Thursday, July 29, 2010

Greatest fictional lawyers - vote for Bill Doberman!!

The latest issue of the ABA Journal has, as its cover story, "The 25 Greatest Fictional Lawyers (Who Are Not Atticus Finch)." These are not necessarily the fictional lawyers described as being the most able, but rather the best characters who are lawyers. E.g., unclear if Ally McBeal would be on the list otherwise.

You can vote here, and I'd personally be inclined to vote for Vincent "Vinny" Gambini, from the delightful film My Cousin Vinny.

There's also a second list here of "Other Notable Characters That Did Not Fit into Our Top 25." Here we find such personal faves as Tom Hagen from The Godfather and Jackie Chiles from Seinfeld, and there's some indication that fun fictional characters end up here if they are simply too odious and dishonest. For example, Ned Racine of Body Heat is here with the comment that "he's lazy and corrupt — and we like that in a fictional character, but maybe not in a lawyer."

Especially given that last comment, I must put in a word for my own Getting It lead character, Bill Doberman. He definitely belongs on this list, if I do say so myself. OK, if there are ethical standards of any sort, then the "Other Notables" rather than the main list.

I mean, c'mon - Claire Huxtable from the Cosby Show? And on the main list, Arnie Becker from LA Law? Truly a pale shadow of Doberman though some overlap of personality types.

The only excuse the jury that selected the notables can offer for not adding Doberman - but admittedly it's airtight unless we apply a strict liability standard - is that they presumably haven't read Getting It or heard of him.

Wednesday, July 28, 2010

Unjust $10 Billion Tax Credit for BP??

Far be it from me to say anything nice about BP after the horrendous mess they created in the Gulf of Mexico. Accidents happen, but everything I've read suggests that the company had a reckless culture that made a mockery of prudent and safe practice. They appear even to have been unusual among oil companies (e.g., Exxon is said to have learned from the Valdez spill). And given the immense costs being imposed on others, one is inclined to compare BP's executives with the fools and malefactors at major financial institutions who brought about the current global recession.

But having said that ... I was struck by a story in the Washington Post (h/t to Paul Caron's Tax Prof Blog) airing complaints about the supposedly scandalous fact that BP, by deducting its $32 billion in losses from the spill, is going to save (at a 35 percent corporate rate) almost $10 billion in taxes, which the article notes is half of the amount President Obama got them to pledge to a relief fund (the supposed "extortion" in the eyes of pro-business but anti-market lunatics who apparently believe that tort-feasors should be able to impose harm without paying). Anyway, back to my main point.

Worse still, supposedly, is the fact that this might be a $10 billion "credit" for taxes that BP has already paid. That is, it will show a huge loss for the year or years when it lays out the $32 billion, and use this to get a refund of tax liabilities in prior years when it had positive taxable income.

My recent co-author Doug Shackelford is quoted near the end of the story, shedding some needed light on the subject. First he notes that only the arbitrariness of annual accounting gives rise to the apparently shocking credit for taxes already paid. If BP paid income taxes on multiple years of taxable income at the same time - as surely would be the sensible rule if not for problems of administrative convenience, steady cash flow to the government, etcetera - the same thing would happen without the specter of a horrifying "credit" and "refund." Or, if they'd made $32 billion in January through November and then lost the same amount from the oil spill in December, no one would be surprised by their reporting zero income for the year.

Second, Shackelford notes that "[t]he cost associated with the cleanup and the damage and all that -- that's just another cost of doing business from the tax perspective ... It's viewed no different from paying salaries or other costs they might incur."

This is correct. If BP really loses the $32 billion, of course the normal rule is (and should be) that it gets a deduction, including with carryovers to other taxable years if necessary. So the issue, at least on its face, is a red herring.

A separate issue is whether BP should be fined. Indeed, perhaps fined a lot - say $10 billion on top of the $32 billion of direct compensation for harm. I don't have a particular opinion on this, as I would need to know more about the adequacy of what they're paying, the incentive and deterrence issues, problems of adequately sanctioning reckless behavior, and so forth.

Suppose that BP should be fined $10 billion. Then disallowing the tax deductions happens to get it just right, but not because that happened also to be the value of the deductions.

