Monday, February 28, 2005
Satisfied now, Thomas?
PARKERSBURG, W.Va. Feb 26, 2005 — The Social Security trust fund really does exist -- nestled in the bottom drawer of an unremarkable government file cabinet.
It's in a pair of white loose-leaf notebooks holding plastic page covers.
Each caresses a piece of paper representing a bond worth a staggering amount of money. Say, $8,577,396,000.00 ($8.577 billion), due on June 30, 2013, with 6.5 percent interest.
"The paper is symbolic," says Pete Hollenbach, spokesman for the U.S. Bureau of Public Debt, the creation of a 1994 law that anticipated the current debate about Social Security's solvency and whether the trust funds held anything more than IOUs.
As the computer era flowered, Congress passed legislation requiring the Treasury to create a "physical document in form of bond, note or certificate of indebtedness, rather than accounting entry."
"I viewed it as somewhat Biblical ... like doubting Thomas," says Andy Jacobs, the former Indiana congressman behind the law.
In an interview, Jacobs said he wanted to rebut the "disingenuous assertions" that there was no trust fund, even though there was, in fact, no vault stuffed with cash to pay benefits... [AP]
Steroids in baseball during the 1980s.
There weren't any. So say members of the 1986 Mets World Series Championship team who got together this weekend in New York to promote the opening of the new season.
No steroids for them?
That's as easy to figure out as turning on a TV.Yes, probably.
"All you have to do is watch our games on ESPN Classic," said Ron Darling, noting how much smaller players looked.
Darryl Strawberry said, "We weren't juicing up. We were a bunch of drunks, probably." [NY Post]
Ah, memories of baseball the way it oughta be.
No publicity is bad publicity, as long as they get the name right.
It looks like Barnum was on the money even for the electronic age.
And, of course, we all remember how Paris Hilton herself gained the celebrity to become a celebrity endorcer.
Socialite's nightmare is a cell phone company's dream.
T-Mobile stores in New York are selling out of Sidekicks (a handheld device that stores information online) despite — or more likely, because of — the fact that celebrity phone numbers and naughty pictures were stolen off one belonging to bad-girl heiress Paris Hilton.
"We had an unusually high demand this week," said one Manhattan store employee.
The fact that Hilton currently appears as a celebrity endorser in TV commercials for the Sidekick only added to the attention.
If it turns out that an X-Rated video of Fred Durst that was posted online Friday also came from a Sidekick (the source is unclear), the company will enjoy the kind of brand recognition you can't buy these days.
Marketing experts say T-Mobile, far from being embarrassed, should spoof the incident.
T-Mobile wouldn't be the first company or product to gain widespread exposure through an infamous incident, high-profile crime or compromising situation. The history of marketing shows that such notoriety rarely results in damage to a brand, and more often than not helps.
Chicken of the Sea signed pop star Simpson as a spokeswoman after she seemed puzzled as to whether it was tuna or chicken on an episode of her reality show "Newlyweds."...
... the O.J. Simpson trial helped put Bruno Magli shoes on the map. The company's sales shot up 30 percent after prosecutors claimed Simpson wore the shoes, and Simpson denied it ... . [NY Post]
The future of Europe, such as it is...
Three years ago The Economist in a special report looked at the demographic differences between Europe and the US, and the implications thereof.
Its conclusion was that the future of Europe is dimming, while that of the US is still glowing...
"In other words, you ain't seen nothing yet. These trends suggest that anyone who assumes the United States is now at the zenith of its economic or political power is making a big mistake.Now, as French unemployment hits 10%, the subject is making its way in a perfect little storm across the blogosphere, and even the mainstream media.
"There are plenty of other ways in which America could weaken itself economically or politically, but demography will offer a fine basis for future growth, and strength...
"In short, the long-term logic of demography seems likely to entrench America's power and to widen existing transatlantic rifts.
"Perhaps none of this is altogether surprising. The contrast between youthful, exuberant, multi-coloured America and ageing, decrepit, inward-looking Europe goes back almost to the foundation of the United States.
"But demography is making this picture even more true, with long-term consequences for America's economic and military might and quite possibly for the focus of its foreign policy."
Mark Steyn (if you don't read him, you should if only for the fun of it) expands in Austin Bay's comments section upon some thoughts he expressed in a recent column...
That was edited -- as they say, "go read the whole thing".
... right now, the only European country breeding at replacement rate is Muslim Albania.
Declining population isn’t necessarily a problem - my own New Hampshire town, for example, survived a 130-year population decline from 1820 to 1950 ... But New Hampshire’s entire social structure wasn’t founded on a welfarist model dependent on continuous population growth to sustain state benefits...
There are two ways you could deal with this - either reform of the welfare states or massive immigration higher than America at its pre-World War One immigration peak. No European politicians have the courage to address the former (openly), so they’ve signed on to the latter (silently).
In the end, the idea of using the Third World as your surrogate mother isn’t a long-term solution either: in 2020, a skilled educated Indian, Chilean, Chinaman, Singaporean will be able to write his own emigration ticket anywhere on the planet. Is it likely he’ll want to choose a part of the world where the basic tax rate will be 60%?
That means Europe will be almost wholly dependent on the Muslim world for immigration - and one of the features of super-tolerant anything-goes post-Christian Europe is that it radicalises hitherto moderate Muslims.
Look at the number of Islamist terrorists who are creatures of the Euro-Canadian welfare systems - Richard Reid the shoe bomber, Zac Moussaoui, Ahmed Ressam, even Mohammed Atta’s political character was formed in large part by his time in Germany.
A senior Dutch cabinet minister told me in 2003 that what really scared him was that young Dutch Muslims were more Islamist and less assimilated than the grandparents who’d arrived in the early Seventies....
There are two likely longterm outcomes of all this:
a) Europe will simply become Muslim, as is already happening in secondary Scandinavian and Benelux cities;
b) ... Europeans will see their declining economic fortunes, increasing crime, unaffordable welfare systems, etc, within the context of their demographic transformation, and some will react in the traditional European way - ie, violence, massive destabilisation, etc. Will this work in the long run? I doubt it. Like the “Take Back Vermont” campaign of five years ago, once you’re talking about taking it back you’ve already lost it...
... we’re already seeing the start of a continent-wide equivalent of the “white flight” from US cities in the Seventies: the Netherlands is now a net exporter of its own people.
So: you tell me how we get to the happy ending.
Progressive secular welfarism is a great life - but only for a generation or two. After that, it’s a death cult.
Meanwhile, Steyn has come out with a follow-up column, and the NY Times on the same day runs a story on white flight from the Netherlands.
And, simultaneously, a much longer article observing the Dutch situation in a good deal more detail appears in London's Sunday Times Magazine, offering among its lessons that this is what happens when a major tide of Muslim immigrants arrives in a nation with a society grown so permissive that ...
a magistrate ruled recently that an armed robber was entitled to a tax rebate on the cost of his gun as a tool of his trade-- a bad combination, that.
My own personal friends and aquaintances in Germany and Sweden say much the same: the Swedes telling stories of Muslims that fit right with the above, and the Germans saying they they need immigrants but all the first-class ones go to what is still the land of opportunity, America -- Germany has grown uncompetitive even at attracting immigrants.
This is all well-worth remembering when facing up to the US's own social problems and future challenges in financing Medicare, Social Security and so on while maintaining growth and competitiveness in future generations.
Those are real enough, to be sure -- but the comparable problems facing Europe and Japan are much worse. (And those already in the pipeline for China may be worse yet, but that will be for another post).
So don't get down on the US just because it has some problems, while neglecting the larger perspective.
As The Economist said, it may well be that "you ain't seen nothing yet", the best for the US remains yet to come.
Sunday, February 27, 2005
First civil rights lawyers argued that there should be equality between the races. Then they argued for preferences between races. Now they want to pick "first among equals" within races...
More Africans Enter U.S. Than in Days of SlaveryAnd now we see the argument for race based affirmative action, as opposed to the need based variety, turning to devour its own tail.
Since 1990, according to immigration figures, more have arrived voluntarily than the total who disembarked in chains before the United States outlawed international slave trafficking ... and more have migrated here ... than in nearly the entire preceding two centuries...
"Historically, every immigrant group has jumped over American-born blacks," said Eric Foner, the Columbia University historian. "The final irony would be if African immigrants did, too."...
Many speak English, were raised in large cities and capitalist economies, live in families headed by married couples and are generally more highly educated and have higher-paying jobs than American-born blacks...
