Scrivener.net

Sunday, May 31, 2009


Vacation spot of the week.


When you want to get away from all the bad news, how about a relaxing swim at the edge of Victoria Falls?







More pix. Video, more.

ht: Environmental Graffiti.



Saturday, May 30, 2009

Lucky with money.

What would you do if your bank accidentally put $6 million in your checking account? Take that exotic Asian vacation you always thought about?

Couple Took the Millions and Ran

And tell your friends all about the good time you are having?
Facebook blunder betrays NZ millionaires
Aw, maybe you'd do better giving the money back to the bank, and just taking a bus to Atlantic City. To relax.
"This was only my second time playing craps, so this was very exciting for me to be a part of history."
-- Patricia DeMauro, after setting a world record by rolling the dice 154 times over four hours and 18 minutes before she "sevened out", at Atlantic City's Borgata Hotel and Casino.

DeMauro, a grandmother from Denville, had played craps only once a couple months earlier, shooting the dice about five times...

According to Michael Shackleford -- a statistician dubbed the Wizard of Odds and an adjunct professor at the University of Nevada, Las Vegas -- DeMauro had only one chance in about 3.5 billion to roll 154 times...

DeMauro refused to say how much she won, revealing only that she "walked away happy."

She did reveal her secret, however.

"When you relax about it, these things happen," she said... [NJ.com]






Friday, May 29, 2009

The future credit rating of the United States.

The noted economist John Taylor, famous for the Taylor Rule (which says the short-term interest rate set by the Fed should be negative five percent today) worries about it in the Financial Times.

He notes that Standard & Poor's has issued a downgrade warning for Britain's credit rating, and says it could happen to the U.S. too.

He doesn't note that the sovereign credit rating of the United States already has been projected to fall starting in 2017 by both Moody's and Standard and Poor's (with the latter projecting a fall all the way to "junk" by 2027).

Of course those projections were based on a "current policy" that was pre-recession, pre-Obama, and pre- the $7 trillion addition to the national debt that Obama is planning for the next 10 years ($9 trillion according to the Congressional Budget Office).

The amount already added to the debt over just the last year is put in personal terms by USA Today...

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security...

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion ....

The number measures what would be needed today — set aside in a lump sum, earning interest — to pay benefits that won't be covered by future taxes....

What does this number, "63.8 trillion", mean? It's so huge people can't grasp it. (Surveys show they can't understand even one trillion!) And we're not paying it now, so a lot of people think it's not real.

But it will become real enough over the next 20 years as the surging number of retirees expect to be paid their Medicare and Social Security benefits, and their federal employee/military pensions. At that point this "implicit debt" will be rolled into the real, cash-needing, paid-with-taxes debt of the US government.

As noted in a post a little while back, this debt doesn't ever actually have to be paid down, but it does have to be carried. What's the interest expense on carrying $63.8 trillion?

Using the average long-term rate of 6% that the Social Security Administration Trustees use in their projections, it's $3.8 trillion per year. How much is that in personal terms?

[] Over 300 million Americans, that's $12,666 in taxes per head for each man, woman, and child, now matter how young or old, from newborn infant to great-grandparent.

[] Over the 117 million households in the US, that's $32,479 each.

If your unavoidable household expenses went up by $32,479 annually in taxes, what would your credit rating be?

We're on course to find out!



Thursday, May 28, 2009

Has a major cause of the financial crisis been overlooked?

Who will regulate the regulators? Or hold them accountable for their actions?

John Hempton has been describing the government's takeover of Washington Mutual, and its transfer to JP Morgan Chase at a "give away" price, as one of the major causes of the financial crisis -- comparable to the Lehman collapse -- ever since it occurred:

Washington Mutual – by far the biggest bank confiscation in US history – happened during the AIG/Lehman week. It was confiscated despite being liquid and adequately capitalised at the time ...

Washington Mutual was given to JP Morgan who did not need to honour all of WaMu’s debts. Debt holders – who would normally have expected to recover most or all of their investment were wiped out.

After this – and until very recently – no major US bank could raise any debt without a government guarantee. After all – if the government could wipe you out why would you ever invest in low risk margin debt?

The confiscation of Washington Mutual thus forced the entire system onto the government guarantee tit. The cost to taxpayers is thus potentially enormous....

I said at the time that Sheila Bair [the head of the FDIC] was acting improperly ... and I said later that JPM was lying....
And now others are beginning to come to the opinion that Hempton was right.

Hempton:
whilst the time for Sheila Bair’s resignation as a matter of national priority is past, the time for her resignation for proven incompetence has just begun.






Why the national debt is just as costly if we don't pay it off. Or even more so.


As the national debt surges I've seen many comments in blogs and discussions to the effect of: "So what? It's not as if we ever have to pay it off. We can just roll it over forever ..."

Unfortunately, any increase in the debt costs taxpayers the exact same amount in taxes whether the debt is paid off or rolled over forever. There is no free lunch in not paying off the debt.

A numerical example can make this clear. Say the government wants to spend an extra $1 billion. It can do so either by spending $1 billion of tax revenue or by borrowing $1 billion and adding that much to the national debt. If it spends...

[] $1 billion of tax revenue, the cost in taxes is $1 billion, simply enough.

[] $1 billion of borrowed money, it must finance the debt that results by paying interest on it. If the debt is rolled over forever, so only interest will ever paid on it, the total amount of the future interest payments when discounted to present value must exactly equal the amount of the debt. And that interest is paid from taxes. So the tax cost of the interest equals the amount of the debt ... $1 billion.

For instance, say the interest rate on government bonds is 5%. If the government borrows $1 billion, the interest paid on it annually will be $50 million, funded from taxes ... and $50 million to be paid annually forever, when discounted to present value using a 5% interest rate, equals exactly $1 billion. (Obviously the amount bond is sold for must exactly equal all the future cash flow to be received on it at current market interest rates, or one of the parties would be losing money on the deal and not go through with it.)

Thus, $1 billion in government spending costs $1 billion in taxes. Period. Borrowing to pay for the spending does not reduce the tax cost at all, it only delays when the taxes will be paid.

And this gets us to Milton Friedman's dictum: "spending equals taxes", to spend is to tax. If the government spends money, it will collect that amount of taxes to pay for the spending, either directly up front or as interest to be paid on the debt that results, because it has no other choice. (Other than raising funds by selling off the national parks and other assets, or declaring national bankrutpcy and defaulting on its debt.)

It follows that ....

[] Tax cuts are not tax cuts unless they are accompanied by matching spending cuts -- otherwise they are merely tax deferrals, taxes are just pushed into the future with interest added. (How Bush and the Republicans increased our future taxes.)

[] Spending increases financed with debt instead of current tax increases are tax increases, with the taxes to arrive at a future date. (How Obama and the Democrats are increasing our future taxes.)

Indeed, there is one way in which debt finance of a given amount, such as $1 billion, when the debt is rolled over forever, can be viewed as costing more in taxes than paying the same amount with a lump-sum payment of taxes up front.

This is because the present value of the future taxes incurred on the borrowing remains at the borrowed amount forever, no matter how much in taxes has already been paid on it.

Say that today the government pays $1 billion on some expenditure that will benefit you. You know that the tax cost of interest paid into the future forever on $1 billion is the same as $1 billion paid currently, when looking forward from today, so you are indifferent between the two options and go along happily enough when the government decides to add the $1 billion to the national debt.

But 30 years from now, in the year 2039, you notice that the tax cost to be incurred into the future for this long-forgotten expenditure is still the full $1 billion, even after you've paid your share of 30 years worth of tax payments on it. And your now-grown children look at you and ask, "We owe $1 billion of taxes for what?"

Because of the roll-over-the-debt-forever policy, the people of the future have to pay enough in taxes to pay for all their own government expenditures and the ones of the past as well.

So the next time you see people say, "The debt's not so bad because we never have to pay it off, we can just roll it over", tell them that rolling it over won't save even a penny of tax ... at best.





What's Paul Krugman got against Pussy Galore?

Paul Krugman yesterday...

