31 January 2013

Charts: What if Obama spent like Reagan?

Ezra Klein
In 10 of the past 12 quarters, total government spending and investment has fallen, dragging down the Obama economy. That's in large part because state and local cutbacks have been so severe, but it's also because federal spending and investment has, on the whole, been falling since 2010.
This isn't an unusual analysis. You can see the numbers for yourself if you head to the Bureau of Economic Analysis's GDP data and scroll through column 21 of table 1.1.2. It's simply a fact that real government spending fell in three of President Obama's first four years.
That made me curious: How does government spending and investment during Obama's first term compare to Ronald Reagan and George W. Bush's first terms? The answer is poorly. Whereas total government spending dropped in 10 out of the 16 quarters that comprised Obama's first term, it rose in 13 out of Reagan's first 16 quarters, and 13 out of Bush's first 16 quarters.
government spending investment first terms

Or, to put it differently, over Obama's first term, falling government spending and investment snipped, on average, .11 percentage points of GDP off of (annualized) quarterly growth. During Reagan's first term, it added .68 percentage points, and during Bush's first term, it added .52 percentage points.
average government spending

The point isn't that Reagan and Bush were big spenders while Obama favors austerity. If it were up to Obama, the federal government would have spent much more since 2010. Moreover, these numbers are, in large part, functions of the economies the three men inherited. Each saw a recession in their first term, but Obama's was by far the worst, and so it led to much more severe cutbacks in state and local spending.
Rather, these graphs simply establish a basic fact about Obama's term: While deficits have indeed been high, government spending and investment has been falling since 2010. This is, in recent presidential administrations, a simply unprecedented response to a recession. Just for fun, I took Obama's GDP growth, netted out the effect of government spending and investment, and then added the total government spending and investment numbers — which include state and local government — from Reagan's first term. The result is a significantly better economy, with growth since 2010 averaging 3.2 percent rather than 2.4 percent.
obama reagan spending

Basic economic theory would hold that you want a larger contribution from government spending during a big recession in which private demand is weak than you do during a mild recession or a healthy economy. But that's been the case in Obama's economy, and all signs are that the pace of government spending cuts will accelerate sharply over the next year.

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12 January 2013

Joe Biden can't get no respect. But he deserves some.

via Wonkblog by Ezra Klein on 1/11/13

For a 70-year-old man, U.S. Vice President Biden sure spends an awful lot of time winning the Internet. No other living politician has quite the same ratio of words spoken to memes inspired. Last week's contribution was the patter of joyously weird, occasionally creepy, one-liners he threw off while swearing in the 113th Senate.
"Spread your legs!" He told Sen. Heidi Heitkamp's husband. "You're gonna be frisked!"
"Mom, I'll see you in a little bit," he winked to Sen. Bob Casey's mother (he called all the mothers "mom"). "I hope I'll sneak over and see you."
Sen. Tim Scott's brother, a former football player, got this instant classic: "Need any help on your pecs, man, give me a call." Sen. Orrin Hatch's granddaughter was advised: "No serious guys until you're 30." To the brunette alongside Sen. Robert Menendez, it was: "You are so pretty. God love you. Holy mackerel." At one point, Biden turned to the crowd in the gallery above. "Anybody else want to be sworn in as a senator today?"
You could no more imagine President Obama delivering these lines -- save maybe the "pecs" one -- than imagine him eating pork rinds while watching "Two and a Half Men" enfolded in a Snuggie. Obama doesn't do backslapping bonhomie. But people love watching Biden do it. (Have you seen the gif, "This Is How Joe Biden Greets Babies"? Amazing.) That's why the White House Web site is featuring a petition to let Biden star in his own reality show. It's a good idea, I think. Why don't we call it the 2016 presidential campaign?
In the continuing drama that is the Obama presidency, Biden often appears as comic relief. He's the zany neighbor, the adorable uncle. As a result, his presidential ambitions, which burn brightly even today, have mostly been laughed off. Somehow, the sitting vice president of the United States, the former chairman of both the Senate Foreign Relations Committee and the Senate Judiciary Committee, a man who's on a nickname basis with many of the world's most powerful leaders, is seen in many quarters as lacking the gravitas to be president.
Yet just a few days before he was giving dating advice on C-SPAN2, Biden again proved himself perhaps the most effective member of the Obama administration. He reprised his role as the White House closer, the guy who can cut a deal with the Republicans after everyone else has failed. In the end, Biden got Senate Minority Leader Mitch McConnell to strike a deal that the White House was happy with. That's something neither Obama nor Treasury Secretary Tim Geithner had achieved. And it wasn't the first time. Biden also helped close the 2011 deal that lifted the debt ceiling and the 2010 deal that extended the Bush tax cuts in return for fresh stimulus.

