Archive for the ‘General Economy’ Category

The outcome of the presidential election was a surprise to me as much as it was to anyone.

What is not a surprise is the reaction to it.

There have been some extreme events and outbursts, including rioting by some Clinton supporters and some nasty displays of neo-Nazism by the loosely organized Alt-right group. Fortunately, these reactions are not acceptable to the population as a whole. Most of us are moving forward and dealing with change in a rational manner. The checks and balances embedded in the Constitution will prevent significant, or even sudden, permanent changes to our government.

However, one proposed remedy to Trump’s victory resurrects an issue this nation has faced before…..secession from the United States.

As a practical matter, according to an opinion piece in the Washington Post, it is virtually impossible, short of an apocalyptic disaster which throws our nation into dysfunctional chaos. Although there are many who believe we have been dysfunctional for a long time, I have news for you – the national government has not only survived, it has expanded its influence.

The Post article states: Article IV, Section 3 of the Constitution specifies how a state can gain admission to the United States. There is no stipulation, though, for the reverse. Even if Obama wanted to let Texas go — a thought that probably appealed to him for at least a second — there’s no mechanism for him to do so. There’s no mechanism for Congress to simply say, Sure, off you go. Once you’re in, you’re in. The United States was born an expansionist enterprise, and the idea of contraction, it seems, never really came up.

To those proposing a Cal-exit , don’t waste your time, or those of the state’s voters, with a referendum to seek secession.

Having said that, the topic is worthy of an interesting hypothetical discussion.

Did the Civil War really resolve whether secession is constitutional? I touched on this subject in an article I wrote for Citywatch in connection with the Civil War Sesquicentennial.

As I pointed out, the seven states that seceded prior to Lincoln’s inauguration could have gotten away with it had Fort Sumter had not been fired upon by Confederate batteries. Absent the catalyst the attack provided, the nation had no stomach for war, much less a civil war. Had Lincoln raised troops to forcibly end secession, it is likely the entire Upper South would have joined the Lower South, including the critical border states of Kentucky and Maryland. Washington would have been isolated; Lincoln’s administration would have been dead on arrival.

A southern-leaning Supreme Court, led by Chief Justice Roger Taney, a slaveholder himself, may have ruled in favor of the break.

What the Civil War did make certain was the illegality of forceful secession.

Does that mean peaceful or passive secession is permissible?

As mentioned earlier, there is no process for separation via legislation. There is nothing in the Constitution to guide Congress; nothing even stipulating a voting margin for such an action. Any request by a state to secede would simply die.

But let’s just say it did occur.

Just like divorce, there would be a property settlement…..and would that be costly to California! Do you think the rest of the states would transfer control of Yosemite and other national parks for a song? How about military installations and other federal government real estate?

The financial obligations California would incur for buying out its share of the unfunded liability of Social Security and Medicare of its citizens would be worse.

California claims to receive less monies from the federal government than it sends. That is so much BS. The benefits to the state from physical protection and security provided by the federal government is incalculable. In terms of economic trade, California’s primary trading partners are part of the Pacific Rim. Without the leverage of the federal government behind us, we would be at a disadvantage in negotiations with China and Japan, whose economies dwarf those of the Golden State.

Then there are details of establishing a monetary unit and a central bank.

How about supporting embassies throughout the world?

The nation of California would be bankrupt from the get-go.

One other thing. There are regions within California which will not go along with the plan. Much of California’s agriculture and water is attributable to the Central Valley and Sierra Nevada, respectively. Those regions would balk at the plan. They would form their own state, or possibly request to join Nevada. Sacramento would find itself isolated from the rest of its subjects. California would be totally dependent on a foreign government for food, water and energy.

The secession movement is laughable until you realize its proponents really believe it is plausible. For their sake, I sure hope they do not receive Nigerian e-mail solicitations.

But just the talk of secession further alienates California from the rest of the nation.

One of our top attractions is Wine Country. We do not want to be labeled Whine Country.

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Some popular media outlets have hyped the BREXIT as either the end of western civilization or the dawn of the golden age for the UK.

But that’s how the media operates. The more sensational the spin, the greater the following.

What counts is how it all plays out in the long-run.

No one is disputing the turbulence in the short-run: what happens to trade agreements, ease of travel among the 28 member states, immigration policies. It is no different from a divorce. Life goes on, only differently, with some friendships extinguished and new ones formed. Some will always remain unchanged. And like a divorce, there will be alimony – but flowing in two directions, in various forms. It will be difficult to project who will pay more.

Even with the UK as a member, the EU has an Achilles Heel owing to the sovereignty and nationalistic bent of its member nations, combined with a common monetary unit used by the nineteen members who comprise the Eurozone. The propping up of weaker economies in the union by the healthier ones, without the power to effectively influence legislation in the former, is like supporting your ne’re-do-well cousin Eddy.

