Monday, November 30, 2009

Media alerts 

I will be on KNSI's Hot Talk with the Ox and Mike Landy around 10:20 this morning to discuss economic news, including Dubai, where things are getting really antsy now.

Just as advanced notice, I will be also substitute hosting for Don Lyons on KNSI's Morning Show Wednesday through Friday this week.


Friday, November 27, 2009

From a slouch to a dash 

A year ago when Pelosi and Bush decided to go forward bailing out the auto industry, David Brooks wondered if we are sliding into progressive corporatism. I went further with this in March. Now comes Jerry O'Driscoll.

First, the Fed announced that it will evaluate bankers� pay on the basis of how well they manage risk. How better to be a good risk manger in a bureaucrat�s eyes than to take no risk? Purchasing Treasury obligations and federal agency paper is the sure way to avoid risk. The Fed has a second policy to make that strategy profitable: zero interest-rate borrowing to finance Treasury and agency debt yielding 3%.or more. The Fed continues to signal it will keep rates low, diminishing interest-rate risk.

These policies are choking off the supply of credit to the private sector, espcially small business. To add to the problem of small business, the Fed and the Treasury have a third policy of credit allocation to major banks like Citigroup, Bank of America and JP Morgan Chase; large industrial firms like GM and Chrysler; and such entities as money-market mutual funds.

The government crowds out the private sector overall, and Wall Street crowds out Main Street.

Melloan doesn�t state it, but there is a name for this economic policy: corporatism. Big government favors selected big business and rewards big labor as a junior partner. It�s not socialism, but the economic component of a fascist political program.
In March I thought we were slouching towards corporatism. It now seems like a full-out run.

Cff. Steven Malanga from last April. I prefer corporatism to socialism as a description of Obama's policies, and when I said so on radio last July, boy did I catch heck! I wonder if it's because it blurs the distinction between our two major parties?

Labels: ,

Not economist, just wrong 

Al Gore, apparently not content with the job of cleaning the Climategate mess, is now opining on GDP accounting.
Surely a broader accounting of economic activity will enhance economic policy and decision-making. We commend the work of Professor Joseph Stiglitz and the Commission on the Measurement of Economic Performance and Social Progress for recognising that while facts and figures are important � indeed critical to thoughtful decision-making � we have placed too great an emphasis on outdated modes of distilling economic value. The longer we defer the proper accounting for externalities such as global warming pollution, the greater the strain we place on our already fragile economies.
This concept of green GDP has been around for a long time. Minnesota had some group write a report on how to restate the state's economic growth with environmental factors. But it isn't just environmental -- if it was, you could have a reasonable discussion of a "net-of-resources domestic product" that would include some depletion charge for nonrenewables that would have a basis in real national accounting. But once you start this process you get a "genuine progress index" where "genuine" is determined by some elitists who decide whose income matters, which goods matter more, etc. Once one starts down the road you often don't like the result. The Chinese government tried green GDP in 2004, but killed the idea a few years later when the "deductions" decided to count against measurable growth of goods and services gave an answer decidedly against the political judgment.

GDP is a score, not a judgment. And it should be that way, so that we don't have to worry about whether we get the east German judge.

(P.S. the title of this post refers to the new film, Not Evil Just Wrong, which we need to show somewhere in St. Cloud soon.)

h/t: SCSU emeritus Professor Pat Mattson.


Come nigh Dubai 

I was looking at my cellphone between Thanksgiving dinner and dessert and saw the news on Dubai. So far it doesn't seem like that big a deal; while the U.S. market dropped a good 1.5% at the open, remember that most traders are out of town for the weekend already, and after the British market lost more than 3% yesterday it appears to be steadying today. So far Paul Krugman's analysis appears to be right: Dubai is a rather curious place, and the damage may be limited to Abu Dhabi and some banks overseas. U.S. banks, for instance, don't seem to be falling any more than the Dow generally, though British banks were being knocked down 5% or more.

My flashback was to August 1998, when I boarded a plane from Cairo back to the States, and as I took the International Herald Tribune from the flight attendant I saw the news of Russia's default on its bonds. That took a little time to sweep through markets; it was three weeks later that Russia floated the ruble. So while we may not want to believe the doom and gloom crowd, I think we should pay more attention to this than one might on a holiday weekend.

Gillian Tett puts it in some perspective, including the Greek story with it (I wrote about Greece earlier this week) as "a welcome wake-up call":
After all, [investors] have known for months that Dubai World was dangerously over-leveraged. They assumed that this would not be too dangerous, because they thought that foreign investors would always be protected.
"Seabee" at Dubai World expands:
For nearly a year the Dubai World companies have been going through a 'restructuring'. But it's always a nonsense for the management responsible for a company's troubles to be allowed to create and preside over a restructuring made necessary because of their own policies. A Chief Restructuring Officer, an outside expert with a proven track record, was needed from the beginning of the crisis to sort the mess out. But it wasn't treated with the urgency the situation demanded.

They became bloated companies with unnecessarily huge numbers of people being paid huge amounts of money, huge duplication of job functions between the companies in the group, unnecessary competition to build the biggest, tallest.

That led to too many mega-projects all going ahead at the same time. Worse, many were pushing engineering into uncharted waters but second and third versions were being pushed ahead before the engineers had worked out how to make the first one.

...We're a year into the crisis before the real moves are made that needed to be made there and then.
Does this sound familiar to you?

Mohammed El-Erian of Pimco: "There will be contagion to many markets, especially in the emerging world where we are witnessing broad-based sell-offs among names with very different financial characteristics."


Because it worked so well last time 

Did you like Cash for Clunkers? The government is planning an encore.

On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances."

Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.

And like the $3 billion cars program that gave consumers money for swapping their clunkers for more fuel-efficient rides, the appliance initiative seems destined to inspire shoppers, drive up sales for a while and profoundly divide economists over how much lasting good this chunk of government spending will do for the economy.

"The premise seems to be that for Americans to be richer, they need to throw out their old appliances faster -- I don't see it that way," said James D. Hamilton, an economics professor at the University of California at San Diego, who has blogged about the clunkers rebates. "I don't like the idea of just spending money for its own sake."

The government admits in this article that more than half of the cars purchased in C4C was money expended on trade-ins that would have happened without the program. For $3 billion it got 330,000 cars purchased that would not otherwise have been, according the Obama Administration's Council of Economic Advisers. The other 360,000 vouchers cashed were either cars delayed from June, those that would have been bought in July and August, or those pulled forward a few months. This was just a transfer from all taxpayers to those lucky enough to have their car purchases happening around the time of the program. The same will be true for appliances. Many sales will be for homes purchased under the government's homebuyer tax credit: A major determinant of appliance sales is home sales. Those people already induced into buying an existing house with appliances they would have replaced are going to get another gift.

Details on the program are here. One more effect will be that those who planned to buy these items now are being incentivized to wait for the rebate program to kick in. That plus continued decline of consumer credit may make holiday season shopping a little less merry.


Thursday, November 26, 2009

Media alert 

I will be substituting for Don Lyons on the KNSI Morning Show tomorrow from 6 to 8 am tomorrow on AM 1450. Listen in while you shop or have a leisurely breakfast.


A grateful heart 

Many of you will know the song "Give Thanks" from a more modern Christian service, which first instructs us to give thanks with a grateful heart. What does that mean to you this day?

I walk upstairs from my office, and on the couch I see Littlest asleep. Buttercup is on the couch at her feet; Sparkler occupies the dog bed meant for BC. "Littlest" is now a joke, as she's about to be the tallest of the Banaians. When asked what she did yesterday she reported "a good run and a chapter of algebra 2." She considers that a good day. I am grateful for the gift she is, and for the love of my marriage that she represents.

I'm grateful for the career I have. I have great colleagues in my department, a wonderful staff, and a university that has long been supportive of me professionally even when they dislike my politics. I don't think I was so grateful when I started this blog seven years ago as I am now. If that's just aging, it has been worth the tradeoff of now needing to stretch 20 minutes before going to bed just so I can get out of it again. (I'm grateful as well for the advice health professionals gave me to make that so much better.)

I am grateful for the last twelve months of the activities in Washington. Never before in my adult life have people asked such basic questions about how the economy is organized. What I do professionally is more relevant to more people than ever. We have thanks for the harvest, and the economy that brings it. It keeps listeners for my radio programs and students for my classrooms and readers for my writings. I'm both humbled and grateful for the interest.

Dennis Prager tweeted a few moments ago, "Given the great amount of unjust suffering and unhappiness in the world, I am deeply grateful for how much misery I have been spared." This and the promise of the Gospel is, above all else, what we give thanks for today.


Happy Thanksgiving 

We Americans are most fortunate, living in what is still the freest country on the planet.

We have been blessed with a nation whose military fights to protect freedom. Our nation is rich in natural resources, has a system of government that is the best devised yet, provides incredible opportunities to those willing to take risks, and allows for a mindset that lets people dream and hopefully achieve those dreams.

Today, as you visit with family and friends, watch some great football, and have overall good times, please remember to be thankful for all we do have.


Wednesday, November 25, 2009

Quick followup on dispositions: Preaching to the choir 

While on the air with Ed this afternoon, he posted about FIRE's followup on the University of Minnesota's growing controversy over its attempt to have "cultural competency" as part of its education program. (We discussed it here Monday.) "Growing" because FIRE's investigation found that the education program wanted to use "predictive criteria" to determine which applicants might not be able to fit their social justice profile. FIRE wrote to U of M President Robert Bruininks:
According to documents published by the college (see, it intends to mandate certain beliefs and values-"dispositions"-for future teachers. The college also intends to redesign its admissions process so that it screens out people with the "wrong" beliefs and values-those who either do not have sufficient "cultural competence" or those who the college judges will not be able to be converted to the "correct" beliefs and values even after remedial re-education.
This should truly shock the conscience of any academic. You somehow can prejudge the ability to change the heart of a student? It is nothing short of cowardice. The school wishes to prescreen to be sure that it only credentials those who agree with them. No wonder they are willing to go to such lengths for remediation; they are trying to reclaim a congregant who left their church.

Missed last time, David French at PBC does a nice summary.

Labels: ,

A veil of comradeship and colleagueship 

I was going to write something about Angus' post on peer-review and the lessons of Climategate, but much of this has been covered by Stephen Karlson, who has organized a great deal of the latter critique. He's linked pretty much all I've read.

Let me confine myself then to peer-review. I'm always amazed how well the process works. For the most part in economics referees are not paid to review academic articles. There is no review of the referee's quality except for overworked editors. My colleagues here at SCSU have stories of bad referees and bad editors who fail to read or grasp a paper. My answer ("said by the tenured professor"; yes, duly noted, though not born one) is that it's your job to make your paper so compelling that even the most wooly-headed referee sees its insight. Or as I tell my students "You can write whatever you want, but nobody has to read you. You must persuade them to."

But it's also true that at some journals you know who the referee is likely to be. That's why most of the use more than one, but still it's possible to get an editor who just decides your paper isn't worth publication, even when the referees do.

My own story is related to Angus' insofar as it's another paper on central bank independence. There was a paper written by an economist whose work in CBI was widely known, who now was applying it to a different group of economies than the industrialized economies that we had developed the theory for. His paper was in a top-15 journal. I thought the theory was misapplied to these economies (unlike Angus, I have had several papers supporting CBI as an anti-inflation device at the time, but I don't get to deliver those papers to the World Bank.) I talk to a few people who say "you should write a comment to that journal" which, for the nonacademic reader, means I write an article to take issue with something published in that same article. This journal charges $150 at the time (more now) for submitting an article to them. I decide to take my shot, write the piece, enclose the check and mail it off. It first turns out the editor doesn't like comments, but says in this case he would do so but would send it to the author of the paper I'm critiquing. We exchange letters, with him asking for clarification and me answering. Then ... nothing. More than a year passes, at which point I had written three times to the journal asking what had happened. One day the envelope that scares and delights appears, with the embossing of the journal on the return address. I open it to find ... a check for $150. No explanation. Just a check.

