Marginal Utility

by Tom Bozzo

Between 2002 and 2004, GM net profits totaled $9.2 billion.

If the new Buick Passat Lucerne doesn't succeed, Buick will be at risk of going the way of Oldsmobile — the average dealer sold four cars in October, according to AutoWeek. The Passat body style actually looks OK stretched to land-yacht dimentions, a foot longer than the Accord and more than half a foot longer even than the Cadillac STS. That, at least, bodes well for a hypothetical larger VW that's a little less ambitious than the soon-to-be-late Phaeton.

The portholes are silly, though, even if GM Vice Chairman and product czar Robert Lutz supposedly was inspired by the Maserati Quattroporte.

The question, though, is why with the future of a decades-old (if distressed) brand on the line, GM saddled the thing with the latest rendition of its 40-plus-year-old corporate V6 and a four-speed automatic, when at least five forward gears are de rigueur for the segment, to motivate the Lucerne's two-ton mass. Granted, barring a huge demographic shift, typical Lucerne buyers won't actually need acceleration or gears above, maybe, second. But ceding 50 HP and fuel economy to the Accord V-6 should just be embarrassing.

So one might think that GM's management would have been wise to have spent a couple of those billions developing a contemporary powertrain to make its bread-and-butter sedans and crossovers stand out in large but crowded market segments.

(Adding to the irony, GM's Hyrdamatic division sells modern automatic transmissions to BMW.)

by Tom Bozzo

One common theme for wage-and-benefit cutters is that previously promised benefits are now unsustainable. This has struck me as a self-serving argument at best. Is it the unionized U.S. auto worker's fault that the marketers have to put a pile of cash on the hood to move a Big Three car that's twice as big as the supposedly crushing health benefits? (A: No.)

I'd recently seen a graph in a dead tree copy of The Economist that caught my eye, showing the sharp increase in pension underfunding over the last few years. This includes the more recent years when corporate profits have skyrocketed. I put together this comparison chart of pension funding positions versus profits (the underfunding line's data were in the original Economist graph):


Sources: National Income and Product Accounts Table 6.16D; Pension Benefit Guaranty Corp. press releases (here and here), 2004 Pension Insurance Data Book.

I couldn't locate more recent data on overfunding (2002 is the latest year reported in the most recent PBGC Data Book), which would be interesting — I'll add it if I can find it. Still, it's interesting to see how little the recovery in corporate finances, not to mention generally favorable stock and bond market conditions (*), have translated into a shoring up of insured pension obligations for the subset of underfunded plans.

It looks to me like corporations squeezing their workers and retirees, and the taxpayers who back up the obligations, for the benefit of capital. Is there a good reason I shouldn't think this?


(*) While 2002 was a terrible year for stocks, it was an excellent year for long-term bonds; the net assets of insured plans only declined 5% (~$100 billion) between 2001 and 2002.

by Tom Bozzo

Probably otherwise smart guys like Jason Furman don't realize that this is a joke:



(Darn link rot: The above link is dead, as The Onion's "I Just Love Corporations" T-shirt is no longer available.)

by Tom Bozzo

From the conclusion of Jason Furman's Wal-Mart: A Progressive Success Story:

Finally, most fundamentally, the “Wal-Mart economy” is not about an economy in which corporations are squeezing workers.

Riiiiight.

It’s about an economy in which the return to skills is rapidly growing, and technological change, among other forces, is leading to increased inequality.

Depending on how you define "technological change," I'd put a heavy weight on the "other forces" leading to increased inequality.

The most fundamental solution to these challenges is to invest in the education and training necessary to ensure that all Americans have the skills to be successful in a technologically sophisticated, global economy.

That would be a start.

(Note that Furman was the economic policy director for the Kerry-Edwards campaign. I'd considered the K-E economic policy platform to be sensible but non-electrifying. This Wal-Mart paper doesn't strike me as being very sensible.)

------------------------

On a related note, I'd always found this statement from Maria Farrell of the McKinsey Global Instutute, from a December 2003 NYT roundtable on offshore outsourcing (here for Times Selecters), to be telling:

MS. FARRELL -- There is an assumption by protectionists that these jobs are going somewhere else, and all this money has been pocketed by C.E.O.'s who take it home. A little more sophisticated version is: It's being pocketed by companies in the form of profits. One step further and you say those profits are either going to go as returns to the investors in those companies, or they're going to go into new investment by those companies. Those savings enable me, if I am an investor, to consume more and therefore contribute to job recreation, and if I am a company, to re-invest and create jobs. That's important because I agree that we are migrating jobs away, some of which will never return, nor should they.

Translation: It doesn't just benefit CEOs, it benefits CEOs and other rich people! And anyway, who needs those lost manufacturing jobs?

Immediately following, Josh Bivens of the Economic Policy Institute offered some straighter talk:

MR. BIVENS -- Within nations, trade tends to redistribute a lot of income. The gains get pretty concentrated in the pockets of capital owners. The people who lose out are the blue-collar workers. Now you've got this class of white-collar workers who are much more insecure about their job prospects, and their labor market bargaining power is being undermined. It doesn't mean we need walls all around the economy, but it does mean we need to get really serious about making sure all these gains are distributed.

by Tom Bozzo

Maybe all the pie is making me blind, paradoxically, to the Great American Pig-Out. Maybe my brain simply refused to register ads from the handful (this year) of retailers who decided that it would be a great idea to kick off "Black Friday" on Thursday, possibly opening a new era in retail labor relations. Maybe I just went out on the town for a bit of Christmas shopping a little too far into the relatively civilized tail of the day after Thanksgiving. Maybe I want to tweak such conservatarian reader(s) as I might have. But scenes like this from the national obsession with bargain-shopping just make me think the country is just totally screwed, even if the precise manner is TBD. (For the fifteen-word version of the following, see Oscar's reaction to the same thing over at The Columnist Manifesto.)

Paul Krugman has an apt description of the U.S. economy of the early Zilches as dependent on our ability to sell each other houses with money borrowed from China.

Another sizeable chunk of the picture, which encompasses much of the retail sector, is the part of the economy that makes money selling us Cheap Stuff made in China — or other developing countries with the combination of low prevailing wages and weak or weakly enforced labor laws — also with money borowed from China. (I should note that it's the persistent trade imbalances rather than trade per se that's my main concern.)

The basic sales pitch for this arrangement has, as readers of Thomas Frank will know, three main prongs. The carrot is that it's supposedly good for us consumers: Sending production of Cheap Stuff to China holds down measured inflation and allows us to have more Cheap Stuff for a given amount of income. A related point is that we asked for it by voting with our dollars, and by the way only suckers don't want more Cheap Stuff and only 'elitists' would keep you from getting Cheap Stuff. Failing that, there's the stick: It's the inevitable consequence of market logic; adapt or be crushed.

I think this can be seen as a couple of problems that, nastily, stand a good chance of reaching critical points before they are even generally recognized as problems.

The corporate assault on wages (and, more broadly, rank-and-file employees) has depended on the ability to use somewhat cheaper Cheap Stuff to convince people that they shouldn't worry so much about manufacturing workers whose jobs are disappearing never to return, that low or nonexistent wage growth is good for us, and so on. The trick is that this process can only make so many people insolvent at once. We're arguably close to a tipping point for that, if the "management's dream, labor's nightmare" end-game of the Delphi auto-parts bankruptcy — basically, extending Wal-Mart wages throughout the manufacturing sector — comes to pass. The catch here is that the time to have done something about this was five years ago (or more). Will it be enough to save our bacon that "only" a few million payroll jobs would be directly affected? Will the Cheap Stuff be a consolation either way?

The related problem is the potential crisis of the trade and government budget deficits. The perverse behavior, as Krugman noted to Times Selecters on Friday, is that we're dismantling domestic production capacity and saving less (alarmingly so, as these graphs accompanying Gretchen Morgenson's column suggests) when we'll eventually need some combination of more domestic saving and more exported (or import-substituting) production to remedy the imbalance. Indeed, on the face of it, we may be hastening the arrival of the day of reckoning through increasing dependence on imported Cheap Stuff. The hope is that the incremental imbalance from each manufacturer making a small decision to follow the pseudo-inexorable offshore pull will keep the imbalances "small" enough that the markets continue to treat them as "small." If this sounds like it's an unstable situation highly susceptible to a crisis of faith in the U.S. economy, I think that's about right.

by Tom Bozzo

Breakfast:


Two mornings in a row, actually.

