American Monkeys Should Look to Taller Trees

American monkeys are under stress from other countries’ monkeys in regards to less complex, easier-to-make products. So the U.S. [monkeys] should look to the taller trees. The tallest trees in product space are pharmaceuticals, chemicals, and machinery. It’s very hard to get into those. Very few countries are in that game.

That is why I say the really long-term play is for the U.S. to be the source of the machinery that will power the coming global manufacturing revolution. The U.S. can grow by using capabilities that few others have.

...I think 3-D printing could change the dynamics. I use 3-D printing as shorthand for shorter production runs, more design, and much closer to the market. It’s a paradigmatic shift in what manufacturing is going to look like. _Ricardo Hausman on Future Manufacturing in Technology Review

Hausman is one of several economists who are beginning to look at how a resurgence in manufacturing might boost US and other western economies back into a competitive position -- or at least into a position where they could imagine a longer term, livable future. He mentions 3-D printing, which is likely to develop into many significant niche markets, but how long will it be before molecular nano-manufacturing steps in to take over all of the niches?

The shale gas fracking boom has helped to trigger a US resurgence in manufacturing related to chemicals and other industries that rely on cheap natural gas and cheap electricity. But there are a number of other ways to make new-generation manufacturing more viable for advanced western nations.

The strategy adopted by many multinational conglomerates, whether based in the U.S. or in Europe, was simple: substitute inexpensive labor for capital. Why invest in a machine to assemble iPhones when Chinese companies could throw half a million workers at the problem? The Internet, telephones, and affordable air travel and sea shipping made it easier than ever to coördinate labor from far away.

Partly as a result, the U.S. lost about six million manufacturing jobs—33 percent of the total—between 2000 and 2010, and China has overtaken the U.S. as the world’s largest producer of manufactured goods. But the impact extends beyond macroeconomic statistics.

...Lately, however, economic trends have been turning. Wages in China’s southern cities have been rising fast and may soon reach $6 an hour, about what they are in Mexico. Boston Consulting Group—the same consulting firm that told clients to run, not walk, overseas—now says it’s time to “reassess” China and estimates that for some products, that country’s overall cost advantage could disappear by 2015.

The vanishing comparative advantage of Asian cheap labor isn’t the only reason for companies to question offshore manufacturing. Natural catastrophes can occur anywhere, but the risks of long supply lines became apparent in 2011, when the Japanese earthquake and tsunami interrupted shipments of computer chips and floods in Thailand left disk-drive factories under 10 feet of water. Meanwhile, higher oil prices have quietly raised the cost of shipping goods. And a bonanza of cheap natural gas has made the U.S. a relatively cheap place to manufacture many basic chemicals and is providing industries with an inexpensive source of power.

...The U.S. holds advantages in many advanced technologies, such as simulation and digital design, the use of “big data,” and nanotechnology. All of these can play a valuable role in creating innovative new manufacturing processes (and not just products). Andrew McAfee, a researcher at MIT’s Sloan School of Business, says it’s also hard to ignore coming changes like robots in warehouses, trucks that drive themselves, and additive manufacturing technologies that can create a complex airplane part for the price of a simple one. The greater the capital investment in automation, the less labor costs may matter. _Antonio Regalado in TechnologyReview

Manufacturing that relates to agriculture -- and how to get the most sustainable production out of one's growing area -- is another promising area for US manufacturing. Producing agricultural machines which run on cheap natural gas would be one good idea. Producing robotic agricultural machines which free up farmers from labour limitations is another good idea for manufacturing in the agricultural field. There are many others that could help transform US agriculture into an even mightier economic powerhouse.

Advanced genetic engineering will impact all aspects of our lives, from the food that we eat, to the fuels we put in our fuel tanks, to the biomedical products that will presumably help us to live longer, healthier, more satisfied and productive lives. New machines that facilitate automated research, discovery, design, and production in genetic engineering will help to push that area of industry into the forefront -- for any nation that promotes their development.

US technology has been bogged down on smart phones, pad computers, and other devices primarily devoted to trivial pursuits. There is nothing wrong with that, but those are not the transformative or disruptive technologies we are looking for. Weigh each new technology announcement on the scale of transformativeness or disruptiveness.

The ideal disruptive technologies are the ones which help to liberate families and smaller communities from the tyranny of the mob, the tyranny of government. Think of all the things which government claims to provide to individuals, families, and communities -- and then think of ways to provide those things with advanced, new generation technologies. That is the direction we should be heading.

But we will see some difficult times -- some very irrational times -- between now and then. Hope for the best. But prepare for the worst.

What is a Person Worth?

Dhaka Newspaper

Evolutionary psychologist Satoshi Kanazawa wants to make it clear that a person's worth cannot be defined by his intelligence:

In my book, The Intelligence Paradox, I attempt to break the equation of intelligence with human worth, by pointing out that intelligence (and intelligent people) may not be what you think. While more intelligent people can do many things better and more efficiently than less intelligent people, there are many things that they cannot, and intelligent people tend to fail at the most important things in life from a purely biological perspective. The list of what intelligent people are not good at may surprise you. Intelligent people are only good at doing things that are relatively new in the course of human evolution. They are not necessarily good at doing things that our ancestors have always done, like finding and keeping a mate, being a parent, and making friends. Intelligent people tend not to be good at doing things that are most important in life.

There is no question that intelligence is a positive trait, but then so are beauty, height, and health. Yet we don’t equate beauty, height, and health with human worth (although we do a little bit when it comes to beauty, by maintaining that people who are not physically attractive nonetheless have “inner beauty.” “Inner beauty” is to physical attractiveness what “multiple intelligences” are to intelligence.) We don’t necessarily think that beautiful, tall, or healthy people are better, more worthy humans than ugly, short, or unhealthy people. Nor do we claim that everyone is equally beautiful, equally tall, or equally healthy. But we seem to believe that more intelligent people are more worthy human beings. Or, conversely, because all humans ought to be equally worthy, they must all be equally intelligent. _Satoshi Kanazawa_via_HBDChick

Well, okay. Let's start with a more basic question, then. What is the worth of a human body?

The U.S. Bureau of Chemistry and Soils invested many a hard-earned tax dollar in calculating the chemical and mineral composition of the human body, which breaks down as follows:

65% Oxygen

18% Carbon

10% Hydrogen

3% Nitrogen

1.5% Calcium

1% Phosphorous

0.35% Potassium

0.25% Sulfur

0.15% Sodium

0.15% Chlorine

0.05% Magnesium

0.0004% Iron

0.00004% Iodine

Additionally, it was discovered that our bodies contain trace quantities of fluorine, silicon, manganese, zinc, copper, aluminum, and arsenic. Together, all of the above amounts to less than one dollar!

Our most valuable asset is our skin, which the Japanese invested their time and money in measuring. The method the Imperial State Institute for Nutrition at Tokyo developed for measuring the amount of a person's skin is to take a naked person, and to apply a strong, thin paper to every surface of his body. After the paper dries, they carefully remove it, cut it into small pieces, and painstakingly total the person's measurements. Cut and dried, the average person is the proud owner of fourteen to eighteen square feet of skin, with the variables in this figure being height, weight, and breast size. Basing the skin's value on the selling price of cowhide, which is approximately $.25 per square foot, the value of an average person's skin is about $3.50.

_CoolQuiz

(Let's neglect, for the time being, the sentimental value of a dead person's skin to his loved ones, after it has been processed by a very skilled taxidermist.)

So we're talking about roughly $4.50, including the skin's leather value.

But that would be the low ball estimate, and most people would not be satisfied with that. Even a well wasted crack whore can bring in more than that with just a few minutes' work.

Several approaches to estimating the value of a human life have been taken by legal systems (PDF) for tort purposes, by insurance companies, by government agencies such as the US EPA, and by a number of other institutions and organisations.

