June 2009 Archives

06/30/09 12:47 PM

Infinite Jest, Painfully Finite Summer


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This is really, really outside the normal purview of this blog, but a bunch of Washington DC-based writers are doing a group blog about David Foster Wallace's Infinite Jest as part of the Infinite Summer book project. (And this is even more shameless than a typical blog plug, because I am supposed to be one of those writers.) It goes without saying that none of us is qualified to write about literature.

I've gotten through about 60 of the book's 1,079 pages. I am yet to fall in love, but haven't given up. My first post, outsourced entirely to James Wood, is here

06/30/09 10:10 AM

Daily Chart: Who Gets The Health-Care Tax Benefits?


It's perfectly fine to fisk the administration for backtracking on Obama's pledge not to raise taxes on anyone earning less than $250,000. Why? Because Obama's people now say they won't rule out taxing employer-sponsored health benefits. (As it stands, health benefits you get through an employer are not subject to payroll or income taxation. More here.) Additional fisking might be deserved here on account of the laughable defenses employed ("we're going to let the process work its way through," spins Robert Gibbs, to laughter), and because Obama spent a fair bit of campaign time knocking McCain for taking the position that the new president is now on the cusp of embracing.

Nonetheless, it's important not to lose sight of the fact that taxing health benefits to pay for health-care reform is a fantastic idea -- exactly the kind of thing that deserves a flagrant Obama flip flop. A lot of the debate over whether taxing health benefits would break Obama's $250,000 pledge suggests that the current tax structure benefits low and middle income families. (The name of the YouTube clip of Gibbs getting laughed at is "WH Won't Rule Out Tax Increase On Middle-Class.") But that isn't true: The current tax exclusion does benefit some low- and middle- class families, but most of the benefits are offered to high-income taxpayers with less need.

Here's the breakdown of benefits, by effective tax rate:


who gets ESI?.png
So, one's chances of being offered employer-sponsored insurance (ESI) increase fairly steadily with income. And note, in particular, the difference between those offered and those covered with a less than 10% effective tax rate. Just 35% percent of those workers receive any health tax benefits. This suggests that, even with the tax benefit, many low income families choose not to or cannot buy coverage.

(One final note: This chart shows only who is offered and receives coverage, not the value of that coverage. It would surprise exactly no one to know that, in addition to receiving coverage more frequently, wealthy taxpayers also receive coverage that is more valuable. I don't know where to find that data. All of the above numbers are drawn from the wonderful Tax Policy Center.) 


06/29/09 3:47 PM

Is Cap and Trade a 'Special Interests' Giveaway?


250 monopoly-man.jpgMy colleague Clive Crook thinks so -- he calls the new bill a "travesty" and a "playground for special interests" in his new FT column -- and so do many of the commenters on this blog. But while my instinct is always to be a shameless comment demagogue, and while I agree with Clive that there are a lot of warts on the new American Clean Energy and Security Act, I do think it's worth making one point about the bill's 'corpoate giveaways.'

I've written elsewhere that in an ideal world we'd want to regulate emissions with a carbon tax. I still believe this: A carbon tax would be simpler and fairer and (potentially) easier to scale globally. But it seems to me that cap and trade does have one feature that is nice bulwark against the harms of lobbying: It puts a strict cap on emissions. This means that lobbyists can affect how permits are distributed -- who gets them and when -- but not the overall level of emissions that will occur. (I don't think this would be true of a carbon tax cluttered by the concerns of special interests: A tax exemption here or there will reduce the tax's effectiveness in limiting emissions.)

Sure, the distribution of permits is still very important. When the government gives permits to select recipients, it is rewarding one industry over another, and favoring "incumbent" companies over those that might enter the market in the future. I think that is unfair. But those concerns about fairness are entirely separate from concerns about the environmental effectiveness of the bill. A cap and trade bill that gives all the permits to Donald Trump will be just as effective in reducing emissions as a bill that auctions off all of the permits and uses the revenue to fund an across the board payroll tax cut.

I thought this point was expressed very eloquently and at greater length last month by Harvard's Robert Stavins. So here's a question: has anything been added to the bill since then that would reduce its effectiveness?


I was looking for a stereotypical picture of sinister corporate interests, but the best I could come up with was the darn monopoly man.

06/29/09 10:56 AM

Nico Pitney and Collusion with the White House


This is outside the normal purview of this blog, but I do find the continued controversy over whether or not Nico Pitney colluded with the White House before asking about his famous Iran question slightly odd. As far as I can tell there is no real evidence that the White House pressured him to ask a specific question, and no real contention that the question was anything but a tough one, and no real disagreement over the fact that the president dodged it. If this is what the vast leftwing conspiracy looks like, it's really not off to a good start.

06/29/09 10:00 AM

Daily Chart: What Global Warming Will Do To Global Agriculture


Since I think a lot of this discussion of global and national GDP obscures the most worrying cost of global warming -- namely, the vast impact climate change will have on developing nations -- I thought I would dig up some charts on global warming and global agriculture production. The most rigorous study on this subject that I know of is William Cline's Global Warming and Agriculture. (You can actually download the chapters from that link.)

The basic points of Cline's book are that, by the end of the 21st century, (1) climate change will lead to a slight decline in global agricultural productivity; and (2) climate change will lead to a giant decline in agricultural productivity in Africa, South America and India.

Here are two charts that sum this up. The first is the change in agricultural productivity (by 2080) taking into account the potential benefits of "carbon fertilization" (the increase in yield that occurs in a carbon rich environment*):


cline with carbon fertilization.png
Not hard to see why Russia and China might find a climate bill unappetizing. (Likewise the good people of Minnesota.) Here is the change in agricultural productivity without assuming benefits from carbon fertilization:

cline without carbon fertilization.pngAs a sidenote, I think it's important to recognize that deep brick color falling over most of Africa, South Asia and Latin America -- all places where agricultural productivity will fall by more than 25% -- actually hides big differences. For example, Cline reports that the southern regions of India would experience potential output declines of 30-35%, while northern regions would experience declines of 60%.

----
*Quick note about this: The effects of carbon fertilization are very uncertain, and depend crucially on the availability of other resources -- water for irrigation, say -- that will also be affected by global warming. I'm not in a position to parse the various bits of evidence. But it's worth noting that, even if carbon fertilization yields large benefits, Cline estimates a decline in global agricultural productivity.

06/27/09 3:49 PM

A Predictably Liberal Take on Global Warming


250 karl marx wiki.pngJim Manzi slaps me with two charges of being a predictable liberal and one (implicit) charge of being insufficiently familiar with the blogging oeuvre of Jim Manzi. Your honor, I'd like to contest one of those charges. Manzi says I claim the science "now says things will be even worse than we previously thought," as a way to "inflate the analyzed costs of global warming." I think that pretty adeptly misses the point of my last post, so let me try making it again.

Once more: I don't think making a compelling case for regulating carbon emissions requires cherrypicking the most apocalyptic warming estimate. (The cherrypicking is sufficient but not necessary.) Even if we maximize the shared space of factual agreement -- by looking at the uncontroversial 2007 IPCC report -- it's fairly easy to find a compelling case for regulating emissions. That case doesn't rest on the prediction of a world in which Manhattan is underwater and global output -- much less American output -- falls by 10 or 15 percent. The case for regulation rests on those things happening to developing nations that are (1) less responsible for and (2) less able to adapt to climate change.  

Is that a predictable, moralistic, high-horse liberal crusade? Yup. But, happily and naturally, being predictable doesn't imply being wrong. And I don't even get the sense that Manzi thinks the crusade is "wrong." He just thinks it's "not as obvious" as I suggest. Well, inquiring minds can decide for themselves. Here's a link to the latest IPCC report. Give it a read.


Picture of some predictable liberal via Wikimedia Commons.
 

06/27/09 2:19 AM

What's the Point of Reducing Carbon Emissions?


600 trees and polution wiki.png
The American Clean Energy and Security Act (ACES) -- the bill that would impose a cap and trade regime for U.S. carbon emissions -- has passed the House of Representatives. Was it worth it? Well, on its own, ACES will in no sense make the world a cooler place. Other nations will help themselves to more coal, like bad kids on Christmas morning. An American cap and trade bill will have a meaningful impact only if it induces other nations to follow suit. So the hope -- plausible if not irresistible, I think -- is that passing climate-change legislation will be a powerful gesture before December's United Nations climate change conference.

But even if the Copenhagen Conference produces a meaningful consensus on climate change, will it matter? Jim Manzi does not think so. He runs some numbers, in response to a post I wrote yesterday, and concludes that even if you eliminate all the costs of global warming in the next century, the economic benefits would be negligible -- and certainly disproportionate to the hysterical rhetoric you hear from the left.

