We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are

Life, Liberty and the pursuit of Happiness.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,

Friday, April 27, 2007

Harry Reid Has Committed Treason

Harry Reid Has Committed Treason

On April 19, Senator Harry Reid declared that the war in Iraq is lost, stating:

"I believe myself that the secretary of state, secretary of defense and - you have to make your own decisions as to what the president knows - (know) this war is lost and the surge is not accomplishing anything as indicated by the extreme violence in Iraq yesterday,"

What a wonderful recruiting plug for those who want to kill us.

His message to Islamic Terrorists around the world is simple, “Keep killing Americans and I’ll make sure America will surrender soon”.

This is the most despicable act of treason I have ever seen in my life. Of course immediately following these statements the violence was stepped up as 55 more Iraqi’s were killed as Harry’s terrorist brothers followed his advice.

Harry Reid has become the Tokyo Rose of the war on terror. I don’t want an apology, I don’t want him impeached, I want him arrested and tried for treason against the United States of America. The blood of every soldier that dies in the next few weeks is on his hands.

I don’t care what anyone’s opinion is of the war, my own personal opinion is that we screwed this up long ago the right military strategy would have had us out of there 2 years ago.

But I am not the leader of the Senate of the United States and my opinions don’t get posted on Islamic websites! Harry Reid has a powerful position in this country but with power comes responsibility. His claim that defeat of America is more votes for Democrats is the most irresponsible statement made during any conflict in my lifetime and he must be held accountable for his acts.

I have never been so disgusted over the state of our government and I fully his arrest. We need to remove this despicable piece of dirt from the government, from the Democratic Party and from the streets that were paved with the blood of true Americans who gave their lives for our freedoms.

The Coming Era of Russia's Dark Rider

By George Friedman

Russian opposition members rallied in Moscow's Pushkin Square on April 14. The so-called Dissenters' March was organized by Other Russia, an umbrella group that includes everyone from unrepentant communists and free-market reformers to far-right ultranationalists whose only uniting characteristic is their common opposition to the centralization of power under President Vladimir Putin's administration.

Minutes after the march began, the 2,000 or so protesters found themselves outnumbered more than four to one by security forces. They quickly dispersed the activists, beating and briefly detaining those who sought to break through the riot-control lines. Among those arrested were chess-champion-turned-political-activist Garry Kasparov and Maria Gaidar, the daughter of Russia's first post-Soviet reformist prime minister. Former Prime Minister Mikhail Kasyanov only avoided arrest because his bodyguards helped him to escape. A Reuters crew was permitted to capture the events and disseminate them to the West. A day later, another protest, albeit far smaller, was broken up in a similar way in St. Petersburg, though Kasparov was detained before the protest even began.

What gives? The protests were insignificant in both numerical and political terms. Moreover, with all that is going on in the world right now, the last thing the Putin government needs is to attract negative attention to itself. The answer becomes apparent when one considers Russia's point in its historical cycle and the mounting pressures on Putin personally that have nothing whatsoever to do with "democracy."

The Russian Cycle
At the risk of sounding like a high school social studies teacher (or even George Friedman), history really does run in cycles. Take Europe for example. European history is a chronicle of the rise and fall of its geographic center. As Germany rises, the powers on its periphery buckle under its strength and are forced to pool resources in order to beat back Berlin. As Germany falters, the power vacuum at the middle of the Continent allows the countries on Germany's borders to rise in strength and become major powers themselves.

Since the formation of the first "Germany" in 800, this cycle has set the tempo and tenor of European affairs. A strong Germany means consolidation followed by a catastrophic war; a weak Germany creates a multilateral concert of powers and multi-state competition (often involving war, but not on nearly as large a scale). For Europe this cycle of German rise and fall has run its course three times -- the Holy Roman Empire, Imperial Germany, Nazi Germany -- and is only now entering its fourth iteration with the reunified Germany.

Russia's cycle, however, is far less clinical than Europe's. It begins with a national catastrophe. Sometimes it manifests as a result of disastrous internal planning; sometimes it follows a foreign invasion. But always it rips up the existing social order and threatens Russia with chaos and dissolution. The most recent such catastrophe was the Soviet collapse followed by the 1998 financial crisis. Previous disasters include the crushing of Russian forces in World War I and the imposition of the Treaty of Brest-Litovsk; the "Time of Troubles," whose period of internal warfare and conspiracy-laden politics are a testament to the Russian predilection for understatement; and near annihilation under the Mongol occupation.

Out of the horrors of defeat, the Russians search desperately for the second phase of the cycle -- the arrival of a white rider -- and invariably they find one. The white rider rarely encapsulates what Westerns conceive of as a savior -- someone who will bring wealth and freedom. Russian concerns after such calamities are far more basic: they want stability. But by Russian standards, the white rider is a rather optimistic fellow. He truly believes that Russia can recover from its time of trial, once a level of order is restored. So the Russian white rider sets about imposing a sense of consistency and strength, ending the free fall of Russian life. Putin is the current incarnation of Russia's white rider, which puts him in the same category as past leaders such as Vladimir Lenin and, of course, Russia's "Greats": Catherine and Peter.

Contrary to portrayals of him by many in the Western media, Putin is not a hard-nosed autocrat set upon militarization and war. He is from St. Petersburg, Russia's "window on the West," and during the Cold War one of his chief responsibilities was snagging bits of Western technology to send home. He was (and remains) fully cognizant of Russia's weaknesses and ultimately wanted to see Russia integrated as a full-fledged member of the Western family of nations.

He also is pragmatic enough to have realized that his ideal for Russia's future and Russia's actual path are two lines that will not converge. So, since November 2005, Putin has been training two potential replacements: First Deputy Prime Ministers Dmitry Medvedev and Sergei Ivanov. At this point, nearly a year before Russia's next presidential election, determining which one will take over is a matter of pure guesswork. Also unclear is what role, if any, Putin will grab for himself -- up to and including a continuation of his presidency.

The question of who takes over in March 2008 is generating much interest and debate among Kremlinologists. It clearly matters a great deal both politically and economically, though geopolitically the discussion misses the point. The real takeaway is that Russia's current white horse period is coming to an end. Putin's efforts to stabilize Russia have succeeded, but his dreams of Westernizing Russia are dead. The darkness is about to set in.

The Dark Rider
In the third phase of the Russian cycle, the white rider realizes that the challenges ahead are more formidable than he first believed and that his (relative) idealism is more a hindrance than an asset. At this point the white rider gives way to a dark one, someone not burdened by the white rider's goals and predilections, and willing to do what he feels must be done regardless of moral implications. The most famous Russian dark rider in modern times is Josef Stalin, of course, while perhaps the most consuming were the "Vasilys" of the Vasily Period, which led to the greatest civil war in Russian medieval history. In particularly gloomy periods in Russia's past (which is saying something) the white rider himself actually has shed his idealism and become the dark rider. For example, Ivan the IV began his rule by diligently regenerating Russia's fortunes, before degenerating into the psychotic madman better known to history as Ivan the Terrible.

Under the rule of the dark rider, Russia descends into an extremely strict period of internal control and external aggression, which is largely dictated by Russia's geographic weaknesses. Unlike the United States, with its deep hinterland, extensive coasts and lengthy and navigable river networks, Russia's expansive barren landscape and lack of maritime transport options make trade, development and all-around life a constant struggle. Russia also lacks any meaningful barriers to hide behind, leaving it consistently vulnerable to outside attack.

Understanding that this geographic reality leaves Russia extremely insecure is critical to understanding Russia's dark periods. Once the dark rider takes the state's reins, he acts by any means necessary to achieve Russian security. Internal opposition is ruthlessly quashed, economic life is fully subjugated to the state's needs and Russia's armies are built furiously with the intent of securing unsecurable borders. That typically means war: As Catherine the Great famously put it: "I have no way to defend my borders except to extend them."

