About Me

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Los Angeles, California, United States
The blog 'Breaking Bread' is for a civil general discussion, like you might have at the dinner table with guests. The posts 'Economics Without the B.S.' are intended for a general audience that wouldn't have to know the difference between a Phillips Curve, a Laffer Curve, or a Cole Hamels Curve. Vic Volpe was formally educated at Penn State and the University of Scranton, with major studies in History, Economics and Finance, and Business; and, is self-educated since by way of books and on-line university courses. His practical education came from fifty years of work experience in the blue-collar trades as well as a white-collar professional career -- a white-collar professional career in production and R&D. In his professional career and as a long-haul trucker, he has traveled throughout the lower forty-eight. From his professional career alone he has visited many manufacturing plants in the United States, Europe and China. He has lived in major metropolitan areas and very small towns in various parts of the United States. He served three years with the U.S. Army as an enlisted man, much of that time in Germany.

Monday, October 7, 2024

Is the Age of Easy Money over?

 Is the Age of Easy Money over?

 

Economics Without The B.S.**: 


[**  Double entendre intended.]



Is the Age of Easy Money over? It appears that way. The Real Interest Rate is the Interest Rate minus the Inflation Rate. Notice for the past year the three rates have converged, which is a good thing; but the rates are inverted, short term rates are higher than long term rates. 

Greenspan took over the Fed from Volcker in mid-1987, and it took him till the mid-1990s to get the rates in sync. Then the rates fell apart after 2001, leading up to 2008. Through Obama and Trump the Fed has had an easy money policy -- not good. Let's see what happens now?



Saturday, June 29, 2024

Five of America’s Most Important Foundational Values


Economics Without The B.S.**: 


[**  Double entendre intended.]


I was responding to a post where someone asked what are America's five most important foundational values.  So with the holiday for the Fourth coming up, this is what I came up with.


1.     Our Founders redefined democratic governance.  We are not on the model of an Ancient Greece democracy, not a one hundred percent democracy; but, incorporate democratic elements mixed in with some non-democratic elements so that the will of the people can be formed and expressed in a fragmented society composed of economic and civic behavior which affects the governing process.  Where Ancient Greece defined a direct democracy, we have the indirect participation of the populus in the manner of which we are governed.  In other words, we are dynamic society, not a status quo society.

2.    With that said, our Founders created a fragmented governing structure which avoided the concentration of power in one or two bodies – a federal system composed of the national government with state and local governing bodies, defining a constitutional republic, a representative governing system – to complement that democratic governing process that makes it subject to change; thus inhibiting status quo thinking.

3.    Ideally our primary values are an interplay between individual liberty and equality.  These values can complement one another, but they can also come into conflict with one another.  In other words, the individual, and not the family, is at the core of our basic values.  We do cherish family values, but those are decided by individuals.  I might add with regard to the second point – our fragmented federal government structure between the national, state, and local governments – that the individual has rights, natural rights recognized in the Constitution, that are beyond the reach of government bodies and these individual rights come into play as individuals participate in civic affairs as well as their economic endeavors.

4.    Our Founders permitted an economic system – free enterprise, including the right to property – which allowed for individuals to build collateral and wealth, but also in which successful business outcomes tend to concentrate power.  Our free enterprise economic system co-exists vis-à-vis with a fragmented governing structure that makes it difficult to concentrate power.  This is one other aspect of our dynamic society.

5.    Unknowingly, and unintentionally, but never-the-less still somewhat visionary, many of our founding generations viewed the countryside [rightly or wrongly] as their tabula rasa for creating a “New World”.  In a short time we would come to view ourselves as a vast continental nation with a manifest destiny.  And as destiny would have it, shortly after our constitutional founding we found ourselves undergoing the fortunes of industrialization (which was just beginning to be experienced by other nations) while we expanded over the continent.  Being one vast continental nation undergoing industrialization (unlike Europe, and not similar to China, India, or Russia) allowed us to prosper as one market system which benefited from the formation and deployment of capital wealth.  Couple this with our democratic values, a dynamic political process and society, some struggle, and you have a society with an enormous material well-being, and still viewing itself as a creative leader in the vanguard among others.


 

Comments:

 

1.   I agree those could be argued as 5 of the most important. What I find surprising is that there was no mention of God or Judeo-Christian values, other than the mention of Manifest Destiny, and there was no mention of how Natives and Africans fit into America’s founding values.

My response:  No you did not find those things in my comment. What you find is the mention of individual liberty and equality; and over the course of our history that writ has been extended to include those left out by the Founders. That concept of individual liberty includes how we worship.

I think we are all aware of the shortcomings of our Founders, they were not perfect. I have mentioned many, many times before that by the 1820s the country was changing and becoming more democratic than what the Founders intended. Never the less, as the country liberalized to extend the writ of justice, it was based on what the Founders originally said and reinterpreted to bring it up to “modern” standards. This is the dynamics in our system established by the Founders. We have a system that is open to change. We are not a status quo society.

