Across the Great Divide

In Search of the Perfect Retirement.

A caravan of six giant touring buses, all towing cars, headed up the hill on the Wisconsin side of the I-94 St. Croix River bridge. And why not? The gasoline crisis is simply about expensive fuel, not supply shortages like the last time.

We could not see drivers behind the shaded glass in the tall, impassive machines, so we imagined the couple from a remote small town in California we had just heard about.

For 20 years, they had worked at outfitting one of these coaches with all the creature comforts so when they retired they could spend a year touring the U.S. looking for the perfect retirement locale. When they started, their bus was new and diesel was about $1 a gallon. By the time they began their excursion this summer, the fully-equipped-for-living chassis still had few miles on it, but it was a 1980s model.

And diesel along their migratory route ran between $4 and $5 a gallon.

It was costing them $1 per mile to discover America, and after just six weeks, they cut short their quest, choosing the resort hill country of north Arkansas.

One of the main attractions — low taxes.

On a per-capita basis, Arkansas ranked 45th among the states in total tax collections for FY 2005. But looking at comparative state and local tax levels, on average, “low tax” Arkansas actually takes a nickel more of income than “high tax” Minnesota ($113.59 per $1,000 vs. $113.54).

 

The difference in average income among the states (Arkansas ranks 48th vs. Minnesota’s 11th) accounts for the big swing in rank between the two measures. Our wandering retirees were attracted not so much by the state’s overall taxes, but that Arkansas doesn’t tax pension income.

Back on the highway, we passed one of those buses. The model name on the back:

Notes on the New Economy: Delivery's Demise?

The service economy doesn't just run on ideas and information. Florists, farmer's markets, landscapers, party rentals, moving companies and others deliver their services the old fashioned way.

Two years back, when gasoline prices crossed into $2.50-plus territory, businesses that handled building materials and other products tacked fuel surcharges onto their prices. Now, some delivery services are going away entirely.

Simon Delivers, which once promised to revolutionize grocery shopping, is closing up shop. Jim Thill writes about a customer whose mail delivery has gone to do-it-yourself, and pizza delivery may be next in some places. Those higher delivery fees don't all go to the driver, by the way, but to offset higher ingredient prices that also are being driven by transportation costs.

Environmentalism as Guilt Management.

The “be less bad” environmental approaches to industry have been crucial in sending important messages of environmental concern— messages that continue to capture the public’s attention and spur important research. At the same time, they forward conclusions that are less useful. Instead of presenting an inspiring and exciting vision of change, conventional environmental approaches focus on what not to do. Such proscriptions can be seen as a kind of guilt management for our collective sins, a familiar placebo in Western culture.

In very early societies, repentance, atonement, and sacrifice were typical reactions to complex systems, like nature, over which people felt they had little control. Societies around the world developed belief systems based on myth in which bad weather, famine, or disease meant one had displeased the gods, and sacrifices were a way to appease them. In some cultures, evens today, one must sacrifice something of value in order to regain the blessing of the gods (or god) and reestablish stability and harmony.

Environmental destruction is a complex system in its own right — widespread, with deeper causes that are difficult to see and understand. Like our ancestors, we may react automatically, with terror and guilt, and we may look for ways to purge ourselves — which the “econ-efficiency” movement provides in abundance, with exhortations to consume and produce less by minimizing, avoiding, reducing, and sacrificing. Humans are condemned as the one species on the planet guilty of burdening it beyond what it can withstand; as such, we must shrink our presence, our systems, our activities, and even our population so as to become almost invisible. (Those who believe population is the root of our ills think people should mostly stop having children.)

The goal is zero: zero waste, zero emissions, zero “ecological footprint.” As long as human beings are regarded as “bad,” zero is a good goal. But to be less bad is to accept things as they are, to believe that poorly designed, dishonorable, destructive systems are the best humans can do. This is the ultimate failure of the “be less bad” approach: a failure of the imagination. From our perspective, this is a depressing vision of our species’ role in the world.
— Cradle to Cradle: Remaking the Way We Make Things, William McDonough & William Braungart

I’ll confess: there’s just a bit of the eco-purgative in my cycling, recycling, composting and ratcheting down consumption. And I agree with McDonough that it all falls short as an effective strategy for redirecting entire global systems — just as prayer, smaller government or “drill more” are inadequate responses to impending collapse. Such acts soothe individual souls and perhaps stave off doom for a moment, but do not separate us from its grim trajectory.

McDonough aims for new principles of eco-effectiveness — and more important — putting them into systemic practice. If we were to believe the salvation doctrine of the free market, this new sustainability is where energy company profits, venture capital and government policy should be fast converging.

It may yet. Right now, 12 new cities are being designed to apply McDonough’s ideas. In China.

Notes on the New Economy: Exploiting the Free-base Market.

I suppose this is one good aspect of the declining dollar.

With cocaine prices in Europe surging ahead of prices in the United States, drug smugglers in South America are increasingly ferrying cocaine to West Africa, from where it is parceled out to hundreds of individual traffickers who carry it north.

