Roy Ho’s Blog

Obama is travelling overseas.  However, this is not about vacationing.  He is still selling himself to his home audience.  He wants to show that he is able to represent the United States, he will not be treated like kid.  Part of his weakness is he lacks the credential in foreign affairs.  This trip is address that. 

However, for most of us, we are more interested at our wallets.  What do you want to ask to the candidates?

Sen. John McCain’s top economic adviser, Doug Holtz-Eakin, will meet with Forbes magazine’s reporters and editors next week.  Forbes is inviting questions from the general public.  The same invitiation is sent to Obama as well. 

Here is the link for your submission:

http://blogs.forbes.com/trailwatch/2008/07/your-economy-yo.html?cid=122822586#comment-122822586

My questions directly correspond to the content from McCain’s website. McCain’s material is quoted first and then my questions.

John McCain Will Help Americans Hurting From High Gasoline And Food Costs. Americans need relief right now from high gas prices. John McCain will act immediately to reduce the pain of high gas prices.

Would McCain consider the idea of cutting taxes through increasing personal exempt instead of cutting corporate would increase aggregate domestic demand, off set the price increase in gasoline?

Would McCain consider the idea of levying taxes at the oil, coal and nuclear buyer level so that energy producers while cutting income tax both at personal and corporate level at the same time since it would create the incentives for energy producers to be more efficient, and thus decrease the consumption of those commodities without affecting consumers’ preferences?  Basically, would McCain tax oil as if they were cigarettes and decrease income tax elsewhere?

McCain:
John McCain Will Keep Tax Rates Low. Entrepreneurs are at the heart of American innovation, growth and prosperity. They create the ultimate job security – a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission.

Questions
Would you agree that if income tax cuts can off set the recent increase in energy, it will create sufficient demand for American manufacturers to manufacture energy efficient products to be internationally competitive and save more jobs?  Our automobile industry is a great example: If we wish to sell more cars overseas (or even domestically), producing energy efficient products is to equivalent to stay competitive. China is now the largest solar panel producer in the world by footage and India now exports windmills to America.

John McCain Will Reward Saving, Investment And Risk-Taking. Low taxes on dividends and capital gains promote saving, channel investment dollars to innovative, high-value uses and not wasteful financial planning. John McCain will keep the current rates on dividends and capital gains and fight anti-growth efforts by Democrats.

To courage more saving, would McCain consider the idea of allowing people to cash out their 401k as down payment to complement the first home buyer program, with a cap, without tax implications?  This probably would revive the demand in the real estate market.  The tax revenue impact to the government would probably be smaller than increasing the tax credit as it current stands.

Gore’s speech highlighted a point raised here earlier, that is energy is the intersection of issues in this election: gas price, national security and environment.  Gore specifically picked to deliver this speech at the Society of Daughters of American Revolution because he wants to equate the importance of energy independence as to the American Revolution.  Gore is not having this speech on any random day.  He is affecting politics to the best he can.  He is a politician.  He understands how to make the most political impact of one man’s effort.  This post is not about the content of the speech, but rather to emphasize that he is showing techniques how the rest of us can make a difference in a critical time like this.  

Obama is getting $52M in the month of June, according to his federal election filing.  Given a large proportion of his donors are small monthly donors, a fraction of this amount can already be accounted for next month.  In addition, Obama seems to be able to integrate a good portion of Clinton’s donors.  Although we hear news about the discontent of some of the Clinton fundraisers, it looks like that probably is a minority of loyal supporters of Clinton.  However, by no means the accusations against Team Obama’s arrogance against Clinton’s fundraisers are false.  It is probably more likely that more of Clinton’s fundraisers are complacent to the arrogance and are willing to stay in order to become as a “Door to the President”.  

Gore sees that he still has influence in the public.  He is trying influence as many people as possible to see that energy is the determinant of America’s future.  Of course he is thinking from an environmentalist point of view.  However, what it really matters is what argument convinces other to the direction Gore seeks.  He found the right angle: our wallet is affected by energy (not only gas price at the pump but inflation in general); national security buffs like this energy talk; and the environmentalists of course.

Gore probably sees that Obama has a good shoot at it.  And that’s why he remains in the spot light.  For if Obama does not (perceived by Gore), Gore would see that arguments raised by him in the public probably has smaller influence over the voters McCain is courting.  Gore would then be less active publicly. 

There are always five elements to an electoral campaign: candidate, platform, money, field and message.  The content of the speech is trying to affect platform.  However, there is very little Gore can do about that.  His delivery is not about platform either.  For if he were, he would have found a specialist (i.e. hint: surrogate) to participate in Obama’s platform team.  Gore has no field operation to speak of since he has been out of politics for so long.  What Gore is really trying to get to is the message part.  He is trying to tilt the theme of this election toward the solutions of the problems. 

