Monday, October 15, 2012

Getting out of the fiscal hole

Our Nation has plied blithely past $16 trillion in debt, equal to our entire GDP, and barely rattled as it did so.  In truth the whole world is rattling and a bit more on our part isn't going to be quickly identified, although its longer term consequences will have a drastic impact on events at home and globally.  If the state of the federal level of government is unsustainable, a number of our States are as bad off if not worse off than the federal government.  CA is seeing an exodus of businesses and jobs as the tax rate, crony kick-backs to politicians, and bureaucracy seep into every area of life in an attempt to control it from the governmental level.  Like IL there is a huge debt problem of what is 'owed' to civil servants who have been lucky enough to get unionized and then enrich politicians via their unions so that they can have a say on both sides of the negotiating table.  Other States like NY, MA, PA, NJ and WI are not immune to this problem, as well, and each have similar problems of too much government promising and too little forethought as to what those promises actually mean.  WI is digging itself out the century-long hole of Leftist policies by simply cutting spending, requiring workers to put more into their own care and freeing up local counties and districts to be able to chart their own courses on fiscal needs.

The simple removal of bureaucratic overhead, spending mandates, and requirements to adhere to contracts that were done to reward the minority with the wealth of the majority in an unsustainable system are critical.  Sovereign governments are the source of contractual authority and, being that source, cannot be bound to the same laws that they pass for everyone else at all times.  That is a perilous thing to have sovereign government do, but it is essential to have a system of regular laws that are upheld for the benefit of all to the detriment of none, and that is part and parcel of the sovereign power, as well.  A sovereign government can, thusly, break promises and contracts for the survival of the sovereign entity.  Just as at the National level a sovereign government can break treaties with foreign Nations when they put the sovereign of the Nation at peril so, too, can lesser sovereigns exercise such authority in their domains of power.  Throughout history this is exercised only by the most corrupt of regimes or when a government is in dire peril of being liquidated for past problems it has caused: better to break the contracts, reform government and pursue the goals of the people as a whole than to be dissolved by that whole and start over.  Yet, as sovereign governments are the representation of the people who create the Nation, they can change or abolish the State (the government) when it no longer meets their needs and imposes unjustly upon them outrageous costs that no people should ever bear.

This part of the debt burden held by States is, then, amenable to State sovereign power which is recognized as distinct from the federal Nation State sovereign power.  The reason we have no laws for bankruptcy of States is that it is expected that this sovereign power will be used to address the localized problems and allow the people of a State to reform, amend, change, or abolish and create anew their government.  It is perilous to renounce debt as those depending on debt servicing get the shaft.  Russia learned this, to its dismay, when it renounced Czarist debt, Nationalized companies and then found that skilled management at home was absent and that no one abroad would invest in such a place that could not recognize its debt obligations.  When the USSR began to finally honor the Czarist debt and pay it off in the early 1980's, the end for their system was written in the need for outside help.  Socialist and Communist regimes are always born in debt and find it hard to do much of anything because they will not recognize this debt payment obligation. 

For the US, our States in the most dire of need will have to recognize the error of their ways, re-organize debt and stop accumulating new debt, which means breaking promises on retirement amounts (or even having any funds dedicated to such from government) so that the government can down-size and do its few basic functions and continue to pay its debt off.  Such debt can be re-negotiated, however, and offer pennies on the dollar but for those pennies it is expected that the debtor (the State) reform its ways and walk the straight and narrow and actually pay that amount.  If you want an example of what happens when that falls through, look at Greece, Italy, Spain and the rest of the EU that has huge debt and getting even pennies on the dollar is a pipedream.

To bring around States to the realization they can't finance their promises requires that those purchasing such debt recognize that it can't be reasonably repaid and stop purchasing it.  This has already happened at the Nation State level with the Federal Reserve now holding a massive portion of US debt.  That is to say that the ones running the printing presses get to call the shots in the very near term.  The flip side of easy lending to a government by a central bank is that the government becomes beholden to that central bank when spendthrift ideas are backed and paid for with debt obligation.  Once the Federal Reserve just acted as a for-profit pass-through of US debt (we paid for that service) but as our creditors have started to dump debt (read: China and Russia) the Federal Reserve holds such debt and can only balance it by creating new funds to pay in inflated dollars.  There are only two things the Federal Reserve knows how to do to deal with fiscal problems: inflate currency by printing more money or increase the interest rate to burn more money.  For all the window dressing on the Federal Reserve, that is what they do.

