Grey Swan

There is a major underlying theme with the rapidly growing state and federal debt — unions. Over the past 30 years unions have won lucrative defined benefits contracts that placed affordable benefits in the present (e.g. 1978), but pushed off unafordable benefits to the future. Police officers could work for 20 years, and then retire with nearly full salary for those next 45 years. Similar schemes have been put in place for MANY other institutions that the tax payer funds (including, the big three auto makers). Of course, to believe that a policemen creates enough value in 20 years at a salary of ~$100K/year, to then live off of ~$90K/year for the next 45 years is ludicrous. Add to this the growing health benefits that many workers have and you have a recipe for disaster.

Unfortunately, the impact of transfering wealth from tax payers to overpaid union employees damages future growth as well as present consumption. Consider that NYC will have to cut its present police force so it can pay for its retired police force. Thus, crime rates will go up, and it will be tougher for businesses to do businesses, not just because of high taxes, but because of a more dangerous environment. The same concept is true with service cuts in the MTA and other vital industries.

The solution of course, is to ban public sector unions and to ban defined benefits. It is one thing if a private sector’s union forces them to go out of business. A better company will grow. However, the public sector can’t go out of business, so it’s costs can only grow. In the last 6 years entitlement spending in the country has increased about as fast as tax receipts, and this is in a period of dramatic growth. Now that most of this growth has proven illusionary, so should these benefits. My 401K went down by 30%, and so should the benefits of retired union workers. Just because union workers feel like they are very valuable, does not mean they are — this is proven by the fact that they must form a union to receive their excessive wages.

We need to ban public sector unions so that they stop strangling the tax payer. The government has little incentive to fight the unions because they use other people’s money to pay them. Union employees need to get paid less, and work harder. And those retired policemen need to get back to work like everyone else in this country.

There has been a lot of debate about global warming this past year as temperatures have failed to rise. Of course climate is a complex topic and there are many factors that contribute to how warm or coool a particular year will be. Everything from sunspots to ocean currents have an important impact on global temperatures. In the long term, however, scientists claim that we humans are placing strong positive pressure on temperature through emissions of green house gases. This may be, but as far as I remember there are actually two types of ‘manmade’ emissions that effect climate. They are:

1) Greenhouses gases – Contribute to higher temperatures and can last in the air for hundreds of years

2) Particulate emissions – Emissions that reflect sunlight and reduce temperature. Generally emitted by dirty fuel sources such as coal.

Given that there are these two key manmande emissions the important factors on there impact are.

The key insight I have gleamed from a lifetime of reading the news is that particles last in the atmosphere for only up to ~30 years, while greenhouse gases will remain much longer (depends on how fast they are scrubbed by forests, etc). If we were to assume that both gases were output at the same rate and had the same impact on temperatures, than for the first 30 years manmade gases would have no impact on temperatures, but thereafter greenhouses gases would have a great impact than reflective particles, and temperatures would rise.

But all things are not equal. Two key insights appear to be

1) In general, more advanced economies have cleaner emissions that output a higher ratio of greenhouse gases to particulate matter (though lower amounts of both, per unit energy).

2) Given a constant proportion of greenhouse gases to particulate emissions, the net impact of emissions will be to have a negative impact on temperatures in the short run, and a positive impact on the long run.

Insight 1 implies that the higher the proportion of emissions from the developing nations the relatively higher amount of reflective particles in the air to greenhouses gases. Insight 2 Implies that the faster the rate that emissions increase the cooler the earth gets. The slower the rate, the warmer the earth gets.

The key implication is that, given the rapid rise of China and its massive and dirty emissions, global warming from human emissions should slow dramatically. It also implies that the more rapidly we switch to clean energy sources, the higher temperatures will be in the short and medium term.

I love America. I like western culture. I don’t ever want to be oppressed by people from another country. A long time ago I would have thought these thoughts and then moved on to playing a game or read a book. But unfortunately, now I am worried enough to shut down the Xbox360 and blog. Why? The future of the US, perhaps western civilization is in doubt. Each day our countries relative strength wanes while China (our biggest long term threat) grows. Within 10 years its economy will be larger than ours. In 50, with a per capita gdp in line with ours, its will be three times our size. Most people hear this and proceed to think at least the US won’t be bullying other countries anymore. I hear this and cry. I realize, unlike others who are too constrained by ideology to see what is blatantly clear, that other countries won’t be like us. They won’t be the glbes policemen trying to keep everyone safe from theirselves. No, They will try to conquer the world.

Before you call me crazy, let me remind you of what EVERY other country with power has done:

Islam
Russia – Communism, attempted to conquer the world by force and ideology. Succeeded in creating and empire known as the ‘Soviet Union’
Germany – Perhaps the cruelest country ever. Tried to create an empire known as the Third Reich
Japan – Empire of the Rising Sun
Britain – “The Sun Never Sets…”
France – Napolean, etc.
Spain – Conquistadors
Hapsburg Empire – …
Ottoman Empire
Moors
Mongels
Rome
Egypt
Etc.

The point is that every nation that has ever gained an upper hand has sallied forth to conquer except for one, us, the US. If we wanted to, we probably could have created an empire. But we didn’t. And now our strength is our weakness. We have forgotten what it is like to NOT be the strongest and are not sufficiently worried about our future. Fortunately 3 simple policy changes can dramatically alter the long-term outlook of our Nation. Unlike Britain, we do not need to fall into obscurity. We have one of the largest landmasses in the world, and perhaps the largest habitable land. We have the 3rd largest population. We have the highest Per Capita of any large country. So what can we do?

