Zis is ze German Coastguard

Apodeictic mailed me this a few years ago.


GDP figures due

It's now 11.47GMT, US GDP figures are out at 12.30GMT. What are my thoughts?

Well, the soon-to-be-revealed release is not a "major" release, but an update. The last "major" release was on July 31, which I blogged about extensively here.

Let me just summarise quickly what happened 1 month ago (apart from the fact that I got the prediction wrong):

Q4 2007 -0.2%
Q1 2008 +0.9%
Q2 2008 +1.9%

Analysts predicted +2.3% Q2 2008, so the result was lower than expected.

These analysts predict the following revisions to the report that will be out within the hour:

Q1 2008 +0.9%
Q2 2008 +2.7% (revised upwards from +1.9% originally)

Well, since I'm new to the game, here are my predictions:

Q4 2007: -0.2% to -0.4% (no change or small revision downwards)
Q1 2008: +0.4% to -0.2% (substantial revision downwards)
Q2 2008: +1.5% to +1.0% (substantial revision downwards)

I use as the basis for this analysis the sudden reduction in M3 during Q2 2008 that I posted about here.

Of course, if Q1 growth was negative then the US will be, according to some theories, in a technical recession, so long as Q4 2007 figures remain negative too.

Now, the last time I predicted GDP rates I got it very wrong, so lets see how much egg I get on my face this time around.

The page to check at 12.30GMT is here. I will publish a direct link to the official release when I update.

Update 12.34GMT
Q4 2007 -0.2% (no change)
Q1 2008 +0.9% (no change)
Q2 2008 +3.3% (big revision upwards)

Direct link to official release (pdf, 628.2 kb)

I would hazard a guess that Q2 2008 GDP has been driven somewhat by the economic stimulus caused by Bernanke's interest rates cuts from Q3 2007 to Q1 2008. The analysts' argument was that exports seem to be driving some growth as well (due to the lower US dollar).

Update 12.39GMT

U.S. stock futures climbed after better-than-estimated economic growth bolstered expectations the economy will recover from the collapse of the subprime mortgage market.

American International Group Inc., Wal-Mart Stores Inc. and Citigroup Inc. led gains in Dow Jones Industrial Average stocks trading in Europe after the Commerce Department said gross domestic product expanded at a 3.3 percent annual rate in the second quarter, up from a 1.9 percent estimate made last month.

Update 13.11GMT

Q2 2008 percent change from the previous quarter:

Personal consumption +1.7%
Exports +13.2%
Imports -7.6%
Federal Government spending +6.8%
State and Local Government spending +2.2%
Defense +7.4%
Gross private domestic investment -12.0%
Disposable personal income (current dollar measure) +16.1%

It's that last one, disposable personal income, that has me worried. The 16.1% increase is the highest it has been since at least 2005 (according to the official release). In Q1 2008 it was +2.9% and the figures for the previous years are 2007: +5.5%, 2006: +6.4%, 2005: +4.4%. An increase of such magnitude is disturbing.

Although I'm not absolutely certain what the technical definition of "Disposable personal income" is and why it has two measures in the official release (the one I quote is labelled under "current dollar measure"), I would guess that it has something to with cash in people's pockets ready to spend on things, rather than money spent on regular expenses. This means that in Q2 2008 people had a sudden influx of money at the same time as an increase in exports, a double whammy of good news for the economy.

But the reason why it has me worried is that such an increase in disposable income is probably due to the stimulus checks mailed out during Q2 to boost the economy that were approved by Congress and Bush. Such a massive increase cannot be repeated in Q3 2008 unless congress decides to throw more money around before the end of September. In the short term this means that the boost will be limited to Q2, which means that Q3 will have less pleasant GDP figures. In the long term it means, simply, that the government will eventually have to pay it back.

Both fiscal and monetary policy has long and short term effects. A fiscal stimulus like the one experienced in Q2 2008 acts to boost GDP in that quarter, but will also have a contractionary effect later on, say in Q1 2009 onwards.

As for its effects on unemployment, I would probably say that August and September figures are likely to hover between 5.6 - 5.8%. Inflation will continue on its merry way in that period also (5%+ for both months).

How to search for things on my blogsite

Just a quick explanation for anyone who is looking to find certain things on my blog.

In the upper left hand corner of your screen you should find a button marked "search blog". Next to that, to its left, is a space for you to type in a keyword.

For example, if you want to find any article pertaining to my wife, just type "wife" and then click the button "search blog". All articles with the word "wife" will appear - some of which will be articles about my own wife, others will be articles where the word appears but has nothing to do with my own wife.

Another way to search for articles here is to use Google Advanced Search. A simple way to do it would be to go to Google and type the following:

wife site:http://one-salient-oversight.blogspot.com/

And then press "search".

This will give you a list of links from my own website where I use the word "wife".

If you want to search for something else, replace "wife" with the word you are looking for when you are typing into google. For example, if you want to search for "cat", type the following:

cat site:http://one-salient-oversight.blogspot.com/

But the great thing about using Google is that Google has what is called Google Cache. If you are searching for something that I have decided to remove from my blog for whatever reason, it is still present in the Google Cache. If I have recently deleted an article, you can still find it by clicking the link marked "cached" on the results when you do the Google search I have outlined above.

There are some really nasty people out there who write horrible things on their blogs and, when they are found out, remove the offending page. You can catch these horrible people out by using the Google Cache. They may have removed content from their blog or website, but the Google Cache can always be used to catch them out.

So, if you're looking for something that I may have deleted, it will still turn up on Google Search, thus proving my dastardly deed of covering up something. But you have to be quick, however, because I think the Google Cache eventually updates itself and removes the "dead" page after about a week.

But, then again, I haven't deleted any articles for ages. The last time I deleted an article was a month or two ago when I accidentally posted something twice. This means, of course, that if you use Google to search my blog, everything you see in your google search will be there.

Besides, I don't write dastardly things. Feel free to read through my website to see for yourself and remember that any absence of evidence pretty much means evidence of absence.

Peak Oil and Blood Pressure

When you have your blood pressure taken, you might recall that the doctor/nurse taking it reports as, for example, "120 over 80", or "110 over 70", or, if you're dead "0 over 0".

The two numbers that are given represent your blood pressure at two different moments in time. The first measurement, which is always higher, is called Systolic. The number given represents your blood pressure at the beginning of the "cardiac cycle". In other words, it measures blood pressure at the point when your heart beats. The second measurement is called Diastolic, and measures what your blood pressure is when your heart is not beating - that is, when it is in between beats.

So, you have two measurements - one when your heart is working at maximum output, and one when your heart is at rest in between one beat and the next.

Now as far as I understand, while both levels are important in measuring whether a person's blood pressure is healthy or not, the presence of high diastolic (ie at rest) blood pressure is a rather serious problem. The idea that a person's blood pressure may be too high while the heart is at rest is an indication of serious problems with their health.

So, what's this got to do with Peak Oil? Well, allow me to make the following important assertion:
The economic stress caused by Peak Oil will not be quantified by how high oil prices rise, but by how low oil prices don't drop.
Okay, so the allegory goes like this: Oil prices are like blood pressure in that the record price of oil ($147.27 on 11 July 2008) represents a systolic price - the maximum price of oil that the market is willing to pay under current economic conditions. But, with the clear presence of demand destruction caused by current economic strains (including the effects of high oil prices and the subprime meltdown to name just two), the price of oil is now dropping.

But, just as a diastolic reading can be too high, so can the price of oil when it falls. If Peak Oil is true and there is a geological limit to how much oil can be extracted, then it stands to reason that this will not just create record high oil prices, but also oil prices that are too high when demand has fallen.

(Of course, as Neil from the Young Ones points out, "some metaphors don't bear close resemblance". One problem with the allegory I am using here is that low blood pressure is a serious health risk too, whereas extra low oil prices are an economic benefit, all things being equal.)

This problem was brought home to me today by a post from The Energy Report titled "Rider of the Storm":
It seems like Mother Nature is the only thing supporting this market as demand destruction might have more long term impact on the market than anything Gustav can throw at us. Even after Katrina oil demand dropped and so too did prices....

Take for example the news from the Energy Information Agency that revised downward its June oil demand by a stunning number. The EIA said that US oil demand in June was 793,000 barrels a day less than previously reported. That is down a whopping 1.17 million barrels a day from the same period a year ago and the lowest level for any June since 1998. That comes out to be 5.6% less than a year ago....

