Monthly Archives: November 2012

View 750 Sunday, November 11, 2012

VETERANS DAY

Given the results of the election, continued inflation is inevitable, increased inflation is highly probable, and hyperinflation becomes more likely. There are some principles and preparations that must be studied and learned. We will be looking at those in future. Surviving inflation requires a different approach from surviving war or natural disaster, but there are some common measures.

In addition, there will be inflations of taxes. At first these will fall only on the very wealthy, but since those cannot raise the needed revenues to pay for entitlements there will be desperate searches for new revenue. Inflation is not an option for state and local governments, so you may expect a multiplication of taxes and fees. Traditionally the “sin” taxes – tobacco, marijuana, alcohol – will be raised. That will result in more black market competition with the tax collectors, which will lead to greater need for “law enforcement” – including tax collectors and revenuers.

The pressure to raise federal taxed in order to “fight the deficit” will be high, but the federal government does have the inflation option; state and local governments can’t inflate the currency, but they can try to get in on the federal government’s printing press money by devising more and more schemes to federalize state, county, and local “infrastructure” expenses.

We will need to look at ways to avoid – not evade – rising state and local taxes another time. The obvious way is to migrate to states that are more devoted to frugality than entitlement benefits, but do not underestimate the pressure that will be put on those states to federalize their rising costs: inflation hits everyone, and governments are generally less efficient than private companies and thus tend to meet rising costs by increasing revenue. When you can’t get more out of the locals you must go shopping in Washington. States will compete on their lobbying capabilities. More on this another time.

Musing about inflation.

It has been some years since I seriously tackled this problem. When I was an editor of SURVIVE, runaway inflation was not high on the list of probable disasters. The most important one in expected value terms was nuclear war, and my assessment of that was that the best way to survive a nuclear war was not to have one. For various reasons we didn’t have that war.

We didn’t have other disasters such as a massive solar flare or some other global power outage.

The Cold War ended. Prosperity and progress seemed inevitable – recall that there was a serious prediction of The End of History – and the survivalist movement dwindled to a tiny remnant. There is still a finite but not easily quantified probability of a huge disaster, and some people do prepare for such things. Those interested might find Lloyd Tackitt’s A DISTANT EDEN (available on Amazon in print or Kindle edition) worth reading: it’s a novel that goes into some details and suggests more techniques, and does a pretty good job of showing just how vast such a disaster might be.

Now, however, with the re-election of Mr. Obama (and given his post election speeches) increased inflation seems inevitable, and the wise will pay some attention to preparing for it. We’ll look into such matters in the next few weeks.

The most important principle to understand is that inflation is a tax on savings and fixed incomes. Savings accounts already lose money – the interest rates are far lower than the costs of inflation. Many financial advisors do not seem to understand the inflation problem: for those with substantial sums to invest should look for financial advice, but do understand that many financial advisors are stock and bond salespeople and make most of their living by steering their clients into buying certain funds and investments. Sometimes that is a good idea, but one wants to be careful.

A second principle is that you want to be able to accumulate things that you will need. This is technically known as hoarding, and there will be many who will discourage you from doing that. One thing you know you will need is food. Hoarding food requires some preparation. Canned food has a finite life. Fruits and grains are vulnerable to rats and rot. One may not have insect and rodent proof storage facilities, but in times of inflation many neighbors will begin to save by eliminating their pest control services, which will increase the risk of pest destruction of your hoards. If you are thinking of building or improving your house, insect and rodent proofing is a major consideration.

Current rises in food prices, particularly storable goods, have not been much (or any) higher than interest rates, so storage of edible goods would not have been a great idea for the past couple of years, but we are now guaranteed four more years of current policies, some of which will certainly impact the cost of maize and other consumer edibles.

