Wednesday, February 29, 2012

Davey Jones is Dead

When I first heard the news, I thought it was a joke, but now I'm a believer. That's right, Davey Jones has taken that last train to Clarksville. But cheer up sleepy Jean, his music will live forever. His music. A stepping stone to a never ending series of pleasant valley Sundays.

Those Crumbling Roads and Bridges

Eli,

I'm sure it's just coincidence, but when stimulus was banned from the White House vocabulary, except to talk about how successful it was, it was replaced with the idea that America suffers from an infrastructure deficit, an infrastructure gap. We suffer from crumbling highways and bridges. So we need to spend money. But not as stimulus. It is needed to repair our decrepit infrastructure.

Here's Obama in late November of 2011


President Barack Obama said the deterioration of the nation’s highways, bridges, airports and ports is costly to U.S. business and threatens future economic growth.

Obama traveled to the banks of the Potomac River in Washington and an aging landmark bridge in need of repair to prod Congress to act on a provision of his jobs plan to put $60 billion into infrastructure repairs. He also announced plans to speed up grants and funding for surface transportation projects.

It seems to be a rather common theme. So prevalent it's a wonder we are able to get to work every day.

I was rummaging through the Statistical Abstract of the US today, on another project, and found this:


Yea, it was a head scratcher. When George Bush left office, the percent of deficient and obsolete bridges was much lower than when he entered office. In only a few short years since Obama became President we now had crumbling infrastructure that was jeopardizing our economy. Thanks Obama. 

Here's Table 1091 just for grins.

Yea, another head scratcher. Spending on highways has more than doubled since 1990 and we still have crumbling roads and bridges. 

Bill.


Why Are Democrats So Mean?

Eli,

Connecticut Governor Malloy is looking to raise the minimum wage, and I know you are in favor and have presented one study (which says the previous 53 studies which concluded minimum wage laws lower employment were wrong) in support.

But tell me. If raising the minimum wage has no impact on employment why is the governor being so cheap? Why not raise the minimum wage to $100,000 per year so everyone can have an upper middle class standard of living?

Bill

 

Monday, February 27, 2012

Who Creates Jobs?

Bill,

Greetings from Jackson Hole. If someone is willing to sell me my own private mountain for a plausible price I'd be happy to accept. Might be cheaper than the price of the average home in Antelope Flats




No wonder Dick Cheney lives here.

I thought for sure you'd respond to my disinterest in living in a European welfare state by reminding me that we already  already do so so I thank you for cutting me a bit of slack there.

You don't seem to have much confidence in any of the principals seeking the nations's highest office  to guide job creation. Wouldn't you argue that it is not the job of government to do so in the first place? My own attitude on this question take their usual place in the muddled middle, which is to say that government should participate carefully but vigorously in promoting polices that provide a template for continued economic success.  Yet on every candidates lips we hear that holy manta  "jobs" chanted with reverence and conviction. Is this something the the American people want from their government? Surely not Republican primary voters, who simply want to make sure they have someone to hate.

Eli





Sunday, February 26, 2012

The NY Times is on Drugs

Eli,

I know you are on vacation, and I hope your private island is treating you well, but try to look at today's editorial from the NY Times, "A Million Jobs." In it, the Times states the Bush/Obama bail-out of GM and Chrysler resulted in "1.45 million people who are working as a direct result of the $80 billion bailout."

Someone should have pointed out to the Times that according to the Statistical Abstract of the United States, at the end of 2010 there were 674,000 jobs in manufacturing motor vehicles, motor vehicles bodies and trailers and motor vehicle parts. At the economy's cyclical peak in 2007 the total was 997,000. Look at it another way. Total North American, that includes Canada and Mexico, employment of General Motors and Ford, at the end of 2007 was 233,000 and that includes management, white-collared salaries and factory floor workers. That's one heck of a stimulus that created 7x more jobs than existed at the bailed-out companies at the peak of the cycle and created more than 2x the number of jobs the entire industry had. And keep in mind GM and Chrysler produce between 25% and 30% of the total US car sales. So not only did the bail-out save all of GM's and Chrysler's jobs, but it created more jobs than existed at Ford, Honda, Toyota and other domestic auto manufacturers.

You can be for the GM, Chrysler bail-outs (like you) or against them (like me), or you can engage in sheer sophistry about the impacts and reasoning behind them like the NY Times and Obama. Of course, Santorum with his sanctimonious, mercantilist claptrap and Romney with his determined desire to avoid taking a consistent stand are equally ridiculous.

Bill.

Friday, February 24, 2012

Limiting The Power of Government

Bill

You argument regarding the endless capacity of governments for evil is compelling, and I appreciate your surmise that I share in it. The examples, then and now, are too numerous too mention. What’s more, I’ll make your day (maybe) by noting that I have no interest in living in a European style social welfare state. I’m happy to work hard and make a buck and be rewarded for that work. It shouldn’t be a nightmare to start a business, with every apparatchik with his/her hand your pocket.  But I don’t feel any loss of liberty living in America in 2012. It seems to me the freest place on Earth, as it has been for some time. And I won’t feel any less free if the Bush era tax cuts expire at the end of the year, or some states restrict fracking more than others. And I certainly won’t feel freer if the Supremes overturn the ACA, or the Keystome pipeline is built.

If by the loss of liberty you mean the mortgaging of our children’s future that is the consequence of current fiscal policy, I’m with you. I remain deeply disappointed that the President has chosen to punt on the issue, in particular, through his failure to endorse Simpson Bowles.  The fact that partisans on both sides ensured that the debt commissions’ recommendations would gain a majority convinces me that it was, and is, a good deal. I continue to argue, as do most of my fellow Democrats,  that the answer lies in compromise.

BTW, the Soapbox is yours next week. I'm on vacation starting tomorrow so posts will likely be infequent and mercifully brief. 

Eli

Why Do You Dislike Cambodians?

Eli,

I can only defend what I say and what I believe and I'm certainly not going to waste my time defending the lunatic opinions you find about free markets by rooting around the Internet. How anything I've said leads to, encourages, or allows drunk-driving Cambodians searching for casinos to murder innocents is beyond my comprehension. How anything I've said results in a state without laws to protect against fraudsters and depravity (really? linking my views on economics to brothels in Cambodia? really?) is also beyond my comprehension. If you want to keep spending hours finding examples of man's inhumanity to man, or cunning or avarice and attaching that to the natural result of free markets, go ahead. But that will be a lonely conversation. As much as you try to equate free markets with anarchy and then challenge me to defend anarchy, I will not take up the gauntlet and defend anarchy, because I reject your assumption that free markets require a lawless, anarchic state.