What is becoming clear to the market is the demand pullback in the US is rising to the level of historic proportions. Even the EIA is now saying that the drop in demand should send oil below $100 a barrel. The Chief of the EIA, Guy Caruso, said that prices could fall below $100 a barrel on slowing global demand and rising production in the US, Brazil and Canada, and from OPEC states such as Saudi Arabia and Angola. While Caruso said "most of the risk is on the upside," and that it was not the official EIA prediction but added that a scenario of falling oil prices is "now closer to 50-50" if worldwide spare production capacity continues to increase from the current 1.5 million barrels per day (b/d) to 3-4 million b/d while global oil demand softens. Caruso then says that that scenario is now more realistic than any time in the past five years.

(h/t Naked Capitalism)
That's a pretty serious revising of figures. What it indicates is that high oil prices in the last 12 months have caused major shifts in market behaviour in the US economy. Not only are people buying less vehicles, but people are driving less. We are now seeing the natural result of high oil prices - a drop in demand. This is a classic economic phenomenon - when demand begins to outstrip supply, prices rise and demand drops. This is the sort of phenomenon even economists in the 19th century were well aware of.

Back in the early days of Peak Oil awareness (say, 2004 or so), it was very common to read articles by peakniks declaring that oil prices could actually rise to over $100 per barrel. At the time they were laughed off as cranks and idiots (me being one of those who laughed derisively at the prediction). Well, of course, the peakniks were right and no one's laughing now.

Even so, back in those days were some rather extreme peakniks who did start flirting with the idea of $1000 per barrel. These extreme peakniks (of which I vaguely remember and thus have no direct link to back up my assertions) were probably quite unaware of economic factors like demand destruction. Fortunately, as Peak Oil began to grow in public awareness, its ideas matured as judicious experts began to critically examine both the realities of geology (Hubbert's Peak) along with basic economic theory. "Demand Destruction" therefore became a mainstream idea amongst Peakniks in the last 2 years, and this has, again, been borne out by the data just released by the EIA.

Back in July I stated that I expected that oil would drop below $100. I am now even more firm in that idea and if oil breaks below the $100 barrier this year I will not be surprised at all. Demand destruction (America and other countries using less oil) will result in a drop in the oil price.

But, of course, that is expected. Even without accepting Peak Oil, a lowering in the price of oil was always going to occur. Peak Oil ignorant commenators and "experts" will probably use this latest report to prove their assertions that the high price of oil is merely the result of "speculation" and can be lumped together with the entire commodities market. In their minds, oil and commodities will, at some point in the next few years, return to "normal" levels.

So, same data, different conclusions. But it will be the next two years that will vindicate Peakniks - not by some magical rise in the price of oil back to $149 per barrel again, but by the stubborn refusal of the market to lower the real price of oil back to pre-2004 levels.

So what will the price of oil be? That depends, of course, in just how far the world economy contracts. A real price of $40 per barrel may actually be reached again - but this price will still be too high for the market to consider reasonable. And when the world economy begins its recovery (as is inevitable), then any increased economic activity will be severely limited by relatively high oil prices occurring again. And these prices don't have to be up around record levels to stunt any recovery - they may still be below $100 to make life difficult for the market.

It may well be that $147.27 per barrel remains the permanent oil price record. While this may be a long way away from $1000 per barrel predictions which floated around Peakniks back in 2004, and even a long way from the $200 per barrel mooted by some experts recently, it will not somehow prove that Peak Oil was wrong. The market will always price goods and services by taking many factors into account. The world economy in 2007 may have been able to continue when oil prices reached $75 per barrel, but may not be able to handle a $75 price in 2010, even when taking inflation into account.

So, to summarise my prediction - I predict that oil will drop below $100 in the next 12 months, but remain too expensive for the market to be happy with over the next 3 years.

And that, of course, will keep the diastolic blood pressure of the economy at dangerous levels.


Not a Photoshop

Jesus' presidential bid panned

Jesus Christ, the central figure of the Christian religion, has been panned by critics on both sides of the political divide after he entered the US presidential race.

"This guy, this guy thinks he's the Son of God for crying out loud!" said talkback host Rush Limbaugh, "He thinks he's the Messiah! How can we allow an effete elitist like Jesus run our country?"

Armed with Jesus' biography and the writings of his followers, political commentators have had a field day.

A panel on Fox News debated Jesus' biography, called "The Gospels", and showed up just how out of touch the candidate is.

"For starters, why was it necessary to have four different biographies?" asked right wing author Jerome Corsi, "Four different accounts of Jesus' life. And you know what - there is still so much missing. What happened to Jesus in between his time visiting the temple with his parents and when he called his first so called 'disciples'? What was he doing? Which school or college did he attend? Given his secrecy and his attitude towards sharing wealth, I would say that wherever it was was as socialist as they come."

Corsi also indicated that he had an unnamed insider who has spoken to him recently about life inside Jesus' inner circle.

"This man, one of Jesus' closest advisors, came to me personally and spoke about how much he hated the man, how much he despised his teachings. This man spoke about his misgivings on how money was spent in the organisation and gave examples of people wasting resources that could have been used more profitably. This brave man kept his thoughts to himself and kept his mind free from the cult-like atmosphere that pervaded Jesus' inner circle. He should be an example for us all!"

Free market promoters are also concerned with Jesus' economic ideas.

"Jesus and Jesus' followers commanded their people to redistribute money. I mean where is the incentive in that?" queried Grover Norquist, "And you know what happens when you don't bow down to the powers that be and reveal your taxable earnings? Well, God strikes you dead. Ananias and Sapphira, were supposedly killed by God, but more likely they were executed by the fascist state that Jesus' followers were implementing in order to frighten others into subservience."

Others have serious questions about Jesus' attitude towards terrorists.

"It says here in one of his biographies that we should 'turn the other cheek'!" said Hugh Hewitt "Does Jesus seriously think we should become the world's punching bag? If the country followed Jesus' teaching we'd be overrun by Islamofascists within days. Not to mention the complete shutting down of our armed forces which would leave our proud men and women in uniform without the means to support their family. Jesus is anti-America, anti-freedom and hates our troops!."

More seriously, Jesus' teachings have come under fire from religious conservatives like James Dobson.

"Jesus tolerates sin. There is no doubt about it. When confronted with an adulterous woman he steps in and prevents the natural course of justice with some tortured rhetoric. Not only was he destroying the rule of law, he was more or less condoning her behaviour. Jesus was saying to everyone that sexual immorality is fine! More than that, I have yet to find any mention in Jesus' direct teachings that addresses homosexuality or abortion. Fine, he says 'let the little children come to me' but where does he define when a person comes into existence? And the fact that he doesn't even talk about homosexuality must mean that he secretly endorses it. Jesus is as liberal and as effete as they come." Dobson argued.

Bill O'Reilly focused more on Jesus' attire. "I mean here's a guy with long hair, a beard and a robe. He's a hippy! He's an unwashed hippy! No wonder he gets his followers to wash his feet for him. That's what it says in his biography! It's all there on the public record - Jesus orders his followers to wash his feet!"

Jesus' entrance into the presidential race has also angered many progressive commentators and politicians, not least his stance towards women, as Hillary Clinton noted.

"When Jesus started his ministry, how many of his 12 special friends were women? I mean forget the fact that there were some women disciples... I'm talking about women in leadership here. And when the church was formed, how many books written by his followers were written by women? Weren't there intelligent, faithful women in the church who could contribute to the narrative? Apparently not. From the moment he turned up looking for disciples, Jesus was a macho misogynist!"

Episcopal Bishop of New York, John Shelby Spong, criticised Jesus' teachings about other religions.

"Jesus teaches only one religion. Only way way to God. Only one truth. There is no room for debate or different experiences. In a pluralistic society is Jesus the right man for the job? We've already had seven and a half years of a president who somehow thinks God talks to him and who is rigid in his views. Do we need another one?"

Spong also continued about Jesus' view of sexuality

"Although Jesus never spoke about homosexuality, his followers certainly did and the only opinion they had was that they were against it. More than that, Jesus and his followers frowned upon any form of sexual expression outside the rigid boundaries of a monogamous, church blessed heterosexual relationship. If Jesus becomes president and Jesusism is promoted through faith-based government programs we will see an America in which sexuality is repressed and the state using its muscle to enforce a particular brand of sexual belief. Is this what we want for America? For the state to control our private lives and tell us who we can be in bed with?"