It's possible to quibble with Manzi's data. (More recent temperature estimates than the IPCC's exist: You can check out the work of MIT's Joint Program on Global Change for more.) Or, one might suggest that the factual uncertainty here suggests erring on the side of caution. (If Manzi is right, your children will enjoy a 1% increase in consumption. If Manzi is wrong, your children will know a world with fewer island nations.) But I don't think making a compelling case for regulating carbon emissions requires diving down that empirical rabbit hole. Even if we assume that the worldwide future economic benefits from cap and trade are tiny -- and, on the flipside, assume that the average economic costs of global warming are small -- the critical consideration is where those costs and benefits fall.

The big costs of global warming will fall overwhelmingly on developing nations with dense, coastal populations. You can be a realist about those costs -- why on earth should America care what happens to Bangladesh? -- but the costs are still real. They are also, by and large, not costs for which the developing world is responsible.

And they are big. Manzi cites the most recent Intergovernmental Panel on Climate Change report for his high-end estimate that "economic damages from [a temperature increase of 4 degrees celsius] are equal to 5% of [global] GDP." True fact. But the same report says that, in Africa, the cost of adapting to rising sea level alone "could amount to at least 5-10% of Gross Domestic Product." A one-meter rise in sea level will destroy 1,000 square kilometers of farmland in Bangladesh. And you don't even need to consider the tediously debated issue of sea level to indulge in a little hysteria: Temperature increases could help cut crop yields in agriculture-dependent South Asia by 30% come the middle of the 21st century.

I don't think this is hysterical or even controversial: Travel to South Asia and you can watch it happen now. The question is just how it enters the policy calculus. And why shouldn't it?

[Update: Jim Manzi responds to me (again) here and I respond to him (again) here. Round we go.]
 

All the nifty pollution pictures are just taken from Wikimedia Commons' extensive air pollution section. Who knew.

06/26/09 9:30 AM

Daily Chart: What Waxman-Markey Will Do To The Economy


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[Update: Jim Manzi responds here and I respond to him here.]

As you might know, the House is voting later today on the Waxman-Markey climate change bill, The American Clean Energy and Security Act. Feelings are mixed. For one, there were a lot of mischievous compromises. For another, the bill doesn't have any immediate, selfish economic benefits for the country, and there's no point pretending otherwise. I think Jim Manzi and others are right to say -- if you believe the IPCC and CBO estimates -- that the U.S. won't experience a climate-induced decline in GDP until 2080 or 2100. (And that decline in GDP is not something Waxman-Markey will stop, at least without global coordination. The big question is whether this bill will increase or decrease the chance of such coordination.)

Nonetheless, I think there's a fair amount of scaremongering going on about the costs of cap and trade. I get off the Jim Manzi train when he says that Waxman-Markey will be "a terrible deal for American taxpayers" because "it is projected to impose annual costs of about $1,100 per household (a little less than 1% of total consumption) by 2050." (That's from the EPA estimate.) That $1,100 looks like a lot, but of course the country is projected be almost three times richer in 2050 than it is now. Average household consumption in 2050 will be $164,348.

Here's an easy way of visualizing the costs of Waxman-Markey. The chart below shows projected U.S. GDP with and without Waxman-Markey (drawn from the data annex of the EPA's big estimate). Projected U.S. GDP without the bill is in orange; it's sitting behind projected GDP with the bill, which is in grey. The visible orange stripe is the difference between the two scenarios:


waxman markey and GDP.pngIn 2050, GDP without Waxman-Markey is projected to be $35,377,000,000,000. GDP with Waxman-Markey is projected to be $34,918,000,000,000.


06/25/09 12:28 PM

The Biggest Tax In American History?


wikimedia pollution.png
There's plenty of stuff worth quibbling over in this big Wall Street Journal editorial on climate change and the Waxman-Markey bill, and some decent food for thought. Then I arrived at the last paragraph and saw this:

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history.

So here's what I'm wondering: Is there any possible, conceivable way this statement can be true? I mean the question seriously. Did the Wall Street Journal editorial board have a meeting where someone tossed out this idea and the consensus was that it could pass a test of common sense? Is it true under some definition of "biggest," or some bold interpretation of "likely," or some novel notion of "American history"?

As far as I can tell, it's not even true by the Journal's own cost estimate of the bill in question. They write:

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Would this be the biggest tax in American history? I'll humor it. Let's assume the Heritage analysis is completely accurate. Let's further assume that the $6,800 cost per family will occur tomorrow and not 26 years in the future, so we don't have to worry about inflation or any complicated present-value comparison stuff. Let's also not worry about adjusting for the economic cost of climate change. And let's assume that this comparison should just be with the face value of other taxes and not broad comparisons of the economy "with and without" the tax. Heck, let's also compare this cost to the "family of four" with the average individual cost of other taxes.

Now let's compare "the biggest tax in American history" to the most obvious and widely known tax in America: The income tax. The average individual income tax return is larger. In 2006 it was a little over $7,500. Is there any reason why that sentence from the Journal isn't just a large, obvious factual error?


06/25/09 10:00 AM

Daily Chart: Tall People Have Better Lives


Via Catherine Rampell, I see there's some new research about the relationship between height and quality of life. The findings? Tall people enjoy a higher quality of life. Specifically, the Talls are richer and happier than the Shorts. (The paper in question has some cool charts, which I'll happily steal.) Here's happier:

tall people appier.png
And here's richer:

tall people richer.pngA while back Greg Mankiw suggested that maybe we should have a height tax -- not with the intention of enacting one (as was sometimes misunderstood) but with the intention of sussing out a moral intuition about the appropriate role of taxes. A height tax sounds horrible and absurd, but it would actually be pretty darn efficient: You would get the benefit of taxing something strongly correlated with a higher income, without the drawback of distorting incentives or decreasing effort. You can change how hard you work; you can't really change your height.

I share Greg's moral intuition that a height tax would be, somehow, wrong. But the more I see data like this, the more I think it might be a good (if utterly impractical) idea.

06/24/09 11:39 AM

The Collin Peterson Climate Change Compromise


250 collin peterson.pngSo it looks like the Waxman-Markey climate change bill will pass in the House this week: The sponsors hammered out an agreement last night with Collin Peterson, the chair of the Agriculture Committee. The main sticking point was over whether the EPA or the Department of Agriculture would administer a carbon offset program intended for farmers. (The offset program will pay farmers to do environmentally friendly things like plant trees.) Peterson got his way: The (more sympathetic) Department of Agriculture will do the work.

I don't have a whole lot to say about the compromise -- the bill now weighs in at a morbidly obese 1,201 pages, and much like every member of Congress I sure haven't read it -- except that I can feel my enthusiasm for the whole project slipping away. In the ideal world we'd want a carbon tax, with the revenue used to fund a payroll tax cut. In the campaign world we were promised a cap and trade bill with 100% of the emission permits auctioned off. In the real world we were offered a cap and trade bill with some portion of the permits auctioned off and some portion of the permits handed out to please various important constituencies who would otherwise scuttle the effort. And in the world of Collin Peterson we will also have a special offset program for agricultural interests.

I know that politics is the art of the possible and we must cling tightly to our copies of Machiavelli and blah blah blah. Whether an imperfect bill is better than no bill at all is a question we will all have fun answering in hindsight. But I don't see any reason not to point out that bill is imperfect, and I don't totally understand why so few people are doing that. A friend mentioned that Barack Obama got exactly zero questions about energy or the environment during yesterday's presser, despite mentioning the bill in his opening comments. Maybe ignoring the bill is better than swallowing it?


Collin Peterson may be the Chair of the House Agriculture Committee -- image from Wikimedia -- but he also plays in a rock band.

06/24/09 10:00 AM

Daily Chart: Money For The Washington DC Metro

Washington DC's terrible Metro accident -- yikes, I used to ride the red line every day -- made we want to go look up information about the city's train system. So I went to the National Transit Database historical tables to see what I could find. Had there been big changes in services? A drop off in funding? Not really. Here are the total operating expenses of the Metro over the past ten years, in millions and billions of dollars:
 

1. total metro costs.png
Of course, this needs to be adjusted for population growth, increased usage and expansion. So here's the growth in total services provided (in billions of miles traveled):


2. total metro consumption.png
 I combined the two to get the dollars spent per mile traveled. That's increased too:

3. dollars per mile.png

06/23/09 10:00 AM

Daily Chart: How Progressive is Cap and Trade, Part Two


flcikr scott cassidy.pngYesterday I made a chart that tried to put the burdens of the Waxman-Markey cap and trade bill in context. The share of C&T costs paid by the poorest Americans will be lower than the share of all federal taxes paid by the same group. But the share of C&T costs paid by the wealthiest Americans is also far lower than the group's federal tax share. This means that a unusually high portion of cap and trade's costs fall on middle-income Americans. The top quintile pays $245 a year, but the second highest quintile pays more: $340 a year.

