Kitten update

Here's a recent photo of our 5-month-old kittens, Gary and Sylvester.  Sorry for the low quality here from my iPhone, probably the lighting's fault as well as mine.  That of course is a string hanging over the edge that they like to swat and pull at - it isn't Gary's tail.

They can be hard to photograph well, despite their being almost ridiculously adorable, because, when they're not sleeping, it's a bit like trying to photograph a whirlwind.  Like the drummer in Spinal Tap, they believe in having a good time ALL THE TIME.  And like the Steve Martin character's former girlfriend in Dead Men Don't Wear Plaid, the word "No" isn't in their vocabulary.

While caught in a subway delay the other day, I was trying to think of what would be the LEAST apt or applicable adjectives that one could possibly come up with to describe these little fellas. The best (i.e., worst) descriptors that occurred to me included: corrupt, jaded, cynical, languid,and blasé.  Further suggestions welcome.

Death of Robert Bork

I am sorry to hear of the death of Robert Bork.  He taught one of the few law school courses that I actually found memorable, when I was a Yale law student back in the day.  The class was Antitrust, in which he had written a notable book called The Antitrust Paradox.

This was a lucid and influential exposition of what one might call the modern Chicago approach to antititrust, committed to economic efficiency (as opposed to, say, protecting small producers) and very skeptical of then-prevailing judicially activist antitrust doctrines.  In addition to presenting powerful economic arguments for the Chicago view, I recall that it also discussed the enactment of the Sherman Antitrust Act of 1890.  Here, candor compels me to say that its historical argument - that consumer welfare and economic efficiency were in fact the dominating policy aims of the Sherman Act - is probably not credible, but it would be nice if it had been true (as those are the aims that I agree with Bork in wanting antitrust law to advance).

Bork's class was memorable due to his clear exposition of the case for the Chicago approach and his entertaining combativeness.  At that point, the Chicago view had not yet swept the U.S. academic and legal worlds as it soon would, although there were already people around (such as me) who were predisposed to give it favorable consideration.  So the class included a small group of liberal law students, not incredibly well-versed in basic economic reasoning, who would try to debate him.  I well remember, at the end of the first class, one such student coming up to him and saying something like: "Can I make an appointment to meet you in your office?  I'm pretty sure that I can persuade you that you are wrong."

Good luck with that, I would have said to myself if the phrase had been current at the time.  But I was amused, and less than sanguine about this student's chances of success.  Unfortunately, I never got to hear the upshot.

The last time I saw Bork was probably at a Yale Law School cocktail party for students and professors, in the courtyard a few days before I graduated.  I went up to him to say how much I had enjoyed the class.  He did not particularly know me, as it had been a large class, and I didn't get the sense that he particularly wanted to speak to me, but no matter.

It was sad to see him get embittered in later years.  These things can happen in the public eye, unless you have a very thick skin.

Social Security and chained CPI (wonky rather than argumentative discussion)

Leaks from the fiscal cliff negotiations have been focusing a lot of attention on the proposal to cut future Social Security benefits, relative to their projected nominal growth rate under current policy, by basing their annual increase on "chained CPI," rather than the currently used version of the consumer price index.  Chained CPI grows more slowly because it assumes that consumers respond to changing relative price levels by shifting their consumption from more expensive goods to cheaper ones.  For example, if the price of beef rises relative to that for chicken, people respond by buying less beef and more chicken, so their expenditure levels don't rise as much as if they kept the proportions constant as prices rose differentially.  Chained CPI takes this into account, in such a way as to produce lower annual rises in the CPI measure.

Though this might require a longer discussion than I have time or space for here, the underlying question has a lot to do with assumptions about people's utility that we cannot easily test.  For example, the effect on my utility of the above relative price shift between beef and chicken depends on how I value each of them.  In effect, what is my consumer surplus from each, per unit of consumption, at different price levels.

