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An intangible asset is a claim to future benefits that does not have a physical or financial (a stock or a bond) embodiment. A patent, a brand, and a unique organizational structure that generate cost savings are intangible assets... Innovations are created primarily by investment in intangibles.
—Baruch Lev, Intangibles
Republicans and conservatives, led by Jeff Sessions (not Pete; sorry) of Alabama, publicly celebrated the defeat of the immigration bill on the talk-show circuit yesterday. Simultaneously, politically-savvy Democrats privately and gleefully celebrated the coming dawn of Democrat control of all three branches of government, as far as the eye can see into the future—which, because of the bill's defeat, is now all but certain to begin on January 20, 2009.
It's not as if nobody tried to warn the Republicans.
"If the Republicans kill the [immigration] bill, driven by their own irreconcilable base, they will leave it to the next president — very probably a Democrat — and two Democratic houses of Congress to pass the liberating legislation. The GOP will have delivered the largest minority group in America right into the hands of its adversaries," said Dick Morris in his May 23 column.
One poll (USA Today) is already confirming that prediction.
My considered opinion
Yes, I've listened to the arguments on each of the major points. Yes, the bill was imperfect. Yes, it provided for getting control of the border. No, it didn't provide for grabbing twelve million people by the scruff of the neck and jailing or deporting them forever—for breaking our broken, unenforceable immigration law. Yes, anything short of permanent deportation of twelve million illegals was quickly labeled "amnesty."
Did anyone in the passionate Republican base—Tom Tancredo, maybe(?)—run the numbers on the resources it would take to locate, grab, process, and deport twelve million illegals? I did a crude calculation using some absurdly conservative assumptions: if the entire roundup-and-deport system were extremely efficient, it would take 10.7 million agent-hours, and 240,000 full busloads to "get rid" of twelve million illegal aliens (...a majority of whom entered legally, then overstayed their visas, a pathway no border fence would fix).
The following graphic contains the extremely crude assumptions I used for the estimates above. Maybe this would help the Republican base get started putting some real numbers on the resources it would take for the only system that could avoid getting slapped with their dreaded label of "amnesty":
If anyone would care to suggest improvements to the calculations or assumptions, please submit a comment.
Just in case I'm being unclear: I think the Republican base, by letting emotion overwhelm common sense, may have turned the Republican party into a permanent minority. Please do not get me wrong: I am in complete agreement with (a) shutting down the flow of illegal immigrants; (b) finding out who is here illegally now; and (c) doing something significant and serious about changing their status. I am also in complete agreement with greatly increasing our broken immigration system's ability to process would-be legal immigrants, to keep out the undesirable ones, to let far more of the desirable ones in, and to enforce the (new?) rules afterwards.
However, I am agape at the incredible naivete behind the emotional "no-amnesty" thought process. Not only is it naive from a practical standpoint, it is especially naive from a political standpoint.
At this blog, I mostly talk about the overwhelming importance of economic growth. I have also said, many times, that "politics trumps economics." Today, I'm afraid that the Republican party (whose policies I still think are most likely to maximize our grandchildren's economic well-being) has possibly committed one of the gravest political blunders in history. I hope I'm wrong, but the evidence is mounting against that hope.
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End note:
I've written on this topic several times before. My position hasn't changed, although I've now revised downward my estimate of how much good it does for me to write about it. The political emotions obviously overwhelm the economic implications, as evidenced by the gleeful Republican base and conservative talk-show hosts I heard yesterday.
Here are two of the articles I wrote last year:
- Immigration policy: Solving half the problem is no solution
- Tancredo’s immigration stance
Lastly, and importantly:
This is an emotional subject; many of the frequent commenters here probably disagree with me. That's okay, let's hear where you think I'm missing the boat.
First quarter GDP was revised upward (slightly), due largely to an upward revision of corporate profits. Not many surprises, and this is the final iteration on the dull first quarter results. Brian Wesbury has published his commentary at this page; go read it, as I do every month. Here's the usual chart.
I'm looking forward to next month's first estimate of second quarter '07, which should be back in the range of 3%-4% real growth.