My friend Brad Plumer, who writes TNR's environment blog, took me to task on his Twitter feed: The big point of the CBO analysis shouldn't be how the burden of cap and trade is distributed -- it should be that the burden is negligible. Okay, fair enough. So here's a chart that approaches the cost of cap and trade from a different angle: Not as a percentage of total tax liability, but as a percentage of household income.

This chart has three variables: The percentage of household income spent on energy, the percentage of household pretax income that would be spent on cap and trade under the Waxman-Markey bill, and the percentage of after-tax income that would be devoted to the same cause.
 

cap and trade household spending.pngThis is simple: Because low income households spend a relatively large portion of their income on energy, a flat carbon tax or C&T system will impose relatively large costs on low-income households. But what is striking here -- and, I think, what is important to people like Brad -- is that the after-tax costs remain low.

On the other hand, it's still pretty crummy to be in the third or fourth quintile.

One fine-looking refinery, via Scott Cassidy's Flickr photostream. All the data for this chart comes from the CBO. The data on total household energy spending is from a June 2008 report. The other household spending data is from the most recent cost estimate.

06/22/09 10:00 AM

Daily Chart: How Progressive is Cap and Trade?


250 smoke paul j everett flickr.pngIs cap and trade going to screw the poor? Turns out there is some debate about this. You have the Tax Foundation going on about how the costs of cap and trade will be "disproportionately borne by low-income households," and Warren Buffett saying that cap and trade is "probably going to be pretty regressive." And then you have the CBO's weekend estimate of what cap and trade will cost the individual families, which both Kevin Drum and Matt Yglesias use to make the point that poor families will actually do pretty well.

Cap and trade is a system for reducing carbon emissions in which the government sets the overall level of pollution that can occur (the "cap") and then auctions or distributes pollution permits that companies and households can sell (the "trade"). Because this puts a price on carbon emissions, it will raise companies' operating costs. (Of course, putting a price on carbon, and thus a price on damaging the environment, is the whole point.) And those costs will be passed onto consumers. But cap and trade also generates revenue -- if the permits are auctioned off -- and that revenue can be used to partially offset the increased household costs.

The CBO estimate says that, under the cap-n-trade plan currently being considered in the House, the average family will face additional costs of about $165 a year. Families in the lowest income quintile will actually see a benefit of $40, largely because some portion of the revenue will be used to fund a rebate and tax credit for low income families. Families in the top quintile will pay an extra $245 dollars a year. That looks pretty progressive. But families in the second highest quintile will end up with an additional burden of $340 a year -- more than the wealthiest Americans. How to make sense of this?

I thought I would make a chart of how the distribution of cap-and-trade costs compared with that of other federal taxes. In the chart below you can see who is paying for cap and trade, compared with (1) all federal tax liabilities; (2) the federal income tax; and (3) federal social insurance taxes. (All of the data is drawn from the CBO series on federal tax distribution.)

cap and trade share by income.pngIf you look at only the bottom quintile, C&T is more progressive than anything else in the federal tax system. But it's downhill from there: The share of cap and trade paid by the middle quintile is three times the federal tax system's average, and the share paid by the richest quintile is half that of the average.

I don't really have a strong normative point to make here. Progressivity is in the eye of the beholder and all that. Nonetheless, I hope this puts some of the debate over the burdens of cap and trade in context.

Housekeeping note: From now on I'm going to try to publish one original chart each weekday morning. If this proves too tiring or boring I will happily abandon the effort. And if I get lazy I might publish other interesting charts that I find around the Internet. But I like making these charts and, like Conor Friedersdorf, think it's an important part of blogging. Suggestions always welcome.


06/20/09 9:07 AM

How Much Will Waxman-Markey Cost You?


Joy of joys, I woke up this morning to find that the Congressional Budget Office answered this question. From the CBO's new per-household cost estimate (pdf):

[T]he Congressional Budget Office (CBO) estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion -- or about $175 per household.

This does not include the potential economic benefits of slowing climate change. Still, I think it's worth noting that the net cost here is about one tenth of what Martin Feldstein thought it would be:

The Congressional Budget Office estimates that reducing the level of CO2 to 15 percent less than the total level of U.S. emissions in 2005 would require permit prices that would increase the cost of living of a typical household by $1,600 a year ... The Waxman-Markey bill that recently passed the House Energy and Commerce Committee would cause an even greater initial rise in the cost of living by its requirement to cut CO2 emissions to 17 percent less than the 2005 level of emissions rather than the 15 percent reduction assumed in the CBO estimates.

Update: CBO link is fixed. (Happily, It no longer goes to my gmail account.)

06/19/09 4:29 PM

Cash for Clunkers Goes Thud


old cars panorama paul's flickr.pngOne thing you can say about the new "Cash for Clunkers" legislation -- approved by the Senate yesterday and heading to Obama for a signature -- is that it's not as bad as it could have been. And yet the project started with such high hopes! You had Alan Blinder calling it a "remarkable" public policy hat trick: We could stimulate the economy, improve the environment and reduce income inequality all in one go! And all by having the government buy and scrap some crappy old vehicles.

The idea sounded nice, but it was not hard to see the problems. If the government artificially raises the price of crappy old cars, it will create market for fixing up crappy old cars no one drives -- hardly an efficient public policy goal. (Last year Steven Levitt hypothesized that the program might actually increase the number of Clunkers on the road.) And if the program lasted for any extended period of time, the effects on income distribution would be tiny. Sure, the immediate beneficiaries would be the current owners (Blinder says most Clunker owners are downscale families). But, after the initial round of sales, the price of used cars would go up to reflect the government subsidy. That wouldn't exactly be a boon to the driving poor.

But, as near as I can tell, the Bill that passed the Senate avoids the big problems. Will Wilkinson and others have pondered some clever schemes for ripping off the federal government and destroying the environment at the same time, but I haven't seen one that will work. Why can't Will sell his fuel efficient Civic, buy a smoggy old truck, trade it to the government for $4,500, and buy a brand new car that pollutes more than the original Civic? Because your clunker must be "continuously insured and registered to the same owner for at least one year" to claim a voucher, and the window for the trade-ins only runs from July 1 to November 1, 2009. (On the other hand, the trade-in policy is so narrow and confusing that I'm not sure there'll be lines running around the block to take advantage of it.)

The main problem with the bill, I think, is one Ryan Avent latched onto last month: It's poorly targeted. You can trade in an SUV that gets 17 mpg and buy one that gets 19 mpg with a $3,500 helping hand from the federal government. On the other side of the docket, you can scrap your 19-mpg passenger car, buy a 30-mpg one, and get zilch. (Or maybe a thank you.) That's because the voucher benefits are all or nothing, depending on whether you cross the 18-mpg line.

Maybe there are some net gains for the environment in there. But the structure looks more like a gift to the auto industry than a gift to mother nature.


Clunkers -- ones you prolly couldn't trade in, alas -- via Panorama Paul's Flickr photostream. 

06/18/09 3:49 PM

A Nation of Deficit Hawks Or Hypocrites?


250 obama superman.pngWell that was fast. Two big polls came out last night and this morning -- here's the CBS/NYT poll and here's the NBC/WSJ poll -- to find that the administration's agenda is starting its trip down the tubes. "Obama Poll Sees Doubt on Budget and Health Care," headlines the Times. "Public Wary of Deficit, Economic Intervention," headlines the Journal.

Right, so there is a lot of interesting stuff in the polls. (The Journal poll, in particular, finds that the auto crisis has made American more likely to purchase American cars. Or so they say.) But I find the results on the deficit genuinely confusing.

The Journal poll has a solid majority (58%) agreeing that "The President and the Congress should worry more about keeping the budget deficit down, even though it may mean it will take longer for the economy to recover." The Times poll has a majority (52%) siding with the view that the "federal government should NOT spend money to stimulate the national economy and should instead focus on reducing the budget deficit." And YES, all caps in the original.

I find this odd because Americans overwhelming supported the recent effort to ... spent a humongous pile of money stimulating the economy. You can find a rundown of 11 polls on this here. In every poll -- every single poll -- a big plurality of Americans supports the stimulus, and in nine of the polls a majority of the public supports it. Sometimes as much as 70% of the public supports it.