I'm glad you find comfort in the State's ability to protect the powerless against the powerful and the evil. At times I share your comfort. But we both know the major crimes of man against man have been organized attempts by government to silence the rights, voices and lives of its own citizens. But, I never sense in you a fear of that power or a necessity to protect individual liberties. And I never sense in you an appreciation of how, throughout our history, the free-association of individuals gathered together organically, stopped your benevolent government from trampling on the rights of its citizenry. I'm sure you do have that appreciation, but it's just hard to see.

Bill


Wednesday, February 22, 2012

Libertarianism and the Problem of Evil

Bill

I’ve been rooting around the internet for defenses and critiques of libertarian philosophy. This is a dangerous business of course, given the Internet’s propensity to give equal weight to every lunatic opinion out there. In the process though, I think I’m coming to understand what troubles me so much about this philosophy, which is that is that I don’t see any way in which a true libertarian system is equipped to defend its participants from evil.

Evil is clearly a complicated business. About 20 years ago in a state nearby a brother and sister aged 14 and 9 were hit by a car while walking home and killed. The father was a doc who works in my field and a partner of one of my good friend from training, so I got a close account of the relentless destruction these deaths caused in the lives of those left behind. The ambulance took the children to the hospital where the father worked and when he arrived there his kids were already in the trauma suite. The first thing he saw was their shoes piled neatly together, side by side on the ambulance gurney. After they died he never set foot in his hospital again and he and his wife traveled the world looking for a pair of children to replace them. They never found them as far as I know.

The driver was a Cambodian immigrant on his way to gamble at a nearby casino. He had an open can of beer in his lap and the front end of his car met the two kids at 75 miles an hour as he lowered his head take a drink. I learned these details from the  judge who provided over his case, a dear friend and book group member who had  read books in college and then left them behind for the law. The judge seldom spoke but when he did we all listened with great care. He could see the lust for vengeance in my face as he talked about the perpetrator of this terrible crime and he spoke calmly as he explained that he fined him for violating the open container law and for speeding and that was all. He had seen every form of depravity during 40 years on the bench; things that you and I have never seen and don’t want to. And he had come to believe that evil is as much a product of the circumstances we find ourselves in as it is a choice. He quoted John Huston’s character, Noah Cross, who looks down at Jack Nicholson and waves away responsibility for his crime,

“I don't blame myself. You see, Mr. Gittes, most people never have to face the fact that at the right time and the right place, they're capable of anything”

I don’t know that I’ve ever accepted the judge’s vision of evil, but I do know that we need to be protected from it.  And I don’t see anywhere in your libertarian system, how  that happens, depending as it does upon a series of a benevolently self interested parties to constantly correct the imbalances amongst themselves.  That simply doesn’t square with my notion of human nature or my experience of it. There will always be cheats and fraudsters, the avaricious, the cunning and the depraved. And most of thesel folks, like Noah Cross, have no interest or capacity to accept the consequences of their acts.

So we need to protect ourselves from those people, even if there is a cost. Because the market will not.

Eli      



Tuesday, February 21, 2012

From Perry Mason to Light in August

Eli

I too loved fiction as a child, and still love it to this day. My tastes in my younger years ran to Erle Stanley Gardner, Agatha Christie and John Jakes, while now they run to John le Carre and William Faulkner. I never considered a Humanities major since studying something I loved as recreation would have ruined the experience. Plus, I'm a literary idiot. Metaphor, analogy, symbolism is completely lost on me. I just like the stories. Currently i'm reading Light in August by Faulkner. I love Faulkner, and only discovered him in the past 5 years. I was so taken by The Sound and the Fury I immediately began reading it again after finishing it the first time. The seond time around was proably even more enjoyable. As I Lay Dying was fantastic and morbid. But it's a great story, told with passion.

I love stuff like this in Light in August, "Byron listened quietly, thinking to himself how people everywhere are about the same, but that it did seem that in a small town, where evil is harder to accomplish, where opportunities for privacy are scarcer, that people can invent more of it in other people's names. Because that was all it required: that idea, that single idle word blown from mind to mind. " and this "when anything gets to be a habit, it also manages to get a right good distance away from truth and fact " and this "a fellow is more afraid of the trouble he might have than he ever is of the trouble he's already got. He'll cling to trouble he's use to before he'll risk a change."

So how did I get to Economics? I loved the iconoclasm of it. I loved how it was a completely different filter on how to view the world. I loved how it often-times combined with politicial philosophy and history. It provided a framework to challenging conventional wisdom. And boy do I like challenging conventional wisdom. You tell me medicine is different than other consumer purchases, my natural reaction is to ask why? You say the FDA is a necessity my natural inclination is to say, "show me." I find a value in questioning our assumptions that something has to be a certain way.

No doubt, my starting point in a resource allocation problem, which is what medicine, education and drugs are, is to solve it with a market solution because the market works, a lot, even in cases where you might not think it works. It doesn't work always, it doesn't work everywhere, but it works more than we let it.

Where my philosophy, if we call it that, fails is it is totally impractical. It is easy to propose, what I'm sure would be labeled "extreme" positions, since they are in fact extreme. But I know they have little chance of ever being implemented and I know that if ever a consensus were to be reached that I was right, the transition to my nirvana would be messy and painful. So I can brush aside comments that my ideas are impractical, as I did to mtmtmd regarding the provision of school. I think you get frustrated with my apparent certainty (am I the "truly dangerous man... without doubt"?) also. I also think you sometimes read more into my questioning than is there.

So why do it? Well it's fun. I was at a cocktail party and said I wished we didn't have public education. My wife received updates during the evening, "Did you know your husband wants to get rid of public education?" "Did you know your husband things solar subsidies are a waste of money?" I'm not sure what they expected her to say. I also do it because even though it may be impractical as a goal, it might be useful to point ourselves in that direction.

Your criticism of economics is well taken and also somewhat silly. It would be simliar to me criticizing medicine as a profession because there are some bad doctors out there. Or as Michael Jackson said, "One bad apple don't spoil the whole bunch girl." But yes, a lot of it is claptrap and ideology driven. Krugman is not the worst, that distinction belongs to Robert Reich, then Brad DeLong, then Krugman. The Chicago economists can also get stuck in their ways and ideology driven as well. All of us can.

But at least the way I see it, this more often happens in macro economics, the study of the sytem, and less so in micro economics, the study of an individual's resource allocation decision. Macro is where the big fights of Keynes v Classical and Friedman takes place. I'm much more drawn to micro. My brain isn't expansive enough to handle macro.

I'm guessing if you look at most of the amateur opinions on economics the right disagrees with Keynes because they dislike government spending and the left likes Keynes becasue they like government spending. I doubt they have even the remotest idea what the theories are all about. Most politicians are Keynesians because it gives them the intellectual cover to spend our money. Most Wall Street and business economists are Keynesians because it gives private enterprise an opportunity to receive government largesse.

