Income Redistribution

In general, I think some income redistribution is a good thing, but I applaud the poll results where overall people are more worried about creating good conditions to earn income rather than fighting over some non-existent zero-sum pie.

That said, in age of superstar effects where the best in certain fields will earn much, much more than even closely skilled individuals, is this attitude going to continue?

UPDATE FOR A.J.

First of all there is a link to the poll in question. I should have included that in the original post.

You are right that its impossible to know what each person thinks when they respond to that poll question, but in general, I would read it as this:

Should we focus on making the economy grow, help it to create jobs, and so on and so forth, or should we focus on taxing higher income people more to spend more on transfer payments, social programs etc? (Basically do you want to grow the pie or just change how we cut up the original pie.)

Now it could get tricky with some policies that cut across that line. For example, maybe some form of universal health care would require more re-distributive taxes, but would also help create jobs and growth by de-linking employment with healthcare insurance, allowing greater mobility of labor and more entrepreneurship.

But I am not sure most people are thinking that deeply when answering this question.

Say, I could personally look at the question like this.

Financially, I am having a very, very bad year this year. Should I hope that the government tries to improve the overall economic situation so next year will be better or should I ask the government to take some money from my better off friends with stable salaries to give to me?

The Terminator gets it wrong

In this article he blows some of his own smoke.

But Schwarzenegger made more news by criticizing proposals for expanding offshore oil drilling, which have been backed by Gov. Charlie Crist and Sen. John McCain.

"America is so addicted to oil that it will take years to wean ourselves from it," Schwarzenegger said. "To look for new ways to feed our addiction is not the answer."

Dumb metaphor. Oil is a natural resource, and a very dense source of energy. Its not an "addiction" to use the best raw material available. Like airplane makers are addicted to carbon fiber and aluminum, and if they could just kick the habit we could make planes from hemp and pine needles. Right now there are few alternatives to oil even at its current price.

"Anyone who tells you this would bring down gas prices anytime soon is blowing smoke," he added.

Yeah, sure Arnold. The price of oil includes expectations about future consumption and production. If you announce that the supply will be increased, even in 10 years time, some of that will be factored in the price. Also, there are oil fields that would not require 10 years to be on-line. Some were already developed but then capped after some areas of offshore production was banned.

Taiwanese Politics

I normally ignore politics here. I already have enough sanity issues with US politics that I don't need another issue to get me riled up in useless stupidity. However, I did read the Taipei Times at a McDonald's recently, and I was impressed to find these domestic political stories:

1. KMT spokespeople having to explain why the stock market is dropping like a stone.
Meet the new boss. Same as the old boss.

2. DPP rioting in the Legislative Yuan over the KMT executive branch "disrespect."
Meet the new opposition, same as the old opposition.

Random Clickings

If you hit "next blog" you will eventually find some interesting things. I found an Islamic religious site from Melaka. Scanning down I found this:


Well, that's a very intriguing collage. Here's my attempt at translation his post. (Note Bahasa Indonesia is a bit different from Melayu, so this is rough.)

Basically he explains this is a symbol of Satan linked with Black Metal and laments that some Muslims shamefully use it too.

Now, I know Bush being Satan incarnate is a given in many parts of the world, but Spiderman?

p.s. I'm assuming its a photoshop, but Bush has been filmed flipping the bird. Maybe he's into evil hand signals. He'll probably give "the shocker" to the White House press corps on his way out the door.

Famous Mullets in History

Benjamin Franklin.

He also wrote a dialogue with his gout. Just one more data point confirming my theory that those with gout are unusually talented people, pre-ordained by God to rule the universe.

Jesus, I just made that up, but decided to google "gout and intelligence" and the links tell me that there might indeed by some sort of connection. No wonder J-hole keeps claiming gout.

Bonus Link: You can get Benjamin Franklin's DNA and also see pictures of his tooth at this site.

Black Gold, Texas Tea

Oil companies and many lawmakers are pressing to open up more U.S. areas for drilling. But the industry is drilling on just a fraction of areas it already has access to.

Of the 90 million offshore acres the industry has leases to, mostly in the Gulf of Mexico, it is estimated that upwards of 70 million are not producing oil, according to both Democrats and oil-industry sources.

