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China and North Korea

I found a curious news article on the South China Morning Post that describes one Shi Yinhong international relations adviser to China's State Council's opinions regarding North Korea.

According to this article, Shi states, “North Korea is a time bomb. We can only delay the explosion, hoping that by delaying it, a time will come to remove the detonator."

This is the first Chinese official I have seen taking the possibility of war on the Korean peninsula seriously.

There was one other detail that I found interesting.  In Asian culture there is an idea of "face" that plays an enormous role in cultural interactions both within and between cultures.  This article states, "He also said Kim’s failure to meet Chinese envoy Song Tao during his trip to Pyongyang last month was a “humiliation” for China."  Meaning that Kim Jong Un effectively degraded the Chinese delegation and in doing so disrespected all of China.

Why Kim Jong Un would do this is beyond madness. China has been one of few allies the North Koreans have had, and disrespecting them in a such a manner is a sure way to ensure that China changes their stance on the North Koreans.

When this is combined with the reckless threats that Kim Jong Un has been making, these realities are finally starting to sink in for the Chinese.   The same nuclear weapons that Kim Jong Un threatens to use on the U.S. could very easily be pointed west towards China.  Perhaps that will change China's characteristically pacifistic view on North Korea.

A war of China and the U.S. against North Korea would be a very short affair, I suspect.  I also think it would be a good thing for nearly everyone except Kim Jong Un and his associates.  The U.S. cannot do a war in North Korea alone.

The Future of Spending and Investing Sardines

With Bitcoin(BTC) and its associated cadre of cryptocurrencies on the rise, I have no doubt that a panoply cryptocurrencies will become the dominant currency in the U.S. in time.  Long term, I see Bitcoin effectively becoming digital gold, and the other cryptocurrencies forming the panoply of trading currencies.  With this post, I will explain my logic on why I think Bitcoin will become a highly valued saving currency, and why I think Litecoin(LTC) and others will become spending currencies.

One of the more thoughtful points made by an economist/investor, Howard Marks, that I read was the idea of trading and investing sardines:

Two friends meet in the street, and Jim tells Sue he has some great sardines for sale.  The fish are pedigreed and pure-bred, with full papers and high IQs.  They were individually de-boned by hand and packed in the purest virgin olive oil.  And the label was painted by a world-renowned artist.

Sue says, “That sounds great.  I could use a tin.  How much are they?” and Jim tells her they’re $10,000.  Sue responds, “That’s crazy, who would eat $10,000 sardines?”  “Oh,” says Jim, “these aren’t eating sardines; these are trading sardines.”

I had been thinking about digital currencies like Bitcoin as investing sardines, and that may have been a mistake.  Their fans tell me they’re spending sardines, and while that may be the case, I think at the moment they’re being treated largely as trading sardines.  The question remains open as to whether Bitcoin is (a) a currency, (b) a payment mechanism, (c) an asset class, or (d) a medium for speculation.

I agree with Howard Mark's initial assessment.  Bitcoin is not an eating sardine.  It is an investing sardine.  Bitcoin, as an investing sardine, will be treated as a store of value, and will only be traded when the need arises to purchase physical assets.  At that time, Bitcoin will be traded for a more liquid cryptocurrency, which will then be spent purchasing the physical asset.

I base this on the fact that Bitcoin has a limited number of total Bitcoin that will ever be produced, 21 million; and on the fact that SegWit2x was abandoned.   The economics of supply and demand thus directly apply to it, and the US dollar price of Bitcoin will climb indefinitely, albeit at a much slower rate once mass adoption is complete, assuming stable dollar value.

Litecoin, however, is an eating sardine, for now, because of its relative availability.  In the future, LTC will likely run into an identity crisis, due to the earlier adoption of Bitcoin and the limited supply of Litecoin.   I will conjecture that because Litecoin is one of the more secure cryptocurrencies and because it is being adopted later than Bitcoin, the miners will vote to change the fundamental algorithm to increase the total supply at some point in the future.

This is exactly the opposite of what the consensus was on the recent Bitcoin SegWit2x, which was abandoned, implying that the consensus on Bitcoin seems to be settling around Bitcoin being a saving currency, not a spending currency.  Bitcoin is well on its way to being an investing sardine, while abandoning any ambitions of being an eating sardine.

You clearly see the beginning of this divergence of perception of the in the BTC price of a LTC.

Litecoin Charts - https://coinmarketcap.com/currencies/litecoin/

The BTC price of LTC is declining as the perception of Litecoin being an eating sardine and Bitcoin being an investing sardine begins to take hold.  As an investing sardine, I would expect the trade volume of BTC to gradually drop off as the currency matures fully until people just hold Bitcoin, only trading it in large quantities into more liquid currencies -- like LTC and others.

As Litecoin matures though -- only ~64% of LTC are mined compared to close to ~78% of BTC -- the Litecoin will likely begin to look more like a Bitcoin junior or undergo a hard fork to become more liquid.  The chief difference between them will remain the initial perception gap, which will assign BTC a much higher value, simply by virtue of being adopted first and attaining the perception of an investing sardine before LTC.

