Investment

On NPR this morning, they were interviewing Republican congressman Mike Pence. When asked about the characterization of the stimulus package as “investment” he had this to say (from memory):

Well, when a farmer takes out a loan for a combine, he doesn’t have his children sign it.

No, he doesn’t, but he does expect to derive a net benefit from the purchase and to share that benefit with those children. Do you know what “investment” means, Mr. Pence? It means spending now to get more later. I seem to recall hearing a lot about how growing the economy would also increase government revenue and decrease deficits, back when the popular (but incorrect) view of how to grow the economy meant cutting taxes and gutting regulation. The part about the relationship between the economy and revenue still holds, even though there are now some different opinions about how to grow the economy. It’s not like stimulus spending is supposed to be permanent. We’ll still be paying for the Iraq war long after stimulus spending has ended, and those tax cuts so beloved of your party were supposed to be permanent. Talk about mortgaging our children’s future. Investment now is supposed to result in our children being better off than they would be without it. Why don’t you want our children to be better off?

It’s very nice of you to admit that the Republicans “fundamentally failed” in their duty to exercise fiscal discipline during better times, Mr. Pence, but that only raises the question of why we should expect Republicans to do any better if/when they’re given another chance. It’s easy to talk about how things should be done, when you bear no responsibility for actually doing them, and are not accountable for the results of what is done. When you actually did have that responsibility you failed, and you were held accountable. Actions speak louder than words, Mr. Pence, and your party has not acted as the party of fiscal responsibility. Indeed, you’ve shown a propensity for spending way too much on the wrong things and way too little on the right ones. That’s why nobody trusts you any more. If you want to regain trust, start acting like you care about our future. Stop being obstructionist, stop setting records for filibusters and threats of filibusters in the Senate, start proposing something other than the policies that have already been tried and shown to fail.

The Role of Markets

I heard a quote from Gordon Brown the other day, which I felt was worth sharing.

And the truth is that the virtues that all of us here admire most and the virtues that make society flourish – hard work, taking responsibility, being honest, being enterprising, being fair – these are not the values that spring from the market; these are the values we bring to the market.

I’m slightly abashed to admit that I don’t really know enough about Gordon Brown or his policies to say whether I agree with him generally. I’m not even sure I agree with all of what he said in this particular speech, but I absolutely agree with the part above. Markets can not (and should not and do not) define our values; all they can do is reflect our values. Values go in, not out. Anybody who allows their values to be shaped by the market is really allowing those values to be shaped by the market’s dominant players. They’re the ones who brought a gamblers’ or a cheaters’ values to the market, and we’ve seen where the “Bigger Numbers are the Only Good” attitude gets us. Markets are a means to an end, but we define what that end is. We should choose wisely.

Thought Experiments Require Thought

I enjoyed Freakonomics (the book) quite a lot, but Freakonomics guest blogger Daniel Hamermesh does a pretty good job of blurring the line between economic inquiry and outright crackpottery. I first noticed his predilection for the latter when he tried to tar everyone who doesn’t agree with his own extreme views (which he tries to reify as “standard analysis”) as an incentive hater (i.e. communist). Then he made the absurd assumption that people would respond to a bottled-water ban on college campuses by drinking soda instead – an idea which many people pointed out was absurd in many ways. Now he doesn’t want to turn off his computer, so he’s making up more stuff.

The article says that Americans who leave computers on overnight are wasting $2.8 billion on energy costs per year.

It ignores the cost of turning computers off — and having to turn them on again the next morning. Let’s say that process takes five minutes per day, and one does it 250 days per year. That’s 1,250 minutes, or more than 20 hours per person per year.

Assume the average computer user’s wage is $21 per hour, …

Notice the pattern here? Anything that might cause him to change his behavior – e.g. with regard to jaywalking, refreshment choices, or computer use – is treated as an attack on economic rationality, which we should all apparently recognize must be the sole cause behind his current behavior. Furthermore, any such attack can be met by making a bunch of convenient assumptions, presenting them as fact, and then tossing out a bunch of numbers like chaff to distract from the more fundamental cognitive errors. (Actually that’s Chicago School in a nutshell, isn’t it?) For example:

  • Assume that the computer must be turned on every day, to maximize the time spent booting.
  • Assume that the user is absolutely helpless during that time, e.g. unable to turn on the computer before taking a shower or pouring coffee, to maximize the cost associated with that time.
  • Ignore costs associated with leaving the computer on, such as shortened component lifetimes or more time for the worm of the week to infect your system.

