Compassionate conservatism

Local Republican, Larry Brown, for whom idiocy is a life-style choice, joins the Death Panel caucus

State Rep. Larry Brown said during a discussion of his legislative goals for the year that the government should not spend money to treat adults with HIV or AIDS who "caused it by the way they live."

Coble against sensible, bipartisan energy standards

The local News & Record reports that Congressman Howard Coble wants to repeal part of the bipartisan energy package that was signed by that old lefty, President Bush, in 2007.

U.S. Rep. Howard Coble is among those urging colleagues in Congress to turn off the lights on a controversial provision of the 2007 energy bill.

The Greensboro Republican is a co-sponsor of a bill to repeal what some refer to — erroneously — as the incandescent bulb ban. Texas Reps. Joe Barton and Michael Burgess and Marsha Blackburn of Tennessee, all Republicans, were the original sponsors of the repeal measure.

The part of the legislation in question raises the efficiency standards for light bulbs by 25 to 30 percent starting in 2012 and further in 2020. The new standards will lower utility bills for consumers, reduce electricity consumption, and reduce pollution, including greenhouse gas emissions.

Shortly after the legislation was enacted, the nonpartisan Congressional Research Service (CRS) estimated that energy-efficient replacements for the now-standard 100-watt incandescent bulb were substantially cheaper when evaluated over the lifetime of the bulb. Although the replacements have higher up-front costs, they cost less to operate and last longer than 100-watt incandescent bulbs. The CRS calculated that the extra up-front cost of an equivalent 70-watt Halogen light used five hours a day at an electricity cost of 10 cents per kilowatt hour would be recovered in four to seven months. A compact fluorescent light (CFL) bulb would recover its extra up-front cost in two to seven months. Thus, the new bulbs are cost-effective.

The bulbs also offer substantial environmental advantages. The CRS report states, "By one projection, the new standards will cumulatively save more than $40 billion on electricity costs and offset about 750 million metric tons of carbon emissions by the year 2030."

What then is the Congressman's objection? The N&R article quotes Rep. Coble as stating it "ought to be a personal decision rather than being an edict from on high."

There's a childish, spiteful "don't tell me what to do even if it's good for me" element to Coble's answer. You can imagine him throwing a similar tantrum when he's served his favorite tapioca pudding without being asked.

"But Howard, tapioca is your favorite."

"Not if you tell me that it is, dammit!"

Rep. Coble's tantrums aside, there is still the question of why a regulation would be needed in the first place if the energy efficient replacements are really such a good deal.

One answer is that consumers may not take the full personal costs and benefits of the bulbs into account when they make their purchases. Consumers see the up-front cost, which is tangible and tied directly to the purchase, but may overlook the operating costs, which will show up in future utility bills and never be tied directly to the bulb. This problem is especially likely to occur in small purchases, where people are more likely to rely on intuition and simple rules of thumb, than in larger purchases.

Another issue, raised by Richard Thaler and Cass Suntein, in their book, Nudge, is that there can be irrational inertia in human behavior. People tend to value losses more strongly than gains (loss aversion); they also exhibit "status quo bias," more readily choosing the old and familiar over the new and different. Again, these biases would lead people away from energy-efficient purchases.

Yet another issue is that to the extent that they do consider costs and benefits, people only consider the costs and benefits that they would personally face. The broader costs of pollution and energy dependence are externalities, which aren't considered in purchase decisions.

The regulation in this case is a relatively modest one. It sets a performance standard but does not dictate that a particular technology be adopted. There are several alternatives to current incandescent bulbs and technological improvements are likely to lead to even more alternatives, including incandescent alternatives. However, the regulation is likely to be very beneficial.

Okay Rep. King, but what about the rest of us?

In the wake of the murderous shooting rampage in Tucson, Rep. Peter King, the Republican chair of the House Homeland Security Committee intends to submit "legislation which would make it a federal crime to carry a weapon within 1,000 feet of any event which is attended by the President, the Vice President, members of the Senate, members of the House of Representatives, Cabinet officials, including the CIA director as well as federal judges."

As the Church Lady would say, "how convenient." The legislation might protect you if you're a federal official or meeting with one, but how about the rest of us that might end up the targets of one of these nuts at a Luby's, a McDonalds, an immigration center, a financial office, a beer distributor, or a university.

