It seems like a day does not go by without the announcement of another global relief package. Each time, the market responds upward for half a day or so, and then returns to its typical funk.

The oddest thing about these fiscal packages is their nebulous nature. Take for instance the Troubled Assets Relief Program (TARP) in the United States. Touted (and named) as a program that would absorb the most notorious assets that leave a pall in world financial markets, it turns out that TARP has left these troubled assets almost untouched. Instead, the fund is being used to inject capital into financial institutions, whether or not they use these funds to write off troubled assets.

Either troubled assets will turn out to be less troubling after all, or we will have to develop new funds to make a real difference in the economy. A new package will hopefully not simply be a tax rebate, although I would like to purchase a new high definition television just like the next guy. Rather, we should recognize this recession will be deep and long, and put a plan into place that makes a deep and long impact, rather than the short and temporary impact of the rebates.

Interestingly, China has announced the granddaddy plan of them all. Stating that they will invest almost $600 Billion each of the next couple of years, the scale of this intervention is more than twice that of all U.S. plans put together, as a share of the GDP. This is to ensure that their growth rate does not fall significantly below +9%, rather than the 11% or 12% they have come to expect.

Granted, China's government would have made some of these investments anyway. The innovation though is that they are using this investment to create consumer confidence  while at the same time building the infrastructure that will sew the seeds of future economic growth.

So when we must design the next fiscal stimulus package, let us look east - far east.

I must confess. I have a certain morbid fascination with the disintegration of world stock markets. It seems like milestones are surpassed each day. Today's early news is that the Japan Index, the Nikkei 225 has plunged to the second lowest daily close in its history. And three minutes into the opening bell on Wall Street, the Dow Jones Industrial Average is down 450 points. Inflation adjusted, this is equivalent to the DJIA twelve years ago, in October of 1996, and almost half the inflation adjusted value of 14,892 in December, 1999.

Those that were relying on growth in their retirement plans have been set back a dozen years.

I have noticed a strong sense of contrition from those asked to appear before the various congressional hearings of late. That Wall Street swagger is gone, at least for now. Even Alan Greenspan, the Maestro of Monetary Policy, has now become the Apologizer for the Financial Apocolypse. I believe this is a good thing. Once the defensiveness is gone, we can get down to figuring out how this happened and how to prevent this, and any other such catastrophy, from happening again.

We should continue to bear witness to this process. By firmly imprinting this in our memory, just as we collectively did during the Watergage Trials, we will send the clear message that everybody is watching - finally.

People are scared. Fear has gripped the economy. Those with steel nerves are still buying stocks and bonds. Most though have either pulled out, or are hoping to ride it out.

We had an economic stimulus package of about $150 billion earlier this year, had an emergency economic repair bill of $700 billion earlier this month, and are now discussing a second stimulus package more carefully targetted to infrastructure investment. These should push the fiscal stimulus to more than a trillion dollars in a single year.

How do such astronomical sums stack up? Let us put these numbers in perspective.

The U.S. Gross Domestic Product of almost $15 Trillion represents the current market value of the goods and services produced in this country. With a population of about 305 million, this represents almost $50,000 per person.

The national debt is now over $10 trillion, and is expected to rise to about $40,000 per person in the next few years.

The value of the world's publicly traded companies have fallen from almost $60 Trillion a year ago to a little above $30 Trillion today. A little more than a quarter of the valuation is from the U.S., a similar amount is from Europe, and the remainder represents the value of markets for the rest of the world.

While the value of U.S. publicly traded companies, partnerships, and investment trusts has been as high as $16 Trillion, it has fallen to under $10 Trillion lately. This is a loss of about $6 Trillion over the past year, or about $20,000 per person in the U.S.

The U.S. housing stock has been valued at more than $20 Trillion a couple of years ago. Some estimates of the value of the housing stock, adjusted for inflation, is down by more than 30%, or more than $6 Trillion. This represents another drop in value of about $20,000 per person.

Now the federal debt approximates the value of all the traded companies in the U.S. and will soon approach the value of the U.S. housing stock.

Do these losses of paper wealth actually affect the economy? Let's make these numbers real. Drops in investment values and housing values are important because they affect our spending psychology.

Consumption represents about 70% of our nation's spending. And every fall of $1,000 in housing wealth reduces consumption by $60, while a $1,000 decline in investment wealth reduces consumption by another $40. Once households realize and incorporate the $6 Trillion fall in investment portfolios and an equal fall in housing values, consumption could drop by $600 Billion, or more than 5% of our annual economy.

The fiscal stimulus checks many households received earlier this year, and the proposed stimulus package that may be necessary in the next few month, appear large. However, they will likely represent only about half of the gap created by decreased consumption alone, and a much smaller share of the total economic effects as our consumption reverberates throughout the macroeconomy.

It is less the value of our asset portfolios, and more its effect on consumption, and the resulting effects on investment, government spending, and the like, that will take time to remedy. But with a large federal debt, our capacity to temporarily supplement this fall in consumption is very much constrained. Unfortunately, with long term bond interest rates around 4%, we now find ourselves paying an equivalent amount in interest to service our federal debt as we need to supplement flagging consumption alone.

The comparisons are striking.

The Dow Jones Industrial Average went from a high of 14,184 on October 9 2007, to a close of 8,579 on October 9, 2008, a fall of 40% in a year. By contrast, just before the Great Crash, the market hit 381.17 on September 3, 1929. A year later, the Dow was at 237.45, a decline of 38% from its high.

We can't yet say if this Second Greatest Crash is comparable. After all, during the Great Crash, the market continued to decline for three years from the high in 1929, bottoming out at just 41.22 on July 8, 1932.

We can say though that this is already the most precipitous drop since the Great Crash. This severe downturn will be judged by the level of attention and sophistication we devote to the economy. The Great Crash occurred on President Herbert Hoover's watch, and his benign neglect of the economy from 1929 to 1932 resulted in the election of President Franklin Delano Roosevelt.

Hoover was a free-marketeer. He trusted that markets self correct. And he waited and waited, and waited. We realize now that markets correct in the long run, but it can take a long time indeed for the long run to come around. As a matter of fact, it took twenty five years for the market to return to the high of 381.17, finally reaching 382.74 on Nov. 23, 1954.

In the meantime, we now see that markets can spin out of control.

It does not matter for now just what got us into this economic mess today. Some, including Federal Reserve Chairman Ben Bernanke, devote their careers to studying the Great Crash of 1929 and the ensuing Depression. History will be the judge.

Instead, it is more helpful to ensure we have the economic leadership, and the economic stewardship, to avert depression. And while it has taken a year of steady, and sometimes precipitous, declines to get us to this point, it took three years to bottom out in the Great Depression. And it took a new President, immediately willing to put new economic institutions in place, to turn the economy around.

We shall see if a new president can turn this thing around. I am confident we will not have the sustained decline of the Great Crash, even if our first year's history is nearly identical. The difference is that while we were way too slow off the mark, we at least started much more quickly than we did last time.

