Philosophers invented Math

In recent months, many articles have been written about the importance of Science, Technology, Engineering and Mathematics (STEM) and the Common Core Curriculum.  Both ideologies start from American students underperforming, in some people’s minds, versus other nations and power people trying to reverse this trend.  While STEM and Common Core focus on some of the building blocks for intelligent, well rounded citizens of the world, this over emphasis on these areas will actually lead to less creativity and ingenuity, without achieving the success they are designed to achieve.

With regard to STEM, let us start with the M.  S, T and E begin with Mathematics.  Why is this important?  Mathematics was invented by Greek Philosophers.  Realizing great ideas come from expansive thought, these individuals focused on logic, reasoning, writing and mathematics.  Focusing on the mere technical components limits thought, only allowing the student to think and achieve within parameters set by the teacher and the curriculum.  

Without creativity and expansive thought, S, T and E in America will first plateau and then decline.  For this reason, most noted for Economics over the last 100 years, about a century ago the University of Chicago came out with the 100 books every intelligent person should read.  The intent behind this list was to learn reasoning, logic and creativity.  Another way to think about this topic, and to answer the common question of “why do I need to learn Algebra, I will never use it in real life” let’s rename some math subjects.  Rather than Algebra, eighth and ninth graders can learn “The Study of Change”.  Rather than Geometry, “Spatial Studies”.  Rather than Calculus, “The Study of Change”. The true lesson in mathematics class are to learn logic, reasoning, relationships and change.

There is nothing wrong with the Core Curriculum per se, however the overemphasis takes away from key aspects of learning.  Emphasising limited courses tells students, pass these subjects, the way they are being taught, and you will be an intelligent, successful adult.  This completely ignores the idea students learn in different ways, from different media and at different paces.  Students, parents and teachers have no responsibility, or accountability, for the students learning.  When these students enter the adulthood and the workforce, rather than being lifelong learners that can adapt, they are hemmed into the box from which they came.  Parents need to parent; teachers need to teach; and ultimately, students need to learn.

Through a thoughtful pursuit of knowledge, Socrates lead his students on a path to learning through the forest of not only STEM, but what we now call the humanities; a path the student needed to diligently pursue themselves to achieve.  Over focus on STEM and the Common Core Curriculum ignores this simple truth he knew millennia ago.

Low hanging fruit for Representative Ryan and Senator Murray

October 8, 2013, the Senate Committee on Homeland Security and Governmental Affairs reports $4.5M in fraudulent disability claims due to collusion by a judge, an attorney and multiple doctors.

November 1, 2013, the Office of the Inspector General reports the Centers for Medicare and Medicaid services paid $23M for deceased beneficiaries between 2009 and 2011.  This accounts for less than one-tenth of one percent of total payments.

September 14, 2013 General Accountability Office reports from December 2010 - January 2013 36,000 beneficiaries received improper disability pay in the amount of $1.3B.  This accounts for less than one percent of beneficiaries and disability payments during the time frame.

Representative Paul Ryan and Senator Patty Murray are leading a group of legislators trying to come up with a budget deal prior to the next fiscal deadline.  Much talk has been about increasing revenues, cutting budgets or reforming “entitlement” programs.  While reforming Social Security, Medicare and Medicaid are necessary, these headlines show reform has many forms.  Before cutting payouts, Representative Ryan and Senator Murray should look into increasing funding to these institutions.

It may seem counterintuitive to increase funding when trying to decrease the budget, but funds to increase systems to reduce improper payments would save much more than their cost.  Improved databases, applications and training can prevent the above from occurring with such regularity.  Increased tracking and investigation could uncover devious plots to take advantage of a system designed to support those who need it the most.

With that, significant reductions in outlays could be achieved without reducing benefits to those that need them the most.  When dealing with budgets in the billions, it is easy to lose sight of $4M or $23M being lost without keeping focus on the fact these are very large numbers.  One can find the evidence of this loss of focus can be seen in the reference to one-tenth of one percent of total payments.  Before cutting benefits to seniors, active duty military and single mothers, Representative Ryan and Senator Murray can attack some low hanging fruit.

