IAm Nassim Taleb, author of Antifragile, AMA

Bitcoin:

• Totally decentralized
  
• One node (miner) blows up, and nothing changes, nobody loses money
  
• Gains from inflation in fiat money; 4+ years in the running, non-stop, now valued ~$60 per bitcoin
• Gains from Bank confiscations
• Gains from overall mayhem in the monetary/banking/payment system

What are your thoughts?

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence. I only talk from skin-in-the-game. If I had money in bitcoin, I would have reported it. But I don't yet. I am waiting to understand it better, not with my brain, but with my experience...

Also worth noting: Bitcoin's volatility: http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zv

Anything of value created ex nihilo is going to be volatile, in that it has to start from zero and go through price discovery--with a very small initial number of users in Bitcoin's case. Bitcoin's volatility in dollar terms looks both healthy and like what one ought to expect from a market trying to price something novel.

Take, for instance, the sharp dips whenever something 'goes wrong'. Weaker hands panic, while those whose confidence in Bitcoin endures pick up the wealth transfer.

Indeed. And most of its volatility is off low dollar value.

Are there cases where Skin-In-The-Game is the wrong heuristic?

Should judges, jurors, and prosecutors have skin in the game?

Also, the whole idea behind corporations ("personnes morales" in French) is to remove skin from the game. This has made possible large scale enterprises. Isn't this a good thing?

And thanks for a great book!

Vincent Poirier, Quebec City

Skin in the game is about being harmed by an error if it harms others. Managers of large corporations can be forced to lose money beyond their compensation should the firm suffer. As to judges, I don't know, but hopefully they have sufficient eye contact to suffer shame.

Shouldn't there be some sort of heuristic about whether or not the person has an incentive to expose others to risk for his own benefit. A juror has no skin in the game, except a sense of civic duty, but it is not concerning because they also have no benefit for wrongfully convicting or acquitting.

Excellent. I have to take a long walk and think about it... The fact that the juror has no upside mitigates the problem.

What is one thing that a recent college graduate can due to be Antifragile? A lot of your book is written at and towards a more senior professional audience. Is it possible to be Antifragile in your early career in the decisions you make? I ask this because right now I have a lot of student debt, and a family, and I am very interested in not getting caught in the Harvard/Fragilista trap.

I wrote a chapter in antifragile: get passing grades and follow voraciously your curiosity on the side instead of competing in school. In the end what matters is your curiosity, nothing else. And read nothing that doesn't interest you but interests someone else.

Thanks for doing this AMA Nassim, I am a great fan of you work.

Let's say that you have the single power to implement any laws in regards to wall street. What kind of system would you set up in order to promote anti-fragility? Would you regulate wall street more or would you rather have the market regulating itself?

I believe he's stated that banks should be treated like utilities and hedge funds could do whatever they wanted. Let's see what he says.

Indeed. We need to regulate the minimum. Hedge funds have skin in the game. Banks play with our money and game regulations.

Hi Nassim. i'm very happy you are here. You are very negative against economists. Since I'm currently studying Economics, what should I do to make you more benign toward economists?

When they accept that econometrics doesn't work in their domains, as per the quartic variation test in chapter 1

Also here is my chapter Why Economics Fragilize I wonder why they ignore evidence + logic? Frauds.

He also mentions in Antifragile that, due to the current state of the banks (they are all-but-government entities anyway), that they should be nationalized. That way losses and gains are public instead of just losses (ie bailouts of any kind).

Rule: any company that would cause a national emergency requiring a bailout should it fail should be classified BAILABLE-OUT and employees should not be allowed to earn more than civil servants. That would force companies to 1) be small, 2) not leech off the taxpayer.

Sir, I have nothing to ask. All I have to say is that I thoroughly enjoyed your books.

Thank you.

As a longtime flaneur, what is your favorite city for walking?

All cities built before the automobile (and not destroyed by planners) are great.

Thanks for doing the AMA. I’m a big fan of The Black Swan and Antifragile. I have a few short questions:

• How do you differentiate between the Casanova effect (survivorship bias) and the Lindy Effect?

• What’s a good meta-heuristic to evaluate heuristics?

• What career advice (i.e. how to not starve in the street) would you give to a recent college grad? [Edit] You're getting the college grad question a lot, so here is a substitute: How did you decide upon a goatee from the myriad of facial hair options?