But let's take a step back and look at the question in more general and abstract terms:

Most people would say that human life is a precious thing, and that taking it away from someone by force is a bad thing. Most would also say that an (non-human) animal's life is less valuable, and most (if they are pushed to consider it) would say that the value of a life is based on the intelligence of that creature. Intelligent creatures (like a dog, chimp or dolphin) are more valuable unintelligent creatures (like flies, cockroaches or earth-worms).

This is gives us a clue about the the nature of humanity which makes it valuable - a human's intelligence, but it also raises uncomfortable questions. Are the lives of more intelligent humans worth more than non-intelligent humans? Is the life of a severely brain damaged human with apparently less intelligence than an ape less valuable than that ape?

In fact it has more to do with empathy than with intelligence. People empathize with other people, they empathize with dogs (because they make good pets), with dolphins (because they always seem to be smiling), and with apes (because they are physically so much like us), but generally do not empathize highly with insects or worms. _Bovination

This is getting closer to the truth, of course. Humans evaluate the worth of a particular human in much the same way that a collector might evaluate the worth of a stamp, a coin, or a work of art. There is a great deal of sentiment involved, both overt and covert.

In general, we value particular humans for the amusement, pleasure, profit, entertainment value, service, or satisfaction that they contribute to our lives. The person's intelligence, cleverness, competence, attractiveness, health, executive function, level of respect in the community, loyalty, income, devotion, resilience, emotional depth, net financial worth, fitness, resourcefulness, fame, creativity, humour, and "connectedness" would all play a strong part in our valuation.

Such a valuation is quite subjective. Someone closely related or connected to us would be valued more highly than a stranger. The closer the connection or relationship, the higher the value.

So Kanazawa is correct to say that intelligence is not the measure of ultimate human worth. But then, no one ever really believed that it was.

On the other hand, intelligence and the ability to be cognitively present in space and time at a high level of functioning, is generally valued highly in most persons, and for good reason. Intelligence is also coming to be valued more highly in populations, likewise for good reason.

The difference in wealth and quality of life of the average Singaporean and the average Jamaican, would have much to do with the average intelligence level of the respective populations.

In this case, Kanazawa is treating the concept of "intelligence" as something of a straw man -- which he really shouldn't do, given what he does for a living. But everybody wants to be liked by his peers. And for an honest and intelligent academic of integrity, that can be very difficult to achieve in these modern times.

It would be impossible to achieve a consensus answer to the title question, "What is a person worth?" But every now and then it is a concept that should be examined honestly, outside of actuarial offices, bureaucracies, and courts of law.

High Prices are the Cure for High Prices; An Obscure Lesson in Human Nature

The error of the peak oil alarmists was not understanding that the cure for high prices is high prices. When prices rise, this may indeed signal scarcity, but if so, it also provides a financial incentive to throw investment, ingenuity and effort at the problem. Moreover, a high price for one commodity makes alternatives more competitive by comparison. _DailyMaverick

Alarmists and doomers -- no matter what their particular choice of doom -- never seem able to get a handle on human nature and human motivations. Doomers seem unable to look beyond the natural traits of human greed and sloth. They cannot seem to understand the human capacity for invention, innovation, and hard work. Why is that?

Peak oil theory fits neatly into the larger topic of "resource scarcity." And the scarcity of resources is precisely what the field of economics is all about. Therefore one cannot rationally think about resource scarcity and peak oil without at least a foundational level understanding of basic economics.

It would be difficult for an area to be more closely tied to basic human nature than is simple market economics. But how many resource doomers understand even the bare basics of simple market economics? Apparently very few, if any.

Even famous Canadian economist Jeff Rubin failed miserably when he attempted a basic, short term prediction of a simple commodity.

In April 2008, Jeff Rubin, chief economist at CIBC World Markets, predicted a barrel of oil would cost $225 by 2012. With oil at $118, it was a controversial call.

...These days, it’s trading under $90 a barrel. So not only was Rubin off by a huge margin, he got the direction wrong. And for Rubin, the stakes couldn’t be higher.

In 2009, he famously quit CIBC to publish his first book, Why Your World Is About to Get a Whole Lot Smaller. It was a No. 1 bestseller and won the National Business Book Award. Rubin argued peak oil supply and rising prices would push up transportation costs and slam the brakes on globalization. Say goodbye to New Zealand lamb in Canadian fridges. Air travel would also become prohibitively expensive. We’d drive less, shop closer to home and generally live in a smaller world.

You can still get New Zealand lamb, of course, as well as cheap vacation deals in Mexico. But Rubin is undeterred. The End of Growth, his new book, continues his argument that oil is the single most important factor guiding global economic progress, or lack thereof. Because of insatiable energy demand from developing countries, oil will become permanently and prohibitively expensive, Rubin claims. And this will bring our era of cushy First World prosperity to an abrupt end. “Living in the static world will be much different than the world we’ve come to know,” he warns. _Canadian Business

Why are the resource scarcity doomers so wrong, time after time -- even those who should know better? Does their perennial "wrongness" testify to their ignorance of human nature?

It depends upon whether or not they are honest in their predictions. If they are honest, then they are ignorant of at least some aspects of human nature.

But it is just as likely that they are cynically playing to the peanut gallery -- the dumbed down mobs who salivate at the thought of the collapse of civilisation. Masses of doomers are willing to pay a lot of money for cleaned-up, barely modified, oft-recycled prophecies of doom.

There is a lot of money to be made in playing down to the masses and their dreams of a great doom-reckoning and judgment day. Such an unscrupulous posture on the part of doom-purveyors might indicate a superior grasp of another aspect of human nature.

But back to the original question: Why do doomers repeatedly fail to grasp the aspects of human nature dealing with the motivations which underlie hard work, innovation, invention, substitution, and other clever ways of dealing with common and predictable economic obstacles (PDF)?

It doesn't really matter except insofar as doomers affect public policy. And as that happens, public policy becomes just another predictable economic obstacle to be worked around. Other than that, doomers have made themselves into an irrelevant side show.

For those who wish to understand basic, human nature level economics, a good place to start is: "Economics in One Lesson."

The economic primer can be read online at the link above, or can be downloaded in PDF form.

We are not talking about Nobel Prize economics, academic economics, or Wall Street investment bank economics. We are talking about basic human nature economics. Without an understanding of that, anyone who attempts economic predictions of mass consumer activity, is largely whistling in the dark.

One of my favourite books on basic human nature economics was written by economist Thomas Sowell, entitled "Knowledge and Decisions." Those who already have a basic level understanding of simple human nature economics may wish to start there.

These are concepts which doomers will rarely take the time to understand. But it would save them a great deal of time, trouble, and expense in the long run, if they would.

More: Commenter Yamahaeleven aptly reminds us of the very pertinent online book by Julian Simon: Ultimate Resource II

Bruce Hall takes a look at the Malthusian mindset

In the blogosphere, consider following the most famous anti-doomer blog, NextBigFuture

Why Is US Business Sitting on $Trillions of Cash?

US non-financial businesses may be sitting on as much as $5 trillion in cash -- in the middle of a global recession. Apple has over $100 billion stashed, while Microsoft, Google, and Cisco have stashed roughly $50 billion apiece.

Peter Thiel wonders why these cash-rich companies are not using their hoards of simoleon to solve the human world's big problems. Thiel, himself, is invested in a number of disruptive technologies from life extension to private space launch to "cities on the ocean" and more.

There must be a good reason why so much cash is being held in reserve -- at a time when plenty of bargains can be found, and when there are so many opportunities to advance modern science, technology, and human enterprise.

Here at Al Fin, we suspect that companies are waiting for the results of the November US national elections. Investment has been stifled by a very uncertain political environment throughout the duration of the Obama regime. Nothing constrains risk-taking in the private sector so much as a vocally anti-private sector US president and executive branch.

This is true for the global economy, just as it is true for the US economy. If the US is led by a stasist uber-statist regime, prospects for growth are somewhat dismal not only in the US, but in global markets at large.

