noteworthy wrote:
Dig it. A free book that will keep you from becoming obsolete.

I'm not sure I agree. While I do think the patent system needs some serious examination there is really little new here. The main thrust of this proposal seems to be that if we want to improve America's scientific competitiveness we need to increase the supply of technical workers, which will reduce their cost. I don't agree, and I think they have mis-defined the problem.

Technological competitiveness is not about how much technology you are doing but what kind. You don't want to lead the world in having development sweatshops where people grind out code for hours at low wages. Having that sort of work move offshore is not what is breaking our technological competitiveness. What is important is that the work is directed from here and that the US owns the intellectual property.

You want to lead the world in creating new innovations. The problem isn't that the economics of turning innovations into products aren't working out and so people aren't doing the innovation or they aren't doing it here. The problem is on the demand side and not the supply side.

Doing great science and engineering is hard, and it requires people that are not just well educated, but really smart. Lowering the barriers to entry into science and engineering and flooding the market with additional workers (with the ultimate intent of lowering salaries) is going to make engineering even less attractive as a field then it already is. The result will be that you'll have more technical people, but they won't be as good. The smart ones will be even more likely to opt for a career in law, medicine, or management. You'll end up being really good at making software cheap and not very good at all at figuring out what software ought to be made. They should be focusing instead on how to incent the best and brightest to pursue graduate science and engineering educations by increasing the opportunities that exist for those people once they graduate.

They also need to recognise that technical innovation is fundamentally disruptive and threatens established institutions. Creating tax credits for large company R&D will result in a lot more things being called "research" on paper but not a lot more new products and services. You need to create an environment where people are incented to pursue startups that create new technologies. Our political and cultural response to the dotcom bust has not been to figure out how to do it better and with more rational exuberance, but rather to oppose the very idea of high tech startups. The stock option expense rule has done more damage to our technological competitiveness then Indian outsourcing firms ever will. There is definately something broken in the startup space, and there are policy measures that can be taken to fix those problems. This set of proposals doesn't even touch on the subject.

Ultimately, going down this road is simply going to further drive our downward spiral in this regard.

RE: Rising Above The Gathering Storm

Anybody who pumps a barrel out of a reservoir today to sell at $60 could make three times as much money if they just left it in the ground another two years before pumping it out. The same is true for anybody with above-ground storage facilities-- they're throwing away money, and lots of it, for every barrel they sell at $60 that they could have instead stored for two years and sold for $200. If oil producers did respond to these very strong incentives by holding back oil from today's market, the effect would be to drive today's price up.

An really smart analysis of oil futures, with some interesting links to more data. Sure oil prices are going to skyrocket? Well, you can make a hell of a lot of money on that right now if you're right.

Econbrowser: How to talk to an economist about peak oil

Thomas Friedman spends an hour talking to MIT about his new book. Watch streaming video of the May 16 event.

I haven't watched this yet but I'm memeing anyway. I'll probably watch it tonight. Friedman's recent Wired Article was excellent.

The World is Flat: An Hour With Thomas Friedman | MIT World

] More than a third of the mortgages written in the
] Washington area this year are a risky new kind of loan
] that lets borrowers pay back only the interest, delaying
] for years repayment of any loan principal. Economists
] warn that the new loans are essentially a gamble that
] home prices will continue to rise at a brisk pace,
] allowing the borrower to either sell the home at a profit
] or refinance before the principal payments come due.

] The loans are attractive because their initial monthly
] payments are tantalizingly low -- about $1,367 a month
] for a $320,000 mortgage, compared with about $1,842 a
] month for a traditional 30-year, fixed-rate loan. If home
] prices fall, though, borrowers could lose big.

All those expensive ass houses everywhere that seem to have cropped up like weeds in the last few years despite the serious lack of an economic boom. Yeah. Those people are fucking doomed. There is a reason you don't own one. You're not an idiot.

Many Buyers Opt for Risky Mortgages

] The proposal to change the benefits calculation --
] adjusting only for inflation, not productivity growth --
] will dramatically cut the income-replacement rate for
] future retirees. The size of the cut will depend on when
] workers retire. The heaviest cuts would fall on the
] youngest workers. Those already retired or near
] retirement would be protected.
]
] Let's call it what it is: a tax hike
] The administration has not called this a tax increase,
] but that is exactly what it is: a massive tax hike
] reserved for the young and the young only. It is a tax
] increase because they will pay the same payroll tax but
] will receive less in benefits.
]
] The difference is who gets the money and benefits now. Older
] voters get the money, benefits and reassurances now. Our
] children and grandchildren get the shaft.
]
] Tell me, Mr. President, what's moral and good about that?

Now this makes sense, but I'd like to see this analysis get some peer review.

MSN Money - Social Security cuts: a tax hike for the young

] Opponents say such a system would not be in the best
] interests of the poor and the middle class who would pay
] the same tax rate as the wealthy even though they have
] less disposable income.

I saw this meme floating around last week but I ignored it because I felt it was unlikely to materialize. The President saying "thats interesting" doesn't, in my mind, make it any more realistic that this will happen, but everybody is talking about it, so its worth some commentary.

People, in general, seem to be responding to it very thoughtlessly. "Yeah, get rid of the IRS!" is about as mindless a response as those on the other side who are always screaming bloody murder over "low" corporate taxes without having a basic understanding of how accounting works.

What really bothers me about this proposal is that it seems to be defended with gross generalizations rather then hard data.

