Sitting on Cash

This article relates to my blog entry about corporate inversion. Bringing cash into the country has so many barriers that companies are simply letting it sit. An infusion of corporate cash in the economy may cause some issues but far fewer than keeping the cash in a vault. America has a right to provide a disincentive to keeping cash overseas, it undermines the tax structure and removes it from circulation; but it has to realize that people are doing it anyways and getting that money back would benefit everyone. It’s an interesting policy debate that has been ongoing for years, it’ll be interesting to see what happens.

Barataria - The work of Erik Hare

If you’re like most people living paycheck to paycheck, you have a simple problem at the end of the month – not enough cash. There’s nothing to be embarrassed about here – it’s a common problem that is faced by a large number of families as the economic recovery struggles on.

But if you’re an S&P 500 company, you may have a different problem – too much cash. Not precisely too much cash on hand, that is, since that’s never a problem. You may have something like cash sitting around somewhere in the world that you have trouble bringing home to make use of the way you want to.

Therein lies the problem with this economy – not that there isn’t enough to go around, but that it isn’t going around.

View original post 830 more words

Advertisements

The Greek Crisis in a Nutshell

The crisis in Greece can be explained using three policy fundamentals: their manipulation of debt-to-GDP ratio as outlined in the Maastricht Treaty of 1999, European austerity policies, and the pillars of fiscal autonomy that were incorporated from America’s financial system.

Greece has been cooking the books ever since joining the European Union and adopting the currency back in 2001 by separating entitlement transfer payments from their overall deficit figures.  They basically reclassified their annual deficits by stating they were transfer payments, hiding them on the reports and lacking transparency; it wasn’t until 2009 that their lack of transparency had been revealed.  According to the Maastricht Treaty of 1999, which formally spelled out the specifics of joining the Eurozone, a country must maintain a maximum debt-to-GDP ratio of 60% and an annual deficit of no more than 3% of GDP.  A 2010 review of their books by an independent auditor revealed that in 2009 Greece’s actual deficit was 15.6% (a 520% discrepancy), which lead to the public knowledge of their financial hardships and ultimately to two bailouts-one in 2010 for €110 billion and the other in 2012 for €130 billion which was spread through various lenders, including the International Monetary Fund (IMF) and European Central Bank (ECB).  Greece was given numerous extensions to pay their IMF debt and officially defaulted on their $1.7 billion (€1.55 billion) payment last week, leading to the vote that occurred over the weekend which offered another bailout by the European Union, but would require a serious economic hardship to the country.   Greece voted ‘no’, leaving the fate of Greece’s inclusion in the European Union in question.

Where did all of the money go? Entitlement benefits, mostly.  Greece’s island of Zakynthos has the highest population density of citizen’s collecting disability benefits for being legally blind (9%), of which these include a taxi cab driver and a construction worker (Angelos, 2012).  They also have numerous individuals (almost 40,000) collecting state retirement pensions posthumously. Additionally, they have noted that several individuals are receiving full retirement benefits that are over the age of 100; the authorities are looking into it.  Unemployment in Greece has skyrocketed from 7% in 2008 to 22% in 2012, of which 51% are under the age of 25 (Bureau of Labor Statistics).

A leading cause of the unemployment issue is due to the European Union’s austerity program.  The long and short of this expectation is for a balanced budget of each member state.  It was imposed by Germany and insists on better economic progress in the long run, but has shown to cause high unemployment and a decrease in GDP in the little time that it has been implemented.  Germany insists that the austerity experiment will improve everyone’s economy in time, but Greece looks to be the first serious casualty of the experiment. Austerity increases the debt-to-GDP ratio burden of each country and decreases infrastructure spending, causing less opportunity to pay existing debts and economic growth.  Accounting is a zero-sum game; if you bring in $5 you can only spend $5.  Economics is a little more flexible with spending and it needs to be in order to stimulate the multiplier effect of currency (when you deposit $100 into the bank it is leant out to businesses who then invest in equipment and people, who then deposit money into the bank, etc…).  Increasing taxes and decreasing government expenditures takes more and more money out of circulation and decreases economic growth.

