The Noble Pundit

Quick Links

Expect posting to be light and sporadic at best this weekend as I head out to San Francisco. I'm taking the laptop as I figure I'll have time to get some decent stuff written on the flights, I just don't know when I'll be able to get it on the site.

But for tonight, here's my quick links:

Cease-fire Will Bring Increased Death - Unfortunately, I think this will be true.

Homestead is the first Florida city to accept the Mexican consular ID card - This is one of those things that is both good and bad. I'm just not really sure which way I want to come down on this one. Maybe I'll figure it out better tomorrow.

Lazy Guide to Net Culture: Fighting penis enlargement - Nothing really new or exciting in this article, but it is kind of a nice review of how to avoid at least some spam.

Climate change law to be first in nation - I'm going to have more on this tomorrow definitely. My bottom line, the agreement was wrong, but the law itself is ok.

U.S., EU to Begin Talks on Opening Aviation Markets - I'll believe that there is real change coming when Heathrow opens up.

A giant hissing sound from north of the border - I'm starting to think that the anti-Canadian backlash is getting dragged out a bit more than necessary. Yes, Chretien is obnoxious. Yes, the Canadians have some issues that need to be sorted out, but so do we. And ultimately, the Canadian people are still showing themselves to be our friends, even if their government is not.

Gresham's Law

As I started collecting Roman coins a few years back, I always thought it was kind of weird how certain denominations would just disappear. The denarius really kind of disappeared not long of the introduction of the Antoninianus by Caracalla. The Antoninianus disappeared around the time of about Diocletian. For a while I wondered why. Then I got a few books on the Roman economy, instead of the coinage, and came across the concept of Gresham's Law, which basically says that good metal (meaning pure silver or gold) will be driven out of circulation when bad metal (or debased coinage) is introduced into the system and is tarriffed at a similar amount via fiat.

The hoards of Roman coins that have been found bear out the truth in Gresham's Law. Going into the distributions of the precious metal coins in hoards is beyond the scope of what I want to do here, but suffice it to say that it is possible to identify debasements in the currency by the distributions - exactly as Gresham said would be possible.

One of the side effects of Gresham's Law was that the token coinage - that coinage whose value was declared by the state - was also driven from circulation - much, much earlier in fact than the precious coinage.

So given that our currency is now a fiat or token currency, what does that mean for our economy? Charles Adams believes that we will eventually have to revert back to a metal backing for our currency.

I think that he is partially right.

One of the problems that we're facing these days is that most nations have gone to a fiat currency. Many of them try to disguise it by claiming to be pegged to the US dollar or the Euro, but in the end, they are still basically tarriffed by fiat.

Too much money today trades hand, backed only by the "full faith and credit" of some government. Unfortunately there is nothing to constrain these governments; there is nothing to make them act in a fiscally responsible manner. As the governments continue to print more and more token currency, backed only by a promise, widespread and significant inflation will ultimately occur over the long term.

The other big risk, besides inflation, is if there is suddenly a crisis in the confidence in either the US or EU government and their "full faith and credit." With so many currencies being tied to one or the other, there are very, very few safe havens in the currency world. Not enough in fact. Any kind of significant crises in confidence could plunge the entire world economy in a massive depression as a huge chunk of the world's store of wealth becomes worthless.

Gold and silver coinage was always valuable, not because of whose picture was on it or which government minted the coin, it was valuable because of what it was made of. Paper currency backed by a failing (or believed to be failing) government is worth, well the value of the paper and nothing more.

Now I'm not suggesting that the US or the EU needs to return to a precious metal backed system, but we need to have more countries do so. If there was a realistic alternative to the fiat currencies there might be enough fiscal responsibility pressure applied to the fiat currency governments to keep them in some sort of line.

The ideal, in my opinion (as well as Mr. Adams), would be to return to a metal backed system in the US. But, if enough other countries were to revert to a gold or silver standard, it would be enough to hold the Treasury in check.

