Saturday, December 29, 2007

Setting a horrible example

It's astonishing how low some people will stoop.

The following heart-tugging essay won a six-year-old girl from Texas four tickets to a Hannah Montana concert along with airfare and a makeover.

My daddy died this year in Iraq. I am going to give mommy the Angel pendant that daddy put on mommy when she was having me. I had it in my jewelry box since that day. I love my mommy.

The only problem with the essay was that it was a fabrication. As the girl's mother helpfully explained,"We did the essay and that's what we did to win...We did whatever we could do to win."

Every element of this story is disgusting, beginning with the mother entering a six-year-old into a contest to receive a makeover, moving on to the falsified essay, and then lying about the child's father being killed in Iraq. You have to feel most sorry for the little girl who was led into this fraud and who is still living with a parent with such a skewed moral compass.

The contest sponsors have withdrawn the prize. However, that does not even begin to address the harm that this fraud has caused. Fitting compensation would be to require the mother to hand-write apologies to the families of each of the nearly 4,000 service people who have perished in Iraq and whose cherished memories she has traded on.

Friday, December 21, 2007

President Bush gets two presents, our kids get the bill

This week Congress wrapped up the year by passing several major budget bills. One bill gave the President an additional $70 billion to continue trying to unbungle the Iraq war over the next six months. Another bill temporarily adjusted the Alternative Minimum Tax (AMT) so that it won't reach so far down into the upper middle-class. Two disparate pieces of legislation, but at President Bush's and the Republicans' insistence they had one important thing in common--neither was accompanied by any offsetting revenue adjustments.

As mentioned, the war spending bill (calling it a war funding bill would be something of a misnomer) will add $70 billion to the national debt between now and next May. The one-year AMT patch will add a further $50 billion to the debt. With two strokes of the pen, the debt--which was already projected to grow this year--will balloon by $120 billion.

The national debt currently stands at about $9 trillion. If we divide that equally across the population of the U.S., the share owed by a household of four comes to $120,000 (or if you would like, $60,000 for mom and dad and $60,000 for the kids). As a result of the new legislation, the household's bill just went up by another $1,200.

When the holidays are done and the kids are writing their thank you notes, make sure they save one for the President.

Thursday, December 20, 2007

Observations from Seoul

I just got back from a "short" trip to attend an economics confernce in Seoul. As the flights to and from Seoul took nearly the same amount of time as the stay, it probably wasn't the most rational itinerary in the world, but it was a good conference and a nice, albeit brief, visit.

One of the striking things about Seoul and its environs is the tremendous amount of transportation infrastructure--a huge international airport, a vast port system, numerous bridges and causeways, and an extensive public transportation network. The infrastructure is all the more amazing when you consider that a half century ago South Korea was a poor, undeveloped country just emerging from a devastating war. While the country has developed rapidly since then, its per capita GDP is still only five-ninths that of the U.S.

Some of the investment in infrastructure is a simple matter of need. The Republic of Korea has a population of just under 50 million and roughly half of that population is concentrated in and around Seoul. Even with the infrastructure, traffic grinds to a standstill in many parts of the city during the rush hours.

A considerable amount of investment was also spurred by the 1988 Summer Olympics, which were held in Seoul. While we usually think of the Olympics as prompting investments in sporting venues, they also lead to transportation improvements (and in the case of South Korea, the games also contributed to the transition to democracy).

Whatever the reason, Seoul's example shows that these types of investments owe at least as much to societal will and character as they do to simple cost-benefit calculations. When societies set goals and pull together, they can accomplish great things.

Sunday, December 9, 2007

Rationality in marriage

In his new book, The Bridge of Sighs, Richard Russo has a terrific passage that skewers two assumptions at the core of the rational model of marriage, namely, that people can identify the actual costs and benefits and that their preferences remain stable over time.
Matrimony, she explained, was based on two fallacies, both real doozies. The first was the ridiculous notion that people knew what they wanted. There was no evidence in support of this contention and never had been, but they seemed to enjoy believing it anyway, blinded as they were by love and lust and hope, only the last of which sprang eternal. The second fallacy, built on the shifting sands of the first, was equally seductive and even more idiotic--that what people thought they wanted today was what they'd want tomorrow. Sarah's mother filed this under the general heading of "Failures of Imagination," which was probably the biggest category in the entire history of categories, its origin almost certainly divine... Divorce, she maintained, made a better sacrament than marriage, if you had to have one. It signaled that at least one person and probably two had come to his or her senses and taken a long hard look at not only their spouse but the institution that had encouraged such irrational behavior.

Compared to Russo's character, family economists almost seem to be quaint romantics.

Thursday, December 6, 2007

Rationality in Iran

One of the most widely recognized tools of rational analysis is the cost-benefit comparison in which a decision-maker balances the advantages and disadvantages of alternative choices before pursuing a course of action. Rationality implies that decision-makers make choices that they believe are in their net best interest. A corollary of this is that decision-makers respond in relatively predictable ways to incentives and penalties.

Earlier this week, the National Intelligence Council released a National Intelligence Estimate (NIE) on Iran's nuclear intentions and programs. NIEs are reports that summarize the judgements of the nation's different intelligence agencies. The most recent NIE made headlines because it reversed a previous intelligence conclusion that Iran was actively pursuing a nuclear weapons program--the new NIE concludes that the country halted that effort in 2003 (key differences in the earlier and most recent NIEs are summarized on the last page of the report).

What's the connection to rationality, you ask. Well, tucked away inside the report is a reassessment of Iran's decision-making process. Specifically, the report states
Our assessment that Iran halted the program in 2003 primarily in response to international pressure indicates Tehran’s decisions are guided by a cost-benefit approach rather than a rush to a weapon irrespective of the political, economic, and military costs.

The report indicates that Iran's decisions going forward might be influenced by appropriate carrots and sticks, though it cautions that the precise inducements are hard to determine.

As the NIE points out, a problem for U.S. and international policymakers is that Iran's decision to halt its pursuit of nuclear weapons "is inherently reversible." So the country's future behavior is critical. Oddly, though, the NIE applies rationality only to the country's past behavior. In describing Iran's future actions, the report states that
convincing the Iranian leadership to forgo the eventual development of nuclear weapons will be difficult given the linkage many within the leadership probably see between nuclear weapons development and Iran’s key national security and foreign policy objectives, and given Iran’s considerable effort from at least the late 1980s to 2003 to develop such weapons.

In essence, the government responded to international pressure before but likely won't again. Moreover, the report justifies its assessment in terms of Iran's past behavior--behavior that the NIE also concluded supported rational decision-making.

There are few issues that are more serious than the spread of nuclear weapons, especially among countries like Iran with clear links to terrorism. While the NIE is loaded with caveats and is contradictory in its assessment of Iran's past versus future motivations, the report nevertheless suggests an additional set of instruments that could help rein in Iran's behavior. So far, there is no indication that the Bush administration's policy has budged one inch in response to the new analysis. A rational response would be to consider these additional tools.

Tuesday, December 4, 2007

Hit and run

Some acts defy rationality. Tonight a young life in nearby High Point hangs in the balance because a driver didn't stop for a school bus. The driver didn't stop afterword either.

Maybe it was one of those days--too many things to get done, too little time. All you want to do is get to the extra stop that was added to tonight's packed schedule. But the drive home is just as bad as the day was. Cars are dawdling through the short-timed traffic lights. Every driver is an idiot, and their collective inattention accretes into a slow rolling road block. Finally, you whip around the moron who's stopped at the head of the pack. You glare back over your shoulder as you accelerate...

Maybe you and your teen buddies are rushing home from school. Everybody is pumped and trying to get into the conversation. Nobody can believe what Ted did in Chemistry class. "I know, did you see how he..." "No, and then Mr. Morris was right behind him." "And Ted was reaching for Alyson like this." "Like what?" "Like this"...

Maybe the cell phone started to ring. It always goes off while it's in your pants pocket. On the second ring, you're still fighting to get past the seat belt. On the third ring, you reach it, but it's stuck. By the fourth ring, it's out. As you flip it open, the caller hangs up. You look down to check the "missed caller" number...

Maybe the baby in the back seat is making THAT sound. You turn your head back and see her looking surprised and wearing her lunch...

Maybe it was just too hard to stay out of the bar today. You didn't feel right stumbling out, and you recognize your mistake as you're heading down the road. But if you can just keep it together for another two miles...

Maybe you saw the bus's flashing lights and stop sign but thought that there was still time to get by...

It's easy to comprehend how a tragedy unfolds when our lives and everything that happens in them is so important.

Wednesday, November 28, 2007

Romney's cabinet quota?

In yesterday's Christian Science Monitor, Mansoor Ijaz provided a pretty damning story regarding former Gov. Mitt Romney. Mr. Ijaz wrote:

I asked Mr. Romney whether he would consider including qualified Americans of the Islamic faith in his cabinet as advisers on national security matters, given his position that "jihadism" is the principal foreign policy threat facing America today. He answered, "…based on the numbers of American Muslims [as a percentage] in our population, I cannot see that a cabinet position would be justified. But of course, I would imagine that Muslims could serve at lower levels of my administration."

