Slate's Jack Shafer deconstructs the New York Times' shoplifting story that I linked to last week. Shafer shows that there is a lot less to the Times' numbers than it first appears.
Several of the Times' examples are anecdotal. Shafer goes on to describe supporting anecdotes from other newspaper stories as well as some contradictory anecdotes.
Monday, December 29, 2008
Abstinence pledges worse than ineffective
The Washington Post reports this morning
One explanation for the findings may be that pledges convince teens that they don't need to take precautions. After all, you don't need condoms or other forms of birth control if you're not going to have sex in the first place. However, in the instances when sex does happen, the teens are unprepared. As the study indicates, the "instances" seem to be as frequent for the pledged teens as for the unpledged teens.
Another explanation is that pledges put up barriers between teens and responsible adults who might help arrange for contraception. It is difficult enough for a teen to start the "I need protection" conversation with a parent; imagine how much harder it is when the teen has pledged chastity.
Yet another explanation may be that parents become less vigilant regarding their children's behavior once a pledge has been made.
Pledges and abstinence programs generally are based on the unrealistic notion that we shouldn't send "mixed messages" to teens. However, the mixed message seems unavoidable. We should discourage teenagers from engaging in sex, but if they do, we want them to take precautions against pregnancy and disease.
The good news seems to be that teens as a group are getting the mixed message despite the actions of some adults. Teen birth rates and pregnancy rates are at relatively low levels. More comprehensive programs that recognize the inherent mixed message may help to reduce these rates more.
The findings indicate that pledges are not only ineffective at stopping premarital sex but counter-productive in discouraging teens from taking reasonable precautions.Teenagers who pledge to remain virgins until marriage are just as likely to have premarital sex as those who do not promise abstinence and are significantly less likely to use condoms and other forms of birth control when they do, according to a study released today.
One explanation for the findings may be that pledges convince teens that they don't need to take precautions. After all, you don't need condoms or other forms of birth control if you're not going to have sex in the first place. However, in the instances when sex does happen, the teens are unprepared. As the study indicates, the "instances" seem to be as frequent for the pledged teens as for the unpledged teens.
Another explanation is that pledges put up barriers between teens and responsible adults who might help arrange for contraception. It is difficult enough for a teen to start the "I need protection" conversation with a parent; imagine how much harder it is when the teen has pledged chastity.
Yet another explanation may be that parents become less vigilant regarding their children's behavior once a pledge has been made.
Pledges and abstinence programs generally are based on the unrealistic notion that we shouldn't send "mixed messages" to teens. However, the mixed message seems unavoidable. We should discourage teenagers from engaging in sex, but if they do, we want them to take precautions against pregnancy and disease.
The good news seems to be that teens as a group are getting the mixed message despite the actions of some adults. Teen birth rates and pregnancy rates are at relatively low levels. More comprehensive programs that recognize the inherent mixed message may help to reduce these rates more.
Tuesday, December 23, 2008
In-kind bonuses to investment bankers
Investment bankers at Credit Suisse may be feeling a lot like Clark Griswold after finding out that most of their year-end bonuses are being paid out in the form of "junk bonds, mortgage-back securities and corporate loans" instead of cash.
Clark, whose Crunch enhancer non-nutritive cereal varnish actually added value to his company, deserved better and eventually got it.
The bankers, who created these crummy securities and pawned them off on their customers, are getting far better than they deserve.
"Rational" crime
In its simplest form, the rational model of decision-making assumes that people compare the net benefits and costs of alternative choices and choose the alternative with the highest net benefit. The model can be extended to consider long-term consequences, different ways of discounting the future, and other considerations. However, the model, especially when applied to this-or-that types of choices, essentially comes down to a cost-benefit calculation.
Economists use the rational framework, without much controversey, to examine consumer (demand) and producer (supply) behavior in markets. Economists, most famously Gary Becker, have also used this model to examine other aspects of people's behavior including criminal activity.
Conservatives implicitly rely on the rational model when they argue that more police and tougher sentences deter criminal behavior. The argument is simple. These actions increase the likelihood of getting caught and the penalties associated with crime and thereby raise the cost of crime. For someone who is on the margin between committing and not committing a crime, the increase in costs will be enough to tip the scales against engaging in crime. Enforcement and penalities are examples of direct costs of crime. In the rational model, when these costs go up, criminal behavior goes down.
Conservatives, however, seem to have more trouble grasping another implication of the model, involving indirect or opportunity costs. When deciding between two alternatives, a person is less likely to choose one alternative if the value of the other alternative increases. Applied to criminal decisions, this means that people are less likely to engage in crime if the value of legitimate actions increases.
In his 1968 Journal of Political Economy article on "Crime and Punishment: An Economic Approach," Becker wrote (p. 177),
A New York Times article this morning on shoplifting supports this analysis. It reports that,
A rational analysis suggests that people, business owners, and law enforcement will need to be more vigilant during the tough economic months ahead.