(Not shown: Whipped cream.)

by Tom Bozzo

Yes, it's Thanksgiving afternoon pie-blogging!

Stars of the show

Convenience: The pastry blender has a lonely Thanksgiving

On the way to the filling: A whorl of peel

Sugar, spice

Under construction

Lock and load!

And voilà… the finished product.


Coming up at dessert time: The Story of O.

by Tom Bozzo

My mother and brother are here, providing the kids (who are both finally healthy again!) with all the attention they can handle. Meanwhile, I have an apple pie to make (w/ Cortlands, and a slightly sweet crust). Posting may resume at afternoon naptime, cooking conditions permitting.

In the meanwhile, feel free to use this as an anti-whining open thread if you'd like.

by Tom Bozzo

Insofar as there was some jargon in the last post, some illustrations of the identity economics/consumption externality issue might be in order:

• Car nut (I): Buys car with stick shift due to shame over admitting convenience of automatic transmission to car nut friend (that's me).
• Car nut (II): Buys car with big engine due to disinclination to lose hypothetical drag race to childless friend with Porsche Boxster S (that's me, too).
• Poseur car nut: Buys Mercedes C-Class with small engine and automatic transmission because guy down the street has one (not me, actually).
• Spatial transmission of housing bubble: "Sharps" with inflated currency from bubble markets are amazed at what they can afford in midwestern "latte town," force natives into choice of working extra hours to overcome regional compensating wage differential, abandoning close-in neighborhoods for less-expensive burbs, depression over relatively high prices (not quite me, but the Biggest and Most Expensive House on the Street happens to be owned by a humanities professor who had the good fortune to come here from the San Francisco Bay area).
  

by Tom Bozzo

After seeing a reference on the Freakonomics blog, I was skimming through George Akerlof and Rachel Kranton's "Economics and Identity" from the August 2000 Quarterly Journal of Economics. (Kranton arrived at Maryland towards the end of my time in College Park.) Its contribution is formalizing a rational choice model in which there are consumption externalities of the sort Robert Frank is concerned with in Luxury Fever — see also Barkley Rosser at MaxSpeak — and the (marginal) utilities of actions depend on social group identities.

At first glance, the main substantive limitation looks to be that identity is treated as exogenous to the analysis, whereas there are plenty of interesting situations in which identity is determined simultaneously with some "traditional" consumption or production decisions. From the book club reading, I'm inclined to put into the category of serious futurism (vs. possibly ironic social commentary) the likelihood that technology will make identity much more malleable going forward.

Non-substantively, I'm not sure what it says about me that when I read this passage:

Gender, a universally familiar aspect of identity, illustrates. There are two abstract social categories, ‘‘man’’ and ‘‘woman.’’ These categories are associated with different ideal physical attributes and prescribed behaviors. Everyone in the population is assigned a gender category, as either a ‘‘man’’ or a ‘‘woman.’’ Following the behavioral prescriptions for one’s gender affirms one’s self-image, or identity, as a ‘‘man’’ or as a ‘‘woman.’’

I was reminded of this Robyn Hitchcock lyric (from "Uncorrected Personality Traits"):

Even Marilyn Monroe was a man
But this tends to get overlooked
By our overweight, mother-fixated, sexist media;

then secondarily of a project where the opposing expert, a male economics professor at a large public university, wrote a paper that comprehensively substituted the term "manhours" for the gender-neutral "workhours" I'd previously used.

by Tom Bozzo

As a follow-up to the previous post on Matt Stoller's Democratic Party manifesto, here are two big issues that were unaddressed. I have no doubt that they are far more contentious even within the party, and I don't pretend to be trying too hard to sugarcoat them for mass consumption:

• Restore fiscal responsibility; simplify and improve the fairness of the tax code. The government is not collecting remotely enough revenue to pay for either party's spending. (Yeah, I remember Mondale.) Given that the vast majority of the "benefits" of the Bush tax shifts are enjoyed by the very wealthy, much of this can be rectified without increasing the tax burden for the vast majority of taxpayers. We can pay the bills now or later, with interest.
  
• Ensure that the military meets actual threats to national security at reasonable cost to the taxpayer. We're spending prepare for World War III level money ($466 billion in FY 2004) without a World War III-level organized military threat. Clearly, a lot of this reflects the massive misallocation of resources to the Iraq debacle, as well as weapon acquisition boondoggles such as strategic missile defense. Republican "credibility" on defense issues tends to boil down to "spend, spend, spend." Actually articulating needs and the amount of money required would be a big improvement, though I have no illusions that the other side wants to raise the tone of the debate. But the closer we get to a good libertarian defense budget, the less revenue is required for the point above.
  

by Tom Bozzo

Ben at Badger Blues has a pointer to Matt Stoller's post at MyDD suggesting a 2006 platform for the Democrats, and I agree with Ben that there's a lot to like there. Stoller says to "dream big," and comes up with this list of, as he puts it, ends and not means. Stoller's list in bold, quick commentary of mine in purple.

1 Impeach the Secretary of Defense and all other responsible parties for incompetence and criminal negligence in the prosecution of the war in Iraq. While this would be a start, I like this one the least, as it distracts from the ultimate end, which should be an end to the war in Iraq. The Democrats need to get out in front of the issue: Public opinion makes the McCarthyite reaction to Murtha just look pathetic, and clearly someone in the West Wing can still read polls. Meanwhile, on the present path political realities will lead Republicans in Congress (including, as Frank Rich notes, the Republican senators up for re-election) to discover that they were "against the war after they were for it."

2 A Constitutional Right to Privacy. That is, an explicitly codified right to privacy. This probably won't create a lot of appeal among hardcore opponents of reproductive freedom, but with the Bushists promoting domestic spying to an alarming extent, it has useful additional applications.

3 A Higher Minimum Wage. In a perfect world, increasing the minimum wage should be such a little dream it should be indexed.

4 Universal Health Care. Amen. I won't necessarily begrudge candidates support for incremental reforms that may help people even if they're primarily dependent on the charity of Bushist Republicans. But no Democrat worthy of the name shouldn't advance such proposals except as steps towards universal health care.

5 Universal Free University Education. It's nice to see this initiative from the Jed Bartlet administration hop over into our universe. The value of parallelism aside, I wouldn't necessarily say "universal," as the economy will require people with skills not typically in the university curriculum for the foreseeable future, and it doesn't make sense to flunk some of those people out of college first. Looking at the bigger picture, however, it's a very useful antidote to the program, which seems to be well past any point of usefulness, of shifting the cost of higher education onto students. The risks of providing too much education seem much lower than those of providing too little.

6 National Mass Transit. It'll give libertarian and pseudo-libertarian think tanks lifetimes of complaining to do, but a sensible forward-looking energy policy shouldn't assume a return to cheap oil. Obviously, the specifics should address inter- and intra-city transportation infrastructure.

7 Full Corporate Governance Reform to End Corporate Corruption. As an end, no argument from me. The means would be tricky, though I want to scream when I read corporate law types prescribe even less fettered corporatism as medicine for the excesses of millennial corporatism. I would be inclined to start a counter-revolution against executives' incentive pay packages. Anyone want to debate the proposition that incentive structure of the cradle-to-grave era, on the face of it, more closely approximates that of primitive capitalism.

8 National Free Internet Access and Copyright Reform. It should be a national disgrace that our titanic telecoms firms can't deliver faster and cheaper data services than France's. Also, let's add patent reform to the list. This is an area where Democrats could take the side of the angels and get loads of credibility with the libertarian-leaning pro-technology set. I also see it as ultimately a pro-business and pro-competition reform, as it is costly to navigate around hundreds of thousands of monopolies whose legal life, in some areas, seemingly exceeds their economically useful life.

