Tonight we attended the 2008 Annual Dinner sponsored by the Center of the American Experiment. The keynote speaker was former US Ambassador to the United Nations, John Bolton. His 35 minute talk, given without notes, was packed with information. What follows are highlights.

China - though the last 20 years have been commercially successful, from 1900-2000 China was a nation in constant upheaval. Mao's dictatorship resulted in 30,000,000 deaths in the 1950's along with the wanton destruction of 1000s of years of Chinese culture. Today China is trying to eradicate the Tibetan culture. It is investing substantial sums in military buildup. We don't know which China will be the China of the future and we need to be prepared for all options.

Russia - because of their oil reserves. Russia is again flexing its muscle and reverting to a Czarist mindset - central control of everything. In the last election, teachers told students their grades would suffer if their parents voted the wrong way (ie, against Putin's hand-picked successor). Russia does have a few problems, though - no treaties with anyone and it doesn't like the downside of Islam.

WMDs - these simply cannot fall into the hands of rogue nations. Many of these nations operate with different logic, they value death over life. Therefore, the usual mindset used in previous historical negotiations will not work.

Iran - probably is closer to nuclear capabilities than anyone wants to admit. Ignoring this problem in the hopes that a "just in time" (JIT) understanding will protect us is naive at best and possibly very destructive. Iran has different definitions for "proliferation," and other terms related to their nuclear arsenal. Hence, they can say "yes" to the west and continue to build their nuclear arsenal.

North Korea (NK) - in essence, a nuclear criminal state. The height of its people is 6" shorter than that of South Koreans - they were the same height in the 1950's. Famines have occurred multiple times over the last 60 years. They routinely counterfeit American currency and their diplomats are often using diplomatic pouches to run drugs.

What about negotiations, the panacea of the left. Six nations have been negotiating with NK for the last 15 years - nothing has stopped their nuclear program, nothing - it keeps moving forward. The Big 3 in Europe have been negotiating with Iran for the last five years - same result, nothing has stopped their nuclear program. These nations use negotiations to buy time to build what they wish, which in turn will be used to destroy us.

There are two options in relation to Iran: regime change; destroy nuclear assets. We have not encouraged regime change yet the Iranian mullahs are in a precarious position. Ethnic differences abound, unemployment is high, the youth see that their neighbors are better off but they have no means to topple the mullahs. As for destroying their nuclear assets - time is running short.

Finally, there are India and Pakistan both with nuclear power. Pakistan is unstable and with the wrong people at the top, they could easily sell their nuclear technology to the highest bidder.

Bottom line: Whom we elect this November will have major repercussions throughout the world. We've tried the negotiations; on May 15th, Bush discussed the futility of the negotiation mindset - it doesn't work when the other side uses talks as a mechanism to gain an edge in their nuclear development. Our objective should be to keep these powers from getting into the wrong hands.

One final point, mine: We have had nuclear power for over 60 years. We have not used it since WWII and only used it there after warning the Japanese we had an incredible power. The Japanese refused to surrender. After the 2nd hit, they did. As destructive as those two strikes were, had we had to resort to a land invasion the casualties would have been significantly higher.

We have not used this power - the rogue nations with this power will not hesitate to use it. As Mr. Bolton said, they have to be stopped or we all will pay (my paraphrase).

Labels: America

MinnPostToasties runs a long, gushing review of Sen. Tarryl Clark, repeatedly bringing up "she could be governor". It does its best to portray her as moderate; I've heard her "my daddy was a Republican" pitch before. Those of us familar with her views on taxes, what bills we try to pass in response to a bridge collapse, stadium taxation without referendum, or denying access to a business development tool preferred by businesses in her own district, might not be as in awe of Clark as the Post is.

Labels: legislature, Minnesota

I came home from work and turned on Special Report just in time to see the Grapevine's coverage (third item) of the story of the service dog. The graphic carried only the picture on this blog and the university's seal. I'm told that the university administration has received a number of angry emails about it. As I mentioned Tuesday, it's not clear what the university could have done here, and I'm really surprised that people are writing to the university rather than the school district, which would not guarantee the service dog's safety and concluded that the threat the student teacher perceived was "a misunderstanding" and that "the student did not make a direct threat." As a reminder, here's one paragraph from the original story:

Things didn't go as well at Tech, Hurd said. Students there taunted his dog, and he finally felt he had to leave after he was told a student made a threat. Hurd met with {Tech High assistant principal Lori} Lockhart but said he did not feel comfortable continuing.

Given how highly trained these dogs are, and the expense that entails, there is reason to wonder about the school district's behavior in not providing guarantees over safety. One of the districts school board members is, I think, trying to talk about the issue, but be sure to have coffee while you read this and count the number of connecting flights he takes to make his point. If you can find it at all.

Labels: education, St. Cloud

Two quotes about the requested state subsidy of the Mall of America:

1. Mall of America executives, planning a $2 billion expansion of the mall, are continuing to press for nearly $400 million in state subsidies. Mall officials warn that the mall has "no chance of being built" if the subsidies are not given. If they have such a crummy business plan, maybe they just shouldn't bother.

2. What are the folks who own the Mall of America going to do if they don’t get their state subsidy — build Phase II in Iowa?

Source 1, 2. Interesting.

