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Nov 29, 2012

Pickled Jalapenos and Spicy Carrots

Fred:  A recipe? Really?
AMG:  Munching on spicy carrot sticks aids thinking about the big issues.

Warning: Cook at your own risk

-  Don't burn or cut yourself, and don't blame me.


4 ounces apple cider vinegar
2 teaspoons sugar
2/3teaspoon salt
7 ounces water
Stainless steel saucepan
Clean 16 ounce pickle jar with cover, washed, no need to sterilize.

Pickled Thin Sliced Jalapenos

6 green jalapeno peppers
- Wash, cut off stems, slice in half the long way, remove the seeds and white membranes. The seeds and membranes are edible, but are the hottest parts. Slice into very thin half-moons, the better to distribute in sandwiches.

Bring brine to a simmer, dissolve the sugar and salt. Add the sliced jalapenos, 30 seconds on medium heat. Spoon the jalapenos into the pickle jar, fill nearly to top with the hot brine. Place cover loosely on the jar 3 minutes to become hot. Tighten. Allow to cool. Refrigerate.

These are about half as salty, acidic, and sweet as the store product. For more heat, leave more of the white membranes attached to the green. Include some seeds in the brine for the most heat.

These must be refrigerated from the start, and will keep about 3 months. They are not safe for cupboard storage. Throw out if the brine becomes cloudy or if mold develops. This hasn't happened to mine.

Spicy Pickled Carrot Sticks


3-4 carrots (12 ounces)
- Wash, peel if you wish, cut into 1/4 inch thick spears and rounds to fit into your pickle jar.
1/3 teaspoon crushed red pepper flakes
- Add to the brine as you bring it to a simmer.

Follow the recipe for the jalapeno peppers, substituting the carrots. Simmer the carrots in the brine for 1-2 minutes if you like them softer. Adjust the sugar and red pepper flakes as you wish, and prepare as much carrot as will fit into the jar.

These must be refrigerated from the start. Treat like the jalapenos above.

Oct 4, 2012

Obama's Foreign Policy

Fred:  What is our foreign policy?
Official:  Our model could be called "the reformed alcoholic".
Fred:  What?
Official:  We were alcoholic. We now dislike our former friends who used to party with us. We will not continue to be co-dependent by supporting them.
  We now agree with our former enemies, that our behavior was outrageous. We will apologize and make reparations.
Fred:  But, our enemies hate and want to kill us.
Official:  We think they have good reasons for that attitude.

The Disgust Limit
10/03/12 - The DiploMad  [edited excerpt]

Everywhere one looks abroad, one sees the consequences of Team Obama's incompetence, delusions, and anti-Americanism.
  • Qaddafi was cooperating with us against Al Qaeda. Team Obama removed Qaddafi with no real thought to what would replace him. This created a chaotic situation in Libya that has greatly benefitted AQ's rebuilding efforts, and has resulted in the murder of the US Ambassador and three other diplomatic staff.
  • We turned victory in Iraq into defeat. Iran is now the predominant player in Iraq.
  • We have done the same in Afghanistan, allowing the Taliban and AQ to reappear after the decisive defeat administered them.
  • In Egypt, we sold out Mubarak, and got in exchange the Muslim Brotherhood. The Muslim world openly ridicules and attacks us.
  • Israel increasingly fears for its survival as Obama refuses to stand up to Iran's mad pretensions.
  • Obama has betrayed Poland and actively sought to undermine the UK in its confrontation with the Argentines over the Falklands.
  • In Asia, the misadministration's fecklessness re Russia and China is having serious consequences for the global economy and for key US interests and allies in the region.
  • The insane Communist monarchy in North Korea grows evermore aggressive and dismissive of the United States.
  • We see a deliberate stiffing of our Canadian friends.
  • We have a policy of drift and disengagement that alienates allies such as Chile and Colombia.
  • We allow autocrats such as Chavez, Ortega, Correa, Morales, and Castro a free hand, and encourage clowns such as Cristina Fernandez to drive Argentina's economy into the ground.
  • We have turned the OAS into an anti-American sounding board.
  • Our one effective policy  [sarcasm]  in Latin America was the selling of guns to drug cartels.

Sep 10, 2012

Sending Jobs to Other States

Fred:  We should stop importing cheap foreign goods and support US jobs instead.
Mike:  May I ask, what work do you do?
Fred:  I make donuts.
Mike:  Well, I saved $100 last year buying Korean tools.
Fred:  That must stop.
Mike:  If so, I'll have to buy $100 less donuts.

There is much concern about "sending jobs overseas". Some people call for consumers and businesses to "Buy American" even if it costs more. They claim that much of US unemployment is caused by selfish businessmen who buy foreign goods or invest in foreign factories merely to increase their profits. They say that people should be more important than profits.

Maybe these claims don't go far enough.

A Glorious Plan For Jobssarcasm

This plan will benefit all US workers. Each state must stop outsourcing its demand for great products to the two states who happen to be the best producers.

Identify the two states that are the most efficient producers of each product, and ban that product from being shipped to the other states.

If a ban is too sudden, then impose increasing taxes on the production in those two states. The Constitution may currently prevent this ban, but that doesn't make this a bad idea, and we should change the Consititution to benefit us all.

This will redirect demand in all of the other states. Local production will no longer be savagely depressed by the competition of the former top two states. Local producers outside those two states will agree with this. Jobs will be created locally to produce these goods, possibly at lower efficiency. No caring person thinks cold efficiency is more important than warm, local jobs.

