Rolling Reconnect - what it was.

House Bill 2157 ended rolling reconnect and decoupled Oregon from the bonus depreciation business tax break. What more is there to understand? Ok, just kidding. Probably the most laughably incomprehensible lobbying hand out ever was circulated earlier this month by an economics think-tank for the floor vote on the bill. You can read that exact same article here: http://www.ocpp.org/cgi-bin/display.cgi?page=iss20090128stop

I'll try to give you a better description. First, I'll attempt to define some things clearly:

Depreciation: basically the amount that a businesses' machinery, buildings, and other assets lose value every year. Businesses keep records of this as part of their accounting. They have to use formulas that are set by the government, cause the government doesn't want anybody to have any fun.


Tax Credit: a reduction in total tax liability, often expressed as a downward revision in taxable income. In the case of a business, how that business writes its books can give it depreciation tax credits. So, how it does its accounting, and therefore its depreciation calculation, directly affects its taxable income. This is why the IRS audits businesses from time to time, and why the government is all up in businesses' grills.

Some legislators or lobbyists (nobody I worked for was directly involved in this) figured out that the federal stimulus might contain extra tax credits for businesses based on federal formulas for depreciation. The problem was that the fed wasn't just writing it as a tax credit, but actually declaring that these businesses could claim "extra" depreciation. Oregon, by law, used the federal depreciation standard - we were 'automatically coupled to bonus depreciation' to borrow language from the OCPP. Therefore businesses that got a federal tax credit for depreciation would get a second, bonus state depreciation credit. Thus, the federal stimulus would lead to a state level budget shortfall.

So, 2157 ended that, meaning that the businesses only got the federal credit, not the state one too. Oregon businesses must now track depreciation separately for both the federal and state level if the fed chooses to pass a bonus depreciation allowance.

Hope that helps....

Ban Escalators

Today, a little girl had her hand mangled in an escalator at a JC Penney in Anchorage.

Some will assert about this story that it was irresponsible for the mother to leave her child unattended. Others will point their fingers at JC Penney for failing to install modern safety features on the escalator. What I ask is a more profound question.

Why does something such as an escalator even exist? It seems that it is a trade where we expend resources producing a machine that uses power and is dangerous in exchange for the convenience of not having to expend quite as many calories going up and down staircases. Malls use escalators to force patrons to walk past more products and storefronts in search of the one going in the desired direction. Which of these 'benefits' are quantifiable as things that have improved our quality of life? To me, this is just another sad nail in the coffin of the revealed preference model.

Are we serious in our desire to promote a safe, energy efficient society? If so, we should embrace a future where there are no escalators.

Laffer, Revisited

Today, out of boredom, I made a rough, category and assumption driven laffer-type model designed as a kind of test for the future development of my ideas. My goal was to do a careful and component driven model of the Laffer Curve, which uses assumptions of both incentive and savings/investment interaction to predict a threshold beyond which increases in nominal tax rates will reduce revenues. This is not a growth model; it is an equilibrium model. Time is therefore not a factor in the model. We cannot accept arguments regarding the rate of economic growth, inflation, etc.

Every dollar spent is split between savings and demand. Savings is the variety of ways that the dollar is retained for later. This may be a variety of things, ranging from pure investment to stashing, to what amounts to demand increases.

Demand is the ways that money leaves the hands of the individual. Demand has three components: taxes, autonomous spending, and consumer spending.

Returning to the income equation, we have the following: 1 = S + D ; Which when D is analyzed for its savings component gives S + D(S + D(S + D(.... = S + SD + SD^2 + SD^3... which is easily verified to equal 1.

From this we can make an incentive hypothesis. Laffer made one, because without it there would be no Laffer curve. His is simple, and it says that as the tax rate increases, the incentive to produce wealth decreases. Incomes will decrease and therefore so also will marginal tax revenue, creating a parabola. There is a significant problem here, that as tax rates increase we do not know whether incentives will decrease uniformly. It seems to me that they will not, and various criticisms of the Laffer curve simply shift the peak out of symmetry, usually toward the higher tax end.

