why no spiritual descendent of the VW Beetle?

The great thing about the original beetle - the reason there are still so many around today - was the fact that it was designed to be maintained by the owner.

With every passing generation of cars of every make, user maintenance moves further and further into the realm of myth. Because of this, there is no modern-day spiritual successor to the original beetle.

VW is expected to start selling a small rear-engined economy car called the up! that they consider fits the bill. If modern VWs are anything to go by, it will be anything but. Instead, it will be filled with all sorts of impenetrable electronics, a sealed-until-failure transmission, and engine components that cost hundreds of dollars apeice hidden under ugly plastic cladding that requires specialized tools to remove.

That being said, the up! is a cute one that I would consider purchasing if I didn't live in the land of 5000 lb full size trucks that sell for less than the average import economy car goes for (if you haven't heard, you can now buy a brand new base model Ford F-150 for $13k - about the same as a smart fortwo).

you heard it here first: single global economic system

Just a few days ago, I mentioned how we have a collection of National banking systems failing to respond effectively to a Global crisis.

I have no doubt that economists have been talking about the reform or replacement of the collection of ineffectual loose agreements we have today for decades - the parallels to the League of Nations are overwhelming. But, today is when I saw the first remotely mainstream discussion of the subject - in the financial media.

I also have no doubt that any of the proposed changes will have any useful impact on the current crisis. This crisis is just getting started still, with house prices across the planet still excessively high and falling - destroying wealth and taking the economy of those invested in housing wealth and its derivatives with it (including the unfortunate Icelanders, who are talking about how they have 3 to 5 weeks of imported food left to eat before they have to figure out a way to convince somebody to accept their currency). It seems to me, the main function of any UN of the Economy should be to have the powers to keep individual nations from getting so wild and crazy in the first place to prevent this kind of thing from happening again.

international context

the house price crash may have started in the US, but declines are now global and nearly universal across markets, according to the IMF.

house prices, it seems, are the opposite of local.

the repricing of risk and associated deleveraging, evaporation of trust and credit, it seems, is a global issue.

too bad we don't have a global institution that can do something about this - like prevent it from happening again.

US doing something right

With all of the negative talk about politics, corruption, and the unfortunate collection of irrelevant (and often false) personal attacks against any person who catches even a tiny fraction of the world's attention, I was happy to see that the US bureaucracy is actually doing something good:

Free wireless internets for everyone.

"The idea of handing out airwaves potentially worth billions didn't go over very well at the agency. But in May, Mr. Martin proposed auctioning off the airwaves to a company willing to set aside some of its airwaves for free use.

The network would have to reach 50% of the U.S. population in four years and 95% within a decade."

So, you'll get free basic service as a teaser for a subscription-based service. Let's just hope the basic service is good enough to carry a phone conversation so millions of us can get out from under cell phone plans.

single global economic system

A single global currency is inevitable and the ongoing global financial crisis has precipitated another small step in this direction when all of the major central banks around the world announced a coordinated financial easing policy. Just like it took a world war to create the League of Nations and second world war to create the UN, this financial crisis will help create a financial UN to displace the IMF (which in this analogy is the similarly ineffective and ill-fated League of Nations).

As an aside, I don't think these rate cuts will achieve anything useful re: the current crisis. The fundamental problem is excess debt and the solutions so far have been attempts at making debt easier to acquire. How will encouraging people to take on more debt solve the problem of too much debt?

But that is unimportant. What is important is that it is becoming obvious to everyone that we live in a single tightly interwoven international economy that cannot be controlled by individual national institutions. When this crisis eventually passes, there will be efforts to create something like a UN for the central banking system, though hopefully the design of this institution will take some of the lessons from the successes and failures of both the UN and the European Central Bank.

In the long run, as this institution is seen to be effective, there will be increased pressure to move to a single currency, by adopting the dollar, the euro, or the yuan or creating a new currency.

All of these actions will be supported by the markets because they will reduce risk. Lower risk means greater long term returns on investment.

So, that is the silver lining for the financial crisis, if you were looking for one.

sufficient grain supply? continued

Some time ago, I posted about how some people had convinced themselves that food was becoming permanently too expensive for increasing portions of the population because of Biofuel policies. Specifically, I posted about how silly I thought this idea was.

At the time, wheat futures had doubled in the previous year and looked ready to rocket off to infinity - effectively pricing everyone out of food. Some economists saw this for what it was - a speculative bubble. Some environmentalists saw this for what it wasn't - a sign that poorly design biofuel policies were making poor people starve.

The update is that wheat futures are back down to where they were a year ago - and are rapidly falling. Considering that the biofuels policies haven't changed, but speculative investment strategies have, this seems to indicate that were we looking at a speculative investment bubble.

That being said, I do still agree that the US biofuel mandate should be modified to exclude any fuel made from food sources. Converting corn sugars into Hummer Juice just doesn't make sense from an energy or food perspective.

expensive vacation timing

first, i went to Australia in April when the USD basically hit its 5-year low vs the AUD at an exchange rate of 1 USD to 1.05 AUD. the same trip today would have cost about a third less, since a Benjamin buys about 140 AUD today.

second, i went on a long road trip over the last few weeks - about 4k miles worth. we paid pretty close to $4 most of the way. today, the national average is $3.45 and falling. given the current plummeting price of crude, i think we'll see gas at the pump break the $3 barrier before New Years. January this year, crude was at the same price as it is today and gas was selling for $2.97.

the overarching theme here being that the world is realizing that while the US economy may not be in the best shape, the rest of the world has their own subprime financial issues that they'll have to freak out about at some point. that, and i have a pretty luxurious job that allows me pretty frequent vacations.

can we please have a balanced playing field?

Technology-specific subsidies (like the loan guarantees for nuke plants and wind energy tax credits) are extremely effective at preventing innovation and encouraging permanent industrial reliance on government funding.

Subsidies are necessary to bring new tech concepts to commercialization and that is where they should stop. Subsidizing mature commercial products of any variety - coal, nuke, wind, or solar - is socialist and inefficient.

CO2 is a problem, coal plants themselves are neutral. Reducing CO2 production is a good thing, wind farms themselves are neutral. The incentive process should reflect this. Instead, the current incentives encourage coal plants and encourage wind farms more.

If we want to reduce CO2 in the atmosphere, all we have to do is remove all subsidies of mature technologies and establish a carbon market that makes CO2 production expensive and CO2 removal from the atmosphere profitable. This must be done in as simple and transparent a way as possible and must be a worldwide effort.

Since a worldwide effort is obviously impossible today, a CO2 tax/subsidy could be established for any product entering or leaving the country. This tax/subsidy would tax any imported product based on the estimated CO2 emissions of production and would refund the CO2 taxes charged against any product exported. This would prevent companies from moving production overseas to avoid CO2 costs.

#1 problem with this idea: it combines the Republican love of markets with the Democratic insistence that CO2 emissions matter.

#2 problem with this idea: all mature industries that are currently subsidized for shortsighted historical reasons would oppose a balanced playing field. Unfortunately, this list includes wind energy, so neither Coal-State Republicans nor Renewable-Mandate Democrats could support it.