Liberal/Conservative Tax Policies

It seems to me….

Taxes are what we pay for civilized society, for modernity, and for prosperity.  The wealthy pay more because they have benefitted more.”  ~ Jill Lepore[1].

Tax reform recently approved by Congress, though long overdue, while correcting some basic problems was primarily of benefit to the already wealthy failing to correct or even acknowledge growing U.S. economic inequalities.  The Gini coefficient is estimated by the U.S. Census Bureau to be about 48 (the only developed country with a more unequal income distribution is Mexico) and in a range frequently associated with possible social unrest.

Liberals and conservatives differ considerable on a wide range of issues – taxes are certainly one of them.  Liberals believe higher taxes (primarily for the wealthy) and a larger government are necessary to address inequity/injustice in society.  While not necessarily income redistribution, they feel that the government has a social obligation to help the poor and needy and accept that a large government is necessary to provide for the needs of the people and create equality.  It is income from taxes that enable governments to create jobs and that government-sponsored programs are a caring way to provide for those in our society who are disadvantaged.

To a conservative, it is lower taxes and a smaller government with limited power that will improve the standard of living for all.  They believe lower taxes create more incentive for people to work, save, invest, and engage in entrepreneurial endeavors.  Money is best spent by those who earn it, not the government.  That government programs are counterproductive in that they encourage people to become dependent and lazy rather than encouraging work and independence.

A basic principle of conservative ideology is that cutting taxes always results in economic improvement and higher tax revenue.  That this is fallacious is obvious from the extreme example that if the tax rate is reduced to zero, tax revenue income does not become infinite.  In fact, the economies of states with the highest income taxes have consistently outperformed those without any income tax at all.  Over the last decade, states with the highest top tax rates saw their economies grow by 25.8 percent on a per-person basis while those states without income taxes saw growth of just 17.4 percent.

This does not imply that the concept is without any economic justification – there definitely is a theoretical possibility that if tax rates are sufficiently high that cutting them could increase revenue but it would be extremely rare for this to actually ever happen.

The entire concept apparently originated when Arthur Laffer, an economist, Jude Wanniski, a writer for the Wall Street Journal, and Dick Cheney, at the time Deputy White House Chief of Staff, met in a cocktail lounge in 1974.  Laffer sketched a diagram on a napkin showing either a tax increase or decrease could theoretically result in higher tax revenue.  Beyond a certain level, the number of transactions could possibly decline resulting in a corresponding decline in tax revenue.  Apparently, this is the only part of the conversation remembered and the Laffer Curve has been fundamental to conservative doctrine ever since.

The Laffer curve supposedly shows that taxable income elasticity (taxable income) could change in response to changes in the rate of taxation.  Increasing tax rates beyond a certain point therefore would be counter-productive for raising further tax revenue.  The Laffer curve is hypothetical as the effect for any given economy can only be estimated and such estimates are controversial.

Get ready for inflation and higher interest rates” was the title of a June 2009 op-ed article in The Wall Street Journal by Mr. Laffer.  The economist Paul Krugman notes, while “what followed were the lowest inflation in two generations and the lowest interest rates in history.  Mr. Kudlow and Mr. Moore both predicted 1970s-style stagflation”.  Kudlow and Laffer, Dr. Krugman points out, have at least admitted that their predictions were wrong.

The obvious conclusion from these remarks by Dr. Krugman is[2]Across the board, the modern American right seems to have abandoned the idea that there is an objective reality out there, even if it’s not what your prejudices say should be happening,”.  “What are you going to believe, right-wing doctrine or your own lying eyes?  These days, the doctrine wins.”  That doesn’t just hold true for economic policy, he writes; it also helps explain conservatives’ hysterical claims about healthcare reform, as well as the persistent influence of foreign policy “experts” who assured us that military intervention such as in the Iraq War would be a “smashing” success.

Tax cuts have not created real economic growth in the U.S. in 20 years under either Democratic or Republican administrations.  Yes, tax cuts did result in growth during the Ronald Reagan era, but there also was a huge increase in the deficit in his second term.  It is extremely unlikely that growth would again be repeated as a variety of significant factors, from demographics to productivity levels, are now considerably different.

There has been a consistent large increase in wealth inequality in recent years and it is very apparent that this widening disparity will continue as most of the money large corporations (the main beneficiaries of the recently passed Republican plan) received from any cuts will go straight into stock buybacks adding another dose of financial glucose to what is already a very saccharine market – one that is by almost any measure is totally divorced from the reality of most people’s lives (only about 52 percent of Americans own stocks).

Tax reform, especially corporate taxes, was long overdue – but NOT what recently was passed by Congress.  This bill was irresponsible and ill-conceived, especially at a time of full employment.  It increases the national deficit and debt and only overheats an already extremely strong economy at a time when it is critical to prepare for the next financial downturn.  Being a realist rather than a Cassandra, the U.S. economy marked another quarter – almost 90 successive – in one of the longest economic expansions in our nation’s history.  While remarkable, this recovery is built on a foundation established under the Obama administration (and at least so far not ruined under Trump) has lasted longer than normal and will likely soon end.  Anyone with any knowledge of economics knows the time to paydown debt is when the economy is strong so as to be able to pay back into the economy during the next inevitable downturn.

Policymakers normally respond to recessions by cutting interest rates, reducing taxes, and boosting transfers to the unemployed and other casualties of the downturn.  But the U.S. is singularly ill-prepared, for a combination of economic and political reasons, to respond as typically necessary.  The tax reduction does not allow for a stimulus when it might be needed.  Adding $1.5 trillion more to the federal debt will create an understandable reluctance to respond to a downturn with further tax cuts.

