Jlknapp505's Blog

I wrote this as a comment on an interview with Paul Krugman.  I tend to agree with almost all he says, but I think he concentrates too much on the financial aspect of economics and not enough on production and the relationship that this has on international trade.  And I think that international trade, and whether it’s balanced or whether it is in the positive (more sales than purchases) or negative state, is the key to a nation’s prosperity.  With a positive balance of trade, all of a nation’s excess labor is put to production; with negative trade balances, the nation moves toward unemployment.  It’s a fact that nations possess excess labor; it takes only a relative small number of people, with machines and efficient fabrication and production of commodities, to produce all the goods and services a nation needs.  If the excess is forced into this production of domestic necessities, competition forces prices to fall, so overall there’s no benefit for the domestic economy.  More people, but less domestic wealth.
Here’s my reply to the Krugman interview: 

Good discussion, and it’s probably a good book. But I think I need to argue with Mr Krugman about some of what he’s said. He’s only got a Nobel and writes textbooks for economics classes; what does he know?  😉
I’ve thought, and have written a couple of times, that we in the USA are actually in a state of economic depression and have been for years. Recession and depression are, as Krugman says, essentially the same except for degree and duration. I’ve concluded that we entered a depression before the recent Great Recession but managed to make it seem less severe by borrowing and spending. Deficit spending by government, supported by borrowing, has been continuous. Even during the Clinton presidency, when the economy ran a ‘surplus’, borrowing increased; some of that went into the space program, a lot of it went to payouts to people through social support programs, some went to the military for weaponry and two wars. There were also a number of natural disasters that soaked up money. All of this was paid for with money that the nation didn’t have.
The non-government-based economy during this time was shrinking. A lot of industries went overseas; mining of such commodities as copper and iron went to South America and other places. Oil production nearly ceased here; what oil was left was too expensive to extract. Asia began to supply steel as well as manufactured products. American production workers lost their jobs. This loss of jobs wasn’t solely the result of Recession, but was a much longer process as finance became the dominant consideration in business. Finance doesn’t care where the products come from; production, and workers, was marginalized. Workers lost jobs, and except for government spending to prop up the economy, that economy would have shrunk much more.
Economic activity that produces products that can be traded internationally is sustainable. Economic activity based on continuous borrowing is not. It’s as simple as that.
If you’re selling internationally, money comes into the nation as well as going out. If you’re borrowing, money comes in, international goods come in, and money for those flows out; but nations who profit from selling us oil and copper and steel and manufactured goods can turn their profits around, buy US Treasury bonds, and then collect interest. Double whammy; even more money is now flowing out, the debt is rising constantly, the interest money to service that debt keeps getting larger, and so the whole house of cards begins to shake. We can no longer avoid facing the danger.
That much the people who favor reduction of the debt get right.
But a nation in depression or severe long-term recession can’t afford to stop paying out money. They can’t afford to stop borrowing. Lenders stop lending at some point. Nations, even the US, may be forced to default…or print money without the economic activity to back that money.
We’re the default backer of world trade, because the dollar is the international currency. If the US hits that wall, world trade collapses. In time, a new currency or basket of currencies can take the place of the dollar. But in the short term, the yuan and the yen and the euro and the pound all have problems of their own. There is no easy short term solution.
The bailout had to happen in some form, as did the Fed’s quantitative easing. But the bleeding sore remains under the bandaid: there aren’t enough good jobs to support the middle class, only very profitable jobs for the financials at the top and very poor jobs for those at the bottom. That latter class is growing, but it cannot possibly generate the economic surplus to fund the consumer economy. That lower class can’t afford to buy a house, or a new car, or a new TV; they have to keep the old ones. Many of them also had their own debt crises from credit cards; in effect, credit card companies provided their own ‘quantitative easiing’. People spend this year’s discretionary income last year or the year before. They’re still paying that off.
So the borrowing must continue for a while. But this time, to end the depression/recession, it must go to the real job creators in the form of middle class jobs to people who will buy things and pay taxes. People who are rebuilding infrastructure, roads and bridges and buildings and solar systems and power distribution nets; those are the ones who will really create jobs by creating demand for products. And most of those products need to be made here in the USA.
Do that, and the depression/recession will truly end.

Something that’s being missed in the discussion of national status:

I’ve come to believe that larger nations, that do a lot of international trading, have in reality been in a depression for some time. I use ‘depression’ rather than recession because I don’t believe the true amount of shrinkage in economies has been realized. Borrowing props up economies and makes it seem that the situation is less dire than it is. The situation has now reached a point of non-sustainability.