Monday, July 26, 2010

The expiring tax cuts

Political attention is beginning to focus on the expiring Bush-era tax cuts, so perhaps I should weigh in. The Obama Administration, presumably for reasons of political cowardice (or to put it more kindly, prudence), purports to favor generally extending them except for the top bracket. The Republicans, of course, want to extend all of the tax cuts forever, though probably that's just for starters. They also want vastly increased tax cuts with no financing and no meaningful cuts on the outlay side (at least none they are willing to acknowledge, beyond the occasional Congressman Ryan - who falls way short despite going way beyond what the rest of them would actually do).

Let's analyze this in two parts. First, suppose there were no ongoing recession with shockingly high unemployment that is projected to continue almost as far as the eye can see (exacting enormous social costs that may last far longer than the high unemployment itself). Then, what about the recession and need for stimulus rather than contraction.

Absent the recession, the thought of extending any of the tax cuts would be ludicrous. We are faced with an enormous and growing fiscal gap. There is no indication that the political system can deal rationally with it. The idea of massively cutting taxes relative to the current law baseline verges, against this background, on being criminally negligent.

But is eliminating the tax cuts and generally restoring pre-2001 law really the best way forward? Was the tax law at that point in some kind of Periclean golden age, an acme of perfection? Of course not. So there is plenty to discuss, in terms of revenue-neutral (or better still revenue-raising) tax reform relative to that baseline. Or rather, there would be plenty to discuss if there was anything to discuss, which there isn't for political reasons.

Extend the income tax cuts and enact a VAT instead? Enact a 1986-style base-broadening exercise but with general savings incentives (i.e., consumption tax-type treatment without creating inter-asset distortions)? Enact a carbon tax for revenue as well as global warming reasons? General base-broadening in lieu of the rapidly growing AMT? All these things and more could be on the table, but of course they aren't.

Okay, but what about the recession? Extending the tax cuts is, to a marginal degree, stimulative relative to not doing so. But it is poorly designed as stimulus. If there were any political point to even thinking about it, I might consider a short but finite (and credibly expiring) extension of the tax cuts, plus tax increases (such as a VAT) with postponed effective dates to stimulate sooner activity, plus the much better designed conventional fiscal stimulus that people in the Krugman-DeLong camp are advocating, plus credible long-term retrenchment in entitlements growth, plus a carbon tax. And then on to fundamental tax reform within the revenue parameters. Etcetera.

But in a country with a failing political system there's not a whole lot of point that I can see to nailing down one's preferred details.

If only I liked gardening, like Candide ...

More on the same theme of approaching U.S. default

More on the same theme as Bruce Bartlett from Martin Wolf.

I have been arguing this for several years - in particular, in my recent book Taxes, Spending, and the U.S. Government's March Toward Bankruptcy. The U.S. government is going to default in some way (including implicit or quasi-default of some kind), with a high degree of certainty - not because the economic or demographic trends are so dire, but because our political system is irretrievably broken. And this in turn reflects not just its flawed design but the strange sociological story of the conservative movement, which, for some reason I don't understand, at some point in the last 20 years, decisively rejected any sense of national loyalty (as well as commitment to rationality) in favor of intense group loyalty.

Sunday, July 25, 2010

Bruce Bartlett interview in the Economist

This makes enormous sense and is well worth reading.

Friday, July 23, 2010

Crazy stuff

Tennessee Republican Congressman (and gubernatorial candidate in the state's Republican primary) Zack Wamp lauds Texas governor Rick Perry as a "patriot" for urging secession if healthcare reform isn't repealed by 2012. Certainly an interesting and innovative use of the word.

Meanwhile, there's increasing evidence that, if the Republicans gain control of Congress later this year, they plan to pursue impeachment of President Obama.

Fasten your seatbelts, as Bette Davis' character memorably remarked in All About Eve. If control of Congress changes, it's going to be a wild and crazy next 2 years.

Thursday, July 22, 2010

Political mystery, a.k.a. naive question

I am trying to figure out why the likes of Senators Ben Nelson and Kent Conrad combine (a) opposing the extension of unemployment benefits on the ground that this adds to the deficit with (b) supporting extension of the Bush tax cuts by reason of the weak economy. These arguments can't really be made together in good faith.