Looking forward to seeing you in Chicago on 4/11!

How do you differentiate between the Casanova effect (survivorship bias) and the Lindy Effect? Excellent. I will explain it in the textbook here but there is always a Casanova effect in every survival. But time clears out spurious winners. The goatee? Easier to maintain than full beard.

Hello Mr. Taleb,

I have recently read your book on Antifragility and saw that you have many ideas very similar to french author Alexis de Toqcqueville in his Democracy in America such as the benefits of face to face relations and the necessity of local institutions. I was wondering if you had read him.

Thank you.

Superficially. I will now. Thanks.

Hello friend,

Each of your works has helped shape my perspective in one way or another. I want to thank you for that. I studied Economics (ouch) at a small university (near, but not at Harvard). My favorite professor, Christopher McHugh, (Econ PhD from Wharton) always harped on fat tails and was the first person to point me to your books/line of work. First, do you have any plans to make your risk teachings at NYU Poly available online, a la Open Yale Courses?

Second, I was wondering what advice you had for someone interested in starting a derivatives career similar to yours?

Indeed ! in the meanwhile I am posting my lectures here

What is the most important skill or trait a human being can have in the modern world?

A sense of honor. It puts you above everything else.

I'm in the same fraternity as your son.

Tell him to stop making puns.

He won't stop. It is in his DNA.

Hello NNT,

What have you been reading recently?

You can check out his amazon reviews if you haven't seen that yet. Link

Thanks for the link.

Thanks! The best treatise, one I've been savoring for 20 years : History of Private Life, Jules Veyne editor.

How many books in your library have you not read?

About 60%. The ratio seems to be universal.

Actually, only 40% partially read.

First off I'm a big fan. I'm finishing Fooled by Ramdoness and I'm done with Black Swan. I absolutely love both books and they said things I've been trying to express for years now.

Now to my question: Do you think there are any criticism that has been leveraged at your claims that are actually well-deserved? If so, how have you addressed them?

Yes, many criticisms. I made the mistake in Fooled By Randomness to think Tbills were safe. But the problem is that most of the criticism is about transformed versions of the message often by people who don't read the books and read 2nd, 3rd, nth hand accounts. For instance The Black Swan is not about forecasting high-impact events, but building systems that take them into account.

Can you tell us more about your brush with cancer? (But it’s cool if you don’t)

I will say one thing. If you survive these things, you come out ahead.

I will say a second thing. I despise (that is have a moral revulsion against) cancer survivors like Armstrong who trade on it (and I got shellacked for saying it before his demise). And I hate the idea of boasting "winning" the war on cancer: radiation rooms are full of people who are "losing" for no fault of theirs.

As an engineer and technologist, I'm exposed to a lot of neophilia. Do you have any suggestions for heuristics besides reading the classics as an innoculation against neophilia?

Yes, use the Lindy effect as a testing rule... that is, look for solutions from simpler technologies.

You've talked a lot about financial issues and health issues. You have touched on the environment, but not said much about energy use.

I see this as our greatest fragility. Currently, we largely use stored energy to power our society: oil, coal, natural gas. That took millions of years to accumulate, but we treat it as a renewable resource. We track annual oil output, etc.

We treat other resources this way as well. Much agriculture depends on fossil aquifers, or aquifers which are being pumped far above the replacement rate. Topsoil is disappearing above the replacement rate.

We've increased our population by dipping into capital resources. I view this as the greatest fragility of all. This new population depends on continued use of our capital stock of resources.

Do you agree with this analysis, and do you have any thoughts on how to address this fragility in our system?

I will write something longer. For now, the problem is the nonlinearity of harm. We have too many people on the planet, with too much concentration of pollutants. And these people are converging to the same habits..

Thanks. I actually wasn't referring to pollutants though. Rather, I'm concerned at the problem of supporting our future population when our current food production is heavily based on non-renewable inputs.

For decades food production has been growing. But once these inputs falter (fossil energy, fossil aquifers, artificial fertilizers, topsoil, etc), then there will likely be significant effects on our world system.

We will have more people and fewer resources to sustain them.

We are not supposed ot be eating the same thing. Any concentration harms.

How should a person use and not use the internet to make his life better?

