Analysis: A Bad Idea for Tax Reform

By Executive Order issued on January 7, 2005, President Bush authorized the formation of the President's Advisory Panel on Federal Tax Reform, which is expected to release its report of recommendations some time in the near future. Comprising a largely neo-conservative group of Bush Administration insiders, and taking testimony from a relatively narrow selection of economists and other experts, the Commission is charged with setting forth proposals to "simplify" the tax code to the end of making it less onerous, less burdensome, less confusing, and more productive. No one yet knows what recommendations will be included in the final report, but speculation centers on proposals that continue a long tradition of using the Internal Revenue Code as an instrument for achieving desired social and economic ends. The problem for progressives is that, while it was all well and good when those social and economic ends were desirable to the goal of a more egalitarian society, they will not be happy at all when the tax code becomes a far more effective weapon at constructing a society desirable to the neo-conservatives and other armies of the near- and far-Right.

Social Ends and Taxing Means
Examples of how tax policy promotes cultural values are far too many to list. They span the spectrum of life at the personal, group, and society levels. It is enough to point to several that have had enormous, if in some cases wholly subtle, influence.

A quick number for one of these social tuning knobs can be found in the tax consequences of marriages, and never mind the intricate details of "marriage penalty taxes" and abatements of such burdens. The reality is that two people who are married do not have to pay as much on their combined income as one person making that much, even though those two people living together will experience scale economies impossible for the one person to achieve.

The argument goes, of course, that because our tax system is progressive, the combined incomes would be unfairly exposed to a higher marginal tax rate than each individual's income would have been; but this argument is entirely fallacious: the two people have a combined income that is used by the household in exactly the same manner as the income of the single person would be.

That the federal government is doing everything in its power to prevent gay marriages is an exercise in preventing the huge marriage tax shield from accruing to a life-style the government does not want to promote. Effectively, the tax code's benefits are for intended recipients only, and not for those whose behaviors, actions, and beliefs are contrary to what is government approved. "Fairness" in tax policy is a specious concept when it comes to marriage benefits: the shields exist for those whose lifestyles comport with specific beliefs that arguably have narrowly religious backdrops. This same motive force of specific tax policies associated with specific religious doctrines comes into play in an unspoken and subtle way in the later part of this article; but first, as a primer for the pump, a glaring example of tax policy being used to shape society is in order.

A remarkable success story of how tax policy can promote a desired social policy can be found in the treatment of owner-occupied housing in the U.S. tax code. The deductibility of the interest on mortgage loans is a compelling incentive for households to allocate a disproportionate share of income toward investment in the physical asset of a house; but mortgage interest deductibility is only one of several incentives the tax code provides for owner-occupied housing. The result of this deliberate policy by the government has been a massive over-production of single-family houses with attendant distortions of physical and financial capital flows. Whether or not this has been "good" policy is for social and economics commentators; but the long-term and profound effects upon how the consumers have shaped the way resources are used in the United States is beyond any dispute.

A Digression for Some Arithmetic
Before proceeding with the main point of this article, some terminology and associated math should be set forth, just in case some readers don't spend serious time studying and remembering how different types of taxes work.

It is not an oversimplification to state that a tax system can operate one of four ways:

Flat tax: This is a tax of the same dollar amount upon everyone. It would be the ultimate in simplicity as a federal revenue generator. Every citizen pays the same amount of money every year. Let's say the flat tax was $2,000 per head. With about 285 million citizens, that would come out to be around $570 billion in federal tax revenue. Although the love child of a few economists who admire its lack of distorting effects on an economy, the flat tax suffers from the fatal flaw that it would too obviously hurt people of limited means far more than it would those with lots of money.

Proportional tax: This tax is occasionally misnamed a "flat tax," but a proportional tax applies the same percentage tax rate to all people, regardless of how much they make. Variations on the theme are plentiful, and below, several of them will be investigated a bit more deeply because it appears that some version of a proportional tax is going to be recommended by the President's Commission on Tax Reform. Suffice it to note that sales taxes are almost always proportional taxes on retail prices of goods. Value added taxes (VATs) are proportional taxes on the wholesale prices at various stages of production, but this just means that the sales tax is going to be buried in the final prices of goods instead of being on direct display at the checkout register. As a rough estimate of the tax revenue generated by a national sales tax, suppose a tax of 15% were to be assessed on the final output of all new goods and services produced in the United States, as measured by the gross domestic product for 2004. According to the 2004 CIA World Factbook, the GDP for 2004 for the United States was $10.98 trillion, so a 15% tax on this amount would generate federal tax revenues totaling $1.65 trillion.

Regressive tax: Every now and then, some hard-core, Right-wing economist brings up the idea of making taxes higher for people who make less money. The idea is that, if folks know they'll pay more if they earn less, they'll have a whole lot of incentive to work harder so they don't have to pay as much in tax on the last dollar they earn. And, yes, there really are economists who think a regressive tax would be a great idea, even though the whole idea is so obviously unfair on its face that it could never happen... at least, not if it was too obvious.

Progressive tax: Income taxes based on a progressivity principle are the most common type in the world. Progressive taxes assess a higher tax rate to income at higher and higher levels. Consider a relatively simple, three-tier structure:

For income of $15,000 or less, a 10% tax rate is applied.
For income between $15,001 and $40,000, a 20% tax rate is applied.
For income greater than $40,000, a 30% tax rate is applied.

So, for a person making, say, $12,000, the total income tax bill would be
    10%×$12,000 = $1,200.

For a person making, say, $25,000, the total income tax bill would be
    10%×$15,000 + 20%×$10,000 = $3,500.

And for a person making, say, $70,000, the total income tax bill would be
    10%×$15,000 + 20%×$25,000 + 30%×$35,000 = $17,000

Notice several features of progressive taxes. First, not all income is taxed at the highest rate; only the income that falls in a given tax bracket gets hit at the so-called "marginal rate." Second, progressive taxes are annoyingly complicated little suckers. It's not all that easy to predict how much income tax will have to be paid in a given year, and this is made worse by Congress constantly tinkering with both the rates in the different levels and by where each level begins and ends. Most people fill out a W-4 form, which is supposed to give an employer a rough idea of where an employee's income will fall in the tax tables and therefore give a decent idea of how much to withhold for the employee; but this doesn't always work very well, especially for people who work multiple, part-time jobs that cause income to stack in a way that kicks them into higher marginal tax brackets than the W-4 can properly predict.

For better or worse, though, the United States and most of the civilized world have some form of progressivity in their personal and corporate income tax structures, although the U.S. has been on a path over the past several decades of "flattening" the structure by reducing the number of tiers. The President's tax commission might very well finish the job by entirely dispensing with the tiers; but converting the federal income tax structure into a proportional income tax would be too obviously a windfall to those with high incomes because it would clearly relieve them of the burden of facing progressively higher marginal tax rates on the upper reaches of their income.

This means the tax must come in a better-looking package, one that promotes some apparently important ideal within the American psyche. Imagine a tax that is at once simple and promotes old-fashioned Protestant frugality.

Tax Structures to Promote Savings: Slapping the Consumers
A proportional tax fills the bill, particularly if the tax is only on consumption because everyone knows that Americans don't save enough of their income, and everyone knows that saving money is a good thing. Actually, the importance of increasing the savings rate among Americans is dubious on its face, especially when the clarion call for more savings comes from pro-business interests, which have great incentive to see Americans save lots of money. The reason is that, if people save more, this increases the supply of lendable funds available for banks and other financial institutions to lend. But when the supply of anything increases, its price decreases; and the price of lendable funds is the interest rate charged on the loans. That means, if Americans save lots more money, interest rates for businesses will go down, making leveraged investments in plant and equipment (as well as leveraged take-overs and buy-outs) cheaper.

But this would be good for regular people, too, one might argue. Not really: first, a consumption tax would be punishing people for trying to take advantage of lower interest rates on anything that had to do with consumption; and second, business investment in plant and equipment has had a marked tendency to be used to replace human capital, not to supplement it. In other words, the modern American business model has had as one of its clear goals the use of physical capital as a "substitute," not a "complement," for labor, meaning that Americans pouring money into savings accounts are going to accelerate the industrial shift that has for years been progressively and deliberately degrading and diminishing the jobs market in the U.S.

And if that weren't enough, recall that interest rates will be falling as more money is saved, so those average Americans, who used to spend their money, now will be saving much of that money at lower and lower rates.

And One Last Whack, Just for Good Measure
A quick look at two hypothetical Americans will drive home another, compelling downside of a national sales tax. Consider the case of Byron and Barton Binkwater, brothers whose lives diverged early on and who now live on opposite sides of the tracks.

Byron Binkwater works like a dog at the EZ-Lube on the south-east side of town, out by the Snarf-n-Barf. He earns total income of $20,000 a year.

Barton Binkwater hit the big time, rising up the corporate ladder at Purcell's Parts down on River Street right by where the Steak Sandwich Outlet used to have its corporate offices. Barton earns $80,000 a year.

Byron and Barton are still a lot alike in many ways. Most importantly, they have the same essential needs in life, even though both of them would say that isn't so. Being of similar builds and health, there is no difference in what they need to stay alive and healthy underneath their quite different outward lifestyles. What they want might be worlds apart, but what they need just to keep going from one day to the next is pretty much the same: roughly the same number of calories, about the same amount of shelter, 'round about the same amount of heat and air conditioning, somewhere near the same medicines. In economics, this "same" aggregate amount is called "autonomous consumption": the amount of money that is necessary regardless of whether there's any income or not. It's not something that varies with lifestyle, it's not something that varies with who a person is and where that person's station in life happens to be. When people are better off, they almost always think they simply must have more just to keep body and soul together, but that's just a mark of their changing wants, not their changing needs.

