2005: ONE MORE EXTRAORDINARY YEAR.

This issue reviews and summarizes Whidbey Island real estate sales during the twelve months of 2005 - January through December. With very low inflation (with the exception of energy), interest rates continue close to 38-year lows. Overall residential sales increased across the board. Prices, in general continue to rise. During the year, the average home price rose an astounding 18.3%. At the same time total sales dollars for all residential real estate island-wide rose a remarkable 27.6% from last year. For residential SFD properties, the South Whidbey market area (including Coupeville, Langley, Clinton, Greenbank and Freeland) saw sales numbers barely rise 2.6%, however, in the Oak Harbor/ North Whidbey market area they rose 9.6%; indicating the increasing impact of the Growth Management Act in forcing development into our one major "urban" area, Oak Harbor. A further indication supporting increased activity is that "average days on market" (DOM), fell 29.4% throughout the island. Especially impressive was sales activity in Oak Harbor. All the north-end activity reflects the heavy U.S. Navy influence in Oak Harbor, where Naval incomes based on technical skills are rising rapidly. Total sales dollars in Oak Harbor rose 24.8% during the year. After reviewing changes in the real estate market, we make some predictions for the first half of 2006, comment on the Economics of Wine and America's Energy Posture, and end with our usual near-term economic predictions.

THE YEAR THAT WAS! For the year residential sales rose from last year's $356.9 mil. to $455.5 mil. Residential sales numbers rose somewhat, from last year's 1,347 to 1,567. Of these 125 were manufactured homes, 122 were condominiums and 92 were multifamily units within 24 properties; mostly duplexes. Finally, there were 1296 Single Family Detached homes sold.

Land sales continued the rise begun two years ago after several "soft" years. Land sales numbers, island-wide, were up 12.9% since last year, however, dollar volume was up a dramatic 37.6%; as Days On Market dropped 21.6%, compared to last year. Land sales numbers rose from 466, island-wide, to 526 through December. Sales numbers were roughly balanced between lots and acreage's, 319 versus 207, the larger number attributable to new lots in Oak Harbor for construction. The impact of our Growth Management Act regulations continue - as most development is constrained to Oak Harbor. The "average" acreage sale at $192,300 and the "average" lot sale was $90,700. In all, there were $39.8 mil. in acreage sales and $28.9 mil. in lot sales. Residential sales, of course, remain by far the more important segment of our real estate in numbers and dollar flows, as reflected in the following breakout:

Standard Single-Family Detached Home Sales, and Other Sales, January-December (2005)

Previously Built Homes

No.

Sales$

Aver$

DOM

%
SHR

Northend (Oak.Harbor)
593 $151,262,550 $255,080 49 33.2

Southend (Coupeville & South)
507 $197,391,134 $389,332 79 43.4

New Construction Homes

Northend (Oak Harbor)
152 $41,311,202 $271,784 89 9.1

Southend (Coupeville & South)
44 $15,386,450 $349,692 94 3.4

OTHER THAN STANDARD SINGLE FAMILY DETACHED
RESIDENTIAL SALES(North & South Whidbey 2005)

Manufactured
125 $21,251,375 $170,011 82 4.7

Condominiums
122 $20,063,450 $164,455 30 4.4

Multifamily 92/Units
24# $7,991,650 $86,866 43 1.8

Residential
1,567 $455,506,926 $290,687 63 100

* There are probably more "manufactured" sales that are counted as SFD
#=number of sales, with number of units/unit price

The Table is very abbreviated, because of some limitations with HTML. Contact us to send you a printed or faxed copy, together with the published Tables documenting fifteen years of South Whidbey and North Whidbey sales, by residential category.

In the above Table, DOM refers to the number of "days on market", while "percent share" means the percentage of all residential sales dollars. As Coupeville has completed its transition into the South Whidbey marketplace, we will no longer include it in our North Whidbey analysis. The Zip code for Oak Harbor (98277); is North Whidbey and everything from Coupeville south is South Whidbey: Coupeville, Langley, Greenbank, Freeland and Clinton. What significant changes have occurred during the year? The impressive rise in the price of all real estate is the most remarkable trend. First, North Whidbey is "booming". Absent dramatic personnel reductions at NAS Whidbey (something that might occur in the next few years but not in this BRAC cycle), the greater Oak Harbor area continues to come into its own as a retirement community. Within the past five years the availability and quality of retail goods has increased impressively. Significant mission changes at NAS into long-range turboprop anti-submarine aircraft with many more officers and senior enlisted personnel per squadron than was the case with previous fighter-bomber basing. Salary increases, those following rising education standards and outside competitive forces in the private sector, along with rising housing allowances (BAH), have stimulated local new construction to record levels (and record prices). Although rental rates are high, many of our splendid military families are unwilling to rent older apartments or the tiny condo units that were built in the past twenty-years. Adding to this Navy impact is the increasing number of retirees who "discover" Whidbey Island, and prefer the small town sense of community and shopping of Oak Harbor. Another factor affecting home buying patterns and new construction is the accumulating impact of the State's Growth Management Act (GMA). Our county is especially impacted. GMA basically inhibits development in the county, except within "urban growth areas". On Whidbey there is only one literal "urban" area - Oak Harbor (though Coupeville (2,300 population) and Langley (980 population) are technically "urban growth areas"). GMA virtually prohibits development elsewhere. Politics have created a vacuum. Oak Harbor has responded.

New affordable development lots in Oak Harbor are now so valuable (averaging about $85,000) that successful builders are developing for their own account and selling, at their pleasure, some lots to other eager builders needing ready-to-build parcels. Expect this trend to continue. While "spec" home sales in Oak Harbor are rising dramatically in both numbers and prices. Such sales continue to decline on South Whidbey. Only 44 new "spec" homes were sold on South Whidbey, but some of these were larger, rather expensive homes. The appearance of new homes selling for more than $350,000 is a new phenomenon on the island. Expensive "spec" homes (those above $300,000) sell slowly, however, they are selling. Custom home construction increased in numbers and average values, even though these do not appear as sales data. Condominium sales have rising slightly, but continue to decline as a percentage of the market, and manufactured home sales continue to decline. Homes under $100,000 have virtually disappeared (even condo sales average almost $165,000) - most are on North Whidbey. The number of expensive homes sold rises each year. During the year, 460 homes sold for more than $300,000; and 169 of these sold for more than $450,000. These "upper-tier" sales continue to be intriguing as they document the direction of change as Whidbey Island becomes a "preserve" for the well to do and the truly wealthy. Sales numbers over $300,000 have increased over 53 percent, compared to last year.

LAND TRANSACTIONS: IMPRESSIVEDuring the year there were 526 land sales; 405 on South Whidbey totaling - $50.3 mil. On North Whidbey there were only 121 land sales, totaling $18.4 mil. Sales for land totaled $68,728,702. This is the third year, in the last six, in which land sales have strengthened. On North Whidbey the average transaction price, including both lots and acreage's, was $152,366. This high price per lot is based on the fact that there are more, larger, acreages available on North Whidbey. On South Whidbey the average land sale was $124,179 (lower because there are still large numbers of buildable lots on South Whidbey). About 39% of the transactions were acreage's.

ECONOMIC PREDICTIONS FOR SECOND-HALF OF 2006. Our national economy has come roaring back after almost three years along a bumpy road. Overall the economy is simply performing magnificently, relative to the other major economies of the world (including even those of India and China because while growing fantastically, China still has no infrastructure and India has very decrepit infrastructure). Housing continues to "boom," despite some evidence of developing "bubbles" in seven or eight of the countries major housing markets. The impact of last year's hurricanes, this years anticipated hurricanes, terrorism and utterly unnecessary oil costs - even the nasty and costly situation in Iraq has not stalled the private sector economy. Despite huge tax cuts, the federal deficit will be just over half what was projected in January! Before we recap the current situation, let's note that macroeconomic matters always contain some non-performing elements no matter how well the general economy is performing. For instance, Michigan and Ohio have very challenging employment problems. They have failed to "get modern." Such problems in America, of course, always create political problems, so expect continuing political divisiveness. Also, investor confidence is softening even though the securities markets remains strong; poised even to achieve all time records. Capital investment is still too low, because our tax system too much favors consumers rather than producers. On the other hand, all the 4.5 mil. jobs lost between 1999 and 2003 have been replaced and another million besides. Considering the magnitude of technological change, despite the "kicking and screaming" of labor unions from automobiles to teachers, is changing our nation. Their wishes to drag America back to the 20th-century is almost fatalism. In fact, the average "unemployment" rate in 2005 was lower than the average rate for each of the past seven years - all of them! Job replacement has not been "high-paying, traditional," union employment. That is gone and will not return. Job growth is 75% lower-paying service employment and 25% extremely high-paying technology employment (open only to those with technical, educational and previous employment experience). Our basic economy produces more and more with less and less employment, while our specialized economy requires labor intensity ranging from minimum wage labor to technology workers producing "tens of millions" in added value to the national and regional economies. Positive economic growth continues at about twice the base rate of inflation - almost 4% is projected for the year. And remember given the scale of our huge economy even modest growth represents over $300 bil., annually to our GDP. Inflation remains very low. In fact, were it not for energy "spikes," real inflation so far in 2006 would be under 1/2 percent. Given world uncertainties, this is an excellent record. By way of contrast the rest of the world is struggling with recession, made worse for them by the weakening U.S. dollar and higher energy costs. Consumer confidence is uneven but actual consumption remains strong (very strong), driven partly by very low interest rates. The housing market also rose at an incendiary rate in 2005, and was the second best sales record in history. New construction is slowing down because of overbuilding in some markets and rapidly rising home prices, absent rising incomes. Inexpensive housing mostly exists in areas of the country where we choose not to live; this means that its getting harder to qualify at the recent price levels in many areas of California, Florida, Washington state, Arizona, Colorado and increasingly Nevada. Also, we probably only have another year or so of very low mortgage interest rates. This will reduce further stimulus to the marketplace for homes and automobiles. Federal tax cuts provided substantial stimulus during 2005, but the large federal government expenditures for defense, anti-terror and disaster activities presage rising government expenses, whether from an expanding economy or deficit financing. Even worse, government employment has now become the employment of choice. If you love socialism, this is the path to take. Federal employees are now paid MORE than private employees doing the same work; plus they get fantastic health benefits, can hardly ever get fired and have a huge range of other costly benefits. This, more than terrorism, disaster and Iraq are responsible for growing long-term debt. This is Social Security with problems that may not be solvable if not dealt with soon. So these debt loads are too high and rising. Speculation on the Chicago Merchantile Exchange and nothing else is largely responsible for our temporarily high oil costs. Don't kid yourself. The "spot price" of oil (about 20% of the market) at $75 a barrel has nothing whatever to do with the real price of crude. Exxon pays about $14 per barrel. So the speculation which has made "hundreds of millions" for a small handful of people is fueled by citizen fears that have replaced facts. Oil is in plentiful supply, by year-end overwhelming supply. By autumn all the worlds storage capacity will be saturated and prices will eventually come down with greater impact even as crude prices settle at a higher base price. Just as the airline, travel and hospitality industries have recovered to pre-911 levels, all face the reality of high energy costs. Can all of our "weak" airlines survive when they cannot make a profit even when their seats are full? Probably not. On the strong side, productivity is improving impressively, agriculture is strong, and corporate profits are rising. Stocks have recently exploded but will continue to be volatile, although companies with real earnings should continue to see impressive stock price levels. The bond market is very strong and should continue to be strong. as the rest of the world looks for a safe haven for their investments. It's not gentlemanly to be "jingoistic" but those who cry "EU" are being fools. Simply Europe has larger bond and stock investments in the U.S. than it has investment in itself! As for stocks without earning capability, they will continue to have their prices manipulated by the securities industry and speculators - as they have for the past eight years. We'll repeat this again; we live for many years to come in great uncertainty. Our nation continues to be vulnerable to events over which we have limited control. What you DO control is your family. Teach them to become citizens of the 21st-century; to become educated. Teach them how to work (a skill we as a nation are losing), teach them to "save" in some guise, and teach them to be "underconsumers" - the sure pathway to financial independence and wealth. As we have noted for the past several years, it will be an interesting "ride". Stay tuned!

2004: A YEAR OF CONTINUING RECORDS.

This issue reviews and summarizes real estate activity and the all time record sales year that was 2004. Very low interest rates, dipping below 40-year lows, continue to stimulate real estate activity on Whidbey Island and throughout the country. Overall residential sales numbers, year to year rose across the board, including average prices, sales numbers and total sales dollars. For the island as a whole, total sales dollars rose 37.7% from last year. For residential SFD properties, on South Whidbey sales dollars were up an extraordinary 99.2% due to the increase in high-priced homes. In Oak Harbor/North Whidbey, total sales dollars rose a modest 5.0%, though average prices rose significantly. Especially impressive were sales in the Coupeville area, often called Central Whidbey; where sales dollars rose 27.7% as that area becomes a market area fully common with South Whidbey. All the north end reflects the heavy U.S. Navy influence in Oak Harbor. After reviewing changes in the real estate market, we make some predictions for the first-half of 2005, makes comments on, Democracy: A Legacy, and close with our usual near-term economic predictions.

ANOTHER EXTRAORDINARY YEAR! For the year total residential sales rose from last year's $250.1 mil. to $344.4 mil. Residential sales numbers rose somewhat from last year's 1,236 to 1,347. Of these 88 were manufactured homes, 100 were condominiums and 69 were multifamily units within 18 properties - the remainder were Single-Family Detached (SFD) homes.

Land sales continued the rise, a phenomenon that began three years ago after several "soft" years. Sales dollar volume was up a dramatic 36.7%, while sale numbers were up 20%, compared to last year. Land sales numbers rose from 384, island-wide, to 461 through December 2004. Sales numbers of 'lots' (parcels smaller than an acre) were 64% of sales, 281 versus 187 for acreage parcels. A large number of new lots in Oak Harbor for new construction were created this year. The impact of our Growth Management Act regulations continue - development is being constrained to Oak Harbor. The "average" acreage sale at $157,400 was over twice that of the "average" lot sale ($66,600). In all there were $29.4 mil. in acreage sales and $18.7 mil. in lot sales. Residential sales, of course, remain by far the more important segment of our real estate in numbers and dollar flows.

Standard Single-Family Detached Home Sales,
Except Manufactured Homes,
January-December (2004)

Previously Built Homes

No.

Sales$

Aver$

DOM

%
SHR

Northend (O.H./Cpvl)
494 $120,528,910 $243,986 79 35.0

Southend (Greenbank-South)
502 $158,400,740 $315,539 111 46.1

New Construction Homes

Northend (O.H./Cpvl)
110 $22,466,840 $204,244 89 6.5

Southend (Grnbnk & South)
35 $10,177,615 $290,789 101 2.9

Other Than Standard Single Family Detached (SFD)
Residential Sales (North- South Whidbey 2004)

Manufactured
88 $13,397,827 $152,248 80 3.9

Condominiums
100 $13,841,975 $138,420 71 4.0

Multifamily 69/Units
18# $5,640,300 $81,743 52 1.6

Residential
1,347 $344,454,180 $255,720 88 100

* There are probably more "manufactured" sales that are counted as SFD
#=number of sales, with number of units/unit price

In the above Table, DOM refers to the number of "days on market", while "percent share" means the percentage of all residential sales. While Coupeville transitions into a market area similar to South Whidbey, we continue to include in our North Whidbey analysis the Zip codes for Coupeville and Oak Harbor; South Whidbey being everything south of Coupeville - Langley, Greenbank, Freeland and Clinton. What significant changes have occurred during the year? The impressive rise in the price of all real estate is the most remarkable trend. First, North Whidbey is "booming". Absent dramatic personnel reductions at NAS Whidbey (something that might occur in the next few years), the greater Oak Harbor area continues to come into its own as a retirement community. Within the past four years the availability and quality of retail goods has increased impressively. Significant mission changes at NAS into long-range turboprop anti-submarine aircraft with many more officers and senior enlisted personnel per squadron than was the case with previous fighter-bomber basing. Salary increases, those following rising education standards and outside competitive forces in the private sector, along with rising housing allowances (BAH), have stimulated local new construction to record levels (and record prices). Although rental rates are high, many are unwilling to rent older apartments or the tiny condo units that were built in the past twenty-years. Adding to this Navy impact are the increasing number of retirees who "discover" Whidbey Island, and prefer the small town sense of community and shopping in Oak Harbor. Another factor affecting home buying patterns and new construction is the accumulating impact of the State's Growth Management Act (GMA). Our county is especially impacted. GMA basically inhibits development in the counties, except within "urban growth areas". On Whidbey there is only one literal "urban" area - Oak Harbor (though Coupeville and Langley are technically "urban growth areas"). GMA virtually prohibits development elsewhere. Politics have created a vacuum. Oak Harbor has responded.

New affordable development lots in Oak Harbor are now so valuable that successful builders are developing for their own account and selling, at their pleasure, some lots to eager builders needing ready-to-build parcels. Expect this trend to continue. While "spec" home sales in Oak Harbor also rose dramatically in both numbers and prices, such sales continue to decline on South Whidbey. Only 35 new "spec" homes were sold on South Whidbey, but some of these were larger, rather expensive homes. The appearance of new homes selling for more than $350,000 is a new phenomenon on the island. Expensive "spec" homes (those above $300,0000) sell very slowly, however, they are selling. Custom home construction increased in numbers and average values, even though these do not appear as sales data. Condominium sales continue to decline, as a percentage of the market and manufactured home sales have also declined. Homes under $100,000 have virtually disappeared (even condo sales average almost $138,420 - most are on North Whidbey). The number of expensive homes sold rises each year. This past year 297 homes sold for more than $300,000; and 96 of these sold for more than $450,000. These "upper-tier" sales continue to be intriguing as they document the direction of change as Whidbey Island becomes a "preserve" for the well-to-do and the truly wealthy. Sales numbers over $300,000 have increased 80 percent compared to last year.

LAND TRANSACTIONS: IMPRESSIVE During the year there were 461 land sales; 350 on South Whidbey (including the Coupeville area). Sales on South Whidbey totaled - $34.7 mil, almost 74% of total land sales dollars. On North Whidbey there were 111 sales, totaling $12.4 mil. Sales for land totaled $47,136,600. This is the third year in which land sales have strengthened dramatically. On North Whidbey the average transaction price, including both lots and acreages, is $111,711, skewed by a few very large sales. Lots sold, on average, for $68,632. On South Whidbey the "unintended consequence" of GMA is to further push the south end toward becoming a "rich enclave of the privileged". On South Whidbey the average land sale is almost $106,735; and 59% of the transactions were acreages.

DEMOCRACY: A LEGACY. We Americans are so troubling to the people of other nations. Our fascination with our republican form of democracy, and the near-religious zeal with which we promote 'democracy' to other nations is annoying to friend and foe alike. James Madison, writing in The Federalist No. 51, observed, 'In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself'. Our ascendancy as a nation state is largely why the 20th century will be called the 'Democratic Century.'

In 1900 monarchies and empires dominated the nation states of the world. An insular America actively ignored emperors and kings, provided they stayed out of the affairs of the 'New World'. Our tenuous experiments with 'empire', because of the Spanish-American War, continue to haunt us to this day: think Cuba, Puerto Rico and the Philippines. Only 25 states (with a mere 12.4% of the world's population) could have reasonably been described as democracies in 1900. By 1950, America had 'once again' made the world 'safe for Democracy' ' finally ending in 1945 the war that actually began in 1914. With the exception of the U.S., the world was exhausted. European Colonialism was in collapse; only our political ineptitude let the Soviet Union smother the Baltic states and Eastern Europe, including the eastern-third of Germany. Despite the manifest totalitarian communist takeovers in Asia, America remained politically committed to expanding democracy with almost religious zeal, as 42 nation states (42.9% of the world's population) lived under at least limited democratic practices. As the last decade of the century ended, the political skill of Ronald Reagan engineered the economic bankruptcy of the already politically exhausted 'Evil Empire.' So, by 2000, electoral democracies dominated for the first time in world history. American energy, money and leadership caused the world to adopt universal suffrage and the 'rule of law' in governance. By 2000 democracies outnumbered the other nation states - 120 of the total 191; representing 62.5% of the world's population. This profusion of 'democratic' states was more than matched by the proliferation of nations: 55 in 1900, 83 in 1950 and 191 in 2000. China is a special case. She has already 'crossed the Rubicon' and can no longer have the political will to enforce totalitarian communism. The other communist states are primarily an annoyance. Only one major problem stifles democratic governance ' the rise of fundamental Islam in control of 26 'non-democratic' nation states with 638.9 mil. people - 10% of the world's population*. It is not accidental that their fanaticism is much focused on the U.S. as a 'great Satan', prelude to the infamy of '911.' The ease with which the Taliban were dispatched should not be confused with the ease with which Afghanistan will adopt democracy ' but they have made a good start. America is now zealously engaged in introducing democracy to Iraq. Together, these two states govern 52.9 mil. people. It may work. If it does the noise of dominoes falling will be deafening!