Strong business leadership needed

The editorial at http://www.detroitnews.com/article/20131031/OPINION01/310310008/When-government-fails-business-fills-void?odyssey=mod|newswell|text|FRONTPAGE|s titled “When government fails, business fills void” highlights an important consideration often lost in the noise of information.  In order to highlight private industry’s role in society and the economy, the recent Business Leaders for Michigan CEO summit intentionally left out political leaders.  This was not business leaders thumbing their collective noses at politicians.  Rather, it is acknowledgement of the role governments and business leaders should play.

The founders of the United States, and prior to them, of the States envisioned government with a limited role in the daily lives of its citizens.  Governing is necessary for basic needs or general welfare.  Government should create the foundation upon which society and the economy rests.  Public utilities, roads and public safety fall within the jurisdiction of the government.  Laws necessary for the proper execution of contracts and protection of private property fall within the jurisdiction of the government.  Any restriction beyond such placed on private industry or the economy as a whole will be corrected by Adam Smith’s invisible hand.  The overall health and development of a society and the economy, therefore, falls to business leaders.

Why is this the case?  Governments do not generate revenue by delivering products or services.  Governments do not take raw material, add value, and sell at a profit.  Revenue for a government comes from a limited number of sources: taxes, fees and bond issuance.  Bond issuance, though, must be repaid from another source of revenue.  Therefore, governments run on taxes and fees.  Taxes and fees remove money from society and the economy that may be employed by citizens or private industry in other, more beneficial ways.  As such, revenue should be limited to meet the costs of the basic functions noted above to the maximum extent possible.

For the reader thinking to themselves, private industry lacks ethics and morals and we cannot leave society and the economy in the hands of individuals whose sole purpose is to generate income for their owners.  To some extent, you are correct.  There is a social responsibility requisite with being a business or community leader, which sometimes they do not live up to when making their decisions.  Carney, Rockefeller and Ford were great men, who did wonderful things without which the United States would not be the dominate economy it is today.  All, however, lost focus of the social contract at times.  This too is where Government can step in to enforce the social contract.  Beyond that, governments have a social contract with all of their citizens.  To some extent, governments must generate revenue to care for citizens that are in need.

The line between basic necessities and enforcing or fulfilling social contracts is difficult to draw.  Much like the checks and balances built into the Constitution, private industry and community leaders need to offset government involvement and control.  As the above editorial eludes, business leaders cannot abdicate their role to a government whose general opinion can change with each election.  Michigan and Detroit will not grow as a society and economy without strong business leadership.

What's the big deal about the debt ceiling?

This piece should scare you.  It was written by a top notch economist, in plain language. I urge you to read it http://economix.blogs.nytimes.com/2013/10/03/the-loss-of-u-s-pre-eminence/?_r=0.   It in part answers some of the questions I have been hearing lately that pretty much all can be summed up as, “What’s the big deal about the debt ceiling?”

The debt ceiling is the United States Government’s limit on the amount of debt the Treasury Department is legally allowed to issue.  Think of it as the limit on your credit card, but the consequences of exceeding it are much more dire. Among other things, this debt is accrued interest on amounts already borrowed and payments due for money Congress already authorized and appropriated for spending.  To not allow an increase to the debt ceiling is tantamount to being told you could buy something, but when the bill comes not given the money to do so.

The blog included above points out the current fiscal and political environments are sowing the seeds for the decline of the US from its pre-eminent position economically.  Economics is weird.  Is it a science or an art? Is it mathematics and statistics or psychology?  The basis for all economics is the idea of utility; how much an individual wants something.  Utility explains why gold costs more than silver, Coke costs more than Kroger cola and someone is willing to spend $5,000 on Prada; yet pretty much all sugar costs the same.  We as consumers, all things being equal, assign intrinsic values to items based on perception and past performance; and are willing to pay more for items with intrinsic value.  Without utility, advertisers would not have a job.  This phenomenon is the basis for everything we purchase.

Utility plays a role in currency and sovereign debt.  At different points in the recent past, up to 90% of global financial transactions passed through the US, daily.  The United States dollar is the most well respected piece of currency in the world, therefore gets used all over the world.  It is the confidence in the United States economy (not necessarily Government) that accounts for use of the US Dollar, and purchase of US debt.  Without this confidence, the US will have to pay more through higher interest rates.  Recent examples of this are the lack luster performance of debt issuances by Ireland, Spain, Greece and Malta.  A sharp increase in the cost of issuing debt will immediately drain funds from the US economy and begin hyperinflation like that seen in Mexico and Venezuela.  Albert Einstein once said the greatest power in the universe is compound debt.