After all is said and done, Byron and Barton both need $8,000 just to stay alive. That's the basic amount of money each must spend, and anything either of them spends above and beyond that amount is discretionary, whether either of them wants to admit it or not.

Now, if each of them actually only spent what was absolutely necessary and put the rest away in savings, a consumption tax of 15% would hit each of them like this:

Byron spends $8,000 that is exposed to a 15% tax; so his tax bill is
    15%×$8,000 = $1,200.

Barton spends $8,000 that is exposed to a 15% tax; so his tax bill is the same
    15%×$8,000 = $1,200.

What could be more fair? They both pay the same amount of tax!

Ah, but look more closely at the tax rate each of these fellows faces on income:
Byron pays consumption tax of $1,200 on income of $20,000, so his income tax rate is
    $1,200÷$20,000 = 6%.

Barton pays consumption tax of $1,200 on income of $80,000, so his income tax rate is
    $1,200÷$80,000 = 1.5%.

Holy Moses! So this is why there's an old saying in macroeconomics:
A proportional tax on sales is a regressive tax on income.

In fact, Barton could spend a whole lot more than $8,000 on consumption and still have an income tax rate below Byron's. Doing a little bit of algebra, Barton would have to spend $32,000 on consumption before he'd pay the same, 6% income tax rate Byron is paying just to buy enough to stay alive.

Oh, the Feds Wouldn't Let That Happen... Would They?
Surely, any such tax would be lower on food and medicines than it would on luxury items, the argument might go. Perhaps it would be, but any tax whatsoever on essentials would have the same result: it would be a regressive tax on income. It wouldn't matter what the tax rate was, it would still apply to both Barton and Byron the same way on their purchases of essentials, so it would create the same regressivity when looked at as an income tax. Unless the tax commission proposes that essentials of life be exempt from a national sales tax, the poor will be punished more than the rich, based upon income.

So the only way to take away the regressivity feature of a national sales tax would be to exempt all basic foods and medicines; but that poses a major problem for tax planners: those essentials comprise a huge amount of the consumption expenditures in the U.S.: exempting all of the basics people need leaves a much thinner tax base from which to draw federal revenues. One way or the other, at least some positive sales tax rate would have to be applied to at least some consumption items that are essential to people. And once that requirement of a national sales tax is acknowledged, at its core, the tax becomes regressive.

But that just means the federal tax system will continue to be used to promote social and economic goals of those who manage its details.



The Dark Wraith has spoken.

The Written Peace: Open Forum of June 26, 2005

As promised in the thread from the article preceding this one, tonight we'll have an Open Forum, and it's high time: too many interesting things happen for a regular thread to stay on topic for very long.

Name your subject. Write as much or as little as you want. To get your blood boiling, perhaps I should mention the matter of Karl and the outrageous remarks he made last week about liberals. The great outcry for him to apologize or resign has so far been met by neither an apology nor by a letter of resignation. This is not surprising: whereas the Democrats have a habit these days of speaking bluntly about the mendacity, incompetence, and criminal acts of Republicans, only to issue retractions and apologies within a matter of hours (Howard Dean notwithstanding), the Republicans have no such routine in their portfolio of rhetoric. Karl said what he had to say, but he did so much more: by getting such a huge, negative reaction, he used his enemies as his megaphone. Now, that's political skill.

There was a time when progressivism would not have allowed itself to be backed into such a corner of no-win reactivity. But that was long ago.

For other talking points, let us not forget this past week's U.S. Supreme Court decision that extends the doctrine of eminent domain to include government seizures of private property for commercial development. Such an outcry has been heard about that ruling; one would think people had just discovered that a large and powerful presence of the state in the affairs of citizens never comes to good end. This used to be the message of conservatives, but that was in the old days, when there was a vital branch of conservatism with the message that we should be forever suspicious of sovereign power. But that, too, was long ago.

The good news is that gasoline prices are rising rapidly, the stock market is in full retreat, and polls are showing regular folks having their concerns about our president. People are getting fussy even about Iraq and some other Bush Administration fiascos. It's probably a bit cynical to note that average folks seem to be getting uncomfortable about a war waged from and sustained by lies only because their pocketbooks are being pinched by the soaring cost of energy. Admittedly, some folks might remember a time or two when people lost their confidence in a president long before his policies had hurt them personally in their wallets. But that was a very long time ago.

Memories of better times are great that way: they inform us of how we should be in the here and now by reminding us of how much better we once were. Even if we never were all that much better, one can hope that maybe there really was a time when we as a people were not quite like we are now. It's pretty scary for a group standing in the deep forest of the new century to finally realize that its moral-ethical-political compass failed way back up the trail.

Stupid compass. Must have been made in China.



Speak your peace, this evening. The pantry has some snacks; the espresso/hot chocolate machine was just overhauled with an environment-friendly Turbo Water Steam Blaster™; and the cats said they might do a little Can-Can routine they've been working on all week.


The Dark Wraith will be in and out as he works on this week's analysis.

Stocks Stomped for Second Session in Succession

For the second day in a row, stocks took a massive beating on Wall Street. After retreating 1.6 percent in value on Thursday, the Dow Jones Industrial Average continued the ride to Hell on Friday, losing another 1.3 percent of its value. Both the Standard & Poor's 500 and the small-cap NASDAQ indices lost about a percent of their value on Thursday and another four-fifths of a percent on Friday as investors dumped big and small stocks alike in their rush for the equities exit.

Investors cashing in their stocks threw the proceeds at both long-term bonds and oil, with the prices of both rising as investors sought safety in guaranteed returns from government debt and strong upside potential in petroleum.

Dark Wraith CyberGloss

Both debt instruments like Treasury bonds and commodities like oil offer investors more safety than stocks: Treasury instruments are guaranteed by the U.S. government, and oil is a physical asset with intrinsic value.

  Twice this past week, U.S. light sweet crude briefly crossed the $60 per barrel mark in intra-day trading before profit taking moved the price back south of what is emerging as a price break "neckline" at sixty bucks. Friday, U.S. light crude closed at a $59.84 per barrel on the New York Mercantile Exchange, the highest settle on record. With the price of long-term bonds on the way up as investors pump money out of stocks, the yield on the benchmark 10-year Treasury slid to just over 3.91%.

In recent weeks, bond prices had been steadily slipping, causing yields at the far end of the yield curve to move upward. This relieved many economists, who had been concerned over the past few months because,

Dark Wraith CyberGloss

One danger of an inverted yield curve leading a recession is that the lower rates on long-term debt can induce increased demand for mortgage loans that later cannot be serviced because of falling household incomes during the economic downturn.

  when long-term yields fall below short-term yields on Treasury instruments—a phenomenon known as an "inverted yield curve"—a slowdown or a recession usually follows within a couple of quarters. Those fears had been allayed somewhat as the yield curve began to tilt upward with rising long-term rates; but over the past few days, the steady upward march of short-term yields has run alongside a resumption in the dipping down of the long end of the yield curve. At close today, the spread between the yield on a 10-year Treasury bond and that on a 3-month Treasury bill had narrowed to less than one percent.

As far as oil prices are concerned, two camps resumed a debate that began in earnest this Spring regarding the direction oil prices are headed over the intermediate term. Oil analysts for investment giant Morgan Stanley are saying that oil prices should start to pull back before too long; but analysts at rival Goldman Sachs are again saying that the recent run-up is just the wind-sprint on the haul all the way to as much as $100 per barrel.

Dark Wraith CyberGloss

Adjusted for inflation, the highest price per barrel oil ever attained was at the beginning of the war between Iran and Iraq in 1981.

  In the event that the prophets at Goldman Sachs are correct, only the most stubbornly disconnected neo-conservatives would argue that the U.S. economy could take the beating on households and businesses without plunging into severe recession. The big question is whom to believe when it comes to prognostications about future oil prices. Right now, investors are racing into the oil markets because of relatively short-term factors like reports of limited supplies of oil in the early stages of the peak driving season, but deeper factors are at work behind the scenes. Global demand for oil is rising at a record pace, and the United States is only one part of this overall, possibly permanent adjustment of energy demand curves. With China's economy heating up, manufacturing and consumer demand there could literally swamp demand from most other countries around the world; and although the roaring economy in China might very well be getting its motive force from the early stages of a long-anticipated inflation spiral on the mainland, that changes nothing for the foreseeable future about the country's rapidly and aggressively escalating appetite for petroleum products to power a widening inflationary gap that the Chineses gerontocracy has yet to face in any meaningful manner whatsoever.

Dark Wraith CyberGloss

In Keynesian economics, an inflationary gap has opened when the growth rate of aggregate expenditures in the economy exceeds long-term, "sustainable" growth rate of expenditures. This is caused by the growth rate of the economy's money supply exceeding the sustainable growth rate of real output.

  After years of printing the national currency, the yuan, at an excessive rate to hold its exchange rate at an artificially low level against the U.S. dollar, all of that excess currency should be starting to seep back into the Chinese economy, propelling an inflation spiral that would take the Chinese central bank draconian measures over a long and debilitating period of time to stop. It is unclear even to what extent the Chinese government grasps the danger of impending and rapidly escalating inflation, much less how it would handle the potentially devastating economic and political consequences of dealing with it. Regardless, however, of what lies ahead for the Chinese economy, there is no doubt that it has joined the big league of industrial economies soaking up fuel as fast as the world's refineries can pump it out.

