Tag Archives: entitlement spending

The Daily View: ‘Longest Depression’, Basic Income, Pinterest

From Huffingtonpost: Future Economists Will Probably Call This Decade the ‘Longest Depression’

Sounds like goalpost moving, where slightly mediocre growth becomes a ‘depression’.

The 2008 recession, while deep and sudden, was narrow, only lasting about 16 months until growth picked up, where it has remained. Hardly a decade.

Also, the authors seem to be cherry picking the bad data (weak wage growth, China, shrinking labor force) and ignoring the good data such as exports, consumer spending, robust S&P 500 profits & earnings, technological innovation, stock market & real estate gains, etc.

Even China is not settled. It’s too early to say there is actually a mess. There is evidence maybe growth is glowing, but it’s far too early to call it a catastrophe, even though the doom and gloom media has been calling it one for the past year. The debate is over 7% GDP growth vs. 5.5%.

Yeah, if you pick the absolutely worst data out of all of the metrics, the economy is going to look worse than it really is. That’s why averages are so important.

From Why America is Not in Decline

Right now, we’re in a Goldilocks economy of modest growth, no stagnation, tame inflation, and no meaningful economic headwinds. Some pundits like Summers and Krugman bemoan how America’s economic growth is too anemic, especially compared to the 40′s and 50′s, and that its best days are behind it, but as I show here and in the graph below, US GDP growth has broken from the pack, since 2008 exceeding pretty much all g-20 nations. Yeah, 2-3% GDP growth ain’t great, but compared to pretty much everywhere else that has either no growth (Japan, UK, France) or high-inflation growth (Turkey, India, Brazil) – it’s pretty good.

And that is especially impressive for an economy as large as America. We’re never going to get back to 40′s era growth, and that’s fine. Law of large numbers and diminishing returns. It’s harder to grow an economy that is 5x larger at the rate it was growing when it was 5x smaller.
Post-2008 GDP growth is pretty much back to the historical average, or at least back to where it was in the late 90′s and 2000′s. Not hyper-speed growth, but certainty not recessionary.

Recent real GDP doesn’t deviate too much from historical performance:

Real US GDP growth is roughly back to where it was between 1997-2007, and no one was complaining about stagnation back then. It seems like the terms ‘depression’ and ‘recession’ have now been redefined by the left to mean ‘economy is not how we want it to be’ – too much wealth inequality and not enough job creation.

Inevitably, the UBI (universal basic income) comes up in any online economics debate. The UBI is a bad idea that refuses to die. When you consider SNAP is being abused to buy drugs, cigarettes, and alcohol, It’s implausible how a UBI without preconditions could work, which is why I propose the high-IQ basic income – or at least drug testing and or mandatory birth control/abstinence or even sterilization, to prevent further abuse of these programs. As to be expected, civil libertarian and other leftist types play the ‘Nazi’ or ‘racism’ card, but when your lifestyle involves public goods and or has externalities, your personal freedom becomes secondary.

EBT Cards Used in Illegal Drug Trade

Attorneys in the case say that the EBT cards are “a common currency for drugs.” The problem according to Sam Adolphsen, chief operating officer for the Maine Department of Health and Human Services, is that “the state cannot deactivate benefits regardless of how many times recipients lose their cards or say they are stolen.”

At FGA we have cataloged plenty of examples of the fraud that plagues America’s welfare system. The use of taxpayer assistance for the purchase of illegal drugs is possibly one of the worst abuses we’ve seen. Unfortunately, “the two crimes increasingly intersect.”
Adolphsen mentioned that “the presence of EBT cards in drug busts has become so commonplace that welfare fraud investigators at DHHS now regularly check the arrest logs in local newspapers for drug crimes and cross-reference suspects to see if they are also receiving state welfare benefits.” When agents from the Maine Drug Enforcement Agency find these cards, “they report that fact back to DHHS so the fraud unit can investigate.”

Entitlement spending is so high that it almost acts like a UBI.

The lowest quintile of households have a negative effective tax rate:

Some estimates are that a UBI would cost $3 trillion vs. $860 billion for social security. But the problem is existing entitlement spending programs won’t just go away with the ratification of a UBI. If people squander their UBI on non-essentials, which is guaranteed to happen as we’ve seen with EBT abuse, the government will have to step in and provide those essential services as they are doing already. Proponents of the UBI make the charitable, unrealistic assumption that the average American is as careful with money as they are. A UBI without preconditions would just compound existing entitlement spending.

From Businessinsider: Insiders say what’s going on inside $11 billion Pinterest — and it’s not all good

Businessinsider is a notorious click-bait aggregator, spinning minutia into hype and ad impressions.

Reminds be of the Uber California court case they hyped last year, that predictably didn’t go anywhere. Businessinsider incorrectly reported that the ruling would affect all California drivers:

It’s left to Judge Edward Chen to decide whether California Uber drivers will be covered by a federal class-action lawsuit that threatens to reclassify the entire state’s Uber-driver workforce as employees of the company.

Even though the judge ruled the driver was an employee, nothing really came of it, as I correctly predicted. The reason is because the ruling only affected the one employee, and Uber has prevailed over similar lawsuits before. Just another example of this blog being right more often than not.

The ruling does not apply beyond Ms. Berwick and could be altered if Uber’s appeal succeeds. Uber has also prevailed in at least five other states in keeping its definition of drivers as independent contractors.

That was seven months ago and Uber didn’t die, much to the disappointment of the left.

Some people so badly want for this to be 2000 all over again they they have to make things up. They have to turn molehills into mountains.

