Monday, February 11, 2008


Has the political center of the USA moved sharply to the left? INVESTORS WANT TO KNOW?

The far right continues to kick and scream about the movement of the republican party toward the center. More evidence showed up in the state of Washington Saturday. On the one hand, Huckabee won in Kansas and Louisiana but then for the first time ever Ron Paul got more than 20% of the vote; his score in Washington was 21 the last I saw. Afterward, Huckabee suggested that McCain might get pushed into selecting a "right wing conservative" for his VP. Huck has said that the VP slot is one where every competing candidate says noway until he is asked. Huck needs his "base" to get out and vote. He does not need them to sit back with the attitude that he has already "won the VP slot". I think he has a good chance at the VP and a very slim chance to "win it all" at the convention.

In the meantime, Hillary and Obama continue to fight hard to win the extreme left. Hillary's latest words sounded like she has moved to the Obama position on the Iraq war. Careful listeners notice that she actually pulled another Bill Clinton "it depends on what the definition of 'is' is". What she really said, is that she wants to "start" pulling the troops out of Iraq within 60 days of her election.


To understand how far to the left Hillary and Obama have moved, one only needs to look at the bills they each introduced in regard to wages and income. Obama struck first. After his bill got no traction, Hillary came out with her own version and Obama joined as a cosponsor. Each of these bills would have taken the market out of pay decisions and replaced it with a mandated government formula. It would be up to the government to determine the relative value provided by workers. Of course, the big focus is the political "winner" of arguing that teachers are under paid. The argument is a winner because democrats have been successful in keeping teacher pay "boxed-in". If schools were subject to the rules of the market, the best teachers would earn far more than they do today. The problem (from the democratic point of view) is that the worst teachers would need to find another career.


The bottom line is that in trying to win the democratic nomination, the only candidates to have gotten any traction at all has been those with support from the extreme left. The policy of government determined wages is right out of the former Soviet Union play book. We can all remember the days of equality fostered by Soviet rules. We can also remember the long lines to buy blue jeans that were not seen as a priority by the central planners. Worst of all, the Soviets failed to even feed their people well. Billions of dollars were wasted trying to make farms efficient but had the US not had the extra wheat to sell, millions more would have starved to death. The lines in Moscow included the lines for rationed supplies of bread.


The Gini Index is a measure of rich versus poor within a country. To hear the lefties talk, including John Edwards and Hillary Clinton, in the US, the rich are getting richer and the poor are getting poorer. A check of Gini indexes and a check of the distribution curves of wealth show that the world has changed but not exactly in the ways suggested by Edwards and Clinton. Now, it is true that one can say that Russia, still has a fairly low Gini Index. For the most part, there are relatively few rich people in Russia relative to the number of poor people. This is despite the fact that after the break up of the Soviet Union a number of Russians did achieve great wealth. The Gini index measures the sums of wealth from the poorest to the wealthiest such that a few rich people do not tilt the scale dramatically.

One of the countries with the biggest change in the Gini Index is China. Fifty years ago, almost all Chinese people were very poor. The China Gini index was very low because almost all people suffered equally. Recent data show that China's Gini index has passed the US index! Billions of people are no longer living hand to mouth and many have grown to be quite wealthy, but there are still hundreds of millions of people who still live on less than $2 per day.

Based on the rhetoric of Edwards and Hillary, one would believe that it has been a horrible development that the Chinese are no longer equally poor. Relative to the poor in China the rich have gotten to very, very rich while the poor have continued to be poor. The billions of Chinese who no longer live on less than $2 per day do not see their newfound wealth as a disaster and, indeed, all the people of the country now have reasonable hope of future wealth. It is projected that several more 100 million Chinese will move up the economic ladder over the next decade. From the view point expressed by Hillary and Edwards, this will be a disaster because it means the poor in China will be all the more relatively poor.


So far, no country has been able to eradicate the status of being poor. Indeed, unless government routinely confiscates and redistributes all wealth there will always be 10% in the bottom decile of wealth. No matter how well these folk are doing, they will always be poor. In the comparison of outcomes in the "more economically free America" to the "more socialistic Europe", both highly developed economies, shows the results of "more freedom and less government intervention".

In Europe and America, the lowest 10% of income earners are almost to the penny "equally poor". However, as you go up the line, the middle class in Europe are only 73% as rich (again in terms of income) as the middle class in America. Looking only at the top 10%, the Europeans are only 61% as rich as Americans.

