A considered response to fearmongering

Halloween came early to the White House lawn yesterday with President Bush resorting to fearmongering and demonizing in his latest attempt to renew warrantless wiretapping and to sidestep judicial review of his previous extra-constitutional exercises.

Among his warnings:

If Congress does not act ... our ability to find out who the terrorists are talking to, what they are saying, and what they are planning will be compromised. ... And that, of course, would put the American people at risk.

Failure to act would harm our ability to monitor new terrorist activities, and could reopen dangerous gaps in our intelligence.

Our intelligence professionals are ... waiting to see whether Congress will give them the tools they need to succeed or tie their hands by failing to act.

...we better be worried.

Ewww, scary stuff. If Congress doesn't act, the terrorist threat will surely jump to code orange tomorrow.

To review, the President initially secretly authorized warantless wiretaps that went beyond the procedures spelled out in the Foreign Intelligence Surveillance Act (FISA). After his own Department of Justice balked, he demanded that Congress give him the authority to continue these activities, which Congress did ... for a while.

While the President has resorted to scare tactics numerous times, he has never demonstrated that suspension of the FISA provisions was actually necessary. When asked directly what "practical impact" Congress' (in)action would have, he said

There will be a gap. And of course, we won't be able to assess that gap until the time. Step one is, I guess you got to come to the conclusion that there's a threat to America, or not a threat. And evidently some people just don't feel that sense of urgency. I do. And the reason I do is I firmly believe that there's still people out there who would do us harm.

Secondly, I know that the tools that I've just described are necessary to protect us. Why? Because we need to know what people are saying, what they're planning and what they're thinking. And the tool that I have just described has been very effective.

That's the best he can do.

The President is also looking for immunity for the phone companies that helped him in his extra-legal searches. The lack of immunity is probably actually his biggest fear, as it would expose his activities to an independent judiciary.

In a considered response to the President's fright-fest, the Democratic chair of the House Permanent Select Committee on Intelligence, Rep. Silvestre Reyes calmly reminded the President:

Today, the National Security Agency (NSA) has authority to conduct surveillance in at least three different ways, all of which provide strong capability to monitor the communications of possible terrorists.

First, NSA can use its authority under Executive Order 12333 to conduct surveillance abroad of any known or suspected terrorist. There is no requirement for a warrant. There is no requirement for probable cause. Most of NSA’s collection occurs under this authority.

Second, NSA can use its authority under the Protect America Act, enacted last August, to conduct surveillance here in the U.S of any foreign target. This authority does not "expire" on Saturday, as you have stated. Under the PAA, orders authorizing surveillance may last for one year – until at least August 2008. These orders may cover every terrorist group without limitation...

Third, in the remote possibility that a new terrorist organization emerges that we have never previously identified, the NSA could use existing authority under the Foreign Intelligence Surveillance Act to monitor those communications.

He concluded

We are a strong nation. We cannot allow ourselves to be scared into suspending the Constitution. If we do that, we might as well call the terrorists and tell them that they have won.

Of course, that call may be monitored.

There are many legitimate things to be scared of, such as the consequences of the President's sub-prime lending acquiescence or living in a FEMA trailer, but not his latest channeling of Joe Isuzu.

Guns don't kill astronauts--astronauts kill astronauts

A Florida TV station is reporting that the crew on the International Space Station (ISS) has access to a gun. While some might question the wisdom of putting a gun in a confined, high-stress, pressurized environment, it could actually come in handy in any number of situations, such as deterrring home invasions, warding off Muslim extremists, protecting the crew from the Vice President, or defeating rogue computers.

The statistics bear this out. To date, the ISS has the planet's lowest crime rate. A well-armed space crew will keep it that way.

Developing obituary

Polaroid has announced that it is closing the manufacturing lines that produce its instant film. The company had stopped manufacturing instant cameras some time ago and now will stop producing the film that goes into them. The decision will cost about 150 jobs.

