Gettysburg, Part II

                The phrase “all men are created equal” raises certain expectations, among them the expectation that all people will have, eventually, about the same amount of material possessions.  Or at least that there will not be a terrible disparity between haves and have-nots.

                Unfortunately there are all kinds of people, and there are differences among them in their abilities to have, their abilities to handle life, their abilities to lead (or follow) and their capacities to be in charge of things.  The tendency is always for some people to accumulate more than others.

                This is not to say that it must always be that some have things at the expense of others.  Nor does it mean that those who have a lot of material things can’t help those who have less.  It does not mean that the haves are actively trying to prevent the have-nots from having. 

                There are all kinds of people, and this also means that at the highest and lowest levels there are good people and bad people.  It is not healthy for people to think that goodness is represented only in their own social stratum and badness is in some other. 

                It is not true that the so-called rich and powerful are trying to screw everyone else.  (Certainly not all of them!)  Nevertheless it is true that some people amongst the highest social strata are not always acting in the best interests of people other than themselves.  In other words, there are good and bad people amongst the rich, just as there are amongst the poor and the middle-class.

                Finding out who is good and who is bad is among the hardest things in life.  The belief here is that most people are good, and we want to trust people.  The danger we constantly face is that of trusting someone who does not deserve to be trusted. 

                People who can create or run a business are useful because they can create and maintain jobs that enable other people to earn a living.  Some people who have those jobs blame their bosses for not being more generous with their money.  They want higher pay.  There is a fine balance between profitability and generosity.  The survival of a business requires a certain amount of profitability.  Pressure from many quarters puts pressure on the bottom line, among them pressure from competitors, government regulations, taxes and pressure from employees seeking higher pay.  There is also pressure from shareholders seeking dividends in exchange for continued and/or new investment in the company.  This last group will be the subject of our next post.

Gettysburg Redux

                The anniversary of the Gettysburg Address whizzed by us again on Nov 19.  Feeling a bit grandiose, we wanted to start this post off with a tip of the hat to it.

                Two hundred and thirty-seven years ago, our forefathers brought forth on this continent a new nation conceived in liberty and dedicated to the proposition that all men are created equal. 

                (It is a time so far away that our interest in it sometimes verges into the archeological.  A few years ago in Boston someone accidentally dug up some old bottles and such that dated from colonial times.  Scholars carefully combed through the site, wondering what life was like for people back then.)

We are now engaged in a great struggle testing whether that nation, or any nation so conceived, can long endure.

                That struggle is not just about terrorism, and terrorism may or may not be connected to what the basic struggle actually is. 

                The big picture is the worry that Plato might have been correct when he said that the cycle of government goes, in descending order, from monarchy to oligarchy to democracy to tyranny.

                The smaller picture (although still a rather large one) is that, although there are many things required to maintain a society’s health, among the most important is economic growth.  In fact it is something without which we are in deep trouble.  We saw in the mid-twentieth century what happened when growth was reversed during the worldwide Great Depression: the globe convulsed in the violence of World War Two.

                Economic growth is vital for the maintenance of our civic order.  It maintains the hope, for those who want a better life, that they or their children can have it.  Without that hope, there is blame and the impulse to want what others have, to the point of taking it from them.

                For that growth to occur, there are certain basics that must be in place.  Many of these basics boil down to freedom: the freedom of individuals to operate as they see fit, in business as well as in their personal lives.

                Our economic system, besides being labeled capitalist, is also called free enterprise.  The basics of its operation were observed and written down nearly three centuries ago by Adam Smith in The Wealth of Nations.  He spoke of the “invisible hand”—the marketplace--that would automatically regulate business and commerce for the benefit of everyone. 

The question of whether his system should be applied in its total purity is still a matter of debate.  It is generally agreed that its opposite, a total command economy, does not work.  No government is smart enough to know what and how much is needed at all times.  (As a matter of fact, no government is smart, period. Only individuals are smart, and they generally do not think well in group situations.  Especially governments.)  Conversely, a functioning free market will result in needed and wanted things being produced and delivered.

                (To be continued.)