King insists that his legislation is not so much about protecting officials but more about protecting people who attend events with the officials. However, aren't these other public places equally or possibly even more dangerous?

The mass-murder in Tucson was tragic, but not just because a congressperson and federal judge were victims.

If Rep. King is serious, he might consider legislation to require renewable licenses to carry weapons, to strengthen background checks required to purchase firearms in the first place, and to re-impose the ban on extended ammunition clips that Congress let lapse.

More on the sanitized Constitution

Dahlia Lithwick at Slate offers a comprehensive analysis of the Republicans' selective reading of the Constitution and concludes that it was a "whitewash."

With their "unique" reading of the Constitution and rejection of the nonpartisan Congressional Budget Office, the Republicans appear to have decided that they are an authority unto themselves.

The just-say-no gang that couldn't shoot straight

The new House leadership must be glad that today is over after an embarrassing and gaffe-filled session.

Some of the embarrassment came from a new CBO estimate that the 10-year cost of repealing health care reform will total a whopping $230 billion. Republicans, who had initially held up votes on enacting the reforms so that the CBO could score it and who touted the CBO estimates at the time, have now turned to attacking the CBO. Said Rep. Boehner, the "CBO is entitled to their opinion." At the same time, the leadership must see some credibility in the CBO numbers, because they have written rules that explicitly exempt HR 2 from their pledge not to enact legislation that would add to the deficit.

Speaking of that Rules Committee, it turns out that someone who wasn't formally a member of Congress presided over parts of its meeting. Representatives Pete Sessions and Mike Fitzpatrick were so busy attending what may have been an illegal fund-raiser elsewhere in the Capitol, that they never made it to the floor of the House yesterday to be sworn in. From The Hill

The two Republicans missed the official swearing-in ceremony on the House floor Wednesday because they were attending a separate event for Fitzpatrick elsewhere in the Capitol.

The snafu sent Republican leaders scrambling Thursday afternoon because Sessions and Fitzpatrick had already recorded votes on the House floor and Sessions had even chaired the Rules Committee for a period during a hearing on the healthcare repeal bill. Sessions and Fitzpatrick were spotted huddling with staff off the House floor shortly after a vote on congressional budget cuts.

...A Web site promoting his (Rep. Fitzpatrick's) event in the Capitol Visitor’s Center said it cost $30 per person, but fundraisers are not permitted in the Capitol complex. The event was billed as "Mike Fitzpatrick's swearing in celebration."

Although a Fitzpatrick spokesman denies it was a fundraiser, the web site advertising the event describes the payments as "donations" and "contributions." It looks like an ethics hearing might soon be needed.

Speaker Boehner spent much of his first major press conference backtracking on pledges. With respect to his "open rules" pledge, the Hill quotes him saying, "I promised a more open process. I did not promise that every single bill would be an open bill." Rep. Boehner later danced around the Republicans' pledge to cut $100 billion in spending during the coming year.

The Party of No couldn't even read the Constitution without mucking it up. First, they read a sanitized version that dropped all the nasty bits with references to slavery and blacks being three-fifths of a person. So much for celebrating the framers' intent. Next, they managed to skip reading two sections.

What will tomorrow bring?

Open rules

The new Speaker of the House, Rep. John Boehner, opened the new session of Congress with the following pledge.

To my colleagues in the majority, my message is this: we will honor our Pledge to America, built through a process of listening to the people, and we will stand firm on the Constitutional principles that built our party, and built a nation. We will do these things, however, in a manner that restores and respects the time-honored right of the minority to an honest debate and a fair, open process.

To my friends in the minority, I offer a commitment. Openness – once a tradition of this institution, but increasingly scarce in recent decades, will be the new standard. There were no open rules in the House in the last Congress. In this one, there will be many. With this restored openness, however, will come a restored responsibility. You will not have the right to willfully disrupt the proceedings of the People's House. But you will always have the right to a robust debate in open process that allows you to represent your constituents. . .to make your case, offer alternatives, and be heard.

"Open rules" for debate refer to the ability to offer amendments to legislation from the floor of the House. Sen. Addison Mitchell McConnell, Jr., the Republican leader in the Senate has also called for more leeway to offer amendments.