I know public opinion is complicated and preferences can work on many levels and so forth, but I would have thought it would take at least six months to do a complete somersault on this.

06/18/09 9:30 AM

An Interview With Paul Samuelson, Part Two


275 paul samuelson part two.pngThis is the second part of my interview with Paul Samuelson. I posted part one yesterday. Part two is a little more all over the place. We discuss fiscal stimulus, the current administration, behavioral economics, the risk of inflation, and Dr. Samuelson's relationship with Larry Summers. Skim milk makes an appearance, and so does Greg Mankiw's textbook (again).

I have very lightly edited the transcript for clarity, but otherwise it is an exact rendering of our conversation. My questions in bold.
Read More

06/17/09 3:44 PM

Why We Should Get Rid Of Summer Vacation: A Reply to Conor Friedersdorf


mikebaird flickr children.jpgLast week I wrote a post about how summer vacation exacerbated inequality and Conor Friedersdorf wrote a response. I procrastinated like crazy and didn't issue a rejoinder. But since Conor F has now revisited the subject over at his brand-spanking-new Atlantic Ideas Blog (and because I've never before had the opportunity to argue with someone else named Conor), I'll add a few more thoughts on the subject.

Conor F doesn't want to get rid of summer vacation for a bunch of reasons, some of which I won't quibble with (he says he wants his children to have summer as a "lovely reverie when I get to enjoy their company more than I do during the school year") and some of which I will. He writes, for instance, that he would prefer not to "rob the wealthy kids" of their edifying summer experiences. I'm happy to break bread with the libertarians, but I think that's putting it a bit strongly. Wealthy parents who are unhappy with public education are perfectly free to take their children out of public schools and put them in private ones, or keep them at home. This imposes a cost (citizenship often does, alas). But to the extent there's a concern here, I don't know why it shouldn't apply to the existing 180 school days just as strongly as to ones we might add in the future. And again: since the current school year doesn't stem from any modern policy considerations -- it's all historical accident -- what reason do we have to think it's the optimal one?

And that question -- what's the optimal policy? -- is really the heart of the matter, and the heart of Conor F's critique. He writes:

Give me Pareto optimality, please!

To which I can respond: No! The criteria of Pareto efficiency should not -- in many ways, cannot -- apply here.

Well, sort of. To some extent there is obvious room for Pareto improvement, and I would hope Conor F and I can agree on it. Let's assume we are allocating two goods -- test scores and vacation days -- among all the schoolchildren in the country. A Pareto improvement would be to increase the test scores without decreasing the vacation days, or vice versa. So, here's an easy way to do that: We spread the current number of vacation days out over the course of the year. Since the big problem with summer vacation from a educational outcome perspective is that it increases "summer learning loss" by putting the vacation days all in one big chunk, the low-hanging fruit would be to break the summer into small pieces to increase test scores. (That is, unless individual utility exhibits increasing returns to scale with longer vacations. But my intuition is that the opposite is true.)

The problem with taking the Pareto criteria any further is that we aren't talking only about increasing individual utility. We're talking about social utility -- about the benefits of lower inequality and the positive externalities of improved test scores. If our social welfare function were very simple -- say, if it just took the sum of all individual utilities -- then maybe we would have use for the Pareto criteria. But if you pick any other social welfare function, I'm not sure why we'd want to talk Pareto optimality at all.

Update 7pm: Conor F responds here (and, disappointingly, refers to me as "Mr. Clarke," thus making the debate less confusing). What he wants to see me address is "why we would assume two goods, test scores and vacation days, and weigh them against one another." I thought I had addressed that point. But allow me to belabor it!

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06/17/09 1:20 PM

An Interview With Paul Samuelson, Part One

[Update: I've posted part two here.]

275 paul samuelson.pngI've spent the last six months, off and on, trying to interview Paul Samuelson. Samuelson has a long list of accomplishments -- A John Bates Clark Medal, a Nobel Prize -- that I won't try to recap here. But by most accounts he is responsible for popularizing Keynesian economics in Post-Second World War America, and I wanted his thoughts on the current administration's fiscal policies and the modern Keynesian resurgence.

I finally spoke with Dr. Samuelson yesterday morning. (Then my crummy RadioShack recorder -- caveat emptor -- spent yesterday afternoon trying to destroy the file.) Sameulson is an energetic 94 years old and the conversation ran for about an hour, so I've decided to break the transcript into two parts. I'll publish part two tomorrow morning.

The first part of the conversation is mostly economic history -- the rise and fall (and rise) of Keynes, the influence of Milton Friedman, and the era of Alan Greenspan. Part two covers current events -- the need for a more stimulus spending and how his nephew (one Larry Summers) is doing running the economy. My questions are in bold.
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06/16/09 9:22 AM

Will Cap And Trade Raise The Income Tax By 50 Percent?


A6U571N's photostream.jpg
Martin Feldstein got kicked around the blogosphere a couple of weeks ago for an op-ed in the Washington Post arguing against cap-and-trade legislation. (See, eg, David Roberts, Matt Yglesias, Mark Thoma, Paul Krugman, Daniel Drezner and Henry Farrell.) Upping the ante, I see Feldstein's now gone and published an even longer version of the exact same argument in the current issue of the Weekly Standard.

The portion of Feldstein's argument that had to do with international relations -- basically, that the US shouldn't act on climate change without extracting similar agreements from China and India -- got picked over pretty well last time around. But the rest of Felstein's argument -- basically, that cap and trade would impose a huge cost on the average American family -- is worth noting:  

The Congressional Budget Office estimates that reducing the level of CO2 to 15 percent less than the total level of U.S. emissions in 2005 would require permit prices that would increase the cost of living of a typical household by $1,600 a year. To put that $1,600 carbon tax in perspective, a typical family of four with earnings of $50,000 now pays an income tax of about $3,000. The tax imposed by the cap and trade system is therefore equivalent to raising the family's income tax by about 50 percent. (Some advocates of a cap and trade program argue that the cost to households could be much less than $1,600 if the government uses the tax revenue to finance transfers to low income households and tax cuts to others, but since there is no way to know how the future revenue would actually be used, the only number we have to consider is the $1,600 direct increase in the burden on households.)

As a philosophical matter, it is no doubt always difficult to know "how future revenue [will] actually be used." Today's social security trust fund is just tomorrow's government-financed army of bloodthirsty robot tyrants. The future is uncertain and the end is always near.

Still, I'd note that virtually everyone who has studied and endorsed cap and trade suggests that the revenue should be used to offset the increased cost of living. This "virtually everyone" certainly includes Senators Waxman and Markey -- theirs is a flawed bill, but the value of the auctioned permits will be used to offset energy costs for low income houses -- and also includes, oddly enough in this context, the Congressional Budget Office. In every CBO analysis of cap and trade that I've seen -- including the one Feldstein cites -- they have a nice long discussion how you could use the value of the emission allowances to fund such-and-such tax cut or such and such transfer payment. (I've put one CBO chart on this at the end of the post.)

That doesn't equal an argument in favor of Waxman-Markey, largely because a big portion of the bill's emmission permits aren't going to be auctioned off. But then why not make the argument for auctioning off more permits, instead of summarily dismissing the very idea of cap and trade? Does Feldstein think the government will throw the money onto a bonfire?

600 CBO on climate change options.png    
Artsy, dark pollution photograph via A6U571N's photostream

06/15/09 4:11 PM

Two Kinds Of Executive Compensation Reform


550 geithner wikimedia commons.pngRichard Posner writes:

There are two distinct compensation issues arising from the current economic crisis. One involves the compensation of executives of firms that are owned or controlled by the federal government, such as General Motors, American International Group, Fannie Mae, and Freddie Mac, as a result of federal bailouts in the form of equity investments rather than loans. The other issue involves recipients of federal bailout money that nevertheless remain under private ownership and control.

This distinction makes perfect sense to me, but it doesn't seem like the big one. The big distinction seems like it's between compensation as it relates to systemic risk, and compensation as it relates to populist anger.  

The latter category includes all the firms that received help from the federal government -- firms that will fall under the whip (or at least the suggestion) of special master for compensation Kenneth Feinberg. (Everyone is using "pay czar," but "special master for compensation" -- his actual title! -- seems like the more intrinsically enjoyable term.) Seven of these firms (those in which the government has an equity stake) will have their compensation set by Feinberg's fiat, and the rest (about 80 firms) will receive advisory guidelines from his office. But the trick with all of Feinberg's work seems to be balancing the fear of populist pitchforks against the fear of spooking firms out of participating in the administration's Public Private Investment Program.

