The cheated are under heavy selective pressure to outwit the cheaters, who then come under heavy pressure to refine their techniques. The choice is innovate or die.

The other reference was in an article in Foreign Affairs (FAF) written by Eric Schmidt and it ended with (emphasis mine)

The United States started the innovation race in pole position, but it cannot rest assured it will remain there. Silicon Valley’s old mantra holds true not just in industry but also in geopolitics: innovate or die.

I could draw parallels about China mimicking western technology and cheating in order to obtain intellectual property but thats a story for another day. What I found interesting is the statement in the Foreign Affairs essay asserting that Innovation Power is going to determine who comes out on top over the next decade across a number of technologies.

Innovation Power

The essay defined Innovation Power as follows:

Innovation power is the ability to invent, adopt, and adapt new technologies

China is adopting and adapting new technologies at an incredible pace. It's also starting to make massive gains at the sharp end of the spear by inventing and patenting (the irony) these innovations. In the same issue of Foreign Affairs Dan Wang used Stan Shih's smiling curve as a way to describe how China has taken what was once considered the low margin middle of the curve and turned it into an advantage.

In essence China scaled up manufacturing and global supply chains to such a degree that it's now innovating in the manufacturing space. China is gaining knowledge that the US and other western powers deemed unimportant as they offshored everything considered the middle of the smiling curve. This knowledge can only be gained by doing because knowledge does not equal understanding and it's only the act of actually scaling something that allows a company or nation to gain the understanding. No amount of reading books will allow you to build a Google Scale Search Engine an AWS or a Youtube, you need to do it to understand how to do it. When it comes to scale it really is scale or die and scale forces innovation.

Midwife of Innovation

The Foreign Affairs essay provides some concrete examples of how some things were invented or adopted during war like computer science, nuclear technology etc and uses the following phrase

If necessity is the mother of invention, war is the midwife of innovation [note1]

The point here in the essay is that achieving war like innovation during peacetime is going to take a herculean effort and the USA today isn't particularly well suited to bring these changes about.

I agree that the USA today has lost some of it's mojo for various reasons, red vs blue, culture wars, offshoring, government official incentives are short term but it is possible to achieve massive innovation during peacetime and the USA has been doing this for decades.

Scale has been the midwife of innovation

Karl Marx said

Force is the midwife of revolution [note1]

I'd like to paraphrase Marx a bit further and state it as follows

Scale is the midwife of innovation

We've seen this happen in the tech industry over the last 30 years with the birth of FAANG. US tech companies supplanted war as the midwife of innovation with scale. China took on the challenge of becoming the worlds factory and they were forced to scale or fail.

Scaling anything applies hard constraints that require novel solutions and novel solutions require innovation. Scale has been the forcing function for a lot of the innovations we’re seeing.

If the USA wants to maintain the hegemony it needs to scale the industries it deems most important.

note1

Karl Marx in Capital V1 he says

Force is the midwife of every old society pregnant with a new one.

which is often quoted as

Force is the midwife of revolution

Would a “Wealth Tax” Help Combat Inequality? A Debate with Saez, Summers, and Mankiw

At minute 1:21 theres is a question as to realizing capital gains on a yearly basis and if there is an economical reason for keeping it the way it is ie on realization vs every year. I'll paraphrase a bit

Ignoring administrative issues is there any economical reason we don't tax capital gains on a yearly basis rather than waiting?

I don't know if the person asking was trying to just ask a question that Larry and Emmanuel could agree on but at this point in the video it's evident that Larry Summers had had enough of Emmanual Saez.

The answer to the question in the video is good from Larry that cuts to the heart of the matter because capital is not easily divisible.

