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Monday, January 30, 2012

The Value of a dollar


What is the value of a dollar? What determines the value of any fiat currency? What is a dollar worth and why that specific number? What is the fundamental force that values a dollar or a euro or a yen? If you state that the value of any currency is related to some precious metal, such as gold, you just push the question back another step. Now the question becomes what determines the value of gold?
I have listened to many heated arguments between people with differing political ideology. I have read the musings of many economists. The best explanation I have read was written by Adam Smith in 1776. He points out that with specialization workers need some medium to exchange the surplus of their labor. If a farmer raises more wheat than his family can eat, he needs to exchange the surplus with a blacksmith that builds more farm implements than his family can use. In 1776 the wheat came from France and the farm implements came from Brittan, now a method for valuing two separate currencies and exchanging them was needed. This explains the need and utility of a currency, whether it is a precious metal or paper printed by a government. This explanation also points to what establishes the value of money. The value of a dollar is based on the average American working person and their needs. Value is created by the labor of a worker. This is the classical view of Adam Smith.
Early in my career I was a machinist, I made products for the oil industry. I personally had no need for an oil field valve and traded my labor for a pay check. The pay check had to cover my cost of living, provide my family with shelter, food and some entertainment. A dollar had to have enough value for me to purchase these items. I saw this again in 2008 when gas prices topped $4, some of the low wage hourly employees with gas guzzling vehicles and long drives stopped coming to work. The cost of working exceeded the cost of living and it became cash negative to go to work. Once they added up all their cost of living, such as rent, transportation, child care, food, utilities, etc., the pay check did not provide enough. Without these workers the company had troubles completing and shipping product. As a member of management we had long, serious and heated meetings about this. We had to have the employees at work every day. The crisis passed without management having to take any action on wages or bonus or gas credits or any of the other ideas proposed. The incident stayed with me, it reinforced my belief that the average working person establishes the value of a dollar. The dollar must have enough value to provide survival or it is meaningless.
This is an overly simple example. The paycheck has to cover more than the immediate needs, it has to cover the cost of education and development, provide for some surplus and economic safety to cover future needs in education and development at a minimum. My proposition is that Adam Smith basically got it right. Labor produces the added value to raw material that is tradable for other tradable products. If the value of the dollar or euro or yen is too small then labor will not show up for work and produce the tradable products. The purchasing power of a day’s wages must equal or exceed the cost of living for a day.
The modern theory of money is that a fiat currency derives its value from government regulation and laws, it has no intrinsic value. The value of a dollar is based on the full faith and credit of the American government. To me, the faith and credit of the American government is based on the labor and production of the average worker.
The value of the fiat currency of any government is based on the output of tradable goods by the wage earners of the society that government represents.

