Wednesday, February 28, 2007

On Stage: Duke Upstaged

A while back I presented a contrast in institutional integrity between Duke University and a little school in New Jersey that Reade Seligman attended. Based on this report, it appears that at least a modest constituency at Duke looks beyond the Duke environment for inspiration and values:

"While fans were not allowed to bring signs into the stadium, Duke had installed signs on the fence lining the field with the Latin phrase, "succisa virescit" - the motto for The Delbarton School in Morristown, N.J., where Seligmann and three current Blue Devils went to high school. Adopted by the Duke lacrosse program in the preseason, it means: "When cut down, it grows back stronger." "

In another day and age, another institution's motto and colors displayed on your campus would have been a source of deep shame, but I doubt the dodoheads in Duke's high echelons pick up on the insult.

Bloomberg News' New Bash Target...Free Markets in Healthcare

I am not sure why or how Bloomberg reporter Ryan Donmoyer extrapolates from an unreleased Joint Committee on Taxation report that President Bush's healthcare reform proposal from the SOTU will do nothing for healthcare costs. As mentioned the report hasn't even been released and even Donmoyer characterizes it as "very preliminary", yet it "calls into question administration claims of cost and tax savings."

The report apparently says that the reform proposal will begin imposing higher taxes by 2011, and somehow this is supposed to mean that healthcare costs won't go down. Not even the Brookings Institution analyst that Donmoyer hauls in knows what it all means. The tone and content of the article is clearly meant to make Bush's reform proposal look dubious, either by being convoluted or simply unsuited to the putative goals. As someone employed by a leading financial media firm, Donmoyer ought to know that prices for goods and services and taxes are not the same thing and that higher taxes paid does not mean higher prices paid. In fact, if Donmoyer was at all proficient in healthcare economics he would find nothing wrong with Bush's reform ultimately generating higher tax revenue. As I posted on this blog, Glenn Hubbard - one of Bush's former advisors, a current Romney advisor, and a pro-free market healthcare reform advocate - has outlined in his book how removing the distortions currently embedded in the tax code will cause people to buy low cost, high-deductible insurance that is truly insurance and thus opt for increased cash wages in lieu of employer-provided healthcare and thus pay taxes on those higher cash wages. Here is how I reported it (here):

"Furthermore, as people are free to make real choices about what kind of insurance they need, they are likely to opt for high-deductible, catastrophic policies, which will result in them taking higher wages (i.e. less compensation in the form of healthcare) which will be taxed. The incremental taxes from those increased wages, can fund government subsidies for the thorny problems of the chronically ill and the truly poor."

If Donmoyer doesn't understand this he is overemployed, but I think he is just acting on orders from Al Hunt. It appears to be an institutional mission at Bloomberg to attack free market healthcare reform just like it was an institutional mission to spread the fiction of the jobless recovery. Donmoyer has been caught before peddling his biases as news, but I'm afraid his attempt to sow deeper doubt and skepticism was probably effective.

Weird, Just Plain Weird

OK, get this. The Finance Minister of the recently elected Conservative government declares that corporations that take advantage of a long-standing, legal structure are avoiding taxes and costing the government billions of dollars, and proposes a large tax increase. That country's stock market reacts violently to the proposal. The hew and cry is so great that the Liberal opposition teams up with another minority party to oppose the measure, calling it "devasting" to investors and the investment climate in the country. As an alternative they propose only a modest increase in the tax or a 10 year grace period under the existing rules. In addition, this leftist coalition calls for the Conservative majority to transparently make the case for their policy proposal and demand that it be put to a vote as an individual matter rather than bundling it with other, less controversial proposals. Welcome to Canadian politics.

Chavez's Oil Money Replacing IMF in Latin America

Does Chavez know that the IMF gets routinely stiffed on its Latin American portfolio? He may be banking on better collection operations, although I find it hard to see Argentines agreeing to be owned by Venezuela.

Airbus Admits Reality, Will Unions Go Along

Airbus has confronted reality. Problem is, its unions have not signed on to acknowledging reality yet. IG Metal and Force Ouvriere have threatened slowdowns over the new Power8 plan. A slowdown is, of course, the last thing Airbus needs. It can lose money 'til the cows come home, but not delivering planes on time it can ill afford.

Also, note this strategic insight, albeit with hindsight from Airbus chief Louis Gallois:
``We should have done this many years ago at the time when we created Airbus,'' said Gallois, referring to the creation of the planemaker as a single company in 2000. ``Boeing was in difficulties then, the dollar was strong, and we were selling airplanes like bread.''

The best time to undergo surgery is when you are healthy, not sick. Boeing chief McNerney is no doubt listening, watch for moves out of Boeing aiming to widen the gap.

Private Equity Makes Right Argument to Europe, Conveniently Mum On Homefront

Private equity firms are quaking at the prospects of increasingly difficult political conditions for their business in Europe. While they bask in the glory (and money) that Sarbanes-Oxley brought to their industry in the US, they are doling out cash and "dialoguing" throughout Europe to avoid a Sarbox-esque straitjacket for their endeavors in Europe. Here in the US, private equity is thriving due to the excessive costs and onerous burdens placed on public companies in the wake of the scandal-ridden 1990s bubble, of which Sarbanes-Oxley is the most visible and onerous of many straitjackets. For many companies, it just isn't worth being public anymore. Private equity firms have been only to happy to take these companies off the public markets, after which they will avoid multi-million dollar compliance bills, slash costs, and reinvest the savings back into the company. After a few years, private equity lobbyists will have successfully gotten Sarbox reformed and they will sell these companies right back to the public much more expensively than what they bought them for. It is a great business model, but the Europeans are bristling at this model being applied to any great extent there, because it inevitably will clash with union dominance. Private equity shops obviously see the massive restructuring potential in Europe, but realizing that potential will entail several pounds of flesh out of union hides. Thus the political opposition and thus chaps like Schwarzman pressing the flesh.

