Tuesday, September 30, 2008
Auto Bailout Passes: Big Three to Get Big Check from Uncle SamForeign auto makers operating in the US are generally excluded from getting any of these loans by a provision in the law that makes them available only to firms with production plants that are more than 20 years old.
Congress members working through the weekend provided $25 billion in aid to the struggling U.S. auto industry. The money will come in the form of loans to help U.S. manufacturers produce more fuel-efficient vehicles...
The Senate voted 78 to 12 to pass a broad, must-pass spending bill that includes $7.5 billion to start the loan program. The House passed the bill earlier in the week...
But don't call this a "bailout" for GM, Ford and Chrysler, heavens no!
Chrysler Vice Chairman Jim Press told ABC, "It's not a bailout. It's a good investment between industry and government."Though by that standard the government's $85 billion loan to AIG at 11% interest, secured by the right to purchase 80% of AIG's stock ... and its taking stock ownership of Fannie and Freddie in exchange for guaranteeing all their debt ... and, yes, the proposed purchase of up to $700 billion of mortgage backed securities from the financial industry, were all investments, not bailouts, too.
Economics Professor Peter Morici of the University of Maryland said "Oh, I'd call it a bailout. They are having increasing difficulty borrowing money in the private credit markets because there's a high risk of default. In that environment, giving them a government loan is a bailout".But Congress always has some kind of problem with bailouts. This time it's that taxpayers' money is not going out fast enough...
Still, the loans may not come as quickly as the Big Three want ... Congress members are already criticizing that aspect of the plan. Sen. Debbie Stabenow (D-Mich.) told reporters, "It's absolutely unacceptable for them to take six months or longer to implement this program and make capital available."Though it'll be kind of ironic if after the un-bailed out financial system collapses nobody can get a car loan.
If presidential politics are any indication, the domestic auto industry might be able to count on more federal help. At an appearance in Detroit on Sunday, the AP notes, Democratic nominee Barack Obama touted his support for the loans. In response, prominent John McCain supporter Sen. Joseph Lieberman (I-Conn.) replied, "that McCain not only supports the $25 billion loan package for automakers approved by Congress on Saturday, but also has proposed a $300 million prize for development of a battery powerful enough to run a car."
They're competing with one another over who wants to give Detroit more money. On that front, the Big Three couldn't be happier. [US News]
Sunday, September 28, 2008
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”That was Joseph J. Cassano, head of the AIG Financial Products office in London, England, speaking in August of 2007.
During the following year his 377-person office produced $25 billion of losses that sank the otherwise healthy business of the world's largest insurance company with 116,000 employees.
The moral: There's no escaping the risk-reward relationship on investment returns. If you are reaping profits hand-over-fist like "minting money", you are taking one heck of a risk somewhere. If you aren't smart enough to see where it is, at least be smart enough to find someone who is that smart to explain it to you.
The same thing goes when you have somebody else investing your money for you.
"Every motion of no confidence fails by one vote."
That's a saying in countries that have parliamentary governments. A parliamentary "vote of no confidence" in the government that will bring it down if passed will fail by one vote because that's how many votes the government will allow to be cast against it.
The point is that the government is doing something very unpopular with the voters, or else the "no confidence" motion wouldn't exist, typically brought by the opposing minority party. To defuse the voters' anger, the government allows as many members of its own party as possible to vote against it -- up to that last one who would make the difference.
The government is going to do what it is going to do anyhow -- but to save the most vulnerable members of its own party from the voters' wrath it allows them to take a brave and independent stand against it, that they will point to in the next election, but which changes nothing in the end.
[OK, for the moment I think we can put the rest of this aside ... except for the final thought.]
Update: Now we see that Speaker Pelosi tried exactly this tactic with the "bailout" bill but bungled it. She tried to let as many of her Democrats as possible vote against the bailout while still getting it passed with Republican votes. But she either (a) miscounted the Republican votes for the bill, or (b) angered a number of Republicans into not voting for it with her little last minute spontaneous tirade against them (or both). So the exercise blew up.
But was the bailout ever really in danger? I doubt it. A lot of members of Congress, especially from conservative Republican districts, have been getting a whole lot of heat from their constituents about apparently spending $700 billion of their tax money to bail out fat-cat Wall Street zillionaires -- with an election only weeks away.
Breakthrough Reached in Negotiations on Bailout
So last Friday, when the markets were closing and it didn't matter, these Republicans bravely and independently stood up and defied President Bush and Wall Street, demanding reform of the bailout! Now, over a weekend of difficult negotiations, they have achieved what they demanded, making the President and Wall Street concede to their demands, in a highly publicized manner -- even if they got only a fig leaf in substance.
Monday morning when the markets open and it matters, the bailout in substance will be just exactly what it was last Friday, these Republicans will vote for it, and then they'll go into the last weeks of the election being able to tout to the voters in their districts how they stood up against it, and brag of their success in changing it.
Isn't democracy fun!
Saturday, September 27, 2008
I took the family to the pre-penultimate game at Shea Stadium last night (and watched the Mets bullpen make one final attempt to justify being taken over by the Fed).
On the big video scoreboard they counted down the "Top 10 Plays at Shea of All Time as Voted By the Fans" and showed them on the big TV screen. #3 ... #2 ... #1... It's not a great achievement by a Mets player like a no-hitter or a grand-slam or something from the year of the Miracle Mets, it's...
"... and the ball goes BETWEEN BILL BUCKNER'S LEGS!!!"
Poor Bill. I don't suppose he's ever going to cure cancer or negotiate final lasting peace in the middle east or anything quite like that -- but if he does, you know what will still be on his gravestone.*
I take my kids to play T-ball and their coaches go, "OK kiddies, always put your bodies before a ground ball, because who don't you want to be?" And the kids all chant: "Bill Buckner! Bill Buckner!" That play occurred long before these kids were born. It's like if when I was playing Little League we all had an anti-hero from the 1940s.
Anyhow, the reason I was at the game was because the kids wanted to go to one last game at Shea knowing full well it's going to be the last MLB game they ever see that I pay for. There ain't no way I'm going to pay what they'll be charging for the seats at the new stadiums next year, like Citi Field** where the Mets will play, now being constructed in Shea's former parking lot, or the New Yankee Stadium where the Yankees will be showing off their $200 million third-place payroll.