Monday, January 16, 2012

We need to learn how to learn

Most economists agree that for America to restore our economy we need to invest in and grow our human capital. Human capital is the average working person, it is the middle class, this is you and me, for we are America’s human capital. Investing in human capital is the way we deal with the economic concept of creative destruction. We have seen plenty of economic destruction and many of us are wondering when we will see the creative part. Investing in human capital is education that allows the displaced worker to move into a new career. Politicians are not part of America’s human capital; politicians are not subject to creative destruction. With these ideas I want to look at how we are investing in the human capital that is represented by our children, this is tomorrow’s human capital.
Children are naturally inquisitive, the world is mysterious and new, wonderful and frightening, children are constantly asking why things happen, for preschool children every day is a learning day. Then we place them in formal schooling, for the next 12 years the inquisitivity and wonder, the quest for understanding the world is slowly beaten down. This was my experience in the 1950s and 1960s, I watched the same process repeat with my children and now I am watching my grandchildren go through the latest form of indoctrination. It is up to the adults in a family to keep the fires of inquisitiveness burning.
Why isn’t our public primary and secondary educational system engaging the minds of the young? Remembering my own lower education, the purpose seemed to be about learning to act correct, not about learning to wonder and think, it was not about learning. In Texas we don’t even offer effective vocational training at the high school level. The text books I read from Texas science classes are a joke. High school students don’t go to class in an intellectually challenging environment, they go to lock down in a prison setting.
Then off to college and a rude awakening, students are required to ask why and then figure out the answer. They are expected to question the professor, even question the received truths of the greatest minds in history. The bar gets raised each semester, by graduate school the intellectual beatings come without mercy. The differences between the secondary system and college are stark, many freshmen lack the study habits and the open mind required, they think college is a life experience, not education. The result is a high failure rate for freshmen. Those students that survive or adapt to this shock will develop marketable skills and the ability to continue learning as technology and job requirements change over their working career. In college students learn how to learn, public schooling before college does not teach this to their students.
We have some of the world’s poorest public primary and secondary schools while we have most of the greatest tier one colleges. Our politicians blame the teachers and the unions, I blame the politicians. The standards, the curriculum, and the text books, indeed everything is determined by a political process. The basic problem with our public schools is politicians. Politicians take the easiest route to reelection. Our political leadership is not misguided; they are opportunist, blaming anyone except themselves, preaching personal responsibility for everyone but themselves.
Since we rank low compared to other industrial democracies we have many systems that we could examine and improve on, we could even look at our own college system. We are certainly spending enough money on education while receiving little for the effort. This is because the basic objective of our educational system is flawed. We need to teach our children how to learn.

Friday, January 13, 2012

A clueless paranoid buys a used book (A mostly fictional story)

The story I am about to relate happened some months back. Memory is most often snap shots, sometimes short videos, replaying in the mind, constantly edited by the subconscious mind. This is my best recollection of the events.