On the other hand, the concerns about systemic risk are much broader -- which is why Geithner proposed general corporate governance reform to deal with them. But they should actually be less controversial. If you think industry-wide compensation structures created systemic risk, then of course it makes sense -- almost by definition -- to think about regulating them.

Does anyone think they did not create systemic risks? Even the Wall Street Journal editorial page agrees with Geithner on this, in principle. You might say that, in the grand scheme of the financial meltdown, the risks created by executive compensation weren't as big as persistently low interest rates or mass housing market hysteria. But that's not really an argument against regulation; at best it's an argument for different priorities. Isn't the real argument is over the best way to regulate?


The Misty-eyed Tim Geithner is from Wikimedia Commons.
------
(For more: James Kwak has had some good posts on this, and points to a paper from Harvard's Lucian Bebchuk -- who also testified on the Hill last week -- that makes the case for a relationship between compensation structures and systemic risks.)

06/14/09 1:31 PM

Why Does Chris Dodd Oppose Taxing Health Benefits?


550 dodd wikimedia.png
I can't quite tell, but this is what Senator Dodd had to say this morning on Fox News Sunday:

"The idea that you're going to have people out there that are struggling to make ends meet today, they're falling further and further behind ... to turn around and say you basically have no change in your health care plan, and by the way we're going to tax you now for those benefits ... I think is a very bad idea."

I think this is a pretty silly analysis of the situation. Max Baucus isn't proposing a cap on the tax exclusion for kicks; he's proposing it in order to raise revenue for an overhaul of the health care system. Does Dodd think that will be a net gain for those "struggling to make ends meet"? I suspect he does.

More generally, the problem here is that Dodd is trying to describe a highly regressive subsidy -- the tax exclusion -- as if it were a progressive boon to struggling families. It isn't. About three-quarters of the $250 billion in foregone tax revenues goes to families in the top half of the income scale. Capping a tax exclusion like that is by definition going to be progressive.

[For more, Jonathan Cohn recommended this piece by MIT's Jonathan Gruber (this subject is apparently dominated by a conspiracy of Jonathans), and it does a good job of laying out the case for the cap.]

A younger, wild-haired Chris Dodd via Wikimedia Commons

06/13/09 7:43 AM

Gay Marriage and the Budget: Does DOMA Preserve "Scarce Government Resources"? (No.)

As you've probably heard, Obama's Department of Justice issued a legal brief to a federal judge defending the Defense of Marriage Act, which Obama previously derided as "abhorrent." I finally got around to reading it (late as always). This paragraph jumped out at me.

DOMA maintains federal policies that have long sought to promote the traditional and uniformly-recognized form of marriage, recognizes the right of each State to expand the traditional definition if it so chooses, but declines to obligate federal taxpayers in other States to subsidize a form of marriage their own States do not recognize. This policy of neutrality maximizes state autonomy and democratic self-governance in an area of traditional state concern, and preserves scarce government resources. It is thus entirely rational.

Does DOMA really preserve "scarce government resources"? Would repealing it really "obligate federal taxpayers" to subsidize gay marriage? No. This is factually incorrect.

At least, it is factually incorrect according to the federal government itself. Five years ago the Congressional Budget Office did an analysis (pdf) of the potential budgetary effects of recognizing same-sex marriages. (The CBO is a truly wonderful place.) That analysis concluded:

The potential effects on the federal budget of recognizing same-sex marriages are numerous. [...] In some cases, recognizing same sex marriages would increase outlays and revenues; in other cases, it would have the opposite effect. The Congressional Budget Office (CBO) estimates that on net, those impacts would improve the budget's bottom line to a small extent: by less than $1 billion in each of the next 10 years (CBO's usual estimating period). That result assumes that same-sex marriages are legalized in all 50 states and recognized by the federal government.

I think the Defense of Marriage Act is a terrible law for many reasons -- equality before the law is where I'd start -- so I'm not desperately concerned about a 0.1% increase in federal revenue. Nonetheless, I think it is worth pointing out a pretty clear error in the DOJ's brief. Federal recognition of gay marriage will save the federal government hundreds of millions of dollars.

gay marriage flickr ProComKelly.jpgUPDATE, 12.15pm: I was sleepy when I wrote this and didn't explain what is probably the most interesting thing about gay marriage and the budget: Why, exactly, would gay marriage increase federal revenue? The answer is not obvious. As gay-marriage advocates are fond of pointing out, there are 1,138 statutes in which marital status is important for doling out various benefits, rights and privileges. Wouldn't doling out all those rights and privileges be expensive?

In some cases, yes. Social Security spending (to which spouses are entitled) would increase, as would Federal Employee Health Benefits spending. But some means-tested spending (Medicaid, Supplemental Security Income, etc) would actually decrease. (The benefits of those programs are linked to income an assets, and household income and assets tend to increase with marriage.)

But the biggest change would probably be with income and estate tax revenue. More marriage would mean more marriage penalties -- the CBO estimates that it would have been an additional $400 million a year between 2005 and 2010. The effect on the estate tax revenue would be harder to predict. On the one hand,  the estate tax has an unlimited spousal exemption, which means married couples can exempt twice as much from the estate tax as unmarried ones. On the other hand, if an increase in married couples led to an increase in children (an thus an increase in targets for inheritance), estate tax revenues would probably rise.

Again, there are obviously more important issues at stake in the gay marriage debate. But I think this revenue stuff is pretty interesting.

Lousy marriage ban via Flickr user ProComKelly

06/11/09 10:22 AM

Three Questions About Max Baucus and Taxing Health Care


550 baucus getty images brendan hoffman.png
It's nice to see Finance Committee Chairman Max Baucus moving towards capping the tax exclusion for employee health benefits. (As it stands, employer-offered health plans are exempt from payroll and income taxation, unlike most other forms of compensation.)

The problems with the current health-care tax exclusion are numerous and worth repeating. First, the exclusion is poorly targeted. The largest benefits go to the employees with the largest incomes, who would have the least trouble paying for healthcare on their own. Second, subsidizing the plans offered by employers increases labor market rigidity. Workers have any easier time leaving or switching jobs when they don't fear losing swanky coverage. Third, there's a lot of revenue at stake. The tax exclusion has been described as the largest single subsidy in the tax code. In 2007 it reduced federal tax collections by $246 billion.

But perhaps the biggest problem is that it gives employers and employees an incentive to offer more generous plans and consume more luxurious health services than they otherwise would. The subsidy leads to an increase in demand. The increase in demand raises the price. Health care doesn't get any less expensive.

So it's good to see Baucus moving in on these problems. That said, I have three questions/concerns about his (still evolving) plan to cap the tax exclusion. They are:

1. Capping the exclusion raises equity issues. The Washington Post says Baucus wants the cap to start at plans costing $13,000 for a family of four. But health-care premiums can vary for reasons other than the generosity of a plan. There's geography (some regions are more expensive than others), the age and health of the taxpayer, and the size of the employer in question (small firms have higher administrative costs than larger ones). If what we want to limit is the overconsumption of services, capping the tax exclusion on the basis of the premium is imperfect. (Stan Dorn of the Urban Institute had an interesting paper on this recently.)

2. Capping the exclusion raises tax-progressivity issues. There are two basic ways to cap the health-care tax exclusion. The first is to cap based on the value of the plan. This is what Baucus wants to do: Plans worth more than a certain amount will no longer be excluded from federal taxation. But you could also cap the exclusion based on the income of the employee -- ie, employees with incomes above a certain threshold would see the health benefits tax phase in and increase, much like the income tax itself.

Or better yet, you could combine the two methods. Is there any reason not to do that instead?

3. Why exclude union benefits from the cap? Reportedly, Baucus wants to do this. I understand that this might be a necessary compromise. But, as Ezra Klein points out, it's hard to see why benefits achieved through collective bargaining should be considered different, for tax purposes, from any other kind of employee benefit. (It's even more difficult to see why unionized employees of companies that are now de facto owned by the federal government  should be entitled to more generous plans than other employees of the federal government.)

What am I missing?


Contemplative-looking Baucus photo from Brendan Hoffman/Getty Images

06/10/09 9:10 AM

Sarah Palin's Economics Lesson, Part Two


550 palin wikimedia.pngVia Chris Orr and Mudflats, here's a little taste of the exchange between Sarah Palin and Sean Hannity:

Hannity: ...The price of oil is going up again.  It's not quite at $140 a barrel, but it's on its way up to $70 and $80...

