A new Day for the tax code?

Before Stockwell Day was a screamingly ineffective campaigner for Prime Minister of Canada, he was the treasurer of Alberta; and back in those days, when I was a graduate student in BC, he came up with the simplest and best tax system I've yet run across.

Alberta Treasurer Stockwell Day is proposing to de-link Alberta's provincial tax system from its federal counterpart. Instead of Albertans paying provincial tax on a percentage of their federal tax payable, a tax on a tax, they will instead pay a single rate of 11% on their taxable income, a tax on income.

This move to flatter taxation is to be applauded and Mr. Day has ensured that the move is beneficial to all income groups. [Part and parcel] with the planned move to the single rate tax is a substantive increase in the provincial basic personal exemption and spousal exemption to $11,620 up from $7,131 and $6,055 respectively. And Mr. Day has pledged to index the exemption to inflation to ensure that the hidden tax increase known as "bracket creep" is vanquished from the Alberta landscape. . . .

Alberta has now ensured that those with incomes under 11,620 pay a rate of 0% and everyone else pays 11% on their income above the basic personal exemption. So the effective provincial rate on someone earning $30,000 is 6.7% and the effective rate on someone at $100,000 is 9.7%.

Tweak the numbers to fit the current American situation, but the basic idea is right on: put all income into one bowl, exempt the first $X per person, and tax all the rest at the same rate. Cut the tax form down to a page, make the tax code transparent, drastically reduce the IRS payroll (and trim a lot of corporate bureaucracies as well) . . . what's not to like?

Oh, yeah, and boost the economy, too.

Balance the budget—make the feds pay their taxes

OK, not quite—but not too far off, either:

We now know that federal employees across the nation owe fully $1 billion in back taxes to the Internal Revenue Service.

As in, 1,000 times one million dollars. All this political jabber about giving middle-class Americans a tax cut. Thousands of feds have been giving themselves one all along—unofficially. And these tax scofflaws include more than three dozen folks who work for the president with that newly decorated Oval Office.

Read the rest of Andrew Malcolm's piece for the gory details. Granted, $1 billion is a small percentage of the deficit we're running these days, but that's still a lot of money—and a lot of hypocrisy.

Looking at this, I can't help thinking that one big place to start reining in spending is the federal payroll. If you were to downsize all non-military federal departments, agencies, etc. (excluding specific cases like the membership of Congress and the Supreme Court) by 10% at every level, then cut salary and benefits of all non-military federal employees who make more than, let's say, 200% of the poverty line by 10%, I wonder how much that would save? (I exclude the military because they've been dealing with cutbacks while the rest of the federal government has not.)

Politicians at their worst

This is unbelievable:

[Thursday] night, as part of a procedural vote on the emergency war supplemental bill, House Democrats attached a document that “deemed as passed” a non-existent $1.12 trillion budget. The execution of the “deeming” document allows Democrats to start spending money for Fiscal Year 2011 without the pesky constraints of a budget.

The procedural vote passed 215-210 with no Republicans voting in favor and 38 Democrats crossing the aisle to vote against deeming the faux budget resolution passed.

Never before—since the creation of the Congressional budget process—has the House failed to pass a budget, failed to propose a budget then deemed the non-existent budget as passed as a means to avoid a direct, recorded vote on a budget, but still allow Congress to spend taxpayer money. . . .

—This is not a budget. The measure fails to meet the most basic, commonly understood objectives of any budget. It does not set congressional priorities; it does not align overall spending, tax, deficit, and debt levels; and it does nothing to address the runaway spending of Federal entitlement programs.

—It is not a ‘congressional budget resolution.’ The measure does not satisfy even the most basic criteria of a budget resolution as set forth in the Congressional Budget Act.

—It creates a deception of spending ‘restraint.’ While claiming restraint in discretionary spending, the resolution increases non-emergency spending by $30 billion over 2010, and includes a number of gimmicks that give a green light to higher spending.

Honestly, this is a firing offense, by any reasonable standard; it is a profound evasion of responsibility on the part of the House, and a willful attempt to deceive the voters of this country, and should be rewarded with electoral defeat. I’m glad no Republicans voted for it, but I have no illusion that that was purely a matter of conservative principles, as opposed to party politics; I praise the 38 Democrats who voted against it, though I’m sure there were some who did so because Speaker Pelosi gave them permission; but any Democrat who voted in favor should be replaced by a politician with more integrity than that, whether Democrat or Republican.

Go to Human Events for more.

A victory for the rising tide

I put up a post a few months ago arguing that the effort by corporations to use copyright law as a club to try to control people's behavior is both philosophically problematic and economically counterproductive; the evidence shows, I believe, that they're better off letting the market work than trying to over-regulate it. As I noted, though, corporations would rather regulate competition out of the way than have to actually compete, and they would rather try to control the market by regulation than have to rely on making a better product or selling it more cheaply. Thus we had, for instance, Viacom suing YouTube to try to force YouTube to remove any videos that might infringe on copyright law; as Farhad Manjoo writes in Slate,

a ruling in Viacom's favor would have much wider repercussions. It would shift the balance of power between Web companies and entertainment companies, requiring sites to essentially ask permission or seek licenses from Hollywood and the music labels before innovating. Some of the world's biggest Internet companies—not just YouTube, but also Facebook, Amazon, Yahoo, eBay, Flickr and others—would never have been able to get off the ground had they been required, as struggling startups, to constantly police their networks for potentially infringing material.

Interestingly, though, Viacom didn't win—not at this stage, anyway; Judge Louis Stanton of the U.S. District Court for the Southern District of New York granted YouTube's motion for summary judgment. Their policy has been to let copyright holders advertise alongside their content, and to take that content down if the copyright holder asks, and the judge decided that's good enough. Viacom appealed, of course, but Judge Stanton has given us an all-too-rare victory for common sense; here's hoping the decision stands.

Economics as a human system

I have thought more than once that someone ought to try to apply systems theory to economics in a systematic way. The application of systems theory to family therapy by Murray Bowen was a huge step forward, as was Edwin Friedman's work in turning Bowen's model more broadly to congregational dynamics and leadership; Rabbi Friedman's book Generation to Generation is one every pastor should read (and periodically re-read). Systems theory helps us to understand that problems don't exist in isolation and can't be addressed as if they did; we all exist within interlocking relational systems, and the problems of any given individual relate to the problems of the systems of which they are a part (and indeed, may have more to do with the health of the system than with that individual).

As a consequence, systems theory teaches us that the brute-force approach to problems, the use of compulsion and coercion, is often not the best approach, because it attacks the symptom without doing anything about the underlying issue—and indeed, will likely make the underlying issue worse. Rather, it's necessary to address problems by changing the system. To do that, you have to identify the ways in which you are supporting the system and enabling its current dysfunction, and then change your own behavior. This changes the incentive structure within the system and shifts the stress of maintaining it off of you and on to the other members; this creates a great deal of pressure on the system which will ultimately, given sufficient time, break it, thus making real progress possible.