[But] the growing proportion of immigrants may further complicate the debate over programs envisioned to redress the legacies of slavery...
Professor Charles J. Ogletree Jr., who teaches at Harvard Law School and has warned colleges and universities that admitting mostly foreign-born blacks to meet the goals of affirmative action is insufficient.
"Whether you are from Brazil or from Cuba, you are still products of slavery," he continued. "But the threshold is that people of African descent who were born and raised and suffered in America have to be the first among equals."... [NY Times]
Students do better with teachers of their own race, says NBER study.
Teacher's Race May Play a Role in Student Achievement
Matching students with teachers based on race may improve pupils' academic achievement, according to a new study released by the National Bureau of Economic Research.
The paper, titled "The Market for Teacher Quality," uses statistical and economic analysis to investigate differences in teacher quality and what accounts for them. The bureau, based in Cambridge, Mass., is a nonprofit, nonpartisan economic research organization.
The study, which was first made available last Friday, was written by a Hoover Institution fellow, Eric Hanushek; a professor at Amherst College, Steven Rivkin, and the University of Texas at Dallas's Daniel O'Brien and John Kain.
... For example, the researchers concluded that on average black students with black teachers "would be boosted 2-4 percentile points," Mr. Hanushek said in an e-mail.
"What we concluded, holding constant the overall quality of the teachers, was that it did make a difference that black kids have a black teacher, and white kids have a white teacher," he said in a telephone interview yesterday.
"What policy should come from that," he added, "is not obvious."... [NY Sun]
The precocious spy?
The Times today carries the obituary of Robert W. Kearns, former Professor of Engineering at Wayne State University, who passed away at age 77.
Dr. Kearns' claim to fame was winning one of the most famous of patent cases where the little guy took down the big guys. He invented and patented the intermittent windshield wiper mechanism for use in light rain or mist and tried to interest the big auto makers in it, but they all rejected his idea. Then when they all afterward installed intermittent wipers on their cars he sued them all for patent infringement and took them all for the big bucks. But that's another story.
The obit says Dr. Kearns had a second accomplishment:
He was a member of the Office of Strategic Services, the forerunner of the Central Intelligence Agency, during World War II.Hmmm... Given his age of 77 this year (birth confirmed at March 10, 1927) he was 14 years old on the date of Pearl Harbor, didn't turn 18 until two months before the war in Europe ended, and still was only 18 when the OSS was dissolved in October of '45. So I assumed the OSS reference was a mistake.
But apparently not, for it is in other reference pages about him as well, and he even later served as a member of the Board of Directors of the Veterans of the Office of Strategic Services.
So enough about windshield wipers -- what does it mean to be "a member of the Office of Strategic Services" at age 17? (or 16? 15??).
My first guess would be something like he enlisted in the Army young and got assigned to an OSS mail room sorting letters -- but does that make one a "member", and set one up to be on the future Board of Directors of the Veterans group along with Bill Casey?
No further explanation given. Throw away lines like that in obits drive me batty.
(Maybe it was his OSS bretheren who arranged to get all that money out of GM?...)
Saturday, February 26, 2005
Road Kill candy becomes road kill
New, cool shape from Trolli! Gummi Trolli brings back the fun of Gummi Candy with an off beat twist on animal shapes.
Trolli Road Kill is three animals: a snake, a chicken and a squirrel, each with a tire track down the middle of the piece!
It's not an adult's gummi candy, that's why teens/tweens love it!
TRENTON, N.J. (AP) - Production of candy shaped like roadkill has come to a screeching halt. The decision, announced Friday by Kraft Foods Inc., was the result of an outcry by New Jersey animal rights activists who said the candy encouraged children to be cruel to animals...
Kraft plans to stop production as soon as possible and then sell off remaining inventory, Baumann said.
The fruity-flavoured Trolli Road Kill Gummi Candy - shaped like flattened snakes, chickens and squirrels, complete with tire treads - hit store shelves last summer and was supposed to be another offbeat and unusual addition to Kraft's Gummi candy line.
But the nonprofit New Jersey Society for the Prevention of Cruelty to Animals thought differently. Earlier this week, it threatened petition drives, boycotts and letter-writing campaigns.
Stuart Rhodes, the organization's president, said he never thought his group's efforts would be so successful.
"Did I think it would happen as fast as I did? No..." [AP]
No joy for tweens.
Hey, whatever happened to those ruthless greedy capitalists of the good old days who would have run over their own mothers on their way to Latin America to destabilize a government for a buck? When did they become such intimidated weenies?
And as far this president of the Society for the Prevention of Cruelty to Animals is concerned -- do you suppose he might have used those "petition drives, boycotts and letter-writing campaigns" to save real animals, instead of candy ones, from being hurt?
How many real animals had to die for his humorlessness?
(Heh, heh, I would have enjoyed being in the product development meeting when they came up with the idea for that one.)
Anyhow, if you see any bags of candy road kill, stock up -- they're collectors items now.
An economist predicts the Oscar winner.
Why not? Economists are picking presidential races, running casinos, writing political columns, running baseball teams, and doing everything else in the world apart from economics.
So Professor Andrew Bernard of the Tuck School of Business at Dartmouth, fresh from predicting how many medals each nation would win at the 2004 Olympic Games, has produced his Index of Oscar Worthiness for the films nominated for best picture. (Notwithstanding his noting in today's Wall Street Journal that he hasn't seen any of them.)
To get the technical details follow the link. If you just want to see his odds before making a friendly wager with your friends, he gives the probability of winning the best picture award as...
The Aviator, 85%
Million Dollar Baby, 13.2%
Rest of the Field, 1.8%
Tradesports has The Aviatior at only 61%, so if you think you can believe an economist's back-tested data mining, get your money down!
Update: And the winner is ... Million Dollar Baby.
So much for data mining, back tested or not.
At least it wasn't Sideways.
X-Rated legal opinion of the week.
Sort of a
Man Can Sue Woman For Sperm Theft Distress
A woman accused of using her lover's sperm to impregnate herself without his knowledge can be held liable for the unwitting father's emotional pain, the Illinois Appellate Court has ruled.
In the ruling released Wednesday, a three-judge panel reinstated part of a lawsuit against Sharon Irons, a doctor from Olympia Fields... Irons was sued by her former lover, Chicago family physician Richard O. Phillips, who accused her of a "calculated, profound personal betrayal" of him after a brief affair they had six years ago.
Phillips alleges that he and Irons, who practices internal medicine, never had intercourse during their four-month affair, although they did have oral sex three times.
His suit contends that Irons, without his knowledge, kept some of his semen and used it to impregnate herself...
Nearly two years later, Irons slapped Phillips with a paternity suit...
Phillips then sued Irons, claiming her actions robbed him of sleep and caused him to have trouble eating. He is haunted by "feelings of being trapped in a nightmare," ...
Irons responded that her alleged actions weren't "truly extreme and outrageous" and that Phillips' pain wasn't bad enough to merit a lawsuit. The circuit court agreed and dismissed Phillips' suit in 2003.
But the higher court ruled that, if Phillips' story is true, Irons "deceitfully engaged in sexual acts, which no reasonable person would expect could result in pregnancy, to use plaintiff's sperm in an unorthodox, unanticipated manner yielding extreme consequences."
But the judges agreed with the lower court's decision to dismiss fraud and theft claims against Irons. They agreed with Irons' lawyers that she didn't steal the sperm.
"She asserts that when plaintiff 'delivered' his sperm, it was a gift -- an absolute and irrevocable transfer of title to property from a donor to a donee," the decision said. "There was no agreement that the original deposit would be returned upon request"... [AP]
Friday, February 25, 2005
We now have a fifth federal court decision holding that the federal tax on long-distance telephone service is being collected illegally by the IRS in many, if not the great majority of, cases these days.
This time the refund is more than $1.25 million, and once again -- as in three of the other cases -- the decision is by summary judgment, meaning the court decided the IRS didn't even have an argument worth listening to at a full trial. [Honeywell International, Inc. v. U.S., No. 03-1915T, Court of Claims]
Once more the court gave the IRS a lecture about how "and" does not mean "or" -- explaining that the Tax Code imposes a tax on long distance calls that are individually billed by time and distance.
In today's world few long-distance plans bill like that any more. However the IRS has nevertheless continued to tax all calls on the logic that Congress intended to tax all calls, deducing that therefore the word "and" in the Tax Code has evolved over time to come to mean "or", so it can tax calls billed either by time or distance -- an argument that the courts have thus far found unpersuasive.