While the ultimate goal of a more free-market approach to capital transactions and a hands-off regulatory philosophy in the halls of Europe's governments would be a good thing, private equity poobahs are not the most sympathetic of characters as they exploit regulatory burdens on others at home while they seek to avoid those same burdens on themselves abroad. They are not arguing from a strong foundation of principle.

Friday, February 23, 2007

Did He or Didn't He?

The bad thing about the study of history is that an accurate picture of events often never emerges for a long time, well after it's too late for actual people whose lives may be destroyed or made substantially worse. It'll be a long time before we know exactly what happened with the 2004 recall referendum in Venezuela that kept Hugo Chavez in power, but this is certainly interesting and it lends some scientific rigor to the numerous anecdotal claims of an essentially stolen election. Of course this ought to be carefully weighed against counter evidence, but the nature of the Chavez regime and the world's historical experience with violently aggressive socialist movements ought to encourage us to pursue these claims and review this evidence very seriously.

Alas, by time we ever figure out what happened, Venezuelans will be vastly poorer and many may have their lives ruined or ended to extend and preserve Chavez's messianic socialist crusade. If indeed the 2004 referendum, and/or the recent election, was rigged, I will amend my view that Venezuelans deserve what they have unleashed, but that will hardly matter to Venezuelans whose nation has been stolen and who will have had to suffer.

Latest Update in the Greatest Business Rivalry on Earth

UPS appears to have negotiated some flexibility to walk away from the cargo version of Airbus's A380 if Airbus screws up production again. It would seem that Airbus has one last chance to keep UPS in the fold. What seems odd is that the article refers to Airbus having the right to cancel UPS's order too. Why would Airbus want to cancel on UPS? My only guess is that they would need the UPS fuselages to meet a passenger carrier order. The situation can't be good if it comes to that - Airbus would be all but abandoning the cargo market. But I could be wrong.

Also in the news, BA added a few more triple 777s. This is not a big deal or a big surprise, but just further shows the strength on the 777 product. A few years hence, the 777 and 787 Dreamliner could be a one-two product punch that will be extremely hard to beat. The state of the global economy 3-5 years hence will be a critical factor. Although a downturn wouldn't be easy on Airbus, a global slowdown would enable the European maker to catch up with Boeing's product line in order to compete for the next cycle of orders. However if global growth remains robust over the next 5 years, Boeing will be able to just keep running with their lead intact.

All previous Boeing vs. Airbus posts here.

Thursday, February 22, 2007

Ethanol PowWowers Seek Uncoerced Buyers

If you build it, they will come...and if they don't, get me Senator Grassley's office on the phone.

"With the supply of US ethanol growing at a faster clip than many anticipated, the sector now needs to work toward boosting demand for the renewable fuel to consume output coming from ever-increasing production capacity, market players said this week at an industry conference. Demand, not supply of the was the overriding concern to many traders and producers attending the annual National Ethanol Conference held this week in Tuscon, Arizona, sponsored by the Renewable Fuels Association."

Hard to believe, who would want to pay more for less energy?

Good News from Rome!

Good news, the Pope has granted yours truly a dispensation on my lenten sacrifice to abstain from imbibing alcohol so that I shan't look like a total fool drinking Diet Cokes or cranberry juice at Clarke's Pub on McLean Ave on Saturday while watching the Big Game. The Holy Father has limited me to four of these, six if the Boys in Green beat those Poms. Oh, and here's a little cherry on top of the natural passionate excitement and frisson of tension that this match would normally generate.

Update: Supply and Demand Still Applies to Labor

Check this out. Looks like the big companies forgot to exploit and abuse their workers. In some crazy twist, these companies actually so value the skills of these workers and so recognize the difficulty and onerousness of the work that they are asking these chaps to do that they are paying quite well and offering an array of amenities. Alas, these cruel oil companies are destroying their workers' long cultivated image as hard drinking, whoring, frontier toughguys. Unconscionable.

Pigovian Rubber Hits the Road, er, Tarmac

Greg Mankiw must be thrilled. Gordon Brown is not only a member of the Pigou Club, he is taking Pigovian taxes primetime, as this WSJ editorial points out. I think I urged us to let the Europeans do this first in order to see if it takes them anywhere near a large precipice. So, I continue to counsel patience and let the evidence gather as to how destructive or beneficial the ghost of Pigou is in practice. While I'm at it, let me propose an alternative to the Pigou Club.

Thursday, February 15, 2007

Socialist Drivel Gussied Up As Real Economics in the NY Times

Greg Mankiw gives note to a NY Times op-ed by Cornell economist Robert Frank. Like another economist who writes for the NYT, Frank must have did something at some point in his career to merit a certain level of respect, but he is now well known as an inveterate socialist that is impervious to anything but his own collectivist worldview (I noted before that he doesn't like this whole freedom of movement thing we have going on here in the US). Anyhow, Frank offers an argument for national healthcare that is so simplistic and biased and lacking in economic logic that it lives up to Krugmanesque standards of economic opinion and reflects poorly on Mankiw for including it. Forgive the length of this post but such is the requirement of the task, Frank cannot be merely rebutted rather than fisked. So here we go...

