Anti-Business and Dangerous

Via Hotair

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Fight of the Century: Keynes v. Hayak on Controlled or Free Markets

via Instapundit

From Econostories, a great music video on the Fight of the Century: Keynes v. Hayak - Controlled Economics v. Free Market

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Egypt and Democracy: Economics - Setting a Minimum Wage

During a short conversation on twitter, a debate occurred over the viability of setting a minimum wage in Egypt.  It is commonly understood that 43% of Egypt survives on $2/day.  Most of these are what is also commonly referred to as "day labor" wage earners.  In short, laborers who pick up work on a daily basis instead of being full time employees of a company or have even short to mid-term contracts for stable employment.  

At the same time, 23% of Egypt's workers belong to some form of union or syndicate that proposes to work for members' rights.  These have, in the past, been subject to government interference that included almost arbitrary acts of either minimal appeasement of demands or outright strike busting, either through police action or by government interaction/threats/co-opting union leadership.

Around 2% of Egypt's citizens/employed are either wealthy businessmen/land holders/investors or related top managers of firms.  Many of whom have had close relations with the last NDP regime or were basically co-oped by government due to it's high regulation, corruption, nepotism and various other problems that required some form of collusion in order to simply do business in Egypt.

Then there is an official 9.7% (appx) that are "unemployed" though this number could include those who work within the informal "day labor" sector having exhausted all other attempts at regular employment and, consequently, can be a higher or lower percentage during any economic drive or slump without registering any officially recognized radical change of "unemployment". With a 43% day laborer employment sector in a down turned economy, the real unemployment rate is likely closer to 18-20%.  This leaves a regularly employed, non-union employment sector between 17 and 22% of the employable population (43mil employment age means 7-10 million).

An interesting aspect of the revolution is the convergence of the middle class, educated revolutionaries with the very large underclass to bring down the regime.  Many of the underclass were called down into the streets with shouts about the cost of bread (and cucumbers, tomatoes, etc) and wages.  This isn't unusual for most historical revolutions. Economics, where there is a rising middle class who are eager for political participation and a still majority working poor underclass, have played a role in almost every revolution.  The issue that faces each of these revolutions is how to funnel that energy into both political and economic reforms that serve both of these factions' demands while not decimating the capital/growth sector.

One of the issues currently being discussed, in some cases as if it was THE economic plan, is the setting or raising of a minimum wage.  The current figure discussed is $1200LE (Egyptian pounds)/month.  At the current rate of exchange that is approximately $200 US, $6/day or three times the current average wage of 43% of population.  

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Disintegrating Japan and the Future of the United States:Taxes and the Debt Ceiling

Continuing yesterday's discussion on what the United States needs to do to prepare for the future in light of the disaster in Japan: Energy and Oil


Japan's economy will be offline for awhile meaning that it's purchases of foreign goods and materials will be severely diminished.  However, so will their capacity to manufacture goods along with their soon to be on going power issues from defunct nuclear power plants.  The United States needs to prepare, not just for the down turn or general change in the world economy, but to fill the needs that will arise as well as those that will arise from the future rebuilding.  Further, there is a probability, based on historical context, that this could bring about a new era of technology, structural engineering and materials.  


Currently, as Japan's economy is offline and the disaster is ongoing, so is Japan's demand for oil, diesel and gasoline.  However, without their nuclear reactors, they are going to need to switch up their power generation, most likely to coal and diesel fuel power plants.  Further, several refineries have been damaged or destroyed.  Where is the oil going to come from?  If it is simply taken out of the current supply system, the cost of oil, thus gasoline and diesel, will rise even further.  Second, where will the additional refining capacity come from?  


In the short run, current production and refining capacity will be hard pressed to fill the need.  An ongoing result of Middle East "unrest", pirates in the Arabian and Red Sea and our own policies that have decreased production and decimated refining capacity make it nearly impossible.  In the long term, we need to adjust our policies now to address those needs and stabilize oil and fuel prices to insure future economic growth.  Dumping US oil reserves into the market doesn't help at all.


At the same time, the US needs to prepare for a future of increased manufacturing and development of technology.  If we do not do it, another nation will and since the second largest economy is now China that will likely be China.  Putting China well on the way to becoming the number one economy as it has already reached the number one position in manufacturing.  As this report in 2006 suggests, one of the issues facing America is that it cannot compete with China's cheap labor or business oriented government.  We are also behind the line in regards to investing in research and development as well as educating scientists and engineers.


However, the United States currently has an official 8.9% unemployment (hovering around 9 million)  and an unofficial unemployment (in other words, those not filing claims anymore) is probably closer to 12% (close to twelve million or more).  That is a huge number of potential workers available for the development and manufacturing of necessary materials, products and technology, not only for the development of a new Japan, but for the continued growth of the United States economy and its advancement into the future of technology.


In order to move our economy forward, improve tax revenues to offset current debts, improve potential lending and re-orient our federal government to be more business friendly, the United States needs to do several things.


First, as both a short term and a long term re-establishment of the US as a business and investment friendly nation, congress and the president needs to re-assess the US tax code.  Currently, the United States corporate tax code is the second highest behind...Japan.  


