I actually got to attend a taping today, courtesy of a friend from out of the country who had an extra ticket (requested months in advance). I must say, McCain continues to give these guys great material, day after day, since almost any scurrilous or silly thing he says comes with ready videotape of a complete contradiction.
Best moment: when Jon blew the first segment (omitting the punchline) and had to retape it at the end, he added a joke just for the studio audience about the retaping that you can see (without knowing the context) in the show as broadcast.
Tuesday, October 21, 2008
Fiscal stimulus and the budget deficit / fiscal gap
Paul Krugman is among those mocking the idea that we need to worry about the long-term fiscal situation given the risk of severe recession and the need for fiscal not just monetary policy to address it.
Okay, I'm on board for fiscal stimulus this time around, although I don't like it in general because I think politicians tend to misuse it in other circumstances as an excuse for whatever they happen to want to do (e.g., the Bush 2003 tax cuts) and because it is used asymmetrically for the down cycles only. But I recognize that this may be one of those "Break glass in emergency only"-type moments.
Still, the response to the financial crisis is beginning to remind me of one of the perversities of how budget policy responded to 9/11. True, when 9/11 happened, we (a) needed to increase spending for Afghanistan and domestic security and (b) would have been ill-advised to implement immediate tax increases to pay for the extra spending. But there was no reason, apart from politics, not to enact deferred financing. Fundamentally, 9/11 indicated that we would have a larger long-term fiscal problem than was previously expected, yet it played out politically on the ground as if it meant that budgetary concerns could now be completely ignored. (Recall that, right before it happened, the "lockbox" question of whether Social Security surpluses were ostensibly being used to pay for current spending was at political center stage.)
The current financial crisis likewise indicates that, in the long run, our fiscal problems are larger, not smaller, than we previously believed. So it is vital to think about long-term fiscal problems even though big short-term deficits may make sense.
Krugman is blind to this because he insists that "[w]e don’t have an entitlement crisis — we have a health care crisis, one of whose manifestations is high projected costs for Medicare and Medicaid."
I just don't get this. Isn't it both? Consider a Venn diagram with one circle for the healthcare crisis and another for the fiscal gap. The two circles overlap a lot, reflecting the relationship that Krugman notes. But they also have non-overlapping aspects (privately funded healthcare problems for the one, Social Security & tax cuts & all the rest for the other). And the overlapping portion truly is both - not just one of them.
Why would one look at such a Venn diagram and say that only one of the two circles is actually there?
Okay, I'm on board for fiscal stimulus this time around, although I don't like it in general because I think politicians tend to misuse it in other circumstances as an excuse for whatever they happen to want to do (e.g., the Bush 2003 tax cuts) and because it is used asymmetrically for the down cycles only. But I recognize that this may be one of those "Break glass in emergency only"-type moments.
Still, the response to the financial crisis is beginning to remind me of one of the perversities of how budget policy responded to 9/11. True, when 9/11 happened, we (a) needed to increase spending for Afghanistan and domestic security and (b) would have been ill-advised to implement immediate tax increases to pay for the extra spending. But there was no reason, apart from politics, not to enact deferred financing. Fundamentally, 9/11 indicated that we would have a larger long-term fiscal problem than was previously expected, yet it played out politically on the ground as if it meant that budgetary concerns could now be completely ignored. (Recall that, right before it happened, the "lockbox" question of whether Social Security surpluses were ostensibly being used to pay for current spending was at political center stage.)
The current financial crisis likewise indicates that, in the long run, our fiscal problems are larger, not smaller, than we previously believed. So it is vital to think about long-term fiscal problems even though big short-term deficits may make sense.
Krugman is blind to this because he insists that "[w]e don’t have an entitlement crisis — we have a health care crisis, one of whose manifestations is high projected costs for Medicare and Medicaid."
I just don't get this. Isn't it both? Consider a Venn diagram with one circle for the healthcare crisis and another for the fiscal gap. The two circles overlap a lot, reflecting the relationship that Krugman notes. But they also have non-overlapping aspects (privately funded healthcare problems for the one, Social Security & tax cuts & all the rest for the other). And the overlapping portion truly is both - not just one of them.
Why would one look at such a Venn diagram and say that only one of the two circles is actually there?
Wednesday, October 15, 2008
Budget policy next year if Obama wins
Jason Furman is apparently telling budget hawk Congressional Democrats that Obama would seek to establish "a government unified around the concept of fiscal discipline and centered around the pay-go rule. Insisting on paying for things will lead to better economic policy."
Does this contradict the need for short-term fiscal stimulus if things keep looking ugly? In a word, no. Stimulus is about the current outlays and revenues; fiscal discipline about the long-term relationship between them. Thus, you can have a big stimulus package that increases the current year deficit but is fully financed over the long term. Farsighted, non-cash-constrained economic actors wouldn't be fooled into greater economic activity this year, but they're not the targets of the stimulus package. And note that pre-announced financing (such as future tax increases) can actually increase the incentive to invest, etc. today.
The harder problem is political. I know that Furman is serious about and understands the need for long-term balance, but politically it can be hair-raising to try to get there, especially given the unlikelihood of Republican cooperation.
Clinton in 1993 made the correct political calculation that you can act fiscally responsibly today and not pay the price three years later if the economy improves meanwhile. (Although possibly he paid a steep price in the 1994 midterm elections?) Obama in 2009, if he's elected, could try the same thing in terms of announcing changes but not implementing them, but unfortunately implementation might be what matters in terms of when the voters react.
If McCain wins, the degree of fiscal discipline would be wildly unpredictable, probably from day to day. He's committed to immense tax cuts, but it would be surprising if he weren't a budget hawk for at least a week or two somewhere along the way. Most likely there'd be a bunch of stunts, such as reverse shut-down-the-government brinksmanship, e.g., vetoing bills that are 1 percent earmark in the hope of either shifting blame to the Democrats or counting on bipartisan veto override to get himself off the hook.
