We had to destroy the village in order to save it . . .
I genuinely don't get this comment. I mean, I understand that there are people who think it is immoral that the educated should earn substantially more than people who clean houses. But it seems to me that the obvious solution to this dilemma, until you have effected the radical political change you believe will rectify this situation globally, is to give away all of your salary in excess of the wage of the average housecleaner. Ideally, you would donate it either to people who clean houses, or to some organization you believe will improve their earning prospects.
If you are not going to take the obvious route (and apparently no one is), then I really do not see how you could believe that the best way to help housecleaners is to refuse to hire them. In my universe, decreasing the demand for a good or service drives the price of that good or service down, making whoever supplies it worse off. How often do you meet private contractors who are grateful not to be offered work? If you think housecleaners get paid too little, then you should be hiring as many as you can afford, in order to increase the local demand for unskilled labor, not shunning them. And if you think I'm wrong, why not ask your friendly local independant cleaning lady what she thinks?
Clean conscience
I understand this guilt; I've wrestled with it myself. But it's logically all wrong. Why shouldn't we pay people to clean our houses? I don't get all vaporish because I pay people to cook my food or wash my clothes, two jobs that were the province of the lady of the house-or if she was very lucky, her hired servants-until very recently in human history. I've never had a boyfriend say to me, "Well, I should be able to install those shelves, so darn it, I'm not going to debase myself and the handyman by turning my solemn duty as a homeowner into a mere market transaction." I've known lots of men who felt that they ought to be able to do traditional manly tasks like fixing an engine or keeping the lawn a beautiful, even emerald green. But I've never met one who felt that these jobs were some sort of sacred trust that could not be farmed out to a hireling without demeaning both employer and employee.
Paying a cleaning lady to clean your house is good for the cleaning lady. She wouldn't take the job if it weren't better than her next best alternative. And it's good for you, since presumably you have something to do that you value more highly than the money it costs you to pay her. It's probably also good for your family, since that's one less fight you have to have about whose turn it is to scrub the toilet. That's the awesome beauty of trade: everyone wins.
In an ideal universe, your cleaning lady would be too rich and highly skilled to be willing to work cleaning houses, unless she is some kind of freak who just really gets off on mopping floors. (And if she is, mind sending her my way?) In the actual world, however, she isn't, and if you didn't hire her, she'd be even worse off than she is now. Every time you hire a cleaning lady, you marginally increase demand for same, helping to raise wages some small fraction. You get a clean house and a poverty reduction program. What's not to love, here?
Moreover, the idea that cleaning houses is somehow degrading is the product of exactly the kind of pernicious class bias that people who feel guilty about hiring cleaning ladies are usually trying to fight in other areas. The job of cleaning houses has become tainted by association with the people who do it, the poor and unskilled. But there is nothing inherently undignified or unworthy about either the work, or the people who do it. Nor, for that matter, in any other job, provided employer and employee treat each other with respect.
Music Sunday
I have, as of yesterday's eMusic download fest, 2,406 songs in iTunes. And as I finished downloading, it occurred to me, with a small wow, that I really like almost all of the music I have right now. The lone benefit of losing all my CD's in the move to Chicago, and then my MP3s in two separate hard drive crashes, is that I have no dross--no embarassing choices left over from my adolescence, no random songs downloaded while writing the annual GSB follies. Also, because the collection is relatively small, there's nothing of which I could say "I really like that, but I haven't listened to it in a while."
As the collection grows, obviously that will change. And it will, for I'm now a backup obsessive. I will never again lose more than a few days worth of music.
So discussion question of the day, for this fine, lazy Sunday: how many songs do you have in your iTunes*? And is it too many, too few, or just right?
* Or other MP3 player--or CD collection, if you're still living in the paleolithic.
If you look long into the abyss . . .
"There is a fine line between genius and insanity" said Oscar Levant. "I have erased that line."
Peter Jackson accuses me of ignorance for my position on mass transit subsidies, arguing that the subsidy to mass transit is higher than the subsidy to roads per passenger mile. But the numbers he provides are not quite relevant to my point.
For one thing, they cover only federal subsidy. Yes, I know you've heard so much about the highway bills, but the states spend money on highways too--quite a lot of money.
For another, unless the analysts controlled for it, which I can't tell, the subsidies will have been massively skewed by the great inflation of the 1960's and 1970's, because mass transit investments cluster late in the transportation bill cycles.
Thirdly, subsidy-per-passenger-mile-travelled is not necessarily the right metric to use. The whole point that environmentalists and urban planners make about roads is that they encourage people to move farther out, which means they spend more time on the road, which inflates this metric compared to people who live in closer, denser housing. That would be fine if they were only imposing costs on themselves, but of course, the decision to live farther away also imposes costs on others, in congestion and in pollution. If the proportions of state and federal transportation funds that were spent on highways and mass transit had been reversed, the relationship of subsidy to passenger mile might also be reversed.
If they are driving in the city, they also impose significant externalities on me, making it more difficult and dangerous to navigate the roads on my bike, without paying any compensating taxes for the use of the streets. The problem is especially acute in Washington because, unlike New York, most of the "businesses" people work for are nonprofits that don't pay taxes, and people rarely come into the city to shop or go to dinner. Guess whose income taxes pay for what isn't covered by the sales tax on your garage fees and lunch? That's why the streets in DC are so ghastly; they benefit mostly the people who don't pay for them.
But even if federal subsidy per passenger mile were the right metric, it wouldn't be appropriate to Washington DC. The federal subsidy for mass transit goes to a large number of systems that cover a very small percentage of their costs through fares. The WMATA, on the other hand, gets over half its revenue from fares, and drags most of its passengers from far-flung locations, and gets most of its operating budget from state and local governments (again, my taxes) so whatever that figure is nationally, for DC it is much, much smaller. I mean, I agree that Buffalo's subway system is a ridiculous boondoggle, but that doesn't really have much to do with the WMATA.
Finally, the most worrying "subsidy" is obviously the fact that cars dump a huge amount of carbon into the air; carbon which best estimates think is a) warming the planet and b) may possibly have other nasty effects such as changing the Ph of the oceans. Almost half of all of the United States' gigantic carbon emissions come from transportation uses, and most of those transportation uses are not long-haul trucking, which uses relatively carbon-efficient diesel. This negative externality indicates that car usage is radically mispriced.
I’m now commuting into D.C. on a near-weekdaily basis. According to GoogleMaps, the office is 13.5 miles from the house. I can usually drive there in 45-60 minutes during off-peak hours, although it can sometimes take much longer if there’s an accident. I can park in the garage next to my office for the day for $12. Conversely, I can drive 15-20 minutes to a Metro station, pay $4 to park, wait as long as 15 minutes for a train, pay another $2.65 to get two blocks from the office 35-50 minutes later, followed by a 5-10 minute walk to the office.
So, in order to save $2.70 (plus a nominal amount of gasoline), it would cost me 30-75 minutes each day for the round trip, plus the privacy and autonomy I enjoy in my own vehicle. Given that I earn enough that $3 is poor compensation indeed for that much of my time, I drive unless there’s a really good reason not to.
And they’re about to raise the rates for Metro fares and parking, further skewing the calculus in the direction of “drive.”
The massive subsidy provided to drivers in the form of free roads is obviously producing highly inefficient outcomes, which is why DC feels like a prison from which it is impossible to escape unless one wants to spend four hours on the Beltway. We clearly need to institute comprehensive road tolls combined with a congestion pricing scheme. Plus, of course, a carbon tax to compensate for the negative externalities drivers are imposing on those of us who use primarily mass transit.
Race and medicine
This is very interesting. In 1950, black and white life expectancy at birth were very different: a white baby born that year could expect to live an average of 68.2 years, versus just 60.2 years for a black baby. But there was no significant difference between blacks and whites at retirement: at the age of 65, both could expect to live about another 13.9 years.
For the rest of the century, life expectancy at birth narrows considerably; the difference between groups is now five years, and falling. But the gap at retirement widens. White 65 year olds now get an extra 1.8 years compared to their black countrymen; at 75, the gap is a smaller, but still significant, 8 1/2 months.
It's tempting to blame this on disparity in health care access, and I wouldn't be exactly surprised to find that this is part of the case. But the subtler problem is that because Europeans are the major market, most drugs are designed for Europeans; and it turns out that there are races, at least as far as medicine is concerned. Blacks are more prone to diseases like diabetes and hypertension, and they tend to get more difficult to treat forms of some diseases such as artery blockage. While some of the medical differences are due to poverty, education, and possibly to racial disparities in treatment, many of the differences persist even when things like income and education are controlled for.
Women's work
Ogged blogs about the Hope Solo situation. For those following along at home, the US soccer team made a slightly bizarre decision to switch goalies against Brazil in the Women's World Cup, after which they got crushed. Hope Solo, who was replaced by Briana Scurry, then went public claiming she'da made those saves. Whereupon, apparently, the team ditched her.
Now, I don't know how the rest of the world works, but while criticizing teammates is frowned up on men's sports in the US, people still do it all the time, but no one gets banished for it. They take some shots at each other, they might even fight in practice, and then they go out and play. I'm probably supposed to be valuing the different model of women's sports in which team unity is even more important than fielding the best team, but to my mind, this just makes the women seem weak and unprepared for serious competition. And it's worth noting that "team chemistry" is generally bunk as far as game performance is concerned: many, many championship teams in various sports have hated each other's guts, and there are teams with great chemistry that go nowhere. But when a team with good chemistry wins, it's easy to say that they're winning because they're all buddies.
I'm of two minds about this. In general, I'm not a big fan of the sorority-girl, we-all-have-to-be-each-others-best-friends atmosphere that large groups of women tend to assume. Plus, the manager seems to be exploiting the phenomenon in order to save his job after an apparently awful decision. So I'm not exactly ready to applaud anyone who caters to either the stereotype that women can't function unless they're all holding each other's hands and singing, or the reality that groups of women generally do demand a level of comity and conformity that can be incredibly brutal on anyone who is too outspoken or otherwise violates the group norms.
But the reality is that groups of women do act like this, and if I were the coach, I'd not be nearly so sanguine that this group will work well with a goalie who basically publicly accused her teammates of losing a game she could have won had she been allowed to play. Maybe I'm just hypersensitive to these group dynamics after too many years at all-girl's camps and all-female sports teams, but I don't think so. Perhaps those things really don't matter on men's teams; obviously I've never played on one. But they certainly did on all the girls teams I've played on, and the dynamic has been markedly present in the female dominated workplaces I've been in. The job of the manager is not to advance the cause of feminism; it's to win soccer games.
On the third hand, it's also to advance the cause of women's soccer, which is probably not best done by acting as if the female players are all fourteen year old girls debating who gets to join the homecoming dance committee. So I just don't know.
Demographic shift
This is a really interesting post on the ways that population shift has made our government structures obsolete:
The ratio of small-state to large-state populations has increased. In 1790, Virginia had 12.5 times the population of Delaware. Today, California has 70 times the population of Wyoming. In 1790, Senators representing 14.7% of the population could sustain a filibuster under today's rules; today, that figure is 9.9%. I'm fine with the somewhat countermajoritarian nature of the Senate, but it's clear that things have gotten a little bit out of hand.
. . .
Travel is much faster, but the country is much larger. As recently as the 1960s, DC airports didn't have direct flights to much of the country. The common practice of Congress was to stay in the District for seven months, then stay in their home state or district and meet with constituents for five months. Today, most members fly home every weekend, even during session. This puts tremendous strain on Western members, who must endure six hour flights while their colleagues in New York can catch an hourly shuttle that gets them home in 45 minutes. At this point, it seems fair to consider moving the capitol, or at least having an auxiliary capitol that might be used every other year. The population center of the US is currently in central Missouri and continues to march West, so either moving the capitol to Kansas City, or putting a secondary capitol in Denver should do the trick.
Somewhat separately, there is now tremendous pressure to be in one's home district all the time. When combined with the crush of fundraising, this limits the time that members have to collaborate with one another. We ought to make Constitutional provisions to ensure that members have the time and space to meet, rather than rely on staff at all times.
The population has grown-a lot. The House has not kept up. The constitution mandates a state can have no more than one member of the House for each 30,000 residents. In the initial apportionment of the House, Pennsylvania received one for each 55,000 residents. Today each member represents about 700,000 residents. With a district sized to 1790 standards, a candidate could canvass the entire population in one Friedman Unit, meaning that every member would theoretically be vulnerable to a low-cost challenger. In addition, the effectiveness of TV advertising would drop to zero in most urban areas. Though, a figure that low would have other problems. California alone would have 650 members; Wyoming would have 9; the House as a whole would have 5454 members, which is clearly unworkable. In general, European countries have around one member per 100,000 residents; Japan, one per 265,000 residents; Russia, one per 320,000 residents. We ought to think about whether it's possible to have a much larger House with smaller congressional districts, with the hope that members will be more responsive to a smaller population and unable to win elections merely by blanketing the airwaves.
The problem is, of course, that the forces mitigating against any of these sorts of changes seem fairly well entrenched. So I'm not sure what good it does to talk about.
It is, however, a very good argument for federalism--devolving power down to the level of the states wherever possible. That makes legislators much more directly responsive to their constituents. Unfortunately, few people seem to really like that idea, since it means that a lot of the time, legislators in places other than the one in which you live will respond to the demands of their constituents in ways of which you disapprove.
American housewives took to the mechanical refrigerator as fast as their finances would allow. By 1937 more than two million American households had new refrigerators, and by the mid-1950's over 80 percent of the population did. (In contrast, only 8 perfect of English households had refrigerators by 1956.)
I'm trying, and failing, to imagine my life if I had to shop for food every day, or keep charge of a tiny, moldy, inconsistent icebox. I doubt it would include much writing, for starters. Little things like this constantly remind me just how rich we are compared to even the very recent past.
Go Yankees! Ish!
The press release from Yankees.com reads "Yankees clinch wild-card spot." I suppose that's one way to look at it.
September 28, 2007
I'm sure you're right
Yesterday, I sat through a friend's fifteen minute disquisition on comic-book trends, delivered as if I, too, regularly read the things. Though he later apologized, I genuinely enjoyed it; there's something interesting about sitting through someone else's abstruse technical discussions. It's a little window into a world that is normally totally invisible to your view.
Today, I enjoyed the same phenomenon reading another friend blog about cricket:
The best one may say for Twenty20 is that it may prove a gateway to an appreciation of real cricket for some fans; much more likely, however, is that it will further erode the viability of test match cricket which is already in trouble everywhere outside England and Australia.
This is not merely a question of money, but ones of technique, discipline and mental fortitude. One day cricket alters the way batsmen and bowlers approach the game. How many batsmen now have the patience, let alone the technique required, to bat all day on a difficult wicket? Precious few. How many bowlers, used to being smashed off a length in hit-and-run cricket, now possess the ability to stick to line and length? Precious few.
It may be silly to think there was once a golden age - Cardus after all mourned the pre-1914 game even as he was writing about Bradman and Hammond and Woolley and Headley and all the rest - but skills once considered integral to the game are disappearing and part of the blame for that must be apportioned to the proliferation of one-day cricket.
Right ho.
Tax hatred has a long pedigree
Returning a bit to the topic of supply-side economics, there seems to be a general feeling among my progressive/liberal friends that the main reason America has such a hard time raising taxes to cover the new spending programs they want is that Republicans have been ceaselessly demonizing taxes for the last thirty years, while spreading vicious lies about supply-side economics that have instilled a new and pernicious tax hatred among American voters. This is basically the narrative of The Big Con: we used to have this terrific economy with low inequality and a growing government share of national income, with everyone except a few rich malcontents happy, then this giant Republican conspiracy to make us all hate taxes came along and lured us off the Yellow Brick Road and onto the Road to Perdition.
This seems an odd belief to hold in a nation that was basically founded in a tax revolt. A modestly comprehensive perusal of pre-1970 literature reveals that Americans seem to have hated taxes all along. And why wouldn't they? Taxes don't need any special conspiracy to make you hate them, at least if you are among the majority of people who would rather have more money in your pocket than less.
I think a better explanation for the shift in public sentiment about government spending that took place in the 1970's would point out two things: first, that the government in the late 1960's and early 1970's was doing a really spectacularly bad job of running the economy. Richard Nixon was probably the worst economic disaster as president since Andrew Jackson, and Lyndon Johnson and Gerald Ford weren't any particular prizes either. The economic history of the 1970's sowed very well justified fears about state intervention in the economy, and it's probably no coincidence that we're getting more support for government programs only as the memories of 40 years ago begin to fade.
But perhaps even more importantly, it's not clear that 1980-2007 are the anomalies in American public sentiment about taxes. On the contrary, I think I can make a better case that 1945-1970 was the oddity. While incomes were growing rapidly, and inflation wasn't, the American public was willing to accept a higher tax burden because even after taxes, they felt a lot richer. As soon as productivity growth slowed (and therefore growth in real incomes), people started to feel the pinch of a growing tax burden, particularly since inflation was pushing them into tax brackets originally meant for "the rich".
Supply side nonsense is nonsense, and I think it's a pretty good explanation of the budget deficits of the early 1980s. But I don't think it's a very good explanation of the generalized tendency of the American public to demand low spending and even lower taxes. As you'll see if you look at the historical data, America has run deficits most years since 1940, and really sizeable ones since the mid-1970s. The only reason the Bush deficits so dominate our current debt is that inflation has eroded the value of the earlier debts, not that he's unusually profligate.
Department of Economic Illiteracy
I know, I link Ryan Avent all the time. Well, you'll just have to put up with it, because this is too good to pass up. He finds the Baltimore Sun saying:
The $3.9 billion figure is especially imposing because it is expressed in 2007 dollars. By the end of the planning period in 2035, inflation could add billions to the final total.
And do you realize that while the sandwich I had for lunch cost me $6.50, I could have bought it for 30¢ in 1913! How can I afford it? I'll starve to death?
Alan Greenspan gets Kleined
I have to give Alan Greenspan props for doing this. The host is hostile, economically quasi-literate, allows the other guest to act as co-interrogator, interrupts him every time he says anything sensible in a desperate attempt to stop the flow of information, and beats Greenspan with weird & untrue "facts" (the Iraq war has cost trillions) that have nothing to do with his job as chairman of the Federal Reserve. My favorite moment is when Naomi Klein accuses Greenspan of having pursued a crisis of faith in capitalism through his income-inequality producing policies of privatisation, deregulation, and free trade, which is a terrific twofer: not only have none of these things been convincingly linked to income inequality; but also, none of them have anything to do with Alan Greenspan's job at the Federal Reserve Nonetheless, Greenspan a) doesn't point out that she's completely ignorant b) keeps his temper and c) tries to actually explain the problems of income inequality. I doubt I'd be so well behaved.
Update Now listening to Naomi Klein on Latin America. It is impossible to overstate how little she knows about Latin American economic history. One could glean a more accurate and comprehensive view of Latin American economic conditions by renting Evita.
Update II NOOOOOOOOOOOOOOOOOOOOO!!!! She just defended import substitution!
Update III Then, when Greenspan says "What works better?" she claims she's just talking about not socialism, but mixed economies, which would be compelling if it were a good description of pre-Pinochet Chile, the original topic of conversation. Also very, very hard to get import substitution going without central planning.
Update IV Now he has to explain the difference between Indonesian-style crony capitalism, and America purchasing war planes from Lockheed Martin. She does not try to reconcile her view that America purchasing equipment from private suppliers=crony capitalism, with her previously stated faith in mixed economies.
A picture and a thousand words
Amazing, disturbing piece on the Little Rock nine from Vanity fair. The sadness of that girl's subsequent life, in stark contrast to the usual story we get--music swelling to a crescendo as the nine march past the guards, and then fade to black--is awful to bear.
Update I just deleted all the comments on this thread. Normally, I'd leave notes, but I assume everyone involved knows exactly why they were deleted. Frankly, I don't even know what to begin to say to the people who turned a discussion of Jim Crow into a rant about how black people are Destroying Our Schools.
Wal-Mart giveth, and Wal-Mart taketh away
Wal-Mart is selling more and more incredibly cheap generic drugs, now including $9 a pop for generic tri-cyclic birth control pills. Their prices are cheaper than the prices I got through my old health insurance. (Haven't filled anything up on the new insurance yet.)
At teh same time, they take a huge beating for the wages they pay their workers, and the alleged stinginess of their health care plans. But these two things are flip sides of the same coin: they can afford to provide cheap drugs in part because they have a flexible and inexpensive labor force.
The doubling of oil prices has increased the retail price of gasoline by less than 50% since early 2005. This helps explain why demand diminution has so far been less than economists were expecting.
Rock the vote
John Quiggin asks why Americans vote on a Tuesday. Two answers:
1) There are sizeable religious groups in the United States forbidden to vote on both weekend days, as Quiggin suggests; I presume there are muslims also forbidden to vote on Friday, but don't know enough about muslim theology to be sure.
2) Public employees get the mid-week voting day off. They are a lobbying block against change to weekends.
As with any political question, when the question is "Why don't we . . . ?" The answer is usually that don'ting is in the interest of one or more groups.
September 27, 2007
Verizon accepts NARAL's text messages after all
So Verizon has rescinded its refusal to give NARAL one of those short-form text message numbers for broadcasts. This case didn't strike me as a cause for indignation so much as a cause for total bewilderment. What on earth was Verizon thinking? How could this possibly offend their pro-life subscribers, who can not receive NARAL's text messages by the simple expedient of not signing up for them? Do even those pro-life subscribers want a cell phone service that deigns to decide to whose text messages they may or may not subscribe?
Given that the other big networks had already signed up NARAL, this sort of thing seems very likely to drive away any subscribers who want the service, while gleaning absolutely no support from pro-life subscribers who presumably will never try to subscribe to NARAL's text messages, and thus will never learn to their immense satisfaction that their cell-phone provider does not permit such smut to be transmitted over its networks.
Personally, I don't particularly care for NARAL, and I'm certainly not planning to waste my text messages on them. But when my Verizon contract is up, I'll be looking for a provider that doesn't think it can make those sorts of decisions for me. And I'm pretty sure that my mother, who has never gotten a text message in her life, but who focuses her charity on Planned Parenthood, will be even more avid to make the switch.
There has been a lot of talk about how this month's protests are distinct from those of 1988 because “the world is watching,” the Internet changed everything, and the junta can no longer contain information. That’s true to some extent, and it’s breathtaking to see video of Yangon on CNN.
But while the world may be watching, I doubt most Burmese are. The country’s communications infrastructure is incredibly limited. . . .
The flip side of this is a system of informal information networks that will be incredibly hard for the junta to shut down. It's getting more difficult for outside news agencies to obtain information as the regime cuts phone lines, but most Burmese people don't rely on those lines anyway.
From whom, to whom?
Another random thought on workers and bargaining power: one of the reasons that I think that progressives assume that workers as a class have less bargaining power than employers is that workers with bargaining power generally use it to extract high salaries, whereupon they pass out of the class "worker" and into the class "wealthy".
Progressives don't simply want workers, as a group, to have as much bargaining power as employers; they also want that power to be distributed much more equally within the group. In that reading, one might argue that some significant portion of union redistribution is not from "employers" to "workers" but from "workers with bargaining power" to "workers with less highly demanded skill sets". Though I imagine that progressives would dispute that view.
Question of the day
Here's the question I've been pondering as I watched the strike unfold at GM. Many progressives argue that unions are a necessary counterweight to the bargaining power of employers. I tend to think that power is generally about equally balanced between workers and companies--some workers have a lot of bargaining power, and some a little, but I don't see the power as being particularly asymmetrically distributed between workers as a class and employers as a class. But that's not how progressives feel, and I doubt we'll change each other's minds.
What I find difficult to argue with is that few of the progressives I know ever seem to think that there are any situations where workers have too much power. Even in situations such as the New York City transit strike, where the workers clearly have an enormous amount of employer over their employer both as a bargaining unit and as a voting bloc, progressives always side with the union.
So here's the question of the day for my liberal commenters: can workers acquire too much power? Is there any situation in which you have thought, or can even imagine thinking, that union power might have to be dialed back?
Miss Daisy, driving
Another thing I'm learning, as I research this article, is that old people are extraordinarily bad drivers; per mile travelled, a driver over 75 is more dangerous than a driver 15-24. By 2030, it's thought that seniors will be responsible for 25% of all auto accidents.
So one has to wonder, how come the AARP has its own discount insurance plan? It's as if The Hartford, which offers it, had found a vast pool of bad drivers, and decided to offer them a bonus for signing on. The program offers no insurance penalty for the first accident, which must be welcome news to seniors, since apparently they generally don't decide to get off the road until they've had at least a couple of fender-benders.
I presume it must be a combination of volume, and desireable demographics. Anyone have any ideas?
The problem that unions tend to to face, in America and in Europe, is that successful attempts to improve the viability of a business lead to growth but also to employment shifts. A company may survive and generate better outcomes and wages for its workforce, but only if there is freedom to adjust the size and composition of that workforce. Since workers primarily benefit from employer concessions only to the extent that they're still employees, this encourages unions to ask for growth-constraining benefits that ensure either continued employment or handsome benefits for those forced to leave the company.
This state of affairs leads many economists to lament the existence of unions generally, since they tend to constrain economic growth, but it's important to note that union members are simply insuring against the potential loss of benefits they'd face if shunted out of their particular firm or industry and into another part of the economy. It stands to reason, then, that the package of benefits sought by unions might be less damaging to growth in situations where unions are fewer, larger, and more encompassing. In that case, a worker forced out of a firm for the sake of efficiency would stand a better chance of landing in an industry or firm with equally good worker benefits.
If that's the case, though, and larger unions are more amenable to growth-friendly corporate policies, then why not extend worker benefits to include all workers? If job loss carries with it the risk of benefit loss, leading workers to fight job-loss in growth inhibiting ways, why not eliminate that risk by providing those benefits at a national level? If concerns about health insurance and pension plans are encouraging workers to ask for employment protections, it seems sensible to provide them to all, so that displacement from any job into any other job will not result in benefit loss and give unions reasons to ask for job security (or fight openness to global markets).
Obviously, such programs must be paid for and would probably necessitate tax increases, which come with their own economic distortions. But it may be time to acknowledge that such trade-offs are necessary.
The problem is that while theoretically, such protections could smooth the growth losses this way, in practice, there's little evidence that they do so. Europe seems to have permanently lower growth, and higher unemployment, despite generous public pensions and health insurance. Indeed, the union fight at GM was over a group of people that already have gold-plated government health insurance: retirees over the age of 65. Nonetheless, the union struck.
Members of the UAW want job guarantees because outside a GM plant their skills will never, ever return anything close to what they make inside one. According to the Freep, wages and benefits for the average UAW worker run about $73. At a standard 40-hour workweek, that's the equivalent of a roughly $100,000 a year salary for someone with a high school education who takes no entrepreneurial risk. Where else is that kind of deal available? Is it any wonder that the membership wants to fight to keep that? Slash the health benefits and pensions in half and it would still be an extraordinarily good deal for workers whose earning power on the open market is probably more in the $20 an hour range.
The priest-gods
In the process of interviewing health care economists for the article I'm writing, David Cutler of Harvard told me that education and health care are the two segments of the economy where measurement of outcomes is hardest. It's unsurprising, then, he told me, that payment schemes in those two systems are so haphazard.
But even when there is good evidence, the systems don't use it. One of the most extreme examples is back surgery. The evidence seems to be completely overwhelming that back surgery is a terrible idea for back pain in all but a small minority of cases. Yet we do a phenomenal amount of back surgery. I presume that the surgeons performing this surgery are not venally crippling their patients in order to charge them exorbitant amounts of money. So why do they do something that shows so little evidence of improving the lives of their patients? And why do insurance companies and government programs pay for it?
The uncharitable explanation I have received is that doctors are incredibly good at detail and memorization and pattern recognition, and generally very bad at abstract analysis; they are also, because med school is so hard to get into, usually very arrogant.
The charitable (well, more charitable, anyways) explanation is that doctors are like the rest of us: they have an unreasonable belief that they are above average. (80% of people think that they are better-than-average drivers). And so even though they recognize that back surgery doesn't work on average, they think that they can beat the odds. They also naturally resist anything, like evidence-based medicine, that routinizes their jobs and cuts down on discretion. And we let them because medicine is important--so important that we can't stand thinking about the catastrophic possible errors, and so we prefer to turn our care over to priest-gods to whom we impute improbable, nay inhuman, wisdom.
Alex Tabarrok points out another example of this operating in education:
What we need to save inner-city schools, and poor schools everywhere, is a method that works when the teachers aren't heroes. Even better if the method works when teachers are ordinary people, poorly paid and ill-motivated - i.e. the system we have today.
In Super Crunchers, Ian Ayres argues that just such a method exists. Overall, Super Crunchers is a light but entertaining account of how large amounts of data and cheap computing power are improving forecasting and decision making in social science, government and business. I enjoyed the book. Chapter 7, however, was a real highlight.
Ayres argues that large experimental studies have shown that the teaching method which works best is Direct Instruction (here and here are two non-academic discussions which summarizes much of the same academic evidence discussed in Ayres). In Direct Instruction the teacher follows a script, a carefully designed and evaluated script. As Ayres notes this is key:
DI is scalable. Its success isn't contingent on the personality of some uber-teacher....You don't need to be a genius to be an effective DI teacher. DI can be implemented in dozens upon dozens of classrooms with just ordinary teachers. You just need to be able to follow the script.
Contrary to what you might think, the data also show that DI does not impede creativity or self-esteem. The education establishment, however, hates DI because it is a threat to the power and prestige of teaching, they prefer the model of teacher as hero. As Ayres says "The education establishment is wedded to its pet theories regardless of what the evidence says." As a result they have fought it tooth and nail so that "Direct Instruction, the oldest and most validated program, has captured only a little more than 1 percent of the grade-school market."
It's borderline criminal that even where evidence is available, we don't hold our teachers and doctors to the same standards of performance as would operate in a normal business.
Power to the people
Ezra says, of the Bush administration on climate change:
In reply, the innovation will accelerate when it needs to accelerate, which is when carbon-intensive technologies grow economically unfeasible. That's why we need some sort of cap or tax: Because that's the only policy capable of sufficiently supercharging and incentivizing innovation. And China and India aren't going to take any action till we do, and will need our help, and the technology we produce, to wean themselves off coal.
That last is a very, very important point--so important that I think it should be driving our greenhouse gas policy, both on the public and the private side. A carbon tax is an excellent place to start. But more broadly, it means we should focus less on making incremental refinements in energy efficiency, and much more on improving alternative energy sources. Incremental energy efficiency refinements are generally intensive in both human and financial capital, which often makes them unattractive to developing countries, even though they save fuel costs. What we need to find is a cost-effective alternative to coal and oil.
Unfortunately, that sounds a lot like "what we need to find is the holy grail". But a hefty carbon tax, combined with a serious effort to remove the obstacles to nuclear, would be a very welcome start.
The best part is, Republicans should also be able to get behind this agenda, since one of the major obstacles to nuclear is a man named Harry Reid.
September 26, 2007
Give me liberty, hold the death
Bruce Bartlett writes that he's just nominated Petrov for the Milton Friedman prize. Excellent idea--go forth and do thou likewise.
Voulez vous cafe avec moi?
Jacob Grier has more thoughts on DC coffee culture. He also plugs Big Bear Cafe, where I went for the first time on Monday, and I second the motion; it's got the best cup of coffee I've had since I moved to DC.
On September 26th, 1983, Lieutenant Colonel Stanislav Yevgrafovich Petrov was the officer on duty when the warning system reported a US missile launch. Petrov kept calm, suspecting a computer error.
Then the system reported another US missile launch.
And another, and another, and another.
What had actually happened, investigators later determined, was sunlight on high-altitude clouds aligning with the satellite view on a US missile base.
In the command post there were beeping signals, flashing lights, and officers screaming at people to remain calm. According to several accounts I've read, there was a large flashing screen from the automated computer system saying simply "START" (presumably in Russian). Afterward, when investigators asked Petrov why he hadn't written everything down in the logbook, Petrov replied,"Because I had a phone in one hand and the intercom in the other, and I don't have a third hand."
The policy of the Soviet Union called for launch on warning. The Soviet Union's land radar could not detect missiles over the horizon, and waiting for positive identification would limit the response time to minutes. Petrov's report would be relayed to his military superiors, who would decide whether to start a nuclear war.
Petrov decided that, all else being equal, he would prefer not to destroy the world. He sent messages declaring the launch detection a false alarm, based solely on his personal belief that the US did not seem likely to start an attack using only five missiles.
Petrov was first congratulated, then extensively interrogated, then reprimanded for failing to follow procedure. He resigned in poor health from the military several months later. According to Wikipedia, he is spending his retirement in relative poverty in the town of Fryazino, on a pension of $200/month. In 2004, the Association of World Citizens gave Petrov a trophy and $1000. There is also a movie scheduled for release in 2008, entitled The Red Button and the Man Who Saved the World.
Maybe someday, the names of people who decide not to start nuclear wars will be as well known as the name of Britney Spears. Looking forward to such a time, when humankind has grown a little wiser, let us celebrate, in this moment, Petrov Day.
Call me crass and money-grubbing, but why isn't there an honorarium fund one could donate to? It seems like the world ought to be able to do a bit better than $200 a month.
Back to health care blogging
This first sentence is just here for all the bloggers who want to read the first sentence of the post and then go write an angry rebuttal of my claim that poor Americans should have to torture puppies in order to be eligible for Bandaids.
The rest of the post will be for people who want to, well, read the rest of my post.
I cannot possibly fathom why D.C. lacks the number of book stores, record stores, coffee shops, night clubs, 24-hour restaurants, etc., etc. that you’d expect based on it’s relatively large population of wealthy, single young people. I love my D.C., but I’ve also found that San Francisco, Seattle, Philadelphia, New York City, Boston, and Chicago all have way, way more urban perks than Washington does.
To which Ryan Avent, DC development blogger extraordinaire, responds:
Now one potential explanation, and I very much could be wrong, is that Ezra and Brian generally confine their experiences to a limited area within D.C., and that area is one which has not had all that long to develop. That is, if you take into account other neighborhoods up Wisconsin and Connecticut Avenues that bloggers may not visit much, then you get more of these kinds of businesses. Another explanation is that some of the businesses you’d expect to find in D.C. are instead in Arlington (or Silver Spring or Alexandria). But I think the main issue is that the District has not been all that dense, residentially, for all that long (or rather it was, then it wasn’t, and now it is again). Many of the dense areas of the city were hardest hit by population loss during the city’s long downturn; much of the population that stayed lived in detached, single-family homes away from today’s popular core. Plus, since housing supply is slow to catch up to the number of people who now want to live in the core, housing isn’t cheap and shops skew toward a wealthier crowd.
Too, I think there's occasionally sample bias in what you visit when you don't live in a place. I love Philadelphia, and am pleased as punch about the comeback it's staged; it's a much different, much better place to live then it was when I arrived for my freshman year at Penn to find the campus plastered with warnings about the fatal shooting that had taken place a block from my dorm the previous night.
However, most of Philadelphia is like most of DC: vast stretches of row houses and other low-density housing served by precious little in the way of services, government or otherwise. A few years ago when I visited a friend living in one of the many ungentrified sections of South Philly, I was appalled to realize that the place* still had no public garbage cans, with the result that people walking on the street had turned any open receptacle, from washtubs to flower pots, into makeshift substitutes.
If you're visiting, however, unless you have really, really, poor friends you don't see that part. (The person I was visiting had was sharing an enormous two bedroom apartment that cost a little north of $400 a month.) You see the fun, crowded bits. But those bits are about the same size as, or perhaps a little smaller than, Adams Morgan/Dupont/Georgetown.
