Tax Cut Extensions

The House GOP is right (and both Senate parties wrong) on the economics of the payroll tax cut. Whether one believes that tax cuts help spur economic activity by increasing Aggregate Demand or by increasing incentives to productivity, a two-month measure is basically worthless. People, especially business owners in this case, don't make long-term employment decisions based on a few dollars difference for 2 months.

Of course, one can qualify the statement on rightness here: temporary tax cuts are a dumb idea in general. Do we want people hired for short stints or for the long term?

8 and a half years ago

Officially, the conflict in Iraq has ended for the United States. This is a good moment to reflect, and I'll repost one of my proudest pieces of writing. I published this on my old blog, Instant Replay on March 10, 2003, ten days before the invasion.

Instant Replay Invades the Iraqi Question

IR has come under tremendous pressure from U.N. inspectors to take a position on the United States' buildup in the Persian Gulf and the possibility of going to war against Saddam Hussein's corrupt regime in Baghdad.

Having taken a month and a half off from blogging has given me the clarity to address this firmly. I will attempt a linear argument, but I'm a bit pressed for time, so don't hold it against me that I can't make a comprehensive 12,000 page declaration.

Instant Replay believes that Saddam's regime is as corrupt, ungodly, and "evil" as government can be. The Iraqi people I know have no love of Saddam, and most Arabs think he's a little nuts. Saddam Hussein has earned his ouster, and he deserves anything anyone can throw at him. It's not a question of whether Saddam deserves to be keelhauled; it's a question of whether the United States - or anyone - should do it.

There are three arguments for disarming Iraq by force. One is humanitarian: war now will save lives in the long run. One is political: Iraq may be linked to al-Qaeda and is undoubtedly linked to Palestinian insurgents, on whom the U.S. and Israel are waging a war. The last is legal: Saddam has disregarded a long series of UN resolutions and has developed WMDs.

So Saddam deserves to be ousted, and there exist a few good reasons to oust him. IR believes that if the UN Security Council can agree to a course of action, that course should be followed. That may involve another six months of inspections, during the heat of the Iraqi summer. It also may involve another six years of circus, like the last six years. Either way, Saddam has put himself on the international agenda, and the world community has a responsibility to deal with him.

IR believes that the United States has tenuous legal grounds at best for entering the war. The U.S. does have moral footing of some sort, though. However, most importantly, the U.S. should not preempt the UN for political reasons.

The disastrous consequences of unilateral action will include a sharp split from our important allies - Europe, Russia, China, others - in the war on terror, increased terror against the U.S., and a loss of flexibility in dealing with the very real threat of North Korea.

By disregarding not only the UNSC but - more importantly - our allies, we are sacrificing post 9/11 favor for worldwide resentment. It's not that the Russians will become suicide bombers, it's that they won't tell us before some Uzbek does. In the post-Cold War world, we need allies more than we need victories. I don't know that Bush's people - all of whom are Cold Warriors who cut their teeth on Nixon and Reagan battles - understand that. Bush needs to listen to his Daddy, who was the #2 architect of the New World Order (Gorby was #1, imho), and ignore Samuel Huntington, author of "Clash of Civilizations."

The gains from conquering Iraq would be modest and mainly deterrent. However, I believe that the costs could be much higher. The U.S. will give ammunition to every Islamist pedagogue, their versions of Samuel Huntington, and the "Clash of Civilizations" will be a self-fulfilling prophecy. Some of Bush's strongest hawks point to Israel as a country who really knows how to deal with terror: by cracking down hard. Has anyone noticed that Israel is the most fear-ridden, terror-stricken country in the developed world?? Following longstanding Israeli tactics of preemption and punitive aggression will only lead to an Israelization of America.

This argument brings us back to the starting point: the war on terror. While IR won't commit to this position, it would like to raise the question of the wisdom of waging such a war. Since one successful terrorist can win the entire "war" by slipping through and blowing something really important up, isn't this a war we can't win? Seizing assets and arresting militants by cooperating with other countries is great. But intervening militarily and punishing those who host terrorists - the same way we punished villages hiding Viet Cong guerrillas - may be "right", but it doesn't augur success.

The last paragraph in particular proved hauntingly correct over the next eight years. After getting comments from a few friends, I posted follow-up posts that strengthened my not-now position on the war.

While I respect (some of) those who support war on Iraq, I only respect those who can give a reasonable political answer for their convictions. In response to David's comments, saying that being against a preemptive invasion of Iraq is "an avoid war at all costs mentality" is building a straw man. I supported the war in Afghanistan, and I argue vigorously with pacifists, since sometimes options are really exhausted.

DJN's naivetee is unsettling. He writes, "A new Iraq will be great news for missionaries." That couldn't be farther from the truth. If Iraq conquered the U.S. and changed our regime, would anyone (even Democrats) be more likely to embrace Islam? With the American evangelical community as hawkish as ever, Christians in Iraq face the prospect of persecution from neighbors, and Christianity could be set back by decades in an already anti-Christian country. Christianity was first crushed in that part of the world when the predominantly Christian Roman Empire went to war against the Persian Empire. Persian Christians were persecuted and Christianity was looked at as an enemy religion. If Christians want to spread Christ's love, war should not be their tool of choice.

Ali Baba misunderstands the purpose of the United Nations. His domestic policy background seems to taint his view of diplomatic relations. Other countries are not in danger of dictating American foreign policy. The U.S., on the other hand, habitually dictates foreign policy to many states beholden to us for aid and support. As well we should. The world of international affairs is anything but equal, and the parity of states in the UN General Assembly is an important instrument of free speech, but not of global decision-making.

I have never argued that the U.S. should bow to the UN in all its policies. That said, the UN is an excellent forum for gauging world support. In Gulf War I, we were helped by most of the world, and Secretary of State James Baker did a tremendous job at rallying support. He didn't have to do that so that we could act, he did it so that we could act with the best possible results.

Instant Replay's position is that Iraq deserves to be disarmed, but that it is not America's problem only. If Saddam has WMD's, Iran, Saudi Arabia, Israel, Turkey, and perhaps Europe are the ones who should be scared. As long as the U.S. has the possibility of war hanging over Saddam's head, we're safe. Once we start a war, we've got a target painted on our backs. Instant Replay's position is not about morality, it's about politics, and as I told David recently, Republicans need to give up being "right" for once and act in their own - and the country's - best interest.

The prescience above shows the value of having 3/4 of an undergraduate degree. If only someone in the Bush White House had been so ill-educated!

The Grinch that Gouged Christmas

Butter in Norway is selling for something like $500 a pound. You read that correctly: five hundred dollars a pound. This is the result of the perfect butter storm: weather led to less milk production and lower fat content in milk. A bizarre high-fat-diet health care fad led to an increase in demand for butter. Now, with dark December upon them, Norwegians are heating up their ovens for the de rigueur Christmas butter cookies.

In a free market, this would lead to a big increase in butter imports from Europe's many dairies, and a very small increase in the world price of butter (how many butter cookies can 5 million Vikings eat?). But Norway doesn't have a free market for butter. It's byzantine centrally-planned dairy czars were cracking their knuckles and licking their buttery fingers as prices rose and butter-smugglers were seized. But the shortages went too far - and now TINE is the Grinch that gouged Christmas!

What went wrong here? First, the Norwegian government allowed a single monopoly to control virtually the entire dairy industry. Then, it gave the monopoly control of its tariffs and quotas on dairy imports! This paragraph is astounding:

TINE, the largest Norwegian diary coop who is also responsible for managing the Norwegian diary market has been under significant criticism fo insert linkr its management of the dairy. As a result, it was forced to ask the Ministry of Agriculture to temporarily reduce its import tariff rates from NOK 25.19/kg (€3.24/kg) to NOK 4/kg (€0.51/kg) to overcome the predicted weekly market shortage of 50 tonnes during December. This exceptional measure will only remain for the month of December and allows any trader to import butter at this rate.

In case you hadn't figured this out, quotas (like Norway's) are worse for consumers than tariffs. A tariff raises the price of imports, but it does so by a certain level. A quota, by contrast, limits import supply, and in the event of big shifts in supply and demand, it can do massive damage to consumer's pocketbooks - while the profits all flow to foreign companies! But this is the system chosen by a government that will only act when it is ordered to do so by an evil monopolist bent on robbing its fellow citizens.

So celebrate your freedom from public-private partnerships by cooking some Norwegian butter cookies this Christmas season. After all, the Norwegian consumers are helping keep the price of butter artificially low for those of us who emigrated!

Newsflash: Mitt Romney Is Rich!

Mitt Romney inadvertently revealed that he is rich enough to lay $10,000 on a wager. This was evidently news to many reporters.

We know he's rich. Get over it. More importantly, he was right.

