Scott Adams's Blog, page 365

Charlie Sheen

I met Charlie Sheen a few years ago, on the set of his show, Two and a Half Men. The writers made a few references to Dilbert in an episode, and that turned into an invitation for Shelly and me to come down and watch the taping.

Charlie was very friendly, and acted as though he was familiar with Dilbert. I often tell the story of Charlie doing a head-to-toe visual assessment of my wife from four feet away. He wasn't kidding around. Just curious, I guess. Somehow he made it seem normal.

In my two minutes of interaction with Charlie, I got the strangest vibe from him. There was something extraordinarily deep, or maybe dark, or intense, about him. You often hear it said of celebrities "He's so normal." I didn't get a normal vibe from Charlie. Not even close. It wasn't a crazy vibe, or a drug vibe. It just wasn't anything I've seen before. It was haunting.

Like many of you, I've been watching his crazy-talk interviews and reading about his unusual life choices. I'm not embarrassed to say I'm fascinated by it all.  But the thing that interests me the most is the intersection between honesty and insanity. There is some theoretical amount of honesty that is indistinguishable from mental illness. Charlie is blurring the line, or maybe spending some time on both sides of it. It's clearly intentional. And it might be working, at least in terms of pressuring his show to restart, at which point it would be the most watched show on television.

It might look to you as if he is crazy because he speaks about himself as some sort of walking god with powers beyond what we humans possess. Crazy, right?  Maybe.  If we allow him some literary license when he says he has tiger blood and Adonis DNA, let's examine the claim.

I witnessed him do hours of dialog during the taping of his show and he never missed a line. His costars didn't do nearly as well. I was very impressed.

Charlie has also survived incredible amounts of drugs and still appears totally healthy. He looks better than any 45-year old I know. He has also spoken of his ability to go all night without getting tired. I'm usually done by about 9 PM. Maybe he does have an unusually strong constitution.

How about talent? He's had dramatic roles in films, and he's the highest paid actor on television. Is it totally crazy for him to think he's built different from the rest of us? Successful people often believe they are special. Charlie's problem is that he's saying it. He's also saying anything else that pops into his head.

How about his nerves? Would you have the guts to even attempt to do the sort of work he does in front of a live audience? I get the sense that nothing scares him.

Imagine if you stopped filtering everything you said and did. You'd have to be in Charlie Sheen's unique position to get away with it, but just try to imagine yourself living without self-censorship. Wouldn't you sound crazy?

Imagine you are so unafraid of consequences and the opinions of other people that you start sentences before you have a plan for how they will end. Sometimes a sentence turns out well, and sometimes you compare yourself to tigers and mythological gods.

I think Charlie is fascinating because he's living without fear. That translates into a disturbing degree of honesty. And at the moment it gives him an amazing amount of power over the media, which he is using to his advantage.

I can't judge his mental health. And clearly he has a drug issue that will last a lifetime. But I also think that a total lack of fear would look like insanity to the casual observer. And perhaps it is. But it's a strangely great kind of crazy.

Hey, CBS, if Two and a Half Men starts up again, I'll cancel whatever other plans I have so I can see it. Advantage: Charlie.

Seeing the Past

Imagine a future with no data privacy whatsoever. Imagine that the images from every video camera are public. Your health records, your web browsing history, your physical location at any moment, and even your financial records are public. We generally assume that having no privacy would be an awful thing. That's not the debate for today. Instead, imagine what types of spectacular apps you could have in a world with no privacy. Allow me to describe a few.

Assume in this imagined future that the cost of data storage continues dropping, and all data gets sent to the so-called cloud. That way, everyone has access to all of the data in the world all of the time.

Assume also that someday almost every space in the populated world has cameras that stream to the Internet. Cameras will someday cost about $1 apiece.

One hypothetical app in the no-privacy world would allow you to see the past and the future through your phone. Just point the camera app in any direction, specify the date you'd like to view, and your phone gives you a video replay of what was happening in your vicinity during that time. You could also use face recognition to search the past for someone specific and replay just the time that individual was in the room. Can't remember where you left your keys? No problem. Just replay the five minutes after you entered the room.

You could also see the future, in rough form, if you knew everyone's current location and speed via GPS, plus any reservations they booked, their Outlook calendar entries, their addresses, their Evite status, and more. Just open your map application, say a name and a time, and a dot will appear on the map for that person's predicted location. Now zoom in to street level to see the actual building.

