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Venezuela Is Facing Runaway Financial Catastrophe – Article by Emily Skarbek

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Categories: Economics, Politics, Tags: , , , , , , , , , , , , , , ,

The New Renaissance HatEmily Skarbek
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Debt, capital flight, food shortages, and hyperinflation take hold

Often, economists want to isolate questions of public debt and analyse these issues as if public choice considerations weren’t at play. Perhaps less studied are the ways in which debt practices can systematically exert pressure on formal political institutions.

But if you want to understand what is going on in Venezuela today, you can’t do so without looking at this political-economy nexus.

For regular people living in Venezuela, the situation is bleak. As the Economist reports, food queues start at 3 am, with the real possibility there won’t be anything for those at the end of the line. And the queues are growing longer and violent.

Real wages fell by 35% last year, 76% of Venezuelans are now poor, supplies of medicines have fallen to 1/5 of their normal level.

The government has admitted that in the 12 months to September 2015 the economy contracted by 7.1% and inflation was 141.5%. Even Nicolás Maduro, Chávez’s hapless heir and successor, called these numbers “catastrophic”.

The IMF thinks worse is in store: it reckons inflation will surge to 720% this year and that the economy will shrink by 8%, after contracting by 10% in 2015. The Central Bank is printing money to cover much of a fiscal deficit of around 20% of GDP.

In a case study of Venezuela from 1984 to 2013, Reinhart and Santos examine the relationship among domestic debt, financial repression, and external vulnerability. The paper begins with a narrative of the evolution of domestic and external debt in Venezuela over the period.

Despite soaring oil prices from 2006 to 2013, net consolidated external debt of Venezuela rose from US $26.9 to US $104.3 billion. The central government, however, only accounted for roughly a fifth of that increment.

The difference, US $60.9 billion (78%), owed to standard practices of the Bolivarian revolution, and was issued by state owned enterprises and the relatively new Fondo Comun China-Venezuela (FCCV). The FCCV is a special-purpose vehicle that allows Venezuela to withdraw from a rolling line of credit at the Chinese Development Bank in exchange for future shipments of oil.

Domestic debt in local currency also climbed, rising from 36.298 million bolivares (VEF) in 2006 to 420.502 million in 2013. The nominal increase of 1,060% (an average annual rate of 42%) was partially offset by an accumulated price increase of 528% (or an average annual rate of 30%), reducing the cumulative increase in real domestic debt to about 85% (or 9% per annum).

During much of this period, the combination of exchange controls and interest ceilings created a captive domestic audience for domestic government debt despite markedly negative real ex post interest rates. The significant losses imposed on domestic bondholders escalated over time, owing to accelerating inflation.

Unlike foreign currency-denominated debt, debt in domestic currency may be reduced through financial repression (i.e., taxes on bondholders and savers producing negative real interest rates). Reinhart and Santos find the financial repression “tax rate” is significantly higher in years of exchange controls and legislated interest rate ceilings. In Venezuela, the “haircut” on depositors and bondholders via negative ex post real interest has exceeded 30% per annum on several occasions.

Confiscating the wealth of those responsible for capital savings can partially ameliorate the existing stock of domestic debt in the short run, but at the expense of encouraging capital flight and undermining any semblance of trust in crucial economic institutions.

The paper documents that capital flight has been a chronic feature in the Venezuelan economy, “representing on average of 4.7% of GDP at the official exchange rate and 7.1% of GDP at the parallel market exchange rate, while siphoning away 17.2% of total exports.”

By all measures, exchange controls proved ineffective at reducing capital flight. In fact, “when measured as percent of GDP at the average parallel market, rate capital flight turned out to be significantly higher in years of controls (8.0% vs 5.2%).

Hayek would not be surprised. Over his professional career he argued disastrous monetary policy commits the state to taking measures that weaken the proper functioning of the market. In order to combat inflation, states will attempt to impose further controls that “would not only make the price mechanism wholly ineffective, but also make inevitable an ever-increasing central direction of all economic activity.”

In Venezuela, Chávez turned the would-be checks and balances of the state — the Supreme Court and the electoral authority — into extensions of executive power. He packed the court and they then threw out those legislators necessary for the opposition to get the two-thirds majority needed to change the constitution.

President Nicolás Maduro seems prepared to continue the repression and price controls, calling the owner of Venezuela’s largest privately-held company a thief and publicly blaming him for the country’s dire economic condition.

It is perhaps fitting that it was at a Mont Pèlerin Conference in Caracas where Hayek famously quipped:

We now have a tiger by the tail: how long can this inflation continue? If the tiger (of inflation) is freed he will eat us up; yet if he runs faster and faster while we desperately hold on, we are still finished!

I’m glad I won’t be here to see the final outcome…

Emily Skarbek is Lecturer in Political Economy at King’s College London and guest blogs on EconLog. Her website is EmilySkarbek.com. Follow her on Twitter @EmilySkarbek.​

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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Publication of “Practice Problems in Advanced Topics in General Insurance” – ACTEX Study Guide by G. Stolyarov II

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Practice Problems in Advanced Topics in General Insurance

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Written by Gennady Stolyarov II, ASA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF

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Published by ACTEX Publications
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1st Edition: Spring 2016

 

Students preparing for Society of Actuaries Exam GIADV: Advanced Topics in General Insurance will benefit from Mr. Stolyarov’s latest book, Practice Problems in Advanced Topics in General Insurance. Three options are available for purchase.