Labels: economics, Mall of America, Minnesota

The Christian Science Monitor reports that the Congress has passed a bill that does something I consider good: Stop buying oil for the Strategic Petroleum Reserve. The economics is quite simple, as Thomas Sowell explains: Gas prices are high because demand is up.

Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains.

It is clear that many people prefer to blame President Bush. Others prefer to blame the oil companies, who have long been the favorite villains of the left.

Local blogger Political Muse does us the favor of posting the summary of the bill that includes the one good thing. In one fell swoop, it takes $17 billion in tax breaks back from oil companies, imposes a windfall profits tax, and allows the executive branch to impose price controls. It's the audacity of dopes who want to create villains rather than deal with the real issue of short supplies. Betsy Newmark provides more evidence of how Democrats have prevented the release of pressure on that supply.

Frankly, I have no idea why we have an SPR, though, and if this is the first step in eliminating it, it would be a good thing. SPR is a Cold War holdover that's outlived its usefulness.

Labels: economics, Energy

Ed Lotterman looks at the latest Senior Loan Officer survey from the Federal Reserve and sees credit crunch:

You can lead a horse to water but you can't make it drink. Keep that in mind when reading how much the Fed has driven down interest rates. In finance, you can increase the amount of money available for lending, but you cannot force banks to make loans. That limits the broader effects of plentiful money on the economy as a whole.

What Lotterman describes is the classic problem of "pushing on a string", that monetary policy works more quickly and surely when it reins in credit than when it tries to inject liquidity into the system. We've known this could happen from looking at interest rate spreads (see Krugman for example), but results like this from the survey are more damning:

About 55 percent of domestic banks—up from about 30 percent in the January survey—reported tightening lending standards on C&I loans to large and middle-market firms over the past three months. Significant majorities of respondents reported tightening price terms on C&I loans to these firms, and in particular, on net, about 70 percent of banks—up from about 45 percent in the January survey—indicated that they had increased spreads of loan rates over their cost of funds. In addition, smaller but significant net fractions of domestic banks reported tightening non-price-related terms on C&I loans to these firms over the past three months.

Regarding C&I loans to small firms, about 50 percent of domestic respondents reported tightening their lending standards on such loans over the survey period, compared with about 30 percent who reported doing so in the January survey. On net, about 65 percent of banks—up from about 40 percent in the January survey—also noted that they had increased spreads of C&I loan rates over their cost of funds for these firms. In addition, large net fractions of domestic respondents reported tightening other price-related terms, and smaller fractions tightened non-price-related terms on C&I loans to small firms.

San Fran Fed president Janet Yellen today is calling this a credit crunch in no uncertain terms.

Axel Leijonhufvud argues that this moment brings to a close the debate over inflation targeting and central bank independence. On the former, we have long argued that a central bank has financial stability responsibilities, but holding down inflation is part of creating that stability. Leijonhufvud argues that the late Greenspan Fed was using inflation targeting; I think most observers would disagree. The weight on output in its implied Taylor Rule was greater than zero, if Greenspan even used it. On central bank independence, Leijonhufvud assumes that the political process is best for deciding whether debtors or creditors take the brunt of adjustment costs when deflating a bubble. I don't see why this is necessarily true; politics would not need to look at minimizing those costs.

Labels: economics

After covering the story on Ed's show on Hot Air, I was amazed to hear the original story read this afternoon by Rush Limbaugh as I drove back from a haircut. Gary and the Lady Logician both comment as well, with a reminder of what the Americans with Disabilities Act says and a description of the service these dogs provide. I was reminded by Ed that his wife has used service dogs and been denied service by cab drivers in the Cities who were of the Muslim faith.

A couple of points of note: SCSU's teacher development program places a very substantial number of students in District 742. The district can choose not to accept those students. As such, I think the university is a bit boxed in on this; I wish our university could say something stronger, but there are valid reasons for reticence. Second, I had missed the point entirely but Rush's reading reminded me: The Somali children at Talahi Elementary were provided paper so that they could pet Emmitt while not violating their religious beliefs. If touch is the issue, the solution had already been found to keep the student and the dog in the classroom.

Labels: education

I am going to be on the Ed Morrissey Show at 2pm CT.

Labels: Media

I just cannot get excited much over the idea that the GOP primaries are signaling disdain for McCain's general election campaign in the fall. With the outcome already determined, it's costless for those who want to engage in protest votes to cast ballots for Ron Paul, Mike Huckabee, Mitt Romney, or King Banaian. Well, I don't think anyone did for me, but the point's the same: Voting in a GOP primary after McCain went over the top is a consumption activity by party activists, some of whom still want to say something about the party's future and where the base is vis-a-vis McCain. It says quite little about whether these same voters will invest in the McCain campaign in the fall.

I find this story a bit bizarre. A student teacher from SCSU training in special education , Tyler Hurd of Mahtomedi, has a medical condition that occasionally causes him to have seizures. A service dog protects the young man, with a pouch to help assist the man when he is down. He was training at St. Cloud Technical High School, but was forced to leave the school before completing his training because the dog's safety was threatened. Hurd and his dangerous dog Emmitt are there to your left.

You need to go down about ten paragraphs in the story to get what the debate is about, but let's pick up the story at graf 8:

The school district and university are working to make sure a similar situation doesn't happen.

Kate Steffens, dean of the college of education at St. Cloud State, and Tech assistant principal Lori Lockhart met Thursday.

