Twenty years ago today, the New York Stock Exchange fell off a cliff, the Dow Jones Industrial Average losing 22.9% of its value (508 points) in a single day. As a percentage of value, this was the greatest single-day market loss in U.S. history. The US crash was preceded and followed by crashed in other markets throughout the world. By the end of October 1987, the U.S. market had rallied a bit, climbing from 1739 to over 2000, but the Hong Kong market had lost 45.8% of its value, Australia 41.8%, and the UK 26.4%. To put this in modern context, if the DJIA had lost the same proportion today, it would have to lose 3,181 points. The modern market has grown 618% in the last 20 years, recovering – for some investors – everything they lost and providing a strong return for half a generation. Consequently, there is a certain sanguinity regarding the situation, which may or may not be a wise attitude. The reason I say this, is because the specific cause for the one-day crash has never been adequately explained. Assumptions were made and blame placed on a number of causes, largely focused on automatic trading programs which trigger actions on certain conditions – and yes, such programs are still in operation right now, although the companies running them promise there is no chance that 1987 will happen again, don’t you feel safe and secure now? But there was also concern about the effect of the U.S. dollar’s strength on market conditions, as well as the collateral effect of one market on other world markets Once again, officials rush to assure the public that there is no similar danger now, although the need for consumer confidence is so great that they would certainly say exactly the same thing if there were no protection at all.
The 10/19/87 crash is described by some analysts as a “Black Swan Event”, a term used to describe something utterly unexpected and impossible to predict. This provokes the obvious question; what will the next Black Swan look like, and when will it happen?
Friday, October 19, 2007
Thursday, October 18, 2007
Race and Intelligence
Dr. James Watson has started up an old firestorm again. In an interview with the Sunday Times, Dr. Watson, whose work on the structure of DNA won a Nobel Prize back when it meant something, said that he believes Blacks are intellectually inferior. From CNN:
As you might expect, such a statement met immediate and extreme reaction from many sources, including the British government. I too am surprised that Dr. Watson would make such a statement, especially when Watson seems to base his opinion at least in part on personal experience with selected co-workers. Essentially, while I am no scientist, it appears to my unenlightened eyes that Watson saw certain data and read conclusions into them without considering all the relevant factors. At the very least, this should warn us against trusting too much the opinions of designated ‘experts’. It seems to me obvious, that anyone can make a great fool of himself, and we should keep that in mind when considering the weight of someone’s opinion.
The eminent biologist told the British newspaper he was "inherently gloomy about the prospect of Africa" because "all our social policies are based on the fact that their intelligence is the same as ours -- whereas all the testing says not really."
As you might expect, such a statement met immediate and extreme reaction from many sources, including the British government. I too am surprised that Dr. Watson would make such a statement, especially when Watson seems to base his opinion at least in part on personal experience with selected co-workers. Essentially, while I am no scientist, it appears to my unenlightened eyes that Watson saw certain data and read conclusions into them without considering all the relevant factors. At the very least, this should warn us against trusting too much the opinions of designated ‘experts’. It seems to me obvious, that anyone can make a great fool of himself, and we should keep that in mind when considering the weight of someone’s opinion.
Monday, October 15, 2007
Economic Suicide
BusinessWeek is a fine magazine, and many of its articles are useful discussions and analyses of significant business trends and issues. They do, however, sometimes play too much to one point of view, and this was the case in a recent book review. In their review of Iain Carson and Vijay Vaitheeswaran’s screeding “Zoom”, BW properly notes the stridently leftist tone of the book, but fails to challenge the over-riding assumptions of the Eco-Left. In so doing, BusinessWeek shows its own bias on the issue. What I found surprising, is that people so well-grounded in business should be so unrealistic about what causes the present condition, and what will be needed to resolve it.
Let’s start with one of the pet assumptions of the Eco-Left; that to improve things environmentally, it is necessary and overdue for the United States government to levy hefty taxes on oil products in the same way that Europe does. At this point I direct the reader to observe the names of Zoom’s authors; rather European, which is to say that they have the myopic focus of the European. If it makes sense to challenge American bias when addressing global issues, as I think is correct, then it just makes sense to be wary of assuming that the Euros have it right. I do not, in fact, see anything to indicate that high gas taxes have done anything – at all – to improve ecology or business conditions in Europe. And I see compelling reasons why such a move here in the United States would be catastrophic.