The trade-weighted dollar is still a little off its 37-year peak, but still strong compared to most of that time period, as shown in the chart below (the data for which was borrowed from the St. Louis Fed).
Click to enlarge:
A lot of people had been upset that China had their currency pegged to the dollar, but as I was browsing around the currency charts, I saw that they are continuing to ease up on it. Also during that currency-browsing session, I found another curiosity: an entire continent pegged to the dollar, and threatening to keep it pegged all the way through 2012. It might be time for Congress to put up some trade barriers if these folks refuse to play fair. To see their currency, and their pledge to keep it pegged, click on the following thumbnail:
I just finished this excellent book by Neil DeGrasse Tyson (Director of the Hayden Planetarium). If you enjoy science in plain talk, he's one of the best ever at that. For me his book was a good update on what's been happening in the universe since last time I checked, and a very good escape—until I read a chapter near the end that struck a nerve by taking me back to an unpleasant event in 1993.
Tyson started chapter 37 ("Footprints in the Sands of Science") by expounding on America's track record of scientific leadership in the 20th century:
Snobby people from other countries like to make fun of the U.S. for its abbreviated history and its uncouth culture, particularly compared with the millennial legacies of Europe, Africa, and Asia. But 500 years from now historians will surely see the twentieth century as the American century—the one in which American discoveries in science and technology rank high among the world's list of treasured achievements.
So far so good; but then at the end of the chapter, he reminded me of the 1993 event that put a huge, permanent dent in my opinion of politicians' ability to see into the future beyond the political implications of the current year's fiscal budget. In my opinion, the event in question should go down as one of the most embarrassing, short-sighted blunders in the history of the House of Representatives. Tyson described it well:
Ever-larger [particle] accelerators reach ever-higher energies, probing the fast-receding boundary between what is known and unknown about the universe... In the 1980s, when U.S. physicists proposed just such an accelerator (eventually dubbed the Superconducting Super Collider), Congress was ready to fund it. The U.S. Department of Energy was ready to oversee it. Plans were drawn up. Construction began. A circular tunnel 50 miles around (the size of the Washington, DC, beltway) was dug in Texas... But in 1993, when cost overruns looked intractable, a fiscally frustrated Congress permanently withdrew funds for the $11 billion project. It probably never occurred to our elected representatives that by canceling the Super Collider they surrendered America's primacy in experimental particle physics.
If you want to see the next frontier, hop a plane to Europe.
There, in Geneva, Switzerland, you'll see the Large Hadron Collider, scheduled to begin operations this year, in 2007—fourteen years after the U.S. House of Representatives decided we "couldn't afford" to remain on the frontier of discovery. To see what the Europeans have built (the largest machine ever), see this article and this website.
Tyson finished the chapter with this:
Although some U.S. physicists are collaborators, America as a nation will watch the effort from afar, just as so many nations have done before.
In other words, not only did the House effectively vote to export 9,000 jobs, it also voted to export our science and technological leadership in the field. (Ironically, many of the politicians who killed the Super Collider in 1993 are the same ones today making political hay accusing opponents of "exporting jobs.")
It incensed me in 1993, and it strikes a nerve every time I'm reminded of it. Click on the following thumbnail to see the definitive statement of how we "completed" the project: 
So, I decided to post a little trip down memory lane: the list of House members in 1993 who voted to kill the Super Collider because we "couldn't afford it." You can find the final roll call at this page, and a description of the debate at note 269 at this page, but here's a table showing the Democrats and Republicans who voted it down.
When will we ever learn that it's not the money, it's what we get for the money? Maybe never, I guess. If I ever bump into Nancy Pelosi, or anyone else on the list, I'll ask what they did with the money we "saved" ... and I bet Neil DeGrasse Tyson would be interested to hear the answer.
