A Good Week For The Economist

In the last couple of weeks it has seemed like the Economist was not worth the time it took to read. But this week I was reminded of why I read the magazine. Some of the highlights…..

The article on Japan called Rebalancing act. The article suffers from the usual Economist foible of trying to spin something as positive what is a total disaster. Take this paragraph, for example. . .

JAPANESE households used to be among the world’s biggest savers and, as a result, the country ran a massive trade surplus. But no longer. They now save less of their income than American households, and Japan’s trade balance moved into deficit last year (see top chart). A long-overdue—and painful—economic rebalancing is under way.

Rebalancing is such stupid word for spending down your savings in the face of economic disaster. For years I have had to suffer through listening to fools arguing that Japan’s problem was that its people saved too much. Now that the savings rate in Japan is practically zero (see the charts in the article) things are going just dandy, right?

But if you can get past the fact that the facts presented in the article are completely at odds with the idea that Japan is going through some kind of positive “rebalancing,” the article is a very interesting read.

Another interesting read is the article entitled The bees are back in town . You can read the article as both refuting some of the wilder fears about the collapse of the honey bee population and as a warning on the dangers of extreme mono cultures. Though it is clear that the writer’s intent is only the former and not the latter.

The article entitled About face was also interesting. It made me wonder how creditworthy I looked. It also made me think of Abraham Lincoln’s famous contention that after a certain age you could blame a man for how he looked (meaning their moral character would start to show through, not that people should all be handsome. He had enough self knowledge to know that nobody could accuse him of being handsome).

Those are only the highlights of this week’s Economist. There were other articles that I found interesting as well. But you can scan what is in this week’s edition for yourself if you are so inclined.

My apologies for anyone who struggled through reading this before I whacked off his worse grammatical errors. Please remember that even the brilliant Albert Einstein occasionally forgot where he lived; just because our Ape Man cannot always remember the difference between “passed” and “past” does not necessarily indicate he is in the habit of drooling. We apologize for the technical difficulties, and we hope that you will find his ideas worth reading in spite of his occasional struggles with coherency.

Sincerly,

The Troll

We could ask China

From the Sunday Herald……

PLANS TO refurbish Trident nuclear weapons had to be put on hold because US scientists forgot how to manufacture a component of the warhead, a US congressional investigation has revealed.

The US National Nuclear Security Administration (NNSA) “lost knowledge” of how to make a mysterious but very hazardous material codenamed Fogbank. As a result, the warhead refurbishment programme was put back by at least a year, and racked up an extra $69 million.

Rumor has it that China stole everything there was to steal when it came to making of the US strategic arsenal. Maybe they can help use remember how to make Fogbank.

One Reason Eastern Europe Has A Demographic Problem

From the New York Times….

Alina Lungu, 30, said she did everything necessary to ensure a healthy pregnancy in Romania: she ate organic food, swam daily and bribed her gynecologist with an extra $255 in cash, paid in monthly installments handed over discreetly in white envelopes.

She paid a nurse about $32 extra to guarantee an epidural and even gave about $13 to the orderly to make sure he did not drop the stretcher.

But on the day of her delivery, she said, her gynecologist never arrived. Twelve hours into labor, she was left alone in her room for an hour. A doctor finally appeared and found that the umbilical cord was wrapped twice around her baby’s neck and had nearly suffocated him. He was born blind and deaf and is severely brain damaged.

Just in case you thought defense spending was about defense

From the Washington Post….

It was Democrats who stuffed an estimated $524 million in defense earmarks that the Pentagon did not request into the 2008 appropriations bill, about $220 million more than Republicans did, according to an independent estimate. Of the 44 senators who implored Defense Secretary Robert M. Gates in January to build more F-22 Raptors — a fighter conceived during the Cold War that senior Pentagon officials say is not suited to probable 21st-century conflicts — most were Democrats.

And last July, when the Navy’s top brass decided to end production of their newest class of destroyers — in response to 15 classified intelligence reports highlighting their vulnerability to a range of foreign missiles — seven Democratic senators quickly joined four Republicans to demand a reversal. They threatened to cut all funding for surface combat ships in 2009.

Within a month, Gates and the Navy reversed course and endorsed production of a third DDG-1000 destroyer, at a cost of $2.7 billion.

The Real Problem

The Belmont Club has a couple of posts up that are critical of Obama. The first examines his “I am so tried” excuse for miss handling the the visit Gordon Brown. The second post examines the signs that his honeymoon may be coming to an end.

Both of these posts are worthwhile if your only object in life is to repay Obama with the same kind of treatment that was given to Bush. But as far as addressing the real issues of the day, these posts miss the mark by a wide margin. The real problem is articulated by Obama himself in a recent interview with The New York Times….

As he pressed forward with ambitious plans at home to rewrite the tax code, expand health care coverage and curb climate change, Mr. Obama dismissed criticism from conservatives that he was driving the country toward socialism. After the interview, which took place as the president was flying home from Ohio, he called reporters from the Oval Office to assert that his actions have been “entirely consistent with free-market principles” and to point out that large-scale government intervention in the markets and expansion of social welfare programs began under President George W. Bush.

No fair minded person could deny that what Obama is doing is largely the continuation of the polices that Bush pursued. To the extent that markets seem to be punishing Obama’s every missteps harder it is because they thought that Bush’s plans were only there to keep everything from collapsing until Obama arrived with a real plan. Now that everyone can see that Obama’s plan is just an expanded version of Bush’s plan, it is harder for the markets to convince themselves that some magic fairy is going to arrive and save us.