Palin: Yeah, well and I thank God it's not at $140. You know people say, "Hey, Alaska!  85% of your state budget is based on the price of a barrel of oil.  Aren't you glad the price is going up?" I say, "No!"  The fewer dollars that the state of Alaska government has, the fewer dollars we spend.  And that's good for our families and for the private sector.

Chris makes the excellent and obvious point about this: "Sarah Palin Prefers Her State Poor." If you're taxing the profits of the private sector, and suddenly the private sector is making a much smaller profit, it's not totally clear why this should be considered "good for our families and for the private sector." 

But, to scratch a little bit deeper, one might also note that if Palin really truly wanted to get rid of all that pesky revenue, she doesn't have to sit around waiting for the price of oil to fall and the revenue to drop. She could also ... lower Alaska's tax on oil. Palin, of course, did the exact opposite of this and enacted a huge windfall profits tax in 2007 that greatly increased the state's reliance on oil. Here's how it's changed:

alaska state oil revenue.pngIn fiscal year 2004 the state got 27.6% of its revenue from oil. In fiscal year 2008 the state got 86.26% of its revenue from oil. (The data is from the Alaska Department of Revenue sourcebook.)

A final point to make might be that Palin said the opposite of her line to Hannity two days ago in a press release put out on her own website: "History reminds us that high oil prices are a double-edged sword," Governor Palin said. "The state treasury may swell, but Alaskans will feel the pain at the pump and the pinch of higher energy prices."

Unless I am badly misunderstanding the sword metaphor, or unless "pain at the pump" is the happy edge of this particular sword, Palin is saying it's a good thing that the state treasury swells when oil prices go up.

Sarahcuda sighting via Wikimedia Commons

06/09/09 9:37 AM

Do You Need To Be A Utilitarian To Justify The Income Tax?

250 rawls cover.pngI'm not sure I've been called an "unprincipled courtier" before. But really, I can't think of any better context in which to have that happen than (1) by the thoughtful Robin Hanson; (2) along with Matt Yglesias; and (3) in the midst of a highly abstract debate over utilitarianism and the optimal taxation of height. The system works!

This goes back a lot of posts (see here and here for the important ones), so let me see if I can summarize this in a fair way. There are two big questions here. The first is: Do you have to justify a progressive income tax on utilitarian grounds? The second is: If some particular element of the progressive income tax conflicts with a deeply held moral intuition, should you abandon the intuition or the tax?

I'm not a moral philosopher or an economist, so I'm not going to comment on the propriety of economists getting mired in moral philosophy or vice versa. But since blogging is the apparently the business of offering under-qualified opinions, I'll try to comment on just about everything else:
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06/08/09 5:51 PM

The Economics Of Summer Vacation


500 beach olde tyme.png
In response to yesterday's post on the subject, a thoughtful commenter emailed me a paper -- "An Economic Explanation for the Summer School Vacation" by Dartmouth's William Fischel -- that, as its title suggests, offers an economic explanation for summer vacation. (Here's a pdf.) Fischel gives two reasons for why the summer vacation developed as it did. The first is the advent of "graded schooling" (grades had an advent!) in the late 19th and early 20th centuries:

graded schooling required regular attendance by all students, because long or frequent absences would require costly remedial attention. Thus compulsory attendance laws and a standard school year were complementary with the concept of graded schooling. Indeed, prior to graded schooling, the concept of a "school year" was not especially meaningful. Students in ungraded schools just attended until they learned whatever the teacher could offer, assuming the value of the time spent learning exceeded that spent working on the farm or elsewhere. 

So why did September become the most common start time across the nation? Fischel says this developed as migration between cities became easier, more important and more common:

Before interurban migration became important, the particular date at which school began did not matter, as long as it was the same for all schools in the district. But when new students were coming from some distance because their families were moving to a new region, school districts needed to allow sufficient time for newcomers to arrive and get settled. Losing four days of school because of a cross-town move was easily remedied, but losing four weeks of school because the family moved from Boston to Cleveland was more costly. In addition, the precise curriculum of the Cleveland school was apt to be different from that of Boston, even if both schools were graded. Even if transportation were instantaneous, a transfer between districts months after the school- year began would be disruptive. 

[...] September became the preferred time to start the school year because in the Northern Hemisphere travel is cheapest during July and August. Summer travel was least likely to be disrupted by inclement weather, and so summer became the standard time for families to move and for schools to be closed. Schools that expected many new students from outside their district would find that it paid to have a standard vacation time during which all students were idle. Interurban job-changers found that it paid to leave one's employment in summer so that they could move to another area and start their children in a new school in September. Summer remains the prime season for households to move, especially if they have children.

And, as Fischel says, there's a network effect here: If you run a school, there's a bigger benefit to starting the school year when everyone else does it, just as there's a bigger benefit to owning a telephone when lots of other people have them. All very logical. And good history!

Still, this strikes me as rather different from saying that the current regime -- with the standard three months of summer vacation -- is the optimal one. In fact, in it's own way, the Fischel paper offers a nice indictment of that system. If the best arguments for having a consistent and widespread summer vacation are just (1) the need to coordinate start times and (2) the desire to give families a few weeks to migrate and adjust, there is almost certainly going to be a better structure than the current, endless-summer state of affairs.

Olde tyme fun beach photograph from flickr user Wilmette Library History 

06/08/09 12:21 PM

Is the Huffington Post Killing the New York Times and the Washington Post?


arriana huff take two.pngIsaac Chotiner's 6000-word TNR takedown of the collected works of Arianna Huffington came out last week, but, late as always, I didn't get around to reading it till over the weekend. It's packed to the gills with good stuff. That said, I don't think I can sign on to Isaac's most pointed paragraph:

The truth is that The Huffington Post is not just supplementing a print media that has long been dominated by newspapers. It is also helping to destroy newspapers. The trials of print media have been explored at length recently in a number of settings, both print and digital, and for good reason. But some tough questions must be asked also about the powerful digital interlopers. For the blogosphere and the news aggregators that dominate cyberspace are completely reliant--completely parasitic--on the very institutions they are driving to bankruptcy. [The Huffington Post] is thoroughly dependent on the reporting that Huffington has spent three decades bashing. Fire up the site on your computer some evening, and see how many of its main stories are from The New York Times or The Washington Post.

I wouldn't go so far as to say HuffPo is "completely parasitic" on the big newspapers (the Huffington Post employs plenty of full-time journalists and as far as I know is looking for more), but the bigger question here is: Why should we assume that the Huffington Post's reliance/dependence/symbiosis/parasitism (take your pick) is what's destroying newspapers?

My sense from friends at the Times and Post is that they're thrilled whenever Huffington Post links to a story. (The publisher of the Washington Post, Katharine Weymouth, admitted as much two weeks ago: "I think Arianna has built an amazing site and drives a lot of traffic to us, so thank you!") And if you compare the traffic of, say, the New York Times to that of the Huffington Post, the story is one of the two rising and falling together -- not the meteoric rise of HuffPo and the stagnation and decline of the Times.

With the exception of March and April of this year (did anything change?), each month in which the Times traffic (unique readers) rises is one in which the Huffington Post's traffic rises. And each month in which the Times' traffic falls or stays flat is a month in the which Huffington's traffic rises or stays flat:

nyt and huffingtpon post readership.png
I'll cheerfully admit this doesn't prove much, largely because we can't know what the counterfactual universe in which the Huffington Post never existed would look like. (Short of imaging a scenario along the lines of the Terminator movies.) But the broader point is that competition for newspaper readership isn't a zero-sum game: It's not like there's a fixed quantity of eyeballs, and each pair that turns to the Huffington Post means one less for the New York Times.

06/07/09 10:14 AM

Why We Should Get Rid Of Summer Vacation

500 child playing mikebaird flickr.pngThis piece gets written every year. (I wrote it for the Guardian two years ago.) But since the case for getting rid of the long summer vacation in American schools is pretty solid, and since the vast majority of American students still have a summer vacation, and since I can take pleasure in being a callous childhood joykill, it's probably worth writing again and again and again. So, from this morning's Washington Post:

Both President Obama and Education Secretary Arne Duncan have called the traditional school day and school year outdated and inadequate for the demands of 21st-century life. Students in countries that routinely outscore the United States on international tests go to school for as many as 230 days each year, 50 more than kids typically attend here. "Go ahead and boo me," Duncan said in April to Denver students. "I think schools should be open six, seven days a week, eleven, twelve months a year."

school year by country.pngThat's exactly right. Part of the reasoning here, as Duncan suggests, is the need to compete internationally. Most other industrialized nations have longer school years than we do (see the chart to the right), and there is fairly strong evidence that more time in school means higher standardized test scores. The long summer break, moreover, doesn't even pretend to have a rational basis in educational policy. It's a response to (1) inadequate farming schedules; (2) the mid-20th century's lack of air conditioning; (3) the mid-20th century's fear of summertime disease transmission; and (4) the no-doubt timeless desire to mimic the summertime vacation habits of the rich.