These are the kinds of things one needs to think of. Obviously there are many different people in many different situations, and the same tactics will not be optimum for all. There are general principles. One is that you will have to eat, and food prices will tend to rise in inflationary times. Price controls will limit the supply. In a time of rising prices, hoarding of durable consumables is generally a good financial idea, but those who do it will be blackguarded and sometimes robbed with government approval.

It’s time to take Sable for a walk – she very much enjoys our walks although they have to be shorter now – so I’ll leave this here.

Inflation is coming. It has appeared to be kept under control, but as the deficit rises and spending continues, there will first be moves to increase revenue, then to pay for entitlements with printed money. Printing money keeps the expenditures going, but entitlements don’t usually work to grow the economy. Austerity doesn’t stimulate an economy either.

And at some point people will notice that there is a lot more money chasing the same goods, and the prices will rise.

Be prepared.

More about this another time, but Sixty Minutes tonight had a segment on jobs available: thousands in Nevada, in manufacturing. But they can’t fill them. Job applicants don’t show up on time, can’t write a grammatical sentence, don’t seem to understand the elements of skilled labor. They don’t know simple arithmetic.

My wife points out that most of this comes from people not learning to read. I’ve told this before, but my mother was a first grade teacher in rural Florida in the 1920’s. I asked her if any of her pupils left first grade without learning to read.  She said a few did, but they didn’t learn anything else, either – that is, it was expected that any child of normal intelligence would learn to read in first grade. It was expected that the teacher would see to that. There were no learned theories on why kids did not learn to read. It was just expected that they would, and that the teachers would teach them.

Of course in those ancient times the pupils were expected to learn the beginnings of the Addition tables.  I think the Times Tables came in second and third grade, but I’m not sure. What I do know is that modern schools with their well educated teachers who hold credentials do not seem to be able to do what my mother with her two year certificate from Florida Normal was expected to do.

And I don’t know of any school district in California that expects all the children to learn to read in first grade. We know it’s possible. Why don’t we insist on it?

View 749 Friday, November 09, 2012

It’s time to stop brooding over the election and do some rational analysis. We have four more years of President Obama. What will the consequences be, and what is the prudent way to prepare for the various contingencies?

As I was preparing to write that, the news of the Petraeus resignation came in. I generally don’t comment on breaking news, and I certainly don’t know enough to analyze either the cause or consequences of this story. Many questions arise. It seems impossible to believe that the timing of all this, breaking just after the election and just before the Congressional inquiry about the Benghazi issue, is coincidental. General Petraeus’ indiscretions were not all that much of a secret the troops. Many generals deployed overseas have had extra-marital affairs. The troops generally knew, and the wives generally found out. And just what did the FBI think it was doing conducting an investigation of Company affairs? Who was involved in covering up what? Why did Mr. Petraeus bring up the Mohammed Video long after almost everyone acquainted with the facts knew it was irrelevant? Was he ordered to do that? There are few who could issue such an order. And what will Mr. Petraeus, now an unemployed civilian, tell the Congress? Anything at all? None of this makes enough sense to justify serious comment, and indeed even some of the questions seem silly, but someone must ask them. We are dealing with an honorable man, and there must be some logic to his decisions.

The election is over, and the Republicans lost. There were probably election irregularities – there generally are – but not enough to have affected the result. The issues in the election were not obscure. President Obama took pains to say that a vote for him was a vote to continue his policies, and the outcome of the election was important. This probably cost him votes – he got fewer than he did in 2008 – but it certainly was not deceptive. The electorate knew the stakes, and Romney got fewer votes than McCain did. There is a sense in which both candidates lost this election, but the practical outcome was that Mr. Obama won Four More Years. Everyone had an opportunity to give a definitive opinion. Only a relatively small number did so. Those who did made a decision. That decision has consequences.

There will not be a repeal of Obamacare. There probably won’t be much of a compromise on the coming rise in taxes. We can speculate on what the next budget will be, and what happens if there isn’t one. Mr. Clinton and Mr. Gingrich used the election of 1994 to cut spending, reform welfare, and balance the budget; it is not likely that the current President and Speaker will be able to work such miracles.

