Archive for the 'Economics' Category

Government Spending Is Out Of Control! We’re All DOOMED!!!…Or Are We?

These days, it’s very common to hear about how Obama and the Democrats are spending away our future, and especially how the country is “broke”. The federal budget has grown to over $3 trillion, and in the past few years the deficit has been more than $1 trillion.

Typically, I hate fear mongering. And I see a lot of it when conservatives rail again the Obama administration’s policies. To be clear, I do think that we should cut spending and lower taxes, but I do not fear that the government is somehow out of money.

The first reason is that the government has, in theory, an infinite supply of money. If it needs to, it can just print more. Now, printing money can be a very very bad thing as it leads to huge inflation. But, if it wanted to, it could simply print up $15 trillion and pay back all its debt-holders immediately, at the cost of devaluing the dollar to around what a nickel is worth today. The government would be completely debt free, although the rest of us would be screwed.

Imagine if you had a large debt, say $500,000, and you made nowhere near that much to pay it off in any reasonable amount of time. However, imagine you could also go up to an ATM and withdraw and unlimited amount of cash. Does a $500,000 debt even mean anything in that scenario? It doesn’t, really.

Another reason I’m not worried is that I did what a lot of scientists (and very few regular people) do: I looked at the data. I compiled three charts that compare the government’s annual deficit spending, its total spending, and its total debt, with the GDP of the nation, basically the total amount of money we spend as a nation, from 1929 to 2011. The colors indicate the political party currently in the White House, just for comparison. The first is deficit as a percentage of GDP:

The most noticeable feature is the huge spike on the left from 1942 to 1945, obviously caused by World War II. Since then, our deficits have been quite low, even dipping negative at times as the government runs a surplus for some years. There has, however, clearly been a recent trend upwards, with a second smaller spike occurring in 2009 with the beginning of the recent economic stimuli. So, yes, the deficits have rose, but it’s not an unprecedented rise.

But these are how much the government has gone over budget. What about it’s total spending? Surely there’s been a large increase recently:

Well actually, again, there is an increase, but it’s quite small. Again, note the huge spike from WWII. It’s important to remember that we experienced one of the largest and most prosperous periods right after that (the 1950s). If we recovered from that, surely we can recover from this.

But what about debt? That’s all we hear about, how much we owe to foreign nations and so on (really, much of the debt is owed internally, to state and local governments, and to individuals. Ever owned a U.S. Savings Bond? If so, then you owned part of the federal government’s debt.) Here’s how it measures up:

Ok, so there has been a relatively large increase over the past thirty years or so, but it’s still not unprecedented. We recovered after WWII, we can do it again. If you look closer, you can see that it was during the Republicans’ best friend Ronald Reagan’s term that increase seems to have started, even though Reagan was, ostensibly, all about minimizing government spending. What’s that quote? “Our government is too big, and it spends too much”. Really, Gip? We seem to have been doing pretty nicely for the few decades before that.

Even after Reagan and Bush Sr., the Clinton administration seems to have gotten things under control, but W. raised it again and Obama seems to be continuing the trend, but has promised to cut the budget after the economy has been sufficiently stimulated. I don’t know how well he’ll fare, but it is interesting to note that, if you didn’t know any better, you might be inclined to think that it’s the Republicans who like to run up debt and spend money, while it’s the Democrats who like to hold off and be fiscally responsible. Hmmm.

Well anyway, I hope that this at least shows that we’re not doomed. If anything it’s just business as usual.

Ah Shucks, I Guess I Can’t Be A Republican

Today, the GOP decided to require their members to conform to at least eight out of ten of the following ideals otherwise they’ll lose their backing. I decided to see how I stack up against the “ideal Republican”:

(1) We support smaller government, smaller national debt, lower deficits and lower taxes by opposing bills like Obama’s “stimulus” bill

Yes, I am all smaller government, lower taxes, and less power in the hands of the government. As the old adage goes: “He who governs best, governs least.”