I am wandering about a used book store, it is the middle of the afternoon in the middle of the week, and only three people are in the store, me the checkout girl, and a sizeable young man with a rough and churlish appearance. I am sampling the books, reading a few pages from a book and replacing it on the shelf. As I find desirable reading material, I take it to the checkout station and add it to a growing pile of books. I have built considerable store credit over time by dropping off books I have finished, and I now have ample buying power. Loitering in libraries and book stores is a lifelong habit. A very relaxing treasure hunt with hidden rewards waiting to be found, I did not yet know that I was on the edge of rare discovery. A completely unexpected find, there on the shelf is “The Autumn of the Middle Ages”, by Johan Huizinga, originally in Dutch, first translated to English in 1919. I have heard of this book from historians, it is often cited as a reference in many of the history books I have read. It is long out of print. A book I never expected to see. I cannot believe my luck. I grasp the book to check that it is what I hope it is. I carefully open the book and read some pages, it is real .This copy is in excellent condition, an English translation reprint only fifty years old. Good luck has never favored me and I am immediately suspicious, will nature seek to rebalance my good luck with some terrible twist of fate?
I hold the book close to my chest, adrenaline pumping, situational awareness rapidly expanding all my senses. The large young man I saw earlier had been thumbing through a copy of the “US Constitution for Dummies”. He must be another maven of historical works! He will understand the value of my find. I feel like a defenseless peasant that has found a bar of gold, and now a blood thirsty barbarian draws near. What if he sees me with this rare book? He could easily take it from me. I feel a moment of panic. Then focus my thoughts. I have little chance in a face to face conflict, subterfuge and tactical maneuvers my only opportunity of success.
I see movement from the corner of my eye, there he stands at the end of the aisle, he is carrying a very thick hard back copy of the “Birds of Texas”. He could smash my skull with one blow, and then take my rare manuscript from dead hands. Just a few minutes ago I was a simple slacker goofing, now I hold priceless treasure and I’m stalked by a malignant villain. Slowly pivoting away, I slide the book under my coat, hiding it with my underarm. Moving down to the far end of the aisle, I turn and head into the juvenile section. Thinking to hide my find in amongst some Harry Potter books, but I can’t bear to part with my precious find. Instead, I try to appear clam, measuring my steps, planning an escape to the checkout counter. I stay to the middle of the store, keeping all potential escape routes open. I need to shake my stalker, and I make an unexpected turn into the ladies romance aisle, this baffles my assailant just long enough for a quick dash to the checkout counter.
I quickly reach the checkout counter and hand the cashier my final book, she collects the entire book stack I had been building, and starts scanning the bar codes. Some deep moral drive I didn’t know I had compels me to speak. “The Autumn of the Middle Ages is a rare book, long out of print”.
She looks up and smiles, “I had not seen it before sir. It must have been waiting just for you”. What does that mean? Something is waiting on me? She looks pass me, her eyes brighten and her smile grows, “Hi Jim”.
I look over my shoulder. The barbarian is right behind me with his hard cover of “The Birds of Texas”. He raises his heavy thick weapon, and grins back at the checkout girl saying, “I got it Janet”, I freeze, my body can’t move, it’s a trap!
Another customer enters the used book store, changing my adversary’s plans, for there should be no witness to the crime. Regaining control of my body, I move one foot a little forward and outward, bending my knees and balancing on the balls of my feet, now I’m ready to dash in any direction. I disguise my preparation by turning, which also allows me see both assailants at the same time. The checkout girl looks at me, “With your store credits that will be eighteen dollars and forty two cents, sir”.
I quickly pay in cash, mumble something polite, and crab towards the exit, maintaining an awareness of the full 360 degrees surrounding me. The two young miscreants engage in conversation, pretending to ignore me, if I can just make it to my parked car, I will be safe. Stumbling off the curb I jog to the car, using my remote to unlock the vehicle, grabbing the door handle I jump in the car and hit the door locks. I take a deep breath and relax slightly, while trying to observe the entire area, looking for any sign of danger, for now I am safe. I start the car, navigate through the small parking lot and out onto the public roadway. I’m not being followed, the treasure is mine!
Matching the traffic flow I start day dreaming about reading “The Autumn of the Middle Ages”, a controversial work that has produced many heated historiological arguments, now I would be able to study and judge for myself. I savor the potential, a slow read keeping my mind busy for weeks. I now have the out of print book cited in the foot notes of every medieval history book I have consumed, the seminal work that has created endless debate about feudal existence.
Stopped by a red light I retrieve the book and thumb to the opening chapter starting to read, I hear a car horn from behind. The light had turned green and the driver behind me felt compelled to point this out. Reading and driving is a bad idea; I realize this and concentrate on the road. Checking the rear view mirrors every few seconds, I monitor my speed and the surrounding vehicles, just as I had learned in my last defensive driving class, taken to get a ticket dismissal. Is there a law about reading while driving (RWD)? I don’t know, but that means nothing, as there are a lot of laws I don’t know. Now I start to watch for police. I can imagine getting arrested for RWD, my book taken as evidence to prove my unlawful behavior. In Texas nothing can escape from a police evidence room, except drugs and guns. My book would be lost forever! With the car’s turn signal blinking I move into the far right slow lane, maintaining a pace well below the posted speed limit.
Eventually I arrive at my driveway and slide my car into the garage. I hurry into the main house, locking doors behind me, and calling the dogs while setting the alarm system. On to the back porch, into the hammock, finally safe, I can now start reading. First translated in 1919 this book will require attention to detail, the connotation of many words has changed over the decades. I feel well prepared for the task and start to read about the “Queens gay marriage party”. Now I understand part of the controversy, Huizinga is claiming that cross dressing homosexuals married in the Middle Ages!

Wednesday, January 11, 2012

An American Foreign Policy suggestion

One generation past the global economy was dominated by America. In 1980 China, India and Brazil were too small to be significant in the big picture of the global GDP. In 1980 America was 30% of the global economy, second was Germany at 8.2% then Brittan at 5.6%, China and India were about 1% each. The price of eggs in China had no impact on Americans; the price of anything in China had no impact on Americans. In 2010 America was 28.87% of world GDP, the EU at 25.9% and China 7.75% with India 2.51%. In 30 years we moved from the dominant nation to an important nation. Now the price of eggs in China does affect Americans. Decisions by European political leaders move our markets, Angela Merkel, the German Chancellor, can make a decision that could collapse our banking system.

