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Friday, August 26, 2005

17% Ain't Diddley Squat

We spend approximately 17% of the federal budget on interest to service the debt (though this number includes intra-government transfers). This fact, coupled with a fear of the Chinese, motivated someone to ask me recently "whether we would have better things to do with that 17% of the federal budget than pay interest to China." I think the asker expected the question to be intrepreted rhetorically, assuming that the answer would be "of course". However, the answer isn't "of course". It's perhaps. Here's why.

First a few little tidbits. Of the government debt, approximately 40% is owed to itself and it pays interest to itself (for the famous SS trust fund among other things). So that means that only about 10% of the budget is paid to other entities.

The Chinese government holds approximately $223 billion of the debt. That's less than 3% of the total debt. Assuming they're paying the same interest rate as everybody else, only a fraction of a percent of the budget goes to pay China interest, so we needn't worry about China quite yet.

Nonetheless, it's an interesting question whether or not we should try to pay the debt down to reduce interest charges. But I'd like to ask some related questions before posing some ideas related to plausible

Instead of 17% of GDP, let's consider 17% of household income. I reckon that many of us have had mortgages on our houses at some point in our lives for which the interest payments were
in the ballpark of 17% of our household income. If debt is so bad, why? Why didn't we rent instead?

More telling, I reckon that at least some of us, while having that big mortgage payment, also held stock and other liquid assets that we could have used to pay down our mortgage and reduce the interest
payments. But we didn't. Why?

Even more interesting, while holding both the mortgage and liquid assets, I'd bet at least a few of us either left a balance on a credit card for several months or took out a home equity loan when we
could have used our liquid assets instead. Why?

The answer is that the credit was cheap relative to the return we expected on the assets, all things considered (like taxes).

The government can borrow money incredibly cheaply (a 2 to 4 percent real rate, unsecured). That's less than half the rate that we can borrow at. If I could borrow money at the governments rate, especially unsecured, I would borrow all I could and invest it in various asset classes. Anybody who did this would soon be incredibly wealthy.

When the government uses debt to finance some of its budget instead of collecting additional taxes and leaves that extra money in the hands of the public, a significant portion of that extra money is invested in asset classes that have a significantly higher return than the cost of that money. That causes additional growth that actually increases tax receipts downstream. (This is part of the Supply Side concept you
may have heard mentioned elsewhere).

The money not invested is spent on consumption. However, even here, the extra consumption stimulates demand which helps employ people (lowering unemployment) and it stimulates innovation (technological,
manufacturing processes, and business processes) to meet the extra demand. This also leads to additional knowledge discovery and growth, especially when coupled with the additional investment.

Would it better if all debt magically disappeared? Sure. But it has, in my opinion, been well worth the cost, and will continue to be worth the cost.

I say borrow away.

Wednesday, August 24, 2005

Jared Diamond's Collapse

John wrote a couple of months back about Jared Diamond's extremely popular book Collapse: How Societies Choose to Fail or Survive. A recent paper published in Energy and Environment by Benny Peiser strongly disagrees with Diamond on, well, just about everything. Here's the paper's abstract:
The decline and fall of Easter Island and its alleged self-destruction has become the poster child of a new environmentalist historiography, a school of thought that goes hand-in-hand with predictions of environmental disaster. Why did this exceptional civilisation crumble? What drove its population to extinction? These are some of the key questions Jared Diamond endeavours to answer in his new book Collapse: How Societies Choose to Fail or Survive. According to Diamond, the people of Easter Island destroyed their forest, degraded the island's topsoil, wiped out their plants and drove their animals to extinction. As a result of this self inflicted environmental devastation, its complex society collapsed, descending into civil war, cannibalism and self-destruction. While his theory of ecocide has become almost paradigmatic in environmental circles, a dark and gory secret hangs over the premise of Easter Island's self-destruction: an actual genocide terminated Rapa Nui's indigenous populace and its culture. Diamond, however, ignores and fails to address the true reasons behind Rapa Nui's collapse. Why has he turned the victims of cultural and physical extermination into the perpetrators of their own demise? This paper is a first attempt to address this disquieting quandary. It describes the foundation of Diamond's environmental revisionism and explains why it does not hold up to scientific scrutiny.
The whole paper is fascinating. What I hadn't realized is that there was a large indigenous population still living on Easter Island when the island was first discovered by Europeans. Then, one-hundred and fifty years after repeated contacts with Europeans, there were none left. Hmmmmm. Given the known atrocities committed by white men against native populations everywhere else in the world during that period, it's difficult for me to believe that the natives' contact with the Europeans had little or no negative consequences, yet that seems to be critical to Jared Diamond's fundamental claim that the natives killed themselves by the ecological disaster they created.