After a period of unification and expansion under the dark rider, Russia inevitably suffers from overextension. No land power can endlessly expand: the farther its troops are from core territories, the more expensive they are to maintain and the more vulnerable they are to counterattack by foreign forces. Similarly, the more non-Russians who are brought under the aegis of the Russian state, the less able the state is to impose its will on its population -- at least without Stalin-style brute force. This overextension just as inevitably leads to stagnation as the post-dark rider leadership attempts to come to grips with Russia's new reality, but lacks the resources to do so. Attempts at reform transform stagnation into decline. Stalin gives way to a miscalculating Nikita Khrushchev, a barely conscious Leonid Brezhnev, an outmatched Mikhail Gorbachev and a very drunk Boris Yeltsin. A new disaster eventually manifests and the cycle begins anew.

Why the Crackdown?
The April 14-15 protests occurred at an inflection point between the second and third parts of the cycle -- as the white rider is giving way to a dark rider. Past Russian protests that involved 2,500 total people at most would have been allowed simply because they did not matter. The Putin government has a majority in the rubber-stamp Duma sufficient to pass any law or constitutional change in a short afternoon of parliamentary fury. All meaningful political parties have been disbanded, criminalized or marginalized; the political system is fully under Kremlin control. The Kasparov/Kasyanov protests did not threaten Putin in any meaningful way -- yet in both Moscow and St. Petersburg a few dozen people were blocked, beaten and hauled off to court.

This development was no accident. Roughly 9,000 riot police do not spontaneously materialize anywhere, and certainly not as the result of an overenthusiastic or less-than-sober local commander. A crackdown in one city could be a misunderstanding; a crackdown in two is state policy. And one does not send hundreds of batons swinging but allow Reuters to keep filming unless the objective is to allow the world to see. Putin chose to make these protests an issue.

Putin, then, is considering various groups and rationalizing his actions in the context of Russia's historical cycle:

The West:
Putin certainly does not want any Western capital to think he will take exiled oligarch Boris Berezovsky's recent
threats of forcible revolution lying down. Berezovsky says violence is a possibility -- a probability even -- in the future of regime change in Russia? Fine. Putin can and did quite easily demonstrate that, when it comes to the application of force in internal politics, the Russian government remains without peer.

The people:
Putin knows that governance is not so much about ruling as it is about managing expectations. Russians crave stability, and Putin's ability to grant that stability has earned him significant gravitas throughout Russia as well as a grudging respect from even his most stalwart foes. He is portraying groups such as the Other Russia as troublemakers and disturbers of the peace. Such explanations make quite attractive packaging to the average Russian.

The opposition:
It is one thing to oppose a wildly powerful and popular government. It is another thing when that government beats you while the people nod approvingly and the international community barely murmurs its protest. Putin has driven home the message that the opposition is not just isolated and out of touch, but that it is abandoned.

The Kremlin:
Just because Putin is disappointed that his dreams are unattainable, that does not mean he wants to be tossed out the proverbial airlock. Showing any weakness during a transition period in Russian culture is tantamount to surrender -- particularly when Russia's siloviki (nationalists) are always seeking to rise to the top of the heap. Putin knows he has to be firm if he is to play any role in shaping Russia during and after the transition. After all, should Medvedev and Ivanov fail to make the grade, someone will need to rule Russia -- and the only man alive with more experience than Putin has a blood-alcohol level that precludes sound decision-making.

Thursday, April 19, 2007

VA-Tech and Gun Control

As expected, the usual suspects have come out in the wake of the VA-Tech massacre calling for stricter gun control laws. One particular radio show almost made my head explode when one of the proponents started making statements about gun violence and murder rates without any references as to whether or not she was stating facts or simply emoting as liberals often will.

I called in to challenge her and made the following statements of 3 facts and one opinion:

Fact: Va-Tech had rule in place that BANNED all guns and called for imediate and possibly permanent expulsion for anyone caught violating those rule.

Fact: The killer managed to smuggle not only firearms, but also enough ammunition to kill 32 students onto campus and kept them concealed until he was ready to strike.

Fact: The rule abiding students were unarmed and therefore had little chance of stopping the rampage because any idiot will tell you that you don't bring pencils and calculators to a gun fight.

Opinion: When the Federal Government can prove conclusively that all illegal immigrants have been removed from the country and that our borders are so secure that there is no chance of any sneeking across AND that all illegal drugs have been removed from the population and that our borders are sosecure that there is no chance of anyone bringing illegal drugs into the country, THEN and ony then, will I be in favor of an all out ban on firearms in this country.

I won't hold my breath.

Flat Tax, Fair Tax - Which Is Better (Or Worse)?

Gary D. Halbert and InvestorsInsight [newsletters@investorsinsight.com]

Is An Alternative Tax System Necessary?

Whenever the subject of income tax comes up, there's usually someone who mentions tossing the Internal Revenue Code in the dumpster and starting again from scratch, followed by cheers from everyone listening. Everyone seems to be sick and tired of the complexity of the current tax code and the hassle of dealing with the dreaded April 15th deadline (April 17th this year).

The two alternatives most frequently put forth as a replacement for the current tax code are the so-called "Flat Tax" and the "Fair Tax." Both of these alternative tax systems have been extensively debated in the public media, and have even been introduced in Congress. But before going into these two alternatives in more detail, let's look at some reasons why the current tax system is deemed to be in need of repair or replacement.

I have heard politicians say that the current income tax system is broken. I don't think that is accurate, because to say something is "broken" implies that it worked at one time, and I'm not sure the tax code ever has. It's always been confusing, difficult to comply with and even difficult for the government to administer. While there have been other attempts to "fix" the tax code over the years, none have made it significantly simpler or easier to comply with. In fact, they usually have the opposite effect.

So, what do Congress and the American people see as the major problems with the current tax code? Plenty! Just a few of the most often mentioned problems are as follows:

1. The tax code is so complex that it is almost incomprehensible. And I'm not just talking hard to understand by the public, but even by the tax professionals. For a number of years, Money magazine sent a hypothetical family's income and business information to up to 50 tax professionals. Most years, they got back anywhere from 45 to 50 different answers from tax professionals using the exact same information. More recently, the USA Today newspaper did the same experiment with only 4 tax professionals, and got back 4 different answers that ranged from owing the IRS over $500 to receiving a refund of $1,754. That's quite a discrepancy.

2. Call the IRS for clarification? Good luck! A 2006 study conducted by the Treasury Inspector General showed that approximately 26% of taxpayer questions were either answered incorrectly or not answered at all by IRS staff at taxpayer assistance centers. If tax professionals and the Treasury Department's own employees can't figure the tax code out, then something is definitely wrong with the beast itself.

3. The current tax code is costly to comply with. The non-partisan Tax Foundation estimates that individual taxpayers and US companies will pay as much as $300 billion this year alone for all tax preparation and compliance costs. To put that in perspective, that's a 20% levy on top of the approximately $1.5 trillion in total taxes that will be paid.

4. The current tax code is full of loopholes designed for special interest groups. Of course, not all of these are bad things, such as deductions for mortgage interest and charitable contributions. However, not all loopholes are for such noble causes, and the mere fact that loopholes can be created makes the tax code susceptible to being a way to pay off political debts, or garner political favor.

5. The tax code can be described as the best example of what is commonly called the "law of unintended consequences." Changes enacted during one period of time may have extremely negative effects later on. The Alternative Minimum Tax and marriage penalty are just two examples of how the tax code's failure to keep up with the times has ensnared taxpayers who were not the original targets of tax legislation.

6. The tax code is so complex, both intentional and unintentional noncompliance is common. This, in turn, requires that the IRS provide for enforcement of the income tax laws, which can and does lend itself to abuses. Testimony before the Senate Finance Committee in 1998 exposed many IRS abuses, prompting lawmakers to reign in improper and sometimes illegal collection activities. Since then, the IRS has been trying to present a "kinder and gentler" side, but recent talk of closing the "tax gap" by insuring compliance could mean that this pendulum may swing back the other way.