Some things I do firmly believe about macro. There are time lags between policy and result, and the time lags vary with circumstances. It is also very difficult to forecast what will be a catalyst to significant change. For instance, the idea of a housing bubble was very prevalent in the 2005/06 time frame. But there was very little thought it could be a catalyst to Bear Stearns and Lehman collapsing, leading to two different policy responses and a run on the banking system. There are way too many moving pieces to have that level of predictive accuracy. I suspect it's the same in medicine (and climate). If you try to argue medicine is much better you'll have to explain why we have as much death and disease as we do.

Which means what? That policy responses may work, or may hurt. They may have no impact, but a turn in the economy could be attributed to that policy response, simply because it happens around the same time. For instance, many fiscal policy responses take place right around the time the economy is bottoming, like our most recent example. But as you point out, correlation does not prove causation. So it means it is entirely possible our policy response makes things worse, or does nothing at all, in which case it was a waste.

Bill

 

The Illusion of Certainty and the Power of Belief

Bill

From an early age I loved reading fiction, and as a youngster I came to believe that literature provided a lens through which the human experience could be viewed with power and clarity. But as an English major in college I soon learned that reading good books had relatively little to do with studying literary criticism, which seemed like a self referential exercise in sophistry masquerading as scholarship. The fact that I wasn’t quite clever enough to meet the mark surely had something to do with it. So I chose medicine, in no small part because I knew I could make a living at it, but also because it offered a sense of certainty. My science courses demanded only one answer. The right answer.   

Yet that certainty has proved also to be an illusion. Much of the teaching that comprised mainstream medical practice during my residency has been stood on its head, and widely accepted treatments have again and again been proven not only useless but often dangerous.

While I am no exception to the essential human need to hold on to something (as outlined however inadequately in the posts of our blog), the older I get the more comfortable I become with uncertainty, and the more I’ve come to think that the truly dangerous man is the man without doubt.

Hmm, that sounds like a typical politician. So maybe your predicted outcome for the fall is the best we can hope for.

Eli  

Obama Will Probably Win.

Eli,

Presidents entering their term at the tail end of a recession are likely to win re-election. Obama was inaugurated January 2009, recession ended June 2009 (I don't care if he wants to claim credit for the ending of the recession or not, it ended shortly after his entering office is all that matters), he's been likely to win for the past three years.

I think you and most are paying far too much attention to Europe and Greece, particularly since the implicit assumption in your if this then that calculus, is all else remains equal. First I don't think the chain of events: Testicle squeeze, Greeks leave Euro, whole EU economy comes unraveled is a certainty. Sounds like you are reading too many of those economists you so disdain, or worse, reading too many politial commentators who get paid by the word, so they produce lots of words. Secondly, all else never remains equal. Then, how all of that impacts the US economy has a great deal of uncertainty surrounding it.

The economy has been improving for years, since June 2009 to be precise, employment is increasing, corporate profit growth is robust, monetary and fiscal policy remain very accomodative. And yes, the Republicans are going to nominate a weak candidate. I agree, they are pathetic lot. All of that bodes well for Obama.

The real contests will be the House and Senate. I'm not going to worry my pretty little head yet on how those contests go. My guess is the big Republican dollars, particularly independent groups controlled by Dick Armey and Karl Rove, will go towards House and Senate races. Since the Republicans won control in many states in the 2010 elections and 2010 was a resdistricting year, they have an advantage there.

All in all, a divided government, would be an excellent result. Both parties overreach when they have House, Senate and Presidency. In my opinion, the chances are better real solutions to our most pressing fiscal time bomb, Medicare, will occur with a divided government.

Bill

 

 

Monday, February 20, 2012

Hyperventilating about the FDA

Eli,

Thanks for the gruesome baby pics. What next? Sending me pics of a 16 car pile up?

I made three points:

1) Government regulation is not necessarily required for product safety to improve.
2) Regulation should be subject to questions about its efficacy.
3) False negatives can lead to poor outcomes.

Although I didn't make this point, it is equally true. If you delay a life-saving drug for years in order to do further testing, by definition you deny a life-saving drug to patients. At least for those patients, that is a negative consequence.

Bill.


The Dismal Science versus Medicine

Eli,
It's unfortunate you have less regard for economics now than before we started. I'll take some of that blame and also attribute some to your Krugmanitis.


However, in its defense at least it never tried leaching and blood letting.
Bill

 

 

The Dismal Science

Bill

Perhaps the most surprising fallout from our conversation is that my opinion of economics declines with nearly every exchange. In my world the sort of graph you cite as evidence that regulations to improve auto safety produced a marginal effect would be roundly rejected as violating the fundamental principles of epidemiology.  Correlation does not prove causation. And yet, this conflation seems to be the norm, on both sides. In my world, one begins with a hypothesis inferred from available evidence, and then proceeds to test that hypothesis in the most rigorous fashion one can. In the economist's world one simply skews the evidence however one likes to support one's ideology. And if you throw in a lot of complicated math all the better! (See Krugman, Paul as your favorite example)

Economists don't have the tool of randomized controlled clinical trials that we do. But gheesh, can't they do better than this?

Eli

He Can't Win

Bill

If Angel Merckel squeezes Athen's testicles hard enough so that the Greeks leave the Euro and the whole EU economy comes unraveled, the fragile recovery we've enjoyed this winter will unravel with it, and so will the President's chance at a second term. Because, of course it will all be his fault.

But if somehow the Europeans scrape through and the economy continues to improve, the Prez will coast to victory, especially given the pathetic quality of his opposition. But of course his economic policies will have had nothing to with it.

Eli

Abolish The FDA

Bill

You  write "no one measures the costs, in shorter and less healthy lives, that the FDA has imposed on us by denying life-saving and life-improving food and drugs". Do you know of any such examples? In my field there are occasionally agents and treatments that gain traction in Europe before landing here. So there is perhaps some cost to patients. But those therapies cross the Atlantic within a relatively short time.

Here is the reason the FDA has maintained such annoyingly stringent standards for so long.



Phocomelia, which produces truncation of the upper and lower extremities as depicted above, is a direct teratogenic effect of thalidomide, a drug initially approved as a sedative and antiemetic. The drug was brought to market in 1957 by its German developer Grünenthal. Its anti nausea properties made it an attractive choice for pregnant women and it was widely used for that purpose. Because the FDA never approved the drug, only a tiny fraction of the 10,000 cases worldwide occured here before the thalidomide  was withdrawn from the market.