The meat of my version of this model is to assume that individuals are ambivalent between money spent autonomously and money taken as taxes. Furthermore, diminishment of income should spurn compensatory increases in wages, which would drive up prices, and lead to a certain forced reduction in real autonomous spending. Finally, we assume, as Laffer did, that when incentives are zero, production is zero. There is nothing wrong with the claim, but it is probably impossible to bring such a situation about. In fact, if you consider that the economic models take all of our desires into account, some of us will be raving nationalists and work out of altruism which cannot be effectively taxed to zero. This impossibility opens the door to discontinuity in the graph as tax rates become higher.

I intend to make a model that also explores a second criticism (in a certain sense). We postulate that changing the tax rate changes consumer spending but does not change autonomous spending. Depending on the savings level, the increase in taxes will mostly be taken out of savings, or mostly be taken out of spending, with the equilibrium savings rate being a function of the tax rate. The foreign components are leaks of money out of the economy, making them another key aspect of what the maximum will be. Even though the US savings rate is like 0% I'm going to pretend we have a savings rate of 4%. As a function of the tax rate, the savings rate will decline to zero more or less asymptotically.

So, to start my model, first i find the tax rate. We know that total government revenues for 2006 (a good data year) were 2.2 tril, and the GDP that year was 13.1 tril, giving an effective tax rate of 16.6%. Because the data I can get for autonomous spending includes some uber-right wing assumptions, I'm going to go with what I was looking at when I lived alone. Mine was about 43% of my income (I'm not including taxes in this!), meaning 43 cents out of every dollar went to food, bills, and rent. If I add in my student loans (which I am paying now but were still in their grace period the last time I was employed), the number jumps even higher!

Next, I denote four component demands, each being a function of different variables. These demands have a stimulus effect on the economy that is a constant calculated from econometric data. Dt, the tax generated demand, will be demand generated by government programs. We can expect this to be the highest; one study found that every dollar spent on government programs produces 1.4 times as much stimulus as a dollar spent in the private sector. We know private sector spending, thanks to my handy calculation taken from my own expenses, is divided up about evenly between autonomous and free spending. I will assume that free spending has twice the stimulus effect of autonomous spending. From this, we deduce that autonomous spending would have a constant of about 2/3 and free spending would have a constant of about 4/3. Finally, domestic investment will be a function of savings and will have a constant of 0.9, which is a number I just made up.

Percentage change in the four component demands creates a relative scaling of the GNP. Hence, if the total Dt+Da+Dc+Di were to increase by 10%, the GNP would increase by 10%. This is then multiplied by the linear decrease in output produced by consumption decreases. This is the roughest part of the model, and I would have to do a lot of research to come up with something better.

Finally, everything is multiplied together to get a relative change in revenue, with 100% being our current situation.

So, how does my graph compare to Laffer's?



It is worth noting that the maximum here at 54% is not the nominal tax rate of 54%, or the top tax bracket being at 54%. This is the total of all revenues divided by the GNP. This doesn't have any impact on tax equity; in fact I am tacitly assuming something like a flat tax, and the number might be higher than 54% if most of the income is collected from the rich. So, at the very least, we could double our tax rate in America and expect to gain about 75% more revenue. We can also boldly pursue a much more progressive tax code.

My personal hunch is that if we could reduce autonomous spending in the real economy, it would be a huge economic boost. My favorite plan for this is government land purchases. Ideally, the government could be our landlord. That's one of the biggest disconnects between democracy conceived and implemented. If we control the government, shouldn't it be in control of something?

The Societal Gains of Mass Production

The above graph is an idealized model of the relative gains to production efficiency and relative losses from destruction of traditional lifestyle that accompanies the adoption of varying degrees of mass production of goods.

No society will be at either extreme of this graph. At the left end, there is the society where nothing is mass produced. However, there are always things which are better left done in a uniform or assembly line fashion. Many of these are component goods such as paper; others may require high degrees of quality assurance, such as condoms. At the right end we find a society where all good are produced in factories. Not even so much as dinner in the evening is done by hand. Perhaps in this world all food is cooked and eaten in massive cafeterias with giant industrial ducting sucking air toward a depressingly high ceiling. This, and other meditations, indicate that the marginal loss is least when the first unit of a respective type is introduced, and greatest when the last unit of the other type is removed.

