Monday, August 31, 2009

Request for meat suggestions 

In comments to this post, as discussed on NARN on a Stick today, please give ideas for what meat King will eat to give up 22 years of vegetarianism at the State Fair. Suggestions will be polled later in the week.

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Media alert 

I will be on KKMS at 3:30, live from the State Fair, and then Ed Morrissey and I take a turn for NARN on a Stick at the Patriot booth at the Fair from 5-7pm. Please tune in (links to both those stations will include streaming audio.)

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Ownership society, TARP edition 

Let me be sure I have this right:
  1. Government forces banks to take capital injections. Government gets warrants to buy common stock in the process.
  2. Government tells banks how to operate.
  3. Banks want government out, make an offer to buy their shares and warrants away.
  4. Banks raise private capital, pay off the government.
  5. Government declares victory.
Did I miss anything?

Is this a good thing?

It occurs to me that this "earned a return for the taxpayers" line is becoming the Leviathan equivalent to those annoying "it's for the children" appeals on TV. It obviates any need to really think about what was done in the first place. If earning a return for taxpayers was a criterion for government performance, let's put the whole portfolio up in Morningstar and see how many stars our elected officials earn?

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Out of the ivory tower 

Mark Bauerlein reads the new Chronicle of Higher Education's Almanac and finds a few disturbing signs. And I don't mean the paucity of conservatives on campus -- that's a foregone conclusion by now that barely bears repeating. No, this is the observation that caught my eye:
The heading is "Issues believed to be of high or highest priority at own institution," and the last item is "To develop an appreciation of multiculturalism." To that query, 54.5 percent of respondents answered "Yes." In other words, when asked about whether their campus promoted a particular ideology and wanted students to embrace it, they agreed. Note that the statement doesn't say "study multiculturalism." It says "appreciate multiculturalism." It sets a particular belief in front of students and urges them to value it.
To marvel at this you need only imagine that the Economics Department of your local state university (say, mine) were to have as "our highest priority" to be "an appreciation of free markets." (We say in fact "understanding of economics for decision-making", in case you were wondering.) What would the howling be of the department's indoctrination as "corporate apologists"?

Here are a few others in our university:
"The Department of Human Relations and Multicultural Education provides education in self-awareness and skills essential for living and working in a democratic, socially just society. Specifically, the issues addressed by the department include the study of oppression and social justice related to race, gender, age, class, religion, disability, physical appearance, sexual orientation and nationality/culture. Human Relations and Multicultural Education is an interdisciplinary applied field which is committed to addressing the serious questions of survival, equity and quality of life facing people around the world. The departmental curriculum represents the voices and perspectives of groups which have historically been excluded from the western canon. Human Relations is also dedicated to teaching investigative and critical thinking skills whereby participants examine mainstream and alternative viewpoints for values and veracity. Critical thinking, in the context of this program, must go beyond ordinary problem solving "techniques" to questioning and challenging ideas, policies and institutions."

"The General Education Program at SCSU is committed to the ideal of liberal education that provides knowledge, skills and experience and promotes critical thinking and ethical values for a lifetime of integrated learning in a diverse and changing society." [Approved by Faculty Senate on 1/24/2006.]

Assessment (of Racial Issues Courses) ... "will demonstrate knowledge of key concepts such as: ... "examples of privileges and benefits based on racial identity", "...identify forms of institutional discrimination in education, housing, politics, economics and the legal system" and "will critique societal attempts at assimilation and exclusion of under represented groups of color in the U.S."
Bauerlein notes the activist agenda of many faculties surveyed in the Almanac. While SCSU's latest attempts at activism are not much more than a farmers' market, there is little doubt we're in the majority found in the Almanac. The question one should ask is whether the new sustainability push differs from these diversity goals. One might even ask during freshman orientation, but beware.
Learning to see what is ideological about an ideology is difficult but it is part of a college education. Unfortunately your college is far more likely to want to reinforce the diversity ideology than to help you consider it critically. You may have already seen this reinforcement in your application if you were invited to write a �diversity essay.� You will see it again in course requirements, the organization of student groups, and the singling out of some groups for special treatment.


Sunday, August 30, 2009

Zero net job growth over two years 

I was thinking about Keith Hennessey's post of Thursday on the implications of the OMB forecast on unemployment. The OMB forecast says that in the fourth quarter of 2010, the unemployment rate will be 9.7%. Inspired by Hennessey's work, I decided to write a small spreadsheet. My goal: what does the forecast say about the number of jobs created? Here's a screen cap of the spreadsheet:

Let me explain each column. The source of this data is the Current Population Survey from BLS. Data projected is italicized. The two bold numbers for unemployment rates are the projections from the OMB economic assumptions. My other assumptions, working left to right:

  • Population -- estimated to grow on average at 0.8% per year over the next decade according to the Census. I just imposed that on this forecast.
  • Labor force population rate (LFPR) -- in order to do this, you have to make an assumption about that rate. I looked at the rate coming out of the 2001 recession, which in fact continued to decline for a year and a half after the end in November 2001. It isn't going to rise rapidly here in my opinion, but I let it slowly rise through 2010. Note that if OMB assumed no change in LFPR or continuing decline, the story of my subject line is worse -- you would get net job loss. If you want to make a different forecast for LFPR, go ahead.
  • Labor force = LFPR times Population.
  • Unemployment rate. My projection had the two 4th quarter numbers given, the annual averages that were also in the MSR (9.3% for 2009, and 9.8% for 2010). The path was just smoothed to make the averages and endpoints work.
  • Unemployed = Labor force times unemployment rate.
  • Employed = Labor force minus unemployed
  • Emp/pop = Employed/Population, the ratio of the over 16 population that is working, or the employment ratio.
What we see here is that at the end of 2010, based on what I think are reasonable assumptions on LFPR and population, there are 152,000 fewer people employed than in the fourth quarter of 2008. The employment ratio stays below 60% through the period. Any effect of the stimulus now has to be "well yeah, we lost 152k jobs, but we'd've lost A LOT MORE if we hadn't passed that stimulus package!" Hell is the place where you go to become an economist that has to sell that line.

CBO has its own projections, and when I try to run those into the spreadsheet and when I run those in I have to assume something about 4th quarter unemployment (OMB gives you that number, CBO does not.) I do have their estimated average 2010 unemployment rate of 10.2%. I make that to give us a decline of employment over the first two years of the Obama administration in the range of 750-800 thousand workers, versus 152 thousand. Hennessey notes that this new CBO figure is down 2.3 million workers from estimates last March. But the range of difference in terms of jobs is much smaller than that, probably 600,000 or so our of 145,000,000.

Feel free to whip, chop or puree your own jobs report with this spreadsheet.

UPDATE: Thanks to a reader via Twitter, I found a typo in my population line for 2009:II, which is the worst place to have it because that's what drives the projections. I've updated the file and re-cast the image. It makes matters worse: The size of the decline in jobs between the fourth quarters of 2008 and 2010 is now 1.96 million rather than the earlier figure. This makes sense given my earlier, higher population figures.


Friday, August 28, 2009

Tomorrow's a Fair Day 

Tomorrow I have first an opportunity to hear some conservative views on the health care debate. See yesterday's note for more, but the short of it is: 9-11am at the St. Cloud Public Library on St. Germain. I will be moderating a panel that will include medical professionals and state Rep. Steve Gottwalt. Our discussion will be more general intended to show alternatives to the plans being discussed at town halls. We are not replicating a town hall; I am using a moderated format for audience participation that I think will promote a good discussion.

Then I'll hop in the SUV and head to the State Fair, as NARN begins in a few minutes with its NARN on a Stick broadcast schedule. Normal Final Word tomorrow, 3-5 pm. guests to include state Rep. Laura Brod. I have a potential surprise guest too that you won't want to miss. Be sure to turn your radio to AM 1280 all day as we start with the David Strom Show at 9am and then six hours of NARN.

I'll be pulling extra NARN on a Stick duties on Monday and Friday next week, 5-7, so if you plan to come to the Fair, please look for us on Dan Patch, about fifty yards inside the Snelling gate. Alternatively, if you're already in the Fairgrounds, come up Dan Patch, walk past the DFL booth and turn right. We'll be there.

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Twinkle, Northstar, price too high 

Last April I noted the nice service provided by the Albuquerque-Santa Fe Rail Runner, which cost me $8 for a round-trip. At that time I said
I'm not a transportation specialist, but I'm willing to speculate that the demand for urban rail is elastic, so higher prices decrease quantity demanded greatly. If so, would the fares being discussed for Northstar be too high?
We'll see shortly, because when they start running the train in November, you'll be paying $7 each way just to get to Big Lake, a much shorter distance than Albuquerque-Santa Fe. Weekends will have a discounted fare. There will now be as well another as-of-yet-undetermined charge for a bus link between St. Cloud and Big Lake.

According to a former public official $7 represents about 20% of the cost of running Northstar based on some assumptions about ridership. Wouldn't you want to price this to maximize total revenue? If so, do we really think $7 a ride does that? (For non-economists, here's a tutorial on the relationship between elasticity, pricing, and total revenue.)

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Stopped clock or red flag? 

Let's suppose you're one of those real conservatives, you know, the ones who talk in whispered tones to their friends about the Secret of Jekyll Island or some such. Your Facebook page is full of "audit the Fed!" and "support H.R. 1207!" fan groups. And you read here, even though you know I'm not in your camp.

Meet your newest friend: Barney Frank.
Secondly, they have has since 1932 a right under Herbert Hoover to intervene in the economy whenever they could. Last September, the Federal Reserve they were going to advance $82 billion to AIG. I was kind of surprised and said, 'Mr Bernanke do you have $82 billion?' Mr. Bernanke replied, 'I have $800 billion and under section 13.3 of the Federal Reserve Act they can lend anything they want.'

We are going to curtail that lending power. We are going to put some restrictions on it.

Finally we will subject them to a complete audit. I have been working with Ron Paul, who is the main sponsor of that bill. He agrees that we don't want to have the audit appear as if influences monetary policy as that would be inflationary.

One of the things the audit will show you is what the Federal Reserve buys itself. And that will be made public, but not instantly because if it was made instantly people would be trading off it, so the data would be released after a time period of several months, enough time so it will not be market sensitive. This will probably pass in October.
So is Barney Frank one of you Jekyll Island theorists? Is he just a stopped clock that's right twice a day? Or do you realize that you may be helping to hand the keys to monetary policy over to Nancy Pelosi?

Everyone who believes the audit run by Pelosi and Frank will not "influence monetary policy" in a way that would be inflationary, raise your hand. How about you, Rep. Bachmann?

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Best paragraph I read today, rock-and-hard-place edition 

If the government tries to double taxes on people like me, it's in real political trouble. If it doesn't try to double taxes on people like me, it's in real solvency trouble.

James Hamilton.


Thursday, August 27, 2009

Health Care Forum this Saturday 

I will moderate a Health Care forum this Saturday, 9-11am at the St. Cloud Public Library on St. Germain. Link will provide directions. Speakers will include two doctors, someone from the St. Cloud Hospital, and Rep. Steve Gottwalt of St. Cloud. This forum is sponsored by the Central Minnesota Conservative Caucus.

The forum is the first of several "think-talk fora" that CMCC hopes to hold. I have been involved in thinking about the think tank, and given the timely nature of the discussion we're hopeful that others will join us. There will be a moderated opportunity for audience participation. The Library has a coffee shop on the premises. Admission is free.

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What comes out of the churn? 

I got a call last night, and spoke this morning, with a reporter from the New York Times discussing St. Cloud, the economy here and the impact of the New Flyer layoffs (discussed on this blog last week.) St. Cloud seems to have become a magnet for stories about jobs and the stimulus. Describing this city's economy is part of my job, and I remind readers who are curious to look at what we write at the St. Cloud Quarterly Business Report.

Central Minnesota has long been a place that had a higher-than-average share of manufacturing jobs. It's hard to really say why; it's on Interstate 94 and has good rail traffic, so the transportation is here to support it, but there are many, many places like that. The area bucked this long-run trend of declining manufacturing employment, but how much longer remains to be seen. Recessions tend to take declining firms and industries out of business much more, and you get rotation towards other industries as you come out of the recession.

So the question we ask up here, the one I keep asking to local audiences, is "if we're going to stay strong in manufacturing, what's our advantage? And if we're not, what do we rotate towards?" Those who answer positively point to lower labor cost when factoring in relatively high productivity. Take Federal Reserve economist Toby Madden, for one.

Overall, Madden said he's very bullish on the manufacturing sector's prospects for recovery -- if you gauge recovery on the basis of productivity, which he said is an important economic measure.

"If you take a look at what really matters, which is people's consumption of goods and services and leisure time, productivity is the key," he said. "It's hard to measure and it's not reported as vibrantly as job numbers are, which are easy to obtain, yet maybe not as important as the overall increase in productivity and output of goods and services."

Madden said many manufacturing jobs simply will not come back, as companies do more with fewer people.
That won't be New Flyer's (or Arctic Cat's) story, since their plants are relatively new and most of the productivity gains are already in place. If those places grow business, they'll probably add new labor. But many longer-established places in town maybe will have that opportunity before them. That will mean we converge towards the lower manufacturing shares in employment in Central Minnesota, even if we still have a comparative advantage.

The ones who think the comparative advantage is gone? You can call it creative destruction or the churn, but predicting the outcome of this dynamic process is hard. Nobody has a good idea for what comes next. Everyone pumps health and the local hospital. That will serve much of the population to the north and west of us who used to go to the hospitals in Minneapolis, St. Paul and Rochester. But what's happening to their demographics? Central Minnesota might have population growth, but the western part of the state has falling population. Will servicing that population with health, education, retail, leisure and hospitality really work here? We have no I.T. sector to speak of, even though it appears we have some great infrastructure here. Finance? Why would those firms move here? These are the questions I have wrestled with, and will more this weekend as I start writing the next QBR (due out at the end of September.)

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The cupboard is Bair 

The FDIC is down 40% this year to $10.4 billion in its reserve fund, while the number of problem banks (those that get failing grades in its longstanding rating system) has grown to almost $300 billion.

The U.S. has taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama, amid the worst financial crisis since the Great Depression. The surge forced regulators to charge banks an emergency fee to raise $5.6 billion for its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. The total was the lowest since the savings-and-loan crisis in 1993....

An $11.6 billion increase in loss provisions for bank failures caused the decline in the reserve fund, the FDIC said. If the fund is drained, the FDIC has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

That second paragraph is important -- they don't just have $10.4 billion, but also a reserve fund, which the FDIC places at $32 billion. And FDIC has a line of credit with the Treasury for $100 billion on which it can draw, though FDIC Chair Sheila Bair says they do not expect to draw on the line.

Worth noting: The Midsummer Review we discussed Tuesday included the return of $250 billion from the financial market backstop. Perhaps they've moved money away prematurely.

In the meantime, Richmond Federal Reserve president Jeffrey Lacker is sounding hawkish again.
The Federal Reserve may not need to buy the full $1.25 trillion in mortgage-backed securities the central bank has authorized by year-end as the economy improves, ...

�I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide,� Lacker said today in a speech in Danville, Virginia.

Lacker has said the central bank should avoid favoring specific credit markets such as mortgages and consumer loans and instead boost the money supply with more �neutral� purchases of Treasuries. He cast the lone dissenting vote in January against the Federal Open Market Committee�s commitment to continue buying agency debt and mortgage-backed securities. In 2006 he dissented four times in favor of higher interest rates.

As the Fed continues to debate an exit strategy, more Fed presidents and governors will begin to look at this view. The fight is on for how soon exiting begins; as they move, look for more banks to fail.

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Job description 

In today's Best of the Web, James Taranto discusses an op-ed in the Boston Globe. The op-ed reads:
Once we acknowledge that government is here to stay--a proposition to which George W. Bush and Karl Rove were as committed in the last presidency as [President] Obama and Nancy Pelosi are in this one--the only question is whether government will be allowed to do its job well. Liberals, none more so than Teddy Kennedy, believe it should be.
to which Taranto notes an interesting taxonomy:

So there are two kinds of people in the world, those who "acknowledge that government is here to stay" and those who don't. As the former category is capacious enough to include George W. Bush, Barack Obama, Nancy Pelosi and Karl Rove, we can pretty much write off the nonacknowledgers as irrelevant--if, indeed, they exist at all.

The acknowledgers, in turn, are divided into two subgroups liberals, who believe government should "be allowed to do its job well," and nonliberals, who do not.

Doesn't this presuppose we know what the job of government is? Does the op-ed writer have any understanding of the differences we have over this?


Wednesday, August 26, 2009

Graph of the day 

From The Economist. I'm intrigued by the global average -- how did they make it? Did every city's value count evenly? Hard for me to believe you sell many Big Macs in Jakarta, when you can get good nasi goreng in a warung for about ten minutes of work. So they must sell fewer Macs in Jak than they do in Toronto.

(h/t: Business Insider)


Lack of differentiation 

Krugman notices that nobody watches Fox Business News. Truth is, it sits on my box right next to Bloomberg, which is a longtime addiction for me. I have it on my favorites list, between Bloomberg and ESPN News (after which comes MLB Network and then back to Fox News.) You have to offer me something that gets me to switch that habit, be it from Bloomberg or CNBC. It's just not different enough: If you go too conservative you're bleeding people from Fox News, and if you play it as straight business nobody has a reason to change. And, it seems every time I turn it on they're playing Dave Bloody Ramsey again. It's not like there's a dearth of infomercials on cable...


Tuesday, August 25, 2009

Quick note on Bernanke's reappointment 

I got called on this by a news outlet, so some of you may hear me on radio today about him. Generally, I thought he was the best choice of those who were considered the closest competitors. I really thought Summers was a bad idea as being too close to the Obama White House and rather difficult to have in a consensus-building role. Janet Yellen was an insider choice, but she really doesn't have anything Bernanke doesn't have now. If you are going to change horses in the middle of a recession, it should be for something notably better. She's not worse, she might be better, but "notably" is a significant hurdle. I think the same would apply to any of the others (my dark horse was Bernanke's colleague and former Fed governor Alan Blinder, but dismissed the possibility quickly when I thought about Yellen.)