The threat came from a Somali student who is Muslim, according to Hurd, St. Cloud State and school district officials.

The Muslim faith, which is the dominant faith of Somali immigrants, forbids the touching of dogs.

So let's take a look at this as a case of competing rights. On one side we have a student with a medical disability. One would think that the Americans with Disabilities Act would allow this student to participate to the fullest extent possible in pursuing his goals, which is to teach in special education. To do so, he is supposed to train in both elementary and secondary school settings. (The article notes that Hurd had no such problems with Somali students at his elementary school assignment.)

On the other side, we have a student at Tech HS whose faith considers dogs unclean and is asserting his right to education in an institution without dogs. This not only affects student teachers; any student with a sight or hearing disability may use a dog for assistance and might want to also attend Tech HS. Whose rights dominate?

Julia Espe, director of curriculum, instruction and assessment for St. Cloud school district, said the school needed to do a better job communicating.

“I think it was a misunderstanding where we didn't really prepare either side for possible implications," Espe said.

Espe said the school's investigation determined the student did not make a direct threat.

Maybe so, but it was enough for everyone to agree that Hurd could waive away his last ten hours of student teaching.

Steffens said it is important to respect different cultures and the rights of disabled students.

“I think this is part of the growth process when we become more diverse," Steffens said.

But when rights collide, as they did here, whose rights did they choose to uphold first?

Labels: education, St. Cloud

I noticed Hugh has asked that we slow down on the Frank-Dodd housing bill. I got a press release from Rep. Michele Bachmann stating the bill is "deeply flawed".

"The bill even includes a $35 million dollar slush fund for trial lawyers. And according to the Congressional Budget Office, the bill would help refinance the loans of only 500,000 people – less than 1% of homeowners – at the expense of the 51 million homeowners who pay their loans on time, however much they may be hard-pressed to do so.

"The bill is so broad that homeowners covered could deliberately default on their loans to cash-in on the taxpayer bail-out. In others words, a taxpaying single mother working extra hours to pay her mortgage on time could be asked to help pay the loans of someone who intentionally defaulted.

"Lenders and servicers can game the system as well. The bill invites them to cherry-pick only their worst loans to dump onto American taxpayers – including loans people secured through outright fraud.

Hugh's request that we need more time to look at it would be met by the CBO report on the bill that Rep. Bachmann mentions. They estimate the subsidy at $1.7 billion, or $3400 per household refinanced. That on top of the Heritage report on the bill should be enough to convince most that it's a bad idea.

Unfortunately it passed, and thus gives the banks yet another fillip in return for bad decisionmaking. And, as Dean Baker points out, it is just delaying the needed price adjustment in housing.

For those Minnesota congresspeople who voted for the bill (read, all the Ds plus Rep. Ramstad), ask this: Do you think this money should be used to bail out the Parish Homes development? Are you sure it wouldn't be?

Labels: economics, housing

I had some private conversations with people on both sides of the ideological spectrum here after the per-diem debate, and at that time I suggested getting the problem solved by some changes in how legislative salaries are set. Current law says you can fix salaries for the upcoming session, but not your current salaries. As a result there was pressure to increase per diems as back-door salary increases.

So what does our senator Tarryl Clark propose? The worst of both worlds:

Lawmakers could vote next week to ask Minnesota voters to take the job of setting their salaries out of their own hands.

However, they will likely keep the power to increase their per diem and other forms of reimbursements where they now sit — with committees of their senior members.

...If approved, HF 3796/SF 3793 would give the job of setting legislative and executive salaries to the state’s Compensation Council, which now only makes recommendations.

The bills originally would have given the council — which consists of 16 citizens appointed by legislators, judges and Gov. Tim Pawlenty — the power to determine legislators’ daily reimbursement rates for food and other expenses, known as per diem.

But members of the Senate and House Rules and Administration committees, who now set those rates, amended the bills to retain that power.

“The problem isn’t per diem. The problem is salary,” said Clark, who saw her bill through the Senate committee Thursday. She is the committee’s vice-chairwoman. “I believe if compensation changes, per diem will be modified downward.”

No, no, no. First of all, Clark is saying "hey, give us a salary increase and then we'll see if we can reduce those per diem. Trust us." But you obviously don't think we trust you because you could have voted salary increases yourself before. Your rules committees have proven their distrust of the system by not putting per diem rates in the hands of the Compensation Council, which has the power and the knowledge to do this. Under this bill, the Legislature could still compensate itself through per diems if it didn't like what the Compensation Council came up with. It changes no incentives and abdicates responsibility for choosing one's own salary.

I wish she was running this year. "The problem isn't per diem" is a great line when used by someone who gets $96 a day. I'd love a chance to ask her how she spends hers. You really want me to trust you to reduce that once you get your salary?

And notice, she got it not just for the days the legislature is in session, but for all the committee meeting days she took away from the capitol.

Meanwhile, last Friday oral arguments were heard in the case of Citizens for the Rule of Law's suit that we discussed last February. The AG's office is arguing that only it can bring a case against the legislature and that citizens do not have standing to file the suit. That motion should be ruled upon sometime this summer.

Here's the simple solution: Move both salaries and per diems to the Council, and cap the number of days on which per diems are paid to, say, the number of legislative days plus twenty, or some such. The symbolism of the cap would do wonders.