The kind of international cooperation that helped to halt the 2008-2009 contraction has been destroyed by Trump’s “America First” agenda, which paints one-time allies as enemies.  Other countries will work with the U.S. government to counter the next recession only if they trust its judgment and intentions and trust in the U.S. may be the quantity in shortest supply.

Additionally, what is needed far more at this time is infrastructure improvement, educational support, and increased research investment: all expensive and totally ignored in this bill.  It is all too apparent that Congress once again totally ignored basic economic theory and acted solely upon party ideology.

That’s what I think, what about you?

[1] Jill Lepore is an American historian.

[2] Brinkler, Luke.  “Be very, very afraid”: Paul Krugman on the GOP’s scary economic “experts”, Salon, http://www.salon.com/2015/02/20/be_very_very_afraid_paul_krugman_on_the_gops_scary_economic_experts/, 20 February 2015.

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Employment Requires Increased Educational

It seems to me….

Education is the passport to the future, for tomorrow belongs to those who prepare for it today.”  ~ Malcolm X[1].

As the economy moves deeper into the knowledge-focused age, changes are affecting the very nature of jobs by rewarding social, communications, and analytical skills prodding many workers to think about retraining and upgrading their skills.  35 percent of workers, including about three-in-ten (27 percent) adults with at least a bachelor’s degree, say they do not have the education and training they need to get ahead at work.

For the past several decades, employment opportunities have been rising most rapidly in areas requiring higher levels of preparation – more education, training, and experience.  The vast majority of U.S. workers believe new skills and training hold the key to their future job success.  The number of workers in occupations requiring average to above-average education, training, and experience increased from 49 million in 1980 to 83 million in 2015 – about 68 percent.  Those with lower levels of education are more likely to be temporary workers or out of work altogether.  They also are more likely to believe their current skills are insufficient for career advancement and to think there are not enough good jobs locally.

While previous waves of technological change did not lead to overall job losses, much of the current benefits accruing from improved productivity has gone to business owners and has not been shared with workers in the form of better wages and working conditions.  In 1950 almost one in three workers worked in manufacturing and only one in 12 worked in professional and technical services.  By 2016, these shares had reversed but the jobs lost in manufacturing were not replaced by jobs of similar or better quality in the communities affected.  Wages in former industrial areas are still 10 percent below the national average.

Employment data shows that the job categories with the highest growth tend to require higher social skills, analytic savvy, and technical prowess which should be particularly beneficial to women who hold a higher percentage of those positions.  When workers are asked about the skills they rely on most in their jobs, interpersonal skills, critical thinking, and good written and spoken communications skills top the list.

Task digitization has resulted in employment polarization reducing demand for middle-income jobs in non-routine cognitive areas such as analysts.  Non-routine manual jobs, such as janitors and hairdressers, have been only slightly affected.

The pay gap between manual and analytical jobs has grown over the years.  The number of workers in jobs requiring higher levels of manual or physical skills, such as machinery operation or physical labor, has changed relatively little.

College graduates and those with advanced degrees are the only population segment that has experienced employment growth since the start of the 2007 recession.  Not only has the wage gap between college graduates and non-college graduates continued to widen, college graduates experienced significantly lower unemployment rates and report much higher job satisfaction.

Though the number of college enrollees more than doubled between 1960 and 1980 and has continued to increase since, the relative demand for skilled labor increased even more rapidly than the supply while the decreasing demand for unskilled workers resulted in more applicants competing for fewer available positions.

The demand for computing skills greatly exceeds the available supply.  In 2015 there were more than 500,000 open computing positions in the U.S. but fewer than 4,000 new computer science graduates to fill them.

Businesses have traditionally relied primarily upon the educational-sector to provide qualified prospective employment candidates but this has proven to no longer be adequate.  The job market is not currently capable of solving this without the full collaboration of government, business, and civil society.  It now is necessary for the business-sector to become proactive, aided by tax incentives for education and training, to become increasingly involved in that role through work-study programs based on company-specific curricula, tuition payment programs, or donation of equipment/machines to universities and vocational programs.

There are many available employment positions that hypothetically could be filled by prospective applicants with sufficient potential but who lack traditional qualifications.  Enhanced education and training could accelerate applicant skill development for positions ranging from healthcare to customer service.

Many jobs previously available to non-college graduates now require a degree negatively impacting the lower and middleclass labor market and increasing job polarization as employees previously doing mid-skill knowledge work are forced into job categories at lower skill and wage levels.  This additional competition further suppresses wages and job availability at those lower levels.

A high school diploma is no longer adequate; there are too many competing for a declining number of jobs.  Even a basic college bachelor’s degree is no longer a guarantee of a well-paying position; graduates need to select the right major.  The Red Queen was never more correct when she remarked that it is necessary to run as fast as you can just to stay where you are.

Many young people look forward to when they complete their basic education and take their place in the working world.  The problem is that the world no longer works that way.  Without a plan to succeed, they won’t.  In today’s world, everyone needs to continuously reinvent themselves, acquire new skills, and prepare for whatever comes next – and that requires lifelong education.  Everyone is on a treadmill that will only continue to increase in speed.  There isn’t any easy way and anyone who pauses will find themselves eventually dumped off the end of that treadmill.

We live in an age of constant acceleration and whatever job someone might have today will very likely not be there tomorrow.  Simply being “average” is no longer adequate; everyone needs to determine what makes them standout.  This might be easy to say but difficult to constantly actually do.  Like it or not, life is speeding up and those not self-motivated are destined to fail.

