Jacob's Soap Box

26 July, 2009

I must confess, I got it wrong, it seemed a good idea at the time, but it turned out like all other ideologies, WRONG!!! I am talking about the ideology of free trade, the philosophy that says that it generate wealth to all that practice it. As it turned out it does not!

The principle of free trade is simple, if I can grow tomatoes better (more efficiently, as economists say) then my next door farmer, who in turn can grow cucumbers better then I do, then we are both better off by I growing all the tomatoes and my next door neighbour growing all the cucumbers and we trade tomatoes for cucumbers between us. In this way we each get better products all around.

In real life, more efficient usually means cheaper, we all agree that if we produce widgets here for say, $4.00 a piece and the Chinese produce them for 10 cents each, it is a prima facie evidence that, the Chinese are more efficient in producing widgets thus we should stop making them, buy all our widgets from the Chinese and concentrate on producing something that we are more efficient at, say gismos, sell them to China and we would all be better off for it, or would we?

Let us pause and look at the “efficiency” again, suppose our workers produce 10 widgets per hour and a Chinese worker can manage only 2 widgets per hour, wouldn’t you say that our workers are more efficient then the Chinese? On this example, of course they are! So you can see that “cheaper” is not always synonym with more efficient, here is why;

If our widget wage costs (actual wage paid to workers and on-costs) amounts to $40.00 per hour whiles a Chinese worker equivalent cost is only $2.00 per 10 hours day,  the vast gap in wage costs completely obscures our advantage in terms of efficiency.

Therefore, we get rid of our workers and produce all our widgets in China albeit it would take five times the number of Chinese workers to produce the same number of widgets.

And in order to further obfuscate the treachery to our more workers we use the euphemism outsourcing. Hey man, you are not sucked, you are just outsourced. (How strange, you never hear of outsourcing the CEO’s of large corporation, do you?)

Further, in order to ensure that outsourcing is REALLY successful, the free traders call on our governments to remove all import duty our forefathers put in place for the very reason of protecting jobs. They even go as far as demonise the word “protection” as a dirty word, something to be avoided at all costs. No politician OF EITHER SIDES, wish to be called “protectionist”, oh no! As if protecting our jobs is the wrong thing to do.

Whose side these people are on?

And so we are handing over our manufacturing expertise to under-developed nations, lock stock and barrel, some of whom don’t even like us. We are quickly reaching the point that whole sections of manufacturing industries are disappearing from our local landscape. What is going to replace lost employment in apparel, steel mills and food canneries that disappeared in recent years?

The economic rationale of free trade implies that everybody has some comparative advantage whereas we may not be as good as say the Chinese at making widgets but are really good in making gizmos, so we let the Chinese make all the widgets and we make all the gizmos … but wait, it has not worked like that at all. What in fact has happened is that, China is making BOTH widgets and gizmos.

Slowly and not so slowly we see that the emerging economies, (a euphemism for China and India) China in particular, are taking over sector after sector of our manufacturing industries, it is like slicing a salami- every day a small slice of our manufacturing industry is carved away without any impact until we wake up one day and realise that the salami  has gone.

Few of us ask where does this jobs destruction lead us get the standard spin is that we do not need manufacturing industry to prosper, we can still prosper by being a service economy .  It make no sense whatsoever we cannot produce wealth by producing nothing.

Serving each other drinks and making each others’ beds is not an economy!

One day we shall wake up, not only with no factories and with no manufacturing expertise, then what?

The Chinese will have us by the sort and curly and they will pull, have no doubt about it!

* * * * *

All ideologies, euphemisms and spins do not change one fact and that is that CHINA IS A TOTALITARIAN COMMUNIST COUNTRY. All the Western democracies would be better advised to take this fact into account when dealing with China before we hand over our manufacturing industry.