ACTEX GIADV Study Guide Cover
Hard-Copy/Electronic Bundle  https://www.actexmadriver.com/product.aspx?id=453107178
Hard Copy  https://www.actexmadriver.com/product.aspx?id=453107176
Electronic  https://www.actexmadriver.com/product.aspx?id=453107177

Comments from the Author: This book of practice problems is the most comprehensive culmination of my efforts to date, and I am pleased to have the opportunity to work with ACTEX Publications to bring all of these resources to candidates in one convenient compilation so that they will spend less time gathering problems from many separate sources. The Spring 2016 edition of this book is approximately 400 pages long and includes 613 practice problems and full solutions. 531 of the problems/solutions are original creations of mine.

This book is structured to align precisely with the five syllabus topics and eight syllabus papers (including the Lee paper, new on the Spring 2016 Exam GIADV syllabus) – each of which has a section of problems devoted to it. The following is a summary breakdown of what you will find:

  Problems by Source
Section (and Syllabus Paper) Original SOA CAS Total
1 (Mack) 21 5 5 31
2 (Venter) 22 4 5 31
3 (Clark LDF) 60 4 6 70
4 (Marshall et al.) 103 4 4 111
5 (Lee) 44 0 12 56
6 (Clark Reinsurance) 139 8 9 156
7 (D’Arcy / Dyer) 99 4 6 109
8 (Mango) 43 4 2 49
TOTAL 531 33 49 613

 

Each section presents all of the problems in succession, followed by the solutions at the end. You are encouraged to attempt each problem on your own and write down or type your solution, and then look at the answer key for step-by-step explanation and/or calculations. As this book is a learning tool, I have provided relevant citations from the syllabus readings for many of the practice problems. Also, I am not an advocate of leaving any problems as unexplained “exercises to the reader.” While each of these problems is intended to be an exercise for you, this book’s purpose is to show you how they can be solved as well – so give each of them your best attempt, but know that detailed answers are available for you to check your work and fill in any gaps that may have prevented you from solving a problem yourself.

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Oil Prices Too Low? – Article by Randal O’Toole

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Categories: Business, Economics, Tags: , , , , , , , , , , , ,

The New Renaissance HatRandal O’Toole
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Remember peak oil? Remember when oil prices were $140 a barrel and Goldman Sachs predicted they would soon reach $200? Now, the latest news is that oil prices have gone up all the way to $34 a barrel. Last fall, Goldman Sachs predicted prices would fall to $20 a barrel, which other analysts argued was “no better than its prior predictions,” but in fact they came a lot closer to that than to $200.

Low oil prices generate huge economic benefits. Low prices mean increased mobility, which means increased economic productivity. The end result, says Bank of America analyst Francisco Blanch, is “one of the largest transfers of wealth in human history” as $3 trillion remain in consumers’ pockets rather than going to the oil companies. I wouldn’t call this a “wealth transfer” so much as a reduction in income inequality, but either way, it is a good thing.

Naturally, some people hate the idea of increased mobility from lower fuel prices. “Cheap gas raises fears of urban sprawl,” warns NPR. Since “urban sprawl” is a made-up problem, I’d have to rewrite this as, “Cheap gas raises hopes of urban sprawl.” The only real “fear” is on the part of city officials who want everyone to pay taxes to them so they can build stadiums, light-rail lines, and other useless urban monuments.

A more cogent argument is made by UC Berkeley sustainability professor Maximilian Auffhammer, who argues that “gas is too cheap” because current prices fail to cover all of the external costs of driving. He cites what he calls a “classic paper” that calculates the external costs of driving to be $2.28 per gallon. If that were true, then one approach would be to tax gasoline $2.28 a gallon and use the revenues to pay those external costs.

The only problem is that most of the so-called external costs aren’t external at all but are paid by highway users. The largest share of calculated costs, estimated at $1.05 a gallon, is the cost of congestion. This is really a cost of bad planning, not gasoline. Either way, the cost is almost entirely paid by people in traffic consuming that gasoline.

The next largest cost, at 63 cents a gallon, is the cost of accidents. Again, this is partly a cost of bad planning: remember how fatality rates dropped nearly 20 percent between 2007 and 2009, largely due to the reduction in congestion caused by the recession? This decline could have taken place years before if cities had been serious about relieving congestion rather than ignoring it. In any case, most of the cost of accidents, like the other costs of congestion, are largely internalized by the auto drivers through insurance.

The next-largest cost, pegged at 42 cents per gallon, is “local pollution.” While that is truly an external cost, it is also rapidly declining as shown in figure 1 of the paper. According to EPA data, total vehicle emissions of most pollutants have declined by more than 50 percent since the numbers used in this 2006 report. Thus, the 42 cents per gallon is more like 20 cents per gallon and falling fast.

At 12 cents a gallon, the next-largest cost is “oil dependency,” which the paper defines as exposing “the economy to energy price volatility and price manipulation” that “may compromise national security and foreign policy interests.” That problem, which was questionable in the first place, seems to have gone away thanks to the resurgence of oil production within the United States, which has made other oil producers, such as Saudi Arabia, more dependent on us than we are on them.

Finally, at a mere 6 cents per gallon, is the cost of greenhouse gas emissions. If you believe this is a cost, it will decline when measured as a cost per mile as cars get more fuel efficient under the current CAFE standards. But it should remain fixed as a cost per gallon as burning a gallon of gasoline will always produce a fixed amount of greenhouse gases.

In short, rather than $2.38 per gallon, the external cost of driving is closer to around 26 cents per gallon. Twenty cents of this cost is steadily declining as cars get cleaner and all of it is declining when measured per mile as cars get more fuel-efficient.