... the Republican rump retains enough seats in the Legislature to block any responsible action in the face of the fiscal crisis ...

... the Republican Party has been driven mad by lack of power ...

What’s left is a party whose national committee has just ... released a video comparing Speaker of the House Nancy Pelosi to Pussy Galore....
So why does he think Nancy didn't take that as a compliment?

Puss was smart, strong, professionally accomplished, tough (she could throw James Bond to the ground, and into the hay), a winner, and in the end she was responsible for beating the bad guy. And a woman too!

Democrats can dream of having a leader like Puss! So what's the hang-up?

“They can’t seem to distinguish between a backroom smirk among the boys and something you put out in public,” says former Hillary Clinton senior adviser Ann Lewis of the RNC video ... [Politico]
Oooh, it's that you shouldn't "smirk ... out in public" the name of the female lead character of one of the most popular big-budget Hollywood movies of its generation.

Thus we see Democrats convert themselves into a faux New Victorian Prudery party in an attempt to score a rhetorical micro-point against a routine campaign video. OK, for paid party hacks whose job it is, I can understand ... but don't Nobelists have more constructive things to do with their talents than pretend to be offended by the names of James Bond movie characters?

BTW, here's the shocking video.

The left has given it so much free publicity that the RNC now is planning an entire series of videos starring Pelosi as Octopussy, Honey Rider, Holly Goodhead, Plenty O'Toole, Felicity Shagwell, Alotta Fagina, Ivana Humpalot, and Robin Spitz Swallows, reliable sources report. (Possibly with Harry Reid co-starring as Johann van der Smut.)



Wednesday, May 27, 2009

California collects so much in taxes, how can it be broke? We might ask about New York and New Jersey as well.

California is hosed. Observers agree. It's stuck with a $21 billion budget gap to close, and no good way to close it after voters defeated in a special election a plan by the state's powers-who-are to do so. Governor Schwarzenegger now is thinking ahead now to if he can get a job as the star of Terminated Terminator V. In the meantime he's refurbishing his image by driving around in a SUV powered by vegetable oil.

How did this happen? Commentators running the political gamut from Bill Maher to Paul Krugman say it is because of California's "voter initiatives", in which voters can directly mandate spending programs while, allegedly, blocking taxes to pay for them.

You see, our state is designed to be ungovernable because we govern by ballot initiative, and we only write two kinds of them: "Spend money on things I like" and "Don't raise my taxes."