I don't want to say the big corporations*** are taking over the ballparks, but at Shea they now run a ticker tape with closing stock prices across the scoreboard. I sure don't remember that from my days as a kid in the bleacher seats. (And hot dogs already are $5. I don't remember that either.)
By the way, just wondering, how much did Wrigley pay for the naming rights to Wrigley Field?
* The ball that Buckner hit, and a video of it taking its famous bounce, on display. Also, a picture of the bottle of celebratory champagne that the Red Sox never drank, heartless bastard that I am.
** Assuming there will be a Citibank next year.
*** Assuming there will be any big corporations next year.
Wednesday, September 24, 2008
...by Uncle Jay.
How New Yorkers cope with the pain and cost of personal loss.
With suds and scalping.
"Eight beers deep and I'm starting to get over it."Yankee fans at the last game before the closing of Yankee Stadium.
-- John Gillis, 33, Woodlawn, Bronx
"I came prepared with an extra ticket. This pays for the whole day - extra beer, parking, the whole thing."
-- Unnamed man who sold an extra $25 bleacher seat for $300.
Tuesday, September 23, 2008
Just because they are Democrats? With no other particular explanation? That's the claim made by the likes of Michael Kinsley, Alan Blinder, and host of other "authorities" and bloggers, this election year (and just about every other one). And they cite plenty of data to back it up. For instance Professor Blinder writes in the NY Times....
Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.Wow, that looks hard to argue with! Can we really believe Democratic presidents produce better economies ... just "because"?
I'll submit four items on point for your consideration, and then you can make up your own mind. These items are: (1) logic, (2) common sense, (3) actual data, and (4) a few basic principles of statistics.
1) Logic. The cited "presidential performance numbers " are invariably tallied by the calendar years of each president's term. But how is the mere party affiliation of a president supposed to affect the real economy from his very first day in office (in fact, from before his first day in office, when not inaugurated until January 21) ... even if the Congress is of the opposing party ... and then cease having any affect at all on the economy as of December 31 of his last year in office?
Logic seems to dictate that a president has to do something to affect the economy -- take some policy action. And when I studied economics in school they taught me that there is "lag time" between when an economic policy is adopted and its having an effect -- such as up to 18 months for monetary policy and longer for fiscal policy.
What policy is it that all Democratic presidents follow to produce such superior results? The Kinsley-Blinderites don't say. What rationale do Kinsley/Blinder & Co. give for dismissing the lag time before policy has effect? They give none. Is the party affiliation of a new president supposed to instantaneously drive the economy in a new direction through "magic totem power"? They don't say.
"Lag time", hmmm, this leads to...
2) Common sense. Jimmy Carter, D, left office leaving behind double-digit inflation created during his term, the worst in US history. As the direct result of this Paul Volcker and the Fed (not Reagan and the Republicans), to break this inflation, engineered the worst recession since the Depression during Reagan's first two years, causing double-digit unemployment -- but curing the inflation Carter had left and setting up a long-term boom economy.
The Kinsley/Blinder-type presidential performance tallies count that as: "Carter, D, growth years, Good! ... Reagan, R, bad recession, Bad!"
Doesn't common sense tell us there is something wrong with that?
As a matter of fact, Eisenhower left Kennedy a boom economy ... Lyndon "guns and butter" Johnson left a stock market bubble that busted and turned into a recession at the start of Nixon's term ... and Clinton left a bursting bubble that had just started a recession that surely would have landed on Gore if he'd been elected (even though a Democrat!). Plus Carter's double-digit inflation that lead to double-digit unemployment.
In each case assuming presidential "magic totem power" that affects the economy instantaneously and ends its influence on the last day of the president's term, instead of assuming that presidential policies affect the economy with a texbook lag, works to reward the Democrat and punish the Republican. And just these four cases stretch across fully eight of the 14 presidential terms since 1948.
Which brings us to....
3) Factual data. There've been 14 full presidential terms from 1948 to 2004, 6 Democratic and 8 Republican. Count real GDP growth from January 1 of the year each president was inaugurated to December 31 of the fourth year, and we get this striking result:
Of the 7 terms with the highest GDP growth, Democratic presidents have 6 of them ... and average GDP growth per term is 17.95% for Democrats versus and only 11.75% for Republicans.
Wow! That's pretty impressive!! But still ... it assumes the president's party affiliation drives the economy from his day one in office without his even actually having done anything yet.
Let's instead consider the old boring textbook proposition that policy takes effect with a lag, and look at GDP growth for each term lagged 18 months.
Now of the 7 terms with the highest GDP growth, 5 belong to Republicans -- and average GDP growth per term is 14.7% for Republicans versus 13.9% for Democrats.
So, do we believe the textbooks when they say that policy affects the real economy only with a lag, or do we not?
If we do, that's the end of that story.
In fact, looking at the lagged data one could even credibly argue that Democrats have repeatedly left office leaving behind overheated, broken economies that have goosed their own short-term numbers up, and that Republican presidents have paid a price to inherit.
But I wouldn't say that's the true nature of Democratic presidents either, because of ...
4) Statistical basics. First of all, small sample size. C'mon what are we talking about, all of 11 presidents?
And consider all the noise in this data. E.g: Historic oil price increases to all-time highs slowed the economy under Nixon and Bush the Younger ... but Clinton received the gift of oil falling to $10 a barrel. That's two Republicans punished and one Democrat rewarded by chance in a sample size this small! How are things like that -- all the other external, random forces that influence the economy -- adjusted for?
Second, there's the lack of independence between events. Consider this: The Democrats tried seriously to recruit Herbert Hoover to be their presidential candidate in the 1920s -- even FDR favored him(!)
Imagine that Hoover had run as a Democrat, won, and the Great Depression thus had happened on the Democrats' watch. The Republicans would have swept in for a generation and party alignments would have been reversed for 40 years, maybe until this day. That one single possible event would have had a pretty big impact on all these numbers.