Whilst we all pontificating on the merits or otherwise of free trade China is forging forward, not by reciprocating our free trade but by practicing protectionism – the Chinese current import duty tariffs may not be high but don’t let it fools you, the Chinese government has achieved protectionism by other means, not the least their by tight control over EXCHANGE RATES, foreign currency restrictions and other administrative and bureaucratic limitations and control, all aim at supporting their emerging economy not ours.

Since 1984, the Renminbi (China’s people’s currency) has been devalued by 200%. This is as “good” as having across the board tariff of 200% increase on all imports at the time when our tariffs are for Chinese products coming down.

Further the Renminbi is not a readily convertible currency. Traditionally Chinese citizen could not receive allocation of foreign currency for imports, unless they had earned foreign exchange in previous exports. (These restrictions have somewhat relaxed in recent times due to large foreign currency reserves accumulated in recent years.)

As you can see, China’s current wealths is a combine result of sever protectionism on their side and the free trade ideology on our side.

In fact China approach is not unique, all historical economic empires were built on the foundation of protectionism, or mercantilism as it was known years ago. England’s Navigation Act of 1651 reserved all English trade, including to, from and between its colonies to be carried only by English ships (or ships owned by English nationals). The Corn Laws of 1815 that prohibited importing grain into England at a price less than 80 shillings per quarter (28 pounds) are some of such examples of protectionism going back to the 19^th century.

Britain before 1846 (when the Corn Laws were repealed), the USA from 1860 to 1914, Germany from 1870 to 1914, Japan of after WWII and Australia till the 1970’s all developed their economies on a foundation of protectionism.

If free trade is best for nations, how is it that every modern state that rose to prominent and power …. Was protectionist?

Asks Pat Buchanan rhetorically in his book Day Of Reckoning and continues to cite that

All four presidents on Mount Rushmore – Washington, Jefferson, Lincoln, Theodore Roosevelt – were economic nationalists.

[- pp 195]

The apparent discrepancy in the benefits of free trade is simple to explain, free trade is beneficial to both parties ONLY when it is practised between nations of similar standard of living.

There are many examples that prove this hypothesis, not the least the free trades among the states in the USA, Australia, and the EU, as well as our free trade with New Zealand albeit we are competitors on many products when it comes to international trade.

A recent survey done in Australia, has shown that about 80% of shopper SAYING that they prefer Australian products over overseas’ even if it costs more BUT when it comes to action, only about 20%  of shoppers actually put their money where their mouth is.

I suspect that the situation in America and other western democracies is similar. Come on people, put you money where your mouth is, use it or loose it!

© Copyright Jacob Klamer 2009

15 July, 2009

The G-8 Plus meeting in L’Aquila, Italy has finished with the usual pre-scripted, tears generating worded declarations which can be summed up along these lines:

We, the one who know best, [rubbing of hairy chests] agree that global problems require global solutions and regardless of what the people who elected us think about [insert issue here] and about spending their money are going spend it on their behalf anyway and by the tonne.

Much of the time and media management (i.e. propaganda) of this charade was devoted to Climate Change, a euphemism for Global Warming, that is much like the tale about Herscheleh from Ostropol, a fictitious folkloristic Jewish comedian, prankster and village idiot figure in !8^th century Eastern Europe:

One early morning, just before dawn, as the folks were on their way to the synagogue for the Shaharit (early morning payer) they notice Herscheleh under the lamp post, circling the post scanning the ground.

“Herschel” said the rabbi “What on earth are you doing here this time of the morning?”

“I lost my key” replied Herscheleh

“Where did you lose it?” inquire the rabbi

“There” said Herscheleh pointing into the darkness away from the light of the lamp post.

“So why are looking for you key in here if you lost it there”? persisted the rabbi with a puzzle.

“Because the light is here Rabbi, not there” replied Herschel with a smug.

The same goes for the leaders of G-8, the eight largest economies in the world, are all in deep economic disarray which they have no idea as to how to get out of it, using climate change as a decoy away from their incompetence.

