Imagine that you’re a boss trying to hire someone to fill a particular job description. You end up with three applicants:

• Candidate #1 (Apple): This guy can only do 80% of the stuff on the job description - but he does that 80% extremely well - as in better than anyone you’ve ever seen. Unfortunately, the other 20% of the job description he refuses to even attempt. He has excellent customer service skills - but for some unfathomable reason he adamantly refuses to work with anyone else. On top of all this, he demands a salary 20% higher than anyone else applying.
• Candidate #2 (Microsoft): This guy does everything on the job description, does most of it pretty well (occasionally better than anyone else), but sometimes the quality of his work is a little sub-par or disappointing. His customer service skills aren’t great, but they aren’t that bad either - and he’ll usually work with anyone you ask him too (except sometimes Candidate #3, cause they have a bad history). He’ll work at a nominal salary.
• Candidate #3 (Linux): This guy not only does everything on the job description - he’ll do pretty much anything you ask him to do. It may take a while, and it may not be pretty - but it’ll usually happen. He does the base 80% almost as well as Candidates #1 and #2 (and sometimes better), but he does the remaining 20% better than anyone. His customer service skills are a little rusty - but as long as you ask him nicely, he’ll get the job done. He has no qualms working with anyone - in fact he’s pretty eager to work with anyone who makes even the slightest effort to work with him. Finally, he’s willing to work for pizza and beer.

I tend to strive to be more like the Candidate #3 - the jack-of-all-trades: be good at everything, but not necessarily the best at anything. That may also be why Linux seem to go well together. Apple definitely has some great products (I have an iPod Touch and a MacMini) - but anytime you try to cross into territory that Apple hasn’t already stamped with their seal of approval, heaven help you. For a short list of recent and ongoing complaints:

• iPod/iPhone syncing - you may get it to work without iTunes, but you’re going to have to sacrifice a fair amount of functionality to do so.
• iPod playlists on the fly - for years this was a standard option on EVERY MP3 player EXCEPT the iPod. It only took them ~7 years to implement it?
• iTunes stability - on anything but Mac OS, I have the craziest stability problems - typically requiring full OS reinstalls every few months, even when the ONLY application I run regularly is iTunes. I can understand stability issues with iTunes through Wine (on Linux) - but iTunes for Windows (on standalone PC or a virtual machine) is a standard commercial product, and is just as bad
• iTunes Library Sharing - works great if you’re sharing with another Apple device. Everything else is verboten - completely impossible.
• iTunes Statistics sharing - since we can’t get library sharing to work, I’ve tried getting the library to sync with other services/software. Syncing from iTunes isn’t much of a problem - but does require a manual library export (or a service that does it for you). But trying to sync data to iTuns - it’s possible, but it requires a 4+ hour rebuild of the iTunes library every time you make the slightest update to the iTunes data - during which your library is completely inaccessible.
• iTunes SmartPlaylists - being a bit of a boolean freak (years in CompSci will do that), I love to be able to build complicated and specific playlists to suit my needs. Unfortunately, Apple has decided that you can only use “AND” or “OR” if you use them one at a time. I’m sure it was a design decision to make the interface simpler for “normal” users - but it means I’m stuck having 70+ playlists to build the three or four playlists I actually use regularly.
• iTunes Remote Control - Since I can’t install iTunes on Linux OR sync libraries OR sync statistics OR sync my iPod to my Linux software without screwing up my listening data, I’ve tried getting some sort of remote control software so I can just play music through the MacMini hooked to the stereo while I’m at my computer. Again, if you have an Apple device (the iTouch) - this is easy. Unfortunately, battery life being what it is, the iTouch doesn’t make the world’s best remote - works great for a few hours, but then you have to recharge and live without for 30+ mins. Plus - the Apple Remote App has some of the worst connection times I’ve ever seen - over a pure WiFi link, it shouldn’t take more than a second to sync up, but it usually takes 3-10 seconds to connect, and the seems to be getting worse over time. (Compared to HippoRemote - my other remote software - which connects in less than .5 seconds, and is improving all the time)
• iTunes Remote Control Software - Since the iTouch is sub-optimal, I thought maybe I could find some means of controlling iTunes on the Mac from Linux. No such software exists, because Apple doesn’t want anyone controlling iTunes (unless you’re using Apple software)
• Apple Screen Sharing - So the iTouch is sub-optimal, and iTunes remote control software doesn’t exist - maybe I can try using VNC - the venerable screen-sharing protocol (that took Apple ~15 years to include at all). Unfortunately, Apple’s implementation of VNC is so horrendously broken such that it only works with specially tuned VNC clients - which means basically every non-Apple software.
• Apple Software Update - For whatever reason, Apple seems to be years behind the times in terms of software updates. Linux updates work beautifully and almost never require a reboot (unless you’ve got a kernel update). Windows software updates (finally, with Vista+) have achieved a measure of parity - rarely requiring a reboot - but they pawn all external software updates off on the individual programs (or the user). Apple Software Update seems to require a reboot no matter you’re installing. It also has an annoying tendency to activate from multiple sources (iTunes asks to update, and Software Update asks you to update iTunes) which seem to stumble all over each other (requiring additional time, energy, and reboots) to finally straighten out. Finally, updates almost always have to happen in the foreground - you can’t download updates in the background, it seems to discard any updates that are downloaded but not installed immediately, and anytime it’s doing an install, you have to exit out of the operating system entirely. I realize it’s easier and probably more secure to install updates in the foreground - but this is 2011, and when everyone else does it seamlessly, and you’re the company touts it’s “most advanced” status…

All this may just be a testament to how impressive the iPod is as an MP3 player - that I’m still willing to put up with all this crap. On the other hand - if Apple ever loses it’s strangle-hold on the marketplace, and then they’ll be in real trouble.