Obviously, that doesn't account for all the difference between DC and other places; they really are better economically developed than we are. But I think sample bias accounts for some of the invidious comparison. When I was visiting DC, I always had a great time going out, and always went to a different bar or club. I didn't realize that when I moved here, I would be going to those same six spots over and over and over again.
* This stretch of South Philly, I mean; not the whole city
Apology
It has come to my attention that I neglected to use the BCC feature on the mass email I just sent out asking people to change their address books. Rather than abuse peoples' mailboxes again, I'm posting my apology here.
I am scum. However, luckily you're all very nice people and you should be friends with each other. I feel a facebook group coming on . . .
Do everything you can, doctor
During a conversation last night with a Scottish friend, it came up that he cannot recall ever having had a blood test.
This may be the primary argument against preventative medicine saving money. Yes, you save a little when you catch conditions early. But think how much money you save by never giving healthy young people tons of blood tests and other largely unnecessary diagnostic procedures.
And how much good do the broad-spectrum general blood tests do people our age? I've had conditions caught very early by blood tests. Luckily this has allowed me, in consultation with my doctor, to . . . wait for symptoms to appear.
Moreover, overall, it's not clear that the health benefits of catching things early through comprehensive screeening outweigh the health costs of superfluous treatment of conditions that weren't bothering the patient all that much. I'm more than fine with spending a great deal of money on screening if it improves peoples' health, but it's not clear to me that this is the case.
Why does American medicine do so many blood tests, X-Rays, EKGs, and so forth? You can't blame it all on lawsuits; my doctor didn't test me for hyperthyroidism because she was afraid of the malpractice suit that would result from my losing too much weight and getting heart palpitations. Nor can you blame it on money; my doctor doesn't profit from giving me blood tests that all come back normal. And I don't think the lack of rational rationing can be the culprit either. To the extent that insurance companies have bad incentives, it should be to do too little, not too much. They should have incentives to ration this sort of thing, but they don't.
I suspect the ultimate cause is the medical culture, which will make this sort of thing very hard to eradicate in either a single-payer or a private system.
Brooklyn’s always been the overlooked sibling among the boroughs. Founded several years before New York, it was swiftly relegated to a role as Manhattan’s unglamorous adjunct. First farms and then factories provided its economic basis. Now back-office space does the same. Until recently, Brooklyn was strictly second choice for residence. Beatniks who couldn’t afford Greenwich Village crossed the river in the ’60s, and yuppies who couldn’t afford Soho moved to Park Slope in the ’80s. Now hipsters who can’t afford the East Village have filled every cranny between soon-to-be evicted bodegas and auto-repair shops with cafés sporting lava lamps on the tables and old record albums tacked to the walls. Inside, a horde of latte-swilling sensitives sit in mismatched chairs and tap at laptops and can’t imagine why they’d ever want to cross the river again. They interpret their migration born of economic necessity as a hegira of moral virtue. Self-righteous sour grapes define their attitude to Gotham.
The generational handoff is almost too clean and explicit to believe. Almost overnight, the boomers’ favorite narrative – that of the withholding father who comes, perhaps too late, to appreciate the importance of love for his child and for youth in general – has been supplanted by that of the hyper-literate latchkey child, fending for himself in a world fraught with emotional and even historical portent.
The really fun part about this sea change in kitsch is that you don’t even have to read novels (which I’m told are, like, really long – way longer than blog posts or even Salon articles) to watch it happen. Indie music is full of narrators who sound as if they’ve wandered straight out of the pages of a Brooklyn Book of Wonder themselves.
I covered Amazon.com for years, and one of the top questions that always lingered was, when would it start offering digital music? After all, Amazon already knows a lot about the CD-buying preferences of millions of people and would be a very logical digital music source.
Amazon.com
The answer is now clear: When it can simply be a music store, instead of a music service. Amazon today started selling MP3 files of 2 million songs from two of the four major labels — EMI and Universal Music -– as well as a bunch of independents.
Commenters on Slashdot are hailing this as a way to finally stick it to The Man, aka the folks that brought you DRM. Though weirdly, one commenter early on says "Of course, without DRM few of the major labels play with them." By my count, EMI + Universal = 50% of the major labels. But I was always bad at math.
Being the intrepid reporter I am, I rushed to try the service to tell you what you should think. I am pleased to report that, unless you work for Apple, you should be happier than Rush Limbaugh's pharmacist.
I downloaded Velvet Underground and Nico, one of the many albums that was eaten by the first of the Three Great Music Collection Wipeouts that have blighted my life. No, really, I can't say any more--I'll just start crying.
Anyway, Amazon was selling it, DRM free, for $7.97--a 20% discount off of the copy-protected version on Amazon. Downloading it to my Mac was simplicity itself, though there were a few slightly weird things. First weirdness: I use Safari for my Amazon purchases, even though Mozilla is my default browser. After it downloaded and installed, it made me restart Safari, then promptly opened up a window in Mozilla to complete the installation. This didn't exactly blight the process; it was just strange.
Second weirdness: in order to complete the installation, it makes you download a free song to test things. I am now the proud owner of "Energy" by Apples in Stereo, which is actually kind of catchy.
Then I proceeded to my Velvet Underground purchase. The service uses One-Click, which I hadn't turned on before; I had to tell it what credit card I wanted to use. Once I'd done that, however, the download was incredibly smooth. It not only downloaded the whole album, but instantly transferred it to my iTunes folder.
All in all, I expect that using it will be slightly clunkier than buying within iTunes, since it has to use Amazon's more complicated back end, and of course, you have to open up a web browser. It also doesn't yet have nearly as much information about the album as iTunes does, so you have to kind of know what you want.
On the other hand, it's awfully convenient if you're already shopping at Amazon. And 20% off DRM-free content from major labels is pretty sweet. I'd bet this forces Apple's prices down fairly rapidly. And it may well open up the other two major labels to DRM-free content.
Oh, and the music sounds fine; I can't tell the difference between the MP3 and the AAC version I was just streaming from someone else's computer.
By the way: we really do live in miraculous times.
Public service announcement.
The 1900s. via someone who needs to spend a lot more time music blogging so I can pick his wondrous brain.
Bleg
A friend is considering internet dating services. Advice? Which ones are best, and what's the best way to go about it?
Update No, this "friend" is not me. Other considerations aside, I'm just famous enough that any dating profile I put up would quickly become fodder for much blog hilarity, so that avenue for pairing up is pretty much closed to me. It's an honest-to-goodness friend I'm talking asking for.
Music Tuesday
All right, my eMusic subscription has a few songs left on it. Suggestions?
Farm free
Free Exchange challenges my interpretation of European vs. American population density:
But high American wages also made the country an attractive place for European emigrants, and millions did opt to make the trans-Atlantic journey, swelling the size of American cities, increasing American urban population density, and reducing upward pressure on densities in Europe. In fact, by the beginning of the 20th century, there were not significant differences between the density of urban populations in America and those in Europe. The massive, dense industrial towns of the American Northeast and Midwest didn't look all that different from the massive, dense industrial towns of the Midlands and the Ruhr Valley. In cities on both continents, transportation technologies were similar, and so limitations to the size and scope of cities were also similar.
The important differences result from what came next. America systematically starved and disassembled its public transportation and rail infrastructure and spent rather extravagently on highways, both within and between cities. While Europeans also increased their spending on roadways, they nonetheless maintained strong national commitments to rail and public transit. Americans also chose to leave their petrol taxes at levels far below those in European nations. These differences are key to explaining recent urban experiences. Certainly the differences in urban area and density in cities like Atlanta, Houston, and Chicago relative to Berlin, Madrid, or London are not due, in any direct sense, to patterns in medieval agriculture
I don't think the relevant criteria is the density of cities at the turn of the century; it's the distance between them. Much of Europe looks like the denser bits of the American east coast because those densely populated urban centers were relatively close to each other, limiting the scope of urban expansion. Both are areas that were fully agriculturally exploited pre-industrialization, and have the resulting small distances between major cities. On the Richmond to Boston route, ten hours long you've got seven or eight cities that were major population centers in 1830. And just as in Europe, everywhere you look along the train line, there are people.
Most American cities, on the other hand, had huge, practically unlimited, tracts of farmland to expand into outside of the East Coast, and forthwith did. One reason that the East Coast and San Francisco are the places seeing a return to urban living is that those places are, like Europe, rapidly running out of space to build new suburbs.
This also affects the cost-effectiveness of trains. The way that Americans use land obviously makes trains less cost-effective. But while the favourite culprit of much of the left is federal highway money, this lacks sufficient explanatory vigor to account for the massive differences in density. It seems obvious to me that Americans used land profligately in the 1950's and beyond because they could, and Europeans didn't because they couldn't: because they were too poor to buy cars; because there wasn't that much land to be had; because the Common Agricultural Policy, along with impoverishing third-world farmers and producing mountains of butter and lakes of wine, encouraged the preservation of farmland near cities. This has nothing to do with virtuous development policy.
That matters not because I'm interested in debating which continent has the nicer people, but because it goes directly to the assumption that if we just had more virtuous development policy, we'd get Americans out of their cars. I'd be more than happy to be proven wrong, but both Americans and Europeans seem to really like tooling around in their cars, and living in detached houses with yards, and it seems to take more than the gentle bonds of development policy to restrain them.
Give me coffee shops, or give me death!
Ezra takes a crack at explaining why Seattle and Portland are hipster heaven:
Sounds like Portland is a rather nice place to live -- a fact backed up by everybody I know who has ever lived there, despite what Cato says. This has actually puzzled me since I went to Seattle and noticed all the awesome coffee shops and bookstores and generally nice features. Why can't DC have all that. There are, after all, lots of young, computer savvy white people in Mt. Pleasant, but nary a coffee shop to serve them. It's barbaric!
But it actually makes sense: Cities like Portland and Seattle are trying to create a livable city to retain and attract a certain type of resident. Namely, educated, young, white people. Portland's 78% white, Seattle's a bit under 70%. So you structure the city thus that there's lots of educated white people bait, including cafes, bookstores, wireless internet spots, bike trails, etc.
DC, by contrast, has a lot of white people working in it, but is actually only 39% white, and has a city government that does not derive primary political support from transient white voters. So the character of the city actually does more to represent its inhabitants. Which seems rational. Moreover, the white people there basically have to be there. You don't move to DC because it's awesome, you move because it's where your work is. So there's little need to construct an affirmative agenda to attract residents
Here's the primary difference between liberals and libertarians in a nutshell: it would never have occurred to me to assign the city government a dominant role, except perhaps for Portland's greenbelt, which seems like the result of a pretty conventional coalition of environmentalists and property owners whose home values were driven up by the artificial supply restriction.
The DC area, in fact, has a large number of bike trails; I seriously considered biking out to Fairfax for lunch today. (I'm going to bike partway then take the train instead.) It has bike lanes on many of the major streets in Northwest, which I have been greatly enjoying as I tooled around on my new (used) machine. Nor does the government in Seattle operate coffee shops, wireless hotspots, or bookstores that I am aware of. Those things are operated by private actors trying to make a profit--no government intervention required, or as far as I know, offered.
The market supplies those things because the demographic profile of the area demands it. And DC is supplying more and more of those things as the relatively poor black population of Northwest and the areas surrounding Capitol Hill is pushed out to Prince Georges County by rental competition from young white people who like bookstores, cafes, and wireless hotspots. In just six years, between 2000 and 2006, the white population of DC rose from 30.8% of the population to 34.5%, a massive demographic shift. Meanwhile, the black population dropped from 60% to 55.4%.
Services require a certain minimum market to make them viable; there may be a lot of upper-middle class twenty-somethings in Mount Pleasant, but they may not be densely crowded enough to make a viable business yet. (Or they may simply be waiting for some clever entrepreneur to spot the hole and fill it.) But if current trends continue--and as far as I can see, they are only accelerating--the market will eventually fill the niche without any intervention at all from the government.
Ticket master
So I am informed that Okkervil River tickets for this Sunday are sold out. This is a pretty thin hope, but does anyone know where I can acquire one or two?
I'm a little confused by the framing of the decision to extend an invitation for Mahmoud Ahmadenijad to speak at Columbia University as "free speech." Everyone, including Ahmadenijad, has a right to speak his mind in this country, but nobody has a right to a specific platform at a major university. I, after all, haven't been granted such an invitation and there's no particular reason he should have gotten one either. For all the reasons Ross cites a lot of the right's reaction to this has been overheated, but it's still fundamentally odd to decide that a maniac should participate in a debate with a university president as part of a bizarre publicity stunt whose main purpose is to exaggerate the importance of both men.
Conversely, though, things like Duncan Hunter's new plan to cut off funding to Columbia University is a real free speech issue. The university really has the right to stage an asinine publicity stunt if it wants to without the federal government stepping in.
September 24, 2007
That said
Matt may be right that I haven't harangued people about climate change recently, so here goes: dude, if you're still a climate change skeptic, it's time for a rethink. When the science correspondent for Reason magazine comes over to the reality of anthropogenic global warming, it's safe to say that the skeptics have lost the debate. Not only the vast majority of the scientific community, but even most of the hard-core skeptics at conservative magazines, have abandonned the hope that we are not warming up the climate.
There's still debate about the effects of the warming, and what we should do about it. But there's not much question that it's happening. And given that our atmosphere is an extremely complicated system that we, and all of our foreseeable descendants, are utterly dependent upon for our well being, it behooves each of us to think hard about our greenhouse gas emissions, and how we might reduce them; behooves us even if no one else is doing so. Your mother was talking sense when she told you that morality doesn't get suspended because "everyone else is doing it".
No, I'm not going to tell you what you should or should not do, where you should live or what you should drive. That's not my job; it's yours. But you know how much wasteful consumption you do, particularly when compared to the poor people in other countries that global warming may flood out. I'm just saying it wouldn't kill you to think about it a little.
Realgroenpolitik
In response to my argument that what Bush did didn't particularly matter, Matt rejoinders:
This is silly (about as silly as the view, sometimes expressed in comments, that I should avoid criticizing Megan when she writes things that are wrong on the theory that conservative views would somehow vanish if I ignored them) -- Clinton signed the treaty, knowing he couldn't get it ratified, and Bush un-signed it, knowing that there was no threat of ratification. Neither administration did what they did for no reason. Rather, they did it because of the impact on the political momentum, precisely the factor UN officials have cited to me as the relevant mechanism.
Meanwhile, let me also just say that I find there to be something incredibly wearing about this worldly-wise pose where one combines fatalism with nitpicking attacks on straw environmentalists instead of just forthrightly taking the view that the United States government ought to be indifferent to the problem of climate change. Maybe we'll do the right thing, and maybe we won't -- the future isn't written yet. One factor determining whether or not we do the right thing is whether or not right-of-center elites -- yes, including political bloggers at the Atlantic -- put emphasis on the idea that it's important for us to do the right thing.
One interpretation is that Clinton was robustly and forthrightly moving America down the road to doing something serious about climate change, and Bush shoved us off the track precisely because he doesn't want us to do anything about climate change. Another, which I find more convincing, is that Clinton signed Kyoto even knowing that it would go nowhere because he thought that this would win him cost-free points with environmentalist voters, while Bush loudly proclaimed that he wouldn't sign it in order to win cost-free points with a different set of voters.
The accusation that I am nitpicking and attacking my own side ties into a broader criticism I get from environmentalists, which is that any indication that I think the environmental movement has a less than perfect plan for combatting climate change is closely akin to class treachery.
Let's review the subjects of today's posts:
Defending carbon taxes as preferable to cap and trade in the current political environment
Advocating a modest unilateral approach as more fruitful than a more ambitious multilateral approach that seems politically certain to fail
Debating whether we should enter into a global emissions control regime that does not include the developing world
I mean, these hardly seem like side points. They sort of seem like they're central to the policy debate. They may not produce the answer that Matt believes is true, and would certainly like to be true, which is that ambitious multilateral emissions trading regimes are well within reach. But that's not a good reason for me to suspend my beliefs about what is within the possible solution set.
I could be wrong about that; perhaps it's true that if I just keep telling everyone they've got this huge moral obligation that I believe in, they'll all wake up and decide I'm right. On the other hand, if I swing for the bleachers and miss, when I could have advanced a runner one base with a sac bunt, I'm not really doing the best thing for the team.
Perhaps Matt, and the other people thus criticizing me, are right, and I would do more good for the environmental movement by advocating Big Plans that have a high likelihood of failure, than advocating smaller projects with a decent chance of success. Perhaps we need extreme rhetoric and grand plans in order to secure an ultimate compromise on more modest measures. But if that's so, why not try to convince me, rather than angrily declaring that I'm out of bounds?
A lot of these attacks start to make me feel as if climate change policy ideas are supposed to be some sort of consumption good, where what really matters is how we all feel about our ideas.
All I want is a little success . . .
In the comments to the post on the working women trend story, Amber asks:
My only question is, who are these guys? I'm a recent graduate, so maybe it's different for people in their early 30s (though I tend to doubt it), but guys from my expensive private university really don't care about this stuff. I mean, maybe a few [expletive deleted]s do, but by and large, the guys I know are happy to have girlfriends/wives who make a lot of money. It all goes into the same pile anyway, right? (Err, I guess some couples technically keep things separate, but still...)
It is different in your early thirties, but not in the way that the New York Times story suggests. The problem isn't on the female side; it's on the male side.
In your twenties, you date almost entirely on personality. But as you hit thirty, success starts to matter. To both parties, of course; one hears a lot of nightmare stories about the female train wrecks with bad employment and worse credit trying to wrap their tentacles around any solvent male they can find. But especially to women. To be a woman guys want to date, the bar is pretty low: you ought to be able to keep a job, and your credit card debt shouldn't exceed your income. But for men in their thirties, this is not enough. You have to be successful.
Speaking as the Emissary From Your Thirties, you know that amazing guy who just got back from Africa and tells hilarious stories and dates, like, everyone you know? The one your best friend quit her job to go to Tuvalu with? The one who's been working on a really titanic novel for four years that he never quite finishes, and can't seem to hold down a long-term job? His dating prospects start heading rapidly downhill by his thirtieth birthday. By his late thirties, his studio apartment is getting very lonely at night. If he does get married to a woman more successful than he is, it's likely that their relationship will be controlling, resentful, and involve enduring quite a lot of contempt from her friends and family.
But it has nothing to do with money. Men with some measure of success in their chosen fields have no problem finding spouses. And successful women have no cause to complain, either. After all, they have a bevy of unsuccessful but charming men to choose from, who will be more than happy to date them if they can overcome their biases. The unsuccessful men, on the other hand, are pretty much frozen out.
Ah, nostalgia
It's been 27 years since bellbottoms were a hot new trend, "ABC" topped the chart, and the UAW called a general strike against GM. Well, it turns out that all three are still with us, though I have friends who swear that skinny pants are the new boot-cuts.
If the petard fits . . .
The Economist's Free Exchange urges caution about the finding that the income-health gradient is even steeper in Canada than it is in America:
If the best evidence is not very good, then we need to be careful about drawing hard conclusions, and more careful still about "screaming them from the rooftop." I thought that the combination of the qualifier "slightly" in the phrase "the health-income gradient is slightly steeper in Canada than it is in the U.S.", along with the questionable nature of the data was sufficient to give us pause before beginning to evangelise. Apparently, that's not the case.
I would suggest that we ought to be very circumspect in analysing the health-income gradient--especially when making cross-country comparisons. For instance, research findings show that the health-income gradient is far flatter among Latinos--in general, Latinos are much healthier than their income levels imply. In America, Latinos make up a far larger share of the population than in Canada, and they are almost certainly overrepresented in the population of the uninsured. Have the NBER paper's authors taken such factors into consideration?
Research also shows that the income-health gradient for the population as a whole depends on the importance of within-group effects of income on health for subpopulations. If within-group effects are strong, then greater economic inequality between population subgroups can actually flatten the income-health gradient for the population as a whole.
It isn't easy to say how these different effects stack up, and that's entirely the point. Screaming from the rooftops inplies certainty of which there is none here. What we do know with certainty is that access to health insurance is more equitable in Canada, and total health outcomes are better in Canada. Without better data on the income-health gradient, I don't believe there is cause to question the arguments of those emphasising the equity benefits of single-payer systems.
Point well taken. Except . . . how come advocates for single-payer are so rarely interested in exploring these holes in the data when they support the argument for equity? Why don't we hear about the problems in cross-country comparisons of commonly used metrics such as infant mortality? Moreover, why doesn't the blogger mention that America also has a much higher percentage of African Americans, who, for reasons that are not clear, have higher mortality and premature birth rates even when things like income and education are controlled for?
You cannot argue, on the one hand, that cross country comparisons make it hard to really know whether Canada's income-health gradient is steeper; and then turn around and say that "for half what we spend, Canada offers insurance to all its citizens and produces better outcomes in practically every category listed: life expectancy at several ages, infant mortality, mortality from chronic conditions, mortality from various other diseases (including respiratory diseases, despite a higher rate of smoking), and so on." I agree that cross-country comparisons are fraught, though also, unfortunately, the best we have. But either you rely on that sort of data, or you don't; you can't use general arguments about the reliability of international data to dismiss specific studies that don't bolster your case.
Women who make good salaries, and the men who don't love them
The New York Times has another thumb-sucker about the dating problems of female professionals:
FOR Whitney Hess, a 25-year-old software designer in Manhattan, the tension that ultimately ended her recent relationships was all right there, in the digits on her pay stub.
The awkwardness started with nights out. She would want to try the latest downtown bistro, but her boyfriends, who worked in creative jobs that paid less than hers, preferred diners.
They would say, “Wow, you’re so sophisticated,” she recalled. A first look at her apartment, a smartly appointed studio in a full-service building in TriBeCa, would only reinforce the impression. “They wouldn’t want me to see their apartments,” she said, because they lived in cramped surroundings in distant quadrants of Brooklyn or the Bronx.
One of them, she said, finally just came out and said it. “Look,” Ms. Hess recalled him saying, “it makes me really uncomfortable that you make more money than me. I’m going to put that out on the table and try to get over it.”
But he never got over it, she said.
“The sad thing is that I really liked the guy,” she said. “If that hadn’t been an issue with him, we’d probably still be dating.”
Ms. Hess’s quandary is becoming more common for many young women. For the first time, women in their 20s who work full time in several American cities — New York, Chicago, Boston and Minneapolis — are earning higher wages than men in the same age range, according to a recent analysis of 2005 census data by Andrew Beveridge, a sociology professor at Queens College in New York.
For instance, the median income of women age 21 to 30 in New York who are employed full time was 17 percent higher than that of comparable men.
Professor Beveridge said the gap is largely driven by a gulf in education: 53 percent of women employed full time in their 20s were college graduates, compared with 38 percent of men. Women are also more likely to have graduate degrees. “They have more of everything,” Professor Beveridge said.
Apparently--you're not going to believe this, but I swear, it's true--there are men who don't like it when the women they date make more than them. What's more, there are women who really want to date men who make more than they do. No, really! There was a whole article about it in the New York Times!
It's hard to overstate the fundamental silliness of this story. This is not a "trend", except insofar as this whole "women in the workplace" idea you've been reading so much about is really starting to take off. The upper middle class white women upon whom the story focuses are not facing any shortage of solvent dates. I spent ten years dating in New York City, and have dated the income gamut from hedge-fund manager to aspiring artist with nine roommates. (Yes, I said nine. In a three-bedroom flat in one of the more distant parts of Brooklyn.) I am pleased to report that every year, the Ivy league and its equivalents disgorge just about as many men as women into New York City. Moreover, the men are, by several orders of magnitude, more likely to take lucrative jobs in finance and related industry, while the female art history majors languish on paltry nonprofit salaries.
Yes, if you make a decent salary, some of the men you meet will make less than you. But many more will not. And any lingering problems in this department can be readily overcome by letting go of the fairy princess fantasy where Prince Daddy provides everything worth having; or, alternatively, by not dating men who make less money than you do. If this is still not enough--if you want to date sensitive artistic types who still play the role of Big Earner--well, then, it should be a relatively simple matter to find a lower paying job.
There is a growing male/female education and income disparity. But it is occurring several rungs down the SES ladder from the precious princesses in the story, clipping off price tags and hiding shopping bags lest He realize that she shops at Prada. This problem is afflicting mostly poor women, particularly black and latino women, who have seen their earnings prospects improve dramatically relative to those of the men in their communities. For a paper as liberal as the New York Times to take their plight--which is real, and troubling--and turn it into an exposition on how hard it is to be a female corporate lawyer, is really pretty embarassing.
Send money, not gas
One area in which I do think the debate over greenhouse gases has gone wrong is the extent to which many commenters, particularly on the left, focus on allocating carbon permits as a distributional justice question. To wit, they are willing to exempt India and China from global trading regimes, because these places are very poor.
Or, even more weirdly, they want to not cap emissions in developing countries, and then buy reduction credits from those countries for reducing the emissions they would have made if the developed countries had not stepped in with a suitcase full of money. This seems like a boon to the emerging business of building highly polluting industrial installations that can be shut down, but not actually likely to produce much in the way of real reductions.
The purpose of a global greenhouse-gas reduction scheme should, it seems to me, be to reduce the emissions of greenhouse gasses. It should not be to simply transfer the emissions of those gasses to other, more "deserving" countries. If Bangladesh floods, the Bangladeshis will not much care whether the carbon dioxide that caused it was released by worthy shoe factories in China, or gluttonous American SUVs.
To the extent that capping emissions results in global wealth differentials that are unjust, I think there is a better way to redistribute that wealth. For the purposes of this discussion, I will call it "money".
Having a global emissions scheme which does not do anything about Chinese or Indian emissions seems only slightly better than doing nothing at all; China is on track to surpass US emissions by the end of this decade, and India's emissions, while still low, have taken some large leaps forward in recent years. To the extent that we are aiming to reduce the burning of easily transshippable fossil fuels--oil and natural gas, and regionally, coal--an emissions cap that doesn't cover the developing world will result in no net reduction in greenhouse gasses. Consumers in the developed world will get some small boost from demand reduction in the industrialized world; and a further boost as we effectively outsource our carbon intensive industries to the developing world, stimulating their economies.
But such a transfer is extremely inefficient. It benefits, not the neediest, but the least needy among poor nations--the ones that have already industrialized somewhat. It also imposes rather large administrative costs. Moreover, because fuel efficiency often imposes high capital costs, even though it offers lower operating costs, poor countries tend to invest in machinery which is relatively less efficient than that in the developed world. That means that a unit of GDP produced in China is relatively more carbon intensive than a similar unit of GDP produced in a developed country, so the world overall will be poorer if we redistribute carbon rather than money.
To be sure, there are some aspects of improved material consumption which require carbon to be transferred to the developing world, such as electricity and transportation. But this can be readily achieved by capping emissions and then transferring enough money to the developing world to buy gasoline and natural gas and so forth. The bonus is, if there are things that the developing world wants to buy even more than carbon, they can purchase those things instead, rather than having us constrain their purchasing choices.
All this is purely theoretical, of course, since I don't see any serious global emissions regime emerging any time soon. But as long as we're discussing ideals, I don't see why we want to leave China and India out of it.
Bundle up
Everyone I know hates cable bundling. Why should they pay for the soap opera channel when they never watch it?
They are envisioning, of course, paying something like 1/100th of their current cable bill for each channel. But this is not right, for a number of reasons. If you are now willing to pay $45 to get the five channels you actually watch, you will be willing to pay $45 for those five channels, which the cable company knows; they will price the most popular channels accordingly. There's no reason they have to lower their prices to make it cheaper for you to buy cable. Apple has succeeded in forcing 99 cent downloads of unbundled songs, but that's because Apple has market power that it is using to sell expensive iPods. I see no similar market force in cable. Moreover, the transaction costs of maintaining millions of individual channel lists might well push up the overall cost of cable.
CoyoteBlog offers another reason that unbundling won't work the way people hope:
I see that the drive to force cable companies to offer their basic cable package a la carte rather than as a bundle is gaining steam again. This is the dumbest regulatory step imaginable, and will reduce the number of interesting niche choices on cable.
For some reason, it is terribly hard to convince people of this. In fact, supporters of this regulation argue just the opposite. They argue that this is a better plan for folks who only are passionate about, say, the kite-flying channel, because they only have to pay for the channel they want rather than all of basic cable to get this one station. This is a fine theory, but it only works if the kite-flying channel still exists in the new regulatory regime. Let me explain.
Clearly the kite-flying channel serves a niche market. Not that many people are going to be interested enough in kite flying alone to pay $5 a month for it. But despite this niche status, it may well make sense for the cable companies to add it to their basic package. Remember that the basic package already attracts the heart of the market. Between CNN and ESPN and the Discovery Channel and the History Channel, etc., the majority of the market already sees enough value in the package to sign on.
Let's say the cable company wants to add a channel to their basic package, and they have two choices. They have a sports channel they could add (let's say there are already 5 other sports channels in the package) or they can add the Kite-flying channel. Far more people are likely to watch the sports channel than the kite flying channel. But in the current pricing regime, this is not necessarily what matters to the cable company. Their concern is to get more people to sign up for the cable TV. And it may be that everyone who could possibly be attracted to sports is already a subscriber, and a sixth sports channel would not attract any new subscribers. It is entirely possible that a niche channel like the kite-flying channel will actually bring more incremental subscribers to the basic package than another sports channel, and thus be a more attractive addition to the basic package for the cable company.
But now let's look at the situation if a la carte pricing was required. In this situation, individual channels don't support the package, but must stand on their own and earn revenue. The cable company's decision-making on adding an extra channel is going to be very different in this world. In this scenario, they are going to compare the new sports channel with the Kite-flying channel based on how many people will sign up and pay for that standalone channel. And in this case, a sixth (and probably seventh and eighth and ninth) sports channel is going to look better to them than the Kite-flying channel. Niche channels that were added to bring greater reach to their basic cable package are going to be dropped in favor of more of what appeals to the majority.
The real problem with cable pricing is not bundling; it's that cable companies have cozy local monopolies because of a combination of political influence, and the natural reluctance of municipalities to tearing their streets up.
The politics of climate change
So you can expect a great deal of climate change blogging this week, what with the UN meeting and all. Matt, Ezra, and Mr Brian Beutler are all in New York City, blogging about the elaborate kabuki going on there.
Ezra and Mr Beutler both ask why world leaders aren't putting genuine pressure on the American government (and to a lesser extent, the Chinese and Indian governments) to come to the table and negotiate.
The U.N. is not by design a political body, and it's not a lobby, and there may be no way to organize that kind of outcry. But what I tried to stress tonight, in conversations with both gentlemen, was that solving climate change will only be possible after solving the domestic political situation in America. There's a sense, I fear, that the world thinks it can just wait until George W. Bush is out of office and then everything will be fine. I think this mindset is disastrous. It involves waiting a year and a half (or, perhaps, five-to-ten percent of the time we have before us if we're going to forestall the worst of the crisis) and it fundamentally misunderstand key aspects of the American political system.
Nuttall stressed to me repeatedly that climate change presents a plethora of economic opportunities and that, in an even longer-term sense, a carbon economy--based as it is on finite resources--simply won't be possible anymore. I agree. But I suspect very strongly that if he spoke with a representative sample of American congressmen, they would mostly agree as well. Then he'd sit back and watch as those same congressmen returned to their offices and continued to do almost nothing. Al Gore could become president next November, and there would still be high walls separating the status quo from meaningful change. What ultimately must be upset are the short term incentives politicians face when weighing the importance of associating themselves with a cause whose benefits (and blowbacks) won't be evident for many election cycles to come.
One way to do that would be for the Secretary General of the U.N. to lend his support to the forces that might make obstructing action on climate change as politically disastrous for American politicians as obstructing action on the Iraq war will likely prove to be next fall. To make sure that big, important people--foreign leaders well regarded in America--speak frankly and publicly about what America's role has been in creating and continuing the crisis, and what it must do mitigate it.
The basic shape of the issue goes back to Kyoto and the late 1990s. Everyone knew that that agreement wasn't nearly tough enough to take care of the problem. But the thinking was that if you could get everyone to commit to the principle "reduce carbon emissions to halt global warming" that when the initial measures agreed to proved inadequate, governments would be compelled to step things up. Then came George W. Bush and his decision to "un-sign" Kyoto. Not only did that prevent the USA from moving forward, but it essentially got all the other governments of the world off the hook. With Bush so intransigent of course nothing was going to work.
Meanwhile, there's a need for a successor treaty to Kyoto to govern the world after 2012. The thinking is that it takes two years to negotiate a treaty, and then two years to get it ratified. Thus, we need to start next year at a scheduled meeting in Bali, Indonesia. But if the world's governments sit down in Bali next year cold after years of inactivity, then nothing's going to happen. So there's a kind of kabuki meeting happening this year to get things rolling. Since nothing's going to happen, Bush is willing to participate -- Condi Rice will be at the formal meeting, and Bush himself at an informal one with other heads of government this evening -- but that itself signifies that the process is getting rolling again. The idea, then, is that the next administration will be able to hit the ground running, stepping into a process that's already under way.
Both of these strike me as extraordinarily naive. America is not going to sign onto any sort of significant, comprehensive reduction strategy as part of a global treaty. Before my liberal readers freak out, this does not make me happy. I'm one of those crunchy cons (well, crunchy libertarians, anyway), you've been reading about. The odds are very good that I support stiffer carbon taxes, and live a lower-carbon, more environmentally friendly lifestyle, than you do. But politically, I don't see any way that this is going to happen.
Environmentalism isn't as powerful a movement in America as it is in Europe. Moreover, greenhouse reduction is costlier here than it is in Europe. And this is not because Europe is more virtuous. It is because Europe is denser. Which is not because Europe is more virtuous. Europe is denser because it has been agriculturally settled much longer than North America, where agriculture only really got going with the advent of corn ca 1000 AD. And of course, European epidemics killed off many of the local residents, allowing European immigrants to settle their sparsely populated lands.
Given the costs, it is politically much harder to get meaningful reduction. It is particularly politically hard because federalism gives power to sparsely populated states which will suffer disproportionately from meaningful reductions. In rural America, there is no good alternative to car travel, nor will there be one; and most rural Americans are unwilling to go back to a 19th century lifestyle where going to town was a major event, the festive highlight of a long and lonely week.
What is politically feasible are modest measures, such as a small carbon tax. That might be the camel's nose under the tent, allowing it to be ratcheted up over time. But any Kyoto-style agreement is doomed to fail, not least because America is a hated, envied and feared minority of one. The other countries at the table are going to push for structures, as in Kyoto, that are disproportionately costly to America. Morally, this is arguably correct; but politically, even if such a treaty secures the support of a Democratic administration's negotiators, it will be dead letter in the Senate. This being what happened to Kyoto. Despite what Matt says, I fail to see how Bush made any difference, given that the Senate had rejected the treaty 99-0 with one abstainer.
A perfect, green world
More broadly, Econospeak's post seems to suffer from a subtle version of a fallacy that Will Wilkinson pithily summarized:
In the real world, the mind works like this, and this can lead to all kinds of problems. And in an extremely unrealistic abstract model of government action, its agents can easily and objectively identify problems and act to effectively solve them. So, let’s have the ideal government solve the problems of nonideal cognition.
It sounds stupid when you put it that way, doesn’t it? The trick is figuring out how to work with real minds, using real governments!
. . . so how are you going to do it? Most real government institutions are at least as kludgey and means-ends inconsistent as real minds are. “Silly, your sock won’t open that can of spinach! So try your pillow instead, because a model exists in which pillows are can-openers.”