The decision to reject thalidomide was made a young physician Francis Oldham Casey, who fnished her training at the Pritzker School of Medicine and arrived in Washington to be given reveiw of the drug as her 1st assignment. Despite intense pressure from Grünenthal she held her ground, and in 1962 she received the President's Award for Distinguished Federal Civilian Service for her decision. She was also instrumental in shaping the Kefauver Harris Amendment, which provides the structure for a New Drug Application or NDA. I've produced an NDA as part of my previous research, and it's an onerous process. But I'm sure it's a lot less onerous that having to confront the mother of the infant in the picture above.

But of course, we don't need any of this you argue. The market would do it all for us. I can cite example after example of the failure of the market to do so, even after FDA approval. And I agree that regulation should be subject to a continuous assessment of the costs and benefits.

So I ask, respectfully, do you have data to support the alternative hypothesis, or is this simply about ideology?

Eli

The Success of the NHTSA

Eli,

The National Highway and Traffic Safety Administration (NHTSA) was created by the National Traffic and Motor Vehicle Safety Act of 1966. It mandated "(1) seat belts for all occupants, (2) energy-absorbing steering column, (3) penetration-resistant windshield, (4) dual braking system, and (5) padded instrument panel." (Source, "The Effects of Automobile Safety Regulation" by Sam Peltzman. You'd hate it, he's from Chicago. Taught micro economics to me). Peltzman's article points out there is a tendency for the estimates of deaths to be overstated since people respond to the increased safety feature by driving more recklessly and although passenger deaths decline, other deaths increase, like pedestrians.

Peltzman looked at the effects of regulation on overall safety, but we should also look at what the market was doing without safety regulations. From Wikimedia.


It seems to me a reasonable question to ask if car safety was improving before regulations, what did problem did regulation solve.  I suspect the same can be said of food product safety and "The Jungle." 

Two more things on "The Jungle" and the FDA. I regard "The Jungle" as evidence the market works. Transactions were taking place with asymmetric information on the cattle processors part, and when that information became known, the market reacted to punish those with lax safety and hygiene standards. The FDA was a way for lawmakers to feel better. McDonald's doesn't spend millions on product safety because of the FDA, they do it because dying and sick customers are bad for business. Look at the lengths Johnson & Johnson went to to alleviate the concerns of customers after the Tylenol scare. They didn't need the FDA to mandate different kinds of bottle caps and consumers didn't need to be reminded.

But let's say I'm wrong. Let say we do need an FDA. And let's say the FDA stops all sorts of bad food and drugs from entering the American bloodstream. What about the drugs and food it has stopped entering that has no harm on the American consumer? What is the cost of that denial? The FDA is very good at stopping drugs and food that can harm you but no one measures the costs, in shorter and less healthy lives, that the FDA has imposed on us by denying life-saving and life-improving food and drugs.

Bill

The Success of the New Deal

Eli,

Sorry I offended you by calling Roosevelt's policies a failure.



But I'm curious. Why do you describe 10 years of flat GDP and 20% unemployment as a success

Bill

The Grumpy Economist: Fed Independence 2025

The Grumpy Economist: Fed Independence 2025: Headline: The Fed just forced mortgage servicers that got caught submitting "documents that were not properly notarized," among other sins...

Sunday, February 19, 2012

Ain't Nothin In Life Free #2

Bill

You write

"If I happen to McDonald's today I know what quality of food I'll get. "

Exactly so. But its certainly not because you are participating in a free market transaction. It's because in 1906 a muckraker  named Upton Sinclair published a timeless classic called The Jungle. The great irony of this masterwork is that Sinclair wrote it to expose the appalling working conditions in the Chicago stockyards, but it's chief effect was to create public revulsion at the complete lack of sanitary conditions within the meatpacking industry. As Sinclair famously lamented, "I aimed at the public's heart, and by accident I hit it in the stomach".
But what came of Sinclair's work was the passage of the Pure Food and Drug Act, also in 1906, which led directly to the creation of the Food and Drug Administration, one of those agencies full of pointed headed bureaucrats that you loathe so. That's why you don't worry about the safety of the food you eat and the drugs you take and why I get to laugh at imbeciles like this .

And the reason you don't worry about what will happen to your money in a savings bank is because, in what may have been the single most transformative act of FDR's 1st 100 days in office, Congress in June of 1936 passed the Glass Steagall act, one of the components which established Federal Deposit Insurance and in so doing, along with the extended March banking holiday, almost singlehandedly stopped the run on the banks.
Oh yes, Glass Steagall got repealed in 1999. And we all know how that turned out.

But I forget. FDR was a failure. Country would have been much better off without him. Deregulation works. Always. Just look what it did for the electricity market in California

Eli



Oy

Eli,

Regarding your, "Let's Do It Like They Do In Botswana,"

Oy.

Within my budget constraint, I can freely go to any grocery store I want and buy food. I can freely choose any car dealership and buy a car. I can freely buy whatever house I want or not buy one at all and rent. I can buy clothes, vacations, electronics all on my own. But somehow, choice is magically transformed into a bad word when it comes to school.

And the only defense you can give is it will turn us into Botswana?

Bill

By the way, thanks for the chart of spending versus performance. I'll save that for later.

Let's Do It Like They Do in Botswana


Bill

Do you have any data to support the positon that education should be a function of the marketplace.?  Other than the usual right wing screeds arguing in favor of your propositon (again with no data), I can't find any. Here's the list of countries that currently do not offer free education of any kind to their citizens:

Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Central African Republic
Chad
Congo/Brazzaville
Congo/Kinshasa
Côte D’Ivoire
Equatorial Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea Bissau
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mali
Mauritania
Mozambique
Namibia
Niger
Nigeria
Rwanda
Senegal
Sierra Leone
Somalia
South Africa
Swaziland
Tanzania
Togo
Uganda
Zambia
Zimbabwe

Quite an impressive group. I'll wager that the GDP of the county in which you live is greater than the sum of those countries listed above.

Now it is true that there is poor correlation worldwide between the amount of money spent per pupil and any measure of educational success.




And from this list one might infer (correctly in my view as well as yours) that the US is not getting great value for the money that is spent  or the system it employs. And all those questions remain at the heart of the lively and ongoing debate about how best to educate our children. But none of these countries provide information useful to your hypothesis. For that, please refer to the list above  

Eli

Why Is There Mandated Public Funded Education?

Eli,

I'm no fan of Rick Santorum. He's against free-trade, I'm against him. The NY Times has a story this morning quoting Santorum as saying schools run by federal or state governments are anachronistic. I'm sure he'll get nine kinds of grief for this, but other than forgetting to mention local government run schools are anachronistic, I agree with him.