The G-8 Plus (some of the G-20) leaders declared amongst other things that they

[R]ecognize the scientific view that the increase in global average temperature above pre-industrial levels ought not to exceed 2 degrees C. [highlight added]

Scientific view, what is it? Science does not have views, sciences has hypotheses which are either proven, disproven or remained unproven. Views express by scientists are only views and are as valid as anyone else’s view, there is nothing scientific about a scientists’ views.

Don’t let them (the scare mongers) fool you, it is not the first time, and probably not the last time, that politicians use science as a fig leaf. We all remember Al Gore’s proclamation that “the science has been settled” and global warming is has been proven by “a scientific consensus” placing science on par with beauty pageant as to picking winners.

Science is never settled and it is not about consensus, science is about selecting hypotheses and proving them (or not). ask Copernicus and Galileo Galilei who, contrary to massive scientific (and theological) consensus, risked their lives and disproved geocentricism. Had science been about consensus, who knows, we may gave still be walking this earth believing that it is flat and that we are the centre of universe.

One can imagine the UN Intergovernmental Panel for Geocentricism warning us of the danger paused by people such as Copernicus and Gallie.

The “science” of global warming is based on two mutual inclusive hypotheses (meaning BOTH must exist) and they are that the increase in CO₂ concentration in the atmosphere is THE CAUSE for global warming of the planet AND that the increase in CO₂ is cause by human activities (anthropogenic).

The facts of the matter are that NONE of these hypotheses have been scientifically proven!

Bear in mind, the CO₂ concentration in the atmosphere is 350ppm (parts per million), compare it to a teaspoon of sugar in a standard glass at about 2,500ppm. More important the so-called “carbon pollution” is only 4% of the atmospheric carbon dioxide (14ppm).

So what are we talking about? Nothing, nada, tipota, gurnischt! BUT the echophiles always come up with escaper route and their escape route is something called the Precautionary Principle, another non-scientific PC term which is neither precautionary nor a scientific.

Under the pretence of science those echophiles tell although we don’t really know what cause global warming we better pretend and behave as if it is manmade carbon dioxide just in case (JIC).

Absolute crap! We already have scientific (mathematical) tools to deal with decision making under uncertainty, it is the Mathematical branch of Operations Research that deals with such questions.

For example Operations Research is used to determine how many bank tellers or supermarket checkout will be setup given a the pattern of the demand for the service and acceptable level of customer queues. The Bank or the Supermarket does not construct 500 service point just in case a one time unusual demend.

BUT, Operations Resreach is based on sound mathematical rules not some eco-whacko furphies such as the “science” of global warming.

Do you really want to use Precautionary Theory? Fine, go right ahead; lets see: Helmet, sky-divers suit, parachute and ejecting seat for every airline passenger, JIC; mandatory crush helmet and fire suit installed in every family car for every passenger, JIC; a man with a red flag in front of every car (with phosphorous vest and a hard hat), JIC … I guess that you get the idea.

Use the precautionary principle argument when you run out valid arguments for your case.

* * * * *

The last two counties to fall to the global warming hoax was Australia (in November 2007) and the USA (in January 2009). We now have almost a global unanimity on the issue among almost all politicians of all persuasions which is frightening – To me it is a true conspiracy even if I am not one who for conspiracies.

If you think that “conspiracy” is too stronger word for it how about reading of the Declaration Of The Leaders The Major Economies Forum On Energy And Climate that formed a part of the G-8 Plus in L’Aquila meeting which foreshadowed global climate change measures not normally spoken about, not loudly anyhow.

In addition to emission trading (however such scheme named) there is a unanimity on a MASSIVE GOVERNMENT SPENDING, over and above the various stimuli already flushed down the drains, and

dramatically increase and coordinate public sector investments in research, development, and demonstration of these [green] technologies, with a view to doubling such investments by 2015 [Emphasis added]

Simply put this is a hijack of the global economy by putting obscene amounts of money into the “greening” of our economies.

