This is a great nonpartisan primer on the Fiscal Cliff. Of course my solution remains as it has been and is guaranteed to solve most of the USA’s financial problems – cuts to entitlements via means testing and a 5% annual DOD cut for the next 10 years which would allow us to keep soldiers *safer* than now, reduce global tensions, and balance the budget. I understand why “liberals” like public spending – it shifts money from rich to middle class (and to a minor extent the very poor), but I don’t understand why “conservatives” support so much overspending on DOD. It’s inconsistent with the founders vision of small government and inconsisten with any reasonable strategic vision of how the world works. As Ron Paul points out to deaf ears you can want a strong defense without wanting an exhorbitantly expensive defense.
I’m watching the first two Daniel Craig Bond movies to refresh my memory before watching the new Bond film “Skyfall” and naturally one’s mind turns to the Cochabamba Water Wars because Bond’s “Quantum of Solace”, the second film, is loosely and somewhat bizarrely inspired by that important Bolivian event.
A too simple summary of the Water Wars is this: Bolivian water in Cochambamba was very poorly managed, leaving about half the folks without water. Government signed an expensive, questionable monopoly contract with an international corporation to build a major dam, generate power, and stabilize and increase the water supply. Large cost increases for this privitized water led the people to protest , which in turn created enough unrest that the company left the country and water production was turned back over to a public management.
Water has become a critical issue in many parts of the world, and privatization is a big part of that story. Unfortunately it’s impossible to analyze the effects in a simple way. There are many examples of successful and unsuccessful private efforts as well as public ones, and it’s clear that one cannot simply dismiss either option without risking suboptimal water provision to those of us whose lives depend upon a stable supply of clean water. And by “those of us” I mean of course every human on the planet.
Wikipedia has a nice summary but it appears to stop in 2006, so more research is needed to see how the people of Cochabamba fared after kicking out the corporations:
Cochabamba Water Wars Outcome from Wikipedia:
In the end water prices in Cochabamba returned to their pre-2000 levels with a group of community leaders running the restored state utility company SEMAPA. As late as 2005, half of the 600,000 people of Cochabamba remained without water and those with it only received intermittent service (some as little as three hours a day). Oscar Olivera the leading figure in the protests admitted, “I would have to say we were not ready to build new alternatives.” SEMAPA managers say they are still forced to deal with graft and inefficiencies, but that its biggest problem is a lack of money (it can not raise rates and no international company will give them a loan). Luis Camargo, SEMAPA’s operations manager in an interview with the New York Times said they were forced to continue using a water-filtration system that is split between “an obsolete series of 80-year-old tanks and a 29-year-old section that uses gravity to move mountain water from one tank to another.” He stated that the system was built for a far smaller city and worried about shrinking aquifers. A system to bring water down from the mountains would cost $300 million and SEMAPA’s budget is only about $5 million a year. The New Yorker reports “in Cochabamba, those who are not on the network and who have no well, pay ten times as much for their water as the relatively wealthy residents who are hooked up”, and with no new capital the situation can not be improved. A local resident complained that water-truck operators “drill polluted water and sell it. They [also] waste a lot of water.” According to author Frederik Segerfeldt, “the poor of Cochabamba are still paying 10 times as much for their water as the rich, connected households and continue to indirectly subsidize water consumption of more well-to-do sectors of the community. Water nowadays is available only four hours a day and no new households have been connected to the supply network.” Franz Taquichiri, a veteran of the Water War and an SEMAPA director elected by the community, said “I don’t think you’ll find people in Cochabamba who will say they’re happy with service. No one will be happy unless they get service 24 hours a day.” Another Cochabamba resident and activist during the unrest summed up her opinion of the situation by saying, “afterwards, what had we gained? We were still hungry and poor.”
The Grameen Bank and Grameen Foundation have been two of my favorite “do good” projects for some time. Today I had a chance to talk about their amazing work with Alex Counts, the President of the Foundation he started in 1997 with the help of Nobel Peace Prize winner Mohammed Yunus, the economist most responsible for the invention and implementation of “microfinance”, a concept that has helped lift millions out of poverty in Bangladesh and other countries.
Unfortunately, some political conflicts between the Government of Bangladesh and the Grameen Bank (though NOT the foundation), threaten to disrupt the Bank’s superb poverty-fighting work over the past years.
I’ve written to the Bangladesh Government about this, and would encourage anybody interested in “making things work right” to consider doing the same. One of the brilliancies of the Yunus economic model has been to reduce the impact of “middle men” and bureaucratic interference, and more restrictions and taxes on the Grameen projects will only lessen their positive impact on the extreme poor in these regions. Also for those of you who STILL don’t get this, we will be helping to *reduce population pressures* by *elevating living standards* in countries like Bangladesh, so please no comments about how we can’t send aid because it just creates a bigger problem due to more population. There *are* legitimate issues with aid and they are being addressed by great charities like Grameen Foundation (more on this in future posts), but in the meantime your support for the poor means helping the entire world live healthier and happier. It’s not just a moral imperative, it’s a practical necessity to fix global problems sooner rather than later.