Another reader comment on Getting It

"Lovely writing, fun, and suspenseful, with nice wry observations about humanity as embedded in a law firm."

Tuesday, July 20, 2010

Martin Feldstein endorses tax expenditure analysis ...

... as well as generally cutting tax expenditures. Today's WSJ op-ed is available as such to subscribers only, but you can find the full text of it on Feldstein's webpage here.

Unfortunately, as a general matter only principled or genuine conservatives, rather than the right-wingers who play the role on TV and dominate the Republican Party, accept the central point of TE analysis that a targeted special-purpose tax cut is substantively equivalent to the hated "government spending."

Monday, July 19, 2010

Book report

Last night I arrived back in NYC, after 2+ weeks in Munich, including a 4-day excursion to the lovely town of Malcesine by Lake Garda in Italy. Though it was very enjoyable I'm also glad to be back, and wish I could leave NYC for longer periods in the winter rather than the summer.

One fun thing about vacations is the chance to do a lot more leisure reading, though I try to maintain this year-round. So herewith my book report from the trip:

1) Michael Lewis, The Big Short - Lewis is always entertaining, and though the bestseller style of telling different individuals' stories might itself seem slight, he consistently gets his finger on important broader themes, here no less than in Liar's Poker and Moneyball. Shocking and distressing to read about the astounding idiocy that cratered the world economy starting in 2007, and it really makes one wonder how/if a market economy can function (which is not to say the alternatives will help).

2) Paul Hodge, Higher Than Everest: An Adventurer's Guide to the Solar System - This little-known item was a delightful vacation read. Written as an adventure travel guide for later in the 21st Century, it whimsically posits that some modest technological advances have made it possible for the reader to visit all of the most fun and exciting spots in the Solar System (mountains on Venus, the ocean beneath Europa's crust, the methane lakes on Titan, "snowboarding" through Saturn's rings, etc.). Beneath this conceit it combines detailed description of what we know about various planets and moons with plausible speculation about how any of these visits might actually be accomplished. Only disappointment is that it was written before some of the most recent developments, e.g., the Huygens probe's Titan landing and Pluto's demotion to planetoid. Time for a revised edition?

3)Valerie Martin, The Confessions of Edward Day - Martin is a very good contemporary fiction writer, best known for Property (narrated by a slaveholder's wife in 1828 Louisiana). This one is set in 1970s New York among aspiring actors. Well-written, some good underlying ideas, but I found the resolution a bit disappointing.

4) Neil MacFarquhar, The Media Relations Department of Hezbollah Wishes You a Happy Birthday - former NYT reporter in the Middle East gives a more inside view than one normally gets of the Arab societies that get so caricatured and demonized out here. But then again, reading about Saudi Arabia was authentically horrifying.

5) Sara Gruen, Water for Elephants - very readable fiction set mainly in a 1931 traveling circus amid the Great Depression. Good reading material for the beach and plane, but a bit of a stunt and could have had more depth. I found myself making invidious comparisons to Getting It, on the view that mine has more motivation and depth of viewpoint (though a farce not a realized world), but that's just me being a bit self-conscious or self-centered.

6) Christopher Isherwood, A Single Man - One day in a man's life, brings to mind Ian McEwan (who may perhaps have learned from it), impressive and affecting, easily the best thing I read on the trip from a pure literary standpoint.

7) Martha Schwab, Ludwig II - brief review of the life of a silly 19th century Bavarian king who, as Bertie Wooster might say, made rather an ass of himself building palaces and worshipping / ordering around Richard Wagner while Bismarck, almost next-door in Prussia, was engaged in considerably more serious work. Ended up being deposed on grounds of insanity and then apparently drowning himself the next day. Of interest because we had visited the Neufschwanstein Castle that he built outside Munich, real-life model for the well-known visual of the Disney castle. The site itself was Disneyland plus short-distance hiking and minus the rides.

Paul McDaniel

I'm greatly saddened to learn of the death of Paul McDaniel. He was a great and pathbreaking scholar - exceptionally fair-minded and intellectually honest even when advocating a particular approach. Paul also was a lovely, kind, and yet spirited man (and good friend when he was at NYU), and an important institutional leader during his time here.