Obviously, the above list is not exhaustive, but it does illustrate some of the major problems that exist with the current Internal Revenue Code. The existing law seems to have so many "moving parts" that it is virtually impossible to interpret, comply with or even administer. One source I read said that the current tax code and accompanying regulations account for 67,204 pages containing over 9.4 million words. Virtually no one will stand to defend it, but can it be replaced by something better?

The "Flat Tax"

When most people think of a Flat Tax, they think of a single, low tax rate for all taxpayers. In such a system, the rich, the middle class and the poor would all be taxed an equal percentage of their income without any deductions or other special allowances. However, if that's what you think of when you hear politicians talk about a Flat Tax, prepare to be disappointed.

The Flat Tax proposals as set forth by former Congressman Dick Armey, former presidential candidate Steve Forbes, and others are far from a flat tax. The only similarity is that everyone pays a single tax rate - 17% - but the level of income that rate applies to would be different depending upon an individual's overall earnings. Other proposals have other flat percentages ranging from 14% to 19%, but the basic concept is the same.

In an effort to keep from being considered regressive, all of the major Flat Tax plans I have seen have some level of personal exemptions, allowing larger families the ability to have a higher income exempt from the Flat Tax. These range from under $25,000 to over $40,000 for a family of four. Since lower-income households would have little or no income over and above the personal exemptions, the effective tax rate for them would be smaller, or possibly even zero.

As a practical matter, the final level of personal exemption as well as the tax rate percentage would be set by Congress, and would also then be subject to periodic review (read: change). Unearned income such as investment gains, pensions, Social Security, savings, etc. would not be taxed at all under some plans.

Inheritances would also pass without taxation as the estate tax would disappear under most of the Flat Tax proposals. Corporations would have a similar flat tax rate on profits.

Yet whatever proposal you want to latch onto, it's clear that the Flat Tax is not flat at all.

The personal exemptions were obviously added to the Flat Tax proposals to avoid being labeled as a regressive taxation scheme. Even with the personal exemptions, some critics still regard the flat 17% rate as being much higher for some taxpayers than the current level of personal exemptions and the 10% lowest bracket under the existing tax code.

Under the Forbes Flat Tax plan, there would be no deduction for mortgage interest, state and local taxes or charitable contributions, which some see as a major negative. However, some of the Flat Tax proposals have also incorporated child credits and earned income credits. These would allow lower-income families to pay low or no taxes, plus get a refund of the credit.

The big question to ask is whether the Flat Tax proposal meets its objective of simplifying the tax code. To that, I have to answer "maybe, for a while." The elimination of many deductions and credits would certainly make the tax form shorter, though not quote "postcard size" as some proponents suggest.

While the Flat Tax may be simpler when first passed than the existing tax code, if you look at many of the special provisions that have already been incorporated as the idea has been bantered around over the last decade or so, it's already starting to attract credits and deductions.

More importantly, who thinks that Congress will leave a Flat Tax alone once it's passed? I certainly don't. The one, single tax rate could also be changed (read: raised) by any future Congress, and eventually become just like the existing tax code it replaced. I have absolutely no confidence in Congress' ability to refrain from tinkering with a flat tax rate. They will also be able to tinker with what is exempted from the definition of income, the personal exemptions, etc.

The Flat Tax is also not likely to win many fans among the liberals, since it is often viewed as being regressive. Plus, a 17% or 19% flat tax rate could result in a massive tax cut for high-income taxpayers. In fact, Steve Forbes was criticized for touting the Flat Tax during his presidential run because he would have been one of the main beneficiaries of the tax savings. I've said before that I never met a tax cut I didn't like, but they need to be accompanied by cuts in spending as well. I don't think any Congress has the ability to do that.

Of course, any new tax system has to supply enough money to run the government. So how does the Flat Tax do in that department? We all know that revenue projections are only as good as the assumptions used.

Proponents of the Flat Tax point to the fact that, in the short-term, the Flat Tax would likely decrease tax revenues (thus increasing deficits). However, in the longer term, Forbes expects the Flat Tax to produce a stronger economy, lower interest rates and eventually result in higher tax revenues. This is consistent with supply-side economics, but tax cuts to the rich will be a very hard sell in a Democratic-controlled Congress.
As for my personal opinion, I have to say the jury is still out on the Flat Tax.

While it sounds good on its face, a detailed examination of the various proposals shows that some of the very same complexities of the current system are already embodied in the Flat Tax. Perhaps my biggest reservation comes from the knowledge that politicians will find it very hard to leave any level of flat taxation alone in the future.

The "Fair Tax"

While the Flat Tax can be described as essentially a leaner version of the current income tax system, the Fair Tax is a whole new creature. The Fair Tax is not an income tax at all, but rather a national sales tax on all retail purchases. Even more revolutionary, the Fair Tax would replace not only the personal income tax, but also the corporate income tax, gift tax, Medicare tax, Social Security tax and estate tax.

Radio talk show host, Neal Boortz and Congressman John Linder are the primary champions of the Fair Tax. Boortz's book, The FairTax Book, debuted as a No. 1 bestseller on the New York Times list, providing strong evidence of the discontent of the American public with the current tax structure. Linder's Fair Tax bill (H.R. 25) currently has 57 co-sponsors, where the Flat Tax bill (H.R. 1040) introduced by Representative Michael C. Burgess, M.D. has only four.

Here's how the plan would work. The Fair Tax is a "consumption tax," which is
a tax paid when money is spent rather than earned. Virtually all federal income taxes would be replaced with a national sales tax payable upon the purchase of most new goods and services, including medical costs, new cars, new homes, gasoline, food, Internet purchases, and electricity. Used goods would be exempt (more about that later on). Savings and investments would escape taxation, as would corporate earnings.

The Fair Tax is considered "fair" because everyone consumes goods and services, but not everyone pays income taxes. Supporters claim the Fair Tax would eliminate the failure to report cash transactions, the ability to escape taxation through the use of loopholes and any other features of the current tax code that are viewed to be "unfair" to the average taxpayer.

The tax rate is presented as being 23% of the cost of goods, but this is a bit misleading. Most of us think of sales taxes as being a percentage on top of the price of a good. For example, here in Austin we have a sales tax of 8.25%, which means that you pay $108.25 for a $100 pair of boots. In these terms, the Fair Tax is really a 30% sales tax, since that's the percentage applied to the base price of the good or service. They arrive at the 23% number through a little creative math.

Using our $100 example, the total price including the sales tax would be $130. Dividing the total tax ($30) by the total cost ($130) works out to be 23%. Since 23% is lower than 30%, that's the way the Fair Tax is being promoted. However, since the Fair Tax doesn't replace the Texas sales tax, our boots would actually cost $138.25 since the 8.25% state sales tax would have to be added to the 30% national sales tax.

Since the Fair Tax would be a sales tax collected by businesses across the country, supporters envision a world without the IRS. There would be no federal income tax filings (though state income tax filings will continue), no withholding from paychecks, and no April 15th deadline. Thus, simplification at the individual taxpayer level would be accomplished. Since businesses routinely collect state sales taxes, supporters claim that the addition of a national sales tax won't be an issue for most companies.

The biggest problem with this grand scenario is that consumption taxes are considered to be highly regressive, in that they put more tax burden on those with lower incomes than those who are wealthy. It just stands to reason that low-income families must spend a greater percentage of their earnings on the necessities of life than those with higher incomes.

To fix this inequity, proponents of the Fair Tax propose what they call a "prebate" in the form of a monthly check equal to the estimated sales tax on goods purchased for each household. Those with lower incomes would receive a full reimbursement of sales taxes, while those with higher incomes would get less of a prebate, or none at all.