What can we learn from it?  We can do better than one vote.  We do not have to be Al Gore to make a difference.  Many local organizations have their issues at stake in elections, although no necessarily national election.  State and county elections are also in play.  Every candidate needs some volunteers.  These fellow volunteers are the ones we want to engage.  The message that actually gets to candidate and the operatives are filtered through the volunteers by their daily interactions with others.  This is how candidates react to the field (one of the 5 elements above).  For a county candidate, the same opinion from a few volunteers may have a decent impact already.  

No, not a bank insolvency but bank insolvencies.  It is not just Indymac, but also Freddie and Fannie.  

Taking over will also create more national debt, by 1/3.  This will make USD fall even further; gas goes higher; imports more expensive.  Euro is getting lower.  TSE is also falling.  This latest hit in the US may start a domino effect (finally) of global correction.

It is likely 2009 will see more government involvement, possibly through tax dollars.

With the collapse of Indymac, this may make the legislature get into the speed of passing the appropriate housing bill.  The sign is that house republicans are likely to pass anything democrats ask for to save their seats, although bush wants to have advantages for banks and investors, rather than retail consumers and mortgagors.  However, the house democrats may want to drag it longer for the presidential election. 

Frank-Dodd bill is looking at a higher likelihood of passage into law. The bill would provide a federal guarantee for refinanced mortgages where the principal had been written down below the value of the underlying property.

If the question is if there will be mortgage relief bill, then the answer rests with House Speaker Nancy Pelosi.  The only way to see that a good bill passed ASAP is the house democrats see the urgency of showing their homework to voters.  News on Monday is that Pelosi wants to get this done.  If indeed the case, then this should be done in weeks.  This cannot get drawn into the election.  Else, this legislation will get too much volatility into the race, and thus more tubulence int he market as well.  The draw will be the effect on the next administration.  Which fix will be considered handicapping the next President?  Is the neighbourhood item too fiscally expensive for a Republican president?  Or too “Democratic” to provoke more right wing votes?  Will the item of bank’s consent to write down as too Republican?  It will become too difficult for any candidate to get a grip on this issue. 

Where should money go? 

Consumer is down.  Financials are also down.  Manufacturers are getting beaten up by Chinese manufacturers who are also closing down due to the down turn in the US.  That leads back to the necessities: commodities. 

If the question is if the economy will get over soon, then the answer is the same as stated before in this blog, not yet.  Will more banks close?  Treasury does not want to bail any one any more.  He would rather see insolvencies than bail.  His famous line is going to be this one: “For market discipline to effectively constrain risk, financial institutions must be allowed to fail.”  Well, read his press release here.  There are many reasons banks will close, but there will be very few reasons this year, since the government regulator is unlikely to force more closures by anything other than insolvency.

North Korea is the next news item after G8.  Six-party talk starts on 07.10.  This is expected to be a minister level meeting.  Therefore, some big items are to be discussed.  Bush needs to accomplish something more than Iraq and Afganistan.  North Korea also wants to cash out something out of a desperate President and then start the next round of talks.  Some results will come out before11.04.  Some real progress can be made in the next Six-Party talk.  What does it matter? 

This will produce a lot of long term effect.  Short terms are logistics and symbolic, such as an agreement, declaration of some sort (peace), exchanging offices, etc.

A minister level meeting is an indication that a conclusion is in sight.  This is not just about sanctions, economic aid or light water reactor.  They are, literally small potatoes, for a minister level meeting.  Will the end of Korean War finally be an agenda item?  Finalizing the border between North and South Koreas? 

If these questions are on the table, then the outcome will give us a sketch of what the unification process for North and South Koreas will be.  If the meeting will not reach to that point, then it would be interesting to see what derails since Japan has no clout in Six-Party talk; South Korea has no position against North Korea; China is generally believed to want a nuclear free Korea peninsula. 

Of course, if all goes well, South Korea can finally convince itself that peace is here.  Fiscal spending can decrease.  The ripple effect will be: what about the military bases?  If they will stay, who pays?  The same question can be asked about the bases in Japan.  What will China’s position be in the middle of all this?

What about the border that defines South Korea and Japan?  If there will be mutual recognition of the two Koreas, they need to agree to each other’s boundary.  What will North Korea’s position on the border dispute between Japan and South Korea?  Will North Korea even drag the WW2 war crime into the agenda too?  How far will and can North Korea stretch Japan?  What is the price to pay to get the Japanese abductees back to Japan?

