View 633 July 26 - August 1, 2010 (original) (raw)
This week:
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Monday, July 26, 2010
TheJuly Mailbag is now posted at Chaos Manor Reviews. Sable is due for her final post-op examination after her knee rebuilding surgery.
If you missed the Flash Opera, look here.
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Sable's sports operation is pronounced a complete success and now all she needs is exercise to build up muscle again, meaning that it's OK to take her up the trail to the top of Mulholland. Which presumably is good for me as well. Anyway, she's fully recovered except for growing her fur back and now that the days are getting shorter that will happen. Huskies grow fur when days are shortening. They shed governed by temperature, generally all at once after a number of hot days. They really hate being clipped. Sable is a great deal furrier than our previous huskies. Reds often are. Her weight is about right, too. Anyway she'll get another checkup in 8 weeks.
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Deflation
The new fear is deflation. There's also the plea that we don't really understand deflation. Roosevelt didn't understand it either, although the New Deal took a number of measures to combat it, including requiring farmers to pour out milk and slaughter little pigs in the hopes of driving prices higher (see Amity Schlaes The Forgotten Man for a lot more on that.) What the New Deal did understand was that deflation brought about a nasty spiral, and the Great Depression hung on and on and on. Japan, having been the model for economic growth -- I suppose not many remember when Japanese visitors drove a real estate boom in Hawaii -- suddenly went bust and a deflationary period came with a long period of slow economic growth. People talk about the lost decade. Deflation, slow economic growth, and rising unemployment all went together.
I am not an economist. I was an Operations Research (OR) guy. Shortly after I got into the OR business they decided to rename it "Systems Analysis" and there were claims to universal wisdom of the systems analysis application, but even though my job title was Systems Analyst for a few years, I always called myself an OR guy. Operations research was the practice of isolating a problem, studying what people were doing, trying to construct a model of what was going on, and looking at the model to see what different practices would do. With skill and a great deal of luck you might find a new way to do things that made the outcomes better. A good part of the value of Operations Research was looking at the situation to see just what it was you wanted: just what is a better outcome? Indeed, that often turned out to be the most important part of the OR experience.
The classic example of OR was the Battle of the North Atlantic. The tactics of the destroyers and aircraft were chosen to optimize the chances of sinking German submarines. The OR people looked at the problem and decided that this wasn't the criterion at all: what was really wanted was for more cargo to get to Britain. Instead of using tactics to optimize the chances of sinking German subs, choose tactics to break up the submarine wolf packs, keep them submerged, prevent them from attacking convoys. The new tactics didn't sink many German subs, but they greatly increased the amount of cargo getting through.
Economists don't seem to use an OR approach to the study of American economic policies and tactics. A real OR study of our economic policies would, I suspect, bring into question a number of assumptions about what is and is not success; or it seems that way to me.
As an example; for a number of years we had the North American Free Trade agreement. Ross Perot worried that the "giant sucking sound" you heard was the export of American jobs to Mexico. Indeed, a great number of maquiladores, factories just across the border in Mexico, sprang up, and a great number of jobs were moved to Mexico. Most of those were light manufacturing, labor intensive work making consumer goods. The result was lower prices of such consumer goods. That brought down prices in the US, and one supposes that it cost some US jobs, but the times were pretty good. Most of the maquiladores were built with US capital and much of the profit returned to US owned companies, while at the same time the presence of good jobs in Mexico lightened the pressure on the US borders.
Then came Wal-Mart (and others, but I particularly remember Wal-Mart) which put pressure on its suppliers to bring prices even lower. The way to do that was to export the jobs from Mexico to China while at the same time insisting on unrestricted free trade with China. (The Chinese began by demanding "most favored nation" status, meaning that they'd get as good a tariff deal as Mexico.) Chinese labor was cheaper than labor in the maquiladores. The result was the ruin of many of the maquiladores. The jobs were exported to China. I don't know if the reciprocal free trade with China brought about more US export, but it doesn't seem to have. I know that in the case of intellectual property, there tended to be the export of a few US copies followed by the widespread availability of the property -- books, movies, software, music -- in Chinese editions that didn't pay any royalties back to the US. Perhaps there were compensating sales I don't know about. Mostly, though, jobs flowed to China.
Over time a good part of the US economy shifted from making consumer goods to opening containers of consumer goods made in China. The Mexican economy was hit even harder as the maquiladores began to shrink, then close.
The result was lower prices of consumer goods, but also unemployment in the US and Mexico.
No one seems to recognize this as a self-inflicted deflationary spiral, but I do wonder if we didn't do exactly that to ourselves? And meanwhile we continue to impose all kinds of regulations -- many very good I am sure -- on American businesses. Minimum wages, safety regulations, work rules, retirement packages, health care -- all of which raise the price of American labor and make it far more profitable to export a job than to create one.
I have for a long time thought that imposing a 10% across the board tariff on imported goods -- all of them -- would make considerable sense. It might even slow down the self-inflicted deflationary spiral of lower cost goods and rising unemployment. And note that unemployment isn't free, as witness the continuing extension of unemployment benefits. Money paid as unemployment compensation is extracted from the still-profitable part of the economy, and of course unemployment compensation taxes make US labor more expensive, and thus encourages job export: job export brings lower prices and more unemployment.
I haven't made a formal model of any of this, because I don't really have the resources to do it; but my back of the envelope OR calculations make me wonder just what we're doing, and now that deflation is up for discussion, perhaps some foundation or university that does have the resources might want to turn an OR man loose on the spiral of declining prices and rising unemployment and slow, slow, economic growth. At what point does this spiral become another depression?
I'm just saying...
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And the latest horror from the Gulf is that now that the torrent has been capped, the cleanup crews are having trouble finding oil to clean up. The storm churned up the oil, and it seems to be cleaning itself. I do worry a bit about the "dispersion agent" (read detergent) but that is supposed to be biodegradable. As is oil over time. The ecology of the Gulf will shift for a few years, and it may not return to precisely what it was. There are likely to be some blooms and die-offs (blooms eat up the food, things die, decay eats up the oxygen, and there can be several iterations of that spiral).
The Gulf is big. Keeping the oil at sea and off shore, keeping it out of the marshes and wet lands and the shallows is the important thing. Keep the oil out there, recover what you can, and let nature take its course. It costs money and time and work, but it's not the end of the world. It's a major oil spill. It won't be the last -- it many not even be over -- but it's an oil spill, not the Apocalypse.
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