"In his State of the Union address, President Bush proposed tax cuts to make health insurance more affordable for the uninsured. The next day, Stephen Colbert had this to say on his show on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”

"Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. "

Here Frank makes the typical error of assuming that the current state of affairs is a properly functioning market rather than a market that has been distorted by government policy so much that it reflects perverse incentives. Yes indeed, if you are horribly sick today, insurance companies will avoid you because all you are is guaranteed costs. Nobody, nowhere argues that a free market healthcare solution can help such people. Even the most ardent free marketers claim that a government role is necessary to address the chronically sick. But that is only for people who are sick today. If you are not sick today but might be one day, insurance companies have no incentive to avoid you if they are allowed to price your risk properly. If you are an overweight, chain-smoking couch potato, insurance companies have no incentive to avoid you so long as they can price you differently from an active, health-conscious person. But they are not allowed to do so today due to policies like "guaranteed issue" which Frank conveniently makes no mention of. Fortunately the population of people who are terribly sick today is small and the government can handle the costs. The problem starts when we tell the vast majority of the country, the people who are currently not sick, that their future healthcare obligations are not their responsibility. What incentive is there to quit smoking or eat right or exercise if you know you can fob off all the costs on your fellow taxpayers? Frank in fact likes the idea of fobbing off your costs on fellow citizens....

"This problem is mitigated (though not eliminated) by employer-provided group policies. "

The whole point of employee-based healthcare is that it 1) benefits from a tax break, and 2) allows insurance companies to spread the costs of the unhealthy over a large base of people, most of whom are healthy. So people who need alot of healthcare are supported by people who need very little. The impetus for the subsidy comes only from the fact that these people work at the same company. So what we have is something akin to "from everyone at IBM according to their health, to each at IBM according to their sickness." The reason that this only mitigates sick people from getting insurance is that the risk pools are limited to the composition of large company labor forces. Since the chronically sick are not fully represented in the large company labor force, Frank is unsatisfied with the extent of the cost sharing.

Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people.

As we have stated, people who are unhealthy today are a special category. But for the vast majority who are healthy, individual policies that were free from the requirement to insure high risk people the same as low risk people would not result in shunning anybody. Insurance companies want to insure people, but they don't want to take your likely liabilities for the fun of it. This is basic.

"Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders at a price anyone could afford. "

So, if you are sick or likely to be sick don't even think about expanding your employment horizons, stick with where you are. We wouldn't want you to have the freedom to move to another job. Who is to say what an insurance company will want? What if you left IBM and could shed all the specific healthcare provisions that IBM has so caringly negotiated for you and contract for just those healtcare provisions you want. Let's say IBM's coverage was hyper generous to single mothers because it was a corporate goal to attract single mothers to IBM, but you are a middle-aged childless man. Why would we assume that you are unattractive to an insurance company. Why on earth couldn't the insurance company offer you coverage at least as good as what it offered single-mom heavy IBM? It is pure assumption on Frank's part. He is onlt speculating based on a biased view of healthcare insurance companies.

“That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem."

The “uninsured” is the catch-all hobgoblin that has come to be code for the poor and/or sick. The unthinking assumption is that these people are uninsured, they must be in circumstances beyond their control and they need help. The facts are that most uninsured today are uninsured because they are between jobs or they just want to use the money for other things. Some 30% of the uninsured make over $50,000. This is not rich but it is not poor either and insurance in most states is affordable at that level, but it is not deemed valuable.

“Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.
Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. Canada’s single-payer health system, which covers everyone, spends less than 17 percent on administrative expenses. “

Here again Frank pays no mind to source of the administrative excesses – overregulation at the state level and the distorted system whereby insurance is not insurance but prepaid spending. Insurance companies have to comply with different regulations and mandates for every state in which they do business. Getting rid of the regulatory patchwork would cut a lot of administration cost but that doesn’t require government-financed reimbursement, it could be achieved just the same by creating a federal market for health insurance, which is why most health economists do not agree the government reimbursement is the only practical solution. Only those economists that Frank wishes to acknowledge feel that way.

"Annual health spending in the United States currently exceeds $2 trillion. A single-payer system that did nothing more than reduce administrative expenses to the levels of other countries would save roughly $300 billion annually. Some critics worry that expensive but ineffective medical interventions may proliferate if health care becomes a federal responsibility. But Victor Fuchs, a respected health economist at Stanford University, and Dr. Ezekiel Emanuel, chairman of the department of clinical bioethics at the National Institutes of Health, have outlined a single-payer plan that would limit such interventions far more effectively than the current system. (A copy of their plan is on the links page of my Web site,
If the single-payer system embraced by virtually all other developed countries is clearly the best solution, why doesn’t the United States adopt it? Some analysts concede its merits, but characterize it as either unaffordable or politically unrealistic. But why should a policy that promises better results for less money be considered a nonstarter?"

Here Frank just makes bald assertions and assumes that the single-payer system is better based on efficiency over a multi-third party payer system. Either way, you have a third-party payer, which has been proven to encourage overconsumption of healthcare and create a rigid system of micromanagement that leads to dissatisfaction among patients. Why you would expect better outcomes from a government bureaucrat reviewing claims and cutting checks than from an insurance company bureaucrat doing likewise goes unexplained. In addition, Frank conveniently ignores that a government system would just be a centralized version of the bureaucracy that the insurance companies now represent and assumes that government can do better, although there is no reason to expect that that government can do anything more efficiently than the private sector. History and experience tell us otherwise. Furthermore, other countries spend less because they brutally ration healthcare consumption through wait times while we encourage over-consumption through a third party payer system – our system is guaranteed to induce more spending while, for example, Canada’s is guaranteed to rein it in. The comparison is apples to oranges and neither level of consumption should be assumed to be the appropriate level, but Frank assumes that the level of care that prevails in countries where it is rationed by wait times is the benchmark level.