The gains from mass producing any commodity come in the form of efficiency of labor, commonly called productivity. Productivity is good because it means less labor is used to produce a given quantity of goods, meaning that either less work is required in total and therefore more leisure is available to the populace, or more total goods can be produced at a given level of employment, or some combination of the two. Therefore, the society that is more productive will generally have lower levels of employment and greater availability of goods.

The losses from mass producing any given commodity come in the driving of traditional craftsmen (truly craftspersons, but I just don't want to make my writing opaque by using awkward, gender ambiguous language) out of the market. Craftsmen produce goods that are artistically diverse, and therefore create a rich cultural tradition, whereas mass produced goods are by definition homogeneous. Furthermore, a rich cultural tradition provides a context in which individuals are able to express themselves, either through Petit Bourgeoisie or non-commercial expression. Therefore, having a high level of traditional craftsmanship implies that a society will offer artistically diverse products and greater opportunities for individual creativity.

Total consumption bundles are only composed of goods and services. Of the total goods consumed, each good is either mass produced or the work of a craftsman. To a certain degree, movement along the distribution will lead to changes in total goods consumed, with more being consumed as one moves toward complete manufacturing of goods. Now I postulate a bliss point, which is a saturation point where individuals do not desire more goods. Since the consumption curve (not pictured) is smooth, a diminishing marginal propensity to consume as the availability of goods increases is the only means of achieving a bliss point. Assume now that the means of production, affluence and availability of goods are sufficient for the bliss point to fall in the spectrum of mass production pictured. Following along the lines of a typical Keynesian employment argument we see that as new manufacturing jobs are added, demand for goods will not expand sufficiently to maintain a steady level of employment. Therefore, employment levels will go down as expanding mass production increases average productivity, or to put it nicely, more people will enjoy more leisure time (work is not water, after all). If the reader is not satisfied with my argument in this paragraph, a much more detailed argument of a similar character has been made by Karl Marx.

A higher level of total good consumption is generally correlated to higher levels of benefits like adequate nutrition, shelter, and information availability; harms such as environmental destruction and anomie; and indeterminates including personal effects, luxury items, and consumer individuality.

Following my argument two paragraphs ago, we may expect lower employment to accompany high levels of mass production. A lower level of employment is generally correlated to higher levels of leisure time. Though generally accepted, the idea that a person should work at least 40 hours a week can be meaningfully challenged. Work is not inherently virtuous. Leisure has benefits like greater time for childraising, education, and relaxation; harms such as unemployment and criminal mischief; and indeterminates including controversial labor distributions.

Because the production levels of hand crafted goods are low, the diminishing marginal propensity to consume will not significantly affect craftsmen. Craftsmanship, however, does require individual skill. In addition to knowledge of the craft, it also involves business savvy, interpersonal finesse, creativity, and risk taking. Not all individuals will possess such skills, but the degree to which they can be learned is probably high. Communities will not be free from exceptions to this rule of merit, such as rivalries, oppression of individuality, and the like. However, subcultural differences make the negative behavior of other cultures stick out while the negative behavior common to our circles goes unnoticed. Specifically, I reject as completely baseless the belief that poverty and a lack of industrialization have any causative effect on the formation of such negative behaviors in societies. Therefore, a society that features more crafts will be one that rewards excellence, and because of the assumption of learnability, cultivates artisan traditions in order to make such excellence teachable.

A higher level of artisan traditions is generally correlated to benefits like cultural or artistic diversity, and consumer choice; harms such as supply surpluses and shortages, lack of information collection, and lack of documentation; and indeterminates including informal assessments of quality and loss of national identity.

A higher level of rewards for excellence in individuals is generally correlated to benefits like community participation, greater internalization of ethical principles, and higher self esteem; it has no definite harms but does have indeterminates including hypersensitivity to social injustice, overabundance of schools of thought, easy identification of the mediocre, and docility.