How about a health scanner? Point your phone at a person and ask for a health scan. You'd instantly have access to the person's health records and lifestyle information. You'd know how much alcohol he purchases, how many cigarettes he buys, and how many times he visits the gym. You'd know age, family history, medical records, and more. Your screen would show the image of the person along with animated highlights of any actual or likely problem areas. 

Airport security would be a lot faster. Every person would be so thoroughly profiled by the system that an x-ray would be unnecessary for 99% of fliers.

Finding a mate would be easier. Just point your camera toward a crowd and it would highlight anyone who is a match.

Making conversation with strangers would be easier. You'd instantly know what you have in common with any other person. That's often all it takes to turn a stranger into a friend.

Imagine driving down the road and having access to the driving record of every other motorist. The risky drivers would be highlighted by the heads-up technology in your windshield. Give them a bit more room.

Privacy has its benefits, but you're giving up a lot of cool apps.

Another Way to Look at It

What exactly is Social Security?

Some say Social Security is like a retirement plan, but that would require it to be self-funding, which it isn't.

I've called Social Security a Ponzi scheme because it's funded by the next generation of suckers. But Ponzi schemes are voluntary. So that analogy is flawed.

Some say Social Security is a social safety net. But old people wouldn't die on the streets if the program suddenly stopped sending out checks. You and I are compassionate. We would open our homes and take in the oldsters. The alternative would be feral gangs of senior citizens grazing on our rosebushes. That's not good for property values.

So it seems to me that the main purpose of Social Security is to prevent old people from sleeping on our couches. Keeping old people out of the house, and away from the rosebushes, is expensive, so we cleverly pass along part of the bill to people who haven't yet been born.

While each person in my generation is paying to prevent, on average, one old person from sleeping on his couch, the next generation will be paying to keep two or three old people out of the living room, and the thermostat below 85 degrees. It might seem like a bargain to them. I call that fair.

People in my age group don't have a cool name like the Greatest Generation. But I think we have a legitimate chance of someday being known as the Generation that Prevented the Greatest Generation from Sleeping on Its Couches.

 

Better Husband App

I wonder if you could build an app that would help husbands pretend to be thoughtful and caring. For example, one feature might automatically start every text message to your wife with "I'm sorry, honey ..."

You might think an apology is only necessary when you've done something wrong. That's how bad husbands think. Good husbands understand that there are only two possible states:

1.       Already in trouble.

2.       Blundering into a trap.

Let's say your wife texts you and asks you to pick up milk on the way home from work. You assume you have done nothing wrong and therefore, logically, an apology is unnecessary. Moreover, you think your wife should be thanking you for running this errand. But watch how the "I'm sorry honey" at the beginning of your text response alerts you to the trap and steers you toward the illusion of husbandly thoughtfulness.

Your Text Response: "I'm sorry, honey. . .  I should have noticed this morning that we were low on milk."

Or...

You: "I'm sorry, honey, but I can't remember which kind of milk we use even though I have seen it ten thousand times."

Without the "I'm sorry, honey" prompt you might inadvertently text your actual thoughts. And that might go something like this:

You: "Maybe you can do that tomorrow when you get the other groceries. The kids' bones won't dissolve overnight."

The Better Husband App could also include a timer to remind you when it's time to compliment your wife. The app could even suggest clever ways to word your compliments so you don't fall into a trap such as this one.

You: "You look sensational today, honey."

Wife: "Today?"

A smarter compliment is the indirect method. You embed your compliment in what seems to be an entirely different topic. Example:

You: "Why do all of your girlfriends look so much older than you? Is it because they don't know how to work out?"

What other features should the Better Husband App have?

Freedom Quantified

I wonder if freedom can be quantified. Everyone wants more freedom. But sometimes we want a bit less for other people. I want the freedom to watch a movie in peace and someone else wants the freedom to talk at the same time. There’s a general agreement in that case that the movie watcher wins. But wouldn’t it be nice if freedom could be somehow scored? That way we’d know how to distribute freedom for the greater good.

Freedom comes in lots of forms. Good health gives you more freedom than poor health. Money gives you more freedom than poverty. Education gives you more freedom than ignorance. You might say I’m talking about options, or opportunities, not freedom in some legal or moral sense. But it all feels the same. Happiness is the ability to do what you want when you want to do it. Everyone wants more of it for himself.

