Our Comrade the Electron

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Our Comrade the Electron by MACIEJ CEGLOWSKI

"We put so much care into making the Internet resilient from technical failures, but make no effort to make it resilient to political failure. We treat freedom and the rule of law like inexhaustible natural resources, rather than the fragile and precious treasures that they are.

And now, of course, it's time to make the Internet of Things, where we will connect everything to everything else, and build cool apps on top, and nothing can possibly go wrong."

Highly recommend you read this very poignant essay. Predicting how society, culture and governments will respond to technological change is nearly impossible.

A Gloomy New Year and Beyond

Much of my current reading promotes little optimism for the future of the United States economy, at least as it is defined by job creation and employment. The viability of our present political system, long term, is doubtful. We seem to be dysfunctional in many domains including economic, political, and cultural aggravated by a leadership vacuum that portends little positive change for the foreseeable future.

Some of my reading:

http://econintersect.com/b2evolution/blog2.php/2011/12/20/usa-in-2012-2016-an-insolvent-and-ungovernable-country

Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy

...and of course the daily slurp from the Times, the Journal, the TV talking heads and other online sources.

I believe we are in the midst of a substantial economic dislocation driven by the rapid and pervasive creation and adoption of technology by businesses, large and small. This accelerating trend means that fewer workers are required to deliver higher productivity in our economy. The resulting systemic upheaval means that not only ours, but the world's economy can produce goods and services with far less human capital than has been required historically. The result of a declining need for workers and increases in output creates societal and political strains that may lead to massive changes that we are ill-prepared to cope with. Government aid and backstops may be insufficient to deal with the magnitude of this change.

I hope to write more on this topic before the start of the new year.

IBM's 2011 Big Five Predictions

The Second Debt Storm Hits Nations - MarketWatch

The second debt storm hits nations - MarketWatch

U.S. voters can no longer ignore the dismal future for the United States as it continues to spend beyond its means. This piece from Marketwatch describes the massive problems faced by countries who have huge deficits and debt yet continue to spend excessively. The Obama administration and this Congress have not shown the courage to tackle this problem.

At bottom this is a leadership failure created by politicians pandering and catering to voters that government is the solution to their problems, whatever those problems may be. These pandering politicians have created a dependency culture that is clearly not sustainable. We have only to look to the recent Eurozone financial turmoil to see how quickly this house of debt cards can fall.

The Economist opines:

"Hardest of all will be finding the political will to curb profligacy. This struggle will become woven into the conflict that now tugs at the political fabric of Europe. German voters have just shown that they will punish leaders who spend their money bailing out feckless foreigners (see article). Hence the German demand that countries swallow savage budget cuts before they get any money—a demand that, taken to extremes, could condemn Europe to deflation and stagnation. On the other side, the violence in Greece is a reminder that democratic governments can impose only so much hardship before people rise up. Even if you accept that deficits must fall and economies must modernise, nobody can be completely sure which will come first, economic growth or social rebellion."

Fiscal restraint and spending discipline is long overdue in many developed countries and the United States is no exception. Our politicians, regardless of party, must refuse to continue their bad spending habits. This is not a new problem, but leadership for fiscal restraint rather than promises to voters that taxpayers and economies cannot afford must be the message to voters.

The U.S. mid-term elections will be an important test of our leaders' political courage. The leaders I want in office will deliver a message of spending restraint, fiscal discipline and deficit reduction and demonstrate the courage to actively reign in profligacy.

We simply cannot afford the spendthrift ways of Congress in the recent past. Congress, not the President, has the power to control spending and they have failed in that most important mission. They must change their ways because our national security is at risk.

"The debt mountain that brought down some of the world's biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. Now it's threatening countries around the globe -- and, if left unchecked, could rip the very fabric of Europe's economic system and wreck economic recoveries in the U.S., China and Latin America."

Debt to GDP ratios in the world's advanced economies will top 100% in 2014, 35 percentage points higher than where they stood before the financial crisis, the IMF estimated last month.

