Depending on Technology

Yesterday, SKYPE, the company which provides a not quite indispensable Voice Over Internet Protocol (VOIP) service, offered updated software. For those, like your correspondent, who downloaded and installed the new version, the result was yet another lesson on the dangers of being dependent on technology: SKYPE's servers promptly developed some unspeakable malady and the service went down for hours.

The loss of the ability to make telephone calls for no, or little, additional cost beyond the price of a reasonably fast (at least by American standards) Internet connection is inconvenient rather than critical. Businesses, however, that depend on air transport - just an older form of technology - have suffered two major disruptions this year: the eruption in the spring of the [Unpronounceable Name] volcano in Iceland and the present cold and snowy weather in Northern Europe.

Just in Time (JIT) supply chain management is one of the modern mantras of business and, indeed, when all goes well is responsible for significant contributions to reduced manufacturing costs. The problem is that things don't always go well which leads to disruptions that are both time consuming and expensive.

Perhaps business (and all of the rest of us who depend on technology) should adopt a more modest attitude. Murphy's Law states that 'whatever can go wrong, will go wrong'. Since Murphy's Law always applies - and there are those who believe that Murphy was an optimist - JIC (Just in Case) stockpiles of goods and materials can serve to reduce the costs when Mother Nature decides to assert herself.

We should always remember that, at the end of the game, the score is likely to be:

Mother Nature 5 Technology 2

Your correspondent would be remiss if he did not note the irony of the fact that he is writing this blog on the 12th floor of a high rise apartment building where he relies totally on electricity for elevator service. The good news is that the building does have a generator to provide emergency lighting and elevator service (but not much more). Your correspondent is confident that management has stocked up on diesel fuel.

Just in Case.

Tax Follies

Last week, after much posturing and empty rhetoric, the Congress managed to extend the so-called Bush Tax cuts for another two years.

The good news is that the economy avoided a threat, at a time when the risks of a tax increase, are higher than anyone should like. The result of tax increases in the USA (in 1937) and Japan (in 1997) played a major part in reducing economic growth to a crawl.

The bad news is that the Congress extended, and added to, a grotesque collection of porcine subsidies demanded by special interest groups and others who can afford to pay for the services of the K Street mafia - better known as lobbyists. The worse news is that there seems to be little willingness to address the gross distortions caused by the current tax code or the soon to be entirely unaffordable overspending that grows ever larger every year.

The latest tax follies, passed in haste, are just about bearable provided that the President is willing to follow the example of Ronald Reagan who, in 1986 with the help of two very liberal legislators - Senator Bill Bradley (D-NJ) and Rep. Dick Gephardt (D-Mo), was able to persuade the Congress to pass a really good tax bill. The Tax Reform Act of 1986 reduced tax rates in exchange for the elimination of many deductions and credits. Since then, the special interests have loaded up the tax code with so many additional deductions and credits that the benefits of the 1986 bill are long lost.

For those who even vaguely care about taxation and its effect on the economy, your correspondent recommends these thoughts:

• High marginal tax rates act as a disincentive to hard work.
• The hated Alternative Minimum Tax system is remarkably close to the nearly zero deductions flat tax supported by many Republicans. With some simplification, reduction of rates, and in combination with a consumption tax (VAT or Federal Sales tax), it could work well as the basis for the taxation of individual and family income
• How, exactly, are capital gains so different from other income that a lower tax rate is justified? Consider that the tax can be deferred almost indefinitely until the gain is actually realized.
• Subsidies should be explicit and made through the appropriations process. If my housing costs are to be subsidized, make it explicit, appropriate the funds, and send me a check. If I am a multi-millionaire with a mortgage on my vacation house, the absurdity - even immorality - of such a program becomes immediately self evident.
• Economics 201 teaches that the result of subsidies granted to enterprises that require the purchase of a significant asset (houses, farms) merely results in the value of the subsidy being capitalized in the price of the asset. The result is that only the owner of the asset, when the subsidy is first awarded or if it is later increased, will actually benefit. Everyone else loses.
• Farm subsidies - and the central planning that goes along with them - should be ended. It is hard to see any sense in the practice of giving large sums of taxpayer money to farmers so that they may use highly subsidized (really underpriced) water to grow cotton and alfalfa (two of the thirstiest crops known to man) in the Central Valley of California (a desert). But it happens: your tax money at work!
• Consider the inconsistency with respect to the deductibility of State and Local taxes: property taxes, yes; state income taxes, yes; state and local sales taxes, no; gasoline, cigarette, liquor and other local excise taxes, no. What possible sense does this make other than to trick people into moving to low income tax states but all the while forgetting that the states will raise the money that they need one way or another.
• Corporations don't pay income taxes, they collect income taxes that would otherwise be paid directly by shareholders.
• Consumption taxes don't apply to criminal activity but the proceeds of criminal activity (fancy cars and other bling) do get taxed. That would be more than happens today.
• Consumption taxes remove the IRS from inflicting itself on individuals because only businesses need to be audited. The efficiency of the tax collecting process is increased and the tyranny of the government is reduced.

