Top Quotes of the Week: Federal Deficit Edition

“Come on, you and I, let’s lock arms and we’ll jump out of the boat together.” House Speaker John Boehner (R-Ohio), in May, urging President Obama to do a ‘big deal’ on the federal deficit.

“I want to get there, but it takes two to tango, and they’re not there yet.” Boehner, speaking about the Democrats last Sunday. Boehner then blew-up talks surrounding a $4 trillion ‘big deal’ he had been discussing with President Barack Obama.

“I’m prepared to take significant heat from my party to get something done. And I expect the other side should be willing to do the same thing.” Obama, responding to Boehner.

Inaction on the debt ceiling “would be catastrophic for the economy…no responsible leader would say the United States of America, for the first time in its history, should not pay its bills, meet its obligations.” Treasury Secretary Timothy Geithner.

“This is a misnomer that I believe that the President and the Treasury Secretary have been trying to pass off on the American people, and it’s this: if Congress fails to raise the debt ceiling by $2.5 trillion, somehow the United States will go into default and we will lose the full faith and credit of the United States. That is simply not true.” GOP presidential candidate Michele Bachmann.

“The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4% of GDP in 2011, far below their postwar average of close to 18%. Individual income tax is forecast to be a mere 6.3% of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2% of GDP. Tax revenue has to rise substantially if the deficit is to close.” Martin Wolf, chief economics commentator at the Financial Times, London.

The horrifying events of September 11, 2001 and the subsequent weaponized anthrax scare shook-up every American. Officials in charge of homeland defense were particularly shocked. Among other things, it dawned on them that our nation had no good way to defend itself against future bioterrorist attacks.

Soon thereafter, the Pentagon set aside $1 billion to develop treatments for soldiers and civilians who became infected in a bioterrorist attack. The funds went to something called the Transformational Medical Technologies program, which quickly disbursed them to more than 100 universities, drug companies and biotech companies.

The primary goal of the research spawned by these grants was to develop medicines that could neutralize bacteria and viruses that had been specially designed by terrorists to kill people and resist all known therapeutic agents. The infectious agents targeted by the scientists included Ebola, Marburg, Lassa, Sabia, Machupo and Junin.

But now, 5 years after the grants were disbursed, Pentagon officials are pretty much calling the program a bust. Just 2 experimental drugs have shown promise, and they are years away from clinical testing, let alone commercialization.

The major problem, it seems, is technical. It turns out to be easier to increase the lethality of a virus than it is to devise ways to fight it.

“The offensive capabilities outrun the defensive capabilities as the march of biology continues,’’ Richard Danzig, a former Navy secretary and bioterrorism expert said in an interview. “The theory behind [the program] was these same advances should empower the defenses,’’ he explained. “That intuition is worth exploring and investing in, but it is easier to conceive than to execute.’’

A secondary problem should have been anticipated by the Pentagon in advance: for ethical reasons, experimental treatments for nasty germs like these cannot be tested in human clinical trials, yet the FDA requires data from such trials before approving them. The work-around strategy is to test the agents on animals that have been genetically engineered so as to have traits that mimic what is seen in humans, but this process is time-consuming and expensive.

So What Will the Pentagon to Do?
Of course the Pentagon cannot walk away from the effort. The threat of bioterrorism remains. So it has set aside an additional $1 billion to develop fast, inexpensive ways to identify (rather than treat) weaponized versions of the germs mentioned above. In all likelihood, many of the same contractors will play a role in the new effort. (more…)

Lost amid coverage of the repeal of Don’t Ask Don’t Tell and passage of a new START treaty, the lame-duck Congress passed the America Competes Act last week. Although the move didn’t receive much coverage by the press, it is quite significant in its own right.

In what could turn out to be a decisive move in the effort to leverage American ingenuity and innovation, America Competes empowers all federal agencies to sponsor prize competitions to spur innovation, solve their most difficult problems, and advance their missions.

Prize competitions have been shown to be effective as a strategy to energize our nation’s innovators. The private sector and philanthropists use them quite often. According to a study by McKinsey  in fact, more than 60 prizes valued at $100,000 or more were introduced by such organizations between 2000-2007. Total prize money associated with these competitions approached $250 million.

Perhaps the best known among these are the competitions sponsored by the X Prize Foundation, a nonprofit organization that works with philanthropists and the private sector to foster innovation by offering enormous cash prizes to those who solve key technological challenges. In September, for example, it awarded a $10 million prize to 3 teams who created a production-ready car that got 100 miles per gallon (or an energy equivalent).