It is clear from this graph that craftsmen play an important role in a society. Furthermore, there is cause to believe that in the regulatory environment favored by classical liberalism, mass production is unfairly favored competitively against craftsmanship. It is worth observing here that the regulatory environment is not totally separable from the definitions of concepts in classical economics. Liberalism of markets is both a political and economic stance, and it is synonymous with both the state of regulation that it favors and the economic models that justify it.

An analysis of the effects of the respective approaches reveals that in the case of mass production, classical liberalism gives the results of mass production first to the Capitalist. He is first to recieve adequate shelter, nutrition, education, relaxation time, and even time to properly raise a child. His control of information is best seen in the proliferation of advertising, specifically through the power of corporations to define our very goals in life. The harms of mass production do not affect the Capitalist until the very last. It is the masses that suffer from environmental destruction, anomie, unemployment, and crime.

It is the opposite that is true for the craftsman. As the number of craftsmen in a society increases, few of the benefits accrue directly to the craftsmen. While a certain critical mass of craftsmen may be necessary to build an artisan tradition, this is not generally the case. Certainly, the increases in self-esteem are felt by the craftsman, first and foremost. However, the remainder of the effect that is created is felt by the society as a whole. The fabric of the society itself is woven from the perception by the individuals that the role they are playing is important to the society and therefore allows them a certain degree of control. When the harms associated with traditional craftsmanship are felt, they are felt by the craftsmen themselves, who go out of business when supply is imbalanced, and suffer first for their own lack of documentation.

The interplay between these two is therefore one where a natural subsidy exists for mass production. As each new large-scale business is founded, the entrepreneur never reimburses the remaining craftspeople for the work they have done in producing a stable society that has a docile consumer base of ethical workers, marketable artisan imagery, rich natural resources, low crime, and a healthy community that will attract the necessary skilled foreign workers. As mass production drives the craftspeople out, the social decline is gradual, but very difficult to reverse. Methods and traditions are lost to extinction. It helps least of all that laws and customs that did not evolve with mass production in mind provide security to the capitalist once his act of injustice has come to light.

Any historical example of this process will show how wrong it is to equate the best interest of the individual with that of the society through any simple set of relations. To do so presupposes a set of conditions where interrelations feature symmetric negotiating power. On the contrary, human interrelations are asymmetric, with a symmetry only in the statistical aggregate. The individual who stumbles upon the power to force his costs onto others will on occasion do so, and even if his act is inadvertent, evolutionary effects dictate that eventually such individuals will dominate over others. The only check on this effect, and probably the reason there is justice at all in this world, is that humans have evolved to have an innate sense of fairness. However, our innate ideas are relics of an evolutionary past that predates anything resembling modern industry. It is utter madness to believe that our innate ideas, specifically our concept of fairness, do not have a profound effect on economic markets. We must therefore be weary that new technologies such as mass production do not mislead the heuristic reasoning that creates the average person's concept of justice.

It is also possible that the destruction of traditional methods will almost always precipitate an environmental disaster. In times without modern technology, a community that made such a choice would simply perish with it. Today, we have the power to destroy everything.

So, I guess that is as good an argument as any for a resurgence of crafts movements. I am not advocating the complete abandonment of mass production. Rather, we should recognize that there are positive externalities to be rewarded for crafts, and negative externalities to be taxed with regard to mass production.

CPI / Nominal Gas Prices

Illustration of Logarithmic Correlation between CPI and Nominal Gas Prices



Purple is my rough, non-mathy estimate of the price curve.

This makes sense to me, because gas prices really have outpaced inflation. Furthermore, as prices rise, substitutes become attractive so there is a natural decrease in the slope of the line. Note that current prices are a bit wierd, having bumped way to the left. However, just as there appear to be supply shocks that reduce the gas supply, so also are there temporary gas gluts. I don't anticipate these being reflected in the CPI because the CPI is incredibly smooth (it takes a long time to change your way of life).

