Ayn Rand

The economic application of Rand’s dictum is that good economic policy is good for the environment.  Specifically, an unhampered market economy is a superior system for maintaining environmental sustainability compared with the economically based social engineering we suffer under today.  In fact, a true free market economy is the only system that has any chance for achieving sustainability.  Here we focus on the effect of policy designed to create the so called consumer driven economy.

At the root of environmental and sustainability debate or discussion is consumption.  The more we consume the greater the pressure on the environment and the sharper the reduction of sustainability.  Since saving is defined as deferred consumption, the more we save the less we stress the environment in the present and at the same time increase sustainability both in the short and long term

Deferring consumption by saving not only reduces environmental stress today; it is also the source and foundation of increases in productivity in addition to scientific and technological discovery that reduces environmental stress in the future.  It is ironic that the political parties and interests most often supported by environmental activists are the ones which most enthusiastically promote the fundamental economic policies that turbocharge consumption and discourage saving.

Left to their own devices, people will save a significant portion of their productivity and only consume their earnings after considerable thought. What short circuits this process of high saving along with thoughtful consumption is the deliberate macroeconomic policy of punishing thrift via monetary inflation, currency debasement and government indebtedness which results in generalized and persistent increases in consumer prices.

For example, it is the specific policy of the Federal Reserve to create general increases in the consumer price index of one to two per cent per year.  To be fair, both sides of the political aisle generally concur with this objective.  In my posts on “Innumeracy” it was shown that even this seemingly small level of consumer price inflation is very bad over the long term.  In the short term of our lifetimes this inflation policy not only discourages thrift and encourages consumption; it promotes thoughtless spending.  Would the Twinkie be such a big seller if people habitually put careful thought into their spending decisions?  I wager that each of you could come up with a very long list of similar examples – and far better and more important ones at that.

Promoting thoughtless consumption is deliberate policy with its genesis in Keynesian economics that lead to the enshrining of the consumer and what I call the cult of consumption.  You hear it all the time that the consumer is 70% of the economy, as if healthy production and productivity (the true sources of prosperity) can exist only when the consumer spends at ever accelerating rates.

There are many fallacies in Keynes’ theories, but most important here is what he called the paradox of thrift.  In short, saving is not good and too much saving was a key cause of the great depression.  The paradox of thrift has limited application only when there is a sudden change in the economy and consumer behavior.  Such sudden changes can be caused only by government and acts of God like earthquakes and hurricanes.  Actually, policy makers’ obsession with the paradox of thrift is nothing more than the childish desire to avoid the painful consequences of bad behavior, like borrowing and spending too much.

The result of the universal adoption of Keynesian policy is that the entire western world eschews thrift and worships the false god of the consumer with disastrous economic and environmental impact.  It reached its painfully laughable peak with the nittiest wit ever to occupy the White House exhorting us all to go out and shop for the health of the economy.  Take one for the team, borrow some money and buy that Buick!  The current occupant is little better, though more articulate.  His mantra is get out there and overpay for that oversized house!

Monetary inflation is only one drug used to dull consumers’ senses to the need for thrift and keep them in consumption crazy haze.  Tax policy punishes thrift and productivity by taxing income from business activity and double taxes the dividend distribution of business profits.  The consumer is taxed on interest earned and on the gains in value of any investment assets.  All of this amounts to punishing productivity.

It is bad enough that saving is so savagely suppressed by government policy.  On the other side of the ledger, consumption is strongly subsidized by policy that reduces taxation if you buy things you cannot afford now.  The most egregious subsidy is for housing.  First we reduce one’s income tax by allowing a deduction from income for mortgage interest.  Then, we artificially force the mortgage interest rate below the normal market rate via government loan guarantees subsidized by the taxpayer.  These loan guarantees cover virtually the entire mortgage market today.  To cap it all off, government policies and programs allow home purchases with virtually no down payment, even after the recent financial meltdown.  No need to save for a house, just step right up and sign here!

The result of these policies is a colossal misallocation and waste of resources for housing.  The size of a new home nearly tripled in the fifty years leading up to the popping of the bubble.  Worse, these policies also contributed heavily to our urban and exurban sprawl.

In fact, our savings rate collapsed to nearly zero in the twenty-five years leading up to the popping of the housing and credit bubbles.  We are starting to save more (though not nearly enough) again in the aftermath of the first stage of our current great recession.  Unfortunately, today’s deferred consumption is not paying for future spending, but for past profligate spending.

The saving collapse was facilitated by massive extraction of home mortgage equity.

As you can see, the ascendancy of the cult of consumption is very real.

If I cannot convince you that government has no moral or ethical right to intervene in the economy and that it is horrific economic policy to do so, at least let us have policies that are good for the environment.  Tax consumption not productivity (income)!  Here I highly recommend FAIR TAX: THE TRUTH: ANSWERING THE CRITICS by Boortz and Linder for a detailed analysis of a well crafted consumption tax.  The one change I would make to the analysis you will find there is that the consumption tax rate need be no higher than 10%.   Another key policy change is to cease creating consumer price inflation.  For more detailed discussion please see my post on this site “Gold Is Green”.

Absent government intervention in the market there would be no cult of consumption.  Sprawl would not exist.  Thoughtless consumption, waste and cavalier disregard for the environment would be miniscule compared with today.

My next post will tackle how government regulation along with government ownership of valuable assets increases both wasteful consumption of those assets and raises the odds of environmental disasters like the BP blowout in the Gulf of Mexico.

In the bad old antebellum days of so called unbridled capitalism, the railroad industry was vibrant, highly profitable and intensely competitive.  Whatever you may think of them personally, Vanderbilt and Gould got seriously rich off railroad profits.  What happened to create an industry not even a fading shadow of its powerful past?

Prior to the civil war, the big railroad players were at their wits end over the dog eat dog competition among them, forcing long haul shipping rates down to ridiculously low levels.  To remedy this deplorable situation they repeatedly tried forming cartels to fix rates higher than the prevailing market rate.  They repeatedly failed miserably and spectacularly.

Then, providentially, there arose a drumbeat for the government to step in and slap down those mean railroaders for cheating poor farmers by charging short haul shipping rates that were way too high.  Hallelujah!!!!  The government was given the green light to do what the railroaders had failed to do for decades – artificially fix, and through the long, coercive arm of the law, actually enforce shipping rates.  The big boys could hardly believe their luck.  (For an engaging and detailed analysis of price fixing attempts by the railroads see THE LIFE AND LEGEND OF JAY GOULD by Maury Klein).

While the railroad potentates initially cleaned up as long haul rates rose, it turned out they had made the classic Faustian deal.  Once the government was in control with the creation of the ICC there was no stopping the regulatory train.  The enervation of the industry became inevitable with the passage of the National Railway Labor Act and the creation of the NLRB.  My labor law professor said that even the lawyers did not understand it.  Featherbedding, for example, became an accepted part of the industry, and that was the least of it.