I've never heard a robust defense of public education. There are many cases where it works great. Worked for me, worked for my daughter. Complete failure for my son. And it wasn't because the schools did anything right or wrong, it was just lucky myself and my daughter were adaptable enough to learn with the public school limits, and unfortunate my son was not.

But the inability of the public school system to accomodate kids that are outside of the mainstream is one of its largest failings. Parents essentially get locked into funding a public education via property taxes and it becomes much less possible for them to afford the kind of school their child needs. It crowds out choices that would be available if there were a robust free market in schools.

Of course, public schools do the most damage to those who need it most, the poor and powerless. And the typical response is, since public schools are doing such a poor job, let's give them more money. A head scratching response. Quite simliar in fact to Obamacare. Since Medicare is going to bankrupt the country, let's make it bigger. Huh?

I'm sure Santorum will be roundly criticized for this. Like I said, I'm no fan. But he has a point on this one.

Bill.

Saturday, February 18, 2012

In Praise of Free Markets. A Partial Response to The Limits of Libertarianism

Eli,


In your "The Limits of Libertarianism," you say "voluntary transactions between equals in the marketplace are a wonderful ideal, but often a fantasy." I would say they are the norm. When I purchased my newspaper at the train station I had a high degree of confidence it would be there and how much it would cost. When I could get my newspaper on my iPad instead I arranged other equal transparent transactions with the NY Times and the Wall Street Journal. The three or four breakfast places I frequent have a quality and price I find acceptable and our transaction is open and transparent. I purchased an app from the Apple Store the other day and I knew going in to the transaction there was a risk of it not working, but I paid the $4.99 because I found the risk acceptable. Turns out the app doesn't work, but because Optimum blocks router ports, not because the app maker created a bad set of code. What I found in my app purchase was another reason to not like my cable company. If I could convince the rest of my family, we would stop buying cable TV video service and only buy Internet connectivity and maybe phone. Until then I reluctantly enter into a transparent and voluntary transaction with Cablevision. For dinner we had the food prepared from the grocery store, one of the three or four we frequent, and we engaged in transactions where we knew mostly what we would get and the prices were clearly marked. If I happen to McDonald's today I know what quality of food I'll get at what price. Like I said, I would argue most of the transactions in our life are transparent and voluntary.


As far as not all transactions being equivalent, you are referring to your "Health Care is Not a New Car or a New Coat." Why not? What makes it different? Because people need it? People need food. People need shelter. On Maslow's hierarchy of needs the most basic needs are breathing, food, water, sex, sleep, homeostasis and excretion. But you aren't arguing for public toilets.  (Yes, that is a joke). 


There are market failures. Clearly, there are market failures. And often-times there are failures that are blamed on the market but I would call policy failures. For instance, deposit insurance and bank regulation. I'm not going to argue deposit insurance and bank regulation are bad ideas or good ideas. Let's just look at the consequences. To protect depositors from bank failures deposit insurance was created as well as restrictions on what banks could do. Regulation Q restricted the amount of interest  that could be paid on checking and savings accounts. As interest rates rose with inflation in the '70's savings and loans (remember those) were squeezed because the rate they could pay for deposits were capped, so depositors moved their cash somewhere else. The policy response to this failed policy was to loosen up the type of deposits S&L's could take, resulting in a rush of cash used for real estate development, financed by S&L's in the states that seem to breed real-estate fraud: Texas, Arizona and Florida. Were there bad actors? You bet. Was there a market failure? Well in the economic sense, no, but for our purposes, yes. But was much of this driven by a policy that failed, replaced by another bad policy? Absolutely.


Look are our recent experience. Were there bad actors? Of course. Was there a market failure? I would argue yes, there was a run on the banking system, which was scary. Was some of this a result of bad policy? Absolutely yes. Deposit insurance gave banks a ready source of no-risk capital. There was an implicit guarantee of bail-outs of the banks and an almost explicit guarantee of bail-outs for Fannie and Freddie. There were market distortions from the Community Reinvestment Act. There was political meddling like Barney Frank's advice to roll the dice a bit, see here, and here. Throw in an excessively easy Fed policy replaced by an excessively tight Fed policy, driven by the hubris, that we can fine tune the economy. Add to it, a bunch of smart guys figuring out how to make money within the rules set by the Feds. Mix throughly, bake at 350. 


So if we create a law, to fix the failure of a prior law, that fixes the failure of a prior law, without ever stepping back and recognizing maybe the laws themselves had a role, a large role, in creating the negative events, then we are just spinning our wheels and we'll be having this conversation again in five, ten or twenty years.


Bill

Friday, February 17, 2012

How Dodd-Frank is Like the Iraq War

On 9/11 I watched people die. And I wanted retribution. Not my finest hour.

I would be lying to tell you I paid close attention to the decisions leading up to the Iraq War. Although I didn't pay much attention, I do know it was a popular decision. It had overwhelming support in Congress and among the people. For me, my rage still burned. Someone, somehow had wronged me and I wanted justice. Given the popular support for the war, I was far from alone in my feelings.

Dodd-Frank appeals to a similar sentiment. Somehow, someone almost ruined the country, or almost put us into a Second Great Depression. It was subprime lending, it was evil bankers, it was derivatives, it was deregulation, it was Greenspan, it was capitalism, it was Fannie, it was Freddie, it was the CRA.  It's similar to the hunt for weapons of mass destruction. We just KNEW they were there. So to exact revenge we passed Dodd-Frank and continue to seek out the criminals who brought about our suffering.

But like our search for WMD failed, so too will our search for WMD that almost blew up our country. Our rage makes us blind to what happened, which means it will be mostly sheer dumb luck we come up with a right solution.

Death and Taxes



Bill

I accept the premise that taxes can be useful instrument of public policy.  And I am certainly pro growth, although I am much less certain than you that economic growth by itself produces that much happiness. The problem comes in agreeing on what those policies are. While we both believe that the health insurance exemption does not qualify, I am less sure about the home mortgage interest deduction, given the pivotal role that housing plays in the economy. What I don’t like about it is its regressive nature. Folks with enough dough to buy a home get the benefit. Renters get nothing.  

Simpler and fairer would clearly be in the eye of the beholder. Given the way Washington works, its hard to imagine that we could have such a national conversation. Still I’d like to see it happen no matter who takes the oath of office next January.

Eli

The Limits of Libertarianism

Bill

When  my kids were young we had a housekeeper named Mathilde Bosun. She was the second oldest of nine from a dirt poor family in Montserrat, and she left school at the age of 12 to help her mother care for the seven behind her. She made her way to Roxbury in middle age on a temporary visa and after her island home began exploding continuously an immigration judge granted her permanent residency status. She took care of my two like they were her own and she bought a 2 Decker in Dorchester from her earnings.