Three percentage points of this increase came from government bailouts of financial institutions, while 3.5 percentage points was from fiscal stimulus. Another four percentage points has been driven by higher interest on government debt and 9 points came from revenue lost from the global recession, according to the IMF.

"Public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution, except for wartime episodes and their immediate aftermath," Willem Buiter, chief economist at Citigroup Inc. and former member of the Bank of England's Monetary Policy Committee, wrote in a recent note on sovereign risk.

"Unless there is a radical change of course by those in charge of fiscal policy in the U.S., Japan and the U.K., these countries' sovereigns too will, sooner (in the case of the U.K.) or later (in the case of Japan and the U.S.) be at risk of being tested by the markets," Buiter said."

More Thoughts on Henninger's Observations

Henninger: The Blue Dogs’ Final Dilemma is Health Care - WSJ.com:

Henninger's quote below certainly applies to Vermont. We are a state where the public sector is intentionally squeezing the private sector as it has increased government services and commensurate spending. Vermont's economy was unhealthy even before the recession began. Nevertheless, Vermont racheted up spending beyond the ability of the tax base to support it.

State government is now facing runaway pension and retiree health care liabilities and a massive (by Vermont standards) hole in its future revenue stream. The basic problem: Vermont for a decade or more has been on a "Cadillac" state spending binge fueled by a "clunker" private sector economy.

"The problem is that in Washington and many states the public sector’s revenue needs have arrived at a point where space for the private economy is more or less beside the point. That is the clear message of the California and New York budget crises and the difficulties of financing the Obama health-care plan.

For centrists in both parties the moment has come to decide which side of the public-private divide they want the U.S. and its future workers to be on. Trying to live in both has brought us, inevitably, to that decision."

My guess is that leaders in Montpelier are hoping that national health care reform will bail them out of the fiscal pit of Medicaid and Catamount Health. Yet none of this relief would kick in, as I understand it, until 2013 at the earliest if approved.

The New York Times --Wrong Again

Vermont's legislative leadership and most of its liberal big spenders will line up behind this NY Times editorial. Expect to see it quoted. In fact, they could have written it. This notion of bailing out the states is a recipe for long term disaster requiring the U.S. to print ever more money with no hope of any sound financial future. We will be eternally mired in debt that will eventually swamp this nation.

There's a reason that most states require balanced budgets. The creators of those provisions in state constitutions understood the need for fiscal discipline. The NY Times and Vermont's legislative leadership obviously do not.

Don't the California referenda matter? The Times essentially trashes the voters' concerns in favor of their left-wing ideology.

What the Obama administration should make clear is that a bias for spending cuts — and against tax increases — is the wrong approach for California and other states. Both spending cuts and tax increases are harmful in a downturn, because they reduce already weak consumer demand. But most states are required by law to balance their budgets, so when deficits emerge, they are forced to do one or the other, or both.

Contrary to conventional wisdom, raising taxes may be better than spending cuts because tax increases, especially if they are focused on wealthy taxpayers, have less of a negative impact on consumption. Spending cuts hit consumption hard, depriving the economy of money that would otherwise be spent quickly. They also have the disadvantage — so evident in the cuts proposed by Mr. Schwarzenegger — of falling heavily on the needy.

Is the U.S. Going Broke? - Forbes.com

Ahem, may I have a moment of your time Senator Obama and Senator McCain? I really would like your proposed solutions to the terrible problem outlined in this article from Forbes (click on the link below). Or would you prefer to tell me the sky isn't falling? Or is it more fun to talk about lipstick and pigs?

• How will you pay for the massive energy transformations you both promise?
• What will you do to control the costs and pay for Medicare and Medicaid?
• You are apparently not willing to bail out any more investment banks... because the Feds don't have the money?