Just to make sure the industry had no chance of recovery of its historic energy, politicians of every stripe took a military measure and used it to massively subsidize the railroad industry’s competition and today’s major polluter and sustainability villain.  That measure was the national highway system.

Most people think Eisenhower proposed the highway system after being impressed with German roads.  What really happened was that Eisenhower led a cross-country, motorized, military convoy shortly after WWI.  It was attended to with much ballyhoo, huge national publicity and intense news coverage.

General Eisenhower

What Ike discovered was the embarrassing and utterly appalling state of our roads.  Getting mired in the mud was depressingly common.  Proposing the interstate highway system was his way of rectifying this problem for military, not economic, reasons.  Of course this was all too tempting for the politicos at every level.  They all cashed in big time with pork barrel road projects funding roads from everywhere to anywhere.

There you have it – an industry literally destroyed by statist intervention in the marketplace.  Passenger rail travel is comatose – its virtually lifeless carcass subsidized by the taxpayer to the tune of billions each year with no hope of making inroads into the stranglehold of the automobile.  Worse, localities like NYC were home to robust subway system enterprises until the statist decided the greedy capitalists were charging too much and took them over.  Now the subways are wards of the state as well.  This experience is not limited to the US.  Government owned, European rail systems are sucking sustenance out of the public purse to the tune of many tens of $billions each year.

One effect of the simultaneous government destruction of the railroads and subsidizing of the automobile is the sharp reduction of population density and the emergence of widespread sprawl.  This is exacerbated by other statist policies like taxpayer subsidized rural electrification (e.g. TVA) and utility price controls that clearly encourage exurban migration and discourage city living.  Why should someone living a hundred miles or more from an urban center, or on a mountain, pay the same electric utility rates as everyone else?  It clearly cost more to deliver the service!  Yet we require utilities to charge the same rate for everyone they serve.  The same analysis applies for landline phone service, cable TV service and mail delivery.

Now consider the environmental impact of this anti-market nonsense.  Statist, anti-market policy promotes waste on a colossal scale!  With waste of resources comes increased pressure on the environment and dramatically reduced sustainability.  At the root of all of this is the hubris of elitists of all stripes, all across the political spectrum, who believe their values and judgments are so damned superior that their whims deserve to be enforced against everyone else at the point of the government’s guns.

Even if we accept the dubious assumption that the elitists were superior, Austrian school economics shows that, even with all the computer power in the universe at their disposal, the anointed ones cannot allocate resources more efficiently than the market with any consistency over time.  In fact, all such attempts must ultimately end in disaster.  As it turns out, the disaster is not merely economic, but also environmental.

Next up – the cult of consumption.

“Do unto others as you would have them do unto you.”

Look at it carefully.  Who is at the center of this sentence? YOU!  YOU! YOU!  When we follow this instruction we concentrate on OURSELVES!!!

This golden rule actually leads us astray and causes untold misery.  The computer industry is a terrific example.  For decades the nerds would dream up something they thought was just so cool, never understanding that their customers could not care less and in fact hated their computraptions.  I now realize that I have become the econo-nerd equivalent, especially in what I have posted on this website.

With one exception (Gold IS Green) I have focused entirely on what matters to me.  I was doing unto you what I would have you do unto me – write about creating the most wealth while leaving me alone to my curmudgeonly self.  Notwithstanding this website’s intended focus on issues of sustainability, the environment and global poverty, our host graciously allows me a forum.   In the spirit of rectification, this will be the first in a series of posts that aims to do unto you what you want done unto you.

One of the greatest philosophers of all time solved the problem bedeviling philosophers for thousands of years – the analytic synthetic dichotomy.  In English a good explanation of the meaning of that phrase is, “It works in theory but not in practice.”  She explained that there are no contradictions.  If you think you have found one, she would add that you must check your premises and you will find that one of them is wrong.  I have refined this slightly by adding that you must also check your data and your logic, because somewhere you have made an error.

For the purposes of this post, the above distills to Reiss’s economics application of Rand’s rule of non-contradicion – good economic policy is good environmental policy.  Conversely, bad economic policy is bad environmental policy.  Among the most glaring examples of bad economic policy causing horrific environmental damage is the US sugar quota.  Historically this has resulted in domestic sugar prices at roughly triple the world sugar price, thereby adding significantly to consumer food costs.  This grotesque trade protectionist quota has made the Fanjuls a family of billionaires.  Environmentally, it is responsible for the ongoing destruction of the Florida everglades.

Far more damaging to the environment, our health and even the long term outlook for our economy are the huge subsidies for King Corn!  A better description is actually huge subsidy for King Corpricutlture since the vast majority of the actual dollars goes to big agribusiness enterprises, and not the long gone, small family farm.  For additional discussion I highly recommend THE OMNIVORE’S DILEMMA by Michael Pollan.

The above represents the low hanging fruit of hundreds, even thousands, of possible illustrations of outrageous government expenditures that hurt the economy and ruin the environment.  In this there is virtually zero difference between and among the demolicans and libervatives.  Yet environmental activists keep voting for the same old scalawags in a vain hope that something will change in the minutia of policy without first having a change in the fundamentals.

Worse, the environmental activists actually promote the very fundamentals of statist policy in the wrongheaded idea that elected officials will exercise their power for environmental health as opposed to their personal political position.  Unfortunately, Colin Powell’s corporate welfare kings will continue to dwarf the welfare queens and the environment in obtaining public largesse.  Nothing will change until the state is stripped of all power other than that directly related to redressing the initiation of physical violence, threat of same, theft and fraud along with being the final arbiter of disputes.

That there is a big problem with government run rampant is a cliché, so I have no doubt that you are, so far, unimpressed and unconvinced.  Still, I had to start somewhere.  In my next post we dig deeper and take the next step showing how true free market economic policy really does promote sustainability and is good for the environment.

The key element that differentiates the usual suspects (Chicago school and neoclassical school) shredded by critics of free market economics, and the Austrian school (conveniently avoided by those same critics) is the requirement there be a free market in money and not a fiat currency regime.  In concrete terms, the Austrian school places the majority of blame for our present woes on the operations of the Federal Reserve and our government mandated (non free market) fiat currency.

Milton Friedman of the Chicago school was the closest to a true free market economist, but his monetary theories were so abjectly wrong that he too cannot qualify, though even Austrian economists owe him a debt of gratitude for his ability to champion the market economy and win so many sound bite battles on TV and radio interviews.  Dr. Friedman believed that a monetary system should be run by a computer which would expand the money supply at about a 3% annual rate.  This made him an inflationist whose ideas must ultimately end in disaster.  Please see my posts on innumeracy for additional discussion relating to this point.

