Wednesday, February 25, 2009

The Republican Response

I'll go with Ross--the McCain earmarks meme was part of a process moving the Republicans to a really bad place.  No one really cares about tiny earmark expenditures that often enough tend to be reasonable.  It's the broader liberal agenda that they have a problem with--so that's what they should spend some time attacking, with any sort of alternative beyond "cut taxes for the rich."  (Cutting taxes for the poor is fine!)

At this point, I have no clue why they don't even bother picking examples correctly.  Attacking volcano readiness was a horrible idea, and the ever-growing litany of flat-out factual errors from Republican leaders is downright depressing.  This does not help you connect to people's economic problems, does not improve your image in their eyes, and does not appeal to anyone beyond a select group that will rationalize their support for you anyway.  Sure, you lose people once you take certain stands on abortion and gay rights--this is true for both sides of the spectrum.  But you lose everybody when you're no longer perceived as competent or in touch--this happened to liberals a few years back, and it took a bit to come back.   Meanwhile, there's more room for conservative criticism than ever before.  Obama's agenda would have been called audaciously liberal only a few years ago, while the path of next-generation libertarian-conservative reforms is clear enough.  

Focusing on tax rates and deregulation made sense in the early '80s; this was a goal even of supply-side JFK and deregulation proponent Kennedy.  The fact that few people, even on the left, really want to return to this world shows how much the center has really shifted; Clinton wised up to the changes and offered up rather conservative form of liberalism (yes, Republican control in Congress made a difference).  

Now, the debate isn't over the size or existence of government and the entitlement programs, but the manner in which they are run.  Conservatives have plenty to add to this debate; curriculum reform and charter schools for education, market-driven healthcare along the lines of Singapore or France, carbon taxes/cap and trade/congestion taxes on environment, and consumption taxes to raise revenue.  These are fundamentally free market/conservative ideas, most of which at one point were championed by Milton Friedman against a liberal orthodoxy.

 Now, it seems that the only people taking about these issues at all, and even of these specific policies, are Democrats.  Fom a purely non-partisan standpoint, it's better to have both parties engaged; Republicans can support charter schools, Democrats can fund unemployment benefits.  Having a rump party sulking in the corner destroys an essential check on the system and will support a lazy Democrat party as crazy with their majority as Bush ever was.  They certainly can't afford to pay for all of this, and I wouldn't use the success of Clinton in reducing the deficit during a historically anomalous part of the buisness cycle as saying anything about the responsibility of Democrats in general.

Republicans on the state-level are a little wiser.  Jindal, for instance, is actually a star of this movement, with stakes on charter schools, infrastructure building, workforce development, and healthcare reform that even liberals support.  Sadly, it appears that they lack the ability to champion these same ideas on a more national platform as the dynamics of appealing to a party ever-more dependent on a base militate against policy innovation or mass appeal.  This is a party where opposition to the stimulus involves proposing even worse alternatives, rather than taking a cue from right-wing economists and supporting cuts on payroll taxes.  It calls out for national leadership that is willing to own up Bush and commit to tangible alternatives; that is at least willing to get the facts right while waging war not on "waste and efficiency" but the broader agenda prevailing in Washington.  The vicious attacks within the Republican party over the past two years suggest that they are, in fact, still capable of effective attack; just not against the people with whom they actually diagree.  Let's try to turn some of that into productive bipartisan riots.  

Some part of me, though, still cringes at the prominence that a certain sort of political journalism has overtaken this country.  This profession chooses to treat issues like health care and foreign policy purely as excercises in gamesmanship, and elevates the act of a "political speech" into the highest expression of political talent.  Look at how well spoken this person is!  Must be a great politician.  Too bad this other guy can't muster up the correct poise and speech.  He's horrible.  Yes, I know every-day voting decisions are made exactly on these sorts of calculations.  But that's no reason to let the media create an arbitrary guideline for what constitutes "good" and "bad," "weak" and "strong" in politics, elevating the art of political punditry into the role of soothsayer among a group of extraordinarily out-of-touch elites.  

Tuesday, February 24, 2009


Not much to say about the State of the Union Speech.  I just want to say that America did not, in fact invent the automobile.  

Edit: Also looks like America did not invent solar energy.  Yeah, this is silly, but it's symptomatic of a broader social policy nationalism which is a little annoying.  

Monday, February 23, 2009

Geithner and Sarkozy

Look pretty similar.  Geithner is on the left, Sarkozy on the right.

Which Republicans Are Running for President?

I think the 2008 election cycle furthered an entirely unhealthy obsession with the dynamics of political campaigning (myself included).  

