Curt Doolittle

Theme: Subsidy

  • Payback Time? But what’s the fee?

    Entitled “Payback Time”, this NYT article by Steven Erlanger states that “Crisis Imperils Liberal Benefits Long Expected by Europeans” I’d like to clarify this argument a bit with the following points: 1) It will take somewhere between 3-5% of GDP to correct the retirement funding problem given the current ratio of prices and payments. 2) The problem with any policy is in determining the degree of uncertainty with regard to the future state of production (how much the productive people in any society will earn without the historical advantage that west has had in capitalist political and economic systems.) This means that the 3-5% number could be about the same, or it could be as much as twice that amount. 3) Most of the world, Europe in particular, will need to increase military expenses as the US loses it’s ability to project the power needed to police world trade routes, and it’s citizens lose the will to do so. We do not know what this cost will be. For european countries it will likely be on the order of 10% of GDP if history is any measure, that will mean roughly doubling the wealthier countries in europe, and quadrupling the spending of the eastern fringe countries.

    [callout]The fact that this economic instability is going to be caused by demographic changes, much of which will be caused by immigration of non-integrating subcultures, will remain the unspoken elephant in the room for years to come.[/callout]

    4) Most of the developed world will have to increase expenses on infrastructure due to aging populations. We do not know this number. Health care in particular will need to be rationed further as the cost of prolonging life continues to climb. 5) Cost of government is increasingly expensive and burdensome as productivity declines. 6) demographic changes underway, the increasing differences between american super-regions, and the lack of integration of immigrants, and the rising racial tensions, will lead to the increasing potential for political upheaval, somewhere in the 2015 – 2025 range, which would put extraordinary financial burdens on the world as regional power vacuums forced rapid reallocation of resources worldwide. The conservative position would argue that the world system is much more fragile than we assume, and that it’s prudent to cautious in our expectations of the future. The libertarian position would be to change from speculative policies that rely on growth and government, to calculable policies that rely upon saving and productivity, and in doing so, create both security and prosperity rather than worrying about the degree of risk we’re taking on. The likely cost then, is somewhere between a low of 3% assuming stability, and a high of 15% of GDP over the next ten years. The fact that this economic instability is going to be caused by demographic changes, much of which will be caused by immigration of non-integrating subcultures combined with aging dependent generations will remain the unspoken elephant in the room for years to come.

  • Conservative Complaints About The Social Security Scheme

    The conservative complaints with social security are that it is not a fund, but a state-expanding tax. Nothing was paid into it, and therefore it is simply a current tax to redistribute from young producers to old consumers who failed to save. And secondly, that this tax also funds an intrusive and abusive government. These are structural complaints, not complaints about ambitions or outcomes. The original creators’ ambition for this tax was to create an insurance scheme for the minority of people who lived past 65. Except, people vastly live beyond 65 today. In other words, the tax went from low to high risk because of unforeseen consequences. The conservative objection to liberal hubris is that they are asked to absorb risk because of the STRUCTURE of this system, which is now a form of intergenerational welfare, rather than the form of insurance that it was designed to be. The solution to this structural problem is as follows: 1) to convert from an inter-temporal redistributive and high risk tax to a low risk insured savings program. 2) To change from income tax to balance sheet tax. 3) To have the government participate in, and redistribute, profits from the use of credit money – credit money which is borrowed from and secured by the promise of labor by the average person. This set of changes would eliminate benefits at a specified multiple of the mean. It would unfund government bureaucracy. It would insert more money into the economy as investment capital, and decrease the negative effect of inflating the monetary supply on savers.