Third, most bascially, there is the false assumption that "correlation is causation", as pointed out by Prof Mankiw. Even if, measuring with an 18-month lag, Democratic presidents had taken all the top 6 performance spots (instead of just their actual 2 of 6) it still wouldn't have meant anything unless there was some explanation of how they affected the economy. What was their common policy action or influence that enabled them to do this? The Kinsley/Blinderites offer nothing at all here. Zip.
But without an explanation that shows and explains causation ... heck, I can detail the movements of astronomical bodies that correlate 1-to-1 with the past performance numbers of professional athletes. Of course that means nothing, it's just data mining.
Now, these four problems with the thesis under examination are neither difficult nor obscure. Persons as informed and educated and usually critically astute as Kinsley and certainly Blinder surely would see and appreciate them in a moment in any other context. So why are these two blind to them here?
I can only think because it's an election year, and this is yet another example of "your brain on politics".
Sunday, September 21, 2008
Possibly it is unavoidable. But here's another opinion [.pdf] expressed strongly (via Tyler Cowen).
And here's a pretty alarming description of the "$700 billion proposal" -- ranging from how it creates an above-the-law Imperial Treasury with risk of all kinds of wrongdoing resulting, to a look at the bad economics of the deal: the Treasury paying well above-market prices for bad debt, rewarding the worst offenders among the financial players the most, at taxpayer expense (and more) ... plus the unhappy international implications.
(As note in the above, Krugman doesn't like this deal either. I haven't agreed with near anything Krugman's written for years. When I do like this, I fear there's really something to be alarmed about.)
More: Arnold Kling gives his opinion, with links to others. His blog partner, Bryan Caplan, asks "Where are the left-wing demagogues denouncing handouts to the the rich when we need them?"
The text of the proposal.
Friday, September 19, 2008
[Reuters] Social networking sites now are the hottest attraction on the Internet, dethroning pornography...Those are the high hormone years! What are these kids going to be like when they're 50?
Bill Tancer ... in his new book, "Click: What Millions of People are Doing Online and Why It Matters," said analyzing web searches did not just reflect what was happening online but gave a wider picture of society and people's behavior.
Tancer, general manager of global research at Hitwise, an Internet tracking company, said one of the major shifts in Internet use in the past decade had been the fall off in interest in pornography or adult entertainment sites...
"As social networking traffic has increased, visits to porn sites have decreased," said Tancer, indicating that the 18-24 year old age group particularly was searching less for porn...
Wednesday, September 17, 2008
Lehman's U.K. Landlord Says AIG Insures Rent PaymentsAh, Canary Wharf, memories of financial good times. They seem to never end.
(Sept. 16) -- Lehman Brothers Holdings Inc.'s London landlord, Songbird Estates Plc, said rent payments for its largest tenant in the Canary Wharf financial district are insured by American International Group Inc.
Songbird ... shares have lost 15 percent of their value since the Wall Street firm filed for Chapter 11 bankruptcy protection yesterday ... Lehman accounted for 15 percent of Songbird's revenue... [Bloomberg]
Hey, someone's got a financial crisis not caused by "subprime loans".
Oil bubble? What oil bubble?
Russia halts trading after one-day 17% share price fallIt couldn't happen to a nicer bunch of guys.
Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.
The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.
Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.
Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments...
Chris Weafer, chief strategist at Uralsib investment bank: "We’re in completely uncharted territory where the prevailing emotion is of fear and numbness. No one knows where this could stop"...
...market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.
It said: “In connection with the fact that a series of our clients did not meet their obligations to our bank, we have not met our obligations to our counterparties...”
Andrei Sharonov, managing director of Troika Dialog, a Moscow investment bank, and a former deputy economic minister, said: “This is a vicious circle. It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”
Shares in Russia’s biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.
Tuesday, September 16, 2008
McCain and Obama are both campaigning across the country promising to deliver more tax cuts from today's level -- the difference between them being only the form of the cut each is promising.
But they're both politicians, and their lips are moving.
Douglas Holtz-Eakin, McCain's economic advisor, is not a politician but the former head of the Congressional Budget Office. He recently spoke about reality (quoted through Joe Klein):
That “annual tax hike of $550 to $700 billion” compares to total income taxes collected in 2007 of $1,534 billion — you do the math on the size of the tax hike that is coming. (Although it's been done here before.)
Douglas Holtz-Eakin … in a forthcoming book by Fortune columnist Matt Miller, makes it clear that the next President is going to have to raise taxes.
“If you do nothing on the spending side, you’re going to have to raise taxes whether you’re a Republican, a Democrat or a Martian,” he tells Miller … and then he immediately makes it clear that the “spending side” part of the argument [cutting wasteful spending to balance the books] is nothing more than a political fig-leaf…
“It’s arithmetic.” Federal revenue today is 18.8 percent of GDP and federal spending is 20 percent. Holtz-Eakin observes that “the pressures are there” to lift spending (on entitlement programs, mostly) and taxes to 23 or 24 percent of GDP by around 2020, and to as much as 27 percent if health costs remain out of control.
… Miller does the arithmetic: that’s an annual tax hike of $550 to $700 billion, well beyond the range of any spending cuts that McCain has or might propose….
Miller concludes: So why does tax-cutting mania persist among Republicans, I asked Holtz-Eakin, the McCain adviser — given … that, as Holtz-Eakin himself explain to me, taxes soon have to go up substantially in any event?
“It’s the brand,” he said, “and you don’t dilute the brand.”
Lest anyone think it’s particularly hypocritical on the part of Holtz-Eakin and McCain to campaign promising “tax cuts” knowing these kind of tax hikes are coming, remember that the same reality faces Obama and he’s promising a tax cut too ... Obama’s econ guy Furman is now arguing against a health care reform he himself proposed before the campaign started and McCain endorsed it ... FDR ran on a balance-the-budget promise in 1932 ... Bill Clinton ran promising a middle class tax cut in 1992 ... and so on. Everybody in a campaign puts selling their “brand” to get votes first, and being honest about the future well afterward. Don't act all shocked about it.