The jury is still out - Are we different now?

It would be a great job as a leader who must only share good news with the citizenry. Leading is not a great job these days. 

Two words share a remarkable latin root: credit and creditability. Both stem from the verb credere, meaning "to believe."

We have a crisis of credit today because we have a crisis of credibility. We no longer believe our government institutions have the answers. As much as I am an economic optimist, this is time for realism. There will be plenty of time for historians to figure out how we got ourselves into this mess. Realistically, though, how do we get ourselves out?

John McCain was unfortunate, perhaps fatally so, in stating a couple of weeks ago that our economy is fundamentally sound. He was not far off base though. The economic machinery is actually in pretty good shape, but the oil lubricating the machinery has been wanting. And the adjustments necessary to keep any sophisticated machine running have not been made. 

Most economists have adhered to the notion of laissez-faire, or "let it be." We spend years in school studying the beauty of a free, self regulating market.  Many economists are re-assessing this assumption. True, the economic machine runs very well, and has been doing so pretty continuously for the last 21 years. However, this faith in the economic machine does not imply we no longer have to perform routine maintenance or monitor its performance. Laissez faire free market economics cannot be construed to mean that the economy is self-healing and always robust. 

Unfortunately, our smooth running machine has been so reliable and robust that we have not been checking the oil. Worse yet, through deregulation, we have locked the hood of the engine and have taped over the engine gauges. It is like the check engine light has come on in our car, and our response is to place some duct tape over the check engine light. 

So it is not surprising that the economic engine started making some loud knocks a year ago. It is surprising that we did not take sufficient notice. I became quite alarmed myself in January, and while there is little I could do as an individual, I could at least write a book about what I thought was going on and what we need to do. However, our economic leaders, confronted with the knocks coming louder and louder from the engine, merely turned up the volume on the car radio. And when the economic machine began to seize, we drove to the side of the road, argued awhile about prying open the hood, and poured into the engine gallons of oil. 

It is likely too late to avoid significant damage. The oil we added through the vote in Congress was necessary to prevent further damage, but we now have some bent rods and broken pistons to repair. 

I add to the duties of the economic commander in chief the skill of economic mechanic. These are complicated times, and sophisticated repairs will be necessary. Extreme simplicitism won't do it, unfortunately. Now even the deregulators are talking about the need for regulation. I guess there are no atheists in foxholes. I hope we can seize command of the economy, and I hope our next economic commander in chief can explain to each of us what we must do to get this thing back on the road. 

It will require honesty, an informative explanation and frank discussion of where to go from here, and an elbow-to-elbow effort on the part of all citizens, not unlike what we had to do in the decade following the onset of the Great Depression. 

Only then can we start to believe again, foster credibility again, and offer credit again. 

The analogy is a good one.

Today's unemployment report shows the ranks of the unemployed have reached a seven year high. Worse yet, many long term unemployed individuals are no longer eligible for benefits and are considered withdrawn from the labor force. The true ranks of the unemployed may then be even higher than quoted.

As we observe the economic machine slowing down, we can see a direct link between the credit crisis, the Congress, and the impending recession.

All businesses rely on credit to some degree. They use short term credit to match immediately claims such as payroll with longer term credits like accounts receivables. They use credit to build up for large orders. In essence, credit smooths out the flow of their business. If they can't use short term credit, they would continually have to lay off and hire back workers and other factors.

Even universities participate in the credit market. The University of Vermont and St. Mike's in Burlington put revenues from the tuition they receive at the beginning of the semester in money market accounts. They then draw the funds over the semester to meet payroll. These accounts they use have been partially frozen because of the credit seizures occuring now.

The oil in the machine is drying up, and Main Street is now hurting. It is difficult to get financing for a new car, and dramatically fewer mortgages are being written. A measure of this crisis, beyone the anecdotes I just described, is the TED Spread. This is the spread between what banks or other large participants must pay for very short term cash, over what they would normally have to pay for the Treasury bills. This spread is up to about 4%, breaking even the record from Black Monday in 1987. It usually hovers around .1%. The TED Spread is rising because credit is now much harder to find.

And Main Street is starting to feel it.

This is not posturing on the part of Wall Street or K Street. This is a reality on Main Street. Hopefully, the House will follow the Senate and help us solve this credit seizure. Then, let's get started on the reforms we need to fix this problem for the future.

What can I say?

We are at a critical juncture in our economy, certainly to a greater extent than I have seen by my fiftieth year on this planet.

One of the defining qualities of this country is that when the going gets tough, the tough get going.

That noble sentiment has seemingly been replaced by hubris.

Perhaps it is the pragmatic in me, but I believe this is a time we must simply pinch our noses and do what is in our long term best interest. Yes, we all know the terrible path that got us to this point. And such recriminations only have value to the extent that they remind us not to engage in such folly sometime in the future. Only a strong collective memory and social conscience will allow us to do that.

What won't move us any further ahead, and may even move us back, is to let our anger and frustrations get in the way of rolling up our sleeves and making things right. Perhaps we now live in a world that asks little of us, and offers as much in return. I think though that, anger and frustration aside, we can collectively take back our economic future.

I am just as concerned as you about leaving our economic destiny in those same hands that are responsible for the DMV. We have to allow the market to work, and I do see a role for government to create the level and transparent playing field that perfect markets require. I'd even be willing to pony up the couple of thousand dollars each man, woman, and child must pledge to get the markets back on their feet, if I am assured this will not happen again.

Maybe Washington should be worried more about paving the way for the future rather than rehashing the past. There is plenty of time for history, but there is little time now to make things better, or worse.

Glens Falls National Bank had a nice one page public service message in the Press Republican. It accurately spoke of all the good things happening in the North Country. At a time when the taxpayers are justifiably angry over the follies of Wall Street and K Street, and are paying dearly for them, it is nice to recall that the North Country is robust, resilient, and an attractive place for investment.

It would be nice to believe the North Country will thrive in cooperation with the State and the Nation. Perhaps sometimes we must be grateful that we can thrive in spite of the economic turmoil swirling around us all.

It seems that we are constantly waiting for another shoe to drop.

First we had the credit crunch in the summer of 2007, then the global financial meltdown in January and February. Bear Stearns failed next, followed by Fannie Mae, Freddie Mac, AIG, Lehman Brothers, and Merrill Lynch. We have a stalled energy bill in Congress, and the tax payers are being asking to pony up abut $10,000 per household to bail out the banking industry. What could be the next shoe to drop?

Fear has gripped the financial markets to a far greater extent than the crash of 1987. This past year, and what might happen next, will hopefully be as defining as the Great Depression. I say hopefully because the U.S. economy and Wall Street needed a day of reckoning just as it did after the Roaring Twenties. And Wall Street needs to develop a social conscience.

I heard a presidential candidate talking today about how these shenanigans don't really affect the average person. I am wondering if that is true.