I better alert my Mom that the we could be producing oil in our backyard. That quarter acre is going to waste!

But the oil industry says it pays millions of dollars for these leases, and that it would not make sense to purposely leave the areas untapped.

Rather, years of exploration is required before drilling can even begin. In some cases, no oil is found on leases they hold. In others, drilling the wells and building the pipelines takes years. It is especially hard now that a worldwide boom in oil exploration has pushed up the prices - and timelines - for skilled workers and specialized equipment.

"No one is sitting on leases these days," said Rayola Dougher, senior economic advisor for the American Petroleum Institute. "Those making those assertions don't understand the bidding and leasing process."

It might make sense to sit on reserves when oil is US$ 12 / barrel. But at US$ 135, I think I'd be pumping like mad. The incentive to hoard would only be there if they think oil will continuously rise (a distinct possibility) or if they have a bottleneck in their ability to sell it somehow.

OPEC used to have trouble with this - they would deliberately try to limit supply, but then member nations would cheat by pumping extra. I think US oil companies don't control enough of the oil supply to attempt to limit the supply. They could simply free-ride on the OPEC controls instead.

Also the fact that older, previously unprofitable wells are now back in operation rather defeats the idea that they are hoarding reserves.

Bonus Link to this classic Onion article.

8:00 a.m. This Morning

"Daddy, daddy, I want to go to Costco."

Now, some may think that its bad for a three year old to love Costco so much that she's requesting trips on Monday morning.

But, its a great place to employ Pavlovian techniques to train kids learn to stand in line.

Plus if she eats enough samples, she's basically had a free meal.

Yahoo Headlines

"Unemployed turn to cosmetic surgery to boost their job prospects"


Because there will always be work for strippers.

I am not so sure about fat, middle-aged tranny strippers, so I'll keep my day job for now.

Usually its the right that makes dumb comics

But apparently it happens to Democrats now, too.

The following were #2 and #3 in my picks:

Nice touch of having the elephant be the danger. But what does the rather shabby bum hanging by the park bench represent? He's in the first scene as well.

Explain this Graph

Am I stupid, because I can't understand what I am looking at. Is it because I don't know what the Y axis is supposed to be?

How to segment your customers

I once read a great book about pricing. In the book they talked about 3 kinds of customers:

Loyal customers care more about quality and service than price.

Value customers weigh quality and service versus price.

Price Customers focus on price, though they may have some baseline for quality & service.

So, when you have a customer that has a sourcing program called Shop Around™ where do you think they belong in the taxonomy?

Yahoo News Headlines

Single-horned deer resurrects man's fascination with unicorns

Maybe that should read "13 year old girls' fascination with unicorns" instead of man's.

2008 Presidential Race

Chaon gave us his opinions of the presidential candidates today, and I have to agree with him in that no candidate is floating my boat either. In fact, it seems like both Obama and McCain can say something really good on one day, and then come back the next day with something that makes you wonder.

Putting national security issues aside, I am not sure that either candidate will be that different than the other, except on the margins. (This assumes that a lot of what Obama says on the campaign trail is not what he actually believes or will do in office - for example, he will bash NAFTA to get elected but then will quietly be free trade if elected. Not exactly a selling point for him, though.)

I guess I could get all excited about judges, but I am pro-abortion rights and pro-gay marriage. Plus, Karl helpfully pointed out that both McCain and Obama are against gay marriage - or say its a state issue so they won't make it a campaign issue. Fine by me, as the worst thing about gay marriage is having to hear about it, pro or con.

I will be leaning McCain this election just for the popcorn aspect, but I won't worry about an Obama victory, which at the very least would do some good for racial relations even if he ends up being Jimmy Carter II. On the other hand, McCain will only be in for 4 years and the worst he could do is pass a poor version of immigration amnesty.

That doesn't mean I will stop posting dorky photos of Obama. He's comedy gold sometimes.

AJ, anonymous comments are turned on...

please don't abuse the comments section with logic, facts, or rational thought.

Obama the Dork

I have to say he looks like he's right out of stuff white people like.

Going down the list, I even found a few more.

Note that I am a dork, too and sort of like this dorkiness of his. Its very humanizing.

Copper, 1998 to 2008 inflation adjusted

Okay, this is based from eyeballing the chart rather than exact numbers so it will be off.

