Friday, October 31, 2008

Not motivated by compassion for suffering 

"The reason that we want to do this, change our tax code, is not because I have anything against the rich," Obama said in Sarasota, Florida, yesterday. "I love rich people! I want all of you to be rich. Go for it. That�s the America dream, that�s the American way, that�s terrific.

"The point is, though, that -- and it�s not just charity, it�s not just that I want to help the middle class and working people who are trying to get in the middle class -- it�s that when we actually make sure that everybody�s got a shot � when young people can all go to college, when everybody�s got decent health care, when everybody�s got a little more money at the end of the month � then guess what? Everybody starts spending that money, they decide maybe I can afford a new car, maybe I can afford a computer for my child. They can buy the products and services that businesses are selling and everybody is better off. All boats rise. That�s what happened in the 1990s, that�s what we need to restore. And that�s what I�m gonna do as president of the United States of America.

"John McCain and Sarah Palin they call this socialistic," Obama continued. "You know I don�t know when, when they decided they wanted to make a virtue out of selfishness."
Ed Morrissey adds video. Jake Tapper makes a comparison to Ayn Rand, which these quotes make apt:
The American businessmen, as a class, have demonstrated the greatest productive genius and the most spectacular achievements ever recorded in the economic history of mankind. What reward did they receive from our culture and its intellectuals? The position of a hated, persecuted minority. The position of a scapegoat for the evils of the bureaucrats.
Ayn Rand.
Businessmen are a cheerful, benevolent, optimistic, predominantly American phenomenon. The essence of their job is the constant struggle to improve human life, to satisfy human needs and desires - not to practice resignation, surrender, and worship of suffering. And here is the profound gulf between businessmen and altruism: businessmen do not sacrifice themselves to others-if they did, they would be out of business in a few months or days-they profit, they grow rich, they are rewarded, as they should be. This is what the altruist, the collectivist and the other sundry 'humanitarians' hate the businessmen for: that they pursue a personal goal and succeed at it. Do not fool yourself by thinking that altruists are motivated by compassion for suffering: they are motivated by hatred for the successful.
Rand, The Sanction of the Victims. ""I love rich people! I want all of you to be rich" to a point. Success begins at $250k, or less.

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News to me: USA most progressive already 

According to The OECD, the US already has the most progressive tax system. Scott Hodge of the Tax Foundation notes:
Even after accounting for the fact that the top 10 percent of households in the U.S. have one of the highest shares of market income among OECD nations, our tax system is second only to Ireland in terms of its progressivity for households.

The table also shows that the U.S. collects more household tax revenue from the top 10 percent of households than any other country and extracts the most from that income group relative to their share of the nation's income.

Of course, these measures do not include the litany of other taxes households pay in each country, such as Value Added Taxes, corporate income taxes and excise taxes, but they do give a good indication that our system places a heavier tax burden on high-income households than other industrialized countries.

The study also shows that while most countries rely more on cash transfers than taxes to redistribute income, the U.S. stands out as "achieving greater redistribution through the tax system than through cash transfers."
I've noted several times that the share of taxes paid by that top decile has risen during the Bush years, but we don't recognize this in the US because it's not seen. Demogrants and other cash grants are more visible, and more visible cash leads to more loyalty of the payees. "The government that robs Peter to pay Paul can always count on Paul's support."

h/t: Powerline, where John Hinderaker wonders "whether a democracy can survive indefinitely under these circumstances."

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Policy mistakes were manifold 

Interesting that the media has latched onto a paper written a few years ago about FDR and the Great Depression.

Using 1929 data, the two researchers calculated what wages and prices would have been had without the New Deal, and then compared them to actual wages and prices at the time. Their findings were startling: In 11 key industries, actual wages averaged 25 percent higher than market conditions warranted, but unemployment was also 25 percent higher as well. Meanwhile, the New Deal pushed up prices 23 percent higher than they should have been, so consumers couldn�t afford to buy, leading to even more unemployment.

Cole and Ohanian blame FDR�s National Industrial Recovery Act for �short-circuiting the market�s self-correcting forces.� Instead of stimulating the economy, they argue, FDR managed to depress it even further. Without government intervention, the Great Depression would have ended in 1936 instead of 1943. If FDR unnecessarily prolonged the Great Depression, thank the Federal Reserve Bank for starting it. Current Federal Reserve chairman Ben Bernanke conceded the central bank�s culpability in a Nov. 8, 2002 speech honoring University of Chicago free market economist Milton Friedman on his 90th birthday.

Here's an ungated version of the Cole and Ohanian [1999] paper and an early version of the 2004 paper (published in one of our top journals, the Journal of Political Economy). The papers use a real business cycle model to estimate how various kinds of shocks would have affected the economy. �I link the earlier paper in part to show how the authors work through a narrowing of the possible causes of the length of the Great Depression.

A valid criticism of the model is that, by using a neoclassical framework, it assumes that the economy should recover from a productivity shock relatively quickly. �And in both papers, it is clear that if you use a series of negative productivity shocks -- like the stock market crash or a drought -- you should see a recovery within a few years of the initial 1929 shock. �There are of course a whole series of policy mistakes one could point to as well, with NIRA being only one. �Two others could be Smoot-Hawley and the Revenue Act of 1932. �The latter raised the top marginal tax rate from 25 to 63 percent and was signed into law by Hoover. �FDR gave us more tax increases on corporations, but it's hard to avoid the point that there were policy mistakes ahead of NIRA. �

The obvious implication of these stories is that an Obama Administration could lead to another depression by making the same mistakes. �I'll borrow from Brad DeLong: �like Paulson and Bernanke, they're more likely to make their own mistakes.


Thursday, October 30, 2008

Randomly strung-together bits of New Jersualem 

And did those feet in ancient time
Walk upon England's mountains green?
And was the holy Lamb of God
On England's pleasant pastures seen?

And did the Countenance Divine
Shine forth upon our clouded hills?
And was Jerusalem builded here
Among these dark Satanic mills?

Bring me my bow of burning gold!
Bring me my arrows of desire!
Bring me my spear! O clouds unfold!
Bring me my chariot of fire!

I will not cease from mental fight,
Nor shall my sword sleep in my hand
Till we have built Jerusalem
In England's green and pleasant land.

William Blake.
CLEMENT ATTLEE: What kind of society do you want?

NARRATOR: Attlee promised his party that they would build a new Jerusalem.

CLEMENT ATTLEE: Let's go forward into this fight in the spirit of William Blake: "I will not cease from mental fight, nor shall the sword sleep in my hand, till we have built Jerusalem in England's green and pleasant land."

NARRATOR: William Blake's hymn "Jerusalem" became an anthem for the Labor movement.

BARBARA CASTLE: You know, it seemed to people who'd been through a war, it seemed to them natural justice. Why not pool your resources? And so we broke into the concept of the sacredness of private property.

NARRATOR: When Labor took power, private owners were compelled to sell their businesses. Labor created a "mixed economy" in which newly nationalized industries coexisted with private enterprise. Now government-owned industries like coal, rail, and steel no longer enriched owners and shareholders, but worked for the common good.

TONY BENN: So it was an act of regeneration, of renewal. That was the hope, and it was the hope that gave us the welfare state, gave us the National Health Service, gave us full employment, gave us trade union rights, really rebuilt the country from the bottom up.
From The Commanding Heights.
For many observers the years after 1950 were the period when the chickens came home to roost for British industry. The signs of industrial weakness seemed to abound. By the 1980s Britain's share of world industrial production was no more than half of its share in the inter-war period, manufacturing exports but a quarter. The cotton industry was in trouble before the war but had virtually disappeared as a world force by the 1960s. From being the world's leading car exporter in the late 1940s, Britain saw in 1994 the sale of its last car firm, Rover, to the German firm BMW.
Robert Millward, British Industry since the Second World War.
The journey will be difficult. The road will be long. I face this challenge with profound humility, and knowledge of my own limitations. But I also face it with limitless faith in the capacity of the American people. Because if we are willing to work for it, and fight for it, and believe in it, then I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on earth. This was the moment�this was the time�when we came together to remake this great nation so that it may always reflect our very best selves and our highest ideals.
Barack Obama, June 3, 2008.
What Barack Obama is tapping into with the word "change" is nearly eight years of the left's constructing a description of an America that has been made so awful that "change" means changing America, not just changing policies.
Dennis Prager, Tuesday.
Policies that he proposes under the banner of "change" are almost all policies that have been tried repeatedly in other countries-- and failed repeatedly in other countries.

Politicians telling businesses how to operate? That's been tried in countries around the world, especially during the second half of the 20th century. It has failed so often and so badly that even socialist and communist governments were freeing up their markets by the end of the century.
Thomas Sowell, this morning.

I was showing a class the first hour of Commanding Heights this morning, and that inspired this post.

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Wednesday, October 29, 2008

Graph of the day: Benefits versus paycheck 

Source: BLS, Employment Cost Index. I've reindexed to the beginning of 2001, and deflated the data by CPI. (I'm skeptical of the latter in applying it to benefits, since benefits don't buy the consumer bundle but a small subset of it. But it's easily understood and, I think, avoids arguments of data mining for a better deflator.) I am pretty sure I've spoken here in the past on how different the measures "average weekly earnings" and what I grew up calling "hourly compensation" are. Only the latter includes benefits. And no doubt you've heard people say that wages have not kept up with inflation. I was provoked to draw the graph above by this:
In an interview with CNN Money, Doug Holtz-Eakin said many younger workers wouldn't have an incentive to dump job-based health insurance even if they received a $5,000 tax credit for personal insurance under the McCain plan. "Why would they leave?" Mr. Holtz-Eakin said. "What they are getting from their employer is way better than what they could get with the credit."

Mr. Obama called this "an October surprise" that "health care" will be worse "if John McCain becomes president."

For the record, Mr. Holtz-Eakin noted via email that he was making an obvious point, that people won't drop their current coverage if it works well. Employers will still need to design compensation packages to attract employees, many of which will continue to include health care. The McCain plan merely creates new options, especially for those who are uninsured now.

In any case, Mr. Obama's attack is only intelligible if you believe health insurance is "free" when obtained through a business. Of course, it's far from free -- employees pay for their health care in the form of reduced cash wages. Indeed, when economists complain about "stagnant wages" for the middle class, they are really complaining that the increasing cost of health insurance has steadily eaten up what would otherwise be visible increases in worker pay.
From today's WSJ Political Diary. Those who are working are ending up with benefit packages that are more in real terms, and buy better health care.

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What went wrong? Bandits everywhere 

Let�s first consider the basic function of capitalism. Its success lies in efficiently allocating capital toward profit, the difference between costs and returns. When the system works, market prices provide the information and the incentives to invest where legal returns are greatest.

But this is perhaps not capitalism�s greatest asset. In addition to being an engine of prosperity, only free markets spontaneously and peacefully organize the daily, voluntary interactions of millions of primarily self-interested individuals.

Socialism works poorly because it is unable to efficiently coordinate and allocate resources. Hence, it never generates wealth for the masses�but socialist elites enjoy privilege and plenty. Their greed rigs the game to their advantage. Likewise, America�s investment bankers have rented and bribed politicians to rig the game to socialize risks and privatize profits. Fannie and Freddie�s failures and rich rewards to former managers, $100 million to one, are prime examples.

Our current problems flow largely from Wall Street bankers� financial innovations. They discovered ways to profit by misallocating capital, and in the process they decoupled risk from their returns. Under legislation for which they lobbied, they were rewarded for pumping evermore capital into overvalued housing.

...When politicians allocate capital, we can�t expect efficiency, but corruption by special interests is certain. Investment banks benefited from this political arrangement.
John Baden last week, who continues this morning:
In response to my recent column, �What Went Wrong,� several people emailed me this question: What�s next? The answer is easy; America will attempt to emulate Europe�s welfare state. Our perceived crisis is inimical to sound policy and provides a good seedbed for political opportunism.

...Those who created the American experiment recognized the problem of constraining two kinds of bandits: the stationary and the mobile. Mobile bandits include highwaymen, pirates, common thieves, and muggers. These are conceptually easy to constrain; enlist honest police.

Stationary bandits are more difficult, and were a focus of America�s founders. Their challenge was to create a constitution to generate and maintain laws that foster progress�while constraining those making the laws. How might those in power be kept from rigging the game to the advantage of themselves and their most politically powerful constituents?

Over the long run this may be impossible in a large democracy comprised of numerous factions, interest groups, and ethnic and racial identities. No such nation has successfully dealt with this challenge. It is easier in a small, relatively homogenous country, not one like ours.

The current worldwide financial crisis gives license to our stationary bandits to advantage themselves and powerful constituents. Franklin Raines, White House Budget Director under Clinton, became CEO of Fannie Mae and received $90 million in salary and bonuses. Of course Fannie Mae had made large and strategic concessions and donations to politicians. That�s how politics works.

America�s automakers, protected for years by tariffs from foreign competitors, are but one of numerous corporate examples of powerful firms, and unions, shaping the rules and seeking to loot taxpayers. Such pleading is bound to increase; the political tide is with those who see and seize opportunities for advantage, always, of course, in the �public interest.� The results are ominous and the causes clear.
The concept of mobile and stationary bandits is at the heart of a book I use in teaching comparative economic systems, Mancur Olson's Power and Prosperity. Olson's uses 'roving' rather than 'mobile', but the concept is identical. Or, as Jack Hirshleifer put it, there are always two ways to get something for yourself: You can produce it, or try to take it from others. "The way of production and exchange enlarges the social total of wealth. The way of predation and conflict merely redistributes that total (less whatever is dissipated in the struggle." (p. 2)

Those dissipation costs are important however. To take only one example, the death tax takes in very little revenue, but there is a large deadweight cost from investing in wealth transferring mechanism and away from capital formation. A 1993 paper by Richard Wagner at George Mason put that cost then at about $640 billion over eight years. It's likely much more than that now.

Baden's hope for smaller, more homogeneous economies has seldom found an example either. Europe -- whose values are still epitomized in the French Revolution's motto of Liberty, Fraternity, Equality (thanks to Dennis Prager last night for encapsulating the difference between the American and French Revolutions so succinctly) -- has no examples. You might choose the island economies of Hong Kong and Singapore, but neither turn out to be bastions of political freedom even as they uphold economic freedoms.

I see much of the political debate this fall in that last paragraph from Baden.

(h/t for Baden: Arnold Kling.)

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Tuesday, October 28, 2008

Markets boo-boo, and so does government 

Alan Greenspan thought that banks would never put themselves in a position where they might go bankrupt. Investment houses would never take on too much risk. After all, that could mean disaster and the threat of disaster should encourage prudence. And yet, many banks and investment houses evidently did take on too much risk. The incentives failed.

I too am surprised at how imprudent they were. Did they miscalculate? Trust the ratings agencies too much? Misread the systemic risk if other firms failed? Did they fail to appreciate the bite of mark-to-market accounting rules that the government required? Or perhaps, this whole incentive thing that is at the root of capitalism, the profit and loss system that incentivizes firms is overrated. People are impulsive and make systematic errors

Those are the key questions of this mess. I have not seen them answered yet.

Meanwhile, I keep coming back to this quote:
�I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."
And the alternative? What should protect the shareholders? The altruism of regulators?
Russ Roberts, last week. Since someone asked what I thought of Greenspan's testimony, truth is I thought Russ handled it well enough that I have nothing to add.

I sent a piece of humor to some friends today in the form of this cartoon. A relative emailed back, "Or :LOOK AT ALLTHE CANDY YOU STOLE;I AM GOING TO GIVE BACK TO THOSE WHO DESERVE IT!!! {e.g., the ones who stole:AIG,LEHMAN, for those who voted for deregulation,etc.}" I see AIG and Lehman as having made huge mistakes, which Congress and the Bush Administration decided to help cover for fear of something worse happening than moral hazard. You can disagree with them -- many do -- but effing up to the tune of billions of dollars is not fraud. It is part of a profit and loss system. And asking someone to forgive your losses when you do screw up isn't fraud either; it's as part of human nature as asking my wife to forgive me when I whack the side view mirror on the garage door jamb, or come home at 3am with liquor on my breath. (The latter has not happened ever -- I wait for conventions to do that.) I'm glad my wife's forgiving. I'm less glad the government is.

Markets are human activity, so they are prone to errors. So too is governing. The question is, who's less prone?

Meanwhile, also by Roberts, Friedman throws a bone.


Trading on the Sixth 

Interestingly, someone has opened a trading market on Intrade on the Bachmann-Tink race. No trades have taken place yet. Put some trades up there, and I'll put the graph in the sidebar for the weekend. That contract only went live last Friday.