In an ideal world, Econospeak says, cap-and-trade and carbon taxes may be functionally identical; the government will simply keep raising the price on the tax until it hits the carbon target. But in this vale of tears, where we have but the crumbly clay of humanity to work with, this doesn't function so well:
The real wonder here is that Mankiw could make such an elementary economics error as to suggest that taxes and cap-and-auction are “effectively” the same. In an uncertain world this is false. From a conventional benefit-cost perspective, Weitzman showed long ago that there were important differences depending on the slope of the marginal benefit and cost functions. Translated into common English, if we are uncertain about the long run relationship between the price of carbon emissions and the amount of emission – and we very much are – and if the risk of allowing too much climate change is greater than the risk of economic indigestion from trying to be too green – which seems pretty clear to me – then permits are the right choice. By controlling the number of permits we control our most important impact on the earth’s carbon budget, but allow prices to wander. By setting a tax we control the price but allow the amount of pollution to wander. That’s a big difference: you might say, given the gravity of what is at stake, that it’s the difference between ecological responsibility and irresponsibility.
See, the government can't be trusted to target the correct emissions level with a tax. That's why we should have the government target the correct emissions level with permits . . .
A more realistic model assumes that any American government will, to a virtual certainty, be more generous with either its tax or its credits than [Me + anyone to the left of Bill Clinton] would like. Under that scenario, a tax develops obvious benefits: it provides some mitigation even if permitting is excessively generous. Witness the recent debacle in Europe's greenhouse market where everyone issued too many permits and the price collapsed.
It's also politically and administratively more difficult to exempt special interest groups from carbon taxes than from cap-and-trade. Carbon taxes are also, obviously, much easier to levy on transportation than a cap and trade system, if for no other reason than that it obviates lengthy wrangling about fuel efficiency and which producer should buy the permits for the end-consumer.
His next point reinforces this sort of charming "Welcome to my alternate universe. Do you like what I've done with the fairy rings?" kind of naiveté about political debate that would be utterly delightful in an author of children's books, but is slightly worrying in someone talking about economic policy.
Both taxes and permits create the same problem. If one country takes stringent action of either sort and another doesn’t, producers in the less-green country get a competitive advantage. If you have a permit system, they don’t have to pay for the permits; if you have a tax system, they don’t have to pay the tax. What to do? There have been mumblings from Europe about a green tariff to offset these differences, which makes sense to me. This is a discussion we need to have no matter what system we put into place.
Mankiw doesn’t seem to have paid attention to the global debate about climate equity. In the long run, there is no defensible argument against allotting each of the planet’s residents the same carbon “space”. In the short run, the rich countries start out with more because they can’t cut back to the sustainable level immediately without causing themselves and everyone else grave harm. But they also have an obligation to take action first and more aggressively since it is the accumulation of carbon in the atmosphere that causes the problem, and us industrialized types have been adding to this accumulation for a hundred years or more. Kyoto was a bumbling attempt to implement this ethical framework; hopefully we will do it better in the future.
The reason we need global action is that it is a global problem. Countries that fail to act free ride off of those that do. This points to the need for a stronger climate treaty, but no such treaty would try to tell countries what methods they should use, only what results they should be held to. So Mankiw’s discussion of taxes vs permits in the global context is confused and, in the end, irrelevant.
See how neatly the last paragraph paraphrases Mr Mankiw, all while giving off the impression that the author thinks they are disagreeing? More worryingly, see how Mr Dorman confuses a moral discussion with a policy one?
It isn't that morality has no place in politics; obviously, one does not make policy without some moral vision one is trying to fulfill (the Chait exception noted, as always). But bold moral propositions such as "everyone should get the same carbon allotment", even if they are true, are not really very helpful here. People in developing countries don't take up the same carbon space as people in western countries, and it's not clear that even they would be better of if we equalized the distribution. Their economies are less carbon efficient, which means they get less bang for each barrel of scarce resource they consume; they benefit quite a bit from western inventiveness; there are massive transaction costs to trading; and large numbers of them live in kleptocratic governments that would simply destroy the value represented by permit ownership, just as they have destroyed the value of foreign aid. Moreover, major governments like China are not trustworthy partners in such a cap; the (not unrealistic) political perception is that they would abide by it until they hit the cap, and then they would break the cap. That's a huge problem, since China would probably it the cap pretty quickly.
But also, even if this is the thoroughly and completely correct way to look at it, the American public isn't going to look at it this way; they're going to get angry at any plan which they see transferring economic growth from them to foriegners. Saying they oughtn't to look at it this way is likely to work just about as well as saying they oughtn't to smoke. And calling these considerations irrelevant is sheer silliness.
A feature, not a bug
Econospeak identifies a "problem" with carbon taxes:
But relying on carbon taxes is also a terrible way to finance the government. We are talking about half a trillion dollars or so in revenue, so the percentage of financing would be quite large. Income fluctuates, and that is a problem, but the spending on a particular set of items, like fossil fuels, has the potential to fluctuate even more. Example: suppose we really are facing an oil production peak, and scarcity causes the price to spike? Every 10% rise in oil prices will tend to cause something like a 5% reduction in long run demand (I’m rounding here – and thanks to Gar Lipow for his valuable work in collating the evidence), but this also means less carbon tax revenue, potentially a lot less. This is a serious problem, one that the green taxers have not really confronted.
Oh no! Less revenue for the government! Why, we might have to do something unthinkable impossible, like--cut spending.
In fact, gas tax revenues aren't particularly volatile. In 2004, picking one state at random, Minnesota raised $648 million with its gas tax. In 2006, after the efficiency effects of higher prices, it raised . . . $629 million.
Compare that with income tax revenue. Just between 2003 and 2006, Federal tax revenues grew by $625 billion, somewhat less than double what would have been expected had they remained constant as a percentage of GDP.
Long, slow declines in revenue, such as those seen in the gas tax, are easily dealt with by cutting spending, or, more likely, raising the other taxes. States worried about gas tax revenues, for example, are now experimenting with GPS-based road-pricing. At the federal level, we could raise marginal income tax rates or decrease the standard deduction to compensate.
Update A confused commenter demands that I document the changes in percentage terms. All right; the fall in Minnesota gas taxes, during a period in which the price of oil roughly doubled, was less than 3%. The change in federal tax revenues over a slightly longer period (4 years rather than 3) was 11.5%. We are clearly able to handle changes of the magnitude that carbon tax revenue declines represent, particularly if politicians don't use every increase in revenue as an excuse to go on spending binges--a wan hope, I realize.
September 23, 2007
More guns, less boring kissy stuff
Anthony Gottlieb, the perspicacious man who first hired me to work at The Economist, has made the New York Times for his violent hobby:
It’s not an obvious leap from “The Sopranos” to the Sci-Fi channel, but a friend who was bereft after that HBO series ended was steered to the new incarnation of “Battlestar Galactica,” a cult series about a fleet of starships seeking to escape the robot race of Cylons and find refuge on a fabled, lost colony known as Earth.
Science fiction is one thing: “Battlestar Galactica” has intellectual cachet.
“The humans are pagan polytheists and the robots are monotheists, whose divine jihad is against the humans (even though the former know that the latter created them),” Anthony Gottlieb, the author of “The Dream of Reason: A History of Philosophy from the Greeks to the Renaissance,” explained off the top of his Blackberry from an airport baggage claim. “There’s a curious mix of high-tech and superstition and scriptural fundamentalism (which interestingly suggests that religion is ineradicable, as today’s theorists of secularism are increasingly saying).”
Mr. Gottlieb likes the philosophical puzzles (“Some of the robots think they are human, and some of the humans fear they may be robots”) as well as the way the show switches sympathies back and forth from democracy to dictatorship. He really had only one objection. “There’s lots of romance, though this bores me,” he typed. “Less kissing, more killing is a frequent internal refrain of mine.”
The New York Times gives MoveOn the illegal gift of political speech
So the New York Times has been caught giving discounted ad space to MoveOn for it's Petraeus spread. The real crime, of course, is that this is illegal; the New York Times should be able to donate ad space to whatever political causes its owners want it to support. But of course, the New York Times has been one of the foremost advocates of exactly this sort of nannying campaign finance law, so I wouldn't feel too badly if they caught some of the legal flak they've been urging on others.
Quirky Canada has own government, laws
Speaking of separatists, why is it that Canada has a robust, and rising, separatist movement, while America doesn't? It's not just Quebec. Newfoundland, which has always been suspicious of fraud in the referendum that propelled it into the union, now has a separatist party (although to be sure, it's clearly not a very successful one.) Alberta's Separatist candidates don't get much of the provincial vote, but they seem to be gaining sympathy and support. And I've now met several people from British Columbia who say that if Alberta broke off, they'd like to join them.
Perhaps my vision is just skewed by the fact that I've actually met multiple English-speaking Canadian separatists, but the Canadian union seems to be much more fragile than the American one, and not just because we know what to do with hotheads who try to leave the union. Why would this be?
My working theory is that it is the wild population asymmetry in Canada; given the parliamentary structure, the Liberal Party just needs to run up the vote total in Toronto, and not do too badly in Quebec, and it gets to run things. (A nasty corruption scandal propelled the re-formed Conservatives into a minority government last election, but it looks like they'll be out of power again soon.) That is just what it has been doing for the last decade or so, and as a result, the people in the other 3.4 million square miles are getting a mite restless. Can my readers offer a better explanation?
Is the euro behind Belgium's blowup?
The Economist's Certain ideas of Europe blog makes a point I hadn't thought of:
WILFRIED MARTENS, the former prime minister of Belgium and a grand old man of Christian Democratic politics in Europe, is not the first person to observe that the euro deserves thanks for keeping Belgium calm during the country's current political crisis (103 days without a new government). But he is the best qualified to make this point. As prime minister in the 1980s, he lived through political fights as bitter as anything seen today. But the fact that Belgium had its own currency, the franc, made a crucial difference, he recalls. Politicians knew they had a duty to resolve their disputes as quickly as possible, and end the damage being done to the franc.
In an interview with La Libre Belgique, Mr Martens recalls being visisted by central bankers from the Belgian national bank, pleading with him to resolve the latest crisis (this was in 1981).
"They told us all the time how they were having to intervene every day, billions at a time, to support the value of the Belgian franc," he recalls.
Today, with Belgium part of the single European currency, its politicians have no urgent monetary reasons to end their disputes: the Belgian travails have caused not a ripple within the vast euro system, which is far more concerned just now with the American economy than Brussels squabbling. (In proof of which, the euro this week just headed past 1.40 to the dollar).
The problem of disentangling financial assets and currency is one of the major forces mitigating against separatism. It's generally a good bet that the weaker party in the national union will be the one to lose out from a separation; given their financial and political structure, for example, I'd expect to see a Quebecois franc trail the Canadian dollar by a considerable margin. (Although I'm pretty sure Alberta would experience the many joys of a rapidly appreciating currency). Now that the European Union has taken over the currency, as well as many of the trade and customs functions of traditional federal governments, Belgium as a state suddenly looks a lot less necessary. One wonders if the current era of economic integration (assuming it continues) might not bring increasing political balkanization.
Accentuate the postive
British people think that American actors trying to do British accents are among the most hilarious people on earth. (Irish people feel the same way about stage Irish accents, with more annoyance.) Two days after I arrived in London for a stint in The Economist's headquarters, I found myself in one of the conversations that every American expat there must have at least bimonthly: "Why Americans imitating Brits are pathetic." It's very hard for Americans to hear the defects, just as the British and Irish can't tell the hilarious differences between their notion of "an American accent", and the language as spoken by actual Americans.
The Brits in question were suddenly unamused to find that I'd been watching a BBC drama set in America the night before, a Victorian period piece about an entire town populated by people with serious speech impediments. At least, that's what I thought it was about, until I realized that I was watching the dramatization of a well-known Victorian novel (hanged if I can remember which novel, and that the bizarre speech patterns were due simply to casting British people who weren't very good at doing American accents. Several of the people talking to me had watched it, and hadn't noticed anything wrong. Suddenly, the topic of accents seemed much less funny.
But American accents are hard--just how hard is brought home by this video. For that matter, is any accent easy?
You oughta be in pictures
Dave has also posted a picture, stolen from the awesome Matt Ficke, from whom I stole one of the shots I posted, and who I hope will forgive me now that I've told everyone how awesome he is. Dave says:
The consensus is that I “looked creepy.” I will agree.
This is not strictly true. The consensus is that he looked like the cult leader preparing to lead us all into the woods to wait for the apocalypse--probably while marrying all the women. Matt, obviously, would play the forbidding enforcer. And Ezra, of course, is the idealistic young kid who is sucked into the blogger army by an urge for adventure and better health care policy, only to become disillusioned, giving us a thrilling plot as he fights to escape.
I'm not sure what role I'd be cast in, except that I'm fairly certain I'd die horribly in the second reel.
September 22, 2007
Just a reminder
If I delete your comment, you'll get a note saying why. If it's held for moderation immediately after posting, that's an automatic function of the spam filter, over which I have no control except to fish things out. So if your comment is held for moderation, don't assume that this is some plot on my part; assume I haven't seen it. If it stays in the junk pile too long, email me, and I'll rescue it.
The blogger army is on the march
Matt seeks to avenge his parents. I'm just trying to get some cough medicine. But in the blogger army, all ends are obtainable by one means.
(Yes, I'm leaning back too far; it's been about ten years since I fired a shotgun. But I went 7 for ten on the last two rounds, she said defensively.)
Music Saturday
I've now listened to the new Beirut album four times, and it's disappointing. Not bad, exactly, just . . . fine. The sound's evolving, which is always interesting, but the direction in which it's evolving isn't, very. I'm all for more listenable style--I have too many albums right now that I can't really listen to at work, because it's too distracting--but somehow, it doesn't quite make it. If after four plays nothing's leaped out at me, it seems rather likely that nothing will.
On an unrelated note, I listened to Hem's Rabbit Songs for the first time in months, which was a great album. (Sadly, never matched by their later efforts). And as I was listening to "Half Acre", it suddenly occurred to me that I've listened to a lot of hard-core copyright advocates complaining that "fair use" might let someone ruin a song by, for example, turning the Ride of the Valkyries into a laxative commercial. How come none of these sensitive-eared music lovers get upset when bands ruin their own songs by, say, licensing them to egregiously overplayed insurance commercials? Obviously, I'm a libertarian; I think the latter should be legal. But can't we at least make fun of them, hard?
The truly shocking news is that Wikipedia claims the insurance commercial gave Hem a boost. It couldn't have happened to a nicer band, of course, but do people really buy music off commercials?
If Sonny Bono weren't dead, I'd kill him
If you had any question as to whether the copyright extension was a travesty, here's a gem I came across while looking for some music to stick in a podcast:
Sound Recording Rule of Thumb:
There are NO sound recordings in the Public Domain in the USA.
Records, cassettes, CD's, and other music recordings come under a general category called Sound Recordings or Phonorecords. The publication of Sheet Music placed a song or musical work under copyright protection. Sound recordings, however, were protected by a hodge-podge tangle of state laws, but were not covered under Federal copyright law. It was even determined that there was no federal criteria to actually "publish" a sound recording. This was fixed with the 1972 US copyright act which officially "published" all sound recordings in existence on February 15, 1972, and 75 years of copyright protection was enacted for essentially every sound recording created in 1972 or earlier. (1972 + 75 years = 2047). The Sony Bono Act of 1998 extended all copyright protection an additional 20 years. Therefore, the earliest that copyright protection will expire for any sounding recording in the USA is 2067 (2047 + 20 years = 2067).
September 21, 2007
More on Jena
As everyone notes, it's hard to get information on the case, which is trickling out and heavily influenced by where you got your facts. My understanding so far is that the Wikipedia entry is pretty authoritative, and the basic facts are as follows:
Jena is a town with racial issues. There was a special tree at the high school that white students sat under to read.
A black kid, who may or may not have been new to town, asked permission to sit under the tree. The principle said "of course you can sit anywhere you want.
The next day, everyone came into school to find three nooses hanging from the tree.
Three kids were identified and expelled. The school board overrode the expulsions and gave the kids three-day suspensions.
In the resulting ugly atmosphere, there were escalating interracial fights at school. The DA came in, and spoke in a manner that was perceived by the black kids as directed mostly at them. The black kids tried to bring their concerns to the school board, but were ignored.
The school building was burned down by unknown perpetrators. The burning is believed to be related to the racial tension, and both sides accuse the other.
In December, the end of football season quelled much of the solidarity that had kept the nastiness in check. At a mostly-white party on December 1st, five black kids tried to gain entrance, and a fight broke out with a group of white men who were not students. Eventually, one of those men was identified, charged with battery, and given probation.
The next night, a white student who'd been at the party ran into that group of black kids in a convenience store, and an argument broke out. The white kid ran to his pickup truck and got a pistol-grip shotgun--he says because he was afraid they would attack them, they say unprovoked. They wrestled it away from him and drove off with it, resulting in a theft charge.
Two nights after that, six students, now dubbed the "Jena Six", got into some sort of verbal altercation with a white kid named Justin Barker, who they claim was taunting them about the assault of three days earlier. He was hit in the back of the head, and fell unconscious either then or after hitting the ground. The six continued kicking him after he was unconscious; Barker's father says, in the head, which could have been fatal. However, Barker was up and around later that night, so his injuries do not appear to have been anything near life threatening, and there's no evidence that the kids intended deadly assault.
The Jena Six had the entire library thrown at them: attempted murer bargained down to assault with a deadly weapon. The pattern of leniency on whites and harsh punitive measures on blacks has enraged people throughout America.
This is why I'm not sure how you even things out; without other witnesses, it's hard to know whether the kid with the shotgun was acting in self-defense or not, and if he is telling the truth, I'm libertarianish enough to regard waving a shotgun at people who have threatened to jump you as a legitimate use of force. (On the other hand, the fact that they didn't jump him after they'd separated him from the shotgun weighs against this interpretation.) The assault at the party has already been tried, and an inadequate sentence handed down; you can't try him again in order to match his offense to the other, and moreover, the sketchy facts of that case do not include six guys kicking one unconscious one. I'm happy to agitate for hanging sentences on deserving white kids, but which ones, who have not already been tried, do you want to punish?
Jail the Jena 6
Instapundit and Orin Kerr have been posting about the problem with building a coherent story about what happened in Jena. But this strikes me as the deeper problem.
I got a few emails urging me to wear black yesterday to "Free the Jena 6". But they shouldn't be freed. Six guys assaulted one, and after he was lying on the ground unconscious, kicked him repeatedly in the head. They should go to jail for this.
I am very sympathetic to the point that there has been a systematic tendency to treat the black kids involved as thugs, while treating the white kids as just adolescent pranksters horsing around. This cries out for some form of justice. However, given that the white people involved have already had their cases adjudicated, and been given excessively light punishments, I'm not sure how to administer that justice. Nonetheless, I'm pretty sure that it should not involve releasing kids who perpetrated a six-on-one assault. It seems pretty clear that the charges are too harsh, and should be reduced. But "Free the Jena 6" is nonsense.
Advocating for racial equality in the justice system need not entail pretending that every defendant is Nelson Mandela. And assuming that sort of rhetoric in a case where it is glaringly inappropriate makes it easier for the people you want to reach to dodge the deep questions about why poor and minority kids are generally assumed to be bad kids, while middle class white kids are seen as basically nice people going through a phase.
Personally, I'm pretty sure that none of the people involved here are very nice. And though I do understand why the justice system punishes the two crimes differently, I'm not sure which would horrify me more as a parent: having given birth to a kid who ganged up on a loudmouth and kicked him in the head; or having raised a kid who thought that lynching threats made a witty and appropriate practical joke.
Stop following me!
Matt Zeitlin notes Elizabeth Edwards getting a bit weird:
Elizabeth Edwards has been straddling the line between the unafraid, aggressive left wing clarion voice of her husbands campaign and gaffe prone, petty attack dog. With her reaction to Hillary’s health care plan, she may have finally crossed over to just being shrill:
Elizabeth Edwards accused Democratic presidential candidate Hillary Rodham Clinton of copying the health care plan outlined more than seven months ago by her husband, John.
The New York senator has failed to lead on an issue in which she has extensive experience, Edwards said.
“Does Mrs. Clinton’s plan seem very familiar to you?” Edwards said in an interview with The Associated Press. “Mrs. Clinton has — seven and a half months after John unveiled his health care plan — unveiled a health care plan that is in every material respect just like John’s.”
So, Elizabeth Edwards is criticizing Hillary for…being too much like her husband? If this doesn’t make sense to you, you’re not alone. Would Edwards be more happy if Hillary came out with a plan that didn’t have a mandate and didn’t have a public option? Would Edwards criticize her less if she came out with the Bush/Giuliani plan? For Clinton, coming out with a plan very similar to Edwards’ isn’t “failing to lead,” it’s the exact opposite. Is Edwards tarred with trying to implement a similar system and massively failing? Do various right wing media types have a prefab story line for Edwards plan, with cute names like “EdwardsCare 2.0″ or “Son of EdwardsCare”? Of course not, for Clinton, she’s making her self a target to her opponents by coming out with this plan. She is taking a risk to a central achieve progressive goal, and that should be commended, not scorned.
This would seem more of a time for a jokey "Why not elect the guy who thought it up?" response, not this slightly whiny tone. There's a weird, protective, send-a-woman-to-attack-a-woman vibe about this. What's next? Des she sue Ms Clinton for alienation of affections?
Freedom's just another word for "Sudafed on demand"
The other day, I stopped in the drugstore on the way to meet a friend in order to pick up a little cold medicine. I stomped out in a huff, proclaiming that "this is not how people in a free society should live." In order to obtain a little Sudafed, I had to produce a photo ID and sign for it. Is shutting down one of many avenues of meth production really worth the price of treating every American citizen with a stuffy nose like a drug dealer?
Walter Olson points out that some lawsuit lunatics in Arkansas are trying to make it all worse still. Stop the world, I want to get off.
September 20, 2007
What a snore
Oh, this takes me back, it does. To the earth shattering booms and irritating whistles, the sleep-deprived nights, the frantic rib-poking, the ever-so-temporary relief. Why is it that snorers can always fall asleep faster than you can?
Stupid question: they're not the ones having their eardrums assaulted.
The article tests snoring remedies and finds what the rest of us already knew: the only thing that works is making the snorer sleep on his side. But I confess, the method he found for inducing the posture was a new one on me.
Greg Mankiw must be happy: Oil just hit a new high of $81.24 a barrel this morning. This is a Pigovian tax with the proceeds going to Saudi Arabia rather than the US Treasury, but if Mankiw is right that a carbon tax would reduce carbon emissions, then these high oil prices should be instrumental in reducing oil consumption, carbon emissions, and, ultimately, the pace of global warming.
On the other hand, if demand for energy does not fall appreciably as a result of these stratospheric prices, then the whole basis of a carbon tax is disproved, and Mankiw will have to throw his weight behind a cap-and-trade system (with auctioned rather than allocated emissions rights).
As Free Exchange writes, this is not quite correct for several reasons. First, Mankiw advocates a carbon tax, which would cut down the use of things like coal that are much worse for the environment than oil. Second, a Pigouvian tax is meant to price into the product the negative externalities of its use. It doesn't matter how high the price of oil is; a carbon tax would make it even higher, and thus have more effect. Moreover, these prices may not be high enough to produce an efficient reduction. And finally, oil demand is fairly inelastic over the short term, but much less so over the long run, as people invest in conserving technologies and rearrange their commutes and other energy-intensive activities. The long reactive lag is what lulled OPEC into a false sense of security in the early eighties, with disastrous results for their governments when the price finally plummeted. It will be some time before we can assess the full effect of these prices on consumption, if indeed they last.
But there are other reasons that I think this doesn't quite work, even though I toyed with this notion a few days ago. First of all, if the price increase is reflecting the fact that oil production has basically peaked, as some observers have argued, then in essence we have a cap and trade system on oil. Assuming, as I think is reasonable, that India and China will not accede to any sort of global regime, there will be no carbon-reducing benefits to implementing the kind of regime that Mr Salmon favors. Rather the reverse, in fact; India and China use oil much less carbon-efficiently than industrialized countries do.
But a Pigouvian tax could still be useful. As an energy correspondent of my acquaintance was fond of saying, carbon taxes make sense not just environmentally, but because they redirect money from some of the worst regimes in the world. A tax takes money not just from American consumers, but also from Hugo Chavez and assorted nasty Middle Eastern regimes.
I know what you're thinking--a chart! Why doesn't she give us a chart?
Oh, all right, my little chickadees, but it's the last time . . .
It's a simple chart, with the price on one side, and the quantity on the other. Like always, demand slopes down, with people wanting to consume less as the price rises, while suppliers want to sell more.
At time zero, the market clears at P0, which purchases S0 units. Then we impose a tax, which raises the price to PTax, and reduces the quantity consumed to STax. The oil producer, however, which used to earn [P0 X S0] now gets the same price for a smaller quantity sold, earning only [P0 X STax]. If the taxes collected are rebated as reductions in other taxes (admittedly a big if), American consumers are not much worse off--not at all worse off, in a larger sense, as long as the tax has correctly priced the negative externality (admittedly, another big if). But Iran suddenly has a lot less money to spend on nuclear weapons.
Whither oil?
When will it stop, beg my friends with long auto commutes. At $83.84 a barrel, perhaps it's time to think about trading that gas-guzzling Prius in for a bicycle.
``The storm threat and falling dollar are pushing us higher,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``We will see even bigger inventory draws in next week's statistics as a result of the evacuations in the Gulf.''
Crude oil for October delivery rose $1.91, or 2.3 percent, to $83.84 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $83.90, the highest since the contract began trading in 1983. Prices are up 39 percent from a year ago.
. . .
U.S. crude-oil supplies fell 3.87 million barrels in the week ended Sept. 14, the 10th drop in 11 weeks, the Energy Department reported yesterday. The drop left inventories 7.4 percent higher than the five-year average for the period, the department said.
``The market is relentless,'' said Tom Bentz, a broker at BNP Paribas in New York. ``The fundamentals don't justify these prices but the prices are holding firm. We are due for a correction but nobody is willing to step in front of this.''
The dollar dropped to a record low against the euro today on speculation U.S. interest rates will extend declines, making oil cheaper in the countries using other currencies. Oil rose after the Federal Reserve cut rates this week to bolster the economy, which has been hit by subprime-mortgage losses.
Lower US interest rates make US assets less attractive, which decreases the demand for dollars, which makes the dollar fall. That's why the monetary nationalists among my friends are instant messaging me to moan about the American dollar's newfound parity with the Canadian dollar, a state of affairs that has not prevailed in decades. Since oil contracts are denominated in dollars, the relative price of oil is falling in other countries, which means those lousy foreigners are going to buy more of the stuff, which means there will be less here, which makes our price rise.
The interest rate cut also makes it less likely that we'll have a recession, which also pushes up the price of oil, because economic growth increases American demand for black gold, and American demand is one of the major factors determining the price.
Yet with inventories high, temporary closures like the one in the gulf shouldn't cause such big spikes. One way of looking at it is that the market is irrational, but no one's willing to short it because, as the aphorism goes "the market can stay irrational longer than you can stay solvent". But another way of looking at it is that there are so many potential problems with the oil market on both the supply side and the demand side, that people are pretty sure that today's inventories will be very valuable in the future, even if they don't know which of the potential military, economic or political problems will make them so. I am finding the latter more convincing these days; analysts have been proclaiming a "speculative bubble" in oil markets since 2004. But perhaps I am only buying into the bubble at the top.
Osama Bin Laden declares war on Pakistan
Osama Bin Laden is starting to remind me of my college boyfriend, whose brooding anger at the white male bourgeois power structure quickly disintegrated into anger at the non-Scott power structure. Since this was, as you can imagine, quite large, it often led to do things that weren't, strictly speaking, a very good idea. I didn't need behavioral economics to tell me that people don't always act in their rational self-interest.
Now Osama has declared war on the government of Pervez Musharraf in the run up to the elections. This would make sense if Pakistan had any sort of reputation for being the sort of stable and open representative democracy whose government could be ousted by grand emotional proclamations. But it seems rather mad in the current circumstances.
Pakistan has been, at best, a fickle ally of the United States, though it's hard to know how much to blame Musharraf for this; he isn't actually in control of the bits of his government that seem to be helping Al-Qaeda in the tribal areas. But why would Osama do this? Previously, he had a fairly stable arrangement; Musharraf couldn't root him out of the tribal areas for various military and political reasons, and Osama couldn't bring on the Caliphate just yet. But last time I looked, the Caliphate didn't seem terribly imminent. Meanwhile, he has just given Pervez Musharraf and any waverers in his government a much stronger incentive to find Osama and his merry band of cave-dwelling madmen.
This is the kind of overreach that has caused every government that has ever offered him shelter to ultimately kick him out, except for Afghanistan, which didn't have much of a government. Even so, he went and found another government to kick him out. And where will he go this time? He's running out of lawless quasi-states to hide in.
More Big Con blogging
I have to admit to a bit of private hilarity at the multiple accusations that I couldn't possibly have read Jon Chait's book because a mere thirty six hours before I posted my review of it, I complained of not having a copy. I hadn't realized that so many people considered reading a 250-page book, set in the EZ Reader Xtra Large typeface popular among political polemics, such a heroic feat. I'm sorry to disappoint, but shortly after that post, I borrowed a copy from my colleague Matt Yglesias, then sat down and read the book.
At any rate, in order to clear any lingering doubts that I am incapable of finding passages to critique unless some smarter guy such as Will Wilkinson discovers them for me, let me offer one of my early favorites:
Next, conservatives insist that tax revenues actually did rise under Reagan. And in a literal sense this is true: as the Wall Street Journal editorial page writer and supply-side propagandist Stephen Moore triumphantly declared: "From 1982 to 1989 income tax receipts climbed from $298 billion to $446 billion -- a 50 percent increase." But this is like saying that your policy of feeding your children nothing but marshmallows for six months has been proven correct and healthful because your children have continued to grow. It's a meaningless measure. In any growing economy, tax revenues will tend to rise in nominal dollars -- from inflation alone, if nothing else. The more accurage measure of revenue growth is as a percentage of the economy, and by that count revenues dropped under Reagan. [Emphasis mine]
This is where the book totally went off the rails for me--on page 34, for those following along at home. This is a huh? moment so profound that one really doesn't know where to look. This passage seems to indicate that Jonathan Chait has completely failed to understand the supply side arguments that he is trying to take apart. It's hard to comprehend how he could make such an error, for the supply side argument just isn't that sophisticated. Learning to tie your shoes is considerably harder and more time consuming.
The whole point of the supply side argument is that if you lower the fraction of the economy that the government consumes, you will spur economic growth, which will raise the absolute amount of revenues that the government collects, allowing them to do more spending with lower marginal tax rates. It is definitionally true that under supply side policies, tax revenues will fall as a share of GDP. Saying "tax revenues grew in absolute terms, but fell as a share of GDP" is not a rebuttal of the supply-siders; it's support. Yet Mr Chait seems blissfully unaware of this. He has not only scored an own-goal; he is doing a victory dance in his side's end-zone.
To be sure, what Mr Chait is trying to say is correct: the Reagan tax cuts did not increase revenues in the way that Stephen Moore is claiming. In the first place, there was a little bit of inflation between 1982 and 1989; the 1989 equivalent of $298 billion was about $382 billion, meaning that most of that growth in tax revenues came from the falling purchasing power of each individual dollar. The rest could be accounted for by even relatively meager economic growth rates of the 1970's. And even if that weren't the case, it conveniently ignores the rather large tax hikes and base broadening that took place later in Reagan's term. Finally, to the extent that growth did improve, deregulation, falling oil prices, tax simplification, and better monetary policy all seem like better conservative explanations of the change than do the rather ephemeral tax cuts.
With all that armor at his disposal, I am mystified by Mr Chait's decision to borrow a simplistic argument from other liberal/conservative arguments about taxes, and employ it where it is not merely inappropriate, but actively counterproductive. It's not as if arguments against tax cuts are all just interchangeable parts. The good arguments tend to be somewhat theory specific, not general panaceas against the bad vapors of tax cuttery. It's particularly unfortunate that he should be so indiscriminate in a book that is supposed to take on the broad-spectrum economic snake oil sold by the hard-core supply siders.
Times Select = Pigouvian tax?
Andrew Samwick offers the contrarian view on Times Select:
I thought TimesSelect was a wonderful thing. It imposed a $50 per year tax on a readership whose opinions were almost certain to be opposite of mine. I'm going to miss it.
The last thing we need is the perception that the Fed is caving in to political pressure. Such a perception, even if unfounded, would raise inflation expectations and make the Fed's job even harder.
Note to Congress: if inflationary expectations go up, the Fed has to raise interest rates in order to combat them. Thus, demanding that the Fed ease the money supply is actively counterproductive. Please stop.
How conservative is the Supreme Court? How deep is the ocean? How high is the sky?
Cass Sunstein is complaining that liberalism isn't what it used to be:
The Myth of Balance Between Left and Right holds that the Court has a "liberal wing," consisting of Justices John Paul Stevens, David Souter, Ruth Bader Ginsburg, and Stephen Breyer, and a "conservative wing," consisting of Chief Justice John Roberts and Justices Antonin Scalia, Samuel Alito, and Clarence Thomas. Justice Anthony Kennedy is the swing vote, the "moderate."
It should be clear, right off the bat, that something is fishy about this picture. Cautious on the lower courts, Ginsburg and Breyer were prescreened by and fully acceptable to Republicans on the Senate Judiciary Committee. Both their votes and their opinions have been far more moderate than those of the great liberal visionaries of the Court's past, such as William O. Douglas and William Brennan. Souter is a Republican appointee. His approach to constitutional law is in the general mold of Justice John Harlan, the great conservative dissenter on the Warren Court. Stevens, also a Republican appointee, was a maverick on the Burger Court, far to the right of three of its members. Contrary to what you hear, Stevens hasn't much changed in the last decades.
Here's a simple way to expose the Myth of Balance. In 1980, when I clerked at the Court, the justices were, roughly from left to right, Brennan, Thurgood Marshall, Harry Blackmun, Byron White, John Paul Stevens, Lewis Powell, Potter Stewart, Warren Burger, and William Rehnquist. Believe it or not, this Court was widely thought to be conservative. But think, just for a moment, about how much would have to change in order for the Court of 2007 to look like the supposedly conservative Court of 1980.
First we would have to chop off the Court's right wing, removing Scalia and Thomas and replacing them with Marshall and Brennan. Far to the left of anyone on the Court today, Marshall and Brennan believed that the Constitution banned the death penalty in all circumstances, created a right to education, and required the government not merely to protect the right to choose but actually to fund abortions for poor women.
Next we would have to replace Kennedy with Blackmun. Blackmun was also to the left of anyone on the current Court. Fiercely protective of the right to privacy and opposed to the death penalty on constitutional grounds, Blackmun believed that the social-services agencies were constitutionally obliged to protect vulnerable children from domestic violence and that affirmative-action requirements were broadly acceptable.
Then we would have to leave Breyer, Stevens, Souter, and Ginsburg essentially as they are. All of a sudden, the four would be perceived as the Court's moderates rather than its liberals, operating as a group much like White, Stevens, Powell, and Stewart. (The parallel between White-Stevens-Powell and Breyer-Stevens-Souter is very close; true, Ginsburg is somewhat to the left of Stewart in many domains, but their voting patterns and general approaches are pretty close.)
Finally we would have to assume that Roberts would vote more or less like Rehnquist (which is to say, definitely to the left of Scalia and Thomas) and that Alito would vote more or less like Burger (definitely to the left of Rehnquist).