    [callout title=It’s A Tax]social security … not a fund, but a state-expanding tax. Nothing was paid into it, and therefore it is simply a current tax to redistribute from young producers to old consumers. [/callout]

    The general argument against the correction of the social security system, is that if we increase the tax by 2% and change the age slightly, that the system as it stands would be fully funded. To which I’d counter, only if that 2% comes from balance sheet weight, not income. Because for a vast number of companies that are not subsidized by the financial markets, 2% would be half of their annual profits, and this failure would have to be built into the system. I see no reason to rely upon assumption that the 20th century, which consists largely of the greatest external advantage that a nation has ever experienced, can be used to project the future. It is not logical to ask decreasingly populous generations facing increasing worldwide competition to support a longer living and increasingly expensive class of retirees, when instead, retirees should have saved to lend money to the generations that follow. These advantage are not sustainable, and even if they are, the system currently asks all to risk in order to fund current government, rather than all to save, to insure their mutual success. The belief that we will continue our economic advantage is the myth of american exceptionalism. Savings is sustainable – in any culture. But not the assurance of worldwide competitive advantage which can be redistributed. As an entrepreneur, I do not fear the market. I fear that the government will extort enough from the entrepreneurial class that they will abandon their belief that they can outpace the predatory state. Tax individuals not by income but by balance sheet. Progressively tax companies for market participation. Eliminate the double tax system on dividends. Increase the tax on speculative returns.

    [callout title=Fears]I fear that western advantage, which was demographic, technical and military, will be neither demographic, technical, or military. And that the very institutions that were limited enough to guarantee us our freedom will be the institutions by which we are permanently enslaved and impoverished.[/callout]

    I fear that the bureaucracy, as in the UK, will become a predatory class living on a virtually enslaved population. I fear that western advantage, which was demographic, technical and military, will be neither demographic, technical, or military. And that the very institutions that were limited enough to guarantee us our freedom will be the institutions by which we are permanently enslaved and impoverished. It is easy to rate the success of any government by the direct redistribution divided by the cost of government employees, and seek to constantly improve the ratio, just as we do for non-profits.

  • Yes We Could Have Prevented The Suffering Of Citizens

    Rebekka Grun, on The Growth And Crisis Blog writes that we could have protected the consumers rather than the banks, in her posting Conditional Individual Bailouts – a Potential Anti-crisis Instrument

    Why not save the individuals that went bust rather than their banks? Unconditional bailouts, of course, would generate the wrong incentives (for the banks as well, by the way). It is therefore important to attach smart conditions to discourage free riding. For example a course in financial literacy and commitment to a program of (maybe painful) debt restructuring, and possibly further measures to improve the education or health of the affected individual or family.

    Your sentiment is correct even if you haven’t done the math on it. In general terms, there is a simply technique for doing exactly what you’ve suggested, but we lack the infrastructure for it. The arguments against the solution at the time were that we didn’t know how far prices would fall (I’m not sure, I think we were about right), and that it would make very visible that the government was the source of the problem (true), that it would have geopolitical impact on the value of the dollar (of course, but so would the alternative), and that it could be unfair to people who had behaved well (that would be fixable), and that it would encourage a bubble (this is false). THe primary problem with distortions is that the distortions are in PRICING. Libertarians would call corrections ‘repricing’. The problem is that human beings must suffer a great deal and absorb a lot of stress to conduct that ‘repricing’. When the state, as the creator of the distortion by the manufacture of cheap credit, could easily reprice major (home) assets by repricing the DEBT of those assets. In other words, we could have easily corrected the economy by bypassing the banking system, and giving money directly to the citizenry as buy-downs on their mortgages, which would have provided them with cash to spend or to put into banks. Doing this is fine if you do it FAST. In other words, the state created both the BOOM problem and the CRASH problem because it relies on the irresponsible tool of providing general liquidity – easy money. In hindsight this is more obvious than it was at the time. Those of us who made this recommendation were the smaller voices, because the banks and the financial industry were so terrified and the impact on the economy if they failed, so severe. The problem for our country is to put this system in place, so that we are insuring citizens AGAINST their bankers, so that we can use the market to PUNISH bad bankers and their investors, rather than the citizenry. I’ve worked the mechanics of this process out in some detail, and it’s quite simple. It’s just novel. And it’s anti-bank. And that makes it dangerous to a lot of people in one of our biggest industries: finance.

