Chinese restaurant-style policymaking

Chinese restaurants of yore, and I actually remember a couple from way back, would have these menus where you had to pick one from Column A and one from Column B. I actually haven't been in any such restaurant for a couple of decades, although I eat Chinese food a lot, but hopefully the metaphor isn't quite as dead yet as the dilophosaur.
Bringing this to mind was the news that President Bush is apparently planning a "major energy speech," perhaps even today, prompted, I gather, by the combination of rising gasoline prices and his falling approval rating.
At the risk of making a prediction that could be promptly falsified, we can be pretty sure that what he will do is peddle once again his "energy bill," a grab bag of goodies for oil and coal interests. There is zero chance that this legislation, even if desirable, would have any short-run effect on gasoline prices, but he will no doubt not be shy in linking the two.
Bush has always wanted to win each battle too much to try the fabled Richard Nixon strategy of old, which involved pushing a proposal in the hope that Congress wouldn't pass it, so that Congress rather than Nixon would take the blame for some intractable problem. Thus, Nixon in 1970 apparently pushed a crime bill that was consciously designed to be sufficiently anti-civil liberties for the Democrats not to pass it, thus setting them up for the blame when high crime rates continued. To the Nixon Administration's dismay, however, the Democrats were sufficiently scared of this to let the bill pass, thereby neutralizing the intended gambit.
Bush hasn't done this type of thing yet, and Republican control of Congress makes it harder for him to blame the other side for inaction, but perhaps he will be trying it soon, at least for Social Security and, if he loses on the energy bill, for gasoline prices as well.
Anyway, back to the Chinese restaurant style policymaking. Column A is whatever set of problems or crises emerge on the front page. Column B is the predetermined list of policies that Bush wants to pass. His standard strategy is to take one from Column A and one from Column B, claiming that the former necessitates the latter, even if no reasonable person (including rational and honest supporters of the Column B item) could seriously defend the claimed link. The ever-changing rationales for the tax cuts provide one example. A recent energy bill (a failed earlier version of the current one, if I recall correctly) was another. At that point, the rationale for a $31 billion (over 5 years) bonanza giving huge subsidies to the oil and coal industries was to prevent a recurrence of the major blackout that had recently occurred. (Get it? A blackout has something to do with energy, and so do subsidies for energy companies. What is more, between 1 and 2 percent of the bill's cost actually did involve upgrading the power grid.)
9/11 and Iraq may be another case of this. Likewise, consider the bogus link between Social Security's long-term fiscal gap and a private accounts proposal that on its face is revenue-neutral at best over a very long time frame. There are arguments for private accounts, but they have nothing to do with the financing problem, and the privatization (sorry) campaign therefore truly is a case of one from Column A and one from Column B.
Aesthetically speaking, I must admit some disappointment that the Administration hasn't been more imaginative about this strategy. While not requiring logical links between problems and proposed responses, it does seem to require subject matter consistency. Why not go a step further and have Bush, in his energy speech, claim that the Democrats will be to blame for higher gasoline prices if they don't pass his Social Security plan?

Two links worth reading, and one that isn't

Surely the most hilarious thing I have spotted in today's web surfing, or that for many a day, is the statement by Tom DeLay that Justice Kennedy "said in session that he does his own research on the Internet? That is just incredibly outrageous."
On a soberer note, Andrew Sullivan notes of the new Pope that he "once argued that violence against homosexuals was predictable if they kept pushing for rights.... [Also, h]e proclaims his version of the truth as God-given and therefore unalterable and undebatable.... His response to dialogue within the church is to silence those who disagree with him." I can see what they mean about the newly named Benedict's being such a subtle theologian. All the more hilarious, therefore to see a New York Times op-ed in which Michael Novak, as summarized by the Times' own lead-in on its op-ed web page, claims that "[t]he new pope's first concern is liberty, in all its facets." Yes, but is he for it or against it?

Nobody expects the Spanish Inquisition ...

The new Pope, according to this Washington Post profile, wrote a letter of advice to U.S. bishops on denying communion to politicians who support abortion rights, apparently with the aim of hurting John Kerry's campaign. He also "once called homosexuality a tendency toward 'intrinsic moral evil' and dismissed the uproar over priestly pedophilia in the United States as a 'planned campaign' against the church."
What a guy. I am always amazed by hyper-moralists who think that raping children is no big deal. I guess I must be guilty of "relativism," which I know he hates.

A paradox

If the new Pope, when selected, denied the doctrine of papal infallibility, would the doctrine itself suggest that he must be right, meaning he would be wrong, meaning he would be right, and so on?

Change of pace

I'm getting sick of seeing my previous blog as the most recent entry, as on soberer reflection it does sound a bit over the top. That's not to say it actually is over the top, as the people at the conference I described really are theofascists who imply that federal judges should be murdered and who forthrightly state that the separation of church and state is Satanic, all of which makes it alarming that they have such close ties to prominent Republican Congressional leaders starting with (but not limited to) Tom DeLay. Admittedly it is not clear who is using whom and to what degree. Certainly the Administration, despite its theocratic overtones, generally seems more interested in using the extreme evangelicals than in actually giving them what they want. In such a context, cynicism is certainly preferable to sincerity.
Given my discomfort about sounding too shrill, however, let's change gears completely for a music note. I recently got tickets to a Stephen Malkmus concert in NYC that is coming up next month, and I am looking forward to his new album that is due at about the same time. Malkmus, of course, was the leader of Pavement, whom one might call the Beatles of 90s independent/ alternative rock although not, obviously, in terms of sales or broader cultural influence.
Uberslacker/ironist/hero of college English majors though/as Malkmus is, I find his music consistently delightful. His first two solo albums, "Swedish Reggae" (as the first one was almost called until it became just "Stephen Malkmus") and "Pig Lib," although closer to being easy listening than Pavement's albums, do in my experience remain highly enjoyable after repeated play. Malkmus is also arguably the best independent/alternative lead guitarist other than Tom Verlaine. Very fluid and melodic, not stuck in blues or other cliches.
I suppose if my childhood had been worse I'd prefer Nirvana to Pavement. For some tastes Malkmus is just too sunny or glib or sarcastic without anger. But, to paraphrase Donald Rumsfeld and thus bring this entry closer to full circle, you go through adulthood with the childhood you had, not the childhood that would have been more AC (artistically correct). Perhaps I should blame my parents.

Violent criminals

A recent Washington Post column about the just-concluded conservatives' conference in Washington in which Tom DeLay (by video due to the Pope's funeral) and other borderline psychopaths in and close to the Republican leadership agreed that Justice Kennedy must be impeached forthwith made two things especially clear. The first is that these people, although they more or less run the country, not only are outside the mainstream but reject 200 years of U.S. constitutional history. Our system cannot survive if enough people are committed to its overthrow. I mean, Justice Kennedy, a moderate conservative Supreme Court justice (and part of Bush's 2000 election majority), must be impeached because he found that the Constitution bars executing minors? (So much for the "culture of life.") Let's grant, as I think we should, the possibility that one could reasonably disagree with how Justice Kennedy interprets the Constitution in regard to the execution of minors. But to call this grounds for impeachment - or worse - is closer to a Hitler or Stalin viewpoint than to that of anyone who has ever previously held power in the United States.
Do I exaggerate? Well, if it were just impeachment then maybe yes, a bit. That would show rejection of an independent judiciary, one of the basic foundations of our constititutional system, but then again a good friend of mine, Larry Kramer, the dean of Stanford Law School, has taken a similar position about the proper constitutional role of the judiciary (though without the calls for impeachment) from the left.
But the Stalin reference doesn't come initially from me. One of the leading spokesman at the conference, while criticizing Justice Kennedy for "uphold[ing] Marxist, Leninist, satanic principles drawn from foreign law," also twice approvingly quoted Joseph Stalin's famous line, "no man, no problem." The full line, of course, is "Death solves all problems: no man, no problem." The Washington Post reporter was rather charitable, I thought, in speculating that the speaker "had in mind something less extreme than Stalin did and was not actually advocating violence."
Again, this was a conference centrally involving DeLay, two other House members, two Senate aides, and numerous other prominent Republicans and conservatives.
I'm wondering, if these guys lose a couple of elections at some point, how close we will be to having our own U.S. version of the Sunni insurgency in Iraq.
I said this conference made two things especially clear. The first is that these people are committed to the overthrow, and perhaps the violent overthrow, of the U.S. constitutional system. The second is that they are really, really strange. What would be especially comical, if it weren't so menacing, is the extreme displacement of proportionate emotional response that they display. There have been a couple of recent Supreme Court opinions in which Kennedy and others have cited some foreign law or legal principle in support of a conclusion about U.S. law. I think this is fine; the likes of Justice Scalia (who I don't respect very much, but who I hope remains in a separate category) get bookishly apoplectic about it. But these folks get all worked up imagining that it is the culmination of a deadly Satanic conspiracy against them. I am reminded of the Steve Martin character in the movie "Dead Men Don't Wear Plaid" who goes on a crazed rampage whenever he hears the words "cleaning woman."
Paranoid insanity can grip an entire country, or at least its leadership (see again Berlin 1933 or Moscow 1937). But if you are confident enough that it is doomed to ineffectuality, then it is cause for pity or, among the less kind-hearted, mocking laughter.

