Temporary Cash And Permanent Jobs

When people have a permanent job and they receive a cash infusion like a bonus or a tax rebate, they tend to spend the money on the things they always wanted to have but were obliged to put off in favor of using the money for other priorities. But now that they have the money, their pent-up demands will remain pent-up no more.

Thus, to get out of our current economic predicament, which we all agree will happen when the consumers will start spending again, we need to work on a long term solution to the looming problem of unemployment while at the same time do something to immediately infuse cash into the pocket of the consumers or, if the situation requires, do a series of cash infusions.

And while we do all that, we must not neglect to do something just as important. We must try to understand what happened in the years past that got us into the current predicament, we must work on a measure to prevent similar things from happening again and we must weave the measure into our permanent solution.

Experience tells us that the moment cash is infused into the pocket of consumers, those who have a job will spend the cash right away while those who do not have a job may spend some of the money but only if they see the promise that a job will be coming their way soon. Otherwise they will save the money or reduce their debt.

And so, to counter the reluctance of this latter group, the plan to infuse money into the pocket of the consumers must be designed in such a way as to negate the opportunity to do anything but spend the money. This will stimulate the economy which will offer the unemployed themselves a way to participate in the creation of jobs and thus improve their own chance at finding one soon.

And the best way to accomplish all of this is to lower or suspend the value added tax (VAT) which is a tax originally designed to discourage consumption and encourage saving. Every country has a VAT in one form or another which it collects in one way or another. For example, in Canada it is called the Goods and Services Tax (GST) and it is imposed on the consumers with every purchase of goods that is made and every service that is rendered.

What is important here is to reduce or suspend the VAT not permanently but for a short period of time such as a month or two. And the reason for this is to let the consumers know they must not put off their purchases indefinitely or they will lose the opportunity to save some money.

At the end of the period, an assessment is made to determine what effect the move has had on stimulating the economy and, if need be, repeat it once or twice more. Conditions may also be attached to the scheme such as the lowering or the suspension of the VAT for only some classes of goods like those made locally but not the imports, or the purchase of cars but not the textiles and so on.

This move will result in the creation of a virtuous cycle which will start with the raising of the expectations that will lead to the increase in economic activities that will lead to the rise in the level of optimism and back to the high expectations again. And this in turn will do much to help establish the proper climate for creating the kind of high paying jobs that will outlive the economic cycle during which they were created.

By stimulating the economy for the short term and by putting down the foundation for the creation of high paying jobs in the long run, we would have created the climate for rejuvenating the economy which is what will help us face the challenges of the future. But the job will not have been completed without us doing one more thing. To understand this part, we turn our attention to the following.

Like a body that is invaded by a virus, economic bubbles form and they get pricked all the time sending shock waves throughout the financial system. In fact, the making of a bubble starts with what may be called a moral virus that sends the participants in the financial system into a delirious state of fantasy. And the more the body becomes infected the more resistant it becomes to accepting reality. The result is that the participants cling ever more strongly to the belief that everything is fine and that things will get even better. But the pricking of the bubble happens anyway, the shock wave begins to hurt and everyone asks: How did it happen?

Let that question remain a rhetorical one and let us do something that science fiction writers do all the time. Aiming to have a happy ending for the horror stories they write, the writers use a neat little trick. They make the hero of the story anticipate the horror that is about to hit the group - perhaps a crew on a spaceship or an expedition of scientists on a far off planet - and they get the hero to do something about it. The writers get the hero to prepare an antidote that will work against the disease even after everyone has gone mad and has become cut off from reality.

The hero does it by constructing a system that triggers itself automatically when the time comes. A computer or a robot warns the crew that everyone has been infected and instructs them to submit to treatment. If the warning is ignored and everyone goes mad and becomes cut off from reality, the antidote is administered automatically by spraying it through the ventilation system.

If we now look closely at the financial crisis that hit the world, we see the similarities with this story in that the madness began quietly, the people who warned about it were brushed aside and the madness steadily spread till it reached what may be termed a pornographic level. This is when the people in charge of the system were giving themselves and each other hundreds of millions of dollars in salaries, perks and bonuses while their pauper supporters stood on the side watching them and cheering, powered only by the fantasy that they too will someday be rewarded and become the new fat cats on the bloc and in the neighboring alleys.

We conclude from this observation that in the same way that science fiction writers do their thing to reach the desired happy ending, we must include in the solution to the current crisis a way to prevent it from happening again or, if it does, from reaching a disastrous ending. To do this we devise a method that will warn of consequences when we all get mad and fail to realize that someone making hundreds of millions of dollars for doing nothing more than push paper is financial pornography gone beyond what is acceptable. If the warning is ignored, a remedy is automatically administered by a pre-ordained legal order. But how can this be done in practice?

Data is now collected by various organizations to measure how the quintiles in a society do financially in relation to each other. A quintile is a fifth of something. In this case, the population of a country is divided into five equal parts worth 20% each of the total population. At the bottom there is the poorest quintile, at the top the richest one and then there is the other three quintiles situated in the middle and called the middle class.

What the organizations do is get the information from the tax department, crunch the numbers, analyze them and publish the results. But the most that we have been getting so far in terms of reaction from anyone was a sense of mild astonishment that things were getting out of whack. What needs to be done instead is that the same data be brought to the attention of an authority that has the legal power to do something about it.

The authority will sound the alarm to the effect that something is getting out of balance and then identify by name the handful of culprits who are receiving pornographic levels of compensation. But because everyone who gets fabulously wealthy in a short period of time is not necessarily a financial pornographer, the matter must be looked into by regulators who will determine what is going on.

The regulators will need a test they can use to do the determination. Here is one idea. If the wealth is made by someone who is producing something tangible and not by pushing paper, the matter rests here. But if the wealth is given to someone who does no more than participate in the goings on of a financial enterprise, the compensation is declared an act of financial pornography, the money is disgorged and given back to the stakeholders from whom it was taken fraudulently or by navigation through the legal loopholes.

Merry Christmas and Happy New Year everybody. See you then.

Everyday A Christmas Day

She was so pretty I asked God for a favor but was not certain I had the right to ask for it at my age. We were both in our early teens though she may have been older than me by a few months, and according to Catholic teaching, flirting at this age was frowned upon if not forbidden altogether. Still, I prayed to God that if she became my friend I would go to the church that was adjacent to the school and pray every morning before going to class.

We lived in Djibouti, then a French colony now a city state at the Horn of Africa where foreigners came, stayed for a while and left. Consequently we had no time to forge long lasting friendships with each other but some people handled the breakup better than others. The pain was felt to some degree by the very young but their parents were always here to shower them with love and ease the pain, so the children adapted to the new situation in no time at all. As for the adults, they anticipated the breakup and had control over their own lives anyway, so they did not suffer much. Those who felt the sting of the breakup more than anyone were the tweens, as they are called today; those who were my age and Claire’s age, the girl I asked God to help me befriend.

What made things worse was that Claire’s father worked at the self contained military base called Le Heron where her family lived with a limited number of other civilian and military families. This situation made it so that the only time I could see her was at the beach which, thankfully, was frequented by people all year round given that Djibouti is situated near the Equator where it is warm enough to go to the beach and swim in December as readily as you do in July.

Up to that time I had not had the opportunity to speak to Claire but the family was new to Djibouti and being with her parents all the time, I could see that she had no friends; at least not a boy our age. And all I wanted from God was to engineer the opportunity for me to speak to her once after which I was confident we would become good friends.

I was a good swimmer and a diver too. In fact, a few years later, a coach I befriended at the Holiolido club in Heliopolis, Egypt thought I should train continuously to make it on the team that will be going to the Tokyo Olympics in 1964. This was not yet the Summer of 1960 and I was of the right age but it was too late for me to go to the Rome Olympics because I was not ready yet and because the selection of the Egyptian team had been made already by a committee that included my friend the coach.

Little did he or I know that my family will be preparing to go to Canada in 1964 and that I would have other things on my mind than to prepare for the Olympics. And so, when the time came, I said Sayonara to Tokyo and sang Arrivederci Roma. But I am getting ahead of myself so let me get back to Djibouti when I was still a tween and all I could think of was Claire whom I was certain had noticed my swimming and diving prowess.

What was exceptional about her was not her ability to swim or dive but the way she appeared when she went under the water. The picture I retain of her to this day is that of a perfectly sculpted body gliding through the water with blonde hair trailing over her neck and shoulders. The sight was magnificent and rewarding in itself but I wanted more. I wanted the opportunity to speak to her and be friends with her, and damn the reality that we shall have to break up someday as surely as night follows day.

Still, I dreamed of the day I shall speak to her and start a beautiful friendship, and the dream almost came true one evening when, for the first time, I saw Claire in a setting that was not the beach. In fact, it was very late at night, one Silent Night when I saw her as she sat beside her parents in church attending the midnight mass on Christmas Eve 1954.

But nothing happened that evening because there was no opportunity for us to bump into each other. And the coincidence was so ironic as this was the church where I promised God I would come to pray if He granted me my wish. Was He telling me something? Did I ask for the forbidden fruit? Was I supposed to promise I shall not try something naughty? I agonized and I prayed some more.

The beauty about living near the Equator is that on Christmas day when everybody wakes up around noon, it is time to go to the beach again and that’s where I went. Claire was there too with her parents who, on that day, left their Land Rover not out on the street as they always did but on the sand close to the beach which is something that people did when they felt too lazy to walk the few steps.

