Populist movements don't build themselves ...

... It doesn't matter what the "horse race" outcome of the campaign is, if we fight the campaign. Fighting it, we learn how to fight. Learning how to fight political battles, we become citizens again. Becoming citizens again, we reclaim the Republic that lies dormant beneath the bread and circuses of modern American society.

Monday, June 29, 2009

Occasional Bike Blogging: Fixing Broken Cables with the Internet

Disclaimer: I don't know what the hell I am doing, so this is not a How To. Actually, getting this done despite not knowing what the hell I am doing is kind of the point.

A couple of weeks ago, I finally got serious about trying to get my rear derailleur back into action. It had seized up during the winter, and while I got some rear gears back at that time, I was down to three speeds on the front derailleur again.

So I was trying the dry lube, working it in on all joints, working the derailleur mechanism, and cleaning off the crud it was bringing up. Except no matter how progress I seemed to make, when I went to shift it, it seized up again. And then another round.

Until the cable snapped.

Fudge, now I had to change the cable. So I hit the internet to try to see what is involved with changing the cable. One of the first hits I got told me that when a derailleur is sticking, its normally the cable rather than the derailleur mechanism.

Aha, that sounded right. Lesson One: check the intertubes for advice first, before getting started on a new job.

I finally found the site for the people that made my shifter. You change a shifter cable by releasing it from the derailleur (check), feeding it up through the cable guides (check), then pull it out of the shifter after peeling the grip back to get to top of the cable (uh, no need to try to pull the shift mechanism apart). The cable was rusty enough to make it clear what the problem was ... that damned Northeast Ohio road salt would be one way to put it, but of course, that is not a part of the environment under my control. Lesson Two: oil your cables regularly in the winter, even if it is so bloody cold outside you don't want to go out to the garage.

Now, I had two cheap 5 speed shifters I got as part of the project to make a back-up ice-bike out of the cheap $60 fifteen speeds I bought to get to work at the warehouse last year. So I got one of the rear shift cables out of one of those, and got to work threading everything through again.

And, yes, I oiled the cable before threading it through each of the cable housings.

I got the cable connected in, thanks to my handy ratchet set (Lesson Four: a lightweight ratchet set in the framebag sure is handy), cut it to length, and started working on the adjustment of the derailleur set screws, to get all seven rear gears back.

It took about two minutes of fiddling for the rear cable housing to fall apart. Ah, so it wasn't just the cable.

Rummaging around, I was able to find a front back cable housing that seemed like it would work for the last of the rear gearshift housings. It was a little longer, but it fit.

Well, except, ahem:
, cut it to length, and

Yup. Lesson Five: adjust, work it around, check that its all OK to go, and then cut. IOW, push the irreversible to the last, don't advance it to the first.

It was a hot day, and at this point I took a couple of hour break, and watched a DVD of The Third: The Girl with the Blue Eye (and, no, I don't have the $60 it costs, even on sale ... I rented it from Netflix). After finding the second of the five speed shifters, I started over. Lesson Six: when you have parts on sale for about the cost of shipping, go ahead and buy two. You never know when you'll need them.

To make a short story long, its now working.

Which is all a long prelude to a short reflection. Before the internet, I would have been walking to the library for a book on bike repair, then heading off to the other end of the bus line plus a half hour walk past that to the bike shop (one decent bus route in the whole county, which doesn't connect up to Akron's bus route system, and the Bike Shop is past the end of it ... there's a lesson in the heavy hand of Auto-Uber-Alles development in outer suburbia) ... and of course, the task would probably have been spread over multiple days.

Mind, its fairly convenient to the (not yet complete) recreational biking trails, but that's handier when the bike cycles than when it doesn't.

Instead, I saw the five speed shifters on sale at [http://www.nashbar.com/ Bike Nashbar], so I had the cable on hand (just the luck of the standard set, since what need replacing was the shifter), found advice on changing derailleur cables in about ten minutes, and the product specific guide from the manufacturer in another five.

While newspapers try to work out how to commercialize the news that they used to give away for free as wrapper for display ads and classifieds, protected by the economies of scale of the printing press ... the internet continues to offer access to information with growing efficiency.

Enough efficiency that even I could go from near total ignorance to changing my rear shift cable in under an afternoon.

