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November 10, 2014

Some Sensible Suggestions for Bill de Blasio’s Office

Filed under: Uncategorized — admin @ 12:30 am

With the recent speed limit overhauls in New York City, I would like to write an open letter to the Mayor’s office recommending some smart policies that would actually reduce congestion, improve the city’s economy, produce more revenue for the city and save lives. Will any of these get implemented?

  1. Require delivery trucks to share their routes with the city, work with them and their client businesses to move as many deliveries as possible to night-time. That will reduce the terrible congestion in Manhattan during the day, and also create jobs. This is already done in other cities and countries such as Britain.
  2. Install systems that detect when a parking spot is freed up, such as sensors along the sidewalk or image recognition mounted on traffic lights, able to distinguish pavement, e.g. via colors. Partner with companies that would provide such a system, and let them make money via subscriptions to an app that all drivers would have to download to know where the parking spots are. 30% of city traffic is from cars circling to find parking, which helps no one. This way the city can make revenue from cars which overstay their 2 hours, by having the meter maids (via the same company’s app) be dispatched to places where the car’s meter is about to expire, instead of wandering randomly.
  3. Optimize traffic light synchronization to reward people going 25mph. Work with NJ, etc. to expand EXITS of tunnels and bridges leading out of Manhattan. Make green light duration depend on congestion, increasing green light time around exits from tunnels, while decreasing it for blocks around entrances to tunnels and bridges. This is a classic way to dissipate jams.

And those lawmakers who really care about saving people’s lives should consider working to require car manufacturers to start adding systems that detect pedestrians ahead and prevent collisions. The technology exists. Instead of relying on people to prevent accidents by driving slower, please consider actively promoting better technology to help achieve vision zero.

October 7, 2014

Stop wasting our time

Filed under: Uncategorized — admin @ 3:24 am

A “green screen”, in the movie business, referred to a device for filming people and inserting backgrounds later. Anything in the foreground with the same share of green, of course, could disappear as well during editing.

Let’s imagine applying a “green screen”, but this time to our economy. Take money out of the equation for a second, and look at what’s going on. All across the country, people are working long and longer hours just to maintain their standard of life and provide for their family. But at the same time someone is working 25% longer hours in their job, someone else applying for those same jobs is getting rejected!

What’s going on? Clearly, if both people were hired, they could each work less and more would be accomplished. This is an example of a pathological misallocation of resources, in this case the resource being human labor. If the resource was food, some people would be starving while stores would have to throw out extra food every night. Is the trend accelerating, and what, if anything, could we do about it?

At the same time, it’s become fashionable in some circles to attribute all these problems to government regulation, taxes, and that catch-all word, “socialism”. If only there would be less “wealth redistribution”, they would argue, the markets would be freer, everyone could be employed and on better terms. I’d like to show that, in reality, the solution could be quite the opposite.

The last 20-30 years have brought about large changes to our economy’s fundamentals. Improvements in logistics have enabled supply chains to stretch around the world. Apple products, once proudly “Made in the USA”, are now primarily assembled abroad, by companies like FOXCONN who pay workers much less than Americans’ local cost of living. Those jobs are not coming back from overseas – not to humans anyway. Record stores have been replaced with iTunes and online media services. Bookstores have been disrupted by Amazon (though indie ones aren’t dead yet).. A decade ago, we had travel agencies. When was the last time you used one? The majority of that work is done by computers at Expedia and other websites.

All in all, computers are doing the work that people used to do, and not enough new jobs have been created to pick up the slack. The result is a demand shock for local human labor, and the consequences can be serious.

We’ve seen a dramatic demand shock before. Before the Great Depression, 20% of US workers were employed in farm-related jobs. Today, it is only 2%. The shift that occurred in the Great Depression can clearly be seen to originate on the farms. Farmers were working longer and longer hours producing cheaper and cheaper produce, while others struggled to find employment at all. Sound familiar? It took 10 years for the workforce to migrate to cities (John Steinbeck’s the Grapes of Wrath comes to mind) for factories to be built, and for the country to move to a more manufacturing-based economy. It also helped that after World War 2, most manufacturing economies in Europe and Japan were bombed out, so American manufacturing (such as Detroit in its heyday) got a head start.

Today we are seeing something similar, but with more safety nets in place. Old people have social security and medicare. People with low income receive a variety of subsidies, ranging from unemployment, to welfare checks, to collectively bargained (and heavily subsidized) medical and education services. Many programs, such as public schools and roads, are redistributions of wealth that aren’t obvious.

But let’s get back to our question, of why some people are working longer hours than ever, while others who want the job are being turned away. One reason is, of course, there is a cost to train and support a new employee. But beyond that, if both people would agree to work less and get paid less, the company’s expenses over the long term would be roughly the same.

The reason this doesn’t happen, of course, is that the person working overtime (for the same amount of money as before) isn’t willing to give up half their pay so someone else can pitch in to help. They may do it for a family member, but not for a stranger. And why? Isn’t money supposed to motivate us to help strangers? Precisely because they can’t afford it. Less and less money is finding its way to the wage-earners of America, and more is given to executive pay and funneled to overseas workers and tax havens. We see this in every recent study on income inequality, and heard it voiced recently by the Occupy movement.

We don’t have to limit or tax executives’ pay in order to solve the problem of unemployment. Making the rich “pay their fair share” in taxes isn’t going to raise enough money to even make a dent.

In fact, safety nets are what make unemployment tolerable. When people know that they will survive on a smaller salary, suddenly they go from working overtime for dear life to seeking part-time employment. Which means instead of one person working 12 hour days, we can have two people working 6. Safety nets lead to better allocation of people’s time and labor. People can use the rest of their time to get an education in the jobs of tomorrow, pursue careers they are really passionate about, or start their own business.