It’s worth noting that, though we are seeing an increase in driving due to low fuel prices, the amount of driving we do isn’t all that sensitive to fuel prices. Real gasoline prices doubled between 2000 and 2009, yet per capita driving continued to grow until the recession began. Prices have fallen by 50 percent in the last six months or so, yet the 3 or 4 percent increase in driving may be as much due to increased employment as to more affordable fuel.

This means that, though there may be some externalities from driving, raising gas taxes and creating government slush funds with the revenues is not the best way of dealing with those externalities. I’d feel differently if I felt any assurance that government would use those revenues to actually fix the externalities, but that seems unlikely. I actually like the idea of tradable permits best, but short of that the current system of ever-tightening pollution controls seems to be working well at little cost to consumers and without threatening the economic benefits of increased mobility.

Randal O’Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues. O’Toole’s research on national forest management, culminating in his 1988 book, Reforming the Forest Service, has had a major influence on Forest Service policy and on-the-ground management. His analysis of urban land-use and transportation issues, brought together in his 2001 book, The Vanishing Automobile and Other Urban Myths, has influenced decisions in cities across the country. In his book The Best-Laid Plans, O’Toole calls for repealing federal, state, and local planning laws and proposes reforms that can help solve social and environmental problems without heavy-handed government regulation. O’Toole’s latest book is American Nightmare: How Government Undermines The Dream of Homeownership. O’Toole is the author of numerous Cato papers. He has also written for Regulation magazine as well as op-eds and articles for numerous other national journals and newspapers. O’Toole travels extensively and has spoken about free-market environmental issues in dozens of cities. An Oregon native, O’Toole was educated in forestry at Oregon State University and in economics at the University of Oregon.  

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IJ and Small Business Owner Beat IRS on Civil Asset Forfeiture – Article by Adam Bates

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Categories: Economics, Justice, Tags: , , , , , , , , , ,

The New Renaissance HatAdam Bates
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The court struck a blow for property rights

Last year I referred readers to the abuse of civil asset forfeiture laws by the IRS in its attempt to take more than $107,000 from North Carolina small business owner Lyndon McLellan without charging him with any crime.

The IRS cleaned out Mr. McLellan’s business account because it suspected him of “structuring,” an offense whereby a person avoids legally-mandated financial reporting requirements by keeping their deposits and withdrawals under $10,000.

Because there are many perfectly legitimate reasons a business owner may deposit less than $10,000 at a time (for instance, if their insurance policy only covers $10,000 cash on hand), and because civil asset forfeiture allows the government to seize cash and property without proving any wrongdoing, IRS structuring seizures are prone to abuse.

Tacitly recognizing the abuse allowed by the law, former Attorney General Eric Holder announced changes to the use of civil forfeiture in structuring offenses last year. The policy changes should have spared innocent business owners like Lyndon McLellan, but it seems some federal prosecutors never got the memo.

In fact, the Assistant U.S. Attorney in charge of the case responded to criticism by sending veiled threats to Lyndon McLellan and his lawyers at the Institute for Justice, warning them against publicizing the case lest it “ratchet up feelings” in the IRS offices.

The publicity worked. After significant public and political pressure, the IRS relented and returned the amount they had taken from Mr. McLellan’s bank account. As I noted last year, however, the IRS refused to reimburse Mr. McLellan for the costs of fighting the seizure or to pay interest on the money it had wrongfully seized.

But this week a federal judge ruled that the IRS must do more to make Mr. McLellan whole, and awarded him legal costs totalling more than $20,000.

The court held:

Certainly, the damage inflicted upon an innocent person or business is immense when, although it has done nothing wrong, its money and property are seized. Congress, acknowledging the harsh realities of civil forfeiture practice, sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government. …

This court will not discard lightly the right of a citizen to seek the relief Congress has afforded.

Fortunately, thanks to the efforts of Mr. McLellan and the Institute for Justice, the good guys won this time. Ultimately, however, the only way to ensure that civil forfeiture abuses stop happening is to abolish civil forfeiture. If the government cannot prove beyond a reasonable doubt that a person engaged in criminal activity, it should not be able to punish them as if they’re guilty.

As long as Congress and state legislatures allow this practice to continue, more innocent Americans will end up fighting for their livelihoods like Lyndon McLellan had to.

Cross-posted from Cato.org.

Adam Bates is a policy analyst with Cato’s Project on Criminal Justice. His research interests include Constitutional law, the War on Drugs, the War on Terror, police militarization, and overcriminalization.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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Low-Skilled Workers Flee the Minimum Wage – Article by Corey Iacono

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Categories: Economics, Tags: , , , ,

The New Renaissance HatCorey Iacono
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What happens when, in a country where workers are free to move, a region raises its minimum wage? Do those with the fewest skills seek out the regions with the highest wage floors?

New minimum wage research by economist Joan Monras of the Paris Institute of Political Studies (Sciences Po) attempts to answer that question. Monras theoretically shows that there should be a close relationship between the employment effects of raising the minimum wage and the migration of low-skilled workers.

When the demand for local low-skilled labor is relatively unresponsive (or inelastic) to wage changes, raising the minimum wage should lead to an influx of low-skilled workers from other states in search of better-paying jobs. On the other hand, if the demand for low-skilled labor is relatively responsive (or elastic), raising the minimum wage will lead low-skilled workers to flee to states where they will more easily find employment.