The same is true of our economy, which is itself a system—or perhaps one might say, a meta-system, since the "individuals" which interact are corporations, which are their own complex systems—and which is, of course, embedded in the even larger meta-system of the global economy. Problems, whether they be with companies, sectors of the economy, aspects of the economy, or whatever, don't exist in isolation, and can't be addressed as if they did. This means that the brute force approach, the attempt to compel the behavior one desires of a given corporation or industry through legislation and regulation, is at best highly inefficient and at worst actively counterproductive. It's like swatting at a mobile—you put the whole thing in motion, setting it turning in ways you couldn't have predicted, leading to results you didn't anticipate. This is why the Law of Unintended Consequences has such force.

Rather than simply trying to regulate the economy into moral behavior, we need to recognize that it's a complex interlocking system of human relationships, and to try to address corporate and economic issues accordingly. Obviously, this is easier said than done, as the system is far too complex to be fully comprehended by the human mind, but taking this approach at least gets us closer to understanding the real issues. For instance, don't just look at bad behavior—whether of a rebellious teenager or a company that's cooking the books—look at the structure of incentives within the system and see what that behavior is in response to, and what's rewarding it.

This is not a new idea in the world of economic theory; in fact, it's quite important in the work of the Austrian school of thought, of folks like Ludwig von Mises and F. A. Hayek. It's one of the reasons I believe they were closer to right than other economic approaches, because they understood and emphasized that the incentive structure drives economic action—that people will tend to do what they have an incentive to do, and to avoid doing what they have no incentive to do—and that when the incentives are out of whack, it will produce behavior which will be bad for the economy. One example of this is Hayek's Nobel Prize-winning theory of the business cycle, which makes clear that if interest rates are set such as to provide an incentive for highly speculative investments, people will speculate; the result will be an economic bubble which will eventually, inevitably, burst. Just check the housing market.

To try to rationalize the economy, then, to produce steady, sustainable growth, we need to understand (as best as possible) how our laws and regulations and the decisions of government entities like the Federal Reserve and Fannie Mae create incentives for counterproductive behavior; and then we need to work to change those incentives to reward behavior that will produce long-term health rather than short-term big profits. This means not trying to fix the economy by regulating it more—indeed, it might well mean deregulating it to some degree, not because "business can be trusted" (it can't, but neither can government), but because deregulation simplifies the system and makes it easier to see what's actually going on.

Hayek, by the way, though an advocate of the free market, was by no means opposed to regulation; he was enough of a realist about humanity to recognize that there is a proper role for government to play in economic matters. As such, there have been those on the Right who have criticized him for not supporting the free-market system enough. From an Austrian perspective, it seems to me, the key is that the government should only regulate cautiously and with humility, out of the expectation that it knows and understands far less than it thinks it does.

Regulation to prevent clear injustice is necessary, as are efforts to insure the free flow of information, because most people will abuse the system if you give them a clear shot and a big enough reason; but regulation to try to control outcomes is almost certain to backfire. When the government tries to pick winners and losers, you end up with crony capitalism and the disasters we're seeing now. The best we can do is to try to keep the process as fair as possible, so that everybody's playing by the same rules; try to keep the structure of incentives as rational as possible, so that the market isn't tilted either towards excessive risk or excessive caution; and to remember this insight from Hayek's 1988 book The Fatal Conceit: The Errors of Socialism (quoted at the end of the rap video "Fear the Boom and Bust"):

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Incidentally, the odds are pretty good that you've seen that rap video, produced by filmmaker John Papola and economist Russ Roberts (of George Mason University and the blog Café Hayek, which I have in the sidebar), which envisions a rap duel between Hayek and John Maynard Keynes; after all, it's now up to nearly 1.2 million views for one version of it on YouTube alone. If not, though, unless you absolutely can't stand rap—and maybe even then—you really ought to watch it here; it's a great piece of work. Then go read the explication of the video (which I linked above) by one of the posters on Daily Kos (yes, seriously), and Jeffrey Tucker's piece on the website of the Ludwig von Mises Institute. You'll be amazed how much you can learn from a rap video. (For my own part, I'm no more a Keynesian than I ever was, but I definitely have more of an appreciation for his work now than I did.)

The mythical meme of “cutting waste and fraud”

A couple months ago, President Obama gave a speech in St. Charles, MO in which he argued that his health care plan would make Medicare stronger even as it cut the Medicare budget, because “There’s no cutting of Medicare benefits. There’s just cutting out fraud and waste.” As you can probably guess, I’m skeptical about that, but maybe not for the reason you think. I’m not skeptical because it’s him or his party—this is a recurring bipartisan theme. Politico’s Chris Frates put it well when he wrote,

Obama’s efforts follow those of a long line of Republican and Democratic presidents who promised to save taxpayers money by cutting fraud, waste and abuse in the government insurance programs. The sentiment is popular because it has bipartisan support and doesn’t threaten entrenched health industry interests that benefit from the spending.

“Waste, fraud and abuse have been the favorite thing to promise first because it’s a way of promising cost control while not doing any of the painful stuff,” said Len Nichols, a former senior health policy adviser in the Clinton administration. The method is “as old as the Bible,” he said.

“It’s a way of promising cost control while not doing any of the painful stuff”—that’s it right there. It’s how politicians convince us that they’ll be able to cut government spending (which we want) without cutting any of our programs (which we don’t want). After all, politicians who cut our programs—even if we elected them to cut spending, even if we know government desperately needs to cut spending—tend to become unpopular as a result, at least in the short term . . . and we know there’s nothing politicians hate worse than being unpopular.

The problem is, the idea that we can solve our budget problems (or even make a major dent in them) is a myth—a fairy tale—a chimera. It’s never happened yet, and it isn’t going to, either. That’s not to say, certainly, that we shouldn’t do everything we can to reduce waste and fraud, but we need to do so realizing that we’re fighting, at best, a holding action; we’re never going to achieve victory, and we’re never going to gain enough ground to make a significant improvement in the budget. In truth, just keeping waste and fraud from growing is an accomplishment.

That might seem cynical, but I think it’s just realistic. Waste is an inevitable part of any human activity, as we should all know from daily life. There’s always peanut butter left in the jar when it’s “empty”; there’s always shampoo left in the bottle when we can’t get any more out; there’s always some of the fruit that falls off before it’s ripe. We can and should work to reduce waste—say, the amount of energy given off by our light bulbs as heat rather than light—but we’ll never eliminate it. We’re simply too limited to ever achieve 100% efficiency.

Within large organizations, there’s an additional problem that reinforces and aggravates this reality: cutting waste isn’t to everybody’s benefit. The bureaucracy has its inevitable turf wars, which waste money, and its (often competing) agendas. What’s more, the people who control the money as it trickles down through the system have the same self-protective instinct as anyone; those who benefit from waste want to see it perpetuated, and this waste has a constituency. The people who profit by waste are there, they are connected, they have clout; those who would profit if waste were removed are abstract, theoretical, not present, not connected, and can’t prove their case, since it’s a might-have-been. Anywhere except Chicago, a voter who shows up and argues will beat a voter who isn’t there any day.

As for fraud, any time there’s a lot of money moving around, there will be those unscrupulous and clever enough to siphon some of it off. Whatever ideas you come up with to stop them, or failing that to catch them, will have only limited success; as in warfare, so in this area, the advantage is constantly shifting between offense and defense—the defense may pull ahead for a while, but the offense will always adapt and regain the advantage. What’s more, when it comes to preventing fraud, the defensive position is intrinsically harder, because the fraudster only has to find one loophole in order to succeed, while those on the other side have to keep every last loophole closed, even the ones they don’t know are there. In the end, we can only say of the fraud artist what Dan Patrick used to say of Michael Jordan: “You can’t stop him—you can only hope to contain him.”