I didn't even bother writing back a WTF letter. I took the paper and my advice, and turned it into a chapter in my book. It will get a lot less attention, I guess, but nobody owes me readers.

If what Climategate teaches is the inherent flaws of the peer-review process, that would be worth as much as sticking another fork in the hockey stick. It relies on people motivated by professional ethics, people who choose to be academics for a variety of reasons that would make you skeptical of trusting them with your car, let alone with the search for truth. Ludwig von Mises made this point about how most intellectuals are anti-capitalism:
It is the same with many lawyers and teachers, artists and actors, writers and journalists, architects and scientific research workers, engineers and chemists. They, too, feel frustrated be cause they are vexed by the ascendancy of their more successful colleagues, their former schoolfellows and cronies. Their resentment is deepened by precisely those codes of professional conduct and ethics that throw a veil of comradeship and colleagueship over the reality of competition.


Media alerts 

I'll be on WJON with Jay Caldwell at about 10:40am CT today for my usual discussion of area economic conditions. Your live listen link is there.

I will also be on the Ed Morrissey Show at 2pm CT to discuss the latest economic news, where the jobs are and are not, and whatever other silliness Ed and I get into. (Link goes to UStream page currently, will put in HotAir link when it goes live.)

Labels: , ,

Tuesday, November 24, 2009

Also sprach ZaKrugman 

Why, people ask, would I want to compare us to Belgium and Italy? Both countries are a mess! ... If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we.
Yoohoo! Mr. Nobel! Greece would like a word with you:
Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance.

Euro membership blocks every plausible way out of the crisis, other than EU beggary. This is what happens when a facile political elite signs up to a currency union for reasons of prestige or to snatch windfall gains without understanding the terms of its Faustian contract.

When the European Central Bank's Jean-Claude Trichet said last week that certain sinners on the edges of the eurozone were "very close to losing their credibility", everybody knew he meant Greece.

The interest spread between 10-year Greek bonds and German bunds has jumped to 178 basis points. Greek debt has decoupled from Italian debt. Athens can no longer hide behind others in EMU's soft South.

"As far as the bond vigilantes are concerned, the Bat-Signal is up for Greece," said Francesco Garzarelli ...

Communist-led shipyard workers have already clashed violently with police. Some 200 anarchists were arrested in Athens last week after they torched streets of cars in a tear gas battle.

Mr Papandreou has mooted a pay freeze for state workers earning more than �2,000 a month. This has already set off an internal party revolt. "There is enormous denial," said Lars Christensen, emerging markets chief at Danske Bank. "They don't seem to understand that very serious austerity measures are needed. It is a striking contrast with Ireland," he said.

Brussels says Greece's public debt will rise from 99pc of GDP in 2008 to 135pc by 2011, without drastic cuts. Athens has been shortening debt maturities to trim costs, storing up a roll-over crisis next year. Some �18bn comes due in the second quarter of 2010 (IMF).

Modern economies have reached such debt levels before, and survived, but never in the circumstances facing Greece. "They can't devalue: they can't print money," said Mr Christensen.
And that's the real point here. Unlike Greece, we can devalue and print money, but the cost is rampant inflation.

For now things have gone well; today's bond auction was stellar for the United States. But with mountains of debt due for rollover in the next 12 months our luck had better hold. How will SEIU and AFSCME react when the government has to freeze government workers' wages while paying $700 billion in debt service in the 2019 budget?

Peter Boettke tells us of Tom Sargent's observation that before every inflation, there is debt.


A U.S. Tobin tax? 

Two weeks after their party's leaders told Gordon Brown to stick it, two Democratic congressmen want to tax financial transactions to partly reduce the deficit, and partly to build a kitty for public sector jobs. (h/t: Andy)
Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the �Let Wall Street Pay for the Restoration of Main Street Act of 2009.�

Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a �Job Creation Reserve� to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.

The Obama administration and congressional Democrats are looking for ways to create jobs after the nation�s unemployment rate hit 10.2 percent in October and job losses are expected to rise.
Treasury Secretary Timothy Geithner has said a �day-by-day� tax on speculation is �not something we�re prepared to support.� Paul Ormerod explained in 2001 why the tax doesn't help in terms of reducing market volatility. Ramkishen Rajan explains that one of two things happens: either it causes a sharp drop in market transactions, reducing economic efficiency and making revenues generated by the tax small, or it doesn't because the elasticity of demand for financial transactions is very low ... in which case the revenue it generates is quite large.

Labels: ,

You're just trying too hard 

Music departments at public universities naturally want to give concerts at the end of each semester, a culmination of their work and study. Political correctness has made this a headache for them as one cannot possibly make reference to religion of any kind. Our campus this year is using "Celebrations of Peace." First sentence:
�Celebrations of Peace� weaves a diverse musical program featuring SCSU's finest instrumental and choral ensembles into a variety of readings from the pangea of mankind.
Italics added. Pangea? Most commonly that word means a supercontinent; I suppose this avoids upsetting any religion, but who knows? More likely the writer is thinking of Pangea Day. (More on that day.)

So in order to eliminate reference to religion we need a theory of plate tectonics? I think you're just trying too hard.

Labels: ,

Monday, November 23, 2009

Deepening production vs ramping up production 

I think Arnold Kling is onto something here:
If everyone scans the headlines and sees "Great Depression," that could very well cause a drop in consumption. And if everyone scans the headlines and sees "recovery," they might spend more.

We could also observe herd behavior among producers. I have been talking a lot about Garett Jones' remark that today's work force produces organizational capital rather than widgets. It is time to elaborate on this notion.
After a long comparison of information-based businesses versus manufacturing, he concludes:
Thus, my experience fits very well with the notion that workers are needed in order to build organizational capital. In today's economy, the organizational capital often is embodied in a computer system of some kind. Those systems depreciate very rapidly, because of technological innovation and the evolution of business demands.

Other forms of organizational capital are embodied in human capital. For example, an airline needs to have an effective program for training its employees and for ensuring the quality of their work. If your flight attendants are surly, some of your customers will switch to a different airline next time.

The macroeconomic significance of all this is that the choice of when to invest in organizational capital is discretionary. If you read a bunch of headlines that say "economic downturn," you can cut back your labor force to just the number of people needed to keep today's business operating. If you read a bunch of headlines that say "recovery," you may become inclined to invest in projects that make your business more complex or more competitive.
The Quarterly Business Report we do at SCSU for central Minnesota includes a survey of local business leaders. We don't take a temperature of business confidence directly, but we can track their assessment of the national economy along with their own plans to expand payroll, wages to be paid and prices to be received, etc. I have long wanted to see if these data could be used somehow in a confidence index. There is some evidence that business confidence is a turning point indicator (McNabb and Taylor [2002], Holmes and Silverstone [2007] ). There's also at least anecdotal evidence that reporting on economic news influences that confidence. (This is why President Obama probably shouldn't say "double dip recession" in public.) Indeed, Google Trends still averages ten times more for recession than economic recovery.

Herd behavior is probably more prevalent in smaller cities like ours than in larger ones. And even in a city as dependent on goods production as St. Cloud, more than 65% of all GDP comes out of the service sector.

Labels: , ,

Dispositions back in the news 

Katherine Kersten brings back an old topic on this blog: dispositions theory in education. There's a new design of teacher education at the University of Minnesota, she says:

The initiative is premised, in part, on the conviction that Minnesota teachers' lack of "cultural competence" contributes to the poor academic performance of the state's minority students. Last spring, it charged the task group with coming up with recommendations to change this. In January, planners will review the recommendations and decide how to proceed.

The report advocates making race, class and gender politics the "overarching framework" for all teaching courses at the U. It calls for evaluating future teachers in both coursework and practice teaching based on their willingness to fall into ideological lockstep.

We were last down this road in 2005 during the KC Johnson controversy at Brooklyn College. Yet it continues unabated. At SCSU students in educational administration or in child and family studies have a form to fill out if they see a disposition that doesn't meet the professional standards. In the former field, if you "express an inability or unwillingness to work with some
people" and "avoid collaboration", you have an area of need to work on. Teachers in graduate studies get courses in which their competencies are assessed to determine if they consider "multiple perspectives and willingness to challenge and analyze one�s own perspectives given alternatives" and "respond to items regarding lens of social justice and dispositions."

Johnson reports, by the way, that these Minnesota criteria are being highlighted at exactly the moment NCATE, the teachers' accrediting body, is turning away from them. So maybe this won't last for much longer around here.

UPDATE: Mitch has a link to the U of M policy.
See also Peter Wood at NAS.

Labels: , ,

I don't understand newspapers 

According to the City Pages, the proper way to interview Congresswoman Bachmann is:
Q: Gov. Tim Pawlenty said on MSNBC that moderates need to fall in line with the conservative base of the Republican Party. Do you agree?
A: I think that he's accurate that ...
And they chastise as "pitching softballs" a newspaper that already declared "we've had enough" of Bachmann.

Labels: , ,

Friday, November 20, 2009

Local responsibility for taxes reduces spending 

Property taxes would increase an average of 3.5 percent across Minnesota next year if local governments adopt their proposed levies, the state Revenue Department announced Thursday.

That would be less than the 5.6 percent increase in average property taxes this year and the average 6.9 percent increase over the past three years.

"City councils are very well aware of how poor the economy is and are doing everything they can to keep the levies down," said League of Minnesota Cities lobbyist Gary Carlson.

By law, cities and counties could have increased their property tax levies by the full amount that Gov. Tim Pawlenty cut their state aid. But counties appear to be levying for just 40 percent to 50 percent of their lost state funding, said Jim Mulder, executive director of the Association of Minnesota Counties.

The state cut aid to cities by $130 million over the past two years. Cities have levied $95 million in property taxes to replace those funds and absorbed $35 million in cuts, Carlson said.
Source. The cap of property taxes was a bone of contention between DFL legislative leaders and Pawlenty, after Pawlenty cut intergovernmental aids. Giving local control of taxes seems to have reduced spending, rather than have the burden of some paid for by the taxes of others.

Notable: Minneapolis property taxes are scheduled to rise almost 12%, highest in the state. Will any DFLer make this an issue in Mayor Rybak's run for governor?

Labels: , , ,

Declare victory, supply-siders 

I was listening to an interview of Bruce Bartlett the other day. You might remember him if you're about my age and a fan of supply-side economics as being one of its leading lights. He's recently fallen on hard times in Republican circles for saying a tax cut isn't the cure for the common cold ... or for that matter, the cure to every single economic problem. He writes:
In [2007] I argued that supply-side economics (SSE) should declare victory and then go out of existence. Everything that was true about it had by then been fully incorporated into mainstream economic thinking and all that was left was a caricature. Continuing to maintain a separate identity for SSE only created unnecessary conflict with mainstream economists, I argued.

...All economists today accept the importance of the money supply--perhaps too much; during the recent crisis many asserted that fiscal stimulus was unnecessary because an increase in the money supply was the only thing necessary to restore growth. (How this would have been accomplished when interest rates were close to zero was never explained.) All economists now accept the importance of marginal tax rates to economic decisionmaking, and organizations like the National Bureau of Economic Research publish vast numbers of papers on this topic.