Yes, there will be some gnashing of teeth from the former cold hearted, most efficient producers. And, there will be some realignment of resources and prices. Prices for goods might go up.

Some former top dogs will need to be dissuaded from manufacturing for a black market. They may attempt to retain jobs for themselves by selfishly selling goods at a lower price, to the harm of all other producers. They should be punished for predatory under-pricing.

Workers could take pride in producing goods less efficiently at higher prices and lower wages, in good local jobs. They would support their counterparts taking the same pride in their work across America.

Apologists for business will argue that the goods from the top two states were cheaper due to hard-won experience and previously high volume. They will argue that cheaper goods allowed consumers to spend the difference on other products, many from the other 48 states. That seems to make sense, but I wouldn't bet on it.

In later rounds, we can continue to identify the top producers and limit them also. The increased jobs and wealth will support a grand solution:  No trading between the states. Each state will have local jobs producing fine local products. No more job-stealing by the other states, and certainly not by foreign countries.

If this doesn't produce enough jobs, then we can limit trading between all cities and incorporated areas. Our motto: "Good, local jobs. No scab competition from other states or cities".

We can no longer allow efficiency to sap the strength and eliminate the jobs of this great nation. Maybe we can have special rules for California and Florida strawberries, but that is it.


The above is sarcasm. In reality, most people understand that producers in any state should be allowed and enouraged to sell their great products to consumers everywhere. Most people do not think it is unfair for companies in Ohio to compete with companies in Tennesee, even if this means (say) fewer jobs in Tennessee making a particular product.

Products don't care about political boundaries. A product purchased from a company in China, or a job outsourced to China, is no worse than purchasing a product from Ohio or moving a job to Ohio. The Chinese or the Ohioans use the dollars they earn to spend them on something else in the US economy. The pattern of production and employment changes, but not spending demand. Overall production goes up and prices come down.

Efficiency Is Prosperity

Efficiency produces prosperity. Whatever you personally produce, whatever is your income, you are better off buying things at lower prices, because you can buy more things which benefit your life. Lower prices result from the invention and work of companies that produce a greater volume of products using fewer people.

Necessarily, other companies and other people will not be producing those products. Either they won't try to produce, or they will reluctantly lose customers and the jobs associated with those products.

Your charitable instinct may suggest that people should not lose their jobs. But, that would require telling you, and everyone else, that you cannot ever do anything better. If you do it better, then someone loses the customer that you gain. If you can never do it better, then you can never increase your income.

In reality, increased efficiency producing one product sends a signal to other people, to work on producing other products. Eventually, that signal of lower prices requires them to work on something else. At the same time, consumers save money which they can spend on those other products. Thousands of such rearrangements result in more and better goods available at lower cost. Everyone becomes more efficient and is able to buy more things.

The Problem Of Regulation

The problem for the United States is not that the Chinese and others are supplying inexpensive goods to us. The problem is that we are preventing business development in the US that would employ people to produce many things that we would like. Limiting trade does not create jobs overall or increase prosperity. We need to free ourselves from suffocating government restrictions on being productive.

Selling us what we won't make ourselves

Why was the IPad manufactured in Asia?

Dallas Weaver:  [edited]  You cannot manufacture products in the US for rapidly changing markets. Our malevolent government permit system and legal parasites slow projects far beyond the point of responding to changed market opportunities.

Jul 26, 2012

Taxing the Sort Of Rich

Fred:  The Democrats are going to tax the rich. I like that.
Mike:  They might collect $60 billion more per year.

Fred:  That's a lot.
Mike:  They need $1,140 billion more.

Fred:  Where are they going to get that?
Mike:  Guess.

Over the Cliff We Go
07/26/12 - WSJ Opinions by Stephen Moore

[edited]:  The Democrats' official position is to continue current tax rates for the middle class and raise taxes on upper-income individuals by ending their "tax cuts".

Un-advertised, Senate Majority Leader Harry Reid's (D. NV) tax plan retains the alternative minimum tax, with Obama's support. It imposes a $3,400 tax hike on 28.8 million middle-class families. The Republican controlled House will probably ignore it.

House Ways and Means Committee Chairman Dave Camp: "The Democrats almost have to raise taxes on the middle class. Where else could the money come from?"

Reid's and Obama's plan would reduce the deficit by only 5%  (if it raises any money at all), and Democrats don't want to cut spending. Democrats will have to tax the middle class if they want to seriously reduce the $1.2 trillion deficit. There aren't enough millionaires and billionaires to pay for it.

Jun 11, 2012

Statistical Prosperity

Gov't Economist:  Eureka! We can hire more government workers. Everything we pay them will add to GDP according to our accounting rules. And, they will be employed.

Assistant:  What will be hire them to do?
Economist:  That doesn't matter. The statistics will be better.

Assistant:  Why not just "adjust" the statistics?
Economist:  You should be ashamed. That would be dishonest.

Government promotes itself as a scientific manager. It sets goals with numeric precision and finds direct ways to meet those goals.

Obama's economists come into his office each week and discuss how to improve the economy. They discuss the official statistics of GDP (Gross Domestic Production) and jobs held. The government wants a statistical recovery.

They want to report hard numbers, however that is accomplished. If you argue with numbers, you are a moron. Who are you to question the non-partisan measurements of a government bureaucracy analyzing huge datasets with giant computers? You are a peasant.