  • From The Private Sector: We Don’t Need Stimulus We Need Credit

    1) From the private sector: We don’t need stimulus we need credit. Banks simply wont lend. While the process of correcting bank balance sheets is underway, that same process must occur in small and medium sized business before any turnaround can occur. In my largest company’s case, our banks have been failing gradually, and we have been cost cutting, not because of decline in profitability, but because of decline in borrowing capacity, and an inability to find new banks willing to lend. About 20% of the work force was affected. In the other company I own, we are experiencing similar problems. 2) We need an area of growth that creates opportunity, and we need it in an area where we can CREATE DEMAND by innovating (taking risks by trial and error). Demand is not simply naturally derived from abstract confidence, it is created by investment, risk, promotion, advertising, and sales. People consume according to stimuli and status attainment. But they have to be aware of opportunities for stimuli and status attainment. And we must constantly develop new products to inspire them to work, risk, borrow and spend. The government is not stimulating anything that will help us CREATE demand. For example, building power plants, or a new power grid, which reduce costs and allow us to compete by discounted power cost rather than discounted labor cost. It is creating further expenditure requiring infrastructure. This is of course, a temporary fix, that is a long term drain on the economy. Instead, stimulate the creation of opportunities. Or at least, understand that there are a minimum of three classes 1) banking and finance, 2) entrepreneurs, engineers and scientists, and 3) clerks, laborers and craftspeople, and that stimulus generally helps the first and the last, but the middle is where the job creation comes from. And fundamentally, the entrepreneur cannot borrow today. Entrepreneurs, while often called capitalists are rarely possessed of a lot of capital. They are possessed of the ability to unite capital, knowledge and resources (including labor) in pursuit of opportunity for mutual gain. 3) Fixing the problem of an incalculable economy (loss of consumer confidence because of decrease in anticipated opportunities, and therefore disincentive to risk money and credit) is repaired most easily by having the government fund banks to buy back depreciation in home prices, and refinance those new homes, preserving the equity of the homeowner. THis would return to government (the treasury) the accountability for their actions in flooding the economy with unproductive credit, and the resulting distortionary prices.. This one policy enactment (which a number of us tried to promote in the spring of 08) would have the most efficient and quickest effect on changing consumer confidence because it can occur fast enough that the stickiness of wages and prices can correct. Countering uncertainty requires acting on debt reduction (home balance sheets) faster than the contracts (wages and prices) can be renegotiated in the private sector, which is a collection of promises and agreements and habits between individuals. Of course, the old argument is this: everyone wants to use stimulus to build roads because they require unskilled labor, and therefore have an immediate effect on the least flexible people in the economy. But these roads have to be maintained perpetually, and high cost, and generally are not. When, planes on the other hand cause the opposite reaction. Then the question becomes, not just one of redistribution, or debt, but urgency, and motivating all of the productive classes of finance, entrepreneurship and labor, to work together. Not focusing on just one or another, but all three. This is one of the other failures of the bias that comes from overemphasis of monetary policy: forgetting that we have to move all three classes of people in order to stimulate the economy.

  • Response To Economists View: One Way To Look At The Bush Years

    RE: “One way to look at the Bush years is that job growth was lousy so the Fed (and the government policies) subsidized construction jobs by creating a housing bubble. That jobs program abruptly ended. It is now time for a new jobs program. For the longer run, it is time for a different labor policy that will create many more jobs.”

