Friday, December 11, 2009

Thoughts on What Can Go Right Long-term

Most of this blog is about what can go wrong. Upsides generally take care of themselves. After spending some time on the bike this morning, the windchill got to me, so, quite uncharacteristically, I started thinking about what can go right long-term.

There will be big things that go right, for sure. I just don't know what they are so I can speculate: this blog is free to read which should give you a reasonable estimate of my ideas' real worth.

Things that will go right, almost by definition, are ones that are going to happen without requirements, directives, management or supervision by the government. Think about things like digital music, digital books, e-commerce, social networking, software, "brute" computing power or mobile communications: on average, great advancements that have succeeded in a large part because they are not heavily regulated, or regulated at all. The FTC does not require Intel to make faster chips. The market does. The competition does.

At a different level, Kuwait and Mali happen to be desert countries, and yet one is many times richer than the other (~35x on a GDP/capita PPP basis). Did it have anything to do with either government? Largely, no.

So, with that in mind, what are things that can go right?

(1) Shale gas is more commercially viable than previously thought. Gas replaces gasoline and diesel for fleet needs (similar to "The Pickens Plan"). This lowers petroleum prices for everyone else, resulting in a big tax cut effect. Compare this to government-hatched initiatives, such as ethanol or "clean" coal. Both are absolute malinvestments.

(2) Baby boomers do not retire as planned. The "not exactly greatest"(TM) generation does not exit the work force en masse for various reasons, including insufficient savings and fear of/actual inflation that makes it harder to live on fixed income. Higher middle class taxation also hinders savings. As the biggest chunk of the government obligations are future benefits, this works very well towards reduction as less people are eligible and more people continue to pay taxes.

(3) Baby boomers do downsize en masse, lowering housing costs for everyone (and shooting themselves in the foot, thus delaying the mass retirement even further). This is also a "tax cut" effect. Imagine the average household going from 33% of spending on housing to 27%.

(4) In many ways, "we" have already killed the pharma industry. As they reduce R&D spend, the drug pipeline dries up. This means that in a few years, all these expensive blockbuster drugs will become generics, and there won't be new expensive blockbuster drugs. While this is undesirable at one level, at another level, this should lower healthcare costs as say 90% of the drugs consumed are now priced as generics vs. a substantially lower percentage now.

(5) The population actually loses weight on average and smokes less on average, again lowering health care costs. Smoking rates, save for last year, have been on the decline for most of the decade. This is good news for healthcare costs (yes, I know there are estimates that smokers are "beneficial" in aggregate for tax purposes; I do not buy the argument for a few reasons). The obesity "epidemic" can also take care of itself: I have been reading reports that there has been an uptick in liposuctions as the job market has gotten more competitive. Is this a permanent change in the average views on obesity? I hope so.
Interestingly, the two states with a soda tax (W Va and Arkansas) also happen to have some of the highest obesity rates.

(6) Inflation lowers the real cost of government employees and retirees. Underreported inflation over a decade gradually lowers the real cost of government payrolls, and more importantly, the "guaranteed" pensions. Generally, private businesses can respond faster to inflationary pressures that the government can. Private businesses also have a better view on the "real" inflation as they have incentives to monitor their costs. Government managers have incentives to maximize their budgets and employees under supervision.

(7) EU, China and India gradually assume more "world policemen" roles. This lowers US defense spending thus alleviating the deficit. Defense is by far the largest expenditure in the federal budget, and the Ministry of War does a great job at ensuring that cash keeps flowing to it and its top management's future employers, the military industrial complex.

(8) "College education" stops being universally accepted as something of value to everyone, especially with costs going up, which makes the basic cost/benefit analysis more difficult. A reduction in the college-bound population leads to lower educational costs for everyone college-bound, less malinvestment by people who'd be better of not even trying, and less losses borne by the taxpayer on the student loan guarantees by the government.

As you can see, most of these require little to no action on the part of the government and require little to no inventions. These things can "just happen" without any scientific advancements or "public policy decisions", and nearly everyone would be better off.

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