As I walked along the shore I saw a number of people, Claire among them, appear out of nowhere and frantically wave at me calling me a name I was never called before. They called me "Monsieur! Monsieur!" I looked around to see if there was an older someone standing nearby but I was the only one around. I stopped cold in my tracks wandering what happened to turn this Christmas day into the frantic scene I was witnessing.

They came close enough for Claire to say that her father lost his ring in the water and they wanted me to find it. The trouble was that I did not bring the mask on that day, and without it I could not see clearly under the water. I said to Claire I would have to go home and get the mask, a round trip that will take 15 minutes or so. She said not to worry because she had her mask in the car to which she started running without further ado.

In the meantime I went to the area where they said the ring was lost and asked everyone to stay away so as not to disturb the floor of the sea where they would bury the ring under the sand. Finally Claire came with the mask and I started to sweep the area going back and forth at about four feet above the floor of the sea, surfacing every minute or so to take air.

After a while I saw something shine in the distance and I went for it. It was a gold ring which I was certain was the prize I had come for. I picked it up and came to the surface holding my arm way up in the air to signal to those on dry land that I found it. They cheered me and I went straight to Claire’s father and gave him the ring.

The man proved to be generous and said the ring was more valuable to him than the gold in it so I could ask him for anything. But a wave of emotions was sweeping me at the time, among them the feeling that I was rewarded already by the opportunity to talk to Claire. She was all I wanted and she was so close to me now that I said I did not want anything. I don’t know if he knew this but he turned my dream into a reality I could not dream of when he said I should go with Claire and have ice cream at the Bar du Soleil a few feet to the left of me where he has an account and Claire is known to the owner and his wife.

And this is when something happened that was beyond my ability to dream. As if the gates of Heaven had opened and showered me with all that is heavenly bliss, Claire grabbed my hand, squeezed it hard and started to pull me away to the right as if in a hurry to take me somewhere. We were not going to the bar for ice cream because she had something better in mind; she wanted to take the mask to the car and that’s where we went.

We got there, sat inside the car and talked for a few seconds. Wasting no time, she asked me if I ever kissed a girl and I said no, I never did. She said she never kissed a boy either, and I wondered if this was an invitation. She took my hand and I mustered the courage to kiss her on the cheek. I felt her face warm up and I went for the lips where I kissed her for two seconds. And this was long enough for me to discover that the lips were more delicious than anything I ever tasted before; even more delicious than ice cream. I knew Claire felt the same way too because I could see the expression on her face but we decided it was time to go for the ice cream anyway and so we did.

For a few months after that we saw each other almost on a regular basis and forged a relationship centered around the beach and the activities there. In the meantime I kept my promise to God and went to church two or three mornings in a row but found a new excuse every day after that to go to class without making the detour to the church. It is a good thing I did not include in my promise to God how many times I would pray if He granted me the wish.

Then came the day I dreaded the most; the day when Claire and her parents disappeared from the scene. I went to the bar and asked if they knew what happened to the family. They said the father was summoned back to France, and the family left in a hurry; something about implementing the Geneva Accord regarding the defeat at Dien Bien Phu. I never saw Claire again or heard from her. Gosh, I hate those stupid wars and the people who love them.

Once in a while on Christmas day I remember Claire and my first kiss, and I wonder if she too remembers that wonderful day in her father’s car. At times I remember her even when it is not Christmas and feel like it is Christmas again because I learned over the years that I can make everyday a Christmas day by recalling the few moments that gave me a lifetime of joyous memories.

Merry Christmas, Claire wherever you are.

To Avoid The Effect Of Toxic Derivatives

No one in his right mind will come out these days and say that all financial derivatives are good or that we should not take a critical look at them. On the contrary, most people would say that derivatives have hurt the financial system and they must be brought under scrutiny with the stated goal of bringing them under control so that the near meltdown of the system as we have experienced it lately will never happen again.

This discussion is not about a derivative that is now in use or one that has been discarded but about derivatives in general. It advocates the idea that the use of a derivative should be made only upon the filing of an application before an existing agency or one that would be set up for the purpose of regulating the use of new derivatives.

To this end, a description is made for a test to be used by regulators in order to evaluate the utility of a new derivative on one hand and the potential harm it may cause on the other. To make my point, I draw on my familiarity with the derivatives used in the stock market but I believe that the conclusions I reach would apply to other derivatives as well. If not, the test should be modified where possible to apply to the other spheres.

To visualize the situation we are dealing with here, the analogy comes to mind of a spectrum extending from the investment utility of a derivative at one extreme to its gambling potential at the other extreme. However, there exists between the two extremes all sorts of arguments as to the utility of a derivative which may not have much of a merit as an investment tool but has a secondary beneficial effect, mainly the addition of liquidity to the market. These arguments could be taken into account during the evaluation procedure as the regulators try to decide whether to allow an application or to reject it.

Where a derivative is most useful is when it allows a small investor to participate in the action with little money. There are now two instruments called the "Right" and the "Warrant" which fulfil such a function. During the remainder of this article I shall use the word warrant to mean either of the two. These instruments are now offered and distributed under some conditions but their use can be expanded especially in view of the fact that they are sometimes traded on the stock exchange where the conditions accompanying their offer are removed.

This is how the warrants come into being. When a company is confident about a project on which it intends to embark in the future but needs money to bankroll the project, it issues warrants allowing the existing shareholders to purchase new shares from the treasury at a fixed price and up to a specified date. For example, the shareholders would be given one warrant for every share they now hold. Under the terms of the deal, the shareholders can buy a new share from the company for one warrant and 10 dollars up to December 31 next year.

Now consider the following. If the shares are currently trading on the stock market at less than 10 dollars, nothing happens. But if the shares rise above 10 dollars, the holders of the warrants can use them to buy shares from the company at 10 dollars and sell them on the market at the ongoing higher price.

Sometimes the warrants themselves are allowed to trade on the stock market, and this is when the people who did not own the stock of the company to begin with can now own the warrants. If they wish, these people can hold the warrants until such time they are ready to buy the shares from the company at 10 dollars as long as they do so before the expiry date. However, if these people change their mind, they can sell the warrants and take the profit or the loss depending on what the warrants do on the market.

When trading on the stock market, the price of the warrants will vary with the price of the shares. For example, the warrants will trade at 1.25 dollars when the shares trade at 11.25 dollars because it takes one warrant to buy one share from the company at the fixed price of 10 dollars. Or, to take another example, the warrants will trade at 1.38 dollars if the shares trade at 11.38 dollars. In other words, the warrant will be worth the difference between the 10 dollars fixed price of the share and the current trading value on the market.

Thus, a small investor who has done his homework and has determined that the shares will rise to say, 14 dollars before the expiry date can buy the warrants at the modest price of say, 1.25 dollars and sell them later at 4 dollars. Or he can opt to buy the shares of the company at 10 dollars, and hold them for the long haul. If the investor is short of cash, he can borrow money to buy the shares and he will have no trouble finding a creditor willing to lend to him since the shares, which can be used as collateral, will be worth more than the amount he seeks.

Still, we must consider the possibility that the price of the shares will drop instead of rising and that it will stay down till past the expiry date of the warrants. In this case, the investor holding the warrants will have lost some or all of the 1.25 dollars per warrant he originally invested. This is a risk that most people can handle and are willing to take.

Instruments of this kind should be allowed to exist and their use expanded because they benefit everyone, and the risk to the participant is easy to understand. But if the derivatives get more complicated than that, the regulators must be inclined to reject them because the intent behind their creation is clearly to swindle the small investors through a shell game made to look like in an investment scheme.

The worst of these schemes involve the short sell of options such as the "bull call spread" which adds to the volatility of the stock market to begin with but more than that, it involves the supremely unethical and damaging principle of the short sell.

The short sell is a trick by which someone, call him Peter, sells a stock to a buyer, call him Paul, who does not necessarily know this is a short sell. Paul does not realize that Peter does not own the stock but is selling it anyway in the hope that the price will go down from say, 15 dollars to 12 dollars at which point Peter will become the buyer and buys back the stock to deliver to Paul.

It is even possible that Peter may buy the stock back from Paul who will have been disappointed by the performance of the stock not knowing that Peter created the condition for his disappointment. And so Peter now delivers the stock to Paul and pockets the 3 dollars per share he made in those demonic back-and-forth and back again trades.

What is horribly wrong with this scheme is that it is a principle of the market that every time a stock is sold, the transaction contributes to the lowering of the stock’s price. Thus, it is in the interest of the short sellers to keep selling the same stock even though they do not own it. Eventually the price comes down enough for them to buy it back and make a profit at the expense of the small investors who do not know what is going on behind their backs.

And the short sellers will have accomplished this feat not by adding liquidity to the market as they claim but by withdrawing liquidity from it. When they sell something they do not own, they not only drive the price down, they withdraw money from the market having added not one cent of their own to it. This is the opposite of what the regular buyers do which is to bring their own fresh money into the market and thus contribute to its rise.

There is another point to be made here. Nobody and no institution in this world are perfect all the time but this does not mean that when they stagger, someone can take advantage of their temporary weakness and contribute to their demise if not their death. For example, a bank robber cannot get away with saying that because the security system of the bank was deficient at some point, he had the right to rob it and must therefore be allowed to go free.