For years, there have been proposals for an unconditional basic income — all citizens, receiving a regular monthly check in the mail, for the same amount whether rich or poor. This idea has enjoyed support from progressives, libertarians, and fiscal conservatives alike. Such a system would help absorb demand shocks for human labor and allow people to spend their time more usefully, without having to prove a low income to welfare workers, while resisting temptation to work for “cash under the table”.

Our safety nets help mitigate the growing unemployment we face. Far from being hazardous to the markets, they help people allocate their time properly. If our society ever implemented an unconditional basic income that would completely cover a minimum cost of living, people would go from saying “I can’t afford to lose this job” to asking, “what do I get for working full time at your company?”

If this were a static society, where demand for local labor was always the same, employees would always be needed and valued by the capitalists. But in a world where technology progresses at a lightning pace and there are a billion people around the world willing to work for 20 dollars a day, safety nets are the best defense for our workers’ standard of life. They enable our people to use their time more productively, get more educated for the future, start new companies based in our country, and serve the rest of the world who will pay for American products and services. Don’t worry, the money we spend overseas will come back. In the meantime, thanks to safety nets, hopefully Americans won’t waste their lives.

September 11, 2014

What Palestinians can do that’s actually productive

Filed under: Uncategorized — admin @ 2:08 pm

When it comes to the Israeli-Palestinian issue, if you’re tired of the same old struggles, violence and death, as I am, then you should read this post. It’ll focus your attention on actual policies that can promote peace and move everyone in the region closer to a solution, by focusing on what’s really at stake and drawing logical conclusions.

At a time when the “Islamist Resistance Movement” Hamas wages an endless jihad against Israeli “occupation”, indiscriminately firing rockets, drawing Israeli military response before negotiating, while rejecting ceasefires, and declares a victory when 1500 civilians in Gaza were killed (30% of whom were children!) one gets the inkling that there might be better approaches. But such approaches are unlikely to come from ideological organizations whose officials can’t seem to stop saying that their actual goal is to get rid of the State of Israel completely. It should be clear to any thinking person that declaring you pose an existential threat to the other party is not good diplomacy, and will not lead to peace. No, we need to appeal to more moderate (and more secular!) organizations, but what can they do beyond what they’ve already been doing?

In my last post, I said that governance was the central issue, and spoke about what Israel and its neighboring countries can do to bring about a lasting governmental structure in the Gaza strip, thereby ensuring not only stability but economic growth and prosperity as well as a sense of accomplishment and camaraderie on the part of Israel, Egypt, Jordan and the Saudis. The momentum gained from that could galvanize the political will to try something similar in the West Bank.

However, when it comes to that region (also called Judah and Samaria), there are over half a million Israelis living there, as well as many Christians and others. This is the area that all the Palestinian leaders aspire for the State of Palestine to govern. As I’ve mentioned before, expulsions from native lands and forced resettlement of hundreds of thousands, whether of Jews or Arabs, causes hardship on a massive scale. Not only that, but doing that in Gaza has been heavily criticized by both sides and has gotten the region no closer to peace. The only alternative is to leave people where they are, in their own cities, and set up a government structure that protects their safety and their civil rights.

So what positive steps can Palestinians take that will actually get them closer to a viable Palestinian State? It seems that everything that’s been done until now has had an antagonistic character, whether it’s “armed resistance” or diplomatic face-offs. But sometimes, being the first to lead in a positive direction can pay off more than endlessly facing off. As the English saying goes, you attract more flies with honey than vinegar (ok, it’s just an expression).

The Palestinian Authority may not have its state, but it does have its cities. It can start now, showing by example how it would rule over Jews and Christians (and atheists, and perhaps gay people too!) by implementing policies that are on par with Israel’s policies towards the Arab population it inherited and other minorities. This includes giving them equal protections under the law, religious freedoms, civil rights and so forth. Israeli Arabs are full citizens who enjoy equal rights and are represented in all the branches of government. And some high-profile Arabs are writing thoughtful articles and coming out on video in favor of Israel’s actions. Truth be told, there still exists discrimination, along the lines of what the USA experiences with its Black population, but at the end of the day, the Arab citizens of Israel are at least able to make a life in Israel just like everyone else, enjoy peace and security, and don’t want to leave.

Mahmoud Abbas does not want to recognize Israel as a Jewish state, but what kind of state would Palestine be? In a troubling statement last year, he has said that a future Palestine would not be home to a single Israeli — civilian or soldier. Will the State of Palestine become yet another place inhospitable to Jews and cracking down on the already-existing Jewish cities? Will it put pressure on the half-million Jews to “go somewhere else“? And will the government treat Christians and other minorities better than they have been treated in the past?

Looking around the Arab world, not an insignificant number of Islamic countries oppress minorities, provide almost no religious freedom, and make life difficult for womenInvestigate it for yourself. If Palestinians want to form a State that will rule over 700,000 people with a different religion and customs, this is one of the most major issues they need to address. For a start, they can remove laws from their books that condone honor killings, and start distancing themselves from Islamic regimes which institutionalize some of the human rights abuses against women and minorities. Hamas wouldn’t do this since it sees democracy as an obstacle to Sharia Law, but the PA actually can.

Politically, the Palestinian leadership has been not just divided, but completely ineffective. Their “unity government” is the latest in a long line of failed reconciliation talks between Fatah and Hamas, ever since the two duked it out in a civil war in Gaza. Hamas wanted to get their salaries paid (after all every rebel organization needs to pay its personnel somehow), and Fatah thought a united government could put more pressure on Israel. But like the proverbial scorpion and the frog, at the same time Hamas was planning to undermine the peace talks with Israel and stage a coup in the West Bank.