The fact that the rich in America do very well compared to the poor, gives fodder to the class warfare offered by Hillary and Edwards, but, would you rather be poor, middle class or rich in America or in Europe? The left would argue that for the poor it makes no difference but that would be the wrong response. People from all around the world would like to move to America, including people in all income classes. The difference is that the path out of poverty in America is a relatively smooth path. The overwhelming majority of those who would not be poor in America are no longer poor in a very short amount of time. Indeed the great majority of poor in America are those who practice destructive habits such as drug abuse, including nicotine, alcohol, marijuana and all sorts of pharmaceuticals. All the soup kitchens in the world and all the job training programs cannot put Humpty Dumpty together if he is busy smoking dope.


As soon as the primary is over, the democratic nominee will move toward the center. Obama has a long way to go in regard to the war on terrorism. One can hear the advertisement now that contrast McCain's statement that a surge is needed and the statements of Obama declaring that the surge is a "failed strategy". Ironically, Obama has an easier path to the middle on several economic and social issues as he has gotten away with not being specific on many issues. In the area of health care, he has not made the mistake of supporting a mandatory health care plan.

Hillary has maintained a lot of waffle room in regard to the war on terror (both Hillary and Obama will emphasis that Osama's hideout is in Afghanistan, while the truth is that it is probably in Pakistan) but, she does support the government take over of health care.

An interesting fact is that the issue of heath care is losing its momentum because inflation in the basic cost of health care has rolled over. The cost of prescription drugs and medical supplies grew at 1.4% last year. At the same time, low cost medical clinics are opening across America. Back in the mid 1960's, a Duke University Professor lead the charge to create a "new layer of health care service". Program after program has since opened around the country that trains Physician Assistants and Nurse Practitioners. Like all new trends, it took a long time for rules and regulations to catch up with the new reality. My Aunt was a Nurse Practitioner for 30 years but now the retail establishments such as CVS and Wallgreens have figured out that having a clinic on sight can do wonders for drug sales and the risk and regulations have only improved in recent years.

(A good way of understanding this is to think of what has happened since the invention of the SegWay. This two wheeled upright scooter is a marvelous machine. It will eventually become a commonly used device. The battle for now continues in state after state to make it legal to ride it on sidewalks and public greenways. The invention is an old story but until there is a "break out" community, the struggle will continue to make it a reasonable travel alternative.)

Anyway, it is now legal in 27 states for Nurse Practitioners to operate limited care facilities without the direct supervision of an MD. The story is similar in regard to Physician Assistants. These practitioners have a limited set of health care treatments beyond which they must refer patients to MD's. The result is dramatically lower costs for the treatment of minor illness or the maintenance of long term debilitating diseases.

One of the thorns in the sides of the socialist left is that Wal-Mart is becoming a major part of the health care solution. The lefties have attacked Wal-Mart mercilessly but Wal-Mart will soon offer low cost care at over 1,500 in store clinics. Wal-Mart already offers some of the lowest cost prescriptions.

Hillary would have the government "control" the price of prescription drugs. This is a page out of the Richard Nixon Book! In the early 1970's Richard Nixon "controlled the price of domestic oil". The price of oil produced by US oil companies was capped at $4 per barrel. We know how well that worked out! One does not need a degree in economics to understand that if the government holds down the price by artificial means that you will eventually have to wait in long lines to get the product. Having to wait in a long line for life critical health care is far more devastating than long lines for gasoline.

If Hillary were to win, I believe she would once again fail to take over the health care system. During the primaries, the debate in each party is pushed to the extremes. In the republican party, immigration is the main issue that splinters the far right from the rest of the country. On the democratic side, the war and health care are the "splinter issues". Polls taken during the heat of these "one sided debates" do not tell the whole story. The bottom line is that independents and the "soft middle of both democrats and republicans" do not support the government take over of health care, the white flag in Iraq or the unfair treatment of immigrants who have lived and worked in America for decades.

The enthusiasm displayed by democrats has lead some pundits to believe democrats will make a clean sweep in November. It is actually the republicans who will capture the majority of the independents and the soft middle because it is the republicans that have moved toward the middle by supporting McCain. Only the democrats that have moved to the extreme left.

Hillary wins points with lefties when she proposes a freeze on mortgage rates for 5 years. But, many of those who might want to buy a home or refinance a home sometime in the next 10 years or so will decide to run away from this crazy tilt toward socialism. Hillary's policies would flatten out inequality of wealth in America, but at a much lower average level than we currently enjoy. Again, government control of mortgages at artificial rates will lead to a shortage of mortgages.