Martin James, a psychoanalyst and member of the center for American progress, wrote on his blog recently about Jesus' psychological problems and why they would exclude him from being a serious presidential candidate.

"Jesus was the first child in his family. A lot of weight and expectations were forced upon him from a young age. Then his father died. Since then he has been projecting his dead father into his so called relationship with God, as though he was God's specially anointed son sent to the earth to save it. Jesus suffers from delusions of grandeur, a Messiah complex and deep seated emotional problems due to an unhappy childhood in which his natural father dominated him. But instead of his father's death being a release for him, it made his psychological condition even worse as he began channelling his impaired relationship towards a personal deity instead. A person as psychologically wounded as Jesus would never make a good president, let alone a productive member of modern society."

Meanwhile, in middle America, Jesus' candidacy has not gone down too well.

"I have no idea what he stands for" said Sally Unwin, a librarian from Nebraska, "I suppose I could read his biography and all but its so wordy. There's a lot of people out there who hate him, that much I know for sure. I wouldn't be surprised if someone gets a gun and kills him, you know?"


Is John McCain a Christian?

This is in response to comment on my previous article on John McCain. During the Saddleback forum, there was this section:

You publicly say you are a follower of Christ. What does that mean to you and how does faith work out in your life on a daily basis? What does it mean to you?

Means I'm saved and forgiven and we're talking about the world. Our faith emcompasses not just the United States of America but the world. Can I tell you another story real quick? (goes on to plagiarise Alexander Solzhenitsyn).

At no point during this conversation does McCain say anything specific about Jesus. He doesn't talk about sin or judgement or repentance and faith. He says "I'm saved and forgiven" but that is not enough to determine whether or not he is a Christian.

Now, what about Obama's response to the same question?

As a starting point, it means I believe in that Jesus died for my sins and that I am redeemed through him. That is a source of strength and sustenance on a daily basis. I know that I don't walk alone, and I know that if I can get myself out of the way, that I can maybe carry out in some small way what he intends. And it means that those sins that I have on a fairly regular basis hopefully will be washed away. But what it also means, I think, is a sense of obligation to embrace not just words but through deeds the expectations that God has for us. And that means thinking about the least of these. It means acting - well, acting justly and loving mercy and walking humbly with our God. And that, I think trying to apply those lessons on a daily basis knowing that you are going to fall a little bit short each day and kind of trying to be able to take note and say, well, that didn't quite work out the way I think it should have but maybe I can get a little better. It gives me the confidence to try things including running for president where are you going to screw up once in a while.
A far more substantial answer than what McCain would give. He talks explicitly about what sin is (though not terribly well) and says that Jesus died for them so that he could be redeemed. His extended response then talks about the struggles of repentance. This almost makes me think that Obama is a Christian. Almost.

As the McCain interview progresses, we get another hint at McCain's beliefs:
How about the issue of evil? I asked this of your rival in the previous thing. Does evil exist and if so, should we ignore it, negotiate with it, contain it or defeat it?

Defeat it. Couple points, one, if I'm president of the United States, my friends, if I follow him to the gates of hell I will get Osama Bin Laden and bring him to justice. I will do that and I know how to do that. I will get that done. No one should be allowed to take thousands of American - innocent American lives. Of course evil must be defeated. My friends we are facing the transcendent challenge of the 21st century, radical Islamic extremists (branches into talking about Al Qaeda and Iraq).
So. Nothing there about Satan. Nothing there about Jesus Christ defeating him at the cross. Nothing there about taking up the spiritual armour of God. At no point does McCain use this question to further explain any Christian beliefs he may have. Strangely enough, this was Obama's response to the same question:
Okay we've got one last time - I've got a bunch more about let me ask you one in evil. Does evil exist and if it does do we ignore it, do we negotiate with it, do we contain it or do we defeat it?

Evil does exist. I mean, we see evil all the time. We see evil in Darfur. We see evil sadly on the streets of our cities. We see evil in parents who have viciously abused their children and I think it has to be confronted. It has to be confronted squarely and one of the things that I strongly believe is that, you know, we are not going to, as individuals, be able to erase evil from the world. That is God's task. But we can be soldiers in that process and we can confront it when we see it.
So while McCain focuses solely upon Islamic terrorism as a definition of evil, Obama's response is more rounded. Rather than seeing evil just in one simple emotive subject, Obama expands it. Moreover, Obama even says that defeating evil is not our job, it is God's job. Of course Obama doesn't go on to talk about Jesus defeating evil either, but it is obvious that his understanding of evil has a more Christian basis to it than McCain's.

Of course, it would be rather silly to make this judgement of McCain based solely upon his performance at Saddelback. Fortunately he was interviewed at some point by Dan Gilgoff, the politics editor at beliefnet. This interview gives a much more complete picture of McCain's religious beliefs. Here's a series of interesting questions and answers:
For years, you've been identified as an Episcopalian. You recently began referring to yourself as a Baptist. Why?

[It was] one comment on the bus after hours. I meant to say that I practice in a—I am a Christian and I attend a Baptist church. I am very aware that immersion is part—as my wife Cindy has done—is necessary to be considered a Baptist. So I was raised Episcopalian, I have attended the North Phoenix Baptist Church for many years and I am a Christian.

What prevents you from taking that final step of undergoing the baptism?

I've had discussions with the pastor about it and we're still in conversation about it. In the meantime, I am a practicing Christian.

So the baptism is something you still might do?

Oh, sure, yeah. But, some of the factors haven't got so much to do with religion as they have to do with just—I'm in conversations with [my] pastor about it, as short a time ago as last week. But I would not anticipate going through that during this presidential campaign. I am afraid it might appear as if I was doing something that I otherwise wouldn't do.
At issue here is McCain's reticence to be baptized as an adult in his Baptist church. Why is this a problem? As a Baby-baptizin' pedobaptist I too would find it difficult to be rebaptized in a Baptist church. But what McCain doesn't speak about here is the meaning behind baptism - that it represents (either as an ordinance or sacrament) a spiritual reality. ie, that we have been born anew. If McCain really was a born-again Christian, he would probably have emphasized that point very firmly in his explanation of his reticence to be re-baptised. I'm not asking McCain to speak about deep theology, but I want him to be clear on the basics. Gilgoff himself gives McCain an opening later on to explain his understanding of human sinfulness and "transformation". It's a gimmee that McCain fails to capitalise upon:

In Hard Call’s chapter on Reinhold Niehbur, you write about his evolution from sharing a Social Gospel emphasis on human perfectibility to a more fundamentalist Christian emphasis on human sinfulness. As someone raised in a mainline Christian denomination but now attending a Baptist church, have you undergone a similar transformation?

On the subject of Reinhold Niebuhr, I think his realization and appreciation that we have to combat evil even if that means that we violate some of God's commandments was an interesting journey that he took, particularly when at the end he arrived at the conclusion that I agree with—we are not perfect. We are imperfect. And at the end of the day, for our sins, we have to ask for the judgment of a loving God. He had to confront with his conscience this overwhelming evil that he couldn't sit by. But, yet, at the same time, he violated one of his fundamental principles of pacifism.
Hmmmm. "At the end of the day, for our sins, we have to ask for the judgement of a loving God." That is the "conclusion" of Niebuhr that McCain agrees with. This is, of course, partly true - but is there the assurance of forgiveness for the believer? More seriously, where is Jesus? Where in any of McCain's interviews does he talk about Jesus? He doesn't mention Jesus at all during his Saddleback interview or his beliefnet one.

When it comes to people using Christianity to gain some sort of power, it is important to carefully check their beliefs to see whether they are in line with actual Christian beliefs. As far as I can tell, McCain's various responses to questions about his faith do not show a belief that I could classify as "born again Christian". The problem is not in what McCain says, but what he doesn't say when he has the opportunity. The person and work of Christ is central to Christianity, and the meaning of the cross - why Jesus died and rose again three days later - is an integral part of the Christian faith. If John McCain was truly a "born again" Christian, he had plenty of opportunities to explain his faith when asked. While it is true that McCain has a religious faith, it is not a faith that would be synonymous with being "Born again". Moreover, it is clear from McCain's responses to Gilgoff's questions that his religious faith is not simplistic but has some level of intellectual maturity about it, which is what we can tell from his answer about Reinhold Niebuhr. Obviously McCain has thought a lot about his faith - enough to interact with the teachings of a famous American theologian. Yet it needs to be pointed out that evangelical Christians - "Bible believing Christians" - would not be happy with the lack of Christ in McCain's belief system.