I also wanted to chime in an objection to the characterization of my ideas as fascist - unless your definition of fascism is radically different from the one I use, or those I’m finding online. Fascist ideas are strongly authoritarian - roughly equating to fiscally liberal and socially conservative - the exact opposite of my generally libertarian tendencies.

Originally from the wikipedia article on Fascism (which appears to have been edited since I quoted it):

1. Fascists believe that a nation is an organic community that requires strong leadership, singular collective identity, and the will and ability to commit violence and wage war in order to keep the nation strong.
2. They claim that culture is created by the collective national society and its state, that cultural ideas are what give individuals identity, and thus they reject individualism.
3. Viewing the nation as an integrated collective community, they see pluralism as a dysfunctional aspect of society, and justify a totalitarian state as a means to represent the nation in its entirety.
4. They advocate the creation of a single-party state.
5. Fascists reject and resist the autonomy of cultural or ethnic groups who are not considered part of the fascists’ nation and who refuse to assimilate or are unable to be assimilated.
6. Fascist governments forbid and suppress opposition to the fascist state and the fascist movement.
7. They identify violence and war as actions that create national regeneration, spirit and vitality.

Basically, I’m pretty much rabidly opposed to just about every policy stipulated by fascism:

1. I can agree that a nation is organic and requires strong leadership - but I’d rather have a collective “salad bowl” of cultural and memetic intermingling than any singular collective identity. I think violence and war, contrary to keeping a nation strong, deplete and misdirect resources from more productive peacetime endeavors. At best, this results in the impoverishment of the nation, and at worst, it could result in the outright destruction of the nation. Furthermore, I believe in the rights of liberty for all people. Waging war or engaging in violence against others is an assault on their liberty, and thus reprehensible.
2. I think culture is a result of interesting blends of cultures and ideas of citizens, not dictated from on high. Forcing everyone to share the same cultures and ideas is a violation of individual liberty - and I think individualism and liberty are ideals to which to aspire.
3. While I’ll agree that pluralism can potentially be dysfunctional (cf. Arrow’s Impossibility Theorem), the resulting loss of freedom and individuality under a single collective community is far more dysfunctional.
4. On the contrary, I’d much rather see or bipartisan system expanded to dozens (if not hundreds) of separate parties - if nothing else, it would give me a better chance of finding someone who actually represents all of my political views, instead of some minuscule subset thereof.
5. Again, I prefer cultural and ethnic diversity - more is better - hence my stance on immigration. As long as the sub-group doesn’t actively seek the destruction of the nation (without just cause), I’m okay with it.
6. The option of opposition to the state is essential to avoid oppression by the state.
7. Again, violence and war are BAD things that should only be used at last resort.

I consider myself a libertarian - socially liberal and economically conservative. Economically, I probably also qualify as a laissez-faire capitalist - I think capitalism is the best form economic system yet devised - it efficiently allocates scarce resources and provides for the maximum social good while being based only on individual self-interest. The only time I’m even vaguely anti-capitalist is when there is an obvious market failure leading to a breakdown of efficiency. Socially, I’m all for maximum freedom - as long as you aren’t hurting anyone other than yourself, you should be able to do whatever you want. Of course, I’m also a firm believer in personal responsibility - I’m responsible for my own choices, and everyone else is responsible for theirs. As a result I don’t expect (or want) outside groups to come “rescue” me from my choices (i.e. paternalism), and I don’t think other people should expect it either (entitlement).

America already no longer produces much of anything, so at the moment all we really have is the ability to tax labor.

Maybe I’m a little confused on some of the statistics, and their general meaning - but:

• The US has one of the highest GDPs in the world - typically second only to the European Union (a coalition of 27 nations) - and represents roughly 25% of world-wide production - even with only 4.4% of global population.
• We’re not quite as rosy when looking at GDP per capita - but we’re still in the top 10 of virtually every ranking I’ve looked at
• Even if you prefer looking at GNP or GNI - we still come out looking pretty awesome.

We may not be first in everything, and we’re certainly no longer the manufacturing juggernaut that we were during WWII - but we’re still pretty darn good at just about everything. I’m not saying we don’t have issues (we certainly do), and it’s entirely possible that we will encounter a “doomsday” scenario as people are increasingly replaced by machines (ala self checkout and pay at the pump) - but I don’t think we’re at that stage yet.

if one store around you taxed everything purchased, but no other store did- you wouldn’t shop there

This is exactly true - and one of the primary reasons why the US has such a trade deficit, and why companies are less likely to locate businesses here. Most companies have to buy labor (workers) from the local market - and in the U.S., that local labor market is heavily taxed. If a business gets stuck paying the payroll taxes (which they don’t pay in other countries) they’re less likely to settle here. It’s also significantly more expensive to hire people here - not only do we have one of the highest standards of living in the world, but you also have to compensate for the high income tax. Meanwhile, many other nations use some form of consumption tax to offset their need for a high income tax.

To my knowledge, we are one of only a handful of nations without some sort of consumption tax - so it’s not like adding a consumption tax will suddenly make the US infinitely more expensive to shop than everywhere else. On the contrary, we’d finally be getting to a level more on parity with other countries.