To say the least, all this would represent a radical change in the Court's composition -- so radical that liberals cannot even fantasize about it. But this radically changed Court would be essentially identical to the supposedly conservative Court of 1980!
I remember 1980. You young people may not realize it, but back then, we didn't have these crazy touch-tone telephones you like to use to fax all your friends. We had rotary dials, with little holes for each number that you had to stick your fingers into and drag them all the way over to the right, where a touch bar known as the finger stop would register each digit. And if you wanted to call all of your friends, perhaps to invite them over for some fondue, by the end of making all those phone calls, your index finger stung from hitting the finger stop so many times, let me tell you.
Seriously: why on earth would the definition of a "conservative" court in 1980 be some sort of lodestar by which all future courts should be judged. By the standards of 1880, the current court would be a bunch of wild-eyed socialist libertine radicals bent on undermining everything that made America great. Does that entitle me to re-nominate Oliver Wendell Holmes, or his modern day equivalent?
Cass Sunstein (who graduated from law school in 1978) seems to be under the delusion that the conditions of his youth are the golden mean by which all future events are to be judged and found wanting. I mean, we all feel the same way, but most of us don't expect anyone younger to take us seriously when we drone on about how much better The Pogues were than any of this modern noise.
It seems stupid to have to point this out, but on a number of issues the public has moved rather rightward over the past generation. Naturally, the court has moved rightward too. It is not demonstrably out of step with the public on "liberal" questions like homosexuality, abortion, affirmative action, various sorts of environmental and business regulation, civil rights, campaign finance, separation of church and state, and so forth. If anything, the court is still to the left of the public on these matters.
The court is to the right of the average law professor, not to mention the average Cass Sunstein. But that's because the average law professor is to the left of the average American, and any reasonably democratic system is going to produce a Supreme Court whose mean opinion hews more closely to that of the voters than to that of any larger group from which the appointees are drawn.
French pension reform
The invaluable Andrew Samwick points to this story on another attempt to reform French pensions:
Nicolas Sarkozy is eyeing off the pensions of public servants.
In 1995, moves to reform France's pension system led to weeks of protests.
Now, the new French President has announced a package aimed at cutting benefits to workers like train drivers and electricity workers, who until now could retire early.
Mr Sarkozy says the system is financially unsustainable and he has pledged to negotiate with unions and companies, but he insists the new system will be implemented without delay.
He'll need more than a bit of luck. In 2003, roughly the same reform touched off a series of crippling strikes (which is still better than 1995, when an attempt to reform pensions ultimately brought down Alain Juppe, the prime minister.) That's why the train and utility workers were exempted from the last deal: for some reason, railroad unions tend to be especially militant, and both groups have the ability to bring the country to a screeching standstill. It's annoying if you can't get your driver's license renewed, but really a tad worrisome if the power to work your ventilator goes offline.
Nonetheless, he has to do something; lavish public sector pensions pose a potentially crippling burden on a government that already has quite a lot to do figuring out how to fund all that health care for the elderly. And having forced the reform down everyone else's throats, the government may be in a better public position, since now other civil servants will resent the special privilege.
I don't believe it
A friend emails:
Students at many of the country's most prestigious colleges and
universities are graduating with less knowledge of American history,
government, and economics than they had as incoming freshmen, with
Harvard University seniors scoring a "D+" average on a 60-question
multiple-choice exam about civic literacy.
According to a report released yesterday by the Intercollegiate
Studies Institute, the average college senior at the 50 colleges and
universities polled did not earn a passing grade.
The quiz is here. I scored 100%. Take the quiz yourself; if incoming Harvard students are really scoring in the sub-70% range, I'd be shocked. Although it is heavy on economics, so I might be biased.
Risk/reward
We've heard a lot about the downsides of mortage securitization recently: how spreading the risk has also made it difficult for strapped borrowers to obtain workouts, while obscuring the extent of the financial system's exposure. But here's a benefit you aren't hearing much about: no one in America is currently worried about bank runs. In England, on the other hand, where one of the biggest subprime lenders was also a major bank, the government has stepped in to guarantee all of Northern Rock's deposits in order to prevent a solvency crisis for the institution:
News that U.K. Chancellor of the Exchequer Alistair Darling, who oversees the Treasury, together with the Bank of England, had taken the highly unusual step of guaranteeing all deposits at Northern Rock, combined with an unscheduled £4.4 billion ($8.78 billion) injection from the central bank, brought a measure of calm to depositors and investors yesterday. A Treasury spokesman said the guarantee extends to any solvent bank in similar circumstances.
Northern Rock said that lines at its branches and traffic at its call centers had decreased sharply. In London yesterday, Northern Rock's shares rose 8.2% to 306 pence ($6.11), after losing about 30% on each of the two previous trading days. Shares of other U.K. mortgage lenders bounced back sharply as worries eased.
Which half?
There's a lot of very good stuff in Robin Hanson's provocative essay arguing that half the money we spend on health care is wasted. Overall, I think he has the better of the argument; probably, excess health spending doesn't much change outcomes. But I'm less sanguine than he is at the notion that we could simply slash our spending in half.
Mr Hanson's argument is that above a certain basic level, there's no evidence that extra spending improves health. Some procedures above that make you healthier, but other unnecessary procedures make you less healthy; the overall effect is a wash. I'm fine with that conclusion, too. But he argues that cutting those extra expenditures wouldn't impact innovation. There, I'm less convinced.
It would seem natural that the procedures most likely to have dubious health value are the newest procedures, where benefits and side effects have yet to be fully explored. So while current spending might not do you any good, it is providing the knowledge that will do others good in the future.
This suggests that on health costs, Americans are leaning in to the strike zone and taking one for the global team: spending a lot on procedures of dubious value, so that others can incorporate the valuable ones into their health systems. Yet another reason that I think my European friends, if they know what's good for them, will stop extolling the virtues of a cheaper single-payer system to us, and start telling us how awful it is, nothing we'd ever want to try.
PKBlog!
So Paul Krugman has a blog. So far, disappointing mission statement instead of fun, meaty blogwars with opposing economists. But perhaps he is merely gathering his strength. Mr Krugman doesn't seem to have learned the first rule of blogging, which is that you need a post every day to drive traffic.
What you see is not what you get
Like Will, I wished I had had more time to spend on the Big Con book club at TPM Cafe, but last week was busy, and this week continues so.
Like Will, I had problems with this passage:
From 1947 to 1973, the U.S. economy grew at a rate of nearly 4 percent a year — a massive boom, fueling growth in living standards across the board. During most of that period, from 1947 until 1964, the highest tax rate was 91 percent. For the rest of the time, it was still a hefty 70 percent. Yet the economy flourished anyway.
None of this is to say that those high tax rates caused the postwar boom. On the contrary, the economy probably expanded, despite, rather than because of those high rates. Almost no contemporary economist would endorse jacking up rates that high again. But the point is that, whatever the negative effect such high tax rates have, it’s relatively minor. [emphasis mine]
My response to this was: huh? Two things Chait either does not understand or takes pains to ignore: (1) the relevant counterfactual and (2) the compounding nature of economic growth. He concedes that these astronomical rates put a brake on growth — and for about a third of a century (i.e., the ‘47 -’73 boom plus the following downturn until the ‘8os cuts.) So what would the growth rate have been with much lower tax rates? I don’t know. Depends on how much lower, obviously. But, other things equal, higher. (Anyone know of a rigorous estimate?) And Chait agrees.
My problem is a little different, though: the effect was probably not that big. And the reason it wasn't that big, is not that marginal tax rates don't matter, but that almost no one paid those marginal tax rates.
In 1951, the year that rate was enacted, the 91% tax rate kicked in at $400,000 for a married couple filing jointly (Moreover, due to statutory adjustments, its effective limit was about 87%, but that's a quibble). In today's dollars, that's about $3.2 million. By 1963, it's last year, inflation had eroded it to perhaps $2.7 million. That's the kind of income that puts you somewhere over the line for the top 0.05% of households in the United States. In other words, we're discussing something under 50,000 tax returns.
Moreover, even those who had very large incomes didn't pay anything like a 91% effective marginal rate, because deductions were much easier to come by before the 1986 tax reform. That's how we got the AMT; people used to find it relatively easy to structure their income to evade tax. Too, corporations found ways to give income to their employees in tax-advantaged forms, such as lavish expense accounts. So that rate impacted very, very few people, most of whom, I grant, would probably have kept working anyway just because they liked being the president of GM. But Fortune 500 CEO's are not where we look for the meat of the action on the incentive effects of tax changes; we look, rather to occupations that are remunerative but not particularly glamorous, like owning a plumbing supply factory or being a proctologist. And those people did not come near being impacted by such high tax rates.
Today, on the other hand, our top rate kicks in at about $300,000 of household income--the salary of two law firm associates. I'm not asking you to feel sorry for them, as I certainly don't; but the vast majority of law-firm associates I know are actively looking for jobs that will require less work. Raising the tax on their extra income by ten percentage points might well make that decision much easier.
(Which is not to say that we shouldn't do it; only that comparing this situation to 1951 is a little loonie.)
Feel that earning power
I'll have more on the Obama tax plan sometime in the next week; I'm trying to go through and look at the sum total spending and tax proposals by the candidates, which takes time.
Meanwhile, one proposal I'm surprised not to find being talked up is the Earned Income Tax Credit, a variation on Milton Friedman's famed negative income tax proposal that is very well regarded by Democrats and Republicans alike. Defying the aphorism that "a program for the poor is a poor program", the EITC has been expanded in every major tax package in the last two decades, and with good reason: it helps out marginal members of the labor force, while still encouraging work.
But this Raj Chetty profile suggests that it may not work as well as it could:
Chetty is drawn to the psychological underpinnings of economic theory. Before deciding on a change to the tax code, he argues, politicians should study how consumers think about taxes. With that in mind, he created an experiment to determine whether separately labeling the sales tax on an item would affect a shopper’s behavior. He persuaded a large grocery chain to allow him to post tags next to 750 of their products for three weeks, showing how much the item would cost after sales tax was added. Fearing the experiment would result in lower sales, the chain did not allow Chetty to post signs on its most popular items.
The store management’s fears were well founded. When consumers knew just how much more taxes would cost them, they reduced their purchases of the items by about 7 percent. As part of the working paper—titled “Salience and Taxation: Theory and Evidence,” coauthored by Adam Looney of the Federal Reserve Board and Kory Kroft of Berkeley’s economics department—Chetty surveyed customers entering the store to determine whether they knew which goods were taxed and which ones weren’t. They were generally able to distinguish the two categories. In other words, they knew that an item was taxable, but actually seeing the total cost—including the tax—at the time of a potential purchase discouraged them from buying it.
“It may not sound unusual. But in economics, most people don’t do experiments. They’re happy to take the data as they find it. They don’t create novel experiments to understand the way the world works,” Feldstein says. “It was a very ingenious way of showing how taxes actually affect shopping behavior—that people actually shopped less when they recognized the full cost of what they were doing.”
Given that consumers seem to weigh taxes more heavily when they are reminded of the burden, Chetty wondered whether Americans understand the implications of the Earned Income Tax Credit, a program meant to motivate low-income people to work by subsidizing their wages. Enacted in 1975, the program was expanded in 1986, 1990, 1993, and 2001. It is considered one of the government’s central anti-poverty policies. Under the program, those who earn, say, $10,000 a year might be given a credit once a year for $4,000, or 40 percent of their salary. But after surveying some of the beneficiaries of the EITC , Chetty found that most people who get it don’t understand how it works.
“They just know that after they file their taxes, they get a big check,” Chetty said. “That is seriously problematic for public policy, because the whole point of the program is to give people an incentive to work. To give them an incentive to work, they really need to understand that they’re really being paid $14 an hour, not $10 an hour.”
The EITC seems to function less as a wage boost than as a system of forced savings for the poor. That's not a perjorative, either; forced savings are popular even with the forcees. Witness the number of (middle class) people I used to work with who would overwithhold in order to experience the joy of getting a check back from the IRS. When I tried to explain that they were essentially making an interest-free loan to the government, they countered that they liked having a big check they could spend on something memorable, like a vacation or a downpayment on a car. The EITC beneficiaries I've known seemed to view it much the same way.
But how to make it work more like a direct wage subsidy? Refunding the money in each paycheck would be outrageously expensive to administer, and poor people who were overpaid the credits in the beginning of the year are vanishingly unlikely to have the money to cover a shortage at year's end. Moreover, the forced savings aspect can be a real benefit; money that would otherwise trickle away on small sundries can instead be put towards a reliable car to get to work, a rental deposit, or something else that measurably improves their lives. Perhaps a statement issued with each paycheck, showing the accumulated EITC?
Driven consumers
Ezra says that consumer-based medicine is a red herring:
Indeed, the reason people get medical care -- in particular expensive medical care -- is because their doctors tell them to. I have never in my life sat up in bed and thought, "huh, I should really get some laparoscopic surgery." If I get a surgery, it's because my doctor told me to. And if I can't afford it, I have to ignore his diagnosis.
For that reason, if you want to safely cut back on care patients buy, you need to get doctors to stop recommending so much wasted care. You can do that in a few ways: Put them on salary rather than on fee-for-service deals, so they don't make more money when they recommend treatment. Create new research institutions that test the cost effectiveness of care so they have a better idea of which treatments are worth recommending. Offer bonuses for using proven therapies. Etc, etc. But this idea that the way to better run medical care is to rejigger the financial incentives so patients have to ignore their doctor's advice is really quite bizarre.
I actually agree with Ezra that consumer-driven medicine is unlikely to be much of a panacea. But I think he's wrong about the way that it reduces costs. Yes, it can save costs by forcing patients to forego useful procedures, but most consumer-driven advocates don't envision patients being uninsured; they just envision high deductibles to make them cost-conscious. More to the point, consumer costs don't just make patients attentive to cost-benefit analysis; they also change the way that doctors think about them. Doctors are much more willing to order tests charged to a faceless insurance company (generally one they've had unpleasant financial negotiations with) than they are to a live patient sitting right there in their office.
During the years that I was uninsured, I saw expensive East Side doctors, and doctors running Medicaid mills for the local housing projects. The common denominator was that as long as they assumed that I was insured, either by an employer or the government, they tended to order a lot of tests and procedures. The magic words "I'm uninsured" revealed that most of those tests had a very, very slim marginal benefit. We still ordered tests that were likely to yield useful information: thyroid function, breathing tests, and various other things that for reasons of age or previous medical history seemed likely to yield useful results. But given that I am not overweight and had none of the symptoms of diabetes, we canned the blood sugar tests. Likewise the EKG for my nonexistant heart symptoms, the assorted tests for incredibly rare autoimmune diseases, the hormone levels, and the cholesterol screen.
Since becoming insured, I've had all those tests, and more. They always come back fine, even my thyroid, which I've been waiting to lose to an autoimmune disease for almost ten years now. Meanwhile, I've had three disease scares from tests that showed borderline positive, five EKGs, three electrocardiograms, two chest x-rays (to be fair, one was at the behest of the WTC workers program), and probably more useless procedures that I can't remember. They haven't made me healthier; they've made doctors more secure, and test companies richer. Those categories of expenditures are ruthlessly trimmed by cost-sharing patients without much apparent cost in health.
There's another category that I'm not sure who is best equipped to deal with: the borderline useful. For example, I've had a camera stuck down my throat in order to discover that I had, not an exciting ulcer or scary stomach cancer, but boring acid reflux. Had I still been uninsured, I probably would have gotten a dose of antibiotics and antacids for the putative ulcer, and orders to come back if the problem didn't go away. Had it actually been stomach cancer, of course, that would have been bad . . . but almost no one at the age of 30 has stomach cancer. And the risks of general anaethesia may outweigh the benefits of finding that one-in-a-million cancer.
It seems obvious that consumer-driven care is the only shot we have at eliminating those kinds of expenditures, which could trim a lot off our health care bills. Either the government, or private insurers, are self-evidently willing to pay for couture medicine in a way that other countries are not. What I don't know is whether we should be interested in eliminating this last category.
September 18, 2007
Eek!
Ryan Avent, having had his employer accused of advocating building highways to increase fertility, defends against the charge by turning around and laying it on me. No, no, no, I never said no such thing nohow. America's car culture may encourage fertility--but that's the culture, not the highways. And the per-capita income which allows us to spend more money on big cars and gas to fill them. Canada has lots of highways.
Even if I did think that highways, or lower gas taxes, encourage fertility, I would expect the added-fertility-per-dollar-spent-on-roads to be too trivial to make it worthwhile government policy. Even if I didn't think it would be bad government policy for other reasons, like global warming and giving senators a slush fund to play with.
When I said that government policies to encourage fertility don't work, I meant "policies within the reasonable solution set of a western democracy". Obviously, there are some policies that will encourage fertility; a ban on birth control and abortion, for example, would probably be fairly effective. But these are not things that have a reasonable chance of passing the legislature, for which we may humbly thank god every day; ditto, the number of new roads that might conceivably in some universe produce an uptick in the birth rate.
Music Tuesday
Can someone explain why eMusic doesn't seem to know that Tegan and Sara exist?
Pay or play
So the Times has decided to end Times Select. I wonder if they're refunding the money to those who recently paid for a full year subscription?
Felix Salmon thinks they were undone by the search engines:
Everybody knows that Google has won the search-engine war. But what's much more important is that Google has won the search war – and the latest casualty is TimesSelect. The subscriber firewalls at the WSJ and the FT will be the next to go.
Until Google came along, most content-based websites had a similar business model: users would come to the site's home page, search for what they were looking for, and then find it. So if you wanted a NYT story, you'd first go to nytimes.com, and then search. If you wanted a Wikipedia article, you'd first go to wikipedia.org, and then search.
No longer.
When I want to find one of my old blog entries on portfolio.com, I just type the search terms into the Google window in my browser. When I want to find a Wikipedia entry, I do the same thing, in the knowledge that Wikipedia's PageRank will guarantee that entry a top-two spot. Google's even very good at finding books on Amazon.
But Google is very bad at pointing people to anything behind a subscriber firewall – and rightfully so.
Perhaps. But color me skeptical. Internet advertising is still sufficiently problematic that anyone who can charge for a web subscription will probably be better off than getting a lot of low-quality eyeballs from search engines. Low-quality, that is, in terms of ad rates--no apersions on my googling readers.
Advertisers will pay more to reach Businessweek's readers than they will to reach the readers of, say, Time because Businessweek's readers are a much more attractive demographic to sell into. Free publications are the worst: who knows who's picking it up, or why? That's why classifieds and personal ads from people looking to meet other poor people tend to dominate the revenue stream of free weeklies. As far as advertisers are concerned, most google searchers are closer to the guy who picks up the Pennysaver, than to someone you'd deliberately buy an ad to reach. Google overcomes this by targeting ads to the search, but that's so far not a viable strategy for any major paper; the news costs too much to gather.
The problem with Times Select was not, IMHO, that they weren't getting enough web search; it was that they weren't getting enough subscribers to make it worth the effort of maintaining a complex two-tier system; indeed, subscriptions fell slightly this year from already underwhelming numbers. Which is unsurprising, at least to me. As I argued over a year ago:
That's why I was so surprised by the New York Times' TimesSelect strategy. It seemed unbelievably ass-backwards to me. The Times has always had a distinctly mediocre editorial page (at least since I've been a reader), populated largely by household names whose schtick had already begun to wear a little thin when they joined the page. Its news gathering organisation, on the other hand, is probably the biggest and best in the world, with the exception of the wire services and the BBC. So it decided to give its content away for free in the one area where it has a serious competitive advantage over its rivals, and put a pay barrier in front of its opinion journalism.
But it seems to me that with the possible exceptions of Paul Krugman and David Brooks, people read the columnists because they are in the nation's most widely circulated paper, not the other way around. The NYT confused what people read and email each other, with what they will pay for. If those two things were the same, poems about Jesus and pictures of animals dressed up in costumes would have displaced porn and gambling as the internet's biggest industries.
The Wall Street Journal, on the other hand, has nearly a million web subscribers according to Wikipedia, or roughly half their subscription base, paying only a slight discount from the print rate. People subscribe to the Wall Street Journal because it offers the most detailed, in depth daily coverage of American business. If you are at a certain level in American business, you have to have it to know what is going on; therefore, you will pay for it. (Likewise the FT in Britain). Moreover, the fact that you will pay for it makes you more valuable to the publisher as advertiser bait.
I expect that the pay barriers at the Wall Street Journal will therefore remain erect for quite some time. Though possible disconfirming evidence: my old employer has taken down their pay barrier for current content. Though the archives still seem to be behind the wall.
Separate but equal
James Joyner warns of the dangers of particularism:
Schaller's mindset -- and the Republican counterpart that seeks to build 50 percent plus one through a divide and conquer strategy -- is incredibly dangerous however. In its extreme, it's a recipe for another civil war.
To be sure, the nation was founded on the realization that a large country would have diverging interests, whether regional or economic or class based. We've generally managed to work as a polity, however, by having numerous overlapping interests that caused the coalitions necessary to get anything done in the legislature to constantly shift. We have, in other words, what political scientists term "cross-cutting cleavages," which are contrasted with the very dangerous "reinforcing cleavages."
One of the clichés of developing world politics is that "the election is a census, and the census is an election." We don't want that to happen here. When it does, those who lose elections see it not, as a temporary ideological setback but as a threat to their culture (or, in extreme, their life). Those who lose elections are given powerful incentives to cry "foul," calling the legitimacy of the system into question. Absent that, they're willing to take up arms to protect their interests.
We've got a lot of institutional safeguards in place to make extreme outcomes unlikely here. Many of those, however, were in existence in 1860, too.
It strikes to me that this vice is on the rise right now for several reasons:
Increasing geographic assortation--liberals are moving to be with liberals, while conservatives move to be closer to conservatives.
Increasing communication--we know more about what is going on in different geographical areas. As the divides get sharper, the magnitude of the differences comes to seem unbearable.
Increasing federalisation of law--Those weirdos elsewhere are making more decisions for you--or you feel compelled to make decisions for them. The hard-core pro-choicers concentrated on the coasts give relatively little thought to the state of abortion law in Ireland, but are outraged by the thought that women in Alabama might live under different abortion regulations than they do.
Blast from the past
A friend, who shall remain nameless, just saw this for the first time. It's still so good that I'm posting it in case anyone else is in that deprived state
Derek Lowe continues to swat down the canard that all the real drug research is done in academic labs, while drug companies unfairly reap the rewards:
I also mentioned recently that I’d come across a good example of an academic compound with interesting activity but no chance of being a drug. Try this one out, from Organic Letters. Yes, there aren’t many other compounds that do what this one does (inhibit the production of TNF-alpha). And no, it’s not going to be a drug – well, at least the odds are very, very long against it.
Why so negative? Several reasons. For one thing, this molecule is extremely greasy. This is not a killer in and of itself, but it’s inviting trouble, for the reasons noted here. The second problem is that this thing looks like it’s going to have some trouble dissolving. That’s trouble both from both the thermodynamic (eventual amount in solution) and kinetic (speed of dissolution) senses. That greasiness will be the problem with the former, since a lot of this molecule’s surface area gives water molecules no incentives to join in on anything. And all those aryl rings (along with the symmetric structure) are asking for trouble with the latter. Those features make the structure look like it’ll form a very good, very happy crystal, with its aromatic rings stacked onto each other like ornamental bricks. “Brick” is the very word that comes to mind, actually.
But solubility is only the beginning. The real problem is that quinone functionality in the center of the molecule. In medicinal chemistry, no one wants quinones; no one likes them. They’re just too reactive. It would not surprise me for a minute to learn that this group, though, is the reason for the compound’s activity. It’s probably reacting with some functional group on the surface of the target protein and gumming up the works that way. It’ll do that to others, too, if it gets the chance. There are all sorts of weird little quinones in the literature that hit proteins that nothing else will touch, but none of them are going anywhere.
No, it’s safe to say that any experienced drug-company chemist would draw a red X through this one on sight. Plenty of reasonable-looking compounds turn up with unanticipated problems, so we don’t need to go looking for trouble. That’s not to say that it can’t be a research tool (although I’d be careful interpreting the data from complex systems – there’s no telling how many other things that quinone is going to react with).
But all this brings up another thing that we were talking about around here – how much do drug companies owe academia for working out fundamental biochemistry and molecular biology? What if someone uses this very compound, for example, as a research tool and discovers something about its target that could be used to develop an actual drug? What do we call that?
Well, we call that “science”, as far as I can see. Everything is built on top of something else. In a case like this, the discoverers of this current compound, even if they’ve patented it, do not have a claim on what discoveries might come from it later on.
Question of the day
Does anyone know why I can't reach Crooked Timber, Mark Kleiman, or my old site?
Life imitates art. (Well, muzak, anyway)
Remember that Rupert Holmes song about the guy who's tired of his relationship, so he answers a personals ad
If you like Pina Coladas, and getting caught in the rain.
If you're not into yoga, if you have half-a-brain.
If you like making love at midnight, in the dunes of the cape.
I'm the lady you've looked for, write to me, and escape.
Only to find out, when the woman shows up, that it's his current squeeze?
In the song, they run off together. In real life, apparently it doesn't work out so well.
Sana Klaric, 27, and husband Adnan, 32, from Zenica, poured out their hearts to each other over their marriage troubles, and both felt they had found their real soul mate.
The couple met on an online chat forum while he was at work and she in an internet cafe, and started chatting under the names Sweetie and Prince of Joy.
They eventually decided to meet up - but there was no happy ending when they realised what had happened.
Now they are both filing for divorce - with each accusing the other of being unfaithful.
(h/t Radley Balko, who points out that Ananova is not always a reliable source.)
Tee-hee
Michael O'Hare unleashes some hilarious righteous anger on the State Department:
Of course the State Department tradition of stupidity and ignorance, matched as precisely and properly as gray slacks with a navy blazer, is long over. The exclusion of Nalini Ghuman from the US in August '06 after a decade of living here and teaching music at Mills College, on the strength of a State Department finding, might seem to be some sort of anachronistic debacle; indeed, one of our faithful readers hipped me to the story all indignant and angry about it. But I know that reader to be a Democrat, therefore ceaselessly working for the collapse of America, and she's not fooling me for a minute. Read the story (remembering of course that it's shot through with the Times' lefty defeatist bias), and now I wish to explain why this episode is actually a reassuring occasion for pride in our leadership: Ghuman is a foreigner. She plays the violin (see her photograph, redhanded with that vile instrument), which is much too hard for anyone not a fanatic, and anyway also foreign. Her scholarly specialty is Edward Elgar, a known, admitted Brit unrepentant to the day he died, who would be ducking out of Basra right now if he were alive and a soldier. In Basra. His Pomp and Circumstance March #1 is played at graduation in universities with liberal pinko treasonous faculties, specifically to corrupt youth by secret mental tricks well known to foreign terrorist musicologists.
In the midst of my previous argument about the gold standard, a number of libertarians advocated private money. Perhaps it would work. But there's a big empirical hurdle to overcome, notably, why doesn't it already exist? There's no reason that you couldn't start your own currency now; sure, you couldn't pay your taxes with it, but assuming a reasonable exchange rate, even that wouldn't be a problem.
We already have credible currencies with pretty strong competition between them. Why would anyone adopt yours? If you think you have a good answer, you should start a bank.
Not soft on Microsoft
I suppose everyone is fascinated by whatever aspect of the Microsoft/EU antitrust case validate their political ideas. For many people, it is the triumph of the state against the big, bad corporation; for others, it is an unwarranted intrusion into free markets. Here are the aspects that interest me, though:
Antitrust lags the market in a way that threatens to make it meaningless. Just as the IBM antitrust case was quickly made irrelevant by the shift of market power from hardware to software, the EU has come in to force open a market that no longer seems either so important, or so thoroughly dominated by Microsoft. Now Apple and Google are the rising threats, and undoubtedly, in a decade they too will be under fire from some firm you've probably never heard of. In the future, we may see antitrust rulings coming just in time for the bankruptcy sale.
The EU regulatory commission seems notably more hostile to American companies than to locals. If EU antitrust authorities come to be seen as having a mandate to force European products on unwilling consumers, they will do a great deal of damage to both European markets, and world trade.
Many of the EU's supporters on this are hoping that the union will become a defacto super-regulator, which can use its market size to force changes on international companies. Henry Farrell writes:
It is possible for companies such as Microsoft to sell different products in the EU and the US. But it is very expensive to have to do this, as well as often being politically awkward (when consumers would like what is on offer in another jurisdiction but can’t get it), and always organizationally highly inconvenient. The result is that companies are likely to make their products comply with EU rules across markets, except when the costs to so doing are very high indeed. This means that the European Commission is effectively becoming a regulator that substantially affects what is or isn’t sold in US markets too. The US administration has taken a hands-off (some might say supine) approach to preventing monopoly abuses in technology markets – the Commission is now in an excellent position to start to fill this regulatory vacuum. This should make for some interesting politics – while the US administration is likely to deplore this ruling, I don’t know that there is very much that it can actually do about it (especially given the continued controversy over its decision to roll over for Microsoft after the Bush administration came into office). It seems to me that the Commission has chosen its case very well, with respect to cementing its power over European information technology markets and increasing its international influence very substantially too. This should make for very interesting international politics.
Certainly, there was a substantial forum-shopping aspect to this case; technology companies that couldn't compete in the US ran to friendlier European regulatory agencies with their complaints. There is no logical reason that competitive frictions between Real Networks, Sun Microsystems, or Novell, and Microsoft, should have been adjudicated in Europe.
But Henry's optimism assumes that the effect of the regulatory breakup is to make consumers (rather than producers) better off. This seems a rather dubious assumption considering that it's major achievement so far has been forcing Microsoft to sell its software with fewer features at the same price as the fuller-featured product. Had the commission gone farther, and forced the company simply to entirely unbundle Windows Media Player, the result would have been to advantage Real, but deprive consumers of something they had been getting for free.
Perhaps Microsoft will harmonize its versions. Or perhaps it will sell a dumbed down European version at the same price as the full-featured US product, while loudly announcing that they are doing so in response to EU antitrust regulations. Perhaps consumers will still get mad at Microsoft, instead of the commission. But I wouldn't count on it. This sort of political consideration will considerably constrain the commission's power. It will even do so for "invisible" changes, such as the efforts to get Microsoft to disclose its server hooks. Microsoft might just decide to keep Europe one version behind America, which would not bolster already weakening support for central EU regulation.
In praise of (a little) inflation
At a conference this weekend, talking (once again) about the gold standard, I was struck by the fact that the things economics writers take for granted often sound horrifying to ordinary people.
In this case, the trouble came when I said that it's a good thing that the Federal Reserve errs on the side of having a little bit of inflation, and that in fact inflation in small amounts is probably good for the economy. The reaction of the assorted nice, normal people I said this to was about what you'd expect: they looked as if I'd suggested recreationally vivisecting their cat.
And yet, this isn't really all that controversial. A little bit of inflation lubricates the problem of sticky wages and prices: which is to say, that prices and wages are quicker to adjust upward than downwards.
To liberals, this generally sounds great: once you get a wage gain, it's yours to keep! The problem is, in an economic downturn, or a sectoral slump, the cost of your keeping that wage gain is that oftentimes, someone else gets the lovely parting gift of a layoff. The principle is less controversially illustrated using office leases, which also tend to be sticky. If your industry is in a slump, you might need to renegotiate the lease on your office or factory downwards. That keeps the space occupied, benefitting the owner, and allows you to operate profitably. The problem is, landlords hate negotiating leases downwards; perhaps they can't (because they have a mortgage), or they can't bear the thought of accepting less than they got before, or they may not want to cause trouble with other tenants of similar properties. There's also, as with labor contracts, fear of bad faith; if landlords show a tendency to believe hard-luck stories, everyone will be along with one. Also, even if you are in trouble, they'd rather you wrung a concession from someone else, such as workers or suppliers.
The problem is, if you genuinely are in trouble, inability to renegotiate could result in your going out of business, making everyone worse off. A month or two's vacancy generally costs more than the downward renegotiation would have.
Inflation eases these problems; landlords, suppliers, and workers take real wage cuts without the psychological barriers of lowering their prices. So decreases in demand produce much less severe contractions in output; this is one of the explanations for the relative mildness of postwar, and particularly post-1980, recessions.
Nor is anyone made particularly worse off by this, unless they've a habit of stashing large wads of cash under the mattress; interest rates and cost-of-living adjustments largely mitigate the effect on the most vulnerable groups, pensioners and those on disability. Consistent, but low, inflation is one of the great economic success stories of the 20th century. But somehow, every time you try to explain this, you end up with an audience holding fast to their cats.
Should you buy a house?
I spent some time this weekend traipsing around open houses with my sister, who is hoping to someday soon experience the burdens joys of homeownership.
Prices certainly don't seem to be coming down much in my neighborhood, the U Street Corridor. Smallish two-bedroom houses are listed for $595,000 and up. Since the rent on a similar place would be something over half the monthly mortgage payments and taxes, without taking maintenance into account, I think it is fair to say that the market is still pricing in quite a bit of expected capital appreciation in the house.
Is that reasonable? Not too long ago, I saw Suze Orman on television, urging people not to sink money into their 401(k)s, but instead plow that money into a house. A house, almost everyone I know tells me solemnly, is the best investment you can make.
But as Robert Shiller, the Yale economist, has pointed out, this is a very new idea. For most of history, a house was simply a very long-term durable good, which, like cars and refrigerators, began depreciating the day it was finished. Why do we think differently now?
Shiller's argument, which I find pretty compelling, is that we've been deluded by recent history. Since World War II, a number of developments have conspired to boost the prices of homes, giving a large capital gain to those who were lucky enough to own at the time. This has given us the delusion that house prices rise steadily, when in fact, we have virtually certainly exhausted the pricing gains of those happy developments.
The first boost was the invention of the long-term amortizing mortgage. Mortgages used to be short-term loans of perhaps five years, with a whacking great balloon payment due at the end. This started to change in the 1930's, when the government housing administration, trying to preserve homeownership during the Depression, invented the 20-year amortizing loan. That trend really took off in the 1950's, with the invention of the 30-year loan.
People tend to base what they will pay for a house on how big a monthly payment they can afford. Since everyone started getting 30-year loans roughly at once, without a concomitant boost in the supply of housing, the effect was to raise the prices that current homeowners could charge for their properties. This trend is largely played out, however. Though there was a wan attempt at introducing 40-year mortgages at the height of the bubble, the loans were not particularly popular with either lenders or borrowers. It's conceivable that a couple in their late twenties or early thirties is buying a 30-year house, but a 40 year house stretches the imagination too far, and the income expectations into the social security years.
The second trend is the progressive income tax, which really got going seriously in the 1940's. This gave another boost to homeowners, by making it possible for buyers to afford much bigger payments. While this may fluctuate somewhat over the next few years, tax rates seem to be fluctuating within a fairly narrow band, which means that this upward pressure on house prices will also be limited.
The third trend is the changes in inflation and interest rates since World War II. Prior to the 1960's, inflation tended to be fairly stable, meaning that the true cost of your mortgage was fairly predictable. Then inflation started to take off, making existing mortgages very cheap, and new mortgages very expensive. But starting in 1980, the Federal Reserve got tough on inflation. As the Fed's credibility as an inflation fighter grew, lenders stopped demanding such large premia for long-term lending, meaning that the real interest rates on mortgages fell. Since, as discussed above, potential buyers were more worried about payments than prices, that has given a big boost to house prices over the last quarter-century. But that trend, too, is played out. Inflation is set about where it's like to be for the foreseeable future, fluctuating right around 2%. Both mortgage lenders and buyers are calculating the interest rate they will pay on those low inflationary expectations; hence, no future bonus.
