Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

15 May 2018

S.K.I.N and CRISPR: Two Ways Out of Stagflation


[Click here for my previous post, “Voting Made Easy,” which notes the most important thing you personally can do to repair our nation and secure your own future. For links to popular recent posts, click here.]

Introduction
Fostering “good” inflation
S.K.I.N.
CRISPR
Conclusion

Introduction

When your ship of state has a thoughtless, impulsive narcissist at the helm, bad things can happen. It gets worse when the rest of the ruling party is in thrall to thoughtless and illogical economic dogma: make the rich richer, and nice things will “trickle down” to the rest of us, including the volatile Trumpets.

So far, trickle-down hasn’t gotten us very far. There was a quick “Trump Bump” in the stock market, resulting from an obvious and predictable effect. When you give the rich and big corporations a massive tax windfall that they didn’t ask for, don’t deserve and didn’t expect, they are going to invest it. What smart person or manager wouldn’t? Duh!

Now they have, and the “Trump Bump” is over. A new reality is slowly starting to dawn. Policies and actions that are, in Bill Gates’ famous word, essentially “random”—having no perceptible general goal, no logical or economic coherence, and little thought behind them except the quest for “wins” to feed Trump’s ego—are not going to work. Even if the winds of fate don’t blow us into a major war with Iraq or North Korea—in other words, even if really bad things don’t happen—really good things also won’t happen.

If bad leadership doesn’t take its toll directly, the absence of good leadership will. It’s just a matter of time.

And so it is with “good” inflation. For years now, our economists all have wanted to see inflation tick up just a little bit, from the now familiar limit of 2%. Why? If that happens, the cause will probably be wages starting to rise for all the disillusioned, angry workers who voted for Barack Obama in 2012 and for Donald Trump in 2016. At least that should happen if inflation rises due to so-called “wage pushes.”

If that happens, the longstanding and growing angst of our lower middle class may start to subside, and we can become a normal country again. We might even restore our civility and our ability to have a respectful dialogue and compromise. At least so goes the theory.

The problem is that the economy’s resistance to inflation is not subsiding. Inflation and wages are not ticking up as economists have been hoping for several years.

Oil and gasoline prices are surging up—a wholly predictable effect of the president’s recent, impulsive abrogation of the Iran nuclear deal and his re-imposition of economic sanctions on Iran. Those sanctions, and the risk of their spreading to our allies under American pressure, will basically take some 3.8 million barrels of oil per day (Iran’s current production) out of Western oil markets.

Even our gung-ho fracking industry can’t replace that much lost supply because it’s already going flat out. The gap will be just about 4% of predicted 2018 daily global consumption of some 99 million barrels per day.

After the Crash of 2008 and into 2009, a drop in global demand [let cursor hover over dots on graph for precise figures] from some 85.6 million barrels per day in 2008 to some 84.5 in 2009—or about 1.3 percent—pushed oil prices down from $130 per barrel to just over $40, later rising to about $80. The law of supply and demand predicts that the three-times-larger Iran-sanctions-caused drop in supply (to the West) will have an even more dramatic increase in the price of oil and gasoline.

But that oil-price increase won’t cause “good” inflation—the kind that reflects rising wages—as economists hoped. Instead, rising oil and gasoline prices cause “bad” inflation. They’re like a tax on everyone, especially the lower middle class, for whom energy prices are a bigger portion of total income than for wealthier people.

So pulling out of the Iran deal is going to increase the Trumpets’ misery and make them even more disillusioned and angry, with unpredictable results. And economists won’t focus much on the source of their exploding angst because volatile energy prices aren’t part of the measure of “core” inflation that economists artificially decree.

Yet there’s nothing artificial or non-“core” about the increased pain the Trumpets are about to feel, as higher gasoline prices add to the pain of working at low wages with no benefits in Wal Mart, instead of (once upon a time) at high wages with nice benefits in a now-offshored factory.