Bring email down to 15 a day. Meet internet friends in person.

What was the Best Anti Fragile Trade, you ever made in your career ?"

The Plaza Accord of 1985. Didn't understand much then about anything and realized it was all in the convexity.

Why did you call Richard Dawkins a charlatan?

His book on religion... He doesn't understand what belief means, and talks religion confusing pisteic (credere) / epistemic. Belief in religion is epiphenomenal. Religion is about practice. The real reason is that he doesn't of course understand probability...

Thanks for your work. The Black Swan totally changed the way I look at the world. 2 Questions:

1) Do you worry that your acerbic style of criticism prevents some fragilistas from really hearing you out and heeding your message? Or are they simply beyond the reach of an olive branch?

2) What do you wish you would have done more of when you were younger (say, 22 years old)?

1) If I can't control my indignation, then there is something to it. Never try to strike a deal with someone you find morally indignant.

2) I wish I did less skying and other nonecological/nonnatural sports, started lifting weight then. I also wish I read more Arabic. But I ended up catching up a bit...

Can you begin to be antifragile while being poor or you should first make some money and plan ahead?

The poor is more antifragile than the rich: less to lose, both economically and psychologically.

Nassim, if there was one prank you could pull on Ben Bernanke at a Fed meeting, what would it be?

Try to pass for him.

Nassim, first I want to say that I am very grateful for you having written your books. Although the ideas you present are actually quite old they haven't really been expounded so coherently in the mainstream in recent times until you published your books. Thank you for your immensely valuable contributions.

In regards to achieving antifragility at the local level, I was wondering what you think about labor being the noblest pursuit of man. It is by labor that man learns patience, courage, perseverance, openness to what is right, owning up to mistakes, and resolution to improve. The old monks knew about this, which is deep seated in the saying, "laborare est orare", "to work is to pray".

Indeed. But as a classicist I put agricultural labor above the rest. Respect artisanal farmers.

Fat Tony made his fortune betting against fragility. My question is: How do you get the timing right? One could buy puts on fragile companies, but run out of capital before the company goes under.

Also, with regard to the barbell investing strategy, where most of your money is in safe assets and a smaller portion in very risky assets. We all know what is risky - options, emerging markets, biotechs, etc. But what do you consider safe?

You should not have a timing problem. I.e., to be at least robust, you need to be very, very very, far out in the tails, and very small. the payoff in the tails is so explosive it will make up for size.

Looking through sections of your books that I’ve highlighted, I get the chills

“Tokyo’s 1923 earthquake caused a drop of about a third in Japan’s GNP. Extrapolating from the tragedy of Kobe in 1994, we can easily infer that the consequences of another such earthquake in Tokyo would be far costlier than that of its predecessor.”

“Likewise, dictatorships that do not appear volatile, like, say, Syria or Saudi Arabia, face a larger risk of chaos than, say, Italy, as the latter has been in a state of continual political turmoil since the second war.”

Are more that I've missed?

Hello Ashifyer, that was written 8 years ago. Syria ceased to be "stable". What is left from that list is Saudi Arabia. But we can rebuild the list. Identifying "fake" stability, that is, fragility, is straighforward. Anything 1) stabilized artificially, 2) does not incur as much volatility and fluctuations as something similar BUT freely run, that is, organic. And that applies to anything from banks to persons (someone who only walks on smooth surfaces)...

What can the average joe do to make sure "skin in the game" is enforced on those in power?

Decentralization is where we start. Vote for that and for people promoting it.

Per your book Anti-Fragile I would think that you would favor investing in securities where the principals (directors, officers) have a lot of skin in the game (Published SEC form 4 transactions). Do you?

Yes, indeed.

How do you treat friends you see acting unethically?

With time I am becoming intolerant. I have no banker friends. I

Thanks Nassim. Is your freedom the only source to go on fighting with such fervor? what do you think is the best way to spike a huge change in the way we rule the world nowadays?

I have always been fighting... But my freedom gives me more moral obligations, make me feel more guilt for not shouting fraud when I see it.

Hi Nassim, thanks for the AMA!

