The Entrepreneurial State #1

I read The Entrepreneurial State by Mariana Mazzucato, an economics professor in the UK. Its thesis is that the entrepreneurial actions of government have been enormous and much underappreciated, and those of the private sector exaggerated. She claims to debunk the pervasive myth that the government is sluggish and inept, and at odds with a dynamic private sector.

She claims to debunk the alternative view of the private sector. “The fast-moving, risk-loving, and private sector, by contrast, is what really drives the innovation that creates economic growth. According to this view, the secret behind an engine of innovation like Silicon Valley lies in its entrepreneurs and venture capitalists. The State can intervene in the economy – but only to fix ‘market failures’ or level the playing field. It can regulate the private sector in order to account for the external costs companies may impose on the public (such as pollution), and it can invest in public goods such as basic scientific research or the development of drugs with little market potential. To some on the political right even fixing market failures would be a sin, because such attempts would lead to a worse outcome in the form of ‘government failures’“ (2-3).

“This conventional view of a boring, lethargic State versus a dynamic private sector is as wrong as it is widespread. This book concentrates on telling a very different story: in counties that owe their growth to innovation … the State has historically [been] a key actor in it, and often a more daring one, willing to take the risks that businesses won’t.” Government investments, not merely spending, have proved transformative, creating entirely new markets and sectors, including the Internet, nanotechnology, biotechnology and clean energy (4). “Instead, the truth is that government investment often has the effect of ‘crowding in’, meaning that it stimulates private investment that would not otherwise happen” (9). Of course, the opposite view is that government spending ‘crowds out’ private investment that would otherwise happen.

She advocates a more mutual public-private ecosystem that requires new methods, metrics, and indicators to evaluate public investments and their results (9).

The book is filled with narratives about how government-led innovations and investment have been so beneficial. The USA’s DARPA (Defense Advanced Research Projects Agency) is a prominent agency of innovation. Fair enough, but some of the key people at DARPA had their seminal ideas while at MIT, a private university, before they were hired by DARPA (Brief History of the Internet).  As one can glean from the reviews on Amazon that give the book a low rating, she greatly exaggerates the role of the State in success stories, such as Apple’s, and greatly shrinks that of the private sector. I agree with her critics and will say more why in subsequent posts.

The Innovators #4

The Innovators gives several more stories of collaborators in the history of the the computer, including for example:
- Robert Noyes and Gordon Moore, the founders of Intel
- Steve Jobs and Steve Wozniak, the founders of Apple
- Bill Gates and Paul Allen, the founders of Microsoft
- Marc Andreessen and Eric Bina, developers of the Mosaic browser
- Larry Page and Sergey Brin, the founders of Google.

Since these people are more recent and widely known, I won't say more. Readers wanting more can read the book or search the Internet.

The Innovators #3

Who invented the computer? With the criteria electronic, general purpose, and programmable (by plugging and unplugging cables), Isaacson's answer is ENIAC. It was completed in 1945 before transistors and microchips came into use. It was designed by two men, Presper Eckert and John Mauchly. "Mauchly and Eckert should be at the top of the list for inventing the computer, not because the ideas were all their own but because they had the ability to draw ideas from multiple sources, add their own innovations, execute their vision by building a competent team, and have the most influence on the course of subsequent development" (80-84). So ENIAC's creation supports his theme of collaboration.

As the microchip was being invented, different developers filed for patents for their invention. Getting a patent often took years. Jack Kilby's application was filed in January, 1959 but not granted until June, 1964.  Fairchild filed an application for Robert Noyce's invention in July 1959. But it was granted earlier, in April, 1961. "So who invented the microchip? As with the question of who invented the computer, the answer cannot be settled simply by reference to legal rulings. The nearly simultaneous advances made by Kilby and Noyce showed that the atmosphere of the time was primed for such an invention. Indeed, many others around the world ... had earlier proposed the possibility of an integrated circuit. What Noyce and Kilby did, in collaboration with teams at their companies, was figure out practical methods to produce such a device" (The Innovators, 179-80).

The Innovators #2

A top locus of collaborative invention was Bell Labs, especially in the 1940's. Its Wikipedia page lists by decades the many discoveries and developments there. Isaacson's The Innovators says nothing about many of them, but devotes many pages to some.

"Bell Labs ... was a haven for turning ideas into inventions. Abstract theories intersected with practical problems there, and in the corridors and cafeteria eccentric theorists mingled with hands-on engineers, gnarly mechanics, and businesslike problem-solvers, encouraging the cross-fertilization of theory with engineering. This made Bell Labs an archetype of one of the most important innovations of digital-age innovation" (48).