(2) We support market-based health care reform and oppose Obama-style government run healthcare

Yes, while it would be great if we could figure out how to make sure to insure everyone, government-run anything tends to just be bloated, inefficient, and a drain on our society. It is the separation of the buyer (i.e. the patient) and the payer (i.e. the insurance company) that has caused health care costs to skyrocket (it’s the same reason my textbooks are so expensive. The professors choose the book, but we students have to pay for it). By eliminating this separation, it will force doctors and hospitals to economically compete, causing prices to go down.

(3) We support market-based energy reforms by opposing cap and trade legislation

Yes, I believe the free-market is the best way to transition us from oil-based to post-oil-based power. As cheap oil starts to run out, the price of oil goes up and other forms of energy become economically competitive, and will eventually take over. Although, I would like to see a lot more government investment in alternative energy so that it’s ready to take over when oil runs out.

(4) We support workers’ right to secret ballot by opposing card check

I actually had to look up what this was (even though I’m part of a worker’s union. Go figure), but I’m actually against it. It’s not that I’m against having a secret ballot for forming a union, but I do think that both paths (secret and open ballots) should be available.

(5) We support legal immigration and assimilation into American society by opposing amnesty for illegal immigrants

Yes, although I would like to see lower barriers for legal immigration.

(6) We support victory in Iraq and Afghanistan by supporting military-recommended troop surges

No, simply because “victory” is pretty much undefined. What is “victory” in Iraq, really? We ousted the Hussein and the Ba’ath Party six years ago. Was that “victory”? If so, what do you call everything since then? And in Afghanistan? Same deal. When you investigate why these people in the Middle East are becoming insurgents, you realize “victory” is impossible. The only options are retreat or stagnation.

(7) We support containment of Iran and North Korea, particularly effective action to eliminate their nuclear weapons threat

Yes, especially Iran. Although invading either is out of the question as it would likely just become another Iraq.

(8) We support retention of the Defense of Marriage Act

No. Government has no business messing with people’s personal lives. What I don’t understand is why the Republicans, ostensibly the party that wants limited government, would use it to force people to conform to their sense of dignity.

(9) We support protecting the lives of vulnerable persons by opposing health care rationing and denial of health care and government funding of abortion

Yes, except for the last part. Again, why do the Republicans want to control people’s behavior in this area*? Then again, maybe the government shouldn’t be funding abortion, but it should still be legal to get in private hospitals and clinics.

10) We support the right to keep and bear arms by opposing government restrictions on gun ownership

Yes. Again, the government doesn’t have the right to mess with what people can and can’t do with their own property, including guns. Of course, that doesn’t mean people shouldn’t have their guns taken away if they misuse them and shoot people. But that would be similar to tearing up someone’s driver’s license because they were a dangerous driver, something no one argues again.

So, I score a 6.5 out of 10 (counting number 9 as half). Close, but I guess I lose my right-wing funding. Oh wait, I don’t get funding anyway. D’oh! 

*Don’t answer, I do know why, and, honestly, if it could be shown that a fetus is a person, I’d be against abortion too.

Economics of the Robotic Revolution

Today, I was thinking about robots like I often do, and I wondered how much an individual robot would have to be in order to be economically competitive with a human being. Basically,  such a robot is cheaper than hiring a living human, then it is more advantageous for a business to buy a robot than hire a person.

A good comparison I’ve found is comparing a robot to a car. Both are highly complex machines that perform important tasks for people. In fact, in a very real sense, comparing a robot to a human is much like comparing a car to its predecessor: the horse.

Cars have many advantages over horses: they are faster, more powerful. They are cheaper and easier to buy and maintain (yes, even with $3 a gallon gas).  Cars don’t die of starvation if you ignore them for a couple weeks. Cars shield you from the elements when traveling and come with air conditioning and handy cup holders…the list can go on and on. Horses used to be the common method of getting around, but now are something of an extravagance simply because something objectively better has come along.

Robots have many of the same advantages over humans as cars do over horses. Also, in terms of economics, let’s make a few assumptions. Let’s assume that a company that buys a robot keeps that robot and uses it for labor every day for 10 years. Cars regularly last 10 years or more. Let’s also assume that the robot works an average of eighteen hours a day, using the other six to recharge, repair, and generally undergo maintenance. If the company was employing a human, how much does that much manpower cost?