Meanwhile the spending continues. The deficit rises. Some inflation is certain, and there is a possibility of hyperinflation. We will continue to borrow money but also to create it by running the printing presses. Inflation will wipe out many living on fixed incomes and/or savings: inflation is a tax on savings, and it is a rather brutal one. That will swell the rolls of those needing public assistance, requiring more spending, which will probably bring more inflation.

That is the first lesson: prepare for inflation.

Obamacare will become law. That will end many current health plans. Yours may go away. The Obamacare Act is so badly drafted and has so many fundamental flaws that there will be many law suits, and a bonanza for lawyers; we will be years finding out what was in that Act. As of now no one – not one person on this Earth – actually knows. We do know that this election can and will be viewed as a referendum on expanding the health care obligation of the government. Obamacare was designed to eliminate most private health care systems, and over time it will achieve that. It can’t be repealed for at least four years; there is some question of whether, given four years of implementation, it can be repealed at all.

It can of course be amended, and since its author wants a ‘single payer’ health care system, it might be prudent to examine various implementations of that. The candidates seem to be the British and the French systems. Both are expensive. So is Obamacare. It is now time to have a rational discussion of centralized single payer health care systems.

One of the largest expenses of health care is the last two years of life. The question is, whose obligation is it to pay for expensive extreme measures to prolong life? And is there any limit to be imposed? Who decides to terminate payment? Inevitably that will be called a death panel. Perhaps they ought simply to be named death panels.

I was musing today about this question, and I came up with a very strange idea. I describe this: I am not advocating it, and in fact I don’t even know how it might be implemented. I describe it as one way of looking at the problem.

Suppose that for every person for which expensive and drastic measures are proposed to be paid for out of the public purse, a death panel of 100,000 people is created. They are told the name and conditions of the subject. They vote how much to tax themselves to keep this person alive. Will you pay a dollar a month? For how many months? Send in your dollar with your vote. If the expenses turn out to be less than $100,000 a month (and if that much is available my prediction is that this is what it will cost) then the money is credited to your account when you are appointed to another death panel (and you will be, of course). When fewer than a majority of the death panel votes to continue paying for this patient, public payment stops. This does not prevent family or charity from continuing to pay for care, but it does end public obligation.

Now as a hard science fiction writer I am immediately suspicious of the possibility of implementing and enforcing anything like this, but my purpose was to come up with a scheme that lays the obligation and decision on the same people and come up with a mechanism for doing it. At least those making the decision are paying for its implementation.

All right, my death panel is silly; but what mechanism will we use? All indications are that one of the crushing costs of public health care are those paid for terminal care. Get those under control and the task becomes somewhat less impossible. Could we have a rule that says that the public is not obligated to pay for more than four weeks of care for someone who cannot say he wants that care? Eight weeks? A year? Who makes that decision? If we have to accept universal health care, what does that mean? It can’t mean unlimited obligation because we don’t have unlimited resources. What are the limits? With insurance companies the limits are more obvious – when the company goes broke there is no more money. With government you can continue printing money but that too has consequences.

We will have Four More Years. It is time to give some thought to how those years are to be spent, and what will replace them.

Niven & Benford at Google.

<http://www.youtube.com/watch?v=1-PF32jdqkw>

Roland Dobbins

It’s about an hour, and it’s worth your hour. Recommended.

View 749 Wednesday, November 07, 2012

The Morning After

I had actually thought that it would not be close: that Mr. Obama had made it clear that this was a key election which would have a real effect on coming policies. That, I thought, would be enough to galvanize those who understood it, and there would be far more who found it terrifying than who found it hopeful. We tried hope and change.

I was clearly wrong. Apparently a number of people did take Mr. Obama seriously, and found something threatening in that.

The odd part is that a majority of those voting believes that government is too large. I don’t know what that means.