That said, the real difference in the future fiscal realities presented by the two candidates look to me like this:
Whatever happens, the Democrats will retain control of Congress. There is no way they are going to renew the Bush tax cuts, so the Bush cuts expire. (They are dead tax cuts walking already.) Then if ...
 McCain wins, he reverts to the earmark-damning budget hawk he’s been during his entire career to date (when not running in an election year), pleasing his base on the right by vetoing mass Democratic spending proposals. He can’t get any spending of his own through, though, because the Democrats control Congress.
The net result is tax increases with restricted spending, and the closest thing to budget discipline seen since 1998 (also a time of divided government). The deficit shrinks, and the country will be in that much better shape to deal with the real explosion of entitlement costs when the flood tide of them starts coming in on the following president's watch, around 2017.
 Obama wins, the tax increase from the repeal of the Bush cuts is accompanied by Democratic committee chairmen and interest groups pouring through Congress a 14-year backlog of all their favored spending that they’ve been deprived of since losing power back in 1994. We'll see the same feeding-at-the-trough that comes with monopoly political power as we saw with the Republicans after 2001, only with the emphasis on spending increases rather than tax cuts.
I don’t see from Obama’s record any sign that he’d have any interest in stopping it — nor, considering how shallow his roots are in the national party, how he could stop it if he wanted to.
The end result is the country being in worse shape to deal with the flood tide of entitlement costs when it hits, with deficits as high or higher as today but with higher taxes too -- making necessary tax increases of the future even more painful.
That’s what my crystal ball says about realistic future budget options. For all the election talk about tax proposals, the real difference to me looks to be in future spending. Take your pick.
So on the budget issue I pick McCain. Not because he is a better man or because Republicans are more fiscally responsible -- they've disproved that notion over the last eight years -- but because of institutional arrangements.
When each party has a share of power in the government each blocks the other's worst, most partisan spending -- and when actually trying to get serious things done, bipartisanship is forced as the only way to do it.
The past generation has seen just one somewhat interrupted stretch of fiscal spending responsibility. It started during the Bush I years when Bush the Elder as a Republican president had a Democratic Congress, and the two agreed to a bipartisan deal in which he agreed to a tax increase (famously to his political cost) and Congress adopted "paygo" rules that required all spending to be financed. This started a long-term gradual reduction of the deficit from its record size during the Reagan years.
After a brief interruption when the Democrats swept monopoly power in the 1992 election, restraint returned when the Republicans recaptured Congress in 1994. After that Bill Clinton's social spending initiatives shrank in size from "national health care" to "midnight basketball". After four more years of that the deficit was eliminated and a surplus arrived. (At which point the paygo rules were deep-sixed by all parties -- what politician wants to save a surplus? -- but that's another story.)
Fiscal restraint, thy name is "divided government".
If that's your issue, that's what to vote for.
Sunday, September 14, 2008
...even the jailers who once tortured Sen. McCain are lining up to offer effusive -- if somewhat embarrassing -- endorsements for his presidential candidacy.
"If I had a vote in the U.S., I would choose McCain," beams retired Col. Tran Trong Duyet, the camp's former commander. "I want him in the White House."
This unlikely sentiment is widely shared in this fast-growing country of 85 million.
"The majority of the people in Vietnam know Sen. McCain and feel comfortable about him," says Duong Trung Quoc, a member of Vietnam's National Assembly and secretary-general of the Association of Vietnamese Historians. "Nobody here knows about Obama." ... [WSJ]
"He bombed our schools and hospitals and we still want him!
"What did Obama ever do?
"Vote McCain !!"
Saturday, September 13, 2008
How politics works: Obama advisor opposes his own healthcare proposal when McCain proposes it.
The Palin we need.
Most appropriate op-ed author of the week [ht: LowBridge] ...
Democrats Need to Shake The 'Elitist' Tag
-- by Lynn Forester De Rothschild
Eco-alarmists kayaking to the North Pole to dramatize the disappearance of Arctic ice immediately get stuck in ice (at a latitude that was navigable in the 1920s).
[ht: Adam Smith]
Arnold Kling explains Fannie Mae in a nutshell.
Meanwhile, Freddie Mac's website still details its great success.
It's football season again and there's plenty of awful announcing out there (including about fun in the cheap seats).
Don't blame the politicians for everything, it's us dumbass voters.
And finally, on a therapeutic note, maybe we Westerners shouldn't feel so guilty about destroying the South American rain forests, since it looks like we created them with our Western diseases.
As I write this McCain has taken the lead in the real-money betting odds on the election at Intrade, at 53. Not bad for a guy who was at 37 less than three weeks ago.
But Obama is still ahead at Iowa Electronic Markets and other real-money prediction markets.
Here's your chance! Leverage up and aribitrage your way to a fortune! (Just like the guys at Bear Stearns did).
Friday, September 12, 2008
A neurological study of political partisans...
Political partisans not only literally "see no evil" about their own party and candidates, they actually get an endorphin high from suppressing compromising thoughts about their own party and candidates. (Perhaps this gives some clue to where wars come from?)
... The results showed that when partisans face threatening information [about their own favored candidate] not only are they likely to “reason” to emotionally biased conclusions, but we can trace their neural footprints as they do it.
When confronted with potentially troubling political information, a network of neurons becomes active that produces distress ... The brain registers the conflict between data and desire and begins to search for ways to turn off the spigot of unpleasant emotion...
Not only did the brain manage to shut down distress through faulty reasoning, but it did so quickly ... The neural circuits charged with regulation of emotional states seemed to recruit beliefs that eliminated the distress and conflict partisans had experienced when they confronted unpleasant realities. And this all seemed to happen with little involvement of the neural circuits normally involved in reasoning.
But the political brain also did something we didn’t predict.
Once partisans had found a way to reason to false conclusions, not only did neural circuits involved in negative emotions turn off, but circuits involved in positive emotions turned on. The partisan brain didn’t seem satisfied in just feeling better. It worked overtime to feel good, activating reward circuits that give partisans a jolt of positive reinforcement for their biased reasoning.
These reward circuits overlap substantially with those activated when drug addicts get their “fix,” giving new meaning to the term "political junkie"...
So the next time you look in the mirror and ponder why it feels so emotionally important to you that the other side be beaten in the coming election, you will for the first time understand the scientific explanation why.