The tricky part is that we’re all interconnected. If I pay for your education, I have less money, and less freedom, because I can now afford fewer things for myself. On the other hand, if I’m a billionaire, paying for your education is a huge increase in your freedom but probably doesn’t have any real impact on my own.

What would happen if you designed tax policy based on the concept of freedom?  If you did, I assume it would look like socialism, where the rich are taxed until their freedom reaches some sort of average with everyone else. Personally, I don’t favor that because I’m too selfish. And it would destroy individual incentives because our system depends on selfishness, doesn’t it?

Or perhaps you could design policies based on the idea that no one can have his freedom reduced for the benefit of another. That doesn’t work because all criminals would be set free, there would be no traffic rules, and soldiers would do whatever they felt like doing.

There’s no practical and honest way to organize society around the notion of freedom. The majority has to use other sorts of language to bring the outliers toward the average. Criminals are “punished” or “incarcerated.” The rich are taxed at higher rates under the absurd notion of “giving back” something they didn’t actually “take” in the first place, assuming their activities stimulated the economy and created wealth where there had been none. (Hedge fund billionaires are obvious exceptions.)

It seems to me that envy, not freedom, or even selfishness, is the organizing principle of society. And maybe that’s the only way it can work. That’s why we love best the leaders who seem to be suffering or sacrificing the most. Zuckerberg, Gates, and Buffett are all geniuses at appearing to not enjoy all the freedom their wealth could deliver. They know that controlling envy is essential to their very survival.

 

Philosophy versus Plan

If you think government should reduce spending, that's a philosophy, not a plan.

If you think small government is good, that's a philosophy, not a plan.

If you think the government should provide a safety net for the poor, that's a philosophy, not a plan.

Somehow we elected a bunch of philosophers to run the country. I hope they find out how many angels are dancing on the head of the pin before the country goes broke.

Sometimes people think they have a plan when in reality they have half a plan. For example, a number of you forwarded me links to John Stossel's article in Reason that has specific suggestions for cutting the budget. I'm going to assume his numbers add up if you ignore wind-down costs and such. I'll even accept the notion that a number of government functions he suggests eliminating might work better in the private sector. But where he recommends elimination of the Energy Department (which I assume means the Department of Energy) I'm left wondering who would take over the job of radioactive waste disposal. That sounds kind of important. That's just one of the things they do.

Stossel also recommends eliminations of the Department of Education to save money. Admittedly, when I read a description of that department's function, I can't tell why they exist. But it doesn't pass the sniff test that you can eliminate a $94 billion per year function (per Stossel) without some sort of impact. Is there no downside whatsoever?

Some folks suggest simply reducing the rate of growth in social programs as an easy fix. But if the population of retirees is ballooning, a flat budget turns into a huge reduction of funds per person in a decade or two. It's not a plan unless you can describe what happens then. If your answer is "not my problem" you have a philosophy and not a plan. A plan is more along the lines of "25% of poor senior citizens will become homeless by 2030. The rest will move in with relatives and suck up the family's funds that would have gone toward leisure in some cases and educating the next generation in others." You might prefer that outcome over the alternative of government spending, but you don't have a plan until you acknowledge it.

Our Republican leaders have a philosophy and no plan that makes the math work. Obama and the Democrats have a philosophy and no plan that makes the math work. Stossel and the folks in the Libertarian camp have half a plan.

If you can describe your political position with one word, you're part of the problem. Political groups confuse philosophies with plans.  When you identify with a group, you become a philosopher. I suppose everyone assumes the plan is someone else's job.

I'd like to see a Constitutional Amendment that makes anyone in federal office ineligible for another elected term if the budget isn't balanced during the current term.

I wonder how hard it is to amend the Constitution in the Internet age. Isn't that sort of thing easier now?

Prediction

During the worst of the Gulf oil spill I bought shares of BP under the theory that the media exaggerated the extent of the problem and underestimated BP's ability to deal with it, both operationally and legally. I timed the bottom wrong, but the concept was right. BP stock is up about twenty points from the bottom. Some might say that I bet evil would win.

Today's prediction is that the media got Egypt wrong. It looks to me as if the revolution took power from a dictator and handed it to another dictator. Things could turn out well if the new dictator and all of his friends have nothing to fear from a democratic government that would later seek to prosecute them for who-knows-what. How do you feel about those odds?

