Take a look at this video: http://fora.tv/2007/01/26/Why_Foxes_Are_Better_Forecasters_Than_Hedgehogs

I know it's long but it's got some thought provoking material. The short summary is that hedgehogs (people who view the world in terms of one big idea) are more likely to make incorrect predictions but occasionally they pick up on a major development early, while foxes (people who keep a sort of bag of tricks of different ideas) tend to make better predictions, in part by gathering up ideas from hedgehogs.

I think that you are a classic hedgehog. You primarily view the world through a lens colored by your concern for issues of economic liberty. I will further add that I believe you are correct in your identification of the trade offs involved in social welfare functions in government and you are a faithful advocate of the importance of one end of the trade off.

I don't think you're right about the collapsing scenario, at least not yet. There are definite concerns about some functions being unnecessary or inefficient at the federal level, although in other cases, the deficits the federal government is experiencing are a symptom of macroeconomic deficits which I'm not sure that we currently have any options for addressing. We suffered a drop in our income but the cost of our needs continues to rise.

As it happens, I work as an actuarial analyst in pension consulting. Everyone has a fundamental actuarial liability for the income they will need to live should they survive to be too old or too disabled to work. You can fund this liability yourself by saving for this eventuality, although going this route you will bear all of the longevity, inflation, and investment risks and there is a significant chance that even if you practice diligent saving and safe investing that this money will not be sufficient. If you have a pension, your exposure to these risks is reduced. Pension related shortfalls reflect the adverse impact of these risks on the backer of a pension.

The unfunded pension liabilities we are seeing right now are due to recent investment losses combined with an increasing difference between average lifetime and average working lifetime. However, these factors affect every single person who does not have a pension as well. A person who does not have a pension is effectively the sole backer of their own personal pension. Or maybe you can regard their friends and family who may be called upon to support them backers of their pension as well. The underfunding of retirement is much more severe than you realize and this is one of many problems we face competing for resources.

(For the record I personally advocate for a policy that pursues funding retirement through a combination of social security, pension plans and personal saving in a manner such that someone who completely forgoes personal saving or loses their savings would need to cut back on their standard of living significantly, but not unachievably so. There are pension plans which exceed this standard which may consider cuts, although the impact of plan design on the employer's staffing requirements also needs to be considered.)

Returning to the original topic, my expectation is that both the federal problems you highlight and the broader structural problems will play out more slowly than you, hedgehog, expect and given the current lack of policy options to address the broader issues it may be necessary to concede a current priority of simply surviving in the short term while some other matters develop. There are some prospects for a revival of the growth of American GDP and if that comes to pass there will be substantially more breathing room on the broader structural problems.

There are also some problems brewing in other countries and I'm not sure if they will harm the US or if they might create opportunities for us. China's demographic crisis due to it's one-child policy has yet to play out. Japanese and Chinese nationalism is on the rise and could lead to some form of indirect conflict between the two of them. India has its corruption problem and has been passing laws to limit foreign investment. Europe still hasn't come to terms with the fact that the Euro was a bad idea. There's always the possibility of countries in Africa of reaching a turning point where economic development speeds up in the same manner as it died for China and India.

I was just giving a flippant reply since it looked like I hit a nerve with the math. I can defend my assertion though. It's something I've given a significant amount of thought to.

In the early 20th century, there was this belief that the scientific and philosophical advances which had made so much progress in the 19th century could be extended to all problems, including social problems. So you have the nazis thinking that you could get rid of crime by studying criminals and then killing off all of the people with criminal traits. You had the communists believing that they could implement a perfect society by wiping out the elements that resist those efforts.

Both of these movements were characterized by a belief that the only way to fix problems was to get serious about them and stop all of this debate "nonsense". I believe this is what Winston Churchill was referring to when he said that "no folly is more costly than the folly of intolerant idealism."

So there's no sense in getting indignant when I've stepped on your idealist toes. Suck it up, and if you really think your original argument that a deficit of twice what was projected is an egregious and unforgiveable error on the part of the Obama administration, then the way that you can win the argument is to identify specific spending increases tied to Obama administration executive policy that caused the error. I'm too lazy to look it up myself, but then, I'm not the one who's trying to win an argument.

The serious governments were the ones that resulted in the most death and oppression of any in history. The only ways to stop arguing with people who are wrong is to convince them their wrong or to kill them off. "Nonsense" is a byproduct of going with the first option.

I looked it up and federal revenue is about $3t, so spending should be somewhere around $4.2t for a net of $1.2t.

So for argument's sake, let's say that the graph projecting a $0.6t deficit in 2012 was based on projected revenue of $3.3t and projected spending of $3.9t. $3t is 9% lower than $3.3t and 4.2t is 8% more than $3.9t.

Just to get a feel for things, let's do the calculation again assuming the graph was based on $3t in revenue and $3.6t in spending. Then the $4.2t would be 17% higher than expected.

Deficit is a net number. It's the difference of two variables that are (reasonably) close to each other. This means that if revenue or spending changes by x% and the other piece stays flat, the deficit changes by more than x% due to leveraging. Making accurate projections of net numbers out more than a year is largely an exercise in futility since any error in either of the two pieces gets leveraged and multiplied into a larger error in the net. Worse still, revenue and entitlement spending are negatively correlated so their errors tend not to offset each other.