However, I think that the EU would lodge some pretty serious protests at the idea of some foreign, US dollar pegged currencies reverting to a gold standard. Why?

Right now, many of the pegged nations are holding huge stores of US dollars in their reserves. If they reverted to a gold standard and had to replace those greenbacks with bullion, they would flood the market with excess US dollars, which would drive down the value of the US dollar in foreign exchange markets. As the value of the dollar drops, it will put more and more pressure on Europe to get their fiscal house in order - something which is really politically untenable given the necessary structural changes that would have to take place in the European economy.

The Treasury would probably welcome this development right now, as a depreciation of the dollar would help to stimulate US exports. Looking in the medium and long terms it would require the US economy to restructure itself again, as imports would become more expensive.

But the dollar could only depreciate so far before pressure began to build to reign in the skyrocketing cost of imported items.

Ultimately, having a real alternative to the fiat currencies would help as stupid fiscal policy decisions would be punished by an almost immediate flight to quality, as represented by the gold standard currencies. Intelligent fiscal policy would be rewarded by an immediate flight to opportunity, as represented by the fiat currencies. But, in the end, the market would have a real choice and people would have a real opportunity to protect wealth.

Not every nation needs to revert to a gold standard. In fact, it is probably a good thing to have the large economies, like the US and the EU, operating on a fiat system. We just need to have a real alternative, in the event of poor policy.

Diocletian had to reform the Roman coinage because of rampant inflation caused by the fact that virtually the entire world (as the Roman's knew it) was working on a failing fiat system. Had he not reformed the coinage, eventually it would have been replaced by a primitive barter system. The system failed as the citizens lost faith in the government to maintain it.

In the US we're not at that point yet. But it could happen, even within our lifetimes.

There needs to be some significant store of currency, somewhere, tied to a real store of value.

We need to use the IMF, the World Bank, and our own foreign aid to get a bunch of these nations to untie themselves from the dollar and the Euro.

We need to let Gresham's Law run its course. Fiat money and precious metal backed money can successfully co-exist as was proven by the early years of the Imperial Roman economy. The good money can be either type of currency. It all depends on the policies implemented by the fiat currency governments. We need to let the good money displace the bad.

Or we need to find our Diocletian.

Quick Links

Tonight's Quick Links:

Christians duped by Muslims? - Now they wouldn't do that, would they?

Missionaries Under Cover - Christians trying to convert Muslims in Iraq and other violent hotspots.

Mainline Airways gives refunds to fewer than half its customers - Make sure your airline exists before booking that Hawaiian vacation.

Iran to Give Saudis al-Qaida Members - Must be time for the migrant workers to go back home for the season.

Security checks ground air marshals - I leave for San Francisco on Thursday. This makes me feel SO much safer.

Deflation, Taxes, And Economics

Came across quite a few interesting economic articles tonight. First, I came across this article from Morgan Stanley which poses the question: are non-traditional economic remedies needed? Then I came across this article in which the CATO institute discusses some of the problems of the EU's tax harmonization plan. So given the current state of the global economy, where do we go from here?

If you know the answer, there's a Mr. Greenspan in Washington who would love to hear from you right about now.

I think that the Morgan Stanley article has come pretty close where we currently are. This is an unusual time in our history. Traditional economic theories aren't working as expected. But we've also come to a crossroads of sorts. Supply side economics has been a resounding success - too good in fact. We've now hit a point where supply is outstripping demand by so much, that without some kind of radical stimulus, we may have forced a deflationary environment on ourselves.

There is a general agreement that the current tax system needs reform. And right now, right on the cusp of an economic train wreck, may be our best opportunity to effect major tax reform while simultaneously helping to encourage demand in the marketplace.

What I think we should seriously look into doing is in Q4 (October, November, December) abolish the personal income tax and end tax withholding from paychecks. At the same time, announce that in January a new consumption based tax will go into effect.