Since early in the year, oil prices have see-sawed over a range that caused fuel and other energy prices to rise several times to worrisome levels. However, the U.S. economy was able to weather these fairly brief assaults on disposable income and net operating profits to keep going at a fairly healthy pace. If gas prices reach five dollars a gallon or more in a $100 per barrel oil market, businesses and consumers will be hard-pressed to keep from going into a full production and spending tailspin. Most political analysts would agree that Bush Administration officials, already adept at keeping a straight face while talking about how successfully the occupation of Iraq is proceeding, might soon have cause to use similar talking points as the U.S. economy slips into a quagmire of recession on one side and inflationary pressures on the other. How many Congressional Republicans who formerly supported the President's war but are now running for cover on that issue will choose the same level of loyalty if the economy craters is a matter of considerable speculation, given that all of this is happening on a timeline that intersects the national mid-cycle elections looming next year.

Leading Indicators Down, Oil Near Record High; Chicago Fed Claims Economy Doing Well

The Conference Board on Monday released its Index of Leading Economic Indicators for May, showing a slide of half a percent in the index from its revised April reading. This marks the fourth decline in the past five months and provides more evidence of underlying weakness in the economy not showing in some other, much more positive figures published recently, including the Conference Board's own survey of consumer confidence, released on Monday, which showed a marked upturn in how consumers feel about prospects for the economy through the Summer and into the Autumn. Adding to the mixed signals, the preliminary June figures for the University of Michigan Index of Consumer Sentiment show consumer confidence moving up far more than expected, rising to 94.8 from the May figure of 86.9.

The Conference Board's Index of Leading Economic Indicators comprises ten separate measures of forward-looking economic data. The latest composite index had nine of the ten components falling, with a notable contribution on the downside coming from bond yields, which in May and early June were continuing a trend of falling long-term rates and rising short-term rates, an early warning sign of impending economic slowdown. That trend of a flattening yield curve stalled last week, however, as yields on long-term government Treasury bonds started to rise, with the benchmark 10-year instrument pulling back above four percent.

Dark Wraith CyberGloss

When investors purchase bonds, the prices of the bonds go up, and this pushes the yields on those bonds down.

  In trading over the past few days, though, the long-term bonds have resumed their track south. The 10-year bond closed Tuesday just below four percent and finished Wednesday down further to 3.93 percent, around the yield level to which it had fallen before the short-lived lift in the long end of the yield curve, indicating investors are returning to their previous portfolio re-alignments that include more of the safety of long-term debt instruments.

In other news, oil prices hit record highs Monday, with U.S. light crude on the New York Merc hitting $59.52 a barrel intra-day before backing off just a bit to close up $0.90 for the day at $59.37, still a record closing price and perilously close to a loathsome and perhaps psychologically significant $60 per barrel.

Dark Wraith CyberGloss

Different types of crude settle at different prices because of factors like the quality of the product, which directly affects the cost of turning it into usable derivatives such as gasoline and home heating oil.

  Brent crude closed Monday at $58.32 per barrel, up $0.45 over the settle previous. It was just two weeks ago that oil was probing the downside of $50 per barrel, relieving many economists who had been concerned about the impact of high gasoline prices on consumer and business spending as more income had to go to energy costs, thereby making less money available for spending on other goods and services. The easing of energy costs in May even led to a reduction in both the producer and the consumer price indices, thus giving the appearance of an economy shaking off inflationary pressure that was building earlier in the year. The current upward spiral in oil may lead pro-government analysts to hold off sending out the let-the-good-times-roll party invitations, however, as the new round of price pressures begins to ripple through an economy still reeling from the drain on pocketbooks and profits from the last run-up in fuel costs. On Tuesday, crude prices backed off slightly on minor profit taking action working against broad concerns about oil supplies. U.S. light sweet closed Tuesday at $58.90 per barrel but found some room to the upside in early Wednesday trading before closing the day off at $58.09 per barrel. The heavier Brent crude, also down for the day yesterday, was slipped a bit further in Wednesday trading.

In other news, the Chicago Fed on Wednesday morning released its National Activity Index, a measure of how the national economy is faring. The reading for May rose to +0.10 from the weakly positive April reading of +0.05. Interestingly, the three month moving average of the index held at -0.01, indicating that the index is still below its long-term, historical level. The Activity Index for the latest period was boosted by strong surges in both industrial production and housing starts, with employment indicators being the only dark cloud. The picture being drawn by the Chicago Fed's latest index is of an economy where the manufacturing and housing sectors are still doing well, while at the same time the ability of the consumer sector to ultimately purchase what is being produced and built is not doing as well.

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Although the 12 Federal Reserve district offices are primarily concerned with economic activity in their own regions, several larger ones keep tabs on the national economy, too.

  Anecdotally confirming this picture of an economy of some, but not all, businesses doing well while households struggle, supermarket giant Winn-Dixie (PK:WNDXQ.PK) announced yesterday that it was eliminating 22,000 jobs as a result of planned store closings to "firm up" profits. According to its filings with the Securities and Exchange Commission, Winn-Dixie has about a thousand stores in its chain, but many are losing money, causing the company as a whole to bleed red ink.

Dark Wraith CyberGloss

The "Pink Sheets" is an electronic trading system for stocks that do not meet minimum requirements to be listed on another exchange like the NYSE, the AMEX, or even the OTC.

  The company's earnings per share for the latest reporting period were a grim —$4.18. For these kinds of losses, investors have punished the company's stock unmercifully: as recently as a year ago, Winn-Dixie common stock was nearly eight dollars per share, and in 2001, the stock was well over $30 per share. Yesterday, the stock closed at $1.12. This morning, investors took mild notice of the company's downsizing announcement, pushing the stock price up to nearly a dollar-and-a-quarter in late morning trading; but by Wednesday close, the stock price had settled back to $1.16 per share. Winn-Dixie stock currently trades in the Pink Sheets.

Analysis: War, Inc.: A Summary Financial Analysis of One Corporation

The war in and subsequent occupation of the nations of Afghanistan and Iraq, along with the Bush Administration's broad war on terror both at home and abroad, has afforded many corporations the opportunity to benefit from short- and long-term government contracts. The revenues from war-time operations have accrued to a number of companies, most obviously those that could provide war materiel, as well as those that could provide intelligence equipment and facilities, expertise of various kinds, and other goods and services needed by the United States and its allies. However, even those companies that have accrued substantial revenues are not guaranteed profitability as a result of their close relationship with customers in the public sector. Going a step further, however, the fact that some of the greatest beneficiaries of government largesse have proven unable to generate profits for their shareholders has not abated the appetite of sophisticated investors to drive up the prices of these companies' equity issues.

A case in point is Halliburton Company (NYSE:HAL), a firm involved in controversy because its former CEO is now the Vice President of the United States, but more importantly, a firm that has benefited significantly and materially from largesse at the public trough. For many critics of the Administration's close ties to a company formerly led by the U.S. Vice President, the recent announcement by Halliburton of a newly-awarded, $30 million contract to build facilities at Guantánamo represented still more of the large-scale benefits enjoyed by but one of many corporations involved in the Bush Administration's wars, expansionism, and weaponization of the civil world of the early 21^st Century. Although a $30 million contract for Halliburton represents a trivial amount—less than fifteen-hundredths of a percent of its total revenues of last year—there is no doubt that the current, unquestionably neo-conservative policies of the Bush Administration are a curious re-articulation of classical Keynesian government spending for fiscal stimulus into neo-conservative, supply-side policies, merely moving much of the government spending to business interests on the aggregate supply side rather than to needy individuals and families on the aggregate demand side.

This analysis considers the case of Halliburton Holding Co. in the time frame from 2002 to the end of 2004, the period for which the most recent annual financial reports are available.

Elements of Technical Analysis
The following technical summaries are drawn from the income statements and balance sheets of Halliburton Holding Co.

Halliburton revenue from fiscal year 2002 to fiscal year 2004 rose from $12.498 billion to $20.466 billion, representing an annualized growth rate of 27.97 percent.

Gross profit (revenues less cost of revenues) for the same period rose from $119 million to $1.143 billion, for an annualized growth rate of gross profit of 209.92 percent.

Operating income (gross profit less operating expenses) rose from —$186 million to $837 million.

Earnings before interest and taxes (EBIT) rose from —$115 million to $880 million, and net income from continuing operations for the period climbed from —$346 million to $385 million.

The Company took charges against net income from continuing operations in 2002, 2003, and 2004, respectively, of $652 million, $1.151 billion, and $1.364 billion to report net income available for common stock for the three years, again respectively, of —$998 million, —$820 million, and —$979 million.

The Company's total assets rose from $12.844 billion to $15.796 billion, for an annualized growth rate of 10.90 percent; however, the current component of those assets grew from $5.560 billion to $9.962 billion, for an annualized growth rate of current assets of 33.86 percent, more than triple the growth rate of the Company's overall asset base.

Halliburton's liability structure largely mirrors the Company's shift toward a more liquid configuration, with current liabilities rising from $3.272 billion at year end 2002 to $7.064 billion at year end 2004 and total liabilities rising in the same time frame from $9.286 billion to $11.864 billion, meaning that current liabilities over the period grew on an annualized basis by 46.93 percent—again, better than three times the annualized growth rate through the same period of total liabilities, which grew on an annualized basis by only 13.03 percent.

