How Will We Pay for It? Modern Monetary Theory and the Deficit Myth

Modern Monetary Theory and the Deficit Myth

Screen Shot 2020-05-23 at 5.22.20 PM

Stephanie Kelton, Economist and Advisor to Bernie Sanders, has written about the Deficit Myth and Modern Monetary Theory

There is a fascinating new economic insight emerging that is changing the debate over government spending and “deficits”. It’s called Modern Monetary Theory and one of its vocal proponents is Stephanie Kelton, who was Bernie Sanders’ economic advisor during his presidential campaign. She has a book (to be released June 8, 2020) called the Deficit Myth which lays out the concepts behind Modern Monetary Theory.

It is a concept of wide-reaching implications and is becoming increasingly embraced by serious economists and policy makers. It’s still quite a novel and counterintuitive idea and if you haven’t heard about it you will undoubtedly be bombarded with it soon, specially as the coronavirus epidemic puts new pressure for government spending for vital public needs.

Screen Shot 2020-05-23 at 5.06.23 PMIn essence Modern Monetary Theory (MMT) says government deficits are not necessarily bad. Since our government has the authority to “print” money it cannot go bankrupt. In this way the government is not like a household which must balance its income with its expenditures. We shouldn’t even label the gap between taxes and public spending as a “deficit”. To the economy at large, such as  the American households, the small businesses, the NGO’s, the corporations etc.  the extra spending by government means a surplus. So the deficit is really a surplus when viewed from the point of view of the actual economy.

Yes, the government can overspend, but that can’t result in bankruptcy The accumulated debt is NOT something we are leaving for our children to repay –  the only possible harmful side effect is inflation. 

But here’s the key insight: as long as the spending is for useful purposes, and as long as there is a slack in the economy   (i. e. surplus capacity to produce goods and services) the government deficits will not produce inflation. In effect we can get a big stimulus, a huge boost to stir up jobs, build the infrastructure, provide healthcare, clean up our environment, develop new technologies and make education affordable without constraints on how to pay for all these things because we do not have to balance government expenditures with taxes. We might be constrained by resources to do all this: manpower needed, skills needed etc – there is an upper speed limit to how fast we can produce new highways, new services, new education, new technologies etc. If we outrun these resources we will create inflation as stimulus money will be wasted in non-productive activities.

But the good news from Stephanie Kelton (and others) is: we are nowhere near capacity in the US; there is plenty of surplus resources not used. Even before the COVID-19 induced economic slowdown we could easily spend $500 billion to a $1 trillion more per year in “deficits” without any overheating of the economy. Now with 30 million (and more) people out of work there is a huge slack in the US economy. Redirecting these idle resources into rebuilding America should not be constrained by a fear of deficits.

Here is a quote from Stephanie Kelton in a recent Bloomberg article:

The claim that deficits are a sign of overspending is just one myth distorting the national debate about the deficits. Liberals as well as conservatives have argued that the trillion-dollar deficits the U.S. is projected to run, beginning as early as 2022, are putting America on a dangerous and unsustainable path. Distinguished economists on both the left and the right have warned that a debt crisis is coming, and that we should act sooner rather than later to deal with our looming budget problems.

Both sides have this wrong. This is not a trivial complaint. Myths and misunderstandings about budget deficits distract from the many legitimate challenges facing our country and leave us poorer than we could otherwise be. 

Here’s a YouTube video of a lecture on MMT by Stephanie Kelton. Worth seeing as she goes in some depth.

 

Implications For Us Today

What does this mean as we reel from the impact of the health crisis?

The coronavirus has shone a very unflattering light on the U. S.. The picture is not pretty.

We see grotesquely lit, in front of our eyes, something that was lurking in the shadows: a country whose public institutions have been allowed to rot; where not only the poor, but  much of the middle class lives one paycheck away from choosing between paying rent or eating, and where the infrastructure is worse than many of the poorest countries. Now more than ever we need an epiphany – a Roosevelt like New Deal to rebuild our fractured society from the bottom up, and to undo decades of deferred maintenance on our infrastructure and our institutions.

Bernie Sanders and many in his camp (like Alexandria Ocasio-Cortez, Ro Khanna, Elizabeth Warren and Ed Markey to name a few) saw the hollowing out of America even before the COVID-19 crisis. They have been suggesting urgent action, what they call a Green New Deal (GND), a very audacious program to bring our country’s backbone into the 21st century while solving the issues of middle class poverty and alienation. Their New Deal for America contained a very bold re-prioritization of our economy:

  • A massive overhaul of our infrastructure into the 21st century: roads, ports, sewers, utilities, green tech, intelligent grids, solar and wind power to replace fossil fuels, zero emission housing and factories etc. Non-exportable, decent blue collar jobs would be created in the private sector to rejuvenate the rust-belt rot and the globalization-induced job losses. The America Society of Civil Engineers estimates a deferred maintenance in our infrastructure to be $4 Trillion. Fix this backbone and you might get a 100-fold  return on your $4T, as we did in the original New Deal.
  • Healthcare, paid for the government (like Medicare) but possibly delivered via the private sector, for all people living in (or visiting) the U. S. Healthcare to be enshrined as a fundamental right and value of our society.
  • Free college education for all who want it. Forgiveness of existing college debt.
  • Rebuilding of our public institutions to provide a public-private partnership in enhancing the efficiency and resiliency of the country. Strengthening of Institutions like the CDC, EPA, DARPA, FEMA, Energy Department etc. that reduce risk to society. (By the way to get a better flavor for the benefits of reduced societal risk please read the excellent book by Michael Lewis, The Fifth Risk. I promise you won’t be able to put it down and will learn a lot.)

Not many argued against the benefits of doing this but the question most persistently asked was: How are you going to pay for it? The question was not answered well: I winced as Bernie Sanders and Elizabeth Warren, the presidential candidates, stammered defensively every time the question was asked.

We’ll tax Wall Street, they said.
Corporations have made obscene profits, they must pay, they avowed
A wealth tax on the rich, they offered.

And these, of course, were non starters. We are talking about large amounts of money, something like 15 Trillion dollars over 10 – 15 years by some estimates. Give or take. (Although to put this in context it is about 3 – 5% of GDP over 10 years.).

Bernie and his ideas scared many. The Green New Deal was considered pie-in-the-sky, wishful thinking, pollyana-ish. The Democratic Party got scared and acted to make sure he would not prevail. To be fair he did not explain it very well in MMT terms. It’s possible he did not grasp the full impact of his advisor, Stephanie Kelton’s views. It must have sounded too good to be true – naively interpreted she says: spend as much as you want without any negative consequences! Had we learned the lesson from the subsequent coronavirus health disruption, we would have realized that the costs of social catastrophe are even larger when fundamental well being is neglected.

So how would we pay for all the projects of the Green New Deal? Would we raise taxes; would we run ruinous “deficits”; would we leave our children with unsustainable debt?