We'll soon see whether the Republican leadership will actually stand by these words. The House is scheduled to debate and vote on a resolution to repeal the Affordable Care Act next Friday. Democrats want to offer amendments to the resolution. However, the Republican Majority Leader, Rep. Eric Cantor, has indicated that amendments won't be allowed.

Republicans have already exempted the resolution from their own rules regarding legislation to not add to the deficit. The nonpartisan Congressional Budget Office estimates that repeal will add $143 billion to the national debt over the next 10 years.

It looks like their "open rules" pledge will also fall by the wayside.

Party of No Lawmakers: Better thee than me

The New York Times reports that Republican budget cutting is about to begin in earnest.

The incoming Republican majority in the House is moving to make good on its promise to cut $100 billion from domestic spending this year, a goal eagerly backed by conservatives but one carrying substantial political and economic risks.

House Republican leaders are so far not specifying which programs would bear the brunt of budget cutting, only what would escape it: spending for the military, domestic security and veterans.

The reductions that would be required in the remaining federal programs, including education and transportation, would be so deep — roughly 20 percent on average — that Senate Republicans have not joined the $100 billion pledge that House Republicans, led by the incoming speaker, Representative John A. Boehner, made to voters before November’s midterm elections.

Hmm, so 20 percent cuts in discretionary spending are necessary for the Republicans to keep their promise.

Let's then look at one of the Republicans' first scheduled votes, concerning the operation of Congress itself. Will Republican lawmakers hold themselves to the same 20 percent standard as other parts of the government? Not even close.

The Hill reports

The House will vote Thursday on a resolution cutting House office expenses by 5 percent, one day after Republicans take over the chamber.

The GOP estimates that the budget cuts will save $35.2 million in 2011, according to a House aide. The resolution, sponsored by Rep. Greg Walden (R-Ore.), will cut salaries and expenses at personal and leadership offices by 5 percent, according to a copy of the proposed legislation.

The resolution would be effective for the next two years. Cuts to leadership offices save $1 million; committee reductions save $8.1 million; and cuts to members' office budgets save $26.1 million.

It's not as if there aren't some discretionary and wasteful Congressional activities to cut, what with the Party of No staging a go-nowhere vote against health reform and lining up lots of investigative hearings.

If Republicans were the least bit serious about the budget, they would find the discipline to cut their own budgets by 20 percent.

Jobless milestone

The economic recovery just passed a significant threshold. Bloomberg reports

Claims for jobless benefits dropped last week to the lowest level in two years, showing the U.S. labor market is taking a turn for the better as the economy accelerates into 2011.

Applications for unemployment assistance decreased by 34,000 to 388,000 in the week ended Dec. 25, breaking the 400,000 level for the first time since July 2008, according to Labor Department figures today in Washington.

The weekly jobless figure is notoriously volatile; the week leading up to Christmas is far from typical, and the figure could subsequently be revised upward.

Nevertheless, a number below 400,000 is significant because it is generally seen as indicating an expanding labor market. The figure is also consistent with a general downward trend over the last few months.

The UI claims figures were also accompanied by other positive news. Bloomberg is also reporting

Businesses in the U.S. expanded in December at the fastest pace in two decades, adding to evidence the world’s largest economy is accelerating heading into 2011.

The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988. Figures greater than 50 signal expansion.

While these are positive developments for most of us, the good news isn't shared by all, especially the 27 percent of "patriotic" Americans (61 percent of Republicans) who hope President Obama's policies will fail.

Financial and moral bankruptcy

In the New York Times Economix blog, Simon Johnson glummly assesses Europe's financial prospects over the next few months as countries reach deadlines to roll over their debts.

He outlines some painful steps for the European Union, including greater fiscal integration, more intervention by the European Central Bank in core countries, but a casting off of some weaker countries. Although the steps are painful, Johnson concludes that

At the end of the day, the Europeans will save themselves, with the measures outlined above, only because there will be no other way to avoid wasting 60 years of political unification.

Although the U.S. faces some similar pressures, Johnson is less sanguine about our ability to solve our problems.

Our leading bankers looted the state, plunged the world into deep recession and cost the United States eight million jobs. Now many of them stand by with sharpened knives and enhanced bonuses – willing to suggest how the salaries and jobs of others can be further cut. Consider the morality of that.

Will no one think hard about what this means for our budget and our political system until it is too late?