I do not presume to lecture the Palestinians on who should be their leaders, or how they should carry on their strategies and diplomacy. But I know one thing that the Palestinians could do that would go a long way towards building trust that they can govern other people. And that is, start implementing these policies in your own cities. Invite Jews and Christians to live there. Protect them. Make it so that Jews in the West Bank don’t need to live in Jewish-only settlements in order to feel safe. Many religious Jews do not need Zionism in order to live in the Holy Land where their ancestors used to live. But they do need equal protection and freedom to live their lives, as do Christians and others who would live there. There is no reason Palestinians can’t start now, and put together a roadmap which includes international observers confirming their record on human rights in their own cities. After all, this is in addition to what they are already doing, but it’s something that is almost universally regarded as positive.

Politics aside, I know that the entire civilized world cares about human rights, and when it comes to the US, UN and the EU, the Palestinian Authority would do well to take the lead on a human rights roadmap, and show the world how well they can govern a multicultural society in their own cities. Perhaps then, they will have built enough trust to govern their own state.

September 3, 2014

A new chance for peace in the Middle East

Filed under: Uncategorized — admin @ 7:29 pm

The Middle East

Governments in this region, which has seen a great deal of violence and death, have recently all found themselves faced with a common enemy - radical insurgent groups. Political Islam in particular can be seen as a virus, much like Communism and Nazism decades ago, and studied epidemiologically. Idealistic young men are the vector by which this virus spreads, first through violence, then through political control.

The ideas of ISIS, originally born in Saudi religious schools, have found fertile breeding ground in political quagmires of Syria and Iraq. Places with no political stability always attract insurgents, funded by one or another group, and serve as incubators for violent revolutionary movements. We can now see young men even from the US and Britain joining up for Islamic conquest reminiscent of Saladin or the Crusades of the 11th century. And just like Nazism and Communism led to alliances between countries like the Allies and NATO, so does Radical Islam lead to previously unlikely alliances involving countries in the middle east. The Saudi regime, concerned about its stability, has allied with Egypt’s new government against the Muslim Brotherhood and other Political Islamic groups, as countries against terrorists.

Israel and Palestinians

This new climate offers a surprise opportunity to solve the other major conflict that had galvanized the Middle East for decades - the conflict between Israel and local Arabs now known as Palestinians.

This conflict, in one word, is about governance. All the other issues - security, water, labor - are consequences of who governs what. The Israeli right wing, following ideas of revisionist Zionism, believe that Israel must be a sovereign Jewish state extending from the Jordan river to the Mediterranean sea. The Israeli left wing has always supported a two-state solution, with a home for Palestinian Arabs and and an Palestinian-Israeli peace process.

In recent years, the right wing has come to dominate Israeli politics, deflating hopes for a two-state solution. Much of the support for right-wing politics in Israel can be attributed to militant supremacist groups like Hamas operating in Gaza, who brand themselves as “armed resistance to occupation”, and who call for Islamic Sharia rule from the river to the sea. Hamas itself was helped along by Israel in its early days (as a counterweight to the PLO), and took advantage of the political vacuum in Gaza to seize control. Since coming into power, their unwillingness to compromise or honor any prior agreements has caused sanctions from US, EU, UN and Russia, and later a blockade by Israel and Egypt, causing hardship to the 2 million residents of Gaza, half of whom are children. Over the last 7 years, the blockade and smuggling economy empowered Hamas similarly to how the war on drugs has empowered Mexican drug cartels to the point of infiltrating governments.

Today, with governments around the world concerned about radical Islam, there is suddenly an unprecedented consensus about disarming Hamas, both in the West and in the Arab world. It should be said that Gazans themselves overwhelmingly oppose ISIL. However, when it comes to disarming their own Sunni militant groups, they are even more strongly opposed, considering “armed resistance” a vital part fighting for their rights as a people. Meanwhile, the Shiite Hezbollah in Lebanon, which considers itself a “resistance movement” as well, has flaunted any UN efforts at “disarmament”, has gone on to build 1000 military facilities and currently possesses a huge arsenal. Formed to fight against Israel, they too are now too busy fighting the Radical Sunni Islamists in Syria.

Solutions that won’t work

Anything involving mass deportations, since many Palestinians are tribal, loyal to the land and won’t agree to lave. Anything where Israel annexes all Palestinian cities in the West Bank - that’s been tried by Jordan, whose occupation of the West Bank led to civil war that its government described as “life or death” for Jordan. (A one state solution also failed when the British tried to fulfill their mandate for over 20 years.) Any “one-state” solution risks a heavy loss of life in civil war and violence. And this is not specific to some ethnicities - consider what’s happening in Ukraine right now between Kiev and the separatists, or the war in Vietnam. If the problem of governance will be solved, it has to respect the demographic realities as they are today.

The Solution

First, the governments of Israel, Egypt, Jordan, Saudia Arabia and the UAE should join forces to solve the situation in Gaza, where 2 million Palestinians live. Today there exists an unprecedented, remarkable consensus that Gaza should be demilitarized. They can greatly minimize the loss of life by joining together and speaking with one voice to the masters of Gaza. A roadmap should be put together, which involves the lifting of the blockade, and active involvement in reviving the economy in Gaza. UAE can help develop Gaza’s beachfront into a lucrative tourist destination. The Saudis and Israelis can help Gazas extract their natural gas and become energy independent. Disarmament of Hamas can be then coupled with takeover by the Palestinian Authority, something that Hamas had already agreed to anyway before this whole bloody summer.