Meanwhile, someone's goofing around with the Coleman contract:

Price for Minnesota Senate Race at

As we've discussed before, sometimes there aren't enough traders to make this market work well with its prices. This contract closed last night at 55 (bet $5.50 to win $10 if Norm wins) but right now you can lay $44 to win $100, and someone traded at 35 to make the contract look low this second.

Wrong, but thanks for playing 

Good for the StarTribune continuing to hold candidates accountable for their positions on card-check. Their reasons for not endorsing CD3 DFLer Ashwin Madia included this:
At the last debate, Madia was less polished on policy than his two rivals and repeated an error made in his endorsement interview � that the Employee Free Choice Act would not allow a unionization drive to bypass a secret ballot.
Again, it's pretty unusual for the StarTribune to not endorse Democrats, but given the question was initially asked of Madia two months ago, you have to conclude he's either not terribly interested in a key issue or obfuscating.

Now if we could get the STrib to watch this, they might change their mind on their other endorsement today:

This video from last June was accompanied by these comments:
Like Al Franken, Elwyn Tinklenberg is also willing to smear thousands of honest, hard working 6th district business owners with his accusations of intimidation. His wild, unsubstantiated charges are hardly representative of a thoughtful, moderate legislator.

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Monday, October 27, 2008

Make My Day (Week, Month) 

This news just broke my heart!! Code Pink, the leftist group comprised of so many of yesterday's feminists has been defeated. Their goal, to get the US Marines out of Berkeley, CA has failed. They have announced a "Going out of Business" sale - all furniture, etc. must be gone by this Thursday, October 30.

Just think about it, lefties - they're not donating anything to any other group; they're not redistributing their wealth; they're not sharing a darn thing - they're selling all. What about their anti-free trade beliefs? Oh, guess those don't count. What about distributing their wealth (equipment, etc.) to those less fortunate? Oh, guess that doesn't count.

Something is really wrong when those who preach redistribution, fail in their subsidized goals, then sell what they have to ...... make money! People, think twice before you vote for "the one" who will be more than willing to take what you earn and give to someone else.

HT - Michelle Malkin


It's not over until It's Over 

We keep hearing from the mainstream media how this year's election is over and done. Well, it's not and it won't be until November 5. Regardless what pundits say, this quote by Sarah Palin says it all:
"Barack Obama and I both have spent quite some time on the basketball court," Palin told a raucous crowd of more than 5,000 at the convention center. "But where I come from, you have to win the game before you start cutting down the net."


And now, this message from Chad the Groundskeeper 

An AP report:
A Halloween decoration showing a mannequin dressed as vice presidential candidate Sarah Palin hanging by a noose from the roof of a West Hollywood home is drawing giggles from some passers-by and gasps of outrage from others. ...

Chad Michael Morisette, who lives in the house, tells KCBS-TV that drivers and bus passengers have been stopping to snap pictures of the macabre scene.

Morisette says the effigy would be out of bounds at any other time of year, but it's within the spirit of Halloween.

He says "it should be seen as art, and as within the month of October. It's Halloween, it's time to be scary it's time to be spooky."

The CBS station with that picture and video here. This was sent to me by reader and friend Tony Garcia who asks some tough questions:
  1. Is it acceptable to put Obama on a noose "as art, and as within the month of October. It's Halloween, it's time to be scary it's time to be spooky"?
  2. What if you depict Obama as arising from flames, as if from hell?
  3. What would be the legal hell raining down under "hate crimes" and/or terroristic threats if one used Obama & Biden instead of McCain & Palin?
  4. Am I supposed to believe this is the group of supporters that is against "divisiveness"? These are the same people who I am supposed to believe are "tolerant"?
  5. Is this the kind of change we can expect should Obama win?
Of course you know the answer to this:


There's no substitute for good data 

It is no secret that the press has been in the bag for Senator Obama. �Howard Kurtz' last Friday made it quite plain:

Fifty-seven percent of the print and broadcast stories about the Republican nominee were decidedly negative, the Project for Excellence in Journalism says in a report out today, while 14 percent were positive. The McCain campaign has repeatedly complained that the mainstream media are biased toward the senator from Illinois.�

Obama's coverage was more balanced during the six-week period from Sept. 8 through last Thursday, with 36 percent of the stories clearly positive, 35 percent neutral or mixed and 29 percent negative.�

McCain has struggled during this period and slipped in the polls, which is one of the reasons for the more negative assessments by the 48 news outlets studied by the Washington-based group. But the imbalance is striking nonetheless.
We have joked often about bias at the StarTribune, which made last Saturday's endorsement of Senator Coleman for re-election all the more remarkable. When it turns out that the media are taking their children to Obama events to get souvenirs, it strains credulity to think they do not have some investment in the history that an Obama win would create in their minds, and damn the consequences both to the country of his policies later and to the newspapers' own reputations.

I have received several emails and phone calls over the last week furious with coverage of the local newspaper. There has been a steady drumbeat of negative front-page articles regarding Rep. Bachmann -- this one on her withdrawing a pardon request for someone subsequently pleading guilty in the Petters scandal ran as their Sunday headline; if you can explain that choice as anything other than an attack to smear Bachmann by implication, the comments box is open -- and a preference for higher taxes for public works that borders on fetishism. It is almost an article of faith that this is true among local Republican leaders. �

But at the same time, I know many of the reporters and most of the editorial board, and I do not want to believe this of them. �I do not believe them to be intentional in that bias. �They may have it despite their attempts to work around them. �I don't think perception should be allowed to decide this without some supporting evidence.

So I have a proposal. I wish to replicate the Project for Excellence in Journalism study for our local newspaper. �I need a few hours of volunteer time and access to the Times' archives for the last two months. �I propose using the public library for the archive. �Send an email to the comment box if you wish to participate. �I am particularly hoping one or two liberal readers to join this project. �We would replicate this for Obama/McCain, Coleman/Franken/Barkley and Bachmann/Tinklenberg. �I would hope to finish the project quickly, though finishing it in time for the elections is not important. �This is not a partisan event. �It's an attempt to give evidence on the quality of our own area paper's news coverage.

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Friday, October 24, 2008

SCSU poll: Obama up 5, Coleman up 9 

(h/t: Michael)

The SCSU Survey, directed by some of our faculty but managed by SCSU students, reports that Barack Obama leads John McCain in the state by five percent. The poll had 509 voters. SC Times reported Larry Schumacher reports that the poll included cell phones (the report says 130) for the first time, but that they did not screen for registered or likely voters "because of Minnesota�s same-day voter registration laws." �The report shows that there's little difference in either margin when you use a registered screen, voted in 2006 screen, etc. �Read the survey for the evidence. �I find that result -- the screen didn't matter -- the most interesting part of the survey.

Interestingly, the party ID questions showed initially a 30-24 split for Democrats with 37 percent not identifying with either party. �When pushed by the surveyer, the party ID gap for Democrats widens to 42-34. �

The survey's margin of error at this size is +/- 4.6%.

I know one of the survey directors, Department of Political Science chair Prof. Steve Frank, reads this blog from time to time, so questions you put here may be answered by him rather than me. �

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Graph of the day: The Obama discount? 

James Pethokoukis:
I find it hard to believe that fears about a deep recession are suddenly dawning upon investors and thus are solely responsible for kneecapping the market. I've been hearing such dire forecasts for weeks from top Wall Street economists, and I really think they're already baked into the cake. (And credit markets actually look like they are finally picking up a bit�a plus for stocks.) So with that perception locked in, maybe the future political landscape is finally playing a greater role in the minds of investors, especially with polls showing a possible landslide Obama win and big Democratic congressional majorities. Is it really more plausible to suggest no effect whatsoever from a possible once-a-generation, political sea change, especially one that moves away from the winning economic formula of the past 25 years? Not even a smidgen of worry? C'mon, now. (Emphasis in original.)
The graph above has Dow Jones closing prices versus the price of the Obama contract on InTrade for the last fifty Dow trading days. (You can stop reading now, Ed, there's nothing useful in InTrade, you've said.) Dow data here, InTrade data here. The best fit line I've drawn, using Excel, is the equation in the lower left hand corner. It says every 1 point increase in the Obama contract (equal to 1% more likely he wins) decreases the Dow more than 78 points. The fit is pretty tight, but there are a couple of reasons for concern. First, the Obama contract trades on weekends unlike the Dow, and there is (by my casual inspection) a lot of trading on weekends, particularly Saturdays. So when I try to see which way causality flows I have an econometric problem that's difficult to correct (and I'll let the more savvy time series folks play with that.) If you just assume away the weekends, as I did above, it's more likely that the Dow leads the Obama contract than vice versa*. Falling Dow is a leading indicator of a sour economy, the sour economy favors the party out of (executive) power.

*Uses Granger Causality test, two lags, for those who want the econometrics. EViews file available.


For crying out loud 

One of my favorite field trips with students in years past was the trip to the Minneapolis Grain Exchange (perhaps the old Minneapolis Fed was better, perhaps not). The highlight of the trip was to stand on the floor of the exchange and watch traders call out bids and asks for the various commodities traded. It's a live floor. I've had a few students graduate and become traders on the MGEX. But now, in something that one of my students who is interning there called "the end of an era", they'll be trading only from a desk:
After a long history of futures and options open outcry trading, MGEX (Minneapolis Grain Exchange or Exchange) is closing its trading pits effective December 19, 2008. The decision to make the transition to exclusively electronic trading was unanimously approved by the MGEX Board of Directors and is pending MGEX ownership approval.

The Exchange�s electronic trading operations on the CME Globex� electronic trading platform will remain unchanged. MGEX will continue to host the cash market from a newly remodeled location in the historic Grain Exchange Building.
Kayvon Pirestani wrote of the "heaving pits of the [Chicago] Board of Trade had the look, smell, and feel of capitalism in its rawest, purest form." But for speed, accuracy and cost, electronic markets have advantages that most of the world has already embraced. MGEX had been a holdout, though the NYMEX and the Chicago exchanges still have open outcry for the time being. In a down market with cost savings aggressively sought, others may soon follow MGEX to electronic trading.


Where you vote matters 

Here is a study, this one will demonstrate that those effects are not so weak. You look for support for school bonds, and what you look for is where were the polling stations. When the polling station is in a school, you get measurable effects on the support for school bonds. They increase. That is non-trivial, it's in the real world, except that you have something that is focused, you know what the direction is. You expose a lot of people to the prime, and you observe the behavior, and it's quite measurable.
By Nobel winner Daniel Kahneman (h/t: Tyler Cowen.) ISD 742 in St. Cloud, which is engaged in another school levy referendum this year, has only eight polling places out of 55 in public schools; another five are in private schools. Maybe not enough. Question: Does polling for public school referenda fall when polling occurs in a private school?

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Mayors: America's, Minnesota's 

Today was "Mayors' Day" in the Twin Cities metro area. America's Mayor, Rudy Giuliani came to MN to support his buddy, Norm Coleman. At a packed session held at the Sofitel Hotel in Edina, Rudy was his usual upbeat, positive, "we can do it" self. He knows what is at stake in this election.

Norm hammered home his message: energy independence, security, fiscal responsibility. Again, his "can-do" attitude - why? We're Americans, we do.

Minnesota's Mayors get it: the Coleman for Senate campaign today proudly announced the formation of the Mayors for Coleman Coalition, a bipartisan group of nearly 50 mayors from across Minnesota who have officially endorsed Senator Coleman�s campaign.

The list is here and includes mayors from both parties. They are responsible enough to understand that sending a comedian who makes his living by trashing women and others is not what is needed to solve America's issues today. On the job training is no good for a president nor is it any good for a US Senator. We need people who have DONE something. Norm re-energized St. Paul as a mayor; he has the integrity needed in the US Senate. Send him back to DC.

The Mayors for Coleman Coalition includes the following Minnesota mayors:

Mayor City County
Tom Kuntz Owatonna Steele
Bob Marvin Warroad Roseau
KJ McDonald Watertown Carver
Sheldon Anderson Wyoming Chisago
Brad Walhof Walker Cass
Mark Voxland Moorhead Clay
Jim Millis Grand Rapids Itasca
Wesley Bussell Eyota Olmsted
Dan Ness Alexandria Douglas
Randy Wilson Glencoe McLeod
Tim Strand St. Peter Nicollet
Bob Brynes Marshall Lyon
Ed Williams Elbow Lake Grant
Bruce Larson Lowry Pope
Jim Ellefson Ada Norman
Rob Marty Mounds View Ramsey
Scott Lund Fridley Anoka
Gary Peterson Columbia Heights Anoka
Gene Winstead Bloomington Hennepin
Mark Uglem Champlin Hennepin
Phil Young Eden Prairie Hennepin
Eric Seanger Melrose Stearns
Don Taylor Chisago City Chisago
Evelyn Larsen Grand Marais Cook
Glenn Weibel Cannon Falls Goodhue
Brian Zeller Lakeland Washington
Michael Beyer Rockford Wright
Jeff Pelowski Roseau Roseau
Tom Furlong Chanhassen Carver
Gary Van Eyll Chaska Carver
Rick Rone Baudette Lake of the Woods
Les Heitke Willmar Kandiyohi
Roy Srp Waseca Waseca
Gary Revier Redwood Falls Redwood
Jane Robbins Pine City Pine
Dan Kaiser Medford Steele
Ken Harycki Stillwater Washington
Jeff Backer Browns Valley Traverse
Andrew Humphrey Wayzata Hennepin
Fran Miron Hugo Washington
Clint Herbst Monticello Wright
Jerry Zachman St. Michael Wright
Erick Harper Tyler Lincoln
Mark Steffenson Maple Grove Hennepin
Gloria Karsky North Branch Chisago
Bruce Ahlgren Cloquet Carlton
Wayne Runningen Pelican Rapids Ottertail
Roger Becker New Auburn Sibley
Joe McDonald Delano Wright

Thursday, October 23, 2008

I know where President Saigo is 

He's off pursuing facial hair justice. A TV station in Denver is reporting another mascot controversy. This must be some really nasty mascot.Hmmm. Are the Fighting Whities back, I wondered? No, that's not it at all.
Boone the Pioneer, the longtime face of the University of Denver, will stay in retirement after the school's chancellor called the cartoon "divisive" and said it doesn't reflect diversity.

The cartoon image of a grinning pioneer with his coonskin cap was the official mascot of the university from 1968 until 1998, when he was replaced by Ruckus, a red-tailed hawk.

Alumni and students urged Chancellor Robert Coombe to return the retired mascot to official or semi-official status.

Coombe sent an email to the university community on Monday rejecting that idea.

The e-mail read, in part, that DU "cannot adopt an official mascot that has a divisive rather than unifying influence on our community."

Coombe wrote that the cartoon pioneer "does not reflect the broad diversity of the DU community and is not an image that many of today's women, persons of color, international students and faculty, and others can easily relate to as defining the pioneering spirit."
Now I'm more confused. Discovering places, that's a white guy thing? This will be news to Laura Wilder or any of the black pioneers of the Pacific Northwest. But this gets even weirder in the story:
[University spokesman] Berscheidt said the university would allow students and alumni to use the trademarked image of Boone because DU is done with it.

"People can walk around with Boone everywhere if they want, it's just not the official logo or mascot and no money will be used to promote it," Berscheidt said. "Students and alumni are welcome to use Boone any way they wish."
I suspect this has more to do with the current mascot being plastered on lots of shirts and memorabilia for sale; printing a new mascot would cost its marketing agents money. I'm not sure what is more fearsome or powerful about Ruckus the Red Hawk over Boone the Pioneer, but if you're going to keep the hawk why not call yourself the Hawks? I don't think any other team in WCHA has it.

h/t: Misantrhopic Frat Boy, who has other name suggestions.

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Credit and intermediation 

Banks play a role of channeling funds from depositors to lenders. That role has no doubt shrunk over the last half-century, as other financial intermediaries have grown up. But one thing we graph when we talk about intermediation is the money multiplier -- the ability of banks to use the central bank's liabilities (its monetary base) and convert it to money. It's something we teach that we think is important in understanding fractional reserve banking.

We're being told now, by some pretty smart people, that the idea of a credit crisis has been oversold, and as a result we have had "unprecedented expansion of executive power ramrodded on the back of fear mongering and chicken-little crisis declaration." The paper quoted draws some graphs. Let me add three to the pile that they didn't draw. They relate to the money creation process. First, here's a monthly graph of the three money multipliers (for M1, MZM, and M2.) All these do, for the uninitiated, is take the ratio of the money supply to the monetary base. A higher number means banks are more active in the creation of loans.