Biden's skills as a campaigner are also considerable. According to Nielsen, his speech at the 2012 Democratic National Convention won better television ratings than the addresses of either Bill Clinton or Obama (or Republicans Mitt Romney and Rep. Paul Ryan, for that matter). His debate performance against Ryan bucked up anxious Democrats and arguably stanched the bleeding from Obama's hapless initial appearance against Romney.
As a policy maker, Biden's reputation is more mixed. Those who've worked closely with him describe a dedicated workhorse eager to master details. Unlike Obama, however, who grasps policy minutiae instantly, Biden doesn't naturally think in charts and tables. At times, Biden goes with his gut rather than the evidence, a tendency that can lead him to embrace bad policy that sounds good. On the other hand, he is also known for choosing some of the best and most substantive staff members in Washington. A politician allergic to policy doesn't surround himself with the wonky likes of Ted Kaufman, Ron Klain, Jared Bernstein and Bruce Reed.
Biden has also proved himself an effective and trusted manager in the Obama administration. He was named top cop on the stimulus -- "Nobody messes with Joe," Obama grinned when appointing him -- and the funds were spent on time and shockingly free of graft and fraud. Subsequently, Obama put him in charge of other crucial tasks, including the current push for a viable package of gun-control policies, in which Biden just succeeded in bringing Wal-Mart Stores Inc. to the table.
If Biden can't quite match Obama's policy chops, he has an ease with other politicians that the president hasn't mastered. In negotiations, Obama's policy-centric approach is arguably a hindrance, leading him to spend much of his time lecturing Republicans about the myriad ways in which they're wrong. That Obama is often right on the policy merits doesn't diminish Republican feelings that a trip to the Oval Office is a date with condescension.
Biden produces different results. His success in negotiating with McConnell might be partly attributable to the Republican Party's loathing of Obama -- repeatedly bypassing Obama in favor of his vice president is, after all, a kind of insult to the president -- but it's also attributable to the fact that Republicans like Biden and feel he treats them fairly. "Does anyone down there know how to make a deal?" McConnell drawled when he called Biden to resolve the fiscal cliff. It was a rhetorical question, to which both men knew the answer: "Biden."
A bit over four years ago, Obama was elected on a promise to change Washington. He and his team argued that what politics needed was something new -- a post-partisan, post-boomer, post- racial president who could help the country move past old antagonisms and into a more united future. The Obama administration has had many successes, but ratcheting down partisanship isn't one.

The irony, of course, is that the one bright spot in the White House's dealings with Republicans has been Biden's old-school, back-slapping, Senate-steeped, Washington-lifer approach. Turns out that sometimes an old dog knows the right tricks.
So don't laugh when you hear that Biden wants to run for president. Biden is one of the most successful vice presidents in history, and one of the most successful politicians of a very difficult era. He may sometimes make himself a punch line, but he has the record of a heavyweight.