Image Source

The Obama regime is unhappy about the hoarding of cash by US non-financial enterprises -- just as it is unhappy about possibly greater cash hoarding by US financial enterprises such as banks. Hillary Clinton and other administration spokespersons have already complained about these huge stashes, but relatively mutely. After the election, if Obama is still US President, expect much more pressure to be put to bear.

Of course, if Obama is not US President in late January 2013, it is likely that no pressure will be required to begin to free up large amounts of cash for investment, R&D, ventures, and so on.

More: Is Obama letting his cat out of the bag too soon? Most American voters understand Obama's strong pro-government leanings. But they are slowly learning about his anti-private sector biases more quickly than might be best for Obama's re-election campaign.

Yet More: Meditations from the Book of Barack

The Rise and Fall of Globalisation: A Multi-Century Perspective

Beijing-based economist Michael Pettis takes a look at current global economic problems and ties them to the current cycle of globalisation. Rather than being a phenomenon unique to modern times -- Pettis suggests -- globalisation has taken place several times over the past few centuries in a cyclic manner. He thinks that we might learn something useful by looking at earlier revolutions of globalisation.

What today we call economic globalization — a combination of rapid technological progress, large-scale capital flows, and burgeoning international trade — has happened many times before in the last 200 years. During each of these periods (including our own), engineers and entrepreneurs became folk heroes and made vast fortunes while transforming the world around them. They exploited scientific advances, applied a succession of innovations to older discoveries, and spread the commercial application of these technologies throughout the developed world. Communications and transportation were usually among the most affected areas, with each technological surge causing the globe to “shrink” further.

...in spite of the enthusiasm for science that accompanied each wave of globalization, as a historical rule it was primarily commerce and finance that drove globalization, not science or technology, and certainly not politics or culture. It is no accident that each of the major periods of technological progress coincided with an era of financial market expansion and vast growth in international commerce. Specifically, a sudden expansion of financial liquidity in the world’s leading banking centers — whether an increase in British gold reserves in the 1820s or the massive transformation in the 1980s of illiquid mortgage loans into very liquid mortgage securities, or some other structural change in the financial markets — has been the catalyst behind every period of globalization.

If liquidity expansions historically have pushed global integration forward, subsequent liquidity contractions have brought globalization to an unexpected halt. Easy money had allowed investors to earn fortunes for their willingness to take risks, and the wealth generated by rising asset values and new investments made the liberal ideology behind the rapid market expansion seem unassailable. When conditions changed, however, the outflow of money from the financial centers was reversed. Investors rushed to pull their money out of risky ventures and into safer assets. Banks tightened up their lending requirements and refused to make new loans. Asset values collapsed...

The process through which monetary expansions lead to economic globalization has remained consistent over the last two centuries. Typically, every few decades, a large shift in income, money supply, saving patterns, or the structure of financial markets results in a major liquidity expansion in the rich-country financial centers. The initial expansion can take a variety of forms. In England, for example, the development of joint-stock banking (limited liability corporations that issued currency) in the 1820s and 1830s — and later during the 1860s and 1870s — produced a rapid expansion of money, deposits, and bank credit, which quickly spilled over into speculative investing and international lending. Other monetary expansions were sparked by large increases in U.S. gold reserves in the early 1920s, or by major capital recyclings, such as the massive French indemnity payment after the Franco-Prussian War of 1870, the petrodollar recycling of the 1970s, or the recycling of Japan’s huge trade surplus in the 1980s and 1990s. Monetary expansions also can result from the conversion of assets into more liquid instruments, such as with the explosion in U.S. speculative real-estate lending in the 1830s or the creation of the mortgage securities market in the 1980s.

The expansion initially causes local stock markets to boom and real interest rates to drop. Investors, hungry for high yields, pour money into new, nontraditional investments, including ventures aimed at exploiting emerging technologies. Financing becomes available for risky new projects such as railways, telegraph cables, textile looms, fiber optics, or personal computers, and the strong business climate that usually accompanies the liquidity expansion quickly makes these investments profitable. In turn, these new technologies enhance productivity and slash transportation costs, thus speeding up economic growth and boosting business profits. The cycle is self-reinforcing: Success breeds success, and soon the impact of rapidly expanding transportation and communication technology begins to cause a noticeable impact on social behavior, which adapts to these new technologies.

But it is not just new technology ventures that attract risk capital. Financing also begins flowing to the “peripheral” economies around the world, which, because of their small size, are quick to respond. These countries then begin to experience currency strength and real economic growth, which only reinforce the initial investment decision. As more money flows in, local markets begin to grow. As a consequence of the sudden growth in both asset values and gross domestic product, political leaders in developing countries often move to reform government policies in these countries — whether reform consists of expelling a backward Spanish monarch in the 1820s, expanding railroad transportation across the Andes in the 1860s, transforming the professionalism of the Mexican bureaucracy in the 1890s, deregulating markets in the 1920s, or privatizing bloated state-owned firms in the 1990s. By providing the government with the resources needed to overcome the resistance of local elites, capital inflows enable economic-policy reforms.

Globalization itself always will wax and wane with global liquidity. For those committed to further international integration within a liberal economic framework, the successes of the recent past should not breed complacency since the conditions will change and the mandate for liberal expansion will wither. For those who seek to reverse the socioeconomic changes that globalization has wrought, the future may bring far more progress than they hoped. If global liquidity contracts and if markets around the world pull back, our imaginations will once again turn to the increasingly visible costs of globalization and away from the potential for all peoples to prosper. The reaction against globalization will suddenly seem unstoppable. _China Financial Markets

Due to the relatively short human lifespan -- less than a century -- humans typically possess a very short timescale perspective on contemporary events. A longer term, more historical perspective would be very helpful in judging the importance of many modern trends.

Extra bonus feature: Another Beijing-based economist, Patrick Chovanec, presents an interesting list of links to economic events originating in -- or influencing -- China. China is a very important player in the current cycle of globalisation, so that it is not unlikely that pivotal events within this current cycle might occur in and around the middle kingdom.

Can the US Have an Honest Debate About Political Economy?

Brian Wang takes a look at Ed Conard, the author of the book on the US economy "Unintended Consequences."

Brian embeds several videos in his posting, including Conard debating Jon Stewart of the Daily Show on tax policy, and also videos of Conard debating Nobelist Joe Stiglitz on income inequality.

It is my impression after looking at an excerpt from Conard's book, and looking at Conard debating Stewart, that most people do not want to have an honest debate on the topic of political economy. This is particularly true of celebrities such as Stewart, politicians, academics, and others who are essentially ideologues, rather than honest searchers for what works in the real world.

If the US is to recover from the slow motion economic collapse of 2007 - 2009, it will need to enact economic policies on the basis of what will work over the next few decades, at least, rather than what will work until the next election cycle.

From what I can tell, Conard leaves out some important pieces of the puzzle when he looks at the recent banking collapse of the late "noughts," but on the whole he captures more of what is wrong and what should be changed than knuckleheads like Stewart -- who play to the peanut gallery for laughs and votes as if the future of the world's largest economy were a popularity contest.

A short look at Conard's professional background:

Ed Conard was a partner at Bain Capital from 1993 to 2007. He served as the head of Bain’s New York office and led the firm’s acquisitions of large industrial companies. He sits on several boards of directors including the boards of Waters Corporation and Sensata Technologies. Prior to Bain, Conard worked for Wasserstein Perella, an investment bank that specialized in mergers and acquisitions, and Bain & Company, a management consulting firm, where he headed its industrial practice. He is a graduate of Harvard Business School and the University of Michigan. _Ed Conard

Excerpt from Conard's "Unintended Consequences":
Read Intro and Chapter 1

The US economy is far too large and complex for anyone to understand completely. But basic fundamentals of human behaviour are likely to apply.

Al Fin's philosophy of political economy follows much more closely with the reasoning expressed by Thomas Sowell in his fine book, "Knowledge and Decisions" (PDF excerpt Chap 3). Along with Walter Kaufmann's "Critique of Religion and Philosophy" and a few other choice volumes, Sowell's look at political decision making helped to form Al Fin's total philosophic approach -- although not his "philosophy."

