Minimum Wage Wins Nobel Prize

The Daily Reckoning PRESENTS: If you are tired of listening to the Mogambo scream and scream and tell you how important it is to pad your portfolio with gold and silver…too bad. Because he’s doing it again. Read on…

MINIMUM WAGE WINS NOBEL PRIZE

If you want a good lesson in inflation by creating excesses of money and credit, financing a whole lot of government corruption with a high degree of murderous viciousness, theft and criminal stupidity, then look no farther than Zimbabwe.

Reuters reports: “Zimbabwe’s central bank governor on Monday raised the country’s main lending rate by 200 percentage points to 500 percent in a drive against skyrocketing inflation and a severe economic crisis. Its inflation rate of 1,204.06 percent is the world’s highest, while unemployment has vaulted to more than 70 percent as companies either fold or are forced to downsize.”

So inflation is twice the official interest rate? Hahaha! Requiring people to borrow money at 500% to make 1,204%, which produces more inflation in prices, is supposed to stop people from borrowing money at 500% to earn 1,204%, even though it produces inflation in prices? Hahaha! This is so idiotically insane that if there’s one country that the United Nations SHOULD invade to depose a ruthless, thieving, murderous dictator and imprison whole swaths of his henchmen and collaborators to save the people and the country, forget Afghanistan and Iraq. This is it right here!

And this Zimbabwe madness may be here in America sooner than you think, as I extrapolate from reading Alec Nevalainen at Coinflation.com, who wrote that “Zinc passed the $1.80 mark today, and that means the current ‘penny’ has a melt value of $0.0101867.” In fact, he adds “All the coins in your penny jar are worth more than their denomination (except for steel cents made during WW2).”

And sure enough, he includes the five year charts of copper, zinc and nickel (of which our money is made), which are all up hundreds of percents, as they have all literally tripled and quadrupled in the last five years!

What to do? He predicts steel or aluminum coins in our future.

If you are still unconvinced, but deadly tired of me constantly yelling at you to buy more gold and silver, then prepare to be turned around with “Get Ready for Gold’s Turnaround” by Ben Abelson of ResourceInvestor.com, who writes that John Hussman, of the Hussman Funds, “has done extensive research on historical economic and relative valuation factors and what they suggest about future returns for mining shares.”

First, he tells us, “early recessionary or pre-recessionary periods are some of the strongest historical times for appreciation in the mining shares. These time periods are typically represented by declining long-term interest rates, rising inflation, and a contracting economy.” I look out of the window, and note in my Mogambo Daily Log (Stardate 6539 point 4) that we already have the aforementioned rising inflation and contracting economy. And if Moody’s is successful in debasing AAA bonds, you will also see, theoretically, declining long-term interest rates. So three out of three!

Mr. Abelson goes on to say, “According to Hussman’s research (which spans several decades), at the rare historical periods when 1) the rate of inflation is higher than 6 months earlier, 2) treasury bond yields are lower than six months earlier, 3) the Institute of Supply Management’s Purchaser’s Index is below 50 (representing a contracting manufacturing sector) and 4) the Gold/XAU ratio has been above 4.0, the XAU has returned an average…” and by this time I am busily scribbling in my notes about these four important points, and I realize that I am going to have to ask him to repeat them, probably a lot of times. I am thusly completely unprepared for him to go on to say that the average return was “123.63% annualized!”

The pencil flies out of my hand at my astonishment, lands in the lap of Little Miss Susie Wonderful (who thinks she is such hot stuff) who quickly brushes my pencil to the floor, as she makes this stupid little face and says, rudely, “Ewww! Mogambo cooties!” and everybody laughs.

Fortunately, Mr. Ableson is a classy guy, and he takes no notice of me sticking out my tongue and making obscene gestures at them all, but immediately goes on to say, “Currently, all of these are factors…in alignment, with the sole exception of the ISM Index. And, that index recently declined to 52.9% for September, suggesting the manufacturing sector is getting dangerously close to contracting.”

To show you an example of the laughable stupidities in general (and economic stupidities in particular) that reign supreme in the United States, and that make a mockery of our claim of being an educated, intelligent nation, get a load of this AP headline: “Experts support minimum wage hike”. The subhead is, “Group of 650 includes five Nobel recipients; Colorado gets ready to vote on issue.”