'Talk of Shirkers Echoes Victorian Past'


via Economist's View by Mark Thoma on 1/10/13

What causes poverty?:
Talk of 'shirkers' echoes Victorian past, by Tristram Hunt: ...the debate about how to cut back Britain's spiraling social security system is ... replete with echoes of the past. The language of "workers" versus "shirkers" is a straight lift from the mid-Victorian moralism of deserving and undeserving poor. Yet the most unfortunate rhetoric involves the return of "character" as the critical determinant of poverty. ...
This was the prejudice that first spurred Charles Booth, the Liverpool shipping magnate, to investigate the causes of poverty in 1880s London. Dismissive of socialist claims of mass unemployment, he established a network of researchers to pick over the lives of the poor.
It was a pioneering sociological investigation designed to prove Booth right: that poverty was limited and the poor were poor because of their alcoholism, lust or dislike of work. ... In fact, Booth's study revealed that circumstance not character dictated poverty. ...
Booth's study formed an important part of that New Liberal moment when Victorian laisser faire was exchanged for an interventionist state. In its wake came national insurance and the old-age pension. ...
From a post in November, 2007 on this topic:
 ...During 1817 ... a group of prominent New York merchants and professionals (many of them having formerly been the principle supports of such institutions as the New York Hospital and a variety of other worthy causes) officially and quite publicly began to rethink their habit of giving. Such previously generous philanthropists as DeWitt Clinton, Thomas Eddy, and John Griscom took their cue in this from British reactionaries. In so doing, they succumbed to the rhetoric of several hard-nosed British social thinkers, most notably Thomas Robert Malthus, Jeremy Bentham, and the Scottish conservative Patrick Colquhoun.
Twenty years earlier, all three of those gentleman had been instrumental in the founding of the London Society for Bettering the Condition and Increasing the Comforts of the Poor. Despite the burden of its long-winded name, the London Society specialized in the cutting off of funds for social welfare rather than the distribution of charity. Men like Malthus, Bentham and Colquhoun believed that a distinct line must be drawn between the "deserving poor" (those hit with hard times resulting from unfortunate histories) and "undeserving paupers," the latter being the drunk, lazy and whorish of society, to whom the provision of any form of aid was a reprehensible act of facilitation.
Another key concept underpinning the logic of the London Society was the presumption (for lack of a more accurate term) that paupers outnumbered the deserving poor by a factor of about 9 to 1. In reform meetings and from church pulpits, politicians and clerics again and again cited this astonishing though unverifiable statistic, which soon became accepted as fact. In time, the public mind became convinced that a mere ten percent of London's poor were the crippled and the orphaned, while 90 percent were degenerates. For every one individual in London's slums who genuinely needed aid, popular wisdom held that there were nine who required something else entirely: intolerance, punishment and correction. As a corollary to this line of thinking, logic dictated that 90% of the charitable aid previously offered was superfluous. In turn, wallets closed, and checks stopped being written.
The London Society remained a venerable body and dominant force in British life for decades: influential in the development of such institutions as workhouses and debtors prisons. It was likewise influential, through its example, in New York and other American cities. By the end of 1817, Clinton, Eddy, and Griscom, joined by hundreds of other New Yorkers, had formed a clone organization on the banks of the Hudson: the Society for the Prevention of Pauperism (SPP).
Several months before the founding of the SPP, New York's Humane Society (which at that time specialized in helping humans rather than dogs and cats) announced rather forlornly the result of recent research revealing a startling fact: no less than 15,000 men, women and children - the equivalent of one-seventh of the city's total population - had been "supported by public or private bounty and munificence" the previous winter.
In their book Gotham, historians Edwin Burrows and Mike Wallace have eloquently described the SPP's point of view, expressed in response to the above data. In the grand tradition of the London Society, the SPP said it believed that "willy-nilly benevolence" only made things worse. "Giving alms to the undeserving poor not only undermined their independence but also drove up taxes and sapped the prosperity of the entire community." Thus, "for their good as well as everyone else's … the SPP recommended that all paupers in the city be cut off from all public assistance forthwith." Soon the Humane Society itself announced its intention to disband, in the wake of its realization that the very act of giving charity had "a direct tendency to beget, among [the citizenry] habits of imprudence, indolence, dissipation and consequent pauperism."
