Putting the financial system in the red
Yesterday, Fred Wilson, a prominent New York venture capitalist, had some kind words for Bitcoin, the crypto-currency that is “mined” by computers solving progressively harder math problems:
We are quite taken with the idea of a currency that is not controlled by governments and central bankers and that is based on faith in an algorithm and a network instead of the “full faith and credit” of a country.
Then a friend of mine remarked that the place where she gives blood rewards her with “points”, which in turn can be redeemed for Wal-Mart gift cards. And then it hit me: the true anarcho-currency for the 21st century—
BLOODCOIN.
As an asset to link to currency, transfusable human blood has a very convenient property: its supply is roughly proportional to the population, instead of being fixed for all time (Bitcoin), fluctuating with the vagaries of mining technology (gold), or subject to the whim of a central bank (fiat). Of course, it has a very inconvenient property, too: it is perishable. But we can work around this.
Given a blood bank b, a type t and a date d, the bloodcoin C(b, t, d) can be redeemed at b for one unit of type-t whole blood that was made available for transfusion on or before d. A bloodcoin, like a Chinese moon cake voucher, is worthless if you sit on it too long: refrigerated blood can only keep for about three weeks. So if you want to hold a bloodcoin as a store of value, you want d to be as late as possible. But blood banks release their supply in LIFO order, so if you need actual blood for a transfusion, and the bank has some blood left over from yesterday, a bloodcoin dated yesterday is just as good as a bloodcoin dated today.
So once bloodcoins are established, we can set up a spot market, where health-care institutions buy the oldest coins that are backed by specie in the fridge, blood banks issue new coins to keep up with each day’s donations, and middlemen buy and sell for all the days in between. If you just want to keep a balance in your checking account, your broker can just keep rolling over your coins, trading in yesterday’s bloodcoins for today’s as necessary, in the same way that a money-market manager will juggle CDs of different maturities. The free market would no doubt settle on one blood type as a reference benchmark, and use it as the basis for quoting other blood types, not to mention other commodities.
All we need is a trusted auditor to certify the purity and safety of each blood bank’s reservoir, and voila! a currency backed by a truly valuable natural resource. As an added bonus, during recessions, we can expect a certain loosening of the money supply, since there will be more people willing to, shall we say, cash in their crimson. It’s a monetary reform that Austrians, Keynesians, and bleeding-heart liberals can all unite behind.
If Mr. Wilson or the American Enterprise Institute or Dr. Rand Paul wants to take me on as a consultant, I’m sure we can come to some mutually satisfactory arrangement. Heck, I’m not just sure, I’m A-positive.
When Scalzi called it “Omelas State University” he was being generous
A columnist for The Nation quotes a Penn State student defending Joe Paterno, the football coach who allegedly shielded a child rapist from the law:
If not for Paterno…Pennsylvania State might still be an agriculture school and [the city of] State College might be lucky if there were a Wal-Mart within a 30-mile radius.
To paraphrase A Man For All Seasons: it profits a man nothing to give his soul for the whole world. But for a Wal-Mart?
Two cheers for government debt
If the Occupy Wall Street movement has done nothing else, it has pushed the mainstream media to actually talk about income inequality. Of course, now that the encampments have been rousted in New York, Oakland, and elsewhere, the punditocracy is free to return to its previous obsession, Teh Deficit. Better still, the Congressional deficit-busting “supercommittee” is approaching its deadline, with no deal in sight, so we can expect to see lots of hand-wringing about Congress’s bipartisan failure to reduce Teh Deficit.1
Allow me, then to speak up for Teh Deficit.
Most of the rhetoric on this subject employs the metaphor of a household budget: just as your family must trim its spending to match its income, so too, a prudent government should keep its expenditures in line with its receipts. The problem with this metaphor can be summarized in three words: Countries are immortal.
Adults of working age can expect, at some point in their lives, to drop dead. Worse, before we drop dead, we expect to spend some years in retirement, either from choice or from medical necessity. In other words, at some point in the future, we will be spending more than we earn. Therefore, as long as we are hale and hearty, we should earn more than we spend.