There is no global institution guiding this process. Currently the largest international institutions lack authority and have no real power. If the German Chancellor makes a decision that she feels is best for Germany or the EU but is terrible for America there is no politic that can make her reconsider. This is true for China, India, Japan, Australia and Brazil; all can make national choices that hurt America.

This global economic system has great potential, great potential for good or great potential for bad. Which will come to pass is still largely an American choice, America may no longer be the dominant power, but America is still very important. We do not have the hard (military) power to force a response by any major power. We need American soft power leading new international institutions.

Our choice will play out over decades; one election will not decide the issue. 

The rest of the world is adapting and continuing the global economy. The European Union has been working on unification for 60 years. China started its globalization march with the economic reforms of 1987 and India followed about 10 years later. They are not going to stop now. The benefits of a global economy are too great for the successful players.We can decide not to play, but the game will continue.

America’s best future foreign policy is to stop trying to be the world’s only policeman and work jointly with those economic powers that already equal us. We have to be adaptive, explore the possibilities, improve what is working and correct what is not working. We need to be involved in the development of valid international economic institutions. This is the path that the Europeans, Chinese, Brazilians and Indians have chosen. We can join the club or be left behind.

Monday, January 9, 2012

Men and Women don’t think the same.

Men think women think like men think, and women think men think like women think. Think about it for a moment. These statements are absolutely false. I know both claims are false and I continue to fall for it, ever since I was 20 years old, time after time I forget that women and men think differently. My brain just cannot handle the reality, because it is too complex. I want things simple, face value, easy, I am a man. A woman’s ability to read subtle emotional clues, to connect a series of basic human actions into a conclusion, is seen by men as mind reading, psychic, super natural. Men have sayings such as, “you play the cards you’re dealt”, or “a man does what man has to do”. Stoic, simple, shallow, it is a good way to live your life, organize your affairs and get through to tomorrow. I’m not implying that men don’t lie, observe any elected male official. I’m talking about the basic operating system men run their brains with, just two lines of code. 1) Observe environment, 2) respond. Women have multiple lines of code. It seems to me that this female code includes things like, compare, evaluate, make connections, and consider emotions. All this is a generalization, about 2% of men do think like women and about 2% of women do think like men. This small group is messed up. The other 98% of us are really messed up.

Men are capable of more complex thinking, and men can think with their heart, it just doesn’t come natural. Men have to conscientiously work to think about people and their feelings. It is easier for a man to figure out a rocket ship than it is to figure out a birthday gift. A man will remember his vehicle’s oil change date and forget his anniversary date. To be fair to men, women don’t know that vehicles need oil.

All this seems a mismatch, maybe God’s sense of humor. No, it is two halves of the whole. This is the balance that worked best, that allowed our ancestors to survive and prosper.  We are here today because our deep time ancestors decided to raise children together. This increased the chance that the children would live to have children, which lived to have children, etc., all the way down through time to you and me. At its best this system works very well, with each adult playing to their strengths. The problem is that we don’t live in caves today, roaming plains and mountains to find prey. We don’t live in small clans based solely on family relationships. We live in a complex modern global society.

What will society look like a hundred years from now? I have no idea, society will not look as it does today, and society will not look as it has in the pass. The relentless competitiveness of a global economic system will force more productive national societies. Those societies that do not evolve will fall behind, becoming marginalized and insignificant on the world stage. The winner will be that society which best allows men to think like men and women to think like women creating a balanced productive whole.

Monday, January 2, 2012

Science Fiction Authors Needed (SFAN)

I am currently reading two books as I often read multiple books concurrently. I read books that my nephews and nieces call “serious books” or “hard to read”. I don’t like the term “serious book". I prefer to say they are a slow read. All the books I read are serious, if not, why bother?

