Good bye 2008, and good riddance. 

Last year, the country lost more private sector jobs than since the Great Depression. And yet, the North Country fared relatively well. Small businesses have been closing at higher than normal rates, state agencies have imposed hiring freezes, and Comfort Inn had a most unfortunate fire. 

At the same time though, Nova Bus is completing its factory and is preparing for a whole slate of new hires, local suppliers are lining up, the CVPH hospital has been expanding, Canadians are still coming in droves for more shops, hotels, and theatre screens, and Akrimax is continuing to secure new contracts. 

The area is most resilient, not prone to the excesses of other areas. It holds its chin high, relies on each other, and is perhaps a bit too remote to suffer from the slings and arrows of outrageous fortune elsewhere. 

And that seems to make all the difference. 

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 greenhouse gases - it also helps with energy independence by encouraging producers to rethink their technologies and rely more on domestic and Canadian natural gas or other alternatives to heavier hydrocarbons.

T. Boone Pickens, billionaire, corporate raider, and oilman, has been in the news lately. It is not because of another corporate raid, or another billion dollars made. Rather, it is because he believes in U.S. energy independence as a pathway to a healthier economy.

Perhaps he wants to make a buck. You cannot fault a person from trying to do that. However, he already has bequethed much of his estate to charity, and much of that to higher education, a cause for which he has already donated hundreds of millions of dollars. So, his latest venture is not for profit, even if he stands to make a profit.

Rather, he is putting his money where his mouth is, in giving a voice to energy independence. And he is investing a lot - upwards of $4 billion to build some large wind farms in the wind belt that runs almost the entire way from the Mexican to the Canadian border.

He estimates that building wind farms on that swath can take care of almost half the domestic electricity needs for this nation. And unlike other new alternative energy sources like ethanol, his solution does not displace agriculture. These windfarms can occupy undeveloped ridges or can co-locate with agriculture.

Of course, a project of the scale he believes is necessary won't be cheap. His contribution will bring us only a percentage point or two toward his goal. But it is a healthy start. And the investment is only a handful of years worth of wealth we are diverting to purchase energy abroad.

You might ask how generation of more electric energy will help with our oil consumption. After all, a little over 40% of our oil consumption goes to transportation, and we are a ways off from widespread use of electric cars.

Securing alternatives in the generation of electricity frees up natural gas, most of which is produced domestically and in Canada. And there are good technologies that can allow our internal combustion engines to run on natural gas for only a reasonable additional investment. This substitution will then take care of a good chunk of our oil usage, and will cut our dependency on foreign oil in half.

T. Boone Pickens' statement, backed by his own investment, is something worth listening to. And it is something the North Country can well understand, given that we are a leading community for wind power already.

The last couple of days have been a boon for the North Country. Congressman McHugh, U.S. Senator Clinton, State Senator Little, and Assemblywomen Duprey and Sayward were all in Plattsburgh. And energy was on the tip of everyone's tongue.

Congressman McHugh and Senator Clinton are cosponsoring energy bills that will provide some relief for the most vulnerable among us, while at the same time looking toward the future.

Congressman McHugh was most eloquent in noting that this economy has been defined around a single energy source for a century. For that entire time, we all knew the energy source would eventually dwindle in capacity. We see capacity constraints now as domestic production tapers off and world demand soars on the backs of emerging nations like China and India.

The last time energy was on our national radar screen was during the OPEC oil crisis of 1973. At that time, our energy imports werenearly half the share they are now. We are far more vulnerable now, and our North Country politicians recognize this.

Something will eventually replace oil. More accurately, Congressman McHugh points out that a portfolio of alternatives will replace oil, including conservation. The price at which we can bring these alternatives to market will act as a ceiling to the price of oil.

The Organization of Oil Producers and Exporters Cartel (OPEC) knows that too high an oil price will hasten our resolve to find a substitute that moves oil towards obsolescence. For that reason, I believe oil will not go so high, or remain so high long enough, that we accelerate our transition. OPEC interests are best met by keeping us oil dependent, just as the pusher must keep illicit drugs affordable enough, or the virus must do some damage but not enough damage to kill the host.

Our mistake will be to lose our resolve and our focus on what comes after oil. While that might mean some short term pain if we held oil and fuel prices up, it will provide the impetus for long term relief. As Senator Clinton and Congressman McHugh say, we must help those most vulnerable. But we must also develop the portfolio of alternatives that will fuel us for the next century.

The Fed did nothing yesterday and the stock market soared.

While I have spoken in the past of policy paralysis, not knowing which way to turn when so many things are coming at the Fed, they are wrestling with a slightly different problem now.

The fear of any Fed chairman is to be Volckerized. Paul Volcker, the 12th chairman of the Federal Reserve, stood watch in the 1970's. That was an era with uncanny parallels to today - a stagnant economy and high inflation driven by rapidly escalating oil prices. He did not also have to juggle a financial market meltdown too though.

In retrospect, we could argue that regulatory and policy mismanagement at that time institutionalized inflation. Uncertainty also prevented producers from investing, and the layoffs that resulted increased unemployment. The classic stagflation is something every chairman shall worry about ever since - a perfect storm of a stagnant economy and high inflation. The key to solving that problem is to ensure that inflation does not get out of control.

This is the reason that the Fed does not want to further stimulate the economy through further reductions in the interest rate. While a reduced interest rate would encourage some more spending, investment, and employment, the risks are too great. Also, the Fed is nearing the end of the rope it uses to lever the economy. At 2%, the Fed cannot lower the discount rate much further. And this translates into a prime lending rate of around 5% (for those banks willing to lend), which is a very attractive rate indeed.

Rather than policy paralysis, the Fed is doing a balancing act. Finding that sweet spot between employment and inflation sometimes means the Fed stays very still on the high wire. And the market seemed to agree with this approach - for now.

This policy should succeed so long as we do not insist to be indemnified from higher energy prices through higher wages. That would simply initiate an inflationary spiral, which will certainly be difficult to overcome. We have to accept that a good chunk of our disposable income is now going to energy exporting nations, and learn to live with that. If we can, we will avoid the stagflation of the 1970's and early 1980's.

Today's front page story was novel indeed. It described how the two candidates were beginning to debate energy policy. Thank you candidates.

Energy is big business - and fast becoming the biggest business of all. Oil imports alone consitutute about 7% of our national spending. Add to that electricity, domestic oil, natural gas, and energy alternatives, and we are spending as much or more on that sector as we do on health care.

But while health care is always near the surface of any public debate, energy has not - until oil went over $100 per barrel.