In the one case, that of Global Warming, there has been a substantial move to the left. Even the republican nominee is all set to "attack" this "problem". This too might help the republican party, at least in the short run. While there is the risk that such positions could cause a portion of the conservative base to stay home, the nomination of Hillary or Obama should energize the base. In other words, right wingers may come out to vote against Hillary even it they dislike the silly games being played about the climate. As a student of financial models, I can tell you that economist struggle to predict next week month or year. The climate is 100's of times more complex than finance. The weatherman is not accurate about next week, much less about next year. Did you know that scientist just discovered that the warming of the ocean actually decreases the incidence of hurricanes? The more we know for sure, the more it is sure that we don't know!

There is scientific backlash developing over the force feeding of the "global warming problem". Al Gore has recently been on his high horse again but the numbers simply do not support his recent contentions. From 2001 to 2008 there has been no global warming! Indeed, from the little spike made back in 1998, the global temperature has gone down. This does not take away the 8 tenths of one percent increase in temperatures that probably did happen from 1850 to 2001 but, at least in the short run, the facts are in the favor of the anti global warming crowd. I am beginning to wonder what "oopsee" will be discovered this time around.

When world wide temperatures dropped from 1991 to 1995, the "OOPSEE" was Mt. Pinatubo's eruption. It is probably true that the tremendous amount of fly ash deposited to the upper atmosphere by the eruption of Mt. Pinatubo did serve to reflect enough sun rays to cool down the planet. One of the ironies is that we could cool out planet simply by painting all the asphalt parking lots white, in order to bounce the sun's rays back into the universe. Still, is it not also ironic that the naturally occurring release of heat from the earths core is a part of God's system for cooling down the earth! One could only wish that the left could begin to perfect their sense of humor. God is way ahead of us all in this regard too!


Fifty years ago, 100's of millions of people were close to starvation in a number of countries, including Mexico and India. The good news is that the Rockefeller Foundation decided to support a program to increase crop yields in Mexico. The results were fantastic but not fully accepted in Mexico. The really good news was that India did accept the proposals and India now is a rice exporter!

John Edwards went on and on about the "two Americas" but anyone who has the desire to achieve great future results in moving people out of poverty should look elsewhere. It is still true that if you want to catch brim, you must fish in a pond that is stocked with brim. The fact is that America is a major exporter of grain (less so because we waste grain in the production of alcohol for car engines) and India is a major exporter of grain and the really poor are those people living in countries that do not grow enough grain and that are not believe in trading with those that have excess.


The despised little bitty E. coli bug is ready and willing to help save the day! The Nobel Prize winning scientist who is most responsible for the mapping of the human genome, J. Craig Venter, has "stitched together" chromosomes in his lab and inserted them into the E.coli bacteria. With just a little more effort, he should soon be able to produce E. coli strands that will convert coal and oil sludge to clean burning natural gas at 10,000 times the natural rate.

A lot of other work has already been done in the area of speeding up and improving natural processes. The work of Nourman Borlaug, another winner of a Nobel Prize, was the head honcho that started the green agricultural revolution. One of his achievements was to create a rice strand that put its energy into growing rice kernels rather than plant stems. The plant stems needed to be short to hold up the weight of the extra rice. Once he was able to increase the production of rice by 700%, the world has never been the same.

E. coli is proving to be a work horse. Dupont recently announced that the company will build a 100 million dollar plant that will use genetically modified E.coli germs to turn corn into propanediol, a necessary component of polyester fabric. Dupont is considering a plant to produce Butanol in a similar manner. In another case, a scientist has learned how to propagate the wood digesting bacteria found in termites. So far, he has been able to increase the production of ethanol by 50% by using these termite intestine bugs in the process. Of course, the goal is to find ways to digest the corn stalk, not just the corn kernels. Can you picture putting whole trees into a digester that spits out natural gas and water?

The work being done by Venter is the most exciting because he should be able to dramatically speed up the process. He just made a trip around the world on a sail boat in order to collect some of the many specimens of life that routinely digest plant life. His technique is expected to be to move the most voracious plant digesting genes into the body of the E.coli bacteria. If you are not familiar with the way this process works, may I suggest that you eat nothing but beans and cabbage for a couple of days. You should discover that you can dramatically increase the amount of natural gas that you produce.

One average, when conventional oil producers abandon the typical oil well, they have recovered only one third of the oil that is down that hole. How wonderful it will be to poor a mixture of bacteria down the whole which will eat the rest of the oil and send it up the shaft as clean burning natural gas.