Here’s the way I see it: The key to economic well being is trade. If you only manufacture and sell products domestically, then there’s a finite market and so a finite manufacturing base. Oversupply doesn’t necessarily create more domestic trade due to a saturated market; it only forces prices down. So external trade is the key to a growing economy and more real wealth for all citizens. Adam Smith realized this.

But at the same time, ‘free trade’ can’t be totally free. It must fall within limits. Smith didn’t write in a world with easy, fast, safe communication and shipping. He didn’t write in a world where trade could become worldwide, where economic entities could be multinational and import products cheaper than they could manufacture them.

A part of this has to do with unions and their activities. Trade unions were absolutely necessary in the early days. But employees are safer now at work, and they get more of the economic rewards of their efforts. Unions now demand ever more of those economic rewards for workers; managers want to keep the rewards for themselves. As one union strikes and receives more pay, another union sees this and demands more itself. This situation ratchets up across the economy, and eventually prices go up, inflation happens, a new stasis is reached. What unions gain, they lose in inflated currency. Plus now they’ve also lost some of the value of any savings. Across the world, other nations which didn’t undergo this spiral have deflated currencies (relatively speaking), so they’re at an advantage if production is based solely on price.

But trade must be balanced in order to be sustainable. Large nations that do a lot of importing see money go out, money that isn’t spent domestically, and goods come in, goods that saturate an existing market. This can’t be indefinitely sustained. Funds from trade imbalance can be borrowed and put back into the domestic market, but this creates the double problem of eventual repayment plus interest.

The fact that some of the smaller North European nations didn’t need to do so much borrowing has more to do with the status of their trade than it does with intrinsic wisdom of their leaders. I note that Saab, once an exporter, is now in bankruptcy. No one is exempt. The Chinese may buy Saab’s assets. China will at some point begin manufacturing automobiles; the US General Motors operates one or more manufacturing plants in China, so their work force is being trained and all they need are the machines, such as the ones Saab will be selling off.

Free trade and the WTO are ideals; they aren’t followed by many. China, for example, has never lived up to trade agreements but instead subsidizes industries and uses protectionism. Their currency is also maintained at an artificial low level.

So at some point this idealistic situation must change. I advocate a tax on imports, floating at a level that adjusts prices to parity and removes cost as the sole trade incentive. If you make a better widget, you can still sell it competitively; you just can’t flood the market because it’s cheap.

If you don’t think of this as realistic, consider what I’ve said: the current situation can’t be sustained indefinitely. Postponing the finding of a solution simply makes the inevitable fall worse.

A lot of attention goes to the problem of immigration. This isn’t the problem, it’s only a symptom. In a shrinking job supply, any source of competition is demonized.

There are also local incidences of unrest. People who live where good jobs can be had, even if those jobs require more in commitment and education, understand that with effort they can get good jobs. They can plan for the future. They have some confidence that the future will be better than the past. When those jobs aren’t available, hope is lost, desperation lurks under the surface, people will lose respect for law and understand that really they have little to lose. Crime, possible incarceration, is not the fearsome thing it is to you and me, who have jobs, who have education, who are relatively content with life.

The assumption in the US was that if you had a job in a manufacturing plant, that job would continue. You would work hard for years, but you could buy a home, send your kids to a good school, afford a car, enjoy life. The home would be paid for in slightly-inflated dollars, so the effect of interest payments was slightly mitigated. Bankers would loan money with the expectation that if the borrower couldn’t repay, they could take back the house and sell it to someone else.

And then the bottom fell out.

The good jobs went away. Manufacturers became merchants, buying instead of making, selling at inflated prices because ant people* in China would work for less than unionized Western workers. It was the ultimate escape from unions, the triumph of the managerial elites over production. Now they could keep all the profits without sharing them beyond marketing staffs and management. But they also expected to keep marketing in North America and Europe. With layoffs, with loss of houses because some of the predatory loans (and some were ridiculously predatory, targeted not at the White middle class but at Blacks; a recent fine of some $350 million was assessed for this) couldn’t be repaid, so job loss became loss of the home, the middle-class’ investment of all their previous labor.

Politicians should have seen this situation developing and taken action. But as a class, politicians aren’t ready to lead a citizenry in hard decisions if there’s any possible other course. They can lose elections that way, a fate to them worse than death. Doesn’t happen. We believed they were smarter, better informed, had the nation’s best interests at heart. They weren’t, they didn’t.