Anyway, if you want to get a head start on 2012, the Republican governors who have serious intent to run have all revealed themselves.  They are the only ones to reject stimulus money.
By my count, I have Perry (Texas), Jindal (Lousiana), Sanford (South Carolina), Mississippi (Barbour), Otter (Idaho), and Palin (Alaska).  Maybe some of these guys are angling for top jobs among the Republican high command, not just the Presidency, but any serious Presidential contender will at least make some sort of anti-stimulus noise, even if the actual amount rejected is small.

I don't buy that they're rejected money because it will be more costly in the long-run.  It's easy enough to change the law in a few years and cut the programs; This is entirely politically oriented.  

Defense Spending and Libertarians

The political marriage between libertarians and conservatives has been good and bad; one of the bad bits is that it has virtually silenced libertarians on military spending.  It's not too much of an exaggeration to say that a substantial portion of the national debt is due directly to insane amounts of military spending.  The low-tax mantra from Reagan on cut revenue, but most domestic spending is virtually untouchable.  The big lever in government spending is Defense spending, which hovers along a 500 billion dollar range or so.  Committing to the lower part of this range over the past few decades would have lowered the debt by several trillion, with little tangible loss along the dimension of national interest.  

Persistent hawkishness--often from both parties--has escalated this spending without any concern for tangible military goals.  Instead of setting national priorities from the standpoint of military resources, there is a bizarre habit of deciding that tangental world events demand substantial military intervention, and an accompanying large military budget.  In a world of balancing coalitions and counterinsurgency, money spent this way ends up being basically counterproductive.  Come on, the US is basically a large island; it has no national interests or needs that can't be satisfied on $200 billion a year.  This urge to find futuristic robotic combat system and newer classes of enemies is a desperate attempt to remain relevant in a world in which American military capacity is basically not needed.  Whatever the possibility of future great-power conflict, economic growth is the best way to prepare for that.

Inter-deparment squabbles between Defense agencies worsens this situation.  The implicit agreement among agencies to divy up military pork evenly between them provides billions for the megalomaniac dreams of navy commands who build obsolete navy carriers and air force fighter jocks who are now trying to get the F-22 passed.

Democrats will often go through with this agenda because of their bias for interventionism--the Obama pledge to devote more resources to the "good war" in Afghanistan, posturing on Darfur, etc.  We all know where Republicans stand.  This is where libertarians really need to stand up.  It's not enough to rail against government spending; clearly both the composition and size of government spending matter, and it's far worse to spend hundreds of billions on defense then similar amounts of money on more productive goals.  The fact that defense is a broadly acceptable class of government spending for libertarians ignores the fact that marginal spending on the military is basically wasted.  

Things aren't going great in India either.  The defense budget just spiked 22%--largely a political response after the Mumbai attacks on eve of elections--even as the military can't spend their money, still devote staggering sums to personel and pensions (even the normal government has largely cleaned up their pension obligations, and apparently can't even mount a decent strike against Pakistan.   All of this is going on even as India has one of the world's worst budget deficit problems, and is headed to the point where the interest payments on debt alone threatens to overwhelm the budget.  That this is happening at all after years high growth in the tax base suggests the degree of financial incompetence of the UPA.  I'm still waiting for the political commentators to mention this, instead of going on and on about how the BJP are Hindu nationalist communalists, and the Gandhis are wonderfully progressive.  

Go Gaeta

This is a little late, but I'd like to echo the call that the Human-Cylon alliance is unwarranted.  Consider the standpoint of an ordinary human citizen.  They just witnessed the genocide of virtually the entire human race, followed by intense pursuit, dictatoral coercion, and further attempts to finish the extinction of humanity.  The very Cylons responsible for all of these decisions then viciously turned on their fellow robots and now cynically demand protection from the fleet.  Just a few weeks ago, the rebels airlocked some humans and threatened to nuke the fleet.  The mere presence of these rebel Cylons (and, certainly, of the final five) attracts the Cavil faction, who might otherwise be persuaded to back off.  

And now Adama forces the Cylon issue through marine imposition of Cylon crews over the objection of the President and the Quorum?  Suddenly these "fleet security" issues emerge which can only be solved through immediate cooperation with the Cylons?  They really can't figure out any sort of agreement over technology transfer other than permanent allliance?  Besides, how can we forget that the only reason humanity still exists at all is that Adama kept potentially dangerous networking technology off the fleet, and Gaeta killed off remaining Cylon viruses.  What sort of potentially destructive Trojan horses will this (completely not understood) Cylon technology bring?

To top it all off, this same military leadership failed to realize the existence of sleeper agents, and are bizarrely letting them remain in the fleet.  In their reign of terror, pursuit of dictator power and love of secrecy, the Adama-Roslin regime has entirely discredited itself and needs to go.  Without the false promise of Earth, and the end of open human-Cylon hostility after we jump away, it's time to move beyond military dictatorship--and Caprican overlordship--to a more permanent state of existence.  