In the future, people will need to be more adaptable and flexible in their career aspirations always preparing to transition from areas becoming subject to computerization to new opportunities where computers complement and augment human capabilities.

With every coming year advancement in AI will accelerate and the technology will become more complex, addictive, and ubiquitous.  We will continue to outsource more and more kinds of mental work to computers, disrupting every part of our reality: the way we organize ourselves and our work, form communities, and experience the world.

Educational and workforce training (retraining) improvement is necessary for the long-term unemployed but capable; expansion of necessary infrastructure projects and social safety nets are needed for others.  All of which are of course usually opposed by conservatives.

That’s what I think, what about you?

[1] Malcolm (Little) X was an African-American Muslim minister and human rights activist.

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Genetic Selection

It seems to me….

With the advent of genetic engineering, the time required for the evolution of new species may literally collapse.” ~ Dee Hock[1].

Evolutionary change has always been a long slow process extending over millennia but that is about to change due to the development of new, efficient, and relatively easy-to-use genetic modification techniques such as CRISPR. “Clustered regularly interspaced short palindromic repeats” known by its acronym, CRISPR, is a new gene-splicing technique and one of the most important developments in recent years. It already has opened new methods to render viruses inactive, regulate cell activity, create disease resistant crops, and even engineer yeast to produce ethanol that can fuel our cars; it also has provided the ability to accurately and efficiently “edit” the human genome in both embryos and adults.

Most medical procedures still remain overly intrusive and considerable work remains to understand physiological dependencies – but that is about to change. Scientists created the first full full map of the human genome in 2003; continuing reductions in the cost of genetic analysis are key to many significant advances. Once there is an available genetic database for about 100,000 individuals, big data analytics could examine large amounts of data to uncover hidden patterns, correlations, and other insights enabling more accurate diagnosis and treatment. Of course, in addition to genomes, full digital availability of all patient physiological and psychological records, treatments, and results also would be necessary which most likely would encounter opposition from both doctors and patients even if fully anonymized.

When the cost for full genetic sequencing declines to less than $200, it probably will be required for all newborns. The cost for required selective gene testing is currently around $80 but mandatory tests differ from state to state so the price-differential should be acceptable to insurance companies.

As millions and then billions of people have their genomes sequenced as part of standard health care and these people’s genomes are compared to their life experience, scientists will deploy big data analytics to uncover how certain genetic and epigenetic patterns increase the probabilities of various outcomes[2].

As significant an advancement as this is, it still represents only an initial step toward full understanding of this process. Gene expression is the process by which information from a gene is used in the synthesis of a functional gene product. These products are often proteins, but in non-protein coding genes such as transfer RNA (tRNA) or small nuclear RNA (snRNA) genes, the product is a functional RNA. Full understanding will require substantial additional research.

There is not yet any absolute answer to the nature-nurture debate and still impossible to precisely determine what percentage of our traits are based on our genes. Scientists have estimated based on twin studies, however, that the range is somewhere between 50-80 percent. Some traits are genetically simple, perhaps only influenced by one or more genes. Others, such as height and intelligence, are more complex and influenced by thousands.

Where spectrum preimplantation genetic screening (PGS) assessment for trait selection is permitted, parents will be informed of the probabilities of likely outcomes from among their pre-implanted embryos when deciding which of them to implant. Some embryos will be identified as having a greater than normal expectation of being superior at math, an exceptionally fast runner, or a super-empathic child. The more we know of genomics, the more accurate these predictions will become.

The possibility of assisted reproduction will admittedly alarm some people. Many individuals, groups, and countries may choose to opt out for very legitimate reasons. But competition within and between countries will drive the adoption of embryo selection inexorably forward. Once it is considered safe, parents will not want their children to be left behind as IQ levels across the population increase or the average height becomes taller due to embryo selection. Countries will fear losing competitiveness if they opt out while other states opt in.

But no matter what is or is not done, the human species has rounded a corner in our evolutionary process. Embryo selection is only the beginning of this transformation. Our genetically altered future has already begun.

Embryo selection, in connection with in-vitro fertilization (IVF), has been available since 1978. Starting in the 1990s, doctors began using PGS to extract cells from early-stage embryos and screen them for simple genetic diseases. We now have the basic ability to eliminate many genetic diseases, extend healthy lifespans, and enhance people’s overall well-being; an ability that will be wide-spread and viable within the next twenty-five years.

Gene transfer can be targeted to somatic (body) or germ (egg and sperm) cells. In somatic gene transfer the recipient’s genome is changed but the change is not passed on to the next generation. With germline gene transfer, the parents’ egg or sperm cells are changed so as to pass on any changes to their offspring.

At present, over a thousand such diseases, including cystic fibrosis, Huntington’s disease, Tay-Sachs, sickle-cell anemia, and Duchenne muscular dystrophy can be screened during PGS and the list is constantly growing. With this information, parents using IVF and PGS can select embryos not carrying those diseases if they so choose. Some jurisdictions, including the U.S., Mexico, Italy, and Thailand, additionally permit parents to select the gender of their future children.

The ability to prevent genetic disease will catalyze the adoption of embryo screening across the population but use of the technology will not end there. When cells taken from early-stage embryos are fully sequenced during PGS, they will provide information about all genetically influenced traits, not just those related to disease.

Most biomedical interventions, whether successful or not, have attempted to restore something perceived to be deficient, such as vision, hearing, or mobility but have tended to be relatively modest and incremental. Now, with scientific developments in areas such as biotechnology, information technology, and nanotechnology, humanity may have reached that point where enhancement revolution is prompted by ongoing efforts to aid people with disabilities and heal the sick. Science is making rapid progress in new restorative and therapeutic technologies that could, in theory, have implications for human enhancement[3].