So, if you are investing in cryptocurrencies to save, you should be investing in Bitcoin, because BTC will not have a maximum price in US dollars that it will stop at.  If the current workings of Bitcoin remain, it will become the digital gold of the future, only far more valuable than gold.

In the future, I can see entire companies being bought and sold for handfuls of Bitcoin.

Socialism in the Age of Robots

Most people who read this blog know that I am a firm libertarian.  However, I also have a firm understanding of why socialism doesn't work.

Socialism doesn't work because people are involved.  People operate on incentive systems.  Economics works because it incentivizes productive behavior in people.

However, what if you were to remove people from the production side of the socialism equation?

Robots don't care if you give some of the fruits of their labor to people.   They don't require time off.  They don't take vacations.  They don't sleep.  Everything that makes socialism not work on a fundamental level would simply evaporate when you have robots doing all of the work.  We can tax the robots productivity (effectively taxing the owners of the robot slaves), and give to everyone.

A universal basic income like this will eventually be required, as humans become increasingly obsolete in the functioning of our society.

At this point, can it really be called socialism?  Really, we are barreling back into a system of slavery.  Robot slavery.  The robots work, and humans benefit.

I am okay with this.

EDIT:
Mauldin forwarded a relevant article by Scott Santens who is a strong advocate of a UBI.  The chief issue then is deciding when the robots are sufficiently productive that we can actually implement a UBI without sinking our economy.

Perhaps, if we start small --say, a few hundred dollars per month.  We can grow it from there, as the robots take over more and more of the productive end of the equation, while maintaining societal productivity.

The other option that we have is to free up the Federal Reserve to print money to help fund this until the robots are productive enough to support all of our economy.  Either way requires wisdom in the timing.

Alexandra Mar: Love in the Time of Robots

This is an extremely long article in Wired on one journalist's experience with a fanatical android architect in Japan.

The article addresses -- through a long, winding recount of personal experiences -- what it means to be human.

There is a point at which Ishiguro addresses the idea of sonzai-kan, or presence, spirit, or soul:

“Do you know what is the soul?” he asks. “Soul is not so personal. In Japan, when we pass away, our soul goes back to the same place, back to the mountain. So now we are living individually, like this”—he motions to the two of us sitting on mats. “We have our own souls. But when we pass away, we’re going to share something. Soul is going back to the place where souls are coming together.

“Soul is not lonely,” he says. “Soul is not alone.”

I find it curious and a tad ironic that the farther advanced that humanity becomes in science, the closer and closer it leads us into the spiritual realm.  There is an old joke in Christian circles: "The scientist labors and climbs, hour upon hour, up the mountainsides of scientific endeavor only to find the theologian sitting serenely at the top."

I am a firm believer in a fundamentally indeterminate world, and I believe that some aspect of indeterminism is at the heart of what it means to be human.

The author relates an experience that I believe is emblematic of the entire article:

It is a relief because it means that we are animals, not ideas; that our chemistry is not as cool as a set of programmed responses—there’s an immediate magic to it. To know that that instinct is not broken in me, and to be able to answer it, makes me feel like a person again.

She describes this indeterministic spark that I feel is a critical piece of humanness.  The spontaneous, random, chaotic responses that humans exhibit to situations.

To dance with this randomness is what it means to live a human life.

I will repost the article below in case Wired breaks something later.

Adm. William H. Raven: Seal Team Training - Hell Week

This is an inspiring video well worth saving.
https://www.youtube.com/watch?v=3sK3wJAxGfs

Insanity All Around

As I stand my ground, I find myself increasingly middle of the road when it comes to the left-right paradigm in culture.  I have neo-Nazi crazies on my right and progressive, violent liberal pinheads on my left.

In this whole debate about the historical statues and monuments of an era which few now even remember, let alone comprehend the significance of, I found a morsel of truth and sanity in this post by "Desiring God," "The Monumental Problem: Hashtag Activism and Covert Racism," by Greg Morse.

This article reminds us again of the racist machine that is turning and churning, exterminating more black children more efficiently than any scheme which Hitler could ever have imagined.

It is the duty of Christians to stand against evil, wherever it may be found on the left and on the right.  It is our duty to see, to discern, to shun, and to help extirpate it.

Philip Roberts: What the heck is the event loop anyway?

This is an excellent resource on understanding programming languages fundamentally.  It is also highly entertaining.

Philip Roberts: What the heck is the event loop anyway?
https://www.youtube.com/watch?v=8aGhZQkoFbQ

Review: Of Personal Liberty - Verl Engel

Few of you know that I have been actively involved in the authorship of a very important libertarian book project being written by a man who has become a close friend of mine, Verl Engel.  Of Personal Liberty was written to address one of the many avenues that the government is routinely violating our rights.  I would highly encourage all of my U.S. readers to buy and read this book.  It is an essential piece in the fight to defend our freedom as Americans.

I am going to repost my foreword here because it is the most impassioned plea that I can make for you to read this book:

Imagine lights flash behind you, red and blue, and in the moment of surprise and incrimination, you begin to pull over. The officer in blue walks up after you dutifully stop, according to seemingly countless years of custom. She immediately inquires as to your velocity, seeking to use her aura of authority to back you into confessing to a perceived crime. You relinquish your documentation when impudently requested, and in return receive a citation obliging your remittance for a state-ordained wrongdoing. 

