no scarcity of diamonds. Not all of the oil is produced, or all of the diamonds are released, to keep the price artificially inflated. However, if we indeed move to solar and/or wind energy, how can one control a natural resource as abundant as the sun or the wind? With the advent and implementation of technology, which actually exists today we can, as a race, eliminate the scarcity of resources.
What would happen if virtually everything were done by machines? Well, humans certainly wouldn’t work. Obviously one cannot automate the function of a politician, etc., but most manual labor or processing/service jobs can be automated. It is possible, as suggested by some members, that we would just end up like those living in trailer parks, disincentivized, and (pardon the bluntness) have sex all day long. After we parted, however, Jason Pullen, Andrew Wang, and I discussed Maslow’s hierarchy of needs, and predicted that most people after having the necessities taken care of, would look for other things to fulfill them (Love, Art, a hobby, a charitable cause, religion, etc.) until they are self-actualized. Also, if an abundance of things that provide our necessities exist, why would one country go to war with another? Usually, countries go to war sometimes because there is legitimate cause, but sometimes because there is a profit is to be made. Would a country ever go to war for a natural resource like oil, if it could technologically tap the sun for all the energy it needed?
As this topic is certainly an interesting and revolutionary one, I am wondering what you all think about it. Please leave your opinion in the comments; I’d love to hear your perspective!
My hope is that you may benefit by some of this, and that it may help you develop or further enhance your perspective of the way the world is! Let me know if you’d like to receive an invitation to the next meeting, which will be the Sunday after next, November 30th. I will send out the invitations and details close to a week in advance.
Thank you all and I hope you all have a great week ahead of you!
VJ, great discussion. I think that the topics were very interesting discussed and I am sure many of you gave a different prospect of view on the issues. I can only regret that I couldn't attend and I wish we will discuss some of the topics together.
ReplyDeleteThanks
Vince
STIMULUS PLANS VS. STIMULUS RESULTS
ReplyDeleteAmity Shlaes wrote today, "[W]hat about the larger stimulus plan, the kind President-elect Obama is considering? The idea is to revive Franklin D. Roosevelt's New Deal and create jobs by building new bridges or roads. Obama has also spoken of a kind of corps for the young, which, you get the sense, might be involved in some of these projects. That comes out of the New Deal and FDR's Civilian Conservation Corps.
"Keynesians would say such moves will bring the economy to life, creating jobs and replacing crumbling infrastructure.
"Others would argue that the productivity gains to be had from an infrastructure program also are significant. That's the view of scholar Alexander Field, who studied the New Deal and found that the private sector benefited enormously from its construction projects. After all, when the government supplies a bridge from Point A and Point B, the private trucking company can deliver goods between A and B faster. The project may be public, but its 'spillover' yields profits too.
"The best evidence for the infrastructure spending case comes not from a Democrat but from a Republican: Eisenhower's National Highway System. The rebuttal there is that emphasis on government in the 1950s made the decade a dull one that stifled innovation.
"And you also have to ask: What is lost when Washington puts resources into such road projects? One problem is that a stimulus project and an earmark are dangerously similar. Sometimes the government will waste its resources on bridges that truckers won't use -- the new Bridges to Nowhere."
("Obama Will Take Us Backward By Channeling Keynes", www.Bloomberg.com, 2008 November 19)
TECHNOLOGY CORPORATE DECISIONS (BAD) OR WORKING TOGETHER (GOOD)
ReplyDeleteArnold Kling wrote several years ago, "Economic idiotarians are people who implicitly reject market logic and instead see economic arrangements as an either-or choice between idealistic sharing and evil exploitation.
"Steven Pinker, a professor of cognitive psychology at MIT, points out that it is natural to resist economic reasoning. One of the chapters of Pinker's recent book, The Blank Slate, is called 'Out of Our Depths'. In this chapter, Pinker describes certain fields where the knowledge that we have acquired is challenging for cognitive faculties that were designed for prehistoric hunters and gatherers. One of these difficult fields is economics.
"Pinker cites the work of anthropologist Alan Fiske, who has found that all interpersonal transactions can be sorted into four relational models.
• Communal Sharing
• Authority Ranking
• Equality Matching
• Market Pricing
"In a Communal Sharing transaction, such as a family dinner, every member of the relationship is entitled to share in what is available.
"In an Authority Ranking transaction, such as a decision made in a traditional corporation, there is a linear hierarchy, with people lower in the hierarchy deferring to those who are higher up.
"In an Equality Matching transaction, such as taking turns going through a four-way stop, people operate according to an intuitive sense of balance and fairness.
"In a Market Pricing transaction, such as buying a used car, people make decisions on the basis of calculating costs and benefits.
"Of course, it is the Market Pricing mode of interacting that is studied in economics. However, Market Pricing requires techniques and thought processes that have not always been available to mankind. As Pinker points out, 'Market Pricing is absent in hunter-gatherer societies, and we know it played no role in our evolutionary history because it relies on technologies like writing, money, and formal mathematics, which appeared only recently' (p. 234).
"The idiotarian approach to debating economic policy is to frame an issue as a conflict between Authority Ranking (bad) and Communal Sharing (good)."