Wiser and more intelligent people tend to eschew ideologies and fixed philosophies in favour of philosophical systems which are able to grow and learn along with the person's dynamic experience.

That is why popular discourse in North America -- including Canada as well as the US -- can be so depressing at times. The number of ideologues in prominent view always seems to outnumber experienced, competent, and intelligent people of sound judgment -- people who are willing to take intellectual chances and risk looking ridiculous at times so as to discover working principles.

Ed Conard is not a great thinker or philosopher -- he misses a lot of things because of gaps in his knowledge and the limits to his experimentation -- but compared to most of the people he debates, he is a rock of wisdom.

There is a lot of popular discussion on internet forums about societal collapse from peak oil doom, overpopulation, climate doom, resource scarcity, ecosystem collapse . . . But the greatest threat to the greatest civilisation -- western civilisation -- is the neglect of risk taking and hard work in the service of what may be unpopular and not trendy, but true and important, nonetheless.

The dumbing down of the US is proceeding apace. We are reminded of this watching the video debate between Stewart and Conard, taking note of the cheap debating tricks used by Stewart to garner applause from his pet audience. But as more and better alternative methods of acquiring an education become available, more people will avoid the well placed traps of dumbing down which have damaged lare portions of a number of generations to this point.

We should have a better idea of how quickly this will all play out by sometime in November of this year.

US Demographics at the Tipping Point

This article was previously published on abu al-fin blog

The US has passed a milestone: From now on, the majority of births in the US will be to non-European women. Highest birthrates in the US occur among non-white Hispanics. Black American women also have higher birthrates than do Euro American women. Birthrates among the much smaller groups of disparate Asian populations in the US vary considerably.

Wall Street Journal

For the first time in US history, whites of European ancestry account for less than half of newborn children, marking a demographic tipping point . . . _WSJ

This demographic tipping point changes a lot more than just the ethnic makeup of the US population. Because different population groups tend to arise from different cultures, holding different customs and values, the political and economic behaviour of the new majority is likely to tip the overall economic and political behaviour of the US significantly.

Perhaps it would be instructive to look at the differences between the populations of Northern Europe and Southern Europe. While both the North and the South are governed by some form of welfare state, Northern Europeans tend to be more naturally austere and thrifty, whereas Southern Europeans tend to take like more from day to day, enjoying the warmer sunnier climate, the wine, the Med.

Greece is becoming the first to suffer for its peoples' inherent lack of austerity and thrift. As Greece's economy crumbles, a regime of austerity would allow the country's economy to recover its footing -- but the politics of Greece and the natural inclination of its people will not tolerate austerity enforced from above. And as for austerity from within -- the people simply do not have it in them.

The same is likely to prove true for Spain, Italy, Portugal, as the economic crisis worsens for each in its turn. Their economies could use some austerity to allow them to recover and rebuild, but the people are not likely to stand for it. Perhaps it was the lack of inherent austerity in the people which allowed the situation to approach its denouement.

In the demographic transition of the US, we see populations of innate austerity giving way to rapidly growing populations which lack this natural thrift and planning sense. Given these changes, we can expect an acceleration of the trend toward larger government and less personal savings, planning, and responsibility.

Regardless of the best intentions, and all of the other strengths which may be brought to a nation, people cannot help who they are. If a majority contains a flaw which will prove to be fatal within a particular type of political and economic system -- say a democratic welfare state -- then events will work themselves out much like water finding its way to the sea.

There are many ways to find one's way to "the truth", but at the end of every chapter in life, the real world will have had its say.

Some changes are abrupt and unpredictable. Other changes -- such as the consequential changes in a society that come with a changing demographic -- may occur more slowly. While these shifts may be predictable, they can take place at a rate which allows them to be easily ignored, if the mainstream of government, media, and academia does not wish the population to be bothered with troublesome implications.

Hope for the best. Prepare for the worst. And expect something somewhere unpredictably in between.

Science and the Wealth of Nations II: Where Science Gets Done

Most people think that science and math and engineering are found everywhere, like soccer, but actually, they are regional practices, more like hurling or tossing the caber. In the map, countries are resized according to the number of scientific papers they produce. Population size plays a role, but average productivity matters more. Note that Singapore, with a population of 5 million, looks bigger than Indonesia, with 240 million people. _West Hunter

Spend a little time with the map below, to receive the full impact of the global situation.

Greg Cochran's West Hunter

Generally the pattern is about what you would expect from the world distribution of IQ (note the correlation with latitude), coupled with the notion that science is generated by people out in the tail of the intelligence distribution. About 2% of a population with an average IQ of 100 scores above IQ above 130, about 0.1% above 145. For a population with an average of 85, only 0.1% will score above 130 – 20 times fewer. _West Hunter

The lower the average IQ of a nation, the fewer the prospects for successful training in science, math, computer science, or engineering. And the less science, math, computer science, and engineering being done in a nation, the more impoverished the nation will be, on average.

Innovation and the Scientific Wealth of Nations
Of course, even in nations of relatively high average IQ, political and cultural forces can suppress science and technology. And when a particular nation gains a large head-start -- as did the US before, during, and after World War II -- it can be hard for other regions to catch up again.

An EU initiative to increase effective R&D spending in 2000 (the "Lisbon Agenda") to gain parity with the US has had limited success, to put it most diplomatically. In a report published Friday (Jan 20), an independent Expert Group commissioned by the EU "urges Europe’s leaders to take radical action on research and innovation “before it is too late” " ... UK Telegraph article. The authors "propose a 4-pronged strategy focusing on the creation of innovation friendly markets, on strengthening R&D resources, on increasing structural mobility as well as fostering a culture which celebrates innovation."

The reported, effective abandonment of Europe by pharmaceutical companies, for example, is occurring at the very moment that the synergy of computation, biotechnology, and medicine is just getting underway (cf. earlier posts on Ray Kurweil's book The Singularity is Near). Europe's world-class scientists and corporations tend to focus on important, profitable but well-established fields. Meanwhile, the international ties associated with "frontier" research create wealth and productivity gains that pass much of Europe by. _Anglosphere

Of course, under the Obama administration, the US may be well on the way to squandering its earlier advantages.

Worldwide R&D by Nation (PDF)
Funding drives R&D, but if the talent isn't there, the funding is largely wasted. That is why research universities in countries such as Saudi Arabia -- where the average IQ is only about 85 points -- must import must of their high powered scientists and engineers from the outside.

H/T Steve Sailer

Useful Primers on Fiat Money and Banking

Our lives are controlled to a large extent by the rules of the fiat money world that we are immersed within. It is better that we understand these rules so that we can anticipate and plan for at least some of the turbulence that may come our way.

h/t Mish's Global Economic Analysis

Banking and Money from KhanAcademy.org


Ron Paul's view of the US' monetary conundrum.

Gold as Money FAQs from the Mises Institute

Wikipedia: History of Money

Description of "History of Money" by Glyn Davies. This is one of the most highly regarded histories of money available.

Video (and transcript): Chris Martenson Crash Course Chap. 7 -- Money Creation
Note: Later in his crash course, Martenson falls unwittingly into the twin traps of "peak oil" and "climate hysteria," but his chapters on money present some key concepts in useful ways.

Al Fin economists and child care specialists feel that it is a crime that all children are not educated in money, exchange, and markets from the earliest age. Trading and entrepreneurialism should be second nature to all children raised in a free society. Each citizen should have a sound intuitive sense of money, and keep abreast of the actions of elected representatives which may influence the value of money and the freedom of trade and markets.

Most citizens appear to be almost entirely ignorant on these points. A bitter price will be paid for this ignorance.

Is 4.9% a Year Growth Rate a Rapid Growth for Africa?