Labels: legislature, Minnesota

By now most of you probably heard of the 23-cent-pizza promotion that Papa John's put up after one of its franchisees in DC printed "Crybaby 23" t-shirts for a Wizards-Cavaliers playoff game after Lebron James (#23 of the Cavs) was accused of whining too much about rough play and not getting foul calls. The lines stretched on for about three hours, leading some to wonder why people wait in line. If the pizza costs $12 normally and you wait three hours standing in line to pay $.23 for it, what's your implied wage? Matt Ryan argues that standing in line is not a cost of the pizza but part of the experience.

...sure, I had to wait in line for 3 hours to get a cheap pizza, but how can I possibly value being able to tell my friends for the indefinite future? I don't believe it's entirely separate from betting longshots at the racetrack-- the story has value, and maybe because it's indeterminate exactly how valuable it is, you end up with individuals massively mis-pricing it.

I don't know how it is we know it's mispriced, though. Any good that I purchase with unknown benefits has some ex post accounting of benefits and costs, but I don't usually call that some mistake in price. For example, I'm forced by my convalescence to listen to a lot more of my purchases on iTunes. (Embarrassingly, in the eight months since I bought my iPod, I have purchased over 150 songs. In this way, I've never grown up.) Some of them are fills for playlists I write, and often I've pulled them out as bad ideas after sinking my $.99 into the song. But this was true when I bought albums, 8-tracks, cassettes and CDs. And some I get a great deal on; I've ended up playing the absolute hell out of Neverending White Lights, which I kind of stumbled on one night and bought two CDs worth after hearing three songs. Are all of these misprices ex ante? I think not.

OB LeBron, who's playing against my C's right now: It's natural in most superstars' careers that they begin to expect some respect from the refs. I obviously didn't get much time to see the Wiz-Cav series, but roughing up the one superstar when the rest of the team looks suspect isn't unusual, and it challenges the league office to see if they'll blatantly cover for the superstar they wish to promote by suspending the other teams' hackers. (They did in this case.) The problem for LeBron against the C's is twofold. First, he is playing against a much better defensive team that uses its own semi-superstar (Pierce) to guard him. Second, he's encouraged to do this by his coach's constant whining about calls, and that coach's insistence on running a 1-4 set for LeBron at the top of the key, basically saying "here, drive by Pierce and then meet Mr. Garnett." LeBron can't expect calls there, and he knows it. It's nice to see there's one coach in the league worse than Doc Rivers. When the Cavs lose this series, Mike Brown should go.

And LeBron isn't even the worst whiner. I think someone vintner needs to market $.21 Timfandel.

Labels: Celtics, economics, sports

A very interesting article on the use of a machine by the famous economist Bill Phillips (of Phillips curve fame).

It is 2 metres (7ft) tall, 1.5 metres wide and a metre deep. It runs on water and most of the time it is screened off at the back of a lecture room in Cambridge. But when the nine members of the Bank of England's monetary policy committee announce their latest decision on interest rates today they will owe a debt of gratitude to the computer built in a garage in south Croydon by Bill Phillips - an engineer turned economist from New Zealand - almost 60 years ago.

A sensation when it was unveiled at the London School of Economics in 1949, the Phillips machine used hydraulics to model the workings of the British economy but now looks, at first glance, like the brainchild of a nutty professor. Where the Bank's team of in-house economists are equipped with state-of- the-art digital computers, the profession's first stab at modelling was very much a do-it-yourself affair with a whiff of the Heath Robinson about it.

The prototype was an odd assortment of tanks, pipes, sluices and valves, with water pumped around the machine by a motor cannibalised from the windscreen wiper of a Lancaster bomber. Bits of filed-down Perspex and fishing line were used to channel the coloured dyes that mimicked the flow of income round the economy into consumer spending, taxes, investment and exports. Phillips and Walter Newlyn, who helped piece the machine together at the end of the 1940s, experimented with treacle and methylated spirits before deciding that coloured water was the best way of displaying the way money circulates around the economy.

Irving Fisher also used hydraulics to model an economy because he didn't think the math was there to work out the general equilibrium (Gerard Debreu finally worked this out in the 1950s.) Hydraulics worked for Phillips, however, to demonstrate a coordination problem of policy:

...one early demonstration of the machine displayed the difficulties that can arise when monetary and fiscal policy are not synchronised. Phillips asked one of his students to be chancellor of the exchequer and control taxes and spending; the other to be governor of the Bank and control interest rates. Predictably, the policies were uncoordinated and the upshot was that water overflowed on to the floor.

Now if they could work out that the two people pouring the water are engaged in a game...

(h/t: Tyler Cowen)

Labels: economics

Rankings of things tend to annoy me. I would always prefer to know the actual values involved, but we tend to like lists. But they get you in trouble when people try to change how their measuring things.

Today's example is from our local paper. It takes exception with the Tax Foundation's rankings, largely because the Foundation thinks tax efficiency is a proper goal of public policy. The Foundation adds federal taxes to its ranking of the states, though as the link points out, removing federal taxes changes Minnesota's ranking not at all for 2007. Of course the letter writer forgot to tell you that.

He then switches to a report issued by the Minnesota Taxpayers Association, which includes both data based on taxes per capita and taxes per $1000 personal income. Using the latter measure, and using all state and local taxes, he finds that Minnesota ranks 23rd. Of course, he is now comparing apples and oranges. But he says "That one state has higher-income residents than another has nothing to do with the level of state and local taxes."