That’s where MMT comes in. It teaches us that that the debate is not about how we’ll pay for it but about what we should do and how to design and implement a practical plan that serves us to become strong and prosperous. The Green New Deal was the start of the debate. Maybe we can all join the debate, and fine tune the ideas in the plan and embark on a rejuvenation course with new vigor.

If so the coronavirus emergency will have taught us a valuable lesson and we will be stronger for it.

 

 

 

 

 

Posted in Current Events, Education, Green Energy, Healthcare, Innovation, Investing, Money, Philosophy, Politics, Science, Solar Power, Uncategorized | 19 Comments

Did a Huge Volcano in India Help kill off the Dinosaurs? A Fun Journey to Search for the Answer!

 

DeccanBlog - Ghats

The Scenic “Ghats” in the Deccan Plateau in Maharashtra

In December I got a phone call from a friend, Mark Richards, inviting me to join a small team of researchers on a trip to India. He said we would be looking for clues to the mystery of the extinction of the dinosaurs 66 million years ago.

It was an offer I could not refuse, and, indeed it proved to be an expedition of great adventure and learning – learning about how geologists, paleontologists and other scientists collect data and use modern scientific techniques to piece together interesting aspects of the earth’s history.

A Little Background

What killed the dinosaurs? It is now widely accepted that it was a large extra-terrestrial object (a meteorite or comet) that hit the earth 66 million years ago. The object was as large as a big city and came crashing into the earth at a speed of 30 km per second – so fast that it went through the earth’s atmosphere in a fraction of an instant. It pulverized the rocks constituting the earth’s crust where it hit, and penetrated all the way into the magma, creating fierce supersonic shock waves with the energy equal to millions of times the Hiroshima nuclear bomb. The rocks then rebounded violently throwing ejecta all over the earth. The ejecta included fused rock that had vitrified into glassy spherules called tektites.

The person most responsible for piecing this story together from the geological evidence is Walter Alvarez, Professor of Geology at UC Berkeley. He has written a beautiful book, T-Rex and the Crater of Doom,  which I urge you to read. It is a page turner, an evocatively written scientific thriller, as Alvarez uncovers unmistakable evidence of the meteorite hit and finds its traces in the rocks around the earth. He then goes on to actually find the (then unknown) meteorite crater in the Yucatan peninsula in a triumph of scientific inference and painstaking geological exploration.

My Book Club fellow-member and friend, Mark Richards, now a Provost at the University of Washington, has been a Professor of Geophysics, University of California, Berkeley since 1994. He had induced us to read the book and later he introduced me to Walter Alvarez. I ended up funding a Ph. D. student (a paleontologist called Robert DePalma) who had made a remarkable find in North Dakota. and now has published some paradigm shifting papers. If you are curious about his findings read this  very informative article in the New Yorker.

Does the Meteorite Explain Everything?

However questions still remain about how exactly the dinosaurs met their demise. The precise mechanism by which billions of dinosaurs and other species vanished forever is still not known – it takes a lot for abundant, well-adapted, dominant species inhabiting all of the niches of the earth for over a hundred million years, to go extinct. Paleontologists and evolutionary biologists are still making models to try and explain numerically how this could have happened from the aftermath of the meteorite hit.

One possible scenario has to do with a massive volcano eruption in India. 

The Deccan Traps and our Area of Travel in India

The second largest volcanic eruption in earth’s history occurred in India   – it lasted for a million years, and the lava flow created the entire Deccan plateau plus nine times the volume of the Deccan which is beneath the Arabian Sea. More than 500,000 cubic kilometers of lava was released – a small continent’s worth! By contrast the Mount St. Helens eruption was only about 1 cubic km. The basalts from this flow are called the Deccan Traps. The volcanic eruptions started before the meteorite impact, so were not initiated by it, but they went on for a long time after the impact. Some geologists believe that the meteorite hit was so severe – it caused a global earthquake of magnitude 11, according to a paper by Mark Richards – that it loosened the pathways of lava flow, making them substantially more voluminous and releasing life-destroying noxious gases, such as Sulfur-di-oxide that enveloped the earth for a long time. According to these geologists this was a contributing cause of the mass extinction.

Trip to the Deccan Plateau – January 2020

One such scientist, who was part of the team that I joined last month on the trip to the Deccan Ghats, is Paul Renne, Director of the Geochronology lab in Berkeley – a world class facility with state-of-the-art dating of rocks.

Above is a video of Paul Renne at an outcrop near Polladpur, Maharashtra. Paul has demonstrated that the rocks here are 66 (plus or minus 1) million years old and we are looking at lava deposits from before and after the meteorite hit, 66 million years ago. The “Polladpur” Formation on top (Post K-T boundary) represents a flood of lava, he believes was loosened by the meteorite impact. This released toxic gases in copious quantities causing mass extinction.

Paul uses Argon-Argon dating to very precisely determine the age of the Deccan basalts. He brought along his Ph. D student, Ande. Mark, Paul, Ande and I were also joined by Professor Kanchan Pande, a senior professor and  geologist at IIT Bombay, who acted as our host and directed us to interesting sites and outcroppings straddling the dinosaur extinction geological boundary (known as the K-T boundary).

Paul, Ande and Kanchan drove more than 3500 km in the Deccan ghats and collected upwards of a thousand kg of rock samples for shipment to Paul’s lab and Ar-Ar dating.

IIT Bombay Sam[ples

At IIT Bombay: Ande, Paul Renne, Kanchan Pande and Mark Richards with bags of rock samples for shipment to the US.


Mark and I joined them for more than 1500 km driven over 6 days. I got to witness the process by which interesting rock candidates are identified and also to help in chiseling out samples!

It was a fun trip. The ghats are very beautiful – they make a rugged landscape of weathered plateau and deep sinuous river valleys. It was a pleasure to traverse this landscape and to sample some of the small towns, with their great food and welcoming local hotels.

Here are some pictures including our visit to the Sula winery in Nashik, 200 km north of Mumbai.

 

 

 

 

 

 

 

 

Posted in India, Photography, Science, Travel, Uncategorized | Tagged | 16 Comments

India – An Unhappy Country!

INDIA-RELIGION-HINDU-KUMBH-MELA-MODI

Prime Minister Modi of India

A recent issue of the Economist magazine (March 27, 2019) has an interesting article titled, Economic Growth Does Not Guarantee Happiness. In this article the results of a self-reported Happiness Index are reported over the last ten years. The index goes from 1 to 10 with 10 being the happiest and 1 the unhappiest. The median of 80 countries with populations over 5 million is about 5.6. There are only 10 countries below an index of 4.0

It turns out that the general rule is that as a country prospers economically (as measured by the Gross Domestic Product (GDP) per capita) it tends to get happier. But there are many exceptions: The US for instance has done economically well over the past ten years but its Happiness Index has declined from 7.4 to 6.8.