When the PA takes control in Gaza with support from Egypt, Israel, Saudis and the West, Gaza can be turned into a demilitarized state not unlike Monaco. Having rebranded itself last year into the “State of Palestine“, the PA is the most recognized entity in the world to run Gaza. The meteoric rise of Gaza’s economy (it can only go up at that point) will take the wind out of the sails of any “resistance” movements, as young men will once again have jobs to provide for their families, and children will have an education to prepare them for the 21st century.

The model in Gaza can then be replicated in the West Bank, also known as “Judah and Samaria”. Gaza was the simpler case of the two, as the West Bank is now full of Jewish cities, in which over 300,000 people live. But, with the success of the operation in West Bank, and the resulting boost to morale and interests of Israel, Egypt, and Fatah, not to mention a successful precedent in Arab countries working together in Israel, will go a long way toward overcoming any political roadblocks that are currently in the way.

Gaza and West Bank can become autonomous regions, not unlike the Kurdish regions of Iraq and Turkey or US protectorates of Haiti and American Samoa. Their constitutions would limit their sovereignty by requiring them to be demilitarized and abide by agreements with their neighbors when it comes to security, army basing rights, water, and other things — agreements which would probably be updated as technology improves.

Most importantly for this to work, the State of Palestine (née Palestinian Authority) must adopt in its constitution equal protections for Jews and Christians, similar to what Israel has for Arabs. Jewish-settler cities in the West Bank such as Modi’in_Illit must not be discriminated against in favor of Palestinian cities like Jenin. The PA is a secular organization whose President and Prime Ministers have won praise from Israeli politicians and army for how their achievements in both security and diplomacy. Fatah, its leading political party, is a secular movement and is not interested in restricting rights of minorities based on religion or race. Thus, it is quite likely that such an agreement can be formed.

To summarize:

Israel should stop insisting on solving all this on its own. The world should stop calling on Israel to solve the situation by itself. Israel, Egypt, Jordan, Saudi Arabia and the UAE should take advantage of their common position on Hamas, join into a coalition, and produce a roadmap, which accomplishes the following things in Gaza:

  • Lifting of the blockade
  • $100+ Billion international investment into Gaza economy
  • Tourism industry with help from UAE
  • Gas and energy independence
  • Takeover of government from Hamas by the State of Palestine
  • Gradual disarmament of Hamas and other militant groups
  • * This part should be de-emphasized in negotiations with Hamas but eventually accomplished
  • Establishing Gaza’s status as a protectorate of Israel and Egypt
  • Demilitarization and treaties with Israel and Egypt
  • Going forward, frameworks concerning security, labor, army basing rights, water, etc.
  • * Civil rights
  • * Constitution of Gaza
  • * Clearly spelled out protections for minorities and freedoms similar to Israel’s

After this is successfully done in Gaza, the model can be followed for a similar approach in the West Bank. Although thornier due to the presence of Jewish towns and cities, the precedent would have been set in Gaza. Instead of agreements with Israel and Egypt about water, etc., the West Bank will contract with Israel and Jordan.

Netanyahu’s concerns about security from the east can be resolved in terms of army basing rights in the West Bank, which is vastly different from a military occupation, and is fully compatible with having the West Bank be an autonomous republic. With a demilitarized protectorate, issues such as immigration for families of West Bank residents will then not affect the governance or security of Israel.

With so many countries united against Radical Islam, now is the time to use all this to achieve something positive like the improvement of life for people in Gaza, and subsequently use that as a model in the West Bank. I’m sure that along the way, things will not go exactly as I’ve laid it out here. But to ignore the opportunity, to let it pass by, would be a real shame. For once, the issues are not Israel vs the Arab World, it’s Countries vs Terrorists. Let’s use this opportunity to improve the lives of millions of people, and bring political stability to a region that’s galvanized the Middle East for almost a century. And in the process, forge new bonds and set new precedents for middle eastern countries by accomplishing good things together. As an old Russian proverb goes, “Appetite comes with eating.”

June 8, 2014

The Genie is Out of the Bottle: Welcome to the Big Data revolution.

Filed under: Uncategorized — admin @ 11:13 am
It’s not just the NSA that wants your data. It’s everybody. And, what’s more — fighting this is a losing battle. If you thought the war on drugs has been ineffective, when you begin to realize how much Big Data resembles crack cocaine to organizations, the term “user” takes on a whole new double meaning.

We are entering a brave new world where, for the first time, computers are increasingly able to correlate vast amounts of information on people and make it searchable and useful. But to whom?

Google started with a mission statement very similar to this, although it reads more nobly - the company wants to make the results “universally accessible.” But other organizations aren’t so generous.

Retail stores are looking to mine customer data in order to build profiles on their shoppers, predict their habits and get a competitive advantage over their rivals. Two years ago, Target stores were able to know about a teenage girl’s pregnancy before her father did, thanks to some mathematical wizardry.

Insurance companies had been one of the first users of big data. They happily made it available to their actuaries and used the results to deny coverage and set rates for those enrolled in their programs. Most countries in the world collectively bargained for basic healthcare, but the US has only this year began mandating universal coverage for all.

And lest governments be turned to for help, they are the most dangerous suspects of all. Beyond the latest revelations about the NSA an ongoing war is quietly escalating between countries, with hackers and equipment manufacturers being used as saboteurs. Our nuclear power plants, gas pipelines and stock exchanges run on components made in other countries. The Stuxnet virus was the first, but certainly not the last, high profile case of government-sponsored sabotage.

