More Cost/Benefit Foolishness

You can read another example of the foolishness of Cost/Benefit analysis in the story from the NY Times below. At least the governor of Florida realized that the phony numbers would leave Florida with a huge, ongoing debt if the phony numbers were accepted. Good for him!!

Florida’s Governor Rejects High-Speed Rail Line, Fearing Cost to Taxpayers

By TIMOTHY WILLIAMS

In the most significant blow yet to the Obama administration’s vision of a national high-speed rail network, Gov. Rick Scott of Florida on Wednesday rejected plans for a high-speed link between Tampa and Orlando, in the process turning down more than $2 billion in federal money.

Mr. Scott is the third newly elected Republican governor to turn down a portion of the administration’s national rail system, joining John Kasich of Ohio and Scott Walker of Wisconsin. Each of the three replaced governors who had lobbied for the funds.

Mr. Scott’s move comes a little more than a week after Vice President Joseph R. Biden Jr. called for spending $53 billion on passenger trains and high-speed rail projects over the next six years as part of the administration’s goal of making high-speed rail accessible to 80 percent of Americans within 25 years.

The 85-mile Tampa-to-Orlando segment, on which trains would travel as fast as 170 miles per hour, was to be the showpiece of that initiative — in part because the government already owned much of the right-of-way along the route, which would allow it to be built relatively quickly, and because the fast-moving train would contrast with slow-moving traffic along Interstate 4.

But critics — including the Republican majority in the House of Representatives, which has questioned the White House’s rail strategy — say the need to link Tampa and Orlando pales in comparison with the need for high-speed rail serving places that have received relatively little in federal economic stimulus funds for transportation projects, including the busy Northeast rail corridor between Washington and Boston.

Mr. Scott said at a news conference in Tallahassee on Wednesday that cost overruns related to the Tampa-to-Orlando line could leave Florida taxpayers stuck with a $3 billion tab. Further, he said that if the state deemed the project too costly after having started construction, it would be required to return the $2.4 billion to the federal government. He also said he believed that estimates of riders and revenue for the rail line were too optimistic, and that state taxpayers would have been left to pay for subsidies to keep the line running because it would be unable to pay for itself.

Mr. Scott said that although one study had projected that three million people would use the Tampa-to-Orlando line annually, he said only 3.2 million people rode Amtrak’s Acela trains in the Northeast Corridor in 2010, even though the population centers along the Acela route have as many as eight times the population of the area that would be served by the proposed Florida line.

When commuter rail passengers are included, about 12 million people ride trains annually along the Northeast Corridor. “The truth is that this project would be far too costly to taxpayers, and I believe the risk far outweighs the benefits,” he said at the news conference.

Ray LaHood, the transportation secretary, said in a statement on Wednesday that he was “extremely disappointed” by Mr. Scott’s decision, but that the money would most likely be redistributed to other states.

Mr. Scott’s decision left Democratic as well as Republican lawmakers saying Wednesday that they had been taken by surprise, particularly given that Florida’s unemployment rate is about 12 percent. The rail line had been expected to create thousands of new jobs.

Representative John Mica, a Florida Republican and the new chairman of the House Transportation and Infrastructure Committee, told reporters Wednesday that he had tried but failed to talk Mr. Scott out of turning down the project.

Mr. Mica said the “federal government has done everything” it can, including agreeing to put up 90 percent of the rail link’s financing. He added that it “defies logic” that Mr. Scott would cancel the rail line before the state had received bids on the project.

The current proposal for a high-speed Tampa-to-Orlando line, which was supposed to eventually connect with Miami, was one of two high-speed lines approved by Congress. The other would connect San Francisco and Los Angeles at speeds up to 225 miles per hour. That project has received federal pledges of about $3 billion, though the cost has been estimated to be $43 billion.

Gary Fineout contributed reporting.