By the same token, the short sellers are to be regarded as pariahs and their practices banned even if they claim they are pointing out the deficiencies of the companies whose stock they sell short. These people do not do the public a favor but take advantage of a temporary situation to fleece the public. In this sense the short-sellers are equal to bank robbers and they should be treated morally and legally as such.

This is what the legislators should keep in mind when they write the legislation to regulate the use of derivatives. And this is what the regulators should keep in mind when they decide on a new application to allow or to reject the use of a derivative. Only when such a system is in place and functioning will we have a financial system that works according to principles that keep it healthy not according to the ill-conceived and improvised rules of its mad inmates as it does now.

Short And Long Term Economic Solutions

Sometimes making up a fictional story can clarify a point better than laying down the facts, so let me tell this story. Once upon a time a king was elected to sit on the throne and wave a magic wand to make things happen for his people, the human race that inhabits planet Earth. In the winter season of the year 2008-2009 the king was unexpectedly called upon to wave the wand and do his magic.

The problem crying out for solutions was that in a place called the United States of America, there lived approximately 100 million families who were badly served by a system they thought was good but turned out to be wanting. This was the case because the financial leaders of that nation were a bunch of snake oil peddlers who pushed toxic mortgages and mortgage backed securities on the public in America and everywhere else in the world.

When the bubble that those leaders created to inflate their holdings finally burst, the system began to collapse and to drag everything down with it. To save the situation, those who were in government brought in a few hundred billion dollars to serve as crutches and they used them to keep the system from totally collapsing before the king had the time to do his abracadabra.

When the time came, the king did what he had to do and thus restored the situation almost exactly to where it was in the summer of 2007, a time when the majority of the people did not know what was going on and were having a party. But there was a small difference between the two situations in that the king did not give back to the investors the 10 trillion dollars or so that they lost on the stock markets and other industries.

Instead, the king allocated 10 trillion dollars to solve the problem in a different way. He dedicated 2 trillion dollars to shore up the capital of the banks, a move that restored the latter to where they were before the collapse. And he deposited on the kitchen table of every family a bag containing 80,000 dollars.

The result was that all the prices that were deflating during the collapse started to inflate again, and they got back to their previous levels. Confidence was restored among the banks and the people alike, and they all went back to doing business the same way they did before this whole thing started. What happened after that is of no importance because the point of the story is not the plot but the lesson that we can draw from it.

And so I begin with this question: Can the newly elected government in America do what the fictional king did and solve the financial crisis facing the world today both for the short term and the long term? And the answer is that he can but not exactly in the same manner as did the king because the President elect does not have a magic wand. He can, however, do something close to that.

You see, years of running a balance of trade deficit with the rest of the world has flooded the markets with American dollars. A great deal of that money found itself in the hands of foreigners and the hands of Americans abroad. And much of that money, as well as money in the hands of Americans at home have now been destroyed by the near meltdown of the financial system. This happened because the money was not made of actual bills but was of paper that resembled cheques written with no sufficient funds behind them.

With this in mind, the American government can now restore the situation at home to where it was by doing two things. First, set aside 2 trillion dollars to re-capitalize the banks. Second, set aside 8 trillion dollars to help the American families. The rationale behind this is the following:

The reason why the banks need to be re-capitalized is that such an act will restore confidence among them. This will get them to lend to each other again and lend to the public. However, those in charge must consider the 2 trillion dollars a line of credit and draw on it only when necessary. In return for cash, the banks will have to do business close to the level they did before the meltdown. The banks that refuse to co-operate should be nationalized. Their refusal will be called a strike and the government will respond in the same way that president Reagan responded to the strike of the air traffic controllers. That is, the heads of those banks will be fired and replaced with people who will run the show as it must be run.

As for the 80,000 dollars to each household, you don’t really need to do that unless you want to devalue the dollar to the pre-meltdown level. What happened over the decades is that the dollar lost value due to the accumulated trade deficits run by Americans. Now, however, much of this money has been destroyed and the dollar has started to rise again. But if you "print" money and flood the markets as much as before, the dollar will devalue again.

To understand this part we must realize that when American toxic securities were sold to foreign banks, these securities were used as collateral to borrow money from the central banks over there. But when the securities proved to be worthless, the foreign banks lost their capital upon which their central banks re-capitalize them with local currencies. The effect was that the supply of foreign money on the world markets increased at the same time as the supply of American dollars was decreasing.

Thus, to issue new money in America at this time will not disadvantage the dollar by much in relation to the other currencies. But what this whole saga will do is paint an image of Uncle Sam as being the con artist who swindled the world of trillions of dollars. And you can imagine what this will do to the confidence that foreigners will have for the American business model and for the idea of doing business with America at all.

The point of all this is that an American stimulus package worth a few trillion dollars at this time will not be catastrophic for America because this much money existed at some point in the past and has since been destroyed. The worst that can happen is that the dollar will go back to being worth 70 Euro cents. But the smart thing to do now is to spend the trillions wisely and spend them only if and when needed.

This prescription will contribute to the short term solution of the problem. But the meltdown can also be an opportunity to fix the long term problem. And the need for this is exemplified by the global nature of the current crisis which made everyone realize that while the arteries for trade have been opened to global commerce, they have also been opened for global mischief which is detrimental to the stability of the newly erected worldwide system.

Consequently a few cherished ideas will have to be re-examined, among them the notion that a jurisdiction which has a comparative advantage in one sector of the economy or a handful of them should concentrate on that advantage. It was thought that due to the opening of a worldwide market for every conceivable product and every service, the jurisdiction that fully exploits its advantages will do very well.

But it is now dawning on people that the idea of resting an economy on a single industry or a handful of them will subject the jurisdiction to a danger over which those in charge will have no control. In other words, it is realized that a jurisdiction without a diversified economy is a jurisdiction that is at the mercy of outside forces that may not have its interest at heart.

Here the historical record will be the guide for the decision makers. These people will see that ever since the beginning of industrialization, single industry towns and similar localities have experienced an anxiety about being at the mercy of forces they could not control, and have responded to the challenge by diversifying their economic activities. They did so by subsidizing the outside industries which came to take advantage of a rent-free land they granted to a new commerce, by offering to those industries tax credits or tax holidays, and by tailor-making a package of other incentives to suit the needs of every newcomer.

And when the underdeveloped nations of the world began to develop in earnest, they too adopted a similar approach except that in addition to granting the familiar incentives, they offered to the incoming industries such things as cheap labor, lax environmental regulations, low cost utilities, simplified business procedures and so on.

But now that globalization is destined to come under scrutiny and control, there will have to be a new worldwide agreement under which all jurisdictions will be granted the right to protect the industries they deem vital to their national security and for which they will negotiate an acceptable level of subsidization and other similar protectionist measures.

An agreement of this kind will encourage all jurisdictions to strive towards the achievement of a balanced economy as much as possible. The essential features of a balanced economy being the approximate match between the production capacity and the consumptive needs of the population in every industrial sector, the measures will cover one or more of the following sectors: agriculture and food processing, textile and related industries, machinery and transport equipment, chemicals and pharmaceuticals, communication and home entertainment electronics.

But given that a jurisdiction which used to channel its resources and efforts towards the one sector where it did well must now diversify and spread itself thin, the question becomes: What will that do to the high productivity that the jurisdiction used to enjoy, to the comparative advantage it had and most importantly, to the potential for growing the economy at the fast pace that it did previously?

The answer to that question is this. There was a tradeoff to be made between less volatility with diversification on the one hand, and more volatility with a higher growth on the other hand; and the choice was made to go with the more balanced approach. But this is not the end of the story because the average of the economic growth over a long period of time will prove to be the same in both cases.

And there is no mystery as to why this is so. For the same reason that you save on gas when you drive a car at a steady and lower speed, you spend a minimum of effort and capital when you go for a steady and lower growth in the economy. By contrast what happens in a situation of fits and starts is that you burn a great deal of cash to accelerate to a high level of growth then find yourself depleted of energy by the time you get up there. You glide downward while you rebuild your reserves and when you reach the trough, you wonder if it is worth going through the cycle again.

Moreover, when all the jurisdictions of the world will drop the beggar-thy-neighbor approach and adopt the steady and balanced approach to their economies, the whole world will consistently score a steady rate of growth which will be beneficial to all if only because of its predictability. This situation will be much more preferable than the periods of boom and bust that the world has experienced up to now.

So how do we get there from here? The answer is that with diversification in mind, America should negotiate with the rest of the world a treaty that will allow every jurisdiction to take all necessary steps to protect its industries up to an acceptable percentage. Then spend 8 trillion dollars or so to rebuild the low tech, labor intensive civilian industrial base over say, the next 10 years. Concurrent with this must come the related infrastructures which will span the range from a network for technical education to the modernization of the electric grid. And always bear in mind that it is a fallacy to believe you can have a viable economy of only high tech industries and of services in a country the size of America.

America is a massive and diverse country that has massive and diverse needs. Unlike Dubai or Singapore it cannot continue to import its everyday mundane supplies from abroad and hope to pay for them with innovation and services. This reality has become glaringly obvious these days by the fact that the only innovations America has offered to the world lately are of the toxic financial type mixed once in a while with a new way to brew a cup of coffee, a stylized way to cook French fries or an innovative way to flip a hamburger.