Those economists offer a direct plan. When government hires more workers, their pay and benefits are counted as increasing GDP no matter what they do or accomplish. Obviously, they now have a job, so the employment statistics improve. This is a no brainer!  It's a two'fer.

Expanding government employment directly and immediately improves the two statistics which government cares about. It is the direct path to statistical prosperity.

Plus, Team Obama believes in the Keynesian Multiplier. They actually believe that they will produce more wealth for us all, if they can pay out more cash to accomplish anything or nothing. So, it is a three'fer.

If the Multiplier were true, then we could Counterfeit Our Way to Wealth. But sorry, it isn't true.

Here is how government master plans, oversight, and statistics work out in reality.

Unintended Consequences and Perverse Incentives
06/2012 by M.J. Perry

[edited]  Managers and employees of glass plants in the former Soviet Union followed master-plan production guidelines.

First, they were rewarded according to the tons of sheet glass produced. Unsurprisingly, most plants produced sheet glass so thick that one could hardly see through it.  (And, this glass did not fit prior applications such as broken windows.)

The rules were changed to reward the total area of glass produced. Then, they produced glass so thin that it broke easily.

Team Obama wants to manufacture higher statistical GDP and jobs numbers in any way it can. Thick or thin doesn't matter.

May 28, 2012

Street Light Economics

It is dark. Jim is looking around under a streetlight.

Frank:  What are you looking for?
Jim:    I lost my keys up the street a way.

Frank:  Why are you looking for them here?
Jim:    The light is better here.

This is a funny comment on human nature. The tragedy is that this type of thinking rules our political and policy world. It is the problem of the seen and unseen. Politicians and economists report in official tones about their measurement of what is under the light, when there is a big, complicated world in the darkness. They should know better

Prosperity and Vacations

Suppose that a Prof  (Professor of Economics) studies past spending on vacation travel and lodging, and finds that periods of higher income are definitely associated with higher spending on vacations. The Prof has assembled the data with statistical precision.

So, the Prof proposes to raise everyone's income and end a recession by requiring that people use their savings to spend more on vacations.

He says that this will increase GDP directly (Gross Domestic Production), and vacation spending was associated in the past with even larger gains in personal income. He calls this the "Vacation Spending Multiplier". Everyone will become wealthier when they buy more vacations.

That advice would be crazy.

A cushion of savings gives people some flexibility in uncertain times when they might lose their own job. Yes, spending more on vacations would temporarily employ more people. But, at the end of the forced spending, those other people would again lose their jobs, and the buyers would have spent their savings. They would only have some nice memories.

The Prof has completely confused cause and effect. People buy more vacations when their income increases. More vacations is not the key to building the wealth of society.

Prosperity and Government Spending

Instead, the Prof  (one of many government economists) reports that past periods of increasing personal income highly associate with increasing GDP and higher government spending. The Prof has assembled the data with statistical precision.

So, the Prof proposes to raise everyone's income and end this recession through massive government borrowing applied to massively higher spending.

Not only does this increase GDP directly, but it has associated in the past with even larger gains in personal income. The Prof calls this the "Government Spending Multiplier".

The Prof says that everyone will become wealthier when they indirectly buy more of anything through the government.

That policy is crazy. That is our current policy.

Yes, spending more on government bureaucracies, planning meetings in Hawaii, and filing cabinets has temporarily employed more people. But, at the end of the forced spending, those other people have again lost their jobs, and the people of our country miss their savings. They don't even get a nice memory of a vacation.

The Other Guy

The public is truly doing the buying, because it will have to pay back the government loans from the economy created from that extra spending. Additional sidewalks, filing cabinets, and regulations do not support producing more things that support people's lives.

You may think that the other guy, the rich guy, is going to pay back the loans, so why worry?

  • The amounts are so large that the politicians are coming after you through innovative taxes.
  • Even if the rich pay an outsized portion, that comes from money that they would have invested in things that produce more opportunities for jobs. They are only trying to make a profit, but they will want to hire you along the way. More businesses produce a long-lasting need for more workers and managers.

    Government borrowing has a temporary effect and wastes resources. It is unsustainable at the current, massive levels.

  • The government may convince the rich that they can't gain anything personally from investing. So, they will stop, and go on vacation. OK for them, bad for you.


I might forgive Jim above for looking only under the light. He might figure that he has no chance of finding his keys in the dark. He is an amateur.

But, people who call themselves economists claim to have studied the situation. They claim to be experts about the dark. They should know the probability of finding those keys. They should be expert at presenting just what is seen and unseen, known and unknown.

Instead, they crunch statistics about past events, ignore the uncertainties, mash together the complexities into simplistic measures such as GDP itself, and recommend policy based on the numeric results of untested (and often unverifiable) "models". Not all economists, but almost all who advise the government.

A Choice

We mistakenly trust in supposed experts who bask in the precision of their statistics. Yet, they measure only what is under the light, and then recommend using government force to guide the public through the darkness.

We are going to face a world-wide breakdown caused by governments printing money, borrowing wealth, and wasting it. Immoral and ignorant politicians have failed to provide the utopia promised to a gullible public. The outcome will depend on what the populace comes to believe.

Some politicans will say that this is another stage in the collapse of Capitalism, unable to be restrained by a caring government.

Or, people may see that government was in control, printed the money, borrowed the wealth, and failed miserably. Maybe, as after WWII, the people will reject goverment plans and promises and cut the power of government. Another prosperous period of growth and power like the 50's and 60's would follow.