The real number, Professor Hamermesh, is more like five seconds per day, maybe fifteen if you’re smart enough to require that users log in. Using your own numbers for the rest, let’s call that $7.29 per person per year, or $365M for 50M computers for a year. That’s not 2.5 times the alleged power savings from turning computers off, is it? Try 13% instead. Even better, here’s some real economic analysis for you. At one third of $21/hour, and an energy cost of $0.10 per kilowatt-hour, fifteen seconds of your time turning the computer on and logging in corresponds to leaving it on for eight hours at 3.6W. Even using the most modern power-saving sleep modes and such, how many computers (all components included) consume less than 3.6W? Very few indeed. In other words, this has nothing to do with any “environmental savings uber alles” strawman that Hamermesh made up. Even in the narrowest possible sense of direct power cost to the consumer, ignoring everything else from the cost of generation and transmission equipment to effects on environment and geopolitics, turning computers off is the economically rational choice. Where does that leave our beloved paragon of rational behavior?

Nowhere. Or the University of Texas economics department. Comparisons between the two are left as an exercise for the reader.

Going Galt

Back in the darkest days of the Bush administration, some liberals mused about moving to Canada or Europe. The response from the right side of the blogosphere was unanimous: go ahead, get out, good riddance. Now the shoe’s on the other foot. Many right-wingers, particularly of the libertarian persuasion, are talking about moving elsewhere (it’s never clear where) as a form of protest against the “socialist” Obama administration. They call it “going Galt” in homage to a character in Ayn Rand’s Atlas Shrugged. Of course, none of the people talking like this are in any way comparable to Galt. The real inventors and entrepreneurs who actually create something of value are too busy, well, creating things of value to waste time on such talk. The talkers are mostly bloggers and media types, people who think that serving a few web visitors’ recreational-reading needs makes them exemplars of economic productivity. Truly, they are legends in their own minds. To see where they’re drawing their inspiration, one need look no further than Jeremiah Tucker’s parody Atlas Shrugged, updated for the current financial crisis.

Galt went on like this for what seemed to Dagny like hours, until, finally, something he said piqued her interest.

“And that’s why I created the financial plan you found. It’s true, it works. But it is not sustainable. It will ruin this country’s financial system, and then we’ll see how those who despise us prosper when their lenders and investors refuse to invest or lend.” He laughed joylessly. “Funny, isn’t it? I must destroy the very thing I love in order to save it.”

“Just to avoid paying taxes?”

Tucker has succeeded in capturing not only the wooden awfulness of Rand’s prose, but also the more fundamental stupidity of the views she has her characters represent. The thing about markets and economics is that they’re all about connectedness. Even if all the bloggers who talk about “going Galt” really were the paragons of productivity that they imagine themselves to be, they’d still need somebody to buy what they create, and sometimes to provide essential services as well. The market of creative titans is too small to thrive by itself, cut off from the much larger market of everyday people buying things to satisfy their everyday needs. Rand never writes about Dagny Taggart cleaning toilets or Hank Rearden cutting people’s hair, but that’s what would have to happen if they were truly to isolate themselves from the rest of society. Well, I guess that they could also resort to slave labor to stay isolated without having to do all these things themselves, and it’s an option I’m sure many real-life Randroids would turn to if they thought they could get away with it (which they practically already do when it comes to third-world labor), but it’s starkly inconsistent with the freedom they demand for themselves so I’m going to dismiss that possibility.

Of course, all the “going Galt” folks understand the importance of large markets already. That’s why none of them are actually following through on their threats/promises to withhold their oh-so-valuable services from the rest of us. They know that if they were really to do that, they’d be impoverished and nobody else would even notice. Before long they’d come crawling back, perhaps wiser but at least less strident. Oh, how I wish they really did have the courage of their convictions.

UPDATE: after I wrote this but before I posted it, hilzoy examined the same phenomena and drew approximately the same conclusions.

