Afghanistan, Iraq and Vietnam: A Grunt’s View

During my tour of Vietnam, which was decidedly non-tourist, the term “grunt” referred to an army infantry soldier. It may also include marines as well although I don’t know that from firsthand experience. My tour lasted from October 1968 to October 1969. I served, proudly, as a combat medic with the 173^rd Airborne Brigade. My experience was not at all unique or special with respect to that of other military personnel. Frankly, I was just one more non-heroic soldier who was ultimately very happy to depart ‘Nam for “The World” (the U.S.).

I was one of 23 grunts who joined the same combat unit on the same day in October 1968. One year later there were just 7 of us who returned home on schedule. Regrettably those are typical odds for combat units. Some large measure of those odds I lay at the feet of the politicians, the media and yes, the generals. My view, a grunt’s view, is that none of them have learned any of the relevant lessons of Vietnam or Korea before. When President Obama tells the world that he needs to study the situation before making a decision and agonizes publicly over the choices I know nothing has really changed. When General McChrystal submitted his report requesting more troops I heard echoes of General William Westmoreland doing the same. There must be a light at the end of the tunnel somewhere.

Much of my combat experience consisted of long days of physical exhaustion, boredom, and deprivation interspersed with brief episodes of intense fear and an adrenalin rush. It was during one of those periods of boredom that I spoke with our company interpreter. I recall it being an evening and I was drinking my usual pre-dark cup of hot chocolate. The interpreter was nearby but otherwise we were pretty much alone. Standing on a hill looking out over the countryside I asked the interpreter what the local people wanted. His reply was concise, enigmatic and insightful. He responded, “They just want to grow their rice and make their babies.” In the forty years since, I have often observed that this is what most of humanity wants as well. Likely most of the people of Afghanistan and Iraq just want the same.

This is not the only similarity between Afghanistan, Iraq and Vietnam. Most troubling to me is that the strategies, tactics, speeches, media reports and failures are all of a piece. Today we want to win the “hearts and minds” of the Afghan people. Yesterday it was Iraqis’. Forty odd years ago it was the Vietnamese. Not sure if that was ever tried in Korea. Supposedly this will be the magic that calms the winds of war and lets the people grow their rice and make their babies. Lewis Sorley, in a recent Wall Street Journal article, has noted that in 1972 this strategy was just getting under way in Vietnam when the politicians pulled the plug and the U.S. vacated the premises.

Hell, I’d heard that phrase in 68-69 when I was beating bush. I even held daily medical services for the local villagers as part of that game. It didn’t seem to help them very much. Perhaps because every evening you could hear the local VC (Viet Cong) walking through the village threatening the people over a loudspeaker. As if to buttress those threats there were the two young boys, maybe 10 or 12, who a week apart were seriously burned by boiling water that mysteriously “spilled” while their families cooked rice. You can’t win the hearts and minds of people who are scared for their lives.

From my point of view, a grunt’s point of view, there are three major systemic errors being repeated today. Three lessons that should have been learned from Vietnam and Korea that today are still being intentionally ignored. An unholy combination of political cowardice, military malfeasance and an amoral main stream media is directly responsible for the fruitless deaths of our military personnel.

• fight the entire enemy not just the combatants
• let the military fight and kill the enemy without restriction
• use every weapon and tactic available

To the first point: fight the entire enemy not just the combatants   It was painfully obvious that China, with some help from Russia was the major supplier and supporter of the North Vietnamese. It was also quite clear that neither the Chinese nor the North Vietnamese would honor any borders in their effort to ship troops and materials to the south. As such there are two groups to fight: combatants and the enemy. The combatants were the Viet Cong (VC) and North Vietnamese Army regulars (NVA). But the enemy included China and possibly Russia. The military fought the combatants and could have destroyed them. In fact, during the 1968 Tet Offensive we nearly did destroy them. But our political leaders refused to take advantage and permit the final blows.

The entire enemy force includes not only the actual combatants – air, ground and water – but also those nations and states that provide money, materials and, in some cases troops. When political leaders are too afraid, timid and feckless to attack the entire enemy then our military defeat is foreshadowed and becomes simply a question of time. This can be seen from the other side in the Russian defeat in Afghanistan. The U.S. supplied money and materials. The Russians did not disrupt that supply chain and were ultimately defeated. Alternately, the Russians invaded Georgia; the U.S. did not provide significant money or material (a token support at best) and the Russians “won”. True the Russians ceased the fighting but only on their terms and still today recognize two Georgian states as “Russian”. Meaning that if Georgia attempts to recover its own territory Russia will likely invade again. It is a stalemate held at the convenience of the Russians. For further study see: Korea, Vietnam, Afghanistan (Russia), Iraq (1), Iraq (2), and today, Afghanistan (US).

The great fear of course is that fighting the entire enemy would have thrust us into a world war with China and perhaps even Russia as well. Certainly that is a risk. Not challenging them is also a risk. Consider though that our objective in Vietnam was in fact to prevent the Chinese Communists from establishing hegemony over the whole of Southeast Asia. Since we were there to fight the Chinese, albeit via the proxy enemies of the NVA and VC, why not take the battle right to the Chinese? At a minimum that would certainly have surprised them. And it might not have been necessary to actually invade China proper or at least not on a large scale. Rather an invasion of North Vietnam with massive force and a demonstrable political and military will to win likely would cause the Chinese to reconsider their hegemony plans.

Unlike the U.S. the Chinese learned valuable lessons from the Korean War. From their point of view the Chinese learned that they could successfully attack the U.S. in particular and the Western world in general using proxy enemies. Most importantly they learned that the U.S. and the West would not take the battle directly to the Chinese but would unilaterally pull back from the brink. As Sun Tzu has noted, knowing your enemy is key to success.

I believe that if we are to fight then let us fight at a time and place of our choice. Had we done so world history would have been vastly different and, I submit, vastly better. Millions of dead and enslaved Vietnamese would likely agree. Those who oppose fighting the entire enemy do so based on the presumption the enemy, the Chinese in this case, would have committed to a large scale war that they would in all likelihood have lost. At that time, in the mid to late 1960’s I suggest the Chinese would have thought better of an all out war against a committed US. While their ultimate desire was hegemony over all of South East Asia they would likely have accepted, under duress of course, holding their existing borders as a fallback position.

Move now to Iraq and Afghanistan. Are we fighting the enemy or just the combatants? Who is the enemy? Hint, it isn’t just Al Qaeda or the Taliban or the local warlords. They are the combatants. The entire enemy includes Iran and Syria along with portions of Pakistan. It in a broad scope it includes the financial supporters such as Saudi Arabia, and other Mid East nations as well. Possibly even North Korea. Why? These nations, states and individuals therein provide the necessary money and materials for the local combatants to continue to fight. It cannot be reasonably argued that Al Qaeda and the Taliban are self-supporting military organizations. They survive only by support from other nations.

The U.S. has been fighting in Afghanistan for over eight years with no real end in sight. During that time, in eight years of fighting a 12 year old boy has now become a 20 year old experienced fighter. Tell me again why children are “innocents”? And why does this fight continue? The fight continues because we have not yet attacked the entire enemy. We have only attacked the low level combatants. One option, to attack the behind the scene enemy is a direct military attack on Iran as well as Syria. They are the most likely enemies Iraq and Afghanistan. We could link such attacks to actions in Afghanistan and/or Iraq. For example, the recent double car bombing in Baghdad should provoke a U.S. missile attack into an Iranian governmental building – without prior warning. That attack could be followed by an announcement that further terrorist attacks will bring further retaliation against Iran, Syria, Saudi Arabia and the like. Oh, to be sure, the whole of the UN will be outraged and the world will denounce us. But carried to a forthright conclusion the wars in Iraq and Afghanistan will end more quickly than if we simply continue the present course. Of course we will be severely tested during this process but that is happening anyway.

