Tuesday, July 26, 2005

I have decided to archive my brain farts. Mostly because I find them entertaining, but way too easily forgotten. I am hoping that the continuous writing down of brain farts will lead to a fart avalanche process which might result in a hideously delicious massive brain gas explosion.

Alternately they might just result in a series of smelly brain fart driven posts.

Now that I have made a decision to write down brain farts, my mind seems temporarily out of gas.

Oh, wait, its cycling back..

Brain fart entry # 1.

My brain has been farting all day trying to formulate several gaseous things. The first is in the field of international trade. I am basically trying to figure out how the US economy is managing the whole trade deficit problem. It seems to basically come down to the fact that with the end of the gold-backed currencies, the relative strengths of most currencies are determined by market forces and a country's currency stability in the face of market forces is based on its holdings of currency reserves, which are denominated in dollars. If somebody has euros and they need dollars they go and buy dollars on the currency exchange markets. The going price is the one that somebody is willing to buy/sell euros/dollars. In the case of some countries, mostly in Asia, the central bank steps in and determines what it considers an acceptable exchange rate for its currency and as long as it has the foreign reserves to keep selling its currency for the price it sets then it will succeed in setting the price... Even in places with market-based exchange rates, the central banks will sometimes step in to limit the fluctuations of the currency. The ability of these countries' central banks to defend their exchange rates is determined by the size of their own foreign currency reserves. This, in turn, is generally counted in dollars. Until the mid-20th the relative price of currencies and the ability of a country to defend its currency (should it choose to do so) was determined to a large extent by the amount of precious metals (gold,silver) possessed by countries.

If a country's gold possessions decreased, then the relative value of its currency decreased causing its exports to be more competitive, rebalancing trade and causing parity in a country's current account. Even without the gold standard, freely floating currencies should rebalance based on trade and their economies would readjust accordingly. This would be true in every case except one: the United States. Because you see we have the ability to print gold. This has in fact become our biggest area of competitive advantage. So, lets say the Chinese have the humongous low-paid, relatively low-quality work-force and produce low-capital intensive, high-labor intensive goods. The Europeans have a well-paid, high-quality work-force and produce high-capital intensive, and low-labor intensive goods. We got them all beat. The United States prints gold. Not only do we print it, but we package it and sell it abroad. Its our export. The whole trade deficit thing would make perfect sense if we replace the $ figures with pretend gold amounts. Say everytime you see $20000, you replace that with 50 ounces of gold..
So our accounts would simply look something like this:
Imports: (trade goods - oil, cars, computers, knick-knacks, etc) worth 3150000000 ounces of gold
Exports: (trade goods - airplanes, tanks, chemicals) worth 1786250000 ounces of gold and gold in the amount of 1363750000 ounces of gold

Now as long as you find 1363750000 ounces of gold every year, there is absolutely no problem. And of course there isn't, because we have discovered what alchemists dreamed of for thousands of years and we use printing machines to produce gold. Of course, dollars aren't really gold... However, many countries are currently perfectly willing to hold on to massive amounts of dollar-denominated debt and assets. So the international competitiveness of the US economy consists of its ability to create massive piles of dollar-denominated debts that could be sold abroad as if they were golden. The US consumers of course have no problem in complying with such an interesting demand and gorge themselves on cheap credit...

The US consumer's job is to spend, spend, spend (preferably on credit). Their debts are combined into huge blocks and sold abroad. Whats the point of actually producing something in the United States when all we need to do is to find new and innovative ways of packaging and selling dollar-denominated debt abroad? So, can there ever come a time when the world will not want our pretty green gold anymore? Nah... And even if that day comes, our economy will just simply and rapidly adjust and we will start producing knick-knacks to trade with the rest of the world that might not want to trade their goods and resources for our green gold anymore. Painfull? Nah. I am sure that many real estate agents will quickly and painlessly become engineers and go to work in factories. And the consumers will gladly trade in that 4WD SUV for a reasonably priced compact... No problem, right??