Yes, you will know that your feeling of urgency is scientifically validated because the other side literally can't tell the difference between good and evil, even when the evil of their own candidates is right before their eyes -- they must be stopped, because they are endorphin crazy!
Thursday, September 11, 2008
The columns of light memorial. (More)
Seven years ago, my kids saw the towers fall from their school. I spent a good part of the day at St. Vincent's hospital, where most of the casualties were brought...
I was going to write a longer post about the WTC: About all the times I was in it for business, and ran through it as a Manhattanite on the move ... how I never really liked those buildings ... maybe because they nearly killed me when as a teenager, on a lunch break from my first summer job, eating a veal parmigiana sandwich sitting next to the construction site as towers were being built, in the middle of a hot July, a big freakin' piece of ice fell out of the sky and landed right next to me (off the top of the building? out of a workmen's refrigerator?) ... about how I was stuck in an elevator in there once, way up ... how I knew American culture had entered its decadent era when nipples appeared on the mannequins in the retail plaza ... about the shame of the bungling at the site for the last seven years ...
But it doesn't seem right for today.
Maybe at the next half-year anniversary.
Wednesday, September 10, 2008
Gregg Easterbrook fingers another global warming warrior demanding sharply reduced energy consumption, but only for you...
Easterbrook is modest in his claim that global warming barely makes the global Problem Top 10 -- the Copenhagen Consensus put it at #14. He's also correct that the solution to global warming...
[Thomas] Friedman, Al Gore, James Hansen of NASA, and others present climate change as some kind of super-ultra emergency. Global warming is a problem, one that must be managed via greenhouse-gas restrictions and a weaning away from fossil fuels. But in a world of poverty, disease, dictatorships, terrorism, nuclear proliferation, lack of girls' education, and more than 1 billion people without cleaning drinking water or electricity — climate change barely makes the Problem Top 10.
Besides, the solution can't be a panicked pullback from the present economic system ... Economic growth is needed to allow the world to afford environmental protection...
Why does the cocktail-party circuit embrace claims about a pending climate doomsday? Partly owing to our nation's shaky grasp of science .... Another reason is the belief that only exaggerated cries of crisis engage the public's attention; but this makes greenhouse concern seem like just another wolf cry....
There also seems to be some kind of psychological compensation mechanism at work among corporate and Hollywood elites: that it's OK to be a runaway consumer yourself so long as you theatrically denounce consumption.
Friedman's book-talk schedule for the first month alone of Hot, Flat, and Crowded promotion requires jet aircraft trips that, the calculator at Terra Pass estimates, will generate about 3 tons of carbon dioxide—the same as driving a Hummer for almost half a year.
Friedman counsels, "[P]ersonally lead as environmentally sustainable a life as you can", but himself lives in a 11,400-square-foot mansion, whose carbon footprint may be visible from orbit.
Rather than address this straight on, he squirms to paint his lifestyle green: In Hot, Flat, and Crowded Friedman calls his house only "large" and says he and his wife bought the 7.5 acres "to prevent it from being redeveloped into a subdivision ...[We built] a large house on one end and turn[ed] the rest into a parklike greenspace."
Must depend on what the definition of like is, since this parklike space is hardly open to the public and appears disguised as a palatial lawn. Friedman claims his address "has become a refuge for deer, rabbits, birds, butterflies and a fox or two." He neglects to mention the nearby forest preserve — all homes in Friedman's neighborhood have deer and fox wandering their lawns.
Friedman can't bring himself to admit he is lord of a manor and racing through more resources in his daily life than 10,000 rural Africans.... [Slate]
can't be a panicked pullback from the present economic system ... Economic growth is needed to allow the world to afford environmental protectionRemember that environmentalism is a luxury good. Friedman's next door forest preserve that supplies him with his "deer, rabbits, birds, butterflies" is in a rich man's neighborhood. If Tom was poor and needed meat to feed his family, he'd be burning those woods down to chase out the deer and rabbits to get a clear shot at them.
But Gregg doesn't mention the #1 reason for the cocktail party circuit embracing global warming doomsday: profit. "Global warming" is a classic example of an issue that politicians, pundits, and celebrities can free ride to personal profit because the solutions they propose have no cost to them.
First, whatever policy is adopted won't have visible results for decades, so nobody throwing out declarations of what "must be done" today has any fear of ever looking bad from being wrong, or proposing ideas that blow up. Thus there is no, zip, nada, accountability cost to being a global warming warrior.
Then there is no personal cost either. One person's contribution to global warming is so trivial that you don't really feel bad about the heating and a/c bills for your mansion, or for all your first-class air fares either -- and even other conservationists don't really hold them against you.
Compare that with, say, declaring you want to take the lead in bringing safe drinking water to one billion people for the first time. A truly worthy cause that could save lives in our own time as global warming warriors never will. But one which entails real, hard work working with others, like inept-to- corrupt local goverments ... producing visible success or failure ... with critics always second guessing you, "with all the money we've given you, why haven't you done more? You should be doing this..."
Hey, as a celebrity, pundit or politico, which crusade would you choose? Right!
So Friedman writes a tome demanding reduced energy consumption -- then jets off on his book tour to market it, burning fuel all the way to collect the profits that will add another wing to his mansion.
And Al Gore makes a speech urging the US free itself from fossil fuels in only ten years, saying his preferred substitute is ... windmills! He gets all the press he wants, and it's back to Hollywood to make another movie as the celebrated "truth telling" world-saving hero.
Now imagine if Al's speech had included this truth: "To replace the 50% of electricity in the power grid that is produced by coal, we must move rapidly to embrace the only available CO2-free substitute, nuclear power. This of course will mean the end of the coal industry as we know it, the end of the United Mine Workers union and the jobs of its members, and great hardship for states such as West Virginia and Pennsylvania as they restructure their economies, but it is a price they must pay for the common good."
That would have been a truly inconvenient truth -- especially in an election year -- for the Democrats, the left and the greens ... inconvenient enough to seriously reduce Al's popularity in those circles and his future income from them ... so he said nothing of the kind.