Given all that, future price increases should be limited to roughly the local increase in incomes. And since Washington DC is a government town, unless lobbying gets much more lucrative (and employs a lot more people), I find it hard to look forward to the ultra-rapid income growth that is buoying prices in Manhattan.
There is, however, a wild card: the value of land. While most houses are wasting assets, in some localities, land is getting more valuable. Ed Glaeser argues convincingly that this is because Americans have gotten much more effective at blocking denser development. In the old days, the response to increases in the value of land was to build up, or crowd more houses onto the lot. But now local rent-seekers activists have gotten very good at blocking that sort of development, which means that poorer people are forced ever outwards while rich people dominate the city interior. That's why it seems no longer possible for a journalist to go to two parties in one night in New York any more; all my friends are scattering ever-wider in search of affordable housing. Socially, New York is starting too look more and more like London, with friendships balkanized by long commutes.
There is a lot of new condo development in my neighborhood, but most of it seems, to this New Yorker's eye, shockingly low; six or eight stories at most. So it would seem prudent to put the steadily increasing value of land into the home-buying equation.
But even that doesn't mean I should buy, since presumably all the other buyers also think that land will increase in value. Which means that the mean forecast of the increase in the land's value should already be included in the price. If I want to buy a house as an investment (rather than, say, just a hedge against getting evicted again), then I have to believe that the land value will increase by more than what the average buyer thinks it will; in other words, that I am smarter than everyone else, who is being too pessimistic.
The problem is, I don't see an excess of pessimism around me in the housing market; it still seems to be filled with people who think that housing is a better investment than stocks or bonds. So much as I would love to have a place to call my own, I think I'll sit this one out at least a couple more years.
Ve haff vays of making you vork
Was the New York Times too hard on Germany's economy when it said that
Some economists worry that the relatively modest labor market changes have fallen far short of what the German economy needs to assure its long-term competitiveness, and that the government might be well advised to use this time of prosperity to tackle the tough issues. Instead, the long-awaited recovery has led to relief and perhaps even a little complacency.
While this no doubt true, it’s also true that many economists don’t see Germany as facing intractable economic problems. These economists point out that Germany is actually running a substantial current account surplus, which means that it is lending money to the rest of the world. By contrast, the United States has a current account deficit of more than 5 percent of GDP, which means that it is borrowing money from the rest of the world. The position of the United States is clearly unsustainable, as nearly all economists would agree.
The article also misleads readers on the extent of Germany’s unemployment rate. It reports that the rate has fallen to 9 percent, implying Germany still has very high unemployment. In fact, this is the official German measure of unemployment, which counts part-time workers as being unemployed. The OECD measure for German unemployment (which uses essentially the same methodology as the U.S.) is 6.4 percent. Since unemployment is still concentrated in the areas that were formerly East Germany, the unemployment rate in the areas that were formerly West Germany would be approximately the same as in the United States.
This analysis seems rather . . . odd. America was running a healthy trade surplus in the 1930's; I don't think that anyone would have argued that this meant that the economy was in sterling health. On the contrary; a capital account deficit (a.k.a. lending money to the rest of the world) can be a sign that local investors don't think much of the economy's prospects. America's position is undoubtedly unsustainable. But nonetheless, the OECD leading indicators index grew twice as fast over the last six months as Germany's did, even though Germany is coming out of a recession and we seem to be heading into one.
Likewise, though Germany's OECD harmonised unemployment measure is lower than the official measure, it's still much higher than the level in the US: 6.4% vs. 4.6%. In a country with a population the size of Germany's, that's an extra 1.8 million people out of work. And if anything, that understates the problem, since America's social safety net is structured to inflate the stated size of the labor force (and thus the unemployment figure): for many benefits, you can only qualify if you are actively looking for work.
And while Eastern Germany is a problem, it's been almost 20 years since unification; at some point, you have to acknowlege that, whatever its historical problems, Eastern Germany is now part of Germany. America does not, after all, get to throw out Mississippi and Michigan because historical forces have caused them to underperform the rest of the country.
Dean Baker's assertions seem designed to obscure the fact that the big economies of Europe have been underperforming America for more than a decade on almost any measure one might care about, from unemployment to national income growth. It may be true, as Henry Farrell argues, that the evidence for pinning this on European labor markets is underwhelming--although, in the absence of another explanation for persistently higher unemployment rates, structural rigidity still seems the most likely answer. But that still leaves us with the fact that America is pulling away from all but a few small European countries, and the worry about what this means for the future of Europe if this trend continues1.
1 This is, of course, a big if . . . witness all the books from the early nineties mindlessly extrapolating trends to prove that we were about to be relegated to teh dustheap of history by Japan and/or Germany.
Public service announcement
I'm a judge in the America's Future Foundation college blogging contest, which will award $10,000 to the best student blog. Nominations open today, and close on December 31st. I heartily encourage any readers with conservative or libertarian college blogs to submit theirs.
Coverage for thee, but not for me
Ezra blogs about a modest proposal to get universal health coverage passed:
My ace reporting reveals that one element of the health reform strategy Edwards will announce today is a bill, to be submitted on his first day in office, ending health care coverage for the president, the Congress, and all political appointees on July 20th, 2009, unless they've passed health reform that accords with four non-negotiable principles Edwards will detail in the speech. If they don't pass comprehensive health reform, they lose their coverage until they do.
The populists got direct election of senators passed by reforming local state legislature procedures to force support for the 17th amendment in the Senate. In this case, however, methinks that this act would have trouble getting passage. And if it did, that the affected politicians would have little difficulty obtaining coverage from insurance companies fearful of change. But it would probably make good political theater.
Question of the day
I've got a nasty cold, which has been retreating and resurging for the better part of three weeks. Today is a resurgent day, prompting me to wonder: why do you feel cold when you're running a slight fever? I realize there's a stronger contrast between your internal temperature and the outside, but I'd be surprised to find that I'm running as much as two degrees of fever, so the contrast can't have increased that much. Can readers comment?
Throw cash at new parents, and make it easy for them to balance their careers and families. Government benefits—in the form of tax credits, for example, or state-run day care—can make raising children more manageable. Last year, Vladimir Putin proposed a number of benefits designed to encourage large families, like long maternity leaves and $8,900 cash subsidies for stay-at-home mothers who have a second child. Some governments go one step further, doling out dating advice along with financial incentives for babies.
In France and the Scandinavian countries, which have some of the highest fertility rates in Europe, parents get lots of government help. A French maman has at least 16 weeks of mandatory, paid maternity leave, as well as guaranteed job security and—if she has a third child—a monthly stipend of up to 1,000 euros for a year. In Norway, women are entitled to 10 months at their full salary or a year at 80 percent. Because these policies have been in place for decades, the countries' fertility rates are approaching 2.1, roughly the point where a population can sustain itself without immigration. Other nations are emulating this approach: Spain now offers a 2,500 euro bonus for every baby born. South Korea, which has one of the world's lowest fertility rates, shells out $3,000 per couple for in-vitro fertilization. And in Germany, where women have an average of 1.3 babies, Angela Merkel proposed up to 1,800 euros a month for stay-at-home parents, and more day-care centers to improve the public image of working moms—who have long been dubbed Rabenmütter, or "raven mothers." (Countries plan these financial incentives carefully to avoid drawing in too many poor parents—and creating a bigger lower class.)
But these are not very good examples. Almost all European countries have a lot of amenities for new mothers; some of those countries have high birth rates, and some of them low. America, which has many fewer amenities, has higher birth rates than Canada, which has a lot more government support for child-rearing. There's no very good evidence that a government can do much of anything to increase its birth rate. The main culprit seems to be opportunity cost: women have more fun things to do, these days, than spend time with toddlers. And even parenting with lots of free day care involves spending a lot of time with toddlers.
One interesting suggestion from a friend who is a recent new suburban parent is that America's car culture may be giving childbearing a big boost. Dragging a child around a city, even a family-friendly Canadian or northern European city, is a major hassle, especially since after you get home, all worn out and cranky from the expedition, chances are your urban apartment forces you to be in closer proximity to your child than is ideal for maintaining an even temper.
What bias?
William Saletan has a piece on the conservative v. liberal study in Slate, titled "Rigging a study to make conservatives look stupid". I'm not sure "rigging" is the right word. But Saletan does make an interesting point, which is that even if the study really did identify receptiveness to change, that would not be the same as identifying who was more likely to be right:
Frank Sulloway, a Berkeley professor who co-authored a damning psychological analysis of conservatism four years ago, illustrates the problem. Appearing in the Times as a researcher "not connected to the study"—despite having co-written his similar 2003 analysis with one of its authors—Sulloway endorsed the study and pointed out, "There is ample data from the history of science showing that social and political liberals indeed do tend to support major revolutions in science." That's true: When new ideas turn out to be right, liberals are vindicated. But when new ideas turn out to be wrong, they cease to be "revolutions in science," so it's hard to keep score of liberalism's net results. And that's in science, where errors, being relatively factual, are easiest to prove and correct. In culture and politics, errors can be unrecoverable.
Oil, oil, toil and trouble . . .
A couple of years ago, it seemed as if I couldn't escape from oil prices. Oil would hit a new high, and I would buckle down to another piece explaining why this was happening. The culprits were always the same: Chinese demand, apparent American insensitivity to gasoline prices, and a worrying inability on OPEC's part to open the taps. But there was always the new price record to talk about. How high could it go?
It seems odd, then, that the current price situation is so little remarked. Oil prices just topped $80 a barrel before sinking backwards, which is a record in nominal terms. This is still not up to the real record, which occurred during the Iran crises, when oil prices briefly touched about $100 a barrel in today's dollars. But we journalists have been repeating that mantra since oil was at $50, and it's getting thinner as we grow towards that mythical target.
For environmentalists, and those of us who would like to see a carbon tax, this is good news: oil markets are doing our work for us. On the other hand, it's not clear how long this will last. To be sure, Saudi Arabia's biggest oil field may be beginning to falter, other key producers such as Nigeria, Iraq, and Iran are having security problems. In Venezuela, Hugo Chavez, who is sitting atop a gigantic reserve of crude so heavy and sulphurous that until recently it wasn't even classed as oil, is doing his best to make sure that that crude never comes out of the ground by diverting investment funds to social spending. And the areas we exploited last time, such as the North Sea, are pretty fully developed now.
But of course, the current state of oil prices generally looks permanent until it's not; witness my former employer's famous forecast of $5 a barrel oil. Demand could collapse, either through recession or because people push for greater efficiency. Saudi Arabia cannot be happy to hear of Americans switching to more fuel-efficient cars. And exploration could ramp up. Venezuela is not the only country with "non-traditional" oil reserves; my understanding is that oil shale and tar sands are cost-effective to exploit at well under current prices. The main thing holding oil companies back is the fear that current prices may not last.
Aiming high
Fashion journalists have been talking for a while about "masstige"--the phenomenon of luxury lines extending their brands into more affordable product lines. Now it looks like Ann Taylor is attempting to move in the other direction. The company is putting a new line into its stores known as "Collection", which will feature more expensive buttons and linings, among other things.
I don't wear a lot of suits, and anyway it looks like the clothes will be slightly more expensive versions of Ann Taylor's studiously inoffensive main line, so it's hard to see myself snapping up a ton of these items. On the other hand, the company does a booming business in places like DC, where if fits the conservative dress code of most offices. You can't swing a cat in downtown Washington without sending it through the petites department of an Ann Taylor Loft; it seems to be to our nation's capital, what Starbucks and Duane Reade drugstores were to my former home. So I'm sure the new line will do quite well.
Child Mortality at Record Low; Further Drop Seen - New York Times
Good news is no news, says the old journalistic saw. Nonetheless, the New York Times is reporting something that should bring a smile to everyone's face:
For the first time since record keeping began in 1960, the number of deaths of young children around the world has fallen below 10 million a year, according to figures from the United Nations Children’s Fund being released today.
Global public health campaigns are only part of the secret:
This public health triumph has arisen, Unicef officials said, partly from campaigns against measles, malaria and bottle-feeding, and partly from improvements in the economies of most of the world outside Africa.
Economic growth is the most powerful weapon we have against human suffering. Too bad no one actually knows how to build or deploy it.
September 13, 2007
Blast from the past
Incidentally, I wrote about the problem of trying to do intergenerational cost-benefit analysis earlier this year:
The biggest problem is the easiest one to state: what is a cost and what is a benefit? How do you value the changes?
As I read it, Stern sort of punts when faced with these impossible calculations. Instead, it relies on status quo bias; now is good, so we should bequeath a world to our descendants that looks as much as possible like the one we live in today. Obviously, there are huge problems with status quo bias, most notably that none of us would like it at all if our ancestors had been at all successful in applying it. On the other hand, "better the devil you known than the devil you don't" is not an entirely awful heuristic. At any rate, that seems to be the underlying assumption of the report. The quickest way to produce that result financially is to set the pure rate of time preference to effectively nothing, and (says William Nordhaus) to rely on the more pessimistic forecasts.
Now, I actually find the moral intuition behind a zero rate of intergenerational time preference pretty compelling, but the practical implications are rather daunting. (A John Quiggin post responds that
"Strange as it may seem to Economist writers, there are phenomena in the world that aren’t particularly illuminated by applying economic concepts. Attitudes towards abortion have nothing at all to do with discounting rates."
Which doesn't strike me as illuminating, because the question at the heart of the Stern Report's choice of discount rates is no more a matter of economic concepts than abortion is. It's a moral philosophy problem: are we, or are we not, entitled to privilege our own interests over the interests of those who are not yet born, but probably will be? Otherwise, the low social discount rate is just a pseudomathematical attempt to dress up your preferences as science.)
Can one reject a compelling moral precept just because it's nearly impossible to live by? That's a question that devout Christians wrestle with every day. I am still thinking through this question. But my instinct to reject the precept simply because it would require me to overthrow half of my policy positions is not, at first glance, an admirable one.
But even if you accept a zero rate of intergenerational pure time preference, you can't just smack the pure time discount rate to zero and leave it. Discounting covers a multitude of financial sins by literally making them disappear. For example, if you have a very low rate of discounting, you run into a problem with future generations: there are too damn many of them. Because there are so many of them, even trivial income streams have extremely high net present values.
This is easy to illustrate with a basic equation, such as a discounted cash flow. Let's say that in year one, we have $100 in income, growing at 3% a year. In year 1,000, this will have turned into an annual income of $687 trillion, give or take a few trillion. If, just to keep things fair, we discount this by the rate of growth, we will find that the net present value of income over the next 1,000 years is $100 x 999 or $99,900.
A 0.1% increase in future income over the next thousand years thus has a discounted present value of about a dime a year, which sums to $99. Using these sorts of discount rates, a cost benefit analysis indicates that we should be willing to surrender up to $89.99 in order to produce this small increase in future cash flows, a patently ridiculous result. Discounting takes care of this problem, because even with a low discount rate, the present value of constant income streams quickly declines to nothing. If you don't use discounting, you have to account for this in some other way, by selecting a utility threshold or something. And measuring utility is a rather tricky business.
Another problem is wealth disparities between generations. As I read it, the Stern Report basically assumes that there are low diminishing returns to income (it sets the elasticity of marginal utility of consumption, or η, to 1). It strikes me as odd to see the left half of the blogosphere supporting this proposition; I'm fairly sure that John Quiggin, who is a social democrat, thinks it is higher than that. (Or at least I hope he does). Heck, I think it is higher than that; this is why I support a progressive, indeed negative, income tax, rather than a flat tax. (Yes, yes, I know: I'm not a real libertarian. You may have my card and my secret decoder ring back.) Discounting takes care of this problem by getting rid of very rich future generations; having done away with it, we are now stuck with them, the lucky bastards. I don't even know how you value marginal utility of even large income streams when incomes are $6 trillion, but it has to be pretty trivial. (Or maybe that's what our ancestors thought about incomes of $30K.) Anyway, I'm unhappy with Stern's approach. I'm not sure that you can reconcile owing anything to that thousand year generation with even moderate utilitiarianism, unless you keep ratcheting up the price of Cape Cod views.
Then there's uncertainty. There's still an awful lot of it, and I am not picking up the banner of the global warming sceptic here--when Ron Bailey has switched sides, I think it's safe to say that this particular debate is over. But we are still left with all kinds of uncertainties about what exactly will happen, and about what the world will look like, economically, technologically, and so forth. Climate stabilisers may kick in; they may make everything worse; in fifty years we may have batteries that let us use solar and nuclear energy for basically everything, meaning global warming will go away. We could find other ways to abate climate change. We could be preventing the recurrance of a new ice age--don't laugh, from what I understand, we're about due. At the risk of sounding like a broken record, normal discounting takes care of this problem, because things become more uncertain the farther they are in the future. Discounting progressively lowers the weight placed on future income streams, until they rapidly vanish.
A fourth problem was pointed out by an economist of my acquaintance: if you do away with time preference, you can't just apply this to the environment; you have to apply it to everything. Perhaps our descendants would prefer flying cars to Bangladesh. If you deliberately apply these low discount rates selectively, that's not a serious intellectual effort; it is at best cargo cult science, at worst intellectual fraud. I, too, have a strong intuitive preference for leaving the planet to our descendants in as good as, or preferably better, condition than we found it. But I recognize that there are strong practical and moral challenges to this desire, and the costs of advancing my preferences by random application of high discount rates outweigh the benefits. Let me make it clear that I am not accusing Mr Stern or anyone else of acting in bad faith. I am just saying that I think committing to the discount rate also entails committing to its use in a range of other applications, or justifying your environmental preferences on other grounds. I presume that Mr Stern and all of his supporters are prepared to do so, or to convince me that I am wrong and that ultra low pure time discount rates are uniquely applicable to the environment.
Which of course raises the fifth, and possibly the biggest problem with Stern: who the heck knows what our descendants want? Again, discounting takes care of this problem by essentially saying, "to hell with those young whippersnappers!" But if you don't do this, you have to attempt to grapple with changing preferences, a task at which, if Fifties SF is anything to go by, you will almost certainly fail.
This is not support for the "do nothing" crowd; like Megan, I think we should do rather a lot, starting with (in America) really whopping gas and carbon taxes. I am against subsidies for alternative fuels as a policy matter; I want to use a cap-and-trade system on greenhouse emissions with declining annual quotas that includes gasoline. (Yes, yes, I'll never use the secret handshake again, either.) But having endorsed these methods, I don't know how much we need to shoot for--and given the crudeness of the Stern Report's methodology, after reading it I still don't know.
Did Mussolini make the budgets run on time?
I'm watching Bush address the nation on the state of Iraq. He just cited the passage of a budget as one of the major signs of improvement in Iraq. To be sure, I understand that nearly all politicians believe that government expenditures are the acme of human achievement. Nonetheless, this seems like a rather low bar.
Known unknowns
When the Stern Commission came out with its famous report on global warming last year, suggesting drastic and immediate action to reduce emissions, Sir Partha Dasgupta issued one of the two most notable critiques. (The other came from William Nordhaus of Yale).
Now, however, Sir Partha is critiquing Bjorn Lomborg's new book. I regret that I cannot read the entire paper, which is behind a pay barrier, but Mark Thoma has a substantial excerpt:
Unfortunately, Lomborg's thesis is built on a deep misconception of Earth's system and of economics when applied to that system. The concentration of CO2 in the atmosphere is now 380 p.p.m., a figure ... in excess of the maximum reached during the past 600,000 years. If there is one truth about Earth we all should know, it's that the system is driven by interlocking, nonlinear processes running at different speeds. The transition to Lomborg's recommended concentration of 560 p.p.m. would involve crossing an unknown number of tipping points (or separatrices) in the global climate system. We have no data on the consequences if Earth were to cross those tipping points. They could be good, or they could be disastrous. Even if we did have data, they would probably be of little value because nature's processes are irreversible. One implication of the Earth system's deep nonlinearities is that estimates of climatic parameters based on observations from the recent past are unreliable for making forecasts about the state of the world at CO2 concentrations of 560 p.p.m. or higher. ...
These truths seem to escape Lomborg. His cost–benefit analysis involves only point estimates of variables..., implying that he believes we shouldn't buy insurance against potentially enormous losses resulting from climate change. ...
The integrated assessment models of Earth's system on which Lomborg builds his case are arbitrarily bounded on either side of his point estimates. It can be shown that if those bounds are removed (as they ought to be), even a small amount of uncertainty — when allied to only a moderate aversion to uncertainty — would imply that humanity should spend substantial amounts on insurance, even more than the 1– 2% of world output that has been advocated. If the uncertainties are not small, standard cost–benefit analysis as applied to the economics of climate change becomes incoherent, even if those uncertainties are judged to be thin-tailed (gaussian, for example); this is because the analysis would say that no matter how much humanity chooses to invest in protecting Earth from passing through those later tipping points, we should invest still more.
The catastrophic unknowns are, to my mind, the biggest economic challenge of global warming. As Sir Partha points out, we literally don't know what we don't know. And we have no very good economic framework for dealing with catastrophic risks when we cannot evaluate either the extent or the probability of the disaster. We may misunderestimate the probability of thousand year storms, but at least we've got a pretty good idea what a hurricane looks like.
Comment policy redux
Yup, I'm back to banning comments. Just a friendly reminder: comments that criticize what I say, or what other commenters say, are fine. Comments that aim to start flame wars are not. In between the attacks of the troll brigades, the comment sections have featured interesting and occasionally even informative debates between liberals and conservatives. I will ruthlessly delete anything which tries to derail that happy situation.
And to commenters who respond: please, don't feed the trolls. Email me and I'll take care of them.
Update However, trolls have to live somewhere, so this is a special comment thread just for them. I'll ask my regular readers, however, not to respond. Just let them enjoy themselves.
Thursday polling fun
I'm experimenting with polls from Polldaddy, so I thought I'd take a not-so-random sample of the political leanings of my readers.
Update Obviously, I am not nearly as funny as I think I am. References to Mark Warner removed.
The American Scene: Plastic People of the Universe
Matt Feeney at The American Scene is rather harsh on plastic surgery :
There’s an article in the Daily Mail in which 44-year-old actress Demi Moore openly admits having undergone a half million dollars in plastic surgery. She laments, "It's been a challenging few years, being the age I am. Almost to the point where I felt like, well, they don't know what to do with me. I am not 20. Not 30.
"There aren't that many good roles for women over 40. A lot of them don't have much substance, other than being someone's mother or wife."
One of the reasons there may be especially few roles for Demi Moore is that, no, she doesn’t look 20, and she doesn’t look 30. She looks like a 44-year-old woman who’s had a half a million dollars worth of plastic surgery. Directors, I would guess, are rarely casting for that.
I don't think there's anything wrong with plastic surgery. Lots of it works quite well, and I'd happily get my favorite flaws corrected if a) I could get realistic results and b) I had more money. The problem is, women in Hollywood start getting surgery quite early, and they don't know when to quit. There's also apparently a tradeoff between young and old surgery, because your skin and muscles will only take so much. If you have breast implants when you're 22, the breast lift at 40 isn't going to take so well. Likewise, if you have a facelift at 32 to stretch out your youth roles, you shouldn't have another one at 40--but then you get to forty, and can't bear to look at yourself, and the next thing you know, you're Joan Rivers and can blink your lips.
The Senate passed its energy bill on June 21; the House passed its on Aug. 4. The most significant provisions include increasing automobile fuel-efficiency standards to a fleet average of 35 miles per gallon by 2020, compared to 27.5 m.p.g. today.
The standard for light trucks is 20.7 m.p.g.
Another section would require utilities to generate 15 percent of their electricity from renewable sources by 2020.
The mileage standard appears just in the Senate bill, having been squelched in the House by the opposition of Representative John D. Dingell, the powerful Democrat from Michigan. The mandate for renewable power is just in the House bill, having failed in the Senate.
Ordinarily, House and Senate leaders appoint conferees to reconcile bills. But because the Senate and House passed entirely different bills, not simply different versions, one or both chambers will have to pass the other’s bill before it can be “conferenced.”
Incidentally, the piece also mentions that Republicans are pushing for domestic oil production subsidies, while Democrats want a penalty for "price-gouging" by oil companies. I'm so proud to have voted for a party that thinks that retroactive taxes on "excess" profits are a good way to deal with high prices. After all, it worked terribly well in the 1970's and 1980's. I bet that will teach those nasty oil companies that there are penalties for producing a highly desireable product!
Is it any wonder that I'm not affiliated with either party?
How can you tell if a politician is lying?
He's moving his lips, goes the old joke.
A number of people, in the comments and elsewhere, have demanded to know incredulously whether I really believe that the Republicans are no worse than the Democrats. They have challenged me to take a side. Here goes.
For starters, I voted for Bush in 2004, but Democratic in the last election, and though I haven't dug too far into their policy prescriptions yet, but I find it hard to imagine a circumstance under which I would vote for Romney, McCain, or Giuliani. (I know nothing about Thompson except that he plays a damn fine district attorney.) It depends on who the Democratic nominee is, but I'll probably either pull the lever for Obama or an independent. So I am not defending Republicans, to the extent that I am defending them, because I am one.
But that doesn't mean that I think the Republicans are evil. I think they are tarred with scandal right now because that's what happens to the party in power--by which I mean, the party in power is the one with the big opportunities for corruption. Bill Clinton got caught renting out the Lincoln Bedroom to donors because he had the Lincoln Bedroom to rent out. I did not admire the Republican machine's depradations on K Street, and think that they were a disgusting innovation in American political culture. But now that that machinery is in place, I will be very surprised if the Democrats don't use it. I will be very pleased, of course, to be proven wrong; but if Democrats control Congress for ten years, I expect that the end result will be a rash of corruption scandals with Republicans crying that the Party of Tammany Hall is just doing what it has always done, while conveniently forgetting their own more recent history.
I think most politicians, like most people, are basically well meaning folks who act out of some combination of idealism, a fervent desire to be liked, greed, power hunger, and trenchant ability for self-deception. I do not think that these qualities are notably unequally distributed between the parties, which is why I don't identify with either of them. Moreover, I think that the electoral calculus of a bipartisan system means that those qualities will always be roughly evenly distributed between the parties.
I think that laws get passed through a combination of idealism, pragmatic horse-trading in order to deliver goodies to local districts, and electoral positioning with key interest groups. I think that fundraising consumes a great deal of time, but is not a particularly important explanatory variable in high-profile policy making. Lobbyists do a great deal of damage by securing small tax breaks and subsidies for themselves, locking out competition, and otherwise distorting the economy. But they do not get to buck the will of the people on anything that the public genuinely cares about. Major policy initiatives are stymied at the behest of big interest groups, not big donors; CAFE standards fail in Congress not because GM gives a lot of money to congressional campaigns, but because the UAW has a lot of members, and those members will vote against anyone who passes a law that hurts sales of American cars; and also because Americans do not like to drive more expensive, less powerful, and smaller cars. Campaign money buys a congressman's ear, but what buys his vote is your ability to convince him that your idea will be good for the country, his constituents, or his electoral prospects.
I therefore do not think that, for example, rich donors snapping their fingers are a good explanation of the Republican position on tax cuts, or much else besides trivial provisions in bills you've never heard of. It is not that I excuse these things--they are repulsive. It's just that I don't expect the Democrats to be any different--witness Nancy Pelosi's special exemption from the minimum wage for a territory in which a canner in her district happens to have a major plant, or Charles Schumer's otherwise frankly bizarre position on carried interest. I don't think that Republicans have some special brand of evil; I think that they behave as I expect people given lots of government power to behave, which is to say fairly badly. Nor do I expect that I'd behave any better in their place, which is one of the many reasons you will not catch me running for office.
I think that their ideology does differ, and many progressives think that that ideology is evil. Obviously, I differ there too. I diverge in many places from the core ideology of the Republican Party, and in many other places from the core ideology of the Democratic Party; in some places I respect honest differences in value judgements, and in other places I think that both parties engage in willful ignorance of reality in order to foster a more self-satisfying world view.
I think that there are better and worse people in politics, but I also think that it is hard to know decisively who those people are; I've found out that politicians I hated were lovely, honorable chaps in person; and conversely, that people I respected were widely known for being venal, lying, power-hungry jerks.
So when I decide who to vote for, I try not to decide who the better person is; I try to guess which one of them is likely to come closest to my preferred policy basket--for whatever reason, good, bad, or indifferent. Obviously, I occasionally guess wrong. But that's my general approach to politics--which is why discussions about who is stupider, or meaner, or less honest, or whatever, generally leave me pretty cold.
Shhh! It's a secret
At least I hope so. Greg Mankiw points out that the Fed already seems to have let interest rates fall:
Robert Barro emails me:
Did you know that the average Fed Funds rate for August was 5.0%? That is, the Fed already cut rates by a quarter point--it just did not announce it.
He is right: The intended Federal Funds rate is still at 5.25, but the actual rate was 5.02 in August.
In the preceding 13 months, the Fed missed its target by no more than a single basis point. But then in August it misses by 23 basis points. Why? Is this an unannounced change in the target, or is the Fed getting worse at hitting its target?
Let us hope very much that the Fed is just foolin' us. Now would not be a good time to learn that monetary policy is getting more difficult to target.
The naked truth
So it's fall. And that means fall shopping. And that means that once again, 95% of the clothing I see that I want to try on, will not fit me.
As long time readers know, I am 6'2. That's four standard deviations from the mean. I understand that manufacturers are not actually going to focus on serving this tiny market.
But would it kill them to make a few more things in tall? Don't get me wrong, J. Crew and Banana Republic . . . I am eternally indebted for your line of tall pants and jackets. The last five years have been sheer bliss as for the first time, I could wear something other than a skirt-and-sweater without looking as if I'd just undergone an unexpected growth spurt. Every time I look down and don't see my trouser hem flapping well above the ankle, or a bony wrist protruding four inches from my cuff, I silently thank you.
But tall people don't just have arms and legs, y'see. We also have waists. Those waists are not in the same place as the waists of . . . er . . . daintier women. The standard flare that flatteringly emphasizes their waists before draping gently over their hips, for us starts somewhere mid-rib. The unfortunate effect is to make us look pregnant. Not that I haven't enjoyed the eager young men who leap out of their train seats to give me and my putative offspring a little rest. But I feel that it may be cramping my dating life somewhat.
This plaint surprises many shorter women of my acquaintance, who presume that since models are tall, it must be easy to find clothes. Ah, would that it were so. Models aren't actually that tall--anecdotal observation suggests that the average is more like 5'10 than 6'2. Also, the clothes are generally special fitted to the models, more than occasionally with things like masking tape and binder clips to make them fit correctly. People look at you strangely if you actually walk around on the street with your dress unzipped in the back and masking taped to your body.
Yes, I could learn to sew, and actually, I'm considering it. But specialization is the strength of our modern economy. I have a strong comparative advantage in journalism, and no advantage at all in sempstressing--so why can't I find any manufacturers to trade with me?
Just because we haven't experienced tragedy does not prove we are doing things right. This is causality 101, and it's something we drum into UCLA MPP students in their first year. Causal connections have to be examined, not assumed, or you'll get into trouble.
My 92 year-old grandmother, whom I love dearly, still drives a car in Miami. Incredibly, she's had no accidents since 9/11. But I'd never conclude that her driving acumen is responsible for her traffic record, or that she's become a better driver over the past 6 years.
The "we haven't been attacked" argument suffers from the same logical weaknesses. Why haven't we seen another 9/11 since 9/11? A million possible reasons. Many it's al Qaeda's long planning cycles. Maybe it's the disruption of al Qaeda Central in Afghanistan. Maybe it's sheer dumb luck. Maybe it's those ziploc bags at the airport. But the most dangerous explanation is the one that works backwards, inferring causes from outcomes and suggesting success when there may be none.
Who knows, perhaps it is that our security folks have really Gotten Serious and are catching all sorts of terrorists. But it seems to me that the more likely explanation is this: we don't have as many Muslims as Europe, and these days, we're letting in a lot fewer than we used to. And the Muslims we do have are, by and large, much better integrated than those in Europe.
I'm very fond of America's policy towards immigrants, which is to say, we don't have one. No one will try to force you to assimilate, but no one's going to help you keep from assimilating either. This policy of benign neglect considerably alleviates both sorts of Muslim/Christian tension found in Europe: the populations that have been positively encouraged not to see themselves as part of the larger culture, and the populations that feel their traditions are under attack. Obviously, it's not as if America is some sort of perfect paradise where no Muslim kid ever feels either excluded, or forced to assimilate. But the sharp group-on-group rage never seems to have gotten a foothold here. And of course, America in general has much more experience assimilating strangers than Europe.
But our Muslim population isn't just less estranged; it's also smaller. Most of the Arabs and immigrants from the Indian subcontinent are Christian, Hindu, or Sikh. Since only a tiny fraction of a fraction are going to be willing to aid terrorists, much less participate in terrorist acts, Al Qaeda may simply not have the numbers it needs to conduct effective operations. And of course, it's easier to sneak into Europe from the Middle East or Asia than it is to sneak into the US. Europe is a softer target, so it's not surprising that Al Qaeda has put its focus there, as well, of course, as on Iraq.
Then, the other possibility is that we're about to be attacked, and that we haven't been so far merely because These Things Take Time. Given that I live in one of the two main targets, I hope that's not the case.
Process of deduction
A couple of commenters and emailers have asked me to defend my assertion over at TPMCafe that:
At the time, Gore was offering tax deductions or credits for practically anything one might do, from getting born to entering a nursing home. These sorts of tiny lump-sum deductions are generally frowned on by economists; they distort activity, are costly to administer, and unlike marginal rate cuts, provide no positive incentives to increase work.
This is not actually particularly controversial, and the economics is (I think) kind of interesting and important, but at the same time, the explanation is not quite right for the TPMCafe format, so I'll try it here. For anyone who cares, it's below the fold, as it's rather lengthy and a little bit technical. Apologies for those who know all this and find it old hat; this is only for wannabe tax wonks.
This seems crazy. How do you recruit a constitutional law professor to be your dean without being aware that he's very liberal? And it seems like a twink move to fire him because he'll be "a target for conservatives". Either his legal scholarship and administrative skill will make him a good dean, or not. There's obviously much more to the story, likely involving either powerful donors, or powerful politicians, or both. At any rate, this doesn't seem likely to do good things for a fledgling law school trying to recruit high-caliber faculty. In the long run, that will matter a great deal more than a few donors.
Success is in the eye of the beholder
Are companies any smarter or more efficient than the government? Cactus at Angry Bear doesn't think so:
One of the reasons I don't buy the argument that the private sector is more efficient than the public sector (and I don't buy the reverse argument either - I think both are equally inefficient) is that there seems to be ample evidence that most companies don't know what they're doing. If they're successful for a while, they don't necessarily.
. . .
Now, whoda thunk that home prices can't continuously rise faster than the wages of people who buy homes? Clearly not Countrywide and a host of other companies that as little as two months ago would have been considered quite successful by Wall Street Standards (i.e., by very, very highly paid Wall Street analysts). If your typical right wing person thought of companies like Countrywide at all before two months ago, odds are they had such companies labeled as a "success story" in their minds.
Personally, I'm on the record as believing that companies quite often do stupid things. The difference between companies and the government is that thanks to market discipline, companies that do stupid things eventually have to stop, because they run out of money. Government programs that don't work, on the other hand, have a seemingly indefinite shelf life. The US government seems to be doing almost every stupid thing it has ever done, and to be planning to continue doing those stupid things forever. In the past sixty years we've had three serious attempts that I can think of that even partially grappled with the problem of programs that weren't working: the Carter/Reagan deregulations; the Reagan tax simplification; and the Clinton welfare reform. Of those, the first is intact, the second has been gutted, and the third is slowly eroding. This is not a promising track record for people arguing that the government should do more stuff.