The answer is quite surprising. There are roughly 3,650 days in 10 years. Times 18 hours per day, means that a company would get 65,700 man-hours of labor out of one robot. The current minimum wage in the US is $7.25, so that many man-hours of labor costs $476,325. That’s almost half a million dollars. For one robot.

Now there are also issues like the cost to power and repair those robots, but again, how much does it cost to keep a car repaired and fueled? A few hundred dollars a month? Assume $500. For 10 years that works out to only $60,000.  Still, a $400,000 robot is economically competitive. Wow. Factoring in inflation that will likely happen over the next 25 years (at which point computer power becomes high enough due to Moore’s Law), an economically competitive robot will be in the $1 million range.

Today, you can buy one human brain’s worth of processing power for much less than that. Today’s supercomputers already are smarter than humans, at least in terms of computational power. Of course, as soon as a robot that costs $400,000 hits the market it doesn’t necessarily mean that everyone will be fired and replaced by robots. Likely, the cost will have to come down to the point where the advantage becomes very obvious.

The Problem With California

Unless you’ve been living under a rock, you know that the state of California is scrambling to fix its budget problems. I live in California, and it’s easy to blame the Governor, or the state legislature for our woes, but really, I think they are simply victims and caught in the middle of what the real cause of our problems is: us.

By which I mean the voters. As an almost too perfect example, I refer you to Proposition 1A, passed last November, a ballot measure that proposed building a high-speed train between Los Angeles and San Francisco, at a cost of nearly $10 billion.

To put it bluntly, we don’t need it. But we passed it and it we now have to borrow $10 billion (because people don’t want their taxes raised) to pay for it. How do I know we don’t need it? Because it isn’t being built already by private industry.

You see, if a high-speed train were really needed, there would be demand for it. If there’s demand for it an investor, or group of investors, will see the opportunity, come in, and fund the project with their own money. That isn’t happening, thus we don’t need it (mostly because of that wonderful new invention call the automobile. And also the airplane).

But the worst part is that they are raising bonds to pay for it, rather than raising taxes. That means the state is going into more debt, and getting further away from a balanced budget. Of course, some might say that the debt will be paid off by passenger fares, but since it’s not needed, who’s going to be riding the train and paying the fare?

To me, it’s like a kid with a credit card thinking “I can buy all this stuff and not pay for it! Hurray!” It’s completely fiscally irresponsible and it’s 100% the people of California’s fault, not the government’s (well, I voted against it because of this, so it’s not my fault). And this is something that can’t be cut from the budget, since it was approved by voters. It would be illegal to remove it. The state of California now must build a high-speed train for $10 billion.

So why is it like this? Why do the people have so much power over the state’s financial affairs? Mostly it has to do with the period when California was first organized into a state, called the Progressive Era. Then, there was widespread distrust of government (much like today) and it was thought that it would be better to put a lot more power into the hands of the people instead of the government. Now, I know too much government power is a bad thing, but too much “people power” can be a very bad thing. Simply because people just don’t have the training and discipline to deal with political and fiscal issues. That’s why we vote people who are trained (ideally) into office. I mean, the voters can amend the state constitution by ballot measure. That’s what Proposition 8 was, which banned same-sex marriage. It is now not just illegal but unconstitutional for any government agency in California to recognize a same-sex marriage.

Perhaps dissolving the state government and drafting a new constitution wouldn’t be such a bad idea. 

Stuff! Things!

Back on The Other Blog, I once wrote about how my company (Stater Bros.) could save millions a year by using an automated ordering system, and how it would also increase revenue at the same time. Now it appears that I will get my chance to inform my corporate masters employers about my idea. There are forms at work that they’ve distributed around declaring a “War on Waste” which basically is asking for ideas from anyone about how the company might cut wasteful spending. If you submit one you get a little pin and if your idea is selected, you basically get a pat on the back. But, it might help my visibility in the long run.