    It’s not just a way to look at it, it’s what happened. They wanted to create this ownership society as a means of countering the growth of urbanized socialism, and the diminishment of freedom, and competitive prosperity. This is the most important dimension of the multi-dimensional philosophy that they have been following. (We tend to classify them as having a simplistic philosophy but it is not so. It is not useful to underestimate the thought of your competitors.) The rest of it is essentially a universalist christian concept for the material benefit of mankind, (going back to Alexander) that promotes democracy as a means of exporting control over world resources in order to keep prices low, and maintain military and political power. The problem is for their philosophy, that in the end, society has become urbanized, and large and dense. And the epistemology of urbanites is very different from the epistemology of farmers. There is more similarity between the evolutionary tendencies of urbanites and slavery economies, than the evolutionary tendencies of farmers, for precisely these epistemological reasons. THis difference has been understood for a long time, and written about extensively. However, our current status of behavioral economics has not reached a sufficient state of maturity to connect this set of tendencies, with density of population, and availability of opportunity cost at the expense of perceptibility of causality. Furthermore, our calculative institutions (accounting and taxation) as they are currently practiced, effectively launder causality from our information systems, and require us to rely on the farmer vs urbanite dichotomy as a religious or political difference, or ‘taste’, or even as a strategy of class warfare,versus relying upon factual information that allows us to analyze our behavior and make judgments about it. Fortunately we know how to fix these issues, so that the epistemological clarity of farming (visibly of cause and effect) is available to the urbanite. Unfortunately, we have a form of government that distracts us from solving this problem by individual profiteering on the resolution of conflicts between groups and classes. Our biological sensitivity to fairness, which compels us to work hard, and endure costs, in order to punish those who steal from us, or treat us unfairly, seeks to commit violence, control, or punishment between groups in order to feel fairness has been satisfied. However, this masks the underlying problem as one of solving the underlying problem as one of extending human senses, perception, and comparitive and calculative ability such that we can make decisions for collective benefit. There is an argument that such accountability, which would come from epistemological clarity, would still be avoided by the peasantry, because of necessity we much manage consumption through the pricing system. However, redistribution can mollify discontent as it has in much of europe, assuming that there is anything to redistribute, because the population provides competitive value in contrast to other competing groups. I have a more benign view, which is that if a sufficient number of people can understand that this is a problem of providing information, on the scale that was provided by double entry accounting, and the inventory process facilitating taxation, and the standardization of currency, a small number of simple policies can be enacted that will provide us with the information we need, and therefore will allow us to cooperate, profit, and redistribute without the necessity of relying upon democratic negotiation for the purposes of resolving disputes between classes. Capitalism is with us forever as a set of institutions, precisely because humans cannot, in real time, process complexity of information without those institutions. Redistribution is likewise with us forever, since there is a difference between the necessity of incentive and the necessity of calculative power, and the preference for fairness. Likewise, social and economic classes are with us forever, because people requires status differences in order to pursue the mating ritual, and will create them faster than such differences will be redistributed, just as they will create black markets to circumvent anti-capitalist activity. But capitalism and socialism as biases, are only necessary as biases, because we cannot calculate, measure, and compare, the complexity of society in which we live. It may seem simplistic that society can be better managed by implementing changes in accounting, taxes, banking, credit, and the scope of lawmaking, but our society is changing BECAUSE of changes in these things. Instead, these institutions are what made our complex society possible, and our social systems, because they require decision and legislation rather than simply relying on evolution of business practices, simply evolves much more slowly. If we simply correct this problem, we can get away from class warfare, and into cooperating between classes for mutual gain. In other words, we are trying to build a science of economics on testing assumptions because we lack data needed to actually understand causality. We will have a much easier time if we have the data, and we have the technology, in both accounting and record keeping, to maintain causality in our data. Truth=Causality

  • Credit Funded Jobs Programs

    Another response from “A Shaky Start” on Economists View

    RE: “One way to look at the Bush years is that job growth was lousy so the Fed (and the government policies) subsidized construction jobs by creating a housing bubble. That jobs program abruptly ended. It is now time for a new jobs program. For the longer run, it is time for a different labor policy that will create many more jobs.”

