Reform VI. Energy Policy. A.

Think back ... almost 40 years ago the US was hit by the first energy crisis as the Arab nations cut back oil production in response to the victory of Israel in the 1973 Yom Kippur war. At that time those living and working endured gas lines, a cold winter and a severe recession. Politicians trumpeted they would make America independent on foreign oil; they they would create a long term energy policy to make the US self-sufficient, and they would break our dependence on oil altogether as it was a diminishing resource.

Billions were spent by government and big business on alternative energy research in solar, wind and other new energy sources. Think tanks and policy school invested millions of hours in valuable human capital analyzing the issues, devising mechanisms to promote energy independence and a non-oil dependent culture and civilisation.

We now should recognize that all that was simply bloviation, blather and the intellectual class slurping at the public trough for high pay and little product. And wasted money. We now have nothing to show for this. Worse, we are repeating the same mistakes as made 35 years ago, wasting human and money capital on solar, wind, and other pie-in-the-sky, grass is greener fantasies.

Energy policy led by environmentalists is a one way road to serfdom, to living in a thatched hut cottage with an outhouse, gathering wood and manure to try to stay warm and cook a bit of gruel for food.

We are now 35 years closer to an Armageddon: the end of abundant oil for cheap, flexible, speedy transportation. After finding and obtaining the oil on the continental shelves in the world, where else can oil be found? Oil from those deep water wells is very expensive, too. In another 35 years, oil will be either very scare or very expensive .. or both. Oil from other yet to be discovered places is certain to be very, very expensive. The US - and the World - needs to find a transportation fuel for the future.

A knock-on problem. That solution must not drain capacity from other needed sectors, such as electric power. After all, electricity for the vaunted electric car had to come from the power grid. That's a HUGE source of demand. Where would that electricity come from? Coal, nuclear or ???

I took a graduate level course in public policy in decision theory about 35 years ago; one of the projects was energy policy. The alternatives were analysed and assessed for durability and cost. At that time, coal was thought to provide 300 years of energy, nuclear with breeder reactors could provide thousands of years; fusion power ... millions of year IF it could be made to work.

What is new now?

One item. New, abundant sources of natural gas have been found ... by private industry. Nations such as France & Japan have massive nuclear power programs. The US ... has done nothing. NOTHING for 35 years of money and effort.

Politicians still seem to not understand that price matters. The price of fantasy alternative energy matters. And I mean the total cost, not the marginal cost. Total cost includes the cost of making the equipment, installation, rent for use of land sites, transmission, storage, maintenance, etc. Sure, wind power is free. Sun power is free. But it costs hugely to get it and distribute it. And neither solar nor wind power is suitable for transportation unless the resultant electrical power is stored into batteries or other storage system. So you have to make and pay for the batteries, too.

And solar and wind power do not work all the time, at the flip of a switch. They are on & off, with the clouds, dust and wind. Thus backup power is required. That costs money, too. Huge amounts.

The simple reality based on physics and the world as it exists: solar and wind power are useful simply for non-connected, non-continuous power needs. The Dutch used windmills to pump water; there was no need for the pumps to run all the time, just part of the time. Solar power works well for remote sites with good weather. Space satellites come to mind. Or your survival cabin. Solar and wind power could pump water into up-gradient storage pools for later use in irrigation, etc.

A rational energy policy would recognize this. Any politician blathering about wind and solar is simply lying to you. His agenda, his priorities are something else, mostly likely he's a delusional greenie or a ruling class hog slurping at the public trough for green $ for consultants, etc.

Hydro power works well in places like Norway, Canada, probably Russia. But where hydro power does not exist, the primary, large source for energy in the World are coal, nuclear and natural gas (for awhile).

A workable, practical, economical energy policy would recognize this and ... do something.

Tomorrow I will several outline workable solutions over the necesary 35 year time frame when oil will run out.

Word of the Day

"Tare" noun [$10]
Tare means 1. an allowance made for the weight of the packaging or wrapping around goods; 2. the weight of a motor vehicle without its fuel or food.
Sentence: Subtract the tare from Obama and you get ... zero substance. He's all glitter and packaging and hype with no leadership or ideas.

Monday Morning Ramblings

The Reform series will continue tomorrow. I need to pummel hedge funds today.

Are the Rich stupid? Or gullible? Or foolishly greedy? That's the logical conclusion one could make from the annual returns of their favorite club topic, viz. hedge funds. They love to put money into hedge funds; they've poured billions - trillions - into thousands of hedge funds. The economy of southeast Connecticut must depend on hedge funds, as must many exclusive districts in London or Switzerland. A hedge fund manager gets fat fees, often 2% of assets and 20% of profits. They risk nothing other than some pittance of their own money. They get to gamble with clients money and rake off those fees.