1. What kind of risks do you think we overlook most in day to day life?

2. Which authors, ancient or modern do you feel are under- read these days?

1- The answer to your question is in the following: 7000 Americans die every day, many, many of preventable causes. What we talk about is usually the sensational. Do the math: they die from lack of stressors (activity), corn syrup, cigarettes, etc. So the real risks/killers are discernible; they map to the risks for your life. 2- Montaigne is a great portal to the classics; but the great are Cicero, Putarch,...

In the Epilogue to Antifragile, you allude to Nero Tulip starting a new project.

Is there anything that Nero would let you publicly share about his new project?

It sounds like Nero has a significant pool of resources with which to work, is he looking for collaborators?

Nero will be involved in solving problems via negativa, that is, working on the removal of harmful institutions, such as... I will let you guess.

What is your favorite barbell discovered since the release of Antifragile?

That spending 3 1/2 years hiding from the media then going through a storm then going back to hiding works. That episodic sleep deprivation followed by long rest has been shown to be great for memory/neuronal development...

Do you believe it is ethical to profit from long positions in firms that may be promoting products or services that are harmful to society?

No, I find it unethical to do so.

NNT, Sir,

Thanks for doing this. Please choose whichever question (if any) appeals to you most. Of course I'd be delighted if you could give an opinion or statement to all of them.

1. Where do you see similarities between your theory of antifragility and theories of Complexity Science?

2. Are characteristics of Complex Adaptive Systems like self-organisations, dissipative structure, self-similarity, non-linearity, etc. elements that contribute to the antifragility of a system?

3. Where to better learn about survival and antifragility than from nature itself. You describe the Lindy Effect for non-perishable things. Would you say that this allows the conclusion that organisations should look at the structure, topology and behavior of let's say Yeast bacteria that have survived millions of years under volatility, to learn how to better structure and organise themselves in the complex environment they operate in?

4. Based on Ashby's law of requisite variety, only complexity can match complexity. On the other hand, decision making under opaqueness and time pressure is often most effective when following very simple guidelines. How do you consolidate these two statements?

5. No skin in the game is a main driver for creating fragile systems. And yet, typical 'no skin in the games' consultancies continue to be highly successful and sought after in real life. How do you see this changing in the near future and can you describe how you could imagine e.g. a business model for a management consultancy that would follow your suggested approach?

6. Complex systems and environments display non-linear and, hence, unpredictable behavior. An antifragile system that can survive and evolve in such an environment needs to display redundant structures, optionality/adequate variety of response options, creativity, and needs to be able to learn. This is very much the opposite of a streamlined, efficient system. Do you have a suggestion for an approach how to find the right balance for a system between efficiency and antifragility?

7. What's in this dude's safe?

Thank you again for your time and good luck!

I will answer 1- Antifragility is simply a local response. Complexity Science is about systems. My approach is less theoretical (more robust), but if I were to ascribe to a theory, I would subscribe to Complexity theory.

Hi Nassim,

Thank you for your time. What is your opinion about the political situation in Lebanon and Lebanon's relationships (or anti-relationships) with Israel.

-man with beard

I would also like to know the answer to this. I don't know how profound your relation with Lebanon is, but many Lebanese (who admire your work) feel some measure of pride.

I am certainly Lebanese (with attachment to Amioun and to a lesser degree to Beirut where I grew up), but I mostly Levantine, and I am pained at the fragmentation of the Levant into modern states...

Have you noticed that Nietzsche's concept of Dionysus develops from being robust to antifragile? When he uses the term during the end of his writing career, the meaning is clearly not pure Dionysus but a combination of Apollo and Dionysus.

Indeed. Consider that Seneca added Hercules (strength) to the combination.

Nassim, over the years I've noticed many have asked your thoughts, although you have yet to respond/comment, on the skin in the game ideas laid out in Ayn Rand's Atlas Shrugged. Not that I'm the biggest Rand proponent, but the similarities behind your philosophy and that which she espouses are grand. Any comments this time?

I share many things with Ayn Rand. But not selfishness. Rather to me honor to take risks and account for your action is the rule.

What makes good espresso, good?

As a heuristic, you can look at the owner of the shop and check if he (or she) loves what he is doing.

NNT, thank you for doing an AMA.

You very frequently mention skin in the game as a guiding rule -- does this mean you believe that there is an effective ceiling on organization size?

