Author: bill

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My Favorite John Maynard Keynes Quote

I am reading Keynes Hayek: The Clash that Defined Modern Economics and I am once again amazed how similar the economic problems and solutions of 1920’s and 1930’s are to today’s problems and solutions. Last night I heard James Grant on Consuelo Mack’s Wealthtrack make the classical Hayek argument against government intervention in the market. Since I am convinced that we cannot “grow out of our mess” because the consumer has too much personal debt and the age of our population should result in reduced consumer spending compared to previous generations, the logical conclusion is for our government entitlement programs to migrate to “pay-as-you-go” financing. The process of weaning Social Security, Medicare, and Medicaid from deficit financed programs to sustainable programs will be difficult. Here is what John Maynard Keynes said about it.

There has never been in a modern or ancient history a community that has been prepared to accept without immense struggle a reduction in the general level of money income.

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Lessons Learned in Brewing Beer

I have brewed three more batches of beer since my brewing Hank’s Hefeweisen and hopefully got a little smarter. In keeping with the summer temperatures the first brew was California Steam, the second was Autumn Amber Ale, and the final one was a request for Pumpkin Ale.

Lessons Learned

  1. Don’t worry too much about the mistakes! The first lesson I learned is that it is hard to screw up beer. I didn’t take any specific gravities on my first batch and it turned out fine. Even when I screwed up my second batch by not putting enough water in to reach the 5 gallon mark, it came out fine, too.
  2. Make sure you get to the 5 gallon mark or you will not hit your starting specific gravity. On my second batch I started measuring specific gravity and I thought I was measuring it wrong until I bottled the 45 bottles rather than 50. I realized that my problem could be solved by turning on the lights and paying close attention to the liquid level. It is a little extra work but I put my batch on a table so I can get a eye level view of the liquid. For my last three batches I hit the starting gravity every time.
  3. Do not skip the secondary fermentation with the California Steam. I went out of town the weekend I should of been transferring the beer from the primary to the secondary fermenter so I went directly to bottles after two weeks in the primary fermenter. The California Steam turned out very nice but it has a little sediment on the bottom of bottle.
  4. I buy my two beers at a time to save shipping costs. The shipping costs for one and two beers is about the same.
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What was Ambassador Stevens doing in the Benghazi consulate when it caught fire?

I was not going to write any more about the Benghazi Attack since the Administration has finally started to admit that the press was correct but I still have one lingering question. What was so important that Ambassador Stevens and his intelligence officer had to be in the consulate when it caught fire? This looks like an avoidable mistake. According to the NYTimes a significant portion of the staff was either employed by the CIA or working for them at gathering intelligence about the local militias and their post revolution transformations. Even if the information was very sensitive I am still confused why the Ambassador needed to personally supervise the document destruction. Surely they had a plan for when and how to destroy the sensitive documents without the Ambassador’s involvement?

The attack in Benghazi, Libya, that killed Ambassador J. Christopher Stevens and three other Americans has dealt the Central Intelligence Agency a major setback in its intelligence-gathering efforts at a time of increasing instability in the North African nation.

Attack in Libya Was Major Blow to C.I.A. Efforts – NYTimes.com

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Deciphering the Mystery of the Benghazi Attack

After listening to Ambassador Rice on NBC explain that the Benghazi attack  “apparently began as a spontaneous protest against an anti-Islam film before turning violent”, I got annoyed and decided to do my own investigation. There are a lot of loose ends that are not explained with the “spontaneous protest gone bad” explanation.  Since this attack constitutes murder in most countries,  I decided to use the means, motive, and opportunity framework to explore the facts of the crime. So lets start out with the first question of any investigation.

What was Ambassador Christopher Stevens doing in Benghazi?

According to a Jerusalem Post article Ambassador Steven was “had gone to the consulate in still-restive Benghazi to oversee its evacuation after the demonstration had started.”   The Jerusalem Post wrote on September 12th,

"In recent days, Islamic groups in Benghazi had been calling on people, using social media websites and e-mails, to go to the consulate and protest over the film. They called on normal civilians to go and attack the consulate, and many people followed them. They were firing at the sky and trying to storm the consulate, so the guards from inside started shooting at them, and it deteriorated from there,” a Benghazi-based reporter for an Arabic satellite channel told The Jerusalem Post.

At some point Ambassador Steven decides that an evacuation of the consulate is imminent so the Ambassador and the information management officer, Sean Smith, go to Benghazi to supervise the evacuation and disposal of potentially sensitive information. I have been unable to determine when they arrive but I assume it is on September 11th.