Doug Holtz-Eakin claims that McCain would square the budgetary circle through huge Medicare cuts. Probably this helps Doug to feel good about what he's doing these days, but while the claim is undoubtedly sincere I'd be beyond shocked if it actually happened.
Does this contradict the need for short-term fiscal stimulus if things keep looking ugly? In a word, no. Stimulus is about the current outlays and revenues; fiscal discipline about the long-term relationship between them. Thus, you can have a big stimulus package that increases the current year deficit but is fully financed over the long term. Farsighted, non-cash-constrained economic actors wouldn't be fooled into greater economic activity this year, but they're not the targets of the stimulus package. And note that pre-announced financing (such as future tax increases) can actually increase the incentive to invest, etc. today.
The harder problem is political. I know that Furman is serious about and understands the need for long-term balance, but politically it can be hair-raising to try to get there, especially given the unlikelihood of Republican cooperation.
Clinton in 1993 made the correct political calculation that you can act fiscally responsibly today and not pay the price three years later if the economy improves meanwhile. (Although possibly he paid a steep price in the 1994 midterm elections?) Obama in 2009, if he's elected, could try the same thing in terms of announcing changes but not implementing them, but unfortunately implementation might be what matters in terms of when the voters react.
If McCain wins, the degree of fiscal discipline would be wildly unpredictable, probably from day to day. He's committed to immense tax cuts, but it would be surprising if he weren't a budget hawk for at least a week or two somewhere along the way. Most likely there'd be a bunch of stunts, such as reverse shut-down-the-government brinksmanship, e.g., vetoing bills that are 1 percent earmark in the hope of either shifting blame to the Democrats or counting on bipartisan veto override to get himself off the hook.
Doug Holtz-Eakin claims that McCain would square the budgetary circle through huge Medicare cuts. Probably this helps Doug to feel good about what he's doing these days, but while the claim is undoubtedly sincere I'd be beyond shocked if it actually happened.
Monday, October 13, 2008
Paul Krugman wins the Nobel Economics Prize
Interesting to have this happen now; I have no idea whether the Nobel committee cares about Krugman's public intellectual role. He's obviously a meritorious pick in any event for his economics work, which reflected a trajectory from (a) challenging the conventional wisdom, such as about international trade, to show that things were a bit more complicated and ambiguous, to (b) defending the conventional wisdom against rejections of it that were ignorant and overstated.
A word on his life as a public intellectual, although it's unrelated to the Prize as such. While I have confidence in my own judgments and feel that they usually end up being vindicated, he certainly was right and I was wrong about Bush, say, in 2000 - he got there several years before I did, at a point when I thought that, despite the wacky tax and budget proposals, Bush would be reasonably safe and not that different from his dad. At the time I thought he was too selectively harsh against one side. This reflected that I didn't realize the full enormity of things, or how different it was from politics as usual, for several years after that. So unless it was just a lucky strike, Krugman truly deserves the Cassandra Prize as well (since Cassandra was disbelieved but right)
Some conservative economists I know will be gnashing their teeth. Not, however, Greg Mankiw, who offers a couple of links describing the economics work and criticizing (though reasonably and interestingly) the op-ed columns.
A word on his life as a public intellectual, although it's unrelated to the Prize as such. While I have confidence in my own judgments and feel that they usually end up being vindicated, he certainly was right and I was wrong about Bush, say, in 2000 - he got there several years before I did, at a point when I thought that, despite the wacky tax and budget proposals, Bush would be reasonably safe and not that different from his dad. At the time I thought he was too selectively harsh against one side. This reflected that I didn't realize the full enormity of things, or how different it was from politics as usual, for several years after that. So unless it was just a lucky strike, Krugman truly deserves the Cassandra Prize as well (since Cassandra was disbelieved but right)
Some conservative economists I know will be gnashing their teeth. Not, however, Greg Mankiw, who offers a couple of links describing the economics work and criticizing (though reasonably and interestingly) the op-ed columns.
Friday, October 10, 2008
Budget deficit update
According to Martin Sullivan in the 10/6/08 Tax Notes, the budget deficit for 2009 could end up as high as $914 billion, or 6.2% of GDP, both of which would be all-time national records. This would reflect scoring the financial rescue plan on what seems the correct basis, if it can be done sufficiently accurately, which is to treat only the excess of outlays over the estimated present value of future receipts as a write-off.
Some time back I posted seemingly dire GAO estimates of rising budget deficits and public debt. Under those estimates, the deficit would not reach this level, relative to GDP, until the mid-2020s. So much for that.
True, this is a temporary phenomenon, reflecting both special outlays related to the financial meltdown and the counter-cyclical effects of a recession that, while it may be long-lasting, is merely part of the overall business cycle. In other words, it's reasonable to assume that annual deficits will decline again in a few years and only start rising again when baby boom retirement and the entitlements explosion really takes off.
Still, this is a huge hit on the amount of cushion that we have if we delay dealing with the long-term fiscal gap. Especially when one keeps in mind that there seem to be frequent adverse shocks. E.g., 9/11 followed by the Afghanistan and Iraq wars was one, and now this is another. While reasonable long-term forecasts won't treat a given adverse shock the same as a permanent change in tax and spending levels, they also shouldn't assume that there aren't going to be any more adverse shocks.
Yes, there are occasionally favorable shocks as well (e.g., the totally unanticipated revenue surge of the late 1990s, from some mix of real economic growth and the Internet, etc. bubble). But I'm putting my chips on a predominance of adverse shocks in the years ahead.