So now we’re in the political cycle of elections.  We get demagogues and platitudes, not solutions.  We get a stopgap bill for a disfunctional Congress to argue over.  We find that unemployed people, poor people, old sick people are being held hostage by ideologues to whom a political advantage is much more important than any considerations of people and their misery.  Platitudes; never solutions.  Solutions might lose votes.  Hold people hostage to the occasional sense-of-responsibility of the Democrats.  Add a goodie to the temporary extension bill that favors Big Oil, and plan on using that for political advantage during 2012 to force Obama to make an unpopular decision, to approve a pipeline that citizens don’t want, or refuse it and end up in a political fight with Big Oil’s client politicians.  Lots of distraction, no real solution to trade imbalance and job loss.

But if I can realize where the problem lies, why can’t our elected leaders?  With few exceptions (Sen. Bernie Sanders seems to be one), they are firmly in the grasp of special interests who come bearing money by fistfuls.  Bagfuls.  Unashamed, they hold out their hands for more.  Corporations donate millions to political ads, and no one wonders why stockholders aren’t really consulted about the loss of their money in this way.  Boards of Directors authorize this, CEO’s spend the money, if you’re a small stockholder you lose and never have that corporate ‘voice’ that a silly Supreme Court has decided they have.

*english.peopledaily.com.cn/90001/90776/90882/7041036.html

The time is approaching Christmas in this year of 2011. A weak president occupies the White House. Congress is deadlocked. Seven candidates from the opposition party, possibly more, sense this weakness. The election of 2012 is well underway. Much money has been spent, much airtime devoted to numerous debates in which candidates attempt to show that they can fix the nation’s ills and that no one else can.

And if there’s one choice that the electorate would want on the ballot, it’s “None of these.”

Why? Despite the plentitude of platitudes, none of the candidates has a clue about what’s wrong, or what to do to fix things. Politics? They know how to win elections. Platitudes and mudslinging, it’s the new formula. Governing? Not possible. Whatever ‘governing’ does occur seems to be by afterthought, something the president must do that Congress doesn’t, because lawmakers can hide in the pack and then spin their activities later. The judiciary? The judicial system is corrupted by money, where expensive lawyers delay and play to the media, where corrupt business practices often result in a relatively minor fine and no admission that wrongdoing occurred.

If it all were simple, someone would have fixed it. Keep that in mind.

Complex problems won’t be solved by simplistic answers. Too long, we’ve believed our candidates, our leaders, actually knew what they were doing. We believed they had the well-being, the best interests, of the nation at heart. We believed.

We were wrong.

Politics, and politicians, should reflect the will of the people. It, and they, no longer do this. The political system is for sale. Numerous polls are taken showing what the public desires to happen. Lawmakers ignore them. It’s breathtaking arrogance and the conviction that later on, when election time nears, there will be little real choice for voters, and bags of money to buy misleading, even false, advertising. ‘Meetings’ will be held in which selected supporters come to listen to heavily rehearsed speeches which never mention any particulars. Platitudes, posturing, spin; it’s all that the voters get. And we don’t demand anything better.

Despite the pious claims of those at the top, competition is not the methodology of the US; just as soon as a person, a company, an industry reaches a position where they have the money to do so, they buy enough lawmakers to push through legislation to protect themselves and to keep their profits artificially high; to suppress competition, in other words. There are often parallel efforts to gain advantage by suppressing taxes so that one industry, even one company on occasion, is favored at the expense of others. The image of competing businesses working hard to compete is demonstrably wrong, at least among businesses which are large enough to affect political decisions. Some, indeed, have become virtually uncontrollable by any single nation.

They’re multinational in scope. When business in one nation declines or becomes less profitable, the multinationals simply enhance their operations in other nations. They can choose which nation they will favor by locating a headquarters or a manufacturing plant there and such decisions are strictly economic. If a nation provides a favorable tax situation, that’s where the headquarters is. They will continue to do business elsewhere, iand they may not do any business where their headquarters is located. Instead of economic entities competing, now nations must compete for the favor of the multinationals.

This, indeed, may be the way of the future. Economic entities, companies or industries, may be the new nations, performing all the offices that nations once did. But that future is not yet.

Our task in the 21st Century is to define the problem that affects the US specifically and the world generally. The US is failing; let there be no doubt of that. Platitudes and promises can no longer cover up the looming catastrophe; education, voting in blocs, control of political leaders, fundamental change of total systems, it’s all going to be necessary. We can now do this in a way that the founders could never imagine. We have the internet. We have the potential to become organized as never before. It’s been done, so we aren’t leaders in this; witness the Arab Spring. Computers, smart phones, communication can motivate and organize a population and direct a mass movement.