I think the new military dictator will make some promises, ease a few restrictions, maybe hold some suspicious elections, and look to consolidate power over time. I hope I'm wrong. But I think evil will win again. And I think the protests in neighboring countries will die down too.

By way of full disclosure, I invested in an ETF of Israeli stocks (EIS) before the Egypt story broke. That was my usual bad timing, and my investment took a hit because of the unrest. I'm holding on because Israel has a booming tech economy and I think the media coverage has the unintended effect of exaggerating the new risk to Israel. (The old risks are obviously still there.)

This is where I remind you that it is unwise to take investment advice from cartoonists.  

How I Would Balance the Budget with Cuts

Many of you asked that I reopen my offer to interview (okay, mock) yet another proponent of balancing the U.S. budget with budget cuts alone. And so I will. Qualified volunteers are invited to nominate themselves in the comment section. State your qualifications and a thumbnail sketch of your plan for budget cuts.

Meanwhile, allow me to toss out some "bad versions" of how to balance the budget with cuts alone. I doubt any of these ideas are practical, but it might help you imagine how we can get there.

When businesses face large financial problems they don't simply cut existing budget categories. They often change the very way they do business. They might offshore some types of work, close physical stores in favor of Internet sales, merge with competitors or suppliers, form strategic partnerships, sell off assets, and more. My point is that our government is thinking small. It should be thinking in terms of entirely new ways of doing things.

For example, old people are actually quite inexpensive if you don't count healthcare, which I'll discuss later. Old people (75 years old and more) eat like birds, have inexpensive hobbies, and generally have little interest in consuming. Suppose I offered you a deal: Take one old person into your home and pay no Social Security taxes as long as it lasts. You would provide shelter, food, cable TV, and perhaps some spending money for little stuff. The old person, if able, might do some house sitting, pet care, maybe some babysitting, and generally help out.

Now suppose you don't have enough room in your home for an extra person but you still want in on this deal. You can volunteer as a driver for the elderly. You're on call for a certain period each day to make doctor runs and any other local driving. And imagine a similar deal for people who are willing to assist the elderly in a variety of, well, icky duties.

At the same time perhaps we phase out Social Security for future generations. Ponzi schemes can't last forever, especially if the population starts leveling off, which might happen here as it has in Italy. That would give us a few decades to reengineer society enough to figure out what to do with all of the oldsters.

Healthcare is the next hurdle. Imagine attacking the problem at the cause, where it costs the least. I've written about this before, but allow me to describe it again in this context. We begin by getting far more aggressive about eliminating cigarette smoking. I would characterize the government's current activity in that area as hardly trying. With a little effort we could brainwash the next generation to believe smoking is like the Holocaust.

Obama's plan to bring high speed Internet to 98% of the nation probably has a big healthcare advantage too. My healthcare company, Kaiser, already lets me email my doctor and avoid over half of my potential visits. I can even include a digital photo in my email. My guess is that half of all routine visits will be eliminated as this approach catches on. And perhaps if people still need some hands-on work, such as a bandage, or some stitches, your doctor sends you to a nurse practitioner. I see the Internet taking 10% off of healthcare costs.

There's a school of thought that many drugs on the market actually cause more problems than they fix. I think we could reduce drug expenses by another 10% by being smarter about what is prescribed.

Next, we legalize doctor assisted suicide. We already do that, in a practical sense, because it is perfectly legal to give a suffering patient enough morphine to shut down his mind until the body catches up. But the way we do it now is expensive. If our country isn't willing to sanction doctor assisted suicide on moral grounds, perhaps a nearby nation would be more flexible. That accomplishes the same thing. I'm frankly surprised it isn't already happening. (Or is it?)

Now imagine a subprogram of a national healthcare plan that caters only to people who have healthy lifestyles and are willing to prove it. I could imagine a number of ways your lifestyle could be tracked. Annual hair and blood tests could check for nicotine and, indirectly, your diet. A motion sensor with GPS could be attached to your running shoes. Maybe your gym could keep track of the number of visits. And obviously your weight could be monitored. In return for this government intrusion on your privacy, which is entirely optional, your income taxes would be lowered. As a bonus, you'd be healthier too.