Earmarks and David Cay Johnston

I don’t have a problem with earmarks. Yes, that’s right. I know that earmarks are the bête noire du jour, but I think they’re fine. I do have a small problem with earmarks that are completely unrelated to the bills they’re attached to, and I have a big problem with earmarks that are mere patronage and graft rather than a productive use of taxpayer money, but those are separate issues. The basic idea of congress expressing its specific will for how a particular piece of public money should be spent, instead of just handing out buckets of cash and letting some less-accountable entity within the executive branch decide how to spend it, seems quite fine to me. To pick the most obvious current example, if the purpose of a bill is to stimulate the economy, then any number of earmarks identifying congressional intent as to what kind of stimulus should be applied and where would be fine. It sure beats the Bush administration approach of handing boatloads of cash to a few banks with no transparency or accountability whatsoever. Anybody who’s whining about earmarks now who was silent about no-bid government contracts last year is a hypocrite.

On a mostly different topic, if you want to read something more about these kinds of subjects, I highly recommend Amy Goodman’s interview of David Cay Johnston about our corporate taxes, stimulus packages, and all sorts of other stuff in between. If you actually believe all that malarkey about how rich people and corporations pay too much tax already, you owe it to yourself and your society to read DCJ’s book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else.

Corporate Tax Basics

On the way in to work today, I heard some Republican gasbag repeat two common misrepresentations about corporate taxes.

“The US has the highest marginal corporate-tax rates in the world.
So what? It’s not the marginal rates that matter; it’s the effective rates. A high marginal rate with a high threshold and many exemptions will result in less tax (and thus revenue) than a lower rate might. In fact, the Center for Budget and Policy Priorities has studied this matter, and they report that the US effective rate of 13.4% is lower than the OECD average of 16.1%. Somebody on the corporatist side of the fence had better come up with some credible new numbers before they repeat such misleading statements.
“Corporations don’t pay tax, they pass it on to consumers.”
They might pass some on to consumers, but not all. In a competitive market, raising prices might not be an option, so instead the cost gets passed on to employees, suppliers, etc. It might also result in corners being cut in product safety, environmental impact, and so on. Given that all of these other affected parties might in fact be overseas, the idea that corporate tax in the US gets passed straight on to consumers in the US becomes pretty questionable. Of course, both the original claim and my counterclaim are just theories. Where are the numbers showing the actual observable effect of past changes in corporate tax rates on prices (and wages or employment which we also shouldn’t ignore)? I can’t find any easily, suggesting that no clear measurable effect has been documented – i.e. that the compensating mechanisms I mention negate practically all of the assumed effect on consumer prices. Those making the “passed on” claim should prove it, and they never even seem to try.

This whole idea that we should coddle corporations because markets are good is based on two basic errors. The first is conflating corporations with markets. Sorry, but people are part of the market too – people working, people consuming, people running sole proprietorships and partnerships and other businesses where they still pay personal rather than corporate tax. Taxing corporations differently than people is simply giving one class of market participant an advantage over another. One could argue that no such distinction should be made, or that the difference should go the other way – i.e. that capital as represented by corporations should be taxed more than labor as represented by flesh-and-blood people – but I’ve yet to see a reasonable argument for taxing corporations less. The other mistake is a little harder to explain, but even more important. One of the most excellent books I’ve read recently is David Bollier’s Silent Theft, and one of the most powerful statements in it is this (from memory):

The market should be inscribed within the commons, not the other way around.

What he’s saying is that resources – he talks elsewhere in the book mostly about things like land and other natural resources, or “intellectual property” – should be assumed to be shared unless they are explicitly privatized, monetized, etc. What we tend to do is the exact opposite; everything is assumed to be private unless explicitly placed in the public domain. As Bollier explains far better than I could, that model doesn’t really work even a majority of the time. Markets are powerful tools, and perhaps a majority of property should be handled via markets, but that majority should be explicit and not just the result of a mistaken “private is good” assumption.