"There are two obstacles, which could both be overcome by intelligent political leadership. One is that the single-payer system would require additional tax revenue. In the current climate, that’s a tough political hurdle, to be sure. Yet how complicated would it be to explain to voters that because the single-payer plan would reduce costs substantially, every additional tax dollar would be offset by an even larger reduction in private insurance spending? Given that such a system is so much cheaper over all, calling it unaffordable makes no sense. "

Again, just an assumption that the government will bring efficiency to the system when there is no basis or precedent of government’s efficiency.

"The second obstacle is opposition from private insurers, who would be understandably reluctant to abandon multibillion-dollar annual profit streams. Those who stand to lose from policy changes always battle harder than those who stand to gain — an asymmetry that is exaggerated when losses would be concentrated and gains diffuse. So, yes, the insurance industry would bitterly resist. "

Yes insurance companies would be upset if the government usurped their role full stop, but insurance companies are dying to actually be insurance companies and not payment agencies. If they were free to underwrite health risks and not administer payments they would glad switch to a new business model and give up the bad business of micromanaging your healthcare.

"But intelligent leadership could overcome that resistance. Whenever a pie gets bigger, everyone can get a larger slice than before. Because moving to a single-payer system would make the economic pie bigger, it should be possible for everyone, including the insurance industry, to come out ahead."

This totally ignores a little thing called supply and demand. Why is the size of “the pie”, a government supervised pie, a starting point for available healthcare. Demand is bottom up and cares not what Washington defines as “the pie”.

"The first step is to acknowledge that insurance companies are not evil, that they invested in good faith under tax laws that favored employer-provided private health insurance. To put them out of business with an overnight switch would be unjust. Even so, they are not entitled to a permanent license to operate a system that has become economically unsustainable. The move to a single-payer plan would save far more than enough to compensate insurance companies for lost profits. Compensation for losses could start at 100 percent, then be gradually phased out as companies shifted investments elsewhere. "

The notion of “lost profits” is highly elastic and all this scheme does is create another opportunity to game the system and encourage economic rent-seeking. We should not fret over insurance company profits, but break down the system of rules that are the foundation of the unsustainability. Let’s focus on a sustainable system and insurance companies will adjust and find new ways to insure people. What is sustainable? Medicare? Social Security? These are the models for what Frank is proposing. Are these what are supposed to believe are sustainable?

"Selling this argument in an era of 15-second sound bites would be challenging, but hardly impossible. Indeed, forceful advocacy of the single-payer approach offers a golden opportunity for any serious presidential candidate. Voters are fed up with rising insurance costs and dwindling coverage. "

Voters are also fed up with lack of options and rules that impede them getting what they want.

"On the merits, single-payer coverage is an unassailable solution to both problems. Its rationale is simple enough to articulate clearly during a long campaign. And if the proposal were devised so that everyone stood to win, corporate interests would have little reason to attack it."

Yes, if you believe that government solutions are always better, then the idea is unassailable. If you believe that government has a poor track record, often results in waste, inefficiency, and ultimately worsens the problem due to unintended consequences, then no, the idea is incredibly assailable.

"Critics of the single-payer plan have long railed against the specter of socialized medicine, suggesting that it means being treated by government functionaries. Yet people who have experienced single-payer coverage firsthand seem unconcerned. "

Does "the unconcerned" include Canadians who come to the US for cutting edge medical treatment or Canadians who sue their government to escape the government run system?

"When one of my sons needed surgery for a broken arm during a sabbatical in Paris, for example, the medical system we encountered was just as professional as the American one and far less bureaucratic. And in France, which spends half as much on health care as the United States and has more doctors and hospital beds per capita, everyone is covered."

Fine. I won’t worry about breaking my arm in France, but would Frank send his wife to France for a triple bypass? Can they do a vitrectomy in Montreal? Would Frank be comfortable if his daughter gave birth six weeks prematurely in Britain? Maybe, maybe not, but he sure wants to make those decisions for you and me. He wants to give you the system of healthcare that he wants, not let the extent and nature of demand for medical care bubble up from the desires of you and me and let us choose among a multitude of options as we see fit.

"We live in challenging times. Does a candidate who couldn’t persuade voters to embrace the single-payer approach deserve to be president?"

What a weird formulation. If you are somehow opposed to collectivism in a major sector of the economy, you don’t deserve to be President. Wow.

For an alternative vision of healthcare, see here, here and here.

This Is Rock Bottom for Our Nation

Why on earth would the US Mint imprint the likeness George Washington on the new dollar coin? Why not some obscure, marginal female whose life and deeds barely registered upon the history of our nation? What has this country come to when we can't muster the courage to banish our founding fathers' likenesses by virtue of them having been white males in favor of trivial figures in symbolic nods to multicultural victimology? Hell in a handbasket I tell 'ya!

Walking Back From RomneyCare?

I speculated on what was brewing within Mitt Romney's campaign on healthcare policy given that two leading proponents of free-market driven healthcare reform had joined the campaign. Well, here is a bit of a clue via Powerline:

"Next, we discussed health insurance. My question here was whether he considers the approach he used in Massachusetts -- basically requiring all citizens to have health insurance -- to be a viable and desirable approach for the nation as a whole. He answered that the Massachusetts plan was to some extent the product of special circumstances in the state: (1) a low numbere of uninsured and (2) the availability of over a billion dollars from various sources for use in taking care of the uninsured that could be converted to helping them obtain insurance. Romney's view is that each state, as a laboratory for our democracy, should find its own solution, but that the "overarching" market-based approach used in Massachusetts is the best way to go. Romney said he would not have the federal government mandate that everyone obtain health insurance, and he denounced the European model as well as "Hillarycare." "

If Hubbard, Cogan and Mankiw have Romney walking back from RomneyCare, that is a good thing.

How Great Is the Threat?

Here are two different assessments of the danger we face, not from global warming, but from the tyranny of economic impositions desired by global warming zealots.