Later: What's missing from this picture...

by Tom Bozzo

Julia discovers Thomas the Frickin' Tank Engine...


Actually, I just wanted to post a picture where she's not ailing or covered with spaghetti sauce. Here she's just hanging out earlier this evening.

by Tom Bozzo

There are worse games to be off, of course. (*)

But back on-topic, I had been looking out the office window when I saw a new BMW M5 run through the drive-through of the fast food restaurant next door, which uncharacteristically surprised me. The styling revisions are on the mild side, but they do about as much as can be expected for the E60's outré surfaces.

I was going to title the post something like "It's Great To Be A Plutocrat (at least until your back's against the wall)," but it turns out to be a bit cheaper than I thought — by ten grand or so. That doesn't make the thing affordable, though I could plead to Suzanne that I'd never need another car again, thereby spreading the capital cost over as long of a time horizon as Madison road salt would allow.

Then I saw the fuel economy figures. The EPA figures are listed as TBD, but the EU urban loop is a good approximation of my everyday driving (at least, the EU's methodology predicts my car's actual mileage pretty well), and it's 22.7 liters per 100 km, or roughly 10.4 MPG. I could not, in good conscience, hasten the depletion of the world's oil supplies to that extent.

---------------------------

(*) This leads to the political question of the day/week/month/year/century: When will George Bush lose the far right, as well as some self-described national security moderates who just happen to keep a wingnut or two in the nightstand or maybe under the pillow for special occasions, for proving that the masses' agentic consumerism won't stop sixty-two million people from electing a total nincompoop president of the United States

by Tom Bozzo

In one of those signs that Our Boy Is Growing Up, yesterday's trip to the barber shop involved the least wailing and gnashing of teeth (not even to mention the toddler freakouts) since novelty value made John's first haircut a pleasant non-event. As those of you who visit regularly may have seen, he was getting pretty shaggy. He does seem to shed a year or two with trims, though.

(The stack of Duplos is John's; the copy of Walt Rostow's Theorists of Economic Growth from David Hume to the Present is mine.)

You may also have seen the post title and been thinking, did we take him to see John Kerry's stylist? No. The reported price includes the haircut, the tip (generous) for Pam the barber... and the bribe:

People looking for parenting advice note: Greasing the wheels from time to time is not beneath us.

by Tom Bozzo

Via Phantom Scribbler and a bunch of other people, tracing back in the linkiverse to John Scalzi, here's a "canon" of comedy movies, extracted by Scalzi from the Rough Guide to Comedy Movies. Films I've seen are in bold, ones I've never heard of are in italics, and asterisks mark those in my not very extensive collection.

Airplane!
All About Eve
Amelie
Annie Hall
The Apartment (*)
Austin Powers: International Man of Mystery
Blazing Saddles
Bringing Up Baby
Broadcast News
Caddyshack
Le diner de con
Dr. Strangelove: Or How I Learned to Stop Worrying and Love the Bomb (*)
Dodgeball: A True Underdog Story
Duck Soup
Ferris Bueller's Day Off
Four Weddings and a Funeral
The General
Ghostbusters
The Gold Rush
Good Morning Vietnam
The Graduate
Groundhog Day
A Hard Day's Night
His Girl Friday
Kind Hearts and Coronets
The Lady Killers
Local Hero
Manhattan
M*A*S*H
Monty Python's Life of Brian
National Lampoon's Animal House
The Odd Couple
The Producers
Raising Arizona
Roxanne
Rushmore
Shaun of the Dead
A Shot in the Dark
Some Like it Hot (*)
Strictly Ballroom
Sullivan's Travels
There's Something About Mary
This is Spinal Tap (*)
To Be or Not to Be
Tootsie
Toy Story
Les vacances de M. Hulot
When Harry Met Sally...
Withnail and I

Not much to argue with on the comedy list. I don't particularly care for Austin Powers, even after giving it a second chance at a friend's suggestion. I could also argue that it is really a derivative of the Mel Brooks genre farces and doesn't deserve a place in the canon, its commercial success notwithstanding.

I've seen suggestions that "Holy Grail" take the "Life of Brian" position, which I'll support as long as "Young Frankenstein" gets to take the "Blazing Saddles" slot. In each case, there's a case to be made for each. Blazing Saddles is hilarious, though I think it's meta-film ending represents a lack of a real ending, in contrast to Young Frankenstein's perfect ending. (If you don't know it, get to the video store NOW!!!!!)

I liked "Amelie" well enough, but not enough to displace "A Fish Called Wanda" or perhaps "Election" or "Flirting With Disaster" — the last could take the "Dodgeball" slot.


Other genres are covered, too, and Scalzi himself was responsible for this selection for the science fiction movie canon.

The Adventures of Buckaroo Banzai Across the 8th Dimension!
Akira
Alien (*)
Aliens
Alphaville
Back to the Future
Blade Runner (*)
Brazil
Bride of Frankenstein
Brother From Another Planet
A Clockwork Orange
Close Encounters of the Third Kind
Contact
The Damned
Destination Moon
The Day The Earth Stood Still
Delicatessen
Escape From New York
ET: The Extraterrestrial
Flash Gordon: Space Soldiers (serial)
The Fly (1985 version)
Forbidden Planet
Ghost in the Shell
Gojira/Godzilla
The Incredibles
Invasion of the Body Snatchers (1956 version)
Jurassic Park
Mad Max 2/The Road Warrior
The Matrix (*)
Metropolis
On the Beach
Planet of the Apes (1968 version)
Robocop
Sleeper
Solaris (1972 version)
Star Trek II: The Wrath of Khan (*)
Star Wars Episode IV: A New Hope
Star Wars Episode V: The Empire Strikes Back
The Stepford Wives
Superman
Terminator 2: Judgement Day
The Thing From Another World
Things to Come
Tron
12 Monkeys
28 Days Later
20,000 Leagues Under the Sea
2001: A Space Odyssey (*)
La Voyage Dans la Lune
War of the Worlds (1953 version)

Even less to argue with here. There are a few oldies that are too old to have made the "Dr. Shock" (think: real life Count Floyd from SCTV) sci-fi/horror movie slot on Philadelphia UHF TV, and a couple newies (e.g., 28 Days Later) that I haven't seen mainly because Suzanne couldn't watch 'em.

by Tom Bozzo

The Washington, D.C.-area housing bubble looks like it's at best at its peak of inflation, with listings growth vastly outstripping sales (here, too), median prices well off the summer peak in Montgomery County, Md, and asking prices falling in amounts with as many as five zeros after the first digit. The Washington Post was able to find someone looking on the bright side, though:

But [Sandra Cabral, a real estate agent in Kensington, Md.] sees an upside to the situation, with good opportunities to make purchases cheaply in the future. "Within two or three years, there's going to be a whole lot of foreclosures, because with all of the interest-only loans, a whole lot of people don't realize that in two years their payments are going to go up."

Eeek!

Actually, the Eeek! moment was earlier in the week, flipping through one of the papers, where I'd come across an article noting that not only are the spreads between ARMs' teaser rates and 30-year fixed rate mortgages as low as they've been in a Long Time, but also that a typical one-year ARM would adjust next year to a rate north of 7% under present circumstances. Or, ARMs do not look like good deals at all, unless the fixed-rate period is carefully matched to one's expected tenure.

We'll be curious to see how many peasants end up disrupting Alan Greenspan's retirement, pitchforks in hand.

by Tom Bozzo

Artist	Song	Album
Jonathan Richman	I'm A Little Dinosaur	Best Of Jonathan Richman And The Modern Lovers
Throwing Muses	I'm Alive	Hunkpapa
The Pastels	I'm Alright With You	Up For A Bit With The Pastels
The Soup Dragons	I'm Free	Lovegod
Stereolab	I'm Going Out Of My Way	Transient Random-Noise Bursts With Announcements
Big Star	I'm In Love With A Girl	#1 Record/Radio City
The Wedding Present	I'm Not Always So Stupid	Nobody's Twisting Your Arm (CD single)
Mekons	I'm Not Here (1967)	So Good It Hurts
Heavenly	I'm Not Scared Of You	Le Jardin De Heavenly
Jale	I'm Sorry	Dreamcake
Biff Bang Pow	I'm Still Waiting For My Time	The Acid House Album
The Lyres	I'm Tellin' You Girl	On Fyre

Esoterica Index later.

by Tom Bozzo

Reading: Accelerando by Charles Stross.