What you would be achieving is that you would be giving everyone an across the board raise by terminating the withholding of taxes. At the same time, you would be encouraging them to spend the money before January when prices would be rising (assuming static models, which are almost always wrong, but very useful in this case) with the imposition of the new national sales tax.

The idea is to stimulate demand. The psychological effect of the "tax holiday" in Q4 might be enough to get the economy pointed back in the right direction. Of course, it might also fail.

But is this really an unconventional technique? Not when you boil it down to its basics. It is simply a variation on deficit spending.

To finance the whole scheme, using the most recent numbers from the St. Louis Federal Reserve Bank it would cost somewhere around $200-$250 billion in additional deficit spending. That is a huge addition to the federal deficit to risk on a scheme that might very well fail.

But even in failure, there would still be some success.

We would have a new personal consumption tax, which would be more fair. We would have an opportunity to correct the lunacy in the corporate tax rates, where companies are encouraged to either stay very small, or grow very big, very quick. We need to make the corporate rates more fair so that we can encourage the growth of smaller businesses, which is where most of our economic and job growth comes from.

Remember the EU's attempt to avoid "tax competition?" They are essentially admitting that they have already lost this battle. In order to get supply and demand in balance in Europe, they have chosen to accept high unemployment and confiscatory personal income tax rates to support a welfare state. That is not what we want. We want full employment, low taxes, and growth.

If we can rationalize our tax structure, especially on the corporate side, we could reignite that growth. As we "win" the tax battles vs. Europe, we will get more companies growing here. More growing companies means more employment. More employment leads to higher wages and the higher wages will eventually lead to the increased demand.

What we lack right now is the demand to build a business in the US. Ultimately, that has to change if we are going to continue to be successful.

Kind of a long full circle argument for the benefits of supply side economics, huh? And while we are in our current predicament because supply side economics worked too well and outstripped demand, that is still the best long term strategy for the economy. We just need to figure out how to get through the short-term blip.

The great fear of many economists right now is the idea of "pushing the string." And it is a real problem, especially given the economy's lack of response to previous stimulus attempts. But the idea of a "tax holiday" and switch over to a consumption based tax structure would have one great difference between it and traditional government deficit spending plans: it would be the people, not the government, deciding where the deficit spending went. The people are ultimately the demand side of the equation in the economy. In this case, deficit spending wouldn't be pushing the string, but would be giving the people a chance to pull on it for a change.

Maybe the idea would work, maybe it wouldn't. Unfortunately it would take a political miracle to pull it off which means that we almost certainly will not get to find out how effective it would have been. The best that I'm really hoping for is that we move a little closer to the consumption based tax idea.

But then again, unusual situations call for unusual action.

Quick Links

Tonight's quick links:

Tolerating Terror In Sudan - Why are we supporting this guy? I think the "lesser of two evils" and "known evil" arguments are lacking in this case.

A Solution to the Conflict - Give the Palestinians a state? OK, we're trying. All that we're asking is that they act responsibly. Yet it still hasn't happened.

Should Americans Who Don't Pay Taxes Have A Say? - Yes. I agree that we should all have to pay something, even if it's simply a token amount (I also think that taxes should be consumption based), but the right to vote is a right of citizenship. No citizen should be deprived of that basic right without good cause, and not making enough money is not good cause in my opinion - there are just too many potentially extenuating circumstances.

France double-crosses Iranian freedom fighters - Is anyone really surprised?

Let's Play Connect The Dots

OK. Connect the Dots.

You have 225 grams of uranium oxide (dot 1) and 23 pages on how to make a dirty bomb (dot 2). A government agency confirms that the uranium oxide was capable of producing a nice sized problem if blown up with conventional explosives.

Draw a line from dot 1 to dot 2 and what do you get?

Apparently in Bangladesh, they haven't figured it out yet.

"It is too early to say who was behind smuggling [the uranium] and what was the purpose," says a spokesman for Prime Minister Begum Khaleda Zia.