One of the things that will be required is modification of the US Constitution. The reasoning behind the original document no longer holds true. The Constitution, with it’s safeguards designed to prevent all-powerful government from oppressing the citizen, still has a place; but now we have the new tyranny, the all-powerful economic entity, the corporation, and we have few if any safeguards for our protection.

The political process should protect us from this tyranny. But it doesn’t. Instead, the oligarchs who run the corporations (as a shorter term than ‘economic entities’) through holding the positions of management or through interlocked memberships in boards of directors control politicians and through them, the political process. Call them the 1%, although that’s not mathematically correct. It serves better than ‘oligarchs’ or ‘the corporate elites’.

So: the system is broken. Can it be fixed? I think it can.

But it begins with education, not the education of schools but the education of voters. Voters must develop some understanding of politics and of economics. They must understand education and be able to apply that to their children. They must also understand something of the judicial system and regain control of courts and legal matters. Above all, they must develop some understanding of economics, at least enough to know when politics and politicians no longer serve the people but are servants of the 1%.

This is the introduction to a collection of essays that will deal with economics, politics, education, and the judiciary. It’s meant for the ordinary concerned citizen and it will avoid technicalities. The essays are not meant for entertainment, but for education. I hope you gain some understanding of the complex issues that affect our nation in this period of history. If you do that, then the work will have been worthwhile.

This was written in response to a post I found through Atlantic Monthly.  Excellent magazine; I recommend it.

Consider a school and the surrounding neighborhood. Run by a political entity, a School Board. Who hires a Superintendent, who in turn will select Principals and Vice Principals and establish a personnel office to hire teachers.
If the local school isn’t working very well, the tendency is to look to the quality of teachers as a place to start. Parents have this feeling that “We’re paying you to educate our children!” So every political education entity follows the same logic. And it’s wrong.
Political entities are the real control point. Begin at the top, the Federal agencies who are involved in what schools teach and how they teach it. These are also involved in social engineering. Some of the social engineering comes from congress and some of it from the interpretation of various jurists. But schools are no longer about simply educating children.
At the bottom of this, the school board has one mission. Surprisingly, it’s not about achieving a quality education; it’s about living within a set budget. And budgets are driven not by the success of the education process but by parsimony; school board members are elected because they promise not to raise property taxes. They may mumble something about the need to raise education standards, but if you attend a school board meeting, quality of the education provided within the school district is not on the agenda. The Superintendent is a bureaucrat, a manager who oversees the expenditure of the funds budgeted and who only leaves his office when he’s needed to attend board meetings.  He’s almost never seen at an individual school, and if he does come there, it’s a state visit.

If there are unforeseen developments which would require additional funds for a school, there aren’t any. Schools may be urged to keep the lights off in classrooms to save money. Teachers may be laid off. Programs may be cut. None of these improve the quality of the education provided, and no one pretends they do; it’s just necessary to take these steps in order to live within the budget.

At the bottom of the heap is the teacher. He/she is generally poorly paid compared to other college graduates. They come to the profession bright, shiny, motivated to change things, certain that all they need to do is CARE for the students and do a good job. And within five years, they have either left the profession (almost half) or have begun to be ground-down by the bureaucracy. They’ve attended numerous meetings having to do with one or two special-education students, had assemblies dealing with minority rights, spent their time overseeing students in hallways or on playgrounds, had numerous meetings with parents, and have come to realize that their expertise doesn’t count for much at all. They’ve watched a few students terrorize others through bullying and had students continually interrupt classes because they simply didn’t want to be in school but were compelled to be there (think of it in terms of prisoner mentality, the same thing that makes convicts riot), and have seen that they, the teachers, have no means of effectively controlling this, nor does the school’s administration. Expulsion is never used for bullying or class disruption; that’s reserved for firearms on campus or similar felonious behavior. The slogan is “We can’t deprive a child of an education.” In reality, such behavior by schools deprives hundreds, thousands, of children of a quality education.

Teachers teach WHAT they are told to teach, HOW they are told to teach it, and to students they had no influence in selecting. The better students are removed into Gifted and Talented programs. What are left behind are those considered ‘average’ and many who are handicapped by developmental or behavioral circumstances. Some of these are so retarded, for lack of a better word, that keeping them in school is simply warehousing them. There is no free institution for a child who has a calendar age of 14 but a mental age of 2; but the public school is forced to take him in and provide a ‘teacher’ and assistant to care for him during the day. That’s a (real) extreme example, but there is a gradation of students who are ‘in school’ but not prepared for or willing to be educated. This is the unwanted side effect of all that social engineering.
Want to watch schools be immediately improved? Expel or release the nonproductive ‘students’. They cannot be forced to become educated, despite pious wishes to the contrary. Require teachers to teach, and only teach. Expect them to bring the best information that their branch of learning offers, but don’t tell science teachers (as an example) that they cannot teach evolution or reproductive biology. Hold SCHOOL BOARDS responsible for education, and any judicial interference in education should be subject to a review from a higher court to see what the effects of that court ruling would have on general education. FUND the schools for education, not social engineering. If some degree of social engineering is necessary, then provide FUNDS from the agency or level that requires it.
Or go on doing the same thing you’ve been doing for the last half century.