None of this applies to countries. The last time the US Federal government was debt-free was in 1835. In other words, some component of the national debt has been rolled over, from one bond to another, for the past 175 years. Sovereigns that owe money to foreign investors can dismember themselves (passing on their obligations to their successor states), swallow one another up, or choose to default, but they don’t die of old age.
Instead, the fortunes of modern governments are tied to the boom-and-bust cycles of capitalism. When times are good, the country is flush with taxable income and profits, investors are eager to support new or expanding business, and fewer people depend on government aid. During recessions, the reverse is true. For reasons like this, Keynes argued that when economic conditions are poor, deficit spending is not a moral failure or a concession to political pandering, but a positive good. The budget-balancing2 can come during the boom times.
Unfortunately, for the last decade, the US has been doing the reverse. We had an economic boom in which budget surpluses were actually in sight, and then instead of milking the boom to balance the budget, we got tax cuts. When the worst recession in 80 years struck, the elite obsession with budget-balancing, and the attitude that we deserve to suffer for the excesses of the past, has inhibited efforts (both in the US and Europe) to provide meaningful economic stimulus. Indeed, in the US, “stimulus” has practically become a dirty word.
To its credit, the President’s economic growth proposal recognizes Keynesian priorities by front-loading the tax cuts and benefits that reduce unemployment, and scheduling tax increases for later, by which point (we hope) the economy will be stronger. But as a political strategy, the Democrats concede too much to their opponents, because they do not push back against the attitude that Teh Deficit, always and everywhere, must be a Bad Thing.
1 Alternatively, we may see hand-wringing about the defense cuts that will be triggered in 2012 in the absence of a deal, either because the defense budget is composed of magic pixie dollars that can be borrowed without affecting Teh Deficit, or because Keynesian economics only applies to defense spending, or because spending three times as much on defense as China and Russia combined is a national priority that is even more urgent than Teh Deficit.
2 One could argue that a government run on Keynesian lines should be running surpluses during economic expansions, so that over the long run, the average deficit is zero. I personally think that would be a good idea, but I do not recall seeing this explicitly stated in Keynes’s General Theory.
George W. Bush, untaxer of the poor
In response to the we are the 99% movement, a number of right-wingers have focused attention on the fact that only 53% of Americans pay Federal income taxes. (This statistic ignores all the other kinds of taxes that lower-income folks pay, but set that aside for a moment.) Who is responsible for this mass legalized tax evasion? Republicans.
via FB
In defense of the debt-ceiling deal
In the aftermath of this week’s budget-cutting, debt-ceiling-raising compromise, both liberal Democrats and Tea Party Republicans have excoriated their respective leaders, charging that those leaders were snookered by the other side. The more I think about what happened, the more I believe that the Tea Party folks are right: Speaker Boehner got taken to the cleaners.
In order to understand why this is a win for the Democrats, we need to understand two things: what President Obama wanted (which, unfortunately, is not what the liberal wing of the Democratic Party wants) and what, in the absence of the debt ceiling, the Republicans could have acheived.
Once upon a time, there was a faction of the Republican Party known as the “Rockefeller Republicans”. They were liberal on social issues, but they tempered their liberalism with fiscal prudence, and they did not share Democrats’ distrust of big business. Chuck Percy, who like Obama was a Senator from Illinois, was one such. These days, we have another word for politicians with these views. We call them “Democrats”. And Obama is one such: his Senate voting record places him squarely in the middle of his party.
As the country is coming out of its most severe recession since the 1930s, Obama’s emphasis on deficit-cutting is horrid economics, but Hoovernomics is practically an article of faith among all but the most liberal Democrats these days. And unlike creationism and global-warming denial, balanced budgets are not just an American obsession: for example, the Conservative/LibDem coalition government in Britain is going the full monty for austerity, and so far things are turning out exactly as Keynes would have predicted, i.e., badly.
