Technology marched onward in 2012, but human nature did not. The world's most developed nations continued to squabble over who should -- and how to -- pay their bills this month, even as the Artificial Intelligence Laboratory at the University of Zurich announced that the world's first "humanoid" robot will be "born" in March.
Its baby, called "Roboy", is cute, will have soft skin and is tendon-driven so that it will move as elegantly as a human, not like a machine. Roboy will understand commands and is being developed to perform household chores, surveillance and nursing in hospitals and homes for the elderly.
Even more innovative, Roboy's development is being financed in part by crowdfunding -- online donations from the public -- in return for consideration based on amounts given. A small donation buys a ticket to the Robots on Tour premier in Zurich. A huge donation nets exclusive sponsorship opportunities.
It's an incredible achievement, but overshadowed by the fact that "Roboys" are not yet running our governments, programmed for fiscal responsibility in order to fix our finances.
It's interesting to note that computers can provide instant diagnostics to pinpoint repairs needed on our cars and other machines. But there are no algorithms yet to provide smart, fair and effective political leadership.
Instead, human nature is in charge, and even when people elect leaders the same intractable issues of how to control taxation and spending remain insoluble.
This year, it's the "fiscal cliff" shenanigans in Washington, thanks to the intransigence of competing interests from labour to business, libertarians, environmentalists and the military juggernaut.
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In his last offer to House Speaker John Boehner (R-Ohio), President Barack Obama lobbied for $16 billion in cuts from the military's health care program, TRICARE. In 2012, the president also proposed hiking fees for military personnel and veterans who receive benefits under the program in an effort to help cut the defense budget. His proposal drew significant fire from Republican lawmakers and veterans' groups.
Both sides agreed to cuts from the military retirement program. Rep. Eric Cantor (R-Va.) claimed during July 2011 talks that lawmakers had reached a tentative deal to slash $11 billion. Under the current system, military personnel receive immediate retirement benefits after serving for 20 years. According to a recent report from the Congressional Budget Office, the appropriation cost per active military service member has increased at a higher rate than either inflation or the total pay package of private-sector employees. Given the budget constraints looming before the Defense Department, the CBO floated the idea of transitioning the military retirement program to a matching-payment model.
Cantor claimed that Republicans and Democrats had agreed to $36 billion in savings over 10 years from civilian retirement programs. The president proposed a marginally more modest figure of $33 billion in his final offer to House Speaker John Boehner. Just this year, Republicans in the House Committee on Oversight and Government Reform also looked to find savings from the Federal Employee Retirement System by requiring employees to pay more of their salary into their pensions, which Democrats opposed as a pay cut that would make civil service less attractive for top talent. In September 2011, the federal government employed over two million individuals, either through the cabinets or independent agencies. Many Republicans have complained that the federal workforce has ballooned during the Obama administration, and while the raw number of employees has risen by 14.4 percent between Sept. 2007 and Sept. 2011, the percentage of public employees out of the total civilian workforce has remained fairly constant around 1.2 percent since 2001. Much of the raw growth has been concentrated in the Department of Defense, Veteran's Affairs and Homeland Security.
Democrats and Republicans agreed to cut as much as $30 billion from agricultural subsidies; the main opposition fell along geographical lines rather than partisan ones. Hailing from an agriculture-heavy state, Sen. Max Baucus (D-Mont.) threatened to pull out of talks entirely if a deal included that much in subsidy reduction. The president ended up pushing for $33 billion in cuts, but that figure also included reductions in conservation programs. Baucus now tells HuffPost any cuts should be made through the farm bill, not fiscal cliff talks.
Cantor pushed hard for significant cuts to food stamps, formally known as the Supplemental Nutrition Assistance Program. He charged that the federal government could save as much as $20 billion over ten years by eliminating waste and fraud, but the White House countered that the real number was closer to $2 billion. Instead, those cuts would force the program to scale back on the number of enrollees and the level of benefits it could offer.
Obama proposed cutting $4 billion from flood assistance funding in his final offer to Boehner in July 2011. But Hurricane Sandy straining the National Flood Insurance Program; The New York Times reports that thousands of claims are being submitted daily, which could send the overall cost upwards of $7 billion for a program that suffers from a ballooning debt problem. And with climate change promising future flooding disasters along the eastern seaboard, cutting the program looks unwise.
