I did my civic duty this morning (despite the voting paradox), going to P.S. 41 in the West Village this morning to cast an all-Democratic ballot.
It's a good thing that the Republicans have made it unnecessary for me to consider them (as I might have been willing to do, here and there, if they had not gone stark raving mad in 1994 and then just grown continually worse). The reason it's a good thing is that the new voting method in New York State makes it very hard on people who (speaking just in general terms, of course) occasionally need reading glasses but have forgotten to bring them. You need to pore over an awful lot of small print in less than ideal lighting, so it's helpful to have a prior (Column A) to make things easier.
I well remember voting at the same place in 2008. Partly because I got there closer to prime time (for pre-workday voters) but more because of the higher turnout levels, in 2008 I had to wait on a very long line that extended around the block. There were a lot of excited and, yes, angry voters on that 2008 line, sharing the sentiment that today we were going to crushingly reject a party (after 8 long years under its boot) whose leaders' honesty, good faith, competence, and even true patriotism (as opposed to partisanship) we did not respect.
Obviously the feelings are very different this year, though in the absence of a voter line I didn't end up getting a sense of the general (at least West Village) pulse. But speaking for myself, I don't plan to follow the election returns tonight. Tomorrow morning is plenty soon enough to digest the news of what's happened.
How could it have been different? Applying 20-20 hindsight, as the things on the list below vary on how obvious up front they were, it seems clear now that Obama should have done the following:
1) Demand a much bigger stimulus package with more emphasis on stuff that is actually effective, rather than relatively non-stimulative tax cuts designed to get Republican votes. Settle for the best available package (which might not have been much better than what was actually enacted), but make it very clear up front that it was not big enough, and that those opposing a bigger package were to blame if the economy didn't revive faster.
2) On rescuing the financial system, be much more vigorous in ensuring that the insiders who created the problem were not being rewarded. Wipe out the old equity when rescuing firms. Let the Republicans screech about socialism, but give that line the lie by spinning things back into the private sector afterwards. It was vital not to give the public the sense (which turned out to be true) that fat cat insiders were gaming the system and being rewarded for "heads I win, tails you lose" bets with the world economy.
3) Replace Bernanke with a reputable Democratic economist who actually cared about unemployment and was willing to be vigorous in fighting it. Fill all the vacant Fed seats with like-minded people. Unapologetically use recess appointments to the extent necessary. This one, I must admit, I got wrong up front, too. I knew that Bernanke had an excellent academic reputation, and believed (what with his writing about Japan's mistakes) that he would actually try a lot harder and sooner to address the ongoing slump. Evidently his ideological and/or partisan commitments mattered more than I had thought they would. Under current circumstances, his evident concern about inflation reminds me of my cat Ursula, whose job it is to keep crocodiles out of our house, and who has been doing an excellent job (none spotted yet).
4) Recognizing that there would be no Republican support whatsoever for healthcare reform under any circumstances, get something through with Democrats alone by June 2009. On this one, I gather Democratic Senators counseled the Administration to no avail that it was being naive.
Political scientists disagree about the extent to which political tactics make a difference if economic fundamentals are bad. But some of these items might have caused the economic fundamentals to be better than they are, and the rest could have helped make the case that bad stuff was not his fault but rather the product of Republican obstructionism. Too late for any of that now, however.
Tuesday, November 02, 2010
Monday, November 01, 2010
More doom and gloom
Herewith Part One of Martin Sullivan's take (similar to mine and that of pretty much everyone else who's looked at the problem) on the threat of an approaching U.S. fiscal collapse.
UPDATE: Also of related interest, a report by Thomas Hungerford of the Congressional Research Service estimates that extending all of the Bush tax cuts (along with AMT relief) would increase deficits over the next 10 years by $5 trillion. Allowing expiration of the top-bracket tax cuts, as proposed by the Obama Administration, would raise $678 billion over the 10-year period relative to extending everything, and thus would lower the 10-year cost of extension to "only" about $4.3 trillion.
UPDATE: Also of related interest, a report by Thomas Hungerford of the Congressional Research Service estimates that extending all of the Bush tax cuts (along with AMT relief) would increase deficits over the next 10 years by $5 trillion. Allowing expiration of the top-bracket tax cuts, as proposed by the Obama Administration, would raise $678 billion over the 10-year period relative to extending everything, and thus would lower the 10-year cost of extension to "only" about $4.3 trillion.
Friday, October 29, 2010
Why is the U.S. headed for fiscal disaster (if it is)? - Part Three
The fiscal meltdown scenario that Len Burman and others posit as a significant possibility, and that I affirmatively believe will happen in the U.S. within the next 15 years, requires that financial markets fail to operate smoothly or efficiently.
Suppose the U.S. has rising default risk, and that the hypothesis that we will deal with it in a rational rather than a needlessly destructive way is growing continually less credible. Meanwhile, suppose our debt to GDP ratio is rapidly growing, and that so much of the debt is short-term (as Burman’s paper shows) that we have to keep rolling over an enormous percentage of it each year. Then what is the playout with efficient and well-functioning financial markets?
The answer is pretty clear. The interest rate that the U.S. has to pay starts rising. This sends a signal to U.S. politicians and voters that they have to change their ways. As they lack a good alternative, even with the serious defects in the political system that I alluded to in my prior post, the ship gradually turns, and there is absolutely no reason for a calamitous budget crisis – a fundamentally discontinuous event, akin to going 100 MPH despite the brick wall at the end of the alley and then suddenly smashing into it – ever to happen.
Of course, discontinuous market events, seemingly without sufficiently new information to trigger them, do indeed happen. The sudden collapse of a bubble is the key example here, and indeed is what people like me are positing when we predict at least the possibility of a horrendous crisis, in lieu of the smoother scenario with gradually rising interest rates.
As an aside before I get to the question of why there might be a bubble in the U.S. bond market that is at risk of exploding suddenly some day, what should the U.S. government do about the fact that its borrowing rate is currently so low? Here the optimists at yesterday’s Columbia session made a point that I (to a degree) think is correct.
Again, the interest rate that the U.S. government has to pay for borrowing seemingly should be high, yet we observe that it’s very low. If the pessimists are right and financial markets are wrong, the unduly low rate implies a wealth transfer, in expected value terms, from lenders to the U.S. government. Shouldn’t we exploit to the hilt by borrowing as much as we can on these terms? (At least, isn’t that the right answer if we don’t conclude instead, as the optimists may have meant to imply, that the markets must actually be right after all, in which case the wealth transfer would be illusory.)
The answer is yes – we should take advantage of it, if we can do so properly. Hence it might make sense to run current budget deficits even without the ongoing recession or any claim about the need for Keynesian stimulus. But here are 3 reasons why this does not imply that the current U.S. fiscal path, with its huge deficits currently and as far as the eye can see, makes sense:
1) Even if low interest rates would make large deficits currently rational even without the recession and Keynesian story, there is no good reason not to put the U.S. budget on a sustainable path by currently deciding on and announcing how it will be achieved. At a minimum, this would make the low interest rate environment more robust.
2) The rational borrowing story calls for using the money to make productive investments, which are much easier to find (the hurdle rate becomes lower) if we are borrowing cheaply. The usual buzz word one hears, of course, is infrastructure. Or the government could simply buy assets that offer it a higher return than it is paying due to the low borrowing rate, and profit from the spread (if all the political choice problems this poses could be solved). But none of this is happening. Instead, we are using cheap borrowing to fund current consumption.
3) Borrowing for current consumption, just like investing profitably, becomes more appealing if the interest rate is low. But the path we are on, by reason of doing it this way, makes no sense in terms of long-term consumption smoothing. Even with cheap borrowing, it doesn’t make sense to frontload the consumption as much as we are doing, by holding off entirely on the very painful tax and spending adjustments that (mere arithmetic tells us) are highly likely to be necessary soon.
OK, on to the question of how financial markets could be getting it so wrong. Should we instead assume that they must be getting it right, such as by rightly predicting that the U.S. political system will make the needed adjustments before things get ugly? Who should we believe, the financial markets or our lying eyes?
And this is where saying “What about 2008 and mortgages?” becomes, not just a cheap retort, but to my mind a convincing one.
What did we learn from the events of 2008? Not just that financial markets can sometimes get it wrong. We also learned a lot, the hard way, about how they operate.
There were plenty of people who knew and said before 2008 that you can’t keep making loans to people who cannot repay and count on perpetually rising home prices to keep the whole thing operating. All the underlying problems that came home to roost were public knowledge – for example, concerning the loan originators’ incentives and the rating agencies’ fee structure – and yet the right conclusions mostly were not drawn.
A few people saw what was happening. As a result of getting it right, if they were able to carry their short positions for long enough, they got rich. But they didn’t move the overall market until it was too late. And no penalty was suffered by the individuals who got it wrong, and who thereby (while accumulating huge fortunes) imposed huge losses on everyone else. And don’t think for a moment that this lesson wasn’t noticed by the people who are making the calls on Wall Street to this day.
How could a bubble market in U.S. government bonds persist when the lenders are in effect making a gift (though without charitable intent) by buying and holding bonds at an interest rate that is too low given the true (actual or implicit) default risk? The main answers to this question include the following:
(1) Some big players in this market, such as the Chinese government, are willing to make the gift because from their perspective it isn’t one. Rather, it simply is part of the cost they have to pay to achieve purposes of their own. The Chinese government is subsidizing imports to stimulate its economy during a period of massive rural to urban transition that contributes to their preexisting post-Tianenman Square eagerness to avoid political unrest. Other big players, such as from the oil states, likewise have economic incentives other than as investors, and may be serving their own institutional interests whether or not those of their nations in the long run.
(2) The flight to quality creates a winner-take-all contest for the laurel of safest asset. And for now the dollar wins, because what else is there? The Euro looks even worse. But the winner of this beauty contest can suddenly and unpredictably change, potentially leading overnight to a panicked rush away from dollars and dollar-denominated assets.
(3) Even among conventional market actors, the massive inefficiencies in financial markets that we saw in 2008 are still there. These guys are not pricing U.S. government default risk in their models (or rather they are running short-term models in which it’s zero), just as they weren’t properly pricing scenarios of nationwide real estate price drops. It simply isn’t how either they or they models operate. Irrational? Socially yes, but at the individual actor level probably no. Keep in mind – these guys are betting other people’s money under poorly designed incentive compensation schemes under which they get rich too fast to care much if their careers end up being shortened when the crunch hits. In short, the Berle-Means problem of agency costs from the separation of ownership from control operates on the manager side, while collective action problems hamstring responses on the investor side. And just as in 2007, this encourages massive disregard of tail risk, or what would happen to one’s seemingly extra-normal returns when the bottom finally drops out.
In other words, we have a financial system in which, notwithstanding Adam Smith’s invisible hand, no one has the right incentives, and getting it right does not bring a sufficiently sure or proximate reward.
What is going to happen when the Chinese finally have to change course, and/or the dollar loses its first place rank in the safest-asset competition, and/or the other market actors finally start pricing the risk of U.S. government default in their investment models? This can rapidly lead to a self-reinforcing feedback loop, in which the need for a higher interest rate raises the likelihood of U.S. government default, which triggers the need for a still higher interest rate that triggers a still greater likelihood of default, until there’s no price at which anyone is willing to lend.
What happens then is anyone’s guess, but we just may get to find out some day. Lucky us.
Suppose the U.S. has rising default risk, and that the hypothesis that we will deal with it in a rational rather than a needlessly destructive way is growing continually less credible. Meanwhile, suppose our debt to GDP ratio is rapidly growing, and that so much of the debt is short-term (as Burman’s paper shows) that we have to keep rolling over an enormous percentage of it each year. Then what is the playout with efficient and well-functioning financial markets?
The answer is pretty clear. The interest rate that the U.S. has to pay starts rising. This sends a signal to U.S. politicians and voters that they have to change their ways. As they lack a good alternative, even with the serious defects in the political system that I alluded to in my prior post, the ship gradually turns, and there is absolutely no reason for a calamitous budget crisis – a fundamentally discontinuous event, akin to going 100 MPH despite the brick wall at the end of the alley and then suddenly smashing into it – ever to happen.
Of course, discontinuous market events, seemingly without sufficiently new information to trigger them, do indeed happen. The sudden collapse of a bubble is the key example here, and indeed is what people like me are positing when we predict at least the possibility of a horrendous crisis, in lieu of the smoother scenario with gradually rising interest rates.
As an aside before I get to the question of why there might be a bubble in the U.S. bond market that is at risk of exploding suddenly some day, what should the U.S. government do about the fact that its borrowing rate is currently so low? Here the optimists at yesterday’s Columbia session made a point that I (to a degree) think is correct.
Again, the interest rate that the U.S. government has to pay for borrowing seemingly should be high, yet we observe that it’s very low. If the pessimists are right and financial markets are wrong, the unduly low rate implies a wealth transfer, in expected value terms, from lenders to the U.S. government. Shouldn’t we exploit to the hilt by borrowing as much as we can on these terms? (At least, isn’t that the right answer if we don’t conclude instead, as the optimists may have meant to imply, that the markets must actually be right after all, in which case the wealth transfer would be illusory.)
The answer is yes – we should take advantage of it, if we can do so properly. Hence it might make sense to run current budget deficits even without the ongoing recession or any claim about the need for Keynesian stimulus. But here are 3 reasons why this does not imply that the current U.S. fiscal path, with its huge deficits currently and as far as the eye can see, makes sense:
1) Even if low interest rates would make large deficits currently rational even without the recession and Keynesian story, there is no good reason not to put the U.S. budget on a sustainable path by currently deciding on and announcing how it will be achieved. At a minimum, this would make the low interest rate environment more robust.
2) The rational borrowing story calls for using the money to make productive investments, which are much easier to find (the hurdle rate becomes lower) if we are borrowing cheaply. The usual buzz word one hears, of course, is infrastructure. Or the government could simply buy assets that offer it a higher return than it is paying due to the low borrowing rate, and profit from the spread (if all the political choice problems this poses could be solved). But none of this is happening. Instead, we are using cheap borrowing to fund current consumption.
3) Borrowing for current consumption, just like investing profitably, becomes more appealing if the interest rate is low. But the path we are on, by reason of doing it this way, makes no sense in terms of long-term consumption smoothing. Even with cheap borrowing, it doesn’t make sense to frontload the consumption as much as we are doing, by holding off entirely on the very painful tax and spending adjustments that (mere arithmetic tells us) are highly likely to be necessary soon.
OK, on to the question of how financial markets could be getting it so wrong. Should we instead assume that they must be getting it right, such as by rightly predicting that the U.S. political system will make the needed adjustments before things get ugly? Who should we believe, the financial markets or our lying eyes?
And this is where saying “What about 2008 and mortgages?” becomes, not just a cheap retort, but to my mind a convincing one.
What did we learn from the events of 2008? Not just that financial markets can sometimes get it wrong. We also learned a lot, the hard way, about how they operate.
There were plenty of people who knew and said before 2008 that you can’t keep making loans to people who cannot repay and count on perpetually rising home prices to keep the whole thing operating. All the underlying problems that came home to roost were public knowledge – for example, concerning the loan originators’ incentives and the rating agencies’ fee structure – and yet the right conclusions mostly were not drawn.
A few people saw what was happening. As a result of getting it right, if they were able to carry their short positions for long enough, they got rich. But they didn’t move the overall market until it was too late. And no penalty was suffered by the individuals who got it wrong, and who thereby (while accumulating huge fortunes) imposed huge losses on everyone else. And don’t think for a moment that this lesson wasn’t noticed by the people who are making the calls on Wall Street to this day.
How could a bubble market in U.S. government bonds persist when the lenders are in effect making a gift (though without charitable intent) by buying and holding bonds at an interest rate that is too low given the true (actual or implicit) default risk? The main answers to this question include the following:
(1) Some big players in this market, such as the Chinese government, are willing to make the gift because from their perspective it isn’t one. Rather, it simply is part of the cost they have to pay to achieve purposes of their own. The Chinese government is subsidizing imports to stimulate its economy during a period of massive rural to urban transition that contributes to their preexisting post-Tianenman Square eagerness to avoid political unrest. Other big players, such as from the oil states, likewise have economic incentives other than as investors, and may be serving their own institutional interests whether or not those of their nations in the long run.
(2) The flight to quality creates a winner-take-all contest for the laurel of safest asset. And for now the dollar wins, because what else is there? The Euro looks even worse. But the winner of this beauty contest can suddenly and unpredictably change, potentially leading overnight to a panicked rush away from dollars and dollar-denominated assets.