To test the model empirically, Monras examined data from all the changes in effective state minimum wages over the period 1985 to 2012. Looking at time frames of three years before and after each minimum wage increase, Monras found that

  1. As depicted in the graph below on the left, those who kept their jobs earned more under the minimum wage. No surprise there.
  2. As depicted in the graph below on the right, workers with the fewest skills were having an easier time finding full-time employment prior to the minimum wage increase. But this trend completely reversed as soon as the minimum wage was increased.
  3. A control group of high-skilled workers didn’t experience either of these effects. Those affected by the changing laws were the least skilled and the most vulnerable.

monrasp17a

These results show that the timing of minimum wage increases is not random.

Instead, policy makers tend to raise minimum wages when low-skilled workers’ real wages are declining and employment is rising. Many studies, misled by the assumption that the timing of minimum wage increases is not influenced by local labor demand, have interpreted the lack of falling low-skilled employment following a minimum wage increase as evidence that minimum wage increases have no effect on employment.

When Monras applied this same false assumption to his model, he got the same result. However, to observe the true effect of minimum wage increases on employment, he assumed a counterfactual scenario where, had the minimum wages not been raised, the trend in low-skilled employment growth would have continued as it was.

By making this comparison, Monras was able to estimate that wages increased considerably following a minimum wage hike, but employment also fell considerably. In fact, employment fell more than wages rose. For every 1 percent increase in wages, the share of a state’s population of low-skilled workers in full-time employment fell by 1.2 percent. (The same empirical approach showed that minimum wage increases had no effect on the wages or employment of a control group of high-skilled workers.)

Monras’s model predicts that if labor demand is sensitive to wage changes, low-skilled workers should leave states that increase their minimum wages — and that’s exactly what his empirical evidence shows.

According to Monras,

A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.

These new and important findings reinforce the view that minimum wage increases come at a cost to the employment rates of low-skilled workers.

They also pose a difficult question for minimum wage proponents: If minimum wage increases benefit low-skilled workers, why do these workers leave the states that raise their minimum wage?

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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25% Median Life Extension in Mice via Senescent Cell Clearance, Unity Biotechnology Founded to Develop Therapies – Article by Reason

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Categories: Science, Transhumanism, Tags: , , , , , , , , , ,

The New Renaissance HatReason
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With today’s news, it certainly seems that senescent cell clearance has come of age as an approach to treating aging and age-related conditions. Some of the leading folk in the cellular senescence research community today published the results from a very encouraging life span study, extending life in mice via a method of removing senescent cells. This is much the same approach employed in one of the first tests of senescent cell clearance, carried out in accelerated aging mice a few years ago, but in this case normal mice were used, leaving no room to doubt the relevance of the results. The researchers have founded a new company, Unity Biotechnology, to develop therapies for the clinic based on this technology. Clearance of senescent cells has been advocated as a part of the SENS vision for the medical control of aging for more than a decade now, and it is very encouraging to see the research and development community at last coming round to this view and making tangible progress.

Senescent cells have removed themselves from the cycle of replication in reaction to cell and tissue damage, or a local tissue environment that seems likely to result in cancer. Their numbers accumulate with age. Most are destroyed by the immune system or their own programmed cell death mechanisms, but enough linger for the long term for their growing presence to be one of the contributing causes of the aging process. These cells behave badly, secreting harmful signals that degrade tissue function, generate inflammation, and alter the behavior of surrounding cells as well. Near every common age-related condition is accelerated and made worse by the presence of large numbers of senescent cells. We would be better off without them, aging would be slowed by the regular removal of these errant cells, and the therapies to make that possible are on the near horizon.

The mouse lifespan study is the important news here, as it demonstrates meaningful extension of median life span through removal of senescent cells, the first such study carried out in normal mice for this SENS-style rejuvenation technology. This sort of very direct and easily understood result has a way of waking up far more of the public than the other very convincing evidence of past years. So it looks like Oisin Biotechnology, seed funded last year by the Methuselah Foundation and SENS Research Foundation to bring a senescent cell clearance therapy to market, now has earnest competition. Insofar as the competitive urge in business and biotechnology speeds progress and produces better results, let the games begin, I say.

Scientists Can Now Radically Expand the Lifespan of Mice – and Humans May Be Next

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Researchers have made this decade’s biggest breakthrough in understanding the complex world of physical aging. The researchers found that systematically removing a category of living, stagnant cells (ones which can no longer reproduce) extends the lives of otherwise normal mice by 25 percent. Better yet, scouring these cells actually pushed back the process of aging, slowing the onset of various age-related illnesses like cataracts, heart and kidney deterioration, and even tumor formation. “It’s not just that we’re making these mice live longer; they’re actually stay healthier longer too. That’s important, because if you were going to equate this to people, well, you don’t want to just extend the years of life that people are miserable or hospitalized.” By rewriting a tiny portion of the mouse genetic code, the team developed a genetic line of mice with cells that could, under the right circumstances, produce a powerful protein called caspase when they start secreting p16. Caspase acts essentially as a self-destruct button; when it’s manufactured in a cell, that cell rapidly dies. So what exactly are these circumstances where the p16 secreting cells start to create caspase and self-destruct? Well, only in the presence of a specific medicine the scientists could give the mice. With their highly-specific genetic tweak, the scientists had created a drug-initiated killswitch for senescent cells. In today’s paper, the team reported what happened when the researchers turned on that killswitch in middle-aged mice, effectively scrubbing clean the mice of senescent cells.