What do clients - investors - get? Oh, they can talk about their hedge fund investments with their pals over cocktails before those black tie galas or at the exclusive clubs, or vacationing at Palm Beach or exclusive resorts. What kind of person would invest for that mere psychological benefit? Any rational person would say no one. They would want superior returns at lower risk.

The numbers for 2010 are now out. The average hedge fund gained 10.4% in 2010 according to Hedge Fund Research, which returns agree with those of Hennessee Group LLC, an advisor to investors. [Source: WSJ over the weekend]. Krypto Fund had a 14.1% return with very low risk as almost 1/2 of its investments are in passive fixed income investments. The equity components of Krypto Fund are invested mostly in low fee index funds. Krypto Fund crushed the performance of all those hedge funds by 3.7%, a huge margin. What fees were paid ? Dog biscuits. Active trading ? Nope, almost no trading - mostly simple asset allocation trades when a sector became out of balance.

All that superior performance with a public, easily copied strategy and no fees. Thus, what else can we conclude but that the rich are either stupid or greedily gullible or foolish or have psychologically weak minds, or any or all of the foregoing?

What else could one expect - there are thousands of hedge funds, just like there are thousands of mutual funds and now thousands of ETFs and thousands of managed account gimmicks at the big Street firms. All that vig created by the Street to rake off all the cream. The money managers and the Street get the beef and the customers get the gristle and fat. Those layers of fees guarantee poor performance on average.

Don't do it. Manage your own money with a simple, low fee, conservative strategy as Krypto Fund does. Sleep easy. Don't worry. Be happy. :)

Word of the Day

"Apocopation" - noun [$10] from "apocopate" - verb [$10]
Apocopate means the omission of a letter or letters at the end of a word as a morphological development [e. g. in the derivation of curio ].
Sentence: The title of the humorous Mozart opera, "Così fan tutte" contains the apocopation 'fan' from 'fanno' meaning 'they do'. In that title, 'tutte' is feminine plural for 'all" hence the literal translation is So do all (women).

Reforms V. Privacy.

The US is far behind Europe in enforcing privacy rights for people. I suppose that's not surprising, as European people have borne much suffering from totalitarian regimes like Soviet Russia, Nazi Germany and Mussolini's Italy. They (or at least their parents) know that totalitarianism needs to know who is thinking and doing what. Thus in Europe a company like Google faces strong, enforced prohibitions on gathering data about you.

Here is the US, we have almost no protection. Congress is in the pockets of the banks and marketing companies and simply requires them to notify us with long, wordy inserts to things like our credit card bill to "opt out". Of course we all get many, many of those and they are always changing, making us "opt out" over & over again.

Why is the rule not, "opt in"? After all, that's how Nielson gets it ratings. They arrange for a certain number of homes to "opt in" and let Nielson monitor their viewing habits. And when those people want out, they simply quit the programs.

I don't want to be in ANY company's database, but get forced in by wanting to use simple services like credit cards, banks, and store cards to get discounts (that used to exist a sales in newspaper inserts). Sooo I pay cash and don't use my store card anymore. That works. When a company wants to give me a "rewards" card, I decline. I concentrate most credit card spending on one card and then keep track of its privacy policy, making sure I'm on the "opt out" list.

But why do I have to do all this to keep my privacy?

Because the US Congress is in the pocket of the Ruling Class: some of the big corporations and their wealthy lobbyists make money off collecting data about us. And the US government wants to have files on all of us, too.

We need real privacy. No data files at all on us ... anywhere. I want the privacy of a common man who was a pioneer in America. Just pure privacy. I don't want to be a number in a corporate database. Leave me alone!!!

The people need to demand privacy laws - strong ones. Laws the prohibit any company or person or government from maintaining data about you for any reason. If a data file about you needs kept - such as medical records - it should be YOUR property. Period. They have to ask YOU for permission to access it, everytime. You can then give it to your doctor, but NOT to some drug marketing company.

Privacy is essential to a free people. Without privacy, innumerable ways exist to extort or tempt you. We should all demand strong privacy laws from Congress. Our lives are OURS. We are free people! Get out of our lives and homes and stop spying on us. Just leave us alone!

Word of the Day

"Verily" - adverb [$10]
Verily means really, truely
Sentence: The Ruling Class verily sees each of us as a serf whom they want to tattoo with an identifying number and watch ... everything about us: what we eat, buy, use, do, say and think. Demand and value your privacy and everyone's privacy; it's a barrier against totaliarianism and a bulwark of freedom.