I have read nothing that John McCain has said that has convinced me that he has repented of his sins and trusts in the death and resurrection of Christ for his forgiveness.

I have been informed (see comments) that McCain's story was not a plagiarism of Alexander Solzhenitsyn and was genuine. I'm willing to believe that and so I'm happy in this case to admit being more influenced by the left wing echo machine than by facts.


This is why I don't hate John McCain

I'm not a fan of John McCain. I think he decided a few years ago to pretty much align himself with George W. Bush and has been happy to parrot right wing boilerplate ever since he announced his candidacy for the 2008 election. His economic policies are dangerous and he seems to have little idea what his actual positions are on issues.

Having said that, with all the standard rumours entering the various echo-chambers making it hard to think, I have decided to reject some of the more standard attacks.

First of all, I think that his service for the US Navy as a Skyhawk pilot was brave. He was certainly braver than George W. Bush who managed to avoid the war by defending the Republic of Texas as part of the Air National Guard. As a pilot McCain may have been a bit of a jerk, but then a lot of fighter pilots are. He did his job, bombing targets during the Vietnam war, a war which I think was a big mistake for America to get involved in but I blame the leaders at the time (Johnson, McNamara and 1st term Nixon) not those who fought in it. I think he did stellar service and anyone who is happy to point out his shortcomings as a navy aviator needs to understand that many of them aren't perfect. McCain did get shot down and was imprisoned and was tortured. That, of course, was a horrible thing, but I'd wish he'd used his experience of being tortured to explain to the American people why those in Guantanamo Bay, who underwent similiar treatment, were being tortured as well. Nevertheless I don't think McCain's service in Vietnam - as pilot and as prisoner of war - was anything but brave. Along with Vietnam Veterans such as Al Gore and John Kerry, we should recognise his service.

Secondly, it is true that McCain committed adultery while his first wife was sick in hospital. As a result of this infidelity he left his first wife and married the woman he committed adultery with - which is his current wife. McCain's actions were definitely immoral in a Christian sense, but there's no way I would describe McCain as being a Christian anyway. Having said that, a public official's private life should only be of importance if he or she has broken the law and disqualified himself or herself from public office. McCain, like many politicians (including Bill Clinton and John Kerry), has had marital difficulties and/or problems with adultery. Just as it was not enough to disqualify others from public office, so too is it not enough to disquality John McCain.

Thirdly, John McCain was one of the Keating Five, a group of US Senators who were involved in a corruption scandal in 1989. McCain admitted his wrongdoing to Congress but none of the five were jailed. Had voters been up in arms about McCain, he would not have been re-elected by the state of Arizona as their Senator in 1992. Obviously Arizonans know McCain and have been happy with his service in the Senate both before and since the Keating Five scandal.

Fourthly, a lot of mention has been made lately about McCain not knowing how many houses he owns. As a rich man, McCain's inability to remember his personal assets is understandable. Okay, he is not "like ordinary people" and maybe if he has been presenting himself that way then that would be a bit problematic. I don't have any problem with a rich man in public service. John Kerry and his wife had multiple properties as well, and John Edwards probably did spend a lot of money on a haircut. McCain spent a lot of money of his shoes. This is not a reason to portray someone as being elitist of out of touch as it can probably be said that 99% of all members of congress are elitist and "out of touch", even right wing politicians who have convinced their voters that they aren't. Besides, I agree with Jon Stewart on this one - not only do I want an elite president, but I want someone who is embarrassingly superior to me.

So, is John McCain a horrible person? A lying liar who has managed to cover up his incompetent past in order to progress politically? Definitely not. I think if he were to become president he would be better than many of his predecessors (Bush 2 and Nixon for starters).

However, McCain is a Republican, and Republican politicians are more to blame for America's current economic problems than Democrats are, and Republicans are more to blame for America's loss of standing in the world than Democrats are. If he follows through with his economic promises he will continue America's stupid fascination with Voodoo Eocnomics (aka Supply side economics). Moreover, while I don't think Barack Obama is the Messiah I certainly don't think he's the antichrist either, and I think he represents a far better choice for both America's present and future.


George Will - Loquacious Propagandist

The more I read supposed Conservative intellectuals, the more I realise how intellectually bankrupt they are.

I blogged about this subject recently, with Charles Krauthammer, Washington Post commentator firmly in my sights. Now it's the turn of George Will.

George Will's latest piece focuses upon a particular issue that "liberals" are interested in - education. Let me summarise his article for you:

  1. There's a great school in California called the American Indian Public Charter School (AIPCS).
  2. This school picks students from a minority group (American Indians).
  3. The school is producing great graduates.
  4. There is no teacher's union at the school.
  5. The school is very strict on students, forcing them to wear uniforms, preventing them from wearing jewellery and having extra long days.
  6. The school is "paternalistic" because it assumes control over its students lives and behaviour in order to develop strong academic performances.
  7. "Liberals" are hypocritical because they advocate paternalism throughout society in the form of laws and welfare, but don't see how important such paternalism is in a school like AIPCS.
Of course, scattered throughout the article are the standard digs against teachers following fashionable educational trends, words like "romantic progressivism" and "group learning" are spoken of derisively, and so on. The basic thrust of Will's article about the AIPCS is that it is a successful school that is producing great graduates despite having a complete lack of "liberal" thinking and practice.

Well, as Samuel Jackson says in Pulp Fiction, allow me to retort.

As a Ph.D from Harvard, George Will should have some experience in understanding how dangerous it is to practice post hoc ergo propter hoc - making the assumption that two separate facts are related by causation - one fact exists because of the presence of another fact. In this case he presents one fact - the academic success of AIPCS - and assumes that it is the result of another fact - the ejection of all forms of liberal thinking and practice at AIPCS. Fortunately WIll does provide some level of coherent argument here by pointing out that the school was previously influenced by liberal thinking, but, once it was ejected by the new head, a man by the name of Ben Chavis, the results improved.

Will's argument is not, however, waterproof. In fact I could probably describe it as riddled with holes. The school's academic improvement (which is beyond dispute) could have been achieved through other means. These include endogenous ones, such as a more dynamic leadership, better qualified teachers and an improved curriculum, or could be exogenous ones, such as a change in the quality of students entering the school due to local demographics. None of these alternative reasons could be described as being the result of ejecting liberal thinking and practice. George Will, however, would like us to believe that it is the inevitable result of Ben Chavis' peculiar brand of conservative educational thinking and practice.

What George Will does not tell us, however, is the extent to which Ben Chavis has embraced conservative thinking. After some quick searches on Google, I discovered the school's webpage and read through their "common sense" page, which outlined how the school functions. Here are some highlights:

2. The staff of AIPCS does not preach or subscribe to the demagoguery of tolerance. Anyone who does not follow our rules will be sent packing with their rags and bags!

3. Squawkers, multicultural specialists, self-esteem experts, panhandlers, drug dealers, and those snapping turtles who refuse to put forth their best effort will be booted out.

7. Dr. Chavis does provide psychological evaluations to quacks and Kultur specialists on a sliding scale. See him immediately for such rates.

8. All solicitors should note the nearest exit upon entering this institution of learning. We view such alley cats with a fishy eye.

9. No more than one psychologist or school administrator is allowed in our school at a time. This rule is part of our commitment to high academic standards.

12. Visitors are welcome daily. Due to the time it takes to re-educate university visitors, we are limiting their number to a maximum of four individuals a week.

13. It will be difficult for our staff to meet with those educational experts who "know it all." We are willing to meet with such tomcats on Halloween night.

14. How does anyone convince a Billy goat or taxpayer that school administrators possess above average intelligence? How will we address this educational dilemma?

15. Our staff does not subscribe to the back swamp logic of minority students as victims. We will plow through such cornfield philosophy with common sense and hard work!