George Reisman thinks we are approaching Nazi Germany levels of tyranny (hyperbolic maybe but Reisman is a serious actor, not to be dismissed). Russ Roberts thinks it's going nowhere.

My view? I side with Robert's given that global warming is pushed by the UN and it was the big issue at the just concluded World Economic Forum, and given these institutions perchant for making absolutely idiotic claims (here and here, oh, and another one today as if on cue!).

Wednesday, February 14, 2007

Offensive to the Economic Mind

Here is a great story for making anyone who employs the economic way of thinking cringe. The state of New Jersey has a special program whereby the state builds schools in poor districts so that school infrastructure comes "at no cost" to the local school district. Of course, no cost to the district means at cost to someone else somewhere else, but what is even more erroneous and distasteful to the economic mind is the notion that delay and inferior quality are not costs. Read it and weep.

SARBOX Stinks Part...Oh, Who's Counting Anymore

I haven't done a Sarbanes-Oxley-bashing post in awhile. So here is more evidence of the malign unintended consequences of that disastrous product of the Great Sausage Factory.

College Freshmen, Read This Now

This is simply stunning:

"Last year, U.S. exports, industrial production, real hourly compensation, corporate profits, federal tax revenues, retail sales, GDP, productivity, the number of people with jobs, the number of students in college, airline passenger traffic and the Dow Jones Industrial Average all hit record levels."

If Bill Clinton was still in the Oval Office, the MSM would be proclaiming economic nirvana on the front page every day. Instead they are focusing on the painful fruits of the people and institutions that didn't get it right. Today, is a great example, we will see nothing but news about Chrysler's 13,000 layoffs today. There will be no mention of Toyota's or Hyundai's exceptional growth in the US by building cars in the US with US workers. There will always be losers to focus on. Free market capitalism always has winners and losers, but the net effect, as Wesbury points out in the article from which I took that stunning quote, is incredibly beneficial over time.

The artice concludes with an item that can easily go overlooked, the budget deficit is shrinking rapidly. Wesbury even forecasts a surplus by 2009. That is optimistic indeed, but he is not alone. Alot could go wrong, but the major determinant in the budget picture is the extent to which the Great Sausage Factory can control their urge to spend. If we can have a modicum of spending gridlock and President Bush can get just a little tougher on spending than he has been, then there is hope for a meaningless to nil budget deficit just as the expiration of the 2003 tax cuts comes centerstage. This would be an enormous economic legacy that our elected officials could leave us, the preservation of the tax regime that aided the recent march of prosperity. Beyond the power of lower rates, even just the certainty of consistent tax policy would be beneficial to economic activity. Expiration of those incentivizing, capital forming tax cuts will squelch job creation. Trust me, if you are going to be part of the college graduating class of 2010 or 2011, you are going to want those tax cuts preserved. I graduated from college one year after a federal tax hike and the job market was deader than a doornail. So all you 17 and 18 year olds out there, take off that 'Che' T-shirt and think for a minute about how you are going to make a living when you leave campus. Do you want a good job or do you want to be living at home, mailing out 25 resumes a day to no avail? Don't believe me? You have four years to learn something. Pick up a book by Hayek, Bastiat, Friedman, Schumpeter or Adam Smith and ponder your fate.

Tuesday, February 13, 2007

Who Will Get Paulson's Nod?

Endorsements are rolling in (former Solicitor General Ted Olson goes with Rudy) and economic policy teams are being assembled. The Big Kahuna, however, is Treasury Secretary Hank Paulson. The candidate that can offer the nation the continuing services of Paulson as Treasury Secretary will be the best positioned in terms of economic policy. The policy credibility and the fundraising advantage of a Paulson endorsement is simply enormous. The only other endorsement that could come even close to having that type of advantage is if Robert Rubin signs on to be Hillary's TreasSec. That said, it is highly unlikely that a sitting cabinet member would make an outright endorsement during the primaries. Perhaps it will be left to winks and nods or talented tea leaf reading to determine who could score Paulson for their team, that is if Paulson even wants to serve beyond the Bush administration (I think he does). Assuming I am right then, who could it be? It is obvious that Paulson knows all the candidates well. As CEO of Goldman Sachs, one of NYC's largest employers, clearly he must have had a good working relationship with Rudy while he was mayor. Consider also that Paulson must have worked closely with this group which is led by Glenn Hubbard. Hubbard is with Romney. This is a tough one to call. I'll be watching for clues.

Romney to Run for Chief Diabolic Sulfur Emanator

OK. Mostly fluff, hits some harmonious notes as well as one or two flat ones. But this is interesting:

"We must campaign for freedom and democracy in our own hemisphere, now threatened by a second aspiring strongman."

I guess ole' Mitt didn't read his Chomsky. This is smart. It forces the Democrat candidates into either renouncing Joe Kennedy and his ilk that are going around peddling heating oil from "our friends in Venezuela" or stand in solidarity with the next Fidel. A pro-Chavez stance will be death in the general election. Good opening move.

Diplomacy Exits Stage Left

Here is a surprising example of self-awareness from the political class in the EU. They have admitted that the pursuit of a political solution to the Iranian nuclear program has been a failure. Of course they deem the Iranian bomb an inevitability, which of course ignores all possible approaches. To their thinking, political solutions are the only solutions and we must now live with the idea of a nucelar armed regime that threatens its neighbors and starts proxy wars. I doubt the Israelis will see the same inevitability that the EU's political elite see.