See that dive in September? Within the data we can see that demand deposits -- business checking accounts -- swelled in late September and have only partially backed down. Firms seem to be hoarding cash right now. Here's that same graph in weekly form (data from the Fed in DC, which does not compute MZM on a weekly basis.)

The dive begins around the time that the TED spread begins to widen reaching what Krugman called a fever on Sept. 29. Banks stopped lending to each other, and began instead to hoard:

Regarding many of these papers, and to counter some claims that macro can't tell you nuthin', consider this: Any financial crisis involves a rush to liquidity, an increase in the demand for money. The data that gets reported out in central bank publications is not an indication of demand but the intersection of demand and supply. It does not tell me anything if all you show me is the quantity of credit. I also need to know the price. When the yield of a 30-day Treasury is less than 0.25% while the yields on all the other sources of funds increases, there's a fair chance that the increase in demand outstripped whatever additional credit resources the Fed supplied. Excess reserves would be an indication of that. So shift that LM curve to the left and tell me what you see. Real rates up, GDP down.

Likewise with graphs of commercial bank credit -- you can show me an increase in quantity, and I can show you an increase in price. How do you reconcile this, if not that nonfinancial firms were compelled into the bank credit market because other, newer sources of credit had stopped providing funds?

Disintermediation -- the process of borrowers and lenders doing business without financial intermediaries they had previously used -- is not necessarily harmful when the other credit markets are functioning, as they did in the 1980s as innovation decreased the monopoly power of banks. But we had banks in essence in disintermediation when they were the alternative to which many firms had turned. Credit volumes may rise, but without modeling the shift in the demand we do not know if they rose enough.

UPDATE: Much more good analysis by Mark Thoma and links infra.

UPDATE 2: �Of course we should recognize that paying interest on excess reserves is going to lead them to increase. �I was looking at the Fed's balance sheet, and if you trim it down into this nice form Jim Hamilton created you can see that it's the borrowing from the Treasury that is causing base money to accelerate so much. �I'll update his data:

Balance sheet of the Federal Reserve.
(Based on end-of-week values, in millions of dollars). Data source: Federal Reserve Release H.4.1.

Layout and original data by Econbrowser, updated by author
Aug 8, 2007Sep 3, 2008Oct 1, 2008Oct 22, 2008
Securities 790,820479,726491,121490,633
Repos 18,750 109,000 83,000 80,000
Loans 255198,376 587,969 418,580
� � Discount window � � 255 � � 19,089
� � 49,566� � 105,773
� � TAF � � 150,000 � � 149,000 � � 263,092
� � PDCF � � 146,565 � � 111,255
� � AMLF � � 152,108 � � 114,219
� � Other credit � � 61,283 � � 87,332
� � Maiden Lane � � 29,287 � � 29,447 � � 29,137
Other F.R. assets 41,957 100,524 320,499 522,906
Miscellaneous 51,210 51,681 50,539 52,014
Factors supplying reserve funds 902,992

Currency in circulation 814,626 836,836 841,003 854,517
Reverse repos 30,131 41,756 93,063 98,110
Treasury supplement 388,850 524,771
Other 51,440 56,884 38,717 46,213
Reserve balances 6,794 3,831 171,495 301,270
Factors absorbing reserve funds 902,992

The Fed has used the additional funds received from the Treasury largely towards the Term Auction Facility, relying on funds obtained from the bailout bill. The new Commercial Paper Funding Facility will have the same characteristics when it begins on Monday.

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Wednesday, October 22, 2008

Bay Buchanan at St. Kate's (sort of) and The U 

As mentioned in previous posts, here, here, here, here and here, conservative, pro-life speaker Bay Buchanan was to speak at St. Kate's and the University of Minnesota today.

St. Kate's administration decided to play games with the Minnesota Association of Scholars (MAS) to prevent Ms. Buchanan from coming onto the St. Kate campus but there's always an alternative. We moved the talk across the street to the Luci Ancora Restaurant. The crowd was small but the talk was impressive. Bay discussed the role of feminism as it began and how it has changed over the years.

While the feminist movement was successful in promoting more education for more women, there were three major pitfalls that have haunted far too many women since the inception of "feminism" in the 1950's. The first negative issue was the premise that fulfillment for women could be found only in the workplace. The second was that yesterday's feminists turned into a very selfish bunch - nothing was greater than what they could do for themselves, including aborting unwanted or untimely children. The third issue is the belief, still perpetuated by Hillary and many of her crowd, that women are victims and need the government to help them - with childcare, schooling, etc.

In January of 2008, all looked good for the NOW crowd. Their icon, Hillary Clinton, the epitome of a feminist was positioned to crack the last glass ceiling. Then along came Barry..... and their dreams were crushed. But, hey, then along came Sarah.

As Bay stated, Sarah was not exactly the icon these feminists wanted. Yet, Sarah had done it all: educated herself; married; had kids; done the PTA and hockey thing; went into politics and wow, took on the establishment, an incumbent governor, and succeeded - without government help but with true grit. So what's the problem with Sarah, a real feminist? Well, Sarah is (horrors) a Republican, a Christian and a mom who kept her child even after she knew it would have health problems. And, like it or not, she's the new face of feminism.

The audience at the U was small but very interested in what Bay had to say. Half the audience was comprised of men. All were incredibly attentive and asked excellent questions. Bay is quite knowledgeable on a variety of topics though her passion is abortion, what it has done to the psyche of women and what it has done to discourse in our nation.

Youth today need to hear the other side of many, many social issues. Unfortunately, too much of their "education" is influenced by left/Democrat professors (who outnumber conservative/
Republican professors by 6:1-9:1 depending on subject matter). We owe it to our children, our leaders of tomorrow, to make sure they learn not only US History but also hear of those views that do not get coverage by the mainstream media. Bay made a dent in this one-sided coverage. She is well worth hearing - I only wish more knew of her and could hear her speak. She knows her material and is passionate about her beliefs. We need more people like her.

Disclosure: King and I are on the board of the Minnesota Association of Scholars.

UPDATE: Last Friday, I highlighted the fact that a spokesman for St. Kate's had posted a comment defending their decision on the basis of a purported need to protect their status as a tax-exempt 501(c)(3) organization. I noted an analysis by the Foundation for individual Rights in Education (FIRE) that shows this to be a disingenuous basis for banning political speech on campus. Today, FIRE quotes from our comments in a greatly expanded discussion of the St. Kate's and 501(c)(3).


Win it for Kent 

Readers will know my love of the Red Sox. �It was the most bizarre weekend for me, watching them lose to the Rays. �A loss in Game 7 of an ALCS five years ago -- back when Dan Shaughnessy was still selling copies of The Curse of the Bambino --�would have devastated me for a week. �I would not watch the World Series. �I would not talk baseball. �People who see me would talk about anything else and then get away from me as soon as politely possible. �This year, not the same. �Remember, until Sunday night my three favorite teams in the world -- Red Sox, NY Giants, and Celtics -- were simultaneously world champions of their sports. �If I complained at all about the weekend series, would you not want to hit me in the head? �So would I.

About twenty months ago a good friend and colleague here passed away, known often in the earlier days of this blog as "my liberal lunch friend." �Sports was one of the things that united us. �Kent and I had gone together to Philadelphia to see our two teams play each other in the Phillies' last year in Veterans' Stadium. �It was my first trip to Philly; Kent had been a fan since childhood, though he was raised in the Rochester, NY area. �He had basically "sat with the family" after I suffered the Aaron Boone Sudden Death funeral. �We had always said that, if our teams ever got in the World Series we'd root for the other guy's team. �"What if we're in it against each other?" �That would be cool, we decided, but we couldn't talk to each other but maybe ten minutes the day after each game. �I'm sure we would have been friends after that, but it would have been weird. �Last fall, when the Red Sox had won their second championship in four years, there was some sadness over missing lunch with my baseball friend. �The discussions last winter would have been full of Sox and Phillies, teams we both thought were being run the right way. �We each tracked the other team's substitutes, farm systems, free agent moves. �(Same was true of football -- he rooted for the Redskins. �Unfortunately, we never got Kent into the NBA because he likes college basketball too much. �He went to D-I schools; I went D-3.)

So when Sunday night started I wondered: �If the Red Sox win, they play the Phillies. �How do I feel about that? �I would have rooted for the Sox, of course, but it would have been weird. �Fridays was our day to have lunchs, and I still don't have lunch in our place there. �Would I have gone back there like some bad movie, having an imaginary discussion? �I don't know.

I do know what I'll be doing in a couple hours, though. �I've got a Phillies hat and no dilemma. �No offense, Tampa, but I'm rooting for the NL for the first time ever.

In 2004 as the Sox came back from 0-3 against the Yankees, on a fan bulletin board there was a long thread called "win it for..." �For me it was a cousin who was shut in, mentally challenged -- "oh, he had a bad drug experience, what a waste" -- but who one day turned me on to some mimeoed home-published book of weird baseball stats that he bought with his meager income each winter. �My cousin seemed to most people a lost soul, but through him I got back into baseball and learned about some guy in Kansas named Bill James. �From him came Roto and a life of baseball as something more than just the fate of the Sox, but who also reminded me it always came back to your team, your player, your hero. �He died in the early 2000s. �So in 2004, "win it for Gary." �And they did.

Sharing that love with someone is important, and for about ten years that guy was Kent. �Yes, Tampa is miraculous and a great story, but they've only been a team for ten years. �A team from a city that has won nothing in 28 years is fit to carry a baseball wish: �Win it for Kent.

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Cover your ears, St. Kate's said 

I wrote to Renee Zeman, chairman of the College Republicans at St. Kate's, where a scheduled speech by Bay Buchanan was prevented from speaking. �It was her group that gave the invitation to Buchanan that its administration quashed. �The StarTribune poll at the time I'm writing this indicates that 55% believe that Buchanan should have been allowed to speak because "colleges must be open to exposing students to a range of thought." �Zeman agrees. �Here are my questions (in italics) and her answers:

1. What did you hope to learn from Bay Buchanan's lecture?�
� The opportunity to hear Bay speak would have been a great motivator not only for me but for all of the students that would've gotten to hear her. It is always a challenge to get youth excited and passionate about elections and about politics in general that I think she would've been someone who could put a lot of enthusiasm into the college community. Besides that, she's a woman right out of the history books. The opportuntiy to hear from anyone that has had a prominent role in the white house would be a very educational and valuable lecture.

2. Do you support the administration's position that there should not be partisan speech during the election campaign? Why or why not?
� It doesn't make sense to me that a college is trying to ban political speech during an election year. I always thought college was when you were supposed to develop your ideas and opinons based off of educated and inteligent points of view. Why on earth a college would ban partisan speech does not make any sense to me. I don't see other colleges doing it, I don't know why St. Kate's feels that they have to. I guess i should add that if the administration is actually trying to ban political speech from campus they should try stepping into a classroom and listen to the professors "not be political". It's also completely contradicting to what they have literally shoved down our throats since I have been there. I had to take a whole course my freshman year about being a strong, active, intelligent, reflective woman. Now by their actions they are telling us what we can and cannot listen to on campus. I wouldn't even mind if they brought some speakers from the other side to campus to talk. It's all about getting an education and learning what it is exactly that you believe in.

3. What did you believe were your free speech rights when you came to St. Kate's? Was there any indication during your recruitment to the school that academic freedom was subject to restrictions due to St. Kate's Catholic basis?
�� There have been a lot of thing about St. Kate's that I wasn't expecting since I was recruited. It's like they have a whole different idea of what being a Catholic school is. St. Thomas is practically a brother school to St. Kate's and is just as much, (I'd say probably more) Catholic than St. Kate's is. They don't seem to have a problem letting partisan speakers on campus. Niether do the rest of the colleges around the Twin Cities.�

I note that the new St. Kate's spin is that it also barred Hillary Clinton and Al Franken from speaking. This is wrong as well and inconsistent with a university's mission and statements about academic freedom and its encouragement to become, as Renee puts it, "a strong, active, intelligent, reflective woman." �Students should be exposed to all views, not hidden from them in a vain attempt to provide "balance". �High school seniors who are beginning their search for a college should investigate the actions of their prospective schools, as well as their words.

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Tuesday, October 21, 2008

AM 1280 Stars in the Cities - October 28 - Join Us! 

Talk the Vote
The Patriot's very own Dennis Prager, Michael Medved and Hugh Hewitt are coming to town to Talk the Vote on Tuesday, October 28th! Talk the Vote will take place at Orchestra Hall in Minneapolis at 7:30pm (doors open at 7:00pm). The event is free, but you need to RSVP here or 651-289-4444.

Limited tickets remain to a Talk the Vote VIP Dinner with all three hosts prior to the event at the Hilton Hotel in Downtown Minneapolis. Tickets are $99 which include dinner, photo opportunity with all 3 hosts and front row seats to the big show! Click here to order your tickets.

Let's pack the house!!!!

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Teenage recession 

Ironman dates one starting at January 2007.
Why, you ask? Well, there's no delicate way to say this - it's because teens are the most marginal of employees in the United States.

Here's what we mean by teens being marginal employees. Since the vast majority of teens Age 16-19 are dependents of other income-earning individuals and who do not need to fully support themselves as a result, teens are able to enter or leave the workforce without many of the same penalties that fully self-sufficient individuals would face. By comparison, only seniors, those near, at or above retirement age, might also be considered to be marginal employees in this regard, as they often have retirement income upon which to support themselves should they not have an income-generating job.

Teens are concentrated in a few industries. Here in Minnesota,

More than 125,082 teens ages 14 to 18 worked in all sectors of Minnesota�s economy during third quarter 2006, the most recent period for which data is available. They tended to be concentrated, however, in certain industries, particularly those that have relatively low-skill requirements and low pay. Overall, youth earned only $672 per month during third quarter 2006, compared to the total work force that earned $3,603 each month. Statistics show that several industries in Minnesota rely on youth labor during the summer months. Youth workers are most concentrated in food service and drinking places within the accommodation and food services sector, with over 36,300 youth, age 14 through 18, comprising 21 percent of the work force during third quarter 2006. Because state law prohibits minors from serving liquor, youth are mostly employed in limited service eating places and full service restaurants. On average, youth earned $550 per month in food service with the addition of tips that likely were not captured in full in these wage figures.

The retail trade sector absorbed the second highest number of teens: over 32,800�almost 11 percent of the labor force�were employed in this industry during the third quarter of 2006. Youth were spread across the spectrum of retail stores with the highest concentrations in food and beverage and in merchandise stores. Youth in this industry sector earned an average of $587 per month during the summer 2006, with the lowest pay occurring in clothing and accessory stores. Low wages in this industry might be compensated by benefits, which teens may value more highly than do adult workers, such as store discounts and the perceived status of being employed in popular shopping and hang-out spots.

Large numbers, almost 8,000, are also employed in health care and social assistance with the highest concentration in nursing and residential care facilities. This industry offers average monthly earnings of $729 and predominantly attracts female teens.

Retail trade has dropped quite a bit, but accommodation and food service employment nationally has been up over the last eighteen months. The local story here has been that part-time employment has been harder to come by. Perhaps Ironman can turn his attentions next to part time versus full time teen employment.


Graphs of the day: Share of income tax payers who pay zero 


The tax code has always contained provisions that reduce the income tax burden for low-income workers, such as the standard deduction, personal exemption, and dependent exemption. Between 1950 and 1990, the percentage of tax filers whose entire tax liability was wiped out by these provisions averaged 21 percent. Since then, lawmakers have expanded credits�such as the earned income tax credit (EITC)�while creating a plethora of new credits, including the child tax credit, the HOPE credit, lifetime learning credit, and the credit for adoption expenses.

Most tax credits can only reduce a taxpayer's amount due to zero, but the EITC and the child tax credit were also made refundable, meaning that taxpayers are eligible to receive a check even if they have paid no income tax during the year. Those tax returns have become, in effect, a claim form for a subsidy delivered through the tax system rather than a direct payment from a traditional government program like welfare or farm supports.

As shown in Table 1 below, the Tax Foundation estimates that there will be 47 million tax returns with zero income tax liability in 2009 under current law. That's one-third of all tax returns, and those 47 million tax returns represent 96 million individuals.