16. If you wish to share any suggestions regarding this page, our common sense committee accepts suggestions from 8:30am to 8:31am each holiday.
Who wrote these? None other than Ben Chavis himself. So, what can we learn from these particular points?

  1. Will will expel any student who doesn't toe the line, or sack any teacher who questions our methods (point 2, 3)
  2. Modern Psychology is nothing but quackery (points 3, 7, 9)
  3. Modern Educational methods and thinking are stupid (points 3, 7, 12, 13, 14)
  4. People who advocate modern educational methods and use modern psychology are equivalent to "panhandlers" and "drug dealers" (point 3)
  5. We hate know it alls. We also know it all. (points 13, 16)
  6. Don't even try to get us involved with lawyers. (point 8)
There's a lot about this list that makes me wonder not just about Mr Chavis' mental state but also the emotional state of the students at the school. If the school isn't just some elaborate hoax set up by right-wingers to trap unsuspecting left-wing commentators, and if it actually IS a real school which has real students and teachers, I would seriously wonder how it could be possible that the school be funded by taxpayer money and regulated by whoever regulates charter schools in that part of California.

For a school that prides itself upon its academic performances and meeting performance criteria, there is an amazing amount of anti-intellectualism present in the writings of Mr Chavis. Chavis seems to be saying "Our school has great academic results because we think academia has nothing to offer us".

And, I have to say, if this is the best that conservative thinking can offer us as an example, then God help them. Seriously.

History is replete with examples of thinking being challenged. Common assumptions and understandings have changed over time as a result of people brave enough to challenge them. This can be as spectacular as the Copernican Revolution, or as simple as realising that daddy long leg spiders are not venomous at all.

"Liberalism", in its wide definition, has made many mistakes over the years. Oftentimes liberals have even used the structures of power to silence offending thought. Yet this sort of thing is hardly new - so called "conservatives" have done the same thing. All it proves is that people in power are unlikely to change if it means losing power.

But thinking can only be challenged when it is free to engage with opposing views and is mature enough for self reflection. But that is precisely the thing which lacks both in the small world of Ben Chavis and the AIPCS, and in the larger world of conservative thought, as represented by commentators like George Will. Rather than engagement with opposing views, there is a combatative attitude - which is exactly what Ben Chavis expresses in his "common sense" points I have listed above. Moreover, it is also present in populist conservatism, as represented by people like Sean Hannity, Rush Limbaugh, Ann Coulter and pretty much the entire Fox news network. Worst of all, however, this combatative attitude is present within the current intellectual doyens of conservatism, represented by such people as George Will and Charles Krauthammer (amongst others).

But, by itself, a combatative attitude is not nearly as bad as the inability to self reflect. Without being able to examine one's beliefs continually, a person can quite easily become conceited, arrogant and completely ignorant of facts.

Let me just point out here that I am not defending "Liberalism". I have quite a number of conservative beliefs along with some that are quite liberal - and the reason I have chosen not to adhere to some form of liberal belief is because I have examined it and found it wanting. This is not to say that I am perfect and can make perfect judgments, or that my choice of belief is perfect, it's just that I find the process of self reflection and questioning my own beliefs to be an integral part of what it means to be a thinking human being. What my point is, however, is that modern conservatism - especially that expressed in American culture - is far more entrenched in combatative attitudes and an inability to self reflect than not just those who could be described as "Liberals", but also the majority of moderate and/or centrist thinkers.

Take Chavis' complete disregard for modern educational thinking. While it is true that mistakes have been made in educational policy, thinking and practice, to completely rubbish an entire branch of behavioural psychology - and then brag about how clever you are in comparison - indicates a complete breakdown in critical thought. Let me again post up the diagram on how to have an effective argument:

A cursory look at Chavis' "Common sense" points that I have mentioned above shows just how far down the guy is on the chart. Rather than publishing a set of carefully thought out, neutrally worded points, Chavis indulges in Ad Hominem attacks and Name Calling. This is the sort of tactic used by ten or eleven year olds when confronted with something they don't like. It is not the tactic that adults should use. Chavis does not argue, for example, that the basis of Modern Educational Psychology is flawed because of inherent biases in data collection. No. He says such people are "snapping turtles" who are "know-it-alls" that need "re-education". Rather than arguing, for example, that modern multiculturalist thinking is in error because of the flexibility of behaviour in young people when immersed into another culture, he says that such advocates are "demogogues" who will be "booted out".

Of course, the offending "Common sense" list may in fact be just an elaborate joke, though it is difficult to imagine why such a page of nonsense would appear prominently linked on the school's official webpage

The fact that George Will chose this school is bad enough. The fact that he indulges in it himself shows just how far he has fallen from the world of critical thinking. To George Will, those who oppose wonderful people like Ben Chavis and the wonderful AIPCS can be placed into convenient little boxes marked "teachers unions" and "their handmaiden, the Democratic Party".

The fact that George Will can use flowerly language and turns of phrase does not disguise the fact that his argument style is no better than that of Ben Chavis. Ben Chavis can call people "snapping turtles" while George Will can call them members of "education schools with their romantic progressivism". Different words, same style of attack - Ad Hominem and Name Calling.

But, worst of all for George Will, is the fact that he himself cannot construct a legitimate argument or criticism. For all of his flowery prose and rhetoric, Will is bereft of any form of critical engagement. For him, his ideology and belief system are completely correct to the point where it cannot be questioned, while those who oppose it can only be dismissed as evil or stupid or both.

George Will is not an intellectual conservative heavyweight. He is unable to critique liberalism with any intelligence nor defend his own beliefs in a similar way. His words, while outwardly elaborate, can only be described as loquacious propaganda. He is like a computer that has been programmed to faithfully integrate simplistic ideology with sophisticated rhetoric, an unthinking, uncritical conservative HAL-9000 whose brilliance only makes his design flaws more deadly to those he influences.

Newcastle Cricketers

Here's a list of cricketers born here in Newcastle:

Tim Ambrose (10 Tests for England, 86 first class matches, still playing)
Mark Cameron (7 matches for NSW, still playing, no relation)
Gary Gilmour (15 Tests for Australia)
Grahame Corling (5 Tests for Australia)
Reg Beatty (4 matches for NSW)
John Hill (7 matches for Queensland)
Jim de Courcy (3 Tests for Australia)
Anthony Stuart (3 One Day Internationals for Australia)
Burt Cockley (1 match for NSW, still playing)
Greg Matthews (33 Tests for Australia)
Paul Wilson (1 Test for Australia)
Belinda Clark (15 Women's Tests for Australia)
Sally Griffiths (7 Women's Tests for Australia)



No way out

I just viewed this disturbing graph at Mish, which he got, in turn, from the Telegraph.

Now I like Mish. I think he's wrong on inflation but he's pretty much right about everything else. Moreover he's a serial pessimist like myself.

Mish's opinions of what is going on are worth reading. In regards to the US Broad money supply in this graph, he says this:
I have been talking about this all year. The bottom line is that one has to look not only at what M3 is doing, but why it is doing it. Nearly everyone got this wrong.
M3, of course, is a measure of the total amount of money churning around an economy. Money is created by a central bank (in this case, the Fed) and then created by the commercial banks who take it in as deposits and lend it out and then take it in as deposits again. The process of money creation is known as fractional-reserve banking.

Like any commodity, the amount of money churning around an economy depends upon the forces of both supply and demand. Since commercial banks respond to economic conditions (by either lending money out or keeping it), the money supply is affected by the overall money demand.

What this graph shows us is that money growth in the US has slowed to a trickle - and has dropped drastically since May. Such a sharp drop is indicative of a major economic upheaval - in other words, a recession.

Yet, as Mish is quite happy to point out, such a process is naturally deflationary. There is always a relationship between the rate of inflation and the growth of the money supply. Any reduction in the money supply would therefore have a deflationary effect upon an economy. With this in mind, Mish is convinced that "inflationistas" like myself have got it completely wrong, and that we should be preparing ourselves for an onset of deflation.

But while this is true in theory - and by theory I mean learning the results of hundreds of observations throughout history that have more or less provided empirical instances of it working this way - why is inflation still running so high? Not only is headline inflation running at 5.7%, but the markets were rocked in the last 12 hours by a report showing that producer prices have rocketed upwards by 9.8% over the previous year - an increase not seen in decades.