The country that shocked me the most in this survey was India. Its GDP per capita has gone up 80% in the last 10 years, but its Happiness Index has plummeted sharply! It has gone from a 5.1 to a dismal 3.7. In fact there are only 6 countries out of 80 that are unhappier than India, countries like Rwanda, Afghanistan, Zimbabwe, Haiti and Burundi. Here is a chart that shows the relative movement of the Happiness Index in the last 10 years for India and China vs the Rest of the World:

Screen Shot 2019-04-10 at 5.41.55 PM

 

China which was less happy than India in 2008 has increased its Happiness Index to above 5.0, while India has declined precipitously.

India’s decline has been the sharpest in the last five years – the period of Modi’s leadership as Prime Minister. Modi came in with much fanfare, and in fact India saw a brief uptick in perceived happiness because of high expectations. But he has less than delivered. Slogans and hype have replaced concrete actions. His nationalistic fervor and vows to strengthen India in a tough neighborhood have been hollow.

India has been unable gain relevance in a world where China is unabashedly circling it with footholds in Pakistan, Sri Lanka, Nepal, Bangladesh and the Maldives. One even wonders whether the much touted 7% growth in GDP is smoke and mirrors as many economists have contended.

Here are the Happiness Indexes of the countries neighboring India.

Pakistan —- 5.7. (Higher than China)
Bangladesh — 4.4
Nepal —— 4.9
Sri Lanka —- 5.1
India —   3.7

Do go this link and read the full article.

 

Posted in Current Events, Emerging Markets, India, Money, Philosophy, Politics, Travel, Uncategorized | Tagged , , , | 2 Comments

Modern Day Physics and the Vedic Hymn of Creation

 

Guth and Ashok Breakthrough Conf

With Alan Guth, Nov. 5

I ran into Andrei Linde a couple of weeks ago at the Breakthrough Awards* Symposium at Berkeley and engaged with him in a fascinating debate at dinner afterwards. Andrei Linde is a world renowned Theoretical Physicist and Professor of Physics at Stanford University. In 2004 he received, along with Alan Guth, the Gruber Prize in Cosmology for the development of inflationary cosmology.  In 2014 he received the Kavli Prize in Astrophysics “for pioneering the theory of cosmic inflation”.

 

Andrei Shamit at Tamarin

Having Lunch with Andrei Linde and Shamit Kachru of SITP (Stanford Institute of Theoretical Physics)

Andrei is a deep thinker, a pioneer in setting radical directions in science, and an engaging speaker with a great sense of humor. We talked in general terms about his work and where physics stands today – at the cusp of a paradigm shift, a new understanding of the way in which the universe works.

To my surprise, Andrei said he has always been inspired by Vedic thought and the profound ideas expressed by the ancient Hindus in contemplating the universe, how they were constantly speculating about its immutable laws and  subtle interconnectedness – the oneness or non-duality of seemingly differentiated things.

Andrei’s invoking the Vedas made me look up the beautiful Hymn of Creation in the Rig Veda, which is much celebrated and has always been one of my most beautiful pieces of ancient Hindu poetry:

The Vedic “Hymn of Creation
Then even nothingness was not, nor existence,
There was no air then, nor the heavens beyond it.
What covered it? Where was it? In whose keeping?
Was there then cosmic water, in depths unfathomed?
Then there was neither death nor immortality
nor was there then the torch of night and day.
The One breathed windlessly and self-sustaining.
There was that One then, and there was no other.
At first there was only darkness wrapped in darkness.
All this was only unillumined cosmic water.
That One which came to be, enclosed in nothing,
arose at last, born of the power of heat.In the beginning desire descended on it –
that was the primal seed, born of the mind.
The sages who have searched their hearts with wisdom
know that which is kin to that which is not.And they have stretched their cord across the void,
and know what was above, and what below.
Seminal powers made fertile mighty forces.
Below was strength, and over it was impulse.But, after all, who knows, and who can say
Whence it all came, and how creation happened?
the devas (gods) themselves are later than creation,
so who knows truly whence it has arisen?

Whence all creation had its origin,
the creator, whether she/he fashioned it or whether she/he did not,
the creator, who surveys it all from highest heaven,
she/he knows – or maybe even she/he does not know.

 

 

Cosmologists today believe that the net energy in the Universe is zero! However, because of quantum fluctuations, a perfect zero state, such as a vacuum cannot exist. Matter (and antimatter) blinks in and out of existence. The universe exists – emerging out of nothing, which has seeds of non-nothing!

Also, the vacuum itself has a small but fluctuating “dark energy” which powers the waxing and waning of space-time. How well this is captured in the Vedic Hymn! Even nothing was not.There was neither existence nor non-existence! How can both existence and non-existence not be? That’s a head scratcher!

Well, we have a very similar concept at the  heart of modern physics and cosmology – the vacuum is unstable, constantly jittering, and space-time at minute scales is frothy. It does not quite exist or non-exist. (Most physicists today go beyond Einstein’s space-time as a fundamental construct. The basic “reality” is quantum at the very core of being – a pulsation of possibilities at tiny scales – that gives rise to space-time as something derived, not fundamental).

The Creation Hymn takes on a deeper meaning. I’m sure that the Vedic intellectuals did not understand quantum theory as we know it today – as an experimentally verified, quantitative science with profound implications. But they had a sense of some overriding cosmic truth that unified all creation and pervaded everything at the minutest scale. (The Planck length?)

Also note the delightfully doubt-provoking last stanza.

Whence has the Universe arisen? The creator, who surveys it all from highest heaven,
only she/he knows – or maybe even she/he does not know! 

Wow! No absolutism here. No fundamental declaration of an almighty Creator, omniscient, omnipotent,  separate, ruling over what He created. God, instead, is not a  omnipotent  creator, separate from the created, but a part of it – undivided, non-dual (advaita in Sanskrit) and subject to all its uncertainties and unknowabilities.

Screen Shot 2018-11-27 at 11.16.25 PM
This kind of thinking is being reflected in modern physics more and more, as the central question asked incessantly these days is: Why is there anything at all? Why is there something rather than nothing?  Check out the science of this in this youtube video if you want to see a thought-provoking  presentation of the World Science Festival on this.

Could it be that nothing and something are dual aspects of each other? So you can only have both in a well posed understanding of our Universe. It’s a stunning insight – something that the ancients somehow sensed!

*ABOUT THE BREAKTHROUGH AWARDS AND SYMPOSIUM
Stanford University, UC Berkeley and UC San Francisco jointly host the Breakthrough Awards Symposium each year. UC Berkeley held the daylong event of laureate talks and evening panel discussions on November 5th. Attending were giants of science and math, such as: Alan Guth, Steven Weinberg, Jennifer Doudna, ….  The discussions are inspired by the idea of big questions in science and technology. Sponsored by well-known figures in the tech industry such as Sergey Brin and Mark Zuckerberg, this year’s event was the seventh Breakthrough Prize Symposium to recognize the world’s top scientists by awarding prizes of $3 million to the recipients. It was my pleasure to attend, have dinner  and chat with these superstars.
Posted in Cosmology, Education, Evolution, Fun, Innovation, Math, Philosophy, Religion, Science, Uncategorized, Whimsy | Tagged , , , , | 3 Comments

A Magical Journey into Imagination, Art, Math and Whimsy!

 

Eames House.jpg

Last Sunday (November 19, 2017) we entered through the beautiful blue steel gates of the Eames house in Sonoma County and were immediately transformed into the magic of Charles and Ray Eames’ world of art, function, mathematics and whimsy. We were hosted by Llisa Eames Demetrios, Eames’ granddaughter, who herself is an artist and an accomplished sculptor, and her husband, Mark Burstein, who has a fantastic collection of Alice in Wonderland memorabilia. He has a tower full of books – tens of thousands of them – and other fun objects all related to capturing the imaginative writings, the mathematical undertones and the dreamlike artwork associated with Lewis Clark’s classic. One fascinating folio contained artwork by Salvadore Dali to annotate Alice in Wonderland.

 

Dali Page from Wonderland

A Salvadore Dali painting with mouse, walrus and other Alice themes.

Seen in this picture from Mark’s folio (which he doesn’t usually open for visitors because it is fragile and precious) is Dali’s beautiful illustration, alongside a California license plate about the Mock Turtle. Note the text printed in the form of a mouse’s tail and Dali’s swishy-tailed mouse in the picture! There are dozens of such stunningly beautiful Dali paintings in this book. Mark is full of passion for all things delightfully whimsical – he recited “nonsense” poetry by Ogden Nash and delighted in mathematical curiosities and lateral thinking – jumping from a set of ideas from one realm of learning to another seemingly unrelated one. His is a world of puzzles, adventures, Martin Gardner, surrealism and imaginative poetry!

 

We went there at the invitation of MSRI, the Mathematical Sciences Research Institute in Berkeley, which promotes this kind of wonderful thinking. Their Museion society membership is a great way to join their outreach and get invited to such functions. Llisa and Mark laid out a sumptuous lunch, gave us a leisurely tour of their premises and even showed us a nice video interview of Charles Eames, which they projected on the ceiling while we lay on cushions! All in all a treat for the mind and the senses.

I want to highlight one piece of beautiful artwork bringing together two fascinating mathematical curiosities.

  1. Knight’s Tour
Knight's Tour

Painting from the Eames’ Collection depicting a knight’s tour – starts at 1 and ends at 64. Each square is visited once. It also represents a magic square!

The painting above shows a knight’s tour. What is a knight’s tour? It is a journey by a knight across the chessboard starting at a given point and traversing all 64 squares while visiting every square just once. Knights tours are a big mathematical curiosity and have only been partially understood, even today with modern computers. For a 8 by 8 chessboard trillions of  knight’s tours are possible. Knight’s tours can also form a closed loop – topologically a circle route through the 64 squares of a chessboard. There are more than 26 trillion possible closed tours!

Here’s an excerpt from the Wikipedia:

On an 8 × 8 board, there are exactly 26,534,728,821,064 directed closed tours (i.e. two tours along the same path that travel in opposite directions are counted separately, as are rotations and reflections). The number of undirected closed tours is half this number, since every tour can be traced in reverse. There are 9,862 undirected closed tours on a 6 × 6 board.

It has only been possible to calculate these numbers recently thanks to great algorithms developed by the likes of the legendary Don Knuth. So you can see that the knight’s tour is a fascinating problem. Incidentally there are no closed loops possible on an odd numbered chessboard e. g. a board with 7 squares to a side. Can you see why?

The ancient Hindus, who invented the earliest form of chess, were fascinated by the knight’s tour problem. In the 9th century AD a Sanskrit poem by Rudrata presents the knight’s tour as an elaborate metric composition, the “city-alankara”.

2. Magic Squares

Screen Shot 2017-11-26 at 3.18.43 PMThe second mathematical curiosity is the magic square. A magic square is an arrangement of the numbers from 1 to n-squared in an nxn matrix, with each number occurring exactly once, and such that the sum of the entries of any row, any column, or any main diagonal is the same. In the figure to the right we have 4X4 magic square with numbers from 1 to 16 arranged in a 4X4 pattern and each row, column and diagonal adding up to 34.

Magic squares, like knight’s tours, occur with great frequencies and form beautiful objects. It is possible to build a magic square of virtually every square size. Astonishingly they can also be made from such rarities as consecutive primes instead of consecutive numbers.  Prime number magic squares can be made of almost any square size, but consecutive primes starting with 1 is another matter. (1 is technically not a prime but is sometimes allowed for prime magic squares). Here is the smallest magic square with 144 consecutive primes starting with 1 (size 12X12). Only odd primes are used, it’s hard to include 2. (the Example is taken from Wikipedia, of course)

Screen Shot 2017-11-26 at 3.43.04 PM

3. Combining Knight’s Tour and Magic Squares

Putting these two great mathematical curiosities together we come back to the painting at the Eames’ home of the knight’s tour. Not only is it a geometrically pleasing traversal of the board by a knight, it is also a magic square! All rows, columns and diagonals add up to 260. Check it out.

Fascinating! This was one of many engrossing items at the Eames’ home and I feel lucky to have had a chance to sip from their magic fountain.

 

Posted in Education, Fun, India, Innovation, Math, Philosophy, Puzzles, Science, Uncategorized, Whimsy | 7 Comments

A Solar Singularity is Here – Expect Extreme Disruption

The Solar Future

A solar singularity is in the making and it will cause a giant explosion in the energy world.

What is a singularity? In the simplest terms it is a paradigm shift or a phase change. It completely transforms a given reality into something completely new.

A solar singularity occurs when solar power becomes cheaper than every other conventional means of generating power, thus creating solar as the default power source.

This singularity is already here in many countries. Solar power is cheaper without tax subsidies, even when compared to subsidized fossil fuels. We’re talking about direct subsidies as well as not attributing the real costs to fossil fuels of pollution, global warming  and geopolitical costs. In India, for example, solar costs, as measured by power purchase agreement (PPA) prices offered by the unsubsidized private sector in the solar business, have already become cheaper than coal (4 cents per KWH). India has cancelled all its future coal generation plans citing the fact that solar is cheaper! That is over a billion tons of coal burning  per year cancelled!

Solar power generation is, of course,  intermittent – the sun doesn’t shine all the time. Batteries are needed for a steady power supply. A true singularity in solar energy needs to include the cost of storage batteries – it will occur when solar-plus-storage stand alone systems become cheaper than alternatives. This solar-plus-storage singularity is now approaching faster than anyone had predicted because of an exponential improvement in battery storage cost and supply. Battery costs have declined 70% in the last five years from $1000/KWH to about $300/KWH at a mass scale. The true solar singularity which includes utility scale solar generation and storage is estimated to occur when the battery costs drop to $100/KWH, most certainly by 2022, but probably mush sooner.

Why would anyone build a coal/natural gas or oil burning plant or a nuclear generating station any more?

There are four  intertwined revolutions all related to the solar singularity: Solar PV’s, battery storage, electric vehicles and self-driving cars.