To put it all in perspective, if we manage to contain the current financial crisis it will be by virtue of using some of the fiscal cushion that we still have to buy ourselves out of trouble. But given everything else that is happening and not happening in Washington and the economy, this merely brings the fiscal crisis closer. That one, when and if it comes, will make the financial crisis look like a Sunday school picnic, and by definition we won't be able to buy our way out of it.
Some time back I posted seemingly dire GAO estimates of rising budget deficits and public debt. Under those estimates, the deficit would not reach this level, relative to GDP, until the mid-2020s. So much for that.
True, this is a temporary phenomenon, reflecting both special outlays related to the financial meltdown and the counter-cyclical effects of a recession that, while it may be long-lasting, is merely part of the overall business cycle. In other words, it's reasonable to assume that annual deficits will decline again in a few years and only start rising again when baby boom retirement and the entitlements explosion really takes off.
Still, this is a huge hit on the amount of cushion that we have if we delay dealing with the long-term fiscal gap. Especially when one keeps in mind that there seem to be frequent adverse shocks. E.g., 9/11 followed by the Afghanistan and Iraq wars was one, and now this is another. While reasonable long-term forecasts won't treat a given adverse shock the same as a permanent change in tax and spending levels, they also shouldn't assume that there aren't going to be any more adverse shocks.
Yes, there are occasionally favorable shocks as well (e.g., the totally unanticipated revenue surge of the late 1990s, from some mix of real economic growth and the Internet, etc. bubble). But I'm putting my chips on a predominance of adverse shocks in the years ahead.
To put it all in perspective, if we manage to contain the current financial crisis it will be by virtue of using some of the fiscal cushion that we still have to buy ourselves out of trouble. But given everything else that is happening and not happening in Washington and the economy, this merely brings the fiscal crisis closer. That one, when and if it comes, will make the financial crisis look like a Sunday school picnic, and by definition we won't be able to buy our way out of it.
Thursday, October 09, 2008
Doug Holtz-Eakin, your thesis advisor is calling
His latest public statement was to the effect that Obama opposes the new McCain bailout plan because Obama just wants to help Wall Street, not Main Street.
Doug, did anyone tell you that the McCain plan is a direct pay to Wall Street, giving them face value rather than just market value for bad mortgages? Indeed, isn't it partly your plan? (I'd assume you helped draft it.)
Insert joke of choice here about Doug's earlier claim that McCain deserves credit for inventing the Blackberry.
This is a bit of a sensitive topic for me, because if McCain wins the election I will be praying that Doug gets to exert some influence on economic policy. After all, the alternatives in setting a McCain Administration's economic policy are presumably Steve Schmidt and Phil Gramm.
But O for the days when, say, Glenn Hubbard could represent an Administration with absymal budgetary policies and yet carefully avoid saying anything in public that was definitively false.
I recall, for example, Glenn's artistry (pointed out, almost but not quite with rueful admiration, in a blog entry by Brad DeLong many years back) when asked whether Bush's unending budget deficits would eventually raise interest rates. Option (a) would have been to admit that this was true. Glenn didn't want to do that. Option (b) would have been to lie and say it was false. Glenn didn't want to do that either. Option (c) was gracefully, almost imperceptibly (if you weren't watching carefully) to re-phrase the question as whether one or two years of budget deficits should be expected to raise interest rates. Then you could confidently and correctly say: No, as a matter of accepted economics that is incorrect. And that was what Glenn did.
I personally would not be comfortable spinning even to that degree, which is one reason why I do not thirst for public life, and thus would reject any offered post be it in a campaign or the government post-election. But if you do it that way you preserve a lot more of your academic reputation. Doug ought to take note, but I fear it's too late.
Doug, did anyone tell you that the McCain plan is a direct pay to Wall Street, giving them face value rather than just market value for bad mortgages? Indeed, isn't it partly your plan? (I'd assume you helped draft it.)
Insert joke of choice here about Doug's earlier claim that McCain deserves credit for inventing the Blackberry.
This is a bit of a sensitive topic for me, because if McCain wins the election I will be praying that Doug gets to exert some influence on economic policy. After all, the alternatives in setting a McCain Administration's economic policy are presumably Steve Schmidt and Phil Gramm.
But O for the days when, say, Glenn Hubbard could represent an Administration with absymal budgetary policies and yet carefully avoid saying anything in public that was definitively false.
I recall, for example, Glenn's artistry (pointed out, almost but not quite with rueful admiration, in a blog entry by Brad DeLong many years back) when asked whether Bush's unending budget deficits would eventually raise interest rates. Option (a) would have been to admit that this was true. Glenn didn't want to do that. Option (b) would have been to lie and say it was false. Glenn didn't want to do that either. Option (c) was gracefully, almost imperceptibly (if you weren't watching carefully) to re-phrase the question as whether one or two years of budget deficits should be expected to raise interest rates. Then you could confidently and correctly say: No, as a matter of accepted economics that is incorrect. And that was what Glenn did.
I personally would not be comfortable spinning even to that degree, which is one reason why I do not thirst for public life, and thus would reject any offered post be it in a campaign or the government post-election. But if you do it that way you preserve a lot more of your academic reputation. Doug ought to take note, but I fear it's too late.
Staying calm in tough times
What do you tell yourself when, by market measures, your net worth declines by, say, a couple of hundred thousand dollars in the course of a week? (I haven't checked, but for someone my age with retirement saving it's a fair guess.)
I tell myself that all that's really changed is the median prediction for the future by a bunch of over-excitable folks who are playing Keynes' famous beauty contest game (trying to figure out who everyone else will think everyone else thinks is the winner).
