The Environmental Bubble

Many Americans are wondering if this Country could possibly create another bubble. Well, we are currently in the process, the environmental bubble.

First, let us be painstakingly clear, bubbles are concentrated inflationary pressures on a single good, service, or industry which far exceeds general price appreciation accessible to the population in their aggregate income levels. In other words, prices in such a good, service or industry accelerate beyond what the population can reasonably pay for.

So what causes bubbles? Usually it is artificial causes such as government action, a media consensus that manipulates public opinion, or anti-competitive corporate behavior (such as cartels or monopolistic behavior). Occasionally, but not often, bubbles are caused by more natural market forces such as scarcity, insatiable demand or necessity. Regardless of its inception, once such a bubble exceeds that good, service or industry's marginal utility, people substitute, innovate or walk away. The destruction thereby is caused because the population almost always fails to collectively quit allocating resources to the bubble at the proper price level. We just continue to do business above the long run price equilibrium.

Let' talk about sliced bread, which seems to be by modern nomenclature the "Greatest Thing Ever!" Let's say sliced bread came out at a price of 5 cents a loaf. After a while, the government decided to subsidize it due to the safety and massive decreases in finger wounds encountered by the public. Then, aside from the subsidy, the public went rave for sliced bread because of its convenience. One could hardly find it, and if they did, they would buy as many loaves as possible do to the high resale of it on the black market. The producers of sliced bread decided to raise the price to 10 cents, then 15 cents, then 25 cents. Before long, the price sliced bread manufacturers could charge was over a dollar.

Watching the profits roll in, new competitors decided they could make a huge profit at a dollar a loaf. In fact, producers who didn't even know how to make bread could even do it. The market becomes flooded by products. Even though supply is now excessive, and the price is over $1.25, people are buying it like hot cakes, the previous "classic." The price hits $1.50, and the production is three times the populations demand. Sliced bread is so expensive, it represents over 50% of the buying public's "pre-sliced bread budget" for meals. That said, the business community sees no end in sight. IPOs start popping up for start ups that are going to improve the product even more. There are high end producers with wafer thin slices, and volume producers with thick slices. $1.75 the median price goes.

All of a sudden, bread is so plentiful it starts going bad on the shelves. Next, Croissants become the craze after "Breakfast at Tiffany's" debuts. The crowded producers start price cutting. Late comers and the less efficient producers go out of business as the price falls to $1 a loaf (oh yes it always falls faster). Then, people realize what they used to spend on bread and lower their consumption, more companies go out of business. At 45 cents a loaf, banks are going out of business because of their exposure to retailers and producers of sliced bread who have shuttered their doors. Further, the equipment and fixtures that were security for the loans are worthless since no one wants to get into the "sliced bread biz". Now it becomes impossible for any sliced bread company to obtain credit and the price falls further. Now at 10 cents a loaf, sliced bread is below the median budget for bread prior to the craze. Someday prices will increase and sliced bread will find equilibrium, but for now it is a battered industry with many victims, both direct and collateral to the industry, out of work and devastated.

The business of the "environment" has all the catalysts to bubble and all the inefficiencies to explode. To make matters worse it is a forced market. "Environmentally friendly" is often more expensive to purchase and a less efficient use of capital to utilize (i.e. buying solar panels and saving on electricity or paying your electric bills and using the same money to buy the S&P 500). If we have budgeted x for energy costs, and to be environmentally conscious the price is x+e, or a premium, we have a classic recipe for a bubble. The most dangerous part of the environmental market is that it is an extra cost without an increase in an individual's standard of living. There is no egotistic demand to be environmentally conscious. There is merely a premium to pay. Further, since environmental equipment, suppliers and producers do not generate natural demand or cost savings to consumers, they start under the auspices of not being competitive and superfluous.