We do not know whether 'democracy' is the final form of government for a world approaching 200 nation states. Possibly not, for democracy implies first and foremost equality, not necessarily followed by responsibility! In a relative sense John Adams was probably correct in observing, 'Democracy never lasts long. It soon wastes, exhausts, and murders itself.' If G. W. Bush is able to pull off elections in Iraq as he has been apparently successful at doing so in Afghanistan, he will likely be remembered in history as our most 'mis-underestimated' President.

*This figure is based on our inclusion of countries with more than 50% Muslim populations and non-democratic governments: Afghanistan, Algeria, Azerbaijan, Bahrain, Brunei, Burkina Faso, Egypt, Eritrea, Ethiopia, Iran, Iraq, Kazakhstan, Kuwait, Maldives, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, Turkmenistan, United Arab Emirates and Uzbekistan

ECONOMIC PREDICTIONS FOR FIRST-HALF OF 2005. 2004 began with lumpy and conflicting economic data; though it was clear that we were close to recovering fully from the economic impact of '911'. Despite the third-quarter impact of four major hurricanes, the year closed on a strong note. The impact of '911' on our airlines, hospitality and travel industries is gone; finally fully recovered; now gone on to record levels. Airlines have all-time passenger traffic (though the impact of high energy costs remains a very real threat ' especially to two of our major carriers: Delta and United). Through fresh entrepreneural energy, re-thinking and 'creative destruction', Southwest Airlines has become the nation's biggest domestic carrier; while total domestic passenger bookings rose from 439.6 mil. in 2003, to more than 631 mil. this year ' a whooping 43.6% increase! The travel industry is once again booming. Cruise ship sales are 12.5% ahead of even last year's decent bookings and 'passenger days' (time aboard a cruise) increased 9% in 2004. Disney's Resorts set all-time theme park and lodging records. Our national economy has turned around with a vengeance. Investor confidence is rising, even 2.3 mil. jobs have been restored in the past 15 months. Still these are mainly the traditional jobs easily measured by government ' manufacturing jobs, agricultural jobs and urban wage-earner jobs. Past 'union' employment is gone and will not return ' outsourced, overseas ' victim of change into the 21st-century global economy and the "Third Wave." Since 1999 more jobs have actually been created in the entrepreneurial areas of self-employment and small business than were lost to the 'unemployment' counted by government. The economic phenomenon of our century is the flood of self-employment. The product of these new jobs is the engine driving our incredible GDP. New employment growth is about three-quarters lower-paying service employment and about a quarter extremely high-paying technology employment (open only to those with technical educational and previous employment experience). There are no more "jawbs"! Our basic economy produces more and more with less and less employment, while our specialized economy requires labor intensity ranging from minimum wage labor to technology workers producing "tens of millions" in added value to the national and regional economies.

During 2004 economic growth continued at twice the rate of inflation - about 4% for the year. We believe that when final year-end data are available in March or April, our GDP will have grown 4.2% to almost reach $12 tril. Keep in mind that given the scale of our huge economy even modest growth represents almost $450 bil., annually. Given world uncertainties, this is an excellent record. By way of contrast the rest of the world is foundering, Japan and the EU especially, their circumstances made worse for them by the weakening U.S. dollar and high oil costs which effect our economy much less than other developed nations. Europe is fully in cultural decline - victim of its proud 32-hour workweek with 6-week vacations, poor productivity and runaway public expenditures. Meanwhile, our consumer confidence is uneven though actual consumption remains strong, driven partly by very low interest rates. The housing market continues to be strong, now representing 15% of GDP, however, it is unlikely that 2005 will match 2004's record of 8.1 mil. sales. New construction is headed for a significant slowdown simply because recent rapidly rising prices, absent rising incomes, means that qualified buyers are falling along the wayside. Also, beyond another year at most, very low interest rates will not continue to stimulate as the marketplace for homes and automobiles becomes saturated. Federal tax cuts provide further stimulus, but the large federal government expenditures for defense and anti-terror activities presage rising government expenses, whether from an expanding economy or deficit financing. Also on the strong side, productivity is improving impressively, agriculture is strong, and corporate profits are rising. Stocks have recently exploded but will continue to be volatile, although companies with real earnings should continue to see impressive stock price rises. The bond market is very strong and should continue to be strong as oil prices stabilize and decline and the rest of the world looks for a safe haven for their dollars. Even "whiney" Europe has larger bond investments in the U.S. than it has investment in itself! As for stocks without earning capability, they will continue to have their prices manipulated by the securities industry and speculators - as they have for the past nine years. We'll repeat this again, we live for many years to come in great uncertainty. Our nation continues to be vulnerable to events over which we have limited control. With luck and effort, we will tame the "Barbarians Inside the Gates". As we noted last year, it will be an interesting "ride". Stay tuned!

2006 A Great Year of Change

A RECORD YEAR FOR RESIDENTIAL REAL ESTATE.

This issue reviews and summarizes changes in the Whidbey Island real estate market during 2001. We will review the more dramatic changes, make some predictions for real estate performance in the year 2002, and close with our usual near-term economic predictions.

THE INCREDIBLE YEAR THAT AMERCICANS WILL NEVER FORGET. Notwithstanding the three months following "911", island residential sales rose a dramatic 18 percent in 2001. Total dollars rose $14.8 mil., to a record $183,654,743. There were, north and south, approximately 998 residential sales - 872 were single-family detached homes and 126 were "manufactured" homes, condominiums and multifamily units.

Land sales fell in sale numbers but rose 17 percent in dollar volume (the reasons for the decline are discussed below). Residential sales are, of course, by far the more important segment of our real estate in numbers and dollar flows.

Standard Single-Family Detached Home Sales, Except Manufactured Homes (2001)

Previously Built Homes

No.

Sales$

Aver$

DOM

%
SHR

Northend (O.H./Cpvl)
476 $80,411,789 $168,932 94 43.9

Southend (Grnbnk & South)
279 $64,986,872 $232,928 130 35.4

New Construction Homes

Northend (O.H./Cpvl)
96 $17,466,010 $181,938 125 9.5

Southend (Grnbnk & South)
21 $4,760,421 $226,687 187 2.6

OTHER THAN STANDARD SINGLE FAMILY DETACHED(SFD)
RESIDENTIAL SALES(North & South Whidbey 2001)

Manufactured
52 $5,948,407 $114,392 119 3.2

Condominiums
65 $6,703,760 $103,135 148 3.6

Multifamily 66/un
9# $3,377,484 $51,174 160 1.8

Residential
998 $183,654,743 $184,023 114 100

* There are probably more "manufactured" sales that are being counted SFD
#Units and price/unit

The above Table is very abbreviated, because of some limitations with HTML. Contact us to send you a printed or faxed page, together with the published Table documenting ten years of South Whidbey and North Whidbey sales, by residential category.

In the above Table, DOM refers to the number of "days on market", while "percent share" means the percentage of all residential sales. North Whidbey includes the Zip codes for Oak Harbor and Coupeville; South Whidbey is everything south of Coupeville - Langley, Greenbank, Freeland and Clinton. What's going on with home sales? Other than the impressive rise in all residential sales last year, trends are a continuation of events we have discussed over the years. First, North Whidbey is "booming". Absent dramatic personnel changes at NAS Whidbey Island, the greater Oak Harbor area is coming into it's own as a retirement community. Within the past three years the availability and quality of retail goods has increased impressively. Significant mission changes at NAS have many more officers and senior enlisted personnel per squadron than was the case with previous fighter-bomber basing. Salary increases, those following rising education standards and outside business competitive forces, along with rising housing allowances (BAH) have stimulated local new construction to record levels (and record prices). Although rental rates are high, many are unwilling to rent older apartments or the tiny condo units that were built in the past decade. Adding to this Navy impact are the increasing number of retirees who "discover" Whidbey Island, but prefer the small town sense of community in Oak Harbor.

Another factor affecting home buying patterns and new construction is the accumulating impact of the State's Growth Management Act (GMA). Our county is particularly impacted. GMA basically inhibits all development in counties, except within or around "urban" areas. On Whidbey there is only one "urban" area - Oak Harbor. GMA virtually prohibits development everywhere else. Politics have created a vacuum. Oak Harbor has responded. New affordable development land is now so valuable that successful builders are developing for their own account and selling, at their pleasure, some lots to the many eager builders needing ready-to-build parcels. Expect this trend to continue. While "spec" home sales in Oak Harbor rose quite dramatically in both numbers and prices, such sales continue to decline on South Whidbey. Only 21 new "spec" homes were sold on South Whidbey, but some of these were larger, rather expensive homes. The appearance of new homes selling for more than $350,000 is a new phenomenon on the island. Expensive "spec" homes (those above $300,0000) sell very slowly, but they are selling. Custom home construction increased in numbers and average values, even though these do not appear as sales data. Condominium sales continue to decline, as a percentage of the market and manufactured home sales have also declined. Interestingly, average sale values continue to rise, quite independently of changes in transaction activity. Homes under $100,000 have virtually disappeared (even condo sales average almost $103,200 - but most are on North Whidbey). The number of expensive homes sold rises each year. In 2001, 91 homes sold for more than $300,000; and 24 of these sold for more than $450,000. In the next issue of INVESTOR, we will highlight the character and quality of these "fine homes".

Those readers interested in previous discussions of these trends, or past articles on real estate and American culture should visit our main real estate "Website":www.whidbey-realestate.com/whidinv.htm.

UNIMPROVED LAND TRANSACTIONS: ANOTHER DOWN YEAR. During 2001 there were 249 land sales; 107 on South Whidbey totaling $14.3 mil., and 142 on North Whidbey totaling $12.0 mil. Those land parcels sold, were, in the aggregate, $26.3 mil. This is the third successive year that land sales numbers have declined. However, while they declined 11 percent in sale numbers, sales rose 17 percent in dollar volume, driven by still rising average prices. On North Whidbey the average transaction price, including both lots and acreages, rose impressively to $84,832 from last year's $76,807 even as total sales fell. Forty-six percent of these were lot sales. Lot sales averaged $54,918, while 54% of sales were acreages that averaged $110,809 per parcel. Both were all time average price records. On South Whidbey the "unintended consequence" of GMA is to push the south end further toward becoming a "rich enclave of the privileged"; the average land sale was $133,453; and 46% of the transactions were acreages. The very high average price is skewed because of three acreage land sales that aggregated to more than $6.3 mil. (one appears in the database as a home sale, but was a "value in land" transaction). In all, 59 lots were sold, at an average price of $59,259. One reason for the decline in lot sales is the complete collapse of sales at the once vigorous Holmes Harbor Golf Course.

ECONOMIC PREDICTIONS FOR FIRST-HALF OF 2002.
Following the horrific events of "911" the national economy, then already five months into a fairly abrupt recession, continues to weaken. Today there is reason to discuss recession, although it is the most unusual recession since statistics have been maintained. Practitioners of Thomas Carlyle's "dismal science" are near their wit's end. Here's the scenario. We're at war, (a very, very real war - everyone needs to accept this reality), and the economic costs of taming terrorism are going to be very high. We also have high consumer confidence, high durable goods sales (near record auto sales), very high new home sales and terrific existing homes sales in most areas of the country, high retail sales (judging from Christmas results) and record employment, all with interest rates that are near 40-year lows. Nonetheless, business spending has collapsed, the sectors of air travel, hospitality and entertainment (all intimately linked) are hurting as never before, stock prices are not supported by current earnings, and there has been an abrupt rise in unemployment, caused by business "re-sizing". The practitioners seem to recognize neither the "disease", nor the "cure". Worse, most of the rest of the world is also in recession and unlikely to recover quickly no matter what happens in the U. S. Your intrepid editors predict that recovery will be slower than many optimists would predict. The short, abrupt recession we are in may already have "bottomed out". However, we do not think there will be a rapid recovery. The "downside" of this is that our politicians may hear the trumpets blaring and effect "cures" that simply create new diseases with dreadful unintended consequences. Here's what we predict for the next six months. The national economy will continue to grow slowly, but remain in the current trough. Inflation is dead. Unemployment will continue to rise. National home sales for existing housing in 2002 will continue well above the 5-million unit level. Other predictions are too dangerous. So much simply depends on unpredictable events. Meanwhile, Whidbey Island remains a great place to live!

POSTSCRIPT. Even ten months after the incredible events of September 11, 2001, changes in our national economy are difficult to predicte until much more time has passed. The immediate effect on Whidbey Island is that almost everyone continues to recover from their "state of shock", but that real estate activity has returned to previous levels. As the forty-fifth week since this foul tragic event passes, we see clear signs of a return to normalcy. As the activities of the Boeing Company at Everett have such large impact on northern Puget Sound, we expect that Boeing employment will drop fairly sharply. Too early to predict what impact this will have on the number of Whidbey real esate sales, possible price changes, or the effect on properties coming on market and their asking prices.

The Whidbey Island INVESTOR (Autumn 2005)

THE ECONOMICS OF IN-MIGRATION: HOUSE OF BLUES. Perhaps since the late 17th-century, but certainly since the beginning of the 20th-century, we Americans have been the world's most mobile people. We have a long history of 'picking up, moving on'and starting over.' Since the automobile, then WWI, and especially WWII we have become even more mobile. The economic impact of all this 're-location' is staggering. Let's review the major impacts and the effect of this mobility on American politics. For most of our history, we have been immigrants initially to cities and towns, where we gathered strength and self-reliance, and then joined others in an on-going movement toward less-settled areas. Following WWII, we became 'ex-urbanites'; moving away from cities in droves, followed forty years ago by patterned movements out to the urban edge, into small towns and villages and rural areas. Expect this pattern to continue. Modern communications sustain and support these movements, as we transition into the 'Information Age,' further away from an economy based on redundant manufactured goods. New people moving into an area already expect change ' that's inherent to relocation. In-migration is the term used to describe those who move into an area. Some states and some rural areas have quite extraordinary growth rates. The fastest-growing counties[1] have not only more in-migrants, but more jobs, more new housing ' more economy.

In order to keep this exercise from being tedious, let's limit ourselves to the thirty 'fastest-growing' counties. Interestingly, a mere fourteen states account for the thirty fastest-growing counties in the U.S., including (in descending growth-rate order): Flagler County (FL)[2], Kendall County (IL), Loudon County (VA), Lincoln County (SD), Douglas County (CO), Rockwall County (TX), Forsyth County (GA), Henry County (GA), Newton County (GA), Paulding County (GA), Delaware County (OH), Scott County (MN), Collin County (TX), Osceola County (FL), Williamson County (TX), Hamilton County (IN), Spencer County (KY), Lyon County (NV), Fort Bend County (TX), Stafford County (VA), Union County (NC), Lake County (FL), St. Johns County (FL), Spotsylvania County (VA), Placer County (CA), Montgomery County (TX), Cherokee County (GA), Denton County (TX), Hays County (TX), and Barrow County (GA). Note the pattern. Seven are in Texas, six are in Georgia, four are in Florida, and three are in Virginia. The other ten high-growth counties are each in a single state. So you do not think there is deception here, these are not tiny and thereby insignificant counties. Collectively, these thirty counties alone have a combined population only 7,000 short of 6 million people, an average of 200,000 persons per county. With this growth, we have more than 650,000 new 'in-migrants' and 195,000 potential voters per year in just 30 counties! Think of the economic impact of such migration ' 650,000 new people! First, there is the impact of jobs[3], wages and personal income to consider. Then, where do they live? Answer, on balance; new housing. Finally, what is the impact of their cumulative wealth and its contribution to the GDP of the state. Let's say 2/3's are traditional head of household families, and 1/3 are single head of household families[4]; suggesting the need for 210,600 'new' housing units each year[5]. At an estimated weighted median price of $236,200 per housing unit in these individual counties[6], we see the enormous economic effect of relocation on the sale of housing: $49.6 billion in new housing in one year.

Seven of our thirty high-growth counties are in Texas. Imagine the economic impact on Texas if all the in-migrants, moved to these counties from another state. Otherwise, the losses to the other states would tend to offset the gains to Texas. Nonetheless, last year, Texas gained 207,192 new people in just these seven counties. This population represented 69,064 new households. These households (families), statistically obtained 81,843 jobs, that at $34,870 per year[7], generated total wage income in these counties of $2.85 billion; a component of the $5.47 billion total annual personal income of these in-migrants. Per capita state personal income averages $26,404. Next, these Texas in-migrants, 69,064 households, occupy an equal number of homes[8]. In these seven counties, the weighted average median home price was $202,453[9]. So, these 69,064 'families' created $13.98 billion in housing activity, further billions in purchases of goods and services, and '$100's millions' as each economic activity 'multiplies' itself through the national economy. As an estimate, each in-migrant (whether man, woman or child) that relocated from outside Texas added $39,312 to the Texas GSP in 2004 ' an incredible $8.14 billion in just our seven counties. Other 'hundreds of thousands' migrated to Texas, moving to lower-growth rate counties. Because of the manner in which we estimated 'family' structure, the seven Texas counties also gained almost 70,000 potential 'new' voters. The remaining 23 counties gained about 195,000 potential 'new' voters - quite a political windfall.

To sample some more economic impacts of these population movements, consider: by the same factors used above, the six counties of Georgia in 2004. Georgia gained 70,390 in-migrants, 31,610 new jobs, with an average annual $35,670 in wages per worker that, as a component of personal income, raised the GSP by approximately $2.73 billion in a single year! The four fastest-growing Florida counties grew by 60,860, gained new jobs, saw a growth in total personal income of $966.42 million, and a gain of 23,300 potential new voters. The three highest-growth counties in Virginia gained 50,739 in-migrants in 2004, 16,443 households, 22,879 jobs, $879 million in wages, $11. 1 billion in personal income growth, 16,443 homes sold, totaling $7.33 billion, and a state GSP that grew by $2.24 billion, plus about 17,150 new potential voters. Each of the ten remaining high-growth counties had similar impacts on their individual state. Only Placer County, California, perhaps had little direct visible impact outside the county because the state's population and wealth are so vast, their statistics are not easily moved. California, the state of by far the greatest in-migration, where it a sovereign nation, would have the 8th largest economy in the world, relative to the 33rd largest population.

Imagine that you are a political consultant. Your first major task would be to select those places in the U.S. where your party could have the greatest cost-effective impact. What would your strategy be? Try this scenario. Find the fastest-growing counties in the U.S. This should be a PC's paradise, because each in-migrant voter would be discovering the nature of new local politics. Your mission would be especially satisfying if you were a Republican political consultant charged with increasing the 'red' vote in these fastest-growing counties. In fact, it has been a 'paradise' for Republicans. Each and every one of these 30 counties voted Republican in 2004, by margins ranging from a low of 52% to a high of 81%. With few exceptions, these counties voted 'red' from top to bottom. On average, these states voted 'red' on the national ticket by a plurality of 65.7%. Do you suppose Karl Rove knows all this? On the other hand, suppose you were a Democrat consultant, wouldn't this be your 'House of Blues'?