This is an important point. Even without state sales tax, it's going to be tough for some individuals to pony up an additional 30% sales tax on top of the goods they purchase. The prebate is designed to offset the up-front cost, with low-income individuals getting a 100% relief from the sales tax. Supporters hope that this prebate feature will allay any concerns of the Fair Tax being viewed as regressive by the liberals among us.

Proponents also claim that the Fair Tax is voluntary, in that taxpayers can choose when to purchase certain items, and also decide to purchase used goods instead of new ones. I suppose this is true for some purchases, but good luck finding used food, services and medicine.

As for the matter of government tax revenues, supporters of the Fair Tax claim that it will be "revenue neutral," meaning that it should bring in the same amount of tax revenue as the current system. Proponents also argue that the Fair Tax should have the same beneficial effects on the economy as the Flat Tax is expected to produce, leading to greater economic output, higher incomes and ever more consumption (and thus more taxes). According to one article I read, some economists predict that a consumption tax like the Fair Tax could increase the average American's real income by as much as 9% over the long run, and result in a 10.5% growth in the US economy in the first year.

One of the more controversial provisions of this tax scheme is the premise that the prices of many goods and services would decline by as much as 20% due to the elimination of "embedded taxes." Dale Jorgenson, a Harvard Economist, noted in a now decade-old study that scrapping the tax code would result in a savings equal to the amount of taxes paid by everyone along the chain of production.

Let's apply that to our boots example noted above. Before elimination of the tax code, our boots cost $100. Once embedded taxes are eliminated, our boots will now cost only $80. Here's the good part - adding a 30% sales tax to the reduced $80 cost now produces a total out-of-pocket of $104, only $4.00 more than the previous base cost.

Sorry, folks, but this is where I have to jump off of the Fair Tax bandwagon. There's no way you can get 100% of your current gross salary (before withholding), have prices at the store stay roughly the same after adding a 30% tax, prebate all of this tax to the public, and still have the government up and running.

Well, there is one way - if you reduce wages. Jorgenson admits that to get the savings he projects, you'd have to cut wages by about 20% as well, since wages also contain part of the "embedded taxes." So, while supporters of the Fair Tax make the claim that you will get to keep 100% of your paycheck, even Boortz now admits that it's going to be a smaller paycheck.

And the potential disadvantages of the Fair Tax proposal don't stop there. There are a number of other major roadblocks to the design, implementation and administration of this new kind of taxation. These include the following:

1. The Fair Tax would apply to goods and services that many states exempt from their sales taxes. Thus, businesses in those states would be met with a confusing array of "taxable or not taxable" questions. Plus, states may balk at having yet another unfunded mandate require them to administer collection of federal government revenues.

2. Prebates would have to be calculated and administered by some federal bureaucracy. So even though the IRS would be disbanded, something would have to take its place. One idea has been to shift this duty to the Social Security Administration. That's right, just as they're being hit with 78 million Baby Boomers, let them also be responsible for sending a monthly prebate to virtually every household in the U.S. As my teenagers say, yeah right!

3. Just because the Fair Tax is a whole new kind of creature doesn't mean that our elected officials will refrain from tinkering with it. The tax rate, prebate amount, list of taxable goods, etc. can be tinkered with over time, possibly creating a monster equal to our current tax code. Individual taxpayers would not have to deal with any increased complexity caused by Congressional tinkering, but businesses will, possibly leading increased prices.

4. The Fair Tax promotes the repeal of the 16th Amendment which authorizes the income tax. However, the Linder bill does not contain the necessary constitutional amendment language, so companion legislation would have to be introduced. Conceivably, Congress could pass the Fair Tax but not repeal the 16th Amendment. Without this repeal, a future Congress would be able to impose another income tax on top of the Fair Tax if they so desired.

5. The Fair Tax proposal also results in new taxes, such as taxation on all Internet purchases and new homes (used homes are exempt). A 30% sales tax on top of the cost of a new home could be devastating to the home building industry. It would also do away with deductions that people find important, such as for charitable contributions and mortgage interest.

6. Taxpayers find ways of cheating on their taxes now, and the Fair Tax would be no different. Some economists believe that very high sales taxes promote cheating and even smuggling. Plus, the Fair Tax only applies to new goods and services, creating the possibility of black market operations and even the "recharacterization" of new goods to used status. The sheer size of the 30% Fair Tax makes noncompliance attractive.

7. Finally, the Fair Tax rate of 30%, or 23% if you prefer, is considered to be too low by many economists, and would be in addition to state sales taxes. A tax rate of 35% to 50% or more could lead to a huge decline in production. Since consumer spending now accounts for apprx. 70% of the US GDP, a Fair Tax could have a major negative effect.

There are other positive and negative aspects of the Fair Tax, but suffice it to say that it is not the cure-all some supporters suggest. Another idea based on a form of national sales tax is something known as a "Value-Added Tax, or VAT. These taxes are common in Europe and Canada, and work by taxing the "value added" during each stage of production. Of course, the VAT has its own set of pros and cons, and would also need to accompany repeal of the income tax. Unfortunately, space does not permit me to go into a discussion of the VAT, but perhaps I can cover it in a future E-Letter.

Why Congressional Action Is Unlikely

I have discussed above how both the Flat Tax and Fair Tax systems have been introduced in Congress. While each has its champions in both the House and Senate, and both garner co-signers, I think it's all for show.

After all, nobody likes the IRS or the current confusing tax code or paying taxes, so any proposal to do away with them is likely to be popular among the folks back home. So some in Congress are quick to support these new tax reform ideas, but the key is, they know such reforms will never be passed.

On another front, the current tax system has a huge constituency that depends upon its continued existence. While many accountants, attorneys and tax professionals will moan and groan about the complexity of the tax code, deep inside they know that their very jobs depend upon it. If the tax code was easy to decipher, who'd need a professional to help out?

Add to this the hundred thousand-plus federal government employees whose jobs revolve around the administration and enforcement of the current tax code, and I think you start to get the picture. Now, add in the special interest groups that exist to promote and maintain favorable tax treatment for various current deductions (charities, mortgage industry, real estate, alternative energy, farmers, etc., etc.) and you begin to get an idea of the huge headwind any proposal to change the tax system would face.

Everybody acts as if they are all for it, as long as it doesn't have a negative impact on them. Likewise, organizations and special interests that depend upon favorable tax treatment are OK with simplification, as long as they don't lose their special tax benefit.

We also can't forget the folks back home who elect the politicians. In my April 3 E-Letter, I mentioned that the bottom 50% of taxpayers account for just over 3% of the total income taxes paid. Thus, roughly half of an average politician's constituency may have no problem at all with the current tax code. This is especially true for those who are reaping an 8-to-1 return on their tax dollars, based on the Tax Foundation study that I mentioned in my April 3 issue.

Then there's the issue of the approximately 44 million people who are not currently on the tax rolls. A Flat Tax or Fair Tax system may put them back on, at least to some extent. Do you think they'll be happy with the politicians that made them pay taxes again? I don't think so.

Past Events May Be A Key To The Future

Perhaps the most compelling argument for the continuation of the current tax system is that simplification of the tax code has been tried before, and failed miserably, in my opinion. I have written previously about how the significant changes to the tax code enacted in 1986 under President Reagan had started out as a very simple, two-tiered system.

Of course, that was before the lobbyists had their way. Charitable organizations said they couldn't survive without a tax deduction for contributions. Real estate and mortgage lobbyists said that deductions for interest and taxes had to be preserved to promote home ownership. Every deduction and tax benefit had its own lobbyists, and by the time they were all finished, we wound up with a tax code at least as confusing as the one it replaced, if not more so.

