Tuesday, August 31, 2004

Go Read Cope

Dave Copeland has a a great piece on the media over at his blog. Here are some of may favorite excerpts; go read the rest.

the bias is almost always obvious yet it is being presented as fair and balanced.
It's not just Fox News, kids. It's everybody.
For the love of God, drop the objectivity ruse. A lot of current day journalists like to use it as a gambit to present themselves as holier-than-thou. Those journalists don't know the history of the business -- and it is indeed a business.


Now here come the unprofitable blogs -- owned by people with strong views they want to disseminate. And people read them. Interesting, isn't it?
(Nota Bene: some blogs are profitable, the rest run in the gift economy.)


But most people don't work in newspapers, and, at some point, they're going to wonder how to justify $50 to $100 a year to buy a product that doesn't do much to make you think


It is a great post, go read him.

Monday, August 30, 2004

Nader off PA Ballot

Just in, Ralph Nader has been thrown off the PA ballot for reasons that are not related to his signature problems. Instead the state court has ruled that since he had accepted the Reform Party nomination as a national candidate that he can not run as an indepedent in Pennsylvania but instead should have filed his petition to get on the ballot as a member of the Reform Party. Between this and the ever more likely chance that he would not be credited with enough valid signatures, Nader will have no chance of influencing the election here in Pennsylvania.

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Thursday, August 26, 2004

gone feasting

I'll be in New Jersey until Sunday night as there is a wedding and a birthday party that I need to attend. Blogging will be non-existent till Monday night.

Wednesday, August 25, 2004

Worries about the future

Political Wire has a short piece containing some wisdom from Larry Sabeto and David Broder about the current kerfuffle about where exactly John Kerry was wounded and whether he bled in ounces or pints while serving in Vietnam. Mr Broder states:

"What's happening with the bitter dispute over John Kerry's role in Vietnam confirms my fears that my generation may never see the day when the baby boomers who came of age in that troubled decade are reconciled sufficiently with each other to lead a united country."


I fear that in thirty years the same sentence may be written concerning Iraq. The United States will, I believe, look upon Iraq as a strategic mistake that engulfed the military in an unneccessary diversion from the primary threat of stateless terrorism committed by the losing side of an ideological and physical civil war within the Arab Islamic world. However there still will be people and politicians who believe or at least state that we could have "won" in Iraq if only the damm "fill in the blanks" let us nuke them all or fight all out. We will see those recriminations; hell we are seeing those today from some conservative warbloggers. My only hope is that these attacks will be seen as attacks of desperation as this country was divided on the question of war at Christmas 2002 before the scare campaign began and quickly realized that this was not the quick, tidy and uplifting victory that we all hoped it would have been. Vietnam's learning process took much longer and attitudes entrenched themselves that much deeper.

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Iraq Speculation

I saw via Abu Aardvark that there is a rumor in the Arab press and the Tehren Times (an English language paper) that Allawi has threatened to resign from his postion as interim strongman in Iraq over Najaf. An Iraqi blogger is claiming that the government is denying this report.

Now the following is pure speculation and random pull out of my ass analysis.

I think that we may be seeing act two of a series of major power plays with several different players. The obvious ones are Sadr who has successfully been able to portray himself as the anti-American leader of the poor Shiites. Allawi has faced the very simple problem that he does not have effective forces that are loyal to him or his government to solve problems such as the Mahdi Army unless he counts on the United States. Political brinksmanship could be a useful tactic as he tries to create a public cleavage of his actions from the actions of the extremely unpopular United States. That, I think is the overt power struggle.

However Sistani is, I think, the core of this power play. He faces several threats to his vision of what Iraq should look like. First, he is getting pressure from a potential secular Shi'ite-Sunni alliance that is represented by Allawi and is seen as allowing unreformed Ba'athists back into power. Secondly, he is facing a financial and political threat from the poor Shi'ite Mahdi Army which is pushing for a radicalized Khomienism that Sistani does not want.

My hypothesis is that Sistani is allowing his two adversaries to eliminate each other as viable political forces and then step in with massive amounts of moral authority as well as a veiled threat against the United States. Sistani is calling for a large demonstration/human blockade in Najaf to restore peace in the city and to reassert his authority in his home city. This will isolate Allawi as it will be Sistani who removes Sadr from the shrine complex although Allawi's backers (the US military) was involved in the heavy fighting which destroyed significant chunks of the cementary and damaged the shrine itself. It will also place pressure on Sadr as Sistani can command a much larger and wealthier section of Iraq as his power base. Finally it serves as a veiled threat because Sistani has already demonstrated last January that he can create a Tehran 1978 moment whenever he wants...

End of Speculation

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Nader News

Via Waffling World I saw this Nader website that is telling the story of their Massachusetts ballot access drive. Now I have no strategic concern about Nader in Massachusetts because if he tips the state, then Kerry will have managed to make Mondale look electorally competitive. But the following quote got me:

"In Massachusetts, there is no age requirement for petitioners, so we got a lot of help from people who were too young
to cast a ballot, but still had strong feelings about the candidates."


And then they showed a bunch of cute little kids mouthing platitudes... but seriously, if Nader has to rely on the signatures of pre-pubescent kids to get on the ballot in Massachusetts, which gave him 173,000 votes in 2000 , it is a sign that he has no chance in hell, so why not quit. The Dems have successfully played hardball on a legal level and also on a visceral street level. Now lets work that demonstrated ability against Bush.

As for Pennsylvania, not much new news has occurred. The Ballot Project led by the Reed Smith team is challening 85% of Nader's signatures and a decision is not expected this week.

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New York City budget questions

I see that the New York public safety officers' demands for higher salaries and compensation has attracted some attention from two of my regular reads; Steve Gilliard believes that their demands are justified, while Jonathan Potts believes that their case is full of hot air. Now what is it?

Looking at the cited op-ed that is the basis of each case, we learn a couple of things. First, the current wage structure is sufficiently generous to attract plenty of new recruits of relatively high quality. Secondly, we learn that average annual starting first year cash compensation is $44,000 for a cop. Wages double that for a detective. Thirdly, firefighters are paid for the equivilent of 2,600 hours of work a year (50 weeks@40hours, plus 50 weeks times 8 hours of overtime at time and a half). Remeber that average hourly wages are calculated on the basis of 2080 hours for other professions.

Let's start with the rookie cop. New York state is a high wage area, with a median cop salary of 52,000. The national median salary is $44,000 so on first glance, Jonathan is right in that NYC cops are comparatively overpaid. However lets factor in the cost of living. The national median hourly wage is $13.53. New York City has a median hourly wage of $17.50/hour. The median worker in New York City earns 30% more than the median national worker. The cost of living in New York City is almost double the cost of living on the national median. So a rookie cop is getting paid more than the median cop, but the standard of living is pretty low. The $88,000 a year detective is earning the national median standard of living that can be bought with $50,000 in the national median cities.

As of May 2003, New York City is not the highest paying MSA area for firefighters. However two local MSAs in northern Jersey are among the top five highest paying MSAs for firefighters. From this we can extrapolate that the local demand and wage levels for firefighters are pretty damm high and that there is a strong possibility that NYC firefighters will get trained in the city and then outmigrate once pension vesting is completed.

Both sides have a good case in that the wages of police and firefighters buy a relatively small bundle of goods and services compared to their national and regional peers. However due to the high costs of living in New York City and the large number of public safety and security workers, any change upwards will dramatically blow up in the city budget. If there is funding available the cops and firefighters have themselves a damm good argument for a pay raise.

Tuesday, August 24, 2004

Interview at Annatopia

Annatopia has a short e-mail interview with the woman who was assaulted by a Bush supporter at a Kerry rally in Portland, Oregon. It is a good read. You should check it out.

Observing the economy

More bad economic news. Retail sales at Wal-Mart came in below expectations for June. Brad DeLong is reporting that he received three negatively revised macro-economic forecasts for US growth over the next six months to a year Some bloggers are anticipating very weak payroll numbers for August. I am not too sure about that as I have seen the new claims numbers as an indicator of neutrality which is still bad in aggregate as there is a significant decline in workforce participation but it is at least sloping in the right direction. Interestingly from my political angle is that swingstates are not performing any better than the rest of the nation. Let’s wait and see what is happening but this is getting interesting.