Letter to Bangladesh:
Dear Md. Masum Khan,
Thank you for the opportunity to address an issue I am very concerned about, which is the ongoing conflict between the Grameen Bank and the Government of Bangladesh.
I want to express my very strong support of Grameen. Although I’m not a legal expert, it seems to me this conflict is more political than legal, and I’m very concerned that restrictions on Grameen or taking over Grameen Bank would have serious negative consequences in the way the Government of Bangladesh is viewed here in the USA.
As you know it is difficult to convince US leaders to “share” more of our abundant resources and prosperity. Grameen’s stellar global reputation helps citizens like me make the case to our leaders to give more money – not to the bank itself but to help governments alleviate poverty in other ways.
US citizens and leaders are more distrustful of government than in most countries, so government interference or ownership of Grameen would jeopardize the credibility of both the bank and of the government of Bangladesh in the eyes of many Americans and American policy makers.
Like you, I want to see the people of Bangladesh achieve their full, broad potential and enjoy the prosperity we do here in the USA. I sincerely believe Grameen projects are making that happen and hope you’ll consider this as you move forward in your good work for the people of Bangladesh.
firstname.lastname@example.org or @JoeDuck on Twitter
It seems to me that one of the most underrated notions in the world is that of the “optimal” arrangement. You hear a lot of folks talking about things like “exploitation”, “growth”, “fairness”, “maximizing profits”, etc, etc, but it seems to me we don’t talk nearly enough about how to structure the world in the way that best benefits the most people, ie to seek the optimal arrangement given the needs and contributions of all the players involved.
Nearsighted conservatives will sometimes mistake that kind of discussion as “socialist” because they see it as veering away from the competitive, individual forces that very effectively drive highly productive economies, but they forget that in the game of economics we should generally be looking at metrics such production divided by number of people (GDP), and this number will be bigger if we optimize correctly.
The left in this sense is usually too “far sighted”, looking to distribute the wealth that may vanish if we eliminate those individual and corporate competitive structures that are the hallmark of industrialization and the spectacular rise in the average standard of living in the industrialized world over the past century.
So, how to optimize things? Economist Vilfredo Pareto (OMG he’s Italian?! economic credibility challenge alert!) had some neat ideas with respect to optimizing systems where we’d examine them to find ways to increase the well being of some participants without decreasing that of others. http://en.wikipedia.org/wiki/Pareto_efficiency
I think this simple basic idea should factor in a lot more, especially for those who fret a lot about the inequitable distribution of production towards the rich. Those folks generally, and very wrongly, assume that redistribution won’t have negative effects on production. It will, although that certainly does not mean we should not redistribute anything. It just means we need to redistribute with *great caution* to avoid the catastrophic kinds of problems faced by basket case economies like North Korea.
I think the single greatest challenge of optimizing is the degree to which you factor in the needs of other nations. Optimizing with the rural Pakistan peasantry in mind is different than if we draw our lines at the US border and say to heck with the needs of everybody else. Although I believe we have a moral imperative to take the needs of the world into much better account than we do now, I also recognize that it’s not practical or even possible for those of us who enjoy the many benefits of industrialized capitalism to successfully integrate our economies with those of countries like North Korea or China or even very friendly “economic allies” like India. Fortunately for those guys – and probably for us too – industrial globalization and the communications and technology revolution are handling much of this task, often via the invisible hand of Adam Smith style free marketeering.
The future … is better optimized !
S&P’s decision to downgrade the US debt rating from AAA to AA+ is very unwelcome news but it should not surprise anybody, especially in Washington where neither party has been willing to tackle the deficit or the debt in a responsible manner.
It’s time to cut the only two things in the budget that really matter – the bloated portions of Defense and Entitlements. Even estimating (and then cutting back) the bloat at 10% – absurdly low given how recklessly this money is spent – we could solve all deficit and debt problems in less than a decade. DO IT, DAMN IT!
The Tea Party’s was right that debt and deficit are major concerns, but their approach to solving the problem has been almost infantile, lacking in strategy as well as substance. They won’t cut defense – clearly required to solve this problem unless you raise taxes which as they correctly note brings a host of other problems into the mix. Defense spending is so high it’s become counterproductive, creating blowback and international tension which is mostly a function of our own reckless big spending in hostile territory.
One does not have to be an isolationist to see that it’s time for a much more strategic spending focus. Troops can be paid well and protected – these portions need no cuts, but operations and maintenance budgets in each of the services are where the big money lies, and where the big cuts won’t create trouble for policy or troops.