While the big companies are fighting this out with the IRS the same logic applies to everybody's tax bill. If you have a small business, or even significant personal long-distance charges, it may pay to protect a refund claim for yourself.
Full references to the other cases and to legal analysis that can help your tax advisor do this for you (you really can't do it yourself unless you are a tax professional) were given previously.
People in the industry say refunds could total $6 billion and growing. Go claim your share!
Social Security saved! (?)
Sabo to introduce Social Security planAh, now if you are smarter than the Congressman and can see why increasing the interest rate on the bonds in the trust fund won't contribute a whit towards covering the government's cost of financing Social Security, then you can see why the current interest rate on the bonds in the trust fund, and indeed the bonds themselves, do not contribute a whit towards covering the government's cost of financing Social Security.
U.S. Rep. Martin Sabo, D-Minn., announced today that he will introduce a bill in Congress that he says will guarantee Social Security solvency through 2080 by increasing the interest rate on Treasury bonds in the Social Security trust fund... [StarTribune]
On the other hand, if you think increasing the interest rate will ease the future cost of financing Social Security, hey, then don't be piker about it -- increase the rate enough so the trust fund will cover the cost of Medicare too. Then we'll all be home free with our retirements!
It's safer to just die of exposure and not risk it.
Hunter fined $18 million for forest fireAn $18.2 million fine for a misdemeanor? What's the going rate out there for a felony these days?
REDDING, Calif. - A lost hunter who started a forest fire in northern California while trying to keep warm was ordered to pay $18.2 million in restitution Wednesday. The fire in the Mendocino National Forest burned 6,058 acres...
Jason Hoskey, 26, of Willows, lit a campfire when he got lost hunting on Sept. 27, 2003. The fire spread after he fell asleep.
Hoskey pleaded no contest in September to a federal misdemeanor of leaving a fire burning or unattended.[AP]
Doughnuts, not cheeseburgers, dummy.
Cops say suspect offers cheesy bribe
Steven T. Denton, 32, was charged with a felony count of attempting to bribe a law officer after he allegedly offered to spring for McDonald's cheeseburgers in exchange for his release. Denton was taken into custody following a fracas at the Dockside Lounge on Sombrero Boulevard.
"Denton told me that if I would drive him to McDonald's, he would buy me two cheeseburgers if I let him go and did not take him to jail," reported Deputy Mark Eastty of the Monroe County Sheriff's Office. [Keynoter]
Thursday, February 24, 2005
That was the chant picked up by Harvard faculty members in a meeting with University President Larry Summers yesterday.
February 23, 2005 -- CAMBRIDGE, Mass. — More than half of Harvard's professors disapprove of embattled President Lawrence Summers — and a third want him to quit, a poll revealed as faculty members gathered yesterday to debate his future... [NY Post]I'll have only one comment on this whole circus at the moment.
Remember when not so long ago yet another survey found that on the faculties of leading universities Democrats/liberals outnumber Republicans/conservatives by some ratio like 7,000 to 1?
And remember when university representatives replied:
"That's no evidence of discrimination against non-liberals here. We are all professionals, and whatever our own political beliefs may be we would never discriminate against non-liberal candidates for faculty positions on the basis of some sort of liberal political correctness..."
Another liberal being mugged by reality. Do you suppose he'll emerge from the experience a neo-conservative?
By the way, why isn't Bill Clinton speaking up for him?
(OK, that was three comments, sorry.)
Doug Wead wakes up with a horse head in his bed.
An old friend of President Bush who secretly recorded their private conversations and released them to the media said he has regrets and is turning the tapes over to Bush.Why just on Monday Mickey Kaus was reading Wead's statements as warning off the Bushies: "Don't mess with me. I have the goods."
"Contrary to a statement that I made to the New York Times, I have come to realize that personal relationships are more important than history," Wead wrote in a letter to [TV show] host, Chris Matthews...
"I am asking my attorney to direct any future proceeds from the book to charity and to find the best way to vet these tapes and get them back to the president to whom they belong"... [AP]
Let us all learn from this not to go messing with professionals.
Earlier, Eric Fettmann had a couple of observations about the Wead affair.
Bob Dylan attacks younger musicians.
Bob Dylan has launched a withering attack on contemporary rock bands in the programme notes for his latest American tour.One thing about my generation: we've always known the other generation sucked.
"I know there are groups at the top of the charts that are hailed as the saviours of rock'n'roll and all that, but they are amateurs. They don't know where the music comes from," he wrote, adding, “I wouldn't even think about playing music if I was born in these times... I'd probably turn to something like mathematics."... [NME]
Scott Ritter, still in the news.
Writing for Aljazeera, when not making public appearances...
SCOTT RITTER SAYS U.S. PLANS JUNE ATTACK ON IRAN, ‘COOKED’ JAN. 30 IRAQI ELECTION RESULTSPortentious revelations... I'd like to know what got into that guy's head.
Scott Ritter, appearing with journalist Dahr Jamail yesterday in Washington State, dropped two shocking bombshells in a talk delivered to a packed house in Olympia’s Capitol Theater. The ex-Marine turned UNSCOM weapons inspector said that George W. Bush has "signed off" on plans to bomb Iran in June 2005, and claimed the U.S. manipulated the results of the recent Jan. 30 elections in Iraq.
Olympians like to call the Capitol Theater "historic," but it's doubtful whether the eighty-year-old edifice has ever been the scene of more portentous revelations... [UfP]
There's another Carnival in the blogosphere....
The Carnival of Education. Check it out.
Wednesday, February 23, 2005
An interesting article in the New Yorker. Some excerpts...
There's also a good amount on the history of how Hollywood got where it is.
...In 1946, weekly movie attendance was a hundred million. That was out of a population of a hundred and forty-one million, who had nineteen thousand movie screens available to them.
Today, there are thirty-six thousand screens in the United States and two hundred and ninety-five million people, and weekly attendance is twenty-five million...
About ten or fifteen years ago, it became dogma in the movie industry that you could make a movie for ten million dollars or for a hundred million dollars, but there was no profit in anything with a budget in between.
One reason for the Hollywood budget gap is above-the-line expenses—that is, the cost of the talent, as opposed to the cost of the crew, sets, travel, promotion, and so on ... the safe thinking is that only a handful of stars can open a movie worldwide. These stars command a healthy portion of the budget, and they usually take their money in the form of an advance against a percentage of the gross. If the movie doesn’t "make back," the star gets to keep the advance...
Thomson believes that profit participation has done the movies a lot of damage, because it allows people to profit from the success of an investment with no risk to themselves on the downside. He also thinks, more provocatively, that "creative control" is another source of trouble. When United Artists gave Michael Cimino the right of final cut on “Heaven’s Gate,” in 1980, it meant, Thomson says, that Cimino "owned a thing he had not paid for." He could indulge himself with other people’s money. “Heaven’s Gate” is, canonically, “the movie that killed the New Hollywood.” It almost killed United Artists, too....
[But] the risk of opening without a name is too great to take. The actors who provided the voices for the animated characters in “Shrek 2”—Mike Myers, Eddie Murphy, and Cameron Diaz—were paid ten million dollars each for a few days’ work in the studio. No prosthetic attachments; no early calls. Stars are brands.
So, of course, are names from the pop-culture universe—Hulk, Spider-Man, King Kong—and sequels, such as the “Die Hard”s, the fourth of which is scheduled to shoot this summer. These are all ways of preselling the picture, before the reviews can unsell it.
The key to the system is marketing.... The all-consuming desire is to get as many ticket buyers as possible into the theatre on the first weekend, and, amazingly, people oblige.
The crowds at the opening of a blockbuster are a fascinating window on mass psychology. If people just wait a couple of weeks, they can have their pick of seats. But when they get back to school or to the office no one will want to hear what they thought of the picture...
Deals are therefore made with the theatre chains which give the studio a large percentage, sometimes ninety per cent, of ticket sales in the first week, with a rapidly declining percentage in subsequent weeks. The theatre gets ... a hundred per cent of the income from sales of popcorn, soda, candy, video games, and anything else it can cram into the lobby. Concessions account for thirty-five per cent of the revenue in the major theatre circuits. This explains the three-dollar water.
“Hulk” set a record with a seventy-per-cent decline in ticket sales between its opening and the second weekend, but the average drop-off for all movies is fifty per cent...
Marketing costs for the “Matrix” sequels exceeded a hundred million dollars. The reason that those movies had such enormous grosses, despite terrible reviews and negative word of mouth, is that each opened on eighteen thousand screens simultaneously worldwide. As Shone says, about the typical blockbuster, “By the time we’ve all seen that it sucked, it’s a hit.”...