Gov. Romney's response, if it has been accurately reported, is disquieting in several ways. First, he seems to be ruling out an entire class of potentially qualified and relevant advisors for cabinet-level service on the basis of religion. This smacks of discrimination against a particular religious group--an odd stance given that the Governor himself is arguing elsewhere that people shouldn't discriminate against his own religious views.

Second, Gov. Romney's statement further suggests that certain types of representation will be a factor in making cabinet-level appointments. Were a Democratic candidate to express the same views, he or she would immediately be accused of establishing quotas. In the Governor's mindset, some groups are justified in getting cabinet positions based on their population numbers, and other groups aren't.

Finally and most importantly, the statement undermines Gov. Romney's claim that "defeating the jihadists" is his primary policy goal. For example, Gov. Romney has previously stated that, "as we stare at the face of radical violent Jihad and at the prospect of nuclear epidemic, our military might should not be subject to the whims of ever-changing political agendas." However, his response to Mr. Ijaz indicates that qualifications for contributing to national security concerns are trumped by another agenda, religious belief.

P.S. Governor Romney has made a similar statement against Muslims serving in the cabinet before.

Tuesday, November 27, 2007

Stand by your salaryman?

According to an 11/26 Washington Post article, divorce rates in Japan spiked following a recent change in divorce laws that allows ex-wives to claim up to half of their former husbands' pensions. The change went into effect in April, and divorce rates immediately rose 6.1 percent.

The news seems like a clear cut story of incentives. Standard economic theory posits that spouses contemplating a divorce compare the benefits of remaining married with those of divorcing. In this case, the benefits of divorce for women have increased, while the benefits of marriage have stayed the same. Consistent with theory, divorce rates shot up.

Part of the increase probably just represents a change in the timing of divorce rather than a change in the overall incidence. The change in pension distributions was part of a law that was passed in 2003, but the pension provisions did not go into effect until April. The timing of the implementation appears to have been well-known. Wives who had already made up their minds to divorce their husbands would have had strong incentives to wait until April. This would have contributed to a decrease in divorce rates just prior to April and a spike immediately afterward.

More interesting, perhaps, are the secondary changes in incentives that are created by this policy. The simple economic analysis given above is one-sided in that it ignores the possible responses of husbands. Husbands, especially older husbands, derive tremendous benefits from the care that their wives can provide. The change in policy should cause husbands to make accommodations within marriage that are more favorable to wives. Thus, the initial assumption that the benefits of marriage for wives would remain constant may not be a good one. The article indicates that Japanese men are aware that accommodations may be required but also that they have been slow to change.

The change also has implications for the people's decisions to marry in the first place. Marriage rates in Japan (and other industrialized countries) have been steadily declining, with people waiting longer and longer to get married. Marriage has been an especially raw deal for women in Japan. Japanese men tend to work long hours and then socialize with colleagues well into the evening. Japanese women are much less likely than American women to work outside the home (using U.S. labor force definitions, see Table 5, about 57 percent of American women were employed in 2006 versus 46 percent of Japanese women). According to a 2001 Japanese time use survey, Japanese women spend an average of 3 1/2 hours a day in housework, while comparable 2003 figures for American women indicate that they spend closer to 2 hours a day in housework.

The change in divorce laws gives single women a pecuniary incentive to marry. It may also increase other incentives by improving the conditions within marriage. Both of these factors could lead to an increase in Japanese marriage rates.

Overall, Japanese women stand to benefit a great deal from this policy--either directly from better divorce settlements or indirectly from more accommodating husbands. At the same time, men will bear considerable consequences. The policy change should provide substantial grist for the family-relations research mill.

(Thanks to Bryan Boulier for the story tip).

Sunday, November 25, 2007

Voting with their feet

On Friday, the Washington Post reported some of the most hopeful news to date regarding the Iraq war, namely that some of the country's 2.2 million refugees were beginning to trickle home. It's not clear from the article whether the number of people returning exceeds the number of people leaving. The article also notes that many are returning because they've exhausted their resources outside the country. Nevertheless, the fact that many people feel secure enough to return and attempt to resume their lives in Iraq is good news. This is literally a case of people being willing to "walk the walk."

This news should remove most doubts that the surge has been successful with respect to its military objective of improving security. Military and civilian casualties are now back to levels last seen in 2005. These levels are still unacceptably high (Iraq in 2005 wasn't exactly a "safe" country), but if they represent a trend, further improvements may be possible.

Despite this evidence of important benefits from the military surge, it is still not clear whether the policy is or was worthwhile as a whole. The security benefits that we are seeing now have to be balanced against the enormous costs--hundreds of additional U.S. troops killed and thousands more wounded, the depletion of military readiness, and billions of dollars each month in additional taxpayer costs. While a small draw down of troops is beginning, troop levels are still substantially above their pre-surge levels, and we will be adding to the costs of the surge for many more months to come. An analysis by Democrats on Congress' Joint Economic Committee puts the current tab for the Iraq war at $1.3 trillion (around $4,250 per person) and projects the complete tab if administration policies are continued at $3.5 trillion (just over $9,000 per person).

More disappointing is that the primary objective of the surge, which was to enable political reconciliation among the Iraqis, still has not been met. There have been some hopeful signs, such as the cease-fire by the Madhi militia and the increased willingness of some Sunni groups to cooperate with the government. These and other developments could mean that when the surge exhausts itself this spring, the Iraqis may fall into an uneasy, informal living arrangement--something well short of the civil war that the country was experiencing earlier this year but also well short of full and permanent reconciliation. At this point, informal arrangements may be all that we can hope for.

We also have to acknowledge that some elements of the administration's strategy are working at cross purposes. The "bottom-up" approach of working with (and arming) local groups who currently support some of our objectives may be undercutting the "top-down" strategy of national political reconciliation. There are considerable risks that when our troop levels are reduced, the informal arrangements will quickly collapse, with much more terrible levels of violence owing to the influx of arms. We may be buying temporary security at the cost of even greater violence down the road.

The returning Iraqi refugees appear to be betting on some type of reconciliation. Let's hope they're right.

Saturday, November 24, 2007

Consider the source

It's an information jungle out there. Between books, journals, newspapers, magazines, web sites, and the rest, there's just too much information for any one person to digest. We should read widely from a variety of sources. However, to be reasonably informed and make sense of that information, we need to understand the strengths and weaknesses of different media.

The thing to recognize is that anybody can write anything, and with the web, anybody can post anything. Blog providers like (the service that hosts this blog) are easy to use and lead to astonishingly attractive content. The services offer great publishing tools in the form of spell checkers, standard templates, easy formatting, and HTML features. It's just as easy to put up other types of web sites and to publish great looking pages. The process is truly democratizing and leads to a tremendous variety of content and points of view.

However, this strength--that anybody can now publish like a pro--is also a potential weakness that we need to keep in mind when reading material. Just because someone writes something doesn't mean that it is true, correct, or well-reasoned.

If the author is unfamiliar, there are also some reputational and review cues that you can look to. A first check is whether someone is writing or posting under their own name. Occasionally there are good reasons to use a pseudonym or to remain anonymous, but the reasons mostly involve authors who are taking genuine risks with their writing. More often, however, posting anonymously or under an unidentifiable handle is a way to avoid responsibility for what's being written.

The types of editorial and expert review that go into a source are other indicators that can help. Blogs, working papers, self-published reports typically don't have to go through the editorial gauntlet. This means that they can be "published" very quickly and inexpensively, but it also means that the reader needs to bring considerable caution to bear. Editing and peer-review don't lead to perfect or even necessarily sound analyses, but they do provide some level of screening. It also means that the editor and publisher are willing to lend some of their reputation to the author.

Ultimately, however, it comes down to carefully reading and considering what's written. Regardless of the source, critical reading and independent evaluation are necessary. An author who wants you to make that evaluation will provide sources and reveal his/her analyses.

Sunday, November 18, 2007

Call me irresponsible

In his weekly radio address yesterday, President Bush promised to veto legislation that was passed by the House to temporarily fix the Alternative Minimum Tax (AMT) without driving up the deficit. Said the President, "I will veto any bill that raises taxes as a condition of fixing the AMT. Members of Congress must put political theater behind them, fix the AMT, and protect America's middle class from an unfair tax hike."

Sadly, it looks like Sen. Majority Leader Reid is likely to go along.

The AMT was originally designed to keep high-income households from avoiding taxes. A problem with the tax, however, is that it was never indexed for inflation, the way that other parts of the tax code are. As a result of price inflation over time, more and more households have found themselves potentially subject to the AMT. Congress has enacted a series of temporary patches. Without a similar fix this year, some 25 million households could be affected by the AMT.

The government should raise the AMT threshold and more generally find a permanent solution to the AMT problem. However, given our enormous deficit and the need to finance the wars in Afghanistan and Iraq, it would be irresponsible to do this without replacing the $50 billion in revenue that the AMT would have brought it. The House plan fixes the AMT, extends several other tax breaks, but also closes a loophole that allows hedge fund and other investment managers to treat their earnings as lower-taxed capital gains.