So, on the one hand, we have a report showing that the money supply is undergoing a severe change, a change that has a deflationary effecy. But, on the other hand, we have consumer and producer price reports that clearly show dangerously high inflation. Moreover, both sets of data depend upon economic activity in the first half of 2008.

So what is going on? Is it the problem inflationary or deflationary?

Sadly, it is neither. When a series of economic shocks hit together as they are now, the effect upon economic growth will be profound.

In a previous post, I created this analogy to describe what is going on:
Imagine you own a house on a flood plain. One day, your house catches on fire. At exactly the same moment, a massive rainstorm hits upriver and causes a flood. You look at your burning house and think "Thank goodness, some water to put the fire out". But the flood is only one metre deep - enough to cause major damage to the bottom half of your house. Meanwhile the top half of your house burns away and no fire engine can get to you to put it out. So the top half of your house burns up while the bottom half rots away underwater.

The fact that the housing bubble is deflationary does not mean that inflation caused by high oil prices fixes it. After all, it is quite possible that house prices will fall greatly while everything else in an economy rises horribly. No, instead we have multiple shocks hitting the economy and no way of mitigating them. The property bubble popping may have flooded your house, but the high oil prices are burning up the roof.
Put another way, if an investment bubble pops at the same time as oil prices go through the roof, the result won't be a balancing out. Instead, you'll have a double shock to the economy while prices remain reasonably stable.

One thing is important to realise when understanding how inflation and deflation can be linked to money supply and money demand, and that is this: Even if the money supply contracts, supply may still exceed demand. In this scenario, both GDP and M3 are contracting, but inflation is rising because the demand for money is falling faster than the money supply.

This is, of course, a nightmare scenario because no policy tool is able to solve both problems at once. Monetary policy's ability to help the economy recover is rendered useless because any tightening of the money supply to reduce inflation will simply result in an even greater economic loss while an expansion of the money supply will result in dangerous levels of inflation. You can't win, in other words.

With this in mind, the only real solution is to wait until the market sorts itself out. Despite the deleterious effect that high interest rates would have upon contracting economies, the only thing central banks can and should do is control inflation. Keeping a lid on consumer and producer prices - even during a stagflationary recession - will not "cure" the problem but will help to limit medium-term economic damage. On the other hand, nations which have low levels of net public debt (ie not many of them) could probably afford to increase spending and run deficits to boost aggregate demand.

Unfortunately, this is what I believe is occurring now. This is why growth in M3 is dropping sharply while inflation is rising sharply. We're not undergoing one economic shock, but two or maybe even three at once - and while one shock results in deflation, another shock results in inflation. And while it is entirely possible that the inflationary and deflationary effects may cancel each other out, the effects of a double or triple shock will devastate economic growth.

No. There is nothing we can do except to learn from our mistakes. We can't solve the current crisis through monetary or fiscal intervention so we need to limit the damage while letting the market sort itself out over time (a painful period which may take years). In order to prevent this sort of event occurring again would probably require a combination of much stricter monetary policy (which would have prevented an investment bubble from forming) and foresight into understanding any supply limits for essential goods (such as the peaking of crude oil production).


Lessons from Italy and Australia

If the United States is to avoid a long term fiscal disaster, it needs to learn from other nations. America cannot continue to ignore the lessons learned from other countries in the blinkered belief that manifest destiny or divine intervention somehow makes it different from the rest of the world and not subject to the same set of rules.

Now usually when I say this sort of thing I am often pushing forward something wonderful that is present in non-American countries that America could use. Universal health care, increased public education and stricter gun laws come to mind here.

This time, however, I am going to use a negative example as well as a positive one. Rather than just showing America what it could become if it does the right thing, I am also going to show what America could become if it does the wrong thing.

In previous posts (here and, more recently, here) I have pointed out that the fiscal irresponsibility of the US Federal government is, by itself, a clear threat to medium-long term economic growth. When combined with other factors (namely Peak Oil, the subprime mortgage crisis and an unsustainable current account deficit), its negative effect is amplified.

When a government does not have enough tax revenue to fund its expenditures, it turns to the market to borrow the required amount. Government bonds are an integral part of credit markets worldwide and function as a baseline measurement for corporate bonds and mortgages and other forms of debt-based activity.

Notwithstanding the part that government debt plays within the world's financial markets, if a government runs deficits over the long term then the debt to GDP ratio increases. In the case of the United States, this number is probably somewhere between 40 and 60% of GDP.

The country that I am setting up as a warning for America to heed is Italy. The following image is one I scanned from a pdf file about the 2007 Italian Budget (download here. pdf, 627.2kb):

This is obviously not a detailed report on the budget, but it gives more than enough information for our purposes.

There are two very important figures in this budget summary. The first is the section marked burden of national debt, which totals €74,564 million. The second is the bottom section marked redemption of national debt, which totals €189,099 million.

That first figure - burden of national debt - represents the interest repayments that the Italian government has to make on its borrowings. Like all bonds, government bonds first have to pay back interest and then, once it matures, the principal. This figure in the budget represents the amount of interest they have to pay on bonds owing. The second figure - redemption of national debt - is the amount of money the government pays back on maturing bonds.

Together, the amount of money the Italian government spends on debt servicing (interest plus paying back principal) is €263,663 million.

Now let's put that number in perspective.

€263,663 million represents a whopping 41.2% of the Italian government's spending in 2007. According to the same document, Italy's GDP in 2007 was estimated to be €1.475 trillion, which means that debt servicing also represents 17.9% GDP.

Such figures almost defy comprehension. Italy's net public debt is around 107% of GDP. Moreover, Italy's public debt has been at this size or even higher for more than a decade (it was 113.6% in 1999).

By way of comparison, America's fiscal irresponsibility is mild. Debt servicing so far represents 15.75% of government spending and 3.13% of GDP - figures that are dangerously high but not as extreme as Italy's.

This is not the place to discuss in detail the reasons for Italy's fiscal nightmare - the nature of Italian politics is probably a major contributing factor. The fact that Italy's political leaders have been unable to find bipartisan support to control government spending has meant impoverishment for their nation.

But just how impoverished is Italy? After all, they are a sophisticated and educated western nation with a high standard of living. That may be true, but the key to understanding how impoverished they are is to examine the opportunity costs of such massive debt servicing.

From a leftist point of view - the point of view which supports high levels of government spending to support universal health care, free and/or cheap public education and so on - the €263,663 million in debt servicing (41.2% of the budget) is money that could have been used for public spending. Education spending in 2007, for example, was €50,066 million. Health spending was €11,661 million. Public order and safety spending was €21,122 million. Every Eurodollar spent in debt servicing was money not spent on improving the nation's social services.

But the leftist view is not the only valid one. From a more economically conservative point of view, that €263,663 million was money that could have been returned to people and businesses in the form of lower taxes. And imagine what sort of tax rates they could have been - 17.9% of GDP not taken up by the taxman.

The message here is clear - governments that have run long term deficits have, over the long term, created a combination of less government services and higher taxes. Money that could have gone into government spending or lower tax rates are instead being used to pay back a national credit card bill that, in the case of Italy, defies logic.

Fiscal responsibility is therefore not a left/right issue. From whatever ideological position you come from, ensuring that public debt does not spiral out of control must be a common goal.

Italy does, of course, have a number of natural advantages. As part of Europe they are in close proximity to an immensely rich and wealthy group of nations that have enriched it through trade. The fact that Italy has adopted the Euro means that any concerns that investors have in Italy's financial position are cushioned by the economic strengths of other nations that have adopted the Euro as well. This fact is tempered, however, by the fact that many other nations in the Eurozone have problems with fiscal irresponsibility as well - though nowhere near that of Italy's (with the notable exception of Belgium).

The good news is that it is possible for politicians - even those in Italy - to work together in a bipartisan way to fix their budgets. The solution is actually simple - either increase revenue or decrease expenditure and run a fiscal surplus over many years. When it comes to politics, however, this is easier said than done, especially when increasing revenue means raising taxes and decreasing expenditure means cutting spending on health, education and public welfare.

While the Clinton years are often seen as a period of intense political partisanship, it is important to remember that the Democratic president and a Republican Congress - for all their bitter fighting - were able to agree very early on to fix the nation's public debt. The result was a series of budget surpluses late in Clinton's second term (helped in no small part by the 1990s Tech boom) and a reduction in national debt. Although Bush and the Republican Congress have ruined this since 2001, there is every reason to believe that a bipartisan solution can be found. Sadly, however, the current political discourse rarely mentions the fiscal imblances which means that, when the next US president takes office in 2009, neither Republicans nor Democrats will see balancing the budget as a priority.