During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts--the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.
As someone who learned his graduate economics during the first Reagan Administration, I agreed with this back in the 1980s and still do. There were some taxes at that time, on particular types of equipment and structures, that approached and sometimes even exceeded 100%. Certainly those were on the wrong side of the Laffer curve hill. But others were almost certainly NOT. While I think the brush Bartlett uses to paint Bush is a little too broad, there was certainly some excessive statements about the gains we would find if only we used dynamic scoring.

But the more important point Bartlett makes is the general acceptance of the disincentive effects of high tax rates. And the reach of that acceptance is even to places generally unreceptive to conservative thought. Witness today's StarTribune:

Organizers of last week's program at the TwinWest Chamber of Commerce may have been hoping for a tax policy fight. The lineup featured state Rep. Ann Lenczewski, DFL-Bloomington, head of the House Taxes Committee, and Mark Haveman, head of the business-oriented Minnesota Taxpayers Association.

But instead of an argument, chamber members heard considerable consensus around a key proposition: Minnesota's corporate income tax is too high, and it should be either reduced or scrapped. That would not be the universal view among DFLers at the Legislature. It might not be the first choice of Republicans or of most Minnesota businesses, since many small businesses don't pay corporate tax.

But it's an idea Minnesota policy leaders should seriously consider. State corporate income taxes generally top "worst tax" lists when economists and tax experts from around the country convene to dispense policy advice. State taxes on corporate profits are faulted for several reasons. They're highly volatile, rising and falling dramatically with the economic cycle. They're costly to collect, especially from big businesses that employ high-powered legal talent to dodge them. They're regressive -- invisibly so. They are paid by customers in the form of higher prices and by workers in the form of reduced wages and fewer jobs, all of which hits the poor disproportionately hard.

Minnesota's corporate income tax has one other defect -- its 9.8 percent rate. That's among the highest in the country. It's also deceiving because of adjustments that have been made through the years to the income base that's taxed. The effective rate most businesses pay is a good deal lower, particularly among those with foreign operations or those based in Minnesota with sales elsewhere. But the high rate creates a damaging impression among would-be out-of-state investors.

Yes, go check that link: This was in the StarTribune, in its editorial voice. More supply-side words have not been written.

Rep. Lenczewski, who has also had her eye on tax expenditures, is in a strong position to make this argument from her position on the tax committee. While I fear her colleagues will not let her cut any tax when they face a tremendously high projected deficit in the next biennium, it would be wise for the long-run growth of this state for Republicans to focus their attention on that. And if it means killing a few tax expenditures that create corporate welfare, so be it. Along with it you could include eminent domain reform, which also strikes at corporate welfare.

Labels: ,

Two good paragraphs 

The individual insurance mandate, then, is a solution to a problem the bill itself would create. The authors invoke the Commerce Clause to protect interstate commerce from a threat they themselves pose to it. They could avert the threat simply by not imposing guaranteed-issue on insurers.
From Sheldon Richman today. I know I've heard constitutional lawyers say this use of the Commerce Clause meets legal standards, but even CBO says it's unprecedented. How do they know? That CBO report also wondered whether the costs of complying with the mandate should be included in the budget documents. The current CBO report only reports an "unfunded" mandate but does not estimate the size.

I don�t want a single standard of health care, one standard of what�s �best.� Everyone is different and what is best for me may not be best for you. More importantly, what is best is unknowable to a committee of experts. Not hard to know. Not difficult to discover. Unknowable. What age should a women have a mammogram is not a question that has an answer. There are many answers. One reason is that women are different. A more important reason is that our knowledge evolves. What is thought to be �best� (wait until 40) may turn out to be different (wait till 50). But even more importantly, when power is centralized, the very idea of �best� no longer applies. The incentives aren�t there. When there is one standard set by the political process, the experts� incentives on whatever committee determines the universal standard are inevitably going to be politicized. So give me �inefficient� competition among standards. Let different standards vie for attention.
Russ Roberts. BTW, I picked up and re-read The Price of Everything last weekend, deciding to use it in a freshman gen ed course this spring. It's better than I remembered. I am really looking forward to that course now.

Labels: ,

Thursday, November 19, 2009

Random thought while playing a video in class 

I was watching the Commanding Heights third episode in class this afternoon. The first half of the episode deals with the financial crises of the 1990s, and after reading Arnold Kling and Simon Johnson this morning I thought to myself: boy the numbers got bigger! $50 billion to Mexico in 1994 (a whole country, not just a company); $55 billion to South Korea in 1997.

Can one compare countries in that timeline to the banks before and after TARP; where Lehman plays Thailand, I guess? It just seems that this video looks very different to me now than six years ago when it was first released.


Gross jobs 

From December 2008 to March 2009 the number of job losses from closing and contracting establishments remained essentially unchanged at 8.5 million. The number of job gains from opening and expanding private sector establishments fell from 6.7 million to 5.7 million, the lowest level since the series began in 1992, the U.S. Bureau of Labor Statistics reported today.

Gross job losses exceeded gross job gains in all but two industry sectors: utilities and education and health services.
From the Business Employment Dynamics report for Q1 2009 this morning. For Minnesota there were 110,150 jobs gains and 163,810 jobs lost in the first quarter of 2009. As one of the states with higher than average employment in manufacturing, it's worth noting that the manufacturing sector nationwide had 294,000 jobs gained and 990,000 jobs lost in Q1.

The data for Q1 is of course old, but it does highlight something we've said for awhile -- the recession picked up great speed in late 2008 and early 2009, and job shedding was a big part of this.

In related news, the state reported unemployment of 7.6% in October, up from 7.4% in September and from 5.6% a year ago. September's number represented a sharp drop from levels in the summer, so I would have guessed a little bit of that to be a blip that got reversed. This week's initial claims for unemployment insurance hung above 500,000 this week, with an increase of 2,149 in initial claims in Minnesota.


The limits of a CBO score 

I've been reading the CBO/JCT report on the Reid health care plan. See Keith Hennessey for your first cut on new taxes; I'm going to confine this post to things I found interesting that he does not mention. Ed Morrissey links to a second CBO letter today that combines the Reid proposal with the "doc fix", and finds that the deficit goes up not down if you include it.

Let's first make sure we understand a CBO score, which only looks at the deficit (rather than private sector impact) and only for ten years. Director Elmendorf writes:
In the decade after 2019, the gross cost of the coverage expansion would probably exceed 1 percent of gross domestic product (GDP), but the added revenues and cost savings would probably be greater. Consequently, CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law�with a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO�s 10-year budget estimates. The expected reduction in deficits would represent a small share of the total deficits that would be likely to arise in that decade under current policies.
That's a good score for Sen. Reid. Both the Reid and Pelosi plans have been written in ways that provide for deficit reduction beyond 2019. Of course, that means government can't pass things like doc fix in the future, as Elmendorf notes in his letter.

Reid's proposal ends up covering 94% of Americans who live in the U.S. legally, while Pelosi's is expected to cover 96%. Should this matter? If health care is a right, wouldn't you want the 96% bill rather than the 94% bill?

Down towards the bottom, however, you find discussion of unfunded mandates.
The total cost of mandates imposed on the private sector, as estimated by CBO and JCT, would greatly exceed the threshold established in UMRA for private entities ($139 million in 2009, adjusted annually for inflation). The most costly mandates would be the new requirements regarding health insurance coverage that apply to the private sector. The legislation would require individuals to obtain acceptable health insurance coverage, as defined in the legislation. The legislation also would penalize medium-sized and large employers that did not offer health insurance to their employees if any of their workers obtained subsidized coverage through the insurance exchanges. The legislation would impose a number of mandates, including requirements on issuers of health insurance, new standards governing health information, and nutrition labeling requirements.
Similar costs are imposed on states and municipalities. One of those unfunded mandates is Medicare Advantage, which would be withdrawn under the Reid substitute in 2011. Democrat Sen. George Voinovich recently said that health care reform "should not come at the cost of limiting choice and access to physicians and health services for seniors." Medicare Advantage cuts provide $118 billion of the savings in the Reid proposal.

One other paragraph indicates the limitations of a CBO score:
Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades�well below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit). Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades�much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear. [Emphasis mine]
The goal has been to "bend the curve" and CBO indicates that it is bent a little. But it may be that this is all taken out of hide, particular out of the hide of seniors.

Overall, the CBO cannot tell us whether the share of GDP spent on health care will rise or fall or stay the same. If the goal really is to lower the share of spending we do in America on health care, shouldn't the Congress be able to answer this question?

I close with a hear! hear! for Hennessey's point on what Reid is proposing with the violation of the health insurance model implied by Reid's proposal:
...most people think their individual taxes paid are being used to finance their benefits, when in fact the funds are used to subsidize other people�s benefits. But the social insurance model and dedicated payroll taxes have been a core principle of Social Security and Medicare financing since they were created, and advocates (especially on the Left) of those programs have fiercely defended this principle.

Leader Reid�s bill would use new Medicare payroll taxes to finance a new health entitlement outside of Medicare. His bill would turn Medicare payroll taxes into a general financing mechanism like the income tax. There is a slippery-slope argument against this that I would normally expect from the Left. If Republicans had proposed this, I would expect AARP to come unglued and raise fears among seniors that, if this proposal becomes law, future Congresses might take payroll tax revenues and use them for highways or defense or other non-social insurance spending. I am interested to see how AARP reacts. Will they support the Reid bill as they did the House bill? (Reporters: There�s a story for you. Ask AARP.)
If the Reid bill lays bare the fiction that our Social Security and Medicare contributions sit in a box waiting for us to claim them in old age, I would almost find this debate worth the headaches it causes. Almost.

UPDATE: Nice chart from the Tax Foundation:

Labels: ,

Wednesday, November 18, 2009

I should have known better 

I have to agree with Benjamin: "what a sad devolution". I knew posting this would lead to some trolling and counter-trolling, but the volume and vitriol are amazing. I'd invite those commenters to re-read this symposium from the Center for the American Experiment. A taste:
One explanation was offered by journalist Michael Barone at an American Experiment forum in 1998, when he argued that �politics more often splits Americans on cultural than on economic lines.� As a prime example, he pointed to abortion. Moral issues of this sort, he went on to say, �engage and mobilize people and keep them fighting.� This, in turn, �has led to a politics in which people defend their niches fiercely against people whom they know little. . . . In the process, we get fierce attacks on politicians. People feel justified because they believe the moral stakes are high.�
You folks write things to each other you could never say to one's face. I've met at least two of the vitriolic commenters, and they are not the people you think they are from the comments. Yet they persist in this behavior. Why? Is it just the impersonality of the web, or is it because we just have decided to have a meaner politics in this decade?

In passing, a very short answer to Eric: where would we stop if we started to call on every person who says a cross word about someone else to repent and turn away? Would it be fair for me to take some incendiary post on DKos and then demand that Sen. Clark denounce it because she posts a diary there? It's a false and illogical argument you make. It's a tired game that no thinking person would play. "I'll take that as a no," I can hear you saying. Yes, it is. What you decide to do with that no says much more about you than me.

Let's end on a humorous note. Call it your knucklehead declaration:

You may post only once in comments, and your only comment may be "I have been a turrible knucklehead." All other comments will be deleted.



Let Freedom Ring is five. Here's a comparison. When the internet first started its biggest use to me was for fantasy baseball. I've played with dozens of other enthusiasts since 1992, and a few of them have stuck as friends afterwards. I can count those on one hand. I stopped playing for one year in 2008, but went back to the one league where I knew and liked a couple of guys last year. My team was terrible, but it was nice to see them again.