The second point: let the military fight and kill the enemy without restriction   My combat epiphany was in April, 1969. My company had been moved from the central highlands to a coastal village area. In the central highlands we had a so-called, “free fire zone”. At any time and for any reason we could fire our weapons, call in artillery and/or request air strikes. Anyone in the area was considered a combatant and could be killed. Moving to the coastal village area was to enter a Combat Twilight Zone. Well, actually, it is even difficult to call it combat. Instead of a “free fire zone” we had a “free to die zone”. Hence my epiphany as I soon realized that I was nothing more than cannon fodder for the political leaders and their military lackeys’ much to the glee of the media.

U.S. political leaders, wilting under pressure from an amoral main stream media, refused to permit the military to take the appropriate actions to disrupt or destroy the enemy supply chain, the enemy combatants or the broad scope enemy at large. The mainstream media in turn was supported and fomented by large numbers of collegiate age anti-war protesters whose main goals were to party in the streets, avoid military service and generally poke a finger in the eye of what passed for political and academic leadership. They were joined in this parade by small numbers of seemingly regular citizens with diverse anti-military / anti-government motives. As a direct consequence the U.S. government restricted military action by limiting where it could bomb, where it could attack and how it could fight.

Late one afternoon my company was assembled and told that we were to embark on a patrol through the coastal village area to look for and engage a large NVA force that was rumored to be in the area. But first we had some marching orders that the Captain was under great pains to explain. The most significant order concerned the new “rules of engagement” which I now understand to be how one side agrees to die for no good reason. Our rules that evening were, “You are not to return fire unless you can see the person firing at you”. I kid you not. I was dumb and naïve so I asked the Captain, “What if the enemy stands up in the window of a hooch (a hut), pops off some rounds and ducks back down. Can we fire into the hooch?” The answer was “No, you are not to return fire unless you can see the person firing at you”. I was totally dumbstruck as were most of my fellow soldiers. We were being sent on a late evening patrol looking for a large enemy force. If we found them we were to engage them in battle. But we were not allowed to initiate fire and not allowed to return fire unless we could actually see the person firing at us. We were free to die for no good reason.

Still orders are orders so we set off across the rice paddies and through the forested fields. As if the enemy knew our rules of engagement – and I am convinced they did – we came under sniper fire. Of course we could not return fire since they popped off a few rounds and hid. Can’t see them can’t fire. Needless to say we couldn’t call in artillery or air strikes either. Feel free to die though! But every time we came under fire the entire company hit the dirt and waited for the attack that never came. After a few minutes we would saddle up and move in the direction of the fire! Again, I am convinced that the enemy that night not only knew our rules of engagement but knew our mission as well. We came under fire, assumed it was the enemy we were looking for and went after them. Perhaps our military intelligence had been fed false information? Boy, I’d just be shocked, shocked if that happened.

It was just at dark when the explosion rocked the area. A booby trap had exploded. Everyone was scared to move in case there was a second or third. As the company medic I had to move as did my fellow platoon medics. Up we went to the front of the line. Dead and wounded littered the area. By this time it was fully dark. Cries and a few screams sounded in the night. My medics and I are moving around in the dark with flashlights trying to find and help the wounded when just minutes before we had been under sniper fire. Not fun being a lit up target on a dark night.

I had to tell two badly wounded soldiers to be patient; I had to check if anyone was more seriously wounded before I could help them. I moved farther on up to the front of the line. With my flashlight I was looking for any soldier still alive. Along the way I stepped on a log, or so I thought. I looked down, and as the flashlight lit up the ground the log turned out to be the chest of a friend. I had been talking to him about his new shotgun just two hours earlier. He had a softball sized hole in his chest.

Miraculously the guy on point (first in line) was alive and only had a minor wound. He was staying put keeping guard. Gutsy guy.  The nearly two dozen behind him were dead or badly wounded. One young kid I found was still alive although one leg was blown off. I put a tourniquet around the stump but it wasn’t bleeding. His face was peppered with sand that pitted his skin like a macabre black face. He sat up as I was trying to get an IV in – he had no veins left though. Too much blood loss I suspect. But he sat up, looked right at me, eyes wide with fear and grotesquely outlined with sand. Then he screamed, “I’m going to die, I’m going to die”. And he lay back down and died.

Right after the explosion I asked the lieutenant to call for two medevac choppers to handle all the wounded. It turned out that we didn’t need them both. All the wounded had been loaded on one chopper. The rest were dead. The captain had a shrapnel wound in his leg but he refused to leave until the morning. I still respect his courage and stamina. After a while the second medevac pilot asked if we still needed him. I said “no, but thanks for being there”. He responded, “Just doing my job”.

The next day the captain was airlifted out by medevac along with some body parts. One man’s boot was found. His foot was still inside. The dead were collected and transported to the rear. In the end at least six Americans were killed instantly along with another six South Vietnamese working with us. Another group of six to eight Americans were wounded most quite seriously. One with a stomach wound died later. Another with both legs broken in multiple places ended up with one leg shorter than the other. I don’t know what happened to the captain. I know he felt great responsibility for the loss.

And why were these men grievously wounded? Why did so many die? Why did we fight nice and not try to hurt anybody? The political leaders were more afraid of a malevolent media broadcasting images of dead women and children than they were about dead soldiers coming home in body bags. The enemy knew our rules of engagement. The enemy knew we wouldn’t call in artillery or air support. They knew how to take full advantage of our self-induced weakness. We were free to die and the enemy obliged.

And what happens today in Iraq and Afghanistan? More “rules of engagement”. Can’t fire into a mosque. So the enemy hides in the mosques. Soldiers can’t call in artillery or air strikes in certain areas so the enemy hides in those areas. If we don’t see the enemy plant the IED we can’t do anything yet the people living in the area where IED’s are planted know full well the bombs are there. Start taking out the people who know about the IED’s. If we don’t stop being nice about it we’re going to sacrifice good young American men and women just so some Iraqi’s and Afghanis won’t die.

If we want to win these wars we need to allow the enemy to die. That means our soldiers kill people. Sometimes, maybe even a lot of times, so-called innocents will die. But a child can pull a trigger, throw a grenade, or plant an IED. So can women. Both women and children do in fact act as soldiers. There are far fewer innocents in a war than the politicians and the public want to believe. I would leave it up to the soldier at the scene to make the determination. Not some fat assed politician fearful of missing a lobbyist dinner and losing the next election. Enough with the rules and restrictions. Take the gloves off. War is brutal and it should remain so. The worse it gets the less we’ll have of it. We have to decide if we’re fighting a war or simply conducting a criminal investigation and police action. If it’s the latter then bring the military home and send in the Capitol Hill Police.

Third point: use every weapon and tactic available   In Vietnam the military was restricted on bombing sites in the North, limited to fighting south of the DMZ, and unable to utilize the Navy to embargo harbors. For the most part they were precluded from following the enemy into Cambodia and Laos. Yes, there were some incursions but it was a limited and restricted effort. As a consequence, so were the results. The Chinese were encouraged by the U.S.’s self-imposed restrictions to continue supplying the North using neighboring countries at will as supply routes. Helpless to deny the supply routes, unable to invade the North and limited in the weapons the U.S. military personnel fought doggedly but were denied victory by political leaders.