This argument also assumes that the opportunity cost of shopping at another store/nation is effectively zero. I’ll readily agree that if I can get a gallon of gas for $1.50 at one station, while the one across the street charges $3.00, I’m almost always going to shop at the former. But if the $1.50 station is 100 miles away, while the $3.00 station is right next door, the choice becomes a bit different. By the same token, it’s not like I can skip off to Canada (which also has a VAT, btw) to buy a gallon of milk once a week.

I’ll grant that if we set the tax too high, we will depress tourism, stifle immigration (maybe that’s a good thing?), and potentially even encourage mass emigration, that assumes a tax that far exceeds the Laffer Curve maximum. Simply put, people want to live in the US - we have a pretty good thing going here, even if it’s not perfect. It’s certainly better than an awful lot of other places in the world - I can think of only one or two places I’d rather live, and even then it’s only a very, very, slight difference - hardly worth the effort of emigrating.

I’ll also readily agree that eliminating all of the other tax systems and relying solely on a consumption tax (such as the Fair Tax) is probably never going to happen. I think there is too much inertia with the existing system - people are used to paying income taxes, and the government is certainly accustomed to spending them (and then some). Finding enough political capital to outright replace the entire system is going to be virtually impossible - especially since the average American won’t understand the benefits to be gained, and there will be huge incentives for opponents of the measure to cloud the issue with fear, uncertainty, and doubt. It’s also a pretty big gamble - even I’ll admit that there will almost certainly be some unforeseen side effects.

I think it’s much more likely we’ll pass some sort of Federal consumption tax in the semi-near future that will work in conjunction with the existing system. In my “perfect world” scenario, we’ll eventually see the other taxes (income/payroll/estate/capital gains) slowly phased out, and the consumption tax gradually expanded to replace them, eventually culminating in a consumption only regime. More realistically, I expect that we’ll see the Federal government continue to raise all taxes to cover the increasing budget deficits and increased social safety nets.

Being better at taxing the poorest people in the country isn’t going to make headway for any real changes in my opinion

That’s totally true - and I’d like to point out that I’m not suggesting a consumption tax because I think it would be better at taxing the poorest people in the country. I honestly believe that a simpler consumption tax is inherently superior to our current tax regime - the fact that it also addresses illegal immigrant taxation is merely a fringe benefit. I’d also be in favor of any simpler system than what we have now, as long as it can prove itself at least revenue neutral.

The unfortunate truth, however, is that the nation (and politicians in particular) are in love with the complicated system of loopholes and special favors we have now. If a politician can get a great deal for a special interest group that only hurts everyone else a little bit, the populace probably won’t notice, while the special interest group will shower him with campaign donations to keep him in his cushy job a while longer.

From one perspective - it’s possible that Congress acting in this way is a necessary counterbalance to the effects of capitalism. In most cases, an unfettered free-market capitalist economy will result in broad gains for the populace as a whole at the occasional expense of the select few (as is the case in outsourcing). On the other hand, the typical special interest group that Congress caters to is seldom the truly dispossessed - but rather the same groups who are most enriched by the capitalist economy to begin with.

Arizonas ID law will probably help pave the slow progress toward this idea

I can’t say I’m much in favor of Arizona’s ID law, for a couple reasons:

1. I don’t like the idea of government ID checks in general. I like my privacy and I like that I can travel where I want within this country as long as I don’t break any local laws. I think it’s a bad precedent to set that may lead to a Federal ID regime that’s a precursor to some potentially nasty police-state or shades of 1984.
2. I think the implementation of the ID law will encourage racism (or classism, or any other -ism you might name). The purpose is to hinder illegal immigrants, so anyone who looks like an illegal immigrant (legal or not) is going to bear the brunt of the inconvenience of this law. WASPs are likely not to be affected at all. I believe that laws should protect minorities and the disenfranchised from the tyranny of the majority, not reinforce it.

I should also say that I just don’t see immigration/outsourcing (legal or otherwise) as something that needs to be stopped. I understand that a lot of the people coming to the US are displacing those who were born here - culturally and economically. I just don’t believe that the fact that I was lucky enough to be born in the US necessarily entitles me to live a better life than anyone else in the world. On one hand, I do live a better life than probably 95-98% of the world population - mostly because of the fortuitous nature of my birth (as an American citizen and having affluent/intelligent parents). I don’t feel a compelling need to go out and divest myself of my “unfairly” gotten gains - I’ve worked to earn what I have, and while I may have had a head start in a multitude of ways, I’m not going to squander that lead in the interests of global equality. On the other hand, if someone out there can do what I do, and is willing to do it for substantially less money, then I don’t really see any compelling reason that I should be employed instead of that person. If that person happens to be an Indian call-center employee - they’ve obviously gone to a lot of effort to gain sufficient knowledge to do the job. They probably had to work a lot harder to get where they are than I did. Can y’all explain to me why I deserve more money than this other person? Just because of who my parents are or where I was born?

Consider this thought experiment - would you consider trading lives with a randomly-determined person somewhere else in the world? If the decision were forced on you - would that change your politics? For my part, I would never voluntarily agree to the trade - and even if I were a poverty-stricken American, I still don’t think I’d take the trade - cause there’s an awful lot worse out there than being poor in America. One reason I don’t see immigration or outsourcing as a problem is because of my answer to the second question - if I were on the other end of the immigration/outsourcing arrangement, you can be damned sure I’d think that it was pretty fucking unfair that those selfish, greedy Americans locked themselves in their ivory tower of gold and kicked me back out in the mud.