To answer a question I was wondering about: Gas prices have clearly outpaced inflation during what could be considered a "bubble" that started in 2000. The cost of gas outpaced other goods by a considerable margin.

Data comes from the US dept. of Labor CPI data and DOE gasoline price data.

Incubating Youth Metamorphosis

The American Prospect recently ran an article about tapping into Obama's Youth Movement. It was a series of 2-3 paragraph snippets by different political type people.

I'd like to share my own response on the issue. Naturally I'm probably going to come across as a bit bitchy because I don't think it is Obama that got me involved in this election. Mostly, it was me that got me involved in the election. So, here's what I have to say:

Liken the present, and all the problems that the present day entails to a grain of sand. Now imagine that grain of sand at the edge of the Ocean. That Ocean is the future. The future cannot be integrated into the present - rather the present is always steadily drifting into the future.

Similarly, it is not the youth movement that needs to be absorbed into the greater sphere of democratic or liberal politics. Rather, it is the connections, the resources, the wisdom, and the experience of older Americans that should be absorbed into the youth movement. Young leadership is the way of the future. Supporting young leaders in positions of creative independence ensures that the convictions they currently hold will develop into a rich and enchanting ideology, capable of guiding us in the future. Current leaders should focus on their legacy. That is - after all - the mark of greatness...

One thing I admired about Obama's campaign were his efforts to make politics fun. Although much of it was transparent marketing - such as the flurry of emails with donate links - some of it was mildly revolutionary. Obama had a feature where people could organize parties to watch debates or speeches he was giving on television. This is a wonderful tool but it need not be limited to television, and it is more than just another way to entice volunteering, voting, and donations. It need not be constrained to a small aspect of the campaign.

Instead of scrounging for donations, the Democrats of the future should boldly offer services for every dollar given. Dollars and volunteering should aggregate together. Memberships should put holders into social groups that are organized by level of involvement, by geographic region, and by interest. Even so, the Democratic party should boldly reach out to those who disagree, and stress the power of reason by disavowing all clannish mentalities. Limited edition and special gifts should be readily available and marketed. Every single event or issue can have its own mascot drawn by local artists and feature local performances, creating a rich and interesting current history. Rather than being dependent on advertising content and the media, Democrats should be hosting advertising, earning referral bonuses, and generating press. A transformation of social mores must begin, where we once again invite strangers into our homes, where we don't judge people by how they vote (excluding elected officials of course), and where each and every member is a free and equal part of the party as a whole.

Democrats should work to get all people of a liberal persuasion networking. There are so many lonely, politically minded, young men and women out there who would willingly dedicate themselves to political causes just for the chance to meet people. Party leaders should create free lectures, roundtable discussions, content-oriented contests, small scholarships and anything else that can bring young people together to make friends. This strategy is a patient one, in line with Obama's managerial philosophy. If implemented, such an approach will build untold party loyalty and create a new generation of sterling political leaders.

Housing and Stock value: My analysis

Though it is possible to use very tricky and controversial theories in addressing what has been going on in the US economy for the past year or so, I have yet to see a thorough, straightforward analysis that is based on simple, orthodox thinking in real estate, finance, and economics. The general debate revolves around crackpot theories dealing with big oil, lack of available cash, and points of policy such as tax incentives or various regulatory schemes having been repealed. I'm sensing a trend toward scapegoating: Lenders, Builders, Wall Street Execs, and now Unions. Each of these ideas may have a grain of truth to it, but the proponents of the theories do not seem to have a grasp of the relative magnitude of their pet issue. There is also very little thought being directed toward integrating the pieces into the whole.

It is certainly true that the crisis is not the result of a single cause, but rather several events, trends, and policies appear to be interacting. If only a single thing were to go awry, even a major one, it would be easy to fix. It would also, rather than "dragging everything down with it", tend to be counterbalanced by the vibrancy of other parts of the economy, and immediately reverse from ruin, trending toward a stable level. An orthodox, straightforward, simple analysis should provide some good guidelines for estimating the magnitude of each smaller crisis, and how the total situation can be modeled. With a little luck, the model may even be predictive in the short term, providing a general trend for happenings in the next year or so. This analysis can also serve as a meter to which alternatives can be compared.