While currently primarily still only an area of research, the basic foundation is being developed eventually leading to widespread use. Once science provides the means to start editing the code of life, where does it stop? There are ways to make cells virus-resistant, prion-resistant, cancer-resistant. While not currently possible, it soon will be able to create designer babies with predetermined eye color, intelligence, and physical traits. Our cells do not make all the essential amino acids that are required to make our own proteins but it should be possible to put all the metabolic pathways to make those missing essential amino acids into a human cell.

While modifications of the human genome might initially be strongly opposed, especially by religious conservatives, it most likely already is occurring in more centrally-controlled illiberal nations such as China. Any opposition will necessarily acquiesce providing limited acceptance for medical applications for otherwise untreatable heritable diseases.

As genetic analysis becomes common and additional cause/effect relationships known, treatments will be developed to cure and prevent a rapidly lengthening list of maladies. Though there also is significant philosophical, ethical, and religious opposition to so-called transhumanism, advocates predict that instead of leaving a person’s physical well-being to the vagaries of nature, science will allow us to take control of our species’ development, making ourselves and future generations stronger, smarter, healthier, and happier but obviously not without controversy. Any attempt to ban such research is ultimately unenforceable, impractical, and will only serve to delay general availability.

In July 2017, researchers at the Oregon Health and Sciences University used CRISPR, to “delete” a mutation linked to heart conditions from a human embryo. The mutation could have caused heart disease and heart failure so the technology was used to prevent an inherited disease from spreading to future generations. The fact is that this is not something that might happen sometime in the future, human genes are already being edited.

It will become increasingly difficult to differentiate between treatment critical to saving a life and what is merely beneficial to the quality of life. Given the current prevalence of obesity, would genetic elimination of any tendency toward endomorphism be acceptable? Would genetic reduction of drug or alcohol dependence tendencies be permitted?

An Asilomar Conference on Recombinant DNA held in February 1975 at a conference center at Asilomar State Beach discussed potential biohazards and regulation of biotechnology. This technology entails the joining of DNA from different species and the subsequent insertion of the hybrid DNA into a host cell. Principles guiding the recommendations for how to conduct experiments using this technology safely were established at the conference.

Many researches express concern about insertion of non-human DNA but it would be considered extremely significant if a gene was found that e.g., could allow regeneration of lost limbs. The Caudata, an order of tailed amphibians including salamanders and newts, is possibly the most adept vertebrate group at regeneration given their capability of regenerating limbs, tails, jaws, eyes and a variety of internal structures. If a gene was found that could provide this ability to humans without negative side effects, insertion probably would encounter only minor objection.

Synthetic biologists are researching methods to construct novel organisms from scratch for an array of purposes in medicine, energy, agriculture, and other fields. One such project, the Human Genome Project-write (or GP-write, as the project is known), aims to use these same tools to build a much more familiar organism: a human cell, complete with all the DNA required to produce more human cells. Mastery of this technique could wipe out diseases and bring about other applications we can’t yet imagine. It would be the ultimate engineering blueprint for life.

At some point, the line is crossed and necessary treatment leads to desirable characteristics. Parental (and possibly the state) insistence will result in general acceptance of so-called “designer babies” with highly desired attributes: intelligence, athleticism, appearance…. Totally synthetic babies will come in the future when the timing is right, the tools are available, the technology is affordable and sufficiently reliable. Someone somewhere will pioneer that particular project and there isn’t any way to prevent it.

There isn’t any way to predict what a world devoid of physical, mental, or genetic defects would be like – but the door is now open to finding out. We now have the ability to control not only our own evolutionary future but also that of every living creature on the planet.

That’s what I think, what about you?

[1] Dee Ward Hock is the founder and former CEO of the Visa credit card association.

[2] Metzi, Jamie. By The Year 2040, Embryo Selection Could Replace Sex As The Way Most Of Us Make Babies, Kurzweil.AI.net, http://www.kurzweilai.net/by-the-year-2040-embryo-selection-could-replace-sex-as-the-way-most-of-us-make-babies?utm_source=KurzweilAI+Weekly+Newsletter&utm_campaign=d4cc589973-UA-946742-1&utm_medium=email&utm_term=0_147a5a48c1-d4cc589973-282211389, 9 May 2016.

[3] Masci, David. Human Enhancement, Pew Research Center, http://www.pewinternet.org/2016/07/26/human-enhancement-the-scientific-and-ethical-dimensions-of-striving-for-perfection/?utm_source=Pew+Research+Center&utm_campaign=9dca022fe6-_Weekly_July_28_20167_28_2016&utm_medium=email&utm_term=0_3e953b9b70-9dca022fe6-400092341, 26 July 2016.

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Growth In Renewable Energy

It seems to me….

The future is green energy, sustainability, renewable energy.” ~ Arnold Schwarzenegger[1].

Wind and solar power exceeded 10 percent of the total U.S. electrical energy generation for the first time in March 2017 and is projected to exceed 30 percent by the end of 2018. The national power grid has rapidly evolved and improved in recent years as utility companies have developed innovative ways to move electrical power around the country to account for weather fluctuations. Battery technology is now capable of storing sufficient energy for when renewable sources are not adequate and natural gas is available as an emergency backup to provide immediate supplementary power if necessary.

Microgrids, rather than large regional power production facilities; incorporating solar panels, batteries, and a link to the electrical grid for when power production is either insufficient or exceeds current requirements; are more sustainable, costs less, and produce lower emissions than larger power generating facilities. This technology allows communities to collect, store, and use their own energy rather than be dependent upon power sources located elsewhere. Microgrids also are more resistant to outages from blackouts or cyber-attacks as they can be isolated from the grid when necessary providing resiliency and frugality while reducing dependency upon more expensive (and carbon based) diesel for backup generation.

Unfortunately, the Trump administration opposes the transition of U.S. power dependence to renewable sources apparently believing that to meet peak demand, it is necessary to have hydrocarbons, primarily coal, to rely on. A Trump Department of Energy study has recommended overturning current renewable-energy standards set by local and state governments. While it is unlikely they will be able to entirely reverse the shift to renewable energy sources, they could slow the rapid acceleration of its growth by shifting public-funded investment away from renewables and back into hydrocarbons.

This is at a time when China has become one of the world’s leading producers of wind turbines and solar panels with government subsidies enabling its companies to become cost-efficient and global in their aspirations. In 2015, China was home to the world’s top wind-turbine maker and the top two solar-panel manufacturers. According to a recent report from the United Nations, China invested $78.3 billion in renewable energy last year – almost twice as much as the U.S.

Now Beijing is making a push into electric vehicles (EVs) and has taken a large lead in that field hoping to dominate what it believes will be the transport industry of the future. In 2016, more than twice as many EVs were sold in China as in the U.S., an astonishing catch-up for a country that had almost no such technologies 10 years ago. China’s leaders have let it be known that by 2025 they want 20 percent of all new vehicles sold in China to be powered by alternative fuels. All of this has already translated into jobs, “big league” as Trump might say: 3.6 million people are already working in the renewable-energy sector in China, compared with only 777,000 in the U.S.

China watched and learned from the U.S. as technological revolutions dramatically increased the supply and lowered the cost of natural gas and solar energy. It has now decided to put a much larger emphasis on this route to energy security; one that also ensures it will be the world’s leading producer of clean energy.

The U.S. needs to quickly eliminate all fossil fuel subsidies and focus on making renewable energy less expensive and more competitive through research and development. Once the price of green energy has been innovated down below the price of fossil fuels, adoption will rapidly expand. While green technologies are not yet fully mature or competitive, they deserve the opportunity to compete on a fair and even field.

Beijing is getting its growth by focusing on the future: economics and technology. The U.S. under Trump seems committed to engaged in a futile and quixotic quest to revive the industries of the past.

That’s what I think, what about you?

[1] Arnold Alois Schwarzenegger is an actor (and former professional bodybuilder), producer, businessman, investor, author, philanthropist, activist, and politician who served two terms as the 38th Governor of California and holds both Austrian and U.S. citizenship.

Posted in Batteries, Beijing, China, Electric Vehicles, Electrical, Employment, Employment, Energy, Environment, EVs, Funding, Grid, Microgrids, Natural Gas, Photovoltaic, Power, Solar, Solar, Solar, United Nations, Wind, Wind | Tagged , , , , , , , , , , , , , , , , , , , , | Leave a comment

Positive Economics And International Trade

It seems to me….

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” ~ Thomas Sowell[1].

The basic principle of positive economics, based on comparative advantages, favors globalization and free-trade as it benefits the greatest number of people (normative economics makes a value judgement evaluating the concerns of displaced workers disproportionately over the global overall benefit). Globalization is more than simply trade between nations. Nations also interact economically in various other ways: investors invest funds in other countries, many international companies have subsidiaries operating in multiple countries, individuals work in countries in which they are not citizens….

Admittedly, the global economy has not created prosperity for everyone. While globalization has lifted millions out of poverty, income disparities already wide are further widening even in wealthy nations. Less wealthy nations are in dire need of basic necessities: food, water, housing….

The U.S. is experiencing not only exponential growth in technology but somewhat similar changes in many other areas of society. The forces of technological advancement enable the automation and computerization that impact employment not only creating new categories of employment but eliminating others in the process. Globalization which provides new items at reduced costs, though frequently viewed as impacting employment through offshoring, is beneficial to everyone though some isolated areas remain negatively affected by diminished employment possibilities.

The effects of these changes are accelerating at an exponential rate to the point where many people now are experiencing difficulty accommodating them. No longer is a high school diploma adequate preparation for the many new employment positions becoming available. Those without a college degree increasingly find themselves competing for lower-paying positions with an increasing number of other under-educated applicants. In many ways, the 2016 U.S. Presidential election represented a rejection of the accelerating agents of change which have left many falling behind in a world changing too rapidly. Societal structures have failed to keep up with this rate of change. For the first time in our nation’s history, many of the current generation can anticipate a lower quality of life that their parent’s generation.

Outsourcing is where U.S. companies leverage fast, free, simple, and ubiquitous connectivity to hire large numbers of relatively cheap employees anywhere in the world to solve American problems. While many politicians, especially liberals, erroneously attempt to blame outsourcing for a significant reduction in U.S.-based manufacturing employment, 87.8 percent of the manufacturing jobs lost in the U.S. between 2000 and 2010 resulted from automation and improved technology rather than outsourcing or globalization[2].

There are a number of fallacies involving international trade. For example: the pauper-labor fallacy is the belief that when a country with high-wages imports items produced in a country with low-wage workers that it eliminates jobs in the high-wage country. The pauper fallacy is that trade harms workers in exporting countries who work in sweatshop environments at very low wages relative to the high-wage country. Both of these are false.

Both liberals and conservative – for entirely different reasons – oppose loss of labor-intensive employment opportunities to third-world nations but given those nation’s low productivity, lack of infrastructure, and development lag, it is not reasonable to demand wage and working-condition parity as a pre-condition to accepting a nation’s products. The only result would be to prevent any incremental improvement in both nation’s living standards. Given time, wages and environment tend to improve resulting in greater worker parity regardless of location. It is much better to concentrate on continued improvement within our own country which is far from perfect rather than being critical of faults we see elsewhere in the world[3].

A competitive market at its equilibrium point is normally the most efficient method to manage the trade of items regardless of whether that trade is between individuals or nations. This does not, however, address the issue of equity – what everyone agrees to as being fair.

Foreign trade results in the cost of imports equaling the world price based on demand/supply curves. If that price is lower than the domestic price, then the economy experiences an overall gain as the consumer surplus gain exceeds the producer surplus loss. Similarly, a higher world price than domestic price results in exports (and an increase in domestic price) but again an economic benefit accrues as producer surplus gain exceeds any consumer surplus losses.

International trade allows each country to specialize in producing items in which it has a comparative advantage. Overall, international trade results in an expansion of exports and contraction of import-competing companies dependent upon the countries plentiful or scarce resources. U.S. exports have resulted from the availability of a highly educated work force; its imports primarily result from lower-cost workers in other countries. An open global economy is not a zero-sum game but rather allows the U.S. economy to prosper and of other nations to improve.

U.S. exports tend to be educated human-capital intensive and U.S. imports tend to be unskilled labor intensive. The effect of international trade on U.S. factor markets is therefore to raise the wage rate of highly educated U.S. workers and reduce the wage rate of unskilled U.S. workers. Consequently, there is an overall consumer benefit from international trade though it might negatively affect a minority of producers and primarily lower-educated workers.

Despite Trump’s decision to pull the U.S. out of the Trans-Pacific Partnership (TPP) and threats to pull out of the North American Free Trade Agreement (NAFTA), neither deal is dead. The remaining TPP members revived the idea of trans-Pacific trade at the Asia-Pacific Economic Partnership (APEC) summit in November, making significant progress without the U.S. toward what is now known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Even as extreme U.S. demands stall NAFTA renegotiations, U.S. public support for NAFTA increased in 2017, pressuring the Trump administration not to withdraw from the agreement.

While the U.S. has abdicated global trade leadership, the European Union (EU) has made progress on several important agreements of its own, notably one with Japan, encompassing countries that account for over 30 percent of the world’s GDP. The EU-Japan agreement will reduce the ability of the U.S. to set world product standards and other regulations – disadvantaging U.S. exports in the process. In exercising his America First strategy, Trump has actually adversely affected U.S. businesses.

That’s what I think, what about you?

[1] Thomas Sowell is an American economist, turned social theorist, political philosopher, and author.

[2] Hicks, Michael J., and Srikant Devaraj. The Myth And The Reality Of Manufacturing In America, Ball State University, https://www.nist.gov/sites/default/files/documents/mep/data/MfgReality-1.pdf, June 2105.

[3]Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye?”, The Christian Bible, Matthew 7:3.

Posted in Automation, Automation, Automation, College, College, Comparative Advantage, Comprehensive and Progressive Trans-Pacific Partnership, Computerization, Consumer Surplus, CPTPP, Disparity, Education, Elections, Employment, Employment, Employment, employment, EU, EU, European Union, European Union, Exports, Globalization, Globalization, High School, Imports, Income, Inequality, Inequality, Japan, Japan, Jobs, Manufacturing, NAFTA, Normative Economics, normative EconomicsN, North American Free Trade Agreement, Off-Shoring, Off-Shoring, Offshoring, Outsourcing, Positive Economics, Producer Surplus, Technology, TPP, Trade, Trade, Trans-Pacific Partnership, Trump, University, Wages | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Middle-East Conundrum

It seems to me….

If we’ve learned anything from 15 years of war in Iraq and Afghanistan, it’s that local people and nations have to secure their own communities. We can help them, and we should, but we cannot substitute for them.” ~ Hillary Clinton[1].

The civil war in Syria has resulted in the death of about 250,000 citizens with the country divided among those loyal to President Bashar Assad, various rebel groups, Kurdish militias, and Muslim extremist groups such as ISIS. Though the primary battle with ISIS might now essentially be over, continued force will not alone be sufficient to bring peace to Syria and Iraq. Military defeat of Saddam Hussein did not lead to peace in Iraq as insufficient effort was committed to thinking about the day after and how to govern for all Iraqis. To fully defeat Daesh, we need a comprehensive plan addressing the military, political, and humanitarian aspects of this tragedy.

One result of this conflict is that there now is a “lost generation” of Syrians[2]. There are an estimated 2.7 million Syrian children, 36 percent of Syrian refugee children just in the Lebanese Bekaa Valley, out of school and unable to either read nor write. A future Syria can never become a functioning state able to resist extremism if those children are never able to obtain an education.

The U.S. has traditionally viewed the Middle East through its own conceptual frameworks; dictatorships vs. democracy, secularism vs. religion, order vs. chaos; but that area has now become something totally different; Sunnis vs. Shiites; which now affects almost every aspect of the region’s politics. Sunnis, who make up 85 percent of all Muslims, have long dominated the Arab world, even in Shiite-majority countries such as Iraq and Bahrain, but that has now changed. Iraq, a major Arab state, is now ruled by Shiites.

While Republicans and Democrats usually attempt to place responsibility for the Middle East crisis and the rise of ISIS on each other; e.g., Middle East destabilization on the invasion of Iraq by Republican President Bush or the withdrawal of occupying troops from Iraq by Democratic President Obama; at least one study[3] attributes the actual causes of the Syrian civil war to climate change.