Thursday, July 08, 2010

Another reader comment on Getting It

Another airplane reader of Getting It (I frankly think it's ideal for this purpose) concludes:

"Really, it's a great book, I happened to be alternating it with Philip Roth and I think you have a lot more to say than he does . . . although perhaps not the advance sales."

This reader also detects a moralist (in the author) beneath the surface cynicism. Who'd a thunk it?

All too human (from the Munich Zoo)

A word on status issues in the biz

It's always anthropologically or sociologically interesting to attend mixed economist-lawyer gatherings, as I have been doing in Munich and also do with great regularity in the U.S. The overall status relationship between the groups is clear: economists in the aggregate have higher status, although in particular pairwise groupings the lawyer may be higher-status. (Of course, a shared assessment requires that both individuals know who the other is.)

Before saying more, I should interject here that I personally am anti-hierarchical and detest status rankings. Deference makes me very uncomfortable whether I am the giver or the receiver. This is partly personality and partly absorbed ideology (I grew up mostly in the 1960s, which effectively ended in 1972 at the earliest and 1974 at the latest). But if you are a member of the human species, then unless you have Asperger's Syndrome or some such condition, I think you cannot avoid being keenly conscious of status issues in any social milieu that you find yourself in. It's there, whether or not you choose to act as if it matters.

Against this background, economists vary from those having zero interest in talking to lawyers, to those having a negative presumption that is very hard to overcome (even if you know a lot of the secret handshakes), to those who make individualized judgments and are very willing to think that lawyers can have interesting ideas, knowledge, and insights. (I'm equating here intellectual interest in talking to a person with status judgment about her, but in academics these categories exhibit strong overlap.)

So far as all this is concerned, the main difference between Europe and the U.S. is that most of Europe has had significantly less lawyer-economist mixing than the U.S. (One further byproduct for me, of course, is that economists in Europe are less likely than those in the U.S. to know anything about my work, or should I pompously say about "who I am.") But Munich, where I am now, is much more U.S.-like in this regard, as settings such as the Max Planck Institute have allowed much lawyer-economist mixing to occur.

Munich's U-Bahn and the related tax evasion literature

Munich has a clean, modern, far-ranging, very easy-to-use subway system, the U-Bahn, which I gather dates back to the 1972 Olympics. Even without speaking or reading much German, it makes it a breeze to go anywhere in the city or environs that you like. One great feature, also found in D.C., but in NYC almost nowhere, is its electronic signs telling how long till the next train arrives. I am noted among intimates for extreme impatience, at times, when waiting for a train. But it's really about the uncertainty, not the waiting time as such. If the sign says I need to wait 10 minutes, I'm fine with that. For some reason, not knowing when/if it will come is the part I can find difficult. Must be some suppressed early-childhood memory behind this; then again maybe not. (This isn't the script of an early-1950s Hitchcock movie, after all - or at least I hope not.)

The most interesting thing to me about the Munich U-Bahn is the ticketing design. You are legally required to have a valid farecard in order to use the system. And there are signs threatening the mandatory imposition of a 40-Euro fine if you are found without a valid farecard. But to enter the U-Bahn, you don't actually use the farecard in any way - you simply walk in, and should have it in your pocket in case you are asked. But I have yet to see any enforcement, and I suspect that the threat is statistically quite low.

People therefore have the option, at what would appear to be a very low risk, to ride and use the system without paying. Applying the risky investment framework that one finds, for example, in the tax evasion literature, it seems that one's expected fare (at least, counting monetary costs only) must be a lot lower if one cheats than if one buys the required farecard.

Allowing people this cheating option, without making them engage in forced entry (such as by vaulting a turnstile) would be unthinkable in many systems. Surely in New York or Washington one could never do it, and I would suspect that the same holds for London and Paris (which don't allow you just to walk in, unless I am misremembering Paris). Something tells me it wouldn't work in Italy, either, or in most other countries. But Belgium's commuter trains were similar, as I found in May, and the only time I was challenged was when (while jet-lagged) I mistakenly boarded a first-class car.

Evidently, people mostly comply, or else I assume they would have had to build entry barriers. For that matter, Muncheners also largely cross at the corner and wait for green lights (contrary to my practice as a New Yorker), although in a few spots without lights there evidently is an accepted convention of cross-as-you-can.