NYU Tax Policy Colloquium - Peter Orszag on "Saving Social Security"

Yesterday's Tax Policy Colloquium at NYU featured Peter Orszag of the Brookings Institution, presenting his forthcoming Journal of Economic Perspectives paper (with Peter Diamond), entitled "Saving Social Security" and available here. With the main speakers being Orszag, Jason Furman (formerly with the Kerry campaign), and myself, one could certainly argue that not all viewpoints were equally represented. Still, we tried to have an intellectually open-minded discussion.
Points of general interest that Orszag made, or that emerged from the discussion, included the following:
--If we want to increase national saving, which seems to have been a key aim of privatization proponents such as Martin Feldstein in the late 1990s budget surplus era, then a much more straightforward and fruitful maneuver than playing with budgetary language in the hope of keeping Congress in check (i.e., by making the diverted payroll revenues look more off-limits) would be to exploit the overwhelming empirical evidence that people voluntarily save a lot more when the default rules on what happens to their paychecks require them to opt out of saving rather than to opt in. Orszag noted a study in which something like 25% would opt in to a tax-deductible savings plan, but 80% would decline to opt out if the default was changed, and 75% would remain in if they were forced to express a preference rather than having the default rule decide. I noted that, in a sense, taking advantage of this to increase national saving is a bit like a (genuine) free lunch. While not "free" in one sense, since the amount people have available for current consumption actually does decline if they save more, it would be "free" in the sense of not requiring them to depart from actual consistent preferences, insofar as these can be discerned.
--Even though some versions of the individual accounts idea have respectable supporting arguments, the Bush plan as it stands has aroused opposition from a number of leading conservative or pro-privatization economists, in particular (I might add) those who happen not to be angling for Bush Administration jobs. For example, Robert Barro views the Bush plan as simply another costly expansion of entitlements that would be harder than existing Social Security to scale back. Laurence Kotlikoff, who has strongly favored privatization for some time, thinks the Bush plan is terrible and will simply increase his bete noire, the burden being placed on younger and future generations.
--It is often argued that the government can't be given big current year positive cash flows from Social Security to play with, because if the money is there it will be spent. The argument assumes, however, something that needs to be demonstrated. So long as the government can borrow, the claim "if it is there they will spend it" misconceives how spending decisions are actually made. They can spend it whether it is there or not. And it is difficult to show convincingly that Congress's budget decisions are strongly or in a consistent way affected by Social Security's effect on the current year unified budget deficit.
For example, does anyone really think Bush wouldn't have gone to war in Iraq with zero financing but for the Social Security surplus? Or that he wouldn't have done the 2003 tax cut?
Once deficits are in the several hundred billion dollar range, we tend to think of all the big numbers as the same. Politicians get credit for a smaller deficit only when they can show a salient change relative to some arbitrary baseline ("I cut it in half") or when it crosses a salient marker. For example, a President might get much more credit from reducing a $50 billion deficit to zero than from reducing it from $600 billion to $450 billion. And this view of things tends to undermine thinking that the Social Security surplus has a strong generalizable effect on other budget decisions.
"If it is there they will spend it" seems to reflect a misguided analogy between household behavior and government behavior. Liquidity-based budget constraints don't bear on governments in quite the same way as on households, since governments have the power to levy taxes tomorrow, thus expanding their ability to borrow today.

A headline that speaks for itself

Cardinal Law, Ousted in U.S. Scandal, Is Given a Major Role in Rites

How "real" is the Social Security Trust Fund?

Debate is raging these days about how we should think about the Social Security Trust Fund. What matters, of course, is not how we think about the Trust Fund itself, but what implications for policy our thinking about it in one way or another might have. Fundamentally, if we could determine what set of future policies were best, it wouldn't matter how we thought about the Trust Fund, except insofar as such thinking created issues about the ability to make credible commitments that needed to be part of the determination.
On one side, President Bush took his clown show to West Virginia yesterday, for a photo op at the Bureau of Public Debt Office. This is the place that - to sound like Eric Idle, doing his hilarious documentary-reporter routine in the Monty Python-affiliated Beatles satire "All You Need is Cash" - one can actually visit to actually find where the actual Trust Fund is actually kept. Or at least, the office contains a file cabinet with physical evidence of the bonds that the Trust Fund holds or is deemed to hold (more on that choice of terms in a moment).
Bush, whose expressive range is limited, the poor devil, but who does jejune sneering rather well because it comes from the heart, later stated: "Imagine, the retirement security for future generations is sitting in a filing cabinet."
It is, of course, a bit amusing to have the U.S. President sneering at the reality of U.S. Treasury obligations. Is he also planning to visit the Department of Defense, find a room where weapons procurement contracts are kept, and sneer: "Imagine, the means for our country's future national defense are sitting in a filing cabinet."?
Note, by, the way, that the retirement security for future generations could indeed be sitting in a filing cabinet if, say, the cabinet held sufficient value in bonds that had been issued by foreign governments and were certain to be honored.
Aiding the Democratic side of the debate, the above-linked article notes that, "[w]hile the paper IOUs are not negotiable instruments, they still represent trust fund Treasury bonds that are backed by the full faith and credit of the United States." And Democratic Congressional veteran Charles Rangel is quoted as saying that "Americans who paid into Social Security are legally entitled to have that money fund Social Security until 2052 — as estimated by the Congressional Budget Office — just as all other investors in U.S. bonds are entitled to their return on their investments."
Rangel is wrong as well, however. Now, it is true that, as the law now stands, Social Security claimants will be entitled to receive the benefits on the books for as long as the Trust Fund is deemed to have a positive balance, or until 2052 based on current projections. But Congress could change the law tomorrow by repealing Social Security, and all as yet unaccrued legal entitlements would vanish. This would not be a literal act of legal default in the same sense as refusing to honor bonds held by investors (although it is true that Congress could decide to authorize that as well).
Those taking Rangel's position would understand this if they thought it through a bit. If the two claims were the same, then reducing Social Security benefits effective in 2040, say, would be equivalent to announcing a reduction in the return that will be paid on outstanding U.S. government bonds. Everyone realizes that these two acts would differ, because less of a putatively unbreakable promise has been made in the future benefits case, thus permitting a change without creating comparably serious credible-commitment problems for the U.S. government in the future.
As I have discussed elsewhere, the Trust Fund is neither a "sham," as the Bush side would have it, nor an actual source of paying for future benefits, as the Rangel side would have it. You can't actually finance something with self-owed obligations, or I would pay for my kids' college education by stuffing my personal IOUs into my filing cabinet. The Trust Fund is essentially a historical record of certain cash flows, kept according to a mandated set of rules. But it is meant to create some level of political pre-commitment, albeit less than that which is created by issuing a U.S. government bond to a third party. By the way, this pre-commitment is meant to have elements of a sword as well as a shield, in the sense that Congress is expected to think twice about increasing benefits if the Trust Fund, as officially measured, is not expected to be able to cover them. So it offers something to foes as well as friends of benefit expansion.
In sum, while the Trust Fund does not contain assets of the U.S. government (or equivalently, it contains precisely offsetting assets and liabilities), it does represent a set of conventions that people have agreed to treat as at least somewhat meaningful. Bush's cavalier sneering misses this, just as Rangel overstates the degree to which we have locked in our permissible set of Social Security policy choices.
All this being said, if Bush's Social Security plan (i.e., buying lots and lots of stock on margin) made any sense, I certainly wouldn't regard the defects in his way of talking about the Trust Fund as counting against the plan. He is merely trying to dramatize the crisis aspect, which would be more germane to the debate if not for the fact that, as I noted in an earlier post, his plan "is a bit like saying: 'The house is on fire, and we have responded by drawing some snazzy floor plans for a tasteful renovation.'"

Responsible conservatism

In today's New York Times, Bruce Bartlett calls for a value-added tax (VAT) to help narrow the fiscal gap. Bartlett is a genuine small-government conservative, as opposed to those who simply borrow the clothes, and he recognizes that the "starve the beast" strategy of cutting taxes to shrink the government didn't work, because the governing Republicans proved to have no genuine interest in following it (or the structure of political incentives ensured that they would not). He rightly points out that it is a matter of when and how we raise taxes, not if. And a VAT - which he notes has been less of an ever-expanding money machine in other countries than legend would have it - is indeed the best reasonably available choice from an economic efficiency standpoint.
I myself, for distributional reasons, would prefer a progressive consumption tax, such as David Bradford's X-tax, in lieu of both the proposed VAT and the existing income tax. Others, such as Kevin Drum, would prefer income tax rate increases and base-broadening, along with a gasoline tax (which I would endorse) and an inheritance tax (a tougher issue).
These are all reasonable positions. If we lived in a better political world, these would be the options getting debated. Dream on ...

Theofascism on the march

I never thought I would be posting entries about constitutional law, a topic that I consider intellectually overrated in legal circles as it falls between two stools, being neither policy nor history.
But Congressional Republicans, in addition to encouraging or at least excusing the murder of federal and state judges, as noted in my previous post, are also more mundanely seeking to undermine - or should I say overthrow? - the U.S. constitutional system. If you think that's too extreme, consider that the bill I am about to describe need not be the last step; if they had their way it might simply be the first.
Unsurprisingly, this bill, recently introduced by Brownshirt Brownback and others, has an Orwellian title, the "Constitution Restoration Act of 2005." As Elvis would say, it goes something like this:
Sec. 1260. Matters not reviewable
Notwithstanding any other provision of this chapter, the Supreme Court shall not have jurisdiction to review, by appeal, writ of certiorari, or otherwise, any matter to the extent that relief is sought against an entity of Federal, State, or local government, or against an officer or agent of Federal, State, or local government (whether or not acting in official or personal capacity), concerning that entity's, officer's, or agent's acknowledgment of God as the sovereign source of law, liberty, or government.
Sec. 1370. Matters that the Supreme Court lacks jurisdiction to review
Notwithstanding any other provision of law, the district courts shall not have jurisdiction of a matter if the Supreme Court does not have jurisdiction to review that matter by reason of section 1260 of this title.
SEC. 302. IMPEACHMENT, CONVICTION, AND REMOVAL OF JUDGES FOR CERTAIN EXTRAJURISDICTIONAL ACTIVITIES.
To the extent that a justice of the Supreme Court of the United States or any judge of any Federal court engages in any activity that exceeds the jurisdiction of the court of that justice or judge, as the case may be, by reason of section 1260 or 1370 of title 28, United States Code, as added by this Act, engaging in that activity shall be deemed to constitute the commission of--
(1) an offense for which the judge may be removed upon impeachment and conviction; and
(2) a breach of the standard of good behavior required by article III, section 1 of the Constitution.