I have no concrete basis for this aside from discussions with people who are relatively knowledgable about that part of the world and my own observation, but I think a strategy to deal with Iran is emerging and it will become more visible now that the downstage diplomatic activity fades away. The strategy is this...Israel will be responsible for planning and carrying out any direct military strikes of Iran's nuclear facilities if those become necessary. In the interim period, the US will be responsible for Cold War tactics including economic disruption and covert operations to harass the Iran government. As a starting point, the approach to Iranian meddling in Iraq will begin to resemble a zero-tolerance policy. Iranians will be killed and Iranian assets destroyed if they are found operating on Iraqi soil. We could well see covert operations just over the Iranian border. On the economic front, we have increased the Strategic Petroleum Reserve, put sanctions on Iranian banks, and denied them access to key industrial parts required for infrastructure maintenance. We could see additional economic pressure focused on Iran's gas vulnerability, namely we will be more aggressive in twisting the arms of allies, like India, not to invest in Iranian oil and gas infrastructure projects. We might even see an attempt to slow the flow of refined fuel products into Iran by interdicting tankers in the Gulf for "inspections."

This Cold War Lite strategy will either bring the Iranian rgime to the table or force it to lash out. If the conventional wisdom in Washington is right that there are rational actors within the Iranian power elite, the increased pressure should result in the former. If the conventional wisdom is wrong, it will have been good to have established that definitively and have the basis for ratcheting up the pressure.

Monday, February 12, 2007

Summers in the 'Burg

Thomas Lipscomb thinks William & Mary President Gene Nichol is "hiding." Here is the most interesting tidbit though, Nichol has vowed to resign if the Board of Visitors overrules him. While I know this is an outlandish suggestion and not how institutional governance works, I say, overrule Nichol, let him resign, and hire...Larry Summers! While I am not necessarily a fan of Summer's Rubinomics bent, he is a respected scholar and public persona and would bring alot of star power to Williamsburg.

Mankiw Advertises for Columbia Economics

Greg Mankiw's blog has two posts this morning in succession referencing Nobel laureates Edmund Phelps and William Vickrey, two of the four Columbia economists to win the Nobel in the last ten years. Tomorrow maybe he'll showcase Mundell and Stiglitz!

UPDATE: Wow, what a call! Mankiw highlights Stiglitz today. I guess he is saving Mundell for tomorrow. Columbia Economics thanks Prof. Mankiw.

Friday, February 09, 2007

Albany Dust Up Is Just Beautiful

It's a strange feeling indeed but I find myself rooting, I mean really rooting, for my Governor, Elliot Spitzer. The New York State legislature is the worst in the country and Sheldon Silver could be the most execrable politician in America today. So go get 'em Gov! No Mercy!

Romney Says "2 out of 3" Is Good

One strike against Mitt Romney's bid for the highest office in the land is that 'Romneycare' silliness he unleashed in Massachusetts while Governor. But today comes news that John Cogan has joined Romney's team of economic advisors. That means that 2 of the 3 authors of this book, are now on Team Romney. So are they just gettin' together for a little economic chit chat or are they formulating a big bang, comprehensive, free-market-oriented healthcare reform policy proposal that will stand tall as a contrasting vision to Hillarycare, EdwardsCare or ObamaCare? Hmmm. I know that Hubbard, at least, thinks that healthcare is too important to be ceded to the collectivists. Something is a' brewing and I feel it could be exciting. Then again I could be wrong.

Let Us See the Other Side of the War Ledger

I have expressed on this blog that a key demand I have of my government these days is dead terrorists. Based on some of the better non-MSM reporting, I have some confidence that the government is delivering. Frankly though, I didn't think it through to the obvious conclusion...we need body counts. Elsewhere, some have drawn that conclusion and boldly stated it. We need to know how many terrorists we are killing. Now, I understand the military's and the administration's reluctance to get into this type of reporting. Tallying body counts became a false scorecard during the Vietnam war and morphed into a perverse metric that took on a life of it own. Still, in today's information based society, can't we intelligently craft a way to convey metrics along with context in a way that avoids the mistakes of the past? It doesn't have to be a crude number. Can't we say, very simply, today the Marines made dead 50 guys crossing the Syrian border, who were a mix of Jordanians, Egyptians and Pakis and they all had al-Qaeda explosives manuals and IED components? Can't that then be 50 in the plus column of "Very Highly Likely AQ Terrorists Killed"? Americans are thoroughly capable of assessing the tradeoffs of US casualties against what those costs are getting us in return. Let us do the CBA. Currently though we don't have the necessary information.

(HT: Say Anything)

Who's In the Market for Being Vilified?

The Powerline guys speculate that Yale's recent decline in applicants is a consequence of its brief dalliance with 'Taliban Man'. Maybe, hard to say. This imprudent episode in New Haven was pretty small beer, too small to register in my view. The Duke lacrosse scandal is another animal altogether. I'm a betting man, so I will wager that Duke University suffers a stunning blow to its appeal and its near term application metrics will show sharp declines. In the coming months, high school seniors across the land will be getting acceptance letters from Duke as well as other schools. A large percentage of those letters will be sent to the homes of seniors residing in the New York City suburbs of New Jersey and Long Island and the DC suburbs of northern Virginia and Maryland where the injustice meted out to David Evans, Reade Seligman and Colin Finnerty has had special resonance. Ask yourself how any aspiring scholarship athlete might view an offer to come to Duke to study and play sports. For that matter, given the inflamed reaction of the Group of 88, how would any male, white or affluent student view the chance to be educated by a professorate with at the very least a 20% incidence of deep-seated animus based on race, class and gender?