Richard Cohen models sophistication and nuance for country bumpkin Repubs

In a WaPo column about how "lucky" President Obama is (really! I guess Cohen reads different news sites then I do), Richard Cohen characterizes the GOP with this uplifting chestnut:

It is simply amazing that in a country of 313 million people, many of them literate, the political opposition consists of ignoramuses, dimwits, contrarians, Christian jihadists and, now, two men so thoroughly hollow that a moral principle would make a rattling sound inside them. I am talking of course of Newt Gingrich and Mitt Romney.

It's a good thing Republicans can't read, or they might feel insulted!

Herman Cain: the Movie

Herman Cain's meteoric, mercurial presidential campaign was brief and fascinating. It's a story that was made for Hollywood.

Of course, the Hollywood version is a little different:

Herman Cain: The Movie: a down-on-his-luck, divorced motivational speaker with two unhappy teenage children is having a hard time feeding his family, and needs to boost his popularity, so he decides to run for president. The campaign starts slow, but gets more and more fun as Cain realizes he's spending other people's money to run his personal marketing campaign. Polling around 5 or 10%, he considers the gambit a success, and gets ready to ride the "successful" campaign out to a 4th-place Iowa finish and a lucrative post-race career.

But then disaster strikes: the frontrunner freezes in a debate ("Oops!"). Cain manages to say something brilliant, and immediately becomes the front-runner. This was unexpected! And unpleasant. All of a sudden, the media pay attention, voters expect him to campaign in early states (he'd run in opposite areas, to guarantee that he made the news with each appearance), donors call for accountability, and he and his family find themselves in the maw of a real, nasty campaign.

Cain needs an escape, but one that will generate even more publicity and not let on that he didn't actually want to be president. His sole confidante comes up with a plan: they pay off a woman who used to work in the next office to claim that she was sexually harassed by Cain. But she's not a convincing storyteller, and the media find out that she just got a big payment (but can't trace it to Cain). With the attack discredited and obviously political, Cain is now a victim-hero, and rises even further in the polls.

Desperate times call for desperate measures. Cain is depressed, hiding from his campaign, and goes out into a rainy night in Portsmouth, and ends up hitting on women in a sketchy bar. This is hilarious, but he finally finds someone who will take him home. The story leaks, and as his campaign goes down in flame and fireworks behind him, he falls in love with the woman from the bar. Naturally, he ditches his motivational speaking career and moves to some grimy section of Portsmouth with his true love. (I told you it was Hollywood).

The Gingrich Bubble

Donald Trump
Michele Bachmann
Rick Perry
Herman Cain
Newt Gingrich

So it looks like a two-man race between Mitt Romney and Newt Gingrich. But remember, just a month ago, nobody but Romney and Cain could break 20%. And three months ago, it was nobody but Romney and Perry, with Perry the presumed front-runner. So don't get too excited. That being said, the voting starts in a month, and there isn't much time for Gingrich to fade and be replaced by Rick Santorum, Ron Paul, or whoever else is left.

Why should we expect Gingrich to fade? Because he's damaged goods. He's only polling well because he performed well in the debates, where he was better-informed, more forthright, and less catty than anybody else on the set. Those are not, unfortunately, Gingrich's most universally described character traits.

Conservative Jennifer Rubin wields the knife, with quotes from Ramesh Ponnuru:

very serious flaw... perils of Gingrich... innovative-sounding... wholly absurd... incendiary... grandiose... abrasive... opportunist... serial infidelity... multiple ex-wives... lobbying... lobbying... lobbying... ultimate Washington insider... self-indulgent... obtuse... dishonest... megalomania... recklessness... disorganization.

Her argument is a lot more nuanced than what I've presented. But this particular list of flaws seems a lot more damning, especially in the current political environment, than Romney's wishy-washyness or over-produced image. More to Rubin's point, conservative opinion leaders have already turned on Gingrich, and conservative voters will follow.

Be Our Valentine?

So the Red Sox hired Bobby Valentine as their new manager. I guess they're working on the theory that there's no such thing as bad publicity? I know Valentine comes with a great knowledge of the game, and - according to his friend Tim Kurkjian - a whole lot more:

Humanitarian? Ballroom dancer? Science fair guy? Gourmet chef? Restaurateur? Director of Public Health? Valentine is all of these things. How? Where does he find the time? He told me 25 years ago, "Sleep is overrated,'' and it must be, because I don't know when he sleeps.

That all sounds great, but remember what they told us about Carl Crawford before he donned the scarlet hose? Yeah, that wasn't true and neither was this.

Great Conservative Books: The Death and Life of Great American Cities

Jane Jacobs was probably a liberal. After all, she lived in Greenwich Village, considered suburban sprawl part of the "great blight of dullness", and moved to Canada to protest the Vietnam War. Nonetheless, she wrote one of the greatest conservatives treatises of the last century.

The Death and Life of Great American Cities (1961) is required reading today in any urban planning degree, and Jacobs' ideas receive lip service from the very profession against which she animadverts so vociferously in Death and Life. But the uninitiated reader will be struck by how Jacobs' criticism is directed not only at the content of centralized urban plans but at the entire concept thereof. To be sure, urban planners are far wiser for Jacobs' efforts, inasmuch as they submit their theories to empirical facts and actual people.

Writing against the backdrop of the massive postwar expansion of government-built and -run urban housing developments, Jacobs defends organic neighborhoods and fine-grained diversity in uses (residential, commercial, industrial, and public buildings). She coined the phrase "eyes on the street" and originated the idea that most of public security comes from neighbors, not from police. For anyone born in the last forty years, it's hard to remember that public housing developments were built to be the clean, safe, "middle class" alternative to slums; the very notion seems further fetched that moon colonies to a modern observer! Yet even after twenty-five years of failed public housing developments, the orthodox urban planners of Jacobs' time were still hoping to destroy such "slums" as Boston's North End and replace them with modern, correct housing developments.

Jacobs eviscerates these government experts, sitting in their offices with maps. If she had written today, she would have said that they planned cities like a kid playing SimCity 2000: zone this big swath residential, zone this big swath industrial, build a cluster of public buildings here, and build lots of parks. If housing values drop, build more parks. What else does a city need to make it successful? The work of urban planners in the 1960's was childish: rather than seek to understand functioning cities in all their complexity, they actively tried to destroy and replace them with models which their limited minds could comprehend. They were engulfed in the fatal conceit of central planning, believing that the latest-and-greatest urban plans had to be superior to the chaotic working of the system on its own.

The expert planners she mocks think of themselves as artists or architects, fashioning city blocks to look all the same for the sake of "visual order" (this attitude today is most prevalent in Europe, where uniformity is valued and enforced more than in the US). But Jacobs sees the beauty underlying the visual cacophony of lively cities (p. 391):

[Cities'] intricate order - a manifestation of the freedom of of countless numbers of people to make and carry out countless plans - is in many ways a great wonder.

Freedom is better than uniformity; that's a high conservative value.

Jacobs was conservative because she claimed not only that she had a better way to do city planning, but that the mainstream approach was actually worse than doing nothing. Socialist-liberals view government as essential to the correct functioning of economy; Jacobs (like conservatives) sees it as a foreign element introduced into the natural order. It may be beneficial, but it need not be. With government officials as with doctors: first, do no harm. As John Cochrane points out, many non-Keynesian economists supported massive government stimulus during the recession simply because "we have do something", even if they didn't believe the "something" would help!

Jacobs was conservative because she saw the uselessness of huge, overall plans. No official, no matter how enlightened, can know the character, desires, tendencies, and trends of every neighborhood: and who can successfully plan for what they don't even know? A key part of her book is the need to devolve tasks to smaller units of government, which could comprehend their own area and its needs. This point has been glossed over by many of her would-be disciples, who want to preserve their jobs and their power, and thus continue to make citywide plans that they think Jacobs would approve of. But Jacobs disapproves of citywide plans!

Jacobs was conservative because she hated the power of unaccountable bureaucrats. On page 407 she writes:

The eight rulers who site behind the raised bench (we cannot call them servants of the people as the conventions of government have it, for servants would know more of their masters' affairs)

Jacobs was conservative because she saw people, regardless of education or station, as being the best ministers of their own good. Socialist-liberal types (you can always tell them at parties) believe that they (they themselves!) could make better decisions for the huddled masses, and know better what's best for those less fortunate. You, the interlocutor, will usually be admitted for politeness' sake to the class of the enlightened, but some "others" outside the conversation are not sophisticated enough to make good economic decisions. Jacobs is disgusted by this attitude among the urban planners of the time (p.271):

Conventional planning approaches to slums and slum dwellers are thoroughly paternalistic... To overcome slums, we must regard slum dwellers as people capable of of understanding and acting upon their own self-interests, which they certainly are.

She goes on to point out that slums remain slums because those who are successful want to leave, not because of some character of the people (black, immigrant) or the housing stock ("too dense", run down).