Another environmental doom and gloom prophet exposed? Maybe. It does, at least, make me wonder. I'm now interested in following this debate as it unfolds.

United States Federal Government Planning Permanent Closure of All Operations

When I see a headline like the one above and can verify it as true, then I will be an advocate for paying off all of the federal debt. NOT UNTIL THEN!!!!!

Tuesday, August 23, 2005

More Environmental Bets

More people are starting to jump on the betting bandwagon pioneered by Julian Simon and Paul Ehrlich. The latest bettors are Matthew Simmons, the head of a Houston investment bank specializing in the energy industry and author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, and John Tierney, an op-ed columnist for the New York Times. The following excerpt describes the details of the bet:

I [John Tierney] proposed to him [Matthiew Simmons] a bet using what Julian considered the best measure of a resource's value: how it compares with the average worker's wage. I offered to bet that the price of oil would not rise faster than the average wage, meaning that future workers would be able to afford oil more easily than they could today.

Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.

Remembering a tip from Julian, I suggested that we use the average price for the whole year of 2010 instead of the price on any particular date - that way, neither of us would be vulnerable to a sudden short-term swing as the market reacted to some unexpected news. Mr. Simmons agreed, and we sealed the deal by e-mail.

The first person I told was Julian's widow, Rita Simon, a public affairs professor at American University. She was delighted to see Julian's tradition carried on and thought the bet sounded so good she wanted a piece of the action herself.

With Mr. Simmons's approval, we arranged for Rita and me to split the wager, with each of us putting up $2,500 against Mr. Simmons's $5,000. (Note to accounting department: I'm aware that my expense account doesn't cover gambling. I'm using my own money.) All the money is being put into escrow in a joint account; the winning side will collect the $10,000 plus any accrued interest on Jan. 1, 2011.

Well, that's sporting. Relatively short term supply disruptions could easily push the price of oil past $200 per barrel (in 2005 dollars). Good luck to Mr. Tierney - this bet is far from a shoe in - though I think the odds are strongly in his favour.

Monday, August 22, 2005

Bush Bashing Feels Soooooo Good...

...that some people are willing to use any distortion of the data.

I was recently emailed the following graph:

What's interesting is that the poster chose to use absolute numbers, not taking into account inflation, population growth, or growth in GDP, and by doing so, makes Bush look as bad as possible. The following chart shows this same data (going back to 1930), derived from data supplied by the Government Printing Office, using percentages of GDP instead of absolute numbers:

What a difference a little data normalization makes! Since I think the optimal amount for the federal government to borrow every year is about 2 percent (one of these days I'll post about why I think that), it looks pretty good to me.

But, if you want to bash Bush instead of having a rational discussion, you might as well use a data set that's not normalized and doesn't make any sense. Heck, you might as well use made up and totally bogus data!

Russian Simon Says

Julian Simon was one of the most well known and outspoken critics of environmentalist doomsayers in the 1970s and beyond until his death 1997. Paul Ehrlich was (and is still) one of the most well known doomsayers. He wrote The Population Bomb in 1968 which claimed with complete confidence that "[t]he battle to feed all of humanity is over. In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate." Obviously, Ehrlich's prediction was about as far off the mark as a prediction can possibly be, but he nonetheless continued his doomsaying with unrelenting fervour.