On its face, the provision is narrow. Since no one is going to sue a public official for merely stating his or her opinion that the law comes from God, perhaps this is just about posting the Ten Commandments in courtrooms & such, which one could argue not wholly unreasonably, whether or not convincingly, should either be (a) permitted notwithstanding the First Amendment or (b) considered no big deal in the long run even if inappropriate.
What the bill does, however, is say that arguable First Amendment claims can't be reviewed by any court and that judges who "engage in any activity" involving review shall be impeached forthwith.
So, if this works, why stop here? Why not make all review of laws concerning First Amendment claims, including suing to prevent the establishment of a state religion, impermissible? Or all review of a President's claim of unlimited authority over American citizens as commander in chief? With impeachment the consequence for any attempted review?
Lest I sound too alarmist, I should say that I don't think this will work. The point of real interest is simply that, for the first time in United States history, important political players, who indeed have leadership roles in a party that controls all branches of government, want to destroy the U.S. constitutional system.

A split in the Republican Congressional ranks?

Senator John Cronyn (R-Tex.) suggests that the recent spate of violence against judges might be the judges' own fault: "[J]udges are making political decisions yet are unaccountable to the public, [so] that it builds up and builds up and builds up to the point where some people engage in violence."
But he does state that the attacks on judges are "certainly without any justification."
House Majority Leader Tom DeLay, by contrast, appears to support violence against judges, as per his post-Schiavo comment that "[t]he time will come for the men responsible for this to answer for their behavior."

Inconvenient fact

De mortius and all that, I suppose, but the fact is, as Christopher Hitchens notes, that one of the late Pope's legacies was permitting Archbishop Bernard Law to escape the legal justice system in Massachusetts by giving him a sinecure job in the Vatican. Otherwise, Archbishop Law "would have [had] to face trial for his appalling collusion in the child-rape racket that his diocese had been running. The man had knowingly reassigned dangerous and sadistic criminals to positions where they would be able to exploit the defenseless. He had withheld evidence and made himself an accomplice, before and after the fact, in the one offense that people of all faiths and of none have most united in condemning.... And it has been conclusively established that the Vatican itself - including his holiness - was a part of the coverup and obstruction of justice that allowed the child-rape scandal to continue for so long."

Fiddling around

President Bush's perpetual campaign, funded by people who no doubt are turning a profit on giving him money, is now running TV ads denouncing the Democrats for failing to come up with any Social Security proposals. At least he has a plan, the ads say, and he has asked them to contribute their own Social Security ideas, but when is the last time the national Democrats suggested any?
The ad is characteristically and comically deceitful. Given the total irrelevance, admitted by the White House, of the private accounts plan to addressing the Social Security (or broader) fiscal gap, it is a bit like saying: "The house is on fire, and we have responded by drawing some snazzy floor plans for a tasteful renovation. What have they done to fight the fire?"
A further aspect of this lame deceit is the following. Again, Bush proposes a plan that does nothing to address the fiscal gap, and then he asks the Democrats to submit their own ideas towards solving the problem. Transparently, the aim is goad them into proposing tax increases and benefit cuts, as he has been unwilling to do himself.
So perhaps it's also a bit like daring the Democrats to call in the fire department, while lying in ambush with a gun to shoot the firefighters if they arrive.
Not even to mention, of course, that he was looking to steamroller them on this issue with his vaunted but vanished "political capital," and is only asking for their input, for the first time in his Presidency, because he is stuck. So it's also a bit like gobbling up three-quarters of the food and then complaining that your table companion won't share what's left.

And on a calmer note (relating to Social Security)

One of the interesting things about this year's Social Security debate has been the relative honesty of the Administration's public position. I say relative honesty, even though I agree with what a lot of what the Krugman-DeLong-Joshua Micah Marshall camp says, in part because the baseline for comparison is so low, after, say, the Iraq war and the Medicare prescription drugs boondoggle. But still, the White House has admitted, and thus assisted the ignorantly pseudo-"objective" press corps (objective in the sense that it makes no distinction between true statements and demonstrable lies) in stating, that the private accounts idea does not address the fiscal gap.
An interesting question is why the Administration has been more forthright, when the other strategy seemed to be working so well for it in domestic politics. One theory is that in Social Security false or unsupportable statements are easier to unmask. By comparison, no one in the US outside the government really knew anything about WMD, or about the actual evidence (unlikely though it seemed) of Saddam's ties to Al Qaeda, etc. Whereas here the facts and forecasts are on the public record. But that would assume that one can't argue to reasonably good effect in public policy debate that 2 + 2 = 5, rather than 4. Hard to judge that one until it is tried.
An alternative theory is that internal Administration politics are responsible. Larry Lindsey and others now departed apparently used to tell President Bush that Social Security privatization was a complete free lunch. Greg Mankiw and others who are there today know better and tell him so, and apparently after being told enough times he has accepted it. (One would need to know a lot more than I do about the Administration's internal dynamics to explain why Karl Rove has permitted this, whether he himself listens to them, etc.)
For this I am willing to say that Mankiw, who has been taking some brutal hits lately, such as here), deserves some credit. On the other hand, his position on Social Security privatization is pretty silly, and, ignoring the constraints under which he operates, unworthy of a thoughtful leading economist. He has two main tenets. The first is that the White House plan costs nothing. Here he doesn't claim a free lunch, but rather that the plan ostensibly would offset the payroll tax diversion with future benefit cuts, permitting it to be a breakeven over time. This looks true on the face of things if you take a long-range view as I am inclined to do (ignoring the point made by Jason Furman that the loan-payback feature contemplated by the White House would require taking away more than 100% of some people's traditional benefits), but it ignores the political risk of reducing revenues now in exchange for merely promising to cut benefits in the distant future.
Mankiw's second tenet is that the White House plan increases consumer choice, ostensibly showing that it must be good given his first tenet. Now, I like choice as much as the next feller, and I certainly wouldn't want a government plan picking my car, breakfast cereal, etc. But how relevant is this point here? Consider first that the whole idea of Social Security is to reduce choice on paternalistic grounds because of (a) identifiable failures in people's planning (failure to engage in optimal lifetime consumption smoothing and/or to choose an optimal asset portfolio), and (b) a very powerful normative theory of how people should behave here if they want to maximize their own utility. Choices such as to blow it all before retirement or to blow it all on Enron stock do not advance people's subjective welfare in the same manner as picking cereal with or without dried cranberries.
If Mankiw thinks people's Social Security portfolios are sub-optimal unless they include a stock-bond mix, he is ignoring (a) the explicit portfolios people with other saving have, and (b) the implicit portfolios that all of us have as taxpayers and future benefits claimants. All of us are heavily subject, via this status, to risks concerning the US economy and stock market. So it is not clear that, say, a 60 year old with no assets other than her expected government retirement benefits is under-diversified. If anything, she is probably too heavily subject to US economy risks and, if she could add just one investment asset, ought to pick a fixed real-life annuity that is as independent of these risks as politics permits.
Investment choices would be heavily constrained under any reasonable private accounts plan anyway. About the only choices people would really have are (a) throwing darts at the wall regarding which funds to pick, with no real way of knowing which would be the right ones, and (b) a bit of choice, but not too much, concerning the risk versus return tradeoff. The big consumer choice they'd actually want - and very likely would end up getting even if today's proponents try to block it - would be the ability to borrow against the account and thus wipe out its retirement-saving value, thus undoing the fundamental goal of requiring at least a minimal level of rational retirement saving. Add in the administrative costs of all the asset-churning in small accounts, and the game is pretty much over
Choice, often good. Being knee-jerk about choice without reflecting on the context, bad.

The face of evil

How can anyone tolerate that nauseatingly toxic slimeball, Tom DeLay? Now he appears to be calling for violence against and/or impeachment of the conservative Republican judges who turned down his hypocritical efforts to meddle in the Schiavo case. This is a man who would have made a great majority leader in the Reichstag circa 1933.

Wack job of the day

From one of the fundamentalist demonstrators working with Terri Schiavo's parents, linked here:
"Mahoney said the fact that Schiavo has survived nearly 10 days since the removal of the tube that has supplied her with nutrition and water indicates that she wants to appear before the House Government Reform Committee."
The estimable Mahoney also "challenged House Speaker Dennis Hastert, an Illinois Republican, to show that he was not 'just playing politics' with the subpoena." So the Republicans are starting to reap the whirlwind on this a bit.
We also learn on-line here that, in 1988, Tom DeLay apparently agreed that his father, having lost brain function in the same manner as Terri Schiavo, should not be connected to a dialysis machine to keep his empty shell alive. This, of course, did not prevent DeLay from describing a fundamentally identical decision in the Schiavo case as "barbarism."
DeLay's press secretary tries desperately to distinguish the two cases on the ground that a feeding tube is different from a ventilator. I suppose he could also have distinguished them on the ground that the patients' last names were different.