In other words, though I accept the efficient capital markets hypothesis in the sense that I don't believe I can systematically make money by betting against market valuations, what's happened, I tell myself, is almost on a par with, say, the feeling a baseball fan should have if his team has a bad week in mid-August and the ESPN baseball analysts respond by downgrading the team by ten rungs or so in their weekly Power Rankings. There's arguably more heat than light to the change if you don't have to convert to cash any time soon.
Now, if only I could stay so serene about other things.
I tell myself that all that's really changed is the median prediction for the future by a bunch of over-excitable folks who are playing Keynes' famous beauty contest game (trying to figure out who everyone else will think everyone else thinks is the winner).
In other words, though I accept the efficient capital markets hypothesis in the sense that I don't believe I can systematically make money by betting against market valuations, what's happened, I tell myself, is almost on a par with, say, the feeling a baseball fan should have if his team has a bad week in mid-August and the ESPN baseball analysts respond by downgrading the team by ten rungs or so in their weekly Power Rankings. There's arguably more heat than light to the change if you don't have to convert to cash any time soon.
Now, if only I could stay so serene about other things.
Monday, October 06, 2008
The time I met John McCain
Okay, I haven't told this story here yet. It was 1999. I had a book coming out soon on Social Security. Someone at NYU who handles press relations told me that Good Morning America was going to have John McCain stop by to discuss Social Security privatization (this being before that term was forbidden), and if I came I could ask him a question. For sure? I asked. Yes, she answered, the flacks at GMA assured me that you will get to ask a Social Security question on a widely watched national television show. OK, she knew the press angle better than I did.
For the record, while I considered Social Security privatization completely pointless, I wasn't by any means flat out hostile like most in my post-2001 political camp, and indeed had sketched out an idea that I called progressive privatization. What I liked about privatization, while recognizing that the stock market investment aspect was pointless and that it did nothing to ease the program's fiscal problems, was its being one way of clarifying the tax-benefit relationship for individual recipients that current Social Security assiduously obscures. You can read about it here or here.
Well, you know what Gore Vidal once said about being on television and one other thing - you can never have enough of either, he said - so, being next to unacquainted with the former, I headed up to midtown at some ungodly earthly hour, in order to get there by 6 am (or maybe it was even 5:30).
When I got there, I discovered that I had been totally scammed by the GMA flack, who had duped my NYU PR contact. They just wanted warm bodies to fill the room, most of them seemingly off a tourist bus. Everyone got to submit an index card and they would pick 3 to ask Senator McCain. Anything above the 6th grade level was definitely not wanted. (This had nothing to do with McCain but rather with the presumed TV audience for GMA.)
I should have just left, but like a cowed sheep in a herd of antelopes - I'm trying the Tom Friedman trick here of mixing and mangling the metaphors; it works (commercially) for him - I stayed around. Assiduous viewers (a couple of family members) got to see a couple of shots of me glowering from the back of the audience during McCain's gig, because I was so angry about having been conned to go there under false pretenses and way too early in the morning. The inconvenience, the disrespect, the lost sleep, the fact that I felt so used and foolish - but I digress.
At the end of the segment, they went to commercial and also were going to use a different part of the set for their next segment. So McCain, doing his duty as a politician, went through shaking hands with everyone in the crowd. No big thrill to me, though this was nothing particular against him; I simply don't have huge excitement about any of these guys, even though at the time I rated him much higher than I do now. But I didn't leave the set right away, because I wanted to find someone from the show to whom I could complain about having been lured there under false pretenses when all they wanted was a room full of warm bodies.
So I passed by McCain one more time. Thinking I wanted to shake his hand again, he snarled at me: "I already shook your hand!" (And "snarled" really is the right word here, though I don't mean to suggest he was out of control.)
This was a bit amusing given how little his or any other senator's hand means to me. Had I been a little quicker, I might have said something like "Relax, it's not like you're the Beatles or something."
I got two things out of it, a story to tell my Tax class later that morning (focused more on my mission of folly than McCain, but he supplied the capper), and a GMA long-sleeved T-shirt that I still wear in cold weather.
For the record, while I considered Social Security privatization completely pointless, I wasn't by any means flat out hostile like most in my post-2001 political camp, and indeed had sketched out an idea that I called progressive privatization. What I liked about privatization, while recognizing that the stock market investment aspect was pointless and that it did nothing to ease the program's fiscal problems, was its being one way of clarifying the tax-benefit relationship for individual recipients that current Social Security assiduously obscures. You can read about it here or here.
Well, you know what Gore Vidal once said about being on television and one other thing - you can never have enough of either, he said - so, being next to unacquainted with the former, I headed up to midtown at some ungodly earthly hour, in order to get there by 6 am (or maybe it was even 5:30).
When I got there, I discovered that I had been totally scammed by the GMA flack, who had duped my NYU PR contact. They just wanted warm bodies to fill the room, most of them seemingly off a tourist bus. Everyone got to submit an index card and they would pick 3 to ask Senator McCain. Anything above the 6th grade level was definitely not wanted. (This had nothing to do with McCain but rather with the presumed TV audience for GMA.)
I should have just left, but like a cowed sheep in a herd of antelopes - I'm trying the Tom Friedman trick here of mixing and mangling the metaphors; it works (commercially) for him - I stayed around. Assiduous viewers (a couple of family members) got to see a couple of shots of me glowering from the back of the audience during McCain's gig, because I was so angry about having been conned to go there under false pretenses and way too early in the morning. The inconvenience, the disrespect, the lost sleep, the fact that I felt so used and foolish - but I digress.
At the end of the segment, they went to commercial and also were going to use a different part of the set for their next segment. So McCain, doing his duty as a politician, went through shaking hands with everyone in the crowd. No big thrill to me, though this was nothing particular against him; I simply don't have huge excitement about any of these guys, even though at the time I rated him much higher than I do now. But I didn't leave the set right away, because I wanted to find someone from the show to whom I could complain about having been lured there under false pretenses when all they wanted was a room full of warm bodies.