Alfred Kahn, 1917-2010

Occasionally, the economics profession contributes a hero to society. Alfred Kahn, who led the effort to deregulate the airline industry in the late 1970s and who had a long, productive and admirable career at Cornell University, was one of those heroes.

Bloomberg reports the sad news of his passing.

Kahn's principal legacy was a much more (though not perfectly) competitive airline industry and the lower fares, greater choice, and yes, greater uncertainty that brought.

Party of No Senators say "Yes" to Medicare Fraud

Bipartisan legislation that would have strengthened the protections against Medicare fraud was quietly shot down this week by Republican senators who placed an anonymous hold on the legislation.

The Hill reports

The bill makes it harder for executives at companies that have defrauded Medicare to continue doing so. It also seeks to prevent companies from setting up shell companies to insulate themselves from liability.

The bill passed the House by voice vote but died in the Senate this week after anonymous Republicans placed a hold on the legislation.

Or as the bill's sponsor, Rep. Pete Stark, told The Hill, "Fraudsters and crooks who bilk millions out of Medicare just received a Christmas present courtesy of anonymous Republican Senators."

The Republicans' cowardly, under-the-table actions show that their primary goal is to serve business interests, even if those interests defraud the rest of us.

Early holiday vacation for Rep. Coble

Our local man, not-in-Washington, Rep. Howard Coble decided to treat himself to an early holiday vacation and to skip several votes over the last few days. Rep. Coble stayed around just long enough on Friday to vote against help for people facing foreclosure and has subsequently been AWOL for votes on

• The Reduction of Lead in Drinking Water Act (vote 656, Dec. 17),
• The Defense Level Playing Field Act (vote 658, Dec. 21),
• The FDA Food Safety Modernization Act (vote 661, Dec. 21),
• A military appropriations bill (vote 662, Dec. 21),
• The Protecting Students from Sexual and Violent Predators Act (vote 663, Dec. 21), and
• the other three votes taken on Dec. 21.

Perhaps Rep. Coble is changing his affiliation from the Party of No to the Party of Not Present.

Update (12/23/2010): Rep. Coble also skipped out on yesterday's vote to compensate and fund health care for 9/11 responders.

FCIC Republicans: the only villian is the government

Republicans on the "bipartisan" Financial Crisis Inquiry Commission (FCIC), which was established by Congress and the President to "examine the causes, domestic and global, of the current financial and economic crisis in the United States," have distributed a pre-buttal to the commission's anticipated report.

The pre-buttal lays the blame for the crisis squarely at the feet of the government, which (p. 2) "was following a social policy in addition to an investment policy" and "pushed investors toward investing in mortgage debt." Or as the report states on page 3

Through the GSEs, FHA loans, VA loans, the Federal Home Loan Banks, and the Community Reinvestment Act, among other programs, the government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system.

The crisis was also spurred by a loss of confidence, which "exploded into a generalized market panic." The panic was precipitated by, but distinct from "mortgage losses." This is a reprise of John McCain's famous assertion in the midst of the market meltdown that "the fundamentals of our economy are strong" (the parallels shouldn't be too surprising given the McCain's principal economic advisor, Douglas Holtz-Eakin, was one of the pre-buttal's authors).

What was the role of the housing bubble? It was merely an "interrelated event" and not "a sufficient condition for the financial crisis."

Maybe the big banks come in for some blame? Nope, their "primary role ... was that of financial intermediary, providing a link between those who wished to invest in mortgages and those who wanted to take out a mortgage to buy a home."

How about the ratings agencies? They made "mistakes" and did not "appreciate" the risks of declining home prices. The report does allow that "their ratings on MBS (mortgage-backed securities" proved to be severely inflated," but notice the passive voice. The report gives an example of a security with a marginal rating but never mentions the AAA ratings that the agencies bestowed on many securities or how those agencies allowed issuers to make minor modifications to otherwise unsuitable securities to obtain a AAA rating (sort of like a health inspector allowing a restaurant to clean up just enough filth to stay open).

The report also doesn't mention the critical, knife-edge role that AAA-rated securities played.

Fraud and shoddy underwriting in originating the mortgages? The words "fraud" and "underwriting" do not appear in the body of the report ("fraud" is on the front page but only in the title of the enabling legislation), and the word "originators" only appears three times and then only in the context of a "system (that) had worked this way for decades, and worked well."