Observing the economy

More bad economic news. Retail sales at Wal-Mart came in below expectations for June. Brad DeLong is reporting that he received three negatively revised macro-economic forecasts for US growth over the next six months to a year. Some bloggers are anticipating very weak payroll numbers for August. I am not too sure about that as I have seen the new claims numbers as an indicator of neutrality which is still bad in aggregate as there is a significant decline in workforce participation but it is at least sloping in the right direction. Interestingly from my political angle is that swingstates are not performing any better than the rest of the nation. Let’s wait and see what is happening but this is getting interesting.

Good Soup

I was pretty busy yesterday just doing random things and then I got bloggered. Here is a recipe for one of my favorite soups. One of my former roommates and a great friends sent it to me:

500 gr carrots (one pack)

1-2 onions (depends on size)

2 vegetable (or chicken) broth cubes

1 Liter Water

Pepper, Chili

1 tea spoon Dill

1/2 lemon (juice)

some cream

lightly fry diced onions (while slicing the carrots in
small pieces). add carrots. add water. add spices (but
not the lemon and cream yet). let boilf for about 10
min. let cool down. stick in mixer.
add lemon juice and cream. (add lemon juice first,
then try the soup and add slowly more and more cream
til you think it's smooth enough without killing the
lemon flavor).



Now I will enjoy the last bus ride that is not overrun with a bunch of college kids as today is freshman moving day for CMU and I think Pitt comes back by Thursday. Classes started yesterday for Duquesne.

Saturday, August 21, 2004

City Control Board SNAFU

Mayor Murphy vetoed the city council approved cooperation agreement with the state oversight board. Ostensibly this move was made due to concerns that Gov. Rendall and the oversight board had, but I am very skeptical that this was the sole motivation. We have the first declared challenger for the Pittsburgh mayoral race this week (Allegheny County Pronorthorary [I did not spell that right]) and this could be a signal by Murphy that he'll be "tough" against the Act 47 board which may gain him some union support in what is most likely going to be a free for all primary next spring.

The opening skirmish concerning the legality of ACT 47's ability to dictate contract paramenters has started as the unions and the state have gone to court. I think that the unions will lose on this one as Act 47 has been in place in other cities and the challenges to the oversight boards' authority have not been upheld. It is more of a delaying tactic while the unions (and everyone else) is waiting for a deus ex machina to intervene. Next the unions are getting a second punch in with the firefighter's ballot proposal that will seek to freeze current manpower levels due to a proposed requirement that fire response times meet national best practices recommendations. I think that this proposal will pass in November despite the fact that Pittsburgh is already overmanned and can be covered effectively with a 20-30% reduction in manpower. It is very hard to vote against firefighters.

And yeah, at this rate, the city is bankrupt and out of cash by Columbus Day. That will be a fun time as the lights go out for all services.

Friday, August 20, 2004

Lazy thoughts

I am still trying to get over the new blogger feature of putting up most/all of the blogs that they host on a wrap-around/lazy susan type feature. I am looking through my hit counts and referral sites and I guess that Fester's Place is in line after the strongly religious and before the high school female basketball blogs. I can not see any coherent order to this feature as I was clicking "Next Blog" after I started at my brother's place Waffling World because he has a funny piece on anarchists and a much more serious minipost on Afganistan. Absolutely no coherent subject or style matter system as I went from the diaries of a pair of twelve year old girls, to three in Spanish to a blog about the Goth(post-Roman) culture.... Interesting.

Oil Prices (Pt. 3)

General Glut has a great chart over at his blog that tracks the NYMEX crude oil future close prices in the past year. It has been a reasonably consistent upwards trend but there are transitory downwards spikes and the curve is not smooth. We started last year at roughly $32 a barrel and the price never got below $26.50 per barrel. Today the market closed at $47.86. The probable resolution of this go-around in Najaf has relieved some speculative pressure. However oil prices are still at an extremely high level in nominal terms and high levels in real, inflation adjusted terms. Demand is still extremely high worldwide and only growing exponentially as China and India are industrializing and creating energy consuming middle classes.

Now there is a belief that we could be in a short term oil price bubble as the market is not behaving correctly. It is not reacting by lowering prices in a systemic and broadbased manner when it recieves reasonably good news. Additionally, the entire herd is moving in the direction that oil can only go up, and effective contrarian hedgers are making some significant bets that oil will take a breather or decline by a noticable but not substantial amount.

So what is one to believe in? Will oil go up, or will it go down? My guess is that we may see a short term decline in prices but a long term trend upwards. Supply is doing better than previously expected and demand is starting to slow as the US and Chinese economies are slowing down. China has plenty of room for future growth and expansion, but they are facing a short term demand production slowdown right now. Sadr and the Mahdi Army may be calming themselves down in southern Iraq which should allow for an additional million barrels a day to hit the market. Next the US summer driving season will be over in a month and US domestic demand should decrease. Finally, as I outlined in a previous post a comparably small release of oil from the US or OECD strategic reserves could have a $5-10/barrel effect. Bush may be in one of the rare positions where good politics for him could actually coincide with an effective policy action here.

However the intermediate (6+months out) problem is that demand is still growing rapidly and OPEC and all the other oil producers are already at their peak sustainable production levels. They can sustain the current pace of pumping for only a relatively short time period before they need to invest a substantial amount of time and money into maitenance. China and India are on growth paths that will significantly increase global demand and the US still is not serious about cutting down our consumption. Next, the security premium that is being charged will still be with us in the future, and it is dependent on the US not going to war with Iran, on southern Iraq being relatively peaceful, on Al-Quaeda or other groups not getting effective in blowing up Saudi oil distribution facilites and on Russia respecting the rule of law and not seizing other oil properties. That is a lot of "IF's" right there. Again, I am not optimistic.

UPDATE: I added a sentence to the end of the third paragraph.

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Optimistic: What Next?

David at the Swing State Project has a couple of posts up that is showing that Kerry looks like he is making significant inroads in Republican leaning areas such as Colorado. I am of the opinion that if Colorado is Democratic this fall, then we will have seen an electoral college landslide. He also raises the following point:

I think the GOP is in a lot of trouble long-term. In 2012 or 2016, how will the GOP be able to compete when CO, VA, AZ, NV, NH and maybe NC (and maybe even GA) are all lean-blue, and FL, NM & OR are solid blue? Even if IA, WI, MN and OH head their way long-term, we come out with a big advantage


What will happen to the Republican Party if the Emerging Democratic Majority thesis is correct and actualized in the next two elections. I think that we will see a party that looks like the late 70s Democrats who were split between their former base and finding a new base.

Right now the Republican Party is composed of a Southern Wing that is more about "values" and less about economics and then a coastal wing that is about relatively conservative good governance and lower taxes. The Mountain West seems to be for natural resource exploitation, subsidies for rural areas and "leave me aloners." That is a pretty unstable coalition that has been united on both the tax issues and fears of liberalism. Bush was selected by the GOP to be their Presidential nominee in 1999/2000 because he had credibility with all major groups within the party.

Now we know that the current base of the Republican Party is not growing as fast as the primary base of the Democratic Party. This means that sooner or later, defections start to look real promising for some groups. I think that we are already seeing these defections in policy and rhetoric. The New England Republican is already an endangered species and the ones that remain (exluding New Hampshire) are Democrats anywhere else in the country. However New England is not enough to create a solid majority.

If Democrats can split the Four Corner states 50/50 in Senate, House and Presidential wins as well as maintain their hold on some Great Plains states at the Senate and Presidential level then the solid base of the Republican Party is reduced to the South which will not be completely solid for them on the Congressional level even though it may be a strong bloc in Presidential contests. Florida's changes to a successful state with a large amount of defined benefit plan pension receiving seniors who came out of the North is part of this, but also the high technology centered around Charlotte will be playing their part too.

So there is a chance, slightly greater than non-zero that the Republican Party can be reduced to being a fundamentally southern party and thus functionally irrelevant until it can reinvent itself in a Third Way style. This means a pretty nasty civil war in which we have seen the opening shots already (Toomey v. Specter) in which the mainstream branches will be faced with using a good chunk of the infrastructure that has been built up in the past thirty years to bludgeon the Democrats with a coordinated media message and talking points against their own putative allies.

Where can I get a beer to watch this car wreck?

Thursday, August 19, 2004


What a cute kitty Posted by Hello

Economic News

First the good news for there is plenty of neutral and bad news out there today. The first time claims for unemployment decreased slightly to 331,000 from last week's revised figure of 334,000. So this is three weeks of declines and three weeks where the number has been somewhere in the 330,000s which means we should expect to see a better job creation number for August than we saw for July. That is the good news.