Reform IV. End the Credit Score Racket.

Credit scores. You hear ads about them all the time, how YOU are supposed to check yours and fix the errors. And Identity Theft. YOU are supposed to check for this and fix the confusion and harm it can cause you. And the financial industry tries very hard to sell you identity theft insurance. They cause pain by spreading lies and you are supposed to buy insurance from them. That's a protection racket.

Banks, landlords and all sorts of companies use this information to make decisions about YOU. Does the credit score company ask you for permission to collect this data? Nope. From where do they collect the data? Anywhere and from anyone.

You have a dispute about a bill. Maybe you never even got the bill. The vendor calls and says pay up, or they'll report the matter to a credit score company. That will hurt you whenever you apply for credit or try to rent an apartment or for all sorts of things, even buying insurance for your car, house or life.

Isn't this reminiscent of a protection racket? Pay us or we'll cause you pain.

"Identity theft": a bank loses money in a scam. They try to force YOU to work to fix THEIR mistakes or they'll spread lies about YOU.

This whole industry and practice is a racket, one of many in the financial industry to loot and pillage from the public. They're like a mafia, seeking all kinds of ways to extort money and work from YOU, while giving you ... nothing.

Identity theft. Let's analyzes this "theft". Who loses money? The banks, etc. get scammed and lose money. And do they try to collect from the perp? Nope. Instead they post lies about YOU to their partners in crime, the credit score companies. Then YOU are forced to fix the errors, or THEY make it impossible for you to get a loan. Identity theft is the banks' problem. Let them fix the errors and try to apprehend the actual thief.

Credit Score Reforms.

1. Permission. No company should be permitted to keep a data collection about YOU unless YOU give them permission. Improve the existing law that requires them to give you a report IF you ask, to a requirement that they give it to you every year regardless of your asking or not. Why should you be forced to spend your time to get your data?

2. Limit on Power. Require that no bank or insurance company make having a credit score a condition to getting a loan or an insurance policy. Ditto for renting apartments, etc. They can make loans the old fashioned way: doing their own homework.

3. Defamation. Make credit score companies responsible for ANY harm that lies they post about you cause you; strict liability should apply, plus a fine for about $500 payable to YOU for your time used to notify them of their lies. Open them up to defamation lawsuits. Require them to check whatever they post about you and force the giver to bear the risk of giving false data. This makes THEM liable for any costs of "identity theft" and would put the costs further onto the banks, vendors, etc. that post the false information about YOU.

All this would level the field. The common man and woman would no longer be terrorized by credit score agencies and threat by debt collectors. Over time, banks would stop relying on these nameless data systems and learn about their local economies and people. Small banks would have an advantage; big banks would be put at a disadvantage.

That's good. Let's end the credit score protection racket.

Word of the Day

"Deracinate" - verb, transitive [$10] literary
Deracinate means 1. tear up by the roots; 2. obliterate, expurge.
Sentence: Financial "innovation" for the past two decades has been a disaster. It has created piratical beasts - from large carnivores and small parasites; they prey on the common man and woman and create huge risks to the economy, all for their own gains. Let's deracinate all these "reforms" and go back to the old ways of the mid 1980s. The system worked better then and was much fairer.

Reforms III. The Safety Net.

Ronald Reagan supported a safety net for people who experience bad luck or other misfortunes, or simply temporary economic dislocation. The US is a wealthy society; we already don't let people die in the streets. The US provides considerable subsidies to children of the poor, even to children of illegal aliens. But what does society provide for a 50 year old person with no children who loses a job or has a serious accident or health problem? Nothing, until that person is destitute. Even then, that person's safety net is rather thin, and disappears upon making almost nothing in income.

The current US safety net is really a trapdoor to destitution for people who might have paid taxes all their lives, supporting programs for others. The removal of benefits upon many minimal income creates a huge barrier to climbing out of poverty. Worst, it is a system of chains keeping people in dead end jobs when entrepreneurial effort might benefit all. Any person in a job that provides health benefits must be very careful about changing to a better job; health conditions that exist might be denied coverage in the new job as a "precondition". That person can't quit to start a new business or venture as the loss of health benefits might be catastrophic. That chain is thick and strong as health problems with one's spouse or children also cause one to stick to the dead end job or avoid entrepreneurial risk.

The Safety Net

The US needs a safety net that is not connected to children. Children can be a part of it, but should not be the crucial qualifying requirement. Today we get more children in the safety net because the poor can do better by having more children, usually by multiple fathers (who don't stick around).

The crucial elements of a safety net are food, shelter and health care. Let's deal with health care - actually it's the easy one.

Health Care

The US should provide a national health benefit to all people. The shared benefit would not be connected to employment - it would apply to all people - to anyone legally entitled to be in the US. [Illegals would be treated, then deported.] The shared benefit would not be a gold plated program; it would provide basic benefits, hospitalization and prescription drugs. I've written elsewhere how such a program would be structured and funded [Oct. 21, 2009 and Nov. 24, 2009]. Coverage would be determined by a Medical Board comprised of the public - not doctors or government employees. The common man and woman decide; after all, they are paying.

Food

The existing food stamp program would be expanded and not geared to children: anyone temporarily poor would qualify. Again, a board comprised of the common man would decide what foods are covered. The poor would get a good diet with nutrition, but would be expected to do some food preparation themselves. Yes, to slice & cook. There are plenty of cheap, nutritious foods out there. I know - I prepare and eat them. That's the trade-off: more people benefit, but choice is restricted. No one starves or suffers malnutrition.

Shelter

This is tougher - housing is a locally supplied market. The current program of subsidized housing complexes don't work too well. Communities are burdened paying for education for outsiders. Drug use and violence can overwhelm the complex if too many deviants are concentrated there.

My proposal would be to use a combination of voucher programs and homesteading to start to reform and broaden the housing safety net. Vacant homes or condos in communities that are abandoned would be offered to the poor under a new homesteading law. Living there for 3-5 years plus making improvements (paint, clean-up, simple repairs) would lead to ownership on a profit sharing basis. In communities without vacant homes, vouchers would be offered to the poor or newly homeless; that would include those being tossed out in foreclosure, etc.

This shelter program is rather incomplete, but it's a start. Ideas are welcome. By the way, the homes need to be where the jobs are. The poor might have to move to new communities; again, some kind of vouchers can help here, too.

Basic Income

My tax reform proposal cuts the cord that ties Social Security to employment. taxes that currently fund unemployment benefits are badly constructed: they tax jobs. Combine Social Security, disability and unemployment benefits into a single, simple safety income net. The benefits are not connected to how much you made in your prior job; anyone who worked gets it. The amount and time one would receive the benefit would be related to how long as you worked prior thereto. Thus the person who works for decades, then lost a job gets much longer support and more in hardship. At a certain point one would qualify for their entire retirement years.

For the young or those who haven't worked enough, work would be required and jobs offered when benefits run out. This is fair. In the New Deal, people happily took tough, dirty jobs at low pay simply to have some work and income. The US should offer that. Simply working to paint, pick up trash, plant flowers and clean communities would benefit all. Many other jobs are obvious to anyone driving or walking around with one's eye's open.

Summary

This safety net is not perfect, but it's a good start. The cost is mostly being paid already under many ineffective, complex programs. Benefits should not drop instantly upon making some income, perhaps only upon making a certain aggregate $ amount based on time and income. Let people recover and climb out; don't pull the lever for the trapdoor so again right away. Lower the walls that now keep people poor forever.

One helping hand: remove rules that resticts entrepreneurialism. That's for tomorrow.

Word of the Day

"Opprobrium" - noun [$10]
Opprobrium means 1. something that brings disgrace; 2. public disgrace or ill fame that follows from conduct considered grossly wrong or vicious.
Sentence: To paraphrase Pericles: There is no opprobrium to poverty itself, but to not striving to climb out.

Reforms II. Funding the Government.

US Federal government funding is completely out of balance. Nearly all its revenues come from taxes on incomes of one kind or another: personal income taxes, corporate income taxes, and taxes on employment earnings. Europe does not do this; its funding mechanisms include big value added taxes to spread the cost of government much more broadly. Value added taxes even make consumers of imports pay for the cost of government, while in the US, consumers of imports get a free ride.

Historically, the US government was funded by tariffs and excise taxes on specific good and services. Perhaps coincidentally, the US had enormous economic growth then. All that changed when taxes on incomes were made constitutional.

The funding imbalance causes huge losses to the US economy and people. Taxes on jobs reduces the number of jobs; letting import consumption get a free ride hurts US based production and ... costs more good jobs.

The US needs to re-balance its funding sources. How?

1. Eliminate ALL taxes on jobs: no Social Security taxes, no Medicare taxes, no other taxes on employment earnings.

2. Put on a big, European style value added tax - or excise tax - on everything, including imports: something in the range of 10-15% could work. The rich would pay a lot as they spend their money; even old art would be taxed.

3. Reform the personal income tax to (A) eliminate ALL deductions and ALL adjustments to income, (B) put in a BIG personal exemption, perhaps $20,000 for each adult and $5,000 per child, and (C) lower the rate to something like 15%. Tax ALL personal income equally, including municipal bonds.