So the very people who caused a 9-magnitude political earthquake by electing Trump will now move into a new stage of “stagflation”—a word once used to describe a combination of low growth and high inflation. Outside the oil patch, growth will be slow and painful, and inflation in energy prices will cut the effective incomes of lower-middle-class workers yet more. Meanwhile, economists will wonder what is happening because they don’t include that kind of inflation in their estimates of “core” inflation.

Is there anything we can do to avoid this awful result, namely, massive additional pain to the very people whose prior pain gave us the worst leader in our national history? That’s the subject of this essay.

Fostering “good” inflation

There is some method in the madness of economists excluding vital but volatile energy from the measure of “core” inflation. Energy prices are hard to predict, and oil (and therefore gasoline) inflation is “bad” inflation. Outside the oil patch and other energy industries, oil inflation is like a tax on everyone else. For the non-fracking worker, it acts just like an increase in taxes, perhaps erasing the tiny windfall that the Trump Tax Scam gave ordinary workers (as distinguished from corporations and the rich).

So Trump killing the Iran deal essentially took away from his very “base” the economic solace that his Tax Scam tried to give them.

Can we fix that? Is there anything we can do to boost “core” inflation by raising wages for the Trumpets and assuage their rage, the driving force behind political instability and increasingly authoritarian government?

The answer is a resounding “maybe.” In two essays going back over three years (1 and 2), I identified what still appears to be an important cause of low inflation, tending to deflation, throughout the developed world. In essence, the massive demographic cohort of Baby Boomers, now into its retirement and senescence, is no longer spending much of its gigantic accumulated wealth. (Much the same thing is happening in Europe and Japan as their own populations age.)

Instead, the Boomers are doing exactly what their Depression-traumatized parents taught them to do. They are conserving principal and capital at all costs and frugally spending their income. And as they age and their appetites decline, they are spending less and less.

As a result, aggregate demand for goods and services is stagnating or declining. Demand is increasing only for things like medical and elder-care services, but not in most manufacturing. So there is little demand increase to push manufacturing and retail wages higher, and there is little to motivate capitalists to invest in expanding manufacturing. Trump’s tariffs may create a price umbrella for American manufacturers, but there is no demand to make it rain.

All we have is a slow and steady increase in on-line activity, as we Geezers spend more time at our desks (and in our beds) keeping in touch with our loved ones and friends and working ourselves into political rages with fake news.

Needless to say, none of these phenomena conduces to increased demand for manufactured goods or upticks in “good” inflation, i.e., the kind that increases wages and might make the Trumpets think their “American Dream” is back on track.

Can we improve this dismal picture? It’s hard to see how we can with government policy, and anyway the ruling GOP doesn’t like government manipulation of the economy.

But maybe, just maybe, some changes in public attitudes and direction among our geezers and industrialists might help.

S.K.I.N.

Among the comfortably retired geezer class, a new acronym is growing in influence. It’s “S.K.I.N.,” which stands for “spend the kids’ inheritance now.”

Many Baby Boomers have a comfortable retirement precisely because they lived economically careful and abstemious lives. Raised by parents whose economic habits the Depression moulded, they assiduously preserve and maintain their retirement capital, and they try to live frugally off their income. They continued these ingrained habits into their comfortable retirement.

As they begin to plan their estates and contemplate seriously their own demise, they face a decision. They are unlikely to outlive their fortunes, so how much do they really want to leave to their offspring and to charity, and when?

If they spend the money on themselves, as the acronym implies, it’s going to go for things like fine dining, entertainment, cruises, other travel, medical care, and fancier nursing homes. It’s not, by and large, going to go for things. How many geezers, set in their ways and comfortable in their homes (which are mostly too large anyway, with the kids gone) are going to buy new abodes, or upgrade their homes by remodeling? Probably not many.

But what if the geezers start to loosen their purse strings and give their legacies away early? If they give the money to charities, not much of it will flow into manufacturing. How many charities invest in manufacturing or buy manufactured goods? Not many.