Both the McCain and Obama plans would increase this number by expanding existing tax benefits or creating new ones. Senator McCain is proposing one expanded provision�the dependent exemption�and one new credit, a $5,000 refundable health care tax credit. The Obama plan contains seven new provisions, including a new "Making Work Pay Credit," a "Universal Mortgage Credit," and a plan to eliminate income taxes for seniors earning under $50,000.1

Taken together, the Tax Foundation estimates the McCain proposals would increase the number of nonpayers by about 15 million, bringing the total number of taxpayers who pay no personal income taxes to 62 million, roughly 43 percent of all tax filers. Almost all of this is due to McCain's health care credit, which dramatically realigns health care incentives and gives people a powerful motive to buy health insurance. This tax provision has a bigger impact on cutting people's taxes than any single proposal from either party.2

Source. See also this on the McCain health plan. (h/t: Mankiw.)

I am on the local United Way board of directors, and one of the UW's foci is on "financial stability". One of the largest programs I see run under that banner is a program to help low-income families file for the earned income tax credit. (Here's an example from Seattle.) EITC has been frequently abused, to the tune of over $8 billion. It takes 15-20 minutes online to figure out if you even qualify, let alone fill out the form and be sure to carry that over to 1040A (no EZ for the EITC claimer.) Now we have one candidate proposing a single tax credit to put health benefits on an equal footing with cash wages, while the other is proposing seven additional credits. How difficult will the new tax forms be, and where will we get the volunteers to help file them?

To bet on Obama, perhaps you should go long on H&R Block.

Oh, and guess who loves EITC? And even helps with filings? ACORN. Can't wait to read Mickey Mouse's tax return.

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Start date of recession? 

The Economist links to a suggestion that the recession started in October 2007. If you look at the data that Floyd Norris (whom the Economist quoted) uses, October 2007 is about the earliest date you could pick. The peaks in the four elements of the coincident indicator series are October twice (personal income less transfers, manufacturing and trade sales), December (employment) and January 2008 (industrial production). There was acceleration of real GDP in quarter 2 of this year, however, probably due to an increase in transfer payments via those stimulus checks. Those do not get counted in the personal income data NBER uses. However, if it influences monthly GDP, and NBER is also looking at that series, it may push this off. Macro Advisers, the creators of the series, report:
Monthly GDP declined 1.1% in August following a 0.1% decline in July. The 1.2% decline over July and August only partially reversed a 1.6% increase over the prior two months. While there have been several 2-month increases of 1.6% or better in the short history of monthly GDP (since early 1992), there has never been a two-month decline as large as 1.2%. The closest was a 0.9% decline in the midst of the 2001 recession. The decline in monthly GDP in August was largely accounted for by a sharp decline in nonfarm inventory investment. Our latest tracking estimate of a 0.3% decline in GDP in the third quarter assumes essentially no change in monthly GDP in September.
There was a sharp decrease in February 2008 as well, but the next four months are +0.5, -0.1, +0.8 and +0.8. e-forecasting would give you the same look. There would have to be a sharp downward revision in the GDP data -- which Norris says is likely. But employment and production data are also subject to revision.

I'm glad I am not on the Business Cycle Dating Committee.

What I currently tell people is that we are most likely in recession now, but that it did not start until sometime in summer. July, if I have to pin a month. The more severe recessions, like this one probably will be, last about five quarters, putting the end sometime in the fourth quarter of 2009. Good luck Mr. President, whoever you are.


Monday, October 20, 2008

Oversimplifying InTrade 

I was reading Ed's exasperation with people citing InTrade and concluding that the McCain-Obama race is somehow over. I don't read InTrade the same way.

To tell the story, let me use a very oversimplified model (and wonder at the end if it's TOO oversimplified, though no doubt my commenters will tell me anyway.) Let me that if Obama wins a majority of the electorate he will also win the Electoral College, so that I can place the race on a single scale and not worry about fifty state races. Let me also take advantage of a useful observation made by Mark Thoma that the standard deviation of polling data at the Gallup poll size is 1.67%.

The InTrade data give us virtually a representation of the probability of McCain winning and Obama winning. It says that (let me round a little for the Pittsburgh Steeler fans, like Ed) and say that currently, Obama has an 85% chance of winning and McCain a 15% chance. To put this in some context: after the Rays went up 3-1 on the Red Sox last night in the bottom of the 7th, at that time the Rays had about an 82% chance of winning. (For more, try Walk Off Balk.) You're behind, it's late, but you don't think of two run leads as hopeless.

Let me illustrate then with a bell curve -- please click the image to read more clearly:Statistics tells us that 15.7% of the distribution of the curve lies below one standard deviation, to the left of the line drawn on the left of that graph. The other line which intersects the peak tells us the mean. That number would be the share of votes in a two-party race that Obama would receive (ignoring Nader and Barr is part of my simplification here.) 15.7% is just about where the price on that McCain bet on InTrade is. (To the second decimal, I put it at 1.04.) So we conclude that the difference between McCain and Obama is about 3.5%, about 51.75% for Bam versus 48.25% for Mac. That's a bit better than the RCP average. Rather than despair over InTrade, I'd hold it up as a measure of hope.

So what can be wrong with that calculation? A few things, not all of which I think I've fully thought through. Obviously there's the unidimensional assumption. It's possible, as in 2000, for a candidate to lose the popular vote and win the EVs. I'm going to say that isn't a big deal here, but you can argue with that if you want. Second, as we approach November 4, the possibility of McCain moving the needle enough closes down and you get convergence towards $1 on the Obama contract. I haven't factored date of the poll into this, but it seems to me it matters, just as the reduction of the number of outs left last night diminished the Red Sox chances of catching the Rays. Lastly, and as Ed mentioned, the InTrade market is still a bit thin: I think someone with $50,000 could move that needle significantly, and it isn't as if the Obama campaign is short $50k. As I wondered last time.

I'd tell those who think the race is over: You can invest $.85 and return yourself a dollar in little more than two weeks. Not many other market opportunities for you to get that return. Whatcha waitin' for? (And for Maverick fans: Six-bagger!)

UPDATE: Welcome HotAir readers. Ed and I will have to disagree about this one. The market participants of InTrade don�t live in a vacuum. They read the data and the polls, they bring information into the marketplace about the likelihood that McCain wins versus those who think Obama wins. The prices are an outcome of that struggle between them. Those who get it right over time for other events tend to dominate that market; those who bring biases and uninformed opinion will over time lose money and depart from the market. They aggregate information from many people with different opinions, and a price comes out that reflects that information. In the stock market, that price is a fair assessment of a firm�s value, even though the marketplace is dominated by a few traders for many firms.

Any individual trader selected at random might not have as good information about the race as Ed Morrissey. But the aggregation gets the price roughly right, consistent with the odds.

This has been subject to a good deal of debate. Chris Masse has blogged the discussion between Robert Erikson of Columbia and Justin Wolfers of Penn on the matter of markets versus polls. There can, of course, be data manipulation -- and maybe there has been -- but it makes no more sense to say prediction markets cannot tell us anything about uncertain outcomes than it does to say marketmakers on Wall Street cannot tell us anything about the firms whose markets they make.

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It's a little hard to understand 

A local party organization endorses a candidate. �That candidate has some ethical baggage on him, enough that others suggest they'd rather have someone else be the party's nominee. �That person respects the endorsement and does not run for the office, but the efforts of others put her ahead of the ethically-burdened endorsee in the primary. �

Now, in most cases that would be it, wouldn't it? �You would think the party leaders who endorsed the loser would be rather chagrined that their choice lost to someone�who didn't run a campaign. �And you would think they'd tell the loser it's the people's will, and thanks for the memories. �When said loser decides he wants to run a write-in campaign, you would think they'd whisper to him this was a bad idea, wouldn't you? �

Not if you're the SD 16 Republican BPOU. �If you're them, you endorse the loser. �As a write-in. �Against the Republican.

Can someone from the MNGOP explain to me how a BPOU can even hold an endorsement convention�after�a primary has already taken place? �I would like to know if this has ever happened before. �(Brodkorb, I'm looking at you. �You always know this trivia.)

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If Buchanan is a 501(c)(3) violation... 

...would the administration of St. Kate's like to tell us how the activities of its Center for Women, Economic Justice and Social Policy fit under its "no political speech" definition? �Their fall semester program has included:
Prof. Jewell is on St. Kate's faculty, so he's fine. But the JRLC? �It appears that any event that promotes "social justice" is OK, but anything from off campus that doesn't fit its message control is not. �

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Quote of the day, early edition 

Someone please name one Obama policy that any left-wing party in Europe would disagree with. If you can find any left-wing parties in Europe still in power, that is.

(Side note: a promo for Life on Mars, wherein someone from our decade gets the joyous experience of reliving the 70s, apparently to teach all of us how far we've come since then. And yet, how far we have left to go.)

Joshua Sharf. We should reprise Hugh's column on whether Obama is left of 1972 George McGovern. Based on card check, he's already left of 2008 McGovern.

And I don't need Life on Mars to remind me of the 1970s. �I still have a WIN button and the sweaters Carter thought I should wear while turning down my thermostats.

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Sunday, October 19, 2008

Bay Buchanan, Feminist, at U of MN 

The Minnesota Association of Scholars (MAS), for which King and I are both Board Members, is sponsoring a talk on Wednesday, October 22 at 7:00 PM at Coffman Memorial Union Theater, 300 Washington Avenue. The event is free for any college student showing a current student ID and MAS members. General public admission is $10. Here are the details:

Bay Buchanan to Speak at U of M

Minnesota Association of Scholars presents controversial feminist.

St. Paul, Minn. -- An association of Minnesota college and university professors who promote free expression on college campuses is sponsoring a lecture on

�Feminism and the 2008 Election�

by conservative CNN commentator Bay Buchanan. George magazine once recognized Ms. Buchanan as one of the top 20 political women in the country. She was the youngest person ever to hold the position of Treasurer of the United States.

A steadfast right-to-life champion, she co-anchored �Equal Time� on CNBC and MSNBC and worked as a political analyst for �Good Morning America.� Ken Doyle, president of MAS says, �We simply want to encourage reasoned discussion and debate on the role of feminism in today�s political process.�

The event is co-sponsored by Young America�s Foundation, a 501(c)(3) organization founded by to promote intellectual diversity by exposing college and university students to the best of conservative thinking. A student group at the College of St. Catherine has invited Ms. Buchanan to tea and conversation the afternoon before her talk at the U of M.
If she were not a conservative, would CNN label her a "liberal" commentator? I don't think so.

St. Kate's has canceled the tea and conversation event under the specious claim that such an event might endanger its tax-exempt status as a 501(c)(3) organization.

Update, 9:15 PM Sunday: Since St. Kate's won't let Bay Buchanan speak on campus, Bay will speak on "Feminism Today" at the Luci Ancora Restaurant, 2060 Cleveland Avenue (at Randolph) from 3:00 PM to 4:30, on Wednesday, October 22. Luci Ancora is across the street from the gates to the St. Kate campus. We welcome St. Kate and administrators and students to join us for a professional, polite discussion on this topic.


Saturday, October 18, 2008

Norm Coleman Express in Congresional District 2 

This afternoon, US Senator Norm Coleman visited a number of locations in MN's Second Congressional District. Stops included Eagan, Apple Valley, Savage and Chanhassen.

As the Republican Chair of the Second District, I've attended many of these functions. At all events, Senator Coleman has come across as real, honest and sincere in his views. He's a public servant responsible to all Minnesotans. He knows the local history of the towns and often tells a story related to it. He mixes easily with all attendees, answers questions, does all these events free form - no notes, period. The DFL has put a film tracker on Norm - a young guy who tries to get his camera into every single conversation Senator Coleman has with a constituent. While this is legal, to me, the behavior is rude, very rude.

Senator Coleman understands we need energy, all kinds. He knows we can produce it in environmentally safe ways because Americans have designed many of the approaches to cleanly extract minerals. He knows we need to stop sending $700,000,000,000 to nations that want to destroy us.

He believes that we Americans can overcome anything: "Hope conquers fear." It does - we've been given so much doom and gloom for so long too many Americans are banking on a nebulous "hope" that will tie our nation in knots for decades. Norm understands what is at stake. While I have my disagreements with him (and I have been vocal about them), he is the best candidate.

As he said, the best time to drill was 10 years ago, the second best time is now; the best time to build nuclear plants was 10 years ago, the second best time is now. He knows it's time we get going forward - he's the guy. Support him.


Friday, October 17, 2008

St. Kate's Bans Political Speech II 

In the comments to King's post below, Julie Michener tries to defend St. Kate's by saying
Because we are a 501(c)(3) organization, the College of St. Catherine has sought to avoid any appearance of partisanship during the 2008 political season.
Michener goes on to quote at length from a policy regarding political candidates and political debates. But Bay Buchanan is neither a candidate nor engaged in a campaign or debate for any candidate.

The Foundation for Individual Rights in Education (FIRE) is one of the great organizations supporting free speech and academic freedom on campuses. Here is what FIRE had to say today about this topic, both on their website and at the Huffington Post:
True, both public and private universities do have legal duties related to their status as government instrumentalities (public schools) or 501(c)(3) non-profits (private schools) which prevents them from institutionally endorsing candidates (or even appearing to do so), lobbying for legislation or raising money for candidates. Therefore, university bans on administrators using university letterhead to endorse or shill for candidates, for example, are reasonable and required by law. But universities go off the deep end when they translate this common-sense duty into somehow meaning that no one is allowed to engage in partisan political speech on campus.
Read the whole thing. St. Kate's has gone off the deep end on this one.

Disclosure: King and I both sit on the Board of the Minnesota Association of Scholars.

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Always has the support of Paul 

A local electrician's union is suggesting that it will only support a school levy in St. Cloud if the school district promises prevailing wages on its construction sites:

At a meeting of labor leaders Thursday, St. Cloud school levy campaign volunteer Pat Welter was told St. Cloud schools might get more support for a proposed property tax increase if the school district committed to paying prevailing wages for school building projects.

The labor leaders said electricians are having trouble finding work.

It wasn�t a deal Welter was in a position to make, but it exemplifies the difficult climate supporters of a proposed $10.25 million property tax increase are confronting.

The higher wages that the electricians demand price out the younger workers, those who are gaining experience. The proposal says, we will support you if you will help take dollars from taxpayers and give them to our membership. Who wouldn't like that deal? That which robs Peter to pay Paul...

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St. Kate's bans political speech 

From a Minnesota Association of Scholars press release (I am a member of its executive board):
The College of St. Catherine administration has barred CNN commentator Bay Buchanan from speaking on the St. Kate�s campus, according to Ken Doyle, president of the Minnesota Association of Scholars.

The St. Kate�s College Republicans, a student organization, was planning a tea and discussion with Ms. Buchanan, in conjunction with the speaker�s scheduled same-day lecture at the University of Minnesota. �The students were planning a really classy event,� said St. Kate�s physics professor Terry Flower, advisor to the group. �They�re all about intellectual diversity and the marketplace of ideas.�

�St. Kate�s administrators tell us that, because this is the election season, they�re banning all speakers with clear-cut party affiliation,� Doyle says. �My Jesuit philosophy teachers would call this a non sequitur; my sainted Irish grandmother would call it just plain goofy.�

�I smell a rat,� says Doyle.

Ms. Buchanan was treasurer of Ronald Reagan�s presidential campaigns in 1980 and 1984 and chairman of her brother Patrick�s unsuccessful bids for the presidency. She was the youngest person ever to hold the position of Treasurer of the United States. George magazine once recognized her as one of the top 20 political women in the country. A steadfast right-to-life champion, she co-anchored �Equal Time� on CNBC and MSNBC and worked as a political analyst for �Good Morning America.� Her lecture was to have focused on �Feminism and the 2008 Election.�

We honor a private college�s right to patrol its borders,� says Doyle. �At the same time we worry that limitations on free expression and debate aren�t good either for St. Kate�s students or for society in general. We urge St. Kate�s president Andrea Lee to reverse this decision and promote intellectual diversity and political awareness on her campus.�

Whatever St. Kate�s decides, Ms. Buchanan will speak at the University of Minnesota in the Coffman Memorial Union Theater, 300 Washington Avenue SE, Minneapolis, at 7:00pm Wednesday October 22, with a reception immediately afterwards. The event is free for students from any college or university � including St. Kate�s � and for members of the Minnesota Association of Scholars, $10 for the general public.
From the St. Kate's website, its student handbook indicates that their students are supposed to enjoy freedom of expression:
Learning and scholarship are at once individual and collective. Students enjoy the collective assurance and protection of free inquiry and open exchange of facts, ideas and openness. Students are free to take reasoned exception to the data or views offered in any course of study and to reserve judgment on debatable issues. This free exchange in no way diminishes the responsibility of the student for learning the content of a course.
And a review of their speakers policy does not indicate any restrictions during campaign seasons:
Whereas the College of St. Catherine provides an atmosphere of intellectual openness in which students can refine their abilities to evaluate alternatives faced in a pluralistic society;

And whereas the college, as a liberal arts college, upholds the academic principle of responsible inquiry and the constitutional right of free speech;

And whereas the College of St. Catherine, a Roman Catholic college, recognizes and respects the official teaching of the Church;

And whereas the college recognizes legitimate plurality of opinion in some areas of Church teaching;

Be it resolved that the college sees it as consistent with its mission to provide a forum for the free and responsible exchange of ideas. Be if further resolved that this policy will be implemented by the dean of students under the authority of the president of the college.