But the biggest dangers lie at home, where governments can invoke laws to punish their own citizens with violence and incarceration. Police are increasingly being militarized and told they are soldiers fighting a war. There are now Federal laws allowing indefinite detention of American citizens without due process. Passed in the name of fighting terrorism, they beg the question of whether this new cure is better than the disease.

Still, compared to other countries — where overt dissent or gay sex are a crime punishable by execution — the US is pretty safe for the average person. When you consider the biggest potential dangers Big Data presents in the wrong hands, consider all the people living in those countries under a regime that begins to employ it.

A vast, hidden surveillance network now runs across America, powered by the repossession industry. The local legislators are considering banning the use of this data by all except, of course, government agencies and law enforcement.

The data brokers are fighting back arguing that information they collect, such as license plates and locations, is all public to begin with. This is, in fact, true — the data has always been around, it is just now becoming more searchable and cross referenceable by computers.

Where have we seen that before? Many years ago when facebook first revealed the Newsfeed. There was a huge backlash, to which CEO Mark Zuckerberg personally responded in a facebook note to all users: “Calm down. Breathe. We hear you.” He went on to explain that all the info in the newsfeed was already public, just better accessible to us for consumption.

The inexorable march of technology proceeded unabated. The next few years produced the slogan “privacy is dead” on the social networks. So many people now post mundane details of their lives IN ORDER for others to read and to collect “likes”. This was unthinkable just 10 years ago.

Now fast-forward to last year: Graph Search comes out, to help us all find what we’re looking for using only the data available to us, and facebook doing the searching. No big splash this time. The graph search is arguable much more dangerous to privacy than ever, yet it remains technically true that it doesn’t violate any individual privacy settings.

And the inexorable march of technology continues. Keep in mind — it’s not that you’re caught on camera in a public place that’s scary. It’s that, in the future, all this stored information can be cross referenced and mined for any purpose.

This is a very good time for “Don’t Be Evil” to apply. But how and who will enforce this policy? Information is power, and our only hope, as a society, is to develop a culture where this power helps everyone. Because the days of it helping no one are gone.

I have one humble proposal, to turn this data to good, in limited cases where it is clearly needed. Requiring law enforcement officers to record and store video of their activities on duty would improve the experience for both cops and the people they are dealing with. One study showed a staggering decrease of 88% in complaints against officers. We need federal laws to enable timely and straightforward access to this video in court cases where people are facing assault charges and years in prison. There is currently a White House Petition to that effect.

As we begin to tumble down the rabbit hole, how will we steer our culture? Can we avoid becoming stuck in a Matrix of our own creation? That, dear readers, is left as an exercise to you, individually and collectively. Don’t stay asleep. Take control of your data, by helping decide how we build a culture around how it is used.