Total debt obligation for the US government and all the States is in the range of $70 trillion with some estimates putting it over $80 trillion, and none of that can be paid off with the current economy.  Even a booming economy for a decade can't do it.  Or two.  Why?  The spending doesn't stop and always outstrips tax revenue.  I've gone over the so-called 'entitlements' (basically taxes paid in to pay to current beneficiaries with IOUs from the Treasury for future payment now coming due) and would be remiss to point out that the next largest growing portion of the federal budget is debt servicing.  At some point in the near future the question will be: you can have 'entitlements' with debt servicing and NO other government, or you can have government's necessary functions with debt servicing and NO entitlements.  That choice will be yours.  The folly of the USSR points out what happens when you reneg on debt and it isn't pretty.

If the theme of the 2010 Tea Party election was 'Stop The Spending' then this message must be reinforced in this election to put it as 'Stop The Spending Now Damn It'.  Politicians, generally lacking in spine, find saying 'no' to goody giveaways very hard.  These politicians must be replaced, and if their replacements fail then they must be replaced and so on in a process I call 'Fire Until Competence Is Found'.  It is what President Lincoln did with Union Generals, and it works quite well and is eminently suited to the electoral process at all levels.  As citizens our duty is to get this message across AT all levels of government, and I heartily endorse taking part in any election at the local, county, State and federal level to drive this message home.  If we can get just a few more States beyond TX and VA into solvency, then a real path out for the spendthrifts can be pointed out as good examples to follow.

Stopping the spending is the most important part of this equation, and can (indeed must) act in concert with other portions of it to bring home the true bankruptcy of the 'entitlement' system.  Most citizens when they hear of the insolvency of, say, Social Security will point to 'guarantees', which were made by politicians.  Remind them that believing in a politician is the surest way to get in the hole and that these politicians must be held to account for their ill-actions.  No matter how 'good' the cause, the actions, themselves, are ill and need to be rethought.  With that said there now needs to be trust garnered by the federal government (and the States as well) that they understand that things not given to them to do in the small realm must be lopped off to show that government understands dire fiscal times.  At the federal level this means antiquated departments like the EPA, Education, Energy, Agriculture, Labor and choice portions of Interior that is holding land in States that the State legislatures have not signed off on the federal government having to control per parcel.  Perks must go, including large Secret Service details, flying first class and huge staff sizes at all levels of government. 

Structural reforms to get the federal government out of the home lending market ENTIRELY and to remove the ability of commercial banks to operate in that realm are necessary: a local banking system offers depth and flexibility that a larger system cannot achieve while remaining profitable and requiring local judgment on who is worthy of getting a loan.  The only requirement is that loans are given out based on fiscal background, type of loan, and if said loan actually is not at risk for being lost or devalued for the customer once given all of which are local decisions and can be handed to different officers in a company to judge just those factors shorn of all other outside factors completely.  This entire concept goes for student loans, as well, as we are moving out of the 13th century bricks and mortar schooling realm and into a 21st century realm with on-demand courses and self-paced systems now coming out to allow the bright to excel as fast as they can and the less bright to realize just what their limits are quickly so as to adapt to a better suite of skills to meet their individual talents.  For we all have talents in different proportion and they are least well served by diploma mill physical education institutions with a 'One Size Fits All, Fits None Well' approach.  And this is at the Primary, Secondary and Post-Secondary levels of education, not delimited to Colleges and Universities, although the loan part is aimed at them.  As a society we will adapt to the changing understanding that education is life-long, that touchstones are what one can do not how many classes one has attended, and that the greatest drive for education is self-education.  This will mean that what we consider 'vocational' systems will revive as those not suited to book learning but can learning engineering, physics, and chemistry by hands-on application will require these venues to expand, not diminish and they do require physical structures as they deal directly with our physical reality.