*As adopted by the Board of Trustees, 1980
These are from the campus' own website and are an indication of the kind of school students attending St. Kate's would be promised. Recently FIRE has put out a policy statement on political activity on campus:
Students and student groups at public colleges and universities enjoy the full protection of the First Amendment and must be free to engage in political activity, expression, and association on campus. Students and student groups at private colleges and universities are entitled to that degree of freedom of expression and association promised them in institutional handbooks, policies, and promotional materials. It is important to note that the overwhelming majority of private colleges and universities provide extensive promises of free speech in their materials, and therefore should be held to standards comparable to those required by the First Amendment.
Apparently St. Kate's disagrees.

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Daily effects of indoctrination IV, conclusion 

When one disagrees with someone else's opinion one can do so with a smile. On the board we've been discussing this week, we had a few examples of that. I thought this one was simultaneously egregious and kind.

Just this week on the campus' discussion list, one of our faculty had fished around the Times' comments section, where there are many anonymous posts. One included a disgusting reference to Senator Obama. From this, that faculty member concluded, it should be clear that "we need" our racial issues courses and "anti-racist initiatives". Of course there was no evidence the poster was a student on our campus. The assumption is that there must be racists among us on campus as well -- that the only path to salvation lies through the conscious effort of the anointed to correct them -- and that assumption leads naturally to every effort from three courses on diversity here at SCSU to more sinister indoctrinations in the dorms as happened at Delaware.

There is something dangerous and touching about this poster. �"Stop being so ignorant!" but "God [hearts] you!!" �Perhaps this person has good knowledge of affirmative action but disagrees with your viewpoint. �This argument of "if you knew what I knew you'd agree with me" is both wrong and arrogant. �But the smile and the love just doesn't let me dislike the artist. �(The person had a signature at bottom that I cropped off the picture, thus the lack of a bottom border on this.) �Sometimes the do-gooder is so nice, you can't get yourself to be mad at their condescencion. �Perhaps this is a character flaw of mine.

No smiling face hides the disdain in this poster, however.

Because you don't agree with my viewpoint,"I can see how you are the less qualified one." �Remember, this is from either a class or a club; there is little doubt that discussion of affirmative action has been part of the activity, and because the board is claimed by a department there is supervision by faculty. �Is the professor or advisor reading these posters? �Does s/he approve? �If this project was graded, how is the little bit extra venom in this one treated? �Positive or negative? �And, by the way, how does this person KNOW the counter-poster that started this all is a member of the dominant race? �It's on a par of assuming that every person of color�must�support Obama.

And with that, this series is over. �The rest of the series is here (see also the link above on the counter-poster):

Thursday, October 16, 2008

Triumph the insult comic neighbor 

A St. Cloud man was ticketed Wednesday after he admitted to police he had been placing dog feces in the back of a neighbor�s truck because it sported stickers supporting the John McCain/Sarah Palin presidential ticket, Sgt. Jerry Edblad said.

David Vandelinden, 45, received a $183 ticket on suspicion of littering and illegal dumping.

Donald Esmay, 19, who lives on the 2300 block of 27th Street South, told police he had been finding dog feces in small blue baggies in the back of his pickup for the past two weeks. On Wednesday, Esmay�s mother told police she saw Vandelinden putting the feces in the truck.

He admitted to police he had been doing it because �he hates McCain,� according to Edblad.
I checked the phone book, they are indeed neighbors. If Iron Matron would like to send me one of those signs, I will be happy to drop it by the Esmay residence. Until then we offer this PG-13 tribute to Mr. Vandelinden:


Local financial crisis podcast 

Three colleagues and I created a forum for discussion of the financial crisis. Campus radio station KVSC recorded the event and has podcast it. I doubled as moderator. The slides I used are here. (A couple are adopted from other things found on the web, so you might have seen them before.) My thanks to the other participants and to KVSC for the recording.

There was another forum at the University of Minnesota. Bigger names, perhaps, but I'm pretty sure I said something quite close to V.V. Chari:
Chari also complained that the administration�s crisis planning and strategy was largely done in secret, at a time when transparency was what the financial markets needed.

�This is the most opaque crisis recovery plan in history,� he said. �They may know things that we don�t, and those things may justify their fear. If that�s the case, please tell us.�

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Who did Roosh pay? I smell a foot 

Controversy surrounds the Roosh campaign, as every time there is a move up in the Martin numbers, a sudden increase of fifty votes for Roosh occurs. Try it. Vote for Martin, and see what happens.

Could there be an influx of new voters? Where did they come from? There seemed to be some signaling last night from the stage of Trocadero's during the Patriot Debate when Roosh supporter Mitch Berg kept saying "tip your waitresses." Was in fact those tips an ACORNish attempt to buy votes from the waitstaff?

Curiouser and curiouser. I demand an investigation. I smell a Dieboldical plot. (Yes, I made that word up. That will teach you not to vote for me!) How do we REALLY know that the count is accurate? For that matter, how do we know that KAR actually won Lord Jones' Pitcher? Were their witnesses for the counting of the ballots or comparison of the scorecards?

I call on all MOBsters to seek transparency and truth in the voting for MOB Mayor.

UPDATE: The sham investigation by the KAR, offered by someone who doesn't know his acorn from a hole in the voter registration system ground, is rejected. MOB members should post on their own blogs calls to impanel an inquest by the former MOB mayors.

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The local pump-priming 

Should local governments spend more in an economic downturn? Yes, says economist William Melton and Twin Cities area mayors.
Now is the time for cities to invest. If they have buffer funds, they should get ready to draw from them and spend as a way to protect assets and stimulate the local economy. If they have no reserves, well, the federal government should supply a brief spurt of aid, he said, adding: "There will be enormous budget pressures."

Mayors already know that part. Minnetonka's Jan Callison wanted clarification: "So this is a good time to spend, and that means raising taxes or spending reserves, if you have reserves?"

Upping taxes on citizens whose savings have been decimated in recent weeks may be an impossible sell, Melton and the mayors agreed, but investing is still important. Bloomington's Gene Winstead made the point that his city � and other inner suburbs � enjoyed a big growth spurt in the 1950s and '60s. The problem now is that lots of infrastructure is aging at the same time.

"You're going to see us dipping back into reserve funds," he said. "We think a steady course is needed. It's important not to fall behind on maintenance. We'd rather not defer; we'd like to continue to pay as we go."

Edina's Jim Hovland agreed, even suggesting the option of borrowing through use of a bond issue. For cities with good credit, as Edina has, borrowing can be an incredible bargain just now, he said.
How wrong is this? Let me count the ways:
  1. A buffer fund is for smoothing spending through a cyclical downturn in tax receipts or intergovernmental transfers ('round these parts we call that LGA). This is very likely to happen in the next budget cycle. At some point assessed values will have to be marked to market, and raising mill rates to compensate will be difficult for city councils. That's what you have a buffer fund for, not to accelerate spending.
  2. Note the words "impossible sell". Does this mean that if they could find a way to sell it, they would? We already have a presidential candidate contemplating tax increases in a recession. Can't see why we'd want the mayors to join in the frivolity.
  3. Cities must balance their budgets since they can't print money. Borrowing means increased debt service costs immediately and the overhang of repayment later. This removes an incentive for private citizens to borrow and invest, since their future after-tax returns on investment will be lowered by local government borrowing.
  4. Increased local government spending is only helpful to the extent the money is spent locally. Money given to new city employees will often be spent outside the city -- there is a leakage. Some employees in suburban cities will not live in those cities but in nearby ones. How exactly do we imagine this will help, then?
All around, a bad idea.

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Wednesday, October 15, 2008

Don't forget the Patriot Debate 

We're at Trocadero's tonight for the Patriot Debate. Hope you have a ticket! (Or try crashing the joint if you don't.) What does McCain do to shake up the race? Will Obama be able to run out the clock? Can Bob Schieffer do any worse than Tom Brokaw in moderating? (I think I do know the answer to that one.) Come by for the discussion with about 400 of your best friends.

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As your mayor for a few more days, I have only one function left. I am asking all MOB Members in Good Standing to vote for Margaret Martin for Mayor.

As a longtime MOB member, only Margaret has the knowledge of MOB politics that we need. She clearly can handle unruly members, given her experience with her husband. Given the University of Michigan football team, she has the time. And it's time, once and for all, to break through the glass ceiling that has so far prevented women from reaching the mayor's office.

Roosh has engaged in a shadowy campaign, hiding with known libertarian turncoat Mitch Berg, trying to ride the Obama coattails, and closing his own blog. Should a blogger that disowns his own past be rewarded with the highest office in the Minnesota blogosphere? Forsooth!

So hie thee to the KARtacular, and Vote Martin!

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According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 66 percent expect no change in employee compensation over the next six months.
Nice to have our reported quoted in the new Beige Book of the Federal Reserve. Too bad it has to be such bad news. Here's the new report.


I hope it happens tonight 

In tonight's debate look for John McCain to tie Barack Obama to liberal positions that are essential to elements of the Democratic nominee's coalition.

Chief among them is so-called "card check" legislation that passed the House in 2007 only to be bogged down in the Senate. The bill is the No. 1 priority of Mr. Obama's union supporters and would provide a way to bypass the requirement for secret-ballot elections to unionize a company. Instead, employees would be deemed to have selected a union when a majority of workers sign a card stating support for such a move -- often in the presence of union organizers.

Mr. McCain briefly raised card check in a previous debate with Mr. Obama, but he now has an iconic liberal he can cite as a prominent opponent of the idea. Former Sen. George McGovern calls secret ballots in union elections a "basic right." He has even agreed to appear in an ad sponsored by a pro-business group that is running in seven states holding Senate elections.

From today's Political Diary, by John Fund at the WSJ. McCain can tie this to Prop 49 in Colorado, a measure that would stop government from withholding money from a public employee's paycheck for a union to use to influence government via elections.

David Weigel points out this bill has been bought and paid for by the unions, and it is the expectation of Obama in return for $360 million or more spent by the unions on helping him and the Democrats. You want issues and not associations, Sen. McCain? Hector Sen. Obama on this issue.

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Daily effects of indoctrination IV, Part 5 

In this continuing series we have seen that the belief that affirmative action is wrong is ignorant speech to be controlled, because it's a goal, an ideal, so you should shut up rather than express dissent and, besides, affirmative action even helps white people, as long as they enlist in the army. �Today's edition continues to ponder what do students think about how they get jobs.

It might have been fun to have actually gotten an answer to that from the classroom or club that this was drawn in. I suspect you would have heard a great deal of anxiety over a number of things, from the interview process to the decision and how it is made. That anxiety is common to all people.But what do students think represents "the best person for the job"? Who gets to decide? �How many dimensions of the job can be used to decide who is best? The Civil Rights Act is an exception to the concept of at-will employment, which recognizes the right to private contract between employee and employer. �I hope that shows up at some point in this student's education. � Who's to say you're not qualified? How about the person who will pay you to work for her? Does she have a say in this?

We all get our income by persuading someone else to give it to us. �(Except for government; it gets its income at the end of a gun.) �We can persuade employers to hire people of color�qua�people of color because it increases the firm's sales or production of goods and services someone else sells. �When it does, the person of color would be favored regardless of whether there is a law in place. �If it does not increase sales of production, the law's compulsion of to hire the person of color acts as a tax on the firm's profits, and causes the employee who would have been hired instead to take the next-best job. �If you want to argue that's an OK price to pay, do so. �But you should not pretend that cost does not exist.

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Tuesday, October 14, 2008

It depends on what your motives are 

The problem with Foot's post is that he assumes my desire to be Mayor of the MOB was still present. In the email I sent him, all I did was to assure that Margaret had indeed met the rules and tried to roll something, anything. Thus I intentionally did not play a strategy that was meant to win, only to assure that she had played, meaning she wants the job.

It has been an honor to serve as your mayor. Alas, it has not been fruitful in the creation of parties for MOB, and as such I do not consider my term in office to have lived up to my expectations or yours. I am flattered to have had as much support as was provided to me (thanks for your twenty votes, Bobo.)

Heavy has rested the seal, and as major changes may be coming in the near future anyway, the process may as well begin by ceding that seal to new, better candidates. Applescowsky didn't get it, so mission accomplished there.

An endorsement of the two finalists will come tomorrow. Bribes Letters of supplication should arrive by noon, MM and Roosh. FedEx closes at 5.

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Daily effects of indoctrination IV, Part 4 

(Part 1, Part 2, Part 3 for background)

There were two interesting sub-themes in the board that was presented to us in response to an anonymous poster who had the temerity to challenge a department's leftist orthodoxy. One was to focus on "goals-oriented affirmative action". It was an odd focus, and the only explanation that works for me is that this was a discussion point in a classroom. Of course, that's speculative.

But I'm also lead to believe this by two other posters that had this odd theme as well. Take for example, this one:

Consider that list: race, color [sic], national origin, sex, disabilities, veterans. Really? Are preferences for veterans -- that existed after almost any war -- a form of affirmative action? Apparently so recently, but using the affirmative action reporting mechanism to administer veterans' benefits is not the same thing as calling it affirmative action. We have long had in America a notion that part of the payment to veterans for their service, particularly in wartime, comes after their demobilization. Federal job preferences are a longstanding benefit. It appears recent law has directed private job benefits as well.

As the following pictures shows, though, it isn't just that for the students in this class or club:

I have wrestled with that poster. What this Marine is entitled to is our thanks, our support, and the full benefits of what they signed up for. A Marine gets a value in return for a value offered to his or her country, by his own actions and choices and preparation. I'd like to ask veterans reading this post: Do you consider the veterans benefits you receive a form of affirmative action? Some in academia say 'yes'.

UPDATE: A private correspondent writes:
I think that poster has equal opportunity employers confused with affirmative action employers. Equal opportunity employers promise not to discriminate. Affirmative action employers are the ones who promise to hire qualified minorities, women, etc over white men.
The Department of Labor provides information on affirmative action and for veterans. I read that to mean federal jobs or those with its contractors and subcontractors.

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Krugman winning the Nobel 

If you've read here before, you know that I think Paul Krugman is an excellent economist ... and a lousy political observer. If I thought about it, I could probably name a hundred other economists that fit that description. A few of them might be better economists than Krugman, but I doubt that list would reach ten.

A commenter wrote me asking what I thought of his selection to receive the Nobel prize. He was almost certainly a longshot winner (take a look at the three links of odds on winning in Tyler Cowen's post; only one mentions Krugman, at about 15-1.) I wondered how individuals are selected, so I looked it up. The relevant part

Prizes have been awarded for a specific contribution (such as new analytical methods in finance and econometrics), two or several specific contributions (such as the Prizes to Friedman and Modigliani) and for life-time contributions (such as the Prize to Samuelson, Kuznetz and Allais). Life-time contributions have dominated, although the classification is ambiguous since life-time contributions may have consisted of specific themes (such as in the case of Leontief). When considering what should be regarded as a "worthy" contribution, it is probably correct to say that the selection committee has looked, in particular, at the originality of the contribution, its scientific and practical importance, and its impact on scientific work. To provide shoulders on which other scholars can stand, and thus climb higher, has been regarded as an important contribution. To some extent, the committee has also considered the impact on society at large, including the impact on public policy.
They indicate that "netting out" bad research is not part of the process, so all the things we might disagree with Krugman about are not part of the record the Nobel Committee looked at.