Towards the end of the first section of Accelerando, whose action takes place around 2020 (pre-Singularity, and thus still largely recognizable), Stross poses a good question for those of us who now need to be pried away from our portable computers and wireless highish-speed data networks: When will there be as much of one's identity in the "metacortex" as in the wetware "real" thing?

Right now, I will feel dislocation pretty quickly in the absence of halfway decent internet access and the information gathering tools it enables, and I'm far from the frontiers thereof. (The big advancement for me this year was giving in to RSS to eliminate the need for a lot of time-consuming pointing-and-clicking to follow the hundred-odd blogs and conventional news sources I follow daily or nearly so. Without it, work, family, and Legos would have a hard time fitting into the remainder of the day.) In a way, the what separates this world from Stross's is the absence, so far, of software that makes much good use of idle processor cycles beyond donations to the occasional massively parallelized computing project.

That transition could happen subtly, as indeed it does in Accelerando, where at first the state of the art is something like what's implied by the IBM "Park Bench" commercial of the bubble days of the previous decade. That's the one where the annoying guy scares the pigeons in the Piazza San Marco trading stocks with his wearable computer. (The Accelerando website has a page listing some of the predictions/assumptions for its future.) That is, computing is more ubiquitous but mostly does the sorts of things people presently make money and/or waste time doing.

Mass-market computing advancements seem to have been biased more strongly towards faster-but-still-dumb computing — as in computing jobs that took an afternoon when I started my job that now require no more than a minute or two, but where the computer's agency in initiating the job is comparable to the KitchenAid's in assembling the dough for a batch of cookies — than I'd have guessed back in the early nineties when I got some exposure to research in machine learning. Though it does look like there's quite a bit of effort is going into computational economics over at the Santa Fe Institute (and seemingly less in the way of other machine learning research than seemed to be going on, though that's based solely on the last couple years' online working papers). I should probably read this from Brian Arthur for a flyby of the latest.

by Tom Bozzo

It's been a tough week, battling ear infections and, in John's case, croup, but we finally had two reasonably happy children at dinnertime this evening.

Julia, a little messy. Actually, she wore so much of it that there was much less than usual on the floor afterwards.


John, very happy with his tortellini. (Which he went on to not really eat. Oh, well.)

by Tom Bozzo

Jeremy posted a surreply to my reply to his post on Krugman and the Medicare prescription drug benefit. He offers, and I accept subject to some clarification below, this friendly wager:

Understand that there are basically four parts to the "template" of the Medicare prescription drug plan:

(1) the first deductible (to $250 [0% coverage])
(2) the first coverage ($251-[$2250], 75% coverage)
(3) the second deductible ("the doughnut hole," [$2251]-$5100 [0% coverage])
(4) the second coverage ($5101+, 95% coverage)

My wager is that when people of the Rational Liberal stripe are talking about this bill five years from now, one part will be regarded as a bigger mistake than the others. And it won't be (3). It will be (4).

In one sense, I think I could declare victory now, since I doubt that many if any Rational Liberals would find themselves arguing that the providing a universal benefit for seniors' "catastrophic" drug expenses is a mistake for the reason that it's bad idea to offer that sort of insurance. Some form of catastrophic coverage, after all, has been the universal feature among the various Medicare prescription drug benefit proposals. Along those lines, I would be flatly shocked if, upon a Democratic return to political power, the inevitable reform of the benefit didn't somehow extend coverage into hole (3) while providing essentially the same benefit as current law provides for catastrophic range (4).

I will, however, pay up for a Democratic-sponsored reform plan (enacted or at least put to a vote) that addresses drug prices, partly because it's only beer at stake and partly because I totally agree with Jeremy that it would be good for the country if something serious were done about that. I will also pay up if the catastrophic part of the benefit is specifically implicated in a general fiscal crisis worse than the current situation, though I reserve the right to compare costs for parts (2) and (4) of the coverage. I win if benefits are extended into the hole unless accompanied by a measure to allow Medicare to use its purchasing power to negotiate lower drug prices. If a reform package simultaneously extends benefits into the hole and reduces costs out of the hide of Big Pharma, we both win and spouses and/or significant others are forewarned that designated driver services may be required.

by Tom Bozzo

Long -Awaited Beer With Bush Really Awkward, Voter Reports

This is a subtle but excellent work of PhotoShoppery.

by Tom Bozzo

American Voices: New Medicare Plan:

Ben Chisholm,
Motorcycle Mechanic
"The new Medicare plan is far too difficult to make sense of, which is why I have chosen to die earlier than I had initially planned."

(Read the rest at the link.)

by Tom Bozzo

Headline without need for story:

Evangelical Scientists Discover Calculation Error: Earth Only 60 Years Old

by Tom Bozzo

It's not too often that I strenuously disagree with Jeremy Freese on such things, but his contrarian post taking exception to Paul Krugman's column from last Friday, which described some important ways in which the Medicare prescription drug benefit sucks as enacted, is such an occasion. Jeremy is especially irritated that Krugman condemns the benefit "doughnut hole" (the range of prescription drug expenses over which Medicare Part D provides no benefit) while failing to note the provision of benefits for 'catastrophic' expenses. Jeremy writes:

Because the doughnut hole can be so easily described in ways that make it seem strange, everybody seems to have fixed on it as though it was some kind of crazed (and, by Krugman's insinuation, deliberate) irrationality. While it's not the way I would designed things, the doughnut hole--and even prohibiting people from buying insurance to fill it--does make sense when you understand that the prescription drug benefit is really two separate benefits stapled together. (*)

That all depends on what the meanings of "strange" and "crazed deliberate irrationality" are.

Honesty requires me to report that the doughnut hole is not purely a Republican concoction. A CBO reporton design parameters for a Medicare drug benefit notes that a Clinton administration plan featured a doughnut hole of its own. This does not pose a consistency problem for Krugman, who criticized "New Democrats" in a prescient column from September 10, 2000 for "penny-ante activism, handing out a few baby carrots here and there to people who do the right thing." Moreover, plans without the doughnut hole had been advanced by Senate Democrats, including an alternative proposal from former Sen. Chuck Robb discussed by the CBO and a related plan that Krugman preferred to the Republican version in a June 18, 2002 column:

The Senate Democratic plan would cost about $500 billion over the next decade; if we could afford that $1.35 trillion tax cut, we can afford prescription drug coverage...

Of course, the House Republican plan, with a price tag of $350 billion, looks even more affordable. What's wrong with it?

One answer is that in order to save that $150 billion, the Republican plan leaves many truly needy retirees behind. The Senate Democratic plan imposes fairly hefty co-payments, but then covers all subsequent expenses. The House Republican plan provides pretty good coverage for the first $1,000 in expenses, much less coverage for the next $1,000, and nothing at all after that until you reach a $4,500 annual limit. So a retiree with, say, $6,000 in drug expenses would find himself paying the full $4,500 — a crippling expense for many families.

The obvious rational basis for the hole was to hold down measured program costs and thus help entice recalcitrant members of Congress to vote for it. Given that its origins are political, the aim of the administration in charge makes a difference. Crazed New Democrats may be inclined to offer weak tea programs on the grounds that some program is better than no program, and popular entitlements will not only be hard to repeal, but also create pressure to remedy the hacks required to pass the original legislation. In contrast, crazed Republicans are ostensibly unfriendly to entitlements (except, in practice, as political tools), and some of them really do operate under the truly crazed theory that bankrupting the government in order to force otherwise popular programs to be scaled back is a good idea.