But the reason for his letter, that Rep. Steve Gottwalt (R-St. Cloud) has proposed the state corporate income taxes are too high, is belied by his own report use. The state ranks 8th in corporate income taxes per $1000 personal income. The letter writer uses a measure of all taxes to rebut a specific point about one tax, by playing fast and loose with which rankings one uses. Our top marginal corporate tax rate, 9.8%, is sixth-highest in the nation.

He also plays a little fast and loose with his choice of who is a non-partisan by quoting at the end lovingly from something published by the Economic Policy Institute. If you are going to call the Tax Foundation "extreme conservative", then you don't get to use an institute run by folks like Robert Reich and Robert Kuttner as being unbiased.

Charlie Quimby pointed out something similar in the Mn2020/Mn Free Market Institute spat over Matt Entenza's 32nd ranking. It's not a fruitful debate (and I say this as a fellow of the latter, with some trepidation.) The question is whether taxes effect people's willingness to truck, barter and exchange in Minnesota, and choosing between Minnesota and other states. Rankings and arguments over what's in the numerator or denominator of this or that ratio won't help solve that debate.

Labels: economics, Gottwalt, Minnesota

I am puzzled by the whole idea that we should expect Iraq to pay for reconstruction through loans rather than grants, as Rep. Tim Walz suggested yesterday, and which has been floated by senators including our Norm Coleman. The parallel story I would tell is to think about my own desire to educate my child versus the state's interest in an educated workforce. Both of us have the same interest; using a state subsidy to finance my child's education shifts the price I pay for education, but if the state does not want to buy as much as I would myself, it's just giving me money. The child gets the same education either way, it's only a question of who pays. The question is a question of marginal analysis.

Who has a greater stake in Iraqi reconstruction at the margin? If you believe the GWOT is aided by the establishment of a functioning democracy in Iraq, it seems reasonable to argue that Iraq would choose less reconstruction and transformation than would be best for U.S. interests, and so it makes more sense for the U.S. to pay. Besides, the Walz formulation of Iraqi oil money helping us finance war in Afghanistan sounds a little too mercenary. That would be made only worse if you do not believe our anti-terrorism strategy is advanced by stabilizing Iraq.

Labels: Iraq

I appreciated LL's coverage of the floor debate of HF3149, which passed with an 80-52 vote, including five DFL legislators opposed. The bill, the darling of Tax Committee chair Ann Lenczewski, completely upends the basis of a property tax, in a state where we rank about in the middle of property tax collections.

There is debate whether the Revenue Department's testimony, mentioned by the Taxpayers League, that 69% of taxpayers would see a net tax increase under this formula (because they would lose the ability to deduct state property taxes from their state income tax, which for some will cost more than the property tax relief advertised). I do not find anything on Revenue's website with the 69% number, and if someone wants to point me to that analysis I would eagerly read it. It doesn't sound implausible, however. The state income tax has always been set to tax relatively lightly the "perfect MN family", with a mortgage, kids in school or day care, etc. Single renters making more than $35,000, I've always thought, don't get treated so well. As I mentioned when I filled out #1's taxes last month, if you don't have itemized deductions in Minnesota, you tend to pay in at fairly low income levels.

There's also the removal of the circuit breaker on local property tax increases. Part of the property tax refund that HF 3149 repeals is to shield homeowners from sudden increases in property taxes from, say, new levies passed by local government. But you still had to pay some (I make it as 64% of a property tax increase stays with you, the state refunding the remainder. The House Research analysis makes no mention of the income tax recapture.) That 64% is enough to keep some people from voting for your new local project, which makes local governments unhappy. Now, however, if you end up with taxes greater than 2% of your income because of a levy, every last dollar is relieved from your property tax: It is paid by the state out of its income and sales tax revenues. It is an attempt to tear down the barrier to greater government spending -- the Truth in Taxation statement that tells you "vote for this, and your taxes go up." The DFL, along with the LGA booty it distributes under this bill, takes a brake off of local spending.

But the truly most bizarre portion of this thing is the premise Lenczewski is using for the bill, that your property tax depends on your income. Why do we tax property, anyway? Property provides us with a stream of income, much of which is not realized. My recuperation from surgery this week has helped remind me I live in a nice house, in a great neighborhood. Many of the services I receive are non-monetary, and many of them are the result of the city of St. Cloud's public expenditures, such as the paths behind our houses that travel up from Whitney Park through the old airfield that pre-dates the development I live in. The city provides flowers that I am walking by along that path. It provides these services to everyone living in this area, true public goods. Since I am receiving that benefit as the result of the property I own, should I pay for it by a tax on property or a tax on income? We tax property precisely because the flow of its benefits are non-monetary. And the removal of the circuit-breaker says we can increase benefits to all property owners -- who will enjoy those in equal share -- but that we will tax only those who have non-property income, labor income, in excess of what the Minnesota DFL decides is "enough".

Labels: legislature, Minnesota, taxes

Paul Mirengoff says Obama is the favorite now, and by more than a little:

I consider Obama the favorite. One can usually predict the outcome of the general election, and come pretty close on the margin, by considering just a few variables: how the economy is doing, whether we're at war and how popular the war is, which party holds the White House and how long it has held it, and how popular the president is.