The better question is really why now? Why reappoint Bernanke five months ahead of schedule, while President Obama is supposed to be vacationing? My only answer is that the Administration wants his position secure as they prepare to restructure financial regulation. I think it makes it more rather than less likely that the Fed is getting the keys to a new souped-up regulatory machine. More on whether I like that or not when we get closer to having a proposal from Congress.

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Minnesota clunkfare untaxed? 

Cash for Clunkers has a nasty surprise for some people! (h/t: Jay Yarow)
When you buy a new car you pay tax on the difference between the new car's purchase price and the trade-in you present to the dealer. This is an intentional distortion in the law that is intended to favor dealers over private-party used car sales; if you sell your used car privately the new buyer pays sales tax but you do not get the offset on the purchase of your replacement vehicle - the only way to get that is to trade the car.

Dealers use this, of course, in negotiations, effectively pocketing the sales tax - and why not? It's a real difference to you!

But the "cash for clunkers" is not a trade-in. That's a $4,500 check from the government, basically.

So you get nailed at least once and possibly twice. Specifically, you pay sales tax on the full vehicle price (effectively paying sales tax on the $4,500!) and what's worse those states that tax income (that would be most of them!) might wind up counting this as income for state income tax purposes too, effectively taxing you twice.
Minnesota has such a law, so I'd've thought Minnesotans have to pay an extra $292.50 in taxes you're paying on that clunker if you got the $4500 government payment.

But according to the Minnesota Department of Revenue, not so:
The Minnesota Department of Revenue is reminding consumers that the CARS incentive is deducted from the selling price before Minnesota motor vehicle sales tax is applied, effectively reducing the taxes owed.
They advised the Minnesota Auto Dealers Association the same thing. This is curious; there's nothing in the law that says you would have to do that.

No word on whether Clunkfare is taxable income.

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Fewer secrets of the temple 

Last weekend on Final Word, I interviewed Vern McKinley, who has a Freedom of Information Act suit filed against the FDIC and the Federal Reserve for minutes of meetings in which decisions were taken on invoking emergency powers that permitted the Fed and FDIC to provide bailout funds to various financial institutions. Vern has posted his documents here, and Judicial Watch is now joined in the case as counsel for Vern.

Vern should therefore be encouraged by last night's ruling that the news agency Bloomberg will be given access to a list showing who received emergency loans from the Fed. The documents requested were to determine not only who got loans under the Fed's Primary Dealer Credit Facility but what kinds of collateral were pledged against the loans. The same was requested for three other facilities: the traditional Fed discount window, the Term Auction Facility and the Term Security Lending Facility. Just as in Vern's case, the Federal Reserve said FOIA has exceptions that permit them to deny Bloomberg's request. Separately, Bloomberg sought data on the Bear Stearns bailout, and the collateral pledged in that request to the Fed. Again, nothing. The court has ruled that the exceptions to FOIA that the Fed wished to use are not applicable to the information Bloomberg sought.

Vern rights that this ruling is "good news" for his case. Investigation of what happened in 2008 is vital; one hopes that the information will be useful in the upcoming reappointment hearings for Fed Chair Bernanke.

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A $1.9 trillion error explained 

The Midsummer Review (MSR) of the federal budget, long overdue, has now hit the stands after the Administration softened the news by "pre-leasing" the $1.9 trillion of additional debt expected over the next decade. This comes less than five months after the original budget proposal.

Nearly all of the revision comes from a deteriorating economy, one that has not responded to the government's fiscal policy thus far. In their original budget they expected 3.5 million jobs "created or saved". That language is not in the MSR, and unemployment is expected to be 2% higher than previously supposed for 2010. That would mean 2.8 million fewer jobs. Now, one might wish to argue that there were more jobs to be lost than they expected, momentum was worse, etc. Let me give you two looks at this from comparing the original OMB budget economic assumptions and the MSR. The first is the unemployment rate (fourth quarter average.)

Notice the glidepath for reaching full employment (which is a 5% unemployment rate in their modeling.) You end up in the 2012 election with a 7.5% unemployment rate. Now it may be that the change in unemployment in 2012 is good for the electoral chances of President Obama, but there will be much long-term unemployment by then, and how will this be expected to change?

The other comes from the estimation of wages and salaries (which is, of course, a big driver for estimates of individual income tax receipts.)

I thought at first this was an acceleration due to inflation, but that's not it. Current dollar GDP in the out years is expected to be almost identical to the April budget. So how do wages and salaries increase while GDP falls? That's a puzzle to me, and it helps to drop the deficit in the second half of the decade.

One last graph, this time showing how the changes from 2010 to 2019 (the 2009 decline in the deficit already being attributed to the decision not to put money in the deposit stabilization fund.) Only the blue part at bottom is the result of what the Congress has changed over the last four months -- the remainder is entirely due to the revisions to economic assumptions.

Now I could be mistaken on this, but it's not a coincidence that the decline in the budget deficit is due entirely to a decline in the rate of decline of tax receipts. The purple area is the increased cost of servicing our national debt. The primary deficit never goes to zero, reaching a nadir of $90 billion in 2018 before rising in 2019. To give you an analogy: This is like spending so much on your credit card and then making payments less than the interest on your card balance. We now have rules that advise consumers not to do this. Too bad Congress doesn't read them.

Ed argues that heads should roll, particularly Orszag's, but he's pointing at the wrong person. The MSR's error was a macro forecasting error, and the responsibility for that lies with the Council of Economic Advisers and particularly Christina Romer, who was out explaining her position this morning as simply "the recession was worse than we thought." Um, no. Prof. Rosy has been busted on this from last spring by both private economists and the Congressional Budget Office. The administration has now been made to walk back last spring's forecast to where the rest of the profession already had it. It is too bad Prof. Romer has been made to say such nonsense. Continuing to work with this White House only further damages her reputation.

UPDATE: CBO weighs in, but they note that it's not an apples-to-apples comparison. "OMB�s projection of the BEA baseline deficit is roughly $6.3 trillion over the 2010-2019 period, or about $0.9 trillion lower than CBO�s baseline total for that period." So did the OMB even understate the new figure??


What's a trillion? 

I have been talking on this blog for a couple years now of trillions. People don't get their heads around trillions. I've seen a powerpoint going around that does this, but it typically has some political slant to it. I have edited out the politics to just give you a neutral view of a trillion dollars that can be shared with friends. To be fair, I've included a couple links from which this material in part derives, though some of the data was added by me. I have been using this edited version for presentation slides for the last three months with some success. I hope you find them useful too.


Monday, August 24, 2009

The Real Uninsured 

This cartoon by Michael Ramirez of Investors Business Daily shows the breakdown of the supposed 45,000,000 uninsured. As usual, it's not exactly what the media will tell you.

Cartoons by Michael Ramirez

Cartoons by Michael Ramirez

Another source that actually looks at the data for the uninsured is here. It delves into the issues of the uninsured. One Republican solution is to allow young adults, the approximate 8,400,000 listed above, to stay on their parents' policies until age 25.

While the uninsured number of 45,000,000 sounds awful, in reality, it's not so bad. Shouldn't Congress at least tackle this portion of the problem separately instead of trying to overhaul a system that has over 85% approval? Why not focus on the small numbers instead of trying to force all of us into a system that doesn't work? There's a reason Canadians, Saudis, and others from around the world come to the USA for medical treatment. After all, if we go government/public/latest label from the left, where will people go for treatment? Oh, maybe there's a separate tier for the elite.


Tommy's playlist for 8/22 

We are starting a new category, on request of Final Word listeners. Tommy Huynh, my producer, makes a list of the songs he plays as bumper music for FW. (For the curious, our intro music is Doves, Words, and the outro for the last segment is always Cheap Trick, Who D'King, as proposed by Derek at Freedom Dogs.)

Our podcast always appears with the rest of NARN at Townhall. For the most recent Saturday, they normally don't go up before Monday night (and please don't ask why -- there's always some damn reason or another for slow posting even though we're the only live Salem/Townhall show going on a weekend and could kick some Monday morning butt.)

UPDATE: Well what do you know? Hour 1, Hour 2.

We'll use Final Word and Tommy's Playlists in the labels for those wanting to follow along, and I'll link to a YouTube each week of one song I like.

1st hr

out: Seether, Remedy

in: AC/DC, Runaway Train

out: Prodigy, Breathe

In: Counting Crows, Los Angeles

out: Len, Steal My Sunshine

in: Weezer, Hashpipe

out: Tom Petty, Mary Jane's Last Dance
2nd hr

out: Gomez, How We Operate (I showed him a Gomez CD in my car months ago, and he went to my favorite Gomez song without bidding.)

in: Coldplay, Yellow

out: Radiohead, Iron Lung

in: Better Than Ezra, Pull

out: Muse, Starlight

in: Greenday, Holiday

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Tommy's playlist for 8/15 

To catch up from two weekends ago, here's Tommy's playlist.

Out first break: Rock You Like a Hurricane, Scorpions

In: Black Hole Sun, Soundgarden

Out: Rain in the Summertime, The Alarm

In: Iron Lung, Radiohead

Out: Diesel Power, Prodigy

In: Viva La Vida, Coldplay

Out: I Wish it Would Rain, Phil Collins

2nd Hour

Out: Dust in the Wind, Kansas

In: Cold as Ice, Foreigner

Out: Earth Song, Micheal Jackson

In: Super massive Black Hole, Muse

Out: Turn, Turn, Turn, the Byrds

In: Holiday, Green Day

Be sure to hear Hour 1 with John Coleman and Hour 2 with Prof. Al Pekarek, both on climate change, which appears to be the most popular topic on this blog. Your choice, folks, not mine.

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Best sentence I read today 

Don Boudreaux, from a series on how cleanliness has been the result of the expansion of markets:
[E]ven though airports in the U.S. are typically owned and operated by governments, these governments contract with private firms to design and build airports � and the creativity and innovativeness on display in our daily lives is due not to the bureaucracy of the state but to the competition and creativity of capitalism.
For my international traveling friends: Have you ever found bathrooms nicer than those in your better U.S. airports? If so, where? I remarked to someone that I thought the bathrooms at JFK were pretty poor; she answered "compared to what?" This was on my trip back from Yerevan and Prague which, while good by European standards -- Yerevan's airport getting a major overhaul a few years ago -- would have not been as nice as JFK's.

BTW, an update on my excellent adventure from last month: Delta sent a nice apology and some travel vouchers. At least they found the rest of my mileage, which moved me back into Elite. Czech Airlines sends a snotty letter saying it's not their fault and that my hotel reservation was there but I didn't ask for it, even though I had. Of course you know which one is a state airline.

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Nip the tip as public policy 

Apparently Amy Klobuchar wouldn't have taken this question, but I would like to see someone ask a Congressperson somewhere about whether circumcisions would be mandated under Obamacare.
For now, the focus of public health officials in this country appears to be on making recommendations for newborns, a prevention strategy that would only pay off many years from now. Critics say it subjects baby boys to medically unnecessary surgery without their consent.

But Dr. Peter Kilmarx, chief of epidemiology for the division of H.I.V./AIDS prevention at the C.D.C., said that any step that could thwart the spread of H.I.V. must be given serious consideration.

�We have a significant H.I.V. epidemic in this country, and we really need to look carefully at any potential intervention that could be another tool in the toolbox we use to address the epidemic,� Dr. Kilmarx said. �What we�ve heard from our consultants is that there would be a benefit for infants from infant circumcision, and that the benefits outweigh the risks.�
You think I jest about this mohel full employment act? Read on from the American Journal of Public Health (2009):
Results. The mean neonatal male circumcision rate was 55.9%. When we controlled for other factors, hospitals in states in which Medicaid covers routine male circumcision had circumcision rates that were 24 percentage points higher than did hospitals in states without such coverage (P < .001). Hospitals serving greater proportions of Hispanic patients had lower circumcision rates; this was not true of hospitals serving more African Americans. Medicaid coverage had a smaller effect on circumcision rates when a hospital had a greater percentage of Hispanic births.

Conclusions. Lack of Medicaid coverage for neonatal male circumcision correlated with lower rates of circumcision. Because uncircumcised males face greater risk of HIV and other sexually transmitted infections, lack of Medicaid coverage for circumcision may translate into future health disparities for children born to poor families covered by Medicaid.
From your mouth to the Center for Comparative Effectiveness Research's ear! Should make for some great bumper stickers for the 2012 election: Proleteriat of the world, unite! You have nothing to lose but your foreskin!

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Ministry of manufacturing 

According to the Business Insider, former car czar Ron Bloom gets to expand his kingdom:
US Car Czar Ron Bloom (the sidekick and then successor to Steve Rattner), is set to shift to become the manufacturing czar. His task will be to oversee the rebirth of American manufacturing, a sector that's decline in significance over the decades, but which potentially could be a great source of new, post-real estate economy jobs.

Manufacturing is the Mick Jagger of economic sectors -- sexy for being decidedly unsexy. Almost everyone wants to see more manufacturing, especially if the products being manufactured are either "green" or "high tech."

Reporter Joe Weisenthal goes on to note that it would be better if Bloom could identify impediments to industry such as "red tape, labor laws, legal liabilities, and counterproductive environmental laws." Well and good, but he then falls for mercantilist fantasy:
Why is it that we have scads of unemployed Americans in our cities, yet it's still more economical to buy sneakers made in China and then ship them over here?
Two words: comparative advantage. Here's a chart of industrial production NAICS 3149, the classification that would include sneakers. How much more would you like? It's certainly true that it takes fewer workers to make those sneakers than it used to, here in the US. But trade is about creating more goods for more people, and meanwhile freeing people to pursue those things they do better than they do other things.

"But they're unemployed!" you'll say. Yes, for the moment, and while some will return to production of shoes later, others will move towards those things they now have a comparative advantage in. Comparative advantage is not static, and it does not need a ministry of manufacturing led by a tsar segodnya to take its effect.


Sunday, August 23, 2009

The Compassion Carousel 

With the release of Abdel Baset al-Megrahi, the Libyan nationalist who was responsible for the murder of 270 people aboard Pan Am Flight 103 and on the ground on December 21, 2988, a thinking person has to wonder just what is to be gained by telling the world for the umpteenth time that the west is so compassionate they would release a cold-blooded murderer.

You have to hand it to the supporters and perpetrators of terrorism - they know how to play on western guilt. They play the 'compassion' card, constantly demanding more ____ for the members of their human subset community who commit horrendous atrocities. Yet they ignore entirely, the pain and anguish for family and friends who lose loved ones to planned assassinations.
Demands for compassion include:
1 - Don't execute the terrorists because eliminating someone who wantonly murders others means that the west is just well, not compassionate.
2 - Don't sentence him to life in prison because that person may just be able to be rehabilitated (ignore the recidivism rate of criminals).
3 - In American and most western run prisons, inmates are given quality life care including entertainment appropriate to their belief systems, medical care, dental care, visitors, recreation, attorneys, etc. There is no way these procedures would be available in most of their native countries.
4 - Heaven forbid, a murderer of 270 should die in prison.
5 - How many compassionate actions will it take to get approval from the secular left before they realize that, unfortunately, there are some really bad people in the world?

I believe that no matter what the west does, it will never, ever be enough to satisfy people who conveniently blame others for their misfortunes and ignore their own historical slaughters.

Bottom line - reviewing the celebration given Abdel Baset al-Megrahi in Libya, one must conclude they have played us for chumps, again. Appeasement does not work, especially with people who believe everything they do is correct and everything the west does is wrong.

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Friday, August 21, 2009

Benanke: a U, not a V, and a me 

Ben Bernanke's speech at Jackson Hole, to me, was a yawner. The fellow who promotes transparency said absolutely nothing about the exit strategy he began to discuss in the Monetary Policy Report. Instead he gives Reflections on a Year of Crisis, the climax of which is a prediction that the turnaround of the economy will be slow:
Overall, the policy actions implemented in recent months have helped stabilize a number of key financial markets, both in the United States and abroad. Short-term funding markets are functioning more normally, corporate bond issuance has been strong, and activity in some previously moribund securitization markets has picked up. Stock prices have partially recovered, and U.S. mortgage rates have declined markedly since last fall. Critically, fears of financial collapse have receded substantially. After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good. Notwithstanding this noteworthy progress, critical challenges remain: Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit. Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.
Up to the last two sentences it sounded like he was popping a cork. Arnold Kling is even more critical than I am. The role of Bernanke in the decisions on Bear, Lehman, and Merrill Lynch are not uniform, but Kling notes that Bernanke portrays the latter two as part of a grand strategy.
There [sic] word "panic" appears 14 times during the speech. The phrase "house prices" appears just twice, and the phrase "mortgage defaults" appears just once.

Clearly, Bernanke was listening to the CEO's of the big financial institutions who were telling him that they would have been fine if their short-term lenders had stuck by them. As far as the big bankers were concerned, this was an immaculate panic, in which their actual bad investments were not the problem. It was just that too many people lost confidence.

If this story is true, then whoever invested in banks and "toxic assets" last year should end up with a huge profit. The taxpayers should be raking in tens of billions, if not hundreds of billions, in windfall gains over the next few years, as the Fed and the Treasury cash in on the investments they made while everyone else was in panic.

But the market seemed to like it, with the Dow shooting up 1.5% in the first 90 minutes of trading. So the question to market participants is, what did you learn from this that you didn't know before? Is the U-shaped recovery a signal that the Fed will keep interest rates down long? What does that mean for inflation (gold is up $13 as I type this)? Why would Bernanke not reflect on the housing market where foreclosures continue to climb?

And before you pop a cork even on banks (what with the government deciding it doesn't need the last $250 billion of TARP), what about the 77 FDIC-closed institutions so far this year? Floyd Norris writes:
Although the losses on current failures stem mostly from construction loans, it is possible that commercial real estate will be the next big problem area. Losses in that area were growing at the Temecula bank, although its portfolio was relatively small.