His prize is rather obviously in the first category: "for his analysis of trade patterns and location of economic activity." This is a single analysis. Basically, before Krugman trade theory was simply a matter of factor endowments. To take an example I use in class, in the old trade theory we had manhole covers made in India and in Michigan. India had cheap labor, so focused on making them using a technology that used lots of labor. In Michigan capital was comparatively cheaper, so the covers were made in a more automated process that minimized labor. Trade patterns were based on who had more labor or more capital, more land and natural resources, etc. Krugman changed all that. Some people have tried to say it's both trade and economic geography, but I read both as coming out of a single research agenda, one of many he's had. (I consider his work on international finance equally excellent, perhaps because I spend more time reading international finance than trade theory.)

I'm of two minds about the prize. Does he deserve to win a Nobel? Based on the previous paragraph and the work that has flowed in both local economic development and trade theory, you'd have to say it's a seminal work that advanced understanding. Just because others might have cleared the hurdle to receive the Nobel with more room to spare than Krugman is not a reason to deny it to him. In a world experiencing economic stress and concerns that globalization might have contributed to our economic problems today, giving the prize to someone who champions free trade is not a bad thing.

But if you wanted to recognize trade theory, as Amity Shlaes said on Dennis Prager's program today, why not award Jagdish Bhagwati now, and wait for Krugman until the Bush Administration he has long criticized is a distant memory? In some sense it may reduce the value of the prize to Krugman; we know the prize accelerated Joe Stiglitz into a sharp critic of the international order, but I doubt Krugman could become any more vociferous than he already is, and unlikely as well to confer any greater legitimacy than a longtime place on the Times' editorial page has.

UPDATE: I just read Russ Roberts. Again, he's already a columnist at the New York Times. Thinking at the margin, how much bigger does the Prize make his soapbox? Sorry, Russ, but that train has already left the station.


Monday, October 13, 2008

What if we threw a debate and nobody came? 

We keep hearing that people want to discuss the issues and get away from personal attacks. Fine, I thought, let's have a discussion of the Employee Free Choice Act (discussed early last summer here and here). So we invited the DFL, its chairman Brian Melendez, or any representative of Senate candidate Al Franken, to debate us. They filed a complaint instead; when it was marked incomplete, they filed another. It was returned as without merit. I had thought at that point, well, maybe they would debate us. Finally we decided we'd schedule a debate and hope someone showed up.

Drove down to St. Paul in crappy weather, and nobody showed up. (At least we have a gorgeous late afternoon back here in the Cloud!) I'd like to thank Congressional candidate Ed Matthews and a cameraman from WCCO for showing up. My comments focused on this as a free speech issue: the decision to unionize is too important to be left to a conversation that doesn't include both sides. This is recognized in the most recent Supreme Court case (Chamber of Commerce v Brown,) that "Congress struck a balance of protection, prohibition, and laissez-faire in respect to union organization, collective bargaining, and labor disputes.� (quoting Cox (1972)). Congress could of course choose to change that balance: that's what EFCA does. But unions currently win 57% of organizing elections when they choose to go to them. Doesn't that sound fair enough to you? Do you think they should win 75%? 90%? Why? That's the debate.

The issue matters. In his new stump speech featured today, Senator McCain reminds us the consequences of electing Senator Obama to the presidency:
We have 22 days to go. We're six points down. The national media has written us off. Senator Obama is measuring the drapes and planning with Speaker Pelosi and Senator Reid to raise taxes, increase spending � take away your right to vote by secret ballot and labor elections, and concede defeat in Iraq � and concede defeat in Iraq.
Emphasis mine. Donald Lambro has already pointed out Senator Obama's support for what was referred to as the Employee Forced Choice Act. I wonder if Senator McCain is planning on using this line of attack in Wednesday's debate? I'm pretty sure it did not come up in the first two.

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I learned a new word 

I saw a note on campus for a film sponsored by a student group I had never heard of before.

AniMent Action on Campus - AAC

Welcome to AAC! We are here to work for equal rights of animals, and support environmental issues. We will be actively involved in the community on campus, in St. Cloud, and in the state of Minnesota.

Come join us for the betterment of our local community, and to raise awareness about AniMent issues!

I thought it was a group of students who drew anime art. �Instead it's a group that combines animal rights activism with environmentalism. They could have left out the "on Campus" part: Where else would you find such a thing?

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Daily effects of indoctrination IV, part 3 

In which we find the quality of mercy is often strained.

(Part 1, Part 2 for background and to catch up.)�

In part 2 we had a few slides that showed a great deal about the subject matter of this class, but did not have any real animus towards the person who drew the counter-poster to which this class has reacted. �Alas, not all had that quality.

I've chosen to block out this student's name (I'll leave the illustration, so you know it's a female), but I found it touching after writing:
Get educated before you open your mouth and speak! �If you knew what affirmative action is you wouldn't be so stupid to put up a poster like that ... you are the cause of so many problems we have these days ... It's ignorant people like you that cause the races to divide ... GET YOUR FACTS RIGHT!

...that she chooses to leave a parenthetical

(and if you have any questions my name is yyyy yyyyyyy and we can chat...)

Do you always leave notes for people you want to "chat" with that have you underlining the words ignorant and stupid? �How's that working for your love life, Miss? "Biff, you're stupid and ignorant. Here's my cell, call me!" �I have to call that one my favorite.

This one is not quite as much fun. "Ignorant people talk without knowing what they're talking about." I believe that's called a tautology, yes? But the bubble quote is not tautological: "I use bigotry because I can't take responsibility for my actions." The poster is an imitation of the counter-poster, and on the kid's rejection slip it reads "not as qualified as you think."

Remember, this appears to be an organized response, on a board that a department has claimed as theirs. �This seems a good deal of hostility in this poster. �Is this something that academics should encourage? �I think, but do not know, if this is a classroom exercise. �If it was, how was it graded? �The line at the bottom reads "Why would any businessperson in their right mind lose money by hiring an unqualified person regardless of color?" �I don't know what that means exactly, but it sounds like a taunt. �

Today's liberals seem to be taking their marching orders from other quarters. Specifically, from the college and university campuses where administrators, armed with speech codes, have for years been disciplining and subjecting to sensitivity training any students who dare to utter thoughts that liberals find offensive. The campuses that used to pride themselves as zones of free expression are now the least free part of our society.

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A media reminder 

I will be with Minnesotans for Employee Freedom at 1pm at the State Capitol. �We hope that Mssrs. Franken and Melendez will join us. �It will not be nearly so much fun without you fellows!

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The best thing I read this weekend 

Today's liberals seem to be taking their marching orders from other quarters. Specifically, from the college and university campuses where administrators, armed with speech codes, have for years been disciplining and subjecting to sensitivity training any students who dare to utter thoughts that liberals find offensive. The campuses that used to pride themselves as zones of free expression are now the least free part of our society.

Obama supporters who found the campuses congenial and Obama himself, who has chosen to live all his adult life in university communities, seem to find it entirely natural to suppress speech that they don't like and seem utterly oblivious to claims that this violates the letter and spirit of the First Amendment. In this campaign, we have seen the coming of the Obama thugocracy, suppressing free speech, and we may see its flourishing in the four or eight years ahead.

Michael Barone. Here's their cue:Source. More coming in a bit...

UPDATE: �Ed weighs in:

The best solution for bad speech is more speech, not speech codes, mobs shouting down critics, and legislative control of political speech in the public square. Yet we�re inexorably moving in that direction, thanks to the so-called defenders of free speech who only can muster any passion for it when they see a political benefit for themselves and their allies. In a real sense, the thugocracy isn�t coming, it�s arrived after a generation of advent.

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Saturday, October 11, 2008

A Message for McCain (and Coleman) 

We Americans need real bipartisan solutions, not the "I'll reach across the aisle" mantra (never uttered by Democrats) that too many Republicans say but too often is perceived and treated as weakness by Democrats. Senators McCain and Coleman, I believe if you change your verbiage, you can increase your odds.

"I remain willing to work with ANYONE who is willing to solve problems. But, bipartisanship does NOT mean ignoring the Democrats' bad actions and oppositions that are plainly wrong.
- When Democrats block solutions to our energy problems, they are wrong.
- When Democrats block investigation into Fannie Mae and Freddie Mac because their leaders, Democrat Senator Chris Dodd's, Democrat Representative Barney Frank's, and mostly other Democrats who blocked efforts to avoid the housing meltdown, they are wrong.
- When Democrats block supplying our troops with the necessary equipment, they are wrong.
- When Barack Obama used ACORN to push through loans to people who could never afford them, he was wrong.
- When the mainstream media gives Obama passes on his questionable associates and actions over the years, they are wrong.
- When Democrats tell us government has all the answers, they are wrong; the greatest growth in American wealth, across the board, came during periods of very little government interference.
"Americans will make the right decisions if they have the right information. Unfortunately, too many are uninformed because of an admitted biased press and Democrat candidates who work against the freest people in the world. They want control, period.

"Bipartisanship is not just doing what the Democrats' want, ways that too often penalize the very people they claim to help. Bipartisanship is finding ways for all Americans."

"We are Americans; we solve problems; we create; we design; we provide environmentally sound solutions that also promote the good of all. When you Democrats choose to work with us on these issues, we welcome you with open arms."


Friday, October 10, 2008

John McCain Townhall at Lakeville South HS 

This afternoon, Republican presidential candidate, John McCain, held a townhall meeting at Lakeville South High School. He was terrific! Among the MN politicians who spoke were: Marty Seifert, Minority Leader for the MN House; Patrick Garofalo, House Representative for Farmington/36B; former senator, Rudy Boschwitz; former US House Representative, Tim Penny; and Minnesota's Second Congressional District Representative, John Kline.

As every speaker said, this election comes down to character, experience, and leadership. Each one said, in their own way, "Hands down, McCain is the guy." He has all three traits. His opponent, Mr. Obama, has questionable character (as evidenced by his neighbors and friends), minimal experience (especially in making decisions - "present" is not a decision, it indicates the inability to make a decision); and leadership - well, when has Obama ever showed leadership? Never.

McCain took a gamut of questions from the floor, addressing such topics as: housing, life, veterans, energy, the economy, going after the culprits who caused the financial mess, China, drilling, etc. One group of junior high students asked about drilling offshore, then went into a short dance line to the tune of "Drill, Baby, Drill" to which McCain responded, "You can come on our tour!"

He was so "at home" in this venue. His answers were sharp, quick, humorous. He comes across as the real deal! Frankly, I was surprised at how human and natural he is. We sat about 25' from the center and it was like he was in your living room. IF he could come across on camera like this, his opponent would not have a prayer.

Of course, no Republican event is complete without ever present protesters. This one was no different - about 10 protesters before the session, maybe 7 afterward. As you can see from this final photo - note the signs on the ground - they had more signs than people so they just couldn't display all their "stuff" - gee, too bad.


Daily effects of indoctrination IV: Part 2 

Yesterday's edition introduced us to the new board created by someone in the Community Studies department in the back stairwell of Stewart Hall here at SCSU. �I noted while walking around the building yesterday -- I work in a remote corner of the building, so I see lots of hallways and stairwells -- that that department has new bulletin boards up awaiting material. �As the song goes, I can't hardly wait.

The board in question provides responses to a counter-poster who had responded to a set of illustrations for an essay titled "Daily Effects of White Privilege." �It is written as "this is our response"; there are names on some of the responses that are also in the student directory, so I'm going to assume the students are a member of a class (perhaps a club instead, we should admit as a possibility.) �In either case a faculty member is with them as professor (or advisor.) �Let's look at a few more of these responses.

"simle" ... who has time for proofreading?

Here's the point: I put a job description on a website for new PhDs to be new assistant professors on campus. I get a bunch of applications. The first cut of the pool is between those who are qualified for the job and those that are not. I can rank in some way, perhaps, those that are more qualified than others. But at the end of every job application process I have a tradeoff in front of me -- one candidate has a set of skills making her better in one area than the other, the other has a different skill set making him better in the other. How do I weight that? If some non-job characteristic like sex or race is counted as a criterion in the hiring process, then the process of trading off means that characteristic compensates for a lesser skill in something else. You can't say at the same time "we value diversity" and "there are no qualification differences between the diversity-preferred and diversity-unfavored candidates" because the latter means diversity had no value. A line has no width.

Again, the question -- in what way are they less qualified when we "give diversity a chance"? �Are they less qualified because they can't put a 'Y' or a '1' in the diversity box on the application screening form?� And notice the confusion here -- nothing that the counter-poster wrote said anything about quotas. �Is the professor or advisor doing any teaching here?

Now this one is very interesting. It suggests that the firm makes more profits by hiring on the basis of "goal-oriented affirmative action." (That term could mean numerous things, but in Minnesota it has a particular definition under state law.) If it really improves profits, why would a firm ever need a program? But this would allow for customer discrimination: If it improves my profits as a car dealer to have a male sales staff, I will prefer to hire only males. Now it might improve your profits because the State of Minnesota won't do business with a company of more than 40 employees on a contract over $100,000 unless you have one of thse goal-oriented affirmative action plans. But that's not the profit motive -- that's a use of the confiscatory power of the state to take tax dollars and use them to compel private firms to meet public goals.

More on Monday.

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Guest Post: A Non-Socialist Proposal to Help Recapitalize the Financial System 

Guest Post by John A. Spry, Ph.D. Opus College of Business, University of St. Thomas

One of the major problems during the present financial crisis is the need inject capital into the banks. As Professor Greg Mankiw wrote yesterday,
�There is broad agreement among economists that what the financial system needs right now is not only an injection of liquidity but also a recapitalization. The essence of the current financial crisis is that many firms bet that housing prices would not fall; the prices fell nonetheless; and now these firms have too little capital to perform the crucial function of financial intermediation.
How can the government act to get more equity capital into the banking system without the government ownership of at least part of the banks? How can we reduce the debt to equity leverage of banks and thus promote more trust in the banking system? Mankiw proposes that the government match private equity investments into banks with an one hundred percent government match of equity investment in banks that attract new private capital.
The question for the moment is, How can we get capital back into the financial system? Ideally, it would be great if more Warren Buffetts would step up to the plate and recapitalize financial firms with private money. Unfortunately, that might not happen fast enough to prevent a major economic downturn.

Some economists have proposed forcing these firms to go raise more capital from private sources. But how exactly can the government do that? It is not entirely clear how, as a legal matter, that can be accomplished. Perhaps regulators can twist the arms of the financial institutions. Call it the Tony Soprano approach. �Nice bank you have here. I wouldn�t want anything bad to happen to it.�

Other economists have suggested that the government inject capital itself. That raises several questions. First, which firms? The government does not want to put taxpayer money into �zombie� firms that are in fact deeply insolvent but have not yet recognized it. Second, at what price should the government buy in? Third, isn�t this, kind of, like socialism? That is, do we really want the government to start playing a large, continuing role running Wall Street and allocating capital resources? I certainly don't.

Here is an idea that might deal with these problems: The government can stand ready to be a silent partner to future Warren Buffetts.

It could work as follows. Whenever any financial institution attracts new private capital in an arms-length transaction, it can access an equal amount of public capital. The taxpayer would get the same terms as the private investor. The only difference is that government�s shares would be nonvoting until the government sold the shares at a later date.

This plan would solve the three problems. The private sector rather than the government would weed out the zombie firms. The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control.

Why would an undercapitalized financial firm take advantage of this offer? Because it would need to raise only half as much capital from private sources, that financing should be easier to come by. With Warren Buffetts in scarce supply, the government can in effect replicate them, by piggy backing on what they do.
My proposal: Give new equity investments in banks made over the next 30 days a guaranteed zero percent tax rate for the next 20 years.

Given our relatively high rates of capital taxation, the IRS already is a �silent� partner as it retains a significant fraction of the upside of equity investments. Instead of, or at least before launching Mankiw�s 100% match of new equity investments in banks with government money, while retaining high rate rates on the private equity investments in banks, first eliminates the taxes on new equity issued by banks.

The 30 days limit of the proposal it to encourage banks to raise equity through new stock offerings soon, while allowing the time to issue new stock. I agree with Mankiw that new private equity investments in banks would be just wait the �economics� doctor should prescribe. This plan lets market differential the sound banks from the �zombie banks� like the Mankiw plan, but without the government ownership of private bank stock.

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Media alert: Joshua Sharf radio 

I will be on Joshua Sharf's BlogTalkRadio program at 1pm CT with Bill Polley, to discuss the financial situation.


What I replayed three times on my iPod last night 

HH: Victor Davis Hanson, we�ve got two minutes to our first break here. Would you define for the audience hubris?