While Tom Friedman's costly act to protect nature was to locate his mansion next to a forest preserve.
As long as the global warming isssue provides politicians and pundits a free lunch like this, you can expect to keep hearing a whole lot more about it.
(By the way, don't overlook Easterbrook's other incarnation as the world's most eclectic football columnist, TMQ.)
Tuesday, September 09, 2008
Earth to be destroyed tomorrow morning, when the Large Hadron Collider boots up. "The first attempt to inject a proton beam into the collider tunnel will happen about 3:15 a.m. EDT." Or perhaps not. Get your bet in. Maybe have a "last" beer beforehand, just in case.
Some people really like cake!
Historic obscenity in a eulogy.
Don't sell until you check the date on the story.
A nearly 6-year-old news story on the 2002 bankruptcy filing of United Airlines Corp resurfaced on the Internet Monday, clobbering the airline's shares briefly as some traders mistook the report as current ...
UAL shares fell 76 percent ... The magnitude of the decline may underscore the lack of confidence investors have in UAL
The fate of trees that maybe went into my kitchen cabinets bewailed by mourners. (h/t: Adam Smith) The sort of thing that can make one want to nuke a rainforest.
Monday, September 08, 2008
Pew Global Attitudes Project
Maybe this is what happens after you drop a couple of atom bombs on somebody?
Sunday, September 07, 2008
On top of having four rent stabilized apartments ... and not reporting $75,000 of rental income from a Caribbean villa ... that he owned using an interest-free mortgage obtained through one of his fellow NYC power brokers ... now yet another scandal threatens Democratic law-maker Charlie Rangel. Yes, the Chairman of Congress's Ways and Means Committee that writes the nation's tax laws (unreported income and interest-free loans?), elected from my very own home borough of Manhattan! ...
You may not realize it, but members of the House of Representatives can lease a car and have it paid for by you -- the taxpayer. And it's not just the car, but gas, registration, insurance … the works ... there's no limit on how much they can spend.Ah, that's our Charlie! OK, it's not the car, that's not much compared to all the rest -- it's the attitude he takes to it that makes the man special to all of us here.
Congressman Charles Rangel was recently seen getting out of his Cadillac DeVille, which he leases for $774 per month...
Members of the House who choose to lease through the program have had a great deal of leeway. Congressman Anthony Weiner of Brooklyn, for example, leases a 2008 Chevy impala for $219/month....
Rangel spoke to CBS 2 HD by phone about the seemingly extravagant expenses being racked up on the taxpayers' dime:
CBS 2 HD: "How would you answer those people who say, 'Well, but it's taxpayer money. Instead of $700 a month, could you find something for, say, $300 a month?'"
Rangel: "I could probably ... and then I think my constituents would say, 'With all the money that he gets, this is the respect he shows us?' ... It really pleases me that (my constituents) appreciate driving in a comfortable car, especially the senior citizens ... it's an important part of doing my job and my constituents appreciate it."
He's obliged to indulge his comfort on so many others peoples' dimes for his constituents, so we can proud of him. For us!
That's pretty much the attitude he had in his no apologies defense of having those four apartments. "They're legal! (Well, three of them, anyway. Because the walls between them were torn down to connect them into a single primary residence. But the one he used as an office -- not so legal.) So why apologize? Flaunt 'em, baby". Which he has long done hosting "notorious" parties that have had "every political journalist in the city in these apartments". Which raises the interesting question of just who's decided to "out" Charlie now through this campaign of exposés, and why. But that's a 'nother story.
As an aside to this one, a powerbroker having four rent-controlled apartments is just the sort of thing that rent control can be expected to produce with regularity.
Of course, the purported purpose of rent control, as endlessly repeated by its advocates, is to preserve the number of low-cost apartments for low-income individuals
What actually results from it is is hoarding of apartments -- people do well by collecting things that cost less than their value -- that reduces the number of apartments on the market, and thus increases the market cost of housing to those who don't have it but need it.
Moreover, because of all the arcane rules and regulations in rent-control systems, the hoarding tends to take place not by "low-income" types, but by those well enough off to know how to game the system and have connections.
As it happens, the building hosting Rep. Rangel's four apartments also is the rent-stabilized home of Governor Patterson, and of host of other New York political figures. What a coincidence!
And while the landlords of New York are well-known for bribing and harassing and using every means at their disposal to get rent-regulated tenants out of their buildings all over the city, it never happens at Lenox Towers. Go figure.
Well, in 2008 (so far) Rep. Rangel has collected $400,000 in campaign donations from real estate interests, so maybe his rent stabilization discount and that Caribbean villa are the least of things.
But does he really have to burn all that gasoline driving a Caddy DeVille? For that, some Democrats might actually get mad at him!
Saturday, September 06, 2008
Friday, September 05, 2008
The result by arithmetic is a future explosion in the size of annual budget deficits and the national debt -- at such a rate that Standard & Poor's projects the credit rating of the United States and its Treasury bonds will to plunge to "junk" by 2027 on current law.
This is a big issue -- or should be. There is even a motion picture about it playing in a theater near you, IOUSA.
Alas, there seems to be no happy, easy way to escape this fiscal future.
Government spending on Medicare, Social Security and Medicaid is projected to increase by 6.1 points of GDP by 2030, from 2007's level, says CBO -- this increase is equal to 30% of the size of the entire federal government today (20% of GDP).
In 2007 the federal budget deficit was 1.2% of GDP. Adding 6.1 points to that creates a deficit of 7.3% of GDP, which in 2007 would have been a little more than one trillion dollars. With deficits of this size (and growing indefinitely thereafter!) adding to the national debt annually, and interest compounding on it all, we can see what S&P is concerned about.
Well ... this destruction of the nation's credit rating won't happen because it can't be allowed to happen. The entitlement funding gap will be closed because it must be. (If the nation's credit rating is allowed to be destroyed, the funding gap will still be closed by the government's obligations going unpaid. Since this is the worst possible outcome for everybody, we can confidently predict the political actors will finally agree to close the funding gap before then, as a less bad option).
The question is: how will the funding gap be closed? There are three possible alternatives, by arithmetic...