Notes and Methodologies. Many of the measures used in this analysis are quite sloppy. Some barely meet the minimum standards of economic analysis; however, the measures used, while incomplete, are adequate to this crude analysis. To accurately measure the economic and social impact of a new resident moving from one state/county to another is a Sisyphean task. In order to paint a valid 'picture', even one lacking great accuracy, we have used generalized county-wide, or state-wide, data on jobs, wages, personal income, housing, wealth and these effects on GSP (gross state product). Here is the logic; jobs are the proxy of the labor component of in-migrants. Even in a county with a very high retirement component, there are approximately 1.2 'jobs' created by each new resident retiree. Even service jobs create wages, that when added to other employment (a new factory ' or service center) indicate the cash flows available to support local lifestyles. The third key measure is personal income. Such income is the total cash available to families ' from whatever source. Such income includes wages, retirement payments, social security and earned interest, as well as proceeds from the sale of capital assets: businesses, securities, real estate, etc. Housing measures owner-occupied houses and rental housing for those who do not own, as well as new construction housing. Virtually all families live in some form of housing, whether they rent, own or live with 'family'. Rents are a standard government statistic, but, owned-homes whether lived in by their owners or rented are not enumerated in standard statistics. New construction, however, is enumerated with absolute accuracy, although it is impossible to measure the economic impact on value of remodeling or upgrading homes. Real estate sales and changes in the market value of such property can also be measured with great accuracy. We have county by county sales data on all homes, whether new or previously built. Home values are one of our critical economic measures, because residential housing is the principal repository of American wealth. Nationally, for each $1 of wealth we have in retirement, savings and investments, we have $11 in additional wealth (equity), just in housing. While we focus most explicitly on 'private wealth' as the best measure of American economic health, we do need to consider national accounts and public expenditures. For issues such as the growth of our money supply, the multiplier effect of money in the economy, certain interest rate considerations and the effect of well-regulated securities and bond markets are best reflected in GDP. GDP is the measure of the cumulative economic effect of money in the economy. It includes all expenditures and consumption, as well as the effect of 'new' money (growth in the money supply). We will limit ourselves to estimating the effect of our growth counties on state gross product. State contributions to national GDP ignore national accounts and national public expenditures.
[1] Something special is happening when particular counties grow rapidly. Almost always such redistributions are caused by 'ex-urbanism', the desire to move out of or away from city centers to more rural locations. These movements may represent 'gentrification', the urge to move out of urban centers and their surrounding traditional suburbs, or job surges created by company relocation, or development of a spectacular natural or recreational area, etc. These rapid growth counties are often located to optimize existing roadway infrastructure
[2] Flagler County, FL grew 10.2% during 2004. In fact, Florida has 14 of the 100 fastest-growing counties in the country; Texas 12, Georgia 12, and Virginia 10. In our sample of the 30 largest, twenty are in TX, GA, FL, or VA. Note that all 30 are in the 'South'. More remarkably, of the 100 fastest-growing counties with populations already over 10,000, a strong majority, 63, are in the south. U.S. Bureau of the Census (www.census.gov)
[3] To count jobs, we are using U.S. Department of Labor enumerations, by county. These measures dramatically under represent the actual number of jobs. Virtually no self-employment is counted and all forms of entrepreneurship are seriously under counted. As American 'jobs' transition away from huge enterprises, more work tasks are being performed by small, flexible specialized firms. Within this century, more than half of our employment ('jobs') will fall to tens of thousands of such entities. This phenomenon explains why our 'jobs', our 'wages' and our 'wealth" are so much larger than what can be measured by standard government statistics
[4] Keeping the exercise simple, two-thirds of our new in-migrants are traditional families with 3.6 persons per household (PPHH), and with 1.6 jobs per household. One third, are single-heads of household, with 2.4 PPHH, and 1.1 jobs per household. Doing the arithmetic, these numbers result in an average of 3 persons per household (PPHH), and 1.3 jobs per household
[5] Statistically, 150,000 people with 3 PPHH, live in 50,000 households. Making an adjustment for a few 'double-up families', let's say 48,600 individual domiciles ' 48,600 new housing units. Yes, some will be 'rental units' when older homes are 'converted' into rentals and their owners move along to new homes, however, those who previously occupied that home will move to a 'new' home
[6] Instead of the weighted average median home price derived from all sales, we have used the average median price for the year 2004, using county by county data
[7] We have used standard state by state data: Department of Labor, Bureau of Labor Statistics (www.bls.gov)
[8] It might be argued that all these families will not necessarily be able to buy homes. This begs the question. In rapidly-growing areas there is no surplus of housing. Those who rent simply occupy homes that others have bought, thus driving sales. As housing prices vary considerably by county, we have used the actual median, or average price (whichever data were available), of houses in each county
[9] In these accumulations, state by state, we have averaged the home prices by multiplying each household in each county, by the average homes price for the year in that county, just for that state. Thereby, we have a fair barometer of housing costs county by county.

SUCCESSFUL PRIMARY SCHOOLS. How can it be that the nation that provides, by far, the greatest post-graduate educational system, provides today such a poor primary educational system? This phenomenon cannot have existed forever, else we could never have developed such a fine university system. What differentiates our best universities from our primary schools? Also, why do we have primary schools that succeed in amongst those that fail? Let us explore those issues that inform this 'fall from grace.' Much of the data for this article were gleaned from a splendid review of the Washington State primary school system, 'What Works? Creating Successful Public Schools', by Marsha Richards. This study is published by the Evergreen Freedom Foundation (August 2005).

Recent evaluations of our nation's primary schools hold little cause for optimism. One, the National Assessment of Educational Progress ('the nation's report card') shows that less than a 1/3 of our 8th graders pass the math portions of standard tests. Surely this does not bode well for the nation that leads the world into the 'Information Age'[1].

Because schools are local, let's turn to the particular performance of Washington State public schools. State-wide 61% of our 10th graders fail our standard performance test, the Washington Assessment of Student Learning (WASL). Almost 33% fail to graduate on time and half of those who do, have achievement levels unacceptable to employers. Wholly 55% of Washington's entering college students require remediation classes (classes designed to 'make up' what students should have already known before they got to college)[2]. The Fordham Foundation study, this year, gave our state an 'F' in math and English achievement. For 2004, WASL's test standards were artificially lowered, so the education establishment in our state could boast of accomplishment. Do not be deceived by the new baseline. It is a fact that in the Iowa Test of Basic Skills (ITBS), our students show no improvement from 1998 to date, in either primary school, reading, math'or language; in Grades 3-8, reading, expression and quantitative thinking[3], this despite the fact that Washington state spends $9,688 per student, of which $7,588 comes from General Funds[4]. Surely, we should get more for 10 grand per student!

What's wrong with Washington State's primary education is probably what's wrong in most other states: a service 'monopoly' with 'free' tax money, too many incompetent teachers, swarms of psychologists, powerful, entrenched educational bureaucracies, venal labor unions, too little time spent on actual education, and too little time spent in school[5] We spend too much money ' for too little education!

Who is to blame? Unfortunately, we are! We have permitted our local schools in too many cases to become 'baby sitters', holding our children in incredibly expensive facilities, that we might pursue jobs, careers, and personal expression; while at the same time letting academic achievement be subsumed by programs of 'social experimentation'. Since the 1960's the inmates have been running the asylum. What is euphemistically called 'progressive' education, and its internal culture of unions, legislatures and administrators have read the declining standards as being caused by a lack of funding'or a lack of adequate pay for teachers'or lack of special programs'or even that classrooms are too large. To regain primary school success, we need the common sense that we resist being asked to cure our system by being more beneficent. It is not ever more money; doing more of that which caused failure, in the expectation that we can do even more of it and produce a different outcome.

Where are the defects? Our public system lacks standards for teacher competence, fiscal auditing, quality control standards - not determined by the education establishment, business standards of organization and planning (school leaders must be permitted to lead ' to hire, to fire, to budget and to experiment, but to be responsible for outcomes), desperately needed deregulation from silly, arcane rules; and lacks opportunity and time for learning standard English (yet finds time for teaching alternatives to evolution)! Our system lacks a rational basis for paying teachers; one that should be based exclusively on competence in a field of skill, plus bonuses based on learning outcomes (not seniority and course credits). The system further lacks suitable scientific testing methods[6], and stifles creative teaching and teacher freedom. We need to outlaw mandatory unionization, promote educational competition, lengthen our too short education 'season'; one that needs all 12-months[7]. Furthermore, school facilities have the highest relative capital and operating costs of any public facility, because they are so little used.

What does work? Qualified teachers work[8], small school populations in small local schools work, deregulating inane state requirements works, year-round public schools work, and the outlawing of mandatory unionization works. Another major reason for our failures is that we permit, but do not promote the two sources of 'ownership', and do not learn from this experience. We have public schools and private schools. One has to compete for its resources; bid for teachers in the marketplace, pay taxes if profitable, and stand accountable to parents, while the other achieves its resources from the public purse with very little accountability. Competition would be fostered if we permitted the transfer of 90% of a student's total funding to follow the student to their area school choice. We need more options, more 'alternatives': charter schools[9], private schools that care; even religious schools[9]. Good administrative leadership works, business-like financial tools and fiscal audits work, and more parental participation in school programs work. Finally, but absolutely for things to work, we must reestablish demanding academic standards.

Who will lose? The 'educational establishment' blames performance shortfalls on; a lack of funding, classes that are too large, a lack of special programs, a lack of bilingual education, and over and over, a lack of adequate pay for teachers. Teachers are quite well paid in Washington State. It might surprise those of us who currently work for a living (and fulfill a standard work year of 2,000-hours) to discover that the average salary for Washington teachers is $45,437 ' without counting almost $17,000 in annual benefits[10], for an EIGHT month, 1,200-hour work year! This calculates to an equivalent salary of between $68,000 per year (counting by months; $5,700/mo.), or $76,000 per year by work-hours (almost $38 per hour!) Many genuinely skilled workers would be pleased with such largess. Administrators and teachers alike will lose salary and control over schools, unions will lose even more political control, teachers colleges will have no function ' and a lose of prestige and reputation will echo throughout the 'educational establishment'. In an 'information society', primary education is much, much too important to entrust to our existing 'educational establishment'.

NOTES:
[1] National Center for Education Statistics, Department of Education, 'National Assessment of Educational Progress', Tables A.26 and A.27, The Nation's Report Card ' Math. September, 2005.
[2] 'Remediation in college is rampant'' 'A Nation Still at Risk: An Education Manifesto', Pg. 12, The Center for Educational Reform, Thomas B. Fordham Foundation, April, 1998.
[3] Evergreen Freedom Foundation, 'What Works? Creating Successful Public Schools', Pg. 6, August, 2005.
[4] Office of the Superintendent of Public Education, State of Washington, Spending data for 1987-1993 (see 'What Works? Creating Successful Public Schools', Pg. 40, August, 2005). That public schools continue to receive more and more money, is easy to document. Educational spending, per student, has increased from $4,807 in 1987 to $9,688 in 2004; Evergreen Freedom Foundation, 'What Works? Creating Successful Public Schools', Pg. 15, August, 2005. During the same period, general inflation rose 65.3%, so student funding rose 101.4% in currant dollars, and 36.1% in inflation-adjusted dollars. Federal Reserve. Inflation and the Great Ratios: Long Term Evidence From the U.S., International Finance Discussion Paper No. 628, October, 1998.
[5] Our schools are perhaps the most expensive public buildings ever constructed, on a square foot basic. Their construction requires the most conservative engineering and safety standards in the U.S. ' and despite the high cost of both construction and operation, are the least utilized of all public facilities. Ask yourself why these incredibly expensive facilities are not used 24-hours a day? Why is the local college in another building entirely? Or the adult education programs, the mental health programs or the Senior Center?, etc.
[6] No one should doubt that we have in hand extremely accurate means for testing both aptitude and achievement. However, for fifty years the 'education monopoly' has resisted using these methods because they individuate. Isn't it strange that teachers can tolerate a star on the football team, but not an academic 'star'.
[7] Beautiful things can be reflected in tradition; however, the tradition of the 9-month school year was to free farmer's children for crop work. Such 'toady' rationalizations are no longer useful; they should be done away with.
[8] There is absolutely no reason why any college graduate, with both a work history and a skill, should not be eligible for immediate teacher licensing. Would it not be better to have a retired weatherman teaching earth sciences, than a teacher who studied didacticism for four years?
[9] Washington has no charter school legislation. Legislation was passed in March 2004, but later, a massive effort by unions persuaded a majority of voters to overturn the legislation, in a referendum in November, 2004.
[10] Washington currently has private school enrollment of 9.6% of total enrollment. Office of the Superintendent of Public Instruction, Washington, Data and Reports, 2004-2005. Private schools tend to produce more with less; costs are lower ' private school teacher's pay in Washington, is, on average, almost 39% less than "public" teachers receive ' without counting benefits. Counting benefits makes an even larger difference.

AMERICA'S ENERGY POSTURE. In this era of rising oil and gasoline prices, we Americans have developed a number of comforting 'myths' that bear little relationship to reality. Let us examine some of the major issues. We have all heard a version of this statement, 'The U.S. is in the clutches of Middle Eastern regimes, who are squeezing us with threatened oil shortfalls and higher prices.' There is truth in two of these points: we are, in fact, facing oil shortfalls. This is not bad news in the sense that the reality is the wealth of the world is increasing rapidly; especially that of China and India. Wealth alone creates demand for energy. The energy demands of China and India have simply brought us to a 'tipping point'. The especial energy 'squeeze' is oil ' really what used to be called 'cheap oil'. The world is not out of oil, but it is out of 'cheap oil'. This bears on the second point: higher prices. In the short run, we are going to learn to live without cheap oil. The rest is myth. Fact: the U.S. imports a great deal of its oil, but just under 19.5% of it from the Middle East. Fact: the U.S. is the world's second largest oil producer, after Saudi Arabia. Fact: the U.S. consumes 21.4 mbls of oil per day; while we import 13.12 mbls per day. Fact: Canada (at 17%), not the Middle East, is our largest source of imported oil, at 2.11 mmbls this year to date. Fact: Mexico (at 13.5%), not the Middle East, is our second largest source of imported oil, at 1.68 mmbls this year to date. Fact: Saudi Arabia (at 12.8%) is our third largest source of imported oil, and our only major supplier in the Middle East, at 1.64 mmbls this year to date. Fact: the great bulk of our remaining oil imports are from Venezuela (at 11%), and Nigeria (at 9.1%), respectively, supplying 1.59 mmbls this year to date, and 1.13 mmbls this year to date (July 30, 2005).

Since 1969, our 'secret' energy policy with respect to oil has been to burn cheaper oil produced by other nations; consume theirs while conserving our own supplies. In addition, the U.S. has a Strategic Petroleum Reserve (a 'rainy day' reserve), now completely filled to its capacity of 700 mbls. Nor are our future energy resources so bleak, however there is a serious problem; world-wide exploration for oil now only discovers a single barrel of oil for every four barrels of oil consumed. Fact; the U.S. has the world's largest proven total oil reserves, although Saudi Arabia has 'probable' total oil 5-8 times our probable total. Fact: the U.S. has almost 523,000 oil wells (many 'capped' because of high production costs) ' almost 65% of all the world's oil wells. Fact: oil at $50 bl in 2004, (and $2.20 at the gas pump) is 32% lower than gas was in 1954, at $5 bl and $0.19/gal, in real dollars. Fact: oil, today, at $70 bl in summer, 2005, (and $3.00 at the gas pump) is 9% lower than it was in 1955, in real terms.

Nonetheless, rapid spikes in the price of both oil and gasoline are bad for our national economy and bad for our personal economy. Our major problem is that we are the world's most profligate wasters of energy. We consume 8 mbls per day in our cars and light trucks. If, as a national policy, we decided that hydrogen should be the fuel for all our cars and light trucks, within five years, we would not need to import a single barrel of oil! We have other bizarre energy behaviors, as well. We actually burn oil to generate electricity. Actually, we already have a proven system of electric generation ' nuclear power. Nuclear power has problems of waste management, but these are more manageable than those caused by the burning of fossil fuel. Only 9% of our electric power is generated by nuclear power, but if re-implemented, we would have harnessed thermonuclear power, totally waste-free, before we got to 20% of electric generation. Final Fact: there is lots of 'oil' remaining to be exploited. We have enormous unexploited resources of oil in America in tar sands, in oil shale; in bio conversion, coal conversion, and wet gas conversion. Simply, we are going to pay more for the exploitation of all these resources. Even this litany, doesn't consider another incredible possibility ' abiotic oil; oil that might be recovered from deep sea drilling. There is a theory, now gaining serious attention that asserts that the amount of oil already recovered is much too large to have been created by fossil decomposition during the Carboniferous Age. And that, in fact, all oil is abiotically-created from methane gas under the enormous pressures and heat at the lower edges of the earth's mantle. If so, the creation of oil may be an on-going process, rather than a fossil creation. Time will tell. In the interim there will be no substitute for planning and implementing a wide variety of rational strategies to restructure our present patterns of energy sourcing and consumption.

THE CONCEPT OF 'SMART GROWTH' AND LAND USE PLANNING. While there are various specific disagreements about what 'smart growth' means, let us agree as a foundation that 'dumb growth' probably has no merit and that Smart Growth at a minimum includes thoughtful consideration of the many complex issues affecting land use and development. Among the real issues are the interaction and relationship between urban and non-urban places, demographic and lifestyle changes, economic health, housing availability and affordability, roadways and transportation that permit the free flow of traffic, sufficient open spaces to provide recreation and reflection, the conservation of important habitat, and the wise use of natural resources. These kinds of arguments are thrown together when attempting to legislate land use planning. For Washington State the most far-reaching of these efforts is the Growth Management Act of 1990 (GMA). Fundamentally, the Act requires that future growth occur in existing cities (technically called Urban Growth Areas). That is, new people moving into Washington are to be 'forced' into living in UGAs.

Smart Growth, doing land use smartly, is most important in assuring the efficient use of public lands; land the public has already paid for. Why? Because the public already 'owns' 1,126,592,390 acres (49.8% of the entire U.S.!). Every square foot removed from private ownership reduces the very tax base that acquires public property; passing the additional tax burden on to the remaining private property. Private property pays for everything! Smart Growth should therefore encourage development that optimizes private investment. Smart Growth should also not stymie economic vitality. Smart Growth on privately-owned land should encourage owners to balance their private property rights with sound stewardship. Smart Growth should tolerate mixed-use land use, so that shopping and jobs are not always separated. Smart Growth should act to preserve 'affordable housing'. Smart Growth should foster transportation options. Finally, Smart Growth should also promote the wise use of natural and human resources, and promote clean water and clean air.

With this in mind, does it make sense to develop larger cities at higher densities? Seldom, and only to the extent that 'unused' infrastructure is already paid for; certainly not in smaller, human scale, towns with shared cultural integrity. Does it make sense to stop building highways because some 'cultural elites' think we should not use motor vehicles? No, because this strategy brings us the worst of all outcomes. Highways become clogged as capacity is artificially restricted, energy efficiency plummets and pollution emissions skyrocket, while increased travel time causes productivity declines ' all while the vehicle owner continues to confound the elitist by using vehicles to link their personal lifestyle decisions to their places of work and play. Alas, the term 'smart growth' has become a hostage of political correctness.

A recent article in the Seattle Times began, 'Cities are where the economic action is'' Almost nothing could be further from the truth. The special Times article, guest authored by Gary Bozeman was entitled: 'Cultivate Prosperity by Helping State's Cities.' The title has a kind of nice ring until one examines the words carefully. Mr. Bozeman's comments fit beautifully into land use issues with respect to the Washington State Growth Management Act. When one searches for reasons why growth should be directed to existing cities, one finds no planning reason to do so but great political reason to do so. Cities are 'broke' precisely because so many of their high-value jobs have left and their ability to produce wealth has passed to suburban - even rural - areas. The first hope of the framers of GMA is that by making people live in urban areas they will, for convenience, work in urban areas. The answer, Virginia, is they will not. People will continue to live where their lifestyle choices are best met, and 'commute' as necessary to jobs able to support that lifestyle choice. Traffic congestion is about incompetent planning, not 'urban sprawl'. Traffic congestion is greatest precisely where population aggregates are most concentrated! Why, we might ask, would it be sound planning to constrain development largely into existing cities, when cities are the exact place people have been moving away from for forty-five years ' toward suburbs, small towns and rural areas?