A GreenTech Media article by Tam Hunt states that:

Solar PV’s, battery storage, electric vehicles and self-driving cars together constitute the parallel and intertwined revolutions that are set to transform our energy system worldwide. These four technologies are developing exponentially. We can reasonably expect to see, by 2035 to 2040, a world powered predominantly with renewable electricity — not only homes and businesses, but also transportation and industrial processes.

This is way faster than predicted just a year ago. And I suspect that once the singularity is crossed the transformation might be even faster and startling to most prognosticators.

My projections for the four technologies reaching singularity:

Solar Power (generation alone): 2017
Solar generation + storage: 2020
Electric Cars: 2019
Autonomous Driving: 2022

Current solar demand projections by Greentech Media are shown below. You can see an exponential growth, but I think we will do far better than that.

Screen Shot 2017-09-13 at 10.48.40 PM

Energy planners around the world are beginning to see the arrival of these singularities. Most countries are planning for a non-fossil-fuel economy by 2040. In Norway’s recent elections one party (the Liberals, who are now in a ruling coalition with the ultra conservatives) made a move to ban the exploration of  gas and oil in the Arctic starting right now. The proposal is to leave all their Arctic oil/gas wealth in the ground!

In Germany,  last March and April, over 80% of the electricity came from renewables. In the US we were at 10%. In India we are now generating 7% of its annual electricity from wind/solar with 33% predicted by 2022. China is on the fastest track of all countries – it is the largest producer of solar power and the fastest growing!

In California there is  a push to legislate net-zero housing, i. e., community developments with net zero energy consumption. This is a law that requires all new housing to have 100% renewable energy or zero net consumption by 2020. In a recent article I read developers say that at a cost of just $8 per square foot a house can be completely energy self-sufficient, including a solar roof and batteries in a community network. This cost will come down dramatically with mandates and economies of scale.

What will all this mean? The solar singularity is an inevitability – a done deal. It is going to be more powerful than the Paris Accords and not even the current retrogressive policies pushed by the oil industry can change this fact.

Posted in Current Events, Electric Vehicles (EV), Emerging Markets, Green Energy, India, Innovation, Investing, Money, Politics, Science, Solar Power, Venture Capital | 4 Comments

Are Cars Hardware or Software?

The Exponential Organization
In their book, BOLD: How to Go Big, Create Wealth, and Impact the World, Peter Diamandis and Steven Kotler talk about the concept of “Exponential Companies”. These are amazing organizations that can grow from concept to billion-dollar disrupters at breakneck speed and create emergent landscapes completely destroying their lumbering competition. Examples abound, such as Airbnb, Google, Uber, Tesla…

The authors talk about the enabling stages of such companies: the 6 D’s – which they call the six horsemen of the apocalypse. These are digitization, deception, disruption, demonetization, dematerialization and democratization. [We won’t go into all of these here but the book is worth reading for details.]

The Exponential Entrepreneur
In addition to the 6 D’s the Exponential Organization has an Exponential Entrepreneur at the helm. Exponential Entrepreneurs have a bold mindset and a grand vision, they can perform at speed and can think at scale. Jeff Bezos, Larry Page, Richard Branson and Elon Musk fall into this category. These guys are capable of syncing their mental pace with the exponential organization’s break-neck growth curve – Hacking the Flow – in the parlance of the book. According to a McKinsey study they can be over 500% more productive than the average CEO at a sustained rate for many exponential doublings of their disruptive companies.

The first and most important of the 6 D’s is digitization, where a conventional product, not necessarily associated with software, and plodding along at a pedestrian rate of growth, becomes digital. Wham! It starts riding the explosive S-Curve of digital technology.

Enter Tesla
Tesla today, under the vision of Elon Musk, is digitizing the car industry. (And also the solar and battery industries, but that is the subject of another essay).

dig car

The genius of Tesla is that it is the first company to realize that a car is ready to be digitized and therefore ride the disruptive curve of explosive growth. So the car of the future – not so distant future actually – will be like a commoditized piece of hardware, much like a desktop computer with a standard set of capabilities. This standardized hardware, needing a minimal number of parts, will be assembled very cheaply with the price continuously coming down even as new features are added. The explosive new capabilities in driving will then come from software.

Tesla’s Model 3 dramatically underscores this shift
The Tesla Model 3 was unveiled a couple of weeks ago and showed off its minimalist hardware – a new universal, automotive Turing machine, if you will, ready for the emergent, computational age in driving. The basic car, including all the hardware and sensors, but excluding the batteries, costs only $10,000 in mass production. And mass production is happening at warp speed –  by 2019 at the latest, when Elon, says, he can make 700,000 cars per year! (He upped it last week from 500,000!) Battery costs seem to be in the $15,000 – $25,000 range but coming down rapidly – they have declined 70% in the last 5 years.

Will the 2019 time frame for mass production hold? Elon has missed deadlines before. What’s his credibility? There are fundamental issues with an exponential growth “S-Curve” Here’s what Musk said at the earnings conference last week:

It’s fundamentally impossible to predict the exponential part of the manufacturing S-curve. It’s crazy hard. The S-curve is a really jagged sort of upward growth and it’ll plateau and then it’ll grow rapidly and it’ll plateau again….

But overall, we’re feeling really good – this is maybe the best I’ve ever felt about Tesla, to be frank. Last week, stressed the hell out of me, but I really think that this is probably the best I’ve ever felt about the company.

I would say that the odds are with him meeting the 2019 target. But does it really matter if he is 6 months late?

The Model 3 is a beautiful beginning and was universally hailed by the early journalists and car buffs that experienced it. Here’s a pretty informative YouTube review of features and plans.

For $35,000 you get the base version:

  • Over 210 miles of range
  • Sports Car like acceleration and handling
  • All the instrumentation for complete autonomous driving
  • Less than 3 cents per mile running costs
  • “Zero”  maintenance, software upgradable
  • Long life – over 500,000 miles – low depreciation
  • Top of the line safety features.

If you want the base version, though, you’re going to have to wait. The first roll-out is the more upscale version for $44,000. It has a stunning 310 mile range, and is faster and sportier. Tesla will also eventually do the “Ridiculous” version in the Model 3 – one with an acceleration rivaling  the fastest Ferrari! ( 0 – 60 mph in 2.8 seconds).

Although all the Model 3’s are fully instrumented, software upgrade for autonomous Level 5 driving will cost extra and is probably a couple of years away.

It may seem like a small step but Tesla and Elon have single-handedly changed the entire automotive landscape. Tesla’s strategy was to start at the top end: build a sports car with great cache and automotive gewgaws to get the rich and the trendy  to embrace the car at a fancy price. Then use that money to build an affordable car. Then use that money to build an even more affordable car. While doing the above get into the zero emissions game – build unlimited battery factories, and build integrated solar roofs. It’s remarkable how well Tesla seems poised to pull this off, although much remains to be done and there are inevitable roadblocks along the way.