Jacobs had other ideas which are not characteristic of conservatism, but ought to be. She points out the myth in urbanized (now suburbanized) society that there is some rural, bucolic ideal which is better and healthier for humans. The myth is a conceit, imagined by city-dwellers who have forgotten the reality of how brutal nature is. Jefferson (a Democrat!) is the greatest culprit in imposing this myth in America. Jacobs writes (p. 444):

Jefferson's intellectual rejection of cities of free artisans and mechanics [was silly], and [so was] his dream of an ideal republic of self-reliant rural yeomen - a pathetic dream for a good and great man whose land was tilled by slaves.

This pernicious rural ideal pervades city planning. Jacobs mocks the city planners of her time (and often of the 2000's as well) whose solution to anything is MORE GRASS! Crime is high in public projects? They don't have enough grass! Children are poorly educated? They need grass! If only, goes the dream, children could grow up in nature (and not in human society) they would be good and great. (And enslave others, like Jefferson?). This is, after all, a conservative idea, too: people are basically selfish, and society has to harness and limit that selfishness. Socialist-liberals believe that people are basically good, and make terrible public policies founded on this notion. Jacobs points out that children grow up and socialize best by playing on sidewalks and streets - but social planners decry the presence of children on the street, and paternally try to force them off the streets and into playground cantonments. She cites an 'exhaustive American study of recreation' and comments (p. 84):

"The lure of the street is a strong competitor [for playgrounds]... It must be a well administered playground to compete successfully with city streets, teeming with life and adventure. The ability to make the playground activity so compellingly attractive as to draw the children from the streets and hold their interest from day to day is a rare faculty in play leadership, combining personality and technical skill of a high order."

The same report then deplores the stubborn tendency of children to "fool around" instead of playing "recognized games." (Recognized by whom?)

Jacobs is conservative because she is skeptical of scientific orthodoxy. Socialist-liberals often mock conservatives for being skeptics toward the latest scientific consensus, even though the scientific method itself is based on skepticism - and science (especially social science) has so often been wrong. Jacobs traces the origins of urban planning back to some late-19th century French architects, who imagined beautiful (but not functional) cities. The scientists worked backwards from their conclusion to create scientific justifications for it. (A side note: never let a socialist-liberal make fun of you for being anti-science: the Obama Administration ignores decades of economic research that shows stimulus spending doesn't work.)

Conservatives should read Jane Jacobs' magnum opus; so should liberals who don't understand why conservatives are so skeptical of government. Paradoxically, liberals usually love cities better than conservatives, and they will love the aspects of this book that celebrate unique neighborhoods and the liveliness of cities. Conservatives will love Jacobs' red meat about the incompetence of governments and the failure of central planning, and their minds may benefit from learning to love cities as expressions of freedom and getting over their Jeffersonian rural ideal.

Buy it for $11, or get it at your local library: The Death and Life of Great American Cities by Jane Jacobs.

Every Five Days

Justin Verlander only contributed to his team every fifth day, when his turn in the rotation came. That's why it's so impressive that he won the AL MVP, over Jacoby Ellsbury, Jose "Signs" Bautista, Curtis Granderson, and Miguel Cabrera.

Aside from the merit of the individual players, the perennial complaint among an outspoken minority of MVP voters is that pitchers should not be eligible for the award. In this case, Verlander overcame the prejudice of two Cleveland-area reporters. (Incidentally, when the Red Sox's Pedro Martinez was the most electrifying honkballer in the world in 1999, he wuz robbed by two New York City reporters. Is this principal or bias? That's another question.) One of the justifications for prejudice against pitchers is that they are only involved "every five days". Even though he was masterful in his 34 starts, how could Verlander have the impact of a Jacoby Ellsbury, who played on offense and defense in 158 games?

Jim Ingraham of the Ohio Herald-News, enjoying his 15 minutes, explains his position:

I'd wrestled with this for a long time. If I was ever going to vote for pitcher for MVP, it would be him this year. He hasn’t appeared in 79 percent of their games, any starting pitcher really doesn’t appear in 79 percent of his team’s games in a year. Would you vote for an NFL quarterback for MVP if he only appeared in three of his team's 16 games?

The natural objection is that while Verlander only played 34 games, he was much more involved (and subjected to much more wear-and-tear) than anyone else in those 34. In fact, he pitched to an average of 28.5 batters in each game. By comparison, Ellsbury only faced pitchers 4.6 times per game and only touched the ball on defense 2.5 times per game. So how involved was each player? Ingraham's claim is that extensive involvement matters, but intensivity is no object. Why should that be the case? Would Ingraham vote for a player who pinch hit in all 162 games and batted .400? If not, then what's the logic?

In terms of sheer involvement, here's how the top 5 MVP candidates add up. I'm excluding errors from the defense metric, but they wouldn't make much difference.

Player	Batter v. Pitcher	Defense	TOTAL
Verlander	969	45	1014
Ellsbury	729	394	1123
Bautista	655	325	980
Granderson	691	365	1056
Cabrera	688	1366	2054

Looking at this table, we can see that (1) total number of defensive actions doesn't matter to the voters; otherwise they'd vote for an infielder(like Cabrera) every year. Most of baseball is determined by the duels of pitcher versus batter, and a durable starting pitcher like Verlander is directly involved in a good deal more of those duels than someone who is only involved in one out of every nine of his team's at-bats!

The Deleterious Effects of Inflation

Economists have long known that inflation is harmful. Christopher Drew's NYTimes article shows a new arena in which inflation is stunting growth.

The latest research also suggests that there could be more subtle problems at work [in creating the 40% drop out rate in science, technology, engineering, and math majors], like the proliferation of grade inflation in the humanities and social sciences, which provides another incentive for students to leave STEM majors. It is no surprise that grades are lower in math and science, where the answers are clear-cut and there are no bonus points for flair. Professors also say they are strict because science and engineering courses build on one another, and a student who fails to absorb the key lessons in one class will flounder in the next.

After studying nearly a decade of transcripts at one college, Kevin Rask, a professor at Wake Forest University, concluded last year that the grades in the introductory math and science classes were among the lowest on campus. The chemistry department gave the lowest grades over all, averaging 2.78 out of 4, followed by mathematics at 2.90. Education, language and English courses had the highest averages, ranging from 3.33 to 3.36.

Ben Ost, a doctoral student at Cornell, found in a similar study that STEM students are both “pulled away” by high grades in their courses in other fields and “pushed out” by lower grades in their majors.

At the elite college where I teach, grades for our Principles of Economics class are strictly curved - the median must be a B or B+, guaranteeing that a lot of freshmen who never got less than an A- in high school are going to be staring a "C" in the eyes next month. But that's a gatekeeper class: only the top half are allowed to major in economics, and after Principles, the grading becomes lax. Students expect A's and B's; employers have come to expect that all decent students average at least a 3.0.

One of my students, discussing her C average in Principles, asked if she should leave economics. One of her friends - a senior - regrets studying economics: "If I had majored in Psychology, I would have gotten A's and been able to get into a better M.B.A. program".

Professors know that tough grades lead to worse "teaching evaluations" by consumer-minded students. Students know that many employers use a fixed GPA cutoff as a filter to cull the hundreds of applications they get for coveted entry-level jobs. The equilibrium in this game is grade inflation, where A is the new B, and A- is the new C. And it's not as though the elite institutions are holding the line: at Harvard, the modal grade is an A.

The solution to grade inflation is for leading schools - the top liberal arts or research universities would be a natural starting place - to agree to a school-wide grading scheme. It's probably too demanding to say that every class must have the same average grade, but perhaps each major or department could be required to run the same average each semester, with some classes having lower and others higher averages, but none outside some set range.

In order to ease the transition, it might be wise to leave the old A-B-C-D-F system, with its awkward weighting (an "A" is worth four "C's"!). Switching to a ten- or one hundred-point scale, with a fixed average at 5 or 50 would allow equal room at the top and bottom of the scale, and recognize that student outcomes are normally distributed. It would also tell employers and grad school, "I come from a school with a fixed-median grading system. You can trust this GPA."

Starving Somalia

Jeffrey Gettleman has a probing 'news analysis' article in the NYTimes today about the slaughter in Somalia being perpetrated by the Shabab militia in the name of Islam. This isn't news, and echoes much of what we learned from Gettleman three months ago.

But the situation hasn't gotten better:

I heard many bad stories about the Shabab in these camps. Most people here fled Shabab zones, often starting out their journey with five or six children and arriving in Mogadishu with just one or two left. There is nothing else they can do. They either buried their children along the way or left them dying under a tree.

I heard many bad stories about the Shabab in these camps. Most people here fled Shabab zones, often starting out their journey with five or six children and arriving in Mogadishu with just one or two left. There is nothing else they can do. They either buried their children along the way or left them dying under a tree.

