Adjust Social Security and public employee pensions by median wage growth?

The U.S. has some systems in place that virtually guarantee fiscal trouble in the event of an economic downturn. A lot of government expenses, e.g., Social Security and public employee pensions, are adjusted for inflation, which is no longer necessarily related to the ability of American workers to pay higher taxes.

A few decades ago, when a smaller percentage of the U.S. economy was exposed to the world market, the current system of CPI adjustment might have made sense. It was tough for prices to rise without U.S. wages to rise since almost everything that we were buying came from within the U.S.

Today, however, prices for a lot of important items are determined by worldwide demand. For example, oil can become much more expensive and boost the cost of living even if Americans aren’t consuming more oil. The products we buy may get more or less expensive depending on the prices of labor and materials in China.

The ability to pay for programs such as Social Security and pensions for retired government workers depends on the level of private sector wages as well as the number of private sector workers. Why not therefore add some built-in stability to the system by adjusting pensions and Social Security to median private sector hourly wages rather than inflation? If typical working Americans are able to pull ahead of inflation, non-working citizens can share in the fruits of their success. If typical working Americans slip behind inflation due to worldwide economic forces beyond our control, non-working citizens will suffer a comparable reduction in lifestyle.

Right now an external inflation shock, such as a rise in oil prices, has a destabilizing effect on the U.S. economy because a lot of government expenses are automatically increased while the tax base to pay for those expenses may actually be shrinking.

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Visualizing federal government spending

The folks at ThirdWay.org have come up with a sales receipt visualization of federal government spending:

I wonder if we checked out of the mall with a receipt like this how we would feel about the value received!

[Of course, this misses state income tax, state sales tax, local property tax, and other state and local taxes, so it doesn’t tell us where about half of our total tax dollars are going. I think the visualization also misses federal taxes on air transportation, fuel, imports, etc.]

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Florence Nightingale opposed the Red Cross

A New Yorker magazine review of a book about the negative effects of humanitarian aid (“Alms Dealers”, October 11, 2010) contains an interesting fact about Florence Nightingale, the founder of modern nursing:

Humanitarianism also had a godmother, as Linda Polman reminds us. She was Florence Nightingale, and she rejected the idea of the Red Cross from the outset. “I think its views most absurd just such as would originate in a little state like Geneva, which can never see war,” she said. Nightingale had served as a nurse in British military hospitals during the Crimean War, where nightmarish conditions—septic, sordid, and brutal—more often than not amounted to a death sentence for wounded soldiers of the Crown. So she was outraged by Dunant’s pitch. How could anyone who sought to reduce human suffering want to make war less costly? By easing the burden on war ministries, Nightingale argued, volunteer efforts could simply make waging war more attractive, and more probable.

The rest of the book review is also interesting, suggesting that Western humanitarian aid has made African conflicts far more bloody and gruesome.

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This week’s stock market boom in euro

The stock market is up this week, with the S&P 500 closing at 1221, the highest it has been since the Collapse of 2008. Simultaneously, the Federal Reserve has announced plans to buy U.S. Treasury bonds (i.e., print money). Before we look at the nominal dollar figure and get excited about how well we’re doing, let’s look at the S&P 500 in euro:

  • January 1, 1999, the date the euro started trading: S&P 500 at 1229, euro worth $1.18, so the stocks were worth 1042 euro
  • November 4, 2010: S&P 1221, euro worth $1.42, same stocks worth about 859 euro

Valued in dollars, U.S. stocks have been flat over the 12-year period. Adjusted for inflation, they’ve fallen by 31 percent.

Valued in euro, they are down 17.5 percent. I haven’t found an authoritative euro inflation calculator, but it looks as though they’ve had a similar inflation rate to the U.S. So adjusted for inflation, an investor has lost about 42 percent in euro spending power.

The Federal Reserve has the ability to make us all billionaires. We’ll feel great about our new wealth until we step out of a plane in Paris and discover that USD$1 billion is also the price of a Diet Coke at Roissy.

[I am feeling slightly bullish on the stock market after the election. With opposing parties in control of various parts of the lawmaking process, there is a potential for gridlock. Our existing system of crony capitalism may not be ideal, but it is well understood by American businesses. They will very likely be more confident investing in the U.S. with some assurance that the legal and regulatory environment will be stable. If companies could be guaranteed that no laws would change for the next two years, that will be a far friendlier environment than having to adjust to dramatic new legislation that may intentionally or inadvertently favor competitors. If nothing else, the end of the election will give a boost to aviation businesses nationwide because Barack Obama won’t be flying out to Democratic fundraisers every day and shutting down 3000 square miles of airspace centered on wherever he happens to be. If Obama is at his desk in Washington working with the Republicans, it means that we flight instructors will get a chance to work as well!]

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New flight simulator that can actually roll the pilot

The Level D simulators that are common for jet training are great at simulating gentle movements of an aircraft, but aren’t realistic for aerobatic maneuvers, such as rolls. Some guys in Germany combined a robot arm with standard simulation visuals to make a simulator that can do aerobatics: article (thanks, David, for the reference!). The robots were originally designed for amusement parks, so the hardware is much cheaper than traditional flight simulator hydraulics.

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Philip’s Massachusetts Election Predictions

I’ve talked to a few friends, talked to a few folks holding signs outside the polls, and voted. For a bit of fun, I will make some predictions about the outcome of the Massachusetts election. I have not tainted myself by looking at any pre-election polls. I’ll update this posting with inline results when the election is concluded.