During the credit boom, loans on those properties became easier and easier to get, on more and more liberal terms. Unlike residential mortgages, commercial real estate loans typically must be refinanced every few years. With rents and values down in many areas, that will not be possible for a lot of buildings, and some owners are just walking away from their buildings.

Two years ago, when the subprime mortgage problems began to surface, Washington took great comfort from solid balance sheets, which regulators thought meant the banks could easily weather the problem.

Last year, we learned that the regulators, like the bankers, did not comprehend the risks of some of the exotic instruments dreamed up by financial engineers. This year we are learning that the regulators, like the bankers, also failed to understand the risks of the generous loans that the banks were making in the middle of this decade.
I was on KNSI this morning, extending into Hot Talk when the Ox called in sick. Co-host Mike Landy asked me whether we have the right team in place to run whatever exit strategy we have. "We have smart people in the top places," I answered, "but these same people were there three years ago." I would like to see more learning and less cheering.

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Thursday, August 20, 2009

Sustaining trade and education 

Our convocation week was filled with a new passion for "sustainability". We had a special speaker talk about it. We had a lunch filled with locally produced goods. We will now have on campus a farmers' market (until it October -- this is Minne-so-cold doncha know!) Our university president made it a top feature of his convocation speech. Here's a sample:

This morning I�d like to focus on the concept of sustainability in its broadest interpretation � developing and applying best practices to support and nourish all aspects of our university. In business they refer to this perspective as the �triple bottom line��.attending to ecological, social and financial outcomes in managing a business. This perspective is especially important to an institution that must be what it teaches and which cannot accomplish its mission without being a strong, inclusive and anti-racist community. We will accomplish these objectives by making sustainability, most broadly defined, a cornerstone of our identity.
Well that rung a bell in my head, and as I went to remember where I read this it came to me. Peter Wood and Ashley Thorne at the National Association of Scholars has been writing about that very thing all summer. Ashley finds this statement from the American College and University Presidents Climate Commitment:
...we recognize our responsibility to minimize our own contributions to global warming and to accelerate education and research to make the transition to a low-carbon, more vibrant and sustainable economy. We believe that taking a leadership role in this effort fits squarely into the educational, research and public service missions of higher education.
Ashley asks if this is true. Peter answers what is to me an interesting question: why now for universities? It's not like the green movement was invented by Al Gore. Peter suggests first that outside groups have pushed for it, and that their success among university presidents and particularly residential life staffs has to do a misunderstanding of the word they use.
�Sustainability� is not the foundation of all learning and practice in higher education. Higher education is a complex enterprise that combines the pursuit of truth through rigorous inquiry with the transmission of culture and civilization from generation to generation; the practical preparation of students for work in fields that require advanced intellectual preparation; and the pursuit of personal excellence, usually in the context of moving to full adulthood.

Some aspects of this involve �sustaining� what already exists. The university builds on intellectual and cultural traditions which must, in some sense, be sustained. But Second Nature, ACUPCC, and others who evoke �sustainability� in this context are engaged in mere word play. We sustain the pursuit of truth by pursuing it; we sustain cultural traditions by participating in them; we sustain complex utilitarian learning by mastering and exploiting it, and if possible extending it. We sustain the pursuit of personal excellence by distinguishing worthy from unworthy goals and pitching ourselves tirelessly toward the former.

There is nothing in these forms of �sustaining� that has any real connection with �sustainability� in the environmental sense, or in the senses of the other appendages of the sustainability movement: sustainability economics and sustainability social justice. The environmental sense of sustainability emphasizes curtailing the use of resources; simplifying; going without; substituting less energy-demanding alternatives; trying to leave the conditions of nature as little perturbed as possible. This ethic of self-erasure is antithetical to much of what is truly foundational to the university, which elevates man�s pursuit of knowledge, not his determination to render himself carbon-neutral.

Sustainability at bottom is a doctrine of doing less. Higher education is at bottom an institution that strives to do more.

What the sustainability movement aims to sustain above all is the earth. What higher education aims to sustain above all is civilization.
What stuck with me from our convocation address was the turning inward of the university: We now have a community garden that says "grow your food here" while we talk about giving our students international experiences. But sending students abroad is about exchange too. And I teach that exchange of values -- embodied in goods, services, or ideas -- is a good thing. Let me imagine using in my principles of economics course this passage discussing trade, from a 2006 editorial by Walter Williams (this is just an exemplar):
Why do we choose to import cocoa, coffee and spices rather than produce them ourselves? The answer is that it is cheaper to do so. That means we enjoy a higher standard of living than if we tried to produce them ourselves. If we can enjoy, say, coffee, at a cheaper price than producing it ourselves, we have more money left over to buy other goods. That principle not only applies to cocoa, coffee and spices. It's a general principle: If a good can be purchased more cheaply abroad, we enjoy a higher standard of living by trading than we would by producing it ourselves.
So do I now believe that, if the president of my university says we will make "sustainability, most broadly defined, a cornerstone of our identity," that I am not at that cornerstone when I teach comparative advantage, the advance of society through specialization and exchange? I will anticipate the answer to be that I have not defined sustainability broadly enough. What I would respond is how fragile the domain of trade has been historically, or even experimentally.

For further reading, Peter Wood offers a look at the organization and goals of the group behind this fusion of sustainability and higher ed. So far the alarmism of the sustainatopians has not reared its head here. All we have is some land devoted to a garden (and a faculty member given time off from classes to tend it) and some vegetables hawked in the student union. But we'll not be surprised when the pressure turns up for social action over intellectual inquiry.

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Sweetness and light 

Technology is pretty sweet. It lets us do things I could never have imagined doing ten years ago. Around that time it was popular to use electricity consumption data as a check on GDP, and to try to measure informal economic activity. It's flawed, of course, when electrical appliances and distribution systems are being upgraded while you're measuring, but it was a piece of evidence you could use, certainly.

Now a new paper, discussed in The Economist this week, is using night light measurements from space to verify published GDP statistics for many countries. (Ungated version appears to be here.) They are able to use the data to create GDP estimates for countries that do not report official data, and to test the hypothesis that good farming years increase income (and light) in cities.

(h/t: Scott Beaulier)


When does unemployment return to normal? 

The graph above shows unemployment projections through three different scenarios calculated by Edward Knotek and Stephen Terry in the newest issue of the Economic Review of the Federal Reserve Bank of Kansas City. While unemployment fell quickly after recessions in the post-WW2 period, it did not in the last two recoveries in 1991-94 and 2002-05. Just using those last two recessions as benchmarks projects unemployment extending above 8% to 2012.

But Knotek and Terry also consider the effect of a recession accompanied by a financial crisis. In this case because the US has had few banking panics (particularly in the 20th century where data would be more available and more reliable), the authors depend on using experiences from European and Japanese recessions cum banking panics. That gives you the top line.

The authors warn about the possibility that the current recession may include an increase in the natural rate of unemployment. The banking crisis has caused overinvestment in housing and overborrowing in households, they speculate. If so, using expansionary fiscal and monetary policy is inappropriate and the stance of the current U.S. budget is too loose.

I'm not so certain that the U.S. banking system is like those the authors use to draw the pessimistic line. If the system is allowed to recover and develop unimpeded by the likes of Barney Frank and Christopher Dodd, I would expect a faster recovery. But it's quite certain this recovery is going to be longer and slower. I tend to use the term U-shaped, but a colleague gave me a great metaphor: a bathtub, with a very long period of slack economic activity.


Wednesday, August 19, 2009

From a mile away 

You surely saw this coming, didn't you?
Hundreds of auto dealers in the New York area have withdrawn from the government's Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.

The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They're also worried about getting repaid.

"(The government) needs to move the system forward and they need to start paying these dealers," said Mark Schienberg, the group's president. "This is a cash-dependent business."
The government, meanwhile, is ready to put this clunker of a program out to pasture.

Transportation Secretary Ray LaHood said Wednesday he would disclose within two days updated figures on the program, including how much of the $3 billion in funding was left. He said he would also offer a blueprint for how the administration will wind down the program to ensure all vouchers issued by dealers are reimbursed by the government before the money runs out.

"They're going to get their money," Mr. LaHood said, responding to dealers' complaints of payment delays. "There will be no car dealer that won't be reimbursed."

Nothing inspires confidence quite like the use of a double negative.

Mr. LaHood previously said that he expected the program to last through Labor Day, Sept. 7. He declined to say Wednesday whether he still expected the program's budget to last that long.
I can just see this, in a future year.
Healthcare Choices Commissioner Kay O'Doul said Wednesday she would disclose within two days how much funding was left in the Cash for Cancerous Kidneys fund. She said she would also offer a blueprint for how the administration will ensure all vouchers issued to surgeons will be reimbursed before the money runs out.

"They're going to get their money," Ms. O'Doul said, responding to doctors' complaints of payment delays. "There will be no surgeon that won't be reimbursed."

Ms. O'Doul previously said that she expected the program to last through December. She declined to say Wednesday whether she still expected the program's budget to last to Thanksgiving.

Well, Russ did say "Health care reform joke goes here." Just following orders.

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These jobs weren't created or saved 

The St. Cloud Times has a breaking news item:
New Flyer, the company hailed as a St. Cloud success story, will lay off about 320 workers.

The company announced in its second-quarter report that it will cut staff by 270 in its facilities across the company, which includes St. Cloud, Crookston and Winnipeg, Canada. About 50 salaried workers will be cut, too, most of those in Winnipeg.
New Flyer was, unfortunately, the site of Sheriff-Vice President Joe Biden's local stop on the stimulus tour. The money that was supposed to flow from state budgets to New Flyer to buy new buses isn't getting there, as deliveries are being delayed by buyers not getting funding. There are approximately 1000 jobs in Minnesota and 1200 in Winnipeg. So this cuts about a seventh of their workforce. MPR explained three weeks ago that the cancellation of a bus order from the Chicago Transit Authority, which claims the cancellation was due to not being able to use federal stimulus dollars (I have read conflicting reports on this, one saying they could not use them for buses, the other saying CTA got less than half of the funds requested, and made the decision themselves to delay the order -- the latter is what MPR reported.) Canadian press says the layoffs are "indefinite" and that there will be a two-week shutdown at the end of the year for all plants.

At minimum, this is a timing problem: you can't make all the buses at once, but if people put off taking delivery you either have to build, pay workers and suppliers and hold inventory, or you have to lay off and wait for the orders to re-emerge. The second seems to be the way they've gone, but for how long will they wait?

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The saved-created ratio 

Casey Mulligan writes that for all the stimulus we've done, we're currently spending about $600,000 per job.

For now, let's take the Administration's estimates literally:

  • More than $100 billion worth of stimulus spent in 2009 Q2 (p. 5)
  • 597,000 jobs would have been lost in Q2 -- that's the purported "momentum" from the last quarter (pp. 8, 11)
  • In fact, 436,000 jobs were lost (p. 9), so we have to thank the White House for the 161,000 that were not lost
  • The same logic for real GDP: it would have fallen at a -3.3 percent annual rate (p. 12), but in fact it fell at a -1 percent (p. 12) annual rate, so we have to thank the WH for the -2.3 percent further negative annualized growth rate that would have occured without them.
  • Recall that a 2.3 percent annual growth rate actually refers to about 0.6% growth rate from one quarter to the next. So what the WH is saying is that we owe 0.6 percent of 2009 Q2 GDP to their policy, which is about 20.3 billion dollars

So, from the jobs perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly create 161,000 jobs: that's $621,000 per supposed job!! Can we agree that creating a job is wonderful, but not worth $621,000?!

Contrast this with my post in May, where I suggested the Administration, through its Council of Economic Advisers and that body's chair Christina Romer, had made a causative claim that a job was "saved or created" by the fact of spending $93,333. It's her analysis of what I call second derivative effects that give Prof. Mulligan his results. So, has the White House now changed its tune?

It's worth noting the difference between gross and net jobs again. The number Prof. Mulligan and Dr. Romer are using here are net jobs. Looking at business employment dynamics tells you more, but that data is only available with an eight-month lag. Today's release says that 6.7 million jobs were created in the private sector in the fourth quarter of 2008, but that 8.5 million jobs were lost. The JOLTS survey is more current, and there you see that the rate of job hires is still falling through June 2009 while the layoff and discharge rate, while still elevated, is down off its highs in January to April. If the administration hangs its hat on anything, it is to take credit for that decline. 0.2% of 140 million is 280,000. There's a lot of churn in that number, so some of those hired one month may be back out of a job the next. What the government claims to do, by "saving jobs", is to slow that churn.

So if you use my number of $93,333, you would have to credit the administration for saving (via less turnover) 6.6 jobs for every one that has been created. Does that seem reasonable, or is that fluff? We calculate, you decide.


Are the Predictions of Climate Models Credible? 

The lively debate in the comments on my post yesterday about the summer snowstorm in Wyoming included this assertion:
I'm sure there have been numerous studies on the soundness of climate models. I'm not familiar with all of them. What one finds though is that models are consistently improving and there is high confidence in the ranges given for future scenarios. There is broader range and greater realism. Studies show models have been able to reproduce past and current climate (see here). Chapter 8 of the IPCC's physical basis in the Fourth Assessment Report deals with climate models and their evaluation.
Well, here's the abstract of a peer-reviewed study in the International Journal of Climatology that disagrees with the commenter:
We examine tropospheric temperature trends of 67 runs from 22 �Climate of the 20th Century� model simulations and try to reconcile them with the best available updated observations (in the tropics during the satellite era). Model results and observed temperature trends are in disagreement in most of the tropical troposphere, being separated by more than twice the uncertainty of the model mean. In layers near 5 km, the modelled trend is 100 to 300% higher than observed, and, above 8 km, modelled and observed trends have opposite signs. These conclusions contrast strongly with those of recent publications based on essentially the same data.
The paper ends with this conclusion:
The last 25 years constitute a period of more complete and accurate observations and more realistic modelling efforts. Yet the models are seen to disagree with the observations. We suggest, therefore, that projections of future climate based on these models be viewed with much caution.
Reminder: You can hear Dr. Fred Singer, one of the authors of the paper above, at this afternoon's event sponsored by the Minnesota Free Market Institute.

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Tuesday, August 18, 2009


I was at a meeting this afternoon, a start of a new year for a volunteer board with new people, and as an ice-breaker we were to draw slips of paper with one of three questions. The one I drew was, who would you like to have dinner with most, but with the condition that that person is deceased. Given the events of the day, I could not think of anyone but Rose Friedman, who had died earlier in the day.

She was an accomplished economist of her own when she agreed to marry Milton, having worked on projects in Washington and New York relating to banking and bonds for new institutions like the FDIC and the National Bureau of Economic Research. She delayed their wedding until she had finished the Washington part of her FDIC work. And yet, in Two Lucky People, she wrote that following her husband was to be her lot, and one she gladly accepted.
Although we both started our life together as economists, there was a difference. From the beginning, I never questioned whose career came first. I left my job at the FDIC because I have never wanted a part-time marriage and Milton was not interested in a Washington career. When we left New York for Wisconsin [where he took an academic post before WW2 --kb], I gave up my job. In part this attitude on my part was probably a reflection of the times. Women's lib was not yet on the horizon. Few married women with families had full-time careers that involved being away from their families most of the day. ... Both Milton and I felt strongly that when we had a family, which we were anticipating, my primary career would be as a mother; the economist would come second.

In addition, in all of life's activities, the personal element is crucial. From the beginning, I have never had the desire to compete with Milton professionally (perhaps because I was smart enough to recognize that I couldn't). On the other hand, he has always made me feel that his achievement is my achievement. In an interview for the San Francisco Sunday Examiner on March 18, 1984, I was asked, as I often am, how I deal with the fact that we do not share equally in the popular limelight. My answer: "Fortunately, I was not born with a strong competitive gene, so his fame is our fame. I will never be a Nobel laureate, but I am very proud to be the wife of one. In addition, he is more gregarious and outgoing and less self-conscious than I, so he is better suited for the limelight." (p. 87)
It is noteworthy that many of Milton's greatest work, Free to Choose, Tyranny of the Status Quo, and Capitalism and Freedom, all bore her name as well as his. You read in Two Lucky People that it was Rose that encouraged Milton to follow through in making Free To Choose as a PBS series over his misgivings, encouraging him not to compromise on the idea that the American people, and eventually the world, was ready for a real intellectual argument for freedom. I left reading their memoirs thinking that the phrase "behind every great man stands a great woman" did not apply to them. She stood alongside.

The cover of Free to Choose has "Winner of the Nobel Prize" below his name and before hers. She never wanted it any differently. They will now share the limelight in eternity, their names forever together.


Media alert 

After a long absence, I return to KNSI tomorrow for the Morning Show, 6-8am. The link should include a place to stream the podcast. I'll be there the rest of the week.

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Global Warming? Not! 

Here we go again. This summer has been the coolest on record for quite some time. Now, we find that the Wyoming Big Horn Mountains are expecting a late summer snowstorm today (August 16, 2009). This unseasonably early snowstorm is expected to affect the Big Horn Mountains about 9000 feet.

My flowers bloomed late this year and out of sequence. Sunspots are fewer than they've been in years. Just maybe do you think that we're not in a time of warmer climate?


All I will say on Michael Vick 

Frankly, the legend of Michael Vick will be determined as we go forward. It won't be determined on the field of football. His life, he will never ever be able to recover from what he criminally and murderously took part in, but he has an opportunity to create a legend where maybe he can be a force in stopping the horrendous cruelty to animals, the dogfighting. A lot of us probably have our heads in the sands, and I know I have, when it comes to what really goes on in inner cities and around the country with dogfighting and cruelty to animals. It's not a good picture.
That's Eagles owner Jeffrey Lurie, from Mike Lombardi's Sunday at the (Football) Post column (which you should read all the way through for more, and every Sunday if you like both football and management.) I don't care about Vick as a football player, though as a Giants fan I'm worried about the two games we play them. But I spent some of my earlier years working on animal welfare issues, managing a foster dog care network for abandoned animals. Mrs. S is more the animal rights person than me, but marriage to her means seeing so many depressing pictures of cruelty. It's not the only reason I've been vegetarian for more than 20 years, but as I try to balance my diet more lately I still think about eating things with faces, and shudder.