It is abundantly clear that this is only a "humanitarian" crisis in the sense that the deaths of Jews, Gypsies, Communists, and others in Nazi concentration camp were humanitarian crisis. Indeed, people are suffering. But the problem is political, not climatological. Save the Children reports a fraction of donations for better-publicized disasters. That makes sense: donors don't even know if their money can get to those suffering in Somalia!

Gettleman points out that while the Shabab are the problem, it's not clear that the Transitional Federal Government in Mogadishu is the solution:

[The T.F.G. is] a divided, unpopular collection of politicians and former warlords based in Mogadishu, Somalia’s bullet-riddled capital... Many analysts say the T.F.G. has performed dismally in responding to the famine (and to the Shabab), and in recent weeks, government militias have looted food and shot starving people.

'Government militias'. Got that?

The U.S. is making a mistake in propping up the notion of Somalia. This artificial country, cobbled together out of a British and an Italian colony, has a population that seems homogeneous only to outsiders. The clans - despite sharing a language - hate each others' guts. And at least two regions (Somaliland and Puntland) have successfully governed themselves independent of Mogadishu for twenty years. But rather than recognize functional self-government, the West showers money on the warlords who have been least able to make peace with each other!

A better response to the crisis would be for the U.S., E.U. and others to withdraw recognition from Somalia. No law says that every inch of the world has to belong to some country (Antarctica doesn't), and we should take a skeptical approach to a region that has nothing approximating a state. At the same time we should formally recognize Somaliland and Puntland and help them negotiate their border disputes, help them develop strong institutions and trade ties, and generally become productive members of the world community.

As for the lawless part of Somalia? Offer assistance to authorities (tribal, elected, whatever) that govern with the consent of their people, that allow economic freedom, freedom of speech, and provide security. In areas without such an authority, the international community can conquer specific refugee towns, and secure them itself. If threats to basic human need and security recede, the international presence can likewise recede.

Humanity existed before government, and just government proceeds from the consent of the governed. This can't be forced - it must be demanded by the people. Until the southern Somalians begin to build their own society, outsiders will be powerless to have any influence beyond the physical realm.

Bachmann the Pharisee

I can't add anything to Michael Gerson's succinct annihilation of Michele Bachmann's raison d'etre as a candidate. She's running as a conservative 'Christian' who will restore morality in American public life, which she intends to do by punishing children for the crimes of their parents. That's expressly forbidden in Deuteronomy 24:16.

Fathers shall not be put to death for their children, nor children put to death for their fathers; each is to die for his own sin.

But that's a verse taken out of context! Surely if we read what surrounds it, we'll see that it doesn't apply to the case of undocumented aliens.

14 Do not take advantage of a hired man who is poor and needy, whether he is a brother Israelite or an alien living in one of your towns. 15 Pay him his wages each day before sunset, because he is poor and is counting on it. Otherwise he may cry to the Lord against you, and you will be guilty of sin. 16 Fathers shall not be put to death for their children, nor children put to death for their fathers; each is to die for his own sin. 17 Do not deprive the alien or the fatherless of justice, or take the cloak of the widow as a pledge. 18 Remember that you were slaves in Egypt and the Lord your God redeemed you from there. That is why I command you to do this. (NIV)

Yeah, so there is that.

Trials for Tyrants

While few tears have been shed over the death of Muammar Qaddafi, some commentators feel (or at least feel an obligation to say they feel) uncomfortable with the lawless execution of the tyrant. A trial, they suppose, would have been more proper, although beatings and death at the hands of a mob of his "children" was quite fitting.

But why? What would a trial accomplish? The purpose of a trial is to establish guilt. More precisely, it is to establish whether the individual in question committed the crimes in question. But Qaddafi himself made the laws of Libya, so those can hardly be trusted, and any other definitions of crime must then be imposed from without or post hoc, not an attractive basis for legal action.

Indeed, the crimes for which Qaddafi was (rightfully) executed are those most general ones, defined by humanity everywhere and nowhere. They can be codified, as has been under various forms in the Hague, but need not be.

Again, to what purpose is a trial? To establish whether the individual in question committed the crimes in question. If the crimes can only be imperfectly defined, the principal job of a court would be to establish the facts as they relate to the involvement of the accused.

What did Qaddafi know and when did he know it? He knew everything, and he knew it when he commanded it to be done. The only question for a court, thus, would be to establish Qaddafi's identity! It seems that was done correctly by the kangaroo court in the street.

What more could we want from an official court? An appearance of fairness? Please. No court could appear fair to both sides, since the question of guilt is philosophical rather than factual. An adherence to rule of law? Ad-hoc courts set up to try specific individuals under a unique, indeterminate statute are often needed, but do not represent law. The executioner, a young Mr. Bibi, did right by Libya and the world, and spared his country a travesty of justice.

Occupy the ATM: Tips for the 99%

Do you want to make a statement about the outsize role of banks in our economy? Do you want to see financial intermediaries have less influence in politics? Are you sick of "too big to fail"? There's a simple way to reduce the role of giant banks and the international finance system in your life.

Use cash.

When you make a purchase with a debit or credit card, the company issuing the card makes money. Global Review applauds the Obama Administration for reducing the amount that debit-card users can charge retailers for each debit transaction - it's now 24 cents, down from a previous market average of 44 cents. Global Review doesn't like regulation for the sake of regulation, but this one (partially) solved a significant externality in retail markets.

Consider the current situation: few retailers can charge different prices for cash and debit transactions. Such a policy is costly to enforce and it looks bad to customers. So instead, almost all American retailers accept debit, raise prices somewhat, and swallow the loss on those who use debit. Economically, that looks just about the same as a tax on cash transactions: when you use cash to buy something, you're paying a debit markup to subsidize those who benefit from the convenience of using debit.

Don't get me wrong: debit is a great convenience. But those who benefit from the convenience should pay for it. Bank of America's $5 monthly fee is a good start, but a per-transaction fee would be much better. Most of us want a debit card for big purchases (who wants to carry $500 in their wallet?), but would switch from debit to cash readily if a 50-cent fee was attached to each small debit purchase.

So if you want to show your sympathy for mom-and-pop stores, for waiters and waitresses, for manufacturers and farmers (or your antipathy towards bankers and finance whizzes), switch to cash. It's like dropping a quarter in the tip jar on the counter, but it costs you nothing.

Note: Saying "Credit" instead of "Debit" is just the same. If you're using a Debit Card (i.e., one that's tied to a specific checking account), it's not really a credit transaction at all, just a signature-based debit transaction, and the same law applies in both cases.

Ron Paul Blames the Fed

Ron Paul laid out his critique of the Fed today in the Wall Street Journal. He's absolutely right on some points:

The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year. Thus there is significant political pressure being placed on the Fed to keep interest rates low. The Fed has painted itself so far into a corner now that even if it wanted to raise interest rates, as a practical matter it might not be able to do so. But it will do something, we know, because the pressure to "just do something" often outweighs all other considerations.

However, his argument rest on an odd premise:

The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913.

But what about every single boom and bust before 1913? The U.S. tried various monetary arrangements, including decentralized money (state-issued), silver-backed currency, gold-backed currency, having a National Bank, not having a National Bank... and they all gave more or less the same result. It's true that the Fed hasn't fixed all our problems, as Christina Romer showed. But when Paul advocates returning to the Gold Standard, he seems to claim that the Golden Age will have no recessions and no booms. That's absurd.

It's surprising to economists that the Fed is capable of controlling market interest rates with a tiny lever; but it does so. That tells us that the fundamentals underlying interest rate determination in a free market are weak. If free-market interest rates were solid, steady, and grounded, then a little overnight lending rate would barely be able to budge them. Thus, I look at financial markets and conclude that interest rates would in all likelihood be volatile and unpredictable in a free market, leading to malinvestment, booms, and busts in much the way that Paul describes.

Gold is not the answer.

Don't Text While Driving (now with data)

How can we measure the impact of texting while driving on safety? Turn off the texting service! Blackberry's 3-day disruption this week wreaked havoc on the incomes of ambulance-chasers and auto-body shops in the United Arab Emirates. Reports the National:

A dramatic fall in traffic accidents this week has been directly linked to the three-day disruption in BlackBerry services.

In Dubai, traffic accidents fell 20 per cent from average rates on the days BlackBerry users were unable to use its messaging service. In Abu Dhabi, the number of accidents this week fell 40 per cent and there were no fatal accidents.

Gen Tamim said police found "a significant drop in accidents by young drivers and men on those three days". He said young people were the largest user group of the Messenger service.

Any Emirati readers know how large a market share Blackberry has? If this was the gain from a single service going down, it's not hard to imagine that phone calls and texts of all varieties account for half of the accidents in a hyper-connected place like the Emirates.

Hat tips to Andrew Davis & Tyler Cowen.

Occupy Boston

On my way home from exploiting the workers of the world (I bought cheap produce at Haymarket), I ran into the Occupy Boston parade. It was led by a pickup truck with a sound system, which must have been paid for by a labor union because the man with the microphone made "UNION.. UNION" one of his staple chants, even though the crowd behind him showed very little interest in that particular interest group. They were, evidently, not only the 99%, but also part of the 87.6%.

Most of the protesters seemed reasonable: they chanted things like "this is what democracy looks like!", which would be more audacious if the police were oppressing them instead of stopping traffic and closing off public streets for them. A large plurality wanted to end the war, but their signs were subdued. We've come a long way from angry demands for peace or "NO BLOOD FOR OIL" signs dripping with red ink. The tone of the anti-war signs today was "It's about time we brought the troops home".

The Federal Reserve system took some flak from the parade, who were salivating as they turned off Washington and down Summer toward the craven Reserve Bankers in their Dewey Sq. tower. Well, if it were a weekday, that's where they'd be.

The Ron Paul people were right behind the Lyndon LaRouche people. Behind them was a man carrying a sign that said "I AM A MAN". Was he being ironic, or has irony died? I couldn't tell. Another guy's sign bemoaned the fact that he couldn't purchase a senator. A dissatisfied group of older citizens evidently had purchased a senator, but got a lemon: their banner was an open letter to Senator John Kerry, with a laundry list of policy items they wanted him to pursue. I didn't see the Senator there, so hopefully they sent him a copy in the mail.

As the parade trailed by the chants blurred together - they were weak chants, really, lost in the commercial bustle of a city built for the 99% who buy into the capitalist system.

Some of the signs I saw were sensible - "END THE WAR" and "MILTON FOR PEACE". Others were mean-spirited, like the chant "STOMP THE RICH!". A few were wishful thinking, like "WE DON'T NEED YOUR JOBS, YOU NEED OUR LABOR". Unconvincing. And a few were downright idiotic - "END THE WAGE SYSTEM!" Didn't we fight a Civil War to guarantee every American the right to participate in the wage system? Do you really want to go back to the other way?

The parade tailed off. There was a woman wearing a wig with an unopened can of cat food balanced (or glued?) right on top of her head. She certainly seemed happy with the way America is right now. So did the guy riding a tricycle with one pooch sitting behind him on the trike and another pooch riding on a little wagon he was pulling. He had a large American flag and the dogs had red-white-and-blue bandannas. The last man in the parade was a jester with three different woodwinds in his belt riding a unicycle.

The kids are alright.

Rubio on Bahrain

How come guys like this don't run for president?

Jennifer Rubin of WaPo notes that Senator Marco Rubio (R-FL) took a stand against indiscriminately selling weapons to autocratic allies. He wrote to Secretary Clinton,

I appreciate Bahrain’s concern about Iranian ambitions in the region and the potential threat to the country’s stability, but I believe the government’s response to the disturbances actually threatens the country’s long-term stability, jeopardizes United States' standing in Bahrain and the Middle East, and plays into the hands of Iran. . . . It is in that context that I urge the administration to review the propose arms sale to Bahrain and to delay any item that package that could be used to disrupt, monitor or otherwise restrict the Bahraini people’s right to peacefully assemble and petition their government.

As Rubin comments, "the ability to apply American values in specific contexts and to see, in essence, all the pieces on the chessboard is not a skill everyone has." Her hope is to see Rubio elected Vice President. If he's as cogent on other issues as he is on how American should deal with autocratic allies, he'd be an improvement over the last few nationally-elected politicians.

Rick Santorum is an Idiot

Rick Santorum was senator of a state that has lost a lot of old-line heavy manufacturing jobs as America's comparative advantage has shifted away from those 19th century leaders. It's tough on a lot of Pennsylvania towns, so Santorum knows a lot about this.

And he has a plan.

Hopefully, nobody heard it. But if I understand it correctly, from tonight's debate, he wants to put zero taxes on manufacturing and zero taxes on overseas profits. So we're going to give you a huge incentive to bring jobs back to the U.S.... and a huge incentive to keep them overseas. And it's going to be paid for by all the businesses that are actually doing well despite the economy, the high corporate taxes, global competition, etc.

This is like something from Atlas Shrugged: let's tax the successful so that the unsuccessful can continue in their dysfunction.

No hard feelings to Pennsylvania, steel workers, or anybody, but: those jobs aren't coming back. You can't distort your way out of the 21st century, and a stable American economy will be built on people doing things better than anyone else in the world - and exporting it - rather than by people doing what they did best 50 and 150 years ago and complaining that the world has passed them.

The former senator continues to combine all of the worst aspects of Republicanism into a complete package of shrill, nativist, pro-war, anti-business, anti-gay, anti-technology poopstorm of incontinence incompetence.

Primary Election Debates: New Format Needed?

What's the opposite of looking forward to something?

I'm looking... backward? ... to tonight's Republican debate in New Hampshire. Is it the 4th? The 9th? I don't know. Will I watch it? Heck no. I can read about the gaffes and the gotchas tomorrow morning.

But here's what I would watch. A kitchen-table debate, featuring two, three, or four of the candidates, and a few well-known personalities from the host state, with maybe a random outside voice thrown in. So South Carolina could host a televised forum with candidates Romney, Bachmann, and Cain, plus local GOP leaders Gov. Nikki Haley (a conservative), Sen Lindsey Graham (a moderate), and somebody more local - a state rep or a mayor - plus an outsider like Gov. Mitch Daniels (Indiana). In a separate forum, maybe a week later, other candidates - Perry, Paul, and Santorum, say - could sit down with Rep. Tim Scott (tea party), Sen. Jim DeMint (conservative), a moderate local, and Sen. Marco Rubio of Florida.

A forum like that would put intelligent questions into the discussion, with real critiques. The local GOP leaders, especially if they haven't endorsed anyone, would want to bring out quality. They'd want to probe enough to see if the candidates have depth, but not play "gotcha" games or ask softball questions, as media moderators are wont to do.

The smaller setting would allow us to get to know the featured candidates in a setting which is a little more realistic. Rick Perry looked awful at dealing with the stand-up debate banter. But how does he do talking about substantive issues with genuinely inquisitive fellow partisans? I want a candidate who can create consensus in his own party, not one who's an expert marksman in debates. The issues discussed would tend to the local, and would force candidates to show some specialized knowledge and state-specific preparation. At the same time, televisation would mean that candidates couldn't pander shamelessly, as they probably do in informal settings with state figures.

The primaries are important because they determine the quadrennial standard-bearer of a party. However, none of those running for president is ultimately as central to being Republican today as some of the leaders who chose not to run - men like Paul Ryan and Mitch Daniels. Let's give a voice in the nominating process to those who know how to govern, how to legislate, and how Washington works. In return, they would benefit us by bringing real substance out of the candidates.

In a year without a Democratic incumbent, this would work just as well on the left side of politics. The Obama-Clinton nomination was decided almost entirely on style; voters would have been served by a real investigation of the candidates' substantive differences.

End the War!

For all the protesters who don't know what to protest, I have a suggestion: the War in Afghanistan. It's gone on 10 years, thousands have died, and we haven't achieved any goals besides ousting the Taliban (took 9 months) and killing Bin Laden (took 9 years). It's time to declare victory and leave! Why isn't there a robust protest movement castigating the president and the complicit Republicans for not drawing this pointless bloodshed to a close?

Nobody's Savior: the Mitt Romney Story

I like best cases. The best possible outcome of an NBA lockout would be something like Simmons & Kang's renegade basketball league.

The best case for Mitt Romney's campaign was put forward by David Brooks, he of the center-right, the eastern elite. He doesn't go overboard in praising Romney, and he points out that in the last 11 months Romney has run a brilliant (& lucky) campaign, going from 23% in the polls to... 23% in the polls.

[Republicans] don’t want Organization Man. They want Braveheart.

But Brooks argues that Republican activists are distracted by the desire to score points in the media and cause a stir. The real challenges for the GOP are (in increasing order of importance) (1) defeating Barack Obama on an open field of battle and (2) governing effectively and implementing the policy goals that are common to all Republicans.

He also points out what brings presidents down:

He could probably work well with the leaders of his own party... More presidents have been undone by the Congressional leaders in their own party than by members of the opposition.

Romney may be able to guard against ideological overreach. Each successive recent administration has overread its election mandate.

He comes from a blue state. In government, it really helps to have a feel for how people in the other party think. Neither President Obama nor George W. Bush had this.

Finally, Romney can be dull. Political activists like exciting candidates. But most people, who have lower expectations from politics and politicians, just want them to provide basic order. They want government to be orderly so they can be daring in other spheres of their lives.

Perhaps it's not a ringing endorsement of a candidate when the concluding line is that "he is nobody's idea of a savior." But Brooks is right when he says that's a strong case for electing Mitt.