Economists use the rational framework, without much controversey, to examine consumer (demand) and producer (supply) behavior in markets. Economists, most famously Gary Becker, have also used this model to examine other aspects of people's behavior including criminal activity.
Conservatives implicitly rely on the rational model when they argue that more police and tougher sentences deter criminal behavior. The argument is simple. These actions increase the likelihood of getting caught and the penalties associated with crime and thereby raise the cost of crime. For someone who is on the margin between committing and not committing a crime, the increase in costs will be enough to tip the scales against engaging in crime. Enforcement and penalities are examples of direct costs of crime. In the rational model, when these costs go up, criminal behavior goes down.
Conservatives, however, seem to have more trouble grasping another implication of the model, involving indirect or opportunity costs. When deciding between two alternatives, a person is less likely to choose one alternative if the value of the other alternative increases. Applied to criminal decisions, this means that people are less likely to engage in crime if the value of legitimate actions increases.
In his 1968 Journal of Political Economy article on "Crime and Punishment: An Economic Approach," Becker wrote (p. 177),
The rational model predicts a link between economic and criminal activity. When the economy sours and legitimate money-making opportunities dry up, criminal activity is likely to increase.There is a function relating the number of offenses by any person to his probability of conviction, to his punishment if convicted, and to other variables, such as the income available to him in legal and other illegal activities, the frequency of nuisance arrests, and his willingness to commit an illegal act...
...a rise in the income available in legal activities or an increase in law-abidingness due, say, to "education" would reduce the incentive to enter illegal activities and thus would reduce the number of offenses.
A New York Times article this morning on shoplifting supports this analysis. It reports that,
As the economy has weakened, shoplifting has increased, and retail security experts say the problem has grown worse this holiday season. Shoplifters are taking everything from compact discs and baby formula to gift cards and designer clothing.The article identifies several other contributing factors, all of which fit within the rational framework.Police departments across the country say that shoplifting arrests are 10 percent to 20 percent higher this year than last.
Much of the increase has come from first-time offenders... But the ease with which stolen goods can be sold on the Internet has meant a bigger role for organized crime rings, which also engage in receipt fraud, fake price tagging and gift card schemes, the police and security experts say. And as temptation has grown for potential thieves, so too has stores’ vulnerability.Acknowledging that bad economic conditions contribute to crime is neither a capitulation to lawlessness nor an argument against pursuing other policies. Instead, it provides us with a better understanding of one of the factors--there are many others--behind people's behavior.'More people are desperate economically, retailers are operating with leaner staffs and police forces are cutting back or being told to deprioritize shoplifting calls,' said Paul Jones, the vice president of asset protection for the Retail Industry Leaders Association.
A rational analysis suggests that people, business owners, and law enforcement will need to be more vigilant during the tough economic months ahead.
Friday, December 19, 2008
An unfortunate sign of the times
The New York Times reports that the U.S. Postal Service is suspending its Operation Santa programs in New York and other cities. The programs, which have operated in different cities for more than 100 years, allowed post office customers to provide gifts to children who had written letters to Santa Claus.
According to the Times, "A Postal Service official in Washington, after an initial, limited acknowledgment of a 'privacy breach,' said that at one of the programs, not New York’s, a man whom a letter carrier recognized as a registered sex offender had 'adopted' a letter."
The problem with the program was that the Santas had the children's addresses and could provide gifts to children directly, sometimes in person.
The USPS is hoping to resume the program once it implements procedures to anonymize the children's letters. Under these arrangements, the post offices would act as clearing houses. They would replace the names and addresses in the letters with codes, and Santas would then only have the codes. Gifts would be brought to the post office, where workers would take care of subsequently unscrambling the codes and getting the gifts to the right children.
Sadly, even this wouldn't stop all possible abuses unless the USPS inspected the packages being sent to the children, as predators could still include their own contact information, or worse things, in the packages.
The USPS is absolutely right to take steps to protect the privacy and safety of children. It's terrible, though, that the bad actions of a few people could put such a worthwhile project at risk.
According to the Times, "A Postal Service official in Washington, after an initial, limited acknowledgment of a 'privacy breach,' said that at one of the programs, not New York’s, a man whom a letter carrier recognized as a registered sex offender had 'adopted' a letter."
The problem with the program was that the Santas had the children's addresses and could provide gifts to children directly, sometimes in person.
The USPS is hoping to resume the program once it implements procedures to anonymize the children's letters. Under these arrangements, the post offices would act as clearing houses. They would replace the names and addresses in the letters with codes, and Santas would then only have the codes. Gifts would be brought to the post office, where workers would take care of subsequently unscrambling the codes and getting the gifts to the right children.
Sadly, even this wouldn't stop all possible abuses unless the USPS inspected the packages being sent to the children, as predators could still include their own contact information, or worse things, in the packages.