Even without that, however, my adherence to the principles of free-market capitalism are the primary reason for my beliefs on immigration and outsourcing (among many other political issues). By imposing a restriction on the market that companies must hire from Applicant Pool A instead of Applicant Pool B is, by its definition, market regulation. I am opposed to all market regulation unless it corrects an identifiable market failure - and I can’t identify any market failure in the global labor market. If y’all can identify the market failure I’m missing, I’m more than willing to consider changing my viewpoint. If there is no market failure - and y’all still prefer to add market regulation to address the “problem” of immigration - then I contend that your preferences reflect nationalism as preferable to capitalism. Basically, that being American entitles someone to a “better” outcome than the capitalist market would otherwise yield.

Unfortunately, even if your preferences are for nationalism (the elevation of one society over another), engaging in protectionist policies is not going to improve the status of America as a whole. Basically, if we engage in total protectionism (or isolationism) we are withdrawing from the world market and refusing to trade with anyone who might have a comparative advantage in some area. The loss of that advantage (assuming everyone else capitalizes on it) will eventually lead to America losing whatever lead it may currently possess, and falling further behind the longer we engage in it.

Comparative Advantage Example

While the wikipedia article discusses more of the history and large scale details, this example might prove more accessible.

Josh is a much better plumber than I am. I am a much better computer programmer than Josh is. These represent “absolute advantages” - Josh in plumbing, and I in programming. If we were to engage in trade, it makes perfect sense for Josh to do the vast majority of plumbing, and for me to do the vast majority of programming.

Comparative advantage is a bit more subtle. Let’s say we decide to work on a movie library application. It will require two tasks - data entry (typing in the movie names) and programming (building the database). Given my programming skills, I can finish the programming in 8 hours. Josh, on the other hand, would probably take a good bit longer - maybe 40 hours. For the sake of argument, let’s say that I’m the faster typist - and can enter 100 movies an hour. Josh is almost as fast, and can enter 75 movies an hour. Let’s also say there are 600 movies to enter.

Now, given that I’m better at both tasks, I could do all the work myself - spending 8 hours programming and 6 entering data for a total of 14 hours. If Josh decided to do it all himself, it would take 48 hours (40 programming and 8 entering data). Or we could split the tasks according to our comparative advantage - I’d do the programming (since I’m 5 times better than Josh), while Josh does the data entry - each taking 8 hours, or a total of 16.

Now, while the total hours spent is less if I do the task myself, my personal cost is substantially higher. From my perspective, I’d much rather spend 8 hours than 14 hours. From Josh’s perspective, it’s significantly better than doing it himself (8 hours vs 48).

Protectionist policies are basically taking the perspective of “I’d rather do it all myself” - but instead of utilizing the saved benefits (the extra 6 hours in my case) to pursue other useful projects, I’m forced to spend that time working on the original project.

• Measuring immigration via income tax forms (1040, 1099, or under the table) isn’t mentioned, nor would I expect it to be, given that it’s undoubtedly a gross underestimation, and would be difficult to impossible to correct.
• Residual Method - based on the self-reported “foreign born” status on various surveys, corrected for under-reporting - this is the most common method that yields the 12-15 million figure reported earlier
• Remittance Method - based on the amount of money sent to Mexico from the US, assumed to be roughly proportional to the US Mexican population (both legal and illegal) - after removing the known legal immigrants, and adjusting up for any under-reporting, yields an estimate of 15-22 million.

I’ll readily admit these aren’t exact figures - the error bars are easily +- 30% - so I won’t claim the population is exactly 12 million, but it’s probably a good ballpark figure. It’s also worth pointing out that the 12-million figure was reported by the Center for Immigration Studies - an organization dedicated to reducing immigration, so they would have strong incentives to overestimate the illegal immigrant population. If y’all would rather use 20 million or even 25 million as the figure to argue from, I won’t object. I just think that 100 million (or more) is a little unrealistic. I would find it very hard to believe that an organization wanting to curb immigration would underestimate the problem by a factor of 8 or more.

As for how a consumption tax could generate economic growth - most of them come as a result of other effects. As an example, consider the predicted economic effects of the Fair Tax.

Boiled down a bit (and with the assumption that we’re not just adding a consumption tax, but replacing existing tax systems like income, payroll, estate, and/or capital gains):

• Increasing savings/investment also provides an input to the economic system - just not as large or direct as an equal increase in consumption. e.g. putting $10k in a savings account eventually gets invested in stocks, increasing a company’s value, allowing them to produce more. It may not be as powerful a bump as spending $10k on a new car, but it’s not negligible either
• Reduction in tax compliance and efficiency costs would result in an estimated $300-500 billion in savings yearly - which would put a sizable dent in the national debt, or provide for a fairly decent regular economic stimulus from the government (I’d obviously prefer the former to the latter). Approx $300 billion would be saved by the government (in reduced staff to administer the system) and the remainder by the populace (by not having to spend money on accountants and/or software to calculate their tax returns every year)
• A large number of economists suggest that the combined effects of increased capital investment and incentive to work will more than offset any drop in consumption - if people have 20-30% more money to spend (because they’re not paying income tax) then they’re going to spend at least some of it. Even opponents of the plan predict that the economy will grow more under the Fair Tax, just not by as much (and with an initial minor downturn)
• International Business relocation - since businesses would no longer be paying payroll taxes, they’d be significantly more likely to locate future facilities in the US - increasing labor demand (coupled with the increased supply from the increased incentives to work)
• Increased international trade - because the Fair Tax only applies to products consumed in the US, we’d have an advantage in exports (which are no longer taxed via income/payroll/cap gains) and against imports (which would be subject to the Fair Tax), reducing or potentially reversing our current trade deficit
• Repatriation of offshore accounts - roughly $11 trillion (plus $800 billion/year) is being held offshore to avoid taxation (mostly cap gains). Switching to the Fair Tax would bring that back into the US for capital investment.