Then came one of those voluntary marketplace exchanges you honor so. In 2006 a couple of parasites called mortgage brokers convinced her trade her perfectly good 30 year fixed rate mortgage for an adjustable sub prime deal. I’m sure I don’t have tell you what happened next. The house is gone. She is gone.

So I’m not quite a libertarian yet. Perfectly transparent, voluntary transactions between equals in the marketplace are a wonderful ideal, but often a fantasy.  Knaves, like the vermin who brought us the subprime crisis that nearly destroyed the country are always out there. You can include Fannie and Freddie among the damned but they are a small part of what happened. So I say huzzah too. Huzzah for Dodd Frank with all its inevitable flaws. Huzzah for Richard Cordray. Huzzah for a government that cares about protecting our soldiers from the swindlers and cheats. Huzzah for balancing private and public interest . 

And finally, as I have argued previously, all transactions are not equivalent. You can do without an Ipad , like the vast majority of folks who don’t have 500 bucks to spare do. Some things you can’t do without. That never makes for a free an equal transaction.

BTW you’re pretty good at setting up those straw men yourself. Dennis Kucinich? Talk about a guy who doesn’t have a clue about the way the world works. If we let idiots like him run the show we’d have an economy that runs like this:

Eli

David Owen on the Environment, Unintended Consequences, and The Conundrum

Eli,

I'm most of the way through this episode of EconTalk, and I find it rather interesting. One of the first examples Owen gives of unintended consequences will give you a feel for the show. Owen argues some would like to reduce our consumption of fossil fuel by increasing taxes on gasoline. Higher prices, less consumption. But then he points out that increased fuel efficiency standards is, in effect, a reduction in cost per mile traveled, or a price cut, and will not necessarily lead to less consumption, since consumers could travel more. His point, some of our policies are counter-productive and/or ineffective.

Give it a listen while exercising. 

Bill

David Owen on the Environment, Unintended Consequences, and The Conundrum

David Owen of the New Yorker and author of The Conundrum talks with EconTalk host Russ Roberts about the ideas in his book. Owen argues that innovation and energy innovation have increased energy use rather than reduced it and similarly, other seemingly green changes do little to help the reduce humanity's carbon footprint or are actually counter-productive. Only large reductions in consumption are likely to matter and that prescription is unappealing to most people. Owen points out that New York City, ironically perhaps, is one of the greenest places to live because of the efficiencies of density. The conversation concludes with a discussion of how to best approach global warming given these seeming realities.

Original Page: http://files.libertyfund.org/econtalk/y2012/Owenenvironment.mp3

Thursday, February 16, 2012

Budgets for Dummies (Reply)

Eli,
Near the end of your, "Budget for Dummies," you suggest a budget program that includes,
4) Stop subsidizing inefficiencies for special interest groups.
Huzzah I say.
But we do know where the big bucks are, yes? They are called tax expenditures, and are tax deductions for health care, charitable giving and mortgage interest. Nothing else comes close. Actually I shouldn't be so definitive, but those are big bucks and definitely subsidize inefficiencies for special interest groups.
You may be referring to business tax deductions, which I agree should also be eliminated. But those are chump change, relatively speaking. I'll update this with the numbers later.
You really are coming round to my way of thinking. I'm so proud.
Bill

Knabeism for Dummies

 Eli,
This is a less flippant response to your "Take Me To School."
When two parties freely and without fraud, enter into a trade, both are better off. It's a very powerful concept. When I bought my iPhone I was very happy. I really didn't care it made Steve Jobs a gazillionaire. It didn't matter to me where it was made. It didn't matter that Apple's margins were higher than what might be set by a   Reasonable Profits Board. Apple was happy to sell that iPhone to me and I was happy to part with several hundred dollars. We were both better off.
Think about it. How can we make everyone happier? By letting them buy and sell goods and services freely amongst each other is the answer. If the trade isn't fraudulent, and if the trade is entered into freely, both are better off, society is better off. Isn't that what we are trying to do, make a better society? And when I look at the long arc of history I notice societies that are organized more towards this philosophy have the tendency to do much better than those societies that are organized less along this philosophy. Think Hong Kong versus Cuba. Think the US versus the Soviet Union. Think Houston versus Detroit. And when I say better, I say better for everyone, rich and poor alike.
One general objection is around asymmetric information. When I sell a house I have much better information than the buyer of a house. That gives me an advantage over the buyer. Because of that it's a pretty good idea to have a third party inspect the house. It's a pretty good idea to have the contract explicity guarantee the seller is not withholding material information. I wouldn't object to contracts without those items, but one would expect such a deal would be consumated at a lower price to compensate the buyer for the increased risk.
Another objection is one party is going to get a better deal, however that might be measured. Did Apple get a better deal when I bought the iPhone? I have no idea, nor do I care. I was happy. If I wasn't happy I wouldn't have purchased the iPhone. Does it matter that one party got the better deal?
A third objection is the transaction can impose costs on others not party to the transaction. I may own a coal-fired power plant that emits pollution into the air. I am imposing a cost on you when I freely engage in my trade. There is a robust literature on externalities but maybe the most powerful analysis comes from Ronald Coase who examines externalities within the context of transaction costs, and overall societal efficiency. I'll avoid an exegesis since I'm not up to the task, but in sum, externalities are costs that need to be addressed, and should be addressed so as to minimize the societal costs. Much of the smarter objections to carbon emissions and coal-fired power plants focuses on externalities.
Where does the government fit in? Protecting against fraud is one function. Helping adjudicate property rights particularly with respect to externalities is another. And I know this is inconsistent of me, but helping those who need help. Yes, it is contradictory of me to say I should force the well off in society to help those in need. Guilty. But I do think we should help those in need from a moral standpoint. However, the best way to help those is growth, not redistribution. And growth comes with free trade.
That's mainly the filter I use to look at life. So tell me you want a Reasonable Profits Board or a limit on MLR (medical loss ratio) I object since that is limiting the ability of us to enter into freely negotiated transactions. And then it leads to resource misallocation. If you say to an insurance company you can only earn a 10% profit insurance companies will potentially exit the market, reducing supply. Potentially you will encourage consumers to buy more, since you've capped prices, again, misdirecting resources and distorting efficiency. But it's not just about efficiency, it's about growth. 
Growth is what makes us better year-to-year. When we talk about our children having better lives than us we are talking about growth. That is, we can have more for less. Our lives are easier, more pleasant, longer-lived. Growth is electricity and cars and the telephone and microwave ovens and the jet plane. Growth is allowing one industry to fail and be supplanted by another. Schumpeter called this creative destrucution and it is something we see all the time. For instance, we are lucky enough to have witnessed the birth of the PC and we are now witnessing its death. And that's good. My life is better with my iPhone and iPad. My life is better because the iPhone and iPad increases my freedom of movement and my connection to my loved ones. I use the PC much less because of cell phones and tablets and I am much better off. One day, someone will come up with something that replaces cell phones and tablets and our kids will be better off than us. That is, if we let everyone freely enter into transcations that allow this to happen.
If Obama had been smart, and knew even a bit of economics, he would have let the market determine GM and Chrysler's fate. Resources would have been taken from organizations that were bad at satisfying the market's needs and given to those good at satisfying our needs. That's growth. That's improvement. That's people getting what they want. That's both parties walking away from a trade, happier than when they started.
Almost all of my objections to Republicans and Democrat are to actions that impinge on my abilty to enter into transactions that make me, and my counterparty, better off. How can you possible object to that?
Too long. Too boring. Too pedantic.
Bill.