 How different would the war have transpired if early on the US heavily bombed the North, embargoed their harbors, invaded the cities north of the DMZ and generally carried the battle to the North? If the U.S. military had free rein to fight the combatants and the politicians had fought the enemy (with the backing of the military) the outcome would likely have been a victory in short order. Instead with a heavily restricted military the US was defeated in a 10 year wasted effort.

 Today, while claiming victory in Iraq I suggest the battle ground has merely shifted tactically and temporarily. Since the whole of the enemy has not been challenged much less attacked the victory cannot be considered secure and likely is illusory at best. In Afghanistan we are seeing a “do-over” from Iraq. Given similar strategies, tactics, and limitations, we will have similar arguments and similar outcomes that are all fairly preordained. The preference of our current crop of political leaders seemingly is to declare victory and leave or at a minimum just shout, “whatever” and get out.

 By demonstrating our willingness to attack the enemy – Iran being the most egregious – we can raise the cost of the war to Iran (and others) and cause them to reconsider their participation. By actually using all available weapons (yes, up to and including nuclear) we can again, raise the cost of continued participation in the war by the enemy nations. Certainly we have many weapons available short of nuclear. Military actions such as naval embargo, massive conventional bombs and missiles, interdicting their ships, destroying their defensive posts can all be done without going nuclear. Economic weapons are also available such as forging their currency to bankrupt the state, food and gasoline embargos, financial and covert support of opposition leaders. Other nations, bearing witness will rethink their participation just as Libya did after the US invaded Afghanistan. Is there a cost to this process? Yes, but there is a far greater cost not to follow this line.

What is most troubling is that our enemies learn while the U.S. repeats failed policies. The following quote by North Vietnamese General Vo Nguyen Giap confirms my understanding of the lessons our enemies have learned. What I want to know is when do we learn the lessons from our battles?

“We were not strong enough to drive out a half-million American troops, but that wasn’t our aim. Our intention was to break the will of the American government to continue the war.”

–North Vietnamese General Vo Nguyen Giap, in a 1990 interview with historian Stanley Karnow

From a Wall Street Journal feature article

“Washington Retreat”
“Congress sends the wrong signal to the Iraqis.”

Wall Street Journal Friday, November 18, 2005 12:01 A.M. EST

 

See also the recent article in the Wall Street Journal.

 “The Real Afghan Lessons From Vietnam”

Lewis Sorley

Wall Street Journal October 11, 2009

Insider Trading Hooey

The Saturday, October 24, 2009 issue of the Wall Street Journal’s “Weekend Journal” had a front page article, “Learning to Love Insider Trading” by one of my favorite bloggers. The author is Professor Donald J. Boudreaux, Professor of Economics at George Mason University. His blog, “Café Hayek” is on my daily reading list. More often than not I find agreement with his points of view. Not so with this article. In fact, were I the professor and this a student paper it would get no more than a “D” and even that only for penmanship.

 In support of insider trading Prof. Don provides two examples. The first is the governmentally imposed gasoline price fixing and limitations on purchases. How this relates to insider trading is a mystery. Prof. Don writes that it shows the failure of price discovery as it relates to supply and demand. Of course it does. That was the explicit purpose. Governmentally imposed price and supply controls are political in nature not economic. They are imposed for political reasons; they are designed for political benefit and they are wholly divorced from economic purpose. This example fails the test of relevance.

 The second example Prof. Don provides involves “unscrupulous management” that drives a company to the brink of bankruptcy but hides the financial facts from both the public and creditors alike. In this example Prof. Don uses actual, literal, criminal fraud to justify insider trading. This is even more mystifying than the price controls example. Knowingly using false information to obtain credit is criminal fraud. Hiding the actual financial condition of a publicly traded company from the shareholder owners also constitutes criminal fraud – at least in my mind it does. There simply is no link between these two non sequiturs and insider trading.

 The only other justification the professor provides are quotes from two other economists, Henry Manne and Jeffrey Miron.  The quote from Henry Manne is instructive in that Prof. Don explains it as saying, “… when insiders trade on their nonpublic, nonproprietary information …” which is interesting in itself on several counts. First, “insiders trade on their …” except that it isn’t “their” information it is the owners information. The insiders have no right to sell what isn’t theirs in the first place. Second, “nonpublic” is quite absurd since the whole issue is about nonpublic information. If the public knew the information there would be no insider trading taking place. Third “nonproprietary” information is the key to the whole issue. What possible information could be of value that isn’t proprietary? Near the end of the article the professor addresses, or feigns an attempt to address this issue but his examination is, to be polite, weak. By definition, if it is of value it must be proprietary.

Prof. Don’s quote from Jeffrey Miron, “In a world with no ban, small investors might fear to trade individual stocks and would face a greater incentive to diversify; that is also a good thing.” Right, illegally trading on stolen information that effectively robs small investors of prospective gains thereby forcing them to diversify is a good thing. Sigh. Apparently only insiders and large, presumably professional, traders have the right to profit from stolen information. Small traders should buy their mutual funds and shut up.

Trying to exculpate insider trading for its supposed beneficial economic effects is so wrong it’s bordering on the absurd. Seriously this is a “broken window” type of economic theory. It’s analogous to saying that having your car stolen is economically beneficial since you have to replace your car and that creates economic activity.

Trying to exculpate insider trading because of insider non-trading is equally absurd. Professor, insider buying and selling or not buying and not selling is public (or should be) information. You can read about it all the time. There are a number of web sites that provide such information such as, http://www.insidercow.com/ . MSN’s site gives small and large traders access to insider buy/sell information at  http://moneycentral.msn.com/investor/invsub/insider/trans.asp . An investor can just type the ticker symbol for the data. When corporate insiders don’t sell shares – for whatever reason – this information is publicly available simply because they don’t sell! Claiming such non-activity as a prosecutorial bias and thereby justifying the insider trading is more non sequitur masquerading as reasoned thought.

In the end there is one issue that Prof. Don ignores that I find most troubling. I am a small business owner, the majority partner actually. Everything my partner and I provide in our business belongs to us. If an employee uses my computer for their personal email they do so at my convenience. As a courtesy I would periodically ask them to remove any personal items so that business functions can proceed uninhibited but it is my computer and I can do with it as I wish. We do not allow them to use our company vehicles for any personal reasons. They can’t use our tools or offices for private functions. Nor can they use our financial data or business plans for their own personal gain. In short what Professor Boudreaux ignores are the ownership rights of the shareholders. None of the insiders has unequivocal ownership rights to the information they are selling. At best they share ownership unless it is a private company and they are the sole owners. But in that case there is no public trading taking place. At bottom all insider trading robs information from the rightful owners for the personal gain of the employee insider.

Professor Boudreaux’s failure to protect the ownership rights of shareholders is a significant and substantive failure on the part of one who otherwise champions individual rights and freedoms.

SSA Bureaucrats and Obama’s Health Care Plan

The WSJ had a very interesting article the other day (“Social Security Owes ‘Fugitives’ Millions”, September 26, 2009 by Ellen E. Schultz) describing how the Social Security Administration (SSA) withholds benefits payments from “fugitive felons”. The article describes a well intentioned process to withhold SSA benefits payments from “fugitive felons”. This was done to save taxpayers money, of course. And, it was done with the best of intentions no doubt. 

The “Personal Responsibility and Work Opportunity Reconciliation Act of 1996” began to withhold benefits such as food stamps, housing, temporary assistance to needy families and the like. In 20001 it was extended to veterans benefits to include veteran’s dependents. By 2003 HUD (Housing and Urban Development) was also included. Continuing the trend of these good works the 1996 act was finally extended to SSA in 2005.