Market Analysis for the Common Stock
Halliburton common stock has risen substantially since 2002, but that is part of a somewhat longer-term trend. The graph at right demonstrates that, after a precipitous sell-off during 2001, the Company's common stock has been on a relatively smooth growth path since the later part of 2002. From September 25, 2002, when the stock had reached its low point of $12.05 per share, to this past Friday, June 17, 2005, when the stock closed at $46.39 per share, the annualized rate of share price appeciation has been 63.89 percent, compared to annualized share price appreciation of 14.57 percent for the Standard & Poor's 500 index over the same period. This means that, while an investment of $1,000 made in an index fund in September of 2002 in the 500 large-capitalization, public corporations comprising the Standard & Poor's 500 would, as of this past Friday, be worth $1,449, an investment in Halliburton stock of $1,000 made on September 25, 2002 would be, as of this past Friday, worth $3,850.

Market Madness, Market Method
During the period under consideration, Halliburton lost money according to its certified financial statements; and according to those same financial statements, retained earnings—an accounting measure of the total value of the claim the shareholders have on the assets of the corporation—eroded from $3.11 billion to $871 million, meaning that the book value of the shareholders' residual in the Company fell by 28 percent from the end of 2002 to the end of 2004.

Yet, despite this, the Company's common stock price, which represents the market's objective assessment of the value of that same residual claim, has risen aggressively compared to market's assessment of the claim on residual value of an index of the 500 largest public corporations in the world. Any possible explanation that could include some "irrationality" on the part of investors is specious: markets do not price based upon irrational sentiments; and this is particularly true in the case of stock in a corporation like Halliburton, where 85 percent is held by institutional investors and only a fraction of a percent is held by insiders. The reality is that Halliburton, which for the year 2004 lost $1.21 per share, has a total value of its equity outstanding of $23.46 billion, and that value has been on a growth path for the past nearly three years. This so-called "market capitalization" is the market price per share times the number of shares outstanding; and this is, therefore, the objective, entirely rational determination of the millions upon millions of buyers and sellers of equities converging from day to day to clear the offers to sell with the bids to purchase stocks.

In the case of Halliburton, the markets are rationally judging that, in spite of the unprofitability and eroding equity value on paper, the Company has been, for the past nearly three years, a worthwhile and worthy investment based upon the expected value of its future cash flows, which is all that matters in financial markets. The historical numbers for Halliburton may be disappointing, but for a company in the forefront of acquiring revenues through providing security in a time of terror threats and supporting supplies and services in a time of wars, the prospects for the future couldn't be brighter.



The Dark Wraith has spoken.

The Written Peace: Open Forum of June 17, 2005

Given the long, varied, and wholly worthwhile thread that arose from the last Open Forum, tonight, a new one is provided.

From the Downing Street Memo hearing to the grim and unrelenting insurgency in Iraq, from Congressmen who decline to support an official apology for the government not making lynchings a federal crime to the number of jobless claims rising in the latest reporting period, talking points abound this evening.

The newest commenter here at The Dark Wraith Forums, T. Rogers, is herewith welcomed. So, too, is TrailerTrash, from It's Morning Somewhere.

Continuing my committed interest in promoting new, interesting, and perhaps under-noticed voices in our new world, I have a non-blog to suggest tonight: it's an online, feminist magazine called The F-Word, and it's quite a treat. I suppose I should advise you that it's not something for everybody's tastes but, then again, neither is The Dark Wraith Forums. Aside from its content richness, what I really like about this e-zine is something perhaps a bit subtle: its editor, Melody, has a grasp—quite genuine and earnest, it seems to me—of what she is doing in the context of the history of the modern feminist movement, especially as it came forward from perhaps the 1950s. It might not be evident to many at first glance, but The F-Word has structural, visual, and sensical orientations that remind me of academic and broader, social feminist literature from earlier times. And this doesn't mean The F-Word is some kind of retro affair; it's not.

I've mention previously something that I've been seeing lately along these lines. In the Analysis entitled "Fire and Seeds", I noted that I'm seeing revivals of movements from previous times, movements whose methods proved successful in the challenges of another era. Although many people today wouldn't know what the term means, at least part of what I'm seeing in socially conscious writing in general and non-mainstream journalism in particular is a 21^st Century version of what was once called "Beat literature." There's more to this movement than what could merely be called a new version of the beat generation's intellectual and journalistic work, but the momentum and methods are unmistakeable, even if somewhat different in terms of technology of communication. And it's all probably the best thing that has come out of this otherwise bleak era in the shadow of Empire.

That's enough of that.


As a modest offering here this evening, over at BlondeSense, a recent post by BlondeSense Liz about Congressmen benefiting greatly and personally from the tax cuts for which they voted prompted me to offer some pledges that members of Congress might consider taking. I herewith provide for the consideration of The Dark Wraith Forum readers a somewhat extended and fuller version of the Pledges in the hope that, during next year's mid-cycle Elections, polemical candidates will sign on to one or more of these entirely reasonable and honest oaths of commitment.

Here are the Five Great Pledges of a Good and Worthy Candidate.

Tax Cut Pledge:
If I am elected, I will not benefit from any tax cut enacted during my tenure in office. Any increases in my after-tax income arising from tax cuts in favor of which I voted will be returned to the Treasury every year for the rest of my Natural Life.

Forgiveness Pledge:
Whosoever is condemned to Death by the Will of the People, I will prevent from being executed, and I will lift up that person and release that person with the admonition to go and to sin no more.

Creationist Pledge:
As a Believer in the Divine origin of all Living Things, as that Creation is described in the Holy Bible, I will not accept any medical treatment that has been developed from applied principles of evolutionary biology. This applies to antibiotics, cancer therapies, and other treatments that utilize organisms and the chemical processes arising therefrom whose selective evolution was used to create therapeutic medicines.

Abstention and Chastity Pledge:
Because marriage is by nature and the Will of God an institution of a man and a woman for the purpose of procreation, I will not have sex with my spouse or any other member of the opposite sex subsequent to that time when the Act would not have the possibility of resulting in a viable pregnancy. This means that, if I am a man, I will not have Sexual Intercourse with a woman, even my wife, when she has passed menopause. If I am a woman, I will not engage in Sex Acts with any man who cranks beef but no juice. I will furthermore accept the will of God with respect to the ability of my body to procreate; I will, therefore, use no artificial means, be they chemical or pornographic, to attain a state that would allow me to engage in a Sex Act.

The Christ Pledge:
In that the Lord Jesus Christ said something about a wealthy man entering Heaven being as likely as a camel making it through the eye of a needle, if I am elected, I shall renounce all Material Goods and live therefor as a hermit in all my years of service to this Country, that it may be more Godly for my example.


These Pledges will be a real hit in the next Election.




Don't just stick your head in the door here at The Dark Wraith Forums. Come in and sit down. There's plenty of company and a lot of things to talk about. If you brought something of your own to eat, fine; otherwise, there's half a can of Spam™ in the refrigerator, five or six bags of peanuts in the pantry, and all kinds of things to drink behind the bar. Just don't burn yourself on the espresso maker, and don't use the coffee that has the skull and crossbones on the label. That's for me.


The Dark Wraith turns up the lights and makes sure the phone number for the Poison Control Center is taped to the wall by the pay phone.

Consumer Price Index Falls in May, Wage Gains Still Being Outpaced by Official Inflation Rate

Led by a 4½ percent drop in gasoline prices during the month, the government reported on Wednesday that the consumer price index for May fell by a tenth of a percent from its April reading. Excluding food and energy price changes, the so-called "core" CPI reading was up a tenth of a percent. Many economists cheered the news, coming as it did on the heels of the producer price index report on Tuesday that showed inflation at the wholesale level for May sliding more than half a percent. The core PPI change matched the core CPI change for May. The apparent easing of inflation in the economy gave many analysts further hope that the Federal Reserve would soon stop raising short-term interest rates under its control; but others believe the Fed is not ready to back off its inflation fight until it has bumped the federal funds rate up a quarter of a percent several more times at its regular meetings of the Federal Open Market Committee. Regional and product sector details on the components of the consumer price index can be found at the Bureau of Labor Statistics Consumer Price Index Homepage.

This scenario is particularly likely given that the Federal Reserve Board Wednesday released its periodic Beige Book, reporting on economic activity across the nation.

Dark Wraith CyberGloss

The Beige Book is compiled from impressions reported by each of the 12 district banks in the Federal Reserve system.

  The latest report indicates sustained growth in most industrial sectors and in most of the country, with little evidence available that the economy is slowing down. Region by region, the June 15, 2005, Beige Book describes an economy of relatively plentiful jobs, moderate to strong industrial and other commercial activity, and the possibility of some room for businesses to firm up profits through gains in "pricing power." Striking in the report is that, across the 12 Federal Reserve system districts, there are few distressed pockets (the area served by the Philadelphia district bank being notable for its recent downturn), even though the Bureau of Labor Statistics' own data shows that, over the past 12 months, wages for the average American worker have risen by only 2.6 percent, while the consumer price index indicates that inflation has eroded real purchasing power by 2.8 percent, meaning that, even by the figures of the government itself, American labor has lost ground to inflation over the past year.

As was the case Tuesday when the apparently good news about prices at the wholesale level were released, the major stock market indices finished Wednesday only slightly higher.

Dark Wraith CyberGloss

By selling stocks and using the proceeds to buy crude oil futures, investors cause stock prices to fall and the crude futures prices to rise.