It's convenient from the point of view of the show's ideology to suggest that cooperation is the future.  From any half-way reasonable International Relations view, this is nonsense.  All the evidence suggests that the Cylons are simply a bloodthirsty race who can't seem to be at peace for more than a few days, either with the humans or even with each other.  

You can argue about the necessity of a coup at that moment.  Arguably, they could have waited until the superior jump drives were installed, or even until the Battlestar was fixed up.  Then Gaeta could have launched his coup at leisure.  Had they made a serious plan to grab the President, and shot the CO and XO on sight, it would have stood a far greater chance of success.  Everything we know about military and civilian morale suggests overwhelming hatred of the Cylon.  This is entirely expected; the humans are, after all, at war with them.  Only the direct personal appeals of Adama/Roslin kept the anti-coup movement going; their deaths would have ended the struggle.

I'm ignoring, of course, the fact that the entire show should never have gone beyond the point where they discovered a virus which could destroy all the Cylons.  If you find that; you use it and get out, and if someone stops you, you airlock them.  

Stop Panicking, II

Sachs on the stimulus:

President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years.

Looking back to the late 1990s, there is little doubt that unduly large swings in macroeconomic policies have been a major contributor to our current crisis.

We need to avoid reckless short-term swings in policy. Massive deficits and zero interest rates might temporarily perk up spending but at the risk of a collapsing currency, loss of confidence in the government and growing anxieties about the government’s ability to pay its debts. That outcome could frustrate rather than speed the recovery of private consumption and investment.

Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared!

There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort.


Prescott’s general point is pretty much the same as Sachs’s here: discretionary macroeconomic policy is very likely to be self-defeating and we’d do better to concetrate on setting in place a sound structure of stable rules. When I asked what he would have advised, Prescott said he wished Obama had used his considerable political capital to form some kind of task force to very deliberatively restructure the tax system, the entitlement system, the financial system, etc., instead of pushing for a stimulus. But when the President instead uses his political capital telling people to panic, you just get more of the kind of mess Sachs describes. The government under both Bush and Obama has been giving us ridiculous fool-in-the-shower macro policy, and it really needs to stop.

Saturday, February 21, 2009


I used read all of the time, but now reading books instead of the internet is a bizarre experience, bringing up the common idea that the internet is making us stupid.  This story isn't terribly coherent (and yet emerges every few years in complete ignorance of previous iterations) but makes some sort of claim that patterns of reading online destroy some sort of cognitive function properly developed through book reading.

There may be something to this.  After years of following blogs, it can be difficult to bother putting in the time to follow badly written and complex stuff.  

But by the same notion, when reading a book, I often find myself wishing for a chance to look up sources, find countering views, or write up a response--that is, I wish it was online.  Books really contain a lot of space, and generally offer scores of smaller arguments.  But you're probably not going to look up the references, and any individual argument is never exposed to the level of scrutiny given to, say, a single Krugman post, where hundreds of commenters will pounce, as well as other bloggers who link, and possibly replies.  The evolutionary online system doesn't quite pare down the world of arguments into the best ones, but at least does a fairly good job of outlining the major fault lines and points of contention.  

This balance is hard to replicate in book format.  Take a recent read for instance, Maria Mishra's Vishnu's Crowded Temple.  This is something of a cultural take on Indian history, which I found to be pretty interesting in general.  But it displayed throughout a rather transparent ideological preference for a secular left-wing agenda against a perceived fascist alternative.  For instance, Mishra implicitly blames slow growth under India's licence raj on "established buisiness interests" who captured policy; Her ideal solution would apparently be one more to the left.  Hers is a common stance, but also a controversial one opposed by many economists.  

Such debates online--say, at INI or Mint--involve a healthy back and forth, with competing data and arguments.  With a book, you just get one side--in Mishra's case, a rather simplistic one.  And even if you head online and look for reviews, you often get simple platitudes that don't assume reading knowledge.  NYRB and LRB are of course exceptions, but often it's far easier to get a balanced view on a topic online rather than through reading.  

The Dirt Industry

Just back from a trip to India.  Lots of cool stuff going on--Gurgaon looks like Hong Kong, Bhopal's still livable--but from an economist point of view there's something very strange about Asian economies: The reliance on the dirt industry.

This is perhaps most evident in China, where a full logistics supply chain links dirt farms to dirt distribution centers, onwards via truck and barge to dirt refineries, where they are processed before being sent to additional refineries.  This serves to efficiently combine and distribute many different kinds of dirt via a long logistics supply chain.  Final uses include fertilizer and plaster for construction purposes, but much of the dirt remains in a closed loop from one area to another--something of a modern day shell-trading circle.