How Quickly Will We Go All-Electric?
In the last months many car companies have announced plans to produce Electric Vehicles  (EV’s) within the next couple of years. Volvo will build only fully pluggable electric cars and plans more than a million in two years. Honda, Mercedes, BMW are also joining in the fast cascading new world of EV’s. And Ford’s new CEO has a background in electric vehicles and has been brought in to launch Ford into the inevitable future of petroleum-less cars. GM’s Bolt is a first 200-mile range entry from them.

The UK has announced that it will outlaw petroleum based cars – both gasoline and diesel – by 2040. France will do the same. China is already the world leader in EV adoption and is committing huge resources to green energy – solar in particular, with world leading battery technology research funding. India says they have a goal to go to all electric vehicles in a mere 13 years. One third of their electric power will be solar in 5 years (100 GW).

I wrote about the prospect of all new cars sold in the U.S. being plug-in electric in 8 years – I was quoting the prognosis by Tony Seba, the Stanford economist. Most readers of this blog felt that that was way too fast and indeed it is an ambitious projection. But it is not implausible, and indeed is even probable give the nature of exponentially growing technologies and the change in paradigm when costs, technology and world sentiment converge.

How long before almost all cars on our roads become green? Since there are more than 200 million cars in the US alone it is hard to say, but 10-15 years seems very probable. The disruptive force of the digitized car will be huge and blink-of-the-eye fast, akin to the impact of the asteroid that caused the extinction of dinosaurs 55 million years ago. To quote Peter Diamandis and Steven Kotler:

Right now there’s another asteroid striking our world. It is extinguishing the large and lumbering, and clearing a giant path for the quick and the nimble. Our name for this asteroid is exponential technologies. The name may be unfamiliar but the impact is not.

Tesla is this asteroid and it has taken a giant step in extinguishing the large and lumbering dinosaurs of conventional gasoline-powered cars.

Posted in Current Events, Electric Vehicles (EV), Green Energy, India, Investing, Money, Politics, Science, Solar Power | 2 Comments

The Coming Welcome Extinction – Petroleum Cars!

I asked a dozen friends of mine when they think petrol-driven vehicles will disappear from the U. S. That’s right, when will  100% of all cars, buses, vans, trucks run on Electricity! The average answer I got was: in about 30-40 years, if then.

The reality: How about in 8 years?!

That’s the thing about exponential growth – even very plugged-in people (no pun intended) underestimate wildly the meteoric rise due to such growth that occurs when the conditions are right.

And the conditions for Electric Vehicles (EV’s) today are just right. Here’s an article by Tony Seba of Stanford that predicts an all-EV future in the US in 8 years! His previous articles, just a few months ago,  said 95% EV’s by 2030 but he was underpredicting! He is right on the money – and given his very realistic predictions the Oil, Coal and even Gas industries should realize they are dead. Some 70-80% of all the fossil fuels will be left in the ground. Worthless. Killed by the most abundant fuel on earth – Sunshine!

I just finished reading my friend, Vivek Wadhwa’s excellent book, The Driver in the Driverless Car, which brilliantly lays out the prospects for our exponentially growing future and the paradigm shifts that are ahead of us: paradigm shifts in Energy, Healthcare, Education, Finance, Jobs and Automation etc. Do read the book because this is the mindset that must be adopted by anyone who wants to benefit as an investor, planner or career seeker with an eye to the future. (Peter Diamandis and Ray Kurzweill are the earliest futurists to see this and through their Singularity University, create awareness and companies to exploit this).

It’s not evident to all, but those who see it are bailing out of Oil – Oil companies, Oil service companies, Pipelines, Drilling and ancillary support companies, Coal, Natural Gas – all are on death watch. I would sell now.

Et Tu India!

India – yes, that $5/day-per-person-GDP, highly developing country with helpless governance, horrendous illiteracy and a hopeless infrastructure – has realistic ambitions to go all Electric by 2030! Read on.

India is a petroleum poor country. It imports $80 billion of oil every year – that is more than 1/3rd of all its imports and 100% of its foreign currency trade deficit.

However, India has an abundance of another fuel it can extract and it’s virtually free. This wonderful fuel is Sunshine! With exponentially growing improvements in technology India has the potential to leapfrog directly to a solar-based, cheap, sustainable and green energy economy. But can this be done in any reasonable time frame?

 

Jhunjhunwala1Professor Jhunjhunwala at TiE/ICC Event, May 24, 2017

 

A few weeks ago, invited by my friend and entrepreneur, Vish Mishra,  I went to an amazing talk by Dr. Ashok Jhunjhunwala sponsored by TiE (the Indus Entrepreneurs) and ICC (India Community Center) and learned first hand about his sweeping, game-changing efforts to transform India to a self-sufficient, green energy country at break neck speed!

Prof. Jhunjhunwala, a graduate of IIT Kanpur, has also studied and worked extensively in the US. He is the head of TeNeT in India, which does extraordinary things in communcations, energy and innovations in numerous fields. Currently he is on the faculty of IIT Madras. He has spawned over 50 companies and has been awarded the Padmashree for his invention of the micro-grid.

Dr Jhunjhunwala has been tapped by Prime Minister Modi and Power Minister Piyush Goyal to give wings to an ambitious market-based plan to meet India’s power needs and solar/green goals, far exceeding the commitments in the Paris Accords. The objective is

. 60% of all electricity generation using solar by 2025!
. 100% Electric Vehicle adoption in India by 2030!

That’s right – in 13 years, Dr. Jhunjhunwala says, India will have no petroleum based road transportation! No diesel belching trucks and buses, no choking, smog-generating cars, and noisy, sooty, inefficient three-wheelers. He plans to convert 400 million vehicles, including cars, three-wheelers, two-wheelers, buses, trucks etc. to electric power – most of it generated by solar. It’s an amazing vision, but listening to him talk I could sense that it is eminently doable and his detailed blueprint for doing it is utterly practical and feasible.

Among Jhunjhunwala’s deep insights is to use DC on the electricity grid instead of AC, which is the default everywhere in the world today. He has invented the design of a 48-volt DC electrical micro-grid, powered by solar energy, which is much better suited and safe for India, and results in very much more efficient appliances in the home. Many years of engineering design and innovation have gone into this idea – see this YouTube talk for details. The bottom line is that a lot of power that is wasted in converting repeatedly from AC to DC and back (upto 50-60%) can be saved by staying with  DC throughout.

In addition, the home appliances themselves are way more efficient when DC power is used. For example, a  DC ceiling fan consumes 30W of power vs 72W for AC. At low speeds the savings are even more: up to 90%. For LED lighting the power consumption can be as low as 10 Watts, vs 36 W for tube lights commonly used in India. Similarly, TV’s, laptops, battery chargers and even refrigerators and air-conditioners are far more efficient when designed for DC versus AC. So the savings are multifold: 40-55% in conversion costs, and 70% in appliance efficiencies!