As for the global economy, simply look to the reaction to defaults by Greece and Malta.  Greece caused a recession in the entire Eurozone, and some experts believe muted growth of both the US and Chinese economies due to the reduction of imports to the Eurozone.  Malta, a very small island nation, almost caused another recession in the Eurozone.  The US Economy is magnitudes of order greater than either Greece or Malta.  The results of a US default would also be magnitudes of order greater.  Too big to fail?  Definitely!

The silence from industry as discussed in the blog above is a warning.  Regardless of personal opinion on Obamacare, Keystone XL or changes to the tax code, Congress and the president CANNOT let this happen.  It’s not a question of whether or not there will be a global recession if the US defaults.  It’s only a question of how severe.  And when the dust settles, the US may no longer be at the top of the heap.

Congress' attack on the federal workforce

What is the recipe for low morale in the workforce?  While all agencies have experienced similar problems with employee morale, being the largest and most visible of the federal workforce, take the Department of Defense civilian workforce as an example.  Start by not having effective incentives for high performance.  Make the main metric for performance how quickly you spend your budget, including punishment for not spending all of it; to the point where cost savings are definitely not rewarded.  So what is left when it comes to raises and bonuses?  Rather than a merit based system, we are left with a time based system; everyone with the same time gets the same benefits almost regardless of performance.  In fact, what do you get for doing a good job; more work.  

That is a bit cynical given the pride that comes from doing a good job; providing the Warfighter with the best equipment possible, helping them be the best in the world, and helping to save lives.  Unfortunately, that focus on the outcome can be overshadowed.  To that end, direct leadership spent years trying to change this culture, while refocusing on the outcome, only to be undercut by outside forces.

Add on a severely high operational tempo, for 12 years, where failure directly affects those Warfighters. Imagine constant pressure from inner desire to support those Warfighters, direct leadership and customers for more than a decade. And after successfully meeting those challenges, and while attacking the next challenge, indirect leadership and public sentiment spends their time telling the workforce they are overpaid.

The irony, of course, being relative to their peers they are in fact underpaid.  Some of those indirect leaders use statistics to prove the workforce is overpaid, but fail to mention the data set includes many job categories which do not match the knowledge, skills and ability of this workforce.  After establishing this misinformation as fact, freeze their pay for a few straight years.  Then, cut their pay because of leadership’s inability to develop an effective budget.  Not once, but potentially twice.

Ultimately, after over a decade of strenuous hard work, by degrading and withholding pay from the federal work force, Congress has created an environment where the only thing keeping the best and brightest in their current position is loyalty; loyalty to their command and mission.  Even loyalty has its limits.  Should this continue, the workforce responsible for spending trillions of dollars, due to lack of knowledge, skills and ability, will be unable to effectively perform the tasks necessary to meet such an awesome responsibility.  In the end, Congress could be much, much worse than any outside enemy.

Where is the fiscal policy?

Governments can affect the economy in two main ways: fiscal policy or monetary policy.  The most successful economies stem from governance where these two are in sync, or at least not counterproductive.  An example of monetary policy is the Federal Reserve Board’s Quantitative Easing, or QE.  Examples of fiscal policy are austerity programs implemented in the European Union.  Faced with a global economic downturn, contrary to other major economic powers the US Government chose to flood the market with capital rather than pursue austerity.  As a result, the US Economy has fared better than our European brethren; so much so that the United Kingdom has begun QE as well.  Now, though, the effectiveness of QE has begun to wane, and many are wondering why.

Why haven’t there been larger reductions in unemployment? Why are corporations holding onto excessive amounts of capital rather than investing? Why has consumer confidence only seen modest gains? Why has housing begun to level off after some modest gains? The only truly bright spot has been the growth in the stock market, which has as much to do with profitability as QE, and falters the minute the Fed begins to indicate an easing of QE.