While this may sound abstruse, there are good reasons why we might wish we knew the answer.  Suppose I am going to buy a fixed real-life annuity, but I can opt for using either regular CPI or chained CPI.  Obviously, in an arm's length transaction with the annuity company in which I have $X to spend, the advantage to me of picking chained CPI is that I would get to start with a higher annual benefit.

Social Security in effect hands retirees a fixed real life annuity.  The rationale for this is that people might otherwise under-save for retirement (or late retirement), so we give them a minimum "forced saving" level that is the same for all periods, reflecting that consumption often is separate between periods but has declining marginal utility in each period.  (E.g., better one dinner tonight and one in a year, than two dinners on one of the two nights and zero on the other.)

So there is a constant-benefit-level comparison to be made, as between CPI and chained CPI real life annuities that have the same present value because the latter starts higher.

In the case of Social Security, then, there are two distinct questions to ask.  The first is whether benefits should be cut relative to current law, while the second is whether a chained CPI methodology does better than the existing one in keeping the marginal value of the last dollar of consumption that you can fund through your Social Security benefits the same as between periods.

Hence, the question of whether the nominal growth rate of Social Security benefits should be pegged to chained CPI rather than regular CPI is distinct from that of whether benefits should be cut.  For example, suppose chained CPI is the better measure but that benefit levels ought to be raised, all things considered.  Then the correct response would be to switch to chained CPI and over-correct for the year one benefit increase that would make this budgetarily neutral.  (As I think about this, the actual optimal policy problem is more complicated still - for example, one may want to distinguish between age cohorts in measuring what would be a present value-neutral change.)

An underlying problem, of course, is that, since the underlying issue pertains to utility, there really is no extremely robust right answer even to the pure analytical question of how CPI ought to be computed.  For example, my CPI may differ from yours, since my market basket is different (even at the same income level) reflecting differences between our utility functions.

If you are trying to figure out how inflation distinctively affects seniors, from the point of view of optimal CPI design (distinguishing this from the question of how much their benefits should rise and fall), it is pretty obvious that healthcare is a large piece of the whole - larger than it generally is for people in younger age cohorts.  With healthcare prices generally rising faster than the overall inflation rate, even (for seniors) counting out-of-pocket costs that Medicare and Medicaid don't cover, chained CPI presumably loses credibility as a "neutral" approach.  This tentatively suggests to me that, even if we want to impose Social Security benefit cuts, this may not be a great way to do it.

Another day, another article posted at SSRN

Today I posted yet another article at SSRN, this time a very short one (just 13 pages, or about 4,250 words) concerning a topic in the ongoing fiscal cliff negotiations.  Its title is "The Bucket and Buffett Approaches to Raising Taxes on High-Income U.S. Individuals," and you can download it here.

The abstract is as follows:

"In the aftermath of the 2012 U.S. presidential election, while there is increasing consensus that high-income individuals’ taxes should increase, there is considerable disagreement about how this might best be done. In particular, while some favor raising upper-bracket marginal income tax rates, others prefer an approach that I call distributionally selective base-broadening. Here the idea is to restrict or deny the benefit of various tax preferences in such a way as to target the impact of the base-broadening on high-income individuals who have such items. An inevitable byproduct of such an approach is that different individuals will in effect face different tax bases.

"This brief article, prepared for a forthcoming tax policy forum in the Canadian Tax Journal, assesses two such approaches that have received recent attention. The first is a 'bucket' approach to limiting the use of particular tax preferences, endorsed by the 2012 Romney campaign. The second is the so-called 'Buffett tax,' endorsed at one point by the Obama Administration.  It argues that, while either might conceivably be better than politically feasible alternatives, they have significant defects that should be kept in mind as well, and in some respects bring to mind the much-reviled alternative minimum tax."

Debt ceiling fight?

If the Republicans want to pivot from the Bush tax cuts to a fight over raising the debt ceiling, I think that the Obama Administration should be more than willing to let them (although perhaps it should not signal in advance just how willing).