Dr. Jhunjhunwala says he can meet the electricity needs for a small rural or poor-to-middle class family in India (more than 650 million people!) with a 125 watt solar panel and a 500 Wh battery. The solar panel is the surface size of  a medium sized dining table and the whole  system can be made in India and sold profitably for under Rs. 20,000, (or about $300) and falling rapidly.

In transportation, Dr.Jhunjhunwala has much simpler designs for electric vehicles (EV’s), including cars, buses and three-wheelers, with only 20 (or so) different parts needed to manufacture, instead of the 2000+ parts for internal combustion engine cars. He sees many vehicles In India needing batteries for only a 50 Km range, which will cost about Rs. 15,000 ($250) for three-wheelers and Rs. 100,000 ($1500) for buses. This he couples with a STD-PCO type concept for roadside charging shops throughout urban and rural locations, small entrepreneurs who can charge your battery in under 30 minutes, or replace them in a couple of minutes with pre-charged ones. The running cost of a three-wheeler would be about 1 cent per mile., for a bus about 7 cents. His electric vehicles will have a long running life (over 250,000 km) and almost zero maintenance costs. These ideas are being implemented in New Delhi right now and he hopes to see the first EV’s on Delhi’s roads, including buses, by October 2017!

The most appealing thing about Jhunjhunwala’s plan is that it is not dependent on large subsidies by the government. It is a market based system and he has already got more than 50 start-ups producing battery packs, DC appliances, vehicles, and battery chargers etc. Crompton Greaves, the biggest maker of ceiling fans, is already making DC fans, which are cheaper and use only half the power of existing AC models.

I think this is the start of a paradigm shift for India. The country greatly exceeds its green commitments under the Paris accords, it saves hundreds of billions on oil imports and taps the Sun for virtually unlimited energy needed for fast economic growth.

It is very much in our (American) interest to support this vision.

The Indian diaspora, particularly in the Silicon Valley, should heartily embrace this process and help with collaborations, technology, and business investments. Dr. Jhunkhunwala is very open to this and is a frequent ambassador for entrepreneurship here in the Silicon Valley.

I note that China has grown rapidly in the last two decades thanks to active involvement of its 80-million strong diaspora. The Indian population in America is tiny by comparison, but rightly positioned in technology, influence and resources to plug in to transform India, and bring Dr. Ashok Jhunjhunwala’s grand vision into reality. It’s a win-win for Indian and American entrepreneurship, and a win for a cleaner world.

Posted in Current Events, Education, Electric Vehicles (EV), Emerging Markets, Green Energy, India, Innovation, Investing, Money, Philosophy, Solar Power, Uncategorized, Venture Capital | 11 Comments

Is China About to Gobble Up Pakistan?

Screen Shot 2017-05-20 at 4.17.13 PM

Chinese Troops take part in Pakistan Day Military Parade. From Dawn newspaper.

Last week China convened an historic gathering. It was barely noticed in our media.

World leaders gathered in Beijing  to hear about China’s One Belt One Road initiative. It is a new land and maritime Silk Route to connect the world, with China at its hub. Nearly 70 country heads participated, including Russia’s Putin, Turkey’s Erdogan and most of Asia and Africa. The next gathering in Beijing is slated for 2019. China is flexing its economic might and is budgeting more than a trillion US dollars towards this ambitious plan which it hopes will result in a new paradigm for the world.

Pakistan – A Major Satellite for China’s Ambitions

A key ingredient of China’s initiative  is CPEC – the China Pakistan Economic Corridor. China will inject more than $60 billion dollars into building a massive corridor connecting Kashgar, the himalayan Chinese town in the muslim majority Xinjiang province, across all of Pakistan to the Arabian Sea port of Gwadar. See map below. The highway starts out as the Karakoram Highway through Pakistani  Kashmir (blatantly ignoring India’s legal claim on this disputed land!) and hits all of Pakistan’s major cities before ending up at Gwadar, which is a “node” in the maritime Silk Route.

CPEC Map

From Dawn, a Pakistani Daily, a map showing the scope of CPEC. Published 5/17/2017

But China is not just building a giant corridor through Pakistan. It is virtually rebuilding Pakistan. Here are some of the proposed projects:

  • Complete overhaul and rebuild of Pakistan’s Electric Energy generation. This includes the largest hydroelectric power plant in Kashmir at the Neelam/Jhelum rivers, a huge wind farm in Baluchistan, 1000 MW of PV solar, several 1000 MW nuclear plants (one of which is already operating under Chinese supervision) and coal based power plants that will supply 1/4 of Pakistan’s power needs!
  • A fibre optic high speed internet backbone to provide world-class levels of broadband access and also terrestrial distribution of broadcast TV with a healthy dose of Chinese propaganda.
  • Massive industrial penetration of most sectors of Pakistan’s economy – cement, ceramics, textiles, industrial parks.
  • A virtual takeover of Pakistan’s agriculture by annexing  huge amounts of acreage and instituting new crops, agricultural methods and seed research. Much of this for food export to China.
  • The operation and complete control of the port of Gwadar which gives China direct access to the Persian Gulf and shipping lanes to Europe without having to go through the long transit through the Indian Ocean.

According to the article giving details in Pakistan’s Dawn newspaper (a must read) a couple of days ago:

A full system of monitoring and surveillance will be built in cities from Peshawar to Karachi, with 24 hour video recordings on roads and busy marketplaces for law and order. A national fibreoptic backbone will be built for the country not only for internet traffic, but also terrestrial distribution of broadcast TV, which will cooperate with Chinese media in the “dissemination of Chinese culture”.

The plan envisages a deep and broad-based penetration of most sectors of Pakistan’s economy as well as its society by Chinese enterprises and culture. Its scope has no precedent in Pakistan’s history in terms of how far it opens up the domestic economy to participation by foreign enterprises. In some areas the plan seeks to build on a market presence already established by Chinese enterprises, eg Haier in household appliances, ChinaMobile and Huawei in telecommunications and China Metallurgical Group Corporation (MCC) in mining and minerals.

Pakistan will become a Chinese neo-colony – another North Korea

Pakistan our new colony

Welome to Pakistan, Our Newest Colony! (From Dawn)

China is virtually taking over the governance of Pakistan. They have insisted that no visas will be required for Chines people to travel freely in Pakistan – something they will not reciprocate for Pakistanis traveling to China. Chinese personnel will oversee all projects approved under CPEC.

Chine will be responsible for Pakistani security both internal and external. The Pakistani civil authorities, like the police, town administrations etc will be directly monitored by Chinese officials who will have sweeping powers. Even the vaunted Pakistani military will take direction from the Chinese. The port of Gwadar will be protected by Chinese authority in control of all security, access, administration and economic issues.

Screen Shot 2017-05-21 at 12.11.39 PM

Nawaz Sharif, Pakistani Premier with Chinese President Xi last week.