Simon and Ehrlich had a famous bet in 1980:
Simon offered Ehrlich a bet centered on the market price of metals. Ehrlich would pick a quantity of any five metals he liked worth $1,000 in 1980. If the 1990 price of the metals, after adjusting for inflation, was more than $1,000 (i.e. the metals became more scarce), Ehrlich would win. If, however, the value of the metals after inflation was less than $1,000 (i.e. the metals became less scare), Simon would win. The loser would mail the winner a check for the change in price.

Ehrlich agreed to the bet, and chose copper, chrome, nickel, tin and tungsten.
All five metals dropped in price by 1990. Tin dropped a whopping 72%. Once again Ehrlich was about as far off the mark as possible. Yet people still take his predictions very seriously.

Well, that's a long winded introduction to the next long term environmental bet:
Two climate change sceptics, who believe the dangers of global warming are overstated, have put their money where their mouth is and bet $10,000 that the planet will cool over the next decade.

The Russian solar physicists Galina Mashnich and Vladimir Bashkirtsev have agreed the wager with a British climate expert, James Annan. [...]

To decide who wins the bet, the scientists have agreed to compare the average global surface temperature recorded by a US climate centre between 1998 and 2003, with temperatures they will record between 2012 and 2017. If the temperature drops Dr Annan will stump up the $10,000 (now equivalent to about £5,800) in 2018. If the Earth continues to warm, the money will go the other way.

I'm very interested in this bet. As I've written before, I'd be more supportive of trying to slow global warming if environmentalist doomsayers' predictions had been right in the past just once. If they finally win this bet, and if the global temperatures in the next 15 years actually track the climate change models, then I will be more interested in listening to them.

Sunday, August 21, 2005

Back from the Ranch

We just got back yesterday from Rankin Ranch, a combination guest and cattle ranch in southern California. They have lots of activities for adults and especially for kids, the most popular of which is riding horses.

It's also interesting to observe an operating ranch. It's basically a team of men, horses, dogs (of the herding variety), and cattle eking out the only living possible from the dried grass of this very hilly range. Even the cattle alone could not survive because they require the men (with the assistance of horses) to pump water for drinking. Otherwise, there would be little life through much of the ranch.

Environmentalists, especially of the animal rights variety, hate ranchers. They do their best to harrass ranchers via the courts and public relations. Given that I was just at a ranch, I found the following amusing:

Jim Chilton is one of hundreds of ranchers targeted by environmental groups for allegedly allowing cattle to despoil the West's backcountry. Now Mr. Chilton is showing ranchers how to turn the tables on the green groups by using their own playbook.

The Center for Biological Diversity in Tucson is known for its lawsuits against ranching practices - and for its methods of posting photos on the Internet that it says depict land destruction. So when the Center came after Mr. Chilton, he struck back with a defamation suit in Arizona Superior Court in Tucson last year.

He produced his own photos of lands the group claimed he spoiled in order to argue that their photos had exaggerated the damage. He snapped one photo, for example, of a hillside featured on the Center's Web site to show that what looked like barren earth was just a tiny patch surrounded by lush grass.

After a jury trial this year, Mr. Chilton was awarded $600,000, including $500,000 in punitive damages against the environmental group. "I had to decide whether I was a cowboy or a wimp," Mr. Chilton says. "I decided to be a cowboy...and not ignore people saying bad things about my ranch." The Center denies wrongdoing and has appealed the decision.

Go cowboys! However, what is a little less amusing and more sinister is evidence that environmentalists are hijacking the government for their own ends:

The Forest Service biologist who supervised the chub studies [on Chilton's land], Stefferud, has donated money to the Center over the years, as he admits. (New Times found records indicating he gave at least $200 in 2002 alone.) "There's nothing wrong with contributing to the Center," he says. "For a long time it was on the United Way form and you could contribute as part of your paycheck. A lot of employees did it that way." His wife Sally also worked on the case as a senior fish biologist for U.S. Fish and Wildlife.

Meanwhile, another Forest Service employee penned a report claiming that the Chiltons' ranching was likely to harm the Lesser Long-Nosed Bat, another endangered species. That employee is married to a biologist who also donated to the Center -- a man who even co-authored a research paper on ponderosa pine with one of the Center's founders, Kieran Suckling. (Since no one has ever been able to prove that the bat in question lives on the Chiltons' allotment, that issue eventually went away.)

To the Chiltons, those ties were clear evidence that the government was not a neutral party, simply acting as mediator between their interests and those of the environmentalists. Instead, the government and the environmentalists were one and the same.

It's one thing to lobby the government (though I don't love that concept either), it's quite another for members of an activist group to actually become employees of the government and use their position of authority to further their causes at the tax payers' and other groups' expense. Another problem that's magnified by big government.

Tuesday, August 09, 2005

Trade Deficit Debunking

Trade always balances. Until we start interplanetary trade, a trade surplus of some countries is offset by a trade deficit of other countries. The global economy is the only fully closed economy in this trading system. Why then do some people worry so much about the U.S. trade or current account deficit? I think it is lack of understanding. Historically, the global financial system was much more limited in its' ability to handle the capital flows needed to accomodate large trade deficits. If it makes you feel better just think about the large capital account surplus we are running (we are)!

Another worry is that a trade deficit might indicate that we are living beyond our means. We may be, but I don't think so. We are huge exporters of intellectual property, much of which is uncounted or undercounted in industrial age trade statistics. This IP is the foundation of many high profit margin businesses in this country. The low profit margin manufacturing businesses overseas take some of the fruits of the IP, slap together a finished product and ship it back to the U.S. This makes the reported trade numbers look bad but it is just an artifact of a more efficient global division of labor. Scale and elasticity are key here in technology and IP - prices down, volumes up, new applications and on we go even with high margins...

I remember reading a Peter Drucker article a number of years ago that included a list of only a handful of business activites which he considered to be high value added. Design and marketing were on the list, manufacturing was not. We should probably strive to hold on to and create more of the highest end manufacturing but the more commoditized it is the more we should let it go. We are still the worlds' largest manufacturers even it only employs 20% of our population.

Don Luskin deals with some of the nonsense here.

Yet the notion of debt is always evoked when the trade deficit is discussed. The very term deficit implies debt. It's as though by talking in terms of debt the trade deficit can be portrayed as some kind of overhanging Sword of Damocles -- some inescapable doom that inevitably awaits us, as though it were a debt that can never be repaid and will throw us into moral if not literal bankruptcy. But stop and think for a moment. What's the worst thing that can happen? All that can happen is: all that unspent money overseas will eventually be spent on US goods. And what's wrong with that? Isn't that what the trade deficit catastrophists are complaining should be happening now? If it's what they want to happen now, why are they afraid that it will happen in the future?

If the invocation of the sin of debt isn't enough, the catastrophists can trot out this idea that when foreigners buy our productive assets -- our companies or our real estate -- rather than buy our goods, we are sacrificing all future benefits from those assets. This argument relies on an utter misunderstanding of how such assets are priced in an efficient market. If a share of stock in a company entitles its owner to a future flow of dividends and other benefits, then today's price reflects the market's appraisal of that flow. If you take money today in exchange for that share of stock, you have captured the present value of all its future benefits. In essence, an asset's price make you indifferent between holding the price in cash and holding the asset.

John Tamny takes a shot at the naysayers here.

That they’re not shows the glaring flaw in the arguments made by trade-deficit worriers. Since it’s an empirical fact that our trade deficits are driven by massive inflows of foreign capital, it must from there be deduced that money doesn’t flow here because the world loves us (the Left says they hate us), but because the worldwide investment community still sees U.S. economic policies that embrace low taxation and low regulation as ones that will yield the best returns.

In short, we can reduce the trade deficit, but only if we pursue the kinds of high-tax, tariff, and regulatory policies that would impoverish us. Because of that, Americans should beware of those offering solutions to our supposed balance-of-trade problem. The cure is much worse than the unambiguously positive symptom.
The 1990 recession brought us close to a trade balance - do you really want that??

Andy Kessler does a terrific job of explaining all of this in his two most recent books which I highly reccomend. One chapter of Running Money is titled "Why it is imperative that you drive a beemer, tote a toshiba laptop and watch a big-ass sony tv." He want foreigners to have the dollars to invest here but also to buy the products arising from our intellectual property. This is an example of our high margin...

Over the last year, two things have happened. First, Apple has increased their sales by over a third, almost all of it from increased sales of iPods – those 2 million of them at $265 each last quarter and another 100 million songs sold via their iTunes service. An iPod is just the combination some Apple software, cheap disk drives and a $12 chip a Silicon Valley company named PortalPlayer. I calculated that Apple pays $200 each per iPod to Chinese assembler Inventec to slap it all together. Even with cheap labor, Inventec has almost no profits, I’d bet under $10, probably more like $4. PortalPlayer, by the way, emails their design to Taiwan to be fabricated, with profits of some $5 per chip.

The second change since a year ago is that Apple’s stock has gone from $21 to $64. Pretty cool, capitalism at its best. Why? Because Apple keeps $65 per iPod - money chases profits! If you assume the stock increase is all due to the iPod (it is), then that business is worth some $15 billion. Add in PortalPlayer’s market value of almost $1 billion and you start to get a feel for how the world works. A $1.5 billion trade deficit increases wealth in the U.S. by some $16 billion – I’ll take that trade any day. So will all the holders of the retirement accounts at Vanguard and Fidelity and Janus and Lord Abbett who own Apple’s stock. Why am I caring about deficits again?

Trade deficits are just an economic construct, and lowering the dollar won’t solve a thing. We are already moving low margin, low paying jobs overseas, but fortunately, are left with high margin, high paying intellectual property jobs. Would you rather own Apple making a margin of $65 or Invetec with $4, on the same product? Me too. We may have trade deficits of $550 billion this year and, but we enjoy a huge margin surplus.

This deals with the global financial system and other elements of a global economy driven by the force of U.S. intellectual property.

With flexible exchange rates and relatively free trade in post-WWII (and to be fair, post the Bretton Woods gold standard), low margin tasks and low paying jobs moved out of the U.S. Displaced workers and union rhetoric screamed for something to be done about “lost jobs” but it probably was the best thing to happen to the U.S. since it allowed for high wages in the U.S. for high margin tasks. The stock market rewards high margin companies with high values, lowering their cost of capital. They can sell fewer and fewer shares to raise money instead of borrowing money from banks. High wages are taxed, to pay for social services, not the least of which is a military to protect the U.S. AND its trading partners.

Gold just gets in the way of the flow of funds.

You see, a new twist has been added to this system. Since the birth of the personal computer and the horizontalization of the industry, companies could focus on thin slices of intellectual property, which could have very, very high margins. Software, microprocessor architectures, semiconductors, network architectures, optical components, cell phone components, and databases are all pieces of intellectual property that could be licensed to others to build end products.

In fact, the U.S. is a huge exporter of these pieces of intellectual property, although these exports are hard to measure. Often, an entire architecture of a chip, valued at a billion dollars, can be emailed to a factory in Taiwan, without a cash register ringing or a commerce department employee around to measure the export. That chip and other intellectual property are then combined, using low cost labor with other low margin components, like a power supply and some plastic and turned into a laptop or DVD player. Oddly, this “margin surplus” run by the U.S. is the way to run an economy with declining price products. Gold won’t help. Instead, it requires a stock market to balance out world trade. Fortunately, we’ve got one of those! The money that leaves the country to buy those laptops and BMWs and Sony TVs comes back and invests in our high margin companies.

So after all that, what I am trying to say about gold? The British had no choice. They and the rest of the world needed a “hard currency” - something rare like gold as a baseline to base their own paper currency on. The Brits were certainly not going to take French or German paper currency and trust them not to devalue it by just printing more of it. So gold was necessary.

Fine. But the classical gold standard was a huge mistake. They held the wrong thing constant. Wages were never going to go down without more than a few pissed off laborers. It was currency rates that should have floated instead of wages and domestic prices. But that would have required rooms filled with computers, human or electronic, neither of which really existed in great numbers.

But they do now!

Currency rates do float. And there are 100,000 or more computer screens on Wall Street and around the world armed by bond and currency traders that keep countries honest. Countries caught cheating see their currencies plummet, their interest rates pop and their economies slow. It is a tightly wound system.

But banks are still a problem. They profit from lending, but there is no decent mechanism to keep them from overlending. Banks are as dead as gold. Neither is any good anymore at allocating capital. Stock markets, on the other hand, are quite good at providing access to capital for great companies and starving those that have dim prospects. Banks still loan to son-in-laws!

Ask the Japanese still burdened by non-performing loans. Some argue that half of Chinese bank loans are non-performing. We don’t have to ship gold around anymore, yet gold is still considered a currency in modern international commerce. Gold is no longer the reserve of central banks, it is dollars.

And these export economies have too much dollars. They have to give it back to us (investing in our high margin companies via the stock market) else they over lend. I know it sounds crazy, but it’s the new classical “insert your species” standard. When things heat up at home, you’ve got to ship out your species, in this case dollars, and they are all going to naturally flow back into the U.S. The Japanese periodically intervene and ship dollars back here to keep the yen down. The Chinese have a peg, so excess dollars go to banks, with awful results. The Europeans are just figuring out that $1.30 to the yen doesn’t do them any good, and they need to start intervening to get the euro down. This is the new economy, gold doesn’t flow, but dollars need to, in order to keep them away from dumb bankers. On the margin, it will invest in high margin companies in the U.S., that is our margin surplus. And I’d like to get in the way of that flow!

Optical Radiation Directive

It must be a joke, or at least I hope it is, but according to the National Post:
Bavarians are hot under the collar over a European Union directive that will force their barmaids to cover up, supposedly to protect them from the sun. [...]

Bavarian barmaids typically dress in a costume known as a dirndl, a dress and apron with a tight, low-cut top whose figure-hugging effect is enhanced by a short, white blouse.

Under the EU's Optical Radiation Directive, employers of staff who work outdoors, including those in Bavaria's beer gardens, must ensure they cover up against the risk of sunburn.

Well, if it's not a joke, then I hope the Optical Radiation Directive goes bust (so to speak).

Monday, August 08, 2005

Fortune Should be Ashamed of this Article

Every once in a while somebody suggests that I read an article that I find is so far off from how I believe the world works that I just shake my head in quiet and perplexed astonishment. The latest (and greatest) in a long line of such articles comes from Fortune and is titled “CAN AMERICANS COMPETE? Is America the World's 97-lb. Weakling?

The general gist of the article is that as the rest of the world gets more skilled, innovative, and productive, the United States will get poorer, unless, of course, the Federal government jumps in and does something about it. Let's look at some specific excerpts, starting with:

Respectable analysts believe it’s possible—not certain, but possible—that the U.S. standard of living, after decades of steady ascent, could stall or even begin to decline.

It doesn't say who the “respectable analysts” are (or why they're respectable), some people (even respectable ones) will believe anything, and I suppose anything is possible. Nonetheless, the concept that as other countries, via a combination of investment and technological innovation, produce more and more and even more for local and global markets, the United States will have less and less, defies not only common sense, but the basic economics of trade and comparative advantage. Sure, those other countries may become wealthier than the United States, but that process is likely to bestow economic benefits on the United States as it happens, helping the United States become wealthier in the process. Most importantly though, just because other countries develop skills in similar areas doesn't mean that there won't be plenty of jobs to go around in the United States. Which brings us to the next excerpt:

McKinsey figures that about 4.1 million service jobs will actually get offshored from high-wage countries to low-wage countries by 2008. It doesn’t make a forecast for U.S. jobs, but others have done so. Forrester Research puts the number at 3.4 million white-collar jobs by 2015.