It could be the case that oil drops down below $100 again - for a while. After all, in five short years the level of speculation on oil has risen twenty fold. The majority of those who buy and sell oil have never any intention, or capacity, to actually supply or take delivery of crude oil. Indeed, the closest many of the speculators, including hedge funds and large pension funds and mutual funds now, come to crude oil is the highly refined gasoline they put in their SUVs. If we instead confined betting on the price of oil only to those that supply and demand crude, the price would be more rational, and could indeed fall below $100 per barrel.

In the medium run though, unless there is a large scale transition to alternative energies, the price of oil must hold above $100, and continue to rise as it becomes more scarce. My fear is that any temporary reprieve in the price of oil will remove this most important economic factor from the public debate.

At least for now though, oil is in the public economic debate, and is forcing us all to become economists. That is a good thing. It is healthy too for the candidates to begin debating solutions rather than reprieves. Yes, indeed, it may offer us some solace if we could drill offshore or in the Arctic National Wildlife Refuge. But even if one were wildly optimistic about the possibilities in such places, they'd not influence oil prices for another five years (for coastal oil) or ten years (for Arctic oil). And they might constitute perhaps one to two years of domestic consumption. All for perhaps a dime or a quarter decline in the price at the pumps or in our fuel oil tanks.

There is ultimately only one thing that will hold the price of oil down. This is the creation of a backstop technology. If we create an alternative that can sustainably be provided at perhaps the equivalent of $100 per barrel, then this will act as a ceiling for the price of oil.

We are on the verge of creating viable alternatives that can limit the share of our economic pie devoted to energy. These alternatives cannot come soon enough. We must focus our economic energies on creating realities out of possibilities. As I have written before, we must solve the chicken-and-the-egg dilemma. If we can produce a sufficient volume of wind turbines, photovoltaic cells, or feedstock for cellulostic ethanol, we can keep energy affordable while at the same time become world leaders in energy alternatives. But we need steady prices and a strong market for firms to invest in these technologies. And the strong market awaits the products that firms could someday create.

To solve the chicken-and-the-egg dilemma, we will need some economic coordination, an energy education for the population, and the same kind of can-do attitude that sent men to the moon, and safely returned them back home within a decade.

Or, we can look for some temporary fixes, offer a few energy rebates, drill some more, provide some greater incentives to oil companies already posting profits never before seen on this earth, and pressure oil exporting nations to produce more. None of these approaches will work for long. Indeed, they will only hasten depletion and the eventual day of reckoning.

So, let's talk about this, and hope our candidates do too.

In the last census, Clinton and Franklin Counties had less than 100,000 households combined.

Now with 65 wind turbines coming on line in Altona, 67 in Churubusco, 71 in Chateaugay, and another 14 in Belmont, and more in the works, Franklin and Clinton County should soon have the capacity to supply sustainable electric power to 200,000 homes. When the wind is blowing nicely, and of course it does where these turbines have been located, we can take care of our residential electric needs of the two counties, and of Essex, Hamilton, Lewis, Saratoga, Warren, and Washington Counties to boot. The projects in Clinton and Franklin Counties can light up much of the state north of Albany.

This is another example of how progressive this region is, without even knowing it. I think it is important to get the word out. When we are finding ourselves devoting around 7% of our Gross Domestic Product to foreign energy-exporting countries, it is quite a position for us to find our two counties to be residential electric energy exporters ourselves.

If we can collectively come to the realization that we are on the leading edge of what will likely be the next big economic wave, I think it will allow us to better embrace our own economic destiny. Just as this Supply Chain Region is uniquely adapted to moving goods, one of our other competiive advantages shall be clean and renewable energy production. And once we broadly recognize our competitive advantages and enhance and celebrate them, we shall be in the wonderful position of dictating rather than simply accepting our economic destiny.

There are a couple of great facest that typify the North Country character. One is a sense of resilience that allows us to pull up our sleeves and get to work when it is necessary. The other is our ability to recognize a good thing when we see it. We saw these characteristics as we redefined ourselves in the wake of the base closure. And I think we shall see those characteristics again as the economy, and especially energy independence, challenges us all across the nation.

There is an interesting article on the front page today about Albany "discovering" our economic woes. That is like me going to work tomorrow and claiming I "discovered" SUNY Plattsburgh, just sitting there in full bloom! The article points out that the economy has been downtrending for a while, and that there was every indication almost a year ago that these troubles were looming. Albany chose to do little, for perhaps many reasons.

One of the reasons is not lack of information. As we have written, it has been long known that Wall Street revenues, bonuses, and taxes have been cut back significantly. As goes Wall Street, so goes New York City, and as goes New York City, so goes the rest of the State of New York. 

We have lost our tradition of economic leadership, at the state and national level. Other world and domestic events seem to monopolize the attention of our leaders. Before the Paterson speech last week, I can't think of a heart-to-heart conversation on economics from our leaders in some time. This is surprising because a strong and cohesive economy paves the way for success in every other dimension. And a failing economy makes the citizenry doubt every other policy.

We also seem buried in partisanship. It is argued that the parties are representing competing ideals, with Republicans claiming Democrats overspend, and Democrats claiming Republicans seek to only preserve the status quo. I'm sure neither characterization is true. At the state level, it has been Senate Minority Leader Malcom Smith that has been calling for a hiring freeze and budget cuts. At the Federal level, Republicans have accelerated the federal debt more significantly their 40 of the last 80 years in the White House. And our local Republican representatives to Albany have been most progressive in defying the status guo by promoting new and novel economic development for the future. I think the more we look at it, the more we realize that individuals who make up our political parties are pragmatic and well meaning.

If our elected officials demonstrate pragmatism and compromise, we is there such economic gridlock? I think the political process itself has been captured by special interests bent on preserving their status quo. Special interests define their political agenda on a uni-dimensional goal, without regard to how it affects the whole. A group that advocates lower taxes in the face of higher debt left for our children, or advocate a candidate solely for a single position on some social issue, or promote the economic well-being of one group rather than for us all follow a political theory of us-versus-them rather than of a rising tide raising all ships.

Unfortunately, much of the money in day-to-day political influence is from the special interests. Few are effectively advocating for the one issue that affects us all. It might be time to recall that political slogan from years ago - It's the Economy, Stupid.

Well, I think ultimately that it is and shall be. We no longer have the power to assert our military strength around the world, perhaps partly because our economy is weak, but also because other economies and peoples are strong. And there are now more voices on the stage of world politics. Our strength has, and in the future must, rely on economic health and innovation.

Perhaps this realization that a vibrant economy affects us all would be enough for each special interest to put their interests aside for now, in the interest of a nation and a state on the ropes. We'll see.

The front page article today notes some controversy over the effectiveness of the rebate checks in averting or limiting a recession.

I certainly agree that the rebate checks were popular, and passed the Congress and the White House with only the usual posturing delays. However, they probably did more to stimulate the China economy than the domestic economy. They arrive in our mailboxes as "free money" and we typically use that money to purchase things that are more whimsical than necessary. And more often than not these days, such items from big box stores are imported.