Polaroid was a genuine innovator in the photography field. For those too young to recall the days before digital photography, cameras required film, and most exposed film had to be taken to a developer. Polaroid's "instant" film was self-developing. The earliest films required that you wait a few minutes after taking a picture and then peel a foil cover sheet off of the exposed film. The film didn't work well if the air temperature was too hot or too cold (or if you were too impatient). The whole thing was an ecological nightmare with the extra foil cover that needed to be discarded, a smell like a small refinery, and a sticky surface on the picture itself. Moreover, the film was very expensive and pretty much one off (copies, we don't need no stinkin' copies). BUT you got a picture in a few minutes, and if necessary you could retake the picture before your cousins left, the vacation ended, the casket closed, etc. The alternative for standard film cameras waa to wait until the entire roll of film to be exposed, wait some more for it to come back from the developer, and then discover that your finger had been partially covering the lens.

Polaroid later created a different instant film with one sheet that developed before your eyes. The effect was vaguely creepy as images would begin to emerge, ghost-like, out the milky film.

One of my great thrills growing up was discovering my parents' discarded land camera in the early 1970s and finding out that it still worked (this find and the discovery of their stash of Beatles albums were shocking evidence of their happy pre-Dave existence). I used the camera for a few months until a combination of allowance, odd-job money, and flat-out begging yielded sufficient funds for a 35mm single reflex camera. I'm not sure what happened to the land camera after that.

Instant films made an important appearnce in grad school. The Ph.D. program at Brown took instant pictures of all of the incoming students. Pictures were then placed on a bulletin board, and the pictures from previous cohorts of students were moved farther along the board. The first tip-off to what we were about to endure was how much smaller the second-year cohort was (and always was) from the first. The other thing that we eventually noticed was that they stopped labeling the cohorts after they got past the fifth year. The pictures for this finite yet still sizeable set were just arranged under a label "Nth year."

Instant films reappeared at my first academic job. Economists hold an annual convention and conduct nearly all of their screening interviews at this convention (if it's January and you see about 10,000 people with enormous foreheads and a strict aversion to tipping, you know that we've come to your town). Penn State was regularly on the market for several positions and conducted dozens and dozens of interview each year. To keep track of the hordes who had ventured through the interview suite, someone on the recruiting team initiate the interview with a Polaroid picture of the candidate. This was an unsettling start to the interview. Besides the obvious "ew" factor, the flash temporarily blinded you and left you describing your dissertation to a group of disembodied blue dots. The "ew" factor was compounded later when I discovered that one faculty member's pictures consistently had women's heads higher in the frame than men's.

Digital cameras, which are now standard in cell phones, have all of these "conveniences" and much better picture quality. Their pictures can be printed, sent as e-mail or phone messages, shown as slide shows or posted on-line. Hopefully, they'll continue to produce as many memories.

The cake or death challenge

A new study indicates that aggressive lowering of blood sugars among older type 2 diabetics (trying to maintain an AIC around 6) may actually increase the risk of heart attack.

Apparently, the choice posed some years ago by Eddie Izzard
was prescient.

In all seriousness, its been a tough year for diabetics with the news that the drug Avandia, which is used to decrease insulin resistance, may also increase the risk of a heart attack.

Romney disses Dole

Mitt Romney hit a low point in his campaign today. Commenting on a letter that former Sen. Bob Dole wrote to Rush Limbaugh on behalf of Sen. John McCain's "mainstream conservative" credentials, Romney said "It's probably the last person I would have wanted write a letter for me."

If we take Romney's statement at face value, there are some 6.6 billion people whose support he values more. A short list of people who are ahead of Dole in Romney's mind would include Osama bin Laden, Kim Jung-il, and Carrot Top.

For the record, Dole's letter called for Limbaugh to support "our major candidates." He listed many of McCain's conservative credentials but did not endorse any particular candidate. Instead, he concluded "Whoever wins the Republican nomination will need your enthusiastic support."

It's a testament to how far the Republicans have lurched past conservatism and into radicalism that one of their leading candidates would tear into Dole, who would seem to be the personification of conservatism.

Update (2/5): Responding to criticism from Sen. Thad Cochran and former Sen. Rick Santorum regarding his alleged hot-headedness, Sen. McCain said "in all due respect to a couple of those people that are criticizing me, they’re not the most respected members of the United States Senate." A classy remark that, um, exactly proves their point.