April 15 1998 = US$ 6,000 (per metric ton)
April 15, 2008 = US$ 21,000 (per metric ton)

Now comes the inflation adjustment. Normally, I'd do such a simple calculation mentally, (perhaps resorting to the back of a napkin if I was extremely tired or hungover) but perhaps the CPI inflation calculator from the BLS will make it easier for lesser polymaths to check my work.

$6,000 is equivalent to $7,907.60 in 2008 dollars, thus the price has risen by around 266%, and at least for copper, Simon would lose his wager if he had made in 1998.

Actually, I think if I just plug in the 1998 prices, adjust for inflation, and then simply compare with the 2008 prices I could avoid squinting at the graphs.

UPDATE: Apparently for this bet, they used these metals to reflect depleting resources of all kind that would happen after the population bomb exploded. Ehrlich was predicting mass famine with hundreds of millions dying from lack of food. I am not so sure that high resource prices and food prices due to a rising middle class in India and China can really count towards validating this theory, especially since India was one of the places that was predicted to be slammed the hardest. I guess we could still get to the point where millions are dying because they cannot afford food, but since a lot of the poor people in the world are farmers, I'd predict urban riots and workers, not farmers upset over food prices.

It sucks to be dealing with higher prices, but if pulling a couple hundred million out of poverty in China and India is the cause, I am not sure we should be too worried. I'm also thinking of a secondary effect of bringing more of those brilliant minds in the developing world to solve these problems. Its not as if they just consume without producing anything. (That's my job, dammit!)

Convergence

In the old days of international trade, you were pretty happy when your customer asked you to quote for some product made in Germany, because you KNEW you would be cheaper.

Now it does not always work that way. I do have German customers getting better pricing from Northern China, alas not from me, but I also have German customers claiming they get better pricing from Germany! (This is in addition to American customers considering to have their production switched back to the US for sofas as the labor plus freight makes China pricy.)

Here's what I think happened:

1. Whatever is left being made in Germany now probably is being made by a very, very specialized firm that can be competitive.

2. Such firms can also make use of components made in Asia to lower their costs.

3. Meanwhile costs in Asia have risen, especially labor costs, but also raw materials and freight.

4. I probably have high overheads from having too many Taiwanese staff, but also maybe myself - its been on my mind that probably a Chinese person could do my job for me.

I suspect 2 & 3 are more important than 1 & 4.

So, it might be that days of cheap labor arbitrage are over - and that is a good thing for the world in general. But that won't pay my bills, so my customers keep asking about Vietnam, Thailand, Indonesia, etc., imagining there is still some room for cheap labor arbitrage. Well, there might be some room there, but mathematically it won't be much:

German labor is US$ 30 / hour.
China labor is US$ 5 / hour
Vietnamese labor is US$ 3 / hour

(These are all just made up.)

So, taking something that takes one hour made in Germany and having it made in China saves US$ 25.00.*

Now let's say you have a product being made in China and you want to move it to Vietnam. Will you save a lot of money? You only save US$ 2.00. And if Vietnam has any other costs that are higher than China's - say importing raw materials, lower productivity than China's, then you might save NOTHING.

And, importantly, if you are outsourcing the product instead of making it yourself, if the supplier knows the price in China, they could simply undercut by the smallest amount that makes you move your orders, say 10% or US$ 0.50.

So it seems to me that the days of labor arbitrage are becoming more limited, though people are now moving their wood factories to Cambodia and farther afield - which again should eventually lead to higher wages their and more economic convergence.

And that is a good thing. Just like today's rising food costs, if they do represent people eating better in China and India - well, that's a good thing right?

*Note that wages reflect productivity so its not really so clear you would capture all of the savings. If the labor market were completely competitive and we ceteris paribus product's labor intensiveness, management skill, capital available, etc. then making the product should actually cost the same in every country. But if that were the case no one would invest in China except perhaps for the local market. The idea of investing in low wage countries is that you can achieve some sort of advantage by using their cheap labor more efficiently and use the increased productivity to offer a better price.

Next project: what this means for trading companies' strategies!

Graphs for Karl

Price graphs from London Metal Exchange from 2003-2008.

Nickel


Tin


Copper

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