More money for teachers and firefighters? Check "yes"! High-speed rail? "Cooool!" Drug treatment for former child actors? "Sure, why not?" But don't even think of taxing me for any of it ... [B.M.]
~~~

The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket. Property tax rates were capped ...

Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature ...

... the Republican rump retains enough seats in the Legislature to block any responsible action ... the Republican Party has been driven mad by lack of power ... [P.K.]

Complaints about the voter initiatives sound plausible, and are partly right. The right part is that voter referendums that mandate spending for selected programs while removing them from the control of the legislature do indeed make the state less "governable". But the Maher-Krugman axis of allegation also makes it sound as if California is somehow institutionally inhibited from raising taxes ... and that its crisis results from collecting too little in taxes.

Yet looking at data for state-and-local tax collections for each state as a percentage the income of its residents, one finds...
# 1. New York 8.8%
= 2. California 7.9%
= 2. New Jersey 7.9%
...*
Having the 2nd-highest taxes in the nation seems hard to square with being saddled with a political system that keeps taxes too low -- and having a budget crisis being caused by under taxation.

Another interesting thing about these three highest-tax states jumps out of the data...
Together, New York, New Jersey, and California face some $65 billion in budget deficits in 2009, amounting to more than two-thirds of the budget gaps faced by all 50 states. [City Journal]
Wow. The states with the highest taxes have the biggest budget gaps, by far!

That fact is rather hard to square with the model of state fiscal governance, which we might call the "Krugman/wise politicians/cheap taxpayers" model, that says about fiscal crises:

“The legislature responsibly decides the level of spending and allocates it wisely, but voters refuse to pay enough taxes to cover it, so budget deficits and crises result. If only we can convince the voters to pay more in taxes, budgets will be balanced and all will be well”.

Instead, it looks a whole lot more consistent with the "Milton Friedman/public choice economics/ Bastiat" model of fiscal crunches...

“Special interest groups capture the political spending allocation process and allocate funds to themselves profligately. Taxes shoot up to pay for it, but can’t stay even, as the more tax collected the more the groups spend. In the end, spending is constrained only by the size of the deficit and/or a fiscal crisis.”

In California, the proposition system is indeed a way for special interest groups to capture the funding allocation process. But is there any evidence it has kept total tax collections down?

I can tell you that this "capture, spend, then tax" process is in play for sure here in New York — the #1 tax collection state. Facing an $18 billion deficit this year the legislature decided to ... increase spending by 8% over the prior year (no cuts for us!) and pay for it by imposing 52(!) new taxes -- from taxes on wine, and on consumers' utility bills, and on nuclear plant operators, to new higher top income tax brackets for all.

But surprise! Just one month later they’ve discovered they misjudged — and after all those tax increases the deficit is back again at $3 billion. And now, good gosh, they are saying they may be forced to make some spending cuts. Which model does that sound like?

Here’s one actual example of “capture” in action here in New York State — it’s not as glib as Maher, nor as partisanly vitriolic as Krugman, but factual examples can be more revealing than either glibness or rhetoric.

One of the 52 new taxes is a payroll tax dropped on Dutchess County, 70 miles away from New York City (and on the city's other surrounding counties) to subsidize the NYC subway and bus system, the MTA. Even though Dutchess is an hour’s drive from the nearest subway station.

Why? Because the MTA pays, oh, 150%-to-double market wages (at the time of the last strike its bus drivers made $63,000, compared to average US household income of $45,000; its sales clerks make $24 an hour, etc.) plus full pensions at age 55 after only 25 years of work. And these labor costs are written into state law (say "capture"!) so if Mayor Bloomberg ever wanted to negotiate them down via collective bargaining ... well, legally, he can’t.

The exorbitant cost that results has to be paid from somewhere. Fares can’t carry it, so in recent years the MTA received a share of the city’s property taxes. That was quite a bonanza during the real estate boom — but the MTA consumed it all without saving any, and now the boom has busted, and so is the MTA.

That money now has to come from somewhere else, because that spending sure isn’t going to be cut(!) ... but the political pain of dropping more tax on NYC (merely because it is the city’s transit system being paid for), the highest-taxed place in the nation already, is too high ... someone has to pay ... so it’s Dutchess county, and the other counties around NYC, first, because they’re closest.

Now Bill Maher might say: “If New Yorkers vote to spend so much on their MTA, they have to be willing to pay the taxes that it will cost.”

To which the people in Dutchess County might respond: “Who voted?”

And if up there in Dutchess they start a tax revolt over this (there are mutterings) and a state fiscal crisis ensues ... will Paul Krugman say that it is because New Yorkers don’t pay enough taxes?
~~

* Tax data for 2007, the last year data is not distorted by the recession, from the Tax Foundation, "per capita taxes paid to home state" divided by "per capita income".



Monday, May 25, 2009

From around the blogroll...

Some holiday reading. (If you are in the US. Else, workday reading for when the boss isn't looking):


All you need to know about Obama's 35 mile per gallon CAFE standards, from Keith Hennessey and Andrew Samwick.


All you need to know about "cap and trade" in three short observations by Greg Mankiw, one ... two ... three.


CBO has issued a new report finding that big-time college sports programs seem to actually be being run as commercial businesses, we learn from the Sports Economist. (Gasp! Though a similar thought had been considered here before.)


Make money in real estate the old fashioned way: buy low, sell high. And you'll never be able to buy lower than in Detroit right about now, via Carpe Diem. (Looks like you can put the down payments for a whole flock of houses on a credit card. Start building your empire today!)


Social Security recipients are better off not getting a cost of living increase this year than they are in other years when they do get one (though telling them that gets you hate mail) explains Andrew Biggs.


Hey, how's that $700 billion stimulus working out so far? We get some idea from voluntaryXchange...


... but not to worry, it's not such a big deal anyway, relatively speaking, according to these scary budget charts referred to us by Viking Pundit.




Relief! I am not alone. Somebody else in this world has the same opinion of Nassim Taleb as I do, at Falkenblog. Twice. And of his "Black Swan" too.




Sunday, May 24, 2009

Chrysler announces new hybrid to meet Obama's CAFE standards.

The new Chrysler-Fiat alliance pays its first dividend as Chrysler announces its first Fiat-supplied product: a hybrid vehicle that will help the rejuvinated car maker meet the Obama Administration's newly announced 35-mile per gallon fuel efficiency requirement ...



... the 2010 Flatliner.



Saturday, May 23, 2009

How we fight.

New York salutes the Marines who love New York.


AP photo by David Guttenfelder


Defense Secretary Robert Gates, speaking at a Memorial Day Weekend ceremony at New York City's Intrepid Sea, Air and Space Museum, tells the story:
Specialist Zachary Boyd recently was enjoying a well-deserved sleep when his post in eastern Afghanistan came under enemy attack. He immediately grabbed his rifle and rushed into a defensive position clad in his helmet, body armor, and pink boxer shorts that said “I Love New York”...

Well, let me tell you, the next time I visit Afghanistan I want to meet Specialist Boyd and shake his hand. Any soldier who goes into battle against the Taliban in pink boxers and flip-flops has a special kind of courage.

And I can only wonder about the impact on the Taliban. Just imagine seeing that — a guy in pink boxers and flip-flops has you in his crosshairs — what an incredible innovation in psychological warfare...
OK, that's amusing ... but here's a media presentation that's more serious and well worth taking three minutes to view during this weekend:

Photographer David Guttenfelder, who took the picture, describes the life of the Marines that he has witnessed as an embedded photographer, and how the Marines have changed since 9/11, over a slideshow of his pictures. Watch the whole thing.



Friday, May 22, 2009

We have met enemy, and it is us.

As the United States with its ever-growing deficits, and its even larger "off the books" liabilities, heads on a clear course to having a junk credit rating in 18 years, shall we blame and damn the politicians who keep manufacturing these deficits? For forgetting their duty to protect the nation's future welfare?

Well, yes, of course!

But on the other hand, there's another culprit here as well.

After all, politicians are answerable to the voters ... it is their job to get elected by the voters ... and we the voters have made it very clear to them what we want.

From a Harris Interactive Poll...

A 71 percent to 15 percent majority of adults do not think "it is necessary to increase taxes to reduce the budget deficit". Large majorities of Republicans, Democrats and Independents feel this way.

Even if taxes "had to be raised", very large majorities oppose raising the estate tax (64%) gas taxes (82%), income taxes (81%), the social security tax (83%), and the Medicare tax (87%) [What else is there?] ...

When it comes to cutting government spending, there is little support for cutting any substantial programs. Given a list of twelve federal government programs and asked to pick two which should be cut ("if spending had to be cut") space programs top the list by a wide margin (51%).

Significant minorities, all under 30 percent, pick welfare programs (28%), defense spending (28%), farm subsidies (24%), environmental programs (16%), homeland security (12%) and transportation (11%).

Hardly anyone would cut Medicaid (4%), education (3%), Social Security (2%) or Medicare (1%).

While the programs that are on course to bankrupting the United States are, in order of importance: Medicare, Social Security, and Medicaid.