Criminals appear to be global free marketeers, too.

Notes on the New Economy, Part Two.

I'm not saying the economy is in full meltdown.

I know better than that. Look at the trouble The Economist stirred up for America by shooting its mouth off back in 2006.

Besides, just look at the activity all over this part of town. There's still a lot of money to be made — at least in certain sectors.

But you look at those Geek Squad vans driving around town, and you have to wonder if maybe Best Buy has gone just a little bit overboard with the brand extension...

Thrift Failure: Next Time, Pick Up the Phone, Chuck.

Sen. Chuck Schumer (D-NY) wrote letters criticizing a Pasadena thrift's lending practices and federal regulator oversight of the bank, then made them public in late June. IndyMac was shut down on Friday after depositors withdrew more than $1.3 billion following the letters' release.

The director of Office of Thrift Supervision (OTS), one of the agencies criticized, said Schumer's comments helped spur the run on deposits that pushed IndyMac into insolvency.

Sen. Schumer rejected that, saying that, while banking regulators do their work in private, lawmakers typically do theirs in public. Sen. Schumer, the head of Senate Democrats' re-election effort, threw in a political jab as well. "Clearly what was happened here was the OTS, having the second-biggest bank failure on their watch, sought to blame the messenger. In sum, it's sort of classically what this administration does. Blame the fire on the guy who called 911."

Actually, blame the stampede on the guy who shouted fire in the crowded theater.

Next-to-Final Message from Command on Planet Von Mises.

If we had come in peace, you would not have taken us seriously.

So I hope you can see now why it was necessary to incinerate Iran and surgically depopulate Sweden. (It's best, we've found, to demonstrate more than one WMD technology, as you call it, and to make it very clear we are not choosing sides.)

If you fail to follow through with our mandate, there will be no flowers of supplication left on Earth to strew in our path when we return five years from now. Just so there is no misunderstanding...

But peace is what we bring. Peace and the liberation of mankind through the free market.

We do not like to intervene. It goes against our philosophy. But have tried voluntary compliance with other planets, and frankly, it did not work out.  Freedom is not such an easy thing to bear after many generations of living under the yokes of oligarchies, social democracies, republics, dictatorships, democracies, communes, guilds, unions, tribes and religious cults. To expect human societies to cast off government restraint and embrace the free market as their sole protector was simply too much to ask.

We know that now.

We had great hopes when we secretly installed Ronald, and Grover has been an effective change agent on a smaller scale, but the others have been a disappointment. We thought with Rudy, Mitt and Ron all in position, America at least, would be able to stumble forward with one of them. Cindy was a mere afterthought, a back up, and Jesse and Arnold, entertaining as they are, represented a little R&D project that is hereby discontinued.

As for George, let's just say he's coming with us.

And so we will grant you five years to correct your trading systems, remake your schools, manage your infrastructure, keep your air, water and land clean, move yourselves efficiently and safely, and decide how to handle crime, birth, illness, insanity and death. As for wars, I hope you understand those will be pointless, and defense is out of the question.

As a visual aid, Tehran will continue to smoke for five years, and any living thing passing between Kiruna and Malmo will succumb to the residual toxins. We are sorry about Copenhagen, but as you may appreciate, your arbitrary borders are unintelligible from space.

Fail to implement a total free market system, and our return will not be a demonstration project. We have no interest in hundred-year occupations.

We trust you will greet us as liberators next time. Of course, there is no other option.

Measuring the Economy: Fiddling While Oil Burns.

Kevin Phillips in Harper's makes a case for Why the economy is worse than we know. Hint: Fiddled numbers and massive debt.

Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments—all indexed or related to inflation—could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

[h/t Mississippifarian, who has a longer excerpt]

Phillips has a new book out, which conservative economist Tyler Cowan quickly dismissed back in April, but the ensuing comments back and forth on the post make interesting reading. Well, at least for me.

One of the discussion points relates to the efficiency of markets in responding to the inevitable decline in the world's oil supply.

Peak Oil hysteria violates pretty much every economic precept you can name. Its most grievous error is in failing to understand that effects happen at the margins. The thought that a production peak would raise prices enough to collapse the entire economy depends on the fallacy that everyone will respond to a shock identically and equally. But -- barring idiotic government action that forces everyone into such lockstep behavior -- the reality is far different. Peak oil production means that oil production will decline in the future: It does not mean that it will instantaneously end. In actuality as prices rise, those at the high margin will move toward alternate sources of transportation energy, and those at the low margin will find alternatives to transportation. Those in the middle will suffer a higher price for oil, but will not suffer shortages.

And this response from odograph:

I'm more a "Fooled By Randomness" guy than an "Efficient Market Hypothesis" guy.

[...]

Simply put, relying on a new energy source not yet invented(*) is what we scientists engineers call "a[t] this point a miracle happens" in our flow charts.

Sure, history shows that we get a lot of neat stuff, but it also shows that we don't, in fact, get to call all our technology directions in advance.