I don't really care who was behind the smuggling. But I do know that the purpose was to make - a dirty bomb. Kill and terrorize with radiation, that was the purpose.

al-Qaeda with radioactive uranium. Quite a picture from two dots.

We Started War On Hamas?

Hmmm. I must have missed the formal declaration of war against Hamas. I know we declared war on terror, and well, they are a terrorist group, but are they just now catching on?

Apparently the good doctor must have missed the "War on Terror" memo. Requesting the extradition of a murderer of US citizens isn't a declaration of war - it's what any nation should do when their citizens are murdered.

The guy is right though. There is no difference in terms of enmity between the US and Israel towards the Palestinians. We both want peace, to the point of doing some really stupid stuff (unreciprocated concessions anyone?). Perhaps he meant that there's no difference in enmity for the Palestinians towards either the US or Israel.

Hamas, the first roadblock on the Road Map, needs to be removed. Now.

Airbus Victorious Over Boeing?

Know what one of my pet peeves is? Aviation related articles written by business writers. They will often make some of the most ignorant statements ever seen in journalistic writing. This article from Business Week crowing about the great Airbus "victory" over Boeing in the widebody market is no exception. The sad part is most readers will buy it as gospel.

The biggest omission that the author commits is failing to acknowledge that the big boys, the Deltas, Americans, and Uniteds of the world have already committed to contracts, in the case of American and Delta exclusively with Boeing (United is still buying a mixed fleet of both manufacturers products). Orders from the second tier airlines like Emirates, Korean Air, and Gulf Air are nice, but the bread and butter are still the majors and they belong mainly to Boeing.

Why? Because Boeing still builds the best damn airplane flying. I've worked on Boeings, Lockheeds, McDonnell Douglases, Airbuses, and Ilyusians. The Boeings were the most reliable, most forgiving, and most efficient airplanes I worked with. They were built like tanks and could lift just about everything you could find to load on it. It was very rare to get a Boeing near its capacity. The McDonnell Douglases and Airbuses, on the other hand, would just barely get the luggage on before they were already pushing weight restrictions. We had a saying: "If it ain't Boeing, it ain't going." And it was true. If we had a busted airplane, we could be almost positive it was either a Lockheed, a McDonnell Douglas, or lucky to still be around.

The Boeing designs are also lasting. Look at the comment that the A330 has "killed off the Boeing 767." The 767 design is now over 25 years old. It was originally designed in 1978, first flying in 1982. The A330 first flew in 1996. Airbus didn't kill off the 767 line, age did. Even the 727 production line only lasted for 20 years. With 14 more years to study, plan, and develop it's no wonder that the A330 is a more efficient (though not necessarily better in all ways) airplane than the 767.

I agree that there are problems at Boeing. They really dropped the ball by not developing more new aircraft over the last decade. The 777 is a magnificent airplane and it really did almost kill off the A340 line. It also forced Airbus to change their marketing of the A330 to go after 767 prospects, as they knew it couldn't compete with the 777. Problem is the 777 by itself wasn't enough.

The airliner market is really divided into four distinct markets: regionals, the 737/A320 market, the 767/777/A330/A340 market, and the 747 class market. Boeing really has dropped the ball on the regionals, while Airbus has the A318 100 seater. In the 737/A320 market, Boeing has maintained an advantage with the 737 and 757 aircraft being far superior to the A320 series counterparts. Unfortunately, the flag carriers of Europe have helped to subsidize Airbus, causing a loss of market share by Boeing. In the 767/A330 market, market share has maintained relatively the same with Boeing's gains from the 777 being offset by their losses with the 767.

Which brings us to the 747 size aircraft market. Boeing took a big gamble by not doing anything in this market. If the A380 really gets off the board and into full-scale production (which isn't a guarantee yet), Boeing stands to lose substantially. However, if the A380 dies, or is a failure in service, Boeing could bring back their 747 stretches again and make a fortune. But Boeing is really taking a gamble here.