"Tough love" was in. Cruelty equaled kindness. Frugality equality generosity. And all three were not only cheap, but easy. A few ministers sang out against the reverse-logic of the SPP, but far more praised the organization than damned it. God himself, it seemed was on the side of self-reliance. A generation later, Social Darwinists would express a similar point of view: that the strong must be allowed to flourish, and not be hamstrung by the needs of the clawing weak. Charles Darwin's The Origin of Species would not see print until 1859. Indeed, Darwin himself was but eight years old in 1817, and would not depart on the voyage of HMS Beagle until 1831. Nevertheless, the seeds of what was to become the philosophy of Herbert Spencer (born 1820), not to mention the nearly identical philosophy of the 20th century's Objectivist saint of selfishness, Ayn Rand, were quite evident in the grand pronouncements of the London Society and its New York equivalent, the SPP. ...
I'm always amazed at how little the debate, generated in large part by ideology and the belief in false facts about the poor, has changed since the 1800s.
This is from a post in June, 2007. It's an earlier history the deserving/undeserving distinction:
... In the early mercantilist period there was an ideological continuity between the intellectual defenses of mercantilist policies and the earlier ideologies that supported the medieval economic order. The latter relied on a Christian paternalist ethic that justified extreme inequalities of wealth on the assumption that God had selected the wealthy to be the benevolent stewards of the material welfare of the masses.[4] The Catholic church had been the institution through which this paternalism was effectuated. As capitalism developed, the church grew weaker and the governments of the emerging nation-states grew stronger. In the early mercantilist period, economic writers increasingly came to substitute the state for the medieval church as the institution that should oversee the public welfare. ...
The people could no longer look to the Catholic church for relief from widespread unemployment and poverty. Destruction of the power of the church had eliminated the organized system of charity, and the state attempted to assume responsibility for the general welfare of society. ...
Poor laws passed in 1531 and 1536 attempted to deal with the problems of unemployment, poverty, and misery then widespread in England. The first sought to distinguish between "deserving" and "undeserving" poor; only the deserving poor were allowed to beg. The second decreed that each individual parish throughout England was responsible for its poor and that the parish should, through voluntary contributions, maintain a poor fund. This proved completely inadequate, and the pauper problem grew increasingly severe.
Finally, in 1572 the state accepted the principle that the poor would have to be supported by tax funds and enacted a compulsory "poor rate." And in 1576 "houses of correction" for "incorrigible vagrants" were authorized and provisions made for the parish to purchase raw materials to be processed by the more tractable paupers and vagrants. Between that time and the close of the sixteenth century, several other poor-law statutes were passed.
The Poor Law of 1601 was the Tudor attempt to integrate these laws into one consistent framework. Its main provisions included formal recognition of the right of the poor to receive relief, imposition of compulsory poor rates at the parish level, and provision for differential treatment for various classes of the poor. The aged and the sick could receive help in their homes; pauper children who were too young to be apprenticed in a trade were to be boarded out; the deserving poor and unemployed were to be given work as provided for in the act of 1576; and incorrigible vagrants were to be sent to houses of correction and prisons.[8]
From the preceding discussion it is possible to conclude that the period of English mercantilism was characterized by acceptance, in the spirit of the Christian paternalist ethic, of the idea that "the state had an obligation to serve society by accepting and discharging the responsibility for the general welfare."[9] The various statutes passed during this period "were predicated upon the idea that poverty, instead of being a personal sin, was a function of the economic system.[10] They acknowledged that those who were the victims of the deficiencies of the economic system should be cared for by those who benefited from it. ...
However, as noted above, the view that the poor "were the victims of the deficiencies of the economic system" died out, and was replaced by the idea the character problems are the main reason people are poor. This variation in attitudes about the poor -- it's the system, it's the individual -- goes back and forth over time, and we are currently seeing an attempt from the right to re-impose older Victorian attitudes -- and with some success (I recently wrote about the blame the individual versus blame the system distinction and how it has changed during the recession, see the end of this post).