 

Wednesday, January 18, 2023

The Trade-off Between Economic Stability and Economic Growth

 

The Trade-off Between Economic Stability and Economic Growth

Economics Without The B.S.**: 


[**  Double entendre intended.]

 

https://www.wsj.com/articles/rising-interest-rates-hit-landlords-who-cant-afford-hedging-costs-11673900169?st=8bw3rzwf8t6pbf0&reflink=desktopwebshare_permalink


This is a good article in the Wall Street Journal that illustrates what I see as a problem in our economy -- financing long-term investments with short-term loans. It is a way of showing we have an investment community that is more situated in what is called "rentier capitalism", earning income on the cash flows of an asset/investment rather than an emphasis on increasing the productive output of a capital investment that grows an economic opportunity that is new, what was more likely in an industrial economy.

 

It makes the investors constantly vulnerable to the fluctuations of short-term interest rates; in effect the viability of their investment is subject not only to the productiveness of the asset but also the constant variability of the short-term financing.  When enough businesses operate this way, dependence on short-term financing of long-term investments, it puts pressure on our Fed and government policy for encouraging low interest rates, which in my opinion offsets higher rates of economic growth.

 

In other words there is a trade-off between lower interest rates, more moderate growth rates, in effect economic stability, with higher rates of growth which can result in a tolerance for more speculative ventures.  It is a trade-off between stability and growth, in effect between stability and societal change -- trying to find the sweet spot between the two at any point in time subject to change.

 

Another way of looking at it is how much vitality in a society -- acceptance of change -- is related to more vitality in economic activity by encouraging higher rates of growth? And since the U.S. provides the economic leadership in the world and the dollar is the primary reserve currency for international financial transactions and commerce, how much effect does U.S. policy have on other less developed nations and the rest of the world?

 

 The importance that finance has played in making investments and structuring the financial aspects of the investment, something that has become more prominent since World War II, has, along with changes in the tax code, made the finance discipline even more important in business and society than it previously was.  This is one reason why we have had the growth of the Financial Sector and Service Sector and the decline of the Industrial Sector since the 1960s when we were more of an industrial society. And we have had lower rates of economic growth since the 1960s, even in our good years like the 1990s.  So how do we get the change our society needs to stay creative and innovative in meeting the wants and needs that arise as we go from generation to generation?

Thursday, February 17, 2022

Inflation and Monetary Policy

 

Inflation and Monetary Policy

 

Economics Without The B.S.**: 


[**  Double entendre intended.]

 

How effective has Monetary Policy been in fighting inflation and promoting good economic growth?















Monday, February 14, 2022

Inflation and the Price of Oil

Inflation and the Price of Oil

 

Economics Without The B.S.**: 


[**  Double entendre intended.]

 

What is the relationship between the price of oil and the Consumer Price Index?...especially as we become more and more a Service Sector economy?





Sunday, February 6, 2022

Ukraine -- What now?

 Ukraine -- What now?

I’m reading several news accounts today of how the U.S. is to blame for Russia/Putin’s action with Ukraine.  They say it started with the U.S. attempt to expand NATO when the Soviet Union collapsed.  Oh really?

 

As I recall almost thirty years ago – the mid-1990s – as we were dealing with a newly created Russia and the questioning if NATO was still needed, what shall we do with NATO?  Some of the idealistic talk was that if a new free Russia could liberalize it could join with the rest of Europe economically and a cooperative military arrangement could be made that would work with NATO.

 

This talk was not that all idealistic; it was acted on.  While Russia was not ready to join the European Union (EU) economically, it was invited and did become a participating member of the G-7, making it the G-8 in 1997.  With upgrades to its economy, it could be ready to join the EU.

 

Of the former East Bloc of the Soviet Union, all of those countries started their application to the EU between 1993 and 1996 and got their membership after 2000.  Russia never applied or started an initiative to join the EU. 

 

In 1999 the Czech Republic, Hungary, and Poland became members of NATO – none of them border on Russia proper; Poland borders on Kaliningrad which is part of Russia but separate from the main territory because it is wedged between Poland and Lithuania.  So no NATO nation was on the Russian border when Putin came to power in August 1999 and became President of Russia in May 2000.  The Baltic States and other nations on Russia’s border joined NATO 2004 and after.

 

My point is this:  Russia, in the mid-1990s, had two paths to follow.  It could liberalize and join Western Europe, or it could remain as it has historically, an East European power.  It choose the later, not the former; and when Putin came to power, he doubled down on this.  Putin had an opportunity to truly revolutionize Russia’s outlook for the future; but choose otherwise.  Germany had a similar opportunity after WWII in the 1950s – to take its traditional role of a Central European power, counter-balancing its interests East and West; or turn to the West and join in an alliance.  Konrad Adenauer, the leader of West Germany in 1949, choose a new path for Germany’s future.

 

Russia lost its G-8 membership when it invaded the Crimea in 2014.  History has no subjunctive case.  Here we are.  Now what?