Naturally occurring p16Ink4a-positive cells shorten healthy lifespan

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Senescent cells accumulate in various tissues and organs over time, and have been speculated to have a role in ageing. To explore the physiological relevance and consequences of naturally occurring senescent cells, here we use a previously established transgene, INK-ATTAC, to induce apoptosis in p16Ink4a-expressing cells of wild-type mice by injection of AP20187 twice a week starting at one year of age. We show that AP20187 treatment extended median lifespan in both male and female mice of two distinct genetic backgrounds. The clearance of p16Ink4a-positive cells delayed tumorigenesis and attenuated age-related deterioration of several organs without apparent side effects, including kidney, heart and fat, where clearance preserved the functionality of glomeruli, cardio-protective KATP channels and adipocytes, respectively. Thus, p16Ink4a-positive cells that accumulate during adulthood negatively influence lifespan and promote age-dependent changes in several organs, and their therapeutic removal may be an attractive approach to extend healthy lifespan.

Unity Biotechnology Launches with a Focus on Preventing and Reversing Diseases of Aging

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Unity will initially focus on cellular senescence, a biological mechanism theorized to be a key driver of many age-related diseases, including osteoarthritis, glaucoma and atherosclerosis. “Imagine drugs that could prevent, maybe even cure, arthritis or heart disease or loss of eyesight. It’s an incredible aspiration. If we can translate this biology into medicines, our children might grow up in significantly better health as they age. There will be many obstacles to overcome, but our team is committed and inspired to achieve our mission. This has been a long journey, and we’re at the point now where we can start making medicines to achieve in humans what we’ve achieved in mice. I can’t wait to see what happens as we move into the clinic.”

To close this post, and once again, I think it well worth remembering that SENS rejuvenation biotechnology advocates and supporters have been calling for exactly this approach to treating aging for more than a decade. That call was made based on the evidence arising from many fields of medical research, and from a considered perspective of aging as a process of damage accumulation, one that can be most effectively treated by repair of that damage. The presence of senescent cells is a form of damage. SENS was not so long ago derided and considered out on the fringe for putting forward that position, but for several years now it has been very clear that the SENS viewpoint was right all along. I strongly encourage anyone who remains on the fence about the validity of the SENS proposals for the treatment of aging to reexamine his or her position on the science.

Reason is the founder of The Longevity Meme (now Fight Aging!). He saw the need for The Longevity Meme in late 2000, after spending a number of years searching for the most useful contribution he could make to the future of healthy life extension. When not advancing the Longevity Meme or Fight Aging!, Reason works as a technologist in a variety of industries.
This work is reproduced here in accord with a Creative Commons Attribution license. It was originally published on FightAging.org.

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Who Won in Iowa? And Why? – Article by Daniel Bier

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Categories: Politics, Tags: , , , , , , , , , ,

The New Renaissance HatDaniel Bier
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It depends on what was really at stake

On Monday, the political world watched as the early results trickled in from the Iowa caucuses. First, Donald Trump was ahead, then Ted Cruz overtook him, then Marco Rubio started creeping up. In the final count, Cruz won convincingly with 28 percent, Trump came in second with 24 percent, and Rubio took home bronze with 23 percent.

Commentators are scrambling now to read the tea leaves of these results. A lot of the alleged meaning depends on the hopes and expectations people had before. The last (and typically best) Iowa poll, released just two days before the caucuses, had Trump at 28 percent, Cruz at 23 percent, and Rubio at 15 percent.

Trump, it was thought, had run a lazy campaign and had very little grassroots mobilization, so maybe he would get crushed by better organized rivals. And though he did lose to Cruz, and barely beat Rubio, it’s hardly the death blow some hoped. It turns out that at least a quarter of the highly motivated GOP base in Iowa really do like Trump, in spite of his lackadaisical operation, and the polls that show him in the lead aren’t skewed or exaggerated.

Cruz’s triumph, driven by evangelical voters, might seem to bode well for his nomination prospects. Rubio did better than expected, so maybe that means something. Carson, Jeb, and Rand garnered very modest support; the rest of the pack did so poorly they didn’t received any delegates at all, and some are already dropping out.

This week, pollsters will be furiously dialing potential voters. Pundits will be scribbling and shouting, all angling for some unique or authoritative or contrarian perspective on these results.

But there’s one source of information that’s a better predictor of where the wind is blowing than polls, statistical models, or expert forecasts: the market. Specifically, betting markets, where people are forced to put their money where their mouth is.

With hard cash on the line, the incentive to be right is powerful — and, it turns out, pretty effective.

Here’s what the betting odds looked like for most of this endless campaign season. Early on, there’s a lot of uncertainty, but the odds of Trump actually winning the nomination were always consistently low, despite his huge leads in the polls. Bettors didn’t believe voters would really go for him, or that the party insiders would allow him to succeed.

betting-odds-oct-dec

But in the last month, something changed. Maybe it was because the party insiders didn’t seem to be doing anything to stop Trump. Maybe it was because the mainstream never coalesced around a “establishment” candidate. Maybe it was because Trump’s long-predicted crash in the polls never materialized.

Either way, Trump’s odds started steadily improving in January, and Christie, Cruz, and Rubio started slipping. On January 13, at 7:01 AM, Trump took the lead for the first time, and after that, his odds soared. On the day of the Iowa caucuses, bettors put his probability of winning the Republican nomination at over 50 percent.

betting-odds-january

But as the results started trickling in, and it became clear that Cruz would beat Trump, the markets reacted.

In just 90 minutes, Trump’s odds of winning the nomination cratered — falling from over 50 percent to about 25 percent — and Marco Rubio’s soared, from about 30 percent to over 55 percent. As for Cruz’s big win, it barely brought him back to where he stood two weeks ago.

betting-odds-feb

According the markets, Rubio won in Iowa, and Trump lost.