May 23, 2014

My thoughts about MMT and US Fiscal Policy

Filed under: Uncategorized — admin @ 4:13 pm
The other day I heard Stephanie Kelton “Busting Monetary Myths” on Sam Seder’s Majority Report, and that got me thinking about our approach to fiscal policy. So I thought I’d share my thoughts with you here.
  1. MMT is right that for polities that issue fiat (monopoly) currency, there is no immediate necessity to tax people in order to raise revenues for public projects. In fact the Grace commission’s report pretty much said this was de facto the case, in the 80s.
  2. However, there are long term consequences, and the point that Stephanie Kelton and Warren Mosler make only goes so far in a larger framework. Taxes remove money from the economy but they “hurt” purchasing power of individuals and corporations according to some political rules. On the other hand, government spending “helps” individuals and corporations, and furthers some ends, according to political rules. Printing money without taxation can lead to inflation.
  3. Government spending doesn’t always lead to inflation. If the government makes good bets that result in higher GDP, then the greater money chases a greater amount of goods and services, and there is more wealth and prosperity for everyone in the country. Famous examples are the interstate highway system and the internet, so MMT advocates often point to infrastructure spending as something we can do now, without waiting for tax revenue, and I agree.
  4. However, the public sector running at a deficit eventually leads to sovereign debt, which, if not serviced, becomes harder to pay. And, given the debt ceiling in the US, it’s even worse because it contributes to political brinksmanship and lowers the credit rating of the US. This is a BIG DEAL and as long as the credit limit is in place, deficits are dangerous.
  5. There is a good case to be made for spending on infrastructure that businesses need (internet, etc), basic services that everyone needs to collectively bargain (healthcare, education), and a basic income for everyone (or a negative tax as Milton Friedman would advocate). That last one is because the marginal propensity to spend is higher for people in the long tail (which also happens to be the majority), and this boosts aggregate demand.
  6. But this keynsian/state-capitalist approach is limited by many things, including crony capitalism, corruption, regulatory capture, and simply wrong bets. More often than not, government spending does NOT increase GDP. State capitalism must take aggressive measures to remove corruption, which Singapore has done but US has not (Singapore isn’t an example of laissez faire, but it’s a shining example of state capitalism and “economic freedom” aka business friendliness).
  7. There are diminishing returns from being TOO centrally planned (state socialism) and being TOO business friendly (corporatism). People therefore on either side of the debate are needed to keep the policies swinging form one extreme to the other. Which is why I believe that libertarian ideas (such as the ones promoted by Milton Friedman) are very valuable in public discourse, even if their utopia isn’t going to happen anytime soon, or ever.
  8. Now the bigger picture. If we take MMT *simplified* soundbites to their logical conclusion, we can eliminate all taxes and print money. The government would choose who/what causes to help and not choose at all whose purchasing power to hurt. Sounds great, right? Except if GDP doesn’t keep pace with the currency (and it won’t, cause government bets wrong, boosting aggregate demand has limited returns and even Paul Krugman explicitly acknowledges this) there will be much more rapid inflation. This in itself is a viable way to run a country — not unlike a corporation that keeps issuing and selling more shares to investors and diluting all existing ones, forever, making everyone reinvest into the company every so often if they believe in it. But this will NEVER be done by the USA or any country that already has treasuries others have bought. Because this will devalue all the future cashflows and throw off all futures contracts on exchanges. This is obviously a mental experiment and edge case, but you can see how veering one way or the other policy wise can affect this.
  9. In fact, countries compete on the strength of their currency, among other things. The bigger picture that wasn’t covered involves TRADE DEFICITS. In the US, our wages are among the highest in the world, and our cost of living is quite high. You want to know what slavery is? It is being poor and living next to rich people. You can’t afford the necessities of life unless you work your ass off for ONE of them, and since your need is great, the average cost of your labor is cheap. That is why we have social protections. But social protections cost money. And the rich people drive up the cost of living, making the social protections cost even more.
  10. The result? As world technology and infrastructure got better since the 1950s, much of our stuff is outsourced. Apple, once proudly making its products In The USA(TM) now employs Foxconn and an army of people around the world, who would work longer hours doing more repetitive work for less pay than most Americans. Here I would invoke the Three Sector Theory.
  11. Joseph Stiglitz points out one interesting fact about the Great Depression: the US went from over 20% employed in farm related jobs to 2% today!. This combined with the 3-sector theory explains a lot. The FUNDAMENTALS MATTER. The Great Depression is largely the result of disrupting the first sector with technology - as well as the Dust Bowl. If you read the Grapes of Wrath or other pieces about that time, you’ll see how long it took for people to a) migrate to cities, b) cities to build factories, c) transition the economy to a second-sector economy. The reason that our manufacturing did so well after WW2 is that Japan and Europe were bombed out. By the 70s, Labor Unions in US were very strong, and wanting a piece of all the manufacturing pie. But, corporations reacted by outsourcing labor around the world in the next decades.
  12. And now, with the internet and computers, the situation is simultaneously worse for the American worker (as they are now in a race to the bottom against overseas workers AND computers), and holds a lot of promise. The promise is in things such as education, but not the kind of failed attempts to throw money at existing, brick-and-mortar schools (http://finance.yahoo.com/news/mark-zuckerberg-gave-jersey-100-130400933.html) but real reform: use the internet to deliver lectures and invert the classroom (http://magarshak.com/blog/?p=158) . Our skyrocketing college costs will go down. This is already happening (Coursera, MIT OpenCourseWare, Udemy, Udacity, Khan Academy etc.) but the government could start transitioning from student loans to this.
  13. Countries compete on more than the strength of their currency. They also attract talent. Going back to the GDP, the US turns away a lot of H1B visa applicants who would love to come here and contribute to our STEM fields and pay our taxes. We turn them away and they go work in other countries. Countries also compete to attract lucrative businesses, and the US is way low on the list of net investment.
  14. We can see the effect of paying down your debts in the case of Russia for example. In 2000 it was nearly bankrupt, now it is once again going toe to toe with The West and ramping up to be a world power. Among the things that enabled its government to do this was an economic policy that got debt under control and currently it is 10% of GDP. US debt is 98% of GDP. China is now set to become the biggest economic power in the world. You may not agree with this right away, but there’s good cause to worry that China will start buying less US treasuries and start selling more treasuries to EU banks (and EU economy is bigger than US by GDP). At that point we are stuck with an ever worsening problem, as more banks choose non-dollar reserves, plunging demand and currency loses its purchasing power. All your callers’ comments about petrodollar warfare aren’t going to make much of a difference.
  15. 15. Finally — if you ask me, the best investment of all is in CAPTURING GREENHOUSES GASES. Why? Simply because if this investment pays off, we and our children will be able to NOT DIE from results of general ecosystem collapses, trillions in property won’t be destroyed in coastal cities, etc. Richard Branson is offering $25M for the best ways to capture atmospheric carbon, but more should be invested in this and other pollution reducing industries such as Sweden’s great achievement. The US should be a leader in this, since it’s the biggest polluter in the world. A distant second is investing in COMBATING SUPERBACTERIA, which both CDC and WHO have said is a catastrophe waiting to happen due to the end of antibiotics. Yes, these investments will SAVE people trillions of money and lives, but we are unwilling to make them. Something has to be done.

April 30, 2014

A smart way to reform education

Filed under: Uncategorized — admin @ 1:16 pm

If the public school system wasn’t a daycare center for parents who need to work but actually focused on educating our kids better, it would have the following structure:

  1. Give every family a parental-control iPad if they don’t have a computer at home.
  2. Deliver the lecture part of each class via an engaging multimedia presentation bought from a marketplace of these things. Instead of a boring teacher or one teacher teaching 20 students, a great presentation would be repeatable by thousands and millions of students, and every year can be improved. It could also be critiqued and fact-checked by reviewers in the market. The market would update them like textbooks.
  3. The next day, the school day would start later, so kids could get a good sleep (health and cognitive reasons) and a good breakfast (nutrition reasons), the latter can be delivered in school, for kids to come on time and socialize.
  4. After breakfast and homeroom, the Tests would begin. Every day, the tests would be testing for real knolwedge that would be obtained from the previous day’s presentations. They would test two levels: minimum adequate comprehension, and solid comprehension. This would replace homework and the method of solution could also be analyzed.
  5. Students who did not score high enough to demonstrate minimum comprehension for that day would be quickly identified by their test scores. They would be scheduled for smaller REMEDIAL classes later that day for that subject. That means the main time they spend with a teacher would be more individualized and tailored to where they are struggling as actually determined by their attempts on the tests.
  6. For a student who scores well on all or most tests, the day would be quite pleasant and free of remedial classes. They could do any number of things - and if they have to remain in the school, fine - there will be plenty of entertainment and socializing there. That is their reward for learning and comprehending the previous day, proportional to how many subjects they were able to do.
  7. Right after the Tests, all students would still have to take classes which aren’t only comprehension focused such as Gym and Debate etc. But there are very few of those.
  8. The students would themselves choose how to schedule their time to study for the next day. It could be a study session with friends or a private study session. No one would force them to sit through a lecture.