The solution is pretty obvious to many of us out here in the real world, where two things are crystal clear: 1. Entitlements are out of control. The prosperity the USA has enjoyed for over a century as the kingpin of the industrialized world is winding down in favor of spreading the wealth around the globe, especially to the developing countries of China and India. This prosperity allowed us (and by “us” I mean everybody – from poor to rich) to enjoy health, welfare, education, and retirement benefits the rest of the world could only dream about. Liberal middle class folks are whining too much about how they might lose benefits they never paid for – much of this in the form of “defined benefits” where their contributions won’t match their benefit so it’ll have to come from future taxpayers. Social Security has this problem, but it’s easy to solve by lifting retirement age a few years for those who can afford the wait OR doing a ” means test” OR taxing higher income beneficiaries. If we do nothing the Social Security trust fund will run out in under 20 years according to most estimates. The fund is actually growing now but demographics in the form of fewer workers and more recipients will soon overwhelm the system. Unlike a well managed system, Social Security has promised more benefits than incoming payments can support.
Summary: Simple solution is to cut bloat in the two big ticket items of defense and entitlements. Problem solved, AAA restored. DO IT.
A Facebook friend’s debate has me writing too much over there in private that should be written here in the bright light of the blogging sunshine where everybody can check in and …. YELL about it!
The question over there from my pal in Wisconsin was this: “What will be the benefit and what will be the cost of removing the right of public workers to form collective bargaining groups?”
We went round and round about what I see as a critical issue in that debate which are the unfunded liabilities – mostly pension obligations – that seem to have come from collective bargaining aggressiveness. Surprisingly to me there are still a few large hold out advocacy organizations claiming we don’t have a pension crisis – NIRS is the best example. But clearly we DO have a crisis and it’s potentially very serious.
I’m hoping to hear from Fools Gold and Horatiox on this one as I think we may be coming close to an informed answer. The benefit to society: Slightly lower taxes from the reduced pressure on public spending. Assuming that bargaining bumps up public compensation costs by 10% (based on a conservative CATO paper that should not tend to make this a low number) we are probably talking about something like 5-7% “savings” to taxpayers if we eliminate bargaining (I’m assuming 50-70% of the cost of public sector is in form of compensation and related liabilities).
The cost to society: reduced public worker morale, perhaps reduction in productivity, and probably a reduced quality of workers who chose public service. Although these costs are hard to measure, it seems to me that the modest tax increase is probably worth those benefits to the extent the government services are justified.
A caveat for me would be whether collective bargaining tends to increase total public sector employment. To the extent it does it presents potentially much higher costs to the system. I do not believe the public sector is sustainable in current form and size without tax increases that are politically impossible (and ill advised anyway).
So for me a far more important current question is how we can get the softest landing as we scale back the bureaucracy from its current bloated conditions to a manageable size.
Google’s Project 10 to the 10th gathered 150,000 ideas and filtered them to five great ideas listed below. Each will receive huge funding from Google:
Idea: Make educational content available online for free
The Khan Academy is a non-profit educational organization that provides high-quality, free education to anyone, anywhere via an online library of more than 1,600 teaching videos. We are providing $2 million to support the creation of more courses and to enable the Khan Academy to translate their core library into the world’s most widely spoken languages.
Enhance science and engineering education
FIRST is a non-profit organization that promotes science and math education around the world through team competition. Its mission is to inspire young people to be science and technology leaders by giving them real world experience working with professional engineers and scientists. We are providing $3 million to develop and jump start new student-driven robotics team fundraising programs that will empower more student teams to participate in FIRST
Make government more transparent
Project funded: Public.Resource.Org is a non-profit organization focused on enabling online access to public government documents in the United States. We are providing $2 million to Public.Resource.Org to support the Law.Gov initiative, which aims to make all primary legal materials in the United States available to all.
Drive innovation in public transport
Project funded: Shweeb is a concept for short to medium distance, urban personal transport, using human-powered vehicles on a monorail. We are providing $1 million to fund research and development to test Shweeb’s technology for an urban setting
Provide quality education to African students
Project funded: The African Institute for Mathematical Sciences (AIMS) is a center for math and science education and research in Cape Town, South Africa. AIMS’ primary focus is a one-year bridge program for recent university graduates that helps build skills and knowledge prior to Masters and PhD study. We are providing $2 million to fund the opening of additional AIMS centers to promote graduate level math and science study in Africa.
———— Joe rambles on —————-
I love the innovative spirit in contests and project like these, and also believe funding from deep pockets like Google is critical because I think in general innovations …. fail…. even in the for profit sector. However in that sector we reward success hugely, so we get a fair number of entrepreneurial “players” who are looking to win the innovation lottery, and these players tend to spin out a few good ideas among mostly bad ones.
The current USA system tends to dramatically reward success and ruthlessly kill commercial failure, which is probably a good approach to optimize business success. A common mistake by those who argue that “innovation is golden” is to only look at the few innovative projects that have had huge success (Apple Computer, Google, etc) and ignore the *thousands* of failed innovations, most of which most of us never hear about. One of the big lessons that should have been learned from the internet and real estate bubbles is that innovation does NOT foster success – it simply fosters new ideas. Most internet companies that were spawned during the bubble have failed where a few like Google have become global economic powerhouses.
But as usual I digress. THANKS Google for helping to spawn new ideas to do good. That’s cool.