If you’re concerned about the rise of Trump’s fascist, populist demagoguery — its virulent and xenophobic identity politics, economic nationalism, and lawless authoritarianism — this might seem to be good news, of a sort.

But the bad news is that Trump’s loss is probably due in large part to his rival’s embrace of Trumpism. At the Atlantic, Peter Beinart notes that Rubio “surged by borrowing Trump’s message while pledging to more effectively package it.”

In the final weeks before Iowa, Rubio grew markedly more anti-immigration. Having previously warned against using terrorism as a pretext to restrict legal immigration, the Florida senator in mid-January declared that because of the rise of ISIS, “the entire system of legal immigration must now be reexamined for security first and foremost.”

He also followed Trump’s lead on trade, suggesting that he might oppose the Trans-Pacific Partnership agreement he had once praised.

Rubio echoed Trump when it came to the rights of Muslims, too. Asked in a January debate about Trump’s call for banning Muslim immigration, Rubio praised the billionaire for having “tapped in to some of that anger that’s out there about this whole issue because this president has consistently underestimated the threat of ISIS.” … The listener who didn’t already know Rubio’s position might well have thought he supports Trump’s plan.

When asked about Trump’s call for closing mosques, Rubio did Trump one better, declaring that, “It’s not about closing down mosques. It’s about closing down any place — whether it’s a cafe, a diner, an Internet site — any place where radicals are being inspired.”

… Having once pitched himself as a bridge between the GOP and the changing face of twenty-first century America, Rubio instead began appealing to “all of us who feel out of place in our own country.”

Here is the moderateestablishment candidate calling the whole system of legal immigration into question, attacking foreign trade, fear-mongering about religious minorities, calling to shut down and censor the Internet, and blowing tribalist dog whistles.

Of course, Rubio isn’t Trump: he’s a politician. If he captures the nomination, he’ll try to pivot from identity politics and emphasize his “moderate” credentials. He’s still an establishment figure, with the credibility of being sophisticated, eloquent, and (above all) “electable” — everything Trump isn’t.

But this is the larger problem. Trump has convinced the establishment that they need to embrace his priorities and methods in order to maintain control. Worse, he might be right. This may be the most troubling development in the whole Trump saga, and not just because the establishment won’t flatly repudiate a man conjuring up religious tests, concentration camps, and mass deportation.

By rallying long-suppressed nationalist factions, Trump has shifted the margins of acceptable debate more than any other political figure in recent memory. “Trump has redefined what “moderate” means,” Beinart argues.

In 2008 and 2012, Mitt Romney and John McCain never had to praise a rival for suggesting a religious litmus test for entering the country. During their presidential bids, Romney and McCain both shifted right on illegal immigration. But they didn’t backpedal on their support for legal immigration.

Trump probably couldn’t win the general election, and if he did, he couldn’t institute his agenda effectively without the network of interest groups that make policy happen. That’s what makes him so dangerous: he’s unconstrained by the traditional network of interests, compromises, and pressures of the status quo — nobody has any idea what he might try to do.

But that’s also what makes his candidacy a long shot. The more established candidates might very well win and effectively implement their agenda — pushing the bounds of executive power that Bush and Obama softened into playdough — without triggering an open constitutional or political crisis. Their embrace of Trump’s agenda is a troubling sign both of how the political landscape has shifted and what might now come from even a “moderate” presidency.

The ballots say Cruz won. The markets say it was Rubio. But, in time, we may find that it was Trump after all.

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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Capitalism Promotes Equality – Article by Barry Brownstein

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The New Renaissance HatBarry Brownstein
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Equality in Consumption Is Now the Norm

Highway traffic began to slow outside of Boston as we made our way to the airport. My wife was driving, so I took out my $100 Android phone and opened Google Maps. Google Traffic instantly showed me, in real time, the best route to avoid delays and estimated the number of minutes we’d save by altering our route. Thanks to Google, there was no threat of missing our flight.

It was not too long ago that we relied on traffic reporters in helicopters, and their advice was often useless by the time we heard their updates.

Have you wondered how Google Traffic does it? The answer is crowdsourcing. If you are among the two-thirds of American adults who own a smartphone, and if the GPS locator on your phone is enabled, you are generating real-time traffic information. Google Traffic measures how fast cars are moving compared to normal speeds and generates location-specific reports.

Rich or poor, most of the drivers on the highway that day had access to the same miraculous traffic report and the same opportunity to make better driving decisions. This is just one example of how the marketplace generates equality in consumption.

The cars we drive are another indicator of consumption equality. We were driving an inexpensive Subaru Outback. There are more expensive, comfortable, and bigger cars on the market, but the Insurance Institute for Highway Safety says that there are none safer than the Outback.

Would a rich individual, on this same drive to the airport, have any noticeable advantages over me? He or she could hire a driver and use the drive time for something more productive, but even that advantage will dwindle as driverless cars become the norm.

In his Wall Street Journal commentary “The Rise of Consumption Equality,” former hedge fund manager Andy Kessler writes:

Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve.

“What does Google founder Larry Page have that you don’t have?” Kessler asks pointedly.

Page’s income is unimaginably larger than most of ours. But in terms of consumption, the differences are negligible — which is remarkable, given how much Page and Google have improved our lives.

