Recommended: On the Origin of Teepees

Why this book -- On The Origins of Teepees: The Evolution of Ideas (and Ourselves), Jonnie Hughes, 2011 -- ended up on the remaindered shelves is a mystery to me.  It is a very good book! Hughes explores the evolution, mutation and transmission of ideas (memes) as a parallel to the evolution, mutation and transmission of genes. There are similarities, and subtle differences. Why Teepees?  Hughes is looking for a meme (idea) parallel to Darwin’s evolution of finch beaks in the Galapagos – a idea introduced at one point from a common ancestor and then evolving separately in isolated and separate communities, like the spread of the teepee design among Great Plains Indians.  This reads a bit like the old classic Zen and the Art of Motorcycle Repair, a serious meditation embedded in a travelogue.  Well worth reading.

Gun Control

I certainly respect President Obama's position on gun control, and I admire his political courage in taking the issue up against a Congress that will almost certainly resist strenuously. Perhaps he simply wants a more popular issue to fight than the upcoming budget issues.

But of course his proposals, sensible as they are, even if they pass, will have relatively little real effect on gun control, because

a) There are already an estimated 300+ million guns in this country (88 guns per 100 citizens, as of 2007). Almost half the households in the nation have one or more guns in the house. Any attempt by the government to FORCE people to give them up would just feed the existing widespread paranoia that the government is out to take our freedom away (or is it paranoia?).

b) Anticipation of possible restrictions has already driven sales of guns, high-capacity magazines and ammunition through the roof the past few weeks. So even more guns are now flowing into the population.

c) Criminal gangs have never had trouble getting illegal guns, and these laws will make no difference there.

d) Universal background checks sound like a nice idea, but the dirty little truth is that many states don't contribute information to the national database -- especially data about felony convictions and mental illness -- the very data that would be most useful.

As usual, politicians are taking an ineffective, but popular, approach (and perhaps Obama even knows that, and is just playing for political capital among his base). A far more effective approach would use incentives, such as:

1) Making criminal penalties much, much stiffer for any crime committed with the use of a gun, or by a criminal in possession of a gun.

2) Making people financially liable if their weapons are used in a crime, even if the weapon was stolen from them (maximum incentive to keep them locked up and otherwise disabled when not in use).

3) Making people criminally and financially liable if they loan or sell a gun to someone who subsequently uses it in a crime.   The "selling" part is an interesting, and difficult, issue.  One wants to craft a system so that gun sellers know they have a responsibility (and a financial exposure) if the gun they sold is misused.  But of course they can't reasonably be expected to know the entire life history of every customer. The national database is supposed to address this issue, but as I have pointed out, it is thus far ineffective.  But requiring that every gun owner be licensed, and perhaps that they get some required training before they are issued the license (as we do with vehicles), would certainly be a step in the right direction.

4) Making owner's financial liability and criminal penalties much, much higher if battlefield weapons (assault rifles, machine guns, armor-piercing ammo, high-capacity magazines) are used in a crime. As usual, it is money and self-interest that will work better than government dictates.

Obama Quotes

From then Senator Obama’s Floor Speech, March 20, 2006:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

From President Obama's last news conference, Jan 14, 2013:

"While I'm willing to compromise and find common ground over how to reduce our deficit, America cannot afford another debate with this Congress over how to pay the bills they've already racked up," Obama said. "To even entertain the idea of this happening, of America not paying its bills, is irresponsible. It's absurd.

This from a President who has racked up over $5 trillion in new federal debt in his first term, and has yet to make ANY proposal to reduce spending or future debt increases. Nuff said......

Recommended: Avoiding the Wars That Never End

George Freidman at STRAFOR has another incisive article worth reading: Avoiding the Wars That Never End. I won't try to summarize it, because the article itself deserves to be read in its entirety. But it is well worth reading.

Recommended: What Happened To All Of That Money?

Jeffrey Snider has an interesting, if a bit abstruse, article on RealClear Markets: What Happened To All Of That Money?  His question - a good one - is this: since the central banks of the world have "created" (printed) all this new money and supposedly put it into circulation, why hasn't the world economy recovered better?  Where has all that money gone? 