Now for the bad news: From the same report, leading economic indicators experienced their second, slight, decline in a row. Any energy that this recovery had has fundamentally faded and we are stuck in neutral. The main problems seem to be a continual increase in non-core inflation items of energy and food combined with downward slopes in production, retail sales and employment.

Oil prices are flirting with nominal records highs of $48.00 per barrel. The UN is projecting that these oil price levels will take 1% point off of Asian economic growth which means higher interest rates both abroad as inflation worries heat up and in the United States due to the increased competition for loanable funds. It also reduces the ability of the United States to embark upon an export led recovery that could be aided by a weaker dollar because the prime importing targets will be slightly poorer. These oil prices are worrying the Economist (via Brad Delong) enough to downgrade their projections for old economy companies in the automobile and transportion sectors. If GM/Ford/DMB-Chrsyler are unable to profitabilty produce more, then we will see both higher levels of unemployment and also a lower level of capacity utilization which will result in lower levels of business investment. Oil is acting as a significant break on the economy right now. I am not optimistic.

Iraqi Elections

I have very low expectations that the elections which are scheduled for Iraq in January, 2005 will be free, fair and honest. Instead I believe that these elections will have a close resemblence to the elections that are scheduled for next month in Afganistan. The powers who have set the rules are not interested in having a democratic opposition emerge. Allawi and the other exile group leaders know that they are not popular in the country. They know that if they had to compete against the handpicked candidate of Sistani, or a Sadrist or potentially a Dawa Party candidate that they would be screwed like Mondale in '84. The United States knows that the exiles are reliant upon the US for their army and thus are extremely pliable in meeting US demands to not remove the last minutes edicts of Bremer. Free, fair and open democratic elections will produce leaders with their own, independent power bases.

So given that free elections will not give a pro-US secular government, creativity is required to fix the results before hand while still maintaining the patina of free and fair elections. We are seeing that the interim advisory council that was selected from the national conference was not even voted upon but instead approved by acclamation. This list was submitted by a combination of exile parties, Da'wa and the Kurdish parties and it could not be changed nor could any of the smaller but still important parties get a candidate on that list. Yet it will play in Peoria as democratic. I also expect that Allawi will not challenge the Bremer edict that anyone suspected of being involved in anti-US fighting will be eligible to vote or run for office. So they are leaving outside of the nominal political process a group that they should have every incentive to include in order to bring stability. We will see more of these agenda setting rule changes in the next couple of months so we can claim "democracy" is on the way.

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Wednesday, August 18, 2004

Simplifying taxes

Over at Red State one poster is pushing for Bush to advance "One Big Idea" and he proposes that Bush push the Phil Gramm idea that everyone should be able to do their income tax return on a post-card. He proposes simplicity to the tax code amd a statement of policy that no one should pay more than 30% of their income to the government.

In an ideal world, the tax code should be simple in order to minimize compliance costs and distortions to the economy. Hell, in this world, my tax return has been simple. I have used Form 1040EZ for five of the past six years. I had to use the 1040 when I cashed in some assets to live in Paris several years ago. But I have lived an economically simple life.

This proposal would benefit me as I have no children, I have no house that I am paying a mortage on and I have the health of youth so I have no major medical expenses that are greater than 7.5% of my gross adjusted income. I also have the benefit that my parents have their good health so I do not need to support them and finally due to my income, it does not make sense for me to itemize my (small) charitable contributions. I have a simple tax return that can be prepared on a single sheet of paper because I am pretty unusual in the things that I do not yet have.

If Bush wants to push a goal of allowing everyone to file their returns on a 1040EZ or smaller sheet of paper, then that means that popular deductions such as the mortage deduction, healthcare deductions, education credits and supporting your parents deducations are also eliminated. If this is a serious proposal it means that Bush would be intentionally supporting a proposal that will destroy the primary source of accumulated wealth most middle class Americans own; their homes. A significant portion of the price of a home is tied into the fact that mortage interest is deductible thus allowing for a significantly higher loan to pay the capital cost of a home due to the easier debt service burdens. The tax code can be simplified easily if you are willing to pay this and several other comparably large costs.

If Bush or the GOP pushes for a statement that no one should ever pay more than 30% of their income in taxes, it means that they are either proposing large tax increases on the vast majority of Americans, or large cuts in discretionary non-defense spending, or massive deficits. Seeing as proposal one (tax increases)is the antithesis of the ideological glue that holds the current coalition together, it seems unlikely. Seeing as the size of the probable future revenue losses would signifcantly swamp the current and projected size of the non-defense, discretionary budget, it would neccessitate politically impossible cuts to everything from education to the FBI, to basic scientific research. And massive deficits are unsustainable and we are already seeing some blowback from the current ~4% of GDP federal budget deficit. So if Bush or anyone else in power seriously proposes this idea it means that they are fundamentally uninterested in governance and the long run future of the United State's fiscal health.

Tuesday, August 17, 2004

Economics of Large Events

Pittsburgh will be hosting the 2006 Major League All-Star game and some are excited at the showcase opportunity for the city as well as the potential for profit. However large crowds that temporarily converge and then rapidly leave should not be the mainstay of any economic development plan for any region unless they are able to attract a sufficient quantity of unique one off events so as to create the effect of a permanent event. This effect of permance is the Las Vegas model where they create entertainment for a weekend for an individual but they have a vast amount of churn to sustain their economy. However large singular events that are self contained will not create the economic illusion of permanence.

Jesse at Pandagon provides a very gripping and effective illustration of why one-off events are not economic engines for a region. The time period in which the large influx of visitors are in the region is comparatively short and it is extremely event focused. The visitors are there for a specific purpose; for Jesse, the Democratic National Convention, for others the All-Star Game etc. A good event programmer and a competent event host will design their venue to be as self-contained and packed full of interesting things as possible. This has been the trend towards stadiums and casinos for the past two decades. Even if the venues are not self-contained, the hassle of going out into the city and then re-entering the event is high. There is very little city export work or import replacement opportunities to occur.

Large events in cities which are capable of holding large events make sense. These cities can either have as their primary work to be tourism (Las Vegas, New Orleans etc.) or they can have the capacity to host large events as a fortuitous byproduct of their success in other forms of work (New York, Los Angeles). The medium size cities with specialization in other areas will end up subsidizing the needed infrastructure for an event that does not bring in a significant sum of money nor fit the mix of the region. I have to question regional economic development strategies that are based on reasonably generic convention centers, reasonably generic stadiums and reasonably generic hotels. Cities only grow because they offer a basket of unique products, and Pittsburgh has yet to offer a new and compelling basket of products that no one else in the country can provide.

Bin Laden localized???

Via Abu Aardvark is the following post:

"I don't know why I'm not seeing this reported or discussed anywhere, but much of the Arab press is reporting that, according to the Interior Minister, Pakistan has narrowed down bin Laden's location to a specific point along the Pakistan-Afghan border.....But I'm seeing it in the Arab media and not in the English, so thought I'd pass it on."


This is interesting, because I also have to agree that the English language stories that I am seeing are of the lines "We have no freaking clue where a 6-5 guy with dialysis is beyond somewhere north of Karachi, south of Baiknur, east of Katmandu and west of Paris..." Yes, a slight exaggeration there...

I do want to see the US catch Bin Laden, sooner rather than later although I have a strong suscipian that Bin Laden is now operationally irrelevant for any major operations that are being planned or conceived by Al-Quaeda fighters, Al-Quaeda fellow travellers or localized splinter groups who have pledged fealty. But my bullshit detector would instantly ping if Bin Laden's head was delivered on a pike at the most opportune times for Bush. I know that Rove knows images, and the recent picture of him menacingly lurking in the background of a supposedly non-politicized terror warning news cycle just raises my cynicism a little bit... I just think that good news is always on a convienent spot of the media cycle for Bush while bad news happens on Friday afternoon... sorry, I am being a hard paranoid partisan here... but to quote the Church Lady "How CONVIENENT...." if Bin Laden was captured/kill on either the day of Bush's speech in New York City or the Thursday afternoon before the election.

Food Inflation

I know that there is significant amounts of non-core inflation, energy and food prices are going up. I don't care about that, as long as my pizza and cookies are still priced at a dollar, but alas that has changed. I love the neighborhood that I live in because it possesses a tremendously varied set of services including half a dozen pizza shops (2 of them are excellent) and four bakeries including one at the end of my street which makes an excellent chocalate chunk cookie. Up until very recently my favorite Murray Ave. pizza shop that has slices for sale sold their plain slice for a buck. This was perfect for a late afternoon snack as I almost always will have a dollar in my pocket. And if pizza was not my craving, the cookie also only cost a buck.