Unemployment is pervasive: 8.9% in the EU and 10.3% in the Eurozone.

Overall, the EU is not only an unhappy family, but a somewhat dysfunctional one.

So one cannot blame the UK for wanting to leave, especially since it has been on its own for over a thousand years.

The patriotic lyrics of “There Will Always be an England” come to mind.

Well, there might only be England. Scotland and Northern Ireland voted heavily against BREXIT and could consider secession. The Jacobites might finally get their wish! Mel Gibson may apply blue paint to his face once more.

But they should be careful what they wish for. Just as the UK is taking a risk by bailing, Scotland and Northern Ireland would be well-advised to consider the health of the EU. In the next few years, other major players may part company with the EU. The remaining members, aside from Germany, will not be powerhouses. The EU could become a German-centric body. Maybe the Fourth Reich? A German hegemony is what some Europeans have suggested is developing, with or without the UK, certainly more likely without the UK and France.

Despite the urge by BREXIT’s most ardent supporters to break as quickly as possible, it will not be that easy. 52% support for the measure is not exactly a mandate. There will be a donnybrook in Parliament that will make our Congressional battles look like spats.

In the end, we need to respect the UK’s process.

Regardless, there will always be a Europe.

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Politicians have a knack for making some of the dumbest statements. Hillary Clinton not only made one, but chose the worst place to utter it.

Saying “..we’re going to put a lot of coal miners and coal companies out of business..” in a state that mines 10% of the nation’s output of the fossil fuel seems comparable to some of Donald Trump’s many foot-in-mouthisms.

The statement was taken out of context – Clinton did indicate her administration would help prepare coal miners for different careers – but specific solutions were neither offered nor alluded to beyond unspecified retraining .

Retraining: a promise we’ve heard before from many candidates at all levels. But if you are going to suggest it as a solution to a group facing the growing prospects of unemployment, then specifics are in order, not to mention facing up to reality.

Coal miners do have generic traits any employer would welcome: fierce work ethic, commitment to productivity, unselfishness….but the transition from a lifetime in the mine shafts to other industries where technological skills are becoming increasingly common will represent an insurmountable challenge for many.

Determining what industries or skills would provide the best prospects for miners is almost a crap shoot –  even retail.  How many Wal Marts can West Virginia support? In any event, competition for any job will be fierce. Some employment opportunities could also involve relocation, a prospect which may not be practical for many.

A more sensible approach is to let the coal industry die a natural death over a long period of time.  It is already in a steady state of decline in Appalachia: five major coal companies have filed for bankruptcy within the last twelve months.  Mining jobs have also vanished, especially in West Virginia. It hasn’t helped the state that easier-to-mine coal can be found in Montana and Wyoming, and cheaper natural gas is abundant.

There is no need to rush it along for the sake of climate change, especially when coal is and will continue to be heavily burned in China and India.  We will also always need some coal production, as it is important to have diverse and secure energy sources.

In the long-run, though, coal usage will diminish as cleaner sources become more economical. That’s a good thing.

Let as many as possible of the current generations of miners work to retirement. Encourage the rising generations in the coal mining regions of Appalachia to aspire to other careers by emphasizing the benefits of science, business, engineering, agriculture and technology careers in schools.  More importantly, apply the resources necessary to make that happen.

According to CNA (it is not an acronym), a company specializing in economic, social and defense research, referring to Appalachia,”the national focus on college and career readiness for all students presents a particular challenge in a region where, in the past, college was neither needed nor desired and careers outside the coal industry are limited.”

CNA’s study also suggested a strong desire for students to remain close to home and choose occupations where a college education is not required.

That particular aspect of the region’s culture has to change. The support of the adult population is critical in order for that to occur.

Pulling the rug out from under those whose livelihoods depend on the coal industry is not how you win their hearts and minds.

The bad feelings will not be limited to West Virginia either. The swing state of Ohio is in play, where 33,000 are employed in the industry and coal provides 69% of the state’s electricity.  Those employees have friends and relatives, so the potential for a meaningful block turning out in a tight race is there.

I have no horse in this presidential race, but I understand the volatile mix present in this nation which could make the outcome go either way.





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According to the lyrics from the memorable theme to Never on Sunday (enjoy the trailer), it is OK to kiss in Greece except for Sunday.

However, on this past Sunday, July 5th, Greek voters invited the EU to kiss them. I need not mention the part of the anatomy, though.

Contrary to some extreme views, this does not mean the end of western civilization or the EU, but neither can it be shrugged off by the major trading blocks around the world. The Asian markets have opened way down as of the wee hours of the morning in North America.

There are also adverse strategic implications, not the least of which involves Russia’s ruling sociopath, Vladimir Putin.

Let’s review the financial data first:

Greece’s national debt is  €342bn, including €220bn in bailout funds owed to EU partners.