Of course, someone might object that the online ordering of the five speed shifters is not resting on a sustainable foundation. However, I could see an electric rail network getting that order from the warehouse to nearby here ... certainly near enough for an electric delivery truck to get it to some central location within walking distance. I could even imagined the tick box option for the big brown electric UPS van to get the box to my house (for, obviously, a higher shipping charge than getting it to the local pick up center).

Indeed, its far more materially efficient for me to borrow the use of the existing UPS truck once or twice a month than to own a car so that I can drive to the mall or other place to spend money I would no longer have if I owned a car.

The question of whether the recovery from the mass market consumerist fever is an economic calamity or an economic opportunity seems to hinge on whether we can share the existing work around. If we can, its possible for many people to increase their real standard of living, even as market transactions are shouldered aside by social interactions.

I certainly was far better off being able to find out how to get my rear shift cable fixed in a single afternoon than I would have been without access to the internet ... and that is, partly, because of getting rid of the need to spend money. So that was a direct transfer from markets transactions to standard of living.

Tuesday, June 16, 2009

A Brawny Recovery Instead of Unsustainable Consumption-Led Growth

Burning the Midnight Oil for a Brawny Recovery

On Agent Orange, bonddad writes:
Among the most important of the rules Rosie laid down, in my opinion, is #12: Get the US consumer right and everything else will take care of itself. The reason is fairly simple: The U.S. consumer has the biggest balance sheet on the planet. The U.S. consumer represents 70 percent of our GDP and about 18 percent of global GDP.

This is, however, following the entrenched habits of thought that got us into this mess in the first place. In a comment in reply, I write:
The problem with the 70% figure ...
... is that only a portion of that is free-standing spending, that is not financed out of income. Sustainable growth in aggregate demand occurs when there is a sustainable increase in spending that is not financed by income ... because the portion that is financed by income follows growth in incomes, it cannot lead growth in income.

If we are importing roughly 1/5 of our GDP, 15% of that consumption is imports and 55% is domestic.

If our income-expenditure multiplier is around 1.5, that implies about 2/3 leakages, 1/3 income financed consumption of domestic goods and services. So 55%-33%= about 22% debt-financed consumption of US goods and services that acts as a domestic growth driver. The rest of the 70% figure is domestic recirculation of income and income spill-over to the rest of the world.

Now, that is still a big chunk of change, and under Bushonomics, with the anti-export and anti-real-investment policies that were in place, was the main growth driver we were counting on.

However, it is clearly a growth driver that we can replace if we pursue an aggressive plan of government investment in energy efficiency and infrastructure in support of sustainable energy independence, combined with government policies that ensure ongoing growth in private investment in energy efficiency and production of energy for sustainable energy independence.

And unlike the growth regime founded on unsustainable increase in degree of leverage, its a growth regime founded on the real increase in both the quantity of domestic resources and the efficiency with which they are used.

Certainly, as our economy has evolved in the past three decades, debt-financed consumption has become the largest of the four sources of new injections into Aggregate Demand:
  • Government spending, which creates new fiat-currency
  • Real investment in new productive capacity, which is based on newly created credit-money
  • Debt-financed consumption, which is based on newly created credit-money
  • Exports, which is based on either kind of newly created money, depending on the source of the domestic currency flows into the foreign exchange market that were the ultimate source of the domestic currency paid for the exported products

The Brawny Recovery strategy shifts the focus, toward the transitional economy in which investment in the foundations of a sustainable economy are the source of new aggregate demand.

Saturday, June 13, 2009

Beware of Geeks Bearing VATs

Burning the Midnight Oil for a Brawny Recovery also posted at My Left Wing, cross-posted to ProgressiveBlue, Docudharma and more TBA

If you wander around the fringes of economic discussion on these Interwebs, you may encounter sites extolling the wondrous vitrues of the VAT. "If only we would adopt a massive VAT, our two decade long decline in manufacturing output would be gone, and we would be an exporting powerhouse once again." ... well, no, that would be a stereotyping of the argument. A real sample of the claims sound more like this, from tradereform.org:
I Squared R Element Company is in Akron, New York. It makes industrial heating elements which are used for many processes to make other things, including glass and computer chips. The company was the low bidder on a contract to export to China.

However, the company lost the bid. Why?

I squared R was told it did not include, in its bid, China's 10% customs duty or the 17% value added tax(VAT) that must be paid at the border.

All our goods pay a 17% VAT at the Chinese border. And the uninformed say we are a high cost producer. Chinese exporters also get a 17% VAT rebate, i.e. they get paid to export.