Our citizenry clearly understand something that government and planners do not ' that people, especially families, will find a way to most closely live the life of their choice. When these families want 'rural' they will have rural, in spite of GMA. Characteristically, they want to leave urban places. Every form of social malaise, from crime to poverty finds fertile soil in the anonymity of cities. It is not that ugly things don't occur in more traditional rural and suburban settings, but that they do not remain undiscovered. More than that, they are less tolerated.

The answers from many in the planning profession are the combination of moral or aesthetic argument ' it's more efficient to herd people into dense enclaves of population, especially as a means of weakening dependence on the automobile and reducing 'sprawl'. This is 'cultural elitism' at its worst in a nation that treasures freedom of choice and market economics. Planners' attempt to bolster their arguments with a litany of 'myth': major cities are the employment centers of America ' let's get people to live where they work, or cities are economically more efficient and self-sustaining with lower per capita costs. Further, that cities are great generators of wealth or productivity. It makes hardly any difference when confronting these arguments that these 'facts' are substantially untrue! So today our nation's cities are neither the font of monetary wealth, nor especially busy work centers. Cities collectively provide much less than half of current American employment. Actually, fewer than 40% of America's jobs are in urban centers, manufacturing jobs even less so. In Washington half our population now live in our 50 largest cities. Our smaller urban places (those with less than 5,000 persons) together have an aggregate population of only 268,938;(an average of only 2,955 people) not very 'urban' by any standard. Outside even these small towns the remaining 43% live in unincorporated county areas. By far the highest relative and per capita personal incomes come from smaller counties with few urban places.

Americans do not particularly choose to live where they work; they do choose to live where they can best practice their preferred lifestyle. They are then willing to do what is necessary to get to work. Cities are not economically more efficient. If this were so, the major cities of Washington would 'export' money to the other areas of the state. Instead, the residents of Washington's unincorporated places send $1.09 to urban places for every $1.00 generated by the urban places. Lest this seem a trivial amount, it represents $7.7 bil. of personal income 'wealth transfer', annually. The fundamental politics underlying GMA is a wealth transfer scheme to generate the money cities 'need', exactly so they can pay for the high cost of maintaining their political constituencies. The answer then becomes simple. Politicians want growth to occur in urban places (UGAs) because they believe that residential development and its implied commercial activity, and the local jobs caused by population growth, will provide the money that the hinterland now reluctantly transfers to our cities. It is not about economics. It is not about 'the environment.' It is not about planning. It's about politics ' very bad politics!

The Whidbey Island INVESTOR (Spring 2005)

A EUROPE OF DISUNION...DISORDER'AND CONFUSION. Recently the French people voted down the Constitution of the European Union ' a constitution very much the making of French bureaucrats. More recently, the Netherlands voted a resounding, 'no'! During 2005, Luxembourg, Denmark and Portugal will vote. Inertia runs against a 'yes' vote. We should suspect that the regimes of both Schroder and Chirac live now on borrowed time. How could the two major players of continental Europe so misread their electorates? Is this more example of European divisiveness; that which has kept the Europe of the last 1,000 years a continent of fractiousness, theft, murder, rape, pillage and war? Not quite. The 'new' Europe has finally discovered that constantly-changing frontiers, and decimated generations of youth are too much to pay for too little, but, somewhat like the reformed drunk, having saved themselves, now wants to safeguard everyone else from alcohol. We should accept low European regard for U.S. policies, policies generally oriented toward international security, as a healthy sign ' at least they have largely stopped slaughtering each other.

On the other hand, not much else in Europe is going well. Worse, little is likely to change for the better in coming decades. This is a real tragedy. A Europe in decline and confusion is likely to have little of the economic ease Europeans are accustomed to - in the face of an unrelenting Asia and an unfettered United States. Some of the more serious problems? First, Europeans, whether eastern, western, southern or northern have a culturally-rooted belief in 'aristocracy', a notion of differentiated class. This alone explains the disconnect between the 'Eurocrat' and the national electorates of Europe. Further, in a modern world, the acceptance of such notions stifle what little entrepreneurialism and creativity there is left in a Europe of declining cultural influence, rising unemployment, poor productivity, inefficient and heavily subsidized industry, labor union sloth, bureaucratic red tape, declining native populations, and staggering social care commitments, all burdened by rising debt; and citizen fright over the immigration of hordes of new residents who share neither language, morality, religion or culture.

To slightly paraphrase the eminent British historian, Paul Johnson, 'An object lesson for us all is the present deplorable state of Germany [read Europe]'what happens when a society is encouraged by its leaders to turn its back on freedom and opt for security at any price.' It is probable that a future Europe will find security elusive, and even that achieved at very high cost.

COMMON SENSE. 'Common sense' is not common among we humans, because common sense often flies in the face of belief, tradition, prejudice, customary ritual - and of course, our feelings. In this manner, common sense is misplaced. There is another 'misplaced' Common Sense. This 'common sense' was among the greatest political tracts ever written; and the one that led to modern democratic government. It is without doubt the creation of the mind of the finest political philosopher America ever had. Some background.

Common Sense was written by Thomas Paine, an English expatriate who came to Philadelphia, the population and intellectual capitol of America, in November, 1774. Paine had letters of introduction from Benjamin Franklin and was offered the job of co-editor of The Pennsylvania Magazine. This, despite the fact that while exceptionally well-read, Paine had no formal education. A year later, the 39-year old firebrand, in a brilliant tour de force of 130 paragraphs, a scant 12,080 words, anonymously published his pamphlet, Common Sense. It was February 14, 1776, months before the Declaration; a time when most Americans were still Loyalists. In the pamphlet, Paine argued simply, logically, and coherently, that America must seek total independence from the British crown. His arguments were developed with such astounding clarity, that in 229 years no one has refuted any of his reasoning. An astonishing 500,000 copies were distributed and read throughout America and England within a few months.

In the first of four sections: 'Of the origin and design of government in general'', Paine reviewed the origin and rise of government; 'namely, a mode rendered necessary by the inability of moral virtue to govern the world; here too is the design and end of government, viz. freedom and security. And however our eyes may be dazzled with snow, or our ears deceived by sound; however prejudice may warp our wills, or interest darken our understanding, the simple voice of nature and of reason will say, it is right'I draw my idea of the form of government from a principle in nature, which no art can overturn, viz. that the more simple any thing is, the less liable it is to be disordered, and the easier repaired when disordered;

'Society in every state is a blessing, but government even in its best state is but a necessary evil; in its worst state an intolerable one; for when we suffer, or are exposed to the same miseries by a government, which we might expect in a country without government, our calamity is heightened by reflecting that we furnish the means by which we suffer. Government, like dress, is the badge of lost innocence; the palaces of kings are built on the ruins of the bowers of paradise. For were the impulses of conscience clear, uniform, and irresistibly obeyed, man would need no other lawgiver; but that not being the case, he finds it necessary to surrender up a part of his property to furnish means for the protection of the rest; and this he is induced to do by the same prudence which in every other case advises him out of two evils to choose the least. Wherefore, security being the true design and end of government, it unanswerably follows that whatever form thereof appears most likely to ensure it to us, with the least expence and greatest benefit, is preferable to all others'

'Though I would carefully avoid giving unnecessary offence, yet I am inclined to believe, that all those who espouse the doctrine of reconciliation, may be included within the following descriptions. Interested men, who are not to be trusted; weak men, who cannot see; prejudiced men, who will not see; and a certain set of moderate men, who think better of the European world than it deserves; and this last class, by an ill-judged deliberation, will be the cause of more calamities to this continent, than all the other three'

'Besides, what have we to do with setting the world at defiance? Our plan is commerce, and that, well attended to, will secure us the peace and friendship of all Europe; because, it is the interest of all Europe to have America a free port'

'It is not in numbers, but in unity, that our great strength lies; yet our present numbers are sufficient to repel the force of all the world. The Continent hath, at this time, the largest body of armed and disciplined men of any power under Heaven; and is just arrived at that pitch of strength, in which, no single colony is able to support itself, and the whole, when united, can accomplish the matter, and either more, or, less than this, might be fatal in its effects'

'Debts we have none; and whatever we may contract on this account will serve as a glorious memento of our virtue. Can we but leave posterity with a settled form of government, an independant [sic] constitution of it's own, the purchase at any price will be cheap. But to expend millions for the sake of getting a few vile acts repealed, and routing the present ministry only, is unworthy the charge, and is using posterity with the utmost cruelty; because it is leaving them the great work to do, and a debt upon their backs, from which, they derive no advantage. Such a thought is unworthy a man of honor, and is the true characteristic of a narrow heart and a pedling politician'

'The debt we may contract doth not deserve our regard if the work be but accomplished. No nation ought to be without a debt. A national debt is a national bond; and when it bears no interest, is in no case a grievance. Britain is oppressed with a debt of upwards of one hundred and forty millions sterling, for which she pays upwards of four millions interest. And as a compensation for her debt, she has a large navy; America is without a debt, and without a navy; yet for the twentieth part of the English national debt, could have a navy as large again. The navy of England is not worth, at this time, more than three millions and an half sterling'

'In England a king hath little more to do than to make war and give away places; which in plain terms, is to impoverish the nation and set it together by the ears. A pretty business indeed for a man to be allowed eight hundred thousand sterling a year for, and worshipped into the bargain! Of more worth is one honest man to society and in the sight of God, than all the crowned ruffians that every lived.'

With ideas of such power, America declared independence; later to fulfill our grand experiment. In 1789, the 'United States' was born. Benjamin Franklin, when asked, 'What have you brought us, sir?', relied, 'A Republic, madam, if you can keep it.'

In 1787, the restless Tom Paine returned to England where the 'unfettered democrat' fled a treason warrant to France, where he had been elected to the National Convention (although he could not speak French!). Imprisoned in 1793 by Robespierre, but saved from the guillotine by the intervention of James Monroe, Paine finally, in 1802 sailed back to a new, 'United States of America' - a term he conceived in 1775. Paine died in New York City, alone and forgotten, on June 8th, 1809, aged 72. On his death the predecessor paper of the New York Times wrote: 'he had lived long, done some good and much harm''. It seems the New York Times didn't get it right in 1809, either!

DEMOCRACY: A LEGACY. We Americans are so troubling to the people of other nations. Our fascination with our republican form of democracy, and the near-religious zeal with which we promote 'democracy' to other nations is annoying to friend and foe alike. James Madison, writing in The Federalist No. 51, observed, 'In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself'. Our ascendancy as a nation state is largely why the 20th century will be called the 'Democratic Century.'

In 1900 monarchies and empires dominated the nation states of the world. An insular America actively ignored kings and emperors, provided they stayed out of the affairs of the 'New World'. Our tenuous experiments with 'empire', because of the Spanish-American War, continue to haunt us to this day: think Cuba, Puerto Rico and the Philippines. Only 25 states (with a mere 12.4% of the world's population) could have reasonably been described as democracies in 1900. By 1950, America had 'once again' made the world 'safe for Democracy' ' finally ending in 1945 the war that actually began in 1914. With the exception of the U.S., the world was exhausted. European Colonialism was in collapse; only our political ineptitude let the Soviet Union smother the Baltic states and Eastern Europe, including the eastern-third of Germany. Despite the manifest totalitarian communist takeovers in Asia, America remained politically committed to expanding democracy with almost religious zeal, as 42 nation states (42.9% of the world's population) lived under at least limited democratic practices. As the last decade of the 20th-century ended, the political skill (and incredible luck) of Ronald Reagan engineered the final bankruptcy of the already politically exhausted 'Evil Empire.' So, by 2000, electoral democracies dominated for the first time in world history. American energy, money and leadership caused the world to adopt universal sufferage and the 'rule of law' in governance. By 2000 democracies outnumbered the other nation states, 120 to 191, representing 62.5% of the world's population. This proliferation of 'democratic' states was more than matched by the proliferation of nations: 55 in 1900, 83 in 1950 and 191 in 2000. China is a special case. She has already 'crossed the Rubicon' and can no longer have the political will to enforce totalitarian communism. The other communist states are primarily an annoyance. Only one major problem stifles democratic governance ' the rise of fundamental Islam in control of 26 'non-democratic' nation states with 638.9 mil. people - 10% of the world's population*. It is not accidental that their fanaticism is much focused on the U.S. as a 'great Satan', prelude to the infamy of '911.' The ease with which the Taliban were dispatched should not be confused with the ease with which Afghanistan will adopt democracy ' but they have made a good start. America is now zealously engaged in introducing democracy to Iraq. Together, these two states govern 52.9 mil. people. It may work. If it does the noise of dominoes falling will be deafening!

The Whidbey Island INVESTOR (Spring 2004)

A BLACK AMERICA. We who love history are always looking for patterns and connections. Black (or African-American) citizens have made significant contributions to American life. We are commonly familiar with the many fine black athletes and entertainers. There is another rather extraordinary group who have worked largely in 'public service'. Think of Colin Powell, Condoleezza Rice, or Clarence Thomas. This tradition is much older than we might guess.

Members of the elite group include Lemuel B. Hayes, prominent Connecticut minister, Fredrick Douglass, the leading black Abolitionist, Joseph Ramey, South Carolina Congressman (1870-1879), George Washington Carver, agricultural chemist, Harriet Tubman, Abolitionist, Ida B. Wells, prominent journalist, Booker T. Washington, educator and agricultural experimenter, and Oscar de Priest, Illinois Congressman (1929-1935), Edmond Brooke the first popularly-elected minority member of the U.S. Senate, to Rosa Parks, the infamous 'bus rider' who would not give up her seat in Montgomery, Alabama in 1955.

In contemporary 'politics', William Steel, U.S. Magistrate of Alabama, Joe Rogers, Colorado Lieutenant Governor, Ron Paige, U.S. Secretary of Education, Jeanette Bradley, Ohio Lieutenant Governor, Jackie Winters, Oregon State Senator, Jennifer Carrol, Florida State House member, Michael Steele, Maryland Lieutenant Governor, Dr. Ada Fisher, North Carolina Congressman, Bill Hardiman, Michigan State Senator, Michael Williams, Texas Railroad Commission Chairman, Amy Tuck, Mississippi Lieutenant Governor, Kenneth Blackwell, Secretary of State of Ohio, Ed Jones, Colorado State Senator, Jane Powdrell-Cubert, New Mexico State House Member, Sherman Parker, Missouri State Representative, Cynthia Calhoun, Dallas County Clerk, Victoria Buckley, Colorado Secretary of State, Linda Douglass, Guadalupe (Texas) County Treasurer. George Hanks, Jr., Texas District Judge, Lisa Hembry, Dallas County Treasurer, Wallace Jefferson and Dale Wainwright, Texas Superior Court Justices, and Diane Jones, Dallas County Criminal Court Judge.

Somewhat outside 'politics' are Ron Walter, Director of the African-American Leadership Institute, Benjamin O. Davis, Jr. and Sr., respectively the first black Army General and the first black Air Force General, also Asst. Secretary of Transportation, Walter Williams, George Mason University economist, Asa Spaulding, Senior Fellow of the John Locke Foundation, Armstrong Williams, radio host, Russell Simmons, music mogul, Hazel Johnson, Brigadier General, Chief of Army Nursing Corps, Rev. Jesse Lee Peterson, Brotherhood Organization of a New Destiny, Daniel James, Jr., first black 4-star U.S. General, and Alan Keyes, scholar and former Ambassador to the United Nations.

All the above were or are of 'African-American' descent, but what is extraordinary about these Americans is that all were Republicans in an America we are led to believe has almost no black Republicans. From Emancipation until the New Deal virtually all black Americans were Republicans for the simple reason that the Democratic Party has been historically the party supporting, endorsing and promoting slavery. There were 20 black Republican Representatives in the U.S. Congress during the 19th-century from South and North Carolina, Alabama, Florida, Georgia, Virginia, Mississippi and Louisiana, not to mention black Republican U.S. Senators ' Hiram Rhodes Revels and Blanche Kelso Bruce from Mississippi and P.B.S. Pinchback from Louisiana. Today there are also ten black Republican House or Senate state representatives; Indiana, Georgia, Michigan, Mississippi, New York, North Carolina, Oregon and Rhode Island. Readers of history might have thought there would be many, many more.

THE MOST DANGEROUS EXPERIMENT. Europe, especially Western Europe has been performing dangerous social experiments since the end of World War I. Public expenditures have supported bloated bureaucracies (partly to keep down "unemployment" - a poor alternative to productive jobs), national health care schemes, the insatiable demands of "welfare", and massive subsidization of inefficient agriculture. So vast is the political demand for more such funding that little is left to spend on much-needed infrastructure, research and education (especially the training today of `information workers'). Even the concept of entreprenurialism is dying in Europe, strangled by myriad regulations, permits and "permissions", now made worse by the giant hand of the European Union, a supra-national government of unelected officials accountable to no one in actuality. In a typical EU country it takes three weeks to form a corporation. Even in Washington State this can be done in an hour if one drives to Olympia!

While politically most European governments are constitutional democracies, their individual nation states have for 80-years devoted more of their once "private economy" (that mediated by the free market) to the "public economy", the expenditures of government, further swollen by bureaucracies, health care, public housing subsidies, welfare and inefficient agriculture. These economic inefficiencies have slowed the annual growth of the EU GDP to about 1.5%, less than half that of the U.S. In fact, the EU's GDP in 2003 will be the same as it was in 1996, $8.6 tril. The fifteen EU members generally envious and jealous of the U.S. and ever anxious to out-produce us, are beginning to suffer the realities suffered by the Eastern Block countries prior to 1989. Worse, the EU is sliding toward recession, because their larger economies are the slower growing even while their governments "print money" to fund runaway public costs. Recent rises in the 'value' of the Euro have greatly worsened an already bad situation. Here is how serious things are.

The fifteen EU members will collectively produce in 2003, about $8.6 tril. roughly 80-percent of America's real GDP. The six nations projecting "high" growth rates (i.e. over 2%), Spain, Portugal, Greece, Denmark, Finland and Ireland (arranged in descending GDP), will produce only 15.4% of total EU output. Furthermore, these "high growers" have the lower average per capita incomes ' averaging $US 17,684. Meanwhile, the six `medium' growth rate (1.5%-2%) nations, France, the UK, the Netherlands, Belgium, Austria and Luxembourg, collectively produce 45.1% of EU GDP. These six nations have dramatically higher per capita incomes, at $US 25,269. The three "low growers", Germany, Italy and Sweden, collectively 39.5% of EU GDP, have per capita incomes of $US 22,945. From the tiny economy of Luxembourg ($US 21.0 bil.) to the large economies of Germany, France, the UK and Italy, Europe is floundering. Sweden, once the "crown prince" of European wealth, now has per capita income only 57% of Luxembourg's. The 'public economy' of the EU has simply overrun the 'private economy' ' the only one that actually produces wealth and is the source of all public funds!

What can America learn from this 'Most Dangerous Experiment'? Those who produce national wealth need become more vigilant that our politicians at all levels of government, have their `pandering' urges controlled. Our nation simply must work harder at sustaining a strong 'free market' private economy relative to our 'public economy', especially in times where there are great calls on the public purse. In fact, our national debt is not egregious when contrasted with the EU; or say, Russia, let alone Japan. However, vigilance is forever the price of liberty.

THE DREADED TAX. Every second even decade year - and each four years - we reinact a 200-year old pagent. We hold national elections. In the preceeding year the truth about income taxes is sacrificed to every form of pander. Soon we will be talking about tax increases; because the wealthiest pay no income taxes, or talk about tax cuts; because the middle class is paying all the taxes, and so forth. Myth, myth, myth!