Africa boasts an abundance of riches: 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 to 90 percent of the chromium and the platinum metal group. Those are just the known reserves; no doubt more lies undiscovered. _MQ

Global Map of Nations by per cent Living Under $1.25 per day
McKinsey Quarterly has published a fascinating look at recent economic growth in the continent of Africa (h/t Brian Wang). According to the report, real GDP growth over the continent averaged 4.9% per year between the years 2000 and 2008. This was twice Africa's growth rate over the decades of the 1980s and 1990s. The report goes on to discuss the many issues leading to such growth, and other factors that will be involved in future African growth. From McKinsey:

Africa’s collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s, and the continent is among the world’s most rapidly growing economic regions. This acceleration is a sign of hard-earned progress and promise.

While Africa’s increased economic momentum is widely recognized, its sources and likely staying power are less understood. Soaring prices for oil, minerals, and other commodities have helped lift GDP since 2000. Forthcoming research from the McKinsey Global Institute (MGI) shows that resources accounted for only about a third of the newfound growth.1 The rest resulted from internal structural changes that have spurred the broader domestic economy. Wars, natural disasters, or poor government policies could halt or even reverse these gains in any individual country. But in the long term, internal and external trends indicate that Africa’s economic prospects are strong.

...Natural resources, and the related government spending they financed, generated just 32 percent of Africa’s GDP growth from 2000 through 2008.2 The remaining two-thirds came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing (Exhibit 1). Economic growth accelerated across the continent, in 27 of its 30 largest economies. Indeed, countries with and without significant resource exports had similar GDP growth rates.

...To start, several African countries halted their deadly hostilities, creating the political stability necessary to restart economic growth. Next, Africa’s economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds.

Finally, African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners.

...The continent’s four most advanced economies—Egypt, Morocco, South Africa, and Tunisia—are already broadly diversified. Manufacturing and services together total 83 percent of their combined GDP. Domestic services, such as construction, banking, telecom, and retailing, have accounted for more than 70 percent of their growth since 2000. They are among the continent’s richest economies and have the least volatile GDP growth. With all the necessary ingredients for further expansion, they stand to benefit greatly from increasing ties to the global economy.

Domestic consumption is the largest contributor to growth in these countries. Their cities added more than ten million people in the last decade, real consumer spending has grown by 3 to 5 percent annually since 2000, and 90 percent of all house-holds have some discretionary income. As a result, consumer-facing sectors such as retailing, banking, and telecom have grown rapidly. Urbanization has also prompted a construction boom that created 20 to 40 percent of all jobs over the past decade.

...If recent trends continue, Africa will play an increasingly important role in the global economy. By 2040, it will be home to one in five of the planet’s young people, and the size of its labor force will top China’s. Africa has almost 60 percent of the world’s uncultivated arable land and a large share of the natural resources. Its consumer-facing sectors are growing two to three times faster than those in the OECD7 countries. And the rate of return on foreign investment is higher in Africa than in any other developing region. Global executives and investors cannot afford to ignore this. A strategy for Africa must be part of their long-term planning. _MQ

The report excerpted and linked above is quite optimistic toward the economic prospects for Africa over the next 3 decades, based upon this "4.9% a year growth rate." But Al Fin economic and social forecasters do not take quite the sanguine view as those of the McKinsey Institute.

As seen in the map at the top of this entry, Africa is quite diverse in terms of economic conditions. It is an act of false parsimony to consider the entire continent of Africa as one unit, economically. Instead, one should look at SubSaharan Africa separate from North Africa, economically and socially. Further, one should subdivide SubSaharan Africa into tropical and temperate regions, when considering investments and partnerships. McKinsey failed to stratify African nations other than by "economic diversification" and "exports per capita." Useful, but not sufficient. It is difficult to draw useful conclusions when data is so badly conflated.

The time period selected by the report for extrapolating Africa's future may not be representative of what to expect from a realistic future Africa. The ongoing instability in Egypt and Libya, for example, suggest that the chronic instability of most of tribal Africa may be spreading into nations where tribal and religious instability had been temporarily suppressed by strong political regimes of long duration.

Urbanisation may bolster GDP growth numbers temporarily, for example, due to the more quantified economic nature of more modern city living vs. quasi-ancient rural life styles. Yet there are limits to how large stable cities can grow under certain demographic conditions. Many of Africa's cities are already pressing those limits. Frequent instances and high rates of crime, disease, poverty, malnutrition, and crumbling infrastructure suggest that many of these cities may already be near the breaking point.

Modern high tech infrastructures -- such as those which allow more advanced nations to enjoy the fruits of modern trade and sci-tech development -- are dependent upon an infrastructure of human capital which is capable of maintaining and improving the underlying technological infrastructure. In the absence of capable maintenance, repair, and construction, societal infrastructure tends to collapse at the most inopportune times.

Here is the blunt truth, which Political Correctness tries to obscure: Modern affluent lifestyles require a high tech infrastructure which can only be maintained by populations with average IQs close to 90 or above. This is an inexorable result of the normal statistical distribution of occupational abilities centering around the mean (for both IQ and EF, both of which are highly heritable). The only way for a society to exceed the "IQ limit" is if the nation hosts a "market dominant minority" -- or smart fraction -- of higher IQ persons capable of maintaining markets and infrastructures -- market dominant minorities such as the Chinese in Malaysia or Indonesia, or the shrinking populations of high-IQ groups still in South Africa.

North Africa's populations have a different evolutionary history than the populations of SubSaharan Africa. For some countries of North Africa, the average population IQs are near 85. But for most SubSaharan African nations, average population IQs are well below 80 -- generally averaging in the 70s. The reasons for such low average IQs involve multiple factors, but the blunt facts of low average IQ (and EF) are clear and stand in the way of large scale indigenous economic development across many chronically underdeveloped parts of the world.

Global IQ Map by Nation
For Africa to grow sustainably, it will need to attract leadership and energy from the outside -- and keep it there rather than driving it out, as was done in Zimbabwe, Kenya, Uganda, etc. An expansion of what it means to be "African" is mandatory -- but it can only be made to last in an Africa of greatly expanded opportunity and radically reduced corruption and populist demagoguery.

Al Fin futurists suspect that perpetually ambitious and corrupt African tribal leaders and strongmen will only accept the changes that are needed under the sanction of a "superior being." In abstract terms, think quasi-theocracy. In real terms, that would mean either an outside (perhaps "extraterrestrial") group of vastly superior technological capacity, a genuine artificial intelligence of superior wisdom and cognition, or a sufficiently convincing imitation of one or the other.

Adapted from an earlier article at Al Fin, the Next Level

What is Bitcoin?

Update 20 June 2011: Bitcoin suffers its first large crisis, as hackers steal virtual encrypted coin and cause a dramatic plunge in Bitcoin value

What Is Bitcoin?
Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network.

Bitcoin is an encrypted "anonymous" digital currency placed online, beyond the whim and caprice of greedy governments and their corrupt co-conspirators. An anonymous marketplace, where almost anything could be bought or sold, is the dream of free marketeers across time and space. Perhaps Bitcoin will pave the way to this nirvana of free marketdom. More about Bitcoin:

Bitcoin—a pseudonymous cryptographic currency designed by an enigmatic, freedom-loving hacker, and currently used by the geek underground to buy and sell everything from servers to cellphone jammers. No, this isn't a cyberpunk artifact from Snow Crash or Neuromancer; it's a real currency currently valued several times higher than the US dollar, the British pound, and the Euro.

Bitcoin is a virtual currency, designed to allow people to buy and sell without centralized control by banks or governments, and it allows for pseudonymous transactions which aren't tied to a real identity. In keeping with the hacker ethos, Bitcoin has no need to trust any central authority; every aspect of the currency is confirmed and secured through the use of strong cryptography.

Over the last few months, Bitcoin's value has risen by an order of magnitude as the sagas of Wikileaks and Anonymous (among others) have highlighted the limits of a financial system which relies on centralized intermediaries. With a current estimated market capitalization of about $100 million, Bitcoin has recently graduated from a theoretical techno-anarchic project patronized by libertarians and hackers to a full-fledged currency prompting comment from technologists and economists. At the time of this writing, one Bitcoin (BTC) is worth about US$15.