So the only clear way that geezers can boost the economy now, let alone the manufacturing economy, is to give their money away to people. Mostly, that means giving it to their offspring early, before death. Then kids and grandkids in their prime years will spend the money on new homes, new cars, new appliances and all the accoutrements of the “good life,” thereby increasing demand for things. The resulting increases in demand will promote jobs in manufacturing, bring good jobs back on shore, and push “good” inflation arising from higher wages for Trumpets.

Opening this spigot is not likely something that government could do. Taxing or confiscating retirement savings held too long would be political non-starters. The geezers’ own political power would prevent it, let alone GOP aversion to government intervention.

But perhaps the private sector—our ever creative bankers—might help. What keeps our geezers from opening their purses is the economic conservatism that their Depression-traumatized parents left them. If bankers could find some way, or develop some instruments, to maintain geezers’ economic security while allowing them to give much of their money to kids and grandkids now, they might give “S.K.I.N” a whole new meaning. Geezers might enjoy the generosity of improving the lives of their offspring while living, and they might help replace the current stagflation with “good” inflation. At least it’s worth a try.

CRISPR

At the present, somewhat dismal time, it’s hard to see anything (other than rebuilding from a devastating war) that would boost the global economy as powerfully as cars, aircraft, radio, television, universal electrification and computerization did in the last century. Private space travel is not going to take off even for rich consumers until it becomes much cheaper and there are good places to go. There must be more to it than just experiencing weightlessness and seeing the Earth in true perspective—a tiny, bright blue gem lost in the vastness of space.

Of course, energy conversion is going to occupy our species for most of the current century. It has to: at present rates of consumption, we are going to exhaust fossil fuels well before the turn of the next century. (See this table for oil and this table for gas.) Energy conversion will also bring enormous opportunities for gainful, self-respecting employment, installing all the solar arrays, windmills and smart-grid components needed to transform our energy-intensive industrial economies to a sustainable basis before fossil fuels run out.

But by itself, energy conversion will not be the same as the last century’s industrial revolutions. It will bring us the same benefits more cheaply and sustainably, namely, the powered transport, electrical appliances and communication that we already have, albeit in slightly different and less sustainable form. What energy conversion won’t do is bring us new, different and exciting things the way cars, planes, radio, TV, computers, the Internet and smart phones did.

I’ve given a lot of thought to what, if anything, we can predict from present circumstances might give us that same novelty in the forseeable future. The only thing I could come up with is CRISPR/Cas9, the new gene-editing technology developed primarily in America and partly in Europe and Japan. That, it seems, is the only thing science and technology have recently produced that has anything like the transformative power of cars, planes, radio, TV, computers, the Internet and smart phones.

Gene editing has the power to transform our lives and our economy as much as any of these twentieth-century developments, perhaps more. It can transform agriculture and animal husbandry by eliminating crop and livestock diseases and by modifying our food sources to keep us healthy. In theory, it can give us milk, cream and ice cream with reduced levels of saturated fat and common allergens. It can make farming cheaper and simpler, with less reliance on chemical fertilizers and pesticides.

Gene editing can also transform manufacturing and recycling and the nature of sustainability. It can help us “invent” bacteria or plants to convert sunlight into fuels, producing a stable carbon balance in which this year’s plants remove carbon from the atmosphere to create next year’s fuels, whose burning will put the carbon back, but no more. It can allow us to develop new microbes and plants that can produce, through photosynthesis, the basic feedstocks we need for plastics, paints, cosmetics, basic chemicals, and medicines—most of which we now get from oil.

Finally, gene editing can allow us to modify and improve ourselves, eliminating most genetic and inherited diseases, preventing and curing cancer on an individual genomic level (“genomic medicine”), and making us and our pets and livestock more resistant to bacteria and viruses. It can also help us eliminate devastating diseases like malaria by modifying our immune systems or the mosquitos or other vectors that carry them. It can even allow parents-to-be to create “designer babies,”—healthy, strong, intelligent kids free of known and preventable genetic diseases and disabilities.