No more; both shops have raised their prices on their cheapest products by 20-25%. Impulse buying will become much more difficult now as it will require effort to make sure that I save a quarter. I hate inflation :)

Oh well, my waist line will probably like this change.

Troop Movements

Earlier this week, the Bush administration announced that it would begin the process of redeploying between 60,000-70,000 uniformed personal from Europe and parts of Asia to a combination of Continental United States bases and a ring of bare bones facilities in southeastern Europe and central Asia. The anticipated troop movements will occur over the course of a decade and it is not directly related to the war in Iraq.

These movements which include the removal of most of the heavy units of the Vth Corps from Europe and a gradual builddown in South Korea has been anticipated by Rumsfeld and his top civilian advisors since the mid-90s and are a critical part of Rumsfeld's Revolution in Military Affairs and global repositioning of assets for a cheap American hegemony for the next two generations. The objective is a combination of cutting costs on the support infrastructure needed to send and maintain families overseas while also moving US forces closer to the Middle East and North Africa while creating bases in countries where the home government has a horrendous negoatiating position against the United States.

Under this plan, new bases will be built and older bases, such as Singnapore will be expanded. Most of the new bases are to be less like the current German model of "small town USA" with good beer and more of the Australian dispersal airfields in Northern Australia where this is fuel, some water and basic supplies available and a twenty man maitenance team that can be rapidly supplemented. These bases would be cheaper and have a smaller footprint which theoretically means that fewer locals will be pissed off at the US presence which would mean a greater freedom of action on the part of the US military.

Objections include a wariness about loosing the long standing alliances and cooperative security arrangements and a weakening of the credibility of American nuclear deterrance against North Korea. It also assumes that the United States will have enough strategic warning of a major intervention in the current anticipated hotspots (Korea, Taiwan, the Middle East and the Meditarrean littoral) to move troops into the theatre to act as an effective deterrant, and enough rapid strategic lift combined with prepositioned equipment to move sufficient forces into a region to force a rapid counterattack to achieve the defensive objectives. Right now the United States does not have sufficient strategic airlift or sealift to make this strategy credible. Looking at the President's FY-05 DOD procurement requests (huge PDF), I saw no request for new sealift ships and only a request for fourteen C-17 strategic air transports.


And yes, I agree with Morat that most of the forces that may be affected by this movement strategy will be going into Iraq in the next two years. However, I believe that the majority of the affected units were already on the rotational schedule as either going to or already in Iraq before this strategic redeployment so the redeployment is not directly related to Iraq's manpower needs. I believe that this redepoyment is mainly in fulfilling the heady notions of Rumsfeld, Wolfowitz and other light weight mafia members who want to be able to act unilaterally and believe that Iraq and Afganistan have vindicated their approaches to warfighting.


UPDATE Phil Carter, as usual, has a very comprehensive and thorough analysis over at his blog. His basic read: This has been in the works for most of a decade and it is fundamentally a reaction against the likelihood of the traditional Atlantic and Pacific theatre allies not always being fully supportive of US actions. He has some interesting questions about the political ramifications which are worth thinking about.

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Monday, August 16, 2004

Iranian option space

Matt over at BOPNews forwarded to me and several other bloggers an interesting e-mail about a story from This is Rumor Control which states that there is a high degree of likelihood that the United States and Iran will get into a shooting war in a relatively short time frame. The basic reasons for this strategic decision towards confrontation is both the Iranian supply of Shiite and Sunni militias and insurgency groups with modern weapons and some level of training as well as the US worries about the development of Iranian nuclear weapons. There are side issues concerning Iran's sponsorship of anti-Israeli terrorists and the potential issue of the pass-through of the 9-11 hijacking muscle. But Iraq and nuclear weapons are the main concerns.

I can not speak well of the internal Iranian political situation. I just would sound like a blubbering idiot because I am functionally ignorant of these complexities. However looking at both the logistics of a major confrontation and the economics of a major confrontation makes me think that this rumor is unlikely to actually occur because neither side is capable of accomplishing their strategic objectives with the forces and capabilities currently in theatre.

I believe that the government of Iran's strategic objective is to maintain their borders and to keep the United States and other foreign forces out of the country's political process in order to hold onto power. One part of this strategy is to acquire nuclear weapons in sufficient quantity and reliability so as to assure a credible second strike deterrent. One means of doing so is to encourage foreigners (Iraqis) to hamstring the most capable threat in a foreign land. Even beyond this direct security incentive is the financial incentive to encourage instability in Iraq. Oil risk premiums have given Iran a windfall profit of $7 to$15 billion dollars over the past year based on maximum production.

It is absurd to think that Iran does not have agents and provocateurs in Iraq, especially since it has hosted the Badr Brigades and several other exile formations that were anti-Saddam and now operating under some level of American permission. Iran's strategic situation and history dictates that it actively keep an eye on what is going on in Iraq. The more recent strategic situation amplifies this imperative because Iran is now surrounded by either historical or recent ideological enemies (US forces in Afghanistan, the -stans, Christian Russia sphere of the influence in the north, Turkey and US occupied Iraq.) When one is surrounded, one needs excellent information in order to survive. However the question is how much influence does Iran have in Iraq. Juan Cole is linking to an essay by a respected Iraqi Shiite scholar with specialized knowledge concerning Najaf and the answering is surprising. Sadr and the Mahdi Army are not being directly supported by Iran but it is a home-grown movement of the urban poor. So Iran's support is going to either the larger, more established forces that were cultivated in Teheran during the 1980s.


With this said, the military options that the United States has is extremely constrained by logistics and economics. In any military confrontation which sees Iran halting exports (either voluntarily or involuntarily) for more than a day, world oil prices will skyrocket. Iran currently produces 3.9 million barrels of oil per day which is slightly more than 4% of world oil supplies. Using the same -0.1 price elasticity for short term demand where a one percent decrease in supply will result in a ten percent increase in price we can assume that world oil prices will increase by 40% in the short term. Based off of current oil prices of roughly $45.00 a barrel, this would tack on an additional $18.00 a barrel due solely to supply disruptions. An additional amount would be added to the price due to the increased risk of supply not coming back on line. This is the greatest economic argument against a major confrontation; Iran would go bankrupt and dissolve into massive internal upheavals just before the US hits the biggest recession since at least 1981. So there is a strong economic incentive to keep hostilities covert and low intensity.

Now there are military reasons why I think overt and large scale US actions are difficult to contemplate in the next three to six months. The largest is logistics. The United States military is a massive supply eating monster who has already eaten a good amount of its seed corn. The Diego Garcia based pre-positioned supply ships that normally contain enough equipment to field a Marine regiment and an Army brigade for thirty days as well as the ammo and fuel for sustained Air Force operations are empty. Pre-positioned shipping throughout the world is empty with the exception of Okinawa and Guam. Next, the supply lines of US forces in Iraq are already tenuous. The Amman-Baghdad route is almost empty, as Jordanian drivers are operating at 2% of their previous rate due to security concerns. The Mahdi Army's operations in Southern Iraq are concentrated in the bridge cities of the Euphrates and Tigris Rivers which are the natural chokepoints of the Kuwait to Baghdad supply routes. Critical military supplies are getting through to an army that is not engaged in the most supply intensive form of warfare; corps sized armored columns supported by airmobile assaults and deep helicopter strikes, but to an army that is on the strategic defensive which is a much less supply intensive proposition. I would project that major combat operations into Iran would trigger widespread attacks and blocking positions on the Iraqi supply lines by all of the Shiite parties including the Badr Brigades.

Next is the question of where are the forces to come from? The US can not pacify Iraq right now with 16 brigades in country. If I am right and the southern supply lines were to be seriously interdicted during US ground operations into Iran, the sixteen brigades would need to be reinforced to restore the security on the major highways and chokepoints. There just are not enough units available in the US order of battle to occupy Iraq and strike out for Tehran. There are not enough units for the US to occupy Iraq and maintain strategic flexibility as it is right now.