All of which is to say, the commitment to fight waste and fraud in government is laudable, and we should certainly do everything we can to encourage our politicians in that direction—but any politician who tells you they can solve our budget problems by eliminating waste and fraud is selling you a bill of goods. The only way to significantly reduce waste and fraud is to significantly reduce the spending that produces and attracts them; if you want to cut waste and fraud, you have to cut government.

The US economy is a headless chicken

Just because it's showing signs of life doesn't mean it's getting better. For those who think otherwise, here are some questions to consider. (And yes, as someone has already demonstrated, there are ways to try to explain away each question; but as any baseball fan knows, if there are a lot of "ifs" and they all have to have the "right" answer for things to go well, things probably aren't going to go well.)

Copyright, corporate shortsightedness, and the free market

I have to admit, I’d never heard of the group OK Go until a month or two ago when my brother-in-law played me the video for their song “This Too Shall Pass,” from the album Of the Blue Colour of the Sky. I enjoyed it, but the group didn’t really stick in my consciousness until they released a second video for the same song, featuring a most remarkable Rube Goldberg machine:

At first, the most interesting question to me was, did they really shoot that in a single take? (Answer: yes, but it took them over sixty tries.) With that answered, I discovered that in truth, the most interesting question is this: why did they make a second video to the song when the first one (featuring the Notre Dame marching band) was perfectly fine? As Dylan Tweney wrote on the Wired website,

OK Go developed a reputation for making catchy, viral videos four years ago with the homemade video for “Here It Goes Again,” which features the band members dancing around on treadmills. The company ran afoul of music label EMI’s restrictive licensing rules, which required YouTube to disable embedding, cutting views to 1/10 of their previous level. Now, the new video is up—and it’s embeddable, so the band seems to have won this round with its label—and is already generating buzz on YouTube and on Twitter.

Actually, it’s not so much that OK Go won the round as it is that they cut ties with their label and went independent. As one commenter on another OK Go video (“We’re Sorry YouTube”) put it,

OK Go got into a huge fight with EMI and Capitol over how their viral videos were distributed. They wanted You Tube viewers to be able to watch the videos without worries about the labels coming down on people who posted. In the end, they ended up leaving EMI and Capitol and forming their own label. In fact, they were so mad that's why they created a second video for “This Too Shall Pass” with the Rube Goldberg machinery. This video is just their humorous way of dealing.

In the cheap political calculus that floats around, it’s usually assumed that because conservatives support big business, big business is politically conservative—which in economic terms means in favor of deregulation and the free market. In truth, though, this is a long way off the mark; big business is very much in favor of regulation, because regulation is the simplest way of squashing competition. It’s certainly easier than actually having to outcompete people. Thus the approach of big companies like EMI to something like YouTube is generally to try to regulate it by one means or another so as to maintain as much control as possible over how their material is used; they want to ensure that nothing happens that they don’t approve, and that they don’t miss any opportunity to make money.

Now, I don’t want to minimize the importance of intellectual property and intellectual property rights; it’s morally wrong when people who create things don’t profit from their creations as they should, and I’ll even grant that the companies which connect musicians and authors and other creative types to those who want to buy their creations should also make an appropriate profit for their work. But the approach EMI took here is extremely short-sighted, because it treats the economic process as a zero-sum game; thus it assumes that if someone is able to, say, watch an OK Go video someplace other than on YouTube (i.e., someplace that doesn’t have an ad for EMI up right next to the video), that represents a lost profit opportunity which can never be recovered. That simply isn’t true.

Rather, what OK Go understands and EMI (like many other corporations) doesn’t is that giving things away can often be the best way to make money. The best illustration of this I know of is the success of the Baen Free Library at Baen Books. Baen, founded by the late Jim Baen, isn’t a huge publishing company by any means, but it’s a significant one in the world of science fiction; and spurred on by Eric Flint, one of their authors, they opted years ago to start making a significant number of their titles available free online. As Flint explained at the time,

Losses any author suffers from piracy are almost certainly offset by the additional publicity which, in practice, any kind of free copies of a book usually engender. Whatever the moral difference, which certainly exists, the practical effect of online piracy is no different from that of any existing method by which readers may obtain books for free or at reduced cost: public libraries, friends borrowing and loaning each other books, used book stores, promotional copies, etc. . . .

Any cure which relies on tighter regulation of the market—especially the kind of extreme measures being advocated by some people—is far worse than the disease. As a widespread phenomenon rather than a nuisance, piracy occurs when artificial restrictions in the market jack up prices beyond what people think are reasonable. The “regulation-enforcement-more regulation” strategy is a bottomless pit which continually recreates (on a larger scale) the problem it supposedly solves. And that commercial effect is often compounded by the more general damage done to social and political freedom. . . .

We expect this Baen Free Library to make us money by selling books.

How? As I said above, for the same reason that any kind of book distribution which provides free copies to people has always, throughout the history of publishing, eventually rebounded to the benefit of the author. . . .

I don’t know any author, other than a few who are—to speak bluntly—cretins, who hears about people lending his or her books to their friends, or checking them out of a library, with anything other than pleasure. Because they understand full well that, in the long run, what maintains and (especially) expands a writer’s audience base is that mysterious magic we call: word of mouth.

Word of mouth, unlike paid advertising, comes free to the author—and it’s ten times more effective than any kind of paid advertising, because it’s the one form of promotion which people usually trust.

That being so, an author can hardly complain—since the author paid nothing for it either. And it is that word of mouth, percolating through the reading public down a million little channels, which is what really puts the food on an author’s table. Don’t let anyone ever tell you otherwise. . . .

The only time that mass scale petty thievery becomes a problem is when the perception spreads, among broad layers of the population, that a given product is priced artificially high due to monopolistic practices and/or draconian legislation designed to protect those practices. But so long as the “gap” between the price of a legal product and a stolen one remains both small and, in the eyes of most people, a legitimate cost rather than gouging, 99% of them will prefer the legal product.

Of course, some might be skeptical: is it really working? Well, about a year and a half after Flint launched the Library, he wrote an extended piece showing that the Library had actually boosted sales of the books Baen gave away—by quite a significant amount, actually.

The Library's track record shows clearly that the traditional “encryption/enforcement policy” which has been followed thus far by most of the publishing industry is just plain stupid, as well as unconscionable from the viewpoint of infringing on personal liberties. . . .

Making one or a few titles of an author's writings available for free electronically in the Free Library seems to have no other impact, certainly over time, than to increase that author's general audience recognition-and thereby, indirectly if not directly, the sales of his or her books.

I believe it also—I leave it up to each individual to weigh this out for themselves—places such authors on what you might call the side of the angels in this dispute. For me, at least, this side of the matter is even more important than the practical side. It grates me to see the way powerful corporate interests have been steadily twisting the copyright laws and encroaching on personal liberties in order to shore up their profit margins-all the more so when their profit problems are a result of their own stupidity and short-sighted greed in the first place.

