Deflation redux

Folks-
Paul Krugman pointed out today in his blog one reason why deflation is bad for the economy-corporate cost to borrow money goes up. Read it at his site at The New York Times.
-Edly

Economics and the Auto Industry Bailout

Folks-
In case you weren't aware (and since I haven't mentioned this on my blog, why would you be?) I am becoming a devotee of Nobel Prize winning economist Paul Krugman. He writes a column over at The New York Times several times a week, and has written several books. He is a self-labeled liberal, as am I, which is somewhat rare amongst high-profile economists, ([Edited 11-21-08: as I am not.]

In addition to his column at the New York Times, he also has a blog over there that I check out several times a week. He usually posts short entries there daily, including links to other sites with good information. That is where the first of two topics I'm going to mention come from.

Johnathan Cohen over at The New Republic has published an article titled Panic in Detroit arguing that we should bail out the big three automakers. His arguments are persuasive: The big three aren't the dinosaurs they used to be--the Chevy Volt, slated to come out in 2010 is a good example. Nothing like it is scheduled to come out of Japan, or any other country on any timescale. He also argues that the big three are coming up with cars of better quality than they have in decades, and according to Consumer Reports, better than the Japanese. In addition he argues that allowing GM to go under means not that they would reorganize, that is unlikely considering their position, but rather that they would be liquidated, meaning a loss of jobs not less than 500 thousand, but probably closer to 1.5-2.5 million, increasing the jobless rate by about a third immediately, and forcing the other two automakers to go to sources outside the U.S. for parts. That's only counting the economic hit for GM and it's parts suppliers, not the surrounding businesses, such as restaurants, hospitals, etc.

I've gone on too long about the article. Check it out for yourself and see if it changes your mind about letting GM go down.

The second topic here is also from the New York Times. It seems that for the first time in recorded history, the U.S. is looking at deflation instead of inflation happening. Jack Healy writes a report titled "Consumer Price Decline Prompts Fear of Deflation." This article is shy of some background information, which I'll try to provide here.

Economists of all stripes consider deflation, the increased value of money, to be more damaging than inflation, the devaluation of a currency. In our case it means that the value of a dollar is increasing, rather than decreasing, as it usually does. Why would this be a problem? If you have a whole lot of dollars stuck in a mattress, it isn't much of one. However, if you are working for a living, or have your money saved in any kind of interest paying instrument, such as a savings account or bonds, it means you will be getting no interest paid on your money, and you are likely to take a pay cut. It also means that there is less investment in the economy. In fact, deflation usually means that the economy is shrinking significantly. In most situations the Federal Reserve could stop deflation by decreasing interest rates and loaning more money, but at this moment the interest rates are already as low as possible. Doubt me? About a month ago yields on U.S. government bonds actually went negative for a short while (interest rates of less than 0%.) An example of negative interest would be buying a bond for $100 that was only worth $97 (these numbers are illustrative only.) That might seem an odd thing to invest in, something you know is going to lose money over the long term, but investors were so worried about the money they were losing anyway that they were willing to lose a small amount over the long term instead of losing their entire fortune immediately.

Now you're ready to read the article. Go ahead and check it out.

-Edly

Problems for Democrats

This diary/blog entry is for Democrats. Republicans can come back some other day.

I have some very bad news for Democrats: On November 4th we won. Big. We got an honest mandate from the voters. We won the Presidency by over 50% (compared to McCaint’s just over 45%). We have big majorities in both the House of Representatives and the Senate (okay, not Filibuster-proof, but big.) According to the AP, when asked if it was good for the country to have just the Democrats in charge of Congress and the White House, 42% said it was good, 20% said it didn’t matter, and 34% said it was bad. CNN got similar results. So 2/3 don’t care or like it. In the same AP article, 72% voiced optimism that the new President, Mr. Obama, would make the necessary changes to bring life back to our dying economy. That number includes 44% of Republican respondants.

You know what that means? Democrats don’t have any excuses anymore. Nope, none of that “The President will veto it,” no “that’s too liberal for the public,” and no “they don’t want us to do anything.” “The Republicans won’t let us do it” doesn’t work either. We have a clear mandate, clearest since Reagan got elected 28 years ago.

So all of that “We need to be bi-partisan” stuff needs to be forgotten. Why? The Republicans want to come back next Congressional term. The best way for them to do that is to make it look like we can’t get anything done. Many of you are thinking “Then we have to compromise with them!” That’s not entirely true. That attitude simply allows the Republicans to set the agenda, again.

We’ve had the majority in Congress for the last 2 years, and for that entire time we let the Republicans not only set the agenda, but have their way on everything. The Democrats were the ones who took impeachment off the table, not the Republicans. The Democrats were the ones that refused to set a timetable to get out of Iraq, not the Republicans. Why? Because we knew that Republicans wouldn’t like it if we did this. We let them set the agenda for what would be done. We let them lead.

Well, now the majority of the electorate, by a large margin, have told the Democrats that they want something done. If we let the Republicans cow us into refusing to even schedule debates on the issues then they are the ones leading the country, not us. And in the next election cycle, that is what the electorate will remember: Democrats are ineffective leaders.

