21 Monday Feb 2011
Posted in Political Commentary
Al Jazeera announces it is allowing any networks to broadcast its material due to the deliberate scrambling of its signals by Libya. During jamming, Al Jazeera English can be watched on Hotbird 13E Frequency: 11034 Vertical FEC: 3/4 Symbol rate: 27500; on Badr4/Eurobird 2 (26East) Frequency : 11680.8 Horizontal; SR: 27.5: FEC: 3/4; and on Nilesat/ Atlantic Bird4A (7West) Frequency: 11393 Vertical; SR:27.5; FEC :3/4
20 Sunday Feb 2011
Posted in Political Commentary
George Bernard Shaw said that “there are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.” Is this really democracy that is breaking out across North Africa and the Middle East, or some harbinger of something that we cannot yet imagine? To answer this, I found myself running to Henry Kissinger’s excellent book, Diplomacy, in which he describes the art and craft of this inexact science.
But first…Reports are coming in from Libya that elements of the army have defected to the opposition and have taken Libya’s second largest city Benghazi. This would be an astounding turn of events. Does Libya head in the direction of Algeria, which has never been quite right since the French invaded in 1830? If so, this could mean civil war for many years to come. Whatever happens, the US needs to tread carefully, particularly since we have a stellar reputation for backing the wrong horse.
In what was perhaps Franklin Roosevelt’s greatest misreading of characters, and the moment when the Cold War could have been prevented, he dissociated himself from Churchill in order “…to gain Stalin’s confidence…” From Kissinger: “The reinvention of Stalin, organizer of purges and recent collaborator of Hitler, into ‘Uncle Joe,’ the paragon of moderation, was surely the ultimate triumph of hope over experience.”
Let us not make the mistake made by Europe in the run up to World War I. According to Kissinger, Europe “…had forgotten Pascal’s warning in Pensées – if they had ever known it – ‘We run heedlessly into the abyss after putting something in front of us to stop us seeing it.’” And we must remember “…John Quincy Adam’s warning against ‘going abroad in search of monsters to destroy.’”
17 Thursday Feb 2011
Posted in Political Commentary
It is 1968 across North Africa and the Middle East. That brief period in Czechoslovakia when Alexander Dubček tried to institute reforms within the communist party calling it “socialism with a human face” (a precursor to republican “compassionate conservatism”?) Months later, his attempts were crushed by the invasion of some 2,000 tanks from the Soviet Union. But then, turmoil was commonplace around the world in 1968. Protests occurred worldwide in countries such as Spain, France, Italy, England, Poland and the United States. The United States had the 1968 Democratic National Convention in Chicago (two years later, the National Guard shot and killed four anti-war protesters at Kent State).
Now in 2011, we have Tunisia, Egypt, Libya, Iran, Yemen, Iraq and Bahrain (home to the headquarters of the US fifth fleet)…More later once I have had a chance to ponder recent events.
17 Thursday Feb 2011
Posted in Economics and Taxation, Political Commentary
Rather astonishingly, the FY 2012 budget includes a proposal that would require W-2s to be reported on a quarterly basis, rather than annually. To go along with this, the Obama administration has requested $13.3 billion to fund the IRS in FY 2012. This is a $1.1 billion increase from FY 2010. Over the last few years, our government has passed laws which some see as an attempt to turn tax professionals from their traditional role of taxpayer advocate into IRS informant (for instance, disclosure requirements concerning uncertain tax positions). But don’t worry, CPAs still work for their clients rather than the government. Still, the IRS budget includes $17 million to increase oversight of tax return preparers. They are trying to keep the heat on the profession.
Since wage information is already collected quarterly (in the form of payroll tax returns), the only logical reason to require quarterly W-2s would be to…well, I can’t think of one. Perhaps the US is thinking that it would be best if your employer paid the IRS first, then deducted what it thought you should pay in tax, and finally remitted what ever paltry sum was left to you. After, of course, taking from your pay whatever you may owe on your credit card or mortgage. Because, afterall, we must keep the bankers happy with their bonuses while the rest of us continue to pay.