So, to believe that either the Flat Tax or Fair Tax has a chance of being passed requires that you believe lobbyists are less interested in protecting their turf, or that politicians have undergone a fundamental change in their thinking. Unfortunately, I'm not buying either of these ideas, so I don't think we'll see substantial change in the tax system. Unless…

Return Of The 800 Pound Gorilla

In my
April 3 E-Letter, I discussed how Social Security and Medicare spending is the 800 pound gorilla in the room that nobody wants to talk about. Like it or not, politicians will have to address this colossal primate at some point in the future, and when they do, it will most likely be long after something should have been done. Thus, their backs will be up against the wall.

At that point in time, when politicians hear a loud and clear demand from their constituencies that they do something to fix these ailing entitlements, maybe - just maybe - they will summon the backbone necessary to take the steps needed to fix not only the entitlement programs, but the income tax system as well.


While it's entertaining to discuss alternatives to the clearly too-complex tax code, my opinion hasn't changed much since first learning of these alternatives. The Flat Tax and the Fair Tax both have their positives and negatives as discussed above. Neither is remotely as simple or easy to implement and administer as their proponents would have us believe.

While some politicians have jumped on the bandwagon for the Flat Tax, and others for the Fair Tax, the truth, in my opinion, is that few in Congress who have signed onto these proposals believe they have any chance of becoming law. I think most have only signed on to look good to the voters back home.

At the end of the day, I don't think either the Flat Tax or the Fair Tax is going anywhere. Meanwhile the Baby Boomers start retiring next year, and the number of them retiring will go up every year thereafter, leading to an entitlements financial crisis in the coming years. As I discussed in my April 3 E-Letter, that will mean higher taxes.

As a final thought, I know that this E-Letter will likely generate strong feelings in those of my readers who are sold on either the Flat or Fair Tax alternative. So, before you send your e-mail to me, know that I had fully expected to be won over by one plan or the other by the time I finished my research. Quite honestly, I was disappointed that both of these proposals have so many potential disadvantages associated with them. With a tax code so much in need of replacement, I had hoped one of these alternatives would be the "silver bullet" necessary to do the job. Unfortunately, neither program gets there for me, not to mention they have little to no hope of being enacted.

The Road to a Lower Dollar Paved with Good Intentions...

By Jack Crooks,
Currency Director and Editor of Crooks Currency Options and Crooks on Currencies.

Whenever I hear politicians say they are regulating something to "help me," I automatically expect to pay for their "help."

It would be more efficient if the meddling politicos just left the free market alone. But, the Nanny State overseers just can't help meddling. It's in their nature. The latest salvo of compassion for "victims" comes from U.S. House of Representatives Member Barney Frank (D-MA), the chairman of the financial services committee.

Mr. Frank has decided it's time to punish, or should I say, "regulate" mortgage brokers - as if they aren't "regulated" already. Apparently he thinks he can do better. He wants to help all those "victims" of "predatory" lending.

But, as Samuel Johnson once quipped, "The road to hell is paved with good intentions." And in this case, Mr. Frank's good intentions could hurt U.S. capital markets and the dollar.

How can regulating mortgage brokers hurt the U.S. dollar? It's because we live in a world where currencies are not valued on their intrinsic qualities (because nothing tangible backs up currencies anymore).

So instead, a currency's value is based on relative global demand. The major currencies of the world are free-floating against one another. Their relative value (dollar versus the euro for example) flows from the relative demand for one currency against another. When more capital flows to a particular country relative than another, that country's currency goes up in value. The popular one wins - just like a beauty contest!

The key to maintaining a currency's value over time is to ensure the country that uses that currency remains attractive for international investors. Fortunately for the U.S. dollar, the U.S. economy has attractive capital markets. For many years, the U.S. capital markets have been the largest, most efficient, and highly competitive compared to its global rivals. And money flowing into U.S. capital markets has been a major support for the U.S. dollar - and has likewise helped keep domestic lending rates low.

Many investors (and apparently politicians) take this for granted. For a while now, they've all thought "where else would investors go?" Well, now that view is changing quickly. And I think this is a major threat to the long-term stability of the dollar. But politicians don't seem to quite grasp this fact. Here's why...

Over US$2 trillion in mortgage backed bonds were sold in 2006, according to the Securities Industry and Financial Market Association. And a quarter of that amount was linked directly to the U.S. sub-prime mortgage market. In short, Wall Street created and sold a whole bunch of securities to international investors that generated a bunch of capital flow into the U.S.

Yet, Mr. Frank & Friends want to dig their regulatory claws into this fertile source of capital.

Mr. Frank told the Financial Times last Thursday, April 12: "It is no part of my concern whether investment banks make money [though he likes their campaign contributions]...the purpose of housing finance is to get people in houses, not to finance the U.S. financial markets."

It can be argued whether or not Mr. Frank is right or wrong. He may be driven by good intentions. But the result is the same. Regulating the finance industry adds to the growing belief U.S. capital markets are losing their competitive edge just as the European capital markets are getting seriously into the game. Just consider these points:

More company initial public offerings are now done in London and Hong Kong than New York.

For the second year in a row in 2006, there were more international bonds issued in euros than in U.S. dollars.

For the first time since World War I, the total value of all European stock markets was bigger than those in the US in terms of total capitalized value (as of April 6th 2007).

The world is beginning to realize European capital markets are fast becoming a viable alternative to the United States. And that means Europe could increasingly look better to international investors as a place to send capital.

Let's hope our politicians don't kill the goose that laid the golden egg as they attempt to deal out blame for the real and perceived abuses in our financial system.

Bee Back Soon?

By HSI - Jenny Thompson [hsiresearch@healthiernews.com]

"If all the bees disappeared tomorrow, humans would have only four years left on the planet."

That quote is attributed to Albert Einstein, who was neither a beekeeper nor an entomologist.

And even though it's interesting to imagine the master of time, space, and the universe pondering bees, there's no clear evidence that actually links the quote to him. No matter. Whatever the source of the quote, it reminds us that life on earth is a web of interrelated parts. Take away a critical part, and the web may unravel. And bees are a critical part. And worse - it seems they're being taken away. If this is the end of bees, it's going to be rough going for everyone around 2011.

-------------------------------------------- Empty hives --------------------------------------

In the e-Alert "Slow Sugar" (3/22/07), I told you about a phenomenon known as colony collapse disorder (CCD), in which most of the mature bees in a colony seem to abandon their hives and disappear. CCD has been reported in nearly two-dozen states in the U.S. Some beekeepers have lost from 40 to 90 percent of their bees. In March this problem seemed like an oddity that might not be too far reaching. But earlier this month a USDA official, appearing before the agriculture subcommittee of the House of Representatives, told congressmen that CCD poses a grave threat to as much as $15 billion of the U.S. farm economy.

In recent years, bee populations have come under attack from a type of mite that spreads viruses among honeybees. Some researchers believe this mite may play a role in CDC, prompting a virus that could interfere with bees' navigational abilities. Another similar theory is that pesticides or some other agricultural chemical could produce a neurotoxic reaction, causing a disorientation that prevents bees from returning to the hive.

-------------------------------------------- Apples and oranges -------------------------------

Nearly 100 food crops in North America depend on the honeybee for the majority of their pollination. These crops include apples, oranges, broccoli, blueberries, squash, and melons. This alone makes bees indispensable. But bees also provide three unique products that have been used for nutrition and healing for many centuries: honey, bee pollen, and propolis. Propolis is probably the least well known of the three products. Bees make propolis from tree sap and use it to protect the hive from bacteria, viruses, and fungus. In humans, propolis has been shown to enhance the immune system and treat infections.

In his Daily Dose e-letter, William Campbell Douglass, II, M.D., detailed a study in which bee propolis was tested against Zovirax (a cold sore medication) in treating 90 subjects with herpes. Over 10 days, herpes outbreaks were completely healed in 80 percent of the propolis group compared to just 4 percent in the Zovirax group.