Regardless of the economic theory that polluters do not realize their total costs to society and thus should be responsible for down stream costs- those costs are not tangible in the traditional sense and such a theory likely to fall from favor. The best the environmental entrepreneur can hope for is that innovation results in competitive prices in comparison to their less environmentally sound competitors.

The Often Ignored Collectivism of Capitalism

Many have come to appreciate the very simple realities shared by this blog when one abandons ideology, partisanship and prejudice and logically attacks the issues of today. Partisans and one way thinkers are silly. We all appreciate that fact more when we concentrate without influence on a topic with good old fashioned common sense.

Here are a few simple realities many can't argue with nor agree upon:

1. Socialized Medicine. We already have socialized medicine. The insured pay the bills of the uninsured and under insured. Twenty-five dollar aspirin and rising deductibles, premiums and co-pays are the result of free medical procedures performed by hospitals on the indigent, under insured and uninsured. Our disagreement and inability to manage this reality causes tremendous inefficiency.

2. Mark to Market Accounting. There is no such thing as "mark to market." There is mark to transaction price accounting, but transaction prices aren't always correct. In the short run, transaction prices can run higher and lower than what a reasonable person would buy or sell for. The fallacy resides in the fact that it doesn't count those who refuse to come to the market at a said price, the silent majority. When prices are too high many buyers refuse to do business. When prices are too low many sellers avoid coming to the market. Mark to market only measures what those who are willing to do business under very specific conditions, sometimes unwillingly, are transacting at. As price points shift, often there are very different buyers and sellers who come to market. In other words, if one sale is made at x, and no other sales are made, the price would be x, even if ten thousand transactions would have occurred if the price was y. In the long run, values are functions of aggregate incomes and demands of society, not prices.

3. The back story to the stock market. There is no back story or information that is causal to stock prices. In any given day the only invariable truth is that there were more buyers than sellers or more sellers than buyers. The only reason financial news bears any relationship to stock price fluctuations is that the buyers and sellers believe that such stories are related. This results in a massive and naively trusting game of signaling. So long as, the majority of positions all "agree" to weight the news equally, short term fluctuations can be reasonably explained. That said, it's not the news - it's the agreed upon norm of how to act on such news that moves the price. In the end, its the buying and selling that moves price.

4. The market is always right. The market is nearly never right. Over long, LONG, periods of time, the averages of the market tend to support logical results. On any given day, the market is as wrong as any individual. It could be argued the market is further from truth than any free thinking individual in the tendencies of market participants to stampede in and out of positions moving equilibriums past proper price levels at neck breaking speed. If the real value is five and the market spends ten years at 2 and the subsequent 10 years at 8, than on average it was right even if it never maintained that value.

Of course we could go on and on, but it is important to land the plane on the point of this obvious exercise in logic. Regardless of which issue we speak of, the solution to inefficiency, breakdowns, inequity, fallacy, losses and failures is the point of agreement in society. All of our actions impact our fellow countrymen and women. When we agree, momentum is created, whether it be positive or negative. A point of agreement is anything from a sale to an appraisal. The willingness to stay in an upside down mortgage to ensuring all have access to affordable health care. A decision to place a put or call option on natural resources one doesn't require to thinking for oneself. We are our brothers keeper whether we believe that or not. Our failure to properly conduct ourselves in a positive manner shall manifest itself in the our reality.

Energy prices, home values, loan qualifications, joblessness, health care costs, profits and losses are our decisions collectively. They are the fruit of our actions. It is collectivism, or a positive point of agreement, that creates abundance. Our world is a manifestation of our collective perspective. Gold is not edible, usable or valuable in its own right, only by collective recognition and agreement of its value does it become an inflation hedge or an international currency. Whether collection of our individual efforts results in disruption, decay and depression or prosperity, innovation and hope is all decided by the direction of us as a mass. The apex is thus the superseding values of our population to act in self interest without detracting from the progress of society as a whole and influencing our families, neighbors, friends and coworkers to abide as well.

When Did The Tie That Bind Us Break?