For the market, Countrywide is a success story; the market succeeded in weeding this company out. Not perfectly, no instantly, but eventually, that which could not go on forever, stopped. Try that trick with the farm bill.
Those wacky libertarians
Kay Hymnowitz thinks we're destroying the infrastructure that creates us:
On the one hand, libertarians make a fetish of freedom; it is their totalizing goal. On the other hand, libertarians depend on the family--an institution that, in crucial respects, is unfree--to produce the sort of people best suited to life in a free-market system (not to mention future members of their own movement). The complex, dynamic economy that libertarians have done so much to expand needs highly advanced human capital--that is, individuals of great moral, cognitive and emotional sophistication. Reams of social-science research prove that these qualities are best produced in traditional families with married parents.
Family breakdown, by contrast, limits the accumulation of such human capital. Worse, divorce and out-of-wedlock childbearing leave the door wide open for big government. Dysfunctional families create an increased demand for state-funded food, housing and medical subsidies, which libertarians reject on principle. And in courts all over the country, judges who preside over the manifold disputes occasioned by broken families are forced to be more intrusive than the worst mother-in-law: They decide who should have primary custody, who gets a child on Christmas or summer holidays, whether a child should take piano lessons, go to Hebrew school, move to California, or speak to her grandmother on the phone. It is a libertarian's worst nightmare.
I'd agree that there are libertarians who too readily dismiss social conservative questions about the innate structure of marriage as if they were wacky considerations unworthy of a moment's thought. But even assuming, arguendo, that letting gays marry were undermining the broader institution, it would be at best a trivial contributor to the problem. And the libertarian response to Kay Hymnowitz is the same response she'd likely be perfectly comfortable with if it were on the topic of any of the rest of the world's ills: what do you want the government to do? Shall we ban household appliances, so that it's harder for women to work, so that they're more economically dependent on their husbands, so that they're less likely to seek a divorce? Perhaps we should restrict birth control to women who've had five kids, at which point everyone will be too tired and poor to get a divorce? Should we send vans into inner city neighborhoods to exhort them to get married--pretending that we haven't noticed that every other government program of this sort, from abstinence education to job training, is pretty much a miserable failure? Government sponsored hope chests? What policy do you want us to support?
Or is it that we're contributing to a lower moral tone in America? Look, I love the folks at libertarian think tanks, and all. They're lovely, attractive people, witty and urbane, and they cook some great seafood. But they're not exactly role models for the nation. I very much doubt that anyone out there doing the things that undermine marriage--getting ill-considered divorces, having babies out of wedlock, committing adultery--is thinking to themselves, "I wonder if this will make me as edgy and cool as a policy analyst at Cato."
Slash and burn
I'm with Dan on this one: I haven't seen a lot of Democratic enthusiasm for budget balancing this cycle.
Democrats like so say they favor balanced budgets, of course. They've invested the Clinton tax increase with nearly the same level of totemic power as Republicans have given to the Reagan tax cuts: it allows them to claim credit for a largely unrelated economic boom. But this is just something to say when you're bored. I see the candidates promising to spend all the money they claw back from the Bush tax cuts (which will be a couple of hundred billion between their first budget and the expiration of cuts), and more besides. This would seem to bely any serious interest in deficit cuttery. I don't know many progressives who would prefer deficit reduction to, say, national health care.
Hold the line
Matt says Britain can spend so little on health care because its system really is socialized:
Be that as it may, I think Hanson's observation that "humans long ago evolved a tendency to use medicine to 'show that we care,' rather than just to get healthy" partially explains why things like the UK's National Health Service generate so much bang for the buck. In effect, a highly centralized state run health care system is able to put a cap on how much demonstrative caring can be done through the health care system. Nobody's going to say to his or her spouse, "well, sure we could afford the procedure, but it doesn't really stand up to cost-benefit analysis compared to spending the money on organic produce for the kids" but if bureaucrats stand in your way well, then, that's hardly your fault.
That doesn't actually strike me as a very good model of how American government services work. It is, to be sure, how they used to work; American public goods in the 1950's look a lot like British ones, except nicer, because we were richer. People largely accepted what they got at the pleasure of the government.
But after the legal revolution of the 1970's, American public services look, well, like American ones: unable to deny anything to anyone. What would actually happen in the case Matt describes is that the patient would form an activist group, sue, get the treatment, and use the government settlement to buy the kids organic fruit and a trip to Disneyland.
Come, let us grow old together.
Daniel Engber has discovered the ZPG and voluntary extinction people:
Instead of burning down our numbers with oil and gas, we might follow the advice of the founder of the Voluntary Human Extinction Movement, who tells Weisman that everyone in the world should stop having kids all at once. Weisman isn't up for quite so drastic a measure, but he makes his own pitch, moderate in comparison: Let's cut the birth rate to one child per couple, for a few generations at least. The population would dwindle by about 5 billion people over the next century, he says, ensuring the habitability of the Earth for the 1.6 billion who remained. At that point, they could all reap the rewards of a more spacious planet, sharing in "the growing joy of watching the world daily become more wonderful." It seems like a notion from the fringe, but Weisman's book has become a mainstream best seller. Could population control be the next big thing in green culture?
He leaves out the strong probability that a planet that has only one child per couple will see its elderly abandoned quite early in their senescence. The elderly are extremely heavy consumers of labor intensive services. And unlike caring for children, caring for them is rarely rewarding, which is why they so often end up crammed alone, into nursing homes. This might be a good strategy for the planet, but it's a terrible strategy for the planet's future old people. Which I hope includes all of us.
One of the topics that I write about with some frequency is bankruptcy. And as with the current financial crisis, what's amazing about bankruptcy is how many people are willing to spend how many hours debating whose fault it all was. Were the people who borrowed the money irresponsible, or were they taken advantage of by unscrupulous lenders? Do the people who backed the reform want to help credit card companies rape innocent consumers, or did the people who opposed it want to help deadbeats shrug off debts for the fripperies they acquired? The main object in all of this seems to be to get the mob good and mad so that we can pick up a stick and whack whatever villain we've identified.
Almost no one ever steps forward and says, you know, hey, it might not actually be anyone's fault. Sometimes, bad things just happen. And at any rate, who cares?
It's surprising how often everyone in the debate over bankruptcy loses sight of a simple fact: bankruptcy is the legal recognition of the fact that a person or corporation cannot meet their obligations. It doesn't matter whether they spent the money on worthy education or a stupid attempt to corner the Pez market, or a giant-flat screen television; whatever they spent it on, it's spent, and their current income is not enough to pay it off. Nor is it relevant that they might not have borrowed the money if they'd been smarter or better read, or whatever; the did borrow the money, and spent it, and now they owe it. I'm not talking about fraud here, clearly; any borrower who lied about their finances, or lender who misrepresented the terms, deserves whatever they get. Just normal kinds of stupidity, venality, and unlucky accident.
It matters prospectively, of course: we don't want other people to get the idea that they should borrow, or lend, without thinking things through. But the current system works pretty well. Recognizing that we don't have any very good mechanism for picking out the profligate from the unlucky (most bankruptcies involve a little from Column A, a little from Column B), we let people get rid of their debts regardless of how they were incurred. (Except for special exceptions, most of them involving the government, such as taxes and student loans). Then, recognizing that it is not a good idea to make it painless to borrow money you don't repay, we make life a little bit miserable for people who declare bankruptcy--though not very miserable; the chief result is that it's somewhat harder to get credit. It's hard to overstate how well this works. America's bankruptcy system is the most generous to the debtor, the least interested in assigning fault, in the entire world. There's strong evidence that this is one of the reasons behind our high rates of entrepreneurship; it makes it easier to take economic risks. And yet we also have (until very recently) the most robust consumer credit market in the world. Why start assigning blame, when ignoring the question has worked so well?
I feel the same thing, writ large, about the housing crisis. Most borrowers probably borrowed in good faith, and most lenders probably lent in good faith; I've seen no evidence that the anecdotal fraud was widespread. The banks that securitized loans genuinely thought they were doing a good thing by spreading credit risk; the hedge funds and others that bought them genuinely thought that they'd accounted for default risk. So who cares about placing blame? At the end of it all, we'll still have a housing crisis. We'll still also have moral hazard, but that's an argument for making things a little unpleasant for anyone we bail out, not an argument for letting them drown.
Memento mori
WITH rue my heart is laden
For golden friends I had,
For many a rose-lipt maiden
And many a lightfoot lad.
By brooks too broad for leaping
The lightfoot boys are laid;
The rose-lipt girls are sleeping
In fields where roses fade.
Policy recommendations are extremely sensitive to the choice of discount rate, and economists do not agree on this issue. Furthermore most economists do not even know enough moral philosophy to understand the issues involved (and the philosophers don't understand enough economics), so there is no coherent consensus one way or the other.
I think this is key. Actually, I think there are four groups who need to be involved:
Climatologists and associated scientists, to tell us what is likely to happen.
Engineers, to tell us how me might abate what is likely to happen.
Philosophers, to tell us how to handle issues of intergenerational equity. (Although to be sure, when I talk to my friends who are relatively expert in the philosophy of intergenerational equity, I don't emerge with any very clear answers on the topic.)
Economists, to tell us what the likely effects of various actions will be on the lives of people in various generations.
To which we might add, "Political scientists, to tell us how to get everyone to agree to any solution the others work out."
No one understands very well the work of the others, which means everyone tends to overweight the urgency of their particular problem: the philosophers focus on justice, the engineers on feasibility, the climatologists and biologists on the various physical and biological changes, and the economists on the growth reduction; there's no very good system for weighting all of these considerations, except the political one, which everyone, including the politicians, seems to agree is doing a terrible job.
If we can solve the problem of letting China and India get rich without making the planet unbearably warm, or the industrialized countries unbearably poor, we will have this fundamental problem resolved. But the best the experts seem to have on that one is a sick look and a wan, "Well, we'd better find a way, hadn't we?"
This just in: research finds we're awesomely awesome!
Often, when confronting new research, I have to remind myself of one of my favorite aphorisms ever, from the much-lamented former blogger (and current scientist) Charles Murtaugh:
The universe is not here to please you.
It would be nice if the empirical evidence offered definitive proof that each and every one of my policy ideas was Pareto Efficient, but there you are: the universe is not here to please you.
Which is funny, because he said this in response to being called a racist for suggesting that there might be persistent heritable inter-group differences in IQ. Charles Murtaugh is pretty darn liberal, and as you can imagine, his fellow liberals did not take kindly to his statement that there might be something there; hence his issuance of the dictum that has wormed its way into my heart. And this new study on the neurological differences between liberals and conservatives made me think of nothing so much as the debate over race and IQ.
It certainly could be true; perhaps conservatives and liberals were programmed from birth. But I have two problems with it. First, I've spent too much time watching groups agree with each other not to think that one's peer group has very large effects on one's beliefs. Would a doctrinaire liberal from the Upper West Side who gets angry at the very notion of questioning the wisdom of affirmative action really look very much different from a doctrinaire conservative in Kansas who gets angry at the very notion of questioning the sanctity of marriage?
Almost any study of this type is going to be done in a place which skews one way or another. In that place, you will have two types of people:
1) People who agree with the dominant orientation of the locality
2) People who disagree with the dominant orientation of the locality
The people who disagree will probably look very different from the people who agree, because the mental qualities needed to maintain strong disagreement with one's neighbors are probably somewhat singular. But that doesn't mean their mental model caused the beliefs, and if you switched to a different location with a different orientation, you might get results showing the opposite.
My other problem is that the west has a long history of research on race and IQ, and gender and IQ, and so forth, that generally finds--quel surprise!--that the dominant group is genetically superior. This could be true; to discuss a subject I feel less queasy bringing up, I find it possible that male IQ's are distributed with fatter tails, so that there are more male geniuses (and cognitively disabled people) than female. But it's also true that scientists, like everyone else, have a tendency to find what they are expecting. Often, it's a case of not asking yourself the right question that might disconfirm your findings: like "Is the West Village a good sample of American political philosophy?" Evolutionary biology stories about gender are often plausible, but then, I can generally tell an equally plausible story that cuts the other way.
So when I read about research that has confirmed that a group the researchers themselves belong to is smarter, or more flexible, or just generally groovier, than some other group of folks, I can't help but reach for the salt shaker.
Jonathan Chait has apparently gotten the notion somewhere that Martin Feldstein is about half a step above George Gilder and Jude Wanniski in intellectual heft:
I see that, in their efforts to show that Republican budget policy is actually driven by sensible people rather than raving loons, conservatives are now citing the work of Martin Feldstein (see here and here.)
I will concede that Feldstein is more credible than, say, George Gilder or Jude Wanniski. That, however, is not saying much.
I've only been a journalist for a few years. But I've developed a small list of phrases that should never come out of one's mouth:
"Peter Singer--what a 'tard!"
"I just don't think Stephen Hawking is all that bright"
"Well, fine, Crick and Watson may be smarter than your average creationist, but not much."
Since I mostly write about economics, that means I mostly try to avoid saying, or implying, that highly respected economists are not very good at their job1. Even when you think their research is mistaken, you want to tread carefully with the accusations of stupidity or bad faith. Especially when that economist is a holder of the John Bates Clark medal, which is harder to get than the Nobel Prize in economics. Extra especially when he is a chaired professor at Harvard, and the head of the National Bureau of Economic research. For one thing, when you do write things like that, anyone who knows anything about the subject is not reading it and thinking, "that McArdle chick sure must be smart, if she knows more about trade theory than Paul Krugman!"
Moreover, you run the risk of having to prove that you are smarter than said professor, when trust me, you aren't. There is no way an argument between you and Martin Feldstein, or any other economist of his stature, about their subject is going to end except with you backing away slowly, eyes fixed on your shoes, mumbling "I'm sorry, I just didn't quite understand . . . I'm sorry, yes, listen, I really ought to go . . . I think I left something on the stove . . . no, no more equations, PLEASE MAKE IT STOP!"
And of course, sometimes my old employer notices what you've said, and then things like this tend to happen:
JONATHAN CHAIT apparently is unimpressed by citations to the work of personages such as Martin Feldstein, the president of the prestigious National Bureau of Economic Research and the George F. Baker Professor of Economics at Harvard University. Indeed, Mr Chait has a knack for drawing the bounds of intellectual respectability so tightly around himself that by late afternoon even his shadow falls outside the charmed circle. Even so, one must admit that Mr Feldstein's Clark medal and his endorsement by the New York Times for the job of Chairman of the Federal Reserve does leave one with a residue of suspicion. The Bank of Sweden has not bestowed upon him its coveted prize—though it's true he has been mentioned, specifically for his work on the theory of taxation. So let's not be too hasty to take him seriously.
Because Mr Chait is a self-avowed empiricist, perhaps he will favour this new NBER paper (free version here) by Christina and David Romer of the Univesity of California, Berkeley (despite somewhat embarrassingcredentials, even slightly more lackluster than Mr Feldstein's). It is a dazzling empirical investigation of the effects of tax cuts and increases on economic output in the United States since the end of the second World War—one that significantly improves on the methodology of earlier attempts to estimate the effects of tax changes. They find that
tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.
The economists Romer looked at every tax change legislated at the national level since WWII. Impressively, they scoured "presidential speeches, executive-branch documents, and Congressional reports ... to identify the size, timing, and principal motivation for all major postwar tax policy actions." They then categorized each tax change based on whether or not it was intended as a forward-looking correction to the direction of the economy (they call these "endogenous" changes), or intended for other reasons, such as to reduce an inherited deficit or to boost long-run growth (the "exogenous" changes.) This allows them to tease out the output effects of tax cuts and tax increases set in place for different reasons.
Those interested in raising taxes, but unwilling to take seriously Martin Feldstein's estimate of the deadweight loss of tax increases, will need to grapple with Mr and Ms Romers' new findings. For example:
Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.
This is bad news for those with aspirations to higher levels of tax-financed spending. However, they find that not all tax hikes hurt the same. Tax increases specifically intended to offset budget deficits largely avoid the negative effects of other kinds of increases, in part by improving the climate of investor confidence.
The deadweight loss of taxation is still a matter of hot debate, and other economists would push forward other numbers. But Mr Chait's recent writings seem to imply that he hasn't really understood the terms of the debate, or learned how to separate the cranks from the titans, which may be why his article lumps all of their claims together. Unfortunately, I haven't a copy of the book, so I can't tell if it's any better than the article in The New Republic.
"It's true because Martin Feldstein said it" is a stupid argument--but no stupider than "Tax cuts are bad because Art Laffer likes them".
1 But what about Paul Krugman, I hear you cry. I don't care for Paul Krugman the columnist, which is a job I know something about. You won't see me airily dismissing his work on trade, however, nor other respected economists whose work I disagree with, like Card and Krueger.
September 9, 2007
When should the government choose?
Megan at From the Archives has written twopieces on libertarians and choice that are, predictibly, stirring up a lot of angst in the libertarian blogosphere. From the first piece:
People live in denial, do not do good risk analysis (as evidenced by my erratic use of bike helmets.) They do not conscientiously save against medical emergencies, even though they could. They do not have the capacity to compare fancy-dancy medical treatments (I should figure out what chemo regimen is best for me? I DO NOT WANT TO, because that is outside my expertise and BORING. I want to trust an expert, if it comes to that.), especially if the pain has already started. They do not have any interest in comparing not-fancy treatments. (When I broke my arm, I realized I had no information whatsoever on which of the four local emergency rooms had good reputations. None. I had never cared until it was too late.) I derive zero utility from comparison shopping for health care; I want someone else to handle it.
I figure people are roughly like me, non-savers, bad risk assessment, more than willing to delegate their health care. (I am not willing to delegate my fitness or nutrition, but that is different from disease or injury.) You know what makes good sense for that model of the individual? Government based health care that does a decent job by me. You know what doesn't make sense? For profit insurance agencies who do not have my best interests at heart.
And from the second:
This is the other thing I don't get about small government types. You protest so vociferously that government takes choices away from you. But a whole lot of choices are BORING. If I never once think about car bumper safety standards for 25mph crashes, I will never miss it. I do not want to carefully match my car safety standards to my most likely driving patterns and save two grand in the process. I would not enjoy that process. (Perhaps you would, and you would rather have the money.) I've never been a comparison shopper or a meticulous consumer. Maybe my model of the individual is too biased by my experience. But I don't want to figure out how much coliform bacteria I can tolerate on my spinach, given my health. I don't want to do that even if it saves me money. I don't want to figure out what goes into paint in nephews' toys. I don't even want to handle my health care.
People talk about being rational health care consumers, but they are maximizing some combination of health outcomes and money. I want to maximize my utility. My utility is optimized by going outside to play while someone who is interested in health care gets paid to balance my health care and money. I'll pay a little extra to cover that person. I come out well ahead in that deal*.
This is true of almost everybody. My model of the individual is that they do not always make the best choices. (Obviously). Most people are not driving the car, watching the television, or taking the vacation that would make them happiest. Most people pay too much to avoid risk (witness the preferences for low insurance deductibles and extended warranties), assume that anything their neighbours do is probably a good idea, and spend money on expensive features they then do not use. And I think that virtually everyone, from anarcho-capitalist to anarcho-syndicalist, agrees that this is so.
But this is not an argument for turning those choices over to someone else, necessarily. Most people probably do a better job at picking what is right for them, most times, than even a polished expert. Have you ever gone shopping with a friend who had beautiful taste in clothes, only to end up with a closet full of things that you can't quite pull off?
On the other hand, in many cases there may be an argument for turning over the choice to someone else. I neither know, nor care, about the inner workings of my Bose sounddock; I bought it because a friend I respect said it was the best thing short of an expensive stereo kit I couldn't afford.
Megan is making an argument for turning many of those choices over to the government. Libertarians would argue that most of those choices could be safely left in the hands of consumer reports or an equivalent. My question is, when does the government work, and when do private agencies work just as well or better?
Megan works in one of the areas where I, at least, would say the government is probably the best solution: water management. There's a reason that irrigation systems seem to have given rise to the first large states: water is no respecter of property lines. Given the coordination problems and hazily defined boundaries inherent in water rights, I'm pretty comfortable having the government take care of this, though as Megan might put it, I find the topic too BORING to decide whether I think the government is doing it well.
(Sorry, Dad. Try to think of it as my outsourcing my opinions to you. Gains from trade!)
On the other hand, Consumer Reports does a pretty good job with my blender. And what they don't take care of, tort law seems to be pretty good at. Jack in the Box doesn't try to track down the source of e. coli outbreaks in its food because it's afraid that the government will shut it down; it's afraid the government won't need to, because people will already have stopped eating there.
Private ratings firms do have drawbacks. For example, I was told by a marketing professor one story about Yahoo in the early days, which used to sell its search rank order. There was one chap who wanted "Garden City Financial Planner", which wasn't, as you can imagine, a frequently requested search. They checked their listings and saw that that search term was only requested about 25 times a month, and decided to charge him a dollar a search--back in those days, the prices were also set kind of haphazardly. (Note: as I'm telling this from memory, the numbers are very approximate). The next month, he cheerfully came back and reordered. And the next month. So they doubled the price. He went on paying. They doubled it again. He ponied up without a protest. Eventually, they signed a two year contract at something like $2,000 a month. And at the signing, they asked him to explain why he was willing to pay so much for so few hits.
"Easy," he explained. "People who use that search term really want a Garden City financial planner. Out of those 25, maybe 15 click on the link. Ten of them ask me for information. And five of them sign up. Those five have a median net worth of $350,000, and I make about $5-10,000 a year providing them advice and services. They'd be worth it to me at twice the price."
How many of those five would have paid $400 for an unbiased search? As long as it is worth more to the provider to keep you misinformed, than you are willing to pay to be informed, private ratings are subject to corruption. Particularly since if you knew how to tell whether you were getting a good rating, you wouldn't need the rating. That's why equity research ratings from investment banks were useless: no consumers were willing to pay as much as the fees the banks got from security underwriting and merger advisory, and as long as the market kept rising, they couldn't tell the difference between good and bad advice anyway.
Also, private firms may just not care. Does it really matter to them if your blender breaks in two weeks?
Megan clearly places a higher faith in the incentives of government agencies than in private firms or ratings agencies. I'd say government regulations have different problems, not better ones. Usually, government bureaucrats care; no one goes to work in the engineering department of the NHTSA unless they're pretty interested in cars, or the water bureaucracy of the state government of California unless they think water's pretty fascinating.
But government bureaucracies have other problems that private firms suffer less from, or not at all. Many of them get a new boss every two to four years. They are generally punished only for the things they have allowed to happen, but not for the things they have prevented from happening, so they tend to be far too risk averse, even when that reduces welfare. This is compounded by the fact that the people who staff bureaucracies tend to already be risk averse; many chose government over the private sector at least in part because they value the job security. There's nothing wrong with being risk averse--but remember, risk averse does not equal "better outcomes". It just means "less variance". It can, and often does, mean "worse, but more predictible outcomes".
At some level, for example, most of us seem think that the FDA is probably too cautious. I know this because contra Megan, most cancer patients seem to be fairly eager to get into clinical trials of unapproved drugs, especially once they have exhausted the approved treatments. These trials take place after the drug has been tested for toxicity; what they represent is the FDA delaying approval on treatments that could save peoples' lives, not for safety reasons--though nasty side effects sometimes do show up in later clinical stages, this is of fairly small concern to terminal cancer patients--but in order to put its "this works" stamp on it. If this ordering of values were really the majority preference, we'd all go home to die instead of trying remedies, whether they are drug trials or alternative therapies, that haven't gone through double-blind testing. This could happen to private firms, as well, of course, but competition and price signals seem to curb that tendency. Private insurance firms are quicker to approve "off label" uses of drugs than the FDA, which requires an entirely fresh round of clinical trials to do so.
And while private firms are probably in more danger of outright corruption, government ratings agencies often do serve corporate interests rather than the consumer. They do so in a different way: usually, they protect insiders against competition, which raises costs and lowers quality for everyone. It's a phenomenon called regulatory capture, and it's nearly universal, though to varying degrees. It's not malicious--it's just that the bureaucrats spend a huge amount of time with the companies they regulate, and so naturally, they sort of come to see things their way. Also, all entities, government or otherwise, hate change in their industry. Change is uncomfortable, and makes years of carefully acquired expertise useless. Regulators, however, have slightly more latitude than most organizations to prevent change from occurring.
Governments also have the problem of divided attention: none of the people voting on the laws are experts on what they're voting on. Low profile issues often see the laws written by lobbyists; high profile issues often see them written by panicked staffers who don't really know what they're doing. That's why the financial regulations written after crises are often so, well, weird; whatever the appropriate level of financial regulation, it's hard to see what benefit America derived from separating underwriting from banking for 60 years, which was a prominent feature of Glass-Steagall, the 1930's Congress' response to the Great Depression.
Knowing all that, it's hard to come up with a pithy theory of when government agencies will do a better job of providing information or regulation. Tenatively, I'd offer this: government works better when the coordination problems are large, and failures are hard to observe, such as dealing with e. coli outbreaks; private firms work best when the failures are easy to observe and directly affect the purchaser, such as auto safety and blenders. This being about what the public choice people have been saying. Of course, that still doesn't explain why financial regulation is such a mess.
We must force you to be free!
Scott Lemieux is blogging about Quebec's refusal to let Muslim women vote with their face covered:
I don't believe that, at least on their face, Quebec's actions should be held to violate the guarantee of religious freedom in Section 2 a) of the Charter. Over the years I've become more convinced that Scalia's broadly criticized opinion in Oregon v. Smith was correct; unless a regulation is just a pretext for religious discrimination, fairly applied general regulations representing a legitimate state interest can burden the exercise of religion.
Even if the Quebec government can do it, however, we need to ask whether it should. Absent a showing that facial covered was being used to a significant extent to commit voter fraud, I cannot agree that this regulation is remotely justifiable. The state should accommodate minority religions absent a good reason to do so.
Although I certainly agree that "multiculturalism and tolerance should not serve as a pretext for denying gender equality," to think that this prohibition on ornamental choices advances gender equality in any significant way is silly. I certainly agree that "multiculturalism" cannot justify domestic violence, coerced genital mutilation, denying emergency contraception (although, oddly, that last form of multicultural exemption seems to get brought up a lot less when conservatives gin up these largely phony dilemmas), etc. But people are fooling themselves if they think that forcing Muslim women to vote with their faces uncovered does anything for gender equality. In cases where Muslim women in relatively egalitarian relationships with men are forced not to be covered, the regulation represents a diminution of women's freedom. In cases where women are coerced in some way to wear facial covering to symbolize their subordinate status, the gain to women's freedom of compelling them to remove their facial covering every few years to vote are trivial.
I don't even understand why this is a debate. A few years ago, when that woman in Florida wanted to take her driver's license photo with her face covered, I sided against her; the state has a compelling interest in knowing that the person who took out the license is the one driving the car, and if you can't uncover your face to take a picture, then I'm sorry, you can't drive a car.
(Question: my impression is that places like Saudi Arabia require women to have papers on them at all times to prove that they're not, say, in a car alone with a strange man. How do they handle this? Otherwise, why not just swap passports with your boyfriend's sister?)
But my understanding is that the prohibition is on having your face seen by men, not by having your face seen at all; and that the problem with the driver's license picture is that you don't know whether a male or female cop will pull you over. It seems very easy to deal with the practical side of this: provide a female and a private place to check the ids of those with religious objections.
Some of the energy behind this seems to have been from feminists who hoped to use this to deligitimize veiling. This strikes me as very, very strange. Disenfranchising women has not exactly proven a surefire way of liberating them in the past. The ability to cast one of several million votes seems unlikely to be a sufficiently powerful lure for either women or their husbands to relinquish the veil.
Nor do I think it's legitimate for the state to withhold rights in an effort to change behavior unrelated to the excercise of the right in question. The state can't refuse the right to vote to the unmarried, even if marriage is excellent for me and society, because the state doesn't have the power to tell me to get married.
Update Yes, obviously, that was a typo. It's now fixed.
Update II No, I didn't make another error about the topic of the article. The full text reads:
The Quebec government requires everyone to vote with their faces uncovered, even if they have religious reasons for not doing so. Elections Canada has issued a ruling permitting women to vote with their faces covered in federal byelections in Quebec, although the rule will still apply in provincial elections.
i.e. the government of Quebec is refusing to let women vote in provincial elections with their faces covered, whatever their reasons for doing so.
Thanks to everyone who made my Sunday evening so entertaining!
More Music Sunday
I'm listening to This is Madness by The Last Poets while sitting in a black-owned coffee shop in my heavily mixed-race neighbourhood, one of the historic center's of Washington, DC's sizeable black middle glass. I'm surrounded by young hipsters and middle-aged black families, nodding my head in time with the beat, and really enjoying the music--when it suddenly occurs to me that if they could see this, the men who cut that album would probably be quite horrified.
Cruel math
In a world without war--or the excessive number of female converts that new religions attract, because women tend to be more religious than men--polygyny means you need to get rid of the extra men:
Over the last six years, hundreds of teenage boys have been expelled or felt compelled to leave the polygamous settlement that straddles Colorado City, Ariz., and Hildale, Utah.
Disobedience is usually the reason given for expulsion, but former sect members and state legal officials say the exodus of males — the expulsion of girls is rarer — also remedies a huge imbalance in the marriage market. Members of the sect believe that to reach eternal salvation, men are supposed to have at least three wives.
. . .
The polygamous settlement is largely controlled by the Fundamentalist Church of Jesus Christ of Latter-day Saints and allies of its jailed prophet, Warren S. Jeffs, who is about to stand trial on charges of sexual exploitation.
. . . Utah officials say they realized the extent of the problem only about four years ago, when they learned that hundreds of boys from the sect were roaming on their own and often in distress. While most have construction skills to help earn a living, few have more than a junior high education.
. . .
Mr. Gilbert estimates that 100 boys from his school class, or 70 percent of them, have been expelled or left on their own accord; there is no way to verify the numbers. “There are a lot of broken-hearted parents, but you question this decision at the risk of your own salvation,” Mr. Gilbert said.
The problem of surplus males worsened in the 1990s when the late prophet Rulon Jeffs, Warren Jeffs’s father, took on dozens of young wives — picking the prettiest, most talented girls, said DeLoy Bateman, a high school teacher who watched it happen.
Warren Jeffs, taking the mantle after his father’s death in 2002, adopted most of his father’s wives and married others, and also began assigning more wives to his trusted church leaders, former members say. Forced departures increased.
No, no, please don't explain
From later in that article on Rubin:
"Although Rubin's parents — his father was a shoe wholesaler, and "my mother's job was me" — wanted him to be a lawyer, he had other ideas. In 1983, while he was attending N.Y.U., he borrowed $5,000 from his parents and recorded "It's Yours" by T La Rock and Jazzy Jay, a 12-inch single that became a local dance hit. Rubin then invented a label, calling his company Def Jam ("Def" meaning great, and "Jam" meaning music) . . . "
Music Sunday
I'm just getting around to reading this piece on the music business from last week's New York Times magazine. In it, Columbia's resident guru, Rick Rubin, describes his vision for the future:
Rubin has a bigger idea. To combat the devastating impact of file sharing, he, like others in the music business (Doug Morris and Jimmy Iovine at Universal, for instance), says that the future of the industry is a subscription model, much like paid cable on a television set. "You would subscribe to music," Rubin explained, as he settled on the velvet couch in his library. "You'd pay, say, $19.95 a month, and the music will come anywhere you'd like. In this new world, there will be a virtual library that will be accessible from your car, from your cellphone, from your computer, from your television. Anywhere. The iPod will be obsolete, but there would be a Walkman-like device you could plug into speakers at home. You'll say, 'Today I want to listen to ... Simon and Garfunkel,' and there they are. The service can have demos, bootlegs, concerts, whatever context the artist wants to put out. And once that model is put into place, the industry will grow 10 times the size it is now."
I should be excited about this, right? All the world's music, all the time. But somehow, I'm not. I like owning music; I like the feeling that this set of songs is mine. I even like the limits that this imposes. Sure, sometimes I want to listen to a song I don't have--but between iTunes and eMusic, that song is rarely more than a couple of mouse clicks away. Meanwhile, when I sit down at my computer, the limited selection prevents me from spending hours thinking about what the absolutely correct song for my current mood might be. Due to a series of unfortunate events that twice destroyed my accumulated stash, my music collection is not currently anywhere near big enough. But I have a feeling that somewhere between 5-10,000 songs, it will be.
Meanwhile, on a completely unrelated note, I need to go all fogey for a minute. Last night, I went to see Georgie James, the first band I've seen in a long time that I felt sure was going to be big before they even released an album. Which is one way of telling you that when their album comes out on the 25th, you should acquire it. But I digress. Anyway, I've seen them twice now, and they always play very short gigs, because they've got just about enough songs for an album.
At the risk of sounding like Andy Rooney, as I reach deep back into the mists of time to recall the new bands I listened to in college, I feel like most people didn't cut an album, or even play out that much, until they had enough material for more than one short set. To be sure, one or two of those songs was always a cover--generally a semi-ironic one--to the extent that funny variations on "X's cover of Y" became a running joke among my friends. (i.e. Grim Reaper's cover of "A tisket, a tasket"). But it seems like now as soon as a band ekes out enough material to keep a crowd occupied for fifteen minutes, they start circulating. What changed? The proliferation of indie labels, the low cost of cutting a CD, or something else? Or am I just romanticizing how much better things were back in my day?
September 8, 2007
Back by popular demand
In the comments to the post on assuming that your opponents don't really believe what they're saying, a commenter requests a post I did a while back on egotistical bias and the fundamental attribution error. Ask, and ye shall receive:
As usual, blogging about abortion is producing a lot of heated and very emotional debate. There are a few categories of this: some very good posts about philosophy, which make me sad, because they are so interesting, and yet so pointless, because the main figures in the debate seem to me so clearly to be looking not for a well-thought out position, but for a philosophical premise which will tickle the crude moral intuitions of a public which does not and will not read moral philosophy. Nor can I say that I've found a well-reasoned answer to the abortion question; my only defense is that I'm well aware of it.
Then there are the personal anecdotes. Pro-choicers waving around the abortions they've had to say "See! I needed that abortion!" and (currently) pro-lifers waving around the abortions they've had to say "See! It was the worst thing I ever did!" Pro-choicers talking about their children to prove that they do too like kids, and pro-lifers showing cute pictures of Jimmy and asking "What if he'd been aborted?" Paul Campos has pointed out the futility of these demonstrations: everyone's seen the coathanger pictures and the fetuses with the faces and the fingers and toes, and everyone's still disagreeing. The premise that the other side would agree with you if you could just use provocative images to call forth some emotion on the topic seems particularly odd in the case of abortion; if there is one thing that the debate is not suffering from, it is a lack of emotion.
My favourite, though, are the posts where everyone speculates on the motives of the other side. You see, pro-lifers don't care about babies at all, because that would make their points something you might have to listen to and we can't have that, can we? So what they obviously really care about is screwing up women's lives so that they'll have to spend the rest of them barefoot and pregnant and in the kitchen making lemonade for Pa and his friends when they come in from a hard day of plowing and oppressing colored people. And pro-choicers don't actually care about women; all they're really interested is enforcing a radical feminist agenda on the rest of us so girls won't be able to wear dresses and lipstick any more and boys will have to have their genitalia surgically removed at puberty and replaced with a copy of The Feminine Mystique. Also, while we can't be totally sure, it's reasonable to assume that many of them enjoy baby-killing, and would sacrifice live infants if not restrained by the hard work of good, Christian folk.
