This is your country on Medicare and Social Security.

The ratio of federal debt held by the public to GDP would climb from 37 percent currently to roughly 100 percent in 2030 and would continue to grow exponentially after that. The only time in U.S. history that the debt-to-GDP ratio has been in the neighborhood of 100 percent was during World War II. People at that time understood the situation to be temporary and expected deficits and the debt-to-GDP ratio to fall rapidly after the war, as in fact they did. In contrast, under the scenario I have been discussing, the debt-to-GDP ratio would rise far into the future at an accelerating rate. Ultimately, this expansion of debt would spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases, or both.

There is some very sound advice in here. The following statement seems so logical and obvious that one wonders why the Fed Chief has to say it.

Members of the Congress who put special emphasis on keeping tax rates low must accept that low tax rates can be sustained only if outlays, including those on entitlements, are kept low as well. Likewise, members who favor a more expansive role of the government, including relatively more-generous benefits payments, must recognize the burden imposed by the additional taxes needed to pay for the higher spending, a burden that includes not only the resources transferred from the private sector but also any adverse economic incentives associated with higher tax rates.

Unfortunately, there are a whole lot of people who are living in total denial about this.

Fed chief Bernanke's prepared testimony before Senate - Jan. 18, 2007

From Decius:

Some really nice infoporn over at The Big Picture right now. The linked chart compares the assets of various nations organized into geopolitical buckets.

Notice that Asia, for all its mindshare, is still relatively tiny, and the U.S., despite her plethora of self-inflicted woes, remains globally dominant.

In other words, America can screw up an aweful lot for a long time before international competitors are really a threat to her economic position. (Although a commenter in the thread observes that U.S. asset prices may be unfairly high due to foreign currencies being pegged to the dollar.) Also worth a look is this chart which vaugely compares the GDP of various nations with various U.S. States. I'm sure you're heard before that California has roughly the GDP of France (and half the population) but I didn't know that Texas has a comparable GDP to Canada. And Georgia, oh Georgia, if only your ski slopes were as nice as your GDP...

Its worth comparing top lists for GDP between 1995 and 2005. There have been some significant changes. For example, Canada appears to be falling behind in international terms, although I don't know if that is due to failings on her part, or simply that far more populous countries are starting to get their acts together. Brazil is rocketing up, but they have 6 times the population of Canada. Canada's population is comparable to California, but it is spread out over a far wider area, which probably makes it less efficient. (I also think that weather plays a role. Snow plows cost money.)

As various countries begin to figure out how to operate effective economies and stable politics you'd think that these charts would normalize toward a reflection of population differences, with some effects due to geographic constraints such as those I mentioned for Canada. Of course, I'm describing a vision for world peace. I think we're a long way off, but it appears progress is being made.

A longer term investment in ETFs targetting countries that have moved significantly between 1995 and 2005 might be a very sound idea if coupled with a reasonable understanding of and monitoring of the political and economic stability of the countries in question. Of course, I'm not an economist, so take that with a grain of salt.

The Big Picture | How big IS the US anyway?

Thomas Dichter has published an essay that is critical of "microfinance" -- the practice of making small loans to poor people in developing countries, the funds from which are intended to bootstrap entrepreneurial ventures, thus providing lasting means to move to self-reliance.

This is interesting. I've recently jumped on the microfinance bandwagon, in terms of thinking its a key piece of the puzzle needed to start making a dent in global poverty. I have not yet had the chance to read this article closely and think about it. I've only browsed over it. I'll probably have more to say later.

The first thing that comes to mind as a comment, is this seems to be looking at microfinance as a whole, and not putting the focus on its usage in a particular market. Not all the global poor are in the same situation. There are some key factors in the equation that must be in place in order for a microfinance strategy to work. A key one, is a non-corrupt government. If people can't trust the state, they are certainly not going to trust the bank. It also requires something along the lines of SHG communities in place. In the same way that everyone needs investment education and advice, any community that is going to adopt any form of modern banking or lending, needs to be taught and understand how it works.

These factors all limit the number of places such strategies can be crafted drastically. I'd like to see an India specific critique along these lines. Microfinance is not just a matter of going somewhere and giving out small loans. There is much that must come with it in order for it to have the desired affect.