4. Corporate tax reforms: (I) eliminate the deduction for interest expense (must be phased in over time) except for (a) banks and finance companies (as interest for them is an ordinary cost of business) and (b) working capital loans; (II) tax US corporations on worldwide income - no more free ride on income in foreign lands; (III) eliminate deductions for ANY compensation above a fixed number such as the salary of the US President; (IV) permit expensing of all machinery and equipment as paid; (V) lower the corporate rate to something like 15%; (VI) include a big small business exemption of something like $1 million; (VII) move all other deductions for business expenses to a cash basis (this will simplify everything).

5. Estate Taxes: (I) eliminate this entirely, but (II) require all capital gains be realized on death and the taxes paid. Eliminate gift taxes.

6. Foundations: require all foundations to expend ALL monies within 21 years of creation - no perpetual tax free institutions. This eliminates the creation of modern day monasteries owning everything, and fairly quickly recycles all the wealth of the Ruling Class.

This system of funding the government is simple, containing only a few rates and variables such as the exemption levels. It has LOW rates and is fair to the common man and woman. It removes tax subsidies for the Ruling Classes and big corporations. It removes taxes on jobs and even has a simple incentive to hire more people below the executive suite.

TOMORROW: The safety net for the common man and woman.

Word of the Day

"Piacular" - adjective [$10] formal.
Piacular means expiatory; 2. needing expiation.
Sentence: Tossing salt over one's left shoulder after spilling salt is a simple, piacular sacrifice: a bit more salt is lost, but the demons are appeased. [Salt was a very valuable commodity in ancient times.]

Reforms for a Square Deal. I.

I'll borrow the policy label that the great President Theodore Roosevelt used to describe his policies for the common man and woman: A Square Deal. They people deserve a Square Deal from the government and the Ruling Classes. The common people are the ultimate source of national sovereignty in the US, and the ultimate reason it survives. Their national cohesion makes the US exist. They fight the wars. Today begins a series advocating simple and not so simple reforms that will help move the US towards ... what ?

What do we want ? What is our End Point ? What is our metaphorical eschaton for the US ?

We want a happier society more consistent with the Preamble of the Constitution of the US and consistent with our inalienable rights to Life, Liberty and Pursuit of Happiness. I've written elsewhere how this can be accomplished in a broad context of philosophy and also political economics. A happier society would provide near complete freedom for a great majority in the middle, a secure safety net for the poor and considerable regulations for the top - those budding aristocrats. The top pays for the safety net. Simple. I've proven that such a society would be happier [See posts of January 29 and April 9 of 2010]. Now what's the optimal path ?

Today and in coming days I will write about specific reforms that will move us there. First, a simple banking reform.

Banking Reform

There's too much vig in the system. The big banking corporations want a bigger and bigger slice of every transaction and everyone's pay checks. For what ? Nothing. The government provides deposit insurance at a non-profit basis. The Treasury prints the paper money and mints the coins. The debit card systems, the pay day lenders, the fees on bank accounts, the refusal to open accounts for the poor, the fees on every transaction: all are unfair vig the bosses want to loot from the people.

A reform: as a condition of having Federal deposit insurance, any bank or credit union must offer a transaction account for free that a person can use to deposit checks (electronically OR paper) and obtain cash or a debit card. For free, regardless of credit history (as no credit is being given). Now a person with any job can store his money safety and use it in the economic system. He can deposit a check for services rendered (whether from an employer or a friend), and get cash when the check clears. This rule would apply to small business accounts, too. And one more thing: the ability to get a bank check for minimal fee to pay for large expenditures that require checks (car purchase, etc.)

I don't have to suggest reforms for debit cards transaction fees since the Fed has already proposed new rules (after much research) to eviscerate the rapacious fees of the banks. Payday lenders could still exist ... to lend. The same for check cashing services. If they provide value or convenience, they could exist. But the poor could access the normal banking system and ... live freely without the parasites and vig paid.

Krypto Fund

My dog Krypto performed superlatively last year in her money management job. Krypto Fun made a 14.1% total return in 2010, better that most hedge funds. The S&P 500 total return was a bit over 15%; that's 100% equity, while Krypto Fund is less than 50% equity. Obviously Krypto Fund's risk reward is far superior. Good doggie ... here's your fee, a fine dog biscuit.

Word of the Day

"Gracile" - adjective [$10]
Gracile means 1. gracefully slender; 2. graceful.
Sentence: Attractiveness in ladies is not unidimensional: Audrey Hepburn was a gracile beauty; Marilyn Monroe was voluptuously gorgeous, but definitely not gracile.