While underwriting goes unmentioned, the report does include the term "lending standards." But who, exactly, lowered lending standards? The government.

Farther removed from the mortgages, how about the synthetic derivatives (essentially, side bets that referenced but did not include an actual stake in the mortgage-backed securities)--surely, these had some role in over-leveraging the market? Not according to the report, which omits any mention of these.

A report on the financial crisis that omits the words, "Wall Street," "fraud," "underwriting," "collusion," and "derivatives" and that overlooks Wall Street's view of most clients as "suckers" isn't worth the paper it's written on.

FIFA's advice to the LGBT fans -- "refrain from sexual activites"

Members of the LGBT community will have to think twice before attending the 2022 World Cup in Qatar. As the U.S. State Department travel page on Qatar warns

Homosexual activity is considered to be a criminal offense, and those convicted may be sentenced to lashings, a prison sentence, and/or deportation.

Regrettably, Sepp Blatter, the president of FIFA, thinks this is a laughing matter.

FIFA president Sepp Blatter was unable to keep a straight face when asked at a press conference in South Africa what to advise gay people who hope to go to the Arab emirate.

The mainly Muslim country, which will host the tournament for the first time, forbids same-sex relationships by law.

"I would say that they should refrain from sexual activities," Blatter answered on Monday, after a long pause.

Hey, at least Blatter refrained from telling LGBT fans to go f### themselves--perhaps because that activity is illegal in Qatar.

FIFA's Code of Ethics has no prohibition against discrimination on the basis of sexual orientation. There's a similar blind spot in its choice of World Cup hosts.

Big bank collusion in the derivatives market

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.

Adam Smith, The Wealth of Nations, 1776

Adam Smith warned the world about collusion more than two centuries ago. More recently, shady, inside, nontransparent dealing in derivatives contributed to a financial meltdown and the deepest recession since the 1930s. And yet, we continue to allow the too-big-to-fail banks to collude in the derivatives market.

The New York Times reports

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

To be clear, the issue isn't derivatives themselves. When traded fairly, derivatives serve an important function in financial markets, allowing firms and investors to diversify and hedge risks. Rather, the problem is how the market is operated.

At a minimum, the lack of transparency and lack of competition lead fees to be higher than they need to be. In essence, it's hard to get a good deal because buyers can't see the other deals that are out there. As the article explains

It would be like a real estate agent selling a house, but the buyer knowing only what he paid and the seller knowing only what he received. The agent would pocket the difference as his fee, rather than disclose it. Moreover, only the real estate agent — and neither buyer nor seller — would have easy access to the prices paid recently for other homes on the same block.

The profits of the colluding banksters soar but at the expense of firms and investors who buy the products.

The clearing house also gives the participating banks a tremendous and unfair information advantage. Banks start with an information advantage from assembling the derivatives. The same way that a used-car salesman has inside information about a lemon he may be trying to offload; the banks often have inside information about the securities that make up the derivative (Goldman Sachs' scandalous participation in the ABACUS CDO is but one example).

And there are other information advantages. The clearinghouse allows participating banks to see how the overall market is trending, while investors are left largely in the dark.

If banks were always neutral market makers, these information asymmetries might matter less, but the investment banks are also often parties to these transactions, trading from their own accounts or using derivatives to offload their own risks.

The clearinghouses should, in principle, be advantageous by increasing the information in the market. However, these advantages only obtain if the clearinghouses are open to all qualified institutions and if the resulting information is shared with all market participants.

Tea Party goes K Street

The Party of No, Obstruct and Delay has adopted a new Delaying tactic--Tom Delay's tactic of climbing in bed with Washington's K Street.

During his campaign to represent Wisconsin in the U.S. Senate, GOP nominee Ron Johnson accused Democratic incumbent Russell Feingold (D) of being "on the side of special interests and lobbyists."

...But after defeating Feingold, Johnson himself has turned to K Street for help - hiring homeland security lobbyist Donald H. Kent Jr. as his chief of staff.

Johnson is not alone: Many incoming GOP lawmakers have hired registered lobbyists as senior aides. Several of the candidates won with strong support from the anti-establishment tea party movement.

...In addition to Johnson, Sen.-elect Mike Lee (Utah) has announced that energy lobbyist Spencer Stokes will be his chief of staff. Tea party favorite Rand Paul (Ky.) has hired anti-union lobbyist Douglas Stafford as his top senatorial aide.