All-time football great Tom Brady earns roughly $10 million a year. His diet made the news recently. Does Brady enjoy health advantages not available to Americans with a fraction of his income? Brady hires a cook. Our family doesn’t do that, but we eat much like Brady — organic vegetables, fruits, whole grains, beans, and fish make up the bulk of our diet. From May to October, a local organic farmer provides an abundance of vegetables that are picked fresh for us based on an order we place the day before. In the summertime, our produce may be fresher than Brady’s. Compared to any of us, what real dietary advantage does Tom Brady’s income afford him? It is his commitment to a healthy lifestyle, not his income, that makes the difference.

In 1900, Americans spent approximately 50 percent of their household income on food and clothing; today, we spend closer to 20 percent. Today, fresh produce from all over the world, not even available to a king a century ago, awaits common consumers when they enter the supermarket.

In 1900, only 25 percent of households had running water; fewer still had flush toilets. It would be decades before such wonders as electricity, automobiles, and indoor plumbing were ubiquitous. The faucets in the famed Hearst Castle in California may have been gold plated, but was the water any better than what the average household received? The water running in my home comes from an artesian well over 400 feet deep. More evidence of consumption equality: my water is every bit as good, if not better, than a billionaire’s in a big city penthouse.

Wealth is not a good predictor of a rich life. Psychology professor Sonja Lyubomirsky found that only 10 percent of the variance in Americans’ happiness is due to income and other circumstances. “Happiness more than anything,” she writes in her book The How of Happiness, ”is a state-of-mind, a way of perceiving and approaching ourselves and the world in which we reside.”

And what of the elements of emotional intelligence that make life richer? In the book Big Magic, best-selling author Elizabeth Gilbert observes:

If money were the only thing people needed to live rich creative lives, then the mega-rich would be the most imaginative, generative, and original thinkers among us, and they simply are not. The essential ingredients for creativity remain exactly the same for everybody: courage, enchantment, permission, persistence, trust — and those elements are universally accessible. Which does not mean that creative living is always easy; it merely means that creative living is always possible.

The same universally accessible elements are essential ingredients for entrepreneurship. Entrepreneurs persist, driven by their vision and by the equality of opportunity that capitalism affords. The entrepreneur’s choice to be persistent and courageous is the not-so-secret engine that drives success.

The essential consumption goods we couldn’t even imagine a hundred years ago are almost universally available in the United States today. The marketplace, aided by many creative, pioneering entrepreneurs and every person who strives to put in a good day’s work, is generating consumption equality.

Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. He is the author of The Inner-Work of Leadership. He blogs at BarryBrownstein.com, Giving up Control, and America’s Highest Purpose.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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Is Congress Declaring War on ISIS…or on You? – Article by Ron Paul

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Categories: Politics, Tags: , , , , , , , , , , , , , , , , , , ,

The New Renaissance HatRon Paul
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Passage of Senator Mitch McConnell’s authorization for war against ISIS will not only lead to perpetual US wars across the globe, it will also endanger our civil and economic liberties. The measure allows the president to place troops anywhere he determines ISIS is operating. Therefore, it could be used to justify using military force against United States citizens on US territory. It may even be used to justify imposing martial law in America.

The President does not have to deploy the US military to turn America into a militarized police state, however. He can use his unlimited authority to expand programs that turn local police forces into adjuncts of the US military, and send them increasing amounts of military equipment. Using the threat of ISIS to justify increased police militarization will be enthusiastically supported by police unions, local officials, and, of course, politically-powerful defense contractors. The only opposition will come from citizens whose rights have been violated by a militarized police force that views the people as the enemy.

Even though there is no evidence that the federal government’s mass surveillance programs have prevented even a single terrorist attack, we are still continuously lectured about how we must sacrifice our liberty for security. The cries for the federal government to take more of our privacy will grow louder as the war party and its allies in the media continue to hype the threat of terrorism. A president armed with the authority to do whatever it takes to stop ISIS will no doubt heed these calls for new restrictions on our privacy.

Following last year’s mass shooting in California, President Obama called for restricting the Second Amendment rights of any American on the “terrorist watch list.” The president also used the attacks to expand the unconstitutional gun background check system via executive action. Can anyone doubt that President Obama — or a future anti-gun president — will use the absolute power to do whatever is necessary to stop terrorism as a justification for imposing new gun control measures? Using the war on ISIS to justify more gun control will be particularly attractive since even many pro-gun politicians will support gun control measures if they are marketed as part of the war on terror.

As the American economy faces continued stagnation, and as challenges to the dollar’s status as the world’s reserve currency mount, an increasingly authoritarian government will impose new restrictions on our economic activities and new limits on our financial privacy. In particular, our ability to move assets out of the country will be limited, and new reporting and other requirements will limit our ability to use cash without being treated as criminals or terrorists. Those who carry large amounts of cash will find themselves at increased risk of having the cash confiscated by police under civil asset forfeiture laws.

If Senator McConnell’s declaration of perpetual war passes, presidents could use the war on ISIS as a justification to impose new restrictions on our use of cash and our financial privacy via executive action. After all, they will say, the government needs to make sure cash is not being used to support ISIS.

The only way to protect both liberty and security is to stop trying to impose our will on other countries by military force. The resentment created by America’s militaristic foreign policy is ISIS’s most effective recruiting tool. Adopting a non-interventionist foreign policy that seeks peace and free trade with all would enable the government to counter legitimate threats to our safety without creating an authoritarian police state.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

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A Libertarian Defense of Tenure – Article by Aeon Skoble and Steven Horwitz

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The New Renaissance HatAeon Skoble and Steven Horwitz
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Tenure protects the right to be unpopular

Libertarians are understandably frustrated with the state of higher education today. Libertarian ideas often do not get covered, or are covered unfairly. Faculty are overwhelmingly left-of-center, and government subsidies have driven up costs, leading to higher student debt.