When Partisanship Trumps Ideology

Sometimes you see a scientist or a medical doctor testify in a courtroom in favor of one thing or another but you know deep down they do not believe a word of what they are saying. Most of the time they would be testifying for the defense who pay them to come and say things that run contrary to what they were taught and what they have been practicing until now.

If scientists and medical doctors can do it so can the economists who write pieces for a publication or go in front of the television camera to say things you know are contrary to their ideological beliefs. But they write what they write and say what they say because this is the stand that matches the one taken by the party to which they belong at this time.

Well, this is the case now with Marty Feldstein who is not just a Reagan economist but the one most responsible for founding that school of economics. When you read Feldstein and listen to him these days, you wonder if he really believes that what he preaches is Conservative Reaganite Economics or it is a page out of Soviet Economics, the very thing that Ronald Reagan fought against tooth and nail.

Much of the world, including America, find themselves in the midst of an economic slump these days and Feldstein is advocating not a Reagan style approach to solving America’s problems but a plan for a Soviet style stagnation instead of one for economic growth. Feldstein is wrong this time, and my hope is that he will soon start to advocate a plan that is more consistent with the capitalist system to which he adheres.

So how is growth realized in a market economy? Well, let us begin with the goal of economic growth. The goal is to achieve a standard of living that is higher than the standard we enjoy at the present time. What this means in practice is that as a society we need to do two things: We need to produce more goods and services and we need to consume more of them in the future than we do now.

This says there are two equally important parts to the standard of living, the production part and the consumption part. Under the current definition of what constitutes a high standard of living, it does not matter who or what is responsible for the production, and who or what is responsible for the consumption. Instinctively, however, the capitalist system never bought this definition while the Soviet system did, and this may have been the reason why that system crumbled. And yet, this is the performance that Marty Feldstein wants America to duplicate.

What the Soviet system never understood was the intimate relationship that exists between production and consumption in a healthy economy. It is possible, for example, in a small jurisdiction like Dubai to have a large number of guest workers extracting a natural resource from the ground to qualify the nation as a high production jurisdiction. And it is possible in a small jurisdiction like Singapore to repackage and sell a high volume of goods abroad to qualify it as a high consumption one. But neither of these jurisdictions can enjoy a quality of life that approaches Sweden, for example, where there is a rough balance between what is produced in the country and what is consumed within its borders.

In fact, it would be difficult for a country with a population that is larger than say, 20 million people to go on for a long time being only a high producer of goods and services, or being only a high consumer of such things. To be truly a developed nation you must be both a producer and a consumer at the same time. And this is becoming evident to the Chinese who are beginning to look to their internal market as opposed to relying on export in order to maintain the growth that they have been enjoying for some time now.

Thus, to maintain a high standard of living in a large country that is developed or to achieve a high standard in a country that is developing you must in the end break away from your dependence on the rest of the world and depend instead on the local population to sustain the growth in the goods and services you produce, and the growth in the consumption of what you produce.

America and most of the big Western nations have followed that model and have done well over the decades, even the centuries. By contrast, the Soviet system in Russia and the satellite nations followed a model where consumption was discouraged by the fact that very little consumer goods or services were allowed to be produced in the command economies to which they adhered. In the end, psychology and economics combined with outside forces to participate in the defeat of that system.

While discouraging the production of goods and services for the consumer, those regimes directed their resources toward the production of massive civilian projects, some of which were useful and some were not. The regimes also diverted much of their resources towards the production of military equipment in order to respond to a challenge that was thrown at them by Ronald Reagan of America.

What the leaders of those economies did not realize was that such equipment is better produced by a large industrial base like the one that existed in America more so than it did in their command economies. And this happened because America adhered to a system that catered to the needs of the consumers which caused the country to develop a culture of expansion and one of abundance. By contrast, the Soviet regime developed a culture of retrenchment at home so as to deploy all the available resources against the Western challenge. What resulted, however, was that the Soviets were caught so unprepared, they could not mobilize fast enough to respond to the Reagan challenge when he started his military build up. And those regimes fell one after the other like domino chips.

This triumph belonged to the same America that won the wars in the Pacific and in Europe in the middle of the Twentieth Century precisely because she had a civilian industrial base that was quickly adapted to produce the weapons needed by her military and by her allies, including the Soviet Union. And the American civilian industrial base was there because the consumers were there, and they were none other than the workers themselves who were paid well enough to buy the goods and the services they produced. Thus, you had the production side of the economy and the consumption side of the nation rolled into one, and they formed the American public.

That economy is still there in America today but it is getting shakier by the day. At the pinnacle of it there exists the auto industry and the workers who make up a good part of the consumer base. But what Marty Feldstein is calling for is a quadruple whammy to be delivered to that set-up. In response to the stand taken by the bosses of his Party who for a mysterious reason are dead set against the auto industry, he is advocating the following: (1) kill America’s industrial base, (2) throw the workers out, (3) cut off benefit to the retirees that worked a lifetime to earn them (4) start producing weapons in an industrial base that will increasingly shrink to look like the Soviet industrial base of the cold war.

I doubt that Marty Feldstein believes this is conservative economics. While he may point to the fact that a military build up was started during the Reagan era, he knows that the build up in itself was not good economics but that it was made possible by the fact that America stood on a sound industrial base. And this was the case because America had experienced a peace time expansion following the Second World War, an expansion to which the Soviets did not participate because they went for military expansion absent a civilian industrial base that was strong enough to feed the military.

More and more, it looks like America is becoming the losing Soviet Union of yesterday while China is becoming the triumphant America of yesterday. Neither Marty Feldstein nor the Conservatives of America will forgive themselves when they reach the point of no return. They can still turn around now but they have very little time left to do so.

Defining Cowboy Capitalism

Life is always about competing interests and there are many players in the field. Most of the time, however, the lesser players suspend the pursuit of their interest to join a stronger group in the hope that they will be rewarded with at least "a piece of bone" in the end. The consequence of such re-alignments is that every struggle has boiled down to one between two camps. For example, there is now or has been the notion of Left vs. Right, East vs. West, Freedom vs. Repression and so on where one giant group of players was pitted against another giant group of players.

However, as one group won and the other lost, long held notions disappeared to be replaced by other notions, and so the global landscape has constantly changed in purpose and outlook. But as the old saying goes, the more things change the more they remain the same, and this happens because the dead notions keep coming back at a later date. And they came back throughout the ages under the same name or a different one as if recycled by a mysterious force called necessity.

In fact, what is going on in the United States of America at this time is the shaping of a struggle which is sometimes referred to as a class struggle but is in reality something else even if some of the militants seem to borrow from what used to be the old European class struggles. For a lack of a better expression, I shall call the American version a struggle between the heavy lifters whom I consider to be the pillars of America’s capacity to produce wealth, and the paper pushers whom I view as shameless in-your-face freeloaders.

In any given economy the heavy lifters are those who create real wealth, meaning those who produce tangible goods. These are the farmers, miners and manufacturers - be they blue collar or white collar workers, owners or hired hands. They are also producers of the sort of services that give logistical support to the first group. These would be the transportation, utility and construction people.

There are also heavy lifters in the purely service industries without whom an economy cannot go far. These are the educational, medical and hospitality industries. And there is also what I call the necessary evils such as the wholesale and retail trades as well as the financial industries such as the insurance and banking services.

I call the wholesale and retail trades evil because they can be the fields on which to learn how to make a gain without the pain. And I call the financial industries evil because they are the fields where the industries are often misused resulting in tragic consequences.

It is from this last category that comes the bad apples I call paper pushers. In the United States of America, these people have locked themselves into a deliberate class struggle with the heavy lifters who are, in effect, almost everyone else. This is not a class struggle in the old European sense but a struggle between two classes of people nevertheless.

There is in America, as there is everywhere else, those who lead a style of life commensurate with the wealth they produce, and there is the paper pushers whose taste for the high life comes in the inverse proportion to what they are capable of producing. But only in America does the latter group make a virtue of their excesses.

In America, the heavy lifters want a system of meritocracy that rewards them for what each individual is capable of producing and is willing to work for. The paper pushers, on the other hand, want a hereditary system that supports them because of who they believe their ancestors were. The first group wants to build a world of their imagination and enjoy it; the second group wants a world like they imagine their ancestors enjoyed even if no such world was left for them to inherit.

I would say that the tension between these two groups has existed in America since the founding of the nation and may have been the creative force that produced the nation’s ability to renew itself and was, therefore, the secret of America’s continuous vitality. But every good thing comes to an end when pushed too far as it is evident by the current financial crisis which brought the struggle between the groups to the fore with a clarity that prompted some people to see it as a manifestation of Cowboy Capitalism.

The financial crisis started when the paper pushers pushed the envelop past the breaking point. Just before that, they were making hundreds of millions of dollars not because they produced as much as a paper clip but because they clipped from the gross national product a share of the wealth that went past the grotesque and past what is considered to be an indecent level of executive compensation.

These people, in fact, went as far as to paint a picture of what constituted a financial pornography and did not even stop there. They had the gal to demand that they be admired for the financial instruments they were creating, those they considered to be masterpieces and used as a teaching tool to demonstrate to the developing markets of the World the financial clout that they have gathered with nothing more than the force of their limitless financial prowess.