Furthermore, the Republican alternative is even worse. Since Reagan, the Republican fiscal strategy has been consistent: cut taxes, especially for the wealthy; run up the tab with loopholes and giveaways for Republican interest groups; when politically necessary, concede to Democrats on spending increases, but not on tax increases; blame the Democrats for the out-of-control deficit. The Medicare prescription-drug benefit, signed by Bush the Younger, is an excellent example of this phenomenon. It added $50 billion a year to the deficit at a time when Congress was slashing taxes. It provides a real benefit to seniors, but does so by subsidizing their private insurance premiums, and it left money on the table for Big Pharma by forbidding Medicare from negotiating a discount on the drugs it purchased. And eleven Democratic Senators (plus Jim Jeffords) voted for it.
Given that history, if the debt ceiling had not been in play this summer, what kind of budget would the Republicans be maneuvering to pass? I can easily imagine them retreating from the Ryan budget to something that “merely” makes the Bush tax cuts permanent, slashes Medicare, and repeals key components of Obamacare (e.g., the individual mandate). Then they would just need to tweak that budget enough to convince ten Democrats in the Senate that voting for this bill is better than letting the government shut down. Liberal Democrats would fume, moderates would be grateful that the carnage wasn’t worse, and Republicans would use Democratic profligacy as a key talking point in the 2012 elections.
A key concept in negotiation theory is the BATNA—Best Alternative To Negotiated Agreement. In the absence of a debt ceiling, the Democratic leadership’s BATNA is hampered by Republican control of the House, weak Democratic party discipline in the Senate, and the looming threat of a government shutdown.
The above scenario, I think, answers a question that has vexed many liberals. Why didn’t the Democrats raise the debt ceiling while they still had Congress? Why didn’t Obama take an uncompromising stand in favor of a “clean” debt-ceiling bill, with no strings attached? Because they didn’t want such a bill. They wanted to tie Republicans to the mast of deficit reduction, even if they had to tie their own party at the same time.
I believe that Obama’s preferred nice-guy result, in the “grand bargain” negotiations with Boehner, was something that would have reduced the long-term deficit with a combination of entitlement reforms (e.g., the rumored hike in the age for Medicare eligibility) and tax increases on the wealthy. The former would have pissed off the Democratic base and the latter would have pissed off the Republican base, but both sides would have gone into the 2012 elections with their sacred cows equally wounded. But Boehner wouldn’t play along, or couldn’t get his caucus to play along. So they ended up with a stopgap deal that, in the default case (i.e., the case where the “Supercongress” committee can’t make a budget), doesn’t mess with key entitlement programs and doesn’t raise taxes… until the Bush tax cuts expire, at which point both middle- and upper-class taxpayers get socked.
But now the Republicans are tied to the mast, because the Supercongress has to come up with a budget that actually cuts the deficit by $1.5 trillion relative to current law. If the Republicans on the committee say “hey, we’d like to make the Bush tax cuts permanent”, the Democrats will say “that’s going to add over $300 billion per year to the deficit; how are you going to make up for that and meet our deficit-reduction targets?” If the Republicans say “we were thinking of cutting Medicare”, the Democrats can simply say “no”, secure in the knowledge that if negotiations break down, taxes on the wealthy will automatically go up, but Medicare benefits will be preserved. In general, as this blogger observes, the automatic triggers in the debt-ceiling deal put a squeeze on industries that primarily donate to Republicans. In short, the Democrats’ BATNA in the next round has greatly improved.
As an extra bonus, the intra-party Republican tussles over the debt-ceiling deal has revealed how weak Republican party discipline is in the House. If the 66 Republican Representatives who voted against the deal are equally indisposed to vote for the Supercongress’s proposal, then Boehner will need to court not just one Democrat on the Supercongress, but 44 Democrats on the House floor, to get the actual deficit-reduction deal to become law.
If Boehner had been more politically savvy, he would have gone for the clean debt-ceiling increase.
Debt ceiling: the endgame begins
- 1:09 p.m.
- President Obama warns that if the debt ceiling is not raised by August 3rd, Social Security, disability, and veterans’ checks may not go out.
- 2:56 p.m.
- Senate Minority Leader Mitch McConnell (R–KY) proposes an escape hatch that would allow the President to unilaterally raise the debt limit, subject to Congressional disapproval. (The Democrats would be fools to accept this plan, but it represents a massive step backward from the Republican position that any debt-ceiling hike not accompanied by massive spending cuts and zero tax hikes is unacceptable.)
- 5:27 p.m.