The article reports that “more than 650 economists, including five winners of the Nobel Prize for economics, called Wednesday for an increase in the minimum wage, saying the value of the last increase, in 1997, has been ‘fully eroded.'” Well, duh! What in the hell did they think was going to happen when they stupidly applauded Alan Greenspan for his deplorable, massive increases in money and credit that started, coincidentally, in 1997? I mean, how stupid can you be, to act surprised now? Jeez!

The list of economic chowder-heads and numbskulls that participated in this idiocy includes “Nobel Prize winners Kenneth Arrow of Stanford University, Lawrence Klein of the University of Pennsylvania, Robert Solow of the Massachusetts Institute of Technology, Joseph Stiglitz at Columbia University and Clive Granger of the University of California, San Diego.” They noted “in a statement released Wednesday that the real value of today’s federal minimum wage is less than it has been at any time since 1951.”

Then they laughably said, collectively, “We believe that a modest increase in the minimum wage would improve the well-being of low wage workers and would not have the adverse effects that critics have claimed.” Hahaha! What morons! These blubbering halfwits are saying that increasing wages, which increases expenses for businesses, does not mean that businesses will have to charge higher prices to make up for it? Hahaha! And are they also saying, in their economics bizarre-speak, that businesses charging higher prices in response to paying higher wages is somehow different from any other price increases (which is merely a devaluation of the buying power of the wages), which was the whole freaking problem to start with? Hahahaha! Morons!

The article notes that “critics of a minimum wage hike have contended [that] a higher minimum wage leads employers to cut jobs or move them offshore. They also say that many minimum wage earners are teenagers working after-school jobs.” What in the hell is that about? I, for one, am a big, big, BIG critic of increasing the minimum wage, but I don’t agree that higher minimum wages necessarily means less jobs for Americans. And I don’t agree that screwing over teenagers is a reason not to raise the minimum wage. And I know that there are a lot of grown people, many with children, who are unsuccessfully trying to eke out a living on their miserable, low-value wages, and that is why I ceaselessly champion the idea of restraining the ability of the Federal Reserve to create money and credit, which will keep prices from rising in the first damned place!

I also note that the economics blowhards and this little twerp reporter all neglected to even mention the resultant effect on prices, which will go up because of raising the minimum wage (and, directly or indirectly, a lot of other wages) which is the exact freaking opposite effect that these ridiculous do-gooders intended! If that is not staggering incompetence, then what in the hell is it?

And then they get all huffy when I howl in outrage at such deliberate deception, and the next thing you know, there are security guards all over the place, and I’m going “Hi, Bill! Hey there, Jimbo!” and they’re going “Hi, Mogambo!” and I’m going “Do you still want that five dollars I owe you?” and they go “Eat some Mace, creep!” and I’m going “Ow! Ow! Ow!”

But nobody notices, or even cares, about the mistreated Mogambo, nor did anybody mention the increasing horror inflicted on people who do not have jobs to get these higher wages, although they will have to pay the higher and higher prices from now on, too. So the unemployed, and the sick, and the tragically handicapped, and the criminals, and all the people on fixed incomes are all going to suffer much, much more at the hands of inflation in prices because of this “raising the minimum wage” stupidity.

I am outraged! I am only mollified by the notion that there is surely a place in hell for idiotic poseurs who masquerade as economists, and as a result of their incompetence, stupidity, corruption or just plain evil viciousness, consign millions of people to an inflationary hell on earth. Bastards! I denounce them all!

Until next week,

The Mogambo Guru
for The Daily Reckoning
October 23, 2006

Mogambo sez: I love the way that gold, silver and oil are falling into my trap! If I hadn’t spent all my money at Patty’s Palace of Pizza and Porn, I’d buy more. I only hope you don’t make the same mistake.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

How much dirt is getting moved in the United States?

We get news this morning from Arizona and Connecticut. In both the West and the East less dirt is getting scooped up and moved.

Caterpillar, which people buy when they want to move dirt, warned that its earnings wouldn’t be as strong as investors had hoped.

The stock price tumbled.

We assume the fall in CAT’s estimates is just another part of the squeeze in the housing industry. Developers are having a hard time moving their products; so they are buying fewer Caterpillar dirt-moving backhoes and loaders.

Not in Greenwich, though. Housing there has soared.

Greenwich is a nice little town in Connecticut. At least, it was nice until the hedge funds moved in. Now, it is a nice-looking little town with a lot of puffed-up, self-important, know-it-alls taking the parking places.