The Scene of the Crime

No crime investigation is complete until you visit the scene of the crime. In this case I rely on the BBC to point me to the right place on Google maps. Here is the Google maps location, http://goo.gl/maps/2KiQq.


View Larger Map

The consulate is in the center of the picture and I am guessing that the “safe” house are the two buildings to its immediate right. BBC described those buildings taking fire and other news stories said the safe house took fire. What I noticed immediately is the amount of open space surrounding the consulate. When you zoom out it looks like the consulate is a kilometer or more from the more heavily populated areas. From the looks of the surrounding neighborhood I am guessing that the protestors were on unfamiliar ground.

Options I Disqualified

One option is a terrorist group linked to al-Qaeda. They would have access to the weapons and tactical experience. However, their motive would be different than other terrorist groups. Although they would not mind embarrassing the US, the fire in the consulate and attacking the “safe” house doesn’t fit their profile. They probably would want a shot at the intelligence information in the consulate and setting fire to the consulate defeats that purpose. Attacking the “safe” house would be an unnecessary risk.

The “spontaneous protest gone bad” explanation used by the Administration and Ambassador Rice is pretty lame damage control. This implies that intelligence information warning about the attack was ignored and Ambassador Stevens presence in Benghazi was unrelated to the protests. Obviously this consulate is not as convenient to downtown as Tahrir Square is in Cairo. Somebody had to work hard to keep this protest going. Although I understand that the protesters were angry about the film, shooting assault weapons into the air was probably the limit to their anger. A “complex” attack involving mortars and RPGs are over the top for the protesters.

Means, Motive and Opportunity

Here is how I think the crime went down. Ambassador Stevens was likely aware of the news reports made by news agencies like the Jerusalem Post. When the protest started escalating he decided to evacuate the consulate and went to supervise the sensitive information disposal. I suspect that a terrorist group got information about the consulate evacuation.  A NBC news report called the attack “complex” but failed to explain how the attackers located the “safe” house. If the “safe” house was next door, the question is moot. When you look at the crime through the lens of means, motive, and opportunity, a terrorist group with a link to Gaddafi is the most likely culprit. They had the means. They probably still had access to heavy weapons and trained soldiers. Lobbing six mortars on the path to the villa would be easy for experienced soldiers. Under the cover of a protest they had the opportunity to scout and plan the attack of the compound. Escalating the protest into a fire fight with security forces protecting the compound would fulfill their desire for revenge. Then I think things got out of control. Setting fire to the consulate and attacking the safe house are acts of passion. For a group of loyalists to Gaddafi this attack would be sweet revenge.

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The Problem with Reforming Big Government Decision Making

My favorite quote over the last two weeks comes from the Planet Money podcast Episode 394: Why Taxpayers Pay For Farmers’ Insurance. I immediately thought of Ms. Pelosi’s remark about the Affordable Care Act in which she states, “We have to pass the bill so that you can find out what is in it”. Here is the YouTube link, http://youtu.be/hV-05TLiiLU.

Planet Money talked to agricultural economist Dan Sumner of the University of California at Davis, who has some theories about how the program persists. Sumner recalled the sage words of Norfleet Sugg, former executive secretary of the North Carolina Peanut Growers Association and later head of the Agricultural Council of America, who explained to him: “The peanut program is so complicated, there’s only three people in the world that actually understand how it works. It’s my job to keep it that way.”

Just when I thought that big government was the culprit Planet Money gave us another update on the problems with the decision making in a much smaller government with the podcast Inside America’s Most Indebted City. The problems with the decision making in Harrisburg may even result in criminal charges.

From these two podcasts we can see that a major distinction between large and small government decision making is that the residents in Harrisburg are definitely feeling the effects of bad decisions. People have had their pay cut and some residents have moved out of the city. The effects of bad decision making at the big government are more benign. Although the decision making at both the local and federal level may be equally bad from a moral or government effectiveness viewpoint, the effects at the federal level are more muted. The primary advantage of bad decision making at the federal level is that it does not result in cuts to government services. Of course, this can change quickly if the markets start to punish the government for bad stewardship. It may seem a strange argument that we want the markets to punish the government finances for bad decisions but not enough that we might actually feel the effects.

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Half of the particulate pollution in North America comes from other continents

According to a new study by researchers at the University of Maryland, College Park, NASA Goddard Space Flight Center, University of Maryland at Baltimore County and the Universities Space Research Association:

Roughly half the aerosols that affect air quality and climate change in North America may be coming from other continents, including Asia, Africa and Europe, according to a new study.