Dr. Friedman misrepresented the gold standard as well.  He likened it to fixing the price of gold, then stating that price fixing never works.  The misrepresentation occurs because a gold standard does not fix the price of gold.  In a true gold standard there is an identity of gold and the paper currency in your wallet.  Gold is not equal to money it IS money.  Under a true gold standard, it is only when someone turns gold into the treasury that currency issued.   When the Federal Reserve was established we abandoned the true gold standard in favor of what I call the Cheating Standard.  The central bank issued currency not backed by gold.  Eventually we had to admit the truth that the fed had created many times the amount of money that we had in gold to back it at only $35 per ounce and closed the gold window in 1971 (essentially a default on our obligations).

Detail from building in Vienna, Austria

Austrian economists emphasize the gold standard not because of any special magic associated with gold, but because that was the standard chosen by the market over thousands of years and many trillions of market (uncoerced) transactions.  Nothing is more important to a functioning market economy than a fully functioning free market for our money, the one thing that touches all of us every day.

Another key difference between the Austrian school and other so-called free market theories is there is no assumption of either rational man or money maximizing man.  For Austrian theory, value, like beauty, is in the eye of the beholder.  It is a fundamental mistake of all other market oriented economic theories that assumes a priori knowledge of people’s values or that there is some special or intrinsic value in things when creating their spurious models.  In fact, relative values are only revealed through market transactions and market prices.

The most basic way to illustrate the point is that raspberry ice cream and coffee ice cream cost almost exactly the same amount to make.  I will pay dearly for a top quality coffee ice cream but would not consume raspberry ice cream even if you paid me!  This may sound trivial, but the same principle applies all along the spectrum of such values and choices for all products and services.  In the real world of the Austrian school values are rarely, if ever, chosen rationally and the same would therefore apply to our choices as revealed by our market transactions.

Nor can it be said that man always rationally seeks to maximize his monetary gain.  It is not at all unusual for people to make apparently irrational choices against their personal financial interests.  Austrian theory, unlike virtually every other school of economic thought, explicitly recognizes this phenomenon.

Austrian theory does not posit perfect information among any participant let alone among all participants as do classical and neoclassical schools.  Just the opposite, the Austrian view is that knowledge and information is asymmetrical and local.  This is a key reason behind von Mises prediction that Soviet socialism would collapse without a fight.

One key element in Austrian theory is to use irrefutable assumptions to arrive at logically required conclusions.  For example, the theory of how manipulation of interest rates by the monetary authorities cause the boom and bust cycle has at its root the fact that no unsubsidized business enterprise can indefinitely run at a loss.  Also, in a true market economy, interest rates fall only when there is an added abundance of available savings.  Therefore, certain projects can be undertaken only at lower interest rates when savings are relatively high.  When the government artificially lowers interest rates, false information is transmitted to borrowers and lenders regarding the true availability of savings, which results in harsh losses when the truth comes to light much later after the project is completed.

Another difference is the Austrian school eschews modeling and indexing.  You cannot model (quantify) human behavior.  Indexing is equally futile.  It is crude at best.  For an example I refer you to Shadow Government Statistics (shadowstats.com) for a thorough discussion of the shenanigans going on with the Consumer Price Index.

Entry of Austrian National Museum

Modern economic theories use complicated models, algorithms and inappropriate mathematical equations to mask the fact that their conclusions are foreordained by their unsupported assumptions.  This is the economics version of GIGO.  We see this every day in nearly always inaccurate forecasts churned out on Wall Street and in Washington.  Worse, when accurate forecasting is needed most the models fail miserably – when we pivot from growth to contraction.  This was most acute in the failure of economists of virtually all explicitly statist as well as faux free market schools to see our current “Great Recession” even when anyone with some common sense and a little observation would have figured it out.

Most of the readers of this post would have seen the crash coming by refraining from watching the news and reading the Wall Street Journal, and instead focusing on what was right before your eyes.  Example were the tsunami of TV advertisements for zero down mortgage loans and later 125% loan to value mortgage lines of credit.

The foregoing represents just a small sample of the important differences between the faux free market schools and the true market economic orientation of the Austrian school.  All of what you have read here is an anathema to the economics profession.  If Austrian school ideas were widely adopted tens of thousands of professional and academic economists would be summarily fired, and the few that remained would earn a small fraction of their current income.

Economists (including the Chicago boys) generally believe they are the anointed, given special knowledge on how the economy works and that they could make things so much better if only they were given the power.  Few if any have the slightest clue about how a business enterprise works.  Nearly all cannot fathom why, for example, a lowly plumbing or electrical contractor can deserve many times what the economist earns.  The Austrian school exhibits no such envy.

The historical record repeatedly validates Austrian theory.  Examples include the stagflation of the 1970’s, the collapse of Soviet socialism and the economic mess we experience today.  Yet, critics of free market economics studiously avoid attacking Austrian theory.  Apparently, power and prestige wins out over the facts.

For more easy to understand analysis and illustrations by an Austrian school economist I highly recommend MELTDOWN by Thomas Woods.

The other day I ran into a journalist friend in the grocery store.  “How is the ‘Save-the-Word’ Business?” he asks.  That solicited a flash of a smile and a giggle from me. He had delivered the question in a half-serious, half-joking manner, so when I laughed he responded with a Cheshire cat smile. Upon later reflection, I realized the question was not only funny, but had merit.

Photo by Katia Rodriguez

As a resident of Sedona, Arizona and the primary sponsor of the NewSilkRoad Initiative,[1] the path that I have chosen is a mystery to some.  Why would anyone that lives deep in the U.S. hinterland be interested in international business and trade…..and especially poverty in the developing world? Why the name “SedonaCyberLink”? This article will attempt to connect the dots so readers can see why this website covers articles related to political economy and cultural geography from 4,000+ feet above sea level in the middle of the North American continent.

Why Sedona?

Source: Wayne Ranney

For those of you unfamiliar with Sedona, I’ll give you a quick sketch. It is a small town of 11,600 souls[2] nestled in a wide valley surrounded by the Coconino National Forest in Northern Arizona. All around the valley are sedimentary rock formations revealing millions of years of natural erosion of a red, iron-rich soil. The unique climate of Sedona, sitting at the base of the Mogollion Rim as it does, has been characterized to me by golfer friends as “year round resort weather.” Heading north from Sedona through the beautiful Oak Creek Canyon, a driver ascends from roughly 4,000 to over 7,000 feet elevation in Flagstaff, a 40 minute drive away.