#1) Tax increases. In 2007 all income taxes (personal and business) were 11.2% of GDP. As 6.1 / 11.2 = 54%, if the projected spending increases were to be paid by income taxes, it would require an across-the-board income tax increase of 54% in GDP terms by 2030.
A 54% across-the-board income tax increase (or equivalent, such as a new national Value Added Tax [.pdf] )will not make taxpayers happy. Nor will it be easy to enact.
#2) Benefit cuts. Of the 6.1 points of GDP increase in spending, 1.8 points are for Social Security, 3.2 points for Medicare, and 1.1 for Medicaid. Total spending for these programs in 2030 is projected to be 6.1, 5.9, and 2.5 points of GDP respectively. Thus, eliminating these spending increases would cut promised Social Security benefits by 30% ... cut Medicare benefits by 54% ... and cut Medicaid benefits by 44%.
Benefit cuts on this scale will not make seniors happy, nor please advocates for the poor who are served by Medicaid. Nor will they be easy to enact.
#3) Both tax increases and benefit cuts.
This would result in a 27% across-the-board income tax increase. If the projected increase in spending for each program was cut in half, Medicare benefits would be cut by 27%, Social Security benefits by 15% and Medicaid by 22%. Needless to say, such a combination would make pretty much everybody unhappy -- and consequently not be easy to enact.
For perspective on just how difficult even this "50-50 compromise" would be to enact, consider...
* The tax increase is almost four times larger in GDP terms than the Clinton tax increase of 1993 that passed the Democratic Senate only on the tie-breaking vote of vice president Al Gore, and passed the Democratic House by only a single voter.
* The benefit cuts for seniors are ... totally unprecedented. (Perhaps the closest precedent to consider is the well remembered by Congress "stoning of Dan Rostenkowski" by enraged seniors who attacked him on the street after the powerful Democratic Congressional leader shepherded a bill through Congress that actually called on them to pay a modest amount for government-provided long-term care health insurance -- a provision immediately thereafter repealed by Congress.)
No, nothing is easy or happy about those three options. Yet the Iron Laws of Arithmetic tell us these are the only possible ways to close a funding gap: either get (tax) more money to spend ... or spend less ... or some combination of both. So one of these options must come true in our future.
But wait ... perhaps there is a fourth option ... make the economy larger.
After all, if the economy grows large enough, it can cover any amount of increased government spending in dollar terms without the government increasing taxes in percentage-of-GDP terms.
For instance, being that the increase in entitlement spending by 2030 is projected at basically 6 points of GDP compared to today's total income tax collections of 18 points of GDP -- or one-third of taxes collected -- if GDP in fact proves to be one-third larger than expected in 2030, tax collections would be one-third larger too, and on the face of things be sufficient to cover the increased spending with no tax increase in GDP terms.
(This is keeping everything back-of-the-envelope simple, ignoring all feedback relationships, such as how Social Security and Medical benefits increase as economic growth accelerates due to wage-indexing and other factors.)
Well, that's a believable, simple and easy solution, and a happy one too! Make everyone richer enough and these programs pay for themselves, all their larger benefits become practically free.
And why shouldn't we suppose future economic growth will be fast enough to make this happen?
Why do the experts speaking in IOUSA not even consider the "growth option" as a possibility, and analysts such as CBO not consider its likelihood? Why, even more than a decade ago, did Alan Greenspan dismiss the growth solution as "beyond the reach of credibility"?
This is a question that is asked seriously by many on the political left in defense of entitlements, and by some on the right in defense of low taxes.
Indeed, the fact that a growth solution isn't even considered by the experts begins to appear sinister to some when they notice that the experts actually project future GDP growth rates to fall -- in large part "creating" the entitlement funding crisis.
(Is there some hidden plot among actuaries and economists to destroy Medicare and Social Security? I've seen it suggested on the AARP discussion boards -- at least about Republican actuaries and economists.)
For instance, the Social Security Trustees in their economic projections anticipate that the future GDP growth rate will decline from an average of 3.1% for the last 40 years to only 2.1% by 2025 and the long-term thereafter. That's a 32% drop!
Is that rate not too low? Unrealistically low compared to historical experience? Can this decline be justified?
Yes, it can be justified. Here's how:
GDP growth is composed of three components: Total employment growth ... times growth in hours worked per worker ... times growth in productivity per hour. As the Trustees Report explains, over the last 40 years the growth rate of these three components averaged about 1.6%, -0.3%, and 1.7% annually, giving the total 3.1% average growth rate number.
Going forward, the Trustees "intermediate" projection basically assumes historical experience carried forward. It assumes future productivity growth at the 40-year historical average rate of 1.7%, and sets the annual change in hours worked to 0% (an increase!).
But it also projects by 2025 a decline in the growth rate of the work force to only 0.4% annually, from the 40-year historical average rate of 1.6%. This decline in the growth rate of employment is what produces all the decline -- in fact, more than all the decline -- in projected future GDP growth.
How is this decline in the growth rate of employment justified? Very simply: by noting the retirement of the "baby boomers" and counting heads. Future employment levels are projected to continue the 40-year average of the past adjusted for demographic changes in the population. Most obviously, as the rate of growth of the retiree population accelerates, and the rate of growth of the working age population declines, the rate of growth of the work force drops ... to 0.4%
In short, the projected decline in the GDP growth rate actually is simply a projection of the averages for the last 40 years carried forward, adjusted for future changes in the population -- which are easy to project 25 years ahead, because all workers and retirees who will be age 25 or older then are alive today.
Now, let's take another look at the "growth solution".
The year 2030 is only 22 years away. For the economy to then be 33% larger than currently projected will require that the GDP growth rate average 1.3 points more than projected over that period. That is a 42% increase over the average growth rate for the last 40 years, and a 62% increase over the rate projected for 2025 and after. An increase that is non-trivial!
But the "growth solution" faces a bigger challenge than that. Increasing the size of the working population by making people work extra years, and having them work longer hours during them -- two of the three components of GDP growth -- is not the happy solution "growth solutionists" generally imagine. They put their faith entirely in increasing productivity, the factor that gives people "more for less."