Or, will the talk turn first to the commercial projects?  Does Russia want more investors at the eastern end of Siberia?  How is that Siberia oil pipeline going?  Will this be a pre-text for some Northeast Asia security mechanism or trust building exercise?  Will this bring up the border dispute between Russia and Japan? 

Any kind of Northeast Asia security mechanism leads to re-balancing the response time of US military.  How will Japan react to that?  Since these border disputes are created by the final days of WW2, will the end of Six – Party talk pull out a long overdue clean-up talk?  That is something Japan wants to avoid badly.

If Okinawan independence movement is an institutionalized movement, then this is the time to plot their moves.  The end of Six – Party inevitably leads to Taiwan Strait, another WW2 antique problem. 

If so, a behind the scene negotiation between China and America is the real determinant.  In that context, North Korea is really the pivot of a lot of things.

Everyone has been blaming speculators as the source of oil price increase.  No one has a clue what to do with it yet.  CNN’s news story contributes the fall of prices on dollar increases, among others, while saying these factors are all short term.  If speculation is the reason, then Italians got it right this time.  And Italians got a solution that can last for more than a few days. 

Most politicians blame speculation as the greatest contributing source to increase in oil prices.  To combat this price increase, environmental groups point out that this is time for renewable energy while politicians contemplate tax rebate.  This is nothing new.  The new part is these argument get media attention, i.e. oil price increase is strengthening the cause of environmental groups.  To combat this price increase, Italian finance minister Giulio Tremonti proposed to increase the margin requirement for futures trading.  By increasing the margin, the amount of money required to speculate the same volume of commodity increases as well.  This suppresses the quantity of speculative trades.  Therefore, the oil prices will go down, if indeed speculation trading is the cause of high oil prices.  This is a very effective way to combat oil prices and working against the interests of the environmental groups because a lower oil price diminishes the incentives of renewable energy.  No money can buy this much media coverage for the environmental groups.  No money can buy (or political donation) this much air time from the politicians, even if they were committed to the cause.  On the issue of renewable energy, speculation trading is an important ally of environmental groups.  

The pro is great.  What about the con?

Increase the margin requirement makes money more expensive.  This will exacerbate the credit crunch.  A lot of these hedge funds and speculators are pension funds and mutal funds.  Making speculation expensive is to depress the returns on pension plans.  Who suffers?  Pensioners suffer the most. 

The other con is that this is still short term.  A solution is still not on the table.  This is a buy-time solution.

Every crisis is an opportunity to stay ahead of competitors.  Japan is trying to stretch this technology gap against America.  G8 is, like any other high publicized event, an excellent opportunity to promote products.  Japan is doing exactly that to promote their zero emission cars and buses.  Will this energy crisis get America to some action?  Both McCain and Obama are still thinking about what to do with the tax money.  This is so 1980’s: supply side economics.  Commercializable solution comes when there is sufficient demand for a product.  This high price is helping the demand for the green collar jobs Obama is talking about, not refunding the consumers.  

The possibility that green collar jobs may be years away is the source of talks about nuclear energy cooperation.  While it is true that one disaster event is too many, nuclear technology is available (versus renewable energy), operational and the cost being predictable and controllable.  Environmental groups focus should not be why nuclear energy is bad.  Environmetal groups focus on making the solution works: what will make the renewable energy technology commercializable and how to create those conditions.  If it is about the game rules of the market set-up (as in the case of margin requirement), then this is the prime to mobilize the organizational infrastructure, since it is election time.  

CNN’s G8 summit news story focuses on the criticisms against the emission control proposed by G8.  Both CNN (and other news sources) and environmental groups fail to recognize other more important items, some of them relevant to this climate change topic.  As a result, they misfired. 

While the G8 agreement is unproductvie, something else actually may have an impact.  This something else is against the interests of environmental groups.

Most politicians blame speculation as the greatest contributing source to increase in oil prices.  To combat this price increase, environmental groups point out that this is time for renewable energy.  This is nothing new.  The new part is this argument gets media attention, i.e. oil price increase is strengthening the cause of environmental groups.  To combat this price increase, Italian finance minister Giulio Tremonti proposed to increase the margin requirement for futures trading.  By increasing the margin, the amount of money required to speculate the same volume of commodity increases as well.  This suppresses the quantity of speculative trades.  Therefore, the oil prices will go down, if indeed speculation trading is the cause of high oil prices.  This is a very effective way to combat oil prices and working against the interests of the environmental groups because a lower oil price diminishes the incentives of renewable energy.  No money can buy this much media coverage for the environmental groups.  No money can buy (or political donation) this much air time from the politicians, even if they were committed to the cause.  On the issue of renewable energy, speculation trading is an important ally of environmental groups.  