The President, who has already proposed a budget with a gaping deficit and then returned to Congress to ask for $46 billion more in supplemental war funding, is essentially asking for an additional $50 billion tax cut. Earlier this week the President vetoed another revenue-neutral bill, urging "Congress to send [him] a fiscally responsible bill that sets priorities."

The House legislation is fiscally responsible. We cannot afford to go $50 billion farther into the hole to provide yet another upper-income tax cut. The AMT patch should be balanced by other revenue increases.

Tuesday, November 13, 2007

President Bush's fifth veto in context

For the fifth time in his Presidency, George Bush today vetoed a bill--this time it was a $606.4 billion bipartisan bill that would have funded the Departments of Education, Health and Human Services, and Labor--claiming that the "bill spends too much."

According to the President, the bill's main sin was that it spent $9.8 billion more than he originally requested. Given the large size of the bill, this amounts to less than a 2 percent difference between what the President and Congress proposed. Overall, spending would have gone up relative to last year's level by 4.3 percent; in real terms the spending increase would have been less than the total growth in the economy. So even with the higher spending under the bill, the share of economic output going to the three departments would have gone down.

The growth hardly seems irresponsible, especially when compared to the spending growth that the President green-lighted under previous Republican Congresses. In FY 2003, spending for Education, HHS, and Labor rose 8.9 percent over the previous year's level. In FY 2004, spending growth for these departments was 5.5 percent. In FY 2005, growth was 6.0 percent, and in FY 2006 (the last year for which we have final figures), growth was 10.1 percent.

Not only was growth in the proposed bill less than in previous years, but the bill followed the Democrats' "pay as you go" strategy, meaning that it included revenue increases to match the spending increases and thus wouldn't have contributed to the deficit.

There are many more pressing problems in Washington; the President should stop playing political games with these modest differences in spending bills and begin cooperating with Congress.

Saturday, November 10, 2007

Thompson grabs ahold of the third rail

Republican Presidential candidate Fred Thompson is boldly going where none of the other current Presidential hopefuls has yet dared to tread and courageously offering a comprehensive plan for fixing the Social Security retirement system. Unless changes are made, the Social Security system will begin drawing down its trust fund balance in 10 years and will exhaust that balance by about 2041. Politicians have generally shied away from specific proposals because they necessarily involve uncomfortable choices between revenue increases or benefit decreases to bring the system back into balance. Because the trust fund has already effectively been spent, a successful reform must also address how future trust fund inflows can be put beyond the reach of government spenders.

Thompson's proposal has two main parts to it. First, he would create voluntary "add on" retirement savings accounts. Workers would contribute 2 percent of their wages into the accounts, and each dollar of personal contributions would be matched by $2.50 in government contributions on the first $1000 of monthly wages and matched by 50 cents of government contributions for higher amounts. The government's contribution would be drawn from social security taxes that workers and employers already pay. For instance, a worker earning $2,000 per month would contribute $40 on her own (= .02 x $2,000) and be subsidized $60 by the government (= (2.50 x $20) + (.5 x $20)). For the year, this worker would have $1,200 added to her retirement account, which she could then invest into stocks, bonds, or some combination just like a 401(k) defined contribution plan. The funds would be available to the worker beginning at age 62, and any unused funds could be passed on to heirs.

The second part of Thompson's plan is to slow the growth in Social Security outlays by changing the initial retirement year benefit formula so that a person's history of wage contributions would be adjusted for inflation using the Consumer Price Index (price inflation) instead of the current wage index (wage inflation). Wages have usually grown faster than prices, so pegging initial benefits to price inflation should reduce benefits. For workers with the new voluntary retirement accounts, their Social Security benefits would be further reduced by the amount of the government matching contributions.

Thompson's plan would only affect current workers who are at least several years from retirement; it would not affect current retirees or older workers nearing retirement.

Thompson's plan addresses all three elements of reform. It would move Social Security closer to balance by gradually reducing benefits. It would also, however, strengthen overall retirement savings by bringing in more revenue--the workers' own contributions, which would come on top of taxes they are already paying into the Social Security system. If long-run trends in stock returns continue, the funds invested in those private accounts should also grow faster than the funds in the government's accounts, also adding revenue. Finally, the plan protects those new revenues from government spenders by moving them from public to private accounts--in effect individuals will hold portions of the trust fund.

There are downsides to be sure. Higher income households will benefit more than lower income households. The current benefit formula pays a higher return to low-wage earners than to high-wage earners, providing a considerable degree of redistribution. This redistribution would be reduced. Also, high-income households would be more likely to participate in the voluntary savings component than lower-income households. So the benefits from the savings component would flow mainly to them while the decreases in the benefit formula from the new indexing scheme would fall more heavily on the poor. Lastly, the plan shifts more financial risks toward households.

There is also a little distraction going on as each element of this plan could be proposed on its own. The voluntary contribution portion does nothing to "save" Social Security; indeed, it would do the opposite if only high-wage workers participate. So absent the voluntary component, it might be possible to get by with smaller benefit cuts. Also, we still need to see a bottom-line analysis on the Social Security system's finances.

Thompson's plan is a good first start that could form the basis for an ultimate reform. As written, the costs of his plan fall too heavily on the poor. Modifications to better protect the poor would make his plan a hands-down winner. Watch for all sorts of demonizing rhetoric, especially from the Democratic candidates. However, Thompson has put out an important marker, and it's up to the other candidates to improve on his plan and not just complain about its inevitable sacrifices.

Friday, November 9, 2007

Who benefits and who loses from the Rangel Tax Bill

The Tax Policy Center, which is jointly run by the Urban Institute and the Brookings Institution, has analyzed H.R. 3970, Rep. Rangel's "Tax Reduction and Reform Act." Rep. Rangel's bill is a revenue-neutral proposal that would eliminate the Alternative Minimum Tax, increase the standard deduction for household tax filers, expand the Earned Income Credit for low-income families, and make the Child Tax Credit refundable. To keep the country from going further into debt, it would balance these decreases by increasing tax rates for high-income households, returning some restrictions on deductions and exemptions for high-income households, and changing the way that investment fund managers can treat their income so that their income is taxed as earnings rather than as capital gains. The bill would also simplify corporate taxes, eliminating several deductions but also lowering overall rates.

Researchers at the Tax Policy Center looked at how households in different income groups would be affected. They concluded that 57 percent of households (86 million households) would end up with lower tax bills as a result of this proposal, while only 2.4 percent of households would end up with higher bills. On average, households with annual incomes below $500,000 would pay less under Rep. Rangel's proposal, while households with higher incomes would pay more. The researchers calculated that "almost no one earning below $100,000 would receive a tax increase."

On average, the benefits would be highest--both in absolute and in percentage terms--among households with incomes between $100,000 and $500,000. Many households in this income range would gain from the elimination of the AMT; however, some other offsetting tax increases would also kick in in this range.

Among households with incomes above $500,000, about 80 percent would see a tax increase. Average payments for households with incomes between half a million and a million dollars would rise 2.2 percent, while average payments for households earning over a million dollars would rise 4.5 percent.

Math-challenged Republicans continue to criticize Rep. Rangel as proposing "the largest individual income tax increase in history." For most sensible people, that would be an odd way of describing a plan with no net revenue impact, that benefits 57 percent of households, and that leaves another 40 percent untouched. Of course, it's not so odd at all if your goal is to steer more money to America's richest and most powerful households and you have no qualms about sticking today's children with the bill.

A permanent fix to the AMT is long overdue. Given the large existing budget deficit, our ongoing military commitments, and the swelling and underfunded entitlements for the elderly, we cannot afford to put another tax cut for rich households "on the tab." Rep. Rangel's responsible plan deserves serious consideration.

Wednesday, October 31, 2007

Only "Repugnant?"

During his Senate confirmation hearings, President Bush's nominee for Attorney General, Judge Michael Mukasey, refused to answer one way or the other whether waterboarding was torture and therefore illegal. The 10 Democrats on the Senate Judiciary Committee sent Judge Mukasey a letter, asking him to "clarify his views" regarding waterboarding. Several members of the panel have said that their votes to move the nomination forward will hinge on Judge Mukasey's response.

Yesterday, Judge Mukasey issued a letter in which he stated that techniques like waterboarding "seem over the line or, on a personal basis, repugnant to me, and would probably seem the same to many Americans." The letter also noted that waterboarding is illegal for the military under the Detainee Treatment Act. However, Judge Mukasey refused to say whether the technique was illegal in and of itself or whether it could be used by other parts of the government, most notably the CIA.

Judge Mukasey hedged most of his explanation on the use of the technique being "hypothetical." However, the technique is specific enough to be listed and prohibited in the Army's Field Manual on Intelligence Interrogation. He also indicated that it would be irresponsible to make a firmer statement, but of course nothing could be more responsible.

Vice President Cheney has agreed that "a dunk in the water" to elicit information from suspected terrorists is a "no brainer." Waterboarding, however, is no such thing. Waterboarding involves restraining a person, pouring water over his face and into his throat until the gag reflex sets in, and thereby simulating the terrifying, physical sensation of drowning. One news report indicated that CIA officers who have tested the technique lasted an average of 14 seconds before giving in. Or as Senator John McCain, a former POW who was himself tortured, said, "to make someone believe that you are killing him by drowning is no different than holding a pistol to his head and firing a blank. I believe that it is torture, very exquisite torture."