The list above describes a tiny corner of the current waste and abuse of taxpayer resources. The real question, however, is whether there is a sufficiently large cohort of honorable, and clear thinking, citizens who are willing to trade deductions and credits that directly benefit them in exchange for lower tax rates, reduced government, and a more vibrant economy. If there are, the special interests will suffer a significant defeat. If not, the economy will suffer and our country will become ever more divided.

We should also remember the warning given by Thomas Jefferson: "a government big enough to give you everything you want, is big enough to take everything you have."

If President Obama can pull off anything like Mr. Reagan's feat, he might deserve a second term. If not, the economy, government overspending, the looming health care mess and class warfare over the renewal of the Bush tax cuts in two years, will likely send him into early retirement.

If so, he will not be missed.

Immigrants

The passage below surely has a familiar ring and might have been written by a far right wing Republican lamenting the culture and prescence of ethnic Hispanic immigrants:

"Few of their children in the country learn English: they import books from [country]... The signs in our streets have inscriptions in both languages, and on some places only [the other language], which (although I think it ought not to be) are allowed good in our courts, where the [ethnic group] business so increases that there is continual need of interpreters: and I suppose in a few years will also be necessary in the [legislature], to tell one half of the legislators what the other half say."

Rather than using Mexico, Spanish, and Hispanic for 'country', 'language' and 'ethnic group', Benjamin Franklin writing in 1751 (as quoted by H.W. Brands in his excellent biography 'The First American') was referring to German immigrants who, he feared, would overrun and dominate Pennsylvania.

Demonizing immigrant groups has a long and inglorious history in America. In addition to persons of Hispanic origin, the list includes Germans, Portuguese, Irish, Poles and Jews - all of of whom are now considered mainstream rather than despised interlopers. It is very likely that those of Hispanic origin will, too, become ordinary Americans distinguishable, but only sometimes, by nothing more than their names.

Surely it is time for the right to stop obsessing about immigrants and read a little about the successful integration of formerly despised ethnic groups. And why should anything be different this time?

Headscratcher (8)

The wonder is that the Wikileaks affair came as a surprise to anyone.

Nearly forty one years ago, your correspondent went to work as an assistant to a former very senior advisor to the President of the United States. He taught me two things, which I have never forgotten, on my first day at work:

• Lesson 1: there are no secrets so act accordingly, and
• Lesson 2: never put anything in writing that you would be embarrassed to see on the front page of the Washington Post.

While much of what has been disclosed is merely the day to day communications of the lower levels of the diplomatic corps and the military, the first lesson applies. No one, therefore, should be surprised when all is revealed.

The frequently gratuitous, and insulting, remarks about foreign leaders may indeed be accurate - and are certainly entertaining to the casual onlooker - but they have added some complications to the conduct of American foreign policy. Those complications could have been avoided had the authors of the diplomatic cables paid even the slightest attention to the second lesson.

It is definitely a headscratcher that so many supposedly intelligent and knowledgeable people should fail to understand one of the very basics of the 'Washington system'.

Thought for the Day

Douglas Adams, writing in 'The Hitchhiker's Guide to the Galaxy', maintained that the ultimate answer to the ultimate question of life, the universe, and everything, was 42.

Some of us who race sailboats are not entirely convinced by his argument and strongly believe that the real answer may actually be found in Rule 42 (Propulsion) of the Racing Rules of Sailing.

Not Actually the End of the Line

During the Thanksgiving Holiday, your correspondent was chatting with a longtime friend, who happens to be a former high government official and now senior executive for a major company. During the conversation, he strongly encouraged me to resume publication of this blog.

After considerable thought, I have decided to resume my commentary on life, the universe and everything.

Watch this space.