So the economics and logistics dictate against a major ground confrontation. That leaves the traditional American core competentcies of naval power and airpower as a means of influencing foreign nations. A blockade is an act of war but it is one that the US could institute with a high degree of effectiveness and safety for US forces. However we would run into the same economic problem of oil prices going up by 40% if Iranian oil is kept off the world market. Prices could increase further because a logical escalation from Iran's point of view is to place more pressure on the world oil market by a statement that the Straits of Hormuz were a mined area; sail at your own risk. This would force the US to convoy Saudi and Kuwaiti oil tankers out of the Gulf which would reduce the efficiency of the current global supply chain and thus increase prices by another 10-15%. The basic situation here is that of a siege, which means long, bloody and indecisive until a tipping point is reached. Air power could engage in a campaign against western Iran's transportation and infrastructure hubs in order to minimize the flow of supplies and knowledge coming across the frontier but this campaign will be indecisive if the current level of Iranian support is measured more in truckloads than shiploads of weapons and volunteers. The border region is rife with smugglers routes. Supplies will get through and the US will not have the manpower, even if there was a draft to completely secure the border.

So the option space of overt military actions that could be effective are rather low. Therefore covert actions and better intelligence gathering, dissemination and action are the most likely courses of action against an increased level of Iranian involvement in Iraq.

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Friday, August 13, 2004

Business Investment

I, along with many others, have been counting on the expiration of the accelerated depreciation bonus tax write-off to spur a short term surge in business investment in the last two quarters of this year. I had been operating under the assumption that the capital purchases had to be made by Jan. 1, 2005 but delivery, installation and initial operating capacity could occur after this expiration date. I was wrong. The Big Picture is stating with far more authority than I that any equipment which is treated with this accelerated depreciation must be "In Service" by Jan. 1, 2005. What this means is that the business investment surge for new orders and production prompted by this tax break will only last until the end of the third quarter, to the first half of the fourth quarter. After that, any order will not be able to be placed into service in time to qualify.

At the same time, the current expansion of business spending has just returned business investment to the approximate trend line. As Kash at Angry Bear notes, business investment looks typical for an economy that is expanding at trend and future expansion would imply that another late 90's boom would be on the way. I don't think that is likely. So that leaves it to the govenernment or the consumers of America to sustain growth. However record federal budget deficits and record trade and current account deficits put a very effective clamp on any further ability to borrow as interest rates are slowly increasing. I am getting less and less optimistic about the economy in the next nine to twelve months.

And oh yeah, oil hit $46.00 a barrel today in New York... OUCH!

Employment

12:14pm:The closely watched Fester employment index just went through the roof twenty minutes ago. Analysts are scratching their head although there are rumors making their way around the street that a job was offered and accepted by Fester. More to follow....

12:15pm: Our sources have confirmed that a job has been offered at a local non-profit.
12:16pm: Ambulances are on the scene as it is reported that Fester's head is stuck in the ceiling. Eyewitnesses (the cat) are saying that Fester accepted the job at an education service provider and then proceeded to jump for joy until his head penetrated the plaster ceiling.

12:18pm: We are seeing a broad sell-off in the ramen noodle and rice sectors. Future prices for fine jewerly are going up as an anticipated purchase may soon take place.
12:19 Blogging may become lighter in the next couple of weeks as Fester transitions into the new job.
12:20 Fester realizes he does not do funny well... oh well

Thursday, August 12, 2004

Welcome little bro

My little brother is now a blogger over at World of Waffling where he states his mission as the following:

information junky. This blog will be featuring my sometimes waffling opinion on current events as they happen and as I try to establish my own political identity and feel for each issue. Hopefully along the way the clarity of voice will improve in my writing as well. That was my introduction, now onto my first postings.


This, I think, is one of the most important functions of blogging; allowing people to find a critiqued and therefore a sharper view on major issues of interest while also allowing for a great opportunity to write and thus improve one's writing.

Welcome buttmunch.

Initial Claims not bad

Initial claims for unemployment insurance decreaesd this week to 333,000. The more stable four week moving average is a hair under 340,000 which shows that the labor market may be just keeping up with new entrants to the labor force with a slight possibility of getting ahead of the curve so as to net re-employ some of the people who have lost their jobs. This report on a scale of 1 (Crash of 1929)-100(massive productivity, profitiability and employment gains) is worth about a 55. Nothing to get excited about.

Now I am off for the day to go to Kennywood and ride some rollercoasters... have fun.

Wednesday, August 11, 2004

Goss's admission

Atrios has a great gotcha quote concerning Porter Goss at his blog. Here it is:

I couldn't get a job with CIA today. I am not qualified. I don't have the language skills. I, you know, my language skills were romance languages and stuff. We're looking for Arabists today. I don't have the cultural background probably. And uh, as my children remind me every day, 'Dad you got to get better on your computer.’ Uh, so, the things that you need to have, I don't have.


However much this paragraph is worth chuckling about, it is fundamentally irrelevant in deciding whether or not Goss would be a good manager and advocate for the CIA. Hell, it may be a slight point in his favor because he has some awareness of his flaws and limitations.

A couple of years ago I had the pleasure to speak to a CIA recruiter at my graduate school. It was a short conversation after he gave his pitch to about fifteen graduate students and I mainly spoke with him becuase one of my professors strongly encouraged me to do so. The CIA recruiter was a nice guy and a pleasent conversationalist and it quickly became apparant that my Western European and American history background would be next to useless for the CIA. They were looking for hardcore engineers and computer people, linguists, Ph.D level economists and non-Western scholars. I am none of those qualifications. We talked for a couple more minutes and then we parted ways. The CIA was looking to fill specific gaps and plenty of people smarter than I could not meet the needed qualifications for those gaps without an extra three to seven years of education. Nothing to be ashamed of nor is it a valid critique.

Now if you want to complain about Goss there are plenty of reasons to do so:
  • Willingness to be an extremely political shill in his oversight duties.
  • Unconcern that a covert agent of the CIA was exposed for political reasons.
  • Active blocking of a systemic and comprehensive investigation into why American intelligence was unable to stop the 9-11 attacks.
These are legitimate points of question and opposition, and these are areas, where if the Democrats do decide to launch a thorough set of hearings to confirm Goss, they should focus. Let's avoid gotcha's because I think that Tagoda may have a point in that Bush could cast opposition to Goss in a way that will further motivate his base. If Democrats are to make a stand against Goss, let's do it for the right reasons.

Liberterianism gone amuk

Via Crooked Timber I saw this article at Tech Central Station (which is run by a PR firm) that is arguing for a rather interesting strategy change to catch Bin Laden and presumably other high ranking Al-Queada and Taliban individuals. He proposes to raise the bounty, from the current $25 million for either the arrest of information leading to the arrest of Bin Laden to $1 billion dollars. The thesis behind this idea is a liberterian one; the private markets do not have a strong enough incentive to act right now, but if the reward is increased by 4,000%, the risk to reward profile changes enough to allow for entrapreneurs to issue IPOs and go after Bin Laden. Since the private market is as a matter of faith, always more efficient than the government in all operational areas, Bin Laden's head will be on a pike in relatively short order.

Umm... can I get a hit of that...

I know and have been reminded by Maringinal Revolutions that the US has long used a bounty system to find high value individuals. However the actual apprehension of the terrorists has been done by governmental units and agencies. And this is where I think that the above proposal is a great example of libeterianism running amuk.

As we have seen in Iraq, private contractors have had a mixed record. Four contractors who did not have sufficient weapons for their own security got ambushed in Fallujah, killed and then mutilated. The Marines, who had responsibility for that sector, had no idea that contractors were operating in the area. However their lynching forced a significant change in strategy and a public relations blackeyed as partial seige of Fallujah ended in the Marines handing security responsibilities to a force that in all but name was and is insurgent control. At the same time, private military contractors in Najaf were able to hold off an attack on the local Coalition HQ and save ~30 American lives. So private military contractors have a mixed record.

However the record is not that of DynaCorps or Venture or Blackwater, at least not on the international stage; the record and responsibility for the positive and negative actions of the contractors and other private military formations remains that of the nation state. Iraq, Kosovo, Bosnia and Afganistan have all shown that there is less acocuntability among the private contractors on matters of human rights such as running a sex slave ring in the former Yugoslavia, or running a private prison in Afganistan. Contractors are implicated in Abu Ghraib. These and many other instances blow back on the nation state. Yes, there are problems with regular military forces (Abu Ghraib for instance) but the internal incentives for self-correcting action seem to be stronger and more frequent.

Secondly, from a diplomatic point of view, it is far easier for Pakistan's intelligence and security agencies to work with the US government than with thirty three different private outfits in which half of them have no clue what way the gun is supposed to be pointed, another third have no idea of operational security (neither does the US Government right now...what you don't want Al-Queada to know that you flipped one of their top communications guys... whoops) and a couple that may be vaguely competent. However the vaguely competent teams, due to their limited IPO funding, will still need to count on the US military for back-up, logistics, medical support and firepower if the vaguely competent teams hit anything that is unexpected. And even if they could afford their own close air support and artillery, I am extremely reluctant to allow private forces to hold that much fire power with little accountability.