Presidents and politicians come and go and leave nothing of substance in their wake.  The latest bandaid solution had to do with repairing roads and bridges and dams, and certainly this is a start.  The infrastructure needs help or it will begin to collapse as did the bridge on I-35.

But is this an example of the vision we really need?

I would suggest a new endeavor.

I noted back in December that the Northeast was buried in snow, and more came in through the winter and increased the snow cover into the middle of the nation.  Inevitably, snow eventually melts and existing rivers can’t handle the runoff.  Floods result.  Remember those?  Remember all the floods every year, as far back as I can remember?  Sometimes they result from winter snow, sometimes from hurricanes that hit cities or states in the Old South, but every year, there are floods.

Meantime, there is drought.  The West inevitably has drought, somewhere.  This year it’s Texas and New Mexico, but count on it; it’ll come, as it has for centuries.  The Dust Bowl didn’t just happen because of poor farming practices; a long-term drought was the underlying cause that poor land management made worse.  The major cities of the West are chronically short of water.  Irrigation is getting more difficult and expensive all the time.  Whatever water is available gets reused over and over, resulting in salt buildup in irrigated lands that are some of the most productive in the nation.

I would argue that we can, and should, do something about this.

Put simply, I suggest we harvest excess water wherever it exists and move it to wherever it will do the most good.

There are advantages and disadvantages to this plan.  It won’t happen immediately, any more than the Interstate Highway system did.  There is a shortage of money to do this, some of the technology would need to be developed, and it would cause some disruption to existing systems.  It would, however, soak up excess labor and begin to put people to work almost immediately.  The process might easily take 20 years or more to complete, and that excess labor would be employed during this time and the economy would be helped.  It would begin to show some benefits within a year or two.  And those people working on the project wouldn’t be unemployed, and they’d start paying taxes back to the system.  Taxes multiply as the money cycles through the various affected economies.  Some of it would go to the federal government, some to states and municipalities.  Seed money would grow.  And the necessary funds could ‘bootstrap’ themselves, using taxes and decreases in social programs to continue funding.  Meantime, we’re already paying in assistance to people whose lives have been damaged by flood or drought or wildfire.

What would the project consist of: I suggest canals and pipelines, with the canals being favored where practical.  Use a system of gates and locks to control water flow.  Canals should link reservoirs in the east with those westward, and either tunnel through highlands or use a system of pumps and pipelines to move water over barriers.  I suggest hybrid wind/solar power for the necessary pump systems.  Eventually, when the process is complete, there would be a need to maintain the system, just as the highway system needs to be maintained now.   That would employ workers.  Canals serve as a transport system as well as a means of moving water and fees for use can help with costs of maintaining the system.  Plus, any material moved by barge or boat is material that isn’t being moved by the railway system or road nets.

This increases economic activity within the nation, and it can’t be exported.  It’s a win-win, in my opinion.

In the early stages, water would be harvested and used immediately; later, excess water might be used to recharge the depleted aquifer system.

Where to build the canals and pipelines?  I’d suggest in the north, at the beginning.  Later systems could be built across the south.  The reason for this is snowfall.  Currently, there’s little to do with snow that falls in the north except to wait for it to melt, and it generally melts all at the same time.  But some of the snow could be dumped into the reservoir/canal system and this could be continued all during the winter, weather conditions permitting.  A steady effort to remove snow, to harvest it in other words, would pay off in lesser flooding later.  A system of feeder ditches along major roadways would allow collecting of snow from roadways and surrounding lands.  We in the west have such systems; we use them to divert water from rivers such as the Rio Grande and the Pecos.  The rivers are often dry in summer, when the irrigation season is in full swing, because all the water is in the ditches.  Ditches can collect water as well as divert it.  Ditch to river or reservoir, canal from the rivers or reservoirs, pipelines where that’s the most practical solution.

My thinking.  Perhaps you might let your politicians know about it?

This was originally written in response to an article from The Atlantic.