Trust building is a two-way street and government is ill-served by seeking power to control those things it is not designed to do.  Reduction in federal regulation and putting that burden on the States means adaptable responsiveness to local and regional problems as States can work with each other without the requirement of federal oversight.  So long as they do not put bias in the internal trade system of the US, States can work together to solve regional problems via State to State agreements run by the States and held accountable by the people in them.  Handing back control of natural resources (i.e. having lands held by the federal government go back to State control) means that these localized system which are adaptable to local concerns can be put into play without a straightjacket of having to put in tropical screening in facilities above the arctic circle.  As ND has shown with some spillover to MT and SD is that State and regional resource exploitation can be done competently, within reasonable accommodation to the environment and still get one heck of a return.  CA has so much oil off its coast that it comes out in seeps, but because of regulations the pressure can't be relieved by drilling because of environmental fears... which are being realized by not drilling the oil pockets.  Not everyone will succeed equally and some States may never get a clue, but that should not be for lack of good examples by other States.  As the States have demonstrated good and responsible capability for near-shore drilling and exploration, they have a track record of success and the federal government should withdraw its regulatory schema for economic zone drilling and put that in the hands of the coastal States as well.  Pipelines that cross international borders only need Nation to Nation agreement on the crossing and the internal apparatus of each Nation in Provinces and States be allowed to find the best routing solution for them.  As the Nation needs refining capacity (we are now exporting crude oil for refining) the States should serve as the focus for this local concern, as well, and perhaps provide federal land that is too contaminated to be used for much of anything to the project.  In short the federal government really can demonstrate trust by removing regulations and supporting States and the people to figure it out for themselves.

In short removal of regulations for labor, environment and agriculture, along with a host of others for education, energy and land use, puts the most capable and local of government in control of their own destiny.  Yes there will be those who don't do so well, better a few fail and we garner good examples from others, than to fail everyone by doing nothing or doing a little poorly or not well by fiat from the federal government.  Getting prosperity back requires these things and a comprehensible tax code.  As I pointed out previously to this article, exemptions must be eliminated as tax rates are lowered to get a net tax rate that is lower than the purported rate, but is closer to the rate already paid with exemptions and other write-offs.  The entire set of write-offs can be eliminated to get a flat tax, payable by all who earn income of any sort, with only some lowering of rates below the poverty line so as to lessen the impact on the poor so that their amount steps up towards the norm for those above the poverty line as they make more.  This is equality of the tax code and puts citizens into the drivers seat by not collecting taxes by having businesses do it, but by those who vote understanding the direct cost of what they vote for once per year.  This would also mean rolling in separate taxation for 'entitlements' (like FICA for Social Security) and removing them as separate line items, which simplifies the tax code.  Former Soviet States like Latvia, Lithuania, Estonia, Albania, Russia and others have all concentrated on this as it eliminates tax avoidance and puts a stronger assurance on compliance and a better feel for revenue over time.  An assured revenue stream is mandatory for paying down debt obligations.

Now as I am not a set-size pie person, the way to remove debt is to make more in hard currency: produce more wealth.  Remove the wealth reducers in regulation, tax policy and other bureaucratic overhead is necessary and often results in economic expansion with diminished boom and bust cycle depth as artificial causes of bubbles from government disappear.  You still get such cycles, but that is because of increased technical capability removing older industries and that takes a hard change-over as expectations for existing industries go down and new ones arise.  Creative destruction is for the betterment of all mankind, to produce more worthwhile goods at a lower cost so that more people can afford them to lead better lives.  Luckily, this is a very profitable endeavor and can't be done without the profit motive to do more and gain more for any given produced unit of an item or service.  Thus the future must be examined for what it brings.

Until we get to quantum computing we will see an expansion and filling-in of the now old cyber structure of the digital age.  With hard physical limits for silicon and reduction in circuit size now being reached the realms of nanotech, quantum tech and biotech will all serve as future platforms for expansion and they are in their most nascent stages of development at this time.  Even awaiting those areas (and the new companies and industries that will make them) the older technology for personalizing computing and laboratories will create labs on a chip for home medical diagnostics when, coupled with expert systems, will expand and reduce the cost of everyday medical care.  Put robotics in with that and you get Larry Niven's autodoc, where you step into a booth or lay down on a bed with automatic scanners and medical tools to do everything from examine your daily health to stabilizing the condition of someone who has been in a horrific accident, perhaps with some surgical needs addressed immediately and specialists on-line to deal with the worst that can happen to an individual.  This will remove Medicare, Medicaid, and even medical insurance once done and the technology is starting to be integrated today to put scanners together with expert system software.  Autonomous robotics is also advancing and when applied to medicine and surgery, the cost of everyday care and even minor surgical procedures will drop as they become mass-customizable by technology.