The United States needs an Attorney General who won't equivocate on this issue and craftily define away "torture" into meaninglessness. If Judge Mukasey continues his evasion on this most fundamental human rights issue and effectively allows the President to continue ignoring Title X, Section 1003 of the lawfully-enacted Detainee Treatment Act, the Senate will be right in refusing to confirm him.

Tuesday, October 30, 2007

Vampires slurping electricity

Electronic vampires lurk in my house and are probably lurking in yours, too. While the bloodthirsty vampires of fiction are frightening, the electronic variety should scare you--or at least your wallet--even more.

Electronic vampires refer to the standby and low-power components in products like microwave ovens, DVD players, computers, phone chargers, and the like. They get their name from the two electric plug "fangs" that stick out from small black voltage adapters in consumer electronics but refer more generally to any device that draws power continuously, 24 hours a day regardless of whether the device is switched on. So unlike the fictional vampires, electronic vampires don't retreat when the sun comes out.

Those small amounts of electricity add up. It's estimated that some five percent of U.S. electrical consumption is devoured by vampires.

President Bush brought attention to these devices early on in his administration. One of the most useful things to come out of this was a directive to the Department of Energy to develop new standards for its ENERGY STAR labeling program, so that consumers could be better informed and act voluntarily.

To defang the vampires, there are three main things that consumers can do. The first is to shut off appliances and devices when they are not in use. The DOE recommends shutting down computer monitors and CPS if they are not going to be used for at least two hours. TVs, stereos, and lights should also be turned off if you are leaving a room.

The second is to really turn off some unneeded devices by cutting the power that flows to them when they are not in use. For example, cell phone, toothbrush, and other types of rechargers can be unplugged when they are not needed. It's as simple as removing the plug from the outlet. Other systems, like computers, are more complicated because of the number of plugs involved or the awkward placement of the outlets. For these systems, you can connect all of the relevant plugs to a surge protector with an on/off switch and then flip that single switch when the system is shut down.

The third thing is to look for the ENERGY STAR label when purchasing new appliances or replacing old ones. The approved appliances often use less than half the electricity of other appliances. The approved appliances typically cost more up front but end up saving money in the long run. It seldom makes economic sense to replace an otherwise functional existing applicance. However, ENERGY STAR replacements are a good idea when those less-efficient appliances wear out (or when you can talk your wife into the necessity of a new gadget).

Cutting energy use this way obviously saves consumers money without much in the way of inconvenience. It also reduces the need for power plants, cuts pollution, and reduces greenhouse gas emissions. It's not tricky to treat your wallet and the environment well.

Friday, October 26, 2007

Napping while California burns

Nothing like a roaring fire (or 15 of them roaring out of control) and a cozy Cabinet chair to put our Vice President to sleep.

Thursday, October 25, 2007

Rep. Rangel's "mother of all tax reforms"

Rep. Charles Rangel (D-NY) today introduced his long-awaited and mammoth tax reform bill, describing it as "the mother of all tax reforms." Rep. Rangel's bill is a revenue-neutral reform, meaning that cuts and other fixes that reduce the tax receipts going to Uncle Sam are balanced by increases in other areas. Thus, the bill is fiscally responsible--it addresses some problems in the tax code without adding to the federal deficit. However, this also means that the complicated legislation will result in winners and losers.

Rep. Rangel's bill would reduce taxes for some by

  • eliminating the Alternative Minimum Tax (AMT),

  • increasing the standard deduction for households,

  • increasing the refundable part of the child tax credit for low-income households,

  • extending the coverage and amount of the Earned Income Credit (EIC) for low-income childless households, and

  • lowering the corporate tax rate.

  • At the same time, it would increase taxes for others by

  • adding surtaxes for couples earning more than $200,000 and single filers earning more than $150,000,

  • taxing "carried interest," mostly earned by investment fund managers, at the same rate as regular income,

  • eliminating many special tax breaks for corporations, and

  • changing inventory accounting rules.

  • By far the biggest changes are the permanent elimination of the AMT and the offseting surtax on upper-income households. The AMT was originally intended as a minimum tax for households with very high incomes that also claimed lots of deductions and would have otherwise paid little if any tax. The AMT is a good idea in principle. However, it has never been indexed for inflation. This has led to "bracket creep" whereby inflation pushed more and more families into the income range where the AMT takes effect. Congress has addressed the problem on a patchwork year-by-year basis but never enacted a permanent reform. Rep. Rangel's bill would simplify the tax code by eliminating this parallel tax system; it would also remove the uncertainty associated with the year-by-year patches.

    As currently structured, the AMT brings in an enormous amount of revenue; the projection without any other fixes was $800 billion over the next decade. Eliminating the AMT while remaining revenue-neutral means that all of that money must be replaced. The revenue losses are what have stymied previous reforms. As upper-income households benefit the most from the repeal of the AMT, it makes sense that compensatory, offseting tax increases should be concentrated among them. The proposed surtax is calibrated to match the loss in revenues from the AMT.

    Another major component of the reform involves corporate taxes. Tax rates would be lowered, but special deductions would be eliminated and accounting rules would be altered. The net result would be a simplified and more even-handed tax system. This would be devastating to tax accountants. But more importantly, it should remove the government from picking and choosing among special business interests.

    It wasn't that long ago that tax simplification was championed by Republicans. Indeed, one of the crowning economic policy achievements of the Reagan administration was the enactment of the bipartisan 1986 Tax Reform Act--a sweeping revenue-neutral package that eliminated deductions, lowered tax rates, and eliminated tax brackets.

    Sadly, bipartisanship and budget concerns are absent from today's GOP. The party's spokespeople and special business lobbyists are howling about the necessary offsets and licking their chops at the opportunity to point out all sorts of individual tax increases--without, of course, mentioning that there will be no net change in taxes and that the compensating increases will be concentrated among the very people who benefit the most from the repeal of the AMT. With budget deficits already projected to grow wider over the coming years because of war spending and looming old-age entitlements, the country needs to return to fiscal sanity. Instead, all the Republicans can offer is a bankrupt supply-side fantasy of never-ending (and never paid for) tax cuts.

    Because of the herd of oxen that it gores, Rep. Rangel's tax plan has virtually no chance of passing this year or probably next. However, he has offered a sensible, fiscally-sound proposal for finally fixing the AMT and simplifying several parts of the tax code. Maybe there will be an opportunity to return to the bipartisan "spirit of '86."

    A swing and a miss on the revised SCHIP legislation

    Update to the update. The Hill reports that today's vote on the revised State Children's Health Insurance Program (SCHIP) legislation fell short of a veto-proof majority in the House. The vote was 265-142, with 26 members absent.

    House will consider a new SCHIP bill

    Update to yesterday's post. The Washington Post reports that Democrats in the House of Representatives will introduce and vote on a new State Children's Health Insurance Plan (SCHIP) reauthorization bill today; The Hill has a longer article on the same story. Details of the legislation are still being ironed out, but it appears that the revision will have several features to increase support among Republicans. Most features of the original legislation, including its overall cost of $35 billion over the next five years and its financing through higher tobacco taxes would remain.

    Among the new features...

  • The bill will set a firm eligibility cap of 3 times the poverty line (about $60,000 for a family of four).

  • It would mandate that all applicants provide Social Security Numbers and have those numbers checked by the Social Security Administration to ensure that illegal immigrants do not get benefits.

  • Performance bonuses would be given to states with high enrollments in the Medicaid program to make sure that the greatest effort was being made to cover the most disadvantaged children.

  • It would place greater restrictions on participation by non-pregnant adults.

  • Recall that the House missed overriding the President's veto of the original legislation by a mere 13 votes; so, sponsors only need to pick up a few more votes to get a veto-proof majority.

    The administration is grumbling, with no apparent sense of irony, that the House is not negotiating. The Hill reports that Secretary of Health and Human Services Leavitt acknowledged that some of the changes addressed administration concerns but said "it would be clear that they are not interested in compromise, that they’re not interested in a negotiation, that they’re simply interested in being able to expand [government] health insurance to higher and higher incomes, that they’re interested in moving people off of private insurance to government insurance, that they’re interested in seeing adults on SCHIP, and so forth."

    The SCHIP train may finally be leaving the station. The administration should declare this a return on success and climb on board.

    Wednesday, October 24, 2007

    How did those adults get on the State Children's Health Insurance Program?

    I want to tell you a startling statistic, that based on their own states' projections -- in other words, this isn't a federal projection, it's the states saying this is what's happening -- states like New Jersey, Michigan, Minnesota, Rhode Island, Illinois and New Mexico spend more money on adults in the S-CHIP program than they do on children. In other words, the initial intent of the program is not being recognized, is not being met.

    G. W. Bush, Oct. 3, 2007.

    Last week, President Bush vetoed bipartisan legislation that would have reauthorized and expanded the State Children's Health Insurance Program (SCHIP). SCHIP is a federal-state partnership, in which the federal government provides capped grants to states who in turn offer free or subsidized health insurance to children and pregnant women in families whose incomes are too high to qualify for Medicaid. The legislation would have doubled funding for SCHIP and increased coverage substantially among the nearly 9 million uninsured children in the U.S.

