One of the themes of Dan Davies’s book, Lying for Money, was that fraudsters typically do their crimes over and over again, until they get caught. And then, when they are released from prison, they do it again. This related to something I noticed in the Theranos story, which was that the fraud was in open sight for many years and the fraudsters continued to operate in the open.
Also regarding that interesting overlap of science and business fraud, I noted:
There seem to have been two ingredients that allowed Theranos to work. And neither of these ingredients involved technology or medicine. No, the two things were:
1. Control of the narrative.
2. Powerful friends.
Neither of these came for free. Theranos’s leaders had to work hard, for long hours, for years and years, to maintain control of the story and to attract and maintain powerful friends. And they needed to be willing to lie.
The newest story
Ben Mathis-Lilley writes:
On Wednesday, the Department of Justice announced that it has arrested a 48-year-old Lakewood, New Jersey, man named Eliyahu “Eli” Weinstein on charges of operating, quote, “a Ponzi scheme.” . . . How did authorities know that Weinstein was operating a Ponzi scheme? For one thing, he allegedly told associates, while being secretly recorded, that he had “Ponzied” the money they were using to repay investors. . . . Weinstein is further said to have admitted while being recorded that he had hidden assets from federal prosecutors. (“I hid money,” he is said to have told his conspirators, warning them that they would “go to jail” if anyone else found out.) . . .
These stories of “least competent criminals” are always fun, especially when the crime is nonviolent so you don’t have to think too hard about the victims.
What brings this one to the next level is the extreme repeat-offender nature of the criminal:
There was also one particular element of Weinstein’s background that may have alerted the DOJ that he was someone to keep an eye on—namely, that he had just been released from prison after serving eight years of a 24-year sentence for operating Ponzi schemes. More specifically, Weinstein was sentenced to prison for operating a Ponzi scheme involving pretend real estate transactions, then given a subsequent additional sentence for operating a second Ponzi scheme, involving pretend Facebook stock purchases, that he conducted after being released from custody while awaiting trial on the original charges.
Kinda like when a speeding driver runs over some kid and then it turns out the driver had 842 speeding tickets and the cops had never taken away his car, except in this case there’s no dead kid and the perp had already received a 24-year prison sentence.
How is it that he got out after serving only 8 years, anyway?
In January 2021, Weinstein was granted clemency by President Donald Trump at the recommendation of, among others, “the lawyer Alan Dershowitz,” who has frequently been the subject of news coverage in recent years for his work representing Trump and his relationship with the late Jeffrey Epstein.
Ahhhhh.
This all connects to my items #1 and 2 above.
The way Weinstein succeeded (to the extent he could be considered a success) at fraud was control of the narrative. And he got his get-out-of-jail-free card from his powerful friends. “Finding your roots,” indeed.
Stabbers gonna stab
This all reminded me of a story that came out in the newspaper a few decades ago. Jack Henry Abbott was a convicted killer who published a book while in prison. Abbott’s book was supposed to be very good, and he was subsequently released on parole with the support of various literary celebrities including Norman Mailer. Shortly after his release, Abbott murdered someone else and returned to prison, where he spent the rest of his life.
The whole story was very sad, but what made it particularly bizarre was that Abbott’s first murder was a stabbing, his second murder was a stabbing, and his most prominent supporter, Mailer, was notorious for . . . stabbing someone.
I agree with the repeat offender problem and your 2 conditions (necessary but not sufficient?). Lately I have been concerned with a number of stories of criminals released from prison before there sentence was complete, only to go on a commit the same type of crimes shortly afterwards (pretty horrible stories as they are murders, sexual attacks, DUIs where people are killed, etc.). I’ve been struck by how often this happens and I wonder why they are released early – why the system seems to work so badly.
But then I think there needs to be some balance. There are many stories of wrongly convicted people sitting in prison. More importantly, the way our prison system works makes rehabilitation rare but often promotes further and perhaps increased tendency to commit crimes once released. The focus on repeat offenders seems to distract from the problem (perhaps more serious, though this requires more study) of a failed criminal justice system. Too many people are released too early, but the damage done while they are in prison tends to be forgotten. I find it hard to get a balanced view of these things. I think we are actually doing better with academic malpractice- the newsworthy cases at least have us talking about the failure of our systems (academia, peer review, grant awards).
A related puzzle is that other countries have much shorter prison terms and seem to experience less re-offending.
The most serious crime, with the harshest sentences, is murder. The United States has a lot of it.
Per the late Mark Kleiman, criminals tend to be hyperbolic discounters. Each additional unit of time on a sentence has a diminishing deterrent effect, because criminals aren’t thinking out that far. There is still the incapacitation effect, but criminality goes down with age after adulthood. That’s why it’s more valuable that punishment be swift & certain. Despite the supposed guarantee of a speedy trial in the Bill of Rights, our current justice system is the opposite of swift, and an enormous number of crimes go completely unpunished.
I could swear you posted this some time last year too.
agreed, seems like deja vu all over again.
I did put this one in the Zombies category!
The thing that gets me is that fraud is so damn rampant, and also so damn obvious. Yet y’all keep falling for it!
Ok, probably not the audience here so much. But, seriously Theranos was an OBVIOUS scam to anyone with any biology background. Tesla stock is an OBVIOUS scam. No that company isn’t worth more than all other car companies put together. The mortgage crisis was just obviously a scam, giving loans to whoever without much oversight then packaging them up. When half of television in 2005 was “house flipping” shows, yeah, it was obvious everyone was scamming each other. An asset bubble is a kind of scam.
Cryptocurrency? Yep, obvious scam.
AI? Well it’s not so much a scam as a technology being weaponized for scamming. Soon the Internet will be absolutely full of false articles written by AI with AI generated pictures whose whole purpose is to get paid to show ads or convince people to spend money on some other kind of scam.
We’ve already seen entire journals devoted to scam science papers. Hell the evidence posted here shows the entire University of Nevada Reno Engineering dept is run by a scammer.
The problem isn’t that you can’t spot the scams. The problem is the scams are so thick on the ground you can’t spot anything real. Also The problem is it’s hard to predict how long it will take the idiots to catch on. “The market can remain irrational longer than you can remain solvent” so to speak.
The entire economics narrative at the moment is that the economy is doing amazing and people just don’t realize it… Or, consider the alternative, the way we measure the economy is a scam, and the economists just don’t realize it. People aren’t having children, they can’t afford houses, they can’t save for retirement, their efforts at investment lead to huge losses. But “the economy” is doing great? Maybe get a clue.
The other narrative at the moment is basically “Whoops, Germany is in a recession, haha silly us we hadn’t noticed” and “whoops UK is in a recession, we hadn’t noticed, but we promise it might already be over”
There are widespread layoffs in many industries right now. Most of them tech adjacent. Why? Because most of that industry is a scam, they hired people just to remove them from the market so competitors couldn’t hire them… They didn’t have anything for those people to do. And now they’ve discovered that its easier to run scams using scamming tools like AI LLMs than to have humans do that work.
A third of Chinas GDP was building unoccupiable buildings that are literally crumbling into heaps for Christ sake.
Name me an industry thats 10% of the US economy that’s growing more than say 3%/yr and actually produces consumable goods that aren’t scams. The only real growth industry I see is finance which is basically a scam.
Honestly, show me something the US does that isn’t a scam, bubble, ponzi scheme, zero sum shuffling of paperwork, or actively harmful like growing tobacco or pharma drugs with questionable utility, I’d love to know.
Let’s just list a few more crazy things… Meta spent tens of billions to produce a “metaverse” which was like 4 guys video conferencing using computer rendered avatars. Scam.
Musk bought Twitter acting as if it were an “investment” but the real purpose of that purchase was transparently to become the next William Randolph Hurst and influence politics to benefit Musk and a cabal of billionaires. The emporor doesn’t just have no clothes he’s doing a pole dance and begging you to look at his bare ass. Scam.
Google manufactures the most common web browser Chrome. It transparently is adding features that make it ad money and compromise the security of your computer. Scam.
Amazon is absolutely filled with brands like CHAOREN or FAIRWIN or KAVIANA or other obvious stuff from China. They all sell the same exact goods with different keywords and reviews and prices that vary over a factor of 2. All the reviews are posted by click farmers in Bangladesh who spend all day in front of a massive board full of iPhones writing reviews for products they’ve never seen or used. The whole purpose is to decrease the signal to noise ratio by adding noise and make you work harder to get a good quality product so that eventually the difficulty makes it not worthwhile to find the good competitors anymore and you’ll just buy the cheap low quality overpriced crap that’s the only thing that comes up anymore. Scam.
https://openai.com/research/video-generation-models-as-world-simulators
Now obviously, this is an incredible technology. However, the way it’s described on this supposed “technical paper” is exactly wrong.
It is sold here not as a state of the art video generator, but PRIMARILY as a simulator. But physics simulation is exactly what it’s transparently terrible at. In the very first video, the woman walking on the street, adult humans walking on the street are variously 3-8 feet tall, most of the subjects walk in a physics-free way with no upper body motion, at least one person appears to be just legs with no torso or head while another person has 3 sets of legs, and the main subject has no physics on her face or hair (but nice physics on the earrings). In the second one, the generator can’t decide if the blue strand is a leash or a thread on the beanie and teleports it into the hand. In the third example, for some reason the back left leg doesn’t move at all and the turtle’s swimming motion clearly makes no sense at all. In the old West example, the river flows in both directions and sometimes uphill, there’s a two legged horse and a rider that disappears, the houses doors and windows generally don’t make sense and one is hollow for some reason.
My point isn’t that this isn’t an incredible piece of technology. What troubles me is that it’s being sold as something that it isn’t. What’s more, people appear to just be accepting it.
https://arstechnica.com/information-technology/2024/02/openai-collapses-media-reality-with-sora-a-photorealistic-ai-video-generator/
The tone of the article is breathless. As an example, it says
But in the video example provided, the player POV hovers forward, the pig hovers backwards and blinks abruptly out of existence, and the only nontrivial interaction is switching tools, but back to the same tool which should be impossible. It is indeed cool that it can produce that clip at all, but the clip is, right in front of the writer’s face, transparently not doing the thing that OpenAI says it’s doing, and for some reason they just don’t notice?
Also, just to nitpick, in the arstechnica article, the first example is clearly missing arms for some reason, the second example is primarily houses that almost uniformly make no sense and a reflection with a prominent disembodied arm, in the third one you can clearly see the bottom bun of the burger hanging out during the bite but then the bite mark is taken out of the whole sandwich, in the fourth one everyone’s clapping is bizarre, there are candles with two flames, the flames don’t react at all to the blowing, books are floating off of the wall, and the table’s and chairs are completely incoherent.
People want to believe
An aside on OpenAI. I’m fairly confident Sora is essentially Xie and Peeble’s diffusion transformer model
https://twitter.com/sainingxie/status/1758433676105310543#m
with extra frames stacked up in the patchify pipeline. The cost is quadratic in the number of frames produced, which is why the videos are so short and why you need OpenAI money to do it. They probably also do something clever like generate a lower framerate video first, then add a cheaper interpolating network to make it smooth.
This is the formula. Have a lot of money to buy a lot of GPUs. Trawl the open source open research community for data and methods. Copy them, but close source your own code and data. Use your expensive GPUs to produce a splashier demo that’s fundamentally the same technology. Be really loud about the demo, maybe lie a little bit. Raise more funds, buy more GPUs, build more demos.
There’s real progress in image generation, but stuff like this sucks all the oxygen out of the room. Peebles and Xie’s paper is here.
https://arxiv.org/pdf/2212.09748.pdf
In the background section, you can clearly trace the context. It’s not the easiest thing to learn as an introduction, but you can find links to the introduction of transformers, denoising diffusion probablistic models, classifier free guidance. It’s clear that this model is following a line of research. OpenAI’s “technical report” is transparently not technical at all, it’s just a press release that uses the word “diffusion” a couple of times. It’s of absolutely no pedagogical value, and I wouldn’t blame you if you came away with the impression that OpenAI was actually introducing an original idea.
Despite being called “OpenAI” with the supposed mission statement “our mission is to ensure that artificial general intelligence benefits all of humanity”, it’s now transparently the most closed organization and, in my opinion, least honest, most profit seeking in the business.
Somebody:
One complication about this discussion is that the technology keeps improving, so we keep seeing the following pattern:
– Person A claims that the technology does X.
– Person B points out that the technology doesn’t quite do X.
– The technology advances until it can kinda do X but it has problems with Y.
Etc.
The other thing is that I think we can learn from these sorts of comparisons, in that computer successes give us a better sense of what humans do. For example, I strongly disagree with the claim that “by training something to be really good at predicting the next word, you’re actually forcing it to understand.” But in thinking about that foolish (in my opinion) claim, it made me realize that a lot of times when I’m talking or working, I am doing a form of autocomplete, and indeed I’m doing it without understanding.
To put it another way: generation without understanding is an important and useful part of conversation, communication, art, and . . . scientific research. Thoughtless generalization allows us to understand the implications and limitations of our models of the world, and then we can engage our understanding in order to go further.
Yes, it seems like there are kind of two types of scams. One type you find “marks” who you get to believe some bullshit, and they work on your behalf to enhance your cash extraction… Think selling supplements via multilevel marketing. The people selling the supplements really believe that they’re selling something helpful and healthy and etc.
The other type of scam is one that everyone knows is a scam but everyone is trying to time it right so they get out leaving everyone else holding the bag. This is like bitcoin or the DotCom bubble Usually the goal is to offload the worthless assets to some big group of people so that everyone loses a little except the scammers who gain big. Basically like selling Yahoo! to S&P 500 ETFs and mutual funds.
The AI scam is the first kind, Bitcoin was the second kind.
Cory Doctorow explains that a lot of the AI stuff is potentially useful in the context where it is a tool to enhance a person’s ability to do useful stuff (a centaur, a human at the head, and some superhuman powerful body powering it). But tools to enhance a person’s ability to do useful stuff don’t make the kind of money that tools which can supposedly do that person’s job entirely do. He calls those reverse centaurs… The computer makes the decisions, a human is just a cog to hit the reboot switch or report failures or train the computer.
If an AI can read financial reports on a small business and decide which should get a loan without any person involved… it’s a way way more valuable than if the AI allows a person to process 7 loans a day instead of 5.
So these things are being sold as if they make people useless, even harmful. That’s a scam, it’s a huge scam and all the major tech companies have jumped into it. OpenAI, Microsoft, Google, Facebook, etc are all focusing on what they’re saying are going to be “replacement” technologies. The existence of Uber and Lyft is really about the fact that they promised self-driving cars would make them profitable. It will never happen. That another similar scam.
I agree that the technology is advancing and prompting interesting discussions about how we do what we can do. Including this Sora stuff; these videos make major continuity and physics errors that an amateur pivot-animating stick figures wouldn’t, while including mind-blowing textural detail. For human skill, we think certain capabilities as being inherently correlated that are broken here.
But what bothers me here are bold claims of “this thing does X” next to a 20 video of the thing failing spectacularly at X. Then people and even reporters watch the video fail to do X and say “wow, it really did X.”
I think of Twitter as Musk engaging in consumption once he was incredibly rich. He was a big user of Twitter, so he was willing to spend a lot to optimize his Twitter experience.