I will leave you all with one final anecdote. Napster, of course, is held up as the ultimate “villain” with regard to the so-called problem of online piracy. The letters I received as Librarian were addressed to the issue of books, not music. Yet I was struck by how often—perhaps in a hundred letters—the writers would mention their own experience with Napster. And, in every instance, stated that their purchases of CDs increased as a result of Napster—for the good and simple reason that because Napster enabled them to sample musicians, they bought music they would not otherwise have been tempted to buy because CDs are too expensive to experiment with.

Not enough? Well, check out what Janis Ian had to say. Or consider a personal anecdote: a few days ago, Ray Ortlund put up a blog post with a video of Quicksilver Messenger Service’s song “Pride of Man.” An embedded video, note. I’d never heard of the group before, and neither had Sara; we now own a copy of their “Best of” album, and I think there’s pretty good odds we’ll buy more before all is said and done. If the record labels had their way (or if, at any rate, they all operated like EMI), that sale would never have happened.

Yes, copyright is important. Yes, intellectual property is important. The laborer is worthy of his hire, after all. But using copyright as a club, seeking ever greater regulation of people’s behavior out of fear of what they might do, isn’t just philosophically problematic—it’s unprofitable, because it has a dampening effect and a chilling effect on the very market on which companies depend. A receding tide lowers all boats, but a rising tide lifts them. Just ask Eric Flint.

The most critical health care reform

even ahead of tort reform, I think, is the simplest: cost transparency. As Barbara Kiviat writes,

A big part of the reason consumer goods are so cheap in the U.S. is because people always know what they're paying. As a consequence, consumers can push prices lower by voting with their feet. If CVS tries to sell me a toothbrush for $4 when the one at Rite Aid goes for $3, I will shop at Rite Aid and CVS will learn its lesson. This dynamic almost entirely accounts for the success of Wal-Mart. Yes, Wal-Mart has more efficient (and therefore cheaper) distribution than almost any other company on Earth, but the whole reason Wal-Mart is going for cheap in the first place is because there are hundreds of millions of Americans who demand it—a demand that is listened to because people are able to make well-informed decisions about when to walk away.

Lately I've been wondering if we might not be wise to unleash such price-crazed consumerism on the field of health care. The great health care debate has two prongs. I don't know the best way to expand coverage to the uninsured. But I do have an idea about how to drive down the eye-popping cost of medical treatment: price tags. . . .

I have long been fairly quiet about health-care policy because I feel I don't know enough about the intricacies of the debate. But one thing I do know about is the price-setting power of the enlightened consumer. I know about the effects of price transparency, and I know about what happens when you give Americans the tools to hunt for deals and value. Think about Wal-Mart. Think about going on Expedia to comparison shop airline tickets. Think about the first question you ask when you are considering buying a particular house.

Now think about health care.

Read the whole thing—it's great.

He bowed to the Sa'udis, he bowed to the Emperor, now he bows to Wall Street

A little over a month ago, the President stood beside Paul Volcker and announced his intention to prevent banks whose deposits are insured by the federal government from engaging in proprietary training. It wasn't a popular move with Wall Street, and it was certainly a move that would have had downsides, but I believed (and still believe) it was a necessary one, for reasons that were laid out well by Jim Manzi of National Review:

The reason that it is dysfunctional to have an insured banking system that is free to engage in speculative investing is simple and fundamental. We (i.e., the government, which is to say, ultimately, the taxpayers) provide a guarantee to depositors that when they put their savings in a regulated bank, then the money will be there even if the bank fails, because we believe that the chaos and uncertainty of a banking system operating without this guarantee is too unstable to maintain political viability. But if you let the operators of these banks take the deposits and, in effect, put them on a long-shot bet at the horse track, and then pay themselves a billion dollars in bonuses if the horse comes in, but turn to taxpayers to pay off depositors if the horse doesn’t, guess what is going to happen? Exactly what we saw in 2008 happens. . . .

Make no mistake, many banking executives right now are benefiting from taxpayer subsidies. Even if they pay back the TARP money, the government has demonstrated that it will intervene to protect large banks. This can’t be paid back. And this implicit, but very real, guarantee represents an enormous transfer of economic value from taxpayers to any bank executives and investors who are willing to take advantage of it. Unsurprisingly, pretty much all of them are.

I gave the President a lot of credit last month for taking this step. As it turns out, that was premature of me, because he's now caved to Wall Street, double-crossed Volcker, and abandoned the plan in favor of one amenable to J. P. Morgan and Government Sachs (Goldman Sachs was the second-largest donor to the Obama campaign, and J. P. Morgan CEO Jamie Dimon is a particularly powerful and important Obama backer). I suppose his decision two weeks ago to publicly endorse the multi-million-dollar bonuses given to Dimon and Goldman Sachs CEO Lloyd Blankfein should have been a tipoff that President Obama wasn't going to have the spine to stand up to them and put the Volcker Rule through; after all, crony capitalists never bring the hammer down on their cronies, only on businesses that don't support them.

As such, the President's bold announcement last month now joins his promise that "if you like your current health insurance, you can keep it" and his pledge not to raise taxes on households making less than $250,000 a year in the dustbin of political expediency. Lesson once again: don't take this president's word on it until it actually happens.

Barack Obama, crony capitalist

Score one for Bill Kristol:

Paul Krugman is, I think, right to be amazed by Obama's embrace of the $17 million bonus given to JPMorgan Chase Chief Executive Officer Jamie Dimon and the $9 million issued to Goldman Sachs CEO Lloyd Blankfein.

If Obama's idea of moving to the middle politically is to embrace Wall Street's too-big-to-fail banks, he's crazy. Usually Republicans are the party of Big Business and Democrats of Big Government, and the public's hostility to both more or less evens the politics out. But if Obama now becomes the spokesman for Big Government intrusiveness and the apologist for Big Business irresponsibility all at once—good luck with that.

Besides the political snark, though, Kristol has an important substantive point to make as well:

Doesn't Obama realize how creepy this statement is? "I know both those guys; they are very savvy businessmen."

This confirms the suspicion that we now live in a world of crony capitalism, where if Obama knows and thinks well of you, then you don't get criticized—but if you're some guy who hasn't spent a lot of time cozying up to government leaders, then you could easily be the object of demagogic assault by politicians.

I know many folks think conservatives are pro-Big Business without any reservation, qualification, or exception, but that's not really true; conservatism, properly speaking, is decidedly anti-crony capitalism. In fact, one of the first signs that conservatives in government are ceasing to be true conservatives in favor of becoming creatures of the Beltway is usually that they begin to favor these sorts of deals; that is, or should be, one of the warning signs for conservative voters.

One other point to note, one which Bill Kristol (being an early supporter of Sarah Palin) undoubtedly knows, is that crony capitalism has been pretty much the normal order of business in Alaska for a long time; whether the people in office were Republicans or Democrats, state policy was effectively set by a bipartisan alliance of senior elected officials and the big oil companies. Or perhaps I should say, that had been the normal order of business, until Sarah Palin was elected governor and began throwing the bums out; and what she began, her successor, Sean Parnell, has so far continued. Taking fresh air, sunlight, and a new broom to crony capitalism has been a big part of her political career so far—and it looks like that's really what we need in DC now, too. Sounds like a ready-made opportunity for a campaign.

