Category Archives: General

Windowpanes, Pencils, and Paperclips

A few days ago I wrote something on facebook that bears repeating here:

A comprehensive understanding of the pencil problem, combined with a thorough understanding of the broken window fallacy (and its inputs and corollaries… Hazlitt for example), makes a pretty good inoculant against socioeconomic lies and stupidities.

Although they are implied by the conditions above, perhaps one should also specifically reference the scale and complexity problems, the perfect information fallacy, the perfect man fallacy, and the law of unintended consequences…

Some of our readers may be unfamiliar with the pencil problem.

In comments, the novelist Ryk Spoor provided a decent explanation, which I’m going to paraphrase here, with my own edits and revisions (and the addition of the last bit, about planning and control):

No one man, can make a pencil, or at least a pencil which could be sold economically.
In general terms, the pencil problem, is that even simplest and most common objects in our civilization generally require an immense number of people and inputs; to not merely build, but manufacture and sell in sufficient numbers, to make it worthwhile to build them cheaply (or at least so that they can be sold economically).

The applies to everything from cars and computers, to pencils, to paperclips.

If you wanted ONE paperclip, it would be an epic undertaking, from locating the appropriate ores, refining them, turning them into steel, figuring out how to draw the steel into the appropriate size of wire, and then finally producing the paperclip from that wire. The amount of effort involved in it would be months of your labor, assuming you had the talent and resources to do it at all.

Instead, you go to a store and buy a 100ct box of them for a dollar; or even at minimum wage, a few minutes of your time for a hundred of the things.

Multiply that by all the different types of goods and services in a modern civilized society, and it starts to become clear just how many people, in how many different specialties, with how much infrastructure, are needed to keep everything running.

Given that scale and complexity, it should also be clear how impossible it would be to plan, control, and manage, anything approaching a national economy or infrastructure centrally; or in fact in any way other than as devolved and decentralized as possible.

The original statement of the problem in this way came from an essay by Milton Friedman (which was a restatement of an earlier essay, “I, Pencil” from Leonard Read, which was a restatement of Hazlitt, which was a restatement of Bastiat and back down the chain).

A video of Friedman explaining the problem:

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

The problem with “Wouldn’t it be…” and “Wasn’t it…”

Progressive ideas usually begin with:

“Wouldn’t it be great if…” (progressives are generally theorists)

Ok, right there with you so far…

Conservative ideas usually begin with:

“Wasn’t it great when…” (conservatives are generally empiricists)

Yup, that works for me too…

The complication is the next step, taken by both progressives and conservatives:

“Since that would be great, it is our moral obligation, to use the force of government to MAKE it that way”

… and that’s where we part ways.

The problem, is that I believe I have no moral right to force MY personal beliefs, preferences, or ideas on anyone else (no matter how “great” or “right” they may be).

I also believe that we have a moral obligation to use the force of government as little as possible (even if doing so may be “for the greater good”).

Of course, that’s where the kicker hits, from both left and right…

“Since you oppose something which is great, and which is a moral obligation, you must either be stupid, or evil”

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

Quote of the Day: MLK Day Edition

(Re-post)

Martin Luther King Jr.’s “I Have a Dream” speech is unquestionably one of the most famous speeches in American history. In listening to the speech today, I found the following passages that aren’t as often quoted to be some of the most powerful lines in the speech.

In a sense we have come to our nation’s capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness.

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked “insufficient funds.” But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. So we have come to cash this check — a check that will give us upon demand the riches of freedom and the security of justice.

America has come a long way since King delivered this speech. Racial and ethnic minorities have made great strides thanks to courageous individuals like King who made a stand for liberty and justice (and in King’s case, paid with his life) and we are all better off for it.

Here is the rest of the speech. Listen and be inspired.

Bye Bye 4th and 5th amendment: Obamacare info may be used for Law Enforcement and Audit activities

Well… we knew that the 4th and 5th amendment meant nothing to them… never mind HIPAA… but really?

 

Obamacare Marketplace: Personal Data Can Be Used For ‘Law Enforcement and Audit Activities’

Maryland’s Health Connection, the state’s Obamacare marketplace, has been plagued by delays in the first days of open enrollment. If users are able to endure long page-loading delays, they are presented with the website’s privacy policy, a ubiquitous fine-print feature on websites that often go unread. Nevertheless, users are asked to check off a box that they agree to the terms.

The policy contains many standard statements about information automatically collected regarding Internet browsers and IP addresses, temporary “cookies” used by the site, and website accessibility. However, at least two conditions may give some users pause before proceeding.