Daniel
Your tirade resonates with me but I think is overdone. I lament the way most things work – politics, big tech companies,government, finance (not necessarily in order of malfunction, but perhaps so). But you are being scattered and selective. Rather than focusing on the real mismatch between economic performance and government/media reports, I think there is a bigger mismatch between public perceptions (“everything is getting more expensive,” “I fear for my children’s job prospects,” etc.) and the actual economy. It has rarely been so good, despite myriad shortcomings. Scams – yes, they are everywhere and seem to flourish at rates exceeding our ability to detect them. The barter system which every economics textbook presents as inferior to a modern economy based on some form of money, omits a very real benefit of barter: personal exchange has a natural resistance to scamming that frictionless exchange does not.
I’m not usually one to point to silver linings. But having just had surgery yesterday, I have to marvel about many things. The technology, the drugs, the capabilities of the physicians and nurses were simply remarkable. I realize there are many stories where that is not the case. But we often overlook the real achievements. Perhaps the problem lies in yet more dichotomous thinking – everything is terrible and going downhill (bad paraphrasing of your post) or everything is wonderful and destined to improve (unfair paraphrasing of chipmunk’s view – which they (he/she/it?) did not yet express). I think reality is always somewhere between the extremes. And thinking in extremes may be counterproductive. Perhaps we would do better to think in terms of improvements vs degradations.
Incremental change is not exciting, but far more realistic. I’ll admit it is hard for me. For example, I can’t even think of how we could change the US income tax incrementally without making it yet more insane. Only wholesale changes make any sense to me. But would wholesale changes to our economic system be a good idea? For all its faults, is there a wholesale change to academia that would actually work better? I’m not so sure. Bringing it back to repeat offenders, is there a way to reduce the problem that doesn’t make other problems worse? We could eliminate early release or reduced sentences or plea bargains, but these all raise other serious issues.
On the other hand Dale, we kill 100k people a year with drug overdoses in the US, suicide rates are as high as they’ve ever been in my lifetime, labor force participation rate is as low as it’s ever been in my lifetime, fertility is at its lowest in my lifetime. Life expectancy is trending downward. Median household income as a fraction of median home price is at its lowest in my lifetime, by a lot
https://fred.stlouisfed.org/graph/?g=1h9Ib
Portland OR has homeless people using hard drugs like fentanyl or meth on the sidewalks outside Starbucks. Los angeles has a homeless population large enough to fill the rose bowl, and that’s just the unhoused on the street, not the couch surfers and car dwellers. Meth use is rampant in the building trades, fast food, etc. Median black family net worth is approximately zero. The number of homeless veterans with mental health issues is at its highest in my lifetime.
Something like 60% of 8th graders at my kids school can’t do 6th grade math. Reports suggest this is widespread not just my kids school.
No doubt various things have improved but my impression is to enjoy those things you had better be in the top 20% of US income or top 10% of US wealth distribution.
To me “the economy is doing well” means people are housed, healthy, have children if they want them, the children are educated and know things, people eat healthy food, don’t get chronic diseases, have relatively few bankruptcies, have access to decent transportation options, pay moderate taxes, have savings, invest the savings in reasonably good non volatile investments, get married, have low divorce rates…
Instead we have never in my lifetime had more homelessness, more expensive housing, higher volatility investments, higher bankruptcy rates, poorer overall health outcomes, poorer education outcomes, higher wealth inequality… Just every aggregate measure that seems like it should matter looks as bad as it’s ever been.
That’s probably not true for people like you or me, who are in the top 20% of US income/wealth brackets maybe. But it’s true at the median.
Also homicide is going up across the country, in some regions it’s trending up exponentially for the last 5-10 years, like the Appalachian areas and the deep south. So much so that it’s back around 1990s peak rates in those areas.
Pick an aggregate “goodness” measure using the median of the distribution that’s at or near an all time high. I’d like to see one.
So, let’s keep some facts in mind:
Here is real median household income: https://fred.stlouisfed.org/series/MEHOINUSA672N (down in the last 3-4 years, but a long upward trend prior to that (except for the recessions).
Average mortgage debt (adjusted for inflation) has been relatively constant, but increasing for low and middle income groups (https://www.philadelphiafed.org/surveys-and-data/community-development-data/consumer-credit-explorer).
Homicide rates have been rising over the past 10 years after large declines prior to that (https://cde.ucr.cjis.gov/LATEST/webapp/#/pages/explorer/crime/shr).
Homelessness as gone up for some groups and down for others (https://endhomelessness.org/homelessness-in-america/homelessness-statistics/state-of-homelessness/#homelessness-trends-over-time).
I agree that the distribution of economic problems is a real issue and one that is either getting worse or at least becoming more entrenched. I also like the policy of a minimum guaranteed income as you’ve advocated in the past. But I think it is wrong to paint a picture that conditions are steadily worsening and that our economic system is a scam. I didn’t attempt to look at the educational trends – I agree that these are pretty dismal, but I also think it hardly matters for economic outcomes. I’m far more concerned about our political dysfunctions than our economic ones.
Dale, I disagree with the methodology of “real median household income cpi adjusted” because i believe CPI is highly gamed.
So here’s median nominal income as fraction of rent + food + energy + childcare+ education each taken as uniformly weighted. I think we both probably agree that all those things are important and taken together tend to make up a big part of family expenses. This privileges the experience of families as opposed to people living alone buying avocado toast and luxury dog food… but then I don’t think we’d have anywhere near as many avocado toast and luxury dog food consumers if they could afford to get married and have kids… anyway I should probably add healthcare… but you get the idea. I care more about people coupling up and having families and I think that plenty of non-family households would prefer to be families if economic conditions were better for family formation. This is born out by what people say in pew studies etc
https://fred.stlouisfed.org/graph/?g=1hatN
This measure of income reached a high in 1988 did a U shape until a brief peak in 1999 and then declined continuously since then until 2014, trended a bit upwards between 2014-2019 then trended back down to now. Basically we are 10% above the lifetime bottom at the moment.
Homicide rates definitely declined since the 90’s that’s true. It’s great. It’s not great that trend turned around in 2015 or so and in many places has risen back to its original peak.
Homelessness is so poorly measured and even more poorly measured in the past that I don’t know how to find trends that I trust to be meaningful.
Daniel
That is one weird graph. Maybe its the drugs I’m on, but I keep trying to read the title of the graph and can’t get through it. What’s with the + signs to keep adding price indices, and if the algebra is correct they are dividing an income measure by a price measure and then adding a bunch of price indices to it???
More importantly, I don’t share your pessimism about the CPI. It is certainly not perfect, but it is a reasonable measure with some known issues (e.g., trying to account for technological change and consumer substitutions). And there are a variety of CPI measures, geared to different demographics. I’m more skeptical of the news reports about particular families that are experiencing problems x,y,z. Not that the problems aren’t real, but their perception of them tends to be highly distorted.
Dale, it’s median household income divided by a sum of CPI components, equal weighted, for the stated goods (rent, food, energy, childcare+tuition).
a/(b+c+d+e)
where a is median household income and (b,c,d,e) are the cpi index values.
Basically I interpret it as purchasing power of median income in terms of ability to buy an equal weighted basket of the major everyday necessities for being a family. Dimensions are quantity of family goods and services per yr.
I recognize that the “ideal” weighting scheme is probably not exactly equal weighted, but equal weighted indexes have some important good properties, for example they don’t respond to people’s decisions like “well since childcare and education are so expensive I just won’t have kids”. It’s not clear to me that “what people actually choose to buy” is the right weighting, particularly when there’s a kind of war on certain goods, like rent or food or literal ukraine wars affecting gas prices.
So think of this as a CPI tilted towards family expenses. Basically on that measure, we’re 10% above the all time 40 year low in purchasing power.
Daniel –
In my view people have long had a rosy view of how things used to be. I don’t diminish the importance of the problems you list, but without a doubt you are running decades of history through a filter that weeds out any issues that run in the other direction. I don’t think that’s a particularly useful exercise.
That’s fine. Just show me 3 or 4 trend lines of median type statistics that trend in a good direction continuously for the last 40 years and are at or near their peak values today.
If things are getting so much better, we should have evidence for it. fred.stlouisfed.org is right there you can easily link them. I’ll accept pew trust graphs and others as well. Go for it. Find stuff that measures how a typical middle-of-the-pack person has continuously gotten better conditions in trend (ignoring fluctuations) for 40 years.
caveat though: I disagree with some measures as being incorrectly measured. For example I disagree with “real income” as measured by CPI, because I believe CPI is highly gamed. So if you find some, I may look at alternative measures of similar things to see if the picture is clear.
Since that went into moderation, I’m going to re-post with better formatting and with the links in the next few comments down:
Daniel –
> That’s fine. Just show me 3 or 4 trend lines of median type statistics that trend in a good direction continuously for the last 40 years and are at or near their peak values today.
But that’s also applying a not particularly useful filter, IMO. “Continuously” and “peak” aren’t useful measures, IMO. Better than is the measure I care about. And I’d say there are plenty of measures where we’re better off than we were 40 years ago. If a measure was inconsistent but in balance better, why isn’t that important? If it peaked 10 years ago but is still much better than 40 years ago, how do we know that the drop over 10 years isn’t just noise in an overall positive signal?
> If things are getting so much better,
Again, I feel like that’s rigging the game. It doesn’t have to be “so much” better. It can just be better, or a little bit better. Or about the same. Or even a little worse. All of those run counter to your narrative.
Here:
Shit – screwed up the formatting!! Anyway, you’ll figure it out. here’s the first extra link.
https://libertystreeteconomics.newyorkfed.org/2023/03/what-has-driven-the-labor-force-participation-gap-since-february-2020/
Here’s the second extra link (from St. Louis Fed):
https://fred.stlouisfed.org/graph?graph_id=1306267
Joshua, I think you’re misreading my idea of trend in a good direction continuously for 40 years. Obviously fluctuations are allowed… I’m just saying “overall things went up”. It’s no good if in 1970 things were high, then then plummeted until 2000, then they slowly recovered to their 1980 level… that’s not “good”
Similarly, if we hit a peak in 2010 and declined continuously and strongly since then… not good.
Strangely, the thing you can find is prime age labor force participation / unemployment stats. But working is a bad not a good! More people working harder, GDP and household income held constant… is a bad thing. More people working harder and median household income as a fraction of the cost of family life or at a fraction of GDP/capita at its lowest in 40 years is an even worse thing.
If more people were working and that was resulting in more income in family pockets and more people having children and forming families and eating better food and saving for retirement and all that, then yeah it’s a decent tradeoff maybe. But more people working yet households are poorer in purchasing power for family goods… that’s bad!
Daniel –
I’m just saying “overall things went up”. It’s no good if in 1970 things were high, then then plummeted until 2000, then they slowly recovered to their 1980 level… that’s not “good”
Except suppose 1970 was the peak after 300 years of being much lower, and the 1980 level was below 1970 but above the 310 years before that? What are the objective measures we use to make the assessments? Are we looking at something like the climate change escaltor?
https://skepticalscience.com/graphics.php?g=47
Strangely, the thing you can find is prime age labor force participation / unemployment stats. But working is a bad not a good! More people working harder, GDP and household income held constant… is a bad thing.
Except those numbers also reflect a much larger work force because many immigrants came into the county and enjoy a much higher living standard than they ever had before they got here. And real GDP per capita has grown consistently. Median household income has fluctuated. The chart you showed had a period of decline from 1999-2012. Ok. But since 2012 it’s been slightly up. A lack of monotonic growth throughout doesn’t mean no progress. If you go back further in time to 1965 we are up quite a bit. If you were born in 1965 it’s better now. If you were born in 2012 it’s better now. How do you determine what points you’re going to choose to make your evaluation?
Here, this chart looks at a somewhat different time frame. Working-age households, only up to 2007, with a different starting point. Then consider that we’re approximately were we were in 2007:
[link in comment below]
If you had told me in 2007, after following that chart, we’d be in roughly the same place as then I’d say it’s not that bad. I’m not exactly saying that you’re wrong. I’m just saying that these judgements have a relative quality to them. If we’re a lot worse off than we were in 2,000, and better than we were from 2010-2016, and way better of than we were for all of our history prior to 2,000, how do we assess that? Whose welfare are you using to make the judgement? Do we go back to before there was medicare?
> More people working harder and median household income as a fraction of the cost of family life or at a fraction of GDP/capita at its lowest in 40 years is an even worse thing.
Again, that’s an entirely US-centric perspective. I’m not suggesting that’s a great thing. But figuring out exactly what it means is a bit tough. How have women’s lives change? Many more have entered the workforce. Is that a good thing? A bad thing? There are a variety of ramifications. If we’ve shipped good manufacturing jobs overseas it’s not great for us in the US but what does it mean if we pull back on the viewfinder?
If more people were working and that was resulting in more income in family pockets and more people having children and forming families and eating better food and saving for retirement and all that, then yeah it’s a decent tradeoff maybe. But more people working yet households are poorer in purchasing power for family goods… that’s bad!
I’m not suggesting it’s great. It could certainly be better. It should be better. In particular, I think that the growing wealth disparities are unacceptable, because they reflect a lack of shared benefit across different segments of society. I think that’s a problem. I’m merely suggesting there are a lot of complicated tradeoffs.
Link for comment above:
https://www.epi.org/publication/webfeatures_snapshots_20080827/
Daniel –
Again, I’m not dismissing the concerns you’re expressing. I’m just saying I disagree to an extent with the perspective you have in them.
It brought to mind this clip from Fareed Zakaria in response to Haley’s evocation of Trump’s call to go back to when America was great. The direct reference is towards the end:
https://www.cnn.com/videos/us/2024/01/07/fareeds-take-america-problems-gps-vpx.cnn
It doesn’t bother me at all when you say that families today are much better off than families in say 1900. Sure, I grant it. It also doesn’t bother me when you say that we exported economic well being to China or Brazil or other places by offshoring tasks. I grant it. But we both seem to agree that US families are nearly at a lifetime low in their ability to buy the goods and services of family life, as shown in the graph I posted to Dale elsewhere. And this despite GDP/Capita being at an all time high. The answer to that conundrum is that through a great series of scammy type methods the extremely wealthy 0.1% have mechanically transferred the control of monetary value into their own hands. Money is the ability to direct what will be produced and who will consume it. We have produced a great deal of financial assets and a lot less of houses, clean energy, quality food, quality education, child care services, health care services and such. That’s because of handing over the keys to the castle to the financier class, and creating a scheme where money (which is basically a medium of economic control) never returns from its trip across the boundary between the ultra-haves and the everyone else.
Arranging the apparatus so it has this one way arrow is the ultimate scam.
Daniel –
> The answer to that conundrum is that through a great series of scammy type methods the extremely wealthy 0.1% have mechanically transferred the control of monetary value into their own hands. Money is the ability to direct what will be produced and who will consume it. We have produced a great deal of financial assets and a lot less of houses, clean energy, quality food, quality education, child care services, health care services and such. That’s because of handing over the keys to the castle to the financier class, and creating a scheme where money (which is basically a medium of economic control) never returns from its trip across the boundary between the ultra-haves and the everyone else.
So here I’m mostly in agreement. I disagree to some extent on the mechanisms involved, and here I’ll go old man yelling at clouds.