It is very simple.  Businesses are set up to provide profits to its owners and dividends to its investors.  Taxes take an aggregated average of 39.2% of corporate revenue.  That is before profits are realized. This reduces the revenue left for everything else.  Not just profits and dividends, something that would surely keep any investor or owner/operator from considering development here in the US, but it reduces revenue left for paying employees, maintaining properties or expansion, capital investments in equipment or even purchasing products or materials from other companies that would also fuel employment, is hampered if not severely stagnated.


Add to that the current administration and Congress's health care bill that, on aggregate, proposes to add another $4,000 in benefit costs per employee to every company's ledger.  It does not take a Wharton School of Business graduate to know that, unless that company is a favored government industry (such as the new drive towards "renewable energy") that receives more tax credits, subsidies, guaranteed loans or other favorable government legislation that offsets these increases and more, opening a business in the United States is moving closer and closer to the "unprofitable" column.


In return, that decreases tax revenues and increases unemployment that further decreases tax revenues.  It's a vicious cycle that results in long term economic damage, deepens unemployment and slows development.


We cannot simply lower taxes.  United States spending is quickly reaching critical mass where no amount of increased taxes will offset the debt.  Making investment in US bonds and treasuries a non-starter.  There is no profit or interest realized on a country who's GDP can never overcome it's debt.  This is basic business, not just national or international lending practices.  

Investors invest in companies who carry debt every day.  What they are looking for is the potential that the company's future growth of income will be able to pay off that debt and its interest.  Even allowing that company to borrow again, grow again and pay off the next debt.  Even as it pays off the debt in incremental stages, revenue still remains to pay investors and share holders a steady stream of dividends over time.  

What happens if the company takes out major loans for capital investments and build outs, but does not experience the projected growth?  Investors jump ship, loan payments come due and the company, if they are lucky, starts "restructuring" its debt, sells some aspects of its business and revises its budgets to decrease costs.  Usually including lay offs of employees among its several moves.  If it isn't lucky?  Bankruptcy, selling off its assets to competitors that usually results in massive lay offs, etc, etc, etc.  Worse, they may go completely out of business, sell off assets to pay whatever creditors that can collect and then disappear from history.


Of course, a nation is slightly different from a business.  It's potential growth rests on more stable grounds such as available natural resources and it's human assets, it's citizens.  However, that doesn't mean that bad governance can't drive a country into bankruptcy.  Too many expenditures and not enough revenue with government continuing to spend like "drunken sailors" on projects and programs that do not support economic growth (ie, entitlement programs v. developing infrastructure, resources, products or "marketing") results in deficits that do not have offsetting revenue streams.  There are numerous countries right now either on the verge of bankruptcy or doing basically disintegrating economically as this post is written.  

The United States must...MUST review it's budget and expenditures.  It is not incorrect that a government can spend money to help the economy.  The question is, what are the expenditures and how would it help the economy?  Improvements in infrastructure such as roads and even the power grid can help the growth of business which, in turn, increases potential revenues to the government. Investments in social programs for "human assets" can have an impact as well, but they are less tangible and, ultimately, not as direct in providing revenue to pay off creditors.  

The US must be able to show good faith that it is willing to make necessary changes to grow the economy and reduce costs that will allow the US to continue to pay it's creditors back their investments with interest earned or allow them to maintain it as stable, ever more valuable asset in their portfolio.

On the other end of this equation, the US has to consider raising it's "debt ceiling".   In essence, the "debt ceiling" is setting the limit of credit and expenditures that the US is willing to carry and basically guarantees will be paid back. This is a matter of statute.  If the law does not allow the US to carry more "debt", it cannot take any additional loans to build infrastructure or pay off other debts with a higher interest rate than the potential funds that can be at our disposal (ie, potential for lower interest rates, thus, lower over all debt).  

It sounds contradictory to say so, even as we are talking about lowering our spending to improve our "credit rating".  What we are saying is that we believe the US economy will grow to the point where our debt is still more than offset by our assets and potential revenue/income.  


This is especially important if we expect to provide any funds or lend money to Japan for their own rebuilding.  Rebuilding that can lead to growth in the American economy.  However, it can't be completely based on  borrowing money to lend to someone else at a different rate.  We have to build our own funds.  Those must come from two aspects: 1) cutting costs to free up funds for a) paying down our debts, b) improving our infrastructure for the build to our economic, technologically advanced future; 2) cutting taxes to invite business development and investment that ultimately increases tax revenue to pay off debts and future developments.


This is what the United States has needed before the disaster in Japan.  Now that the destruction has occurred, the United States must put it's financial house in order to step into the breach as well as lend support to our friend and ally.  


To do less would not only place that ally in jeopardy, but would risk the future of the United States and all its allies in freedom. 





   

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Disintegrating Japan and the Future of the United States: Energy and Oil

Watching Japan disintegrate before our eyes, the ongoing disaster is nearly beyond human comprehension.  The scale of the loss of life and destruction of infrastructure has yet to be fully realized nor its true economic and strategic fallout.  


There are major predictions that this will impact the United States' economy, job creation and over all ability to borrow money.  The United States must be prepared for a long future with a diminished Japan economy in the world and strategic partner in the region. 


There are definite steps that should be taken now.  The demands of this once thriving economy will change drastically.  So will the demands of the world economy as the ability of Japanese manufacturers to meet the technological and automotive demands of their world consumers will also be seriously diminished.  There is also a likelihood of mass population displacement and migration.  

While all eyes are focused on the near future down turn, the US should be prepared to move to mitigate these circumstances and reposition our economy to fill the developing needs of both Japan and the world in general.  