And there we are, all is explained.

"Democracy is a political system based on the belief that the common people know what they want, and deserve to get it good and hard."
-- H.L. Mencken.

[Hat tip re the survey to the astute John Henke.]



Thursday, May 21, 2009

The shame of the post-9/11 World Trade Center reconstruction site.

Empire State Building was built in 470 days -- from first shovel of dirt turned on January 22, 1930, to the grand opening of the building on May 1, 1931.

We're now going on eight years after the 9/11 attacks, and the site of the former World Trade Center still hasn't even been fully cleared -- the ruin of the Deutsche Bank Building is still standing [.pdf], apparently being cleared square inch by square inch.

And now we have another announcement of yet more delays and cost over-runs. Among them, the new "transportation hub" of the center, bringing subways and PATH trains connecting to New Jersey into it, which was supposed to open in 2006, now has its opening put off until 2014, and ...

There's a 90% certainty that building the grandiose train hall and its infrastructure ... will cost [$4.4 billion] three times the $1.5 billion spent for the original World Trade Center.
Here's a rundown of the delays and overruns so far...

FREEDOM TOWER
Original completion date: 2006, then 2011
Today: End of 2013
Original projected cost: $2 billion
Today: $3.1 billion

DEUTSCHE BANK BUILDING (130 Liberty St.)
Original dismantling date: December 2008, then October 2009
Today: January 2010
Original projected cost: $164 million
Today: $274 million

WTC TOWER 2
Original completion date: 2012
Today: Larry Silverstein projects end of 2014 or early 2015; PA says fully rented by 2026; building could become stump.

WTC TOWER 3
Original completion date: December 2011, then 2012
Today: Fate of building unknown; could become stump. PA projects construction to begin in 2026, completion in 2030.

WTC TOWER 4
Original completion date: December 2011, then 2012
Today: Late 2012 or early 2013
Original projected cost for T2, T3 and T4 combined: $6 billion
Today: Projected $7 billion

WTC TOWER 5 (on site of 130 Liberty St.)
Original completion date: 2012
Today: Abandoned

9/11 MEMORIAM & MUSEUM
Original completion date: 2009
Today: Soft opening, Sept. 11, 2011 (10th anniversary); museum opening, 2012
Original projected cost: $530 million
Today: $610 million, with $90 million contingency

TRANSPORTATION HUB
Original completion date: 2006, then 2009, then 2011, then June 2014
Today: 90 percent chance of missing June 2014 opening date
Original projected cost: $2.2 billion, then $3.2 billion
Today: 90 percent chance of busting $3.2 billion budget, 50 percent chance of costing $3.8 billion, 10 percent chance of costing $4.3 billion

[NY Daily News]

After 9/11 people said, "If we don't rebuild the terrorists will have won."

We've beaten ourselves.



Wednesday, May 20, 2009

From the Wide World of Sport

BRUSSELS -- The Belgian bodybuilding championship has been canceled after doping officials showed up and all 20 competitors fled.

"I have never seen anything like it and hope never to see anything like it again," doping official Hans Cooman said yesterday. He said the bodybuilders just grabbed their gear and ran off when he came into the room.

The sport has a history of doping "and this incident didn't do its reputation any good," according to Cooman. [AP ]


NEW YORK -- A hapless Mets fan tried to make a diving catch when her gold tooth fell into a Citi Field toilet -- and got her arm stuck in the commode.

The unidentified woman's bizarre Flushing adventure happened during last Wednesday's game against the Atlanta Braves, sources said yesterday. It's unclear how long she was trapped screaming in the john ...

At one point, she became more entertaining than the game -- which the Mets lost 8-7 -- as fans gathered outside the bathroom near Section 338 to see the off-field action.

It's unclear if the toilet had to be destroyed to free her. The woman did not recover her tooth. [ NY Post ]


GERMANY -- The world's only male synchronised swimmer is fighting international rules that have banned him from competing at London's 2012 Olympic Games.

Niklas Stoepel, 17, is one of Germany's top youth synchro-swimmers and the only boy in his high school team of girls in Wattenscheid. But swimming's international ruling body FINA has banned him from representing his country and refused to allow him to compete overseas.

"FINA rejected the request. I believe that officials just don't want to see any men in this sport," said Niklas, who shaves his legs and wears women's costumes covered in sequins... [Ananova]






Will the NY Times' disdain of the tax deduction for charitable contributions be changed by its need for charity?


President Obama, as a first step in his plan to increase taxes on "the rich", is trying to cut the top rate at which charitable contributions can be deducted from 35% to 28% -- but has received precious little cooperation from his Democratic Congress on this so far.

The New York Times in a remarkable editorial (that really shows how the Times' brain trust views the world) not only expresses frustration on Obama's behalf, but goes on to suggest that since the deduction reduces the amount of tax money the government gets to spend, maybe the government should direct how private charitable donations are spent ... or better yet, hey, let's kill the deduction entirely!
Philanthropic contributions are usually tax-free. They directly reduce the government’s ability to engage in public spending. Perhaps the government should demand a role in charities’ allocation of resources in exchange for the tax deduction. Or maybe the deduction should go altogether.
Ah, but before staking out that position, perhaps the Times' editors should consider how their employer itself may be moving on from being a figurative charity chase to a literal one.

Figurative, as the Times' stock price over the last five years is down 85% (chart) ... while its first-quarter free cash was down to $34 million ... after a loss for the quarter of $74.5 million ... and against debt of $1.3 billion ... of which $1.1 billion was spent by Times CEO "Pinch" Sulzberger in 1993 to buy the Boston Globe, which is projected to lose $85 million this year.

But most ominously for the Times as we know it, it is a family-controlled business and its payout to the Sulzberger family has dropped 99%, from as much as $425 million per year to $4.5 million. When that happens to a family business, all the cousins who are unaccustomed to such poverty tend to want to get their money in other ways, such as through a sale. See: Wall Street Journal and Rupert Murdoch.

You'll note that many of the links above go to Murdoch's tabloid New York Post, which has been detailing the fall of the Times gleefully...

Desperate to cover $3.1 billion in liabilities and plunging income, The New York Times might use a bailout trick that's worked wonders for other worthy causes -- pledge cash and get a tote bag.

Or a ball cap, T-shirt or even an exclusive sit-down at one of the paper's hallowed Page One editorial meetings where history is made.

Executives at the company have been outlining the pledge strategy to employees as part of their latest rescue effort. It involves leveraging the Times' online content, currently free to all, through various payment schemes. The pledge plan would use a "membership" system ...
Yes, "Times Select", the paper's past attempt to charge for viewing its editorial page and other valuable content, was a dismal failure -- but maybe people will volunteer payment for content if they get a baseball cap or tote bag!

It's no secret that Murdoch would love to compete the Times into the ground, buy it out of bankruptcy, and (absent hanging a Sulzberger head over his mantle) fold it into the Post as a supplement. And, with the Journal working the high end and the Post the low end, he's off to a not bad start. If the Times continues its present course, will there be any way for it to avoid such a fate?

Perhaps by becoming a charity case literally...

why is David Geffen ... now reportedly eyeing The New York Times, so keen on stuffing his portfolio with an investment that seems dead on arrival...?

Geffen declined to publicly comment ... But two people familiar with Geffen's thinking say the answer is simple: an acquisition of the Times wouldn't be a financial investment. If Geffen were successful in landing The New York Times, said one of the confidantes, he'd convert it into a nonprofit institution.

He would regard the newspaper, perhaps the world's most influential journalistic enterprise, as a national treasure meriting preservation into perpetuity. His model would be the ownership structure of Florida's St. Petersburg Times, which is controlled by a nonprofit educational institution, the Poynter Institute for Media Studies ... [Newsweek]
Such a deal would be structured by setting up a tax-exempt charitable trust to purchase the Times, contributions to which would be tax deductible (as with Poynter). The trust would be funded with contributions from David Geffen and his like-minded friends, whom one can safely guess are in the top, 35% tax bracket.

Now, Geffen & Co. have a maximum amount they are willing to pay out-of-pocket to purchase the New York Times. For every $100 they are willing to pay out-of-pocket, with the full charity deduction they'll be willing to contribute $154 to the trust, to pay Pinch and family -- and they'll have a big tax advantage in out-bidding Murdoch (or whomever) who would have to make a competing purchase offer using taxable funds. But without the deduction, they will contribute only $100 per every $100 they are willing to pay.

So with the deduction Pinch & family can receive up to 54% more for their stock in the Times than without.

Should such a deal ever be put on the table, what do you suppose the Sulzberger cousins will all be telling Pinch the Times' editorial position on the charitable contribution deduction should be?

And what will the Times' editors and writers attitude towards the deduction be -- as they consider the alternatives of keeping their current jobs or becoming unemployed and trying to beg a new at one of the local tabloids?

A little bit more respectful, I suspect!



Pinch-o-Meter courtesy of the NY Post.



Tuesday, May 19, 2009

How much did Tammany Hall steal from New Yorkers, in today's money?

A history of the New York City subway system, 722 Miles, explains why, during the closing years of the 19th Century, all proposals to have the New York City government build and operate the city's planned new subway system were summarily rejected by the public and civic leadership, in favor of having private business do the job:

