| Monday,
July 26, 2010 The
July
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.
===========================
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.
=====================
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...
=================
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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