First, while there is an immediate down turn in the demand for gasoline and oil, within the next few years, the demand will increase as Japan's energy consumption and supply likely changes.  With multiple reactor failures and the probability that these nuclear reactors will be inoperable, they will likely require more oil and coal to feed their rebuilding efforts and ongoing energy needs.  There is a possibility that nuclear energy will be slow to regain trust among the populace as well as the government's likely response to re-evaluating any builds based on knowledge of the engineering and structure failures as well as the ability to respond to disasters.  Further, Japan's own capacity to refine has been severely damaged.

Refinery Margins Poised to Surge After Quake If History Is Guide

“This is a super bullish factor for the Asian middle distillates and fuel-oil market,” said Akira Kamiyama, an energy derivatives trader at Mitsui & Co. in Tokyo. “Factories which have their own generating facilities will begin to buy diesel, while utilities will start purchasing fuel oil.” 

The US needs to evaluate the potential impact to US imports, supply and economics.  The rising cost of gasoline and fuel oils is severely hampering the United States' economy now.   Current attempts to change our energy supply are too slow and current administration plans represent unrealistic time frames without enough innovative or cost effective technologies.  The economic down turn has actually put projects to expand electric supply on hold.  In the meantime, the cost of the average utility bills for homes and businesses have increased by over 23%.

Food, clothing and other basic essentials have risen in direct relation to these rises. As this report indicates, there is an expected increase in diesel fuel demands.  Diesel fuel costs are directly related to the costs of these items.  Families and businesses cannot afford this increase.  The US needs to bring its oil production and refining ability up to meet near and far future demands.  The administration must review current policy on permitting drilling, existing delivery systems and capacity, and regulations governing refineries.  It may even need to review tax credits for oil industry development.

The administration needs to re-assess the time lines for development of other energy within the US.  These energy resources need to be explored and developed, but they cannot do so effectively, timely or cost effective in a down economy.  It adds to the burden over a long term instead of providing relief.  Further, it would be easier and simpler to develop these means in conjunction with developing economic regions in the US.  These regions can change depending on the changes in Japans manufacturing and development where the US may pick up this demand.

If there is any upside to this horrible event, it is that, in rebuilding, the Japanese and the United States have a unique opportunity to develop future efficient and affordable technology that will change the world as did the rebuilding of Japan after World War II.  There are current experimental technologies that are languishing without attention.  Technologies that go beyond wind farms, solar panels, LED street lights and electric cars. Innovation will come to the forefront and long ignored platforms, once thought too costly to produce, such as nanotubes or thin, flexible batteries, will become more affordable comparatively.  The potential is nearly limitless.  (nanotubes turn carbon dioxide into energy; integrated flat screen technology, strengthening structures, electric conductivity and other daily living technology from heating to heads up displays)

These advancements cannot occur when the cost to fuel plants and deliver products eats at profit margins of companies who develop this technology or want to invest in product development, hiring employees or in people being able to simply travel to work.  When gasoline prices have increased a hundred percent in a decade and, along with home energy costs, are taking a third or more of the average consumer's income, purchasing new energy efficient technology may be necessary, but it becomes equally and increasingly out of reach.  Those purchases provide the capital for research and development.

It is the circle of economic life and that life is currently slipping from serious condition to critical.  Therefore, it is necessary for the United States to re-evaluate it's energy plan.  Increased oil and gasoline production and refinement must be part of a rational and immediate energy integration plan.  This is not an "either/or" situation.  It must be together, or the United States cannot move forward.


On another note:  Japan is liquefying US treasury bonds and China is likely the next biggest buyer.  At the same time, China is now reported as surpassing the US in manufacturing:

China has passed the U.S. as the biggest manufacturer in the world, having 19.8% of world output in 2010. The U.S. lagged behind at 19.4%.

 

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Al Qaida Threats: It's the Economy Stupid!

Cross Posted At the Castle

Update: John Bolton discusses the terror alert on video

The FBI released declassified memo warning of a possible Al Qaida attack on US malls though they also caution against it's credibility. This type of threat has been made almost annually. The purpose is very apparent. The US economy is strong because consumers spend. If Al Qaida can damage the US economy, it believes it can damage our ability to project military and political power. Damaging our economy has been a primary objective of Al Qaida and like minded terrorists for almost two decades or more.

In 1993, ideological affiliates first attempted to destroy the WTC. They finally succeeded in 2001. The focus on these buildings were not simply symbolic. In 1993, though computer network systems were becoming more prevalent, financial information was either in physical files or on servers that were on the premises. After the 1993 attacks, with new technology and expanded computer network use, many companies had transferred their data management to large, off-site servers with back up tapes, building a dependable redundancy within the system.

It is unclear whether the planners of 9/11 knew that this kind of change had occurred or if it was considered important when any attack on the financial district could cause a panic. More so because the US economy had been in a slight recession for at least two years following the internet bust of 1999. Even without this recession, the attack would have and did have an impact on our economy. Over 1.4 million people lost their jobs within 30-60 days of the attack. While many have questioned whether the appropriate direction from President Bush was to "go shopping" in the aftermath of the attacks, it was explicitly meant to jump start the economy and stave off possible worsening recession or even depression in a post panic withdrawal.