So I passed by McCain one more time. Thinking I wanted to shake his hand again, he snarled at me: "I already shook your hand!" (And "snarled" really is the right word here, though I don't mean to suggest he was out of control.)
This was a bit amusing given how little his or any other senator's hand means to me. Had I been a little quicker, I might have said something like "Relax, it's not like you're the Beatles or something."
I got two things out of it, a story to tell my Tax class later that morning (focused more on my mission of folly than McCain, but he supplied the capper), and a GMA long-sleeved T-shirt that I still wear in cold weather.
Friday, October 03, 2008
IRS Chief Counsel Donald Korb steps down
Courtesy of the Tax Prof blog, I gather that IRS Chief Counsel Don Korb has stepped down effective no later than next January 19, so that the next Administration can start right out with his successor.
This is not a surprise, since no one would be expected to want to stay in the Chief Counsel job forever. But I personally will be quite surprised if the new Chief Counsel is ready to be named by January 20. So I suspect that Korb will be asked, perhaps even implored, to stay on, although presumably from his announcement he does not wish to do so.
Suffice it to say that he is leaving large shoes to fill. Don Korb was amazingly energetic, entrepeneurial, and effective in filling the Chief Counsel post. He did a great deal to raise his office's profile and value, both to the government and to taxpayers. He innovated internally and externally, worked hard to strengthen his staff, and provided important outreach and guidance that was good for everyone. The next Administration will be very lucky to find anyone who can match his job performance.
This is not a surprise, since no one would be expected to want to stay in the Chief Counsel job forever. But I personally will be quite surprised if the new Chief Counsel is ready to be named by January 20. So I suspect that Korb will be asked, perhaps even implored, to stay on, although presumably from his announcement he does not wish to do so.
Suffice it to say that he is leaving large shoes to fill. Don Korb was amazingly energetic, entrepeneurial, and effective in filling the Chief Counsel post. He did a great deal to raise his office's profile and value, both to the government and to taxpayers. He innovated internally and externally, worked hard to strengthen his staff, and provided important outreach and guidance that was good for everyone. The next Administration will be very lucky to find anyone who can match his job performance.
Thursday, October 02, 2008
VP debate - not the comment readers might expect
I really can't watch these things straight through - too tedious and stupid an experience for me.
But I would give a lot of money to put an end to the faux populism that resonates everywhere in American politics. All these durn "regular folks" who want your vote while pretending they have no money and aren't famous & powerful. Not just the supposed hockey mom - it's a phony and annoying tic that apparently is obligatory for everyone. And it's a strange tic to have in a country that is so much less committed to equality than nearly every western European country.
This is not a rant but an observation - there is a trade-off between efficiency and redistribution, which one can reasonably resolve at various points along the continuum, certainly including the American one. But it truly is odd for a country that's so much less egalitarian than the norm to be so rabidly committed to fake gestures of anti-elitism, invariably orchestrated by leaders of elites.
But I would give a lot of money to put an end to the faux populism that resonates everywhere in American politics. All these durn "regular folks" who want your vote while pretending they have no money and aren't famous & powerful. Not just the supposed hockey mom - it's a phony and annoying tic that apparently is obligatory for everyone. And it's a strange tic to have in a country that is so much less committed to equality than nearly every western European country.
This is not a rant but an observation - there is a trade-off between efficiency and redistribution, which one can reasonably resolve at various points along the continuum, certainly including the American one. But it truly is odd for a country that's so much less egalitarian than the norm to be so rabidly committed to fake gestures of anti-elitism, invariably orchestrated by leaders of elites.
Wednesday, October 01, 2008
A nice heap of sugar
The Senate passed the bailout bill tonight after sweetening it with $150 billion ($110 billion net of offsets) in new tax breaks, including "extenders" that no doubt will soon be extended again. The bill, originally just 3 pages (although that gave the Treasury excessive authority without oversight), now apparently exceeds 450 pages. Good work, guys.
In a country with a massive and growing fiscal gap, the potential $700 billion cost already was a huge problem. Yes, I know in theory the Treasury might even end up turning a profit on this, but the incentive issues and institutional skill set make me skeptical. Other countries have apparently flipped assets for a profit in this setting, but these days, no matter what the task, ours always seems to be the government that can't.
We are converting the financial crisis into a worsening of the fiscal crisis, and while this particular drop in the bucket may be small, it demonstrates once again the fecklessness that really is worse than anything about the current fiscal projections.
Diane Rogers is right: "a teaspoon of sugar helps the medicine go down." But it's also true that sugar all the time eventually wrecks the teeth, the taste buds, and the digestive system.
In a country with a massive and growing fiscal gap, the potential $700 billion cost already was a huge problem. Yes, I know in theory the Treasury might even end up turning a profit on this, but the incentive issues and institutional skill set make me skeptical. Other countries have apparently flipped assets for a profit in this setting, but these days, no matter what the task, ours always seems to be the government that can't.
We are converting the financial crisis into a worsening of the fiscal crisis, and while this particular drop in the bucket may be small, it demonstrates once again the fecklessness that really is worse than anything about the current fiscal projections.
Diane Rogers is right: "a teaspoon of sugar helps the medicine go down." But it's also true that sugar all the time eventually wrecks the teeth, the taste buds, and the digestive system.