Bad Call

In a bygone era, this bit of (dial)tone deafness by the Obama administration would have gone unnoticed. After all, they just want to update a bureaucratic item to deal with new technology, and the proposal should raise government revenue. What's not to like? Well, this is the proposal:

President Barack Obama wants Congress to make it easier for private debt collectors to call the cellphones of consumers delinquent on student loans and other billions owed the federal government.

The change "is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cellphones," the administration wrote recently. The recommendation would apply only to cases in which money is owed the government.

Said Lauren Saunders of the Boston-based National Consumer Law Center: "People aren't paying their student loans because they can't find a job."

It's like the old joke about the definition of chutzpah*: when a president's policies cause massive job loss, and then the president begs for tougher debt collection because the deficit is hurting his job security.

* With apologies to James Taranto, for borrowing one of his favorite tropes.

Means-Test Your Way Out of Debt

Marc Thiessen spends a column on the Republican House laundry list of spending cut wishes. Citing mostly Paul Ryan, he checks off a familiar litany of wasteful Washington:

• Slow the growth of Social Security for the rich.
• Reduce or remove Medicare for the rich.
• Means-test the DC Scholarship Program, and swing the money from providing a wide choice of colleges to affluent college students to providing a wide choice of elementary schools for poor kids.
• Remove farm subsidies for wealthy farmers.
• Cut Freddie Mac & Fannie Mae loose from the Federal apron-strings.
• Eliminate corporate welfare for favored corporations (like GE) or industries (like solar panels).

To these proposals, Global Review says a hearty "amen". In addition, get rid of agricultural subsidies which raise the price of foodstuffs, essentially stealing from the poor & unemployed and giving to the wealthy and landed.

Conservative Chicanery

There are lies, damned lies, and statistics. In the current debate on the "Buffett Tax", some conservatives are perpetrating a statistic more mendacious than Mephistopheles himself. A great example is John Steele Gordon, writing a pompous editorial with the attitude of a pedant.

Mr. Gordon is playing at Mythbusters, but he's neither entertaining nor enlightening. He writes to correct five misconceptions, some of which are more germane than others. The Mephistophelean "myth" is that "Millionaires pay proportionately less income tax than poorer people." What's so insidious about this "myth" is that it is, in fact, a myth: Millionaires pay proportionately more income tax than the rest of us, and - in fact - some 50% of all taxpayers pay no Federal Income Tax. Note the qualifiers.

Left out of this narrow definition of income tax are the FICA ("payroll") taxes that supposedly fund Social Security and Medicare*. These usually amount to 15.3%** (13.3% in 2011 with the stimulus tax break) of all income earned up to $102,800. According to Gordon, families with incomes above $1 million payed 23.3% in income tax. Adding in FICA, they would have paid at most 24.8%. Families earning between $50,000 and $100,000 would see their average tax rate jump from 8.9% (if Mr. Gordon is to be trusted) to 24.2%, which is very, very similar. Those earning less than $50,000 pay substantially less.

Now, President Obama is still wrong in saying that millionaires pay "less taxes than the rest of us". He's also wrong in defining earners who make $250,000 a year or more as "millionaires", a puzzling stretch of nomenclature. A family earning $250,000 in straight earned income (say, a successful doctor) might be chipping in about 35% of their income to the Federal till. That's a lot.

Mr. Gordon goes on to perpetrate another fallacy: he says that "dividends are paid out of corporate profits that have already been taxed. So Buffet's [sic] equity earnings are doubly taxed: He pays 35 percent at the corporate level and 15 percent on his own return." This is also specious. First, it applies only to dividends, not capital gains, and the latter amount to 70% of taxed income on investments***. A back-of-the-envelope calculation tells us that the total tax on investment profits might be about 15% + 0.3*35% = 25.5%. That's a marginal difference at best. Taking into account that high-rolling investors are likely to do a lot more trading and earn from capital gains, while dividends go disproportionately to cautious folks with retirement accounts, the "dividends are taxed twice" argument is a poor defense of the very rich.

Second, few companies pay the full 35% rate; they have tax shelters, rebates, and gimmicks just like wage earners. Third, the corporate profits tax is taken into account by investors when they purchase stocks. They decrease their investment in American firms concomitantly, lowering the marginal product and thus the wage of American workers. So workers suffer (although somewhat less) from the high corporate profits tax too.

In summary, let's look at the average tax rates we've calculated.

• Millionaires pay less than 24.8% of all income on average
• Middle-class families pay about 24.2% of all income on average
• Investments by the affluent are taxed at something less than 25.5%, taking corporate profits tax into account.

This tax structure looks pretty flat, but only on its surface. The myriad loopholes, breaks, progressivities and regressivities make it a moonscape of craters and ridges. More important than raising or lowering taxes on any large, average group is true tax reform: making the code transparent and boring. Whether the tax code is flat or progressive, it ought to be smooth. Could somebody in Washington pick up that phrase?

Footnotes
* FICA taxes were instituted to fund Medicare and Social Security, but in practice are tossed into the same Federal till out of which all the government's obligations are paid. It makes no sense to consider these separately from income taxes.
** Half of this 15.3% comes out of workers' paychecks, half comes from their employer. As my Intro to Econ students can tell you, this doesn't make a dime's worth of difference: no matter who writes the checks, relative elasticities determine who bears the cost of the tax.
*** Calculated from IRS data for tax years 1980-2005, from this IRS spreadsheet.

A Dish Best Served Cold

When Rep. Anthony Weiner (D-NY) was pressured to resign his house seat after tweeting a picture of his homophonic member, it was to protect his fellow Democrats. Weiner was a very national candidate. He was the "Next Mayor of New York City" in everyone's calculus. He was a "scourge" of Republicans nationally, employing social media to do battle around the country.http://www.blogger.com/img/blank.gif

Now, in the wake of his embarrassing scandal, just a day or two after Obama's Don't-Call-it-Another-Stimulus Plan speech, the seat has gone Republican. The NY Post concludes:

That a Brooklyn-Queens district where Democrats outnumber Republicans 3 to 1 could swing to a GOP candidate who was outspent and outmanned -- and where unions poured in enormous resources in the final hours -- doesn't bode well for a president facing re-election in a queasy economy.

Public Policy Polling minced no words when it reported Sunday that Assemblyman David Weprin, handpicked by Democratic leaders as their so-called sure-shot candidate, was undone by a president whose approval rating in the district came in at a dismal 31 percent.

"If Obama's approval in the district was even 40 percent, Weprin would almost definitely be headed to Congress. He’s getting dragged down by something bigger than himself," the polling group declared in projecting a Turner victory.

Ponzi Schemes

The most notable exchange in the Republican debate from two nights ago was Perry standing by his characterization of Social Security as a "Ponzi Scheme". Is that a fair label? I'll give you the facts; you can decide. Is that good politics? Probably not, especially if it's ever separated from the words "... and we need to fix it now."

What is a Ponzi scheme? It's named for Charles Ponzi, an Italian-American swindler who set up a scam in Boston's North End promising to make massive profits arbitraging postal stamp markets. He signed up investors rapidly, told them (mendaciously) that they were making huge profits, and continued to sign up new clients at an astonishing rate. Most didn't withdraw their "profits"; those who did were paid out of the principle invested by new clients. The scheme continued for years.

There are many modern Ponzi schemes, most famously those of Bernie Madoff and Nevin Shapiro. The concept is simple: as long as more and more people buy in, the fund remains solvent and (very) profitable. When some hiccup interrupts the flow of new cash, however, the truth is revealed: there aren't any real investments behind those glossy statements.

Social Security, as originally proposed, was a pension fund for working Americans. They would pay in during their working lives, and - if they lived until 65 (at a time when the median lifespan was 63) - withdraw the investment later. It equalized payouts somewhat across people, so your money wasn't yours specifically, but the idea was that it would be in a Trust Fund for you when you retired.

That didn't last long. Within a few years of its creation, the accumulation of a large Social Security Trust Fund was blamed for the 1936-37 recession, and the fund was diminished in 1939. Since then, the system has principally relied on the current contributions of American workers to cover payouts to American retirees. There has been a surplus all along, but instead of saving the surplus, it has been borrowed by the Treasury. Thus, the Social Security Trust Fund largely consists of IOU's from other parts of the Federal Government.

Of course, unlike a swindler's scheme, Social Security enrolls everyone - workers can't just opt out if they realize they won't be paid later. And the process is transparent. We know that there's nothing in the Trust Fund, and we have for decades. The risk isn't that people will opt out of Social Security, or try to withdraw money early (you can't), it's that the ratio of workers to retirees will change drastically when the Baby Boomers retire.