There definitely were some people that really needed those checks. The unemployed or the underemployed, or those in debt probably used them in ways that kept the money local - the landlord, the food market, the doctor or dentist. Keeping more of the dollars at home in the first round does wonders to ensure the checks reverberated through the economy and bolstered our Gross Domestic Product.

Are there ways to spend the money that would have most certainly helped more? Yes. We have a deteriorating infrastructure in transportation in this country. It is at times unsafe, and it hampers travel and commerce. An equal investment there would have gone a long way to improving economic efficiency in the long run while keeping more money here to echo about. You can't import bridge repair, for instance.

Better yet, would could have used the money to develop products that provide energy independence and allow us to reduce our national consumption of oil. Many alternatives to oil work well in the lab but cannot get the funding to bring them to market. We need to develop some economies of scale so these products can get the volume necessary to bring costs down. Once we can get over this hurdle, the technologies will likely flourish, and we will be left in the enviable position of being the world leader in energy independence, rather than the world leader in sending our dollars to oil exporting nations.

And of course, there is always a renewed investment in a new kind of education that will allow our workforce, present and future, to better compete globally.

Any of these concepts keep jobs here and build for the future. Their impact would be much larger, and they will last a lot longer than half a big screen t.v. that the rebate checks may otherwise have bought.

The Press Republican editors published a great editorial today about the various shoes that drop from this economic octopus.

They recognize that as goes Wall Street and New York City, so goes the State. I've argued that the rest of the state actually gets double-whammied because more resources are redirected to New York City.

And while I might quarrel about hte way in which Albany solves the problem, by spending much more money than is wise when things are already good, and then ripping the bandaid off just as we are reeling from bad economic news, the Governor is doing one thing very right.

He is talking to the people about the economic problems, in the spirit of FDR during the Great Depression. You see, everybody has got to be part of the solution. Typical Albany politics has each group fending for themselves, some more successful than others. The Governor is trying to make priorities and be strategic in this, and an educated economic citizenry is the only way he will be able to bring us all along.

Just as the editorial said, the tax burden is strangling our state and our region. I do not say that because of the high taxes you and I pay. Rather I say it for all those that cannot see themselves relocating to this wonderful area when they can instead move to other wonderful areas that do not charge upwards of $30,000 per acre per year in taxes, or fifteen percent of their take-home pay to state income and local sales taxes. These taxes make a big difference on the margin when one exercises their discretion to come to this region or go elsewhere.

Perhaps most apparent is in how the high taxes frustrate our efforts to bring good quality jobs to our region so our children have a reason to come home. So we have to decide whether the issue of government services we cannot afford, at a price we also cannot afford, is an issue more important than the long term vitality of this region. The Governor and the editorial staff laid it out for us. It is now up to us to collectively think on it and decide what is most important for us.

It is a quirk of our economic system that slowdowns result in the type of layoffs Governor Paterson is proposing. 

The State is trying to do the right thing by scaling back expenses to ensure they are in line with revenues. Of course, it would even be better if we had accumulated surpluses to use for such a rainy day. As it is now, curtailing expenditures only makes matters a little worse. But that is another story.

There was certainly a loss in wealth as a consequence of the credit crunch, and that will inevitably cause people to reflect more on purchases, and hence drag down the economy. However, the other reason for our current woes is that another five percent of our gross domestic product is now going to energy exporting nations. On average, this makes us all about 5% poorer. We need and equal amount of growth or productivity improvements to make up for that.

In the short run though, we can accommodate the 5% decline in stuff this nation gets to keep by reducing the number of people that get a share of the economic pie (layoffs) or by each of us taking a 5% hit in the form of wage declines or foregone cost of living increases. Unfortunately, if only 1 in 20 would be hit by a 5% decrease in the number of people on the payroll, 19 out of 20 people would prefer that solution. Given that wage cuts are difficult and layoffs easier in this economy, we usually end up reducing workers, and hence reducing output. This is a short-sighted and very common approach.

One other potential solution is to allow inflation to rise to eat away at our buying power. Unfortunately, because oil prices are denominated in dollars, as inflation rises, the price of oil rises further too. And inflation is quite destabilizing on the marketplace, in all trade sectors, not just oil.

So, the economic alternatives each have advantages and disadvantages, practicalities, and challenges. There is not always a best solution. Unfortunately, when we do not coordinate our economic policy, we often end up individually choosing the easiest or most expedient solution. And that rarely is the best one.

It seems that all this talk about the State following the lead of New York City has taken ahold in Albany. I did not know the Governor was reading our blogs! (Just kidding). It is obvious though that the same forces that are hurting New York City as our largest city in the State necessarily impinge on the State of New York overall.

This may mean a double whammy for the North Country though. More Albany resources will likely be diverted downstate, which is ironic given tax revenue from the North Country is likely rising, or at least not falling much like we see elsewhere.

The message of course is that the North Country must again muster the perseverance and resilience that has made us famous. We realize we must depend on each other in this distant corner of the State. Indeed, some of us would have it no other way.

The Governor is right in escalating economic matters to the forefront, and even calling a special session. Even if we need a crisis, or at least the perception of a crisis, to make us have the great economic debate, the end result is a healthy one. The economy should always be a fair topic for discussion, and a government that can proactively help us improve the economy is a government that can do some good.

It is the tradition though of State and Local Government to coarsely cut back in most all areas when things get tight, rather than strategically expand in some areas that can really make a difference. The size, dependencies, and rigidity of State and Local government forces our hand though. Because of the protections offered many state workers, there is little we can do with a large part of the budget. This means that whatever discretion remains must accept the brunt of the State's fiscal strategy.

Unfortunately, it is the strategic expansion in some of these discretionary areas that could make such a difference in reversing the economic malaise infecting public perceptions. We should at times like these make government lean, efficient, and pro-active. We never seem to have that luxury though.

And so we must work through the pain, with only the coarsest of economic strategies.

In the 1970's, just as now, the price of oil rose dramatically.Of course, then the reasons were not dramatically expanding BRIC nations (Brazil, Russia, India, and China), but rather was the result of a cartel formed in the wake of perceived Western enablement of conflict in the Middle East. The OPEC bloc placed an embargo on crude oil destined for the U.S., and prices shot up dramatically, from single digit prices to the low teens for a barrel of oil.

The symptoms were the same though. More of our spending is diverted to energy producing nations. The U.S. becomes poorer (at least until it can find a substitute for hydrocarbon-based energy), and oil-producing nations generate a financial windfall.

This financial windfall is most directly and immediately felt in financial markets. Money is diverted overseas, and to the energy sector, resulting in declines in other markets.

Nowhere in the world is more dependent on financial markets than New York City. And when this major industry suffers, so does the major city of New York State.