It is a prime tourist destination for domestic and foreign tourists alike because of this natural beauty and the folk lore about the spiritual power of the valley.  There are thriving graphic and performing artist communities and it has become a prime destination for retirees seeking to escape the cold, snowy winters of the Eastern seaboard and Great Lakes region.  The new age community of healers and spiritualists are an integral part of the local economy because so many of the tourists seek guidance while they are in this powerful and beautiful place.  Many have chosen to visit specifically to attend seminars or conferences on various aspects of health, wellness, fitness and consciousness expansion. Hence, the name of the town itself solicits a feeling of something special for those who have traveled here.  It also carries a mystic because of the highly productive art community.

Why Cyber?

In the new world of Web 2.0[3], IPv6[4], streaming video, interactive platforms, etc., etc., one of the most effective means of communication is through cyberspace.  SedonaCyberLink uses the many web-based technologies at our disposal to convey stories and ideas concerning the political economy of international business and trade.  These include, but are not limited to: blog entries, photo feeds, streaming videos, tag cloud searching, online surveys, etc.  And, as the primary sponsor of the NewSilkRoadSHOP,[5] we are using the infrastructure of the Internet for secure, encrypted eCommerce as well.

Why Link?

The art and science of collaboration has been core to all of the academic and philanthropic work I’ve done over the past 20 years.  Much has been said and written about the magnifying effect of collaboration on achieving goals and enhancing effectiveness.  I’ll not go into this subject in detail here; I’ll only say that it has been the organizing principal. Identifying, engaging, and enlisting strategic alliance partners interested in achieving a common goal is one way to magnify a positive effect.

Why International Trade and Business?

As a person who has lived in and experienced several important regions of the U.S., and a person who has traveled to over 30 countries in the world, I’ve had a chance to observe many different cultures.  As I wrote in my article “The World as It is”[6] discerning patterns of human behavior has become a bit of a quest for me, especially as it relates to the human/environment interface.

This quest became particularly purposeful during the decade of the 1990s and the 2000s as people in the countries I was observing (e.g., Argentina, Costa Rica, Mexico, Egypt, Japan, & most of Europe and S.E. Asia) were responding to the effects of the liberalization of trade and financial markets.  During this time I began teaching at a community college and lecturing at various Universities on trade and the environment (e.g., University of Washington, Seattle University). I was, and still am a strong advocate of free trade, recognizing that the only real hope for the 6+ billion people on the planet is for a vital global economy. This is not to say, however, that I buy into the libertarian argument that no government is good government. Nor is it to say that I buy into the environmentalist point of view that no progress is good progress.  I prefer to think of my way as a Middle Path way.  And, as I have written on many occasions in the past, I tend to think of trade in terms of ‘fair trade’ as defined by the World Fair Trade Organization’s (WFTO) 10 standards of fair trade.

I recognize that trade is, in many product categories (e.g. agriculture) highly subsidized leading to what economists call “market distortions.’  Further, I realize that the liberalization of the financial sector was, in part, responsible for the contagion effects from the U.S. mortgage lending crisis that spread so rapidly around the world. The sophisticated financial instruments that were developed exacerbated the lack of transparency about the underlying risk of the syndicates and millions of people worldwide have been negatively effected by this.

I began teaching and considering these issues while trying to make sense of the growing polarization within the field of economics between the Keynesian school of thought (with development economics) as opposed to the Austrian School[7] (with the University of Chicago) thinkers. My limited formal training in economics gave me the luxury of being aware of, but not philosophically or theoretically committed to any school of thought. What I have realized in this quest is that the competitive mantra that has governed the development and global diffusion of the Washington Consensus has been taken to an extreme.[8] This has caused the dissipation of, not only capital, and lots of it, as documented by such excellent analysts as Richard Posner[9], Niall Ferguson[10], Joseph Stiglitz[11], Yves Smith[12], Stephen Roach[13], Robert Reich[14] Naomi Klein[15] and Robert Pozen[16], but it has also immobilized the energy of many creative souls.  In a world where gender bias and sophisticated banking instruments created the conditions for the manifestation of a predatory real estate market that served as a front for other forms of non- transparent and fraudulent financial schemes, the gentleness and preciousness of life was stamped out.  Nowhere is that more evident than when traveling and seeing the immensity of the problem of global poverty and starvation.

So, back to the issue at hand:  Why does SedonaCyberLink focus on international business and trade with an emphasis on social enterprise and international development?

Because it is from places like Sedona (where there is still a lot of creativity and the natural environment is conducive to that creativity) that the most effective solutions will stem from. These will be solutions for addressing the issues brought out in the Millennium Development Goals (MDGs).[17] These will be solutions that the international development community is dealing with on a day to day basis. It is a crossroads of a special kind.

And so to my journalist friend I say: the “Save the World” business is doing fine.

[2] 2009 data

[3] The term “Web 2.0″ is commonly associated with web applications that facilitate interactive information sharing, interoperability, user-centered design, and collaboration on the World Wide Web. A Web 2.0 site gives its users the free choice to interact or collaborate with each other in a social media dialogue as creators of user-generated content in a virtual community, in contrast to websites where users (consumer) are limited to the passive viewing of content that was created for them.

[4] Internet Protocol version 6 (IPv6) is a version of the Internet Protocol that is designed to succeed IPv4, the first publically used implementation, which is still in dominant use currently. It is an Internet Layer protocol for packet-switched internetworks. The main driving force for the redesign of Internet Protocol is the foreseeable IPv4 address exhaustion. IPv6 is specified by the Internet Engineering Task Force (IETF) and described in Internet standard document RFC 2460, which was published in December 1998.

[5] A secure, eCommerce portal for developing world artisans seeking access to global markets

[6] http://sedonacyberlink.com/?p=1343

[7] SedonaCyberLink author Stephen Reiss has covered many aspects of Austrian School ideas at this news/blog.  I hope to have an equally articulate advocate of development economics contribute articles in the future.  Any volunteers?

[8] The term Washington Consensus was initially coined in 1989 by John Williamson to describe a set of ten specific economic policy prescriptions that he considered should constitute the “standard” reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department.

[9] A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression.

[10] The Ascent of Money: A Financial History of the World.

[11] Freefall: America, Free Markets, and the Sinking of the World Economy.

[12] ECONed:  How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.

[13] Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization.

[14] Supercapitalism.

[15] The Shock Doctrine.

[16] Too Big to Save? How to Fix the U.S. Financial System.

[17] http://www.un.org/millenniumgoals/

It is an old saying that most job creation comes from small businesses.  That assertion, never well documented, was largely dispelled in a study completed around twenty years ago which showed that “gazelles” were responsible for the majority of job creation – small businesses that turn into very large businesses, Wal Mart being the poster child for this phenomenon.  Parenthetically, gazelles are a regular feature of the US economy but virtually nonexistent nearly everywhere else in the world, which explains much of why employment growth is more robust here.