Payments on the EU debt extend out to 2055, but the lion’s share is due before 2040 and €17bn over the next two years. It may as well be ten times the amount – the Greek banks are almost out of cash.

A switch to a new currency can take any country up to two years with careful planning.  There is no meaningful planning underway and the Drachma would be worth a small fraction of the Euro in any event. All foreign debt is payable in the national currency of the lenders.  Greece would conceivably have to issue trillions in Drachmas to buy Euros in order to liquidate its current debt alone.

Initially, the Drachma might provide short-lived relief, but inflation will be certain to overwhelm the economy.

80% of the economy is in the services sector, and a large portion of that is from government spending.  In other words, Greece has little to sell to the rest of the world.

Tourism, which accounts for 17% of the Greek economy, has been the only bright spot in the crisis. However, Greeks should not count on it if their country devolves into social unrest, a likely prospect.  Tourists will be targeted by thieves for their cash and cards.  Service providers will operate a black market to avoid paying taxes.  Drachmas may not be readily accepted by merchants. Visitors will have to carry wads of Euros, Pounds and Dollars, since ATMs will be unreliable.

The EU nations will eventually be able to absorb the losses from a Greek default, though not without some pain and political repercussions.

The greater risk is social chaos and the possibility it could turn Greece into a haven for terrorists.  Face it, terrorists love to fill a vacuum created by disorder. Also, one cannot rule out armed fighting between extreme socialists and capitalist factions.

A repeat of the Greek Civil War of 1946-1949 would be possible.  80,000 were killed in the conflict.  The Truman Doctrine and Marshall Plan restored stability and stopped the spread of Communism. I am not suggesting that scale of death would occur.  The Greek army would intervene to maintain some degree of order, but thousands of deaths could still result.

Enter Vladimir Putin.

He has already expressed a desire to “help” Greece.

Even though the Russian economy is stretched, Putin has the power and popularity to push his people to make greater sacrifices in the name of Mother Russia. To be honest, it would be a strategic windfall for Russia if it were granted port facilities by Athens in return for financial support. Putin would hold the high ground of the Eastern Mediterranean. Greece would not only cease to be a functioning member of NATO, but become the Mediterranean base Russia always desired. Such a development could leave Ukraine helpless as its southern trade route would be compromised.

Israel would have to sweat, too, surrounded by an increasingly hostile set of neighbors.

We can only hope the Greeks will consider the long-term implications of their decision and not let the “no” vote become a Greek Tragedy.

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The persistent drought in California has been assumed by some to be further evidence of climate change.

It is spurious to conclude the current drought is being driven by climate change, especially in view of the long history of dry weather patterns, some lasting decades or even hundreds of years. I dare say that politics is behind the climate change/drought connection. It makes about as much sense as saying the recent harsh winters in the east are the harbinger of a new ice age.

There is a well-known saying: if a tree falls in the forest and no one is around to hear it, does it make a sound?

Paraphrasing that: if there is little or no rain for a long time and few people are around, is there a drought?

It would depend on what you mean by a “few people” and a “long time.”

The Anasazi thrived in the desert southwest until a megadrought took hold in 1275. But they had survived earlier droughts, so why would they abandon their mesa villages in the wake of that one?

Archaeologists specializing in the Ancient Puebloans theorize that people had become more dependent on each other and on agriculture, in particular – more so than in previous periods of prolonged droughts – so when crops started to wither, so did their societies. You might say it was the 13th century’s version of the Dust Bowl migration.

The parallel to today’s California is sobering.

The state’s population exploded in the 20th century and agriculture’s role in the economy grew with it. Although we are not as vulnerable as the Anasazi due to technology and distribution systems that allow vital goods to flow into our homes, our quality of life is heavily dependent on water, of which agriculture consumes 80%.

A recent article in the New York Times questioned whether the Golden Sate could continue to sustain a growing population in view of the variability of the water supply.

The Times was right about questioning sustainability, but the problem isn’t so much California’s population growth. Instead, it is the world’s uncontrolled population explosion that is the root cause of our current water crisis. California is the largest single breadbasket on the planet. The demand for farm products from our irrigated fields has grown steadily. International agricultural exports were valued at $6.5 billion in 2001 and increased to $21.2 billion by 2013.

Will the farm output keep pace with growing populations in China and India?

Can other regions step up and supplement California’s food production?

Since agriculture represents only 2% of the state’s economy, a decrease in output will not be disastrous for Californians as a whole. Food prices would go up, other factors notwithstanding, but the implications could adversely affect other parts of the world. And that’s the last thing we need in this era of international chaos.

More efficient methods of irrigation must be developed, and consideration given to shifting away from certain water-hungry crops. Transitioning crops can be costly in the short-run for farmers, so the state must be prepared to offer subsidies to that effect.