The USPS is absolutely right to take steps to protect the privacy and safety of children. It's terrible, though, that the bad actions of a few people could put such a worthwhile project at risk.
Monday, December 15, 2008
Nike Missile
The U.S. decommissioned its Nike Missiles in the 1960s, but it seems that two slipped into Iraqi hands.
Tuesday, December 9, 2008
I want it now duddy...
If Veruca Salt were touring Roddie Blagojevich's corruption factory, she might have asked for more than a golden goose.
Loans for infrastructure stimulus
In his Sunday New York Times column, Thomas Friedman called for the government to direct its stimulus "investments" towards projects with significant social, economic, and technological pay-offs, that is to make genuine investments. Some of the areas he would target include batteries for cars and "green" energy infrastructure. He also recommends adding a carbon tax to redirect consumer demand towards these greener alternatives.
One thing that isn't discussed is how the investments should be structured. The government should consider using loans rather than outright grants to make many of these.
Loans would take advantage of the government's good credit and ability to borrow at low rates. They explicitly address the "credit crunch" aspects of the current downturn. And the low rates end up effectively subsidizing the investment projects.
Loans also acknowedge that one way or the other, the funds that are going toward the stimulus will need to be paid back. If the money is really going toward economically worthwhile investments, the direct returns on those investments should be the source of repayment.
As William Nordhaus has long argued, fiscal deficits, including deficits directed toward "induced innovation," should be viewed in terms of their investment components. Why not go one step further and structure the spending the way that businesses and private parties would structure their investments?
One thing that isn't discussed is how the investments should be structured. The government should consider using loans rather than outright grants to make many of these.
Loans would take advantage of the government's good credit and ability to borrow at low rates. They explicitly address the "credit crunch" aspects of the current downturn. And the low rates end up effectively subsidizing the investment projects.
Loans also acknowedge that one way or the other, the funds that are going toward the stimulus will need to be paid back. If the money is really going toward economically worthwhile investments, the direct returns on those investments should be the source of repayment.
As William Nordhaus has long argued, fiscal deficits, including deficits directed toward "induced innovation," should be viewed in terms of their investment components. Why not go one step further and structure the spending the way that businesses and private parties would structure their investments?
Monday, December 8, 2008
Why you're standing on the bus
The American Public Transportation Association reported that public transit ridership in the third quarter of 2008 across the country jumped more than 6.5 percent over the same figure from a year earlier. Locally, bus ridership in and around Greensboro also appears to be up.
The increase in ridership occurred at time when gas prices were peaking (July); the increase also occurred during a period of growing unemployment. Not surprisingly, personal driving miles and gas consumption are down. Car sales are slumpting, too.
With gas prices now down substantially, it remains to be seen whether transit ridership levels will be sustained. There are reasons, however, to believe it will. A big hurdle to ridership is figuring out bus and train schedules and the methods for payment; once people have "invested" in obtaining this information, subsequent ridership becomes much easier. Even if they eventually go back to their cars, people with ridership experience are more likely to turn to occassional transit use when personal arrangements break down or when there are special events.
The new President and Congress are considering public infrastructure spending as part of their economic stimulus plans. Investments in transit infrastructure, including improvements in train tracks, should be included. Locally, bus routes need to be streamlined; regional services need to be better integrated, and bus service to the airport needs to be improved.
The increase in ridership occurred at time when gas prices were peaking (July); the increase also occurred during a period of growing unemployment. Not surprisingly, personal driving miles and gas consumption are down. Car sales are slumpting, too.
With gas prices now down substantially, it remains to be seen whether transit ridership levels will be sustained. There are reasons, however, to believe it will. A big hurdle to ridership is figuring out bus and train schedules and the methods for payment; once people have "invested" in obtaining this information, subsequent ridership becomes much easier. Even if they eventually go back to their cars, people with ridership experience are more likely to turn to occassional transit use when personal arrangements break down or when there are special events.
The new President and Congress are considering public infrastructure spending as part of their economic stimulus plans. Investments in transit infrastructure, including improvements in train tracks, should be included. Locally, bus routes need to be streamlined; regional services need to be better integrated, and bus service to the airport needs to be improved.
Saturday, December 6, 2008
Unemployment figures
It's hard to sugarcoat numbers like these, somewhere between half to two-thirds of a million jobs lost on net in the month of November. The half a million figure comes from the Department of Labor's establishment data (information directly from firms), while the two-thirds figure comes from its monthly interviews of households.
To get even more academic for a moment and to borrow from George Will, those figures actually understate the number of jobs lost. In good times and bad, jobs are created and destroyed. Net job changes reflect the difference in the two flows, with new jobs offsetting some of the old jobs that were lost. A partial indication of the amount of dislocation is the more than 2 million people who have newly filed for unemployment claims in the past month. A better, though slightly dated, picture comes from the September job flows figures, which indicated that more than 4 million job separations occurred that month, along with about the same number of hires and 3.3 million job openings.