    One reason the President gave for vetoing the expansion--and that his supporters have seized on--was that SCHIP funds were being diverted from their original purpose of covering low-income children and were instead being spent on adults. Indeed, the Center for Medicare and Medicaid Services (CMS, the federal agency that administers SCHIP) reports that in FY 2006 just over 700,000 adults in 12 states were receiving coverage through either SCHIP or a related Medicaid expansion program; this compares to more than 6.6 million children who were served by the program.

    So how did those adults get on the children's health insurance program? (Those of you who like your hypocrisy served up big are really going to like the answer to this one). The "startling" fact is that those adults are included in the federally-funded portion of the programs because of the administration's own 2001 Health Insurance Flexibility and Accountability Initiative (HIFA). HIFA encouraged states to apply for waivers to the statutory regulations for SCHIP programs to make a number of changes, including adding parents and childless adults who were not otherwise eligible to participate in SCHIP or Medicaid (the Robert Wood Johnson foundation summarized the provisions of HIFA); all waivers were subject to approval by the Secretary of Health and Human Services.

    Prior to HIFA, some states covered adults in their SCHIP programs through their own funds; waivers approved under HIFA allowed them to use federal funds. As of September 2007, the President's own Secretary had approved adult-related waivers for 17 states. Of the states that the President now criticizes, New Mexico, New Jersey, Minnesota, and Rhode Island have had extensions or amendments of their adult programs approved since 2005 (corrected Oct. 24, 2007, please see #1 below). So absent the administration's own initiative and absent its approvals of individual state plans, there would be no adults other than pregnant women receiving federally subsidized SCHIP benefits.

    What about the costs of these waivers? All of the applications require the states to provide detailed cost projections (even if the states gave faulty projections, you would think that cost experiences would be considered when states like New Jersey and New Mexico renewed their programs). Also, state plans can only be approved if the overall impact of the waiver is budget neutral (i.e., it results in offsetting cost savings elsewhere) or if it relies on unspent federal funds. How could extending coverage to adults possibly be budget neutral? In some cases, states have used funds to subsidize employer plans that cover whole families or purchase entire family plans that cost the same as "child-only" plans.

    Through the 2005 Deficit Reduction Act, one group of adults--childless adults--can no longer be included in any new waivers (when the current waivers expire, the childless adults will lose coverage). Thus, existing legislation already partly addresses this problem.

    In a final hypocritical twist, it turns out that the President's own preferred legislation, "states can continue to cover parents up to existing eligibility levels".

    If adult coverage is such an awful problem, why did this administration encourage it, approve it, and propose continuing it?

    1. The post originally stated that "New Mexico had an extension of its adult program approved just last month, and New Jersey had its plan reapproved last year." Actually, the last amendment to the adult (HIFA) component of New Mexico's program was approved in June 2005. A different non-FIFA waiver component was renewed last month.

    Sunday, October 21, 2007

    Wal-Mart and wages

    An article by Emek Basker in the latest issue of the Journal of Economic Perspectives (subscription required) analyzes the causes, benefits, and consequences of Wal-Mart's phenomenal expansion over the last 40 years. On the plus side, Basker finds that Wal-Mart is a boon to consumers both directly through the lower prices that Wal-Mart itself charges and indirectly through the lower prices that its competitors end up charging. Through technical efficiencies, especially early and continuing computerization, Wal-mart has increased productivity throughout the retail sector.

    On the negative side, Wal-Mart hurts the country's trade balance--approximately one-seventh of all of the consumer goods that China exports end up being sold by Wal-Mart stores. The company also has enormous market power in the domestic wholesale market, allowing it to restrict profit margins for its suppliers. Wal-Mart also drives profits down among local competitors and causes some of them to go out of business. Wal-Mart does not appear to add much to job growth. Although a new Wal-Mart will hire lots of workers, these employment gains are typically offset by job losses among other retailers. Finally, it appears that Wal-Mart may lower wages in the labor markets where its stores operate.

    One of the really interesting things in all of this is how Wal-Mart can keep its wage costs so low. The business itself is remarkably productive. The company leads the retail industry in terms of output per worker--productivity, efficiency, and size are its primary competitive advantages. Nevertheless, little of this productivity advantage seems to find its way into workers' pockets.

    Wal-Mart's checkered labor history is well known. The company has staunchly resisted unionization efforts, using both legal and illegal means. The company has gone so far as to shut down its internal meat-packing operations after a unit in Jacksonville, Texas voted to form a union and closed one of its stores in Quebec after workers there voted to form a union. The company is also facing a discrimination lawsuit filed on behalf of 1.5 million of its female employees (although women make up vast majority of Wal-Mart's hourly employees, they are severely under-represented in Wal-Mart's salaried management ranks, both in absolute terms and relative to other retailers; they are also underpaid relative to men).

    But anti-union efforts and possible wage discrimination only take us so far. While the company is large relative to its competitors (in fact, it is the largest employer in the U.S.) and possibly able to affect wages in local labor markets, there still should be competitive pressures that force the company to pay something close to the market-clearing wage. Thus, the very low wages remain something of a puzzle.

    One potential explanation for the lower wages is that Wal-Mart may be able to bring the technological and scale advantages from its general operations into its hiring and human resource operations. Low wages usually imply high rates of voluntary (worker-initiated) turnover. Workers who are just entering the job market or who have recently been laid off may be willing to accept low wage employment while they continue to search for something better. Thus, workers come in the door, but they also go out the door as soon as a reasonable alternative shows up. Wal-Mart appears to have reduced many of the "fixed costs" of hiring. Because of the size of the stores, each one has a personnel manager dedicated to recruiting employees. There are streamlined procedures for hiring. There also appear to be relatively low-cost methods for training new employees, including self-paced computer-based learning, self-paced reviews of the employee manual, and coaching from department managers. In other words, if one employee leaves, she can be easily and relatively costlessly replaced.

    Low costs of hiring also mean that Wal-Mart can accommodate secondary workers, such as mothers of small children, students, retirees, and moonlighters, who wish to work part-time hours and may be willing to trade some schedule flexibility for pay. Businesses typically face a trade-off between the number of people they hire and the number of hours that each employee works. If the fixed costs of hiring are high, a business will employ fewer people but require them to work full-time schedules. If hiring costs are low (and if productivity doesn't vary much with the number of hours worked), a business can be more flexible and hire more part-timers. This flexibility may allow Wal-Mart to reach further into the lower-paid secondary labor market than its competitors.

    Low hiring costs would also allow Wal-Mart to continuously hire employees and then adjust its labor force by firing the least productive, least cooperative, or most expensive workers. Indeed, workers complain that Wal-Mart routinely fires long-tenured employees to make way for less-expensive new workers.

    Wal-Mart may also have features that appeal to certain kinds of workers. If Wal-Mart stores are continuously hiring, then workers who want immediate employment will find them appealing. Some people are highly risk averse or are unable to finance a prolonged period of unemployed job search; these people would prefer the "sure thing" of a Wal-Mart job. Along the same lines, Wal-Mart stores represent very stable establishments in a relatively unstable industry. So a Wal-Mart position would offer some measure of job security that other retailers can't match. Risk-averse workers would be willing to trade some salary for near-term job stability.

    Wal-Mart should "play fair" in labor markets. That means respecting workers' decisions to organize and paying women and men fairly. However, Wal-Mart appears to have many natural advantages in labor markets that allow it to attract productive workers at low wages. Moreover, the company is known for its ferocious low-cost ethic, which it certainly applies to its labor relations. It would be unreasonable for regulators or local governments to try to strip these advantages away.

    Friday, October 12, 2007

    Gore shares the Nobel prize

    This morning former Vice President Al Gore and the U.N.'s Intergovernmental Panel on Climate Change won the Nobel Peace Prize for their work bringing attention to global warming. For Gore, the award caps a great year in which he won an Oscar and numerous other awards for his documentary, An Inconvenient Truth. Gore promptly announced that he would donate his half of the $1.5 million prize (corrected, please see below) to The Alliance for Climate Protection.

    Gore's story is a remarkable and inspiring one. After the close defeat to George Bush in 2000, Gore could have easily fallen into a state of bitterness and completely withdrawn from the public stage. Instead, he almost immediately began teaching. He also dedicated himself to his long-held interests in technology and climate issues.

    The documentary, An Inconvenient Truth, contains elements of the global warming presentation that Gore has been making and honing for many years. It also shows Gore during his travels and contains personal snippets that show how he has come to terms with the 2000 loss.

    While Gore's winning the Nobel Prize is a fantastic achievement that all Americans should be proud of, his strength in overcoming the loss and finding a different avenue for leadership is the real achievement.

    The original post said "that he would donate half of his prize." Thank you to Ged Maheux for pointing out the error in the original post. Corrected Oct. 12, 11:42 a.m.

    Monday, October 8, 2007

    National reconciliation moving off the Iraqi political agenda

    The Washington Post is reporting this morning that several top Iraqi politicians no longer think that national reconciliation is an achievable near-term goal. According to the article, the politicians see little hope for passing legislation explicitly targeted at reconciliation. It also indicates that the current Shiite-led government is simply unwilling to take meaningful steps to share power with other groups.

