The other nite I caught about 30 seconds of Charlie Rose on PBS with his guest, former sec Jim Baker. Baker was telling how Reagan's policies were pro business and fostered business expansion while Obama's are otherwise. That's an opinion you hear a lot of.

I want to comment about "the Reagan recovery."

In the early years of Reagan's 1st term, the economic outlook was dismal. We had just had inflation that was killing us, killing savings, causing interest rates to be high and unpredictable. At times it was good to have savings; I remember getting 15% interest (yes, that is fifteen percent, not 1.5% or the .15% that you might get now) on 10K CDs at the local bank. All the while there was an atmosphere of uncertainty and gloom. Marty Zweig came on Louis Rukeyser's Wall Street Week and looked hang-dog and as though he was chain-chewing Rolaids and said "there are good investments out there, if we can avoid a depression."

Then, inflation came down and the stock market soared and the recovery began; if I remember correctly the longest bull market except for the one in the 1930s when the stock market roared back even as the nation was still in depression. It got to where investors hoped to see appreciation of 70% a year, and shopped for mutual funds that showed that kind of record! (The influx of money into a highly successful fund of course drove the fund down, but few were thinking about that.) Totally crazy and unsustainable, but that's how it was.

Back to the point. What Baker overlooks is that this is a very different time. The structure of our economy is different. The savings rate is different, consumer debt is different, the proportion of wealth in home equity is different. The financial sector is wildly different from 1981, in its percentage of the economy and in the variety of securities that have been invented since then. The distribution of wealth among our citizens is radically different, with a greater percentage of the wealth belonging to the wealthy.  The middle class is disappearing.

And energy costs. Energy cost is a multiple factor in every human activity, and when energy costs are high, the cost of everything grows higher disproportionately. Reagan was lucky that the price of oil dropped early in his presidency, and that drop set off the boom in the stock market.

It was more than luck. The Saudis wanted to buy fighter planes and AWACS aircraft, and there was opposition to letting them have state of the art military tech. King Fahd's plane landed near D.C., and Reagan went on board to have a secret pow-wow with Fahd. What followed was this: Saudi Arabia would get it's planes; and perhaps linked to that, they increased oil production and undercut OPEC, lowering energy prices world wide. In my opinion, that, more than anything else, was the secret to the business recovery of the Reagan era, not Reagan's policies per se.

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Rig count.   The number of all petroleum drilling rigs in use.   A measure of how actively the industry is searching for oil.
  
You used to find this number every week in the Lubbock Avalanche Journal.  Now you can find it at various places such as http://www.ihs.com/products/oil-gas-information/drilling-data/weekly-rig-count.aspx and http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm

The current U.S. rig count is 1979 as of March 30, 2012, from the Baker Hughes website.  That is close to what it was through the period 2001-2008, during the Geo W. Bush presidency.

Here is a comparison of the decade 1973-1983 compared with 2000 through 2008.   This is from a Rigzone article dated December, 2008 and is from Baker-Hughes.
[img]http://images.rigzone.com//images/news/library/other/13/5606.jpg[/img]

As you can see, the rig count soared during the Carter presidency and then plunged drastically about 1981-1982, the early years of the Reagan presidency.    Why?   The price of oil fell sharply on world markets.    Why?  The price of oil dropped drastically at that time because Saudi Arabia exceeded OPEC's targeted oil production.   Why did the Saudis increase production?   Because of a secret deal with Reagan.   Ronald Reagan destroyed the oil industry in West Texas -- or more accurately, set it back by decades

Curiously, no one burned Reagan in effigy in Levelland or Brownfield.

And some accuse Obama of being hostile to the petroleum industry and to business in general?

More Walter E. Williams Vomitus

Some Walter Williams columns kinda sorta make sense even if they are based on flawed reasoning. This column doesn't pass the semi-rational test. http://lubbockonline.com/editorial-columnists/2012-03-26/williams-cities-liberal-agenda-dont-serve-black-residents#comment-216063

Williams uses crime as an index of how "the liberal agenda" has failed. But criminal laws are the same, whether one is in Detroit or in a wealthy white Republican enclave in the same state. Miranda rights are exactly the same.

Indeed, you will find that a particular crime is likely to bring a stiffer sentence and higher probability of conviction if the defendant is black. So in Scarsdale, a white defendant is more likely to get probation than a black defendant in Buffalo. This is the reverse of what Williams is claiming.

If you look at the realities of arrests and sentencing and the criminal justice system as a whole, whites get more liberal justice than blacks.

Why then did the murder rate increase after the 1950s? Was it liberalism? Or was it the growth of the drug culture? Was it increased prosperity in the black population? Were more blacks able to buy guns than before? Was it because of the flight of whites from inner cities? Increasing population? Was it because of the pervasiveness of modia and advertising and the bitterness blacks felt about being denied a part of the American dream? All of these are possibilities.