11 January 2013

Against Public Choice, For Public Virtue


09 January 2013

Via the Economist

Barbarous Relics

Economics and Politics by Paul Krugman - The Conscience of a ...
This is not a rational argument.
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Kids with guns: Almost 20 years later, Art Spiegelman’s New Yorker cover seems oddly prescient

Dangerous Minds
kids with guns

As the "arm the teachers" rhetoric surrounding the Newtown shootings refuses to go away, I remembered this old New Yorker cover by Maus author and illustrator, Art Spiegelman.
For a guy whose opus was about his father's experience during the Holocaust, he managed to outdo himself in disturbing imagery with this one. And yet it doesn't seem that far from what's being suggested in 2013…
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08 January 2013

A Republican’s idea of a ‘tip’?

Dangerous Minds

Just the tip..?
Via Early Onset of Night
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07 January 2013

Be Ready To Mint That Coin

Economics and Politics by Paul Krugman - The Conscience of a ...
And put Boehner's face on it.
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06 January 2013

'The Blame the Community Reinvestment Act Industry'

Economist's View
Dean Baker:
The Blame the Community Reinvestment Act Industry, by Dean Baker (Creative Commons License): One of the major occupations for economists these days is blaming efforts to help poor people for the housing bubble and bust. The main villains in this story are Fannie Mae, Freddic Mac, the Federal Housing Authority (FHA) and the Community Reinvestment Act (CRA). A reader recently sent me another work in this proud tradition.
I just did a quick reading of the paper, but it seems that the smoking gun in this one is that banks subject to the CRA appeared to do more lending in CRA tracts in the periods where their lending behavior was being scrutinized by regulators. Just to remind folks, the CRA requires banks to make loans in the areas from which they were taking deposits, in particular focusing on areas that are disproportionately African American or Hispanic. The authors take this timing result, which is especially pronounced in the peak bubble years of 2004-2006, as evidence that the CRA played a major role in the pushing of bad loans on moderate income people. As they note, the loans issued in these tracts in these periods had a much higher default rate than other loans.
It's not clear that this gun is smoking quite as much the paper implies. First, it is important to remember that the biggest peddlers of subprime loans were mortgage lenders like Ameriquest and Countrywide. These lenders were for the most part not subject to the CRA since they were not banks (they raised money through the capital markets, not by taking deposits). Therefore the CRA was not a gun to the head of these lenders forcing them to make bad loans.
However even for the banks to whom the CRA did apply the evidence in this paper is less compelling than it may seem. Let's assume that banks do care about their CRA ratings for the reasons mentioned in the paper. (The CRA rating would likely be a factor that would come up when a bank was interested in a buyout or merger.) Let's also imagine that banks time their loans to CRA tracts so that they can show more loans in the periods where their compliance is being reviewed. Let's also hypothesize that in total the CRA doesn't get banks to make any more loans to CRA tracts than they would otherwise.
In this case, we would get exactly the sort of pattern of lending found in this study. Banks that are subject to the CRA would refrain from focusing on CRA tracts when they know no one is looking. Then when the light is on, they would make a stronger effort to make loans in the neighborhoods covered by the CRA. If banks engaged in this sort of timing of loans to CRA tracts, we would find that loans during CRA review periods were higher than in other times, even if there was no net increase in loans as a result of the CRA.
As a practical matter, I would be surprised if the CRA had no effect whatsoever on lending to the covered tracts. But it's not clear how this paper can distinguish a timing effect from a situation where banks actually increased lending to CRA tracts beyond what they would have done without the law.
In the process of prosecuting the case against the CRA, the paper produces some exonerating evidence for Fannie and Freddie. It finds that the CRA effect was strongly associated with private securitization because the investment banks had lower standards than Fannie and Freddie. It comments on this finding:
"We conjecture that banks are more likely to originate loans to risky borrowers around CRA examinations when they have an avenue to securitize and pass these loans to private investors after the exam."
And, just to remind folks, the FHA became almost irrelevant in the peak bubble years, with its share of the market dwindling to almost nothing. At the time it was derided as an outmoded relic since the private sector was so much more efficient in providing loans to low and moderate income families.
Anyhow, I don't think there is any doubt that the efforts to push homeownership went seriously awry in the bubble years. Many of the organizations that encouraged moderate income families to buy homes at badly inflated prices as a wealth building strategy should be wearing bags over their heads for the next three decades. But there is no escaping the fact that the main motivation for issuing the bad mortgages was money: the banks were booking huge profits in these years. And no believer in the free market can think that bankers have to be told by government bureaucrats to go out and make money.