I started blogging a little more than seven years ago. In that time I have befriended countless people, many of whom are now family friends. Few friendships have as high a place in my life as these, particularly those with NARN and with St. Cloud blogger Gary. Our homes are less than two miles apart yet it took the world wide web for us to meet.

Were it not for my blogging I wouldn't be in NARN, and were it not for LFR Gary and I would not have met; my life would be poorer without those friendships. It's one of many gifts this place gives you.

Labels: ,

Bang for your tuition buck 

This makes me sad: the American Council of Trustees and Alumni has created a website asking "What will they learn?" as a counterweight to all those criteria used by popular lists by U.S. News and Kiplinger's. (See Ashley Thorne's review.) Their seven required core courses are excellent, particularly because they include economics:
To determine whether institutions have a solid core curriculum, we defined success in each of the seven subject areas outlined as follows:
  • Composition.
  • Literature.
  • Foreign Language.
  • U.S. Government or History.
  • Economics.
  • Mathematics.
  • Natural or Physical Science.
Good list; I deleted the explanations of the seven courses, but you should read them. No school they surveyed had all seven, and of those that made their A-list requiring six of seven, only one -- West Point -- requires economics. The agony!

If you like that list and have a child close to deciding where to go to school, you'll see one school that surprises you: University of Arkansas. At $15,338 for out-of-state tuition, it appears to be a bargain compared to the others. If you're reading from UArk, send me some info -- Littlest is a sophomore.

SCSU would get a D as I read the criteria. Sounds terrible ... but Carleton gets a D too. The University of Minnesota does better than I thought it would.

Labels: ,

Waste, fraud and abuse 

Every time some report comes out about it, the White House gets all wee-wee'd up. No different this time:
The federal government made $98 billion in improper payments in fiscal 2009, and President Obama will issue an executive order in coming days to combat the problem, his budget director announced Tuesday.

The 2009 total for improper payments -- from outright fraud to misdirected reimbursements due to factors such as an illegible doctor's signature -- was a 37.5 percent increase over the $72 billion in 2008, according to figures provided by Peter Orszag, director of the White House Office of Management and Budget.

Sheldon Richman says sarcastically "Yes, a well-worded executive order should do the trick." $24 billion of the improper payments came from Medicare according to this report; another report over the weekend suggested Medicare lost $47 billion. But the Feds are now saying they are going to count as improper incomplete or illegible documentation, which the Bush administration did not. This then permits them to "multiply by 10 the number of agents and prosecutors targeting fraud in Miami, Los Angeles and other strategic cities where tens of billions of dollars are believed to be lost each year." These will be claimed as savings ... which will be spent on expanded coverage.

Got that? Define a scribble as fraud, hire more government workers, get doctors to reduce scribbling, and claim savings of $9.7 billion. (The extra $1.3 billion is payroll for those new prosecutors and agents making our health care experience better.)

No word on how many agents and prosecutors will be used to find phantom districts receiving $6.4 billion in stimulus cash. Perhaps we should get another executive order wherein Obama calls for the elimination of phantom districts. Imagine the savings!

Labels: , ,

They assume they know you 

While I was reading Eric's post, I came upon a title on that same site "Fear and Loathing in White Cloud." 'White Cloud' is a smear that people put on my fair city, and has been one I've heard pretty much since I moved here in 1984. At that time I was probably in the darkest 10% of the population here (unlike all you European descendants, my father's family is actually from the Caucasus.) Not to claim any minority status, but to say that I am aware of the whiteness of the place, particularly after moving here from Los Angeles.

Calling the place White Cloud has become in the last decade more than a joke about Stearns County residents, in-breeding, etc. It has become a cudgel taken up by race baiters, and the article linked contains the old saw about our town police picking up "too many minorities." What one should note about those studies is that they never correct for people of color who come from other countries (who might not have a firm grasp of the rules of American roads) or that minority groups might have a younger population, and younger people get stopped by police more than those over 50. The people who did the study said simply they didn't have the Census data.

The writer dredges up the swastika story, which we've covered here at length. The only person found to have drawn a swastika turned out not to be from this area, assuredly not Sherburne County, and is not white. That young man probably did not draw the others. We don't know who did, but the writer of this article assumes he does.

So instead this writer relies on a document of the Sherburne County GOP and a police report that someone burns a cross in Seberger Park on Halloween night. From this we get
Even though the 6th District is among the least diverse in the country and Sherburne County is the whitest county in that district, the GOP still uses the fear of forced integration and public access for everyone as a reason to fear Democrats. To them, patriotic principles are at odds with protecting the weak. Many of us were taught that America is a �melting pot,� but here in Sherburne County you�re either one of us or one of them.

...There is a stain on this part of the state. It�s ugly and real and always right under the surface of any political conversation. It�s played a big part in every election and yet it�s never come up in a debate or candidate interview.

Maybe it�s time it did.
Now for some reason we have to first assume that the only reason anyone burns a cross is because of racism. The fact that it's Halloween, or even Guy Fawkes Day, has nothing to do to change that inference in this writers world. (BTW, did you ever wonder where Jack O' Lanterns came from? I did too, now I know.) The SherCo list is a bit more problematic, but it was written in 2007 by someone unknown, and it took me some time to find it on their page (it's at the very bottom of their main page, in small font.) And let me again point out that very little of Sherburne County is in east St. Cloud.

The writer of this, a director of the 6th Congressional District DFL and a max-dollar contributor to 2008 Congressional candidate Bob Olson, has thus concluded that if you vote for the GOP you are a racist, no matter what you do. And it's a dirty secret in Minnesota, even though he uses a common slur for a city in central Minnesota, as well as the derogatory term "tea bagger". This dismissive arrogance of those with whom you disagree is even more galling given he does not live in St. Cloud.

But this won't matter to them, and no doubt my post will show up as fodder for more of their childish behavior. Remember this moment though: It's clear that the DFL in this district believes that its opponents are evil and probably racists. So when you put out your lawn signs, what's on them really doesn't matter. If you don't vote for their gal, they assume an awful lot about you.

Labels: , ,

Tuesday, November 17, 2009

Understanding tenure 

Eric Austin (sometimes known as Political Muse of Liberal in the Land of Conservatives) chatted via Twitter with me one night about tenure. Sometimes our chats are public, and sometimes not. We had arrived at an understanding about it. Last night he tweets that he has written a piece in part inspired by that conversation. Well, I think, I should read it! I agree with more than I normally do with him, but I think he's missed the bigger point. Two points, in fact.

Eric's major point is that you can remove someone in a public school (elementary or secondary) who has tenure (three years after initial hire) but only for cause. On this he relies properly on state law. "In the first three years of employment," he writes, "known as the probationary period, a teacher may be terminated for virtually any reason allowed by law." But the law he quotes includes the phrase may or may not be renewed after consulting with the peer review board, which is a joint school board-teacher union construction. Can the school board ignore peer review? I guess it could, but it probably makes for tough dealings with the union later. Still, it appears the system works fine, since all sides agree that there is plenty of turnover in teachers in the probationary period. Perhaps even too much, since letting someone stay three years might mean you're stuck with them.

"Whoa now, King! Eric just showed that you're not stuck with them!" After the three years, Eric says, you have to show cause. Specifically the law says
After the completion of such probationary period, without discharge, such teachers as are thereupon reemployed shall continue in service and hold their respective position during good behavior and efficient and competent service and must not be discharged or demoted except for cause after a hearing.
The words "good behavior and efficiency and competent service" are of course subject to interpretation. And who gets to interpret that is often not the teacher but instead an arbitrator. Christine Ver Ploeg of the William Mitchell College of Law notes that almost all cases to terminate for cause are requested by Education Minnesota to go to an arbitrator. Why? Because the evidentiary standards change; the law calls for the board to provide a "preponderance of the evidence" to support the decision to terminate. Arbitrators can hand out back pay too. If instead a board's decision was appealed to a court, the teacher's termination could only be overturned if somehow the board did not follow the law. I'd encourage Eric to read Ver Ploeg's article, plus Minnesota Code 122A.40 (in addition to reading again the arbitration provisions in 122A.41) to see if he's misunderstood the nature of the process by which a tenured teacher can be removed.

Now Eric is correct, that it's the job of the board to get rid of bad teachers. Unions are not guilds empowered to clean up their own memberships. Guilds maintain standards and remove those who don't perform to them. Unions don't do that, and you shouldn't expect them to.

I think the arbitration rights given to teachers (and I think most other state employees in Minnesota) tip the scale too much towards protecting bad teachers, though, and I think that point has been missed if you just read Eric's article. Facing a higher barrier, boards don't take some cases to the point of a hearing; many others get settled out, so that the teacher's poor performance is not in a public record and he or she can go on to teach somewhere else (and perhaps continue to underperform.) Ver Ploeg's article suggests that arbitration rights for teachers was a union priority in the 1980s, and they got them in 1991. It would be interesting to look at evidence of teacher dismissals for cause by year since, say 1980, to see what effect it had. I don't see that data out there, but I didn't look too hard.

But I actually have one more, relatively important point, that Eric misses. The law says that ALL school teachers shall be hired with this kind of tenure provision. Why couldn't we do something different? What if I offered a teacher a five-year, nonrenewable contract? Or a three year, renewable contract? Why are all the contracts in public schools the same? My political science professor would have taught me to ask at this point "cui bono?" Boards? Unions? I would like a teacher, or a school board member, or EdMinn, or someone, to explain to me how it is that schoolchildren benefit from tenure. Maybe Eric would take a stab at it.


For those of you scoring at home 

The "Blue Dog" Democrats, 44 'fiscally conservative' congresspersons, did not acquit themselves well in this year, says the Heritage Foundation, via Stephen Moore:
On three votes that would massively expand the size of government -- the stimulus plan, cap and trade, and health care reform -- Blue Dogs mostly were AWOL. "Of the 52 House Blue Dogs, only four voted against all three," says Mr. Franc. Sixteen voted for two of the three, and 17 voted for all three.
The four who voted against all three? Bobby Bright and Parker Griffith of Alabama, Walt Minnick of Idaho and Gene Taylor of Mississippi. Rep. Collin Peterson of MN voted for cap-and-trade but did vote against the stimulus and the health care bills.

These are the ones Heritage identifies who supported Obama on all three bills: Leonard Boswell of Iowa, Jim Cooper of Tennessee, Gabrielle Giffords of Arizona, Baron Hill of Indiana, Dennis Moore of Kansas, Patrick Murphy of Pennsylvania and Zack Space of Ohio. It's interesting that of this list of Democrats being supported by K Street that Gary pointed to last week, only Boswell is getting a thank-you note from AFSCME and health care reform advocates. (There are two other blue dogs on their list, but those did not vote 3-for-3.) Are the others all bark and no bite?


Monday, November 16, 2009

Actuary: Pelosicare adds 23 million to Medicaid, 18 million to pay health care tax 

Courtesy of Keith Hennessey. Memo from Chief Actuary of Medicare and Medicaid Rick Foster here. Hennessey notes that the 18 million who are "uninsured and paying the penalty tax" are "clearly worse off than they would be under current law" because they end up paying the lesser of 2.5% of their income or the average premium for health insurance. These are likely to be younger and healthier people. Why would someone who makes a high income not buy health insurance if the tax was equal to what she or he would pay in premiums?

Hennessey also notes that Medicaid is largely considered to be fiscally unsustainable now. How does adding 23 million to Medicaid help this?

Labels: ,

Increase taxes or reduce spending 4%, lose GDP 

Assuming no major changes in federal government tax and spending policies, the federal deficit and debt picture looks bleak. The picture is similar to that of the CBO (2009b) and Auerbach and Gale (2009), although in the present case all the macroeconomic endogeneity has been accounted for.