(3) Even among conventional market actors, the massive inefficiencies in financial markets that we saw in 2008 are still there. These guys are not pricing U.S. government default risk in their models (or rather they are running short-term models in which it’s zero), just as they weren’t properly pricing scenarios of nationwide real estate price drops. It simply isn’t how either they or they models operate. Irrational? Socially yes, but at the individual actor level probably no. Keep in mind – these guys are betting other people’s money under poorly designed incentive compensation schemes under which they get rich too fast to care much if their careers end up being shortened when the crunch hits. In short, the Berle-Means problem of agency costs from the separation of ownership from control operates on the manager side, while collective action problems hamstring responses on the investor side. And just as in 2007, this encourages massive disregard of tail risk, or what would happen to one’s seemingly extra-normal returns when the bottom finally drops out.
In other words, we have a financial system in which, notwithstanding Adam Smith’s invisible hand, no one has the right incentives, and getting it right does not bring a sufficiently sure or proximate reward.
What is going to happen when the Chinese finally have to change course, and/or the dollar loses its first place rank in the safest-asset competition, and/or the other market actors finally start pricing the risk of U.S. government default in their investment models? This can rapidly lead to a self-reinforcing feedback loop, in which the need for a higher interest rate raises the likelihood of U.S. government default, which triggers the need for a still higher interest rate that triggers a still greater likelihood of default, until there’s no price at which anyone is willing to lend.
What happens then is anyone’s guess, but we just may get to find out some day. Lucky us.
Why is the U.S. headed for fiscal disaster (if it is)? - Part Two
The political story behind expecting a U.S. fiscal disaster is that nothing like the benign story of the Brookings and AEI experts designing the best available compromise solution to restore sustainability will ever be allowed to happen. Instead, the doomsayers (including me) say, we’ll refuse to turn off the road to a budgetary disaster until it’s too late, even though the fixes would be much less bad than permitting the disaster to occur.
For possible details of the disaster, see the Burman paper. Or think about Greece’s problems today, only worse since we’d be dragging down the entire world economy with us. Possible details might include a very rapid 25% decline in output, Weimar Germany-style hyper-inflation, wipe-out of millions of people’s life savings, very slow recovery, and little significant economic growth for a generation. Plus all the political fallout that such a state of affairs might entail – think Weimar Germany again, only this time the loonies who took over large countries or regional rivals in various global hotspots would have nuclear weapons.
But back to the question of why the disaster would be allowed to occur. One of the strange things about the fiscal crisis is that everyone knows it’s out there. The Tea Partiers could be interpreted as worrying about it, although their solution is to cut taxes while retaining all government spending that they like (which is about 99% of the overall federal budget, although they seem to think that it’s 5%). But I’ve been talking to “lay” people in the hundreds about this issue for 15 years (having published books about it in 1997 and 2007), and I have yet to find anyone who was surprised or didn’t already know about it.
So why doesn’t our political system deal with it? Why would Obama be committing political suicide (above and beyond anything of the sort he’s accomplished already) if he seriously tried to take this issue on, rather than agreeing to massive tax cut extensions? (My hopes from the panel he’s empowered are quite limited, though I will probably be more sympathetic to the entitlements changes they might propose than most commentators on the left. And the panel is certain, I gather, not to address the tax side of the ledger in any serious way at all.)
The optimists think the political system will deal with it non-catastrophically in due course, and is just waiting for a clearer crisis. One point to the contrary is that dealing with it demonstrably gets much costlier and more painful if you wait. But the second point to the contrary, which is utterly unprovable in advance but happens to be my belief, is that our political system has reached the point of being unable to deal rationally with crises even though it used to have some such capacity. On this one, we’ll simply have to wait and see who’s right – the optimists, or the people like me who have become pessimists.
One reason no one will fix it in advance of a direr crisis, even though everyone knows the problem is looming, is the underlying chicken game. I used to think of this mainly in terms of the parties. Suppose that Democrats and Republicans both know that a mix of spending cuts that the Democrats especially dislike and tax increases that the Republicans especially dislike will eventually be needed. What’s more, both sides know that they will have to make a handshake deal on the package, as one side acting alone would get politically crucified. You don’t want to be the first to flinch and offer a deal, because you are hoping to have the ultimate concessions be as much on their side, and as little on your side, as possible. But at some point one side must flinch and the other side reciprocate, or else we all go over the cliff. Chicken games can end catastrophically, although this requires miscalculation.
Back in the 1980s, the chicken game was why legislative staffers such as me when I was at the Joint Committee on Taxation sometimes had to work late. House and Senate negotiators over a big tax bill would wait until the last minute to make a deal because they wanted to minimize their own concessions. But apart from hasty drafting and needless loss of sleep the social cost was low. Why should it end up so much worse, with everyone going over the cliff, in the future budgetary scenario?
The answer that pessimists such as myself would make is that U.S. politics has fundamentally changed for the worse. There are many reasons why things are different today than they were in the 1980s (and to a lesser degree the 1990s), but perhaps the key one, to me, is that the Republicans have gone stark raving mad. (Plenty of conservatives would agree with this diagnosis, by the way – try asking Bruce Bartlett and David Frum.)
Why have the Repubs gone stark raving mad? It’s easy to blame individuals – say, Newt Gingrich and Grover Norquist. Or to cite contingent historical events – e.g., the first President Bush makes a brave and wise budgetary compromise in 1990, and this costs him the 1992 election because the Republican right retaliates. But I suspect there are deeper sociological forces at work here, relating to how white people above a certain age have responded to modernization, demographic changes in U.S. racial composition, etcetera, and that you therefore have to look from a historical and sociological perspective rather than at particular politicians and their tactics. But that’s clearly beyond my personal expertise.
Anyway, how do we know that U.S. politics has fundamentally changed? We really don’t know this for sure – and indeed it was a point of disagreement at the Columbia seminar on Burman’s paper yesterday. But Burman’s personal experience in Washington over the last 20 years matches my own in concluding that it has.
We’ve never had the fundamental rejection of modern science by a major political party that we now have today. So it’s hard to see why they’d stop – indeed, to date they haven’t – at also rejecting arithmetic, which is all you need to say that the budget numbers don’t add up over the long term, under plans they'd tolerate (and could actually get enacted) no less than under current policy.
And since so much of this is about chicken games, I should add that one side’s provocations can lead to the other to up the ante. There are people on the left out there using the phrase “catfood commission” to defame what might be reasonable efforts to restrain entitlements growth while protecting elderly people on the bottom of the income distribution. And the Democrats saw that Clinton’s hard work in helping create the budget surplus simply gave Bush a bigger wallet to blow on his friends and his causes. So they will not be in any rush to try that again.
The chicken game goes beyond the political parties to individual voters, however. Why does everyone, while realizing that we have a problem, stand ready to vote out any politician who proposes to do anything serious about it? One way of thinking about the answer – apart from people who simply hope the adjustment can be postponed until they are no longer on the scene – is in terms of a chicken game. I should resist any changes which take some of the solution out of my hide, because there are always alternative solutions available that would take less from me and more from someone else.
One last point about the politics is the following. I’ve been suggesting so far that U.S. politics used to be “normal” and capable of making hard decisions, but has now become abnormal or aberrant and has lost its ability to do so. I happen to think that’s pretty true. But perhaps this gets things backwards, in a sense. Maybe our political system’s ability to deal with these problems in the 1980s and 1990s was exceptional and unusual, not the current inability that pessimists such as me posit.
There’s lots of convincing political science work to the effect that the political system should be expected to fail in dealing with this stuff. Think of the Virginia school public choice Leviathan literature, or the work of Alberto Alesina & others about how political factions’ short-term incentives can lead them to play dangerous budgetary games. Sometimes I almost get the sense that one could logically prove that the budgetary accomplishments of the 1980s and 1990s couldn’t have actually happened. Sure, as the saying goes, it worked in practice, but not in theory. How can we explain the good things that happened without resort to unconvincing clichés about leadership, people who cared about the national interest, etcetera?
One explanation I’ve offered in previous writing is that it related to the Downsian dynamic to compete for the median voter. Reagan and O’Neill could compete as well as cooperate by showing the people in the center, “I’m as reasonable as he is” (which also helped them both to hold off rival leadership claimants).
But U.S. politics is much less Downsian than it used to be. E.g., Republicans don’t exactly get nominated these days by showing their primary constituencies that they are the true centrists who can win in November. There are a lot of institutional reasons why the Downsian rush to the center has abated. E.g., “natural gerrymandering” at the state level from sorting into blue and red states. The way money and interest group politics has played out lately. But one factor that I regard as important is what I call differential turnout elasticity.
One reason Repubs don’t always face Downsian pressures to head to the middle, even once they have been nominated, is that for every vote they gain in the center by convincing median voters that they are a better fit than the Democratic candidate, they lose 3 votes on the right wing fringe by dampening enthusiasm such that their prospective voters stay home. With voter turnout being so low, and with the particular dynamics of a far-right group that has to be enthusiastic or they’ll stay home, the Downsian dynamic which produced budget compromises is simply far less operative than it used to be.
Anyway, I can’t prove we’re headed for disaster on the ground that politicians and their incentives have changed. But I think we are. And I know that many informed observers of the political system agree that it is radically different today than it was 20 years ago, even if we can’t entirely figure out why it happened or agree as to what diagnoses are most plausible.
Against this view, economist types on the optimist side of the debate think they have a trump card. They say: What makes you think you’re smarter than the financial markets? The market obviously doesn’t see a problem – that’s why interest rates for U.S. government bonds are currently so low. The market still defines U.S. Treasuries as risk-free. So it evidently has determined that things are going to be just fine in the end. And since that reflects informed people betting real money – as opposed to you pessimist blowhards, who are just pontificating – they have got to be right.
Needless to say, this view might have been a bit more convincing before 2008. We now have a snappy retort: Yeah, this is the same market that did such a great job evaluating subprime default risk.
But this is a good place to end this post, at the moment of transition to my recent realization that there’s a crucial onion layer inside the politics (just as the politics is inside the demographic & technological layer), relating to how financial markets function. I will save that topic for my next follow-up post, most likely in the mid-afternoon or else tomorrow (as just now the tennis court and farmer's market are beckoning).
For possible details of the disaster, see the Burman paper. Or think about Greece’s problems today, only worse since we’d be dragging down the entire world economy with us. Possible details might include a very rapid 25% decline in output, Weimar Germany-style hyper-inflation, wipe-out of millions of people’s life savings, very slow recovery, and little significant economic growth for a generation. Plus all the political fallout that such a state of affairs might entail – think Weimar Germany again, only this time the loonies who took over large countries or regional rivals in various global hotspots would have nuclear weapons.
But back to the question of why the disaster would be allowed to occur. One of the strange things about the fiscal crisis is that everyone knows it’s out there. The Tea Partiers could be interpreted as worrying about it, although their solution is to cut taxes while retaining all government spending that they like (which is about 99% of the overall federal budget, although they seem to think that it’s 5%). But I’ve been talking to “lay” people in the hundreds about this issue for 15 years (having published books about it in 1997 and 2007), and I have yet to find anyone who was surprised or didn’t already know about it.
So why doesn’t our political system deal with it? Why would Obama be committing political suicide (above and beyond anything of the sort he’s accomplished already) if he seriously tried to take this issue on, rather than agreeing to massive tax cut extensions? (My hopes from the panel he’s empowered are quite limited, though I will probably be more sympathetic to the entitlements changes they might propose than most commentators on the left. And the panel is certain, I gather, not to address the tax side of the ledger in any serious way at all.)
The optimists think the political system will deal with it non-catastrophically in due course, and is just waiting for a clearer crisis. One point to the contrary is that dealing with it demonstrably gets much costlier and more painful if you wait. But the second point to the contrary, which is utterly unprovable in advance but happens to be my belief, is that our political system has reached the point of being unable to deal rationally with crises even though it used to have some such capacity. On this one, we’ll simply have to wait and see who’s right – the optimists, or the people like me who have become pessimists.
One reason no one will fix it in advance of a direr crisis, even though everyone knows the problem is looming, is the underlying chicken game. I used to think of this mainly in terms of the parties. Suppose that Democrats and Republicans both know that a mix of spending cuts that the Democrats especially dislike and tax increases that the Republicans especially dislike will eventually be needed. What’s more, both sides know that they will have to make a handshake deal on the package, as one side acting alone would get politically crucified. You don’t want to be the first to flinch and offer a deal, because you are hoping to have the ultimate concessions be as much on their side, and as little on your side, as possible. But at some point one side must flinch and the other side reciprocate, or else we all go over the cliff. Chicken games can end catastrophically, although this requires miscalculation.
Back in the 1980s, the chicken game was why legislative staffers such as me when I was at the Joint Committee on Taxation sometimes had to work late. House and Senate negotiators over a big tax bill would wait until the last minute to make a deal because they wanted to minimize their own concessions. But apart from hasty drafting and needless loss of sleep the social cost was low. Why should it end up so much worse, with everyone going over the cliff, in the future budgetary scenario?
The answer that pessimists such as myself would make is that U.S. politics has fundamentally changed for the worse. There are many reasons why things are different today than they were in the 1980s (and to a lesser degree the 1990s), but perhaps the key one, to me, is that the Republicans have gone stark raving mad. (Plenty of conservatives would agree with this diagnosis, by the way – try asking Bruce Bartlett and David Frum.)
Why have the Repubs gone stark raving mad? It’s easy to blame individuals – say, Newt Gingrich and Grover Norquist. Or to cite contingent historical events – e.g., the first President Bush makes a brave and wise budgetary compromise in 1990, and this costs him the 1992 election because the Republican right retaliates. But I suspect there are deeper sociological forces at work here, relating to how white people above a certain age have responded to modernization, demographic changes in U.S. racial composition, etcetera, and that you therefore have to look from a historical and sociological perspective rather than at particular politicians and their tactics. But that’s clearly beyond my personal expertise.
Anyway, how do we know that U.S. politics has fundamentally changed? We really don’t know this for sure – and indeed it was a point of disagreement at the Columbia seminar on Burman’s paper yesterday. But Burman’s personal experience in Washington over the last 20 years matches my own in concluding that it has.
We’ve never had the fundamental rejection of modern science by a major political party that we now have today. So it’s hard to see why they’d stop – indeed, to date they haven’t – at also rejecting arithmetic, which is all you need to say that the budget numbers don’t add up over the long term, under plans they'd tolerate (and could actually get enacted) no less than under current policy.
And since so much of this is about chicken games, I should add that one side’s provocations can lead to the other to up the ante. There are people on the left out there using the phrase “catfood commission” to defame what might be reasonable efforts to restrain entitlements growth while protecting elderly people on the bottom of the income distribution. And the Democrats saw that Clinton’s hard work in helping create the budget surplus simply gave Bush a bigger wallet to blow on his friends and his causes. So they will not be in any rush to try that again.
The chicken game goes beyond the political parties to individual voters, however. Why does everyone, while realizing that we have a problem, stand ready to vote out any politician who proposes to do anything serious about it? One way of thinking about the answer – apart from people who simply hope the adjustment can be postponed until they are no longer on the scene – is in terms of a chicken game. I should resist any changes which take some of the solution out of my hide, because there are always alternative solutions available that would take less from me and more from someone else.
One last point about the politics is the following. I’ve been suggesting so far that U.S. politics used to be “normal” and capable of making hard decisions, but has now become abnormal or aberrant and has lost its ability to do so. I happen to think that’s pretty true. But perhaps this gets things backwards, in a sense. Maybe our political system’s ability to deal with these problems in the 1980s and 1990s was exceptional and unusual, not the current inability that pessimists such as me posit.
There’s lots of convincing political science work to the effect that the political system should be expected to fail in dealing with this stuff. Think of the Virginia school public choice Leviathan literature, or the work of Alberto Alesina & others about how political factions’ short-term incentives can lead them to play dangerous budgetary games. Sometimes I almost get the sense that one could logically prove that the budgetary accomplishments of the 1980s and 1990s couldn’t have actually happened. Sure, as the saying goes, it worked in practice, but not in theory. How can we explain the good things that happened without resort to unconvincing clichés about leadership, people who cared about the national interest, etcetera?
One explanation I’ve offered in previous writing is that it related to the Downsian dynamic to compete for the median voter. Reagan and O’Neill could compete as well as cooperate by showing the people in the center, “I’m as reasonable as he is” (which also helped them both to hold off rival leadership claimants).
But U.S. politics is much less Downsian than it used to be. E.g., Republicans don’t exactly get nominated these days by showing their primary constituencies that they are the true centrists who can win in November. There are a lot of institutional reasons why the Downsian rush to the center has abated. E.g., “natural gerrymandering” at the state level from sorting into blue and red states. The way money and interest group politics has played out lately. But one factor that I regard as important is what I call differential turnout elasticity.
One reason Repubs don’t always face Downsian pressures to head to the middle, even once they have been nominated, is that for every vote they gain in the center by convincing median voters that they are a better fit than the Democratic candidate, they lose 3 votes on the right wing fringe by dampening enthusiasm such that their prospective voters stay home. With voter turnout being so low, and with the particular dynamics of a far-right group that has to be enthusiastic or they’ll stay home, the Downsian dynamic which produced budget compromises is simply far less operative than it used to be.
Anyway, I can’t prove we’re headed for disaster on the ground that politicians and their incentives have changed. But I think we are. And I know that many informed observers of the political system agree that it is radically different today than it was 20 years ago, even if we can’t entirely figure out why it happened or agree as to what diagnoses are most plausible.
Against this view, economist types on the optimist side of the debate think they have a trump card. They say: What makes you think you’re smarter than the financial markets? The market obviously doesn’t see a problem – that’s why interest rates for U.S. government bonds are currently so low. The market still defines U.S. Treasuries as risk-free. So it evidently has determined that things are going to be just fine in the end. And since that reflects informed people betting real money – as opposed to you pessimist blowhards, who are just pontificating – they have got to be right.
Needless to say, this view might have been a bit more convincing before 2008. We now have a snappy retort: Yeah, this is the same market that did such a great job evaluating subprime default risk.
But this is a good place to end this post, at the moment of transition to my recent realization that there’s a crucial onion layer inside the politics (just as the politics is inside the demographic & technological layer), relating to how financial markets function. I will save that topic for my next follow-up post, most likely in the mid-afternoon or else tomorrow (as just now the tennis court and farmer's market are beckoning).
Why is the U.S. headed for fiscal disaster (if it is)? - Part One
Len Burman’s paper, “Catastrophic Budget Failure,” presented yesterday at Columbia Law School’s tax policy colloquium, describes how the end game of U.S. fiscal unsustainability could potentially play out. Short version: it might not be pretty.
Also, the paper shows that, with a couple of reasonable assumptions, such as about how interest rates might start to rise about ten years from now in response to the U.S. fiscal situation, the line showing our debt to GDP ratio might turn highly vertical by the early to mid 2020s, which really isn’t that far off.
I had thought I was done for now writing about fiscal issues, for a couple of reasons. The first is that I thought I had pretty much worked through my understanding of the very complex and multi-faceted issues raised. The second is that I get the sense sometimes that the market has spoken, in the sense that my input on these issues is less noticed and valued than on issues closer to my known professional specialization. People out there seem to think I’m more worth reading on, say, corporate or international tax policy or fundamental tax reform than on the long-term budget issues, for which they turn purely to economists.
Now, I don’t actually agree with this judgment – I think that my analysis of the budget issues is very good (if I may say so), and gets to the core of the issues as only the very best work by economists does, while also featuring a different mix of qualities (e.g., no number-crunching, but more value added on the normative and political science aspects). But people have their expectations, and I certainly don’t feel slighted in general by the market out there. Apparently, just as people don’t especially want a synth album from Neil Young, so they don’t seem to want this sort of stuff as much from me. Fine, so be it.
But I’m nonetheless tempted to write again about these issues, perhaps in Tax Notes or some such thing. So whether or not that happens (as I’d hate to take more time off from my ongoing and much-delayed international tax book), here are some rough preliminary thoughts as prompted by last night’s discussion at Columbia.
My understanding of why the U.S. might face a fiscal disaster has gone through 3 stages. First I understood it as a demographic problem, which I soon saw included as well a path-of-technology aspect. Then I came to understand it as more fundamentally a political problem. Finally, with help from Len’s paper, I’ve come to see it as perhaps even more fundamentally a problem of how financial markets (mal)function. But each new interpretation supplements rather than supersedes the prior ones.
The demographic and technological problem – Everyone knows about this bit. Rising life expectancies, baby bust after the baby boom, etcetera. The technological piece is that the long-term U.S. fiscal picture wouldn’t be nearly as bad, despite the plummeting worker to retiree ratios, if healthcare weren’t growing faster than GDP for technological as well as demographic reasons.
In theory, it’s ambiguous whether advances in medical technology should on balance make healthcare more expensive or less. E.g., for every costly new procedure that makes a previously untreatable problem something we can handle at great expense, there may also be a cost-saving innovation. E.g., you take a daily pill and, as a result, don’t need open heart surgery next year.
In practice, however, technological advances have unambiguously had the net effect of making healthcare more expensive, not less. Why is this? It could be something about the technological “space” at the frontier of current knowledge into which our R&D innovators are currently advancing. But it also could have a lot to do with the innovators’ incentives in a healthcare world in which consumers have only limited cost-consciousness due to tax-favored employer-provided healthcare, Medicare, Medicaid, etcetera.
I often quote Brad DeLong’s statement in a blog entry some years back to the effect that liberal economists think the big problem in healthcare is adverse selection while conservative economists think it’s moral hazard (i.e., consumers’ lack of cost-consciousness), to which I add (I don’t recall if Brad did) that the unfortunate thing is, both are right. The liberal economists like to point to evidence that consumers in healthcare don’t act quite the same as when buying a car or a breakfast cereal, seemingly weighing against the relevance of the conservative economists’ diagnosis. But I think the case that the latter (as well as the former) group is right is strengthened if you look at healthcare dynamically over time in terms of where the innovators find it profitable to go. When they won’t get rewarded for cost-saving to the same degree as for new treatments, you get the moral hazard story in full force.
This won’t change unless incentives in the healthcare sector do. Which I don’t see happening any time soon, though this of course gets us into the political story.
OK, that’s the demographic and technological piece. But the reason I no longer see that as the core problem (albeit a key precondition) could be summarized as follows. While current policies place us on an unsustainable path, all we have to do is change them. How could we do that? Well, here’s one easy way. Take one serious, principled liberal economist with healthcare and budgetary expertise, and one, serious, principled conservative economist. Say, perhaps someone at Brookings or Urban plus one of the good people at AEI. Give the pair of them full staff back-up for estimates and the like, and give them 2 weeks to come up with an answer that they have agreed to between themselves, and that the politicians then promise to implement. They could easily do it.
The end result wouldn’t be pretty (it would have changes that no one at any point along the political spectrum actually liked, in that we’d be forced to confront the nasty empirical fact of scarcity), but there would be no fiscal crisis. But this is not going to happen, because our political system doesn’t operate this way.
But one last point on the healthcare front before moving on to politics. This hypothetical compromise might lead to people more often NOT getting the best available healthcare in 20 years than they do today. But the best available healthcare in 20 years may be so much better than what we currently get (for technological reasons), that you’d have people getting much better healthcare than us absolutely, just worse than us relative to what is contemporaneously available.
OK, on to politics. But this blog entry is so long already that I think I’ll end it here and post a follow-up that continues the analysis, hopefully some time later today.
Also, the paper shows that, with a couple of reasonable assumptions, such as about how interest rates might start to rise about ten years from now in response to the U.S. fiscal situation, the line showing our debt to GDP ratio might turn highly vertical by the early to mid 2020s, which really isn’t that far off.
I had thought I was done for now writing about fiscal issues, for a couple of reasons. The first is that I thought I had pretty much worked through my understanding of the very complex and multi-faceted issues raised. The second is that I get the sense sometimes that the market has spoken, in the sense that my input on these issues is less noticed and valued than on issues closer to my known professional specialization. People out there seem to think I’m more worth reading on, say, corporate or international tax policy or fundamental tax reform than on the long-term budget issues, for which they turn purely to economists.
Now, I don’t actually agree with this judgment – I think that my analysis of the budget issues is very good (if I may say so), and gets to the core of the issues as only the very best work by economists does, while also featuring a different mix of qualities (e.g., no number-crunching, but more value added on the normative and political science aspects). But people have their expectations, and I certainly don’t feel slighted in general by the market out there. Apparently, just as people don’t especially want a synth album from Neil Young, so they don’t seem to want this sort of stuff as much from me. Fine, so be it.
But I’m nonetheless tempted to write again about these issues, perhaps in Tax Notes or some such thing. So whether or not that happens (as I’d hate to take more time off from my ongoing and much-delayed international tax book), here are some rough preliminary thoughts as prompted by last night’s discussion at Columbia.
My understanding of why the U.S. might face a fiscal disaster has gone through 3 stages. First I understood it as a demographic problem, which I soon saw included as well a path-of-technology aspect. Then I came to understand it as more fundamentally a political problem. Finally, with help from Len’s paper, I’ve come to see it as perhaps even more fundamentally a problem of how financial markets (mal)function. But each new interpretation supplements rather than supersedes the prior ones.
The demographic and technological problem – Everyone knows about this bit. Rising life expectancies, baby bust after the baby boom, etcetera. The technological piece is that the long-term U.S. fiscal picture wouldn’t be nearly as bad, despite the plummeting worker to retiree ratios, if healthcare weren’t growing faster than GDP for technological as well as demographic reasons.
In theory, it’s ambiguous whether advances in medical technology should on balance make healthcare more expensive or less. E.g., for every costly new procedure that makes a previously untreatable problem something we can handle at great expense, there may also be a cost-saving innovation. E.g., you take a daily pill and, as a result, don’t need open heart surgery next year.
In practice, however, technological advances have unambiguously had the net effect of making healthcare more expensive, not less. Why is this? It could be something about the technological “space” at the frontier of current knowledge into which our R&D innovators are currently advancing. But it also could have a lot to do with the innovators’ incentives in a healthcare world in which consumers have only limited cost-consciousness due to tax-favored employer-provided healthcare, Medicare, Medicaid, etcetera.
I often quote Brad DeLong’s statement in a blog entry some years back to the effect that liberal economists think the big problem in healthcare is adverse selection while conservative economists think it’s moral hazard (i.e., consumers’ lack of cost-consciousness), to which I add (I don’t recall if Brad did) that the unfortunate thing is, both are right. The liberal economists like to point to evidence that consumers in healthcare don’t act quite the same as when buying a car or a breakfast cereal, seemingly weighing against the relevance of the conservative economists’ diagnosis. But I think the case that the latter (as well as the former) group is right is strengthened if you look at healthcare dynamically over time in terms of where the innovators find it profitable to go. When they won’t get rewarded for cost-saving to the same degree as for new treatments, you get the moral hazard story in full force.
This won’t change unless incentives in the healthcare sector do. Which I don’t see happening any time soon, though this of course gets us into the political story.
OK, that’s the demographic and technological piece. But the reason I no longer see that as the core problem (albeit a key precondition) could be summarized as follows. While current policies place us on an unsustainable path, all we have to do is change them. How could we do that? Well, here’s one easy way. Take one serious, principled liberal economist with healthcare and budgetary expertise, and one, serious, principled conservative economist. Say, perhaps someone at Brookings or Urban plus one of the good people at AEI. Give the pair of them full staff back-up for estimates and the like, and give them 2 weeks to come up with an answer that they have agreed to between themselves, and that the politicians then promise to implement. They could easily do it.
The end result wouldn’t be pretty (it would have changes that no one at any point along the political spectrum actually liked, in that we’d be forced to confront the nasty empirical fact of scarcity), but there would be no fiscal crisis. But this is not going to happen, because our political system doesn’t operate this way.
But one last point on the healthcare front before moving on to politics. This hypothetical compromise might lead to people more often NOT getting the best available healthcare in 20 years than they do today. But the best available healthcare in 20 years may be so much better than what we currently get (for technological reasons), that you’d have people getting much better healthcare than us absolutely, just worse than us relative to what is contemporaneously available.
OK, on to politics. But this blog entry is so long already that I think I’ll end it here and post a follow-up that continues the analysis, hopefully some time later today.
Video of the NYU Forum on extending the Bush tax cuts
Here it is, more than an hour long but not without some amusing moments. Includes brief commentary on 1980s vs. 70s and 90s pop music, and on rejecting science versus rejecting arithmetic.
Thursday, October 28, 2010
Revised paper
Kim Clausing and I have posted on SSRN a revised version of our paper, "A Burden-Neutral Shift from Foreign Tax Creditability to Deductibility?"
While generally similar to the previous draft, we've cleaned up a few problems and tried to make the analysis and motivation clearer.
While generally similar to the previous draft, we've cleaned up a few problems and tried to make the analysis and motivation clearer.
Wednesday, October 27, 2010
NYU Forum on extending the Bush tax cuts
As expected, a good session (and with high student attendance) reflecting considerable agreement between Diane Lim Rogers, Alan Viard, and myself.
Brief excerpt from my introductory remarks:
"I see 3 key facts for today’s discussion. First, we’re either in recession or just out of it with a danger of severe relapse. Either way, unemployment is much too high. So I believe the economy needs further stimulus if it can be done effectively. Allowing tax rates to increase would be the opposite of stimulus. But extending the tax cuts is poorly designed stimulus, and concern about the state of the economy would only support extending the tax cuts temporarily.
"Second, we are on an unsustainable fiscal path, with projected spending way ahead of projected revenues. Taxes WILL have to go up. Spending growth – in particular healthcare-related – WILL have to slow. Otherwise, we’ll eventually have a fiscal crisis, potentially leading to both a severe depression and hyper-inflation, that will make what happened two years ago look like a walk in the park
"Given our unsustainable fiscal path, I’d say it verges on insanity to consider extending ANY of the rate cuts more than temporarily, unless the extension is financed (and then some) by other changes that include raising taxes in some other way instead. Yet the Democrats and Republicans both want to extend unsustainable tax cuts, and only disagree about the top bracket.
"Third, in the last 20 years, there has been a big change in U.S. wealth distribution. In particular, if you go not just to the 99th percentile but to the upper portion of that, you’ll observe substantial relative gains compared to everyone else. Why this happened & how bad it is (if it’s bad at all) is disputed, as well as what if anything to do about it. [But addressing this, however important for its own sake, is not going to be more than a small part of addressing the fiscal gap problem.]
As Diane (see here) and Alan (see here) both blog, I look forward to reading their comments, if any, about the session, and may perhaps cross-link and extend the colloquy.
Brief excerpt from my introductory remarks:
"I see 3 key facts for today’s discussion. First, we’re either in recession or just out of it with a danger of severe relapse. Either way, unemployment is much too high. So I believe the economy needs further stimulus if it can be done effectively. Allowing tax rates to increase would be the opposite of stimulus. But extending the tax cuts is poorly designed stimulus, and concern about the state of the economy would only support extending the tax cuts temporarily.
"Second, we are on an unsustainable fiscal path, with projected spending way ahead of projected revenues. Taxes WILL have to go up. Spending growth – in particular healthcare-related – WILL have to slow. Otherwise, we’ll eventually have a fiscal crisis, potentially leading to both a severe depression and hyper-inflation, that will make what happened two years ago look like a walk in the park
"Given our unsustainable fiscal path, I’d say it verges on insanity to consider extending ANY of the rate cuts more than temporarily, unless the extension is financed (and then some) by other changes that include raising taxes in some other way instead. Yet the Democrats and Republicans both want to extend unsustainable tax cuts, and only disagree about the top bracket.
"Third, in the last 20 years, there has been a big change in U.S. wealth distribution. In particular, if you go not just to the 99th percentile but to the upper portion of that, you’ll observe substantial relative gains compared to everyone else. Why this happened & how bad it is (if it’s bad at all) is disputed, as well as what if anything to do about it. [But addressing this, however important for its own sake, is not going to be more than a small part of addressing the fiscal gap problem.]
As Diane (see here) and Alan (see here) both blog, I look forward to reading their comments, if any, about the session, and may perhaps cross-link and extend the colloquy.
Tuesday, October 26, 2010
Cheerful discussions of the long-term U.S. budget situation
As I've previously mentioned, at tomorrow's Forum at NYU Law School, Diane Lim Rogers, Alan Viard, and I will be discussing the budgetary insanity of extending some or all of the expiring Bush era individual tax cuts. I will post my introductory remarks shortly after the event.
Then on Thursday, Len Burman will be presenting a paper at our rival (?) law school to the north, entitled Catastrophic Budget Failure.
One nice thing about this paper is that it goes through some possible scenarios for the eventual catastrophic U.S. budget failure that current U.S. political trends - far more than simply prevailing economic, demographic, or technological trends - suggest to me is verging on inevitable. When the crunch comes, the credit markets may simply seize up, with the U.S. unable to borrow at any interest rate, and the U.S. economy may rapidly shrink by 25% (a la the Great Depression, but with hyper-inflation to boot).
Here's the conclusion: "Continuation of current patterns of taxing and spending would cause U.S. debt levels to reach unprecedented levels. The CBO (2009b)calculates that debt would reach 100 percent of GDP by 2023 and 200 percent of GDP by 2038. As bleak as those projections are, they do not reflect likely macroeconomic feedback effects. Including the effects of rising debt on interest rates and economic growth, the debt-to-GDP ratio will increase even faster.
We fear, however, that a far worse scenario may be in our future. It is possible that interest rates will not respond significantly to rising debt levels for many years — because of a bubble in financial markets or because foreign lenders have an incentive to fuel our imports by enabling our large budget deficits. This cannot go on forever and when the bubble bursts, the consequences for the United States would be a severe recession or depression with a significant probability of hyper-inflation. Since the United States is so large relative to the world economy, catastrophic budget failure would likely create economic carnage around the world, which could feed back to deepen and lengthen our own economic decline.
Unfortunately, given current knowledge, it is impossible to predict when or even if such a budget crisis could occur or exactly how it would play out. However, the possible consequences are so severe that avoiding it should be a high priority. The solution is relatively straightforward: cut spending, especially for entitlements, and raise revenues to stabilize and eventually reduce debt as a share of the economy."
Then on Thursday, Len Burman will be presenting a paper at our rival (?) law school to the north, entitled Catastrophic Budget Failure.
One nice thing about this paper is that it goes through some possible scenarios for the eventual catastrophic U.S. budget failure that current U.S. political trends - far more than simply prevailing economic, demographic, or technological trends - suggest to me is verging on inevitable. When the crunch comes, the credit markets may simply seize up, with the U.S. unable to borrow at any interest rate, and the U.S. economy may rapidly shrink by 25% (a la the Great Depression, but with hyper-inflation to boot).
Here's the conclusion: "Continuation of current patterns of taxing and spending would cause U.S. debt levels to reach unprecedented levels. The CBO (2009b)calculates that debt would reach 100 percent of GDP by 2023 and 200 percent of GDP by 2038. As bleak as those projections are, they do not reflect likely macroeconomic feedback effects. Including the effects of rising debt on interest rates and economic growth, the debt-to-GDP ratio will increase even faster.
We fear, however, that a far worse scenario may be in our future. It is possible that interest rates will not respond significantly to rising debt levels for many years — because of a bubble in financial markets or because foreign lenders have an incentive to fuel our imports by enabling our large budget deficits. This cannot go on forever and when the bubble bursts, the consequences for the United States would be a severe recession or depression with a significant probability of hyper-inflation. Since the United States is so large relative to the world economy, catastrophic budget failure would likely create economic carnage around the world, which could feed back to deepen and lengthen our own economic decline.
Unfortunately, given current knowledge, it is impossible to predict when or even if such a budget crisis could occur or exactly how it would play out. However, the possible consequences are so severe that avoiding it should be a high priority. The solution is relatively straightforward: cut spending, especially for entitlements, and raise revenues to stabilize and eventually reduce debt as a share of the economy."
Monday, October 25, 2010
Unintended ambiguity?
On my way back to NYU after my lunch talk at St. John's earlier today, I saw a parked car with two bumper stickers. The first said "No drilling." The second said, "No farms, no food."
Reading the second one in light of the first one, I wanted to tell the car owner, Hey, I hate drilling too, what with BP & the Gulf and all that, but do you really want to do away with all farms and food?
Reading the second one in light of the first one, I wanted to tell the car owner, Hey, I hate drilling too, what with BP & the Gulf and all that, but do you really want to do away with all farms and food?
Talk today at St. John's University Law School
I'm heading to Queens, NYC shortly to give a lunch talk at St. John's University Law School, based on my just-published paper (with Doug Shackelford and Joel Slemrod) Taxation and the Financial Sector.
I've given talks on this paper and posted the slides before. But, as I've shortened and clarified them for today, in good part by downplaying issues (such as retributively motivated bonus taxes) that are much less of-the-moment now than when we were writing the paper, I'll post a pdf of the revised slides here.
UPDATE: The session went well. Much of the discussion focused on financial transactions tax (a.k.a. turnover tax or Tobin tax) versus financial activities tax (falling on extra-normal financial institutions profits, on the view that they're either rents or else correlated with tail risk that creates negative externalities). I'm more sympathetic to the latter and think it worth exploring further, though this appears these days to be politically unlikely.
But the high point personally for me came shortly before the talk, when one of the faculty members in attendance (whom I hadn't met before) handed me a copy of Getting It to sign, and told me (as have several other readers) that it had given him a delightful day over the summer and made him laugh out loud at numerous points.
I've given talks on this paper and posted the slides before. But, as I've shortened and clarified them for today, in good part by downplaying issues (such as retributively motivated bonus taxes) that are much less of-the-moment now than when we were writing the paper, I'll post a pdf of the revised slides here.
UPDATE: The session went well. Much of the discussion focused on financial transactions tax (a.k.a. turnover tax or Tobin tax) versus financial activities tax (falling on extra-normal financial institutions profits, on the view that they're either rents or else correlated with tail risk that creates negative externalities). I'm more sympathetic to the latter and think it worth exploring further, though this appears these days to be politically unlikely.
But the high point personally for me came shortly before the talk, when one of the faculty members in attendance (whom I hadn't met before) handed me a copy of Getting It to sign, and told me (as have several other readers) that it had given him a delightful day over the summer and made him laugh out loud at numerous points.
Saturday, October 23, 2010
Ding dong, the wicked witch is dead
When the Yanks finally get eliminated in a given year, I feel more relief than enjoyment. It makes the rest of the post-season more relaxing and fun, but I still can't forget the astonishing terms of MLB "competition" these days.
Okay, they lost to the Rangers despite having used their vast financial superiority to take away the Rangers' best two pre-Hamilton hitters (A-Rod and Teixeira). For next year, they will take the Rangers' best pitcher (Lee). Plus, the two winningest teams in the rest of MLB will each lose its best outfielder, and the Yanks will get to decide which of those two (Crawford or Werth) they prefer.
So it's a bit like knowing that Sauron has been defeated, but that his spirit will re-form shortly and be stronger than ever. Plus, via the free agent draft he's going to add Aragorn along with his pick of Legolas or Gimli.
Okay, they lost to the Rangers despite having used their vast financial superiority to take away the Rangers' best two pre-Hamilton hitters (A-Rod and Teixeira). For next year, they will take the Rangers' best pitcher (Lee). Plus, the two winningest teams in the rest of MLB will each lose its best outfielder, and the Yanks will get to decide which of those two (Crawford or Werth) they prefer.
So it's a bit like knowing that Sauron has been defeated, but that his spirit will re-form shortly and be stronger than ever. Plus, via the free agent draft he's going to add Aragorn along with his pick of Legolas or Gimli.
Friday, October 22, 2010
New publications, part 2
Also forthcoming in the December 2010 issue of the National Tax Journal, and offered here for your convenience despite the incalculable* harm to my SSRN download rating, is my solo piece, "Rethinking Foreign Tax Creditability." Available here.
*Incalculable by me at any rate, though probably extremely small.
UPDATE: I will be giving a lunchtime talk concerning this paper at Rutgers Camden Law School on Monday, November 8. Possibly followed by a 4 pm talk to students (if any show up) on Getting It.
*Incalculable by me at any rate, though probably extremely small.
UPDATE: I will be giving a lunchtime talk concerning this paper at Rutgers Camden Law School on Monday, November 8. Possibly followed by a 4 pm talk to students (if any show up) on Getting It.
New publications, part 1
"Taxation and the Financial Sector," which I co-authored with Doug Shackelford and Joel Slemrod, will be coming out shortly in the December 2010 issue of the National Tax Journal.
Though this might cost me SSRN downloads (the coin of the realm these days in legal academia), a convenient PDF version of the final article is available here.
UPDATE: I should have added that I'm giving a lunchtime talk about this paper at the St. John's University School of Law this coming Monday, October 25.
Though this might cost me SSRN downloads (the coin of the realm these days in legal academia), a convenient PDF version of the final article is available here.
UPDATE: I should have added that I'm giving a lunchtime talk about this paper at the St. John's University School of Law this coming Monday, October 25.
Thursday, October 21, 2010
Expansionary fiscal austerity?
I often disagree in various respects with Dean Baker. For example, I'm more of a deficit hawk under non-recessionary circumstances, and more inclined to cut entitlements growth as a part of the long-term adjustments that are needed to avoid a major fiscal disaster.
But I very much like and am in sympathy with this piece, which does a good job of rebutting recent arguments that fiscal austerity in current circumstances could actually aid economic recovery.
But I very much like and am in sympathy with this piece, which does a good job of rebutting recent arguments that fiscal austerity in current circumstances could actually aid economic recovery.
Wednesday, October 20, 2010
This is going too far
I wanted to refer to the Mad Tea Party in a subchapter heading of my book in progress on U.S. international taxation. Having in mind, of course, the scene in Alice in Wonderland. But if I did this, too many readers would assume it was a contemporary political reference.
For now I can't do it, but let's hope the problem is temporary.
I've already used Rube Goldberg; not even worth considering at this point whether I could pair the two references.
For now I can't do it, but let's hope the problem is temporary.
I've already used Rube Goldberg; not even worth considering at this point whether I could pair the two references.
Tuesday, October 19, 2010
Disappointing discovery of the day
The Earl of Sandwich may have invented (or more likely popularized) the meal item named after him because he was working so hard as a Cabinet minister, rather than because he was gambling around the clock.
Thursday, October 14, 2010
Forum on the Bush tax cuts: official link now posted
The NYU Law School website now has a live-action link concerning the October 27 Forum at which Diane Lim Rogers, Alan Viard, and I will be the invited speakers (though with plenty of audience discussion) on the topic "Congress Revisits the Bush Tax Cuts: Who Should Pay Taxes, and How Much?"
If you're potentially interested in attending, just scroll down to October 27 and click on the event title for more information.
If you're potentially interested in attending, just scroll down to October 27 and click on the event title for more information.
Invidious rhetoric directed at fellow hominoids
While at an academic tax conference last weekend, I experienced the frisson (a word I've never actually used before, either in speech or writing) of coming across a lively-sounding quote from my own past work that I had completely forgotten writing.
The paper we were discussing at the conference concerned overlaps between programs designed by different Congressional committees, and it cited a paper of mine from some years back that discusses the effective marginal tax rates that can apply to poor individuals from federal and state income and other taxes plus income-based phase-outs of TANF, Food Stamps, Medicaid, the EITC, rental vouchers, etc. In many ranges, as I showed, the effective marginal tax rate for a given rise in income may plausibly exceed 100% for many people. I suggested that this couldn't be a good design feature, and that it presumably reflected lack of conscious coordination of the programs (among other factors).
But the line that I still don't recall writing (though it sounds like me), and that the paper we were discussing quoted, goes something like: This MTR structure looks like it was designed by a drunk, or perhaps a chimpanzee.
But I know how to do the decent thing when I'm in the wrong. So, even though there were none in the room, I made sure at the conference last weekend to apologize to the chimpanzees.
The paper we were discussing at the conference concerned overlaps between programs designed by different Congressional committees, and it cited a paper of mine from some years back that discusses the effective marginal tax rates that can apply to poor individuals from federal and state income and other taxes plus income-based phase-outs of TANF, Food Stamps, Medicaid, the EITC, rental vouchers, etc. In many ranges, as I showed, the effective marginal tax rate for a given rise in income may plausibly exceed 100% for many people. I suggested that this couldn't be a good design feature, and that it presumably reflected lack of conscious coordination of the programs (among other factors).
But the line that I still don't recall writing (though it sounds like me), and that the paper we were discussing quoted, goes something like: This MTR structure looks like it was designed by a drunk, or perhaps a chimpanzee.
But I know how to do the decent thing when I'm in the wrong. So, even though there were none in the room, I made sure at the conference last weekend to apologize to the chimpanzees.
Tuesday, October 12, 2010
Expiring tax cuts - early notice of NYU Law School event
Readers in the NYC area may be interested in an upcoming event that I've been helping to organize at NYU Law School, to take place of Wednesday, October 27, from 12:20 to 1:50 pm. Every week in this slot, we have a "Forum," aimed mainly at law students, discussing various legal topics of professional or intellectual interest. A typical session has about 30 minutes of panel discussion, followed by an hour of Q & A with the audience. On October 27, the topic will be the expiring tax cuts for individuals.
While typically a mainly in-house event, I've been told that non-NYU people, such as those who might attend a session of our Tax Policy Colloquium, are welcome. (But they should probably send me word that they are interested, so I can make sure the front desk at the law school has their names.)
Our panelists will be Diane Lim Rogers of the Concord Coalition, Alan Viard of the American Enterprise Institute, and myself as moderator and discussion facilitator. It's possible we'll be adding one more speaker, depending on a particular individual's availability. But Diane and Alan alone should make this a great event. Among other virtues, they are both intellectually honest but have different points of view.
Here's the event description that we'll be officially disseminating shortly:
"CONGRESS REVISITS THE BUSH TAX CUTS: WHO SHOULD PAY TAXES, AND HOW MUCH?
"The United States tax system is on a collision course with reality. Experts on the left and right agree that the U.S. is on an unsustainable fiscal path, and it is difficult to deny sharply increasing income inequality. Yet the only debate between Democrats and Republicans regarding the expiring Bush era tax cuts is whether to repeal those cuts for the very highest income tax bracket. Will this work as a long-term answer? What about the mushrooming budget deficit? Or income inequality? We have a remarkable panel of experts to address these issues – and plenty of time for your questions! Please join us for what promises to be a terrific forum."
And here's a more detailed event description that we won't be disseminating officially, as reliable sources told me it sounded too wonky or geeky (I'm not sure which, as said sources were being polite to me):
"Tax rate cuts for individuals that were enacted in 2001 will expire at the end of this year, unless and until Congress acts. This would cause all taxpaying individuals’ income tax rate brackets to rise back to their pre-2001 levels, with the top rate rising from 35 percent to its prior level of 39.6 percent.
"Both the Obama Administration and Congressional Republicans agree that all of the expiring rate cuts, other than that for the top bracket, should be extended indefinitely. Thus, the only dispute in Washington concerns the expiring top bracket rate cut, which the Republicans but not the Administration want to extend.
"Despite this tax-cutting consensus, however, responsible experts on both the left and the right generally agree that the U.S. is on an unsustainable long-term fiscal path, and that this is likely to lead to significant tax increases at some point soon, even though neither party is currently willing to address this issue.
"The question of what to do about the expiring tax cuts also is complicated by the fact that the U.S. economy is currently (at best) just out of a severe recession, with a threat of relapse, and with persistent, extremely high unemployment levels. It also is complicated by differing views about U.S. income inequality, which has increased over the last twenty years by reason of the relative gains enjoyed by people in the 99th percentile (and particularly its upper reaches)."
While typically a mainly in-house event, I've been told that non-NYU people, such as those who might attend a session of our Tax Policy Colloquium, are welcome. (But they should probably send me word that they are interested, so I can make sure the front desk at the law school has their names.)
Our panelists will be Diane Lim Rogers of the Concord Coalition, Alan Viard of the American Enterprise Institute, and myself as moderator and discussion facilitator. It's possible we'll be adding one more speaker, depending on a particular individual's availability. But Diane and Alan alone should make this a great event. Among other virtues, they are both intellectually honest but have different points of view.
Here's the event description that we'll be officially disseminating shortly:
"CONGRESS REVISITS THE BUSH TAX CUTS: WHO SHOULD PAY TAXES, AND HOW MUCH?
"The United States tax system is on a collision course with reality. Experts on the left and right agree that the U.S. is on an unsustainable fiscal path, and it is difficult to deny sharply increasing income inequality. Yet the only debate between Democrats and Republicans regarding the expiring Bush era tax cuts is whether to repeal those cuts for the very highest income tax bracket. Will this work as a long-term answer? What about the mushrooming budget deficit? Or income inequality? We have a remarkable panel of experts to address these issues – and plenty of time for your questions! Please join us for what promises to be a terrific forum."
And here's a more detailed event description that we won't be disseminating officially, as reliable sources told me it sounded too wonky or geeky (I'm not sure which, as said sources were being polite to me):
"Tax rate cuts for individuals that were enacted in 2001 will expire at the end of this year, unless and until Congress acts. This would cause all taxpaying individuals’ income tax rate brackets to rise back to their pre-2001 levels, with the top rate rising from 35 percent to its prior level of 39.6 percent.
"Both the Obama Administration and Congressional Republicans agree that all of the expiring rate cuts, other than that for the top bracket, should be extended indefinitely. Thus, the only dispute in Washington concerns the expiring top bracket rate cut, which the Republicans but not the Administration want to extend.
"Despite this tax-cutting consensus, however, responsible experts on both the left and the right generally agree that the U.S. is on an unsustainable long-term fiscal path, and that this is likely to lead to significant tax increases at some point soon, even though neither party is currently willing to address this issue.
"The question of what to do about the expiring tax cuts also is complicated by the fact that the U.S. economy is currently (at best) just out of a severe recession, with a threat of relapse, and with persistent, extremely high unemployment levels. It also is complicated by differing views about U.S. income inequality, which has increased over the last twenty years by reason of the relative gains enjoyed by people in the 99th percentile (and particularly its upper reaches)."
Monday, October 11, 2010
Peter Diamond's Economics Nobel
Nice to see him get it; well-deserved; insert here all-too-predictable (shame that it has to be) snark about Senate buffoons who have placed a hold on his Fed nomination because they think he's not up to their high economics standards.
Wednesday, October 06, 2010
Random book recommendation
For reasons not worth going into here, I recently recommended to a friend one of my favorite books, Saki's The Unbearable Bassington.
Her review: "I thought it was great. Sad, funny, psychologically acute, and beautifully written."
I'll repeat that recommendation here, if only because (a) it's such a great book that not many people know about, and (b) Saki, a.k.a. H.H. Munro, is under-appreciated on Facebook (just as he is elsewhere). Only 7 "likes" on his Community Page, and no page for The Unbearable Bassington (hands down his best work, in my view).
Closest literary sibling to Saki: Oscar Wilde. But Bassington is much sadder than anything Wilde wrote before his destruction, and clearly better than anything he wrote other than (of course) The Importance of Being Earnest and (perhaps) Dorian Gray.
Her review: "I thought it was great. Sad, funny, psychologically acute, and beautifully written."
I'll repeat that recommendation here, if only because (a) it's such a great book that not many people know about, and (b) Saki, a.k.a. H.H. Munro, is under-appreciated on Facebook (just as he is elsewhere). Only 7 "likes" on his Community Page, and no page for The Unbearable Bassington (hands down his best work, in my view).
Closest literary sibling to Saki: Oscar Wilde. But Bassington is much sadder than anything Wilde wrote before his destruction, and clearly better than anything he wrote other than (of course) The Importance of Being Earnest and (perhaps) Dorian Gray.
Monday, October 04, 2010
Conflicts of interest
This article from the Chronicle of Higher Education raises important questions about the incentive structure that many economists and law profs, if writing about issues that business groups care about, face these days. To be sure, it's a matter of broad-ranging entrepeneurial choice how one directs one's academic efforts. The important point, however, is that conscious hypocrisy is not needed for the incentive structure (including side rewards) facing academics in a given field to matter greatly.
I should emphasize that I don't mean to endorse this article's critique of any particular individual, be it Larry Summers or any of the others named. Given the non-monetary rewards we seek in academics (prestige, the enjoyable aesthetics of doing good intellectual work, etc.), the rewards of taking a side that proves lucrative may often be inframarginal even if one isn't surprised to end up reaping them. And there may be plenty of other biases out there as well, some pointing in different directions.
But the issue of potentially reaping enormous rewards for analysis that ends up suggesting a pro-business-constituency bottom line is out there, too big and potentially significant NOT to be discussed even though the discussions may prove quite awkward because they can get ad hominem.
I should emphasize that I don't mean to endorse this article's critique of any particular individual, be it Larry Summers or any of the others named. Given the non-monetary rewards we seek in academics (prestige, the enjoyable aesthetics of doing good intellectual work, etc.), the rewards of taking a side that proves lucrative may often be inframarginal even if one isn't surprised to end up reaping them. And there may be plenty of other biases out there as well, some pointing in different directions.
But the issue of potentially reaping enormous rewards for analysis that ends up suggesting a pro-business-constituency bottom line is out there, too big and potentially significant NOT to be discussed even though the discussions may prove quite awkward because they can get ad hominem.
Thursday, September 30, 2010
Still having the wrong debate
The New York Times today picks up on the ongoing debate about whether the top bracket should uniquely be left out of extending the expiring Bush tax cuts for individuals. The article refers, inter alia, to the Todd Henderson-Brad DeLong et al brouhaha on which I briefly weighed in last week.
To give one of my main points from last week a bit more emphasis, one of the big problems here is the fundamental mismatch between the rhetoric being used to support letting the top bracket rate cuts expire and the underlying fiscal situation. Extending ANY of the tax cuts is crazy given the looming U.S. fiscal gap, leaving aside only the points that (a) better-directed stimulus than extending the tax cuts may be politically unavailable, and (b) if base-broadening were on the table politically, one might prefer that to letting the rates go up. But again, given that rational alternative courses are unavailable, it verges on insanity to extend any of the tax cuts (other than in the scenario of a temporary extension that the relevant actors agree will be allowed to expire).
The Obama Administration has decided, from the defensive crouch all Democrats have adopted for at least the last 25 years, to support extending all the tax cuts below the top bracket. In other words, Rove's gambit back in 2001 worked: he was able to shift the political baseline to one of permanent tax cuts without having to count the out-year revenue loss. Plus, he got to exercise agenda control 10 years in advance to the Republicans' predictable advantage. But making an exception just for the top-bracket group has encouraged the Obama Administration to trot out rhetoric about billionaire bankers and the like, which genuinely is a poor fit with $250,000 a year even if that income amount is well into the 99th percentile.
So now we have people like Senator Webb of Virginia saying that the cutoff for raising the top rate above the current 35% should be something much higher than $250,000, leading to yet more revenue loss than under the Administration's position if it happens.
Leaving aside the issue of overall revenue loss, however, Webb has his finger on something that merits attention. The issue of billionaire bankers, or more precisely the fact that the very top of the income distribution has pulled far away from everyone else over the last 20 years, clearly is important even if it doesn't support making the long-term fiscal gap even greater by limiting tax cut expiration to the very top of the top. But no matter what the rates are, and no matter how well or poorly one has addressed the fiscal gap, the question of whether tax rates should be higher at the billionaire level than for those merely at the lower end of the 99th percentile deserves thorough analysis.
I should note, however, that, in the optimal income tax (OIT) literature dating back to the rightly Nobel-awarded work of U.K. economist James Mirrlees, there's a result contrary to raising the rate at the very top. The OIT literature seeks to illuminate the proper consequences for tax rate structure of balancing distributional concerns against efficiency concerns (adaptable to any view one has regarding how best to trade them off against each other). But it tends to suggest that tax rates should be relatively flat and indeed eventually declining at the very top - even if one values progressive redistribution a lot.
This OIT-based view has enormous, indeed compelling, logical force within its assumptions. But these assumptions can potentially be challenged. For example, the approach typically treats utility as depending only on one's own consumption. Thus, if someone gets ten times richer while everyone else stays the same, that person wins and no one loses. There might be a strong case for redistribution away from that person, but this would be based purely on the assumption that, due to the declining marginal utility of wealth, other people would get far more utility from a given dollar than he or she would. Simply burning one of that person's dollars (in the sense of causing him to forego it without getting to transfer even a penny to anyone else) can only be bad, under these assumptions, given that everyone's utility counts positively in the social welfare function.
Suppose there is a case that the top 0.1 percent's astonishing pullaway has had bad social consequences, to which one should object in straight utilitarian terms even if one opposes assigning any independent, non-welfare based, weight to equality for its own sake, to non-welfarist "fairness" concerns, etcetera. Then taking away a dollar at the top could potentially have good social welfare consequences even if no piece of it is successfully transferred to anyone else. This would have to be a claim about externalities. It's very contrary to the way economists (and their fellow-travelers such as myself) generally like to think about these issues - and this reluctance is usually quite justified - but, in this setting, potentially compelling albeit needing specific elaboration.
Other stories might also undermine the standard OIT view about flat and eventually declining tax rates at the top. For example, if being at the 99.99th income percentile correlates with enjoying rents, or with being more concerned about positional jockeying versus one's peers than about the consumption that each extra dollar permits one to afford, there could be further support for rising tax rates at high levels. But this is a set of issues that academics ought to be looking at more, whether just because knowledge is good (as they say at Faber College) or in the hope that findings - and yes, it's not just about self-expression - could eventually influence the political process.
To give one of my main points from last week a bit more emphasis, one of the big problems here is the fundamental mismatch between the rhetoric being used to support letting the top bracket rate cuts expire and the underlying fiscal situation. Extending ANY of the tax cuts is crazy given the looming U.S. fiscal gap, leaving aside only the points that (a) better-directed stimulus than extending the tax cuts may be politically unavailable, and (b) if base-broadening were on the table politically, one might prefer that to letting the rates go up. But again, given that rational alternative courses are unavailable, it verges on insanity to extend any of the tax cuts (other than in the scenario of a temporary extension that the relevant actors agree will be allowed to expire).
The Obama Administration has decided, from the defensive crouch all Democrats have adopted for at least the last 25 years, to support extending all the tax cuts below the top bracket. In other words, Rove's gambit back in 2001 worked: he was able to shift the political baseline to one of permanent tax cuts without having to count the out-year revenue loss. Plus, he got to exercise agenda control 10 years in advance to the Republicans' predictable advantage. But making an exception just for the top-bracket group has encouraged the Obama Administration to trot out rhetoric about billionaire bankers and the like, which genuinely is a poor fit with $250,000 a year even if that income amount is well into the 99th percentile.
So now we have people like Senator Webb of Virginia saying that the cutoff for raising the top rate above the current 35% should be something much higher than $250,000, leading to yet more revenue loss than under the Administration's position if it happens.
Leaving aside the issue of overall revenue loss, however, Webb has his finger on something that merits attention. The issue of billionaire bankers, or more precisely the fact that the very top of the income distribution has pulled far away from everyone else over the last 20 years, clearly is important even if it doesn't support making the long-term fiscal gap even greater by limiting tax cut expiration to the very top of the top. But no matter what the rates are, and no matter how well or poorly one has addressed the fiscal gap, the question of whether tax rates should be higher at the billionaire level than for those merely at the lower end of the 99th percentile deserves thorough analysis.
I should note, however, that, in the optimal income tax (OIT) literature dating back to the rightly Nobel-awarded work of U.K. economist James Mirrlees, there's a result contrary to raising the rate at the very top. The OIT literature seeks to illuminate the proper consequences for tax rate structure of balancing distributional concerns against efficiency concerns (adaptable to any view one has regarding how best to trade them off against each other). But it tends to suggest that tax rates should be relatively flat and indeed eventually declining at the very top - even if one values progressive redistribution a lot.
This OIT-based view has enormous, indeed compelling, logical force within its assumptions. But these assumptions can potentially be challenged. For example, the approach typically treats utility as depending only on one's own consumption. Thus, if someone gets ten times richer while everyone else stays the same, that person wins and no one loses. There might be a strong case for redistribution away from that person, but this would be based purely on the assumption that, due to the declining marginal utility of wealth, other people would get far more utility from a given dollar than he or she would. Simply burning one of that person's dollars (in the sense of causing him to forego it without getting to transfer even a penny to anyone else) can only be bad, under these assumptions, given that everyone's utility counts positively in the social welfare function.
Suppose there is a case that the top 0.1 percent's astonishing pullaway has had bad social consequences, to which one should object in straight utilitarian terms even if one opposes assigning any independent, non-welfare based, weight to equality for its own sake, to non-welfarist "fairness" concerns, etcetera. Then taking away a dollar at the top could potentially have good social welfare consequences even if no piece of it is successfully transferred to anyone else. This would have to be a claim about externalities. It's very contrary to the way economists (and their fellow-travelers such as myself) generally like to think about these issues - and this reluctance is usually quite justified - but, in this setting, potentially compelling albeit needing specific elaboration.
Other stories might also undermine the standard OIT view about flat and eventually declining tax rates at the top. For example, if being at the 99.99th income percentile correlates with enjoying rents, or with being more concerned about positional jockeying versus one's peers than about the consumption that each extra dollar permits one to afford, there could be further support for rising tax rates at high levels. But this is a set of issues that academics ought to be looking at more, whether just because knowledge is good (as they say at Faber College) or in the hope that findings - and yes, it's not just about self-expression - could eventually influence the political process.
Tuesday, September 28, 2010
New article available on SSRN
I have posted on SSRN my latest article, "The Rising Tax-Electivity of U.S. Corporate Residence," subject of my Tillinghast Lecture at NYU last week.
Link is here. Abstract is as follows:
In an increasingly integrated global economy, with rising cross-border stock listings and share ownership, U.S. corporate residence for income tax purposes, which relies on one’s place of incorporation, may become increasingly elective for new equity. Existing equity in U.S. companies, however, is effectively trapped here, given the difficulty of expatriating for tax purposes absent a bona fide acquisition by new owners.
Both the prospect of rising tax electivity for new equity and the very different situation facing old U.S. equity have important implications for U.S. international tax policy. This paper therefore explores three main questions: (1) the extent to which U.S. corporate residence actually is becoming elective for new equity, (2) the implications of rising electivity for the age-old (though often mutually misguided) debate between proponents of residence-based worldwide corporate taxation on the one hand and a territorial or exemption system for foreign source income on the other, and (3) the transition issues for old equity if a territorial system is adopted.
Link is here. Abstract is as follows:
In an increasingly integrated global economy, with rising cross-border stock listings and share ownership, U.S. corporate residence for income tax purposes, which relies on one’s place of incorporation, may become increasingly elective for new equity. Existing equity in U.S. companies, however, is effectively trapped here, given the difficulty of expatriating for tax purposes absent a bona fide acquisition by new owners.
Both the prospect of rising tax electivity for new equity and the very different situation facing old U.S. equity have important implications for U.S. international tax policy. This paper therefore explores three main questions: (1) the extent to which U.S. corporate residence actually is becoming elective for new equity, (2) the implications of rising electivity for the age-old (though often mutually misguided) debate between proponents of residence-based worldwide corporate taxation on the one hand and a territorial or exemption system for foreign source income on the other, and (3) the transition issues for old equity if a territorial system is adopted.
Monday, September 27, 2010
Another reader's response to Getting It
A lawyer who read Getting It (via a mutual friend, but without knowing the personal connection back to me) says:
"A tale of avarice, greed, back-biting, debauchery, treason, and dishonesty! In other words, an accurate portrayal of the legal profession."
Hey, I just report the facts - I don't invent them.
"A tale of avarice, greed, back-biting, debauchery, treason, and dishonesty! In other words, an accurate portrayal of the legal profession."
Hey, I just report the facts - I don't invent them.
Friday, September 24, 2010
Watch my Tillinghast Lecture!
Why settle for just my slides, when you can watch the entire lecture via the NYU homepage here, or directly on youtube here.
UPDATE: If I do say so myself, after sampling it for a few minutes it appears to sound reasonably coherent. Those who know something about the topic may actually be able to follow it in this format. The audience in the room had assistance from my PowerPoint slides, through which I scrolled down during the talk, but if you print them out I suppose they can function as a detailed outline.
UPDATE: If I do say so myself, after sampling it for a few minutes it appears to sound reasonably coherent. Those who know something about the topic may actually be able to follow it in this format. The audience in the room had assistance from my PowerPoint slides, through which I scrolled down during the talk, but if you print them out I suppose they can function as a detailed outline.
Thursday, September 23, 2010
Most hilarious line of the week
From the Republicans' "Pledge to America,", this year's severely marked-down sequel to the infamous 1994 "Contract with America":
"With common-sense exceptions for seniors, veterans, and our troops, we will roll back government spending to pre-stimulus, pre-bailout levels."
In other words, they're going to avoid touching all the main sources of high government spending and growth therein, while cutting taxes by trillions of dollars over the long haul and pretending that they are concerned about debt and deficits.
UPDATE: I mainly try to steer clear these days of overly strongly worded or emotional-sounding responses to Republican shenanigans, but why not let Andrew Sullivan do the honors:
"Given the gravity of the debt crisis, this is the most fiscally irresponsible document ever offered by the GOP. It is to the far right of Reagan, who raised taxes and eventually cut defense, and helped reform social security to ensure its longterm viability. It is an act of vandalism against the fiscal balance of the US, and in this global economic climate, a recipe for a double-dip recession and default. It is the opposite of responsible conservatism."
"With common-sense exceptions for seniors, veterans, and our troops, we will roll back government spending to pre-stimulus, pre-bailout levels."
In other words, they're going to avoid touching all the main sources of high government spending and growth therein, while cutting taxes by trillions of dollars over the long haul and pretending that they are concerned about debt and deficits.
UPDATE: I mainly try to steer clear these days of overly strongly worded or emotional-sounding responses to Republican shenanigans, but why not let Andrew Sullivan do the honors:
"Given the gravity of the debt crisis, this is the most fiscally irresponsible document ever offered by the GOP. It is to the far right of Reagan, who raised taxes and eventually cut defense, and helped reform social security to ensure its longterm viability. It is an act of vandalism against the fiscal balance of the US, and in this global economic climate, a recipe for a double-dip recession and default. It is the opposite of responsible conservatism."
Wednesday, September 22, 2010
Tuesday, September 21, 2010
Tillinghast lecture at NYU Law School
Today I gave the 15th annual Tillinghast Lecture on International Taxation, to a group of about 300 people at NYU Law School. The audience mainly consisted of NYU graduate students in the International Tax Program, other NYU students, faculty and staff from the law school, NYU Law School grads, other legal academics, a few economists, and a number of tax practitioners. Mostly from NYC and thereabouts, but a few came from out of town.
I'll post the PowerPoint slides for the talk shortly, and also a link for the underlying paper once it's up on SSRN. (But I am going to do minor revisions first.) While the title is "The Rising Tax Electivity of U.S. Corporate Residence," it ranged more widely than that, discussing many of the basic considerations (as I see them) in the choice of U.S. international income tax regime for corporations. Drab though this may sound to those not in the field, there's actually great complexity and depth to this set of topics, which also may matter economically to a degree.
I knew I had a lot of fairly complicated things to say and very different types of points to make or issues to address, so the problem of how to make it all comprehensible was a challenging one. Especially as I talk quite fast, and am willing to hit a lot of related but distinct topics successively. And I'm also trying to connect simultaneously with multiple audiences (students, sophisticated journalists, practitioners, economists, policymakers, etc.).
Did I worry about any of this in advance? Who, me? Why, yes, as a matter of fact, at least briefly.
This is probably a once-only talk, unlike other recent academic papers that I gave multiple times (typically to 20 or so people at a shot) and thus was able to sharpen up as I went along like an off-Broadway show that starts with previews. But I had put in some time polishing my slides, and also figuring out how best to discuss & explain things, though I absolutely can't stand to do a literal dry run practice talk.
In doing these sorts of public talks (usually, however, shorter talks before smaller audiences), you get to know that you have better days and worse ones, just as one's tennis forehand may be crisp and accurate one day, then into the net or floating long the next. And you always figure that strangers will judge you based on today's performance (just as in tennis, where there's nothing lamer than saying to someone you haven't played before, "Sorry, I'm a bit off today"). But in addition to having thought things through to a fair degree, I discovered early on that I seemed to be in reasonably good form today. So if you were there and found it bewildering, I don't even have the "just an off-day" excuse, inadequate though that would be anyway.
In sum, I felt good about it from a performance as well as a substantive aspect. Also, though I got some good comments, I generally had anticipated them, thus confirming my sense that I am on the right track in thinking about these issues, and have a fair amount to add (only part of it raised in today's paper) even though the topics are by now familiar in the biz.
I'll post the PowerPoint slides for the talk shortly, and also a link for the underlying paper once it's up on SSRN. (But I am going to do minor revisions first.) While the title is "The Rising Tax Electivity of U.S. Corporate Residence," it ranged more widely than that, discussing many of the basic considerations (as I see them) in the choice of U.S. international income tax regime for corporations. Drab though this may sound to those not in the field, there's actually great complexity and depth to this set of topics, which also may matter economically to a degree.
I knew I had a lot of fairly complicated things to say and very different types of points to make or issues to address, so the problem of how to make it all comprehensible was a challenging one. Especially as I talk quite fast, and am willing to hit a lot of related but distinct topics successively. And I'm also trying to connect simultaneously with multiple audiences (students, sophisticated journalists, practitioners, economists, policymakers, etc.).
Did I worry about any of this in advance? Who, me? Why, yes, as a matter of fact, at least briefly.
This is probably a once-only talk, unlike other recent academic papers that I gave multiple times (typically to 20 or so people at a shot) and thus was able to sharpen up as I went along like an off-Broadway show that starts with previews. But I had put in some time polishing my slides, and also figuring out how best to discuss & explain things, though I absolutely can't stand to do a literal dry run practice talk.
In doing these sorts of public talks (usually, however, shorter talks before smaller audiences), you get to know that you have better days and worse ones, just as one's tennis forehand may be crisp and accurate one day, then into the net or floating long the next. And you always figure that strangers will judge you based on today's performance (just as in tennis, where there's nothing lamer than saying to someone you haven't played before, "Sorry, I'm a bit off today"). But in addition to having thought things through to a fair degree, I discovered early on that I seemed to be in reasonably good form today. So if you were there and found it bewildering, I don't even have the "just an off-day" excuse, inadequate though that would be anyway.
In sum, I felt good about it from a performance as well as a substantive aspect. Also, though I got some good comments, I generally had anticipated them, thus confirming my sense that I am on the right track in thinking about these issues, and have a fair amount to add (only part of it raised in today's paper) even though the topics are by now familiar in the biz.
Monday, September 20, 2010
Pavement concert
Last night in Brooklyn, I got to see a 2-hour set by Pavement from about the 4th row (an approximation, since there was no seating). All it took was getting there not long after the gates opened, and then being willing to stand near the stage for almost 2 hours before they got started, a wait that was mitigated by two warm-up acts, including one with Jenny Lewis (formerly of Rilo Kiley).
My back wasn't especially thrilled by this, but it agreed not to scream too hard or shut down operations, and even recovered swiftly afterwards. Another annoyance was a few drunk twenty-somethings who would shove past people who got there before them and then jump up down screaming the lyrics, physically endangering those near them while also crowding them and blocking their view.
This, however, at least bemused me a bit. The strange angle was that people who would do this sort of thing would actually know Pavement lyrics by heart. They're a bit, well, elliptical for that sort of thing. Take "Summer Babe," seemingly a classic brainless school's-out type of tune about what the title suggests, except that the lyrics begin like this:
"Ice baby / I saw your girlfriend and she was /eating her fingers like they're just another meal / but she waits there / in the levee wash she's / mixin' cocktails with a plastic-tipped cigar." Okay.
Or take "Fin," a stately anthem directed at prison architects, who are urged to send in their blueprints ASAP.
The songs above all made the concert, though the group was high-energy and entertaining as well. Pavement reputedly gave relatively ramshackle or haphazard concerts at times back in the day, but today's standard is more professional (just as rock groups can't take the stage 2 or 3 hours late any more, as the big names used to 30 years ago). So they were revved up and delivered on the songs' musical potential for enjoyable loud performance.
Everyone in the group except for Stephen Malkmus seemed to be a competent but not enormously interesting guy, happy to give a full-tilt concert to the sort of wildly appreciative crowd they probably only got in smaller venues back in the 1990s. There was even football banter between songs. But he, like his songs, is a lot more ambivalent. There's both an evident love for "classic rock," the big anthem, the classic riff, etcetera, along with an accompanying enjoyment of word play and musicianship for their own sakes, and yet at the same time a sardonic and aloof sense of the phoniness and artificiality of rock stardom and public performance conventions.
My back wasn't especially thrilled by this, but it agreed not to scream too hard or shut down operations, and even recovered swiftly afterwards. Another annoyance was a few drunk twenty-somethings who would shove past people who got there before them and then jump up down screaming the lyrics, physically endangering those near them while also crowding them and blocking their view.
This, however, at least bemused me a bit. The strange angle was that people who would do this sort of thing would actually know Pavement lyrics by heart. They're a bit, well, elliptical for that sort of thing. Take "Summer Babe," seemingly a classic brainless school's-out type of tune about what the title suggests, except that the lyrics begin like this:
"Ice baby / I saw your girlfriend and she was /eating her fingers like they're just another meal / but she waits there / in the levee wash she's / mixin' cocktails with a plastic-tipped cigar." Okay.
Or take "Fin," a stately anthem directed at prison architects, who are urged to send in their blueprints ASAP.
The songs above all made the concert, though the group was high-energy and entertaining as well. Pavement reputedly gave relatively ramshackle or haphazard concerts at times back in the day, but today's standard is more professional (just as rock groups can't take the stage 2 or 3 hours late any more, as the big names used to 30 years ago). So they were revved up and delivered on the songs' musical potential for enjoyable loud performance.
Everyone in the group except for Stephen Malkmus seemed to be a competent but not enormously interesting guy, happy to give a full-tilt concert to the sort of wildly appreciative crowd they probably only got in smaller venues back in the 1990s. There was even football banter between songs. But he, like his songs, is a lot more ambivalent. There's both an evident love for "classic rock," the big anthem, the classic riff, etcetera, along with an accompanying enjoyment of word play and musicianship for their own sakes, and yet at the same time a sardonic and aloof sense of the phoniness and artificiality of rock stardom and public performance conventions.
Late to the fray
Todd Henderson, a University of Chicago law prof who writes about corporations, securities law, and such from what appears to be a classic U of C pro-markets and anti-regulatory perspective, has been having a rough time over the last few days (see, for example, Paul Krugman here) because of a blog post in which he complained about being potentially subject to a tax increase if the expiring Bush tax cuts are not extended for top-bracket taxpayers.
Henderson got into hot water by rightly interpreting a lot of the rhetoric about not extending the top-bracket tax cut as pertaining to how "rich" people should be taxed, as compared to those who are "middle class." The latter group's tax cuts both parties are eager to extend (leaving aside the chance that the Republs will hold their tax cuts hostage to those of the top bracket). Hence, Henderson thought it germane to note how the circumstances of his life prevent him from feeling "rich," even though he is a law prof at a leading school and his wife is a doctor, making for two six-figure professional-level salaries. (My family and I, by contrast, have to get by, if that's the word for it, on just one such salary.)
The word "whining" has been used, and Henderson has been condemned for lack of empathy with people in that portion of the U.S. population (99.5 percent or so) whose households earn less, and in most cases at least 80 percent less, than his, and yet somehow seem to get by. But show me a non-whiner and I'll show you someone who isn't fully human. The important thing is what perspective one ends up taking towards one's own inclination to whine (or should I say, towards the enticing joys of wallowing in it).
Frankly, I can identify emotionally with Henderson's complaint, although I certainly wouldn't have posted such a thing. Emotionally though not intellectually, I very much feel the same way as he does about the "who's rich" question, and I'll bet that the huge majority of people similarly situated in the lower to middle bounds of the 99th percentile have similar feelings.
The reason why is identified by Krugman, as well as by Brad DeLong. The way our society operates these days, people in Henderson's and my tier see those above them who (at least as it seems to us) live way higher on the hog and have no financial worries whatsoever. Suppose I take a long flight on a business trip to Europe or Asia and find myself in the cattle cars, a.k.a. coach. Do you think I close my eyes while staggering with my bag through first and business class? Of course not. We often encounter, and psychologically are inclined to care about, what people above us have (and recall that the income gap between us and the top has skyrocketed over the last 20 years). Plus, we find ourselves strongly encouraged and inclined to want and even expect a whole bunch of things that add up to more than we can easily afford, even if we're in the 99th percentile. But then again, economics is the "dismal science" because it's about choice under scarcity.
Equally or more importantly, there's sufficient economic segregation going on to ensure that many of those in our tier will not get to see a whole lot from the inside regarding the lives of the 99+ percent of households that earn less than we do. (Well, I personally DO get to see some of this, and am emotionally inclined to keep it in mind, but that's just me.)
So the feeling Henderson had is understandably widespread in his (and my) socioeconomic tier. Where he really went wrong, but with substantial encouragement from the rhetoric surrounding the extend-the-tax-cuts debate, is in thinking that the case for allowing top bracket rates to rise rests on the notion that all these people are "rich," a claim that necessarily depends on one's frame of reference. But this is the impression that non-tax and budget experts might have been expected to derive from Obama Administration rhetoric, given that the Administration is urging the extension of all other income tiers' expiring tax cuts.
Brad DeLong's takedown nails this pretty hard, noting the horrific long-term budget problems that we face, which make huge tax increases inevitable. Brad also notes this isn't just because the Democrats like a big public sector - Bush did more than all preceding presidents put together (or at least the net of them) to make the fiscal problem a huge one. But of course this goes to show that the so-called middle class tax cuts shouldn't be extended either - and indeed aren't really being extended other than temporarily, given the payback for everyone that's only a turn or two down the road.
So let me try this quasi-defense (?) of Henderson, who after all could have been my colleague had I stayed at Chicago. The commonly offered public rationale for permitting his annual tax liabiity to go up, via non-extension of the top bracket tax cuts, which is that he is "rich," doesn't jibe with how most (I would surmise) people in his socioeconomic position feel about their lives. This admittedly reflects their myopia, but of a sort strongly encouraged by the circumstances in which they (we) commonly live. But in fact the question of who is "rich" in the proper comparative sense is really beside the point. (It's undisputed, of course, that those in the top bracket are generally richER than those in the lower brackets, even though taxable income is an imperfect measure of comparative material wellbeing.)
As a matter of brute political reality, taxes are going to have to go up, and indeed a lot, for way more than just the "rich" by anyone's definition. Extending the so-called middle class tax cuts is insanity as well (leaving aside the case that the current recession calls for delaying the effective date of rate hikes, at least given other political constraints on fiscal policy). And the Obama Administration (albeit under political duress) has helped perpetuate the misunderstanding that this is all about who's "rich," because no one in politics - and Republicans even less than Democrats - has the incentive or the nerve to speak in full candor about the long-term budget picture, its causes, and likely or feasible solutions.
Henderson got into hot water by rightly interpreting a lot of the rhetoric about not extending the top-bracket tax cut as pertaining to how "rich" people should be taxed, as compared to those who are "middle class." The latter group's tax cuts both parties are eager to extend (leaving aside the chance that the Republs will hold their tax cuts hostage to those of the top bracket). Hence, Henderson thought it germane to note how the circumstances of his life prevent him from feeling "rich," even though he is a law prof at a leading school and his wife is a doctor, making for two six-figure professional-level salaries. (My family and I, by contrast, have to get by, if that's the word for it, on just one such salary.)
The word "whining" has been used, and Henderson has been condemned for lack of empathy with people in that portion of the U.S. population (99.5 percent or so) whose households earn less, and in most cases at least 80 percent less, than his, and yet somehow seem to get by. But show me a non-whiner and I'll show you someone who isn't fully human. The important thing is what perspective one ends up taking towards one's own inclination to whine (or should I say, towards the enticing joys of wallowing in it).
Frankly, I can identify emotionally with Henderson's complaint, although I certainly wouldn't have posted such a thing. Emotionally though not intellectually, I very much feel the same way as he does about the "who's rich" question, and I'll bet that the huge majority of people similarly situated in the lower to middle bounds of the 99th percentile have similar feelings.
The reason why is identified by Krugman, as well as by Brad DeLong. The way our society operates these days, people in Henderson's and my tier see those above them who (at least as it seems to us) live way higher on the hog and have no financial worries whatsoever. Suppose I take a long flight on a business trip to Europe or Asia and find myself in the cattle cars, a.k.a. coach. Do you think I close my eyes while staggering with my bag through first and business class? Of course not. We often encounter, and psychologically are inclined to care about, what people above us have (and recall that the income gap between us and the top has skyrocketed over the last 20 years). Plus, we find ourselves strongly encouraged and inclined to want and even expect a whole bunch of things that add up to more than we can easily afford, even if we're in the 99th percentile. But then again, economics is the "dismal science" because it's about choice under scarcity.
Equally or more importantly, there's sufficient economic segregation going on to ensure that many of those in our tier will not get to see a whole lot from the inside regarding the lives of the 99+ percent of households that earn less than we do. (Well, I personally DO get to see some of this, and am emotionally inclined to keep it in mind, but that's just me.)
So the feeling Henderson had is understandably widespread in his (and my) socioeconomic tier. Where he really went wrong, but with substantial encouragement from the rhetoric surrounding the extend-the-tax-cuts debate, is in thinking that the case for allowing top bracket rates to rise rests on the notion that all these people are "rich," a claim that necessarily depends on one's frame of reference. But this is the impression that non-tax and budget experts might have been expected to derive from Obama Administration rhetoric, given that the Administration is urging the extension of all other income tiers' expiring tax cuts.
Brad DeLong's takedown nails this pretty hard, noting the horrific long-term budget problems that we face, which make huge tax increases inevitable. Brad also notes this isn't just because the Democrats like a big public sector - Bush did more than all preceding presidents put together (or at least the net of them) to make the fiscal problem a huge one. But of course this goes to show that the so-called middle class tax cuts shouldn't be extended either - and indeed aren't really being extended other than temporarily, given the payback for everyone that's only a turn or two down the road.
So let me try this quasi-defense (?) of Henderson, who after all could have been my colleague had I stayed at Chicago. The commonly offered public rationale for permitting his annual tax liabiity to go up, via non-extension of the top bracket tax cuts, which is that he is "rich," doesn't jibe with how most (I would surmise) people in his socioeconomic position feel about their lives. This admittedly reflects their myopia, but of a sort strongly encouraged by the circumstances in which they (we) commonly live. But in fact the question of who is "rich" in the proper comparative sense is really beside the point. (It's undisputed, of course, that those in the top bracket are generally richER than those in the lower brackets, even though taxable income is an imperfect measure of comparative material wellbeing.)
As a matter of brute political reality, taxes are going to have to go up, and indeed a lot, for way more than just the "rich" by anyone's definition. Extending the so-called middle class tax cuts is insanity as well (leaving aside the case that the current recession calls for delaying the effective date of rate hikes, at least given other political constraints on fiscal policy). And the Obama Administration (albeit under political duress) has helped perpetuate the misunderstanding that this is all about who's "rich," because no one in politics - and Republicans even less than Democrats - has the incentive or the nerve to speak in full candor about the long-term budget picture, its causes, and likely or feasible solutions.
Sunday, September 19, 2010
Back from the mists of time
When I was 17 years old and had just graduated from high school, I decided I was interested in art films (mostly foreign) and spent much of the summer going to see them in now-vanished Manhattan venues such as the Carnegie Hall Cinema and Bleecker Street Cinema. These places were a bit like the Quad Cinema or Film Forum today, except that, instead of emphasizing first runs, revivals, genre festivals, and the like, they mainly went through repertory one-day, double-bill showings of what were then the enshrined classics (Bergman, Antonioni, Godard, Truffaut, Fellini, Satyajit Ray, etcetera - though I believe Hitchcock and the American likes of Hawks and Wilder may have made it into the canon by this time). Needless to say, you couldn't otherwise see most of those films. Even Sony Betamax hadn't been invented yet, and on TV (pre-cable, at least in my household), if there was any chance at all, it would have had to be late night on channel 13. You could see them on college campuses through the student film societies, but that wouldn't be happening for me until the fall.
Early in the summer I saw what was actually (I think) a new release, Truffaut's Day for Night, starring Jacqueline Bisset and Jean Pierre Leaud, among others, and offering a fictional account of the process of a director (played by Truffaut) making a supposed film. One of the more amusing aspects is that the film-within-the-film appears to be quite hokey. It's called "Je Vous Presente Pamela," and the story line is that a young, newly married British woman, brought for the first time by her French husband to his parents' house, falls in love with the father-in-law, leading to melodrama that ends with a shooting and car crash. In the actual film, we see scenes from the fictional film being shot completely out of order, with actors flubbing lines, a cat refusing to drink milk on queue, romantic and other complications on the set continually getting in the way, etcetera.
I just loved the movie (and also, as I recall, Jacqueline Bisset), but for more than 3 decades I had never seen it again. (I once rented a VHS version, back when that was the dominant format, but gave up after 5 minutes because it was excruciatingly badly dubbed.) But I had always wondered if I'd like the movie seeing it again later in life, and also why I had liked it so much. I'm not generally a huge Truffaut fan (though he's often OK) with the exception of The 400 Blows, which I certainly still swear by. One operating theory was that Jacqueline Bisset had a lot to do with it. But when I'd seen her in other movies while a bit older, I hadn't been similarly starstruck (though obviously she was quite beautiful).
I finally decided to get Day for Night from Netflix, have now watched about 2/3, and will finish it in a day or two when I have the time. The verdict: good but not great, and the reason I liked it so much back in the early to mid 1970s was not just Jacqueline Bisset but rather the broader milieu of the film, which gave me an excited nose-to-the-glass sense of finally, at a transition stage in my life, getting an actual full inside glimpse at a sophisticated adult professional and social world.
Early in the summer I saw what was actually (I think) a new release, Truffaut's Day for Night, starring Jacqueline Bisset and Jean Pierre Leaud, among others, and offering a fictional account of the process of a director (played by Truffaut) making a supposed film. One of the more amusing aspects is that the film-within-the-film appears to be quite hokey. It's called "Je Vous Presente Pamela," and the story line is that a young, newly married British woman, brought for the first time by her French husband to his parents' house, falls in love with the father-in-law, leading to melodrama that ends with a shooting and car crash. In the actual film, we see scenes from the fictional film being shot completely out of order, with actors flubbing lines, a cat refusing to drink milk on queue, romantic and other complications on the set continually getting in the way, etcetera.
I just loved the movie (and also, as I recall, Jacqueline Bisset), but for more than 3 decades I had never seen it again. (I once rented a VHS version, back when that was the dominant format, but gave up after 5 minutes because it was excruciatingly badly dubbed.) But I had always wondered if I'd like the movie seeing it again later in life, and also why I had liked it so much. I'm not generally a huge Truffaut fan (though he's often OK) with the exception of The 400 Blows, which I certainly still swear by. One operating theory was that Jacqueline Bisset had a lot to do with it. But when I'd seen her in other movies while a bit older, I hadn't been similarly starstruck (though obviously she was quite beautiful).
I finally decided to get Day for Night from Netflix, have now watched about 2/3, and will finish it in a day or two when I have the time. The verdict: good but not great, and the reason I liked it so much back in the early to mid 1970s was not just Jacqueline Bisset but rather the broader milieu of the film, which gave me an excited nose-to-the-glass sense of finally, at a transition stage in my life, getting an actual full inside glimpse at a sophisticated adult professional and social world.
Saturday, September 18, 2010
Getting ready for the Pavement concert tomorrow
To get in the right frame of mind for the Pavement concert at Williamsburg Waterfront tomorrow night (2 tix still available, BTW, for Tuesday night in Central Park), I decided to make my own version of Quarantine the Past, their recently issued greatest hits (if that's the word for it) compilation CD. Just under 80 minutes to fit on a CD for the car, but then I decided to expand it for an iPod playlist with a target ceiling of about 90 minutes (this having something loosely to do with health club exercise times).
Still missing a few vital songs, especially from Crooked Rain, Crooked Rain and Brighten the Corners, and also containing a few quirky picks that might not really belong on a best-of, but at any rate here are my current choices for Best of Pavement, clocking in at 1:29:56:
Box Elder
Summer Babe
Trigger Cut
In The Mouth A Desert
Here
Silence Kid
Elevate Me Later
Stop Breathin’
Unfair
Range Life
We Dance
Rattled By The Rush
Father To A Sister Of Thought
Easily Fooled
Brink Of The Clouds/Candylad
Stereo
Shady Lane
Date With IKEA
Fin
Harness Your Hopes
No Tan Lines
Spit On A Stranger
Major Leagues
The Hexx
...And Carrot Rope
UPDATE: If I'm counting right, they ended up playing 16 of these songs.
Still missing a few vital songs, especially from Crooked Rain, Crooked Rain and Brighten the Corners, and also containing a few quirky picks that might not really belong on a best-of, but at any rate here are my current choices for Best of Pavement, clocking in at 1:29:56:
Box Elder
Summer Babe
Trigger Cut
In The Mouth A Desert
Here
Silence Kid
Elevate Me Later
Stop Breathin’
Unfair
Range Life
We Dance
Rattled By The Rush
Father To A Sister Of Thought
Easily Fooled
Brink Of The Clouds/Candylad
Stereo
Shady Lane
Date With IKEA
Fin
Harness Your Hopes
No Tan Lines
Spit On A Stranger
Major Leagues
The Hexx
...And Carrot Rope
UPDATE: If I'm counting right, they ended up playing 16 of these songs.
Tuesday, September 14, 2010
More good news for people who like bad news
Desmond Lachman at AEI is predicting that "the Euro will unravel, and soon," which he notes would have disruptive effects extending well beyond Europe itself:
"From a U.S. perspective, a deepening in the eurozone sovereign-debt crisis could threaten the rather feeble U.S. economic recovery now underway. In part, it would do so by weakening the euro against the dollar and by clouding European growth, both of which would diminish U.S. export prospects. The more threatening channel through which it could impact the U.S. economy would be by increasing overall global financial-market risk aversion and by precipitating another global credit-market crunch akin to what occurred in the aftermath of the Lehman bankruptcy in September 2008. This risk is underlined by the fact that global financial institutions are now closely integrated and that U.S. banks presently have around US$1.5 trillion in loans outstanding to Europe."
I don't know Lachman personally or by reputation, but gather that he is well-regarded and a serious person, rather than being one of AEI's more politically minded resident scholars or fellows.
"From a U.S. perspective, a deepening in the eurozone sovereign-debt crisis could threaten the rather feeble U.S. economic recovery now underway. In part, it would do so by weakening the euro against the dollar and by clouding European growth, both of which would diminish U.S. export prospects. The more threatening channel through which it could impact the U.S. economy would be by increasing overall global financial-market risk aversion and by precipitating another global credit-market crunch akin to what occurred in the aftermath of the Lehman bankruptcy in September 2008. This risk is underlined by the fact that global financial institutions are now closely integrated and that U.S. banks presently have around US$1.5 trillion in loans outstanding to Europe."
I don't know Lachman personally or by reputation, but gather that he is well-regarded and a serious person, rather than being one of AEI's more politically minded resident scholars or fellows.
Friday, September 10, 2010
Getting It versus the Coen brothers
The Coen brothers’ Burn After Reading came out two years ago, but I only got around to seeing it on DVD last night. I liked it, and as a family activity in a household with 2 teenagers it was a big success, as the film’s snark level proved highly age-appropriate (though it worked for the adults as well).
For those who haven’t seen Burn After Reading, it's a dark and absurdist farce, mixing a sex comedy with a spy caper, in which a bunch of scoundrels and fools largely fail at everything they try to do (and if it's one against another, they both fail). Like much of the Coen brothers' work, it's in a sense aesthetically radical for a mainstream release with a decent budget, distribution, and well-known stars (such as George Clooney and Brad Pitt). Nearly all of the characters are either unpleasant or stupid, and most are both. Hence, there is no one conventionally to root for in the Hollywood tradition, and if you insist on that you won't like the movie. Moreover, the great thing about the spy plot (if one can call it that, and I'm laughing with not at the Coen brothers in saying so) is that, between a few coincidences and the characters' stupidity, what ends up (or rather keeps on) happening makes absolutely no sense to trained professionals whose job it is to look for purpose and meaning.
I very much identify aesthetically with this type of thing, and thus perhaps it's unsurprising that Getting It has a similar aesthetic. Except, in my novel the comedy comes from grotesque disproportion between the value of the characters' aims (to themselves or anyone else) and the efforts they invest in trying to achieve them, as well as from the characters' self-importance and grandiosity, rather than from stupidity and meaninglessness as such.
But one difference betweeen the two relates to what I think is the main problem that some people who are quite willing to embrace the aesthetically radical or non-mainstream often have with the Coen brothers' movies. At times the Coens so dislike and appear to feel superior to their characters, to whom they can be quite cruel, that it can come off as a bit smarmy on their part and also adolescent. Which is too bad, because there truly is an aesthetically radical element there as well. E.g., consider the delightful cynicism of the endings of, say, Burn After Reading, Barton Fink (which I nonetheless don't entirely like, though parts of it are great, such as the Coens' vicious critique of the otherwise forgotten Clifford Odets), and The Big Lebowski. There really is something in these films that's pretty bracing for a major commercial release, though hard to separate entirely from the aspects one might find too self-satisfied.
In Getting It, I tried to have a bit of compassion even for my most odious characters, without softening them up or giving them redeeming features, and while I could be hard on them I tried not to be gratuitously cruel. I saw them as victims of delusion and false consciousness, and thus in the end to be pitied for that, rather than hated for their bad behavior. "There but for the grace of whatever go I," I was inclined to think while writing it. Hence, I hope it can appeal to people who like the Coen brothers' aesthetic other than when the Coens seem too persuaded that they are much better than their characters.
For those who haven’t seen Burn After Reading, it's a dark and absurdist farce, mixing a sex comedy with a spy caper, in which a bunch of scoundrels and fools largely fail at everything they try to do (and if it's one against another, they both fail). Like much of the Coen brothers' work, it's in a sense aesthetically radical for a mainstream release with a decent budget, distribution, and well-known stars (such as George Clooney and Brad Pitt). Nearly all of the characters are either unpleasant or stupid, and most are both. Hence, there is no one conventionally to root for in the Hollywood tradition, and if you insist on that you won't like the movie. Moreover, the great thing about the spy plot (if one can call it that, and I'm laughing with not at the Coen brothers in saying so) is that, between a few coincidences and the characters' stupidity, what ends up (or rather keeps on) happening makes absolutely no sense to trained professionals whose job it is to look for purpose and meaning.
I very much identify aesthetically with this type of thing, and thus perhaps it's unsurprising that Getting It has a similar aesthetic. Except, in my novel the comedy comes from grotesque disproportion between the value of the characters' aims (to themselves or anyone else) and the efforts they invest in trying to achieve them, as well as from the characters' self-importance and grandiosity, rather than from stupidity and meaninglessness as such.
But one difference betweeen the two relates to what I think is the main problem that some people who are quite willing to embrace the aesthetically radical or non-mainstream often have with the Coen brothers' movies. At times the Coens so dislike and appear to feel superior to their characters, to whom they can be quite cruel, that it can come off as a bit smarmy on their part and also adolescent. Which is too bad, because there truly is an aesthetically radical element there as well. E.g., consider the delightful cynicism of the endings of, say, Burn After Reading, Barton Fink (which I nonetheless don't entirely like, though parts of it are great, such as the Coens' vicious critique of the otherwise forgotten Clifford Odets), and The Big Lebowski. There really is something in these films that's pretty bracing for a major commercial release, though hard to separate entirely from the aspects one might find too self-satisfied.
In Getting It, I tried to have a bit of compassion even for my most odious characters, without softening them up or giving them redeeming features, and while I could be hard on them I tried not to be gratuitously cruel. I saw them as victims of delusion and false consciousness, and thus in the end to be pitied for that, rather than hated for their bad behavior. "There but for the grace of whatever go I," I was inclined to think while writing it. Hence, I hope it can appeal to people who like the Coen brothers' aesthetic other than when the Coens seem too persuaded that they are much better than their characters.
Thursday, September 09, 2010
Swinging for the fences
My book in progress concerning U.S. international taxation, tentatively called "Fixing the U.S. International Tax Rules," is starting to come out pretty assertive regarding how I feel I am changing and advancing the prevailing analysis. This can be risky, because people don't want to hear such claims and may be inclined to resist them, but I feel it's justified.
In Decoding the U.S. Corporate Tax, by contrast, I made no such claim, nor could I have. "Decoding" tried to explain and critically evaluate a rich preexisting literature, but without adding as much that was intellectually new, beyond a sense of the broader context and several dollops of intellectual arbitrage.
Two differences: the underlying academic literature in corporate taxation is much richer than that in international taxation, and I hadn't thought as deeply about the corporate tax issues. That book's motivation was largely pedagogic, indeed born of my frustration when teaching corporate issues in tax policy classes and finding that there was no suitable reading accessibly addressing the issues that I considered most interesting and important. This time, by contrast, more is accessible but the field (in my view) remains intellectually in a far more primitive state.
In Decoding the U.S. Corporate Tax, by contrast, I made no such claim, nor could I have. "Decoding" tried to explain and critically evaluate a rich preexisting literature, but without adding as much that was intellectually new, beyond a sense of the broader context and several dollops of intellectual arbitrage.
Two differences: the underlying academic literature in corporate taxation is much richer than that in international taxation, and I hadn't thought as deeply about the corporate tax issues. That book's motivation was largely pedagogic, indeed born of my frustration when teaching corporate issues in tax policy classes and finding that there was no suitable reading accessibly addressing the issues that I considered most interesting and important. This time, by contrast, more is accessible but the field (in my view) remains intellectually in a far more primitive state.
Wednesday, September 08, 2010
With apologies for the commercial solicitation
Would anyone from the NYC area like to inquire about 2 Pavement tickets, featuring uberslacker Steven Malkmus from when he was still razor-sharp and at the top of his sardonic game? Central Park, Tuesday Sept 21.
I can't go because I'm giving the annual Tillinghast Lecture on international taxation at NYU on that day, though I did manage to buy tickets to the preceding Sunday show.
I can't go because I'm giving the annual Tillinghast Lecture on international taxation at NYU on that day, though I did manage to buy tickets to the preceding Sunday show.
Oh, to have been a fly on the wall ...
Doug Holtz-Eakin, in a widely-linked MSNBC interview the other day:
"Let's get away from the politics of personalities. Let's not talk about a Sarah Palin all the time, and let's have, again, a debate about ideas...."
There may be a wound lurking beneath this comment that all those delightedly linking to it (mainly because the interviewer compared Palin fandom to taking cocaine) have missed. I believe Holtz-Eakin, during his days with the McCain presidential campaign, was among the main people tasked with teaching Palin some basic ABCs of public policy and history (e.g., what was the Korean War, who was Margaret Thatcher). That must have been quite an experience for Doug (or anyone in his position) - it's a miracle his hair hasn't all turned gray.
"Let's get away from the politics of personalities. Let's not talk about a Sarah Palin all the time, and let's have, again, a debate about ideas...."
There may be a wound lurking beneath this comment that all those delightedly linking to it (mainly because the interviewer compared Palin fandom to taking cocaine) have missed. I believe Holtz-Eakin, during his days with the McCain presidential campaign, was among the main people tasked with teaching Palin some basic ABCs of public policy and history (e.g., what was the Korean War, who was Margaret Thatcher). That must have been quite an experience for Doug (or anyone in his position) - it's a miracle his hair hasn't all turned gray.
Tuesday, September 07, 2010
Voting paradox and the 2010 elections
The "voting paradox" is based on the observation that it's irrational to vote in a large-scale election, such as those in the U.S. for President or the members in either house of Congress, if you place any value on your time and define the benefit from voting as the gain to you from increasing the likelihood that the election result will have a favorable effect on policy outcomes, from your perspective. After all, if you value your time at as little as $10 an hour and there are, say, 100,000 voters in the relevant constituency, the amount of time it's likely to be worth spending (even if Siddhartha Gautama is running against Adolf Hitler) is bound to be well under a second.
What makes it an ostensible paradox, of course, is the fact that lots of people actually do vote. And what makes it not really a paradox is the fact that people don't actually vote for the stipulated reason. Rather, voting is a consumer act, generally of an expressive character, hence no more irrational than waiting on line to see a good movie (though, to be sure, the nature of the consumer good is different - pulling the lever isn't in itself that much fun, other than perhaps in November 2008).
I've thought for many years, however, that voting's being an expressive consumer act, not a calculating one given the collective action problem (a prisoner's dilemma) that makes the supposedly "rational" approach so irrational, is vital to many of the defects in our political process. In its own way, declining to be individually "rational" about voting when everyone else out there is going to determine who wins leads to outcomes potentially as destructive socially as the fact that each of us may benefit from driving long distances and running the car's AC without regard to the local or global environmental impact.
If you're buying a car, you both get to decide what car you end up with and bear most of the consequences of whether it's a good or bad car. (Leaving aside problems such as SUV externalities on other drivers.) Hence, there's some reason to try to make a good choice in terms of the effect it will have on outcomes, which is not to say everyone always does so. But when your individual vote has effectively zero effect on your wellbeing and indeed that of the entire world (even if Gautama is running against Hitler), you may have no reason not to approach the decision in a fundamentally unserious way, so far as true effects on outcomes are concerned.
Otherwise, would it have been a pertinent factor in the 2000 election that Bush seemed like a better drinking buddy type than Gore? Would Palin backers be so blithely indifferent to evidence bearing on her true character if, say, their lives individually depended on it, conditioned on their backing her? For that matter, though I was glad about the 2008 presidential election outcome, would all those first-time Obama voters have materialized if it hadn't been a bit like showing you're into the new soft drink or Lady Gaga video?
In 2010, the voting non-paradox helps explain the possibly upcoming Republican landslide. Voting is fun if you're a Republican and eager for that solidaristic expression of anger that many Dems had fun with in 2008. Not so much fun to vote expressively on the other side these days. Plus voters in the middle, insofar as there are any, don't ask themselves questions such as which party's or candidate's views are closer to mine, or what will happen on the ground if Congress changes hands. They just want to vent.
But real outcomes are affected by the sum of votes, no one of which individually matters more than infinitesimally. And electoral outcomes often are taken as if they reflect the next two years' outcome preferences rather than the moment's expressive preferences.
What makes it an ostensible paradox, of course, is the fact that lots of people actually do vote. And what makes it not really a paradox is the fact that people don't actually vote for the stipulated reason. Rather, voting is a consumer act, generally of an expressive character, hence no more irrational than waiting on line to see a good movie (though, to be sure, the nature of the consumer good is different - pulling the lever isn't in itself that much fun, other than perhaps in November 2008).
I've thought for many years, however, that voting's being an expressive consumer act, not a calculating one given the collective action problem (a prisoner's dilemma) that makes the supposedly "rational" approach so irrational, is vital to many of the defects in our political process. In its own way, declining to be individually "rational" about voting when everyone else out there is going to determine who wins leads to outcomes potentially as destructive socially as the fact that each of us may benefit from driving long distances and running the car's AC without regard to the local or global environmental impact.
If you're buying a car, you both get to decide what car you end up with and bear most of the consequences of whether it's a good or bad car. (Leaving aside problems such as SUV externalities on other drivers.) Hence, there's some reason to try to make a good choice in terms of the effect it will have on outcomes, which is not to say everyone always does so. But when your individual vote has effectively zero effect on your wellbeing and indeed that of the entire world (even if Gautama is running against Hitler), you may have no reason not to approach the decision in a fundamentally unserious way, so far as true effects on outcomes are concerned.
Otherwise, would it have been a pertinent factor in the 2000 election that Bush seemed like a better drinking buddy type than Gore? Would Palin backers be so blithely indifferent to evidence bearing on her true character if, say, their lives individually depended on it, conditioned on their backing her? For that matter, though I was glad about the 2008 presidential election outcome, would all those first-time Obama voters have materialized if it hadn't been a bit like showing you're into the new soft drink or Lady Gaga video?
In 2010, the voting non-paradox helps explain the possibly upcoming Republican landslide. Voting is fun if you're a Republican and eager for that solidaristic expression of anger that many Dems had fun with in 2008. Not so much fun to vote expressively on the other side these days. Plus voters in the middle, insofar as there are any, don't ask themselves questions such as which party's or candidate's views are closer to mine, or what will happen on the ground if Congress changes hands. They just want to vent.
But real outcomes are affected by the sum of votes, no one of which individually matters more than infinitesimally. And electoral outcomes often are taken as if they reflect the next two years' outcome preferences rather than the moment's expressive preferences.
Negotiating with Republicans
I was glad to hear that Peter Orszag will now be a NY Times columnist, as he addresses tax and budget issues from a sophisticated perspective that has considerable overlap with mine. And we'll see how his take on the economy compares to Krugman's, now that he is in private life and free to speak.
In today's inaugural column, Orszag proposes extending the expiring tax cuts through 2012, but with the understanding that they will definitely expire in 2013. The reason (no surprise here, but worth saying in a big-megaphone forum like the NYT): they're unaffordable over the long run, but the recession makes this a bad time to let them expire. The high-income tax cuts he'd rather let expire now, given their limited stimulative impact, but if extending them needs to be part of the legislative deal, he reasonably says, so be it.
I'm fine with this, but the problem is how do we know that they'll be allowed to expire in 2013? Republicans won't agree to this, and even if they did they wouldn't stick to it in 2013. He suggests a firm promise to veto any further extension, but this of course presupposes who will be in the Oval Office in 2013. Not to mention what broader pressures Obama, if still there, might be facing at the time (especially if he's in the Congressional minority, in which case there's a chance of government shutdowns, impeachment proceedings on grounds TBD, etc.).
This is not a criticism of Orszag and his column, but rather of the political and budgetary situation we find ourselves in. Columnists try to propose feasible good ideas, but they are limited by the actually existing set of such things.
Relatedly, Thomas Friedman, in a recent (and characteristically a bit windy) column called the U.S. the "superbroke, superfrugal superpower" that can no longer afford even to do something like the Grenada invasion. But even if that's true, even if we can't afford it (in the sense that doing it would be irrational), as a realistic political matter it doesn't offer the slightest indication that we won't nonetheless be starting multiple unaffordable foreign wars, especially if the White House changes hands in 2012. If William Kristol has the president's ear in 2013, and wants him or her to attack Iran and start a horrific global bonfire that will be devastating for millions of people, why would accelerating the U.S. budgetary crisis put him off?
Final gripe for now pertains to Obama's apparent decision to propose full expensing for equipment through 2011. For once we have a tax cut proposal that actually would be fairly stimulative (especially if the expiration is credible), and that costs less in the long term than the short run (as some investment is merely moved up, but here for countercyclical reasons that's actually the idea rather than a defect). But who's to say this will be allowed to expire either. And needless to say, by doing a Republican-style initiative, he won't win the least bit of reciprocity on any other policy front (such as infrastructure spending), and once again is simply reinforcing their narrative (tax cuts all the time for any and all reasons).
As I've been saying for years, there's no way out of the budgetary crisis without 2 reasonable parties willing to cooperate in the pursuit of sanity (as they were in the 1980s). One of the tragedies of the likely Republican landslide this year, apart from one's concern about how they will use their majority status, is that it will further postpone their much-needed return to sanity (which I at this point no longer expect).
In today's inaugural column, Orszag proposes extending the expiring tax cuts through 2012, but with the understanding that they will definitely expire in 2013. The reason (no surprise here, but worth saying in a big-megaphone forum like the NYT): they're unaffordable over the long run, but the recession makes this a bad time to let them expire. The high-income tax cuts he'd rather let expire now, given their limited stimulative impact, but if extending them needs to be part of the legislative deal, he reasonably says, so be it.
I'm fine with this, but the problem is how do we know that they'll be allowed to expire in 2013? Republicans won't agree to this, and even if they did they wouldn't stick to it in 2013. He suggests a firm promise to veto any further extension, but this of course presupposes who will be in the Oval Office in 2013. Not to mention what broader pressures Obama, if still there, might be facing at the time (especially if he's in the Congressional minority, in which case there's a chance of government shutdowns, impeachment proceedings on grounds TBD, etc.).
This is not a criticism of Orszag and his column, but rather of the political and budgetary situation we find ourselves in. Columnists try to propose feasible good ideas, but they are limited by the actually existing set of such things.
Relatedly, Thomas Friedman, in a recent (and characteristically a bit windy) column called the U.S. the "superbroke, superfrugal superpower" that can no longer afford even to do something like the Grenada invasion. But even if that's true, even if we can't afford it (in the sense that doing it would be irrational), as a realistic political matter it doesn't offer the slightest indication that we won't nonetheless be starting multiple unaffordable foreign wars, especially if the White House changes hands in 2012. If William Kristol has the president's ear in 2013, and wants him or her to attack Iran and start a horrific global bonfire that will be devastating for millions of people, why would accelerating the U.S. budgetary crisis put him off?
Final gripe for now pertains to Obama's apparent decision to propose full expensing for equipment through 2011. For once we have a tax cut proposal that actually would be fairly stimulative (especially if the expiration is credible), and that costs less in the long term than the short run (as some investment is merely moved up, but here for countercyclical reasons that's actually the idea rather than a defect). But who's to say this will be allowed to expire either. And needless to say, by doing a Republican-style initiative, he won't win the least bit of reciprocity on any other policy front (such as infrastructure spending), and once again is simply reinforcing their narrative (tax cuts all the time for any and all reasons).
As I've been saying for years, there's no way out of the budgetary crisis without 2 reasonable parties willing to cooperate in the pursuit of sanity (as they were in the 1980s). One of the tragedies of the likely Republican landslide this year, apart from one's concern about how they will use their majority status, is that it will further postpone their much-needed return to sanity (which I at this point no longer expect).
Monday, September 06, 2010
Fun math problem for 8th graders who are baseball fans
My kids are both in high school now, hence too advanced in math for this, but here goes for anyone else whose kids are at the right level (and possibly starting the new school year this week). The other day Nyjer Morgan of the Washington Nationals charged the mound after the pitcher threw behind his head. He got there just before the first baseman, who decked him with a devastating clothesline. The question is: Who was closer to the mound and by how much, if we assume for simplicity that they started on, rather than merely near, the bases closest to them (home plate for Morgan, first base for the clothes-liner).
Doing it in my head, I come up with Morgan about 2.5 feet closer, reflecting that the mound is not perfectly centered inside the diamond. [Infield is square, 90 feet per side, hence 2 isosceles right triangles, but mound is only 60'6" from home plate.)
UPDATE: Jim Wetzler corrects me as follows:
“Not sure your geometry is precisely correct. If the diamond is a square with each side 90 feet long, the lines from home to second base and first to third base are 127.27 feet long (by the Pythagorean theorem). So these lines cross at a point 63.64 feet from all the bases. The batter runs 60.5 feet to the mound. The first baseman runs along the hypotenuse of a right triangle whose two legs are (1) the distance from first base to the center of the square (63.64 feet) and (2) the distance from the midpoint of the square to the mound (3.14 feet). By the Pythagorean theorem, the hypotenuse is 63.72 feet. So the first baseman runs 3.2 feet more than the batter.”
My response: Well done. My own mental process (while watching a Mets game) was less rigorous, as I simply rounded off √2 as 1.4 and ignored (though I was aware of) the fact that the first baseman’s trip is made slightly longer by the fact that the mound is off-center. At least the latter simplification was OK, as it only added .08 to the final total.
Doing it in my head, I come up with Morgan about 2.5 feet closer, reflecting that the mound is not perfectly centered inside the diamond. [Infield is square, 90 feet per side, hence 2 isosceles right triangles, but mound is only 60'6" from home plate.)
UPDATE: Jim Wetzler corrects me as follows:
“Not sure your geometry is precisely correct. If the diamond is a square with each side 90 feet long, the lines from home to second base and first to third base are 127.27 feet long (by the Pythagorean theorem). So these lines cross at a point 63.64 feet from all the bases. The batter runs 60.5 feet to the mound. The first baseman runs along the hypotenuse of a right triangle whose two legs are (1) the distance from first base to the center of the square (63.64 feet) and (2) the distance from the midpoint of the square to the mound (3.14 feet). By the Pythagorean theorem, the hypotenuse is 63.72 feet. So the first baseman runs 3.2 feet more than the batter.”
My response: Well done. My own mental process (while watching a Mets game) was less rigorous, as I simply rounded off √2 as 1.4 and ignored (though I was aware of) the fact that the first baseman’s trip is made slightly longer by the fact that the mound is off-center. At least the latter simplification was OK, as it only added .08 to the final total.
I guess I must have written some books other than Getting It
Bill Barnhart, an author (with a recent book about John Paul Stevens) and journalist who will be interviewing me on corporate taxation later this month, recently was kind enough to mention some other book I've written in the last couple of years:
"As New York University law professor Daniel Shaviro remarks in his terrific book, Decoding the U.S. Corporate Tax (The Urban Institute Press):
“'Sometimes we hear of a solution in search of a problem, which someone offers to a baffled world despite the lack of any discernible need for it. Examples include the George W. Bush administration’s endless advocacy of tax cuts, interminable concert tours by the Rolling Stones when they are past age 60, and the live-action theatrical movie version of Scooby-Doo.'”
Reference in the book was to corporate integration, which I said had more point to it than any of the above (i.e., too many rationales rather than none), only what the point is often varies with the proponent.
"As New York University law professor Daniel Shaviro remarks in his terrific book, Decoding the U.S. Corporate Tax (The Urban Institute Press):
“'Sometimes we hear of a solution in search of a problem, which someone offers to a baffled world despite the lack of any discernible need for it. Examples include the George W. Bush administration’s endless advocacy of tax cuts, interminable concert tours by the Rolling Stones when they are past age 60, and the live-action theatrical movie version of Scooby-Doo.'”
Reference in the book was to corporate integration, which I said had more point to it than any of the above (i.e., too many rationales rather than none), only what the point is often varies with the proponent.
Thursday, September 02, 2010
Another favorable Amazon customer review for Getting It
"Hooked on books" says the following about Getting It:
"I believe that if any book actually makes me laugh out loud at any point, it's worth bringing to others' attention, which is why I'm recommending Dan Shaviro's "Getting It", a satiric look at life among cut-throat young associates (and oblivious pompous partners) at a Washington D.C. law firm. Set a few decades back, and with a pleasantly dated retro feel,it's impressively well written and in parts genuinely funny, even reminiscent at times of some of the funniest passages from some of Richard Russo's earlier novels - which is a major compliment. I think anyone who has had any experience working in the law or dealing with lawyers would enjoy this very quick read, which the author obviously had a lot of fun writing."
"I believe that if any book actually makes me laugh out loud at any point, it's worth bringing to others' attention, which is why I'm recommending Dan Shaviro's "Getting It", a satiric look at life among cut-throat young associates (and oblivious pompous partners) at a Washington D.C. law firm. Set a few decades back, and with a pleasantly dated retro feel,it's impressively well written and in parts genuinely funny, even reminiscent at times of some of the funniest passages from some of Richard Russo's earlier novels - which is a major compliment. I think anyone who has had any experience working in the law or dealing with lawyers would enjoy this very quick read, which the author obviously had a lot of fun writing."
Upcoming talks this semester
I'll be traveling less far afield than usual in the fall semester, scheduled so far to give talks at St. John's, Rutgers-Camden, Harvard (tax group not general faculty), an ABA meeting in Chicago, and NYU's Tillinghast Lecture on September 21. At least one more talk is potentially in the works, however.
The best part is that I don't have to fly for any of these talks except for the one in Chicago. Not that I especially mind flying as such, but the long trips to and from the airports, need for early arrival & security check, risk of weather events, etc., take their toll.
At Rutgers-Camden, in addition to discussing a paper at a faculty session, I may try to help scare up student interest in a mid-PM talk about Getting It. Unfortunately, I'm more confident that if they tried it they'd like it, than I am that if I give the talk they will come.
The best part is that I don't have to fly for any of these talks except for the one in Chicago. Not that I especially mind flying as such, but the long trips to and from the airports, need for early arrival & security check, risk of weather events, etc., take their toll.
At Rutgers-Camden, in addition to discussing a paper at a faculty session, I may try to help scare up student interest in a mid-PM talk about Getting It. Unfortunately, I'm more confident that if they tried it they'd like it, than I am that if I give the talk they will come.
New semester at NYU Law School
I'm on sabbatical (though agreeing to supervise a couple of student papers), but it appears we have a pretty strong incoming LLM class this year. Presumably courtesy of the terrible job market.
Sunday, August 29, 2010
Personal milestone?
Some time between 1978 and 1981, I bought a box of staples in the Yale Co-op for $1.25 (or so it says on the box). Today, my wife took the last staples from the box to refill her stapler. I guess it's finally time for another box.
Subscribe to:
Posts (Atom)