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The End of Economists' Imperialism

Sent to you by jonas via Google Reader:

via Economist's View by Mark Thoma on 1/4/13

Justin Fox says the age of economist's imperialism is ending:
The End of Economists' Imperialism, by Justin Fox: "By almost any market test, economics is the premier social science," Stanford University economist Edward Lazear wrote just over a decade ago. ...
Lazear went on to describe how economists, with the University of Chicago's Gary Becker leading the way, had been running roughshod over the other social sciences — using economic tools to study crime, the family, accounting, corporate management, and countless other not strictly economic topics. "Economic imperialism" was the name he gave to this phenomenon (and to his article, which was published in the February 2000 issue of the Quarterly Journal of Economics). And in his view it was a benevolent reign. "The power of economics lies in its rigor," he wrote. "Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing theory, and revising the theory based on the evidence. Economics succeeds where other social scientists fail because economists are willing to abstract."
Triumphalism like that calls for a comeuppance, of course. ...
He goes on to describe how "I've found myself talking to and reading a little of the work of sociologists and political scientists, and coming away impressed with how adept they are in quantitative methods, how knowledgeable they are about economics, and how willing they are to challenge economic orthodoxy," and he gives several examples of other disciplines working in what is traditionally the realm of economists (with teasers of more to come). He ends with:
What's going on is probably not the incipient overthrow of economics. As described by Lazear, its imperialistic power has in large part been the result of its uniformity of approach over the past half century. (That, and economists have actually been right about some things.) As best I can tell, there is no such methodological consensus in sociology, political science, anthropology, or history at the moment. But the economists' consensus is wobblier than it's been in a while (especially in macro), there is ample motive for insurrection, and the non-economists' stores of intellectual ammunition are growing. Economics may well have reached the stage of imperial overstretch. Interesting times lie ahead.

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02 January 2013

What's mediocre about America?

Sent to you by jonas via Google Reader:

via Noahpinion by Noah Smith on 1/2/13

Umair Haque has written an article bemoaning the mediocrity of America. Some excerpts:

[W]hat is America still the best at? 
Consider this thought experiment. If you were really, really, really rich — say, not just part of the routinely opulent 1%, but a card-carrying member of the eye-poppingly decadent .01% — what part of your life would be American? If you had the money, I'd bet you'd drive a German car, wear British shoes and an Italian suit, keep your savings in a Swiss bank, vacation in Koh Samui with shopping expeditions to Cannes, fly Emirates, develop a palate for South African wine, hire a French-trained chef, buy a few dozen Indian and Chinese companies, and pay Dubai-style taxes. 
Were to you have the untrammeled economic freedom to, I'd bet you'd run screaming from big, fat, wheezing American business as usual, and its coterie of lackluster, slightly bizarre, and occasionally grody "innovations": spray cheese, ATM fees, designer diapers, disposable lowest-common-denominator junk made by prison labor, Muzak-filled big-box stores, five thousand channels and nothing on but endless reruns of Toddlers in Tiaras — not to mention toxic mega-debt, oxymoronic "healthcare," decrepit roads, and once-proud cities now crumbling into ruins. Sure, you'd probably still choose to use Google on your iPhone to surf the web — but that's about far as it'd go.