Maybe the sweet "energy tech" in 2050 will be a carbon fiber electric bicycle.

* - or "to be named later"

Brendan Nyhan offers on his blog a couple charts that relate both to the Phillips' thesis and the notion that the economy is working out things at the margins. Sort of...

When we can't get foul weather forecasts right about half the time, I'm not confident economists, businesses or government can predict where this collision of psychology, geology, innovation and flat out population growth is leading.

Small Businesses May be Threatened, but not by Obama Tax Plan.

Talking about Barack Obama’s plan to raise taxes on those with incomes over $250,000 a year, John McCain's corporate surrogate Carly Fiorina should know better, but she says it anyway:

In the Bush tax cuts, if they are repealed, 23 million small businesses will have their taxes raised. Why? Because 23 million small businesses file their income tax as individuals. And so, when Barack Obama blithely says, only the wealthiest are going to be taxed, he is ignoring the fact that 23 million small businesses file as individuals and those small businesses are the only growing sector of the economy right now and small businesses produce 60%, actually it’s more like 70, 70% of the new jobs in this country.

If Fiorina were still employed as a CEO and putting out these numbers, she'd be roundly ridiculed. In Rovian politics, though, such shaded lies are just part of the game.

As Steve Benen points out, the Tax Policy Center estimates that less than two percent of the filers showing small business income on their returns will face the maximum individual tax rate of 35 percent and be affected by Obama's proposal.

The Republicans have been pursuing a similar line at the state level, in opposition to income tax increases on top earners. I've been doing an analysis of this for Growth & Justice that's still in process, but I'm willing to say that the percentages in Minnesota are probably comparable.

One other thing, as I look at the numbers. A lot of "small businesses" are sole proprietorships. Nearly three quarters of small businesses in Minnesota do not have employees and never will.

I suspect many of these small businesses simply deliver basic services and provide individuals a way to make a living in an economy that increasingly relies on part time labor and independent contractors. For every long-time mom and pop store or entrepreneur with a dream to build a company in these statistics, there are several spouses supplementing the household income with a part-time business, displaced executives “consulting” between jobs, independent contractors paying other subcontractors, and painters, programmers and truck drivers who don’t know who they’ll be working for or what they’ll be making next month.

Small businesses to be sure, and good for them. But not exactly the economic growth engine that's being portrayed.

Stay tuned.

[h/t Mississippifarian]

Notes From the New Economy.

Four bartenders prior to the shift change talk about one of their buddies who worked 100 hours last week at three jobs, including a 7:00 a.m. shift at Starbuck's "so he can get benefits." One bartender needs someone to cover for him on an upcoming shift, and though willing, no one could commit because they all had to check the schedules at their other jobs.

Tending bar is one of those old economy jobs that's likely to be around for awhile, and some of these guys may move on. But it will be to a one-paycheck career?

*****
Last week the Strib documented the case of a Hmong immigrant who works two janitorial jobs for $9 an hour, earning about $1,800 a month pre-tax, which goes to help support his parents and eight younger siblings. Tong Lee has limited English and no time to go to school.

The future he sees for himself: Just working all the time.

At least the bartenders can be charming and collect tips.

*****
Sure, kids in America can overcome the disadvantages of a broken home and teachers who under-estimate them. But to become a hedge fund manager, it still helps to be born speaking English and win a Harvard scholarship.

Philip Falcone made $1.5 billion last year betting against the home mortgage industry. There's someone who'll tell you his strategy helped some investors, but his outsized rewards required the mortgage market to blow up, so it's not as if his creativity created anything.He  just played the speculation game better than anyone else.

*****
In the next wave of speculation, investors are betting on hunger, more or less. Hedge funds are taking actual positions in food production, where they buy up farm land and warehouse corn, for example, instead of just holding contracts.

The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.

But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.

“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”

But there's some suspicion the investment is is simply a way around limits to speculating on commodities. Having possession of the commodities also helps limit some of their risk.

*****

There are other ways to speculate that get even closer to gambling. Joel Stein writes about prediction markets such as InTrade that allow people to place bets on things like politics, the economy, global warming and the top marginal income tax rate in 2011.

It's like owning a fantasy baseball team: I no longer care about what's best for the country, as long as I have money on it. I have no idea if Gov. Charlie Crist of Florida would make a great GOP vice president, but I do know it would make me $800.

*****

The new economy venture that really ties it all together is gold farming, where Chinese sweatshop workers labor away at online games like World of Warcraft. Their objective isn't to win, but to harvest "gold" by successfully completing some aspect of the game, often by doing the same part of a quest over and over. The gold, which allows gamers to buy better weapons or create more valuable products, is sold for real money to actual players through online exchanges.

In effect, the gold buyers get richer and become more powerful, while gamers who try to build value added products through honest play find their products devalued because the "investor" players don't need them to build their own wealth. Meanwhile, in China, perhaps a hundred thousand gold farmers make better money than they could from real farming.