In the House, Rep.-elect Charlie Bass (N.H.) has named food industry lobbyist John W. Billings as his chief of staff. Billings was a senior aide to Bass during an earlier stint on Capitol Hill.

Sen.-elect Chip Cravaack (Minn.) has hired former U.S. senator and former lobbyist Rod Grams as his interim chief of staff, though aides have said the posting is probably not permanent. Grams's lobbying clients from 2002 to 2006 included 3M, Norfolk Southern and the Financial Services Roundtable, records show.

Other incoming GOP lawmakers who have recruited staff from K Street include Robert Dold (Ill.), Steve Pearce (N.M.) and Jeff Denham (Calif.). John Goodwin of the National Rifle Association, one of Washington's most powerful lobbying groups, has signed on as chief of staff for Rep.-elect Raul Labrador (Idaho).

The staff choices are as fitting as they are discomforting. Many of the Tea Party candidates owe their electoral victories to corporate and special interest money.

Now the paymasters are claiming their seats at the table.

Meet the new boss, same as the old boss

Think things are going to be different in Washington now that the Tea Partiers have come to town. Think again.

After Francisco "Quico" Canseco beat Rep. Ciro Rodriguez (D-Tex.) as part of the Republican wave on Nov. 2, the tea party favorite declared: "It's going to be a new day in Washington."

Two weeks later, Canseco was in the heart of Washington for a $1,000-a-head fundraiser at the Capitol Hill Club. The event--hosted by Reps. Pete Sessions (R-Tex.) and Jeb Hensarling (R-Tex.)--was aimed at paying off more than $1.1 million in campaign debts racked up by Canseco, much of it from his own pocket.

After winning election with an anti-Washington battle cry, Canseco and other incoming Republican freshmen have rapidly embraced the capital's culture of big-money fundraisers, according to new campaign-finance reports and other records.

Especially poignant is a Republican fundraising consultant who explains

"These guys ran against Washington, but they ran against the bad parts of Washington--the bloated bureaucracy and Nancy Pelosi's agenda," he said. "That's not a contradiction to take money from a trade group or corporation that represents free-enterprise principles."

Actually, it sounds like the bad parts of Washington are doing what they've always done.

Fable of the bad gifts

This semester brought a refreshing change in teaching assignments. Instead of the usual technique-heavy graduate fare, I had the opportunity to teach a freshman seminar on "Markets and Morality" (I'll pause a moment while Bubba, Joe Guarino, Pino, and Tony Wilkins clean up the coffee they just snorted onto their computers).

...

Okay, are we all back?

Anyway, one of the more challenging assignments from the class was an analysis and discussion of Bernard Mandeville's poem, the "The Grumbling Hive," from his book The Fable of the Bees or Private Vices, Publick Benefits.

In "The Grumbling Hive," Mandeville, an early 18th century essayist and provocateur, describes a colony of bees whose many vices actually contributed to the overall prosperity of the hive.

Thus every Part was full of Vice,
Yet the whole Mass a Paradise;
Flatter’d in Peace, and fear’d in Wars,
They were th’ Esteem of Foreigners,
And lavish of their Wealth and Lives,
The Balance of all other Hives.
Such were the Blessings of that State;
Their Crimes conspir’d to make them Great:
And Virtue, who from Politicks
Had learn’d a Thousand Cunning Tricks,
Was, by their happy Influence,
Made Friends with Vice: And ever since,
The worst of all the Multitude
Did something for the Common Good.

The bees, recognizing only the vices and none of the public benefits, pray for and are granted virtue. However, many jobs and incomes depended on the bees' wasteful and dishonest activities. When vice disappears, the demand for goods shrinks, and soon after, the hive collapses, leading Mandeville to conclude

Then leave Complaints: Fools only strive
To make a Great an Honest Hive
T’ enjoy the World’s Conveniencies,
Be fam’d in War, yet live in Ease,
Without great Vices, is a vain
Eutopia seated in the Brain.
Fraud, Luxury and Pride must live,
While we the Benefits receive:
Hunger’s a dreadful Plague, no doubt,
Yet who digests or thrives without?
Do we not owe the Growth of Wine
To the dry shabby crooked Vine?
Which, while its Shoots neglected stood,
Chok’d other Plants, and ran to Wood;
But blest us with its noble Fruit,
As soon as it was ty’d and cut:
So Vice is beneficial found,
When it’s by Justice lopt and bound;
Nay, where the People would be great,
As necessary to the State,
As Hunger is to make ’em eat.
Bare Virtue can’t make Nations live
In Splendor; they, that would revive
A Golden Age, must be as free,
For Acorns, as for Honesty.