So what do we do? We have a mandate to do something. With an electoral victory like the one we had, what are we waiting for? 100% of both houses, the Presidency, and all 9 seats on the Supreme Court? That’s never going to happen. We need to do what we can with what we have. We’ve been saying for a long time that we want single-payer health care. Do we? We’ve said for a long time that we need to get off of oil and onto renewable energy sources. Are we going to do that, or not? We’ve said repeatedly that we want to bring back regulations on industry, strengthen Social Security, improve the environment. Do we, or is all of that just hot-air? We’re never going to get a better chance to do any of those things than right now.

So, what of the Republicans? We don’t have a filibuster-proof majority in the Senate. Well, if the Republicans threaten to Filibuster a bill we call them on their threat. If they do it we say that they’re standing in the way of progress. Scream it to the hills! If they don’t then they look weak. If we refuse to bring up a bill that they threaten to veto then we’re the weak ones. Being bi-partisan in what we are willing to introduce gets us nothing. If the Republicans really want to be bi-partisan, let them be. If they are willing to make compromises then they are welcome to. If they do, we can do the same. If not, damn them to Hell.

The important lesson here is that we have a choice. Let’s say that whatever we do, next Congressional election cycle we lose seats. Would you rather say that we played it safe, got nothing we wanted, and lost, or say we tried? I know which one I would like to say. Carpe diem!

Reconciliation? Why?

Folks-
Democrats won big on the 4th, and don’t let anyone tell you otherwise. Lots of people are trying to convince all of us that this country is “Center-Right” or slightly conservative. All you have to do is look at the results of this election to see that this is not true. Americans are pragmatic, and want what works. That is more important to Americans than party or political ideology. That is the message of this last election.

The Republicans took over our government by arguing that they were better at governing than the Democrats. They promised a better government, better economy, and a better, more moral, stronger America. In every one of these arguments they proved themselves tragically wrong.
So, now that the U.S. electorate has handed the Republicans their walking papers, what are they saying? They’re saying that the Democrats better quickly reach across the isle to them.

Say what?

Let me get this straight: For the last 20 years the Republicans have been openly lying about Democrats, from the Clinton health plan to the “Swift Boating” of John Kerry. They have been calling us “Socialists,” “Terrorists,” “Cowards,” “Traitors,” and I’m not exaggerating here. All of these terms have been used against Democrats repeatedly. Against going to war when the President openly lies about why we should? What are you, a terrorist-loving traitor? Sound familiar? Actually risked your life in Vietnam? Cowardly act, not worthy of a President. That’s what they said about Kerry. Is Obama a terrorist? Palin said we would have to decide ourselves. We did.

While the Republicans were in control of all three branches of government, about the only time they reached across the isle was to whack Democrats with a stick. Remember when they wanted to eliminate the Filibuster because the Democrats didn’t want certain Judicial appointments? Now THAT was bi-partisan. Really reached across that isle and hit us good there.

I have to be honest here: I feel absolutely no need to reach out to Republicans right now. They screwed up this country in more ways than I can mention here. They trashed our economy with their laissez-faire economics. They started a war with complete, bald-faced lies when we should have been paying attention elsewhere. They allowed thousands of people to die in preventable natural disasters and tried to convince us that they couldn’t have foreseen them coming when it was obvious to everyone what was going to happen.

They need to apologize to us. They need to reach across to us. I don't just mean Democrats, I mean everyone.

They must realize that cooperation is not the same as capitulation—they must give something up to cooperate. It’s not about them always winning. Reconciliation requires two sides, and they aren’t ready for it. Until they realize this, it can’t happen. And I see no reason to try to force it.

Updating tomorrow

Folks-
I'm still celebrating the Presidential Election Victory, and being disappointed over the loss on Prop 8. I'll update the site with another post soon.

In the meantime, here are a couple of articles you may want to read. I'll be commenting on them later.

The first is on how there is an upcoming problem with Private Equity Firms: http://www.nytimes.com/2008/11/03/business/economy/03equity.html?hp

The second is on the damage Bush and his cronies are causing in their final days in office:

http://www.nytimes.com/2008/11/04/opinion/04tue1.html?em

Enjoy!

-Edly

The game is on

Folks-

All of the pre-game work means nothing. By tomorrow we will almost certainly know who won this election. I am not predicting an outcome like in 2000, when we didn't know who won for over a month. I believe we will know who our President-Elect is when we get up tomorrow morning.

All we can do is pray for our country. I am praying that Obama wins. If you haven't already voted, please do.

-Edly

What we need to do NEXT Part 4

This is the fourth part of my massive essay, "What we need to do NEXT." For the previous three parts, read them below.

Education

In the 1960’s, the average college graduate had little debt when given their diploma. Most of their education was funded through grants or the GI Bill. Now, most students graduate with a minimum of $30,000 in debt, usually more. Most of the funds spent on tuition and books come from loans. This needs to end. With credit becoming scarcer, we need to start funding our higher education. This is where fortunes are started, through education. Businesses cannot produce good products without well educated people. Government doesn’t work well without well educated people. Money spent on education is not lost, it is invested, and we need to start treating it this way, instead of treating it like it’s money thrown down a well.