Ayn Rand is Dull, and other lessons for nascent libertarians

 Eli,
Thank you for your interest in Libertarianism. Unfortunately I'm the wrong person to ask about it. I'm much too inconsistent and erratic to espouse any specific ism. But here's what I do know.
Ayn Rand is dull. Oh my god, she is so dull. Please do not waste your money on any of her books. Forget about the ideas and whether you agree with them or not. She's just such a bad writer, that fatigue sets in shortly after you begin reading. Whenever someone says their favorite book is Atlas Shrugged or The Fountainhead or The Virtue of Selfishness, I'm shocked that 1) they were able to get through it and 2) they actually enjoyed them.
Much better are Hayek's, "The Road to Serfdom," and Friedman's "Capitalism and Freedom." Friedman is an easier read. I've read "Free to Choose," but think it lacked the power of "Capitalism and Freedom."
Many libertarians take their thinking to an extreme and it becomes anarchy. You like to set up that anarchy straw man when you and I discuss politics and economics. But I'm not an anarchist, and I do feel there is an important role for government, as I've said several times (but am too lazy to find the links).
Some libertarians are libertarians until the subsidies are handed out. Like the old saying, "There are no atheists in foxholes and no Republicans when the subsidies are being handed out." Also, many libertarians are libertarians until you start talking about civil rights. For instance, some will suddenly find an objection to legalized drug use or gay marriage. As for me, I'm generally far to the left of the right when it comes to social issues, but I'm not as far as Ron Paul who does want to legalize drug use. I'm not sure I'm there.
So what are we left with? A nuanced, read inconsistent, philosophy not that much different than how Democrats and Republicans and Catholics seem to espouse positions from a menu of issues. I know that doesn't help, because it doesn't pin me down, but consistency is the hobgoblin of small minds. Actually I never remember what the real saying is so don't correct me, I'll misuse it frequently. I also never remember what the Red and Blue states represent. That whole red/blue thing is very annoying to me.
Bill.

Take Me To School

Bill,

I haven’t read very much about libertarianism (not an Ayn Rand fan, sorry) and I’m struggling to understand it, so I’m hoping you’ll help me. The idea is that government can’t do anything well, or at least not very much?  That individual citizens organized in other social forms will produce a better result for all? That “liberty” outweighs other desirable collective values, such as equality of opportunity, or justice?

Your point that “politics ain’t beanbag” and that the nation shares a long and colorful history of bare knuckles competition in the public arena is well taken.

And yet, four years after Preston Brooks nearly beat Charges Sumner to death on the Senate floor the nation plunged itself into the single most destructive conflict in its history. Subsequently, our greatest President in extracted the nation from that conflict, erased the stain of slavery and ensured the survival of the country. It wasn’t foreordained that we would survive. Leadedrship matters. Leaders matter.  

Eli




Another added to the list of democrats needing a doctor

Eli,
How could I forget Dennis Kucinich as one of the Democrats who has gone off the rails?

A "Reasonable Profits Board?" But then that's not so unusual given ACA calls for MLR (Medical Loss Ratios) of 10-15% for insurance companies. Correct Eli, I regard the 10-15% MLR equally as wrong-headed as a reasonable profits board.

Before you take umbrage and point out Nixon instituted wage and price controls and gasoline rationing, I will admit Nixon was a Republican and those ideas were as equally dumb.

Bill

PS. The other five Democrats are John Conyers, Jr. (D-MI), Bob Filner (D-CA), Marcia Fudge (D-OH), Jim Langevin (D-RI), and Lynn Woolsey (D-CA). They too can join the shameful list of dumb politicians.

Not from Atlas Shrugged

The Hill: Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a "Reasonable Profits Board" to control gas profits.

The Democrats, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation.

…The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding "a reasonable profit." It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms.

And here directly from the proposed bill:

(4) REASONABLE PROFIT.—The term 'reasonable profit' means the amount determined by the Reasonable Profits Board to be a reasonable profit on the sale.

Addendum: Here is Bryan Caplan's classic, Atlas Shrugged and Public Choice: The Obvious Parallels and here is the award-winning Atlas Shrugged app.


Original Page: http://marginalrevolution.com/?p=35419

Wednesday, February 15, 2012

Better Call Two Doctors

Eli,


As much as you try, I will not come to the defense of the Republican party. (See your recent, "Somebody Quick, Call a Doctor.") I'm for free trade of goods and services. I'm against jawboning the Chinese on what their currency is worth. If they want to manipulate their currency and give US consumers goods at a lower price, bring it on. I'm for free immigration and feel the best use of the INS is turn it into a Welcome Wagon. Let them sit on the border of the US with a map and a cup of coffee greeting all with, "Welcome to America, have a nice day!" I don't believe in protecting steel mills, farmers, ethanol, manufacturing or any other pet interest the Republicans may have. I don't believe the government should care what I do in my bedroom or who I marry. I'll go even further than that. Why does the government have a say in marriage at all. That should be between the willing couple, or trio or more,  and their church, if any. 

But let's be real. The democrats are no better. Pelosi, Waxman, Waters, Rangel, Blumenthal, Wasserman-Schultz, Franken, the thankfully departed Weiner, Dodd and Alan Grayson are combinations of idiocy and corruption, just like the kooks and crooks on the Republican side.

I also really don't care too much for the argument that our politics are "too" divisive, or "too" partisan. I don't even know what that means. The politicians merely reflect their constituents. (Exhibit A: SOPA-PIPA, Exhibit B: HHS v the Catholic Church, Exhibit C: Scott Brown). You are telling me it is worse now then when Preston Brooks nearly beat Charles Summer to death on the floor of the Senate? Worse than Lincoln compared to a baboon and some openly wishing for his death? Worse then a sitting Vice President killing the first Secretary of the Treasury in a duel, then running off to try to start a filibuster in Mexico? Read almost any biography of Jefferson and you'll see what real partisanship was like, on both sides. 