Back to the Pinterest article:

The visual scrapbook platform should be printing money. Its predominantly female audience browses Pinterest’s various boards for inspiration about their next fashion purchases, vacation destination, or on how to decorate a house — and they also act as free brand representatives by “pinning” their favorite products, making them visible to others.

It may come as a surprise to some, but making money is not important. That’s why so many people lost their shirts shorting the ‘unprofitable‘ Amazon.com

Rather, it’s the the demonstrated ability to make money, which is more important. Should the time come to turn on the advertising money printing press, Pinterest and Snapchat, like Facebook, should have no difficulty making money. There’s already a huge line of advertisers ready to plow hundreds of millions of dollars into Pinterest ads. Investors are patient, knowing that Pinterest will start printing money when the time is right. But right now, Pinterest is still building the userbase and perfecting their ad platform. Like Facebook, Pinterest’s profit margins will be extremely high, and it would not surprise me if this company is worth $50 billion soon. But right now, Pinterest, like many web successful web 2.0 companies, is more interested in taking its time to build positive user and advertiser experience, than milking every user for every last dime.

Addresing the Problem of Entitlement Spending

With few exceptions, risk-taking, being smart, hard-work, and creativity is a path to prosperity in today’s super-competitive economy and unbridled plutolatry, more so than any prior decade. Stocks will keep going up and people will keep getting richer than ever even if many, on a personal level, are unable to participate in the economic recovery. There are record valuations for 2-3 year old tech companies, record high S&P 500, and record foodstamp rolls.

The question that inevitably arises when discussing the trend low labor force participation and the welfare of our economy ,is what fate will befall the millions that are permanently left behind, unable to thrive in the smartist era? But perhaps a more pragmatic question is, what should we do to solve the underlying problem, besides to keep throwing money at it? There exist substantial welfare programs for these underachievers in the form of medicare, free emergency room treatment, social security, disability and food stamps – to name a few, but is it fair to foist upon the productive members of society the burden of those who don’t contribute, especially as entitlement spending is obviously out of control? At some point, enough is enough.

To account for population growth, we see the proportion of citizens on benefits is rising:

By 2050, U.S. population is expected to swell to 500 million. Extrapolating future trends from the past, that could mean 200-300 million Americans will be on some sort of federal welfare, possibly more as jobs become increasingly technical and ordinary Americans are unable to meet the cognitive demands of employment.

The typical liberal solution is to enlarge the welfare state. Other solutions include more spending on education and job training, but then we run into the IQ gap; as technology keeps advancing and lower-skilled work becomes automated, the minium intelligence required to perform entry level work will keep rising.

There’s a positive correlation between SAT and IQ scores and income; thus, differences in economic outcomes can be attributable to IQ, which numerous studies suggest is herretible. From Wikipedia:

Various studies have found the heritability of IQ to be between 0.7 and 0.8 in adults and 0.45 in childhood in the United States.[4][7][15] It may seem reasonable to expect that genetic influences on traits like IQ should become less important as one gains experiences with age. However, that the opposite occurs is well documented. Heritability measures in infancy are as low as 0.2, around 0.4 in middle childhood, and as high as 0.8 in adulthood.[8][16] One proposed explanation is that people with different genes tend to seek out different environments that reinforce the effects of those genes.[7]

A 1994 review in Behavior Genetics based on identical/fraternal twin studies found that heritability is as high as 0.80 in general cognitive ability but it also varies based on the trait, with .60 for verbal tests, .50 for spatial and speed-of-processing tests, and only .40 for memory tests.[4]

In 2006, The New York Times Magazine listed about three quarters as a figure held by the majority of studies,[17] while a 2004 meta-analysis of reports in Current Directions in Psychological Science gave an overall estimate of around .85 for 18-year-olds and older.[8]

The liberal approach of throwing money at the problem is wrong for a couple reason: it doesn’t address the growing population of welfare recipients; in fact, it encourages more people to go on welfare; secondly, it fails to address the role of IQ in the acquisition of skills. No amount of money spend on education, training, and job programs will help if those whom it is intended for are not smart enough to benefit. Furthermore, welfare spending has only continued to grow, despite efforts such as 1964 War on Poverty, Reagan’s 1981 attempts to slash welfare, and Clinton’s 1996 welfare reform:

This means our current approach to poverty is ineffective. Steven Pinker eloquently summaries the flaws of the ‘blank slate’ approach to wealth inequality and poverty:

“By far the dominant cultural syndrome is that children are blank slates and that culture and parenting inscribe it,” and he noted that concept’s own acceptance in the cultural mainstream. “You’ll read hundreds of articles on economic inequality in the Times, the New Yorker, and so on, and never will there be even a mention of the possibility that smarter, more ambitious, or more disciplined people might be more successful.”

Due to the heritability of IQ and possibly other traits such as ambition and discipline, perhaps eugenics could reduce future poverty and future entitlement spending through the promotion of higher reproduction of people with desired a high-IQ (positive eugenics), and reduced reproduction of people with a lower-IQ (negative eugenics).

Unfortunately among academics and the media, the discussion of race and IQ has been relegated to the fringe, let alone any discussion of policy that incorporates elements of biological/genetic determinism. As quoted by Andrew Sullivan:

It’s been strangled by p.c. egalitarianism. The reason is the resilience of racial differences in IQ in the data, perhaps most definitively proven by UC Berkeley psychologist Arthur Jensen:…

The right response to unsettling data is to probe, experiment and attempt to disprove them – not to run away in racial panic. But the deeper problem is that the racial aspects of IQ have prevented non-racial research into intelligence, and how best to encourage, study and understand it.

Denial of biological determinism and IQ has stultified research that could help solve the very economic problems the left insists are urgent.