It is argued that Germany knew all along that Greece was ineligible to join the Euro currency but was able to let them in through cronyism and cooking the books.  This leads to the attitudes of resentment and hostility that we are seeing in the media.  Greek people are mad that they must sacrifice entitlements that were rightly afforded to them because of a handshake agreement from 15 years ago that they were not consulted about.  Germany is trying to keep pensions and benefits being paid to the Greek people, but the Greeks don’t want to reform their entitlement system or leave the Euro currency.  This, mixed with centuries of war and resentment within the two cultures… something has to give in order to avoid a full-out depression in Greece.  In the meantime, Europe has taken a page out of America’s playbook and has been throwing money at the situation hoping it’ll fix itself, perpetuating the cycle of corruption and opaque entitlement spending.

In the United States, if one state isn’t doing well economically, we simply move to another state that has more opportunity.  Moving from Anchorage, Alaska to San Antonio, Texas may not be easy but it is more than practical for the sake of finding work, and people do it all the time.  If Alaska’s unemployment rate begins to climb, people move elsewhere, removing these people from Alaska’s labor market and effectively regaining a balance in the unemployment rate.  During the recession, I moved from Buffalo, New York to Key West, Florida for this exact reason and, short of logistics, it was economically smooth.  I could access all of my bank accounts instantaneously, my car registration and driver’s license were recognized in Florida, I could speak the language, and my education credentials were recognized.  This is not the case in Europe.  Even though Europe has the freedom of mobility within its member states; accessing your banking, speaking the language, and transferring you educational certifications is less than smooth.  There are also the social issues of centuries of homogeneous living and xenophobia by the older generations. The United States’ currency union has centralized the banking system so that personal finances are not tied to the state which the bank resides and has been insured by the federal government (FDIC) to encourage people to deposit their money in the bank and let it multiply.  In Europe, the member state housing the bank reserves the right to confiscate your personal funds and convert it to a new currency overnight.  This rule has caused bank-runs in Greece, where everyone is desperately trying to withdraw their cash from the ATM before it is converted into a currency of less value.  Bank-runs were the biggest contributing factor to the Great Depression and the American system of banking has since evolved to avoid them.  Europe’s policy of decentralized banking has not given people the incentive to deposit their currency in the banks and this is why, if you have ever visited Europe, you’ll notice that it is a predominantly cash society.

The best American example I can think of is Texas.  If Texas were to leave the United States and create its own currency, the state would acquire this currency and all debts held would be converted but citizens’ personal finances would still be held in US dollars.  It is at the discretion of the individual to convert the currency based on the economic climate of the transition, but they would have control. In Greece, the citizens could wake up one morning and all of their Euros are now worth a lot less simply because they were in a Greek bank.  If I were a Greek, I would put my Euros in my mattress, so to speak.

This is an oversimplification of the Greek crisis, but it is difficult to get a handle on the scope and specifics by reading the never-ending onslaught of information being published. The European Union is relatively new and is still battling the social, political, economic, language, and educational hurtles of combining 27 countries that have historically been adversaries.  America had the luxury of starting from scratch and had to experience the Great Depression to learn some valuable lessons.  Europe is getting there and unfortunately, when you calculate the human factor into economic behaviors the waters become turbulent.  It is easy to tell Europe to do things the way we do things in America, but we have our own problems.  I give the Europeans credit for trying something new and something that they can truly call the European System of Economics; but how many lives have to be ruined before they decide if austerity is worth the headache?  I personally believe in reducing the debt and eliminating deficits, but much like tax reform, nobody has come up with a reasonable and realistic solution, short of letting the current infrastructure collapse, start something new, and trying all over again.  Ultimately we would make the same mistakes and have new problems.  So all we can really do is learn from our mistakes and keep moving forward.

I hope this breakdown helped explain the crisis and welcome any and all feedback.

Thank you for your time.