I doubt that many on the Duke campus are overly concerned about market forces and feel that it would be crass to apply the base language of commerce to an academic institution. Such people likely feel that Duke will always remain a jewel, because it is, well, Duke. Yet they have essentially told their bread and butter customers to take their business elsewhere. Duke's student body has long been dominated by affluent, white northeasterners. How will the population of affluent, white, northeastern college-bound high school seniors assess Duke's appeal in light of the university's reaction to the false charges of rape brought against its own? We'll see but I predict it will not be pretty for Duke . While Duke is a lovely place with a heretofore excellent reputation, in the end there is nothing magical about a college and Duke is no exception. There are many fine places to go to college and high school seniors have the free will to avoid going where they do not feel welcome. I predict it will be so bad that Duke will be at pains to avoid outside scrutinty of its admissions metrics.

Thursday, February 08, 2007

Rutgers Bandwagon Rolls On!

On the heels of their breakout season this past fall, the Rutgers Scarlet Knights football program has scored a stunning coup with this year's recruiting class. It was always said that if Rutgers could just keep instate talent from leaving NJ, then it could be as good as anybody on the national level. Granted, NJ is no Texas or Florida, but the Garden State does produce some mighty fine football players, and no less than 10 of the top graduating players in the state are heading to Rutgers next year. Along with them is a slew of Floridians that come courtesy of Coach Schiano's ties to the Miami area from his days as the Hurricane's defensive coordinator. Expect ALOT of chopped wood this fall!

Away Game on Home Turf

I am not an immigrant-o-phobe or an illegal alien-o-phobe or an undocumented-whatever-o-phobe, but it is a little upsetting to know that when the US national soccer team plays a game on US soil, it's basically an away game. In a hypothetical game played in New York in 1927 between Ireland and the US, you wouldn't have caught any of my ancestors rooting for Ireland over their new country.

Wednesday, February 07, 2007

Our Mormon Is A-OK, Their Mormon Is Scary

The NY Times turns pensive over whether Mitt Romney's religion will be an obstacle to his presidential run. I might suggest that this nation will be no more freaked out by having a Mormon President as having a Mormon Senate Majority Leader. I have observed closely and I can conclusively say that Harry Reid has never advocated mandatory polygamy (as attractive as it sounds) in his many years as a powerful Senator. Thus I conclude that candidate Romney, if elected, will not seek to make any Mormon heeby-jeeby belief into federal law. I think we are safe, despite the NY Times's selective Mormon bashing.

Coalition On Healthcare. Fine, But What Is It Really?

An unlikely coalition of about as powerful a group of players out there has joined forces to move the nation toward healthcare reform. Wal-Mart and AT&T have teamed up with the SEIU (basically the government workers union) and the Center for American Progress (individualists, be scared of any group with "progress" in their title) to form "Better Health Care Together". My first reaction is that the collectivists have won on healthcare. They've beat corporations and free-marketeers over the head so much that they've capitulated and will henceforth throw their weight behind collectivist national healthcare. Nonetheless, the optimist in me says "not so fast." So what is this group all about? Hard to tell. The first two of the group's foundational principles appear to be at odds and don't shed much light:
1. We believe every person in America must have quality, affordable health insurance coverage;
2. We believe individuals have a responsibility to maintain and protect their health;

We know what the words "every person...must" are code for...nationalized healthcare. But then they tell us that individual responsibility is important.

The public statements of key figures don't dispel the confusion either.

Wal-Mart CEO Lee Scott:
“Government alone won’t and can’t solve this crisis. We have to work together – business, labor, government and our communities. We also need to empower people to take more responsibility and more control over their own health care"

OK, sounds good. Adding to this, Kelly Services's President Carl Camden says this:
“There has to be a way for Americans to access group coverage outside the traditional employment relationship...Our WWII vintage health care insurance system is woefully out of step with the global economy and the needs of more than 22 million American free agent workers who prefer a more flexible approach to work."

...and Intel's Craig Barrett:
"In particular the ideas on consumer empowerment to drive system efficiency are completely in line with the Dossia personal health record effort that many of today’s participants have helped kickoff.”

So far so good, but then you get the faint sound of nationalized, government-provided healthcare. John Podesta:
“Every person in America should have quality, affordable health care coverage. This coalition of business, union, and policy leaders can help break through the forces of the status quo and ensure that result by 2012.”

and then CWA President Larry Cohen:
"It is long past time to move health care – a public good – from the corporate balance sheet to the public balance sheet."

Sounds like a collectivist solution to me.

...and Andy Stern, Big Government Labor Poobah has this to offer:
“We can’t keep tinkering, hoping that incremental change will fix our broken health care system. We need fundamental change, and it is going to take new thinking, leadership, new partnerships, some risk taking, and compromising to make it happen. But that is what we all owe our country.”
What in Sam Hill does that mean?

So there are three interpretations here. 1) Either the unions have caved and will support more free market reforms or 2) the corporations have sold out and will support a government solution in order to get the costs off their own backs, or 3) these parties will work toward a compromise, hybrid approach that reforms the system with both competition-based, free market solutions and a significant government role.

I doubt it is 1, I hope it is 3, but I fear it is 2.

Sic Semper Christiannis

My alma mater, William & Mary is at the center of another one of those mind-bloggling controversies over symbols and feelings. Powerline is on top of it here. If you are just joining us, President Nichol's actions are hardly surprising for a modern day university president, but W&M alums can be forgiven for being taken by surprise at this action. If you have been paying attention, one of Nichol's first tasks as newly installed President was to react to the NCAA's politically correct campaign against logos and mascots using Indian (oops, Native American) names and iconography. Nichol's initial reaction was to tell the NCAA to a) stuff it, and b) ask them who the hell they think they are. Read about it here. In the end though, W&M did yield and make a concession to the NCAA by removing the feathers from its logo (check out the symbol of hate here) because Nichol felt that fighting the NCAA wasn't worth the hassle. All told, if it didn't signal an outright revulsion of political correctness, Nichol's actions did signal at least a willingness to defend an institution's traditions over arbitrary, bureaucratic dictats. Alas it was all a head fake, and the requirement to make devotional offerings to the new god of the modern American university, diversity, applies to the College of Knowledge just the same as everywhere else in academia. More proof that the only acceptable group to target for discrimination, disdain, and opprobrium these days are Christians.