Mandeville's insight was that in a decentralized society, vice could be a source of demand. When coupled with possibilities for trade, this demand (despite its corrupt underpinnings) motivated supply, which then led to prosperity. Some years later, Adam Smith formalized this lesson when he described in The Wealth of Nations how the "invisible hand" of the decentralized marketplace transformed individual greed and self-interest into social well-being.

For the class, students were asked whether Mandeville's thesis had any relevance for today. The students were pretty sharp, and most recognized how the parable related to a market economy and thus to modern society (I tried not to get too discouraged over the remaining few who wrote that Mandeville's analysis was irrelevant because we hadn't become bees).

This morning, however, Slate's Timothy Noah provides a more direct application of Mandeville in our times as he extols wasteful gift-giving.

Economists never tire of pointing out that gift-giving is economically wasteful. The ur-text is O. Henry's famous short story "The Gift of the Magi." Della cuts off her silky tresses to buy husband Jim a platinum fob for his gold watch. Jim sells his gold watch to buy wife Della tortoise-shell combs to groom her silky tresses. Merry Christmas! Even if Della hadn't cut off her hair, economic theory would demand to know why, if Della really wanted the combs, she wouldn't already have bought them. Or why, if Jim really wanted to replace his worn leather watch strap, he wouldn't already have done so.

But let's consider an alternative interpretation. Yes, Christmas gift-giving will visit upon Della and Jim heartbreak and economic waste. But upon the altar of their sacrifice they create economic stimulus. Jim and Della suffer that the rest of us may prosper. Long live inefficiency!

...In a weak economy, Americans don't have the luxury of worrying whether their spending patterns are efficient; they just want to see somebody spending money, period. Nor (despite the sudden vogue for deficit reduction) do they really want to spend much time worrying about debt. Efficiency and debt are both important considerations, but not while unemployment remains close to 10 percent.

Noah criticizes economists for their obsession with efficiency, most notably Joel Waldfogel's yule-tide chestnut about the deadweight loss of gift-giving. However, Noah also reaches back further, writing

Many, many years ago, economists used to worry that people's economic wants far exceeded their economic needs. These wants were judged the creation of evil advertising executives on Madison Avenue. Advertisers, John Kenneth Galbraith famously observed in his Mad Men-era book The Affluent Society, "bring into being wants that previously did not exist."

If Noah had reached back another 200 or so years (or sat in on the seminar), he would have found that economic thinkers once held a much more accommodating view of people's wants and of inefficiency.

No, no, no

Like a broken record (or an old Ringo Starr song), the Republicans continue with no, no, no.

This is leading some of them to go to great lengths to distinguish their no's from others.

However, every once in a while, you'll hear a yes.

Phony frugality

Extended unemployment insurance benefits have once again expired due to Republicans' phony concerns regarding the deficit. Bloomberg reports

Thousands of Americans are set to begin losing unemployment benefits after Congress failed to agree on extending aid to the long-term unemployed.

In a replay of a dispute earlier this year, lawmakers are deadlocked over how to finance an extension even as the aid starts to lapse. Democrats yesterday offered to extend benefits for a year, with the $56 billion cost financed with borrowed money.

Republicans balked, demanding the extension be offset with savings elsewhere in the government’s budget.

Republicans express no such concerns regarding the budget-busting $700 billion tax cut for America's richest 1/20th of households. There's no cry that those revenue losses be plugged. They're even willing to hold all other legislation, including tax cuts for the other 19/20ths of households and ratification of the revised START treaty hostage.

It wasn't that long ago that extended assistance to the jobless was routinely granted in recessions and that helping luckless people who had histories of work had bipartisan support. Not so much anymore.

With the unemployment rate still near 10 percent, with just over 40 percent of unemployment spells lasting more than six months, and with state unemployment funds being tapped out because of the length and depth of the recession, an extension is more than warranted. However, what's a little more immiseration when tax cuts for the rich are at stake.