Boing Boing: Does microcredit help the developing world

What is not uncertain, however, is that our Current Account
Deficit has granted a degree of control and authority to another sovereign
nation over our own economy. The net results of that may be determined over the
coming decade.

Buffett (who I've come to dislike inspite of my respect for him) warned of this in 2003. Bill Gross specifically predicted this for 2005.

The Big Picture: Federal Reserve Responsibilities Outsourced to China

] Although in recent years the proportion of our labor
] force made up of those with at least some college has
] continued to grow, we appear, nonetheless, to be
] graduating too few skilled workers to address the
] apparent imbalance between the supply of such workers and
] the burgeoning demand for them. Perhaps the accelerated
] pace of high-tech equipment installations associated with
] the large increases in productivity growth in recent
] years is placing unachievable demands for skilled
] graduates over the short run. If the apparent
] acceleration in the demand for skilled workers to staff
] our high-tech capital stock is temporary as many presume,
] the pressure on our schools would ease as would the
] upward pressure on high-skilled wages.

In english: "We needed a lot of engineers to set up the new infrastructure over the past few years. Admins, Programmers, Network Engineers, etc... We're done doing that now. We don't need ya'll anymore. Thanks for all the productivity growth. I'm sure you can find a suitable job in another industry at a significant reduction in pay. You can rest assured that the overall economy has benefited greatly from your work. We're not planning to share the rewards with you, because you don't own it. We own it. We're looking for people who own stock to do really well in the coming years. We're exited about that, and we think you ought to be excited for us. Oh, and BTW, I'm cutting your pension. Have a nice day."

FRB: Speech, Greenspan--Critical role of education in the nation's economy--February 20, 2004

] So if jobs are scarce and wages are flat, who's
] benefiting from the economy's expansion? The direct gains
] are going largely to corporate profits, which rose at an
] annual rate of more than 40 percent in the third quarter.
] Indirectly, that means that gains are going to
] stockholders, who are the ultimate owners of corporate
] profits. (That is, if the gains don't go to self-dealing
] executives, but let's save that topic for another day.)

Here's our so-called recovery. Anyone here feel left out in the cold?

Op-Ed Columnist: Our So-Called Boom

"It is totally unauthorized as far as we are concerned. It's really a serious mistake on the part of DARPA."

Sound familiar?

This meme just in: DARPA is the new AOL Time Warner, and John Poindexter is the new Justin Frankel.

Terror Trading Site Goes Bust

] And our receptionist? She'd still be paying about 30
] percent, which means she would be contributing about 10
] times the proportion of her income that I would to such
] government pursuits as fighting terrorism, waging wars
] and supporting the elderly. Let me repeat the point: Her
] overall federal tax rate would be 10 times what my rate
] would be.

[IP] Buffett on dividend taxes

] Whether we protect intellectual property as an
] inalienable right or as a privilege vouchsafed by the
] sovereign, such protection inevitably entails making some
] choices that have crucial implications for the balance we
] strike between the interests of those who innovate and
] those who would benefit from innovation.

This is a worrysome and cryptic comment.

1. He raises the specter of Intellectual Property as an inalienable right. With respect to the Constitution that is an extremely radical position. It has gained ground in recent years because of careful marketing efforts by the media industries. His comment is too vauge to know what he really wants, only that he thinks IP should be strengthened.

2. The separation of "those who innovate" and "those who would benefit from innovation" into two separate and exclusive groups is crusty industrial age thinking.

3. Finance people often do not understand the economic importance of activity which occurs outside of the market. I didn't figure Greenspan to be one of those people. Your strong protections for innovators aren't going to do you much good if you can't innovate because all of your citizens are stupid. If you create a world where culture only exists for entertainment purposes and comment, criticisms, and derivative works are all impossible to produce your culture will stagnate and your people will become dull.

4. If you have to rebuild the entire operating system from scratch in order to make a small improvement to a particular feature, you aren't going to do it. IP maximalism hurts innovation.

Greenspan: Secure intellectual property

Interesting little piece on wealth distribution:

Specifically, the number of people with some value of wealth w is proportional to 1/wE. Pareto claimed that E is generally has a value of between 2 and 3. The bigger this value, the greater the extent to which extreme wealth is suppressed - and the more socialist the economy.

Burda's group define liberal economies as those in which E is less than 2, and social economies as those in which E is greater than 2.

Wealth spawns corruption