  Interestingly, after this morning's report, stock prices dropped noticeably, in part on surging crude oil prices, which crossed the $57 per barrel mark for some grades of crude. It was only later that an intra-day rally bouyed the stock indices back into positive territory; but the optimism seemed surprisingly tempered considering the back-to-back inflation reports, the possibility of a let-up by the Fed, and a Beige Book that looked more like the Bluebird of Happiness Book. Whether or not the surprisingly muted glee of investors is justified will be more evident over the next several days as further data is released by the government and private economic data providers.

One possible reason for investor worries is that, while the Bureau of Labor Statistics was reporting on an economy where inflation has come back under control, the Commerce Department was releasing news that industrial production had roared upward by twice what analysts had predicted for May, scoring a gain of four-tenths of a percent, after sliding three-tenths of a percent in April.

Dark Wraith CyberGloss

In the short-run, real output can be induced to rise by growth of the money supply in excess of the real growth rate of the economy. In the long-run, however, production returns to its original level, and the excess money becomes nothing but inflated prices on the original production schedule.

  The overall jump was led by the manufacturing component of industrial production, which rose a dramatic six-tenths of a percent. To an outside observer, this is nothing but good news; but economists and sophisticated investors understand that such a growth rate—a monthly growth rate of six-tenths of a percent translates into an annualized growth rate of 7.44%—is unsustainable for a large economy and a clear sign of inflationary pressures "heating up" the economy because excess money is causing rapid, short-term increases in real output that will ultimately vanish and be replaced by nothing but inflated prices. To a certain extent, with the Federal Reserve Beige Book pointing to room for firms to boost profits by increasing prices, the central bank is perhaps unintentionally acknowledging that this scenario is a possibility in the months ahead.

U.S. Trade Gap Widens in April, Wholesale Prices Fall in May

After narrowing in March on the weak U.S. dollar, the United States trade deficit opened back up in April, the Commerce Deparment reported on Friday. U.S. exports rose to better than $106 billion, but a surge in foreign imports outpaced the money American manufacturers earned overseas. The overall trade deficit expanded to $57 billion, not quite as high as the $58 billion analysts had predicted, but still worrisome because it reverses a narrowing of the trade deficit in March, when the imbalance came in at a revised $55 billion in red ink. The trade deficit with China, which many economists hope will start to close, instead expanded from $10 billion in March to $12 billion in April.

Overall, trade with Asia showed some signs of becoming more balanced, but this was offset not just by China, but also by a widening gap with the United States's trading partner to the north, Canada, which is increasingly becoming a significant exporter to the States of American-label cars as the big three automakers move more and more production to the Canadian side of the border.

Dark Wraith CyberGloss

Although U.S. aircraft are popular with overseas purchasers, sales can vary widely from month to month and therefore cause considerable volatility in the overall trade deficit.

  Acting as a counterbalance to the flow of big-ticket items into the U.S., aircraft manufacturers had a good month for overseas sales, which contributed strongly to the rise in exports. In the other direction, even though oil prices slipped downward in April, the total value of oil shipped into the country rose by $600 million as energy usage pushed upward, to some extent in reaction to the lower cost of gasoline at the pump during part of the month. Analysts anticipate that, with oil prices easing in May, the next trade deficit figures might be better, but other factors could smother cheaper May oil, especially if rising demand outstrips the falling prices.

However, even with signs pointing to particular sectors possibly having a good showing in May, the overall outlook for the U.S. trade deficit is not so favorable from the perspective of basic macroeconomic analysis.

Dark Wraith CyberGloss

Underlying the central bank's successive upward pushes on short-term interest rates is the fundamental demand for lendable funds, which remains strong enough to hold interest rates high because of massive borrowing by the United States government to fund the record federal budget deficits.

  With interest rates in the U.S. on the rise because of tightening monetary policy by the Federal Reserve, American dollars are going to become more attractive to foreigners, strengthening the U.S. dollar and thereby making U.S. exports progressively more expensive overseas while making foreign imports to the U.S. cheaper. Without a long-term, structural solution to the higher interest rate environment in the U.S., the trade deficit cannot materially narrow, although some success in that realm could be achieved were the Chinese central bank to fulfill rumors that it is considering revaluing its currency, the yuan, against the dollar.

Dark Wraith CyberGloss

To allow a currency to "float" means that a country lets the global currency markets set the price according to more or less pure supply and demand conditions.

  Although it is unlikely that the Chinese would allow the yuan to float against the greenback, any revaluation that would bring the exchange rate closer to a market rate would benefit U.S. exporters by making their goods cheaper in China at the same time it would make Chinese goods more expensive in America. The downside of this is that U.S. consumers would end up paying more for American-made goods as well as for imports, since the products made in the U.S. would tend to reflect prevailing prices of the competing, substitute Chinese goods.

In other news, the Labor Department on Tuesday released the preliminary figures for the producer price index showing that inflation at the wholesale level dropped by a nearly stunning six-tenths of a percent in May. Excluding the volatile food and energy sectors, the producer price index rose by a modest tenth of a percent. The difference was primarily attributable to the May slide in energy prices due to the fall in the price of crude oil during the month. That downward trend has since turned around, with oil closing Monday above $55 per barrel and remaining above that mark at the closing bell Tuesday, as well.

The evidence of less inflationary pressure could give the Federal Reserve some room to give the economy a breather from the record string of short-term rate increases it has instituted over the past year.

Dark Wraith CyberGloss

Stock prices are based upon investors' expectations about the future. If those expectations change because of new information, then stock prices will adjust to reflect investors' reconsiderations about the future.

  Such a respite should be welcome news to the stock markets, since it would mean not only that economic growth would not be as hampered by higher interest rates, but also that previous assessments of the long-term outlook for growth could be revised, allowing stocks to rise to reflect new, more optimistic assessments. Curiously, and contrary to this scenario, stocks simply drifted today, rising in the morning, but pulling back in the afternoon to close with only minimal gains for the major indices. Although there are a number of possible reasons the markets didn't react with strong favor to the hopes of a less aggressively contractionary monetary policy on the part of the Fed, some economists suspect that investors are awaiting more economic figures, including the consumer price index and the level of business inventories in May, both of which will be released Wednesday.

Analysis: Stone, Sand, and the Writ of History

In his monumental lecture series, The History of the English Language, Stanford University professor Seth Lerer describes an incident while he lived in Iceland, where he was learning the language still spoken much like the Old Norse of "Viking" lore. Dr. Lerer said that he had been somewhat depressed for days, and the woman of the house in which he was staying finally told him that he was mæddursjúkur. Lerer immediately took this compound word to mean "mothersick"—as in "homesick"—which he was. The problem with this translation was that, in Icelandic, "mother" is móðir, so the variant mæddur must be quite old, a variant of some sort. It obviously carries the implication of "mother," but it must be either just an ancient fossil of earlier language, or it must carry some special meaning.

It was only later that he came to understand that mæddursjúkur doesn't mean "homesick," it means "depressed"; and the implication is that a depressed person is crazy: mæddur constellates with "mother," no doubt; but it also constellates with "mad," as in the madness of the insane.

Most of the languages of Europe, and some even elsewhere, all derive from a hypothetical modeling language called "Proto-Indo-European," supposedly spoken thousands of years ago by tribes living around the Black Sea before a diaspora sent them in all directions, giving rise to many languages and language groups. The Indo-European languages are strikingly similar in many ways, but it wasn't until the 18^th Century that the similarities began to be noted as phenomenally regular rules with respect to how consonants and vowels are changed in pronunciation from one language to another. Words carry meaning; but they also carry history, most importantly, the history of how peoples long ago saw the world and how modern speakers code those same world views in their spoken languages. Everyone knows that words are the most important way to express thoughts; but what people don't notice so much is the words convey thoughts back to the speaker. Words—the way they relate to one another, the way they sound like one another—are as much, if not more, a tool to teach their speakers how to see the world as they are a way for those speakers to tell others how the world is seen.

The word "hysterical" constellates with the word "hysterectomy," for example. Now, a hysterical person is crazy, but a person having a hysterectomy is necessarily a woman. It is that quality of being a woman—of having a womb—that must bind with the quality of craziness that vexes some people. Being "mothersick" is an illness of mothers, but mothers are women; thus, to be mæddursjúkur is to be depressed, and therefore crazy, because that's a quality of people who are women.

On the other hand, languages of the Indo-European family have words for the qualities of men, as well: virtuous constellates with virile and even virgin, all to the effect of thought-casting men in these languages as good, honorable, and strong of body and will.

◊                ◊                ◊
Karen Kwiatkowski was a lieutenant colonel tasked in her last assignment before retiring to Bush Administration appointee Douglas Feith as a military-political affairs liaison. Mr. Feith, a staunch neo-conservative, was deeply involved in crafting the policy to overthrow the regime of Saddam Hussein in Iraq. Working within the Pentagon, Mr. Feith used military intelligence facilities and results to the purpose of developing information that would then be passed on to political leaders within the United States as well as abroad.

While working within the office to which she had been tasked, Lt. Col. Kwiatkowski started writing, first under pseudonym, then under her own name, about what was happening in Mr. Feith's office, the Office of the Secretary of Defense, Under-Secretary for Policy. In both broad stroke and in precise detail, she described not only the systematic construction of refined data presentations that were to be passed up the chain of command, but she also gave specific information about the removal of information in a systematic, calculated, and sustained and ultimately successful effort to construct from the whole cloth of ideology what would appear to be unambiguous, stark, empirical evidence that Saddam Hussein had to be removed, and that the removal was urgent lest the threat he posed become catastrophe.

