$30 for a Vote? Maybe if it Were in Euroes....

Finally, a bone of contention between the Democratic candidates. Even more, one of them agrees with the Republican nominee. Unfortunately for Hillary Clinton and John McCain, suspending the federal tax on gasoline won't do much to stimulate the American economy. And unfortunately for Barack Obama, his intelligent argument against suspension won't win him any friends in the ever so important white middle class demographic. This is one of those issues where a leader needs to take an apparently unpopular stand on an issue for the sake of the economy.

Suspending the gasoline tax for the summer months will cost the federal government about $6-7 billion in revenue. The tax is projected to pull in $30bn in revenue for 2008. And most of this goes to the states in the form of capital for road construction and infrastructure improvement. While at the same time, suspending the tax will only net about $30 per person/family during the period of tax free gas. The question that Senator Obama and economists pose is this: is that $30 worth the suspension of infrastructure maintenance that may cost us even more money down the road? Roads and bridges that are left to decay won't cost us now, but cutting corners to provide people with $30 can cost us millions in future construction and repair costs. And remember, the nation's bridges have already been determined to be in very poor condition.

Senators Clinton and McCain believe that the government can offset the losses of revenue by imposing a profits windfall tax on oil companies. There one major problem with this is that not all of these taxes will go to infrastructure upkeep. Furthermore, there is no guarantee that this tax would pass muster in Congress or even a presidential veto. President Bush is a product of the petroleum industry and oil companies have a huge lobbying presence in Washington. What this seems to amount to by the two Senators is vote pandering. They are essentially trying to buy votes for $30 a head by proposing this. Its even possible that they know it will never pass; so being a proponent can give them a boost with voters and not really cost them any efficacy. Who knows.

The second problem with suspending the tax is that it will cause a positive feedback cycle. All of a sudden gas becomes cheaper and demand increases in a season where Americans like to travel by automobile. What does an increase in demand bring? Higher prices! Economists have suggested that the tax suspension might even increase the price of gasoline in the summer months because more people are encouraged to go the pump to save 18 cents per gallon. Then in the fall, when the tax is reinstated, we'd have to deal with higher prices with the tax! Even if the tax is relatively minuscule, it just looks more expensive and may cause consumers more concern.

It is also interesting to note that this proposal is advocated by Senator Clinton. She has played the populist card throughout the primary process by claiming to bring jobs back to industrial America. Now she is advocated a proposal that will cause her home state of New York to either suspend or cut 300,000 highway maintenance jobs. So we're not going to shift your jobs overseas, we're just going to cut a tax that feeds your families. At least gas will be cheaper! This has to be the height of hypocrisy. In addition to letting our infrastructure decay further, the federal government will cut 300,000 domestic employees in order to provide people $30.

The problem for Senator Obama is that this proposal looks good on paper to all the white middle class "bitter" voters that he has estranged. Senators Clinton and McCain may come out on top in this argument solely due to the fact that the affected populace feels like they are getting something. They will further the image of Obama as just another elitist Washingtonite who doesn't care about the common folk. Where, in fact, he understands that the proposal has no economic validity whatsoever and is just a deplorable attempt to buy votes. Its just an other bandaid on the gunshot wound that is our energy policy. But, appropriately, that is another story for another time.

The Death of the Democratic Party

The Democratic Party in the United States is on the verge of collapse. With Senator Clinton's victory in Pennsylvania last night, the race for the nomination has undoubtedly been guaranteed to go down to the convention. Clintonites argue that their candidate is more battle tested and that this tough race is good for the party. It airs dirty laundry and puts everything on the table for the people of the United States to see. In reality, the Clinton ego is dragging the Party down a dangerous road. At the end of which is a maelstrom waiting to sink the boat of America's Left.

There is no indication so far that the Pennsylvania victory turns the tides in anyone's favor. Instead, it will most likely preserve the status quo. Senator Obama lost a state that is heavily populated by white working class voters. And, as expected, the breakdown shows that he won the areas of the state which were populated with educated and African American voters. But the numbers in Pennsylvania tell a different story. The Democratic voters are increasingly voting along demographic lines. This means that the support for candidates is becoming cemented among certain groups. White working class voters went something like 70-30 in favor of Clinton. Whereas blacks when the usual 80-20 for Obama.

So what happens at the end of the road. Mathematically it is impossible for Clinton to catch Obama in the popular vote or the delegate count. Unless she wins a few states by more than considerable margins, she cannot catch up. Her strategy now seems to be focused on marring Obama's reputation through negative campaign ads and scrutinizing everything he does. Obama has been far from the golden boy recently as well in his responses. This is a fair political tactic in the United States. For a general election perhaps. But it is a dangerous strategy to employ during primary season. It undermines the party's credibility and gives the appearance of petty bickering. The candidates just don't seem to understand that the entire country, not just the Democrats, are watching this. A Karl Rove scorched earth tactic isn't doing the Party any favors.