G8 is, like any other high publicized event, an excellent opportunity to promote products.  Japan is doing exactly that to promote their zero emission cars and buses.  Every crisis is an opportunity to stay ahead of competitors.  Japan is trying to stretch this technology gap against America.  Will this energy crisis get America to some action?  Both McCain and Obama are still thinking about what to do with the tax money.  This is so 1980’s: supply side economics.  Commercializable solution comes when there is sufficient demand for a product.  This high price is helping the demand for the green collar jobs Obama is talking about, not refunding the consumers.  

The possibility that green collar jobs may be years away is the source of talks about nuclear energy cooperation.  While it is true that one disaster event is too many, nuclear technology is available (versus renewable energy), operational and the cost being predictable and controllable.  Environmental groups focus should not be why nuclear energy is bad.  Environmetal groups focus should be what will make the renewable energy technology commercializable and how to create those conditions.  If it is about the game rules of the market set-up (as in the case of margin requirement), then this is the prime to mobilize the organizational infrastructure, since it is election time.  

Zimbabwe crisis has been going on for months.  US is not interfering with force since Zimbabwe involves no strategic resources.  In a way, most of the African leaders are supporting Mugabe, even though an unstable Zimbabwe is not to their interests.  Whose interests are at stake?  What is this debate about?

The strongest voice against Zimbabwe’s Mugabe is Britain.  Why?  Since Mugabe started its land reform, Britain suffers the greatest risk in Zimbabwe.  Three quarters of the most fertile land Zimbabwe are held by British descent, who are citizens of Britain.  They control a great portion of the economy, as well as livelihood of the citizens.

A land reform is inevitable.  It was only a matter of time and approach to the reform.  Mugabe’s land grab was brutal.  However, most of the African nations see the reaction to Mugabe’s regime as a return to the colonial time and a refusal to wealth distribution from colonialists to Africans.   

That is why African Union says it is an African problem.  Even India will not boycott cricket against Zimbabwe.  China and South Africa both blocked the UN sanctions against Mugabe and his relations.  Some even considered him a hero.

This is not a debate about democracy promoted by the west and the corruption and dictatorships supported by third world countries like China.  This is a debate of former colonialists protecting their interests and developing countries’ elites choosing their own path to solve their problems.  

Gallup published its newest polling results here while McCain just pulled out ads from anti-Obama campaigns.  Are there not even one anti-McCain campaign featuring Obama ads?  There is no surprise that this election has slowly morphing into an election all about Obama rather than an election about Americans.  Gallup’s poll actually says something similar in a way. 

Gallup’s poll says half of the Americans are not concerned with Obama’s presidency while only 31% of Americans are not concerned with McCain’s.  The biggest worry about Obama is if he is too liberal.  Now, how liberal is he?  Or how conservative is McCain?

Hilary got a strong support from the Reagan Democrats.  One may then assume Hilary is more conservative than Obama.  How much more liberal is Obama?  Well, really not much.  Statistical analysis (two dimensional Poole and Rosenthal spatial analysis) shows not only do both Obama and Clinton vote alike, but also within the center of Democrats voting records in the Senate.  

In 2007, they both were both present in the Senate votes 618 out of 654 times.  Of these 618 senate votes, they votes were different from each other only 42 times, less than 7% of the time.  They are representative of the main stream democrat ideology in the analysis.  

McCain is conservative in the liberal vs conservative dimension.  In fact, if the same analysis is performed on McCain’s voting recording, he is at about the center of Republican ideology, slightly left of the rest of the Republicans’ liberal vs conservative spectrum.  However, the interesting point about McCain, in this analysis, is that McCain votes with Democrats on social/lifestyle issues.  McCain is a maverick because he votes along with the Democrats at times.  He is closer to the political ideology center of the whole senate than the rest of his fellow Republican colleagues, as well as a lot of other Democrats in the senate.  McCain compromises to the center more often than Clinton and Obama.  

This unique characteristic makes McCain a maverick.  This compromising character is very important for a parliamentarian.  However, we are running an election for President.  On top of the fact that both candidates are senators with no executive experience, this election is run more like an American Idol than about issues, platforms and policies.  None of the positive characters identified by this study makes McCain more attractive to the general public.  However, it removes the worry about Obama’s extremism.  McCain probably should just enjoy the ride.

This is an article printed on A4 of WSJ today that is probably more important than any news we have today, like CNN’s news about Bill Clinton meeting Obama.  The WSJ says Obama is spending hours on voter registration.  This news is not on the front page because it is not about policy / platform.  However, this is probably more important than Obama’s policy / platform or gossip about the when and where Obama meeting Bill Clinton.  