Often I wonder if the United States will be able to recover as the super power it once was. I wonder, Could we win World War II again? Could we withstand the odds of the Revolutionary War? Could we handle an oil embargo or an era of expansion like the Manifest Destiny under President Polk?

Such instances require unanimity and collectivism. We would have to rediscover what it meant to sacrifice for one another and to believe in each other as Americans. After 9-11, we underwent terrorism by our own citizens such as anthrax and the sniper killer. After the financial collapse of 2008, we cannot find enough unanimity to stop stealing from one another (ponzi schemes, corporate raiding, rampant voluntary foreclosures, ruthless lending tightening by banks (government bailed out banks mind you) and energy price speculating.) It seems for every challenge Americans scurry and mutilate one another.

Instead of becoming a nation of one, we polarize. Republicans side with Republicans and oppose anything Democrats suggest, and Democrats side with Democrats and oppose anything Republicans suggest. Regions divide and engage much like rival gangs. Age groups and ideologies harden in their positions.

While our Founders envisioned ideological debate, they could never have imagined such devastating polarization where either side would prefer the Country crumble than lose their position. It is a sad time in our history. Partisans justify even the most nonsensical notions to attempt to satisfy their own greed and self interest. I doubt the Americans of today would have starved in the snow at Valley Forge or had the resolve to take Iwo Jima. More likely the Americans of today would have quibbled, robbed the wounded and stolen the identities of the dead corpses.

Balancing the trade deficit, building a vibrant middle class, maintaining an overwhelming strength on the world forum in voice and respect, and fostering a nurturing Nation of peaceful compassion for our citizens are simple unalienable truths. Yet we cannot agree on these issues. Why is that? I'm not talking nuance, I am talking about things that should be so ingrained in the decency and fabric of Americans, that to resist them would be unnatural. The solution to our woes be it deficits, deflation, inflation, negative GDP growth or international threats is in recognizing what it is that ties us as one and working in unison for the betterment of the Country as whole wihtout regard for demographic, party affiliation or self.

Don't Buy the Hype, a Trade War is Exactly What We Need

In the short run, trade wars can cause some pain and some market shortages; but in the long run, one can argue that they strengthen those nations that are capable of self sustenance against those that are not.  While many correctly argue that the protectionism prolonged the Great Depression, protectionism also developed an unprecedented concept, the middle class, which allowed the United States to grow and thrive for over sixty years.  Thus, short term pain led to long term dominance including a dominating presence in the Second World War.

Simple math, GDP= G+C+I+(e-i).  The letters e and i represent imports and exports, and the difference of the two is defined as net exports.  If exports exceed imports an economy gets a boost from international trade, if imports exceed exports the number is negative thus creating a drag on the country's GDP.  Since positive GDP is desirable, one would surmise that countries prefer to have positive net trade.  While sarcasm is not my style, I find it literally implausible that any person who resides in a country with a net import could argue that trade on such terms is a positive for them (if they are capable of self sustenance, i.e. not lacking sufficient resources to maintain life). It's a drag the country's GDP and a threat to its national security.  After all, some of the worst threats to the economy of the United States has been the result of dependence on the import of foreign oil.

Now, I understand that a small number of elite finance, corporate multinationals and ultra wealthy would like to proliferate a belief that the United States should not protect itself in any manner when it comes to international trade. These arguments are based in self interest and selfishness.  They are not healthy arguments, and clearly not sound judgment for a country that aspires to be the world's super power.  That said, these voices are strong because they own the media sources, banks, and a number of our elected officials.  Regardless of their amplification, they are wrong.

Succinctly and logically put, saving per our purchases from cheap foreign labor is not worth having a country where middle class workers have no means to make a life for themselves.  