These are legitimate concerns of course. However, the solution to these problem is not to abolish the institution of tenure. Tenure is not anti-liberty, and it provides important protections for those who are libertarians (and conservatives) in academia. In addition, it has some efficiency properties that explain why it has survived and might well do so even in a world where the state had no role in higher ed.

There are many potential objections to tenure. For some, the idea that a tenured professor cannot be fired strikes them as a rejection of the free market. Others believe that tenure is a way of protecting leftist faculty, even if their ideas are wrong-headed, and students don’t wish to hear them. In that way, tenure is a kind of monopoly protection for bad ideas. Finally, people across the political spectrum believe that tenure creates so-called “deadwood” faculty who, once they are tenured, no longer have to care about their teaching or research.

First, let’s dispatch a common misconception: it is not true that tenured professors cannot be fired.  Tenured professors can be fired for a variety of reasons.  What tenure does is limit what counts as a valid reason for dismissal in order to protect academic freedom. A tenured professor can be fired if caught plagiarizing, or found guilty of sexual or other forms of harassment, or convicted of violent crime. But if she can be fired for writing an article that the dean disapproves of, she cannot perform her job. And that is where tenure comes in.

Understanding why tenure is a desirable institution requires us to remember the purpose of a university. Universities are, ideally, institutional arrangements that enable scholars to engage in the activities of seeking the truth and then sharing the fruits of our scholarship with students, other scholars, and perhaps the general public.

Essential to that project is that scholars are free to seek the truth as we see it, without interference by others who have different goals. Of course, scholars must play by some very simple rules of the game: do not lie or cheat; do not distort your data or the arguments of your sources; be transparent about conflicts of interest; do not engage in personal attacks or the use of force, among others.

If this sounds familiar, that’s because the search for truth is a discovery process analogous to the market. Just as entrepreneurs in a market require the freedom to discover value where their best judgment takes them, subject to rules against force and fraud, so do scholars in a university require the freedom to discover truth where our best judgment takes us.

Tenure protects scholars like us from interference with our attempts to discover truth. Scholars cannot engage in truth-seeking if we’re facing retaliation from people who don’t like where our research leads. A university cannot be a university without robust protection of the open exchange of ideas and the freedom of each scholar to research in his or her field without intimidation.

By ruling out the possibility of firing a professor simply for the content of her beliefs, tenure ensures that the university will be what Michael Polanyi called “a republic of science,” in which truth-seeking is the highest standard.

Skeptics might argue that even if tenure were abolished, faculty still wouldn’t leave their current jobs because they would find it difficult to get hired elsewhere. But that’s not the point. The point is that we cannot do our jobs without a credible guarantee of academic freedom, and tenure is one way to secure that.

Tenure protects academic freedom in three distinct ways. First, when we engage in research and publishing, we can’t be worried that some administrator, trustee, politician, or even a student activist will find our work offensive and retaliate against us. This will have a chilling effect on our ability to seek the truth, which is our job as college professors. There are numerous examples of libertarian and conservative faculty facing just these sorts of threats, and tenure is the primary reason those threats are empty.

Second, when we construct and teach our curricula, we can’t worry that any of the usual suspects will take offense, or try to substitute their judgment for ours. Finally, when participating in institutional decision making about academic matters, we can’t be afraid to call shenanigans on various administrator-driven fads (of which there are many) that would undermine our ability to engage in research and teaching.

Although we are open to alternative institutional processes if they could be shown to adequately protect academic freedom, abolishing tenure in their absence is a dicey proposition. Absent tenure, it is libertarians and conservatives who would be the first to be persecuted, censored, or silenced.

Politically correct ideas don’t need the protection of tenure because they are popular; tenure protects ideas that are not. Abolishing it would give still more power to the activists and administrators who seek to create an ideologically uniform academy.

Given those concerns, how big is the downside to tenure? If the complaint is that some faculty’s research productivity declines after tenure, then an easy fix is to have continued productivity tied to merit raises.  Nothing about the institution of tenure precludes post-tenure reviews and merit pay. And even if some faculty slack off as publishers, so what? As long as they’re good teachers, mentors, and colleagues, it’s not necessary that all college faculty be active publishers their whole careers.

Tenure offers a beneficial set of incentives for many universities. Faculty want the protections we have outlined above, and universities want to encourage faculty to develop university-specific human capital to better serve their educational vision and the type of students they attract. Faculty don’t necessarily want to make those specific investments if the opportunity cost may be enhancing their publication record so as to make them more attractive in the job market.

Tenure is a commitment by the institution to maintain a faculty member’s employment in return for abiding by some basic rules and demonstrating during the tenure process that they have acquired that institution-specific human capital. The faculty member gets enhanced, but not total, job security, and the institution gets someone committed to its particular needs. In this way, tenure is like marriage: we bind ourselves to an arrangement with high exit costs in order to incentivize ourselves to commit to the relationship. Just as marriage is compatible with a free society, so is tenure.

There are many problems with contemporary higher education, but tenure isn’t one of them. Ending tenure would exacerbate many of those issues while also creating new ones. And in an institutional setting where the opponents of liberty hold most of the cards, getting rid of one of the most important institutions that protects dissent and the ability to seek the truth will only silence the friends of liberty.

Aeon J. Skoble is Professor of Philosophy at Bridgewater State University.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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