Ben Stein’s commentary this morning is well worth your time: http://spectator.org/archives/2012/11/07/a-painful-night

California seems to have a majority of people challenged in both ethics and simple intelligence. The tax raise was sold on a ‘soak the rich’ ‘Robin Hood’ tax that would fall only on the rich, and was necessary because without it there would be these drastic cuts in schools. Of course the same budget spent more money than the tax would raise on raises in pensions and salaries for commissions and other additional needless spending: there was never an offer to vote to reject those and apply the money to the schools.

So. Rob the rich to pay for the schools and pay the pensions. That’s the ethical decision. And ignore the fact that the rich have the option of leaving the state, and many already have. More will. Meanwhile, most of the money the new ‘temporary’ taxes will be from increased sales taxes, and many of those will fall on those who thought they were soaking the rich. That’s the intelligence test.

The public employees and teacher unions turned out as expected. They understood the stakes.

The American people, narrowly, voted for Free Stuff. They won’t get much of it, and they’ll pay for it; but that’s for the future. Of course the new taxes will not generate the expected revenue.

Despair is a sin.

"Free stuff" and the election

Jerry:

I agree with the "Free Stuff" diagnosis, but am mystified by the attribution of it to Mr. Obama specifically, or Democrats generally.

The Democrats have made it plain that taxes need to be raised to pay for Stuff; the Republicans keep saying, "No, no, tax cuts will pay for everything." The strange thing is, this appears to rely on a repeal of supply and demand. Mr. Norquist keeps having Congresscritters toe his line about cutting government services to low, LOW discount prices, yet strangely he doesn’t appear to believe demand for those services won’t rise given the "ON SALE" banner the GOP keeps insisting on flying.

No, let’s face it… The great irony is, the Republican Party has fallen prey to the Iron Law. The goal of party internal cohesion and institutional groupthink has come to far outweigh such seemingly trivial concerns like governing responsibly, or winning elections.

The only difference between the Republicans and the Libertarians these days is one of scale — neither of them have real world concerns.

And voters have picked up on that. It’s a good chunk of why, as of now, the GOP has lost the popular vote in 5 of the past 6 presidential elections, and hasn’t run a ticket that’s won the popular vote on their first try since 1988.

Your own comments deriding Mr. Obama’s promotion of "hope and change" help paint the picture as well. The GOP has become all about fear, and promoting the idea of hopeless despair where nothing ever changes — at least, not for the better. Even if one is genuinely concerned about the future, it’s not the kind of vision to which people willingly devote blood, sweat, toil, tears, and votes. The contrast with the sunny optimism of Ronald Reagan couldn’t be more stark.

Even if one disagrees with him on policy, Mr. Obama has always recognized that optimism sells. Just as Mr. Reagan did. The substance may be different, but the more Reaganesque candidate in presentation won last night. And that too is ironic.

Hoping this finds you well,

— Hal

An interesting observation. I think it rests on the wrong interpretation of Mr. Obama’s actions, but perhaps not. As to Republicans and the Republican Establishment having succumbed to the Iron Law, that has always been true. It happened in Congress during the Reagan Administration, which is why Newt Gingrich was so upsetting to them, making his speeches in the empty chambers and attacking the Democrats. He actually got along better with Clinton than George H W Bush – at least that’s my observation and I was there.

I invite comments on your other observations.

I will note that I wasn’t the only one who was fairly certain  that Mr. Romney would win. The market clearly bet that way, which is why it has fallen so rapidly today.

And I just heard that neither Romney nor Obama ran ahead of legalization of marijuana where they were on the ballot. I do not have the details, but that sounds interesting.

Jerry:

I posted this on Monday night, perhaps under a premonition of how things would turn out:

http://andstillipersist.com/2012/11/the-gods-of-the-copybook-headings-illustrated/

The introduction to this post links back to a posting of the same poem (sans photos) four years earlier, which in turn links to your posting of the poem on your blog back in 2003 (http://www.jerrypournelle.com/archives2/archives2mail/mail269.html#copybook).