What if you didn’t have to stop? What if the law was actually on your side? The author of this book is going to convince you that this is the case. The Constitution of the United States of America is explicit in its limitations on governmental power and authority. You—as a citizen of the United States of America—are the beneficiary of the trust that is the United States Constitution. The government—as the trustee—is forbidden from depriving people of their freedoms and unalienable rights without due process. Since the signing of the Constitution, the intervening centuries have quietly eroded the liberties of American citizens. 

The government, particularly in the new millennium, has been accelerating this process of depriving Americans of liberties. The War on Terror has overseen the greatest of deprivations, from dismantling privacy of communications to banishing the right to a fair trial—rights guaranteed in the Constitution—all under the guise of necessity and security. The specter of an omniscient state divested of any trust in its citizens and void of any duty to protect their rights is not a distant nightmare. This is the waxing reality of the twenty-first-century police state. A reality often ignored by the average man or woman on the street, who lives happily in his or her fishbowl, always under the watchful eye of the government. 

Our government, at this critical juncture, does not yet have full control of citizens’ actions, but it seeks to corral people into ill-fitting but easily definable “safe” and “dangerous” categories. The following years will testify whether history turns this intrusive government into a tyrannical government or—if the people demand—into a government that deals respectfully and honestly with its beneficiaries. 

Absolute power corrupts absolutely, and with the continuing consolidation of power in the hands of the government, the future of the United States of America as the land of the free is in jeopardy. The crux of the matter lies in how much the people are willing to concede before they stand up and say, “Enough.” If the government can keep the apathetic populace adequately anesthetized to avoid questioning the accumulation of centralized power, then the transformation can continue undeterred. The government may then, and only then, fully take on the role of provider, controller, and dictator of not only what its citizens may not do, but also of what its citizens must do. This is the goal of a secure state, to dictate “good” behavior to its citizens and extirpate any residual resistance. 

This book seeks to awaken people to the emergence of this totalitarian state. Will America return to being the land of the free, or will it manifest itself as the latest echo of authoritarian regimes proudly arrayed throughout history? As Ben Franklin has said, “Those who trade liberty for security deserve neither and lose both.” Liberty depends on the responsibility of people to see and to act to thwart tyranny.

As one of “We the people,” I humbly implore you not only to read this book but also to spend time comprehending its implications. As Thomas Jefferson said, “If a nation expects to be ignorant and free in a state of civilization, they expect what never was nor ever will be.”

Patrick Cox on Aging and Richard Fisher on Orange Swans

I had two delightful Mauldin things come in this morning.  One by Patrick Cox on aging and biotechnology, which is hardly surprising given his constant harping on the issue.  He has a couple of savage lines that ring truly to me.  First he starts off by pointing out a recent article in the Washington Post:

Last year, we began to see articles in the press conceding that overpopulation wasn’t going to end civilization. This year, we’re seeing reports on the real population problems—depopulation and aging. 

For example, The Washington Post published an article titled, “The U.S. fertility rate just hit a historic low. Why some demographers are freaking out.”

And then he goes on to contrast this article with an article from the same newspaper from 1985 when people were freaking out about "overpopulation."

This is quite a change from pieces published in the same newspaper in the 1980s. Here is the lead from an older article titled, “Global Overpopulation.”

In the face of overwhelming evidence that there is no way of fighting poverty in the Third World without more extensive family planning, the Reagan administration is cutting back its support of the most tested and experienced organizations in this field, condemning wide areas of the globe to ever bigger, ever more hungry populations. 

The point of the piece above was that more US taxes should flow to national and international overpopulation experts. Politicians who disagreed were accused of ignoring or even causing mass starvation. 

Today, almost everything about that article has been proven wrong.

 And he is not wrong.  The environmentalists and overpopulation crazies have been at this for years.  They were wrong then.  They are wrong now.  They peddle fear with an agenda.  Nothing more.   Patrick Cox goes on to rightly assert that the movements like overpopulation and environmentalism are little more than secular religions, complete with swaying somnambulant masses, adoring pundits, and exalted technocratic priesthoods.

Today, the journalists, academics, and politicians who spread overpopulation hysteria have moved on to new doomsday scenarios. Oddly, they’re still demanding immediate and massive tax monies for “experts.” It seems they’re hoping that we’ll just forget how wrong they were about population. 

Personally, I’m not forgetting. Their irrational obsession has done serious damage. They have distracted us from that fact that the shrinking population of workers can’t support the growing population of older and sicker retired people. 

This is the flipping of the demographic pyramid. Warren S. Thompson first predicted it in 1929 in a paper for the American Journal of Sociology. 

Thompson’s textbook on demographics was standard in American colleges until the 1960s. Then, it was displaced by what I view as an apocalyptic environmentalist religion.