Back in the day, companies looked more towards long term, sustainable business plans where they made money by selling a product. Now, businesses are sometimes mostly just a mechanism for financial engineering, where what matters most is stock market values in the short term. I’ve heard it said that GM makes cars to sustain a lending institution.
What does it matter to execs if they’re getting stock options and can spike up the share prices from buybacks and the like and then get out before the business founders?
> Arranging the apparatus so it has this one way arrow is the ultimate scam.
So I largely agree with that but (1) I think this all takes place within a larger context that is important to consider and (2) I think I see it as being less cohesive and coordinated than you.
Joshua, come over for a beer and we can shake our fist at the clouds together.
No, I don’t think this is all some like coordinated single conspiracy or anything. The bankers didn’t sit down and say “let’s make the Fed pump money into our pockets by doing X” or anything like that. It gradually evolves as at each opportunity when someone notices they can gain some advantage by making some tweak, they eventually get that tweak made and more and more people learn about the tweak etc…
There’s a book that seems relevant called “Game Theory Evolving” which basically argues that in essence “strategies” get noticed by various people, and then they spread like diseases as people adopt them and tell their close friends… I think that’s an apt description of what’s gone on for the last 25 years, some “enterprising” psychopath figures out how to get something for themselves by screwing others, starts doing it, lets their friends know, or some people just notice, the information percolates through a social network, pretty soon all the CEOs are doing it… or all the tech founders or all the russian spies, or all the manufacturing plants or all the PR companies or whatever.
The nutjobs are the ones who attribute it all to a cabal run by George Soros or whatever. That’s not how this happens. Random generation of strategies followed by Diffusion over a social network is the real mechanism. It just requires that “being a successful psychopath” gets rewarded more than punished.
Of course, I should say some of it is designed. Like people at the NSA and CIA literally sit down and design strategies to control stuff. They funded Google and encouraged Google to do mass surveillance, and then years later… they succeeded in being able to just buy data from Google instead of collecting it themselves…
https://qz.com/1145669/googles-true-origin-partly-lies-in-cia-and-nsa-research-grants-for-mass-surveillance from 2017
and then from this year, sure enough they’re just snarfing commercial data:
https://techcrunch.com/2024/01/26/national-security-agency-americans-internet-browsing-records-warrantless/
Similarly for Russian state agencies doing disinformation on Twitter or hacking the US govt computers via solarwinds… etc
But most of it is just “hey if we do X we can get advantage Y and it’s scammy and ought to be illegal but our lawyer tells us it isn’t actually illegal, or even if we get caught the fines are ludicrously low, or etc etc”
I think what youre missing is that people love participating in scams, especially pyramid/ponzi schemes. They enjoy the thrill and chance to make money. And if ever a scam gets big enough, the government will take it over and monopolize it.
Look at social security. Too many people were failing to invest/save for retirement, so government said “give us the money, we’ll do it for you, and pay you back later”. Then they didn’t save any of it, they spent every penny then kept going for another $30 trillion dollars more in debt.
Now when people show up for their retirement money, social security pays them from new “investors” they force to pay into the scheme.
People love this stuff and will voluntarily partake, even vote to force others to participate, even if they know its a scam.
I think it’s a mistake to say that social security was ever supposed to be about investment of savings. It’s always been about pure redistribution of wealth from young to old. In the past, it was normal for people to live to say 70ish, and for wealth to be not that large among the elderly, and inheritance to transfer wealth to child-bearing-age people. Now it’s relatively normal to live to 85 or 90, people inherit when they’re retired, and both retirement age and extreme / feeble elderly (ie. 85-100 in memory care) need support from an ever smaller fraction of society (because fertility has been steadily declining).
In the past fertility was very high, now it’s at its lowest its ever been in 100 years or so. It declined dramatically after 2008 from 68/1000/yr to like 55/1000/yr https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/12/the-long-term-decline-in-fertility-and-what-it-means-for-state-budgets
The problem with social security is that it was founded on false assumptions that there would always be plenty of young people and few old people so that the young people could afford to take a smallish fraction of their income and use it to support the elderly. It wasn’t a scam so long as that was true, it was just straightforward redistribution. The scam is pretending that the situation didn’t change and that we don’t need to do anything about it.
But yeah, people like scams. Huge numbers of people participated in the dot-com IPO scams of 1999, huge numbers participated in the house-flipping schemes of 2005ish, huge numbers participated in the crypto scams of 2010, huge numbers are participating in the scams going on now, including in science and medicine, and technology industries. And apparently similar scams are going on in China with their real estate baloney.
The social security example is different than both Daniel and Anon are saying. The contributions were invested/saved – but in US treasuries and not higher yielding assets (a matter of much controversy over the years). The inadequacy results from those returns not keeping up with the demographic changes you both cite. And, there has always been built in a redistribution – from young to old and from poor to rich (similarly for Medicare). I don’t think it is right characterize social security as a scam. Nor is the lack of policy reform a scam – it is a problem to be sure. The trends for social security contributions and payouts have been clear for at least 40 years and the solutions (higher contribution rates, higher retirement ages, and means testing benefits) have been well known. It is a political problem: each of these solutions has clear opposition that prevents political action. What would have been modest changes if done in conjunction with each other 40 years ago, would now entail large enough changes to be resisted strongly. Calling a political problem a “scam” makes the latter meaningless.
Dale, US Govt bonds are not an economic investment. They don’t
paint houses, cook food, provide childcare, or build roads
etc. They are a tool of accounting to keep track of the monetary
system and nothing more.
When the social security administration writes checks to people
it creates money (checking accounts go up). Either it taxes a
similar amount of money out of worker’s checking accounts, or the
total quantity of money changes.
Suppose it collects more in FICA taxes $T and “invests” the excess in
bonds. What has it done? It’s created $X dollars in money in the
accounts of the elderly, and then bought bonds from bankers
putting $(T-X) into the hands of bankers. That money came from
some 22 year old struggling recent graduate or a 42 year old
trying to put his kids through college. It’s a transfer from
poorer people to bankers. That’s the scam! This isn’t
a “political problem” it’s an outright scam. People say “we need
to tax more, and invest the social security receipts even better”
but that’s wrong because the people we’re taxing are exclusively
people making less than $130k (FICA goes to 0 marginal rate after
something like that amount) and so every extra dollar we tax is a
transfer from poor and middle class people to bankers!
Now, it’s conceivable that bankers might use that money to give
out construction loans on middle class housing producers, or help
people create factories to make low pollution paint, or
businesses that install solar electric generation or even just
restaurants and movie theaters or whatever. To that extent,
through the bankers the world gets more wealthy economically (as
measured in goods and services produced).
But it’s also possible that the bankers create weird mortgages
that bankrupt homebuyers, invest heavily in Meta producing
its “metaverse” that dissolved overnight into thin air, allow
tech companies to hire workers purely for the purpose of keeping
them out of the workforce to foil their competitors, create
surveillance systems and ad driven infosystems that incentivize
millions of people to make 15 minute videos to explain 3 minutes
worth of information, invest in private equity firms that roll up
useful companies like Sears and K-mart into scams that
over-debt-burden the companies driving them into bankruptcy while
they pay the private equity firms rent on the buildings that they
used to own, etc. All these schemes move money out of everyday
people’s pockets and into the pockets of the ultra wealthy again.
In which case the world is economically way way less good as
measured by say the windsorized 80% of the core of the economy,
families etc and their ability to consume and such.
The scam in the SS and Medicare system is that its tax base is
the lower 90% of people, and its beneficiaries are the elderly
and the rich, through the transfer of money from people making
$130k or less to people who run banks and large companies.
apologies for formatting. I was writing that post and then Firefox crashed, so I rewrote it in emacs and copied and pasted…
Daniel
I find your description a bit strange (and not from the formatting). Writing Social Security checks that exceed the taxes collected does indeed increase the money supply. It puts money into the banking system – but that is not the same thing as enriching bankers. It’s not like that money goes into the bankers’ pockets – at least not without a number of other unspecified steps (compensation schemes for bankers, corporate governance of bank companies, competitive forces). Buying treasury bonds with social security contributions is a financial investment and it does earn a return. Opponents of the current system point out that the return is far less than putting it into equities. Opponents of “reform” point out that it would be far riskier if put into equities than treasury bonds. But it is a financial investment. You are looking at real physical investments – financial investments get channeled into physical investments, so I think you are objecting to that link. I can agree that too much financial investment goes into too many poor physical investments and I’d attribute this to poor corporate oversight. We can agree that this is a flaw in our economic system, but I am reluctant to believe that we know a system that would clearly do a better job of turning financial investments into good physical investments. Use China as an example (forced savings put into mega physical projects).
I agree that the limitation on income for social security contributions is a big distortion that promotes inequity, although I doubt the amount of money would be enough to make a huge difference. But I don’t think there is any good reason to exclude earnings above $X from social security contributions. The system is not entirely unfair to the poor however. My Medicare costs increase substantially due to my income – this “tax” is as large as the base monthly cost. There are substantial redistributive elements in both social security and Medicare.
Still, I would agree that inequities and distribution are among the biggest problems we face. Characterizing it as a “scam” that enriches the wealth and improvishes the poor makes for good populist politics, but not so good economic policy. It could form the basis for better economic policy, but our political system makes that almost impossible. If there is a scam, I’d say it is our political system rather than our economic system. But then I am an economist and not a political scientist.
Dale, suppose the government writes $SS in checks and receives $T in social security taxes. If those two numbers are the same, then the money supply doesn’t change. We agree on that. If T is bigger than SS then the government has “money to invest” which it does by buying government bonds in the social security trust fund, note that the price of those government bonds is completely controlled by a cabal of bankers we call The Fed and is not controlled by either real market forces, nor congress. It’s not controlled by real market forces because The Fed can unilaterally decide to invent money and purchase bonds at high prices, or dump bonds into the market at low prices. The Fed’s mandate is to maximize the profit of its member bankers subject to the constraint that people don’t complain too much about inflation for too long.
Now, we give this investment I = (T-SS) to bankers in exchange for government bonds at prices set entirely by bankers. That’s money that came out of the pockets of 20 year old college graduates and 40 year old parents of 3 kids preparing for college, and is placed into the hands of bankers, almost none of whom make money by wages and so pay essentially no social security taxes as a fraction of their total earnings. This is the first area of scam. Cash in the amount $I flows in the immediate term from poor and middle class people to bankers.
Now, the government owns a bond, which is a promise to pay itself in the future. Typically its going to earn a nominal 1-5% depending on when it was purchased. When the future comes, it should pay itself, and this should somehow “benefit the people who paid social security tax a while ago”. But does it?
The primary method by which the government pays itself is to tax individuals or to issue more debt which it sells to bankers. The primary thing that bankers have done with that debt in the last 20 years is to manufacture a crisis in which they can use that excuse to increase the price of government bonds and sell the bonds back to the Fed in exchange for newly manufactured money which the Fed manufactures out of pure electrons. THis happened throughout the mid 2000’s leading to a mortgage crisis which induced a big increase in money supply, and then that continued for a couple decades until COVID induced a massive jump in money supply as well. All of which is invented out of nothing. Most of which was transferred to bankers. at least COVID had some relief checks.
On the other hand, as far as I know, and according to wikipedia the social security trust fund is required by law to be invested in non-marketable securities issued by the federal govt. Basically it can’t sell at the Fed window. And indeed it has only purchased bonds for the last many decades… number goes up… https://fred.stlouisfed.org/series/BOGZ1FL352000073A so it doesn’t participate in the Fed manipulating the price of bonds (ie. the interest rate). It can’t decide “hey shit the price of bonds is waaaay up, let’s sell some and use it to pay social security checks”. So this is scam number 2. Banks buy government bonds they ultimately control the price of unilaterally, and the Social Security Trust Fund can only participate in nominal interest rate collection from bonds at nominal interest rates set by the Fed which primarily has suppressed that nominal rate continuously for 40 years.
Scam number 3 comes about when it comes to actually pay the social security trust fund its interest. To do this, we tax incomes and issue more bonds. Again, marginal tax rates on everyday people are well understood to be something like 33% (25% federal and 8% FICA ish) while marginal tax rates on wealthy banker’s incomes is zero because wealthy bankers don’t have income, they borrow against their assets and write down the interest as business expenses. So, while yes some elderly people can now receive larger checks, to pay for that interest we get it by taxing primarily middle and lower class incomes. The top 1% of incomes occurs at about $550k but Elon Musk alone had his net worth increase from $25B to $175B between 2020 and 2023, his net worth peaked at $350B or so in 2021.
https://en.m.wikipedia.org/wiki/File:Elon_Musk_net_worth_graph.png
But it’s not taxable income, there’s no taxes associated with those changes in net worth, and most of the wealthiest bankers and owners of corporations pay essentially nothing in tax https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
“The confidential tax records obtained by ProPublica show that the ultrarich effectively sidestep this system.”
“[what billionaires pay] amounts to a true tax rate of only 3.4%.”
So that’s scam number two. The social security trust fund pays itself interest on the “investments” by taking money primarily from a different group of people than the group of people it gave the investments to. Even if some of them are quite decently wealthy, they earn say $500k/yr those aren’t the people who are selling bonds to the govt. The system transfers money from lower and middle class americans into the hands of bankers and large corporation owners through buying bonds at high prices and low yields. And then pays those yields to the social security trust fund by taking more money in the future from the same middle class americans.
To the extent that those interest payments don’t come from taxes, they come from selling even more bonds, which bankers buy in real quantity only when they are cheap. They are cheap because the Fed printed money out of nowhere and gave it to those same bankers in the past, and now needs to unload the bonds. Which the bankers buy using money that was manufactured by the Fed. The people who decide when the money should be manufactured are essentially agents of the bank (ie. Fed board of governors)
Basically, bankers and financiers collect rents on being the gateway to the creation of money, and social security pensioners get money by either transferring it from their kids as taxes now, or … alternatively transferring even more of it from their kids as taxes later. The financier class essentially doesn’t participate in the system at all but it does have a net flow of money from the middle class to the financier class to the extent that the Social Security Trust fund increased.
Daniel
Too many points to address. But I’ll take 2:
“The Fed’s mandate is to maximize the profit of its member bankers subject to the constraint that people don’t complain too much about inflation for too long.”
This one I don’t agree with at all. It is not their stated mandate nor is what they do in practice. They are not perfect but they are one of the better functioning parts of government. Their biggest mistake has been to have very loose money for too long, inflating asset prices.
The other is the income tax system. I believe we are in agreement about the ultra-rich. I have favored a flat %tax (by my estimates around 22% of AGI) above a minimum income level. Below that level, I’d use cash payments in lieu of our welfare system. I’d have no deductions whatsoever. Massive unemployment among tax accountants and lawyers, but it’s about time they do something productive.
The rest of your story is more fiction than fact. But rather than debate that, I’d like to know what economic system you would replace this multi-tiered scam with. Do you want to require balanced federal budgets? Do you want to take away my social security payments that I have contributed to for the past 45 years (by the way, I’m not retired yet)?
Dale, I don’t think I said anything at all wrong there. If you think it’s more fiction than fact it’s either that I’ve described it in a way that is confusing to you, or we fundamentally disagree on the facts about the structure of cash flows.