...Personal income tax increases and transfer payment decreases have similar effects on the economy. A tax increase or spending decrease of 4 percent of nominal GDP is enough to solve the debt problem. The real output cost is about $300 billion per year.

A national sales tax is more contractionary in the model than are personal tax increases and transfer decreases, due in large part to decreases in real wealth and real wages. A national sales tax thus does not look like a good idea, although there is more uncertainty here regarding the ability of the model to deal with this case.
From a new paper by Ray Fair, of FAIRMODEL fame. I use FAIRMODEL in some of my teaching in forecasting. His latest iteration is a little higher in terms of debt-to-GDP than in the paper but not appreciably so. The emphasis is mine. Both those runs of his model show negative GDP growth in Q4 of 2011, which would appear to suggest that fixing the debt problem means a W recession pattern. Fair assumes the tax increase or transfer payment reduction to fix the recession begins in the first quarter of 2011.

Would the federal elected officials risk the W to get the debt issue off the 2012 agenda? It depends on whether they can impose the taxes fast enough and get the pain out of the way before the summer of 2012 when voter decisions for November are being made. Losing $300 billion a year means losing 1-2% of GDP per year, which will cost many jobs.

Labels: , ,

You can always call him stupid ex post 

I'm sorry I was traveling this morning and had missed the second half of the game last night. Had I been home, I would have seen Bill Belichick's call on fourth and two, which Gary has already emailed me made him an idiot, and which Ed has posted was an act of hubris. Vic Carucci calls it a gutsy blunder, and he writes on the NFL's official web.

I disagreed by instinct. As I told a student after I got to campus who asked about the decision, I said you had to put your head in Belichick's place without regard to what eventually happened. You have to argue ex ante rather than ex post.

Your team has given up two fourth quarter touchdowns in possessions of 2:04 and 3:32. You are playing against arguably the greatest QB ever (arguably, acknowledging that the greatest QB ever could be your own QB.) You are on the road. You have a play that has worked quite well, and you ran it successfully earlier in the game. (Game log) And it's not the first time Belichick had done it this season, Michael Lombardi reminds us. He went 4th-and-1 from his 24 up 19-10 in the third quarter against Atlanta (successful, game log.) So this isn't gut instinct: Belichick has thought the math through.

I was going to write out the math of this in terms of expected values, but Brian Burke has already done this.
With 2:00 left and the Colts with only one timeout, a successful conversion wins the game for all practical purposes. A 4th and 2 conversion would be successful 60% of the time. Historically, in a situation with 2:00 left and needing a TD to either win or tie, teams get the TD 53% of the time from that field position. The total WP (win probability -- the likelihood you would win the game) for the 4th down conversion attempt would therefore be:

(0.60 * 1) + (0.40 * (1-0.53)) = 0.79 WP

A punt from the 28 typically nets 38 yards, starting the Colts at their own 34. Teams historically get the TD 30% of the time in that situation. So the punt gives the Pats about a 0.70 WP.

Statistically, the better decision would be to go for it, and by a good amount. However, these numbers are baselines for the league as a whole. You'd have to expect the Colts had a better than a 30% chance of scoring from their 34, and an accordingly higher chance to score from the Pats' 28. But any adjustment in their likelihood of scoring from either field position increases the advantage of going for it.
Not to say that Belichick had those numbers firmly in his head and thought of it in terms of WP, but he's shown evidence that he's willing to go for fourth downs in his own territory, that the gain in punting would have been to reduce the likelihood of the average NFL team to score the winning TD to 30% from 53%. He certainly knew he would be skewered if his team failed to convert ... which he had to think was a 40% probability. He was confident enough to accept that fate in return for giving his team its best shot at winning the game. In terms of the rest of the season, would you rather have your team lose and the blame placed on your coach for a "bonehead move", or lose and have your defense questioned for its inability to hold a lead?


Friday, November 13, 2009

Two questions 

Both of a personal nature:
  1. I'm off radio this weekend to take a long-planned trip with my brother. His birthday is Sunday and he's a big Steelers fan, so I'm meeting up with him in Pittsburgh with tickets for Sunday's game versus the Bengals, with first place in the AFC North at stake. Eat your heart out, Morrissey! Questions are on transportation and food. We don't want to rent a car in case we imbibe a little more than usual at the game. ("in case??" -- ed.) How do we get there, what do we eat and where should we enjoy the evening's Patriots-Colts tilt?*
  2. Is it time to get off Blogger? I still have to use the Classic version, widget-less, because this blog is so damn old. I keep wanting to tweak the sidebar and start pushing content from the radio show there; I also want a feed of just economics posts that can go to the KYCR page. There's no money for this to buy a fancy solution, pretty much DIY. So what to do?
* -- I won't blog from the game, but I expect to tweet a bit.

Labels: ,

D.C. index vanity 

You know, Washington isn't the only place where checking the index is commonplace.
As a delightful insider's joke on the inbred Washington political establishment, the [Sarah Palin] book has no index. So they can't find mention of themselves while browsing in the store. Buy it or lump it.
Academics do this all the time. Someone writes a paper in your research area? You immediately go to the bibliography to see if your paper was included in the review of previous literature on the topic. There's a very well-known economist who wrote me once a rather angry note (back before the internet was commonplace) complaining not that I had not cited his paper -- I had cited one -- but that he had a second paper I should have also included. I've heard others say "well, this paper is no good, she didn't cite me."

If only I could get people to read my papers first without looking at the bibliography. There was a time where we used footnotes with full citations and no bibliographies. But with the internet we now can just scan Google Scholar and other online indexes for who quoted us. Indeed, there's even a program for that. And it's free!

Labels: , ,

Letter from Chad the budding economist 

Chad writes by email:
I've been meaning to ask you for a while about the way that imports impact GDP. If Americans stop buying as much stuff at Wal-mart, imports go down which means GDP looks better. But few would take that as a positive sign.
That question is a principles question. If I import a bottle of French wine to drink (say, some of that nice Beaujolais Nouveau coming in next week), it increases consumption, the largest part of GDP. Since GDP is gross domestic product, I have to deduct that consumption I do which is not from a domestic producer. So I subtract imports. So if people "stop buying as much stuff at Wal-Mart" and save the money, there's no effect at all on GDP. If I decide not to buy the beaujolais but celebrate the end of the harvest with Nebraska nouveau instead, then GDP expands.

Likewise in this article Chad sends me. If I buy a car with more American components in it, GDP is more greatly affected than not. But who cares? In 1992 we passed a law, the American Automobile Labeling Act, which required new cars to have stickers indicating how much of the car's components and assembly was off-shored. A government agency in 1998 interviewed 646 car purchasers to see what difference it made to them. Only 23% even knew of the stickers, 15% of them had seen one, and only 5% said it made any difference to them at all. (2% said it made a moderate or large difference.)

Chad closes by asking if we place too much stock in GDP as a measure of an economy's health. I certainly think there's an argument there, but most of the alternatives presented seem to be even more fraught with problems than GDP. Here's the U.S. government's 'celebration' of GDP. I'd encourage those interested to read Bryan Roberts' paper in our book for some of the critiques and counter-critiques.


Supply curves slope upward 

Producers provide less at lower prices:
Kenneth Feinberg, the Obama administration�s special master for executive compensation, said he is �very concerned� about the possibility his pay cuts may drive talent away from companies bailed out by U.S. taxpayers.

�I�m very cognizant of the concerns expressed by these companies,� Feinberg said today in Washington at an event held by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. �The law makes it clear that the determinations I render are designed, first and foremost, to make sure those companies thrive and that the taxpayers get their money back.�
If you want to maximize profits, the flow from which you would repay the loans, you set the wage where you attract the best help. Private firms try to do this all the time. Perhaps Mr. Feinberg could enlist the help of a board of directors for these firms.
The U.S. will track possible executive defections by seeking from the seven companies data on comparative pay, by obtaining independent information and requesting �anecdotal evidence of vacancies and concerns about losing people,� he said.
And what would he do if he found he had lost talent from his firms? Would he raise the pay? What do you suppose would happen then? Buses by the homes of those who left?

Labels: ,

A thought on Clark 

A quick thought on our own Sen. Clark, who apparently has gotten herself engaged in a (relatively small) fracas over some comment she made to a left-wing blog. If you live in St. Cloud you often see her, sometimes with her husband, visiting with constituents. "Isn't she nice?" many will say to me. Yes, in fact, mostly she's nice to me to my face. (Gary has had a different experience; I have not.) But there does seem to be two Mrs. Clarks -- the one constituents and her own family see in St. Cloud, and the one her DFL family in St. Paul sees. I'm sitting in one of those places right now where she enjoys a bit of a rock star status sweeping through the coffee shop. But ask those people what she does in St. Paul and all you get is "she represents us." It's a vague answer.

I really don't think the St. Cloud observers know the St. Paul Clark, and I'm not sure they'd like what they saw if someone showed her to them. Some will certainly, the strong partisans and the bombthrowers and the tax consumers. But her ability to reach independent voters, particularly in the business community I know, would be damaged if she was seen as being as strident as her Daily Beast or Kos blog shows her to be. As of yet in St. Cloud, tax consumers are not the majority.

If the Bachmann campaign wanted to play hardball with Clark, it should show St. Cloud the St. Paul version. The Americorps comment is what football players call "bulletin board material."

Labels: ,

Thursday, November 12, 2009

You're missing the point 

I know counterfactuals and math are hard to fit on a bumper sticker. But one would hope that in an 800-plus word essay on economics (even if in Politico), some economic content could be included.
Thus Menzie Chinn concludes a defense of the "jobs saved or created" story complete with regression analysis (and not just ANY regression, mind you, but one with "error correcting mechanisms". Prof. Chinn is right that the proper measure is some ceteris paribus calculation. He quotes Greg Mankiw's analysis during the Bush Administration as some kind of shield. But Mankiw says "The job market is not what we would like it to be right now, but it would have been worse without the Administration's actions." Were those the words to come from Christina Romer's or Jared Bernstein's mouth, I'd have no debate. But I think it is more than semantics to go from "Simulations of a conventional macroeconomic model show that, without the tax cuts, the level of real GDP" would be x% lower and unemployment y% higher, than to say you've created or saved 640,329 jobs.

Official data here, where it helpfully adds "as reported by recipients", perhaps to shift the guilt.

The problem is the administration has oversold its control of the economy, and used statements of certainty with numbers -- six significant digits on that page, why? what is the basis of that level of precision if not hubris? -- where one reasonably should have reached for uncertainty. Bernstein, who originated the report that said with stimulus the unemployment rate would not be 8% with the stimulus bill, now says that without the stimulus the unemployment rate would be �at least 11 percent and going higher�. Hey, we all miss a forecast now and then, but if you miss one by 3% by your own admission, don't you have to be a little more modest about your predictions going forward?

Prof. Chinn's estimate includes a guess that Q4 output rises at the same rate as Q3. That's without cash-for-clunkers, and with data showing federal tax receipts 18% below year-ago levels. GDP growth of 3.5% for Q4 is not what the WSJ panel expects -- they forecast 2.1% 2.9% growth for Q4 and nearer 3% for 2010. UPDATE (11/13): Prof. Chinn writes that to correct that number. I did this off the rollover on the forecasts front page, but if you drill down to the individual forecasts you indeed get 2.9%. I regret not double-checking the Journal on this.

Their average for payroll employment is a gain of about 565,000 jobs between now and November 2010. The low-end estimate of the original package estimated by the CBO and the Obama economic team was for a gain of 2.1 million jobs from 2009 to 2010. You can say all you wish that you've "created or saved" 1.2 million jobs next year, but you're missing the point.