I like divided government, stops them from doing things.

Bill

Somebody Quick, Call a Doctor




The Republican Party is sick . This is the party of Teddy Roosevelt, Ronald Reagan, Everett Dirksen, Robert Taft and John McCain. Of initiative and drive, Of fairness and racial justice, albeit long ago.

Now it’s the party of birthers, flat taxers, gold bugs and other assorted, bigots, kooks and imbeciles, not to mention really bad hair.




This is now the party of Sarah Palin, Michelle Bachman, Sharon Angle and Christine O'Donnell. The last two individuals ran in Senate elections in 2010 that would most likely have been won by even remotely competent candidates had Republican primary voters been inclined to select them. Reagan couldn't get elected dogcatcher by this crowd. This kind of self satisfying but otherwise unproductive behavior by Republican primary voters resembles a certain activity favored by adolescent boys that cannot be discussed in any greater detail on our family centered blog. The Republican Party position on illegal immigration is
guaranteed to alienate a key voting block for generations to come 

And now, Obama is salivating at the possibility that he might actually get to face a candiate who thinks that natural law” as conceived by Thomas Aquinas ought to be the governing principle for a moral life. And who lost his last senate race by 18 points.

The end of result of all this will be to embolden  the worse elements of the lunatic left, something neither of us wants to see happen.










Fwd: Reagan’s California

Eli,

 

I admit it. I've given money to Scott Brown and Sean Bielat and even Sharon Angle. (Please, no laughter. Remember her opponent is no prize). Apparently my email has been sold to Dr. O.

 

Bill

 

 

Dear American,

Do you remember when Ronald Reagan was Governor of California?

A lot has changed since then, especially the type of leaders representing California in Congress.

This November, liberal Senator Diane Feinstein is up for re-election and Republicans are looking for a conservative leader willing to give voters a real choice.

Hi, this is Dr. Orly Taitz, and I am a conservative Republican running for U.S. Senate in California.

I was born in the Soviet Union, and I witnessed firsthand the effects of left-wing totalitarianism.

Those experiences have motivated me to always seek truth and justice.

When rumors circulated that Barack Obama was not a U.S. citizen, I led the legal team who investigated his birth certificate.

While Barack Obama, Diane Feinstein and their crony's don't care about the U.S. Constitution, I know firsthand why it's important for a country to respect the rule of law.

Will you join me in helping defeat Senator Feinstein? Your generous donation of $50, $100, or even $250 will do a great deal to help my campaign.

You can count on me to be a Reagan conservative who will always dig deeper to find the truth.

Sincerely,

Dr. Orly Taitz



Budgets For Dummies

Budgets For Dummies

Bill,

Since macroeconomics seems beyond me (seems a bit beyond a lot of other folks too), I’ll resort to the back-of-the-envelope calculation I do every payday to see where things in the Butcher household are at. If you spend less than you take in you make out. If you spend more, sooner of later you go broke.

We both agree that we are spending way more money than we take in, and we also believe that the nation’s long term fiscal health depends upon altering that unsustainable path. And I’ll wager that we also agree that the current paralysis over this issue is a conspiracy in which virtually the entire society, with the exception of a few curmudgeons like you and me, is complicit. And I at least believe that the increasing globalization of the world economy means that America’s share of the overall economic pie will continue to shrink no matter how successfully we compete.


In short, I believe that country is going to be poorer than it was in the unprecedented period from, say, 1950 -2000, and that we are going to have to live within our means while we continue to compete, ferociously for our share of the world economic pie. But the President’s smoke-and-mirrors budget (this makes him unique?) is a side show in solving that long term problem.

Where we differ, along with a lot of other supposedly very smart people, is how to do it. Even Robert Kagan whom you admire and who is backing Romney in the Republican presidential sweepstakes but is read by Obama,  argues that his optimistic view of America’s future depends upon continued investment in the countries vital social and intellectual capital  .

In my view then, we must

1) Avoid truncating the recovery by cutting too much or too soon (how Krugmanesque of me).
2) Continue to invest in vital sectors such as intellectual capital and infrastructure.
3) Promote fairness (we can talk about what that means in future posts).
4) Stop subsidizing inefficiencies for special interest groups.
5) At the very least, avoid polices that promote social disintegration (we’ll talk about that too)
6) Face the elephant in the room





Eli

Tuesday, February 14, 2012

A Few Trillion Dollars is Missing. Please Call If You Find It.

Eli,

The White House released its proposed Fiscal 2013 budget yesterday. In the Budget Message of the President, Obama states, "Together with the deficit reduction I signed into law this past year, this Budget will cut the deficit by $4 trillion over the next decade." The deficit reduction he signed into law this past year refers to a $1 trillion cut from the Budget Control Act of 2011, so according to Obama this budget results in an additional $3 trillion in cuts. That is impressive. But I just can't find it.

The tables below show the cumulative five and ten (when available) projected federal government receipts, outlays and deficits for the F08 through F13 proposed budgets. The F08 budget 5 year projection is the cumulative projected receipts, outlays and deficits for fiscal years 2008 through 2012, F09 from fiscal years 2009 through 2013 and so on.


President Obama says he was left a "projected 10-year deficit of more than $8 trillion." (The only way to get to $8 trillion is to take the F10 budget and time shift the projection one-year backward, only one of the many dishonest aspects of the President's message, but I digress). This suggests the F10 budget wasn't his, a common assertion made by the Obama apologists. It's an odd claim to make, since he submitted the budget to Congress and he signed the bill. I do agree his options were limited for the F10 budget, but for God's sake, Man Up Mr. President.

But I digress. Where the heck is the $4 trillion dollars of deficit reduction? It's gone missing! The fiscal 2010 budget, (which although submitted by Obama and signed by Obama is not Obama's) had a ten-year projected cumulative deficit of close to $7 trillion. The fiscal 2011 budget, which presumably was Obama's, was even worse, with a ten-year projected cumulative deficit of $8.5 trillion. So at best, Obama has lowered the deficit to $6.7 trillion, a $1.3 trillion reduction from his fiscal 2011 proposal, and only $300 billion from the budget he "inherited."

The spending tables also belie the tale about fiscal responsibility coming from the White House. Remember, the Fiscal 2010 budget, the budget Obama inherited, was called "A New Era of Responsibility: Renewing America's Promise." Five-year projected cumulative spending in fiscal 2010 was $18.8 trillion and the ten year at $42.2 trillion. After painful and hard choices were made, the fiscal 2013 budget calls for 5 year cumulative spending of $20.6 trillion and ten-year spending at $47 trillion.

All politicians play games with language about cuts and hard choices. But the scale and scope of this President is unprecedented.

Bill