Sure, elmininating the income tax code will save some money, but how much exactly? There is a lot more to corporate accounting then income taxes. Its not like the accounting industry goes away. Most of those guys are collecting data for the benefit of investors, not the IRS. Nor is it like the government won't need a revenue organization. We know exactly how much it costs other countries to manage national sales taxes versus their income taxes. Why don't the proponents have this data?

Another assertion is that rich people will pay more taxes because they spend more money. Thats asinine! Any wealthy person who spends a proportionate amount of his income versus someone in the middle class is a fool who will not be wealthy for long!! Where is the data about the change in middle income tax burden? Most western countries have federal sales taxes. The information is available. The fact that advocates of this plan haven't collected it makes me very suspicious.

What this will do is make it really easy to save money for retirement. You no longer need tools like IRAs and 401ks. You can save as much as you want and spend it however you want. There is real freedom in that. Freedom for a Social Security system that is absolutely doomed. Of course, there are middle steps that can be taken toward that, such as raising the bar on Roth IRAs.

The other thing that it will do is make it basically impossible to raise taxes outside of a war context. Today small tax increases can be made in particular areas where political opposition to a tax increase is related to support for the item being funded. Under this system there will be only one tax, and so you've got to get everyone's permission in order to fund any new program. If a new program isn't unanimously loved its not going to run. Period.

Look at Tennessee. They are a sales tax state. Most states with a sales tax have a supplimental source of income, like tourism. Tennessee doesn't. Tennessee has huge revenue problems. They can't raise taxes. They can't afford proper schools. They'd can't afford their medicare program. They've nearly declared bankrupcy recently. They closed all the public parks in the state two years ago.

Thats how we're talking about running the federal government. Sure, its a great way to control government spending, but the results are less then pretty.

Bush says national sales tax worth considering - Aug. 11, 2004

] After a decade of cost controls in the 1990s, insurance
] premiums have resumed their rapid growth - 11
] percent in 2001, 13 percent in 2002 and 14 percent in
] 2003, according to the Henry J. Kaiser Family Foundation.
]
] Ford spent $30 billion in 2002 to cover insurance costs
] for 560,000 workers, retirees, dependents and surviving
] spouses, said Ford spokeswoman Brenda Hines. In 2003, the
] figure jumped $2 billion, adding nearly $1,000 to the
] cost of every Ford vehicle produced in the United States.

The generation storm begins to brew...

] The information economy is likely to be a volatile,
] cyclical, unstable mess. The problem is not the "creative
] destruction" one would expect in an innovative economy,
] but the structural instability of an economy whose major
] products have very low marginal costs and hence prices,
] but are not low-cost to produce. The notion that an
] information-based economy will be inherently prosperous
] must be revised for a less optimistic scenario.

This connects with Jeremy's observation about the biotech industry having the same problems as the music industry. The work that matters is thought work. Our economy is not designed for thoughts. It is designed for things. Intellectual property is a compromise that allows thoughts to work like things. As more and more of our economy consists of thoughts and not things the compromise becomes more and more strained. Its going to pop. There is no alternative because we trained ourselves to ignore critical thinking about economic systems as a defense mechanism against the communists.

This is a black hole, and the only way to avoid getting sucked through it is to own a lot of real estate.

Eli Noam: Information Economies are inherently unstable

] The number of unemployed workers (currently 8.2 million)
] and the national unemployment rate of 5.6% in February
] 2004 do not adequately convey the true labor slack in the
] economy for several reasons. One major understatement is
] that the unemployment rate does not reflect the uniquely
] large 1.2% decline in labor force participation that has
] occurred since the current recession began in early 2001.
] This decline represents a stark contrast to the past
] three business cycles, when labor force participation
] actually grew by an average of 0.4% of the working-age
] population over similar lengths of time. Consequently,
] there is what can be called a "missing labor force" of
] 2,808,000 workers who might otherwise be in the actual
] labor force but have either dropped out entirely or
] failed to enter the labor market because of the lack of
] jobs. If the unemployment rate in February 2004 took into
] account this missing labor force, the unemployment rate
] would have been 7.4%, or 1.8% greater than the official
] rate of 5.6% (see chart below).

Here is someone publishing unemployment statistics which include the data about the contraction of the total labor force.

The unemployment statistics the government doesn't want you to see...

] Although in recent years the proportion of our labor
] force made up of those with at least some college has
] continued to grow, we appear, nonetheless, to be
] graduating too few skilled workers to address the
] apparent imbalance between the supply of such workers and
] the burgeoning demand for them. Perhaps the accelerated
] pace of high-tech equipment installations associated with
] the large increases in productivity growth in recent
] years is placing unachievable demands for skilled
] graduates over the short run. If the apparent
] acceleration in the demand for skilled workers to staff
] our high-tech capital stock is temporary as many presume,
] the pressure on our schools would ease as would the
] upward pressure on high-skilled wages.

In english: "We needed a lot of engineers to set up the new infrastructure over the past few years. Admins, Programmers, Network Engineers, etc... We're done doing that now. We don't need ya'll anymore. Thanks for all the productivity growth. I'm sure you can find a suitable job in another industry at a significant reduction in pay. You can rest assured that the overall economy has benefited greatly from your work. We're not planning to share the rewards with you, because you don't own it. We own it. We're looking for people who own stock to do really well in the coming years. We're exited about that, and we think you ought to be excited for us. Oh, and BTW, I'm cutting your pension. Have a nice day."

FRB: Speech, Greenspan--Critical role of education in the nation's economy--February 20, 2004