If no reform is enacted, there are a variety of ways that Social Security could weather the storm. It could decrease benefits across the board. Congress could raise the retirement age to correct the ratio. Social Security could cash in its Treasury Bonds and force the government to drastically cut spending or raise taxes elsewhere. Social Security taxes could be increased sharply to cover the gap. Another possibility would be to sharply increase immigration of young workers from abroad.

What's sobering here is that Social Security isn't America's biggest worry. After all, the Baby Boomers will eventually die off, and the generations after them are in more normal proportions. Two other responsibilities of the Federal Government - Medicare and the National Debt - are projected to grow boundlessly. Nobody knows who's going to pay for those.

Republican Debate

Comments on tonight's debate at the Reagan Library.

• Good call opening with a back-and-forth between Perry and Romney. That's what we came to see.
• Michele Bachmann should fire her hairstylist.
• I'm glad Ron Paul pointed out that Reagan's presidency didn't go so well. Huge deficits aren't conservative.
• Romney shredded Perry on Social Security & electability.
• What's Jon Huntsman's deal? I think his candidacy could be really valuable, but I still don't know what he's running on. In the same breath, he recalled how important was Ronald Reagan's optimism, how optimism is a great characteristic of Americans, and then repeated his catch-phrase line that America's "core is broken". You're running on, "The core is broken"? Fire your staff and start over! The one good point Huntsman made was that he appeals more to independents and Democrats who will be important in the general election.

Competitivism

The American system of economics - what is commonly called "capitalism" - would be best termed "competitivism". The system isn't particularly favorable to owners of capital, nor in the era of the knowledge economy is capital the main feature of production.

Here's a great example. The true capitalists (owners of capital) want to merge two large concerns, AT&T Wireless and T-Mobile. This would allow them to provide more service with less capital, and would reduce competition in mobile phone service and monopolize the market for those with unlocked SIM-card phones. The U.S. government, true to its competitivist values, is suing to block the merger, on the grounds that it would too drastically reduce competition. In a market with only a handful of large firms, the unification of too much capital under one management is detrimental to consumers and workers - even though it is favorable to capitalists.

Corporations are People

As reported in The Fix, Mitt Romney has 'doubled down' on his "corporations are people" blurtation*. The Fix quotes:

In a campaign stop Wednesday in New Hampshire, Romney brought up the remark — which some have portrayed as a gaffe — unprompted.

"Corporations — they're made up of people," Romney said. "They’re just groups of people that come together for work. When you say 'tax corporations' — the steel and the vinyl and the concrete, they don't pay taxes. Only people do."

Romney, of course, is dead right. This is a basic economic principle, which I'll be covering in my Intro to Econ class in a couple weeks. If a corporations profits are taxed, the corporation can respond in some combination of four ways: charge higher prices to consumers, pay lower wages to workers, compensate owners less, or go out of business altogether. Leaving aside the ultimate exigency, who pays the tax depends on "elasticity".

Can consumers readily switch to a substitute? Then prices won't change much. Can workers easily get new jobs? Then wages can't be lowered. Can capitalists easily invest in higher-return options? Then profits won't fall much.

In the current economy, which option seems most likely? In the case of a nationwide tax increase, it's very difficult for workers to find jobs not subject to the new taxes and difficult for consumers to switch to untaxed substitutes. They have to way of avoiding the tax. Capitalists, meanwhile, can pull their money out of the U.S. and invest anywhere else in the world, particularly the many stockholders who aren't American anyway. Thus, it's likely that raising corporate taxes would harm consumers and private-sector workers, while scaring capital investment away from America. Why don't we drown some puppies while we're at it?

Here's hoping that Mitt Romney doesn't suffer for his willingness to be honest about Economics 101. That's up to the media, who can choose to report fairly (e.g. with a quote from an econ professor) or unfairly.

* If "blurtation" is not yet a word, it obviously should be. Is there an existing synonym I'm missing?

Stick to Philosophy

Philosopher (or alchemist?) Gary Gutting likes to write about important issues, applying philosophical principles to current events in a NYTimes blog called "The Stone". Perhaps he should stick to philosophy. In his most recent piece, weighing in on Perry's economic record, he tries to remain above the fray but only succeeds in sounding pompous. First, he makes a logical error in attributing to Investors Business Daily a "logical fallacy" of confusing correlation with causation. But the IBD article never explicitly claims "causation"; perhaps Gutting disliked IBD's lack of nuance, but that's a far cry from logical fallacy. He is both unkind and wrong there.

Worse, he blunders into economics with this gem.

Of course, it is often easy to see that a particular policy produced a short-term economic effect: Obama’s cash-for-clunkers program caused an increase in car sales.

That may be "easy", but it may or may not be correct. Most economists suspected (both before and after C4C) that the largest impact of the program would be intertemporal substitution - buying a car now instead of earlier or later. Wikipedia summarizes scholarly (and otherwise) evidence and opinion on both sides.

Social science, unlike philosophy, deals only rarely in clean cases. Most economic events have large second-order effects to consider. And philosophy, unlike alchemy, has nothing to do with the Philosopher's Stone.

"We run government like a ranch"

The NYTimes today surprised everyone by giving OpEd page space to Texas Governor and GOP primary candidate Rick Perry, who bragged about how he's been able to slice, dice, cut taxes, raise revenues, and make everyone happy during the recession. It might be a bit too good to be true, but the conservative principles are unmistakable:

For six years [Texas] has been one of the only states in America with a budget surplus: this year it is a record $433 million, proportionally equivalent to a federal surplus of $858 billion. Thus we've been able to cut taxes, invest in education and infrastructure and keep essential services intact. We recently got our first bond rating upgrade in 26 years. And we're not simply riding the Western energy boom, [which accounts] for only 9 percent of our budget surplus.

How do we accomplish what most states and the federal government cannot? I like to say we run government like a ranch. In ranching — my old job — you either pinch pennies or go belly-up. We do the same in government. Perhaps Washington can try it.

For one thing, we challenge every expense. If it isn't absolutely necessary, we eliminate it. When the recession came we found $80 million in savings, which helped us avert a budget crisis. Little things added up: we renegotiated state contracts, cut our energy consumption by 20 percent, auctioned off state vehicles and canceled building projects and computer upgrades.

This type of penny-pinching rarely occurs in Washington. As a small example, I was recently at a military base where a private firm ran security. Why, with the toughest soldiers on earth, would the federal government spend extra cash to rent security guards rather than let troops take turns guarding the fort?

Finally, we don't spend money until we've found the lowest price. Around here, government contracts aren’t a way to take care of friends. Quite the opposite: we use our purchasing power to get the lowest possible rate. When the real estate market softened, we told commercial landlords who rented space to the state that if we didn’t see rent reductions, we'd move to cheaper premises when our leases were up. Most complied, saving the state almost $4 million.

How does the federal government negotiate? Consider Medicare drug purchases, one of the largest federal budget items. We are often told the cost of entitlements can be brought down only by cutting services. Nonsense. In 2003, in one of the greatest sweetheart giveaways ever dreamed up by the White House and Congress, they agreed to pay retail rates for Medicare drugs, even when everyone knew they could negotiate lower, bulk prices. The cost to taxpayers? An estimated $600 billion a decade.

Except, that wasn't written by Rick Perry. It was actually written by Governor Brian Schweitzer (D-Montana) about his own state. But could you really tell the difference?

Krugman on Texas

As if doing the White House's bidding, Paul Krugman's article today is devoted to deconstructing the "Texas Miracle", which Gov. Rick Perry is sure to run on in the presidential election if he wins the Republican primary. Texas, after all has grown 2.4 times as fast as the rest of the economy since the "end" of the recession.

Krugman makes some good points:

It's true that Texas entered recession a bit later than the rest of America, mainly because the state's still energy-heavy economy was buoyed by high oil prices through the first half of 2008. Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending...

[Texas] has, for many decades, had much faster population growth than the rest of America... [people] are attracted to Texas by its warm weather and low cost of living, low housing costs in particular. And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.

After these, he wanders off into a mire of toggling back and forth between real and nominal numbers, and alternately allowing or ignoring dynamic effects, depending on how they help his case. But let's return to the cogent parts above. So Texas' oil industry had positive overflow to the rest of the state? So what does Krugman think we should do with oil? That's what I thought.

And Texas has surprisingly strict regulation of mortgage lending, despite two decades of Republican dominance. Because it was Republicans who were always pushing for easier and easier mortgages, right? No? That's what I thought.

And people are moving to Texas for cheap houses, so the state must have a higher-than-average unemployment rate, right? After all, if housing is really cheap, and you don't need to heat your home much, it's a good place to live if you're unemployed. The Texas rate, which Krugman calls "high" was 8.2% in June. Is that higher or lower than the national unemployment rate? That's what I thought..