Brain fart entry # 2.

I am trying to figure out what it is that would make a good book. The answer is interesting characters and an interesting story. What however makes characters interesting? What makes their interactions interesting? And what makes the story interesting?

I guess that in order to be interesting characters must arouse some sort of emotions in us. This can be in the form of identification with their thoughts and feelings. Alternatively this could be in the ability of the characters to embody certain traits that we either like or dislike. Probably most effective then would be a character that we can identify with, but which has certain tragic flaws that we can also identify with but that we strongly like or dislike. A character that is similar to us, but wherein elements X, Y, and Z (on which we feel strongly) are somehow different and opposite from ours. Even better would probably be where we can see and even partially understand the flaws of the characters. This would cause some sort of internal contradiction between our understanding of the flaw and our condemnation of the thoughts and deeds resulting from it.

There are also less interesting characters that basically have a perfectly consistent character and off of which the main characters develop and differentiate. There is also a genre of ideal characters - superheroes, supervillains, but from my point of view they are much less interesting and appeal to a very different part of the brain. I'll have to think more about superheroes and supervillains and the whole appeal of completely unconflicted characters. Probably there is an appeal of a clear struggle with a clear and obvious result. An appeal to the ideals behind the superheroes which people aspire to achieve in themselves.

What makes interactions between characters interesting? In my opinion here there are two main aspects. The first is misunderstanding caused by imperfect information and character flaws. The second is deception and the reasons behind it. The more we can identify with the motivations behind deception and the flaws causing misunderstanding, the more entertained we are with the development of the relationships and the outcome of the interactions. This is especially true where the interplay of motivations and flaws has an unclear outcome or where the characters are developing over the course of the book causing the interactions to again have a non-obvious conclusion.

What makes the story interesting? Here I am a bit lost... I'll think about this one tomorrow afternoon while I am swimming in the pool... Probably something to do with uncertainty resulting from multiple narrative strands and multiple flawed characters coming together. This is probably combined with some aspects of a consistent central strand that is running towards an unexpected conclusion, that should in many ways be consistent with the interactions of all the characters and events and at the same time leaves you fulfilled and unrushed. Importantly, probably the conclusion must not kill the meaningfulness of the interactions of the characters that happened in the earlier events. Thus all the interactions and events must consistently lead to an unexpected conclusion. There probably lies the biggest pitfall... Often, either the conclusion is not unexpected, or the chain of events does not consistently lead to it.

Anyways, enough farting for one post... cheers.

Saturday, July 09, 2005

check out Google Earth.

Its really, really, really, really cool. In the US you can zoom in on what seems to be much of the country. In NYC it displays the way the buildings are constructed, dont know about other urban areas. Everywhere it colors and displays the street names among many other landmarks...


Thursday, July 07, 2005

X number of places to visit before you die...

So there I was looking at National Geographics' 50 'greatest places of a lifetime' to visit and of course as anyone else would do I was checkmarking the ones i've seen.

I am up to 18 out of 50, but interestingly they are concentrated in the world wonders and urban spaces categories... So I have seen 8/10 urban spaces (I haven't seen Rio or London) and 7/10 world wonders (I haven't seen Angkor, Machu Picchu or Mesa Verde). And thats counting the artificial world wonder of cyberspace which has no business there. While the Acropolis (and Greece in general) is overplayed and shouldn't be in this list, I'll take it. Then there is Vermont, Tuscany and the Alps which I'll claim on technicality of having been there at one point or another.

Here is a link. Do a count.

Tuesday, July 05, 2005

Hey e$.. This is a reply to

The Overstretch Myth

They are insane.