...The Bitcoin solution uses cryptography and an open transaction register. Whenever you spend a Bitcoin, you cryptographically sign a statement saying that you have transferred the coin to a new owner and you identify the new owner by their public crypto key. Whenever they need to spend the coin, the new owner uses his private key to sign it over to some further owner. As soon as a transaction takes place, the recipient (who has a very strong incentive to ensure that you don't spend the coin twice) publishes the transaction to the global Bitcoin network. Now every Bitcoin user has incontrovertible evidence that the coin has been spent, and users won't accept that coin from anyone but the new owner.

...In a process known as mining, individual Bitcoin users attempt to generate new coins by checking the integrity of the transactions list. They confirm the previous transactions and attempt to solve a difficult proof-of-work problem which involves exhaustively trying different solutions. There are a very large number of such potential solutions, so the likelihood of finding the solution depends how many other people are looking for it and how much computing power you devote to the problem. The first client to find the solution announces its good fortune to the whole network and earns a little reward for itself in the form of some shiny new Bitcoins. _ArsTecnica

One new marketplace taking advantage of Bitcoin's anonymity is Silk Road.

Silk Road, a digital black market that sits just below most internet users’ purview, does resemble something from a cyberpunk novel. Through a combination of anonymity technology and a sophisticated user-feedback system, Silk Road makes buying and selling illegal drugs as easy as buying used electronics — and seemingly as safe. It’s Amazon — if Amazon sold mind-altering chemicals.

Here is just a small selection of the 340 items available for purchase on Silk Road by anyone, right now: a gram of Afghani hash; 1/8 ounce of “sour 13″ weed; 14 grams of ecstasy; .1 gram tar heroin. A listing for “Avatar” LSD includes a picture of blotter paper with big blue faces from the James Cameron movie on it.

The sellers are located all over the world, a large portion from the United States and Canada. _Wired

Silk Road accepts Bitcoin as payment, and is accessible only via the Tor network of anonymous proxy servers.

More about Silk Road from Kevin Kelly:

Silk Road is all of four weeks old, so its stealthiness is unproven. In theory it looks viable. But Tor and Bitcoin are open source, so the savvy can see what they are standing upon. But there are inherent challenges with any private currency, and there are inherent challenges with any encryption scheme. At the point where either of these systems touch the legitimate world (and they must to be useful), there is potential for breakdown, scams, break-in, or disruptions.

Bitcoin in particular has serious complexities. It is a private currency, and all private currencies are liable to scams. But an anonymous peer-to-peer one is even more liable, because there is no central enforcement -- by definition. The technicalities of Bitcoin are impressive, complex, and almost beyond the understanding for most lay users. For a sobering critique of Bitcoin, I recommend reading at least one skeptic's take on it before you decide to use it. His argument is that the way Bitcoin is engineered makes it biased towards the earliest users (the value of their "dollars" will increase more than later users) and is therefore a type of pyramid scam. That is a long-term consideration; this deflation probably will not deter a kid who wants to score some speed this week.

And the critique says nothing of the potential weaknesses of Bitcoin's encryption aspect. Usually these cypher schemes are not broken directly, but indirectly via patterns of use. As the cypherpunks say, encryption is economics. Anything can be hacked if you apply enough money. As long as the amount of money in these stealth markets remains modest, they will be secure. But once they rise to some threshold, they will trigger investments into cracking them. Perhaps bit traffic is analyzed network wide, or honey pot sellers rated high by shills set up to pounce on the unsuspecting -- whatever. _KevinKelly

The economic arms war between governments and free marketeers is as old as organised human society. Anonymous online versions of digital currency are likely to take the contest to a new level, as government enforcers devote ever more time and tax resources to stamping out the competition and incorrigible independent minded.

What is Bitcoin?

Previously published at Al Fin, The Next Level

Chile GDP Growth at 15.2% a Year as of March 2011

"Chile has always been held out as a model for Latin America, but the reality is ... it's now a model for the U.S.," he said.

Corporate taxes are the second lowest in Latin America at 18%, behind Paraguay's 10%. The Latin average is 28%.

Meanwhile, Goldman Sachs' chief economist for Latin America, Alberto Ramos, says Chile has wisely fostered growth by reducing the size of government and not printing too much money.

In 2011, it cut government spending to 5% of GDP, or $700 million, more than its projected 5.5%. So GDP has room to grow 6.4%, rather than 6% as first estimated.

Those lessons could be duplicated here with the ideas found in the Ryan budget, the Tea Party's policy ideas or even from the Chamber of Commerce. _IBD

Chile is a long narrow country along the southernmost strip of the western seacoast of South America. It is one of the few Latin American countries to take capitalism and free markets seriously. Consequently, Chile is on a stronger economic footing than most of the rest of Spain and Portugal's former colonies of the western hemisphere.

A year ago, Chile lay in rubble, victim of the world's fifth most powerful earthquake. So Chile's 15.2% growth is a big bounce from a bad setback.

But it shouldn't be dismissed as an anomaly. It's a showy number, but not the only one.

The same day Chile released its data, Goldman Sachs raised its 2011 growth forecast for the country to 6.4% from 6%. In its annual regional business index, Latin Business Chronicle ranked Chile as having the best business climate in Latin America in 2011.

Such numbers are so alien to the U.S. in the economically debilitated Obama era, it makes sense to look at what Chile has done.

First, Chile's policies for long-term growth were put into effect in the 1980s by the group of Milton Friedman-inspired economists known as the Chicago Boys.

Under them, Chile's pension privatization cost nothing and left the country with no net debt. The private funds now hold assets worth 90% of GNP ($185 billion) — capital used to develop the country. Already, Chile's education and infrastructure are the best in Latin America as a result.

Second, there's free trade, of which Chile is a global champion, signing at least 58 treaties to gain access to 2 billion customers.

That's a big reason Chile is close to full employment and is scrambling to attract growth-hungry U.S. entrepreneurs — and getting them. _IBD

Obama has chosen to rudely yank the US in the opposite direction, toward larger and more expensive government, exploding debt, greater divisiveness in the political and social sphere, and a ruinous expansion of dependency on government handouts and paychecks. Obama's revolution sounds more like the prelude to a new dark ages and reactionary socialist quagmire.

If forced to choose between Obamanomics and Chilinomics, which would you choose? Who is John Galt?

Oil Price Volatility: Central Banks and Spooky Investors?

Global oil markets are coming to resemble something out of a D-grade science fiction movie, a monster with a life and will of its own bent on devouring everything in its path. But who created the monster, and who continues to feed the hungry beast?

...the advent of widespread Internet trading platforms radically increased the number of people with access to commodity markets, decreased the amount of time it took for an investment decision to impact the market and expanded the amount of money that could be applied to those markets. In particular, the creation of energy-indexed investment vehicles created additional demand for commodities by people who have no intention of ever taking delivery of the commodity.

...In any other market, the presence of a mass of new players would obviously have a distorting effect, but in the oil market, the inelastic nature of oil demand magnifies the investor presence. Since oil is so essential to modern life — needed for everything from transportation to making plastics, fertilizer or paint — industrial and retail demand for oil is actually fairly stable. The introduction of dynamic actors into a normally static system results in periodic and disproportionate price shifts.

...Over the past six years, the global money supply has roughly doubled. There are any number of reasons to expand money supply, but the most relevant ones of late have been to ensure that there is sufficient credit to stabilize the financial system. However, governments have few means of forcing such monies to go in any particular direction. And since the entire purpose of professional investors is to shuffle money to where it will earn them the highest return, some of the money from an expanded money supply often finds its way into commodity markets.

... In China, for example, such a huge and expanding money supply is keeping the country’s many profitless enterprises solvent, which keeps legions of unemployed from causing social instability or unrest. But it comes at the cost of inflation pressures, which could also cause unrest by consumers due to price increases. (The massive monetary expansion in China is symptomatic of a brewing crisis that STRATFOR expects to burst within the next few years.)