Cochran had earlier said of McCain, "The thought of his being president sends a cold chill down my spine...He is erratic. He is hotheaded. He loses his temper and he worries me."

Last week, Sen. McCain and Gov. Romney were wrapping themselves in Pres. Reagan's mantle. This week, they and their surrogates are shredding Reagan's eleventh commandment.

One subprime-ary loan

The loan applicant had shaky prospects to say the least. He was more than $500,000 in debt, had fired most of his workers, and looking for a loan of $3.5 million.

The timing of the application--November 2007, right smack in the middle of the credit crunch--wasn't especially good either.

Finally, the chances of the proposed investment paying off looked even worse, with several better-financed operations poised to corner the market. To add insult to injury, the lender even forced the applicant to take out a high-priced life insurance policy as partial collateral.

It's not a bet that many loan officers would have made, but somehow Sen. John McCain was able to get a critical loan that may have well saved his Presidential bid.

In a society that allows risk-taking, long-shot bets sometimes pay off and make people look like geniuses. They can also flop, as the bets on most of Sen. McCain's Republican competitors did, and make people look like dopes.

As Nassim Taleb points out, we celebrate risk-takers when they win, and either ignore or criticize them when they lose. We also ascribe a certain amount of genius and later even a sense of inevitability to the winners, even if there was bound to be at least one winner all along. We shouldn't overlook, however, the role of luck.

Budget savings or a cheap gimmick

The Office of Management and Budget has announced that it will stop providing free printed copies of the President's budget for members of Congress and their staffs. Printed copies will still be available, but members will have to shell out $200 per copy. As in previous years, an electronic version of the document will also be posted on the web.

The move will clearly save the White House money, but is it good policy? Members of Congress don't think so.

Congress is understandably upset because the White House is shifting a set of costs from its budget to Congress'. So, from a taxpayer perspective, the savings aren't as big as the White House is touting. One group's costs have gone down, while another group's have gone up.

However, there probably will be savings. Free goods get misused, or more precisely over-consumed. At $200 a pop, a Congressperson (or more likely her chief of staff) will think twice before handing a copy of the budget out as a souvenir or giving a copy to the intern who runs the autopen. Congressional offices will now have to compare the benefits of a paper copy to the actual costs of production. Demand for the printed copies is likely to go down, leading to less printing and lower overall costs for the government.

From a social standpoint, there are also some downsides. Many types of budget work are easier to do with printed copies. By making paper copies more expensive, the White House is raising the cost of Congressional oversight and increasing the likelihood that something will slip by unnoticed. In other words, the White House is increasing the cost of good government. However, it is legitimate to ask how many printed copies are necessary to perform this function.

Some other costs of this policy may also be overlooked. People working with e-documents often print sections or whole copies from their office computers. This is a much less efficient and more costly way to generate copies. As staffers seldom see the marginal cost of each print-out, this can lead to overuse and some very high costs.

One gets the sense that President Bush gets a kick out of sticking it to Congress, and there is certainly an element of that in this latest move. However, the change in printing policy looks like a net cost-saver.

Americans for UNbalanced Energy Choices

CNN has held a Democratic presidential candidates debate and will hold a Republican candidates debate that are each sponsored by a group with the innocuous title Americans for Balanced Energy Choices. Sounds fair enough. From the name, you would think that the group promoted all sorts of energy alternatives, such as renewables, nuclear energy, and the like, or maybe even promoted conservation. You'd be wrong.

The group is actually an "astroturf" organization, that is, an industry-funded organization that is supposed to look like a grass-roots organization. Who are the funders? Coal-based power plants, including North Carolina's own Duke Energy.

The group states its mission as:

We believe that America can continue to make great progress in improving environmental quality while at the same time enjoying the benefits of using domestic energy resources like coal to meet our growing demand for affordable, reliable and clean energy.

In a word … we believe in technology.

It's all quite touching.