The X Prize Foundation has established similarly sized prizes for groups that achieve specified cost and speed targets in the area of gene sequencing, and a $30 million prize for the first private group that lands and operates a rover on the moon.

And as Eric Hintz points out, America Competes is not the first example of government-sponsored innovation challenges. In 1714, Hintz writes, the British Parliament offered prizes to those who would develop a means to calculate longitude at sea. It took awhile, but eventually John Harrison won nearly £14,315 for his marine chronometer. And in 1800, the French government created a Food Preservation Prize as a means to help supply food to Napoleon’s army. A decade later, Nicolas Appert won 12,000 francs for a vacuum-packing process, that is used for canned foods to this very day.

Until now however, the federal government had not implemented a prize-oriented open innovation strategy

But, as summarized in a post by Tom Kalil and Robynn Sturm on the Open Government Initiative blog, President Obama triggered momentum to change that when he floated the idea as part of his 2009 proposal titled, Strategy for American Innovation. Then, 6 months after a March, 2010 memo from the Office of Management and Budget confirmed the Administration’s commitment to the new approach, the White House and the General Services Administration “launched Challenge.gov, a one-stop shop where entrepreneurs, innovators, and citizen solvers can compete for prestige and prizes by providing novel solutions to tough national problems, large and small.”

In just 3 months since the launch, Challenge.gov helped 27 federal agencies release 57 challenges on topics ranging from childhood obesity and Type 1 Diabetes to advanced vehicle technologies and financing for small businesses.

Comment
Frankly, I can’t remember a more creative, dynamic initiative coming out of Washington. Innovation is in this country’s DNA. It has helped make our country great. In today’s increasingly competitive global economy, we need it more than ever. Moreover, prize competitions, whether sponsored by governments or other entities, do work. They allow sponsors to exponentially increase the number and diversity of people that are focused on the toughest of challenges.

And as Hintz said, the sponsor pays only for positive results. Nice work, fellas!

Last month, House Republicans released a “Pledge to America” which outlined the agenda they’d push if they won back control of the chamber in tomorrow’s mid-term elections. The agenda covered a wide range of social issues, but its primary focus was the nation’s economy.

The Pledge called for a permanent extension of Bush-era tax cuts and renewed efforts to balance the budget and reduce the national debt. It promised to prevent any further allocations that had been set-aside by the economic stimulus bill of 2009, and so forth. One thing it didn’t address however, was our nation’s appalling rise in income inequality over the last 40 years.

This is a glaring oversight, since income inequality poses an enormous threat to our economy and indeed our nation’s ability to remain competitive on a global scale.

According to studies by Thomas Piketty and Emmanuel Saens, nearly 50% of our nation’s pretax income is accumulated by the top 10% of earners. Between the end of World War II and 1976, a period many consider to have been the “golden era” for the US economy, the top 10% of earners made less than one third of the nation’s income.

And income growth among the nation’s top 1% of earners was responsible for nearly all of this shift. In 2007, the top 1% of earners copped 23% of the national income. This kind of skew is reminiscent of what we see in third-world economies.

Why does income inequality reduce our global competitiveness and impede our prospects for long-term economic growth? The Washington Post’s Steven Pearlstein suggests there are 2 reasons.

First, concentrating wealth into the hands of so few people leads to spectacularly unproductive spending patterns. The super-rich buy art and fancy cars, overpay to get their kids into private schools and prestigious universities, employ the services of high-end hairdressers and landscape architects, and bid up prices for real estate in trendy spots like the Upper East Side of Manhattan and so forth. These things do not create sustainable economic growth on a national scale. The super-rich also invest in hedge funds and other arcane financial vehicles which drive speculative financial bubbles including the ones for junk bonds in the ’80s, Web and technology stocks in the late ’90s and yes, the calamitous credit bubble from which we have yet to recover.

That’s not the biggest problem, however. The biggest problem is that marked income inequality subverts the unity of purpose that is necessary for any nation, indeed any company to thrive over the long haul. It’s just common sense that people won’t work hard, make sacrifices or take risks when they see rewards flowing to others.

Ironically, Republicans who authored the Pledge to America use a similar argument to defend tax cuts for the super-rich, yet they look the other way when the subject turns to the incomes of everybody else.

The causes of accelerating income inequality in the US are many. Technological advancements have radically altered the labor market to favor people fortunate enough to have received advanced degrees, but our educational systems don’t produce enough such employees. Globalization and multi-national corporate structures assure that goods are produced where labor is the cheapest, and that will never again be in the US. Unions have lost much of their power. The deregulation of the private sector assures an unfair playing field for less skilled workers. And then of course, there’s been a pernicious change in social norms towards a culture that accepts widening income inequality in the first place.