The boiled down story is basically this. social security is a transfer from young to old, FICA income from younger workers goes to SS checks to older retirees, plus a net flow of money to banks to the extent that social security trust fund takes excess FICA tax and buys bonds from banks. I don’t think that’s controversial. The next part is that to pay off bonds the government simply doesn’t tax banks and financier class, it taxes the young workers again at a later time, or writes even more bonds, which are a promise to tax young workers at an even later time. There is never any real tax on the financier people who received the up front cash when SS Trustees bought bonds. Therefore SS Trustee bonds are not an investment they are just moving taxes around in time. ~100% of SS payments come from taxing the middle class, it’s just different workers extended at different times while a net flow of money goes to the financiers. You can draw this out with arrows for cash flows It’s not wrong it’s just conservation laws and flows, simple systems engineering model.
When it comes to what economic changes I would personally make, I’d get rid of social security and replace it with a flat tax and a UBI for everyone. I’d allow the UBI to vary with age, and I’d have it be higher for people in the sort of under college age (helping to pay for childcare and education), and people in the retirement age. On the other hand, that flat tax would be on income at say 35%, using say 20-25% to run the govt and 10-15% to fund the UBI. I would tax unrealized income by keeping track of time-averaged changes in net worth, and use those changes as part of the calculation of the tax. This means when Elon Musk increases his net worth by $100B over 5 years say, he’d be paying on the order of 35% of (100B/5) in the 5th year. If he then loses 20B over the next 5 years the government would be paying him 35% of 20B loss… etc. No the tax would not count as “losses”. So there’d be a constant re-marking-to-market of assets and then a time averaged rate of increase calculation.
Tax calculations would take about a page of calculation, there’d be no complicated deductions just like you suggest. Tax accountants would go to zero employment as they should. Calculations would be obvious, above-board, and apply equally to everyone and every kind of income. Wealth accumulation wouldn’t occur the way it does today, and workers would have more money to demand the kinds of goods that keep them off the streets, eating, and forming families and having children and educating, housing, and feeding those children. Extreme Poverty would go to zero. Gini coefficient would drop to around 25-30% instead of 45% ish, and that’s consistent across the board with a dramatic reduction in crime. I believe that is causal though I have no proof.
Dale,
The fed lowers interest rates until wages start rising, then they say there is fear of a “wage-price spiral”, so they need to raise interest rates.
This is what they say they are doing and what they actually do. It isn’t difficult to deduce the consequences of this. Ie, the price of labor (wages) lags all other prices then you get various types of shrinkflation in what wage-earners need to buy so they can afford them again.
It punishes working to produce things and incentivizes playing financial games to get your hands on some of the new money before it affects wages. I have personally benefited greatly from this understanding.
Exactly, It’s a pumping scheme where the Fed tries to make bond prices go high, the banks sell bonds to the Fed, then when prices broadly start to rise, the Fed drops the bond prices (raises rates) so the banks can buy back bonds at low prices from the Fed, wait until later and sell back to the Fed after they’ve pumped the prices back up.
All of this moves money like an old fashioned pump out of the hands of everyday people (who pay the interest on the bonds via taxes) into the hands of financier class (who receive the interest on the bonds, as well as benefit from the cyclical pumping of the bond prices which is caused by the mechanical production of money out of thin air).
The fact that there is effectively no tax on the ultra wealthy (as mentioned in a propublica link I gave above somewhere) means that there’s a net flow of money from everyday people into the hands of financiers that’s purely mechanical. There is no economic productivity associated with this flow.
You and anon have an oversimplified view of how the economy works. The Fed has a bunch of things that determine its policy – it is not just watching wages for a wage-price spiral. In fact, I believe these days their primary objective is to maintain their credibility – without that, we would all be worse off. So, they can’t afford to send signals that are not expected by the market, which makes them more reactive than proactive. I don’t buy the Fed as agency to enrich the bankers argument at all, but I do accept that bankers often benefit and get rich, and then some of them aren’t taxed heavily at all.
I agree with replacing our current income tax scheme with the flat % tax and UBI. No reservations on my part. But I wouldn’t replace social security with that. Viewing social security as simply a transfer from the young to the old is inaccurate and dangerous. I am collecting social security now and I can tell you I paid in far more than I will ever get out of it. A more accurate description is that social security is a transfer from the young to the poor elderly. And I’m not sure that is so bad. What is bad – and I think we can agree on this – is that the problems with the social security system are the result of demographic changes that were totally foreseen and not acted on by Congress. As I said, a combination of slightly higher contributions, means testing of benefits, and higher retirement ages would have fixed the problem decades ago with relatively little pain. But kicking the can down the road, the pain associated with any fixes has grown and now presents an intractable political problem. To me, the scam is that Congress has little incentive or interest in solving any long term problems, only with getting themselves and their party winning the next election.
Dale –
FWIW, your view there is very similar to mine – although I probably have less confidence in a flat tax than you (not saying it wouldn’t be better).
Dale, I understand that The Fed does a bunch of things, I just think that since 2000 their behavior can be completely predicted by the rule “maximize the rate of money creation subject to the constraint that CPI increases no more than a few percent per year”
When you have a 4 cylinder engine that gobbles air, injects fuel, and burns it to produce rotary motion of a shaft, I think it’s fine to call it “a mechanical heat engine” even if it has various belts that run alternators and HVAC pumps and vacuum hoses that move the air flow valves in the HVAC ducting and etc.
The Fed’s purpose is to make banks rich by manufacturing a lot of money, in the precise sense used in systems engineering “The Purpose of a System is What It Does” https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does
When it comes to whether or not we should eliminate Social Security in favor of UBI I don’t really understand your objection. I think your objection is that a UBI which was uniform for all people of the same age would give somehow less money to poor people and too much money to rich people?
I think it’s an empirical question. My suggestion was to use about 10-15% of GDP for UBI, and that elderly and young people would get somewhat more and working age people somewhat less. Working this out means something like $1000/mo if you’re dedicating 18% GDP/capita to “elderly”.
https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
suggests that the average retired worker gets about $1900/mo, note that unlike your assertion that it’s a transfer to poor, richer people get more than that, and poorer people get less, since your payment depends on your lifetime earnings. Also note that nondisabled surviving spouses (I like that a lot better than their term “widow(er)”) get on avg $1778/mo.
If we converted everyone to the average payment equally would you object? This would raise the income of the poor and lower the income of the rich. I suspect you wouldn’t object. So the question is just in a UBI scheme can we tilt the amount paid to the elderly up enough to get a similar payment? The answer is somewhat empirical, requires doing integrals over the distribution of ages… But at the moment https://en.wikipedia.org/wiki/Demographics_of_the_United_States
suggests people over 65 are about 17% of the population. If we give them say 33% of GDP/capita that’d be about $1800/mo. If we’re using 15% of GDP/capita in UBI payments and 17% of the population is getting 33% of GDP/capita this leaves (.15 – .33*.17)/(1-.17) = 11% GDP/capita to give on average to the rest of the country. We could do the same for people under 15 who make up about 18% and still give working age people around 5% of GDP/capita in UBI.
The end result is that if we tax 15% of GDP and distribute it uniformly as a function of age alone, we could fund elderly people at similar average rates to current SS payments, young people at similar average rates to SS payments, and still give working age people a guaranteed $300/mo or so.
A family of 4 with 2 kids under 15 would get $4200/mo, a pair of elderly people would get $3600/mo which is probably higher than SS because elderly people today didn’t both work full time.
UBI is better in every way.
Richer people get more social security income than poorer people – but it is a progressive scale (https://www.ssa.gov/oact/cola/piaformula.html). In addition, poor social security recipients generally pay no income tax on their benefits while richer people do pay income tax. In addition, supplemental social security benefits do provide a safety net for the poor, and disability payments provide another safety net.
Now, if you want to say the system is not progressive enough, I might agree with you (though I would like to eliminate all those loopholes before I have to pay a higher tax rate). But I don’t think you characterization of how the system works is correct. And the transfer from today’s younger people to old retirees is only a reflection of the unsustainable nature of social security due to the inaction of Congress to fix it for changing demographics. The benefits I am receiving today are not a gift from the working young – they represent some of the money that I’ve paid into the system over the past 50 years.
I still don’t buy your description of the Fed. Their actions over the past 20 years have benefited some groups much more than bankers. I don’t believe there is a design to enrich bankers and the inflated asset bubbles have enriched others by far more. I don’t find the engine analogy useful – when you find a system that results in benefiting some group at some time that is not a good reason to say it was designed to do that. Sometimes the results are not foreseen and sometimes they are unplanned accidents. These systems (Fed actions in this case) evolve, and you need to find a repeated pattern of behavior before I am willing to view it as a design.
A repeated pattern you say?
https://fred.stlouisfed.org/graph/fredgraph.png?g=1heKa
Like repeatedly suppressing the federal funds rate, waiting until things get too politically hot, letting off for a while, then stepping down on the rate again, so that over… say 40 years there are say 6 major cycles , and the federal funds rate plummets from say 20% in 1980 to effectively 0 by 2009, and then because you can’t go any lower, they start fiddling with the rules… eventually dropping the reserve requirement all the way to 0 so that banks can continue to manufacture money, also back-door manufacturing money through student loans starting in 1995 ish (not actually the Fed’s fault) and then also changing the rules regarding their ability to trade at the discount window with banks on highly discounted bonds at par value after the SVB debacle? So that a large bank can invest in bonds that plummet in value and then sell them to the Fed at their par value and get cash, whereas any schmuck like me just has to eat the fact that the bond is half its original value and wait out its 10 year maturity with piddly payments?
Yeah, the design of a system is what it does.
Arguably, the loose Fed policy limited the damage from the Great Recession from becoming far worse. I’ve always thought they kept it loose too long, but I don’t think it was for malicious reasons to designed to enrich particular groups. Similarly, the government reaction to the pandemic might have averted worse damage but may have been excessive and gone on too long – this, too, is debatable. Again, the danger in viewing these things as deliberate actions to enrich particular groups feeds the kind of conspiracy theories that enable populist nonsense to fester.
I’m with Dale: I think you’re overdoing it.
I’ll take one example: Tesla. Tesla makes electric cars, their customers mostly like them, and the company’s profit for the past several years has been in the range of $13-$20 billon per year. Supposedly the cars work well. The cars are not a scam and the company is not a scam. Stock in the company is sold on the NASDAQ exchange and the market is liquid. The stock is not a scam.
However, the stock has been obviously-to-me overpriced at times and possibly still is: a P/E ratio of 45 seems hard to justify, now that other car manufacturers have finally started offering good electric cars. But then, I thought the stock was probably overpriced five years ago, and I was clearly wrong…not because the stock price is much higher now than it was then — I think the stock price is probably too high — but because even if the stock price were to drop below what I think is currently reasonable it would still be much higher than it was five years ago.
There are some somewhat scammy things about Tesla, like sometimes promising that a product will come out sooner or be better than what actually ends up happening in the end, but as far as I know those have usually or always fallen into the category of ‘corporate puffery’ and some of them might not even have been deliberate.
Basically I think you are misusing the word ‘scam’ when you apply it to Tesla stock.
Similarly, although there may be cryptocurrencies that are scams, I don’t think that, say, Bitcoin or Ethereum are scams. I don’t own any, wouldn’t buy any, and don’t understand why they’re priced the way they are — and I think that the energy cost of Bitcoin transactions is so high that it’s close to immoral to use Bitcoin, but that’s another issue — but these products do what they claim to do.
I definitely agree that far too many people fall for hype, and/or ‘invest’ in things they know nothing about.
I agree that there are lots of companies out there that make shoddy goods and get suckers to buy them. But even that isn’t _necessarily_ a scam. Counterfeit goods, that’s a scam. Or a product that doesn’t do what it claims, that’s a scam. Just because something is overpriced doesn’t make it a scam.
And this is ridiculous: “Honestly, show me something the US does that isn’t a scam, bubble, ponzi scheme, zero sum shuffling of paperwork, or actively harmful like growing tobacco or pharma drugs with questionable utility, I’d love to know.” Get real, man.
I generally agree with you on most of these points, but bitcoin and ethereum do not do what they claim to do. Almost nobody who believes they own bitcoin or transact in bitcoin actually has. With ~375k transactions a day, it is flatly impossible to do what it claims to do, and it would take years for most of the people who have believe they have bought bitcoin to have their transactions accepted. What is actually happening most of the time is people are making transactions on a market maker like coinbase, which, like a bank, maintains a ledger with people’s accounts and credit/debit accounting for each of them. Which is the exact opposite of what bitcoin claims to do. Cryptocurrency categorically does not do what it claims to do.
Not only that, but forensic accounting of Bitcoin transactions and NFTs and such has conclusively proved that there’s an enormous amount of bullshit transactions where one person or a cabal of people sells things back and forth between two different accounts they own to drive the price up, until someone else buys the thing in hopes it will go up further at which point the demand of course disappears and the scammer walks away with the marks money.
https://www.npr.org/2022/09/23/1124662811/how-wash-trading-is-perpetuating-crypto-fraud
So yeah, a big part of why NFTs and cryptocurrencies have had enormous run-ups is that they are heavily manipulated by scammers.
I know people who never use cash too. In fact the vast majority of transactions in dollars do not involve physical transfers of dollars. This practice goes back at least 1000 years to exchanging your gold with the knights templar for a certificate rather than travelling with it to/from Jerusalem.
Doubly in fact, the majority of dollars are probably “eurodollars” issued (as dollar denominated loans) by commercial banks outside the US that never touch the US banking system. So while the fed can influence the money supply, it is not actually in control of it. Ie, the dollar isn’t actually the world reserve currency, its the eurodollar.
Thus neither gold, nor dollars, nor the fed really “do what they claim to do”.
These aren’t actual transactions on any blockchain, the wash trading is just swapping numbers around in a normal database and displaying them on a website. Same as selling books to yourself on amazon to get on the best sellers list, hoping to eventually trigger some positive feedback.
Or social media sites that generate fake volume with bots or paid comments. People are more likely to do something if they see other people doing it.
Yes, most transactions in traditional banking are credit with a trusted institution. That is fine by me. For the people who don’t like that, bitcoin claims to remove the need for those trusted intermediaries. It does not do that. Hence, it is not doing what it claims to do.
Are you denying that people have been using crypto to directly transact with each other all over the world for over a decade?
This is like telling someone with a glass of icewater in front of them that ice cubes don’t float. I suspect you have no direct experience with the topic and are garbling something you read somewhere.
No. A small number of people make transactions via bitcoin at great expense. A larger number of people think they have transacted with bitcoin, but have never even seen a private key. If that second group tried to do what they currently do with coin base and other intermediaries, directly with actual bitcoin, the technology could not support it. These are facts.
1. Bitcoin claims to offer an trustless alternative to the traditional financial system
2. The traditional financial system handles tens of thousands of transactions every second
3. Bitcoin can handle tens of transactions every second
Bitcoin.org describes the tech as “cash for the internet”. The white paper calls it “electronic cash” and purports to solve problems for online commerce. I don’t know how you use cash, but most people who use it, use it for small, frequent, minor transactions in daily life.
This was already anticipated way back in 2010:
https://bitcointalk.org/index.php?topic=1347
It was eventually decided by consensus to limit the transaction rate (due to centralization tradeoffs like size of the blockchain) and instead let bitcoin be used for large/important transactions while people could use other means (trust in centralized ledgers, altcoins, layer 2 solutions) for cheap transactions.