Anyway... enough about insane liberal media.  Let's move on to something more enthusiastically optimistic.  Richard Fisher has been a Federal Reserve President and has lived in the belly of the beast for sometime and shouted, rang cymbals, produced smoke signals, and probably every other imaginable form of objection noisemaking he could prior to various insane moves by the Fed in the past, which were promptly and completely ignored by those who made the decisions...  to all of our disadvantage.  Now are are neck deep in the dung with no shovel in sight.  But Richard Fisher is apparently an eternal optimist...  I hope--in my heart of hearts--that he is right.  I must admit that I feel the fire to resist and build independently of the mad government, but I am not confident that this fire burns in enough souls in the U.S. to save us as a country.

I am going to repost his speech in full, because it is a very worthwhile read.  The link to the Mauldin site is here too.

Law is inherently violent

Finally, other people are catching up on libertarian ideas regarding law and government.

This short piece by Yale law professor Stephen L. Carter states clearly that all law is fundamentally based on violence, and that we as a society need to have a serious discussion whether all of the laws that we have on the books are worth killing your neighbor over.

Are you willing to kill your neighbor so that everyone in the country can have free health care?  Because if not, then free health care should not exist.

Something to think about.

Doug Casey on Cultural Marxism and Bioethicists

Doug Casey is a firebrand libertarian who loves to preach 'doom porn' as Kyle Rearden calls it.  I read Doug's words because he presents a vastly different -- in some ways -- view of the world than I have; and while I disagree with some of what he says, I believe his core ideas are both sound and true.

In this article, I wanted to highlight his view on how cultural marxism, which I agree with him, is a cancer upon our society.  It erodes individualistic thought and personal responsibility and foments class warfare and race-and-classcism by emphasizing groups rather than individuals.  Not only does it produce all of these toxic properties, but it also gives people a false philosophical basis upon which to attack other people, using the label-happy liberal terms such as homophobe, bigot, and racist.  These are toxic words and ideas that enable a secular form of self-righteousness that would put the Pharisees to shame.

When you are an individualist, those terms are meaningless and less than worthless.  When you culturally castrate the individual, you discourage free thought and scientific enterprise, and you erode the fundamental and key element of free society: personal responsibility.  When you, see yourself as a black, or a woman, or a white male Protestant, you enable yourself to lay blame for unpleasantness at the feet of the opposing groups who are 'oppressing' you.  This idea is as absurd as your feet crying out that they are oppressed by the rest of your body and your legs calling your nose a walkophobe for not doing its part in walking.  A society, much like a body, is made up of different and distinctly individual parts that each play a role.  When you try to make everyone into hands, your body ceases to function, because all roles are necessary for the healthy functioning of society.  Similarly, when you try to pigeonhole individuals into broad categories, you both grossly mischaracterize each individual, and you strip away the incentive for being personally responsible for your actions, both morally and economically.

In a cultural marxist world, a person who makes poor economic decisions and whittles their life away doing non-productive activities is considered 'oppressed' by those who actually work to make the world a quantitatively better place, which gives the violent State the right to steal from the productive in order to give to the lazy who choose not to produce.  In an individualist world, those who make poor economic decisions get to starve or suffer the indignity of begging from friends, family or society as a whole, and it also opens the door for people to be truly charitable to those in need as opposed to charity at gunpoint, as is current government welfare.

Similarly, in the moral realm, cultural marxism seeks to fill the void with an arbitrary and arbitrarily changing system of political correct morals that allow people to feel morally superior without requiring them to live according to any absolute moral standard.  It turns people into assholes for inclusivity and diversity and enables them to treat anyone who disagrees with them as poorly as white slavemasters in America in the 1800s treated their slaves.  While in an individualistic society, there is an implied absolute moral standard, by which all are held accountable -- governments included -- and all can then see cultural marxism for what it really is, a convenient excuse to be a self-righteous assholes to their neighbors who disagree with them.

However, with all of this said, I am not against all forms of welfare.  Voluntary welfare, or charity as it is more commonly called, is a right, good and necessary element of society.  When you espouse and live by the absolute moral standard that is laid out in the Bible, you will naturally gravitate toward charity on a personal level, and when everyone does this the entire society is transformed to actually care for the poor who are made poor by bad luck (or even those who are poor by choice, as charity is a free thing).

To conclude though, cultural marxism is cancer in society.  It has so many negative effects which are quite literally draining the life from our culture and society and will unquestionably result in the downfall of our civilization through economic collapse if we let it metastasize.

Do not be a cultural marxist!
Think for yourself.
Our society depends on it.

I have attached the entire article below, but you can read the original here:
http://www.internationalman.com/articles/doug-casey-on-the-plague-of-cultural-marxists
*WARNING: Auto-play video is on his site*

Thinking About Software Engineering

I found a video by a Canadian professor regarding software engineering, debugging, code quality, automated unit testing, critical thinking and standards of proof.

The crux of the matter is that you cannot trust credentialed people simply because they are credentialed.  You must weigh their arguments yourself.

That and the best way to debug code is to read it.

Greg Wilson - What We Actually Know About Software Development, and Why We Believe It’s True

The Divine Dance to Dethrone God

I recently had "The Divine Dance" brought to my attention as a new means of meditating on Christianity.  After studying it, I feel the need to publicly critique the theology and philosophy of "The Divine Dance," by Fr. Richard Rohr.