Now many argue unions are to blame for the lack of competitiveness in the American worker, and while there is much merit to this argument, it is collateral to the point.  I'm talking about keeping American dollars in America.  Currently, Asian and Middle Eastern Countries use our dollars to manipulate the values of their currencies so that they can continue to be net exporters to the United States.  With little to no importance on the global scale as consumers, the citizens of these countries suffer with their undervalued currency while their governments use the captured dollars for investment in stocks, bonds and commodities.  That's right, the countries themselves use our currency to corner markets, drive up commodity prices and control corporations.  

Americans thus suffer a self-inflicted punishment.  We need two incomes to raise a family and we lose the ability for upward mobility as globalization destroys our need for our own human capital.  It starts with manufacturing and soon it is service work, finance and engineering.  

The proper question is why suffer?  The elitist with no regard for our Nation say it "makes us stronger," but that's nonsense.  The reality is that we live in a country loaded with natural resources, the benefits of capital, and the massive infrastructure that reflects our wonderful experiment of capitalism.  We have it all.  

Unlike the Chinese, Japanese, Russians, Germans, Mexicans and Indians we don't need them to purchase our goods to survive.  We are the consumer and they are without recourse should we insist on fair terms of trade.  Any great leader knows that he or she has at their disposal the power and ability to dictate whatever terms they have the power to uphold and impose.  One for one (export for import), as Warren Buffet would declare, is within our reach by a simple declaration by the US that such a standard is the now necessary.  The United States has the strongest military and the power to enforce its will with little or no recourse.  Why allow the weak to become strong by eating our innards?  Why destroy our way of life while those of ambition and tactical advantage attempt to unseat us with our own weapons. 

 We need to wake up, and stop the leak.  We must remember a multinational corporation is not country, the United States is our Nation.  Further we must act now, while we still can enforce our will.  This disturbing trend could unseat our ability to dictate terms.  With every mutter of changing the dollar as the international currency, every balk at trade reform by net exporters, and every month of negative net exports we move closer to becoming irrelevant.

For a more in depth discussion on this topic please see: http://commoncentsdg.blogspot.com/2009/01/national-security-and-balancing-current.html

Not a Flat Tax, a Head Tax

Many agree that we could sufficiently reduce government spending if we could simplify our tax code.  Think of all the waste in having the gray suits at the IRS calculate and audit people's taxes.  In a collateral respect, think of the amount of money spent by individuals to comply with the complications of tax code in hiring professionals to maximize their yearly reporting.  It is literally waste generated by waste.

Many have suggested a flat tax.  A decided percentage, across the board, for every citizen regardless of socioeconomic status.  That said, the nature of the flat tax still discriminates.  That's right, it discriminates between those with income and those without.  If one has no income, they are tax exempt.

Why not then pass a system where all adult citizens are treated exactly the same?  A head tax.  In exchange, for services the citizens shall pay a pro-rata share of the yearly budget each year.  The bill will be shared by all so that we are incentivized to produce.  We are incentivized to produced because not just every incremental dollar, but every actual dollar, earned over and above the taxed amount shall be the citizen's to keep.  The Country would not tax minors since we aspire for a growing population, but all other citizens would share in the burden of government services provided.  The head tax would make our country the first to align the citizens with the dangerous current account and budget deficits by having them realized in the daily lives of its citizens.  

To ensure compliance, failing to meet one's pro-rata portion of the budget would lead to the same severe punishments as currently reserved for failing to pay income tax with one additional caveat, no access to courts, voting, or public welfare until repaid.  While this sounds harsh, one must remember the head tax would be very minimal compared to current tax levels as citizen's would not procure government services they didn't find "worth it."  Charitable minded citizens could choose or collectively raise money for the less privileged to meet their taxes each year so that those unable to pay are allowed continued access to government services.  The important part is that everything remains paid for, wars included.

Like splitting the check at the end of dinner the incentive to waste countless hours and money hiding income would be forgone for more productive uses of brain power.  We would allow employers to pay workers head tax; as well as, friends pay one another's taxes without penalty or additional taxes generated.  The point of a head tax is payment, not punishment.  If we lose jobs due to poor trade policies, natural disaster, poor family values or senseless profiteering abroad the consequences would come to roost in the form of shortfalls when citizens could not meet their obligations.  If we ask for more government services the consequences would quickly become apparent when the "bill" arrived.  A head tax would force the United States to put itself in a harmonious balance of work, capital, income, collectivism and Nationalism.  That'd be alright by me.

The Illusive Panacea of Meritocracy

Ever wonder why certain people hate Socialism? Probably not. Ever wonder why certain people hate capitalism? Probably not. Have you ever heard the complaint that those systems are unfair? Of course. Okay, so none of this is earth shattering, but there is a common thread that creates disdain? It is the idea of "deserving."

Since the time we were five years old our parents, teachers, storybooks, literary pieces, the movies we watched and our interactions with friends in the school yard all centered around "getting what one deserved." Why do we form lines? It's not because it is the best system for each person individually regardless of their place in the line, but it compliments a system of agreed upon fairness. We believe that first come, first served is fair. That those who are first shall be served first because their timeliness shall be rewarded. They deserve it.

We just as easily could have created a system where the tallest person in line shall always go first. The problem is that if someone is really short they could be waiting for a really long time. They could theoretically be helped after people that arrived much later than them but made the line before they were helped. That just wouldn't be fair would it? The tall people didn't do anything to deserve to be helped first. In fact a system like that would become hard to enforce as short people would be likely to opt out of lines all together and base who is served next on other criteria such as violence, intimidation or "cutsies."

In fact, allowing someone to benefit for something they had no control over would be deemed in the same family as dumb luck. That sure isn't a flattering statement. Luck is receiving something by chance, something one doesn't deserve. Undeserved achievement is so unflattering that one of its recipients may say "better lucky than good," or even more austencious "people create their own luck" to deflect the resulting stigma.

So we have been taught esoteric concepts such as karma, what goes around comes around and someday we all get what we deserve. Is it true? In socialism, their is a tremendous tendency for "free riderism," where individuals can get something they do not deserve. This absolutely burns many who feel like they are getting exactly what they deserve and nothing more. How dare someone get something they don't deserve? In fact, many people are so concerned with who deserves what, that they really don't care if they are getting more than they deserve so long as no one else is. That wouldn't be fair.

In capitalism, often times people condition wealth or monetary success with how deserving the person who possess it. Self made millionaires are far higher regarded than those who inherited money. Those with inherited wealth must "do something" to make a name for themselves or else they are seen as a waste. Smart people stay poor and dumb people rich all the time. While this is not a correlation that we see to be common, it is also not an isolated incident. We all sleep better when the good ones, who deserve it, have good things happen to them. Too bad that this system isn't as correlated as we expect?

Many of the wealthy are born wealthy. They are literally starting the game ahead in the score. Some get lucky and some unlucky. At times, good "deserving" people lose wealth, jobs and stature. At times, people of poor quality gain wealth and prosperity. The reason; capitalism doesn't judge, it rewards much like the polls for an election. When a person exchanges dollars for a good, service or opportunity it is given instead of that dollar being given to another for a good, service or opportunity. It's literally voting with money. It's democracy for commerce, the winner attracts the most dollars. As such, popularity, appearance, timing, feasibility, communicability, connections, access to markets, marketing, perception and momentum are usually the factors with the most magnetic effect with dollars.

Sometimes, that recipient is also a deserving person who worked hard, showed brilliance, was ambitious and withstood great obstacles to achieve. We love these stories because like being first in line, this person used what is generally available to all to succeed- they deserved it. Sometimes, the person got very lucky and was in the right place at the right time. Not bad, but we condition their success. Sometimes, the recipient didm't earn the money used, committed none of the brain power, and achieved on the back of others. Just like the tall people and the free riders, these people are scorned. The deserved, the lucky and the undeserving all get the same result in the accumulation of societal claim checks (or currency), but we don't have the same feeling.