Just like you wouldn’t use 1 oz gold coins to buy a pack of gum. Use a different crypto or trusted third-party with less security because neither party wants to pay for the level of security bitcoin provides for such small transactions.
This is similar to how the current eurodollar system works and the gold-backed system before it worked. But it is better because its easier to securely send bitcoin than a truck/pallet full of cash or gold to arbitrary people around the world. And very few people actually have any understanding of what goes on in the background when they use a credit/debit card, from their perspective it “just works” so they use it.
It really does exactly as advertised and people have been using it for that all the time. Maybe a better example of your concern is reefer madness, a movie which is a joke to people who have actually experienced reefer.
You see, the problem with your argument is that bitcoin.org directly refers to it as cash and recommends it be used as payment for goods and services, making specific reference to brick-and-mortar business like restaurants. I would say that you are completely and utterly out of touch with how bitcoin is advertised to people and how the average self-described bitcoin user wants to use it. But I don’t think you you are actually out of touch, I think you’re just willfully ignoring it because you don’t want to condemn a thing that you like. In any case, it’s a naked fact that bitcoin.org calls it digital cash for goods and services, not electronic gold for burying in your backyard, so you are simply incorrect here.
It may have been “eventually decided”, but clearly that decision never made its way to the press releases, to the bitcoin FAQ where it is claimed “Work is underway to lift current limitations”, or to the bitcoin wiki where there are still a bunch of unworkable scalability plans and various divinations on how Satoshi envisioned scaling up.
I have been following bitcoin since 2009. I enjoy the implication that no amount of technical details on cryptocurrency can make your opinion valid, you must have a literal vested interest in the success of cryptocurrency. Given that you once asked to use bitcoin to keep things anonymous, I might make an analogy of my own. Your enthusiasm for bitcoin is a lot like my illiterate grandmother’s enthusiasm for qigong based sorcery. In exactly the same way, when I don’t believe qigong will allow me to levitate and live to be 120 years old, she tells me that’s because I haven’t spent a lifetime cultivating my qi flow.
Could be the case. For example, I never heard of FTX until it was revealed as a scam. I don’t really watch TV or see internet ads, but probably could have told you so if I had heard of it and bothered to look into it. And bitcoin.org, that is just some people putting stuff on a webpage.
But if you want to do some transaction with anyone in the world who wants to use bitcoin, its no problem. As long as you are willing to pay high enough fee, or wait long enough for it to get confirmed for a lower fee, it works just fine as advertised. And there are plenty of other cryptos or layers build on top for whatever your usecase might be.
But I will say that convincing people to mindlessly put x% of their paycheck into any investment is the biggest scam out there. Essentially these ETF approvals are the top scammers in the world now doing that with crypto, same as they do with stock in companies they own.
I personally said that at some point? Pretty sure I have never believed that in the commonly understood sense. I mean it is a public ledger, actually less anonymous than the usual. Its more like being equally “anonymous” to everyone rather than except a select few (eg, your credit card company, etc).
Technically you can transact with someone without giving them your name… I guess you can try really hard to make it really anonymous, but you’d be better off buying prepaid cards or using cash.
Same as posting here, I am “anonymous” to random trolls but for sure anyone with the motivation and resources could discover my name with enough effort from server logs/etc.
Anyway, all your issues with it were already discussed to death over a decade ago. Yet, it continues to grow because it is offering people something they want.
The bitcoin whitepaper refers to it as cash in the title and the first sentence of the abstract, and refers to commerce in the first sentence of the article. That is the founding text, not just something on the internet. For that matter, neither is bitcoin.org, it was registered by original bitcoin project developers/maintainers and is managed by someone they personally chose, if not themselves.
And yes you personally said it in this thread.
https://statmodeling.stat.columbia.edu/2021/09/02/there-are-no-equal-opportunity-infectors-epidemiological-modelers-must-rethink-our-approach-to-inequality-in-infection-risk/#comment-2022582
In fact, it looks like you’re now copying back exactly what I explained to you at the time
which you dismissed as NPR level understanding. So I suppose your conversational style is on full display here.
Yea, the transaction would be anon to Phil rather than sending a bank transfer. Who is not going to go deep to discover my identity. And mailing cash was ultimately the chosen anonymous solution… Which is less convenient but *more* anonymous.
That is the reality.
Phil, as I understand it, Tesla has never ONCE made a dime off the sale of any vehicle. It makes 100% of its profit off selling carbon credits to other car manufacturers so that those other car manufacturers can meet some kinds of regulatory requirements to continue to sell their oversized Ford F150 trucks etc. And I believe that most of the way we do carbon credits is a scam and that they don’t result in reduced carbon output.
Perhaps that has changed in the last 3-4 years but last time I looked that was the case.
So yes, the cars are a scam.
It looks to me like my data is in fact a little out of date. It probably does make some money off cars these days… But in 2021 “Tesla Made More Money Selling Credits and Bitcoin Than Cars” says Autoweek:
https://www.autoweek.com/news/green-cars/a36266393/tesla-made-more-money-selling-credits-and-bitcoin-than-cars/
Since selling bitcoin has got to be offsetting any carbon value that the carbon credits could possibly have, basically more than 50% of Tesla profits are scam.
“Emissions credits accounted for $518 million in revenue in a quarter that saw a pretax income of $533 million and a net income of $438 million on a GAAP basis. Needless to say, the credits account for almost the entirety of Tesla’s profit for this quarter—in fact, sales of emissions credits have been a major source of revenue for Tesla for quite some time, contributing to hundreds of millions in income for the past few quarters.”
Daniel,
I think your definition of ‘scam’ is at variance with mine, and with most other people’s. If you buy a Tesla you can charge it with electricity and drive it around. You might think it’s not worth the money or that it’s somehow wrong of Tesla to sell carbon credits, but that doesn’t make the cars a ‘scam.’ If you want to argue that the carbon credit market is a scam, you might have an argument.
I think you’re letting your justifiable anger at various stupidities and inefficiencies get the better of you when you claim that everything is a scam. Lots of things that are stupid and inefficient are not scams.
Yes, it’s the carbon credits that are the scam, and the tax credits for the gigafactories, and the bitcoin trading, and…. The existence of Tesla cars is entirely down to the existence of those scams. Therefore the Tesla cars is a byproduct of that overall scam being run.
I define scam here as any scheme whereby one group of people extract value from another group of people due to either hiding information from those people (wash sales of NFTs, claiming that products do something they don’t actually do, counterfeiting goods, flooding the market with fake brands and reviews etc), getting some law passed that allows them to make the government extract money from people and pay them (the social security scheme I mentioned elsewhere where money flows mechanically to banks for doing nothing), getting the government to require people to purchase something they otherwise wouldn’t want at prices that are determine in large part by the extractors (selling Tamiflu to the govt emergency stockpiles, fake carbon credits, the individual mandate for health insurance under the ACA), getting the government to exclude competitors from competing so that there’s an effective monopoly or oligopoly (DMCA, near perpetual extension of Disney copyrights, regulatory capture of whatever generic drug it was Martin Shkreli was pushing), getting the government to exclude certain people from paying taxes (Amazon operated without paying sales taxes for decades, Amazon got tax breaks for putting their headquarters in some particular spot, Tesla has billions in tax credits for building a gigafactory in NV), or creating assets whose entire purpose is to be sold by the creator into a market driven entirely by a desire to hold the asset until it goes up and dump that asset on the bigger fool later. (NFTs and dot com stock for companies that had no hope of ever being meaningful, and liar mortgages were good examples.)
If people just bought Teslas because they liked them with no fake carbon credit scheme and no bitcoin transactions, and no Gigafactory tax credits and no German Gigafactory tax credits and etc Tesla wouldn’t be a scam, it’d just be overvalued. With all that other bullshit, it’s a scam. The cars are just the byproduct of running the scam.
When a private equity firm buys Sears, has Sears sell all its buildings to the private equity real estate holding company, then charges Sears outrageous rents to use the buildings, then gets Sears to issue enormous debt to pay out enormous bonuses to the executives, then waits until Sears needs to file for bankruptcy and then walks away with all the real assets leaving nothing left for the retail investors and pension funds but a lot of un-payable debt… that’s a scam, it’s called a Bust Out when the mafia used to do it using guns. It’s called “good business practices” when private equity does it using the govt’s guns. It’s still a scam.
Here’s Doctorow describing in more detail the Bust Out scam: https://doctorow.medium.com/the-long-bloody-lineage-of-private-equitys-looting-798597a4fa30
Yeah, like I thought, your definition of “scam” doesn’t match up with what most people think of. I suggest coming up with a different word.
This puts me in mind of Humpty-Dumpty:
“I don’t know what you mean by ‘glory,’ ” Alice said.
Humpty Dumpty smiled contemptuously. “Of course you don’t—till I tell you. I meant ‘there’s a nice knock-down argument for you!’ ”
“But ‘glory’ doesn’t mean ‘a nice knock-down argument’,” Alice objected.
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”
Yeah, as I thought, you’re using “scam” to mean something different from what other people mean by “scam.” I think that’s bad practice. It puts me in mind of Humpty Dumpty:
“I don’t know what you mean by ‘glory,’ ” Alice said.
Humpty Dumpty smiled contemptuously. “Of course you don’t—till I tell you. I meant ‘there’s a nice knock-down argument for you!’ ”
“But ‘glory’ doesn’t mean ‘a nice knock-down argument’,” Alice objected.
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”
The problem with your definition of scam is that it seems to imply a deliberate planned action by some party to take advantage of others. Some of what you list are real scams by that metric. But others are poor policies enacted by poorly motivated or poorly informed people and not understood by the victims. These are indeed bad, and as the old cartoon says “there ought to be a law about that.” But there isn’t. And I believe that in most cases the reason there isn’t is because our political system is such a mess. Even there, I don’t attribute deliberate malfeasance by many of the actors involved. Carbon credits might be a scam (I’m not fully convinced but I could easily be persuaded), but I don’t believe it was a deliberate conspiracy against the dimwitted public. And, if you keep following that road, I’m afraid you are lending support to all those conspiracy thinkers out there that Trump keeps appealing to (talk about scams).
Dale I think you’re naive if you think these things aren’t deliberate. It’s not like laws are easy to pass, you have to lobby hard for them, which is what industries do. Also buy in from the public needs marketing. See my post about the plastics industry and the late 80’s and 90’s astroturfing of “recycling” further down the page
https://statmodeling.stat.columbia.edu/2024/02/20/stabbers-gonna-stab-fraud-edition/#comment-2325060
Astroturfing, lobbying, and soforth is a real and huge thing. The people doing it know well how much they’re going to make from it, the general public doesn’t. The asymmetry of information is just like the asymmetry in people wash-trading NFTs, some scammers come up with a good story, pitch it to the public, get a law passed… then clean up.
Convincing people that without copyright extensions to hundreds of years “poor artists would starve” is a SCAM, it’s like a supposed nonprofit showing you pictures of victims of starvation, taking your money, spending 98% of it on office space and a Bentley for each executive, and sending 2% to a food bank in Africa that lets food rot in a warehouse. No-one but the scammer benefitted. Yet Disney was successful and got the Sonny Bono copyright extension act passed in 1998, it was a transparent gift to Disney and Fox and Universal Pictures and etc. It’s responsible for a major destruction of our common cultural history as stuff languishes in archives and eventually molds or gets destroyed in fires instead of being transferred to digital and put on archive.org. I got a cold and was in bed so I just watched the 4 Basil Rathbone Sherlock Holmes movies that accidentally weren’t renewed in the 70’s and became public domain. The other 10 or so are unavailable anywhere in digital form as far as I can tell. They’ll likely be destroyed in a fire like the Apu Trilogy and then we’ll be left with nothing but VHS era crappy transfers.
I consider these things scams. If Phil disagrees then it’s not because I’m intentionally being obtuse it’s just because Phil and I have a genuine disagreement about what qualifies as a scam.
Phil: Journalist Edward Niedermeyer showed that Tesla was receiving large amounts of tax credits by promising that their vehicles did something which they actually did not do (they never got battery-swap to work, so at one point they had fields full of small diesel generators as charging stations). And that they never really had a path from making small runs of expensive luxury cars towards mass manufacture which requires a totally different mindset of standardization and methodical minimization of errors and variations (but their stock price got high because they told a story that they would replace the existing industry, which requires increasing production by orders of magnitude) and that they hide accidents and malfunctions from regulators.
I loathe Elon Musk and don’t like the fact that I’ve gotta defend Tesla here, at least in part…but that’s my fault, I should have chosen a different example of Daniel’s overreach on the use of ‘scam’. So here I am.
Tesla makes a couple billion dollars a year selling carbon credits to other car manufacturers. The raison d’être for those credits is to incentivize the auto industry to make fewer gas-powered cars and more electric cars. It’s working. That program is surely not the most efficient way to achieve this end, but it is really pushing it to call it a ‘scam’. And even if it were a scam, it wouldn’t necessarily be Tesla’s scam. As far as I know they didn’t bribe or otherwise coerce lawmakers into creating this scheme.
I don’t know anything about Tesla getting credits that they don’t qualify for. If that’s the case then yeah, that’s scamming. But in ordinary parlance it still wouldn’t mean “Tesla cars are a scam.” Taking 2022 just because that’s the year that popped up when I did a search, Tesla reported $21 billion in profits that year, of which about $2 billion was carbon credits. Even if we count all $2 billion of those carbon credits as being ‘scam’ — a characterization I think is totally wrong — it still would not be true that “Tesla cars are a scam.”
Nikola Motors was a scam. Tesla is not a scam.
Phil, I’m fine with admitting that Tesla, the company, is way less scammy now than it was the last time I looked into it back in 2021 ish when almost all of their profits came from the regulatory credits and tax bullshit, and like someone else said the vehicles didn’t actually qualify either. Today, they still had major one time tax credits that made up a lot of their recent quarterly profits but at least they sell a lot more vehicles and the scammy bits are a smaller fraction. They also have some horrible safety issues, like after a crash you can be trapped in the back seat unable to unlock the doors without battery power. I would personally never own one.
Electric vehicles are a lot like recycling which I mentioned elsewhere. They are a niche which has some value but are nothing like a solution to climate issues or pollution. For CA to ban gasoline vehicles after 2035 is a scam perpetrated on the citizens which benefits Tesla and other EV makers but is not viable overall. All the lithium in the crust of the earth put together isn’t really enough to make that vision happen globally, even if CA only is the issue, the plan is not viable and the power grid can’t handle 30M EVs charging overnight at 3kW each (90 GW compared to the total CA generating capacity of about 42 GW currently). Nor would we want to build out that nighttime generation capacity.
Is it a scam to lobby the state of CA to ban gas vehicles to produce a short term boost for EVs and ultimately drive efforts away from more realistic transportation changes? I think so. Tesla benefits from that scam. Right now Tesla market cap exceeds the next 10 largest vehicle makers put together or so. It does this because of it having convinced governments to shovel all sorts of benefits it’s way, pass laws that promote it’s products in completely unrealistic ways, and it trades Bitcoin while claiming climate credits… I still argue the company is a scam. The cars are definitely cars, but the company overall and it’s stock in particular is a scam. It’s actually in the late stages. I expect it to return to earth as KIA and others produce dramatically better EVe. I just don’t have the appetite for shorting against insanity particularly given its existing crazy short interest of 90M shares.