Most opposed municipal [management] as an open invitation to Tammany thievery. Two decades earlier the regime of William M. Tweed, the boss of the Tammany Hall Democratic organization, plundered more than $100 million from the city... In the 1890s the memories of the Tweed ring remained so strong that private, not municipal, ownership was widely regarded as the best safeguard of the public treasury.
That was because while Boss Tweed had long since moved on to make his final deal with his maker, Tammany still lived on.

The loss of that $100 million through theft and, even more so, Tammany's notorious "honest graft", traumatized the city for generations.

Yet today $100 million is barely even noticed amid the cost overruns in the bungled rebuilding of just two subway stations following the 9/11 attacks, at South Ferry and Fulton Street (the latter's cost now up to $1.4 billion, while three years behind schedule so far) -- as evidenced by the fact that virtually nobody in the city cares.

So $100 million must have been one heck of a lot more valuable to the people of the city then than it is today. How much more? What was the scale of Boss Tweed's accomplishment in our terms?

Well ... it's not so easy to say, exactly. To start with, we can use the Bureau of Labor Statistics inflation calculator that adjusts dollar values by the Consumer Price Index.

This only goes back to 1913, but as the dollar was on the gold standard then and in earlier years (back to just after the Civil War) there was no systematic inflation during that time (even a little deflation) ... so the 1913 value can be taken as a rough approximation for the price level in those earlier years. That gives $100 million in Boss Tweed's 1870 dollars as equal to about $2 billion today (maybe a little less allowing for the late 19th Century's mild deflation).

Now $2 billion is a nice haul for any pack of thieves, but hardly seems enough to traumatize a whole citizenry for generations. Bernie Madoff stole a good deal more and we're getting by.

But the CPI's usefulness as an accurate price measure diminishes over time, and over a spread of time as long as this it becomes functionally meaningless, due to several factors. In ascending order of importance...

[] Substitution. (The least important factor, so of course the one that consumed the most class time when I took my econ courses, probably because it is the one most readily handled with the type of math used in exam problems). Suppose that consumers are indifferent to consuming apples and oranges, and they both cost the same, so the CPI "basket of goods" contains equal amounts of both. Then say the price of oranges rises for some reason (perhaps there's a poor crop simultaneous with a surge in demand for industrial use). The "apples & oranges" component of the CPI will show a price rise (inflation!) but in fact consumers will just shift from buying oranges to buying apples and be just as happy, suffering no loss to inflation at all. The more time passes, the more substitution occurs.

[] Quality improvements. As goods at a given price become better quality they become cheaper per dollar paid for them. There are countless examples, from computer processing power increasing via Moore's law to milk becoming homogenized, fortified with vitamin D, and containing all the other enhanced benefits the derive from being produced by genetically enhanced super-cows.

The BLS tries to keep up with this when computing the CPI, but as the general rule is that in a competitive economy all products improve in quality, it's really impossible. William Nordhaus argues that omitting improvements in the quality and cost of lighting [.pdf] by itself has historically distorted the CPI.

[] New products. I'm old enough to remember when cell phones cost $1,000 plus $10 a call, and were as portable as a brick. By 2000 or so they'd dropped in price and improved in quality to the point were my wife sometimes couldn't find hers in her purse and would have me, standing beside her, call her from mine to help her find it and dig it out. During most of those years, as millions of users came to own cell phones, they didn't even exist in the computed CPI.

But before improvements in a good's price or quality can be reflected in the CPI, it must be treated as existing! Arguably, from 1983 to 1999 the CPI was significantly distorted just by the omission of cell phones from it. But countless new products are introduced in the market every year, the BLS can never account for all of them. As with cell phones, it can only identify and start accounting for the most important ones years after the fact.

[] Growth of the economy. For many purposes this is the most important factor. Imagine wanting to determine the cost of, say, the Manhattan Project in today's terms. Even if you had an accurate "inflation adjustment" to give its dollar-figure cost in today's dollars, this would understate its true cost greatly, because true cost can be determined only relative to income (or wealth). Today's economy is about six times larger than that of the 1940s, so true cost in the 1940s would be about six times larger than the "2009 dollars" number indicates, in terms of the portion of total national income needed to pay for it.

Lots of different income/wealth numbers grow with the economy. Deciding which is best to use when making an historical cost comparison depends on the type of cost one is looking at. For a "national" cost such that of Apollo moon landing, fighting World War II, or the Credit Mobilier scandal in building the transcontinental railroad, GDP might be best. For consumer expenditures, one might look at the average wage of the time.

Is this historical data readily available? Yes! The good people at Economic History.net have an online calculator that produces price comparisons using now fewer than six different measures: the CPI, GDP deflator, "consumer bundle", unskilled wage rate, GDP per capita, and GDP (see its explanations at the link).

So, for instance, the Manhattan project cost $2 billion (we are told by Wikipedia). By CPI this translates to about $25 billion in 2009 dollars -- but by share of GDP it equals $130 billion. Serious money.

But back to Boss Tweed ... just how successful were The Boss and his Tammany minions at using fraud and "legal graft" to extract resources from New York City?

In terms of adjusted consumer prices the EH.net calculator tells us $100 million in 1870 dollars equals $1.7 billion in 2009 dollars. But again, in terms of 2009 dollars everybody was much poorer then, and the entire United States economy was only a small fraction of its size today.

Since Tammany's takings were a cost extracted from the government, it seems fitting to look at them in terms of total national resources, as a percentage of GDP, the portion of total national production lost to their corruption. And the figure the EH.net calculator gives us for that is ... $184 billion.

That is, in terms of total national production, the Boss and his Gang took from New York City alone 40% more than the entire United States spent on the Manhattan Project during World War II.

Hey, we can see why the taxpaying members of the local Chamber of Commerce would remember that for a while!



Monday, May 18, 2009

Around and about

Charlie Munger, Warren Buffett's partner who gets a lot less publicity, gives one of his rare-ish interviews.


"As California goes, so goes the nation", goes the saying. If so be afraid, be very afraid, as per this picture of the left-side state's politics in the Economist.


Don't tell Obama or he'll demand that Chrysler sell it here!


Some people really stretch themselves to succeed in politics.


The smart bra! "Are you happy to see me? Or ..." Um ... I can't think of a follow-up line.


Longest place name spelt wrongly

Embarrassed US officials have been forced to admit that they have been spelling Lake Chargoggagoggmanchauggagoggchaubunagungamaugg wrongly for years...



... The local Chamber of Commerce will now attempt to find out who painted the signs in the first place, and get them to correct them ... [Ananova]





Sunday, May 17, 2009

Suppose they imposed a tax and nobody paid?

OK, it's not like this has never happened before, but here's another entertaining example of local politics in action.

New York City's Metropolitan Transit Authority, best known for running the subways but which also runs the local buses and commuter trains, is staggeringly broke. (Largely from consuming away, rather than saving, a huge subsidy it received from city property taxes during the real estate boom, which subsidy now has effectively disappeared.) So it needs a whole lot of new revenue.

A fare increase large enough to cover the financing gap (one of about 35%), that would drop more of the cost of transit service on those who most benefit from it (its users!) was a non-starter. "Fare politics" has been infamous in New York City for over 100 years (often called "the third rail" of city politics). The MTA's finances are famously opaque, but the MTA says fares cover only 42% of operating cost. The rest comes from tolls imposed on drivers and various government subsidies.



Moreover a big fare increase would risk focusing riders' anger on the fundamental causes of the problem, the MTA's epic mismanagement and (not unrelated) bloated, above-market paid work force that is politically protected (by political patronage at the top, municipal unions the rest of the way through). The MTA is a quasi-independent agency, so no politician has the power to discipline it -- they have to simply pony up when it asks for "more, more". But I digress into causation....

The solution that the politicians dithered and delayed and stalled until the last minute before finally hitting upon consists mainly to two new taxes:

(1) A new payroll tax on all employees in New York City and surrounding counties, who presumably benefit from the MTA's operations. (Employees of public school districts are the only workers exempt from this tax, in case one wonders who has influence in state politics.)

(2) A 50-cent charge added to each taxi fare in the city and surrounding counties, to be collected by the state tax authority. This makes sense, say the politicians: Taxis compete with subways and buses ... we want people to take public transport ... this prevents public transport from being disadvantaged to taxis as a result of the modest, less-than-inflation-matching fare increase of 10% that's part of the deal. (The current $2 fare was adopted in 2003. An inflation-matching hike would be 16%.)

Well, a tax that makes sense in theory is well and good ... but a tax must be collectible too. The payroll tax is no problem, all employees already pay payroll tax, so this is just added on to it. But the new "taxi trip tax" is something of an issue!