The most important graph you'll see today 

The taxation story is not about the rich, folks. It's about the young earner. What this says is that, if you fully use the various transfer payments available to you as working poor (making $15,000) you can have goods priced at $40,000. If you earn $40,000 you can have goods and services worth ... a but less than $40,000. Maybe it's the same goods, maybe not. But the point of the graph is that when you combine the federal and state income taxes, payroll taxes and deduct the lost subsidies from various government programs from SCHIP to housing to food stamps, you lose sometimes more than a dollar of goods for each dollar you earn. Your incentive to improve your condition is de minimus.

Graph from here with details. H/T: Greg Mankiw who asks that this be redone by someone with more authority, like the Congressional Budget Office. Health care reform as a transfer system will only make this worse.

Labels: ,

Wednesday, November 11, 2009


St. Cloud State University Athletics will salute all members of the United State Armed Forces and veterans during Military Appreciation Night at the Husky men's and women's basketball games against Winona State on Friday, Dec. 4.

As a special recognition on Dec. 4, all curent and retired members of the military and their families will be admitted free to the SCSU basketball games that night. The games begin with the SCSU-Winona State women's basketball game at 6 p.m., with the men's game beginning at 8 p.m.

One of those dedicated members of the military serving the United States is St. Cloud State University senior wrestler Adam Minette, a resident of New Prague and 2004 graduate of New Prague High School.

In addition to his spot on the SCSU wrestling roster, Minette serves with the Army National Guard. A redshirt senior at SCSU, Minette missed the 2007-08 season while serving on a tour of active combat duty in Iraq. He returned to the SCSU roster in 2008-09 and gained a 7-8 record with four pins at 149- and 157-pounds.

�It is a pleasure and an honor having Adam Minette as a member of our wrestling program," SCSU head coach Steve Costanzo said. "He has been dependable, loyal and committed in every aspect to our program. I am very grateful for what he has given to the citizens of the United States."
I am happy to have Adam as a student and a major in our Economics program. He's a great young man, an excellent student, and on this Veteran's Day deserves our thanks for his service as do all the vets at SCSU.

Labels: ,

Best question I read today 

How can one insure against a volitional act? -- Sheldon Richman on the Stupak Amendment debate. Emphasis mine.

If the Republicans were more willing to push this, they could show that the catastrophic plans in their proposal are the only ones that do not violate the concept of insurance. The Pelosi plan is, instead, an entitlement program that provides the illusion of help for the middle class while engaging in a transfer from young to old.

UPDATE: Should have known Milton Friedman said about the same thing, notes Mark Perry.

Labels: ,

We also have a hiring problem 

I simply want to display two graphs, both from the "JOLTS report" (Job Openings and Labor Turnover Survey.) These are the rates at which labor is currently being hired and separated (fired/laid off only) as a share of employment. The separation rate is now back below 2%, but has not seemed to be too different from a deep recession. The dataset only begins in December 2000, so I can't look back further.

Now on the other hand, look at the drift in the hiring rate. That rate has continually declined since 2006 now reaching 3.5%. The economy is not generating as many new job opportunities for people as it did earlier in the decade, and it seems to have started before this recession. How quickly that number comes back tells us a great deal about whether or not the recession ends and how quickly the unemployment rate comes down.


Tuesday, November 10, 2009

It's a spending problem 

Analyzing the current fiscal trend and the Left's answer to it, Keith Hennessey concludes:
This is why I try to encourage elected officials to use the phrase �spending discipline� rather than �fiscal discipline.� Our long-term deficit problem is a spending problem.
Welcome to Minnesota, where Governor Pawlenty has announced he wants a constitutional amendment to cap spending. The amendment reads: "Shall the Minnesota Constitution be amended to require that state government general fund expenditures be limited to the amount of actual general fund revenues received by the state in the previous two-year budget period?"

The reaction is predictable. You get DFL opponents saying things like "you can't cut your way to greatness." You get the StarDFLTribune cynically claiming that constitutional amendments that commit to INCREASED spending (such as the Legacy Amendment) are a reason why you can't have spending cuts.

Hennessey argues that the following line of attack follows the Left's hold on government:
Around Minnesota, where deficits are not allowed, you increase spending faster than the increase in personal income during expansions, letting the procyclical nature of tax revenues fill the gap. When your economy goes into recession, you label as radical or extreme anyone seeking to cut the deficit by spending cuts -- you vilify the "no new taxes" crowd. (I'd put in links for that, but I'd insult some liberal advocacy group by forgetting to link their sackcloth-and-ashes act.) You end up with an 11th hour "woe is us, we must raise taxes" ploy, and stick it to the rich at midnight. Rinse and repeat begins February 4, 2010.

Spending limits have a long history, as this National Conference of State Legislatures summary shows. Pawlenty's proposal is different from most in our history, which either set a limit tied to population growth or growth+inflation. (Cato argues that limits set by personal income growth have been ineffective.) Those that set a maximum percentage of personal income (share of a level, not a growth rate) would find us probably near the limit now. Unlike the Pawlenty logic, I actually do plan on spending more when I'm older if I think my income will rise over time. I would argue this plan would have had a more tested version than this. (How do I know in May when the Legislature adjourns what revenues were for June, the end of the biennium, for instance?) It's worth noting that Milton Friedman more preferred the pop-growth-plus-inflation formula.

I worry that this amendment will barely register a nod from the Twin Cities political establishment. But clearly Pawlenty has seen the light that Hennessey is shining. At my home when the checkbook looks empty, I don't usually say I have an income problem (and I sure don't ask my neighbor to cover it for me.) I say I have a spending problem, and I fix it by spending less.

Labels: , ,

Grandma and the necktie 

Arguing that �economic incentives in health care� are perverse, David Leonhardt asserts that �As long as doctors and hospitals are paid for each extra test and treatment, they will err on the side of more care and not always better care. No doctor or no single hospital can change that. It requires action by the government� (�Making Health Care Better,� Nov. 4).

Hogwash. To see why, change just a few words in the above quotation: �As long as sales people and clothing stores are paid for each extra necktie and nightie that they sell, they will err on the side of more selling and not always better customer service. No salesperson or single clothing store can change that. It requires action by the government.�
From Don Boudreaux. He suggests the real problem is third-party payer. Certainly so. But does the difference in short-run demand elasticities between a necktie and an emergency bypass surgery on a beloved 75-year-old grandmother play any role here?

Labels: ,

Representative Bachmann Gets It Right 

Last evening, November 9, the 20th Anniversary of the Fall of the Berlin Wall, Maria Anne "Hansi" Hirschmann" was the keynote speaker at a dinner fundraiser for Twila Brase's Citizens' Council on Health Care (CCHC). Hansi's talk was on freedom and more will be posted later.

So, where does Congresswoman Bachmann fit? Michele understands in her core what is at stake with the current Democrat administration in Washington, DC. She also knows how to communicate the importance of the bills working their way through Congress.

Last night, Representative Bachmann, via representative, Julie Quist, gave Bachmann's statement supporting, thanking and praising CCHC for its nationally known efforts to stop government takeover of our lives.

Thank you, Representative, for continuing to support the people you represent. You get it right.

Labels: ,

Monday, November 09, 2009

Part of the job 

So now some station discovered that -- shock! horror! -- faculty at state universities get sabbatical. It's true! And it's in ... the contract we signed when we agreed to our job. Article 19, Section C.
The purpose of a sabbatical leave is to enhance professional development, support department/unit goals, and/or meet the instructional, service, or research.
Subd. 1. The President/designee may grant a sabbatical leave to an eligible faculty member who proposes to undertake a scholarly research project, additional study, or other endeavor related to the purpose described above.
I'm in my 26th year of service at SCSU, and so far have had one year (back when it was 2/3 pay for a year-long sabbatical rather than 80%.) My work that year and two more years, during which the university did not pay me but expected me to return to repay my sabbatical -- more on this below -- lead eventually to a third year away to work as an adviser at the National Bank of Ukraine and to my first book. I'd vehemently disagree with the idea that I 'took time off'. Indeed, the KSTP report cannot deny that these faculty members on sabbatical were in fact improving themselves. Sabbatical is not vacation. In 2007-08, throughout our system, here's what the sabbaticals were used for:
Sabbaticals are a relatively recent phenomenon: Ivy League schools started their sabbatical programs towards the end of the 19th Century. They were designed not as an increase in vacation time but as "an investment of college funds designed to increase the efficiency of the teaching force." (Dartmouth, 1922.) MnSCU summarizes its sabbatical results:
...sabbatical leaves are an investment of the college/university in its academic future and reputation. Sabbatical leaves granted under the provisions of the collective bargaining agreements have permitted faculty to revitalize their teaching, improve their research skills, and maintain a vibrant, engaged, and up-to-date outlook on their profession.

One will recognize that sabbatical contains and derives from the word Sabbath, which holds two separate implications. One, it is intended to happen every seven years. As the report indicates, sometimes you cannot take sabbatical during the seventh year, or eighth, because your department would lose too many faculty and could not offer the courses needed to your students. So you wait. We are only guaranteed that we can go every ten years. Between seven and ten, your application gets scored, and you must have a minimum of 60% of the points scored or else you're out. Everyone knows the scoring rubric, and the applications typically are accepted. At the end of your sabbatical you complete a report on what you did.

But the other part of the sabbath that gets used in sabbatical is that it is a time of rest. Just as the Bible asks for land to recharge itself every seventh year (thanks to Jill Schneiderman for that observation) so too do faculty need to let the mind go wander once in a while. My own field changes from time to time. My next sabbatical -- I am one of those people who is asking to go away next year, seventeen years since my previous one -- will be my transition year to a post-chair life, one in which I start trying to teach economics more to people off this campus. But I need to figure out how to be effective in that teaching. I would like the inspiration to come during those thinking times in my day, but to actually build the course takes much longer. Should we have time to do that outside of the classroom?

So here's the real point, if you want to get to the dollars. If you tell me I have to do this job and never take a sabbatical, I would like to be compensated for giving up that right. Suppose my union and the state negotiate a 10% wage increase in return for the lost right. If I'm only guaranteed sabbatical every ten years, I only get one reassigned semester a decade. The state pays someone to replace me for that semester, and probably will not pay 50% of my salary, since that person is likely to be a lower-paid instructor (a young person just out of graduate school.) Are you better off or worse off, taxpayer-dollar-wise? And in the long-run, am I a better or worse instructor for having that time of rest, reflection and retraining?

Labels: ,

Ein Volk, Ein Plan, ... 

Courtesy Steven Horwitz, from last weekend in Ithaca, NY. That sign is created by this group. If you scroll all the way to the bottom of their pages, you find a symbol for this group that would indicate the latter is parent of the former.

Yes, them be Wobblies.

Labels: ,


Lawrence Reed, 2001 (reprinted today):

August marks the anniversary of the building of the Berlin Wall that for 28 years thereafter, divided the city of Berlin and closed off the only remaining escape hatch for people in the communist East who wanted freedom in the West. It was a shocking surprise when it happened because no warning was given before East German soldiers and police first stretched barbed wire and then began planting the infamous wall, guard towers, dog runs, and landmines behind it.

By one estimate, a total of 254 people died at the wall during those 28 years�shot by police, ensnared by the barbed wire, mauled by dogs, or blown to bits by land mines as the �Workers� Paradise� sought to keep them imprisoned in a statist hell.