What's an appropriate amount or type of skin in the game when billions/trillions of dollars of wealth being created or destroyed is at stake? Should we legislate these types of situations out of existence, or is there a way to scale skin in the game appropriately?

Hopefully I will answer all the skin-in-the-game questions with the following principle. We need to change the world to make the skin-in-the-game heuristic effective, not fit the heuristic to the world. It means decentralization,less dependence on bureaucrats, etc. You will never be able to make a bureaucrat more involved on the downside ... never. And you will never never never make a Harvard professor understand what is relevant to the risk of society, unless he works as a firefighter on the side.

Which are the best authors to read to learn about religion?

Karen Armstrong is very good. Next, try Mircea Eliade.

according to your principles, how would you deal with the obesity epidemic hitting the U.S.?

The general problem is that we are not made to control our environment, and we are designed for a degree of variability: in energy, temperature, food composition, sleep duration, exercise (by Jensen's inequality). Depriving anyone of variations is silly. So we need to force periods of starvation/fasts , sleep deprivation , protein deprivation, etc. Religions force shabbats, fasts, etc. but we are no longer under the sway of religions... The solution is rules...

do you think skin in the game principle applies to the issue of anonymity on the internet?

Yes. I am using my own name. I don't feel honorable otherwise.

Good afternoon Dr. Taleb,

TY for doing an AMA. I'd like to ask what books you found most influential on the subject of ethics. Can you recommend any enlightening/entertaining reading Nietzsche's perspective on justice and equality, especially in contrast to more classical Levantine views?

I will be honest. I often discover books because people tell me that I am similar to the writer, and later start imagining that they were an influence... It looks like a backward process.

How would you introduce skin-in-the-game for scholars, to reduce for instance the incentive of manipulating data for sake of getting published?

Have a society that doesn't depend on their mistakes. And don't call them "scholars". They are just academics.

Can you tell us a bit about your workout routine? Are there any studies done into the benefits (or lack thereof) of spaced out but short and very intense workout sessions that you know of?

Fwiw, it is based on Art de Vany's evolutionary fitness. Don't know if there are studies, but Art would probably link them on his site if so.

The difference with Art is small, but: 1) I never use machines, limit exercises to full-body, standing up, like deadlifts and Olympic lifts 2) try to not eat carbs and proteins during the same period (Jensen's Inequality).

You have called yourself a utopist a couple of times. Would this stretch to some applications of skin in the game? Is the human animal incapable of applying skin in the game heuristics in areas where they are needed most? Please comment on any specific applications if this is true.

I am for copying the antifragility of nature but hate her Darwinism, something called the naturalistic fallacy. So the solution is a barbell: help the very weak, but retain the mechanism for others.

Who do you admire most?

With age, exclusively people of honor.

Welcome Nassim, thank you for your time!

What has been your favorite positive accident of 2012? (Appeles-style accident.)

I had the first flu in 15 years, and resting made my muscles rest. I discovered I needed longer time away from lifting.

How has Amioun changed over the years?

Becoming overbuilt. Alas.

How do I convince a doctor fasting is empirically healthy?

You don't. Medical doctors are rarely into science and rarely keep up with the literature.

You have an aphorism about not drinking anything below a certain age, and talk about Water and Wine... but no mention of beer. Do you not like beer?

I love beer.

I would drink beer, from an artisanal brewery.

Mr. NNT what would you do if you were relatively poor and someone gave you $40k? What would be the most positively convex thing to do with the shekels?

Save it.

You mention in TBS that we should aim for professions that are not scalable, unlike career advisors which say pick a scalable one.

How do you reconcile your advice for picking scalable professions with 1) the fact that the world is becoming more like Extremistan and thus more and more professions are becoming "winner takes all", and 2) your own personal view that Mediocristan is full of boring speakers and unimaginative people?

Not all professions in Mediocristan are boring. Do what you enjoy.

What nation states have the most "skin in the game" from their bankers and leaders? Do you invest in their currency?

Switzerlans. Alas, it is a bit late to invest there, but countries should imitate.

Dr. Taleb,

1. According to straight forward calculations using the government's own data (see Karl Denninger), Medicare, Medicaid, SS, and interest on debt will exceed tax revenues at the federal (U.S.) level within 2 years (it's currently in the high-80-percent range). Do you see U.S. authorities doing something similar to what was done in Cyprus, namely, outright confiscation of money from bank accounts and calling it a 'tax'?
2. I understand as a young man you were intimately familiar with civil war in Lebanon. Do you see the seeds of the same thing germinating here the U.S.?
3. What is your favorite episode of Survivorman?