I'm going to start with a reference to the great depression. I'll outline what I believe caused it, and then I'll start comparing our situation in the great depression to what we face today.

The great depression began with the stock market crash of 1929. The market dropped, at first precipitously, losing 40% of its value between September and October of 1929, then sinking more slowly before reaching its minimum in 1932, having just over 10% of its 1929 peak value. The cause seems to be two things. First, there was a large downturn in factory production earlier that year. In a well known relationship, this brought down the sale, and building, of new homes. Secondly, the stock market itself was filled with leveraged investments that had the quality of magnifying any upturns or downturns according to what was effectively a geometric series.

It is also worth noting that other elements of the economy were weak during that time. Agriculture was an industry of poverty with mounting ecological problems (such as the dust bowl) and persistent surpluses. Britain chose to return in 1925 to the Gold standard at a level that is generally agreed was too high relative to the value of the dollar. This decision, made by Winston Churchill during his time as Chancellor of the Exchequer, was criticized by Keynes, who - prophetically - foretold that it would cause a world depression. The speculative frenzy of the 1920s was also financed largely by debt, leaving banks vulnerable. New wealth created in the United States during the decades prior to the great depression was concentrated in the pockets of the rich, a condition that some argue causes instability. New technologies, such as automobiles, proliferated. People began to live in cities more and in farms and villages less, bringing new challenges for urban planning. These conditions, together, probably all had some effect on the depression that followed, mostly by undermining whatever self-corrective forces normally exist in the market.

In our modern situation, we have a serious drop in the stock market. From the peak of over 13,800 in December of last year we've reached a low of 7,800 in early October of this year. The "crash" is best described as the period of steep decline from 11000 that started at the beginning of October. The 1 year drop corresponds to a 43% decline; the 1 month drop corresponds to a 29% decline.

Our crisis was also being "led" by a loss of manufacturing jobs in America, beginning in 2000 and continuing to the present day. GDP has not followed that trend, proving unremarkable and unresponsive, with 2.8% growth followed by -0.3% growth in the past two quarters. So, it appears that even though manufacturing jobs are being lost similarly to the lead up to the great depression, the reported level of actual production has not declined. This may be because the reporting is faulty, but part of what is going on is probably that we are more dependent than before on intangibles, services, and high tech products.

The decline in housing in the United States has nicely mirrored the decline in home building prior to the great depression. In our case, we have a general decline in economic prospects. This decline plays out in a magnified, clustered fashion, since local exports are literally the backbone of a local economy. Nation-wide statistics are merely the compilation of discrete events, therefore the continued decline of a national economy will produce an effect located in clusters where the industries affected physically reside. Each cluster will magnify the economic problems for the local region, which not only discourages new building but also undermines property values. This is not, however, the whole story of the housing market. There is certainly something to be said for the use of Option-ARM mortgages and the associated speculative excesses of banks, but these tools are really just a lending scam that wouldn't have had such a detrimental effect on the economy if not for falling housing prices. A mortgage is at much greater risk of default when the property value of the associated property declines. Furthermore, the demographic trend in the US right now is a away from the urban lifestyle in which much of our mortgage debt is locked. Data shows that condominium prices have increased dramatically over the same period and in the same regions where home prices have stagnated or fallen, and survey results show that Gen-Xers and my generation are more inclined to live in the city. Combining our changes in taste with projected increases in fuel prices means that home prices will have to fall dramatically in order to entice us to stay in the suburbs. My own feelings on the matter are that no price will entice me to live in the suburbs. If sufficient numbers of young people share this sentiment, then our economy is going to experience a painful transition through which suburban slums replace inner city ones.