In order to consume a country must produce. We produce a lot less than we used to and consume a lot more than we used to. We consume more because there is a lot of cheap money floating around our economy, which causes our asset prices to rise and makes it seem that we (as individuals) are in good financial positions. There has been no corresponding inflation in goods because much of them are imported and their prices are kept down by currency manipulation by our trading partners, most notably the Chinese. The other side of this is that foreigners are using their dollar profits from trading to buy American assets and liabilities which in turn drives up the 'adjusted' savings rate that Levey and Brown talk about.

Were the exporting nations (mostly East Asian) to try to drop their dollars they would themselves be in a shitty situation. Their asset bubbles (supported by their US dollar assets) might crash, killing much of the domestic consumption, their currencies will rise in value, their goods will be more expensive in the US and they will face a huge production glut from a loss of US market share. Production gluts make for nasty economic consequences. This is the explanation for our trade deficit. Theirs is based on the assumption of perfect knowledge and fair play (ie: that foreign central banks are buying US dollars from their exporters because they think its a good investment), something that simply doesn't exist here. The change that took place several years ago when the buyers of dollar denominated liabilites stopped being foreign private investors and became mostly foreign central banks should have set off warning bells. What needs to be understood is that the problem is not in the already existing dollars that may or may not be dropped by Asian central banks. The problem arises in the fact that what is happening here is that stability of the system is based on somebody trying to maintain the price of a commodity whose supply is increasing at a very fast rate with no particular increase in the demand. We are continuously increasing the amount of dollars in circulation and somebody else is expected to keep buying them in order to keep their value constant. Its like MAD's freaky cousin.

A good quote is that the fiat dollar system is "a childish game in which, after each round, the winners return their marbles to the losers".

This is basically what is happening here... Yes this can continue for now, but to argue that this is healthy is insane. While the United States is trying to maintain some sort of hegemony over the world, the rest of the world seems to look at us as the Eloi to their Morlocks.

The first step is to stop the increase in the number of dollars being released into the wild. This must take the form of an end to US government deficits. The only way to achieve this is to kill the Bush tax cuts and in fact increase taxes on the top 5% income-earners and at the same time end these silly imperial deployments around the world. The next step is to increase the domestic production base. Since capital is cheap and will probably continue to be cheap the only thing missing to increase domestic production is to ensure a market for US-made goods. This would require a significant amount of government intervention, including tariffs on targetted industries which would also increase government revenues. When the market is ensured, this is when US corporate capital will be repatriated and used for investment rather than as dividends for additional consumption. The domestic production would eventually replace current consumption which is driven by phantom assets and easy credit with a more healthy consumption driven by real income growth for the middle and lower classes.

To rely on fair play, some strange inherent economic superiority and on the long-term continuation of the function of the dollar as the world's sole fiat currency is insane.

Saturday, July 02, 2005

Screw Africa, Japan, Europe and China; bring on the trade wars.

I am watching Live 8 on MTV and it seems to be a really cool concert and might actually push the G8 into lowering sending some aid to Africa and maybe even lowering tariffs on some agricultural products. Great you are thinking. There are people starving in Africa while the rich white farmers are making billions due to the trade protection and other subsidies given to them by national governments. The idea behind Live 8 is that they are not actually asking for your money, just your 'support'. Now, this is a bit misleading. When they are asking people to pressure the G8 into sending money to Africa, they are in fact asking the G8 to send money collected from everybody's taxes. This money is the citizen's money. They are also asking for a decrease in the protection granted to farmers in developed countries. This again is an appeal to redirect money that otherwise would cycle through the national economies towards the national economies of African nations. These are significant sums of money. In fact, unless we would like the abandonment of millions of acres of farmed land in the United States, France and Japan, these are steps that need to be avoided. The final effect of such steps in the United States would be the creation of a large country where there will be huge cities with huge suburbs and large stretches of abandoned land in between.

Pardon me, of course, but screw the poor African farmers. The national governments of Europe, America and Japan owe nothing to them. There is no social contract between rich nations and poor nations, and no responsibility for poverty or starvation can be placed on the doorstep of the G8 nations.