16 Wednesday Feb 2011
Posted in Political Commentary
This just in from one of our subscriptions:
Dear Subscriber,
The US Department of Homeland Security has recently increased security measures for postal items carried on passenger airlines. As a result, mail entering the US from around the world, including the UK, which would normally be sent via passenger aircraft must now travel by other means. Typically this would result in the use of dedicated Cargo Flights or Sea Freight – the former having a capacity issue & the latter being considered too slow. This measure only applies to postal matter that exceeds 1.1lbs (500gms) unit weight – the typical weight of a Monocle issue is @ 1.4 lbs (640gms).
…
Did you also know that just days before the Egyptian government shut down the internet, a bill was introduced into the US Senate that would have allowed our government to shut down the internet, admittedly only in response to a cyber attack? This was reported by The Economist, which thankfully weighs less than 1.1lbs.
The problem with any power granted to any government is that one day it will be abused. Remember Richard Nixon’s statement to David Frost “When the President does it, that means it is not illegal.”
Can Egyptian style protests happen in the US? They did during the 1960s and likely will again.
24 Friday Dec 2010
Posted in Political Commentary
As hard as it may be to believe in these austere times, my ship may have arrived. It appears I have won a legal settlement. As you see from the attached, I am entitled to $4, $8 or possibly even $10 in cash. You can imagine my excitement.
But as you may note on the attached, the lawyers get $5,368,000. Do you spot the problem with class action suits?
Happy Holidays!
08 Wednesday Dec 2010
Posted in Political Commentary
In one of a series of passages in Hamlet where Shakespeare demonstrates his keen insight into acting and directing, the character of Hamlet instructs the players as follows:
Suit the action to the word, the word to the action, with this special observance, that you o’erstep not the modesty of nature. For anything so o’erdone is from the purpose of playing, whose end, both at the first and now, was and is to hold as ’twere, the mirror up to nature; to show virtue her feature, scorn her own image, and the very age and body of the time his form and pressure.
William Shakespeare, Hamlet, III, ii, 17 – 22
In a remarkable phenomenon that is playing itself out across the internet, Wikileaks has held its own “mirror up to nature.” Despite US government attempts to shut down the site (much like China did with Google), Wikileaks has established mirror sites across the globe. The number of mirrors is growing by the hundreds each day and as of this writing stands at 1,241. The mirrors can be accessed here.
A “mirror” is basically an exact copy of an internet site which is placed on another site. Not only does it provide for a backup copy of data, it also makes it difficult for governments to stifle or censor speech.
The decision of Paypal, Visa and MasterCard (but not, ironically, American Express) to stop any payment of funds to Wikileaks can be taken as evidence of US government interference, since even during wartime, commerce is often granted unfettered access to enemies and allies alike.
More to follow…
04 Saturday Dec 2010
Posted in Political Commentary
I’ve read some of the Wikileaks cables, and they are interesting in the sense that they portray the every day business of diplomacy. Perhaps the greatest revelation is that the “business” is rather ordinary, and not too dissimilar from what the rest of us experience. We all try to make sense of the world, and in doing so, our observations are sometimes colorfully insightful and sometimes groundless twaddle. World leaders should not be chaffed because someone happens to call them names. Besides, is there anyone who doesn’t already know that Italy’s Silvio Berlusconi is “feckless, vain, and ineffective as a modern European leader”? What is missing from the Wikileakers is a sense of context. Wikileaks provides mere data without analysis.
The Daily Beast has provided the most astute analysis of the cables: “…you clearly see what the Wikileakers never expected: a United States seriously and professionally trying to solve the most dangerous problems in a frighteningly complicated world, yet lacking the power to dictate solutions.”
Given the predictable response from the politicians (after all, you just have to read the cables to see how they think), it is worth quoting at length from the US Supreme Court case concerning the publication of the Pentagon Papers.