Certainly the 50% increase in the unemployed is painful to many. And their reduced purchasing power is painful to many more. U.S. has lost some of its global financial leadership, meaning we will have to begin to cooperate more in global finances, something we have done in the past, but not lately. Those that may lose their homes, ironically enough perhaps to a bank or fund partially owned by taxpayers, certainly feel these Wall Street shenanigans are real.

Even those that have a steady job and a home will be affected. They will find they cannot easily sell their homes perhaps even at the price they paid a few years ago. And they likely will have a harder time refinancing, perhaps to put their kids through college or to make home improvements.

Perhaps most of all though are those that relied on some capital appreciation over the past decade to prepare themselves for retirement, or to fund their continued retirement. These individuals are facing the necessity of working another five or ten years, or of coming out of retirement to make ends meet. Of course, this is the worst time in a decade or two to contemplate returning to the work force. And the pain of shattered dreams for someone devoting a lifetime to employment in hopes of retiring, only to have those dreams dashed because we failed in our stewardship of the economy, seems to be too high a price to pay.

Adam Smith, in his 1776 book "The Wealth of Nations", extolled the beauty of capitalism. He did not do so with blind zeal however. He was defining a new social contract in which a perfect society creates the rights to property and the virtues of profits. In turn though, those that benefit from the profits of capitalism are expected to pursue activities in society's best interest for their personal gain.

We have seen a lot of personal gain in the last decade. We have forgetten the social responsibility that comes with it. And we have ensured those that would profit with impunity that noboby will be looking over their shoulder, by our neglect to enforce laws currently on the books, or promulgate laws that reflect changing business practices.

Until we recognize the interdependence of economic profit and social welfare, shoes will continue to drop. This may be a most painful lesson. However, if we get it right, it may return this country to the path of economic innovation that has so well served us in the past.

There's a lot of politics swirling in D.C. these days. Perhaps one of the more politically charged issues is an energy bill, possibly up for vote this week.

Energy has become a national issue. There is nothing like $100 oil to get our attention. And with about 7% of our national economic output now diverted to energy costs, it is a significant economic issue.

Following an offshore oil spill in California in the 1970's, the nation banned new offshore oil leasing. There is room for a healthy debate over the benefits and costs of this ban, especially now that technologies are vastly improved and oil prices are much much higher. These changes affect both the benefit and the cost side of the benefit cost ratio, and beg for a reexamination. I don't know how that reexamination would come out, but it is at least fair to discuss.

Another part of the energy package though are measures to enhance domestic production of energy and other alternatives. Wind, solar, geothermal, and tidal power are all infant industries, and need some investment and the creation of markets before private enterprise can take it from there. The bill also encourages conservation, under the premise that a Btu saved in a Btu we don't have to produce and purchase.

All these issues rightfully need to be discussed in one energy bill. To treat them separately would create the impression that an energy crisis can be solved without a concerted and integrated approach. This current energy crisis is simply too complex, and the interests too vested to trust politics as usual.

Unfortunately though, the complexities of the approaches necessary to solve a complex energy dilemma make for difficult politics. We do know one thing though. Our representatives respond to voters, and an educated voter is perhaps our greatest hope to get us out of this current crisis.

Today's Viewpoint editorial is spot on.

It advocates for s shared garbage collection service but based on the amount of trash produced rather than as a fixed rate per pickup.

This makes perfect economic sense. It places the burden on the user proportional to the burden the producer places on the landfill.

Actually, a two-part tariff makes the most sense. There should be a small fixed fee for each stop and a more significant fee related to the amount discarded, to compensate for landfill fees. 

One might argue that such a plan would be unworkable. However, other communities have figured out ways, and with GPS, computers, and stress/strain indicators that could measure disposal weight for each pickup, the technologies do exist.

This of course would make us all think about the amount we consume, the amount we dispose, and how we might modify our decisions if we truly paid the full cost of our actions.

This community could also benefit from other communities' experience that garbage is big business. We mostly discard plastics, paper, aluminium and other metals, and organic matter, all of which can be recycled. Plastics are petroleum derived, and could save on our nation's oil consumption. Paper and metals are commodities that have risen sharply in price and value, and use a lot of energy to produce. And biomass can be used to make methane over time, or used as a feedstock in new and novel forms of ethanol production. All these technologies are viable now, and are being used in communities elsewhere. Now, more and more, garbage companies are viewing themselves as recycling companies.

The North Country may not have the economy of scale to make this all profitable. Only further analysis will tell. However, there is no doubt that there is gold in going green these days, with energy and commodity costs the level they are.

Today Google announced a project that will bring broadband Internet access to the developing world. 

The need is great, for a number of reasons. First, information provides economic and democratic power. It is the great leveler, allowing citizens to determine the truth for themselves. This democratization of knowledge I believe will do more for social and economic empowerment than any innovation at any time in our history. I realize these are lofty claims that exceed even the empowerment of the printing press. We are already seeing this great leveler induce the government of China to focus more on the economic and social needs of the population. The countries that are most regressive are those with the worst access to information. 

The second need is basic communications. The ability to communicate is absolutely necessary for an economy to develop. Without it, economies are necessarily local, with regional trade more expensive because of the lack of coordination efficiency. 

The third reason is a consequence of the changing nature of commerce. With the global commoditization of goods, there is very little value added and wealth in goods production. Because goods production is the least expensive it has ever been, more of our wealth is in the service sector. The Internet is one of the primary machines of the service sector. Many of our services, from legal and accounting advice, to medical diagnoses, from entertainment to software, can be delivered either partially or completely over the Internet. 

Finally, the modern economy needs energy, communications, and transportation. It is this last element that has yet to be fully exploited by broadband access, in the developing world or in the North Country. Think of the range of things you do in a workday, and ask yourself what proportion of these could have been done just with a computer connected to the Internet. For me, perhaps 70% of my job can be done using broadband access. Others can do 100% of their work from home. By doing so, we save significantly in commuting costs. Businesses now realize they can use the Internet to conduct video conferences, saving the travel costs too. 

The odd thing though is that while one of the country's largest companies is investing heavily in developing broadband capacity in the developing world, rural areas like the North Country still remain out in the cold. Private companies simply do not have the capacity to rapidly roll out broadband in isolated areas. A mile of broadband lines in the suburbs can hook up a hundred homes, while the same mile in a rural area might only hook up a dozen homes. Until everyone else in the country is wired up (or more accurately, fibered or wirelessed up), the private companies will likely not invest. 

We have seen this failure of infrastructure in the past, which gave rise to the national rural electrification project. We need such a project in the U.S. too. Ironically, the developing world may get there first!

This article is excerpted from the upcoming Trendlines economic analysis page of the SUNY Plattsburgh School of Business and Economics newsletter.

The weekend's bailiout and temporary takeover of Fannie Mae and Freddie Mac reminds me of another history of housing price deflation that depressed a nation for almost a generation.