UPDATE: Here is an astonishing story about a former U.S. intelligence officer in Iraq, a self-proclaimed torturer of Iraqi prisoners, who is worked up about the fate of Terri Schiavo. I guess I was more literally correct than I realized in my earlier post where I suggested that if she weren't brain dead, "they'd be fine with the CIA torturing her."

A meme that deserves death

Yesterday's Tax Policy Colloquium at NYU featured a paper by Steve Bank of UCLA Law School, entitled A Capital Lock-In Theory of the Corporate Income Tax, available here. Although I like Bank's legal history work, I disagreed with a lot of the analysis in the paper, which attempted to link one of corporate law's main features - the fact that a shareholder cannot demand her proportionate share of firm assets, since distributions are controlled by the Board of Directors - to the imposition of tax at the corporate level. One of my main objections concerned how the paper, following an established law and economics tradition in legal scholarship, seemed to blend descriptive with normative analysis, i.e., why we have the type of corporate tax system we now have with why this type of system might be good. Bank disclaimed meaning to take this view (which is contrary to the anti-presentist historian's code that he well understands), so what follows is a criticism, not of him, but the law and economics tradition that he did appear to invoke at the paper's start, which describes the search for a satisfying "positive theory of the corporate income tax" that would justify it theoretically and explain "why we treat corporations differently than partnerships."
The meme I denounce, with I hope not quite Bobby Fischeresque passion, in the title of this entry is the "positive theory" meme, which purports to explain why a given rule exists in terms of why it is needed and good.
When Blackstone celebrated the English common law, the idea may have been that God, as a noted Anglophile (in the view of the English) had taken care to make it come out just right. (If I am wrong about the basis for Blackstone's belief, then never mind.) But today I think, at least in academic circles that are not theofascistic in the Bush/DeLay tradition, the basis for the "positive theory" meme has more to do with a confusion either about how evolution operates, or about the reason for certain fruits of evolution that we observe whether or not they are being attributed by the observer to evolution.
Suppose we ask why people have a pancreas. A teleological reverse-engineering approach makes perfect sense here. Figure out what it does, and you will know why we have it. And we have it because it does something that benefits us. [Not to deny, of course, the appendix, the apparently dispensable tonsils, etc.] The reason this approach makes perfect sense is that evolutionary pressures operating at the level of natural selection of individuals have created the equivalent of deliberate design, i.e., having something because it helps the individual who has it. And natural selection also operates at the gene level. As Richard Dawkins famously emphasized, genes are a fundamental level at which natural selection occurs, and thus we may observe design of genes that is as if the genes were trying to help themselves in being disseminated.
Evolutionary biologists used to think that natural selection operated at the species level in such a way that traits would exist "for the good of the species." E.g., a monkey might warn other monkeys that snakes were coming from the ground, or hawks from the sky, because it was good for the monkeys to be warned. Now, there certainly is some natural selection at the species level, for example, in the sense that a species that, say, as a result of runaway sexual selection, adopts genetic innovations that happen to be highly favorable to all of the members' survival might do better than one that, through the same process, adopted something with less of these side benefits. But "good of the species" adaptations must face the prisoner's dilemma problem. If I promote the survival of my species at the expense of my own survival (or that of my kin), then natural selection within the species will tend to select against whatever leads me to do this. For example, if the monkeys that issue the warnings get eaten more because they draw the predator's attention, there will be selection against their doing so (assuming genetic causation) unless there is sufficient offsetting benefit to themselves or their genes (e.g., aiding kin who share the gene, or else reciprocal altruism through deals that help both sides and in which shirking can be policed).
Maybe this is just an overly longwinded way of making the obvious point that society will not adopt collective institutions that are good for the society just because they are good for the society, unless the self-perceived interests of the individuals who influence political outcomes are served thereby. One certainly can't posit here natural selection at the societal level that has led only those societies with good corporate tax rules to survive. So to my mind it is a fallacy, akin to positing good-of-the-species adaptations without showing how they are sustainable at the individual and genetic levels, to look for "positive theories" or "justifications" in the standard legal literature sense, based on the premise that, as with the pancreas, once we decide what a given institution is doing (since we know it must be doing something good) we have as well a full explanation of why it exists. (Not to mention as well that these are usually single-bullet explanations, the more counter-intuitive the better, of institutions that have multiple effects both good and bad.)
Legal Panglossians, beware - I am onto you.

Kudos, this time, for David Brooks

I have certainly not been shy in past blogs about trashing David Brooks when I thought he deserved it, so I shouldn't omit to praise him for showing a bit more of that above-the-partisan-fray spirit that I had been hoping for when he started writing for the Times.
A couple of days ago, he pretty clearly called Tom DeLay (or at least his aides), along with Ralph Reed and Grover Norquist, "sleazo-cons" whose outrageous lobbying scams constitute "sleaze of a high order" that rank with the worst deeds of "Tammany Hall grafters and Chicago ward heelers."
Perhaps I am making Brooks' column sound more uninhibited than it actually is, as much of the above language is directed in particular at lobbyist Jack Abramoff.
But Brooks pretty clearly, as the record justifies, associates Norquist, Reed, and DeLay's people with the Abramoff-style operations. So I would have to say he is coming down pretty hard on these guys, and doing better than William Safire ever did at showing a genuine willingness to call things honestly.
Let's hope it's catching.

A "Yes, but" for Brad DeLong and Paul Krugman

Sorry for the almost week-long blogless period. I am trying to restore my posting frequency, as the tragedy noted in earlier posts recedes, but I was on vacation with family and never got around to it.
A couple of interesting points I mean to comment on appeared in the press while I was away. For one, the following column from Paul Krugman, which I am linking to Brad DeLong as his site (unlike the Times) doesn't require registration.
Herewith Krugman:

Sometimes you really have to wonder. It should be obvious that the Social Security Administration's estimate of the growth of unfunded liabilities says nothing - nothing at all - about the cost of delaying a "fix", whatever that might mean. But it seems that even many economists - to say nothing of Joe Lieberman - don't get it.
So here's an example, to illustrate the point.
Suppose that an asteroid is bearing down on our planet. If nothing is done, it will strike in 2019, inflicting $20 trillion in losses. At a nominal interest rate of 5 percent, that's a present value of $10 trillion.
If we do nothing about the asteroid, by next year the present value of the future losses from the asteroid strike will be $10.5 trillion. So the "unfunded liability" from the asteroid strike rises by $500 billion a year.
Suppose that there is a way to fix the problem: we can send Bruce Willis into space to blow up the asteroid. So here's the question: if we wait a year to send Bruce Willis into space, does that cost $500 billion?
Of course not: it could cost either more or less. If waiting a year means that we've lost our last chance to stop the asteroid, it costs $10 trillion - the full present value of the avoidable losses the asteroid would inflict. On the other hand, if Bruce Willis can still blow up the asteroid next year (or any year before 2019), there is no cost at all to waiting. In fact, if waiting increases the Willis expedition's chances of success, there's a benefit to delay.
In other words, the $500 billion increase in the present value of the future costs from the asteroid says nothing about the costs of delaying action. All it says is that the future is getting closer.
The same is true for Social Security. The future is getting closer, so the unfunded liabilities of Social Security are rising in present value (though not as a percentage of GDP). This says nothing at all about the cost of delaying a "fix.' Those costs, if there are any, depend on the nature of the fix.
And it's hard to see any costs of delaying the Bush version of a fix. After all, the problem is that in the absence of changes in the system, at some future date Social Security may have to pay reduced benefits. The only thing the Bush plan does to help the system's finances is - guess what - reduce future benefits. Why does waiting a year to announce benefit cuts that won't happen for several decades have any cost?

DeLong then dutifully chimes in:

"Paul is, of course, right. There is no real economic cost associated with delay by itself: the $600 billion per year number is just a standpoint-of-valuation and choice-of-units effect. There is a real economic cost associated with delay only if delay robs you of the opportunity to undertake the most efficient and effective Plan A and forces you to adopt an inferior Plan B for fixing the problem instead. That's not the case here."

This is an interesting little chestnut for me, because I am generally a fan of infinite-horizon forecasting (notwithstanding its absurd misuse in connection with the Bush Social Security plan that does nothing to restore long-term solvency), and indeed I have argued that the proper economic-accrual measure of what we call the budget deficit would be the year's increase in the fiscal gap - $600 billion in this example. One point I plan to think about a bit more is that, important a principle though economic accrual of future liabilities is for various purposes, for other purposes, relating to the probability of future events, it may miss the mark. For example, although I like to say that the Bush prescription drug enactment cost $16.6 trillion (the estimated present value of the unfunded benefits it promises), obviously it would have been worse for Bush to waste $16.6 trillion that was spent today, as this would be 150% of a single year's GDP. The difference is that we might not (surely will not) actually spend the $16.6 trillion now projected, so in a sense the current policy because we know it can't and won't happen. (Which is not to say the words have no bad consequences given how they shape expectations and the political consequences of inertia.)
Anyway, Krugman and DeLong are right about the Bush plan because it doesn't actually cut benefits until later. But if we were talking about a rational response to the Social Security fiscal gap, as opposed to the Bush plan, the fact that the gap under present policy keeps growing each year actually does indicate that there is a cost associated with delay. This is the opportunity cost actually to shift policy sooner rather than later. Some of the fixes, such as those involving the better-off among the current elderly, do become impossible if we don't do them now.
Also, by delaying benefit cuts (as distinct from the announcement date for future benefit cuts, which only affects planning and perhaps the political probabiliies), we lose the ability to cut them less steeply when we do cut them. Similarly, suppose you had to cut your consumer spending over the rest of your life. The longer you wait to start the cuts, the steeper and presumably more painful the cuts will be when you get around to making them. The familiar argument in the public economics literature for "tax smoothing" is similar.
SO: Krugman and DeLong are right that a year's delay in adopting the Bush plan does not cost $600 billion. But they would be wrong if they argued that the accrual of the future liabilities does not indicate any grounds for responding (actually, not just by pre-announcement) sooner rather than later.
The question of how to think about the government's long-term fiscal sustainability problems is quite intricate and complex; more so than I had thought for a while even after thinking about it for the last 10 years.