Dale says:
> And, if you keep following that road, I’m afraid you are lending support to all those conspiracy thinkers out there that Trump keeps appealing to (talk about scams).
Why do you think there are so many crazy conspiracy theories like Q-anon, and pizza parlor, and lizard people, and UFOs out there right now? The answer is because by astroturfing crazy conspiracies people running real conspiracies can take the heat off themselves and discredit people talking about REAL conspiracies as if they were equivalent to those Q-anon crazies.
I’ll just document here several real actual conspiracies with real actual verified evidence which have had major profound effects on events in the last 25 years:
WMDs in Iraq: It’s clear that at best the intel on this was sketchy, at worst it was largely fabricated https://www.theguardian.com/world/2011/feb/15/defector-admits-wmd-lies-iraq-war and then used to justify what Cheney in particular wanted which was an invasion of Iraq and he continued to spin that story long after CIA discredited most of it. https://www.washingtonpost.com/politics/2019/03/22/iraq-war-wmds-an-intelligence-failure-or-white-house-spin/
Purdue pharma and opioid conspiracy: https://www.justice.gov/opa/pr/opioid-manufacturer-purdue-pharma-pleads-guilty-fraud-and-kickback-conspiracies they later pled guilty to fraud and conspiracy, and are clearly responsible for more deaths than COVID.
ATT conspiracy to hand over communications in enormous bulk quantity to the NSA without warrants: https://en.wikipedia.org/wiki/Room_641A
ATT conspiracy to charge people regulatory fees to roll out a fiber network that never happened: https://www.huffpost.com/entry/the-book-of-broken-promis_b_5839394
Telecom conspiracy to get protectionist laws to maintain semi-monopolies: For the last 20 years Telecom providers bought many protectionist state laws to prevent municipal broadband, or let them scoop up those networks at low cost if they existed https://www.techdirt.com/2017/05/04/maine-latest-state-to-try-let-giant-broadband-providers-write-shitty-protectionist-state-law/
NSA conspiracy to illegally collect every single text message sent in the US for many many years: https://www.theguardian.com/world/2014/jan/16/nsa-collects-millions-text-messages-daily-untargeted-global-sweep
NSA buys commercially collected data from stuff google and others snarf off your cell phone: https://techcrunch.com/2024/01/26/national-security-agency-americans-internet-browsing-records-warrantless/
The NSA was involved with Google from the beginning, providing monetary support and encouraging surveillance technology and likely influenced them to do mass surveillance so that they could get commercial companies developing mass surveillance systems and end-run laws that prevent them from doing it themselves https://qz.com/1145669/googles-true-origin-partly-lies-in-cia-and-nsa-research-grants-for-mass-surveillance (also see them buying up the commercial data above)
Russia spent years inside US computer servers thanks to the Solarwinds hack: https://www.npr.org/2021/04/16/985439655/a-worst-nightmare-cyberattack-the-untold-story-of-the-solarwinds-hack
Twitter has long been a place crawling with russian and chinese disinformation campaigns, but they did make some efforts to try to control it… until Musk took over: https://www.npr.org/2023/04/21/1171193551/twitter-once-muzzled-russian-and-chinese-state-propaganda-thats-over-now
Roche conspired to hide data about Tamiflu and push the drug on governments for stockpiling to the tune of billions and billions of dollars worldwide, continues to market the drug, which does nothing much: https://www.theguardian.com/business/2014/apr/10/tamiflu-saga-drug-trials-big-pharma
Private Equity firms intentionally looted the assets of multiple major important retail stores, including Sears, K-Mart, Orchard Supply Hardware, Bed Bath and Beyond etc https://www.cnn.com/2018/10/16/investing/retail-sears-private-equity/index.html https://medium.com/@samquinones7/orchard-supply-hardware-and-the-mediocrity-of-millionaires-44c90060bbd1 these actions violated even basic ideas of “fiduciary responsibility” and may or may not have been illegal, but they were certainly scams designed to extract massive value for the PE company and leave other investors out in the cold by forming effective legal entity barriers between them (such as selling off store property to a holding company and then charging the store to rent it back).
Large oil companies ran massive astroturfing campaigns online to convince consumers that climate change was fake: https://www.ucsusa.org/resources/how-fossil-fuel-lobbyists-used-astroturf-front-groups-confuse-public
It just goes on and on. One after another groups doing things that are either illegal, right on the edge of legal, or end-running around laws, or just dishonest or fraudulent or pushing disinformation…
I’m sorry, real actual conspiracy level scams are everywhere. If you haven’t noticed it’s because you weren’t looking or the discreditation campaigns were effective.
I agree with pretty much all of these examples. I don’t agree to include social security and the Fed, however. I have many of my own to add to your list.
That’s fine we can agree at least that I don’t think Social security and the Fed are active directed conspiracies the way the NSA conspires with ATT to snarf data off special network nodes or whatever, I do think they are conveniently broken mechanisms that people exploit and that can’t get fixed because politics so the people exploiting them get to continue to exploit them for a long time.
I remember reading this article https://www.politico.com/news/magazine/2021/12/28/inflation-interest-rates-thomas-hoenig-federal-reserve-526177
from the article:
“The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system. ”
So Thomas Hoenig saw what the Fed was doing back in 2010-2012 ish as dangerous that it would result in the kind of problems we’d see today with both inflation and deep income inequality and dangerous asset bubbles (ie. tech “unicorns”) so he basically agrees with me about the policy, and I think he was right about the situation and that the facts that played out showed he was right. But I also think that the Fed inevitably was going to do what it did. It had virtually no real choices for both political reasons and because it has a limited set of things it can do.
To say that the Fed did a thing repeatedly but that it’s not part of the design of the Fed I think you say that because it’s not *intended* by the people who established the Fed. That’s not what I mean when I say design. The Challenger was designed to explode if launched at cold temperatures. That is, design decisions were made to use certain materials which resulted in space shuttles reliably exploding if launched at cold temps. Of course no-one said “make sure it blows up at cold temps” so it wasn’t *intended* design, but as a part of the blueprints, the fact that it would blow up at cold temps was inherent in its design documents.
The Fed is like that. It’s got a certain set of cogs and wheels and knobs which inevitably lead to it behaving the way it does, even if the people who designed it all didn’t try to make that happen. That’s what “The Purpose of a Thing is What It Does” means… it means that if you want it to do something else, you must change the way it operates.
Daniel Lakeland says, “Name me an industry thats 10% of the US economy that’s growing more than say 3%/yr and actually produces consumable goods that aren’t scams. ”
There isn’t much that’s 10% of the US economy! See https://en.wikipedia.org/wiki/Economy_of_the_United_States_by_sector.
But only a handful of industries make up 10% of the US economy: (a) wholesale trade (not sure what qualifies here), (b) manufacturing, (c) retail, and (d) finance/insurance.
Presumably manufacturing and retail are still “real”, though I really wish prices and quality were higher. There’s education, but it’s nowhere near 10% of the economy. Columbia’s tuition is $66K and change, whereas median household income before taxes is $74K), it’s hard not to see that as some kind of scam other than that it’s hard to get a decent job without a degree. I’d say that’s rent seeking by the universities more than a scam, encouraged by cheap loans.
Daniel also says, “People aren’t having children, they can’t afford houses, they can’t save for retirement, their efforts at investment lead to huge losses. But “the economy” is doing great?”
From 2000 to today, fertility rates have dropped from 65 per 1000 women aged 15-44 to 55 per 1000. The huge drop was from 1960 to 1980, when it went from 120 per thousand to 65 per thousand, yet I never heard anyone talk about it in the 1980s.
I’d say if you made investments in the last couple years at losses, that’s on you. Sure, if you put your money in Therano, you didn’t do so well. But if you played it safe and put it in index funds, the S&P 500 is up 75% over the last 5 years (seemed like a good window to measure).
Housing is a puzzle. Interest rates went up, but housing prices didn’t come down, and I think what’s going on is that there’s very little on the market compared to the past (see: https://tradingeconomics.com/united-states/existing-home-sales). Existing home sales went up 50% from 2000 to 2005, then dropped nearly 50% from 2005 to 2011, then rose steadily to 2020, took a 50% dip in 2020/2021 (Covid!), then spiked back up to nearly all time high levels in 2022, before falling back down to historically normal levels of the 1990s today (this is not adjusted per capita, but it’d be easier to follow if it were).
I don’t know about retirement saving. Now that there are very few jobs with pensions, I’m afraid people aren’t very good at saving for themselves.
Bob, I went to your wikipedia link and I just sorted the 2002 data it had by dollar size of the industry then I went and looked at fred data on “Real sectoral output” for relevant industries:
The industries are in decreasing order:
Wholesale trade: (middlemen, not producers)
Manufacturing: Completely flat for 20 years with a few major dips https://fred.stlouisfed.org/series/OUTMS
Retail trade: (again middlemen, not producing)
Finance and insurance: (middlemen in money, not producers)
Healthcare and social assistance: here’s hospitals, avg like 1%/yr growth: https://fred.stlouisfed.org/series/IPURN622AT010000000
Construction: this is all broken down by categories but here’s lumber and construction materials https://fred.stlouisfed.org/series/IPUGN4233T011000000 avg growth like 1-2% for last 15 years, major decline in 2008 ish which basically means zero total growth since 2005 ish until 2020 construction boom. The big boom back in 2004 ish was a component of the mortgage scam.
Information: this is broken down by subsector but let’s look at wired telecom carriers. I mean it has been the internet boom right? Actual real output growth? abysmally close to zero since 2000 https://fred.stlouisfed.org/series/IPUJN517311T011000000 despite telecom providers like ATT sucking down enormous subsidies for decades to roll out a fiber network that never appeared. https://www.reddit.com/r/technology/comments/7gob2w/americans_taxed_400_billion_for_fiber_optic/
Professional scientific and technical services: also broken down by subcategory, here’s engineering services: https://fred.stlouisfed.org/series/IPUMN54133T011000000 which avg about 3%/yr since 2000 or so, with a considerable variation, and a boom around the pre-mortgage-crisis era, that boom was part of the mortgage scam.
I think the picture is pretty clear? Nothing of primary production actually has any real avg growth to speak of, and a huge component of our economy is just selling stuff between different entities at wholesale or retail. That’s not nothing, but it’s not really amazing economic value added. When we did see some outsized growth in the last few decades it was often coinciding with something like the mortgage scam or the dot com scam.
I’ve got a longer post with a bunch of links to fred graphs in the queue, but here’s one overall graph of gdp/capita continuous growth rate:
https://fred.stlouisfed.org/series/A939RX0Q048SBEA
it averages like 1-2%/yr since 1990 or so.
In the period 1950-1980 or so it probably averaged about 4-5% with individual quarters at an annual rate of up to 14%.
Then there’s median household income as a fraction of GDP/capita
https://fred.stlouisfed.org/graph/?g=1haYY
That’s at its lowest in history, 0.966. In 1985 it was 1.3 instead.
Basically what this means is households take home the smallest fraction of overall productivity that they’ve ever done.
Nominal household income today is: $74.5k, if the above stat were still at 1.3 that would mean MEDIAN household income would be at $100k or about 33% higher than it is today.
These factors don’t happen “by accident”. When I say that an important component is scams, what I mean is that we’ve arranged for monetary policy, tax policy, antitrust policy, and other policies to transfer funds from everyday people into the pockets of people who either provide no value, create negative value by charging for things with major externalities, or provide substantially reduced value from what they could get on an open market (for example without hundred + year copyrights and patents provided on publicly funded inventions, special carbon credits for Tesla, special tax savings for Amazon to put its headquarters somewhere, special tax deals for Gigafactories, special regulatory fees ATT can pocket while it pretends it will but does not actually install fiber etc).
This is the sense that I mean of a lot of this stuff being “scam”. It only happens because someone paid off some govt agent to get a law put in place that makes it happen or similar.
Thanks—that’s interesting. Too many charts to digest with weird axes. Software looks high growth:
https://fred.stlouisfed.org/series/IPUJN5112T300000000
It’s been clipping along at +10% per year for 10 years. But I’m not even sure what qualifies as software. Maybe Microsoft but not Google or Facebook or Amazon?
The median vs average graph is a clear reflection of the fact that income has become more unequal. I agree with that portrayal (although there are some counterarguments that are not trivial, depending on what is measured and how) and I also believe it to be a great problem. But is it the result of scams, technological change, demographics, globalization, or some combination of these things? Putting them all in the category of scams muddies the water, invites populist nonsense about conspiracies, and can stand in the way of meaningful changes to improve things. Politics is dysfunctional enough without making this a simple case of class warfare.
Dale no doubt there’s way more going on than “just” scams. Of course. I’m not arguing that “the entire reason why things are bad for middle income people in the US is scams”. I mean, the global war on terror was a huge drag on the US, and although it started as a scam (there are WMDs!) it ultimate was a lot more than just a scam. Similarly offshoring and other effects are important.
What I am arguing is that in the absence of scams (in the broad sense I’m using them, one group of people doing something semi-secret using fraud, special govt privilege, monopoly tactics, dodgy accounting, skirting the rules, probably even going outside them etc to get ahead at the expense of other people, or invent some bullshit asset and trying to leave someone else holding the bag etc) the improved real GDP growth and reduced inequality the US would have experienced in the last 25 years could easily have led to real median income being 2x what it is today (ie. 3%/yr higher growth in real median income). No question in my mind.
I advise you to short Tesla, and anything else you perceive to be a bubble/scam.
I agree with a lot of what both Dale and Daniel say, but for me the biggest scam of all has been diverting our attention from climate change. I learned the basic physics of anthropogenic climate change in one lecture in 1971, and foolishly thought people would take timely and effective action to address it. Had there been effective leadership on the issue, I think people would have responded. I remember, back in the late 40s when I was a child, people being nostalgic for the sense of common purpose they had during WWII.
WWII had an immediacy of threat that is less evident and subject to less uncertainty than climate change (or AI). I think technological advance creates more obscure and distant potential threats, so mobilizing a sense of common purpose is much more difficult. I wasn’t alive at the time, nor have I tried to research it, but i doubt there was much information saying that Hitler was not a threat (although I know the US resisted entering the war until Pearl Harbor, perhaps based on perceptions that the threat was not substantial). It is difficult to imagine a climate incident comparable to Pearl Harbor, with a clear perpetrator and clear victims. Also, I can think of a number of recent events with a clear perpetrator and clear victims that have failed to mobilize a sense of common purpose. Naturally, these events are more localized – we don’t seem to get that sense of common purpose unless it directly affects us. Climate change does affect us, but it isn’t entirely negative and is difficult to separate from other short-term and longer-term effects for which the effects are even more diverse (in terms of some positive and negative effects simultaneously). I believe some people would cite the big scam as the attention devoted to climate change being excessive rather than deficient (not my view, but I think widely held).
Dale,
I think you should read Merchants of Doubt, by Conway and Oreskes; you miss the point that there was (and is) an organized effort to say that climate change wasn’t a problem.
The thing is, back in the 70s, effective action could have been relatively painless — introducing a gradually increasing carbon tax, subsidizing greater energy efficiency, subsidizing better insulation on houses, subsidizing public transportation, etc. (some of these things were done, but not vigorously enough).