Bollier’s sentiment is very closely related to another that I’ve heard expressed, and with which I completely agree: markets should serve people, not the other way around. Somehow we’ve become a society where people feel that their duty is to be good workers and good consumers so that “the market” may thrive. That’s garbage. Again, markets are powerful tools, but they are only a means to an end and that end is human prosperity. When markets fail (we should all know by now that they do for a variety of predictable reasons), or when they “succeed” in a way that has a net negative effect on the life experiences of real flesh-and-blood people, then they are not the right means to the right end and should be eschewed in favor of more appropriate tools. Sometimes that tool is government, sometimes it’s individuals acting in a context that is neither governmental nor corporate, sometimes it’s even nature (or perhaps even God for those inclined that way). In any case, these other actors must sometimes be allowed to take a primary role instead of being subordinated to a market that effectively (and too often legally) puts corporations first. Like governments, markets should be of the people, by the people, for the people. We have a long way to go before that’s the case.

Real Americans

Jonathan Zasloff comments on McCain’s characterization of Obama as “redistributionist in chief” by pointing out that if Obama gets elected then it will be a sign that the American public wants redistribution. That’s actually similar to some thoughts I’ve been mulling over. In about a week, it seems highly likely that the US electorate will send a clear signal about what kind of government they want. I believe Obama will win, the Democrats will control both houses, and the only question is whether the Democrats will achieve a 60-vote “supermajority” in the Senate. In the face of that, trying to portray the majority of the American people as somehow “un-American” is just absurd. It’s not only rude but it’s also bad strategy, alienating those the speaker cannot afford to alienate and marginalizing him or her even more than is already the case.

UPDATE: Nick Anderson of the Houston Chronicle “says” it with a cartoon.

There might be some historical basis for claiming that certain kinds of policies are “un-American” in the sense that they buck tradition or even violate the Holy Constitution, but I for one don’t care. What I care about are principles that are no more tied to one document than to one time or place. The constitution is a pretty good picture of a certain moral reality, through the lens of its time and circumstances, but it does not define that reality. At the time the constitution was written, one large segment of the population was enslaved and another disenfranchised. I do not feel bound to honor all traditions of that time, and the changes in either reality or our understanding of it since then cannot be so easily separated. I think it’s a bit disingenuous to say, “Of course I don’t support those artifacts of 1787, but these others must be held sacred.” Besides the differences already noted, and the obvious technological differences, at that time we didn’t have anything like today’s corporations or insurance or credit ratings or zoning issues or environmental issues or a thousand other social/legal/financial constructs that dominate our lives. Life now, at least so far as it relates to functions of government, is different not just quantitatively but qualitatively, not just in details but in overall concerns and priorities. We should judge policies and ideologies not on their consistency with a document written in a very different world but on whether they are effective today while remaining consistent with basic principles that may or may not be reflected in the constitution as written.

A real American is one who remains true to the moral reality I mentioned earlier, not one who tries to hide their personal biases behind either popular appeal or a piece of paper. Nowadays, I believe the people braying most about “real Americans” are those who least represent that ideal.

The “Small Government” Scam

In the upcoming election, Massachusetts voters get to vote on Proposition 1, to repeal the state income tax. This morning I heard Carla Howell – failed Libertarian candidate for governor and a major proponent of this measure – repeating the old “government is too big” whine. She also repeated the lie that Massachusetts has the fifth-highest tax burden, based on cherry-picking her figures, when by the only measure that matters – total per-person tax burden at all levels of government and all kinds of tax – Massachusetts is actually in the bottom third of the nation. I contend that the problem is not the overall size and power of government but how its size and power are arranged or applied. Government is too big in the wrong places, for the wrong people. It’s too big at the most remote federal level, instead of at the state and local levels. It works too hard on behalf of corporations and rich people, and not hard enough on behalf of normal people. Big government might be a problem, but the worse problem is bad government. The solution is not to make it smaller so much as to make it better.

Here’s what would happen if the state income tax were repealed.

  • The state would try to increase revenue via sales tax and increased fees, and quite likely be reconsidering governor Patrick’s plan to legalize casinos.
  • Towns would try to increase revenue via property taxes. Contra Howell, “proposition 2½” does not impose a hard limit here; overrides are almost routine in many towns, and would be more so under her regime.
  • Both state and towns would turn to the federal government for assistance, but of course to get one dollar back from that source Massachusetts citizens would have to put in three because most federal money gets sucked southward and westward to “red” states.
  • Both state and towns would try to reduce spending by reducing services and foregoing maintenance. If you think years of such shortsightedness have left our roads and bridges in poor shape now – they have, actually – just see what happens if Howell gets her way. Soon, those people who claim they need a big four-wheel-drive vehicle might not be lying after all.

