If You Lived Here, You'd be Home by now

Years ago, when we lived in the big city, downtown developers tried to lure home buyers with signs for commuters that said, "If You Lived Here, You'd Already Be Home."

I think of that every time some pundit talks about how urgent it is to reduce the deficit. The last President to successfully reduce the deficit was Bill Clinton.

In fact, according to CBO projections, if G.W. Bush had continued the Clinton policies, we would have not only reduced the deficit, we would have paid off our national debt by now.

The last previous presidents who reduced the deficit were Jimmy Carter and Lyndon Johnson.

Ronald Reagan tripled the national debt during his tenure. By the end of George Herbert Walker Bush's administration, the debt was four times as great as at the beginning of Reagan's term. At the end of Bush I's term, the debt equaled 66% of the Gross Domestic Product. By the end of Clinton's term, it was down to 56% of GDP.

How would you like for the country to have zero debt right now? We'd have much better fiscal options, wouldn't we?

Instead, by the end of George W. Bush's term, our debt had risen to 83% of GDP, and we were in the midst of the greatest recession since the Great Depression. In fact, had it not been for the safety nets put in place after the Great Depression, we could easily have had an even greater depression.

But let's get one thing straight - the national debt didn't cause unemployment. Nor did it cause the great recession - mishandling of private debt and financial misfeasance did that. And so far, the national debt hasn't caused any inflation.

Now is absolutely the wrong time to balance the federal budget, thus reducing aggregate demand and stifling what little recovery we have going.

Once we get back to near full employment, though, we need to pay down the public debt and drastically reduce private debt. We won't be able to do that without getting back to making things instead of just making deals.

To get there, we need to reward the thing makers and take away special rewards for financial manipulators.

Why Rush to Reduce Deficits?

A good article in Slate Magazine calls for politicians to do a better job of explaining why deficit reduction is so important.

The author, John Dickerson, repeatedly points out that the public is more interested in jobs. He says neither party has explained how reducing the deficit will get them jobs.

There's a really good reason for that.

It won't.

In fact, reducing the deficit, which is a good idea in the long run, will kill jobs in the short run.

If so, John Boehner said today, "so be it."

Let them eat cake.

A Well Regulated Militia - the Regulations

In case you wondered what a "well-regulated militia" looked like, here is the governing law and regulation, passed by the Congress May 2, 1792 and amended in 1795.

The Militia Act of 1792 required all white males of the age of 18 to the age of 45 years to serve in their respective state militias. Detailed regulations passed May 8, 1792 stipulated the organizational and rank structure and spelled out what equipment was to be provided by each member of the militia at his own expense.

It makes interesting reading.

Those of you anxious to exercise your Second Amendment rights - this is what it was about.

Robotics and Economics

Ninety years ago, the Czech journalist and author Karel Capek introduced the word "Robot" to the world in his play, "R.U.R. (Rossum's Universal Robots)." Isaac Asimov expanded the concept in his I, Robot books.

A staple of science fiction of the forties and fifties was the question of how society might cope with the circumstance created if robots with a wide range of capabilities were to replace humans in routine or even challenging jobs (as did HAL in "2001, Space Odyssey").

We are now there. We get our money from robots (ATM's), we send robots in to fight fires where no human could survive, we use robots to do surgery, dispatch software robots to search the internet, and even use robots to fight our wars.

This is just the beginning.

This Wednesday, IBM will pit its artificial intelligence system named Watson against two of the world's best Jeopardy players. Experts expect that Watson will win the contest. If so, it would be a demonstration of the amazing progress in artificial intelligence. To succeed, Watson will have to deal with puns, homonyms, and contextual ambiguities. (Update as of Tuesday morning: The first round of Jeopardy ended with Watson in a tie for the lead. Stay tuned.)

A different but also successful approach to use of computers to assist human intelligence is known as Intelligence Augmentation (IA). Google searches are a successful implementation of IA.

Economists have always held that increased automation creates as many new jobs as it destroys. That may no longer be the case (if ever it was). For the past few recessions, we seem to have had a "jobless recovery."

The usual suspect for loss of jobs is offshore outsourcing. It may be that another factor is increasing use of computers to perform tasks formerly done by humans. An additional influence is that high speed broad band internet makes it possible to transmit any information that can be digitized to offshore sites for processing. This is already done for widely diverse fields including accounting, law and radiology. Combining offshore outsourcing, robotics and high speed internet could be creating a perfect storm of economic restructuring.