Being a naturally lazy person, I don’t like to maintain this level of effort over the many weeks required to finish a slow read. My solution is to read another book purely for entertainment between chapters of the slow read book. I am reading “The Next Convergence”, by Michael Spence, a winner of the Nobel Prize in Economics. The other is an ebook (Kindle Edition) “Convergent Space”, by John-Paul Cleary. Both are excellent reads, I will probably read two more SciFi titles before I finish the economics book. The similarity of titles is pure coincident, the two books have nothing in common.

I am always looking for new names to add to my SciFi authors list. I will need approximately 24 new SciFi titles for 2012. Looking at the list, it is dominated by British authors. Following Mr. Cleary on Twitter @ConvergentSpace I have found a whole new group of British SciFi writers to follow. Sure, the British writers got a jump start with that Shakespeare guy then they got some cross channel influence from Jules Verne (French), then H.G. Wells, but we’ve had plenty of time to catch up. Where are the American authors, the Canadians or Australian?

This is a list of the authors I follow, alphabetic by last name. You may note many missing great writers, such as, Isaac Asimov, Arthur C Clark, Phillip K Dick, Robert Heinlein, Frank Herbert and Kurt Vonnegut.  I only included active writers. I am looking for new titles.

Douglas Adams
Ian Banks
Stephen Baxter
Greg Bear
Ben Bova
Ray Bradbury
Jack Campbell
Orson Scott Card
CJ Cherryh
John-Paul Cleary
Ian Douglas
Greg Egan
William Gibson
Joe Halderman
Peter Hamilton
Paul Mcauley
Jack McDevitt
Ian McDonald
Larry Niven
Paul Graham
Frederik Pohl
Geoff Ryman
John Scalzi
Neal Stephenson
Charles Stross
Vernon Vinge
Ian Watson
David Weber
Fay Weldon
Robert Wilson

I need to include Bernard Cornwell, he is not a SciFi writer, but I really like his stuff.

I am looking to extend my reading list of SciFi authors. Anyone have recommendations?  Need to build a library of ebooks for my new IPAD. With retirement I have a more relaxed world view with a lot of hammock time to fill.

Sunday, January 1, 2012

Warmer activities in warmer places

A cold front has arrived, a light rain pushed by cold wind coming out of the north, what we call a “Northern” in Houston and I am walking my dogs. I cohabitate with two Australian Shepherds and one chow chow, all long haired dogs that find this weather very pleasant. By walking into the wind my return will be with the wind at my back, an old habit of an old sailor.

The cold makes me wish for, and remember, warmer activities in warmer places.

I remember a summer scuba dive on Sombrero reef near Marathon in the Florida Keys. I had perfect buoyancy control on that dive, drifting upside down in one of the natural channels of the reef. Trying to appear as natural to the environment as a scuba diver can, with a dark blue wet suit, air tanks, BC, octopus and everything else a scuba diver carries appearing natural isn’t easy. But try I do, the reward is the indigenous inhabitants don’t hide or scoot into the distance. It feels like I am swimming it a very large aquarium. I am very comfortable here, I belong here.

I remember a wall dive near Roatan, an island just off Honduras in Central America. Water so clear that the underwater visibility is measured in hundreds of feet. The dive boat anchors in five meters of water, about thirty meters from the drop-off that marks the edge of the wall. I exit over the side of the boat, signal OK, slowly release air from the BC and sink under the surface. My dive partner and I follow the dive master to the start of a valley that cuts into the drop-off. The valley cuts deeper and deeper, I glide down the decline like a bird comfortable in its three dimensional flight. Exiting the valley at a depth of 90 feet, we level out our flight then turn to see the wall. The wall extends left and right as far as I can see; looking down the wall descends into darkness so deep only the imagination can feel it.  I am a bird slowly flying next to a sky scraper, an enormous sky scrapper populated by millions of aquatic residents. I know this is a memory I will hold the rest of my life.

The wet cold of here and now bites me, concentrating my awareness. I think of the coming summer, no concrete travel plans yet. Ireland is on the top of the maybe list, with Akumal Mexico almost a sure bet. The dogs tell me they are hungry

I put the wind to my back, we head for the house.