- -
Spending did not end the Great Depression
Reduced spending and lowered tax rates did it.

[edited] What happened in 1945 at the end of WWII? FDR was convinced the only way to employ the 12 million returning soldiers was another New Deal program, but he died before he could impose his plan. The new President Truman proposed it, along with national healthcare.

Both the Congress and Senate had Democratic majorities. They said "No" to the whole New Deal revival:  no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.

Instead, Congress reduced taxes across the board. Top marginal corporate tax rates effectively went from 90% to 38% after 1945.

By the late 1940s, a revived economy was generating more annual federal revenue than the US had received during the higher tax rates of the war years. Price controls ended in late 1946. The US began running budget surpluses.

Unemployment had remained double-digit throughout the whole New Deal. One year after the end of New Deal policies and the return of economic freedom, it was under 4%,  despite the return of a huge number of soldiers.

May 24, 2012

Bankruptcy of the West

Official:  The government offers a great life. I get a good salary and very nice retirement benefits, including lifetime healthcare.
10 Year Old:  Dude, whatever.

The West is bankrupt. The solution is to declare bankruptcy. People were stupid to loan resources to their governments, and they will receive the usual reward for their stupidity.

The meaning of government debt is that governments have taken real, current resources and have applied those resources to whatever is now built. Almost all has been wasted, building the wrong things in the wrong places, or building nothing. Politicians have nice houses by lakes and on beautiful hilltops. That is all.

Let the people who bought government bonds take the loss. Sorry, they should have looked into the plans and the planners before entrusting their wealth to those guys. Investing with crooks will always result in losing your wealth, especially when those loans are promoted as "riskless". Their only expectation of repayment was by the use of government force to extract higher taxes from the populace. That expectation was ruthless and immoral.

Don't come to me, or my children, or anyone's children and say that the politicians were acting on their behalf, so they must be bond slaves and return the stolen wealth to the oh-so-trusting baby boomers who lent that wealth to the government.

If you say "rule of law" to me, I will reply "rule by liars and thieves", trading wealth for votes to remain in power. The rule of law will recover only when rule by thieves is outlawed in the common mind. Unfortunately, collapse is the only way that the organized theft will stop.

The dictator Idi Amin stole billions from loans to Uganda made by international agencies. Most of this debt was written off as worthless, because no one in good conscience could enslave the people of Uganda to pay off debts extended to a psychopathic criminal who ruled their country.

US politicians do not always show the psycopathology of Idi Amin, but they have been quite effective in stealing the wealth of our society. The willing participants were the bond buyers.

Most of the public collected some of that borrowing and stealing. That wealth cannot be recovered. Possibly there are some nice houses on lakes and hills which can be recovered, houses paid for by malfeasance in office.

- -
Obamacare Bails Out Medicare

The government is ending the free market in healthcare. Our policy makers have already designed a system of price controls that doesn't work. Their next plan is to cover up this failure by blaming "the market". The market is short for the freedom of people to produce and cooperate among themselves, always delivering value and achieving efficiencies that government cannot match.

That freedom is what the government has taken and is taking away, in favor of higher hidden taxes and rationing. Our leaders have been buying votes with lavish promises of what the government will deliver. Their plan is to put us all in one boat, then make us pay for their promises to prevent the boat from sinking.

- -
Downgrading the West
03/09/12 - OpenMarket by Matt Patterson

[edited]:  The government has been spending our wealth for decades. First everything we made, then everything we are ever going to make, and now everything our children and their children will ever make.

- -
The Real Federal Deficit
05/18/12 - USA Today   (via Dinocrat)

[edited]:  The typical American household would have paid 85% of its income in taxes last year to balance the budget, if the government used standard accounting rules.

Standard accounting gives a deficit last year of $42,054 per household, nearly four times the official number. Median income is $49,445.

The official deficit was $1.3 trillion ($1,300 billion). Liabilities (future promises) for Social Security, Medicare, and other retirement programs increased by $3.7 trillion, for a total of $5 trillion.

Standard accounting used by companies, states, and local governments must include retirement commitments. Congress ignores them when reporting the deficit.

The total wealth (Gross Domestic Product) created in the US in 2011 was about $13 trillion ($13,000 billion).   ( A trillion dollars on display. )

In proportion by wealth, if a family earned $50,000, that would be like borrowing and spending $5,000, and also promising to pay an additional $14,250 to the parents when they retire. All in one year.

Do you think that the parent's retirement is secure? Will the children pay?

May 13, 2012

The Systematic Organization of Hatreds

Assistant:  We won! Now we can accomplish some good things.
Senator:  And, punish our enemies.

Economics usually studies the gains from cooperation. People and businesses usually cannot force others to serve them. They must offer beneficial, voluntary arrangements.

Politics distributes power. It is not surprising that politicians use that power not just for the good, but to punish their competitors, their "enemies", and anyone else they may dislike. Who is going to stop them?

The Systematic Organization of Hatreds
05/05/12 - The Beacon by Robert Higgs [edited]

Democrats and Republicans are but two wings of the predatory government that rules the United States. Why does their feuding reach such vitriolic extremes? Despite their similarity of fundamental positions, they are somewhat different sorts of people and tend to dislike and sometimes despise one other. Although inclined to conspire and cut deals, they also represent their supporter's hatreds.

When we move some decision from private life into politics and government, we will likely move it from a world where hatred is incidental and avoidable to a world in which hatred is central and inescapable.