Benefits:

  1. Insane amounts of homework from multiple classes are replaced by Tests which are already scored in terms of difficulty, cognitive load, and how much time they take. So the school is fully aware of how much load they are putting on the students. Currently there is homework creep.
  2. Instead of struggling privately and spending money on private tutors many low-income families can’t afford, the students would get individual attention after their performance was analyzed in a Test setting. Home would be reserved for a lot more passive learning, mimicking the real world.
  3. The kids would have freedom and responsibility to set aside their own time to learn, and incentive to learn that they do not have when told to sit down and shut up for 5 hours a day. It would also lower incidents of diagnosis of ADHD, especially in restless younger boys in grades where psychological development and aptitude feedback is crucial to get right.
  4. Lectures are boring and too variable in quality. An uncommonly great teacher may only be able to reach 20 students while the rest get mediocre or bad lectures. There is no reason to keep things this way when technology can replace lectures with professionally produced multimedia at home. Animations and stories teaching algebra and calculus for example.
  5. If you go to the bathroom or zone out during a lecture, you are faced with big dilemmas, having to copy notes from classmates. Here you just rewind. A kid can even pause the lecture for 2 hours and go play basketball or watch another one, finishing this one when they want. Truancy would be greatly reduced.
  6. Note taking would not be compulsory and you wouldn’t be training kids to be 2nd century Roman scribes. Instead you’d be ingraining habits about learning online which they will carry for the rest of their life. For 99% of us all the material is already written clearly online. Note taking should be optional.
  7. It would actually be cool among kids to be educated because these kids would get access to programs the remedial kids didn’t. So we would foster a desire and self motivation in kids to learn. Both teachers and kids would be motivated in their remedial classes to prepare kids for comprehending lectures of the next day. Going to a remedial class means that the next day’s tests are likely to be guaranteed pass. If these remedial classes get the kid to eventually start consistently scoring above Adequate, into Solid Mastery, both the kid and the teacher are rewarded.
  8. Which brings me to granularity, measurability and accountability. The interaction of teachers and students would be in a smaller classroom setting, and more effective. Struggling would be caught early. Each subject would be broken down into very granular modules (one a day). A kid falling behind would be seen a mile away.

This is an example of actually refactoring the system to take advantage of existing technology and aligning the incentives and delivery mechanisms of the system with what what technology has made possible. It has been possible for 15 years now via internt and 40 years via VHS. It’s about time this has been tried.

But the question is more about bureaucracy. Given the way public schools are run today, would a principal and teachers ever be willing to try something new? It may be impossible to reform the system so drastically. And what would we do with all those kids and their free time? Wouldn’t this lead to more bullying and abuse as maturing 11 year old kids are stuck in a daycare center?

I believe the only avenue for trying this system are private and charter schools. What do y’all think?

February 20, 2014

A cool idea to reform the tax system

Filed under: Uncategorized — admin @ 2:11 pm

Over the years, I’ve learned a lot from interacting with people from various ideological backgrounds. And recently I came up with a novel idea — novel for me anyway. I wonder what you think of it…

Since corporations aren’t really people but a legal fiction, why not tax the corporations? Let them deal with all the bureaucratic crap. Here’s how I would propose reform the tax code:

Don’t tax the people themselves. But create sanctions for engaging in business personally without opening a company. Individuals would only be able to earn substantial amounts of money as employees. If you are an employee, your earnings wouldn’t be taxed. You wouldn’t have to go to the accountant, wouldn’t be subject to penalties for failure to pay, etc. True the company employing you would have to file various taxes, and pass the costs on to you, but the company would be able to do the accounting much more efficiently thanks to its economies of scale and greater knowledge of its internal operations.

However if you are self-employed, you’d have to start a corporation. If you take money “under the table” personally and not as a corporation (which has to pay you a salary as an employee) you can be fined, lose those earnings, etc. Naturally, people would be free to give each other gifts and engage in various in-kind transactions. But these would be limited by monetary amount.

That way people who don’t engage in business transactions on a large scale — which is most people — can voluntarily opt into taxation, by choosing explicitly to do business in a certain jurisdiction, and choosing the type of entity, and the jurisdiction.

In addition, if this was online the new business owners can be pointed to the right licenses they need to obtain, and best practices for that area, etc. They can even join other businesses doing similar things, and go to meetups. All because they explicitly formed the corporation. And if they don’t do it, they live FREE of taxes or penalties for not paying them, and no need to go to an accountant.

In other words - no income tax, no pass-through tax entities. Just corporations, for every kind of venture. It matches my motto: “People live lives. Companies do business.”

This recognizes the very real distinction between people and corporations: Corporations can be subject to unlimited market discipline, unlike people who need safety nets and can starve etc. Since corporations are able to hibernate or close without raising thorny moral issues, there wouldn’t be a need for a million exemptions for corporations. Welfare might get simplified, as well.

Thoughts?