That last point is worth lingering over. One issue that doesn't come up enough in discussions of extending the school year is that doing so is also, fundamentally, an issue of economic fairness. If you believe in equality of opportunity, then one of the most important things the state can do is provide some baseline level of education that seeks to alleviate vast differences of class. But, small though it may seem, one of the most profound ways in which class differences express themselves is over the summer vacation.

This is because wealthy parents can afford to given their children all sorts of edifying summer experiences that downscale parents cannot. And this, as researchers at Johns Hopkins have found, leads to backsliding: Educational advancement across classes tends to be fairly even during the school year. But downscale students actually decline in educational achievement over the course of the summer, while upscale students remain relatively stable.

I see that the International Association of Amusement Parks and Attractions is gearing up to fight this one. But the answer here, unfortunately for them, really is less summertime fun.

UPDATE: In response to a suggestion from one commenter, I wrote a follow-up post on the history and economics of the summer vacation here.
 
Picture of small, frolicking child (with no idea what Arne Duncan has in store for her summer) from Flickr user mikebaird.
 

06/06/09 9:58 AM

Paul Krugman and Niall Ferguson: The Great Inflation Smackdown

How afraid should we be about inflation? Via a nice post from Ezra Klein, I see Daniel Gross has a Slate column parsing the arguments between Paul Krugman and Niall Ferguson. Krugman wrote a column last week suggesting the inflation scare was in part a Republican conspiracy, and Ferguson devoted an FT column to settling a debate he had with Krugman on a panel in New York. (Yikes.) What's the controversy? From Gross:

In a nutshell, Ferguson and his allies believe that the rising bond yields prove that markets are worried about the inflation that will inevitably result from the fiscal policies of the Obama administration and the Fed. Given the large deficits and rising concerns about the viability of Social Security and Medicare, Ferguson writes, "It is hardly surprising, then, that the bond market is quailing." [...]

Krugman and his fellow travelers couldn't disagree more. Far from being a sign of failure and impending disaster, they say, the rising bond yields actually signal success and impending improvement. Government bonds were so low last December because the world's investors were totally freaked out about risk. They sold everything--U.S. stocks, emerging market government bonds, corporate bonds in Europe, Indian stocks--and parked their cash in the safest, most liquid investment around: U.S. government bonds. In the months since then, as the stimulus and bailouts have helped stabilize the economy, investors have started to relax. [...] This line of argument makes sense, especially when you look at a very long-term chart of the 30-year bonds, which shows just how much of an aberration the December 2008 lows were.

Here is the chart Gross has in mind:

600 treasury yields.png(The current yield does look less worrying in context, though a Fergusonian [?] would respond by saying it's the rate of increase and not the level that has them worried.)

But a related question is whether this is all political: Are inflation Cassandras parsing the bond-market in search of reasons to criticize Obama and the Fed? Dan Gross says yes. But since I haven't yet developed the ability to see into Niall Ferguson's brain, I'll just say zthat I've been thinking a lot about this penultimate paragraph from Gross: 

Finally, the notion that the market is telling us something -- anything -- ultimately rests on the erroneous assumption that financial markets represent the collective wisdom of rational actors processing information efficiently. There are plenty of cool-minded forward-thinking investors in the markets. But there are also a lot of lunatics, fools, sharks, widows and orphans, government actors with ulterior motives, algorithmic traders, greedy speculators, and whack jobs. The markets resemble the Star Wars bar scene more than they do the economics faculty lounge at Princeton.

So here's a question for the weekend: Why should we care if the bond market is rational? Of crucial importance for predicting inflation are present inflationary expectations: If there is a widespread fear of future inflation, workers in the present should demand higher wages in their contracts, which in turn will lead to higher prices, which in turn will lead to ... inflation. (James Kwak had a good explanation of inflationary expectations a while back, and the Federal Reserve Bank of San Fransisco has a good explanation of how this is measured through the bond market here.)

But I don't think the Fed cares why anyone has these expectations. You can fill the bond market with all the goofy people in the world. If the goofy people think long-term inflation is coming, it'll affect long-term inflation. Paul Krugman says we have nothing to fear but the fear of inflation. But isn't the fear of inflation, er, worth fearing?

A final question, of course, is why we should believe the faculty lounge at Princeon doesn't resemble the Star Wars bar scene.

Greedo_shoots_first.jpgPhoto of violence in the Princeton faculty lounge from Wikimedia.

06/05/09 10:51 AM

Sarah Palin's Economics Lesson

Sarah Palin gave a speech about economics on Wednesday, but it only popped into my RSS reader last night:

"Some in Washington would approach our economic woes in ways that absolutely defy Economics 101, and they fly in the face of principles, providing opportunity for industrious Americans to succeed or to fail on their own accord," she said. "Those principles it makes you wonder what the heck some in Washington are trying to accomplish here."

Wow. Whatever else might be said about Sarah Palin, I hope we can all agree that there's absolutely no reason to take her seriously as a fiscal conservative. In particular, that line about "industrious Americans" succeeding and failing of their own accord made we want to take a look at the federal dollars Alaska receives per resident relative to its federal tax burden. So I went and made this chart:

alaska taxes and spending.png(This is drawn from the right-of-center Tax Foundation using their most recent data.)

Alaska gets $13,950 per resident from the federal government, more than any other state in the nation. It ranks number one in taxes per resident and number one in spending per resident. It's also number one in pork-barrel spending. Each Alaska resident receives a check for $3,200 a year from state oil revenues -- which Palin bumped up from $2,000 last year. Palin once justified this by saying that the state of Alaska was "set up, unlike other states in the union, where it's collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs." (Sounds socialist!) Industrious indeed.

(A housekeeping note: I like both charts and gimmicks, so I thought one possible gimmick for this blog would be to create a "chart of the day" and publish it at a regularly appointed hour, like 10am every weekday morning. I am curious to know if [1] this is a stupid idea and [2] if anyone has any suggestions for cool charts to make.)
 

06/04/09 3:45 PM

Ronald Reagan And General Motors

550 ronald reagan wikimedia images.pngI find it genuinely interesting that Republicans are able to describe Obama's General Motors bankruptcy plan into the most unAmerican thing since France. The idea of the government owning a large car manufacturer is not extremely appetizing, but it's hardly the first time the government has staged a major intervention on behalf of the automotive industry. And the last time, as far as I can tell, was under Ronald Reagan.

It doesn't get mentioned much, but in 1981 the Reagan Administration asked Japanese automakers to impose a "voluntary export restraint" (VER), which capped at 1.68 million the number of cars Japan could send to the United States each year. Reportedly, this was under threat of an outright tariff, but the VER accomplished just about the same thing. Prices of Japanese cars went up, which allowed American manufacturers to raise their prices too. (This was great for the protected industry -- in the short run -- and bad for the American consumer.)

foreign cars.pngIn the long run it led to foreign manufacturers building a lot of plants in the US, since cars manufactured here were exempt from the VER. From the Federal Reserve Bank of Chicago (pdf): "Having agreed to limit the level of vehicle exports to the U.S., the major Japanese automakers all started producing vehicles in North America. That development resulted in a rather dramatic shift in production by the foreign carmakers from overseas to North America." So when you think dramatic market interventions that fundamentally changed the face and stability of the American car industry, please, don't forget Ronald Reagan.

Image from Wikimedia Commons

06/04/09 2:23 PM

Is Craigslist As Ruthless As Wal-Mart?

walmart flickr user monochrome.pngVia Matt Yglesias, Barron YoungSmith has a post over at TNR arguing that Craiglist isn't a ruthless corporate killer of newspapers because unlike, say, Wal-Mart, Craigslist isn't driven by profit maximization:

While Wal-Mart is bent on maximizing returns for its shareholders--an appropriate goal, for a corporation--Craigslist is not. [...] Craigslist doesn't even try to profit from its economic activities, because its owners are devoted to a form of libertarian ideology.

But Craiglist doesn't have any shareholders! It's a privately held company. Wal-Mart is driven by profit maximization because its managers have a fiduciary duty to maximize shareholder value. If they don't, then (in theory) they'll be fired. And if they aren't fired, then (in theory) the company will be ripe for a gruesome Carl Icahn-style takeover. Craig Newmark, on the other hand, can do whatever the heck he wants. And because Craigslist is privately held, I don't know how you'd falsify the claim that what he does isn't motivated by a desire for profit.