Sources:

Bureau of Labor Statistics

www.Wikipedia.org/Austerity

Bloomberg

Angelos, James, “’Island of the Blind’ Riles a Greek Public Facing Cutbacks” The Wall Street Journal. April 3, 2012

The Associated Press

Brookings Brief: 06 July, 2015

BBC Podcast: 06 July, 2015

Hubbard & Kane (2013), The Economics of Great Power, Simon and Schuster Paperbacks, pgs 204-212

Are We Still Keeping Up With The Joneses?

The Apple Watch has changed things in society.  Sales are up and Apple business is booming at $240/share.  But are we still keeping up with the Joneses?

Branding and labels used to be a status symbol; not long ago, you were judged by the kind of car you drove and the name on the back of your shirt.  Keeping up with the Joneses was an accepted marketing ploy by numerous advertisers and marketers.  With the latest economic recession and the lessons learned from it, we have seen an unprecedented call within society to live within our means; making the Joneses less powerful as people attempt to get a handle on credit card debt and future investments.  I can see from several reports that the Apple Watch sales are booming, but who is realistically buying them?  The Conan O’Brien show had a hilarious and revealing skit about the Apple Watch, exposing it as a superfluous gimmick.  On his show, he was advertising the Apple Pocket Watch, which was simply an iPhone.  There is nothing the watch can do that the iPhone can’t and it has a shorter battery life, a higher price tag, and everyone needs a phone in today’s world; you don’t need a watch anymore, it is viewed as status symbol or outfit accessory. But to whom?

From experiences I have had, spending money on useless items is no longer a status symbol or something you brag about at cocktail parties; quite the contrary. The Great Recession has exposed the ugly truth behind marketing and consumerism and people are slowly but surely holding themselves to a higher standard than to be spoon-fed merchandise that they don’t need.   I met my first Apple Watch owner the other day, or at least the first person who will admit to purchasing one, since its release almost a month ago and all I could think was how he must have horrible money management skills to spend so much money on such an item.  The fact that I live in Washington, DC and it took me a month to meet my first Apple Watch owner shows, unscientifically, that this is a niche item that appeals to only a minority demographic.  Even when I lived in Tennessee (another life ago), I was driving a 20 year old car that I bought for $400 to work and back because my wife had an hour drive to work and needed the car we were making payments on.  People were either telling me how great of an idea it was to drive a clunker to work or the ones that thought it was ridiculous would inevitably ask me for a ride home because they couldn’t afford to put gas in their pickup trucks that they bought solely because it was a status symbol, not thinking about how financially irresponsible or unnecessary it may have been since they did not live a lifestyle that needed a pickup truck. When someone buys a nice car the first question that everybody has is “how high are his monthly payments?”  But nobody will ask that in polite company.

The release of the Apple Watch has paved the way for “wearable tech”, as it is being called.  A recent podcast by Bloomberg (First Word) discussed how there are market research firms currently analyzing the marketing of wearable tech.  They find that the younger generations are less resistant to allow wearable technology to make suggestions for consumer products than the older generations, naturally.  An example with the Apple Watch was an app that will suggest certain creams to help you with your sleeping cycle (that had been recorded with your watch) along with where to purchase these items and alert you when you are close to these locations.  This was a natural evolution of this technology but I am in that resistant generation of consumers.  I am not comfortable with Big Brother knowing my sleep patterns or my whereabouts at all times.  We already have this problem with the iPhone and it has created countless security issues that are still being analyzed and thwarted.  I do own an iPhone, hypocritically, but I have not downloaded my online banking app nor do I make any purchases or tie any payment cards to my account; I’m simply not ready for my money to be stolen out from under me.  A recent hacking scheme targeted Starbucks customers who have downloaded the mobile app.  Hackers were using the software that adds money to a purchasing account and stole thousands of dollars.  This is insured but it shows how much work is ahead of us in the protection of personal information through technology.  Target has been hacked several times as well; I have gotten three new debit cards issued to me within the past two years because Target can’t keep up with hackers.