There Claude Shannon saw up close the wonderful power of the phone system's circuits, which used electrical switches to route calls and balance loads. In his mind, he began connecting the workings of these circuits to another subject he found fascinating, the system of logic formulated by George Boole. Boole revolutionized logic by expressing logical statement using symbols and equations.  Shannon figured out that electrical circuits could execute Boolean logical operations using an arrangement of on-off switches, making relays and logic gates (48).

Another milestone at Bell Labs was the invention of the transistor (Chapter 4). John Bardeen, Walter Brattain, and William Shockley were later jointly awarded the Nobel Prize in Physics for their achievement. The transistor provided the foundation for transistor radios, missile guidance systems and radar, and the invention of microprocessors, which came to be often called "integrated circuits" or "microchips." Microchips later became foundational for hand-held calculators, computers, and cell phones.

Bernie Sanders' Medicare for All #2

The executive summary linked in my previous post was for Sanders' Medicare for All Act of 2017. Its only mention of long-term care is: "Long-term care for seniors and people with disabilities will continue as it is currently covered under Medicaid." It says nothing about limiting co-pays for prescription drugs.

This story (April 10) reports that Sanders has since added to his wish list. "In this latest version, Sanders added coverage for long-term care." "Brand name prescription drugs would be subject to copays totaling no more than $200 annually."

Of course, he omits saying what all this will cost. To him cost doesn't matter. In his view health care is a "moral right" and a license to coerce others to pay or provide whatever he or the government commands. However, a "right" to coerce others to pay or provide for this alleged "right" cannot be a legitimate right, because it violates the rights of those coerced. He also wishes his audience and supporters to believe (1) it will cost them little or nothing, (2) "the rich" will pay for all or most of the cost, and (3) there will be no bad consequences such as hospitals closing and cutting staff.

Per the story White House press secretary Sarah Sanders said in a statement that his plan would entail “a total government takeover of health care that ... (would) cripple our economy and future generations with unprecedented debt.”  True and true.

The last paragraph of the story says: "Earlier this year, a poll from the nonpartisan Kaiser Family Foundation found that Americans like the idea of Medicare for All but that support flips to disapproval if it would result in higher taxes or longer waits for care."

I found the poll results here. In other words, the majority of Americans approve of Medicare for All, if they don't have to pay more for it. But see slide 11. The majority oppose it if it requires most Americans pay more taxes, results in delays in treatment, or eliminates private health insurance.

What a surprise. Sure, I'd like a $10 million mansion and a couple of brand new Lamborghinis if somebody else is willing to pay for them. On the other hand, I won't spend my own money on anything near that extravagant.

Addenda: Alexandria Ocasio-Cortez, who worked as an organizer for Bernie Sanders' 2016 presidential campaign, said the following according to FoxNews:

"In an interview with Jorge Ramos last week, Ocasio-Cortez was asked how she would pay for the multibillion-dollar health care plan promoted by liberal lawmakers like Sens. Bernie Sanders, I-Vt., and Kamala Harris, D-Calif. Ramos noted critics say the program would be "more expensive" than the current system, to which she answered that people would "just pay for it."

“People often say, like, how are you going to pay for it and I find the question so puzzling because ‘How do you pay for something that’s more affordable? How do you pay for cheaper rent?’ You just pay for it,” she said."  Gibberish.

Bernie Sanders' Medicare for All

The USA's population is becoming more and more enamored with Medicare for All. Bernie Sanders touts it often as the cure to health insurance and health care. There are different versions of it, but Sanders' version is a massive government takeover of health insurance. This post will focus on health insurance, not health care.

The basics of his proposal is given in this story. He wants to eliminate private insurance in favor of government-run universal coverage. That includes eliminating health insurance now provided by employers. Almost half the US population has it. Everybody goes on Medicare. So whatever is being paid by employers now (I believe it's around $1 trillion per year) would be shifted to being paid for by increasing taxes, payroll or income. Of course, Bernie refrains from honestly saying how much.

Per here, federal, state, and local governments will spend $1.7 trillion for health care in fiscal year 2019 ($1.25 trillion federal). So the increase in taxes would be huge.

Per page 10 here 217 million people, 67% of the population, have private health insurance coverage that Bernie Sanders wants to eliminate, i.e. take away those people's health insurance, and put them on Medicare. Medicare in 2017 covered 55.6 million people. It's much closer to 60 million now. He doesn't want to eliminate employer-provided insurance instantly. He's willing to phase in the elimination over 4 years. But him wanting to eliminate it is clear in his executive summary -- "there would be one insurance plan for the American people with one single payer", Medicare.

His executive summary does not mention Medicare Supplemental (Medigap) or Medicare Advantage. However, these are private insurance, so lets take his elimination talk seriously. People buy Medicare Supplemental coverage, paying a premium, so that the policy pays for a lot of what Medicare does not. Replacing Medicare Supplement coverage will be in addition to the added cost of Medicare covering more people.

Medicare Advantage is a government-approved alternative to Medicare. The federal government pays a lot of money to the private insurer for each person covered. With a wholesale government takeover, the extra cost to the government would be the premiums Medicare Advantage insureds pay. These premiums on average aren't as much as for Medigap, but there would be some amount.

If you believe I'm exaggerating Bernie's proposal, think again. UnitedHealth Group -- often called UnitedHealthcare -- is the largest healthcare company in the world by revenue with $226.2 billion in 2018. Per this story Sanders tweeted to the CEO of UnitedHealthcare: “Our message to Steve Nelson and UnitedHealthcare is simple: When we are in the White House your greed is going to end. We will end the disgrace of millions of people being denied health care while a single company earns $226 billion and its CEO makes $7.5 million in compensation.” He says "end the greed", but his wanting to eliminate private insurance and single payer imply destroying UnitedHealthcare.

If employers will no longer provide health insurance for their employees, where will their cost savings go? You can bet that Bernie wants to confiscate it. And I'd like to see Bernie tell a huge crowd of federal and state government employees that he wants to eliminate their employer-provided health insurance.

Bernie Sanders lies about Amazon income taxes

Bernie Sanders declared that Amazon paid no federal income taxes for 2018 (story).

He lied. I went to Morningstar to look at Amazon's financial data. Clicking on "All Financial Data" here reveals the relevant numbers:

Income before taxes             $11,261 million
Net income                           $10,073 million
Provision for income taxes    $1,197 million
Cash paid for income taxes   $1,429 million

The provision for income taxes is a GAAP (Generally Accepted Accounting Principles) accrual amount which includes adjusting for deferred or prepaid taxes. However, cash paid for income taxes is obviously cash paid. 1429/11261 = 0.127, or 12.7%. That is not as much as one might expect based on the 21% corporate rate, but it is nowhere near Bernie's lie that Amazon paid zero taxes.

Bernie very likely lied about Netflix, too. Morningstar showed a $15 million provision for income taxes (on pretax income of $1,226 million), but did not show the amount of cash paid for income taxes. Anyway, from the story linked above: "A Netflix spokeswoman said in an email that it is "inaccurate to say that we paid $0 in federal income taxes in the U.S. in 2018"."

The Innovators #1

I have been reading The Innovators, a book written by Walter Isaacson. It is about the digital revolution, i.e. computers. Isaacson emphasizes that many innovations in the digital revolution were the result of collaborative efforts.

"This is the story of these pioneers, hackers, inventors and entrepreneurs -- who they were, how their minds worked, and what made them so creative. It's also a narrative of how they collaborated and why their ability to work together made them even more creative.
     The tale of their teamwork is important because we don't often focus on how central that skill is to innovation. There are thousands of books celebrating people we biographers portray, or mythologize, as lone inventors. ... But we have far fewer tales of collaborative creativity, which is actually more important in understanding how today's technology revolution was fashioned" (p. 1).

The names of some of the most famous collaborators are common knowledge, e.g. Bill Gates and Paul Allen, Steve Jobs and Steve Wozniak.  But there are several other collaborators, less commonly known, who also did a lot to make the digital revolution.  John Bardeen, Walter Brattain, and William Shockley at Bell Labs were awarded a Nobel Prize for inventing the transistor. The graphical user interface and mouse that Steve Jobs first exploited for Apple computers were invented by teams elsewhere. Robert Noyce and Jack Kilby invented the the first integrated circuit or microchip that helped launch the personal computer revolution. Noyce and Gordon Moore founded Intel, which mass-produced and improved the microchips that fueled the personal computer revolution. These collaborators plus more not mentioned here provide the content and evidence for Isaacson's story. He also gives examples of inventors who did great things, but with little collaboration, and that inhibited the wide-spread adoption of their ideas and the success of their ideas in the marketplace.

Bird eggs

Last night we watched another fascinating episode in PBS's Nature series hosted by David Attenborough. This one was about bird eggs, the variety of their characteristics, and the birds that make them. For example, the cuckoo doesn't make its own nest and hatch its eggs. It lays the egg in the nest of another bird -- a different species and mimicking the color and shape of its eggs -- and that bird hatches it (if successful).

Nothing was said about how the host behaves after the cuckoo egg hatches. Per Wikipedia, the cuckoo chick is much larger than a chick of the host species, but the host doesn't discriminate against a cuckoo chick. The host feeds a cuckoo chick as if it were the host's own.

The entire episode can be viewed online until May 8 here.

IRS pinches middle and lower income self-employed

The Tax Cuts and Jobs Act of 2017 reduced corporate and personal income tax rates. The main corporate tax rate was reduced from 35% to 21%. Not lowering tax rates for income from self-employment and pass-thru entities (Sub-S corporations, LLCs and partnerships) would have disadvantaged those kinds of income. (For ease of expression and brevity I shall call those kinds of income "qualified business income" or QBI.) Therefore, the TCJA also introduced the Qualified Business Income Deduction, or QBID. In many cases, the QBID is 20% of QBI.  However, there are caveats that result in the QBID being much less than 20% of QBI sometimes. (20% of QBI is the maximum.) The caveats especially pinch middle and lower income self-employed and others with QBI.

By "middle and lower income" I mean somebody with taxable income less than $315,000 if married filing jointly, or less than $157,500 if filing single or head-of-household. There is a worksheet in the IRS Form 1040 Instructions for such people. For those with incomes higher than those amounts, there is a different worksheet in IRS Publication 535.

In both worksheets 20% of taxable income after subtracting the filer's standard or itemized deductions may cause the QBID to be less than 20% of QBI. The 2018 standard deduction is $24,000 for joint filers both under age 65 and $12,000 for single filers under age 65. Since such amounts are higher as a percent of income for filers using the F1040 worksheet, the deduction can do more to reduce QBIDs than for filers using the Pub 535 worksheet.

The Pub 535 worksheet includes an entry for 50% of paid W-2 wages, i.e. wages paid to employees hired by the self-employed or pass-thru entity. It can preserve a QBID equal to 20% of QBI for higher income people when they have such employees. If somebody with taxable income more than $207,500 (single, head-of-household) or more than $415,000 (married filing jointly) has no such paid W-2 wages, then the QBID is $0. In contrast, the F1040 worksheet has no entry for 50% of paid W-2 wages, even if the self-employed or QBI person has other employees.

The implications and the worksheets are not simple, so some examples should help.

Bill has $50,000 taxable income from self-employment and no other income. He is married, files jointly, and takes the standard deduction of $24,000 (for 2018).  Hence, taxable income before QBID is $26,000. Therefore, his QBID is limited to 20% of $26,000, which equals $5,200 and is only 10.4% of his QBI. He does not get a QBID = 20%*$50,000 = $10,000.

If Bill had some employees whom he paid W-2 wages (and still netted $50,000 for himself), that would not raise his QBID. It would still be $5,200. Filers with much higher incomes using the Pub 535 worksheet can get a QBID = 20% of QBI by virtue of having paid W-2 wages to employees, but not Bill! That's even if Bill paid W-2 wages several times $50,000!

Jim has $20,000 taxable income from self-employment and no other income. He is single and takes the standard deduction of $12,000 (for 2018). Hence, taxable income before his QBID is $8,000. Therefore, his QBID is limited to 20% of $8,000, which equals $1,600 and is only 8% of his QBI. He does not get a QBID = 20%*$20,000 = $4,000.

There are other factors which could get Bill a higher QBID on his $50,000, such as taxable interest or Bill's wife having some W-2 wages, since these raise taxable income before QBID. For example, if Bill's wife had $24,000 of W-2 wages, Bill's QBID would be 20%*QBI. There are other factors which could get Jim a higher QBID on his $20,000 QBI. I mention these for fuller disclosure and choose to not address the complications.

There are millions of self-employed middle and lower income people in the USA. This page gives a glimpse of the numbers and jobs types.

Socialist health care in Venezuela

Bernie Sanders, Ocasio-Cortez and their ilk like to praise socialist health care. Exactly one month ago (link) I wrote that and that Sanders, Ocasio-Cortez, and their ilk describe health care in Denmark and Sweden as ideal, but they say nothing at all about health care in Venezuela, which is very socialist.