The big vote in Pakistan, scheduled for February 18 could be a world changing event. Pakistan is currently in the middle of a cease fire agreement between the government and the Taliban/al Qaeda forces. Even so, a few generals, in the strong Pakistani army were killed last week when their helicopter was hit by missile.

After the elections, will their be a big push to bring northern Pakistan under control of the government? Will there be a coalition of forces going after Osama Ben Laden before the November elections?


Osam Ben Laden is suffering from lower an lower support in the polls. Indeed, the very idea of justifiable homicide bombings of the innocent is losing support. The minds of the Islamic people are moving in the right direction. When Iraq was able to produce videos that showed the use of children and mongoloid women as suicide bombers, the heart of the people were swayed. The pressure to change tactics is now coming from inside and outside the Islamic nations.

The positive results can be seen in the numbers. In Iraq, the production of oil and the production of electricity is climbing rapidly. In Iran, there have been protest against Amadenijad's policy from the bottom to the top. The potential for a McCain election is a seed of fear in the hearts of terrorist and Iranian and Pakistani leaders.


The thing that gives me the most confidence about the future of America is the strength of growth in the rest of the world. American export growth is no less than remarkable. This should continue partly because the policies being espoused by the extreme left have little chance of passage. There will be marginal movement but no drastic changes and the trend to lower tax rates that started with Reagan is not over. Any major tax compromise with the Senate, will include a decrease in the corporate tax rate in America. In regard to new programs, I can see the passage of more help for children. The majority of Americans believe in health coverage for all children and the evidence is very strong that it is a very good investment for America to provide pre-schools. Educators to the right and left generally agree that children who come to school for the first time in publicly supported kindergartens cause major problems. Young children need to start their "education" early and they need exposure to other children and other adults. This is not to say that home schoolers fail. The problem is with those parents who do not care enough.

At any rate, I do not see a political move in the offing that will move the US off its growth path. Americans want reform of health care and education but not at the expense of wrecking the economy. We want to solve global warming with the least amount of disruption.

It only takes one Sally Clark for people to realize that government is sometimes our worst enemy. The Sally Clark story is that her child died of crib death syndrome, a 1 in 8,500 event. Three years later, her second child died of infant death syndrome. To add just a little insult to injury, the government prosecuted Sally for murder. She was convicted largely because a statistician testified that the probability of two such deaths was 8,500 times 8,500 or one chance in 73 million. The conviction was over turned on the second appeal. The reality is that we do not know what causes crib deaths but it is very likely that chances of a second one in the same family are no where near 1 in 73 million. How do we every pay Sally back for all the hardship she has faced? Having personally experienced the incompetence and irrationality of the government of South Carolina, I am especially resolute about the need to avoid giving more power to government than is absolutely necessary.

In the mean time, life moves on. One innovation after another is coming down the pike. A business innovation is in the works in regard to what is known as the Open-ID. MSFT, GOOG, IBM, and YAHO have all agreed to offer a universal Internet sign in feature. One of my pet peeves is having to remember pass words. Being able to sign in one time on a machine will make access to ones personal and business data much more available. Little things can save society billions of dollars and billions of hours. The public is still obsessed by the dangers of theft but this too shall pass. It certainly took some people a very long time to adopt the concept of a check (if memory serves, the first one was written in the mid 1600's). Today, a lot of people will send a check through the mail but they are afraid to let their credit card out of their sight.


US companies are making money, buying in shares and being bought up. YAHO is said to have rejected the advances of MSFT as being too cheap a purchase price. On the other hand, it appears that NWA and DAL are working toward what could be the smoothest airline merger of all time. The companies are negotiating with their unions on one "master contract". Should they win this contract in advance of a merger, the combining of the two companies could go very well and company cost could come down significantly.

In case you have not heard, I believe the major carriers will see significant revenue increases for at least three or four years.


Life is good. We live in good times and better times are ahead. The news is negative but that is what sells. The reality is as good as it gets. The public falsely believes that it is only the developed world that is in good shape but in the last 30 years, the number of starving people has declined sharply, longevity has climbed dramatically (in particular in the developing world), the number of children per family has declined sharply and resources are being used more efficiently.

By the way, most people think that Japan leads in business efficiency but they actually rank 16th from the top. Which country is at the top? Duh! Would you believe the reason people around the world would like to come to America is because we are at the absolute top at converting a few dollars of sales into a dollars worth of profits. It is the freedom to make profits that makes the USA the best country for the people. Hillary, Edwards and should get on board or move on!