Thirdly, as Praktike at Crooked Timber's comments section pointed out; there is a huge moral hazard here. Let's assume that the most likely people to know where Bin Laden is are people that are also senior leadership in Al Quaeda. Let's say that Bin Laden who is on dialysis knows that he is going to die in six months; he sacrifices himself and has one of his top lieutenants second cousin's brother-in-laws turn him in to collect the billion dollars. All of a sudden Al Queada receives a massive cash infusion. Now if the US refuses to pay, first we get to see a really entertaining court case, secondly, we would diminish the full faith and credit, and thirdly, and most importantly, our credibility on the matter of bounties would be shot and future cooperation would be extremely limited. As it is $25 million presents the same moral hazard, but the pay-offs are massively larger at $1 billion dollars.

Finally, from a practical point of view, I have an objection. The people who are most likely to make up the quasi-competent teams will most likely be in good physical condition, excellent weapons skills, excellent local language and custums skills, extremely incisive and comprehensive analytical minds and extremely adaptable. Wait one second here; I think I just wrote a quick job description for the pre-existing and already working Special Forces and commando teams that are running around in Afganistan looking for Al-Quaeda. As it is, the Pentagon is short commandos so why add yet another drain on a limited talent pool.

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Interesting

Via Dave Copeland who used to work at the Pittsburgh Tribune Review is this piece of information:

If I had to guess (which I don't) and if I had inside information (which I do), I wouldn't expect the Trib to endorse either major party candidate between now and November. Sure, a lot can change, but think tariffs and other indiscretions of the current administration. And stop thinking of the Trib as a paper with a purely Republican editorial page.


And that is true; I congratulated the Trib a while back on their call for an independent investigation into the Plame leak. They have at times a slightly odd, but understandable good goveranance streak, but overall, it is still a conservative paper. The question is whether or not conservative will automatically equal Republican in the future... now that is an interesting question... along with... what type of conservative is Republican?

Nuclear threat?

The American public has become familiar with the phraseology of WMD standing for Weapons of Mass Destruction, although that is now becoming a tautalogy in that any weapon, including machetes wielded by Hutu militia men. The general meaning of WMD is as a replacement for another acronym: NBC/ABC which stands for Nuclear(or Atomic), Biological, Chemical weapons. This acronym came from NATO training as in the 1950s to 1989, NATO expected any Soviet offensive to be preceded by a massive bombardment of these three types of weapons plus conventional explosives. The trinary phraseology suggests an equivilence which does not exist. Nuclear weapons are by far the most dangerous, while well trained troops can effectively (if significantly less effective) can operate in a "slimed" environment. The same applies for well trained first responders. A chemical or biological strike is an area denial weapon as a well as a means of inciting fear and caution into an opponent, but it will not kill a city if that city has a competently functioning public health service.

Bob at Unfogged is linking to a couple of extremely informed experts who believe that there is an even money or better chance of a nuclear weapon being detonated by terrorists against a US target within the decade. I am a complete amateur with access only to public domain material, but my guess is that the probability is lower mainly due to a supply concern. I am assuming that if Bin Laden or any of his followers, fellow travellers or competitors had access to nuclear weapons, they would do their best to use them against high value targets. Motive is present, but capability is not.

The biggest obstacle is for a terrorist group to access a nuclear weapon. They are not easy to make. It took the North Koreans several decades to design and build their first nuclear devices. India and Pakistan also took at least a decade from the decision to go nuclear to building their first functioning bombs. South Africa took a decade. The point is not time, for the US was able to build an atomic weapon in four years, but one of resources. All of these nuclear programs required massive amounts of specialized, fixed investments to build the components of a nuclear device. Terrorist groups that are based out of some of the most forbidding territory on earth and working with budgets in the tens or hundreds of millions of dollars per year can not make multi-billion dollar investments. So the scenario of an Al-Quaeda cell in a cave laborious making their own nuclear weapon from scratch is ridiculous.

Now the only other access point for nuclear weapons is from nation states with their own arsenal. Right now this set includes the United States, Russia, China, Great Britian, France, Isreal, Pakistan, India and North Korea. South Africa, Ukraine, Belerus, and Kazackastan all had nuclear weapons but are verifiably disarmed. Iran does not have nuclear weapons at this time. I believe it is safe to assume that US, UK, French and Isreali nuclear weapons have too many safeguards in place for accidental detonation, plus they all have effective internal controls to keep track of all the weapons.

Russia and China know that the US and NATO could identify, post-facto, whether or not a nuclear weapon came from their arsenals. The same applies for everyone else, but different considerations occur. Pakistan, India and North Korea all have very small arsenals that can not survive a first strike from the US, UK, France or Russia. They would have no effective counter detterence if the US decided to retaliate due to their supplying of a nuclear weapon to a terrorist group.
Even more importantly for Pakistan and India, removing one weapon from their small arsenals significantly weakens their own counter-deterrents with regards to each other.

Therefore I believe it is extremely unlikely for the current governments to knowingly and willingly give up control of at least one nuclear device to a terrorist group. The costs (US nuclear retaliation) are too high and the US deterrent and willingness to go ape-shit has been proven credible when it has been attacked. That leaves two different methods of weapons access. First, are the potentially missing tactical nuclear weapons of the former Soviet Union. Secondly, a government such as Pakistan could fall and a crisis could be provoked in which the coup leaders believe that they are in a use or lose situation vis a vis the United States and that their only delivery method is unconventional means such as handing a weapon off to a terrorist group.

There has been plenty of speculation about Soviet 'loose nukes' but there have been on confirmed cases of one being found. The primary concern is that there is plenty of raw material for a dirty bomb lying around. Nunn-Lugar funding has taken a chunk of this un(der)secured material and placed it into more secure solutions. Since it has been thirteen years since the USSR collapsed, I would place the probability of their being functional loose nukes out there as rather low due to a combination of the need for maitenance that has been unmet on these potential weapons, and the fact that none have been found to date.

The second possibilty has a higher probability of occuring. So what are the preferred policy options to minimize the possibility of a terrorist getting their hands on a Pakistani nuclear weapon. First, the US has been very cooperative with the Pakistani military in performing security analysis and updates to the weapons storage areas. This is something that I have to congratulate the Bush administration on; they are doing something right and for the right reasons. Secondly, the US needs to find ways to defuse the potential leverage points of a coup led by extremists against Musarraf. My preference would be for direct elections to be held that are open to everyone so every political party in Pakistan would have something to lose if nukes were lost. I am being too idealistic here, so strong economic carrots such as a continual decrease in import tariffs on cloth and other manufactured goods made in Pakistan and sold to the US would improve the standard of living in Pakistan and could defuse some tension. Additionally, the US could get their heads out of their collective asses in matters of intelligence cooperation against Al-Queda. There are plenty of other policy options that could be used to minimize the risk of a loose Pakistani nuclear weapon.

For these reasons, I think that the probability of a nuclear detonation (not a dirty bomb) in the United States is lower than 50% during the next decade.

Tuesday, August 10, 2004

PA Nader challenge update

I was pretty busy this weekend and yesterday so I was unable to help out any more with the Nder signature verification effort. However, it seems that there were enough volunteers and political professionals to go through the Nader signatures with a fine tooth comb. They have filed suit in an attempt to knock Nader off the ballot due to their claims that he does not have sufficient signatures.

The Post Gazette is reporting that Nader's coordators submitted, 45,000 signatures, less than the 50,000 which I had thought. The private verification effort believes that only 10,000 signatures are without dispute. Nader needs slightly more than 25,000 signatures in order to qualify, and if 35,000 signatures are in dispute, he needs to win 45% of the disputed signatures in order to qualify. This could take a while, and I think he'll make it by the skin of his teeth because I know that quite a few signatures violate the letter of the law, but were honestly and reasonably signed by people with their full knowledge of their actions. It will depend on the judge if Nader makes it, and if the judge goes for intent and spirit of the law, Nader will be on the ballot in November.