But the crisis came and exposed them as something else especially when it spread to the real economy, the engine which used to create the wealth that made it possible for them to engage in the orgies of their secret dealings. However, as if they did nothing wrong, these people went to the government and asked to be handed billions of taxpayer dollars so that they may continue to do business as usual because as they saw it, society owed them a standard of living at that high level. And the proof they gave as to why they deserved what they were getting was that they hired each other at those levels of salary, perks and bonuses.

You see, dear friend, this is the work of the same old Society of Mutual Admiration which goes like this: I say you’re terrific and you say I’m terrific. I say you’re worth 400 million and you say I’m worth 400 million. And no one will argue with that because we’re the experts, and the proof of this is that we’re making 400 million a piece which cannot be said about those who give us the money to pay each other 400 million a piece. Case closed. Hand over the money and shut up. Class dismissed…the class that does the heavy lifting, that is.

For a long time, this sort of argument kept the general public under sedation as everyone was made to dream that they too will someday lead the high life. This sort of mentality went unchallenged as long as most of the people were making enough income to live on and had something left over to save for emergencies and for the future. But then the people were awakened by the fact that they, their neighbors or someone they knew were losing their home, life savings, retirement account, health insurance, the means to send their children to college and so on. And they asked: Why is that?

Only at this point was it revealed to them that this is how the system really works. And the description that was given as to how the American system works in reality as opposed to how it is supposed to work clearly demonstrated that the American system had little to do with what Europe experienced since the Continent got rid of its medieval set up.

Contrary to all that was previously advanced, it proved that at the heart of the American system resided not meritocracy or even a preference for one industry over another but a preference for one human characteristic over another. It turned out that in America, the smooth talking but aggressively acting con man was the most cherished of the brands even if such operator came with the word SWINDLER written all over his forehead.

It was explained in plain language that there exists in the system something called bankruptcy whereby an industry such as the auto industry is forced to rid itself of its obligations towards millions heavy lifters in order to stand on its feet and be viable again. "But what about the financial institutions? Why not let them go bankrupt?" asked the people. And the answer was that those institutions cannot be made to fail because if they do, the whole system will fail.

But what about the executive paper pushers who were responsible for the failures? Why should they get compensated as much as before? asked the people. And the answer came: Unlike the obligation to the millions in the auto industry where a contract goes down the tube together with the bankrupt company, in the case of the financial industries a contract is a contract is a contract.

But that’s not all, argued the intellectual arm of the paper pushers. It went on to say that even those who may have committed criminal offences should not be investigated because these people are special people who must be handled with special care. You can easily find a President to preside over a 14 trillion dollar economy in exchange for a million dollar salary but you cannot find a con artist to run a financial institution for less than 400 million a year. Get it once and for all, you idiot.

That was never the reason for the French Revolution or the Bolshevik Revolution that followed or even the American Revolution. This is revolting, pure and simple.

At The Dawn Of The Television Age

Under the title, A New Dawn, Ian McEwan published an article in the Wall Street Journal on November 8, 2008 to which I here respond. My arguments are based essentially on scientific considerations but I must begin with something I witnessed as a child when I lived with my parents and siblings in Ethiopia some sixty years ago.

I knew then what radio was because I could see my parents listen to it all the time. What I did not know was that there were only a few local stations and that my parents were listening to short wave broadcast coming from afar. Also, I knew next to nothing about radio waves but I was not the only one in this boat. A few others were in it too, and there are some stories I could tell in this regard but no story is more interesting than what happened to a high official in the Ethiopian government.

The story I heard repeated over and over again, one that stuck in my memory for all these years, was that of the man who brought with him the newest of the new technologies upon his return from a tour abroad. What he brought was something we baptized in our household the "visual radio" but is now called a television set.

That official asked the chief electrician in the government to come to his mansion and set up the thing for him, having made the mistake of inviting his friends before trying the thing first. Most of the guests who responded to the invitation were from the foreign embassies, people he wanted to surprise and impress with his new acquisition.

When the moment came and the television set was turned on, all that he and the guests could see were a dark screen and the randomly distributed scintillating points we now know to be the echo of the Big Bang. The poor man could not get the channels that he enjoyed watching so much while stationed in America and, I believe, Britain too.

After a moment of embarrassment, a foreign diplomat who knew all about the new invention ended the agony of our hapless official by explaining what was supposed to happen but did not. He said that unlike the signal of short wave radio which is reflected back to earth by the ions in the upper atmosphere and is therefore capable of traveling far, the television signal goes in a straight line and, if not captured by a set in the line of sight, goes out into space and is lost for ever.

Not all signals have the same characteristics, the diplomat went on to say, as some will be reflected by a solid object and others by a field of some kind. Some will be absorbed by one sort of object and some absorbed by another sort. And I, the curious child that I was, became greatly impressed hearing these things repeated by several of my elders.

Those were the days when I began to develop an intense love for short wave radio. By the time the family had moved to Egypt I was old enough to be an avid listener of short wave broadcast from around the world. This state of my affair with radio lasted until 1961 when television came to the country and I switched my affection to the gorgeous new gal in town, not that I ever forgot my first love. In the meantime, I was learning a great deal about the electromagnetic waves that made all of this possible and the spectrum to which they belong.

Here now is the passage from the Ian McEwan article that I want to respond to: "A molecule of CO2 absorbs the longer wave length of light, trapping radiant heat from the Earth". The fact is that the longer the length of a wave, the more apt it is at going around an object without being absorbed or trapped by it. Unfortunately, the way that McEwan states it, that sentence represents a false statement.

But the fault does not rest on the shoulders of this novelist; it rests on the shoulders of the scientists who tarnished the honor of their profession in order to win favor with the organized mob of special interest they used to fight against. Or it may be that the scientists began to aspire winning an Oscar in Motivational Fiction or a Nobel prize in Destructive Quackery or both that the mob promised to organize for them if and when they join the cause.

What those scientists did was to construct a complicated model so as to utilize an insignificant natural phenomenon and make it sound like there is a greenhouse effect where there is none. They took the simple transfer of heat between bodies and gave it the fancy name of Outgoing Longwave Radiation (OLR) to confuse the ordinary layman. And with that, the scientists fabricated a meaningless argument to then conclude that the CO2 molecule first absorbs the heat wave then gives it off to be absorbed by something else. The fact is that such transfers of heat happen all the time but they are not the greenhouse effect.

The simplest analogy I can make to show the difference between the phenomenon called greenhouse effect and the phenomenon that those scientists call Outgoing Longwave Radiation is that of a styrofoam cup filled with water at room temperature. Here, the system is at thermal equilibrium and nothing happens. You now add a spoonful of boiling water to the cup and the heat, which is made of long waves, goes out of the hot water and radiates its way throughout the cooler water. This radiation keeps on going back and forth and in every direction until all the water molecules have the same temperature upon which a new equilibrium is established.

What happened here is the same effect as OLR but is not the greenhouse effect. What resembles the greenhouse effect is what the wall of the cup did. Because the wall is made of an insulating material that does not conduct heat, the phenomenon created here replicates what the glass wall of the greenhouse does, it kept the heat inside the cup. In short, the greenhouse effect is not an interactive phenomenon, it lets the heat through and traps it there. By contrast, the OLR effect happens when there is a constant interaction between the molecules and/or atoms so as to establish a thermal equilibrium in the system.

Knowing this, now examine what those scientists are in effect saying. They are saying that when you use night vision goggles and you see someone in the night as the goggles capture the heat waves emitted by that someone, you are creating a greenhouse effect. They are also saying that when you dip your finger in hot water and feel the heat, it is because you have created a greenhouse effect. This is absurd beyond belief and it is disturbing to know that someone would say it. But there is something even more disturbing concerning the behavior of those scientists. To explain it, however, I must first discuss something else.

When you burn hydrocarbon, you release hydrogen which has a negligible atomic weight, and carbon which has an atomic weight of 12. Each atom of carbon combines with 2 atoms of oxygen taken from the atmosphere, and having an atomic weight of 16. This is a total atomic weight of twice 16 plus 12 which comes to 44. Thus, to dump 44 tons of carbon dioxide (CO2) into the atmosphere, you need to burn 12 tons of hydrocarbon which will remove 32 tons of oxygen from the atmosphere and combine with them.

Now, if you reject the mumbo jumbo about OLR, you realize that when the world burns 6 million tons of oil products as it does every day, all that happens is that 16 million tons of oxygen are removed from the atmosphere and replaced with 22 million tons of CO2. Thus, the amount of extra heat retained by the atmosphere, whose weight is 5 million billion tons, is near zero. And when you realize that the Earth receives meteor showers from outer space and loses atmosphere to space in excess of that, you wonder what the fuss is about.

Thus, if we do what some of those scientists are recommending and stop burning fossil fuels, we shall not make a dent in the warming phenomenon of the Earth. But if we do what others are recommending and sequester the carbon dioxide, we shall remove from the atmosphere and sequester oxygen that is vital to life. Oxygen, you see, is what keeps the brain alive; without it the brain dies. But can we afford to be even more brain dead than we are now?

And this, dear reader, is a glaring example as to why it is dangerous for scientists to stoop this low. When you read McEwan’s article you see that the way he phrased that famous passage, he meant to say that a long wave is absorbed by objects more readily than a short wave. He believes this and so do all the kids who are being "educated" as to the perils of hydrocarbons by, among others, their own science teachers.