Thursday, September 25, 2008
2009 NYU Tax Policy Colloquium
It's never too soon. In that spirit, here is the schedule for the 2009 NYU Tax Policy Colloquium, which I will be co-teaching with Alan Auerbach:
SCHEDULE FOR 2009 NYU TAX POLICY COLLOQUIUM
(All sessions meet on Thursdays from 4-6 pm in Furman 120, NYU Law School)
1. January 15 – Daniel Shaviro, NYU Law School. The Long-Term Fiscal Gap: Is the Main Problem Generational Equity?
2. January 22 – Alan Auerbach, Berkeley Economics Department and NYU Law School.
3. January 29 – Edward Kleinbard, Joint Committee on Taxation. A Reconsideration of Tax Expenditure Analysis.
4. February 5 – Amy Finkelstein, MIT Economics Department, EZ-Tax: Tax Salience and Tax Rates.
5. February 12 – Dorothy Brown, Emory Law School.
6. February 19 – Yoram Margalioth, Tel Aviv University Law School and NYU Law School.
7. February 26 – Leslie McCall, Northwestern University Sociology Department.
8. March 5 – Michael Doran, University of Virginia Law School.
9. March 12 – David Duff, University of Toronto Law School.
10. March 26 – Emmanuel Saez, Berkeley Economics Department. Details Matter: The Impact of Presentation and Information on the Take-Up of Financial Incentives for Retirement Saving.
11. April 2 – Lily Batchelder, NYU Law School.
12. April 9 – Mihir Desai, Harvard Business School and NYU Law School.
13. April 16 – Mitchell Kane, NYU Law School.
14. April 23 – Thomas Brennan, Northwestern Law School.
SCHEDULE FOR 2009 NYU TAX POLICY COLLOQUIUM
(All sessions meet on Thursdays from 4-6 pm in Furman 120, NYU Law School)
1. January 15 – Daniel Shaviro, NYU Law School. The Long-Term Fiscal Gap: Is the Main Problem Generational Equity?
2. January 22 – Alan Auerbach, Berkeley Economics Department and NYU Law School.
3. January 29 – Edward Kleinbard, Joint Committee on Taxation. A Reconsideration of Tax Expenditure Analysis.
4. February 5 – Amy Finkelstein, MIT Economics Department, EZ-Tax: Tax Salience and Tax Rates.
5. February 12 – Dorothy Brown, Emory Law School.
6. February 19 – Yoram Margalioth, Tel Aviv University Law School and NYU Law School.
7. February 26 – Leslie McCall, Northwestern University Sociology Department.
8. March 5 – Michael Doran, University of Virginia Law School.
9. March 12 – David Duff, University of Toronto Law School.
10. March 26 – Emmanuel Saez, Berkeley Economics Department. Details Matter: The Impact of Presentation and Information on the Take-Up of Financial Incentives for Retirement Saving.
11. April 2 – Lily Batchelder, NYU Law School.
12. April 9 – Mihir Desai, Harvard Business School and NYU Law School.
13. April 16 – Mitchell Kane, NYU Law School.
14. April 23 – Thomas Brennan, Northwestern Law School.
Campaigns as a political institution
Presidential campaigns are supposed to provide information so people can make intelligent choices. Partly from the candidates' announced intentions, and the rest from what we can discern about character, temperament, and intellect.
I've had my doubts sometimes about how well campaigns work, in an age of over-the-top media manipulation and contrived narratives, to do what they are supposed to. But can anyone doubt that the McCain campaign has been astonishingly revealing about what an erratic, lunatic child he is?
I was told before the campaign by Republicans who know McCain personally that he is more of a child than an adult, and that he is temperamentally unsuited to be president. Some of the people who have told me this said they couldn't support him, others were doing so anyway and perhaps even found it endearing (the childishness, not the temper).
But can anyone doubt now that he is utterly unsuited to be president? Even the National Review Online and the Wall Street Journal are raising their eyebrows about his latest stunt.
I've had my doubts sometimes about how well campaigns work, in an age of over-the-top media manipulation and contrived narratives, to do what they are supposed to. But can anyone doubt that the McCain campaign has been astonishingly revealing about what an erratic, lunatic child he is?
I was told before the campaign by Republicans who know McCain personally that he is more of a child than an adult, and that he is temperamentally unsuited to be president. Some of the people who have told me this said they couldn't support him, others were doing so anyway and perhaps even found it endearing (the childishness, not the temper).
But can anyone doubt now that he is utterly unsuited to be president? Even the National Review Online and the Wall Street Journal are raising their eyebrows about his latest stunt.
Wednesday, September 24, 2008
Case study in how bitter political fights destroy social capital
I've been thinking a lot lately about Rick Perlstein's Nixonland, which I read and enjoyed while on vacation this summer. While much of it is about the eponymous Trickster, a perennial favorite topic of mine, it's really mainly about a broader trend in our society that Nixon was brilliant and innovative at exploiting but that really goes way beyond his direct influence (i.e., in large part he merely exemplifies its development). This is the bitter division of our country between left and right, or red states and blue states, or however one chooses to characterize it. If the two groups hate each other enough, they can get into escalating tit-for-tat cycles that destroy the social capital that they need to cooperate as well as compete. Cooperation is necessary, for example, in setting (1) mutually accepted rules of the road for political debate that limit how dishonest and destructive it is permitted to get, or (2) the groundwork for the long-term budget deal (with taxes going up and entitlements down) that is indispensable if we are going to forestall a U.S. fiscal collapse. In foreign policy as well, while the notion that politics should stop at the water's edge perhaps always was naive and overly restrictive of needed policy debate, we are in big trouble if foreign policy begins to be set primarily with an eye to its efficacy in bludgeoning or sidestepping the opposition, rather than to serve U.S. national interests.
I had all this in mind - not identifying bad guys, as some of the above may suggest, but lamenting the problem - when I read a blog entry from Brad DeLong describing the cancellation of an Obama versus McCain debate that was scheduled to take place tonight at Stanford, under the auspices of the Stanford Institute for Economic Policy Research (SIEPR). Apparently, Austan Goolsbee was supposed to debate Doug Holtz-Eakin. But then Kevin Hassett replaced Doug, and after that Brad replaced Austan, whereupon Kevin, at least according to Brad, called it off.