It hasn't gotten better since I started thinking about it in the 1980s. If anything, worse. If putting a uniform on Vick makes him more effective as a spokesperson against animal cruelty, then maybe Lurie and the Eagles are doing the right thing. "Deliver him from going down to the pit: I have found a ransom." (Job 33:24) Take it, Michael. All His creatures need a voice.

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Heavy burden 

The Tax Foundation is releasing a new study that uses economic research to argue that if you raise taxes only on high-income individuals, you will induce an almost equal amount of lost output. We currently have between 11.4% and 15% of individual income reduced by the shifting of resources towards non-taxable activity (which means, no income.) If you let the Bush tax cuts expire, for every dollar taken in by the government another dollar of GDP disappears. That seems high, but it takes advantage of the notion that high-income individuals can shift earnings from high-tax to low-tax years more easily than low-income earners.

It's sensible, though higher than I thought. Using Ironman's tool, it appears that if you think the deadweight cost is 100%, you can even use the Obama Administration's assumption of a multiplier and still show that stimulus doesn't stimulate.

Meanwhile, another tax the Administration is thinking about, cap and trade, turns out to be really bad for poor people. Corbett Grainger and Charles Kolstad in a new paper from the National Bureau for Economic Research (abstract here for free; this appears to be an ungated version):
For a tax of $15 per ton CO2, an average household in the lowest income quintile would pay around $325 per year, while an average household in the wealthiest quintile would pay $1,140 annually. Although wealthier households would pay more in absolute terms, as a percentage of annual income, lower income groups bear a disproportionate share of the burden. The poorest quintile�s burden (as a share of annual income) is 3.2 times that of the wealthiest quintile�s. The burden as a share of annual income for the lowest income group ($7,500-9,999) is almost four times higher than the burden-to-income ratio for the highest income group in the data ($200,000-250,000).
You can use a tax instead of cap-and-trade specifically in the analysis, as the effect should be identical in either case. You could compensate lower income families for cap-and-trade with, say, a reduction in payroll taxes (which as just as regressive), but when you decide to give away most of the permits, you don't have any money to transfer.

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Global Warming - Get the REAL Facts 

The Minnesota Free Market Institute is presenting a terrific event on the global warming and climate change topics. Hear Dr. Fred Singer, one of the world's most respected and widely published experts on climate and co-author of Unstoppable Global Warming, Every 1500 Years. Other confirmed speakers include John Coleman, founder of The Weather Channel, and Ken Green, resident scholar at American Enterprise Institute (AEI).

Where - Earle Brown Heritage Center in Brooklyn Center
When - August 19, 307 PM
Cost - $30/person, $15 for students, including reception

Register by visiting the MN Free Market Institute here or by calling 651-294-3593.


Monday, August 17, 2009

Media alert 

I'll be on KKMS in 10 minutes for a review of the economy with Jeff and Lee.


Exit, voice and Alinsky 

Based in large part on a post written that morning by Joel Rosenberg called "Obama's Getting Alinskied" and after talking about this with Joel in the green room, my Final Word episode (hour 1, hour 2) from August 8 carried the theme forward, that there's nothing inherently left-wing in Alinsky's Rules for Radicals. It's a schematic for running popular opposition. Anyone can play.

Last night, Andrew Breitbart joined in.
In fact, one could make the argument that the Republican Party, usually slow on the uptake, has finally figured it out. There are no major Republican targets out there opposing Mr. Obama and his aggressive agenda. The conservative movement appears leaderless, but perhaps for the best.

Maybe that is the strategy: Standing back and letting the Obama machine flail in its pursuit of its next victim.

A grass-roots movement of average Americans has stood up, making it extremely difficult to isolate and demonize an individual.

Mr. Alinsky noted in "Rule 12" that it is difficult to go after "institutions." And attacking "tea baggers" and "mobs" has only created more resistance and drawn attention to the left's limited playbook. Even Americans expressing their constitutionally protected right to free speech are open game.

Now that many people are Googling the Alinsky rule book and catching up with the way Chicago thugs play their political games, Mr. Obama and the Fighting Illini are going to be forced to create new rules - or double down on the old ones.
And everyone is joining the Alinsky vanguard.

Margaret Martin, my colleague at the Minnesota Free Market Institute and the only person that can keep David Strom in line (barely), wrote a couple of posts about my show that I should have responded to before now. Rather than a long hashing of her points, I think we can argue from her second point that because we have voice, we should use that and stop it with the mob.
But I am reminded of the concept of logos (ideas conveyed in speech) that separates adults from children and humans from animals. A baby with a full diaper can scream and cry but can't communicate it's discomfort in any useful way. Likewise a wounded animal. We aren't animals or pre-verbal children. We have logos. (Despite what you may think of the public education system.) And we don't have to act like a mob, we are citizens.
Interestingly, logos has been at the heart of a series of increasingly interesting writings by the ever-interesting Arnold Kling (which is in fact what inspired me to write after Margaret's first post "what is this democracy of which you speak?") The fisrt post that caught my eye includes this:
The exercise of voice, including the right to vote, is not the ultimate expression of freedom. Rather, it is the last refuge of those who suffer under a monopoly. If we take it as given that the political jurisdiction where I reside is a monopoly, then perhaps I will have more influence over that monopoly if I have a right to vote and a right to organize opposition than if I do not. However, as my forthcoming Unchecked and Unbalanced argues, the reality is that the amount of influence I have is shrinking while the scope of the monopolist is growing.
We suffer from monopoly in many places. Because our government grows larger and stronger, and because we do have an option to exit (in a Hirschman sense), we are left with voice. Ways to make voice more effective will be preferred, and that is what Alinsky offered his followers. The right has simply adopted George C. Scott's line from Patton: "Rommel, you magnificent bastard, I read your book!"

But in fact, Kling notes today, it is the conservative movement that is left to support democracy.
[N]ot many people like democracy. Progressives like to think that they use "the people" to fight special interests, but what progressives really want is government by elite technocrats, like the Fed or the IMAC (a proposed independent commission to set health care policy). Recently on this blog, I have argued that libertarians should favor exit rather than voice as a check on government.

If the P's and the L's don't really want democracy, then who does? At this point, the C's probably are more in favor of democracy than anyone else. We've had democracy for a long time, so keeping democracy is the conservative position.

Real freedom would be to break the employer-based link to health insurance -- something the Obama plan does nothing to solve -- and to permit you to choose and pay for health insurance like you pay for anything else. You need to solve the incentive problem, as even Democrats and organic food vendors seem to agree. But it appears nobody wants that solution either.

Real freedom, Kling says, is the absence of monopoly. Brad Taylor puts it more fittingly to this post: "exit can give you any other freedom, including voice." But with exit comes personal responsibility, and it's thus not surprising that people still want to have health care without paying for it. Getting something for nothing is better than getting something by paying for it for those who think individually rather than systemically. I am curious therefore how many of the people speaking out are willing to use exit, and accept the responsibility that comes from it?

Not that I expect exit to be available anytime soon...

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Path dependence, Dominican edition 

Upon learning of Adrian Beltre's sports injury, Will Carroll writes:

I have no idea why Adrian Beltre chose not to wear a cup, but it might have a lot to do with something I just learned, speaking with someone who has been very involved in Latin American scouting. Players in the Dominican and Venezuela tend not to wear cups while playing, largely because they can�t afford them as youth.

A cup costs about six bucks. If you go for the Nutty Buddy, the highest-tech in cojone protection, you�re talking about twenty bucks. Let�s split the difference and say ten bucks each.

Besides the obvious enjoyment of having athletic supporters with rhyming names, I think it's interesting that when one learns a skill a certain way, you have to keep doing it that way even if the peculiarity has nothing to do with how you perform that skill. Sure, the damn things are uncomfortable at first, but the adjustment period isn't that long, and you could learn it during spring training.

If I invest millions in a player, don't I as an owner have the right to make him wear the protective gear that allows him to stay on the field?

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Saturday, August 15, 2009

Confluence: Religion, Education, States' Rights 

This article in the Wall Street Journal, online, is another example of government intrusion into religion, education, and freedom.

The director of the Equal Employment Opportunity Commission (EEOC) in Charlotte, N.C., ruled that Belmont Abbey College, a small Catholic education institution, in Belmont, N.C. discriminated against female employees because the college refused to cover prescription contraceptives in its health insurance plan.

In March, 2009, the college was informed that a case filed against it in 2007 [by eight employees], claiming discrimination in the restrictions for contraceptives under the employee-provided health plan, had no value and all was fine. Inexplicably the case was reopened and now the college is charged with violating federal law.

Turns out that the EEOC guidelines refuse to consider that an institution's religious beliefs exempt it from offering benefits such as birth control pills. The guidelines in the state of N.C. do allow for exemptions based on religion.

If the college refuses to change its policy, the EEOC will pursue legal action.

When does the government have a right to enforce its laws on religious institutions?
Can a religious hospital that opposes abortion be forced to perform one?

What about religious freedom as defined in the 1st Amendment?

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Friday, August 14, 2009

Little Bias in the Legal Community? 

Ever wonder why Democrats avoid tort reform? Check out this graph at Pajamas Media.

Tomorrow on the Final Word 

Four Democratic Senators have called for cap-and-trade to be abandoned in its current form and passed in smaller chunks. They prefer a focus on renewable energy.
�The problem of doing both of them together is that it becomes too big of a lift,� Senator Blanche Lincoln of Arkansas said in an interview last week. �I see the cap-and-trade being a real problem.�

The resistance by Lincoln and her Senate colleagues undercuts President Barack Obama�s effort to win passage of legislation that would cap carbon dioxide emissions and establish a market for trading pollution allowances, said Peter Molinaro, the head of government affairs for Midland, Michigan- based Dow Chemical Co., which supports the measure.

�Doing these energy provisions by themselves might make it more difficult to move the cap-and-trade legislation,� said Molinaro, who is based in Washington. �In this town if you split two measures, usually the second thing never gets done.�
Lincoln is joined by Senators Ben Nelson of Nebraska and Kurt Conrad and Byron Dorgan of North Dakota. There are at least eleven other Democrat senators who want changes to the House bill. Harry Reid is still pushing for a vote, but even the guys who invented cap-and-trade don't like Waxman-Markey. Why is this still in the news?

The Minnesota Free Market Institute (full disclosure: I am a senior fellow) is hosting a climate symposium on August 19, 3-7pm. NARN is hosting several of their speakers tomorrow on the shows. Mitch Berg will have Dr. Fred Singer, the keynote speaker for the event. I am pleased to welcome to the Final Word John Coleman, KUSI meteorologist and founder of the Weather Channel, and Prof. Al Pekarek of SCSU. The topic of the day will be climate change, and in both these gentlemen's cases I want to explore the treatment of skeptics by their professions. Both are signatories of the Manhattan Declaration, which calls for the U.N. to reject Al Gore's Inconvenient Truth and "[t]hat all taxes, regulations, and other interventions intended to reduce emissions of CO2 be abandoned forthwith." Please call us with your questions at 651-289-4488 as you listen to Mitch (1-3 pm) and me (3-5) on The Patriot.

Rent-a-text now straight from the publisher 

My only question is, why did this take so long?

Stamford, Conn.-based Cengage Learning on Thursday announced plans to rent titles directly to students for 40 percent to 70 percent off the suggested retail price.

Also Thursday, McGraw-Hill Higher Education announced a partnership with web site � one of numerous Web sites that have popped up selling and renting secondhand books. Under the arrangement, McGraw-Hill will provide new textbooks to Chegg, offering the company a bigger inventory of books to lend out, and McGraw-Hill will get a share of the rental revenue.

...Students renting a Cengage title would get immediate access to an electronic version of the first chapter, and then be shipped the book, the company said. At the end of the rental term, students can return the books or purchase them.

The announcements come as the industry tries to adjust to modern technologies that have upended what students and teachers expect from supplementary classroom materials and also the traditional models for selling and delivering them.

Among other experiments, a group that manages several hundred college bookstores is currently running a trial rental program. Meanwhile, Inc. is aiming the new, bigger version of its Kindle electronic reading device at the college market, with six universities running Kindle pilots this fall.

I was able to use my Kindle 2 exclusively for books for my money and banking course last summer but that was because I didn't have a traditional textbook required. I just got a personal look at a friend's DX, and the only real advantage I saw was a program to make .pdf files more readable. (Does that come for my 2? Dunno.)

Given what I see as a high rate of time preference for my students, I will bet this is a success.

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Technology, $5 million. Credibility: priceless 

It was reported this week that George Soros has tossed $5 million into the battle over health care reform. So it would not be surprising that Move On is using its technology to engineer a letterwriting campaign. Call them astroletters. I received a copy of one of their emails last night:
Dear MoveOn member,

Right-wing mobs aren't just disrupting congressional town halls�their outlandish lies are now making their way into mainstream news coverage, too.

We need to set the record straight. The majority of Americans support real health care reform. And no wonder, given the incredible cost of inaction.

In Minnesota alone, 190 people lose their coverage every day. And for those with insurance, yearly premiums will hit $22,467 in a few years if we don't act.
We can't let right-wing extremists ruin the biggest opportunity in a generation to get real reform. Can you send a quick letter to the editor of The Saint Cloud Times�or another local paper�about the urgent need in Minnesota for Congress to pass health care reform with a real public option?

Click here:

Our tool makes writing a letter really simple. You can send the letter right from our website�it only takes a few minutes.

If you've never written a letter to the editor before, now is the time to send your first. The letters page is one of the most widely read�and most important�in local newspapers. Members of Congress and their staffs read it to understand how their constituents are feeling. And since members are all home in the district this month�and paying close attention to the health care debate in particular�your letter will make an even bigger impact.

Here are some talking points specific to Minnesota you can use in your letter:

� We can't afford to wait for reform: Each day, 190 people in Minnesota lose their health care coverage. And without reform, those who still have insurance will see their yearly premiums go up by $9,300 in the next decade�to a staggering $22,467.

� Reform with a real public option is key to expanding coverage: Under current legislation, which includes a strong public health insurance option, 363,000 people in Minnesota�and 37 million Americans nationwide1�will gain coverage by 2019.

� A real public health insurance option is crucial to lowering costs: With premiums projected to hit $22,467, we need to get costs down. By spurring competition, a public plan will help bring down out-of-control costs2 for individuals, families, and small businesses.

Can you send a letter to the editor of The Saint Cloud Times, or another local newspaper, as part of our "Real Voices for Change" campaign? Just click here to get started:

Thanks for all you do.
Real Voices for Change send you to a website that sends your letter for you, just point and click. You can cut and paste your talking points right into the letter! You can see from the site all your local papers, and how many have been sent. At the time I am writing this, one such letter had already gone to the Times ... and 60 to the STrib.

I have never seen this technology before, and I wonder if our center-right organizations are up to the task of deploying this technology. I'm impressed. But look at the talking points, which draw from left-wing groups like Families USA, a pressure group, or the left-wing think tank Center for the American Progress, which leads the HCAN network. The $22k number is a projection that health insurance costs will rise 9.3% per year for the next decade -- that's a forecast, not a fact. Both are part of HCAN.

The 14,000 a day number is also a specious argument. PolitiFact traced the report to a report from CAP, and called it "mostly true". But they note that the COBRA provisions in the stimulus bill should have reduced that number. And the way CAP did the projection is to extrapolate the split between unemployment in 2007 and the number without health care to say "if 4.7% meant x people without health insurance, then 7% means x+2,600,000, 8% means x+3,700,000 and 9% means x+4,800,000." Now they have an algebra expression, and they turn the crank.
Applying Holahan's calculations to the actual rise in unemployment from November 2008 to June 2009, we came up with 3.2 million people losing health coverage, or an average of 15,238 per day, so it is close to the 14,000 Obama cited.
But that means that for it to be true for July, when unemployment fell, the number of people losing health coverage was negative? And why the unemployment rate? If health coverage is tied to employment, why use the rate rather than the payroll number? It seems to me a terribly flawed metric.

I will credit them for the 37 million number, which is confirmed by CBO analysis. It's just that it costs $6000 per person (a number CBO says does NOT include any increase in administrative cost.) To pay for that Medicare gets squeezed. Somehow this did not make it into MoveOn's talking points. (UPDATE: It may well be, however, that there aren't 37 million uninsured to cover; see Keith Hennessey's point on this.)

So newspapers are receiving thousands of letters, generated by MoveOn technology, using specious claims from left-wing researchers and campaign organizations. Sound fishy to you?

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Thursday, August 13, 2009

How do we rate? 

Bully for Minnesota: It continues to have the highest debt rating:
In conjunction with a proposed $600 million General Obligation (GO) bond sale on August 11, the three major bond rating agencies have affirmed Minnesota�s existing credit ratings. The bonds continue to receive the highest ratings - AAA - from Standard & Poor�s Corporation and Fitch Ratings. Moody�s Investors Service maintained their rating of Aa1.

Fitch Ratings summarized its decision for the high rating: �Minnesota's 'AAA' GO rating reflects the state's excellent debt structure, broad-based economy with above-average wealth levels, and track record of management that is sensitive to changes in the state's fiscal environment, with regular reviews of revenue forecasts.�

Each agency did caution that the economic downturn and its effect on the state budget continues to be of concern.

�Nearly all states are facing difficult times in this recession, but there is underlying strength in Minnesota�s economy and we are maintaining our tradition of strong financial management,� said Minnesota Management and Budget Commissioner Tom Hanson. �We still have work to do but appreciate being recognized as one of the highest rated states.�
Those bond sales resulted in raising $272 million for various government projects at 3.4% interest, and saving $30.3 million by refinancing some older debt. Looking at a yield curve for Minnesota muni bonds shows we pay lower interest rates than the national average.

There are approximately $4.7 billion in Minnesota state bonds outstanding. There is about a 35 basis point difference in rates paid on AA and AAA rated munis. I make that then as about a $17 million per year savings on our debt from maintaining the high rating.