The availability of credit and economies of scale production has allowed name brand to be accessible to the masses.  I see all kinds of people wearing Ray Ban sunglasses with Michael Kors purses and Rolex watches in their Audis or BMWs. No longer are these items solely for the affluent and elite; nowadays, we can no longer judge a person’s lifestyle or role in society by their belongings.  If a rising tide raises all ships, what is the future for branding as a social status symbol?  Maybe this is good? Allowing people of all backgrounds to own items that they wish to own.  This breaks down social barriers and levels out social inequality that started in the 1970s when wearing brand names became mainstream.  The Joneses are no longer setting marketing trends by appealing to societal pressures.

Thank you for your time

Sources: 

http://wgntv.com/2015/05/15/starbucks-customers-who-use-mobile-app-targeted-in-hacking-scheme/

http://www.bloomberg.com

http://www.cnet.com/news/how-well-did-the-apple-watch-sell-tim-cook-remains-mum/

Liberland: the newest eccentric-micro-state

Liberland is the newest country to be formed in the world. On a patch of land no bigger than a cow pasture on the Danube river between Serbia and Croatia. To paraphrase the quoted articles, they have had over 200,000 citizenship applications and only three current residents.  I have cited the respective articles to this blog and I would like to use this blog entry as more of a discussion because, frankly, I’m having a difficult time formulating an opinion.

Trying out something completely new; with all of the technological advances we have and no existing infrastructure, Liberland is an empty canvas with a world of possibility. Vit Jedlicka, The president and one of the founders of Liberlandintends to combine, what he considers, the Multilateralism of applying the best of several constitutions and establish a functioning government within the year. People from all over the world have offered their expertise to build an infrastructure and they are in the process of being recognized by Serbia and Croatia. In addition to being placed on a waterway for trade, all things considered, it sounds like this might actually get the momentum it needs to survive.  

Is Liberland a game-changer? A model that others will study and build theories on for years? Or a state doomed to fail at their first hiccup?  I can see arguments on both sides of the situation but this is such an unprecedented situation, I guess only time will tell.

Thank you for your time, I look forward to comments

Liberland.org
Wikipedia
The Telegraph
CNN
Facebook Page

Today’s Stagflation and Taxing the Rich

Tax reform is on everyone’s lips these days and the more ideas I have while reading about it, the more I realize that many people before me have had similar, if not the exact same ideas, well before I came into the dialogue. The issue that the tax code needs to be reformed is not the issue, that is a matter of record; how do we reform it is the question?

The cited podcast below got me thinking about tax reform and the narrator has some excellent, commonsensical, arguments.  He states how people face trade offs when it comes to tax reform and how nobody is willing to budge on their tax exemptions that affect their bottom-line. It’s easy to be an arm-chair quarterback and say we need reform, but nobody is willing to forfeit convenient complexity for a simple tax code because of the years of exemptions and patch jobs that have been instated into the modern tax code.  Also, how abolishing the Internal Revenue Service is redundant because they only enforce the laws, they are past in the legislature and it is from there that reform must happen.

This got me thinking about the state of the economy in the late 1970s. I did not experience this economy, I was born in the 80s, but we seem to be repeating the same issues that Jimmy Carter had seen back then.  Slow economic growth, low participation rate, little to no incentive to go to work and an unsustainable entitlement program.  Jimmy Carter blamed the issues of the nation on the people in his speech in 1979 calling it a crisis of confidence and how the government cannot help, that change must come from the attitudes within the household… Thanks Carter… It wasn’t until Arthur Laffer theorized the Laffer curve (below) and convinced President Reagan several years later that lower taxes can create more tax revenue did the economy begin to improve.

Laffer’s curve shows that as tax rates go up, tax revenues will also go up; but there is a point of critical mass where it becomes counterproductive to raise taxes because it disincentivizes people to work because of the high income taxes.  The government must find a balance in order to maintain adequate taxation for social services and a growing economy.  Reagan lowered the tax rate from 70% to 32% and we’ve seen continual GDP growth ever since, until recently. It could be argued that we have raised taxes to or past the point of critical mass and are now disincentivizing people to work, or that we have created a generation of entitlement and social security and medicare benefits are simply too generous, writtled with fraud, and underfunded.