Snarky response #1: "This list is totally cherry-picked. It was probably written using American-made software on an American-made operating system running on a (possibly American-brand) computer with an American-designed and American-made microprocessor, making use of American cloud-computing resources. It was written for an American magazine produced by an American university, to which the author will most likely want to send his kids. And if he really feels like splurging, he'll fly them there on an American-made private jet, which will navigate using American GPS satellites. His kids, of course, will dream of starring in American movies made with American digital cameras, and driving American-made electric sports cars. If they happen to crash those cars, they'll be treated by American surgeons. Etc. etc. etc."

Snarky response #2: "OK, so if America's government launched a massive project to make sure that our country made the highest-quality, fanciest, most expensive cufflinks in the world, then we'd get a spot on Haque's list right next to British shoes and Italian suits, and so avoid the whole line of criticism?"

Snarky response #3: "British shoes??? Ha ha. Ha. Somebody has a sense of humor."

OK, but enough snark. In all seriousness, I just don't think that making niche brand-name luxury goods for the super-rich is an appropriate measure of greatness. By definition, the 0.01% of which Haque speaks are very rare; even in a world as unequal as ours has become, the middle classes spend most of the money. That's why Toyota is the world's #1 carmaker and Ferrari doesn't even crack the top 20.

In other words, a country doesn't necessarily get rich by catering to the rich. Nor is capturing the adulation of the 0.01% the only measure of a business' technical acumen and quality. Sure, it takes quality workmanship to make a nice luxury shoe. But how much more quality workmanship does it take to make thousands and thousands Boeing jumbo jets that fly thousands upon thousands of times with a nearly perfect overall safety record? Sure, the super-rich probably turn up their noses at Boeing and fly on Gulfstream private jets (another American company, btw). But Boeing is the higher-tech, more impressive company, because successfully catering to all those middle-class masses is hard. Similarly, Wal-Mart has cheap products and ugly stores, but absolutely amazing logistics. And Caterpillar's machines may dig unglamorously in the dirt, but they are a marvel of engineering compared to even the nicest Italian suit. As for spray-cheese, well, just ask a 5-year-old kid whether she prefers that or a nice glass of South African wine.

Still - and I wouldn't have written this blog post otherwise - I think Haque does make a very good point. America does have a serious problem with our acceptance of bland mediocrity.

It's not our businesses or our products that are mediocre, it's our institutions. Our infrastructure, health care system, schools, and cities are, with a few exceptions, disgustingly mediocre. Haque mentions most of these. He makes a very good point.

Take a trip to Japan, and you'll be stunned at how easy it is to get anywhere. The train system is quiet, clean, comfortable, amazingly convenient, and runs on time. Even if you're out in the boonies and need to take a bus, those are much nicer than their American cousins. And it's nice to be able to use a bullet train to get from Osaka to Tokyo in three hours, without wasting two hours waiting for an airplane. (Note that these trains cater to the middle class, not the super-rich.)

Now, much of America is spread out, so it makes more sense to use care rather than trains in many areas. But our auto infrastructure, once the world's best, is decaying, and we're not spending the money to replace it. Meanwhile, in places where a Japan-style train system would make sense, I'm stuck paying $38 for a round trip to New York City on a train that averages about 30 miles per hour and uses old-fashioned paper punch cards. A better system would cost money that we are not willing to allow our government to spend.

Meanwhile, one has only to look at the international education rankings to know where we stand. A few simple reforms, like year-round school, increased teacher pay with more stringent qualification requirements, longer school hours, fewer vacation days, and increased ability to fire bad teachers, could probably bring us way up in the rankings. But we do not do these things. These things cost money that we are not willing to allow our government to spend.

Our health care system, in contrast, is reknowned for its waste. In the case of health care, although the super-rich can enjoy the world's top surgeons, the average American gets worse health outcomes than Europe for a much higher price tag. We're willing to spend the money on health care, but we're not willing to bring in government to control costs.

And don't even get me started on urban blight. Just look at pictures of Detroit.