The core message of Fr. Rohr is the idea of Flow.  According to Rohr, the Flow is God's love and life going out from himself into creation, yielding a "bottom up" approach to theology.  Bottom up theology starts at mankind and the relationships between them and derives from these the idea of the Flow coming from God and flowing between men and back to God again.  As Rohr says, "The all-important thing is that the Three are formed and identified by the outpouring and uninhibited flow itself. The flow forms and protects the Three, and the Three distribute the flow. It’s precisely this same dynamic for a healthy society, isn’t it?"

These kinds of philosophies have appeared in the past, and they all have the same root: humanism.  The humanistic themes in Rohr's work permeate throughout his ideas of the Trinity and the role of humanity in Christianity.  As he says "Some mystics who were on real journeys of prayer took this message to its consistent conclusion: creation is thus 'the fourth person of the Blessed Trinity'! Once more, the divine dance isn’t a closed circle—we’re all invited!"  This fourth person is supposed to be nature and mankind, as humans and clearly shows that Rohr is attempting to elevate humanity to godhood and make humanity as the fourth member of the Trinity.  This has been the pursuit of philosophers from the Renaissance onward, to attempt to elevate humanity to godhood and in doing so, dethrone the true God and enable us to determine the rules of morality for ourselves with no interference from God.

This humanistic approach to Christianity has been tried before, even back in the time of Paul in the form of the Greek paganists who sought to emphasize the material over the spiritual, and Rohr himself borrows from their theology stating, "The energy in the universe is not in the planets, or in the protons or neutrons, but in the relationship between them."  This inordinate focus on the material world and the attempt to elevate the material world to the level of divinity is a definitive sign of a thoroughly humanistic approach.  As theologian Francis Schaeffer has said in A Christian Manifesto, "Humanism means that the man is the measure of all things. Man is the measure of all things. If this other final reality of material or energy shaped by pure chance is the final reality, it gives no meaning to life. It gives no value system. It gives no basis for law, and therefore, in this case, man must be the measure of all things."  When man is the measure of all things, anything can be accepted as doctrine.

The natural outcome of this philosophy is complete relativism in which anything can be acceptable as morally good.  Actions such as abortion and homosexuality can be readily accepted as good and right, when the Bible clearly speaks against such things.  In Rohr's attempt to elevate the natural world to divinity, he successfully dethrones God and relegates Him to the position of sourcing the Flow.  When you hold this position, you are consigning yourself to be set adrift in a sea of directionless doctrine and meaningless morality and a perpetual search for truth which invariably ends in nihilistic despair.

The Bible is very clear on the nature of God and man.  Isaiah 45:5 states unequivocally "I am the Lord, and there is no other; apart from me there is no God."  God is very clear on this matter.  There is no room for humanity in the Trinity.  He goes on to say "Woe to those who quarrel with their Maker, those who are nothing but potsherds among the potsherds on the ground.  Does the clay say to the potter, ‘What are you making?’ Does your work say, ‘The potter has no hands’?"  Here God condemns those who seek to dethrone him, saying Woe to those who quarrel with their maker.  Even Jesus, who Rohr is constantly seeking to humanize, stated very clearly that "I am the way, the truth and the life.  No man comes to the Father but by me."  Even the human Jesus clearly excluded all other paths to God.  In Colossians the relationship between man and God is also enunciated without confusion, "For by him all things were created, in heaven and on earth, visible and invisible, whether thrones or dominions or rulers or authorities—all things were created through him and for him."  Meaning the all of nature was created for God, without any room for nature to become God.  Even Paul in Romans argues "But who are you, a human being, to talk back to God? 'Shall what is formed say to the one who formed it, ‘Why did you make me like this?’' ²¹ Does not the potter have the right to make out of the same lump of clay some pottery for special purposes and some for common use?"  We are nothing before a holy and omnipotent God and to attempt to elevate lumps of clay to divinity is nothing less than humanistic heresy.

God is serious about His nature, and about humanity's role in the universe.  To attempt to elevate humanity to divinity is heretical and will ruin all who ascribe to this belief, both in this life and in the life to come.

Edit: I had the wrong Greek cult as my example.
The Gnostics were the spiritualists, not materialists.  The paganists are the ones who carved gods for themselves from stone in the form of natural creatures.

Mauldin on Taxes

Mauldin brings another savage article on taxes and tax reform here with his Tax Reform: The Good, the Bad, and the Really Ugly -- Part Five.

There are some really important points in here that I want to highlight:

( 1 )
We are in far worse shape economically than most people realize.  Including only federal unfunded liabilities, federal, state, and local debt, EACH and EVERY one of us (U.S. citizens) owes around 1.2 million dollars in government debt.

1.2 million dollars EACH.

Didn't know you were 1.2 million dollars in debt?  Well, now you do.

As Mauldin says:

Break down that national and state and local debt by the number of US citizens, and we find that we each – every man, woman, and child – owe over $70,000. Worse yet, the total debt per taxpayer is over $190,000 and rising fast. If you include unfunded liabilities, the total debt per taxpayer rises to around $1.2 million, give or take. (There are some analysts who would make it somewhat less than a million and others who would make it more than $2 million. Whatever, it’s a huge number.) By the way, that number does not include the unfunded liabilities at the state and local level, including the pensions that are theoretically guaranteed by the states. Add another few hundred thousand or so per taxpayer, depending on the state you live in. Trigger warning: If you live in Illinois or California, do not attempt to estimate this number without alcohol or heart medication nearby.