Taxi drivers don't pay any current business tax to the state tax authorities, so there is no existing mechanism to pay/collect this tax -- taxi drivers just tally their net income at year end and report it to the IRS and state tax collector by April 15th, as everyone else does. Taxi companies tend to be small, one-person or few-person businesses (at least outside of Manhattan) that may come and go, so there is no easy way to monitor them. Taxi driving is a cash business -- like pizzerias and bars and laundromats and hot dog stands -- and cash businesses tend to greatly under-report their income (by about 40% says the IRS ) because they know there is no cost effective way for the tax collector to verify their income and enforce the tax due on it.

So how are the politicians going to save the subways by collecting their new "taxi trip tax"?

[] By spending years and many millions of dollars to develop a new computerized system, staffed with an attendant bureaucracy, that will download the number of trips each taxi takes directly off its meter -- to tally up 50-cent charges?

[] By mailing out new tax-reporting forms and telling taxi drivers: "Now you count up all your trips and self-assess this tax honestly, you hear? Remember, we have high-paid auditors and they're good at their jobs -- and we'll be taking them off audits of banks and corporations and millionaires, to audit a fair sampling of all of you and your 50-cent charges!"

Mayor Bloomberg opines...
The [Legislature] is collecting 50 cents a ride from the taxis. I don't know how you're going to do that because you're going to depend on these people to pay. That's not likely ... They could charge $1 every time you take a shower. Who knows?" [NY Post]

It's an issue. But it's par for the course in a world of politics where, as Bastiat put it, everybody tries to live at everybody else's expense, and feels entitled to do so.

When living (or riding the transit system) at somebody else's expense, you don't particularly care how much money the other people pay or how efficiently it is spent -- as Milton Friedman memorably explained (on video) -- as long as you get what you want. The result is epic mismanagement and organizational bloat ... and a continuing need to drop the ever-rising cost that follows on ever more "other people".

So now workers in Dutchess County, 80 miles north of New York City, are impressed into paying a payroll tax to subsidize the New York City subway system ... and the tax net newly snares taxi owners aross the entire metropolitan area ... while the riders of the subway system themselves emerge from the "crisis" paying a fare that doesn't even keep up with inflation.

And to think ... one hundred years ago the subways were built ahead of schedule and under budget, and their trains ran clean and on time between chandeliered stations designed and decorated by the likes of Stanford White, as one of the urban marvels of the world. While being run by private-sector operators who charged riders a 5-cent fare -- $1.25 inflation-adjusted to our money -- that paid for everything, including financing the entire system's construction, and the operators' profit too.

Ah ... those were the days.





Saturday, May 16, 2009

Fiat is going to save Chrysler, eh?

The Obama-directed bailout/bankruptcy of Chrysler has a problem: what is this company supposed to sell that consumers will want to buy? So that, you know, the billions of taxpayer dollars put into Chrysler won't be a total waste, and the members of the UAW will happily keep their jobs.

The Obama Administration has an answer: Fiat cars. It told Chrysler, make a deal with Fiat or else. And of necessity it did. Without putting any money into Chrysler, Fiat becomes a 20% owner of it, with options to take its ownership to 55%. Because Fiat has the kind of cars to sell here that the American consumer Obama Administration wants.
"For too long, Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable, and less fuel-efficient than foreign competitors ..." Obama said Thursday, announcing both the Chrysler partnership with Fiat and what is hoped to be a surgical bankruptcy for Chrysler. [McClatchy]
And who better to provide a line of more popular, more reliable and more fuel efficient cars than Fiat? As one of those very foreign competitors, it must be good at delivering that type of high-quality car that Chrysler failed to compete with.

Maybe ... The question is considered by Consumer Reports....

For those Americans who recall when Fiat cars were sold here, the brand made a less-than-stellar impression ... Fiat was sometimes referred to as “Fix It Again, Tony.” A lot can happen in 30 years, but don’t get your hopes up.

For insights, I turned to the 2008 Brand Reliability Index from Which? Car. The annual Which? Car survey is the largest survey of its kind in the U.K., and it is conducted by a publication that, like Consumer Reports, does not accept advertising and delivers the straight facts from its findings ...

For its reliability study, Which? Car looks at models up to eight years old, thereby often reporting on years of experience with a given vehicle. Their survey tallies serious breakdowns, unscheduled repairs, and minor problems...

Among the 38 brands featured in Which? Car, Fiat ranked 35th, followed by Renault, Land Rover, and Chrysler/Dodge ... Fiat, Chrysler, and Dodge are categorized as “Very poor.”

In total, Fiat, Chrysler, and Dodge provide similar reliability, and it isn’t good ...

When Daimler-Benz bought Chrysler in 1997, it was billed as “merger of equals.” The Chrysler and Fiat deal seems to fit that description better.

Or maybe not.

Whatever the quality of the cars that finally get here, Obama has made it a priority in this deal for Fiat to produce a 40-mile-per-gallon car for Chrysler to sell in the US. "Small, fuel efficient, low emission" ... I suppose that's all well and good.

But considering the $12 billion the government is providing to Chrysler, personally I'd be much happier if Obama said his goal for the new Chrysler is to produce cars "that are popular with the public and profitable to manufacture", with all the other adjectives set aside.

". . . at some point, some [Obama auto] task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals." [NY Times]
OK, I suppose any cost is worth it to save the real American-owned auto industry.
"If you are considering buying a car, I hope it will be an American car," the president said, not mentioning that Chrysler aspires to become a foreign-owned U.S. manufacturer like Toyota, Nissan and Honda ... [McClatchy]




Friday, May 15, 2009

Seen around and about...

"The butterfly flaps its wings..." And sometimes the chicken does too. How the "chicken export trade war" of the 1960s helped doom the US auto industry in the 21st Century, as told by Dani Rodrik.


The Mob ain't what it used to be. Victoria Gotti, daughter of the late Gambino family crime boss John Gotti, and her kids are about to be kicked out of their home as the bank forecloses on her for not making a payment in two years on her $650,000 mortgage. "A four-judge panel of the Brooklyn Appellate Division has granted the lender's motion for summary judgment", reports the NY Daily News -- and not one of those judges is wearing cement galoshes (or whatever) yet! "The mansion ... was prominently featured in the A&E reality TV series 'Growing Up Gotti.'" Oh, gawd, what would Meyer Lansky think?


Yahoo! closes Geocities. In 1999 the bright minds at Yahoo! keenly foresaw the coming popularity of personal web pages. So they bought the start-up Geocities, which facilitated creating them, for $4.7 billion. Alas, they didn't foresee the "blog". Another reminder that when it comes to predicting the future, nobody knows nuthin', it's all guesswork. Let's see, $4.7 billion to zero in 10 years is a loss of $470 million a year. Wait a minute, I want to make sure .... yup, it's gone. PC World offers a eulogy.


John Edwards' presidential campaign staff was prepared for doomsday. They reportedly had a "doomsday strategy" ready in case it began to look like their man was going to lose to win. [ABC] "Does Hillary appreciate that still?", Kaus wonders. (It reminds one of a political campaign version of The Producers. The campaign staff can win as long as their candidate is losing, but if he actually starts to win they have to blow him up.)


Zimbabwe misses out on the hyper-inflation record. It's inflation rate reached 489 billion percent in September 2008. Sounds impressive, but it wasn't even close to the record...
... between October 1993 and January 1995, Yugoslavia, which then consisted of Serbia and Montenegro, suffered through a hyperinflation of five quadrillion percent. (That’s 5 followed by 15 zeroes.) Hungary’s inflation in 1945 and 1946 may have hit four quintillion percent ... [WSJ]
... and now the Zimbabwe dollar has vanished from circulation, replaced by the US dollar. Mugabe put his people through that hell and they won't even have the solace of a mention in the record book.



Thursday, May 14, 2009

"Rising health care costs" are not the cause of the coming fiscal crisis. 

The 2009 Trustees Reports for Social Security and Medicare are out, and the news is not good. Details will be discussed later. But already the left side of the polito-sphere is applying its spin to them, most succinctly by Robert Reich...
Social Security is a tiny problem. Medicare is a terrible one, but the problem is not really Medicare; it's quickly rising health-care costs.
These statements are false, false and false.

First, let's quantify how "tiny" the Social Security problem is:

The Trustees say that the cash flow expense of Social Security benefits will increase as a cost against general revenue by 1.9% of GDP from 2007 before stabilizing around 2040. This reflects a change from contributing 0.6% of GDP to general revenue (the surplus) to being an expense against it of more than 1.3% of GDP (to service the Trust Fund) in 2030 and later.

(2007 is taken as the base year because it is the last in which numbers weren't temporarily --we hope! -- distorted by the recession. Measured from 2009, with its recession-reduced payroll tax revenue, the future general revenue cost of Social Security rises by "only" 1.43% of GDP ... from a starting point of a $1.8 trillion deficit!)

How "tiny" is a 1.9% of GDP hole in the budget? And the revenue increase needed to plug it?

Well, the 1993 Clinton tax increase amounted to 0.83% of GDP, only about 40% as large. And that was able to pass the Democratic-controlled Senate only on vice-president Al Gore's tie breaking vote, and pass the Democratic-controlled House by only 218-216 (a single voter's difference).