Productivity growth over the last 40 years averaged 1.7%, and that's the average rate projected by the Trustees for the future. For the entire needed 1.3 points of increased growth rate in the future to come from accelerating productivity requires a permanent increase in average long-term productivity growth rate of 76% -- nontrivial indeed! The rate must rise to a permanent 3%.
Unfortunately, there is no known economic formula for increasing productivity growth in a developed economy. For the 10-year periods 1966-76, 1976-86, 1986-96, and 1996-2006, productivity grew at average annual rates of 2.0% 1.3% 1.2% and 2.1%. The highest of those covered only 30% of what the growth solution discussed here requires: only 0.4 of 1.3 points.
If you have a policy prescription for increasing the long term growth rate of productivity, which has escaped the note of the world so far, make your suggestion known! We need it!
If not, then we all are well advised to take seriously what the historical record tells us about our most probable fiscal future -- something the political system today is not doing.
BUT STILL ... Could the future nonetheless be brighter than pictured here, with GDP growth significantly greater? Can't we at least hope?
Certainly. It's a near sure thing that future GDP growth will be either better or worse than today's "intermediate" and "base line" projections by the Social Security Trustees, CBO and others. The Trustees report in fact includes a stochastic analysis to measure the uncertainly in projections. It is comprised of 5,000 projections of the future based on all plausible economic assumptions in different combinations.
OK. So is it possible that -- even if only through great good luck -- unexpectedly high GDP growth could cover future spending promises without us all incurring tax increases larger than have been seen in all historical experience?
Stochastic analysis says: "damned unlikely".
And remember, the future could be worse than today's projections as well.
So the answer to the original question is: Don't expect any "free lunch" regarding entitlements courtesy of a magically lucky increase in economic growth any more than you expect to hit the Powerball lottery. The luncheon bill will be served.
Wednesday, September 03, 2008
OVER ONE-THIRD OF FORMER AMERICAN FOOTBALL PLAYERS HAD SEXUAL RELATIONS WITH MEN, STUDY CLAIMS
A study of former high-school American Football players has found that more than a third said they had had sexual relations with other men.
In his study of homosexuality among sportsmen in the US, sociologist Dr Eric Anderson found that 19 in a sample of 47 had taken part in acts intended to sexually arouse other men, ranging from kissing to mutual masturbation and oral sex.
The 47 men, aged 18-23, were all American Football players who previously played at the high school (secondary school) level but had failed to be picked for their university’s team and were now cheerleaders...
Tuesday, September 02, 2008
Thus we see the dollar value of preserving the building's sense of community.
RENT OUT OF SHAPE
TENANTS NIX 125G BUYOUTS IN E. VILLAGE
A group of rent-stabilized tenants are fighting to keep their East Village neighborhood affordable by turning down buyout offers of up to $125,000 apiece from a pair of real-estate barons.
The residents charge that the buyout bid by Icon Realty Management, owned by Terrence Lowenberg and Todd Cohen, would destroy the building's sense of community.
"They offered me $120,000," said Carolyn Chamberlain, 65, a secretary who pays $400 for her two-bedroom apartment in the six-story, prewar building at 176 E. 3rd St.
"I told them I would only be interested if it was middle-six-figure offer. It's outright harassment," she said....
All this makes perfect sense within the economics of rent control. For persons intending to stay in the neighborhood, these buyout amounts are nowhere near enough to cover the cost of a comparable market-rate rental.
But residents estimate that at least six of the building's 48 tenants have already snatched up Icon Realty's offer and moved out.
Gentrification has changed the gritty neighborhood - once a magnet for struggling artists and drug activity - into a desirable downtown hotspot with upscale restaurants and bars...
Construction is now going on in the vacated apartments to modernize the digs. Linda Alexander, a spokeswoman for Icon Realty, said the management team did not harass any tenants.
"The [representatives] made several generous buyout offers, and when people refused, they accepted their answer," she said. [NY Post]
For instance, the $120,000 offered to Ms Chamberlain if invested at 5% (a good bit more than available from a safe savings account today) would earn $6,000 a year or $500 a month. That and the $400 rent she's already paying would total $900 a month, not anywhere close to the market rent she'd have to pay for a two-bedroom apartment in the area.
Her demand of "mid six figures" actually is a quite reasonable "ask" figure in negotiations, backed by negotiating position claims about "the need to protect affordable housing" and "harassment". And it's remarkable just how close the market price of a replacement apartment is to the value she sets on "preserving the building's sense of community".
Not that I doubt she is sincere in her claims -- nothing is easier than believing moral right is on your side in negotiations, that it's not just about money, until you get enough money.
On the other hand, for one planning to leave the neighborhood in the future for any reason, $120,000 cash is a very nice windfall that can be grabbed by moving up the departure date. You can't take a rent stabilized apartment with you.
From the landlord's point of view, increasing the rent by $2,000 a month (which seems modest) or $24,000 a year, given an interest rate of 5%, would have a capitalized value of $480,000 ("mid six figures") that could be borrowed up front. After paying $120,000 to the departing tenant that leaves $360,000 for the landlord to use to improve the building or other purposes -- times "at least six" departed tenants gives $2 million. Not bad. So the "low" offer from the landlord is reasonable too.
(I'm assuming that after current tenants are bought out and leave it is legal for the their apartments to be rented at market rate under the myriad complexities of the NYC rent stabilization laws. If not, the landlord may be planning to sell them at market value by taking the building co-op. But any landlord paying a hundred grand per departing tenant will have paid to check that out with a lawyer.)
Of course, life would be simpler if apartments here in NYC were just rented our at market rates as in almost all the rest of the US ... so each tenant in this building wouldn't be putting his/her hands in the landlord's pocket to transfer "mid six figures" of wealth to oneself ... and market rents would be lower as apartments wouldn't be hoarded off the market by people with bargain rents, while landlords invested more in housing ... and the city's taxpayers wouldn't be paying the cost of a big rent-administering bureaucracy, enforcement system and housing court system, not to mention all those housing lawyers ... and so on.
But that's a whole 'nother story, In fact, it's one that was told in some detail by John Tierney in the New York Times about this very neighborhood a few years back.