We need to support our troops by giving them a free education. Honestly, how can we say that we are supporting them when in fact all of the funds they are getting for education right now are a part of their pay? We need to do more for those who would sacrifice themselves for us.

Money paid into colleges also helps our country by supporting basic research. The more basic research that is done, the more our industry benefits and the more jobs that are created.

For primary education, we need to start the reforms by paying our teachers better. The starting pay for an elementary school teacher in California is about $24,000. That’s nothing. Two teachers together aren’t making $50,000 per year. That needs to be changed dramatically. You absolutely can’t get a first-rate education from someone who can’t survive on their pay, let alone pay off their college debt. It’s scandalous.

After doing this, we need to reform our textbooks, and how they are written and chosen. History text books are written as propaganda pieces, and chosen based on how much they project the way we wish our country had been, not on actual history. That’s nuts. Let our kids know what has happened in our country, or they might make some kind of dumb mistake, like allowing a depression to happen again.

None of this is optional. If we refuse to do these reforms we have in effect decided that our country will fade away into history.

What we need to do NEXT Part 3

Folks-
This is the third part of my work. This part focuses on Energy and the Environment, areas being neglected as the economy unravels.

Energy and The Environment
In the economic crisis that has finally gotten covered by the press in the last couple of months, we have somehow forgotten the environment. Global warming isn’t going away. Pollution isn’t going away either. For the last 8 years or more, both of these issues have gotten short-shrift from the Republicans. We need to get back on-track on these subjects.

The first thing we need to do is cut tax rates for green power companies. Specifically those that build and use wind turbines and solar power. Current tax breaks for these companies are set to expire this year, right when we need them the most, and Congress has yet to extend them. Not good.

Next we need to invest in research on these areas so we can introduce our technologies to the rest of the world. If we fail to do this, we will be buying these technologies from other countries instead of exporting them. The more of these companies that are producing green energy for us, the better. Not only will it create jobs here, but it will bring back wealth that we have been shipping out to other countries by the shipload. And we need it back, badly.

In my opinion, the Pickens Plan isn’t perfect, but it’s a really good start. Nobody in political power has come up with anything better that could be implemented. I strongly recommend we adopt it in some form.

I remember a study that was done sometime before I was born that came to the conclusion that nuclear power plants didn’t make economic sense. It cost more in energy to build and remove a nuclear power plant than the plant produced in its useful life. These power plants are being used for longer than was expected at that time, and for longer duty-cycles without incident. It’s time we funded a new study on this important question, and if the answer ends up being that the energy cost of building, fueling, and decommissioning these plants is still larger than the energy produced in it’s useful life, we need to bury this technology once and for all instead of bringing it up over-and-over again. If, however, it turns out that newer information shows the opposite, that a nuclear power plant produces a net-gain in energy, then we need to carefully implement them in a safe and secure manner. Either way, the debate needs to end.

Earlier this year we had a wake-up call over Peak Oil. Speculators pulled their money out of financial stocks and put it into oil futures and ran up the cost of oil, giving us a picture of what the world will look like in a few years if we don’t start cutting our oil usage. We really need to get off of oil as a fuel as quickly as possible. Not just because we use so much oil as fuel, but also because oil is our only feedstock for plastics and the only source of jet fuel. There is no biological alternative for either of those yet. Once oil is gone, so are single use medical items and jet airplane flights, including passenger planes and military planes. Don’t like sharing needles? You may not have a choice in the future. Unless we stop using oil and move over to alternatives, our future may start looking more like the past.

One of the best things we can do to fight the problem of peak oil is to stop burning so much of it for transportation. We can stop using nearly as much oil as we are by converting our fleet of personal cars to electric with diesel powered generators that kick in for longer trips. The conversion of our fleet to electric should be done by giving auto makers tax breaks and research dollars to move over to electric. Heavier taxes should be imposed on purely gas driven cars, which in my mind includes Toyota’s Prius and all other hybrids on the market today. Giving owners of electric cars breaks on solar power installations would also help get people to buy these vehicles.

Other things we can do to reduce our reliance on oil as fuel would be to start designing our cities so that cars were less necessary. Urban sprawl and suburbs are the real reasons most people have cars. If you live a long distance from where you work, a car becomes the best way to get to work each day. Design cities so that they are more compact, so that there are well defined living, working, retail, and industrial areas, and suddenly public transportation, bicycles, and walking become viable alternatives.

This also has the interesting side effect of stopping the conversion of farmland to paved-over housing subdivisions. I’ve been watching this happen to Silicon Valley (formerly the Valley of Heart’s Delight) all of my life. I live on a side street of Blossom Hill Road, named so because it used to run through orchards. Now it runs almost continuously through retail and housing areas from one end to the other, a run of more than 10 miles. I sense that we will probably want most of that farmland back at some point. It would be better not to pave it over in the first place.