3.4 million jobs by 2015? That's all? We're supposed to be worried about that? Consider this: the United States will likely create a net gain of over 20 million jobs during that period. Even more amazing is that every year, tens of millions of jobs are destroyed, and tens of millions more are created. Thus, between now and 2015, it's likely that over 300 million jobs will be created and destroyed. Forrester Research's 3.4 million jobs is just noise in comparison. Even Berkeley's much higher estimate of “perhaps 14 million” is just a drop in the bucket.

They [some economists] note that something extremely odd occurred in the U.S. economy last year: Average compensation, including pay and benefits, fell. That is a rare event; the last time it happened was 14 years ago.

Interesting, but there's no link or reference. I'll give a reference just for, well, reference. According to HUD, the median family income rose about 2% between 2003 and 2004 and is estimated to go up again in 2005. I reckon the stated fall in average compensation was negligible, and until I get to look at the actual numbers, color me skeptical (which I think is a deep shade of purple).

As other nations multiply their science and engineering graduates—building the foundation for economic progress—ours are declining, in part because those fields are seen as nerdish and simply uncool. And our culture prizes cool. [...]

The No. 1 policy prescription, almost regardless of whom you ask, comes down to one word: education.

So how exactly are you going to get the government to convince students that “nerdish” is “cool”. Governments are particularly bad at that. And if people aren't interested in learning, they're not gonna (well, I'll be damned - I put “gonna” in as a sarcastic, uneducated sounding slang, fully expecting the spell-checker to complain, but it turns out that “gonna” is in the dictionary – clearly I need some better edjucatin').

John Doerr, the legendary Silicon Valley venture capitalist, recommends that every foreign student who gets a Ph.D. at a U.S. university should also get a green card (granting permanent residency) stapled to his or her diploma.

Oh heavens, that's just what we need. That'll mean more immigrants from the Middle East with Ph.D.'s in Islamic studies (with concentrations in extreme Islam). How about just making it somewhat easier for a company to hire foreign engineers? Though even in that case, why not just contract to a foreign firm, rather than import people?

The Council on Competitiveness, consisting of CEOs, university presidents, and labor leaders, wants federal research spending increased substantially, to 1% of GDP—about $110 billion a year.

Not much of a surprise that a group of university presidents would want to increase federal research spending. That's sort of like a bunch of alcoholics wanting increased spending on the nation's ethanol program.

The general concept of having the government coming in and guide the country through the upcoming imagined crises is nauseating to me. Sometimes governments hit it right, as Japan's did in the 1980's, but more often they get it wrong, like Japan's after the 1980's or the Soviet Union's did during their entire existence. Just leave people free to innovate and they will.

Thursday, August 04, 2005

Unbridgeable Gap

I've mentioned the blog Left2Right before. They are a group of fairly moderate liberal academics whose goal is "to consider whether liberal ideas should be somehow reconsidered -- in some respects revised, in others perhaps merely re-stated -- with the aim of increasing the overall ratio of dialog to diatribe in the American political forum." One of the Left2Right bloggers, Elizabeth Anderson, has posted a very long and fairly slowly moving series of essays on freedom. Virtually all of the essays prior to the last one were simply laying the ground work for future essays on the same subject. Finally, in her latest post on the subject, she actually makes some progress in conveying her particular point of view. Unfortunately, the parts of her particular point of view that were conveyed are so radically different than mine that it seems there is little room for debate. Consider the following excerpt:
It's worse [from the perspective of freedom] to be unable to cross an unnavigable river because others arbitrarily forbid one from using the bridge, than because the technology for building a bridge at that point is lacking. In the first case, one lives in a state of subjection to others; in the second, one is merely technologically poor.
So it's better to live in the dirt than to allow someone else to build a bridge that I can't cross? Perhaps this is true theoretically within the realm of modern philosophy, and perhaps it's true in reality for many people. For me, though, I would feel no less free if I couldn't cross a raging river because there was no bridge as opposed to being unable to cross the river because someone else, at substantial cost to themselves, built a bridge and then prohibited me from using it. This would be true even if the bridge builder prohibited me from using it because he didn't like me, for example, because of my race. I personally feel no less free because of limitations imposed by man than limitations imposed by nature or circumstance.