And now I ask you: Do you expect these kids, armed as they are with junk science, to compete with the kids in Asia? No, they will not. It is more likely that when they grow up they will end up looking like the Ethiopian diplomat who was confused about a new piece of technology that was familiar to someone else but not to him because his countrymen believed in superstition more than they practiced real science.

This is what I find so disturbing about those scientists. So why are they still on someone’s payroll being paid like scientists? Why are they not out there catching dogs instead?

It Is Necessary To Avoid Confusion

With a new administration in the White House and the enormous problems facing the United States of America, it is necessary for the people in charge to separate the message from the noise so that the efforts made to solve the problems go toward the solution and not the chase of the proverbial wild goose.

Three of the major problems facing America and the world today have been made to intertwine so badly in the everyday discussions that the confusion created by the situation threatens to make all of them worse. The first problem is pollution; the second is the apparent climate change; the third is the scarcity of resources - more specifically the energy resources.

I begin with the last. Right now the world depends a great deal on the dwindling fossil fuels which are oil, natural gas and coal. These are substances made of hydrogen and carbon, the reason why they are called hydrocarbons. There are a number of other energy resources such as wind, solar, biomass, waterfalls and nuclear. However, except for the last two, these sources cannot be relied on to form what is called a base load, thus they can never replace the fossils fuels.

To produce electricity from the wind, we use the windmill which is important in the context of this discussion not because of the amount of energy it will contribute to the economies of the future – this will be minimal - but because of the symbolism that the windmill represents.

The windmill is a testimony to the fact that technology never forgets its past. Like the waterwheel, the windmill is an ancient invention that uses energy other than animal power to feed our needs in the homes, industry and commercial enterprises. By the way, hydropower too is produced by an offshoot of an ancient invention, the aforementioned waterwheel now called the turbine.

What all of this means is that in view of the fact the whole world now wishes to industrialize, we are going to need all the technologies we can invent from scratch and all those we can revive from the past to produce energy. Thus, there is not a realistic way by which we can turn our backs on the more recent of the old inventions, the technologies that are based on fossil fuels. Like it or not, these technologies will remain with us until the last drop of oil, the last puff of natural gas and the last lump of coal have been used up. Then the technologies will be adapted to serve other purposes.

Let me now talk about pollution. Garbage is not something we appreciate and we certainly must clean up our cities, water streams, lakes and oceans. But more important than the visible garbage are the invisible compounds such as the chemicals we dump into the atmosphere and those we dump into the waters we drink and the waters where the fish make their habitats. There are ways to clean up our act and we are more or less doing a good job now by installing scrubbers where they are necessary. And there is no doubt we shall continue to make progress in this field and do a better job at cleaning up after ourselves.

But the big debate we are having and from where the confusion is emanating relates to the possible change in the climate of the planet. We ask: What is this beast and what can we do about it? Well, if the planet is warming up for good and not just experiencing one of its many cycles, either it is warming because of natural causes we cannot control or it is warming because of industrial activities we can control.

If the warming is natural, we may have no choice but to adapt to it because if we do not already know what it is, we cannot adapt nature to suit our needs. If the warming is due to our activities, we must find out how and why this is and then do something about it. So far, the finger has been pointing at the rise of carbon dioxide in the atmosphere, and steps have been taken to curb the emission of this gas. But are we wasting valuable time and costly efforts chasing a wild goose?

I published an article in September of 2007 that answers this question and it can be found on this website under the title Global Warming In Perspective. So far no one has successfully rebutted the points I make. However, one rebuttal was made suggesting that carbon dioxide may be acting like the glass of a greenhouse, letting the energy pass in the direction from the sun to the earth but blocks it when going in the opposite direction.

This is a weak argument that is refuted in the article itself, therefore there is no need for me to refute it again. For those who will not read the entire article, here are the 5 paragraphs most pertinent to this discussion.

[In its most pristine state, the atmosphere of the Earth is made of nitrogen at about 78%, oxygen at 21% and argon at nearly 1%. Because plants exchange oxygen and carbon dioxide back and forth with the atmosphere and because the oceans have the ability to absorb and to release gases including carbon dioxide, we find traces of the latter in the atmosphere at 0.033% or thereabout depending on where and when the reading is taken. Thus, the atmosphere is made of nitrogen, oxygen and argon at about 99.967% and a whiff of carbon dioxide. This is a ratio of 1 in 3,000.]

[All of the gases are held near the surface of the Earth by the force of gravity and there are no transparent walls to separate them from the void of outer space. As the sun shines on the half of planet Earth that faces it, light delivers a fraction of its energy to the gases and water vapor in the atmosphere. Light then goes on to deliver the rest of the energy to everything below the atmosphere like the oceans, the polar ice caps, the deserts, the plants and so on. Given that everyone of these has an index of reflectivity, each absorbs some energy and reflects the rest back out in the form of visible light.]

[The question is this: what happens to the energy that is absorbed by the oceans, the plants, the soil and so on? Well, photosynthesis and the chemical processes that use light make life possible. Also, the physical processes that use other forms of energy make the weather such as rain, lightening, wind, waves and other phenomena possible.]

[There is also this: the second law of thermodynamics is called Entropy, and it says that all those processes will eventually turn into heat which is infrared radiation. Some of this radiation is reflected back into space and the rest is absorbed by the gases and the water vapor that linger within a kilometer or two above the ground. And it is this energy that determines the average temperature of the planet.]

[This energy represents a small fraction of what is delivered to Earth in the first place. And given that water vapor absorbs and delivers more energy than gases, the latter do little to warm the planet. And since carbon dioxide is only 1 part in 3,000 of the atmospheric gases, carbon dioxide does not contribute to the warming of the planet one appreciable iota. The real culprit could be the water vapor…]

Using this as a background, let me now put a new argument in perspective. The weight of the atmosphere over the entire planet is about 5 quadrillion tons; a quadrillion is a million times a billion. The amount of petroleum used every day in the whole world is about 12 million tons but only half of that is used as fuels. The rest goes into the production of such things as plastics, synthetic fibers, cosmetics, car tires and the rest.

Taking into account the atomic weights of carbon and oxygen, the fact that one atom of carbon combines with two of oxygen to make a molecule of carbon dioxide, and working out the mathematics, you find that the 6 million tons of petroleum fuels used each day make carbon dioxide in the ratio of 1 part in 333 million when compared to the total weight of the atmosphere. And when you compare the amount of carbon dioxide that our activities produce with the amount of carbon dioxide already in the atmosphere and put there by nature, you find the ratio to be about 1 part in 111,000.

In fact, considering that all the known reserves of conventional oil on the planet amount to about 200 billion tons, you will have to burn in a single day 14 times as much as that to double the amount of carbon dioxide in the atmosphere. And you know what? This will not even change the temperature of the planet by one degree. What it will do is increase the amount of plant life which in turn will increase the amount of animal life. Such thing will happen because life as we know it is made of carbon and hydrogen. In fact, the best foods you can eat are the carbohydrates because they are the hydrocarbons that have not yet fossilized. Thus, to burn oil is to release carbon and hydrogen and to recycle life. It is as hopeful and as simple as that.

Let me make one more point. An experiment called The Biosphere was conducted a few years ago to see how well a self contained community could live in outer space in an atmosphere that replicates the earth in miniature. If today you build one such contraption that is half a sphere in shape with a diameter of 500 meters, you can do an interesting experiment.

If you try to pump into the biosphere carbon dioxide at the same rate that the planet is being filled with the gas due to human activities, you will have to bring not a machine but a sleepy newborn baby to exhale his or her carbon dioxide into the biosphere. This is how much "damage" all of our industrial plants, cars, planes and what have you do to the earth. It is no worse than that.

Yes, we do need to clean up the environment because it is healthier to live in one, and we do need new sources of energy because the planet is running out of them. But let us not do things for the wrong reasons even if they seem to be the right thing in the short run because you can be certain they will prove to be useless and costly in the long run.

A Pyramid Scheme Made of Jewish Salami

Never again should America or the world be dragged so close to the precipice of a financial meltdown as we did in October of 2008. To make sure that such a thing never happens again, we must find out what happened the first time and devise a cure to neutralize the problems that led to it. So let’s begin by taking an honest look at the historical background.

Pyramids have troubled those who call themselves leaders of the Jews for ever. Throughout the centuries, the rabbis of Europe and their sidekicks who impersonated the Jewish people went around preaching that the ancient Jews built the pyramids of Egypt. The Europeans believed them because they did not know enough of the history to ask the right questions while the rabbis and the sidekicks sounded so believable.

Also, the rabbis took advantage of the fact that the Europeans were by now mostly Christian. The Bible being written in such language that you can interpret it as saying anything you want it to say, the rabbis made it sound like it was saying the religious duty of every Christian was to believe that the Jews built the pyramids.

But things have changed since the Dark Ages that used to plague the European continent, and they changed at the hands of the Arabs who sparked the Renaissance of the continent and brought about the period of Enlightenment that followed. This was a time when Arab style universities were built throughout the continent, when history was taught on sound bases and when critical thought was given roots in those lands where critical thought never flourished before.