In any case, the photos underscore how painfully relevant and current the poem remains nearly a century later.

Bruce F. Webster

Well done.

View 749 Monday, November 05, 2012

I am too depressed to say much. I knew that this was the result predicted by the polls, but I really thought the outcome would be very different. President Obama made a Presidential and conciliatory victory speech, but he made it very clear what his coming policy would be; and I thought – clearly more hoped than though – that this would have an effect on voters. I have always believed in rational thought, and while I know a great number of people are not governed by rational thought, a great many are.

There will be endless analysis of the election, but it seems clear to me: President Obama promised that if he is reelected he will continue with his program of Free Stuff. A major part of the US economy consists of opening containers from China, and paying for them with money borrowed from China; while the national strategy of technology is not X Projects or even research grants, but actual investment of tax funds and borrowed money in companies the government hopes will succeed. I cannot believe that makes economic sense, and I confess I thought that the President had made it clear that he did believe that policy works. But of course with that you get Free Stuff.

If something cannot go on forever it will stop. The economic policies of the last four years cannot go on forever: there just isn’t enough money anywhere in the world to allow it to continue. The next step is to use inflation to tax away all savings and reduce all those on fixed incomes to dependency. When everyone is dependent on government, the power of government is maximized; and of course government workers enjoy automatic cost of living increases. It’s almost certain that inflation will reach 10% a year within two years. We have endured that in the past. This time the debts are much larger and it will take much more dramatic inflation to continue the spending. Of course the end of that game is the 3 pfennig postage stamp issued by Weimar Germany: the stamp was overprinted to the value of Three Mird Millionen Marks. And I used to have a 100,000 real Brazilian banknote which I got in change when Dvorak and I went down to Sao Paulo as guests of the Brazilian COMDEX about 1990. I think I got it in change when I broke an American $20 bill.

The good news is that both Germany and Brazil have obviously recovered from such ruinous inflation. The bad news is that the inflation ruined most of those who had savings. Of course new rich emerged. There are always rich people. Sometimes they are simply government employees who have guaranteed cost of living raises…

The country will recover. Brazil did. But we have not hit bottom yet.

Politics works. The Democratic strategy worked. They got their vote out. The vote was determined by campaign tactics and organization, not by rational debate of ideas. President Obama promised that his reelection would be considered a mandate for Four More Years of essentially the same policies.

But California will go broke before the United States does. Perhaps that will serve as a hideous enough warning to the rest of the nation. And apparently California, by direct democracy, has raised its taxes while burdening the productive with new regulations. It will be interesting to see where the pornography industry goes, now that Los Angeles County has in essence driven it out. Will it stay in California, or leave the state altogether? And which state wants it? Texas has already extracted tens of thousands of jobs and small businesses from California. Does it want the porn industry? Or perhaps Nevada does.

Of course there was a time when Los Angeles had a much larger entertainment industry without the need for XXX rated movies. Ah well.

Historically, entertainment has always thrived during hard economic times. Story tellers can always sing for their supper. When I did a Britannica article on science fiction decades ago, I described my profession as the bards of the sciences: we are much like the wandering poets of the Bronze Age who would find a camp of warriors and say, in effect, If you cut me a piece of that roast and fill my cup with wine, I will tell you a story about a virgin and a bull…

The worse the times, the larger the number of people who will pay for a few hours of being unaware of them as they wander through stories and songs. Which tells me what I had better get working on. My house is paid for, but the government’s appetite for tax money is insatiable. They will want more money.

Good night. Alas, it won’t look better in the morning. But we may rejoice in this much: the election is over. The loser has conceded. There will be no riots. The President has been gracious in his victory speech. Compromise will be sought.

All money bills must originate in the House, and the House remains in the hands of people concerned about deficits and inflation.