Bees mix honey with pollen to create tiny bee pollen granules that are used to nourish young bees. But these granules are very good for nourishing humans as well. In fact, bee pollen contains more protein than beef, and is considered nature's most potent natural multivitamin. It also contains minerals, enzymes, flavonoids, and all eight essential amino acids. Healers have traditionally used bee pollen to improve vitality and endurance, prevent infectious diseases, and aid in recovery from illness.

And of course, there's honey. In addition to being a nutritious sweetener, raw honey - unfiltered and unpasteurized - is a natural antibiotic that has been shown to aid digestion, treat ulcers, and promote healing when applied directly to skin wounds.

Here's what HSI Panelist Allan Spreen, M.D., had to say about honey in a previous e-Alert: "In the raw state (and the word 'raw' is vital here...'uncooked' does not qualify) honey contains enzymes and nutrients that can be very useful to the body. Unfortunately, heat destroys many of them, and commercial honey is heated to keep it from crystallizing inside processing machinery."

I suppose we could live without honey, propolis, and bee pollen if we had to. But there's no way our food supply could survive without the pollinating genius of the honeybee. I'll keep watching for further reports on the mystery of the disappearing bees. A team of scientists is currently studying abandoned hives throughout the U.S., so maybe we'll have some answers soon. Stay tuned.

Armies of Geologists

This is a sad commentary on the priorities placed on careers in the US versus other industrialized nations.....

April 18, 2007
By Byron W. King
Pittsburgh, U.S.A.

I HAVE DISCUSSED in previous articles that I attended the recent annual convention of the American Association of Petroleum Geologists (AAPG), held in Long Beach, Calif. It was a gathering of about 5,200 geologists from around the world, and many others who work in related fields dealing with the world’s oil and gas industries. In addition to the formal members of the AAPG, the convention hosted many hundreds more individuals from related industries (such as the oil service companies, geophysics companies, and the like), as well as from government and academia.

One of the things that struck me about the assembled throng was just how collectively well educated the whole group was. I say that in all humility, because a very large number of the AAPG membership holds more and higher levels of academic degrees than I. That is, there are many members of AAPG with one or more master’s degrees in scientific and technical fields. The numbers of Ph.D. holders, combined with the broad spectrum of research fields in evidence, was entirely impressive if things like that impress you. So the point is that the Long Beach Convention Center was just dripping with academic wax and ribbons.
Mr. Wang, Marine Geologist

I had the pleasure of spending some time with a delightful man named Mr. Wang, from an institution called the “University of Geoscience” in Wuhan, China. Mr. Wang is a marine geologist, and teaches the subject at the university level. He is very smart, as I rapidly discerned after we sat down next to each other on a bus, and during a field trip to look at the rocks of the Palos Verdes Peninsula. Mr. Wang and I discussed numerous subjects of a geological nature, subjects of which he has an excellent grasp, in both English and Chinese. Here is some of what we discussed.

I asked Mr. Wang how many students attend the University of Geoscience in Wuhan.
“About 20,000,” he replied.

“You have 20,000 students majoring in geology?” I asked, stunned at the number.
“Oh, no,” he replied with a smile. “Many of our students study in other fields of science, such as physics, chemistry, biology. And we even have a few students who study art and theater.”
No doubt, I thought, the “few” artists and theater majors in a Chinese university are probably the ones who are actually good at it. “So how many people do you have studying geology?” I asked.

“Hmmm…. About 10,000,” he replied.

“10,000? In what fields of geology do the students pursue their studies?” I asked.
Mr. Wang replied, “We teach basic scientific background such as math, chemistry, and physics. Then we teach geological concepts like stratigraphy and mineralogy and structural geology. Then we take the students into specific fields such as oil and gas geology, petroleum engineering, mineralogy, mining geology and engineering, civil engineering, geological engineering, marine geology, geochemistry, geophysics, and whatever other fields branch out from those subjects.”
“Do your students have jobs when they finish their studies?” I asked.

“Oh, yes,” replied Mr. Wang. “Our students graduate, and many go to get advanced degrees in China, as well as in Australia, Europe, and the U.S. We also send many students into the oil and gas industry, the mining industry, engineering fields, and the like. We have graduates working at geological projects on every continent of the Earth, in the mining industry and in the oil extraction industry, building roads and dams across China, and as far away as Arabia, Africa, and South America, and even performing research in Antarctica.”

“So,” I asked Mr. Wang, “since you have 10,000 students, is your school the main school for the study of geology in China?”

“Oh, no,” he replied. “Ours is one of three geoscience universities in China. The other two universities are comparable to ours. And many other universities have their own college of geology. Beijing University, for example, is a very great school that is attended by many of the best students in China. It has a college of geology with about 4,000 students.”

“So,” I asked, “can you give me some idea of how many students are studying geology in China today?”

Mr. Wang thought for a moment. “If you add it all up,” he said, “there are about 40,000 or 50,000 students studying geology in China today at the university level. Maybe more, but I do not want to give you a number that is too high. Many of these students might not become geologists, because they will go into civil engineering or some related field. The Premier of China, Wei Jiabao, is a geologist, by the way, and worked as a geological surveyor in his youth. And many other students, such as those studying chemistry or physics in the university, might eventually become geochemists or geophysicists. But we are currently training about 50,000 or so geologists in China, across the nation.”

Are You Impressed Yet?

Are you impressed yet, dear readers? 50,000 students are studying geology in China today. That number is well over 25 times the number of college students who are studying geology in the U.S., which includes foreign students enrolled at U.S. institutions, and that is after something of a surge in enrollments in geoscience departments in the past two or three years. Back in 2004, according to statistics published by the U.S. National Science Foundation, there were fewer than 500 degrees granted in geology and petroleum engineering by all U.S. universities combined, and about half of those degrees were awarded to foreign nationals. The Chinese have 100 times that number in the pipeline.

It may help to make a military comparison. Consider that the U.S. is training geologists by the squad, or maybe by platoon, at the university level. The Chinese are cranking out geologists by the division.

Why Is This Important?

This is an important development. There is a revolution occurring in the scientific approach to understanding the Earth. The fields that make up geology, and related Earth and space sciences, are currently undergoing major advances that promote understanding of our planet as a number of interrelated systems. Many new realms of scientific investigation are emerging through the study of the connections and interactions between the atmosphere, hydrosphere, biosphere, cryosphere, solid Earth, and near space. Furthermore, geoscientists are playing critical roles in recognizing the extent and magnitude of human impact on the entire Earth system. And this understanding is gaining new context via the growth in knowledge of processes on other planets. So the more people who are out there and who understand at least the basics of geology (let alone the really hard stuff), the better for that nation.

Dave O’Reilly, chairman of Chevron, signs his name to many advertisements that state that the “easy” oil and gas has been found. If you are a frequent reader of Whiskey & Gunpowder, you know what we agree entirely with Mr. O’Reilly, and we carry the Peak Oil argument even further. Just as people say that the “easy” oil and gas has been found, so has almost all of the other “easy” mineral, energy, and water resources of the Earth been located and tapped. The future of modern civilization depends on how well any given group of people, from any given nation or organization, can understand how best to extract or harness the resources of the Earth that are not “easy” to access. So going forward, there had better be some geology majors coming out of the academic sweatshops, and the more the better.
100-to-1 Ratio

By way of comparison with the number of geology graduates, in recent years, U.S. law schools have awarded an average of about 40,000 law degrees annually to aspiring lawyers. So for each geologist that U.S. academia cranks out, the law school industry mills something between 50-100 lawyers. At the extreme end of the ratio, there are 100 new lawyers graduating from U.S. universities for every new geologist coming out into the work force.
Why is it that China is training armies of geologists while the U.S. is training armies of lawyers? And is there something ominous about that fact? Let’s examine a few aspects of this situation. What is going on?

What Is Going On?