VDH: Well, it�s a classical concept, and it�s over-weaning arrogance. And what it means is that when things, it�s a very complex idea, but it means when things are going good, the person feels somehow that those good developments, that positive feeling is because of something he did. And then does something in excess more and more. They have another word, koros, excess. And then this finally is sort of a self-delusional process, and there�s gods in the world that egg this person on because he lacks, the word is sophrosyne or moderation. And then of course, he implodes, and the words atte (sp?). There�s a succession from hubris to atte [actually Ate', from the Iliad --kb], destruction, and this is the result of Nemesis. There is a god, Nemesis, that deludes people into thinking that whatever positive things that have happened to them is entirely because of their own rarely-answered genius and not because of accidents or fate or luck. So we all, the Greeks tell us when things start going well, do not think that you necessarily, if you�re a Wall Street financier or a Fannie Mae, that you are responsible, because you�re going to just keep doing to excess. I think Obama�s had that problem when things have gone well most of his life. He�s been able, as he said in his memoirs, to talk people into trusting him, or to talk people into doing things they otherwise might not do given his record of achievement.
From the first hour of Hugh Hewitt's two-hour interview of Victor Hanson.


Qualified to teach in a university 

Have you wondered how it is that Bill Ayers and Bernadine Dorn are able to work in a university? You shouldn't. In this deleted scene from the documentary Indoctrinate U we see that these and other Weather Underground terrorists were able to secure jobs in academia. Watch the video embedded at that link.

Blast from the past: Weatherwoman Nancy Rabinowitz and Hamilton College.


I got a brick 

Matthew Parris with the Economic Crisis in Three Minutes":

The stage is empty against the backdrop of a blue sky and scudding clouds. ENTER: Joe Citizen carrying a small brick, and Jack and Jill Jones carrying a large one...

Joe Citizen (to the Joneses): That�s a nice big brick you own.

The Joneses: It�s for sale. The kids have flown the nest and we�re downsizing. We�d take �10 for our brick. What are you asking for your smaller one?�

Joe Citizen (to himself): �10? Pricey for a brick, but I guess mine must be worth more than I realised too. The market�s obviously on the up. (To the Joneses) I�d sell mine for �8.

The Joneses (conferring): Brick prices must be rising faster than we thought. If his is worth �8, ours must be worth more than �10. (To Joe) We�ve raised our asking price to �20.
&c. A bubble begins, and then crashes. RTW clever T.

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Thursday, October 09, 2008

Quote of the day 

Listening to politicians, regardless of party, discuss economics makes me sick both to my head and to my stomach. And the only people who are not similarly affected, I fear, are persons whose knowledge of economics is sufficiently scant -- or whose ethics are sufficiently perverted -- to protect their senses from being insulted by what issues forth from the mouths of politicians speaking on economic topics.

So as an economist, I am no more interested in having Sen. Obama (or Sen. McCain) come to GMU's campus to lecture us on "how to manage the economy" than I would be, say, to have O.J. Simpson come to GMU's campus to lecture us on how to manage one's marriage.
Don Boudreaux, in a letter responding to a "canvasser for Obama" asking if he could arrange a talk to explain Sen. Obama's economic plans. You wouldn't want to hear tax policies, either.


Why Kline Voted "Yes" on the Rescue Bill 

Monday I attended a session with MN�s Second Congressional District Representative, John Kline and a local Republican Party political group; Wednesday, I participated in a town hall conference call with John Kline. As most of you know, Mr. Kline voted for the �bailout� last week. His Washington and Minnesota offices received thousands of phone calls. This post is being written to clarify, as I see it, why Congressman Kline made the decision he made. Disclosure: I am the volunteer Chair of Minnesota's Second Congressional District Republican's.

The financial situation was getting bad: the Democrats blocking of Bush, McCain and Greenspan attempts to get the financial records of Fannie and Freddie under control resulted in assets at banks and investment houses being devalued. When assets are devalued, loaning institutions cannot loan as much money resulting in a credit shortage (freeze). This in turn prevents organizations from borrowing money short term to meet payroll and inventory, etc. The (freeze) was the �hidden� fiasco that was looming on the horizon. This credit crunch had to be addressed. Hence, the $700 billion dollar it will only will be paid in installments of $250, $100, and $350 based on conditions. Without this infusion of dollars, Main Street would have been hit, hard. Responsible people would have been denied funds, jobs lost, etc.

Here are some key points:
1 � Since Republicans are in the minority, the Democrats control which bills come to the floor. Net, we don�t get much to the floor � Democrat Speaker Pelosi literally prevents our ideas from seeing the light of day.
2 � What pundits said was pork is not pork � it is a series of tax breaks that for one reason or another need to be renewed every year or a tax break for an error on a previous bill.
3 � Key demands of Democrats (A slush fund for ACORN; a requirement that UNION representatives be in board rooms to determine executive compensation; a requirement that lawyers and judges determine how much of a loan should be repaid � all of these are terrible!) were eliminated from the bill.
3 � The $700 billion is tiered at three levels and is not a bailout; distributed funds will be recouped when the assets are sold. Maybe not all will be paid back but a significant portion will be recovered.
4 � One could argue that either a �yea� or a �nay� vote was principled. Some votes were political. John voted on principle to reduce what he believed was a severe and protracted recession (or worse) balanced against a much lower risk that the bill might not work.

The easy thing to do would have been to vote against the bill. John Kline could have returned to Minnesota this week and pounded his chest out on the campaign trail telling Minnesotans that this is Wall Street�s problem, not ours. But as the last two weeks have indicated, this is everyone�s problem. And John Kline spent endless hours in Washington meeting with everyone involved so he could make the best decision he could on behalf of the Minnesotans he serves. He voted with his conscience, folks. And for six years, that is one of the reasons we have supported him. He is a man of integrity and strength, and he made a courageous vote last week because he believed it was the best thing to do.

In conclusion, while we can argue the right or not-right of it, it�s now done. Our best solution is to send as many Republicans as we can back to DC. In addition, we have to get McCain elected as president so the Democrats don�t try a �renegotiation� in February of 2009. Minnesota is in play for McCain. Let�s make those phone calls and get out OUR vote.

More detail is at Look True North (


From your church to Bill Ayers and Saul Alinsky 

It's time to follow a network. �My goal is to make more local this debate about the connections between Barack Obama and Bill Ayers, and that connection runs through Saul Alinsky. �I find the local angle interesting; my guess is in many other cities, you could also make this connection; the result will impress upon you the vast network that the Obama campaign has built to get out the vote next month.

About twenty churches in the St. Cloud area help fund a group called Great River Interfaith Partnership or GRIP. �We've talked about them before here as creators of, among other things, an affordable housing ordinance in the St. Cloud area that, by supporting the creation of new houses, may have helped create the bubble in real estate. �They are meeting on October 14th as a follow-on to an event their parent organization is creating. �More on that event in a minute.

Their parent organization is ISAIAH, also a church-based coalition. �And in this we find:

ISAIAH is one of 60 similar organizations around the country affiliated with the Gamaliel Foundation in Chicago. Our national network provides training and resources for organizing far beyond what we would have available doing this work by ourselves. It also gives us a national powerbase to influence federal legislation on immigration, transportation, and housing.
I had not made that connection until fairly recently, when in reading about Barack Obama's ties in Chicago I ran across Gamaliel. In Stanley Kurtz' story from last month, we find that the Chicago Annenberg Center, self-described as a "founder-led foundation" whose founder was Bill Ayers but whose board chair was Obama, was a funder of Gamaliel institutions.
Ayers and Obama guided CAC money to community organizers, like ACORN (the Association of Community Organizations for Reform Now) and the Developing Communities Project (Part of the Gamaliel Foundation network), groups self-consciously working in the radical tradition of Saul Alinsky.

Kurtz notes elsewhere that though Ayers was not on the board -- to avoid the conflict of interest that would have come from Ayers receiving money from CAC -- he was as much in control as Obama.

Gamaliel is modeled on Alinsky principles. �Melanie Phillips works through the pathway that takes Obama from law school to Gamaliel and becoming a community organizer. �Part of that job involves spawning yourself and training other organizers.

One day at a church I was attending (it has since closed), I was invited to come to the formation of a church reading club that would look at secular works. I love to read and went. The woman who had invited me, who worked with GRIP, had a suggestion for a book: Alinsky's Rules for Radicals. (I never went back to that group.) �I'm sure this would have pleased Senator Obama, who many years ago had looked at churches as his way to power:

What if a politician were to see his job as that of an organizer, as part teacher and part advocate, one who does not sell voters short but who educates them about the real choices before them? As an elected public official, for instance, I could bring church and community leaders together easier than I could as a community organizer or lawyer. We would come together to form concrete economic development strategies, take advantage of existing laws and structures, and create bridges and bonds within all sectors of the community. We must form grass-root structures that would hold me and other elected officials more accountable for their actions.

Anyone who has seen GRIP or ISAIAH in action, with its altar calls for political candidates to come forward and take a pledge, will no doubt recognize that scene in this paragraph. �I have already reported on the events they are organizing for next week.

Their agenda will include the altar call again:

We will:
  • Rejoice in our unity across denomination, faith, race and culture
  • Tell the truth about the challenges that face us as a society and as a community
  • Proclaim a path to a transformative and specific issue agenda
  • Challenge our public officials to walk with us and to face our common challenges with courage and imagination (this is the altar call)
  • Walk the Path through engaging with one another and our public officials around our Issue Agenda, aiming toward real change.

More accountable to what, though? It is reported that on a radio show Kurtz noted the book used by Gamaliel for its community organizers, Doing Justice: Congregations and Community Organizing. �One does well to review this book, whose back cover tells that it "weaves the theological and biblical warrants for community organizing into concrete strategies for achieving justice in the public arena," suggests "agitation" as a "fundamental organizing principle" and that its author was head of the Gamaliel National Clergy Caucus. �His first sentence in the book (after a couple quotes of Scripture, one of which is the fall of Babylon from Revelations 18): �"The world, as it is, is the enemy of God." �

Their view is totalitarian and apocalyptic. �And it extends from Chicago to Minnesota and wants to reach all the world, to do battle with the enemy of God. �If you're not with them...

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Daily effects of indoctrination IV, Part 1 

When we last left our little board -- located in a stairwell in the building I work in -- we had had a poster placed by someone unidentified (as was the board's user or users) twice placed on it which indicated opposition to affirmative action. �Such action is an indication that someone is asserting a private property right, rather unusual in that the board is on state property, not near someone's office or classroom, and had hitherto been used for postings by the dean's office for the college in which I work. �I had asked once about its ownership to someone in the dean's office (after the initial display was made) and got in return a shrug of the shoulders. �Adverse possession might attach to the board so many months later.

So I thought I should ask what happened to the counter-poster and wrote a note "Who took down the poster that was here this morning? Who owns this board?" �I signed the note. �Rather than answer me by email or phone, they simply wrote on my note:

At the bottom the respondent noted that the poster would return next week.

It did Monday afternoon, as the centerpiece of a brand new display:

Sorry to have cut off that little bit, as you might guess the first letter on the banner across the top is a 'w', as in "White Identity and Affirmative Action". The subtitle reads as a quote, "I'm in favor of affirmative action except when it comes to my jobs."�(Italics and red in original.) �This time our interlocutors made clear their mission:

By our responses, it appears, someone in the department who now claims this board has removed the counter-poster, taken it to his or her classroom (which class? we do not know) and asked the students to draw their responses. �It is interesting that the title is called "White Identity...", for as best we know the artist who drew the counter-poster could be a person of color, or of disability. �The assumption is that anyone who disagrees with affirmative action�must�be white. �This would be news to Thomas Sowell or Walter Williams or Justice Thomas. �And the subtitle ascribes a bad motive for the counter-poster's opposition to affirmative action: �He or she would be for it except that it was she or he who lost the job. �As John Hood noted a few years ago, what matters here is who is doing the hiring:

...I think there may be good reasons for me to engage in race-conscious affirmative action. The key distinction involves agency. Government institutions are purportedly "owned" by all of us and at least can be said formally to represent all citizens. Thus they have no business adopting policies that discriminate--regardless of whether they are designed to advance or to redress bigotry--unless those policies are narrowly tailored to the needs of specific jobs, slots, or contracts. (As Roger Pilon of the Cato Institute once put it, it's OK for fire departments to turn down wheelchair-bound applicants for the job of fighting fires but not for the job of dispatching the firefighters.) Private actors, on the other hand, should enjoy the latitude to associate or disassociate with others in a free society, even if they do so for reasons most of us would find repugnant.
But judging the responses of these students, that is not OK with them:One of the classes that could have been the creator of this display is a course titled "Community and Democratic Citizenship." Nothing could be less democratic than the suggestion that one's free speech rights are dependent on someone else deciding whether or not you were 'ignorant'. But it could have been part of a different class. Would not that context help us understand the previous bulletin board and this one?

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Wednesday, October 08, 2008

How much hope do homeowners need? 

So most people are slamming John McCain's plan last night that would have government spend $300 billion to replace bad mortgages held by people who are underwater with good mortgages. The rationale is to save families that we might think did the right thing but lost money on a house anyway.
America�s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures, and a weak economy. It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they�ve already suffered.
There has been since December a plan that asks lenders and borrowers to get together and renegotiate mortgages. A newer plan (described Monday in the LA Times) already has such a provision in place.
A new federal loan workout program called Hope for Homeowners (HfH) begins this month, targeting those unable to pay their mortgages. It is for homeowners who bought their homes before 2008 and now have monthly payments exceeding 31% of their income.

Under the program, banks would in many cases write down mortgages to 90% of a home's current value. Such a provision would be important in California, where many recent home buyers have mortgages that now greatly exceed their property values.

The new 30-year fixed-rate loan would be insured by the Federal Housing Administration and could not exceed $550,440.
This was passed last week in the bailout bill (see page 69, Sec. 124). And I understand that Section to have been introduced by Sen. Dodd. He pitched it in March. I think this is what Ed Morrissey (whose boss is one of the people slamming McCain) was referring to initially in his post (I now see he has updated and included the HfH plan.) And the McCain page refers to the bill as part of the powers it would have to create the Resurgence Plan. Ed also mentions a post by Marc Ambinder in which the McCain campaign says this money comes out of the $700 billion in the plan. It would be a redirection of the money, not a new cost. That was certainly not clear last night (not that much of this plan really was before I sat and read the email that had the plan I'm quoting here.)

Also worth noting are the conditionalities on the plan:
The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages the McCain resurgence plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.

The McCain resurgence plan would be available to mortgage holders that:
  • Live in the home (primary residence only)

  • Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).
Note that there is no mention of the 31% payment-to-income ratio from HfH, so to me it doesn't look really like the same plan. So buyers of homes with stated-income loans would be out (like this fellow) or people flipping properties.

There's a glut of homes on the market. A glut is reduced either by decreasing supply or increasing demand. Lee Ohanian tries to sell an increased in skilled immigrants as a way to increase demand. The McCain Resurgence Plan, at its base, tries to reduce supply by not forcing the sale of homes through foreclosures. It might be, might be, cheaper to throw a few dollars into homes directly than to support the banks through the purchase of MBSs. From the Plan:
The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of �negative equity� in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed by stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill.
The relief of negative equity means that the banks would receive from the government the difference between the principal on the original mortgage and the mortgage "at terms manageable for the homeowner." I still need some flesh on that. I would want to know if the 31% payment-to-income ratio is the definition of manageable. I'd want to know if the government can be certain the initial purchase price on the home was not set in order to qualify someone for a shady mortgage. Those details aren't there, and don't look in Marty Feldstein's pitch from last Friday (which is not exactly the same proposal anyway, but a close cousin.)

I'll see if my contacts in the McCain campaign will provide any additional details.

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Tuesday, October 07, 2008

Return your mayor to office 

Voting has begun for the office of mayor of the MOB. �I humbly seek your support and ask you to vote by finding the sidebar at the Kool Aid Report.

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The SARS comparison 

Kevin Hassett today:
Panics stop when citizens understand that those with the disease have been identified and quarantined, know what the treatment options are and can take sensible precautions to avoid infection. If we never developed a test for SARS, we would probably still be panicked. Without such information, herd behavior can drive beliefs to crazy places, as appears to be happening in financial markets.

The Singapore response sets a goal for policy makers. They need to tell us who has the disease, how they will quarantine those who have it, what the treatment will be if it's discovered, why that treatment will work, and the steps we can all take to avoid infection. They need to do this with facts and transparency, not with spin and assertion.
Hassett criticizes the Bernanke/Paulson policies for not being able to identify which banks that are troubled and which are not. But why would government be any better able to tell us this than the private sector? There is no test that tells us which banks have enough troubled assets to affect solvency when the market fails to provide a price for them. The purchase of enough of those assets to make a market price should be sufficient to provide that kind of information to private decisionmakers, who can then figure out whether or not a bank should go broke.