Many of us can recall that NYC suffered a budget crisis in the 1970's, around the time of the last energy crisis. Major civic bailouts prevented the bankruptcy of a major city. Now, with another energy crisis, and financial markets in peril once again, New York City is facing a $2.3 Billion deficit.

We could observe that New York City is far away from the North Country. After all, the North Country has been relatively immune to the economic downturn so far. However, if local taxes are declining in a city that imposes an income tax, we know this will translate into lower State revenue too, from the largest share of our population base. And Albany will respond to the crisis by putting more political and tax capital into the City. These twin blows could leave the North Country even more vulnerable than we previously thought.

Today's Press Republican editorial accurately described a pathway that will peel back some of the insulation that the North Country has enjoyed in this current economic slump. The insulation came from increased Canadian activity because of the strong dollar from that oil-exporting nation. The article points out that the North Country is also quite dependent on New York State, and the State overall is hit hard by the economic downturn.

Much of our economic woes come from financial markets and Wall Street. And the heart of these industries is New York City. A front page article today notes that NYC is facing a $2.3 billion budget deficit. That city is hurting, and when it hurts, the rest of the State suffers too.

There is one very important factor that also affects the North Country. As resources become scarce, economic theory tells us that resource owners benefit most, owners of other more abundant factors of production are perhaps neutral, and those that own the most easily produced and replicated factors of production may actually be made worse off. This places an extra burden on low skill workers, the most easy to replace or outsource. And it produces greater value and profits for those that own the most scarce factors, like oil and land.

We see this even in the North Country. Typically land rises at a rate faster than inflation. Hence there is the old adage - buy land. Unfortunately, as land prices escalate past the rate of inflation, so do property tax revenues. And of course, every government that can tap into property taxes grows as well.

As a consequence, we have the costs of government that increase more quickly than inflation, and then also increases more than our income. It begins to represent a greater share of our economic pie. And when there is a shock that hits housing prices, as we are seeing today, it forces highly unionized local governments into deficits because they cannot contract as quickly as tax revenues decline.

For this reason, we often see property taxes rise, but rarely fall. This ratcheting effect on the size of local government produces additional strains on economies when they are often already strained the most.

Hopefully the moderated effect in the North Country of the housing price meltdown nationwide will insulate us a bit as well. Time will tell, but careful government planning will also be important.

Have you ever noticed how easy credit is to come by when you don't need it, and how hard it is when you do?

The New York Times reports today that large national banks have dropped commercial and industrial lending by 3% over the past year. Factor into account prices that are up by 9.2% from a year ago, and real lending to industry has declined by more than 12%.

At the same time, high energy prices are translating into a shift of commercial and venture capital funds into the energy sector, resulting in even further declines in lending in non-energy industry.

The explanation is that large banks are cash-strapped from their mortgage and real estate losses.

This trend is expected to continue at least until the end of this year.

To gauge the magnitude of the net effect, the drop in credit extended to companies and consumers exceeds the economic stimulus package rebates that Congress and the President hoped would bail us out of this recession. One step forward and two steps back.

The New York Times also reports that the number of U.S. banks that have tightened commercial and industrial lending standards has almost doubled. For the first time in recent economic history, more than half the banks have tightened standards, and 70% have made their loans more expensive.

Of course, this disconnect between what the Fed and Congress are trying to do and what the banks are willing to do is one of the costs of a more complex economy. In a world of enlightened capitalism, it might make sense to offer some guarantees that will allow the industry to extend more credit. After all, if access to credit is the bottleneck, alleviating its choking effect might allow the economy to thrive, and in turn, the loans to be secure. The attitude of banks is critical to this economic recovery.

As the Credit Crunch and the Regulatory Reforms continue to reverberate across the economy, it seems that we are beginning to see the beginning of the end. While it has taken a while, Congress has acted to pass a mortgage industry relief bill and is considering many regulatory reforms. The Treasury and Federal Reserve hava also maintained a modicum of liquidity in financial markets and have made clear statements about their intent to ban some of the most destabilizing "financial innovations" like naked short selling.

These efforts appear to be working. Growth has been anemic but it at least has been growth. And while the unemployment rate has creeped up steadily, it is still in a range that would be considered fair to good at any other time.

Of course, for entirely different reasons, energy prices have given us a double whammy. The energy price ramp-up is mostly due to higher worldwide demand, but is also fueled :) by speculation in oil futures that has risen twenty-fold in the past five years.

Part of this shift into oil speculation is because of the anemic performance of a stock market that dipped to a level recently that had not been seen since the late 1990's. However, even the stock market seems to have found its support, even as its volatility has increased.

The sole remaining element of this complicated chain is us. Just as the Fed tried months ago to come to terms with a stagnating economy in the face of increased inflation (or stagflation), we too must try to respond to different cues. Do we curtail what we do so we can wait out the fickle markets? Or do we invest all the more and purchase the consumer durables that improve our domestic economy? We too are caught in economic paralysis - a proverbial deer-in-the-headlights. We are uncertain about our own economic futures and this uncertainty is becoming a self fulfilling prophecy.

In the face of such paralysis, we need an economic shephard to guide the flock. The nation is clamoring for a sense of economic direction and purpose. From that will flow renewed economic confidence. We may end up finding our own way, but the time is right for some grand plans that will get this economy back on its feet. If we can develop a sense of economic purpose, we can move through this much more rapidly, and perhaps even come out of this stronger than before.

Today Congress is likely to pass, and the President likely to sign, a bill that will refund and reorganize Fannie Mae and Freddie Mac, and allow homeowners to refinance some of the most troubled mortgages. It also seems destined to create a fund that will allow counties to buy up foreclosed and abandoned homes to prop up neighbors' property values.

The Federal National Mortgage Association (FNMA, or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) are not government entities. However, they are sponsored by the government in that they are given access to guaranteed loans from the Federal Government, and their statutory environment has been made favorable by Washington. Of course, other private companies, franchises, and associations also receive favorable regulatory treatment. For instance, Major League Baseball has maintained an anti-trust exemption for generations. And banks have access to funds through the Federal Reserve.

What sets Fannie and Freddie aside is that they also have shareholders. If 98% of the corporate assets are debt, in the form of mortgages and government capital, then the shareholders own just two cents of every dollar. And if Fannie or Freddie can increase profits by two more cents per dollar, shareholders then have four cents on the dollar and their investment is doubled. However, if Fannie or Freddie suffer a 2% setback, it can wipe out the value of some very high placed investors.

This high-stakes, highly levered investment vehicle works fine when markets continually increase in value. In such markets, the mortgages become more secure all the time, and the investment less risky, even as profits increase. And markets have always increased since the Great Depression - until now. As a consequence, Mae and Mac were boisterous, confident, and profitable. But when markets take a downturn, privatized profits become socialized losses, as the nation bails them out and picks up the tab. Unfortunately, they are too big to fail.