Granted, almost all of these effects assume that we’re eliminating the existing tax regime - something that I don’t think is likely to happen given our current governmental system. All the above are still applicable if the existing regime is reduced in combination with a more moderate version of the consumption tax. The “worst case” scenario would be a simple addition of a consumption tax to the existing system - something that I think is becoming more and more likely as we approach debt levels in excess of GDP and the insolvency of the entitlement programs. Even in that worst-case scenario, however, there is the consolation that we’re adding a consumption tax instead of increasing income taxes.

I’ll also grant that I haven’t gone deep into the math and economics that would result - I’m trusting the work of experts. It’s entirely possible I’ve been hoodwinked - but the quantity and quality of experts is at least a little compelling.

According to the best estimates of folks who are paid to do these things (instead of ball-parking based on gut instinct, like we were doing), the approximate number of illegal immigrants (of whatever type) is approximately 12-15 million. This is substantially less than our agreed-upon estimate of 1 in 5 US residents (100 million) and even less than my gut instinct count of 25 million. I should also note that illegal entry immigrants (mostly those crossing from Mexico) only account for about 2/3 of this number - with the bulk of the other 1/3 (5 million) represent immigrants remaining in the US on expired visas. Given the most recent non-census estimates of US Population (~309 million), illegal immigrants represent roughly 3.7% of the population.

I also saw quoted that illegal immigrants apparently contribute roughly $7 billion in revenue - though I didn’t see exactly how they came up with that number. If true, then immigrants represent roughly 0.3% of Federal Revenue ($2.567 trillion for fiscal year 2010). If we assume that the average immigrant is roughly comparable to the average taxpayer, then the average immigrant only pays about 10% of the taxes a normal taxpayer pays. If we assume that a consumption tax could increase that to even 50% (which I think is reasonable), that would result in roughly $28 billion in additional revenue. Of course, it’s far more likely that the average illegal immigrant pays less in taxes (due to reduced income) than the average US citizen - so the actual tax incidence for immigrants may be closer to 15-20% of normal, making the benefit of a consumption tax (assuming only 50% effectiveness) less meaningful.

My preferences for a consumption-based tax are due to:

• Decreased individual tax burden by broadening the tax base (i.e. I pay less taxes because more new folks are paying taxes, who weren’t before)
• Effectively taxes wealth (i.e. the mega-rich who inherited their fortunes are better taxed)
• Increases purchasing power (i.e. hedges against inflation, meaning my money is more likely to be worth about the same when I decide to spend it)
• Positive effects on savings/investment (i.e. money isn’t taxed until I spend it, so unless I need to spend it, it’s better to invest/save)
• Ease tax compliance (i.e. instead of having to monitor and track ~278 million taxpayers, we’d only need to track the retailers, or ~200k taxpayers - allowing a substantial reduction in government employees doing the tracking. We’d also eliminate the need for a large number of other taxes - including capital gains, estate, and payroll taxes - since the consumption tax targets those areas far better than an income tax)
• Increased Economic Growth (i.e. primarily as a result of increase savings/investment)
• Incentives for international business (i.e. they no longer need to worry about income/payroll taxes for US employees)
• Increased US competitiveness in international trade (i.e. since most of the rest of the world is already on a consumption system of some sort, and our goods imported there are taxed. Basically, we’re paying double taxes for our exports: our income tax on the production side, and their consumption taxes on the retail side)

The key drawbacks to any consumption tax are:

• Generally regressive on income (i.e. poor people end up paying more percentage of their income on taxes than wealthy people - can be addressed through adjustments like exempting basic commodities (food) from the tax, or via the Fair Tax’s “prebate” to poverty levels)
• May lead to increased tax evasion via “black markets” (though this can be addressed: some consumption taxes, e.g. VAT, eliminate this problem by increasing the points at which tax is collected, others (Fair Tax) prefer to address it via increased enforcement (see tax compliance argument above)
• May not be perfectly revenue neutral with the tax(es) it replaces (i.e. most opponents argue we’ll have a revenue shortfall when we switch as scare tactic - though it’s equally likely we’ll end up with a surplus due to under/over estimates in the tax rate - the Fair Tax has a built in adjustment at the end of each fiscal year to address revenue shortfall/surplus for the next fiscal year)
• Passing it will likely lead to a joint Income/Consumption tax regime - rather than replacing/eliminating the existing taxes (income, estate, payroll), it’ll get tacked on as an additional tax, which will ultimately just keeping “feeding the beast” of government spending - this is, imho, the only truly insurmountable disadvantage

My primary complaints with the current income tax are:

• It’s unnecessarily complex. The current US Tax code, stacked on end, stands nearly 12 feet high when printed on legal-size paper. By comparison, the Fair Tax in its entirety weighs in at about 500 pages.
• I have to fill out tax returns. I hate that.
• I don’t really know what my actual tax incidence is until I fill out said tax forms.
• There’s a veritable mountain of exceptions, loopholes, special cases, and other caveats that could come back to bite me in the ass, while letting the uber-rich folk avoid paying their taxes
• It provides a strong disincentive to savings - something I think has seriously damaged this country
• It provides a strong disincentive to work - every additional dollar you earn means more taxes and less return on time invested (even if we haven’t passed the Laffer Curve maximum) - again, something I think has done serious damage to this country

I’ll reiterate my earlier point that I strongly believe that ALL taxes are inherently bad. They only lead to deadweight loss to society. The only purpose to taxes is to provide revenue to the government, and the only purpose for government is to provide basic property rights and to address any major market failures.