As compelling the case is for gazelles, it is dwarfed by the far more powerful factor of startups.  Recent studies show that virtually all net new job creation every year can be attributed to new business formations.  Consider the following charts which track job creation relative to this metric using data up to 2006:

This makes intuitive sense.  A brand new business creates a minimum of one job (the owner).  Since most new businesses fail quickly, each failure destroying at least one job, it is reasonable to expect that existing firms would not experience net job creation economy wide.

Now we proceed to what it takes to start a business besides crazy optimism – money.  Home equity exceeds all other factors combined as the source of startup capital.  This goes far beyond merely extracting the net home equity because that equity is leveraged many times over when our prospective business person applies for a business loan.

In order to advance funds for something as dangerously speculative as a new business venture, the lender needs to have solid evidence of financial strength.  Skin in the game in the form of substantial home equity at risk by the borrower is just what the lender needs.  Without it there can be no loan.

Now we will see the biggest reason why housing is crucial to the economy, along with a key reason why banks are not lending despite massive excess reserves.  Home equity has been wiped out!  The following graph illustrates the point with some additional commentary:

Since about a third of all homes have no mortgage, the equity in homes with mortgages (using the above generally accepted data) is only about twelve percent!!!  As a general rule, only old people and rich people own their homes free and clear.  They are not likely to be creators of new businesses.  On top of that, our intrepid new business aspirant is not likely to have owned his or her home for a long enough time to have built up significant equity in today’s crippled market.  By my own, better reckoning, the average home with a mortgage is underwater.

The net is that the most important source of business startup capital has disappeared.  This largely accounts for anemic bank lending for all small businesses, not just startups.  Even existing small businesses will crash into a wall of rejection after their real estate equity is gone.  This becomes even more acute when factoring in the even worse situation for commercial real estate where values are down more than forty percent, more than wiping out any equity there as well.

Implications for our economy are dire indeed.  We have eliminated the major factor that makes our economy the most dynamic in the world.  For this reason alone, it will be at least a decade before our economy will have any chance at showing its usual vigor.  When combined with other factors I have dealt with before (and will revisit again) we must conclude that our economy is years from hitting bottom at levels much lower than today.

“The concept of “sustainable development,” as coined by the World Commission on Environment and Development and with it, the term “sustainability” itself, have been gaining increasing recognition in recent years all around the world. Wide-spread use, however, has been followed by growing ambiguity so that today both terms are employed within a very broad spectrum of meaning often, to the point of trivialization.

The set of five Sustainability Principles proposed below is offered in order to advance and restore some rigor to the underlying ideas. Its development was informed by a number of existing frameworks and was inspired, in particular, by the work of R. Buckminster Fuller.

The principles are articulated in a general fashion but can receive a specific operational meaning in relation to particular sectors of the economy, development issues, business strategies, investment guidelines, or initiatives taken by individuals. They are expressed in relation to five fundamental domains:

• The Material Domain: Constitutes the basis for regulating the flow of materials and energy that underlie existence.

• The Economic Domain: Provides a guiding framework for creating and managing wealth.

• The Domain of Life: Provides the basis for appropriate behavior in the biosphere.

• The Social Domain: Provides the basis for social interactions.

• The Spiritual Domain: Identifies the necessary attitudinal orientation and provides the basis for a universal code of ethics.

The result is a set of five core principles, each with its own derived policy and operational implications. The set is fundamentally systemic in nature, meaning, that each domain affects all the others and is affected by each in return.

This systemic aspect is fundamental. It reflects the interdependent nature of reality itself. It has far reaching implications for policy and for any competent attempt at strategy for change. It implies that in seeking a transition to sustainability as a predominant planetary state, no piece-meal approach — emphasizing some aspects while neglecting others — is likely to yield effective, lasting results.

Definition of sustainability

Transforming society and the world’s economy to a sustainable basis presents the most significant challenge to the 21^st century. This challenge is unprecedented in scope. Its context is the planet as a whole. It requires a fundamental shift in consciousness as well as in action. It calls for a fresh vision, a new dream and new approaches for shaping an evolving new reality.

Earth is exquisitely configured to accommodate life abundantly. We have consistently compromised, however, every vital component of its intricate fabric. This trend must be reversed and a lasting balance restored.

The ultimate objective of establishing the concept of sustainability as an organizing principle is to foster a well-functioning alignment between individuals, society, the economy and the regenerative capacity of the planet’s life-supporting ecosystems. This alignment represents a particular type of balance in the interaction between a population and the carrying capacity of its environment. It is this specific balance which must be the focus of a meaningful definition of sustainability.

The currently prevailing definition of sustainability emphasizes cross generational equity, clearly an important concept but one which poses difficulties since it is not always easy to determine future generations’ needs. Anchoring an alternative definition to the relationship between a population and the carrying capacity of its environment offers superior operational

Leverage, since it contains a number of key variables, all potentially measurable. For example: population numbers, rate of consumption of resources, impacts on absorption capacity of sinks, a measure of well-being, and the like. Hence, in general, but more importantly in the specific context of human activity on the planet, the following is offered:

Sustainability:

A dynamic equilibrium in the processes of  interaction between a population and the carrying capacity of an environment such, that the population develops to express its full potential without producing irreversible adverse effects on the carrying capacity of the environment upon which it depends.

The principles which follow are grounded in this definition, and the five domains in relation to which they are expressed represent key dimensions of the underlying interaction.

The Five Core Principles

I. The Material Domain:

Underlying Premise:

All the physical processes which provide the basis for human existence are subject to the primary laws of thermodynamics — the First Law, which addresses the fundamental conservation of energy in universe and the Second Law, which stipulates the direction of energy events. These laws prescribe the ultimate limits of possibilities in physical systems and, therefore, underlie the productive potential in the use of resources.

The Second Law underscores the ultimate increase of entropy and disorderliness in all physical systems. At the same time, even inorganic, but in particular life processes and consciousness, are able to create, maintain and increase order, seemingly, at least temporarily. Such order is manifest in both individual and complex networks of specific embodiments: molecules, organisms or eco-systems.

Consciously disciplined intelligence, applied to the design of universally advantageous configurations of energy and matter — arranging and rearranging components of the physical domain — provides the essential tool for creating the wealth infrastructure required to ensure lasting abundance.

Contrary to the potential immanent in aware, superior design for creating order and delaying the proliferation of entropy, our current industrial infrastructure is wasteful, destructive, fragmented and grossly inefficient. With the appropriate intention, it could be reinvented, redesigned and reconfigured to deliver and enhance an enduring, regenerative advantage for all.

The First Principle:

Contain entropy and ensure that the flow of resources, through and within the economy, is as nearly non-declining as is permitted by physical laws.