I was recently at the University of Chicago graduate school of business interviewing professors about their work, and got a chance to spend half an hour talking to Nick Epley, who is a psychologist. He's done a lot of fascinating work, but one of the first things we talked about is a simple concept he didn't invent: egotistical bias. We tend to use ourselves as a model for everyone else's behaviour, even when doing so is wildly inappropriate. This is the source of fundamental attribution error, among other things.
We actually spoke specifically about abortion in reference to this, and he pointed out something I hadn't noticed up until then, but which now leaps out screaming at me from these posts and comments: people involved in a debate tend to assume that their opponents are disagreeing with them about the aspect of the debate they themselves care most about.
Pregnancy is a fundamentally unique situation in which there is no possibility of Coasean bargain; the rights of the mother to things like control over her own body conflict directly and irreconcileably with the rights of the fetus-as-potential-human. There is no good metaphor for it, no parallel where we can try to work out the ancillary issues. It's a toughy. The pro-choice end up thinking the rights of the mother are more important; the pro-life think that the rights of the baby that will be here in nine months are more important. Neither of these positions is obviously wrong, as far as I can see. As I say, it's a toughy.
But the really committed pro-choicers I've seen commenting act as if what pro-lifers were doing were considering the rights of the mother over her own body, and rejecting that principle, rather than curtailing it after weighing it against other principles; hence the accusations that pro-lifers hate women, or women with careers, or freedom, or whatever. And pro-lifers respond by calling pro-choicers baby killers. Nice.
Admittedly, there are some crazy people on both sides who really do cherish a vision in which [women leave the workforce and get back to having like, a zillion babies/men and women merge into a single androgenous species]. This is not, however, the majority. It is fair to say that there is quite a lot of reasoning from the result to the premise on both sides: people who think that it is of surpassing importance for women to take their place at the helm of half the world's institutions notice that this would be much more difficult in a world containing both frequent sex with people you don't intend to spawn with, and restricted access to abortion; they therefore reason that abortion must be moral. Conversely, the pro-life side notes that if you deny the obligation of a woman to carry her pregnancy to term, all sorts of other family obligations become harder to logically support, and therefore conclude that abortion must be wrong. Since the pro-life side generally does not care so much about total workplace parity, and the pro-choice side generally does not care so much about preserving traditional family structures, they conclude with some truth that there is a somewhat questionable moral discounting going on across the divide. But the sin is sufficiently equally distributed that this is not enough reason to dismiss the moral heft of the other side's arguments. Pregnancy and parenthood are HUGE DEALS. So is not existing. That's why so many people are so frightened of doing either.
This practice is, obviously, not limited to abortion. Hence the number of liberals who accuse libertarians of hating poor people, because they simply cannot believe that anyone could frame questions of property and economic liberty in any other way than "What do these do to the poor?"; and of course, the conservatives and libertarians who accuse liberals of hating freedom, for the same reason.
Oh my God
After cruising the web looking for information on my symptoms, I've realized I have IIH. I'm not clear yet whether it's fatal or not.
For the supply-side types who support tax cuts because they promote economic growth by reducing economic distortions, I guess it's time to start writing the inevitable "think how bad things would have been without the tax cuts" columns. But as you are writing and find yourself tempted to call for further tax cuts to avoid a recession, remember that using tax policy to stimulate the economy and reduce the severity of downturns is Keynesian economics, not supply-side policy, something that many of you have confused in the past. I am not at all opposed to interventions to stabilize the economy, though tax policy is just one of many options (and who gets the tax cuts matters as well), but let's not pretend that using tax policy to stimulate the economy is faithful to supply-side ideals.
Could we please not? Could we please not have this discussion?
The economy has several clear problems:
Mortgage-backed securities turn out to be much riskier than people thought, which is causing both solvency and liquidity problems in the financial sector.
Central banks have always drawn a line between illiquidity and insolvency. Illiquidity is often viewed as something temporary, an aberration where central bank intervention is permissible. Insolvency, on the other hand, is viewed as something fundamental and abominable and thus to be discouraged. Central bank intervention to restore liquidity to an illiquid market would simply bring prices back to fundamentals. Intervening to bail out insolvent firms would, however, encourage irresponsible behaviour and should be resisted. At least, so the catechism goes.
Central bankers know, though, that the line between illiquidity and insolvency is an extremely fuzzy one, made more so with developments in financial markets. Take, for instance, a mortgage loan made against a house. If the housing market is liquid, loans are easier to come by. The reason is obvious. One of the biggest costs to a lender is that if the borrower defaults, the house has to be repossessed and resold with substantial costs. If, however, houses are selling like hot cakes, then the cost of repossession and resale is likely to be small. Housing loans will appear low risk, the risk premium lenders will charge will be small and housing credit will be plentiful. In turn, this will increase the volume of house sales, increasing liquidity in housing markets. Liquidity thus tends to be self-fulfilling.
But this leads to a problem in assessing whether lenders have been irresponsible or not. A mortgage loan might be perfectly sensible and appropriately priced taking the continued liquidity of the housing market as given. And the same loan may be viewed as reckless, driving a mortgage lender into insolvency, if liquidity in the housing market dries up.
Subprime borrowers are in big trouble, which could blight many urban areas with foreclosed and shuttered houses
The subprime borrowers won't feel so hot, either
Everyone's going to be spending less money, because they're heavily in debt and can no longer use their houses as piggy banks
I find it hard to see how these problems could be either created or destroyed by tax cuts, whether the stimulus you crave is demand- or supply-side. Not only do subprime borrowers not get much in the way of tax cuts, what with being fairly low income and all, but also, they haven't gotten much out of whatever recent economic growth you want to attribute to the Bush tax cuts. On the other side, making hedge fund managers richer wouldn't make them any more solvent. And either fiscal or supply side stimulus would have to be spectacularly amazing to cover the amount of extra spending America has done over the last few years. So couldn't we put away the op-eds on tax cuts for a while, and think about ways to address the housing mess? And please, no arguments for more tax cuts . . . even if fiscal or supply side stimulus were appropriate, they don't work fast enough to stop a financial crisis.
Actually, though, I have to say that I'm pretty impressed with how the debate has gone so far. To be fair, I mostly read the financial pages--but on those pages, there is a serious debate between people who are clearly interested in fixing the damn problem. There is passionate disagreement, but little fulmination about the morals of the borrowers or lenders, or the people arguing for different solutions. It may be the first time in my life I've ever witnessed an economic argument where almost everyone involved seems to feel that the matter is too important to risk hurling ideological brickbats.
(Please, don't send me nutty columns from the left or right wing press; no one's paying attention to the loons right now, and frankly, I just don't want to know.)
Huh?
Have I somehow wandered into the middle of an argument with someone else? Who said that only cranks and economic illiterates disagree with me about tax cuts? Who even said that I favored the tax cuts? Other than the capital gains cut, I don't particularly care either way. Readers asked what were the substantive arguments in favor of tax cuts; I linked to one. That doesn't mean that it's guaranteed 100% correct; only that it is a serious argument that merits being taken seriously.
Alternatively, we may be arguing about the notion that the deadweight loss of the taxes necessary to fund new spending should be taken into account. Matt seems to believe that this is some kind of fringe, crank idea that only crazy 'wingers like the head of the National Bureau of Economic Research would endorse. But since the idea of deadweight loss is not controversial, it is hardly a "minority viewpoint" that we should take it into account when contemplating new spending. It is the size of the loss that is in dispute, but while Marty Feldstein's figures are at the high end, I would hardly characterize Harvard's George F. Baker Professor of Economics as some sort of crank or fringe philosopher.
Those figures are high for my taste, but the size of the figure is irrelevant to the substantive argument, which is that if you want the government to spend money on something, you should add the deadweight loss of the tax to the direct cost of the program in order to calculate what it will really cost taxpayers. Whatever the size of that deadweight loss (and I've no doubt we could have a rousing argument about how big it is), that seems like a fairly uncontroversial thing to say.
(A private jet, for those who may not realize it, is just about the single most carbon-wasteful thing in the world, except maybe burning high-sulfur coal for the sheer fun of it.)
There are two ways an economist could look at this.
One way of looking at it is that he doesn't add any more carbon to the world than he would taking a commercial flight, or walking, provided he buys the offset. This assumes, of course, that offsets work, a question in some doubt. But as long as you're efficiently pricing the environmental cost to be actually carbon neutral, it's none of our business what sort of transportation you use.
But another way of looking at it is that if Al Gore cares about the environment, and is willing to pay, say $500 to take the equivalent of a private-jet-trip's worth of carbon out of the air, then he ought to do so regardless of whether he has flown. He ought to buy all of the carbon offsets he feels necessary or affordable--and then reduce carbon still further by taking a commercial flight, or a train. Since Al Gore seems to feel that we should all do everything possible to reduce our carbon footprint, this is not unreasonable. Taxation is the solution to problems where you cannot secure the voluntary restraint of others; it is odd to try the same stunt on yourself.
I'm not sure which view I find more compelling. Does Al Gore have an obligation to not merely stay carbon neutral, but try to reduce the profligacy of his neighbors? Does it matter that he's made a tidy sum from those neighbors exhorting them to lower their carbon footprint? People seem to feel intuitively that it does, but the actual logical reasoning generally seems fuzzy.
It's striking how quick people are to assume that their political opponents (and even their allies!) are just pretending to take morality seriously. There are some cynics out there, but they normally avoid moral argument, rather than engage in it insincerely.
If you think that no one could sincerely hold the moral views they claim to hold, you should try to convince someone to abandon their religion. After a few hours, you'll probably have every right to doubt their rationality. But if you think that "it's all an act," you're just being paranoid.
Casualty of the truth
I posted yesterday on the seasonality of casualty trends. An anonymous research professor argues that these are military casualties, and that the civilian casualties show no such trend:
It's not crazy to wonder if the reduction in civilian deaths associated with the troop surge reflects nothing more than a seasonal trend (which is what Drum is concerned about). Iraq Coalition Casualty Count has numbers dating back to March of 2005. Thus, we have civilian casualty counts for the summers of 2005, 2006 and 2007. If their numbers are reliable (and I have repeatedly shown that they are), and if they show that civilian casualties tend to decrease in the summer months compared to the preceding months, then one should take heed of Drum's bottom line:
Bottom line: you should be skeptical of any claims about reductions in violence unless they take seasonality into account. So far, though, I haven't seen any credible claims of reduced violence that even mention seasonality, let alone adjust for it. That should tell you something.
I completely agree. If casualties always drop in the summer, and if they drop by an amount that is roughly proportional to the amount that they have decreased during the troop surge, then one would have to conclude that the surge has not had an appreciable effect on casualties.
On the other hand, if civilian casualties (unlike military casualties) typically increase in the summer, and if they have decreased only in the summer of 2007 (i.e., during the troop surge), then one would have to conclude that the effectiveness of the troop surge is even greater than it appears to be (if, that is, you follow Drum's suggestion). Let's inquire into the matter because we have the data, and we've had it for a long time.
[F]inancing additional government spending by an acrosss the board rise in all marginal tax rates would make the cost per dollar of government spending equal to $1.76.
These two facts — that the actual revenue is only 57 percent of the static gain and that the deadweight loss is 76 cents per dollar of revenue — should be central to any consideration of tax policy. And yet they are not.
It is possible that the state can make its citizens better off by taking $1.76 to spend $1.00, if those very expensive dollar bills are spent on highly valuable public goods folks can’t coordinate to provide privately. But I reckon this kind of bona fide public good is a pretty small part of the existing budget.
At the very least, it's the sort of thing you have to factor into arguments that we as a nation can save money via nationalised health care . . .
Music Friday
I'm going to Boheme in a week, and find I don't have a recording of it. Who will recommend a good, cheap one?
Also, why don't they have an application that gives you the supertitles while the opera plays? That would be very, very useful.
Big fish, but not too big
Matt wonders why Verizon, which has by far the best network coverage, doesn't also have the best phones, thereby totally killing the competition:
No link here, just the observation that it seems to me that Verizon is working with a strangely unambitious business strategy. Basically, they've got themselves the best cell phone network out there. Their calculation seems to me that, given the superiority of their network, they ought to put forward a product that's inferior in other respects, secure in the knowledge that their network will always give them a healthy market share. A much better strategy, it seems to me, would be to offer the best network and the best phones and just drive everyone out of business. They seem to have reconciled themselves to trying to be like Toyota in the auto industry when they could achieve Microsoft-esque levels of domination if they wanted to.
My tenative explanation is that Verizon doesn't want Microsoft-esque levels of market domination. Coming out of a heavily regulated industry, Verizon probably has justifiable fears that if it really dominated the wireless market, regulators would descend like a ton of those old brick phones you see lying around people's junk drawers. Verizon wants to be the most powerful player in a decently competitive marketplace, which is what it is.
This still won't keep me from buying an iPhone when my contract is up next year, though. . .
Mortgage service companies, which are responsible for calling on Americans to keep up with their loan payments, have assumed a pivotal role in President George W. Bush's market-oriented strategy for dealing with the pending wave of foreclosures in the subprime mortgage sector.
An estimated 6m high-risk subprime loans, worth a total of more than $1,000bn, are outstanding, which will in many cases reset to higher interest rates in the next 18 months, putting more than 2.5m Americans at risk of foreclosure.
"It is sort of like being in New Orleans a month before Hurricane Katrina hit when you know there is a storm coming," said Guy Cecala, of Inside Mortgage Finance.
Economists fear that a wave of evictions of borrowers unable to afford the higher payments will blight neighbourhoods, hit home prices, deepen the worst housing downturn in 16 years, and harm the wider economy.
The response to this crisis outlined by the president places considerable faith in the ability of mortgage servicers to mitigate this blow by helping distressed borrowers to stay in their homes.
Edward Lazear, chairman of the Council of Economic Advisers, said: "I believe, and I think the president believes, that markets are very good at finding ways to solve problems."
But many experts claim that the mortgage service sector is not fit for this purpose.
They argue it does not have the capacity to perform this role, and lacks the personnel, financial resources, technical tools, experience, incentives and oversight to deal with an economic crisis of this scale.
"Theoretically, it makes sense, but not in the real world," said Scott Syphax,a director at the Federal Home Loan Bank of San Francisco.
"These institutions are not built to handle this scale and volume of problems."
"The notion that federal regulators can urge services to reach out and contact borrowers who may face distress is unrealistic," said Mr Cecala.
And concludes:
There’s very little that I find more annoying than the “magic of markets” arguments that various right wing hacks and ideologues spew at the drop of a talking-point. It makes me want to forcibly enrol the responsible parties in an economic sociology program until they see the errors of their ways. Markets can indeed do extraordinary and impressive things, but they rather obviously depend on previously existing institutions, expertise and social conditions if they are to work. Not to mention proper incentive structures. These can’t be whistled out of thin air. The claim that a business sector composed of small firms specializing in foreclosure and themselves terrified of bankruptcy will have the appropriate motivations and expertise to stave off this crisis is self-evidently bogus, if you look at it at all closely. But sprinkle some of that schmeconomics 101 pixy dust on it, and you can get away with it, thanks to the supine US journalism industry (I don’t know of any US publication which has even mentioned this as a problem; perhaps I’m wrong).
I read it a little differently. Mortgage service companies would rather the federal government paid for subprime defaults than them. They would therefore like a straight bailout, rather than a program in which the Treasury helps them do workouts with homeowners.
It seems obvious that the securitization of loans has made workouts considerably more complicated, which is why the Federal government is getting involved; but it's not clear to me that it's made them less financially feasible, which is what the experts, all of whom seem to work for mortgage servicers looking for a bailout, are claiming. I see the Bush administration as feeling its way cautiously, trying to put together a package that will avert financial disaster without:
Creating moral hazard
Costing the government a scary enormous amount of money
Outraging voters as the government taxes people in modest homes in order to allow people who bought more home than they can afford in those houses. Whether or not you think that this is common among those who have gotten themselves into subprime trouble, or even admire the redistributive justice of it all, this is a real sentiment out there, and politicians have to deal with it.
These are reasonable goals. Against this, one has to weigh the fact that major crises are better averted earlier than later. But I am not yet clear on whether the mortgage market requires massive intervention, or just continual finesse.
It is you people, you who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don't know what it means to sit back and enjoy your consumer surplus. You beasts!
And to think you are all carrying around these wonderful icons of modernity in your pockets...
AAARRRGGGHH!
(I thank a loyal MR reader for the pointer. Please note this post was published from my iPhone.)
As an occasional early adopter myself, I suspect that the first emotion that the iPhone buyers felt was not anger at Apple, but anger at themselves for having such insistent preferences. The regret that youare a moron, however, is much harder to bear than the regret that Apple has turned out to be evil.
White as the driven snow
Anyone who's been in journalism for a while notices the same thing. It's . . . awfully white in here. Awfully white. Even though journalism as a whole skews remarkably liberal. Even at left-wing opinion magazines. The only newsrooms that I'm aware of that aren't really remarkably white are at places like Essence.
Why is that? Racism doesn't really seem like a very parsimonious explanation. Newsrooms are, as the Jayson Blair scandal showed, very eager to have minority reporters. Being human, and primates, and all, and also living in a society that had slavery for the first 60% of its history, one can't ever write racism out of the picture entirely. But this doesn't seem like a good explanation for why there are more black accountants than black reporters.
Over at The American Prospect, Dana Goldstein wrestles with the question:
Whitewashed. That's one way to describe college newsrooms, and most of the professional newsrooms I've worked in as well. Over at CampusProgress.org, Justin Elliott, who last year completed a term as executive editor of the excellent Brown Daily Herald, delves into the vicious cycle that contributes to homogeneity in journalism: Low-income and immigrant students can't afford to volunteer time at the paper when they could be working for pay, and their parents don't see journalism as an acceptable career path. The kids who do invest time at the paper are thus more likely to be upper-income and white, and they do a bad job of covering communities of color on campus because they aren't embedded in them socially.
Students of color learn to mistrust the school paper, and then even those students of color who would otherwise be interested in journalism decide not to get involved. The effects trickle right up the journalism career ladder, especially in the magazine world, which provides fewer paid internships for college students and lower-paid entry level jobs. The result is heavily white applicant pools for programs like TAP's writing fellowship and The New Republic's reporter-researcher gig.
This doesn't, I think, quite explain it. First of all, minority students at elite colleges aren't particularly poor. They aren't as likely to be wealthy as their classmates, but at schools like Brown and Penn (where I went) less than 10% of the student body is drawn from the bottom two income quintiles. Most minority students at very elite universities are middle class or better. They don't show up in the college newsrooms either.
But I do think that money probably plays a role: not income, but wealth. Minorities--and I think what everyone's really interested in is black and Latino reporters, even though Asians are just as woefully underrepresented in newsrooms--are much less wealthy than white Americans.
An upper middle class white kid who decides to become a journalist is consigning themselves to a lower standard of living than the one they grew up with; at one time I considered writing a book on downward mobility. But it's not the same decision that a kid whose parents are a janitor and a waitress makes. Even if their parents don't give them money, the upper-middle class kid know that if some financial disaster appears, their parents can step into alleviate it. Help with things like housing downpayments in expensive urban areas will be forthcoming. Eventually, a small inheritence will provide capital for needed projects. Meanwhile, an enhanced lifestyle is generally available through parental meals, vacation homes, theater tickets, and so forth.
A kid whose parents have no assets, on the other hand, is taking an enormous risk--or at least feels as if they are. And when they accept a low salary, they're really accepting a low salary, with all that it entails in terms of risk and lifestyle.
It's all in the numbers
As it happens, I am blogging from a local coffee shop with bloggers Matthew Yglesias and Brian Beutler. Yes, this is the glamorous blogging lifestyle you've read so much about.
At any rate, Matt and I were explaining the secrets of creating an ordered (numbered) list and an unordered (bulleted) list in html. At which point, Brian asked: why is a bulleted list "unordered"?
Matt and I responded, with stunning obviousness, that an ordered list has numbers. But then Brian showed us a preview of the post he was writing and sensibly asked "Is there any doubt about what order you should click on the links?"
Now I am trying to formulate a philosophy of numbered lists that distinguishes them from bulleted lists. Reader thoughts are welcome.
Known knowns
I rarely pay attention to claims that "casualties in Iraq are down this month" because anyone who's followed the place even cursorily knows that they're remarkably cyclical, peaking each year right around Ramadan. (And don't get me started on the people who wrote that the peak in October 2006 was some sort of attempt to influence the American election.) But I didn't know why:
August 31, Juan Cole was shrill about administration and media statements that GI deaths in Iraq were down for the year. His point was that temperatures get to 120 degrees, so summer means low combat. He produced a table contrasting 2006 with 2007 by month: deaths are higher in 2007 than 2006. He asked for a visual display and many responded. I'm posting mine here.
But this is just part of a pattern of communicating, where true facts are presented within a limited context, so that the resulting asymmetry of information creates a false impression. Most of us don't know that Iraq temperatures reach 120 degrees in July so that physical activity like combat is down. On the other hand, if an official announced that lowland US snow fall in July was the lowest it's been all year -- duh. The difference is that here in the US we all know about July snow fall, so there's no asymmetry.
But as the author points out, many of the administration and military folks making those sorts of claims do know this (or at least, I certainly hope they do; if they don't, we're in worse trouble than I thought). They nonetheless produce meaningless claims about how casualties have fallen.
September 6, 2007
This should go without saying
But indeed, it hasn't, since I've already said it, and no one has noticed. I am not fighting for the Bush tax cuts; I'm fighting the notion that people who are in favor of tax cuts are all a bunch of liars or loonie tunes. Politicians in favor of tax cuts are all liars, as are all the politicians against tax cuts; in politics, lying is, sadly, the stable equilibrium. But most politicians are not loons; and most of their economics advisors are sober and intelligent fellows.
Apart from the capital gains tax cuts, of which I am in favor and stand foursquare in favor of continuing, I don't particularly care about the tax cuts one way or another. Economically, I don't think they made much difference either way; socially, I think the contribution to increasing either income or consumption inequality will end up being trivial (since the rich will eventually pay whatever tax increases are necessary to pay off the relevant bonds); personally, I'd like to pay lower taxes; ideologically, I think the government spends to much money on things it shouldn't; but morally, I think that once we've voted for spending, we've already got the tax, and having created the tax, we ought to do the manly thing and pay it ourselves.
Overall, I'm mildly in favor of ratcheting back the Bush tax cuts, starting with the income breaks for the wealthiest brackets, until we hit budget balance. But on my list of policy priorities it's somewhere around "What shall we do about France?"
I expect that we will get a Democratic president in 2008, and (s)he will raise taxes, which will be fine, except (s)he will also play with the capital gains tax, which won't be fine, and will furthermore spend the money on programs I dislike, which won't be fine at all, instead of reducing our national debt or further closing the budget deficit or doing something about our future entitlement problems. And unless that president takes on something like a gas tax, or serious tax simplification, or (on the negative side) promises a zillion stupid tax credits, I will have about the same level of interest in their tax policy as I do in George Bush's, which is not overmuch. It's spending I care about.
Sigh
You know, I'm getting a little tired of people who blithely criticize me while making elementary factual errors.
Scott Adams explains. Frankly, I'm getting all misty and homesick. I'd go back, but the last time I went home a friend took one look at me and said "Oh, God, you've reverted to the mean." Thomas Wolfe was right.
The iPod will be six years old next month. The newly released iPod Classic with 160 GB of memory is $50 cheaper, holds 40 TIMES more songs, plays color videos and displays photos than the original. It is smaller, lighter and has a better battery. I wonder how the BLS takes account of the quality differences when measuring the price index and inflation.
Ask me a hard one
A commenter demands proof that the Bush administration has ever had any rationales besides the Laffer Curve for its tax cuts. Well, you could start with the White House statement on the tax plan.
Public service announcement
Invading Iran seems like a very bad idea, considering all the problems we've experienced invading a neighboring country less than half the size. If any Bush administration defense policy bigwigs are reading this, I just think that's something you might want to think about.
Okay, one more time
Brendan Nyhan, of whom I am generally very fond, is attacking me on supply side economics. In his post, he does a brilliant job of proving that politicians make ludicrous claims for their policies. Stand by for the blistering expose of the shameless way that men pursue young, attractive women, and the follow-up report titled "Sometimes, when the people you have slept with say they are going to call, they don't mean it".
Once again, before I go any further, I think people should spend all the time they want refuting those claims. What I don't think is that supply-side economics is dominating Republican policy, which is what Chait, and now Matt, and for all I know everyone to the left of Lincoln Chafee, are now claiming. To release a book subtitled "How Washington Got Hoodwinked and Hijacked by Crackpot Economics" you need a little more than "sometimes, in the course of selling their policies, politicians make ludicrous claims based on discredited economic notions", because that is not exactly a unipartisan vice. To subtitle your book that way, you need the most extreme form of supply-sidism to be the driving force behind Republican tax policy. And it just isn't.
Supply-side claims are made in the course of selling tax cuts, but they are not the dominant reason that politicians pursue tax cuts. Nor are they the dominant means by which those tax cuts are sold to the public; Brendan or anyone else can find plenty of other arguments for tax cuts from all the politicians they cite as rabid supply-siders. Supply-side economists do not dominate Republican advisors--the only one I am aware of is Steve Forbes for Giuliani, which is another excellent reason not to vote for the man. And the supply side arguments which are generally made to me by the various Republican think-tank people I talk to are vastly more plausible arguments about increasing the size of the economy and keeping spending down, not implausible ones about tax cuts paying for themselves. That's why I said that Chait's claims were "overblown", not "wrong".
The people I would call "strong" supply-siders (the ones who claim that tax cuts raise revenue) are fun to refute, because they are so easy to refute, because they make such extravagant claims. But inflating the strong supply-siders into the driving force behind Republican tax policies is overblown, and it seems like a way to avoid engaging the more substantive arguments in favor of tax cuts. And to all the liberal commenters who are preparing to say "there aren't any substantive arguments in favor of tax cuts" . . . thanks for making my point for me.
The government and me, they are not the same
Matt has argued that Republican supply-side tax arguments are as if
. . . Hillary Clinton got up at the next presidential debate and said "I believe a policy of 'Medicare for all' could save enough money to pay for a universal preschool program and more generous Social Security benefits,"
If Clinton said that, heads would nod. A very strong argument could be made that administrative and bargaining savings -- i.e, the government saying they're going to pay 20 percent less for Lipitor, and Pfizer will just have to deal -- from a Medicare-for-All system would save enormous amounts of money. Obama wouldn't dare attack it, he'd just argue that he doesn't think it politically possible, and the sort of policies required for those savings have tradeoffs Americans may not want to make. (Incidentally, I don't think Medicare-for-All would create those savings, but not because it couldn't, only because we wouldn't want to implement the necessary regulations.)
The problem with supply siders is that they are arguing that they can make the government money by lowering tax rates, not that they can make the economy money. Arguably single payer health care will save the economy money, but the government will be out a whole lot more cash. Government health programs already enjoy all the administrative cost savings that Ezra promises, and even really vigorousprice controls bargaining on drug prices is not going to save enough from Medicare Part D to put the 247 million people currently not enjoying government insurance on the rolls.
Arguments like this are exactly why I have a hard time debating this topic: it's not clear what the people on the other side understand supply-sidism to be. If you want to frame a supply-side argument on the terms that Ezra has framed the health care debate--that "we" as a nation can save money by cutting taxes--then the supply-siders could be right; the tax cuts might make the economy grow by more than the size of the tax cut. Probably will, in fact.
The problem is a fiscal one: the government only takes in a little less than one-fifth of any extra growth that tax cut produces. So the extra growth has to be quite massive in order to overcome the lost revenue from the tax cut. Say you've got an economy worth $100, growing 10% a year with a tax rate of 25%. In year one, with no tax cut, the government will take in ($110 X .25=$27.50). If you cut taxes to 20%, the economy has to grow to $137.50 in order to make the same revenue, which means that a 5% tax cut has to more than triple the rate of economic growth. This is not likely. Although you should note that this means that supply-side claims are more likely to be right the farther out you go, since small changes in the rate of economic growth compound.
Follow-up on Chait
I've promised not to say too much more about Jonathan Chait's piece, as I'm doing a TPM book club on the topic next week. But here are the two areas that I think are being misunderstood.
My quarrel is not with the notion that Republicans make supply-side arguments; they do and they oughtn't, and I won't stand in the way of any Democrat who criticises them for doing so. I have dabbled in such criticisms myself. The only reason that I haven't criticised the Republicans on this this time around is that I am not paying any attention to any of the campaigns. If you want to send me ridiculous supply-side quotes from Republicans, please do. I will be happy to make fun of them. But I am not willing to spend time seeking them out.
My quarrel is with the notion that supply-side theories have enormous influence on Republican policy. Supply-siders haven't had the kind of influence that Chait describes since the Reagan administration. And that's because everyone observed the Reagan tax cuts opening up huge deficits. Supply side theories are window-dressing--bad, horrible window-dressing, but still, just window dressing. You don't need it to construct an argument for tax cuts, which is why, contra Chait, getting rid of the supply siders would not much change the desire for low taxes among Republicans. Nor do I think you even need supply-side arguments to sell the tax cuts to the public. The benefits of tax cuts to the public are quite evident: you send less money to the government.
Politicians like to tell people that the goodies they hand out will cost less than they actually do, which is why Republicans exaggerate the revenue they can recoup from supply-side effects, and Democrats lowball the cost of new spending. And people like to pretend that they believe them. But even if the costs were higher, many people would still want tax cuts, or health care plans, or whatever. If people actually cared that much about the cost of these things, they would punish politicians for widening the budget deficit. They don't.
And are these lies more uniquely horrible than, say, John Kerry pretending that his health care plan would cost half as much as most reasonable estimates predicted, so that he could claim it could be paid for out of repealing part of the Bush tax cuts? I don't think that John Kerry believed that this was true--at least, I hope he didn't. Nor do I think that any of his supporters would have been shocked and horrified to find that the program actually cost 2-3 times what Kerry promised.
From an economist's perspective, these are the same thing: fiscally, a tax credit is no different from a subsidy, and underestimating the revenue cost of a program is underestimating the revenue cost of a program whether that program is a tax cut or a health care plan. Morally, my liberal friends seem to feel that the two are very different, which is the source of a lot of this outrage.
September 5, 2007
Supply me
Ezra's post is an example of exactly what's wrong with Jonathan Chait's article on supply-side economics. Chait, and others writing in this vein, refute the strongest claims of the supply-side movement: that tax cuts produce astonishing growth, or that cutting taxes can increase tax revenue. Then they imply that they have thereby refuted all the economic claims in favor of tax cuts, which they haven't, not even close. I haven't read the book, and the article may well have gotten muddy in the trimming. But from the article, it's not even clear that Chait is familiar with the moderate arguments about things like deadweight loss and fiscal stimulus that motivate many academics in favor of tax cuts. He certainly doesn't address, much less refute them. But nonetheless, a lot of people seem to have gotten the misimpression that there are no serious intellectual, economic arguments in favor of tax cuts. There are.
I agree that any Laffer-type arguments offered by the administration are wrong, and should not be taken seriously, and that Republicans should be pressure not to deploy them. But contra Ezra, it's not some sort of weird, uniquely awful Republican behaviour to sell your policies using dubious economic claims. I'll never forget being asked, in an interview with BET, how much Clinton's Urban Empowerment Zones contributed to economic growth in the 1990s. The correct answer--not in any measurable way--met with a great deal of skepticism, since the producer had seen Bill Himself making grandiose claims about the effects on growth and (slightly more plausibly) poverty. Politicians often assemble policies for a variety of reasons, and then sell them using the least plausible, but most appealing, rationale.
Any social worker, for example, will tell you that a core of their clients have no reasonable chance of getting off support. They have poor impulse control, drug habits, extraordinarily bad planning skills, and often, a rather lackadaisical attitude towards work. But almost no social worker ever says, "We need welfare benefits because these people are too screwed up to hold a job", because Americans do not care to give money to people whom they perceive as not trying. Whether this is appalling dishonesty, or merely putting your best foot forward, depends much on how you feel about the underlying program.
The actual rationale behind tax cuts was multiple. There was a fairness argument about how much of peoples' lives they should be compelled to spend laboring for the government; a fiscal stimulus argument about an economy sliding into (or just out of) recession; a deadweight loss argument; an efficiency argument about the structure of the tax code . . . these were serious beliefs, and they did, in fact, all get advanced during the policy debate. But liberal commentators have ignored all of these in favor of swiping down the few claims that are easy to refute.
Inside media baseball Wednesday
I'm diving into Jonathan Chait's piece in The New Republic on how a whole huge conspiracy of crazy supply-siders has taken over the Republican party. This is, to put it kindly, wildly overblown. I mean, I'm all for someone taking on the sillier kind of supply siders who fanny about claiming that tax cuts increase tax revenue, but they've been rather thin on the ground lately. Most tax cutters today want tax cuts because they think they are good for the economy, not because they think that it will increase tax revenue. And contrary to Chait's assertions, these are not wild, insane things to think.
Chait tars all tax-cutters with the ideas of the looniest supply siders. One can believe that tax cuts, by reducing deadweight loss and/or providing fiscal stimulus, will be good for the economy, without necessarily believing that the economy will be crippled by a 5% rate increase.
His primary exhibits for the nefarious influence of supply-side policy are: Larry Lindsay, Dick Cheney, Jack Kemp, Jude Wanniski, and George Gilder. Cheney I give you, but Larry Lindsay was drummed out of the administration in disgrace (for unrelated reasons) even before Bush's major tax cut, and Chait somehow neglects to mention the more conventional economists who have occupied the job since. Jack Kemp hasn't had access to serious power since I was snoring my way through Algebra I, and what power he did have was over HUD. Moreover, though I agree that Jude Wanniski and George Gilder are barking moonbats, they have, to put it kindly, limited influence on today's Republican party; which is hardly surprising given that Wanniski was kicked out of the party in disgrace before he died in 2005, and George Gilder has turned his attentions to that hugely influention Republican mouthpiece, the Gilder Technology report. This motley collection of names is hardly proof that the Supply Siders Have Taken Over the Building.
Chait also elides the difference between statutory and effective marginal rates in "proving" that the latter group is wrong: after all, if high marginal rates are so bad for the economy, how come we grew so fast in the fifties, when the top marginal rate was 91%? The answer is that there was a pretty big difference between effective and actual tax rates, thanks to various generous deductions that were largely done away with by the middle of the Reagan administration.
Chait then claims this as evidence for the notion that "whatever negative effect such high tax rates have, it's relatively minor. Which necessarily means that whatever effects today's tax rates have, they're even more minor." For the record, I don't think that increasing the marginal tax rate on the rich (or almost anyone else) will have much effect on the economy. But Chait's breezy assertions are not good evidence for my belief. Perhaps growth in the 1950's could have been even more fabulous absent the high tax rates. Also, our tax code, and our economy, is substantially different in structure from the tax code of the 1950's, so extrapolating from then to now is very, very silly. Again, it might be that the changes would make the effects of rate cuts even more minor--but in fact I doubt it; the tax base is much broader now, and labor and capital mobility much higher, which should greatly magnify the effects of a change in rates.
The article features this kind of simplistic, off-the-cuff journalistic reasoning over and over. And it's often flat wrong, as in its discussion of the Laffer Curve:
That fateful night, Wanniski and Laffer were laboring with little success to explain the new theory to Cheney. Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it. The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And, if the government sets a tax rate of 100 percent, the government will also receive zero tax revenue, since nobody will have any reason to earn any income. Between these two points--zero taxes and zero revenue, 100 percent taxes and zero revenue--Laffer's curve drew an arc. The arc suggested that at higher levels of taxation, reducing the tax rate would produce more revenue for the government.