America's mediocrity does not stem from the failure of its companies. It stems from the failure of its governments - federal, state, and local. If we want to become an excellent country in all respects - if we really decide that we've had enough of mediocrity - it is our government which we must focus on improving.

...Oh, and guess what. America does make the world's fanciest cufflinks. What up now, Britain??

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David Frum: Americans for Insurrection

Sent to you by jonas via Google Reader:

via Brad DeLong by J. Bradford DeLong on 1/2/13

David Frum: Americans for Insurrection:
In National Review Online before New Year's, Kevin Williamson explained that the Second Amendment guarantees the right of individual Americans to launch an insurrection against governments they believe tyrannical.
There is no legitimate exception to the Second Amendment for military-style weapons, because military-style weapons are precisely what the Second Amendment guarantees our right to keep and bear. The purpose of the Second Amendment is to secure our ability to oppose enemies foreign and domestic, a guarantee against disorder and tyranny.
To deliver the rebuttal, we welcome guest blogger Abraham Lincoln. In his first message to Congress, July 4, 1861, the sixteenth president explained:
Our popular government has often been called an experiment. Two points in it, our people have already settled,--the successful establishing and the successful administering of it. One still remains,--its successful maintenance against a formidable internal attempt to overthrow it. It is now for them to demonstrate to the world that those who can fairly carry an election can also suppress a rebellion; that ballots are the rightful and peaceful successors of bullets; and that when ballots have fairly and constitutionally decided, there can be no successful appeal back to bullets; that there can be no successful appeal, except to ballots themselves, at succeeding elections. Such will be a great lesson of peace; teaching men that what they cannot take by an election, neither can they take it by a war; teaching all the folly of being the beginners of a war.

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01 January 2013

The Benefits Tax View

Economist's View
Richard Green:
"We are all in it together," and benefits taxes, by Richard Green: Tyler Cowen says that the Republican Party should propose raising taxes on everyone because, "we are all in it together."

To some extent, this is a benefits tax view--a view that we should pay to society our fair share of what we get from society.  But the implication of this is not necessarily that everyone should sacrifice in order to put us all on a sustainable fiscal path.

With Ronald Reagan's election in 1980, the US saw a sea change in tax and regulatory policy.  While the policy was suppose to benefit everyone, it clearly hasn't.  For the bottom quintile of the income distribution, income has risen about 5 percent since 1982 (the first year in which Reagan's policies bit); for the next quintile, it has risen 8 percent; for the next, 11 percent, for the next, 20 percent, and for the highest, 45 percent.  But most of the highest quintile didn't do so well--the top 5 percent has seen average household income rise by 68 percent.

These data are before tax, and come from the US Census, Table H-3.  Before anyone suggests that this means that everyone has benefited, I should point out that average income in the lowest quintile of the income distribution is $11,239, which is right at the Federal Poverty Level for a single person household.  In a benefits tax view of the world, people who haven't sufficient income to live should not be taxed (they are living at subsistence levels as it is, and taxing them makes thing worse).

So let's begin by holding the bottom quintile harmless in doing any kind of deficit reduction.  But what of the remaining quintiles?  If we look at the share of income growth by quintile (excluding the meager income growth of the bottom quintile), we find that 3 percent went to the second quintile from the bottom; 7 percent to the next; 18 percent to the next, and 73 percent to the top quintile.  So little has gone to the second and third quintile from the bottom that one could make a case that they should be left along as well.

The fourth quintile, though, has seen a material improvement in incomes, so it is probably OK to ask this group for something--this includes people who nearly everyone would consider middle class.  Nevertheless, the lion's share of the benefits of the policy changes of the early 1980s has appeared to go to the top quintile, and so the top quntile should pay the most to put us on a sustainable fiscal path.

One last calculation--the top 5 percent got 57 percent of the income growth within its quintile.

It is true that households move in and out of quintiles, but as Dalton Conley shows, not as much as we would like to think,  In any event, we have not been all in it together when it has come to benefitting from the policies of the past 30 years.

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