His answer is that there is now a lack of real wealth in the world, of "good"assets. All this "new" paper money, he argues, can't change the fact that real wealth is simply down.  An alternative answer might be that there are fundamental structural changes going on (including the hollowing out of the middle class, who are the main drivers of consumption), and just creating more paper money out of thin air does nothing to address these changes.

His writing is not the easiest to follow, but it is worth the effort because he is asking a very fundamental question.

 

Cuts to the defense budget

Republicans seem to be dead set against ANY cuts in military spending, even as they loudly (and correctly) demand cuts in the rest of the government. The military services and their big defense contractors are filling the airwaves with dire predictions of what might happen if the defense budget is cut by the estimated trillion dollars over the next decade (roughly $100 billion per year) envisioned in current legislation. But how serious would such cuts really be?

To put things in perspective, look at the graph below of current annual spending on defense (from the SIPRI Yearbook 2012):

The US defense budget, at over $700 billion per year, is so much greater than our next competitors that is is laughable. We spend more than the next 14 nations combined.  So look at the graph above, take $100 billion off of the US portion, taking it down to just over $600 billion per year, and ask yourself if you really think this will seriously cripple our defense posture.

Of course, a $100 billion cut will certainly require cutting some things -- like hugely profitable contracts to defense contractors for overly-elaborate weapons systems, perhaps reducing the bloated office corps and Pentagon staff, perhaps closing some of the redundant bases that are still open simply because their Congressman has some influence. Having seen the inside of the Pentagon's wildly inefficient and poorly monitored procurement system, I expect, if it were done wisely, one could cut the military budget in half and not compromise our military effectiveness a bit -- in fact a smaller military might well be better and more effective.

Recommended: Why the Debt Crisis Is Even Worse Than You Think

Back in July of 2011, Peter Coy wrote a relevant piece in Bloomberg Businessweek entitled Why the Debt Crisis Is Even Worse Than You Think. It is well worth reading. Coy argues that the debt real number to look at is not the currently-owed debt (about $14 trillion when the article was written, about $16+ trillion right now), but rather the future gap between revenue and liabilities.  That number, he argues, is about $211 trillion.

In November of 2012 Chris Cox and Bill Archer wrote a piece in the Wall Street Journal: Why $16 Trillion only Hints at the True U.S. Debt. They point out that the government uses all sorts of accounting tricks, which no normal business would be allowed to use, to distort (lie about) the true national current and future liability, which they estimate at $86.8 trillion just for Social Security and Medicare.  As they point out, to cover just this liability, the government would need something like $8 trillion per year in tax revenue.  If you took ALL the taxable income of US citizens, plus ALL the taxable income of US corporations, that would only net about $6.7 trillion per year, not enough to cover the liabilities.

The point? Just to substantiate the point I made in my last post -- the US debt is now so great that there is no way we can ever pay it off, and so we will have to default on much of it one way or another. Of course it would be political suicide for either party to actually simply default on the debt, so they will have to do it by a combination of inflation, higher taxes, reduced government spending and reducing promised entitlements and pensions, all of which will produce a great deal of political theater and strife.

Whistling in the dark

The media made a small fuss today about the near approach of the 1000-foot wide asteroid Apophis, which just passed within about 9 million miles of Earth, and is due for a return visit in 2029, when it is projected to pass within about half a million miles of Earth, which is quite a close miss by astronomical standards. There is a real, though extremely small, chance that it will actually impact Earth on one of its later approaches in 2040 or beyond, and of course if it did hit, it would cause a lot of damage.

But I find it interesting that the media make a fuss about something as unlikely to occur as this asteroid hit, and yet largely ignore an obvious looming catastrophe whose chances of occurring are at least 1:2 and perhaps higher.

 

Real (as opposed to  ”official”) US government debt, including state and federal debt, is currently  somewhere in the neighborhood of 350% of GDP (“official” debt is about 100% of GDP).  With the changing demographics and aging population, projections put the added debt to be imposed in the next few decades by current entitlement programs somewhere in the $80-$100 TRILLION range.  In addition, bad (unrecoverable) debt in the private banking system is, as near as anyone can tell, somewhere in the range of $2-3 TRILLION or so, and since the government has made it clear to everyone that it will assume this debt if the banking system fails, that adds another $2-3 TRILLION or so to the real debt load. Never in history has an empire been so heavily in debt, yet past Western empires (British, French, Spanish, Dutch, etc) were brought down by debt loads proportionally much smaller. 