The short answer to all of these questions, the absence of fiscal policy has been counterproductive to the point where the monetary policy may begin to harm the economy.  The ineptitude in Congress creates uncertainty for producers, consumers, investors, lenders and borrowers.  Come 01 October 2013, Congress will not have passed a budget for the fourth year in a row.  This is their main job!  Some in Congress are threatening a Government shutdown.  Even if there is a Continuing Resolution, the Government will only be funded two and a half months instead of the full year.  Some in Congress are threatening the full faith and credit of the US Government by not raising the debt ceiling. While Government spending is related to the debt ceiling, the debt ceiling is for money that has already been spent.

Consumer spending and business investment drive the US Economy.  Businesses are not investing because demand has not returned.  Consumers are not spending to protect themselves from the uncertainty coming out of Washington, and mortgage rates which have increased in no small part due to the potential of a US Government default.  Investors are shying away from the bond market for fear their investments will be undercut by a Government default.  All of this slows the velocity of money, and with it the economy as a whole.  Without decisive action from Washington, the US Economy is stuck in the chicken vs. egg paradox.

Not only has the lack of fiscal policy caused its own harm to the US Economy, but now it is causing harm to monetary policy and the credibility of the Fed itself.  After signaling an impending taper to QE, the Fed decided to keep the program in place.  In large part, the reason for this change is an attempt to push past the chicken vs. egg paradox. 

Unfortunately, monetary policy cannot do this on its own.  And what is worse, as the Dallas Federal Reserve Bank President Richard Fisher correctly points out, this turnabout degrades the credibility of communications coming from the Fed. To compound matters, Mr. Bernanke’s impending retirement creates uncertainty for monetary policy.  No disrespect to the candidates vying to succeed him, but markets dislike change.

Without decisive fiscal policy, monetary policy will become less and less effective at stimulating the economy.

It's all about the batteries

The electric car has been around for some time now, going back to GM’s EV1 in the mid-90’s.  All the major auto manufacturers have a version of an electric car or hybrid.  Why then are GM and Tesla Motors beginning to wage a battle over electric cars?  It’s the batteries. 

I had the opportunity to see an EV1 up close and personnel.  Other than the lack of noise, the thing that struck me most was the size of the batteries.  Even then, I could see this car was not going to be embraced by the commercial market due to these batteries and the economic principle of a substitute good.

Let us start by going back to the late 19^th and early 20^th century where the saying was, “Coal is King.”  Looking back 100 years, this seems like an odd saying; but at the time coal powered industry, homes and shipping.  Then some changes started to take place.  The automobile was invented.  For decades this was not much of a problem for coal, until Henry Ford brought cars to the masses and demand for gasoline increased.  In the early days, individuals would get their gasoline from the hardware store.  A fragmented, inefficient industry, John D. Rockefeller saw an opportunity.  He was a driving force in developing the infrastructure to decrease the costs of oil extraction and gasoline refinement, and then distribute gasoline to all of Mr. Ford’s customers.  With demand going up, and production costs coming down, oil ascends and coal is no longer king.  After the completion of the interstate highway system (more infrastructure) oil’s dominance is complete.

This is the resource electric cars are trying to displace.  Two events must occur for this to happen, and are the reason electric cars have not been embraced by the commercial market even with close to two decades of expending Government and industry resources. 

First, costs must go down.  Key here for batteries is the ability to efficiently store energy.  Electricity does not have much of a shelf life.  As a correlation, power plants spend a significant amount of time and money to match demand; too little demand, and electricity is wasted.  The current batteries for electric cars are both inefficient and costly.  An intrinsic cost is the investment in time by the consumer.  Not only did the batteries for the EV1 fill the entire trunk and under the back seats, they took an excessive amount of time to charge.   Simply put, electric cars will not take over their gasoline driven brethren until batteries are more efficient and less costly.

Second, there must be an infrastructure.  Cars existed for decades without much traction in the commercial market.  Mr. Ford’s production line and Mr. Rockefeller’s efforts to develop a distribution system led to increased car sales, which then led to increased gasoline sales; until the point where we have gas stations on each corner in some cities.  For electric cars to be embraced by the commercial market, there has to be an infrastructure.  This too must overcome a major concern for safety: What if the battery dies and I am too far from home or anywhere else to charge my car?  I can bring gas to the car, but how do I bring electricity?  With that, the infrastructure must account for the time to charge the batteries.  Mr. Musk of Tesla Motors intends to offer long and short charging (with the short coming at a modest fee).

Without serious improvements to batteries and the infrastructure to charge them, proponents of electric cars are just spinning their wheels.