No matter how you slice it, we need social security and tax reform.  The participation rate is slowly falling and retirees are increasing.  2025 is the year the economists say is when we will no longer be able to pay entitlement benefits to those whom deserve it.  And yes, we have created a generation of entitlement, but that monster was born long before any Millenial.  We created a world better for our children, now they are the ones who have to figure out a way to pay for it.  We have been borrowing from future generations and stifling growth through debt since President Johnson and are past the point of no return with the deficit.  So now what? Everyone is screaming for reform but nobody wants to sacrifice services to pay for it.

Raise taxes on the wealthy… That’s rich.  The answer to irresponsible government spending is to take money from the people who aren’t irresponsible with their money.  Just because Warren Buffet has money doesn’t mean the government has the right to take it all to pay off bad debts, especially the bad debts caused by the student loan crisis. Our progressive tax system has already seen its consequences by encouraging corporate inversion, stifling tax loopholes, and the wealthy voting with their feet by moving to tax haven countries life Switzerland and Andorra.  I’m not saying the wealthy shouldn’t pay their fair share, we all should, I’m saying that we need to take a good look in the mirror about how we got ourselves into this mess before asking Mommy and Daddy to write a check or stealing money from their dresser like an adolescent.  If we want to be treated like adults then we need to start acting like adults.  It’s not a perfect system, but it’s the world we live in.

Supply side economics encourages economic wealth by eliminating barriers of entry for new competition and encouraging investment by not crowding out the economy.  It promotes earning a paycheck and not asking for handouts.  We definitely need a safety net system in place, automatic government transfers are one of the only reasons why didn’t fall into a full-blown depression in 2008; but why were we in that predicament in the first place? Because people are greedy and don’t want to work… so they steal money from the people who are best positioned to invest and increase aggregate demand.  Maybe, instead of taking Warren Buffet’s money and spending it willy-nilly, we should put a copy of the current budget in front of him and ask for advice.  The only way to get ourselves out of this mess is to make the difficult decisions when it comes to budget and tax reform while still maintaining an incentive for people to work; that’s tricky business, but we can take a page out of Laffer’s book to make progress.

Read about the economy and the way things are going, I implore you.  This is important and without everybody being educated on the issues we are doomed to repeat history.  Do not let another stagflation of the 1970’s happen today.

Thank you for your time.

Andrew Laffer still publishes from his firm in San Francisco, California: The Laffer Center

The Laffer Curve shows that Tax Increases are a bad idea

Bill Gale on taxes and the IRS– podcast

Religious Freedom Laws and morality

This is a piece from my best-friend Adam about the labeling of those against gay marriage as bigots.  As a man of the world I agree in live-and-let-live and never gave much thought to the LBGT agenda nor what it is doing to the religious community; but Adam offers a terrific perspective on how the conscientious objectors feel in regards to being labeled something that misrepresents their opinion.

I may disagree with what you have to say, but I shall defend, to the death, your right to say it. -Voltaire

Matt Walsh’s blog has an excellent take on the debate as well:

Sorry Gays, You Don’t Have the Right to be Free from Discriminatoion

Adam Jarosz @ WordPress


The case against the labeling of traditional marriage supporters as bigots:

I have a problem with the argument that all who are opposed to homosexual marriage are bigots. Here’s why…

I have an objection to homosexual marriage not out of bigotry but out of morality. While we are all called to love each other and treat each other with respect, it doesn’t mean we have to accept moral relativism as truth. For those who are in a state where homosexual marriage is granted, the LBGT community can legally marry but that doesn’t change the foundation of faiths. It’s a marriage of the state. Every culture has a different history and tradition with marriage with most officially believing it’s between a man and a woman. There are a large sum of people who subscribe to these traditions which means it’s not just a outlier of bigots. Is the only way to deal with this is to label everyone on the other side a hater? Is the strategic move here to shame the majority into submission?

While in the eye of the law they are equal, it doesn’t change the fact that the two stances are opposed in faith. The new permittance of homosexual marriages does weave room into society however that doesn’t mean it’s ok for them to now force others to accept what they believe. That doesn’t mean those with objections are bigots, it’s clearly a differentiation of philosophy.