Higher temperatures resulted in increased severity of a prolonged regional drought, combined with the government’s refusal to adequately respond to crop failures and livestock deaths, forcing hundreds of people to migrate from their farms into cities such as Aleppo and Raqqa. These migrants resentful of the Syrian government and with little to lose, joined in anti-government protests that quickly became a civil war when government-backed forces began shooting the protestors. Extremist groups, such as ISIS, took advantage of the opportunity to exploit and organize the anti-Syrian forces.

A pivotal regional shift took place in 1979: the Islamic Revolution in Iran brought to power an aggressively religious ruling class determined to export its ideas and support Shiites in the region pushing the regime substantially to the religious right. This was strongly opposed by Saudi Arabia’s governing ideology of Wahhabi Islam which always was anti-Shiite from the time of its founding, demolishing Shiite mosques and shrines, and spreading its view that Shiites are heretics.

The single greatest threat to the U.S. emanating from the Middle East remains radical Sunni jihadists many of whom have drawn inspiration, funding, and doctrine from Saudi Arabia. The U.S. should not take sides in the broader sectarian struggle; this is someone else’s civil war.

Europe and the U.S. have made mistakes, but the misery of the Arab world has mostly resulted from its own failures[4]: Arabs are reverting to ethnic and religious identities. All this is not so much a clash of civilizations as a war within Arab civilization. Outsiders cannot fix it though their actions might make things a bit better – or considerably worse. First and foremost, a settlement must come from Arabs themselves[5].

When Sir Mark Sykes and François Georges-Picot secretly drew their lines on the map of the Levant to carve up the Ottoman empire in May 1916 at the height of the first world war, they could scarcely have imagined the chaos they were creating: a century of imperial betrayal and Arab resentment; instability, and coups; wars, displacement, occupation, and failed peacemaking in Palestine; and oppression, radicalism, and terrorism almost everywhere.

Many blame the mayhem on Western powers; from Sykes-Picot to the creation of Israel, the Franco-British takeover of the Suez Canal in 1956, and repeated U.S. interventions. Foreigners have often made things worse; the U.S.’s invasion of Iraq in 2003 released its sectarian demons. But the idea that the U.S. should turn away from the region, something Barack Obama seemed to embrace, can be as destabilizing as intervention as the catastrophe in Syria shows.

Redrawing the borders of Arab countries to create more stable states that match the ethnic and religious contours of the population is not feasible. There are no neat lines in a region where ethnic groups and sects can change from one village or even one street to the next. A new Sykes-Picot would potentially create as many injustices as it resolves and may provoke more bloodshed as all try to grab land and expel rivals.

Arab autocracy will never be capable of resisting extremism and chaos. In Egypt, Mr. Sisi’s rule has proven as oppressive as it is arbitrary and economically incompetent. Popular discontent is growing. In Syria, Bashar al-Assad and his allies would like to portray his regime as the only force that can control disorder. The contrary is true: Mr. Assad’s violence is the primary cause of the turmoil. Arab authoritarianism is no basis for stability. That much, at least, should have become clear from the uprisings of 2011.

This disarray is not the fault of Islam as Donald Trump and some U.S. conservatives seek to claim; that would be like blaming Christianity as the cause of Europe’s wars and murderous anti-Semitism: partly true, but of little practical help.

The enemy is radical Islam, not Islam in general, an ideology that has spread over the past four decades and now infects alienated young men and women across the Muslim world. The fight against it must at its core be against the ideology itself and that can be done only by Muslims – they alone can purge their faith of this extremism.

After a slow start, several important efforts are underway, perhaps more than generally realized. The world should recognize the variety of thought within Islam, support moderate trends, and challenge extremists. The West can help by encouraging these forces of reform, allying with them. and partnering in efforts to modernize their societies. But that is much less satisfying than hurling invectives, calling for bans on Muslims, and advocating carpet-bombing. Without Islam, no solution is likely to endure.

Similarly, putting 50 (or any other number) additional U.S. military on the ground in Syria or Afghanistan will not make any substantial difference in those on-going struggles and would only be the next step of incremental escalations that began in June 2014 with the limited deployment of 275 soldiers to protect the U.S. Embassy in Baghdad. U.S. escalating involvement has resulted from conservative extremism demanding U.S. engagement and an end to what they viewed as President Obama’s inconsistencies and vacillations. Increasing involvement always will be ineffective in a battle with so many different participants all having different goals. Our participation in what can only be described as entanglement rather than engagement should instead be attributed to the politics of inadvertence.

That’s what I think, what about you?

[1] Hillary Diane Rodham Clinton is an American politician who served as U.S. First Lady under her husband President William (Bill) Clinton, U.S. Senator from New York, 67th U.S. Secretary of State, and the Democratic Party’s nominee for U.S. President in the 2016 election.

[2] Shaheen, Kareem. Adults before their time, Syria’s refugee children toil in the fields of Lebanon, The Guardian, http://www.theguardian.com/world/2015/jul/26/children-syria-bekaa-isis, 25 July 2015.

[3] Kelley, Collin, et al. Climate Change in the Fertile Crescent and Implications of the Recent Syrian Drought, Proceedings of the National Academy of Sciences USA, 2015, http://www.scientificamerican.com/article/ominous-story-of-syria-climate-refugees/, 17 March 2015.

[4] The War Within, The Economist, http://www.economist.com/news/leaders/21698652-europe-and-america-made-mistakes-misery-arab-world-caused-mainly-its-own, 14 May 2016.

[5] Clarification: This is a generalization, Iranians are actually not Arabs.

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Productivity Growth

It seems to me….