Hassett and DeLong have a feud, on which you can get Brad's side at the above link, going back to Kevin's coauthored book, Dow 36,000, which I suppose even Kevin would agree made a prediction that did not come to pass within the suggested time frame of 3 to 5 years after 1999. (Hassett then recouped intellectually with his interesting follow-up, Bubbleology.) But although academics can always squabble over nothing as well as something, or over analytical fine points as well as fundamental political issues, I find it hard to doubt that the great and angry divide in our country had a lot to do with the Hassett-DeLong falling-out.
As it happens, although I am obviously intellectually and politically in DeLong's camp rather than Hassett's, I am friends with Kevin (with whom I co-taught the NYU Tax Policy Colloquium for the first half of the winter 2008 semester) and don't really know Brad personally. Without pointing any fingers or saying anyone is wrong, or even definitively assuming that without the great political divide this wouldn't have happened, I must say it's not only too bad but seems to exemplify the broader problems I've been writing about from time to time in this blog, regarding where our country seems to be headed.
I had all this in mind - not identifying bad guys, as some of the above may suggest, but lamenting the problem - when I read a blog entry from Brad DeLong describing the cancellation of an Obama versus McCain debate that was scheduled to take place tonight at Stanford, under the auspices of the Stanford Institute for Economic Policy Research (SIEPR). Apparently, Austan Goolsbee was supposed to debate Doug Holtz-Eakin. But then Kevin Hassett replaced Doug, and after that Brad replaced Austan, whereupon Kevin, at least according to Brad, called it off.
Hassett and DeLong have a feud, on which you can get Brad's side at the above link, going back to Kevin's coauthored book, Dow 36,000, which I suppose even Kevin would agree made a prediction that did not come to pass within the suggested time frame of 3 to 5 years after 1999. (Hassett then recouped intellectually with his interesting follow-up, Bubbleology.) But although academics can always squabble over nothing as well as something, or over analytical fine points as well as fundamental political issues, I find it hard to doubt that the great and angry divide in our country had a lot to do with the Hassett-DeLong falling-out.
As it happens, although I am obviously intellectually and politically in DeLong's camp rather than Hassett's, I am friends with Kevin (with whom I co-taught the NYU Tax Policy Colloquium for the first half of the winter 2008 semester) and don't really know Brad personally. Without pointing any fingers or saying anyone is wrong, or even definitively assuming that without the great political divide this wouldn't have happened, I must say it's not only too bad but seems to exemplify the broader problems I've been writing about from time to time in this blog, regarding where our country seems to be headed.
Country last
It's amusing that McCain apparently wants to avoid voting on the bailout, but is eager to have Democrats provide the votes to pass it so that he can then safely grandstand as the noble naysayer. (Details here.)
Having been shamed into a press conference, he's quoted as follows:
"This issue should be - and their vote should be determined in how we can resolve this crisis and get America going again," McCain said. "This is a huge crisis. We know, in the words of many experts and mine, this is the greatest financial crisis since World War II. So to somehow, for the Democrats to say that their vote is going to be gauged on my vote frankly doesn't do them a great deal of credit.
"Their first and only priority should be making sure this economy recovers and get back on our feet again," McCain said.
I guess it logically follows, if we define the decision as purely theirs, that they aren't "putting America first" unless they agree to commit political harikiri, and that he isn't harming the recovery (supposing it to depend on passage of a bailout package) by merely exploiting it politically afterwards. But that doesn't make his stance any less sleazy or destructive of the social and political capital that one needs for government to function adequately in a competitive political environment.
UPDATE: What a loon, with his crazy stunt of purporting to suspend his campaign. All he has to do is (as the Obama campaign apparently proposed to him) put his name on a joint statement by the two of them regarding what they'd consider an acceptable deal.
Having been shamed into a press conference, he's quoted as follows:
"This issue should be - and their vote should be determined in how we can resolve this crisis and get America going again," McCain said. "This is a huge crisis. We know, in the words of many experts and mine, this is the greatest financial crisis since World War II. So to somehow, for the Democrats to say that their vote is going to be gauged on my vote frankly doesn't do them a great deal of credit.
"Their first and only priority should be making sure this economy recovers and get back on our feet again," McCain said.
I guess it logically follows, if we define the decision as purely theirs, that they aren't "putting America first" unless they agree to commit political harikiri, and that he isn't harming the recovery (supposing it to depend on passage of a bailout package) by merely exploiting it politically afterwards. But that doesn't make his stance any less sleazy or destructive of the social and political capital that one needs for government to function adequately in a competitive political environment.
UPDATE: What a loon, with his crazy stunt of purporting to suspend his campaign. All he has to do is (as the Obama campaign apparently proposed to him) put his name on a joint statement by the two of them regarding what they'd consider an acceptable deal.
Tuesday, September 23, 2008
Good day
My cold or allergies receded, I was productive and am close to finishing my paper on generational equity/efficiency/political economy and the fiscal gap, the expanded Pavement reissue of Brighten the Corners was announced for mid-November, the Mets won while the Yankees were eliminated, and Paulson got some of the tough questioning that he deserves.
Could the bailout actually make money for the Treasury?
Republican Senator Norman Coleman apparently is arguing that it could.
Theoretically speaking, Coleman actually is potentially right. The deleveraging theory that I've mentioned in earlier posts suggests that assets may end up having market values well below fundamental value in a temporary squeeze where there simply isn't enough money on the "long" side to compete away the windfalls suggested by the spread.
If Warren Buffett, say, indicated that he wants to buy the same bad loans that Secretary Paulson is talking about (supposing that he had enough money), and was willing to pay more than current market value, I would figure that this was indeed happening, and that Buffett might be quite likely to do well.