The voters will decide about homosexual marriage and those who do marry will be free to live with their families just like any other culture is free to live theirs. While there may be some whom are blatantly bigoted, what about the majority of Christians, Muslims, etc. who have a real objection in regards to what the definition of marriage is? This isn’t a hate issue for us but why should we take part in something that clearly goes against our morality? Why can’t we object and not be made out to be criminals?

Specifically in the cases of wedding providers and not other areas of life, why should the devout be forced to decide between the closure of their business and providing a service against their conscience? I only say this in the specific argument with the wedding, not other areas of life and culture because it’s about the philosophy not the person.

After reading the law, which holds no substantive language that states the permission of discrimination, I find the upheaval about it less about bigotry and more about submission to the LGBT lobbyists.

Regards,

Adam Jarosz

Modern Inequality

Equality seems to be the buzzword of the realm, but are we really getting to the root of the issue with modern policy? Granted; inequality has shaped our world into what it is today through slavery, discrimination, religious persecution, and globalization. Apple makes iPhones with cheap labor in China, the pyramids were built by Jewish slaves, Catholicism dominated Europe through crusading, etc… We’ve come a long ways but the division of labor and the wealth distribution is exponentially higher than any other time in American history. The last time there was such a blatant division of wealth and labor was during the events leading up to the French Revolution; is history doomed to repeat itself?

Maybe discrimination is human nature and we will never be able to work it out of our DNA? Like most shallow emotions us humans experience, we tend to respond emotionally to hardships by blaming it on others or lashing out. I’m not saying inequality is a shallow emotion, simply that it is the byproduct of basic human-nature. Someone once told me that “people like people like themselves”, this is evident among all cultures and character traits. We are most comfortable with a family unit, our DNA reproduces itself and assures that our genetic material survives, so it’s human nature to protect traits that we personally possess. So on a human level, I can get my head around where inequality comes from.

So what do we do about it?  All around me I see incentive programs for minorities and people from less fortunate backgrounds; then I see policies in place such as Harvard’s admission standards making it more difficult for Asians to gain admission because they are disproportionally enrolling; and similarly in New York City where Mayor De Blasio is manipulating test results to make private inner-city schools more accessible to minorities. But Asians are a minority, forget that they are the most populous race on the planet, and they work very hard to be able to pass these tests and go to a good school. Should the fight against inequality include reverse discrimination? 

This is a clear barrier-of-entry issue and inequality in reverse. As one demographic improves and adapts more pressure is in place to bring them down. Asians have a culture of performance and honor in academia, this is why they’re succeeding, not some loop-hole in the test structure. Maybe this is none of my business as a straight, white, catholic, educated, man from a middle-class home in Upstate New York. The Irish and Polish were discriminated against too, but well before my lifetime. That’s not to say I haven’t witnessed and experienced discrimination myself in the days of affirmative action and ‘white privilege’; but is the current course of action the best course of action? Does discrimination in the past justify different forms of discrimination in the present? I see a model of fighting inequality as holding down the top instead of elevating the bottom, that is an injustice to the hard-working people who have made good choices and worked hard to get ahead in life. We’re sending a message that if you study and challenge yourself it no longer affects your opportunities, or that if you make good choices and become weathy we will take your money to pay for everyone else’s bad choices. Isn’t that the exact discrimination we’ve been fighting all along? 

This inequality battle will not be won until we drop the labels and start promoting people and incentivizing them not by the color of their skin but on the content of their character (Martin Luther King, Jr.). This is America, if you work hard and make good choices you should be rewarded, not doomed to pay progressive taxes into a system that still labels people by skin color. 

I will never introduce myself as “hello, my name is Mark and I’m a straight white man!” That sounds ridiculous, because nobody cares. If we keep assigning labels to people we are doomed to perpetuate this vicious cycle of relabeling inequality time and time again. It will take on new faces and new issues, but the fact remains that as long as we call ourselves something other than an individual we will never move on, resentment and myopia will forever govern policy. With freedom of information, global mobility, interracial marriages and Canadians running for American office… Is this really the best we can do as a society?