I’ll admit that I was a little shocked at how opposed y’all were to my preferences for free trade and open immigration - especially given how closely our opinions track in preference for free markets and unfettered capitalism. In retrospect, it makes a lot more sense to me, given that I was strongly opposed to both only a few years ago. I was rabidly opposed to H-1B visas, outsourcing, and illegal immigrants - but the more I read about and understand the fundamentals of economics, I’ve undergone a paradigm shift. I no longer see the global economy as a zero-sum game (hearkening back to mercantilism), but as a massive “win-win”/comparative advantage feedback machine. Sure, there are going to be some losers in the exchange - outsourcing a call center to India or closing an American automobile manufacturing plant both result in a local loss of jobs. But the net effect for all involved is positive - and even those who lose their jobs have the opportunity to pursue employment in other fields more conducive to their talents (or at least to fields more advantageous to the country as a whole)

If you aren’t already intimately familiar with comparative advantage, I strongly recommend reading up on it: .

What are the short- and long-term economic benefits and costs associated with our current high federal government budget deficits? Do you think the economic benefits outweigh the economic costs, or not? Why? If we wished to reduce the budget deficit then how would you advocate that be accomplished?

The short term benefits are relatively easy - by pumping more cash into the economy via government spending and/or tax cuts, aggregate demand is stimulated (because everyday people have more money to spend) which results in moderate increase in economic growth (GDP). The main reason we’re doing it now is to smooth out the trough caused by recent economic failures, hopefully keeping unemployment under control and helping the economy recover more quickly to a new growth phase of the business cycle.

The long term costs are also relatively simple - we’re borrowing money from the future to pay for things today, which is how any loan works. The main reason such a loan has ever been advocated is because, in general, the economy and population will grow over time, and thus be more capable of financing the debt. The chief problem is that we’ve been doing it for so long that our long-term debts are starting to become untenable - eventually we’ll have borrowed so much that we cannot hope to pay it back. The is exacerbated by the fact that our population growth has slowed dramatically in recent decades, and the resulting smaller population will likely also lead to a smaller GDP growth. We’ll eventually be faced with one of two possibilities:

1. We’ll no longer able to sustain our current government policies and service our debt - forcing us to weather economic storms like this one unaided by deficit spending
2. We’ll begin to default on our debts, causing our currency and social capital which allows us to borrow money to be devalued to the point that no one will extend us a loan for fear of our defaulting.

Personally, I think the primary factor which determines whether the costs are justified is how old you are. For the eldest among us, they are unlikely to live long enough to see either of the two crises come to pass - so in their opinion saving a little pain now is worth it - they’ll never have to suffer the larger pains in the future. For the youngest among us (or those not yet born), they benefit the least from our current policies - they typically don’t qualify for entitlement programs, and they have the fewest existing assets and the most time before retirement to recover from economic hardship. And they are most likely to still be around when the bill finally comes due.

Unfortunately, the elderly increasingly outnumber the young, so the popular choice is to “play now and work later” as in the fable of the ant and the grasshopper - mostly for fear of alienating the incredibly powerful voting block represented by the elderly. Plus, most of the elderly feel that they are entitled to their current benefits - being as they have paid their dues to reach that point - which I won’t argue with.

To reduce the deficit, we need to either cut spending or increase revenues (or both). My plans for reducing the budget deficit are almost definitely too extreme to ever pass into law, but here’s a few ideas, any few of which would do the job:

• Reduce entitlement spending to a specified fraction of GDP - say 10%. This can be accomplished by:
  • Raising the retirement age as life expectancy increases
  • Decreasing the benefit payouts for social security (or phase them out entirely over a few years in favor of personal retirement accounts)
  • Replacing Medicare with a fixed annual spending account and supplement it with catastrophic medical insurance (to be further supplemented with personal insurance)
• Eliminate the salary cap on Payroll taxes - eliminating a regressive tax and simultaneously increasing revenue
• Cut military spending - we currently have a military that is roughly 12 times the size of the next 20 largest militaries in the world - most of whom are our allies. If we cut spending by 50%, we’ll still outnumber everyone else 6-to-1, and save ~$350 billion per year.
• Cut the new Healthcare plan and replace it with my preferred version:
  • provide yearly government vouchers for preventative care (boosting the demand for general practitioners, preventing the most costly of long term diseases, and raising the general health of the populace)
  • create a new tax-advantaged savings account for medical expenses (similar to a 401k)
  • cap (or eliminate) medical malpractice awards for “pain and suffering” - allowing the medical profession to no longer require exorbitant premiums (basically paying off lawyers)
  • eliminate or marginalize the AMA - reducing (or changing) the requirements necessary to become a medical practitioner, thus increasing the supply of “doctors” and reducing the costs of health care.
  • eliminate the current medical insurance system and replace it with a purely catastrophic insurance system (e.g. covering 50% of expenses $20k-50k, 75% of 50k-100k, and 90% of 100k+)
• Implement one (or more) forms of consumption taxes, increasing the taxed base and thus tax revenue:
  • VAT (Value Added Tax)
  • Fair Tax - effectively a national sales tax
  • Ideally we would replace the existing income and payroll taxes, but there is probably a happy medium where both can exist
• Provide more incentives for people to have more children - allowing the population demographics to return to levels seen during our “boom” years. This is probably not a good long-term solution, given that there are limited planetary resources and we’re already starting to edge up on those.
• Invest more in education, science, research and development - hopefully the long term payoff in GDP growth will prove sufficient to cover our debts
• Invest in a robotic mission to the asteroid field to recover an asteroid or two - by most estimates the mineral resources of single asteroid would cover our current budget deficits for ten years. (~$20 trillion)