Krugman tries to argue that immigration causes lower unemployment; but that doesn't make a lot of sense to me, particularly since Americans willing to move states are rarely doing so while remaining in their jobs. If people were only moving for cheap houses and warm weather, we would see unemployment increase. Thus, if Texas had hypothetically closed its borders to the rest of America, it would have had an even lower unemployment rate!

Krugman brings his line of reasoning to a tormented conclusion:

[A]rguing from this experience... involves a fallacy of composition: every state can't lure jobs away from every other state...

So when Mr. Perry presents himself as the candidate who knows how to create jobs, don't believe him.

The fallacy of composition only exists because Krugman assumed that inflowing population led (somehow) to lower unemployment. Once we switch the causality to the more likely direction (low unemployment attracts immigrants), we should conclude that other states should indeed imitate Texas, since it is not only doing better than the rest of the country, but it is helping the other states out by employing many of their unemployed!

It still could be the case that Texas' success is not duplicable: if all its growth came from the oil sector, for instance; however, with oil prices in normal territory for most of the last 2 years, that's unlikely. So when Mr. Krugman presents himself as the economist who knows how to create jobs, don't believe him.

Toxteth

Two tales of one city:

Taking shelter from the driving rain on Lodge Lane in Toxteth, he tells her why he has taken to the streets. "These are my boys. I'm not just going to stay at home and miss out on all the fun." The 25-year-old, who did not want to give his name, described an "adrenalin rush" as gangs of youths, thought to number 200 at the height of the troubles in the city which centred on low-income areas in the South of the city, but sparked also on the other side of the Mersey in Birkenhead. "Police patrol these streets every night of the week and we only get to riot every few years. They can't come here laying down the law like they do all year round. People are rioting because the riot is finally here."

Idriss Majad used to be a legal investigator in Iraq, before fleeing violence in the country and seeking asylum in the UK. After receiving permission to remain, he opened a shop, just last month. "I came to this country for safety and when I got permission to stay I tried to invest. I borrowed money and I invested everything I had in this shop," he said. He estimated that with the stock, mainly cigarettes, stolen and the damage done to windows, the counter and shutter, it would cost him around £5,000. "It is huge for me. Already I can't make nothing, but I was building for the future. It is miserable, I am very nervous but I have to carry on with my business because I don't want them to win."

Great reporting on both sides of the riots in Liverpool by Alexandra Topping for the Guardian.

Riots: What's a social network to do?

As riots spread across England, thrill-seeking, morally bankrupt "youths" are spreading the mayhem, eluding cops, and coordinating robberies with messages like:

the riots have begun, windows smashed, bike wheels taken, mandem pullin out bats n pitbulls everywere, BC this to show respect for the rioters! Join in !

Apparently, Blackberries are as universal in England as cell phones are here, and these "poor" teenagers are rich enough to have them. Some have called on Twitter, Blackberry, and other social media corporations to shut down their services at certain hours, or suspend accounts. They've resisted: they want to stand for free speech and avoid being government tools.

Rightly so: social media is media, and a free media is vital to a free people. These same tools were applauded when they carried the spark of revolution forward in Tunisia, Egypt, Syria, and elsewhere earlier this year.

However, the corporations are not bound to keep their service constant, and they can respond wisely to the situation before them. Instead of seeing this as a fight between pro- and anti-free media camps, Blackberry, Twitter, and co. should look for some technical or market solutions to the abuse of their services. I'm sure readers can come up with other ideas, but some ways to slow the spread of violent messages include:

• Restrict the number of recipients on texts
• Raise the price of a text. How many teens can afford to send out a blast to fifty friends at 50 pence a pop? And hey - you'll make bank.
• Put in a time lag of 30 seconds on texts/tweets; that will give police and voice callers a brief time advantage.

And my personal favorite:

• Spell-check tweets originating on mobile devices in England. Bounce back anything that isn't dictionary-perfect.

fourrandomcommonwords

I just think I might be forwarding this XKCD cartoon for the rest of my life to every system admin who requires that I choose a mixed-type password. Maybe I can print it out and post it on their office doors after hours, too?

The Green Terror

The NYTimes has a gut-wrenching review of the situation in Somalia.

Much of the Horn of Africa has been struck this summer by one of the worst droughts in 60 years. But two Shabab-controlled parts of southern Somalia are the only areas where the United Nations has declared a famine, using scientific criteria of death and malnutrition rates.

The Shabab - dudes or young men in Arabic - are a nasty hybrid of street gangs, old-school warlords, and self-righteous Salafi sheikhs. They terrorize outsiders a little, and terrorize Muslim Somalis daily.

The Shabab Islamist insurgent group, which controls much of southern Somalia, is blocking starving people from fleeing the country and setting up a cantonment camp where it is imprisoning displaced people who were trying to escape Shabab territory. The group is widely blamed for causing a famine in Somalia by forcing out many Western aid organizations, depriving drought victims of desperately needed food. The situation is growing bleaker by the day, with tens of thousands of Somalis already dead and more than 500,000 children on the brink of starvation.

People from those areas who were interviewed in Mogadishu say Shabab fighters are blocking rivers to steal water from impoverished villagers and divert it to commercial farmers who pay them taxes. The Shabab are intercepting displaced people who are trying to reach Mogadishu and forcing them to stay in a Shabab-run camp about 25 miles outside the city. The camp now holds several thousand people and receives only a trickle of food.

Sharia law, in any manifestation of which I am aware, is 'morality for thee but not for me.' When the stringent laws of 7th-century Arabia are married to the Al-Qaeda credo of absolution through jihad, they metastasize into a diabolical terror of hedonistic puritanism, where the most guilty flog the most innocent in a bloody quest for the forgiveness of their own sins.

Where's Dorchester?

As I reacquaint myself - and acquaint my wife - with Boston, we often question where exactly something is. Where's Dorchester? I was born there, and I think of it as a mixed-race neighborhood near the bay and the Neponset, served by the Red Line. Dorchester's centers are Fields Corner and Codman Square. As a young child, I lived at two of its extremes: Edward Everett Square and Lower Mills.

But now people - students, outsiders - talk about Dorchester as if it were everything south of Dudley Square. And they say, "Don't go there - Dorchester's dangerous". Dangerous?

And my wife asks about the region between Mass Ave and Melnea Cass Blvd: is it the South End or Roxbury? And what's the boundary between the South End and the Back Bay? Do these lines move with demographics: if people are black, then it's Roxbury? That's an unpleasant definition.

As it turns out, we're not alone. The Globe has an interesting article and a great map addressing the question.

Poverty Escape

Fixes at the NYTimes has an inspiring report on the Family Independence Initiative, a poverty-escape program with a really new focus. Rather than prescribing actions, they give small monetary rewards to poor families who achieve their own goals. The commitment to let the families themselves lead is noteworthy:

Lim Miller gave his staff strict instructions that they could not offer any advice — not even friendly suggestions. For some, this proved too difficult; he had to fire people who couldn’t help but be helpful. Lim Miller was convinced that the assumption of incapacity behind the helpfulness was a big part of the problem.

It's not clear how duplicable this approach is - or whether it's better than joining a church or ethnic club - but the results certainly make me want to find out:

After two years, FII reported that incomes across all its sites had increased, on average, by 23 percent and savings were up 240 percent... A quarter of the families that had been receiving government income or housing subsidies — CalWorks or Section 8 — dropped them. Families reported improvements in health care, children’s grades, reductions in debt, enrollment in training programs and home ownership — all audited.

This confirms the conservative or "American-dreamist" viewpoint that for most people in America, success is within their grasp. It also confirms the economic principle that success has positive spillovers to those nearby. Perhaps the main innovation here is bonding together those who are committed to succeed, which is a contrast to "safety net" style programs, which evict those who succeed, and isolate those stuck in poverty.

Like I said before, can't the church do this just as well?

Letter to the Editor

I submitted the following to the Rochester Democrat & Chronicle, concerning a series of incidents in my old neighborhood.

The Rochester Police Department is recklessly endangering its members' safety. After the unfortunate arrest of Emily Good, the RPD could have apologized and used the incident to reach out humbly to 19th Ward neighbors. Instead, the men in blue feel slighted, and retaliated against their critics by selectively ticketing Good's supporters for obscure parking violations. In addition, Good was the victim of a Thursday break-in that appears politically motivated. Officer Mario Masic arrested Good because he felt unsafe with her around: he should feel unsafe without her around. Tips from residents who care about their communities and cooperation from witnesses to crimes are crucial to putting real malefactors behind bars. Police arrogance like this will make tipsters and witnesses more reluctant to cooperate, and leave the real criminals free to strike again. What is more important to police safety: upholding their pride or building relationships?

A smaller point is that Good was also proved wrong by the incident. She suspected that Rochester's finest are racist in profiling suspects. But they proved quite equitable in casting unfair suspicion on a petite white woman! Officer Masic may be a fool or he may be scared sh*tless of working the Ward, but he's no racist.