While distressing in themselves, we should brace ourselves for much worse job numbers in the coming months. From all indications, economic output is still contracting, with the pace of that contraction possibly accelerating. During that contraction, unemployment will get worse, and the job problems may not end there. Over the last two recessions, unemployment has been a lagging indicator. In the 1990-1 recession, unemployment didn't peak until June 1992 when it hit 7.8 percent, and in the 2001 recession, it didn't peak until June 2003 when it reached 6.3 percent. It's hard to say how much longer the economy will contract, but it's reasonable to assume that unemployment will continue to trend up through at least the coming year.
At 6.7 percent, the unemployment rate has now passed the peak from the last recession and on a path that would take it past the peak from the 1990-1 recession, perhaps as soon as next summer. Historically, (see the figures for the last 60 years from the BLS below), peak unemployment rates near 7 1/2 percent have happened before. However, as the country's experience in the late 1970s and early 1980s shows, post-war recessions can also produce much worse unemployment. For example, with the exception of just a few months, unemployment was at or above 7 1/2 percent from May 1980 until August 1984, peaking at nearly 11 percent at the end of 1982.
In some ways, we have been lucky to have had such little unemployment over the past 15 years; before the late 1990s, you have to go back to the 1960s to find a prolonged period of unemployment below 5 percent.
There is scant comfort that you can take out of the current job trends other than the perspective that the country has experienced some very bad economic times before and pulled through them. It will surely do so again.
To get even more academic for a moment and to borrow from George Will, those figures actually understate the number of jobs lost. In good times and bad, jobs are created and destroyed. Net job changes reflect the difference in the two flows, with new jobs offsetting some of the old jobs that were lost. A partial indication of the amount of dislocation is the more than 2 million people who have newly filed for unemployment claims in the past month. A better, though slightly dated, picture comes from the September job flows figures, which indicated that more than 4 million job separations occurred that month, along with about the same number of hires and 3.3 million job openings.
While distressing in themselves, we should brace ourselves for much worse job numbers in the coming months. From all indications, economic output is still contracting, with the pace of that contraction possibly accelerating. During that contraction, unemployment will get worse, and the job problems may not end there. Over the last two recessions, unemployment has been a lagging indicator. In the 1990-1 recession, unemployment didn't peak until June 1992 when it hit 7.8 percent, and in the 2001 recession, it didn't peak until June 2003 when it reached 6.3 percent. It's hard to say how much longer the economy will contract, but it's reasonable to assume that unemployment will continue to trend up through at least the coming year.
At 6.7 percent, the unemployment rate has now passed the peak from the last recession and on a path that would take it past the peak from the 1990-1 recession, perhaps as soon as next summer. Historically, (see the figures for the last 60 years from the BLS below), peak unemployment rates near 7 1/2 percent have happened before. However, as the country's experience in the late 1970s and early 1980s shows, post-war recessions can also produce much worse unemployment. For example, with the exception of just a few months, unemployment was at or above 7 1/2 percent from May 1980 until August 1984, peaking at nearly 11 percent at the end of 1982.
In some ways, we have been lucky to have had such little unemployment over the past 15 years; before the late 1990s, you have to go back to the 1960s to find a prolonged period of unemployment below 5 percent.There is scant comfort that you can take out of the current job trends other than the perspective that the country has experienced some very bad economic times before and pulled through them. It will surely do so again.
Monday, December 1, 2008
A little too dismal
Latvian authorities don't seem to understand why economics is called the dismal science. They've arrested a university economics lecturer who questioned the stability of the Latvian financial system.
Thursday, November 27, 2008
Not a bad job, not a bad job at all
There's no doubt about it, being a professor is a great job. There's a lot to be thankful for.
First of all, there are opportunities to work with a range of students. The most fun is teaching (and learning from) the students who are at the top of their game. These students engage you by asking important questions that you never thought about and by bringing their own analyses and research into the classroom or office hours. The most rewarding students are those who start off struggling with material and then find their way. The biggest challenge is in finding what works for the class you are teaching; it's often different from what worked for the class before. For various reasons, I've done less teaching overall and no undergraduate teaching since coming to UNCG; I especially miss the undergraduate part.
Second, academic jobs provide time for research and thinking. They allow you the freedom to research questions that interest you and to follow evidence wherever it goes. In practice, this means unlimited access to libraries full of books and journals and also the chance to work with or collect new data. The research leads to many provocative conversations with colleagues and collaborators over how to pose, frame, and interpret analyses. It sometimes also involves being given extra resources from your institution, the government, or private sponsors to gather more data or conduct more analyses. This aspect of the job is pure "nerd-vana."