On more than one occasion, Lt. Col. Kwiatkowski stated something far more troubling, but her words would be not be understood to most civilians, and perhaps not even to some military personnel. She described what she called the erosion of "good order and discipline" in the Office of the Under-Secretary. That term is not just a collection of words used in an off-hand manner. "Good order and discipline" is a military concept, a way of conducting affairs at all times and in all situations to ensure not merely procedural integrity, but survival itself. On the battlefield, "good order and discipline" is what distinguishes a professional soldiering class from a violent, armed mob. More importantly, if a group of soldiers—be it a squad or a battalion—becomes subject to overwhelming countervailing force, it is the "good order and discipline," and only the "good order and discipline," that keeps the worst of all possible emotions from overcoming the soldiers: if panic sets in, it is only a matter of time—perhaps no more than seconds—before the troops start to scatter; and if they scatter, they will then be cut down in their flight. It is "good order and discipline" that prevents a difficult, perhaps impossible, battlefield situation from becoming a rout.

Karen Kwiatkowski saw good order and discipline slipping away, as Mr. Feith and his ideologically sympathetic underlings pulled the work of his office away from professionalism and objectivity, and towards abject advocacy. The wholesale disposal of his portfolio meant nothing to this man who was there to pull in data and from it manufacture disinformation to disseminate to people of substantial influence. Karen Kwiatkowski was in no way vague: her descriptions went all the way down to describing manipulations within PowerPoint presentations.

Karen Kwiatkowski, more than two years ago, described not just the lie that was being created to lead America to war, but exactly how and by whom it was being created as a monolithic, indisputable, compelling call to war. She named names. She cited documents. She detailed events. She did all of that. In a March, 2004, retrospective entitled "The new Pentagon papers" in Salon, the now-retired lieutenant colonel wrote, in part, as follows:

From May 2002 until February 2003, I observed firsthand the formation of the Pentagon's Office of Special Plans and watched the latter stages of the neoconservative capture of the policy-intelligence nexus in the run-up to the invasion of Iraq. This seizure of the reins of U.S. Middle East policy was directly visible to many of us working in the Near East South Asia policy office, and yet there seemed to be little any of us could do about it... I saw a narrow and deeply flawed policy favored by some executive appointees in the Pentagon used to manipulate and pressurize the traditional relationship between policymakers in the Pentagon and U.S. intelligence agencies.

She saw it as it was being done, and she wrote about it. And yet, the war happened.

And now, somehow, some politicians in Washington stand shocked—just shocked—by leaked British memos revealing British policy-makers saying that the Iraqi war was started on "fixed" intelligence.

Lieutenant Colonel Kwiatkowski didn't whisper what she knew into a reporter's notebook. She didn't preen herself before cameras. She did not swagger on the American stage as a polemic. She wasn't even given the dignity of being part of the craven cry to "Support Our Troops" because everyone knows that real troops are the ones with guns out there doing the "real" military stuff, not the tens of thousands behind the scenes doing everything they can to ensure that "good order and discipline" are maintained.

She spoke her peace as the streams of patriot blood prepared to pool and then flow, eventually coursing their way through the cities, the towns, the prairies, the hills, and the very psyche of an America taken to war on lies whose crafting she exposed to anyone who would have listened. Now, those streams of blood come down as a roiling tide to this day; and the people of importance stand at the banks not in groveling atonement for what they allowed, but rather in denial or its miserable cousin, outrage. And that blood of some seventeen hundred Americans and a hundred thousand Iraqis is paid in the miserly fee of controversy.

Now, in this moment, the people who matter will carve into granite what will come to be the history of this age, while the words of Karen Kwiatkowski wash away in forgotten winds of yesterday.

After all, Lieutenant Colonel Kwiatkowski was just mæddursjúkur, anyway, now wasn't she?




The Dark Wraith has spoken.

Special Blog Post: Dissertation Describing Teaching of Creationism on Deck at The Ohio State University

Bryan Leonard, an Ohio State University Ph.D. Candidate who teaches biology at a nearby, suburban high school, is on the verge of the defense of his dissertation about effectively teaching creationism to his students. The matter was headlined in the Metro section of the June 9, 2005, edition of the Columbus Dispatch, which provided both a description of the controversy this dissertation has generated at Ohio State, along with a fair and balanced explanation of both evolution and creationism as competing views about the origins of life. The Columbus Dispatch did not note in its explanations that creationism and its variants like "intelligent design" are derivative components of Judeo-Christian mythology, rejected in the modern era as literally factual even by many practicing adherents of Judaism and Christianity.

The Ohio State University has launched an investigation into the matter based upon a letter of complaint filed by three professors. The professors challenged both the constitution of Mr. Leonard's dissertation committee, headed by an assistant professor in the Department of Education, and the fact that Mr. Leonard allegedly used students inappropriately as subjects in his experimentation. Many universities and colleges have formal policies prohibiting human experimentation except under strictly approved and rigorously supervised circumstances and with the subjects'—or in this case, their guardians'—fully informed consent. The guidelines are usually crafted to meet general standards of ethical research practices established by Federal Regulations, as well as the standards of specific professional organizations, such as the American Psychological Association, the American Nurses Association, the American Sociological Association, and the World Health Organization.

There is currently no information available concerning whether or not the teaching of creationism by Mr. Leonard to his high school students was done with the knowledge of the Hilliard School Board or the parents of the students subjected to his curriculum content and methods of instruction. According to the letter issued by the three professors challenging the dissertation committee and ethical standards, Mr. Leonard had openly testified before the Kansas Board of Education, which created a forum in which creationists could provide cover for the State of Kansas to start teaching creationism in public schools as if it were scientifically valid. To date, no similar effort at legitimizing the teaching of religious mythology in high school science classes has been made in the State of Ohio; however, under the auspices of the State Board of Education in Ohio, Mr. Leonard provided language on the inclusion of so-called "intelligent design" creationism in model lesson plans for public schools throughout Ohio.

Hilliard Davidson is a public high school located in the Columbus suburb of Hilliard, just west of the state capitol. The official Website of Hilliard Davidson High School lists Mr. Leonard on the "Teachers" page. Although school Websites are sometimes not regularly updated during the summer vacation months, there is no evidence that Mr. Leonard's affiliation with Hilliard Davidson High School has ended. The school Website provides considerable information about the high school and regulations governing student activities, opportunities, and responsibilities. On Page 20 of the Handbook of Hilliard Davidson High School, under the heading "Student Rights and Responsibilities," the following headnote statement and list is given:

"The Board recognizes that it has the responsibility to assure students the legal rights that are theirs by virtue of guarantees offered all persons under the federal and stateconstitutions and statutes. In connection with these rights are responsibilities that must be assumed by the students. The Board understands that:
1. Students have the right to quality education and a responsibility to put forth their best efforts during the educational process.
2. Students have the right to expect school personnel to be qualified in providing a good education.
3. Students have the responsibility to respect the rights of other students and all persons involved in the educational process."

There was no word on Hilliard parents' reactions to the controversy over the experimental teaching of religious stories in science classes, and no information was available on whether or not parents of students in Mr. Leonard's creationism lectures even knew that their students were being taught religious myths when they were supposed to be learning biology.

Many more questions remain, particularly regarding the use of federal, state, and local school district funds pursuant to the private research of a doctoral student, especially now that it is known that the research methodology was not cleared by experts in the field in which the dissertation's author represents sufficient expertise to engage in publication-quality research.

The Written Peace: Open Forum of June 9, 2005

It is time, once again, for an open thread, allowing as it will for a broad and lively discussion on topics of interest to the commenters here on The Dark Wraith Forums. Given the rather odd tangents coming off the thread from the last post, it would appear that such an opportunity is overdue. Plenty of new data on the economy will be released in the next week or so, and this should be grist for the mill of some good articles. The Dark Wraith Forums will be ever at the ready to point to the most depressing possible interpretation of whatever information is released.

It is with a tinge of sadness that I note that placing negative spin on the economic news of our day is not a difficult task. Putting a positive spin on such news would be a far more daunting task for the thoughtful, educated scholar. This is, of course, why it is easy for the White House and much of the mainstream media to do just that.

I do want to welcome some recently new posters to the blog. Although I mentioned her blog, expostulation, in a comment thread, consider this a formal welcome to Misty, whose blog has a color scheme almost as dark in character as that of The Dark Wraith Forums. CottonSaddieMango joins us as the first openly feline commenters here; and this is a good thing: no one can yet say that this blog is going to the dogs. Moving along, if I am not mistaken, Missouri Mule from the ever-delicious BlondeSense has finally made her first comment here at just about the same time she was posting a great article of her own at BlondeSense. A welcome is in order to Mr. Non-Descript, whom I must tell all of you is a former economics student of mine and one of the brightest I've had in a while. I should note, however, that I have recently had more than a few really good future economists in my classes, which somewhat annoys me because they're shaking the confidence I have in my ability to write tests that ruin everyone's day.

Then again, the way the regulars here have been commenting recently, it seems that solid understanding of macroeconomics is beginning to infect a lot of people's thinking. That's great news, except for the part about how, if people get too good at knowing macroeconomics principles and how to apply them to real-world issues, The Dark Wraith Forums might no longer be needed.

The slight feeling of impending obsolescence is rather discomfiting.


Anyway, pour yourselves something to drink at the coffee/hot chocolate bar; find a big, soft chair; make yourselves comfortable; and spend some time speaking your minds.