Now one can argue endlessly about who got us into this mess, but in fact there is more than enough blame to go around: feckless politicians, greedy bankers, dysfunctional political parties, ideologically blinded academics, clueless media, and first and foremost, we gullible voters who were perfectly happy to let politicians buy our votes with our own taxpayer money, public debt and unrealistic promises. In any case, it matters less who is to blame for getting us into the mess than how we get out of it.

How will we get out of it?  There is almost no prospect that we will “grow” our way out of this debt, much as politicians like to promise this.  Even if we actually managed by some miracle to create surpluses in our federal revenue, never in recent history has Congress actually used such surpluses to reduce debt – they have always used it to buy votes by funding ambitious new government programs.

So in the end, we will simply default on most of this debt.  The question is how – slowly, for example by inflation, or suddenly, with some sort of financial crisis. But default we will. Clearly most of us are going to get hurt by this. Promised pensions will disappear or be sharply reduced, either actually or by inflation reducing the real buying power of our pensions. Investors will take haircuts, and since many investors are in fact corporate or government pension funds, that will exacerbate the problem for all of us. Eventually there will have to be a sharp contraction in government, which will put a lot of people and companies out of work.  Subsidies, which keep whole uneconomical segments of the economy going (uneconomical by definition, or they wouldn’t need subsidies), will disappear, putting even more people out of work.  Clearly there is going to be, somewhere in the future, a major dislocation in our nation.

Our current crop of politicians, in both parties, are just putting band aids on the sores and whistling in the dark. Perhaps they simply don’t grasp the magnitude of the problem. Perhaps they have made the mistake of believing their own election propaganda. Perhaps they only care about their next re-election campaign and could care less what happens after that. More likely some of them understand perfectly well the dilemma we are in, but can’t think of anything to do but try to keep the public calm with promises and lies.

I am reminded of the German Jews when Hitler came into power. Many simply couldn’t believe, in a civilized modern nation like Germany, that bad things could happen, whatever a politician said. And many believed that until the day the Gestapo came to ship them off to concentration camps. Are we repeating the experience: refusing to believe that a nation like ours could suffer a major disruption from such a debt load?  We are certainly acting like it.  We just re-elected almost the same batch of politicians, no one seems much worried that we just finished another year with a trillion dollar federal deficit, and there are relatively few voices asking the President or the party in power to explain exactly when and how they propose to deal with this debt load. 

We are all acting as if things were normal.  They aren’t.

Recommended: The Crisis of the Middle Class and American Power

George Friedman, CEO of STRATFOR, has posted another of his insightful pieces,  The Crisis of the Middle Class and American Power.  He argues that while high unemployment is a short-term geopolitical threat to Europe (because it may well lead to the eventual breakup of the Euro zone), US unemployment, bad as it is, is not a short-term threat, but it is a longer term geopolitical threat to us because of the structural changes that are decimating the middle class.

This is a well-argued piece that points to an important change in American life.

Recommended: Can America Be Fixed?

Fareed Zakaria has a good piece in this month's Foreign Affairs entitled Can America Br Fixed?  He argues that our central problem is political -- we need significant structural reforms to fix our problems, yet our political system is unable to muster the will to enact those reforms. If we don't enact these reforms, he argues, we will not die as a nation, just become increasingly irrelevant in the world, as has been the case with Japan.

Worth reading and thinking about.

So what really happened??

After all the months-long political theater about the fiscal cliff, what really happened last night?  The administration, with the consent of both Houses of Congress, raised US taxes by an estimated $603 billion, and cut spending by an estimated $12 billion.

So instead of getting $2-3 in cuts for every $1 in added revenue, or even $1 in cuts for every $1 in new revenue, Congress just gave us about 2 pennies in cuts for every $1 in new revenue.  Or put another way, with an estimated 2013 federal deficit of $1 trillion, Congress with all this political theater just reduced that by 0.000000006%.

Overall, the OMB estimates that this legislation adds about $4 trillion more the the federal debt over the next decade.

Shameful !!