Third, there is a wonderful cycle to the job. Things are crazy during the term while you are teaching, with work spiking just before the term as you prepare materials and near the end as big assignments and tests are made and come due. Between terms, things are quiet (at least if you are successful in hiding from deans and other administrators with committee assignments). When you are not teaching, the work is mostly self-paced. Salaries are usually provided for nine months' work, meaning that the summer can be your own.
Fourth, the job can offer some neat travel opportunities. I'm not sure if my trip in a few weeks to Ann Arbor (burr) counts as something to be thankful for but trips this year to Bonn, Hong Kong, London, Los Angeles, Taipei, and Washington certainly do.
Lastly, there is tremendous job security, at least for those lucky enough to have made it over the twin hurdles of finding a permanent job and then convincing our colleagues to grant us tenure. Tenure-track positions usually come with multi-year renewable contracts, so you can be sure of your status for that period of time. Those who don't get tenure (it took two tries for me) are typically offered an additional year of employment, during which you can search for the next position. If tenure is awarded...well, you can't be thankful enough for that kind of job security.
Academic jobs don't come without a tremendous amount of support. While some people pay their entire way through undergraduate and graduate school, I was fortunate to be supported by my parents in undergraduate school and by fellowships, assistanceships, and grants in graduate school. Schools public and private also receive copious amounts of taxpayer support. Graduate students require a lot of advice and guidance, so there are many generous and patient professors to be grateful for; several of those professors continue to provide advice and support. Along the way, there are mentors inside and outside your institution. These colleagues read and offer advice on your research, answer questions, help you with your teaching, call and write letters on your behalf to potential employers and sponsors, invite you to their institutions, and generally serve as a sounding board on the days you might not feel so thankful (but should). The help from families is also invaluable, from the ramen-noodle days of school, through the ups and downs of the job, and even through disruptive relocations. I can't thank them enough.
First of all, there are opportunities to work with a range of students. The most fun is teaching (and learning from) the students who are at the top of their game. These students engage you by asking important questions that you never thought about and by bringing their own analyses and research into the classroom or office hours. The most rewarding students are those who start off struggling with material and then find their way. The biggest challenge is in finding what works for the class you are teaching; it's often different from what worked for the class before. For various reasons, I've done less teaching overall and no undergraduate teaching since coming to UNCG; I especially miss the undergraduate part.
Second, academic jobs provide time for research and thinking. They allow you the freedom to research questions that interest you and to follow evidence wherever it goes. In practice, this means unlimited access to libraries full of books and journals and also the chance to work with or collect new data. The research leads to many provocative conversations with colleagues and collaborators over how to pose, frame, and interpret analyses. It sometimes also involves being given extra resources from your institution, the government, or private sponsors to gather more data or conduct more analyses. This aspect of the job is pure "nerd-vana."
Third, there is a wonderful cycle to the job. Things are crazy during the term while you are teaching, with work spiking just before the term as you prepare materials and near the end as big assignments and tests are made and come due. Between terms, things are quiet (at least if you are successful in hiding from deans and other administrators with committee assignments). When you are not teaching, the work is mostly self-paced. Salaries are usually provided for nine months' work, meaning that the summer can be your own.
Fourth, the job can offer some neat travel opportunities. I'm not sure if my trip in a few weeks to Ann Arbor (burr) counts as something to be thankful for but trips this year to Bonn, Hong Kong, London, Los Angeles, Taipei, and Washington certainly do.
Lastly, there is tremendous job security, at least for those lucky enough to have made it over the twin hurdles of finding a permanent job and then convincing our colleagues to grant us tenure. Tenure-track positions usually come with multi-year renewable contracts, so you can be sure of your status for that period of time. Those who don't get tenure (it took two tries for me) are typically offered an additional year of employment, during which you can search for the next position. If tenure is awarded...well, you can't be thankful enough for that kind of job security.
Academic jobs don't come without a tremendous amount of support. While some people pay their entire way through undergraduate and graduate school, I was fortunate to be supported by my parents in undergraduate school and by fellowships, assistanceships, and grants in graduate school. Schools public and private also receive copious amounts of taxpayer support. Graduate students require a lot of advice and guidance, so there are many generous and patient professors to be grateful for; several of those professors continue to provide advice and support. Along the way, there are mentors inside and outside your institution. These colleagues read and offer advice on your research, answer questions, help you with your teaching, call and write letters on your behalf to potential employers and sponsors, invite you to their institutions, and generally serve as a sounding board on the days you might not feel so thankful (but should). The help from families is also invaluable, from the ramen-noodle days of school, through the ups and downs of the job, and even through disruptive relocations. I can't thank them enough.
Wednesday, November 26, 2008
Cutting subsidies, but not by much
Reacting to a Government Accountability Office (GAO) report that found that the U.S. Department of Agriculture (USDA) paid $49 million in farm subsides to wealthy people who were ineligible because they were making more than $2.5 million, President-elect Obama said, "If this is true, it is a prime example of the kind of waste I intend to end as president."