And an economist should be aware that the structure of our economy has drastically changed. The trend has been toward more low-paying jobs and high-pay highly skilled jobs with little in between, which has been a total social and economic upheaval in this country.

Wiliams doesn't come out and say that a higher black crime rate was linked to the civil rights movement and an end to segregation but he might have; the correlation is there, and he is basing his argument on correlation.

Mr Williams is a rare species, a rara avis, because he is black and conservative and Republican. And so newspapers like the AJ can put his column up against their masthead and feel righteous and PC as they accomplish two ordinarily incompatible goals, having a black columnist on their editorial page and at the same time serving up more conservative drivel.

No Choices Come November

I'd love a choice to Ivy-League Obama and his Wall Street Whiz Kids.   Romney Incorporated is more of the same, plus lower taxes on the rich and less regulation of big companies and big markets.  Sanctorum and the Grinch are way out in Nuttsville, USA. 

Legalize Cannabis?

Here be a comment I posted to a letter to the editor of the local newspaper.

Like policemen, prosecutors have a rather limited and jaundiced viewpoint of their fellow humans.

Quite likely, more than a few of Mr. Spears' fellow lawyers and judges, and even prosecutors and policemen, have used and are using marijuana. His experience was with the sad cases, where defendants abused every illegal substance they could get their hands on.

I've never used marijuana, but to me when it comes to harm, marijuana is not in the same league with alcohol and tobacco, which are all too legal to market, sell, possess and use.

And if you talk about gateway drugs, the true gateway drugs are -- alcohol and tobacco.

The drug war is having two significant effects. (1) It has made many Americans criminals, as Robertson says. (2) It has created and feeds a monstrous criminal enterprise that profits on the American appetite for illegal drugs.  

In my opinion, we need to trust and to educate our people to make good choices. We need also to give our own farmers some of the profit available and put as many narcotrafficantes out of business as we can.

The reason why so many dollars go south to profit criminal enterprise is our failed drug policy. Drug laws are little obstacle to the stronger laws of human nature and supply and demand.

Trade Imbalance and Consumer Goods

Economist/conservative columnist Walter E. Williams wrote this week that the trade imbalance is not worth worrying about, since dollars flowing abroad go partly or mostly toward purchases in and from the USA.

I think Williams missed the point, an gave us a faulty analysis.   My own perspective is that the consumption-based economy is destroying us, and a significant part of that viewpoint relates to imported consumer goods.   Here is my response to what Williams wrote:
 
Williams wrote:
"When I spend $100 at the grocery, my capital account (money) goes down by $100, but my goods account (groceries) increases by $100. My grocer’s goods account decreases by $100, while his capital account increases by $100."

But this is not true of consumer purchases in general, and much of what we Americans buy from abroad are consumer purchases.

With consumer purchases, when you spend $100 you get an item that is worth LESS than $100, that you cannot resell for the same amount that you paid for it, even if it is in excellent condition, because it is now used. So your $100 buys consumer stuff you can immediately resell for $80-95.

Virtually NO consumer purchases have a chance to appreciate in value.  Guns 'n' gold excepted, and gold and gems sold to consumers has such a high mark-up that it is useless as a store of value.

When Sony -- to use Williams' example -- buys American stock or American real estate, they are getting an item that may well GAIN in value, not instantly depreciate.  

And so we are like the Indians who sold the Island of Manahatta for $20 in trinkets: exchanging guns for glitter; trading what is genuinely valuable away for junk that gives us brief pleasure but has little other value; or, to look at it another way, buying the contents of next year's Goodwill donation or garage sale.

And so-- we constantly impoverish ourselves, getting the worse of each consumer purchase, because we have an consumption-based economy. Williams may be a good bookkeeper, but he is not an economist.

Flawed Thinking About the Imbalance of Trade

Today in his syndicated op-ed column, Walter E. Williams argues that there is no trade deficit.

Williams wrote:

"When I spend $100 at the grocery, my capital account (money) goes down by $100, but my goods account (groceries) increases by $100. My grocer’s goods account decreases by $100, while his capital account increases by $100."

But this is not true of consumer purchases in general, and much of what we Americans buy from abroad are consumer purchases.

With consumer purchases, when you spend $100 you get an item that is worth LESS than $100, that you cannot resell for the same amount that you paid for it, even if it is in excellent condition, because it is now used.    So your $100 buys consumer stuff you can immediately resell for $80-95.

When Sony -- to use Williams' example -- buys American stock or American real estate, they are getting an item that may well GAIN in value, not instantly depreciate. 

And so we are like the Indians who sold the Island of Manahatta for $20 in trinkets:  exchanging guns for glitter;  trading what is genuinely valuable away for junk that gives us brief pleasure but has little other value; or, to look at it another way, buying the contents of next year's Goodwill donation or garage sale. 

And so-- we constantly impoverish ourselves, getting the worse of each consumer purchase, because we have an consumption-based economy.   Williams may be a good bookkeeper, but he is not an economist.