Policy and Operational Implications:

• Strive for highest resource productivity

• Amplify performance with each cycle of use

• Employ “income” rather than “capital” sources and continuously recycle non-regenerative resources

• Affect an unbroken, closed-loop flow of matter and energy in a   planetary productive infrastructure conceived as a whole

• Control leakages and avoid stagnation, misplaced concentrations or random diffusion of chemical elements during cycles of use

• Establish a service, “performance leasing” orientation for managing durable goods

II. The Economic Domain:

Underlying Premise:

Economies consist of markets where transactions occur and guiding

frameworks by which transactions are evaluated and decisions about commitments are made. Often treated as though they reflect an independent, objective reality, such frameworks ultimately represent human constructs, rooted in values, biases and dominant interests and concerns. These latter factors determine adoption of the underlying economic perspective: short term, narrow, linear focus, or long term, comprehensive, eco-sensitive cycles of return.

The accounting framework used at present to guide our economy grossly distorts values. It systematically ignores important cost-components, for example, depletion and pollution. Economists are beginning to reflect on the inadequacies inherent in the narrow concept of growth that dominates measurement of national economies, and some even highlight the basic absurdity of counting consumption as if it were income, a common practice in the way we treat natural resources.

Inadequate measurements, with regulations and subsidies which often accompany them, drive markets and continue to fuel the destructive effects of the economy as a whole. The prevailing conventions of our accounting framework exacerbate such effects and limit the scope of individual initiatives seeking better practices. This self-reinforcing pattern is clearly one key dimension requiring radical change.

The Second Principle:

Adopt an appropriate accounting system, fully aligned with the planet’s ecological processes and reflecting true, comprehensive biospheric pricing to guide the economy.

Policy and Operational Implications:

• Employ a comprehensive concept of wealth related to the simultaneous enhancement of five key forms of capital: Natural, Human, Social, Manufactured and Financial
• Align the world’s economy with nature’s regeneration capacity and incorporate critical “externalities” in all cost and benefit accounts

• Embody a measure of well-being and human development in economic calculations

• Design regulation and taxation policies to accentuate desirable and eliminate adverse outcomes, optimizing the whole

• Rely on market mechanisms, calibrated to reflect “true” costs, for allocation of capital assets

III. The Domain of Life:

Underlying Premise:

The adaptive success of the human species and its quick propagation almost everywhere on planet earth comes at the continuous expense of many other forms of life. The destruction of individual animals, species, habitats and whole ecosystems, a trend now reaching ominous proportions, is a deep cause for concern.

Complex, self-organizing, living systems: brains, societies, ecosystems — rain forests, coral reef communities, and industrial economies alike — depend on their very complexity, their internal “variety,” for long term viability. Lasting stability in all such systems is in fact, science tells us, a direct function of complexity, of inherent redundancy which allows for emergence and re-emergence of different configurations in response to changing underlying events. Monocultures are brittle in principle, the antithesis, in this context, of vibrant life.

On this point contemporary science seems to be joining with many of the world’s ancient traditions which insist on the uniqueness and fundamental sacredness of all forms of life.

The Third Principle:

Ensure that the essential diversity of all forms of life in the Biosphere is maintained.

Policy and Operational Implications:

• Assume a responsible stewardship for our planet’s web of biological diversity
• Harvest species only to regeneration capacity

• Conserve the variety of existing gene pool

• Shape land use patterns to reduce human encroachment on other forms of  life and enhance biological diversity in areas of human habitat

IV. The Social Domain:

Underlying Premise:

Work of early 20^th century scientists, mathematicians, and philosophers of science brought to the fore the fundamental fallibility of human knowledge. This suggests that, in a true ecological fashion, myriad expressions and species of truth should be allowed to coexist without any particular one seeking to aggressively dominate others.

Societies, like ecologies, depend on diversity and internal redundancy for robustness, long term viability and health. This alone underscores the importance of encouraging variety and plurality in social forms. At the same time, modern genetics and the sequencing of the human genome indicate that the underlying genetic differences between the many ethnic groups on the planet are insignificantly small, rendering arguments for an inherent superiority, of any group, baseless.

All these thoughts reinforce the still fragile idea that open processes, responsive structures, plurality of expression, and the equality of all individuals ought to constitute the corner-stones of social life. As we enter

the twenty first century, however, society continues to operate predominantly by the worn-out assumptions, concepts and structures of yesterday.

The Fourth Principle:

Maximize degrees of freedom and potential self-realization of all humans without any individual or group, adversely affecting others.

Policy and Operational Implications:

• Foster Tolerance as a cornerstone of social interactions

• Enshrine Universal Rights within a framework of planetary citizenship

• Provide for Inclusion and effective Democracy in governance

• Ensure Equitable Access to life nurturing resources

• Establish Cooperation as a basis for managing global issues and planetary commons

• Outlaw War and Trade in weapon technologies

• Promote sustainability literacy through education at all levels

• Embody Sustainability Enhancing Concepts in an effective planetary framework of legislation

V. The Spiritual Domain:

Underlying Premise:

The human spirit has consistently sought to transcend material, biological, physiological, psychological, and technology limitations. This constant drive for touching a “beyond,” for taking progressively more into the field of vision and integrating an increasingly broader “reality” has a huge practical significance. With its intuitive reach for wholeness and completion, it fuels the development and evolution of individuals and societies alike.

The extent to which this deeply rooted drive is actually allowed to manifest in the daily affairs of society, affects the choices we make and the quality of our actions in the world. Ultimately, it underscores the difference between a greedy, ego-centric, predatory orientation and a nurturing, self-restrained, inclusive approach which honors the larger system of which we are a part and on which we depend for our very existence.

The essential quality of the spiritual domain, recognized, as it is, by all known wisdom traditions, is not easy to pin down. In the English language, the term spiritual carries opposing connotations: sacred, exalted, virtuous, divine, but also, insubstantial and occult. It is meant here to evoke a sense of a deep, underlying essence — a combination of inspiration, meaning, purpose, and a motivating, all encompassing value. The fundamental imprecision which is involved is manifest in the more elaborate way in which the fifth principle is expressed.

The Fifth Principle:

Recognize the seamless, dynamic continuum

Of mystery, wisdom, love, energy, and matter

That links the outer reaches of the cosmos

With our solar system, our planet and its biosphere

Including all humans, with our internal metabolic systems

And their externalized technology extensions –

Embody this recognition in a universal ethics

For guiding human actions

Policy and Operational Implications

• Acknowledge the transcendent mystery that underlies existence

• Seek to understand and fulfill humanity’s unique function in Universe
• Honor the Earth with its intricate ecology of which humans are an integral part

• Foster compassion and an inclusive, comprehensive perspective in the underlying intention, motivation and actual implementation of human endeavors

• Link inner transformation of individuals to transformations in the social collective, laying foundations for emergence of a new planetary consciousness

The Five Principles as an Integrated Whole

Deeper reflection on the concept of sustainability and the five core principles which together prescribe it reveals that the spiritual dimension, the spiritual principle, is fundamental to the quality and coherence of the whole. It is rarely incorporated, however, in the conventional calculus of practical affairs.