The volume of such outsourcing is said to be small compared to the economy as a whole, but it probably already influences salaries by establishing marginal salaries above which companies will seek offshore solutions, thus keeping labor rates down.

Possible consequences include the fact that twenty-six percent of recent college graduates not going on to postgraduate education are unemployed. For that matter, many of those pursuing graduate degrees may be doing so because they couldn't find a job.

Fork in the Road

"When you come to a fork in the road, take it."
-Attributed to Yogi Berra

We at the height are ready to decline.
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.
-Brutus speaking in Shakespeare, Julius Caesar (IV.ii.269–276)

Today's New York Times reports that the Obama administration had an internal struggle over how to respond to events in Egypt. Should they emphasize the need for an orderly transition (thus appearing to prop up an increasingly reviled dictator), openly push Mubarak out the door, or support the demonstrators by emphasizing the need for democratic reforms and for Egyptians to find their own solutions.

As always, the cautious old foreign policy hands emphasize stability. Don't rock the boat. Give him time. Orderly transition. Democracy is hard.

The problem is, the tide was already running. We were at the fork in the road. We had to "take the current when it serves" the cause of democracy.

There are always risks in international affairs. But when the tide is running, we have to navigate between Scylla and Charybdis. Jumping overboard is not an option. Even if the rudder is smaller than we wish and the wind is fickle.

Twenty-one years ago, a series of events similar to the past three weeks led to the dismantling of the Berlin Wall. Old hands (I was one) worried that German reunification might be bad for the rest of Europe and NATO. It could destabilize Europe. Despite decades of lip service to German reunification, the dirty secret is that none of NATO's member states wanted it to actually happen. But it soon became apparent it was impossible to prevent. Best get on with it.

In a similar vein, in the long run we're better off with Mubarak gone.

Do we believe in democracy or not? If we do, then let's support it wholeheartedly.

Be not afraid.

Egyptians: Not Subjects, but Sovereign

Today Egyptians took control of their own country.

This is as big as the day the Berlin Wall fell. A day to celebrate!

Tomorrow the work begins.

The Price of Civilization

An anonymous reader commented on my report on Pamlico County Economic Development as follows: "Just remember that government grants are other peoples taxes and they represent the forced redistribution of wealth."

I do.

I also remember Justice Oliver Wendell Holmes, Jr.'s comment that "Taxes are the price we pay for civilization."

Contrary to popular opinion, wealth is not just an individual creation. It is also a creation of society. Those who would create wealth need social goods such as: roads, harbors, monetary system, collective defense, police, educated employees, banking, transportation, communications, protection for intellectual property, standard measurements, a level playing field (law and regulation), assistance in navigating through legal and regulatory requirements, and on and on. In short, they need the activities of government. These activities are funded through taxes. Tax collection is always coercive.

Our Revolutionary War forebears decried taxation without representation, not taxes in general. In fact, they had been governing themselves and collecting taxes for their own government activities for a century and a half before the Revolution.

There are those who believe the only proper functions of government are defense and public safety. The rest can be handled by the magic of the marketplace. Alexander Hamilton and George Washington (among others) knew better.

In the present case, the issue facing Pamlico County is whether modest support for a project to meet an important national military requirement, expand economic activity in the county and employ up to 1,000 of our citizens is a proper public purpose.

It is.

Egypt - the Abyss?

This afternoon we saw and listened to President Mubarak of Egypt talking down to the demonstrators as though they were children.

This is clearly not the case. Whatever happens in Egypt in the short run, Mubarak has the look of being on his last legs.

The times aren't favorable to dictators. The crowds gathering in the square in Cairo were reminiscent of the Orange Revolution in Ukraine, the Velvet Revolution in Prague, the Rose Revolution in the former Soviet Republic of Georgia, the Solidarity uprisings in Poland, the Serbian ouster of Milosevich, the Green Revolution in Iran and countless other democratic movements of recent years, both successful and unsuccessful.

Winston Churchill once observed, "Democracy is the worst form of government, except for all those other forms that have been tried from time to time." (from a House of Commons speech on Nov. 11, 1947) Mubarak has demonstrated to all and sundry the inherent weakness of authoritarian governments: there is no mechanism for making orderly adjustments to changed circumstances.

Egypt has changed greatly in the past thirty years. The government hasn't.

Whether they win this time or not, the demonstrators are right.