Because what does prohibit mean? Does it mean that there are armed guards who are allowed to shoot to kill when they see trespassers? If not, the prohibition of the bridge builder is less absolute than the prohibition of the lack of the bridge. In case of a flood where I need to get across the river to save my life, if there's a bridge, even if I'm "prohibited" from using it, I'll simply ignore the prohibition to save my life. Perhaps I'm then sued for big bucks or put in jail for a time, but at least I'm still alive.

So I have a very different perspective on freedom from Anderson. My vote and my policy objectives clearly begin to sharply diverge at this point.

In any case, private parties won't build a lot of bridges that they can't control. So of course, the only way to get bridges built is to have the government do it. Indeed Anderson's perspective rationally leads her to conclude that "[p]ublic property collectively managed for purposes of public transport and communication, and funded by general taxes (not tolls) ... offers a superior package of freedoms" relative to other approaches. The conclusion may follow from the premises, but I strongly disagree with those premises.

However, there's still one point that Anderson doesn't bother to address in this post: why is a government not oppressive when it collects taxes? We essentially work as slaves for several months of the year for the government. Why are governments not oppressive in collecting taxes, while private citizens, deploying resources as they see fit, are oppressive? Apparently, since that's how it is from Anderson's perspective, she expects the rest of us to agree.

Anderson did touch on the topic in previous posts, but without specific examples, the concept of "freedom from oppression" seems all nice and touchy feely and everything. Once it becomes clear that owning a bridge that you built oppresses those around you, suddenly "freedom from oppression" seems like a pretty onerous concept.

Unfortunately, the gap between Left and Right for this issue is one that neither the government, nor private citizens, will be able to bridge.

Tuesday, August 02, 2005

Hubbert's Valley

I posted earlier regarding those who think worldwide peak oil production will happen this year or soon. I'm skeptical. Here's an alternative view:
Our new, field-by-field analysis of production capacity, led by my colleagues Peter Jackson and Robert Esser, is quite at odds with the current view and leads to a strikingly different conclusion: There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

Where will this growth come from? It is pretty evenly divided between non-OPEC and OPEC. The largest non-OPEC growth is projected for Canada, Kazakhstan, Brazil, Azerbaijan, Angola and Russia. In the OPEC countries, significant growth is expected to occur in Saudi Arabia, Nigeria, Algeria and Libya, among others. Our estimate for growth in Iraq is quite modest -- only 1 million barrels a day -- reflecting the high degree of uncertainty there. In the forecast, the United States remains almost level, with development in the deep-water areas of the Gulf of Mexico compensating for declines elsewhere.

While questions can be raised about specific countries, this forecast is not speculative. It is based on what is already unfolding. The oil industry is governed by a "law of long lead times." Much of the new capacity that will become available between now and 2010 is under development. Many of the projects that embody this new capacity were approved in the 2001-03 period, based on price expectations much lower than current prices.

There are risks to any forecast. In this case, the risks are not the "below ground" ones of geology or lack of resources. Rather, they are "above ground" -- political instability, outright conflict, terrorism or slowdowns in decision making on the part of governments in oil-producing countries. Yet, even with the scaling back of the forecast, it would still constitute a big increase in output.

This is not the first time that the world has "run out of oil." It's more like the fifth.

And yet people still listen to the doomsayers. Why?