There is however a social contract between the national governments and their citizens. The governments have a duty to protect the economic well-being of their working citizens - be they farmers or industrial workers. Obviously, since their citizens also happen to be consumers there is a trade-off between the well-being of the producers and the well-being of the consumers. It should be noticed that as the wage-earning laborers are also the consumers, the destruction of the industrial wage-earning base limits the ability of the wage-earners to buy consumer products. In any case, the destruction of the industrial base through the free-trade export of industry produces higher profits for the owners of corporations, thus effectively redistributing wealth from wage-earners to those that own the capital. International corporations control almost all of the industrial production and the distribution outlets for consumer goods. Less than half of the US households own stocks, and of that the vast majority is in the hands of the top 5% of the population. This small minority benefits from globalizaton and free-trade. This is the explanation for the rising economic inequality that is prevalent in every country that does not protect its industry and its wage-earning base. A second problem is that the redistribution of wealth also should in the long-run have the effect of decreasing the size of the national market because people that make more money spend less of their income, as a percentage, on consumption than the middle class and the poor. They also have higher savings rates, but with the lack of controls on capital movement, are likely to seek higher returns on their assets and to send their savings for investment abroad. Why invest in a contracting national market with high labour costs when there are no barriers to imports when you can gain bigger advantages from investing in markets that are actually protected by their national governments? There is in fact no free-trade! The Japanese, the Chinese and others subsidize their own industries through the manipulation of their currency and through the limits placed on imports. The Europeans subsidize their own industries through giving money to unproductive industries only to make sure they stay afloat.

The current trade policy also effects the ability of the US government to collect taxes from its citizens and to fund its current spending commitments. The ability of the rich to use all the tax loop-holes at their disposal and the fact that long-term capital gains and dividends are also generally taxed at lower rates than middle-class incomes, mean that the taxes collected by national governments should be lowered by the redistribution of wealth thus further decreasing the ability of government to help its citizens.

Last, but most important is a misconception that seems to be common belief. This, the idea that the wealthy American national market is international public property is just plainly false. This vast market owed its wealth to the infrastructure created and maintained by the national government which paid for them using taxes levied on local taxpayers and on local tax-paying businesses. It seems reasonable to give those companies and citizens that created the infrastructure some advantages in access to the market in return for their contribution to its creation. It also makes sense to create national economic policy based on the interests of the majority that doesn't have significant stock holdings rather than on the interests of a large minority that owns the capital. This effectively means putting up trade barriers to protect whatever is left of American industry and to foster the reindustrialization of America. The protection of the US market will stimulate large investments by foreign and domestic companies that wish to continue to have access to the US market.

Proceeding from this point onwards on the path that has led to a situation where the US has a trade deficit of more than half a trillion is plainly insane. It should be understood that every dollar of the trade deficit is a dollar that is not cycling through the US economy. The impact of a half a trillion dollar trade deficit is in fact trillions lost to the national economy if you consider that money spent in a local economy circulates more than once through the economy. A trade deficit is one of the worst kinds of inefficiencies that a national economy can have. The only thing that has kept the US economy afloat is the fact that foreigners and foreign governments are still content buying up American bonds and companies thus ensuring that more and more money will flow out of the country in the future, and constantly undermining the ability of the US to pursue an independent economic policy.

Without reindustrializing through government protection of the US market for US-produced products, the United States is doomed to become a second rate power over the course of the next 25 years. Yes this is protectionism and there might be trade wars as a result. It might be about time we had a trade war. Who will be hurt more from this? The US economy, which is running a trade deficit of half a trillion dollars or the Europeans, the Japanese and the Chinese who are running a surplus? A trade war, or the threat thereof seems to be the only way of bringing US trade policy and economic relations between the US and the rest of the world back to a sane long-term policy. So, basically as I stated at the top, screw Africa, Japan, Europe and China; bring on the trade wars.