Since then, Al Qaida has either threatened to attack, had their attacks interrupted or been successful against what are largely financially connected targets or represented a "strategic convergence". These strategic convergences are noted here:

Because carrying out these attacks are dangerous and operationally laborious, Al Qaida picks targets with three main objectives in mind: political, financial and psychological. The more spectacular attacks outside of Iraq usually represent an intersection or combination of the three goals in order to get the most "bang" for their buck.

Previous successful attacks included the attacks on Bali night clubs, the 3/11 Madrid bombings of the trains and the 7/7 London bombings of the trains. Further evidence of this fairly normal pattern can be seen in the attacks carried out in Iraq. Besides police, coalition and other government targets, Al Qaida operatives in Iraq targeted markets, gas stations, banks, business, electrical plants and lines, major transportation routes and other targets that represented a "strategic convergence" outside of military targets. Markets in Iraq became one of their favorite high density targets. Not only due to the number of people that frequent them, but because it damaged the economy and up the misery of the people, limiting their ability to exist.

Al Qaida has planned to use US dependency on foreign oil since the beginning of the "hot" war in 2001. In 2006, Saudi Arabia interrupted a plan to attack their largest oil refinery, arresting 172, capturing money and a large arms cache. In February 2007, Al Qaida issued another direct threat against US oil resources, prompting several countries to beef up security at their facilities. The threat to the US economy and military capabilities abroad posed by our dependence on foreign oil imports and threats to that resource continues to be very real.

Other financial targets have included the resorts in Sharm El Sheikh in Egypt as well as various tourist attractions in Morocco and other destinations.

While the FBI is quick to point out they do not have "credible" evidence that an attack is imminent and that the threats were posted on open, known, Islamist web sites that are "hit or miss" on their viability, the threats stay within the basic strategic paradigm targeting important financial points of American economy. More importantly because the threats come at a time of financial importance.

This is the holiday season when "shopping" and the money generated sustains many businesses and the economy as a whole for several months after the season has ended. It also comes at a time when the economy is starting to wobble at a precarious pinnacle. Oil prices continue to soar, the prime lending market has crashed and the stock market is showing signs of a real down turn while the fed continues to bolster it with inflow of cash.

Al Qaida has also suffered a major set back in Iraq where it's loss there represents a serious blow to their image and strategic interests. Even internationally, the Al Qaida network continues to be rolled up across Europe and the Middle East. Al Qaida has turned its sites on Afghanistan and Pakistan where they are now cornered in the last possible nation that offers protection and acceptance. It's the last front. If Al Qaida loses acceptance and bases there, they will have few, if any, destinations where they could set up such a large and centralized base for training, rest, refitting and planning.

Any other location would expose them to attack and probable destruction at the hands of the US or coalition partner (North Africa), Russia (Caucuses), India (Kashmir) or other nation as those states have very specific relations. The latest unrest in Pakistan provides them with an opportunity to gain ground and work towards possible domination of a nuclear, Islamic state. The unrest also causes a serious political conundrum for the US and continues to be a factor in the rising price of oil on speculation of regional explosions.

An attack on an external target in the west, particularly a financial or resource target, could be in the works in order for Al Qaida to gain some face after so many set backs. Including the slow destruction of their media wing through capture of their first and second tier operatives. They need a real media victory. It's likely this understanding that has Gen. Fils both projecting victory in Iraq and warning of a possible Al Qaida "come back".

On the other hand, an attack by Al Qaida during the upcoming campaigning season in the US could be a failure on their part. If they attack, they will boost the credentials of any candidate who is running strong on defense. This could damage the possibility of any candidate who is advocating a less robust approach to taking on Al Qaida and terrorism in general. At this point, Al Qaida needs the US to disengage if it is going to survive the next year or two as any cohesive operation with a centralized planning committee and large, open training camps to produce the fighters necessary to take on the US in Afghanistan or work against other allies in the region.

However, it would be inappropriate to dismiss these threats against the malls because they have not happened in the past when other similar threats were made. At least on two occasions, planned attacks on malls in the US and Britain have been thwarted. Many point to the seeming disconnect and "self starter" apparent franchising of these individuals and groups, placing them outside of Al Qaida central control or planning. However, most of the individuals have turned out to have attended terror training camps in Pakistan or associating with others that have.

While each attack or threat on these financially important structures is not necessarily centrally planned or directed, they all follow a similar pattern. Pointing to the probability that terror training camp includes instruction on choosing appropriate targets to make the best impact. Thus, adhering to the central strategy of Al Qaida, even if the plan doesn't come straight from Zawahiri or Bin Laden.

The big attack in Afghanistan was certainly a media making moment and included an attack on a manufacturing plant (economic structure) that provided a huge number of casualties for a psychological effect. For nations such as Canada and Germany where involvement in a "hot war" instead of peace keeping is a hot topic of public debate, it can have a serious impact on national decisions. For the US, it simply re-states the necessity to maintain force and redouble efforts in the midst of this strategic shift.

Yet, the attack also had negative connotations for Al Qaida which is why it and the Taliban are trying to distance themselves from the event by denying involvement. Al Qaida has a strong history of evaluating past mistakes and trying to correct them in future strategies and tactics. Zawahiri had written in "Knights Under the Prophet's Banner" that one of the things that precipitated the fall of armed resistance from the Muslim Brotherhood in Egypt was an attack on a government official that resulted in the death of a young Muslim school girl. This had turned public opinion against them.

The experience in Iraq must also be evaluated from their point of view since the repeated attacks on civilians, the oppression, torture and rape, among the many problems for Al Qaida, is what eventually saw their acceptance among the population of Iraq destroyed and their fighters driven out of various previously protected enclaves. The death of 59 school aged children at the hands of Al Qaida or the Taliban could end up being the event that makes them personas non gratis.

This doesn't preclude any attack on the west. Our current situation and Al Qaida's precarious situation may make an attack on the west at this time a strategic must for Al Qaida.

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From Russia With Love

There is a continuing paradox in Russia: the bizarre quasi-democracy, quasi-capitalist, quasi-power where everything is not so sweet and light under the thin veneer of all the queasy, quasiness.

BBC reports on the strange case of apparent growing affluence barely covering the potential crash and burn of the economy. Russia, though apparently full of local products, is still a major importer of goods and not an exporter. Except for oil and natural gas.

At the same time, the state, fearing the complete break up of Russia into many mini-states who can be manipulated and use their economic power (dare I say, energy power?) for their own benefit (cutting off the main land from exports/imports and any income from energy). Putin fears this most. He may indeed love Russia, but he loves it more than any principle or idea. He loves the land and being Russia. If it is a democracy, a kleptocracy, an autocracy or any other beauracracy, Putin doesn't care as long as Russia is Russian as close to the empire of old (evil or not).

It is this fear that continues to see Russia placing itself in opposition to the US even if it seems counter-intuitive; even onto manufacturing reasons to do so.

At the same time, continuing to do so has an advantage. It keeps oil prices high, which in turn helps keep Russia's economy afloat. That and sales of arms to opposing forces, sale of nuclear materials and building nuclear facilities, such as Bushehr in Iran.

To maintain this power, Putin believes the state central government must retain all power and, to do so, it must have a strong leader. One that is not subject to criticism. Whether these killings are simply a response to the age old cry, "who will rid me of this man?" or directly ordered, it doesn't matter. What does matter is that freedom of speech is going along with any democratic principles that may have briefly flourished in the last decade (along with economic and security instability).

Russians have done what Benjamin Franklin warned against: traded their freedom for security.

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Broken Windows Theory: Crime, Small Wars and Trash

I discussed Crime and Small Wars previously. It is important to understand how this works in guerilla warfare (small wars).

Crime fuels the insurgency. It provides it cover. It provides it money. It gives the illusion, along with the over all bombs and firefights (that do not represent the whole of Iraq) of insecurity. In reality, common crimes are as egregious as any acts of terrorism for these same reasons.

If we do not combat the crime, then we cannot combat the insurgency. Insurgents and terrorists are self-sustaining through these acts.

Watch this video on the Battle for Baghdad

Jeff Burris, Times Baghdad Bureau Chief, discusses how the Ba'athists left Baghdad with over $2 billion in stolen money from the Iraq Central bank. Since then, it subsidizes its activities through kidnapping, smuggling, theft, counterfeiting, stealing directly from oil pipelines and gasoline refinery to resale at profit and corruption.

The insurgency cannot be stopped simply by combatting insurgents or even the political process. It must become a losing proposition financially. That means that every crime in Iraq, no matter how small, must be addressed through "policing". This entails picking up people for petty theft, going after kidnappers aggressively (regardless of who they kidnap), painting over graffiti, cracking down on corruption and breaking the blackmarket (largely by providing legitimate means of income for non-terrorist related groups).

Second, real broken windows theory requires more from neighborhoods than turning on the insurgents. In order for people to feel invested in their neighborhood, responsible for its security and hopeful for its prosperity, more than "security" must take place. More than "political reconciliation" must take place. The residents must feel like they are responsible and have ownership.

MNF-Iraq - Muqdadiya: A neighborhood watch program has begun to show signs of success since its formation March 5. The program, which includes 15 villages
throughout the Muqdadiya district, hires local villagers to protect their village and
encourages the population to contact their security forces on criminal or terrorist
activity. “The idea is - to protect the village and to clear it from the armed people and insurgents,” said Dr. Abdulla al Jubouri, the former governor of Diyala and founder of the program.

Since the program began, Jubouri said there have been several signs of success
to include roads free from improvised explosive devices, fighting stopped between
what used to be rival villages, schools are re-opened, electric and water services have been repaired.

In broken windows theory, appearances are actually a very large part of the battle. Visual perception, like first impressions, can change the psychology and, thus, the behavior of a person, even whole communities and those they interact with, including would be criminals and terrorists.

Here is the Broken Windows Theory in Action in Ramadi

RAMADI, Iraq – Improving conditions in Ramadi’s Malaab, or “stadium district,” means shops are opening, schools are teaching and the garbage is piling up on the roadsides. Coalition forces have been largely successful in breaking the stranglehold terrorists held on the neck of this formerly affluent community, but the question has remained: Who’s going to take out the trash?[snip]

Even before the vehicle ban, regular trash pickups were intermittent, threatened with the ever present risk of improvised explosive devices. This, coupled with the travel restrictions, has led to heaps of rubble, garbage and other debris littering the streets. Cosmetic concerns aside, the litter posed a more serious concern for occupying forces and residents alike, improvised explosive devices. [snip]

The formula seemed logical. Cleaning the trash would cut down on hiding places for IEDs, making the area for service members and locals alike. Only now, with a diminished insurgent presence, is this cleanup possible.

“We just finished a large clearance operation, so a lot of people are able to come out now,” Lively said. “There’s a little more security now from the enemy activity, and now today, the civilians have asked us to come out and help them.”

The major catalyst for the cleanup has turned out to be the neighborhood residents themselves. Under the protection of Coalition troops, citizens came out in force eager to clean up their community. Wielding shovels, brooms and rakes, adults and children alike tackled the mounds of refuse with a will. Backhoes and garbage trucks operated by Iraqi police and soldiers cruised the streets, bringing towering heaps of trash to an impromptu landfill.

Appearance makes a huge difference, not only to the residents, but to those who would act criminally or be a terrorist in the area. Prosperous appearances not only give hope to the residents, but take it away from the crimnals and terrorists. Prosperity means that the community cares, is active and is watching. Watched communities are less susceptible to crime, thus, terrorism. Visible police and other security apparatus adds to the over all perception along with not letting any crime be considered "acceptable".

Third and finally, is economics. Jobs must be available. It does not have to be a large manufacturer. Micro-economics can move a communities economic status into that next level, one that is, if not making the people wealthy or even "middle class", providing a sustainable, stable and steady income.

One example of micro-economics can be seen in this book about Beauty Salons in Kabul, Afghanistan.

In Iraqs current climate, this must be a cash business, portable and/or appropriate for Iraq. Should be small businesses that require little cash to start up. This is where NGOs and other charitable organizations would be usefull.

It could include such things as basic services, including trash clean up, for the community. The important aspects is to make crime expensive and honest work lucrative. It has to take the young men off the streets and out of the potential hands of the insurgents.

This is on a micro level. The problem that we continue to have has been the "big" projects, like electric grids, that never could and will not in the near future, provide effective supply to Iraq for years due to its size and condition (however slowly it may be improving, it can't keep up with the demand, even in relatively peaceful and prosperous Kurdistan). It may need to be done, but what people needed was a way to survive immediately and that survivability is not only security, but money. The way they get the money is the question.

Plant an IED? Or, make shoes? Smuggle blackmarket items or manufacture bottled water? (a must in Iraq considering its sewage and water treatment problems).

Run a local five and dime? Or, kidnapping?

That is Broken Windows Theory in a nutshell.

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Gasoline Prices: Prepare for a Pain in the Wallet

Between the Iran Crisis and the impending nationalization (take over) of oil fields in Venezuela, world consumers should prepare for a deep pain the wallet.

Once recognized as a world leader among state-owned companies, PDVSA today is a troubled entity struggling to cope with responsibilities that far exceed merely pumping oil. Ch?vez taps the state-owned giant to finance an array of social programs at home and to cement his regional influence through subsidized oil exports to allies such as Cuba and Bolivia.[snip]

If an overtaxed PDVSA stumbles, the United States could feel the reverberations. In January, Venezuela, a leading member of the Organization of Petroleum Exporting Countries (OPEC), was the USA's fifth-largest source of imported oil, shipping 955,000 barrels of crude each day. That figure is 23% below the level of one year ago, reflecting the aging of Venezuela's oil fields and its compliance with OPEC production quotas.[anip]

Today, employment exceeds pre-strike levels, and Venezuela claims to be producing 3.3 million barrels of oil per day. But the International Energy Agency in Paris puts current production at 2.43 million barrels, and analysts say PDVSA continues to suffer the lingering effects of the political battles that consumed it in recent years.[snip]

Just to maintain current production, PDVSA must invest $3 billion annually in its aging fields, EIA says. But Ch?vez has drained PDVSA's coffers to fund generous health, education, literacy and food programs, leaving insufficient funds for its core operations.

The oil company's obligations to the poor appear to be mushrooming. PDVSA last week disclosed that it spent $13.3 billion last year on social programs, almost twice as much as in 2005 and more than it invests in its oil operations.

Incredibly, at a time of sky-high oil prices, the company's net income last year fell 26% to $4.8 billion on $101 billion in revenue, according to unaudited financial results published in Caracas. That's less profitable than other state-owned oil producers such as Norway's Statoil, which last year was twice as profitable as PDVSA in terms of net income as a percentage of revenue.[snip]

In addition, Venezuela is over stating it's current production. Venezuela says it is producing 3.3 million/bbl when the EIA puts it at 2.43 million (and falling if needed investment in the infrastructure is not made). Second, PDVSA is claiming that it will boost oil production to 5.8 mil/bbls per day by the end of 2008. Most experts say these projections "lack credibility". Third, Venezuela is claiming that it's exploration will boost it's "reserves" to 316 bil/bbls, replacing Saudi Arabia as number 1 in the world.

The real tell is here:

The new Orinoco contract terms, however, will raise the break-even price of the four projects from about $18 per barrel to $35, Sira says. And that change, coupled with the political risk associated with operating amid an uncharted socialist revolution, means the private oil companies are unlikely to make the additional investments Venezuela needs.

With the rise in price and the lack of investment that will most likely result in a decline in production, world oil prices will continue to rise and world consumers will feel a deep pain in their wallet. Particularly, consumers in the United States.

Publius Pundit notes that other Latin American nations are boosting their sales to the US: Brazil and Colombia. Publius says look for a possible re-alignment of security. This shift has been coming for awhile since the introduction of CAFTA that President Bush signed into law in 2005. Hugo Chavez has opposed CAFTA for several reasons. He opposes US "interference" in Central America. He may believe that Central America should become its own "sphere of influence" and support each other. He's made several attempts to bring other nations into his "sphere" including Bolivia and Argentine. He may also believe that trade agreements with other Central American countries, especially those with energy resources, will undercut Venezuela's trading power.

The key to continuing economic success in the US is a stable energy resource. Stable energy resources come from diversified investment and imports. The question is whether this diversification and improved production in these nations can offset the problems Venezuela, Iran and the continuing ME crisis are causing.

Your pain may vary.

***Heh. Even the Ayatollah of Iran knows that it's Economic Warfare among other things:

Ayatollah Khamenei called “psychological warfare, economic war, and countering the scientific development of Iranian people” the three main approaches of the enemies.[snip]

Pointing to the enemies’ “economic war” against the country, he said they want to put the people in a difficult economic situation but with the announcement of the Article 44 of the Constitution and a serious effort by government to implement the privatization plan a new opportunity has been opened for economic recovery in the country.

Pointing to economic threats against Iran for its nuclear program, he said, “the Iranian nation has developed and gained access to nuclear energy through such sanctions and therefore don’t scare this nation of sanctions.”

You think?

Everybody thinks.

(h/t Pajamas Media)

Apparently, the United States will attack Iran at 4 AM on April 6 (Good Friday). I don't believe it, but it is some interesting propaganda.

Summary only...

Economic Warfare: Iranian Economic Crisis and the British Sailors

We're not going to attack Iran unless they actually put on trial or kill any Brit. Then, all bets are off.

In the mean time, I haven't had time to post on it previously, but Iran is about to implode Soviet Style. I'm not going to suggest a date, but the writing is on the wall if you know where to look and are looking at something other than British Tars and jollies, Iran's "sovereign waters" or their Nuclear ambitions.

Long before the current sanctions, the US was already pressuring banks and other financial insitutions to limit transactions with Iran starting back in Sept. 2006. Largely because Iran was acting like any rogue regime and not being forthcoming about where the money was going. Iran was also trying to cover its tracks, keeping the Iranian name off of many transactions.

In a Washington Post article from March 25, the details of this program were laid out, including comments from the Iranian Oil Minister about how damaging its been to their oil infrastructure (already old and decrepit) as well as the Minister of Trade discussing the difficulties importers are having in getting goods in to sell (Iran having all sorts of problems that require net importing of basic goods) because they now have to pay in advance to obtain these goods instead of relying on revolving lines of credit.

The recent UN sanctions simply formalize what the US has been trying to get done on an Ad Hoc basis.

The other signs are there, too. March 22 report from lebanon indicates that Hezbollahs South Lebanese constituents are unhappy because Hezbollah has yet to begin providing promised compensation for damage or building much needed infrastructure. Of course, the two week fight with Israel didn't help Hezbollah's wallet, but they usually have money coming in from their major terror supporter, Iran. No such thing is occuring right now.

The second, and most obvious, is the Iran/Russia dispute over the lack of payment for the monthly construction fee on the Bushehr nuclear facility. The Russians are saying it's one month, the Iranians said they were not behind, but suddenly were able to scrape together a half month's payment? The Russians pulled out all their people and said they'd be back when they got "all" the money.

The third tell are the recent, continuous teacher protests for almost two months, every week. The Iranian teachers union has been protesting the lack of payment of their salaries, the low salaries (compared to the rest of the government) and the generally bad facilities.

What really killed them was the precipitous drop in oil prices (from $72 to $58) last November right after many banks stopped giving them "credit". This was because short term, high risk oil future traders divested themselves of a lot of future shares. Winter weather projections did not sustain the need for high reserves (and, since they were all American traders, may have had a whisper in their ear).

Even though oil has risen back to $62/bbl, the entire loss to Iran is about $13 billion and counting. Not much to us, but for Iran, that's 10% of their entire yearly revenue of 143 billion. When their yearly "official" budget is $168 billion (2005), not including extraneous support to Hezbollah, Iraq Shiites and other terrorists, and annual revenue is 143 billion, they are about 25 billion short on a good year (previous years may have been more or less underfunded).


Since Iran is based on an Islamic economic structure, where they can neither invest in interest baring bank products, nor except loans with interest attached, getting the difference to make up this shortage leaves little choices. In an Islamic economy, they get around this somewhat by paying or accepting "management" fees or "rent" on loans.

At least half of the reason for the original Islamic Revolution in Iran was based on economic reforms making it more "Islamic" and thus more "equal and just". During the time of the Shah, there were extreme differences between the highest and lowest classes and with the strain from the Shah's forced "westernization and industrialization", it simply exacerbated the situation as the poor congregated it even greater communities in the cities seeking low paying manufacturing or oil industry jobs.

Like most "revolutions", it is not solely (or ever) about ideology so much as it is about finance. Thus, the Iranian Mullahs are adamant about complying with the Islamic model. If they don't, the entire cornerstone of the revolution ceases to exist and so do they.

In that case, the only way for the Iranians to meet their obligations as well as maintain their Islamic financial system is to take advances on their oil revenue from the oil companies. Some experts believe that Iran has already taken up to 10 years of revenue in advance.