A good call from the President

I'd meant to post on this yesterday, but didn't get the chance. The devil is in the details, as always, but the core idea here is right and important:

With former Federal Reserve Chairman Paul Volcker at his side, Mr. Obama said he wanted to toughen existing limits on the size of financial firms and force them to choose between the protection of the government's safety net and the often-lucrative business of trading for their own accounts or owning hedge funds or private-equity funds. . . .

"The key issue is that institutions that are getting a backstop from the taxpayer shouldn't be able to make a profit off their own investing," said Austan Goolsbee, a White House economist who staffs the presidential advisory board Mr. Volcker chairs. . . .

Under the Obama proposal, banks that take federally insured deposits or have the right to borrow from the Fed would be prohibited from owning, investing in or sponsoring hedge funds or private-equity firms. "You can choose to engage in proprietary trading, or you can own a bank, but you can't do both," an administration official said.

The reason for taking this step was articulated well by National Review's Jim Manzi:

Finance professionals, like members of all occupational categories, attempt to build barriers that maintain their own income. One of the techniques used is to shroud what are often pretty basic ideas in pseudo-technical jargon. The reason that it is dysfunctional to have an insured banking system that is free to engage in speculative investing is simple and fundamental. We (i.e., the government, which is to say, ultimately, the taxpayers) provide a guarantee to depositors that when they put their savings in a regulated bank, then the money will be there even if the bank fails, because we believe that the chaos and uncertainty of a banking system operating without this guarantee is too unstable to maintain political viability. But if you let the operators of these banks take the deposits and, in effect, put them on a long-shot bet at the horse track, and then pay themselves a billion dollars in bonuses if the horse comes in, but turn to taxpayers to pay off depositors if the horse doesn’t, guess what is going to happen? Exactly what we saw in 2008 happens.

If you want to have a safe, secure banking system for small depositors, but don’t want to make risky investing illegal (which would be very damaging to the economy), the obvious solution is to not allow any one company to both take guaranteed deposits and also make speculative investments. This was the solution developed and implemented in the New Deal. We need a modernized version of this basic construct, and as far as I can see, this is what President Obama has proposed. . . .

Make no mistake, many banking executives right now are benefiting from taxpayer subsidies. Even if they pay back the TARP money, the government has demonstrated that it will intervene to protect large banks. This can’t be paid back. And this implicit, but very real, guarantee represents an enormous transfer of economic value from taxpayers to any bank executives and investors who are willing to take advantage of it. Unsurprisingly, pretty much all of them are.

Now, as Megan McArdle points out, there's a lot that we don't know that will bear very heavily on whether this policy ultimately benefits our country—and even assuming it's the right thing to do, there will be distinct and significant downsides to it. Nevertheless, the government has to reduce its exposure somehow, and this seems to be the most reasonable way to do it.

The government is recognizing that banks "paying back" the funds they were given is essentially meaningless, because they've still got a very, very valuable implied government guarantee. One could argue that they've had it since 1991 when the Federal Reserve got the power to loan money to investment banks in extremis. But since last fall, it's the next best thing to explicit. That means the government needs to take steps to mitigate its own risk.

The way you do that is to decouple the key operation the government insures—the funneling of credit from those with money to those who want to borrow it—from making bets on market outcomes that can go badly wrong. And to ensure that no institution has enough liabilities to take down the system if it fails.

It may not work, as she acknowledges, and it won't be without significant cost; but we can't unring the bailout bell, so what else are we going to do?

The unemployment statistics are worse than they look

The New York Times ran an article last Friday proclaiming good news:

In the best report since the recession began two years ago, only 11,000 jobs disappeared last month, the government said on Friday, and the unemployment rate actually dipped, to 10 percent, from 10.2 percent the previous month.

Leaving aside the question of when the recession actually began, this doesn’t actually support the piece’s positive-thinking opening paragraph:

The nation’s employers not only have stopped eliminating large numbers of jobs, but appear to be on the verge of rebuilding the American work force, devastated by the recession.

"The rate of job destruction slowed" does not equal "the jobs are all about to come back," even on its face. And here’s the kicker: what the numbers seem to say on their face isn’t what they actually say when you look at them closely. Rather, thanks to Simpson’s Paradox, the nature of aggregate statistics means that the overall unemployment rate makes things look better than they are. The Wall Street Journal explains:

Is the current economic slump worse than the recession of the early 1980s?

Measured by unemployment, the answer appears to be no, or at least not yet. The jobless rate was 10.2% in October, compared with a peak of 10.8% in November and December of 1982.

But viewed another way, the current recession looks worse, not better. The unemployment rate among college graduates is higher than during the 1980s recession. Ditto for workers with some college, high-school graduates and high-school dropouts.

So how can the overall unemployment rate be lower today but higher among each group? The anomaly is an example of Simpson’s Paradox—a common but misleading statistical phenomenon rooted in the differing sizes of subgroups. Put simply, Simpson’s Paradox reveals that aggregated data can appear to reverse important trends in the numbers being combined.

The jobless rates for each educational subgroup are higher today, but the overall rate is lower because workers are more educated. There are more college graduates, who have the lowest unemployment rate. And there are fewer high-school dropouts, who have the highest unemployment rate.

"It’s the magic of weighted averages," says Princeton University economics professor Henry Farber. "We have more skilled workers than we had before, and more-skilled workers are less susceptible to unemployment." Still, he adds, compared with a similarly educated worker in 1983, "the worker today has higher unemployment at every education level."

In other words, regardless of the overall statistic, whoever you are, your chances of being unemployed now are greater, the unemployment rate is higher for people like you, now than in the depths of the recession of 1982-83. Which suggests that before you buy into the NYT’s optimism, you might want to look into the underlying numbers and see if they bear that optimism out.

The countercultural gospel of rest

Unless the Lord builds the house,
those who build it labor in vain.
Unless the Lord watches over the city,
the watchman stays awake in vain.
It is in vain that you get up early
and go to bed late,
eating the bread of anxious toil;
for he gives sleep to those he loves.

—Psalm 127:1-2

One of the more memorable nights of my oldest daughter’s life (for me, at least) came when she was maybe a month or two old. It was right around 11 o’clock at night, and she needed her diaper changed—and when Sara got her cleaned up, we discovered that we were out of diapers. Now, we were in Surrey at the time—it’s one of the suburbs on the southern edge of the metro Vancouver area—and our local Safeway closed at 11 pm; the convenience stores were still open, but for some obscure reason they only sold size 3 diapers, which were way too big for her. Obviously, one of us needed to go out and try to find someplace that was still open that sold diapers in her size. I trust you don’t need me to tell you which one of us that was.

I spent a while hitting various big stores around southwestern Surrey, only to find that all had closed for the night; I could have headed north into the metro area, but I knew my odds wouldn’t be good, because Vancouver as a city doesn’t tend to stay open very late. So I headed south towards the border, for my home state of Washington, where even towns the size of Lynden, with 7,000 people, have grocery stores open 24/7. I drove down to Ferndale, north of Bellingham, walked into Haggen Foods, bought diapers, and drove home. If memory serves, I got back around 1 in the morning.