The obvious question is whether or not the rating could have been maintained if we had borrowed more, or if we had decided to raise taxes, rather than go through the current battle over the budget. If we had fallen to a single-A rating, say, like Illinois did a couple weeks ago, you're paying an extra 125 basis points, or another $58.7 million, every year.

How do you get a AAA rating? By being happy to pay more for a better Minnesota? Or by keeping taxes low? The argument continues...

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Well, you asked him to do that! 

I did. I suggested that "you�re welcome to saw that limb from under me" regarding whether or not Section 1233 of the health insurance reform bill was an overreach of federal power, and Ed brought the Craftsman.
There is a large difference between a private entity incentivizing it and the government taking the same action as part of a nationalized system. Consumers would have other choices in the private-sector scenario, including using their own funds to find doctors less willing to sell you a bouquet of flowers and a shovel as part of your diagnosis, thanks to good commissions. In a government-run system, those choices get stripped from consumers, both directly and indirectly. If the ObamaCare system incentivizes all doctors through cash payments to make the hospice pitch, it�s effectively unavoidable. Thanks to the tax bite a national health-care system takes, most consumers won�t have the resources to opt for private care, just as we see in Canada and the UK.
But Ed misses the point of the part of my post that he quoted. We have two questions to answer:
  1. Is there a "market failure" in the provision of end-of-life care planning?
  2. Is this failure something that government action could improve?
The first limb I crawled out on -- intentionally -- is that there's tension between a doctor's Hippocratic Oath and her or his provision of advanced end-of-life care advising. It's not just that people are squeamish or unwilling to consider living wills and health directives, it's that a doctor could feel, and I think does feel, that her or his promise not to ever administer a lethal drug extends to not advising on advanced care. One's moral or religious views may also play a role. That seems quite plausible to me. I was hoping medical professionals would comment on this point (and I hope they yet do so.) Ed hasn't challenged that point, but I don't know if he concedes it.

Where this comes to is whether "government action" could improve the outcome, contingent on a 'yes' to the first question. If the first question is affirmed, though, you have an argument then that there is a failure insofar as people are deciding advanced care issues with incomplete and imperfect information. It is possible to improve it. If Ed's position is "government will mess that up; they mess everything up", I am sympathetic to that but it doesn't mean it's impossible to find a way to improve the outcome. I did not walk onto the limb that reads "government can always fix a market failure." It obviously doesn't fix them all. It may not fix very many. But I don't think one can argue categorically.

To discuss 1233 fairly, you have to read it and realize it does not drive any particular outcome. It simply says that if a patient has not had advising in five years, and if a doctor wants to provide information about advanced care, including end-of-life care, the government will provide a payment for that. You induce the doctor to give information. You do not induce a particular outcome. To suggest the latter is to impose one's views of "sinister government" on the bill. I see this as playing into the hands of Obamacare supporters who will accuse opponents as just being pro-insurers: "You just don't want the government to do anything."

Of course, it does my argument no good for the President to tell the elderly to take a painkiller or skip the hip replacement. And if it drives all the private insurers out of business, as I think it will eventually, then the elderly who simply do not want that kind of advice ever really won't have an ability to get away from their advanced care seminar. But if the public option disappears the ability to force people to the seminar goes with it. Without that force, what do you object to then?

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Wednesday, August 12, 2009

Don't get too excited 

The Fed has decided that, for now, it may have enough resources deployed to get us through the rest of this recession (which a majority of WSJ forecasters now say is over):
Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

...The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
It's that last line that will create a buzz more than the "leveling out", as it's an indication that the period of quantitative easing may have reached its apex. But let's remember all the steps they've taken. The New York Times points to the $1.25 trillion purchase of mortgage-backed securities as evidence this hasn't come to an end yet. It still is running $100 billion auctions on a regular basis.

So settle down, cowpokes: Just because some panel had a majority call the end to the recession doesn't mean it's over. You might recall them being the same ones who said we weren't in a recession in early 2008, and then there are the guys who keep saying recession until they're right. The Fed isn't withdrawing any liquidity -- they are still adding. All they've said today is that they think they might have added enough.

James Hamilton reminds us of what President Obama said last week, "As far as I'm concerned, we will not have a true recovery as long as we're losing jobs." The President is right; the Fed may want to think more about this.

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A helpful reader on the insurance options in H.R. 3200 

I often find these Congressional Research Service reports helpful in my work. Here's the one that explains the insurance options of the health reform bill. Executive summary below. I need to make a presentation and will be back online afterwards, and may add more comments to this:

This report summarizes key provisions affecting private health insurance in H.R. 3200, America�s Affordable Health Choices Act of 2009, as ordered reported by House Committees on Education and Labor and on Ways and Means. Specifically, this report focuses on Division A (or I) of H.R. 3200 from those committees.

Division A of H.R. 3200 focuses on reducing the number of uninsured, restructuring the private health insurance market, setting minimum standards for health benefits, and providing financial assistance to certain individuals and, in some cases, small employers. In general, H.R. 3200 would require individuals to maintain health insurance and employers to either provide insurance or pay into a fund, with penalties/taxes for non-compliance. Several insurance market reforms would be made, such as modified community rating and guaranteed issue and renewal. Both the individual and employer mandates would be linked to acceptable health insurance coverage, which would meet required minimum standards and incorporate the market reforms included in the bill. Acceptable coverage would include (1) coverage under a qualified health benefits plan (QHBP), which could be offered either through the newly created Health Insurance Exchange (the Exchange) or outside the Exchange through new employer plans; (2) grandfathered employment based plans; (3) grandfathered nongroup plans; and (4) other coverage, such as Medicare and Medicaid. The Exchange would offer private plans alongside a public option. Based on income, certain individuals could qualify for subsidies toward their premium costs and cost-sharing (deductibles and copayments); these subsidies would be available only through the Exchange. In the individual market (the nongroup market), a plan could be grandfathered indefinitely, but only if no changes were made to the terms and conditions of that plan, including benefits and cost-sharing, and premiums were only increased as allowed by statute. Most of these provisions would be effective beginning in 2013.

The Exchange would not be an insurer; it would provide eligible individuals and small businesses with access to insurers� plans in a comparable way. The Exchange would consist of a selection of private plans as well as a public option. Individuals wanting to purchase the public option or a private health insurance not through an employer or a grandfathered nongroup plan could only obtain such coverage through the Exchange. They would only be eligible to enroll in an Exchange plan if they were not enrolled in other acceptable coverage (e.g., from an employer, Medicare, and generally Medicaid). The public option would be established by the Secretary of Health and Human Services (HHS), would offer three different cost-sharing options, would vary premiums geographically, and would have payments to health care providers set by the Secretary based on Medicare payment rates, with adjustments.

Only within the Exchange, credits would be available to limit the amount of money individuals would pay for premiums. For example, a family of three at 133% of the federal poverty line ($24,352 in 2009 annual income) would be required to only pay annual premiums of $365 toward a Basic plan in the Exchange. A family of three at 400% of poverty ($73,240), where the premium subsidies end, would be required to pay no more than $8,056 in annual premiums for a Basic Exchange plan. Individuals eligible for premium credits would also be eligible for cost-sharing credits. (Although Medicaid is beyond the scope of this report, H.R. 3200 would extend Medicaid coverage for most individuals under 133?% of poverty; individuals would generally be ineligible for Exchange coverage if they were eligible for Medicaid.)

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Up the dose 

The trend on Cash for Clunkers is down, and now they are trying to allow you to get a voucher on your clunker while you wait for your preferred model to come in. And according to the article, inventories are tight. One has to think the next $2 billion won't be as popular as the first billion is. But for junkies, is it ever?


Tuesday, August 11, 2009

Didn't you already summit? 

Governor Pawlenty, in response to the DFL's request for extra time via a leadership summit, sends a letter to Sen. Pogemiller and Speaker Anderson Kelliher. I received a copy, and this is in full:
Thank your for your recent letter regarding plans for a "Minnesota Leadership Summit" in early September.

My Administration and I are declining to participate in your summit. As we have witnessed over the past year, DFL legislators have done a thorough job of admiring our state's budget difficulties, but have refused or been unable to take action to address them.

The state already has an annual "Minnesota Leadership Summit." It's called the legislative session and it lasts approximately five months. This past year, rather than taking timely and decisive action to deal with our budget deficit, the Legislature's DFL leadership wasted the first few months of the session. Passage of your final budget bills in the last few minutes before midnight on the final day of the session was indicative of how you managed the situation.

Rather than calling together former legislators and governors to rehash already established concerns, the Legislature's time would be better spent coming up with reasonable solutions, negotiating with my Administration and having them signed into law.
The DFL could not have expected their invitation to be taken, so they will now use this letter to show how he's still Governor Go-It-Alone. But was that worth it to give Pawlenty another opportunity to highlight the legislative session's failure?

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Questions for your health care town hall: Sec. 1401 and miscellany 

I am going to skip ahead in these notes. Diminishing returns set in; much of the middle third of H.R. 3200 are directives of what services get covered, who can provide, how much gets paid, etc. I'm not a health economist -- there are many portions of this review that I frankly prefer to outsource to economists like Keith Hennessey who has worked on this topic much longer. But I do want to say a few other things here and then review comparative effectiveness research.

A few preliminaries. First, I apologize for length. I did intentionally make yesterday's post long (over 1800 words) so you could see how dense and incomprehensible the language is. It's roughly 22 times the size of the U.S. Constitution. That should strike one as a warning. (It's also four times the size of the Patient's Choice Act; I wish the latter could be smaller.)
In the comments was reference to the home visitation section of the bill. In the middle of this was a reference that I want to highlight:
This is a statement that runs throughout the 1,100 pages and bothers me every time I see it:
(4) OTHER INFORMATION.�Such other information as the Secretary may require.
By my count, 13 times. I want to make sure you ask this question, and I will make it simple for those worried my questions are too long: Senator/Congressperson, what oversight does the Congress expect to have over decisions of the HHS secretary? Do you have any plans to put more oversight into the bill? Democrats, I expect, will answer yes. But this bill is not amendable into something good. So if you hear them say that, you know they aren't going to do the right thing, which is to kill this thing dead.

I'd also like to quickly dismiss the concern over Sec. 1233, which provides a monetary incentive for health care providers to offer people end-of-life counseling. I'd ask you this: Suppose it was your private insurance provider who was incentivizing the counseling. Would you object? I think it's hard for a doctor, trained to save lives, to talk about what happens when they decide you can't be saved. I'm going to go out on a limb -- you're welcome to saw it from under me -- to say this service is underprovided in the private sector. And yet there's an incentive problem at the end of life, both from legal liability and moral standpoints. This may be a place where Pigou is welcome.

OK, on to Sec. 1401, which adds to the Social Security Act:
Sec. 1181. (a) Center for Comparative Effectiveness Research Established-
`(1) IN GENERAL- The Secretary shall establish within the Agency for Healthcare Research and Quality a Center for Comparative Effectiveness Research (in this section referred to as the `Center') to conduct, support, and synthesize research (including research conducted or supported under section 1013 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) with respect to the outcomes, effectiveness, and appropriateness of health care services and procedures in order to identify the manner in which diseases, disorders, and other health conditions can most effectively and appropriately be prevented, diagnosed, treated, and managed clinically.
`(2) DUTIES- The Center shall--
`(A) conduct, support, and synthesize research relevant to the comparative effectiveness of the full spectrum of health care items, services and systems, including pharmaceuticals, medical devices, medical and surgical procedures, and other medical interventions;
`(B) conduct and support systematic reviews of clinical research, including original research conducted subsequent to the date of the enactment of this section;
`(C) continuously develop rigorous scientific methodologies for conducting comparative effectiveness studies, and use such methodologies appropriately;
`(D) submit to the Comparative Effectiveness Research Commission, the Secretary, and Congress appropriate relevant reports described in subsection (d)(2); and
`(E) encourage, as appropriate, the development and use of clinical registries and the development of clinical effectiveness research data networks from electronic health records, post marketing drug and medical device surveillance efforts, and other forms of electronic health data.
It runs on for pages defining an oversight committee, composition of the committee, terms and compensation, etc. The oversight committee, called the "Comparative Effectiveness Research Commission" will disseminate "the findings of research conducted and supported under this section that enables clinicians, patients, consumers, and payers to make more informed health care decisions that improve quality and value." That "and payers" part I emphasized because that includes the government and its new Health Choices Administration.

So some questions for your senator or congressperson:
  1. What will you do with the results of the Comparative Effectiveness Research Commission?
  2. Will these results be used in redefining the qualified insurance package I can get? That is, suppose my insurer looks at those results and doesn't change funding for certain treatments. Will the government make them do so?
  3. There are private groups doing comparative effectiveness research. Insurers no doubt do much of this. Why do we need a government agency to do it? Is this a good use of our money?
  4. Relatedly, wasn't there a billion spent on this in the stimulus act?
  5. To what extent will the commission consider cost in its analysis? Uwe Reinhardt, an advisor during the Hillarycare debate, wrings his hands over people spending too much on their health care. Do you worry about this?
  6. Do you have any evidence that this will save money? CBO says not before 2019.
I may have one more of these in me; there is the "waste, fraud and abuse" parts of the act that I find humorous, actually. But you should have plenty of questions to ask now that are specific. If you want any more, Sen Tom Coburn has ten more.

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A union isn't uniform 

I was reading a twitter stream from a local blogger saying that the SEIU is janitors, clerical workers, etc., basically, they're common normal people and that people who complain about the purple shirts are somehow besmirching all those good people. What to make of this?

I work in a state university; all but our top administrators are unionized by the IFO (faculty union), AFSCME, MAPE and I'm sure I'm forgetting someone (sorry). All of them have memberships that are around 70-80% of the possible members. The rest get covered as "fair share" employees, meaning they still have to pay for someone to represent them in contract negotiations even though they would rather not be. (Long-time Scholars readers will know these arguments.) So it's fair to say that when you blame my union, of which I'm a full member, for giving a large chunk of money to the party that wants to take my health care freedom away, you are smearing some 20% or more of our faculty who don't give money to the union for that purpose. (We hope.)

But it's more than this. The SEIU and other unions might not be representing their rank and file very well.
Union members give Obama wide berth on handling health care reform - they trust him over Republicans in Congress 63 percent versus 11 percent according to a Washington Post-ABC News poll conducted in late June - but there remains room for Republicans to gain among card-carrying union members. A sizable 17 percent said they trust neither to make the right decisions on health care and Obama's approval rating on the issue lags well behind his overall rating (54 percent compared with 67 percent).

The same poll found many union members wary that health care reform could bring unwelcome change. Nearly two-thirds (64 percent) said reform would require change even of those who don't want it. And majorities are deeply concerned that health care reform will reduce their coverage and sharply increase the federal deficit (59 percent), increase their health care costs (53 percent), increase government bureaucracy in the health care system (52 percent), reduce the quality of health care they receive and limit their choices of doctors or treatments (51 percent).

That poll is late June, before the details of this power grab have been made known. It's plausible to me that support has since fallen even among union workers. If it's true that not every SEIU supports the thuggery of some of its members -- and I am certain that is true -- then it must also be true that the SEIU is not representing many of its members when it shills for Obamacare. I hope some of them start wearing shirts that read "I am Ken Gladney."

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I did hit myself; I'm not sure why, because business is seldom really a friend of capitalism. But leave it to a Chamber of Commerce to test-market it:
To combat what it views as rapid government growth and attacks on business, the U.S. Chamber of Commerce is launching a multiyear campaign to remind Americans of the virtues of a free market and free trade. But don't expect the campaign, which could cost as much as $100 million, to praise "capitalism" or "risk taking." Or to criticize "protectionism."

It's not that the Chamber, which represents 3 million organizations, has gone squishy on its core values. The group just wants its message to resonate with the public. And reactions to these terms by focus groups in Jacksonville, Fla., and Philadelphia suggest it would be best to omit them. " 'Capitalism' was universally problematic," says Chamber spokeswoman Tita Freeman. Adds Rich Thau, president of New York-based Presentation Testing, which ran the focus groups: "There were those who associated 'capitalism' with greed and with the powerful dominating the vulnerable." But those negatives, he says, didn't apply at all to "free enterprise." (For now, the Chamber's multimedia offensive, which starts officially in October, is called the Campaign for Free Enterprise.)

As for "risk-taking," which has been promoted in the Chamber's press materials, "it was at the bottom of the pile," says Freeman. "We found the average American doesn't like the idea of businesses taking risks. They think of a casino and someone throwing the dice." And "protectionism," which the Chamber opposes? In an earlier round of tests, people approvingly linked the word with a general sense of being "protected," says Thomas Donohue, the Chamber's president and CEO.
I am newly minted as a director for a center for economic education. Making people more literate about economics -- and my desire is to make ADULTS more literate, as much as we concentrate on children -- would in my mind getting attitudes about protection, risk-taking and capitalism to be more complex, more nuanced. Why aren't they? I have found myself going back to basics: What is the economic attitude of a primitive? If someone had no education at all, what would be their attitudes towards truck, barter, and exchange? Would they, for example, consider all trade to be zero-sum? I'm pretty sure that answer is yes; that suggests a place where you focus your education efforts. I am working on a longer article about this point right now and looking for other attitudes of primitives.

Mr. Donohue and the Chamber put money into economic education of children, and yet they face these attitudes that makes them try to modify their message. I don't know what they expect of their investments in econ ed to return, but if you have to hide your free trade principles you have to think you didn't get all you hoped for.

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Undies on, undies off 

I remember we had this discussion when Ed posted on the story of Larry Summers looking at Google Trends to pick up consumer sentiment. I told him off air (but forgot to do on air after his and Mitch's show on NARN) about the old story of Alan Greenspan calling makers of underwear to determine whether or not businessmen were confident or hurting.

I think I have to tip my cap, though, to the Bank of Japan:
The Bank of Japan is counting brothels in Hokkaido to help determine demand for services as the country battles its deepest post-War recession.

The number of sex parlors in the Susukino red-light district in Sapporo more than quadrupled in the past 20 years, according to a central bank report published yesterday. The survey of sex shops and restaurants was designed to better gauge demand for services, an area of the economy that�s becoming more important as exports slump.