The President-elect and his team have the right idea in trying to cut wasteful spending. However, as this particular case shows, there may be less waste to cut than first meets the eye.
The GAO study looked at tax records of people who received farm payments over the period 2003-2006. Over that time, the farm subsidy programs paid $16 billion per year ($64 billion over the four years of the study) to some 1.8 million households. From the 2002 Farm Bill, payments were supposed to be limited to people and entities whose incomes over the preceding three years averaged less than $2.5 million.
The GAO found that $49 million in payments went to 2,702 individuals whose taxable incomes exceeded $2.5 million. The potential waste here is large in an absolute sense at a little over $12 million a year; however, it is puny when compared to the size of the program. The individuals who were identified represent just 0.15 percent of subsidy recipients, and the possible overpayments represent just below 0.08 percent of program costs. Yes, USDA should be more careful, and yes, it might be able to save money, but such small fractions of program costs are going to be hard to root out.
The use of the words "potential" and "possible" in the preceding paragraph is purposeful because the report may be overstating the amounts of overpayments. Eligibility for the payments is sometimes determined on the basis of entity (business) income rather than individual income. Some of the 2,702 individuals may have been partners in eligible businesses; if so, the business's subsidy would have been reduced by that partner's share, though the business would still get a subsidy. Also, there are some subsidies that were not subject to the $2.5 million limit.
Finally, the period of the study was covered by the 2002 Farm Bill. The new 2008 Farm Bill, which took effect in October, sets lower income eligibility limits and requires USDA to use additional verification tools may well reduce the identified expenditures.
In addition to the potential overpayments, the GAO also found that a very high proportion of subsidy payments went to people making more than $500,000 per year. For instance, while only 0.4 percent of tax filers had adjusted incomes between $500,000 and $1 million, 1.2 percent of farm subsidy recipients had incomes in this range. Again, though, the 2008 Farm Bill is supposed to address some of this.
Farm subsidies must be reined in, and payments to ineligible millionaires should be the first to go. However, we shouldn't overstate the possible savings, especially in a program that is slated to change. Bringing the budget into balance will require much harder choices.
The President-elect and his team have the right idea in trying to cut wasteful spending. However, as this particular case shows, there may be less waste to cut than first meets the eye.
The GAO study looked at tax records of people who received farm payments over the period 2003-2006. Over that time, the farm subsidy programs paid $16 billion per year ($64 billion over the four years of the study) to some 1.8 million households. From the 2002 Farm Bill, payments were supposed to be limited to people and entities whose incomes over the preceding three years averaged less than $2.5 million.
The GAO found that $49 million in payments went to 2,702 individuals whose taxable incomes exceeded $2.5 million. The potential waste here is large in an absolute sense at a little over $12 million a year; however, it is puny when compared to the size of the program. The individuals who were identified represent just 0.15 percent of subsidy recipients, and the possible overpayments represent just below 0.08 percent of program costs. Yes, USDA should be more careful, and yes, it might be able to save money, but such small fractions of program costs are going to be hard to root out.
The use of the words "potential" and "possible" in the preceding paragraph is purposeful because the report may be overstating the amounts of overpayments. Eligibility for the payments is sometimes determined on the basis of entity (business) income rather than individual income. Some of the 2,702 individuals may have been partners in eligible businesses; if so, the business's subsidy would have been reduced by that partner's share, though the business would still get a subsidy. Also, there are some subsidies that were not subject to the $2.5 million limit.
Finally, the period of the study was covered by the 2002 Farm Bill. The new 2008 Farm Bill, which took effect in October, sets lower income eligibility limits and requires USDA to use additional verification tools may well reduce the identified expenditures.
In addition to the potential overpayments, the GAO also found that a very high proportion of subsidy payments went to people making more than $500,000 per year. For instance, while only 0.4 percent of tax filers had adjusted incomes between $500,000 and $1 million, 1.2 percent of farm subsidy recipients had incomes in this range. Again, though, the 2008 Farm Bill is supposed to address some of this.
Farm subsidies must be reined in, and payments to ineligible millionaires should be the first to go. However, we shouldn't overstate the possible savings, especially in a program that is slated to change. Bringing the budget into balance will require much harder choices.
Tuesday, November 25, 2008
Yet another problem for Rep. Rangel
The Washington Post reports today that
D.C. officials say that Rep. Charles B. Rangel (D-N.Y.), who recently has been buffeted by questions about his personal taxes and real estate dealings, was incorrectly given a tax break on a house he owned in the District.
Rangel received the "homestead exemption," a property tax break for people who live in a permanent, primary home in the city.
When asked about his numerous shady tax and real estate issues, Rep. Rangel "said that he did nothing 'morally wrong' and that, at worst, he could be accused of sloppy record-keeping."