For each of those items, ask yourself how it affects the average person. As one type of tax is replaced with another, as will assuredly happen, consider who pays most of the old tax vs. who pays most of the new one. Who suffers most from reductions in service, or in state oversight and regulation? Who benefits? This plan would be great for people with high incomes which go mostly toward “investment” or out-of-state spending instead of local consumption – people like $200K consultant Carla Howell – but that benefit would come at everyone else’s expense. Her “activism” is really just self-interest. Leaving more people in Massachusetts uneducated or sick, surrounded by decaying infrastructure, will not make it a magnet for industry and commerce. Any company that would move its operations here for lower taxes despite those effects would be even more likely to move its operations overseas for the same reasons, and those aren’t the kind of businesses we really need to focus on anyway. We need to concentrate on attracting high-skill high-pay high-tax-base kinds of enterprise, and to do that we need to head in exactly the opposite direction compared to Howell’s plan.

P.S. Go read the actual text of the petition if you want to see what it actually says. Fair warning, though: it takes a strong stomach to wade through all the “evil big government” ranting and utterly unsubstantiated claims. This is supposed to be a serious policy proposal? The sanest part is “page 5 of 3″ at the end. I guess you can put whatever silly “findings and declarations” into these things that you want, even if they’re totally irrelevant to the concrete actions being proposed.

Waiting For The Worms

It’s a Pink Floyd song, which just happened to pop up near the end of my workout this morning. This part immediately reminded me of the most annoyingly repeated phrase in last night’s debate.

Would you like to see Britannia
Rule again, my friend?
All you have to do is follow the worms.
Would you like to send our colored cousins
Home again, my friend?

In the past, this same repetition of “my friend” has often been used by the very worst kind of demagogues in a “my friends and I are going to bash some heads and we might make a mistake if you don’t look friendly enough” kind of way. I’m not saying that McCain is trying to send a specifically racist message here but, given his penchant for bullying and his paid-up subscription to the “with us or against us” way of thinking, I don’t think he meant “my friend” as an appeal to somebody like me.

Wealth Redistribution

Because I happen to believe that the “free”market does not magically solve all problems without creating any of its own, I’m often accused of supporting redistribution of wealth. Well, fine. If I’m going to do the time, might as well do the crime. Let’s redistribute some wealth. Specifically, let’s redistribute the wealth that is the result of fraud. I have absolutely nothing against people who get wealthy by actually providing real value in the form of real goods and services – in fact I like to think I’m one of them – but I certainly do have something against those who get wealthy through lies and deceit. Fraud is what we call it when something of fictional value is exchanged for something of real value, and then the perpetrator of the fraud takes off for Monarch Beach while the person who just gave away the fruits of their real labor for nothing is left holding the bag. A poor man who steals a loaf of bread will have their ill-gotten gains confiscated and will probably end up in jail as well. Why should a rich man who steals a whole city’s worth of bread be treated any differently?

Forget about just capping CEO salaries in the future, which is as far as most people seem willing to go with this idea. Find the people who “earned” tens to hundreds of millions buying, selling, or making fees and commissions from the buying and selling of, this toxic mortgage debt and other financial fictions. Take back what they stole in the past. That will probably more than pay for the Wall Street bailout, and those people can then go begging to the deservedly rich for jobs or try their luck living among the undeservedly poor who are their victims. The old trickle-down “taking money from the rich will harm the economy” theory, even if it had any merit to begin with, does not apply because these particular rich are demonstrably not in the business of creating actual jobs and wealth but of stealing from those who do. To predict the next silly accusation that will come because of saying these things, no, I don’t envy them. To envy someone is to desire what they are or have, and applies far more to the people who habitually sling that accusation than it does to me. I despise those people who, having benefited from equal opportunity and protection of a healthy commons all their lives, who have climbed as high as they can under such a system, now want to lock in their gains and kick away the ladder. I don’t envy them, nor can I tolerate their blather about “liberty” defined as their absolute and perpetual right to keep what they have stolen or a “meritocracy” in which everyone has miraculously reached their proper and permanent station just yesterday. Screw all of them, whether they’ve pulled off their heist yet or merely hope to.