( 2 )
We are completely contradictory and dysfunctional in what we expect from our government.

   * We expect our social benefits to increase (or at least not decrease).
   * We expect our taxes to decrease.
   * We expect our economy to grow and provide good, high paying jobs.

You cannot have all of those desires at once.  Debt loads over a certain size -- Reinhart, Reinhart, & Roghoff suggest 90% -- will slow down the growth of that country, making all of our lives and goals that much more difficult to achieve.

In a peer-reviewed study, Reinhart, Reinhart, and Rogoff demonstrated that when government debt rises above 90% it begins to have an effect on the growth of GDP. That conclusion is somewhat controversial in economic circles, as some say the critical level is higher or lower. Whatever – we’ve gone well past 90%.

Understand, RR&R are not examining some theoretical proposition; they are looking at actual debt levels and actual growth levels in scores of countries and situations over a long period of history and seeing that excess debt inhibits growth. We can argue about why that is true, but the fact is that debt at the level that has already been reached here in the US makes it far more difficult to even talk about 3% or 4% growth. So when politicians talk about growing the economy by 3% a year, they are facing very strong headwinds. That sort of growth is not impossible in our circumstances, but it would be abnormal given what we know of the history of debt and growth. To grow the economy at 3% today will require tax reform beyond anything that’s being suggested. It will require real tax reform, not just tinkering around the edges.

( 3 )
We must have real, serious tax reform if we want to have any hope of fixing our problems.  Enough so, that we have to be willing to consider the unthinkable.  For Republicans this means considering a VAT and carbon tax in exchange for significantly lowering the income and corporate taxes.

My liberal friends are going to fall off of their chairs here; but, after reading Mauldin's logic, I am now in support of both the VAT and the carbon taxes.

They are both a form of consumption taxes which are far superior in incentivization to income taxes, and thus would produce positive benefits.

If you want more income and jobs, tax them less. So if you can substitute a consumption tax for an income tax, even if the two generate the same revenue, the incentive structure you create is superior under the consumption tax regime. I am going to be walking into territory that is considered heretical for Republicans, but I’m going to argue that we need to radically reform taxes by going to much higher consumption taxes and much lower income taxes. If we want to avoid a recession and really boost the economy and jobs, then we need to get “medieval” on income taxes. Don’t take a scalpel to them. Bring out the axes and chainsaws.

Mauldin recommends we start by eviscerating the income taxes and introducing a 17% VAT and a significant and increasing yearly carbon tax on all energy inputs.  I think there is a good chance this would actually work and have very positive effects for our economy and potentially help save us from certain doom that is coming if we do nothing.

Mauldin ends by reviewing his five main points:

Let’s sum up the constraints and desires mentioned above as we set out on our quest for tax reform. Admittedly, these are my constraints and desires, but sharing them will help you understand what my ultimate goal is.

1. Since too much debt at the level we currently have creates a drag on growth, we have to control the growth of debt. That’s pretty much like the admonition that when you find yourself in a hole, stop digging. At some point, maybe we could repeat the Clinton/Gingrich experience of actually paying down the debt. (Let me have my dreams!)
2. My fellow Americans want two inconsistent things: They want their entitlements and benefits to continue, and they would like their taxes to be lower. Cutting benefits will quickly result in a return to a Democratic Party-led government, and no politician on either side of the aisle has any stomach for doing more than tinkering with Social Security or really cutting healthcare.

I think Republicans will seek to find efficiencies in the way health care is delivered and thereby maybe reduce total healthcare expenses somewhat, but benefits are going to stay roughly the same. Yet somehow we need to get a handle on how to reduce the constant cost increases. So we have to figure out how to fund those benefits. And while you could probably cut $50 billion from the discretionary parts of the budget – if you include defense spending as discretionary (which would elicit anguished screams and derogatory name-calling from everyone) – we must sadly acknowledge that cutting $50 billion gets you only about 10% of the way to balancing the budget.

3. What is the appropriate size of government in the US economy? Here I am conflicted. I am truly a small-government advocate. But I also want to balance the budget and actually reduce the debt, which means (and I can’t believe I’m using these words) that we’re going to have to find additional revenues unless we are willing to take a hatchet to entitlements, which we are not.

4. We really do have to create jobs, or the future is going to get pretty bleak pretty quick. Job creation means allowing small businesses and entrepreneurs to keep more of what they make and to increase their savings. It also means radical regulatory reform. It comes down to the most basic of identity equations in economics. GDP is the sum of Consumption (C), Investment (I), Government Spending (G), and Net Exports (X – M): GDP = C + I + G + (X – M), which reduces down to Savings = Investments.

It’s more complicated than that of course, but if you want investments that will create new jobs, the best thing you can do is to stop taxing savings and income and start taxing consumption. This country doesn’t need more consumption; it needs more income. That in turn will lead to increased consumption and more jobs. This is a basic Hayek versus Keynes argument, and I come down on the side of Hayek. Which means that the vast majority of academic economists believe I am wrong.