New York Times Co. v, United States, 403 U.S. 713 (1971)
In seeking injunctions against these newspapers and in its presentation to the Court, the Executive Branch seems to have forgotten the essential purpose and history of the First Amendment. When the Constitution was adopted, many people strongly opposed it because the document contained no Bill of Rights to safeguard certain basic freedoms. They especially feared that the new powers granted to a central government might be interpreted to permit the government to curtail freedom of religion, press, assembly, and speech. In response to an overwhelming public clamor, James Madison offered a series of amendments to satisfy citizens that these great liberties would remain safe and beyond the power of government to abridge. Madison proposed what later became the First Amendment in three parts, two of which are set out below, and one of which proclaimed: “The people shall not be deprived or abridged of their right to speak, to write, or to publish their sentiments; and the freedom of the press, as one of the great bulwarks of liberty, shall be inviolable.” The amendments were offered to curtail and restrict the general powers granted to the Executive, Legislative, and Judicial Branches two years before in the original Constitution. The Bill of Rights changed the original Constitution into a new charter under which no branch of government could abridge the people’s freedoms of press, speech, religion, and assembly…
The Government’s power to censor the press was abolished so that the press would remain forever free to censure the Government. The press was protected so that it could bare the secrets of government and inform the people. Only a free and unrestrained press can effectively expose deception in government. And paramount among the responsibilities of a free press is the duty to prevent any part of the government from deceiving the people and sending them off to distant lands to die of foreign fevers and foreign shot and shell…We are asked to hold that despite the First Amendment’s emphatic command, the Executive Branch, the Congress, and the Judiciary can make laws enjoining publication of current news and abridging freedom of the press in the name of “national security.” The Government does not even attempt to rely on any act of Congress. Instead it makes the bold and dangerously far-reaching contention that the courts should take it upon themselves to “make” a law abridging freedom of the press in the name of equity, presidential power and national security, even when the representatives of the people in Congress have adhered to the command of the First Amendment and refused to make such a law…
The word “security” is a broad, vague generality whose contours should not be invoked to abrogate the fundamental law embodied in the First Amendment. The guarding of military and diplomatic secrets at the expense of informed representative government provides no real security for our Republic. The Framers of the First Amendment, fully aware of both the need to defend a new nation and the abuses of the English and Colonial governments, sought to give this new society strength and security by providing that freedom of speech, press, religion, and assembly should not be abridged…
The greater the importance of safeguarding the community from incitements to the overthrow of our institutions by force and violence, the more imperative is the need to preserve inviolate the constitutional rights of free speech, free press and free assembly in order to maintain the opportunity for free political discussion, to the end that government may be responsive to the will of the people and that changes, if desired, may be obtained by peaceful means. Therein lies the security of the Republic, the very foundation of constitutional government.
11 Thursday Nov 2010
Posted in Economics and Taxation, Political Commentary
The election is over, and now the bill has come due. The Federal Reserve has announced that it will be printing an extra $600 billion of new money under the guise of something called “Quantitative Easing 2,” a sequel which is indeed more frightening than the original. Federal Reserve Chairman Ben Bernake seems keen on inflating his way out of the growing pile of government debt, which is technically one method of defaulting. So now the dollar is sliding on foreign currency markets, and the World Bank is arguing that economies should adopt a modified gold standard for their currencies – which would be a “Bretton Woods 2.”
The founder and managing director of Pimco calls Quantitative Easing a “ponzi scheme.” I like to think of it as “a thieving menace” which comes from an article in The Economist about immigration issues in Europe, but applies here as well. Quantitative Easing is a process that starts with the Federal Reserve crediting its own bank account with money that is conjured out of nothing. Or, as Shakespeare would say, the Fed “…gives to airy nothing a local habitation, and a name.” Over the next eight months, the supply of money will increase by $600 billion.