Now, we are in deep trouble. Climate change will increasingly drive human migrations that are going to provoke xenophobic and authoritarian responses. It is hard to see how it can end well.
For at least 20 years I’ve thought that catastrophic levels of climate change was inevitable. You couldn’t do anything in 2000 that would prevent at least some level of catastrophe. There wasn’t any way to prevent China from opening thousands of coal power plants short of nuclear war. There wasn’t a way to prevent Russia from selling oil and gas in quantity at low prices to drive oligarchy short of Nuclear war. Nuclear war was worse, and so… catastrophic climate change was inevitable.
The only thing we have now is attempts to mitigate the effects.
There were organized efforts to keep the US out of WWII as well. Arguably, earlier intervention might have reduced the ensuing tragedies. I don’t disagree with your last 2 paragraphs, but there are many that do. It isn’t as clear cut to them as it is to you or me. And it isn’t even that clear cut to me, unless you change the last sentence to read “it is hard to see how it can end well for….” Replace the missing phrase with anything except “everyone.” If you can’t see how it can end well for some people, then you are certainly more pessimistic than me (and I’m pretty pessimistic).
John –
I agree with Dale in that climate change is an abstract threat that plays out over a long time horizon. The difficulty of addressing that kind of risk is discussed in much of the literature that addresses cognitive biases.
What people see on a day-to-day basis is generally not very noticeable. Mainstream climate science puts the probabilities of a clearly unambiguous risk of “catastrophic” levels of climate change decades out. The science generally says that most types of severe weather events are rare enough that it will take quite a long time to see an unambiguous signal. This is just the very nature of the problem. The severe risks and impacts of climate change are, on a probabilistic basis, will play out over a quite long, probably multi-generational time frame. Of course it may happen more quickly than that, but the evidence suggests that’s not probable.
Meanwhile, it’s obviously an issue that’s rolled by ideology-based, identity-aggressive and identity-defensive cognition.
It’s a mess.
Jon:
The prediction of unavoidable civilization disaster from climate change is wild speculation. Nothing more, nothing less. It’s no more known or guaranteed than the outcome of hte 2030 World Series. It’s not entirely out of the question. It just depends on about a gazillion assumptions, most of which are almost certain to be wrong.
It’s funny that you hark back to the 1970s – before environmenalists killed nuclear power. At that time it was also widely believed among the scientific litteratti that the world was doomed to suffer mass starvation, and when the even-today-much-beloved-by-scientist-doomers Paul Ehrlich made his famous horrendously wrong prediction of world starvation by 1980. Back then we also had the famous Club of Rome predictions about the end of growth. Wrong. Since then we’ve had two iterations of peak oil doom and Y2K doom as well, not to mention “peak phosphorous” and “peak nitrogen” and every other scare story the science establishment can dream up to drum up cash. Recently it’s even been published that were almost out of “cheap sand”! What howl! I had an extended discussion with a “peak sand” advocate, where i discoverdd the basis of these projections was based entirely on ridiculous and inaccurate assumptions. “Peak sand” is just a lie by environmental groups to support their regulatory efforts.
And that’s the climate establishment. Almost to a man, the climate establishment bought into peak oil doom like a junkie buys smack, relentlessly publically flogging the doom of the end of oil. Many of these people are also closted Ehrlichians – some of whom have even preached draconian population control. Either they’re incapable of comprehending the idea that society might continue without doom or they’re just liars seeking to remake the world to their liking and looking for any lever to pull that can assist them in doing so.
At this point we can rest assured that any disaster that occurs will be pinned on climate change by the climate establishment. They’re getting desparate to find something that is actually happening.
Relevant to scams and the environment… This article from a few days ago revealing that as far back as the late 80s plastic producers pushed a bullshit message that plastic was recyclable while private in company communications revealed they all knew recycling was a sham.
https://www.theguardian.com/us-news/2024/feb/15/recycling-plastics-producers-report
I can’t tell you how strongly I argued this exact thing in high school in my economics class. But recycling was the trendy hip thing. All the beautiful liberal girls were doing the work of Exxon… Getting those blue bins put in all the halls… Sigh.
Here’s a visualization showing the reality.
https://vis.social/@infobeautiful/111964670966780602
If the infographic is to be believed only one percent of all plastic ever produced has ever been recycled into a reused object. If that’s not a scam I don’t know what is.
> In January 2021, Weinstein was granted clemency by President Donald Trump at the recommendation of, among others, “the lawyer Alan Dershowitz”…
Hard not to take note of that.
Perhaps another common ingredient of successful frauds is our unwillingness to believe that people, especially people “above us” in hierarchies, are incompetent or unethical, despite ample evidence to the contrary. A Dean of Engineering surely couldn’t be churning out barely-middle-school-quality papers, so there’s no need to look into the publication record. A biotech founder wouldn’t make up lab results, so there’s no need to check. The default seems to be that the higher-ups are competent — perhaps not a bad default, but most people are reluctant to even look for data that might challenge it.
Sub-middle-school-quality, I’d say. Then again, middle-school students have more free time, as they are not encumbered by the awesome responsibilities of academic administration.
“These stories of “least competent criminals” are always fun, especially when the crime is nonviolent so you don’t have to think too hard about the victims.”
Unfortunately, fraud often has a trickle-down effect measured in blood. When a blue-collar crime is committed, the body is found and then there is an investigation. With white-collar crime, there is an investigation and then the bodies drop. The fallout from fraud is hard to measure, and in big cases like Bernie Madoff I see it as an indirect form of mass murder.
The same goes for scientific fraud: We cannot measure the damage done. We know there must be damage, even great damage (e.g. tax money taken from widows and orphans, from the elderly and the infirm, and blowing it to hell), but we do not even know what the opportunity cost is. (@Andrew Gelman: You frequently mention this last bit when writing about academic fraud/ Clarke’s law “research”, but I feel like it is such an underappreciated point that I wanted to bring it up once again.)
This is really a good point. Theranos’ scam is responsible for probably multiple deaths. At least one is well know, Ian Gibbons was the chief scientist and he committed suicide. But there’s probably a few others involved. Scams that have a wider financial consequence can easily cause the deaths of everyday people. A friend of mine in grade school had his mother get scammed out of a major component of her life savings by their neighbors who then fled the country. There was no death there, but it absolutely could have resulted in one if for example they as a consequence had lost their home, become homeless, headed down a major poverty trap path… child gets involved in drugs etc.
I don’t think people give enough credence to the idea that scams are really really bad. The prevalence of them at the moment is in my view responsible for way lower economic growth than we otherwise would have.
Apologies for not reading the blog the last two days — this symposium was interesting (and pretty exhausting) to read!
Daniel: I don’t think anyone would deny that there are frictions in the economic system that siphon off immense amounts of resources and make the economy far less productive that it would otherwise be. But there are frictions in the air that make baseballs fly far less than they would fly on the moon, if only we could figure out how to play baseball on the moon. The way I think about the majority of what you call “scams” are intricately tied up with the system that gets the 1-2% real growth you cite. It can’t be 3-4% for the whole economy because no one has figured out (or in a Hayekian sense, could possibly figure out) how to do one without the other. Any system sufficiently rigid to eliminate “scams” is too rigid to give incentives to create, because the cost of failure is too high. We allow bankruptcy not because we feel great about the scamming people who have loaned money that they will never get back, but because the 1-2% growth we can eke out depends on visionaries, most of whom are scammers (in your sense, some of them scammers in every sense.) But we can’t tell ex ante who are the scammers and who are the drivers of actual productivity growth, because even the innovators themselves can’t tell.
Regulatory capture is a thing, and so is rent-seeking behavior, both of which are completely unproductive. But separating the remora eels (commensal relationships) from sea lampreys (parasites) is not something that’s easy to do… though we could simply get rid of fish and sharks altogether and they’s go away.
Well, I completely disagree. But we see this as two completely different problems. Your idea is that the problem is “the people” and my personal belief is that the problem is the systems and their designs. A redesigned Fed and monetary system would be substantially better. For example the Fed has only one real way to adjust the money supply: buy/sell bonds with banks. Another completely different way to adjust the money supply would be to simply fund a UBI out of thin air some of the time for example. A redesigned taxation system would be substantially better. A flat tax to go with our UBI could be described in a few pages of code, our tax code is volumes long! With very few rules, there are very few ways to game the system. Also treating appreciation of assets through time (filtered to remove fluctuation noise) automatically moves money out of the hands of the wealthy into the UBI, avoiding income and wealth inequality. A redesigned regulatory system around utilities and the internet would be substantially better than what we have now. A redesigned FDA that utilized expected utility calculations and negotiated prices on the monopoly drugs would change our pharma system substantially. A redesigned market for water in CA would dramatically improve the situation with water resources in CA. A redesigned system for funding mental health issues differently from other kinds of medical issues would dramatically lower the cost and morbidity of mental health care. A redesigned system for paying medical bills that goes through a single government clearing house similar to the check clearing system operated by the FED would eliminate enormous amounts of waste and scam billing in medical care. A mechanical stop-loss insurance included with your taxes at some reasonable threshold for medical care cost per year would eliminate enormous amounts of scammy behavior in private insurance. An audit system for grants would eliminate enormous amounts of wasted and un-reproducible research in NIH and NSF funding. A simple archive of papers operated by the Library of Congress would eliminate the entire scam system of scientific publication…
The big problem we have is that there are so many complicated systems that people can get levers attached to to pry money out of the system mechanically.
Systems are the problem, not people. People suck for sure, but systems enable them to suck effectively.
I’ll just link to Donella Meadows’ great book: Thinking in Systems here https://www.chelseagreen.com/product/thinking-in-systems/
I agree that we disagree entirely on the nature of the problem! But while you seem to think that the instantiation of better systems is easy, I think it’s incredibly difficult. Even tiny changes can have huge unexpected consequences, and massive changes like those you propose above are guaranteed to have massive unexpected consequences — and a lot of them will be terrible; I just can’t tell you which ones. As long as you’re working with the crooked timber of humanity, clockwork efficiency is unavailable. You see us currently beating square pegs into round holes and propose square holes. But amazingly, when you make the holes square, some people find it to their advantage to become trapezoidal.
I’m mostly with another Jonathan here. Improving systems is harder than Daniel thinks. A simple redesign of the Fed is likely to either create new opportunities for rent seeking (potentially worse than are there now) or will be too rigid to deal with the next crisis (few people anticipated the growth and nature of the nonbank financial entities). But I will say that we have many systems poorly designed enough that drastic reform is needed – such as the income tax system, the political primary system, etc. I’m not sure if I would include the Fed on this list – overall I think they have been one of the better functioning systems we humans have created. If there is a fatal flaw, it is that they cannot cope with the way that technology has changed the nature of money and payment systems.
Systems evolve the way they do for reasons – if you don’t understand how they got where they are, you are likely to not design a better one. There is a strange contradiction in Daniel’s argument here – it sounds like he is blaming the reason for the systems being the way they are on people, yet he claims the problem is the systems, not the people.
Of course the systems have gotten where they are because people are terrible and or course it’s hard to change the systems because people have surgically spliced their own circulatory systems into the flaws they are exploiting.
So, no, the problem of changing the systems isn’t easy. But if we don’t identify the right problem then we have no hope of a solution. If we identify the problem as “bad people are exploiting good systems, and we need to eliminate the bad people” we will get nowhere forever, or even worse decline into a dark age of nearly pure rent seeking at the top and nearly pure serfdom at the bottom eventually resorting to literal guillotines or war.
On the other hand if we look at the problem with eyes wide open. Rules themselves are the problem, you can’t fix the problem by adding MORE rules, you must strip back the complexity which is essential to the exploitation… Then at least we have a chance to avoid the worst possible outcomes.
Tweaking systems by adding in rules is the neo liberal politicians wet dream, the Nancy Pelosis of the world… It’s also the conservative politicians wet dream, the Mitch McConnels of the world. That’s why it’s gotten so bad. Two groups fighting against the overall greater good trying to get the rent seeking to point in the “right” direction. One group wants the rules tilted towards the Bill Gateses of the world who get rich and then run a big charity, the other wants the rules tilted in favor of the Elon Musk of the world who get rich and destroy the communications commonses in favor of the messages of oligarchs.
It’s very very hard to exploit systems with very simple rules. As an employer, every time you owe someone X in wages, take 0.35X and send it to the IRS and send the rest to the employee, that’s hard to exploit in the face of moderate intensity random audits. Also the audits are quick and can be done much more frequently.
Every time you want to bill someone for a medical procedure send the bill to the government Clearinghouse. The Clearinghouse aggregates expenses for the private insurers and bills them. The individual gets a monthly bill for aggregate expenses. If the individual goes over an annual amount the govt pays the overage as stop loss insurance. The govt audits billing and claws back money when fraud is detected. If fraud goes over some amount mechanically the audited data counts as prima facie evidence of a crime, CEOs and other responsible parties receive jail time unless they can prove the evidence is incorrect or show a specifically responsible party within the organization.
Of course people will try to aggregate more complexity onto the system for rent seeking purposes, but we must resist that. One way to resist that is to put caps on the gzip compressed byte size of the legal code. Keep the system description small and exploitation is much much harder. The system description is enormous right now, so it has to go en mass.
The hard part is making these codes go away en mass without war. I’m 100% with Dale that they need to go though.
But that complexity is all there for a reason: every change comes from someone saying, “The simple system is unfair to me (or fails to further some worthy social goal) and needs the following tweak…”. Sometimes, they’re right! Lots of times, they’re disingenuously lining their own pockets. But they are people, and it’s their system, and they are entitled to use the levers of government to get it changed. And that’s in a good government! In more typical bad government, they don’t even have to make figleaf arguments…. they just tweak and steal. Where you end up is where we are now. Like Andrew Wilson says below, to throwing out obviously counterproductive crap in favor of simple systems is dangerous.
It’s fine to say that systems aggregate their rules because of a feedback of people complaining that they’re somehow unfair or fail to do important things. But most of the time they’re wrong to think that something should be done about it “oh my town didn’t get as much per capita graft as the neighboring small town.. let’s create a rule to help small towns in Iowa” etc. No. End of story. In fact let’s get rid of the rules that allow that small town graft in the first place.
In any case, a system whose complete description is limited by information theoretic measures to a relatively small size is clearly better. If you want some rule, throw out some other rule to keep the system description small.
Andrew Wilson in part has some good points. But it’s also empirically the case that you can take a deep learning neural net and train it to do stuff with tens of billions of neurons, and then you can put a penalty on number of neurons and you can train it to do virtually the same job with like 1 Billion or even 100M neurons. Guys are doing this right now with the fancy image generators or LLMs. The bigger ones usually do a slightly better job, but they’re also way more exploitable in some sense, getting them to output people’s phone numbers or email addresses or home addresses that they’ve accidentally memorized or etc.
If you don’t constrain the size of the system it will grow forever, and it will be more and more exploitable.
Also, the issue with starting over in software is generally to get it to do the same task but with somehow simpler code or whatever. What I’m actually suggesting is to *change the task* because no we don’t need a detailed system for keeping track of carried interest taxes… we don’t need carried interest exemptions at all. End them. We don’t need a detailed system for keeping track of the 2008 repayable tax housing credit… we just don’t need those things at all. We don’t need a detailed system for scoring grants on metrics related to impact, innovation, and feasibility and have tens of people spend days and days discussing and revising the scores, then sorting those grants by score and funding the top 8%… Because the whole scoring system is just political and popularity games. Force grants to meet very basic thresholds for fundability and then randomly select 8% of them, put a rate limit on how fast you can apply for grants… done.