However, there are several key institutional differences between the hypothetical Buffett scenario and the actual one. The Treasury isn't deciding to go in for any such reason, would have no incentive to execute its buying strategy from a profit-making standpoint (even where socially optimal), and would probably be unable to do it competently even if it tried. Obviously, making money is not exactly at the heart of its institutional skill set.
Hence I would predict huge losses to the taxpayers even though the undervalued-assets scenario is by no means silly. Reinforcing the argument that Treasury's outlays ought to be fully financed under the assumption that they will recover zero, and probably, insofar as arbitrary stated measures matter to political behavior, ought to be included in the budget deficit.
Theoretically speaking, Coleman actually is potentially right. The deleveraging theory that I've mentioned in earlier posts suggests that assets may end up having market values well below fundamental value in a temporary squeeze where there simply isn't enough money on the "long" side to compete away the windfalls suggested by the spread.
If Warren Buffett, say, indicated that he wants to buy the same bad loans that Secretary Paulson is talking about (supposing that he had enough money), and was willing to pay more than current market value, I would figure that this was indeed happening, and that Buffett might be quite likely to do well.
However, there are several key institutional differences between the hypothetical Buffett scenario and the actual one. The Treasury isn't deciding to go in for any such reason, would have no incentive to execute its buying strategy from a profit-making standpoint (even where socially optimal), and would probably be unable to do it competently even if it tried. Obviously, making money is not exactly at the heart of its institutional skill set.
Hence I would predict huge losses to the taxpayers even though the undervalued-assets scenario is by no means silly. Reinforcing the argument that Treasury's outlays ought to be fully financed under the assumption that they will recover zero, and probably, insofar as arbitrary stated measures matter to political behavior, ought to be included in the budget deficit.
Monday, September 22, 2008
The Paulson Catch-22
While Paulson is generally well-regarded, we don't really know a great deal about him as a public official. From that standpoint, his demanding a close to zero-oversight blank check grant of authority, followed by his calling for a "clean" bill to forestall, not Congressional pork barrel attachments but meaningful oversight, is not encouraging.
Another way of putting it is that his seeking these unfettered powers lowers one's confidence that he should have such powers.
Another way of putting it is that his seeking these unfettered powers lowers one's confidence that he should have such powers.
Sunday, September 21, 2008
More on the bailout plan
Imagine that it's January 2009, and that Treasury Secretary Phil Gramm has $700 billion to dole out as he likes to Wall Street companies claiming distress. Phrases that occur to me include Teapot Dome (or perhaps I should say Iraq reconstruction), crony capitalism, and great Republican Party fundraising tool.
UPDATE: Great column by U of Chicago economist Luigi Zingales on the bailout.
UPDATE: Great column by U of Chicago economist Luigi Zingales on the bailout.
Understatement of the day
From Peter Goodman, "But Will It Work?" in today's NY Times, page A-1:
"Some question the prudence of adding [$700 billion] to the nation’s overall debt at a time when the Treasury relies on the largess of foreigners to cover the bills."
The best argument in favor of being so reckless is not an edifying one. If you are going to crash and burn no matter what, why not max out the credit cards first and have a really good time.
On a more serious note, the fact that absolutely no one is discussing financing this wildly expensive bailout is exemplary of why the U.S. is likely headed for a catastrophic fiscal collapse. The core problem is more political than economic. Changing course would be conceptually easy to do though painful in practice. But Republicans have succeeded in utterly banishing from public discourse the idea of a budget constraint. Apparently nothing needs to be paid for. A $2 trillion Iraqi war? Reason to cut taxes. An $18 trillion Medicare prescription drug benefit? No need for financing. And imagine what would happen politically today if Pelosi, Reid, or Obama pointed out that we need to pay for this bailout. They're not that brave, but frankly I don't blame them. Why fall on your sword if no one will listen anyway?
Enacting the bailout without financing is sheer insanity, but it's going to happen beyond a doubt. You may ask: Does it really make sense to increase taxes at a time when we're teetering on the brink of recession? The answer, I'd say, is that it makes perfect sense to announce the tax increase - just not to implement it yet. A tax increase to pay for the bailout, with a deferred implementation date (say, 2010 or 2011) would be stimulative if considered credible, since it would reward accelerating economic activity.
"Some question the prudence of adding [$700 billion] to the nation’s overall debt at a time when the Treasury relies on the largess of foreigners to cover the bills."
The best argument in favor of being so reckless is not an edifying one. If you are going to crash and burn no matter what, why not max out the credit cards first and have a really good time.
On a more serious note, the fact that absolutely no one is discussing financing this wildly expensive bailout is exemplary of why the U.S. is likely headed for a catastrophic fiscal collapse. The core problem is more political than economic. Changing course would be conceptually easy to do though painful in practice. But Republicans have succeeded in utterly banishing from public discourse the idea of a budget constraint. Apparently nothing needs to be paid for. A $2 trillion Iraqi war? Reason to cut taxes. An $18 trillion Medicare prescription drug benefit? No need for financing. And imagine what would happen politically today if Pelosi, Reid, or Obama pointed out that we need to pay for this bailout. They're not that brave, but frankly I don't blame them. Why fall on your sword if no one will listen anyway?
Enacting the bailout without financing is sheer insanity, but it's going to happen beyond a doubt. You may ask: Does it really make sense to increase taxes at a time when we're teetering on the brink of recession? The answer, I'd say, is that it makes perfect sense to announce the tax increase - just not to implement it yet. A tax increase to pay for the bailout, with a deferred implementation date (say, 2010 or 2011) would be stimulative if considered credible, since it would reward accelerating economic activity.
Subscribe to:
Posts (Atom)