Here's another great explanation from a very famous economist. Answer from John Clark Bates

https://www.econlib.org/library/enc/bios/clark.html

Again, capital is perfectly mobile; but capital goods are far from being so. It is possible to take a million dollars out of one industry and put them into another. Under favorable conditions, it is possible to do this without waste. It is, however, quite impossible to take bodily out of one industry the tools that belong to it and to put them into another. The capital that was once invested in the whale fishery of New England is now, to some extent, employed in cotton manufacturing; but the ships have not been used as cotton mills. As the vessels were worn out, the part of their earnings that might have been used to build more vessels was actually used to build mills. The nautical form of the capital perished; but the capital survived and, as it were, migrated from the one set of material bodies to the other. There is, indeed, no limit to the ultimate power of capital, by changing its forms of embodiment, thus to change its place in the group-system of industry. (_Distribution of Wealth_, p. 118) https://www.econlib.org/library/enc/bios/clark.html

Capital is rarely in liquid form. The vast majority of capital is tied up in non liquid assets like land, factories, plant etc. A good example is your house.

In a previous post I mentioned some of the Economic Skullduggery mentioned in the video, it’s worth watching the whole video.

This is a bit like watch an economics soap and to a nerd like me it was an exciting thing to watch where we have two economists debunking another one. Regardless of the mathematical rigor missing from Saez's numbers the video is worth watching for the message that Summers and Mankiw present.

TL:DR

The economists Gabriel Zucman and Emmanuel Saez

https://en.wikipedia.org/wiki/Gabriel_Zucman

https://en.wikipedia.org/wiki/Emmanuel_Saez

let they're political leanings overcome their rationality as scientists

Instead of objectively reporting the latest findings from tax statistics, Zucman was placing his finger on the scale. He appeared to be bending his results to conform to the political narrative of Warren’s campaign, which he was also advising at the time. Through a series of highly opaque and empirically suspect adjustments, Zucman had artificially inflated the tax rate paid by the poorest earners while simultaneously suppressing the tax rate paid by the rich

Unfortunately trigger happy media believed them and the message went out in time for Warrens political agenda. The quote above is taken from here.

https://www.aier.org/article/harvard-finally-stands-up-to-academic-duplicity/

This sort of thing is extremely dangerous. The implications of modifying numbers to suit the political message while not new is not something you expect from professors winning awards. Saez got an honorary degree from Harvard and 2019 and the Bates Clark medal in 2009 and Zucman got the Bates Clark in April 2023.

The reason this is dangerous is that it calls into question all economists. We’re having a hard time right now with our democracy and having sensible policy created and followed through and it’s crap like this that allows populists to question and convince others that they shouldn’t be paying to much attention to science.

Instead of criticism we need to encourage and see the greatness that exists in our children, they're amazing fantastic people and our negativity can only negatively impact them now and into the future long after we're gone.

I need to read this weekly.

“Father Forgets”

_Listen, son: I am saying this as you lie asleep, one little paw crumpled under your cheek and the blond curls stickily wet on your damp forehead. I have stolen into your room alone. Just a few minutes ago, as I sat reading my paper in the library, a stifling wave of remorse swept over me. Guiltily I came to your bedside._

There are the things I was thinking, son: I had been cross to you. I scolded you as you were dressing for school because you gave your face merely a dab with a towel. I took you to task for not cleaning your shoes. I called out angrily when you threw some of your things on the floor.

At breakfast I found fault, too. You spilled things. You gulped down your food. You put your elbows on the table. You spread butter too thick on your bread. And as you started off to play and I made for my train, you turned and waved a hand and called, “Goodbye, Daddy!” and I frowned, and said in reply,

“Hold your shoulders back!”

Then it began all over again in the late afternoon. As I came up the road I spied you, down on your knees, playing marbles. There were holes in your stockings. I humiliated you before your boyfriends by marching you ahead of me to the house. Stockings were expensive‐and if you had to buy them you would be more careful! Imagine that, son, from a father!

Do you remember, later, when I was reading in the library, how you came in timidly, with a sort of hurt look in your eyes? When I glanced up over my paper, impatient at the interruption, you hesitated at the door. “What is it you want?” I snapped. You said nothing, but ran across in one tempestuous plunge, and threw your arms around my neck and kissed me, and your small arms tightened with an affection that God had set blooming in your heart and which even neglect could not wither.

And then you were gone, pattering up the stairs. Well, son, it was shortly afterwards that my paper slipped from my hands and a terrible sickening fear came over me. What has habit been doing to me?

The habit of finding fault, of reprimanding‐this was my reward to you for being a boy. It was not that I did not love you; it was that I expected too much of youth. I was measuring you by the yardstick of my own years.

And there was so much that was good and fine and true in your character. The little heart of you was as big as the dawn itself over the wide hills. This was shown by your spontaneous impulse to rush in and kiss me good night. Nothing else matters tonight, son. I have come to your bedside in the darkness, and I have knelt there, ashamed!

It is feeble atonement; I know you would not understand these things if I told them to you during your waking hours. But tomorrow I will be a real daddy! I will chum with you, and suffer when you suffer, and laugh when you laugh. I will bite my tongue when impatient words come. I will keep saying as if it were a ritual: “He is nothing but a boy‐a little boy!”

I am afraid I have visualized you as a man. Yet as I see you now, son, crumpled and weary in your cot, I see that you are still a baby. Yesterday you were in your mother’s arms, your head on her shoulder. I have asked too much, too much.

_Father Forgets_ by W. Livingston Larned

Automation is often a solution in search of a problem. It is a choice people have made, not an inevitability and certainly not a necessity.

I disagree. The reason I take umbrage with this is that it's ignoring Maslows Hierarchy of needs and most of what drives a capitalist economy. He's also telling us that he could decide for us what is and is not necessary. For some reason he uses Truck Drivers as an example where automation is not required and could be simply solved with more immigration.

There is no global scarcity of people who would like to be long-haul truck drivers in the United States, where the median wage for such work is $23 per hour. In the developing world, truck drivers make around $4 per hour.

It's ironic (or maybe it was planned) that the article in the magazine that came just before his in the print edition was written by Eric Schmidt whose Venture capital for Innovation Endeavours are investing in Gatik which is a truck automation company.

I think we need more immigration in the USA but truck drivers would not be near the top of the list.

Cars

Cars are being automated. There will be a ton of learnings that will naturally spill over into Trucks. The benefits from autonomous cars is transformational and to argue against it or against automating trucks to me is neo-luddism.

https://en.wikipedia.org/wiki/Neo-Luddism

One reason why trucks are going to be automated is simple. Humans need to sleep or bad things happen. The following is a Tachograph (image taken from wikipedia).

They're a legal requirement and in the UK and there are strict laws on how long a driver can operate a Heavy Good Vehicle (HGV). Machines don't have this limitation. In the UK a driver can drive 56 hours a week max which is 33% of the week, a machine can go around the clock. Eventually they'll even have automated fueling the same way we have planes fueled in mid flight.

To get 24/7 drivers it gets expensive and there's additional costs in things like truck stops that need to be created along motorways to allow the drivers to sleep. There's the social cost of the drivers being away from their families. How about the increase in deaths from Lung Cancer?

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2569090/

Or Prostrate Cancer.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5073998/

Automation is coming, it’s inexorable and as necessary as the flushed toilet or electricity in the home.

Where I'm at a gallon of gas is around $4.50 which I think is crazy cheap even though it's more expensive than most other areas in the USA.

The recommended carbon tax from recent research if $185 per metric tonne (2204.62lbs).

Every US gallon of gas creates approximately 8.9 kg of CO2. That means that 112 gallons produces 1 tonne of CO2. So an additional $1.65 on my gallon.

We've seen price fluctuations during covid similar to this. I could also reduce my gas consumption massively by changing cars. In fact if I was driving the cars I had in the UK I could shrink my gas cost by much more than the price hike.

Gross Oversimplification

There are a lot of things I skipped over here on working out the price. One factor that I missed is what would the petrostates do if we increased the gas tax? They need the revenues from Oil. OPEC decides how much to pump based on lots of factors but if oil consumption going down because tax has increased they need to pump more oil to bring prices down and keep demand up for as long as possible, they really need the money. One of the scariest things about moving off Oil is what's going to happen to the Petrostates as their economies start failing. Some of the economies see it coming, the UAE is recreating Dubai. Mohammed bin Salman is trying to diversify the Saudi Economy for a reason.

The states that don't use the money from oil to create a more diversified economy are going to pay an awful price when the money runs out.