How about the military budget? NATO seems obsolete. Maybe we should explore some defense mergers and strategic partnerships that make more sense in our modern day. For example, wouldn't it make more sense to have a military partnership with China and Russia and charge the rest of the world for "protection"?  Together we could reduce our combined arsenals by a third and just maybe make a profit. Australia and Canada could disband their militaries entirely and pay some reasonable membership fees to the new Super Triumvirate for protection. Everyone wins. Except Taiwan. And Tibet. But maybe something could be worked out there too.

I suppose none of my ideas are practical. But I stand by my assumption that simply cutting existing budgets won't get the job done. We need some major reengineering of how we do things.

 

Great Budget Debate - Final

In a recent post I asked for a worthy volunteer to be interviewed on the topic of balancing the U.S. budget by expense cuts alone, without making things worse. (Full disclosure: I believe this to be impossible.) The most qualified volunteer, and the person with the most votes from readers of this blog, is Phil Maymin.

Borrowing from the bio on Phil's website at http://philmaymin.com/about-phil...

Dr. Phil Maymin is Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. He is also the founding managing editor of Algorithmic Finance.

He holds a Ph.D. in Finance from the University of Chicago, a Master's in Applied Mathematics from Harvard University, and a Bachelor's in Computer Science from Harvard University. He also holds a J.D. from Northwestern California University School of Law and is an attorney at law admitted to practice in California.

He has been a portfolio manager at Long-Term Capital Management, Ellington Management Group, and his own hedge fund, Maymin Capital Management.

He is also an award-winning journalist, a policy scholar for a free market think tank, a Justice of the Peace, a former Congressional candidate, a columnist for the Fairfield County Weekly and LewRockwell.com, and the author of Yankee Wake Up and Free Your Inner Yankee. He was a finalist for the 2010 Bastiat Prize for Online Journalism.

His popular writings have been published in dozens of media outlets ranging from Forbes to the New York Post to American Banker to regional newspapers, and his research has been profiled in dozens more, including USA Today, Boston Globe, NPR, BBC, Guardian (UK), CNBC, Newsweek Poland, Financial Times Deutschland, and others.

His research on behavioral and algorithmic finance has appeared in Quantitative Finance, Journal of Wealth Management, and Risk and Decision Analysis, among others, and his textbook Financial Hacking is due to be released by World Scientific in 2011.

I should disclose my own biases on this topic. I have described my philosophy as "Libertarian, but without the crazy stuff." Libertarians are for personal freedom, small government, and a defensive-sized military. That sounds good to me. But I think a better objective is something along the lines of maximizing the public's long term happiness. So while a libertarian might favor allowing his suburban neighbor to operate a bazooka firing range in his back yard, I'd be against that, even if it required a slightly larger government to prevent it.

Furthermore, I believe that if you identify with any political group or philosophy that has a name, you are far more susceptible to confirmation bias than someone who doesn't. And as a general rule, I don't trust anyone with a strong opinion on a complicated topic.

On the topic of the U.S. budget, my current suspicion is that the problem has grown so large that there is no practical way to eliminate the deficit by cuts alone, without making things worse.  But I assure you that I want to be wrong because being right means my taxes will go up substantially.

Let's begin our interview.

Adams: Phil, thanks for agreeing to an interview with a professional humorist who holds an opposing viewpoint. I don't see how this could possibly go wrong for you. Let's start by setting the stage. In round numbers, what is the size of the total U.S. budget, and how large is the gap?

Maymin: The federal government spent $3.5 trillion of our money last year.

That's about the same as the total value of all the stocks in the Dow Jones Industrial Average. In other words, if we liquidated thirty of the largest American companies, including Home Depot, Microsoft, Intel, Coke, McDonald's, Kraft, and Disney, that would barely cover just one year of federal spending.

That's some budget.

Where did the feds get all that money? They took $2 trillion from us through taxes last year and they took another $1.5 trillion from us by borrowing on our good names. The "budget gap" is the $1.5 trillion that the government borrowed, adding to its $14 trillion debt. But in terms of the effect on the average person, borrowing money is the same as taxing.

Adams: Okay, so just to be clear, you're saying we need to find $1.5 trillion to cut from a budget of $3.5 trillion, for a 43% reduction. And that's just this year. Would it be fair to say government expenses will double in about twenty years as the baby boomers retire and healthcare costs continue their upward march?

