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OK Cam, I see your point now. Liberation of capital from taxation frees up a lot more of it for investment, which tends to create greater demand for higher returns, increasing the multiple you pay for an otherwise lackluster business. Sounds a little like 1998-2001, doesn't it? "Unproductive" business models, such as those that lose money or are just plain sillly ("silly" means at odds with fundamental realities of the universe like scarcity) like the online stores that would give stuff away and expense the loss as marketing suddenly become highly valued due to the availability of capital for speculation.

Consider the global low interest rate now: if interest rates are a proxy for cost of capital, then cost of capital must be pretty low. But that verges on the monetary policy debate which deserves its own thread.

We are never going to eliminate government spending, and therefore government waste, entirely. Anytime you have a command sector vs. a demand sector, your allocations are going to be infefficient. For that matter, the private sector has inefficient allocations all the time, but profit maximization and LIMITED capital (vs. government programs: when's the last time you ever heard of a government agency saying, "We've done a great job and are requesting LESS money this year-- not merely a "Decrease in the rate of increase" which is called a "cut" in government doublespeak, but an actual dollar decrease) will mean that inefficient businesses aren't in existence for long.

You make a good point about it all deriving from raw materials/factor inputs. Look at OUR jobs: ultimately we aren't the generator of value, the client is. Somewhere downstream you have someone who is combining intellectual capital with raw materials and increasing wealth. We have done a pretty good job of transitioning from an agrarian economy to an industrial one, and then to a post-industrial service economy, that relies less on raw materials for the production of finished goods than it does for factor inputs like energy and food.

Where's the greater margin? Is it in the conversion of factor inputs like petroleum, electric power and human labor, to manufacture injection-molded plastic bags in Shijiazhuang, China (saw that once), or by wrapping people's stuff in them at Wal-Mart in California (but not in Englewood, at least for now)? Isn't it definitionally true that the greater margin is found at Wal-Mart, even though retailing is a pure service function, because that's where the bags end up?

I guess the point is that a post-industrial economy doesn't continue to consume raw materials at the same RATE as an industrial one, although it's a moot point because the sheer size of the service economy means that resources are being consumed pretty damned quickly. Depends on whether you consider that to be a United States problem or a human problem, although I submit that the former pretty rapidly becomes the latter.

Ed, I take your point about the troubles that the incumbent has. Remember that with regard to the airline industry all is not what it appears. Take a look at JetBlue's 10K. Note that they spend less than $60mm per year on Aircraft Rent for their fleet of A320s. Now check the table that discloses that operating lease expense spikes to $97mm in 2004 and goes over 100 for the next few years. Hmm, where are they going to get the money to pay for their aircraft leases? They just filed an universal shelf for $750mm. .. answer. . . INVESTORS! Lower operating costs, due to the lease structure, allow them to operate profitably while offering discounted fares, which tends to erode the market share of the "network" carriers. Smart, I'll hand it to them, and the competition is good at lowering ticket prices for the consumer, but over the long term they need to eliminate one of the other market participants. Except that SOP in the industry seems to be to operate from within the shield of Chapter 11! If the playing field were ever truly leveled, the outcome might be different.