But for the commodity markets, including oil, the impact is clear: Prices will steadily rise — and on occasion dramatically fall — so long as the world’s monetary authorities keep expanding the money supply. _Forbes (STRATFOR)

Adapted from an earlier posting at Al Fin Energy

Unless one is a student of complexity, autopoiesis, and emergent phenomena, the seemingly disconnected movements of modern markets would be completely incomprehensible. But even under the best circumstances, the energy market monster is somewhat unpredictable in terms of timing the repeated rises and crashes.

Caution is recommended whether one is lulled into going long or scared into taking a short position. Oil is not gold, and should not be treated as a safe repository of value. Even gold and silver are subject to price swings, due to market psychology, geopolitical instability, and politically corrupt policies.

Try to be ready to take advantage of the inevitable erratic swings as they happen. For long term planning, make allowances for the likely volatility in energy and commodity prices -- as well likely erratic movement and possible collapse of selected currency values.

Brian Wang has more insight into some of the inadvertent effects of a weak dollar policy for the US

Betting on Oil Prices? Beware the Speculative Squeeze

Oil is selling higher than it should do. Speculation is just one of the reasons, but a significant one. After being bailed out, pardoned for their crimes, and otherwise given another chance, the uber-speculators are back for more devastation and booty at your expense.

Kevin Kerr, president of commodities firm Kerr Trading International, pulled no punches, calling the current price levels “simply a money grab and fear trade.”

“Speculators in the energy markets right now have a lot of risks to consider but unfortunately it can get overdone and I hope that the various funds and large speculative entities will take a step back and really evaluate the true fundamental picture. We do have plenty of oil on the market right now and while some fear premium is certainly legitimate, in my opinion it is not a justification for over $100 right now,” he said.

Kerr said the escalating violence in Libya, as rebel forces attempt to oust long-time dictator Col. Muammar al-Qaddafi, raises legitimate concerns for “real disruption,” but still does not justify the current prices.

Kerr also warned of the global impact resulting from artificially high oil prices: “Speculators and funds who are driving up the price of oil based on fear premium and the weak dollar will hopefully evaluate the implications for driving the price much higher than it really needs or deserves to go, at least at this stage,” he said.

Finally, Kerr recalled “the extreme liquidation” that followed the last precipitous rise in oil prices, when a barrel passed $147 in the summer of 2008 and then plunged below $40 in a matter of months.

“I would like to say that rampant speculators learned from what happened in 2008 but it seems fiduciary responsibility and true market fundamentals are still on the back burner,” Kerr concluded. _FoxBiz

The speculator-premium is closer to $30 a barrel than $15, according to Al Fin analysts. But then, the price of oil has been bouncing around like a pinball. The news media is happy to jump on every rumour, and oil traders are squeezing each one for every penny possible.

The discord sweeping Arab lands is quite real, justified, and long-overdue. The blowback from this discord onto global markets is likewise real, and will require serious planning and adjustment to compensate -- at least for the short term.

But the screeching hysteria coming from every peak oil doomer and hobbyist is just a bit overdone. The smart money understands that political disruptions to oil supply are temporary setbacks. Better analysts likewise understand that total energy reserves are growing, rather than shrinking, and that for the next decade or two, civilisation is not at risk from long-term energy shortages on either the supply or the demand side.

But political forces are a real danger, and the greatest danger comes from corrupt political agencies and factions -- including the US Federal Reserve and Treasury Department. US President Obama's grand strategy of energy starvation is not helping very much, either.

As for the energy speculators, they never sleep, they can game the system in ways you never dreamed of, and the only reason they haven't picked your pockets yet is because you're probably not worth it. Don't make it easy for them.

The name of the game for most people in the age of Obama is asset protection, and doing what you have to do to get ready for a changing of the guard and the return of opportunity eventually.

Are We In A Commodities Bubble?

Minyanville

Are commodity prices already overdone? Like everything else, it depends. Each commodity has its own story -- amply demonstrated by the chart above. _Minyanville

Read the rest of the article linked above to get a better idea of what you may have to do to free yourself from the false euphoria that comes from breathing too much commodity laughing gas.
The author recommends a "bottom-up" approach. Look at the news and fundamentals for each commodity, using all of the information resources available. Then do your own calculations as to whether current or futures prices are inflated or undervalued.

An alternative approach is to take a "top-down" viewpoint. What are the realities and trends of the overall markets, which tend to drive demand for commodities?

Take the US: The stock market has been doing better, and recent retail sales seem to have rebounded somewhat from earlier in the current and ongoing downturn. The nominal "unemployment rate" has been relatively stable for years, albeit at a higher-than-comfortable level of unemployment. The nominal "inflation rate" has stayed relatively low, and interest rates should be encouraging more economic expansion.

But the US housing market continues to sink ever lower, with sky-high foreclosures continuing. Homes are traditional stores of value in the US, as well as one of many leading economic indicators. And "real employment" is actually getting worse, as more and more people drop out of the job market in discouragement. The true growth enterprise in the US under Mr. Obama is the federal government.

Underlying everything else is the spectre of inflation, and how many parts of the economy can be blown apart by an intentional inflationary policy.

Why does inflation serve the largest banks and corporations disproportionately while hurting the average working citizen?

Greater Inflation is desired because the largest banks still hold massive amounts of "bad" loans on their books that simply cannot be justified under any scenario except elevated housing prices. Greater inflation is desired by large multinational businesses so that they may increase current pricing levels and continue to grow profitability for shareholders. Greater inflation is sought so that the Fed can regain credibility and maintain the illusion of being in control of the markets. Inflation in basic necessities such as food, energy, health care and educational expenses have the potential to drain the resources of anyone below the upper strata of society. Making life harder for those on the margin to protect those at the top is not only bad economic policy, it's immoral.

What might the potential long term effects of a near zero Fed funds rate be?

The longer the Fed keeps rates at zero, the longer the banks have to develop strategies for operating in a "risk" free capital environment. Given past history, it's only a matter of time (when, not if) until the banks blow the economy up yet again. Low rates directly benefit the banks and large corporate sectors of the economy. They can borrow at historic low rates whereas the average citizen has no capability of obtaining such funding. While mortgage rates have moved to levels we have not seen in a decades, the corresponding tightening in loan qualification standards means that many cannot take advantage of them. Profits to the largest businesses and no tangible benefit to the American citizen - can you see a pattern developing? _SeekingAlpha

Looking at it that way, the ongoing runup in commodities prices take on a whole new meaning.

Central bank-generated inflationary bubbles are a whole different pickle than investor euphoria-driven bubbles. If the bubble we see developing is coming from the US central bank, it is an ominous sign of an out-of-control economy in the making. As if the government debt build-up was not bad enough, the Fed under Obama appears to be intentionally filling the entire economy with noxious gases.

Time for average people to focus on issues of essential function and enduring value. The US dollar does not have enduring value, and serves an essential function in fewer and fewer locations around the world. The US government has fallen under the control of persons who are in over their heads, treading water, flailing for their lives.

But their flailings have a definite trending, which appear to benefit a small, select group of insiders, at the expense of the taxpayers and citizens at large.

More interesting thoughts on a US Fed-induced bubble from Zero Hedge and Powerline

Hedge Funds Help Set Table for Next Financial Apocalypse

Mish
Lest anyone forget, hedge funds played a large part in the unprecedented loss of wealth that occurred in the financial crash of 2008-2009. And now, like tragic brain injury cases incapable of learning anything new, hedge fund operators are setting the stage for a repeat performance.

A lot of financial observors think that these institutional investors -- who are betting other people's pension money, university endowments, etc etc -- are making a big mistake. Many sophisticated investors are betting on a significant downturn. Some observors even see the next ten years as the decline and fall of the American empire.

Over 1.5 million Americans filed for bankruptcy in 2010, and the count for 2011 is expected to be higher -- perhaps much higher. Wages, employment, and non-government related startups in the US have been declining steadily, and the ongoing housing collapse reflects this decline.