The Dark Wraith pulls up a chair for himself to relax and enjoy the company.

White House Cuts Growth Forecast by One-Tenth Percent

The Bush Administration on Wednesday revised its estimate of economic growth, shaving 0.1 percent from its forecast issued at the end of last year, when it said the United States economy would grow by a robust 3.5 percent.

Dark Wraith CyberGloss

Generally speaking, the phrase "the economy will grow by..." refers to growth in gross domestic product, which is a measure of the total value of all final goods and services produced in an economy during a specific period of time.

  The news that Mr. Bush's Council of Economic Advisers still sees no recession in sight gave some independent economists pause as an accumulation of evidence points to a considerably more dramatic slowdown in the months ahead. Last week's anemic growth in job formation—a mere 78,000 new jobs were added to the economy during May—coupled with lagging industrial output and other worrisome signs, have had investors on Wall Street on edge. In stock trading yesterday, equities were up dramatically by mid-day but surrendered just about all of that gain by the closing bell. Today, stocks drifted lower, partly on the White House revision of economic growth, but also because of general wariness about what Federal Reserve Chairman Alan Greenspan will say tomorrow in testimony before Congress.

Rumors have been circulating for days that the Fed will give the economy a breather from the year-long hammering of hikes in short-term rates the Fed has instituted to battle inflation. Skeptics, however, doubt that the central bank has much leeway to ease off its contractionary monetary policy regime, given that evidence of mounting inflation pressures have not gone away. Even the White House admitted today that its original estimate of inflation needed upward revision because of the persistently high price of crude oil, which closed today above $52 per barrel, a level that continues to defy forecasts earlier this Spring that oil prices would fall back below $40 per barrel some time during the Summer.

In corporate news, automaker General Motors has taken center stage with a one-two-three punch, beginning yesterday with an announcement that it plans to cut 25,000 workers from its U.S. payrolls by 2008. At about the same time, it made public its plans to build a $387 million auto factory in China to take advantage of that country's relatively cheaper production factors and artificially weak currency, which will give GM a pricing advantage as it exports cars built there back into First World countries, particularly the United States.

Dark Wraith CyberGloss

Announcements of planned layoffs are often viewed favorably by investors because of the possibility that lower operating costs will mean higher profits.

  In the third leg of GM's trifecta, Tracinda Corp., headed by financier Kirk Kirkorian, disclosed that it has reached 18.9 million shares of a $31 per share, 28 million share tender offer for the automaker's common stock. The nearly 19 million shares now held by Tracinda put its stake in General Motors at a little over seven percent. All of this was seen by Wall Street investors as good news, and GM stock rose today by more than four percent.

While many investors see the cost cutting measures and the interest of Kirkorian as positive signs for the giant automaker, some analysts are concerned that GM has jumped on the move-operations-to-China bandwagon too late. For years, the Chinese central bank has had an open policy of fixing the exchange rate of its currency, the yuan, at eight to the U.S. dollar.

Dark Wraith CyberGloss

When a country's currency is "weak" relative to the currencies of its trading partners, its exports will be cheap in those other countries.

  To maintain this inflated rate, the Chinese must routinely and aggressively enter global currency markets to purchase greenbacks with yuan, thereby building a global supply of yuan far in excess of what the Chinese economy could use without incurring massive inflation. Ultimately, or so monetary theory goes, those yuan pooled in global currency markets will eventually have to wash back to the shores of China, where they will create severe inflation. Although the Chinese government, long known for its short-term solutions that include repression of undesirable activities,

Dark Wraith CyberGloss

Trying to stop inflation through wage and price controls has been tried by many countries, but it cannot work because it doesn't address the underlying cause: too much of the nation's currency in circulation.

  may impose wage and price controls in a futile effort to prevent the inflation, the only effective, long-term solution is crushing the growth of the money supply, a move that will drive Chinese interest rates—which will already be rising as inflation expectations are stamped into them—sky high. Businesses operating in such an environment will find themselves dealing with factor costs that are trying to rise at the same time high interest rates are making new plant and equipment investment unattractive.

Dark Wraith CyberGloss

Persistent expectations of inflation cause interest rates to include an "inflation premium" to compensate lenders for erosion of future purchasing power of the money they lend.

  The likelihood of a stagflation like that seen in the United States at the end of the 1970s is quite high, with a deep recession following, one that would turn what had been a plan by General Motors well-rewarded by Wall Street into the epitaph for that company's tombstone as chiseled by a future generation of investors dumping the stock, possibly in the same time frame that the Chinese Communist Party and its corporate benefactors are facing the wrath of a billion Chinese citizens who had come to the edge of hope for middle-class comfort, only to see those prospects evaporate in economic depression and violent political repression.

Job Formation Falters, Real Wages Slip, Yield Curve Flattens

The Commerce Department on Friday announced that only 78,000 new jobs were generated by the American economy in May, the smallest job growth since late in the Summer of 2003. This number was far below the concensus forecast of how many new jobs would be offered in May, and less than what many economists see as the minimum number needed to meet net new labor force participation. Recently, the month-over-month average for new jobs created has been around 175,000, perhaps barely enough to satisfy the net additional supply of workers. Curiously, the unemployment rate for May fell from its April level of 5.2 percent to 5.1 percent.

Dark Wraith CyberGloss

Data to calculate the unemployment rate is collected from households, while data for new job formation is collected from businesses.

  Among the many factors that could cause job formation to slow dramatically at the same time the unemployment rate is dropping is workers being dropped in official tallies of who is in the "labor force": workers who stop actively seeking employment are not considered unemployed anymore; therefore, as their numbers grow, the official unemployment rate drops. The Bush Administration mounted a united front in the face of the dramatic drop in new jobs being offered. Labor Secretary Chao said on Friday that the report demonstrates that "...the economy is continuing its 2-year solid streak of job creation," and President Bush on Saturday declared, "America's economy is on the right track."

In other labor news, the Labor Department reported that average hourly wages grew in May by a mere 0.2 percent, for an annualized growth rate of slightly more than 2.4 percent, well below even the official inflation rate that, as of April, stood at 3.5 percent. Little noticed in the United States, an article published May 10, 2005 on the Website of the Financial Times gives more evidence of a deep, long-term trend of eroding real wages in the United States: according to the authors, a study done by the Financial Times indicates that real wages in the United States are falling at their fastest rate in 14 years and that, as of the end of March, the year 2005 has been following the same, seemingly well-established pattern. The article states that, "Inflation rose 3.1 per cent in the year to March but salaries climbed just 2.4 per cent..."

Finally, as noted recently here on The Dark Wraith Forums in the article, "Of Crystal Balls and Yield Curves," some economists are becoming increasingly concerned by the recent behavior of the so-called "yield curve," which shows interest rates of various maturities of government debt instruments: normally, the yield curve has a relatively smooth, upward slope, since long-term interest rates should be somewhat higher than short-term interest rates, holding all other factors constant. An "inverted yield curve" is one in which short-term interest rates are actually above long-term rates. Inverted yield curves have preceded five recessions in recent U.S. history. What has been troubling over the past several months is that the yield curve, although still upward sloping as it should be, has been flattening out, as if it is moving toward the dreaded inversion. The graphic at left shows the yield curve of late April in blue and the yield curve as of yesterday in red. Readers may note that, not only is the yield curve flattening out quite visibly, but it is also pivoting around the intermediate-term instrument values. This means that short-term rates are rising, and long-term rates are falling, with the intermediate-term rates acting as the fulcrum of a sort of financial lever. If the short and long yields meet some time in the next several months, that would be the threshold of the inversion, and any further rise in short-term rates attended by a fall in long-term rates would be a classical inverted position for the yield curve. Although inverted yield curves have appeared in the past without a recession following, they are, nevertheless, considered a leading warning sign, one that is ignored at the risk of believing, as President Bush does, that the U.S. economy remains "on track," despite the mounting evidence to the contrary.

Special Analysis: La'ana-hum Allah

They were called "Franj," these men from the West. They had traveled as a converging army, they wore metals over their tunics, and they rode to the call of their Lord's Vicar, carrying forth as they did in legions to the battlefield that was this city of the one true Lord, the God of all men.

The city was huge, an amalgamation of peoples from many places, all there to be in the shadow of religious temples commemorating both men and great events from centuries, if not millennia, of history. This place was for atonement, for revelation, for sanctification, for suffering, for enterprise, and for the taking by an army strong enough to seize it from those who had marched upon it before them. Warriors were garrisoned in the city, but they were few compared to civilians: merchants, women, children, elderly, fools, and even the infirmed teamed the streets, the bazaars, the temples, and the shops that coursed through the narrow passages that divided sprawling neighborhoods, usually delineated by religion or religious particulars.

It was AD 1099, in the blistering heat of early Summer, when the Franj began to arrive. From across Europe, they had answered the call of Pope Urban II to take back "the land of milk and honey" that was in the hands of "bastard Turks." Much was made of the accumulation of outrages against Christians and Christianity. The Pope spoke of this intolerable situation as he exhorted an enormous crowd of commoners and noblemen to do what would be necessary were Jerusalem ever to be safely the place for worshipping Jesus where He had lived as both god and man.

There was really no place at all in the city of Christ for the pagans who had come later or for the people of the religion that had instigated the monstrous death of the Lord on a cross at the hill called Calvary. Such people are outside the Grace of God; and no Commandment proscribes the killing for just cause of one who does not accept Christ as Lord.