As I was driving around on my wild-goose chase—or should I call it a wild-diaper chase?—I was muttering imprecations under my breath about what kind of big city rolls up the sidewalks at 11 pm and what kind of country is this anyway? and other things of that sort. After all, I went to college in a town of around 50,000 people, and we had Meijer open ’round the clock—if you know the Midwest know Meijer, which has been out-Wal-Mart-ing Wal-Mart for a long time; for those of you who don’t, combine Wal-Mart and your typical big chain supermarket, then drop the prices—so why, if I was living in a metropolitan area of three million people, was I having to drive across the border to pick up a lousy package of diapers?

Now, you might be thinking that the fault was really ours, for not having another package of diapers on hand, and you’d certainly be right about that; as the saying goes, poor planning on our part didn’t constitute an emergency on anyone else’s. I felt pretty sheepish about that, which is one reason I was so irritated. In retrospect, though, I’m more interested in the expectations I had then, because I didn’t grow up with them. My hometown growing up wasn’t tiny, wasn’t an especially big town either; I was in high school when K-Mart came to town, and that was a big deal—and even then, while they were open later, they still closed at 9 pm. So I grew up with the idea that everything closes at night; the first time I ever heard the phrase “24/7” was in college. We just didn’t have that sort of economy.

In college, though, I discovered that I’m a night owl—and I discovered a world in which there are places open at 2 am where you can go to get food, or anything else; and I got used to that. I became accustomed to the idea (though I never would have put it this way) that there were people out there whose job was to stay up all night just in case I happened to want something. And I became an enabler, in a small way, of an economy in which people wind up doing just that: working at night, while the rest of the world sleeps, and sleeping during the day, while it works and plays, in order to make a living.

Now, it wasn’t news to me that some people work at night; my mother’s a nurse, and during our time in Texas she worked the night shift at the county hospital for a while. There are certainly some places—like hospitals—that really do need to stay open all night; if an appendix bursts or a baby needs to be born, you can’t very well say, “Hold that thought, and we’ll be with you at 9 am sharp.” But the idea that people need to stay up all night just so careless folk like me who don’t keep track of their supplies can buy a package of diapers at midnight—is that really reasonable?

From a human perspective, I don’t think it is; but from an economic perspective, if there are enough customers to keep the store profitable, the answer is “yes.” As a result, we’re increasingly moving to a 24/7 economy, one in which the rhythms of life as our ancestors knew it—work when it’s light, sleep when it’s dark, a day of rest each week, and so on—are being obliterated by the demands of making money; the net effect is that businesses stay open longer and longer hours just to keep up, and their workers perforce must do the same. It’s a treadmill, nothing more, and for many people, it defines their lives; after all, you have to do whatever it takes to make a living.

That leaves us with a lot of people who are, in effect, slaves to their work—their work runs their lives and determines their schedule. For many, it’s simply the need to make ends meet; we see a lot of that up here, where living is expensive and a lot of jobs don’t pay all that well, and so finding enough money to keep a roof over one’s head and food on the table becomes an overriding priority. Others have enough, but they want more than that—they want to keep up with the proverbial Joneses, and so they want the money to afford the kind of house, car, clothes, and lifestyle that Mr. and Mrs. Jones have. Then, of course, there are people who want to be important, for one reason or another; for them, it’s not so much the money that matters as the status, and perhaps the power and influence.

There are also people like a couple of friends of ours back in Washington, both engineers, who worked insanely hard; even after their first child was born, he was still regularly working 70- and 80-hour weeks. At one point, they were working different shifts and basically never saw each other awake, though I don’t remember how long that lasted. He would work those long weeks, then spend much of his weekend frantically enjoying himself on his mountain bike or snowmobile, depending on the season—he never skipped church, but church was about the only other thing he did, many weekends—and then it was back to work on Monday to do it all over again. He’s a devoted Christian, but that didn’t affect his view of work. Work was something you had to do in order to pay for the things you wanted to do, and so he got into that cycle of working long hours to afford a few hours of hard play to enable him to survive the long hours he was working to afford it.

Now, whatever the precise reward people have in mind, the bottom-line view in all these cases is the same, the one my friend articulated: work is something you have to do in order to get what you want, and however much it takes, that’s what you have to do. It’s up to us to make everything happen, to earn the blessings we want; it’s up to us to work hard enough and long enough and well enough to be a success, whatever we might define success to be. That’s the conventional wisdom.

God’s wisdom, though, is another matter. The key to life, the psalmist tells us, isn’t how hard we work or what long hours we put in; all those short nights and long, anxious days, trying to keep up with the treadmill, are in vain, because we can’t make success happen on our own. We can’t build a good family, a good life, on our own; we can’t build a good nation, or keep it safe, on our own. Unless the Lord builds the house, unless the Lord guards the city—unless he builds our family, unless he builds our church—all our work is in vain. Ultimately, he’s the one who determines success, not us.

Of course, this doesn’t mean that we’re free not to work, which is how some have tried to take this psalm. Paul dealt with folks who took that position in his second letter to the church at Thessalonica; his response to them was, “Such persons we command and exhort in the Lord Jesus Christ to do their work quietly and earn their own living.” A couple verses before that, he laid down the law quite firmly: “Anyone unwilling to work should not eat.” We all have our work to do, and the responsibility to support ourselves if we’re able to do so; the Scriptures are perfectly clear on that.

The point of this psalm, then, is not about whether we work, but how, and how we regard our work. Even as Christians, we tend to work as if we believe that our success depends on us and our effort and the time we put in, and that if we fail, it’s because we didn’t work hard enough or do our work well enough. In our work, we carry the weight of our lives on our shoulders—and we shouldn’t do that. That approach to our work creates anxiety and deprives us of rest; it also breeds pride, if we do well, or despair, if we don’t; and it makes work, rather than God, the true lord of our lives, setting our priorities and controlling our time. As such, if we take this approach to our work, if we view our work from the world’s perspective, it isolates us from God and cuts us off from his blessings, leaving us to carry our burdens alone.

By contrast, the psalmist says, if you aren’t doing the Lord’s work, it’s pointless, and if you are, you don’t need to work so hard; either way, there’s nothing to be said for letting work rule your life. Now, a lot of folks would disagree, and there’s certainly no denying that a lot of people who work hard for long hours are great successes by the world’s standards; but besides all the stuff, what do they have, really? They can’t have any assurance that their success will continue—especially in this economy, where so many former successes have cratered—so how can they have any peace? And are they as rich in relationships and integrity as they are in money? From the psalmist’s point of view, financial wealth without the rest is a bad bargain; and this psalm was written by King Solomon, who certainly knew whereof he spoke.

Those who build the house themselves, those who guard their little empires alone, must stay up late and rise early, for they can never relax their vigilance or let their effort slack; but those who trust in the Lord are free to sleep, for he gives sleep to those he loves. He may not give great financial success, but he gives enough; and along with it he gives peace, and rest, and assurance. The lives of those who pour themselves into their work are unbalanced, as the goods that work produces are overemphasized while others are neglected; in contrast, God offers us a balanced life, a life with time for both work and family, both work and rest.