This year, these "fundamentals" point to a Democratic victory of at least 10 percentage points.

I actually know a thing or two about such models, having written a dissertation on political business cycles and a couple of papers regarding electoral behavior. A model many of us use as a reference is Ray Fair's Predicting Presidential Elections. It's written by an economist so it favors some of the same variables Paul is using, including measures for war. Fair assumes the war variable currently registers as a zero, so hang on there for a minute while we check everything else and then see whether or not the belief that America is in a war matters for the calculation.

Fair has a calculator you can use to test your own prediction. I plugged in 0.9% for GDP growth forecast for the first three quarters of this year, based on last week's announcement of a 0.6% first quarter growth rate, assuming zero for Q2 and 2.1% for Q3 (these are approximately the WSJ Economist survey data from April; it's possible some of the Q3 growth gets pulled into Q2 because the stimulus checks seemed to come out earlier than we thought, but for this calculation that's a wash.) Inflation over the second Bush administration has averaged 2.8% per year. I'm leaving it there as the baseline; we'll play with that in a bit. The last thing you need is a measure of "good news", or the number of quarters real per capita GDP growth was over 3.2% on an annual basis. I see three such quarters (2005q3, 2006q1 and 2007q3). Using those values, I get 48.61% as the Republican share of the two-party vote total. If you'll guess Barr, Nader and the other fringe candidates draw 1% of the total vote, that gives McCain 48.1% of the vote and Obama 50.9%, a difference of only 2.8%, not 10%.

Inflation doesn't matter too much to this, given that the equation calls for all 15 quarters to be factored in and 13 quarters are in the books. If I add an additional 1% to q2 and q3, it cuts McCain's vote share only by about 0.1%. Inflation this summer may make us feel crabby towards government, but I'm not inclined to believe voters will visit the sins of the Fed on McCain.

Could the war matter, and if so how much? Douglas Hibbs has long been the father of the "bread and peace model", and he reports a comfortable 6-8% Democrat margin. But his model only ascribes a loss of .75% to the cumulative fatalities in Iraq; the rest is his estimation of smaller impact of the Bush expansion than Fair's. Fair tested his model using shift variables for WW1, WW2, and Korea (not Vietnam, a story for some other time). I'm inclined to use that 3/4% adjustment from Hibbs.

I think thus that the margin is much less pessimistic than Paul has painted it. McCain probably starts, ceteris paribus, in a four-point hole, but not a ten. There's work to do, but given the unpredictability of the campaign so far, I wouldn't start heading for the exits just yet.

Labels: economics, elections

The Minneapolis Board of Realtors put out today a report on the number of sales they estimate have been either foreclosures or "short sales". It is partially an attempt to get people to understand that the market for traditional sales -- where the owner is selling the house and the bank is a passive party -- has not fallen in prices nearly as fast as suggested in the aggregated data.

Not surprisingly, lender-mediated homes have seen a substantial increase in total market share over the last 24 months. The percent of total new residential listings in the Twin Cities 13-county region that are flagged as foreclosures or short sales using our methodology has shown steady growth, rising from 2.9 percent in Q1 2006 to 7.1 percent in Q1 2007 and 21.7 percent in Q1 2008.

...The actual number of traditional seller new listings has fallen by 27.4 percent over the last two years, with only 19,675 in Q1 of this year compared to 27,116 in Q1 of 2006. So clearly, homeowners are holding steady in their current residences with greater frequency and home builders are producing far less new inventory.

The market share picture is similar for home sales, with foreclosures and short sales comprising a larger portion of overall sales than they have before. In Q1 2008, 27.6 percent of total residential closed sales were mediated by a financial institution, up substantially from the first quarter of the two years prior. And the number of traditional closed sales fell from 8,896 in Q1 2006 to 4,790 in Q1 2008, while the number of bank mediated sales increased from 324 to 1,828 for the same time period comparison.

So people putting homes on the market has fallen, but the number of homes put up by traditional sellers and which sold fell by much, much more. 1828 houses either through foreclosure or through short sales has a very depressing effect on homeowners "holding steady" in their homes. They may be holding, but they're not steady.

More of the short-sale and foreclosed homes are lower-price homes, so if the rate of those homes being put into the market accelerates, the report is right to point out, that makes the value of houses look like it's falling faster than it is. But there may be many more homes out there with people not able to sell, not able to make their payments, and not able to get out of the game. Even if traditional sale prices have only fallen 3.5% over the last two years, that still means a lot of homes with mortgages repricing this year are about to be in big trouble.

Labels: economics, housing, Minneapolis

That's my verdict on the windfall profits tax versus gas tax holiday discussions you hear from the news today. I base this on the analysis at the Tax Foundation last week reminding us that taxes get shifted.

We distribute a $9 billion windfall profits tax (assumed to be borne by domestic owners of oil companies) and a $9 billion gas tax holiday. We show the results of the gas tax holiday under two scenarios: (1) the assumption made by Hillary Clinton and John McCain that the reduction in the tax will be fully passed forward to consumers and (2) the assumption of most economists that a temporary gas tax holiday would merely increase the profits of the oil industry due to the inability of domestic supply to respond to increased demand in the short run.