Once a debt ceiling fight starts, I think the response is pretty simple.  Scorched-earth rhetoric (phrases such as "blackmail," "extortion," "disloyal," "sick," "perverted," and "economic treason") would not be out of place.  You don't really need to be civil with blackmailers who are threatening to set a torch to the U.S. and global economies, and to tarnish for generations the U.S. government's credit rating on world capital markets, if they don't get their way.

Then, if the Republicans pull the trigger, either the 14th amendment option and/or the platinum coin option, both of which have been discussed elsewhere, could bring the whole thing to a satisfying close.  Indeed, the main question might end up being to what extent the Republican leadership should be humiliated, rather than being offered a moderately face-saving climbdown.  It's probably best to be nice, even though they wouldn't deserve it, and that is likely to be Obama's instinct as well (perhaps even to excess).

Presidents who "stand tall" to save the U.S. from disaster generally benefit politically from doing so.  If the Republicans want to respond by impeaching Obama in the House of Representatives, that's their privilege, and they've already shown that they like doing this to second-term Democratic presidents.  As I recall, that worked out great for them in the 1998 midterm elections.  If they are hoping for low turnout in 2014, along the pattern of 2010 rather than 2008 or 2012, impeachment by the House is an excellent way for them to ensure that they will not get it.

Legally, the issues have been much discussed elsewhere, and insofar as there is any answer (although the normative criterion for devising answers to open constitutional questions is unclear), Obama's position would be highly plausible at a minimum (as I recall, especially on the "platinum coin" option, but really on both).  If the five Republicans on the Supreme Court want to unleash a global economic calamity by reaching to strike it down, I suppose they can, but that again would fall on them.

NYU Tax Policy Colloquium update

I've previously posted the speaker schedule for the NYU Tax Policy Colloquium, which I will be co-leading this winter/spring with Bill Gale, but I now have a full list of paper titles (albeit potentially, in some cases, placeholders that will change):

1. January 22 – David Kamin, NYU Law School, Are We There Yet?: On a Path to Closing America's Long-Run Deficit.

2. January 29 – Edward McCaffery, USC Law School, Bifurcation Blues: The Problems of Leaving Redistribution Aside.

3. February 5 – Jake Brooks, Georgetown Law School, Taxation, Risk, and Portfolio Choice: The Treatment of Returns to Risk Under a Normative Income Tax.

4. February 12 – Lilian Faulhaber, Boston University School of Law, Charitable Giving, Tax Expenditures, and the Fiscal Future of the European Union.

5. February 26 – Peter Diamond, MIT Economics Department, The Case for a Progressive Tax: From Basic Research to Policy Recommendations.

6. March 5 – Darien Shanske, University of California at Hastings College of Law, A Proposal for a New Property Tax Infrastructure.

7. March 12 – Dhammika Dharmapala, U. of Illinois Law School, Competitive Neutrality among Debt-Financed Multinational Firms.

8. March 26 – Sarah Lawsky, University of California at Irvine Law School, Unknown Probabilities and the Tax Law.

9. April 2 – Alan Viard, American Enterprise Institute, Progressive Consumption Taxation: The Choice of Tax Design.

10. April 9 – Brian Galle, Boston College Law School, A Nudge is a Price.

11. April 16 – Leslie Robinson, Tuck Business School, Dartmouth College, Internal Ownership Structures of Multinational Firms.

12. April 23 – Larry Bartels, Department of Political Science, Vanderbilt University, Inequality as a Political Issue in the 2012 Election.

13. April 30 – Itai Grinberg, Georgetown Law School, A Governance Structure to Mediate the Battle Over Taxing Offshore Accounts.

14. May 7 – Raj Chetty, Harvard Economics Department, Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark.

All sessions will be held at NYU Law School (at a second-floor room in Vanderbilt Hall) from 4 to 6 pm on Tuesdays, are open to interested non-NYU people, and will be followed by small group dinners.