But first, some background…
When the “Great Recession” began in December 2007, the government turned to Keynesian economic theory and went on a spending spree. The recession officially ended in June 2009, but I realize that is hard to believe. Like the latest fashion, politicians and economists were quick to quote Milton Friedman and Richard Nixon declaring “…we are all Keynesian now.” Friedman first used the phrase in 1965. In 1971, when Richard Nixon scrapped the original Bretton Woods, which was an agreement that regulated the international monetary system, and took the U.S. dollar off the gold standard, he said “I am now a Keynesian in economics.”
John Maynard Keynes was a British economist whose most significant work, The General Theory of Employment, Interest and Money, was published in 1936. Keynes felt that fiscal and monetary policies could be used by governments to mitigate the effects of economic recessions and depressions.
Using monetary policy, governments stimulate the economy through some combination of a reduction in interest rates or the printing of money. This can be thought of as controlling the supply of money. Fiscal policy involves spending and taxation. With fiscal policy, governments typically invest in infrastructure or modify tax law by increasing or decreasing the flow of money into government coffers. Therefore, each policy has a set of tools designed for a specific purpose, much like a formal table setting may have a dinner fork, a fish fork and a salad fork.
At the monetary policy table setting, Quantitative Easing is usually the last to be used. As such, it is the desert of monetary policy, although not very tasty. Which is a shame, because the main course of monetary policy (interest rates) was overcooked by the Fed. You’ll recall that the Federal Reserve kept lowering interest rates while the housing bubble inflated thanks to an almost paranoid aversion to inflation under Alan Greenspan (who served from 1987 to 2006). Thus, when the Great Recession began, interest rates were already at historical lows with nowhere to go. This firmly put us into something economists call a “liquidity trap” – a situation where monetary policy is mostly ineffective.
So how is the fiscal policy table setting looking? Our government has been tinkering with the menu for a number of years, causing the silverware to look a bit tarnished. Students of economics will realize that we have worked our way through the fiscal policy palate, upon which you can increase spending by issuing more debt or twiddle with income taxes. There has been a considerable amount of twiddling.
Recently, tax legislation has been masquerading as health care reform. The Internal Revenue Service is responsible for overseeing a significant portion of the Health Care Act, such as the administration of additional taxes and penalties on individuals and employers, determinations of various exemptions from those taxes and oversight of new information reporting requirements. It is estimated that the Act will generate $437 billion in new taxes, fees and penalties. This is an inflow of money into government coffers, and hence is off the fiscal policy menu, and is more a tax increase than health care reform.
What other surprises will appear on the fiscal policy menu in the coming months? The current row in Congress is over what to do with the expiring Bush tax cuts. If nothing is done, income taxes will rise in 2011 and provide even more money for government spending. This extra tax revenue will be needed because Quantitative Easing will increase the cost of servicing debt. As the United States dilutes the value of its currency, investors will demand higher interest rates on government debt to reflect a higher default risk and to compensate for the devalued dollar. This will increase the interest expense component of the federal budget, leaving less of the pie available for normal programs.
All the recent “stimulus” programs have been fiscal in nature, since they involve spending. Under George Bush, there was the Troubled Asset Relief Program (TARP). With Barack Obama, it has been the American Recovery and Reinvestment Act (ARRA). Consequently, the U.S. deficit has become alarming. As of July 2010, the “Debt held by the Public” was approximately 60% of Gross Domestic Product (GDP). When you add intra-governmental borrowing, such as from social security, the “Total Public Debt Outstanding” was approximately 93% of annual GDP (it was approximately 56% of GDP in 1990). This would be rather like running your personal credit card up to a balance equal to one year’s wages.
It appears to me, however, that we are not properly spending stimulus money. State governments are using stimulus dollars to fund budget shortfalls in providing the usual services. Driving around California, you notice signs advertising the use of stimulus money on various road projects. But the roads are merely being repaired. ARRA spending does not appear to be creating anything new, and this is a problem. As soon as the spending is withdrawn, the economy will suffer again because new self sustaining industries and technologies have not been created. Repairing infrastructure does create jobs. But only short term jobs.