Second in economic clout and Gross Domestic Product only to the U.S., Japan had an amazing run in the 1970s and 1980s. As an energy dependent nation, they recognized early on that fuel economical cars were essential for their balance of trade and their economic health. When the OPEC oil crisis began in the mid 1970s, the Japan auto industry took off, much to the chagrine of U.S. automobile companies. 

This advantage to the Japanese auto industry gave rise to a renaissance across all their industries. Part of this was through offspins in one industry benefiting another within the same massive holding companies. And part of it was a perception in the U.S. that Made In Japan became a mark of quality.

Japan's household wealth soared just as its postwar baby boom began to enter the workforce. The economy took off dramatically, and housing prices soared to almost inconceivable levels. 

This all worked very well for Japan - until oil prices dropped in the 1980s, and Japan's cachet was diluted. 

What happened next is why we ought to pay attention. Japan was plunged into a recession that has left in its wake a generation of economic malaise. This recession was led by a phenomenon that we find familiar here. A deflated housing market caused distress in the banking industry. Despite the best efforts of Japan's Central Bank, no amount of fiscal stimulus or lowered interest rates could mobilize credit. Banks burned by a disasterous mortgage portfolio refused to lend in the housing sector, or any other sector for that matter. 

Perhaps we should try to understand what went wrong with the stalled Japanese recovery. We need to recognize that a stable financial system with sufficient oversight is essential. We also need to recognize that the banking industry cannot simply fix itself if it gets into retrenchment mode. 

I think the Fed and the Treasury is starting to understand that. Congress and the executive branch have not been as helpful, but at least there is a glimmer of hope. 

Funny how history repeats itself. 

The scale of the failure is almost too large to contemplate. And it represents the biggest financial failure in the history of the planet. Today we shall likely hear that Fannie Mae and Freddie Mac have gone into receivership, with the taxpayers holding the bag - once again.

Fannie and Freddie performed a valuable function. By underwriting huge pools of mortgages, homeowners could get affordable and standardized mortgage packages. The mortgage assets they either underwrite or guarantee are valued at $5.3 trillion dollars, which is larger than the gross domestic product (GDP) of every other nation in the world. The failure of a company one one thousandth the size would be considered collosal.

Fannie and Freddie fell for the same financial shenanigans that have brought our economy to its knees. Not wanting to be left out of the "flip this house" and "No Income No Job or Assets (NINJA) loans", Mae and Mac also began to create financial "innovations" that were in reality smoke and mirrors. And once the smoke settled, we realized they were little more than a pyramid scheme that could only be supported by growing housing demand and prices.

Of course, growing housing demand requires two things. One is a good jump in economic and wealth growth. But with a stock market that it at the same level now as it was almost a decade ago, and with more and more wealth and a greater share of the economic pie going to energy abroad, that leg is broken. And it should have not come as any surprise that greater wealth would be diverted abroad as Brazil, Russia, India, and China emerge and as commodity exporting nations also benefit from their increased demand.

The second leg is a growing population. We have known for years that our domestic population has levelled off, and indeed is declining if we remove the effect of immigration.

It was obvious that the pyramid scheme must come crashing down. It was not so obvious that quasi-governmental agencies would also subscribe to the scheme, and taxpayers would have to bail it out.

This is one more example of too-big-to-fail, and an example of privatized profits and socialized losses.

Almost one in ten mortgages in this country are distressed. This is a record. Some may be in foreclosure, or some may be delinquent. All give us pause for concern.

Yes, unemployment is up, so we would expect some homeowners to be distressed. However, it seems likely that more unemployed are renters, given that the lower income class is often the whipsaw of the economic fluctuations. This could not be the full explanation.

The more troubling explanation is that more households are simply giving up. They felt that the mortgage was larger than what they could get to sell their homes, and they resent the mortgagers that encouraged them to overreach.

There is little sympathy for banks and mortgage companies in the wake of the credit crunch and the global financial meltdown. Some don't mind having banks hold the bag now.

The smaller regional banks are doing better with this though. They are not viewed in the same unflattering terms as the large, impersonal, national banks and finance companies. And the regional banks are part of our community. We perceive that when we let them down, we are letting our community down. As a consequence, we are not seeing this same national tendancy in our own region - fortunately.

We can only hope that this recent phenomenon will soon pass. Foreclosed homes help nobody, not even the banks that are still, for the most part, unwilling to negotiate with the bulk of the disillusioned homeowners.

The data is out. Unemployment is up to 6.1%, up dramatically from the 3.9% we enjoyed a decade ago. Indeed, the stock market is also lower than a decade ago. And while wages are rising, they are not keeping pace with inflation. As a consequence, in real terms, wages are falling.

The data may actually be a little worse than it appears. The previous unemployment of 3.9% was in an era when people participated in the workforce. Over the last decade, more and more people have withdrawn from the workforce, perhaps because they have given up searching or perhaps because their unemployment benefits ran out. These discouraged workers that withdraw from the workforce are no longer factored into the unemployment rate calculation.

And mortgages headed toward foreclosure also made a new record last quarter.

All in all, the economy is not strong right now, but it could be a lot worse. The Fed likely has done about as much as it can, at this point, in reacting to the global financial meltdown. Of course, I have argued here and elsewhere that it could have done more to prevent the economic crisis in the first place. I ask nothing more though than for us to learn our economic lesson and take some steps to prevent it from happening again.

About the only arrow left in our quiver at this point is some fiscal policy. This is a grand time to conduct retraining. Both John McCain and Barack Obama note that the lost jobs are not coming back and we have to create the jobs that are here to stay. Fiscal policy can be used to encourage jobs that actually solve problems and meet some of our pressing economic needs.

This is the time to reinvest in our flagging infractructure, and to invest in a big way in those areas that will make us energy self sufficient and globally competitive. Battle analogies will not get this done. Instead, we must provide the infrastructure and incentives for industry, government, and universities to work hand in hand for the good of us all.

We need a new status quo. We can ill afford the current status quo right now. Not only has it not worked so well for the last decade, but "the trouble with normal is it always gets worse."

This country has always abhored monopolies - especially the monopolies that control a product from upstream right to the downstream end user.

This fear was well-founded. Standard Oil once had as its goal the control of the entire oil industry, from exploration, through the wellhead, rail transportation, refining, tanker transportation, and to the Standard Oil (S.O., Esso, or Exxon in the U.S.) gas station. The company would own every stage of production and transformation, and would corner the market. When public policy made that illegal, the industry instead formed trusts, which were associations of the various companies spanning the supply chain. This gave rise to a further round of anti-trust legislation to prevent such monopolies.

The New York Public Utilities Commission has a similar policy that prevents energy producers to also be wholesalers, transporters, and retailers. But things are different now.

Sure, there is still the threat of monopolization by vertically integrated firms. But the real threat is in finding the pockets deep enough to make the necessary investments in new energy infrastructures.

A vertically integrated energy alternatives company must inevitably take on the big guys - the oil, natural gas, and coal industries of the U.S. And only those with deep pockets and some in reserve will be successful.

We must then ask ourselves - is it better to suffer the slings and arrows of deeper pockets, or to take arms against that sea of troubles, and by investing in alternative energy production and distribution, end them? I say - invest - and lets be sure that regulation can at the same time create alternatives to the alternatives.

I say this with a case in point. The NY Public Utilities Commission just approved Iberdrola Spain's petition to build wind farms in the North Country, and take over a distribution and retailing company called Energy East. After divesting in some fossil fuels plants but retaining their new hydroelectric assets, Iberdrola plans to invest $2 billion to increase the maximum wind generation capacity by 2,000 megawatts. At full production, this is enough for another million homes. It further augments our current and planned production capacity of over 300 megawatts in Clinton and Franklin counties alone. At full wind capacity, these counties could light up all the residences from here to Syracuse-twice over. Now, we will be able to do that almost eight times over.

Move over Exxon, a mean old dog is movin' in.

Labor productivity grew by 4.3% last quarter, which is just about twice what was initially thought. Wow!

And over the past year, labor productivity rose the most it has in four years.

And labor costs rose a scant .6% over the year, which is less than half that expected.

This is all good news. While energy costs are rising, labor costs are falling, mitigating the inflation that so scares the Federal Reserve chairman. This gives him some latitude to stimulate the economy, or at least to avoid tightening the money supply for fear of inflation.

So how can things be so great and yet at the same time consumer sentiment and the economic outlook be so dismal?

Well, economics is called the dismal science, and economists aren't often the epitome of enthusiasm. (I can say that, as an economist myself!).

And while labor productivity rose at 4.3%, economic growth last quarter was at an annualized rate of around 3.3%. The difference of 1% is a rough measure of increased unemployment.

Firms are laying off people, to some extent. Of course, they lay off the least productive individuals (hopefully), and those that remain employed must take up some of the slack. It is not surprising then that labor productivity rises.

This is a good thing though. It allows our companies to be more competitive globally. And the economic darwinism of survival of the fittest companies allows for a leaner and more efficient private sector. These factors bode well for competitiveness in the medium term.

Of course, an economy and society can ill-afford to have more of its members unemployed or underemployed. It would be ideal if these workers could be somehow reabsorbed into a productive outlet - retraining, a Civilian Conservation Corp, generation of new small businesses, etc. The tendancy though for state governments to cut back at the same time, in a way that is not related to productivity but rather is blunt, non-strategic, and across-the-board, is not particularly helpful. It would be nice if we could better coordinate our economic policy.

Maybe I'm a dreamer, but I'm not the only one ....

Today's editorial endorses the bed tax, for good reason.

It argues that these are desparate times in the North Country, and we have to figure out ways to diversify the tax base. Obviously, too much of the base is on the shoulders of property taxes. Much of that tax base is then exempted for first homes and for the elderly. This creates a mind-bogglingly high mil rate for our towns and city.

I'd make another argument though.

Assuming the city and towns are spending the right amounts on the right services (and there is invariably some debate on that assumption), taxes must create the right amount of revenue.

As we raise that revenue, we must do so mindful that it will not create distortions in the marketplace.

Sometimes we want distortions because they (by definition) make people rethink their choices. For instance, vice taxes discourage the use of vices. But property tax unfortunately discourages improvements in property.

One of the least distorting taxes is the sales tax. Everybody pays it, and it does not favor one good over another. However, the argument that those who come and stay in our hotels ought to pay a sales tax and also a bed tax makes less sense at first blush. Presumably, the sales tax should cover the infrastructure and roads that they enjoy. However, we must remember that they do not also pay the property and income taxes residents pay. On the other hand, they also do not use the roads and infrastructure as much as residents do either.

If we did the analysis of what expenses ought to be borne by visitors, we may find out that the bed tax is too little or too much. But perhaps there is a better way to think about the tax.

Let's use the tax as an investment in the tourism industry. To economists, this makes perfect sense. The tax base can expand the attractiveness and marketability of our region, and can be used to enhance those amenities (the beach, the lake, a river walk) that the tourist in us all enjoy.

This requires a certain amount of fiscal discipline though. Just as the social security tax collected more than it needed to help fund other government projects, the bed tax revenue may be diverted to other items completely unrelated to tourism.

That would be an opportunity lost.

This article is excerpted from the upcoming Trendlines economic analysis page of the SUNY Plattsburgh School of Business and Economics newsletter.

Huge tax subsidies for energy production are going to hurt.

The oil industry recently received subsidies and tax breaks totalling more than $14 billion. By allowing the industry to expand supply somewhat, perhaps we will net a few cents less per gallon on our gasoline. Or perhaps not.

If oil is in relatively fixed supply, any subsidy goes right to the bottom line of the oil companies. Market prices are based on inelastic supply. Subsidies and tax holidays on oil does not reduce the market price, but does allow the oil industry to pocket a bigger amount.  As a consequence, Exxon will be able to pull down a profit of about $50 billion this year.

And if for some unlikely reason our tax policy does expand supply, it will only bring us to the brink sooner.

What we need is to divert profits and subsidies to an alternative to oil. While any alternative to oil will only decrease oil demand and hence oil prices and profits, it is the responsible thing to do.

Why do I bring up oil industry subsidies and $50 billion oil company profits? Because the Press Republican published an article noting that Congress has to now been unwilling to renew a $500 million subsidy to enhance the production of alternative energy sources. While this sum is only 1% of the profits accruing to Exxon, Navigant Consulting estimates this small subsidy of a little more than a dollar a year per person will cost the alternative energy industry $20 billion in revenue and tens of thousands of jobs. And from sales tax alone, that $20 billion in lost revenue will cost local governments more than a billion dollars, twice the level of the subsidy appropriation, and three times what was actually disbursed in subsidies last year.

The economic analysis of the effects of oil industry or alternative energy subsidies on U.S. wealth and competitiveness are not particularly difficult. I am quite confident that, were the analysis done, we would be investing much more highly to ensure the U.S. becomes the global leader in energy production.

Perhaps the alternative energy industry speaks less loudly than does the oil industry. Perhaps there is a policy bias toward what is rather than what could be. Or perhaps we as a nation are willing to give away our title as world class innovators to other nations like Spain and Denmark. I, for one, am not willing to give up yet though!

It is exciting to see that Montreal is investing so mightily in the economic development of the North Country. Its current port expansion, at a cost of more than $2.5 billion, is expected to generate more than 20,000 new jobs.

There will likely be many more jobs in the North Country too. This is because Montreal's port investment is not designed to serve just Quebec. It will actually serve the supply chain - very nicely.

Ships are the most efficient form of transportation, as measured by tons transported per ton of fuel consumed. And Montreal's ports are good, and moving toward outstanding. They have good access to the Atlantic sea traffic, they do not suffer from the same Homeland Security regulatory hurdles that will increasingly affect New York and New Jersey, and they do not have the history of corruption, theft, and labor disruptions that plague other ports. As a consequence, the Port of Montreal finds itself serving the entire Northeast United States.

And much of that traffic inevitably comes right through the North Country. This region is now served with the most advanced and efficient commercial border inspection station in the nation. Even so, Quebec companies find it advantageous to bring their goods in bulk through Montreal's port, onto container trucks, and into Plattsburgh and Champlain. There it is broken up into smaller shipments that will no longer need to be inspected individually. These packages and smaller shipments can then be sent across the eastern United States, or across the country.

Let us thank our Canadian cousins. Their investment in our productive future will further strengthen our role as a supply chain region.

Today's front page article on retirement points to yet another change in our economic assumptions.

When FDR developed social security for those that attain the age of 65, he was making a shrewd calculation. By taxing everybody in the midst of the depression, he was able to raise great sums for the fiscal policy that pulled us out of the depression. However, he had to offer something in return to encourage people to pay the social security taxes out of the horded cash they were keeping underneath their mattresses. And by offering to pay benefits to those that attain retirement age, FDR could bank the income coming in from the program initiated in 1935 but not paying out until 1940.

Actually, Ernest Ackerman was the first recipient of social security benefits. In 1937, he received a lump sum payment of seventeen cents because people were not eligible for monthly benefits until 1940. In that year, Ida May Fuller of Vermont was the first recipient of monthly benefits.

This was a clever tax plan - to set the age of retirement benefits at 65 when the life expectancy for the first cohort was 63, and to delay payouts for four or five years.

Now though, a young girl born today in some countries is expected to live until the next century. And with delayed entry into the workforce, it may be that people will be spending more time in retirement than in the workforce. Consider for instance a girl born today who attains the age of 92. If she goes to college and then off to medical school, and retires at 62, she will spend about 37 years in the workfore and 30 years in retirement.

Of course, even neglecting the reality of a declining birth rate, we may be in a position of having just over one worker for every two children, college students, and retirees. If workers produce the stuff the rest consume, that may create a labor shortage.

Another concern is that our retirement benefits at one time had to cover just the last ten years or so of our lives. We could spend more than the interest on our IRAs, if we timed things right. Now though, we must manage our retirement funds for a thirty or forty year time horizon, and must preserve our retirement capital. And even with a home mortgage that has been paid, and loans paid off by retirement, social security may barely cover property taxes for many homes in Plattsburgh.

These realities mean that we are the first generations that cannot assume we will be able to retire at the age of 65. And those that do may find themselves forced back into the workforce, but without the networks and reputations they had when they first retired. The forces of a declining birth rate, an expanding life expectancy, and escalating property taxes and federal debt are all conspiring to turn our American dream into a nightmare.

There has been a lot of rhetoric around fiscal spending.

As I have argued before, an ideal fiscal policy would be to evenly fund those public services we all need and which cannot be funded by the private sector more efficiently, and enhance more discretionary infrastructure funding during downturns, while reducing spending in discretionary areas during upturns. This way, we can use fiscal policy to even out the business cycle.

Instead, we use fiscal policy to worsen the business cycle. We spend like drunken sailors when times are good, and scream the sky is falling when times turn bad.

And never do we take a careful look at where we get more bang for our taxpayer buck, and where we get less.

Take for instance, the current headlines. We talk about an across-the-board cut in all areas. This presumes that all sectors of spending are equally important (or unimportant), and that there cannot be any reallocations from some areas to others. For instance, it may be the case that we ought to increase spending now in some areas, even though the State is broke.

There is also an assumption that increased spending is always a good thing. Sometimes it may not be. Many have lobbied to defeat the tax cap, arguing that we need more spending in K12 education, for instance. Perhaps a better approach might be why we need more spending there, how we ought to spend it, and whether additional spending will actually produce better results.

In the current Olympic Games, we know that China and the U.S. has spent great sums. And yet small Great Britain and Australia have the fourth and fifth most medals than the athletic superpowers of the U.S., China, and Russia. Perhaps a lot of heart and a lot of spirit is a good substitute for a lot of money.

I know from my own organization that significant budget increases are not a precondition for a better organization. We have seen a huge increase in students in the last three years, while at the same time ramping up our entry standards. We are doing much more with less, and are improving, by every objective measure we use.

I would like to see the heart back into public service. If we don't roll up our sleeves and improve all of our lot, and instead we try to wrestle for a share of someone else's slice, then we all lose.

Perhaps it is time to recognize we are all in the same boat, and try to figure out what will lift all boats. After all, there seem to be three types of people - those that turn up their sleeves, those that turn up their nose, and those that don't turn up at all.

Did you know that an amazing technological innovation was tested in Plattsburgh this summer?

Some may have noticed the experimental Boeing 747 flying around recently. Unfortunately, Pratt and Whitney Canada is pulling out of their test facility at Plattsburgh International - but not before they made history.

If you looked closely at the test bed 747, you would have seen that its test engine was a little different. The experimental 747 is loaded chock full of computers and data acquisition devices that recorded every imaginable parameter from a modified jet engine. While the front looks quite traditional, the shaft is connected to a large propellor/fan device rather than simply a turbine or a compressor. The engine develops thrust both from the expanding burning gases and the rotating fan. And it is the most successful test engine yet for this novel design.

These engines are revolutionary for a couple of reasons. First, they are about ten percent more fuel efficient than traditional jet engines. This is most signficant given that the largest share of airliner costs are now in fuel. And they are quieter too, allowing aircraft to operate out of smaller airfields located closer to urban centers.

And if this all was not significant enough, there is also another Plattsburgh connection. Bombardier, an important local employer, will be one of the first customers for this new engine. They have identified this engine for a new and very innovative jet, the new C-Series 130 seater. This aircraft capacity will put Bombardier in direct competition with the Boeing 737, the world's most commonly used passenger jet.

Go Pratt and Whitney Canada, go Bombardier, and go Plattsburgh!

A recession is popularly defined as two quarters of negative growth. (By the way, negative growth sounds like an oxymoron, don't you think)?

And yet industrial production continues to rise slightly. What gives?

It is a consequence of the double whammy phenomenon we talk about. While domestic demand is slowing, world demand is not slowing as much. This is partly because India and China are still investing their trade surpluses in domestic infrastructure improvements. And this requires global goods and services.

And with the energy crisis, this oil importing nation is buying abroad, resulting in a decline in the value of the U.S. dollar. In turn, the weak U.S. dollar makes our goods and services more attractive to global customers. So our manufacturing and industrial production is actually holding its own nicely.

Another factor is in our increased effort to increase productivity. The very fear of a recession is inducing the industrial sector to trim fat. While layoffs have not been huge and the unemployment rate has crept up only modestly, the level of output per worker is increasing. And if it increases more than the decrease in the employed workforce, overall industrial output increases too.

These counteracting tendencies are precisely the re-equilibrating features of a modern economy. Of course, there are market imperfections we must correct. But overall, when the economy is doing its thing and coordination problems are not too problematic, it is a beautiful thing to behold - at least for an economist!