Is the hole a strange feature, as Krugman asserts? Well, yes. The CBO report on drug benefit design notes that coverage holes are rare in private-sector insurance, though I note that benefit caps are not. The economics of choice under uncertainty imply that it would be unusual for risk-averse consumers to choose to insure small losses but not larger losses. (**) This is to say that as an insurance feature, the hole doesn't makes much sense — or, to be a bit more precise, as Isaac is in the JFW comments, there might be a hypothetical world in which it could make sense, but that happens not to be the one in which we live.

From another perspective, saying that the hole — and the prohibition of Medigap insurance to fill the hole — constitutes good public policy is equivalent to saying that it makes sense to raise the price observed by beneficiaries just as their drug expenses start to get serious though not "catastrophic." Or, the 251st dollar of drug expenses is more socially valuable than the 2,251st. A case for that can be made. It's likely to be counterproductive, for instance, to discourage people from taking medicines for chronic conditions only to see them land in the hospital for them. The catch is that the benefit parameters have been set such that it is not hard to run out of the initial benefit before running out of chronic conditions worth medicating.

But, as Krugman notes, the official justification is even weaker. From the offending column:

According to a report issued along with the final version of the bill, people are prohibited from buying supplemental insurance to cover the doughnut hole to keep beneficiaries from becoming "insensitive to costs" - that is, buying too much medicine because they don't pay the price.

This justification is especially questionable as my understanding of the relevant research is that people don't do great jobs of weighing the true costs and benefits (internal, let alone external) from health care price signals. They'll cut back on essential care, which is obviously undesirable, as well as elective care. Nor should it be necessary to entertain seriously the notion that people are hyper-rational to the extent that potentially expensive meds in old age will induce them to exercise more or eat fewer fatty foods now.

I've discussed this sort of argument before and dislike it enough that I might as well coin a vulgar term for it: Asshole price theory, or the abuse of Econ 101 supply-and-demand logic to rationalize the unpleasant implications of a policy one just happens to like. In this case, there is no firm foundation for leaping from a desire to transmit a price signal to imposing 100% coinsurance; the only sure consequence is that the rate of coinsurance should not be zero. For that matter, if sending strong price signals were the paramount concern, then it may be a strange choice to insure 75% of costs below the hole, the previous discussion of chronic conditions notwithstanding. Moreover, to the extent that drug expenditures in the hole tend to be incurred for relatively unpredictable acute conditions, those are the sort of expenditures it's traditionally desirable to insure against.

So I'll go out on a limb and suggest that the optimal rate of insurance in the hole is something other than zero. Since that's true regardless of the level of drug prices, at least for any foreseeable level of drug prices, Jeremy is incorrect to say, "Drug prices are the problem, not the doughnut hole." (***)

-------------------

Jeremy then criticizes Krugman for failing to highlight how the benefit kicks back in past the hole.

Anyway, nowhere in his column does Krugman mention that once you get past $5,100, the government picks up 95% of your drug costs. If you are going to say that the program provides a "very poor benefit" for those who need "a lot of help" with their drug costs, it seems dishonest not to mention this...

I'll grant this would have been scrupulously honest, though my counterfactualist riposte is that provision of a benefit for "catastrophic" expenses was the common feature among all of the competing Medicare drug benefit proposals. Since Krugman's counterfactual program would have plugged the hole and more, the conclusion would stand that the inframarginal benefits — the $3,600 out-of-pocket prior to reaching the $5,100 stop-loss level — are poor, if not "very poor," and plainly the result of Medicare beneficiaries being chiseled for the political benefit of the Republicans and for the financial benefit of Big Pharma and health insurers. (That Medicare beneficiaries have been sacrificed in no small part for the benefit of Big Pharma and the insurance industry is a point of agreement among Krugman, Jeremy, and me, among many others.) That the enacted program offers poor bang for the buck is hardly new to regular Krugman readers, for instance, November 21, 2003:

"This is a good bill that will help every Medicare beneficiary," wrote Tom Scully, the Medicare administrator, in a letter to The New York Times defending the prescription drug bill. That's flatly untrue. (Are you surprised?) As the Center on Budget and Policy Priorities points out [PDF, link added], the bill will force millions of beneficiaries to pay more for drugs, thanks to a provision that cuts off supplemental aid from Medicaid. Poorer recipients may find previously affordable drugs moving out of reach.

That's only one of a number of anti-retiree measures tucked away in the bill. It contains several Trojan horse provisions that are clearly intended to undermine Medicare over time — it will allow private insurers to cherry-pick healthy clients in selected cities, and it will heavily subsidize private plans competing with traditional Medicare. Meanwhile, the bill prohibits Medicare from using its bargaining power to cut drug prices; drug company stocks have soared since the bill's details became public.

[...]

And this Medicare bill is very friendly to insurance and drug companies. Senator John Breaux, one of only two Democrats who participated in negotiations over the bill, takes the controversy as a good sign: "No one got everything they wanted." But as Jonathan Cohn points out in The New Republic, drug and insurance companies got exactly what they wanted: no efforts to limit prices, generous subsidies and lots of additional business. For example, insurance companies that offer an alternative to Medicare will not only be able to pick and choose their customers, but will also get 30 percent more per client than the government spends on the average Medicare recipient.

Finally, Jeremy commits a logical foul in implying that the hole is a necessary consequence of the failure to include drug price controls in the legislation:

Krugman knows full well that once the government legislated itself out of any capacity to control or negotiate prices, something had to be done to keep the response of drug companies (who, granted, helped a lot in writing the bill) from simply multiplying the price of their drugs in response to the benefit.

Again, imposing discipline on drug companies via patents' cost sensitivity doesn't require 100% coinsurance, and with three coinsurance rates to vary, among other parameters of the benefit design, there are degrees of freedom that would allow the hole to be avoided for just about any realistic level of program cost. In any event, Krugman has pointed out briefly in Friday's column and previously at greater length (as cited above) that the shortcomings of the benefits ultimately stem from the messed-up political imperatives that drove the legislation.

Overall, I find Krugman to be both partisan and correct.

-----------------

(*) I actually prefer to look at it as one benefit with a variable coinsurance rate.

(**) Typical lifetime benefit caps in private health insurance contracts are in the seven figures, though caps for certain specific services, e.g. outpatient mental health care, may bind much more commonly. Insofar as reaching a lifetime benefit cap is rare but conditionally devastating, not to mention expensive to privately insure, public insurance (or at least reinsurance) for truly catastrophic expenditures is a good idea.

(***) Otherwise, it's an "I want low prescription drug prices, and a pony!" argument.

by Tom Bozzo

It's a little funny that of the tax reform panel's recommended alternatives, the "Simplified Income Tax" and the "Growth and Investment Tax Plan," the Simplified Income Tax is the less simple option. While its name may look less progressive than "Simplified Income Tax," if Republican guerrillas broke into the house and forced me at gunpoint to choose one of the panel's tax plans (*), I would in fact probably choose the Growth and Investment Tax.

The nice thing about the Growth and Investment Tax Plan is that it treats all investment income equally, subjecting it all to a 15% tax. The "Simplified" Income Tax, in contrast, taxes (qualified) dividends not at all, capital gains at a top rate of 8.25%, and taxable interest at the same rates as wage income. Really, the only thing better would be something like the Center for American Progress tax plan, which would subject all individual income to a common set of rates. The CAP plan would also do useful things like address the regressive burden of payroll taxes that were beyond the Bush tax panel's remit.

It should be noted that the broader the income base, the lower the rates can be, which makes economists happy by reducing tax distortions of economic decisions. (The current fashion is to care about capital market distortions a lot more than labor market distortions.) And the panel's analysis showed that income tax rates could be markedly lower if the array of tax preferenced items in the current system were eliminated. They came up with this set of rates:

One can imagine it being popular to pull down the rates applicable to the lower, middle and upper-middle classes a bit further while subjecting the rich to a top rate in the ballpark of today's upper-middle earners. The panel had made something of a fetish of preserving the present system's division of responsibility for paying taxes, though.