Proposition 1: Deval Patrick added sales tax on top of existing alcohol excise taxes back in 2009. Prop 1 tries to roll this back. Due to Massachusetts’s Puritan background, I predict that the extra “sin tax” will stay with us and this proposition will fail by 45-55. It doesn’t make any practical difference except that it burdens alcohol retailers with additional forms and bureaucracy. If the state wants more money from alcohol sales it can simply adjust the excise tax at any time. [Result: Passed 52-48.]

Proposition 2: Tries to roll back a poorly understood law regarding affordable housing. A friend who is an architect says that he is familiar with a lot of projects built under this law and they’ve all been “horrible” blights on the landscape. Nonetheless, he is reluctant to vote “yes” to repeal because affordable housing is such an important goal to him. Based on people being afraid of change, I predict that this initiative fails by 42-58 with a lot of people not even bothering to vote on it. [Result: Failed 42-58.]

Proposition 3: This would roll back the sales tax to 3 percent from the existing 6.25 percent rate, established by Deval Patrick in 2009. Sales taxes fall hardest on poor people and inevitably a reduction in sales tax would result in higher income and property taxes, which means that the rich will suffer if this proposition is passed. A friend said “It would be terrible if this law passed because they would cut programs for the poor.” I.e., people whose main problem is that they don’t have enough money can only be helped if we take some of their money away, give 90 percent of it to $150,000/year unionized public employees, and then return 10 percent of it to the poor in the form of free visits to doctors earning $250,000/year.” Rich people will vote against this because of self-interest and, to some extent, because they can feel as though they are helping the unfortunate by maintaining high taxes on the unfortunate. Because they are primarily poor, not stupid, poor people will vote in favor of the rollback, but many of them will have to work two jobs today and/or will have their cars break down. Therefore more rich people will get to the polls and the proposition will fail by 45-55. [Result: Failed 43-57.]

Governor: I asked friends what Deval Patrick had accomplished in his four years as governor. None of them could think of anything yet all will vote for his reelection. I asked a unionized public employee standing in front of the polling place with a “Deval Patrick” sign what he had accomplished. She replied “I’m a teacher and he’s supported us.” Given Patrick’s complete lack of accomplishment in the minds of voters, I predict that he will win with the smallest number of votes possible for a Democrat in Massachusetts, perhaps with as little as 47 percent of the vote (there are a couple of independent candidates, so Patrick can win with a plurality). [Result: Patrick reelected with 48.7 percent of the votes.]

Most of the remainder of the people on the ballot were incumbent Democrats running without opposition and/or candidates for offices that I did not realize existed. [Result: nytimes shows that every incumbent who ran for reelection in Massachusetts won. Two or three open positions were won by Democrats.]

[I would welcome other folks’ predictions in the comment section below. I’ll buy lunch or dinner (might have to be at a dog-friendly venue) for whoever comes closest to being right!]

Post-election analysis: If voters nationwide are supposedly unhappy with the things that the government has been doing, how could people in Massachusetts willingly assent to a continuation of one-party rule here? My theory is that the collapse of the U.S. hasn’t been that unkind to Massachusetts. We have universities that attract foreign students and federal government spending; California can go bankrupt and the Rust Belt can sink into the Great Lakes and Harvard and MIT will still be doing fine. We have a large money management industry that collects fees in good times and bad and the financial services sector has largely been shielded from any economic harm. We have huge biotech and health care industries that benefit from government spending in these areas. The troubles that plague the rest of the U.S.? We didn’t have much of a housing/building boom, so we don’t have to try to dig ourselves out of that hole. We lost our manufacturing jobs to the Carolinas 100 years ago, so we aren’t affected by the exodus to China. We have a disproportionate number of citizens with college and advanced degrees, who have generally prospered over the last few decades. So if we’re doing okay here (except for the 8.3 percent of us who are officially unemployed and perhaps the additional 5-10 percent who would be counted under other unemployment measures), why vote for change?

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Apple turning the Macintosh into an iPhone dock

Back in 2005, I published an article on using a mobile phone plus dock as a home computer. The basic idea was “If you go through the effort of learning how to use a smartphone, why should you have to go to additional effort to learn the interfaces of a desktop operating system?” It was greeted with derision by all of my friends in the tech and venture capital worlds.

Now it seems that Apple may deliver a portion of the idea: http://www.cultofmac.com/iphone-5-will-enable-ambitious-remote-computing/66825

[Thanks to Ryan Tate for letting me know about this.]

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Alternative explanation for why Americans aren’t healthy: Modern medicine is a fraud

In my health care reform plan, I noted that back in 2008 or so, we spent more than 10 times as much as Mexicans on health care, yet Mexicans live nearly as long. How can the Mexicans, who suffer from all of the same junk food and obesity problems as Americans, live nearly as long without paying for the latest and greatest drugs and procedures? One possibility that I hadn’t considered is that the latest and greatest drugs and procedures are mostly worthless. That’s basically the message of an interesting article from The Atlantic, “Lies, Damned Lies, and Medical Science”. The author covers the work of John Ioannidis, a Greek doctor who found that most innovative medical procedures and drugs have not, in fact, been proven to be effective. “Why Most Published Research Findings Are False” is an example of Ioannidis’s work.

[Separately, the same issue of the magazine has a good article on the experience of our troops in Afghanistan. Maybe worthwhile to read before voting for politicians who continue to fund this war.]

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