You see, the conventional wisdom for many years, was that Americans were in love with cheap gas and would not tolerate a rise in price above a certain level. For many years, it was assumed that if gas crossed a dollar a gallon, we would demand alternative sources. Then it was two dollars, then three … now gas goes as high as four bucks a gallon in certain places and times, and demand remains very high. Sales of SUVs and trucks remain strong, with no sign that anyone plans to give up their way of life in order to save a little bit. So, on the evidence from history, a tax on gas will not encourage people to support different energy sources. More on that in a bit, but for now it’s important to know that anyone pushing a tax is doing so for reasons that have nothing to do with the environment or a responsible government. Next, it must be understood that whenever a tax is assessed and collected, the money from that tax goes into the general revenues, and will always be so. Therefore, any politician who tells you that a gas tax will be used to fund ecological programs or alternative energy sources is lying to you. Even if such programs are set up and funded by the government, they will be paid from general funds, and there is no direct connection between the tax collected on gasoline and the programs enacted by Congress. Again, history shows us that Congress spends money exactly as it pleases, and programs will be funded or neglected without regard to how much is being taken at the pump from the people.
It must also be understood, that if Congress sets up additional taxes on gasoline, that Congress will have no interest whatsoever on reducing demand on gasoline, because reducing demand would have the effect of reducing revenues, and if that happens you can be sure Congress’ appetite for that revenue would drive it to seek that money from somewhere else. Look at the taxes on cigarettes, as an example. The sole effect of an additional tax on gasoline that you can count on, is that this tax would become permanent, and if gasoline consumption were reduced, the tax would expand to collect money from some other activity, regardless of the nature of that activity. The reader will note that the United States government has never reduced, let alone abolished, the federal tax on gasoline that already exists, even in times of crisis, so there is no chance whatsoever that a higher tax would be temporary or limited to gasoline only.
It should embarrassing enough to BW that their staff ignored the evidence of History, but they even display an appalling ignorance of Economics. It is an inexorable law of Economics that a tax on a commodity makes that commodity more expensive, without adding anything to the value or supply of that commodity, which therefore increases costs across the spectrum, lowering productivity and economic strength in every sector of the nation’s economy. Given the ubiquitous presence of petroleum products in every industry and business type in the United States, a heightened national tax on gasoline would undeniably and immediately be inflationary, lower productivity and consumer confidence, and inevitably create recessionary conditions, as companies scaled back on expenditures to adjust for the increased costs of operations. This in turn slows down hiring and lowers expectations, as capital expenditures would drop precipitously and the sharp fall in consumer confidence would kill demand. How do I know this? Because this is exactly what happened during the Carter Administration, when similar efforts were undertaken; conditions came to exist which had never existed before or since, including double-digit Inflation rates at the same times as double-digit Unemployment. It would be, to put things bluntly, the worst possible economic decision the Congress could make, with utterly disastrous implications for future economic opportunities. It is a decision which no sane steward of the public trust could countenance.
There may yet be a few naïve EcoLeftists crying in favor of these draconian measures, crying out like Chicken Little that the sky is falling, that we must abandon oil even at these horrendous costs in order to save our future. But such claims, once again, fail to stand up to scrutiny. In the first place, those critics of American policy often complain that Americans fail to think about the rest of the world, but the notion that an American gas tax will do anything for the world at large shows an even more U.S.-centric fallacy. There is no chance, at all, that any industrial nation will lower its own consumption in response to a U.S. tax on gasoline. If such a tax were actually to lower U.S. consumption, there would be an inevitable rise in consumption by India, China, and even some of those much-idolized European nations, as the thirst for Oil is in no way abated by a tax. Second, just as the Kyoto accords were in reality nothing more than an extortion attempt, to cripple the United States’ economy so rival nations could gain on them, so too a higher U.S. gas tax would only benefit foreign rivals, many of whom have far lower standards on emissions and fuel economy than does the United States.
But in the end, the Eco-Left simply does not understand what is necessary for Progress to occur. It is unfashionable these days to ever say anything good about Oil, but if you go back far enough, you will find that Oil was the solution once to a serious global problem. That problem was a world which ran on coal. Coal was inexpensive, easy to use, and everywhere. Trouble is, coal was dirty, and many cities found their buildings coated in soot and their people choking on coal dust. Oil was the solution, because engineers found a way to make petroleum cheap for consumers, easier to use in engines and machinery, and it burned cleaner than coal. That’s right, there was a time when Oil was the ecological choice!
My point is simple. Oil will remain the fuel of choice, not until someone makes people feel guilty enough about using it, or punishes folks for using it, but until something is made which is cheaper, easier, and cleaner. Possibilities are under development and some of them are exciting, but lies and threats from the Eco-Left are part of the problem, not the solution.
Let’s start with one of the pet assumptions of the Eco-Left; that to improve things environmentally, it is necessary and overdue for the United States government to levy hefty taxes on oil products in the same way that Europe does. At this point I direct the reader to observe the names of Zoom’s authors; rather European, which is to say that they have the myopic focus of the European. If it makes sense to challenge American bias when addressing global issues, as I think is correct, then it just makes sense to be wary of assuming that the Euros have it right. I do not, in fact, see anything to indicate that high gas taxes have done anything – at all – to improve ecology or business conditions in Europe. And I see compelling reasons why such a move here in the United States would be catastrophic.
You see, the conventional wisdom for many years, was that Americans were in love with cheap gas and would not tolerate a rise in price above a certain level. For many years, it was assumed that if gas crossed a dollar a gallon, we would demand alternative sources. Then it was two dollars, then three … now gas goes as high as four bucks a gallon in certain places and times, and demand remains very high. Sales of SUVs and trucks remain strong, with no sign that anyone plans to give up their way of life in order to save a little bit. So, on the evidence from history, a tax on gas will not encourage people to support different energy sources. More on that in a bit, but for now it’s important to know that anyone pushing a tax is doing so for reasons that have nothing to do with the environment or a responsible government. Next, it must be understood that whenever a tax is assessed and collected, the money from that tax goes into the general revenues, and will always be so. Therefore, any politician who tells you that a gas tax will be used to fund ecological programs or alternative energy sources is lying to you. Even if such programs are set up and funded by the government, they will be paid from general funds, and there is no direct connection between the tax collected on gasoline and the programs enacted by Congress. Again, history shows us that Congress spends money exactly as it pleases, and programs will be funded or neglected without regard to how much is being taken at the pump from the people.
It must also be understood, that if Congress sets up additional taxes on gasoline, that Congress will have no interest whatsoever on reducing demand on gasoline, because reducing demand would have the effect of reducing revenues, and if that happens you can be sure Congress’ appetite for that revenue would drive it to seek that money from somewhere else. Look at the taxes on cigarettes, as an example. The sole effect of an additional tax on gasoline that you can count on, is that this tax would become permanent, and if gasoline consumption were reduced, the tax would expand to collect money from some other activity, regardless of the nature of that activity. The reader will note that the United States government has never reduced, let alone abolished, the federal tax on gasoline that already exists, even in times of crisis, so there is no chance whatsoever that a higher tax would be temporary or limited to gasoline only.
It should embarrassing enough to BW that their staff ignored the evidence of History, but they even display an appalling ignorance of Economics. It is an inexorable law of Economics that a tax on a commodity makes that commodity more expensive, without adding anything to the value or supply of that commodity, which therefore increases costs across the spectrum, lowering productivity and economic strength in every sector of the nation’s economy. Given the ubiquitous presence of petroleum products in every industry and business type in the United States, a heightened national tax on gasoline would undeniably and immediately be inflationary, lower productivity and consumer confidence, and inevitably create recessionary conditions, as companies scaled back on expenditures to adjust for the increased costs of operations. This in turn slows down hiring and lowers expectations, as capital expenditures would drop precipitously and the sharp fall in consumer confidence would kill demand. How do I know this? Because this is exactly what happened during the Carter Administration, when similar efforts were undertaken; conditions came to exist which had never existed before or since, including double-digit Inflation rates at the same times as double-digit Unemployment. It would be, to put things bluntly, the worst possible economic decision the Congress could make, with utterly disastrous implications for future economic opportunities. It is a decision which no sane steward of the public trust could countenance.
There may yet be a few naïve EcoLeftists crying in favor of these draconian measures, crying out like Chicken Little that the sky is falling, that we must abandon oil even at these horrendous costs in order to save our future. But such claims, once again, fail to stand up to scrutiny. In the first place, those critics of American policy often complain that Americans fail to think about the rest of the world, but the notion that an American gas tax will do anything for the world at large shows an even more U.S.-centric fallacy. There is no chance, at all, that any industrial nation will lower its own consumption in response to a U.S. tax on gasoline. If such a tax were actually to lower U.S. consumption, there would be an inevitable rise in consumption by India, China, and even some of those much-idolized European nations, as the thirst for Oil is in no way abated by a tax. Second, just as the Kyoto accords were in reality nothing more than an extortion attempt, to cripple the United States’ economy so rival nations could gain on them, so too a higher U.S. gas tax would only benefit foreign rivals, many of whom have far lower standards on emissions and fuel economy than does the United States.
But in the end, the Eco-Left simply does not understand what is necessary for Progress to occur. It is unfashionable these days to ever say anything good about Oil, but if you go back far enough, you will find that Oil was the solution once to a serious global problem. That problem was a world which ran on coal. Coal was inexpensive, easy to use, and everywhere. Trouble is, coal was dirty, and many cities found their buildings coated in soot and their people choking on coal dust. Oil was the solution, because engineers found a way to make petroleum cheap for consumers, easier to use in engines and machinery, and it burned cleaner than coal. That’s right, there was a time when Oil was the ecological choice!
My point is simple. Oil will remain the fuel of choice, not until someone makes people feel guilty enough about using it, or punishes folks for using it, but until something is made which is cheaper, easier, and cleaner. Possibilities are under development and some of them are exciting, but lies and threats from the Eco-Left are part of the problem, not the solution.
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