The group also touts the coal-industry's success and commitment in cleaning up its plants. Of course, it doesn't mention that the technology it cites was only instralled after the Clean Air Act Amendments of 1990 required power plants to adopt cleaner technologies like scrubbers. It also does not mention the industry's commitment to fighting these requirements, including Duke Energy's fight all the way to the Supreme Court, where the industry lost decisively in 2006. It also doesn't mention that it's real purpose is to get more coal plants built, in many cases against local opposition.

Americans do need balanced energy choices, but this organization won't be providing them.

Tax rebates, interest rate cuts, and personal finance

In response to the signs of a weakening economy, the Federal Open Market Committee (FOMC) of the Federal Reserve System lowered on Tuesday its target for the federal funds interest rate. Today, the White House and Democrats from the House of Representatives announced a tentative deal on fiscal stimulus package that would likely provide tax rebates to low- and middle-income families.

The FOMC decision only directly affects the federal funds rate, the interest rate that banks charge each other when they lend through the Federal Reserve. However, many other interest rates key off the federal funds rate, so rates available to consumers are likely to fall. The stimulus package, should it actually pass, should put money directly into people's pockets.

Both actions are intended to spur people to spend more and reinvigorate the economy. This is likely to happen, at least to some extent.

For many Americans, however, it might be worthwhile to look at how lower interest rates and some extra cash might help their permanent personal finances.

According to the last Survey of Consumer Finances conducted in 2004, three-quarters of American families held some debt. Four out of nine American families had outstanding credit card balances. Families with incomes between $40K and $90K were especially likely to owe the credit card companies. If your family is in this group, it would be a good idea to use the tax rebate and the possibly reduced interest rate to attack that credit card balance. With current rates for many families at usurious rates of 18, 21, or even higher percentages, an extra payment toward the credit card balance would provide a much higher return in terms of the household's net worth than almost any investment on the market.

Lower interest rates also mean that it is a good time for households to refinance their mortgages and lower their indebtness. During the credit expansion that accompanied the housing bubble, many families took advantage of the lower interest rates and easy financing to borrow extra amounts against what they and the banks thought was the value of their homes. Refinancing, however, can also be used to decrease indebtedness. The simplest way to do this is to leave all of the terms of the mortgage the same, except the interest rate--that is, to refinance without taking any extra money out and without extending the period of the mortgage. Some people also took advantage of the lower rates to actually cut the length of their loans. For households with interest-only mortgages or amortizations greater than 30 years, a standard 30-year, fixed-rate mortgage may now be within reach.

Unsustainable run-ups in debt have been a big contributor to the current economic problems. Fixing some of those individual problems might reduce the immediate effects of the stimulus measures but would go a long way toward fixing the underlying, long-term problems in the economy. In any case, it would help some people sleep easier at night.

Re-employment bonuses should be in the stimulus package

As the chorus for providing an economic stimulus grows louder, several plans are recommending an extension of basic Unemployment Insurance (UI) benefits beyond the current six months of coverage. There are good reasons for these plans. Most importantly, they are targeted toward people who are actually hurt by an economic slowdown--those who are involuntarily unemployed. The benefits are politically attractive because they only go to people with work histories and who continue to try to find employment. The benefits are somewhat calibrated with the magnitude of any slowdown; more benefits would be paid (there would be a stronger stimulus) the greater the extent of unemployment. Finally, they are skewed toward low-income households, so the money is likely to be spent rather than saved, again providing for a larger stimulus.

More generous or extended UI benefits, however, also have a serious drawback, which is that they reduce people's incentives to quickly find work. The benefits allow unemployed people to be choosier in accepting their next job, leading to longer unemployment spells and a slower overall recovery.

Given that unemployment appears to be headed up and that jobless spells are likely to grow longer, extending UI benefits to either nine months or a year seems both compassionate and reasonable. However, policymakers should consider an additional change to the UI system to mitigate the employment disincentives and that is to offer re-employment bonuses.