First, do no harm

It's good to see Congress keeping so busy working on the critical issues of our day. Having completed the baseball steroid hearings yesterday, they are now on to the case of the brain-dead woman in Florida whose husband says that she would have wanted her feeding tube removed. As a gambit to keep her alive, Senate Majority Leader Frist wants to call her as a witness, on the view that federal law concerning the protection of witnesses will then require that her feeding tube be kept in. And the Government Reform Committee in the House, fresh from its baseball hearings triumph, is working on legislation to intervene permanently regarding her care.
Despite the very real tragedy here and the moral complexities of the withhold-care and related euthanasia issues, it would be a mistake not to laugh at the crass cynicism of the U.S. Congress in milking this issue for favorable soundbites. So readers are invited to offer their own jokes here. Here are a few offerings:
--At last the Senate has found a witness on its own intellectual level.
--No wonder they're intervening. If brain-dead individuals can have their care terminated, half of the U.S. Congress might be next.
--It's a good thing she's brain dead, or else they'd be fine with the CIA torturing her.
--As long as Congress is in the business of offering medical care instructions for specific cases, I wonder if they could get me a new theraband for my shoulder exercises. I'm awfully busy, and apparently I need a prescription.

Taking out the trash

Some interesting news from a recent article by Sydney Blumenthal in Salon: Not only is Tom DeLay potentially in big legal trouble, but so are a couple of other big names in the slimy innermost circle of Washington politics:
"Meanwhile, the Justice Department has impaneled a federal grand jury to hear testimony into possible fraud and public corruption by one of the Washington lobbyists closest to DeLay, Jack Abramoff, and his business partner, public relations executive Michael Scanlon, DeLay's former press secretary. That investigation might yet encompass two other DeLay allies, former Christian Coalition leader Ralph Reed, another business partner of Abramoff's, and Grover Norquist..."
I believe this is the reputed rip-off scam that victimized Indian tribes.
Grover Norquist facing possible legal charges for corruption and selling government access? Perhaps Mr. Small Government will end up lamenting that the government's jail cells aren't one person smaller.

Tomorrow's headlines today

McGWIRE ADMITS STEROID USE BUT SAYS HE WAS ONLY TRYING TO GET HIGH
... "'Where's the buzz?', I kept asking after injecting myself." ...

Requiem for Social Security reform??

David Brooks, playing his I'm-thoughtful-and-above-the-fray card rather than his partisan card now that the election season has passed, worries about the apparent failure of President Bush's Social Security plan:
"[I]f Social Security reform fails ... it will be many years before any sort of big entitlement reform will come up again. The parties will keep playing chicken, and we will soon find ourselves catastrophically buried under our own debt."
Brooks is making a prediction, not an immediately verifiable or falsifiable claim about current policy. But I must say I strongly disagree. Actually, what I disagree with is not the somber prediction, which seems all too plausible, but the suggested causation.
Bush has gotten burned, not for trying to tackle the financing gap, which his Administration has for some time admitted is not addressed by substituting private accounts for existing benefits, but for trying to run a unilateral steamroller on a controversial policy change, on the supposed view that this would permit otherwise controversial benefit cuts to be made. Instead, he seems to have made benefit cuts even more of a political hot potato than they would have been standing alone.
There is no lesson whatsoever that the parties cannot, as in 1983, cooperate to make Social Security more sustainable by combining tax-side and benefit-side changes. If anything, what has happened this year reconfirms the lesson of 1983 by showing that alternative political approaches do not work.
Brooks blames the Democrats for playing Yasir Arafat, as he puts it, by turning down compromise offers floated by Republican Senators. At this point I'm not enormously interested in playing the blame game, but it certainly is worth noting that, after the way the Democrats have been rolled and excluded from all Capital Hill action over the last few years, a lot more would have been needed to persuade them that the Republicans meant to do serious bipartisan business and could be trusted at it.
Desperately offering concessions when you're way behind on points, and when you have zero track record of cooperative behavior in the past few years, is not the best way to test bipartisan good faith. So there is no lesson from the Bush follies that responsible bipartisan measures to address the fiscal gap have no chance. The lesson, rather, is that scorched-earth partisanship is a political dead end. Let's hope that the next generation of Republican leaders - since the current generation is lost beyond redemption - is listening.

At least (for a change) they aren't being actively harmful

Astonishingly - mirabile dictu - George Will has a good column today, laughing at the Congressional jackasses who have decided to hold hearings about the baseball steroids controversy.
The hearing is being held by the House's Government Reform Committee, formerly known as the Government Operations Committee. The rationale, apparently, is that it is about Educating America's Children, which apparently is a sub-category of government reform and operations. "Philip Schiliro, chief of staff for the committee's Democrats, says: 'If Sammy Sosa hit 60 home runs three times without being on steroids, kids should know that. That's a great message for kids.'" So there you have it, I guess.
Not to make light of the steroids issue, though I see it mainly as an issue of players cheating against other players and only secondarily as detrimental to fans, but I have also been amused by the Congressional blowhards who have been telling baseball that "if you don't clean it up, we will." And once they are done with that I suppose it will be time for them to tackle the Michael Jackson issue. But ethics rules for the House itself remain off-limits.

Tax Policy Colloquium - Kyle Logue on "The New Market for Tax Insurance"

Horrendous tragedies gradually recede, as they have to if you want to go on living, and things begin to return to normal. Yesterday's Tax Policy Colloquium, my fifth since a string of about 250 sessions (counting AM and PM) over 10 years with David Bradford came to an end, was easier than it's been, although certainly a heavy cloud still hangs over it. It has begun to feel permissible and feasible to laugh again.
Yesterday's paper by Kyle Logue of Michigan Law School (visiting at Virginia), available here, discusses the recent, apparently very small, trend of companies buying insurance against losing on a given big-money tax issue. The market is small because insurers can't easily make the law of large numbers work for them, as with car insurance, so instead it amounts to betting that their tax-expert underwriters are setting the odds right. In other words, the insurers are like bookies who don't have matching bets on both sides (the IRS hasn't gone to them to bet on its side of the over-under). But the issues are interesting, extending, for example, to why we might not (if we would not) want to let criminals insure against the sanctions they would face if caught. The question is not as obvious as it sounds (e.g., insurance doesn't lower expected value), and you can learn a lot, concerning how to think about more realistic issues, from identifying the conditions under which such insurance would be fine, even if you agree that those conditions do not actually hold.
Other places where Logue has presented this paper apparently focused on the fairly predictable question of, gee, isn't this just a trick by corporate tax shelter promoters to increase their sales and reduce compliance? The answer seems to be no, although one could imagine conditions where that would be the case. We try to take a more unpredictable slant at our colloquium, also one more focused on fundamentals, an approach that owes a lot to David Bradford but that is now engrained enough here to continue without him. So we focused on why the tax insurance market remains small, how tax insurance relates to the broader problem of legal ambiguity, how risk aversion and deterrence are related, whether Logue is right to emphasize the distinction between merits risk (will I win if audited?) and detection risk (will the IRS spot the issue?), and how the IRS should price advance rulings. On merits risk versus detection risk, we seem to have persuaded Logue he was wrong to focus on it, but then to have persuaded ourselves (and perhaps him) that it might be a useful distinction after all, though for different reasons than the paper suggested. Not to be mysterious about all this here; I just don't want to make this post too long and detailed.
I say "we" because actually this time I didn't talk much. Practitioner Ed Kleinbard and economist Jason Furman did most of the heavy lifting. As these sessions have gone on over the years, I have been aiming for the same transition that Stephan Marbury is supposed to be trying with the Knicks: less scoring, more playmaking. I hope I am being more successful than he is.

You reap what you sow

From the "War Room" at salon.com:
"Although Federal Reserve Chairman Alan Greenspan frequently spouts the Republican party line, he still gets the Oracle of Delphi treatment from members of Congress and the mainstream media. Greenspan has gravitas like most of us have breakfast, and when he pronounces judgment on something -- the economy, unemployment, Social Security -- his views are treated more often than not as the indisputable truth from on high.
"Is that starting to change? It's hard not to think so after reading what Harry Reid had to say about the Fed chairman yesterday. Appearing on CNN, Reid -- who is usually a killing-them-with-kindness kind of guy -- called Greenspan 'one of the biggest political hacks we have in Washington.'"
UPDATE: I guess I should add that I don't object to what Greenspan said, since I also favor a consumption tax, albeit preferably as a replacement to the income tax and with probably much greater progressivity than he prefers. But there certainly is no reason why either his position or his talents (admittedly significant, it seems, in terms of sensing macroeconomic trends) would lead his view on this to have any special weight. And he really has undermined himself with his increasingly clear partisan and ideological set of preferences, which I think he tries to hide behind the mask of the great Oz.
As a practical matter, Paul Krugman probably deserves credit (or blame) as the person who has licensed politicians such as Harry Reid to start attacking Greenspan as a partisan hack. And so long as these attacks are on Greenspan's broader political ruminations and interventions, not on his running Fed policy independently of direct political control, there's nothing wrong with it. A lesson to Greenspan and to future Fed chiefs that you should watch your partisan interventions if you want to preserve your reputation and independence would be very much in order.