But this realization is not likely to do Republicans (or the nation) much good until a credible alternative to Obama/Bush’s economic rescue plan is put forth. Right now, few people really believe that Republicans would behave all that differently then Obama if they still held the presidency. Nothing that either McCain or Bush has said or done offers any kind of real contrast to how Obama is behaving. And in my experiences this is widely realized among the blue collar white males who form a key part of the traditional Republican governing coalition. This post from Rod Dreher talking about a recent conversation he had with a blue collar conservative reflects a lot of conversations that I have heard. Toward the end of the post Rod Dreher says…..

A couple of things were clear to me. One, this working-class conservative voter had bitter contempt for the Republican Party in particular, and the political and financial elites in general. He believes, quite correctly in my view, that they’re looking out only for themselves, that they will avoid a just reckoning for the disaster they’ve caused. And two, there’s no telling what kind of backlash is brewing once people lose faith in the institutions of politics and finance. This is just one repairman in Texas on one day in the spring of 2009. But I am sure he’s not alone.

The key point that a lot of conservatives seem to be avoiding in their critiques of Obama is that the only alternative to what he is trying to do is the complete destruction of the existing system. In fact, many of them go so far as to argue that Obama is trying to remake the existing system and that is why is so dangerous. But the truth of the matter is that failure of the existing system is what is going to happen and that is going to change the American economic/poltical system in ways that are far more radical then anything Obama could dream of accomplishing. Acting as if Obama’s program is an attempt to bring about radical change instead of an attempt to prevent radical change is not really productive.

In the end, I think that the failure of Bush/Obama approach is a forgone conclusion. In fact, I think that by trying to head off the collapse Bush/Obama plan is making things worse. When you factor in the strain on government finances that will be brought about by retirement of the baby boomers and I just don’t see how the current system can keep functioning.

I am not alone in thinking this, of course. In fact, on both the right and left of the political system, you can find people who salivate over the prospect of a collapse because they believe that the forces that would be unleashed could be stage-managed to produce the society that they desire.

But if we are honest with ourselves, both liberals and conservatives would have to admit that there is no guarantee that the system that would arise out of such a collapse would be more to our liking then the current system. The problem with collapses is that they are inherently unpredictable and uncontrollable. A collapse could lead to huge increases in government power. It could lead to a sharp rise in racism and the oppression of minorities as a matter of government policy. It could lead to a rise in prominence of religious groups that are not even on the radar right now (economic problems have historically been good for the creation of new cults). It could lead to war and strife.

That is why everyone wants to attach huge importance Obama’s every little misstep and mistake. People would like to fool themselves into thinking that a trip into the unknown could be postponed if only our political leaders would do things right. Obama himself has this belief. That is why he is working himself into such a state that his aids worry he is not getting enough sleep. He thinks that if he just tries hard enough he might be able to make a difference.

But the truth is that the plane we are on is going to go down over unknown terrain. You can argue about which way would be the best way to crash land if you want. Or can try to fool yourself into thinking you can keep the plane in the air with positive thinking. But in the end, you can’t escape the fact that we are going to crash.

You are being asked to sign a blank check

From the New York Times…..

Turning to domestic affairs, Mr. Obama indicated that the end was not in sight when it came to the economic crisis and suggested that he expected it could take another $750 billion to address the problem of weak and failing financial institutions beyond the $700 billion already approved. Maintaining support for the additional costs of bailouts is quite likely to be among Mr. Obama’s biggest challenges, given the anger that many Americans feel toward Wall Street executives who they believe are being unduly rewarded with bailout money.

Is this on top of the extra 500 billion that the FDIC wants? Its not clear to me how much more money Obama plans on throwing at this problem in total. The real answer seems to be as much as it takes. But what if it is beyond the resources that are available to save everything and everyone? How long before people start thinking about triage?

Things You Don't Want To Know

From the Wall Street Journal…..

The legislation, introduced late Thursday by Senate Banking Committee Chairman Christopher Dodd, would temporarily allow the FDIC to borrow $500 billion to replenish the fund it uses to guarantee bank deposits, if the Federal Reserve and Treasury Department concur. Those funds would be distinct from the contentious $700 billion financial-sector bailout, which lawmakers are loathe to expand.

It would also be distinct from the stimulus plan. But who really cares? What difference one way or another will another half trillion dollars make? It is only equal to the cost of another war in Iraq.

From The San Fransisco Chronicle…….

In a 2006 ruling, Henderson said the $1.1 billion medical care system was causing the unnecessary death of one inmate per week. He said the state was incapable of repairing the system and appointed a manager to run it under his supervision.

Gov. Arnold Schwarzenegger called for a return to state control last month. He also has appealed Henderson’s order that the state pay the first $250 million of the manager’s $8 billion plan to rebuild prison hospitals.

The courts can appoint managers who are superior to the elected authorities? I can see giving people standing to sue or forcing pay outs to those deemed to have died “unnecessarily.” But it seems to me that under this reasoning the Supreme Court could decided that the Federal government was not allowing people to exercise all their constitutional rights and so they were going to appoint a new president.

From Life on the Line…..

I will make it semi-official on the recorded line. I tell my dispatcher that I will be more than happy to try to get airborne (that is what I get paid for…), but in my opinion, we should think about canceling the flight. He puts me on hold for a few minutes…

“We want you to try.”

I would really hate to be on a plane were the pilot said that “we should think about canceling” and was told “we want you to try.” But I imagine that it happens a lot.

This ought to be illegal

From Bloomberg…..

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years — more than half of them since 1997 — public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent — 70 percent less than what the fund was paying for the loan.

The public gets nothing from pension bonds — other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.

Read the whole article for all the disgusting details. For example, by law most states have to guarantee pay back of those pension bonds.