Republicans—and all politicians actually—should not forget that rising income inequality is a central problem facing our economy right now. They need to refocus policy-making toward the creation of shared prosperity because without it, we can have no prosperity at all.

With things in Washington as politically charged as they are nowadays, it’s unlikely that any kind of tax legislation will be passed before the mid-term elections. That’s unfortunate, since many key parts of our tax code are governed by laws that will expire at the end of this year. The combination of expiring tax laws and legislative gridlock makes it tough for people and businesses to plan for things like, oh say, their future.

As an example, take President Obama’s suggestion that Congress should permanently extend the Research and Experimentation Tax Credit.

The Big O wants the credit increased by 20% for eligible US-based projects, a move that would save companies over $100 billion during the next decade. If passed, the bump would be by far the largest increase since the credit was introduced in 1981.

The Research and Experimentation Tax Credit had been extended 13 times since 1981. Last year however, Congress allowed the credit to lapse amid unprecedented partisan bickering.

“Making this provision permanent would give businesses the certainty they need to accelerate R&E investments to create jobs today and in the future,” said the White House in a press release.

Trade groups representing the pharmaceutical and life sciences industries support the R&E tax credit, but venture capitalists that fund life sciences companies are far less sanguine. In part, this is because the companies they back, who need R&E funding the most, don’t see any near-term benefits from the credit, since they typically don’t have tax liabilities to offset.

But it’s actually much worse than that for venture investors. See, the administration’s proposal pays for the credit by changing the way “carried interest” is taxed. For 30 years, carried interest has been taxed at the long term capital gains tax rate. The new proposal calls for it to be treated as ordinary income, a huge negative for venture investors. The Big O’s proposal is in effect extracting a pound of flesh from VCs in order to create a credit for companies that are attempting to kill the companies they back.

“This policy would essentially double the taxes for venture capitalists — our country’s job creators, discouraging investment in new companies at a time when Congress should be doing all it can to support the start-up ecosystem,” said the National Venture Capital Association.

Americans have long sensed a decline in the kindness and helpfulness of their peers. The results of a recent study suggest college students are among the worst offenders in this regard.

The study was authored by Sara Konrath and presented at last month’s meeting of the Association for Psychological Science. Konrath’s work is titled, “Changes in Dispositional Empathy in American College Students Over Time: A Meta-Analysis.” It showed that today’s college students are 40% less empathetic than their predecessors from 30 years ago. Most of the decline appeared after 2000.

Konrath’s survey divided empathy into 4 dimensions: Empathic concern, or sympathy for the misfortunes of others; perspective concern, or the capacity to imagine other people’s points of view; the tendency to identify with fictitious characters in movies or books; and anguish felt when observing others’ misfortunes.

Modern college students scored 48% lower in empathic concern and 34% lower in perspective taking than their predecessors. In particular, they were found to be less likely to agree with statements like “I often have tender, concerned feelings for people less fortunate than me,” and “I sometimes try to understand my friends better by imagining how things look from their perspective.”

These results are notable since people are known to state agreement with shared social ideals like these more frequently than they actually do.

Previous studies have linked low empathy to violence, criminal behavior, aggression when drunk, sexual offenses and other antisocial behaviors.

What caused the change? “We don’t actually know…at this point,” Konrath told the New York Times. But she speculated that a combination of social media, reality TV, video games and intense competition have caused young people to become more shallow, self-involved, individualistic and overly ambitious.

It’s at least as likely that our country will be hit by a major, crippling Pearl Harbor-like cyber attack as it is that San Francisco will be hit by a magnitude 8 earthquake. So maybe people should take note of  a new report which suggests that we are woefully prepared to defend ourselves against it, or respond effectively if it happens.

The report was released last week by the Inspector General of the Department of Homeland Security. Its overly optimistic title is, “U.S. Computer Emergency Readiness Team Makes Progress in Securing Cyberspace, but Challenges Remain.”

The report focuses on the US Computer Emergency Readiness Team, or CERT, which was created to coordinate the nation’s cyber-defense efforts. CERT is a division of the Department of Homeland Security (DHS) that is specifically tasked to analyze and reduce cyber threats and vulnerabilities, disseminate cyber threat warning information, and coordinate cyber incident response activities.

According to the report, CERT is barely functioning, 7 years after it was established. 

To begin with, CERT is understaffed. Only 45 of the 98 positions approved for the emergency readiness team are filled. As a result, it relies on contractors to carry out the most basic activites like updating operating procedures. It basically can do nothing except process data for anomalies and react to breaches after the fact.