As a guiding principle, the spiritual dimension does not carry the connotation of conventional religion. Rather, it evokes the soul-focused integration of mind and heart in realization of the essential oneness at the center of being.

By anchoring the essence of human motivation and intention, the spiritual principle acts as the causal root which sets the tone for the whole. It drives the integration of the other four principles, those related to the material, economic, life, and social domains. If integrated in a balanced way, it can infuse a common purpose, provide a common foundation, and stimulate common resolve. Lacking the ethical commitment implied by the spiritual principle, considerations of questions related to the four other domains, no matter how elaborately expressed, are reduced to mere technicalities.

By their very nature language, logic and action force separation, discrimination and choice. A balanced and full integration of all five principles is essential, however, for conceptualizing and realizing sustainability as a state. The whole set has to be integrated into a single unity in which the five principles come together as one.

The five domains underlying the principles interact and co-define one another and, as in a holographic image, each embodies the whole general scheme in its own sphere. When the principles are thus integrated and seamlessly inform choices and actions, a state of sustainability, which otherwise appears as a difficult, distant goal, can be realized spontaneously and completely.”

Michael Ben-Eli is Founding Director of the Sustainability Laboratory (www.sustainabilitylabs.org).

This new initiative follows a distinguished career as an international consultant, pioneering applications of system thinking and cybernetics in organization and management.

There are two toxic notions that are bandied about that need to be killed before they do any more damage to well meaning, but woefully uninformed people from all walks of life.  The first is that prices have come down so much that housing is a true bargain.  The second is the grotesque idea that there is an ethical and moral dimension to paying your mortgage.  The latter significantly impacts the former.

When you borrow from a friend or relative, even when lawyers draw a detailed loan document, there is an ethical aspect to the obligation.  When you borrow from a bank all you have is a contract which contains all of your rights and obligations – nothing more and nothing less.  Billion dollar commercial borrowers have always understood this and acted accordingly by walking away from mega-mortgages without a second thought.  This phenomenon is about to go mainstream.

We naturally empathize with those who, through no fault of their own, find themselves in financial distress and default on their mortgage.  There is an equally strong, viscerally negative reaction to those who decide to default despite the ability to pay.  The term for this action is strategic default.  It is triggered because the value of the home drops significantly below the amount due on the mortgage.  In the world of high finance, walking away from a seriously underwater commercial property is so common as to rarely be considered newsworthy, and never of note in the mass media catering to the general public.  Strategic default on home mortgages has been a hot topic in the financial blogosphere for over a year but only very recently made the evening network news.  In the network news there is almost always commentary attached about the ethics involved.  That is about to end and open the floodgates to millions of homeowners who will default and remain in their homes until an actual foreclosure sale and notice to vacate.

My supreme confidence for this depressing prediction is that the rich already engage in strategic default in a big way, unnoticed outside the precincts of econonerds like me.  Consider the graphs below:

Note that the default rates on mega-mortgages are far higher than for those of normal folks.  The difference would almost certainly be starker if one considered a comparison with mortgages less than $250,000.

It is only a matter of time before even the most ineptly incompetent and economically illiterate drones of network news get wind of this and start lambasting the rich for their disgusting immorality.  The effect of this pervasive publicity of the propensities of the prosperous profligates will be to energize the average homeowner to take the time to truly understand the numbers involved in their particular circumstance.  When they do, there will come a time within the next couple of years when millions of these folks realize there is no hope and default.

A key part of that calculation, also just beginning to be noticed on the TV news is the time it takes from default to an actual notice to vacate the premises.  In ancient pre-bubble days you could expect to be on the curb three to four months after default, which is why so many people would mail in their keys voluntarily.  A year ago, however, the average duration of rent free status was about 250 days.  Even so, many people mailed in their keys rather than live rent free.

Today, if you were to default on your mortgage, the average time it takes to remove you from the premises is about 470 days.  That is the current average of rent free living for those already in the pipeline.  For anyone defaulting today, that number is probably closer to two years.  The court system is clogged, choking on cases.  On top of that, there are many non recourse states where the lender can only repossess the house and cannot pursue you for a deficiency judgment.

Therefore, don’t even dream about purchasing a home in most areas of the country anytime soon.  Talk of only 10% further declines in home prices before hitting a solid bottom is dangerous to your financial health and utter idiocy.  The average home with a mortgage is already underwater.  Prices, especially at the higher end can easily drop another 30%.

Many of you should consider dumping your home and rent, even if you have significant equity.  Not only do you risk serious price erosion, but your local tax rates are likely to soar and services sag as the so called “great recession” drags on.  Don’t get stuck, especially if you live in states on the edge of default themselves like California, Illinois, New Jersey, and New York.  Please do not be offended if I left your state off the list.  It will probably be on my list the next time we explore the sinkhole of state and local finances.

Potential policy responses are always considerations in the calculus of any financial decision.  My best guess is that, considering the unprecedented monetary and fiscal actions already taken, the next round will probably occur only after the wise guy Washington elites get bashed by the wrongheadedness of ridiculously misplaced optimism as evidenced by repeated soothing press releases on the “right direction” our economy is taking – thanks to their prescient prescriptions of what is now increasingly understood to be financial folly.  Therefore, look for another steep plunge in property prices before more acceleration of cyber cash creation kicks in, driving home prices modestly higher off the lows but sending gold and other commodities into orbit.

For those who harbor doubts about my pessimism, consider that in the back of your mind you are thinking that when homes are foreclosed the debts are liquidated – a normal assumption is a normal world.  This would be a good thing, clean slate and all.  However, our world left normal long ago.  The government guarantees virtually all residential real estate debt, and indirectly guarantees a majority of commercial real estate debt.  That means, even after millions of homeowners are crushed by collapsing prices, lost equity and foreclosed residences, the economy and the taxpayer (you) will still be saddled with the debt – all of it!!!!  Since I have chosen a life of genteel poverty, I thank all of the rest of you in advance for paying off the debt, unless the fed attempts to engineer a default by trying to inflate it away.

My purpose here today is not to discuss the merits of this loosening of capital controls by the Chinese; but rather, to discuss the implications of this for the Chinese and U.S. consumers.  This thought occurred to be after reading Stephen Roache’s call for the development of a Chinese consumer society (Roach, 2009, September 22).  As I was reflecting on that, I came to some surprising conclusions.

In classical microeconomics there is an assertion that intervention in the free market results in sub-optimal pricing which, ultimately negatively affects consumers.  The consumers in the U.S. have been the beneficiaries of years of public policies that have, indeed, distorted prices; however, the distortions have been generally in the direction of benefiting U.S. consumers.  I’m referring here to the massive agricultural and oil and gas subsidies that the U.S. government has had in place for decades as a result of both our trade and military strategies.