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Most of the pollution migrating into the North American atmosphere is not industrial emissions but dust from Asia, Africa, and the Middle East, , Yu found. Out of the total annual accumulation of foreign aerosols, 87.5 percent is dust from across the Pacific, 6.25 percent is composed of combustion aerosols from the same region and 6.25 percent is Saharan dust from across the Atlantic.

Although they did not discuss the ratio of dust to combustion aerosols from North America, I would not be surprised if the ratio was even larger for particulate pollution in North America. In a previous post, The Battle over Clean Air Standards, I found it easy to conclude from the EPA site on asthma that combustion aerosols have a weak link to asthma. If dust is the major contributor to our problem with particulates then the regulations on coal plants are a very small part of the solution. Every time I look at the science behind the increased coal plant regulations is I find the argument for stronger regulations is just not there.

Half of the particulate pollution in North America comes from other continents
Wed, 22 Aug 2012 23:07:07 GMT

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The End of Thirty Years of Irrational Debt Spending

Recently I have been thinking about The 4% Solution: Unleashing the Economic Growth America Needs advocated by the Bush Institute, the CALPERS report that said that they had 1-year return of only 1%,  sequestration, and Mitchell’s Golden Rule. For those unfamiliar with Mitchell’s Golden Rule it states that “the private sector should grow faster than the government”. In this discussion I will use the stronger form which states the private sector should grow faster than the growth in government debt if we want to grow out of our mess.

The 4 percent solution is wonderful idea that appeals to both parties. It states that we should focus our economic planning on those plans that help us achieve a 4 percent growth in real GDP. The problem with this plan is that it is primarily aspirational and is not significantly different than the plans of our last four presidents. In fact it does not address the problem that has plagued our last two presidents, we spent money like we already had the 4 percent growth money in the bank. This has been readily apparent with the economies under the last two presidents. Two different plans were used, some political objectives were achieved but both plans failed to generate the job or GDP growth. We did achieve a fairly spectacular increase in public debt.

CALPERS is the poster child for pension problems in the United States. Like most pension plans they expect their portfolio to achieve a 7.25% return. This seems reasonable since they earned a 7.7% return over the last twenty years. The problem is that their 1-year return was 1%, their 10-year return is 5.7%, and they are spending about 6.4% of their portfolio on benefits. This doesn’t work. They look like they desperately need the government to be successful with their 4 percent growth plans or they might have to resort to Plan B.

Sequestration is not a plan but a veiled threat that becomes more unveiled as we get closer and closer to the spending cuts. The idea of sequestration is not to subtle hint that we would like to chain our legislators to the bargaining table until they made a budget deal that cuts spending. So far the threat has not worked. The Simpson-Bowles and Ryan Path to Prosperity plans are much better than sequestration. Both plans are much better at growing the economy while structurally reforming the spending than sequestration. In fact I think the end game is a budget deal will likely be some variation of one of those plans that partially satisfies both parties. I think it is interesting to speculate what the presidents over the last 100 years would do with the situation that President Obama has in front of him. I suspect all of them would see a budget deal as one of the most significant accomplishments of their administration. I can almost guarantee that the last four presidents would have done a deal before the end of the first term. In my life time all of the presidents except for the current president have been willing to reach across the aisle to get a deal done to pass major legislation.

The key to any successful budget plan will be how to grow the private sector faster than the government debt. This is really simple math. You get a better bang for your tax buck with an increased number of private sector employees. The less these employees are dependent on government spending, the greater the cash flow goes to the government. Adding private sector employees is more efficient at increasing tax revenues then via an equal number of number government employees. For at least the last twelve years growing the government debt does not appear to be helping the GDP or the private sector very much. Here is a graph I created to show that relationship. I am using the S&P 500 as a proxy for the wealth and health of the private sector. To paraphrase the old GM line, what is good for the private sector is good for the country and our pension plans, too. In this graph I deflated the S&P 500 and Total Public debt using the GDP Price deflator so that all three indicators reflect inflation adjusted values using the same deflator. In the graph it looks like the Total Public debt helped the S&P 500 in the 1980’s and 1990’s and significantly hurt it after 2000. I was somewhat surprised to see that an increased Total Public debt does not seem to have helped the GDP at any time on the graph. The GDP kept trucking along at the same pace with only a minor blip during the recessions. Here is an interesting question, “How did government spending let alone debt financed government spending became the preferred vehicle for growing the economy?”