December 4, 2013

Bitcoins have real value

Filed under: Uncategorized — Tags: , , , , — admin @ 3:07 pm

I recently happened upon an interesting blog post from neweconomicperspectives.org that claims the fair price of bitcoin is zero, and I think it behooves me to write a rebuttal. I’m interested in MMT and other economic perspectives, but at the same time I think it’s valid to point out that they’re shoehorning new types of currency into models that were designed to handle fiat money. The results obtained may very well be wrong due to the inapplicability of the model to this case.

I agree that bitcoins are commodity money, but I definitely don’t think their value is zero. Let me make another comparison of bitcoins to gold. In the subjective theory of value, the “value” of gold to anybody may vary depending on what they can do with it, and whether that benefits them. The market value of gold is what the gold will fetch on the “gold market”, accounting for all the various costs of transacting on that market. So let’s look at the value of bitcoins in this context.

If you read the whitepaper, you will see that bitcoins were designed to be the first method of payment online without trusting intermediaries. To pick one contrasting example, e-gold was backed by gold but had a single point of failure: the servers of “Gold & Silver Reserve Inc.” — in network theory, single point of failure is a risk that all communications are exposed to. If this central point went down — which it did — it killed the whole system. Now, the point does not have to be completely fail in order to jeopardize the system. Just a partial failure, or the risk that it can fail, introduces uncertainties. So the value of bitcoin is that sellers can accept payments without the uncertainty of:

  • chargebacks and other reversals
  • inflation and other fiat currency risks

as well as enjoying low transaction fees. This is REAL VALUE for real people, and in aggregate represents a tremendous market cap. Here is another way to look at it: before bitcoins, there was NO WAY that I could purchase things online without trusting an intermediary, such as a bunch of credit card processors, banks, and governments. The transaction fees in addition were high, and I paid them for the convenience of easily making the payment online. With a bitcoin wallet, I can save those transaction fees and pay only one fee: to the miners.

Think of bitcoin miners as full-reserve banks, which they will become roughly equivalent in the limit as the returns from mining are eclipsed by the fees. The fees are to cover running the system, they are in effect the cost of transacting, and instead of paying them to “your” bank you pay them to whatever bank happens to solve the block that includes your transaction. If that fee is too low, you’ll have to wait until some bank agrees to accept your transaction.

So bitcoins are a commodity which has real value — something that guys like Peter Schiff don’t seem to get or acknowledge when they hawk gold. Sure, gold has “intrinsic value” as a metal. But bitcoins have the value that comes from having in place:

  1. A powerful open source software client
  2. A presumably secure network protocol
  3. A growing network of merchants ready to accept the currency
  4. Not to mention future applications of the “timestamp server” such as proof of copyright, proof of signing contract, etc.

And by the way, #3 is the reason that new cryptocurrencies can’t just spring up and be worth the same amount as bitcoin. We have to consider here metcalfe’s law. Gresham’s law doesn’t really apply because no government is going to set the exchange rate between bitcoins and, say, litecoins.

In short — the value of bitcoins may be in a bubble, but underlying that is Metcalfe’s law. Even after the novelty wears off, there is real value in this commodity that is increasing, and the difference between bitcoins’ intrinsic properties and gold’s intrinsic properties are things like easy online payments anywhere in the world, low transaction fees, and lower exposure to various types of risks.

April 3, 2013

BitCoin - is it a bubble?

Filed under: Uncategorized — admin @ 12:21 pm

There were three times in my life when I felt sure enough of my financial reasoning to recommend a certain investment to all my friends. The first was when Google went IPO. The second was some obscure moment in Microsoft’s history, and the third is very recent.

About a month ago I started recommending to all my friends to get bitcoins - fast. My reasoning went as follows:

  • BitCoin is a currency
  • Other things being equal, the value of a currency is tied to to how many people and organizations will accept it for things others value
  • We are only at the start, and more merchants are going to be accepting BitCoin every day, especially as it gets easier to do so
  • Other people will realize this soon, which will drive up the price of the currency.
  • I am typically among the middle-early-adopter when it comes to techy stuff, so if there’s a bubble, it still has a long way to go as BitCoin articles go mainstream

That was a month ago. And if you got BitCoins in the last month, you saw them gain a lot of value on the exchanges. But the question now comes up: with charts like this, is it a bubble?

In my opinion: Yes, but more importantly No! The meteoric rise of BitCoin is related to network effects because it is a medium of exchange. It is not unlike the meteoric rise of facebook or of pinterest. While Metcalfe’s Law has historically been too optimistic in predicting the value of a network based on its size, something like n log n is not at all unreasonable.

The fundamentals of BitCoin suggest that it is poised to grow far beyond where it is today, since more merchants means more users, and more users means more merchants. However, the hype surrounding BitCoin may push the markets far ahead of its current growth. So that’s where the danger of the bubble comes in. This is like investing in facebook in its early days and asking if it’s a bubble. At the end of the day, I think BitCoin has all the fundamentals to legitimately go to $10,000 or even $100,000 a coin. Whatever price you’re probably paying for BitCoin today will seem a bargain a few years from now.

All this leads many people to want to take a long term long position in it, which will drive its prices even higher in the next few months. In monetary terms, BitCoin is going to be hoarded for quite a while and experience massive deflation, which will have an interesting effect on its adoption by merchants. It’s very attractive for a merchant to accept a currency for their products that will be worth more tomorrow, so in short, both sides are incentivized to try to get BitCoin as its prices rise and rise.

We’re just at the beginning of the BitCoin craze. Now you may even be able to cash them out using ATMs in Cyprus. There’s a lot of opportunity around BitCoin and making it easier to trade them for actual things, but also a lot of regulatory risk up ahead.

On the other hand, if you care about BitCoin as a currency, you should probably be careful of Gresham’s law.

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