Productivity and the growth of productivity must be the first economic consideration at all times, not the last. That is the source of technological innovation, jobs, and wealth.” ~ William E. Simon[1].

Productivity growth, which is the growth of output of goods and services per hour worked, provides the basis for living standards improvements and has traditionally been fueled by manufacturing revolutions which historically have occurred about every 50-60 years: the steam engine in the middle of the 19th century, the mass-production model in the beginning of the 20th, and the first automation wave in the 1970s. But some aspects of productivity have actually declined over the last 50 years. Growth matters: when the economy doesn’t grow, everyone gets a smaller piece which can lead to increased tensions and conflicts. Today, economic changes challenge the definition of productivity growth as our economy’s reliance upon manufacturing evolves beyond traditional models.

There have been attempts to increase productivity by relocating factories offshore so as to reduce costs by taking advantage of less-costly labor. This did not increase productivity and only temporarily decreased expenses as “cheap” labor does not remain cheap for very long. Basically, regardless of changes, manufacturing has essentially remained the same for the past half-century.

Though rapidly changing, manufacturing will remain a core component of our economy. Past manufacturing revolutions created economic growth through productivity improvement. Growth requires higher economic productivity: more labor, capital, or throughput. Fortunately, we now are possibly at the beginning of the next manufacturing revolution.

So far, technological innovations have not contributed to anticipated productivity increases to the extent anticipated: some productivity factors have actually continued to decline since initial availability of the Internet and robotics. While disappointing, this is somewhat understandable as only now are those innovations slowly starting to be incorporated into manufacturing processes. It takes time to learn how to best utilize process improvements and productivity reorganization. The full potential of any technological advance is frequently not fully exploited until about thirty years following its initial available as any advance typically requires changes in procedures of how things are done and re-engineering of basic processes. A full understanding and appreciation of these differences, in addition to alteration of structures to accommodate newer equipment, seems to require a new generation of managers and engineers able to understand and appreciate those changes and whose expertise is not dependent upon obsolete methodologies. Technological innovation not only replaces previous ways of doing things, but also the livelihoods of those dependent upon those methods.

Advances in sensing, computation, storage, networking, and software require all activities, whether industrial, leisure, medical, etc. to become digitized and computable greatly empowering those able to understand and conceive new applications, obtain funding, implement, and easily scale them at a speed and cost accessible to most potential entrepreneurs. Major technologies are increasingly being incorporated into the manufacturing space boosting industrial productivity by more than a third and creating economic growth. As digital technologies transform the economy, corporate management must develop the digital strategies, shift organizational structures, and remove those barriers preventing them from maximizing the potential impact of new digital technologies.

Only 8 percent of the tasks, primarily the less-complex more-repetitive ones, in today’s factories are currently automated but that is predicted to increase to 25 percent within 10 years. By 2025, advanced robots complementing workers will, together, be about 20 percent more productive: manufacturing productivity will increase by 20 percent; economic growth will correspondingly increase by 20 percent. Similarly, additive manufacturing (3D printing) should result in 40 percent greater productivity within specific industries such as plastic and metal manufacturing.

The Internet of Things (IoT) represents the next big wave of data-driven technological innovation and will connect physical devices embedded with tiny computing devices to the Internet to seamlessly improve measurements, communications, flexibility, and customization of processes and activities. Market trend analysis forecasts robust growth in the total number of networked devices in use over the next decades. It will enable extensions and enhancements to current fundamental services in education, health, and other sectors, as well as providing a new ecosystem for application development. By enabling devices to communicate with each other independent of human interaction, the IoT will permit new revenue streams, facilitate new business models, drive efficiencies, and improve the way existing services available across numerous different sectors are delivered.

Not only is manufacturing become more productive, it also is becoming more flexible enabling scale customization processing where products can be produced with a specified functionality and design for the same cost and lead time as mass-produced products – one single item can be produced at a cost and lead time similar to a batch of many.

Factor intensity of production is a measure of the relatively greater quantities of an input such as land, labor, capital, workers… used in production. Scale manufacturing will result in production facilities being located in closer proximity to intended markets as the factor intensity of transportation costs replace labor costs as the primary determinant for production facility siting.

Many once believed automation would enable most items to be custom produced rather than mass-produced but there has been little progress in that direction (though availability of additive manufacturing might result in a more limited but somewhat similar capability). Smaller and more agile manufacturing capabilities will be located nearer to the consumer as scale becomes less important than flexibility. This new globalization will be better for the environment creating greater employment, productivity, and growth.

Many changes will be necessary as the U.S. becomes a postindustrial economy. Productivity enhancements will increase the already insufficient availability of highly educated job applicants. Increased globalization will further negatively affect heavy industry and manufacturing while benefiting information, service, education, and technology industries. New industrial segments will rapidly expand; e.g., renewable energy will replace carbon fuels.

This is not a zero-sum process; the economy should experience sustainable growth resulting in greater wealth distribution for all providing a better quality of life for future generations. Unfortunately, the reality is that income inequality has been increasing for over the last 30 years driven by rising inequality of both labor (wages and compensation) and capital income along with an increasing share of income going into capital income rather than labor income. Wages and compensation for the typical worker and income growth for the typical family have lagged behind productivity growth. For the overall benefits of productivity improvements to extend throughout the economy, a more equitable distribution of gains will be necessary.

There is a caveat: it will not happen automatically. Similar to many other challenges our nation is facing, it will entail increased educational availability, massive workforce retraining, infrastructure modernization, and government financial support – something the current administration in all probability will be unwilling to consider.

That’s what I think, what about you?

[1] William Edward Simon was an American businessman, 63rd U.S. Secretary of the Treasury, and a philanthropist.

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