Other ways the government can help this sorrid picture is by maintaining property values. We can do this best by keeping people in homes. A vacant home is vastly more likely to depreciate, be vandalized, and destroy its and adjacent property values. And this undermines the value of the entire housing stock and the foundations of the mortgage markets.

On the other hand, we cannot let poor management and poor decision-making get off Scot-free. The legislation will require banks to write down a portion of the refinanced sub-prime loans that Fannie Mae and Freddie Mac will guarantee. And Fannie and Freddie will be under increased regulatory scrutiny. Ideally, we should go as far as owning some of the Mae and Mac assets, just as large institutional funds negotiate when they step in to bail out Bear-Stearns and the like. True, it is a dirty business when capitalism and government each have seats in the boardroom. But it is a dirty business already.

Debate in Congress is prone to hyberbole. One such uttering was the need to expand oil production so that this nation which consumes 25% of the world's oil produces more than 3% of it. One approach is to consume less and converve more. Another goal that has been suggested in Congress is to be sure to extract "every last drop" of oil.

It is this latter suggestion that sounds great on the surface but does not make economic sense. Oil extraction costs rise considerably as oil becomes more scarce. This is an obvious result of the good economic decision that has us extracting from easy to access oil first, and then reaching for the more costly fields later. All this is in the hope that an alternative energy source will come along that costs less than the cost of extraction from costly wells.

A huge rush to expand our range of extractable oil will be very costly, but may not have any effect on oil prices at all. For instance, many now propose drilling in the Arctic National Wildlife Refuge. I have seen the Refuge, and I can understand why some would want to preserve its expansive beauty, while others who value the Arctic less may see it as prime oil land. Environmental preferences or concerns aside, even if we began the process of drilling in the Refuge now, we would likely not bring its oil to market for another ten or fifteen years, if we find that oil is there in the first place. (To now, we only know its geology is favorable to perhaps harboring oil).

And when these costly or offshore oil sources do come on line, they may in total represent only a year or two of U.S. oil demand. After all, the mammoth Prudhoe Bay oil field in Alaska, the biggest in the nation, only meets about 4% of U.S. oil demand. And by the time we manage to bring the oil to market, it seems likely that we will have moved to other forms of energy, at least in substantial part, and the oil they might provide will be less dear to us. Of course, as we move to other forms of energy, the cheaper non-conventional oil we have in abundance in Canada and Venezuela can be stretched even further from the decades and centuries we estimate them to be now.

This is not to say that increased oil exploration does not make sense or that we should shut down the oil industry. Instead, it suggests we should have a thorough economic analysis and public debate over where we should invest the next hundred billion dollars to enhance our future energy security in a way that will provide the most benefits for the longest time horizon. We need more thoughtful analysis than posturing at this critical time in our nation's economic future. Only then would the nation be on the same page for whatever direction Washington wants to pursue to ensure our long term energy future. Perhaps expanded oil production might be the best way to go. Let's see.

Imagine some of the changes we now are considering as a result of high transportation costs.

These transportation costs hit enterprises and institutions hardest through their people. Each day, most individuals must drive twenty to fifty miles to come to a job that has many of them working on a computer that could be anywhere. At current gas prices, that is an additional cost of upwards of ten dollars per day, plus the not insignificant cost of maintaining a vehicle. Conservative estimates would put the net expense at well over five thousand dollars annually for most individuals. This is a good share of the annual income for many.

We do this because of a hundred year tradition of having people fit the job, rather than the job fit people. Our people are much more diverse now though, and the technologies they employ are far more mobile.I think it is imperative that we learn to work smarter and use our assets better. For instance, a 9-5, 5 day a week, sit-in-a-cubicle setting is not optimal for some people, maybe not optimal for many people. It is the tradition we have established over a century, but does not fit the pattern of work in the 21st Century.

The 21st Century worker is global, and may be communicating with people anywhere in the world, over many time zones not likely in sync with an Eastern 9a to 5p schedule. The 21st Century worker is no longer a sole wage-earner, 25 to 65 year old male. As likely as not now, they may be a woman, a student, a second wage earner, or even someone who can no longer afford to retire. And the average distance they live from their job is increasing all the time as we move to the suburbs and we make location decisions that try to optimize two jobs, that change much more frequently, rather than one.

Of course, there are various environmental and lifestyle arguments for greater job flexibility too, all of which translate into a need to explore how we structure jobs.

Some local institutions are beginning to explore alternative arrangements. Some SUNY schools have been in the lead in this. Clinton Community College has been experimenting with four day work weeks during the summer months for years, with NCCC following suit. SUNY Plattsburgh briefly considered it, and may reconsider it in the future. These schools also have explored job sharing where a job may be divided up between two part time staffers, and flextime that allows a 7.5 hour day to occur with only some overlap with the traditional 8a to 4p schedule.

One of the challenges of course is to ensure that there is a productivity rise, or at least no productivity fall, that would go along with the lifestyle, environmental, and economic improvements this would provide to workers. Studies suggest that productivity does rise. Regardless, this willingness to be creative about how we employ our people may soon become a necessity.

When FDR put Social Security in place for those attaining the age of 65, life expectancy was only 62. Now a girl born today is almost as likely as not to reach the 22nd Century. Almost half of their life after one finishes graduate school will be beyond the age of 59.5 years that the IRS allows us to begin drawing from our IRA retirement accounts. It seems likely that with only one worker per retiree, such early retirement will no longer be feasible.

And yet these most experienced workers have the economic foundation that will discourage them from participating in employment solely dictated by the most unimaginative of employers. It will be those employers that can figure out how to fit work into lifestyle that will be able to attract the best in an increasingly scarce labor pool.

Today's Press Republican/Associated Press poses the question whether there has been a paradigm shift in energy usage. I think the answer in a word is YES!

For the first time in more than three decades, energy usage is on everyone's mind. This is most likely motivated by the constant reminder every time we refill our gas tanks. And having energy usage on the forefront of our economic debates will be very good for one really important reason.

Technologies exist now that could compete with the cost of energy generation from hydrocarbons. There remains one problem though - that of scale. These technologies have a high upfront cost of manufacturing, but the variable costs per unit produced are relatively small. The problem though is that a manufacturer must produce a sufficient volume to spread the R&D and tooling costs over the units produced.

This is a chicken and the egg problem. Few will adopt new energy technologies until the costs come down. And the costs won't come down until enough adopt new energy technologies.

Of course, venture capital could be employed to pay for these upfront costs. But venture capital is not cheap, and it is increasingly spread over other sectors since the capital markets dried up last summer.