    The United States' current military surge strategy was put in place to buy time and provide the Iraqis with "breathing space" to make the hard political decisions necessary to mend their country. Without political reconciliation, the surge strategy is like sticking your hand in water--once you remove it, there is nothing to indicate that it was ever there. Absent reconciliation, animosity and the competition for political control will lead to a resumption in violence and possibly civil war.

    If Iraqis have indeed given up on this process, the primary justification for the surge has evaporated, and the U.S. is faced with two terrible choices. The first is to continue to remain in the middle indefinitely, keeping troop levels near where they are to minimize the violence. The "success" of this strategy is far from certain, as the pressures for both civil war and Iraqi self-determination are likely to lead to increased violence. Moreover, without a fundamental shift in how we replenish the troops, such as a draft, we cannot long maintain the current force levels.

    The second choice is to end the surge and reduce our involvement sooner rather than later. The mission of our remaining troops would be narrowed to fighting Al Qaeda in Iraq, helping to secure borders, and training troops. It's very likely that violence would increase, but again, without political reconciliation, violence is likely to be inevitable.

    Until now, the administration has justified its surge strategy using an investment framework. The U.S. was to pay a substantial up front cost in terms of troop levels and lives in return for long-term benefits in terms of Iraqi stability. The prospects of such benefits were always chancy; more and more they appear to be wholly unobtainable.

    Thursday, October 4, 2007

    Carbon emissions can come down ... and did

    A May report by the U.S. Energy Information Administration gave preliminary evidence that total energy-related CO2 emissions in the U.S. fell by 1.7 percent from 2005 to 2006. If the numbers hold up to subsequent revisions, that's very good news.

    There are short-term and long-term explanations behind the numbers. The biggest short-term explanation is that the weather in 2006 was milder than in 2005. The winter was warmer, while the summer was cooler. This led to fewer heating and cooling days. Accordingly, the biggest decrease in energy-related CO2 emissions in both absolute and percentage terms occurred in the residential sector, where emissions dropped by 3.7 percent.

    While year-to-year temperatures can go up and down, the long-term trends give some reason for optimism. Overall, the U.S. is continuing to become more energy- and emissions-efficient. Energy-intensity (units of energy per dollar of total economic ouput) fell by 4.0 percent from 2005 to 2006, and carbon-intensity (CO2 emissions per dollar of output) fell by 4.5 percent. Since 1990, the EIA reports that carbon-intensity dropped by more than a quarter, or just under 2 percent per year. At least some of this can be explained by restructuring in the economy and the steady shift from industrial activity to services and other types of commercial activity.

    Another positive trend is that the long-run overall growth in emissions appears to be slowing. Since 1990, overall emissions have grown by about 1 percent per year. However, since 2000, there has only been one year (2004) with emissions growth above 1 percent. Emissions declined in 2001, partly due to the recession and partly due to the brief transportation shut-down following the 9/11 attacks. After 2001 though, growth in emissions has been very modest; this occurred despite relatively strong growth in the economy.

    The short- and long-term pictures would be brighter still were it not for the transportation sector. Transportation has overtaken the industrial sector as the largest contributor to emissions. Since 2000, the growth rate in transportation emissions has been nearly triple the growth rate of residential emissions and 50 percent higher than the growth rate of commercial emissions. Energy-related CO2 emissions continue to be dominated by the use of petroleum.

    Both sides of the climate change debate should be cheered by these numbers. For the stay-the-course crowd, the numbers show that regular market and technological forces, and perhaps voluntary action, can slow the production of greenhouse gases. For the policy-change crowd, the numbers show that zero growth and even reductions in energy-related CO2 emissions may be more easily achievable than we might have thought, and that reductions can occur without driving the economy into recession. The numbers also seem to justify a special focus on improving the efficiency of the transportation sector.

    Wednesday, October 3, 2007

    Bluegreen? Just say no.

    The proposed Bluegreen development along the Haw River certainly makes sense to the Bluegreen Corporation and the current property owners but doesn't make sense to the rest of us.

    The development would benefit from the proximity to both the river and the state park. It would also benefit from relatively cheap land and proximity to the Triad. It's easy to see why it's an attractive development target and why people would eventually want to move there.

    It doesn't make sense, however, from a planning perspective. The development would be outside much of existing road, service, school, and infrastructure networks. More importantly, it would encourage sprawl away from the "Heart of the Triad."

    Guilford County needs development--especially high-end residential development--but that development should occur closer to existing urban centers, jobs, and infrastructure. The rezoning required for the Bluegreen development should be rejected. There is plenty of land to be developed in other parts of the county; the Bluegreen Corporation should go there first.

    Monday, October 1, 2007

    Running out the clock on climate change

    Sometimes you have to ask, "why bother?" Through much of this summer, the White House has put out the word that it is shifting policies and giving attention to climate issues. That now appears to be so much hot air.

    Last Friday, President Bush spoke at a conference of major greenhouse gas producing nations that was convened by the White House. Many observers were looking for the President to fill out his earlier calls for a voluntary system of reductions--maybe something along the lines of what he did with electric utilities during his last years as Governor of Texas. Hopes may have been raised when the President began by saying "Energy security and climate change are two of the great challenges of our time" and "The United States takes these challenges seriously." However, those hopes were subsequently dashed. The rest of the speech made clear that the President has no intention of making any serious efforts during his remaining time in office.

    Instead, the President offered to participate in negotiations that would lead to a working set of "goals"--not programs or strategies mind you, but "goals"--by next summer. These, in turn, would lead to a global consensus on goals that could be adopted by 2009. Of course, that comes after the President leaves office and means that the tough choices will be left to his successor.

    That's not leadership; it's running out the clock and passing the buck.

    Friday, September 28, 2007

    GOP front-runners skip forum on black issues

    Rudy Guiliani, John McCain, Mitt Romney, and Fred Thompson--the four leading Republican candidates--all skipped a forum hosted by PBS talkshow host, Tavis Smiley that was held last night at Morgan State University. The forum was different from other GOP debates in that it focused on minority concerns, relied on a panel of minority reporters and commentators (Ray Saurez, Cynthia Tucker, Juan Williams), and was held in front of a largely minority audience. A similar forum for Democrats drew nearly every candidate, including all of the front runners.

    The minority community holds diverse views. Some Republican policies should be attractive to conservative church-goers, business owners, and the rising middle and upper class, regardless of race. Other policy concerns, like homeland security and the wars in Afghanistan and Iraq, cut across all racial, ethnic, and class lines.

    Even if the leading Republican candidates don't expect to get much minority support, they do have an obligation to communicate to all of the constituents that they might one day represent. They also should be willing to have their proposals, promises, and views scrutinized by different audiences. Unfortunately, we are all too familiar with what happens when a chief executive won't leave his comfortable policy bubble.

    By skipping the debate, the GOP front-runners missed a golden opportunity to deliver their message to and get feedback from a vital segment of the electorate. More than that, they sent the unmistakeable message that the minority community is simply not worth their time and that they don't have much to offer to that community.

    The candidates' myopic strategy will ultimately limit their and the party's appeal. Should any of them win election, it will also limit their ability to govern.

    Wednesday, September 26, 2007

    Cotton O'Reilly Comes to Harlem

    Proving that some conservatives are open to new, potentially mind-changing, experiences, talk-show host Bill O'Reilly shared his observations about a recent trip to Sylvia's, a black-owned restaurant in Harlem.

    Said Bill, "I couldn't get over the fact that there was no difference between Sylvia's restaurant and any other restaurant in New York City. I mean, it was exactly the same, even though it's run by blacks, primarily black patronship."

    Get over it Bill.

    Bill went on to add, "There wasn't one person in Sylvia's who was screaming, 'M-Fer, I want more iced tea.' You know, I mean, everybody was -- it was like going into an Italian restaurant in an all-white suburb in the sense of people were sitting there, and they were ordering and having fun. And there wasn't any kind of craziness at all."

    No craziness excepting Bill.

    Finally, about the meal itself, "I like that soul food. I had the meatloaf special. I had coconut shrimp. I had the iced tea. It was great."

    As Gomer Pyle would say, "Surprise! Surprise! Surprise!"

    If the radio gig ever fizzles out, Bill has a fine future in ethnography.

    NEXT EPISODE: Bill quiera Taco Bell!

    Tuesday, September 25, 2007

    Ticket auctions and other allocations

    Young girls in Greensboro were in tears and their parents were up in arms last week when an upcoming Hannah Montana concert sold out in just a few minutes, leaving many families were waiting in line at the venue's ticket window.

    Indignant letters to the editor soon followed expressing frustration that so many "little girls dreams (had been) crushed" and blaming promoters for allowing tickets to go to scalpers--parents noticed that tickets were immediately available on resale at inflated prices on web-sites like

    In this instance, bad communication was part of the problem. More than a third of the 13,000 tickets were "pre-sold" through Hannah Montana's fan club; only about 8,000 were available when the regular sales began. Although that should have been plenty to accommodate the families standing in line, there was an even larger virtual line. Internet sales quickly snapped up nearly all of the available tickets.