"Troy,” which is considered a failure, has grossed just under half a billion dollars. The poor reviews for “Troy” didn’t matter, because seventy-three per cent of its box-office revenue came from overseas.
Foreign box-office income started exceeding domestic box-office income for Hollywood movies in 1993. For the typical top-ten box-office hit, sixty per cent of exhibition revenue comes from overseas. This is a reason that the women don’t have much dialogue, and the men are too occupied with driving, wrecking, and leaping to utter more than an occasional mal mot....
The ideal product to market is a “four-quadrant” picture, a movie that appeals to men and women in both the over- and the under-twenty-five age groups. That’s one reason performers with high adult recognition—Robin Williams, Eddie Murphy, Billy Crystal, Robert De Niro—are paid so much for cartoon voice-overs...
Blockbusters today aspire to be “tent-pole franchises”—centerpieces for multiple spin-off products, from lunchboxes to soundtracks, comic books, children’s books, arcade games, and computer games. “Batman” earned three times as much from merchandise as it did from ticket sales ... Blockbusters today are commercials: they’re commercials for themselves.
They also include commercials, in the form of product placement. The all-time record for product placement appears to be owned by the Bond film “Tomorrow Never Dies,” which sold screen time to Visa, Avis, BMW, Smirnoff vodka, Heineken, Omega watches, Ericsson cell phones, and L’Oréal...
The blockbuster is a Hollywood tradition, but blockbuster dependence is a disease. It sucks the talent and the resources out of every other part of the industry. A contemporary blockbuster could almost be defined as a movie in which production value is in inverse proportion to content. “Troy” is a comic strip, but what a lavish, loving, costly comic strip it is.
The talent, knowledge, and ingenuity required to make just one of the battle scenes in that film, or one mindless James Bond chase sequence, interchangeable in memory with almost any other Bond chase sequence, would drain the resources of many universities.
But why doesn’t anyone put more than two seconds’ thought into the story?...
After all, as the article points out, the basic economics of movie making haven't really changed since profit participation was handed out in the first blockbuster, "Birth of a Nation", and since Charlie Chaplin, Douglas Fairbanks, Mary Pickford, and D. W. Griffith, formed United Artists to secure the profits of and creative control over the films they were providing the talent for -- Dreamworks 1919.
So what started off there as a slowish book review turned into a good read, worth following the link to get the full story if you are interested in such things.
(The dismissive treatment of George Lucas's baby is worth it by itself, IMHO: "Not that people haven’t tried, God knows, but there is just nothing serious to say about the larger implications of 'Star Wars.'")
Could the US have bought its way out of the Civil War?
Brian Gongol (who deserves kudos for what he's contributed to facilitating the Carnival of the Capitalists) has an interesting post (available through this week's CotC) speculating that everyone would have been better off if back before the Civil War the slavery issue had been resolved by the federal government simply buying the freedom of all slaves at market price.
I'll do his interesting and informative presentation a disservice by boiling it down to its gist:
The logic, in brief, takes the average market price of a slave at the time, multiplies by the number of slaves, and compares the resulting total to the cost of the war. Finding that the war was more costly than that, the conclusion is that things would have been better if the government had just bought all the slaves at market price (or maybe a little higher, to give slave owners an incentive to sell) to end the institution voluntarily without bloodshed.
Well, taking the view of people walking around in 1859 one can think of various practical problems that probably would have made implementing such a proposal impossible (and probably in fact kept it from being proposed on a national scale). Such as: few expected any coming conflict to be anywhere near as costly as it was, so the cost comparison was not visible; and if the South had been made largely whole (or better than whole) by the purchase of its slaves, as would be necessary for it to go along voluntarily, then the entire expense of ending slavery -- comparable to the actual cost of the Civil War -- would have fallen on Northern taxpayers alone, who probably would have been quite reluctant to see somebody else's vice so rewarded at such huge cost to themselves. Among others.
But putting all that aside, I suspect the basic calculation is wrong. The market price for a slave in 1860, like the free market price for anything anytime, was the marginal price at a given level of supply. But once the federal government started buying slaves and removing them from the market, the supply would diminish -- so by standard supply-and-demand the price would go up. And a quick look at the standard textbook supply-demand curve (interactive!) shows that as supply diminished towards zero, price would goes up a lot as the supply curve shifted all the way left.
The thing is that while the scheme reduces the supply of slaves, nothing about it reduces the demand for them -- and when supply steadily diminishes while demand stays the same price goes zoom.
(And this could lead to a complicating problem -- an ever-growing financial incentive to re-supply the market with slaves brought in from the Caribbean, to sell at an ever-increasing premium to the government or whomever as the market price rose. Britain outlawed slavery in its territories in the 1830s, but in 1860 slavery still continued right next door in Cuba, Puerto Rico and other Caribbean areas. Importing slaves to re-sell at profit would of course be illegal, but all it would take to accomplish it would be smuggling and paper-forging -- and how would an 1860s-era federal government stop it? )
Ever-rising price would probably quickly reveal the entire exercise to be futile. That is, assuming it was conducted through voluntary market transactions.
As an alternative, we might imagine (for we are getting far from historical political reality here) the North making a carrot-and-stick offer to the South -- offering to pay $X, the market price of a slave at the time multiplied by the total number of slaves, for all of them -- and threatening to emancipate them by dictate and necessary force if the South did not accept.
The problem with this proposal is that it does not make the Southern slave owners whole -- and probably wouldn't even come close to doing so.
Again, this is because the market price of a slave was the value of the marginal one brought to market at a given time -- many others, worth much more to their owners, wouldn't be brought to market except for a price that was far higher. Thus, an offer from the North to pay only the lower price for all slaves would cause slave owners to in fact suffer a big loss -- and so naturally would be rejected.
If the consequence of rejection was the North following through using the stick by taking steps to end slavery, then we'd be back to where we wound up anyway, at Fort Sumter.
But all this is quite an interesting mental exercise, entirely relevant to various current attempts to resolve social problems by market means today, some examples of which are given by Mr. Gongol.
The Carnival is always full of all sorts of posts that are worth reading, so check it out.
Tuesday, February 22, 2005
Fine ... but they should first apologize to the parents and taxpayers of New York for taking their children and $12 billion of their tax money annually to run a school system in which this can not only happen, but when it does the school principal's instinctive first defense is: "We would never censor our sixth graders". A school system that, no matter how much its spending goes up, remains utterly devoid of accountability.
The city Department of Education, red-faced over Brooklyn sixth-graders who slammed a GI with demoralizing anti-Iraq-war letters as part of a school assignment, will send the 20-year-old private a letter of apology today.
Deputy Schools Chancellor Carmen Farina, who has a nephew serving in Iraq, plans to personally contact Pfc. Rob Jacobs and his family. Jacobs is stationed 10 miles from the North Korean border and has been told he may be headed to Iraq in the near future...
Filled with political diatribes, the letters — excerpts of which were printed in yesterday's Post — predicted GIs would die by the tens of thousands, accused soldiers of killing Iraqi civilians and bashed President Bush.
Teacher Alex Kunhardt had his students write Jacobs as part of a social-studies assignment....
One girl wrote that she believes Jacobs is "being forced to kill innocent people" and challenged him to name an Iraqi terrorist, concluding, "I know I can't."
Another girl wrote, "I strongly feel this war is pointless," while a classmate predicted that because Bush was re-elected, "only 50 or 100 [soldiers] will survive." A boy accused soldiers of "destroying holy places like mosques."
Jacobs said he would welcome a letter from the Department of Education and the teacher... [NY Post]
Soldier Stunned By Letter Kids' Rants
Pfc. Rob Jacobs of New Jersey said he was initially ecstatic to get a package of letters from sixth-graders at JHS 51 in Park Slope last month at his base 10 miles from the North Korea border.
That changed when he opened the envelope and found missives strewn with politically charged rhetoric, vicious accusations and demoralizing predictions that only a handful of soldiers would leave the Iraq war alive...
One Muslim boy wrote: "Even thoe [sic] you are risking your life for our country, have you seen how many civilians you or some other soldier killed?"
His letter, which was stamped with a smiley face, went on: "I know your [sic] trying the terrorists but you are also destroying holy places like Mosques."...
... nine of the students made clear their distaste for the president or the war.
The letters were written as a social-studies assignment.