And therein lies the real problem at Boeing. Since the buyout of McDonnell Douglas, they have been losing market share. Some has been lost to European flag carrier politics; most has been lost due to a lack of clear direction from the company. Boeing quit paying serious attention to the commercial airliner market back after the development of the 757/767 series. Since then, they have been resting on their laurels and gambling with the future of their company.

Boeing is almost certainly correct in their claim that the European governments are subsidizing Airbus. But until recently, Boeing could overcome the unfair advantage through building a better airplane. They're still capable of doing so: even Air France wanted the 777, despite the howls of protest from Toulouse.

Boeing is losing ground because they don't have a strategy. There is no master plan to follow in Seattle. Airbus to their credit has a plan and they're communicating it to their clients.

With the 7E7 Dreamliner, Boeing is coming from behind. They've done it before with the 737 (which came out after the DC-9, among others). But this time there is even less room for error.

Maybe they should have spent more time designing new airplanes and less planning their great corporate move to Chicago. They're going to have to take another great corporate gamble again soon. Probably close in scale to that of the 747 gamble.

They had best start stacking the deck, now.

Would The PA Do The Same?

So an Israeli soldier commits a stupid crime and she gets held responsible for her action. For some reason, I don't believe that the PA "security" force would have held a Palestinian responsible for a similar action.

If the allegations are true, then the IDF soldier should be, and will be, held accountable. Forcing someone to perform an action at gunpoint, even one as simple as drinking, is wrong.

It's good to see that someone in the Middle East is willing to enforce their laws, regardless of the religion or race of the victim.

It's a lesson that the Palestinians need to learn before they can really aspire to statehood.

Palestinians Don't Like Condi

According to the Jerusalem Post, the Palestinian newspaper al-Ayyam has taken some shots at Condi Rice. They have called her a "black widow," and a "Lady of Steel." They also call her "as pretty as supermodel Naomi Campbell" and "more intelligent than the iron woman Margaret Thatcher."

Now those last two insults really don't strike me as too insulting. I think what is happening is that the Palestinians are having trouble reconciling the idea that they might have to actually deal with a woman, a powerful woman. And they don't like it.

I guess the institutional racism of the PA knows no bounds.

They should be very grateful that Rice and Powell are intelligent enough to rise above the PA's petty racism.

Move On - Nothing To See Here

Hmmm. Ship apparently leaves from the Black Sea, heading to an undisclosed African port and it's carrying 680 metric tons of explosives. Just a little suspicious, huh?

The optimist in me wants to believe that there is nothing funny going on here, but the realist in me thinks that there is some terrorist group is very unhappy right now.

One more small victory in the war on the terror.

Freedom Iranian Style - For Now

The regime in Tehran is really starting to feel the heat. They now have the scooter thugs out riding around destroying sattelite dishes and either beating or fining the owners.

As the protests continue and as the pressure continues to mount on the regime, I expect to see more of these types of heavy handed "enforcement actions." They indicate an attempt to regain control through terror. The problem that the clerics will have is that the current spotlight that is on them, along with the US military threat to the north and west, will restrict their ability to bring down the hammer like they need to.

The desperation of the regime is growing by the day. The US needs to find a way to quietly support the protestors. A revolution against the revolution will only serve to ultimately improve the security and stability of the Middle East.

Excellent Paper To Read

If you haven't taken the time to do so yet, go over to One Hand Clapping and take a look at his .pdf file "The Soil of Arab Terrorism"

It's very well written, very insightful, and certainly worth the time to read.

Progress Energy - The Great Leap Backwards

I've been living in this house for going on five years now. When we moved in, the electric company was Florida Power. For four years, we had maybe two real outages of more than 10 minutes or so. Maybe two. They just didn't happen.

Sometime during the last year, Florida Power was taken over by Carolina Power & Light and the name changed to Progress Energy.

Today, I have had five seperate power outages, the last one lasting a little over two hours.

The only person to show more "progress" on energy is Gray Davis.

Also, for what it's worth, a power outage last night explains why there was no Quick Links post last night.

This sucks.