The injection of Arab modernity into the European continent resulted, among other things, in the realization that the Jews could not have built the pyramids because no Jew or impersonator set foot onto the land of Egypt until a thousand and five hundred years after the building of the last pyramid. Thus, it was the simple common sense of the Arabs replacing the muddled thinking of the Jews that saved Europe from the darkness of the self-serving ignorance which the rabbis and their sidekicks were sprinkling throughout Europe. Incidentally, sprinkling darkness and ignorance is how those characters "educate" the public they encounter everywhere they go.

And true to their form, when unmasked in one location, those who impersonate the Jews pop up in another location, something they are programmed to do relentlessly and do without fail. They pop up where people are still innocent and gullible, and where the rabbis and the sidekicks can play a new pyramid scheme without being detected at least for a while. Right now they have found a fertile ground in America where they brought with them not the ten commandments of Moses but the Ten Commandments of Charlton Heston. And that is where they pulled a pyramid scheme of the financial kind, and almost wrecked the republic and wrecked the world with it.

Out there in California near Hollywood, Michael Milken was the first to play such a scheme on a large scale during the decades of the Nineteen Seventies and Nineteen Eighties. He invented the Salami method of stuffing toxic commercial papers into what came to be known as junk bonds, and he sold slices of the poison to the retail crowd. He did so using a network of wholesalers who participated in the scheme which he structured in the same way that a pyramid scheme is usually structured. Thus, Milken was able to reach out to more victims at the base of the pyramid than anyone before and he ensnared them like a predator ensnares his prey.

But this was just the beginning. It was a dry run for the worldwide securitization of toxic mortgages that was yet to come and where the base of the pyramid was extended to engulf the entire planet. The snare was a mortgage that had a rising interest rate, and the prey were the hapless individuals who bought not the American dream of owning a home but the pipe dream that the value of the home will keep on rising for ever.

But there was more to come because the reach of the snare went beyond all of that. It caught the buyers of the securities at the base of the pyramid all around the world, those who believed that America’s model for doing business was a model based on honesty and a sense of decency.

Alas, those buyers were deceived precisely because the scheme has used America’s good name to package a toxic product. In the same cavalier way that the good name was used on the political stage to immolate the republic for the glory of Israel, the name was used in the financial marketplaces of the world to fatten the wallets of the friends of Israel. And so America was transformed overnight from a triple A financial superpower to the status of a junk republic.

We stand at this juncture today and the question is this: Can America recover from her nightmare? The answer is: Yes, she can but there is a lot of work to be done before she gets there. In the same way that Arab help was utilized to save Europe from the Dark Ages of the self-serving rabbinical ignorance, so can America recover with the help of the same Arabs who remain today as generous as they ever were.

After all, America prides herself on the fact that she adopted a form of capitalism that is based on the free market system, one that was and still is the pride and glory of the Arabs since the days when they opened the trade routes between East and West. The Arabs traveled back and forth on these routes and took their commerce to every corner of the known world thus creating new wealth in places where wealth was scarce or non-existent.

Consequently, the onus to take the initiative now rests on the shoulders of those Americans who are serious about finding a solution to their problems. They need to create a sea change at home by recognizing that at the root of their troubles lies the adoption of the Talmudic style distortion of reality and the Talmudic form of authoritarian rule practiced by those who pretend to be descendants of the ancient Jews.

It was this Talmudic culture that made it possible for the rabbis to maintain a tight grip on their flock throughout the centuries. And it was this style of rule that gave them the initial success they enjoyed every time they pulled a pyramid scheme anywhere they went. However, such schemes were defeated each and every time by the best disinfectant of all, the truth and the honesty that were used as medicine. And it is this disinfectant that the concerned Americans must now use to free themselves from the demonic hold that the Jewish lobby has on their country.

Since everything that the impersonators and the friends of Israel did was done with the Arabs in their crosshairs, the truth must be told about the role that the infamous lobby has played to drive the wedge between the Arabs and the Americans. The holders of high office who participated in the spread of anti-Arab hatred must now come forward to tell how they were approached by the Jewish lobby, and what they were asked to say and do that gored America on the altar of anti-Arab hatred to make Israel look more glorious than it is.

A noble act by the holders of high office in America will make it difficult for the Jewish lobby to go after the new Congress and the new Administration which, if it happens again, will repeat the same tragedy all over again. Enough is enough must be the battle cry of the new breed of American officials; and let the sea change flow from there.

The next order of business should concern something I wrote in a book circa the early Nineteen Nineties at a time when the world was negotiating to form the World Trade Organization. Like everything I wrote, however, the publication of the book was blocked by the notorious Jewish Establishment because they realized that to let someone like me connect with the public at large would make it harder for the Jewish lobby to prey on the gullible and the innocent in the North American circles of power. So they used the savage Talmudic dagger to savagely stab democracy in the heart, something they are programmed to do with religious zeal.

What I had in the book was the recognition that good commerce is based not only on trust and credibility, though they are necessary ingredients, but also on the sense that what you negotiate is beneficial to all parties concerned. Consequently, everyone must be made to feel comfortable with the agreements that were being hammered.

To that end, I proposed that every country be given the right to protect up to a negotiated percentage what it will deem to be a strategic industry if and when this became necessary. For example, had the idea been adopted then, America would be in a position today to declare that energy had become a strategic industry and thus take measures to protect all related industries so as to attain a full or partial self sufficiency in energy without inviting retaliation from the other countries.

The philosophy behind the suggestion was to do away with the need to demagogue the issues such as the constant painting of those who have the energy as demons out to hurt America. This Talmudic approach of hurtling Yiddish style insults at those who are blessed with an abundance of the resource did nothing to bring self sufficiency to America in thirty years and will do nothing in thirty more years. My way would be a better way.

What is poignant about this chapter in the history of America is that the purveyors of hate and distortion were the ones who benefited the most from speculating about oil and from trading with the enemies of America. All were not caught red handed like was Marc Rich, thus they did not have to flee the country or ask for a pardon from a President on his way out of the White House, but they fattened their wallets just the same while those of their ilk were sprinkling the anti-Arab venom as if the Arabs were the ones who did something wrong.

The time has come to try another approach. So how about being nice to the Arabs for a change and watch what will flow from there. You will be pleasantly surprised, America.

Fudging The Economic Numbers

There has been talk lately concerning the possibility that the Chinese may be fudging their economic numbers. Some people refuse to believe that China has been growing at 10% or so a year and they question the veracity of the statistics put out by the Chinese with regard to their Gross Domestic Product (GDP). Other people believe the statistics are correct but they cannot explain some of the numbers they see.

So the question remains: Does China fudge the economic figures, yes or no? The simple answer is both yes and no but the explanation is more complicated than that. To make it easy for me to write this piece and for you to read it, I ask that you imagine a hypothetical case where I shall use round figures to illustrate my points rather than delve into the actual numbers which are lengthy and cumbersome.

Imagine a country with a population of a million people. These are mostly subsistence farmers and therefore they have a primitive economy. Their GDP barely reaches 200 million dollars which means that their per capita income is 200 dollars a year.

They begin to industrialize and they manage to expand their economy at an average real growth rate of 5% a year over the following 50 years. To see what this does to the economy, you grab your calculator and raise the number 1.05 to the power of 50. You obtain the answer 11.47 which means that the 200 million GDP will grow 11.47 times to the approximate value of 2.3 billion dollars over the period. Inflation is excluded from this calculation.

If we assume that the population of the country grows by 1.5% a year, it will grow to 2.1 million people over the 50 years. In this case, the per capita income will go in real terms from 200 dollars a year to 1,095 dollars. Now, let us assume that inflation will grow by an average 3% a year. In this case the 1,095 dollar per capita income of the base year will grow to about 4,800 dollars at the prices that will prevail 50 years hence.

Now let us get realistic. We live today in the year 2008, and fifty years ago was the year 1958. Can you point to an agrarian society that began to industrialize in 1958 which grew at an average 5% a year and is today stuck with a per capita income of only 4,800 dollars? No you cannot point to such a society because there isn’t one.

The reality is that the nations of Asia and Southern Europe which started to industrialize at about that time and scored a consistent rate of growth approaching 5% a year do enjoy a per capita income of no less than 28,800 dollars today. This is 6 times the 4,800 dollars calculated above.

Does this mean those nations grew at 6 times 5% a year? No it does not mean that because what we are dealing with is exponential mathematics. When you do the calculations, you find that a growth rate of only 8.83 % over 50 years will result in a per capita income that is 6 times higher than would the 5% rate of growth. But why did the nations in Asia and Southern Europe indicate a 5% rate of growth rather than 8.83%?

The answer is that they did not spend much time thinking about these matters whereas the Chinese seem to have asked the right questions and found the right answers. Consequently, instead of doing what the other nations did which is to reconcile the value of their GDP with the reality on the ground once every 10 years or so, they did the reconciliation on a yearly basis by showing a higher rate of growth than the numbers seem to indicate. And the question now is this: Why is there a discrepancy between the real rate of growth and the apparent rate?

To answer this question we imagine another situation. A teenager doing odd jobs in rural China earns 2 dollars a day. He migrates to America where he washes dishes in a restaurant and earns 40 dollars a day. He is the same boy with the same level of education and the same skills; so why is he now earning 20 times as much as before?

The simple answer is that he now lives in a country where the per capita income is 20 times that of China. But the comprehensive answer is that he earns 20 times as much because he needs this much money to feed and clothes himself in America, something he could do in rural China with only 2 dollars a day.