... the school principal, Xavier Costello, responded with a statement:
"While we would never censor anything that our children write, we sincerely apologize for forwarding letters that were in any way inappropriate to Pfc. Jacobs. This assignment was not intended to be insensitive, but to be supportive of the men and women in service to our nation." [NY Post]
Of course, nobody in the NYC public school system would ever censor students' assignments ... or even use them to teach students how to spell.
They don't collect $12,000 per student per year to do that.
And that's all you really need to know.
How big is Instapundit's pot of gold?
Tim Worstall estimates what all bloggers dream waits for them at the the end of the rainbow ... the income Instapundit pulls in from blogging.
How much? Go see. I'll just say that, in light of the average law professor's salary, being one of the early ones to try out that new blogging business in one's spare time wasn't such a poor idea.
Drudge headline, Monday evening:
We know Matt enjoys how some think of him as being a bad influence, but maybe he's getting a little full of himself?
Monday, February 21, 2005
Capitalism marches on...
Well, now we know what Vegas-types value for getting money from NASCAR-types. I mean, a bidding contest topped by a lawsuit!
A pregnant woman in Roswell, Ga., is being sued over advertising space on her stomach...
Elisa Harp, of Rosewell, Ga., offered ad space on her stomach this month on the eBay auction Web site.
Although SunPoker.com placed the highest bid to put their name on Harp's stomach, she chose to offer her stomach to another online casino because they offered her a spokewoman job...
"The highest bidder at first was SunPoker.com but I decided after the auction ended not to go with them and decided to go with The Golden Palace Casino," Harp said.
Harp, who is due to give birth next month, faces a lawsuit by SunPoker.com for violating eBay rules [that say] once bidding ends a product must go to the highest bidder... [local6]
Ms. Harp attends the Daytona 500 auto race to do marketing for the Golden Palace ... [video report]
The singing prophylactic.
Medical science marches on ...
Well, I can imagine how the sound of such music could come as a surprise ...
A scientist has come up with a musical condom that gets louder as the sex gets more vigorous.
The singing protective is designed to be a laugh for couples who want to make their own sweet music, says Ukrainian inventor Dr. Grigoriy Chausovskiy.
Different lovemaking positions determine what tune is played by the condom, which also works like a normal contraceptive.I can't wait until we get a Top 40 list of music downloads for these things.
The rubber has tiny sensors connected to a mini electronic device that produces the sounds.
"But there is no danger of being electrocuted," said Dr Chausovskiy, who has teamed up with a manufacturer to export the condoms to Britain.
They will cost about 20 per cent more than normal condoms. "But people will pay for the extra stimulation," he said.
The university professor wants people to tell him what tunes the condoms should play... [The Sun]
Dog reincarnated as firewood.
A couple were stunned to find the mirror image of their beloved pet dog -- embedded in a log.That's very impressive. But the way I always understood reincarnation was that if you lead a good life you'll come back as a higher-order being, and if you lead a bad life you'll come back as a lower-order being. So what kind of life does a dog have to lead to come back as a stick of wood?
Terry Wright and wife Joan were amazed to see a colour vision of their beloved labrador Bess, who died three years ago, set into the grain of a poplar tree.
Terry, 66, was about to throw the log on the fire at their 200-year-old cottage at Antrobus, near Knutsford, when Joan spotted the resemblance...
"I asked if she'd been drinking whisky, but when I looked at the log I was amazed...
"I've been offered money for the log but no amount will persuade me to part with it.
"Bess has come back to us in the most amazing way and this time she's staying right by our side forever." [Ananova]
Saturday, February 19, 2005
As soon as Alan Greenspan endorsed private accounts in Social Security we all of course knew the attack column would not be long in coming. And here it is.
It doesn't disappoint. Krugman uses guilt by association,
In his labors Krugman mentions "Iraq" five times. Now, it's hard to see exactly what either Social Security reform or the Federal Reserve Chairman's recommendations regarding domestic economic policy has to do with Iraq -- except via an attempt to tar them by association with what Krugman must assume his readers take to be shameful American failure there (see: "democratic elections, recent"). And to associate two such unrelated concepts in mind does of course take repetition: "Social Security reform? Iraq! Iraq! Iraq! Iraq! Iraq!"
Still, that ploy costs the column about 140 words -- and aren't the Professor's fans always complaining about how he is handicapped by being limited to only 700 to write in?
Then, when in the remaining 560 words Krugman gets to reporting what Greenspan actually said ... hey, he missed it!
In 2001, Mr. Greenspan offered a convoluted, implausible justification for supporting everything the Bush administration wanted. This time, he offered no justification at all...Hmmm... Krugman says Greenspan offered "no justification at all" for supporting privatization. None at all. How lame!
Mr. Greenspan offered no excuse for supporting privatization.
Yet that's very odd, as news reports elsewhere had Greenspan giving so many reasons for his favoring of private accounts...
The normally placid Greenspan rose almost to the threshold of passion as he made a class-based argument by contending that private accounts would allow low-income people to become mini-capitalists — in his view, a very good thing.All of which Krugman helpfully summarizes for his readers as: "Greenspan offered no excuse for privatization".
"When you have assets which you own, which you can bequeath to your children, (assets) which have your name on them, I think it is highly desirable thing, because you give wealth to people in lower- and middle-income groups who have not had it before".
The Fed chairman predicted private accounts would be "extraordinarily popular," and "if they are I think it is a very important addition to our society because, as you know, I’ve been concerned about concentration of income and wealth in this country ... This, in my judgment, is one way you can address that."
Greenspan said he prefers the private accounts structure because it allows the prefunding of future promised benefits [which allows them to be financed now, instead of when deficit will be much worse, later]
He argued that a system with accounts over the long-term has the potential to boost the national savings rate, which, in turn, can help spur economic growth.
"The central core of productivity increase is capital investment. And to have capital investment, you need to have savings," he said.
He also said he believes individual accounts offer future retirees a better chance of achieving the standard of living they will expect.
"We have been utterly unable in the pay-as-you-go system to create the necessary savings to finance the capital investment that we're going to need for the future to create the goods and services that retirees are going to need," he said.
et cetera and so on... [msnbc] [Reuters] [CNN] [DowJones] [...]
Gee, you know, if Krugman was honest he could have reported the excuses Greenspan actually gave for supporting private accounts, and then have tried to argue against them on the merits.
Instead of reporting that Greenspan didn't give any.
You know, in my mind that brings a three-letter word: "f - i - b". What do you think?
The Professor continues ...
Mr. Greenspan ... painted a dark (and seriously exaggerated) picture of the demographic problem, and said that what we need is a "fully funded" system. He then conceded that Bush-style privatization would do nothing to improve the system's funding.Hello? When I read illiteracy like this I'm tempted to believe what an academic economist e-mailed me some while back: that the real pre-2000 Krugman is to be found bound and gagged in a basement somewhere in Princeton and these columns are being written by Robert Kuttner, if not by something that climbed out of a pod sent over to the Times by the Democratic National Committee.
One doesn't have to be a preeminent social scientist to know that "funding" a retirement plan means financing it with savings -- instead of just using transfers, as per the status quo. And of course, obviously, self-evidently, creating private accounts funded with savings increases the system's funding. Over time, one could move from a 0% funded plan to a 100% funded plan this way. (How else could you do it?)
Yet Krugman (or whoever!) says:
"privatization would do nothing to improve the system's funding."Krugman here is intentionally trying to confuse the issue with something different. To wit: If at the time that you start funding a plan it already is underfinanced -- because Congress has promised far more in benefits through the plan than it has any way of paying -- that financing shortfall may remain totally unchanged by the introduction of funding. That's true enough, but it is an entirely different issue. And it does not mean you don't get the benefits from funding!
To see how the benefits that Greenspan talks of -- increased wealth for retirees, increased national savings, and the benefits of prefunding -- can be obtained through private accounts that increase funding while having no effect on the financing shortfall, here's an illustrative example.
Krugman in this column plays a bait-and-switch that he uses throughout his columns against private accounts. It goes like this: Advocates of private accounts say such accounts will provide numerous benefits. But private accounts won't close the financing gap that exists in the status quo -- which is the only thing that Krugman will admit counts. Therefore private accounts will provide no benefits!
He hopes you won't notice.
Mr. Greenspan went on to concede that the opponents of privatization are right to worry about the huge borrowing that Bush-style privatization would entail...Or maybe not. For some reason Krugman doesn't report that Greenspan ...
... also suggested that in determining interest rates and bond yields, the financial markets may already have accounted for the $16 trillion in unfunded liabilities of the Social Security and Medicare programs ...... in which case prefunding them would have no effect whatsoever on the financial markets.