At that moment, there were a few points that Cheney might have made in response. First, he could have noted that the Laffer Curve was not, strictly speaking, correct. Yes, a zero tax rate would obviously produce zero revenue, but the assumption that a 100-percent tax rate would also produce zero revenue was, just as obviously, false. Surely Cheney was familiar with communist states such as the Soviet Union, with its 100 percent tax rate. The Soviet revenue scheme may not have represented the cutting edge in economic efficiency, but it nonetheless managed to collect enough revenue to maintain an enormous military, enslave Eastern Europe, fund ambitious projects such as Sputnik, and so on. Second, Cheney could have pointed out that, even if the Laffer Curve was correct in theory, there was no evidence that the U.S. income tax was on the downward slope of the curve--that is, that rates were then high enough that tax cuts would produce higher revenue.
Ownership of the means of production doesn't really model the same way as an income tax, and at any rate the Soviet government did not take 100% of any worker's output. And no economist that I have ever met doubts that the Laffer Curve holds true, to the extent that there is a revenue-maximizing tax rate which is well to the left of 100%. The Laffer Curve isn't wrong, as Chait wrongly implies; it's just that we're not anywhere near its maxima in the US, this being what responsible tax-cutters like Greg Mankiw have been saying all along.
Chait finishes up with another, really inexcusable bit of journalistic sloppiness: he complains about the share of national income going to the very richest, without informing the reader that these figures are calculated pre-tax. The implication is that the tax cuts have somehow altered the income composition of America at the behest of corporations and mean rich people, when at the most they have acted as a somewhat smaller check on inequality that is growing for reasons unconnected to the tax code.
It is not that I do not support Chait's project: refuting the sillier supply-side notions about tax revenues and growth is God's work. Except . . . this isn't the way to do it. This article isn't going to convince the people at the places Chait excoriates like the Club for Growth or the Weekly Standard--or indeed any of their supporters--that they should jettison their more extreme claims. It's too easy, reading this article, to claim bad faith.
What's not to like about Paul Krugman?
He's a great economist--a really great economist, though I have started to doubt that strategic trade theory is going to push him into the Nobel-winning category. Paul Krugman is about a zillion times smarter than I am, and also, grows a prety impressive beard. He was also, in the 1990's, one of the greatest economics writers in history, headed up there in the economics writing firmament with John Kenneth Galbraith and Milton Friedman in terms of lucid explanation of their ideas. (About the quality of JKG's ideas . . . well, we'll leave that for another post. But I think there's really no doubt that he was the finest prose stylist the profession ever produced.) His columns for Slate, his other writings in the popular press, were all first class . . . and unlike a lot of current economics writing, they made accessible a lot of Big Ideas on things like trade. I think his writings in the 1990s on trade should be required reading for . . . well, everyone.
That is precisely why I dislike his New York Times column. Or rather, I did dislike it, until they moved it behind the pay barrier, whereupon I mostly forgot about it.
I don't say that Paul Krugman never writes good economics; he does. But not so often, any more. Look at his recent column topics:
WMD in Iraq
FEMA and Katrina
An article on the Bush administration's lunatic decision to cut back S-Chip
Race and electoral demographics
Bank runs
The housing slump
Republican candidates are big fat narcissists
Liquidity in financial markets
Republican candidates also suck because they haven't said anything about policy--just like Paul Krugman in this column, except that he does like him some single payer health care.
Lower tax rates on hedge fund carry interest are bad. I agree, except that the economics of the competing proposals are abandoned in favour of arguing that Democrats are really awesome guys and gals, except when they happen to be Chuck Schumer.
S-Chip
Ordinary Americans haven't gained much from the recent expansion
France's internet is way better than ours.
At least half the piece he writes make little use of his economic expertise. For this we gave up writing such as the pieces found in Pop Internationalism, or the liquidity trap piece I linked yesterday?
Then there's the fact that in the new Paul Krugman's world, there seem to be only two explanatory variables for anything that ails you, me, or the economy: an unexplained secular increase in the general nastiness of rich people; and the Bush administration. This is not a very good model of the world. For one thing, where is Kathie Lee Gifford in all of this?
Moreover, while there are often pretty good reasons to thwack the Bush administration's economic and other policies, when there is a conflict between
1) proving that Bush is a monstrous amalgam of the worst excesses of Andrew Jackson, Herbert Hoover, Warren Harding, and Adolf Hitler
2) writing in a clear and accurate fashion about the underlying economic principles and data involved
#2 is too often the priority that must give way.
I blame a number of factors. First, Paul Krugman clearly really, really hates George Bush. Okay, fair enough. Second, 700 words is a terrible length to write about economics: too short to say anything meaningful, but long enough that the temptation to provide filler (which for Paul Krugman, too often takes the form of vituperation about Bush) must be nearly overwhelming on those uninspired mornings when the column's due. Third, twice a week is a terrible frequency at which to write about economics. Coming up with two brilliant column ideas a week is beyond all but a few freak talents; even harder when the topic of the column is rather narrow, and all your fellow economists are waiting for you to be dazzling. And fourth, Paul Krugman undoubtedly gets a great deal of reinforcement from people whose familiarity with economics is only passing, but whose hatred of George Bush, and longing for "scientific" evidence to back that hatred up, is nearly bottomless. Meanwhile, enough of his critics are equally economically illiterate conservatives caught in the grip of some fringe economic scheme, that he can dismiss them all as Bush-worshipping (or market-worshipping) cranks.
But whatever the cause, I do not think that the New York Times column has done good things for him. He has gone from being the best popular economics writer of his generation, to being a mediocre political writer. This is a tragedy for us, though I presume he likes things that way.
Update: Ygglz misunderstands me; I didn't say that Paul Krugman never writes about economics; only that he has squandered a comparative and absolute advantage in writing extraordinary economics columns, in order to write not particularly interesting political columns that get taken seriously largely because he's a Very Important Economist. Even when he writes about things like health care, it's far too light on the economics, and far too heavy on the "Why do Republicans want babies to die?" rhetoric I could read from any 23-year old lit major interning at a left-wing political magazine. And when he writes about things outside his field, he makes what are (I am told) elementary mistakes on things like foreign policy, while his writing rarely reveals anything new. I don't devote my time to hating him, or anything; it's just that I wish he would write more novel an interesting things.
It takes a special kind of brazenness to propose a reduction of the national poverty rate at the expense of ensuring that more people stay poor by denying them opportunity to set foot in the nation.
If Mr Rector cared about actual human poverty, as opposed to some statistic about the number of Americans beneath what he agrees is an arbitrary line, he’d favour an increase in legal immigration and some kind of guest-worker program. If these policies were to inflate American poverty rates, as they surely would, that would be something to be proud of. From a humanitarian perspective, if a wealthy nation’s poverty rate improves, then it isn’t letting enough poor people in.
At some point, it's plausible to argue that the change in the number of poor people, and the depth of their poverty, might change the character of America for the worse in a way that gives us the moral authority to restrict their entry. But I don't think it's plausible to say that we've reached that point yet.
Harder than it looks
It's rather common to hear those in favor of price controls on prescription drugs argue that the government does all the real research anyway, and the pharmas just steal it and slap their name on the resulting pill; or that the cost of R&D is wildly overblown.
As a counterexample to these two claims, I (well, Derek Lowe, really) give you: Renin inhibitors.
I notice that the first marketed renin inhibitor seems to be doing fairly well. That's an interesting phrase, "first marketed renin inhibitor". . .
This is a good example of what drug discovery can be like. Renin is a fine drug target – it’s been known for a long time as a key component of blood pressure regulation, and that’s a condition affecting a huge market whose treatment provides a real medical benefit. What more do you want?
OK, let’s make it even more attractive. It’s not that hard to set up a renin assay, and the protein is well-studied. The counterscreens and secondary assays are not a problem; hypertension is fairly well understood. And if you screen for renin inhibitors, you generally find chemical matter to start off with, too. Protease inhibitors vary quite a bit in their drug-likeness, but they’re certainly not impossible on the face of them.
But even after all this, I would not like to be asked to count how many renin inhibitors have been reported over the years, never to be seen again. The first reports I can find go back to the early 1980s. Given the lead time for these things, I can safely assume that these compounds were being made around the time I went the my high school Junior Prom (theme: “Saturday Night Fever”, natch – it was 1978, after all). And here we are in 2007, and the first one has finally made it to market. It wasn't easy, either - the compound was left for dead years ago, and was only kept going by some ex-Novartis people who started their own company and licensed the compound back to Novartis when it finally made it through the rough spots.
So, what’s the problem? Many compounds have been done in by poor behavior in living models (distribution, absorption, and so on). Getting oral bioavailability in this area has been a lot harder than anyone thought, and even the current drug is no great winner in that category. Projects start and stop, difficulties occur, and the years go by. And other mechanisms for going after hypertension have, of course, come to market, starting with the ACE inhibitors (which come from roughly the same disco era as the first run of renin compounds). They took the gigantic market that an early-1980s renin inhibitor would have had, but even so, I don’t think a year has gone by since that someone in the industry hasn’t been working on one. (There's still room to think that a renin compound would have a better profile than the existing drugs, though). And here we are: 2007. A sobering thought, that is.
Oh no!
They've found our secret. Now the market will be flooded with cheap knockoffs.
Prepare for battle
With the publication of Jon Chait's new book, The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics, I think we can expect to see a repeat of the bomb-throwing that took place between liberal and conservative economists, and their often sketchily informed supporters, surrounding the Bush tax cuts in 2003. So I thought it might be wise to arm my readers against the more extravagent claims:
1) Cutting marginal tax rates can make tax revenues rise. This is trivially true: at some tax rate, people will stop working, and you can therefore increase the amount of revenue you raise. But the United States is not anywhere near this point. Except for one group--high income women--the labour supply is surprisingly inelastic with respect to tax. that elasticity does mean that you get some extra money back by cutting taxes, though no one knows exactly how much; Greg Mankiw's estimate of roughly 25% of the total tax cut sounds about right to me. But that still leaves a 75% hole in the revenue stream.
2) Cutting the budget deficit magically makes the economy grow. I dealt with this at great length on my old blog.
3) Increasing the size of the budget deficit restrains government spending growth. The evidence for this intuitively attractive premise is, at best, extremely shaky.
4) Highly respected economists Greg Mankiw and Glenn Hubbard shilled for the crackpot supply side theories of the Bush administration. This accusation is, to put the most charitable light on it, horribly overblown by people who don't really understand the debate very well. The Bush administration was not cutting taxes out of crackpot supply-sidism; it was cutting taxes because it wanted to cut taxes, and making extravagently exaggerated claims about the benefits of its policies. This is not exactly surprising or novel behavior for a presidential administration; in his book, Bob Rubin claims that real interest rates fell by an utterly implausibly large amount due to deficit cuttery.
The accusation against Bush's two economic advisors comes in two flavors. The first, concerning Mankiw, is that he couldn't possibly have really believed in tax cuts without spending cuts . . . because it would be, like, totally unimaginable for a Keynsian to believe that the government should borrow money to spend during a recession.
For the record, I don't think the tax cuts did much to help the economy--or to hurt it, either. But then, I am not a Keynesian. Greg Mankiw is, so I have absolutely no difficulty believing that he believed that the tax cuts were a good idea.
The second is that Glenn Hubbard said that budget deficits weren't hurting the economy, when his very own textbook affirmed the standard economic model in which raising the budget deficit caused interest rates to rise (and thus savings and investment, and ultimately economic growth, to contract).
This is a bit of cheap fun by those who don't understand the model they are talking about, or are too interested in scoring rhetorical points to care. People who understand the model, which is pretty much bog-standard macro, know you have to look at how all the variables move, not just the one that makes the prettiest argument. As I wrote in that piece on the budget deficit:
. . . as Glen Hubbard has repeatedly pointed out, it is very, very hard to build a credible model in which budget deficits matter to investors, but taxes do not. The basic idea behind the "Deficit reduction causes growth thesis", known to journalists as "Rubinomics", is that by reducing the government's demand for capital, you lower interest rates. Ceteris paribus, I agree with that.
However, the Clinton deficit reduction was not ceteris paribus; he got as far as he got mostly by raising taxes. If you lower interest rates, but increase taxes, you increase the demand for investment capital, but you decrease the supply of it, because savers now make less of a return on each dollar they invest. Higher demand for capital, combined with a lower supply of it, raises interest rates right back up again. How far is a matter for debate, but I see no reason to believe that the positive effect of deficit reduction could be anything close to what the Clinton team claims.
Indeed, Robert Rubin's claims in his memoir border on the ludicrous. (Border? Hell, the hedges are growing well over the property line, and the neighbours are threatening to sue.)
Reasonable macroeconomists may (do) disagree about the relative impacts of taxes and deficits; the weight you put on the two variables will determine how much you like the Bush tax cuts, or the Clinton tax increases. But it was not, as Hubbard's critics have implied, unreasonable or dishonest for him to support the tax cuts after printing that model in his book; depending on those relative values, the model could either have indicated or contraindicated cutting taxes as he did.
More as I actually read the book.
Air travel for me, excercise for thee
Carbon offsets have all sorts of problems. The methods used to calculate teh precise offset are often sketchy, and it's not clear to what extent offset carbon stays offset. Creating a market for greenhouse gas reduction may also have the undesireable effect of encouraging companies and governments to keep belching factories going until they can sell the offset, or even build new ones for the purpose of being paid to shutter them. But this is really something special. Upon original reading, I had thought that it must be taken out of context or otherwise misleading:
Climate Care celebrates the fact that it encourages the Indian poor to use their own bodies rather than machines to irrigate the land. Its website declares: ‘Sometimes the best source of renewable energy is the human body itself. With some lateral thinking, and some simple materials, energy solutions can often be found which replace fossil fuels with muscle-power.’ (2) To show that muscle power is preferable to machine power, the Climate Care website features a cartoon illustration of smiling naked villagers pedalling on a treadle pump next to a small house that has an energy-efficient light bulb and a stove made from ‘local materials at minimal cost’. Climate Care points out that even children can use treadle pumps: ‘One person - man, woman or even child - can operate the pump by manipulating his/her body weight on two treadles and by holding a bamboo or wooden frame for support.’ (3)
Feeling guilty about your two-week break in Barbados, when you flew thousands of miles and lived it up with cocktails on sunlit beaches? Well, offset that guilt by sponsoring eco-friendly child labour in the developing world! Let an eight-year-old peasant pedal away your eco-remorse…
But no, their website is exactly as described. To be fair, there apparently are other projects that don't involve tethering people in developing countries to human hamster wheels, but all in all, that may be one of the most appalling things I've ever read. Special bonus question: why are the smiling brown people naked? Have they given up clothes to save the energy of washing them?
Map it!
Back when I was Countries Editor at Economist.com, one of my little jobs was fielding the complaints over maps. The most frequent ire was drawn by the body of water which Korea calls the East Sea, and Japan calls the Sea of Japan, and no one else besides mariners cares about; no matter what we printed, there were surprising numbers of angry people who had taken time out of their busy day to demand that we alter a map. One of my old colleagues has expanded upon the phenomenon for a column.
September 4, 2007
There's gold in them thar standards!
Someone rather more partial to Ron Paul's arguments in favor of the gold standard than I am asks me to write a post outlining my objections to it. All right, here goes.
Money is a mysterious thing. It is a store of value, it is a medium of exchange. It is, in a fiat currency economy, worth only what people think it is worth, and what they think it is worth can be oddly affected by what they think it may be worth in the future, resulting in self-fulfilling feedback loops (at least in the short term). Even in non-fiat currencies, such as the gold standard, the value of the underlying asset can be changed by rising (or shrinking) demand for money. Economists studying this fascinating topic tend to suffer from migraines as they suffer from all the mysterious--hell, nearly mystical--attributes of money.
However, over the last fifty years, economists have settled on some very broad areas of consensus. The first is, as famous libertarian monetary economist Milton Friedman wrote, "inflation is always and everywhere a monetary phenomenon". When the supply of money outstrips the demand, prices rise. And this is by no means limited to fiat currencies; see the great Spanish inflation of the 16th & 17th centuries, thanks to the steady influx of gold from the New World. Or check out the price of basic commodities in mining towns during the Gold Rush, when all anyone had was gold.
The second is that a little bit of inflation is okay--possibly even beneficial, since it helps the economy to overcome the problem of sticky wages when the relative value of labour has fallen. But a lot of inflation is very, very bad. Exhibit A is Zimbabwe; Exhibits B-∞ are every other economy that has had inflation near or above the double-digit mark; the higher the inflation, the worse the economy did. The feeling that the currency will experience an unpredictable amount of inflation dampens the willingness of the citizens to save and invest, which is why so many third-world loans are denominated in dollars.
The third is that deflation is also bad, and at the lower percentage values, often even worse than inflation. This surprises/offends/meets with the frank disbelief of many "sound money" types, who think that, barring local shortage, in an ideal world everything ought to cost the same or less than it did when Grandpa was a boy. (These sorts of opinions are cemented further by the fact that Grandpa, who is often the source of them, is usually living on a fixed income, and therefore feels that he would make out better in a deflationary economy.) The problem is, deflation does rather devastating things to anyone who has debt, since they now have to repay what they borrowed in more expensive dollars. Deflation means that, thanks to the abovementioned sticky wages, the economy has to deal with demand shocks by lowering output. Deflation can result in what's known as a liquidity trap, a concept pioneered by liberal economist John Maynard Keynes and best elucidated by liberal economist Paul Krugman back before he left economics writing to focus on his hatred of George W. Bush. Deflation is what made the Great Depression so memorable. Deflation is so bad that almost everyone agrees that moderate inflation, in the range of 1-2%, is better than risking even a small amount of deflation.
Advocates of a gold standard dispute this. They argue that America experienced a long, slow deflation throughout most of the 19th century, without anyone getting hurt. What they neglect to mention is that people did get hurt, repeatedly, in the period's awful financial contractions. Though we don't have modern economic statistics for the period, it's pretty clear that recessions were longer and deeper than they are now.
This is not only due to the gold standard; the era's primitive financial system and its approach to financial regulation, which often ranged between lighthearted and foolhardy, also played substantial roles. But the gold standard also has to stand up and take a bow. There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.
The gold standard cannot do what a well-run fiat currency can do, which is tailor the money supply to the economy's demand for money. The supply of gold grows--or not--depending on how much of the stuff is mined. Demand also fluctuates for non-economic reasons; gold has uses besides being money, like industrial components and jewelry.
The lone advantage of a gold standard--and it is a real advantage--is that it prevents governments from inflating the currency. The problem is, this is only moderately true. The government, after all, can always modify its gold standard. Yes, you say, but it will pay a price in the markets, and this is true, but this is the same price it pays when it prints more fiat currency. Such practices do not go unnoticed for long.
As James Hamilton has pointed out, gold-backed currencies, like all money with a fixed exchange rate, are subject to speculative attacks whenever the government's financial position looks weak. Such speculative attacks often require punitive economic measures to fight off, which is one of the reasons that America suffered so nastily from the Great Depression--it raised interest rates in the middle of a recession in order to defend the credibility of its currency.
Also, since devaluations tend to produce sharp changes in the values of currencies, rather than smooth appreciations or declines, the economic dislocations are magnified. Imagine you're a company with a contract denominated in dollars. If the value of the dollar gradually declines, you lose a little, but not too much, since you periodically renew the contract, giving you time to adjust the amounts. If, on the other hand, the devaluation pressure builds up over a period of years, and then all at once the government has to devalue by 20%, you end up badly hurt. You might go out of business. Now multiply that all across the country, and you can see why recessions used to last for years.
In short, you don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway. (See Argentina's dollar peg). Meanwhile, the limitations on the government's ability to respond to fiscal crises, the necessity of defending against speculative attacks in times of crises, and the possibility of independent changes in the relative price of gold, make your economy more unstable. It's a terrible idea, which is why there are so few economists willing to raise their voices in support of it.
Live fast, die young, leave a good looking corpse
I cried when my extraodinarily evanescent college band broke up. Though a cynic would point out that I might have been crying because the break-up was coincidental with the rending of relations between myself and my college boyfriend, I maintain that the even greater tragedy was the world's loss of Bottle Green's groovy, Irish-punk-rock-pop fusion.
However, it seems as if personally, I may have lucked out:
ROCK stars are famous for excess, and some pay the price. A new study suggests that they are up to three times more likely to die young than the rest of the population, mainly because of drug and alcohol abuse. Researchers led by Mark Bellis at Liverpool John Moores University looked at survival rates for over 1,000 European and American musicians who had their first chart success between 1956 and 1999. From 1956 to 2005, 100 of them died. Some 40% of the Europeans and 28% of the Americans died from overdoses, accidents or chronic disease related to drugs and drink. Cancer and heart disease, conditions associated with unhealthy lifestyles, together claimed over a third of the Americans. The study is published in the Journal of Epidemiology and Community Health.
Since I just know we would have hit the big time had we not been torn apart by the fickle hand of fate, I suppose I have to thank said boyfriend for saving us both from a life of glamour, hard living, and premature death.
Thank you, John, wherever you are. I think.
Quote of the day
From Andrew Bacejevich, skewering a new Stalin bio in the National Interest:
For any great power, the essential prerequisite of "peace" is that others should accede to the aspiring hegemon’s own requirements.
Did the bankrupcty reform touch off the mortgage bubble?
Half the subprimes were cash out refis. This isn't implausible. Freddie Mac reported that cash-out (meaning the new mortgage was at least 5% larger than the one it replaced) refis for its borrowers were 35% in the second quarter of 2007, and noted that refinancings as a proportion of total mortgages were declining, which is typical in a rising interest rate environment.
Now why is this so significant? It gives a completely different picture of the nature of the problem. It suggests that many of the people who took out subprimes weren't people who bought more housing than they could afford. It says they were already overstressed and overstretched financially. Using their home as a source of cash was a gamble to keep themselves out of bankruptcy, but in many cases, that bet didn't work out.
The high proportion of cash-out refis suggests that it would behoove someone to do some investigation to get a better grip on why people took these loans and what became of them. Were most, as Lee suggested, in bad shape and taking the one way they saw out, or were they merely foolhardy overspenders? If they needed the new mortgage to pay off other debts, how did they get in trouble in the first place?
The last large scale study of why people filed for bankruptcy (published in 2005 but looking at 2001 bankruptcies) found medical expenses were the top reason and job loss/interruption was number two. If these are the real reasons that a large proportion of subprime borrowers went that route, it suggests a completely different set of remedies than if it is say, primarily a housing bubble (too many people felt they could gamble on appreciation) or predatory lender problem.
[M]any of the subprimes were seriously delinquent or in foreclosure long before the mortgages reset to higher rates. In an analysis done early this year, the FDIC found that 10 percent of the subprime adjustable rate mortgages issued in 2006 were seriously delinquent (missed three or more payments) or in foreclosure within 10 months of issuance.
A parenthetical note: that bankruptcy study is horrendous and should never be cited by anyone. It counted any bankruptcy in which the parties had more than $1,000 in uninsured medical bills as having been caused by the bankruptcy, even when the respondents themselves cited other reasons. $1,000 is a nasty sum, but no matter how poor you are, it is not bankruptcy-level. Anyone who declares bankruptcy over a couple of thousand dollars worth of debt should sue their lawyer for incompetence. More rigorous studies find the commonest causes of bankruptcy are divorce and job loss; where medical problems are a cause, the main factor is usually income loss from lost work, not bills. Medical providers will almost always take a workout rather than bankruptcy.
But the broader point is interesting--though Yves, like most observers, is more interested than I am in assigning blame. I'm less interested in who was wrong, than in what broad forces pushed us in this direction. And he hints at an interesting one:
One other factor that may have contributed to the subprime frenzy: Lew Ranieri, the so-called father of mortgage backed securities, has stated that the overheated phase of subprime lending started at the end of the third quarter of 2005 and extended through most of 2006. When did the new bankruptcy law take effect? October 24, 2005. There is no ready way to prove a connection between the new law and the explosion phase of subprime growth, but consumers became much more cautious in taking on credit card debt after the law became effective. And the ones that had above median incomes which would force them into a Chapter 13 (meaning they'd have to repay their debts) might be even more eager to tap home equity if they saw themselves at risk.
One way to cast this: mean lenders got Congress to change the bankruptcy laws, which meant people desperte to get out of their credit card debt put their houses on the line. Another way: irresponsible borrowers confronted with the cost of their past profligacy, gambled their houses, too. The interesting explanation, though, I think is more value-neutral.
From what I hear, the evidence on bankruptcy reform is that all the actors involved behaved in a perfectly economically predictible way. Lenders, with more assurance that they would be repaid, became more willing to lend. But borrowers became less willing to borrow, so the amount of credit supplied to the market contracted. (Incidentally, people who think that we should protect the poor from credit cards and payday lenders should be glad about this.)
But there was a huge credit glut in this country, thanks in part to a torrential inflow of foreign capital. That credit had to go somewhere; if credit card borrowers wouldn't take it, they'd just offer cheaper rates to someone else . . . like mortgage borrowers. Mortgages aren't much affected by bankruptcy, because it's secured debt. Under the new law, as the old, borrowers either hold onto the house by committing to meet the payments, or surrender it to the lender. So falling interest rates in that market, especially combined with rising prices, were likely to produce the bubble conditions we saw.
Department of awful statistics
It seems pretty clear to me that the drinking age is unconstitutional and immoral. If you can vote and get shanghaied to foreign wars, you are old enough to have a beer.
It also seems pretty clear to me that the drinking age will not be changed, because the main constituency against it is the small segment of the population currently between the ages of 18 and 21. And most of them are too busy building beer funnels to get a really solid political movement going. Also, it's tough to get momentum when your leadership abruptly stops caring every three years.
However, every so often I catch sight of something that brings home how silly the whole thing is. Such as this, from Radley Balko:
Research published in the Journal of Adolescent Health in 2004 found that adolescents whose parents permitted them to attend unchaperoned parties where drinking occurred had twice the average binge-drinking rate. But the study also had another, more arresting conclusion: Children whose parents introduced drinking to the children at home were one-third as likely to binge.And you could make a pretty good argument that drinking in the woods and getting bombed at unattended parties are the product of the minimum drinking age.
Of course, when the anti-alcohol activists cite the "earlier the age one starts drinking, the greater the chance of addiction" figure, they lump it all in together, which paints an incomplete picture, and makes for bad policy.
It's even worse than that; those figures usually leave in members of strict religious groups, a large segment of whom will never take more than a few drinks, if that. Obviously, it's hard to develop a drinking problem if you never taste the stuff, so those people drag down the averages. But they don't tell you anything about how the age at which one starts drinking affects your later alchohol consumption, except for the trivial observation that if you join a religious group that forbids drinking, you will probably not develop a drinking problem.
I'm a genetic determinist on these things; early drinking outside the home is most likely a sign that you're the kind of kid who has little parental supervision and a penchant for getting into trouble. Parents who don't supervise their children have probably bequeathed a substantial genetic legacy of irresponsible behavior to their children. And troubled, irresponsible people are more likely to develop drinking problems.
I'd like to see a study that compared upper-middle class kids from the suburbs to those in New York City, where, anecdotally, drinking seems to start earlier because the kids don't need to be driven everywhere. Are kids from New York City's private schools more likely to be alcoholics later in life than, say, kids from Englewood? I can't say I noticed any statistically significant differences in college.
Despite his resignation from the Senate, the Larry Craig story won’t die. Arianna Huffington spent her Labor Day wondering, “In the Age of Terror, Isn’t Busting Toe-Tappers an Insane Use of Our Law Enforcement Resources?”
Sometimes a clever title is used as a hook to attract reader attention but the article itself goes in a different direction. Not so here:
In the consensus judgment of America’s 16 intelligence agencies, the terrorist threat to our homeland is “persistent and evolving,” placing our country in “a heightened threat environment.” Given that chilling assessment, isn’t it the height of madness to use America’s finite law enforcement resources to seek out and arrest people for tapping the foot of a cute undercover officer in a restroom?
Does Huffington really believe that Sergeant Dave Karsnia of the Minneapolis-St. Paul International Airport Police Department have been sent to North Waziristan to look for Osama bin Laden had he not been on toilet duty? Or even that there was something he could have been doing to thwart a non-existent terrorist plot at the airport that day?
This is true, and in general this question, popular with bloggers on those thumb-sucking, phone-it-in kinda days, is pretty stupid. Local cops are, by and large, not going to be looking for terrorists whether or not they're prowling around looking for something you disapprove of.
That said, I believe that Minneapolis still has a crime rate. And as Steve Levitt has pointed out, putting more cops on the street is one of the best ways to fight crime. It's hard to think of a crime that isn't a greater threat to the public order than Larry Craig's twinklin' toes.
Why so high?
Tyler Cowen is doing a book club on Greg Clark's A Farewell to Alms. Tyler, like me, is sceptical of the book's central claim: that the Industrial Revolution happened in Britain because the English elites outbred the poor.
Core Europe, starting in late medieval times, developed a new and still poorly understood organizational technology. This was, very roughly, the ability to work in groups, cumulate technologies and advances, and learn from each other in competitive environments. Most notably, this new technology led the Florentine and Venetian Renaissances, especially in the visual arts. But there was more. The rise of printing. The rise of classical music, starting in 1685 or whenever. The rise of early modern philosophy. Europe goes crazy with inventiveness, albeit in splats and bursts. (Clark's own chapter 12 gives good evidence for this tendency, though it will play a less central role in his version of the story.)
It is also the case that most of these bursts of inventiveness didn't do much for the average standard of living. Yes mastering oil paint technique made Florence richer but not so much.
It just so happened that one of these bursts came in science, technology, and engineering. And it came in England, mostly for reasons of "national character." It just so happened that the English burst did more for the standard of living, for reasons of external benefits. But having had such a burst was not unique to England. England was just one spoke on a more broadly turning wheel, and a European distribution of bursts was well in place prior to most of the special conditions we might find in England.
England, by the way, also had the literary revolution of the 18th century, and England plus Scotland drove the rise of modern economics. There is no Chinese Adam Smith and that is because that Europe was pulling decisively ahead in ideas production. I consider this a fact of great importance whereas for Clark it is a sideshow to some other story.
I am tempted to resist this interpretation--was there really no inventiveness in various Chinese cities? But Tyler is unlikely to have missed the trend; he's no cultural imperialist. So on this matter, I will outsource my opinion to him.
Morning psychedelia
I defy you to watch this without thinking "I clearly am not doing enough drugs."
September 3, 2007
Cry, the beloved country
Hilzoy writes, of the disaster that is Zimbabwe's economy:
The BBC quotes Robertson as saying: "I just wonder when they will try and reverse the laws of gravity, because this does not work." It's a pity Mugabe doesn't seem to realize that.
Last January, I posted a compilation of catastrophes that had befallen Zimbabwe during the previous week or two: doctors and teachers on strike, water shortages, sewage treatment plants crumbling, people unable to go to work because the bus fare was too expensive, upper- and middle-class Zimbabweans resorting to urban gardening in desperation: you name it. Since then, things have gotten much, much worse, and yet somehow, mysteriously, the government is holding on.
Sometime, something will have to give; I only hope that whoever replaces Mugabe when it does has some shred of concern for the Zimbabwean people, who have suffered enormously.
How enormously? Mugabe is not only politically illiberal and corrupt; he is literally a textbook case illustration of how to ruin an economy. I channel Izzy Mutanhaurwa:
3. In 1997 the economy peaked at US$8.5 billion, exports at US$3.4 billion and employment at 1.4 million. At that stage we were: -
a. The largest exporter of tobacco in the world after the USA.
b. The sixth largest producer of gold.
c. The biggest market for South Africa in Africa.
d. The second largest economy in the region and with the third highest GDP per capita.
e. Life expectancy was about 60 years and we had a literacy rate of 85 per cent with 95 per cent of all children of school going age in school.
f. Inflation was 12 per cent.
g. The exchange rate was 12 to 1 against the US dollar.
Zimbabwe today has an economy that has shrunk by half to just over US$4 billion, exports by two thirds to US$1.4 billion. Employment has declined by 45 per cent and industry by 60 per cent. Agricultural output this year will be 70 per cent down on the level achieved in 1997. Mining output is down and falling rapidly. Tourist arrivals have fallen from over 1.2 million in 1997 to less than 300,000 this year.
Life expectancy has halved, income per capita has also declined substantially. National population has fallen from an anticipated 16 or 17 million to just over 10 million today with 4 million Zimbabweans outside the country and some 2 to 3 million incremental deaths over and above normal mortality. 60 per cent of all children are not in school and all State controlled institutions are in dire straights.
For a country not at war or under sanctions, these are the most precipitous declines in economic and social welfare ever witnessed. They represent a calamitous state of affairs with no sign of any resumption of either stability or recovery. In fact the decline has accelerated in recent months very dramatically.
The US dollar is now trading at 20 million old Zimbabwe dollars to one in the open market compared to 1 to 2 in 1980 and 12 to 1 in 1997. Nothing tells you more about the collapse in the economy than that single statistic.
If Robert Mugabe had set out with the deliberate goal of trashing his country's economy, he could hardly have been more effective. You might say he's pioneered his own field: undevelopment economics. Starting with a disastrous land reform that placed land into the hands of political cronies, rather than those who knew anything about farming, or needed sustenance, he has turned a huge net food exporter into a net importer . . . when they can get the hard currency to import. Each successive foolhardy economic policy, designed to cover up some of the problems that have sprung up due to his last terrible, horrible, no good, very bad economic idea, has made things hideously worse. He has brought on hyperinflation, decimated the country's financial system and industrial base, crippled its agricultural output, mired the government in unrepayable debt, and reduced virtually all of his citizens to appalling poverty.
Thabo Mbeki to the white courtesy phone, please. A Security Council resolution and an OAU resolution placing Robert Mugabe under the Ban of the Globe would, I think, be very welcome right now.
Unfortunately, though I have no better idea, I can't see how this can do much good. Zimbabwe is already effectively economically isolated due to the currency market controls that have left its economy functionally bereft of other currency. I doubt that the kleptocrats hve much left to steal and ship to their Swiss bank accounts. Making the gesture is better than doing nothing, but I fear that the only real end will be when Zimbabwe collapses into utter chaos.
September 1, 2007
Oh my God, Marge, we're in the <i>future</i>!
Eliezer Yudkowsky points out:
Suppose I told you that I knew for a fact that the following statements were true:
If you paint yourself a certain exact color between blue and green, it will reverse the force of gravity on you and cause you to fall upward.
In the future, the sky will be filled by billions of floating black spheres. Each sphere will be larger than all the zeppelins that have ever existed put together. If you offer a sphere money, it will lower a male prostitute out of the sky on a bungee cord.
Your grandchildren will think it is not just foolish, but evil, to put thieves in jail instead of spanking them.
You'd think I was crazy, right?
Now suppose it were the year 1901, and you had to choose between believing those statements I have just offered, and believing statements like the following:
There is an absolute speed limit on how fast two objects can seem to be traveling relative to each other, which is exactly 670616629.2 miles per hour. If you hop on board a train going almost this fast and fire a gun out the window, the fundamental units of length change around, so it looks to you like the bullet is speeding ahead of you, but other people see something different. Oh, and time changes around too.
In the future, there will be a superconnected global network of billions of adding machines, each one of which has more power than all pre-1901 adding machines put together. One of the primary uses of this network will be to transport moving pictures of lesbian sex by pretending they are made out of numbers.
Your grandchildren will think it is not just foolish, but evil, to say that someone should not be President of the United States because she is black.
Experiment
Since the music threads were so popular, for this weekend, here's my Last.FM widget