The U.S. and China are about the same size in terms of land area so it is not that China needs more geologists to cover more ground. By the criteria of raw acreage, Russia and Canada should be graduating divisions of geologists. But Russia and Canada, the largest and second largest nations in the world by land area, are not doing this. The Chinese are leading the world in the training of large numbers of geoscientists.

In terms of population, China has 1.3 billion people and the U.S. has something over 300 million. So China has slightly over four times the population of the U.S. On a per capita basis, it might make sense for China to train more geologists. But still, there is a difference between China having four times the population and 50 times the geologists in training.

The U.S. is, of course, a developed nation with an advanced (some say “too advanced”), postindustrial (some say “too postindustrial”) economy. And “the world,” says Thomas Friedman, the famous columnist from The New York Times, “is flat.” Another way of framing the concept is to note that things that are on the uphill side will start to roll downhill in this “flat” world of ours. I am sure that you get the idea, dear readers.

The U.S., for example, has essentially built out its interstate highway system, much of which is now clogged with automobiles and trucks speeding (well, crawling at times and in places) hither and yon, while China is just building the beginnings of its own system of national highways, and filling up the roadways with its own domestic version of motorized carriages. If China were to burn as much gasoline on a per capita basis as does the U.S., China alone would require the entire world’s daily oil output and then some. But that is just extrapolating the present into the future, and things are going to change dramatically long before something like that could occur, if it were even possible.

And the U.S. has built up many great cities, while China is still building out its own collection of urban metropolises. Shanghai, for example, has seen the construction of over 300 new skyscrapers during the past 20 years. (One Chinese fellow once told me that it was too bad China did not use that steel to construct 300 offshore oil production platforms.) Overall, China is constructing buildings and roads and infrastructure that is the equivalent of a “new Houston,” about every month. And last year, in 2006, China added more electrical-generating capacity than exists in the entire state of California, where they have been building generating capacity for 100 years. So China is growing, and growing fast.

What Does China Need?

But still, what does this tell us about why China trains so many geologists and the U.S. trains so many lawyers? One might be forgiven for thinking that in a nominally communist state such as China, which is modernizing and evolving politically, the need would be for more lawyers to enforce basic human rights that have not been in place or effect for many decades. (Actually, China is training a relatively small cadre of lawyers too.) And one might think that in an advanced postindustrial state, such as the U.S., which has exhausted a significant fraction of its national energy and mineral resources over the past two centuries, the need would be for more geologists to locate and assist in securing new energy and mineral supplies. Yes, indeed. One might think that. But such is not the case.

One important way to differentiate the U.S. and China is to note the obvious point that the U.S. is a “rich” nation, certainly as measured in its own currency, the dollar. The U.S. can buy what it wants on the markets of the “flat” world, and use its uniquely situated dollar, the so-called “reserve currency” of the world economy, to pay for it. And China is, as its leaders like to remind the world, a “poor” nation that wants to get rich. “To get rich is glorious,” said former Premier Deng Xiaoping.

So can we say that rich nations need more lawyers? After all, much of what lawyers do is argue and fight over money. And where does this leave the poor people of the world? “The poor shall always be with you,” said Jesus in a famous comment. And yet another comment I have heard is that “What the poor people of this world need is not more lawyers.” This is according to an on old acquaintance of mine who is a federal judge. “They need more money,” he added.
So far, so good. And do poor nations need more geologists? After all, much of the work that geologists do is locate and define resources within the crust of the Earth, so that they can come back with other people and exploit those resources. Whether it is oil and gas, gold and silver, iron ore, sand or gravel, or falling water, this is what makes for an advancing, if not an advanced, civilization.

What was it that made for great civilizations in the past? In ancient Egypt, great civilizations arose out of the ability of a small group of people to understand and harness the powers of the Nile River. And in ancient Rome, it was the water-bearing aqueducts and the ores from the mines that permitted a great civilization and culture to flourish. In other words, these were civilizations that relied on people whom we would today call geologists and civil engineers. For a while, at any rate, it worked for the Egyptians and the Romans. Then the water aqueducts wore out and the minerals ran out and there was no replacing these things within a foreclosed time scale.

The Clash of Civilizations?

In his book A Study of History, Arnold Toynbee identified 21 major civilizations over recorded time. As Harvard professor Samuel Huntington pointed out in his famous essay, published in 1993, The Clash of Civilizations, “only six [of those 21 civilizations] exist in the contemporary world.”

“Civilization identity will be increasingly important in the future,” wrote Huntington, “and the world will be shaped in large measure by the interactions among…major civilizations.” Huntington went on to state that “The most important conflicts of the future will occur along the cultural fault lines separating these civilizations from one another.”

In much of the rest of his essay, Huntington went on to explain his thesis of “why civilizations will clash.” One of Huntington’s key points was that “Western civilization is both Western and modern. Non-Western civilizations have attempted to become modern without becoming Western...Non-Western civilizations will continue to attempt to acquire the wealth, technology, skills, machines, and weapons that are part of being modern. They will also attempt to reconcile this modernity with their traditional culture and values.”

You can agree with Huntington’s thesis, or you can disagree. But China’s massive educational effort to train geologists and related scientific personnel for the future indicates a national desire to, on the one hand, adopt the best scientific knowledge of the West. Yet China also intends, in its own unique way, to be among the civilizations that remain on any list of survivors compiled by any Arnold Toynbee of the future.

We live in a world in which the “easy” oil is gone, where Peak Oil looms, where the need for basic industrial resources and commodities is the key to the future existence of Western (and other) civilizations. And we live in a world in which the Chinese are training the scientific and technical cadre that will go out into the world and, one way or the other, find what their country needs and bring it home. There are armies, and then there are armies of geologists.

Until we meet again…Byron W. King

Tuesday, April 17, 2007

How Serious Are They?

The Tribune reported on Sunday that 500 people took part in one of 1300 Rally’s for Green Living on Saturday calling for our government to cut CO2 emissions in the US 80% by 2050.

I’m not going to get into the “science” of Global Warming or the fact that Carbon Dioxide is not the most prevalent “greenhouse gas” in the atmosphere (water vapor is, but Americans don’t produce water vapor, do we?), instead I want to focus on those things we can do to eliminate much of the non-essential CO2 currently being produced.

Unless you’ve recently graduated from a public school, you probably know that CO2 is expelled every time a human (or any mammal for that matter) exhales. Therefore, we must seek to eliminate all nonessential breaths.

Let’s start with the prison system. Every prisoner on death row who has spent at least 2 appeals should immediately have his sentence carried out, preferably by suffocation, no sense letting their last dying breath raise the sea levels by a quarter of an inch.

After those on death row, we need to do the same with those prisoners who were given life sentences because the state they were tried in doesn’t have the death penalty, these people are not making any positive contribution to our world that would offset the amount of global warming that they are producing.

After that we should look at people who have been sentenced to prison for a third time, they are obviously determined to maintain an unproductive lifestyle and their CO2 emissions should be reserved for those who will contribute to the greater good.

All families should be limited to two children. Since men are so hard to track, the onus would be upon women, any third pregnancy would be terminated immediately and a fourth pregnancy would not only result in termination, but surgical removal of the uterus.

All homes for these families of 4 should be limited to 2000 square feet. Anyone living in a house larger than that would be required to either tear it down or bring in additional families to share the heat and light at a rate of 1 family of 4 for every 2000 square feet of living space. The mansion owners could charge rent if they so wished but would have to pay an excess energy tax of $100,000 per day for every day the living space is not filled. This would also go for any vacation homes located in the U.S.

The government should also ban all non-commercial flights in the US. Donald Trump does not need a big airliner to fly 4 people around and he can certainly afford first class tickets.

All new homes built should, besides being limited to 2000 square feet, be mandated to have solar-panel shingles for producing hot water and a wind turbine for producing electricity. All gas appliances should be outlawed and a tax write-off should be allowed for current homeowners who wish to convert their homes into “green homes”.

We should immediately build nuclear power plants to supplement our electricity on days that are cloudy and calm.

All coal should be diverted to liquefaction plants to be made into clean burning Diesel fuel and only diesel and electric cars should be allowed on the road.

All exercise should be banned and gym facilities closed down. Exercise increases oxygen intake which of course increases CO2 emissions. Anyone caught running riding a bike or even walking fast should be fined $1000 for every violation. Obviously all professional sports except golf and bowling would also be banned.

Finally, all non-commercial livestock should be killed. Polar Bears and baby seals are nice to look at, but serve no purpose and bring us closer to the brink of disaster with every breath, if we can’t eat them, shoot them.

Does all this sound a bit extreme? One might say yes, but is it any more extreme than a government forcing us to buy mercury-filled light bulbs from China? Is it any more extreme than mandating that inefficient ethanol made only from corn is used in the US as a fuel substitute? Is it any more extreme than moving our clocks backward and forward every year to conserve energy?

Is it any more ridiculous than believing that man, not the sun, not volcanic activity occurring beneath the ocean floor, not the natural cycles of heating and cooling of the earth’s atmosphere that has taken place for millions of years, actually has any impact at all on today’s forecast?

Happy Taxation Day!

Happy Taxation Day!

Being a person of good will, I would like to send out my heartfelt best wishes to those of you who worship at the alter of Big Government as this is certainly your most holiest of days.

As I cross my T’s, dot my I’s and check my math one last time before I write that check to pay homage to the Big Gov, I thought I would reflect on those things that we are forced to be most thankful for (in no particular order):

Elected Representatives who have been in office longer than I have been alive making a salary that is 3 times average and who have health care benefits and a pension that most Americans can only dream of. Surely they are the most blessed among you.

An unelected Department of Education running a system that produces students who not only can’t spell Constitution, but think the only words contained within it are “separation of church and state”.

An unelected Food and Drug Administration that seeks to ban multi-vitamins as unsafe but happily gives us Vioxx to extend our lives.

A Campaign Finance Law that concentrates the power to influence elections in the hands of the most wealthy individuals, corporations and foreign countries.

A federal defense system that is such a bureaucratic nightmare that it couldn’t get out of it’s own way in the face of a natural disaster.

A volunteer army that is sent off to fight a war with both arms tied behind it’s back because of politically correct rules of engagement.

A government mandated and brutally enforced Ponzi scheme that is sure to break the backs as well as the bank accounts of our children and grandchildren in the name of our social security and medical care.

A government-protected shakedown industry where ambulance-chasing trial attorneys can use junk science to destroy physicians while lining their pockets with punitive damage funds so that they can build 30,000 square foot mansions and run for president.

$3.00 per gallon gas prices purchased from enemies of America while we watch the Chinese drill for oil 60 miles of the coast of Florida.

An immigration policy that punishes those who try to enter legally and follow the rules while rewarding those who sneak in with free health care, discount mortgages and student loans.

50% of Americans funding government programs that rewards the other 50% who don’t pay.

A $2 Trillion budget that mandates uneconomical corn ethanol production as a reward for campaign donations from corn farmers, useless embryonic stem cell research as a reward for campaign donations from the abortion industry and bridges to no where in return for campaign donations from the construction industry.

For these things and so much more, we celebrate this day. Season greetings to the disciples of Big Government and God help the rest of us.

Monday, April 02, 2007

Unintended Consequences

by Steven Lord, Trend Investor

The Law of Unintended Consequences is one of the most consistent in the human experience. It ranges from the Treaty of Versailles effectively causing World War II to burglars suing their victims if they slip and fall on the stairs while robbing the house. And while there are examples of positive outcomes, they are almost universally negative.

Politicians seem particularly adept at falling prey to the Law, especially when they attempt to “fix” something either not broken or usually left to society at large, the economy, markets, etc. I saw this sort of thing firsthand in Germany years ago, where the vast German social net paid unemployed workers so well that the incentive to get off their duffs to get a job was completely removed. Hence, the unemployment rate was high, in spite of the best intentions of Germany’s social engineers.

Lately, our new Congress seems eager to test the Law as quickly as possible. First, they passed a large hike in the minimum wage, which in the past has led to the interesting result of actually increasing unemployment among society’s poorest workers. Then yesterday, the House of Representatives voted to roll back $14 billion in tax credits for oil drillers. While it plays well to an electorate eager to “get back at” the big oil companies, the step is disingenuous.

Why? Because the unintended consequence will be more expensive gas down the road. These are the same Democrats who constantly rail against foreign dependence on oil, lack of alternative energy, etc. and are convinced George Bush has made a side deal with energy companies to stick to the American people. So their response? Make U.S. offshore drilling more expensive for U.S. companies.

Exploration tax breaks were given to oil companies back in 2003 as an incentive to get out there and find more U.S.-based oil. It was a carrot to induce them to embark on extraordinarily expensive exploration programs and reduce U.S. dependence on foreign sources of energy. That was a sound plan: Oil companies are profit-making enterprises and the risk of exploration programs coming up empty is large, so making it easier for them to swallow the risk is sound policy; making these same companies pay through the nose simply because you can is not.

As for plans to use the “revenue” squeezed from Big Oil to fund alternative energy projects, it is safe to say that innovation has never been the government’s strong suit. Over and over again, we have seen that sort of thing better left to entrepreneurs with a profit incentive. Plus, creating an alternative energy slush fund, controlled by Democrats with agendas and force-funded by those big evil oil companies, invites exactly the kind of corruption and misdealing we’ve seen in Congress for years.

And while laudable, even a full-out national effort for alternative energy wouldn’t get us to work tomorrow morning. Right now, cars don’t run on wind. Finding and securing additional U.S.-based oil supplies should clearly be the tactical goal of energy policy, not finding ways to “punish” oil firms because the price of their base commodity has risen.

The ultimate irony? The House bill passed the same day crude oil fell below $50 for the first time in nearly two years. Oil companies are getting squeezed all on their own, via the normal market-based action of supply and demand. They all ramped up production and exploration when oil was $70 and now face getting 20% less for their product.

Ultimately, oil companies will simply pass these additional costs onto consumers. They will consider curtailing exploration efforts to ensure their margins. These steps bring the whole thing full circle, resulting in higher prices at the pump and reduced U.S. energy independence. In other words, the polar opposite of what Congress intended.

Iran Hostage Crisis II: The Oil ATM

By J. Christoph Amberger

Call me a cynic, but Iran’s reversal to the tried-and-true kidnapping traditions of the early Islamic Revolution sure occurred at an opportune time.

Just a week ago, the Russians threatened to pull out of continuing to sell nuclear technology to Mad Mahmoud and the Mullahs. Not because of any concerns about the proliferation of nuclear technology, but because of some unpaid bills.

That’s not surprising. Iran (much like Venezuela) may be raking in petrodollars by the truckload, but both countries’ incompetent economic management has resulted in runaway inflation. When oil prices drop like they did in the first quarter of 2007, it hurts twice as bad.

In past years, oil-producing countries have resorted to publicity whenever this happened. All they needed to do was send a government bigwig into a press conference, have him furrow his brow, and dolefully prognosticate $100 a barrel oil prices. Traders would then jump on the opportunity, pushing up oil prices until their attention span had run out. Which is why OPEC dignitaries wore out the one or other red carpet, trudging to the podium with dire predictions of dwindling oil supplies.

But after pulling the same stunt for a few years in a row, it was time for something new. Luckily, the Persian Gulf is full of Western vessels. And what better way to the big global petrodollar ATM than pulling a daredevil stunt like grabbing Her Majesty’s own sailors off a boat and holding them hostage. It worked for Iran back in 1979. And if you looked at oil prices, it’s working right now.