One-trick pony?

I suppose there is a certain fascination to watching a slow-motion train wreck, and all the more so if it is just a movie so no one is actually getting killed. I am starting to think this is a good metaphor for the Bush Administration's Social Security campaign.
As the polls keep showing Bush heading due south on this issue at an increasing clip, he just pours more and more coal into the boiler (if I may continue the metaphor). His redoubled barnstorming tour, 60 rallies in 60 days, now includes Cheney (why don't I think the Democrats are trembling over this?) as well as the rapidly melting Treasury Secretary Snow.
Bush must be thinking: why not. He has never lost a single U.S. domestic political fight of any significance, so why not keep going with the tried and true, especially with fellow zealots telling him that this will be a big-time legacy, will eviscerate the Democrats forever, and so forth.
As someone noted in some other blog somewhere (I would attribute if I remembered where), the guy is basically a one-trick pony. All he knows how to do is make big gambles and pull out all the stakes trying to pull them off. Ex-alcoholics are prone to risky behavior, I gather, although in this case I assume he is being urged on by various non-ex-alcoholic advisors.
One reason Bush's tactical approach may be bad for him over the long run is that if you keep on slamming down your chips and doubling your bets, at some point you are likely to lose, simply by the law of averages.
But another aspect of his problem comes to mind as well. I am reluctant to mention the name Hitler here, because, as much as I despise Bush, I recognize that the comparison is out of line. But I mean it as a typology of tactical approaches, not as a moral comparison. One could favor super-aggressive tactics and be a good guy, I suppose, although I tend to think it is associated with a bullying temperament that probably correlates with being vile.
Anyway, what I mean is this. Hitler just kept on bulling forward, making big aggressive moves, daring others to stand up to him rather than back down, etc. In a way this is how Bush does politics.
This approach can lead to stunning successes, as it did for Hitler through his run of astonishing victories from his taking over Germany through the Sudetenland and right through 1940. But while the unexpected (because unusual) boldness and daring of this approach can lead to stunning successes, it has a couple of problems. First, it is not always the optimal approach. One-trick ponies can't adapt to other tactics that may be more suited to a given problem. Second, people start to catch on to the bully, and it affects their reactions. Once enough of them realize the degree to which you are aggressive and insatiable, they may start treating you differently, to your detriment. Indeed, the earlier surprise factor may have been the main reason it ever worked. Sticking to 2005, since the historical analogy is clear enough, Democrats who Bush needs this time have learned that you can't make deals with him.
Anyway, the fact that Bush has been so successful politically so far does not rule out his experiencing really big political failures from hereon in. Indeed, the same tactics and qualities that brought him the successes may also start to drag him down. Although the downside for him is merely political failure, not a bullet in a bunker.

And on a much lighter note ...

... I avoided watching the Academy Awards the other night, less on principle than because I find the ceremony, and many of the films that typically are up for consideration, both boring and stupid. Plus, if you have skipped most of them, it's even harder to motivate any interest.
But this doesn't mean one can't check out who wins the awards, especially since I had seen two of the main candidates: Million Dollar Baby and Sideways. I was glad to see Eastwood and Million Dollar Baby do so well. I liked this film when I saw it, although I would call it good but not great and perhaps a bit on the stereotyped side. But it has lingered on my palate quite well (to sound like one of the characters in Sideways), whereas some movies I start to forget even as I am walking out of the theater. Likewise, Sideways, though a bit implausible in how well the two loser guys seemed to be doing, was quite enjoyable and pretty good, which these days is high praise.
(Presumably, the reason alternative music is artistically doing so much better these days than independent film is that the production cost and cash stakes are so much lower.)
I don't join the number of those who complain about Scorcese losing out again, even though his films from the 1970s through the Raging Bull/King of Comedy/After Hours era are among my absolute favorites. Some of his past best-director losses (e.g., to Kevin Costner) were ludicrous, but for the most part he just doesn't seem to make interesting films any more, and thus for many years I have been staying away.

David Bradford on Social Security reform

On this day when I am trying to serve David Bradford's memory via the WSJ piece that I mentioned in my previous post, I thought it might make sense to give his views on Social Security reform, which I know pretty well because we frequently discussed these issues.
David's biggest concern about U.S. fiscal policy, although it wasn't the main focus of his writing, was the fiscal gap. He was beginning to worry about the nightmare scenario of a capital markets meltdown with hyper-inflation and the like, but by far his main concern (a bigger issue to him than to me) was future generations, whom he felt we were treating unfairly. For this reason, he thought it vitally important to slow down entitlements growth and increase national saving.
Although he called himself a Republican (I told him he was a Rockefeller Republican), David actually liked the Social Security system the way it is, apart from the generational transfer, lack of pre-funding, and likely adverse effect on national saving. That sounds like a lot of objections, but what I mean to emphasize is that he liked the basic structure of offering people a mandatory fixed real life annuity, which he thought all sane people would want in their portfolios. Thus, he didn't think much of the privatization (oops, sorry, surely I meant to say "personal accounts") idea of replacing this system with another set of debt-financed risky investments that people can make on their own anyway.
Although he refused to accept quite so negative a view of the Bush Administration as that which I generally urged on him, feeling that it was still politics as usual and that the Democrats would comparably have blown up the fiscal gap, he did consider the Administration's current push on Social Security a complete waste of time at best, and possibly another disaster in the making like Medicare prescription drugs. He would have liked it, however, if all the rhetoric about solving problems now and providing for the future had actually been linked to a policy proposal that pointed in that direction.
One last point about David and the Administration's fiscal policy is that he didn't think they actually passed tax cuts in 2001 through 2003. To him these were simply tax shifts, to be offset later, given the fiscal gap, either by tax increases or by effectively retroactive reductions in transfers that might look different from tax increases in form but would be similar in substance.

David Bradford

My regular readers, and I don't know how many or few you are, may have noticed that over the last couple of weeks this blog has fallen silent. The main reason has been pretty simple. I have not been in the mood to blog because I have been grieving over the injury and untimely death of my good friend and close professional colleague David Bradford, who was injured in a fire on Tuesday, February 8, and who unfairly, unjustly died this past Tuesday, February 22. Here is the NY Times obituary.
A piece I wrote honoring David and his accomplishments is scheduled (they tell me) to appear in the Wall Street Journal on Tuesday, March 1.
MARCH 1 UPDATE: The piece has in fact appeared, and WSJ on-line subscribers can access it here. I didn't feel I had the leeway to argue with their taking out a couple of small personal touches, my calling David a great economist "and a great human being" in the lead sentence, and my closing paragraph before they deleted it, which read: "Everyone who knew David, and I was lucky to be a close colleague, will remember not only his intellectual gifts and contributions, but his unfailing warmth, enthusiasm, kindness, and joy. We will all miss him."

Good first sentence

From Julia Phillips' "You'll Never Eat Lunch in This Town Again," a winner in style as well as content:
"She watched herself watching her nails dry and the news washed over her, a litany of chaos, lies, and despair."

More double-talk

It's hard to say what is worst about Bush: the sheer insanity and profligacy of his policies, or his utter debasement of reasoned and logical political discourse - never a strong point of politics in a mass society at the best of times, but now approaching a sub-nursery school level.
This buffoon has been yammering about how Social Security is "flat bust, bankrupt," etc., due to a $10 trillion infinite horizon fiscal gap. Plus more self-congratulatory blather about how he doesn't leave problems for future Americans to deal with, and the people should demand this from their leaders, etc.
Meanwhile, the unfunded Medicare prescription drug benefit that he strong-armed through Congress, totally unfunded and originally estimated to cost $16.6 trillion in the infinite horizon, is already proving costlier than expected. There is talk in Congress about reducing it - refreshingly, coming in the main from Republicans, who did not want such a huge expansion of government outlays even if they held their noses and went along with it for political reasons.
So we get today the headline: BUSH VOWS VETO OF ANY CUTBACK IN DRUG BENEFIT. He's standing tall to defend what he calls, with characteristic modesty, this "landmark achievement."
The utter debasement of political discourse is shown by the complete impossibility of reconciling these two sets of things that he says within hours, or even I suppose minutes, of each other. There evidently is no need for the man's statements to be even minimally logically consistent and defensible. This is how societies crash and burn - when reasoned discourse has vanished from the decision and discussion process. (Well, maybe I am being too hyperbolic, since this is just Bush, not the totality of our political process.)
The reason he can even try to get away with this inconsistency is that the Medicare prescription drug benefit has no dedicated funding whatsoever. So he can deny that it's "bankrupt, flat bust, broke" because he lacked the minimal responsibility to even try to provide dedicated financing for it. Had he done so and thus been slightly less irresponsible, he would have to treat its condition as worse (even though it would actually have been better), if the dedicated financing proved to be insufficient. But provide zero funding, unlike the case of Social Security, and you are home free.