And, yes, I have picked out this quote to pick on VAT-uber-alles advocates, precisely because it focuses on the part of the argument that is simply wrong.

The protection against imports is the tariff, not the VAT. The Chinese company that beat out the producer in that other Akron also has to pay 17% VAT on its production. If omitting the 17% VAT alone was what made the Akron, NY producer the "low bidder", its simply lying to call them the low bidder ... its like two different companies in the same state competing for a contract, and one claiming to be the low bidder because they left sales tax off their bid, which the other company included.

That element of VAT advocacy is nothing but hypocritical posturing at some stage along the line ... though not necessarily on the part of a particular VAT advocate, since it may well be that a particular VAT advocate has been misinformed by hypocritical posturing polluting their sources of information.

VAT and Trade

The other part of VAT that is raised is the export rebate (again from tradereform.org:
Companies are put out of business because of VAT subsidies. Foreign exporters are paid to export, in the form of VAT rebates. The products are relieved of tax burden.

This is the real effect of VAT on trade. A natural side effect of heavy, regressive, indirect taxes is that it increases the costs of exports. That is true of VAT, over-taxing for Social Security or other payroll taxes, retail sales taxes, (hidden) wholesale sales taxes, stamp duties ... its a general effect of heavy indirect taxes.

Now, from the perspective of the wealthy, a massive benefit of heavy indirect taxes is that those with freely disposable income can normally duck out on paying the indirect taxes if they direct their income to wealth accumulation instead of consumption. So if the poor, who spend all of their income, are paying 20% of their income in indirect taxes, the very wealthy, who devote much of their income to perpetuating their status as a member of a stable aristocracy of wealth, would only pay 10% if they only consume half of their income, and the more of their income they devote to accumulating wealth and economic power, the less of their income is subject to tax.

Further impoverishing the working poor, and pushing the shrinking middle class toward poverty ... well, them's the hazards. However, from the perspective of the wealthy, there is a downside ... that nasty trade effect.

However, the WTO permits indirect taxes to be rebated on exports. We do this in the US for some of our indirect tax burden ... indeed, we do it on a state by state basis, with sales taxes assessed in one state one payable by residents of that state. But if a particular municipality in Ohio has a total of 7% of state, county and city sales taxes, any exports from Ohio to China have a 7% "export rebate".

VAT is as easy to rebate as retail sales taxes, because of the way it works. Each business pays VAT on its inputs, and collects VAT on its sales, and hands over to government the difference between what it collected and what it paid. In other words, the government receives the VAT on every step in the production chain on the increase in the value of sales over the value of outlays.

Since each step of the way, the VAT that is owed is a simple percentage of the sale price, computing the amount to rebate at the border is straightforward.

By contrast to China and most of Europe, in the US our biggest indirect taxes are payroll taxes, and we do not have a mechanism in place to rebate the payroll taxes.

The rebate of indirect taxes on exports ... that's the trade effect of a VAT. Claiming that there is an impact on the import side is as silly as if a Chinese firm claimed we had unfair protection against Chinese products because "The Wal-Mart between Kent and Ravenna in Ohio charges sales tax on imports!!!".

Pushing Progressive Options Out of the Frame

Now, if the US wishes to pursue the neo-mercantalist policies of China, most of Southeast Asia, and etcetera ... what would that policy package be?
  • Peg our currency at a steep discount, for exchange rate stability and competitive advantage
  • Levy steep indirect taxes on domestic consumption, and rebate those taxes on exports
  • Maintain protective imports and discriminatory trade practices for those industries that we are trying to develop

Some of the people pushing for the VAT would happily accept that full package. Others, however, might criticize it.

The progressive critique is that neo-mercantalism is an effort to export our unemployment overseas by pursuing trade surpluses, at the expense of the standard of living of the majority of the our population. Some few at the top will benefit from successful neo-mercantalist policy, while for the majority of the population, its a policy of taxing domestic consumers to finance infrastructure used for domestic production and export production alike.

And just like old-fashioned mercantalism, neo-mercantalism only works if there are countries that are in a position to run sustained trade deficits. After all, one country's exports is another country's imports - so the whole world cannot run a global trade surplus with itself. If everyone pursues a trade surplus, then on average half must fail.