As it happens, the Simplified Income Tax's low rates for capital gains happen to be particularly favorable to the very wealthy. Based on 2003 tax data (Excel spreadsheet), the 0.4% of returns showing adjusted gross income in excess of $1 million represented 13% of income, 29% of taxable interest, and 33% of qualified dividends, but 61% of net capital gains. Indeed, the capital gains reported by the top 0.4% was just a few billion dollars shy of the total taxable interest and ordinary dividends received by everyone.

The case for preferential capital gains rates is dodgy in some other respects, too. While I wouldn't lose sleep over it in any event, the double taxation argument against taxing dividends as individual income doesn't really apply to capital gains, as the assets' basis is excluded and capital gains enjoy tax deferral until they're realized. High rates may cause a compliance issue by providing an incentive to play games with accounting for the basis, though contemporary U.S. tax rates wouldn't seem to make risking a date with the feds very appealing — at least in a world where returns showing large capital gains had a perceptible probability of audit.

--------------------------

(*) This sort of scenario, with "Communists" replacing "Republicans" and "renounce the faith" replacing "choose one of the tax plans," was a staple of McCarthy-era Catholic catechisms.

by Tom Bozzo

Site Meter weirdness: Either some expert system at Yahoo! (*) has suddenly decided that I should be a much higher-ranked search result for the so-called "Shangri-La Diet," or otherwise there's been some massive explosion in interest in the diet, to the tune of three times the usual hits. Go figure.

For those of you not coming here for information on the Shangri-La Diet or otherwise unfamiliar with it, it involves the use of small flavorless snacks to suppress between-meal hunger and thereby improve one's chances with the "Physics Diet" (a.k.a. consuming more calories than one ingests); see e.g. this preprint from creator Seth Roberts.

Shangri-La searchers who find this instead of one of the on-topic posts can read my comments on the self-experimentation method and the related Freakonomics article here, discussion of a testimonial from a friend of the diet's inventor here, and a comic discussion of my cat Milo's weight-loss program here.

Update: Some sleuthing revealed that there was a Good Morning America segment on the Shangri-La Diet this morning. Behold the power of MSM...


(*) Any irony or sarcasm readers might detect is purely intentional.

by Tom Bozzo

Thanks to some production snafu related to the May '05 Papers and Proceedings issue, the American Economic Review spent some time in periodical limbo. (Postal regulations forbid mailing issues of materials claiming Periodicals rates out of order.) That's finally resolved, and three AERs were in my mailbox this morning. What fun! Looks like there are a few items of interest:

• Karla Hoff and Arijit Sen, "Homeownership, Community Interactions, and Segregation" (Sept., p. 1167). The authors were assistant profs at Maryland in my grad school time there; this one might have something to say about a local debate over the future of the city's inclusionary zoning law.
• Petra Moser, "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs" (Sept., p. 1214). In preprint form, this work had garnered attention from DeLong a while back.
  
• John Duffy and Eric O'N. Fisher, "Sunspots in the Laboratory" (June, p. 510). "Sunspots" here means random variables unrelated to "fundamentals" that drive economic equilibria.
• Charles R. Plott and Kathryn Zeiler, "The Willngness to Pay-Willingness to Accept Gap, the 'Endowment Effect,' Sunject Misconceptions, and Experimental Procedures for Eliciting Valuations" (June, p. 530). Quite a mouthful, but differences between methods for eliciting valuations of policy consequences lead to a less useful class of policy analysis disputes.

And some topics from the Papers and Proceedings:

• International Intrafirm Production Decisions
• The Democratic Transition and Economic Growth
• Are Concerns about Relative Income Relevant for Public Policy?
• Insurance Markets and Health Care
• Cars, Gas, and Pollution Policies
• Regulation and the High Cost of Housing
  

by Tom Bozzo

Speaking of Madison's recycling program, part of the "magic" of the new recycling bins (and what makes me amazed that the recall faction has a beef with them) is that they're the visible end of a "single stream" recycling program: Users of the system are absolved from the former need to sort and bundle or bag different types of recyclables themselves. Bundling catalogs and magazines was so far down my preference ranking of chores that I'd have been willing to pay a premium to be absolved of the responsibility, were the new system not expected to pay for itself by way of injuring Streets Department workers less frequently than the old system.

Still, I wondered what happened to the recyclables since I wasn't sorting them, and this morning's State Journal had the answer. It's not a pretty sight. The process of separating the various types of recyclables (plus stuff that's garbage that gets mixed in) is an amalgam of machine sorting and hard manual labor. The Chicagoland workers who do the sorting for us deserve, at a minimum, a tip of our latte mugs as:

The conveyor belts at the Recycle America Alliance facility move so fast that shift supervisors say they can tell within 10 minutes if a new hire is going to cut it.

Workers must learn to look only at what is directly in front of them. To do otherwise risks motion sickness.

and:

Also a problem: hypodermic needles. Medical personnel often tell patients to dispose of needles in plastic bottles, which is fine, Schmidt said.

But then the patients try to recycle the bottles. The resulting puncture wounds are the top cause of injuries among workers at recycling facilities, he said.

Oy. I can only imagine what the turnover is like. The work is potentially dangerous in other ways, too. A worker at an automobile recycling facility on the east side of Madison got caught in a piece of machinery and was killed on Friday.

On the plus side, the city's recycling program is collecting markedly more material in the single stream system, saving $18,500 in landfill fees since implementation, and it's earning a profit on the sale of the recyclable material as well.

I can't help thinking that the employees of the recycling company would benefit, on balance, from increased automation of the sorting process.

by Tom Bozzo

The effort to recall Mayor Dave kicked off last week with a rapid descent into farce, as the recall organizers have shifted from their original (clever, if disingenuous) framing to turn the recall petition into a general outlet for complaints about Everything Screwed Up With Madison — the good, the also pretty good, and the not-yet (not to mention not-likely-to-be) enacted:

He [east-side business owner Tom Smith] ticked off the smoking ban, recycling bins and the proposed mandatory paid sick leave ordinance as reasons for signing the recall petition.

"All these things, we should at least be asked what our opinion is."

Cieslewicz has actually not supported the proposal to guarantee workers in the city paid sick leave. And what was Smith's opinion of the recycling carts?

"It's not that the carts were good or bad," Smith said in an interview after the rally. "It's just that no one was asked about them."

Well, if you forgot how representative democracy works, and by extension also forgot about the city council actions to approve the single-stream recycling system, to keep ads off the carts, to invalidate deed restrictions that might affect the carts' use, and the postcard from the city offering the choice of cart size, then I suppose you could say no one was asked. In the case of the PD mandatory sick leave proposal, it's safe to say that interested parties were happy to voice their views without being asked. (*)

Smith should hope he doesn't find himself facing Sam Alito, or a Vogon constructor fleet, with that kind of an argument.

Of course, Marginal Utility suggests that Madison readers politely decline to sign the recall petition.


(*) My two cents is that the sick leave proposal is probably a lot better for the businesses offering knee-jerk opposition than the knee-jerk opposition would suggest.

by Tom Bozzo

Poor Julia. When this picture was taken, she had a double ear infection, but we were a few hours shy of knowing it.

Meanwhile, the cups and containers don't hold their usual allure...

by Tom Bozzo

So long, Arrested Development. Sniff.

OK, so this isn't exactly the World's Biggest Surprise, as the ratings have been terrible. Nevertheless, for me it will join the often sublime "It's Like, You Know..." (which starred Whit Stillman regular Chris Eigeman and Jennifer Grey playing quasi-herself, and ran briefly on ABC in 1999-2000) among data points towards the proposition, "If we must rely on the taste of the mass market, we're pretty much screwed."

The sliver of hope is that Fox has some incentive to shop 'Arrested' to other outlets to get a greater return from future DVD sales. I'd think that, unbleeped, it would be solid fare for HBO or another pay cable outlet, though perhaps it would suffer a "not invented here" problem. Otherwise, it's few million viewers, while in disaster (or charity) territory for network TV, would be a solid base for an appropriately-chosen extended basic cable network. The catch there is apparently that the show's budget is high. But I have to grasp onto that which is graspable.