Returning to the U-Bahn fare system, the other thing I find interesting is that it requires (at least for a short-term person like me) considerable thinking about what is the best option. You can purchase a single ride, or all rides for the day for one person, or all rides for either one day or three days for up to five persons traveling together. I believe there's also a separate option that permits you to ride with a dog. And I gather that there are lots of more long-term options, extending for as long as a year.

With the vagaries of our travel schedule as a family here, I find myself needing to think it through each time, so I can figure out what is likely to be most cost-effective. (Yes, I am complying despite my international tax policy interest in multiple-play prisoner's dilemmas where cooperation fails to emerge.}

So they assume little or no cheating, but have a structure designed to reward good planning by law-abiders.

Live from Munich

Since last Friday, I've been in Munich, splitting my time between touristic activities and work. I'm visiting at the Max Planck Institute - not on the view that physics, no less than novel-writing, should be added to my portfolio, but because of the excellent tax group here, headed by Wolfgang Schon. So far this week, I've given talks on my foreign tax credit paper as well as the S-S-S- financial institutions paper (a revised version of which should be up on SSRN shortly), and have also attended the Richard Musgrave Lecture, given this year at a nearby public economics institute, CES-ifo, by Michael Keen of the International Monetary Fund.

Mick's very interesting paper is similar in spirit to S-S-S (reflecting some dialogue back and forth), but has a formal economic model designed to elucidate the question of whether Pigovian taxes, as opposed to capital adequacy regulations, should be used to address financial institution failure that threatens the broader economy. Broadly speaking, he concludes that taxes should be used to fund government rescue of failing firms, while regulation should be used to prevent failure that the government will permit (a la Lehman Brothers). One problem outside the model is that the government also has to decide on its rescue vs. permit to fail strategy, a hard problem in itself and made worse by time consistency problems. E.g., one wishes one could credibly tell the firms they'll be allowed to fail, but then rescue them ex post where the stakes are high enough. But good luck on the credibility aspect.

Munich is a charming city. It's been warm but not by the standards of what I gather has been a hideous U.S. East Coast heat wave. (About which I would have considered myself estopped from complaining, as I prefer to concentrate my fire on hating the winters.) I've even been able to find nice fruit, particularly in the Viktuellenmarket. This is something that I care about, perhaps more than I should, as farm market fresh fruit is one of the things I love about NYC in the summer. I've certainly had more beer, sausages, and pork products generally than would be typical while in NYC, and I've also observed the intense but benign German soccer mania that came crashing down last night with their defeat by Spain in the World Cup. I even went so far as to find that game enjoyable though I am not generally a soccer fan. It's tactically the same sport as ice hockey though with key parameters that are set very differently (e.g., how fast people and the ball/puck can move, size of the arena, out of bounds vs. boards on the side). So it's all about ball control, advancing into the other team's territory, and centering it in front of the goal, all factors that I can recognize. (For that matter, basketball is pretty close to being in this general sense the same game as well.)

Touristically, we're living in a small private house, doing things that actual Muncheners do, such as shopping and commuting, and have seen various tourist sites, including (on a much somberer note than the rest) a trip to Dachau.

Next week, pure-vacation trip to Lake Garda, then back to Munich & then to New York.

Thursday, July 01, 2010

Lyttle-Lytton Contest

Many readers may have heard of the Bulwer-Lytton contest, in which people compete to write the worst opening passage of a hypothetical novel, and a new winner plus a group of runner-ups (a.k.a. dishonorable mentions) are picked each year.

Today, while twiddling my thumbs as I await the evening flight to Munich, I learned of the Lyttle-Lytton contest, an offshoot distinguished by a 33-word maximum length.

Herewith the entry I sent in today:

"Two heads are better than one," tweeted Glorbiss as he dusted off his smoking gamma blaster. Too bad he now had only one left; but then again the now-headless Zamarian now had none.

Notice the many bad elements here. Tweeting while dusting off a smoking gun, er, make that gamma blaster for the badly dated sci fi cliche. Second sentence is a bit obscure about one what (head? blaster?), uses the word "now" thrice in close succession, and clarifies that a now-headless Zamarian now has no head (if that's the referent). Also, exactly 33 words.

This is a hard contest to win, but I'm hoping I'm in play for a dishonorable mention.