For the record, I don't fully disagree with you. The democrats are resisting attempts to rebalance an unmaintainable status quo (although to their credit, most of the republican proposals to rebalance things at best fix one thing and break many other things).

That's the same as asking if you can preserve the inevitability of error and death.

What you can do is trade one kind of error for another or use up one thing to temporarily save another. That's all you're ever doing in life. We end up arguing with each other over what we should and shouldn't use up and what we should try to save. Lots of people respond to this by picking a few things to try to hold on to and damning the rest. I don't mind picking a few things to try to protect, it's the "damn the rest" part that bugs me.

All are useless. They all represent futile attempts to preserve at all costs things that can't be preserved.

I agree that this is a big deal, but it's not the entire problem. As I noted, these models don't deal with real probabilities, they're a framework for dealing with market implied probabilities in such a way that arbitrages can be constructed that pay out regardless of the outcomes. It's actually a framework for constructing portfolios that are independent of future outcomes, not one that actually predicts them, although the distinction is lost on a lot of people.

Yes it actually is that complicated, although the majority of people working in finance and related disciplines don't understand the model and at best just know how to plug prices into Black-Scholes.

There's more to it than that. The model has developed into a philosophy which has been built out beyond its workable foundation.

It starts with the risk neutral measure. Basically the concept is that you can construct a probability measure (basically a reweighting of probability of events) from market prices. Basically the market prices of a stock, a forward contract (a contract to deliver the stock at a fixed point in the future), a call option (an agreement to offer the option of buying the stock at a given price in the future), a put option (an agreement to offer the option to sell a stock at a given price in the future), and other contracts related to the price of the stock in the future all have to have prices rationally related to each other. If the price of one of these things deviates from the risk neutral measure implied by the others, you can construct arbitrage positions where you can make a profit with negligible risk and executing this arbitrage has the effect of moving the market prices closer toward their theoretical values.

Observably, market prices don't reflect real probabilities. Safe investments such as treasury bonds are disproportionately more expensive than highly rated bonds with a low chance of default based on historical default rates. This is explained due to risk aversion and philosophically, the risk neutral measure is said to reflect the market's assessment of the risk of each investment and also the risk preferences of market participants. This concept is the basis of financial economics, and the school of thought derived from this position has been dominant in economic related disciplines for the past 30 years.

As a means of analyzing for arbitrage opportunities and pricing of marketable securities in a way that avoids offering others arbitrage opportunities, this methodology is largely unassailable. However, where they overextend themselves is that in conjunction with the efficient market hypothesis, they've started to assume that this framework lets you farm out the function of assessing the likelihood of future events to the market and even in some cases they've asserted that it's immoral to use methodologies which imply prices for non-marketable securities which aren't directly comparable to marketable analogues.

It's basically a religion at this point. They honestly believe that the risk neutral measure isn't just a post hoc rationalization imposed on market prices, but a normative guide to upright living and that the market's assessments of the ("risk-adjusted") probability of future events is the best and most rational basis for making all decisions and for framing all policy and regulation.

New constitution:

House of Representatives is changed to allow multiple representatives from each district with voters being able to assign their vote to any representative by internet (or by phone, *sigh*), even midcycle. Also, allow a 30 day window for voters to repudiate their selection in case the House passes something really pandering to draw votes and then immediately after passes something odious.

Senators appointed by states but with a provision for recall elections.

I don't know that we actually need a capitol building. Tear the damn thing down. Congress can meet online and write essays rather than speak in soundbites.

It's less clear what, if anything needs to be done with the other two branches since they're less broken than congress. I'm not a particularly huge fan of judges being appointed though. Maybe replace the supreme court with a college of justices where the admission criteria is 25 years tenure as a federal judge. Sure it means that any idiot who sticks around long enough can join, but it avoids the current game where both parties try to stack the bench with their idiots.

No explicit bill of rights, but instead explicitly specify a test for determining what can be considered a right and what can't.

http://www.youtube.com/watch?v=aaqqV--rnGY

If I'm going to have a pangolin related song from a cartoon i watched 25 years ago stuck in my head, then I'm taking all of you down with me.

A stock is supposed to deliver value to its shareholders by either paying dividends or appreciating in price. If a company doesn't pay a dividend and doesn't appreciate in price (through growth in projected earnings), then they're essentially just dicking around with shareholder money.

Looking back at the past ten years, I would have to say that Microsoft has largely been dicking around with shareholder money. They've expanded into some new markets and failed to break into a number of others. They could have been paying a steady dividend instead. They've started paying a modest dividend now which may mean that they're starting to own up to the fact that they don't have any more huge growth prospects and admit that they might as well pay out some of the cash their earning.

The issue I have with the flat tax that I've never seen answered is that it would make tax evasion much easier. There's a history of business owners falsifying sales to avoid sales tax and it can be very difficult to properly audit for this sort of thing.

I'm of the opinion that if you've so thoroughly codified your beliefs that you preemptively have an answer to any question, then you're not really living any more. All of the decisions he will ever make are in the past now. Isn't that a sort of living death?

When has logic ever resolved a political dispute? Logic isn't applicable to politics because there is no logical way to choose premises and definitions, and if you cherrypick the right ones, you can rationalize away whatever silly political notions you have.