So it would just be a method of how the tax gets paid. Now at least one candidate wants to stop the shift,

It should be pointed out that Clinton attempts to reconcile these two assumptions with a provision that would force the Federal Trade Commission to mandate that the tax cut be reflected in the price at the pump. This is the worst provision of them all: essentially, she wants to control the economic incidence of a tax via legal mandate. Such a policy is economically equivalent to price controls.

And you wonder why we don't trust her with health care! But aside that, it's the legal incidence that is changing, not the economic burden, between the Obama and Clinton/McCain plans. (I know I just gave my GOP friends a heart attack joining those names. Tell me, aside the above, what are the differences between their plans?)

One curious point from the earlier link on windfall profits:

Amy Myers Jaffe, a fellow in energy studies at the James A. Baker III Institute for Public Policy just finished a two-year study looking at oil companies and how they spend their money.

The study found that for the five big international oil companies - ExxonMobil (XOM, Fortune 500), Royal Dutch Shell (RDSA), BP (BP), Chevron (CVX, Fortune 500) and ConocoPhillips (COP, Fortune 500) - spending on share buybacks went from under $10 billion a year in 2003 to nearly $60 billion a year in 2006.

Spending on developing their existing oil fields, however, went from about $35 to $50 billion, while spending on finding new oil fields went from about $6 billion to $10 billion.

"These companies are spending a very small amount of their operating cash flow on exploration," she said. "They are spending the majority of their funds buying back stock."

And that might or might not be a bad thing. If it was to indicate the stock was undervalued, buybacks are good as a signal of economic value. Or, it could be that free cash flow is high and that, in order to prevent managers from spending unwisely, the stockholders have money returned through buybacks. But it is also the case that buybacks might indicate slopping up the exercise of options by insiders (short story: CFO Mr. Big exercises 10mil in options on stock at a strike price of $10; to keep earnings from being diluted, the company buys back 10mil in stock -- perhaps but not necessarily from Mr. Big -- at the current market price of $25.) The buyback is in essence part of Mr. Big's compensation.

If you think that Mr. Big makes too much, you may prefer the windfall profits tax to discourage this practice. But the burden of the tax is borne by all shareholders, not just him.

Labels: economics

The morning paper brought a story that local food vendors and restaurants -- and we have many Asian markets here for a community St. Cloud's size, one reason I love the place -- haven't experienced the widely reported shortages of rice that have pushed Sam's and Costco to set purchase limits to prevent middlemen making runs on their rice supplies.

“I believe I have enough stock," said Kim Nguyen, manager at Viet-Tien Market in St. Cloud.

When Nguyen first heard about rising prices of rice and rationing at warehouses, she was concerned that the market would not have enough stocks on the shelves.

“Then I thought it was a short-term shortage," Nguyen said, referring to a state of consumer panic surrounding the warehouse rations.

Viet-Tien Market has not rationed any of its sales on rice.

Cub Foods is not rationing rice either, spokeswoman Lee Ann Jorgenson said. Neither is Coborn's.

“We have seen prices go up, but we don't see any need to ration our stock right now," Coborn's spokesman Steve Gottwalt said.

Restaurants, such as China Restaurant and Hong Kong Restaurant in St. Cloud, also are in the clear for now.

Nguyen said some specialty rices, such as jasmine, are still easy to get. However, she is limited by her supplier to 10, 10-pound bags of basmati rice per order.

Prices go up to help ration supplies, but that's not the only thing at play here. Rice is rice, pretty much a staple and where prices aren't going to be the competitive margin on which suppliers operate. Ms. Nguyen has alternatives to where she can buy her rice. If she cannot be sure that her supplier will be with rice each week, she may seek alternative suppliers. The suppliers of course bring rice and lots of other products on which their profit margins may be higher. So a rationing in their case might help assure Ms. Nguyen that the rice will be there, and keep her loyal to her current supplier.

The Costco/Sam restrictions are another matter. Those larger chains are seeking price information, and in a noisy market they would like several transactions to confirm a change in market conditions. One speculator running out a store on a very large purchase not only inconveniences that store's other customers but also might provide bad price information to the larger distributors.

Labels: economics

Many of our readers know I ship packages to American soldiers in Iraq. I've been doing this since 2003. The group I originally linked through was Soldiers' Angels. This year, the founder of Soldiers' Angels, Patti Patton-Bader, is one of the finalists for America's favorite mom.

If you click on this link, you can go there and vote for Patti - I'd sure like it if you would. She is the mom with the medium-length dark hair, on the left side, under military mom.

Her organization, Soldiers' Angels, now operates internationally to provide letters, care packages, and comfort items to our deployed men and women as well as support for their families here at home. In addition, Soldiers' Angels provides assistance to the wounded, continuing support for veterans, remembrances and comfort for families of the fallen and immediate response to the unique difficulties that some may require.

You can just vote or you can sign up to adopt a soldier.

Regardless, this is support for our finest and bravest. We are extremely fortunate to have such an organization supporting members of our outstanding military.

Labels: US Soldiers

Thanks to the commenters and emailers. I've been home since Saturday afternoon, and feeling good enough today to wonder if Tylenol will do the job. Given last Wednesday night where I thought I was Bobby in that episode where he goes into prison and goes crazy to catch some bad guys, this is progress. Staples come out Thursday, it appears, and otherwise everything's normal. Even ate a little palak paneer last night -- my spice buds are badly out of shape, but the digestion handled the spinach and soft cheese well. Weather's good and I'm going for a short walk now. See you tomorrow.