The tax increase needed to stay even with Social Security is 2.3 times as large. A Clinton tax increase 2.3 times as large would never have gotten anywhere near the floor of Congress.

In 2007 total income tax collections (personal and corporate) were 11.2% of GDP. So increasing taxes by 1.9% of GDP to stay even with the cost of Social Security would require a 17% across-the-board income tax increase on everybody (including retirees).

Anybody who uses the word "tiny" to describes 1.9% of GDP hole in the budget, requiring a 17% across-the-board income tax increase, is trying to sell you a bill of goods. No tax increase close to this large has been enacted since the end of World War II. [.pdf]

Next ... Medicare. Is it true that the budget problem "is not really Medicare", but only the rising cost of the medical expenses that Medicare pays?

No, the problem is Medicare at today's level of expense. Just as Social Security's cost will surge by 2030 due to the fast-rising number of retirees, so Medicare will experience the same surge in cost due to the same fast rising number of retirees, totally apart from any increase in the csot of medical services.

Total spending on Medicare is projected to more than double from 2007 to 2030, from 2.7% of GDP to 5.9% of GDP -- and more than half of that increase is due to increasing number of retirees getting benefits at today's level, not increasing cost for medical procedures.

I'm going to skip exact numbers here to go right to a visual aid provided by the Obama Administration that summarizes all this.



This chart, from the new Analytical Perspectives On The Budget, shows just how much of future rising budget costs will be due to increasing number of retirees versus increasing cost of medical services, in the estimation of the Obama budget office.

Look well. See that the claim by Reich and others of the left that the coming budget crisis is due to "quickly rising health-care costs" is true only after the 2040s, more than 40 years from now!

I've drawn a verticle line on the chart at the year 2030. At that point "aging population" dominates the increase in costs by just as much as "growth in health care costs" does in 2079.

Why did I put that line at 2030? Because at that point already a 50% income tax increase (or the equivalent, such as a new national sales tax) will be required to stay even with the costs of Social Security, Medicare and Medicaid.

And hard, cold, political reality is this: there is not a chance on this green Earth under our shining Sun that a 50% income tax increase on everybody, individuals and businesses (or some equally dramatic tax-raiser such as a new national sales tax) will be enacted without major cost-controlling re-writes being legislated into these programs as part of the bargain -- making projections of far-distant medical expense in the 2050s, 2060s, 2070s, totally moot and meaningless.

We have precedent. In 1983 Social Security ran out of money, and Congress then closed the funding gap it faced for coming years half with tax increases and half with benefit cuts. It will do it again. On a vastly larger scale. So much for benefit projections after then!

The fiscal crisis is going to come in the 2030s ... it is going to be dominatingly due to the growth in the number of retirees (not any increase in the cost of medical procedures) ... which means due to Social Security and Medicare as they are today ... and that crisis will drive the major reform of these programs. What the world will be like after that, we have not a clue.

To paraphrase Butch and Sundance, there's no point in worrying about not being able to afford the 2070s, because the 2030s are going to kill us.

These facts speak for themselves. For Reich and those on the left like him to go into simple denial about all this is plain disengenuousness.

Why do they do it? Purely as a political strategy to frame issues for the next election or three. The political objectives of the left are:

(1) To keep Social Security exactly as it is, for political reasons, whatever problems may be coming down the road at it. (Since it would be very bad politically for Democrats to go to the AARP and say, "You know, all those things we've always told you about Social Security, they aren't exactly true.")

(2) Enact national health care.

The framing sleight-of-hand: "Look at those huge long-run medical expenses in the 2060s and 2070s. See how they drawf Social Security's problems in the next 20 years" ... leads to: "So why should we bother doing anything at all about the tiny problems of Social Security, when we can be enacting national health care to control rising medical costs!" (As much as a non-sequitor as that last phrase is.)

But it won't work in the end, because that 50% income tax increase coming at us will be clearly visible to everybody, left and right, in the 2020s, about 15 years from now. And the program cut-backs needed to get those tax hikes enacted will be plainly visible too -- Reich and the left won't be able to deny and call these problems "tiny" any more. Lucy-like, they may even have some 'splaining to do to the voters.

What if Congress doesn't increase taxes or cut retiree benefits by 2030, but just lets things roll along? S&P projects the credit rating of the US in that scenario in the chart below. That's by 2027 -- which is even before 2030. That's how "tiny" the non-"rising health care costs" of entitlements are!

(Well, at least we'll have the consolation of watching the French go off the cliff first if they don't wise up any more than we do.)

Hat tip to Andrew Biggs, former Deputy Commissioner for Policy of the Social Security Administration, for the chart above. He has a lot more to say about all this and the Trustees Reports. He has a few words of his own about Reich too.


In The Long Run, We Are All Debt: Aging Societies And Sovereign Ratings







Take me out to the ball game, III

The Yankees' problems selling tickets at the New Yankee Stadium has been noted. Even after slashing ticket prices!

Maybe that's because it's still cheaper to fly from New York to Seattle and back to catch a game there than it is to take the subway and go to a home game at the New Stadium.

Gary Cicio, NYC podiatrist, did the research, and asks us to choose one of the two options to see a Mariners-Yankees game this season, and from the very best seats:

Option 1: Two tickets to Tuesday night, June 30, Mariners at Yanks, cost for just the tickets, $5,000.

Option 2: Two round-trip airline tickets to Seattle, Friday, Aug. 14, return Sunday the 16th, rental car for three days, two-night double occupancy stay in four-star hotel, two top tickets to both the Saturday and Sunday Yanks-Mariners games, two best-restaurant-in-town dinners for two. Total cost, $2,800. Plus-frequent flyer miles. [NY Post]
OK, what do you do if revenue is coming in short? It's Spring, the weather is nice ... have a yard sale! Heck, sell off the yard too, square foot by square foot, and the entire old "Classic" Yankee Stadium it was in!

Fans can now own a piece of the old Yankee Stadium starting today when collectibles from the famed ballpark hit the auction block.

The Internet auction, run by Steiner Sports, entitled the "Yankee Stadium Legends" will close on July 24 and features 1,500 items.

Pieces of baseball history that you can own! ...

Men's room sign .... $250.

Women's room sign ... $250.

Turnstile ... $2,000 opening bid

Seats ... $749 to $1,999 (but with no game to watch)

"Notice: Bleachers are now alcohol free" sign ... $500

Infield dirt in a crystal paperweight ... $80

Piece of sod, one foot square ... $120

"No autographs" sign ... $250

"Limit 4 beers per person" sign ... $200

(Urinals ........................ ???) .... [NY Post]

And so much more.

Do your bit to save baseball in the Bronx.

Help bail out A-Rod's salary! Start buying now!





Wednesday, May 13, 2009

Now we know why Krugman wouldn't take Mankiw's bet

Greg Mankiw after he questioned the Obama Administration's economic growth projections as being overly optimistic and Paul Krugman slammed him for it:
Wanna bet some of that Nobel money?

Paul Krugman suggests that my skepticism about the administration's growth forecast over the next few years is somehow "evil." Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?

Team Obama says that real GDP in 2013 will be 15.6 percent above real GDP in 2008. (That number comes from compounding their predicted growth rates for these five years.) So, Paul, are you willing to wager that the economy will meet or exceed this benchmark?
Krugman's response:
[... silence ...]
Now we know why....
Paul Krugman Says Rapid Recovery ‘Extremely Unlikely’

May 12 (Bloomberg) -- Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today...
Krugman shooting at Mankiw then:
when unemployment is high, it tends to fall. And together with Okun’s law, this says that yes, it is right to expect high growth in future if the economy is depressed now.

How can you fail to acknowledge that there’s huge slack capacity in the economy right now? And yes, we can expect fast growth if and when that capacity comes back into use.
Krugman as quoted yesterday:
"The market seems to be looking as if this is going to be an average recession, but it’s not ... Everything says that’s wrong, that this is going to be a sustained period of weakness."
Another circle to square. Score 1-0 in the imputed wager market.




Hydrogen car, we hardly knew ye.

The Wall Street Journal informs us...

OBAMA BUDGET CUTS FUNDING FOR HYDROGEN CAR

President Obama’s proposed 2010 budget calls for cutting funding for [developing hydrogen car technology] as part of an effort to shift to technologies “with more immediate promise”...

Six years ago, President Bush called for new federal funding for research into how to produce and distribute hydrogen and then store it in tanks so it can be used in fuel-cell-powered cars.

"Our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom so that the first car driven by a child born today could be powered by hydrogen and pollution-free,” Mr. Bush said in his 2003 State of the Union address....

Patrick Serfass, a spokesman for the National Hydrogen Association in Washington, expressed disappointment with the administration ... "We think it’s a mistake. The National Research Council has been advocating a portfolio approach to vehicle technologies ... It’s too early to pick technology winners and losers.”

Which is exactly what Obama's people are doing (using the Ouija board) in determining today what will be the best technology of a generation from now, to invest taxpayers' money in it today. But what else is it going to do?