Rep. Rangel is either as inept as he claims, dishonest and a cheat, or some combination of these. Either way he has shown himself, now for yet another time, to be unsuited for the chairmanship of the Ways and Means Committee.
Monday, November 24, 2008
Life is speeding up
The Southern Economic Association meetings were held this past weekend in Washington. For me, that meant a five-hour drive from Greensboro up to DC on Friday night, and another five-hour drive back on Sunday.
One pleasant surprise along the way was the continued drop in gas prices. I usually stop for gas along interstate 95 at exit 61, just north of Petersburg or about two-thirds of the way up to Washington. Gas prices there were below $1.70/gallon. Just a few months ago, prices were $2/gallon higher.
One less pleasant observation (it wasn't really a surprise) was a return to rampant speeding. On previous trips during the last year and especially this fall, the right-hand lane saw a good share of the traffic moving at the posted speed limits. That wasn't the case on this trip though. I set the cruise control at 65 mph for most of the trip, and increased it to 70 mph for the 60 miles of interstate 85 that are posted at that speed. With the exception of the truck traffic that seemed to be keeping to those speeds, it was a lonely vigil in the right-hand lane.
The relatively relaxed pace of the journey provided some time to think about the many costs of speeding.
One pleasant surprise along the way was the continued drop in gas prices. I usually stop for gas along interstate 95 at exit 61, just north of Petersburg or about two-thirds of the way up to Washington. Gas prices there were below $1.70/gallon. Just a few months ago, prices were $2/gallon higher.
One less pleasant observation (it wasn't really a surprise) was a return to rampant speeding. On previous trips during the last year and especially this fall, the right-hand lane saw a good share of the traffic moving at the posted speed limits. That wasn't the case on this trip though. I set the cruise control at 65 mph for most of the trip, and increased it to 70 mph for the 60 miles of interstate 85 that are posted at that speed. With the exception of the truck traffic that seemed to be keeping to those speeds, it was a lonely vigil in the right-hand lane.
The relatively relaxed pace of the journey provided some time to think about the many costs of speeding.
- Let's start with the obvious, speeders cost themselves money. The U.S. Department of Energy estimates that fuel economy falls about 10 percent for each 5 mph you travel over 60 mph. Even at the cheap prices along the NC-VA route, that works out to roughly a 17-20 cent a gallon surcharge for traveling 70 mph in a 65 mph zone or a 34-40 cent a gallon surcharge for traveling 75 in the same zone. Put another way, each 5 mph over the limit costs drivers the same as the federal gasoline tax (18.4 cents per gallon).
- Multiplied many times over when you consider all of the speeding that occurs, that behavior also increases gasoline demand, which in turn pushes up gas and oil prices. One individual keeping to the posted limits doesn't bring down prices, but a large share driving this way does. Many things have contributed to the recent changes in gas prices, but reduced demand certainly plays a role. U.S. petroleum consumption has declined every month this year, with the August 2008 consumption figure being lower than at any other time since the end of 2001.
- Energy prices are a component in most other prices; so, reduced demand helps to bring down the costs of many other goods.
- Reduced speeding saves lives and property. Estimates from 1998 indicate that speeding was a factor in one-third of vehicle crashes and that those accidents cost $28 billion a year.
- Speeding pollutes more and contributes to excess greenhouse gases; the extraction, refinement, and transportation of petroleum also pollute.
- Because the U.S. produces only a fraction of the petroleum that it consumes, the excess demand from speeding adds to our net imports and weakens our dollar. That weaker dollar means that you pay more for other imported goods.
- Where to those import revenues go? Directly or indirectly the revenues end up in the government coffers of a host of delightful countries, including Venezuela, Iran, Russia, and Angola (note that even though we don't purchase oil directly from Iran, other countries do). Each and every speeder brings smiles to the faces of Hugo Chavez, Vladimir Putin, and Mahmoud Ahmadinejad. Speeders are truly their friends.
Thursday, November 20, 2008
The last time the stock market was this low...
The last time the stock market was this low, my family and I looked like this:
And when I told my oldest son that the stock market would be at the same sorry level, 11 years later, he responded
I really don't want to drag out any earlier photos.
And when I told my oldest son that the stock market would be at the same sorry level, 11 years later, he responded
I really don't want to drag out any earlier photos.
"Jet"-tisoning priorities
As has now been widely reported and roundly criticized, the chief executives of the Big Three automobile manufacturers flew from Detroit to Washington on separate private jets to beg for an additional $25 billion hand-out (just a month or so ago, Congress approved $25 billion in loans for the companies to help them develop more fuel-efficient cars).
The foolishness of their travel arrangements is evident and probably put the last nail in the coffin of their bail-out hopes. But let's consider for a moment what the trip and the general travel policies say about the executives' and their companies' priorities.
The cost figure tossed around in the articles is $20,000 for each of the round-trip flights; let's go ahead and work with that figure. If the three executives had simply jet-pooled, they could have saved $40,000, enough to pay one of the companies' $15/hour workers for a year, assuming a 33% fringe benefit rate.