India has further specialized in the dust and rock industries.  Abundant rock farms supply the necessary raw materials, which are distributed for end use alongside roads.  These are slowly ground into smaller and smaller rock forms, before reentering the economy in pebble form.  The dust industry tends to be a little more nature-oriented.  As leveling forests opens up vast plains of dust, these gradually enter the ecosystem in a vast cyclic pattern.  Falling on the ground, they are laboriously brushed and swept and trodden back into the air, before circulating and falling again through the efforts of time and (especially) rainfall.  On the land, patterns of dust use create migratory dunes.  

I await the work of more distinguished ecologists and economists looking into this criminally understudied economic sector.

Thursday, February 5, 2009

The Economic Neocons

This stimulus debate has gotten a little out of hand.  Among other things, this is a disgrace for macroeconomists.  Figuring out how to solve problems of this magnitude ought to be the central empirical concern for researchers, rather than cause for ideological trench warfare.  

My own biases are evident here, but I find John Cochrane's writing to be both the best ongoing commentary as well as the best case for relying on monetary policy.  

The arguments on the other side all seem to revolve around fear.  Because of "animal spirits" and fear, drastic measures need to be taken.  The basic model connecting individual fear to the macro level is left uncertain, as is the explanation for why scaring people and spending lots of government money is the best remedy.  If this is your worldview, as Will Wilkinson points out, the best way to achieve your ends is to institute propaganda on a wide scale.

Really though, people are cutting back for perfectly reasonable reasons; that is, their fears are based on accurate expectations about the economy.  A classical Keynsian stimulus doesn't make quite as much sense, as we're coming off a long period of wasteful investment.  It's not as if people suddenly stopped buying things; it's more like the scale of previous growth was unsustainable and people are cutting back.  Propping up demand isn't going to help as much as fixing the problems in the banking and housing sectors that created the problem to begin with. 

Imagine that a group of people has favored a particular set of policies for a very long time, but found it difficult to get their extremist ideas a fair hearing.  Now, suppose something very bad happens, and people become very scared.  This group comes along and claims that their favored positions are best suited to solve the current problem, and the other group is un-American.  That's basically what happened with Iraq, and that's what's going on with the stimulus bill.  It's basically a wish-list of Democratic priorities over the last ten years.  Not to say they all shouldn't happen, but this is not the type of environment to put them in place.

Even from the standpoint of a Democrat policy-maker, this bill is hard to justify.  If they took a bit longer with the fiscal policy/spending side of things, they could actually find some useful projects and invest in some great things.  But the time constraints of the stimulus are forcing a decision now, even though we'll see little of the spending immediately.  Meanwhile, the legacy of spending on this nature will present a significant hurdle to achieving other items on the Democrat agenda, namely Universal Healthcare.  

In the spirit of compromise, I'm willing to support some sort of tax breaks.  The big counter-argument is that people will save rather than spend the money, which has support from classic economic concepts like Friedman's Permanent Income Hypothesis and Ricardian Equivalence.  There's some evidence, however, that even one-time tax cuts can encourage quite a bit of spending from households--it looks like that was the case for the 2001 and 2008 stimulus packages.  

Tax cuts also have a lot going for them once you move away from the "More unsustainable spending will solve the problem" stance.  The government can basically borrow money for nothing, while many families are paying off loans at much higher rates.  Tax cuts used to pay off these loans can serve as a massive interest rate arbitrage, which can create substantial real wealth (The federal government could also loan to the states, which generally don't do deficit spending and cut services during recessions.  It looks like the Senate is cutting State Aid due to Republican pressures; just replace that with a loan and the budget problems disappear).  Also, savings can recapitalize the broken banking system while improving financial security for households heavily in debt.  When the recession is over, tax Carbon and consumption and you're back to normal with no crazy unsustainable government programs.

All of this happens, very quickly, when you shower people with money.  But if you tie tax cuts with permanent decreases in the tax code, you get all of this plus the fact that people have greater incentives to work and invest.  Kill the payroll tax--many people have a bizarre belief that only rich people pay tax, when FICA is killing everybody.  Do Tabarrok's plan of cutting marginal income taxes for incomes in excess of those earned the previous year.  Plenty of people won't take part, but many professionals, entrepreneurs, and part-timers can increase work if they really wanted.  More so than fear-mongering and spending, this would actually generate incentives to work more.  There are plenty of ways to game the system, sure, but how many people are going to hold off getting a job in order to vie for a stimulus job?

Add to all of this that there is virtually no evidence that fiscal policy of this sort can meaningfully improve the economy.  Whatever you think about the merits of government policy or stimulus plans, there's no reason to do all of this in a state of fear--just spend whatever you want on the criteria of rates of return.  Despite all our wealth and prosperity, it looks like a little shock in income drives people as crazy now as it did in the 1930s.