Here's the interesting factoid: if congress makes no other changes, but merely changes the tax rate, eligibility rules, and/or deductions, personal income tax receipts will hardly change! Please reread the last sentence to be sure you understand. How could this be? Because none of the candidates are going to talk about the Alternative Minimum Tax provision of the Tax Reform Act of 1969. What on earth is this? Some background.

When we were younger and poor we used to get enraged when we read about rich people who paid no income tax. In 1968 the IRS testified before congress that 155 individual taxpayers had not paid a single penny of personal income tax in 1967. Forget the fact that each of these people might have actually lost millions of personal dollars that tax year! The outrage of rich people ("those able to pay their 'fair' share...") not paying income tax led to the Alternative Minimum Tax. AMT is a separate, parallel tax system that requires many taxpayers to file the special Form 6251 - Alternative Minimum Tax. Especially vulnerable are people with incomes over $75,000. However, ALL individual taxpayers who in 2003 had many deductions, got cash back from equity financing, owned private businesses, won lotteries, had tax exempt bonds, had tax shelters, had incentive stock options, but who earned as little as $37,000 might have to file AMT. For the 2004 tax year 3.3 million American taxpayers will owe more taxes because of AMT than indicated on their Form 1040!. Why should we care?

Three reasons. Many taxpayers do not know that they MUST file an AMT return. Two, the AMT system requires that a taxpayer pay the HIGHER of their 1040 or 6251 returns. Finally, in 1970 only 19,000 individual taxpayers were required to file AMT returns. By 1990 132,000 taxpayers had to file, and by 2000 there were 1.3 million! By 2005 there will be 16 million who must file AMT (whether they owe additional tax or not) and by 2010 there will be 47.5 million AMT filings. So by 2010, one in four individual taxpayers will have to file AMT returns and 37% of families making between $50,000 and $75,000 will owe more under AMT than their regular 1040 return. That is, they will have their tax increased by some amount. This doesn't sound much like a "soak the rich" scheme does it?

What has happened? Mainly, its been inflation. Whereas the "regular" tax brackets, exemptions and standard deductions under 1040 are adjusted annually for inflation, the AMT brackets and exemptions are not, so many people whose income has grown with the economy enter the "dreaded AMT zone" each year. What our quadrennial political carousel does permit is an opportunity to publicly discuss the insanity of the concept of taxing income; taxing people for making money - something we should surely relish. There will come an idea - and a timely moment someday in American politics when taxation is truly fairness-based; when consumption is the basis of public funding.

GOINGS ON AT GITMO! "Political correctness" will always have a seat at the table of politics, however, it should never have a legitimate seat at law. Thus, we may speak in politics about "undocumented workers" that in law are "illegal aliens." Guantanamo Bay, Cuba is the holding area for a number of "unlawful combatants" captured in Afghanistan. Why "Gitmo" in the first place? Because Guantanamo Bay, under perpetual treaty, is not American territory but integral to Cuba as determined by the U.S. Supreme Court. An American military pamphlet on the law of land warfare based on the Hague Convention provides this definition: An unlawful combatant is an individual who is not authorized to take a direct part in hostilities but does. ... Unlawful combatants are a proper object of attack while engaging as combatants. ... If captured, they may be tried and punished. As examples, the pamphlet mentions civilians who engage in war without authorization; non-combat members of the military, such as medics or chaplains, who engage in combat; and soldiers who fight out of uniform. In the Second World War, the United States captured eight German saboteurs who were out of uniform and executed six of them.

A recent law suit by the Coalition of Clergy asserts the detainees are 'Prisoners of War" and entitled to habeas corpus. The Coalition knows that habeas corpus is a right of "POW's". Their deceitful suit is an attempt to get some U.S. federal court to declare the detainees "POW's"; to mock law for the sake of "political correctness." Is there not a definition of "POW"? Of course there is. The Hague Convention of 1907, of which neither Afghanistan nor Cuba is a signatory, and the Geneva Convention of 1949, signed by Afghanistan but not by Cuba, (GC Article 4) define "POW's" as captured members of armed forces of a belligerent State active in a combat zone, who wear uniforms, including a badge or insignia, and who openly carry arms. Absent any of these definitions, detainees are not "POW's". Thus the Taliban are not the government of any State, not an "armed force", do not wear uniforms, are not identified by insignia, do not carry arms openly, and further are not nationals, conscripts or mercenaries of a belligerent Afghan government; hence, none are "POW's".

The Fourth Geneva Convention, (GCIV Article 4) declares, "Nationals of a State which is not bound by the Convention are not protected by it. Nationals of a neutral State who find themselves in the territory of a belligerent State, and nationals of a co-belligerent State, shall not be regarded as protected persons while the State of which they are nationals has normal diplomatic representation in the State in whose hands they are." Egypt, Iran, Iraq and "Palestine" are not Convention signatories, in any case. Only Afghan nationals could pretend to qualify as "POW's". And Afghanis represent a small minority of the roughly 600 Gitmo detainees representing 43 separate nations. Interestingly not a single Afghani combatant has applied for habeas corpus, knowing that upon return to Afghanistan they would probably be executed by the current legal government.

The United States does not have a tradition of summary execution of unlawful combatants, or execution after secret military tribunal conviction, though there seems no law international prohibiting this. Even as "unlawful combatants," the detainees retain rights under other international law, laws not applying to warfare - not to be tortured, to receive humane treatment and to be given a fair trial if charged with a crime. Finally, for how long may combatants be detained? Until the end of "hostilities". Any further questions?

THOSE WHO WENT BEFORE. We are all explorers on the stage of life. Our fascination with the new, the mysterious and the unknown seem to be human constants. Imagine leaving northeast Asia 25,000 years ago and walking across the Bering Straits "land bridge" with your family to Alaska - eventually to the tip of South America? The formal "discovery" of such a strait attributed in 1741 to the intrepid Vitus Bering. Not only our "internal world", our compulsive urge to explore has within the past 400 years, developed the imagination and the technologies to explore "external worlds".

Much of the now known world was "discovered" tens of thousands of years ago by roving humans. North America's first European may have been Bjarni Herjoffsson in 986, five centuries before the proud Admiral of the Ocean Sea, Christopher Columbus, formally discovered the "New World" in 1492. Columbus's inspiration arose from the great school of navigation organized by Prince Henry of Portugal, the early maritime explorers and magnificent maps, finally culminating in the extraordinarily accurate maps derived by the Flemish cartographer Gerard Mercator.

Ptolemy's calculation of the earth's circumference as 19,000 miles based on early Greek observations, was finally corrected by the circumnavigation of the globe by the brilliant Portugese explorer Ferdinand Magellan in 1519-1521, while Vasco de Balboa (1513) discovers the Pacific after crossing the Isthmus of Panama. Juan de Fuca in 1592 and a few years later, Sir Francis Drake, explore the Pacific Northwest from the sea. Many of the world's thousands of significant islands are explored and mapped by James Cook in three great voyages between 1768 and 1779 in the Pacific from the tip of Africa to Antarctica, from South America to Polynesia, Micronesia and Melanesia and from Tasmania to the Bering Strait.

The Northwest Passage, that elusive route across North America connecting the Atlantic and Pacific eluded explorers for 500 years. First, Alexander Mackenzie by canoe from Hudson Bay to the Pacific in 1789-93. Lewis and Clark, leading the Corps of Discovery, exploring a water route from east to west across the continental divide (1804-1806). Later, Roald Amundsen found the "real" NW Passage in 1903, though a commercial vessel, the nuclear tanker S.S. Manhattan, only finally crossed the Passage in 1968. Later still the extremes, the Arctic and Antarctic; Peary at the North Pole in 1903; Amundsen at the South Pole in 1912, then the stratosphere and the ocean depths: Auguste Piccard to 47,000 feet by balloon in 1931, his son, Jacques Piccard, to ocean depths of 25,000 feet in 1960.

Charles Darwin to the Galapagos and around the world (1831-1836) in a natural history exploration that provided evidence and conformation for the greatest intellectual achievement in history (1849), after Sir Issac Newton's explanation of motion/gravity in 1687; Darwin's: Theory of Evolution. Our other "inner world", one of size scales to the molecular and submolecular realms, often require imagination more than physical exploration. Beginning with Antony van Leeuwenhoek with practical microscopes from 1668, and the rediscovery of Greek "concepts of atoms" through theories of gravity, nuclear structure and cosmology in the 20th-century as adduced by Albert Einstein, Nels Bohr and many others; continuing today in Stephen Hawking - true "inner world" explorers all.

Beyond ours is the incredible "outer world"; that first scientifically described by the Pole Nicolaus Copernicus as a "sun-centered universe" (1543), then Tycho Brahe with meticulous observations of the heavens, Galileo Galilei with practical telescopes after 1610, and the mathematics of Johannes Kepler. These great traditions have been followed by large telescopes, electromagnetic telemetry and spacecraft and indicate a vast expanding universe. As this is written two rover landers are exploring the opposite sides of Mars. Where next?

A NATION OF NAIVETE? As a nation, we Americans possess many of the most admirable characteristics, our charitablness, openness, "fair play", adherence to "free market" principles, social equality, and so forth. De Toqueville described us from his 1831 travels as individualistic, socially egalitarian, meritocratic, mobile, rights-oriented and religious. We have become more so since de Toqueville. Though knowledge and equalizing technologies now rapidly travel the world, there is no evidence that the world is becoming "more American" (except with regard to political "democracy." That, by the way, is the most remarkable of all American 'political' achievements. In, say 1945, less than about 25% of the world's people lived under a government that was 'freely elected.' Today, only Subsaharan Africa, and another dozen countries do not have 'freely elected' governments ' fully 75% of the world's people now enjoy democracy).

Rather than the world becoming more 'American', there is significant evidence that we remain different than other nation states and that the differences grow. One characteristic Europeans have, we have not developed, but should. It is to become better skeptics. We surely need to train ourselves to stop parroting the "speech" of those who "sell" words (not necessarily ideas) for a living. John Leo has wonderfully called this "Three Green Suitcase" journalism. You can almost guess the story. A reporter interviews someone in New York that is buying a green suitcase, another in Des Moines and another in Los Angeles. After reporting the trivial "fact", the second paragraph begins: "All across America, people are switching to green suitcases." In like manner we are told that gasoline prices are at an "all time high." Subtly correct words mask incorrect ideas. Ask yourself, of what use is "all time high"? Is it a code word for the most expensive? What else could it be? Does any thoughtful person really think that gas at $1.80/gal. in 2004 is more expensive than gas was at $.19/gal. in 1954? Get out your 1954 pay stub and work it out. You might really scream if you paid equivalent 1954 value for 2004 gas! We need to know what the next politician is telling us when they assert, "this is the largest tax increase in history." What does the politician mean? Are they trying to describe the magnitude and significance of the increase? Is the information designed to inform, or inflame? The tiniest amount of effort on your part would have you know that, of course, whatever is claimed to be the largest tax increase in history cannot possibly be factually correct. The largest increase in history will ALWAYS remain the increase from "zero" to something - the first penny of tax! We need to have a better understanding of "statistics" and the way data are asserted. We need, in fact, to become more skeptical.

What can we do? With elegant "consumer demand" systems available, take a moment: telephone, e-mail or write the purveyors of "news" that isn't and "facts" that aren't. Find out at your local schools why statistics and probability are not taught at every school, beginning in Elementary. Engage friends and colleagues who "parrot" contadictory, meaningless, trivial or false "statistics" with requests for explanation as to what such statistics mean? Even properly used statistics are seldom more than data, rarely meaningful information, almost never useful knowledge - absolutely never expressions of wisdom.

The Whidbey Island INVESTOR (Autumn 2003)

OUR FAILING OCEANS. Oceans are probably the birthplace of life. As such, they are us. When we were few and our technology was primitive, the oceans generously provided protein-rich food for mankind. Now our numbers are large and our technologies are devastatingly efficient, so life in the oceans is suffering. In addition to over fishing we wantonly poison our seas with detritus, trash, sewage, hydrocarbons and many other bioactive substances that are changing ocean environments. It is a shame, but many large cities, even among the industrialized nations, still today release raw sewage into our seas. The major problem is over exploitation.

What are the symptoms of over exploitation? First, declining fish populations, then similar arguments can be made of marine mammals, and depletion of food sources such as the collapse of the Pacific anchovy. Also, we find declining numbers of large individuals as well as a loss of older females with gigantic egg capacity - to mention some factors. Next, there is the destruction of biogenic reefs; also egregious ongoing violations of catch limitations and international agreements, finally manifest in the last 30-years in trash fishing: pollock, dogfish, pilchard and monkfish - today even barnacles and jellyfish. Through overfishing we have decimated the once vast resources of the sea, and are perilously close to upsetting important natural balances. Where even forty years ago we caught 1,500 lb. swordfish, and 1,000 lb. Bluefin tuna, today 200 lb. fish are giants. Ah, but if fishing were regulated won't the juveniles just grow into the giants of yore? The answer in population ecology is no. Habitats have been modified or destroyed. The food chains of carnivores especially, have themselves been modified by over exploitation.

And its not just fish, sea mammals and other aquatic life have been lowered to total numbers for some specieis too low to effectively maintain populations. Though the oceans are vast to we humans, the vastness, along with the lack of sovereignty, has them out of sight and mind.

Finally, fishing is regulated, that's not the solution, that's part of the problem! In addition to rules that force adjustment to politically motivated, unscientific, unsustainable yields, we have illegal, unregulated fishing, unreported fishing, and derelict fishing (caused by abandoned paraphernalia; nets, pots and jigs and other fishing debris). Millions of tons of such debris haunt the world's oceans and continue to kill needlessly. This, not even to mention cyanide fishing in Asia and Africa. There are many examples of our folly. Let's examine this vast "commons" from the perspective of international fishing and the destruction of sea environments.

The Problem: Over Exploitation. Approximately 80% of the world's populations occupy coastlines, so the exploitation of food resources from the sea is natural. However, from primitive technologies, the spear and the fishhook, we now exploit the seas with huge sea-going factory ships, drift nets that ensnare and kill indiscriminately, and long liners with mile after mile of line and thousands of hooks baited not only to attract target species, but similarly attractive to sea mammals, turtles, birds and other life. Millions of seals and several hundred whales are killed each year. Seals as "by catch", trapped in drift nets or trawls; whales, in their lawful and unlawful taking by Japan, Korea, and Norway, now Iceland. Tens of thousands of birds, often penguins in southern waters, are drowned - hooked on baited long lines. Then there's the great bottom trawler rape, more heinous than drift netting. Such trawls don't just catch fish; they modify environments, by bulldozing sea bottoms. Common sense tells us that the cold arctic has slow recovery from environmental damage. Tracks on the Arctic tundra are erased by nature in as little as 60 years. However, bottom trawling off the coasts of Norway can today destroy in one pass, coral beds that have been constructing themselves in that cold water for 4 million years. In some cases the corals are 4,500 years old!

Many fish stocks are so depleted they will never again be bountiful: orange roughy, white marlin, North Atlantic cod, blue marlin and the Bluefin tuna. Bluefin, historically often over 1,000 lbs., now so rare but so fashionable in oriental cuisine that a large fish (today a mere 100 lbs.) is worth $20,000-$30,000 on the wholesale Asian market. This for a single fish!

The demand for food from the sea is enormous today. The U.S. alone consumes 9.2 bil. lbs. of ocean-caught seafood annually, of which an estimated 80% is imported. This level of consumption cannot be sustained. Such fishing involves 3 mil. active fishing vessels of which 1.2 mil. are trawlers. Together they account for about 99 mil. tons of targeted catch and almost 30 mil. tons of "by catch" (the 30% of life that is destroyed but unused for consumption).

What happens in a fishery where other sea life is caught by accident? Say a trawl brings aboard 20 tons of life from a single set. Further let's even say that an international observer is aboard. When unloaded, the trawl contains on average six tons of life that is out of season, unfished, protected or endangered. What happens to this bounty? This may be difficult for the reader to believe. It cannot be processed because of treaty regulations, so is returned to the sea, dead, to become a product of decay and pollution - no service to humanity. Unbelievably, this happens even in U.S. fisheries waters! Wild shrimp are trapped or trawled in a travesty of waste in which for every pound of shrimp, 5.2 lbs. of other life is destroyed and unused. The most egregious example: Asian prawns. For every pound of Spot prawns retrieved for market, there are about 10 lbs. of "by catch". What are the alternatives to this frightening waste?

It is not aquaculture. Neither aquaculture nor fish farming will in the short run make up for the food now supplied by the oceans. Total estimated aquaculture production was 39.6 mil. tons in 2000. Presently the technology of fish farming has serious environmental challenges. First, because of the accumulations of waste and secondarily in the large amount of feed stock from other animals necessary to sustain higher food chain fish and shellfish. Furthermore, there is entirely too much emphasis on salmon raising (species altogether well on their way to being man-made). Someday undoubtedly these efforts will produce better results; perhaps alternative protein sources will be exploited and the world will stop the senseless wasting of sea protein that is not even consumed. Until then?

The Solution - Abstinence. What can arrest this appalling waste? Attempts to regulate greed never work unless there are consequences. Commissions on Ocean Policy don't work. International agreements haven't worked. Ignored regulations can't work. The United Nations won't work. The bungling agreements negotiated by the unelected, inept and corrupt organizations of the United Nations have not and will not work because there is no sovereignty in the world's oceans.

What will work? What will work is to close the world's oceans and seas to all harvesting for three years. All harvesting - three years! By this we mean the seas covering lands under international treaty - seas over land that does not belong to a sovereign nation. This "abstinence" could be achieved by the U.S. organizing and leading agreements among willing nations and thereafter simply announce than all pelagic fishing will cease, on such and such a date.

In that three years the world's marine scientists will be better able to assess habitat conditions and oceanic fishers will have left the business. The U.S. could lend its magnificent naval skills and technology to track, board and seize all violators everywhere outside national territorial waters. The seized catch would be processed if possible and sold in the international marketplace, the crews being imprisoned and brought before maritime tribunals, and the confiscated ships and all gear sold to partially off-set the costs of enforcement. It would not be long before fishing our commons became too expensive.

The Whidbey Island INVESTOR (Spring 2003)

"ECOTOPIA" UNRAVELLED...Once Upon A Time there was this beautiful land; green, lush, giant trees, crashing surf. People struggled in farm, field and forest to stay in this magical place. Those who were well paid had dangerous jobs, fishing, logging or lumbering. There were challenges and there was isolation but people worked and life was good.

Ernest Callenbach, in his 1975 novel of the same name, introduced us to the word "ecotopia", meaning a place where people lived in consort with their natural world in a kind of "spiritual" coexistence. Then, in 1981, Joel Garreau wrote a wonderful geographic analysis of American cultural "lifestyles", called, The Nine Nations of North America. One of Garreau's "nations" was Ecotopia, that narrow band of forest land and sea lying west of the coastal mountains, stretching from northern California to southern Alaska. To remain in Ecotopia north of Marin County, its residents willingly sacrifice crass economics for natural splendor.

Your intrepid editor recently visited Arcata and Eureka, California, and came away with the following observations on Humboldt County, the nexus of Ecotopia. Through the 1950's and '60's logging, lumbering and fishing, plus a nascent service industry in support of tourism, sustained a vibrant County economy with incomes higher than those average for California; indeed higher than national averages. In the late '60's a more radical "environmental ethic" evolved that finally culminated in "eco-terrorism" against the timber industry in the '70's and '80's. Millions and millions of dollars of vandalism to logging equipment and the "spiking" of trees designed solely to ruin sawmills, became a legacy tacitly accepted by many locals who should have known better. In combination with a worldwide recession for forest products, more restrictive environmental regulations (some frankly long overdue) and a dramatic decrease in salmon and other fisheries resources, economic hardship hit Humboldt County families. "Tourism" was seen as the way out, and the mantra became, "clean green", for visitors who spend money but do not stay.