1 – Change our immigration policies. Immigrants may increase our population, but if we continue to let in 3rd world people we will become a 3rd world country. We should limit immigration to only the best and brightest from around the world. Australia has this policy, and so should we. Moreover, we need to limit the quantity of people wishing to become Americans. If Europeans are not the majority of people, the country will no longer be a European country.

2 – Make Americans American again. The rise of the hyphenated American means that people are identifying less and less as Americans, and more by their country of origin. It is fine if people are from different ethnic groups as long as they adopt American culture. There should be no black culture, no white culture, no Asian culture — there should be an American culture. We do not need to eliminate peoples heritage, but everyone in America should have a western mindset and ultimately be loyal to our country. To do this will take a great cultural shift away from multiculturalism.

3 – Increase the Total Fertility Rate. One of the great strengths of our nation is not just that there are already 300MM people here, and that many of them are well educated, but that our country is so big. America has one of the lowest population densities of any developed country. We have plenty of room for more people – If our population density were as high as China’s (which is lower than much of Europe) we too would have 1.3B people. That may be to crowded, but in truth population brings power. A TFR of ~2.5 would ensure slow and steady growth with a reasonable youthful population.To accomplish an increase fertility rate we would simply need to give a PERCENTAGE tax break for each child a couple has. This would encourage both the rich and poor to produce children, and would reduce dysgenic effects of a straight up subsidy.

We can do it.

Author’s Note: I have returned home from extended vacation and hope to begin frequent blogs again.

Alarmists have trumpeted the end of the world for many years. Now, a simple extrapolation of continued low fertility rates in Japan predict the last Japanese person will die around the year 2600 (give or take a few hundred years). This calculation highlights a common failure of demographers in calculating future population trends. Why? It fails to consider the individual.

It is commonly known that children born to conservative parents are likely to be conservative themselves. And vice versa. Similarly, a child born to a Christian family will almost certainly die a Christian, and not a Muslim. The point is that memes for many attributes are passed on. If you also consider that the more religious a person is, the more children they tend to have, one verifiable feature comes true – fertility is ‘passed on’ from mother to son, father to daughter.

Consider a population that has 1000 people (all twenty years old) with a fertility rate of 1, and 10 people (also twenty years old) with a fertility rate of 10. For arguments sake, assume that there is no intermarriage between these two groups, and that fertility is perfectly ‘inherited’. From a demographer’s perspective, this population has a fertility rate of 1.07. Consequently we can expect that the population will continue to drop. If we consider people’s individual preferences, there will be an initial drop off in population, followed by its rapid rise.**

While these assumptions are clearly extreme, if they hold even to a small extent (Orthodox Jews have many children, and their children have many children, etc), then worldwide fertility rates may only drop temporarily rendering future predictions upon which policy is made – like how much social welfare can be afforded – wrong.

* A fertility rate of 1.07 will yield generations of approximately 1010, 540, 290, 154, etc. Using individual preferences we find generations of approximately 1010, 550, 500, 1375.

Daily news reports stress that the price of luxury good tends to increase faster than the rate of inflation. Increasingly, middle and upper middle class families are being priced out of the luxury good market altogether. Why? I believe that a combination of age old factors and new trends are the root cause. This includes the relative and zero-sum nature of status, societal stratification, rising wages, and the increasingly rapid and free flow of information. The combination of these factors leads to an unmitigated arms race for high status.

In a previous blog I explained that status is achieved relatively*. The result is that wealthy people demonstrate their greater buying power by purchasing more luxurious goods than their neighbors. This may be in the form of large items like a brand named car, or small ones like a new and exotic bottled water. The underlying problem is that these goods do not necessarily get significantly better as their price increases, they just get more exclusive.

When we couple this with the rapidly expanding wealth of our nations elites, we begin to see why luxury prices are spiraling out of control. A decade ago bottled water was considered a luxury good. This was not because it was so expensive, but because it was so ridiculous. Bottled water? Its free out of the tap! A person needed to have money to ‘throw away’ to buy such an item. Today, many people consider bottled water a necessity. What do the rich drink? They drink Voss. Voss costs about three times as much as Poland spring, but it is certainly not three times as good. Its just preferred because it’s exclusive. I currently think that a five dollar bottle of water is ridiculous, but maybe I won’t in a few years. Water illustrates my point so clearly because it so clearly remains the same. Its just water! The main contribution that higher wages have made to the rising cost of luxury goods is creating more demand (more money) for the same ‘number of items’ – status. Consequently, the cost of these goods increases. In the proceeding paragraph I explain how factors compounding the rising wage rate lead to an arms race over status.

Stratification plays an important role in placing similar people in competition with each other. If a poor person lives next to a billionaire, not only can they not compete status-wise (at least not materially), they also won’t. There is no point. In our current society however, people with similar incomes are more and more likely to live near each other. Placing direct social competitors in close proximity with one another increases the importance of status items. People have much greater need to prove themselves because they are surrounded by peers.

The last part of my theory is that the spread of news and information compounds the aforementioned issues. The media continuously displays the styles of the wealthy and the famous. This constant bombardment of information essentially increases the pool of competition for status items. Instead of simply competing in our local community, we now have to compete on a much larger scale. We don’t just want to have a nicer phone than our neighbor, we want a nicer phone than Steve Jobs (the iPhone). Since status is zero sum** but competition for items that grant status continues we have a positive feedback loop. What was good enough today to impress ones friends may be the laughing stock of tomorrow.

**Most people would rather make 100,000 dollars in a community where everyone else made 80,000, than 120,000 dollars in a society where everyone else made the same. The idea is (and this must have evolutionary roots) that being fitter than ones peers may be better than being fitter in general, at least as long as ones survival is not threatened.