And rather than working constructively to make America friendlier to business and markets, the Obama regime has been spending most of its time and resources on making government bigger and more corrupt, and on starving US industry of its energy supplies using the great climate hoax as a pretense.

Waiting in the wings is the potential for cascading bond defaults by US States and European nations. If that happens, the great 2008-2009 wealth destruction will look like a pleasant holiday in comparison.

Governments are Not Forever: The Coming Idiocracy

Think of Prichard, Alabama, as the preview of coming attractions. Mayor Ronald Davis, pictured at left, is the face of Prichard's government. Prichard's government is like many local governments across the US deep south and California, except perhaps a bit advanced in its progression toward a corrupt inability to meet its obligations.

the declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.

“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”

...The city’s rapid decline began in the 1970s. The growth of other suburbs, white flight and then middle-class flight all took their tolls, and the city’s population shrank by 40 percent to about 27,000 today, from its peak of 45,000. As people left, the city’s tax base dwindled.

...The city had already taken the unusual step of reducing pension benefits by 8.5 percent for current retirees, after it declared bankruptcy in 1999, yielding to years of dwindling money, mismanagement and corruption. (A previous mayor was removed from office and found guilty of neglect of duty.) The city paid off its last creditors from the bankruptcy in 2007. But its current mayor, Ronald K. Davis, never complied with an order from the bankruptcy court to begin paying $16.5 million into the pension fund to reduce its shortfall.

A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. “The reality for Prichard is that if you took money to build the pension up, who’s going to pay the garbage man?” he asked. “Who’s going to pay to run the police department? Who’s going to pay the bill for the street lights? There’s only so much money to go around.”

Workers paid 5.5 percent of their salaries into the pension fund, and the city paid 10.5 percent. But the fund paid out more money than it took in, and by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees. The city stopped paying its pensions. And no one stepped in to enforce the law.
_NYT

When the human capital of a municipality, state, or country is allowed to decay -- when unqualified people rise to positions of responsibility and power -- why should anyone be surprised when complex systems decay and collapse?

Across large parts of North America, Europe, and Oceania, human competence is being lost over time, and replaced by persons who are less than competent. Sometimes the explanation for a human system's failure lies in the corruption and lack of integrity of the system's leaders and operatives. In many cases it is not actually the fault of the persons placed in positions of responsibility -- it is the Peter Principle at work.

The problem is widespread and growing rapidly. If you have been unaware of the phenomenon, the wakeup call can be a bit of a shock.

Must We Kill All Tort Lawyers Before We Can Go Into Space?

ImageSource
Over at NextBigFuture, Brian Wang looks at the supply and demand economics of space colonisation. Brian points to a more extensive posting by Paul Gilster at Centauri Dreams, "The Economics of Space Infrastructure." Brian and Paul are correctly looking at the economic costs and benefits of space infrastructure and space colonies. But the topic goes far beyond mere economics.

Science Fiction author Charles Stross downplays arguments in favour of space colonies as "quasi-religious." Physicist Stephen Hawking wishes for humans to colonise Mars and Luna, as a way to preserve the human race and Terrestrial life, should Earth be destroyed by comets, asteroids, geologic catatrophe or other forms of massive upheaval. Physicist Freeman Dyson has thought along similar lines since the mid-1960s. The idea of "not having all of one's eggs in a single basket" appeals to the long term thinker who wishes the human enterprise to be ultimately successful.

Humans appear to possess an "exploratory instinct," a natural urge to explore. From the very beginning, humans have been willing to risk what they have, in order to find something more. The urge for outer space is another manifestation of this instinct.

At times it may seem that we have lost this exploratory urge, but always it returns, reshaped by current events. Why is it that we strive to understand our place in the heavens and seek other intelligences out there? _Planetary

Exploration is risky. Explorers often die. In an outward-looking, exploratory society, the acceptance of risk is so commonplace as to become second nature. Such a society will spawn many explorers, and many pioneers who are willing to follow close behind the explorer to create a more settled life in the new, risk-filled territories.

Modern affluent societies become more risk-averse, more fixed on security over time. This security-fixation often approaches pathological levels, depending upon whether it becomes accepted and codified within legal, cultural, educational, and legislative institutions.

In modern western nations -- particularly the US -- risk aversion in the form of tort is often costing societies their birthright and their future.

Economists have long understood that America's tort system acts as a serious drag on our nation's economy. Although many excellent studies have been conducted, no single work has fully captured the true total costs, both static and dynamic, of excessive litigation.

The good news: We now have some reliable figures. The bad news: The costs are far higher than anyone imagined.

Based on our estimates, and applying the best available scholarly research, we believe America's tort system imposes a total cost on the U.S. economy of $865 billion per year. This constitutes an annual "tort tax" of $9,827 on a family of four.

...litigation doesn't just transfer wealth, it also changes behavior, and often in economically unproductive ways. Any true estimate of the costs of America's tort system must also include these dynamic costs of litigation -- the impact on research and development spending, the costs of defensive medicine and the related rise in health-care spending and reduced access to health care, and the loss of output from deaths due to excess liability. _WSJ

Most recent attention to tort reform in the US has focused upon medical tort. But the economic destruction of out-of-control US tort law is felt in every part of society, industry, and the economy. In a society ruled by tyranny of tort, all risk is punished pro-actively. In other words, most great ventures are never even attempted, due to the tight noose of tort -- and other effects of excess government -- around the necks of entire societies. As of 2006, costs of tort in the US had been growing at an average rate of almost 10% annually PDF.

In order to advance, humans must take risks. The elimination of risk from society is also the elimination of growth and advancement. Eliminating risk means inevitable stagnation and decline. It is the great human dieoff by backdoor means, albeit in slow motion form -- at first. Decline has a way of accelerating, however, once it passes a certain point.

Massive -- and still growing -- bureaucracies of government shut in most possibilities of escape from this inbuilt decline. When humans are cut off from expressing their natural instincts, they tend to rebel if they can. Eventually, they grow passive, fatalistic.

It appears as if western educational, news media, and entertainment systems are dedicated to the suppression of the exploratory urge in humans. This society-wide trap appears to be closing more tightly every year, with every pseudo-cause and crusade such as carbon hysteria, or resource scarcity doom.

How can we escape this suffocating atmosphere of security-fixation and excessive risk-aversion? There are few ways to escape other than to emigrate to a less regulated nation, or to build a seastead. Every so often a few people try to start a new country, where they can set their own rules so as to allow greater personal freedoms. Of course, new countries in space -- on the moon, Mars, in the asteroid belt, and beyond -- would represent a big step up from previous efforts.

But people will die in the attempt to establish a permanent human presence and economy in space. That is inevitable. People die in hazardous environments on Earth every day, and outer space is far more hazardous than almost anywhere on Earth. Whenever there is a chance of people dying, lawyers flock like flies on excrement.

We can see in the inability of advanced societies to develop a larger, safer, cleaner nuclear power industry, how tort lawyers combined with government regulators drive up costs to the point of abandonment of multi-billion dollar enterprises and loss of future plans and possibilities.

Established powers aim to remain established powers. That is what the vast inbred and corrupt system of government and law has become in the west. Free humans are hemmed in and restricted. Economies stagnate and the human spirit dies a little with every new encroachment by government and its army of allied extortionists.

People do emigrate to Costa Rica and other small countries where there may be less intrusive regulation and more freedom of activity in many ways. Other people "go Galt" and drop out, go off the grid as it were. Expect to see more of that unless something drastic occurs to reverse the creeping strangulation of the government-legal- quasi organised crime complex.

Can SpaceX and other private space companies provide an escape from the ongoing choking of human freedom in the developed world? Even if improvements in technology allowed the costs of space launch were to come down enough to make travel to the moon economical for middle class incomes, the inbred risk-aversion of modern societies places a limit on how far the movement could progress -- without massive changes in western government and legal systems.

Must we kill all tort lawyers and their fellows in crime, before the human instinct to explore and pioneer can find an outlet in space?