A government imposes one rule and one outcome on everyone. The hatreds within that outcome become infused throughout the society. We live in a politicized world fashioned in large part by those organized expressions of hatred.

Small wonder that some of us view the entire apparatus of politics and government as the living embodiment of evil.

- -
EPA Official explains his "crucify" enforcement policy

[edited]  In a 2010 video, EPA Region VI Administrator Al Armendariz explained his philosophy of enforcement to his staff, which he acknowledged being crude and perhaps inappropriate, but shared anyway:
It is kind of like how the Romans conquered villages in the Mediterranean. They’d go into a Turkish town, find the first five guys, and crucify ‘em. That little town was really easy to manage for the next few years.

You make examples out of people who are not complying with the law. You hit ‘em as hard as you can. There’s a deterrent effect. And companies that are smart see that. They decide that it’s time to clean up. And that won’t happen unless you have somebody out there making examples.

This might be excused if the EPA were enforcing a few laws with clearly beneficial results. But, this is the EPA enforcing thousands of vague laws, most with huge costs and imperceptible results.

Mar 1, 2012

Waiting for Oil

Fred:  I wish we had half as much oil as Saudi Arabia.
Mike:  Shhh. We do, but it's illegal.
Fred:  I suppose what we don't know won't hurt our politicians.

Proven Oil Reserves

Worldwide "proven oil reserves" is a very restricted definition. Even those reserves have been expanding as technology has improved and as the oil price has stayed high. There is no "peak oil" on the horizon.

Saudi Aramco is the world's largest oil company. Radford by Bill KovarikIts CEO said in 2006:

[edited]  There are more than 4.5 trillion barrels of potentially recoverable oil, 140 years at our current rate of consumption. The world has consumed about 18% of conventional oil potential. That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petrol supplies.

US proven oil reserves are defined by US law as oil in the ground which can be recovered under current  prohibitions and regulations. For example, Alaskan ANWR oil is not included, as its development is not allowed.

US Energy Information Administration

EIA defines proved reserves as those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

North America Radfordhas 400 billion barrels of recoverable oil with current technology. That is one-half of the 800 billion barrels in Saudi Arabia, if there were more reasonable regulation.

The US consumes 21 million barrels/day.  400 billion barrels at that rate would last 52 years. That is plenty of time to develop new technologies without turning our lives over to government energy controls.

Time to Market

The time needed to develop new US oil is commonly reported as 10 years. Yes, under those same regulations.

Less than ten years to develop offshore oil if regulations were modified
July 2008  -  Next Big Future

[edited]  Monica Showalter at Investors Daily proposes that California's 10 billion barrels in offshore oil could be brought to market in as little as a year if the moratorium were lifted. The oil is under shallow water and drilling platforms already exist.

The time offered to develop oil resources includes regulatory delays. It is not an engineering limit of technology. The Gulf of Mexico offers an example. There is a dramatic slowdown in approvals in an area which has had oil development for 50 years. This followed a large accidental spill which was remediated by the BP oil company. The extreme slowdown is not required as a technical response to prevent future spills.

Regulations Delay Revenue, Jobs, and Oil Supplies
07/22/11 - Rigzone

[edited]  The permit moratorium in the gulf of Mexico ended October, 2010. The federal approval process has not returned to previous levels in the following six months.
  • 86% fewer approvals/month for plans.
  • 38% more time needed to approve plans.
  • 2.5 times greater backlog of deepwater plans pending approval. It was 18 per year, and now is 67 per year.
  • 60% fewer drill permits (combined shallow water and deepwater).

When you want to fool the peasants public about possibilities in life, write a regulation and only report what is possible under that regulation, no discussion needed.

Oil Supply and Speculation

Is Obama Responsible for High Gas Prices?
03/10/12 - EconLog by David Henderson

[edited]  The primary reason for the increased price of gasoline is the price of oil in the world market.

People are nervous about war with Iran, which would likely cut Iran's production. The world uses 90 MBD (million barrels per day) and prices are inelastic. Cutting supply by just 1 MBD (1.1%) would raise the market price by about 10%. Speculators anticipate this, bid up the future price, and the current price follows upward.

A price is "inelastic" when small changes in supply produce large changes in price. The world already conserves oil by applying it almost entirely to productive uses. Living patterns are established, and people must get to work, manufacture products, and have heat and hot water. It takes a large change in price to cause people to use less oil.

Higher US oil production would shift oil costs lower. Obama talks about US oil production as being an insignificant fraction of world production. He is correct that oil prices are determined mostly by world production, and incorrect that our production doesn't matter.

The US could easily produce 1% to 2% more of world production, which would lower prices by 10% to 20%. This competition at the current price would remove pricing power from big producers such as Saudi Arabia, Russia, and Iran. They would lower their expectations, set lower long term prices, and increase planned production.

Is 1% insignificant? Consider that 1% for a full-time worker is 2.5 days of additional paid vacation.

Oil Prices
04/07/08 - Economist Robert P. Murphy

[edited]  The demand for oil is unpredictable. This partially explains record-high oil prices.

The major oil companies in the 1980's and 90's underestimated the economic growth 25 years later in countries such as China and India. The necessary infrastructure was not in place to comfortably meet the increase in oil consumption. So, spare capacity margins have become extremely narrow, leading to price spikes.

The major oil companies are all owned by foreign governments. Exxon is a bit player in that world. Does it reassure you that our government has hindered US oil development for those 25 years? High oil and gasoline prices are a predictable result of government refusal to allow expanded US oil production.