This is why I don’t believe in Intelligent Design - if a math equation two lines long can generate this much complexity and variation, can we really think that the relatively minor differences in life aren’t controlled by something as deceptively simple?

Based on a wide variety of IQ tests, standardized tests, and various placement exams throughout my life, I’ve typically been ranked in the 99th percentile for human intelligence. Based on this empirical and statistical evidence, I can reasonably conclude that I’m fairly smart - smart enough, that if I’m placed in a randomly selected population of 99 people, I’m fairly likely to be the smartest guy in the room. While this might be cause for celebration, I’m familiar enough with statistics that I think about slightly larger populations.

For instance, if I’m placed in a randomly selected population of 1000 people, I’m only likely to be in the top 10 in terms of intelligence. I may still be the smartest guy in the room, but I’m just as likely to be 10th. Increase the population to 10,000, and I’m only in the top 100 - increase the population to 1 million, and I’m only in the top 10,000. If you take the entire population of the US, I’m only in the top 3 million.

Applying these statistics to Jeopardy, if you assume that only smart people apply for Jeopardy, and they get a few million applications a year, then it’s fairly likely that almost everyone who applies (and gets accepted) will be at least as smart as I am. If you figure that Jeopardy only runs 250 games in a year (i.e. every weekday, with 2 weeks vacation - they probably run less often), and they only pick the top candidates, my chances of being the best player on a given day goes down dramatically.

For a real numerical analysis, let’s assume that only people in the 95th percentile or higher ever make it on TV - and that on a given day all three contestants are chosen at random from this population. Let’s assume that only half the qualifying people apply, and that only people from the US are allowed to play - that yields a population of 7.5 million potential players, which yields a 1 in 10,000 chance that I’ll get selected to be on TV in any given year. Assuming I am selected, I only have a 64% chance of being the smartest player on stage. When you factor in that intelligence is not the only determinant of who wins (daily doubles and category selection are paramount), my chances only go down.

While some might say that a 64% chance at winning is still worth it, I prefer to apply the expected value. Consider that the maximum winnings (neglecting daily doubles or final jeopardy) is only $54,000. Based off the numbers above, the expected value for applying is only $34.50 - which assumes I get every question right. Even if you consider the absolute maximum payoff (getting every question with daily doubles, final jeopardy, and becoming a 5-day champion), the expected return is only $457. A much more reasonable expectation is $66 (which takes the geometric mean between maximum values, and then divides that result between the three contestants).

A monopoly is a single firm that controls the production and sale of a given good. Good examples are Standard Oil, US Steel, and Ma Bell. A monopoly leads to products of lesser quality, higher prices, and are almost universally seen to be detrimental to society.

A union is a firm (collection of people) that controls the production and sale of a given good (labor). It may only be a regional monopoly, or only of a specific kind of labor, but it still seems like a monopoly to me. They negotiate with everyone who seeks to purchase their good (employers) and negotiate the highest possible price. Because the price is higher than the market clearing price, the demand is reduced, and employers are not able to purchase as many workers as they would like - leading to unemployment. So the union is great for members of the union (they get more pay), but only so long as management has sufficient positions available. As I understand it, any shortage of jobs is inflicted on those newest to the union - so a lazy unproductive do-nothing with twenty years seniority gets priority over the eager young replacement willing to work extra hours at no pay just for the experience.

And yet, not only do we not destroy these vampiric behemoths of inefficiency as we did the other monopolies of days past, we’ve passed legislation to protect them and increase their power? Apparently, instead of lowering the cost of entry into the competing labor market, there are laws that require workers to either be in the union before getting a job, or that they join the union (and pay dues) as a condition of employment. This basically means that it’s impossible for a competitor to enter the market - making the Union a de facto monopoly.

The Right To Work Law controversy makes no sense to me. First off, the simple fact that such a law would be required seems to indicate that the existing rules are hideously broken. The default should be competition and freedom - we certainly should not have to legislate it. Second, the two arguments that union defenders tout in opposition to this corrective legislation are laughable at best.

First, they argue that the law will create a free-rider problem. While they should be applauded for at least attempting to address a market failure, the issue is far from that simple. Yes, a non-union worker can take advantage of the union’s collective bargaining to work at (or below) the negotiated wage and benefits without paying dues. This is most certainly a free rider problem - the employee gains a benefit that he did not pay for - if the goal of society is only to create powerful unions. To make a comparable argument, is it a free rider problem if a new startup firm takes advantage of the artificially high prices created by a cartel of entrenched firms? The new firm is most certainly gaining a benefit that it does not pay for - but that’s the very definition of capitalism. Lower prices are good for society - by increasing overall utility. How is labor somehow exempted from this basic truth? The worst case scenario of the free rider problem is that we’ll end up with fewer unions than is socially optimal. Meanwhile, under the monopoly, employers pay higher than necessary prices (which can be passed on to consumers), unemployment is increased, and the economy as a whole becomes inefficient.