After all, these liabilities for promised benefits already exist whether any bonds have been issued for them or not. The markets are not supposed to know they exist? If the markets do know they exist, and thus have already accounted for them, then why would the government's merely admitting they exist on its books change anything?
Moreover prefunding these liabilities, as we have seen from the above-mentioned example, changes their net current value by exactly $0. What's so huge about that? All this doesn't sound like such an outright "concession" as Krugman claims.
In fact, Greenspan said privatization could lead to a reduction in interst rates...
... if financial markets at least partially discount the transition costs for personal accounts with the reduction of future unfunded liabilities from the current system, then interest rates might fall as the debt outlook improves, he said.How come Krugman didn't report Greenspan saying that?
(And is the actual number that Greenspan talks about -- a $100 billion annual swing in temporary borrowing, less than 1% of GDP -- really such a "huge" amount in Krugman's mind, after all the many much larger swings we've seen ever since the Reagan years?)
Privatizers claim that financial markets won't be disturbed by all that borrowing because the Bush plan prescribes offsetting cuts in guaranteed benefits for the workers who open private accountsBecause, as we've seen in the example mentioned above, moving to funding is a wash as far as the government's liabilities are concerned, increasing them at current value by exactly $0.
And it is an advantage of pre-funding that it operates by moving the cost of financing future Social Security benefits forward in time towards today -- because today it is as a whole lot easier to finance them than it will be in the future.
Remember, when today's 30-year-old workers retire around 2040 either annual deficits will be approaching 20% of GDP -- macthing the entire federal government's expenditures today! -- or income taxes will be increased by more than 80% from today's levels to cover the costs of Social Security and Medicare. Of that 80%, more than half, 46%, will be needed just to cover the operations of the trust funds, the Social Security actuaries say. (Those trust fund bonds aren't going to pay off themselves you know!)
Here's a graph that may help convey the meaning of these words.
Without pre-funding, Krugman wants all these boomer benefits to have to be financed then, as that graph line shoots straight up.
But if Krugman thinks privatizers would disrupt the financial markets by borrowing $100 billion a year to prefund benefits today when the borrowing is easy and rates are low, then just what does he think status-quoers propose to do by trying to finance the same $1 trillion in the financial markets around 2040 when both deficits and taxes will be at record levels and still shooting higher?
So once more we see Krugman indulging his favorite cardinal sin of logic -- not comparing alternatives.
Yes, Greenspan did say there is risk in increasing current debt to prefund Social Security -- but he went on to discuss something Krugman never, ever will: the risk in the status quo.
"It is risky," Greenspan said [of prefunding private accounts] But, he added, "It's risky doing nothing. It's risky doing any other solution. ... I know no way to resolve this without risk."How come Krugman didn't report the second part of Greenspan's comment on risk? On the risks of the status quo?
Does Paul Krugman ever write about the status quo risk of hitting the financial markets for an extra trillion in 2030s? Or of the status quo risk that today's Social Security participants will be the first ones ever to get back less from it than they put into it -- being made poorer by Social Security on a lifetime basis? Or the status quo risk that, facing huge income tax hikes after 2020, taxpayers and Congress will vote to cut benefits?
Of course not. The uniform party line is that there is no risk in the status quo, it is perfectly safe. Ha! ha!
Yet the chairman managed to avoid admitting the obvious - that borrowing on the scale the Bush plan requires would substantially increase the risk of a financial crisis.Perhaps because it's not so obvious in light of what's been mentioned above -- especially in comparison to risks of the status quo alternative, which Krugman will never discuss.
Yet did not Krugman himself write a short while back that he was taking out a fixed-rate mortgage -- and paying more up front to do so -- because he expects interest rates to go way up in the future?
Krugman on why he paid a higher cost now for that fixed rate mortgage:
"Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen." So says the Treasury under secretary Peter FisherSo, to avoid exposuring himself to soaring interest rates in the future due to the the "train wreck" he forsees, Krugman thinks its smart to secure his own wealth by paying more up front.
How will the train wreck play itself out? ... my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.
But as far as your Social Security benefits are concerned, prefunding them when rates are low is a bad idea -- he wants you to depend on having them all financed for you after the train jumps the track and rates soar!
Go figure. ;-)
And the headlines didn't emphasize his concession that crucial critiques of the Bush plan are right. As he surely intended, the headlines emphasized his support for privatization.Yes indeed, Greenspan got the headlines to carry the message he believes, and that he intended them to carry about his beliefs -- not Krugman's message. The treachery!
By repeatedly shilling for whatever the Bush administration wants, he has betrayed the trust placed in Fed chairmen, and deserves to be treated as just another partisan hack.Ah, the obligatory closing name calling.
But speaking of a "shilling ... partisan hack" what would you call someone who, in a twice-weekly newspaper column, hasn't published even one significant criticism of the Democrats or of any name Democrat, nor even one approving column of any Republican or Republican proposal, in more than five years??
And now we see the single rhetorical technique Krugman failed to use in attempting to debunk Alan Greenspan's comments:
Giving an honest report of what Greenspan said, and trying to answer it on the merits.
A simple illustration of how private accounts in Social Security can provide benefits as described by Alan Greenspan, despite the objection of Paul Krugman.
[An illustration for the accompanying post.]
Let's say you are a typcial 32-year old male, working hard, paying 12.4% Social Security tax on your earnings, and expecting the 0% return promised by Social Security to those like you on your contributions. That is, for every $1 in tax you pay today, 35 years now from at retirement age you will receive a benefit worth $1.
[Caldwell et. al.]
(In reality your statutory benefits under the status quo are 25% underfinanced, so if the program remains as-is you will receive a benefit worth only 75 cents for your dollar -- but we'll forget that for the moment.)
Because the status quo is system unfunded, 35 years from now the government will have to tax somebody $1 (or borrow $1) to pay your Social Security benefit of $1 to you.
Now let's imagine that you have the alternative option of investing your $1 today in a private account in the Social Security system.
The Social Security actuaries estimate that private accounts will earn an average of 4.6% annually after expenses. At that rate 35 years from now you'll have $4.83 in the private account for your $1 contribution today.
But under the status quo the government has already made plans to currently spend every cent of the Social Security tax you pay, upon one thing or another. So if it doesn't act to reduce its spending (which certainly would be the desireable option!) then if you shift $1 into your private account it will have to borrow an extra $1 dollar today to maintain its spending.
The actuaries estimate government bonds will pay 3% in the future, so as a result 35 years from now the government will have to tax somebody (or borrow) $2.81 to pay off that borrowed dollar.
Of course, you can't expect the $1 you shift from regular Social Security into your private account to earn regular Social Security benefits too. So your regular benefits must be reduced by some amount, correspondingly.
The current White House proposal would reduce regular benefits by $1 compounded at 3%, the federal bond rate, until retirement age for every $1 shifted into a private account. So your $1 contribution to a private accound will reduce the value of your regular benefits received 35 years from now by $2.81.
The end result to you is that when you retire you have $4.83 in your private account while your regular benefits are reduced by $2.81 -- so you end up with a net benefit worth $2.02 compared to only $1 under traditional Social Security.
And, of course, you own the $2.02, giving you much more power to use it as you wish -- and securing it from the whims of future voters who may feel, for example, that they are overtaxed to fund transfers to seniors, resulting in actions to reduce such transfers.
The final result to the government is that the reduction in its future liabilities for regular Social Security benefits exactly covers the earlier cost to it of borrowing the $1 -- so 35 years from now the transaction ends up a wash to it. Funding the private account changes the current value of the government's total liabilities by exactly $0.
However, the timing of the payment of the goverment's liabilities is changed. The government's cost of financing regular, traditional Social Security retirement benefits that it owes to you will begin 35 years from now, when you reach retirement age, and last the rest of your life from then.
The government's cost of financing your contribution to a private account begins today when you make your contribution and it must thus borrow $1 to maintain its spending, and ends 35 years from now, when you reach retirement age and its borrowing is paid off. From that point on your retirement benefits are funded with savings in your private account, at no further cost to the goverment.
Thus, while the net present value of government liabilities changes by $0 as a result of you putting your $1 in your private account, compared to the status quo they will be reduced after 35 years pass, while until the 35 years pass the government's debt will be increased. In effect, the payment of the government's liabilities is moved forward in time.
