From the Oil Drum

Gail the Actuary says, in this long post, what most of us really know, peak oil is changing the way we do transportation. The author concludes, as I do, that the Keynesian remedies are no good, they never were remedies. The sad part is how many economists know this fact, yet continue to push fraudulent measures.


The solution to the depression is in the department of transportation and Ray LaHood. The message is to make important roadways intelligent. Transportation planners should get involved with the increasingly robotic technologies. Emphasize re-use of existing roadways with signal assist and intelligent vehicles.

Christina Romer changes the rules mid-stream

My argument is that a stimulus will always have a multiplier greater than 1.0 if it is stimulus. Romer decided this is no longer the case. Her argument is basically if government grows than the stimulus is successful, even if the private sector shrinks. Multipliers less than one are perfectly fine. My critics will say, wait, the economy performed worse than expected. Still, even in a worse than expected system, a small stimulus would still be linear and still be greater than one, under her theory.

My logic is: The economy has had nine months to figure out what is expected nominal GDP growth would be after the shock. Any further computation by the economy is likely to be in the noise because the financial system has about a six month adaptive time constant. At the beginning of the second quarter, nominal GDP was settled, and any good effect from a Keynesian stimulus would have surprised us with an even modest increase if private sector GDP. Instead we get a 3% increase total governments share of GDP and a 1% decline in private sector GDP.

The chart above is Romer's effort to show correlation. About as poor a science as I have seen from the multiplier advocates. If you remove the Asian outliers, we get a negative correlation.

The stimulus theory is a fraud. The current distribution of multipliers for government spending is going to be severely distorted by the cause of the depression, which hits both government and non-government sectors. There is no justification to believe the general rise in government spending helps move the economy toward equilibrium if the multipliers are so distorted.

Government is the stimulated sector

HT to Real Time Economics, in which Erica Alini points out the obvious. The Keynesians stimulus mainly caused 300,000 workers to be employed around the Washington DC corridor, mostly missing Washington DC itself which has unemployment at 11.5%.

Translation: There is no magic Keynesian formula, it was a bogus theory, proved wrong in practice and in theory.

The Silly ATNMBL

Mike and Maaike, Google refugees? have illustrated a robo car that looks like the living room.

I find something odd, why do we have to wait until 2040 until we have a vehicle that looks like a living room? Because the designers claim that driverless technology will not be here until 2040. How silly of them, they must not be reading my blog.

The real reason the ATNMBL will not be here until 2040 is because no one has any intention of going somewhere in their living room. The only reason people want to be inside a robot is to get somewhere with the least amount of cost, and a traveling living room simply raises the cost of transportation.

Their concept is silly, they technical know how is weak, and they don't get the transportation market.

High Speed Rubber

If Yglesias likes steel, I like asphalt.

Here is my invention, the diesel electric 100 person high speed bus. It is a four or five car articulated configuration. The engine runs the fixed speed diesel/electric, the cars have electric drive, all steering is microprocessor assisted. It can move 100 people over 140 MPH, and then drive into town.

My High Speed Busways would be asphalt, protected lanes with full traffic control and digital signal assist. These busways would run up and down main traffic corridors using re-purposed roads. Off the busway they mix with traffic if they have signal assist. Busways also support microprocessor assisted high speed freight. Every busway has human traffic control.

I anticipate my bus speedways will cost 1/4 the cost of high speed rail (per mile) , and 1/10 the platform costs. Because high speed buses can mix with traffic, there is less intermodal process. High Speed Busways can be built in short lines, 35 mile or greater, allowing incremental growth. Busways would be unique to America given our vast array of asphalt roads.

Then we add high speed freight carriers in the same configuration. We get 1/2 reduction in fuel from engine management alone. Busways pull heavy traffic off of automobile roads by virtue if efficiency. Less heavy traffic mixing with the auto means smaller cars sooner.

I have to mention rolling resistance. Steel wheel on track has better rolling resistance than rubber tire. But if the Busways have good pavement, slow turns, and microprocessor controlled car steering with advanced tires; then the rolling resistance will be a mere double that of steel wheel.

Traffic planning for Fresno/Visalia, CA

My planning anyway, it was coming.

I start with high speed bus between the two towns, covering 35 miles. The high speed bus transit serves as core feeder for rapid bus transit arteries into the cities. The completed system should add 5% growth, nominal for a few years. It will join labor markets in the two towns, provide more regional shopping, and lead to freight automation. The districts between the two towns become updated economically.

The site will be a test bed for an array of intelligent traffic technology. The speedway is built on an underutilized older highway and tested at speeds up to 140 MPH.

Cost of paving, well if the State does it, 20 million. But if I do it the cost is, $2 million. If CA won't play them send a federal bureaucrat to chat. Intelligent intersections will be 20 grand and up. I can get a speedway for less than a half billion and get a very fast shuttle between the towns, and start tomorrow. The world's first, a marvel.

The highs and lows of interest rates

Scott Sumner was nice enough to post some quotes from Uncle Milt.

"Low interest rates are generally a sign that money has been tight, as in Japan [1998] ; high interest rates, that money has been easy."

Using a queuing model we can explain this fact. When the whole yield curve is elevated (high interest rates) , then inventories, including money, are growing fast along the production chain. An inflated yield curve is not tight. Tight is constrained inventories, low interest rates. The yield curve matches other goods inventory growth at the various term points, with a six month lag.

Nominal Gross National Income Targeting

Some economists talk about central bankers targeting NGDP. For me, that is equivalent to saying we want to target a yield curve. So let's do that.

Going to my Universal Economic Calculator, I pick a particular economic period which I want to replicate, say Apr 11, 2005. I like that curve and inflation is about 3.5%. I also like the curve because there are about five small slope changes, a rank of 5 economy, the curve says we are busy beavers.

So central banker tells everyone I am going to make a curve like that one. So everyone looks to see what they have on schedule for the10 year, 5 year, etc investment cycle, and how different will it be with the new yield chart. Especially important is how long the Fed will take to move short term rates to that point. A lot of large institutions will have to start meeting targets or risk bankruptcy. The curve has become a management chart of sorts, and careers are on the line if targets are not met. And whatever is constraining the consumer had better be solved soon. Targeting nominal GDP means targeting some real growth if money is to stay viable.

So the Money illusion, if it exists, is like a snap-to taskmaster, the program project manager. The illusion is that we have no other projects to work on, there is only one form of monaey and its yield curve is thus.

Might work, but Congress will be the first to rebel.

Bubblers and Curve Benders

I hear a lot of comments on the blog about why economists supported Bubble behavior and then try to find ways round the Curve Bending problem.

Bubble behavior and the Keynesians stimulus theory use the same format, make long term commitments without any plan about how short term management can meet the implied constraints. Curve Benders are those who have to work the short term constraints in a long term comittment.

Pelosi and the Obamathons are engaged in dangerous Bubble behavior, planning large programs and relying on Curve Benders to fix things down the road. Lil Bush was a Bubble maker, as was Reagan. Bill Clinton was a Curve Bender.

We have to work the problem in reverse. First, plan Curve Bending technology. When you have good Curve Bending technology, then push for a Bubble. That is how Stimulus is supposed to work.

Boom Times Ahead

My economic prediction.