These benefits to consumers have not been without a more insidious form of ‘pricing’…What I’m referring to here is the impact consumerism, as a basic lifestyle, has had on U.S. society.  Everywhere we see the results: the break-down of family structures, the rampant drug and alcohol use, the lack of support for quality education for our youth, the rise in violence in schools, the pressures for young people to ‘look’ adult at younger and younger ages, the reliance on prescription drugs for numbing the emptiness of lives, and the growing prevalence of obesity, even among the youth.  Of course, there are many medical and sociological reasons for these trends. I’m sure you’ve read or considered many of them.  My point here is not to analyze these trends; but rather to consider what might happen to Chinese society if they too adopt the lifestyle of consumerism, as they are being urged to do.

It is argued by many macroeconomists that in order to address the wide Balance of (Trade) Payment gap between the U.S. current accounts and capital accounts the onus falls on the Chinese.  It is argued that, along with the reductions in currency controls, the Chinese must begin to consume some of their own products AND open their markets to products from other parts of the world.  This will, it is argued, bring down the U.S. trade deficit (as the U.S. begins to export more products to China) and reduce our indebtedness to Chinese investors, including Chinese sovereign wealth funds.

Is this really what we need to advocate?  Do we really want to see our Chinese compatriots encounter the same sociological degeneration that we have seen with the rise of consumerism in the U.S.?  Given the propensity by the Chinese to exercise throughout one’s life, and the great emphasis on family and society, it is doubtful that there would be a severe degeneration. Nonetheless, a society of obese Chinese is not my ideal of a mutually beneficial future.

A macroeconomic balancing is, indeed, needed.  But, I hope it is not at the expense of the waistlines of the Chinese everyman.

Bibliography

New York Times. (2010, June 21). Chinese Currency News Lifts Asian Stocks. New York Times, Global Edition .

Roach, S. (2009, September 22). Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization. Hoboken, NJ: John Wiley & Sons.

As a hard rule I avoid making relatively short term predictions about anything because that is a dicey undertaking at best, and I have never been much good at it.  However, late last year a friend asked me what I thought about the outlook for this year, hoping to glean information that could help him in the business he owns.  Like a soft hearted fool I gave in and wrote up my outlook for 2010.  Lucky for me I can declare victory and go home.  As expected the economy muddled through in the first half at a sadly sub-par rate of growth relative to all post great depression recoveries.

One reason short term economic prognosticating is so treacherous an undertaking is that too much depends on correct political predictions.  Even miscalculating the timing of the unraveling of the Eurozone has a relatively minor effect compared to my chronic propensity to underestimate the incompetence of politicians, even when the calculations are made from their point of view.  In this case it is the utter failure of the Democratic party to pass significant new “jobs” bills, or even effectively deploy the funds already allocated to arouse the economy.

This confirms that I have been incorrect in the assessment that only the righties were lowlife hypocrites and that the lefties really stood behind their rhetoric.   At the first sign of pressure from the tea baggers, the lefties folded like a poker player under the gun with an unsuited seven – deuce.

Of course the righties on the political spectrum are no less moronic in their discussion and debate.  For example, witness the witless argument over whether the stimulus worked.  Of course it worked.  When an athlete injures a knee and gets juiced with pain killers, cortisone, steroids and so on, he can finish the game.  The drugs obviously “worked”.  The same must be said about the federal stimulus package.

On top of all of the above, God saw fit to bring Murphy into play with the mother and father of all environmental disasters second only to Chernobyl.  The  impact of the destruction of the commercial fishing industry and the collapse of the region’s tourism are just the beginning.  The collapse of St. Joe stock is hard evidence of the extreme pressure on real estate values throughout the region, already convalescing in the ICU.

Worse, the continuing, arguably deliberate and grotesque incompetence of the cleanup and pollution prevention efforts by the feds is having a terribly grim effect on the psyche of our nation, the economic impact of which will be significant in the near and intermediate future.  What makes me so befuddled is that the political fallout of Katrina had to be front and center in any discussion of policy options.  Right now W. looks like superman compared to what is going on now.

By contrast, consider the psychological and economic effect of an almost immediate massive deployment of many hundreds of skimmers and separaters supplemented by tens of thousands of people on land and at sea to keep the oil from reaching dry land and wetland.  This should have been spearheaded by the military, easily the best in the world at dealing with the logistics of this type of task.  I leave it to you to speculate on why responses obvious even to simpletons have not been taken, even now – witness the Whale skimmer that is still not skimming, after sitting for two months in Virginia.

Parenthetically, keep in mind that this whole disaster, in all its manifestations, is hard evidence of the futility of anti-capitalist policy.  The water, the land under the water, and the beaches are all owned by the government.  The government makes all the rules and must approve even the smallest details.  Even private property interests with usual legal rights of way like the commercial fishing and tourism industries have zero to say about any of it, and no standing in court until they experience a devastating loss.  None of this would be true where all the property and property interests were privately owned.

We must immediately terminate all drilling and mining on all government owned land.  This will require compensation to those with contractual rights.  Drilling and mining must not be resumed until all the property in question is returned to private ownership.

There is no way I will make the same mistake again and offer a prediction on the economy for the remainder of 2010.  Will the democrats finally wake up and successfully administer another cortisone – steroid cocktail?  Will the mounting and reliable evidence of a negative third quarter GDP pan out?  I have no idea, nor do I care to waste my time trying to answer these questions.

Another silly speculation revolves around what I call “Recession Alphabet Soup”.  Is it a V, a U, an L or a W.  It looks like the V crowd is toast and the U boys are about busted.  L and W are still in play.  For my part the debate is for entertainment purposes only because they all assume that we have seen the bottom of the cycle.  My pick is that we are in the early stages of tracing a lower case stunted script z.  Write one to see what I mean.  In a few years this period will be referred to as the good old days.

A more relevant debate is whether we are in for serious inflation or deflation.  This too is actually a political, not an economic discussion.  Right now the overhang of debt is so massive that we are clearly in a consumer and commodity deflationary environment notwithstanding the unprecedented inflation of the monetary base by the Federal Reserve.

On my economist’s other hand, it is a mathematical certainty that the fed and the US Treasury can print up enough money at any time to force prices higher.  The fed did this to the tune of well over a $trillion in 2009.  Surely they can to two, five or ten $trillion whenever they want.  What do you think would happen to consumer and commodity prices if the fed purchased all outstanding treasury securities?

Therefore, whether we will face sharply rising consumer and commodity prices is not an argument about economics, but about what the anointed elites will ultimately do with our money.  This is pure politics.  Historical precedent comes down squarely on the side of massive money making madness.  Drug addicts rarely stop before getting strung out.  We are not addicted to oil, we are addicted to easy money.