Ed Morrissey is right in pointing out that the private sector works in how the I-35W bridge might now be open in September rather than in December.

Perhaps at some point, people will learn to harness the power of the private sector more completely for future public efforts as well. If we started to apply this lesson to non-emergencies as well as emergencies, perhaps we would have fewer of the latter. When we incentivize success, we succeed. When we incentivize bureaucracy, we get red tape, delays, and frustration.

I hope the planners of the DeSoto bridge reconstruction are paying attention. They might want to invite Flatiron to bid on the project. (If they could also reopen the old Flatiron Tavern, it'd do this St. Cloudian's heart good after I get done recovering.)

What the STrib article made very interesting to me was how they structured the incentives in the I35 contract to get faster delivery from Flatiron:

Flatiron-Manson was awarded the project under a MnDOT formula taking into account construction costs, time to completion and factors such as aesthetics and public-relations efforts. At the time of the award in September, critics assailed the agency for choosing the most expensive contract and the longest construction time

Now, if the bridge is finished in 337 days instead of the 437 in Flatiron's proposal, the construction period will be shorter than any that were proposed -- but will widen the cost gap.

One of the four bidders, Maple Grove-based C.S. McCrossan, offered to build a steel bridge in 367 days at a cost of $177 million. The second-shortest time was proposed by the team of Ames/Lunda, also based in the Midwest, which proposed 392 days for $178 million. The fourth bidder, Walsh/American bridge, proposed the same time frame as Flatiron, 437 days, but a lower cost, $219 million.

...State officials said last fall that the bridge closure is costing Minnesotans $400,000 a day in travel-related expenses alone. The $200,000 daily incentive was arrived at by dividing that number in half.

Gutknecht says the estimate of $400,000 a day, which was based on drive times and fuel costs, is a minimum. "When we figured it out,'' he said, "fuel was quite a bit cheaper."

So the value to Minnesotans of having the bridge done sooner is higher now than before; those additional benefits will accrue to drivers. In some sense, the incentive's value is greater when the date of completion is further into the distance. Once you cross the 368th day, there's no incentive for the low local bidder McCrossan to move any faster, unless penalties were imposed. I don't know the terms on the other contracts in re: incentives, so let's assume they all had the $200k/day incentives. It changes how I think about the contracts.

Labels: economics, Minnesota

In California, a professor is denied a contract because her Quaker beliefs did not permit her to sign a contract that contained a loyalty oath requiring her to defend the U.S. and state constitutions against all enemies, foreign and domestic. James Joyner thinks this is stupid:

I swore to protect the Constitution from its enemies three times — upon matriculating as a cadet, upon enlisting in the Army Reserve, and upon commissioning — and actually deployed to a combat zone pursuant to that oath. Several times in the ensuing years, I also signed contracts to teach at various colleges and universities. None of them asked to to sign any oaths and I’d have laughed at them if they had.

I've never seen such an oath either.

Labels: higher education

You could have seen this from a mile away. The local school board, in the midst of hiring a new superintendent, has released a document that describes "a glimpse of what may happen if St. Cloud school district voters defeat a property tax increase Nov. 4."

The cuts could include school closings, mass layoffs, reductions in activities and special education, and spending reserve dollars. More ideas are funneling in as Superintendent Bruce Watkins shares the proposals throughout the district.

The ideas represent more than $6 million in cuts. When the list is put before school board members in late May, it will be whittled to $4.3 million.

"They look terrible. When we look at them, there isn't a single thing on the list that is a reasonable alternative that would not affect the education of children," board Chairwoman Deb Lalley said.

A graphic (here in .pdf from the Times) leads with closing schools. Of course that's what they want you to see; "give me my levy or we'll shoot this school." In public finance, it's known as the Washington Monument strategy.

Within the article are the seeds of the fight.

Voters in 2007 rejected a request to renew a tax passed in 2003 that provided $4.8 million a year. That caused a budget shortfall for 2008-09 that the district plans to fill with $1.5 million in reductions and $3.3 million in reserves.

...In 2007, the district was more cautious about mentioning possible reductions until later in the campaign. The philosophy has shifted to determining potential reductions about a year before they would be made.

So they said no, but the school district's reply is "you didn't really mean that, did you?" When you think about what the 2003 tax levy was for...

One possibility eliminates the 30 teacher positions that were added with money from the property tax increase in 2003. Each teacher costs the district about $45,000. One proposal suggests laying off 30 to save $1.4 million.

Note that this saves more money than closing both of the junior highs, according to the graphic. This is what school districts should be saying: We can either close a school and keep student-teacher ratios at current levels, or we can keep the schools open and lay off some teachers and let ratios rise. We've discussed that point here before, and the evidence that ratios matter for learning is tenuous. So if people want to have neighborhood schools, and they've voted against the levy last time, why not accept the word of the voters and make the layoffs?

Because teachers make lousy Washington Monuments.

Labels: economics, education, St. Cloud

Gas is $3.50 a gallon and politicians are ready to lock up oil company executives. Milk is $3.50 a gallon and the same politicians can't shovel our money to the farm lobby fast enough. What statesmen.

Pat Shortridge on Friday. Meanwhile, Bill Polley dissects the gas tax holiday proposal. McCain is right on the farm bill, but the tax holiday is not well thought out.