This article at a public media website describes how bad health care is in Venezuela. For example: Patients who go to the hospital need to bring their own food and medical supplies like syringes and scalpels, as well as their own soap and water. Cases of measles, diphtheria, malaria, maternal mortality, infant mortality, tuberculosis, HIV infections, and AIDS-related death have all increased sharply.

What the article entirely omits saying is that this is socialist health care. Being the article was written for a member station of NPR (National Public Radio), I am not at all surprised.

Hat tip to Gus Van Horn (link).

CBS News on Canada's climate change

I saw this CBS News video on Canada's warming faster than most of the Earth.

Asked what has caused Canada's climate to warm, meteorologist Jeff Berardelli replies: "For sure, it's us. Because fossil fuels that we are burning, releasing carbon dioxide and other greenhouse gases into the atmosphere are trapping like a blanket all of that heat. So there's no doubt about why it's happening."

He sounds cocksure, doesn't he? Did he not watch 60 Minutes -- on CBS, his own network -- only two days earlier? Did he watch it and miss the part about microbes mass-producing greenhouse gases or simply ignored it? He doesn't mention sunspots or clouds either. And where are all those greenhouse gas belching power plants, cars, and trucks in the vast areas within the Arctic Circle where so few human live?

Given he is so cocksure, I'd like to know about his carbon footprint. Does he practice what he preaches? Does he travel in cars and planes rather than walk or bicycle? Does his home rely on fossil fuels for heating, air-conditioning, and electricity? Or does he only love to tell others how they should live, or wants a coercive government to do so, and he himself refuses to abide by his own sermons?

60 Minutes show on climate change

Part of Sunday's (March 31) CBS's 60 Minutes was about climate change in the Arctic Circle. The Russian geophysicist Sergey Zimov has lived there for many years. He is best known for his theory that human over-hunting of large herbivores during the Pleistocene or Ice Age, which ended about 11,700 years ago, caused Siberia's grassland-steppe ecosystem to disappear and for raising awareness as to the important roles permafrost and thermokarst lakes play in the global carbon cycle (link).

The following are excerpts from the 60 Minutes show.

"Sergey Zimov told us when man became the main predator, the woolly mammoth and other large grazers were hunted to extinction. Forest replaced grasslands and that made Siberia vulnerable to a warming climate. Because trees trap more heat than grass. And winter temperatures of 40-below can't freeze the permafrost if there are no herds of animals to trample the insulating snow."

"This is a warning to the world because organic matter in the permafrost, plants and animals, has been frozen for hundreds of thousands of years. As it thaws, microbes consume that organic matter and release carbon dioxide and methane, greenhouse gases which contribute to a warmer climate."

"Scientists estimate there is more greenhouse gas in permafrost than in all of the world's remaining oil, natural gas and coal."

I have seen graphics that allegedly show the magnitude of temperature changes in the past few decades in different regions of the globe such as this one.  The temperatures differences are for only one day, but they are quite persistent. The biggest changes are in or near the Arctic Circle. Narratives about melting polar ice caps and glaciers and shrinking polar bear habitats are numerous.  The typical alarmist narrative is that warming anywhere is caused by humans burning fossil fuels and only that. Other possible causes are flippantly dismissed.

What I found interesting about the 60 Minutes show is what it did not say or even acknowledge. The cause of the melting permafrost according to Zimov is (1) human activity long before humans began burning fossil fuels, and (2) microbes producing greenhouse gases, not humans burning fossil fuels. Intentional or not, the 60 Minutes show omitted saying anything that challenges the typical alarmist narrative.

The Dakota Free Press ("South Dakota's True Liberal Media") exemplifies the typical alarmist narrative. Referring to the 60 Minutes show, the author says, "If we don’t take our foot off the gas, we’ll melt the Siberian permafrost, and then climate change will really accelerate" (link). Huh? Did the author simply hear only what he wanted to hear? He even quotes Zimov saying that the greenhouse gases are being produced by microbes. He ignores it (an inconvenient truth?) and leaps to the conclusion that the warming is caused by humans burning fossil fuels.

Another curious thing about the graphic of regional temperature changes linked above is the United States. Most of the USA is colored blue, indicating a drop in temperature. If the USA burns more fossil fuels per capita than most other countries, it seems the temperature drop is counter to the typical alarmist narrative.

See here for more about regional differences in CO2 concentrations.