Gene editing with CRISPR has the potential to enable all these industries and improvements, and more. Its potential applications are so numerous and so broad as to beggar the imagination.

The very breadth of possible applications has an important economic implication. CRISPR has the potential to maintain full employment as robots and artificial intelligence decrease the need for repetitive manual labor and heavy lifting in manufacturing.

The human genome alone has incredible complexity and diversity. It contains some three billion nucleotide base pairs. The difference in the type and order of those base pairs is responsible for all the diversity of us individual humans. Smaller but still large numbers reflect the diversity of our fellow species of plants and animals that co-inhabit our planet.

As genomic medicine becomes “routine,” this diversity will keep it from becoming rote. There will be no “one size fits all” solution to genetic problems or cancer resulting from genetic variations.

Instead, medicine (both human and veterinary), agriculture, and animal husbandry will begin to depend on the genetics of the subject individual, animal, crop or species. Every doctor’s office and farm will have to have a DNA sequencer, a massive computer to handle the genomic output, and an Internet connection to one or more central databases of global genomics. And there will have to be people educated and trained to use the machines daily or weekly in order to make the individual genomic diagnoses and plans to prevent or cure diseases and improve the health of food animals and the yield of crops in unique local conditions.

In other words, the expansion of genomic science that CRISPR/Cas9 permits will have the opposite effect of assembly lines and computers today. Rather than allowing mass production and automation to curtail employment opportunities, CRISPR will motivate wider employment as our species tries to address, tame, and mould to our desires that vast genetic diversity of the people, animals and plants on our entire planet. The very diversity of the subject matter that the technology manipulates will be an assurance of expanded, rather than curtailed, employment.

There will, of course, also be increased opportunities for routine manufacting, in which automation with robots and AI can help. We will have to make many, many DNA sequencers and amplification machines, as well as the bio-reagants they use.

But the ultimate tasks of applying these tools to the vast diversity of individual genomes will not be easily automated. If nothing else, the choice of the genome (individual and species) to analyze and modify next, and how to modify it, will occupy massive human attention. Jobs for ethicists, experts in risk analysis and reduction, lawyers and regulators will no doubt expand with the industries, if only to avoid unintended consequences and make sure that society and the community are on board with any genetic modifications and the risks they may entail.

We Americans invented CRISPR/Cas9, or most of it. Much of how it works, its current applications, and its nuances and risks are the subjects of detailed discussion in the exploding scientific literature on the subject.

But as this technology continues to exand exponentially, as it inevitably will, fundamental policy questions arise in our own country. How much of it, and what aspects, should we Americans keep secret or otherwise keep to ourselves, and for how long?

Our American generosity as a nation is unprecedetented. Take the Internet, for example. We developed it out of whole cloth. We did so, originally, in an attempt to make essential digital communication capable of surviving a devastating natural calamity or a nuclear war. Accordingly, our Defense Advanced Research Projects Agency (DARPA) funded the Internet’s initial development as a secret military expedient.

But we Yanks have a commercial bent. Once we realized the Internet’s commercial potential, President Bill Clinton (on Al Gore's recommendation—yes, that Al Gore), released the whole thing, including the theretofore secret software protocols, for unrestricted worldwide use. Utterly free of charge, that was probably the greatest and widest gift of valuable commercial technology in human history.

What did we get for this massive gift to global humanity? Now, over a generation after the gift was made, we are beginning to see the results.

China, Russia and Iran are balkanizing the worldwide communication medium we thought we gave the world, through surveillance, censorship and harsh penalties for “illegal” thought and speech. Not only that, Russia and China (and probably others) have already used our beneficient gift to manipulate our own people and distort our own governance through “active measures” involving disinformation, fake news, and cyberattacks. Thus the greatest gift of technology in human history is now being used to prove the ancient and cynical principle that no good deed goes unpunished.