There is one country that has, however, managed to eliminate net public debt - and has done so without resorting to profits from oil but from pure budgetary discipline. That nation is Australia.

Australia's fiscal example should stand as an example to other nations. In 1996 when the conservative Howard government came to power, net public debt was around 20% of GDP. While this was quite small in comparison to other nations - both now and at the time - steps were taken very early to cut spending. So although net debt was comparatively small, it was never allowed to increase. Importantly, cuts to spending were made when unemployment was moderately high - at around 8%. This meant that, when the economy recovered from the effects of the spending cuts, economic growth in the years that followed produced large and growing budget surpluses and steady improvements in unemployment. Moreover, the government could then afford to make incremental tax cuts on an annual basis - a process that was quite politically rewarding. Since 2005, unemployment has dropped below 5%, big budget surpluses are run regularly, income tax rates are lower than ever and net public debt is now negative.

The Howard government did, of course, lose power in 2007, which shows that no poitical party should rely solely upon economic performance to drive their political fortunes. Nevertheless, Australia should serve as an example of what can be achieved if politicians take a long view on important things like fiscal responsibility.

It is likely that the effects of Peak Oil and the subprime meltdown will be far reaching. Countries that are fiscally weak like Italy will either be forced into making painful fiscal readjustments or else run their nations into bankruptcy-in-all-but-name by increasing their deficits. On the other hand, countries like Australia will be in a more flexible position and will have room to cut taxes or increase public spending.

What will become of America, though? While I would like to think that America could avoid Italy's fate I am not at all certain that bipartisan steps can be made to rectify the situation before net public debt hits record levels - say between 75-85% of GDP.

One thing is certain, however, and that is that America's fiscal position will determine its influence in the world over the next 20 years. If America should go down Italy's route, you can almost guarantee that America, as a society and as an economy, will be a pathetic reflection of what it was for most of the 20th century.

In the face of a semi-permanent energy crisis along with the spectre of global warming, what the world of the 21st century needs is a strong, free America. Being fiscally responsible is an important step in that direction.

430 new demographics that will decide election


Redlining it - a new oil peak is reached

Back when I owned a motorcycle, I occasionally got lots of fun by hurtling along country roads while redlining the engine - pushing the engine speed into the "red" zone on the tachometer. The red lines on tachometers are there for a reason - they are the maximum rated speed an engine should be operated at and should only be done sparingly.

My 1983 Honda VT-250F redlined at 12,500 rpm. Redlining in top gear was difficult, but was probably around 160kph (100mph), which is pretty good for a bike with a small 4-stroke engine let me tell you.

One thing always bothered me, however, on those rare occasions when I redlined my little Honda, was the fact that the closer to the redline the engine got, the more difficult it became to increase speed. If I was riding sedately that would not be an issue, but when you're travelling flat out and want more power, the redline was more than just an arbitrary "danger" zone - it was pretty much a technical limit to how much power (and thus speed) I could get. The difference between 11,500rpm and 12,500rpm could be as much as 2-3kph. By contrast, moving from 5,000 to 6,000 rpm could increase speed by up to 10kph.

So when I happened upon this graph from The Oil Drum tonight, I was reminded of my redlining experiences:

What's the good news? Well, it seems that worldwide oil production has reached a new high. In May, 2008, the EIA estimates that 74.48 million barrels of oil per day was extracted from the world's oil reservoirs. For people who are confused about the science of Peak Oil, such a figure may appear to contradict current claims by oil experts and various other "Peakniks" who say that the world's oil stocks are headed for inevitable decline.

But when looking at statistics it is always important to keep them in context. Look at the graph above - notice how oil production jumped up in the middle of 2007? Well, the bad news is that, although production has increased, the rate of increase is just not enough, especially from the beginning of 2008 onwards.

In other words, the world's oil producers are redlining - they are pushing more and more oil out as much as they can, but the rate at which that is occurring is slowing down. By way of contrast, look at the middle of 2004 - within a matter of a few months oil production levels spiked up quickly as producers opened up the spigots to let more oil out. Despite the fact that the price of oil has been over $100 for most of this year and was even within spitting distance of $150, the production levels needed to meet demand and thus reduce price are just not there. Yes, a new peak has been reached... but it has taken years to achieve since the last peak of mid-2005.

This data is empirical proof that oil production is unable to adequately respond to market price signals. In other words, it is more proof - if any is needed - that oil production levels will be unable to meet future demand.

I miss my old motorbike - but the chances are that redlining any motor vehicle these days will do more damage to your fuel budget than to engine reliability.

Wrecking an economic recovery

Amity Shlaes over at the Washington Post outlines five ways to wreck an economic recovery, based upon research into the Great Depression. They are:
  1. Giving in to protectionism (ie putting up trade barriers to protect local industry)
  2. Blaming the messenger (ie restrictions on share market activity that was erroneously seen as the cause of the problem)
  3. Increasing taxes in a downturn
  4. Assuming bigger government will bring back growth (ie New Deal public works programs)
  5. Ignoring the cost of inconsistency (ie picking and choosing to rescue certain financial firms or backing the US dollar)
Some of these points are interesting and worthwhile. Some, however, I would disagree with.

The first is the assumption that markets function better than government at virtually every level when it comes to economic performance. In relation to the Great Depression, Shlaes exonerates the market almost completely in her article and places the blame squarely upon "perverse monetary policy" as the real cause of this economic downturn. In other words, the market was fine, but the government (as the Federal Reserve) was the real cause. While there is no doubt that monetary policy during the great depression was pretty awful, to assume that policy makers at the time had a credible option in lowering rates is to be anachronistic. The fact that the tight monetary policy at the time exacerbated the depression so intensely is now widely understood. What Shlaes forgets to mention is that an unsustainable explosion in business and personal debt in the years leading up to the 1929 stock market crash - a terrible failure in market behaviour - was a major cause as well. It seems reasonable to assume that, in the current case, the popping of the subprime bubble is a similar example of serious market failure.

The second assumption Shlaes makes is the implied belief that government fiscal policy should not interfere with the market's ability to "right itself". While I agree that the marketplace that is a national economy can and does have the ability to stabilise itself, arguing that the government should neither raise taxes nor increase spending is to argue that the government has no real role to play in the way an economy functions or how an economic recovery can be managed. The government is thus relegated to being some sort of strange entity that needs to be silenced so that money can talk. Of course, such an attitude can be quite typical of "small government" types but is less prevalent amongst mainstream economists and modern society.

John Maynard Keynes, one of the 20th century's most important economic thinkers, deduced that governments should counter market trends when it came to fiscal policy. In practice, this meant that whenever an economy contracted, government should increase its operations to the point where it was borrowing money to fund a deficit; conversely, whenever an economy expanded, government should decrease its operations and aim to run fiscal surpluses. Throughout the course of the business cycle (whereby the economy expanded and contracted) government fiscal policy should be essentially neutral so that deficit spending is balanced out by surpluses. Keynes, of course, came up with this policy as a result of his study into the great depression. So when Shlaes says that governments shouldn't expand their operations during a downturn, she is essentially at odds with Keynes.

When it comes to raising taxes, however, Shlaes is only partially correct. All things being equal, governments should not seek to increase tax rates during an economic downturn - a lesson that all industrial governments painfully learned from their great depression experience. Unfortunately, in the current case, all things are not equal. If it is true that governments should not raise taxes during recessions, then it stands to reason that governments should not lower taxes during economic expansions - yet that is precisely what George W. Bush and the congresses under him have managed to do. The result of this structural budget deficit is a dangerously growing level of public debt. The only way to rebalance this situation is for the government to run fiscal surpluses, which means that tax revenue must exceed expenditure. Raising taxes is one of doing this. Another way is to cut government spending (a process that would probably have the same economic effect as a tax rise - an economy contracting faster as a result of less government spending). Another way is a combination of the two. A fourth way - printing money and be damned - cannot be seriously considered.