Thank you very much for doing this. You are a personal hero of mine.

Let me say something about medical costs. A large, large segment is inflated by the medical industry/pharma. Consider the Via Negativa method of curing diabetes by episodic starvation (free, no side effect), etc. The problem is that we spend too much resources on diseases 1 sigma away (and high in iatrogenics) solved by via negativa, and not enough on diseases 4 sigma away solved by intervention. Why? Because that's where the money is. (see Book VI of Antifragile)

Hi Nassim! I loved Fooled by Randomness. Is honor inherent? What steps or processes should one follow if he or she wishes to become more honorable? As of this Saturday, I'll already be 22 years old and am ashamed that I might be embarrassingly lacking in this department.

Start by doing things that "feel elegant".

What kind of analogy do you see between Antifragility and Entropy? By the way I admire your work, you are quite a genius.

Thanks! Great Q. I will wait a bit before discussing as I want to express it mathematically first. Antoine Danchin is working on Maxwel''s demon.

There are some important similarities between you and the great quality guru, W. Edwards Deming.

He was a statistician, but did not like to use probabilities in the context of future events. See his distinction between enumerative and analytic studies.

He taught the importance of "special causes" as unpredictable events. For Deming, these special causes appear as non-random points or patterns on a trend chart of process outcomes, and represent opportunities to learn. Although you approach this differently, I think special causes are Black Swans.

He detested process “tampering.” Tampering is adjusting a process on the basis of outcomes which are within the expected range of variability. The net result is increased variability. When management makes adjustments to a stable process (stable= under statistical control, as operationally defined), this only makes things worse (increases variability). The fragilista are skilled at tampering. Deming developed a famous “funnel experiment” to demonstrate tampering:

Rule 1: Leave the funnel fixed over the target.

Rule 2: For every drop, the marble will come to rest a distance "z" from the target. Rule 2 is to move the funnel a distance -z from its last position.

Rule 3: Move the funnel a distance -z from the target after each drop of the marble that ends up a distance z from the target.

Rule 4: Simply to set the funnel over where the last drop came to rest.

Rule 1 is leave it alone. All the other rules are forms of tampering, which increase variability, as demonstrated in the experiment. The link has a simulation of the experiment.

Examples of Rule 2 include: • Feedback mechanisms that respond to a single data point • Changing company policy based on the latest attitude survey • Adjusting the quota to reflect current output • Using variances to set budgets • Stock market reaction to last month's deficit

Examples of Rule 3 include: • Illicit drugs. Enforcement improves so drugs become scarcer. The price goes up which stimulates the import of more drugs. The cycle repeats. • Gambler increases his bet to cover losses

Examples of Rule 4 include: • History passed down from generation to generation. • Use of last board cut as a pattern for the next board. • Sitting in a circle with a number of people. One person whispers a secret to the next person who in turns whispers it to the next person and so on.

Deming Quotes:

"The most important things cannot be measured."

"The most important things are unknown or unknowable."

http://www.symphonytech.com/funnelexp.htm

Thanks a million! The funnel story is wonderful. Resembles the denial of reversion to the mean. Will read more about it.

What's the best bet for someone working in tech (technical or non-technical) to get to FU money?

Although you mention Silicon Valley, joining/creating a startup seems fairly on the high risk end of a barbell strategy. Thoughts?

I came to realize that FU money was a state of mind. Many rich people never have it. A train conductor/intellectual I know had it.

You've praised silicon valley as the one part of the country that still works. Given recent criticism of the tech world's ethos of 'solutionism' - mostly coming from Evgeny Morozov - do you still have the same opinion?

Let's not conflate neomania with the need for organic growth thanks to trial-and-error. Neomania is believing in technology as a panacea, prefering a more technological solution to a simpler one (like the wheels on a suitcase), or imitative science (with equations) to fundamental insights. So I can love technology and dislike neomania. Anyway the neomania driven products tend to be stillborn.

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Balanced budgets at the Federal level solve all these problems. Leave deficits to lower levels.