- Right-wing Republican base has a cow.
- 6:56 p.m.
- House Majority Leader John Boehner (R–OH) says he likes Senator McConnell’s plan.
- 7:40 p.m.
- Grover Norquist says he kinda sorta likes the plan.
How I convinced my child to go the f—k to sleep
Since insomniac children is a hot topic these days, I ought to share a story of our own adventures in this department.
When our youngest son was two years old, recently transferred from crib to toddler bed, he discovered the joys of getting out of that bed, opening his own door, and visiting his parents. The standard parenting-manual advice for such situations is to deposit the straying child back in his own room, with as little drama as possible, but we feared that no matter how well we kept our poker faces, he was having such a good time with this game that he would not bore quickly.
Screaming at the kid was a tempting proposition, and would have been cathartic in the short term, but probably would not have solved the problem in the long run.
So we employed a technique from the behaviorist canon: “reinforcing the positive opposite”. Rather than discouraging him from getting up, we tried to encourage him to stay down. (Or at least, to stay in his room.) The first step was to reward him for staying in his room, with the door closed, for thirty seconds. For the first few days of the exercise, even this was an accomplishment worth praising.
I stayed in the hallway behind the closed door, mentally counting down. If the two-year-old emerged, I put him back in bed, poker-faced, and restarted the count. If he stayed in his room for the alotted time, I went in, praised him effusively for staying put, reminded him that more cuddling would be his if he would stay in bed, and began counting down again from a higher number. One minute… two minutes… three… five… eight… thirteen… no, I’m not obsessed with the Fibonacci sequence, why do you ask? If he seemed pretty solid about staying in bed for one minute on Monday night, then we might dare to begin Tuesday night with a two-minute timer.
It took a few months of this discipline to break him of the get-out-of-bed game entirely, and I did occasionally wonder if the positive reinforcement was really an improvement over the “just send him back whenever he gets out” technique. However, three years later, all three kids go to bed at the same time, and the youngest one reliably falls asleep before either of his big brothers. Indeed, he falls asleep so promptly that on Saturday and Sunday mornings, he wakes up before either of his brothers, and at seven o’clock, he drags me out of bed, demanding breakfast.
Be careful what you wish for.
How the mighty hath fallen
Whitey Bulger, who used to be the FBI’s second-most-wanted man, told a Federal magistrate in California that he needs a court-appointed attorney.
You’d think that a retired mob boss facing nineteen murder charges would have enough loot stashed away, somewhere, to hire a good lawyer. Maybe he invested his ill-gotten gains with Bernie Madoff.
The mutant as [ethnic slur]
Reading various essays on the racial politics of the new X-men movie—see, for example, Ta-Nehisi Coates, N. K. Jemisin and Matthew Yglesias—reminds me just how sophomoric the whole “let’s use mutants as a metaphor for the oppressed minorities of the real world” conceit is. I mean, if African-Americans could fly or shoot laser beams out of their eyes or read white minds, the whole civil-rights movement would have turned out a bit differently, eh?1
And when I squint at the idea long enough, it reminds me of how people who have not grappled with their own prejudice can relish their “positive” stereotypes about marginalized groups. Jews are smart; Asians are stoically hard-working; African-Americans have natural rhythm; Roma have magical powers; gay men have excellent taste; etc.2 I guess I’d rather have undeserved praise than undeserved condemnation, but compliments based on a stereotype are not really compliments, and the Jews who are “smart” one year can be “crafty” the next.
A well-chosen metaphor can illuminate the truth in a way that literal statements cannot, but this one does more to obscure than illuminate. Better super-metaphors, please.
1 Now there’s a concept for a superhero comic.
2 There’s another concept: The League of Stereotypical Heroes! Umm… maybe not.
Silly thought of the day
Rivalry among elite universities serves an important social function, because if alumni of these schools did not regard one another with some suspicion, they would be more likely to team up and fleece the rest of the country even more than they do today. It’s sort of the flip side of Jay Gould’s quip “I can hire one-half of the working class to kill the other half.”
P.S.: Jay Gould, the nineteenth-century financier, should not be confused with Stephen Jay Gould, the twentieth-century Harvard professor.