We believers in freedom and free markets are often attacked by socialists as obsessed with self-interest. They like to remind us of every shortcoming or every problem that hasn�t yet been solved, no matter the degree to which freedom has already worked to solve it. But we don�t believe in shooting people because they don�t conform, and that is ultimately what socialism is all about. We don�t plan other people�s lives because we�re too busy at the full-time job of reforming and improving our own. We believe in persuasion, not coercion. We solve problems at penpoint, not gunpoint. Unlike the socialists of the old East, or homespun statists like Sen. Edward Kennedy, we�re never so smugly self-righteous in our beliefs that we�re ready at the drop of a hat to dragoon the rest of society into our schemes.

All this is why so many of us get a rush every time we think of Ronald Reagan standing in front of the Brandenburg Gate in 1987 and boldly declaring, �Mr. Gorbachev, TEAR DOWN THIS WALL!� This is why we were brought to tears in the heady days of fall 1989 when thousands of Berliners scaled the wall with their hammers, picks, and fists and pummeled into the dustbin of history that terrible wall and the Marxist vision that fostered it. That was a �Kodak moment� if ever there was one! For today�s young people who have no concept of what it was like for millions to live under socialism behind walls and barbed wire, or who have no appreciation for the blood, sweat, tears, and treasure spent by millions here and abroad to combat it, this anniversary is an opportunity to learn a little history.

It was later established that more that 254 people died there -- the number may have been more than a thousand. I recall a movie I've discussed before here: The Lives of Others. If you can rent it tonight, it would make a good tribute.

Not A Sheep provides a list of the 254.

UPDATE: Anthony Daniels on the role of intellectuals in supporting this monstrosity: "They thought that if nothing great could be built without sacrifice, then so great a sacrifice must be building something great."

UPDATE 2: Pete Boettke -- in a very useful history of the Wall that deserves your reading -- reminds us of the story of Hans Ulrich Lenzlinger, who helped smuggle many out of East Germany:
There also emerged a smuggling business that ran ads in West German newspapers. One such company, Aramco, with headquarters in Zurich, Switzerland, gave out press releases referring to their �most modern technical methods.� The company�s prices were not that unreasonable: $10,000 to $12,000 per person, with �quantity discounts� for families, payable into a numbered account in a Swiss bank. If an escape attempt failed, the company refunded most of the money to the person financially sponsoring the breakout.

The East German government issued �wanted� posters on the East Berlin side of Checkpoint Charlie, offering 500,000 German marks for the director of Aramco, Hans Ulrich Lenzlinger. The �wanted� posters negatively referred to him as a �trader in people.� In February 1979, someone collected the bounty on Lenzlinger�s head, after he was shot repeatedly in the chest and killed at his home in Zurich.
They eventually got the Stasi assassin that killed Lenzlinger. (Mitch, that last link will be delicious for you.)

LAST UPDATE: Courtesy Fausta, a story from a blogger in Cuba, where the wall is still intact:
We cried in each others arms in the middle of the sidewalk, thinking about Teo, for God�s sake how am I going to explain all these bruises. How am I going to tell him that we live in a country where this can happen, how will I look at him and tell him that his mother, for writing a blog and putting her opinions in kilobytes, has been beaten up on a public street. How to describe the despotic faces of those who forced us into that car, their enjoyment that I could see as they beat us, their lifting my skirt as they dragged me half naked to the car.
Maybe 254 squared would be better for Cuba.

Labels: ,

Enough to make me want to move to Canada 

No, no, not the health care vote this weekend in the House. That was all theater, after all; even the AP says the public option is dead, and it appears to have caused a major rift in the majority.

No, the story that caught my eye over the weekend was Gordon Brown, the British PM, arguing for a tax on "day-to-day financial transactions" and getting it thrown back in his face by just about everyone there. Even Tim Geithner. But the very best reply came from Jim Flaherty, the Canadian finance minister:
We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at.
Mr. Flaherty notes that his country has not had the financial experience of London or New York. He has regulated banks much more. Now I would argue regulation is a form of taxation, but still, if Mr. Flaherty says his government is "in the business of lowering taxes", roll me in maple syrup and call me Canadian.

Alas, while the "Tobin tax" idea might be scotched by everyone but the British, they still want to tax banks for their own cowardice in letting one fail. Bernie Sanders has introduced a bill that says, if you're identifying all these banks as too whatever to fail, how about you just break them up? Forget the sand in the gears -- Mr. Sanders wants to throw a spanner.

Labels: ,

Friday, November 06, 2009

Economists' best friends are at Treasury 

I worry less than did some of the other bloggers about the Treasury awareness of major economic problems going forward. As governmental institutions go, Treasury has a real incentive to a) worry about the fiscal future, and b) worry about worst-case scenarios, including for financial institutions. Their daily interaction with the bond market gives them a longer time horizon and a more economics-friendly perspective than most of their bureaucratic counterparts. The problem is Congress.
Tyler Cowen, commenting on the big pow-wow between Treasury and some financial economists. He provides a link to other commentary. When I have worked overseas, when it's been the US government who issued the contract the agency was USAID, part of State. In my first long-term post in Ukraine I found the most reasonable people were the ones assigned from Treasury followed by World Bank, IMF and last, State Dept. That pretty much worked everywhere else too, with some flipping of IMF/WB depending on personalities. Certainly Cowen's b) point fits all my experience (in those countries, too, the worst-case was really bad.) And I don't know colleagues who would disagree with this ranking.

That doesn't necessarily mean Treasury will generate good policy, though. I remember reading (cannot remember where right now) a description of central bank research staffs post-WW2, and one place that had a very good staff that generated professional research respected throughout its country was the Bank of Italy. Unfortunately its leadership never took the advice of that research.


The value of college in a recession 

I thought I might take the latest employment report (pdf) and dig into Table A-4, showing unemployment rates by educational attainment:

Education level October 2008 October 2009
Less than H.S. 10.4% 15.5%
H.S., no college 6.5% 11.2%
H.S. some college 5.3% 9.0%
Bachelors & up 3.1% 4.7%
Ironman has been noticing for more than a year that teen unemployment has been rising dramatically, and the new numbers today show a teen unemployment rate of 27.6% (over 40% for blacks.) But the striking thing to me here is that the 20-something who doesn't finish a four-year degree has experienced a much larger increase in unemployment than I thought I would find. Maybe this is normal; I don't know. What I do know is that I'm showing this table to my students to remind them why they should stick out college and get their diplomas.

I also note on Table A-8 many re-entrants into the labor force. How many of these are formerly stay-at-home spouses now trying to find work again?

Notice as well the increase in duration of unemployment: half of people unemployed are now out of work more than 18.7 weeks. More than a third are out over six months. It's hard to imagine Congress not passing a lengthening of unemployment insurance eligibility in this situation, even if it does lead to a lengthening of spells of unemployment. (The counterargument is that it provides for better job matching, which is plausible. Heritage did a study on extended unemployment insurance last year worth reviewing.)

Nothing really stands out for me from the payroll data, at least on first glance. I said yesterday that I thought we'd be just short of 200,000 jobs lost, and 190k is pretty close. It would not normally lead to an increase in unemployment rates of 0.4% but the rate of decline in labor force participation slowed down a bit. Paul Ashworth noted that temporary workers picked up, which is a good sign, but only if sales pick up in this last quarter. The markets focus on the bottom line, but I focus on the top.


Thursday, November 05, 2009

Congress played health care fiddle while housing burned 

I saw this initially on Calculated Risk and was surprised it wasn't a bigger deal: The Federal Housing Administration is being audited, and it appears the audit isn't going well.
A much-anticipated audit of the Federal Housing Administration was abruptly postponed just before it was supposed to be made public, after questions arose about its accuracy.

The auditor, Integrated Financial Engineering, said it notified the F.H.A. late Tuesday that its computer models were creating unexplained inconsistencies. A news conference scheduled for Wednesday morning was canceled.

The delay came amid broad public concern about the financial condition of the F.H.A., and appeared likely to add to questions about whether the agency is running excessive risks with taxpayers� money.
Sure a bad time for this, particularly given Barney Frank's continuing headache with Fannie Mae.
Fannie Mae reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. ... Third-quarter results were largely due to $22.0 billion of credit related expenses, reflecting the continued build of the company�s combined loss reserves and fair value losses associated with the increasing number of loans that were acquired from mortgage backed securities trusts in order to pursue loan modifications.
As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency (FHFA) submitted a request for $15.0 billion from Treasury on the company�s behalf.
Yup, another $15 billion going into Fannie to bail out the housing industry. Congress' answer? Keep more first-time homebuyer credits flowing. Damn the pusher man.

Russ Roberts asked if we were smart to throw them $200 billion back in February. At the rate they're going Fannie will burn through that in three years. $2000 from every household. And their financial modeler determining how to do those loan mods? Yup, Integrated Financial Engineering, the same guys bungling the FHA audit. Fingerpointing between IFE and FHA has already begun. If the audit shows FHA's capital ratio drops below 2%, you either have to get higher premiums on mortgage insurance or, unsurprisingly, a cash infusion from the government.

Labels: , ,

A million millions is a billion? a trillion? 

David Prychitko reminds us "there are a million millions in a trillion." True only if you use the short system of measuring large numbers. Those of us who collect old European paper monies are familiar with the words milliard and billiard. And even more confusing is this note, which has the B in the corner. The B represents a re-denomination of the pengo note. This one is from 1946 and was never released to the public. It would have been worth a trillion of the original wartime pengo. Of course this all happened due to Hungary's extreme hyperinflation. But that would be trillion in the long sense -- for those of us in America, it would have equaled 1 quintillion original pengos.

So I find myself wondering -- if America used the million, milliard, billion, billiard long form, would we view the current amount of spending in government with more trepidation or less?

Origins from Wiki

Labels: , ,

How much cost-cutting 

Non-farm productivity grew an astounding 9.5% in the third quarter, the largest since 2003. How did we get there? It wasn't just by increasing output -- that grew by 4%. The rest came by a 5% cut in the number of hours worked. This meant that unit labor costs fell by 5.2%. Workers made a little more (real wages up 0.2% in the quarter), but there is a great deal of investment happening that is lowering the use of labor. Equipment and software purchases were up in Q3, after cratering in the second half of 2008 and first half of 2009.

Note to Congress: If you make labor more costly relative to capital, you can expect capital to substitute for labor more.

UPDATE: Ed Morrissey asks via email whether this has any portent for unemployment? I think it does. The investment in equipment and software may be either of a deepening or broadening variety. If you are dumping many workers you can also cut your capital budget. But if that category turns around while you are still cutting workers -- the ADP projection for private sector payrolls is a loss of 203,000 jobs, above the consensus forecast of -175,000 overall jobs -- that would suggest capital deepening. I think this is what's driving increased productivity. This also means each new worker now comes with a higher "capital budget requirement", and between that and the payroll taxes contemplated under Pelosicare you probably have a greater drag on employment than otherwise contemplated.

While these data are for the third and tomorrow's report is for the first month of Q4, I am inclined to think we will see both a number closer to 200k for jobs lost. That might make the unemployment rate 10%.


Where your thinking happens 

Ben Casnocha gets this exactly right:
Even if you had "thinking time" on your calendar, what would you do during that time? Sit in a chair, stare straight ahead, and ponder the world?

...Driving is the most popular activity of this sort. Driving requires some level of attention, but you have plenty of cycles to think about other stuff, especially if you're driving a familiar route. "When Joan Didion moved from California to New York, Didion realized that she had done much of her thinking and mental writing during the long drives endogenous to the Californian lifestyle," Steve Dodson notes. I'm the same. I can't tell you how many emails and plans and conclusions I've come to while driving on the 101 or 280 freeways.