(“Economic Idiotarianism, www.TechCentralStation.com, 2003 January 30)
STIMULUS PLANS VS. STIMULUS RESULTS (PART 2)
ReplyDeleteRichard Rahn wrote yesterday, "How much should the U.S. government spend on an economic stimulus program? If you have trouble answering the question, it is because it is the wrong question.
"The United States (and the world) economy is (or at least has been for the last few months) in decline with rising unemployment rates. It is widely believed the government must ‘do something’. The political and media classes, and even many economists, call for an ‘economic stimulus program’. But what do they mean by ‘stimulus’, and will it do any good?
"The argument is made that many Americans are suffering from a decline in income, and thus the government should give them money so they can buy more and put others back to work. Sounds good--but where does the government get the money? It must either tax someone else now or borrow more money, which diverts productive saving to current consumption. Either way, it is less than a zero-sum game.
"Every time direct government payments have been tried, they have failed. During the Great Depression, government spending soared as a percentage of gross domestic product, but full employment did not return until World War II. During the last eight years, U.S. government spending has greatly increased in both absolute terms and as a percentage of GDP, yet the economy now performs worse than it did a decade ago.
"When one person is taxed more to pay another person, the incentive to work diminishes and so the total income enjoyed by both people declines. The recipient might be slightly better off for a few months, but the economy (that is, everyone else), and eventually even the original beneficiary will be worse off. The government can only divert savings (through additional government bond sales) for a limited period before everyone will be worse off. The evidence is that the first Bush tax cut back in 2001, which was actually a tax rebate, did little good. In fact, it is now known that people saved much of the money, so the government borrowed some people's savings to provide money for others (or even the same people--who didn't spend it, but saved it). The lesson was learned, and in 2003 the tax rates were cut, which increased incentives for work, saving and investment and hence did a lot of good.
"The history of various economic experiments and sound theory (unlike much of the Keynesian claptrap) teaches us government handouts, or tax rebates, are unlikely to do any good and can often be counterproductive.
"Some advocate government spending on infrastructure as part of a stimulus package. In theory, government infrastructure spending (highways, bridges, dams, etc.) can help the economy: if the project meets a solid cost-benefit test; if it is well-managed; if there is little or no corruption; and if it can be done quickly to help the current downturn. Do you want to bet your tax dollars on all of those ‘ifs’?"
("What Is Economic Stimulus?" www.washingtontimes.com, 2008 December 3rd).
TECHNOLOGY CORPORATE DECISIONS (BAD) OR WORKING TOGETHER (GOOD) (Part 2)
ReplyDeleteThe premise—-We must choose either Option A or Option B-—is a fallacy if there is also an Option C.
Option A = "Capitalism functions, however, based on human desire for self-interest, even at the expense of the rest of society. Corporations have time and again programmed into the system designed obsolescence to maximize profits. For example, lightbulbs, the patents for which are owned by General Electric, can last lifetimes if they are built correctly. An original lightbulb produced by Thomas Edison is still burning bright in Washington D.C., a hundred or so years after being created. To maximize profits, GE has deliberately designed lightbulbs to fail every 6 to 9 months. The same goes for cars, which are programmed to start failing in about 5 years, the average note on a car loan."
Option B = "We are at a point wherein a majority of jobs that we have, can be automated even today if corporations put their greed and differences aside and instead work together to do so. . . . If, however, the world decides to put first the common good and welfare of mankind and use technology accordingly, the standard of living of the entire world would skyrocket. As one cannot pay a machine a salary and a machine does not tire, it is possible to create things in complete abundance very cheaply."
Option C = Let's examine the market economy and economic proposals with market analysis. A market economy is a spontaneous order, like human language, that evolves from a de-centralized decision-making process that involves a multitude of market decisions, called "transactions", between buyers and sellers who incur costs to obtain benefits for their self. To determine whether an economic plan will work within a market economy, then, one should consider the trade-off between the cost incurred and the actual benefit gained.
For example, if you want to increase the supply of oil, how much will the drilling, refining, transporting, and selling of the additional oil cost? And can an oil company that incurs these costs make a profit at the current market price for oil? The same goes for diamonds.
If GE is deliberately designing their light bulbs to die prematurely, since patents give an exclusive right for only a fixed period time, here is a market opportunity for a competing light-bulb company to produce a light bulb that doesn't die prematurely? If the competing light-bulb company can produce their long-life light bulb near the cost of GE's short-life light bulb, which light bulb do you think buyers will prefer? And for the record concerning Edison's Eternal Light: "According to museum curator Jack Stanley, the bulb is fake consisting of a hollow bulb illuminated by a series of automobile headlights mounted in the display's base" ("Longest-Lasting Light Bulb", www.Wikipedia.org).
Here's another example. If you want to greatly increase the longevity of a car, how much will the better engine, better parts, and better body cost? And after you add on these additional costs, how many buyers will no longer be able to afford the car?
And, as a last example, if you want to build robots to replace all manual laborers, how much will the designing, manufacturing, selling, maintaining, and repairing of the robots cost? How does a company that can't afford these costs pay for them? And what costs to our legal and economic freedoms does society incur if you force companies that don't want to replace their workers with robots to do so anyway?