The problem with this current economic downturn is that it has occurred during a period in which America's Federal government has been fiscally irresponsible. Thus any room that can be made for fiscal "pump priming" (Keynsian spending increases or tax cuts) is just not there. Interest paid on US public debt is already larger by far than NASA, the Department of Energy, the Department of Eduction, the Department of Agriculture and the Department of Veterans Affairs combined. Moreover, interest repayments are already rivalling defense expenditure. This massive fiscal black hole cannot be made bigger through tax cuts and spending increases without serious medium-long term consequences. National bankruptcy can never be declared - but the effects of a fiscally irresponsible government will be felt in increasing levels of private and personal bankruptcies and decreasing levels of economic growth.

Counter to Shlaes' warnings, I would argue that a repeal of many of Bush's tax cuts (especially upon the rich) along with a severe cut in defense spending (say a cut of between 10-20%) is absolutely essential if public finances are to be rebuilt over the medium-long term. Without a sudden turnaround in the US Economy (a process which would lead to higher levels of tax revenue), government debt will continue to increase.

Of course, raising taxes and cutting defense spending will have a negative effect upon the economy. Nevertheless I believe that to not address America's fiscal shortcomings will have an even worse effect upon the economy and be far more damaging.

Sadly, however, I can't see much evidence that Bush, Congress or even Obama and McCain are concerned about this situation. While the Republicans are pretty much the party that got America into this fiscal nightmare (most of the current deficit resulted from decisions made between 2000 and 2006 when congress was more or less controlled by the GOP) I am not confident that Democrats have the testicular fortitude to solve the problem and make the changes necessary to return public finances to a more sustainable position (especially considering the post-2006 congress which is more or less run by Democrats who could have actually done something about it).

Then again, are we surprised that politicians make wrong decisions? No. But why can't it be different?


A retarded film?

Ben Stiller is not my favourite actor. With the notable exception of Mystery Men and that stupid Return of the King Easter Egg, I own no DVD in which Ben Stiller is present. And I'm proud.

To me, Ben Stiller represents all that despise about Hollywood. He appears in films that I find turgid, desperate and mechanical - typical 21st century Hollywood cookie cutter comedies that are big on simplicity and small on sophistication. Call me an elitist if you wish, but I am certainly thankful that I don't have to look forward to the next instalment of Ben Stiller's terrible acting career.

Stiller's latest movie, Tropic Thunder, is one that I will probably never see. Any film with Stiller's presence automatically means that I won't view it (other actors whose presence means danger are Tom Cruise, Val Kilmer and Michael Douglas).

Tropic Thunder, however, is not looking like just another Ben Stiller picture. The film seems to be upsetting all sorts of people at the moment. Is this a good thing? Are people finally saying "no more" to Ben Stiller? No. They're annoyed at how the film treats people with intellectual disabilites and the usage of the "r" word - retarded.

In order to understand where these people come from, I have had to actually read some of the film's script and have even viewed a segment of the film that was deemed to be problematic. To be honest, watching Ben Stiller and listening to his dialogue was a more disturbing experience than, say, looking at actual war footage from the current conflict in Georgia. Nevertheless, I pressed on and this is what I found.

Tropic Thunder
is about 3 method actors (Stiller, Jack Black, Robert Downey Jr) in a war film. For whatever reason, the film's director decides to give them real guns and places them in a real conflict in some tropical area of the world where they are left to fend for themselves. All three actors are Prima Donnas - exactly the sort of actor everyone loves to hate. They are self obsessed, oblivious to the real world and demand all sorts of attention. Stiller's character, Tugg Speedman, had just played an intellectually disabled person in a previous film called Simple Jack. While walking along in the jungle, Stiller's character speaks to Downey Jr's character about the difficulties in playing "retards" on film.

It is that scene that has made people angry. In the Washington Post, Patricia Bauer argues that such a scene has done untold damage to intellectually disabled people in America. Bauer and others seem to believe that this dialogue will increase the proliferation of negative stereotypes and lead to difficulty in getting intellectually disabled people accepted into society.

The problem with Bauer and others is that they are aiming at the wrong target. Tropic Thunder, for starters, is hardly going to change community attitudes on anything (except reinforce the market for bad films and the career of Ben Stiller).

The use of the word "Retard" by Stiller and Downey Jr in the film is designed to be confrontational. It is a situation in which two people are using a negative word quite freely - a word that is not used much in today's conversations. The conversation is supposed to make the audience unsettled. Why? Because it highlights the vapid and closeted nature of the characters. In other words, the use of the word "retard" actually makes the Stiller and Downey Jr characters less likeable in the audience's mind. The joke is on them.

Imagine, if you will, a film in which racist behaviour in America's Southern states is a main theme. Imagine that we see a bunch of white men talking about "niggers". Of course, in a film like this we should naturally hear racial epithets being used as the characters depicted are trying to be faithfully recreated. The fact that racist attitudes and racial epithets are present in a film in which racism is a major theme should not surprise us.

In Tropic Thunder, Tugg Speedman and Kirk Lazarus (Stiller and Downey Jr) are two Prima Donna actors who have no idea that modern societal attitudes are different to theirs. They are blinded by their selfishness and by their self absorbtion. It is in that context that they refer to intellectually disabled people as "retards". The joke is upon them - they, not intellectually disabled people - are the ones being laughed at by the audience. Moreover, by these two being the butt of the joke, societal acceptance of intellectually disabled people is actually reinforced.

Tropic Thunder
does not depict Moses or Jesus or George Washington referring to intellectually disabled people as "retards" - it depicts two obviously selfish, self absorbed individuals describing intellectually disabled people as "retards". Therein lies the difference - the usage of the epithet in the text is by characters that are depicted in a negative way. Thus, if there is any message from this part of the film, it is that only stupid and vacuous people call others "retards" - and that has to be a good thing.

(Note: I have worked with intellectually disabled people - I used to be a workplace trainer for a non-profit disability services organisation called House With No Steps)


My definition of stagflation

Is when Unemployment is 5% or more and when Inflation is 5% or more at the same time.

According to the raw data at the Misery Index site, the US experienced my definition of stagflation during the following periods:

July 1970 - February 1971 (Unemployment average 5.6%, Inflation 5.52%, 8 months)

April 1973 (Un-5.0% and Inf-5.06%, 1 month)

January 1974 - October 1976 (Un-7.24% and Inf-8.88%, 34 months)

January 1977 - October 1982 (Un-7.14% and Inf-9.38%, 70 months)

April 1989 - June 1989 (Un-5.23% and Inf-5.22%, 3 months)

January 1990 - March 1990 (Un-5.3% and Inf-5.23%, 3 months)

August 1990 - February 1992 (Un-6.14% and Inf-5.92%, 19 months)

June 2008 - July 2008 (Un-5.6% and Inf-5.31%, 2 months so far)


Things are progessing swimmingly

For me, that is... in terms of my economical prognostication.

So I'll beat my own drum yet again - I know you're all sick of someone saying "I told you so" but I still can't understand why high priced financial analysts can make a living out of getting it wrong while little old me has to sit here and remember that I first heard the word "Schadenfreude" explained on The Simpsons.

So, anyway. Here's what I said back in January 2008:
What I am therefore predicting in 2008 is a period of painful stagflation for America - a combination of economic contraction and inflation which will only be solved when the Fed raises rates and plunges the economy into a double-dip recession.
And here's the latest:
U.S. consumer prices rose more than forecast in July, indicating Federal Reserve policy makers have reason to be concerned over a pickup in inflation.

The consumer price index climbed 0.8 percent, twice as much as anticipated, the Labor Department said today in Washington. The cost of living was up 5.6 percent in the year ended in July, the biggest jump in 17 years. So-called core prices, which exclude food and energy, also rose more than projected.

The report may intensify the debate between those Fed policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel, including gains in clothing, airline fares and education, make it less likely that central bankers will be able to keep interest rates unchanged for long.
According to the Misery Index, inflation of 5.6% plus unemployment of 5.7% equals a misery rate of 11.3. The last time it was this high was in June 1991 when it hit 11.60. The highest in 17 years. The Misery Index is a hard and fast index that is useful at measuring stagflation (but is not without its faults).

So anyway, I'll just continue to sit here laughing maniacally and feeling good about all the emotional and economic suffering in the US while millionaire financial analysts continue to get it wrong.

The latest inflation release can be downloaded directly here (pdf, 108.3kb)