    One way or the other, somebody was going to be disappointed in a situation like this where demand for a scarce good exceeds the available supply. The only way to reduce the disappointment would be to add another concert date, but even that might not be enough to meet demand.

    The fans' real beef focuses on the "unfairness" of the rationing mechanism. Here a combination of pre-sales, queues, and regular sales were used to allocate the tickets initially, and resales (scalping) are being used to reallocate the tickets. Is this system actually unfair? Definitely, but maybe not in the way that you think.

    Let's start with the scalpers, who put up the money for the tickets and then assume the risk of being able to resell them. If they can resell the tickets, scalpers are then in a position to capture the difference between the original sales price of the ticket and what some die-hard fans are willing to pay. Nobody forces the fans to actually buy the tickets from the scalpers. Those who do purchase tickets get what they want at a price they are willing to pay. It's just more than they would have had to pay in the absence of a resale market, with the scalpers pocketing the difference.

    Even without a resale market, the scarcity of tickets would have led to some unfairness. Some people with only modest valuations of the performance would have gotten access to relatively low-cost tickets. Other people who had much higher valuations and who would be willing to pay more to satisfy those valuations would not have gotten access. Introducing a resale market (scalping) improves efficiency by allowing the people with the highest valuations to get access to the tickets.

    There are alternatives that would eliminate the resale incentives. The simplest would have been for the concert promoters to set the initial ticket prices higher, so that there wasn't any excess demand. A clear implication from the fast sales was that the tickets were under-priced. If the tickets had been at the appropriate, market-clearing price there would have been no opportunity for resales--everyone who wanted a ticket at the going price would have already purchased one.

    It's hard to forecast what the exact price should be. If promoters set the price too high, they might be stuck with empty seats. An alternative then would be to use a descending set of prices. Set the initial price very, very high, then every few hours or every day or so discount the prices by a certain amount until all of the tickets are sold. People with the strongest valuations and the least risk tolerance will start to take tickets at high prices; other people will move in at lower prices. Again though, at the end of the process, there won't be any resale opportunities. The unfairness in this system is that some people pay more than others for the same tickets.

    Finally, the promoters could run an auction, with tickets and prime seat locations going to the highest bidders. and Ticketmaster have already done this for some concerts.

    Each of these allocation methods eliminates scalping; however, it's not clear that fans really want them. Under the current arrangement, a few lucky fans get access to tickets that are priced below the market clearing rate; others pay higher rates, with the surplus going to the scalpers. Under each of the alternatives--a uniform market-clearing price, high then descending prices, and auctions--tickets would never be sold below the market-clearing price. More of the revenue would be transferred to promoters instead of to scalpers and resellers.

    In essence, the parents' complaint is that there weren't enough tickets at prices below the market-clearing rate. Little girls can wish for such make believe endings; parents should be more realistic.

    Monday, September 24, 2007

    UAW strike

    After two months of negotiations and roughly one week after its existing contract expired, the United Auto Workers (UAW) went on strike today against General Motors (GM), the country's largest automaker. Some 73,000 workers are expected to walk off the job.

    The number of work stoppages has been down in the U.S. in recent years. Last year, there were no strikes of comparable size. The last major UAW strike occurred nearly a decade ago and involved several parts plants, and the last strike directly against auto manufacturing operations occurred three decades ago.

    The strike comes at a bad time for the U.S. economy, which is already battling a housing slump, a credit crunch, and $80 a barrel oil prices. Employment figures last month indicated that the number of jobs had actually decreased from the month before. A large, long-lasting strike would increase the chances of entering a recession. The only "good" news (if you can call it that) is that GM's manufacturing workforce has shrunk so much that many fewer workers are involved than in the earlier UAW strikes.

    The strike also comes at a bad time for GM. The company has seen its market share, work force, and profitability decline. In the late 1970s, GM sold nearly half of the vehicles in the U.S.; today it sells less than a quarter. The company has suffered net losses in the last two years. Although worker productivity is high, the company has huge legacy costs that reduce its competitiveness. Also, the strike comes right at the start of the new auto year.

    Although both sides are rushing out press releases expressing disappointment and blaming the other for the work stoppage, there are some encouraging signs. The most hopeful are that the UAW and GM are keeping most details of the negotiations under wraps and that the UAW has asked to continue meeting. There also appears to have been some progess in the negotiations on some major issues, such as shifting some of the risk for retiree health expenses away from GM and towards the union. The remaining sticking points appear to be related to job security measures.

    Still, a strike of any length is unwelcome news, especially for the families and communities involved.

    Wednesday, September 19, 2007

    Poor families on the red-tape diet

    Few people like to fill out forms or other paperwork. At a minimum, paperwork is a tedious and time-consuming chore; too often, it can also be frustrating and confusing. In the case of poor families, paperwork can also lead people to lose out on needed food assistance.

    Families and individuals who receive means-tested public assistance, like food stamps, are required to fill out numerous forms, supply lots of accompanying documentation, and schedule and participate in in-person or telephone interviews (for example, you could look at North Carolina's 10-page application form for its Food Stamp Program). The purpose behind these forms and procedures is reasonable--program administrators want to ensure that benefits only go to people who are eligible and that people receive exactly the benefits that they need. Nevertheless, the paperwork represents a substantial compliance cost to needy families, especially those with limited reading, writing, and math skills.

    The procedures also create some strange incentives with respect to self-sufficiency. Families with earnings typically have to provide more extensive information and do so more frequently than families without earnings. Again, there's a logic to the extra requirements; earnings and hence eligibility can change. Still it's the case that earnings not only cause families to lose benefits but also add to families' paperwork and compliance burden. Not exactly the best way to encourage work.

    Marilyn Edelhoch, a research director with the South Carolina Department of Social Services, and I have been looking at these issues for some time. Marilyn's agency gave us access to a large random sample of case records from the South Carolina Food Stamp Program. The records show how long families participate in food stamps before leaving or being kicked off the program. In earlier research, we found that families were several times more likely to stop receiving benefits at the times they were required to complete new paperwork than at other times.

    We've just completed a new paper that goes back to these data and examines the reasons that program administrators entered for why the families left. For example, the system records whether families left voluntarily, whether they moved out of state, etc. All of the cases that we examined involved households with children.

    The research shows that one-half of the families who lost benefits were dropped from the Food Stamp Program because they failed to re-apply for benefits. Another sixth of the terminations occurred because of incomplete paperwork or missing information. If you put these together, two-thirds of terminations occurred for reasons related to paperwork.

    These terminations would not be bad news if many of the families were soon going to lose eligibility anyway. After all, what incentive is there to fill out paperwork if it's just going to show that you're ineligible? Not surprisingly, we find that the chances of being ineligible are higher among households that let their paperwork lapse than among households that stay on the program. However, we also find that the chances of being eligible are higher than those of being ineligible. So it appears that needy and otherwise eligible families are being dropped from the program. The results take us some way toward explaining why nationally about one-third of eligible families fail or decline to participate in food stamps in any given month.

    As is often the case in economics, there are stories here about unintended consequences and about trade-offs in public policy. Clearly, states must check people's eligibility for services. However, they can take steps to streamline their paperwork, reducing it to the minimum necessary. States can also take better advantage of automated data available to them. People shouldn't go hungry because of red tape.

    Saturday, September 15, 2007

    Yes, NASA revised those numbers, but...

    The global warming deniers have recently seized on a story regarding NASA's revisions of its annual temperature numbers as evidence that global warming is baloney. The story appeared in an August 16 column by Cal Thomas and has been blog and letter-to-the-editor fodder since then.

    There are parts of the story that Mr. Thomas and others have reported correctly, parts that they have omitted, and parts that they have flat out gotten wrong.

    The part of the story that is true is that NASA did revise its numbers. The new and old numbers, as well as NASA's explanation can be found at and by following links on that page.

    Mr. Thomas and others claim that the revisions have led to changes in the rankings of the warmest years on record. The implication is that rankings of global averages have changed, but this isn't the case.

    NASA's changes in rankings apply ONLY to temperatures for the U.S. and not for the world as a whole. In NASA's revised figures, 1934 is the hottest year on record for the U.S. but not for the world. NASA still reports that the 5 hottest years on record for the world happened in the last decade (in order 2005, 1998, 2002, 2003 and 2006).

    Having garbled the facts, Mr. Thomas goes on to ask, "Has any of this new information changed the minds of the global warming fundamentalists?" and helpfully answers his own question, "Nope." He skips the more logical question--should the new information have changed anyone's mind--to which the answer is again, "Nope."

    Why is this so? Well, the revisions to NASA's numbers for the U.S. were very slight (the largest change was .15 degrees) as were the revisions to the rankings. Prior to the revisions, 1934 and 1998 had been in a virtual dead "heat" (no pun intended). In both the earlier and later figures, 4 of the 10 hottest years on record in the U.S. occurred in the 1930s and 3 of the 10 hottest years occurred in the last decade.

    There were also revisions to the global numbers but these were an order of magnitude smaller (in the thousandths). The revisions did not affect the global rankings at all.