Emperors with no clothes

What a surprise. The new Medicare prescription drug benefit that the Bush Administration steamrolled through Congress is now being estimated to cost $720 billion over its first ten years in force. The Administration sold it to Congress (where some conservative Republicans, needed for the majority, were restive) on the ground that it would cost "only" $400 billion over the ten years that were being estimated. This was dishonest from the start, because the Administration knew that its own estimates had gone up to $550 billion, but it was also misleading in the sense that the earlier 10-year estimate included two years (2004 and 2005) when the benefit wouldn't even exist yet. So it was bound to rise substantially once the estimates were looking at its first ten years of operations. Some members of Congress nonetheless proclaim themselves shocked, shocked. They certainly should have known better, but the less attentive public was being gulled by the use of a ten-year forecast that was not actually representative of expected annual costs once the program was up and running.
The Medicare Trustees have already estimated the infinite-horizon fiscal gap for the Medicare prescription drug benefit at $16.6 trillion, or more than 50% greater than the infinite-horizon Social Security shortfall that the Administration is so fond of trumpeting. Possibly the $16.6 trillion forecast is alteady being exposed as too low. It would be interesting to hear the Administration explain why $10 trillion is intolerable while $16.6 trillion is just fine.
UPDATE: Oops, make that not $720 billion over ten years, but $1.2 trillion if some possibly dubious cost-saving offsets that are being claimed by the Administration fail to materialize.

Very sad news

Some very sad personal news involving a colleague and good friend. I am hoping everything will be okay. What happened is in the public domain but rather than post it here I invite friends who don't know the news to contact me off-line.

First CD of the year to go on my year-end best-of list

I have been playing the Fiery Furnaces' "EP" (41 minutes despite the name) pretty regularly since it came out earlier this month. The Fiery Furnaces divide the world into those who wince and those who say, "Okay, I'm done being a nice guy about this: If you don't like Blueberry Boat, I don't like you." Between the precious or precocious twenty-something sensibility, the careening around within and between songs, and the sound that somebody called early Who meets Captain Beefheart plus a chanteuse, they are not for every palate. Then again, Radiohead hasn't done much for me. Some will find "EP" irresistible even if they steered clear of the FFs' first two CDs.

An early proposal for private accounts outside of Social Security

David Brooks becomes one of the early movers in the "What do we do now?" debate arising out of the ongoing collapse of President Bush's plan to fund private accounts by diverting Social Security taxes. He suggests reviving a late-1990s proposal called KidSave, under which "the government would open tax-deferred savings accounts for each American child, making a $1,000 deposit at birth, and $500 deposits in each of the next five years. That money could be invested in a limited number of mutual funds, but it couldn't be withdrawn until retirement. Over decades, it would grow and grow, thanks to the wonders of compound interest, so that by the time workers retired, they would each have a substantial nest egg, over $100,000, waiting for them."
This type of thing - although probably not this variant - is a potential political winner for a couple of reasons. The first is that many Democrats like private account add-ons so long as they don't come out of Social Security's dedicated financing. The second is that, if there is no stated financing, it looks like free money. Everyone likes free money.
In fairness to Brooks, he offers a little bit of financing: indexing Social Security benefits to prices not wages, and agreeing not to extend the Bush tax cuts. But this would still leave the fiscal gap, at a rough guess, in excess of $60 trillion even before we consider the cost of the KidSave accounts. So this is a dubious proposal from the standpoint of fiscal sustainability.
From a generational standpoint, the proposal is a bit ironic. Younger generations are given an unfunded benefit that they of course will have to pay for in the fullness of time.
From the standpoint of increasing national saving, the proposal is likewise a dud. It doesn't increase national saving, any more than you increase your own net saving by borrowing to invest. (Not continuing the Bush tax cuts would, however, do a bit of good here.)
The proposal is potentially quite progressive within a given age cohort, however. In effect, it is a uniform transfer or demogrant that eventually would be funded, presumably, by means-related taxes such as the income or payroll tax or a VAT. (Even flat tax funding would be progressive since rich people earn and consume more but get the same-size account.) So we can give Brooks points for that, noting that he is actually willing to aid poorer people in pursuit of his "ownership society" goals, although without credible financing one wonders how much it is really worth.
I have suspected for a while that the action is going to end up in this type of territory, although more likely with accounts for current workers (who vote) than for children. That is, the most conceivable bipartisan deal involves savings accounts outside of Social Security but still without new net government funding, meaning that they are unlikely to make our overall policy more sustainable or to increase national saving or to aid younger generations relative to older ones.

A glimmer of sunlight??

The New York Times says that President Bush is planning to seek major cuts in farm subsidies. If so, this would be absolutely the first time I can remember, after more than four years in office, that he will be actually acting on the rationally pro-market even when anti-business principles that conservatism (Chicago-style at least) has at its best. Recall by contrast four years of never vetoing a spending bill, the steel tariffs, the worst record on free trade since President Hoover (according to Bruce Bartlett), unsustainable tax cuts, ostensibly seeking to increase national saving through Social Security reform by borrowing all of the supposed new saving, etc., etc. If we are going to get conservative policy distributionally, it would be nice if we also got it economically in places where it makes sense, and this has not previously been the case under this Administration.
We're a very long way from seeing any proof that the Bush Administration is serious about cutting farm subsidies, or that it has the power to do so even assuming seriousness. But at least we have now a gesture towards a start.
UPDATE: Other blogs note that this may simply be a cynical ploy to get the credit for urging something that the Administration knows won't get through Congress, and may not even plan to push for. Worse still, they suggest that there may be a plan afoot to cut the combined Food Stamps/farm subsidies budget and then take it all out of Food Stamps. That would certainly be kind-hearted.

Tales of the weird

This from an account of President Bush's latest campaign-style stop to sell his Social Security plan:
"A Social Security couple ... on stage described their two children and their third on the way. Bush looked up and said, 'Georgia?' The room fell silent for a couple seconds until he said, 'I hope you don’t name her Georgia!' Bush laughed and the room followed suit ...
"He digressed for two or three minutes talking about how important exercise and prayer are to him.
"When a young girl asked him to recite Proverbs 17:17, he said he couldn’t, then that the question was too easy, then that she should do it, which she promptly did."
Sounds like he is channeling his famously goofy Uncle Prescott.

Hilarious idiocy, part 2

As my previous post noted, the White House's claim that people would keep every penny in their private accounts, rather than losing the amount of payroll taxes diverted into the accounts plus 3% percent annual interest, is arithmetically equivalent to their preferred description, which is that you keep the entire account but lose an identical amount via your traditional-system benefits. Despite this arithmetical equivalence between the description they dislike and what they concede is the reality, they have succeeded in getting the Washington Post to publish a retraction, headlined with the words: "An earlier version of this article incorrectly described how new private accounts would work under President Bush's Social Security plan. This article has been corrected."
What's next? If the Post reports that President Bush's second term is scheduled to last for 4 years, must it issue a retraction if the White House says no, the term is actually 48 months?
Further merry shenanigans in the "corrected" retraction article include the following:
"In effect, said Democratic economist Peter R. Orszag of the Brookings Institution, the system works like a loan, in which the government grants workers 4 percentage points of their payroll tax to invest in stocks and bonds. The loan would have to be paid back with interest out of workers' monthly Social Security checks.
"But Robert Pozen, an investment executive who served on the president's 2001 Social Security Commission disputed that characterization. A worker is simply paying less into the system so he gets less back.
"This is in no way a loan," Pozen said."
A word on Pozen. At the law firm where he was a partner when I was a young cub associate, he was most famous for reputedly screaming "I don't give a f--- about your baby!" to an associate with a young child whose help (hers not the child's) he needed over the weekend. The only time I almost worked for him (since I did tax and he didn't) was the occasion, at 6 pm on a Friday, when he asked me to do a 50-state ERISA law search over the weekend. Even at this late date, I probably ought to send a bottle of champagne to the partner I was working with at the time who very kindly got me out of the assignment. But I digress.
I'm not sure if I want Pozen as my investment executive, although I don't think I could afford him anyway. If he wants to say that something isn't a loan even though it is arithmetically equivalent to a loan, that's fine if it makes him feel good, but it's not the type of insight (or candor) that I would want from someone who was handling my money.

Hilarious idiocy

The White House, as linked on the Drudge Report, angrily explains today what a lie it is, per sources such as my previous post (quoting a high Administration official, to say that the Bush Social Security plan would take back investment returns from private account holders up to 3% annually, based on the funds they diverted.
Au contraire, the White House says, "Reality: Under President Bush's plan, participants would get EVERY SINGLE PENNY OF THEIR RETIREMENT ACCOUNTS -- BOTH the PRINCIPAL AND INTEREST."
To quote a bit more from the White House press statement:
"--For example, a worker who decides against taking a personal account might, in the future, get $15,000 annually in benefits from the traditional system, reformed to be permanently sustainable.
"--Another young worker could choose to invest in a personal retirement account. In exchange for the right to get the account, he gives up benefits from the traditional system. For example, he might give up one-third of those future government benefits, and be entitled to receive $10,000 annually from the traditional system.
"--A personal retirement account would belong entirely to the worker. If the account earns a 3% real rate of return - the worker would be right back where he started - at $15,000 of combined benefits per year."
Hold on, boys. The system you so indignantly distinguish from the one I described is in fact arithmetically equivalent to it, under ALL possible circumstances. It cannot possible make a penny's worth of difference whether you let people (a) keep the "$15,000 annually ... reformed to be permanently sustainable," while taking away retirement-account benefits up to 3% of the diverted payroll taxes a year, or (b) ket them keep their entire retirement accounts but take away an amount of traditional benefits equal to the same 3% per year.
Still, if it makes you happier to describe this as people's keeping "EVERY SINGLE PENNY OF THEIR RETIREMENT ACCOUNTS -- BOTH the PRINCIPAL AND INTEREST," while merely losing traditional benefits, I guess that going along with your preferred description is the least we can do for you, bubbalahs.
By the way, guys, could you help me with a small matter? I know you probably don't want to pay me for this blog, despite the Administration's largesse towards various journalists, given the sorts of things I say. But if you could see your way to paying me an amount equivalent to what you would pay me if you were paying me, that would be great. You see, I got expenses. And remember: you won't actually be paying me for anything. You will just be paying me the same amount as you would pay me if you were paying me.