Even in prolonged droughts, there are years where rainfall will be unusually heavy. We must be in a position to take full advantage of them. Water reclamation and increasing water storage have to take priority over pet projects such as high-speed rail.

Unlike the Anasazi, we have the technology to adapt. Whether our elected officials will have the wisdom to establish sensible priorities is another matter.

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The Republicans are up by two in the US Senate and could very well pick up two more seats (Alaska and Louisiana), giving them 54. With 53 or 54, the GOP will have little worry about one-off defections on some votes that would put Vice President Biden in a position to cast the tiebreaker. 52 seats could be a little dicey for the Senate Majority Leader-Elect McConnell to control on some issues, but he should have his way almost all of the time.

At stake is a stockpile of legislation passed by the Republican House that has been blocked by current Senate Majority Leader Harry Reid. These include jobs bills, ACA fixes and the Keystone Pipeline.

In all, there are about 350 bills on the sideline in the Senate, some with strong bi-partisan support. McConnell will be in a position to cherry-pick which bills advance for consideration. If he is smart, he will be conciliatory to some of his Democratic colleagues by allowing amendments.

Aside from Keystone, only a handful of the stalled bills have star power that will propel them to the headlines and, therefore, become rallying points for supporters and detractors. But there are others, when viewed in the aggregate, could have significant impact on the economy. With some horse trading, McConnell could enlist support from several Democrats to advance his broader Republican agenda by backing bills which will make them look good in their respective states.

The Republicans to be successful, then, need to manage the legislative backlog in the Senate as a whole and not by the individual pieces. While they bemoaned Reid’s iron hand approach to suppressing bills initiated by the House, they now have a stash of ready-made components to package and roll out.

President Obama has the veto power and could block everything, but he would then be viewed as the same obstructionist he accused the Republican leadership of being. In the process, he would likely alienate some Democrats and hurt the party’s appeal in the 2016 elections. Even a lame duck president does not want to do that.

To protect his party, Obama should emulate former presidents Clinton’s and Reagan’s willingness to strike deals and avoid Gerald Ford’s excessive use of vetoes, according to New Your Times columnist Michael Beschloss. Reagan and Clinton are generally admired and respected; Ford is little more than a footnote in history.

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Bernie’s Big Spin

As with many of you, my Facebook news feed is splattered with exaggerated, if not false, claims. There is almost always a partisan political motive behind these memes.

The most common ones I encounter involve variations of the following:

– Planes did not crash into the World Trade Towers on 9-11.
– President Obama is a Muslim
– Vladimir Putin is the Antichrist

OK, the last one is probably true.

The latest rage is a quote from Senator Bernie Sanders.

“One out of four corporations doesn’t pay a nickel in (federal income) taxes.”

Is there some truth to this statement?

It depends on how you slice and dice the stats, and the Senator is performing some surgical slicing.

The data behind the seemingly stunning assertion include firms with legitimate losses; that is, after you subtract the cost of goods sold and overhead, such as salaries, office rent, professional services, etc, there was no profit to report. Understandably, when you have no profit, there is no tax. It works that way for small businesses as well.

The ratio might be closer to 1 out of 16, but no worse than 1 out of 6, according to an analysis by PolitiFact.com.

But the complexity of the tax code makes any analysis, including the one underlying Sanders’claim, sketchy.

For one thing, too much weight is given to rules that defer taxes. For example, accelerated depreciation merely reduces taxes in the early life of an asset, but the benefit turns around in the later years and results in a lower deduction. I would hardly call that tax avoidance.

The steady growth of S Corporations further muddies the waters as more corporate earnings are shifted to individuals. The S type became the most prevalent form of corporate entity in 1997. S corporations do not pay income taxes. Instead, the earnings from this corporate type are passed directly to the owners, who report them on their individual returns.

S corporation owners must either be citizens or residents, so all income is within reach of the IRS. Owners cannot be corporations or partnerships.

The impact of investment tax credits need special consideration. These credits are incentives for companies to reinvest in assets that improve productivity. They represent a permanent reduction to corporate taxes – the savings will never be reversed in subsequent years as deferred benefits are.

Credits are allowed for certain types of equipment, solar energy installations and even film production. The government assumes an economic benefit will be derived from such investment. To at least some degree, that is true. When analyzing whether corporations are understating taxable income, these credits need to be considered and effectively added back as if they were not used.

Even those corporations that truly bypass the IRS by funneling income overseas cannot avoid entirely shielding their income from United States income taxes. The dividends they pay are taxable to the shareholders.

The point I am making is that politicians can play it fast and loose with the numbers depending on the range of data they select, just as MSNBC and Fox dissect the news to support their opposing points of view.

So please think twice before you share out of context “truths” you receive on Facebook.

Remember, the more astonishing the assertion, the more likely it should be discounted.

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