Sniff...

by Tom Bozzo

Accelerando, which was published last summer, had a long gestation (starting in 1999). One way or another, this bit had almost surely been written and edited before the latest news from the 2006 Senate races:

The free media channels here [Britain] are denser and more richly self-referential than anything he's seen in President Santorum's America. (p. 34)

Sends a chill up, then back down, then up your spine again, eh? If there's one thing about the Republicans these days, rehabilitating their electoral losers — well, except as Bush cabinet officials — doesn't seem to be their M.O.

(Yeah, this doesn't mean that a wingnutty wingnut of the Santorum class won't achieve national prominence as the Republicans continue to go Taliban, but sending Little Ricky to the private sector would still be nice.)

by Tom Bozzo

A cool item in the Washington Post describes a new method for deflecting potential killer asteroids, published in Nature by a pair of NASA astronauts. (One of the co-authors, Edward Lu, happens to be an astrophysicist.) A relatively massive spacecraft — around 20 tons; large interplanetary probes such as Galileo and Cassini have fueled masses of a few tons — would rendezvous with an asteroid, then maneuver to use its gravitational pull to impart a very small velocity change on the asteroid. Over the times and distances involved, that would be sufficient to convert a hit to a miss without mucking about with nuclear weapons and/or trying to land on tumbling asteroids a la "Armageddon." This is important as there is a known asteroid that will come incredibly close to Earth in 2029 and may hit us in 2036.

The concept spacecraft would be propelled by a nuclear-electric (ion) drive, which would be able to impart a large velocity change on the spacecraft without requiring it to carry enormous amounts of chemical rocket fuel that would, among other things, strain if not vastly exceed existing construction and launch technologies. (Lower-powered solar-electric xenon ion drives have seen some applications on inner Solar System research probes and commercial satellites.) The traditional catch has been that anti-nuclear activists have opposed launching nuclear reactors into space, partly due to the possibility of terrestrial contamination in the event of a launch accident, and partly due to concerns over military applications of the technology. An impact from a 300-meter-plus asteroid would be a calamity of sufficient magnitude as to outweigh such concerns.

Now, the Bush administration had actually given nuclear-electric propulsion a shot in the arm via the Prometheus project, part of the Bush space exploration "vision" as recently as last year. After all, the Bushies are not likely to take dictation from anti-nuclear environmentalists.

But surely there must be a Bush administration incompetence angle. You betcha! The Mission to Gut the NASA Budget has reportedly extended to Prometheus; per the Post:

...research on nuclear-powered space vehicles has been cut dramatically to help fund President Bush's initiative to send humans to the moon and Mars.

Such foresight from our fearless leader! This is an area where a few billion dollars' worth of prevention are worth a few trillion (or more) of cure.


(Title reference here.)

by Tom Bozzo

I'm Very Interested In Hearing Some Half-Baked Theories

...All it takes is a little supposition mixed with critical theorizing and you can easily stumble on a tenuous half-truth that really makes you think.

Over time, I've also learned that slapdash research is key before jumping to any conclusion...

As important as research is, it's all about common sense in the end.

Then there's that thin line between truth and meta-truth...

by Tom Bozzo

I get to apply the Principle of Least Effort this lunchtime by expanding massively on the sidelong reference to the role of progressive economists from the previous post merely by pointing to this extensive TPMCafe discussion of Gene Sperling's The Pro-Growth Progressive.

I particularly recommend James K. Galbraith's entry, "Humpty-Dumpty Redefinitions, Magical Thinking, and False Trade-offs."

by Tom Bozzo

After it suffered a long period of blog-related neglect on the nightstand, I finally finished Thomas Frank's One Market Under God. I won't comment at any length on Frank, other than to suggest that progressive-minded economists and other policy types keep in mind the line — not a bright one at all — beyond which advancing the usefulness of markets where they're appropriate gives way to coming up with sophisticated excuses for rich people to get richer without benefiting society as a whole. (Longer rant averted.)

--------------------

On that note, I am ready to start piling into the "book club" reading. My habit is to alternate fiction and non-fiction, so I started last night with the opening few pages of Charlie Stross's Accelerando; The Republican War on Science is in the on-deck circle.

Accelerando is a novel describing a possible technological singularity. It opens in a recognizably near-future Amsterdam, introducing Manfred Macx, who makes his living as a "venture altruist," identifying memes, patenting their commercializable aspects, and then assigning the rights to the "Free Intellect Foundation."

From the first few pages, the Accelerando world looks most dystopian in the intellectual property regime. A Russian character who happens to be an artificial intelligence complains about "hav[ing] been badly burned by viral end-user license agreements. Have no desire to experiment with patent shell companies held by Chechen infoterrorists" (p. 5). There are oblique references to a U.S. fiscal implosion, though since Microsoft has been broken up into the "Baby Bills" it can be assumed that George W. Bush was not declared Emperor. Russia has seen a counter-counterrevolution and enjoys "Brezhnevite dirigisme and Putinesque puritanism" (p. 6).

Most of the technological advancement on display is computing-related. Supercomputers are wearably small. AIs can teach themselves English by "Spawn[ing] billion-node neural network, and download[ing] Teletubbies and Sesame Street at maximum speed" (p. 5). There's early research in progress into basic technologies on display in SF set in the 'post-human' era, e.g. "researchers are uploading lobsters into cyberspace... one neuron at a time" (p. 9). Things are bad for legal employment as "the Baby Bills... have automated their legal processes" (p. 9) to stay a step ahead of windfall profits tax demands.

Looks like fun!

by Tom Bozzo

This caught my eye, though, in the AP election roundup:

...Texas voters overwhelmingly approved a constitutional ban on gay marriage, Maine voted to preserve the state's new gay-rights law...

If Jesusland continues to behave this way, the name should be repossessed. (Plus, within various churches there's this, and this, and this; though for a slightly optimistic view see this.)

by Tom Bozzo

Rep. Baldwin was among the "nays" who managed at least temporarily to scuttle H.R. 1606, a measure that would have excluded internet communications from regulation under the Federal Election Campaign Act. Baldwin's vote drew negative attention locally from Jim Zellmer, who called the action a vote "against internet free speech," and Baldwin's explanation drew front page attention at Daily Kos (which seemed to have slammed the Isthmus website's server(s) yesterday). I think Tammy is getting a bum rap.

The core of Baldwin's explanation is that H.R. 1606 "purports to fix a problem that doesn't exist, while opening up huge loopholes that could allow corporations, unions, and soft money to again re-enter the political process via the internet."

I don't know that corporations, unions, and soft money ever leftthe political process, but this is otherwise reasonable. Advocates of H.R. 1606 make fundamentally backward-looking arguments in favor of non-regulation. I find this somewhat naive, as the internet is nondecreasing in importance as a communications medium; to offer everyone free reign in this (and only this) medium is not a problem-free forward-looking regulatory approach. (Obviously, I'm coming at this from the perspective that free speech rights may reasonably be abrogated in limited ways to try to limit the corrosive influence of money in politics.)

H.R. 1606 would indeed provide a blanket exclusion for all internet communications. Here is its substantive text:

Paragraph (22) of section 301 of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(22)) is amended by adding at the end the following new sentence: `Such term shall not include communications over the Internet.'.

And here is 2 USC 431(22):

Public communication.— The term “public communication” means a communication by means of any broadcast, cable, or satellite communication, newspaper, magazine, outdoor advertising facility, mass mailing, or telephone bank to the general public, or any other form of general public political advertising.

In context, it seems clear that this provision goes well beyond the rights of ordinary citizens in pajamas to write blog posts along the lines of "vote for Congressperson Doe." (*) This is even more obvious when you consider the opprobrium directed to the Shays-Meehan alternative, H.R. 4194, which proposes this as an alternative:

Paragraph (22) of section 301 of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(22)) is amended by adding at the end the following: `Such term shall not include any communication made over the Internet, other than a communication placed on another person's website for a fee, a communication made by any person described in section 316 (other than a corporation described in such section whose principal purpose is operating a web log), a communication made by a State, district, or local committee of a political party described in section 323(b), or a communication made by any political committee.'.