The most immediate aspect of the mortgage crisis is its effect on the flow of money. The difficulty is not in any type of psychological problem. Some have argued that there is a sort of herd mentality situation, or that there is a perception of a crash that is sending people panicking and creating a self-fulfilling prophecy. I must reject these explanations because the work that bankers do is very much tied to the real economy and factors that are not under the sway of herd psychology. The flow of money problem is pretty simple really. Banks must have inflows of money in order to loan money out. Similarly, when loans expire, banks must have new loans or other attractive investments in order to preserve their income flow. Banks also keep stores of money to account for and manage the risks associated with the assets they own. In our current crisis, the banks have an extensive network of inter-institutional borrowing. This is a type of leveraging that allows banks to magnify profits. On the other hand, when a bank starts doing poorly the attitude is not to "ride it out" but to call the loans due, in part because of the concept of priority that determines the order in which debts are settled during court proceedings. This does not magnify problems - it quarantines them. However, many institutions have been revealed to have fewer assets than their balance sheets might have indicated. This is not all due to cooked books - a fair amount of it is tied to problems elsewhere in the economy. The mortgage debt that has more or less been treated as a safe and long term commodity is turning out to be just the opposite, leaving banks reeling.

Leveraging has also reared its ugly head in our current financial straits. We have hedge funds, bundled securities, leveraged buyouts, margins and all of the other instruments that got us into trouble during the 1920s. The banks are leveraged in two directions right now, and both are doing poorly. They are of course tied up in stocks that are in decline. They are also the owners of "bad mortgage debt" which represents houses that are on the market and cannot be sold except at a loss. Portfolios that might have been considered diversified or safe, including 401(k) funds, have been hit very hard because even safe stocks such as GM and safe mortgage debts such as those sold by Fannie Mae and Freddy Mac have declined. This is oddly similar to the great depression, where bank failures similarly ensured that economic losses on wall street hit main street.

The ill-fated setting of $4.86:£1 by Churchill brought inflation in the United States. Similarly, in the past few years, Bush has been ordering his stooges in the Federal Reserve to continue cutting interest rates and bringing the dollar value down on foreign exchanges. Skyrocketing Oil has also impacted Americans and represents a significant inflationary factor. America has been languishing in a state of serious wealth inequality since the 1990s. We are also living in an age of new technology that is driving serious frictional shifts in our economy, mostly due to the development of the internet. These factors, together, are all very similar to what existed in the 1920s for Americans. I expect that in any of these respects, our crisis will be similar to the great depression. Our currency has already increased relative to other currencies, and oil prices have already plummeted since the crash.

In a few respects, our situation is more dire. We are facing agricultural crises, but they are quiet catastrophes that will affect us only when we are on the brink of ruin. We have the death of honeybees in colony collapse disorder that has been attributed to the use of unsafe pesticides (specifically nicotinoids). We have mounting water shortages. We have saltification of the central valley in California. We have the death of marine ecosystems. We are facing natural resource shortages that will necessitate a whole new way of life. What will we do when the world supply of copper is exhausted in 2060, when there is no more natural gas, when the Oil runs out? These are not part of the crisis itself, but then again, it was World War II that so suddenly interrupted our languishing malaise, reminding us that Economics is really nothing more than "What, and for whom?"

"When there's a will, there's a way."

My prediction is that we will see a tiny deflation of the dollar over the next year or two. This is because our balance of trade will decline, and so our currency will increase relative to that of other nations. It also seems to be the case right now that vast amounts of wealth are disappearing from the housing market. As long as that continues to happen, the amount of wealth that the vast majority of Americans have will go down, since most of us are as wealthy as our house is valuable. Naturally, we will ask for and expect less for a while, and that means lower prices. I'm not about to proclaim and end of materialism, but as long as we remain in this jaded state, the effect will be felt on consumption patterns and prices will drop to entice inventory flow. Incidentally, companies have trended toward low inventory levels and rapid restocking over the past few years, and that probably helps. However, it means that consumer prices are a lot more stable and rather than functioning as a buffer against price deflation, businesses simply pass along changes. Prospects of deflation are also going to be affected by Government choices, but at this time I don't see much that would inflate the dollar. Lowering interest rates might actually allow home prices to slip faster, and so we might see some serious problems. A return to a stable, slow inflating dollar should not happen until home prices stabilize. I may be wrong about this, but at least I'm sticking my neck out.