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End note:
For my friends who are small-government advocates, who might be thinking that supercolliders don't belong in the federal budget: Adam Smith said the sovereign's duties include defense, justice, infrastructure, education, and a stable currency. The supercollider would have been infrastructure for pushing the frontier of science and technology, sooner or later leading to paradigm shifts in the practical world (if history is a guide). Would a breakthrough in energy generation or storage have resulted sooner? We'll never know, because our private sector could never have afforded to take on the project. Now we'll just have to see what they start coming up with in Geneva.
Also, regarding the table above: It is possible that a small number of the names in yellow (today's representatives matching names who voted down the Super Collider in 1993) are not actually the same persons. I couldn't find a way to match first names and states across that 14-year timespan. If there are any such errors, they are entirely my responsibility. If you spot any, please notify me.
Unfortunately, many people, and even societies (e.g., the Russians) care more for being better off than their neighbors than they care for their absolute level of wealth. That is, many people, if given the choice between (a) both you and your neighbor get ten thousand dollars, or (b) you lose five thousand dollars and your neighbor loses twenty thousand dollars, they perversely choose (b).
—Dr. Rick Boettger
How many times have I heard that economically unimportant, politically loaded question? A hundred I bet. And how often do the tax cut's supporters botch the answer? Approximately nine times out of nine.
If I were confronted with that loaded question, here's how the Q&A would go...
Q: Did the tax cuts pay for themselves?
A: In the short run, who the hell cares? Aren't we supposed to be more concerned with our grandchildren in the long run?
If the tax cut's supporters don't start getting the answer right, our grandchildren's generation will pay the consequences. Tax-cut opponents are concerned primarily about winning the next election (...remember, our grandchildren can't vote yet); the tax-hikers know how to ask the trick question, and especially how to throw the knockout punch after the answer is botched as usual.
Senator John McCain is the latest to botch the answer, and that mistake got him top billing recently at FactCheck.org, in an article titled "Supply-side Spin"; here's the article's tagline:
Sen. John McCain has said President Bush's tax cuts have increased federal revenues. But revenues would have been even higher without them.
Carefully reread that last sentence. Here's what it means: "Tax revenues today would have been higher without the tax cuts." Importantly, here's what it does NOT mean: "Tax revenues now and forever would have been higher without the tax cuts."
To illustrate why that subtle difference is so important, here's a two-part brain teaser...
Part 1: Which economy would yield higher tax revenues when our grandchildren's generation takes over fifty years from now: (a) a $75 trillion economy; or (b) a $96 trillion economy?
Part 2: Which taxation policy is more likely to enable the private sector to grow the economy the extra half-point per year it would take to achieve a $96 trillion economy for our grandchildren: (a) today's lower tax rates; or (b) yesterday's higher tax rates?
Obviously, the missing but all-important factor in the trick question is long-run economic growth. The $96 trillion economy fifty years from now would result from an extra one half of one percent growth. Although it's true that tax rate cuts always reduce tax revenue in the short run, tax rate cuts set up private-sector incentives for boosting the economy's growth rate, which grows the tax base, which increases tax revenues in the long run. If the tax cut hasn't "paid for itself" yet, it's because the long run hasn't arrived yet; i.e., it's because we haven't given compound growth long enough for its magic to become visible yet. [For a few charts depicting those effects, see The Curse of the Free-Lunch Bunch.]
I'm sure that Rudy Giuliani, Fred Thompson, and Mitt Romney get it, and I think John McCain gets it, too, because his campaign aide had the right answer, and I presume he listens to his aides. I just wish they'd all practice the right answer to the trick question before it comes at them again.
[Indeed, I'd like to be able to say I think the Democrats get the growth idea, too. But given their anti-growth tax-hiking rhetoric, that would imply I think they're dishonest schemers—so for now I'll just say I think they don't get it. In other words, I think ignorance is a more likely explanation than dishonesty. I reserve the right to modify that assessment as the campaign unfolds, however.]
In summary, here's the wrong way and right way to address the tax cut issue...
Wrong way (what McCain said mistakenly, because although it may be true, it is arguable):
"...the fact is the tax cuts have dramatically increased revenues."
Right way (what he should have said, because it is unarguable):
"...the fact is that tax rate cuts not only end recessions sooner, but they also help to boost growth, which dramatically increases tax revenues in the long run -- just what our grandchildren will need when they take over."