The Pope meant for this to be the time of reunification of the Church of the West with the Church of the East. This was to be the victory of Christ's soldiers over the heathen who had for too long been encroaching ever more across Asia Minor and the Middle East. Nothing less than overwhelming defeat of the Saracens would fulfill the sworn duty of the Franj to bring to a complete and utter end the time of the Saracens.

"God wills it."
                 —Pope Urban II

Urban promised that those who joined this great crusade were certain to be absolved in the Holy Land of their sins. But far, far more was at stake for all of Christendom: that place, that sweet Jerusalem, must be in Christian hands if The Revelation of the end of the world were to come so that Christ could return.

Already, there had been brutal battles between contingents of Franj and warlords of the region. Even before entering the land of the Saracens, mobs of untrained Europeans had encountered armies that several times had to kill and capture the Christian soldiers just to stop the pillaging. This had been especially true in Hungary. Other places, though, the unruly mobs had met no resistance as they murdered the locals, pillaged the homes and churches, and burned the communities of Jews and Christians alike.

But when they finally met the Turks, their ranks were obliterated by the superior strategies of warlords like the young Sultan Kilij Arslan ibn Süleyman and by their own stupidity and lack of discipline. This "People's Crusade," comprising as it did the ignorant, the greedy, the wretched—and led by an ascetic known as Peter the Hermit—was no match for the warriors of Arslan; and so this first and minor part of the Crusade was at an end long before it arrived at places of any importance. But behind the fools of that first contingent were Crusaders of a much different sort: four separate armies of professional warrior knights from France, Normandy, England , Italy, and Germany were amassing for their march to the Holy Lands.

More men from the West—many, many more of them—had converged from sieges and battles at Nicaea, Antioch, and other places along the road to the prize. They brought with them weapons of war: heavy sword, mace, well-trained horses, and most importantly, growing experience in the ways of war against Saracens. All of this was to the practical end of what would be a single, massive push into Jerusalem, a push that was intended to overwhelm with sheer numbers the fighters of local warlords and generals, weakened as they were by their lack of numbers, their incessant infighting, and their lack of grasp of just what it was that approached.

Stunning was the depth to which the first morning wave of Crusader attacks penetrated the city. Defenders, who might have better held their ground with more time to prepare, were rapidly routed by massive horseback assaults. Some were killed where they stood, some driven to fortifications within shrines. Thousands were put to death just within the Al-Aqsa Mosque, where they had tried in vain to assemble a stand with insufficient time.

No resident of Jerusalem could be spared the agonizing horror of bladed death. Jews and orthodox Christians of all sects were given no sanctuary: they died right alongside their Muslim neighbors. A contingent of Franj chased Jews into a large synagogue, barred the doors, and then burned that holy place to the ground, the screaming of thousands incinerating within being drowned by the hymns sung by the Crusaders who had set the conflagration.

"Many people were killed. The Jews had gathered in their synagogue and the Franj burned them alive. They also destroyed the monuments of the saints and the tomb of Abraham, may peace be upon him.
                 —Ibn al-Qalanisi

Other Jews fled to the top of Solomon's Temple, where they would meet their doom:

"[M]any were shot to death with arrows and cast down headlong from the roof. Within this Temple about ten thousand were beheaded. If you had been there, your feet would have been stained up to the ankles with the blood of the slain. What more shall I tell? Not one of them was allowed to live. [The Crusaders] did not spare the women and children."
                 —Fulcher of Chartres

It was not enough only to kill the men, women, and children; many were butchered into pieces and disemboweled, at least in some cases because of stories that the heathen secured their gold by swallowing it.

"[There were] piles of heads, hands and feet."
                 —Raymond of Aquilers

The killing was on a scale simply incomprehensible to people who have never seen battle waged against largely civilian populations poorly defended. The term "genocide" is meaningless in the sensorial gluttony of such times.

"[O]ur men rode in the blood of the Saracens up to the knees of their horses."
                 —Duke Godfrey, Archbishop of Pisa

Various accounts told of massacre for several days to a week. When it was finished, not one Muslim or Jew was alive within the city walls. Only a small contingent of Muslims escaped, and then only because the knights besieging them were anxious to stop fighting and start claiming the properties that the former residents of the city would no longer need.

Thousands. Tens of thousands. Perhaps hundreds of thousands. All unworthy of property, life, and their own names for God. All of them despatched from the city of God to that place where the "bastard Turks," in the words of Pope Urban II, and the "murderers of Christ," in the words of Peter the Hermit, would surely face the immortal punishment that must follow their earthly rout. And Jerusalem—that place of the Passion feeding such passions that men will kill men in orgiastic glee—was ready once again for the return of the Lord, led by His armies.

"They desired that this place, so long contaminated by the superstition of the pagan inhabitants, should be cleansed from their contagion."
                 —Fulcher of Chartres

As are all such victories—even to our own in this day, nine centuries later—it was a victory of unimaginable importance.

"This is a day the Lord made. We shall rejoice and be glad in it."
                 —Raymond of Aquilers




Many are the days the Lord has made. Rejoice and be glad in all of them.



The Dark Wraith has spoken.



---------------------------------
Select Bibliography

Maalouf, Amin. Crusades Through Arab Eyes. New York: Schocken Books. 1984/1989. ISBN: 0805208984

McFall, J. Arthur. "Taking Jerusalem: Climax of the First Crusade." Military History (June 1999), Vol. 16, Iss. 2.

Special Blog Post: Apologies for Absence

The Dark Wraith has had a long journey over the past couple of days. Across the Midwest, part of it was on foot, part of it was through the kindness of truckers, the remainder was on buses. The trip has not ended, but it will by tomorrow evening. Right now, sanctuary and a computer are at hand, so a decent post is in order.

No, this won't be an uninformative post. Tonight, CNN.com is running an article entitled "Soft and flat? Danger!", which is about the growing concern among economists and investors about the "flattened yield curve" that could point to an "emerging soft patch in the U.S. economy." In other words, long-term bond rates are falling, short-term rates are rising, and there may come a point where the long end of the yield curve meets the short end of the yield curve.

About two-thirds of the way down the article, there in black and white were the three words of fear and loathing: yes, CNN used the term "inverted yield curve," a prospect brought up several times and culminating in a Thursday, May 19, 2005, Special Analysis post here on The Dark Wraith Forums, "Of Crystal Balls and Yield Curves." In summary, when the yields on long-term Treasury securities fall below the yields on short-term Treasury securities, the situation is called an inverted yield curve, and these fairly rare animals have preceded five strong recessions in recent U.S. history.

As a point of reference, Friday morning, the yield on the benchmark 10-year Treasury bond made it to a 14-month low, and it closed at a yield of 3.97%. The yield on the short-end, 3-month Treasry bill closed at 2.84%. That puts the 3-month/10-year yield spread at 1.13%. Exactly one month ago, the yield on the 10-year Treasury was 4.58%, and the yield on the 3-month Treasury was 2.69%, for a yield spread of 1.89%.

Yo.

The Dark Wraith is glad to note that CNN.com has finally noticed that the sky up above just might be doing what the long end of the yield curve is doing: yes, folks, the sky could be falling.

At least, it certainly looks that way.


Consider this something of an open thread while your host finds his way back to more familiar and somewhat more secure surroundings. As always, if you're the last one out the door at the end of the evening, make sure the VACANCY sign is turned off, see to it that the cat isn't in the walk-in freezer, and check the back parking lot for mainstream journalists from the Convention Center who got lost on their way back to the Mainstream Media Left Behind Festival.


The Dark Wraith is enraptured.

Consumer Confidence Rises and Falls at the Same Time

In a disturbing sign that either Americans are bipolar or one of two data services is wrong, figures released earlier this week indicate that consumer sentiment rose or fell in May. Consumer confidence as measured by the University of Michigan index of consumer sentiment fell by 0.8 from its April level of 87.7 to stand at 86.9 for May. One part of the survey, the expectations measure, dropped to 75.3 in May from 77.0 in April, pointing to eroding confidence in consumers' outlook about the general economy heading into the Summer.

The University of Michigan consumer confidence index was released on May 27; but just four days later, on May 31, the Conference Board released its consumer confidence index, which jumped dramatically to 102.2 for May from 97.5 for April.

Dark Wraith CyberGloss

The Conference Board represents itself as a non-profit organization that "...creates and disseminates knowledge about management and the marketplace to help businesses strengthen their performance and better serve society".

  Interestingly, the concensus forecast of economists for the Conference Board's consumer confidence measure had it slipping a little to 96.0 instead of rising strongly. The components of the Conference Board index almost all rose, with consumers feeling better about job prospects, business conditions, and personal earnings. In particular and in stark contrast to findings for the same period by the University of Michigan, the Conference Board found that its index of expectations rose to 92.5 from 86.7.

Although the University of Michigan consumer confidence index and the one calculated by the Conference Board use different survey methods, they pose to represent the same essential quality about consumers, whose activity makes up nearly two-thirds of all economic activity in the United States. In recent years, some economists have pointed out that the relationship between consumer confidence and actual consumer behavior is not strong. Other economists tend to see the weakness of the correlation as a sign that consumers do, indeed, act upon their confidence about the future, but that they also react to more timely events in their lives that happen more quickly than month-old surveys can capture in snapshot statistics. To some extent, though, now that two major publishers of consumer confidence indices have found opposing results for consumer confidence, whatever the consumer component of the American economy does over the coming months, at least one of the measures will have proven itself correct. This should diminish any criticism of consumer confidence indices as unreliable.