First-class same-day tickets on Northwest Airlines with no advance purchase between Detroit and Washington cost less than $1,400. So, the executives could have flown even less expensively, while still enjoying first-class service.
Clearly, this isn't the only trip any of them will make this year. Assuming that each executive makes dozens of trips each year, there are dozens of jobs that could be saved just by simple economizing measures. We're not talking about a cut in the executives extravagent salaries, just some adjustments in travel arrangements.
A CNN article quotes a GM spokesperson as saying, "Making a big to-do about this when issues vital to the jobs of millions of Americans are being discussed in Washington is diverting attention away from a critical debate that will determine the future health of the auto industry and the American economy." But "a big to-do" should be made when a simple bit of coordination yesterday could have saved one of those jobs and when slightly more frugal policies could save dozens more.
It's telling that the trade-off never even occurred to the executives.
The foolishness of their travel arrangements is evident and probably put the last nail in the coffin of their bail-out hopes. But let's consider for a moment what the trip and the general travel policies say about the executives' and their companies' priorities.
The cost figure tossed around in the articles is $20,000 for each of the round-trip flights; let's go ahead and work with that figure. If the three executives had simply jet-pooled, they could have saved $40,000, enough to pay one of the companies' $15/hour workers for a year, assuming a 33% fringe benefit rate.
First-class same-day tickets on Northwest Airlines with no advance purchase between Detroit and Washington cost less than $1,400. So, the executives could have flown even less expensively, while still enjoying first-class service.
Clearly, this isn't the only trip any of them will make this year. Assuming that each executive makes dozens of trips each year, there are dozens of jobs that could be saved just by simple economizing measures. We're not talking about a cut in the executives extravagent salaries, just some adjustments in travel arrangements.
A CNN article quotes a GM spokesperson as saying, "Making a big to-do about this when issues vital to the jobs of millions of Americans are being discussed in Washington is diverting attention away from a critical debate that will determine the future health of the auto industry and the American economy." But "a big to-do" should be made when a simple bit of coordination yesterday could have saved one of those jobs and when slightly more frugal policies could save dozens more.
It's telling that the trade-off never even occurred to the executives.
It could and has gotten worse
More negative portents:
Oh, and the stock market continues its slide.
Businesses cut prices at a record rate last month, builders started fewer new homes than anytime on record, and last week more people filed for new unemployment benefits than in any week since 1992, according to government data, as the outlook for the economy continues to dim.And the Fed is becoming more bearish:
The economy "would remain very weak next year" and "the subsequent pace of recovery would be quite slow," the Fed said in its new economic projections. "The unemployment rate would increase substantially further."(The Fed isn't exactly going out on a limb with that last prediction, as the unemployment rate had already reached 6.5 percent in October.)
The Fed projected that the national unemployment rate will rise to between 6.3 percent and 6.5 percent this year.
Oh, and the stock market continues its slide.
Monday, November 17, 2008
Glimpse of the end in Iraq
The Iraqi cabinet has approved a new status of forces agreement with the U.S. A key--and hopeful--feature of the agreement is that it calls for the withdrawal of U.S. military forces by the end of 2011.
The agreement, which must still be ratified by the Iraqi parliament, partly reflects the improved security situation. While the situation is still chaotic, Iraqis feel confident enough to go it alone in a few years.
The agreement also restricts U.S. military operations, starting next year. By next summer, U.S. forces are to withdraw from urban areas of the country. There are also restrictions on cross-border operations, like the one that just targeted Syria.
The plan is a boon for President-elect Obama, who has promised to withdraw troops on a somewhat faster schedule. Some months ago, it appeared that President Bush wanted to tie the hands of his successor to an open-ended commitment to Iraq. The agreement quashes that.
There are sure to be bumps along the road; however, the road map for ending substantial U.S. involvement in Iraq is in place. We should all hope that the Iraqis are up to the challenge.
The agreement, which must still be ratified by the Iraqi parliament, partly reflects the improved security situation. While the situation is still chaotic, Iraqis feel confident enough to go it alone in a few years.
The agreement also restricts U.S. military operations, starting next year. By next summer, U.S. forces are to withdraw from urban areas of the country. There are also restrictions on cross-border operations, like the one that just targeted Syria.
The plan is a boon for President-elect Obama, who has promised to withdraw troops on a somewhat faster schedule. Some months ago, it appeared that President Bush wanted to tie the hands of his successor to an open-ended commitment to Iraq. The agreement quashes that.
There are sure to be bumps along the road; however, the road map for ending substantial U.S. involvement in Iraq is in place. We should all hope that the Iraqis are up to the challenge.
Friday, November 14, 2008
It Could Be Worse
The drop in today's stock market reminds us that a lot more bad new could be out there.
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