To see Humboldt County today is to see Ecotopia unraveled. Not the consequence of some grand strategy to maintain an "eco-friendly" corner of the world, but consequences that while fully predictable, have been largely unintended. Fishermen sold their boats and gear, large timber companies withdrew to friendlier climes, and smaller ones simply went through the personal and family agony of bankrupcy. During the '60's almost 70% of all employment was logging, lumbering or fishing. As the 1980's ended, the county's economy collapsed; hundreds of homes were repossessed by their lenders as thousands of workers lost their jobs. All this in a population barely increased in twenty years, just over 128,000, at the very low population density of some 35 persons per square mile. Today's Arcata, the county's intellectual center, boasts a prominent State University (formerly a teacher's college) and prides itself on a City Council once with a majority of Green Party members, as a reflection of its philosophical commitment to environmentalism. There are few but low-paying service jobs, most of the buildings are boarded up, and second-generation "hippies" panhandle on the streets; every Friday's "happening", in a town square watched over by a statue of the inimitable Teddy Roosevelt, is a rolling "anti-war rally" honest!

Eureka, the County's once vibrant economic center, is trying to re-align the region's economy into services for tourism, and a hospitality industry in quest of a "clean" economy. Half the buildings are empty; many of the exceptions are dozens and dozens of every conceivable kind of governmental and quasi-governmental agency or organization. County income has dropped dramatically. The entire labor force is a mere 45,300. Unemployment is officially 10 percent countywide, actually twice that. Today only 4,200 work in the forestry and lumbering industries. In dollar flows, timber and forestry have declined 67 percent. Timber industry employment has fallen by 20,000 to 3,900 since 1959; fishing has fallen from 15,000 to 100! Annual incomes have fallen to $23,000 per capita, 79% of the current national average. In 1970 it was 109 percent of the national average. Today owners live in only half of the County's occupied housing - almost 50% of residents are renters. Twenty-percent of Humboldt County lives in poverty, 26% of its children. California Department of Finance records document that 13,000 persons are employed in government, accounting for almost one in three jobs in the entire County! Statistically, on a per capita basis, Humboldt leads or is close to leading California in poverty, mental illness, substance abuse, domestic violence and child abuse. We American's should be very careful what we wish for; we might just get that and more!

The Whidbey Island INVESTOR (Autumn 2002)

UNLOVED IN A WORLD OF SCARCITY. We American's are so delightfully naive! Why do we have so much trouble accepting that most of the world "hates" us? Here is the reason why we are loathed. We now live in a world with 6.1 billion people alive at one time. If, for the sake of convenience, we shrank this huge population to 100 persons, for handy calculation, here is what the population of "man" would look like. Six of the 100 would possess 59 percent of the entire world's wealth, and statistically all six would live in the U.S. About 80 would live in what we would call sub-standard housing, 73 would be illiterate, almost 50 would suffer chronic malnutrition, one would be near death, and one of the 52 who are women would be near giving birth. Only one would have spent as much as a single day in college, and only one would own a computer. If you have a refrigerator you are statistically likely to be richer than 75 percent of the rest of the world. If you have even $1.00 in a bank or security account, you are among the most wealthy nine percent of the world's people. Fifty of this population do not have a right to assemble, and are under religious or personal persecution. Finally, one in six have been imprisoned, tortured or starved by their own governments. Now does anyone doubt why we are not universally loved?

ENRON ENDNOTE. What are the lessons we can learn from Enron? Some have begun to argue that Enron represents a failure of the economic "free market" system. Good lord, it's a "free market" success. The ever-pandering people of California don't want to pay high electric costs. However, they are also unwilling to permit new electric production in the state. So, Sacramento legislated electric rate cuts (illegal price-fixing), bought Enron-created peak-hour discounted electricity (thoroughly stupid), "winked" while Enron gouged businesses for off-peak power useage (diseconomic); and when Enron proved to itself that their model of "non-market" economics would not produce profits, they did what any "crook" would do. First, they invented shady forms of energy partnerships to disguise losses (contract fraud), snookered stockholders (stock fraud), contributed huge sums to PAC's to influence legislators and suborned their accountants into lying about their finances (criminal conspiracy), and finally did the first right thing in their six years of glory - went bankrupt.

Now Hawaii is undertaking bold experiments in energy lunacy. Sun every day is not enough for them. Their governor wants inexpensive gasoline. Is there an echo here? Shouldn't the governor talk to Gray Davis who tried to bring low peak-hour electric charges to Californians, via Enron? Rather than calling it "price-fixing", the words have been carefully parsed to suggest it's "profit limiting", to prevent gouging by greedy oil companies. Hereforward, permitted profits will be gauged by the weighted average of gasoline sales profits in California. That Hawaii is too far from gasoline is going to be ignored. The predictable outcome? First, a political sigh of relief, followed by inconvenience and shortages, then runaway prices, finally, price fixing and profit-gouging lawsuits, and government scandal. Hawaii should just learn to live with its sunshine.

The Whidbey Island INVESTOR (Spring 2002)

CRUDE OIL ALERT. A $1.00 increase in the per barrel price of crude oil increases the energy costs of Americans about $3.5 billion per year. The Arctic Naval oil preserve is almost 17,000,000 acres, most of it totally barren marshlands, devoid of trees and fauna larger than mice. Caribou inhabit and use less than the ten percent along the coast where forage is adequate. The proposed oil impact area is about 20,000 acres; direct impact of drilling and all other construction is under 1,500 acres. This is less than one-hundredth of ONE percent of the preserve. Humans are also part of the environment. While 123,000 caribou will be somewhat affected by the project and its risks, so are 282,000,000 Americans!

The Whidbey Island INVESTOR (Autumn 2001)

OUR NEW RESIDENTS. For the past half dozen years, those families buying homes on Whidbey Island fall conveniently into five profiles. In order, we can describe them as: "Empty-Nesters" (about 30% of new residents), "Boomers" (20%), "Technicals" (20%), "Retirees" (15%), and "Starters" (15%). Collectively, "Empty-Nesters", "Boomers" (those born after 1946) and "Retirees" make up the "adult" market. "Technicals" and "Starters", together about 35 percent of our buyers, constitute the "youth" market. Empty-Nesters, born before 1936, these buyers want PRIVACY above all else. Many continue to work. They are moderately wealthy, "price-sensitive", "design conscious", and, here, "eco-aware". They like "the look of expensive"; they buy single-family homes, sometimes condos; never manufactured homes. Boomers are primarily interested in PRESTIGE. For them: "the best is barely good enough". These buyers work hard and aspire to wealth. They're the least price sensitive of all buyers; they want what they want. They buy single-family homes, many second homes, sometimes condos; never manufactured homes. They are the largest buyers of land, they search for "dream homes", and like prestigious "toys". Technicals were born after 1960. These buyers focus on FAMILY. They have few children who are heavily indulged, wives often work, often with a technical or professional skill - frequently, they are military families. Technicals focus directly on convenience; prefer newer, or new, homes and are skilled workers. They tend to buy above their ability, and buy traditional homes with designs of pleasant, comfortable style. Retirees were born before 1935, and have a strong hold on TRADITION. Half come from "out of area". They are financially conservative and settle here to escape "dirt, crime, snow or congestion". Their tastes in housing are very broad, fixers, "farms", single-family manufactured and new or custom-design homes. These buyers travel and vacation extensively and often own second homes. Starters were born after 1970. They want all they can buy and focus on MAKING-IT. Their expectations are often higher than their ability to finance. They will buy anything that they can finance. In our market most are military, although others buy here when they can afford to in preference to moving "off island".

The Whidbey Island INVESTOR (Spring 2001)

OUR NATIONAL DEFENSE CRISIS! We Americans spend a lot of money on our national defense. Last year it was $300 bil., a quarter of our entire national budget. The loss of our traditional "Cold War enemies", who brought us stability of purpose and national consensus, have left us with a poor national defense posture.

Four areas are critical: reduplication, rearmament, recruitment/retention and readiness. In none of these areas is our military well-prepared for "tomorrow's" reality. Duplication and reduplication between services, fosters inter-service rivalry; leaving us suffocating under tier after tier of generals and admirals, each planning for the war "they would like to fight" rather than plausible military scenarios. First, the "man in charge" needs to stop permitting the Army buying wrenches unique with their serial numbers, but otherwise identical to the Marine wrench. Computers deal well with these things, if mentalities change. Second, large numbers of generals and admirals need to be retired. It makes one fantasize that we should have all our armed forces unified as a "defense force". Won't happen; probably shouldn't. Just a fantasy. With defense materiel, politicians have invented wonderful ways to "buy the attention of senior military leadership"; gigantic 'war toy' systems, bigger tanks and cannon, more aircraft carriers, and more short-range expensive tactical aircraft, coincident with our losing access to most of our overseas basing. Unfortunately, these are precisely the armaments we no longer need much of. Into the New Millennium we do need more automation and better software and hardware, more stand-off weaponry, much more intelligence-gathering capability - electronic and human, more reliance on "special forces" and better tactical field training and excercises. National leadership has tried, without enthusiastic reception, to bend the military toward its concerns: intrastate conflict, drug trafficking, nuclear proliferation, organized crime, terrorism, and peacekeeping. Many of these roles may not be suitable for the American military, given our historic tradtion of not having permanent standing "armies". Certainly, feeding foreigners is not a normal role for the U. S. military. If we impose these duties on a "new" military, they will have to be given the leadership such roles entail. Our military has tractable recruitment and retention problems, except that "political will and administrative won't" have not left the military free to openly recruit. They have been burdened by 'social equalization' agendas (maybe good politics), absolutely poor military policy. Our military are very well trained, but not very well educated. This must be changed. To retain valuable, seasoned personnel we will need to start paying them for their technical skills and experience. And those in technical roles need real promotion opportunities if they are to be retained. Our nation is in a poor state of readiness to provide any kind of defense of our national interests. Funds for training and consumables have been wasted on any number of deployments of very dubious value. We have an inventory of aging weapons and equipment; computers and software so 'revolutionary' to warfare during the Gulf War - now three generations behind technology. Today we require a military that is "leaner, lighter and faster"; one with more intelligence capability, one better trained in small group conflicts, one that has no equal in light arms tactics. We do not need more preparation against the likes of Saddam Hussein. There are few such fools left to engage America's ire.

The Whidbey Island INVESTOR (Spring 2000)

HOW TO CREATE AN ENERGY CRISIS! Recent talk about rising energy costs and the conflict between environmental concerns and energy useage has become a hot media topic. These concerns are also the fodder that makes popular ideas in economics self-serving prophecy. Here we will discuss what seems to pass as our "national energy policy" - a rather "bad news" story. First, however, the "good news". There is sufficient energy available to America, at a price, that we can continue to "use" energy pretty much as we have for 55 years. Also, the costs are relatively low for we Americans. The most common icon, gasoline, today at $1.80/gallon sells for substantially less in real dollars than it did 45 years ago at $0.19 a gallon! Even at today's "high" prices, the dozen companies that control the consumption of crude oil are heavily subsidizing we wasteful Americans by conveniently charging $5.00/gallon to unlucky Italians (even more to others). Be thankful that these dozen companies pander to American sensitivities! On the other hand...

If one wanted to construct a poor energy policy, one that especially relied too much on petroleum, what would one do? Obviously, punish other energy alternatives - atomic power, coal, natural gas and solar resources. Here's what we have done: constrain research and development of "breeder" and "fusion" reactor technology. Delay nuclear construction for years to increase costs until such power costs too much to warrant plant completion. Then create uncertainty about licensing and regulatory requirements, and sue to stop, delay, or at a minimum increase the cost of facilities with every imaginable environmental ploy. For coal, prevent the use of high-sulphur soft coal to restrict supply, resist all strip mining projects in Western lands where the environmental consequences are most manageable and where suitable restoration is more easily achieved (instead of tearing down mountains in, say, West Virginia), and impose safety regulations for mining with the object of raising costs to diseconomic levels. Finally, freeze generation prices so that further investment cannot be justified. With natural gas, first set price caps on supply to discourage exploration and development of distribution systems; then, "deregulate" supply but increase restrictions on pipelines (the safest and cheapest form of energy transportation in man's history). Further, ensure that inflationary costs cannot be recovered from such energy alternatives. For water (solar) energy from dams, construct a federal agency, the Bonneville Power Administration, responsible for marketing energy in the West but with no responsibility for power generation. For direct solar energy (solar arrays and wind generators) ensure that these marginal producers do not sell into the marketplace in a competitive manner but rather sell to other energy generation/distribution entities at the highest rates they pay for any energy and then deny them the right not to buy this energy! That's what we could do to help create an energy crisis. With this all done, we would then rely excessively on oil.

Next, create a "policy" for oil! Begin by creating uncertainty over U.S. and North American crude reserves by keeping Naval petroleum reserves "off-limits", allegedly protecting sensitive Arctic environments in virtually uninhabited, inaccessible areas. Next, restrict the use of sulphur-containing crude oil; reducing refining capacity. At the same time, raise environmental standards so that refining costs more and is less efficient. Actually, make it very hard to expand or build new refining capacity. Next, constrain end user prices to be artifically low so as to stimulate use of SUV's, trucks and other "high consumption" vehicles. Last, "be sure that this is misunderstood by the general public, [and] bring a law suit which charges all the largest energy companies with being non-competitive and therefore causing the energy shortage" (Henderson 1974).

Each and every single action described has actually been implemented between 1945 and the end of the Millennium. Why would we Americans do this to ourselves under the guise of national policy? It would have been wiser to take none of these actions. Such policies created the oil energy crisis of the '70's with OPEC, our failed attempt at price controls, the "energy spikes" of the '90's affecting Western-states' dams, and the present (2000-2001) energy crisis.

The Whidbey Island INVESTOR (Winter 1999)

THE LONELY SHERIFF - AN AMERICA LOOSE IN THE WORLD. The world continues to be an exceptionally dangerous place. Many "nations" may be at the brink of civil war. Some of these nations are important to America's well-being; some even vital. Imagine the danger to us of civil war in Russia. China, or plausibly Mexico! Russia remains the "enigma" described by Churchill in his 1946 "Iron Curtain" speech. They need help and we are the only able "helper" with an absolutely vital interest in their survival as a nation. China is a "schizophrenic" nation, always possessing the danger inherent in insanity: a "Western" coastal culture that is enlightened, productive, working, wealthy, 'modern' and connected with the outside world versus the rest of China with none of these characteristics. Those of us who think we have problems with our long border with Mexico should imagine the greater threat of a Mexico in another civil war. We have responsibilities to this complex world not for political reasons, but to ensure our own survival.

America was thrust upon the world stage during World War II when we came to have other nations think of us as "the leader of the free world". Sixty-years ago this was a marginal conceit, in the nine years since we have become the "sole superpower" it has become a dangerous conceit. Recent articles in the journals Foreign Affairs, or Foreign Policy have explored conflicting perceptions of our roles: a "benign emperor", or an adolescent bully. We are benign in having few serious critics, including to an alarming degree a lack of self-criticism. We further avoid criticism in having no overt geopolitical empire, as well as our physical isolation (ocean barriers from all major nations and having few abutting neighbors). As bully we have been accused of hubris, demanding environmental awareness and action in areas of the world hardly able to feed themselves, or in coupling "human rights" to diplomatic and political agreements, as though the very notion had independent reality. We also often seek "victory on the cheap" (a bomb here, a missile there; but no blood, please). This is arrogance, plain and simple. In our "leaderless" approach to international affairs, we are often as gracious as the proverbial elephant at a tea party.

Most of us think that we are an honorable and moral nation, so often willing to share our largess with less fortunate nations, or in times of trouble. To engage the world with seriousness requires leadership. Let none doubt that we have the military power to enforce our will in many circumstances. Our strength and skill in leadership is much less well proven. We are ambivalent. We like too well to be liked. And to be liked is not to be powerful. We are therefore suspicious of other nation's motives, as others are naturally suspicious of us. "Whatever else this suspicious attitude does, it cripples America's ability to lead other countries. A leader must understand followers and be able to enlist their energies so that they are willing to do something for the greater good. Force, subversion, and defiance are not the traits of a leader. No one can lead people without listening to them, reasoning with them, and showing respect for them." (Garry Wills, Foreign Affairs, March/April 1999:53).

"Leader of the free world" has come to corrupt our language and our thinking; many believe that power and leadership are analogous. Little could be further from the truth. Neither Milosevic, Hussein, Qaddafi, Yeltsin, or Jiang doubt our military power but they, many friendly nations, and many Americans doubt our moral suasion. As a nation we come from a long tradition of isolation and non-engagement in foreign "entanglements" (the warnings of Jefferson). Madison, writing in "The Federalist", emphasized the importance of listening to other nations' views that opinions and policy be declared openly and that policy appear to other nations as wise and honorable. By this standard, we evidence little leadership in our complex world. Many Americans believe that we are irretrievably bound, even as a unilateral power, to a "cooperative world"; many others believe we should disengage. In the end we must decide our course as a nation, "America firsters", withdrawn behind our traditional barriers of geography and attitude, or leaders in the "New World Order". One, or the other. Kosovo will soon make clear to all Americans, that it cannot be a little of both.

2006 A Great Year of Change

The Whidbey Island INVESTOR (Winter 1998)

THE KEY TO THE MILLENIUM. Why are individual Americans becoming so wealthy? There are two major reasons, simply stated: education, and entrepreneurialism. In many recent INVESTOR newsletters we have discussed the incredible American entrepreneur. Education has become the pathway of most Americans to economic and cultural well-being. Here, let's look at the impact of education on traditional wage and salary income. Using data from the U.S. Bureau of Labor Statistics and the National Science Foundation and some creative statistical interpretation, we have assessed the hourly average wage and lifetime earned income potential for a worker with five decades of wage/salary history, measured in dollars.

----------All----|Non-Hi-|HiSch---| HiSch-|College|Grad----|Grad -------Workers|School-|Grad------|& Coll-|Grad.--|Masters| Doc. 1950 | $1.32----| $1.28- | $1.24---- | $1.34* | $1.98--| $7.00*--| $6.59 1960 | $2.00----| $1.82- | $1.87 ----| $1.93* | $2.69--| $6.00*--| $7.09 1970 | $3.23----| $3.02- | $3.12 ----| $3.01* | $5.18--| $9.37*--| $7.72 1980 | $6.66----| $4.42- | $ 5.82----| $7.34* | $10.33-| $15.52*| $17.33 1990 | $10.01--| $6.16--| $8.23 ----|$11.22*| $17.19-| $30.28*|$31.12 2000 | $13.28*-| $7.19*-|$9.45*---|$14.09*|$26.38*|$40.50*-|-$45.55* (LTE)|$594.7K| $410.9K|$488.7K|$624.9K|$992.5K|$1.741M|$1.788M

(LTE): lifetime earnings using a standard of 2002 work hours per year *estimated/projected

Wage rates in 1997 are the benchmark. Inflation has been ignored and the impact of both income taxes and Social Security taxes are ignored. If they were not, the education gap would show more income disparity - education would count even more! The data indicate that until the late 1960's, American workers, in general, had earnings roughly comparable to even college graduates. As the 1970's opened, skilled labor employment (read union employment), began a continuing decline as developing areas of the world provided more primary mining, mineral and manufacturing competition. By 1990, non-high school graduates had declined to a mere 31% of the work force (much of this in agriculture and food service), while high school graduates and those with more formal education rose to 65% of the labor force. High inflation in the 1970's encouraged an explosion of growth in service jobs and a growing income gap between the well-educated and the general work force. If one worked forty years from, say, 1960 at the rate of all workers, and retired in 2000, their lifetime earnings would exceed $500,000. If they were college graduates, earnings would double statistically to about $950,000, and if a graduate degree holder, would rise over three times, to more than $1.7 million.

The contribution of the American entrepreneur to our economic well being will continue if we citizens resist mindless regulation and our national fascination with taxing income.