When I whizz past you in my Lambo taking the kids/kid (the other two can walk) to school I get the benefit of going from A to B and looking spectacular. You on the other hand get to inhale the noxious fumes and suffer a cost which could eventually be something serious like dying early. The social cost to me driving has a social cost that I don't have to pay and it's called a negative externality. Unless the government does something I never have to pay the full cost of driving my fancy car, woohoo for free markets. Some would even argue that I'm providing a positive externality because you get to see my beautiful car.

Some externalities can be owned, like Elephants but some can't. No one owns the environment or the air we breathe. Believe it or not there has been a solution to this problem of externalities like climate change that’s been around for more than 100 years. It's called a Pigovian Tax and a lot of economists agree that this is a better solution than a lot of the policy being generated today like massive government spending. Rather than trying to convince you that it's a good method I'll leave it to Gregory Mankiw.

The economics here is straightforward: emitting carbon into the atmosphere entails a negative externality. In absence of any policy, people will emit too much. The Pigovian policy response is to impose a tax on carbon emission. This will induce households and firms to internalize the carbon externality when deciding, for example, how much to drive, what kind of car to buy, how much electricity to use, what kind of electric power plant to build, and so on.

The hard part of the problem is figuring out what size tax is appropriate. The right tax would equal the size of the external cost of carbon emission — that much is clear. Unfortunately, there is little consensus about how large that external cost is. One of the most prominent economists studying this topic is Yale’s Bill Nordhaus. Nordhaus [2007] has suggested a tax of $30 per ton of carbon, increasing to about $85 in 2050. A $30 carbon tax is fairly modest in size: it would increase the price of gasoline by only about 8 cents per gallon.

Smart Taxes: An Open Invitation to Join the Pigou Club 2009 https://scholar.harvard.edu/files/mankiw/files/smart_taxes.pdf

There has been subsequent work done on how much the carbon tax should be per ton and it came in at $185.

https://pubmed.ncbi.nlm.nih.gov/36049503/

The IMF are using different numbers around $75 per tonne

https://www.imf.org/en/Publications/fandd/issues/2021/09/five-things-to-know-about-carbon-pricing-parry

There is still no consensus on how much to tax a tonne of carbon but the amount the US is taxing it today is not enough. I lived in the UK for nearly 40 years and drove both Petrol and Diesel cars and I can assure everyone that the cars were great. One of the first things I would do if tax increased over here would be to change my car to electric or something a lot smaller. Knowing what we know today the lack of tax on fuel in the USA and Canada is irresponsible.

(Car image take from wikipedia: https://en.wikipedia.org/wiki/Lamborghini_Countach)

The image below is taken from Free To Choose Episode 1. It's kind of hard to ignore the literal elephant in the room here which is the tusk being carved up. Skip to 14:12 of the video to hear Milton extolling the virtues of a free markets while panning across the elephant tusk. It's quite depressing to watch. Free markets can and do lead to bad outcomes.

No one owns the elephants

In the Armchair Economist Steven Landsburg has this to say about the matter

African elephants are hunted for their ivory at far too great a rate, and these magnificent animals may be headed for extinction. While this problem may have no simple solution, it does have a simple cause: Nobody owns the elephants. An owner—any owner—would want to be sure that enough elephants survive to keep him in business. The demand for beef is far greater than the demand for ivory, but cattle are not threatened with extinction. The key to the difference is that cattle are owned. The Armchair Economist (revised and updated May 2012): Economics & Everyday Life (pp. 97-98)

I personally hate the thought of farming Elephants for their ivory or meat but Landsburgs makes a good point. Unfortunately the poachers are still killing 20,000 animals a year

https://cites.org/eng/elephant_poaching_and_ivory_smuggling_figures_for_2013_released

Knowing the elephants are there bimbling around the African plains gives me the warm and fuzzies and knowing they're being poached in their thousands gives me heartburn. Warm and Fuzzies is British technical jargon for Positive Externality and heartburn is a Negative Externality.

Externalities can be a royal pain in the ass. In the case of the Elephants they can be owned by someone or by the nation that has them like Botswana which means that there might be a neat but morally questionable solution to the problem of poaching. We might not like it, I know I don't but farming Elephants might be a solution.

Where the shit really hits the fan though is when externalities are things that can't be owned, like the air we breathe or our climate.