Did the tax cuts pay for themselves? My answer is more concise: "In the short run, who the hell cares?". No wonder I'm not a politician.
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End note:
Some people think that tax rate cuts and tax rate hikes have no effect on economic growth; in other words, that people do not respond to incentives or disincentives in the taxation system. I think that hypothesis belongs under the heading "wishful thinking," and I strongly suspect it is driven by hidden political agendas rather than rational thought. In short, it's balderdash.
It's been a year since I posted this snapshot of how various countries rank on the debt scale, according to the CIA World Factbook, so it's time for a refresh.
This is usually a pleasant surprise to anyone who's been hearing about the USA's "crushing" debt burden from people who don't place it into proper context. And it's usually an unpleasant surprise to those who like to use fear of debt as a political lever, and therefore intentionally refrain from placing into context.
Although the USA's "total" national debt is 66.3% GDP (see note 1 on the graphic; it's based on the "$9 trillion debt" that always appears in the headlines), the more important number is the publicly held debt level of 37.5% GDP (see note 2), for reasons I've explained many times at this blog. 
After WW-2, publicly held debt was 121% GDP; although the debt level has increased many times over since then, the debt ratio has dropped to 37.5% because of sixty years of economic growth.
By the way, I haven't found anyone yet who can justify an estimate as to how high that ratio could go before the markets would start giving unmistakable negative signals, and that includes me. At least we know that our current debt level is perceived favorably, because interest rates, inflation rates, and exchange rates are remaining steady in safe territory. I've always wondered if a ratio of 150% or more might be a tipping point (still lower than Japan's)—but am not sure I want to find out empirically. I do think 40%-80% would be a good target for objective, long-term fiscal policy—even though I have no argument as to why 80% should be a ceiling, and little hope of finding objectivity in the fiscal policy debate, especially in an election year.
In any case, the USA appears to be in very safe territory—especially considering that the outstanding public debt is denominated in US dollars.
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End note:
The data came from the CIA World Factbook's Public Debt Ranking page.
If you have questions about any of the numbers, especially Canada's number (which is always controversial for some reason), please take it up with the CIA Factbook folks. Last year I tried several times, with no success; maybe you'll have better luck than I did.
Mr. Wizard (Don Herbert) died Saturday. I remember looking forward to every one of his shows, starting in the late '50s when I was a kid. He taught a lot of us baby boomers how to think, by making it engaging and fun.
Everyone I know has a short list of teachers they'll never forget, mostly for that very reason. Mine includes Mr. Brammel (shop), Mr. Miller (math), Mrs. Bowman (English), Miss Norris (math), Mr. Maiers (math), Prof. Charlie Brown (thermo), and the only one I never met in person, Mr. Wizard (science). I guess it's no coincidence that my favorite pastimes today are woodworking, writing, and science. Funny how that works, isn't it?
Goodbye Mr. Wizard; thanks for molding this mind into a better shape.
How about this: A government project, conceived in the private sector and funded by the private sector, to improve the quality of government services. Reason: Success would mean big efficiency gains for the private sector. (You don't find many government projects like that, so this deserves some fanfare.)
Today (6/18/2007) the government is announcing an experiment to improve its patent process, which has recently been less than perfect, especially in the software arena. The new process is a cousin of the Wikipedia idea, because it invites anyone to come to the new website and help with the discovery of prior art.
This has been getting some notice in the mainstream press recently: Here are links to a Washington Post article, and a New York Times article.
And here's a link to the new site: PeerToPatent.org
One of the project's experts (see end note) had this to say about it:
...the main purpose of the site is to allow anyone to submit "prior art" (and discuss it, and research it, etc). The real challenge - now and ongoing - is to sort out the wheat from the chaff, to find the genuinely useful prior art. That's a hard problem and one that, for example Wikipedia took years to figure out.
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End note:
Pivotal Labs is making this happen, and the project expert I quoted above is Steve Conover, Jr. Yes, he's my son. It helps a lot when I have inside contacts like that.