In addition, your $1 contribution to your private account in the end creates a benefit to the nation in the fact that national savings are increased, which as Greenspan emphasized in his testimony is essential to increasing the future productivity of the nation to meet material needs -- especially those of future retirees. Your investing $1 in the private account in the end increases national savings by up to $2.02 -- your final $4.83 in the private account when you retire minus the government's $2.81 of offsetting borrowing then.
Summing up, the net results of your placing that $1 in a private account in Social Security instead of in the traditional program are ...
* You wind up with $2.02, rather than $1, in benefits at retirement age.
* You own that $2.02. So you have much more freedom to do with it as you wish, can bequeath it, and -- not least, considering the government's projected finances -- aren't going to have it reduced by any future government cutback in regular Social Security benefits that is forced by a future fiscal crisis.
* The government incurs $0 net cost total. The arrangement is a wash to it (except to the extent it collects income tax on your net increase in benefits of $1.02 -- a modest fiscal benefit that we'll ignore.)
* National savings are increased -- from $0 under the status quo to as much as $2.02.
* The "extra debt" of $1 that must be incurred up front is actually a benefit -- because it is not extra debt at all, but only pre-funding for a liability that will be much harder for the government to finance after 35 years from now through either borrowing or taxing.
Defenders of the status quo keep willfully ignoring this last point. But you should remember that in 2040 either the annual deficit will be reaching 20% of GDP -- equalling the size of the entire federal government today -- or income taxes will have to be increased by more than 80% from today's level (and will still be rising) to cover the cost of retiree benefits -- both Social Security (those trust fund bonds don't pay themselves off!) and Medicare.
Or, some other major cost-saving measures will have to be taken -- such as cutting Social Security benefits!
Prefunding your benefits today will reduce this future fiscal pressure on the government because it leaves the benefits payable to you after you retire already funded with savings -- eliminating the need to tax or borrow to pay them then, when it may be extraordinarily more difficult to do so than today.
In short, the so called "transition cost" we always hear of regarding private accounts consists only of prefunding benefits when rates are low -- and that's a benefit!
So the five bullet points above give us four solid benefits and a wash from private accounts, compared to the status quo.
Now let's add another fact to the scenario...
Let's say that at the time these private accounts are first set up, Social Security has already promised $10 trillion more in benefits than it has the resources to pay ... or $100 trillion more ... or $1 quadrillion more -- it doesn't matter, Congress can promise any level of future benefits without providing the means to pay them, creating a financing gap of arbitrarily large size.
Thus, at the time private accounts are created, Social Security faces a future financing gap of $X trillion.
What is the effect of private accounts on this funding gap?
Well, we know from the points above that private accounts net out as a wash to the government in the end. Thus, the answer is $0 -- private accounts have zero effect on the original financing gap.
The original pre-existing inability of the original system to pay all promised traditional benefits remains, exactly unchanged. Under the status quo this financing gap of $X will have to be closed with either higher taxes or cuts in traditional benefits or both, and after the introduction of private accounts this fact remains exactly unchanged.
So we have a fifth bullet point:
* The effect on private accounts on Social Security's financing gap is $0 -- it remains unchanged from what it is in the status quo.
Now, what does Krugman do? He looks at this one last bullet point, says only closing the financing gap matters, then concludes that since private accounts don't close the financing gap they must fail.
To him, the four advantages of private accounts that acccrue to benefits that are financed -- increased retirement wealth, greater ownership of it, increased national savings, and prefunding of benefits when it is more affordable to pay for them -- don't exist.
Therefore, when Greenspan lists them before Congress as his reasons for supporting private accounts, Krugman reports that: "Greenspan offered no excuse for supporting private accounts."
Maybe the Professor has so separated himself from reality that instead of that being a conscious
Friday, February 18, 2005
The phrenology of buttocks:
Yes, that's the same Pravda that was the official organ of the Soviet Communist Party, though it seems to have undergone some editorial changes since I was a student over there reading it back during the golden age of Brezhnev. I don't remember that Pravda having such "fun reports".
... A man with a nice muscular butt is considered to be strong, persistent and enduring in bed. A girl with a cute little round bottom is sexually active, albeit material and unkind.
Symmetrical wrinkles underneath the buttocks stand for reliable, steady and calm individuals, whereas asymmetrical wrinkles expose selfish and greedy people.
Those who have buttocks with so-called "ear-like bulges" on both sides are usually faithful people in love and marriage. Men and women with such buttocks are hopelessly mediocre individuals, though.
Girls with saggy square-shaped buttocks are very kind in their nature: they make very good wives and careful mothers.
Those people, whose left buttock is larger than the right one, have to contract marriage as early as possible - it is terribly unhealthy for them to stay single. On the other hand, the people, whose right buttock is larger than the left one, will have to face a lot of serious problems in their lives...
Hairy buttocks speak for very kind and agreeable people, although they also expose their genetic predisposition to illnesses of pelvic organs, first and foremost. One should also bear in mind the fact that parents who have hairy buttocks give birth to psychologically unbalanced, short-tempered children.
The combination of red hair on the head and black hair on the buttocks may occur for talented and highly emotional people. Grey bottom hair is a vestige of premature impotence for men, whereas red hair reveals their depraved nature... [Pravda]
They say Putin's taken over the press in Russia. Maybe so. But he's willing to share: Four photo spreads highlighted across the top page in today's Pravda were: Olympic Erotica, Maria Shapova, Sexy Stars, and Putin's Inauguration.
He's also willing to let them run an artcle on how he wears a $60,000 watch compared to George Bush's $50 Timex. (Although also mentioning Silvio Berlusconi's $540,000 Constantin Vacheron makes Vladimir seem rather proletarian by comparison.)
I looked up Izvestia for old time's sake and it's online too, but only in Russian. My foreign language skills, such as they were, are long gone, so I'm afraid there'll be nothing from there via me.
You want hockey? Here's your NHL hockey!
Using state-of-the-art gaming technology,G4techTV is simulating the entire NHL season and providing you, the fans, with all of the stats, hits, and replays you've come to expect from professional hockey. Statistics will be updated online by period as virtual games are being played...They even have video highlights! Who needs ice?
And looking at the standings we see the Rangers are in last place and going to miss the playoffs. So we can't knock the realism.
Another apple-pickin' benefit of having a federal government that the Founders never foresaw...
What man-made packaging could improve on an apple picked fresh from the tree?OK, so it's an old idea, previously researched, that McDonald's is already using. That explains the need for a new taxpayer-funded study of it.
Enter a federally funded study [of] the feasibility of processing and marketing fresh-cut apple slices in New England. The results of the study will be shared by the region's six states and their roughly 150 apple growers.
Additional federal money is available to fund a pilot project testing the popularity of packaged apple slices...
Steve Lacasse, chairman of the New England Apple Growers Association, is enthusiastic about the study and about the future for sliced apples.
"It's a wide-open field. It's going to take off like wildfire," the Keene apple salesman said. "Studies have shown children will eat more apples if you cut them in slices."
It's not a new idea, those in the industry say. McDonald's has been selling apple slices with a caramel dip for children...
The study, if approved, would be conducted by the Cooperative Development Institute Inc. of Massachusetts, which works with many farming, energy and food cooperatives to help them with business planning.Ah, well, that sort of research effort surely is beyond the capacity of the profit-motivated private sector, absent government subsidy. 'Nuff said.
"We should be able to tell the (New England) apple industry if this is a good idea or a bad idea and put some numbers to it," said Lynda Brushett, the project manager. The results of the study should be available in spring, she said...
"Like we'd call food service directors at schools and ask 'how do you think kids would like this?'" Brushett said... [AP]
Thursday, February 17, 2005
For all you aggregators out there, and by popular demand, there is now an atom feed for this blog. At last. Lots of other things were intended in the original plan of having a regular web site here. But self-employment, family ... It looks like the "under construction" sign will be up for a while.
Nobelist Ronald Coase on Social Security.
Steve Antler reports...
I chaired a guest lecture last night at Roosevelt. At one point I asked our speaker -- the one and only and very intrepid Ronald Coase -- whether he'd like to weigh in on Social Security reform.Wow, anybody who's that close to Coase goes on the blogroll. EconoPundit.
His answer was quick and simple: "No!"
The purpose of a system is what it does.
As applied to airline security.
... of "Jim Glass, a critic of all things liberal with whom I agree on virtually nothing..."
But we did agree on some things. He appreciated that I recognized the White House's intent to take 3% out of workers' returns from its proposed private Social Security accounts when other were denying it, and that I took a critical shot at that myself.