Alternatively, we could provide low cost loans to the industry. Is this affordable? A mammoth investment in alternative energy might be ten billion dollars. To put this sum in perspective, in the U.S. we are spending about $80 more per barrel of oil than we were just a few years ago. At the current rate of domestic consumption, that costs the nation about two billion dollars - per day. Just a week's worth of wealth transfer from the U.S. to oil producing nations would have given an incredible jump start to our transition to new backstop technologies.

These are prices we can afford - once we enter into an energy-conscious state of mind.

The StateLabor Commissioner M. Patricia Smith yesterday announced two major economic initiatives that will help stabilize the regional economy.

The first, an extension of unemployment benefits by 13 weeks, will allow us to continue the circular flow of income and consumption, even for those unfortunate enough to be harmed the the recent economic slowdown.

The other announcement will contribute a little to economic vitality now, but will contribute a lot in the future. This investment, in the SUNY Plattsburgh Global Supply Chain Management upcoming first annual conference, in the Clarkson Engineering department's courses they can offer here in Plattsburgh, in Clinton Community College and CVTEC's offering of tech related courses locally, and in the training that shall be provided by the Plattsburgh Aeronautical Institute, will all pay significant economic development dividends in the future.

These initiatives, coordinated through the Plattsburgh-North Country Chamber of Commerce, are examples of automatic stabilizers. When unemployment benefits and educational opportunities expand or are employed at an increasing rate during economic downturns, there is a new investment in the economy that helps replace some of the investment lost during the downturn.

Such programs are an essential part of effective economic management. But they don't have to do all the heavy lifting themselves. Instead, they must only prime the pump. By creating some income for those unemployed, or providing an investment in human capital for those who become more educated, many subsequent rounds of income will be generated. Some will be in the form of the spending from those that receive the spending from the unemployed. Some will be from the increases in productivity that inevitably result when workers have more skills. And still more comes from the new industries attracted to the highly trained workforce this community can turn out.

In the end, we all benefit, and the economy becomes more stable and viable.

There are a lot of wonderful places to live in this country, and in other countries. Each jurisdiction has its natural attributes that attract others, and can augment these natural resources with civic and economic resources. More and more, towns, cities, and regions are learning how to provide for the optimal package of amenities that will attract and maintain residents.

A certain scale of residents is esssential. There are certain things that every town must fund. We all need a fire station to keep our insurance costs down, a school to educate our children, a hospital to heal our sick, and roads between these facilities. Taxes ultimately must pay for these amenities. Greater taxes can provide for more of these, in the regions that want or can afford more.

This package of economic factors, combined with the natural amenities and the level of taxes to support our region, is the magnet that attracts and maintains residents.

Regional planners and politicians know this. And they have become amazingly adept at tailoring the package for the residents they want to attract and maintain. As a consequence, region-building has become a very competitive enterprise.

Inefficiencies in the provision of these public services raises taxes. And these higher taxes discourage business owners and businesses from locating in one jurisdiction when it can as easily locate in another. Fiscal prudence has now become a necessity as people have become more mobile and more discretionary in their regional choice.

This notion of voting with the feet, or moving to a jurisdiction that efficiently provide the amenities and tax package families and residents desire, is here to stay. It is a product of more footloose households. And it has taken Eastern states a little longer to realize this new phenomenon. This is because of history. The multi-generational nature of families that may have roots dating back to the Mayflower has been a strong magnet to keep people in New York and New England communities. But the West has never had that history, and is naturally more footloose. And our children and young people, brought up in a much bigger world accessed by television and the Internet, do not have the same sense of tradition.

What does this mean for the North Country? We must recognize that only careful and efficient regional planning will keep our residents and our children here, and will attract others to our region. We are at a bit of a disadvantage because our strong and wonderful traditions have also insulated us from an economic reality that others have long known.

If we are to reverse the decline and create a place where our children want to stay, we will have to think carefully of what we provide and how efficiently we can provide it. If we do not, we may help out the few that benefit from a less than carefully designed regional budget, at the expense of all others that could have followed.

The headlines are intriguing. Northern New York is churning right along, even as there is constant news of doom and gloom in the national economy. Reading the Watertown article even further, we discover that Clinton County sales tax revenue is up almost a whopping 10%!

Something is right with the North Country economy. More specifically, we are benefiting from the same forces that are hurting the rest of the country - high oil prices.

Plattsburgh is a community that is fast becoming a regular destination for Quebecers. The range of amenities and retail options is good and growing. And these shoppers have the luxury of a strong Canadian dollar. This strong loonie is because Canada has vast, and growing, proven oil reserves, and is benefiting from the same energy price escalation that is hurting the oil-importing U.S.

As a matter of fact, some argue that the Canadian currency actually remains underpriced. The correct value for the currency in the medium term might be closer to $1.10 U.S.

Imagine the even greater flow if the loonie were to appreciate an additional 10%. Already, shoppers and travellers from Canada find the North Country's air travel and shopping options to be very attractive.

Perhaps we should anticipate further Canadian traffic, and continue to make Plattsburgh even more attractive. And as we increase the level of amenities for Canadians, we just might find this area will become more attractive to tourists, and to a new, young, and vibrant workforce, from across the U.S. as well.

This area may well be the jewel in the Lake Champlain crown. But don't tell anyone!

Phil Gramm, (ex) economic advisor to John McCain opined that this recession is a mental recession, and that we have become a nation of whiners. He was immediately disowned by Senator McCain.

I think Senator Gramm is half right - and maybe a little more than half.

Yes, this recession has at its basis a failure of confidence in the economy. More accurately, it might be a failure in our collective economic leadership. People have become scared, and their financial capital is running for the hills. But while the unemployment rate might be up from what it once was, it is still considered very good. And while inflation is also higher than what we have experienced over the last decade or so, it too is still very good. And the reasons for its increase are not systematic, but are rather speculative in nature. Big investors and hedge funds too are running from traditional equity markets and into commodities, and oil is our highest profile and most inelastic commodity.

So, I certainly agree with Senator Gramm that the economy is basically sound, and that there has been an over-reaction, perhaps fueled by greed and some market manipulation.

Is the nation one of whiners though? Perhaps I would agree that we have learned to overreact to each bit of bad news. The markets though have become fundamentally more volatile, and the U.S. is not to blame for that. This volatility has two sources. First, we are merging with other major financial markets worldwide - and some of these markets, in Shanghai and in India, are historically volatile. It stands to reason that the combined markets would then be more volatile than the previously even-tempered U.S. markets.

Hedge funds, institutional investors, and even companies like E-trade that advertise you can invest your money anywhere at any time, means any financial news echoes around the world, and then reverberates some after that. We have entered into a phase of hyper-volatility, and these days we are experiencing the exagerated trough.

