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In Spite of the Government

From John Mauldin in his blog, Mauldin EconomicsWhere is the Growth?

There are many economists, with Paul Krugman at their fore, who believe that Keynesian monetary policy is responsible for the United States doing better than Europe. I beg to differ. The United States is outshining Europe due to the combined fortuitous circumstances of massive new discoveries of unconventional oil and gas, new technologies, and an abundance of risk-taking entrepreneurs. Indeed, take away the oil boom and the technology boom centered in Silicon Valley, and the US would be as sclerotic as Europe is.

None of the above has anything to do with monetary policy. In fact, I would argue that current monetary, fiscal, and regulatory policy is getting in the way of that growth.

There is a divide in the United States, and indeed in the world, between those who believe (and the emphasis is on believe) that government in all its various shapes and sizes is the font of all growth and progress and those who believe that it is individual effort and free markets that “move the ball down the field” of human progress. Count me in the latter group.


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Unwarranted Climate Predictions


From The Weekly Standard, The Party of Reason, by Jeff Bergner


Unrepeatable events like the evolution of the world’s species and the evolution of the world’s climate are inherently difficult to explain, and their future course is even harder to predict. Discernment of patterns over time does not constitute knowledge of future developments. The cyclical warming and cooling of the Earth over millennia is precisely not what is at stake; what is claimed is that man-made global warming is a new planetary phenomenon. In the absence of a hypothesis to account for the rate and direction of change, predictions of its future course are simple extrapolations from the past—that is, mere guesswork.

Even when there is such a hypothesis, predictions may be unwarranted. For example, evolutionary biology—which is held up by some climate change acolytes as the gold standard of settled science—teaches that species have adapted over time. With this theory in hand, evolutionary biology can infer the existence of certain intermediate life forms even in the absence of fossil evidence. If such fossils are found, their discovery supports the underlying theory.

But evolutionary biology does not predict the future course of evolution. Past experience suggests we should expect adaptation and natural selection to continue to operate. But evolutionary biology tells us nothing about the types, numbers, or characteristics of the species yet to come. If and when species evolve a certain way, all that can be said—after the fact—is that this must have come about through adaptation and natural selection. The ability to predict replicable events is one thing, the possibility of predicting the onetime evolution of the Earth, its species, and its climate quite another. In short, climate activists are asking far more of global warming models than is asked of evolutionary biology.

Today’s knowledge of global warming consists of longer and better records of temperatures observed around the world than ever before. This is historical knowledge. The careful recording of global temperatures over time is no different in principle from the recording of the U.S. unemployment rate or the rise and fall of kingdoms. From this kind of knowledge alone, nothing can be predicted about the future.

We also have models which purport to account for the rise of global temperatures, most of which focus heavily on carbon dioxide emissions as a “forcing” factor for global temperatures. The best, the Berkeley Earth Surface Temperature project, begins correlating temperatures and carbon dioxide levels in the mid-18th century, when global temperatures were beginning to rise. A persuasive model, however, would be able to map accurately earlier periods of rising and falling temperatures. More, it would contain within it an implicit hypothesis (about the climate sensitivity of the planet) that could generate a correct and potentially falsifiable prediction about the future. No model has done either. None predicted the relatively flat global temperatures of the past 17 years.

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Economic Thoughts


The stock market sell off may just be an overdue correction. It may be triggered by the ebola scare or the government’s ineptitude, though that is nothing new.

It may be triggered by a slow down in China, weakness in Europe.

I may be at least partially caused by our own slow growth policies and the failure of endless stimulus to get us out of first gear.

The dollar is strengthening even though our interest rates are at record lows.  This is unusual and may indicate that as weak as our economy is we are still the preferred source for investment.

While a collapsing global market hurts many domestic companies in global commerce it may also cause investment funds to come to our shore pushing both earnings multiples and share prices higher.

Lower oil prices certainly improve the spending power of Main Street and every lower income consumer and every small business running even a small fleet of trucks. It is a spending stimulus worth billions of dollars of tax cuts, but not if you are in the oil production business.

It also raises the relative costs and reduces the relative value of alternative energy sources.  Lower oil prices are very bearish for Tesla Automotive.

How will the ebola scare affect the economy.  Consumers may avoid air travel and malls.  They may drive more wearing out tires quicker.  They may accelerate online buying (AMAZON) even more than they were before. The sales of protective gloves and face masks on Amazon are soaring (Johnson and Johnson).

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Turning on the Spigots

therewillbe blood

From The Personal And Economic Benefits Of Cheaper Oil at investor’s Business Daily:

The U.S. imports about 3.5 billion barrels of oil a year. So a $20 reduction in price is equal to a $70 billion tax cut. And since we consume more than twice that much oil each year, the tax cut is closer to $150 billion. Gas prices at the pump are down 40 to 50 cents a gallon in some areas. Not bad.

Why are prices falling? Yes, the world economy is slowing down, and with it global demand for crude. That’s especially true with welfare-state Europe looking again like an economic basket case.

But a bigger factor is that Saudi Arabia is turning on the spigots. The Saudis aren’t stupid. They see the writing on the wall from the shale oil and gas drilling revolution in America. U.S. output is surging, with production double where it was just seven years ago. By pushing down the price, Saudi sheiks may be trying to drive out high-cost drillers to slow future production.

Another piece of very good news here is that the Saudis are crippling their former OPEC partners-in-crime. The Iranians and Venezuelans are screaming bloody murder and demanding emergency OPEC meeting to curtail production. The Saudis are in no hurry to do so.

The economic reality is that as the U.S. becomes more energy-dependent and can even reach energy dominance in the years to come, OPEC is becoming a toothless tiger. It can no longer hold the world hostage to high oil and gas prices.
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The Russians are also greatly hurt by cheaper oil.

While we may take some delight in hurting the economic interests of our adversaries with lower oil prices, we should be cautious. In the absence of economic gain they may seek gain by other means.

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Political Priorities


Political issues follow a simple priority.

  1. Security
  2. Economy
  3. Social
  4. Cultural

When our security is threatened we will address that foremost.  If necessary we will raise taxes, incur debt or whatever we need to do to protect out nation. While we need to look ahead to security issues in order to be prepared to address them when they are released upon us, the voters will tend to overlook the cost of weak security until action such as 911 wakes us up from the slumber.

When we feel relatively secure we will focus more on the economy and economic prosperity.  While there may be very different opinions on the means at least the ends will take priority in the voters’ minds.  A strong economy is essential to be able to withstand security shocks, but it will take a major security event to make the economy a less essential political issue.

The social and cultural issues will take a higher priority when we feel secure and prosperous. Gay marriage, voting rights, and precepts of social justice will be more important in the voters mind when the first two become less important.  The great advance in civil rights and feminism happened after WW II and during the economic boom of the 50′s and 60′s.  The Cold War seemed like less of existential threat until our young in Vietnam started coming back in body bags and then Viet Nam was the dominant political issue.

Voters may sacrifice their preference on social issues when security and economic issues are current causes of concern.  Claims of racism, sexism, and the war on women may make great news fodder but I gather than in the real world these issues are far less of a concern.

Women make a majority of college graduates and are well represented in the high paid professions of law, medicine and accounting.  Blacks are represented in the highest levels of government and increasingly in the 1%.  (Oprah, Dr Dre, Tyler Perry)  The problem of race has been supplanted by the problems of the poor and the uneducated regardless of ethnicity.

We should be happy when we are able to focus on social issues, but I would propose that these would be bother less of a perceived problem and more important to the voters if Security and the economy were in better hands.