This leads to the notion that when China will have fully industrialized and when all of its interior will come to resemble the United States, a boy anywhere in that country with no education and no skill will have to earn 20 times as much as today just to feed and clothes himself.

This is due to something I call the complexity factor. For example, the amount of wheat that goes into making a loaf of bread can be purchased at the farm level in America or in China for only 5 cents. This is how much it will cost to make a loaf of bread in a country where most of the population lives on the farm or near it. But when you buy that same loaf in a country that is fully industrialized, you will pay something like a dollar or 20 times as much.

This is because in a modern industrial nation the wheat will be transported from the farm to the flour mill, from there to the bakery and from there to the supermarket. You will buy the bread there and pay for the flour, the wrapping, the transportation, the fuel, the interest on money borrowed by the various parties, the overhead and so on and so forth. This is the complexity of modern industrial life that adds to the price of everything, every step of the way. I call this the complexity gap between the rural and the industrial.

We may therefore conclude that as modernity sprawls into the primitive interior of China from the modern coastal areas, the gap between the levels of complexity in the two regions will steadily shrink until it disappears completely. In fact, the gap between China as a whole and America has now shrunk to a 20 fold gap from the 40 fold gap that it used to be.

Thus, when we do calculations, the rate of growth we assign to a country that is industrializing must incorporate two components. A component that is the apparent rate of growth which is normally in the range of 5%. And a component that would range from negligible to perhaps as much as 4% and that will reflect the complexity gap.

Failing this, there will have to be a periodic adjustment to the GDP in order to boost it by something like 30% or 50% every decade or so to reconcile the numbers. In fact, this is being done now to the emerging economies. It was done to the Thai, Turkish and Ukrainian economies not long ago and it will soon be done to the Egyptian and Moroccan economies because the stated GDPs of these countries are far below their real values.

Now, the beauty about mathematics is that there is always a way to double check your answers. So let us ask the question: At what rate must a country grow in real terms to boost the per capita income of its citizens by 40 fold in 50 years? To answer the question you grab your calculator and take the 50 th root of the number 40. This gives the approximate answer of 1.0766. It means that each year, the per capita income must grow by that much. To turn this into a percentage value, you deduct 1 and multiply the remainder by 100. You get the result 7.66%.
If you do not have the root function in your calculator but have the log function, you take the log of 40, divide it by 50 and then take the antilog of the result. You get the same answer as before and then do the percentage transformation.

Add to this percentage the rate of growth in the population and you come close to the 10% rate of GDP growth that China is consistently showing. You conclude that the other emerging nations are underestimating their own rates of growth because in reality they should be closer to the Chinese rate than they are willing to indicate.

Finally, there are a number of other ways to estimate the GDP, the rate of growth and the per capita income of a country. When you check them out, they all confirm that the emerging nations score higher values than those countries are willing to report, and that China’s figures are closer to the real values.

Thus, if the question is: Do the emerging economies fudge their economic numbers? The answer is yes they do but they do it on the low side. As for the Chinese, the answer is no, they do not fudge because the figures they publish are close to the real thing. But yes, they do fudge if you look at the technical definition of what those figures are supposed to represent.

That Invisible Hand Has A Finger

Adam Smith who wrote a book called the Wealth Of Nations said that when an individual adds to his wealth, the nation is better off because the extra wealth that is created by the individual is added to the wealth of the whole nation. Someone later echoed this sentiment when he said something to the effect that what was good for General Motors was good for America. And the Chinese government is now saying that it is glorious for the whole nation when the individuals in it seek to get rich.

Adam Smith explained how this works. He said that things tend to even out in a community because the activities carried out by the individuals in it spread out to the entire community as if an invisible hand was going around doing the good work. Like it or not, history has proved these ideas to be sound because the nations that adopted them prospered while those that rejected them lagged behind both economically and in a few other ways.

But what is now becoming apparent is that the invisible hand has a finger and that finger is giving us a collective pain in the ass. The new reality is that the hand which at first seemed to stroke us with loving care has migrated to the wrong places, and the finger that used to adorn it has transformed into a hard shaft. So, how did it all happen without notice?

It happened because a law whose existence was never envisaged by Adam Smith began to make itself felt. It is Murphy’s Law which says that if something can go wrong it will go wrong. And that dreaded law hit the otherwise good work of the invisible hand despite the existence of an oversight mechanism that was supposed to oversee things and make sure nothing of the sort ever happened.

The trouble with the invisible hand is that it is invisible thus no direct detection of the way it works is ever possible. Rather, the work is detected by the influence that the hand exerts on the surroundings. This situation has led to some serious consequences which translated into the financial crisis the World is now experiencing. To better visualize this situation, I make the following analogy with a well known mechanical phenomenon.

The systems of an airplane can have one or two weaknesses leading to one or two benign failures without crashing the plane. However, what may happen at times is that a number of small failures can occur, apparently all at the same time, and result in the crash of the plane. Such development was given the name catastrophic failure.

Sometimes, the technicians and engineers in charge of safety will dismiss the signs that point to a weakness here or a weakness there in the hope that a catastrophic failure will not occur. But if the signs are ignored for too long, the odds will pile up against the systems and the catastrophe will occur as predicted by Murphy’s Law.

What happens will not be an act of God but a cascade of failures in the sense that one small thing will give way causing another small thing to give way and so on in sequence. And it will be the cumulative effect of the small failures, seemingly all happening at the same time as if by coincidence, that will ultimately cause the crash.

Something analogous to this happened to the financial crisis that started in the USA and spread to the rest of the World. Many people knew of the deficiencies in the system and several commentators warned about them well in advance of the crash. But the people in charge were lulled into rejecting the warnings with the promise that the American economy was resilient enough to withstand the strain; or they were intimidated into keeping their mouth shut under the threat of being denounced as unpatriotic if they don’t.

It now looks like the whole thing was a conspiracy of silence of some sort. Those who orchestrated it were the ones who engineered the status quo and fought to maintain it. They were the Neocons and their allies, the organized friends of Israel who advanced the argument that America can and should go it alone in the World. They repeated the refrain that America was powerful enough to need no one but a solitary ally, that entity they call Israel which they believe was destined to achieve glory by the grace and the will of the Almighty.

Practicing the Yiddish culture of insulting everyone that disagrees with them, that group of people succeeded in isolating the government of America from the rest of the World and from the American people themselves. This done, they methodically went about monopolizing the powers of governance and those of the media as if no one but their kind counted for something in what was quickly becoming a godforsaken place.

And when they secured all the powers in their hand, they engaged in a few more hair-raising activities. They took control of the means of information and used that to demagogue the nations they wished to antagonize. In this way, they managed to drive a wedge between America and those countries, most of whom had no dispute with America or were considered a friend. And when the Neocons and their allies succeeded in this task, they started to beat the drums of war and thus got America to attack some of those countries.

All the while the world watched the unfolding drama and many people shook their heads in dismay. They did so because they understood the consequences that will flow from the adoption of such behavior on the World stage. They knew all too well that the marketplace functions properly only when everybody has the correct information, and what they were witnessing gave them a bad feeling about the state of business in America.

When the friends of Israel took control of the flow of information, the dismayed people of the World anticipated that the marketplace of ideas and finance in America was going to be distorted. A few commented that the result will be the improper functioning of both the political and financial systems in that country. In fact, this came to pass as illustrated by the following three examples which are but a sample of a much larger picture.

The first example was that of the late Senator cum oil analyst Howard Metzenbaum who blamed OPEC for every gyration in the price of oil. The result of this sort of talk by him and by his kind was that he and his fellow speculators made the money, the American people paid the high price for the oil, and the Arabs were blamed for the whole thing. And this charade unfolded even as the Arabs were taking measures deemed detrimental to their own interest in order to stabilize the price of oil.

The second example is that of the Senator from New York, Charles Schumer who demagogued an Arab company, Dubai Ports World, following its attempt to buy a number of ports in America thus causing an ordinary, innocent commercial deal to sink before it could see the light of day. Apparently the Senator had a change of heart later on with regard to the Arabs investing in America but that’s another discussion.

The third example is that of an operation they called Abscam which stood for Arab scam. This was a sting operation designed by the friends of Israel and implemented automatically and without a minimum of thought by the FBI. The objective was to observe and perhaps to catch the American lawmakers who would sell their soul to Arab money as some lawmakers were already doing to Jewish money in a practice that came to be known as JewScam.

As for the Abscam operation, it turned out that no Arab ever tried to approach a single American lawmaker to buy his or her soul. No visible or invisible hand stroked anyone appropriately or inappropriately, or for that matter gave someone a pain in the ass. The Arabs, you see, are conditioned by temperament and by culture to leave this disgusting and cowardly habit to the Jewish organizations and to their allies, the friends of that glorious entity they call Israel.

It is now becoming clear that the invisible hand of Adam Smith will work properly only when it is left alone. You can learn to manipulate it and make it do other things but you cannot control it completely because it will remain invisible to you as much as it is to everyone else. What the hand will not escape, however, is Murphy’s law which will strike when you try to manipulate the hand. And when you least expect it, the law will make the hand hurt you as much as you will those you have in your crosshairs.

Finally, you need not have a special vision to see that what did America in this time around was the fact that the finger on that invisible hand speaks English with a Yiddish accent. How do you say ouch in Yiddish?