Also, I have decided that I am finally going to send off a short story somewhere. I don’t know where yet, but I’ve written one about scientists at SETI discovering intelligent life via radio technology (I know I wrote earlier how unlikely that is, but, hey, it’s just a story). Because aliens, if they do exist, will likely have been around for millions or billions of years, I figure they’ll likely be concerned about the “galactic ecology”, meaning keeping their own growth and energy consumption down, so they don’t quickly use up their resources and cause themselves to go extinct. Civilizations that last that long don’t get that way by ignoring environmental limits. But, they’ll also maybe not be total destroyers, believing that other alien species have the right to exist, just as they do. It’s a tricky situation, allowing new members in pool of limited resources. The message recieved by the SETI scientists, once deciphered, basically turns out to be a “Oh hey, welcome to the universe, we’re glad you’re here, but there are some rules you have to abide by, or else…”

Damn, I just gave away the ending. Oh well, it’s not like anyone actually reads my blog so no harm done. And if I do get readers by people reading my short story, they’ll already know the ending anyway.

The Mexico Drug War

This week, President Obama was in Mexico City and reaffirmed the United States’ commitment to stopping the transport and sale of illegal drugs in Mexico. He plans to redeploy 500 federal agents and more than $200 million to combat illegal drugs, money and weapons from being transported between Mexico and the United States.

Does anyone else have the impression that this isn’t going to work? It just seems like more of the same to me. For most of the twentieth century there were federal laws against various drugs. There have been federal agents trying to stop their sale and transport this whole time, but you know what? There’s still drugs out there. There is, however, a simple solution that will end the Mexican Drug War permanently:

Legalize drugs.

Yes, you read that right. Now, that plan is probably setting off a fire alarm in your head. You’re probably thinking, “that’s crazy! If you legalize drugs, it’ll just cause the problem to get worse!” But, you see, it really won’t. The reason that there’s so much violence and danger associated with drugs is because they’re illegal.

A good comparison to the current drug war is the period of Prohibition. When alcohol was made illegal in the United States, it didn’t stop people from drinking. It only caused it go underground. Whenever you make a product or service illegal that people still want, you create a black market. In a black market, there’s no enforcement. You can’t file a complaint with the authorities or try to sue if the product you receive is dangerous. The people who supplied alcohol knew this, and would often “cut” alcohol with cheap, legal, but poisonous substitutes, like turpentine. And who were the suppliers during Prohibition? The mob, of course. And with the mob comes turf wars, violence, and just a whole big mess.

This, of course, is exactly what’s going on today with illegal drugs. People still want marijuana, cocaine, herion, etc. (at least, there’s a demand for it), and so people will supply it. People who can take advantage of the fact that it’s illegal and not have to bother with supplying safe(r) products.

After Prohibition, what happened? Did the gang wars and drinking problem get worse? No. It actually got a lot better. Think about it. Today, are there turf wars over alcohol? Are people getting mowed down in the street because of them? Are people dying from having  a single drink? No. It would be ridiculous to think so.

The reason is because, with legalization, comes regulation and taxation. If you legalize drugs, the people making a profit on it won’t be drug barons and street pushers, it would be publicly-traded companies like Anheuser-Busch, Philip-Morris, and so on. We may vilify these companies for producing products that are dangerous, but they’re not selling to kids or murdering people to keep their market share. If we legalized drugs, the cartels will suddenly lose all their power and collapse. Drugs would be sold over the counter, in smoke shops and supermarkets (who check IDs, by the way).

Of course, drugs are still dangerous by themselves. There’s no denying that. But it would be a much better controlled danger, with doses and quality assured.


XKCD beat me to this, but oh well…

The recent news on AIG bonuses has got me confused and upset. Not because they’re using taxpayer dollars to give out bonuses that they’re contractually required to by law, but that people have no perspective on how much the money actually is.

AIG received $170 billion in loans (meaning they have to, you know, pay them back), and used $165 million to fulfill some of their financial obligations. Let me make it clear: the amount of money dispersed as bonuses is less than 1/1000 of the total amount of money received. And what else were they supposed to do? Not give out the bonuses and wind up being sued by the people holding the contracts for breaching them, and end up having to pay them out anyway, plus spend however much was needed in court costs? Let’s just be upset about something else besides this, ok?