 

Just one quote to entice you to read the full column:

"The real liability facing our government is $70 trillion. This represents the present value difference between all the government's projected future spending obligations and all its projected future tax receipts. This fiscal gap takes into account Uncle Sam's need to service official debt--outstanding U.S. government bonds. But it also recognizes all our government's unofficial debts, including its obligation to the soon-to-be-retired baby boomers to pay their Social Security and Medicare benefits.

Given current policies, each of the 78 million boomers can expect, on average, to receive $50,000, in today's dollars, from these programs in each and every year of retirement. Multiply 78 million boomers by a $50,000 annual payment and you get close to $4 trillion per year. This helps you see why our nation's true indebtedness is so extraordinarily high."

Is the U.S. Going Broke? - Forbes.com

U.S. Financial Condition and Fiscal Future

http://www.gao.gov/cghome/d08417cg.pdf

David Walker, The Comptroller General of the United States, has developed this briefing (click the link above) about the the status of government expenditures, focusing on Social Security and health care. I suggest browsing through this 35 page .pdf for a full assessment of where we're headed if we do nothing.

He chooses not to address defense spending, probably because that's a fundamental and basic responsibility of government and does not have the built-in demographic time bomb as do the 'entitlements.'

Medicaid and Medicare are in deeper trouble than SS.

Why don't we hear about this dilemma on the campaign trail? Is it because the problem surfaces beyond the next 4-tear term?

Some excerpts below:

Current Fiscal Policy Is Unsustainable

•The “Status Quo” Is Not an Option
•We face large and growing structural deficits largely due to known demographic trends and rising health care costs
•GAO’s simulations show that balancing the budget in 2040 could require actions as large as

•Cutting total federal spending by 60 percent or

•Raising federal taxes to two times today's level

•Faster Economic Growth Can Help, but It Cannot Solve the Problem

•Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double-digit range every year for the next 75 years

•During the 1990s, the economy grew at an average 3.2 percent per year

•As a result, we cannot simply grow our way out of this problem. Tough choices will be required
---------------------------
Key Dates Highlight Long Term
Challenges of the Social Security System

2009 - Cash surplus begins to decline

2017 - Annual benefit costs exceed cash revenue from taxes

2027 - Trust fund ceases to grow because even taxes plus interest fall short of benefits

2041 - Trust fund exhausted

--------------------------
Key Dates Highlight Long Term
Challenges of the Medicare Program

2007 - Medicare Part A outlays exceed cash income
2007 -“Medicare funding warning” triggered
2013 - Projected date that annual “general revenue funding” for Part B will exceed 45 percent of total Medicare outlays
2019 - Part A trust fund exhausted, annual income sufficient to pay about 80% of promised Part A benefits

-------------------------
Three Key Illnesses
•Myopia
•Tunnel Vision
•Self-Centeredness
------------------------
Four National Deficits
•Budget
•Balance of Payments
•Savings
•Leadership
------------------------
Key Leadership Attributes Needed for
These Challenging and Changing Times
•Courage
•Integrity
•Creativity
•Partnership
•Stewardship

Overseas Investors Buy U.S. Holdings at a Record Pace - New York Times

Are you comfortable with the long-term consequences of globalization? More of America is owned by non-Americans, and this has increased recently as the big banks have sought overseas investments to shore up their balance sheets and increase their cash available after writing down so much bad debt.

Current new U.S. government debt is 75% owned by foreigners. Within 20 years America will be an 'also ran' country, economically. What will that mean for the radical Islamic terrorist fanatics who hate us so much? Will they also hate and attack other non-Islamic countries who have prospered and are secular as well?

If it's Western style secularism they hate, China, Korea, Singapore and Japan should be among their targets. Perhaps it's our financial strength and our military prowess they are eager to diminish by causing us to spend so much on security and securing our economy.

From the NY Times:

Graphic

A Flood of Investment

"For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said."