There are several levels of concern. First, keep in mind that the bureaucrats in charge of Obama’s health care plan will also have detailed operations manuals instructing them in every detail of the nation’s health care. Details such as who qualifies for a particular medical procedure and which medications are going to be available to what patient. Now, let’s go back to Ms. Schultz’s article. She writes that the SSA bureaucrats “… relied on an operations manual stating that anyone with a warrant outstanding is a fugitive felon …”. This meant that if you forgot (or failed) to pay some parking tickets and a bench warrant was issued you might be classified as a “fugitive felon”. Even though you are neither a fugitive nor a felon SSA would classify you as such and would then withhold your benefits. Okay, so the bureaucrats are a little energetic. No real harm right?

Second, the SSA bureaucrats would not even use a common sense understanding of the operations manual. As a result of their wanton disregard for even a shred of common sense, a 79 year old retired woman who only had the same first name, maiden name and birth date as an actual wanted felon was denied benefits. But the felon was a different race and gender, had a different social security number, different middle name and his last name was different from the woman’s actual, married last name (remember, only her maiden name was the same). Those benevolent bureaucrats didn’t check SSA numbers, gender, race, age, middle or actual names but nevertheless concluded this woman should have her benefits denied.

Not bad enough? Third, the SSA bureaucrats had to be forced to correct their obvious error. The woman contacted the New York City police where a detective gave her a letter stating she was not the fugitive in question. The SSA bureaucrats would not accept the letter. Apparently they knew better than some NYC police detective who was actually looking for the felon. The poor woman had to get help from a legal aid attorney to get her benefits reinstated. But what about the other “… at least 200,000 elderly and disabled people who lost their benefits …” you might ask? Who helped them?

Now consider a public, national health care system similar to Canada or Britain. It’s bad enough to have your SSA benefits unfairly denied. But what if some bureaucrat deep inside the Obama’s health care system decides their operations manual does not permit someone in your circumstance to obtain a surgical procedure or medication? Perhaps they mistook you for someone older and sicker. Or their operations manual was so confusing they had no idea what to do and so did nothing. Now what do you do? Call Congress? What ought to scare the bejeebers out of everyone is the prospect of a massive contingent of bureaucrats inside of Obama’s health care plan implementing  their operations manual in a manner similar to that of the SSA bureaucrats and fugitive felons.

Fourth, let’s look at the “fugitive felon” situation from another view. Take the other side so to speak. The act initiating the “fugitive felon” process was passed in 1996. It took NINE YEARS for it to get all the way over to SSA. Suppose it was a beneficial medical procedure. How happy would you be to see Californians getting the procedure while North Carolinians were still being denied?

Of course, if you die all these concerns become moot for you. Gosh, that’s too bad for you. If your health merely worsens while you attempt to straighten out the disagreement will a bureaucratic “my bad” make you feel better? Maybe, but it’s not likely. Will you have to hire a lawyer to get the issue resolved? Won’t that be fun?

Does any of this happen today with private insurance companies? Sure. But it is unlikely to happen nationwide as it did with SSA and most certainly will with Obama’s health care plan. Bureaucrats are the same mindset the world over. Still with all the flaws of private insurance you at least have the ability to appeal to the courts for assistance. And when you do, you know that the government does not have a vested interest in the outcome. Not so with Obama’s health care plan.

Obama’s health care plan promises no harm and great benefit for the many. Given every other government program it is far more likely to do the opposite. Harm the many and benefit the few. If you want health insurance for the few people who can’t afford it and who are here legally then all that has to be done is extend Medicaid and raise all our taxes. If you also want insurance reform then debate the issues and give the public an opportunity to decide. The Medicaid extension can be done quickly. There is time to debate insurance reform.

Free Trade or Beggar Thy Worker?

The following post was on the Cafe Hayek site

Free Trade, Unilateral by Don Boudreaux on September 15, 2009 in Trade

Free trade is justified regardless of the trade policies followed by other governments.  A foreign-government’s restrictive trade policies or subsidies or high taxes or low taxes or screechy national anthem does not justify your home government restricting the freedom of you and your fellow citizens to trade as you choose.

Your government should take other governments’ trade and economic policies as given, much as we take consumer tastes and preferences as given.

If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer?  If your neighbor offers to mow your lawn for free because he is convinced by some silly book of the wacky notion that exports are good and imports are bad, should you refuse his offer?

If your neighbor chooses to become utterly self-sufficient, refusing to consume anything produced outside of his own household, you might properly regret (1) that he and his family will likely become much more materially impoverished than your neighbor realizes, and (2) that you and other people in the economy will be deprived of the additions to total output that your neighbor would have added had he chosen not to cut himself off from the larger economy.

But ultimately it’s none of your business.  You have no right to insist that, in the interest of a larger GDP, your neighbor must integrate himself more fully with the outside economy.

Now suppose that your self-sufficient neighbor, still refusing to consume anything not produced by his own household, offers to sell to you — say, in exchange only for a friendly smile from you — some tomatoes from his garden.  You examine his tomatoes and determine them to be first-rate.  Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?  Would you make yourself richer by refusing his offer?

You may legitimately question the wisdom of your neighbor’s policies.  But regardless of what you conclude, your best course of action will always be to trade freely with him, and with everyone else.

 

From RedSt8r:

This post by Professor Don Boudreaux (Don) is one of several wherein he extols the benefits of “Free Trade”. Please note that I consider myself a capitalist, a firm believer in markets, and a proponent of international trade, limited government, low taxes, etc. Given all that, and as one commenter noted, I’m about to go off the reservation. I submit that the case noted above is as big a straw man as any ever lit at Burning Man. Worse, it demeans any rational (I am being presumptuous that others will consider my rants as rational) discussion about “Free Trade”.

In theory Don’s position is appropriate. If our neighbor chooses to beggar themselves to provide us with goods or services at foolishly low prices we should not insult them by refusing to accept their largess. Today though I want to focus on that third word, “… neighbor …”. A common definition of that word suggests one who lives if not next door then within a very short physical distance. A slightly expanded definition might include as a “neighbor” one who lives removed but who shares many traits.

In the case of nations it suggests an adjacent country. It could also mean a nation that shares sufficient traits with the US so as to be considered a friend. In any case it is a reasonable assumption that a “neighbor” shares certain traits with our selves. Now for the most part the US and Mexico do not share language, culture, history or economic status but only a border. True, those states actually bordering Mexico have a much higher degree of commonality than in states far removed. In contrast the US and Canada share language (for the most part), economic status, border, history and culture (again for the most part).

However, I submit that the two most populous nations of the world, China and India, share little with the US. Even less than Mexico does. No common language, no shared culture, no border and most importantly, vastly dissimilar economic status on a per capita basis. The nations of China and India are important economic beings on the world stage but are quite poor, per capita compared to the US. I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?”

Don writes:”Free trade is justified regardless of the trade policies followed by other governments.”

But if the other government does not permit imports or severely limits them (via regulation or tariff) there is no trade. A largely one way transfer of goods or services in exchange for money is not trade. It is simply merchandising.

Don writes:”If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression …” and he also writes:”Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?”

In both cases Don’s answer is to accept the free goods and services as it “… would not make you richer by refusing his offer.” This is a Clintonian answer to his rhetorical question. That is, technically accurate but not helpful. A one-time event, a limited person to person (neighbor to neighbor) exchange, a small scale transaction is usually not harmful. Extend the same event to a much larger scale and great harm can transpire.

If the neighbor offers to mow all the lawns in the city – for free – then lots of lawn service workers and companies will be out of work and may lose their companies. Is such “free trade” still a good idea? If the neighbor grows thousands of tomatoes and gives them all away for a smile then the grocers and farmers will not sell any. This will cause them to take severe economic loss.