Some Real and Worrying Trends

For two years now, starting with The Great Recession Conspiracy, it has been our position that government policies are completely out of whack with the realities of the Business Cycle. There are ten graphs from the Economic Collapse that should really worry you.

There one thing that bothers me about the column below. Corporations are not over extended. They are sitting on record profits and cash. I just wish the writer would not go over board to make his point. His points are scary enough all by themselves.

What Is Wrong With The U.S. Economy? Here Are 10 Economic Charts That Will Blow Your Mind

The 10 economic charts that you are about to see are completely and totally shocking. If you know anyone that still does not believe that the United States is in the midst of a long-term economic decline, just show them these charts. Sometimes you can quote economic statistics to people until you are blue in the face and it won't do any good, but when those same people see charts and pictures suddenly it all sinks in. What is great about charts is that you can very easily demonstrate what has been happening to the economy over an extended period of time. As you examine the economic charts below, pay special attention to what has been happening to the U.S. economy over the last 30 or 40 years. The truth is that what is wrong with the U.S. economy is not a great mystery. All of the economic problems that we are experiencing now have taken decades to develop. Hopefully the charts in this article will help people realize just how nightmarish our economic problems have become, because until people start realizing how incredibly bad things have gotten they will never be willing to accept the dramatic solutions that are necessary to fix our financial system.

The sad fact of the matter is that we have been living in the biggest debt bubble in the history of the world over the last 40 years. All of this debt has purchased a wonderful standard of living for the vast majority of us, but all of this debt has also destroyed the economic future of our children and our grandchildren. Someday future generations will look back on what we have done in absolute horror.

The 10 economic charts posted below are meant to shock you. Most Americans today need to be shocked before they will be motivated to take action. Please share these charts with as many people as you can. Hopefully we can wake enough people up that something will be done about all of these problems while there is still time.

1 - Government spending is expanding at an exponential rate. As you can see from the chart below, federal spending is almost 18 times higher than it was back in 1970. Now Barack Obama has proposed a budget that would increase U.S. government spending to 5.6 trillion dollars in 2021. Just imagine what the following chart would look like if that happens....

2 - U.S. government debt is absolutely exploding. The U.S. national debt is currently $14,081,561,324,681.83. It is more than 14 times larger than it was back in 1980. Unfortunately, the national debt continues to grow at breathtaking speed. In fact, the Obama administration is projecting that the federal budget deficit for this year will be an all-time record 1.6 trillion dollars. Can we afford to continue to accumulate debt at this rate?....

3 - Unless something changes right now, the outlook for U.S. government finances in future years is downright apocalyptic. The chart posted below is from an official U.S. government report to Congress. As you can see, it is projected that interest on our exploding national debt is absolutely going to spiral out of control if we continue on the path that we are currently on....

4 - Household debt has soared to almost unbelievable levels over the last 30 years. The sad truth is that it is not just the U.S. government that has a massive debt problem. U.S. households have also been accumulating debt at a staggering rate. Total U.S. household debt did not pass the 2 trillion dollar mark until the mid-1980s, but now total U.S. household debt is well over 13 trillion dollars....

5 - The total of all debt (government, business and consumer) in the United States is now well over 50 trillion dollars. For the past couple of years this figure has been hovering around a level that is equivalent to approximately 360 percent of GDP. This is a debt bubble that is absolutely unprecedented in U.S. history....

6 - As tens of thousands of U.S. factories get shut down and as millions of our jobs get shipped overseas, the number of unemployed Americans continues to go up and up and up. As you can see from the chart below, there has been a long-term trend of increasing unemployment in the United States. In fact, there are about 3 and a half times as many unemployed workers in the United States today as there were when 1970 began. These jobs losses are going to continue as long as we allow our corporations to pay slave labor wages to workers on the other side of the globe. All of the major trends in global trade are very bad for the U.S. middle class. For example, the U.S. trade deficit with China for 2010 was 27 times larger than it was back in 1990. How long will our politicians stand by as our nation bleeds jobs?....