As a society, we ought to take extraordinary effort to make sure nothing similar happens with CRISPR/Cas9.

There are two main reasons for this conclusion. First and most obvious, the application of gene editing to crops and food animals and eventually to ourselves entails absolutely unprecedented risks of unintended consequences. We may not be the best society to predict and avoid those consequences, be we are the one that invented the technology and ought to take a first shot at assessing and mitigating the risks.

Donald Trump has damaged, but has not yet destroyed, our unique American sense of cooperation and morality. Attempting to use gene editing to “breed” a race of super soldiers, for example, would undoubtedly receive strong political, moral and ethical pushback in our society. In China, Russia or Iran, let alone today’s North Korea, it might not. Given the differences, we ought to be as circumspect in giving this technology to authoritarian regimes as we are today in giving nuclear-weapons technology to those that don’t have it.

The second reason for holding gene-editing technology close to our vest is economic. Over the last generation, we and other developed nations have helped pull over a billion people worldwide out of extreme poverty, at the risk of impoverishing ourselves and our working class. We have done so by transferring whole factories, technologies and industries beyond our borders and overseas.

We have done so willingly but rather stupidly, in the process producing vast social dislocation at home, while dismantling and dissipating our own technological and industrial base. We did all this at the behest of our “elite” capitalists, many of whom became fabulously wealthy, in record time, by arbitraging the relative wage rates of workers here at home against those in developing countries. So the attempts of politicians to blame this whole process on nations like China, which were just intelligently following their own and their people’s best interests, were and are lies.

Be that as it may, the deed is done. We’re not going to bring the manufacture of hand tools and lawn furniture back onshore. We’re going to have to compete with China and others in making cars (including electric ones), computers, smart phones, solar panels, airplanes, and other accoutrements of modern life. We’re never going to uncramble the egg, although we might bring enough of the manufacture of these things back on shore to maintain and enhance our scientific and industrial infrastructure to the minimum level we require for future progress.

Thus Trump’s tariffs on steel and aluminum (but, for peculiar industrial reasons, not solar panels) are a mere shot in the dark—temporary expedients that won’t do much and, by enraging our trading partners, could do much harm. (Recall that the Smoot-Hawley tariffs were percursors to World War II and one of the major motivators for Japan’s sneak attack on us at Pearl Harbor.)

But trying to put the genie back in the bottle is a far cry from deciding how to manage more intelligently a technology as valuable CRISPR—one which has not nearly reached maturity, has not yet been exported, and is still in the inventive stage.

With respect to CRISPR/Cas9, we need to do a far better job of controlling and exploiting the technology that we invented and are developing than we did in giving the Internet blithely to the whole world, wholesale, for free. In particular, we must at least find a way to keep gene editing or its nuances to ourselves until we have had a realistic chance to use it to achieve sustainable full employment—not a temporary, unsustainable employment based on rapidly exhausting fossil fuels—and to assess and manage the risks to our planet and our species that full exploitation of this technology inevitably will entail.

Conclusion

The tragedy of our current political circumstance is not just that our supreme leader is a thoughtless, impulsive, scatterbrained narcissist and an authoritarian with tendencies toward white supremacy. It’s that neither he nor anyone else in his administration is thinking seriously about how we as a nation got to a place where a man like him could be elected, let alone how to get out of that place. It’s that our supreme leader and his entire crew are quintessentially un-original, looking for solace toward obsolescent and outmoded “solutions” like fossil fuels, general tariffs, lies and disinformation, saber-rattling, and bossist government.

The antidote to this dismal era of backward thinking has to be more and better thinking, which looks to the future rather than the past. In particular, economists have to recognize—universally—that their little hopeful mantras have been unscientific, are unproved, and lie refuted and discredited. Unregulated free markets do not automatically cure their own defects, and globalized free trade does not automatically make everybody better off.