America requires voter registration, unlike other democratic and developed countries where voter registration is more like an address change notification to the election office from the voter.  As a result, voter registration rules becomes a tool to suppress the votes of the less informed voters, not too different from what Zimbabwe’s Mugabe does.  This hurdle creates an opportunity for customer-facing politicians – those who register more voters are more likely to win.  

Each new voter registration is worth about one to two hours of labor.  It is labor intensive and expensive.  However, the reward is greater than what one election can deliver.  A voter who walks into a voting booth is voting for more than one race anyway.  So, one hour of labor rewards more than one candidate.  A newly registered voter tends to lower voting attrition rate.  Voters tend to continue to vote for a party that they voted for in their first voting experience.  Therefore, the party is likely to get a new voter for life.  

Over time, air war becomes more and more important in elections and emphasis on the ground war fades away.  There are numerous precincts without a captain from both of the political parties in America.  Voter registration drives become less and less frequent as we have less and less precinct captains.  

What has been happening over the years is elections are slowly determined by fewer and fewer voters.  Elections are getting more and more expensive due to air wars.  More seats are becoming uncompetitive to the degree that challenging candidates are no longer an effective way to check on the incumbents.  

Higher voting participation, similar to the statistics regarding attendance to religious institution, increases the participation to local charities, be it fundraising effort or volunteer hours.  A more involved citizenry is also more likely to press the government to address the causes of the local charities.  Voter reigistration can simply be done at the receptionist’s desk of any charity.  Voter registration is not partisan and has no direct or indirect impact on a non-profit’s tax status. 

Obama is pouring resources into voter registration for his own benefit.  Moreover, he is not just doing a favor for his party, he is doing a favor to the democracy of America.

CNN reports the destruction of North Korea’s nuclear facilities.  What are the implications? 

The most directly impacted nation is Japan.  The confrontation pressure in the Korea peninsula is weakened.  The need for US military presence is also weakened.  The economic incentives are there.  But Japan is not Thailand.  Japan can live without that.  The impacts will be political and military for Japan due to a nuke free North Korea. 

With such a hawkish new president of South Korea, it will take quite a few years for the relations between North and South Korea to warm again.  The immediate impact on the unification movement is minimal.  After all, the nuke free decision has nothing to do with unification with the South, from North Korea’s perspective.  For North Korea, warming up with the America is one step toward having a normal diplomatic relationship.  Strengthening this relationship weakens the relationship of America and South Korea.  With any luck, North Korea wants the American bases to move out of the peninsula.  All these impacts realized by North Korea are shorter term.

Impacts on Japan are longer term.  Japan has been having influence in Korea for centuries.  A nuclear North Korea is obvious a threat to the security of Japan.  However, it has always been a common knowledge that nuclear activity is only a bargain chip.  North Korea is perceived to be aware that they cannot keep the nuclear forever, since China does not want North Korea to have it, America does not and certainly Japan does not. 

With a smaller conflict, the weight of Japan will become smaller.  This nuclear free ending of the affair also demonstrates Japan has been unable to influence the outcome of the Korea peninsula affairs, or unable to influence America’s intent in the peninsula affairs. 

An Obama administration will be able justify a reduction of military presence in South Korea and Japan and cut some spending. 

If US military decreases, especially in Okiana, the negativity generated by US military in Okinawa fades.  Therefore, a weaker Okinawan independence movement will be, although it was not that a strong one to start with, more less like the Puerto Rican.   However, with the incentives by US military gone, the incentives for Okinawa to stay in Japan also go away. 

That will create more space for Chinese military in the area.  China will gradually gain its edge against Japan in territory dispute.  However, the dispute is fairly settled since both sides have agreed to mutually develop the area.  Again, this loss of strategic importance against Japan cannot be ignored. 

The fact that Japan is losing control over the development in Korean peninsula is a sign of Japan’s HR risk.  Japan had a hard filling in their chief of central bank earlier this year.  They are unable to keep themselves abreast of the peninsula, let alone influence the outcome.  Only very few international enterprises of Japan are as innovative or as quick as they used to be.  Japan is having a high turn over of politicians and an even short life span of governments.  The ageing population is showing signs of weakness in every area.  

With that, the six party talks now prove to be useless.  Japan is now concluded to be ineffective.  South Korea lost its edge during the negotiation.  Russia has been reduced to an attendant only.  China has become more less the notary public for the talks.  The real talk somehow happened between North Korea and America behind the curtain.