Yes, the neighbor will purchase fuel and parts for his lawn mowers, seed and fertilizer for his tomatoes. But his labor is free. And therein lays the crux of the “Free Trade” debate. Again I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?” As a proponent of trade I admit to be struggling with this question. Schumpeters’ “creative destruction” is all well and good for those of us who can suffer destruction and rise again. But where and how does the 25 year furniture assembly worker rise again? Where and how does the carpenter/framer rise again?

Economic transactions with China, India and any of the “low cost” nations has, to a large extent been a one way transaction. These nations sell us low cost goods and/or services but do not purchase nearly as much from us. China, the poster child for this process has amassed a trillion dollar reserve out of this so-called, “Free Trade”. But what is actually being traded? It is not greater efficiency, or intellectual design or even any particular invention it is solely low cost labor. Doesn’t “Free Trade” require “comparative advantage” to be valid? That is, if I can produce bread better and easier than someone else who can build ovens really great then we can trade bread for ovens using money as a medium of exchange. But low cost labor is not, or should not be the sole comparative advantage. Should it?

What troubles me is that in the guise of “Free Trade” all that is being traded is the living standard of our working class (and to a growing degree the professional class) in exchange for cheap goods and services from China, India, et.al. In effect, we beggar our workers in order to improve the economic status of workers in these other nations. We beggar our workers in exchange for cheap goods in the name of “Free Trade” so we can all pretend to be richer.

I expect to be rhetorically pounded for this position especially as a capitalist etc. What I’m asking though is (a) is it really free trade when all we do is beggar our workers to improve the lives of workers in other nations? and (b) how can we manage trade with low cost labor nations so that we don’t beggar our workers?

War Against AGW?

From an email sent July 2, 2009 

Recently (serendipity is swell) Paul Krugman had an article that blatantly accused those of us who “deny” anthropogenic global warming (AGW) with “…treason against the planet”. (http://www.nytimes.com/2009/06/29/opinion/29krugman.html?_r=1)

In a subsequent paragraph he stated what he believes is the outcome of AGW. It is my presumption that most AGW proponents (if not all) have a similar expectation hence their willingness to traumatize the US economy to reduce the US carbon emission levels.

Krugman:  “The fact is that the planet is changing faster than even pessimists expected: ice caps are shrinking, arid zones spreading, at a terrifying rate. And according to a number of recent studies, catastrophe — a rise in temperature so large as to be almost unthinkable — can no longer be considered a mere possibility. It is, instead, the most likely outcome if we continue along our present course.”

 It is my understanding that part of Japan’s logic in attacking the United States in 1941 was the US cutoff of energy – oil – which greatly threatened Japan. Japan of course was a major importer of raw materials. Their logic was that cutting off the supply of oil was an effective declaration of war. Whether this is totally accurate or not isn’t really my point. My point is that an economic sanction of one sort or another could be considered as an act of war.

 If Krugman and cohorts are correct then worldwide carbon emissions are the causative element of AGW, not just the US emissions. What happens if the US reduces its emissions as AGW proponents desire (we could include much of Europe as well) but the major developing countries (BRIC – Brazil, Russia, India, China) do not do so?

 It seems eminently reasonable to expect that so-called developing countries will not reduce their emissions. In fact, they are explicitly stating that they will not do so. This is their rationale for being excluded from the Kyoto treaty. Their position is that the first world developed countries created the carbon emission problem so they should shoulder the responsibility to fix it. At the same time these countries are demanding the right to use carbon based energy to develop their economies, presumably to first world status. So what happens to the planet if the Western and developed nations reduce emissions but the combined efforts of the remaining countries obviates that effort and total world-wide carbon emissions continue to grow?

 If the planet – not just the United States – is in peril from AGW and if developing nations are not curbing their carbon emissions doesn’t that give the US (and feckless Europe) the right – a self defense right – to use military force to curb carbon emissions in the offending countries? Yeah sure we can try moral suasion but that doesn’t seem to have as much impact as one might think. At least, it hasn’t so far in human history. And as for economic sanctions? See Japan above.

So, what rights does the US have if AGW is in fact a threat to the entire planet? A corollary is what steps are the proponents of AGW willing to take if they truly believe AGW is a global threat? Does the US have the self defense right to use military force to curb carbon emissions if the planet is at risk? And will AGW proponents have the political courage to execute such a war? This all assumes moral suasion fails of course.

Note to self – how long do we try moral suasion before we attack?

Existential Funk

This is extracted from a letter sent to a “virtual buddy” (aka “VB”) on July 15, 2009.

(From Wikipedia)

 Existentialism: Philosophical movement or tendency, emphasizing individual existence, freedom, and choice, that influenced many diverse writers in the 19th and 20th centuries.

Existential Crisis: Derived from existentialism, it is a stage of development at which an individual questions the very foundations of their life: whether their life has any meaning, purpose or value; whether their parents, teachers, and loved ones truly act in their best interest; whether the values they have been taught have any merit; and whether their religious upbringing may or may not be founded in reality.

 Hi “VB”

Sorry about the lack of contact. I really do enjoy the intellectual jousting and I learn from it, which is a bonus. And, thanks for the compliment on my writing. Hopefully I keep you interested at least a little bit.

For a number of weeks I’ve been ensconced in an existential funk of sorts. (And that about uses up my big word quota for the week.) I haven’t posted on my blog in a long time. And I haven’t added any comments to the various blogs/posts I read. I did read your comments on KBH’s web site regarding the risks of deflation though. (Topic for another day.)

It seems obvious that blogs exist to complain. Not too many – at least in the economic / political / financial spheres – contain positive news. That’s okay of course. But after months and months of reading a repetitive series of complaints on a variety of blogs I’ve begun to wonder what’s the purpose of all this? Do we ever accomplish anything other than a circular venting of frustration? That’s not all bad I suppose. For those of us who actually pay attention maybe we need an outlet for our collective anger. But in the larger sense what is actually accomplished?

Is it enough to just complain or do we/I need to step out and try to change the situation? In my life I’ve volunteered for my country (Army), my community (volunteer firefighter – really enjoyed this), and for my politics (Reagan nationally as well as local candidates). I’ve written numerous letters to my Senators and Congressional reps and to a variety of newspapers. I’ve made small donations to political campaigns, posted signs in my yard and stickers on my car and cajoled relatives endlessly.

Nothing has changed.

One post on Yves Smith’s “Naked Capitalism” blog asked, “… when will the middle class revolt?” Reading comment after comment about how they surely will revolt and getting guns and revolution and yeah, go for it, I finally exploded (pun intended) and asked, “Who will get in front?” I pointed out that no revolution will begin unless someone gets in front. And the person(s) in front need to risk life and limb, home, family, job, savings, everything. I’ve been shot at by professionals. Bloggers and commenter’s who blithely agitate for revolution, typically have no intention of ever getting in the front lines.

Maybe I should get my concealed carry permit, buy some guns and go lead the revolution? Now, that’s tongue in cheek. The letter I wrote asking about “War” on AGW? Not so much actually. Since I lack the scientific knowledge to usefully debate the data (trying to read Alan Carlin’s EPA report) I have to fall back on a crude, street level logic. To wit:

• climate change will ultimately cause apocalyptic damage to the earth
• climate change is caused by global warming
• global warming is caused by excessive CO2 emissions
• excessive CO2 emissions are caused by human activity

Therefore we must take steps today to reduce human caused CO2 emissions even if it means traumatic damage to our economy. And we must be willing to unilaterally traumatize our economy in an effort to reduce global CO2 emissions even if the actions of other nations obviate our efforts.  People say this with a straight face?