    It’s not just a way to look at it, it’s what happened. THey wanted to create this ownership society as a means of countering the growth of urbanized socialism, and the diminishment of freedom, and competitive prosperity. This is the most important dimension of the multi-dimensional philosophy that they have been following. (We tend to classify them as having a simplistic philosophy but it is not so. It is not useful to underestimate the thought of your competitors.) The rest of it is essentially a universalist christian concept for the material benefit of mankind, (going back to Alexander) that promotes democracy as a means of exporting control over world resources in order to keep prices low, and maintain military and political power. The problem is for their philosophy, that in the end, society has become urbanized, and large and dense. And the epistemology of urbanites is very different from the epistemology of farmers. There is more similarity between the evolutionary tendencies of urbanites and slavery economies, than the evolutionary tendencies of farmers, for precisely these epistemological reasons. THis difference has been understood for a long time, and written about extensively. However, our current status of behavioral economics has not reached a sufficient state of maturity to connect this set of tendencies, with density of population, and availability of opportunity cost at the expense of perceptibility of causality. Furthermore, our calculative institutions (accounting and taxation) as they are currently practiced, effectively launder causality from our information systems, and require us to rely on the farmer vs urbanite dichotomy as a religious or political difference, or ‘taste’, or even as a strategy of class warfare,versus relying upon factual information that allows us to analyze our behavior and make judgments about it. Fortunately we know how to fix these issues, so that the epistemological clarity of farming (visibly of cause and effect) is available to the urbanite. Unfortunately, we have a form of government that distracts us from solving this problem by individual profiteering on the resolution of conflicts between groups and classes. Our biological sensitivity to fairness, which compels us to work hard, and endure costs, in order to punish those who steal from us, or treat us unfairly, seeks to commit violence, control, or punishment between groups in order to feel fairness has been satisfied. However, this masks the underlying problem as one of solving the underlying problem as one of extending human senses, perception, and comparitive and calculative ability such that we can make decisions for collective benefit. There is an argument that such accountability, which would come from epistemological clarity, would still be avoided by the peasantry, because of necessity we much manage consumption through the pricing system. However, redistribution can mollify discontent as it has in much of europe, assuming that there is anything to redistribute, because the population provides competitive value in contrast to other competing groups. I have a more benign view, which is that if a sufficient number of people can understand that this is a problem of providing information, on the scale that was provided by double entry accounting, and the inventory process facilitating taxation, and the standardization of currency, a small number of simple policies can be enacted that will provide us with the information we need, and therefore will allow us to cooperate, profit, and redistribute without the necessity of relying upon democratic negotiation for the purposes of resolving disputes between classes. Capitalism is with us forever as a set of institutions, precisely because humans cannot, in real time, process complexity of information without those institutions. Redistribution is likewise with us forever, since there is a difference between the necessity of incentive and the necessity of calculative power, and the preference for fairness. Likewise, social and economic classes are with us forever, because people requires status differences in order to pursue the mating ritual, and will create them faster than such differences will be redistributed, just as they will create black markets to circumvent anti-capitalist activity. But capitalism and socialism as biases, are only necessary as biases, because we cannot calculate, measure, and compare, the complexity of society in which we live. It may seem simplistic that society can be better managed by implementing changes in accounting, taxes, banking, credit, and the scope of lawmaking, but our society is changing BECAUSE of changes in these things. Instead, these institutions are what made our complex society possible, and our social systems, because they require decision and legislation rather than simply relying on evolution of business practices, simply evolves much more slowly. If we simply correct this problem, we can get away from class warfare, and into cooperating between classes for mutual gain. In other words, we are trying to build a science of economics on testing assumptions because we lack data needed to actually understand causality. We will have a much easier time if we have the data, and we have the technology, in both accounting and record keeping, to maintain causality in our data. Truth=Causality

  • The general consensus among economists is emerging that no stimulus will work (a

    The general consensus among economists is emerging that no stimulus will work (and ours has likely been wasted) and that we are approaching an L-shaped recession. That means that we’re going to have an extended period with high unemployment. Most economi

    Source date (UTC): 2009-04-26 13:36:00 UTC