To loosely quote an hilarious fictional character “maybe we should all just procreate until we’re all one color” – Senator Jay Billington Bullworth

SOURCES:

http://m.nydailynews.com/blogs/dailypolitics/mayor-de-blasio-defends-plan-scrap-test-only-admissions-elite-high-schools-blog-entry-1.

http://mobile.nytimes.com/2014/11/27/opinion/asian-american-admissions-at-harvard.html?referrer=

Creative Destruction

I’ve been reading Capitalism, Socialism and Democracy by Joseph Schumpeter and can’t help but vent about the idea of creative destruction. Also called Schumpeter’s Gale, it states that efficiency in markets will lead to the constant destruction of older, obsolete, markets until we reach the pivotal annihilation of wealth under capitalism through the accepted business cycle. This is done through technological advances and the use of automation. We have already seen a number of markets dissolve due to this very concept, ie: telephone switchboard operators, travel agents, reservationists, secretaries, etc… And more jobs will continue to meet their demise as technology continues to advance.

Now, Schumpeter is clearly a Marxist. The first quarter of his book is all about Carl Marx and his manifesto. In theory, creative destruction leads to a communist state: where the labor force is entirely equal and income is evenly distributed in a way that will lead to money itself being obsolete. I’m not saying this theory isn’t theoretically sound and doesn’t makes the tree-hugging liberal buried inside of me jump for joy, but is it realistic? Will technology take over to the point where the labor force dynamic changes so much that what it means to be a contributing member of society is redefined? It sounds good in theory, but just like the Classical Theory Of Economics it loses momentum and the holes are revealed once you incorporate human nature into the equation. 

We already see the socioeconomic consequences of automation. Jobs are becoming increasingly technical and education requirements have skyrocketed even since I was a kid. A more educated labor force is key to improving human capital, but what will happen to the next generation of humanity who may not have to worry about what they want to be when they grow up?

If this happens, full automation, then humans will need to find fulfillment and challenge in other avenues besides their careers. This includes the arts, family, philosophy, and inventing. Part of what makes us human is the struggle to survive; this makes us creative, innovative, resourceful, and helps us achieve our potentials. During times of hardship we take chances, “dig deep”, think outside the box, and create. During times of limited struggle we are bombarded with Kardashians and bad music. 

So often do philosophical economists omit the human element of markets. Adam Smith couldn’t have predicted how inflexible prices and wages would be, Keynes could never have seen the effect of inflation on markets, and President Reagan couldn’t have predicted how unwilling markets would be to work in concert with regressive taxation. Is struggle necessary or will humans contribute more to the arts? Will we reach a higher fulfillment of will we atrophy? I personally think the later, we already see it all around us. If full automation leads to a “communist state” or what Schumpeter calls “the annihilation of wealth under capitalism” or “creative destruction” then the very fabric of our society will need to be redefined and it compromises the very thing that makes us human. 

Thank you for your time 

 

Are automated cars the future?… Surrendering to Siri

Driving is a nightmare… There, I said it.

I cannot be alone when I say that driving my car (a 2011 Ford Fusion) is by far the most stressful and dangerous part of my day.  I live outside of Washington, DC and we have, arguably, the worst traffic in the country.  I can’t believe what I see people doing other than drive, while driving.  With the ubiquity of smartphones (see previous post) driver distraction and apathy behind the wheel is only getting worse.  The population of the United States, as well as the number of licensed drivers, number of cars, and miles driven per car have ski-rocketed in the country and are showing no signs of decrease. Quite the contrary, we live in an economy that is dependent on and encourages more and more vehicles rolling onto the public roads while motor vehicle accidents and fatalities are a huge problem.  Car manufacturers are experiencing a booming marketplace for the improving safety features in new vehicles like anti-lock brakes, automatic safety detection software, rear-view cameras, and Onstar support.  The Insurance Institute of Highway Safety (IIHS) reports quarterly that the rate of vehicle casualties have remained steady the past few years, even though the number of vehicles on the road are rising.  So the technology is keeping the problem at bay, maintaining the status quo, but this is by no means sustainable as the economy and vehicle usage begins to grow.

drivers and MV#

These graphs show the increasing numbers of drivers and vehicles in the United States over the past 50 years as well as the number of miles traveled. This shows an increase in vehicles on the road of 357% and an increase in miles driven of 428%.