Oil production has plateaued and may begin falling due to the inability or lack of desire in investing in this infrastructure. Previously complicated by US laws that penalized companies for investing more than 20mil in Iranian business, fortified with US actions in September and new sanctions on March 24, the ability to maintain Iran's oil economy is becoming impossible. Iran now produces 3.5 mil/day. At the height of the Shah's reign, it produced over 6.6 mil/bbl/day Even with a slow increase the price of oil, Iran will be hard pressed to recover because 50% of its revenues are directly related to oil and natural gas and 70% comes from exports.

If you can't pump out enough, if sanctions keep investments from coming in, if you have to pay for things "in advance", if you continue to take advances on future oil revenues that you probably cannot afford to pay back and your economic system prevents you from making investments or making loans that could cover your expenditures, you are in bad financial shape.

Other issues that compound the situation and lend credence to Irans current financial crisis are the 11% "official" unemployment rate ("official" because most economists believe it is understated and closer to 16%) and the 16% quarterly inflation (again "official" because some experts place inflation at 20-21%). This inflation offsets most gains from the increase in oil prices. For any other country, that's a depression.

Add to that 44% of the population is employed in the "service sector", including government, military, education, health, hotels, airport, police, etc, that are all run and operated by the government or its agents (the Iran Revolutionary Guards Corps operate the air port and various other service sectors under contract). The IRGC also manages most of the construction business in Iran, limiting foreign investment and distribution of income among the populace. Another 30% of the population is also employed in the oil and natural gas sectors, largely owned and operated by the Iranian government. Banking is also controlled by the Iranian government.

That leaves approximately 10% of the population that owns and operates private businesses. Most of these are small "mom and pop" businesses such as bakeries, tailors, bookshops, etc. Very little manufacturing or other industries can flourish in Iran. In fact, Iran is a net importer of just about every kind of everyday goods from agricultural items, food stuffs, basic machines (TVs, washers, driers, even cooking utensils, cooking oil and pans), hygiene, textiles and so on.

It's a recipe for disaster and it is quickly looming for the Iranian government and economy.

In the March 25 WP article, a US treasury official was quoted saying that they had no idea the Iranian economic condition was so bad. Clearly, they weren't looking very hard.

Many editorials and blogs have been attacking the UN sanctions as "toothless", but that is far from reality when you take into account the Iranian economy. Excluding them from regular banking practices and available credit places them in a very bad situation.

In fact, while everyone is distracted with the question of whether the British Sailors and Marines were taken due to the sanctions and its effects on the Iranians nuclear ambitions, the real issue is the effect on their economy.

Very likely the Iranians are looking to extract some concessions from England to let some of the pressure off of their financial situation. Especially, because the British bank HSBC is one of Irans major banking partners and "lenders". It's the same tactics the Iranians tried in June 2004 when they took 8 Brits hostage and released them after 3 days of negotiations directly after the Brits have drafted the first "rebuke" to Iran from the IAEA (International Atomic Energy Agency).

The Iranians are playing a very high-stakes game. Aside from this act of war (considering it is the second time they have done it), or at least a revision of the Barbary Pirates holding British sailors for ransom, they have bit off more than they can chew politically and economically.

The Iranians are trying everything to reverse their economic spiral. Ahmadinejad recently visited Hugo Chavez in hopes of making a trade agreement with Venezuela as well as looking for an ally in OPEC. Venezuela currently chairs OPEC. The Iranians were hoping to get an emergency meeting with OPEC to reduce oil production among OPEC nations in order to further inflate the price of oil and help Iran out of its financial crisis.

This is the other reason that Iran has been trying to get a toe hold in Iraq. It desperately needs economic partners and OPEC partners to offset the Saudi/Gulf Arab influence. Finally, the Iraq alliance would cement an "arch of influence" from Hezbollah in South Lebanon, Syria, Iraq to Iran, isolating US allies in the south.

Unfortunately, the Saudis and Other Gulf Arab nations aren't interested in saving Iran since they see them as THE major destabilizer in the region now that Saddam is gone.

That means that Iran is in a hole with very few (if any) friends.

In fact, the Saudis and Egyptians are helping it along by even their mild or unbelievable threats of meeting Shia aggresion with their military or financially supporting Iraqi Sunnis. The Iranians responded by first financing more Shiite weapons and militias in Iraq to try to solidify control.

The final indicator of the Iranian economic crisis is reflected in the disappearance of al Sadr from Iraq, the Mahdi army from the streets and the uptick in inter-sectarian violence in Basra in South Iraq where SCIRI and DAWA are once again fighting for control of the region now that their benefactor's (Iran's) money is starting to slow down.

Just another sign of Iran's current cash crunch.

War is most likely not necessary. Even if Iran wins some concessions from England, even if oil prices continue to rise due to the current crisis, none of it will save their economy and none of it will save the Mullahs.

On the other hand, it is hard to know what the Mad Mullahs will do when backed in the corner and going down for the count. Still, they'd have to be really "mad" to risk open warfare.

One must wonder why the US congress is willing to leave Iraq, allow Iranian dominated Shia political parties to gain unchecked control, provide Iran with an economic and political ally when Iran is just this side of a Soviet Style Implosion?

Wall Street Journal: French Total and the Bribed Iranians

Other related posts:
Economic Warfare: Axis of Evil
Russia-Iran Matrix
Iranian Kursk (money and parts for military equipment maintenance lacking)China-Iran Matrix
Economic Warfare: Send them Levis
Iranian Dissidents use Nuclear Crisis to press for freedoms
Freedom is the Fire

Cross referenced at the Castle

Summary only...