Of course, if everyone simply recognized this and rode it out, we'd be quickly out of the woods. This is difficult though. It would require some entity to explain all this to us in a way we could understand. This economic leadership could come from our Economic Commander in Chief, or the media. Neither is doing so yet though. And it would also require us to repress our gut instincts in favor of doing one for the Gipper. The free riders among us could easily unwind that strategy too though.

So, I agree with Senator Gramm's sentiment, even if I quarrel somewhat with the tone of his message. We all agree on one thing though - his were words we weren't ready to hear.

As the financial markets continue their fits and starts, there is yet another shoe to drop on this economic octupus. Fannie Mae and Freddie Mac are in the category of "too big to fail.". In discerning the line between too big to fail and not so big, we can conclude that by allowing the country's second largest thrift to fail, the $20 billion IndyMac is not big enough.

But companies that collectively underwrite (at least initially) five trillion dollars of housing value in the United States certainly are.

Of course, this is a wise investment on by the citizens of the United States. We need a liquid mortgage market to ensure that the American dream of owning a home does not become a nightmare. If you recall, it was the private market alternative to Fannie Mae and Freddie Mac, the subprime mortgage industry, that plunged us into this most recent and most troubling of all financial meltdowns since the Great Depression.

Private markets are wonderful things - when they work. However, some markets can be too capricious and too subject to corruption to go unregulated. This had been the case with the subprime mortgage market, and is also the case with Fannie and Freddie. These private corporations with strong government backing and support have been constant targets of concern about their business practices. They grew perhaps too quickly, riding the wave of home ownership as the baby boom, and then the echo of the baby boom purchased homes. Many thought there had to be some reconciliation. Few thought it would be drastic enough to threaten the very survival of both institutions.

I think the best approach is to more effectively regulate these companies that we cannot afford to see go bust. Any corporation is in an enviable legal position that is granted to it by the citizens of the country. And every corporation has in turn some responsibility to behave in the public interest, all the while having the right to profit in doing so. After all, corporations too are given the opportunity to pursue (legal) life, liberty, and the pursuit of happiness. But just as this translates into our consent to have speed traps regulate how we drive on the freeway, companies should reasonably expect some monitoring and regulation, proportional to the damage they could do should they fail.

This seems reasonable enough. The art is in discovering a balance in regulation that does not significantly hamper the profitability of a company. Clearly, with the sub prime mess, and now Fannie Mae and Freddie Mac, it has not been quite enough. It is difficult to blame the regulators though. For every one of them, there are thousands of corporations to monitor. And financial innovation is now replacing technological innovation as the economic goal in this nation. It is hard for regulators to keep up, much less effectively monitor, such mammoth financial enterprises.

I have no solution but to ask the country to engage in a dialog about the importance of business ethics and sustainable business practices. If we continue to engage in non-sustainable activities, such as the sub-prime debacle, we ultimately do more damage than good, and leave future generations to pick up the tab. This is simply not sustainable, and should not be part of our economic future.

The Dow Jones Industrial Average has dipped below the 11,000 mark. This mark was first reached almost a decade ago, on May 4, 1999. That year too also showed a federal budget surplus (the second of four consective years of surpluses) and oil was priced at $16.56, or $21.30 per barrel in 2007 dollars.

Then, the unemployment rate averaged 4.2%, compared to 5.5% now.

On the bright side, I think Treasury Secretary Paulson and Federal Reserve Chairman Bernanke well understand the gravity of the current situation, and are doing an admirable job now in shoring up a shaky financial picture. I am one of the few left that still believes we may avert a recession, at least as it is popularly defined.

While the popular definition of a recession is two consecutive quarters of negative real Gross Domestic Product growth, the official NBER definition is:

".... a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough."

Using this definition, we are likely in a downturn. However, we have not seen unemployment rise to difficult-to-manage levels. I think the reason is that the working class is pinched. We are experiencing layoffs without commensurate losses in output. The employed workforce is just working harder, and I think this will be reflected in higher productivity rates. So while the working class is layed-off or working harder for the same pay, declining wage payments and the resulting improvements in long term profitability will likely help the economy experience a soft landing - so long as Secretary Paulson and Chairman Bernanke can continue to hold it all together.

Alternatives to Oil as a State of Mind

The Press Republican recently published the result of a recent Clinton County meeting:

"Clinton County Planning Board disapproved of the Town of Beekmantown’s proposed law, which sought to allow residential, commercial and agricultural use of single wind-power turbines for the sole purpose of supporting the applicant with electricity. No re-sale of power for profit would have been allowed."

I am sure there was a vigorous discussion on this issue, and I don't know the points brought up by the various proponents and opponents. I am also sure the decision was well reasoned. It does highlight a problem though. How do we create the culture and an economy that will allow us to transition away from oil and to other forms of power like wind, solar, or bio-fuels?

One problem is that wind and solar are still stigmatized because they are unfamiliar. I recall when I first viewed a large scale wind farm, in the Palm Springs area about fifteen years ago. Perhaps unusually, I thought they were beautiful, graceful forms that gently danced with the wind. Others could view them as monstrosities polluting our viewscape. Beauty is in the eyes of the beholder.

Wind and solar do serve an important role in our energy independence however. Perhaps we could look at them from a different perspective. Our cars and trucks are now indispensable, especially given the rural nature of this vast nation. So we have come to look at cars as attractive utilitarian transportation boxes. People take great pride in the beauty and styling of their vehicles, and spend tens of thousands of dollars purchasing and maintaining their appearance. We have learned to appreciate the beauty of an automobile because our lifestyle

However, few would argue that a car enhances the beauty of our surroundings. As I look out my window, I am sure that the view would be enhanced if no cars were parked or driving by. Culturally though, we have come to accept the car as a part of our surroundings, and we see their inner beauty that allows us to also regard them as outwardly beautiful. We no longer stigmatize vehicles in the way we may stigmatize a wind generator, wind farm, or solar collector. But nor do we display cars in our town square as we would a sculpture!

Perhaps we can learn to see beauty in energy independence, and from that perspective bend over backwards to accommodate the aesthetic and safety aspects of alternatives to oil. At the same time, we can appreciate cleaner air and the better views that will provide.

Europe is well ahead of us in this regard. Indeed, when we travel to Europe, we find beauty in the Dutch windmills that offered such a utilitarian solution to their energy needs. And the Germans are so enamored with energy independence that farmers are promised a very high kilowatt hour rate for twenty five years if they agree to sell electricity from solar panels and wind generators back to the electric utility. The European mindset has changed dramatically, in the face of six dollar a gallon gasoline for the last decade or so.

Once we can transcend the unfamiliarity of alternatives to oil, our scientists, engineers, and designers can continue to work at making these alternatives more integrated into our community. We will learn that alternatives to oil are not hard on the ears, or the nose, and maybe even can be easy on the eyes.