(But maybe a lawyer will know this: At the very least, doesn't Craigslist need to show an intent to make a profit, if it wants to claim various business tax credits?)

A related point is what this means for newspapers. Both Matt and Barron say it doesn't make sense for profit-maximixing newspapers to compete with an ideologue like Newmark. But what I find odd about this sentiment is that newspapers have never really been profit-maximizing instituttions. There's the New York Times and its two classes of stock; there's the Washington Post, basically run on the dole with money from Kaplan test prep; there's the Associated Press, with its weird not-for-profit cooperative ownership structure (sounds socialist!). And while I'm all for adding to the list of crazy hybrid ownership structures, I'm not so eager to cheer the destruction the preexisting ones. 

Photo from Flickr user monochrome

06/04/09 9:17 AM

What Socialism Looks Like, Part Two

Commenter Michael Goodfellow (a great last name) emails:

I see Sullivan ran your "socialism" chart on his blog today. Too bad, since I think it's pretty silly. If you want to look at government share of the economy, I think you'd draw the graph showing Federal, state and local expenditures as percentage of GDP. [...] It would add up to at least 40% of the economy. Not a nice looking chart at all.

But I wasn't interested in the government spending as a percentage of GDP! The socialism charge that I've been hearing for the past week hasn't had much to do with the size of the federal government. The charge has been that the government now thinks it can run private industry -- GM, AIG, whatever -- better than, well, private industry. The point of the chart was that, if Rahm Emmanuel and Peter Orszag and Barack Obama really felt deeply in their hearts that they could run Caterpillar or Kraft Foods better than the incumbent management, you wouldn't see 99.71% of the nation's business assets remain in the hands of the nation's businesses.

But enough about that. Here is the chart Michael has in mind:

spending and GDP.jpgI don't have a whole lot to say about this, except (1) I agree that it's "not pretty" and (2) If you're going to equate an increase in the deficit or in federal spending as a percentage of GDP with socialism, then every modern American president (with the partial exception of Bill Clinton!) is a socialist. In which case I'm not sure Barack Obama has a lot to worry about.

Update: For something that resembles socialism more closely, you might check out Sarah Palin's state of Alaska.
 

06/03/09 1:56 PM

Why Harvard Lets Discriminatory Groups On Campus

harvard flcikr user gosh@.pngAccording to the Wall Street Journal, David Petraeus will be at Harvard today to address a commissioning ceremony for the seven graduates of the university who are joining the armed forces. It would be an interesting moment for a reflection on the relationship between privilege and service, but instead former Bush speechwriter William McGurn devotes his entire WSJ column to the weird notion that Harvard should be declining all of its federal funding:

On its Web page, Harvard Law School cites the university's nondiscrimination policy and then goes on to describe how it lives up to that principle:

"The Harvard Law School makes one exception to this policy. Under threat of loss of funding to the University resulting from the Solomon Amendment, the Law School has suspended the application of its nondiscrimination policy to military recruiters."

You don't have to be a lawyer to get the point: Even though we are one of the world's wealthiest universities, we'd rather make an exception to our principles than give up the money. So we'll do what the Solomon Amendment requires and hold our noses.

Oh please. As I'm sure McGurn knows perfectly well, the reason Harvard Law School adopted this policy is because Congress changed the rules of the Solomon Amendment in 2001 so that if Harvard Law School (or any school within a larger university) barred military recruiters over Don't Ask, Don't Tell, the entire university would lose its federal funding. Standing on principle is all well and good, but it's quite a bit different from imposing your principles on others -- which is what the rule change asked the law school to do. You don't have to be a columnist for the Wall Street Journal to get this point.

A somewhat broader and more obvious point is that Institutions of higher education can contain a multitude of principles. One is "provide the best possible education to your students." Another easy one (for Harvard at least) is "don't discriminate on the basis of sexual orientation."

But institutional principles can and do conflict. If Harvard Medical School gives up tens of millions of dollars in federal research grants (at stake: "provide the best education possible") so that Harvard Law School can prohibit an organization from recruiting on campus (at stake: "don't discriminate on the basis of sexual orientation") does "principle" really win? It seems to me that the careful and pragmatic management of tradeoffs is just how every reasonably nuanced organization gets things done.

Image from Flickr user Gosh@

06/03/09 10:49 AM

It's Time to Tax College Sports

Via the Economist's Free Exchange Blog, Kathryn Jean Lopez seems surprised that the Senate Finance committee is considering taxing college sports -- or, more specifically, considering changing the tax status of some college sports programs.

But look, this makes perfect sense. Colleges and Universities get tax exempt status because they are thought to be providing a valuable educational service. And they probably are. But many of those universities are operating athletic programs that are giant, commercial cash cows. The Congressional Budget Office (pdf) says that between 60 and 80 percent of Division IA athletic department activity can be described as commercial. And while pulling in dollars hand over fist might have some educational value, I doubt it's what Congress had in mind.

football flickr user rdesai.png
Actually, colleges and universities have it twice as nice. Not only do they get tax exempt status, but charitable donations to the schools are tax deductible. In other words, schools can not only operate tax-exempt business enterprises; but the government will subsidize them to do it.

I've said all this before, but the easy solution here is to change the deduction rules governing charitable donations. Those rules are regressive. But, just as importantly, they don't benefit the common good in a narrow, serious way. As it stands you can claim the same charitable deduction for giving $10,000 to an orphanage as you can for giving $10,000 to your alma mater's athletic program in exchange for season tickets. Does anyone think that makes sense?

Image from Flickr user rdesai

06/03/09 8:55 AM

What Socialism Looks Like

Have you heard that the United States is headed toward socialism? Jonah Goldberg says it is. Alabama Senator Richard Shelby says it is. Phyllis Schlafly says it is. Richard Viguerie says it is. The Republican National Committee says it is. We must be getting pretty close.

How close? This is what socialism looks like:


socialism chart.pngThe hot-pink portion of this pie chart is the percentage of listed American business assets that have recently been nationalized by the American government (ie, General Motors). Obama's version of socialism is so sneaky you can hardly see it!

(And there is some reason to think this actually overstates the portion of the corporate landscape that's been nationalized, but more on that at the end of the post.*)  

There is a serious discussion to be had here, and I think Jon Henke is having it: Socialism, like farenheit, comes in degrees. Sure, a government that nationalizes GM is "more socialist" than one that does not, even if it doesn't mean we're living "under socialism." But differences of degree shouldn't obscure differences of kind, and as Tim Fernholz says, "it's clear that putting the government in charge of private production is not the Obama administration's guiding philosophy."

If it were, 99.79% of the American corporate assets that existed at the start of the Obama administration would not remain in private hands. The differences of degree are so small that they aren't worth mentioning. And yet, somehow, they keep getting mentioned.

Update: A couple of commenters have asked for a different chart, so I've posted another item on this here.

Update 2: For something that resembles socialism more closely, you might check out Sarah Palin's state of Alaska.

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*(I'm using asset information from the US flow of funds account. This chart is basically an updated and modified version of one I did for the business site, using slightly different data and a slightly different metric. There were some very thoughtful criticisms of that chart, so I decided to make a new one using asset information.

That said, this measure isn't perfect.
I'm excluding a lot of assets -- households, farms, the financial sector -- in part because there's no precise data (see here for more) and in part because I want to avoid the same assets being counted twice. And I don't include liabilities. Please let me know of other methodological suggestions in the comments section.)

06/03/09 7:53 AM

Welcome Note

I pretty much envision this being a normal blog. I have enjoyed writing for the business channel, but I'm now working full time for the Brookings Institution and can't produce five posts a day for Atlantic Business without developing a guilty conscience and becoming a burden on the magazine's full time employees. On the other hand, freed from the tyrannical controls of the business channel, this blog will probably creep more in the direction of public policy and politics and many other things about which I am totally unqualified to write.

Unless I die or am traveling, I will try to put something up on this page every day. Probably several things. This is partly because I have no life, but mostly it's because I genuinely enjoy blogging and don't see why I should stop because it happens to be a Sunday.

One final thought: I really like getting knocked around by commenters and hope that continues. By far the most rewarding thing about blogging for the Atlantic has been the quality of the comments and the opportunity to interact with the people who leave them. I like being told when I'm wrong. So, if you've been in the habit of telling me how wrong I am over at Atlantic Business, I hope you continue to do the same here.

Thanks for reading.

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