The first is regarding personal information submitted with an application for those users who follow through on the sign up process all the way to the end. The policy states that all information to help in applying for coverage and even for making a payment will be kept strictly confidential and only be used to carry out the function of the marketplace. There is, however, an exception: “[W]e may share information provided in your application with the appropriate authorities for law enforcement and audit activities.” Here is the entire paragraph from the policy the includes the exception [emphasis added]:

Should you decide to apply for health coverage through Maryland Health Connection, the information you supply in your application will be used to determine whether you are eligible for health and dental coverage offered through Maryland Health Connection and for insurance affordability programs. It also may be used to assist you in making a payment for the insurance plan you select, and for related automated reminders or other activities permitted by law. We will preserve the privacy of personal records and protect confidential or privileged information in full accordance with federal and State law. We will not sell your information to others. Any information that you provide to us in your application will be used only to carry out the functions of Maryland Health Connection. The only exception to this policy is that we may share information provided in your application with the appropriate authorities for law enforcement and audit activities.

The site does not specify if “appropriate authorities” refers only to state authorities or if it could include the federal government, as well. Neither is there any detail on what type of law enforcement and/or audit activities would justify the release of the personal information, or who exactly is authorized to make such a determination. An email to the Maryland Health Connection’s media contact seeking clarification has not yet been answered

The second privacy term that may prompt caution by users relates to email communications. The policy reads:

If you send us an e-mail, we use the information you send us to respond to your inquiry. E-mail correspondence may become a public record. As a public record, your correspondence could be disclosed to other parties upon their request in accordance with Maryland’s Public Information Act.

Since emails to the marketplace could conceivably involve private matters regarding finances, health history, and other sensitive issues, the fact that such information could be made part of the “public record” could prevent users from being as free with their information than they might otherwise be. However, as noted, any requests for such emails would still be subject to Maryland’s Public Information Act which contains certain exceptions to the disclosure rules.

Read the fine print eh?

 These are such clear 4th and 5th amendment violations I can’t believe anyone didn’t immediately say “uh guys… we cant actually do this”…

… but as I said, we know that our elected and selected “lords and masters” don’t give a damn about the 4th or 5th amendments (or really any of the others ones any time they become inconvenient).

So while I’m sure they were told they couldn’t do it, I’m sure they said “ahh well the disclaimer and release is enough, we’ll be fine”.

 Yeah no.

 And as far as HIPAA goes… In reality these terms of use are not anywhere near an adequate HIPAA disclosure release, so using any of this data in any manner other than for healthcare purposes would be a federal offense.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

The scope and scale of the fraud… and the misconception that allows it to continue and worsen

So, once again, telling people the truth about Social Security produces indignation, and the expression of common misconceptions… to wit:

“Hey wait a second. I paid into Social Security for 47 years. I’m just getting out that I paid in, and the return on my investment. It’s not my fault congress didn’t do what it was supposed to, and raided the trust fund”.

Actually, no, you’re not. Not even close.

The first thing is, as noted in the pieces “The Greatest Fraud in the History of the Human Race“, and “It isn’t, wasn’t, aint ever gonna be…“; there is no investment, no insurance, no pension, no annuity, and no “trust fund”.

The payments to current retirees are entirely and exclusively paid out of the taxes of current productive workers. Nothing else.

Further, retirees actually get far more out than they put in.

As of 2010, the average retired worker received $1180 per month, or $14,160 per year. This is, in theory properly inflation adjusted etc… So can be dealt with in constant dollar terms.

In constant dollars, the average individual salary has almost doubled over the working life of the current retiree, from somewhere around $13,000 (constant dollars remember) in 1963 to around $25,000 in 2010.

The FICA tax rate is currently 12.4%, currently split equally between the worker, and the employer. Meaning that the average annual FICA contribution is currently about $3100, $1550 by the employer, $1550 by the employee

That’s about 1/5th the amount paid out to the average retiree…

If we assume a 47 year working life (actually, the average is 39 years for women who work, and 44 years for men who work, with a national average of 37 years – including non-workers – but we’ll be generous), that would, presuming constant wages in constant dollars, mean a total contribution of about $146,000.

Against an 11 year average retirement, that would be about $13,200 a year… Only the average is actually $14,160, a difference of about $1000, or about 7%.

However, because constant dollar wages have actually almost doubled over the life of the average retiree (meaning that their FICA taxes were much lower for much of their working life; particularly prior to 1984) and because the average working life is approximately 44 years, not 47 years (for men who work… we’ll exclude women, as they didn’t make up a major percentage of the full time workforce until the 1980s), the actual numbers are much worse…

In constant dollar terms, given inflation (particularly the inflation that occurred from 1968-1984), and the current average lifespan after taking retirement of 11 years; the average social security recipient actually receives 2.7 times in benefits as they paid in (this is the SSA’s estimate).

This is primarily the result of inflation, and dramatically increased lifespan. Unfortunately, as no actual return earning investments have been made, it takes the increasing contributions from new and more productive workers, to keep paying down the current payments.