The last ecophile to join the global war4mning asylum, President Obama, glorified Spain and other countries and use them as examples for the USA to follow, for their “progress” in greening their economies, some six moths ago he said in Bedford, Ohio that:

And think of what’s happening in countries like Spain, Germany and Japan, where they’re making real investments in renewable energy. They’re surging ahead of us, poised to take the lead in these new industries.

This isn’t because they’re smarter than us, … It’s because their governments have harnessed their people’s hard work and ingenuity with bold investments – investments that are paying off in good, high-wage jobs – jobs they won’t lose to other countries. [Highlight added]

Not quite Mr. President, a Spanish academic, Dr. Gabriel Álvarez of the Juan Carlos University in Madrid has published a study that shows, amongst other things, that

we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average [Highlight added]

–Summary, No 2, pg. 1

(I strongly recommend that you read, at least, the whole summary on pages 1-4)

The loss of jobs cited by Dr Álvarez is primarily due to high electricity charges, up to 7 times the market level, that are forced on industry, particularly electricity intensive ones, such as aluminium, steel, other metallurgy, food processing and tobacco. They all move their operation to countries who will not have a bar of this stupidity (eg China, India, Vietnam) and who guarantee low electricity charges for years to come – China is connecting a new (coal fired) power station to their grid every 10 days or so.

In fact the actual loss of jobs to the economy is more then 2.2 per each “smart” job but I leave it for now mainly for sake of simplicity.

* * * * *

As important as jobs are there is something even more insidious that I wish to draw your attention to but I need to explain it a bit first;

Suppose that I am a tomatoes’ farmer, growing your normal humble tomatoes and selling them to the local supermarket for years at market prices that fluctuate with supply, demand quality etc. Nothing to write home about.

One day a man from the government comes around and he want me to grew a new type of pear shaped “green” tomatoes which are environmentally friendly thus give me the opportunity to be part of the movement to save the planet – ain’t that exciting?

I tell the man that I love to help but… those tomatoes are hard to grow, the farm machinery that I need for them is very expensive, and has long period of down time, the yield I would per acre is about 12% of I get now and that them eco-friendly tomatoes are very susceptible to the weather and insects. According to a quick calculation I would probably need to charge about three times the prices I get now and all that I don’t even sure that people would like such tomatoes. “Thanks but no thanks, I pass” I conclude.

To my surprise, the man smiles and says that the government is aware of all the difficulties but here is the deal: The machinery and other investment I need will be provided by the government, the government also guarantees the price I would be getting at about 6-7 times what I get now AND most importantly the government guarantee the sale of the whole crop.

I go back to do my sums and discover that with such massive help I would be earning some 17% on my investment compare with 4% that I get now, wow!

Now my friends, instead of tomatoes think of “renewable energy” and you would immediately understand the attraction global warming has to the likes of GE and Suzlon who adopt global warming AND GOVERNMENT SUBSIDIES all heartedly.

So much so that they even “grow” their “tomatoes” in (wind) FARMS, this gives the farming profession a whole new meaning.

If yo were a CEO of any company and had the opportunity to earn 17% return on your shareholders capital, you too will jump on it irrespective of your opinion on the “science” behind it, I know I would, it would be incumbent upon me to do so.

In fact in total subsidies, paid-up and committed, Spain, a country of 46 millions, spent some $36 billions. If America spend the same on a per capita basis it would amount to about $235 billions.

So generous was the Spanish program that it influenced the financial markets and created an investment “bubble” paused to explode in a middle of a global financial crisis that forced the Spanish government to tweak their generosity back somewhat.

And what does that mean in terms of your air-conditioning and hot water regulators? Dr Álvarez worked it out as an increase of 31% in electricity expenses, payable either on you bill or by your taxes.

I hope that now you see why we all going to get carbon trading of some description – much of that money has already been spent. It is now time to pay for it, just watch it coming.

(BTW, has anyone studied the relationship between wind and photovoltaic farms in their states and their state deficit? e.g. California)

© Copyright Jacob Klamer 2009