�Any study into services is most welcome,� said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. �We�ve got hundreds of studies on exports and manufacturing. What�s needed is creative thinking on services and if that includes brothels, so be it.�

...While the number of restaurants in the district fell 14 percent between 1989 and 2008, the number of brothels climbed to 264 shops from 63, the report showed.
(h/t: Marginal Revolution.) I wonder: If your business is very busy, do you have time to visit a brothel? Is the indicator supposed to be pro-cyclical or counter-cyclical? I don't know. But how would you like your job to be the research assistant on this study?

The trouble with any indirect measure, which is mostly what we do in macro, is just that: it's indirect. And any time you have economic booms or busts, there are those who will write half-page Sunday op-eds declaring the death of GDP or some other nonsense. The point is, what do you replace it with? Before one uses or disposes of any measure, you have to have some theory in your head that says why it's important. I wouldn't count brothels unless I was really sure they were a luxury, or if I was really sure it was an inferior good, or some such. Since I don't know, I don't count that. Greenspan's undies count only works if you buy his story that underwear purchases are more cyclical than suit purchases. Using electricity consumption to measure the shadow economy only works as long as there's a one-to-one relationship between electricity use and production. &c. Buy the premise, buy the stat.


Monday, August 10, 2009

Don't bogart that donut, my friend 

So you'll hear much over the next day or two about a new study from PriceWaterhouseCoopers finding $1.2 trillion a year of wasteful health spending. Take a look at this list, via CNN/Money and Business Insider:
Get where this is going? "Put down your cigarette and beer and get off the barstool, fatty, you're wasting money."

Your choices are being judged by how much you spend on insurance. But of course, your choices about smoking, alcohol and food consumption are part of the pricing of insurance ... or at least they could be, if you could somehow charge people for being fat. But you don't pay premiums by the pound, so having insurance is a disincentive to watch your weight. Of course, as this video shows, we will pay you for not smoking, so there is an economic incentive there. And in Oregon's case there's money for you to lose weight, paid for by all the skinny people. How long before your food and drink choices come over the same amount of scrutiny as your tobacco choices?

Odd thing about that video -- the only things they seem to want to pay for are to control your Krispy Kremes, Leinenkugels and Marlboros.

Meanwhile, President Obama isn't hearing for tort reform for that first $210 billion, relying instead on "evidence-based" methods that may make treatments one-size-fits-all. Processing claims differently might be something you could do without sacrificing a trillion dollars on this plan -- one could look at what Governor Pawlenty did for public employees last year for example. (I have one of those "Benny Cards", and I'm pretty happy with it.) Do you think those costs will go down with Obamacare?

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Another blow to the biofuel crowd 

Would you like your ethanol to depend on the Indian monsoon season? From the BBC:
The price of raw sugar has increased to its highest level since 1981, as supply concerns grow.

Raw sugar futures added 3% on Monday, to finish the day at 22 cents a pound.

"The main problem is a deficit in sugar supplies," said Nick Penney, a trader with Sucden Financial, a firm that focuses on sugar trading.

Growing demand in Brazil for sugar to be turned into ethanol, coupled with a sharp fall in Indian production, have both prompted worries, he explained.

Sugar production in India for 2008-09 fell 45% year-on-year, according to a report by Sucden.

And a "drastic fall" is expected for the coming Indian crop, it said.

India had less rain in the monsoon season and it was also uneven, damaging a number of agricultural crops.
The price was under thirteen cents in April. Note that both a change in supply and in demand happened here (see the italicized paragraph) which means we have much higher prices without anyone really getting more fuel or sugary products.

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Clark doesn't heart Reagan 

Eric Black writes a bio of state senator Tarryl Clark. He makes a big deal about her claim that she was once a Republican.

A MinnPost reader stumbled on the fact that Clark was a former Repub and asked me to check it out. Sure enough, she grew up in a Republican family and voted Repub as a young adult, including for Ronald Reagan in 1980 and 1984 (ouch, don�t tell Walter Mondale).

Of that 1984 vote for Reagan, Clark says: �If I could take that back, I would. He [Reagan] was kind of the nail in the coffin� of her Republican sympathies.

During the Reagan years, she says, she saw her ancestral party abandoning the needs of families and failing to walk the walk on fiscal responsibility. She�s been a Dem ever since and served as deputy chair of the DFL. (An aside, because I happen to recall it, Rep. Bachmann was a Democrat as a young adult, campaigning for Jimmy Carter. The Reagan years turned Bachmann into a conservative Republican and Clark into a liberal Democrat.)

I don't know about Bachmann, but I can tell you I made the opposite journey. Voted for Carter in 1976, for John Anderson in 1980. I cannot even say that, when I voted for Reagan in 1984 that I did so with great enthusiasm; it was much later that I realized the breadth of his intelligence. But I was attracted to Friedman and Margaret Thatcher earlier, and given the disastrous fiscal policies proposed by Mondale the vote for Reagan that time was not hard.

But I don't get how Clark claims the Republicans "abandoned the needs of families" and "failed to walk the walk of fiscal responsibility." The balanced-budget high-spending Republicans of the east coast are not those of her previous homes in Illinois and Virginia. Did not Reagan's foreign policy precipitate the fall of the Berlin Wall, saving us $100 billion in defense spending? The ones who squandered the peace dividend came after the fall of the USSR.

Did the budget balance that came at the end of the Clinton years come thanks to Clinton, or thanks to the 18 year run of good economic performance that came after the 1981-82 recession (with a small pause in 1990?) Didn't all that income help families? It took me a long time and perhaps some time with Robert Bartley's The Seven Fat Years to understand what Reagan had wrought. Clark failed to learn the lesson.

Clark is undoubtedly aware of the difficulties of running as a pro-choice DFLer who voted for many tax increases and a healthy stealth pay increase through per diems (you'll note I've never removed this from the blog sidebar.) First Ringer highlights the uphill fight Clark faces; even if Bachmann is a lightning rod for liberals, her district has a pretty substantial base of people who will vote for her, and gets an IP candidate that last time tanked Tink. If in a DFL highwater year with Obama at the top of the ticket Bachmann can get 49% even after sticking her foot and calf in her mouth on national TV (to the extent MSNBC can be called that), it's hard to see how Clark finds a plurality.

And the side benefit is, SD 15's state senate seat is now up for grabs unless Clark reverses field or should lose the endorsement to Dr. Maureen Reed. The latter is the longest of long shots; the only way Clark doesn't get the DFL endorsement is if she decides her party has dressed her up just to carry her up to the volcano, and declines to be tossed in.

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Questions for your health care town hall: Secs. 122-124 

Gary Gross has begun to highlight Section 122 of H.R. 3200, which defines the benefits that any private plan must provide to be considered qualified. He actually bridges 122 and 123, and in this post I will include parts of Sec. 124; you need to see them together as a whole to understand this part of the bill. Below you will find ten questions (or sets of questions) that will help you define where your legislator is on controlling your health insurance.

Section 122 defines a list of benefits that any qualified plan would have. The rule would not apply to any plan you currently have -- that is the part the President is using to say "if you like your health insurance you can keep it," which is a vacuous promise, but not needed to discuss here. Let's read 122 in full:

That leads to a few questions right off the top.
  1. Congressman/woman, Does the lack of cost-sharing for preventative services under 122(c)(1) help control costs? A CBO letter last Friday to Rep. Nathan Deal points to a study that shows "that slightly fewer than 20 percent of [preventative] services that were examined save money, while the rest add to costs."
  2. Does the annual cap of $5000 for a single and $10,000 for a family come on TOP of my current premium? According to the pro-reform page put up by HHS, we currently pay $1,522 in cost-sharing. Does sec. 122(c)(2)(B) mean I am going to see higher co-pays and deductibles?
  3. Do you favor a cafeteria plan for choosing benefits, as Gary highlighted in his interview of Rep. Paul Ryan? Why is it a better for cost control to define minimum benefits than it is to permit individuals to pick the services they want? Do you support the Patients' Choice Act?
Let's move on to Sec. 123, which creates a committee that decides on what is in the essential benefits package:
Questions here:
  1. The committee that decides what has to be in a qualified plan contains at least twenty (20) people, yet it only guarantees one physician is on the panel. Do you think this is the right level of participation of medical professionals?
  2. The committee membership includes the words "shall at least reflect" various health insurance stakeholders. Isn't that vague? Would you want to change that?
  3. Does Congress get any say in who's on this committee?
  4. Borrowing from Gary: Senator or Congressperson, do you believe that this committee would unduly restrict the relationship between a patient and her or his doctor? Why or why not?
On to Section 124, which defines how the process works from recommendation by the Health Benefits Advisory Committee to action.
This raises questions too:
  1. Where is Congress' input into what shall be in the plan? Does your senator or congressperson think this plan vests too much power in the hands of the HHS Secretary?
  2. In particular, can the Secretary decide to ignore the Health Benefits Advisory Committee and impose a minimum plan? (The answer is yes, only subject to the cost rules in Sec. 122.)
  3. The rules for updating the benefits package is vague, only providing for "periodic updating". Do you think this should be that vague?

I urge you to read all of the posts done here for questions about the bill. Ask your legislator these questions and please post in comments any answers you receive. Also send them to me at comments at scsuscholars*dot*com. I'd like a diary of any of these you get.

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Friday, August 07, 2009

Questions for your health care town hall: Secs. 411 and 412 

For the end of the week, I'm going to show the effects of H.R. 3200's provisions for health care coverage that is placed on employers large and small. These show up in Sections 411 and 412 of the Act. Here's the text via THOMAS. (Please note, I often edit these to eliminate some naming and exception language that is routine. So here, for example, I'll skip all the rules they need to deal with the railroad industry.)

(a) In General- Chapter 43 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

`(a) Election of Employer Responsibility To Provide Health Coverage-
`(1) IN GENERAL- Subsection (b) shall apply to any employer with respect to whom an election under paragraph (2) is in effect.
`(2) TIME AND MANNER- An employer may make an election under this paragraph at such time and in such form and manner as the Secretary may prescribe.
`(3) AFFILIATED GROUPS- In the case of any employer which is part of a group of employers who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414, the election under paragraph (2) shall be made by such person as the Secretary may provide. Any such election, once made, shall apply to all members of such group.
`(4) SEPARATE ELECTIONS- Under regulations prescribed by the Secretary, separate elections may be made under paragraph (2) with respect to--
`(A) separate lines of business, and
`(B) full-time employees and employees who are not full-time employees.
`(5) TERMINATION OF ELECTION IN CASES OF SUBSTANTIAL NONCOMPLIANCE- The Secretary may terminate the election of any employer under paragraph (2) if the Secretary (in coordination with the Health Choices Commissioner) determines that such employer is in substantial noncompliance with the health coverage participation requirements.
`(b) Excise Tax With Respect to Failure To Meet Health Coverage Participation Requirements-
`(1) IN GENERAL- In the case of any employer who fails (during any period with respect to which the election under subsection (a) is in effect) to satisfy the health coverage participation requirements with respect to any employee to whom such election applies, there is hereby imposed on each such failure with respect to each such employee a tax of $100 for each day in the period beginning on the date such failure first occurs and ending on the date such failure is corrected.
`(A) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED EXERCISING REASONABLE DILIGENCE- No tax shall be imposed by paragraph (1) on any failure during any period for which it is established to the satisfaction of the Secretary that the employer neither knew, nor exercising reasonable diligence would have known, that such failure existed.
`(B) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS- No tax shall be imposed by paragraph (1) on any failure if--
`(i) such failure was due to reasonable cause and not to willful neglect, and
`(ii) such failure is corrected during the 30-day period beginning on the 1st date that the employer knew, or exercising reasonable diligence would have known, that such failure existed.
`(C) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES- In the case of failures which are due to reasonable cause and not to willful neglect, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of--
`(i) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for employment-based health plans, or
`(ii) $500,000.


(a) In General- Section 3111 of the Internal Revenue Code of 1986 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
`(c) Employers Electing to Not Provide Health Benefits-
`(1) IN GENERAL- In addition to other taxes, there is hereby imposed on every nonelecting employer an excise tax, with respect to having individuals in his employ, equal to 8 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)).
`(A) IN GENERAL- In the case of any employer who is small employer for any calendar year, paragraph (1) shall be applied by substituting the applicable percentage determined in accordance with the following table for `8 percent':
`If the annual payroll of such employer for the preceding calendar year: The applicable percentage is:
Does not exceed $250,000 0 percent
Exceeds $250,000, but does not exceed $300,000 2 percent
Exceeds $300,000, but does not exceed $350,000 4 percent
Exceeds $350,000, but does not exceed $400,000 6 percent
`(B) SMALL EMPLOYER- For purposes of this paragraph, the term `small employer' means any employer for any calendar year if the annual payroll of such employer for the preceding calendar year does not exceed $400,000.
`(C) ANNUAL PAYROLL- For purposes of this paragraph, the term `annual payroll' means, with respect to any employer for any calendar year, the aggregate wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)) during such calendar year.
`(3) NONELECTING EMPLOYER- For purposes of paragraph (1), the term `nonelecting employer' means any employer for any period with respect to which such employer does not have an election under section 4980H(a) in effect.
`(4) SPECIAL RULE FOR SEPARATE ELECTIONS- In the case of an employer who makes a separate election described in section 4980H(a)(4) for any period, paragraph (1) shall be applied for such period by taking into account only the wages paid to employees who are not subject to such election.

My understanding is that the table for small employers above was changed in committee, and I don't have the new language. One question you could ask is when the amended bill from Energy and Commerce will be posted. The section proposes an addition to Title 26, Chapter 43 of the US Code, which is part of the Internal Revenue Code of 1986, link provided for reference.

So read this and find some questions. Here would be mine:
  1. The bill imposes a very stiff fine on employers for noncompliance of $100/day per employee if it is determined they are not in compliance with providing qualifying coverage, but a much smaller fine if it's unintentional. The burden of proof appears to be on the employer if it's determined the employer was not "employing reasonable diligence". Who makes that determination of reasonable diligence? If someone is determined to be intentionally in violation, how could an employer appeal the fine?
  2. Likewise, the Commissioner of the Health Choices Administration is permitted to "terminate the election of any employer" to provide a plan. Does this place all of those employees in the government exchange? Again, how does an employer or its employees appeal this decision and seek to provide their own remedy?
  3. Can you explain the exceptions in the calculation of the wage base on which I pay the 8% (or less, for small employers) if I drop my insurance and put my employees on the government plan? (There are several, see subsection (b) in Section 412, you can refer to this for the calculation of wages that the section modifies.) If you find a legislator that can actually explain that, give them a gold star and point them out. They must have tried to read the bill.
I will continue to work over the weekend on other sections. I invite you to print these and ask them at town halls. Don't shout, but be sure to show up early, because it sounds like some people are hogging seats.

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Thought of the day 

Commenting on a Newsweek story that says Britain is no longer Great, MEP Daniel Hannan writes:
I don�t deny that he�s got a point, particularly about the debt levels. This Labour Government, like the last, has left Britain diminished and dishonoured, its Treasury empty, its credit exhausted. Then again, see how quickly these things can be turned around.
Americans were saying much the same thing about Britain three decades ago. �Britain is a tragedy - it has sunk to borrowing, begging, stealing until North Sea oil comes in,� said Henry Kissinger in 1978. The Wall Street Journal was blunter: �Goodbye, Great Britain: it was nice knowing you�.
But look what happened next. This happened. It is one of our national tragedies that we tend to leave things until almost too late. But, when we rouse ourselves, we are capable of extraordinary resolve.
The timing is a bit off for us, as Britain will rid itself of its Labour Government sooner than we can. But 18 months passed between Thatcher and Reagan. I find myself both keenly interested in what is happening in Great Britain, and optimistic that the US has the same extraordinary resolve Mr. Hannan sees in the British.

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Timing is everything 

In the post below this one I mentioned that we have had a very odd summer in terms of automotive employment. Shutdown of 2009 model year production began sooner as inventories built up:
Manufacturing employment fell by 52,000 in July and has declined by 2.0 million since the recession began. In motor vehicles and parts, fewer workers than usual were laid off in July for seasonal retooling. As a result, the estimate of employment for the industry rose by 28,000 after seasonal adjustment. In large part, July's seasonally-adjusted increase reflects the fact that previous job cuts had been so extensive that there were fewer workers to lay off during the seasonal shutdown..
Golfers can understand it this way: I carry a 31 handicap; I'm a lousy golfer. I go out and shoot a 95. This is a lousy score for most people, but with my handicap (on an average course) it's a 64. On net, I'm Tiger Woods. But if you watched me play that day, you'd think I was less than mediocre.

Let me show you this on a graph:

That is a NOT seasonally adjusted graph for production workers only, grabbed from BLS. You can see the first half of each year ramps down fairly slowly, then drops like a stone in July. In the last four years the unadjusted change between June and July was 26,600 in 2005, 30,100 in 2006, 28,700 in 2007 and 18,000 in 2008. 2008, unlike the other years, had a drop in motor vehicle employment between January (a normal inventory adjustment month when workers don't mind being on leave because Detroit isn't the best place to be that month) and June. But this year we've already had an unadjusted drop of 21,900 production workers in motor vehicles. If they had already cut them and now had no more to cut in July, when you put the adjustment to autos you get an increase. In short, if you have already hit your thumb with a hammer six times, the seventh time doesn't hurt so bad if you don't add force. But it's still damaging. Take that away and add in the measurement errors and the whole meme of good news in this report is doubtful.

From the left, Robert Reich is observing that "the economy is getting worse more slowly." Justin Fox is even more negative and picks up the seasonal effect as well:
The above numbers are seasonally adjusted�which is necessary to do, but adds lots of potential for weird statistical quirks like the auto employment increase. Without the seasonal adjustments, employment fell a whopping 1.3 million in the month. And there were 5.9 million fewer jobs in July 2009 than in July 2008.
And the number of people in the labor force fell 422,000 last month, which is the real reason the unemployment rate declined.