Want more? CERT has no strategic plan, let alone performance measures on which to assess progress. It also lacks the authority to assure its safety recommendations are implemented, even by the federal agencies it is supposed to protect.

Then again, even if CERT somehow morphs into a highly effective organization, it’s well to remember that the vast majority of the networks that make up our country’s cyber infrastructure are privately owned, and therefore beyond its auspices.

At least we can say we were warned.

After receiving an update from intelligence officials about methods used by the National Security Agency to collect electronic data to spy on US citizens in terrorism and espionage cases, the federal court that oversees these activities has raised concerns about their legality.

As a result, the NSA suspended those activities, the officials told the Washington Post.

The officials had briefed the Foreign Intelligence Surveillance Court about “metadata” associated with various kinds of communication, but not its content. “Metadata” includes things like the origin and destination of emails and phone numbers dialed from a particular telephone. 

Analysts can use metadata to determine who suspects are communicating with, and to “detect and anticipate” a plot, the official told the Post. “It’s not a concern over what was being collected,” he said. “It’s a question about whether the law was written in a way that allowed the information to be collected in a way that they were collecting it.”

The NSA had been collecting this metadata with court permission for years before the recent briefing.

House Republicans worry that the new development creates a surveillance gap that could impede the government’s ability to keep US citizens safe from terrorist attacks. 

“This is a basic tool we used to have, and it’s now gone,” one intelligence official lamented. “Every day, every week that goes by, there’s one more week of information we’re not collecting.”

Meanwhile, House Democrats seem confident that NSA Director Keith Alexander and the Justice Department will resolve the matter with alacrity.

The crux of the matter is whether the NSA’s data collection methods conform to the Foreign Intelligence Surveillance Act, which was passed in 1978 to eliminate domestic spying abuses. The law was revised in 2008 to broaden the government’s surveillance authority at the request of the Bush administration.

Congress is pressuring private companies to cease doing business with Iran, but the  effort has encountered the same problems US sanctions have ran into for 30 years  — reluctance in the European Union to play ball and a bevy of shady, Middle Eastern front companies that can maneuver around any prohibitions.

Both chambers of Congress have passed bills that would sanction companies supplying gasoline to Iran, as well as the insurance and shipping companies that support such trade, in an effort to deter the Islamic republic from developing the bomb.

The US would like to stop sending Iran 130,000 barrels a day of gasoline that the oil-rich nation imports because it can’t refine the stuff.

Several companies including Caterpillar, Huntsman and Siemens have announced they will stop doing business with Iran.

But Catherine Margaret Ashton, the EU’s representative for foreign affairs and security policy, has written to Secretary of State Hillary Rodham Clinton opposing the congressional sanctions.

Those bills “envisage the extraterritorial application of US legislation and would be contrary to the EU-US understanding of 1998, under which it was agreed that such sanctions would not be applied to the EU in the light of the EU’s commitment to work with the US to counter the threat that Iran poses to international security,” she wrote.

Meanwhile, oil industry sources told the Washington Post that that Iranian front companies are securing gasoline from the United Arab Emirates, and that companies based in Iraq were doing the same thing.

In Iran, gasoline is heavily subsidized, costing drivers just 38 cents per gallon, although the government has cut quotas recently, and seems to be stockpiling gasoline. Best guesses put the nation’s gasoline supply on hand at about 1 month’s worth.

Last month, Google announced that its systems were subjected to coordinated cyberattacks beginning in December. The intrusions probably originated in China. They targeted Google source code and more than 30 other defense, tech and financial companies as well. The Gmail accounts of human rights activists on 3 continents were compromised.

Google threatened to retaliate against the Chinese government, but has yet to take action.

Now, according to Washington Post sources, Google has approached the National Security Agency for help defending itself and its users from similar attacks in the future.

Terms of any possible deal between Google and the NSA have not been finalized, but they would likely cover a review of possible vulnerabilities in Google’s hardware and software and the hacking techniques used during last month’s attack.

If the deal were consummated, Google says it will not disclose information regarding what was stolen and will not violate company policies or laws designed to protect the privacy of US citizens’ online communications. In any deal, the NSA will not become privy to users’ searches or e-mail accounts.

Cyberspace cannot be protected, Director of National Intelligence Dennis Blair told the Post, without a “collaborative effort that incorporates both the U.S. private sector and our international partners.”

The Google-NSA deal worries privacy advocates, who remember all too well the NSA’s warrantless wiretapping of Americans’ phone calls and e-mails in the aftermath of the Sept. 11, 2001 terrorist attacks.