Maymin: Government expenditures are not ruled by a fixed formula. You're tacitly assuming that the government is morally obligated to pay when people live too long or get too sick. But it's actually immoral to take money by force from innocent people to pay for someone else's retirement or someone else's sickness. Given your tacit assumption, then yes: government expenditures will continue to climb so long as people continue to vote for such immoral redistribution. But I don't agree with that assumption and, now that it is no longer tacit, I hope that neither do you.

Adams: We can get back to your hallucinations about my tacit assumptions later. For now I'm just trying to size the budget hole. Readers can't judge your recommended solution unless they have a sense of how big the problem is. Can we agree that balancing the budget would require cutting something like $1.5 trillion per year in the near term, while the demand for social services could double in twenty years, primarily because of an aging population, whether the government attempts to meet those needs or not?

Maymin: Your question about the "demand" for the future only makes sense if you view the federal government as a special charitable trust whose purpose is to pay a certain clearly defined group of people an amount of money based on its available funds.

But the federal government is not a charity. The main difference is that charities are funded by voluntary contributions, and the government is funded by forceful expropriation. So the self-regulating mechanism of a charity on the amount to pay out is broken. Indeed, instead of asking how much money we actually have, the government (and you) asks how much money we need to pay out. Aside from the immorality, the problem with that question is that the "demand" for free stuff is practically limitless. People could "demand" twice their benefits today. They don't necessarily have to wait for more people to retire or get sick.

But those "demands" aren't always met. There are forces resisting government redistribution. Will those forces be stronger or weaker in 20 years? Who knows? They will certainly need to become even stronger today if we want to not just freeze spending but actually cut it.

Adams: I'm using "demand" in the economic sense, i.e. hungry people have a demand for food. Demand doesn't imply that the government is the supplier.

I learned in business that unless you can describe what the business-as-usual scenario looks like, you have no way to compare your new and brilliant plan. I've asked you twice how large the future budget hole would get if left unaddressed and twice you have drifted into speeches about morality, complete with hallucinated assumptions about the question itself. So let's back up a step.

In general, do you think it's important to describe the economic impact of the "do nothing" or business-as-usual scenario so that one can judge the advantage of a new plan in comparison?

Maymin: Economic demand typically depends on price and assumes voluntary exchange. And of course your question implies the government is the supplier. That's the point of this discussion -- how to cut government spending. You're not asking about the demand for iPhones in 20 years.

For a legitimate business, sure, evaluating business-as-usual can be important, more important than some things, less important than others. But if your business is just going around breaking people's kneecaps, then no, you don't need to evaluate the economic impact of continuing. And what's the right response of the victim? To say, "Why don't you beat up this guy instead?" Or to say, "Stop."

I don't know how much politicians will redistribute income to retirees and sick people instead of wars and bailout in 20 years. But I know Americans would be better off if each of those four items were zero.

Adams: To borrow your analogy, if the only choices available are breaking your kneecaps or cutting off your head, it seems entirely legitimate to consider the kneecap option.  Correct me if I'm misinterpreting your point, but you seem to believe the choices are something along the lines of the government breaking our kneecaps (the current approach) versus a world where the unemployable and sick eat carbon dioxide and poop hundred dollar bills.

Maybe I shouldn't put words in your mouth.

Perhaps we can get at this from another direction. In a world in which the budget is cut to your moral satisfaction, what becomes of the people who currently receive food, shelter and healthcare from the government?

Maymin: What happened to the East Germans who relied on the government when the wall fell? What would happen to North Koreans if that country becomes free? Ultimately voluntary help is always better than forced redistribution, but if we wait too long, the transition may be more abrupt than necessary. My suggestion would be to phase it out gradually while we still can.

Adams: I'm no historian, but I'm pretty sure the impoverished people from East Germany got help from the government of West Germany. And I'm pretty sure the poor in Germany still get help from the government.

So if I understand your concept, as the U.S. Government phases out social services, the government of Germany would pick up the slack.

I'm going to end the interview here. And I'll surprise you by showing some respect for your viewpoint. I wasn't expecting you to be such an absolutist on eliminating government spending for social services. It's entirely possible that private citizens would step up to take care of the needy, and perhaps do a better job of it than the government. And I can imagine a world in which I pay a little extra, voluntarily, to provide healthcare for my neighbor who is too sick to work. It might be a lot cheaper than paying taxes, while feeling less coercive and more meaningful. The Internet makes this sort of person-to-person helping possible whereas only the government could have done it fifty years ago.