So the combination of timing of past layoffs and the departure of people from the labor force may account for the news today. It has little to do with stimulus, yet.


Mrs. S writes 

This month, it's the topic we all love, Cash for Clunkers:
As a businessman, it's hard to be against all the traffic it has generated, but he hopes it is not a temporary fix. "It's like priming an engine with no gas in the tank. If it helps the economy, it's a good thing".

"The tax-payer, however, is the one who will eventually pay".

And perhaps they know it. According to a recent Rasmussen survey, a majority of Americans (54%) oppose more funding for this program. A similar share opposed it last year when the idea was floated in 2008.

Will the philosophy behind �Clunk-fare� eventually be used on the housing market? Clothing market? Probably not, because the government has made this program with an eye towards increasing fuel efficiency. But the Associated Press reported this week that the amount of pollution reduced is equivalent to us not emitting any greenhouse gases for 57 minutes. The fuel economy savings equals the amount of gas we use in 4.5 hours.
In the research for her article, she sent along this piece, which includes a quote:
"As a carbon dioxide policy, this is a terribly wasteful thing to do," said Henry Jacoby, a professor of management and co-director of the Joint Program on the Science and Policy of Global Change at MIT. "The amount of carbon you are saving per federal expenditure is very, very small."
Now the program has another $2 billion in the kitty, another 400,000 or more cars going off the road. And is it stimulus? Maybe, maybe not:
Ford Motor Co., General Motors Co. and Chrysler Group LLC are weighing whether to increase output of vehicles beyond current plans, which would increase workers' hours and possibly add some jobs at their plants and those of hundreds of suppliers. But the auto makers have reason to be cautious. Big sales promotions are often followed by a slump in sales -- "payback," in industry jargon. Battered by losses in the past year, the big Detroit auto makers want to keep supply and demand in balance in order to boost profitability.
We may have just spent $3 billion to help automakers clear their inventory and created very few new jobs and little carbon reduction.

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Thursday, August 06, 2009

Questions for your health care town hall: Sec. 421 

I need to split up the questions on the employer responsibilities today, because it's just really complicated. In fact, you'll find one of my questions below very open-ended because I don't get one of these sections at all. But as you'll see, it really matters. Please also note, I've gone back to Thomas versus the OpenCongress version of the bill, even though the latter is more linkable and has comments on it. It's just very slow-loading and gripy in non-IE browsers.

If you are self-employed or run a small firm, this is for you. Section 421 controls the credit supposedly provided for small businesses to provide their employees health insurance coverage.


(a) In General- Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business-related credits) is amended by adding at the end the following new section:

`(a) In General- For purposes of section 38, in the case of a qualified small employer, the small business employee health coverage credit determined under this section for the taxable year is an amount equal to the applicable percentage of the qualified employee health coverage expenses of such employer for such taxable year.
`(b) Applicable Percentage-
`(1) IN GENERAL- For purposes of this section, the applicable percentage is 50 percent.
`(2) PHASEOUT BASED ON AVERAGE COMPENSATION OF EMPLOYEES- In the case of an employer whose average annual employee compensation for the taxable year exceeds $20,000, the percentage specified in paragraph (1) shall be reduced by a number of percentage points which bears the same ratio to 50 as such excess bears to $20,000.
`(c) Limitations-
`(1) PHASEOUT BASED ON EMPLOYER SIZE- In the case of an employer who employs more than 10 qualified employees during the taxable year, the credit determined under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of such credit (determined without regard to this paragraph and after the application of the other provisions of this section) as--
`(A) the excess of--
`(i) the number of qualified employees employed by the employer during the taxable year, over
`(ii) 10, bears to
`(B) 15.
`(2) CREDIT NOT ALLOWED WITH RESPECT TO CERTAIN HIGHLY COMPENSATED EMPLOYEES- No credit shall be allowed under subsection (a) with respect to qualified employee health coverage expenses paid or incurred with respect to any employee for any taxable year if the aggregate compensation paid by the employer to such employee during such taxable year exceeds $80,000.
`(d) Qualified Employee Health Coverage Expenses- For purposes of this section--
`(1) IN GENERAL- The term `qualified employee health coverage expenses' means, with respect to any employer for any taxable year, the aggregate amount paid or incurred by such employer during such taxable year for coverage of any qualified employee of the employer (including any family coverage which covers such employee) under qualified health coverage.
`(2) QUALIFIED HEALTH COVERAGE- The term `qualified health coverage' means acceptable coverage (as defined in section 59B(d)) which--
`(A) is provided pursuant to an election under section 4980H(a), and
`(B) satisfies the requirements referred to in section 4980H(c).
`(e) Other Definitions- For purposes of this section--
`(1) QUALIFIED SMALL EMPLOYER- For purposes of this section, the term `qualified small employer' means any employer for any taxable year if--
`(A) the number of qualified employees employed by such employer during the taxable year does not exceed 25, and
`(B) the average annual employee compensation of such employer for such taxable year does not exceed the sum of the dollar amounts in effect under subsection (b)(2).
`(2) QUALIFIED EMPLOYEE- The term `qualified employee' means any employee of an employer for any taxable year of the employer if such employee received at least $5,000 of compensation from such employer during such taxable year.
`(3) AVERAGE ANNUAL EMPLOYEE COMPENSATION- The term `average annual employee compensation' means, with respect to any employer for any taxable year, the average amount of compensation paid by such employer to qualified employees of such employer during such taxable year.
`(4) COMPENSATION- The term `compensation' has the meaning given such term in section 408(p)(6)(A).
`(5) FAMILY COVERAGE- The term `family coverage' means any coverage other than self-only coverage.
`(f) Special Rules- For purposes of this section--
`(1) SPECIAL RULE FOR PARTNERSHIPS AND SELF-EMPLOYED- In the case of a partnership (or a trade or business carried on by an individual) which has one or more qualified employees (determined without regard to this paragraph) with respect to whom the election under 4980H(a) applies, each partner (or, in the case of a trade or business carried on by an individual, such individual) shall be treated as an employee.
`(2) AGGREGATION RULE- All persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.
`(3) DENIAL OF DOUBLE BENEFIT- Any deduction otherwise allowable with respect to amounts paid or incurred for health insurance coverage to which subsection (a) applies shall be reduced by the amount of the credit determined under this section.
`(4) INFLATION ADJUSTMENT- In the case of any taxable year beginning after 2013, each of the dollar amounts in subsections (b)(2), (c)(2), and (e)(2) shall be increased by an amount equal to--
`(A) such dollar amount, multiplied by
`(B) the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting `calendar year 2012' for `calendar year 1992' in subparagraph (B) thereof.
If any increase determined under this paragraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.'.
(b) Credit To Be Part of General Business Credit- Subsection (b) of section 38 of such Code (relating to general business credit) is amended by striking `plus' at the end of paragraph (34), by striking the period at the end of paragraph (35) and inserting `, plus', and by adding at the end the following new paragraph:
`(36) in the case of a qualified small employer (as defined in section 45R(e)), the small business employee health coverage credit determined under section 45R(a).'.

(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2012.
Here are my questions:
  1. What is the tax credit for small businesses? (50% is the right answer, meaning you should be able to get half of your premium payments back in lower taxes.)
  2. Ask them to define a small business. Then ask your congressperson or senator to explain the phaseout of the credit. I wish I could to tell you what the answer here is, but I've read that five times and I still am not sure I understand it.
  3. What is the limit on wages you can pay to qualify for this credit? I would refer you to the example Keith Hennessey pointed out a few weeks ago. He has two stories, a 50-year-old bachelor who works for a five-person firm and earns $50k/yr, and a couple who are the only employees of a small tourist shop in a beach community earning $90k/yr. Many of you readers may be this kind of person. What happens to your firm, to your family income? In particular for the second family, do they get the 50% credit (which, if I'm not mistaken, Hennessey did not take into account)? If the family had three kids and all were made employees, would they now be exempt (because their income drops below $20k/worker)?
For your assistance, here's Chapter 38 of the Internal Revenue Code.

I was surprised at first why no good articles on 421 have been done yet, but now I get it. That passage up above is gobbledygook. What you should focus on is the phaseout. It has both a cap based on number of employees and, it appears, on average wages paid. If you run a small law practice or accounting firm, you may be a small business in many other ways but can't duck the employer mandates in H.R. 3200. Read carefully.

UPDATE (9 pm): Commenter and my colleague David Switzer explains the phaseout of the credit:
So if you pay your employees $30,000, the excess is $10,000 and the ratio of the excess to $20,000 is 50%. Thus, the government would not cover 25% of the cost of health care (since 25/50 is 50%). So it looks like employers get nothing when they pay above $40,000 -- which is right at the median personal income for full-time workers above the age of 25.
So you get a credit only if you hire relatively unskilled labor. I assume this means only full-time employees? I don't see anything in the definitions in H.R. 3200 that helps. And that phaseout may mean Hennessey's calculations were right (I should have known :( )

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The Lawyers Professional Responsibilty Board is filled with partisan hacks ... oh, wait 

KSTP reports that the fellow whose quote is to your right about me being a partisan hack (from this 2006 post) has run afoul of ethics charges.
A lawyers' standards board has filed a petition accusing former St. Cloud Mayor John Ellenbecker of unprofessional conduct.

The Office of Lawyers Professional Responsibility alleges Ellenbecker didn't return an audiotape to a client. It also accuses him of failing to pay a private investigator even after ordered to do so by a court.

The petition also says Ellenbecker hasn't cooperated with the office, which is an agency of the Minnesota Supreme Court that handles complaints against lawyers.

Ellenbecker didn't return a call Thursday seeking comment.

Ellenbecker uncooperative? Incroyable! I'm sure there's a good explanation for this.

The Board is in fact appointed by the Minnesota Supreme Court and has 23 members.

UPDATE: Larry Schumacher gets a call from Ellenbecker, who says it's a "misunderstanding" that he made worse through "procrastination". �I screwed up, but I didn�t do anything intentionally in terms of trying to avoid anybody,� he said Thursday. The story is generating a great deal of commentary on the Times' chat, where the former mayor is a frequent poster.

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Congress' idea of stimulus 

Gulfstream is getting a real dose of stimulus, courtesy of Nancy Pelosi.
At the end of July, the House approved nearly $200 million for the Air Force to buy three elite Gulfstream jets for ferrying top government officials and Members of Congress.

The Air Force had asked for one Gulfstream 550 jet (price tag: about $65 million) as part of an ongoing upgrade of its passenger air service.

But the House Appropriations Committee, at its own initiative, added to the 2010 Defense appropriations bill another $132 million for two more airplanes and specified that they be assigned to the D.C.-area units that carry Members of Congress, military brass and top government officials.

Because the Appropriations Committee viewed the additional aircraft as an expansion of an existing Defense Department program, it did not treat the money for two more planes as an earmark, and the legislation does not disclose which Member had requested the additional money.

An Appropriations Committee staffer said the military was already planning to replace its passenger fleet, and the committee �looked at the request and decided they should speed up the replacement.�

The Gulfstream G550 is a luxury business jet, which the company advertises as featuring long-range flight capacity that �easily links Washington, D.C., with Dubai, London with Singapore and Tokyo with Paris.� The company�s promotional materials say, �The cabin aboard the G550 combines productivity with exceptional comfort. It features up to four distinct living areas, three temperature zones, a choice of 12 floor plan configurations with seating for up to 18 passengers.�

h/t: Ed, who calls it a hidden earmark. Now if you think this is wasteful, you would be right if you don't believe government spending is stimulus. But if the reason for government spending is to improve the macroeconomy, then how do you protest spending money on Gulfstream, which produces planes in several places around the US, Mexico and London, in a depressed manufacturing sector. Hey! If you use the calculations this government uses, you've created 1.57*$195 million = $306.15 million in GDP and 2076 jobs! (Y'know, I could really do that Council of Economic Advisers job. I got math!)

And goodness knows, there's been a recent increase in demand for Gulfstream travel in Congress, so why not expand supply? The Speaker is just giving the people the business doing the people's business.

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Significant digits 

Not sure this got noticed yesterday.
[S]omeone hoping to dump an '87 [Plymouth] Sundance in the cash-for-clunkers program was shocked recently when the Environmental Protection Agency re-checked fuel economy figures. In the new math, some Sundances got 19 miles per gallon, just ahead of the clunker-cutoff of 18. It and 77 other cars were bumped from the bad-enough-for-cash list.

In a statement, the EPA said "more precise" data calculated "to four decimal places" caused the revisions.

Just how precise can a fuel-economy test be? Not that precise. After all, 0.0001 miles is about six inches, and, if you could count it, a car getting around 18 miles to the gallon would consume about half a drop of fuel in that distance.

The article goes on to point out all the different places we see this measurement mistake. Of course false accuracy has been a longtime issue. Prof. Phillipp Bagus reviewed the work of the economist Oskar Morgenstern. Bagus notes that in the physical sciences we would have an explicit statement of measurement error,
Yet in economics there is simply no error estimate. This means that we do not know the accuracy of the economic data presented to us. This is even more troubling when we consider that in social or economic data there are more possible sources of error than in the physical sciences. We therefore face the question of why the problem of accuracy of economic data is rarely mentioned or passed over in silence in economics, while in the physical sciences this problem is widely acknowledged.
EPA made a mistake in using the data as it did, but that's easy to recognize. Morgenstern's career was in no small part dedicated to finding the many ways economic data fails to provide a context for what I would call the "economic signficance" of some change (and often fails to measure statistical significance, but that's another point.)

Today's example will be the unemployment insurance numbers, which some will proclaim to mean "the worst is behind us." Yet buried deep within:
Jobless claims tend to be volatile in late June and July when automakers typically halt production and idle workers to re-equip factories to build new models. GM and Chrysler Group LLC halted production earlier than usual as they worked through bankruptcy proceedings.
So those initial claims already have come and gone; the data in this period is "volatile" meaning the signal-to-noise ratio has fallen. I'm not sure what the current numbers mean, and I think I'd wait for tomorrow's employment report before I started to make statemetns about the worst being behind us.

There are those who are so convinced economic data is fouled by such errors that they won't use it at all. A majority of the profession is more positivist, but that only increases the burden on us to be clear about data fragility.


Lay down with dogs... 

...and it'll cost you a billion to get rid of the fleas.
Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc to help manage and break apart the insurer, The Wall Street Journal said on Wednesday, citing its own analysis.

Morgan Stanley could collect as much as $250 million, the newspaper said, citing banking experts and documents released by the New York Fed.

Bank of America Corp, private equity firm Blackstone Group LP, law firm Davis Polk & Wardwell LLP, accounting firm Ernst & Young, Goldman Sachs Group Inc and JPMorgan Chase & Co are among others that have or could get big paydays for helping dismantle AIG, the newspaper said.

You'll no doubt note the numerous TARP recipients on that list. But if the government owns 80% of a company and wants to break it up, it probably doesn't have its own mergers and acquisitions department. Nor should it. Still, it's one of those little surprises that will continue to haunt the government that decided to support AIG rather than let it fail.

To put it in context, market capitalization for the company is $3.18 billion. The government owns 80% of that, or $2.54 billion.

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Wednesday, August 05, 2009

Clips of the day 

Calculations by The Associated Press, using Department of Transportation figures, show that replacing those fuel hogs will reduce carbon dioxide emissions by just under 700,000 tons a year. While that may sound impressive, it's nothing compared to what the U.S. spewed last year: nearly 6.4 billion tons (and that was down from previous years).

That means on average, every hour, America emits 728,000 tons of carbon dioxide. The total savings per year from cash for clunkers translates to about 57 minutes of America's output of the chief greenhouse gas.

To begin with, building a new car consumes energy. It is estimated that 6.7 tons of carbon are emitted in process. So a driver who participates in the "cash for clunkers" program would need to make up for that wickedness.
(h/t for second clip: Chad.) Note that 6.7 tons times 250,000 cars produced is greater than 728,000 tons.

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Questions for your health care town hall: Sec. 401 

Please read my note at bottom if you are using these:

Today's edition relates to the individual mandate for you to carry health insurance as of Jan. 1, 2013, which is in Section 401 of H.R. 3200.
In General- Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

Subpart a. tax on individuals without acceptable health care coverage.
�Subpart A--Tax on Individuals Without Acceptable Health Care Coverage

�Sec. 59B. Tax on individuals without acceptable health care coverage.

Sec. 59b. tax on individuals without acceptable health care coverage.

�(a) Tax Imposed- In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of--
�(1) the taxpayer�s modified adjusted gross income for the taxable year, over
�(2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.
�(b) Limitations-
�(A) IN GENERAL- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the applicable national average premium for such taxable year.
�(i) IN GENERAL- For purposes of subparagraph (A), the �applicable national average premium� means, with respect to any taxable year, the average premium (as determined by the Secretary, in coordination with the Health Choices Commissioner) for self-only coverage under a basic plan which is offered in a Health Insurance Exchange for the calendar year in which such taxable year begins.
�(ii) FAILURE TO PROVIDE COVERAGE FOR MORE THAN ONE INDIVIDUAL- In the case of any taxpayer who fails to meet the requirements of subsection (e) with respect to more than one individual during the taxable year, clause (i) shall be applied by substituting �family coverage� for �self-only coverage�.
2) PRORATION FOR PART YEAR FAILURES- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the amount which bears the same ratio to the amount of tax so imposed (determined without regard to this paragraph and after application of paragraph (1)) as--
�(A) the aggregate periods during such taxable year for which such individual failed to meet the requirements of subsection (d), bears to
�(B) the entire taxable year.
I could quote more, but if you are preparing for this you should read the section link above. Here are questions for your congressperson or Senator regarding Sec. 401.
  1. If my adult child is a dependent of mine, am I required under HR 3200 to buy insurance for her or him?
  2. If I become unemployed at any time during a year, am I required to get a qualified plan or enter a government plan to avoid this tax? (It appears this proration clause I ended on does impose that requirement. If someone can find a place where it says you're not taxed, please point me in the right direction.)
  3. If I am a millionaire and I choose to self-insure, am I required to pay both the 2.5% tax (which, you will note, is capped at average insurance premiums as determined by your Health Choice Commissioner) and the 5.4% surcharge in Sec. 441? Do you have an estimate of the amount of legal tax avoidance that will occur if you raise taxes by that amount?
  4. Who is required to document that I have the appropriate coverage? (This will be a test of whether they read 401. It's up to the Treasury Secretary. Follow the link for the exact language.) Doesn't this increase in paperwork defeat the purposes of cost control?
Now my note: My purpose in getting you these questions is to get you something that will tell give you information, get others in the room information, about whether the legislator understands the bill and to get you some real answers if they do. These are to be a substitute for yelling, not a complement. I agree with those who are saying to stop the shouting matches at the town halls. It's unhelpful, it plays into the hands of the Democrats and their love-slaves in the media. (Tapper not included.) Ask the questions, record the answers, then find a reporter and tell them what you thought of the answer. Get your opposition, if you are, in the newspaper and on the radio and TV in a way you'd be proud to show your grandchildren.