The way that a re-employment bonus would work is that a job seeker would receive a bonus payment if she accepted a job before her UI eligibility ran out and if she held that job for some period of time (that is, stayed off the UI rolls). The bonuses could be structured like exploding job offers in high-powered law and finance firms so that the amount of the bonus declined with the period of unemployment. For instance, the bonus could be half the value of someone's remaining and unused UI benefits. All or part of the bonus payment would be withheld until after the worker had worked a certain period.

The logic behind the re-employment bonuses is straightforward: they provide incentives to go back to work instead of staying out of work and provide those incentives earlier in an unemployment spell rather than later.

There is good evidence that re-employment bonuses not only shorten unemployment spells but also save the government money. With funding from the U.S. Department of Labor, the state of Washington experimented with (randomly assigned) different re-employment bonus amounts for unemployed workers there in 1988. An analysis of the Washington experiment found that it reduced both the length of unemployment spells and the overall amount of compensation. Bonus experiments conducted in Pennsylvania and Illinois also showed that unemployment spells could be trimmed.

Given the many existing strains on the federal budget, the stimulus package should be as effective as possible. Creating cost-effective incentives for out-of-work people to get back on their feet as quickly as possible should be an element in the current proposals.

The CPI said what?

This morning, the Department of Labor reported that consumer prices rose 4.1 percent last year, the largest December-to-December increase since 1990. The consumer price numbers were in line with producer price figures that were reported earlier this month. Inflation was moderately high even after food and energy prices are taken out of the mix; the core rate rose 2.4 percent for the year.

One surprising component of the consumer price figures was that they showed shelter costs increasing at 3 percent for the year. The shelter figures are based mainly on changes in actual rents, which increased 4 percent last year, and imputed rents for owner-occupied housing, which were estimated to increase by 2.8 percent.

For nearly 25 years, the shelter component of the consumer price numbers has been based on this imputed rent figure rather than direct measurements of mortgage, house price, and property tax figures. The rent figure is intended to get at the consumption component of housing and to abstract from the investment element. However, there are times when rents diverge from these other fundamentals, leading to questionable results.

Shelter costs account for nearly one-third of the index. Raise your hands if you really believe that prices for owner-occupied houses increased last year. If we instead assume that there is a mistake in the CPI formula and that the change in shelter costs was essentially zero, the inflation rate drops by a full point down to 3.1.

A simple misunderstanding

In an interview with ABC News yesterday, President Bush said, "I'm sure people view me as a warmonger and I view myself as peacemaker." Where, oh where could people ever have gotten such an idea.

Maybe this misapprehension came from this Feb. 7, 2004 interview with Tim Russert when the President said, "I'm a war president. I make decisions here in the Oval Office in foreign-policy matters with war on my mind."

Maybe it came from this "aw shucks" restatement in a Aug. 6, 2004 campaign speech. "I wish I wasn't the war President. Who in the heck wants to be a war President? I don't. But this is what came our way. And this is our duty, to protect our people. It's a solemn duty, and I'll continue doing it to the best of my ability."

Or maybe from this Sept. 9, 2004 campaign speech. "I never thought I'd be a war President. As a matter of fact, you know, I was hoping I wouldn't be a war President. But the enemy attacked us on September the 11th. It's an event that I will never forget. It is a duty that I will honor, which is to keep America safe."

Or maybe from this Oct. 26, 2006 speech. "I said, I want to be a war President. [sic] No President wants to be a war President, but I am one."

Or maybe this Aug. 10, 2004 speech, this Aug. 11, 2004 speech, this Aug. 12, 2004 speech, this Aug. 13, 2004 speech, this Aug. 28, 2004 speech, this Sept. 4, 2004 speech, this Oct. 10, 2006 speech, or this July 10, 2007 speech (well, you get the idea).

Crummy economic numbers

The start of 2008 has brought a slew of negative economic reports. On January 4, the Department of Labor reported that the national unemployment rate in the U.S. had risen to 5.0 percent in December, up from 4.7 percent in November and 4.4 percent a year earlier. From December 2006 to December 2007, the estimated ranks of the unemployed grew from 6.8 million to 7.7 million people, and the percentage of the population employed dropped from 63.4 to 62.7 percent.