If it's the government's job to provide the technology of the future, well, it certainly doesn't have enough money to go around for everything. (And it's not going to get any credit for itself by sticking with the prior administration's choice of technology of the future). So it has to make a choice, as the WSJ notes elsewhere...
The Obama administration’s about-face on hydrogen cars appears to amount to picking a winner.

Why is hydrogen a non-starter even as biofuels are getting more love from Team Obama? Energy Secretary Steven Chu’s rationale for killing the hydrogen program fits squarely with the administration’s embrace of pragmatism:

“We’re going to be moving away from hydrogen-fuel cells for vehicles,” Chu said. “We asked ourselves, is it likely in the next 10 or 15, or even 20 years that we will convert to a hydrogen car economy? The answer, we felt, was no.”

But doesn’t that apply equally to electric cars, or the hope that massively increasing the use of biofuels will lead to energy independence? And both of those transportation alternative are getting more, not less, funding in the federal budget.

If hydrogen’s murky future is just a question of cost, as Dan Sperling of the University of California’s Institute of Transportation Studies pointed out, the government has an easy remedy to hand: Just channel the billions of dollars a year in biofuel subsidies toward a hydrogen-car infrastructure. ...

In short, the federal government seems to be getting into the business of picking winners.
After all, the government is so good at this!

President Nixon called for a low-emissions car in 1970. Jimmy Carter urged the reinvention of the car in 1977. The Clinton administration started the “Partnership for a New Generation of Vehicles” in 1993. President Bush launched the FreedomCar project in 2003.
(Let us not consider the possibility that the government will make the wrong choice, not only costing the taxpayers billions of dollars but also, by misdirecting resources and directing government support for a "loser" technology, setting back the adoption of future technologies that prove superior. Say: Carter Administration, Synfuels Corporation.)

What better alternative is there? Let the free market figure it out, on the dime of investors, not taxpayers?

How would politicians take credit for that?



Tuesday, May 12, 2009

Bank "stress test" results revealed:






Monday, May 11, 2009

Budget hawks lament: Politicians won't make "hard choices" to cut the deficit.

But, uh ... What hard choices?


Budget hawks, who for some reason had high hopes that Obama and the Democrats would bring fiscally responsibility to government after their sad experience with Bush and the Republicans, are becoming filled with angst.

The latest cause is not that last week Obama's much ballyhooed new spending cuts amounted to only a sub-token figure of $17 billion -- less than 0.4% of the 2009 budget that's surged to $4 trillion, and only 0.9% the 2009 deficit that's exploded to $1.85 trillion (by far the largest deficit the nation has incurred since it was fighting World War II) .

The cause is that the Democratic Congress instantly rejected even those trivial cuts...

DEMOCRATS ASSAIL OBAMA'S HIT LIST

President Obama's modest proposal to slice $17 billion from 121 government programs quickly ran into a buzz saw of opposition on Capitol Hill yesterday, as an array of Democratic lawmakers vowed to fight White House efforts to deprive their favorite initiatives of federal funds.

[example ... example... ]

Rep. Maurice D. Hinchey (D-N.Y.) vowed to force the White House to accept delivery of a new presidential helicopter Obama says he doesn't need and doesn't want. The helicopter program, which cost $835 million this year, supports 800 jobs in Hinchey's district. "I do think there's a good chance we can save it," he said.... [etc.] [WaPo]
"Congress still refuses to make hard choices", complain the budget-watch groups. EconomistMom (who works for the Concord Coalition but blogs independently) writes...

A Test in Not-So-Hard Choices First

... If Congress is not willing to support even these cuts -– given the demonstrated low net-benefit of these small programs and given the President’s recommendation/ blessing on these cuts -– then how are they supposed to go along with the really tough choices ...

Yes, yes, surely it seems like Congress is failing the "hard choice" character test yet again. But wait a moment....

Congress has been failing this character test for decades now -- at least since the early days of the Clinton Administration when it became clear that a massive fiscal crisis is coming around the year 2030 unless the long-term budget is seriously overhauled. One budget character test after another it has failed, big and small, over and over, year after year. Just like this one.

But can our elected Congress really be so completely devoid of people with character? I don't think so. And if for a generation Congress has made the same choice over and over, doesn't logic suggest that perhaps that choice is not "hard", that it's actually easy? Let's look at this choice a bit closer:

Suppose someone went to EconomistMom and said: "Diane, the deficit is huge, the debt is staggeringly large and growing only more so, the country is heading for fiscal crisis in 20 years. All dutiful, responsible Americans will want to stop this. So we propose that you and your husband voluntarily accept losing your jobs and becoming unemployed, so that your employers can donate your full salaries to the IRS to reduce the national debt. This will surely create hardship for you and your children. But you will help avert the coming fiscal crisis, as 20 years from now your responsible action will reduce the national debt by 0.000...01% "

I am reasonably sure that if offered that proposition she would reply: "No thank you. My husband and I have responsibilities to ourselves to lead constructive lives, and even more so responsibilities to our children. We prefer to keep our honest jobs. Goodbye now."

And I'm also fairly sure that would not be a hard choice for her to make! It might be one of the easiest of her life.

Yet budget hawks put that exact same choice to Congressman Hinchey -- that he should unemploy 800 people in his district, and very likely himself as #801, while receiving zero reward in return -- only to maybe create some very, very, small benefit for the nation some decades from now. When he refuses to go along, they lament that he lacks the character to make tough choices.

But it's not a tough choice for him, it's easy, and character has nothing to do with it.

What's failing in this situation is not Congressional character but Congressional incentives. The degree to which an economy is productive and efficient, and to which governance is productive and efficient, is determined by incentives, incentives, incentives.

Capitalism works better than any other economic system because it does the best job at providing incentives that — in the famous example of Smith — align the self-interest of the baker with the interests of those who buy his bread. With interests aligned, the baker provides good bread at a good price to benefit himself.

Democracy works as well as it does, when it works well (or in the words of Churchill, not so well but better than the alternatives) because it provides incentives that roughly align the self-interest of politicians with the interests of their constituents. With interests aligned, the politicians pass laws that benefit the polity to benefit themselves.

But in the political world we’ve entered of big government spending -- on a scale such as politicians through all history up to 60 years ago never dreamt of -- with politicians acting to get votes for the next election by making commitments that may stretch decades into the future ... there is zero incentive, absolutely none, aligning the self-interest of today’s politicians with the interest of future generations in sound long-term fiscal policy.

To the contrary, today's politicians face strong and clear incentives to loot the future for current gain -- and people always follow their incentives!

In capitalism, “owners” of property and businesses have a strong incentive to maximize the long-term, future value of their assets because it is reflected in their current capitalized value -— their wealth. So they have a powerful reason to counter efforts by others (from union workers to CEOs, and outsiders as well) to loot the value of their assets and businesses for short-term gain.

But in politics nobody has that long-term interest in protecting the future. Everything is to win that next election in two years. And then there is another in another two years ... and another ... No politician is on the hook for costs that land on the future, as capitalist “owners” are. No politician gets a reward today for improving the future, as capitalist owners do.

This is the real problem, and as far as I can see it has been totally neglected by budget-watch groups such as the Concord Coalition, Peterson Foundation, US Budget Watch and others. These groups provide good educational material, show what the future will be if we stay on our present course, and finger-wave about the politicians' fiscal irresponsibility.

But to be frank they have failed -- the fiscal situation has gotten much worse in spite of all their efforts -- because they have proposed nothing at all, zilch, that addresses the fundamental problem of giving Congressmen like Hinchey a reason to cut spending today for the sake of the future, an incentive to do so that works through the political system.

Without that, no amount of hand-wringing about fiscal irresponsibility or lamenting over Congress's insufficient character to make "hard choices" is going to change a thing.

Politicians elected to Congress do not see themselves as running a charity for the future through which they sacrifice jobs in their districts —- their own jobs, not least —- today for the sake of “a better world tomorrow”.

The goal of the "budget hawks" should be to develop self-interested reasons for Congress to bring the budget in line, and political rewards for it if it does. Incentives.

Without doing that, all the effort they put into their concerns is a waste. They should spend their energies on something else.

Because Congress will finally feel a real political incentive to bring the budget into order only in the late 2020s, when it will be forced to raise income taxes by, oh, 50% or so (and feel the incentive of the taxpayers' wrath). Not a day earlier. In spite of all the futile efforts of all the budget watch groups over the prior 30 years.

So, hey, budget watch groups, don't waste 30 years! Let's put some research into developing political incentives towards fiscal responsibility that politicians will feel! Let's create some "hard choices" for them for the first time.