7 - The median duration of unemployment in the United States is in unprecedented territory. For most of the post-World War 2 era, when the median duration of unemployment in America reached 10 weeks that was considered a national crisis. Well, today competition for jobs is so intense that the median duration of unemployment is now well over 20 weeks....

8 - Since the Federal Reserve was created in 1913, the value of the U.S. dollar has declined by over 95 percent. One of the reasons given for the existence of the Federal Reserve is that the Fed helps control inflation. But that is a huge lie. The truth is that the United States never had consistently rampant inflation until the Federal Reserve took control. In particular, once the U.S. totally went off the gold standard in the 1970s inflation really started escalating out of control....

9 - Now the Federal Reserve says that the solution to our current economic problems is to print even more money out of thin air. The games that the Federal Reserve is playing with our money supply are simply inexcusable. Just look at what the Federal Reserve has done to the monetary base since the beginning of the recession....

10 - All of this new money is creating tremendous inflation. In particular, the price of oil is now ridiculously high. A high price for oil is very, very bad for the U.S. economy. Our entire economic system is based on being able to use massive quantities of very cheap oil. Unfortunately, that paradigm is starting to break down and the consequences will be very bitter. Back in mid-2008, the price of oil hit an all-time record of $147 a barrel and subsequently the world financial system imploded a few months later. Well, the price of oil is on the march again and that is very bad news for the U.S. economy....

Needless to say, if the economic trends documented by the charts above continue the U.S. economy will be totally wiped out. The U.S. economy as it currently exists is unsustainable by definition. It is only a matter of time before we slam into an economic brick wall.

We have developed an economy that cannot function without debt, and at this point it seems like almost everyone is drowning in red ink. The federal government is massively overextended, most of our state and local governments are massively overextended, most of our major corporations are massively overextended and the majority of U.S. consumers are massively overextended.

The only way that the game can continue is for the Federal Reserve to print increasingly larger amounts of paper money out of thin air and for everyone in the economic food chain to go into increasingly larger amounts of debt.

But no debt spiral can go on forever. At some point this entire house of cards is going to collapse.

When that happens, there is going to be economic pain that is greater than anything that this country has ever seen before.

Someday we will all desperately wish that we could go back to the "good times" of 2011. A great economic collapse is coming, and all of us had better get ready.

Sometimes It Is Good To Be Wrong!

It ain't over yet, but here is the deal so far.

House Votes to Cancel F-35 Jet Engine Program

By CHRISTOPHER DREW

WASHINGTON — In a sign that some freshman Republicans are willing to cut military spending, the House voted 233-198 on Wednesday to cancel an alternate fighter jet engine that the Bush and Obama administrations had tried to kill for the last five years.

The vote was another instance in which some of the new legislators, including members of the Tea Party, broke ranks with the House speaker, John A. Boehner, a Republican from Ohio, where the engine provided more than 1,000 jobs.

Many of the 87 freshman Republicans in the House had initially been hesitant to trim military spending as part of their drive to reduce the budget deficit.

But after forcing Mr. Boehner and other Republican leaders to propose greater cuts in domestic programs, the freshmen agreed last week to include $16 billion in military cuts in this year’s spending bill.

Wednesday’s vote to cancel the alternate engine for the F-35 Joint Strike Fighter would cut an additional $450 million and save up to $3 billion over the next several years.

The vote was a victory for President Obama and the defense secretary, Robert M. Gates, who had called the engine wasteful at a time when the Pentagon budget was flattening out. Yet it could also signal trouble for Mr. Gates, who has complained that the Pentagon could face a short-term crisis if the Republicans go ahead with $16 billion in additional military cuts this year.

In voting to cancel the engine, some of the Republican freshmen formed an unusual alliance with liberal Democrats, who have opposed many of the Republican proposals for cuts in domestic programs.

The Joint Strike Fighter is the military’s most expensive program, and its engines could cost up to $100 billion if the Pentagon and allied nations buy several thousand of the planes.

Pratt & Whitney, a unit of United Technologies, is already building an F-35 engine in Connecticut. But Congress had long insisted on the development of a second engine to provide competition and try to reduce the price on purchases that could eventually reach $100 billion.

The alternate engine was being built by General Electric and Rolls-Royce, which had spent $3 billion on it so far and would have needed perhaps $2 billion to $3 billion more to complete it.

G.E. said it would take the fight to save the alternate engine to the Senate, which has not been as supportive as the House.

Top Democratic senators, like Carl Levin of Michigan, the chairman of the Senate Armed Services Committee, and Senator Daniel K. Inouye of Hawaii, the chairman of the Senate Appropriations Committee, have generally backed the engine, while John McCain of Arizona and other Republicans have repeatedly sought to block it.

Mr. Obama described the engine as a symbol of waste at the Pentagon shortly after he took office in 2009. But while he and Mr. Gates have won Congressional support to cancel or trim more than two dozen other military programs, a bipartisan group of House veterans had dug in to support the second engine.

Some liberals recently sought to portray the alternate engine as an expensive example of earmarked spending by Mr. Boehner, the new House speaker, whose home state of Ohio would benefit from jobs.

But with the Democrats in control, the House had voted 231 to 193 last May to keep the project alive, even though President Obama had threatened a veto. In that vote, 116 Republicans and 115 Democrats stuck with the engine.

In Wednesday’s vote, 123 Democrats and 110 Republicans voted to kill the engine.

The fight over the project had long broken down over regional rather than party lines, based on where the manufacturing and supply jobs would be.

Like many military contractors. G.E. and Rolls-Royce were spreading the work to more than 15 states, promising more than 4,000 jobs, including 400 each in Indiana and Massachusetts. But Pratt & Whitney had said the second engine would simply shift many of the jobs from its operations in Connecticut, Florida and Texas.

And companies’ executives said this week that the lobbying had been intense, with both sides fighting for support from the freshman legislators, many of whom knew little or nothing about the engine fight until now.

Relatively few of the freshmen announced their views publicly or spoke up during the floor debate on the issue Tuesday, adding to the suspense about which way the vote would go.

But the second engine also had won support over the years from veteran lawmakers who recalled “The Great Engine War” that developed in the 1980s after problems surfaced with an engine that Pratt & Whitney had built for the F-16 fighter jet.

The Air Force asked G.E. to create an alternate engine for that plane. A study by the Government Accountability Office later suggested that the competition had led to better engines and saved 20 percent over time, and G.E.’s supporters had contended that an alternate engine for the F-35 could produce similar results.

The F-35 is the Pentagon’s largest program and could end up costing nearly $400 billion over all. Congress had been financing the second engine for years partly to keep Pratt & Whitney from enjoying a lucrative monopoly and as insurance against any defects that might ground the fleet.

But in recent years, Donald H. Rumsfeld, President Bush’s first defense secretary, and Mr. Gates, who has served in both the Bush and Obama administrations, had questioned whether the second engine would produce enough savings in the long run and argued that the Pentagon needed the money for other projects.

Simon Johnson Explains Why It Is Us vs Them Beautifully

The Baseline Scenario

What happened to the global economy and what we can do about it

Davos: Two Worlds, Ready Or Not

with 65 comments

By Simon Johnson

On the fringes of the World Economic Forum meeting in Davos this week, there was plenty of substantive discussion – including about the dangers posed by our “too big to fail”/”too big to save” banks, the consequences of widening inequality (reinforced by persistent unemployment in some countries), and why the jobs picture in the U.S. looks so bad.

But in the core keynote events and more generally around any kind of CEO-related interaction, such themes completely failed to resonate. There is, of course, variation in views across CEOs and the people work intellectual agendas on their behalf, but still the mood among this group was uniformly positive – it was hard to detect any note of serious concern.

Many of the people who control the world’s largest corporations are quite comfortable with the status quo post-financial crisis. This makes sense for them – and poses a major problem for the rest of us.The thinking here is fairly obvious. The CEOs who provide the bedrock of financial support for Davos have mostly done well in the past few years. For the nonfinancial sector, there was a major scare in 2008-09; the disruption of credit was a big shock and dire consequences were feared. And for leaders of the financial sector this was more than an awkward moment – they stood accused, including by fellow CEOs at Davos in previous years, of incompetence, greed, and excessively capturing the state.

But all of this, from a CEO perspective, is now behind them. Profits are good – this is the best bounce back on average in the post-war period; given that so many small companies are struggling, it is reasonable to infer that the big companies have done disproportionately well (perhaps because their smaller would-be competitors are still having more trouble accessing credit). Executive compensation at the largest firms will no doubt reflect this in the months and years ahead.

In terms of public policy, the big players in the financial sector have prevailed – no responsible European, for example, can imagine a major bank being allowed to fail (in the sense of defaulting on any debt). And this government support for banks has translated into easier credit conditions for the major global corporations represented at Davos.

The public policy issue of the day, from the point of view of such CEOs, is simple. There needs to be sufficient fiscal austerity to strengthen public balance sheets – so that states can more effectively stand behind their banks in the future, and to keep currencies from moving too much. Leading bankers, in particular, insisted on the paramount importance of providing unlimited government support to their sector during 2008-09; now they insist with equal or greater vigor that support to all other parts of society be curtailed.

This is where cognitive dissonance creeps in. Most CEOs feel that the provision of general public goods is not their responsibility, although they are very happy to help guide (or capture) the provision of public goods specific to their firm.

But it is reckless decisions by some in the financial sector that produced the crisis and recession – this is what accounts for the 40 percent of GDP increase in net government debt held by the private sector in the United States (to be clear: it’s the recession and mostly the consequent loss of tax revenue). And CEOs are happy to lead the charge both against raising taxes and in favor of deficit reduction.

This adds up to public goods being weak and so much under pressure around the world. No one can put significant resources to work helping to bring down unemployment. No one is seriously addressing the loss of skills faced by the long-term unemployed. No one is offering real resources to help improve education for lower-income children or adults who did not finish high school.

Self-anointed “fiscal conservatives” claim the budget issues we face are all about discretionary nonmilitary spending. This is nonsense. The U.S. faces an incipient fiscal crisis (a) in the shorter term, because of what the big banks did and what they are likely to do in the future, and (b) over the next few decades, if we fail to control rising health care costs (both in general and as funded by government budgets).

The gap between the CEOs’ world and the real world should be bridged by the official sector. But where are the politicians and government officials who can explain what we need and why? Who can confront the CEOs in the highest profile public forums, and push them on the social responsibility broadly defined?

The biggest disappointment at Davos was not the attitude of the corporate sector; these people are just doing their jobs (as they see it). To the extent the U.S. or eurozone official sector showed up at all, it continued to demonstrate the deepest levels of intellectual capture. The reasoning seems to be: As long as we do what the big banks and big firms want, everything will turn out all right. There was zero high-profile public debate at Davos this week on anything related to this way of seeing the world.

Corporate Davos was borderline exuberant. Even if a deeper crisis looms, does the global business elite really care?

A Test for Political Cynics

Follow this: The Pentagon wants to cancel a plan to build an alternative engine for the upcoming F-35 fighter plane. They say that would save $450 Million and is completely unnecessary.

Now watch this: GE would be the builder of the alternative engine and the destination for the $450 Million. And guess who is Obama's new best friend in business. Yes, you got it! The Chairman of GE!!

Anyone want to take bets on this one?

A Revolution In The Making

The leader in this week's The Economist describes a revolution in the way that things are made that has the potential to change production processes in incredible ways. Read the story and then read it again. Then spend some time thinking about how this process could change your life.

The jobless technology

A technological change so profound will reset the economics of manufacturing. Some believe it will decentralise the business completely, reversing the urbanisation that accompanies industrialisation. There will be no need for factories, goes the logic, when every village has a fabricator that can produce items when needed. Up to a point, perhaps. But the economic and social benefits of cities (see article) go far beyond their ability to attract workers to man assembly lines.

Others maintain that, by reducing the need for factory workers, 3D printing will undermine the advantage of low-cost, low-wage countries and thus repatriate manufacturing capacity to the rich world. It might; but Asian manufacturers are just as well placed as anyone else to adopt the technology. And even if 3D printing does bring manufacturing back to developed countries, it may not create many jobs, since it is less labour-intensive than standard manufacturing.

Our TQ article explains the technology behind the 3-D printing process

The technology will have implications not just for the distribution of capital and jobs, but also for intellectual-property (IP) rules. When objects can be described in a digital file, they become much easier to copy and distribute—and, of course, to pirate. Just ask the music industry. When the blueprints for a new toy, or a designer shoe, escape onto the internet, the chances that the owner of the IP will lose out are greater.

There are sure to be calls for restrictions on the use of 3D printers, and lawsuits about how existing IP laws should be applied. As with open-source software, new non-commercial models will emerge. It is unclear whether 3D printing requires existing rules to be tightened (which could hamper innovation) or loosened (which could encourage piracy). The lawyers are, no doubt, rubbing their hands.

Just as nobody could have predicted the impact of the steam engine in 1750—or the printing press in 1450, or the transistor in 1950—it is impossible to foresee the long-term impact of 3D printing. But the technology is coming, and it is likely to disrupt every field it touches. Companies, regulators and entrepreneurs should start thinking about it now. One thing, at least, seems clear: although 3D printing will create winners and losers in the short term, in the long run it will expand the realm of industry—and imagination.

from PRINT EDITION | Leaders

Making Sense Out of the U.S. Financial Mess

The U.S. will have to borrow $0.40 of every dollar we spend in the 2012 budget. That is simply not sustainable. Here are three relatively simple suggestions for getting our financial house in order.

1) Social Security is continually raised as a major financial problem. The facts are that Social Security is fully funded until at least 2039. All that is required to make Social Security fully funded forever is to remove the cap on earnings (currently $106,000). Make that simple adjustment and you take Social Security off the table, period. Contrast that with Paul Ryan's plan to give your retirement funds over to the stock market. We have seen how well that would work.

2) Health care costs are a real and current problem that will only get worse in the future. The facts are that 80% of our health care costs are spent in the last two months of life. (Various studies have used the last two years and some have used the last two days so 80% in two months is a reasonable estimate.) We have created some extraordinary devices for prolonging the lives of unconscious people.The end of life is an incredibly emotional time, but it is also inevitable. Health care costs could be dramatically reduced if we just paid doctors and other health care professionals for discussing Living Wills, Do Not Resuscitate, and other directives chosen by the patient. It is as simple and humane as that. Unfortunately, the Wicked Witch of the North chose to call this idea "death panels". Nothing could be farther from the truth. And what she didn't mention is that there are faceless, nameless insurance company employees acting as a defacto death panel right now by refusing to pay for various treatments.

3) Half of the entire budget is devoted to the Defense Department. We have over 1,000 bases overseas. Actually, no one know the exact number for sure since this entire "empire" operates in the shadows. We built those bases over sixty years ago when our enemy was the Soviet Union. Today our enemy is a few thousand (maybe hundred) terrorists and this hidden empire of overseas bases does absolutely nothing to improve our security. It is impossible to offer exact numbers of what could be saved by dismantling this overseas "empire" because there are no accessible numbers on their costs, but it is not unlikely that the entire deficit could be corrected right here.

Now the question of importance is; "How many of our Congress persons are willing to even discuss these ideas?"