The president offered to cut $110 billion over the next decade from the government's health care spending, excluding Medicare. Among the programs that could lose crucial funding is home health care, where Democrats and Republicans agreed to $50 billion in reductions over ten years. Cantor pushed for closer to $300 billion in spending cuts to health care, but Democrats appeared to stand firm.
The president proposed cutting $10 billion from higher education over the next decade, mostly from Pell grants. Over nine million students relied on federal subsidized loans to afford college during the 2010-2011 school year, and the skyrocketing costs have continued to diminish the purchasing power of the Pell grant program. Obama has actively worked to make college more affordable for lower-income students. Key Republican lawmakers have attempted to cut funding for student loans; most notably, Rep. Paul Ryan (R-Wis.) slashed the maximum award from $5,550 per student per year down to just $3,040.
The original funding levels proposed by Cantor and the GOP leadership would turn the entitlement program for America's poor into little more than a block grant program, Democrats claimed during the 2011 debt ceiling talks. Under such a program, they argued that states would then drop more people from enrollment and scale back on health benefits. In fiscal year 2009, over 62 million Americans -- many of them children -- depended on Medicaid for their health care. But the president did agree to $110 billion in cuts from Medicaid and other health programs.
Republicans pushed for a drastic overhaul to the entitlement program for America's seniors. Ryan infamously proposed turning Medicare into little more than a voucher system in which seniors would receive checks to purchase their own health care on the open market -- a plan that would ultimately force individuals to shoulder more of the burden for their health care costs. Democrats refused to accept changes similar to those in Ryan's plan. The president, however, was more open to other GOP suggestions on Medicare. In his final offer to Boehner, he agreed cut $250 billion over the next ten years -- in part by increasing premiums for higher-income seniors and by raising the eligibility age from 65 to 67 (although over a longer time frame).
Republicans have again and again decried any attempt to raise taxes, either on the highest earners or on corporations. (A Democracy Corps/Campaign for America's Future survey shows that 70 percent of voters support raising taxes on the wealthiest two percent of Americans.) Instead, Boehner has pushed for a comprehensive tax reform bill that would lower the marginal tax rates while closing loopholes and eliminating deductions in order to raise around $800 billion in additional revenues. For many Democrats, that figure simply isn't enough. White House Press Secretary Jay Carney announced Tuesday that the president was aiming for as much as $1.6 trillion in new revenues, and the president told reporters on Wednesday that it would be practically impossible to raise the amount of revenue he wanted simply from closing loopholes and lowering rates.
Social Security isn't driving the deficit, yet Republicans have pursued drastic changes to the program. Sen. Harry Reid (D-Nev.) has promised that Social Security would be off the table in the on-going negotiations to avoid the fiscal cliff, but Obama did concede to tying the benefits to a recalculated Consumer Price Index that would ultimately provide less money to retirees. Sen. Bernie Sanders claims that, under such a measure, seniors who are currently 65 years-old would see their benefits drop by $560 a month in 10 years and by as much as $1,000 in 20 years. The Moment of Truth project (led by the two former co-chairs of the president's deficit reduction commission, former Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles) claims that the recalculated CPI could save as much as $112 billion from Social Security over the next ten years.
Although Cantor and other GOP House members demanded that any deficit-reduction deal brokered in 2011 be classified as revenue-neutral, they were open to closing particular loopholes in the corporate tax code and limiting itemized deductions for individuals -- given that they were offset by other tax cuts. Out of the $50 billion in savings to be found over the next decade from closing loopholes, Cantor proposed getting $3 billion from eliminating the break for corporate-jet owners and another $20 billion from voiding the subsidies for the oil and gas industries. On the individual earner side, he proposed eliminating the second-home mortgage deduction for $20 billion, as well as limiting the mortgage deduction for higher-income households to rake in another $20 billion. He also offered to tighten the tax treatment of retirement accounts. But Democrats wanted to see even greater action taken on itemized deductions. In June 2011, Rep. Chris Van Hollen (D-Md.) proposed raising $130 billion in new revenues by capping itemized deductions at 35 percent for the highest income brackets. The GOP response to his proposal at the time was a resounding "no."