    As the scientist who put out the revised numbers explained, "Contrary to some of the statements flying around the internet, there is no effect on the rankings of global temperature. Also our prior analysis had 1934 as the warmest year in the U.S. (see the 2001 paper above), and it continues to be the warmest year, both before and after thecorrection to post 2000 temperatures. However, as we note in that paper, the 1934 and 1998 temperature are practically the same, the difference being much smaller than the uncertainty."

    While the deniers have focused on a handful of numbers (which again hardly changed), it useful to remember that the figures in question come from a 127 year record. Over that time, the U.S. data are more variable and flatter than the global data. Nevertheless, the trend in the U.S. has been upwards. If you look at the average over the last decade, you will see that it is higher than the average for the decade of the 1930s (U.S. temperatures in the 1930s were quite variable and there were a few "low" years along with the "high" years). NASA also provides 5-year averages. It turns out that even in the revised data, the first, second, third, fourth, and sixth highest 5-year averages for the U.S. occurred in the last decade.

    The global trends are even more starkly upward.

    A cogent critique of the global warming argument needs to address all of the evidence, not just a figure or two. NASA's revisions in this particular series were minor, and the corrected figures continue to show increasing temperatures over the past century and a quarter. NASA's figures are also not the only evidence. As NOAA reports, changes in sea ice, rises in sea levels, the general retreat of glaciers, ice core data, tree rings, and sediment samples provide near- and long-term evidence that global warming is occuring and that human activity is a contributor.

    Tuesday, September 11, 2007

    $450 billion spent so far on Iraq

    A rational analysis of our future direction in Iraq requires an appreciation of the costs of the current policy. The current debate has rightly focused on the most important and tragic costs--nearly 3,800 American soldiers killed, over 27,000 wounded, additional coalition losses, and somewhere between 70,000 to 650,000 Iraqi civilians killed. The point of this post is to shine light on the less-publicized and perhaps crass topic of the monetary costs of the war.

    In July, the Congressional Research Service (CRS) released an analysis of the incurred and projected costs of the wars in Afghanistan and Iraq. The costs of both wars so far has been $610 billion, of which $450 billion has been spent on Iraq. A special analysis was needed because of the bewildering array of "supplemental" appropriations for the wars, the many budgets that end up being tapped, and a lack of transparency in budgeting by the Department of Defense.

    For the upcoming fiscal year (FY08), the administration has requested $116 billion for Iraq (however, that figure is predicated on the questionable assumption that our training costs for the Iraqi military and police will go down). Astonishingly, the administration's official projected war costs in all theaters in the following year (FY09) is only $50 billion and its projected costs for future years is zero. So much for playing straight with the American people.

    In contrast to the administration's phony number of $50 billion in future costs, the Congressional Budget Office (CBO) estimates that our additional costs over the next decade will be just under $400 billion beyond the amounts requested through FY 08 if combined troop levels in Iraq and Afghanistan are brought down to 30,000 by 2010 or just under $900 billion if combined troop levels are brought down to 75,000 by 2013. The latter figure seems closer to the administration's goals.

    Even if we withdraw troops from Iraq, the costs will still be monumental. The CBO estimates that a complete withdrawal by FY 2009 would still cost nearly $150 billion beyond what has already been requested. If we were to draw down troops in Iraq to just 40,000 by 2010, we would incur over $300 billion beyond the requested amount between now and then.

    To provide some perspective about the size of the funds, the $116 billion that has been requested for Iraq in FY 2008 is larger than the combined budgets of all federally-funded education, training, and social service programs ($83 billion), energy programs ($1.4 billion), and community and regional development programs ($25 billion). Alternatively, it accounts for roughly half of the projected federal deficit for FY 2008.

    Monday, September 10, 2007

    Despicable ad

    The General Betray Us ad that ran this morning was despicable. should retract the ad and issue an immediate apology.

    While it is entirely appropriate to debate the effectiveness of the administration's policy in Iraq and to point out its previous misjudgments, there is no justification for questioning General Petraeus' honor. Reasonable, rational people can be motivated by the best intentions and still disagree. should contribute whatever reasoned arguments it can to the national debate over Iraq and move away from character assassination.

    Friday, September 7, 2007

    Finally saw An Inconvenient Truth

    It's embarrassing to admit, but we finally got around to watching An Inconvenient Truth last night. The movie, based on a multi-media presentation that Al Gore has been giving for several years, makes a convincing case that global warming has begun and will worsen. The movie also portrays Gore in a very sympathetic light, with a light-heartedness and a genuine passion that were largely AWOL during his 2000 campaign. It's easy to see how the film won an Oscar in the documentary category. It's also easy to see why the film gives the oil lobby, coal lobby, and their apologists fits.

    The movie builds its case regarding global warming brick by brick. The case isn't based on just one or two statistics but rather on a stack of evidence. Conservative commentators have tended to pick apart selected examples here and there, such as that one of the dozen or so examples of retreating glaciers might be caused by some natural process other than global warming. However, there are just too many pins to knock down, and the case as a whole holds up. My guess is that at least a few people who start the movie as skeptics will have their minds changed by the end, which is about the best that you can hope for when making an argument.

    The movie begs the obvious question of what are the next steps. Making the case for global warming isn't the same as making the case for specific policy actions. Conservatives are correct when they point out that some bad policies, such as the current corn-based ethanol boondoggle, are worse than no policies at all. Nevertheless, it does look like there is some low-hanging fruit here.

    A first sensible start would be to make people aware of how individual actions like driving over the speed limit, leaving appliances on in stand by mode, and excessively cooling or heating a house contribute to the problem. A second sensible action would be to begin eliminating the billions of dollars of government subsidies to fossil fuel companies.

    I suppose that people can argue about anything. But encouraging voluntary conservation and ending subsidies for harmful activities seem like rational starts.

    Thursday, September 6, 2007

    In Iraq for the long haul

    Throughout the conflict with Iraq, the Bush administration has tried to give the impression that the duration and objectives of our involvement would be limited. For instance, Secretary Rumsfeld said a month before the war, "It is unknowable how long that conflict will last. It could last six days, six weeks. I doubt six months." A few weeks later Vice President Cheney was asked by Tim Russert whether "the American people are prepared for a long, costly, and bloody battle with significant American casualties;" the Vice President responded "Well, I don’t think it’s likely to unfold that way, Tim, because I really do believe that we will be greeted as liberators."

    With respect to narrow objectives, the Vice President stated in that same interview "Our objective will be, if we go in, to defeat whatever forces oppose us, to take down the government of Saddam Hussein, and then to follow on with a series of actions such as eliminating all the weapons of mass destruction, finding where they are and destroying them, preserving the territorial integrity of Turkey. As I say, standing up a broadly representative government that’s preserving the territorial integrity of Iraq and standing up a broadly representative government of the Iraqi people. Those will be our objectives."

    In keeping with the expected temporary nature of the conflict, it's costs were not incorporated in the regular budget for several years but were instead covered through a series of supplemental appropriations.

    When it's initial rosy predictions proved disastrously wrong, the administration modified its rhetoric but continued to describe a circumscribed involvement, telling the American people that "as Iraqis stand up, we'll stand down." In March 2005 the President said, "that's the position of the United States. Our troops will come home when Iraq is capable of defending herself." Even this week, President Bush told troops during his surprise visit to a U.S. base in Iraq, "Every day you are successful here in Iraq draws nearer to the day when America can begin calling you and your fellow servicemen and women home."

    Over and over the administration has said that our involvement would be limited, but many of its actions indicated otherwise.

    One clear action was our construction of a new embassy complex, which will be far and away the largest in the world when it is completed this year. Iraq has a population of about 27 million people, which puts it around 45th in the world and a land area that ranks 57th in the world. Why would so much be invested in so large an embassy unless the U.S. intended to maintain a substantial presence?

    And despite Secretary Rumsfeld's statement early in the war that "I have never, that I can recall, heard the subject of a permanent base in Iraq discussed in any meeting," the U.S. has also spent billions of dollars constructing numerous permanent military bases throughout the country.

    Finally, when a change in the Congress and a report by the non-partisan Iraq Study Group provided a golden opportunity to scale back our commitment and begin drawing down redeploying troops, President Bush did exactly the opposite and ordered a surge. Regardless of its effect on the security situation, the surge cements our position in Iraq over the near term and effectively commits troops to Iraq beyond the Bush presidency. Even if we started evacuating troops tomorrow, it would take many months before we could safely get troops down to their 2006 levels and many more months to make reductions beyond that.

    Some less-guarded statements by the President in his interviews with Robert Draper for the book Dead Certain reveal the administration's actual intentions. Consider the following quotes.

    "Now we've got a presence in the region—but Iraq creates a different kind of opportunity for a presence."

    "So now I'm an October–November man ... I'm playing for October–November to get us in a position where the presidential candidates will be comfortable about sustaining a presence ... to stay longer at the request of the Iraqi government. Which would have the following effect. One, it would serve as a reminder to the region that we're a force of stability. Two, it would remind certain actors that the United States is something to be reckoned with—Iran, for example, if they continue on the course they're doing."

    By word and deed, the intention to commit us indefinitely to Iraq seems clear. The President is not open to reason, evidence, or argument. Regardless of what any intelligence estimate, government agency, or independent commission says, his policy is for the U.S. to "stay the course" in Iraq now and for many years to come.