How do I as a scientific illiterate (relatively speaking) evaluate the seriousness of the AGW situation and the proposed solutions? Given the claimed global apocalyptic outcome I ask, “Will you go to war to prevent global climate change?” If the answer is “no” or even worse, if it is ridicule then I interpret this response to indicate that the seriousness of the AGW situation is overstated and the proposed solutions not appropriate. In fact, based on the response my conclusion is that (a) AGW is not serious enough to warrant unilateral trauma to our economy OR (b) the objective is not to prevent apocalyptic climate change but something else. Note that I do not advocate war as the first step but surely, if AGW is as apocalyptic as is claimed then war must, as a self defense mechanism, be on the table as a last resort. And to be effective it should be publicly noted as being on the table.

 And, so it goes with my little – insignificant actually – existential funk. In street terms, I’m bummed.

Sales Gains at HD and LOW

Lowes (LOW) came out with good  less bad earnings recently and their stock rallied sharply. Home Depot (HD) came out with less bad good earnings and their stock didn’t rally. Given the cliff dive of home builders, housing starts, remodeling/renovation and the like how is it that HD and LOW have done as well (or not as bad) as they have?

As a street level economist I have long followed national economic statistics. Over the past 40 years or so I have noted with some amusement that the self-described independent economic decisions my wife and I have made seem to show up in the national economic stats a few months later. Hmmm. Maybe we’re not so independent after all? Maybe we just make our economic decisions using information similar to that of a slew of other baby boomers.

This year, owing to a change in our personal circumstance as well as the economic situation, we decided to stop using a lawn service. Instead, since I was home more (the last 4 years I’d been working away from home, returning only on weekends) I could take care of the lawn myself. Of course, I’d have to buy a lawn mower, edger, trimmer and blower to do the work. By now some of you have already figured out where I’m going.

The act of buying all that lawn care equipment certainly boosted Toro and Echo (the equipment makers). It also boosted the sales at Coastline Lawn (the retail store where I bought the equipment) and Home Depot/Lowes where I bought some miscellaneous items (gas cans, fuel stabilizer, hand tools, etc.) I expect my purchases to show up as sales in these and other companies quarterly reports. But it’s not all gain.

 No, the pain is felt by Hardy’s Grassworks, the lawn service company. A small business, they will lose the revenue I used to provide. Hardy’s grassworks is a well run business by the way – I recommend them to the Wilmington, NC area. But the bottom line is that the $1500 annual cost for Hardy’s (worth every nickel) is greater than the $1000 or so I paid for all my equipment. Since my time no longer has the same value I chose to buy the euipment, cancel the service and do the work myself. The net result to the national economy is a gain of +$1000 for the equipment purchases (an immediate gain) but an annualized loss of -$1500 to be felt over the next 6-9 months.

Multiple my choice out by 5 or 10 million like minded 60+ boomers and the national result is an annualized drop in GDP of perhaps $5 Billion or more. Not much in a $14 Trillion economy but a billion here, a billion there and pretty soon we’re talking real money (to misquote an old congressman). And keep in mind that my particular series of choices shows up real quick in the sales figures but real slow in the small business revenues (and ultimately the taxes they pay).

Maybe, just maybe those HD and LOW sales and earnings gains improvements not so bads are temporary?

Fertility Based Ponzi Scheme

A recent article on the Political Calculations blog entitled “Demographically Driven Inflation and Deflation” described a relationship between demographics and the “…’flation” twins, IN-flation and DE-flation. By coincidence the night before the article was published I had asked myself a question: “where will the demand come from?” That is, how might my baby boom generation (e.g., “demographics”) impact the economy?

 The paragraph below and accompanying chart are from the article. Note: the Political Calculations article described a relationship between inflation, deflation and demographics. The authors found that changes in the labor work force predicted the resulting ‘flation after a two year time lag. I recommend the blog and the article.

 This consumption pattern is sustained throughout an individual’s working life, until they retire. Shortly after retirement, personal consumption expenses tend to drop sharply, as work done by Mark Aguiar and Erik Hurst demonstrate in their 2008 paper Deconstructing Lifecycle Expenditure. We’ve [“Political Calculations”] excerpted a chart from this paper (left) to show how attaining retirement age would appear to affect personal consumption. 

Personal Consumption Expenditures By Age

 As I read this post I was struck by the implications for the economy. In the current economic environment much of the Obama (and Bush) administration is striving mightily to increase the demand side of personal consumption expenditures (PCE). Massive stimulus, by some accounts almost $13 trillion (trillion with a “T”), is supposedly aimed at increasing demand, to utilize excess capacity as Paul Krugman might say. Within the framework of this life cycle expenditure chart, my question remains, “where will the demand come from?”

 Again, from the Political Calculations article:  This chart runs for individuals from Age 25 through Age 75, showing the log deviation in personal consumption expenditures from the level recorded for 25 year olds. We see personal consumption rising from Age 25 through Age 45, peaking in the range between Age 45 and 55. After Age 55, as retirement takes place, total personal consumption expenditures (the top pink line) fall steadily before leveling out over Age 65, the generally accepted age of retirement in the U.S. (emphasis added)

The gist of the Political Calculations article (assuming that I understood it properly) is that demographics can be used to predict and may be the dominant factor in, the resulting ‘flation after factoring in a two year time lag. The Aguiar/Hurst chart suggests (again, assuming my understanding) that non-durable expenditures may drop by 15% to 20% from a peak around age 55 to typical retirement at 65 and declines steadily thereafter. If you include housing services in the data the chart suggests a 10% decline (from .37 down to about .27) in total expenditures from age 55 to 65 and relatively stable spending after that. As we age we spend less and less on “nondurables” but somewhat more on housing services (cleaning, maintenance and so forth). 

Now, since

(a) the baby boomer population is fixing to retire en masse and;

(b) personal consumption declines after individual’s reach age 55 then;

(c) how will the worldwide production capacity be utilized without the demand created by the excess baby boomers as they reduce their expenditures?

Allow me to step back and personalize this a bit. At 62 I am in the second year of the baby boom generation. We are the pig-in-the-python generation that has disrupted the nation (the world?) and distorted economic data for some 60 years now. My earliest economic recollections are of a massive demand for school construction alleviated somewhat by dual session classes (K-12). My wife recalls triple session classes. Then we (some of us) filled colleges to overflowing and again there was the demand for new construction. Many of us (me included) went off to war, an unpopular war to be sure but bullets are bullets. From college/military/tech school/high school we all set off to find jobs, spouses, houses, cars and at various times we produced babies who needed all kinds of baby things.

 As we grew older our basic needs were more or less fulfilled and our wants took dominance in the economy. From starter homes we went to “McMansions”. From weekly vacation rentals we went to second homes on the beach or in the mountains. From one car we went to two, then three, four or more depending on the kids and the deals. From one TV we went to multiple, color TV’s and now to multiple plasma/LCD TV’s. From slide rules we went to calculators then personal computers followed by laptops, and now netbooks. And we didn’t have just one per person but often two or more. From landline dial up phones and pay phones on the corner we went to cell phones, smart phones and all kinds of fruit phones. But it wasn’t a growing population doing all this. It was the same demographic bulge (plus a mini-bulge from our children) basically driving the demand. But at every point in this demographic cycle business and government ignored the down slope of the backside of the bulge. That’s the point where aggregate demand trails off. That’s what the Aguiar/Hurst chart depicts.