Set to expire on Dec. 31, 2012, the Bush tax cuts represent one of the most controversial elements of the so-called fiscal cliff. They added over $1.8 trillion to the deficit between 2002 and 2009. Yet Republicans argue that an extension is necessary to create jobs and spur economic growth. But a study from the Congressional Research Service found that tax cuts for the wealthiest earners had little economic effect. The White House is pushing for a renewal only of those tax breaks for the lower- and middle-class Americans in order to save the average middle-class family between $2,000 and $3,500 next year. Letting the cuts expire for those earning over $250,000 a year -- or the wealthiest two percent of Americans -- would haul in $950 billion in savings over the next decade, according to the CBO. Obama stressed how much the country stood to gain from such an approach Wednesday during a press conference. "If we right away say 98 percent of Americans are not going to see their taxes go up — 97 percent of small businesses are not going to see their taxes go up," he said. "If we get that in place, we're actually removing half of the fiscal cliff."
The only way to rise above this, for humans, is to indulge in theatrics and make threats in the hopes of driving negotiators to compromise. But that's no longer working, given the complication and number of moving parts in all these countries.
So the U.S. will likely do what the European Union did a year ago and simply kick the can down the road, thus guaranteeing that the Great Markdown of western living standards will proceed more gradually.
This weekend's deadline is a replay. The European players set a series of deadlines, scurried between national capitals, staged last-ditch confabs, leaked pundit predictions of disaster and the press prophesied that Greece, the eurozone and the world as we know it would collapse.
One year later, Europe had stagnated, but not collapsed. Greece was in a depression and Italy, Spain, Britain, Ireland, Portugal and now are too. The eurozone was intact and some corrections were underway. Interestingly, Spain's labour rates had dropped by 40 per cent, compared with those of Germany and France, and two automakers announced major production plants would be built there this year.
In the U.S., the Great Markdown began in 2008 with the collapse of markets, financial institutions, real estate values and employment levels. These conditions have been slightly corrected, but the Americans won't resolve their differences despite their $6-billion election on these issues.
Both sides have been entrenched since 2010, just like the Europeans. But market forces march ahead and have imposed punishment in the form of lower living standards and higher unemployment levels. And in a few weeks, the political and pundit noise will ebb, countries or currencies won't collapse, and taxes will rise and spending cuts occur, piecemeal.
On a more positive note, the year saw gains. Britain's Olympics was a wonderful distraction and the U.S. election an entertaining, and economically sanguine, reality show. China's Communists peacefully elected a new leader who has begun to crack down on corruption publicly, in the wake of his archrival's uncharacteristically public scandal. Even better, China's "hard landing" did not happen, which would have depressed commodity prices (not good for Canada) as well as world trade.
The Japanese have climbed out of their tsunami and nuclear meltdown in 2011 and the Arab Spring has not brought about catastrophe and has extended to Syria, where the latest dictatorship is toppling.
Sanctions against Iran appear to have destroyed its economy and the Stuxnet computer virus has wreaked havoc inside its nuclear reactors. In addition, the eventual collapse of Syria's regime will fully isolate Iran in its neighbourhood.
More good news is that (go figure) the best-performing stock market in the world was Venezuela's, up 300 per cent. This was possibly due to President Hugo Chavez's imminent demise. Turkish and Egyptian markets also performed well.
Another telling sign that 2012 was a pretty good year, gold miners aside, is that gold prices remained stable, thanks to fewer concerns about a collapse of the euro or U.S. dollar.
And Russia's cocky Vlad Putin has had some brakes applied to his czar-ship, thanks to large street protests against him for the first time. He's now reduced to making mischief by banning adoptions of Russian children.
Market bible Barron's brought more good news in its recent forecast issue: "Despite fiscal cliff fears, the U.S. stock market could rise 10 per cent in 2013, say Wall Street's top strategists, betting on a better economy, foreign sales, technology and energy shares."
Their consensus was Washington would reach a preliminary agreement in the first few months of 2013 to slow the mandated tax and spending cuts that will automatically begin Jan. 1.
Perhaps the most solid, good news of 2012 was that the Mayan prediction that the world would end on Dec. 21 was dead wrong; along with the imminent birth of "Roboy" in March. One guarantees existence and the second will launch a new era with the creation of the world's first user-friendly robot companions and servants.
So as usual, technology advances, irrespective of human nature's inaccuracies and regressions.
In future, a tide of innovations will improve lives but transform work and the economy. It will replace our concerns about politics or taxation or deficits and impose new ones. But like everything else, human nature will kick that can down the road.
*This column previously appeared in the National Post
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