No less than the high priest of muscular-capitalist economics, Alan Greenspan, has publicly renounced the former proposition, after citing it to help justify the mismanagement that caused the Crash of 2008. And the second proposition stands refuted by the vast lower-middle-class angst in America, which drove the election of Donald Trump, and by the struggle over Brexit in the world’s oldest democracy.

The primary drivers of all these discontents have been the unregulated greed of bankers and capitalists, and the willingness of so-called “scientists” to serve as their intellectual handmaidens in their rush to get rich quick. In this respect today’s economists do not differ much from the “philosophers” of Voltaire’s day, who mused that everyone then lived in the “best of all possible worlds.” For the French monarchy and aristocracy, that bit of comforting nonsense was as self-evidently self-serving as the notions of self-curing markets and unregulated trade raising all boats are to the ruling class of today. Any resemblance to empirical science is purely coincidental.

Having served so diligently and so effectively as handmaidens to the ruling class, and having created an economic and political earthquake in the process, today’s economists have a moral and professional obligation. They must put their fine brains to work doing more than justifying the continued ascendance of the rich and powerful. They must find real practical solutions to take us from the dismal place we are today to a better place. Those solutions much be fact-based, practical, and devoid of ideology of any kind.

This essay has tried to analyze two such practical solutions to our current pain of stagflation—slow growth accompanied by painful inflation in energy, which imposes a rising tax on those who can least afford to bear it. If we can find a lawful, practical way to pry some money out of the not-yet-dead hands of our many comfortable Boomer geezers, and put it to use buying things for succeeding generations, we might jump-start onshore manufacturing without tariffs. And if we can keep our leading-edge CRISPR/Cas9 technology to ourselves, even just for a decade or so, we might achieve something like real full employment, without relying on fossil fuels, while at the same time reserving control of that technology and its many possible unintended consquences for what (despite all of Trump’s backsliding) is still a democracy and, in general, a thoughtful, generous society.

There is, of course, one other powerful expedient we could take. We could improve our lives and our commerce and create millions of non-outsourceable good jobs, simply by rebuilding our crumbling infrastrure. We could do so by raising taxes or somehow applying some of the Boomer geezers’ billions to that purpose. But Trump, while talking a good line, has so far failed to create a single infrastructure job through the application of intelligent and effective government policy.

Given that we are in an election year, in which little or nothing would get done under the best circumstances, we can be confident that nothing practical will get done about infrastructure in 2018. And if the Dems win control of Congress in the midterms, we can be sure that nothing will get done in 2019, as the Democratic majorities expand tenfold the many investigations of the Trump Administration’s misfeasance and corruption, seeking Trump’s impeachment.

Infrastructure is the easy fix, the low-hanging fruit. But it looks as if Trump has missed his chance to get it done. By so doing, he has broken his most important and most practical campaign promise to his “base.” With government immobilized for the foreseeable future and infrastructure repair in abeyance, maybe the private sector could start working on ways to pry some Boomer geezers’ cash from their not-yet-cold-dead hands, and to keep our most promising new technology, gene editing, in our own hands while we repair our society and apply that technology to providing better and wider employment for our people.

Footnote: A moment’s thought suffices to show that not all the jobs that CRISPR will create will require a Ph.D., an M.D. or other exalted specialties. There will be plenty of work for trained people without higher education. Techs will have to take blood or other DNA samples and put them into machines to sequence DNA. When results come back trained liaison people will have to explain them to patients, offer and explain treatment options, prescribe the specialized medications, if any, and explain them. Others will have to watch for unintended consequences, including the spreading of genetically modified seeds and pollen by wind or weather, warn careless farmers, and enforce regulations.

Yet other workers will have to put the finishing touches on DNA sequencers and the reagents they use, and salespeople will have to explain and sell the machines and reagents to all who use them. In a society using CRISPR to its full potential, in medicine, farming and agriculture, there will be plenty of jobs at all levels of training and education to insure full and equitable employment. The technology’s unprecedentedly immense breadth of application will make it so.

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