We didn't discuss military spending, but I would respect any argument that ranges from a purely defensive military budget to something more aggressive "just in case." No one is smart enough to make that call.

Overall, I don't think Dr. Maymin's philosophy for government spending can be called a plan until someone can describe how the transition away from government social services is accomplished without clogging our streets with the corpses of the starved. But if I am fair about this, our government currently has a spending plan that guarantees doom. Advantage: Maymin.

Thanks for being a good sport, Dr. Maymin. And thanks for some ideas that add a lot to the discussion.

 

The Great Budget Balancing Interview

In a recent post I asked for a worthy volunteer to be interviewed on the topic of balancing the U.S. budget by expense cuts alone, without making things worse. (Full disclosure: I believe this to be impossible.) The most qualified volunteer, and the person with the most votes from readers of this blog, is Phil Maymin.

Borrowing from the bio on Phil's website at http://philmaymin.com/about-phil...

-------------------------------------------------------------------------------------------------------------------------------------------------------
Dr. Phil Maymin is Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. He is also the founding managing editor of Algorithmic Finance.

He holds a Ph.D. in Finance from the University of Chicago, a Master's in Applied Mathematics from Harvard University, and a Bachelor's in Computer Science from Harvard University. He also holds a J.D. from Northwestern California University School of Law and is an attorney at law admitted to practice in California.

He has been a portfolio manager at Long-Term Capital Management, Ellington Management Group, and his own hedge fund, Maymin Capital Management.

He is also an award-winning journalist, a policy scholar for a free market think tank, a Justice of the Peace, a former Congressional candidate, a columnist for the Fairfield County Weekly and LewRockwell.com, and the author of Yankee Wake Up and Free Your Inner Yankee. He was a finalist for the 2010 Bastiat Prize for Online Journalism.

His popular writings have been published in dozens of media outlets ranging from Forbes to the New York Post to American Banker to regional newspapers, and his research has been profiled in dozens more, including USA Today, Boston Globe, NPR, BBC, Guardian (UK), CNBC, Newsweek Poland, Financial Times Deutschland, and others.

His research on behavioral and algorithmic finance has appeared in Quantitative Finance, Journal of Wealth Management, and Risk and Decision Analysis, among others, and his textbook Financial Hacking is due to be released by World Scientific in 2011.
---------------------------------------------------------------------------------------------------------------------------------------------------

I should disclose my own biases on this topic. I have described my philosophy as "Libertarian, but without the crazy stuff." Libertarians are for personal freedom, small government, and a defensive-sized military. That sounds good to me. But I think a better objective is something along the lines of maximizing the public's long term happiness. So while a libertarian might favor allowing his suburban neighbor to operate a bazooka firing range in his back yard, I'd be against that, even if it required a slightly larger government to prevent it.

Furthermore, I believe that if you identify with any political group or philosophy that has a name, you are far more susceptible to confirmation bias than someone who doesn't. And as a general rule, I don't trust anyone with a strong opinion on a complicated topic.

On the topic of the U.S. budget, my current suspicion is that the problem has grown so large that there is no practical way to eliminate the deficit by cuts alone, without making things worse.  But I assure you that I want to be wrong because being right means my taxes will go up substantially.

Let's begin our interview.

Adams: Phil, thanks for agreeing to an interview with a professional humorist who holds an opposing viewpoint. I don't see how this could possibly go wrong for you. Let's start by setting the stage. In round numbers, what is the size of the total U.S. budget, and how large is the gap?

Maymin: The federal government spent $3.5 trillion of our money last year. That's about the same as the total value of all the stocks in the Dow Jones Industrial Average. In other words, if we liquidated thirty of the largest American companies, including Home Depot, Microsoft, Intel, Coke, McDonald's, Kraft, and Disney, that would barely cover just one year of federal spending.

That's some budget.

Where did the feds get all that money? They took $2 trillion from us through taxes last year and they took another $1.5 trillion from us by borrowing on our good names. The "budget gap" is the $1.5 trillion that the government borrowed, adding to its $14 trillion debt. But in terms of the effect on the average person, borrowing money is the same as taxing.

Adams: Okay, so just to be clear, you're saying we need to find $1.5 trillion to cut from a budget of $3.5 trillion, for a 43% reduction. And that's just this year. Would it be fair to say government expenses will double in about twenty years as the baby boomers retire and healthcare costs continue their upward march?

....continued.....(In real time, so it will stretch over a number of days)