This tells the tale:

Total benefits paid, by year
Year – Beneficiaries – Dollars

1937 – 53,236 – $1,278,000
1938 – 213,670 – $10,478,000
1939 – 174,839 – $13,896,000
1940 – 222,488 – $35,000,000
1950 – 3,477,243 – $961,000,000
1960 – 14,844,589 – $11,245,000,000
1970 – 26,228,629 – $31,863,000,000
1980 – 35,584,955 – $120,511,000,000
1990 – 39,832,125 – $247,796,000,000
1995 – 43,387,259 – $332,553,000,000
1996 – 43,736,836 – $347,088,000,000
1997 – 43,971,086 – $361,970,000,000
1998 – 44,245,731 – $374,990,000,000
1999 – 44,595,624 – $385,768,000,000
2000 – 45,414,794 – $407,644,000,000
2001 – 45,877,506 – $431,949,000,000
2002 – 46,444,317 – $453,746,000,000
2003 – 47,038,486 – $470,778,000,000
2004 – 47,687,693 – $493,263,000,000
2005 – 48,434,436 – $520,748,000,000
2006 – 49,122,624 – $546,238,000,000
2007 – 49,864,838 – $584,939,000,000
2008 – 50,898,244 – $615,344,000,000

You can see that:

from 1950 to 1960, beneficiaries increased by a factor of 4.5, payments increased by a factor of 12
from 1960 to 1970, beneficiaries doubled, payments tripled
from 1970 to 1980, beneficiaries only increased by 30%, while payments increased by 400%
from 1980 to 1990, beneficiaries only increased by 11% while payments more than doubled.
from 1990 to 2000, beneficiaries increased by about 11%, payments increased by about 50%
from 2000 to 2010, beneficiaries increased by about 11%, payments increased by about 50%

These are reflective of the huge jump in expected lifespan between 1950 and 1990, and the massive inflation from 1968 to 1984.

We are about to hit another inflection point however. Or rather, we already have, it’s just not reflected in the numbers yet. In the 2000s, beneficiary growth slowed down, because the 1940s were a relatively low birth rate period for the U.S.

In 2007, the baby boomers started hitting minimum retirement age of 62. In 2010, they started hitting 65. The peak of the baby boom was from 1946 to 1959, where we maintained, on average, more than double our previous normal population growth year over year. This is combined with an expected increase in lifespan over previous generational co-horts of 3-7 years; and an increase in real income of almost 30% to 50% over previous cohorts.

So, the REAL fun, is the 10 years from 2010 to 2020… when instead of the typical 1 million or so additional beneficiaries, and 30 billion additional dollars in payments per year, we are expecting 2.5 million additional beneficiaries, and over 100 billion additional dollars in payments per year.

Then from 2020 to 2025, the increased slow down, to just 1.75 million additional beneficiaries… but still over 100 billion additional payouts.

Basically, we’re looking at increasing the beneficiary population by about 50%, and about tripling the annual payments, in the next 12 years.

This is happening, just as the earners in peak earning years fall off precipitously. From 1964 to 1975 the birth rate dropped by 30%, and has pretty stayed there ever since.

By 2025, we’re looking something like 75 million beneficiaries, and 2 trillion a year in payouts; against probably 125 million productive workers (this is accounting for population growth, as well as retirement growth).

That’s $16,000 per year, per productive worker.

Presuming todays average salary per productive worker of appx $25k with a real dollar increase of 3% annualized (the average over the past 100 years) over 12 years, you get appx $37k.

It would require a 45% payroll tax rate to cover that… Which is about 4 times what it currently is.

That’s JUST for social security, never mind all other taxes… and that’s a fairly optimistic growth rate for both worker population, and worker wages.

… and its obviously completely impossible.

We literally cannot tax our way out of this… We’d have to increase taxes to 100% of income… and then expect to actually get it (which we won’t. We’ve never been able to extract more than 22% of gdp for more than a few years even in WW2, and never more than 19% average over any rolling 10 year period); and it isn’t going to fixed by “modest reform”.

We are going to have to cut social security dramatically AND raise taxes dramatically… there is literally no other possibility.

Oh… and it gets worse for the following 11 years… well, that’s based on todays average survival after retirement… it’s estimated that average goes up by 4 years over the same time period… before it starts to get any better… and it’s not for 15 years after that, that retirements actually slow below the rate of worker increase…

… and then another 15… or given increasing lifespans probably 20 years at that point… before wages actually increase at a rate higher than retirement payouts.

Oh and the “trust fund”? Yeah, even if it actually existed, it would only be about 2.7 trillion… which is only about 4 years payments at current levels, and 2 years payments at expected future levels. So, even if the “trust fund’ hadn’t ever been raided, we’d STILL be in this situation.

So… it’s 2013… We’re already below zero, and if we don’t do anything to fix it, we’re basically hosed until about 2070.

And it isn’t because “you’re getting your fair share of what you put in”… You’re actually getting 2-3 times what you put in.

Well… for now anyway…

We’ve already run out of money… The question now is, what happens when we run out of debt, and excuses.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

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