 Early on when confronted with the up slope of the front side of the baby boom bulge, businesses and factories worldwide were built and expanded, workers were hired to run the factories and economies grew. Of course, expectations for growth were likewise expanded. The Wall Street Journal just recently had an article about the drop in sales for Toyota that demonstrates this very fact. Toyota over expanded automobile manufacturing factories and now has too much capacity for the demand. See the article, “Toyota Posts Big Loss, Signals More to Come“.

Toyota is not alone. Chinese factories, Australian and South American mines, United States houses, all were built and expanded to meet that expected growth. That up slope would go on forever, wouldn’t it? And it all seemed to go well for the most part. Yeah, we had a few hiccups with the oil embargoes and stagflation of the 1970’s. The inflation/recession of the 1980’s and the recession and financial meltdowns of the 1990’s (LTCM anyone?) were a bit troublesome. Then of course we had the 9-11 terrorist attacks, the tech stock bubble bursting and recession, the follow on housing bubble and subsequent bust, recession/depression of the aughts (the 2000’s).

 And now along with my cohorts I’m getting kinda old. My needs were long since fulfilled, my wants I can’t afford so well anymore and some of them I’ve just flat outgrown. Not buying any big boy toys anytime soon. Have to watch my retirement finances of course. And, like many of my compatriots, those resources are a bit tarnished of late. So I’m no longer in the market for a second home or a third car. My wife and I already have two cars, two computers, two cell phones and four TV’s.

I’m basically in replacement mode for anything I might want – need. I know too that my personal spending has been declining for the past few years. And, I know that if I’m reducing my spending then so are others of my generation. See, that’s been a pattern I’ve observed over the past 40 years or so. In a general manner, as a self-taught (and therefore untrained) street level economist, I’ve observed that as my wife and I make our seemingly independent economic choices very often those choices show up in the national economic statistics several months later. Again the Aguiar/Hurst chart depicts my families’ personal, independent, economic activity.

 So, if we’re cutting our spending where will the demand come from to utilize the now idle worldwide factory capacity? Recall that I had referenced “… excess baby boomers …” in my earlier question. Note also that the article mentioned at the start of this post considers the birth rate. By contrast, being an untrained, street level economist I choose to focus on total population not birth rate. And of the total population most especially that portion of the baby boomer population that exceeded long term expectations. They are the marginal group that has blown up economic statistics for over 60 years.

Total and 1% Trend Population

 From 1929 through 2008, excluding the years 1947-1966, population growth averaged 1% annually. However, during the baby boomer period (1947-1966 *) population growth averaged 1.7% annually.

(* Yes, I know the baby boom years are typically set at 1946 to 1964. My range is based on the percent change in total population, not the birth rate. So I started when that change was evident, in 1947 and stopped when the percent change returned to the long term trend around 1966.)

 That excess 0.7% growth above the long term trend amounts to an excess of over 24 million individuals as of 1966. That is, actual population as of 1966 was about 196.6 million. If, starting in 1947 actual population had only grown at the long term average rate of 1% then the 1966 population would have only been about 172.5 million. The difference, over 24 million is what I term the excess baby boomer population. This excess population resulted from a period of population growth well above the long term average. This excess, now approaching retirement will not be quickly replaced, if ever. The minor population boomlet from 1989 through 1992 has quickly dissipated. In fact, population growth rates have been trending downward since 1992 as seen in the chart below.

Annual Percentage Change in Total Population

In 2002 those of us born in 1946/1947 hit that magic age of 55 at which time the Aguiar/Hurst chart notes our personal consumption expenditures begin to decline. Unlike other years though, what began in 2002 is a gradual reduction in aggregate demand that will be greater than would otherwise be expected had demographics been more consistent. For example, in 1947 total population was 144.1 million. Had the growth rate only been 1% (instead of the 1.9% actual) the total population would have been 142.8 million. The difference, in this one year, was 1.3 million people more than the long term average would have predicted. Starting in 2002, when these people reached 55 there will be 1.3 million more people than the expected average that will decrease their spending. And, ultimately around 2022 these additional people will begin to die thus ending their spending completely. Worse, there isn’t enough new population, percentage wise, to make up for their passing.

Since the long term rate of growth in population has returned to the 1% trend (except for a minor spurt in the 1990’s) and since the actual population that is reaching retirement is greater than expected (compared to long term trends) it follows that aggregate demand may fall greater than expected. Simply put, there are insufficient numbers of new population to both replace the natural decline in demand and also provide the desired aggregate growth in demand. Simply put, our economic system is predicated on a rising population but it is not enough to simply grow population in absolute terms. The percentage rate of growth must be high enough to provide the GDP growth rate desired to improve the overall standard of living. In that sense our economic system is essentially a “Fertility Based Ponzi Scheme”.

A recent post on The Daily Reckoning Australia , “They Say the Stock Market ‘Looks Ahead’” included a brief overview of the current state of the U.S. economy.

 The basic formula that drove the U.S. economy for the last 60 years has been the expansion of consumer spending. At first, that spending was healthy spending. People had built up savings during the war. In the Eisenhower years, they were ready to get back to work in the consumer economy, get married, have children, and spend money. America was the world’s leading lender…leading exporter…leading manufacturer…and leading everything. Gradually though, having so many advantages caught up to the United States of America. By the ’70s, the Nixon administration thought it could do away with the gold backing for the currency. By the ’80s, the United States slipped from being a net creditor to being a net debtor to the rest of the world. By the ’90s, American consumers were spending more than they made…and by the ’00s they had given up saving all together- …

What intrigued me is that all of these elements, generalized though they may be, are descriptive of the baby boomer generation. In the 80’s baby boomers were hitting their big spending strides which continued into the 90’s. But by 2002 those of us at the leading edge slowed down as we hit age 55. We stopped spending so much. Stared at the retirement abyss and freaked. The Aguiar/Hurst chart became our reality. The table below shows the excess baby boomer population for each year. The cumulative total of excess baby boomers is some 24 million. Add to that count the trend level boomer population of another 50 million or so and there is a massive demographic bomb slowly exploding.

Excess Baby Boomer Population

As of 2002 individuals born in 1947 have reached age 55 and have begun to slow their spending. The excess population in that year’s age group is 1.323 million. In 2003 another set would reach age 55 and the excess population in that year’s age group is 1.077 million. Cumulatively it is 2.4 million aging baby boomers in excess of long term trend population. Obviously this continues every year and now, as of 2008 there are almost 8 million boomers aged 55 or over in this excess population group. As of 2008 per capita “Personal Consumption Expenditures” (PCE) averaged $33,035. If my group of boomers (I am one of them now) reduce their PCE by 10% it will be at least $3300 per person. Probably a lot more since this age group is at both peak spending and earnings levels.

8 million aged boomers x $3300 per person = $26.4 Billion in lost PCE

Next year, 2009, will be more of course. Now I grant that in a $14 Trillion economy $26.4 Billion is a rounding error. Unless of course, it is your job, business or retirement that depended on that bit of extra spending. Then it is a calamity.  Just ask Toyota, or GM or Chrysler. By 2021 when the last of the boomers hits 55 the total lost PCE will begin to approach triple this amount – over $79 Billion at 2008 rates. Again, not a huge hit in a $14 Trillion economy but for those operating at the margins of this economy it may be a serious blow. But keep in mind that this reduction in spending is only from the excess baby boomer population. The remaining 50 million “average population” of aging boomers (about double the number of “excess” boomers) will also be reducing their spending. And it is the younger generations that must recoup that entire reduction in demand and then some if they are to achieve net economic growth. That is, the 25-45 age group will need to recoup some $240 Billion of spending (all boomers reducing spending by at least 10%) just to remain even.

But I don’t see any obvious mechanism for this loss of excess demand to be recouped. The remaining population will do well just to maintain some economic growth. There simply isn’t enough population growth to create an increasing economic growth rate and overcome the Personal Consumption Expenditure loss from the excess baby boomer population. And, even worse, since the government and business community has ignored this demographic bomb production capacity has been expanded to meet what was falsely assumed to be a rising demand curve. Now we have both falling demand and over built capacity.

Ratio of 55+ to Total Population

The chart above is a dramatic illustration of the demographic tsunami that is just now hitting the US (and the world) economy. Over the next 20 years the aging of America will have a similar, albeit reversed, impact on the economy as it has for the past 60 years. But now the baby boomers will start to extract growth instead of provide growth. But few of those in a political position to comprehend this issue seem to be concerned. Today their singular concern is to force feed credit in what I believe will be a futile effort to revive a PCE demand that simply will not return. It cannot return. Our “Fertility Based Ponzi Scheme” has run out of new investors, so to speak. The US economy has pulled a “Bernie Madoff” and both are in deep trouble.

Budget Cuts: Obama vs Bush (who cares?)

comment on Budget: Baby Terminator by KeithHennessey.com

Comparing proposed Bush discretionary spending cuts with Obama’s is a wasted exercise. GWB-43 threw away any Republican claim to responsible fiscal policy. Regrettably it was much the same with GWB-41. Both declined to present their case to the public to rein in spending and instead took the easy way out. GWB-41 reneged on his “read my lips” promise and quickly raised taxes. GWB-43 just signed every spending bill that hit his desk, deficits be damned.

For Democrats to hold Clinton up as a great economic master ignores the fact that he stepped into an economic recovery from the 90-91 recession + the internet/technology boom + Greenspan monetary pump priming. And he left a emerging recession for GWB-43 to boot. To gain his surplus Clinton let defense spending lag and signed a welfare reform under pressure from a Republican congress. Clinton enjoyed his rare surplus due less to his efforts than a political split between the White House and Congress. My outrage is over the wasted opportunity to reform SSA, Medicare/Medicaid and Defense (mostly Clinton’s fault but also partly Republicans). That failure stings even harsher today.

Obama today does not hide his plan to drastically restructure the US economy. He will double the national debt in a very few years and is apparently eager to have government take over large portions of our economy. Favoring a president is not a zero sum game. I do not have to be (and I am decidedly not) a fan of GWB-43 to oppose Obama. Frankly, a pox on both their houses.

As I have read more and more blogs (economics, politics and markets) I have come to the conclusion that much of what I read is analogous to quarreling about who arranged the deck chairs – and whether to buy more or fewer – on the US Titanic. I am far more interested in helping to find a better captain who will steer away from the obvious icebergs and run a tighter ship or, failing that, finding a lifeboat.

Global Warming Contradictions

Copy of a letter sent to the Editor; Wall Street Journal.

 

Today’s editorial, “Reckless ‘Endangerment’” speaks to President Obama’s global warming agenda. It seems evident to me that a reasonable analysis of global warming just might include some historical data. For example, the Viking settlements in Greenland, circa 800-1200 AD bear witness to significant historical episodes of global climate change and global warming. A quick search of the internet turns up a wonderful web site by Professor Scott A. Mandia.

 

Scott A. Mandia
Professor – Physical Sciences
T-206 Smithtown Sciences Bldg.
S.C.C.C.
533 College Rd.
Selden, NY 11784
(631) 451-4104
mandias@sunysuffolk.edu
http://www2.sunysuffolk.edu/mandias/

 

 On the web site Professor Mandia provides a very readable history of the Vikings in Greenland and the climate conditions that made it possible. However, the professor also feels obliged to include a disclaimer. 

Note to general public:

My position on the current global warming is the same as the overwhelming majority of international climate scientists: the current rate of global warming is unprecedented and is being caused by humans. In no way should my summary of the research regarding climate change and the Viking civilization/Little Ice Age be used to “prove” the current global warming is due to a natural cycle. Human forcing (output of greenhouse gases) was just not as large a factor before the 1900s as natural forcing mechanisms. That would be like comparing the number of traffic fatalities today vs. a time when there were no cars!  

I highly recommend that you read the information being presented by the Intergovernmental Panel on Climate Change (IPCC) at http://www.ipcc.ch/. Please view my two .PDF files Global Warming: Man or Myth? and IPCC WGI FAQ which address many of the questions asked about the human impact on the current climate change in a very simple format.  

It is true that there are natural climate change cycles but most of these are on the order of thousands of years to millions of years. The current global warming is not a natural cycle and is of utmost importance because modern-day humans live on time scales much smaller than the natural cycles. Therefore, mankind cannot just simply wait thousands of years for a natural cooling to occur.  

It is my opinion that those who still proclaim that “the jury is still out” or that modern-day climate change is natural, are either ignorant about the scientific evidence or are politically motivated to ignore it.  

It is not possible for me to tell if the disclaimer is aimed at the professor’s job security, is an attempt at dry humor or is inexplicably false based on his own research. Note the sentence below: (emphasis added)

 

It is true that there are natural climate change cycles but most of these are on the order of thousands of years to millions of years.

 

On a separate page of his web site Professor Mandia describes the cycle of climate change affecting Greenland.  

 

A careful examination of the climate record reveals that Europe experienced a prolonged warm period known as the Medieval Warm Period (hereafter referred to as MWP) between the years 600 and 1150, cooling of the climate between the years 1150 and 1460, a brief warming between the years 1460 and 1560, followed by dramatic cooling known as the Little Ice Age (hereafter referred to as LIA) between the years 1560 and 1850.

 

Unless my math is grossly incorrect this process of warming (600-1150), cooling (1150-1460), warming (1460-1560) and ultimately the “Little Ice Age” (1560-1850) all occurred over time periods ranging from decades to hundreds of years. The entire, warm, cool, warm, freeze was all of 1250 years. This hardly constitutes “… thousands of years to millions of years.” What’s going on? How can such historical evidence be denied by the very researcher who describes it?

 

The professor also considers possible causes of this climate change, notably sun spots. Again, from the Professor’s web site. 

 

Sunspot Variation

Because the sun is Earth’s greatest source of energy and is the driving force behind its atmospheric circulation, any variation in solar output will influence the weather. Scientists have observed that the number of sunspots on the surface of the sun has been determined to correspond to solar output variability. More sunspots correspond to a higher solar energy output while fewer sunspots correspond to a lower solar output. A record of sunspot numbers has been recorded through time by various indicators including naked eye observations, auroral reports, and C14 isotope concentrations in tree rings (Schaefer, 1977.) Fig. 8 shows that during the MWP there was a high number of sunspots referred to as the Medieval Maximum, while during the LIA there were two periods of very low sunspot numbers called the Spörer Minimum and Maunder Minimum. Although a direct link has not yet been established between sunspot variability and climate change, the data is highly suggestive.

 

But the professor points us to the United Nations Intergovernmental Panel on Climate Change (IPCC) for more information on global climate change/warming. Presumably why humans are solely responsible for same? Also, Professor Mandia provides two additional pieces of information “explaining” his take on the human responsibility for the current global climate change/warming versus his own historical research. Note: I haven’t bothered to read them. What’s the point when the good professor disclaims his own evidence.

 

I believe this attitude is the driving force behind the push for government regulation of economic activity under the guise of an environmental – read global climate change/warming/whatever – emergency. In short, Professor Mandia, the eco-regulators (EPA, Obama, Congress, liberals and environmentalists) all choose to ignore the historical evidence plainly available. I believe they choose to ignore it because it contradicts their ideology. America’s economy will be held hostage to such ideologically scrubbed environmental evidence.