Hedge fund managers have a lot of money, thanks to the popularity of legalized gambling in the financial markets and thanks to their ‘heads I win, tales you lose’ fee structures. So, naturally, they spend a lot of money on housing.

And talk about moving dirt! They’re putting in palaces with vast, underground parking places…and wine cellars…and bomb-proof, computerized control rooms. But everything that has a beginning has an end…and now, even in Greenwich, diggers report that times are getting a little tougher. Recently, condo developers in the city have resorted to giving steep discounts – as much as $100,000 on $1 million units – to move the merchandise.

Meanwhile, the Arizona Republic reports that things are getting dry out in the desert:

“People aren’t bragging about how much their home appreciated in a single month. There are no bidding wars for homes. No one is talking about how they’re going to spend their equity.

“No, homeowners today are watching every sale in their neighborhood, cringing if they see ‘For Sale’ signs lingering too long and losing their tempers when neighbors drop prices.”

Included with the article is a photo of a street in Maricopa. What we see are a line of five houses, each with a ‘For Sale’ sign in front

“The Valley’s housing market is going through a definite and obvious correction,” said O’Campo de Castillo. “Homes are selling, but they have to be priced right. No one is paying last year’s inflated prices.”

Why not? Because there are 45,000 homes on the market across metro Phoenix now, compared to fewer than 20,000 last October. The median used-house fell to $256,900 last month, down from $263,000 in September 2005. It hit a record $267,000 in June.

But fear not, ye faithful homeowners.

“When the supply/demand scenario is corrected, home prices will start climbing again,” said John Foltz, president of Phoenix-based Realty Executives.

Then, of course, the Caterpillar tractors will rev up their engines and begin moving dirt again.

But how does Mr. Foltz know that house prices will go up again? For almost 100 years, house prices didn’t go up at all; they just stayed even with inflation. Then, over the last ten years, they shot up at a rate 30% greater than inflation (or much more, depending on where you were.) But this is how we know we are near the top of a bubble…people have delusions of mediocrity; they think extraordinary house price increases are normal.

As the dirt moves, so moves the GDP. And when the GDP moves, economists think the economy is growing and the people are getting wealthier. Is it really so? Can people get wealthier by moving dirt?

More below…after the news:

And now, more thoughts…

*** On Saturday, we found out why people love granite countertops:

“Marble is pretty,” said the man who runs La Cuisine Francaise, France’s answer to London’s ‘Smallbone’ kitchen designers, “but marble stains. You put certain kinds of acid down on it and you have a stain that will be very hard to get rid of. There are products, coatings, you can put on it to help prevent staining, but they are not sure to work…and they wear off.

“You are better off with granite. It is impervious to just about everything you get in a kitchen. That’s why we sell so many granite countertops.”

We had gone to visit La Cuisine Française because Elizabeth figured out that installing a kitchen required expertise she didn’t have. She could have gotten a cabinetmaker to build the cabinets…and she could have found the appliances herself…but putting everything together in an irregular space was bound to lead to problems. The people at La Cuisine Française do everything for you.

The trouble is, they charge a lot for the service.

“Kitchens are expensive,” Elizabeth explained. “There’s no getting around it. If you want a nice kitchen, you have to pay for it. I’ve had homemade kitchens all my life. Now, I want a nice one.”

The appliances for a modern kitchen, we discovered, would cost us about $12,000. That was bad enough. But it was the cabinets that were really expensive. The proposal from La Cuisine Française came to nearly $70,000 – for the cabinets alone.

“What do you make these things out of?” we wanted to know.

“Oak…solid oak. But it’s the workmanship and the mechanisms that are expensive. The drawers and doors in a kitchen get a lot of use. You have to have mechanisms that work reliably over a long period of time.”

We checked them out. The drawers, for example, shut in a strange way…with a bit of hesitation before finally closing. They were nice. But why would anyone pay so much for so little in extra benefit? In our country house, we had built the kitchen cabinets ourselves. They had simple hinges and magnetic catches. They seemed to work just fine. Likewise, in the country, we have simple wooden countertops…or wood covered with ceramic tile. We had never noticed a problem with them. But the granite countertops were very attractive…as were the polished ‘induction’ cookers, whatever they are, and the buffed chrome of the oven.