The best example of this is the Sabbath, the weekly day of rest, which was set aside in part for reasons of economic justice. Within the economy of Israel, the Sabbath—the Hebrew word is shabbat, which means “rest”—served (when honored) to ensure that masters didn’t work their laborers seven days a week, 354 days a year, but that they got the time off they needed. As the website Judaism 101 puts it in its entry on Shabbat,

In modern America, we take the five-day work-week so much for granted that we forget what a radical concept a day of rest was in ancient times. The weekly day of rest has no parallel in any other ancient civilization. In ancient times, leisure was for the wealthy and the ruling classes only, never for the serving or laboring classes. In addition, the very idea of rest each week was unimaginable.

It was unimaginable to the rest of the world because the rest of the world was ruled by money and its demands, which tends to be the world’s default position, but God knew what he was doing when he wrote that into his law; he knew we need a day set aside to rest and recharge our bodies, by not working, and our souls, by coming together as his people to pray and worship him. He knew that we need that to keep our lives balanced, and keep everything in its proper perspective. And of course, while we’re called to be in prayer all the time and to worship God with every part of our lives, with all he’s done for us, he deserves to have us gather once a week to worship him together.

From the world’s perspective, it makes no sense—if you want to make a living, if you want to keep up with the Joneses, if you want to have the money to live the life you want to live, if you want to be prepared when things go sour, you can’t afford to take days off!—but from the Christian perspective, it makes perfect sense, because we know what the world doesn’t: that God is in control, and that ultimately only his work, done his way, in accordance with his will, meets with final success; and that while the world goes on working 24/7, scrambling to stay one step ahead of the game, those who serve him can step back, confident in his care, take some time off, and rest, for he gives sleep to those he loves.

The prosperity gospel and the bursting of the American bubble

The latest issue of The Atlantic has a big cover picture of a cross against a blue sky with a “Foreclosure” sign on it, and the lurid main headline, “Did Christianity Cause the Crash?” As is so often the case, the article in no way justifies the headline; it does, however, make a compelling case that a particularly pernicious American heresy, the so-called “prosperity gospel,” may have been a significant contributing factor.

Many explanations have been offered for the housing bubble and subsequent crash: interest rates were too low; regulation failed; rising real-estate prices induced a sort of temporary insanity in America’s middle class. But there is one explanation that speaks to a lasting and fundamental shift in American culture—a shift in the American conception of divine Providence and its relationship to wealth.

In his book Something for Nothing, Jackson Lears describes two starkly different manifestations of the American dream, each intertwined with religious faith. The traditional Protestant hero is a self-made man. He is disciplined and hardworking, and believes that his “success comes through careful cultivation of (implicitly Protestant) virtues in cooperation with a Providential plan.” The hero of the second American narrative is a kind of gambling man—a “speculative confidence man,” Lears calls him, who prefers “risky ventures in real estate,” and a more “fluid, mobile democracy.” The self-made man imagines a coherent universe where earthly rewards match merits. The confidence man lives in a culture of chance, with “grace as a kind of spiritual luck, a free gift from God.” The Gilded Age launched the myth of the self-made man, as the Rockefellers and other powerful men in the pews connected their wealth to their own virtue. In these boom-and-crash years, the more reckless alter ego dominates. In his book, Lears quotes a reverend named Jeffrey Black, who sounds remarkably like Garay: “The whole hope of a human being is that somehow, in spite of the things I’ve done wrong, there will be an episode when grace and fate shower down on me and an unearned blessing will come to me—that I’ll be the one.”

THEOLOGICALLY, THE PROSPERITY GOSPEL has always infuriated many mainstream evangelical pastors. Rick Warren, whose book The Purpose Driven Life outsold Osteen’s, told Time, “This idea that God wants everybody to be wealthy? There is a word for that: baloney. It’s creating a false idol. You don’t measure your self-worth by your net worth. I can show you millions of faithful followers of Christ who live in poverty. Why isn’t everyone in the church a millionaire?” In 2005, a group of African American pastors met to denounce prosperity megapreachers for promoting a Jesus who is more like a “cosmic bellhop,” as one pastor put it, than the engaged Jesus of the civil-rights era who looked after the poor.

More recently, critics have begun to argue that the prosperity gospel, echoed in churches across the country, might have played a part in the economic collapse. In 2008, in the online magazine Religion Dispatches, Jonathan Walton, a professor of religious studies at the University of California at Riverside, warned:

Narratives of how “God blessed me with my first house despite my credit” were common . . . Sermons declaring “It’s your season of overflow” supplanted messages of economic sobriety and disinterested sacrifice. Yet as folks were testifying about “what God can do,” little attention was paid to a predatory subprime-mortgage industry, relaxed credit standards, or the dangers of using one’s home equity as an ATM.

In June, the Supreme Court ruled that state attorneys general had the authority to sue national banks for predatory lending. Even before that ruling, at least 17 lawsuits accusing various banks of treating racial minorities unfairly were already under way. . . . One theme emerging in these suits is how banks teamed up with pastors to win over new customers for subprime loans.

The emphasis there is mine, of course. Read the whole thing; it makes me think that part of the crash this country suffered may well be God’s judgment on the idolatry of his people.

Politics and fuzzy math, cont.

When Sen. Obama, on the campaign trail, made his gaffe about having been in 57 states (and having two to go), I think most of us figured it was just the sort of thing that happens when someone's brain is wearing down from too much stress and too much travel. Given the fuzzy math skills his administration is showing in trying to track the stimulus, though, I'm not so sure; there seems to be a pattern here:

Here's a stimulus success story: In Arizona's 9th Congressional District, 30 jobs have been saved or created with just $761,420 in federal stimulus spending. At least that's what the website set up by the Obama Administration to track the $787 billion stimulus says.

There's one problem, though: There is no 9th Congressional District in Arizona; the state has only eight Congressional Districts.

There's no 86th Congressional District in Arizona either, but the government's Recovery.gov Web site says $34 million in stimulus money has been spent there.

In fact, Recovery.gov lists hundreds of millions spent and hundreds of jobs created in Congressional districts that don't exist.

I appreciate the willingness of ABC, home of Jake Tapper, to report this. Read the whole thing—it's beyond belief.

Cap-and-tax under fire—from the left

We have a center-left grassroots political action organization here in Indiana, focused on state environmental and energy issues, that comes around once a year wanting petition signatures on whatever their latest issue is—so far, it’s always been something beating up on the energy companies and always something to do with coal-fired plants. I was amused to note that this year, they have two big pushes: one against the local utility, and one against the American Clean Energy and Security Act, better known as Waxman-Markey or the cap-and-trade bill. I wouldn’t have expected that second one, but here was this self-labeled hippie solemnly explaining to me that Waxman-Markey is a bad bill because it’s nothing more than a massive bailout for the coal industry; the way he talked about it, you would have expected to find it was a Republican idea.

The sheet he handed me described the bill thusly:

While Americans have been clamoring for a national energy policy that helps their pocketbooks and the environment, Congress has caved to special interests and drafted a bill that is nothing more than a massive giveaway to the utility industry. ACES . . . was railroaded through the U. S. House (by a vote of 219-212) without proper public input. Now in the U. S. Senate, the bill is subject to even more manipulation from coal and utility lobbying.

The claim is that ACES, drafted in large part by Duke Energy, will protect ratepayers, reduce carbon emissions, and help solve global warming. But it is an attempt to maintain business as usual in the electric utility industry.