Humor of the day 

September madness for a financial crisis, courtesy WAL.


Monday, October 06, 2008

Real men don't bunt 

Thanks for playing, Los Angeles/Anaheim/Dana Point/San Ysidro/whatever. We'll see you next year.

Tampa? You're next.


They can take my sponge when they pry it from my cold, dead hand 

Washing your car or boat in the driveway or street is a residential ritual as American as backyard barbecues. But the state of Washington is telling its local governments they must prohibit home car washing unless residents divert the wash water away from storm drains, where they say it causes water pollution. 'I understand this is something people have done for a long time,' says Bill Moore, water quality specialist with the Washington state Department of Ecology, which is requiring the ban. 'It's not something we should be doing any longer.'
Source, via the Amateur Economist.

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Too true 

Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people's money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from "Goldman Sachs" to "U.S. Treasury," and everything else continues as it was.
Arnold Kling, who Joshua Sharf thinks is contrary to my view. He's not on this one. When I worked in Indonesia on figuring out whether the country could pay for the bailout they enacted in haste, I spent seven weeks in a hotel in Jakarta surrounded by former officials of FSLIC, the organization that had slept through the collapse of the U.S. savings and loan crisis, heretofore the largest bailout (by dollar volume) in history. It did seem odd to me that the officials who had cost the U.S. $200 billion in that bailout were now helping figure out what to do with Jakarta commercial real estate that had been flipped and re-flipped in almost identical fashion. (My role in that was as a fiscal, not a financial or banking expert.)


Daily effects of indoctrination, Stalin photo retouch edition 

On Friday I posted that this board had had an extra poster put on it, and then updated that the poster that disagreed with the board's premise was taken down. After posting that, I tacked a note to the board asking who controlled this board and why had the extra poster been taken down? I signed the note so as to leave no doubt who was asking, and put it on a small memo paper with the university's logo.

That evening I got a call from someone standing in front of my note and said someone had written a reply on the note. Next to "who owns this board?" was written "CMTY -- see Dr. Luke Tripp." Dr. Tripp is chair of the Community Studies program. I had speculated before that the board came from that department because there was a similar board that was identified as theirs. Now we know. I have received no other communication in this regard.

There was also scrawled on the note a message that the counter-poster would be returned on Monday. As of 45 minutes ago, it was not there. But someone else had put a copy of that poster up on the board at lunch time. The person who put it up was engaged in an experiment as well, and found the note removed within two hours of his re-posting.

I am now referring to the person in the counter-poster as Yezhov. (If you've never read that book, btw, it's well worth your time.)

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Behind the weekend 

My thanks to bleak and Captain Capitalism for appearing on the Final Word this weekend. �You will want to listen to the podcast if you missed it, as the discussion of the housing crisis was as interesting as I hope my morning talk with David Strom and Margaret Martin was. �Different, though, as Aaron (CC) is certainly more opposed to the bailout bill than I and, it turned out, bleak were. � (I disagree with that last link, but I'll save that for another time.)

If you liked Aaron's radio appearance, do pick up a copy of his new book, Behind the Housing Crash. �The book blends anecdotes of his work in the financial industry with a very libertarian view of economics and finance. �Why did financial firms continue to lend money when their valuation methods told them the riskiness was high? �Because, quite simply, they stopped believing the models and believed that prices always go up. �Once you decide that, it is only a matter of time before new financial firms or new financial instruments pop up to provide fuel for the mania. �Aaron provides several stories from within the financial sector of how the mania spread, and for this the book is highly useful.

While giving thanks, you would perhaps also enjoy The First Team's handiwork in creating attack ads. �Credit goes to the Fraters, who did this for both the other two shows. �These are obviously having a very negative effect on my re-election chances for MOB mayor. �Just desserts will be served.

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Subject to revision in the second edition 

A recent financial innovation of major importance has been the credit default swap. �The CDS, as it is called, is a derivative that transfers the credit risk, usually of a debt instrument, to a third party, at a price. �Being able to profit from the loan transaction but transfer credit risk is a boon to banks and other financial intermediaries, which, in order to make an adequate rate of return on equity, have to heavily leverage their balance sheets by accepting deposit obligations and/or incurring debt. �Most of the time, such institutions lend money and prosper. �But in periods of adversity, they typically run into bad-debt problems, which in the past had forced them to sharply curtail lending. �This in turn undermined economic activity more generally.

A market vehicle for transferring risk away from these highly leveraged loan originators can be critical for economic stability, especially in a global environment. �In response to this need, the CDS was invented and took the market by storm. �The Bank of International Settlements tabulated a worldwide notional value of more than $2o trillion equivalent in credit default swaps in mid-2006, up from $6 trillion at the end of 2004. �The buffering power of these instruments was vividly demonstrated between 1998 and 2001, when CDSs were used to spread the risk of $1 trillion in loans to rapidly expanding telecommunications networks. �Though a large proportion of these ventures defaulted in the tech bust, not a single major lending institution ran into trouble as a consequence. �The losses were ultimately borne by highly capitalized institutions -- insurers, pension funds, and the like -- that had been the major suppliers of the credit default protection. �They were able to absorb the hit. �Thus there was no repetition of the cascading defaults of an earlier era.

Alan Greenspan, The Age of Turbulence, 2007, pp. 371-72.
[T]he House Agriculture Committee, which has some oversight of commodities and futures trading, plans to hold a hearing this month on a class of derivatives known as credit default swaps. AIG held huge amounts of credit default swaps, which act as insurance against bond defaults. The prospect that AIG wouldn't be able to pay out the swaps was a major reason the government took over the company.
Houston Chronicle, Oct. 5, 2008.


Sunday, October 05, 2008

Why Chanhassen Dinner Theaters Thrive 

Last Wednesday, my husband and I went to Chanhassen Dinner Theatres to see "Swing," a jazz musical. It was terrific with its great singing and superb dancing. We'd not been there for awhile but the 10,000,000 guests who have keep the place going strong.

Why does Chanhassen thrive when so many theater operations fail? Being in business for 40+ years is quite an achievement, so how does Chanhassen do it? I looked through the program which listed all the shows performed there since its opening in 1968. The answer becomes obvious: At all times, regardless of theatre, there is an offering that is upbeat and positive and often, comical. This overall positive theme is a key component of each production on the main stage or in one of the smaller theatres.

We're tired of the doom and gloomers, the "nothing is ever right" and "America is all wrong" crowds. This negative attitude of far too many people who claim to be our artists and show-biz personalities results in a negative mindset. For entertainment, most of us want escape, fun, laughter, and the ability to watch extremely talented people do their thing in a very positive way.

Chanhassen understands this desire and they deliver.


Friday, October 03, 2008


A few weeks ago I had spotted a new posting on the bulletin board I featured last summer, which had a series of drawings and slogans depicting "Daily Effects of White Privilege." �The new posting was drawn by someone who opposed affirmative action. �The drawing was there as I cam up the stairwell mid-morning but had been removed in the afternoon when I went to get a photo of it.

Yesterday another version appeared:

The thing in this students hand reads "REJECTED to promote diversity." I doubt this refers to SCSU directly -- we are not a selective institution such that admitting a student of color crowds out a student of pallor. But it could represent other schools, perhaps ones that the artist had applied to and was rejected from.

At the bottom there is a comment:
Notice: This poster does not insult anyone and it does not advocate discrimination. To remove this poster is to violate a student's academic freedom.

I think a great contrast to this particular display would have been for the student to not be anonymous. If you are going to ask for your academic freedom, you should do so openly and proudly. If the student was to face discipline, he or she should come forward and seek advice in defending his or her academic freedom. I for one would volunteer. And it would be a good contrast to this display, which has remained up now for over six months, unsigned and unattributed, left to have people believe it is a statement made on behalf of the institution. Perhaps it is; if so, why consign it to a stairwell?

I will watch to see if and when this added poster is removed like the last one. �Should the person who removes this addition be subject to any disciplinary action?

UPDATE: �Too late! �It's already been removed. �I know members of the administration read this blog, so let me ask them: �Will you investigate who is removing these posters?

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Now it's nine 

Today's employment report puts the current decline in employment at a cumulative loss of 760,000 jobs since last December. The graph to your left repeats a graph I drew last month in which I noted the recession has been pretty wimpy. The data for August, however, makes it much less wimpy, and this first look at September, if it bears up in subsequent observations of that month's data, will make it nearly impossible to have a positive third quarter for GDP. Jim Hamilton considers the recession "a done deal".
...the purpose of the bailout proposal still being debated in Congress is not to prevent a U.S. recession-- the recession is a done deal. The purpose is to try to prevent the recession we're already in from being transformed into a severe contraction.
The Libor-OIS and TED spreads are at records. Krugman worries. 24 legislators have turned ... in time? Off to watch the vote.


Thursday, October 02, 2008

An American Carol 

A must-see movie this weekend! The movie, An American Carol, is a courageous conservative comedy from David Zucker. It opens in theaters nationwide this weekend. It's funny yet teaches the history lessons not taught to so many of our people under 40. You will laugh and some will cry but Zucher is an award-winning film maker and the cast is excellent.

Everyone is watching to see what happens. Hollywood. The media. The Left. Yes, even Michael Moore.

Will the pro-American, pro-military, and pro-faith movie AN AMERICAN CAROL beat Bill Maher's anti-Christian movie RELIGULOUS or Oliver Stone's anti-conservative movie W.?

Only you can make sure this is a success - find a theater near you and GO SEE IT! (Thanks.)


Use the Label, Please 

Political insiders throw around names: Pelosi, Reid, etc. as though people know that these abysmal leaders are Democrats. Hello, conservative pundits - John Doe does not know these people are Democrats.

As Henry Ford was reported to say, "I don't care what the reason is, just spell my name correctly." When conservatives and Republicans only throw out names. it provides free publicity for them.

Hint: "Democrat Pelosi, Democrat Franken, Democrat Reid, Democrat Barney Frank, etc. "

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One step back 

I had thought the House bill that failed on Monday was a fair bill. It did not address enough the question of capitalization, but it would deal with the liquidity issue. The bill passed by the Senate last night is two large steps back with the FDIC insurance extension.

First, in the process of making this a Main Street bill rather than a Wall Street bill, the Senate raised limits on FDIC insurance to $250,000 from $100,000 per accountholder. In the WSJ's Political Diary, Stephen Moore reminds us that this was just the thing that got the savings and loans in trouble back in the 1980s. After the passage of the Garn-St. Germain Act in 1982, which raised FDIC limits from $40,000 to their current level, deposit brokers started to seek out high returns and send "hot money" from bank to bank. To keep deposits, banks started to increase interest rates they paid on deposits. This of course hurt profitability. Moore notes that the Senate bill "will also be an invitation for troubled banks to started taking high-risk gambles in real estate and other ventures with taxpayer insured accounts." The last thing we need is to encourage banks to take on more risk.

Second, FDIC insurance isn't free; banks are already concerned about an increase in deposit insurance premia for failure of IndyMac. (As the article I linked points out, the sale of WaMu was fast enough and at a sufficient price to not expose FDIC to any losses.) This new insurance is not free -- and the costs will be born by the banks, as CBO director Peter Orszag notes:
Most depository institutions (commercial banks, savings associations, and credit unions) are required by law to have federal deposit insurance. CBO, therefore, considers changes in the federal deposit insurance system that increase requirements on those institutions to be private-sector mandates under UMRA. The cost of the mandate would be the additional premiums assessed during each of the first five years the mandate is in effect. While CBO expects that any additional losses from the temporary expansion in coverage would gradually be offset by higher future premiums, we cannot estimate the cost of the mandate because of uncertainty about the timing of the losses and whether or by how much premiums would increase during those first five years.
The uncertainty he feels is felt by the banks as well. Now is not the time for that. If the banks would want to buy the additional insurance, it is only right to ask them to pay for it. But to mandate it? Not a good idea at all.

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Indoctrinate U HS 

The Virginia Education Association sponsored 'Obama Blue Day' on Tuesday. In an e-mail sent last week, it urged teachers to participate by dressing in blue.

'There are people out there not yet registered. You teach some of them,' the Sept. 25 e-mail reads. 'Others, including our members, remain on the fence! Its time for us to come together, voice our unity, because we make a difference!'

'Let's make Obama Blue Day a day of Action!' the e-mail continues. 'Barack the vote!'
The union is defending this as not encouraging their teachers "to use their classrooms for partisan political purposes." Must be teaching Orwell this week.

h/t: KU

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Wednesday, October 01, 2008

Add two 

I note with great appreciation the comments about this blog from Politics in Minnesota in listing their favorite economics and real estate blogs. Let me add two to their list, both Twin Cities-based bloggers writing on real estate and economics and are part of my regular reading. Schadenfreude Now has at least two writers who I know and who comment on this blog regularly (using the pseudonyms bleak and silvercharm). They are well-read and provide analysis of economics and other social phenomena from a decidedly more libertarian view than I do. Their blog is about six months old.

Captain Capitalism has been at this much longer, and like at least one of the Schadenfreude bloggers has worked with real estate and lending. Indeed, he now has his own book on the collapse of the local real estate market, which I was privileged to read in advance of its general release. It is full of excellent stories that tell how loans were inflated. (Indeed, Arnold Kling in his podcast with Russ Roberts this week notes that no money down loans -- even loans on fraudulent values -- are not found out if real estate values are rising, which is why for many years nobody could understand why those fools in the old days insisted on 20% down for a house.) Aaron is far more critical of the bailout plan than me, and as a guy with insider knowledge is a viewpoint you should read.

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Many thanks 

Thanks to Ed Morrissey of Hot Air -- whose friendship is one of the greatest benefits received from the labor of blogging here the last 6 years -- for comments on my American Experiment article. Two quick notes: The idea of a "market maker of last resort" did not originate with me. For that you should read Willem Buiter from last year. Whether the concept has an earlier progenitor, I do not know. I wasn't really writing an academic piece where I did a full literature review. If anyone has, please send it to me, thanks.

Second, while I think there's a case for intervention, I don't think the Paulson plan in its original form was the right plan. Ed says the same thing:
That doesn�t necessarily mean that the legislation in front of Congress is the completely correct approach, either, although it keeps improving (except for the pork) on each successive iteration. But the government that created this mess with its coercion over a period of several years needs to act at least to remove that coercion and to stimulate a market for the products of its failure.
There are two problems in the market. One, as the article discussed, is gearing. Some of that gearing is on housing assets. But not all. You could have had CDS securities in a market with no housing bubble and still have gotten yourself in trouble. The other problem is that, particularly with banks holding riskier assets than anyone had understood, they now have much less capital than they should. George Soros is trotting around Congress with a plan that has the government providing that capital. The warrants suggested in later versions of the plan that the House shot down Monday could potentially have brought in that capital, but either way you have government ownership of banks. A successful plan, as Buiter notes today, has to have both parts. We may not get them in the same bill, though, and if not you have to hope that Congress is smart enough to pass both despite their haste to get home and campaign.

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Another sign of the credit crunch 

The nation's financial crisis hit home for Minnesota colleges and universities this week when an investment fund used by several to pay short-term expenses said it would close and cut off nearly all access to cash.

The move prompted David Laird, president of the Minnesota Private College Council, to warn the state's congressional delegation Monday that some of the group's 17 members would not be able to make payroll Tuesday.
Source. The money was with a fund operated by Wachovia Bank, who restricted withdrawals on Monday. Those who yearn for the no-Fed days will note that this was a common practice of banks at that time.
News of the Short Term Fund's demise this week made Mike Sullivan, chief investment officer at the University of St. Thomas, feel like he had dodged a $40 million bullet.

That's the amount of St. Thomas' money he had tied up in the Short Term Fund until about 1 1/2 weeks ago when some troubling signs convinced him it was time to move the money into Treasury bills.

"It was a hunch I played, an absolute hunch," Sullivan said. "That's money we will be using over the next two to three months. That is money we'll be using to make payroll, pay bills ... This is a very, very big deal in higher education right now. What are colleges going to do to make payroll?"

...While St. Thomas dodged the Commonfund bullet, Sullivan's not sure he'll always be so lucky. The credit crisis has become so pervasive, it's hard to tell where money will be safe.

"I am almost prepared for something out there in this liquidity crisis and confidence crisis to go against us," he said. "There is just so much happening out there."
None of the MnSCU schools are reported to have been in this fund, so SCSU readers should relax.

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