Economically the injection of Chinese capital is expected to modernize Pakistan at a rapid clip and make its projected GDP growth in the 8% range, faster than India. Pakistanis are thrilled at the prospect and Nawaz Sharif, their Prime Minister, who was in Beijing for the One Belt, One Road launching has made giddy statements about the 30 year Sino-Pak pact. However, many thoughtful commentators are seeing this for what it is – a blatant modern-day colonization of a major (but troubled) nuclear power by China. It will create another quasi-autonomous Chinese region like Xinjiang (where the muslim Uighurs live) and the Buddhist Tibet.

The South Asian culture of Pakistan will slowly be strangled. China is not a colonial master that allows much diversity – just look at Tibet. In the Uighur regions, such as Kashgar, that I visited in 2009, I saw first hand China’s phasing out all Uighur language, literature, and customs.

Here is an “informational” video developed by the Chinese about the Pakistani initiative.

China is actually doing all this on the cheap! Much of the money that China will spend will be in soft loans, from institutions like the Asia Development Bank (ADB). Pakistan will have to pay this money back and it will put them in a position of permanent economic slavery to China. China has huge surplus manufacturing and construction capacity that is sitting idle not generating any income. By this ingenious initiative they will be able to deploy their idle construction companies in Pakistan, obtain huge strategic and geopolitic advantages, get fresh sources of precious raw materials and create a new counterweight to India in the region.

A Major Paradigm Shift

In the eyes of many observers this is the start of a major paradigm shift in the world order that has existed since European and Western dominance in the 20th century. Historians will look back thirty years from now and see the launching of One Belt, One Road (OBOR) in 2017 as the turning point of history. China has shown a keen eye to Globalization and great leadership in promoting this as a humanity-befitting world effort.

And yet, we in America, are scant noticing this. Our news coverage is obsessed with trivia. We keep promoting out-dated isolationism, protectionism and nationalism. Watching today’s headlines on American news there is nothing about OBOR. Sad!

Posted in Current Events, Emerging Markets, India, Innovation, Investing, Money, Politics, Uncategorized | Tagged , | 3 Comments

Dear President Trump, You can grow the Economy at 4%, Create Lots of American Jobs and Reduce the Deficit at the Same Time!

I’m sending this letter to our Prez.

Dear President Trump,

It’s a no brainer really.

We need to spend like mad on our infrastructure as fast as possible. Maybe $2 trillion in the next 5 years, if we can build with the zeal of Roosevelt in the 1930’s, but surely in the next 10 years.

The returns will be dramatic. We will:

  • Turbocharge the economy and make it grow at 4 percent for the foreseeable future!
  • Provide great jobs for disrupted middle class workers, such as coal miners and steel mill hard hats – people who are your core constituency.
  • Reduce the federal deficit at the same time! I’m serious.
  • Significantly reduce the horrific income inequality in America, which is growing worse as we cut benefits for the poor and lower  taxes on the rich. You don’t want a revolution on your hands.
  • Provide a hugely needed boost to the demand-side of the economy.

And it will be a move supported by both the Democrats and the Republicans of almost all stripes. It will tax your legendary deal making prowess only modestly.

During the campaign you said you would spend $1 trillion, over 5 years, on fixing our badly disintegrating roads, bridges, airports and other facilities. Almost no one disagrees. (In fairness President Obama tried to do the same but ran into resistance from the opposition unwilling to give him any success. But he’s gone now and you will get all the credit).

How Much Infrastructure Rebuilding Should we do?

Every four years The American Society of Civil Engineers (ASCE) assesses 16 major categories of infrastructure – from roads, bridges and dams to aviation, rails, waste water and public transit. It provides a letter grade and the dollar amount of deferred maintenance to get our infrastructure up to snuff. In the 2017 report our overall grade was a D+. It has gotten worse in every category over the years. Here’s a summary:

Screen Shot 2017-05-06 at 2.54.50 PM

The report says that we have an infrastructure deficit of $4.59 trillion dollars. To be pragmatic we could spend about 2 trillion dollars over the next ten years, to design and implement the upgrades.

The ASCE provides a state-by-state assessment of the highest priority projects that should be undertaken. These are critical and shovel-ready – meaning all they need is funding and they are ready to go. So we can get going as soon as you are ready to act. Think of the big Rose Garden ceremony we could have, with Paul Ryan kissing your ring, as you sign this bill!

Where Will the Money Come From?

We are talking about an expenditure of $200 billion/year for ten years. Mr. Trump, we should just spend it through government borrowing and not attempt to go “revenue neutral”, i. e pay for it through cuts in other spending or, heavens forbid, extra taxes. You know that will kill it faster than a drone missile attack.

Now here’s the thing to note: in reality this does not increase the budget deficit. 

Counterintuitively, we’re spending $200 billion more annually, and yet it does not increase the real deficit! The official government debt will show an increase of $200 billion, but it would be a phony rise. The reason lies in the way the government does its accounting – it runs on a Cash basis.  Non-cash liabilities are not on the books. If the federal government were a company such accounting would be illegal. We would have to show “Deferred Maintenance” as a Liability of $4.59 trillion (per the chart above). Then when we spend $200 billion we would owe that much in dollar liability but Deferred Maintenance liability would reduce by the same amount. Thus no increase in Federal Debt!!

But wait there’s more. The $200 billion spent would provide 2.5 million direct jobs to people who are the most displaced in the workplace today. The construction workers and the semi-skilled labor force. I know you love those guys! Also another 5 million indirect jobs would be created. I estimate that the government would collect $50 billion per year in new taxes from the additional jobs. More money to give a tax cut to your faves: the corporations and the rich!

The ASCE and others also estimate that our crumbling infrastructure costs us thousands of lives (Road accidents alone claim 35,000 lives per year, way more than crime and terrorism). Also according to a report from the American Society Of Civil Engineers, the U.S. economy is expected to lose just under $4 trillion in GDP between 2016 and 2025 if infrastructure investment gaps are not addressed. This gap will grow to $40 trillion by 2040!

So if we spend $200 billion for ten years ($2 trillion total) we gain at least $4 trillion in economic growth! We also create 7.5 million good American middle class jobs that cannot be exported abroad. I told you it is a no brainer. By the most conservative calculations the GDP is given a 1.5% boost per year by this spending. In the last few years the GDP has been growing at just under 2% – an anemic growth. (You inherited such a mess!) But add in another 1.5% and we are at 3.5%. Back to the high growth era following the rapid infrastructure build up by Roosevelt. (He was a Democrat, but early on so were you, no?)

This Infrastructure spending does it all and has the added bonus of reducing inequality in America. Instead of trickle-down economics which makes the rich richer, this spending injects money at the bottom, at the grass roots, where it does the most good. It boosts demand and therefore it boosts investment by companies to meet this demand. Win win! (So much winning – we’ll need a break from all this winning –  you should take a rest after getting an infrastructure bill passed – maybe, a few rounds of golf at Mar-a-Lago?).

But seriously, Mr. President, isn’t this exactly what you promised – a big boost to the economic growth of this country and well paying jobs for the working men and women of America?

MAGA!

Yours Truly, etc…

Posted in Current Events, Innovation, Investing, Money, Politics, Uncategorized | 3 Comments