If Clinton's strategy works and she convinces the superdelegates that Obama's ability to get elected is suspect, then the Party will fracture. Obama has the numbers and popular vote to make a legitimate case for his ascension into the general election. If the superdelegates overrule the popular vote, then they will be essentially be saying that the people don't matter. Something they themselves accused the Supreme Court of saying in the 2000 election. Can this manner of hypocrisy go unpunished? No. If the Party hands the nomination to Hillary, they will alienate a good portion of their constituency. The black base of the Party will no longer have exclusive faith in the Democrats nor will the intellectual elite that has supported Obama. Furthermore, the masses who have donated to Obama's campaign at a grassroots level may sit the election out or vote for the Republican nominee. It is a doomsday scenario for the Democrats.

If the Party, on the other hand, goes with the will of its constituency and nominates Obama, the worse case scenario seems less dire. If we assume that Obama loses the general election, there will be an outcry from Senator Clinton and her supporters in a bout of "I told you so!" However, that is a lesser evil to face than the fracturing of the entire Party. Other people may lose faith in the Democrats' ability to win elections. But those numbers would still be less than the possible defectors of the scenario above. And losing an election due to general incompetence is a wound that is easier healed than one based on disenfranchisement. Therefore, allowing Obama to take the nomination based on the numbers and will of the voters would be a better step for the survival of the Democrats. Regardless of what Clintonites may say (basically that America is too racist to elect a black president), Obama is following an unpopular president and has the charisma necessary to take the White House.

The Doomsday scenario for the Democrats would come to fruition if Hillary Clinton garnered the nomination on the backs of superdelegates and still managed to lose the general election to Senator McCain. Clinton would appear to have bullied the Party into giving her the nomination at the expense of the popular vote winner only to lose an almost certain Democratic White House. This would probably end the Democratic Party as we know it. The Obama supporters would feel disenfranchised and vindicated at the same time. And that is dangerous combination. The would have a legitimate gripe about having their candidate's chances wrestled away unjustly and the gall to take action because the opposition failed to secure the ultimate prize. The sections of the Party supporting Obama would be completely justified in forming a third party. The only thing that could save the party is Obama convincing his followers to remain with the Democrats. Even so, the battle lines will have been drawn and there will be a battle of coalitions within the Party for years to come.

This prolonged race, no matter what both candidates say, is damaging the credibility of the Democratic Party. The Republicans, who may not necessarily support McCain 100%, are at least resigned to the fact that he won the nomination fairly and accept the will of the electorate. Furthermore, they are being unified by the intramural bickering taking place between the Democrats. The dysfunction across the isle gives more credence to the Republican claim that they are more qualified to run the country and it justifies their historic hold on the White House. If the Democrats can't even run their own primary and set up a logical party system, how can they even claim to be able to run the country? The problem is that the Republicans don't even have to explicitly state this about their rivals. Its something the people will consider subconsciously during the general election.

The only way the Democratic Party can dodge the event horizon is if Senator Obama wins the White House. If he manages to pull of the victory, then the Democratic primary system, while still obviously flawed, will have been justified for this election. They would have followed the will of the electorate and claimed victory. The Clintonites would finally be silenced and the party would have, hopefully, 8 years to convalesce. Sure Clinton's supporters will be bitter, but they have no legitimate gripe because the numbers were in favor of Senator Obama and the superdelegates did the right thing. Democracy will have worked. Otherwise, they might as well write You're Welcome cards to John McCain in the oval office.

Food for Thought

An American tourist was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked.

Inside the small boat were several large yellowfin tuna. The tourist complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, "Only a little while."

The tourist then asked, "Why didn't you stay out longer and catch more fish?"

The Mexican said, "With this I have more than enough to support my family's needs."

The tourist then asked, "But what do you do with the rest of your time?"

The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."

The tourist scoffed, " I can help you. You should spend more time fishing; and with the proceeds, buy a bigger boat: With the proceeds from the bigger boat you could buy several boats. Eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor; eventually opening your own cannery. You would control the product, processing and distribution. You could leave this small coastal fishing village and move to Mexico City, then Los Angeles and eventually New York where you could run your ever-expanding enterprise."

The Mexican fisherman asked, "But, how long will this all take?"

The tourist replied, "15 to 20 years."

"But what then?" asked the Mexican.

The tourist laughed and said, "That's the best part. When the time is right you would sell your company stock to the public and become very rich, you would make millions."

"Millions?...Then what?"

The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."

Give Them Bread and Circuses!! Well, Just Circuses I Guess...