New data from the Census Bureau indicate that seasonally adjusted retail sales dipped 0.4 percent from November 2007 to December 2007, though December's sales were still up from a year earlier.

The job and sales figures suggest that economic growth is slowing. Whether the slow-down amounts to a recession is still a 50-50 proposition. Regardless, it appears that the economy is no longer growing fast enough to keep up with population growth.

The stock market is reacting negatively. For the year, the S&P index is down just over 5 percent. The index has already dropped more than 12 percent from its recent high and is near its 52-week low.

To compound the bad numbers, the Labor Department today reported that the Producer Price Index (wholesale prices) rose 6.3 percent in 2007, the largest yearly increase in a quarter of a century. The prices of crude food and feed materials rose by just over 25 percent for the year, while the prices for crude energy materials rose by just over 20 percent. President Bush spent part of his day pleading with OPEC to increase oil supplies.

The consumer (retail) price numbers will be released tomorrow, but already consumer prices for the year are up about 4 percent without the December figures. The Federal Reserve's Beige Book, describing local economic conditions will also be released tomorrow.

Although the price increases appear to be largely confined to the food and energy sector (for now). The prospect of a flat or sinking economy and escalating prices resurrects concerns about 1970s-style stagflation.

Pointless voter ID laws?

Walter Dellinger and Sri Srinivasan had a nice analysis yesterday in Slate.com of the inefficacy of voter identification laws--requirements that people show poll workers a valid government-provided ID before being allowed to vote. The principal argument in favor of these provisions is that they cut down on voter fraud and thereby increase the integrity of the electoral process. The primary argument against the provisions is that they impose burdens on voters, especially low-income and elderly voters, which reduces participation and representation in elections. Republicans tend to favor the laws, while Democrats tend to oppose them.

If we can move past the purely self-serving aspects of these provisions, the arguments essentially come down to a cost-benefit analysis. Proponents claim that there are large potential benefits in terms of reduced voter fraud and only small costs because IDs are so ubiquitous. Opponents claims that voter fraud is negligible and that the laws disenfranchise tens of millions of people who lack IDs. What Dellinger and Srinivasan bring to this debate is a nice discussion of the mechanics of these procedures and thus of the marginal impacts.

To impersonate a registered voter, an impostor would have to already know the voter's name and address and provide these details to a poll worker. Poll workers could further ask the person for the registrant's birth date (states require this data to verify that the person is actually old enough to vote). This creates a very high informational hurdle for a potential impostor.

In addition to these informational barriers, there are a couple of other practical issues. Most importantly, there are laws and penalties against voter fraud, so the impostor would need to take steps to avoid detection. For example, he or she would need to be sure that the actual voter had not already shown up at the polls and cast a ballot, otherwise the fraud would immediately be discovered. Along these same lines, there are limits on the number of times that a single individual could commit this crime (it's not like he or she could immediately get back in the queue at the same precinct and pretend to be someone else). Finally, as mentioned above, the impostor would have to have a fairly sharp mind, needing to commit all of the victim's personal details to memory (a person who needs to consult a cheat-sheet before providing basic identifying information tends to rouse suspicion).

To be sure, forms of reliable, current identification are needed in other circumstances, including the initial registration process and certainly in the case of same-, or election-day registration (North Carolina has such a procedure). However, once registration has taken place, a subsequent requirement to produce a valid government ID does almost nothing to stop fraud and therefore confers little benefit.

Given that IDs are required at the time of registration, one might claim that there also is little cost of an election day ID requirement, but this overlooks the fact that considerable time can pass between the registration and election days. During this span, people could lose their driving privileges, or especially in the case of the elderly, could simply let their licenses lapse. These people would clearly be disadvantaged by a voter-ID provision. Also, while it might be worthwhile to bring an alternative form of ID, such as a passport, one time to the registration office, it would be more costly to dig these same documents out every election day. Finally, even if one buys into the argument that the costs are low, this hardly justifies enacting a law with such little practical benefit.

Republicans regularly complain about "feel good" legislation that sounds nice but accomplishes little. That criticism applies in spades to voter-ID laws.

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.

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.

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.

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.

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.

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.