Deficit spending during the Great Depression literally electrified the county through massive dam building programs. There was the Hoover Dam on the Colorado River, and in 1933, Congress passed legislation creating the Tennessee Valley Authority which provided electricity to homes and farms in what was a malarial, third-world, back corner of the United States. Also started during this period were the Bonneville and Grand Coulee Dams in Washington and Oregon, and the Shasta Dam in California.
The deficit spending during the Great Depression greatly improved the standard of living and created jobs that would last once the stimulus was withdrawn. This caused the U.S. to become a major economic power, and our increased industrial output (thanks to electricity and a little bit of oil) helped to win the Second World War. Such is the power of deficit spending when it is properly understood and rightly applied.
So what would I do to invigorate the economy? I’d go to Mars…
The last time the U.S. was the envy of the world, when we captured the imagination of its inhabitants and believed that anything was possible, it was when Neil Armstrong walked on the Moon. Although Kennedy was primarily taken to the decision because of Cold War considerations, it was all thrilling nonetheless.
For many reasons, we need to inspire the world again. The Apollo program created or improved many technologies that we cannot imagine living without today. The short list includes: flame resistant textiles, water purification technology, new lubricants, athletic footwear, heart monitors, solar panels, kidney dialysis machines, cordless power tools, and freeze dried food. OK, perhaps not this last one.
My point is that stimulus spending should be directed towards creating new industries and technologies that benefit lives and strengthens the economy. This is how deficit spending was directed in the Great Depression. A mission to Mars will force the country to overcome obstacles which are at present insurmountable. The solutions to the unique problems facing spaceflight to Mars are unlike those encountered when we journeyed to the Moon. As such, surmounting them will require innovative thinking that will result in radical new energy, medical, environmental, agricultural and computer technologies.
Let’s be bold and go to Mars. Otherwise, we’ll just be stuck with repairing all these roads again in another twenty years.
A Keynesian-Tocqueville Theory of Fiscal Policy
So what does this have to do with economics? What I would like to propose is a Keynesian-Tocqueville theory of fiscal policy titled “deficit spending properly understood.”Under this theory, government spending is directed away from maintenance and repair and towards a goal that requires the development of new technologies by undertaking projects that are bold, fresh and impossible to achieve with current technologies.
For instance, aside from going to Mars, President Obama could make it the avowed policy of the United States to be off oil as an energy source by the end of the next decade.
From John F. Kennedy:
“We set sail on this new sea because there is new knowledge to be gained, and new rights to be won, and they must be won and used for the progress of all people. For space science, like nuclear science and all technology, has no conscience of its own. Whether it will become a force for good or ill depends on man, and only if the United States occupies a position of pre-eminence can we help decide whether this new ocean will be a sea of peace or a new terrifying theater of war…We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win…”
25 Tuesday May 2010
Posted in Political Commentary
A warning. This blog contains adult content….that is, I am about to talk about government regulators.
The ongoing expansion of government regulation will likely represent an indirect stimulus of the multi-billion dollar pornography industry. Here’s why…
Today’s Wall Street Journal (“Regulators Accepted Gifts From Oil Industry,” May 25, 2010) reports that regulators may have been confused by the meaning of the phrase “monitoring offshore drilling.” The Interior Department’s Inspector General has released a report that states “[e]mployees of a federal agency that regulates offshore drilling—including some whose duties included inspecting offshore oil rigs—accepted sporting-event tickets, meals, and other gifts from oil and natural-gas companies and used government computers to view pornography…”
You’ll remember from my previous blog (“Lugubrious Drollery”) that SEC attorneys were spending hours surfing pornography on the internet while they should have been protecting us from those Economic Terrorists on Wall Street. Now we find that the Interior Department has been equally lacking in rigor with respect to the oil industry (although not in the medical definition of “rigor” which means “rigidity of a muscle”).
Who’s Next?
Richard Watson 