The newspaper is full of merger deals this week. Towns and villages discussing consolidation in Tupper Lake, Woodbury and Champlain Colleges merging, British Airways and American Airways merging. What's going on?

What was that famous election line? - It's the Economy, Stupid!

When times are good, redundancy, lower productivity, and politics are luxuries we can afford. If there are plenty of profits and revenues to go around, nobody worries too much about trimming off the fat, and some use the breathing room to create the pork. But when times are desperately tight, we have to look under every rock.

Not only do we have to trim fat and excess, but we also have to look for economies of scale. An economy of scale occurs when you can produce more without having to increase your total costs by as much. For instance, if we can serve 10% more people or produce 10% more widgets with only a 5% increase in costs or staffing, we have an advantage to getting bigger, or an economy of scale.

These economies of scale arise from a couple of phenomena. One is excess capacity - our staff or our machines are not beint employed as fully as they could, and can take on more work in a given day.

The other results from sunk cost. For some activities, you have to ante up an upfront investment just to participate, no matter how large or small. This upfront investment is then best spread over lots of production, customers, or residents so that the cost per user is the lowest.

These consolidations and mergers often address both avenues for economies of scale. The workforce and machines are employed more fully. And the investment in managerial staff, accounting operations, etc., that are not directly related to each unit produced become cheaper per unit as we consolidate. One college or town administration can perhaps serve twice as many student or residents without the need to employ another college president, mayor, etc. And why fly two half empty airplanes from London to New York when consolidation would allow us to fly one full airplane?

These are sound economic principles. The problem is that we forget about them the minute profits start to flow again.

Senator Schumer is watching out for us. And I thank Press Republican staff writer Joe LeTemplio and Mayor Don Kasprzak for helping us understand the issue.

Recall the antics of Enron. They were in the business of both generating and transporting electric energy and natural gas. And they were the poster children of "too clever by one-half" that first bordered on, and then completely crossed the line into criminality.

One of their more notorious practices was to use their generating facilities in California to sell electricity to Oregon or Nevada, for example, and thus create an artificial shortage in California. They then would charge exhorbitant spot market prices for sudden demand surges in California. They even got very sophisticated, learning how to estimate when energy demand might spike and conveniently putting some of their generation facilities off line for maintenance at the most critical times.

When there is a shortage of something so critical as electricity or oil, the price can rise dramatically. And it did in California, allowing Enron to make astronomical profits on the plants they kept running.

One trick they were relying upon is that electricity entering the grid cannot specify where it is actually going. In this case of sales to Nevada, Enron would put some energy into the grid in one place and take it out in another. Whether the receiver is actually getting the supplier's electricity is immaterial.

Well, Senator Schumer has discovered that such grid manipulations that are all too easy in these days of energy deregulation is occuring here too. The New York grid essentially charges a toll for its use. But a company could claim the energy it put into the grid in New York did not go through the toll booth because the company first sent the power to Ohio, then down to Pennsylvania, and over to New Jersey. They created the fiction of sending power around the toll booth, even though we know that the grid does not differentiate like that. Ultimately, the grid congestion tax was then paid by all the other companies that were not manipulating the grid.

And of course, they passed those congestion costs on to the ratepayer. So, the City of Plattsburgh was billed a million dollars more, and Rouses Point, Lake Placid, and Tupper Lake were also charged lesser amounts.

This is simply one more example of the honest vast majority of the economy paying for the antics of others who are getting rich.

This has to stop.

Our anemic stock market is at about the same level as it was at the end of the 1990s.

With a high rate of foreclosures, our housing inventory is comparatively large.

And the momentum will remain downward until the housing inventory is eventually reduced to a more manageable level.

As anyone who manages or monitors their own IRA or defined contribution pension plan knows. it seems like we have made little economic progress in almost a decade.

It is perhaps best just to emotionally write-down this past decade, and instead maintain hope for the future. After all:

- technology continues to advance at mind-boggling rates, increasing health, productivity, efficiency, and eventually continued growth.

- the world is increasingly global. We will have to absorb all our new economic partners as equal participants in the global economic pie. This is not without challenges, but is also rich in opportunities.

- we seem to now appreciate the need to adopt sustainable practices, in business, the environment, and resource usage. The key will be to develop sources for sustainable energy because that will create the ability to continue to recycle the other precious commodities like valuable minerals and the land.

I am sure all these will come so long as we focus on the long run and adopt practices for the future rather than repeat the mistakes of the past. To me, this is an exciting opportunity and time. Our greatest chances for success though flow from understanding what has derailed us in our recent economic past.

Things will be different in the future, and will require a more broadly accepted goal than simply "catch as catch can." If we can focus on creating a bigger economic pie before we worry about who gets what piece of the pie, I am confident we will have a positive economic future.

Bloomberg reports that banks repossessed almost three times the number of homes in July than they did in the same month last year. Much of this is a self-fulfilling prophecy.

It all began when financial regulators were caught off-guard by some financial "innovations" that were too clever by one half. These innovations led bond raters (who, by the way, were paid by the "innovators") to underestimate the riskiness of the new mortgage instruments the "innovators" created. When the market found out that the housing market bubble had been inflated with hot air and poor financial policies, trillions of dollars in wealth was destroyed.

Of course, that wealth which was destroyed had also been artificially created. Those that managed to sell mortgages for commission or sell homes for profit before the plunge made out like bandits. And the vast majority lulled into the false sense of optimism are left holding the bag.

Stock and capital markets worldwide ultimately had the rug out pulled from underneath, and will probably continue to struggle for another few quarters.

These markets, and the housing market too, are fueled on the perception that someone wants to buy the products and homes that are marketed. But if fear grips a market and nobody wants to buy, good products and good homes stand unsold. This is the first part of the self fulfilling prophecy - we think the market is bad, and our attitude makes the market bad.

The second part rests on the big national banks that adopt new lending and foreclosure policies that affect the nation in one fell swoop. Fortunately for the North Country, regional banks play a bigger role here, and are more steady in their lending and foreclosure practices, tailored to a more resilient North Country economy.

The big banks though have also become cautious and have contracted credit. They are trying to shed all but what they deem to be the best risk, and they don't really have the time to assess the elements of their lending portfolios on a case-by-case basis. A borrower that is otherwise good and reliable but might skip a beat for whatever reason are now considered a bad risk, but were considered a prime new customer just a year or two ago.

This further biases up the rate the large national banks threaten foreclosure, and from there of course, the number that ultimately are forced into foreclosure. We are a product of banks that have become so big that they no longer judge their customers on the traditional measures of Character, Collateral, and Credit. Now credit scores drive all, and character really does not enter into the equation.

We should be thankful for the regional banks where character is still important, and where foreclosures in the North Country are not a problem.

Commodity prices have been on a rollercoaster ride lately. The Global Financial Meltdown induced investors and pension and hedge funds to flee stocks and put their money in stores of value that can also be consumed - that is, commodities.

Few, if any, actually intend to take delivery of the commodities. They are simply on the financial ropes and looking for some safer haven for their investment dollars.

Unfortunately, commodity markets were never designed as a financial safe haven for high rollers. The principle is to permit commodity producers and commodity consumers some future price stability by agreeing to a future price now. That way, both the farmer and the processor, for instance, do not have to bear the risk of a market trend, either way.

Some investment dollars can also step in to assume some of the risk and insure the price for both producers and processors. They are in essence bearing the risk that farmers and processors abhor, for a price. And there is room for some of that activity.

Now though, the speculators are driving the market. The amount of speculation in the crude oil market has risen twenty-fold in five years, for instance, and by some measures now represents 70% of futures trading activity.

What does that have to do with the price of corn? Just as speculators are subject to the bandwagon effect that causes them to pile on when the market is rising, they also run fast when the market declines. Both these effects accelerate prices, upward or downward, across the entire spectrum of commodities, from oil to gold to corn to pork bellies.

With people deciding to drive less, speculators are fleeing oil, and the price of crude has dropped almost 20% in a matter of weeks. The price of corn too has fallen. In addition, the flooding of the midwest early in the season has been replaced by an albeit late but healthy crop that is trending to be the second largest crop ever.

And so, corn prices are falling, and with them, ethanol prices. Farmers' profits are not necessarily falling from the heady days of recent past though because many of them locked in higher future prices, for delivery this Fall, at least for a share of their crop. And siloed corn has been dried, so farmers can inventory it until market demand outstrips supply over the winter months.

This underscores a couple of things. First, farmers have to be good amateur economists. Second, it is destabilizing when markets become dominated by those that do not value the underlying good, service, or commodity, and rather are just spinning the roulette wheel.

I've always liked a weak dollar. Growing up in Canada, I always associated a weak dollar with good imports (and expensive candy in Washington State, when I was really little). Exports are more relevant for the average Canadian, but are nonetheless also helpful for the U.S.

As a case in point, Canada is the world's fifth largest exporter and importer, with trade representing 70% of gross domestic product, and exports representing 40%. 80% of that goes to the U.S. This means that fully a third of what Canada produces is U.S.-bound. Canada likes having a currency that is favorable for exports.

In comparison, the U.S. exports about 12% of its GDP. The U.S. is much larger, and hence much more economically diverse, and hence is not so dependent on trade.

However, when the value of the U.S. dollar vis-a-vis the Euro drops by almost a quarter in five years, the export sector improves. And an increase in exports can stimulate an otherwise stagnant economy.

We now have the lowest trade deficit since 2001, even as oil prices caused the cost of our imports to raise by 1.8%. Fortunately, in the same period, exports rose by 4%, improving our bottom line significantly.

Just as we oil prices to remain high to get us on the path to energy self sufficiency, we need a weak dollar to remain competitive internationally, and to generate the jobs building the airplanes and the Caterpillar tractors the developing world prizes.

This puts Fed Chairman Ben Bernanke in a bit of a bind. If he raises interest rates to slow down the economy but stifle inflation, more money will flow into the U.S. to take advantage of the higher return to borrowed capital. and the exchange rate will appreciate. It is just supply and demand.

And if he lowers interest rates to stimulate the economy, inflation will rise. This double-whammy will cause our dollar to depreciate and our hard-won gains in exports to be eradicated.

I am glad I am not the Fed chairman.

This is just one in a string of front page articles on the looming budget crisis in the State of New York.So far though, I don't see any mention of the criteria by which cuts will be made.

I do see talk of some sectors that will be cut (higher education, medicare, cities and towns, earmarks), and always mention of one sector that will not (K12 education).

I am not sure how we arrive at these targets. With the majority of our K12 students college bound these days, it is not clear why we decide to invest in one education rather than another. Certainly both forms of education increase productivity of the economy, reduce crime, and increase health and well being. But one is essentially 100% subsidized by taxpayer dollars, while the other is perhaps 30% subsidized, and falling.

The rationale is that education creates benefits for all of society - not just those that are educated. This rationale does not explain the divergence in subsidies between the first three quarters of K16 and the last quarter.

I ponder this not to advocate for greater college funding or reduced K12 funding. Rather, I wonder about how public policy criteria are developed.

Perhaps the criteria when times are tough is to focus on those programs that benefit the most number of people the greatest amount. Any program that needs a special interest group or voting bloc to maintain its funding should come under some scrutiny in such a test. And, as always, I would hope that every policy decision a government makes comes only after a careful benefit cost analysis has determined the amount of bang we get for our taxpayer bucks - and the amount of bang we will gain or lose if our taxpayer investment changes.

Perhaps even more idealistic, can we run budget surpluses when times are good so we have saved something for the rainy days when times are not so good? That way, our fiscal policy can help ameliorate rather than accelerate the business cycle.

New York State is leading the way toward sustainability. It has joined many countries in Europe, a province in Canada, and some New England states in charging power generators for excessive reliance on greenhouse gas emitting technologies.

The carbon dioxide cap and trade system allows producers to emit carbon dioxide, but imposes a cost on them for excessive emissions. That cost encourages producers to become more efficient and also adopt technologies that are more sustainable.

This is not a pollution tax. And it does help in reducing greenhouse gases. Its biggest benefit though is in inducing producers to make choices in their power generation that are more efficient. Carbon dioxide emissions are proportional to the amount of carbon in hydrocarbons. 20% of the atoms in methane, the primary ingredient in natural gas, are carbon. Ethane is 25% carbon, propane is 27% carbon, and butane is about 29% carbon. The heavier hydrocarbons follow a similar trend. The alcohols (methanol, ethanol, propanol, butanol, etc.) mix some oxygen into the mixture of carbon and hydrogen. As a consequence, the heavier hydrocarbons and alcohols produce more carbon dioxide per metric tonne of fuel.

In addition, the heavier hydrocarbons also produce less energy per metric tonne. Natural gas produces 51.8 million British thermal units (BTUs) of energy per tonne, while ethane produces 49.2 million Btus, propone 47.7 million Btus, butane, and 46.9 million Btus. In comparison, oil produces 42.3 million Btus, and coal produces only 27.3 million Btus. The heavier hydrocarbons and coal produce a lot more carbon dioxide and less energy per tonne than cleaner burning technologies.

Fortunately, the technologies that would allow us to replace heavier hydrocarbons with lighter ones is not very expensive. Power generation plants do not need to invest in complete rebuilds to convert. Often a simple retrofit is necessary, unless they want to really optimize for the new fuels.

So, by charging utilities by their carbon dioxide emissions, the State of New York creates greater incentives to be more efficient.

The beauty of the plan though is that it relies on markets to trade emission rights. One company's loss is another's gain. An efficient plant has the added incentive to become even more efficient because they can sell in the carbon dioxide marketplace any surplus emission rights they don't need.

Not only does this policy help with greenhou