What is the difference between a kitchen we could build ourselves…and one offered by La Cuisine Française? Yes, they look different, but a hand-made kitchen is not necessarily less attractive than a professionally made one. Would one be more efficient than the other? We have no reason to think so. And the food coming out of them would be the same. But there is a price spread of about $50,000.

Isn’t it marvelous how the modern economy helps people get rid of their money…and boosts the GDP!

*** Daily Reckoning readers have no reason to be interested in the GDP or how it is calculated. But we can’t resist a good laugh. And here the joke is on the whole modern economic profession and anyone who takes it seriously. Here at the Daily Reckoning, too, we are economists. But we are by no means ‘modern.’

“You realize, you are a dinosaur,” said a visitor to our booth at the Investment Exposition in Paris a week ago. “I read your book. I agree with you. But I’m surprised you’re not already extinct.”

Extinct? Not quite. But probably facing extinction soon.

In the meantime, we will enjoy ourselves before the sky falls on our heads; today, by learning more about the Gross Domestic Product of the United States of America.

We begin by referring to economist Carole E. Scott for a definition:

“GDP measures in dollars the value of each year’s output of final goods and services. GDP is measured in both current- and constant-value dollars. When measured in current dollars, GDP is valued at the number of dollars the goods and services whose value it measures sold for.”

To make a very long story very short, GDP measures things that people pay for. If you mow your own lawn, GDP is not affected. If you pay an illegal immigrant to do it, GDP goes up. And now a brief pause for a rhetorical question: does your wealth increase if you pay a Mexican to mow your lawn rather than mowing it yourself?

The answer is, of course, negative. In fact, it is just the opposite. Your wealth goes down when you pay someone to do something you could have done yourself.

‘Yes, yes,’ the statistician will object…’but what is true for a single person is not true for the group. You pay someone to mow your lawn…now, someone else has earned some money. The economy as a whole is no poorer.’

Perhaps not. Until the Mexican sends the money back to his family in Mexico. Then, the U.S. economy as a whole has lost wealth.

But let us look at another example. In the last 50 years of the last century, more and more women entered the workforce. Since they were now working nine to five, they had less time to devote to what had been until then unpaid domestic duties. Instead of making clothes themselves…they went to K-Mart to buy them. Instead of cooking dinner at home, they ordered a pizza…or took the family out to TGI Friday’s. Instead of painting the boys’ room, they hired a painter. Instead of tending the flowers or vegetables in the back yard – they just bought what they needed when they needed it. And instead of getting by with one family car – they needed two.

All of these things contributed to the GDP. Each one required finished products or services and the money to buy them. But did any of them really boost the ‘wealth’ or well being of the people in the economy? Was the family actually richer because it had someone else cooking its dinners? Was the family any wealthier because a seamstress in Guandong province made its clothes? Was the family really better off for getting in a professional painter to redo the boys’ room?

Or, say a hurricane smashes into a city. Homes are ruined…people no longer have any place to live…and must now go out and borrow money to rebuild. They are hardly any better off…but the effect is to increase GDP! The unhoused families need to pay for new lodgings. They have to employ carpenters and plumbers. And they have to buy new furniture.

According to the GDP figures following Hurricane Katrina last year, the nation was getting richer. But was it really so?

You see, GDP is a peculiar thing. An economist, these days, would rather go out in public without his pants than not be aware of the latest GDP numbers. Otherwise, he would be the object of scorn and contempt, like a New Orleans mayor who didn’t watch the weather forecasts. Watching the GDP, a journeyman economist thinks he can anticipate Fed policy and the next election results. He believes he knows in what stage of the business cycle the national economy finds itself…and what fiscal and monetary policies are needed to assure continued expansion. Based on GDP readings, his colleagues overseas also draw conclusions. At the World Bank and IMF, economists draw up plans, projections, and policies…not just for a single national economy, but for the entire world.

“We are all Keynesians now,” said Richard Nixon. And according to Keynesian theory, an economy can be managed – if the experts keep their eye on the GDP figures. When the GDP races ahead, they are supposed to ease up on the throttle – that is to say, they are supposed to reduce the intake of money and credit to the economy, thereby slowing it down a bit. When the GDP figures show a slowdown, they are supposed to ‘open up the throttle’ – lowering interest rates and lending policies so as to make money easier to get. It all seems so simple; so easy.

But there is more to the story….

Tomorrow…how much dirt do you have to move before you get rich?