Education is, however, a quite different matter. Our country does marvelously at higher education we clearly lead the world, especially in technical education: science, engineering and mathematics. In secondary education on the other hand, we have little to be proud of. This, if not corrected, bodes poorly for our children's future. Gone forever are the likes of parochial schools with unimpeachable academic standards, or immigrant teachers with traditions that learning was at the core of cultural values. Much of our difficulty is created by our tradition of strict local control of primary/secondary education; the marvel of constitutional democracy, but one without established standards. Our sacred tradition of local control must be met in future with better planning, wiser use of resources, human and financial, and greatly strengthened minimum standards in reading, writing, science and mathematics - all accompanied by much, much greater participation of citizens in local education. As we approach the millenium, we must act as though American civilization depends on this outcome. For surely it does. Can any reader doubt that the pattern of the last fifty years in wages and earnings will not only provide the pattern of the next fifty, but that the education gap will widen further?

The Whidbey Island INVESTOR (Autumn 1998)

THE BALANCED BUDGET - SOME DANGERS. When national political parties agree on an issue of politics - we should probably begin to worry. Such is the 1999 budget recently submitted by the administration. First: kudos; its always a good idea to have a balanced budget. Isn't it wonderful! The incredible "bread machine" that is the American economy over the past seven years, has matured largely unfettered by government intervention. Second, on the other hand, zero deficts are achieved by the kind of accounting legerdemain that would have private citizens in jail. Since the fiction of a Social Security Trust Fund (at $266 billion, the key to balance), was dreamed up during the New Deal, but not finally abandoned until Lyndon Johnson's Viet Nam - war without [economic] cost or pain when these fund were fully considered merely taxes and therefore general funds. So it remains today. Here is the danger. If major new programs are needed to fund undertakings that produce wealth and taxes, we should consider their merit. When these undertakings reduce wealth through subsidization, we should learn to, "just say no". When the economy is up and deficits are down, politicians of all persuasions begin to search for more of your money to ensure their political security. If these new demands for funding were for technical research/development; education of our youth, technical workers, or the under-employed, (real education, not the political fantasies of the Department of Education that have nothing whatever to do with actually educating anyone); or upgrading our military (now that we have discovered that the entire world is willing to let us have almost all military power as long as we bear most of those military costs), we might rest easier. We should not rest easier, however. Expect Washington, administration and Congress alike, to suggest, raising minimum wages, subsidizing daycare, paying teachers more, or this nifty one: rebuild our highways and bridges.

The existing federal gas tax collects $36 million per day, with only 17 percent spent to (re)build highways; what it was designated for. We bet you can guess where the balance goes, the general fund! We once had a very perceptive President, who in 1986 said, government's view of the economy could be summed up in a few short phrases: if it moves, tax it. If it keeps on moving, both tax it and regulate it. And if it stops moving, subsidize it. End of story.

The Whidbey Island INVESTOR (Summer) 1998

OUR MAGNIFICENT "NEW" ECONOMY AND THE "KNOWLEDGE WORKER". The huge American economy is exploding relative to the economies of Europe, Asia and the rest of the world. As we close toward the 21st century, four economic sectors will assume preeminence - computers, tele-communications, automation/robotics, and re-education. These sectors are the domain of the "knowledge worker", sustainers of the "new" economy. Demand for more technical workers is insatiable, and the U. S. has had for many years a tight labor market for these workers. Inflation-adjusted wages have been rising for two years with net increases of almost four percent per year. Real worker output per dollar of compensation (adjusted for inflation) is rising about two percent. Many already-employed "knowledge workers" are undercompensated - they still live in the "mind-set" of the early 1990's, while new workers, young graduates especially, are being paid historically high starting salaries, and "percs", some not even invented 10 years ago. As an illustration of the still moderate wages of these "knowledge workers", construction trades craftsmen in areas of high demand now earn $40 to $50 per hour, twenty-five percent more than technically "degreed" college graduates. This imbalance will change dramatically over the next five to ten years. The keys remain: educaton, re-education, and re-training. Our non-traditional private educational schools have begun to see the opportunities. While our secondary schools are failing to provide the best "raw material" for future education, our colleges, universities and trade schools are doing a generally excellent job of preparing these new workers. For Western Washington, our time has come. Our inventory of "knowledge workers" is increasing more than 15 percent per year. These workers currently have average annual wages of $66,700 per employee at a time when all private workers in Puget Sound average $23,400 per year. This is the new "Golden Age".

The WHIDBEY ISLAND INVESTOR (Spring 1998)

STAYING HEALTHY...LIVING LONGER. We have all heard the various bromides - exercise, eat "fat free", reduce sugar consumption, take vitamins...and we will live longer. Fascinating new medical evidence suggests a single far more important, perhaps pivotal, factor (ignoring one's genes, the most important single factor), "living slender". Working to be underweight and staying there by eating much less than we Americans are used to eating, especially for those over 35 years of age among women and 40 years among men. Some of these studies have been ongoing for many, many years. The mass media is ignoring, or is ignorant of this research, possibly because they are not very "sexy" as news. For those who use the "net", try Northern Light's wonderful new artificial intelligence search engine: www.nlsearch.com to review some of the evidence about "longevity", "health and longevity", "weight and longevity", etc.

The Whidbey Island INVESTOR (Winter 1997)

AN INTERESTING HISTORIC FACT. The rise in total national debt during the Reagan years provoked sometimes hysterical calls to "man the barricades" in the face of impending economic tragedy. How quickly we forget! Many of the same provocateurs (not only leftist economists, either) now wax eloquently over our "collapsing" national debt. Maybe we were just not listening. Ronald Reagan promised tax cuts and that this would stimulate both the economy and tax collections. Taxes were cut. The result: tax revenues in the Reagan years rose from an annual $517 bil. to $909 bil. As a percentage of GNP, deficits fell between 1983 and 1989!

The Whidbey Island INVESTOR (Winter 1997)

A POINT OF LOGIC FROM P. J. O'ROURKE. Government subsidies can be critically viewed according to simple principles of logic. You are smarter than the government, so when the government pays you to do something you would not do on your own, it is almost always paying you to do something stupid.

The Whidbey Island INVESTOR (Autumn 1997)

NEW TAX REGULATIONS: REAL ESTATE...BEYOND. Congress and our President have recently signed legislation affecting real estate that creates the most far-reaching tax changes since 1934. At a stroke, most personal residential housing will be sold free of any capital gains liability. The implications are enormous - retirees will no longer feel the compulsion to "roll-over" home sales into ever more expensive properties, just to avoid taxation. A huge new "industry" is gearing-up - one in which families buy, build, or remodel homes on two-year cycles, taking tax-free gains from each sale. They may repeat this cycle every two years, over and over. This "loop hole" is likely to persist; its "apple pie" at its best. The basic rules are simple.

Couples filing joint tax returns will be able to exclude up to $500,000 of profit on the sale of their principal residence, if lived in for the past two years, and sold after May 7, 1997. Gains in excess of $500,000 are taxable at new, lower, capital gains rates. As long as your home has been your principal residence for two of the preceding five years, you may repeat the process indefinitely!

Capital gains tax rates also drop from 28 percent to 20 percent, effective last May 7th. Rates for those in the lowest brackets drop from 15 percent to 10 percent. The holding period for all "long-term" capital gains rises from twelve months to eighteen months for transactions or exchanges after July 28, 1997. Transactions held between twelve and eighteen months, will combine the old and new holding rates, under special rules. The new top bracket, 20 percent, will drop to 18 percent on January 1, 2006. Other special rules, effective after December 31, 2000, will further drop maximum gains rates to 18 percent (or from 10 to eight) for assets held five or more years.

The new rules do not effect 1031 or 1034, "like-kind" exchanges. Obviously, they eliminate the old "roll-over" regulations. Investment recapture will be taxed at a flat 25 percent, also effective May 7, 1997. Unified estate and gift credit to $600,000 is increased to $625,000 in 1998 and will rise to $1,000,000 by 2006. For the first time, "family-owned business interests" are treated more equitably. Even home office expensing has been clarified and simplified, and, serendipitously, the IRS has been temporarily chagrined by a number of abuses, from "badgering" to outright "illegalities" and much in between - the beast of government has been somewhat tamed. The very wealthy, definitionally a small minority, will continue to pay outrageously for the privilege of their classification. The top one percent of our taxpayers now pay more taxes than the bottom sixty percent combined. They bear 29 percent of the nation's total tax bill, while the bottom 60 percent pay nine percent of taxes collected. This is tax legislation with something for everyone, even for the wealthy, "the politics of popularity". These new tax changes are close to "revolutionary", but like all tax legislation, the rules are complicated. Please see your personal advisors for details, ramifications and your special tax and estate situation.

The Whidbey Island INVESTOR (Summer 1997)

THE THOUGHTS OF SAGES. The words of sages are often disquieting, and not infrequently embarrassing. That's why we ignore our sages so often. Too many of us take the position that, "I have neither the time nor energy 'to fight city hall'. Yes, I know government is inefficient and wasteful...". It's just a little "sin" but one repeated over and over, and anyway government is too big to control - quite akin to what we can imagine thoughtful Soviet citizens said quietly to one another between the 1920's and 1989! Tyranny is always arrived at incrementally, so controlling the destructive urges of a powerful, centralized government is not something to leave to 'George'. 'George' probably has very different ideas than you have. Nor will we become those "cynical Europeans" until we abandon our unlimited enthusiasm and fail to renew ourselves as de Tocqueville's "irreverent optimists". We will only become fatal victims of our own governance when we lapse vigilance and permit governments to possess what Winston Churchill described as that, "insatiable lust for power...only equaled by...incurable impotence in exercising it."

The Whidbey Island INVESTOR (Summer 1997)

OUR LOSS OF SENSE OF COMMUNITY. Popular literature and media continuously bombard us with stories lamenting a loss of "community" in America. Certainly, our sense of community has changed dramatically, even since World War II. It may well be that increasing incivility is an expression of community decline. It could also represent merely a subtle shift in ever evolving culture. Let us take such a contrarian view. When human communities developed, all workers were undifferentiated "generalists" - hunter/gatherers, then farmers, later factory workers, whose survival was enhanced by commonality of interest. The rise in specialization saw "communities" of common interest formed within larger communities, neighborhoods of, say, farm machinery workers in a mid-western town. The nature of such industrial enterprise fostered both concentration in worker neighborhoods and homogeneity of community.

Modern communications technology, however (perhaps the most far reaching of cultural "paradigms"), both increases specialization and permits, what many years in advance of the reality, Marshall McCluhan called, "global community". So, an astronomer living next door might well be intimately linked to the world-wide "community" of astronomers, sharing daily experiences, and at the same time, have no relationship or common interest whatever with their next door neighbor, or anyone else in that residential community. Perhaps our future challenge is to abandon traditional, and false, stereotypes of community and instead inculcate general civility to those around us together with appropriate respect for diversity and acceptance of extreme work specialization.

The Whidbey Island INVESTOR (Spring 1997)

AMERICA'S MILLIONAIRES - THEY'RE NOT WHO YOU THINK! In an interesting new book, "The Millionaire Next Door", Thomas Stanley and William Danko provide compelling evidence that today's very rich are little different than your well-to-do next door neighbor. America has lots of millionaires, at least 3 1/2 million. Surprisingly, their median income is just $131,000 per year. The majority are not inheritors of great wealth, sports figures, film stars, or "mega-buck" corporate executives. In fact, they are mostly disciplined, traditional "hard workers", small business entrepreneurs who live well below their means, and who are determined savers. Statistically, these millionaires live in relatively modest homes that average $320,000, they drive ordinary cars, and over ninety-five percent are married, with on average, three children. They consume with moderation, even frugality. Their debt to worth ratios are only about 1 to 30, except for their family homes. Within three years, we will have six million such families. All the more impressive because inflation has been quite modest since 1981.

The Whidbey Island INVESTOR (Winter 1996)

THE MISERABLE TAX. Each national election, we hear renewed criticism of our income-based national tax system. Each politician has their favorite replacement "system". Steve Forbes' rhetoric argues for a flat tax, gaining taxing simplification and a dismantling of the IRS. We used to have a flat income tax and no IRS. Then the congress began tinkering...then they manipulated. Our income-based tax system now works about as well as possible - it is efficient and brutal. It is also unfair, engendering frustration and bitterness among those paying the tax, while simultaneously undermining general confidence in government. The major problem is neither tax simplification nor the IRS, but rather our income-based tax system itself.

Taxes based on income are both illogical and counterproductive as they "tax" incentive, investment, savings and productivity. Furthermore, our system lacks morality. Think about this. Our current system promotes a concept of legal avoidance within our enormous, entrenched tax cum accounting "industry", it fosters creative bookkeeping methods by small business and criminal amateurs, leaves major criminal activity "untaxed", and stimulates that political corruption of special interests seeking tax concessions. Not only this, but it costs $135,000,000,000 annually just to prepare returns and tax documentation, and budget the IRS. Government doesn't even rely on income taxes...government simply needs tax revenue.

What if we could have a tax system that was inherently "fair"? A revenue system that was "voluntary", rather than compulsory? One that saved the $135 billion per year in collection costs; one having the potential for dismantling a bloated entrenched government bureaucracy. Such a system would cost very little for tax maintenance, would virtually eliminate tax avoidance, and would moreover, stimulate new economic investment and cause an explosion in savings. In its real estate tax component, it could collect hundreds of millions of dollars from foreign investors who increasingly own American agricultural land, office buildings and other investment property, and who pay no federal taxes whatever for the safety and liquidity of American real estate. The idea is not complicated but it will require a mental shift; a shift away from taxation of enterprise, creativity, investment and savings, away from penalizing the earning of money (something we should, of all things, cherish) and toward taxing consumption - a voluntary system of "you buy, you pay." The transition could easily be accomplished over a few years.

Why should this be done? What is the plan? What are the obstacles? Who will resist? First, we share a myth that the taxation of income is an old idea and the only practical way to raise revenue. Both are nonsense. For five thousand years governments have raised revenues, always limited by where revenue could be identified and collected. Potential revenue existed in two forms: money, and labor. Money was collected in the forms of tariffs and excise taxes. That is, money was collected where monetary exchanges could be found - harbors (import and export tariffs) and manufactories (excise taxes; hence, the "glass tax", the "match tax", and the "tea tax"...) and, in the case of ordinary citizens with no money, a duty to become a soldier, or laborer, as a tax in kind. While paying taxes is never pleasurable, for millennia "consumption" of the wealth holder was taxed. This was a "voluntary" act in the sense that a man of means wanting windows in his home paid the "glass tax". A person was not taxed for creating wealth or having wealth, rather for demonstrating wealth. Less than a hundred years ago income came to be taxed because its point of generation was identified. If everyone still worked for large companies making redundant mass goods, the factory/business would still be a good place from which to initiate tax, notwithstanding the moral issue; but they don't and it isn't. Our system, in fact, has the effect of alienating the conventionally employed from politics as they observe "special interests" escaping the very taxes they cannot. Government has lost control of places to identify income for taxation - which is why criminals don't pay taxes. This recognition is part of the reason European nations have created "value added" consumption taxes.

Actually, income tax is very expensive to collect and personal income taxes collected annually are comparatively small and decline further every year as a percentage of GDP. Such taxes for 1995 will be about $400 billion, a mere fourth of the $1.6 trillion in federal collections. A new system could tax purchases of all kinds, the very small costs of collection being borne by the "seller" and redeemed to the government. If desired, a graduated tax scale could be implemented for certain "basic" living costs, ramping up for luxury goods and high-end consumption. Real estate, land, vehicles, aircraft, boats and similar items could have annual graduated use fees so that we Americans could cling to our romantic "soak the rich" mythology. Such national taxes would travel across all state borders. With these fixed-rate taxes all consumers would pay frequently which would have the further salutatory effect of making us all aware of what profligate government costs. Who loses? The "tax industry" of accountants and attorneys and the IRS, criminal enterprises, and all major tax cheats who for the first time would have to pay the same taxes others pay. Not bad when you think about our miserable income-based alternative!

The Whidbey Island INVESTOR (Spring 1996)

GIANT U. S. CORPORATIONS AND THE TALE OF HISTORY. We came across a curious historic tidbit, particularly interesting to those who believe that giant companies necessarily endure, let alone stay giants. In the past forty years, only twenty-nine of those firms listed as the 1956 "Fortune 100" are still in the top hundred in 1996. Only sixteen firms of the top one-hundred U. S. companies in 1900 even exist today!

The Whidbey Island INVESTOR (Summer 1996)

OUR UNDERSTATED NATIONAL ECONOMY AND ECONOMIC GROWTH. Standard governmental economic statistics are an embarrassment to serious practitioners of Thomas Carlyle's "dismal science"". For many years the various consumer price indices have dramatically overstated inflationary pressures. This has led to "overpayment" of Cost-of-Living-Adjustments (COLA's), and distorted fiscal planning based on erroneous data. By far the weakest calibrators are those used to determine Gross Domestic Product and Gross National Product. But these are precisely two of the most vital economic statistics. For many years now, Department of Labor data on economic activity have understated economic growth, employment, and dollar and goods flows through the economy - only to be revised upward in the next reporting periods. Why? Because government data measure what is most easily measured, and further, naively assume that all wages, services and manufactures are reported. Common sense tells us this is not so. How are drug deals accounted for? Bartering? Under-the-table wages? Most gambling and nanny pay? Of course, they are not. With a smaller overall economy errors were less critical. Now, with a $7.2 trillion annual official economy, estimates suggest that the "underground economy" now makes the total economy 19 1/2 percent larger. This implies an error of $1.4 trillion, over $5,600 per capita, per year.

The Whidbey Island INVESTOR (Autumn 1996)

THE CHIMERA OF JOB SECURITY. A classic economic tenet holds that the "supply of labor" (jobs) - how much, where, and of what quality, is the function of an economy's capacity to generate jobs. This means that existing jobs and "job security" are dependent upon labor "needs", not yet existent, because they have not been capitalized. In fact, there is no "job security" except as there is capital formation (investment, an important form of 'savings') and an economic environment conducive to business creation.

We are too often bombarded by political messages touting the myth that only menial jobs are now available, only minimum wage jobs. The facts are widely at variance with this myth. True, too many Americans have the "wrong" jobs, jobs with little future - often because workers are not investing in their own future, lack good secondary education, lack college and continuing education, lack retraining, and are limited by poor reading and writing skills. Together these doom many Americans to mediocre employment. There is no job security, except as there is investment capital formed from "savings", savings created by profits. Profits in the "boom" years (roughly 1920 through 1970, except for 1933-1937) generated the extraordinary new investment that capitalized "job security". During most of the Depression profit percentages remained high but an inward-looking America failed to comprehend how tightly our economic destiny was bound to the world-wide collapse of trade and currency. The politics that brought us the last "war-to-end-all-wars" were stimulated by the political failure to generate jobs (unemployment was higher in 1937, than in 1932, by over 4,500,000!). The political reaction? First, Social Security - the firing of all workers over 65 years of age, so 1.7 mil. "new" jobs were artifically "created", followed in 1938 by our entry on a "war-footing" as materiel suppliers to Britain. Ever since, these profits have funded job security. Even now American businesses "create" more high-wage technical and managerial jobs than Europe, Japan, the former Soviet Union, and the "Mini-Tigers" combined. Its simple...to create more jobs means creating more investment, more savings, and to create higher-paying jobs means create better business environments, fairer taxation, and more investment in technolgy. Profits, savings and investment primarily determine both job opportunity and job security. Obviously, in actuality, only the private economy builds jobs, but politicians get credit, or blame, for the phenomenom, even though jobs created by government are "consumptive" (e.g. policemen and soldiers, who are "necessary" for public safety and therefore deemed to be worthy jobs) however ones having little or nothing to contribute to the "productive"" economy. In other cases, government jobs may be described as "semi-productive" (e.g. weathermen or teachers who perform services competitative with the economy) but deemed necessary because they fill roles that would otherwise be costed against the general economy.

The Whidbey Island INVESTOR (Summer 1996)

AMERICAN BUSINESS PROFITS. We read in the papers that the recent recurring highs in our stock markets result from burgeoning corporate profits. If true, we should realize that while current profit "numbers" sound big, as percentages, profits are historically modest, though improving. Profits in the 1990's, in an environment of low inflation, are averaging 10%, up from the 1980's 8% (with low inflation) and the dismal 1970's with 5 1/2% and where profits, during Carter's last year, fell to 3%, coincident with the worst inflation since the Civil War. But business profits in former decades were much stronger. Throughout the 1960's, with modest inflation, they averaged 15%, and, since the end of World War I, profits between 15% and 20% have been "normal".