Riots in southeast Asia and Africa are not really outside of the norm these days. However, rioting because food prices are too high, well, that is definitely hasn't been the norm in the past. Just recently people in these regions have been demonstrating the skyrocketing food prices. Wait a minute, it's all just supply and demand right? Not really. Apparently failed economic policies and attention to the environment has led to rice prices being so high that average people in Asia and Africa are struggling to eat.

Farming is a very subsidy dependent industry around the world. Food prices have traditionally been down because the government pays farmers to raise crops and live in borderline poverty. The United States still maintains high tariffs on sugar and other commodities to protect its farmers from cheaper foreign goods and to keep them in business. This, in turn, has led to the poverty of many Caribbean nations that depend on commodity trading and cash crops to survive. In turn, the farmers push the federal government to lower export restrictions so they can sell more grain at those low prices and make more profit. The net result is that we leave our neighbors impoverished while selling them cheap grain and emptying our reserve stock. Well, it worked for the United States.

Then the rest of the world started using this technique because, hey, why not make money of food exports while protecting your farmers. Remember, a state's responsibility lies only to the people within its borders (or so a realist would have you believe). India and other smaller Asian nations do the same thing with rice. They place import restrictions so that their farmers won't drown in a flood of cheaper foreign rice. At the same time, they sell Indian rice at discounted rates across the world. This worked when Asia was still considered the third world. But economic growth also brings a growth in appetite.

More rice is being consumed and there just isn't enough rice being produced to meet the demand because the larger nations basically protected themselves to the extent that they were the only ones producing rice anymore. The smaller countries hurt by tariffs quit the business because there was no money in it. Sure they could sell domestically, but it would be at a higher price than the foreign goods and it wouldn't even meet internal demand. Additionally, there are many nations, such as Japan and the Philippines, that import a great majority of their food due to their geographical positioning. What happened was basically an extreme version of Ricardo's comparative advantage. Extreme because it was manufactured by tariffs instead of an actual advantage in production.

If this weren't enough, the price of bread, eggs, and meat have also increased dramatically over the past year. The rising middle class of India and China, nations which make up 1/3 of the world's population, has developed a taste for wheat based bread and meat. This due, in part, to bread manufacturers increased advertising in those regions in the past few years and, in part, to the increased income levels. The Asian sector's taste for more meat has also contributed to the rise in food prices because more beef means more feed for the cows. And if you didn't know, cows eat a copious amount of grain. Finally, the rising costs of transportation due to the increase in gas prices has also lead food distributors to increase prices to generate a margin. The net result is that bread in the United States has gone from about $1.25 per loaf to about $3.50.

However, there is another culprit that is garnering attention in Europe and the United States. It's also garnering a good amount of disdain from the rioters in Asia as well. Biofuels. The EU and United States have provided numerous incentives for farmers to plant field of corn that are reserved for biofuel conversion. When this alternative energy source was touted a few years ago we were promised clean burning fuel that originates from a renewable resource. We were on our way to El Dorado. However, what government officials and proponents of biofuels failed to mention was that every liter of the stuff that is created takes nearly 90% of the output it would generate as a fuel. If that didn't make sense, then here's an example. Lets say I convert some corn into 1 liter of biofuel. I'd have to use 900ml of that biofuel to generate another liter of the stuff. Basically, we're netting 10% from corn. The other 90% is a wash because equivalent energy was used to produce it.

That isn't to say that biofuels are worthless. It is only to say that biofuels are worthless right now. Until a more efficient way to produce the stuff is developed, we are basically just growing corn and burning it. And we are growing corn on land that was previously used to grow wheat. The EU has put their 2010 goal of biofuel integration on indefinite hold because of the food crisis that has taken over the globe. They are also considering easing their emissions reduction commitment they made a few years ago after Kyoto. Its time that the United States do the same thing. There's no reason to provide farmers incentive to grow corn that is essentially going in the trash. We should mandate that the land used for biofuel subsidies be turned to wheat production in order to ease international and domestic prices. Demand is only going to increase and cutting supply puts us on the fast track food riots at Wegman's.

What we also need to do is get the Bretton Woods institutions involved. The World Bank needs to develop programs that give aid to struggling nations that will put their land to use. In essence, provide subsidies to farmers in poorer countries to produce rice in order to meet the demand. We should also encourage bigger nations to reduce their import restrictions on certain foodstuffs by providing monetary assistance to their farmers. The Bank should then take a certain percentage of the profits of commodity sales as repayment of the loans given to farmers and nations. We need to stop brutal regimes, like the one in Myanmar, from exporting all its rice for profit while its people starve in the streets.

It was only a matter of time before the rest of the world caught up to the West in terms of eating habits. Food prices are going to rise consistently and are probably going to stay at higher levels for the long haul. The only reason for this current shock is because of poor economic policies by countries that depend on agriculture and the belief in biofuel hype. Sure, hindsight is 20/20 but its not too late to turn it around, yet.