5. We have to change the corporate tax structure to put our businesses on an equal footing with their competitors around the globe. And while we’re at it, why not make them hypercompetitive? Why not take the corporate tax rate down to 15% of everything over $100,000, with no deductions other than to comply with normal GAAP accounting principles? Really want to jumpstart things? Then allow 100% write-offs of all business investments such as research and development, equipment, and buildings (but normal depreciation on the actual land).

6. There are several types of consumption-based taxes.
a. A sales tax (which would be too high – that’s why I dismissed the concept above)
b. A border adjustment tax, which would be challenged by Europe at the WTO, and we would lose because the vote is a political vote. Further, the BAT (I’m tempted to add “Out of Hell”) would set off immediate reactions by all of our trading partners, precipitating a round of tit-for-tat changes that would quickly deteriorate into something that looks like Smoot-Hawley. A BAT would cause a global recession. Further, it would pick winners and losers here in the US. Why is an export business better than an import business? They are equally valuable to the country. And they both create jobs.
c. A value-added tax (VAT) would easily withstand a challenge at the WTO, since nearly every other country in the world has a VAT.
d. We could introduce a carbon tax on petroleum products that would gradually increase, generating significant revenues over time. As noted above, a carbon tax is just another form of consumption tax, and it has the value of making progressive Democrats giddy about doing something for the environment and climate change, which makes them more likely to go along with the real Republican goals of job creation, income tax reform, and deficit reduction.

This is a solid plan and I think it has real potential to work to help us reverse this hole we have dug for ourselves.

Trade, Debt, Deficits and the Border Adjustment Tax

I am slowly arriving at a more full understanding of the relationship between international trade, sovereign debt, and government deficits.

While dear friends of mine have been encouraging me to look at gerrymandering, which is a serious political issue and needs to be fixed, the effects of the implementation of Trump's Border Adjustment Tax (BAT) have much more grievous consequences.

First, let me address the gerrymandering issue though, since it has been on my mind lately.  Having a Goofy Kicking Donald Duck district in Pennsylvania and a Latin Earmuffs district (below) in Illinois is absurd.

This kind of gerrymandering is ridiculous and should be outlawed.  We need to take a nice square grid system and overlay it on each state and have that set the districts.  Nothing is fairer than a square grid.  The only places people can quarrel on is the grid size and the grid origin.

But a BAT disrupting global trade, currency exchange rates, and foreign sovereign debt is a far more immediate threat that risks setting off a global contagion that would eventually engulf the U.S.

The root problem in this BAT idea is that the world is not a static system.  It is a dynamic equilibrium.  If we make changes to our tax system in such a way as to affect other countries trade balances, they will respond to counteract those changes.  This BAT issue is the sole reason why I refused to vote for Donald Trump as president.

The currently certain effect of implementing a BAT is that the U.S. dollar would rise sharply in value, being predicted by both economists on the right and left.  This rise would occur due to the flow of U.S. dollars across our borders being slowed, causing lower supply of U.S. dollars circulating in the world compared to a stable demand.

John Mauldin, who I generally consider to be a right-leaning economist predicted that the dollar would rise by as much as 20% in value with respect to other nation's currencies.

As the trade deficit shrinks, fewer dollars will flow from the US to the rest of the world. That trend will make the dollar rise against other currencies, thereby nullifying the higher prices we will pay for imported goods.

Paul Krugman, who is definitely a left-leaning economist, likewise predicts a rise in the value of the U.S. dollar exchange rates.

But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium term financial consequences from a stronger dollar.

I am all for a strong dollar, but I need to nuance this view.  I am strongly in favor of an organically strong dollar, not a forced stronger dollar.  I am beginning to think that forcing the dollar stronger may have equally deleterious effects as forcing the dollar lower.  The effects are simply different and the genesis is not in the U.S.

If we force the dollar value higher, we will immediately cause a direct increase in the servicing costs of the $10 trillion in emerging market dollar-denominated sovereign debt.  This increase has the potential to sink those emerging market economies, much of whose debt is held by Western investors.  The contagion will wrap back around the world and setup a sub-prime debt crisis in sovereign emerging market debt which will inevitably result in a global recession at best or a global depression at worst.

We need to stop considering tariffs and border taxes as a means of solving our globalization woes.  These measures are not helpful in a dynamically volatile system in which other players will respond in kind of changes in the competitive advantage equilibrium currently in place.  We need to enact changes to the tax system that do not disrupt global trade or threaten the stability of emerging markets to the point of collapse.

Bannon: The Sociopath of the Right

I found an excellently written article that gave a lot of information without attempting to push an opinion on readers.  This article is "What Bannon Really Wants" published by Quartz and written by Gwynn Guilford and Nikhil Sonnad.

The article addresses what Steve Bannon, who is the Assistant to the President and Chief Strategist, worldview is and how it influences and guides Trump's administration.

As far as the article is concerned, there are a few curious points.  First, the authors point out that Bannon believes in the "great civilizational showdown" between Islamic Mideast and the Christian West.  What Bannon fails to realize is that Islam is not a unified or centralized force, any more than modern Protestant Christianity.