The reason for ACES is that in the past 2 to 3 years numerous coal plants have been cancelled because lenders would not assume the risk of financing overly expensive and polluting coal-fire power plants that take years to build. . . .

Coal plants are already financially unviable. Now utility companies need ACES to keep their coal plants running and have an excuse to build more.

Not “a” reason, mind you—“the” reason. The folks who put this together seem completely convinced that there is no environmental motivation behind the cap-and-tax bill at all, only the desire to do favors for coal and energy producers. I don’t have a very high opinion of Nancy Pelosi (who hails from that noted coal-producing city of San Francisco) or Harry Reid (I’m sure coal is king in Nevada, too), but even to me, that seems unduly cynical. Still, if what they’re saying about all the loopholes that have been written in for utility companies is correct, that is indeed another good reason to oppose this very bad bill; and if those of us who oppose it from the Right can make common cause with folks on the Left to bring it down, so much the better.

Politics and fuzzy math

This from The Hill, off their "Pundits Blog":

According to an Associated Press story about how the administration is over counting stimulus jobs “created or saved” they outline an example where a group that employs 508 people somehow “saved” 935 jobs at their organization.

As the AP story points out, somehow, by giving their employees pay raises with stimulus funds, it counted as jobs “saved.” A government spokesman at the Department of Health and Human Services said, “If I give you a raise, it is going to save a portion of your job.” Huh? I still can’t really figure that one out. But that’s not even the best part.

You see, the Obama administration gave strict instructions to those receiving stimulus cash about how to figure out how many jobs they were “saving” by handing out raises and other benefits. Just multiply the number of employees by the percent pay raise they got. In the example above the grantee multiplied 508 times 1.84 and arrived at the 935 “jobs saved” figure. The director of the organization told the news outlet, “I would say it's confusing at best, but we followed the instructions we were given.”

Now, I famously took college algebra five times (and dropped it multiple times) before finally passing it and graduating. But even I know that 1.84 percent would be expressed as .0184. If you were to multiply .0184 times the 508 employees—rather than 1.84 times 508—you would find that, according to the fuzzy math of the administration, they “saved” nine jobs, not 934.

I had to laugh at his closing snark:

At this rate, I wonder how many jobs the $165 million in AIG bonuses would have “saved”?

Great post.

Short-term stimulus

There have been a lot of claims made about jobs "saved or created" by the so-called "stimulus" (and how you measure a job "saved" when you don't know the might-have-beens, I have no idea); but has it occurred to you to wonder how long those jobs have lasted? Apparently, not very long in some cases:

How much are politicians straining to convince people that the government is stimulating the economy? In Oregon, where lawmakers are spending $176 million to supplement the federal stimulus, Democrats are taking credit for a remarkable feat: creating 3,236 new jobs in the program's first three months.

But those jobs lasted on average only 35 hours, or about one work week. After that, those workers were effectively back unemployed, according to an Associated Press analysis of state spending and hiring data. By the state's accounting, a job is a job, whether it lasts three hours, three days, three months, or a lifetime. . . .

At the federal level, President Barack Obama has said the federal stimulus has created 150,000 jobs, a number based on a misused formula and which is so murky it can't be verified.

When even the AP is noticing that Democratic politicians are playing games with the numbers, you know it's hard to ignore. (Though it's worth noting that the AP appears to be trying to hide the story, judging by the fact that this link is down.) It should of course be pointed out that Oregon's behavior here is uniquely egregious:

Oregon's accounting practices would not be allowed as part of the $787 billion federal stimulus. While the White House has made the unverifiable promise that 3.5 million jobs will be saved or created by the end of next year, when accountants actually begin taking head counts this fall, there are rules intended to guard against exactly what Oregon is doing.

The White House requires states to report numbers in terms of full-time, yearlong jobs. That means a part-time mechanic counts as half a job. A full-time construction worker who has a three-month paving contract counts as one-fourth of a job.

That said, the response from the state to that criticism is telling:

Oregon's House speaker, Dave Hunt, called that measurement unfair, though nearly every other state that has passed a stimulus package already uses or plans to use it.

"This stimulus plan was intentionally designed for short-term projects to pump needed jobs and income into families, businesses and communities struggling to get by," Hunt said in a statement. "No one ever said these would be full-time jobs for months at a time."

But wasn't that the implication? After all, when the President talked about "3.5 million jobs saved or created," he didn't add the caveat "but only for a little while"; an extra week's worth of work is not nothing, to be sure—I've been a temp, I know the drill—but if that's the best the government can do, your job hasn't been saved, your job loss has just been delayed a bit. And when most people talk about "job creation," temp work is most certainly not what they have in mind.

The truth is, this story from Oregon highlights how fuzzy and dubious these job claims are even when the politicians aren't playing games with them. As the Reason Foundation's Anthony Randazzo points out,

The problem remains that there is still no good way of counting exactly the number of jobs that wouldn't have been lost because of the savings, and there is no way the government is going to track the number of jobs that have been lost because of stimulus spending (such as lost jobs in traditional energy because of green spending).

Put another way, all such claims depend on a knowledge of the might-have-beens—if we hadn't done this, what other things might we have done instead, and what results would they have produced? And what would have happened if we hadn't done anything at all?—and that's knowledge we don't actually have in any reliable way in most cases, and particularly when you're talking something as complex and interconnected as the national economy.

HT: David Riddle

My own personal bailout

Despite the fact that I'm only 35, I'm an old folkie at heart; I suppose that's what comes of growing up with a father who started at Stanford in the first heat of the Kingston Trio's success. I remember, for instance, a 1983 folk music reunion concert that we taped while we were living down in Texas—I remember it quite well, in fact, having rewatched it more times than I can count. One of my favorite songs from that concert, one by Tom Paxton, has been coming back to me as once again eerily appropriate:

I Am Changing My Name to Chrysler

Oh, the price of gold is rising out of sight,
And the dollar is in sorry shape tonight;
What the dollar used to get us
Now won't get a head of lettuce—
No, the economic forecast isn't bright.

But amidst the clouds a spot is shining grey;
I begin to glimpse a new and better way.
And I've demised a plan of action,
Worked it down to the last fraction,
And I'm going into action here today.

I am changing my name to Chrysler;
I am going down to Washington D.C.
I will tell some power broker
What they did for Iacocca
Will be perfectly acceptable to me.
I am changing my name to Chrysler;
I am headed for that great receiving line.
So when they hand a million grand out,
I'll be standing with my hand out,
Yes sir—I'll get mine.

When my creditors come screaming for their dough,
I'll be proud to tell them all where they can go.
They won't need to scream and holler—
They'll be paid to the last dollar
Where the endless streams of money seem to flow.
I'll be glad to tell them all what they can do;
It's a matter of a simple form or two.
It's not just renumeration—it's a liberal education;
Aren't you kind of glad that I'm in debt to you?

Chorus

Since the first amphibian crawled out of the slime,
We've been struggling in an unrelenting climb;
We were hardly up and walking before money started talking,
And it said that failure is an awful crime.
It's been that way a millenium or two,
But now it seems there is a different point of view.
If you're a corporate Titanic and your failure is gigantic,
Down in Congress there's a safety net for you.

Chorus

Words and music: Tom Paxton
©1980 Accabonac Music (ASCAP)