My imagination must be underactive as in my admittedly lay reading, this would seem to exclude any unpaid blogging by private individuals as well as by commercial blogging entities such as TPMCafe. In short, the world would not end were H.R. 4194 to become law. Certainly I would face no jeopardy from indulging my occasional impulse to beat up on John Gard.

Now, Kos diarist Adam B makes a more than reasonable point that it would be worthwhile to include the internets somehow in 2 USC 431(9)(B)(i), which prevents news and editorial commentary in conventional media from being construed as in-kind campaign contributions:

(9)(B) The term “expenditure” does not include—
(i) any news story, commentary, or editorial distributed through the facilities of any broadcasting station, newspaper, magazine, or other periodical publication, unless such facilities are owned or controlled by any political party, political committee, or candidate;

I would encourage Rep. Baldwin to support, if not to assist in drafting, such a provision, but I'd see it as a complement rather than a substitute for something like H.R. 4194.

Addendum: In repsonse to a comment from Mike Krempasky, I'll clarify that I actually agree with the bipartisan group of top political bloggers that the attempt to carve out a blog exception from 441b restrictions is the main problem with 4194, as it could be construed as putting some types of blogs and blog-like sites in statutory or regulatory limbo — though the term "web log" should be construed broadly by the FEC if it were in the position of implementing regs based on 4194. (I still don't think that 1606's blanket exemption for all internet communications is the ideal solution to the problem.)

Since I want to see the press exemption extended to appropriate internet outlets in addition to 4194-like language that ensures that paid internet communications aren't totally beyond regulatory reach, my bottom line position isn't that far off that of the top political bloggers as expressed in this letter. (**)


(*) Small-time bloggers would be exempted by provisions permitting unregulated small in-kind contributions, as well as unlimited volunteering of one's time.

(**) The main nit I'd pick with the letter is that some of the complaints expressed about language used by Shays and Meehan in response to an earlier blogger letter aren't very well founded in the 4194 language. The concern about the use of blog hosting services, for instance, is not invalid in the abstract, but what clearly matters for 4194 is not the hosting arrangement but rather whether a communication is a paid political message.

by Tom Bozzo

Among the tax "reform" panel's most controversial recommendations has been its proposal to reduce the tax subsidy for mortgage interest. This is done by two primary means: Converting the deduction into a 15% credit, which other things equal is a tax increase if you're in the 25% bracket or better — for 2006, that's estimated to start at $29,050 in taxable income (i.e., after deductions and exemptions) for a single taxpayer, twice that for married joint filers; and establishing limits on mortgage balances eligible for the credit based on regional home prices. The cap would be 125% of the median price used to set FHA loan limits (Report, Ch. 5, p. 73).

In yesterday's NYT, Edmund Andrews inaccurately characterized the proposal as limiting the size of mortgage eligible for a tax credit from $1.1 million to about $412,000. Outside the high-cost metropolitan areas, that might not seem too bad, but the $412,000 is only applicable to the highest-cost areas (*).

Apart from requiring a lengthy table to determine the applicable mortgage limit (as noted at Talking Taxes; link via MaxSpeak), the limits would be subject to quite variable changes by area due to market conditions. Some metropolitan areas have seen very little, if any, appreciation — IIRC, Texas metropolitan areas routinely bring up the rear — while prices have soared in the bubbly coastal markets. Of course, some of those markets might be subject to substantial declines in the case of a prolonged effervescence adjustment. The main text of the report doesn't discuss possible adjustment mechanisms for the caps.

Since the FHA limits are determined by MSA and have (in addition to the high-cost ceiling) a floor that applies to low-cost areas, there are large and odd regional variations in how much house you can deduct. These don't make any obvious sense. Here are some jewels of the upper midwest, compared to a notoriously bubble-like area:

County	Mortgage Limit	Median Existing House Price	Limit, % of Price
Green, WI (Rural South Central WI)	$227,147	$125,900 (**)	180%
Sauk, WI (far Madison exurbs)	227,147	150,000	151%
Brown, WI (Green Bay)	227,147	149,300	152%
Dane, WI (Madison MSA)	267,368	200,000	134%
Milwaukee, WI	256,315	144,300	178%
Waukesha, WI (Milwaukee MSA)	256,315	234,800	109%
Hennepin, MN (Minneapolis MSA)	321,875	230,000 (13-cty Metro, 9/05)	140%
Cook, IL (Chicago MSA)	362,105	265,000 (Q2)	137%
San Francisco Bay Area	411,703	726,900 (Q2)	57%

Can't say I feel bad the reforms were DOA...


(*) Yet higher limits apply outside the 48 contiguous states.

(**) Wisconsin figures are for Q1 2005, from the Wisconsin Realtors Association.

by Tom Bozzo

While tax "reform" may be deader than a dead dodo, in the spirit of teaching Democratic strategists a lesson from the other side's not-necessarily-evil behavior, I will not refrain from kicking it when it's down. This is in no way a comprehensive list, as I only have so much leisure time to devote to poring over the report.

(Welcome Economist's View readers. A roundup of previous posts on tax reform issues is here; a follow-up post on regional variation in the proposed mortgage interest credit is here.)


1. Having Democrats around does matter

Had the panel recommended a consumption tax or a progressive wage tax a la the "X Tax" — thereby offering political cover to the right's goal of exempting investment income from taxation — a host of tax policy analysts from the AEI, Cato, Heritage, etc. would have been walking around resembling "Nail's Tales." Tom DeLay, I'm sure, would be describing the reforms as gilding the deck chairs on the Queen Mary 2 rather than re-arranging same on the Titanic. Some credit for this not happening must go to John Breaux, otherwise hardly a progressive's progressive, and other representatives of the center on the panel, who at least were not going to let zero rates for personal investment income fly.


2. Lies, damn lies, statistics, and marketing

Max Sawicky is right that the report is not only a policy analysis document. It's full of non-functional illustrations like this one, meant to dramatize how much better it will be to fill out the proposed 1040-SIMPLE than the existing 1040 (non-EZ, I presume):

Preying on fear of math may be effective, though doing so on page 107 of a several hundred page report overestimates the mean level of wonkery in the target audience.

The reality is, the existing income tax is not complicated at all for wage and salaries income, which accounts for the vast majority of income for the vast majority of taxpayers. Features like graduated tax rates don't count since tax tables turn the calculation (not advanced math to begin with) into a simple lookup, and anyway there are these things called computers and e-filing initiatives have driven the price of tax software effectively to zero.

The Simplified Income Tax alternative, meanwhile, introduces new complexity — e.g., regionally variable limits on the mortgage interest credit — and retains other forms, such as preferential treatments of some investment income. This provision may look simple:

(p. 108) Exclude 100% of dividends of U.S. companies paid out of domestic earnings.

Quick, define U.S. companies and domestic earnings! Does the former include tax-avoiding expatriates? Can you figure the latter while decreasing (other things equal) the level of employment in the transfer pricing business?


3. Dept. of "Are you kidding me?"

The report does, early on, express a touching bit of concern for the possibility that tax rates distort labor supply decisions. When I was a student, some conservative economics professors actually were concerned about such things, before the obsession with capital market distortions took over. This, however, has to be the worst example ever:

(p.6) Let’s say you are just offered a great job at $120,000 a year. You are married with one child and your current salary is $80,000. You take the job, right? Not necessarily. The increase in salary might cause you to lose some of the child credit – and subject you to other provisions that increase your total tax bill even more, such as the alternative minimum tax. In all, the pre-tax jump in your new salary may be $40,000, but it could end up costing you an extra $9,203 in tax – meaning that your salary would rise by 50 percent while your tax liability would increase by 140 percent. Not surprisingly, some workers figure this out quickly and avoid taking on work... simply because of how the tax code penalizes that extra effort.

Forget for a moment that $120,000 is in a sufficiently high percentile of the wages-and-salaries distribution that relatively few people will have the problem of making the decision. Those percentages are highly misleading. Yes, tax increases more than income since the marginal rate on the extra $40,000 is higher than the average rate on the previous $80,000.

But let's rephrase the problem. Define "great job" how you will. Would you forego the after-tax $30,797? (If yes, really? Why?)


More later...