Not recognizing the true enemy, which is fundamentalist Islam, is a severe mistake that will have far-reaching -- both in time and space -- consequences that will be as severe as Obama's misstep of not recognizing this subset of Islam as the threat.  There are plenty of Islamic sects who do not hold the authority of the Koran as absolute and thus are more secular as a result.  Bannon's error of labeling all of Islam as the enemy is equally as mistaken as Obama's error of labeling none of Islam as the enemy.  Misconstruing this as a grand struggle between civilizations, while sensational, is also wrong.  The fight with Islam is jihadi Islam versus the world (moderate Muslims included).  From the jihadi Islamist perspective anyone who does not believe in their strict interpretation of the Koran and Islam is a legitimate target and should be killed or enslaved.

Where Bannon's worldview takes a wrong turn is in his view of utilitarianism as the ultimate form for moral authority.  This is where Bannon departs from true Christianity and truly Judeo-Christian values.  This basically establishes Bannon, and by extension Trump, as an authoritarian who seeks to use his power to enforce a specific view of the world, rather than enforcing the minimum necessary law for society to exist.  The very fact that he actually broad-banned people from specific nations shows that he is not interested in a free or individualistic society, merely his vision of a free society.

Bannon's idea that society disintigrates without Christianity or Judeo-Christian values is not entirely wrong, but also not correct.  When you remove Biblical Judeo-Christian values from society, you get authoritarianism.  Might makes right is all that is left when you remove the Christian framework from beneath society, and it is becoming increasingly clear that Bannon and Trump have no desire to rule the nation with Biblical Christian values.  They are strongmen who want to impose their version of right on everyone else, and are thus as criminal as Obama, except on the other end of the spectrum of sociopaths.

Trump Bans Muslims from the U.S.

What?  This is madness.

Trump banned Muslims traveling from seven predominantly Muslim countries today, Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen.

What he fails to remember is that most of the terrorists that attacked us in 2001 were from Saudi Arabia.  I don't see that country on 'the list'.

All of this skirts the fact that a broad ban like this is not going to help.  This mass banning of Muslims does not make America more secure.  Terrorists will always find another way in, regardless of bans like this.

All this ban does is make us look like assholes to the rest of the world.  Is that really what we want?

Robots, Automation and Their Effect on Economics

This is a short repost of a hugely significant comment that John Mauldin made in his latest letter.

Like it or not, we have entered an era in which machines are learning how to do much of the work that now provides our incomes and, in many cases, our self-worth. This is a topic we will explore in depth in future letters. But a brief summary needs to be interjected here.

The US is manufacturing more materials and goods than ever. Manufacturing is increasing at a fairly serious rate, well over 2% a year. The problem is, manufacturing jobs are not. A Ball State University study calculated that it would take more than 8 million additional jobs to produce what we currently produce today if we were merely at the productivity levels of 15 years ago.

Investment in automation and software has doubled the output per U.S. manufacturing worker over the past two decades. Robots are replacing workers, regardless of trade, at an accelerating pace. “The real robotics revolution is ready to begin” writes BCG and predicts that “the share of tasks that are performed by robots will rise from a global average of around 10% across all manufacturing industries today to around 25% by 2025.” (Source: fortune.com/2016/11/08/china-automation-jobs/)
This is a simplification, but robots and their associated machinery have been somewhere in the neighborhood of four times more important in the loss of manufacturing jobs than off-shoring of jobs has been. But it is hard to protest against increased automation and easier to point a finger at China or Mexico.

The real challenge the US and the rest of the developed world face is how to create new jobs in the face of this automation challenge. The problem is not one we can walk away from. The best estimates that I have read suggest that Korea may be 15–20% more productive than we are in terms of costs, because they are pushing further and faster into the automation process. That trend will leave US manufacturers and exporters – or those in Germany or Italy or any other developed country – behind in the global business contest. Think Japan is not seeing the same thing?
If we don’t automate faster, we lose jobs by being uncompetitive. If we do automate, then we see jobs go away. What we have to do is figure out how to make sure that new jobs are created, and that these jobs are simply not make-work but are rather meaningful and fulfilling. Tall order. For whatever it’s worth, we are programmed in our evolutionary DNA to value what we contribute to the community through our work. Simply getting welfare without a way to eventually make it on your own does not help personal self-esteem or your community. (italics mine)

This is the single greatest challenge facing our world today is how we will adjust as a society as robots unemploy huge swaths of our population.  "We are programmed in our evolutionary DNA to value what we contribute to the community through our work. Simply getting welfare without a way to eventually make it on your own does not help personal self-esteem or your community."  This innate state is not going to change as robots produce more and more of the goods and services that we consume. 

This is where I think computer games will help, as it will allow people to 'work' without needing to produce anything.  I have already seen this as people pursue fictive goals and seek to cultivate skills in a virtual realm that fills this work and community requirement for our psyches.  The Matrix is closer than we might think, but we will live in a myriad of worlds all of our own creation with the freedom to jump from virtual reality to virtual reality at our choice.  I definitely foresee a large and growing interest in computer games in the future, and I am staking my life on it, literally.

You can read his entire article here.