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Fill one line on my dance card 

In case you had a moment of deja vu this morning, yes, I'm now posting a few things in Hot Air's Green Room. They occasionally promote items to the big board, and yesterday's post I started on Scholars is there this morning. If one person takes that to a town hall, you have made almost seven years of blogging here worthwhile.

But most exciting to me is a link to that story from The Weekly Standard this AM. Not that it will generate as much traffic for this humble blog as an Instalanche, but because, as I told Ed, Bill Kristol is on my dream Dinner for Five guest list. He and Charles Krauthammer, who's also on the list, would be a conversation I would pay to hear.

Not that all would be conservatives at the dinner. Another guy on my list would be Bill Russell because I admired him as much as a coach as I did as a player (fellow Celtics center Dave Cowens should be in that group too, but Russell is funnier.)

Ed might have enough pull to get me Kristol at a meal, but Russell? He'd get confused and bring me that Dodger shortstop instead.

(And yes, I know MKHammer was the linker, but she's not on my dinner list. If there's to be a woman, it's going to be Linda Ellerbee, who was as much a part of my college years as Tom Snyder, given I usually had overnight jobs.)

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Tuesday, August 04, 2009

You say that like it's a bad thing 

Democratic Rep. Paul Hodes (NH-02) believes reading every bill in Congress �would slow down the business of Congress to a crawl and it would be hard to get done what needs to be done.�
From the Nashua Telegraph (h/t: Ed.)
This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer. -- Will Rogers
If you make babies read, they hold the hammer less.


He didn't walk it ALL the way back 

Q But if economists, including the President's own economists, don't necessarily think that it's possible to do so without raising taxes on the middle class, how is that dealing candidly with the American people?

MR. GIBBS: Well, again, Jake, there are a series of things that have to be done. I think you'll actually hear an announcement from Treasury later this afternoon about how much money has to be borrowed versus what they thought was going to have to be borrowed and what will have to be borrowed as a result of financial stabilization.

In terms of cutting the amount of money that's needed, again, I think the President has been clear on this. The first thing that we can do -- the most important thing that we can do right now is get our economy growing again. We know that the deficit -- part of the reason that the deficit is up right now is that the economy has slowed down so much that tax revenues -- because it's what happens in an economic slowdown -- have regressed a lot. I think the President -- obviously we're going to have to make some decisions down the road on some of the President's legislative priorities and some of the things that Congress wants to do to evaluate how we move back towards -- on a path toward fiscal sustainability.
According to CBO:
CBO estimates that under the laws in place as of March 2009, the cyclically adjusted deficit will climb from 2.6 percent of potential GDP in 2008 to 9.0 percent in 2009 before falling to 4.7 percent in 2010 and 2.2 percent in 2011. The increase from 2008 to 2009 and the decrease in 2010 are the largest on record, reflecting primarily the effects of the TARP legislation, assistance to Fannie Mae and Freddie Mac, and the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), which together will increase the deficit by $812 billion in 2009 and by $445 billion in 2010. (Without those costs, the cyclically adjusted deficit would be about 3.6 percent of potential GDP in 2009 and roughly 1.9 percent in 2010.)
So when we get to 2011, even if the economy is at full employment, there would be a $350 billion deficit. And it then rises, looking at the long-term budget outlooks prepared by former CBO and current OMB director Peter Orszag and current director Doug Elmendorf. According to the latter:
Under the extended-baseline scenario, the fiscal gap [the amount needed to stabilize the debt-to-GDP ratio -- kb] would amount to 2.1 percent of GDP over the next 25 years and 3.2 percent of GDP over the next 75 years. In other words, under that scenario (ignoring the effects of debt on economic growth), an immediate and permanent reduction in spending or an immediate and permanent increase in revenues equal to 3.2 percent of GDP would be needed to create a sustainable fiscal path for the next three quarters of a century. If the policy change was not immediate, the required percentage would be greater.
$350 billion about gets you there. So which way do you think the Congress and the Obama Administration will find that $350 billion? Did Gibbs' statements yesterday make that clearer to you?

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Questions on health care for your townhall for today 

There are plenty of copies of H.R. 3200 now for Congress to read. If you are going to a townhall with your Congressperson or Senator (which means you don't live in MN-7, since Rep. Peterson has decided he doesn't want to meet with you), you should read and bring specific questions about this bill. I intend to offer one a day.

Today's comes from Secs. 141 and 142. In these sections we read:
There is hereby established, as an independent agency in the executive branch of the Government, a Health Choices Administration (in this division referred to as the �Administration�).

The Administration shall be headed by a Health Choices Commissioner (in this division referred to as the �Commissioner�) who shall be appointed by the President, by and with the advice and consent of the Senate.

(1) QUALIFIED PLAN STANDARDS- The establishment of qualified health benefits plan standards under this title, including the enforcement of such standards in coordination with State insurance regulators and the Secretaries of Labor and the Treasury.

(2) HEALTH INSURANCE EXCHANGE- The establishment and operation of a Health Insurance Exchange under subtitle A of title II.

(3) INDIVIDUAL AFFORDABILITY CREDITS- The administration of individual affordability credits under subtitle C of title II, including determination of eligibility for such credits.

(4) ADDITIONAL FUNCTIONS- Such additional functions as may be specified in this division.
Questions for your congressperson or senator:
  1. Will this commissioner have the power to terminate one's insurance plan and place one in a government plan if he or she decides the private plan does not qualify? Dr. Bernadette Healy says yes.
  2. She also says that assignment is "random". Indeed it is; see Sec. 205. Does your Congressperson support random assignment of people to plans that the Health Choices Commissioner says do qualify?
  3. What will be the relationship between the Health Choices Commissioner and the IRS as regards the enforcement of the 2.5% tax on individuals who do not have coverage, as defined in Sec. 401?
  4. Will the Commissioner hire his or her own staff to administer "random compliance audits"?
  5. If I disagree with the determination of the Commissioner, to whom may I appeal? What are the checks and balances on the Commissioner's power?
  6. We heard recently of a massive Medicare fraud case that lead to many arrests. How would this new Health Choices Administration assure us that fraud would not explode in these government exchanges?
If you go to these townhalls, take these questions on index cards and distribute to your neighbors and friends. I'll bring more as I get them.

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Watch what I do, not what I say 

Innovation has been essential to our prosperity in the past, and it will be essential to our prosperity in the future. But it is only by building a new foundation that we will once again harness that incredible generative capacity of the American people. -- Pres. Obama, August 1 2009.


I�m not convinced that there�s going to be another wave of innovation in the offing� to propel growth, leaving the economy facing a �long slog,� said [Nobel laureate Edmund] Phelps, a professor at Columbia University in New York.

Phelps foresees real, or inflation-adjusted, gains in gross domestic product of 2.5 percent in the years following the current slump. That�s weaker than the average expansion rate during any postwar decade except the current one, in which growth has been pulled down by two recessions. (August 3, 2009, Bloomberg News.)


But the mere availability of capital is not sufficient for innovation. Capital must also be mobile and stable (see property rights). Hernando de Soto explains that even in places where entrepreneurship is strong and capital is available, capital cannot serve the needs of potential innovators unless it is in a mobile form that allows various types of wealth to be converted into credit. This mobility includes �property document[s]� such as title deeds, which �represent the invisible potential that is locked up in the assets we accumulate.� Stability of capital is provided by the rule of law, by which the use of coercion in society is made regular and predictable. If investments cannot be insured against expropriation, possessors of capital are less likely to take the risk of investing in an innovation. Nations lacking a stable rule of law, including property rights, tend to be less prosperous and to have less innovation. -- Timothy Sandefur, The Concise Encyclopedia of Economics


Bankruptcies involve dividing a shrunken pie. But not all claims are equal: some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong. They rank above other stakeholders, including shareholders and employees. This principle is now being trashed. On April 30th, after the failure of negotiations, Chrysler entered Chapter 11. Under the proposed scheme, secured creditors owed some $7 billion will recover 28 cents per dollar. Yet an employee health-care trust, operated at arm�s length by the United Auto Workers union, which ranks lower down the capital structure, will receive 43 cents on its $11 billion-odd of claims, as well as a majority stake in the restructured firm.

The many creditors who have acquiesced include banks that themselves rely on the government�s purse. The objectors have been denounced as �speculators� by Barack Obama. The judge overseeing the case has consented to a quick, �prepackaged� bankruptcy, which seems to give little scope for creditors to argue their case or pursue the alternative of liquidating the company�s assets. In effect Chrysler and the government have overridden the legal pecking order to put workers� health-care benefits above more senior creditors� claims, and then successfully argued in court that the alternative would be so much worse for creditors that it cannot be seriously considered.

In a crisis it is easy to put politics first, but if lenders fear their rights will be abused, other firms will find it more expensive to borrow, especially if they have unionised workforces that are seen to be friendly with the government. -- The Economist, May 7, 2009.

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Monday, August 03, 2009

The Fed Audit bill is about Congress taking over monetary policy 

In the debate over the Fed audit bill, one question I've had is what it is would be audited that isn't already. So I learned something today from Prof. Michael Woodford of Columbia.
It is important to remember that the GAO already has the authority to audit the Fed, and does, except that the bill giving the GAO this authority in 1978 specifically excluded certain aspects of the Fed�s activities from GAO audits � essentially, decisions about monetary policy. The only purpose of the new bill is therefore to decrease the Fed�s independence with regard to monetary policy decisions.
To verify that, I dug up a Congressional Research Service report from 2005:
The Federal Banking Agency Audit Act (P.L. 95-320) was enacted in 1978 to enhance congressional oversight responsibilities. The law gave the General Accounting Office (GAO; now the Government Accountability Office) the authority to audit the Board of Governors, the Reserve Banks and branches. Such audits are limited, however, as GAO is prohibited from auditing monetary policy operations, foreign transactions, and the FOMC operations. Congressional oversight on these matters is exercised through the requirement for reports and through semi-annual monetary policy hearings.
Here's the Fed's 2008 audits, and the last page shows the audits done by GAO.

Do you think the Congress should have the GAO audit monetary policy, rather than having this done in Humphrey-Hawkins testimony? Some conservatives do. Professor Woodford points out the dangers:
The dangers are especially great at a moment like the present one, when the prospect of large government deficits for years to come could easily make short-sighted decisions to use monetary policy to facilitate the financing of those deficits all too tempting. It is ironic that many of the proponents of reining in the Fed claim that their concern is preventing the Fed from further weakening the value of the currency, when the opposite would almost certainly be the consequence of their bill if passed.

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Patience, it's just lagging 

Ironman noted in comments a new tool he has to think about the impact of stimulus on the economy when you include a term for inefficiency of government spending, the amount of slack in the economy, and the cost of raising tax revenues. I have been playing with it for about the last thirty minutes, and the impression I get is that, while it's worthwhile to think about the other elements, the battle comes back to multipliers in the end. A reminder of the range of uncertainty about this, I think, is helpful; see above. This is an important reason why Menzie Chinn continues to pound away on the question.

What isn't as obvious from the table is how long it takes to get those multiplier effects. Arnold Kling notes yesterday that fiscal policy now appears to have long and variable lags, perhaps intentionally in the case of ARRA.

I am willing to bet that the majority of the fiscal stimulus enacted earlier this year will actually hit the economy after positive economic growth has been restored. Furthermore, the multiplier effects of fiscal policy tend to hit with a lag, so we will be getting even more stimulus late in the game.

It is true that employment growth will be sluggish (if my guess is right), so it might not seem as though stimulus in 2011 is so bad, but the sluggish employment growth will reflect structural problems (mismatch between growing sectors and the employee skill base), not cyclical problems. The bottom line is that I think that in 2011 and 2012 we may be experiencing increased inflation while unemployment is high.

But unemployment would be falling then, just in time.

Another sign we're lagging 

I think this provides some evidence of my point that the local economy turns around later than the national -- and perhaps even the regional -- economy.

The Business Conditions Index for the nine-state Midwest and Plains region climbed to 51.7 in July, up from 49.3 in the prior month. An index of 50 is considered growth-neutral. Omaha, Neb.-based Creighton University compiles the report, using data collected from surveys of business leaders and suppliers. July marked the first month since August 2008 that the region-wide index crossed the 50 mark.

Minnesota�s index climbed slightly to 45.2 in July, up from 43.9 in the prior month. The state�s score has stood below 50 for each of the past 12 months. Minnesota was one of four states with scores of less than 50 in July. Other states falling into that category include Arkansas, Iowa and Kansas.

�I expect Minnesota�s seasonally adjusted unemployment rate to peak at 8.9 percent, its highest level since 1982, in the fourth quarter of this year. Minnesota will continue to lose jobs, both manufacturing and non-manufacturing, in the months ahead. However, the pace of these job losses will diminish significantly from that experienced earlier this year,� Creighton University economics professor Ernie Goss said in a press statement.

Prof. Goss has yet to update his website with the state-by-state data, but the Kansas City Star has the state-by-state summaries via press releases. So while the survey in aggregate looks good, it's got four of five states going from below neutral to above this month for the first time since 2008. It's really much more of a mixed bag than the headlines (particularly those of you outside those four states still below 50) will show.

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Strings attached 

Several months ago Brandeis University announced that, to help close a $10 million deficit in its budget, it would close a museum on campus and sell the art within. It has since said it would keep the museum open, but would still sell much of the art within. Now they are being sued by three overseers of the museum to try to prevent the sale. The museum, despite the university's intentions, remains open, and its website even says mockingly "To paraphrase Mark Twain, the rumors of our demise have been greatly exaggerated."

In the WSJ's Political Diary today, Naomi Schaefer Riley takes aim at Brandeis, wondering how it can claim that it needs the money for core educational agenda when it spends much money on athletic programs and on dorms that include "a large community space with a big-screen TV and billiards and foosball tables." But if you don't have those things, how do you attract students to attend Brandeis and see the art?

Brandeis is located in Waltham, Massachusetts, less than a thirty minute drive from most of the very fine art museums of Boston. Students have many wonderful opportunities, therefore, to see good art. I wonder instead why the plaintiffs of this lawsuit gave the art to Brandeis.

This is a very old debate among universities and their endowment and alumni boards: To what extent does acceptance of a gift bind the university to cede some of their management rights? Usually these gifts, to the extent there is an obligation on the university, come with an agreement that spells those obligations out. In a moment of stress for any organization that solicits donations -- be it university, symphony, or your local Little League foundation -- there are attempts to move monies to meet existential threats. If the donors didn't spell out that the gifts could not be converted for the university's benefit, then we'd assume that the gifts were meant to benefit the university as they see fit.

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Health Care, Ellison, Town Hall Meeting 

On very short notice, Representative Keith Ellison (D) of Mpls., called a town hall meeting to hear people's opinions on the monstrous health care bill the DC Democrats want to pass. I've written about the this absurdity as have others across the Internet.

Late Friday, I distributed notice of Ellison's meeting. Even with short notice, the meeting was packed. Net, as you will see in this video, sent to me by a friend and attended by some from our 2nd Congressional District, people are not in favor of this program. To Mr. Ellison's credit, he did let constituents talk but this clip shows the concerns that people have with this program.

Please view it yourself. You can go here to understand the Top Ten reasons you do NOT want the government to take over YOUR health treatment decisions.

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Saturday, August 01, 2009

Health Care Plan, Too Big To Grasp 

According to this article in Politico, our esteemed DC politicians are having a problem grasping what is in that monster of a healt care bill. Democrats cannot deliver specifics because they have not settled on a plan themselves. This is a multi-trillion dollar solution ($n,000,000,000,000) to a problem not yet defined.

MN's Collin Peterson (D) admits frankly, "The members don't even understand what's in it [the health care bill]."

Americans are getting very nervous about this bill. Has any Congressman read it? When the Republicans attempted to mail this diagram of the Rube Goldberg monstrosity being proposed, the Democrats stopped it. Why? The Democrats didn't correct the diagram, they just refused to release the funds to mail it (funds available for all Congressional mailings). Maybe it's accurate!

Capitol Briefing

So what's the real problem? Too much, too fast, too complex. Having worked with software development, I've learned that when a project is simply too big, it won't work. This convoluted boondoggle of an idea won't work and we shouldn't have to pay for it. It's time to go back to the drawing board.
Far too many questions remain:
1 - If this is such a good solution to an unspecified problem, why don't members of Congress agree to participate?
2 - Can someone sue the government for malpractice under the government plan?
3 - Why haven't any versions of the bill addressed the problem of malpractice insurance and frivolous lawsuits? (Could it be that the trial lawyers are the #2 fundraiser for Democrats - will the trial lawyers turn around and sue the federal government for malpractice?)
4 - Just when has the federal government ever improved anything? (Military excluded)
5 - Just how will you cut costs without denying treatment to people?
Seems to me the Democrat "Leadership" in Congress cannot explain where we're going but has no intention of stopping this - they are out to spent OPM (other people's money) and figure we're just too ignorant to object.

Other resources: Heritage Foundation, Cato Institute, Citizens Council on Health Care

Wake-up time - contact your legislator today. 202.224.3121

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