Back in the days of "paleo-mercantalism", that country running the perpetual trade deficits was Imperial Spain, possessor of two mountains of silver in Mexico and Peru, which could be acquired by merchants in other European nations by selling things to wealth Spaniards, and then used to buy into the lucrative Asian carrying trade. More recently, it has been trade deficits by the United States as we have progressively hollowed out our industrial capacity while maintaining consumption on the back of credit extended to us ... as a side effect of the cheap currency policy.

But one reason the world experienced a financial crisis is that the US was in a financially fragile position, where our financial sector did not have the resilience to withstand a nasty shock ... which came in the form of an oil price shock. And if the US is the country chasing trade surpluses ... how then plays the trade deficit role we used to play?

While balanced trade can be sustainable over the long term, trade surpluses for all is strictly impossible, They are more than unsustainable, they cannot happen in the first place. So a policy regime in which economic success requires trade surpluses is a policy regime that, by definition, dooms at least half of the economies in the world to failure.

The corporatist critique of that policy package is different. Pegging the currency at a steep discount undermines the economic strength of corporations earning income in that currency. Further, it makes the maintenance of a 700+ strong foreign base network more difficult, and so undermines the coercive force that can be deployed in support of corporate economic power. And protective tariffs in high income nations undermines the ability of large transnational corporations to benefit from their relative advantage in operating cross-border production systems.

So the only element from the neo-mercantalist policy package that seems appealing to the corporatist is the VAT itself.

Of course, when we read David Brooks extolling the virtues of the VAT in the NYT ... we can be confident that it is not in a policy package including an exporters exchange rate for the US$, nor one that includes a general revenue tariff on all imports.

Naive populism deployed against the interests of the populace

This is not to say that a VAT is an unambiguously bad thing. Any tax is an element of a tax structure, and what matters is the shape of the entire tax structure. This is, of course, itself a critique of much VAT advocacy, which treats the VAT as a good thing in and of itself, no matter what the context.

Consider two different scenarios:
  • (1) A VAT is put into place in order to avoid restoring capital gains taxes to a two-tier structure, placing a SSI levy on incomes in excess of $250,000 and simplification of the personal income tax structure to close loopholes used primarily by those earning over $250,000
  • (2) A VAT is put into place that is large enough to eliminate the 12%+ payroll income tax that funds Social Security and Medicare

These two VAT's have quite different impacts, both in terms of trade and in terms of impact on the working poor and the middle class.

In the first scenario, the relative tax burden is shifted onto the working poor and middle class. A VAT of, say, 10%, taken on top of the 12%+ payroll income tax, would mean that the working poor would be paying 22%+ of their income in taxes. And the rebate of the VAT is primarily a way to increase indirect taxation without making the trade impact worse ... there is no substantial trade loss from a two-tiered capital gains tax or from closing income tax loopholes, and a payroll tax on incomes over $250,000 is not going to affect the decision whether production facilities should be located in the US or some other country.

In the second scenario, the relative tax burden is shifted away from the working poor and the middle class. VAT is levied on all "Value Added", and not on wage and salary "Value Added" alone. This is a net progressive impact, and its stronger then the regressive impact of shifting the tax burden off of production for export ... so over-all, its a net progressive change.

Now, which of the two do you think David Brooks is really arguing for ... using VAT to shift more of the tax burden onto the working poor and shrinking middle class, or using VAT to shift the tax burden off the working poor and shrinking middle class?

Naive VAT advocacy which overstates the trade benefits of the VAT and is, underneath that, founded on the impossibility of all countries replicating the trade surpluses of China ...

... that form of VAT advocacy plays into the hands of the corporatist version of VAT, where VAT is used because we have started to reach the limits of sales tax and payroll tax, and some other mechanism is needed to drive regressive indirect taxes up still further.

There is no way to achieve a progressive use of VAT if the political alliance that is formed in support of VAT includes the paymasters of the David Brook's of the world ... because under that political alliance, VAT will be use as a regressive tool. And once the machinery of VAT collection is put into place, and people become accustomed to it, it becomes entrenched ... it is far easier to defend against VAT used in a regressive way than it will be to restructure the system once it is in place.

So Beware of Geeks Bearing VATs.

Sunday, June 7, 2009

Dear Senator Voinovich, support the end of Mountain Top Removal mining.

My letter to Senator Voinovich regarding the Appalachia Restoration Act, now in committee (h/t Devilstower at the Daily Kos):

Dear Senator Voinovich,

I am writing to express my support of the Appalachia Restoration Act.