There are HUGE systems for keeping track of bullshit that shouldn’t exist in the first place. Like the bulk of these systems shouldn’t exist. Put a limit on the total system description size, and even on the size of subsystems. gzip the code and make congress or cabinet agencies trim their descriptions to size.
This takes it too far for me. Complexity that responds to individual pressures often does not add up to good government. I think flexibility is a virtue, but it is also a characteristic of rent-seeking, nepotism, cementing inherited or political relationships, etc. So, perhaps complexity vs simplicity is not the right dimension. I agree with Daniel in wanting a fairly simple income tax system. Each of those deductions, thousands of pages of tax code, massive resources devoted to legal and accounting tax work, were designed to address a “real” problem, they have also been gamed. The final result is a tax code that contains inherent contradictions, permits massive tax avoidance, and serves little public purpose. At the same time, environmental standards that are too simple would not make sense – many local conditions matter and the result will entail complexity.
This is why I keep coming back to the deficiencies in our political system, and I should probably add the public’s view of what it means to be a citizen. “Using the levers of government” is not an innocent thing, unless citizens are willing and able to see a larger picture, or at least their representatives can. Too often, these conditions are not satisfied.
Let’s take a good example from the Linux / infosec world. For decades we had OpenVPN, it implemented a wide variety of protocols many of which are broken and exploitable, but if you configure it just right you can create a slow and secure system, but you’ve gotta be a bit of an expert to do it, or follow a canned description and hope that the person who canned the description in fact knows enough about security to tell you which settings to enable properly.
OpenVPN takes about 70,000 lines of code and has a number of ways it can be badly misconfigured to produce an insecure system. On low end systems it can operate at like 100Mbps.
Wireguard takes 4,000 lines of code, operates in kernel, has very few options, can not be so broadly misconfigured, and operates on those same low end systems at well over 1000 Mbps.
The law, and administrative code should be thought of more like an infosec system. The goal is to create a secure system that provides *minimal* but strong guarantees about the way things should work, and the system should be designed with a minimal attack surface because it’s a primary target of attack.
The way we do law is *THE EXACT OPPOSITE* of that. We throw the kitchen sink into everything, it consists *primarily* of successful attacks, and it is destroying our economy.
I don’t think all/any of you are disagreeing with each other, really. There’s a ‘blind men and the elephant’ flavor to this thread, everyone pointing to a different aspect of the problem — but I think you all agree there’s a problem, and maybe even on the general shape of the problem (so, maybe not so much like the elephant story in that regard).
I’m not going to weigh in with an additional perspective, which would really just be an attempt to integrate everything you have collectively been saying. Instead I’ll just mention two things that this conversation brings to mind.
First, somewhere…maybe in The Affluent Society?… I read a discussion of why laws end up getting complicated. I read this about forty years ago so I probably have all of the details wrong, but as I recall the hypothetical example was rules governing bathroom availability. Let’s say a government finds that some workers aren’t allowed to take a bathroom break during their entire workday. That seems inhumane and maybe unhealthy — imagine workers deliberately going to work dehydrated so they don’t have to pee — so they pass a law saying every worker has to be given two ten-minute bathroom breaks per day. But then there are some workers who have to walk five minutes to get to a bathroom, so this doesn’t work…OK, add a rule saying they have to be given adequate time to get to and from the bathroom, and the bathroom has to be within reasonable distance. Sounds OK but…what about, I dunno, fighter pilots, or deep-sea divers, etc. So you add some carve-outs. And what about cowboys and utility linemen etc.? More carve-outs. But companies game the carve-outs, for instance assigning people to inappropriate job categories instead of providing bathrooms. So the government adds more rules to more carefully define what is and isn’t an acceptable exception to the rule that workers have to be given access to a bathroom. After a few years they’ve got a thirty-page law that is trying to achieve what could seemingly be achieved with a single sentence, “Everyone needs to be given access to a bathroom at reasonable intervals, unless that is infeasible.”
The other thing I’m reminded of is Temple Grandin’s discussion of the checklist/survey she made to evaluate slaughterhouses…it’s been probably twenty years since I read this one so I probably have some details wrong here too. Some big corporation, maybe McDonald’s, wanted to only buy from slaughterhouses that Grandin felt were reasonably humane. According to Grandin there are hundreds or maybe thousands of pages of regulations that govern slaughterhouses, including, for example, how slippery the floor is allowed to be when it gets wet, and exactly how to measure the slipperiness of the floor. But even a slaughterhouse that passes government inspection can still be inhumane.
Grandin came up with a checklist but it didn’t involve measuring the slipperiness of the floor, at least not directly. Instead, she asked: did more than 1/N of the cattle fall down (for some large N)? If so, the slaughterhouse fails. All of her questions were really simple. How many are hit with a cattle prod? How many bellow in fear? Her approach seemed really good. I wonder whether the list _alone_ could replace all those regulations. Maybe it could! But I’m not sure. I mean, I absolutely do not doubt that the regulations could be greatly simplified, I’m sure there’s all kinds of cruft in there that is useless or even counterproductive. But Grandin was able to exploit the fact that she already knew that all that government-regulated stuff was covered, so she only had to think about other stuff.
Hmm, OK, I thought of one more thing: the rules of football (American football) come to about forty pages if you remove all the blank space and make small rather than large diagrams showing the various referee hand signals).
Phil. Your examples are perfect and illustrate what I’m trying to talk about. And yes I agree that we all agree in broad strokes that there’s a problem and it’s related to system complexity, but I think we disagree about the utility or tradeoffs or feasibility of simplifying systems.
Any law that requires the code to be small (like my proposal to measure the complexity by the gzip size) for some value of small would result in people deciding to remove the 36 page bathroom break code and replace it with your single sentence. If there’s no incentive to do that, then that will never occur and the bathroom code will get bigger and bigger.
There’s some psychology article that circulates around about how people have a strong strong bias to add to systems and almost no-one considers fixing things by removing stuff. Here I found it at Ars Technica: https://arstechnica.com/science/2021/04/the-takeaway-is-that-we-dont-tend-to-take-things-away/
People who are experts in designing and fixing stuff (I consider myself one when it comes to math models and engineering systems) tend to be in favor of removing and simplifying… The best systems are as simple as possible but no simpler kind of thing. But average everyday people, and particularly the kind of people who pander to other people to get elected ALWAYS want to add a special this and that. It’s a terrible idea. My friend who’s a lawyer in medical social services field says law professors always teach and prefer laws like “everyone must be allowed reasonably frequent access to bathrooms when a reasonable person would consider it feasible to do so” but that’s not the laws we have.
Of course someone will rig a jury somewhere in Arkansas and get them to rule that a welder working outside in the heat doesn’t need a portapotty because Jimbob Jones the health inspector and uncle of the welding shop owner said so… but this is the price we pay for living with assholes and I’m not convinced that the 36 page bathroom break code fixes that. The truth is people just break the laws and say “so what, sue me”. And in some sense they can get away with arguing that the laws are inconsistent and it’s not clear whether they were breaking them, and this is a defense in some cases!
Your discussion of the slaughterhouse raises a good point, and that is we are often better creating some metric and enforcing an outcome rather than describing a method to achieve that outcome. I’m not an expert but from what I’ve heard “good manufacturing practices (GMP)” in pharma are this kind of problem. There’s some massive code that says things like, your room must have a thermometer and be kept between 20 and 25C at all times, the thermometer must be of a type certified by NIST, the certification must be renewed every 6 months, a record must be kept of the recertifications, any excursions outside the temperature range must be recorded, if more than x excursions occur over y period of time a temperature excursion report must be filed with the FDA, there’s a special form for the report…etc. There are 318 such types of things you have to do, and there’s a small army of people whose whole job is to recertify the room thermometer, replace the sticky mats at the doors that take contamination off your shoes, throw away gowns that have been sitting in boxes longer than 12 days, recalibrate pipettes that have been recalibrated every week for 36 weeks without any single one of them ever been recorded as out of calibration, go through the lab looking for “expired” nylon sutures whose expiration data is primarily based on a desire to sell more sutures not on any measured sense in which it actually “expires” etc etc.
The US Govt is one of the biggest violators of drug expiration dates, because the Military said F*** that and did tests on shelf-stability of pills etc:
https://www.propublica.org/article/the-myth-of-drug-expiration-dates
The purpose of all these laws is to impose costs on competitors. Big pharma can afford to have 4% of its workforce doing this bullshit, but a 12 person startup trying to create a new stent or whatever it’d be 25% of its workforce doing nothing but pushing paper, and by the way when it comes to stents the temperature of the building is totally irrelevant and the gowns need to be there but because there are no people working with live animals no-one ever actually is required to wear them and they have to be thrown out every 12 days adding a lot of expense… etc.
My wife has to have a special doubly locked cabinet and written record of who accesses and uses her controlled substances, and maintains a DEA license and has randomized inspections etc etc. This for a single vial of like 20ml of non-abusable buprenorphine for use in mouse surgeries, whose entire opioid content is exceeded by a single bottle of painkillers prescribed by your dentist after a root canal. Possibly exceeded by just one pill.
Alternatively we could have laws that say things like: in randomized inspections, no more than 2 in 100,000 of tested products may have contaminants reasonably considered mildly harmful. No more than 1 in 1Million products may have contaminants considered seriously harmful or fatal. No more than 1% of animals used in experiments may experience post-operative infections, etc.
Who cares *how* you get there, just get to the point where you aren’t making contaminated dangerous products and abusing animals and etc.
Now, of course inspectors are buyable and can be arbitrary and capricious, which means maybe there should be options to call for independent inspection or whatever, but the 12 volume book of good manufacturing processes could be turned into a 48 page inspection checklist for outcomes, and a protocol for randomly selecting items from the checklist to check each week on a random day of the week…
The point is, smaller really is better up to a point, but that point is way way smaller than what our systems are like today. It wouldn’t surprise me if we could reduce the volume of regulations by a factor of 20 and get *better* outcomes because the remaining regulations are written in a more general, easier to comply, and enforceable way.
Pardon me for backing up a level in the comments:
Daniel: “Of course the systems have gotten where they are because people are terrible and or course it’s hard to change the systems because people have surgically spliced their own circulatory systems into the flaws they are exploiting.
So, no, the problem of changing the systems isn’t easy. But if we don’t identify the right problem then we have no hope of a solution. If we identify the problem as “bad people are exploiting good systems, and we need to eliminate the bad people” we will get nowhere forever, or even worse decline into a dark age of nearly pure rent seeking at the top and nearly pure serfdom at the bottom eventually resorting to literal guillotines or war.”
This, I agree with! But I think there’s a “magic underpants” step in between “identifying regulations which are needlessly complex and benefit only rent seekers” and “implementing a new set of regulations written on the back of an envelope that are simple to enforce and improve human welfare.” And I at least partly agree with you that the easier part of that is designing the new system. But actually implementing it? Short of the guillotines, I don’t see how. And I think that bringing out the guillotines to bring about this nirvana has been tried and found wanting.
Yay progress!
The last time we used the Guillotines we went from Louis the 14th to liberal democracy in France. It wasn’t perfect but it was a BIG step upwards for many many people.
The key is to peacefully impose major systems complexity reductions and remove enormous quantities of rent seeking semi-voluntarily because the alternative will be another round of Guillotines or maybe a Fascist dictator overthrow and this time it’s unlikely to be anything like as good as last.
There isn’t really a choice though. Eventually things break down. The election of Trump was already evidence of it breaking down. The invasion of Ukraine by Putin is evidence of breakdown, the situation in China with crumbling unoccupiable buildings is evidence of breakdown, the highest wealth concentration in the last 200 years is evidence of breakdown. The barbarians are already at the gates so to speak.
I’ve never been very good at roman numerals… Louis the 16th was French Revolution era, 14th was earlier.
picking up on two themes:
Bathroom access: I’ve spent much of my career consulting in the telecommunications industry. I recall one regulatory proceeding (in Texas, Southwestern Bell vs AT&T, different companies at the time) where one of the 700+ items that needed to be resolved in a 3 day hearing was what the appropriate price was for AT&T personnel to use the bathroom in SWB central offices? Many of these offices are not regularly staffed and security was a concern, so SWB wanted a variable charge. AT&T’s position was that their personnel had a right to use the restrooms. Pity the poor regulator.
Rule Complexity: regulation is among the most complex area for rules, and telecommunications is among the worst. There is much rent protection and rent seeking and such a waste of legal and expert resources (although I guess we should wonder what they might be doing instead). A colleague and I once wrote a paper that was probably the most well received professional presentation I ever made. The paper was “The threat effect of regulation.” We argued that most of the benefits of regulation could be obtained by merely threatening regulated firms – if they behave badly, then they would suffer. We could replace much of the monitoring just by threats. Another colleague pointed out perhaps a fatal flaw in our argument – to determine whether there was bad behavior, we might have to devote the same amount of resources that we currently devote to rulemaking and monitoring compliance the rules.
I’m not sure what “semi-voluntary” means, but coming from a defender of the Reign of Terror makes me more than a little nervous. And the French Revolution was of course mild compared to other “semi-voluntary” convulsions like the millions killed under Stalin and Mao.
And no, I’m not an advocate of Chou En-Lai’s apocryphal “Too soon to tell.” But I do feel that our Godwin probability has taken a “Great Leap Forward.”
Fun fact: France’s last legal execution by guillotine took place in September, 1977. That’s several months after Star Wars was released!
Although a long time after the events described in that film took place, at least according to its internal chronology.
Semi-voluntarily means as a result of more standard political protest and pressure etc rather than as a result of a coup. I personally think a right wing coup is more likely given …
[*Guestures widely*]
Also I don’t appreciate being called a defender of the reign of terror. The only thing I defends is that the French government in say 1850 was better for the people’s well being than in say 1750. The methods were appalling but shouldn’t be unexpected. The more you squeeze millions of people the more likely you are to cause violence. It’s better if we don’t squeeze.
Also, have you seen the defensible compounds the ultra wealthy are building? People who don’t think we are in a precarious state have their head in the sand.
https://www.theguardian.com/news/2022/sep/04/super-rich-prepper-bunkers-apocalypse-survival-richest-rushkoff
A related article about software development:
https://www.joelonsoftware.com/2000/04/06/things-you-should-never-do-part-i/
“It’s important to remember that when you start from scratch there is absolutely no reason to believe that you are going to do a better job than you did the first time. … You’re just going to make most of the old mistakes again, and introduce some new problems that weren’t in the original version.”
+1 for referring to an ancient blog post
Maybe I wasn’t paying enough attention previously, but I’ve begun telling myself that this state of the USA and the world in general is the worst in my 77 years. (Except for those involved in previous wars and atrocities.) E;g, Trump and a lot of Republicans, the Supreme Court, several bad Democrats, Putin, Ukraine, Hamas, Gaza, 100+-billionaires, long covid, …
It’s pretty damn bad. I’d be a lot more irate if I weren’t basically actively working on practicing ancient greek stoicism.