Are Oil Speculators Bad or Good?
08/04/08 - Economist Robert P. Murphy

Many companies want to arrange for the delivery of oil to them in the future. This is agreeable to oil producers who want to "lock in" a sale today, to cover their expenses producing that oil for future delivery. The collection of these contracts is the Oil Futures Market. The public prices of these contracts allow anyone to estimate or guarantee what their oil will cost for some time into the future.

Every contract specifies actual delivery of the oil. "Speculators" are companies or people who buy or sell such contracts without having any means for either producing or receiving that oil. They expect to hold these contracts and sell them back into the market for a higher price at some time before they would have to take actual delivery (or produce the oil). If they are wrong, they must "unwind" their position at a loss.

[edited]  Have speculators "artificially" driven futures prices far above the level justified by fundamentals? We don't see indicators of this, neither higher futures prices nor large increases in stored oil inventories. Oil prices have been lower in the futures market for much of the run-up in prices, and commercial oil inventories in the United States have hovered in a stable range for a decade.   (Talk like a traderWhen the future price of oil is higher than the current "spot" price, the market is "in contango". When the future price is lower, the market is "in backwardation".).

Say that we knew that speculators were responsible for a huge increase in oil prices to $140 per barrel. Ironically, there would be a good case for saluting their behavior!

For example, people fear that Israel may bomb Iran, and Iran will cut off exports and mine the Strait of Hormuz to block tanker traffic. Spot oil prices (outside already arranged contracts) might then exceed $400 per barrel. People would then be grateful for large inventories that had accumulated because of the speculative increases in prices, and grateful for the conservation that $140 oil had enforced in the months before the war.

Free-market economists understand the beneficial role that prices play in smoothing out production and consumption. This role holds true for futures prices and the allocation of resources between present and future uses. True speculators ensure that futures prices are as accurate as possible, so futures prices coordinate production and use as effectively as possible.

People risking their own money have the highest incentive to apply their knowledge correctly. If you do not have knowledge about oil production, delivery, and demand, then you had better not buy or sell those contracts. If you do have fundamental knowledge, that market is the best mechanism for collecting your knowledge and paying you for sharing it, to all of our benefit.

The futures market of participants and speculators collects the best information about how to balance current and future supply, demand, risk, and reward.

Feb 27, 2012

Raise Tax Rates - Collect Less

High Official:  Our deep and nuanced understanding of reality gives us the duty and privilege to plan, invest, and guide our society. We must collect more resources, and so we will raise tax rates.

Assistant:  Rates are quite high now, sir.
Official:  We will set them higher.

Assistant:  We will almost certainly collect less revenue and injure economic growth.
Official:  That doesn't feel right. How could that be? I don't believe it. What fun is there in not raising rates? That is one nuance too far.

Why Doesn’t Obama Realize that Higher Tax Rates are All Pain and No Gain?
02/27/12 - by Dan Mitchell

[edited]:  Higher tax rates cripple growth and drive more people into the underground economy.

Even the International Monetary Fund agrees in this analysis of the Greek economic situation. At some point, tax rates become so punitive that the government collects less revenue. A remarkable admission. IMF Survy Online, December 16, 2011:

[edited]:  Reducing the Greek deficit is going to be hard without structural spending reforms. Their deficit will be 9% this year, well above their target of 7.5%.

Thomsen: "We have reached the limit of what can be done by increasing taxes. Any further measures should be done by reducing government spending."


Obama's Tax Priorities

Obama on Taxes - 12/16/10 - American Thinker by Allan J. Favish. Obama wants to raise the capital gains tax rate.

Transcript of the April 16, 2008 debate between Barack Obama and Hillary Clinton, moderated by Charles Gibson. [edited excerpt]

Gibson:  You favor an increase in the capital gains tax. You said on CNBC,  "I certainly would not go above what existed under Bill Clinton."

The capital gains tax is now 15%. It was 28% under Bill Clinton, almost double what it is now. Actually, Bill Clinton in 1997 signed legislation that lowered the capital gains tax to 20%. And George Bush has taken it down to 15%.

Obama:  Right.

Gibson:  In the 1980s, when the capital gains tax increased to 28%, revenues went down. And in each instance when the tax rate decreased, revenues from that tax went up and the government took in more money.

So why raise it at all, given that 100 million people in this country own stock and would be affected?

Obama:  What I've said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today that the top 50 hedge fund managers made $29 billion last year. But, they are paying a lower tax rate than their secretaries. That's not fair.  [And not correct] Click, then see the entry "Rich Pay Higher Tax Rates Than Secretaries" at the upper right.

Economist Mark J. Perry:  The US federal income tax is highly progressive. Warren Buffett is wrong in his "analysis" of tax rates on himself and his employees.

Most secretaries would pay a federal tax rate averaging 9-12%. Most "super-rich" bosses with incomes of $200,000+ would pay a tax rate averaging at least 25%, about three times the average of their secretarial staff. If you include payroll taxes on everyone, the super-rich are paying at twice the average rate of secretaries.

I do not want oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But, I also want our tax system to be fair, and to finance health care, and to invest in infrastructure and schools.

You can't take out a credit card  [borrow massively]  from the Bank of China in the name of our children and our grandchildren, and then say that you're cutting taxes.

I believe that you pay as you go. You don't propose tax cuts unless you are closing other tax breaks for individuals. You don't increase spending unless you are eliminating some spending or you are finding some new revenue. That's how we got an additional $4 trillion worth of debt under George Bush which is helping to undermine our economy. This is going to change when I'm President of the United States.

Gibson:  But, history shows that when you drop the capital gains tax, revenues go up.

Obama:  Well, that might happen, or it might not. It depends on what's happening on Wall Street and how business is going. The biggest problem that we have on Wall Street is that we have a housing crisis that President Bush has not been attentive to, and that it took John McCain three tries before he got it right.

If we can stabilize that market and we can get credit flowing again, then I think we'll see stocks do well. And once again, I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.


Repeated experience shows that lower tax rates produce higher economic growth, more jobs, and increased tax revenue. Despite this experience, Obama says "maybe yes, and maybe no".

Obama has two priorities: A fair tax system, and one that raises more revenue. These oppose each other at our current levels of taxation. Higher tax rates are more fair in Obama's judgment, but they will raise less revenue. What does he really want?

Actually, to collect much more revenue, he must collect more tax from the people earning $50,000 to $200,000 per year, because that is where most of the personal income is. Sorry.

Obama proposes the goal to "stabilize the housing market and get credit flowing again."  But, he does not provide a policy which would accomplish that. Lowering tax rates has brought countries out of recession. Raising rates has never done it.

The 50% Rate English Experiment

We don't have to rely on past results. England has run the experiment again, at great cost, to show us how the world works. They raised the income tax rate on the rich.

50% tax rate 'failing to boost revenues’
02/21/12 - Telegraph UK by Robert Winnett and James Kirkup

[edited, rearranged]
The amount of income tax collected fell sharply last month. This is the first formal indication that the new, higher 50% rate is not raising the expected amount of revenue.

The British Treasury received £10.35 billion in personal income tax payments in January, £509 million  (5%)  less than January 2011. Most other taxes produced higher revenues over the same period. This is the first year following the introduction of the 50% rate, which was expected to raise individual tax revenues by more than £1 billion.

A Treasury source said the drop in revenues was partly due to highly-paid individuals arranging their affairs. There is some fear that it is forcing entrepreneurs to relocate abroad.

Liberal Democrats have insisted that the 50% rate must stay, because it is important to demonstrate that the rich are paying their fair share.

Like Obama, the English Left is determined to take more money from successful people, regardless of raising more funds for government. That is true dedication to an ideology of "fairness".

Where the Money Is

The bank robber Willie Sutton was asked why he robbed banks. He supposedly replied "Because that is where the money is". His full reply is more interesting.

[edited]  Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I'd be out looking for the next job. To me the money was the chips, that's all. Go where the money is, and go there often.

Maybe the Left is more like Willie Sutton than like an efficient, pragmatic manager. They want to go for the money and go often. The amount collected is of secondary importance.

Feb 24, 2012

Tennessee Mosque

Reporter:  There is another side to the "Hate the Mosque" story.
Editor:  Islamaphobic bigot.

02/22/12 - Advice Goddess Blog by Amy Alkon

[edited]  Amy Alkon:  Eric Allen Bell at The Daily Kos started a film about a mosque being built in Tennessee. The Kos party line is that it is Islamophobia to criticize Islam. He toed that line, then some research changed his tune. He was unwelcome back in Kos-land.

[edited]  Eric Allen Bell:  I wanted to show what happens to countries when they gain a Muslim majority, how women are treated, that homosexuals were executed, that free speech did not exist, that the forced Islamic Law was not consistent with Democratic values. I reported anything and everything I could think of that ought to strike a chord with the Liberal mindset.

The response I received was, "Eric you are starting to sound like an Islamophobe. We don't want to make a movie that promotes fear. Let's just stick with the existing plan, okay?"

Feb 21, 2012

The Oil Market Panic

Fred:  Gas prices are going up. The oil companies are gouging us.
Mike:  Iran's desire for nuclear weapons is shaking up the Middle East. Oil companies are just mice among the elephants.

Fred:  Well, the government should limit the price.
Mike:  Do you want shortages, rationing, and two-hour lines at $3.00 per gallon, or to adapt in your own way at $4.50 per gallon? You are going to use less gas either way.

The Oil Market Panic
02/20/12 - Hoover.org by Richard A. Epstein

[edited and paraphrased]:  The rise in oil prices traces to a renegade Iran. The West sees that the Iranian nuclear threat is not just bluster. Iran poses far greater risks to world peace and the political order than even a major disruption in oil supplies.

An anxious West is making a concerted, effective effort to cut off Iran from the world’s banking system and to block the international use of Iranian oil. The Saudis have helped the West by expanding their shipments into world markets. One-third of world oil travels through the Strait of Hormuz. The Iranian threat to close the Strait and the movement of the U.S. aircraft carrier Abraham Lincoln into the Strait are serious.

These developments have driven the price of North Sea Brent crude oil to around $119 per barrel, a potential gasoline price of $4.25 per gallon. Ordinary Americans are being forced to tighten their belts. The best response is to allow this free-market adaptation to reality. A worse response is for the government to undermine the market by capping price increases or dictating its vision of the right price.

Any system of government subsidies or controls will disrupt the vital market process of continuous adaptation. It will also cost a fortune. The “hands off” motto of laissez-faire capitalism has never been more pertinent than in this oil crisis. Government interference in the market will make the effects worse.

Leading political figures on both sides have responded sophomorically. Their shared, incorrect premise is that price changes are evidence of a market failure, and this justifies intervention. It doesn't. Price increases should not lead to a call for price limits.

The real problem is the trouble brewing in Iran and the Strait of Hormuz. Politicians should neither panic nor pander. Their political energies are needed to reach a diplomatic or military solution for a serious international breakdown that requires our urgent and unified national attention.

The current rise in US oil and gasoline prices comes from reasonable fear of a conflict with Iran, and the current attempt by the US and other countries to cut off Iran's income through buying less Iranian oil, to pressure an agreement on nuclear weapons. This necessarily increases oil prices, but hopefully this will be less expensive than going to war.

This price increase is not primarily Obama's fault. But, we can rightfully blame him for denying the US much productive work and jobs developing the huge US oil reserves, and for refusing to make the US less dependent on foreign sources.

Development of domestic oil would not completely change the world oil price. Oil is an international commodity. But, a large domestic supply would more insulate the US from threats to foreign supplies.

We rely now on the  Strategic Petroleum Reserve, storing 726 million barrels of oil, to back up US consumption of 21 million bbl/day (34 days usage). It would be much better if the US were producing that 21 MMbbl domestically, rather than the current 5.8 MMbbl/day.

Feb 5, 2012

Hating Lottery Winners

Max:  Big companies are making obscene profits. Those lucky bastards should be paying their windfall profits back into the government, to help me.
Fred:  Yeah, and let's get back more money from those lucky bastard lottery winners, and from top athletes and movie stars, and popular writers, and super models.

Max:  Uh, I don't think you see the point.
Fred:  I thought the point was that no one should be lucky.

Why should businessmen be disliked and pay high taxes because their success is partly luck, while all-luck lottery winners are generally accepted as deserving their winnings?

Lotteries are a bad bet

Lotteries return only 60% of what is bet, and only 18-30% in the big prizes. Many people with a social conscience hate lotteries because they are designed to take money from people without much money, and states promote this scam on the people.

The following explains nicely the odds against winning anything and gives the social argument.

I hate the lottery  -  10/10/2010  -  Graham Templeton

[edited excerpts]  What kind of government runs a crooked game on its citizens? Well, it appears that is the Government of Canada.

The odds of hitting the jackpot on the Lotto 6/49 are about 1 in 64 million. Some unkind fellows have referred to this as a “stupidity tax,” arguing that if the players are dumb enough to take such a fool’s bet, they deserve the resultant siphoning off of their finances.

In some circumstances, I would be okay with that. Freedom costs money sometimes. But, rugged individualists refer to the right of a citizen to run a successful business. That argument does not apply to the government, which should not play on the mathematical illiteracy of its population.

This government runs massive ad campaigns to convince you to throw your money away on the lottery. But it won’t let you start a casino because gambling is bad for the community. Lottery rackets have been highly illegal, and they still are, unless you’re the government.

The government restricts our freedom, moralizing at us, and empowering itself to make our financial decisions for us. But, it plays commercials for its own brand of cocaine, while telling us to Just Say No to other brands.

Lottery winners are OK

Many people don't like the lottery because it doesn't pay enough or because the winnings are taxed. Almost no one hates lottery winners. I Googled "hate lottery winners" and found just one post hating a particular winner.

I hate lotto winners  - 07/06/10  -  Bun Boy Eats LA

[edited]  This woman with a stupid name just won a multi-million dollar lottery. For the 4th time with a friggin’ scratch ticket!!!

That’s just not right. I don’t believe in the lottery, I think it’s obnoxious. I think it’s worse than Miley Cyrus’s gummy smile. I don’t believe in getting ones’ hopes up that high. No one with teeth and a desire to own outside of a trailer park ever wins.

Yes, I’m jealous. Jealous that Joan Stupidface will get to add a wing to her tacky, faux finish Vegas crack den and procure a few dozen more mangy cats to poop in all the corners.

This is why I LOVE to watch programs such as “Curse of the Lottery!”

The complaint is that few lottery winners are admirable. Even so, there is no sentiment to take away most of their winnings through special taxes. The feeling is "they took their chances and won". Canada doesn't tax lottery winnings. That shows public support for the winners to keep all of their lucky gains.

Businessmen are Not OK

Businessmen (or women) play a type of productive lottery. They use their own money (and money from voluntary investors) to produce goods and services which people want to buy. This involves much planning, skill, and persistence, with a component of luck.

Some people seem to live in a sunbeam, creating a profitable business despite character flaws. Some people fail despite the best planning. Most businesses achieve a middle success, and some find super success, making millions and even billions.

The odd part is that successful businessmen are often disliked, especially for their success. A common sentiment is that they should pay more and more taxes because they were partly lucky, and so should give back most of their gains to the rest of us.

This sentiment is common even though these businesses add to the well being of customers and workers. A lottery only moves money from some people to others, giving the state a big cut along the way. A business creates well-being at the expense of no one, actually helping people, and paying taxes along the way.

If successful people and businesses are disliked and are supposed to pay for the rest of us, then why aren't lottery winners even more disliked? There is some luck in business, but the lottery is all luck. If we dislike businessmen who are somewhat lucky in the course of delivering goods and services, then why don't we despise lottery winners, who have done nothing more than pay for a ticket?

There is nothing to dislike about businessmen or lottery winners. They each put their resources toward a strategy for success. Many of both lose their investment. Of the two, the businessmen and investors should be admired for creating good things along the way. We shouldn't be grabbing at their winnings.