As I am sure that you are aware, both subsurface and surface coal mines in Ohio suffer from unfair competition with mountain-top removal mining, which fills mountain valleys with waste as they blast as much as 800 feet of rock off the top of Appalachian mountains.

As an economist, I wish to draw you attention to the job impacts of the current unfair competition. Subsurface mining and legitimate surface mining both employ more people per ton than mountain top removal mining does. And in return, the mountain top mining does far more permanent damage to property value and natural resources such as potable water.

So in permitting coal companies to focus on mountain top removal in this period of declining demand for coal, we are encouraging them to layoff people in Southern Ohio now, while at the same time undermining long term economic development in the counties where they are engaged in MTR.

This is a bad deal for all concerned.

So I am asking that you put the jobs of Ohio coal miners first, and support restricting or abolishing the practice of Mountain Top Removal / Valley Fill mining.


Dr. [BruceMcF] (Economics)

The Appalachia Restoration Act defines MTR fill as subject to the Federal Water Pollution Act. This is critical, because without the freedom to pollute mountain streams, MTR is normally impossible. The Appalachian Restoration Act is now in front of the Senate Committee on Environment and Public Works, consisting of:

Sen. Barbara Boxer [D-CA]
Sen. James Inhofe [R-OK]
Sen. Lamar Alexander [R-TN]
Sen. John Barrasso [R-WY]
Sen. Max Baucus [D-MT]
Sen. Christopher Bond [R-MO]
Sen. Benjamin Cardin [D-MD]
Sen. Thomas Carper [D-DE]
Sen. Michael Crapo [R-ID]
Sen. Kirsten Gillibrand [D-NY]
Sen. Amy Klobuchar [D-MN]
Sen. Frank Lautenberg [D-NJ]
Sen. Jeff Merkley [D-OR]
Sen. Bernard Sanders [I-VT]
Sen. Arlen Specter [D-PA]
Sen. Tom Udall [D-NM]
Sen. David Vitter [R-LA]
Sen. George Voinovich [R-OH]
Sen. Sheldon Whitehouse [D-RI]

Tuesday, June 2, 2009

Lazy Quote Diary: ARGeezer's Pocket Economic History of the Last Three Decades.

ARGeezer in a comment at the EuroTrib sez:
Agency theory legitimized and camouflaged the usurpation of governance of publicly held corporations from share holders by corporate executives. Share holders merely vote on a slate of candidates proposed by the board, whose members have been hand picked by the executives. Financial corporations, through the massively disproportionate bonuses and stock options awarded these executives, has effectively captured the US Congress and Executive Branches through the mechanism of campaign finances and has used the resulting control to remove regulatory restrictions on its own behavior, which now is almost exclusively oriented towards the short term personal profits of the controlling executives in the various enterprises.

Over the last thirty years financial corporations have used their power to manipulate the equity markets to their own benefit, notable exceptions occurring when miscalculations were made, to inflate gigantic real estate bubbles for their short term profit, oblivious to longer term consequences, to force non-financial corporations into sub-optimal stock market strategies, such as stock buy back, to protect themselves from financial predation, and to opportunistically break up US manufacturing companies, ship the capital equipment to China and elsewhere, fire the workers, dump any pension obligations on the public, sell the real estate and other tangible assets for more than the stock market value of the former enterprise, import goods that are cheaper in every sense as a replacement for former domestically manufactured goods and done so without consideration for national account balance concerns and under market conditions best described as a competitive feeding frenzy.

This would be bad enough were it part of a well thought out program of extracting the maximum wealth from that economy for the benefit of the very few. But the only parts that apparently were thought out were those that involved making the short term profits. The long term consequences of these actions on the health and stability of the society and economy within which they were occurring were ignored. They were considered to be "externalities." Throughout this process the role of government has been ridiculed, stigmatized, minimized and, ultimately, suborned into one of supporting the ongoing looting via governmental regulatory agency actions, congressional actions and executive actions. But instead of a program of governance we have had an un-managed, un-mitigated rolling catastrophy, in large part because no one organization had enough power to actually be accountable. The government, in effect, has become the zombie of a cabal of pirates who are fighting for control, with the leadership and direction frequently changing. Worse still, there is no clear prospect for the general public to even grasp, let alone acknowledge, the situation.

Pretty much nails it.