Thumbnail Update

     "The Economist" opined recently that the US is once again coming into the position of being the most healthy major economy in the world, and as such could be an engine of growth for everyone.
     Being "the most healthy" might be rephrased as "the least unhealthy."  Clearly there are still major difficulties.  However, many of the horrible effects of the "great recession" have been worked out of the economy and the financial system.  The US economy has more flexibility in it than most other major economies.  Innovation is not as stifled, entrepreneurship is more healthy and innovation is somewhat easier or less frowned upon.
     Europe is still bogged down pretty heavily, though it looks now as though the Euro area may survive intact.  One of their major problems is that their labor markets are much more rigid than in the US.  For example there are laws that make hiring and firing more difficult for most Euro area employers as compared to the US.  Such rules are a drag on growth, productivity and profitability.
     The "fracking" revolution in the US is the prime example of the fruits of greater flexibility.  The US leads the world by far in this new way of extracting natural gas and oil from the ground.  It has provided previously almost unimaginable quantities of energy; it is projected to so radically reduce our dependence on foreign oil as to re-order world power politics in the energy sphere.  This is big.  How did it happen?  Entrepreneurship, innovation and the freedom to use private property without overbearing government supervision: these are the keys.

China-watching, US-watching

     Economists tend to have some doubt about what is really happening with the Chinese economy; they are not sure if the numbers put out by official Chinese sources are totally legit.  China has been going through a growth slowdown for the past couple of years.  Coupled with the threat of recession in Europe, the Chinese slowdown has led to economic estimates that tend to emphasize the threat of recession in the US.
     However, the latest reading gleaned by some prognosticators has Chinese growth picking up speed again.  This could be good news for trade in the Pacific area, in which the US participates via its "left" coast.
     Some people are under the impression that if China is doing well, it must be bad for the US and that we should hope that they go into a slump.  This is not true unless the terms of trade are so bad for us that we lose money whenever we trade with them.  It is pretty certain that this is not the case.
     We on the other coast sometimes tend to overlook the economic strength of the Pacific rim.  We in the East may be suffering a little more from the crisis in the Euro area than is the rest of the country.  We are on that great Atlantic trading highway that is not in the greatest of health at the moment.
     Nevertheless, trade is truly international these days.  Not all the ships that come from Asia dock in Los Angeles, San Francisco, Seattle, Vancouver, etc.  Some of them go through the Panama Canal and all the way up to New York.
     But in some ways, the strength or weakness of our trading partners are not our primary worry, since so many of our problems are of our own making.  We are still the most powerful economy in the world, and if we could fix ourselves the rest of the world would follow behind us (for the most part).

Short-term ill-health?

     Despite longer-term indicators of economic growth, the outlook for the coming year is not good.  With or without the fiscal cliff, the economy could go into recession caused by recession in Europe and slowdown in China.  Many large US corporations are pulling back on investment in new equipment, software and buildings.
     Whether the large US budget deficits and the Federal Reserve's aggressive monetary policies will help or hurt are subjects of much debate.  Most economists and other such experts feel they are needed.
    Not all signs point down.  Consumer sentiment is up, as is small business sentiment.  Small business capital spending is up.
    The consensus of opinion is that the fiscal cliff could be a tipping point.