Second, they argue that enforcing a right to work law infringes upon the employer’s freedom to choose to engage in an exclusive contract with a union. While I’ll agree that this is technically correct, what I can’t figure out is exactly why an employer would ever voluntarily choose to enter such a contract. The only case I can see is if, out of all producers of labor, the union is the one that provides the best product at the lowest price - something that is inherently selected against when the union is a monopoly!

I’m not totally anti-union - they were definitely useful in the past, and they may prove useful in the future. Of course, the way I think a union should work is just like any other firm. It sells a good (collective bargaining) for the benefit of its customers (workers) who pay a price (dues) commensurate with the value they perceive in the good. Anyone who doesn’t feel the need to purchase some collective bargaining is under no obligation to do so. If work conditions become too intolerable (hours too long, wages too low, poor safety conditions), then workers will have an increased demand for collective bargaining, driving up the price, which gives the union more power to enforce a more favorable contract. By only negotiating contracts for union members, you’d even have a built-in incentive to join the union voluntarily - as long as the cost of dues is lower than the benefits gained by joining the union. If the benefits get inefficiently high, then unemployed workers will have an incentive to undercut the union’s rates, reducing the power of the union. You could even have additional competing unions - which may offer lower prices (dues) or different values in negotiation.

The way unions are currently configured, however, is an abomination to the ideals of a free and capitalist society. Further Reading

I can’t know the future - so how can I possibly suggest investing in it? I address the assumptions:

1. The world as we know it will continue to exist - basically that we won’t be evaporated in nuclear war or a massive super volcano or asteroid impact or alien invasion that ends human civilization. Given that if any of these come to pass, I probably won’t care much about my investments, because I’ll either be dead or living in a world without money.
2. The world financial markets will continue to exist - if the financial markets completely melt down, then my investments will be worthless. Short of buying lots of guns/ammo and learning survival skills, there really isn’t an easy way to address this risk.
3. Human civilization, science, and technology will continue to grow and improve - while it’s certainly possible to bet against improvement, over long enough time scales, civilization has always improved.
4. Neither I nor anyone else can predict the future

#1 and #2 are basically CMA (covering my ass) - because I can’t predict the future, I can’t really say whether either will come to pass, but the best way to prepare for them is to accumulate as wide a basis of knowledge as possible to aid in both survival and rebuilding, and stockpile a few guns to ward off the occasional zombies, looters, or zombie looters.

Investment Vehicle Priority

Assuming limited cash flow, money is allocated roughly in this order:

1. Establish a $1000 emergency buffer fund - to be used only to avoid incurring further debt
2. Pay minimums on any existing debts, set aside funds to cover necessary expenses (food, rent)
3. If employer offers retirement matching funds, contribute enough to get full matching
4. Pay off the highest interest debt currently on the books
5. Increase emergency fund to equal six months of current salary - to be used only in the case of unemployment, if unemployment seems likely (i.e. you’re afraid), increase the fund to 12, 18, or 24 months
6. Fully fund a Roth IRA for the current year (and the previous year, if necessary)
7. Fully fund any employer retirement account
8. Set aside 10% of remaining funds for discretionary use - use this for whatever you want
9. Fund non-retirement investments

Investment Asset Allocation

Since you typically have less control over employer-based accounts, choose an allocation that resembles the one below as closely as you can.

• 10% - “high risk” venture capital funds - spread as widely as possible to take advantage of unforeseen and highly lucrative events
• 60% - “medium risk” index funds - preferably spread as widely as possible over the entire stock market
• 20% - “low risk” bond funds - again, as widely as possible over the entire bond market
• 10% - “very low risk” CDs/CD Ladders/Annuities/Cash Savings accounts

As you get older (or closer to real retirement), you’ll shift the percentages towards lower risk investments. I would still keep the 10% high risk allocation, just because you never know when you’ll strike it really big - this is the “right” way to play the lottery, since you’re betting on the next Microsoft, Google, or Facebook. If you’re comfortable taking big risks (i.e. losing lots of money in the short run), you could increase the percentages towards higher risk investments for a chance at a bigger payoff.

Dollar Cost Averaging

In theory, you’ll have a certain amount of money at steps #6 and #9 each month to invest. A regular monthly salary guarantees this, while a non-regular paycheck can be approximated (via a moving average). You use this fixed amount of money to invest in your portfolio. Effectively, this guarantees that you will buy low - you buy more shares when prices are low, and fewer shares when prices are high.

Rebalancing

Every so often (yearly, biannually, semi-annually), you’ll want to look at your portfolio and reset it to your target percentages. Over time, some investments will invariably do better than others and change the percentages of your allocation. Maybe the market doing especially well, pushing your medium-risk investments up to 70%, while your very low risk drops to 6%. By moving money from the medium risk to the very low risk, you further reinforce the “buy low, sell high” paradigm. You’re selling assets that are currently very high, and buying assets that are currently very low. This also ensures that you don’t get caught with unexpected levels of risk - if you never rebalance your allocation, you might end up with a very high percentage of risky assets that could suddenly lose value, or, in the other extreme, you might end up with two many low risk assets and miss out on the potential for growth.