Two Columnists on Healthcare Reform

Here are two contrasting reactions to President Bush's healthcare reform proposal from people who should know something about economics and policy, one a columnist for the Wall Street Journal and the other a columnist for Bloomberg. Holman Jenkins thinks the proposal is exactly what is needed and claims "you'd be shocked at how quickly the system [meaning the insurance industry] would right itself." John Berry thinks that the plan would do more harm than good. While I have a definite view on healthcare policy I like to think I am open to any and all policy proposals, which is why I read Berry's criticism carefully three times to try to understand it. Unfortunately I can't figure out what he is talking about, except for the obvious logical error he makes at the start of his analysis. He claims that "[t]he president and his advisers seem to think that if you have what they call a ``generous'' health-insurance plan through your employer, you routinely take advantage of every provision even if not needed." I've never ever heard anybody claim that is what is wrong with our healthcare system, certainly not anybody advocating anything similar to what the President is advocating. In fact, the opposite is true, most insurance policies that people buy today are larded up with coverage components that they will never use but which they pay for. Men bear the costs of single moms having babies and women bear the cost of men getting treated for prostate cancer. Non-smokers bear the cost of lung cancer and grandmas bear the cost of birth-control. Furthermore it is not that we use every feature of our insurance that drives up cost, it is that when we do get sick we often overuse services in the process - we take too many diagnostic tests, we try too many drugs to see what works, we see too many doctors. We do this because we have already paid for the care and we want our money's worth now that we are in the system. Essentially, we've already paid for the grocery to stock the shelves, once we enter the store we are inclined to just put items unthinkingly into the cart. The essence of President Bush's reform is to undo the perversion of the tax code that ensures that healthcare insurance companies see IBM or General Motors as their customer not Joe Worker or Susie Secretary as the customer. That is the problem, right now Aetna and all the rest of them aren't focused on me, they are focused on my employer. If there is a critique of President Bush's proposal it is that it doesn't sufficiently let consumers get around the needless and expensive mandates imposed by state regulators by establishing a national market for health insurance.

Depending On Your View, Income Inequality Is Either Not A Problem Or Hardly a Problem

Greg Mankiw highlights the nub of Ben Bernanke's speech yesterday on income inequality. He throws in a constrasting view from Jabba the Economist. The resolution, he claims, is a philosophical one, between the views of Rawls and Nozick. Why these are the only two visions on the menu is a good question, but let's overlook that for now. Even if you take the view that intrinsically looks more askance at inequalities, the Rawlsian view, it would not seem that income inequality is a basis for claiming significant injustice exists in our society today. At least, if you give this any credence:

"I am not ready to condemn an economy on the evidence of inequality, especially where the poor are constantly doing better."

Monday, February 05, 2007

Does Yudhoyono Hate Poor People?

A city about 17 times the size of New Orleans (population-wise) is 75% under water, and, frankly, it doesn't seem to be big news, even there. Jakarta floods all the time and the city's residents appear to be fatalistic about it. They seem to understand that if you build a city in a spot where it is bound to flood, well, then you should not get too worked up when it, 'ya know, floods. I am waiting for the accusations that the Indonesian Prime Minister, Susilo Bambang Yudhoyono, has it out for some particular ethnic or racial group and that the Indonesian government apparatus is a criminal failure (it is but not for this reason) for its inability to pluck every last citizen from their rooftops and helicopter them to safety. Of course, I jest because we won't hear such cries. In Asia they don't get all bent out of shape over this type of thing (life is cheap in Asia) and they don't really expect anything from their government in the way of humanitarian caring and concern. While we are different, we feel that our wealth and democratic tradition means we should strive for a government that can and should provide assistance in times of trouble, we should note that we are exception around the world. For the most part around the world it is still every man for himself and what level of help the US government did supply the residents of New Orleans was an incredibly large amount and a rare occurence relative to our world at large.

Friday, February 02, 2007

True Colors

All The Tell-Tale Signs of a Big Nothing

Let me's fervently adopted as a cause by Hollywood, the main institution pushing the issue is the U.N., politicians are scrambling to 'do something', and skepticism is met with derision and calls for censorship. In other words, it looks like a duck, walks like a duck, and quacks like a duck. Global warming is a phony, non-problem.

Thursday, February 01, 2007

Americans Don't Save, They Invest

Americans continue to invest heavily in America and the global economy. Simultaneously, the press is hot to report that the savings rate is at a multi-decade low. I have pointed out before the pure absurdity of claiming that the wealthiest nation that ever existed does not save adequately. It is a logical disconnect of massive proportions. Nonetheless the theme persists throughout the MSM (check out that incredibly stupid headline in the link) and in the minds of idealogical-driven curmudgeons like Morgan Stanley's Stephen Roach, who have the cover of a respectable job as an impartial analyst. So let's say it again all together now, "savings rate statistics do not account for investment gains!" We are not a nation that puts cash under the mattress and that is what the savings rate essentially measures, how much cash is under the mattress. We are ravenous investors in stocks, bonds and real estate. In addition we are aggressive investors in ourselves, pouring hundreds of millions of dollars into higher and technical education, all of which is treated as 'spending' in the savings statistics even though it is clear to us that there is a high financial return on education in our modern economy.

Bottom line, in terms of meaningfulness, the savings rate is pure garbage. Ponder how today's savings rate, which accompanies an all-time high in for the stock market, can be similar to that of the Depression Era. Immediately that should tell any halfway intelligent person that something else must be going on and to look elsewhere for relevant factors.