That is why the meritocracy looks so great. In a meritocracy everyone gets exactly what one deserves. However, who is to decide what we deserve? How do we create such a system? What criteria would we use? I guess the root of our frustrations are easy to identify, but beyond our ability to rectify. The humerous part is how something so inherent in our nature is so difficult to attain.

The When, Where and Why of Government Involvement in Commerce

When Republicans are in power, the cry of the people is that the government is denying us our freedom and interfering by playing favorites. When the Democrats are in power, the cry of the people is that the government is denying us our freedom and interfering by playing favorites.  While neither party will constructively work  along side the party in power in fear that good government will lead to the reelection of their nemesis,  American citizens drown in rhetoric and double speak from both parties about what good government looks like. Regardless of one's political affiliation, this blog attempts to engage readers with the logical, not partisan, discussion of what is necessary government involvement in commerce.

First, let us start with an irrefutable fact of the order of operations.  Government is the first step in economic activity.  Government is necessary to provide at a bare minimum: property rights, police protection, infrastructure and recognized mediums of exchange, or currency.  Yes, I am aware that many anti-establishment Locke Liberals and libertarians would argue against the last two, but in our current developed state these two are enough established to be considered necessities of commerce (i.e. roads, electricity, water, etc.)  They are essential because without any of them, commerce would subside as a matter of natural progression from its current state. 

What levels of commerce would we have if one could take property from another by force?  If there were no roads?  If the electricity was not delivered? If agreements were not binding or valid? If we had to barter with goods to make a purchase?  Certainly not an economy the size, strength and complexity as ours.  Whether it is good or bad, it's where we are at. 

So, the right question is not where government involvement should or should not be, but rather how far should government go?   In a credit based economy, like ours, the government speaks for and develops the value of the assets in our economy (i.e. the government borrows notes from the Federal Reserve, or dollars, at a rate if interest in exchange for true "dollars" that the Fed holds as collateral along with all assets held within the Country).  Oh by the way, for those of you conspiracy theorists, the same is done by many States with Motor Vehicles ( A state takes a manufacturers' "statement of origin" from the maker of the vehicle and in exchange delivers a "title," or license for use, and the ability of that vehicle to be used within that State through the process of registration.  As a result, that State then issues a Driver's License so that it has jurisdiction over the driving patterns of the user thereby controlling the licensee, or "owner," to use that " registered motor vehicle" on their publicly owned streets and highways.  But I digress.

The simple answer is that the proper role of government in commerce is the amount necessary for commerce to "work."  By work, I mean that citizens can effectively participate in the money multiplier and achieve, or reasonably believe that they can achieve, their personal goals and happiness.  This ability, or  at a minimum the belief in this ability, allows the society to function in a peaceful manner as its citizens have an outlet to achieve there desires, or work.  After all, and I recognize people who quote the Declaration of Independence as an authoritative document are annoying, the point of America is the right to "Life, Liberty and Pursuit of Happiness," right.  The key is for people to have the freedom of the pursuit, that's right THE PURSUIT, of happiness.

In closing, I recognize that the Declaration of Independence is not authoritative in nature.  That said it carries persuasive authority into the intent of our Founders.  Government's role in commerce is the creation and maintenance of channels for commerce so that Citizens can access and thrive in that system.  The government is there to provide and maintain the artery, so that the heart, or private commerce, can pump blood and that blood can freely flow without blockage or interference.  The artery must be maintained though, to maintain its shape so that blood doesn't spurt every where thereby killing the body; as well as, ensuring clear passage.  Further, the artery is to be for the benefit of one's own body.  Should the artery be ruptured, by outside attack or internal disruption, its integrity must be put back in tact to ensure survival of the being.  That said, at no time shall the artery be altered outside its purpose of a conduit and shall never alter the course of which platelets cross its path.  

Now that it is defined in theory, I let you decide the application of this framework in practice.