Fiscal Cliff Conspiracy Theory

     We all love a good conspiracy theory, and there are a number of possible scenarios available to the imagination regarding the so-called Fiscal Cliff.
     At the witching hour of midnight on December 31, a wide range of taxes will go up and an even wider band of spending will be chopped.  The consensus of opinion is that this is very bad, because it will probably cause a recession.  The most serious effect will probably be that a lot of people who work for the government, or, even more likely, many who work on government contracts, such as employees of defense contracting firms, will lose their jobs.
     The most widely expected alternative to this troubling outcome is that, after much posturing, shouting and fist-shaking, Congress will pass something that will swerve us away from the precipice at the last minute, and the President will sign it.
     But what if they don't or he doesn't?  And, more conspiratorially, what if they have already agreed that they won't?
     Preposterous, you say?
     Well, yes, you're right.  It is preposterous.
     But what if there are some factors in the backs of the minds of the participants that are saying to them, hmm, let's see how we can use this?
     What if, as in the Benghazi cover story, a spontaneous demonstration of partisan bickering is hijacked by some players who have a serious intent to block the process?
     Now, what could possibly motivate such serious intenders of harm?
     First, it has been suggested by some Republican-leaning commentators that President Obama would not mind so much if no agreement were reached, because it would accomplish his objective of raising taxes on the rich.  Then he could blame it on the Republicans.  As for the spending cuts, he could re-establish the chopped spending the following year, after a public outcry against the cuts.
     This seems a little far-fetched, too.  But its logic does have a certain internal consistency--assuming Obama is the kind of cynical strategist it would take to go that route.  (Or is that just politics?)
     But that is just an example, and it is not the point I wanted to make.
     The fiscal cliff was formulated a couple of years ago after failed negotiations on taxes and spending.  The parties agreed at that time that on January 1, 2013 (a lucky year no doubt), taxes would go back to Clinton-era rates and spending would be drastically cut across the board.  This deal kicked the can down the road and, it was hoped, gave the parties an incentive to come up with a more sensible solution before the clock ran out.
     But now we are almost there, with no solution in sight.
     Now, here's the point.  The negotiators put this plan in place.  In the backs of their minds was the thought that the deficit has to be brought under control somehow.  But the participants also knew that the experience of centuries has shown that, in a democracy, budgets can only be brought under control by taking the process out of the people's hands.  Sometimes the people realize they have to put the process into the hands of someone who will just do it.  That is happening in Europe to some degree now.  But it is not happening here.  So, an alternative is: trickery.
     We can't come to an agreement.  Oh, no, we can't do it!  So we will shout and posture and blame, but when the dust clears taxes will go up and spending will be cut.  Oh well!  It needed to be done anyway.
     And what about the economy?  Won't it suffer?
     The interesting thing there is that the economy is showing signs of getting off the mat.  If it wasn't for that factor, there would be very little thought of letting us go over such a cliff.  But the signs of recovery (a real one now, not the wimpy breath of foul air we've seen so far) may give the participants another thought in the backs of their minds that maybe we won't go into a recession.  Or maybe it won't be so bad, and we can blame it on each other, and oh well!  But look, the deficit has been cut!  It had to be done, and maybe everything will be all right in the long run.
     Crazy, huh?  Yes it is crazy, and after all it is just a conspiracy theory, an exercise of imagination.  There are a million of them.  We don't know what goes on behind closed doors.  We just hope that the checks and balances, plus the scrutiny of the press, plus the threat of the next election will prevent anything really wacky from being hatched in the dark.

Big changes in energy

    The International Energy Agency (IEA, based in London) released a report today that projects that the United States will become the world's largest energy producer by the year 2020.  By that year it is expected to be a net exporter of natural gas.  By 2035 it is expected to be "almost self-sufficient" in energy.
    The common belief in the 1970's that the world was running out of oil now appears to have been a bit premature.  One wonders in hindsight (which is always 20-20) how we could get so worked up over something that was so far off base.  And what else are we far off on today, one wonders?  Now we can say, well, we have to run out of oil soon at this rate, don't we?  Apparently we have a few more years left.
    This development has profound implications for the balances of international economics and power.  While the Middle East will continue to be important for oil--and indeed Saudi Arabia is projected to re-take the lead from the US in the 2020's--the US, and North America in general, will be in a strong position.  North America is expected to become a net oil exporter.  Most international flows of oil are expected to go to Asia, with China being the largest recipient.
    This also points out the benefits of our entrepreneurial system, which has been able to lead the way, through innovation and risk-taking, to re-inventing the entire energy sector.  Despite obstacles erected by government agencies the efforts of private companies and entrepreneurs have resulted in solutions that were, to say the least, unexpected.
    It also means that while the future may still (eventually) be in renewable energy, that future appears to be much further off than we thought.  Most reports indicate that we have enough natural gas to last 100 years.  It is also probably very premature for our Federal government to invest in such things as solar and wind energy, because these technologies would seem to have a much longer runway to self-sufficiency than is currently practical.  (There are markets for such things, but a lot of it has been subsidized.)
    But this new vision of the future does merit a grain of salt and a word of caution, for, as with the estimates so poorly performed in the 1970's, these projections are not guaranteed to come true.  Nevertheless, some of these trends have already been gathering steam for a few years and will probably continue for at least a few more years.
     The report also says that gains in energy efficiency are expected to be another important factor in the use of energy in the coming years.