The Bush Social Security plan

The Center on Budget and Policy Priorities, admittedly a Democratic-affiliated think tank with a stake in opposing the Bush Social Security plan, has an interesting post giving details based on a briefing this afternoon by a "senior Administration official." The details are consistent with but go beyond anything Bush said tonight.
We finally see here how the Administration, if it had its way on this, actually might reduce the Social Security portion of the fiscal gap - although, with unusual candor for this Administration, the official admits that "the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government."
The idea is to let workers divert 4% out of the 12.4% payroll tax into the accounts, but to make them pay for the diversion on retirement via benefit reduction in the amount of the revenues so diverted plus 3% annual interest. Then there would be further benefit cuts on top of that, having nothing at all conceptually to do with privatization as such, although the Administration declines, at least at this point, to say what they would be. Here is where the fiscal gap would actually decline, via benefit cuts that could in principle have been imposed in any event.
What exactly is the point of this exercise? A charitable view would be that it aims to make possible the further benefit cuts by using the paid-for private accounts as a carrot or a distraction. But in fact all that the private accounts exercise does is raise hackles, make the entire thing more controversial, and induce Democrats to respond to the Administration's rhetoric by saying there is no problem. Plus it raises the specter of people who fail to earn 3% on their accounts being worse off than if the whole thing weren't undertaken to begin with, thus reducing the downside worst-case security that any rational retirement plan, private as well as public, would include.
Wouldn't it be a lot more rational to seek a principled bipartisan compromise involving revenue increases plus benefit cuts?
To paraphrase the religious right, WWRD (what would Reagan do?). We know the answer to that because he actually did it in 1983 - agreeing with the Democrats to a package of revenue increases plus benefit cuts.

Step up and place your bets

I was speaking to a business audience today about what to expect out of Washington these days and a fellow speaker, who has some general connections and no particular axe to grind, offered odds of 5 or 6 to 1 against enactment of President Bush's Social Security plan. He also offered 3 to 1 odds in favor of the tax cuts being made permanent, but agreed with me that "permanent" means 4 years tops.
Asked about fundamental tax reform, such as replacement of the income tax by a VAT in the next two years, I compared it to the Eagles' chances of winning the Super Bowl by five touchdowns.

NYU Tax Policy Colloquium – Shuldiner on “Taxation of Risky Investments”

Yesterday’s paper was Reed Shuldiner’s Taxation of Risky Investments, another entry in the burgeoning recent legal and economic literature about the differences between income and consumption taxation, which, the literature has concluded, are significantly smaller than had previously been thought. It used to be thought that a pure income tax reaches, while a pure consumption tax exempts, all “capital income” (whatever that is). The literature now concludes that the difference between the two systems, at least under “ideal” versions of each, is restricted to the fact that the income tax reaches but the consumption tax exempts the risk-free return to waiting, which in recent decades has tended to be quite low (as in 1 to 3 percent a year). Much ado about nothing, therefore?, the literature is prone to concluding provocatively.
This conclusion has been pretty much universally accepted among law professors and economists who write about it, but ignored by most others, not just outside the academy but also, for example, when economists measure income tax distortions, typically under the assumption that a much higher interest rate than the risky rate should be assumed in assessing timing differences. The arguments are a bit too complex and elaborate to cover comfortably in a blog, but my own take on them can be found here. Suffice it to say that the skeptics, who like to think they are too hard-headed and practical to accept the new line of reasoning, in fact have to posit that up-front consumption tax refunds, if the consumption tax uses expensing , play a vital role in enabling cash-constrained investors to snap up extra risky investments. What about the fact that some consumption tax variants don’t provide up-front refunds, and some income tax variants do? And what about the fact that you can make your pre-tax investments riskier, thus reversing the effect of the tax on your risk position, by simply buying riskier items as opposed to more oft the same? “Get out of here, sonny boy,” is pretty much their reply, which is why they haven't published much on the point. (They tend to be among the older people in the field, and thus more set in their ways of thinking.)
Shuldiner, so far as I can tell, is on the fence about this, reflecting in part social affiliations. He happens to have closer relations than most of us in our shared age cohort (mid to late 40s on down) with people in the older group who are feeling bitter and passed by. The Colloquium session will have done some good, at least for him, if we persuaded him not to write the piece that they want him to write.
So clarified, the paper that I anticipate this will become should still interestingly (for those of us in the biz) flesh out some aspects of adding realism to the models that are used in generating the broader conclusions. Shuldiner also argues, persuasively I think, that "so what" is a bit too strong a conclusion however provocative, although something can matter a fair amount and yet still matter less than people once thought it did.

Thank goodness for freedom of the press

Without it, we wouldn't have reporters, at President Bush's press conference, asking him such hard-hitting questions as the following:
Q: Senate Democratic leaders have painted a very bleak picture of the U.S. economy. Harry Reid was talking about soup lines and Hillary Clinton was talking about the economy being on the verge of collapse. Yet, in the same breath, they say that Social Security is rock solid and there's no crisis there.
You've said you're going to reach out to these people. How are you going to work with people who seem to have divorced themselves from reality?
BUSH: Continue to speak to the American people. Right after my State of the Union, I think I'm going to four or five states to continue to address this issue...

Drunk, insane, dishonest, or stupid?

You make the call, but leading inside-the-Beltway tax-cutting cheerleader Stephen Moore has got to be one or more of the above.
In his Washington Times column from yesterday, Moore urges President Bush to keep on fighting for large individual accounts in Social Security, funded by diverting payroll taxes. Only, Republicans must "stop talking about benefit cuts in the future" to make up for the new goodie.
Moore says: "It is said creating private investment accounts will cost $2 trillion, but they will save $10 trillion in later years. Wouldn't most Americans invest $2 now to get $10 back in 20 years?"
Wait a second there, Steverino. How exactly do we save $10 trillion in 20 years if there are no benefit cuts? Doesn't no benefit cuts mean, by definition, that we save zero?
Ah, but there is an answer. Moore opposes, not benefit cuts, but talking about benefit cuts.
One more question, Stevester. How exactly do we cut benefits, and indeed by $10 trillion within 20 years, if we can't even talk about it today?

Nicely done

Krugman on Social Security privatization:
"President Bush is like a financial adviser who tells you that at the rate you're going, you won't be able to afford retirement - but that you shouldn't do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains."
By the way, his main point in the piece, that the Bush plan is based not on faith in the market, but rather on the sucker's view that you can beat the market and find a free lunch, is the same one that I made in my David Brooks slam last month.

NYU Tax Policy Colloquium - Griffith on "Progressive Taxation and Happiness"

The paper at today's Tax Policy Colloquium was Tom Griffith's Progressive Taxation and Happiness. Tom uses the "happiness literature," a recent cottage industry in behavioral economics, to argue mainly that the case for progressive redistribution is stronger than is typically recognized, but more substantially (I thought) for high as opposed to low marginal tax rates.
The happiness literature uses surveys from a variety of countries over time, typically involving some variant of the question "These days are you typically very happy, somewhat happy, or not at all happy?" Recognizing the limitations of this information and its capacity to be influenced by other factors (e.g., people report themselves generally happier if the question is asked on a sunny day), the most significant finding, both in the US over time and across the world, is that increasing wealth isn't reported as bringing much if any extra happiness, either to individuals or societies, once one has gotten above the subsistence level. Claimed implications include (a) economic growth for already-affluent societies has less payoff in terms of human welfare than we thought, (b) progressive redistribution aimed at the people on the bottom is a good thing, because they do gain a lot of welfare from the extra resources whereas those above them don't lose much even if work incentives are hurt, (c) effects on work incentives are possibly good rather than bad up to a point, due to positional externalities (e.g., if I build an extra pool in my front yard it makes everyone else feel worse unless they slave away to build one too, at which point none of us is much better off than when we started).
The empirical evidence is not very strong. E.g., even apart from the obvious objections to how meaningful the data is, suppose that people as they get wealthier raise the happiness level that they define as "very happy." This is a verbal change that would mask actual happiness increases because the survey responses would fail to report them as their terminology changed. Or suppose that wealth increases, whether enjoyed by an individual or a society, improve longevity. This would be a welfare gain, since presumably we want to live longer, that the survey data would miss. But the story has a lot of intuitive plausibility, even if, like me, you really aren't personally into competitive consumption. And the story has if anything more competing credible (and perhaps all true) explanations than it really needs, including habituation to one's current circumstances, rising aspirations that always drive you to seek the next level, and the positional externalities issue (noted above) resulting either from express status competition or more indirectly from rising norms concerning what is, say, an acceptable-sized house.
It's easy to scoff at this stuff, but it could significantly revise how we think about the incentive effects of income and consumption taxes, as well as the affordability of various public goods and the wisdom of the US versus the typical Western European economic system. I am not aware of leading conservative commentators of the Martin Feldstein stripe thinking seriously about or responding to this stuff, but they should.
The economist Robert Frank, who came to our colloquium some years ago, makes similar arguments. The economics profession has tended to respond to him by saying: where's the hard proof? But the same could be said of assuming that the story is not true, and the methodological bias for "hard proof" yields self-delusion insofar as it leads one to accept as a default alternative priors that haven't been given hard proof either. Good Bayesians would not necessarily start from the premises of neoclassical economics, even if those premises are easy and fun to work with.