Reading is another activity that can be specifically scheduled and invites the kind of reflection and catch-up thinking that we need.
My calendar each morning -- never carried one before I was chair, now can't imagine how I lived without it -- begins with a coffee period, in which I talk to friends and colleagues here on campus or off, and a "correspondence" half-hour in which mostly I read. Somewhere in there I drive to campus. That period often finds me with headphones listening to Hewitt, Miller, Prager, or some Bloomberg. (That's pretty much all that's on my iPod Touch; EconTalk is an appointment I have to do sitting still.) And I do find that period some of my most productive of the day. I COULD teach early morning classes, but then I'd have to find some other way to schedule things that are conducive to thinking.

And that's the point -- thinking happens between the words of a book or paper you read, or while you sit in traffic, or ... ? Just as a good strategy in games or sports is to put yourself in a place where luck really helps you, a good strategy in business or academia is to put yourself in a place where the thought that pops in your head can be mulled over, chewed and digested. It's probably why a stick of dynamite (or an infestation of bad administrators) wouldn't get me out of academics.

Where does your thinking happen? What times of day? I'd love to hear this in comments.

Labels: ,

Wednesday, November 04, 2009

If you don't use price to ration, someone else may 

An unemployed Gatineau man has been doing a modest but steady business in the past week by standing in line at flu clinics for people who can�t line up themselves.

And he says the city�s security measures haven�t slowed him down.

For $15 an hour, the man who calls himself Johnny Z lines up for hours to get the ticket, or more recently the wristband, that entitles the wearer to a flu shot.

The person who hires him takes his wristband and comes to the clinic for a shot later in the day.
From Canada, hat tip to Tyler Cowen. I saw kids do this for World Series tickets for scalpers in Los Angeles many years ago (sorry, Angel and Dogder fans!) sometimes getting in line before midnight for a sale the following morning. The Canadian health system tried to switch from tickets to wristbands to restrict reselling, but Johnny's found a workaround for that.

All scarce goods get rationed somehow. Question: If you were Ontario police, would you arrest Johnny? Why or why not?

Labels: ,

Where does interest on reserves come from? 

The usually reliable Arnold Kling misses one, I think.

[Y]esterday I was trying to teach the consequences of paying interest on reserves to my bright high school students. They got, correctly, that paying interest on reserves lowers the money multiplier (it makes banks want to hold more reserves, which lowers the amount of lending they do for a given supply of reserves from the Fed) and is therefore contractionary.

But one student asked, "Doesn't paying interest on reserves increase the deficit, and isn't that expansionary?" My response was to say that this is correct...

But the Federal Reserve does not draw money from the Treasury to pay interest. It pays it out of its own earnings on its portfolio. Look at its (audited!) financial statements here, and see page 5. You'll see a line item for "depository institution deposits" under "interest expenses." The Fed remits the excess of its income less expenses to the Treasury (see the line "payments to U.S. Treasury as interest on Federal Reserve notes") which was in 2008 lower. But net interest income didn't change, so you would be hard pressed to say that paying interest increased the U.S. federal deficit.

Likewise would have been my response to increasing reserve requirements. However, I agree with Kling that the signal that would have created would have been potentially more damaging than paying interest on excess reserves. Doing the latter does, I think, increase the marginal cost of lending to the bank, and thus reduce loans. (Paying interest on required reserves, on the other hand, is just a pure transfer of income from the Fed to commercial banks.)

My thanks to my colleague Eric Hampton for thinking this through with me.

Labels: ,

Another "short" note to G&J 

Dear Dane,

Wow. Thanks for your explanation of your position on why you think Minnesota has tried the less government approach. I had no idea my short note would generate such leverage of your lengthy response! I was not aware of your support for reducing revenue cyclicality, and I thank you and Charlie for point that out. Good to hear we're on the same side there.

I hope you will continue your good humor while I point out two other things. You wrote:

Revenues as a percentage of income are largely a function of tax rates. The shrinkage came from major and permanent income tax rate cuts, then a refusal to significantly raise state tax rates or impose new state taxes during the immediately ensuing shortfalls. Contrary to your argument, tax policies did make a major difference and Gov. Pawlenty himself takes credit for his policies shrinking government when he preaches to his conservative base.

But we would also acknowledge that we would have had shortfalls even if we hadn't cut taxes, because the spending base would have been larger, and downturns always create shortages. That's a point you could have raised, but didn't. So give us points for fairness and good faith.

Points given, but you are in essence begging my question. We can split this in two parts: First, what would have been the revenue generated by the old tax rates (whose, by the way? Ventura's? Carlson's? Perpich's?) if we assume no change in the tax base in response to those rates? That's pretty simple, you can throw that up on a spreadsheet and see who salutes. I don't have the resources (mainly time) to do that right now, but it would be useful. Second, let's relax the assumption and ask what would happen to the tax base if we had higher individual and corporate income taxes? What would happen if we did that and used some part for property tax relief? That's not a number crunch: It's a question of modeling family and business behavior (location, spousal participation and effort, to name three) in response to different tax rates.

There is, unsurprisingly, a great deal of research in that area, some suggesting that it's not a big change, others saying it does make a good deal of difference. Austan Goolsbee, now an Obama adviser, acknowledges that a higher corporate tax rate (holding individual income rates constant) shifts the form of business organization away from incorporation. But he doesn't find it affects overall economic activity. That might be a point in your favor or mine, I don't know. But it would be worthy of another of those hands across the water things you and I like to do.

On your other point, the growth of Minnesota is in fact still impressive, but we can get diminishing returns. We know from economics that growing countries or states tend to converge: Those with lower per capita GDP will tend to grow faster and catch up to those with higher per capita GDP. We also know that it's conditional, but for the several states of our country those conditions should be met. As states begin to receive information created elsewhere they grow faster for awhile, but then slow down. Minnesota and California have converged dramatically, partly because of good policies here and bad policies there, and partly because convergence just happens. It just seems very unlikely that we can grow faster than the rest of the country forever, and efforts to keep us growing faster may be counterproductive. Even investments in human capital hit diminishing returns, as Alwyn Young found for developing Asia in the 1990s.

Always a pleasure to chat, Dane. And thanks for your compliment on the name. 'King' is actually a family name on my mom's side; coolness was never part of the process.

Labels: ,

Graphs that make you go hmmmm 

I do a number of local talks in town, usually a couple per month, but for some reason I hadn't done any big ones in the last six weeks. So when I was prepping for this morning's talk to the collected Rotaries of the area, I had to put some new slides together. Whenever I do this, there's one that tells me something I did not realize before. The one above is this months thing-I-didn't-know-before.

This is real personal income, removing all of the effects of transfer payment changes. We talked about this last year when I saw that, except for the 2008 Bush-Pelosi rebate checks, we had a slight decline in real personal income. In 2009, that number goes off the cliff. You'll note that this is one of the components we use in calculating coincident indicators, and it's a measure used by NBER in determining the business cycle peaks and troughs. (They use a monthly series -- I'm using a quarterly one from last week's GDP report.)

What really grabbed me was the technical note that came with the report:
During each of the second and third quarters, the Making Work Pay Credit provision lowered personal taxes and raised disposable personal income about $50 billion (annual rate). During the second quarter, ARRA provided payments of $250 to beneficiaries of social security and other programs that raised disposable personal income about $55 billion. ARRA also provided special government social benefits for unemployment assistance, for student aid, and for nutritional assistance; these special benefits raised disposable income about $49 billion in the third quarter and about $35 billion in the second quarter. ARRA also funded current grants (such as Medicaid) and capital grants (such as highway construction) to state and local governments of about $75 billion in the third quarter and $85 billion in the second quarter.
How much of our third quarter GDP growth is due to this stimulus? Maybe more than we think. But how long will it last? Harder question. What I know is that after looking at this graph, I have a harder time finding the trough of the current recession. Both income and employment declining? I know monthly GDP turned positive in July (only 2 months of data so far), and I know there are revisions to the data forthcoming. So I could be wrong, but I need more evidence before I start thinking the national economy reversed.

UPDATE: Looking at James Hamilton, I see he has the monthly disposable personal income graph. But that has all those transfers, like the $250 checks to seniors, included in it and I think that view is distorting the underlying trend. Look at page 6 of the monthly income and consmption data report (published last Friday.) I'm looking at the line labeled "Personal income excluding current transfer receipts, billions of chained (2005) dollars" -- it's the last boldfaced line at the bottom of that page. That pulls out the effects of the stimulus. If the economy was getting better, wouldn't that number be rising? Or am I just asking for too much?

Labels: ,

Tuesday, November 03, 2009

The right to wait in a long line 

The title is the most salient thing I got from this video. You can give people a right, but short of a government supervising and forcing patients to be seen by conscription at specified intervals -- a practice unknown in any country I know of, please offer counterexamples if you should have them -- all this does is replace the price with a queue.

Labels: ,

Monday, November 02, 2009

Media alert 

Due to flu of the regular host Don, I will be substituting the rest of this week on the KNSI Morning Show (except Wednesday, when I will be at the all-city Rotary speaking to a morning meeting.) No podcasts, but streaming audio is available.


One crisis, many stories 

I greatly enjoyed my visit last Friday to the Minnesota Economics Association. I had gone a few times years ago and thought it was a bit too erudite and the format like a set of seminars. This year had two panels and two papers.

I was on one of the panels, discussing fiscal policy. Those who know me and the other economists on the panel probably expected a few sparks based on politics, but there was very little disagreement. In short, the fiscal policy stance of the current administration is untenable. I didn't use but wanted to "Stein's Law": things that can't go on forever, don't. (That's Krugman's version, and I like it.) What I was speaking about was the effect internationally, and I played off two countries, China and Armenia, that I visited in the last six months.

The effects are very different. While China continues to grow with a very small pause earlier this year, the Armenian economy is getting whacked hard. There may be perhaps a 17% decline in GDP, and jobs are scarce. Some of it is brought on themselves by a construction boom, but it's not like they had subprime mortgages there. And as the U.S. fiscal policy stance pushes interest rates higher elsewhere in the world, what happens to their capital formation rates?

Labels: ,

But I have a right! 

Philip Greenspun:
Health insurance is a basic human right ... which is why Congress proposes to leave 18 million people still uninsured in the year 2019 (source). I�m getting more and more confused by our politicians. A lot of them have offered beautiful speeches about how it is both a tragedy and a violation of basic human rights for a person to live in the U.S. without health insurance. At present, millions of Americans are not customers of health insurance companies. After the proposed $1 trillion health care reform has had six years to work, we�ll be left with� millions of Americans who have no insurance. If this is indeed a moral issue, how can it be moral to leave millions in the same supposedly inhuman situation that they�re in right now?
I am trying to remember who said this first -- maybe it was Philip Howard? -- but you get in arguments with people about costs and benefits and what should be paid for by whom, and then someone stands up and says "but this is a right." And argument stops, because if something is a right you can't demand that it be limited by feasibility or cost-benefit studies. It just ends debate.

And while they end debate, they add 111 new bureaucracies.

Labels: , ,

Anyone seen Atomizer? 

Buried in the article on reopening of runway 12L/30R at MSP airport this weekend we find this nugget.

The runway project especially affected such St. Paul neighborhoods as Highland Park, Mac-Groveland and Summit Hill, which are in the flight path of a secondary runway that's typically not heavily used.

A year ago, St. Paul residents filed 10 aircraft noise complaints in September. This September, there were 2,474 complaints from St. Paul, including more than 1,000 from one person.

Did he collect them all in one email, or did he call a hotline one thousand times? This was the end of the article, and I cannot tell you how disappointed I was to see it end. Who is this guy? What motivated the 1000 calls? Where does he live relative to the flight path?

I want an accounting from Fraters tout suite.

Labels: , ,