UPDATE This AP article via the Pittsburgh Tribune Review seems to make the case a slam dunk as it says:

Pittsburgh lawyer Efrem M. Grail, who challenged Nader's petitions on behalf of seven western Pennsylvania voters, said in his filing that more than 30,000 signatures were invalid because the signers were not registered voters


If that is the case, there is no way for Nader to make the ballot as that would leave roughly 17,000 signatures of registered voters of whom some percentage will have other problems. I am intrepreting this story as a little too much good news and I believe the intention of the quote may be 30,000 challengable signatures for all causes including non-registered voters signing their names.

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Monday, August 09, 2004

Oil Prices (Pt 2)

I just saw this monring that Iraq has ceased oil production in the southern fields which account for 90% of Iraqi production and 2% of global production. Assuming normal short-run elasticities of demand, we should have seen an eight to ten dollar jump in prices if this production shortfall is expected to last for more than a couple of days. Yet, so far, we have not seen a significant change in the major benchmarks.

Why is that? We are operating in an environment of profound scarcity and extremely expensive marginal supply so basic economic theory that we learn freshman year would imply that this supply shock should send prices through the roof this afternoon. Yet it has not because the market had already counted on Iraqi oil production being extremely sporadic and relatively unreliable in that there is a eight to ten dollar risk premium on oil already. Most of that is an Iraqi risk premium, a little bit is on precautions against the Saudis blowing themselves up, and the rest is spread among sundry things. Prices will only be going up IF production infrastructure is seriously damaged or political/security reasons forbid the re-opening of production in any short term time frame.

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Good news on Recruiting

One of my major concerns about the Iraq war has been the opportunity cost; George Bush has spent the strategic flexibility of the United States for the past two years and for some undeterminate time in the future although other, greater threats such as a nuclear North Korea have been allowed to fester and boil. The time in the future in which the United States has strategic inflexibility will be a function of first how long the US will be maintaining 100,000+ soldiers in Iraq (my guess, a while) and then a variable based on how retention and recruiting has gone for the military in order to pass the lessons learned to the next generation as reconstitution occurs.

Phil Carter has some good news on the active duty side of the equation; active-duty recruitment is meeting goals, although the average recruit expenditure is increasing, but money is comparably cheap. However, the reserve formations are not experiencing this same situation.

USA Today in a January story, states that a survey showed that the long-term deployed guard units experienced a rapid hollowing out as soon as stop loss ended at the end of their deployments. Many units that deployed to Iraq are now down to 50% strength due to a combination of people leaving the unit at the end of their enlistments and the diversion of replacement personal to units that are working up for deployment. The National Guard is playing music chairs HR policy right now, and it does not look to get any better.

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And the Crowds go Wild

I was reading through Atrios' report of the crowd sizes that the Kerry-Edwards campaign team is seeing as they snake their way across the mid-west. 100+ people waiting for the train to chug through town at midnight, 20,000 in Kansas City, 15,000 in Scranton etc. There are massive crowds occuring whereever the campaign passes through and this is good news.

However, I vaguely remembering something similiar happening about this time last year with the Sleepless Summer tour undertaken by Howard Dean. Wherever he was going, he was getting movement size crowds of individuals to come out, even at the dead of night during the football season to cheer him on. Now we are supporting nominee Kerry, so massive crowds are not always a perfect indicator. But what is the difference? Kerry's campaign is far less likely to look for the massively decisive win than the Dean campaign in their decision to try for a clean January sweep. The campaign is a lot more united and a lot more competently run also, so this is all some good news.

Friday, August 06, 2004

Wrong... but interesting

Econopundit is making an interesting and counterintuitive argument; namely that the recent increase in oil prices is good for the economy. He is relying upon a concept called Lucas Supply functions which are a part of rational expectation theory. As Econopundit puts it:

In a nutshell, Lucas Supply has to do with how companies respond to price movements. Under conditions like those prevailing currently, any sharp rise in a basic component of everyone's cost (energy! pay attention!) will cause everyone who can raise prices to do so within the next few months. Further, widespread knowledge of the crude oil price spike will allow companies who have so far been timid about price increases to forge ahead, raise prices, and thereby more-than restore any damage done to their balance sheets by the upcoming energy price spike.


To simplify: since pretty much everyone must buy oil to do anything, and oil is going up in price for everyone, this price spike will force the most energy intensive producers to raise prices. Less energy intensive producers who are experiencing a smaller percentage of their component costs increasing, are able to seize the pricing power that the energy intensive producers are creating. The less intensive producers ' profit margins increase and profits throughout the economy experience an aggregate increase. From this departure, he argues that an increased set of profits throughout the economy will lead to higher production and higher employment. Therefore, we should be happy that oil is spiking to $45 a barrel.

As I said, this is counterintuitive, simple, and elegant. The last point, and thus the entire story that Econopundit is trying to tell however is wrong, or at least it is wrong in this current environment. Increases in profits as a percentage of GDP have not led to increased employment. This is shown by a convenient graph by the New York Federal Reserve Board. Profits have grown from 7% GDP in Q-3 2001 (their recent trough) to 10.2% of GDP in Q-1 2004. This is a 45% growth in profit over a thirty month period, yet we have lost ground on employment despite this profit growth.

The story of the economy is more complex, and the biggest component of this complexity is productivity. It has been growing at a very strong, above historical trend rates for almost a decade now. The economy is still transitioning and experiencing the dislocations that are being imposed by a combination of new technologies, and greater globalization (actually these are fundamentally the same thing.) The second interesting part of the story is that the US made massive investments in our national productive capacity in the late 90s and it is still taking some time to work our way through this capacity until we hit a point where it it cheaper/more convienent to build more capacity rather than invest in increased labor productivity. The story is much more complex than just profits. If it was just profits, we should be seeing an employment and wage boom any day now.

Nader verification effort in Pittsburgh

I spent most of this morning, excluding the time I spent on the previous post, looking over signatures and the other relevant information in a Downtown law office. I, along with twenty or thirty other volunteers are trying to get a reasonable amount of evidence for a legal challenge to the Nader ballot access petition drive. It is almost certain that a lawsuit will be filed, and right now I would give it a 30% chance of success.

A couple of things should be noted.

  1. Nader needs slightly more than 25,000 valid signatures from registered Pennsylvania voters.
  2. His field team submitted slightly less than 50,000 signatures.
  3. It is blatantly obvious which signatures were collected by people who knew what they were doing and and which signatures were collected by untrained volunteers.
  4. Nader's field team had quite a few untrained volunteers.
I had gone through a little under a three hundred signatures and entered them into the database. I raised at least five hundred points of challenge. Some of them are nitpicky; the signature was illegible. I know a judge will look at that challenge and if that is the sole problem, allow the signature. Others were clear cut cases forgery of either the city or date. Most were judgement calls, and I know that I was judging on a fair but tough standard; if it looks like a question mark, mark it a question mark even if there is a 95% chance of being allowed in. However, most petition lines had at least one problem, and a reasonably number ~30% had several significant problems. It may have been that I was looking at Philadelphia County, which I am told, has a reputation of being very sloppy, but there are a lot of signatures that can be discarded based on a strict standard even before the registered voter checks are made.

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Ouch

The employment report for July came out this morning and it was ugly. A total of 32,000 new jobs were created. I was pessimistic about this month's data, figuring that new claims for unemployment were hanging out in the 340,000s for the four week moving average and therefore concluding that we were treading water on jobs versus population growth so if I had to make a prediction, I would have guessed around 100-130K jobs. That was a guesstimate way below the consensus estimate, but it is still significantly higher than reality.

The only good news is that slow employment growth, concurrently slow wage growth etc, will lead to slightly reduced oil demand.

Reality intrudes

I am going to be busy all day today as first I am going downtown to look over the Nader signatures and then I have a couple things to do around the house. Sometime this weekend I will be coming up to my 1000th post, and it does not seem like it only took me 11 months to do that. I am a verbose and wordy bastard.... oh well.

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Thursday, August 05, 2004

North Korean Submarines

Yesterday, John Gorenfield linked to an article concerning a Jane's intelligenec summary that claims that North Korea received twelve diesel powered former Soviet submarines of the F and G classes via Rev. Moon and the Unification Church. Furthermore, Janes is claiming that this technology transfer may allow the North Koreans to deploy sea launched ballistic missiles that could threaten the West Coast. This has created a mini stir in the blogosphere.

Now what does this mean for US national security? Before we analyze that, lets go over the basics of submarines and nuclear deterrance first.

Submarines come in two different flavors; diesel-electric and nuclear. The North Korean submarines are diesel electric submarines built in the mid-50s to early 60's by the Soviet Union. This means that they really are submersibles which can be very quiet while operating on electric batteries but must, every day or two, come to within 30-50 feet of the surface in order to run their (loud) diesel engines to recharge the batteries. Nuclear powered submarines have onboard nuclear reactors, which are slightly louder than a submarine operating on batteries. The nuclear reactors allow for a submarine to never come near the surface after it leaves port. It also gives the nuclear submarine far greater cruising range as more power is availble for longer periods of time. A diesel boat of the Foxtrot or Golf generation might be able to move at 3 miles per hour for forty eight hours before it has to recharge. As speed increases to 15 miles per hour, battery endurance dramatically decreases to only a couple of hours. A nuclear submarine of the same generation can quietly move at five or six miles per hour for ever or it can be nice and loud and move at 20 miles per hour for ever.

I am talking about noise because that is the most likely means of detecting a hostile submarine. Radar and visual scanning are low probabilty means of detection because the most a submarine built after 1945 will expose is a thin periscope mast or a slightly wider snorkel to recharge their batteries and get fresh air. Sound propogates very efficiently through water so anti-sub forces use both active (sending out sound waves and listening for the echo) and passive (just listening) sonar to find submarines. Passive sonar works best in non-crowded and non-confusing parts of the ocean. Active works best in shallow water with lots of objects and potential contacts.

Now nuclear deterrance theory states that a deterrant is credible if the opposition believes that the detering state is able to launch enough missiles to saturate any defenses and to inflict sufficiently high damage on the opposition that the first strike option is no longer favorable. During the Cold War, the United States and Soviet Union invested trillions to make their deterrents credible to each other. The primary means of doing so was a mutual investment in a triad; landbased missiles, landbased bombers and seabased missiles placed upon submarines.

Land based missiles had the best command and control and tended to be the most accurate as well as having the heaviest throw weight. They had the disadvantage of being fixed targets of a first strike. Bombers had the advantage of being able to dodge a first strike without automatic retaliation. They could also be best used to threaten an opponent but could be pulled back. Their disadvantage is that they are expensive and comparatively easier to defend against. Submarine launched ballistic missiles had the poorest command and control, tended to be shorter ranged and less accurate ( at least till Trident) but were essentially invulnerable to a first strike.

The US relied on extreme quieting to hide our ballistic missile submarines, while the Soviets, who produced louder submarines, adapted a bastion strategyduring the late 70s to the present. This strategy relied on keeping the newer missile boats with the longer range missiles in easily defendable locations where mines, land based fighters and local surface anti-submarine forces would try and keep US/NATO anti-submarine forces from getting near the Soviet missile boats. The last wrinkle on this strategy was to put the toughest ships (Typhoon class) underneath the Artic ice caps because the hunting conditions for US attack subs sucks due to the sheer amount of noise being generated by the ice while also counting on the ice to keep NATO ships and aircraft out of the hunt.

Now why is all of this important? It lets us construct a probable threat profile. The North Koreans are said to be working on a missile based off of the Soviet R-27 (NATO name: SS-N-6). It has a range of roughly 2,400 kilometers. That is enough to strike Okwinawa from port, but not Guam nor any US state.

We know that the Golf Class submarines, which are the ballistic missile carriers, can not survive a trans-Pacific passage that would allow it to get within range of the Continental US. Therefore, it is likely that the North Koreans, if they do have an operational missile carrying submarine, will adapt a variant of the bastion defense. The probable operational deployment will be to deploy the Golf class submarines into a coastal area where the water is shallow and rapidly moving in order to take advantage of the horrendous sonar conditions. Slightly further out, mine barriers backed by the Foxtrot class submarines will be employed to keep US, South Korean and potentially Japanese submarines from easily entering the bastion. Land based fighters and SAMS would be employed to discourage/shoot down US and South Korean anti-submarine aircraft.

The goal of this strategy is not to threaten the United States directly. Instead it is to preserve a credible nuclear detterent against a potential US first strike against the landbased nuclear missiles that North Korea most likely already has. The submarines would most likely survive a first strike and be able to launch against Seoul, Tokyo or Okwinawa where the US has significant military forces and equipment. Yes, doing so would bring overwhelming nuclear retaliation from the United States, but this credible threat would create a very strong incentive for the South Korean government to counsel against a pre-emptive first strike.

Lawyers, Guns and Money has an excellent threat summation at their blog. You should read it also.

Wednesday, August 04, 2004

Oil Prices

Right now oil futures for September delivery are hanging out in the $43-44 per barrel range. The pressure is coming from a combination of very high demand as the more energy intensive economies of India and China are rapidly growing, increased demand from the United States and the other industrialized nations as there has been a good half year of OECD growth, and then a couple of supply side problems. First, there is a significant risk premium due to the danger of someone with fifty pounds of C-4 and the knowledge of how to use it can disrupt the Saudi Arabian oil distribution network and remove several million barrels a day from global production. Additionally, all of the major producers with the exception of Saudi Arabia are at peak production and the Saudis' can only bring another 1 million barrels per day (mbd) online in the next month or two. And there is some doubt about whether or not the Saudis are actually telling the truth here.

All of this is in an environment where global demand in a nine period (June 30, 2004, April 1, 2005) is expected to increase by 3.1 mbd.

So right now we are in a pickle of tight supplies and very high levels of demand matched with a correspondingly high willingness to pay. So what will happen? We don't know and the markets don't know either as the volatility of the markets may reach 50% within the next year as we swing from extremes of optimism concerning stability in the Middle East and pessimism. I personally am pessimistic, but the markets are waiting for more information to set future prices. But what policy steps can be taken right now to reduce global demand in order to reduce global prices?

Not many options are available. The best option is to have the G-8 tap their strategic oil reserves. The United States currently has 665 million barrels in reserve of which 269 are "sweet" crude. The US has released oil from the reserves once in the past fifteen years. The run up to Desert Storm led to the sale of roughly 35 million barrels of oil. There have been a number of transfers where the government loans some oil to private companies and then receives an equivilent amount of oil and interest back within a six month time frame. The most notable occurrence was the home heating oil crisis of 2000. American consumption for 2004 is roughly 20.4 million barrels per day. The Strategic Petroleum Reserve is equivilent to 32 days of current domestic consumption, or 54 days of import replacement.

The short term price elasticity of demand for oil is roughly -.1 which means that if 1% of supply is taken off the market, prices will increase by 10%. The world is seeing a 3 mpd projected increase in demand over the next nine months. Therefore anticipated higher demand has already led to 37% increase in price from the original OPEC target band of $22-28 barrel. If Bush was to release 850,000 barrels per day from the Reserve, we should expect to see prices drop by $4.50-$5.00 per barrel on the global market. Assuming that the United States would want to keep the reserves at 75% in case of an actual emergency, this program could be kept up for slighlty more than six months. If effective multilateral action could be taken where the OECD reserves are released at 2 million barrels per day, we should expect to see a supply side caused drop in prices of approximately $9.00 per barrel. All of this assumes that Saudi Arabia and Russia are still pumping at or near 10 mbd apiece.

That is the only supply side source of help. The rest of the price relief has to come from the demand side. We are already seeing that with the soft spot in the June economic reports and some questionable data coming out of July as durable goods purchases (excluding defense spending) is starting to slow down. The continued micro-trend away from the largest of the SUVs, mitigated only by extremely high levels of incentives will continue. But right now we are stuck. There is nothing much that can occur in the next month from the US demand side that can bring prices down. The end of the summer driving season will help a little bit but that is not until the first week of September.Long term effects include the high probability that we see the thermidor act as an outside central bank which limits American growth. This most likely means we'll be seeing a recession or stagnation in the next nine months due to the very high cost of energy.

Effective accountability

Finally, someone who is not a $2,000 a month reservist private from West Virginia is being held accountable for their actions regarding the abuse of prisoners in Iraq. A battalian commander and his executive officer were relieved of duty and ordered to return to the capital to face a hearing concerning the actions of a subordinate who is accused of denying water to captured Iraqis and engaging in stress positions and other actions that border on torture. I applaud this accountability.

However, it is is the Danish government taking these actions. The Danish government has battalion in Iraq, and no detention facilities; its troops hands off its prisoners to either the British, the Iraqi police or releases them after a short detention. It also is not Danish policy to encourage ghost prisoners and coercive interrogation techniques as a matter of national policy. Yet they quickly acted upon information that there was a bad apple and a failure of command. This is in stark contrast to the US response which tracks all the way up the chain of command to the civilian leaders of the DOD, and yet no one besides seven reservists from Appalachia have been punished..... almost like we don't want to address the systemic problems there.....

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