.population growth

This graph (complements of the US Census Bureau) shows the estimated population growth over the next century.

The population, licensed driver, and numbers of cars are only going up.  The figures for motor vehicle accident deaths is alarming as well.  According to the Center for Disease Control, motor vehicle deaths are the 4th leading cause of death in the United States.  The Insurance Institute for Highway Safety states that 92 people a day die in motor vehicle crashes (approximately 30,800 deaths per year in 32,719 crashes) as well as it costing over $1 trillion is 2010 in healthcare costs, loss of life and of productivity.  Alcohol related deaths contribute to 33% of these deaths (5,096 with a known BAC of greater than .08%).  With the US population being estimated to be over 400 million by 2030, these numbers are only expected to rise if we maintain the status quo like we’ve been doing.

Are automated cars the answer?  Wired Magazine a few days ago featured a 2014 Audi SQ5 that has been fitted with automated driving technology through Delphi (inventors of the electric car starter and many mainstream safety features).  The car will be driving unassisted but with employee passengers from San Francisco to New York City, about 3,500 miles and will take 8 days, to collect terabytes of information for developing the technology.  This is revolutionary in the auto industry, the idea of a fully autonomous vehicle is not that far off, maybe 2 or 3 years until a car will drive without assistance.  But are we ready for this technological leap?

People clearly cannot be trusted behind the wheel.  The figures don’t lie and we see it everyday.  From the overly aggressive to the distracted and passive, humans are taking their lives into others’ hands when they get behind the wheel. Companies like Delphi have created a healthy market with safety features, an industry that has grown 35% annually since 1998 (Wired Article) but more needs to be done, maybe it’s a societal issue.

If people are incapable of responsibly operating a vehicle, maybe we should relinquish control to a machine… That, or ask people nicely to follow the rules. We have already appealed to drivers’ bottom-line; penalizing those who are irresponsible with fines, increased insurance rates, or even jail time.  This has done little to deter behaviors and the issue is only increasing.  But will people surrender their keys to a computer instead of having control over their fate? How will it be implemented?  Will some cars be manually driven and some be automated until the technology catches up? These are business cycle questions but also societal issues.

People take pride and enjoyment in driving and most people are responsible and safe.  Driving used to be fun, relaxing, and a way to get your mind off of things.  That is simply not the case anymore.  The world has changed exponentially since my teenage years of my friends piling into my 1991 Chevy Cavalier and cutting class.  But why should people have their right to control over their vehicle taken away because others cannot be adults and responsible behind the wheel?  Can we mandate automated cars as a punishment like they do currently with installed breathalyzers? As a free and democratic society, is this even constitutional?  Will technology and innovation replace the human experience for control and independence and if so, where do we draw the line when sacrificing our freedoms?  I’m sure the technology will go through growing pains and social resistance but the world we live in is crowded, fast, impatient, noisy, unaccountable, and incredibly dangerous.  Bad drivers do not take the dangers seriously and we clearly cannot appeal to their self-interest, this affects everyone around them. The world has proven that if people want to drink, be reckless, and miopic, that is exactly what will happen regardless of the consequences.  Maybe automation is telling drunk drivers that they win?  However it is interpreted, too many people are dying and something has to change.

Almost 3,400 people per year die in motor vehicle accidents and $1 trillion is loss in productivity; this could be avoided if people would swallow their pride, sit back, slow down, enjoy the drive, and move on with their lives.  Maybe one day drunk and defensive driving will be as obsolete as analog.

Thank you for your time.

SOURCES:  United States Census Bureau (www.census.gov)

Population Graph

Insurance Institute for Highway Safety: Highway Loss Data Institute

Center for Disease Control

Alex Davies – Wired Magazine: 03/13/15

The new economy has changed everything, one man's attempt to make sense of it all