I have already addressed schooling and the manual arts, and these, too, will be augmented by low cost computing platforms that are autonomous or semi-autonomous.  Because our structures are not designed for automated maintenance, there will always be a requirement for manual labor to repair existing infrastructure until we can adapt technology to it or supersede it with better ways of doing things.  If you do construction in New York City you must deal not only with modern pipes, power cables, conduit, etc. but those left by previous utilities dating back to the 1840's if not earlier, and that is not something that robotics or autonomous systems will handle well for some decades yet.

Returning to space for commercial activity is already on the drawing board, and going back to the moon to exploit its resources (mostly for space use and for those items that can only be made in micro or zero gravity) may start out with remotely operated vehicles or semi-autonomous vehicles, but will require some amount of direct human oversight at some point in time.  A minor asteroid brought into Earth orbit (or Lunar orbit come to that) can be easily rendered into separate elements by the process of solar mirror melting.  Put a bore hole into the interior, deploy a few square kilometers of thin film reflector to concentrate sunlight into the center of an asteroid and perhaps a thin film enclosure to capture escaping gasses and just let nature take its course.  When thoroughly melted the micro gravity will separate out the elements and then when it cools you get concentric shells of denser and denser elements presorted by atomic mass.  Other methods can be used to remove hot melt by layer and re-melt layers so that they are more easily dealt with when solid removal can't be done quickly or efficiently.  An asteroid of just a few hundred tons might yield a ton of gold or silver, and many more tons of iron, cobalt, nickel and copper.  Essentially the same can be done on the moon, as well.  In all, expansion of an economy when done on this scale is no longer that of a Nation State as we now know it, yet the basic economics never changes and no matter how much money comes into a government, it always seems to expand to absorb more and more of it.

For all the good news to come about, it is up to the citizen to put government on the strictest of diets and boil our social questions out for open and frank discussion.  The morality of taxing the unborn to pay for the current elderly and sick is one that does need to be in the open as the deceitful discussion led over the prior century has attempted to sugar coat something that no one in their right mind would agree to.  It is up to each of us to learn how to deal with the things life hands us for good and ill.  I've made no plans based on: Social Security, Medicare, Medicaid, or any other 'entitlement'.  They will not last forever no matter HOW MUCH MONEY the government gets because any government that sees fit to remove liberty for this cause will do so for ANYTHING and then use its removal as a club against free men.  That money is gone and overspent many-fold, and isn't coming back, isn't in a 'lockbox' and treats our children and grandchildren as our ATMs.  We have garnered much material wealth and a bit of better health with that, and if we must do without we now have that as a cushion to fall back on when we realize that government is not a guarantor of retirement, health care or any other thing. 

We are.

As individuals and in our cooperation with each other to create accountable systems that meet our needs outside of government.

That is why we seek to have a just government that can uphold contracts amongst us, and understand that it must guarantee that system while we understand that often our best impulses come to the worst ends via government.  Our essential duty is to learn this and teach it to our children: free men take their lives into their own hands for good and ill and we also must create the means to catch those who fail in this.  That is not the task nor role of our government, to be positive to us, but to simply uphold the just means so that we can achieve the good things that create a strong society and a free population.  When we do wrong, even for the best of reasons, we admit to it, mend our ways and pay off our debts and NEVER burden others with this especially those who have NO SAY IN IT.  Which is our children and grand-children.  If we are far on the side of lax morals now, we can always straighten up, take our lumps, admit our humility and uphold our duty and right to pay off our debts and stop doing the asinine things we currently do with such good words that belie such ill outcomes.

We are can create that future and get out of this fiscal hole by forcing our government to stop trying to provide an easy life that none can afford.

Life isn't worth living because it is easy.  No it is death, death is equal to all and easily found at all times across all classes of society and respects none.

No, life is hard to fight for, hard to keep, hard to maintain and must be all those things so that we can create a better world for all mankind to enjoy the fruits of their life.  And not have it picked from them by government to go begging for the rind of the fruit while government sucks the succulent flesh from it.

It is for these reasons I vote.

I am happy to vote, but it is too important a task to not take as an earnest duty and obligation to my fellow citizens so we may all be free from government's tender mercies.

No comments: