US Financial Crisis and Globalization

In the coming years US may suffer greatly by the very pattern that it advocated: Globalization. The US is substantially dependent on outside sources to supply industrial products, consumer products, food and energy. So far this has worked well, but the table is about to turn around.

First let's summarize the fiscal crisis in a few bullets:

• This is the fourth straight year that the US borrowed more than $1 trillion to support its federal government. US budget deficit will top $1.3 trillion, 8.7% of GDP. Only two European countries, Greece and Ireland, have larger budget deficits as a percent of GDP.
• US national debt now exceeds $15.3 trillion, or 102% of GDP. Only four European countries have larger national debts than US: Greece, Ireland, Portugal and Italy.
• If one adds the unfunded liabilities of Social Security and Medicare to the US official national debt, the US debt is $72 trillion, by Obama administration projections. This is more than 480% of GDP. France, the second most insolvent nation in Europe, owes 549% of GDP.
• Under more realistic projections, the US official national debt is $137 trillion or 911% of GDP. Counting both official debt and unfunded pension and health care liabilities, the most indebted nation in Europe is Greece, which owes 875% of GDP.
• 48 of 50 states have annual deficits and large long term debt. Several states have insolvent employee pension and health care trusts. Of course Hawaii is one of them.
• Many US cities are in deficit, some are at or near bankruptcy and all face major infrastructure backlogs as well as their own employee retirement shortfalls.
• Unlike the huge debt of Japan or France that is owed mostly by their own citizens, US is more like Greece. Most of its debt owned by foreign countries and external lenders.

Why is the US not at the same position as Greece? The reasons are many and they include US' vastly larger economy, vast ability to innovate, vast natural resources compared to most EU countries, vast dependency of many countries on the US consumer to buy the things they make, vast military capability, and having the US dollar as the world's main reserve currency.

This reserve currency is also US' main tool for controlling a quick financial collapse. The devaluation of the dollar would slash the debt owned to foreign interests. At the same time globalization will come back and bite the US consumer since all imports will become 30% more expensive if the greenback is devalued by 30%, resulting in internal hyperinflation and market instability. Messy!

At the same time, this devaluation will cause substantial losses to US' global partners. For example, BMWs will be 30% more expensive in the US and Chryslers will be 30% less expensive in Italy, causing compounded losses in the demand of consumer products in the EU. Messy!

What caused all this mess? Policies and actions focused on the negative side of Capitalism and the negative side of Socialism. Capitalism focused on price and profit, not on sustainable production. Socialism focused on ever increasing and unsupportable entitlements instead of basic and sustainable security.

The path to the abyss is clear.

Greece is there but the US is near.

Do politicians hear?

Traffic Signal Optimization

4,114 Stoplights in Los Angeles and the Intricate Network that Keeps Traffic Moving is a simple and informative article of some of the advances in moving heavy traffic in congested cities.

I note that the City of Los Angeles has placed major priority on this city function not only by developing their sophisticated control system called ATSAC but also by staffing its operation ... "Yu and his team of 35 ­engineers and 20 operators."

HONOLULU needs about 1/4 of this level of staffing. It has 1/10.

In general, traffic signal optimization is among the "low hanging fruit" in mitigating some of the traffic congestion in urban areas. But it needs funding and staffing because this is a 24x7 operations with ever changing flows and congestion spots.

Honolulu Can Do Much Better!

On President’s Day Senator Daniel Inouye called a press conference at his local office and made three recommendations for Honolulu. Build the rail, elect Mazie Hirono for Senator and elect Kirk Caldwell for mayor. Rail, Hirono and Kirk is the best trio for Honolulu’s future? I have a graphic answer ;)

US Debt: Remove 8 Zeros. Get an Understanding.

I could not resist copying here this simple chain email message.

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cuts: $38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

And I add this...

Revised family plan: Raise the credit card limit to $160,000

Obviously the parents are nuts. Pity the children.

Sustainable Growth for Hawaii -- Expert Panel Program

Use this link to load or print a PDF version of this announcement.

Ban the Ban of Plastic Bags

Dear Council Members,

I conducted a poll on the proposal on banning plastic bags. My list of emails is large and diverse and I chose a random sample of 600 recipients to receive the survey link. Still, this is not a scientific survey. However, it is indicative that after 50 responses the results did not change by more than 2%. In other words, the public' sentiment is quite clear.

The poll results screen capture below reflects 112 responses.


Only 25% answered yes to the statement Plastic bags are a serious threat to our environment.

John Pritchett's cartoon at the very bottom concludes this presentation.

I'd say that you may safely proceed with bigger and better things.

Aloha,
Panos

Jobs: Fundamental Trends – 2000 to 2050. How Did We Get Here and What’s in Store?

There are three fundamental trends at play in this half century:

• Aging of both population and infrastructure;
• Advanced economies cannot absorb unskilled and low skilled laborers; and,
• Too many crises in one decade took our eye off the ball.

The first trend affects the US more than other nations. Baby-boomers have started reaching the age of retirement and the age when health maintenance expenses increase. As a result many state pension and health funds are under substantial stress and their situation is likely to rapidly worsen as more workers age and fewer workers find high paying jobs that pay high enough taxes to sustain pension and health expenses. One of the proposals toward retirement fund solvency is to raise the age of retirement from the typical of 65 year of age to 70.

Along with the baby boom in the US also came the second infrastructure boom (the first one was during the Great Depression.) The second boom focused mostly on transportation and the road and air modes in particular, along with a misguided urban rail renaissance* of the late 1970s till the 1990s. For example, BART in San Francisco and Metro in Washington. DC are facing work backlogs in the order of tens of billions of dollars for required refurbishment and rehabilitation to bring those systems to a top operational condition. The bills are in the billions for bridges and elevated highway sections, and for the strengthening and restoration of millions of lane-miles of roadways.

While infrastructure presents a great opportunity for boosting the job count, a lot of the work is both highly technical and very expensive. The former implies that unskilled labor is unsuitable, and the latter implies that a lot of infrastructure projects may be unaffordable. The existing gasoline taxes which have been constant for almost 20 years at the federal level have lost value and are insufficient to cover highway maintenance. In addition about 20% of these funds is re-purposed to pay for loss-making transit systems.

Electric and other non-fossil fuel powered vehicles are not visiting the gas pump regularly (or ever), thus no tax for their road usage is collected. The highway tax system needs both a tax rate update and modernization. This will create new jobs, but again, the expertise will vary from technician to engineer; no need for unskilled labor.

This segways us to the second trend which is the progressive evolution of advanced technologies out of labor intensive jobs. Agriculture, construction and manufacturing are increasingly automated. They require fewer and more skilled staff. A good example is driverless trains in France. They replace approximately 100 motormen with two dozen rail engineers and train management technicians in a control room. This cuts the job count by 75% and costs by 50%. Fewer, more comfortable and better paid jobs is what advanced economies provide.

Retailing absorbs low skill labor. But there are many changes that reduce the unskilled job count in retailing such as Internet retailing, big box store retailing and upscale retailing, all of which require fewer and better skilled workers.

The transportation sector employees roughly 5% to 15% of a region’s workers (the count is higher in highly urbanized areas). This sector is dominated by federal and state regulations as well as unions. Both regulations and unions make the absorption of low skill labor more difficult.

The third trend is actually a series of calamities that caused stress to the economy and inattention to its drifting into deep losses. I list eight major ones:

1. Global Warming related regulations leading to various stresses on energy production and pricing.
2. The September 11, 2001 attacks in the US and the subsequent wars in Afghanistan and Iraq.
3. Hurricane Katrina in New Orleans which, among other things, caused a fuel price escalation.
4. Drought in Texas with major impacts on jobs and food prices.
5. Huge losses in wind and solar projects, and erratic US energy policy.
6. Rapid increase in commodity and energy prices due in part to rising demand in Asia.
7. The sub-prime lending melt down.
8. Euro crisis, weakening US dollar, and Chinese RMB strengthening are causing various currency instabilities.

How did we get here? The discussion above suggests that large losses in the count of jobs in 2009 and 2010 can be explained by natural trends (aging), structural trends (modernization) and calamities (man and nature-made losses).

What’s in store? Prognostication is both fun and faulty. One thing that is certain is that the BAU model, that is, Business As Usual will bring more of the same.

If Congress remains dysfunctional, if state and federal administrations focus on government expansion and business regulation, if unions stress demands for perks instead of modernization and productivity improvements, if US energy policy continues to be an assortment of mostly special-interest ideas and incentives, then job count and quality of life will certainly deteriorate.

It does not have to be this way. Upcoming articles look into ways for more sustainable jobs.

------------------
(*) Rail Transit: Are we creating new life or resuscitating a dinosaur? This was the title of an 1980s article by Northwestern University’s Joseph Schofer, a distinguished professor of transportation at the McCormick School of Engineering and its Associate Dean.

ECONOMY Survey -- The Economist and Hawaii Results

I like people, global and local issues, and numbers ... so I present a mini-series of surveys on major issues which have been debated at The Economist. Obviously the results only represent people with at least a basic level of computer and Internet savvy. However, the results may be sufficiently indicative because most questions along with the careful wording of questions lead to a straightforward answer: Agree, Disagree or Do Not Know. The Economist has received a few thousand responses to each of their questions. I post results only when Hawaii surveys exceed 100 responses.

ECONOMY Survey Results (click to take the survey, part 1, and economy survey part 2.)

The results are summarized in the Table and discussed below.


The first three issues shown in the table results in solid agreement for both Economist and Hawaii respondents.

• Brand AMERICA will regain its shine, although some may question whether brand AMERICA has lost its shine in the first place.
  
• People do not have much faith in corporations to take measures towards sustainability. Although one might argue that it is people who force corporations to make "cheap" choices since they demand inexpensive products. You can't run an operation on solar power at current costs and expect to have a cost similar to a competitor using coal or hydro-electric power.
• 75% of both Economist and Hawaii respondents agree that workers do not get enough sleep. This has important implication on weight gain, diabetes, productivity at work, safety in traffic and personal relations. How much of this is due to electronic gaming and social media engagement is an open question.

The next four issues show a solid disagreement between Economist and Hawaii respondents.

• Almost 75% believe that China's currency won't be a reserve currency any time soon. Currently the basket of reserve currencies include the US Dollar, the Euro and the British Pound but dollar super dominated the basket accounting for 890-100% of most reserve applications.
• A woman's place is at work is a controversial statement; it is the only statement for which I received complaining emails. Recall that The Economist has developed all these statements. Economist respondents give a slim margin of disagreement to this, but two thirds of Hawaii respondents do not agree that a woman's place is at work.
• Almost 75% believe that senior company executives are not worth what they are paid. No surprise here and both the perception of the respondents and the reality are so, in my opinion.
• The clear majority of the respondents do not agree that sustainable development is unsustainable. In other words, they believe that we can continue to develop but in a sustainable, Earth-friendly manner. Sure, but only up to a point. There will likely be too many challenges to overcome one Earth's population approaches 10 billion people. This bring up the divisive issue of population. (See below.)
  

The remaining four issues reveal opposing views between Economist and Hawaii responses.

• 80% of Economist responses believe that the world would be better off with fewer people, but only 42% of "spirit of aloha" Hawaii respondents think so. Are we seeing the result of Western selfish culture and Hawaii's more accepting multi-ethnic culture?
• Who should pay for higher education? Almost 80% of socialist-minded European respondents of the Economist want the state to pay. Free market minded Hawaii respondents make this an individual pocket-book and career choice.
• Economist respondents come from industrial nations so it's no surprise that 78% feel that an economy cannot succeed without a big manufacturing base. In Hawaii with its sparse and light industrial base the response is about 50-50.
• Again socialist-minded European respondents are split about 50-50 on the effect of government regulation of business finance, but Hawaii respondents are resoundingly against multi-billion bailouts and the ropes (not strings) that come attached to them.

Chrysler's Super Bowl Ad with Clint Eastwood

Half Time in America: Chrysler's 2-minute long TV commercial with Clint Eastwood during the 46th Super Bowl was a strong political statement. It was likely washed down too quickly with beer, pizza and nachos, but it did generate a lot of media coverage.

What did Clint's message say to people in Hawaii? My small sample survey reveals the following:

78% of the respondents agree that Clint is talking about American patriotism, Detroit rebounding, union jobs or all of these.

The majority opinion is that this commercial has nothing to do with Chrysler cars or cars in general, but 43% think that Clint is also talking about the importance of the car industry for America. See details below.


75% of the respondents feel that Clint is raising an alarm about the condition of our country, the upcoming elections and the future of America or all of these.

Clint himself stated that he is not in agreement with the president's policies but he did not think that this commercial was about Obama. 43% of Hawaii respondents agree, but 49% responded that the ad support Obama policies. Only 8% responded that the ad goes against Obama policies. See details below.



Kudos to Chrysler for developing a thought provoking ad which some have labelled as a payback to Obama administration for arranging the auto industry bailouts.