Overseas Investors Buy U.S. Holdings at a Record Pace - New York Times

Oil Demand, the Climate and the Energy Ladder - New York Times

The quote below is from an interview with Jeroen van der Veer, the head of Royal Dutch Shell. Note that we do not lack sources of petroleum, despite the common mis-belief that is often promulgated by some media.

People say we have passed the time of 'peak oil,' and that the world's petroleum production is declining. I don't think that's true...yet, but the cost of future oil will continue to rise as the costs of extraction increase.

Q. Fossil fuels are still going to represent the lion’s share of the energy mix in the next century?

A. First, there is no lack in itself of oil or gas, or coal for that matter. But the problem is that the easy-to-produce oil or easy-to-produce gas will be depleted or with difficult access. But if you look at difficult oil or difficult gas, which we in the industry call the unconventionals, such as oil sands or shales, they may be exploitable. But per barrel, you need a lot more technology and a lot more investments, and per barrel you need a lot more brain to produce it. It’s much more expensive.

For me, the most sensible strategy for long term energy efficiency that will minimize any climate change effect is to maximize the uses of electricity, particularly for transportation, and to generate it using nuclear facilities, absent some breakthrough with renewables (solar in particular). Burning fossil fuels seems to be less costly now, but that's because the cost of extraction and distribution is low relative to other options.

Oil Demand, the Climate and the Energy Ladder - New York Times

Bush Calls for Up to $150 Billion In Stimulus to Boost Economy - WSJ.com

(subscription required)

As I write this, I note the stock market is down yet again, so it's not very pleased with the Bush proposal. Perhaps that will change once the details surface in Congress.

Now, it'll be amusing to watch how the Presidential candidates will spin this.

I find it very interesting that Sen. Harry Reid and Rep. Nancy Pelosi are relatively quiet about the economy and whether their policies and lack of accomplishment have helped or hindered the situation. In fact the media seems to be not paying much attention to them, now that primary season is upon us.

 

I find it fascinating that the Democrat candidates are not running on the accomplishments of this 'Democrat Congress.'

 

Bush Calls for Up to $150 Billion In Stimulus to Boost Economy - WSJ.com

The Futurist's Top 10 Predictions for 2008

These predictions obviously extend beyond 2008 and their overall tenor is pessimistic and problematic. My grandchildren will inherit a very different world than the one I grew up in.

1. The world will have a billion millionaires by 2025.

Is this good news or not? I would argue it is, but the socialists among us will say this represents more unequal wealth distribution.

2. Fashion will go wired as technologies and tastes converge to revolutionize the textile industry.

This is good news because more jobs will be created as
people buy this stuff.

3. The threat of another cold war with China, Russia, or both could replace terrorism as the chief foreign-policy concern of the United States.

Definitely bad news, but should we expect something
different as we have exported our manufacturing base, and lately our financial interests as Asian companies invest in many of America's largest banks and financial institutions to help bail them out of the sub-prime mortgage mess.

4. Counterfeiting of currency will proliferate, driving the move toward a cashless society.

Mixed news here. Criminals are alive and apparently
thriving. If we move more or our financial life online, the security must increase simultaneously.

5. The earth is on the verge of a significant extinction event.

Very bad news, indeed.

6. Water will be in the twenty-first century what oil was in the twentieth century.

More bad news, but big companies will make a lot of money on this....GE for one.

7. World population by 2050 may grow larger than previously expected, due in part to healthier, longer-living people.

Should we expect anything less as medical science and agriculture continue to enable peole to live longer. The strain on the world's resources is the bad news.

8. The number of Africans imperiled by floods will grow 70-fold by 2080.

More bad news for the basket case that is most of Africa.

9. Rising prices for natural resources could lead to a full-scale rush to develop the Arctic.

Mixed news here. On one hand, the expanding
population must have resources, particularly fossil fuels and minerals. On the other hand , more people and development in the cold, but warming, North will displease the environmentalists.

10. More decisions will be made by nonhuman entities.

Not good, but because technology has advanced to this state, robots and other macro and micro devices will pervade our lives.