The Whidbey Island INVESTOR (Spring 1996)

AMERICA'S CULTURAL CORE. Do the following core characteristics describe an "American" national view? "We are a deferential, communal and paternalistic people"? Hardly. Are there other national cultures so characterized? Japan? India? Germany? Mexico? Certainly. Their cohorts are almost as numerous as the list of nations...except America. De Tocqueville described us over 150 years ago as irreverent, individualistic and egalitarian - risk takers in change. Universal access to land and private ownership of property sustains our "core". At the extremes, one fosters opportunity and transition, the other "tradition", resulting in social structures that resist change and stymie economic growth. What's wrong with "tradition" and economic growth? Why not have both? Simply, its not possible. These two sets of characteristics cannot co-exist. Do nations somtimes "escape" to tradition? Iran, since 1979? Yes, but not often and, then, temporarily. Do nations "escape" to the promise of greater economic well-being? Poland, Czechoslovakia? Inevitably, often. Count those foreigners who "escape" to the United States. Imagine the larger number of foreigners who would like to! Then count those who "escape" to Mexico, or Japan, or India and understand why national "core" characteristics are important. What of those traditional values that promote civilized behavior, not merely economic growth? Nations will seek to find new means to enforce traditions once controlled by persuasion, social ostracism and the threat of loss of family "connectedness" - once powerful cultural controls. Economic opportunity and transition fosters individualism, mobility, and social "disconnectedness". It must be so. Therefore, we need new means of enforcing responsibility and acceptable behavior. We will conquer many of the devastations of 20th-century America: wanton crime, social intolerance, inequality at law, and vulgarity. These will be resolved in large measure by the increasing economic well being of individuals as our national economy grows. These very real problems will not be resolved by romantic notions of a return to a misty, nostalgic past "on a reeling deck with a loose Buchanan".

The Whidbey Island INVESTOR (Winter 1995)

RENEWING AMERICAN CIVILIZATION. Those who "love" the new Speaker of the House may get by by not reading, "To Renew America", but those who loathe Mr. Gingrich really must understand the issues he raises. He proposes six specific focuses for change vital to our national culture. Even those who disagree with Mr. Gingrich should engage the argument. The major ideas: (1) there is an unique, historic and distinctive American civilization and we must teach these traditions to all Americans (personal responsibility, hard work, a shared common language, English, and religious faith), (2) that we must learn to embrace, not resist, change. We need to understand, harness, and accelerate our transition into the "Third Wave Information Age". The opportunity to improve our lives through technology (along with some pitfalls) will impact our economy, our culture and our society, (3) that we must rethink our competitive position and place in world markets. We must rework the many things that inhibit our ability to compete (education, mindless regulation, litigation, taxation, and the labyrinthine structure of government), (4) that we must replace our failed "welfare state with an opportunity society" as a way out of poverty and despair, not only because how we do it now is immoral, but because it is also inhumane and ineffective, (5) that we must dismantle our centralized, micromanaged, bureaucracy that is Washington-based and build decentralized, localized smaller-scale governments, and, (6) that for the first time, we must be honest with ourselves about the true costs of government programs and actions. Governments perform tasks at higher economic (and probably social) cost. For what we "buy" from government we need to acknowledge what we are getting and how we are paying for it.

The Whidbey Island INVESTOR (Summer 1995)

AN EXCEPTIONAL AMERICAN ACHIEVEMENT - THE ENVIRONMENT. 1970 saw federal passage of both the Environmental Protection Act and the Clean Air Act. In the intervening 25 years, the consciousness of Americans as stewards and protectors of our national and privately-owned natural resources has been raised as to the seriousness of wiser resource management. More people, more potential for pollution. But we have made some remarkable progress. Stricter legal requirements have made polluters pay more but comsumers have paid most of the costly effort to clean up air and water, and to "protect" natural resources. Some results. Between 1970 and 1993 (the last year for complete data) lead emissions have been reduced 98 percent, sulphur dioxide 30% and carbon monoxide 24%. The number of lakes and rivers that have become "fishable/swimmable" (the EPA technical definition of restored health) has increased 62%. Forest inventories of softwood and hardwood (public and private) have increased 13 1/2 percent since 1970, to almost 800 bil. cubic feet (more total national wood volume than when the colonists arrived at Jamestown in 1607). We are growing forests, at current replacement rates of 31 percent over total removal. Lastly, our national resources of petroleum and natural gas have been greatly "conserved" by our heavy reliance on imported energy. Net U. S. imports of "cheaper" foreign energy have increased by more than 9 quads (nine quadrillion Btu's) since 1970.

The Whidbey Island INVESTOR (Spring 1995)

FOREIGN DEBT AND FOREIGN TRADE: SEPARATE THE ARGUMENT. The sole relationship between debt and trade, whether foreign or otherwise, is that trade deficits need to be funded as debt. If, as a nation, our government debt was entirely foreign trade debt it would be a healthy circumstance. Alas, it is not. When personal debt rises, savings decline and when governments accumulate large debt, savings decline even further. Today, we simply do not save sufficiently. This is largely, but not entirely, a matter of poor public spending policies, poor tax policies and structural disincentives to saving. Public and private debt in the U. S. aggregates to 87.4 percent of annual Gross Domestic Product (GDP), verus Germany's 71.9 percent and Japan's 66.4 percent of GDP.

Our foreign trade is a problem only with Japan and this is entirely a public policy problem. If, say, starting tomorrow morning, no Honda autos were permitted to be sold in the U. S., until..., the problem would disappear, instantly. Otherwise, foreign trade occurs because consumers wish to buy either what is not produced locally, or more commonly, buy because foreign goods are less expensive (better values, better for our economy). More for less. The "cost" of more for less is good for our economy because it represents "value added" input (e.g. the "producer" gets $.15 per pound of wheat for bread, but the "handler" gets $.37 per one pound loaf to deliver bread). Our consumers typically save money buying imports, which is good for their economy, though some portion of the "saving" must fund interest on any trade imbalance. The U. S. trade deficit is, then, nothing but news of great import.

The Whidbey Island INVESTOR (Winter 1994)

TECHNOLOGY, CULTURAL CHANGE AND WESTERN WASHINGTON. Western Washington is blessed. We who live here toward the end of the 20th century, whether by luck or planning, are located at an unique place in geography, as well as time. Some background.

Whether the reader can accept this or not, the Unites States is leading the world in technological evolution and the cultural changes necessary to a technological shift (and an argument can be made that the cultural shift is far more important). Always, technological change, to be effective, must be accompanied by those changes in myth necessary to overcome the usual and inherent resistance to change - of all kinds. Change destabilizes and is inherently resisted in all human cultures. In the end, technology always wins but the transition can be painful and enduring. As the anthropologist, Jennifer James, has observed, the transition from the "cowboy" to the "farmer" in the American West, "getting off the seat of a horse and getting on the seat of a tractor", involved no technological shift whatever but did involve an overwhelming shift in mythology. The later transition from "farmer" to factory worker happened because both the technical shift and the mythological shift were achieved together. It remains to be seen whether we can make the new and most important shift in recorded history: industrial worker to technological worker; a new world in which everyone is retrained and re-educated continuously, where even graduate degrees "expire" - where change is the only real constant.

The Whidbey Pacific INVESTOR (Autumn 1994)

NEW DIRECTIONS AND THE SUPER ECONOMY. Just as we now speak militarily of one super-power, the United States, we could now be close as a nation to possessing the world's only super economy. To achieve this role we need to avoid making a few particular mistakes, and continue some economic trends begun fifteen years ago and possibly sanctioned last November 8th. Our new congress could profoundly change the investment, capital, taxation, business and employment rules within which we have found comfort during the past 50 years.

For a year and a half with an accelerating economy, we have been critical of "Fed" actions. Say you heard it here! We were not only wrong, but remarkably off-target. The Fed (really Alan Greenspan) has correctly anticipated: (1) impressive employment growth in technology and management (these are not menial jobs!), (2) the explosive world-wide short supply of many agricultural commodities, (3) a dangerously high rate of industrial plant utilization; almost to the breaking point, and (4) that technology permitting huge re-allocation of investment capital on an international basis, in minutes. All of these may or may not be "manageable" but the "Fed" is right on now.

It might be useful to review where overall changes in the U. S. economy are being made and whether these changes will continue, or are transitory. We think these changes are not only continuing but that the pace of change is itself increasing. Our Gross Domestic Product (GDP), a better measure than the old GNP, is determined by sector changes within the economy. Valuable insight into the direction and magnitude of change can be seen by measuring percentage changes in the GDP. The figures we can review are through mid-year 1994, but they reflect well the larger economy for the period 1993, projected through 1995. It is likely that growth items will accelerate during 1995, and that declines will slip even faster. The sector changes are in descending order and, obviously, when netted, add up to 100 percent.

Up 40%: Wage and Salary Discipline - reflecting lower labor costs accounting for two-fifths of the annual growth in GDP. Particular uncertainties created by poor national leadership have made it very difficult for labor to increase wages; thus, salary pressure on businesses remains low.

Up 30%: Business Investment - especially in technology productivity to avoid re-employment, is now at remarkable records. Recent favorable employment news results largely from new products, new processes, or temporary stretching as we near plant capacity.

Up 17%: Productivity Increases - productivity per employee rising nationally at four percent per year, with service business productivity up even higher (some estimates; over five percent).

Up 14%: Consumer Goods Consumption - the rise in sales accompanying any expanding economy; all consumer goods.

Up 6%: Foreign Trade - (not to be confused with our huge trade deficit, meaning in fact that our consumers are buying more goods that are less expensive or of higher quality, for less money, thereby increasing their economic well-being. This is an oft overlooked classical economic tenant; true despite modern theory. Also, fully 40-percent of the trade deficit is energy importation, 92 percent of which is petroleum or natural gas. Would American consumers benefit by paying $22 an equivalent barrel of oil, versus buying it for $10-11 from foreigners, while depleting their energy reserves rather than ours?

Up 3%: Modest Inflation - a general restraint on prices, driven primarily by wage and salary discipline, as well as cost-reducing inventory controls for materiel.

Up 3%: Inventory Controls - new and developing business inventory technologies; "just in time" production and delivery control.

Down 4%: Government Spending - despite political rhetoric of every persuasion, reducing expansion of government spending has the effect of reducing spending relative to the expanding economy.

Down 4%: Manufacturing Employment - one of our most fascinating phenomena; rising productivity and improvements in manufacturing technologies (not imported goods) permit reduced sector employment. The U. S. has almost one-million fewer manufacturing jobs than in 1990!

Down 5%: Commercial Construction - the inevitable "collapse" in construction created by severe overbuilding of office and retail space in the 1980's.

Remarkably, most of 1995's anticipated GDP increases, the major contributors to which, fully 87 percent, indicate private sector growth; restrained wages, business investment, technology and productivity. The very things America's free-market system adduces; entrepreneurialism, and a private technologically-able work force, plus investment in plant and technology - exactly those vital economic activities that no government in any form can achieve.

The Whidbey Island INVESTOR (Summer 1994)

THE WINDOWS OF CHANGE. Why do national and world events affect business and other economic activity on Whidbey Island? Because information and technology transfer are both international and ubiquitous (everywhere, now). Even events in Sri Lanka can immediately affect interest rates here. From time to time we should review world and national phenomena.

Social change through manipulation of the economy has long been an object of national policy. It is clear that we as a nation have a morbid fascination with large government. Worse, we have a belief system (actually a "hope" system) that our government can be an economic and guiding force for social change. Alas, it cannot be so. The net output of a nation's economy is the balance between productive enterprise and non-productive activity. Public expenditures consume resources; they neither stimulate nor create productive enterprise. National socio-economic policies for the past sixty years have created change - they have stimulated unproductive consumption of government services by those with political needs, and created patterns of nearly unbelievable antisocial behavior. As James Cook, in his "Barbarians Inside the Gates", noted, its one thing to be edged out by an economic competitor, but its another thing to construct a social system that rewards unnatural behavior and builds up a huge dependent populace of misfits and losers...[W]ithin America the cost of subsidizing the underclass promises to become unbearable and the social consequences threaten our safety and order...the nation threatens to become dangerously uninhabitable", driving the financially able from urban and suburban jungles to Jack Lessinger's "Penturbia", enclaves of serenity, like Whidbey Island.

Socialism extracts a terrible toll from our economy and our brand of "welfare socialism exacts an astronomical levy on the good character of the subsidized." Do we want to be remembered in history for having enslaved many of our underclass through dependency and the promotion of self-destructive behavior? According to the Congressional Budget Office, by the year 2012, if there were no new spending bill increases and no new tax bills, the entire receipts of the federal government from all sources would service only existing entitlement program expenditures (82 percent) and national debt service (18 percent). We simply must find other politically-acceptable means of employing our government. If we are not careful into the the next century, we may just get all the government we pay for!

The Whidbey Island INVESTOR (Spring 1994)

SHORT-TERM GOVERNMENTAL DIRECTIONS. We continue to witness our government consistently underestimating the power necessary to accomplish any policy whether: Somalia, health care reform, Haiti, a "crime bill", Bosnia, defense downsizing, North Korea, welfare reform, Rwanda, the federal debt, Cuba, education in America, China, or "the economy stupid!", Iraq, or illegal immigration. Our bright, articulate President simply lacks wisdom; consistently using too little power to accomplish his own policy goals.

When long-term bond interest rates rose last summer, the Fed tried to raise short-term rates (to stem invisible inflation) and force down (politically-sensitive) long rates by buying Japanese yen on June 23rd to strengthen the dollar. Without enough money (power), to stem the hemorrhaging dollar, the failed attempt simply caused another collapse in the bond market and a mini-crash in the stock market, accompanied by a sharp rise in interest rates. Large recent increases in money supply through the U. S. banking system have not been invested in the productive economy, that is, economic growth, but instead have funded financial markets, including government debt service. Many see this as a dangerous trend because financial assets, while liquid, are inherently unstable compared to tangible assets. With our communication technologies of instant world-wide financial markets, volatility has dramatically increased, in some instances to dangerous levels.

Tangible assets, especially real estate, although illiquid, have enormous inherent stability. The total equity value of real estate in the U. S. including agricultural and in-ground resources, housing and industrial plant is more than 75 percent of American wealth, even excluding the value of all government-controlled property rights, resources and real estate. During the next ten years, at least, real estate and land-based resources promise for the first time since the 1960's to be the most efficient store of value.

The Whidbey Island INVESTOR (Summer 1993)

EMPLOYMENT AND THE REGIONAL ECONOMY REVISITED. The present "working our way out of the recession" is not going to be accompanied by the usual and customary rush to re-employ highly-paid, highly-skilled, blue-collar and white-collar workers; typical of a big business recovery. This traditional solution is simply not consonant with the "Fifth Wave" (a term once removed from Alvin Toffler's concept of technological change in Post-Industrial society). Big Business has no credible employment strategies. Increasingly, redundant industrial process are being automated. Higher productivity for most redundant task work will soon be carried out by automated systems. Within the lifetime of many of our readers, the production of goods will pass to ever smaller coteries of highly-skilled, highly trained, frequently re-trained technicians, engineers, and scientists, who will produce the hard goods of the "Fifth Wave". Smaller niche enterprises and services businesses are the future connection to "high-tech and high-touch" (the wonderful phrase coined by John Nesbitt and his colleagues).

While there is no massive re-employment to accompany future business cycle recoveries, do not expect Washington, D. C. to have a plan. Politicians are not leaders. They follow events created by the marvelous, imaginative and creative ideas of American entreprenurial minds. There is no employment remedy. Washington just doesn't get it! With today's technology we simply do not need the number of potentially available salary and wage workers. Make no mistake; businesses are growing, many are booming: small enterprises, home businesses, independent contractors, consultants, "mom-and-pop" operations, everything, except that employment that government finds easy to count and tax!

The Whidbey Island INVESTOR (Spring 1993)

"CLASSICAL" ECONOMICS...AND, "THE TIDE THAT RAISES ALL BOATS". It is often said that in recent years the rich are obviously getting richer but that the poor are getting poorer at the same time. "Liberals" tend to maintain that the poor are poorer. However, the Congressional Budget Office (The brainchild of the liberal Democratic congresses of the 1960's and '70's) reports that between 1977 and 1989 real income (inflation-adjusted income) rose 29 percent for the highest one-fifth of Americans, while it fell 8.8 percent for the lowest fifth. Why connect this particular span of years, bridging the extraordinary inflation of the end of the Carter administration with the total reversal of economic policy (and results) following the 1980 election? We'll bet you can guess. The facts: Census Bureau household income figures indicate a broad decline during most of the 1970's for almost all income groups because of runaway inflation. However, between 1982 and 1989 inflation-adjusted household income rose 11.9 percent nationwide, reversing a decline of 12.7 percent between 1978 and 1982. Interestingly, for black Americans the recent rise in incomes jumped 16.5 percent following the severe decline from 1978 to 1982. The answer then is yes, "the tide raises all boats".

	No.	Sales$	Aver$	DOM	% SHR
Northend (O.H./Cpvl)	542	$108,504,910	$200,194	84	44.7
Southend (Greenbank-South)	303	$79,660,166	$262,905	141	32.7

Northend (Oak Harbor)	72	$23,344,271	$324,226	81	6.0
Southend (Coupeville & South)	55	$23,479,817	$426,906	94	4.6

Manufactured	85	$16,291,850	$191,669	79	7.0
Condominiums	89	$17,144,550	$192,635	46	7.4
Multifamily 92/Units	54#	$5,090,500	$94,269	78	4.5
Residential	1,206	$400,319,888	$331,940	77	100

Northend (Oak Harbor)	152	$41,311,202	$271,784	89	9.1
Southend (Coupeville & South)	44	$15,386,450	$349,692	94	3.4

Manufactured	125	$21,251,375	$170,011	82	4.7
Condominiums	122	$20,063,450	$164,455	30	4.4
Multifamily 92/Units	24#	$7,991,650	$86,866	43	1.8
Residential	1,567	$455,506,926	$290,687	63	100

Northend (O.H./Cpvl)	110	$22,466,840	$204,244	89	6.5
Southend (Grnbnk & South)	35	$10,177,615	$290,789	101	2.9

Manufactured	88	$13,397,827	$152,248	80	3.9
Condominiums	100	$13,841,975	$138,420	71	4.0
Multifamily 69/Units	18#	$5,640,300	$81,743	52	1.6
Residential	1,347	$344,454,180	$255,720	88	100

Northend (O.H./Cpvl)	128	$27,840,768	$217,506	121	11.4
Southend (Grnbnk & South)	18	$4,933,692	$274,094	183	2.0

Manufactured	70	$9,498,860	$135,698	125	2.8
Condominiums	75	$9,600,728	$121,968	103	3.9
Multifamily 89/Units	13#	$3,541,746	$39,795	98	1.4
Residential	1,236	$250,051,140	$205,207	118	100

Northend (O.H./Cpvl)	88	$17,053,080	$193,785	114	7.3
Southend (Grnbnk & South)	19	$5,013,625	$263,875	196	2.1

Manufactured	73	$8,459,097	$116,289	85	3.6
Condominiums	60	$6,858,508	$114,308	107	2.9
Multifamily 66/un	14#	$4,160,870	$56,998	147	1.8
Residential	1,187	$234,332,752	$215,578	99	100

Northend (O.H./Cpvl)	96	$17,466,010	$181,938	125	9.5
Southend (Grnbnk & South)	21	$4,760,421	$226,687	187	2.6

Manufactured	52	$5,948,407	$114,392	119	3.2
Condominiums	65	$6,703,760	$103,135	148	3.6
Multifamily 66/un	9#	$3,377,484	$51,174	160	1.8
Residential	998	$183,654,743	$184,023	114	100