It is all a state of mind.

The United States uses just over 20 million barrels of oil per day. What can we expect will be the final effect of oil prices that has almost tripled in three years, and increased six-fold in eight years?

It would be difficult to measure the first round effects of higher oil prices at the pump and for home and commercial use, and then factor into account all the subsequent round increases in food costs, shipping costs, manufacturing costs, etc. Instead we can look at it from another perspective.

The U.S. is a $13 trillion per year economy. Back in 2001-01, we had a $10 trillion economy, and consumed about 19 million barrels of oil per day, at a cost of approximately $400 million per day. This works out to about $146 billion per year, or just under 1.5% of our economy.

At current prices and usage, we must purchase about $3 billion worth of oil per day, or about $1.1 trillion per year. This accounts for about 9% of our Gross Domestic Product.

Ultimately, the tax on us all then works out to about 7.5% of GDP now diverted to oil producing nations and corporations from the U.S. economic pie. Some of that wealth shall be rediverted back to the U.S. to the extent that U.S. shareholders hold stock in the energy sector. However, we have collectively become poorer by the increase in oil prices.

We might imagine that everybody can tighten their belts enough to make up for this 7.5% decrease in wealth. However, such a figure represents the economic growth of three healthy years in this nation. Few of us could imagine the same quality of life if our take-home pay fell by 7.5%. These are the real costs of our failure to anticipate energy as an important strategic issue.

Just imagine what we as a nation could have done with almost a trillion dollars a year of research and development that could ween us off oil. To put that figure in perspective, in today's dollars, the entire Apollo mission over its many years cost only a fifth of our lost wealth for a single year. And that is the gold standard for major national initiatives with a common technological goal in mind. Five Apollo programs - each an every year - for the bite oil has taken out of our wallets.

Taxpayers will begin to see tax rebate checks deposited to their accounts or in their mailboxes as early as next week. But will these payments be timely enough?

If the program designed to advance us a 2008 tax credit was completely successful, it would help us ward off the recession. But recessions are defined as two consecutive quarters of negative growth, so the rebate should have been timed when the recession likely began, not now as it likely nears an end. 

Timing issues aside though, can a tax rebate amounting to 1% of our annual GDP make a difference? Maybe.

First, it would require that the $150 Billion used for this rebate is not eaten up by $150 Billion in increased government borrowing, that may then raise interest rates and reduce private investment. 

Second, it would require a good share of the spending stays home. By home I mean somewhere in the U.S. for sure, and locally even more ideally. The reason is that local spending on local items means local jobs, and more spending in the next round. This is the classic multiplier effect. 

If instead the spending is on big ticket consumer durables made elsewhere, then only the retailing and transportation portion of the spending will remain domestic. So, if we all went out and bought big screen high definition televisions with our windfall, it would be good for a domestic economy somewhere. But not ours. 

Third, it would only do indirect good if the money ends up in investment portfolios. That might lend some strength to financial markets, and some strength there might create some optimism. And from optimism comes renewed confidence and spending. 

However, we would have likely realized more direct and more profound growth had the same number of dollars been used to improve our infrastructure, broaden the scope of education, or enhanced research and development. These are all domestic, and they have the added effect of creating greater efficiency or productivity in the future. Such investments would be economically optimal but perhaps politically naive!

The Federal Reserve Board has again decreased the interest rate it charges for short term loans to commercial banks. This is the latest in a series of drops that have been unprecedented, in size and rapidity, for at least a generation. It is natural for North Country residents to wonder what is going on, what might happen next, and how it might affect us.

The Fed has not needed to cope with the current decline in financial market confidence since the Great Depression. While many now realize that the failure of regulation to keep up with new fangled financial products is at least partly responsible for this current mess, spending too much time on blame doesn't get us any further toward solving it.

Perhaps history can give us some insights. Confidence in financial markets was shaken with the Great Crash of 1929. The immediate effects of that crash on market performance and confidence were only a little larger than what we are seeing today. Over the next three years though, confidence continued to erode, wiping out almost three quarters of the value of the stock exchange.

What we perhaps ought to understand is why things continued to deteriorate between 1929 and 1932. First, we did not have a well functioning Federal Reserve System that viewed the maintenance of financial stability as perhaps their primary objective. We also had a prevailing philosophy in the Herbert Hoover administration that the market should be left to its own devices. Hoover was monitoring the situation but did not believe the turmoil could last as long as it did. Modern Keynesian macroeconomics now tells us that the economy is well capable of long periods of persistent and dramatic recession or depression, but these studies were in their infancy in 1930. Finally, there was a tradition of lack of government involvement in economic affairs that prevailed throughout the Roaring Twenties.

But while the Fed tried to do whatever it could, without the support and reinforcement by the Economic Commander in Chief, the Fed's actions were deemed not credible.

What got the markets back on track was one simple yet powerful speech. President Franklin Roosevelt's Inaugural Address, on March 4, 1933, almost exactly seventy five years ago, began with these words:

"I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impel. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." (As transcribed by Samuel Rosenman, editor, in the Franklin D. Roosevelt, Inaugural Address, March 4, 1933, The Public Papers of Franklin D. Roosevelt, Volume Two: The Year of Crisis, 1933, Random House, 1938, pp 11–16)

The President, in his first day in office, went on to explain to the people how the banking system works, and our role as citizens in maintaining confidence in financial markets. He was also sending a clear message to those who ran financial institutions that they too have a responsibility, and he would ensure they live up to it.

These decisive words, backed by a credible statement to mobilize any federal resource to restore market confidence, had an immediate impact on the banking industry and the markets. The day markets and banks reopened, the stock market experienced its single biggest increase in history, and most deposits withdrawn from banks and horded under mattresses were immediately redeposited. Confidence was restored by a simple speech. Words and vision can make a difference.

Will things get as bad this time around? I don't think so. While perhaps we have done far too little far too late, the cries are getting louder and louder. And it has not taken four years for these clarion calls to be heard. My only fear is that the Fed has used almost all their monetary arrows somewhat futilely, given the lack of a concerted fiscal policy response. There is not much more the Fed will be able to do at this point. So now there is a growing will to go far beyond a small tax rebate.

It is interesting that Canada seems to weather these storms better than we do in the U.S. Perhaps one significant reason is that their Federal Reserve equivalent, the Bank of Canada, and their government work in a more concerted way to conduct economic policy. Also, in the current crisis of the U.S. dollar, assets have fled to commodities, mostly gold and oil, both of which Canada has in abundance. The now strong Canadian dollar means that a region like the North Country is at least partially insulated as Canadian businesses all of a sudden see great opportunities for an affordable U.S. presence. Hopefully the Canadian-led growth in the North Country will balance the recessionary fears emanating from our South.