Now about the same time, as the anti-Social Security reformers in various forums were going on-and-on about how low returns in private accounts could be, I challenged those I could to be honest enough to admit that returns from Social Security for workers are slated to be even worse, even outright negative for some. "I'm looking for a liberal honest enough to admit it!" I'd say. No takers on that. Not a one.
Then to my surprise I read at Max's...
"Preemptive response to critics of SS: yes 1.3 or worse is a lousy rate of return..."He spoiled my fun! Now I'm going around saying, "I'm looking for a second honest liberal, besides Max Sawicky..."
Well, if cats and dogs can agree on the same factual reality then they have at least a chance of being able to work something out between them. While if they can't even agree on the facts...
So Max Speaks is on the blog roll.
No honest testimony goes unpunished.
During the government's Balco steroids investigation Jason Giambi of the Yankees went before the federal grand jury and told the truth, he took steroids. Before and after he did, many of the game's other most famous players were called before the same grand jury, swore to tell the truth, and testified that all those "paid in full" receipts from the Balco company on the dresser were spit up by the cat, or some such.
As Giambi's reward for his honesty his testimony was leaked to the papers and he's been savaged by the New York press ever since. Meanwhile, all those other guys who all swore that they'd thought they'd bought suntan lotion from Balco are walking. OK, such is life.
But, gee whiz, one of those taking shots at Giambi now is his own Yankee teammate Gary Sheffield, for crying out loud, who's calling Jason a "cry baby".
Gary appeared before the grand jury too. What did he say under oath?
"I said I didn't know I took steroids, the bottom line was I thought it was rubbing cream on my legs." [NY Post]
Wednesday, February 16, 2005
It's rather ironic that out-of-control growth of government spending is a lot more effective at driving privatization of government services and assets than all the well-reasoned policy recommendations of all the free-market economists in all the world...
Well, they'll have to put a toll on the Brooklyn Bridge first -- but that can be done.
Pataki Taking a Cue From Sale of Chicago Skyway
Faced with a giant projected budget gap and a wobbly credit rating, the city of Chicago decided to pull the trigger last year on a plan it had been contemplating for nearly a decade: the privatization of an eight mile toll road known as the Skyway.
A Spanish-Australian consortium paid Chicago $1.83 billion to operate the road and collect tolls on it for 99 years. It was the largest cash transaction in city history, easily closing the projected $220 million budget shortfall...
In New York, where health-care costs eat up a larger and larger share of tax revenue each year, state officials have followed the Skyway project with interest. As a sign that Governor Pataki liked what he saw, the executive budget he issued last month included a proposal allowing for the privatization of toll roads, bridges, and tunnels...
Hey, maybe when the federal government's unfunded $41 trillion liability for Medicare, Social Security, and US government employee retiree benefits has to be paid down for real around 30 years from now ($41 trillion today, it will be a heck of a lot more by then) Congress will sell a 99-year lease on the Grand Canyon to Great Adventure and America will finally become libertarian.
Despite reports that the Triborough Bridge and the Queens Midtown Tunnel may be on the auction block, aides to Mr. Pataki said the governor has not yet identified specific assets for privatization...
Mr. Leslie, executive director at Macquarie Securities, a Manhattan-based subsidiary of the Australian firm ... cited the New York State Thruway as an asset Macquarie might want to lease. Preliminary estimates suggest the state could fetch $6 billion for rights to run the 641-mile highway.
At a recent meeting with leaders of the United Federation of Teachers, the Senate majority leader, Joe Bruno, a Republican, suggested using proceeds from the proposed privatization of the state-run Health Insurance Plan of New York toward state spending to resolve the school-financing lawsuit.
Mr. Bruno, insists that the state will not raise taxes to cover the more than $20 billion extra that New York City schools are to get in the next five years...
[The president of] Civic Federation of Chicago, a nonprofit government watchdog, Lawrence Msall, said few people in Chicago complain about the overall impact of the Skyway deal. He said that Chicago got far more money than he and others had anticipated, and that the infusion was not only desperately needed as a source or revenue but also helpful in freeing the city from an asset that is better operated by a private entity.
"The city had a mounting long-term debt problem, and the credit agencies were warning them about it," Mr. Msall said. "Ninety percent of our property taxes were going to debt and pensions. I think Governor Pataki in New York could share the same kind of financial benefit most rational people would say we got from the Skyway deal."
A recent report from the New York State comptroller, Alan Hevesi, painted a grim picture of the state's financial situation. It said that despite legislative efforts to control debt in recent years, the state's total debt has grown to an estimated $49 billion today from $14.4 billion five years ago... [NY Sun]
[Hat tip to Roland Patrick for hitting the post button before me. Now stop doing that.]
Saved from the ash heap of history for the bat shelters of Brno.
PRAGUE, Czech Republic. Soviet-era TV sets, known for bad reception and low picture quality, are finally popular -- as homes for bats.Let no one say no good ever came from Communism.
A group of disabled workers in the southeastern Czech Republic produces bat boxes from the Rubin TV sets' sturdy plywood casing, which is hard to break and easily resists bad weather.
"The TVs had two outstanding features: an extremely bad picture and extremely solid plywood casing," said Mojmir Vlasin, an environmentalist whose company disassembles old TV sets....
Vlasin said about 50 boxes made of the TV sets ... have been placed in the woods near the city of Brno, 200 kilometers (125 miles) southeast of Prague. Each box accommodates up to several dozen bats, depending on their size, Vlasin said. [AP]
Scottish men can now marry their mothers-in-law.
Secular law finally arrives in Scotland...
The weird and wacky world of the Jerry Springer TV show has crossed paths with the Scottish Executive, with a change in the law which will let men marry their mothers-in-law...Wouldn't waking up in bed with your mother-in-law be bad enough? Some of us might ask to be burned alive rather than deal with that.
The family law reforms set out yesterday by Hugh Henry, deputy justice minister, include a change to a law dating back to 1567. That was based on the Old Testament Book of Leviticus, which said that if a man takes a wife and lies with her mother, all three should be burned alive.
That punishment, or its modern equivalent, will no longer be meted out in Scotland.
The updating was proposed when the marriage laws were last reformed in 1977, but was turned down at the time because they were believed to "endanger roles within the family and would open up possible erotic overtones"...It'd have to be one heck of a tax bill, for some of us.
However, the new law could create an incentive to use it to avoid inheritance tax... [The Herald]
By the way, I'm Scottish-American. Grandpa came to the US from Edinburgh for reasons that ... he never made entirely clear.
As this new law also allows men to marry their daughters-in-law, maybe I'll have reason to go back and visit some day!
Tuesday, February 15, 2005
They're doing at least one thing right over there...
If you are interested in preventing global warming, the future of developing economies, prospects for nuclear power, and/or driving a hydrogen-fueled car someday, this article is possibly worth reading.
Let a Thousand Reactors Bloom
What's an energy-starved autocracy to do? Go nuclear...
Late last year, China announced plans to build 30 new reactors - enough to generate twice the capacity of the gargantuan Three Gorges Dam - by 2020. And even that won't be enough...
To meet [hugely] growing demand, China's leaders are pursuing two strategies. They're turning to established nuke plant makers ...
But they're also pursuing a second, more audacious course. Physicists and engineers at Beijing's Tsinghua University have made the first great leap forward in a quarter century, building a new nuclear power facility that promises to be a better way to harness the atom: a pebble-bed reactor.
A reactor small enough to be assembled from mass-produced parts and cheap enough for customers without billion-dollar bank accounts.
A reactor whose safety is a matter of physics, not operator skill or reinforced concrete.
And, for a bona fide fairy-tale ending, the pot of gold at the end of the rainbow is labeled hydrogen...
Now we're talking revolution, comrade... [Wired]
Gay penguins update: they're still gay.
Wasn't Dubya supposed to be the dummy who turns allies into enemies?
Surely the sophisticated British first family would act in no such way ...
Cherie Blair began her antipodean tour with a double blunder by allegedly calling her Kiwi hosts Australians ...The
The British Prime Minister's wife made the gaffe twice in front of VIPs including New Zealand Prime Minister Helen Clark ...
"Calling us Australians was the worst mistake you can imagine and she did it twice!" The Sun quoted one man as saying...
Insurance executive Caroline Canning, 34, said: "Cherie was very poor. She flogged her book but could have talked about a lot more meaningful subjects. It was all about who painted which walls in Downing Street –- crap.
"And, for all the research she hadn't found which country she was in." [Herald Sun]
Will Smith, Hollywood marriage counselor.
In his new movie Will is an expert on relationships. Apparently he's considered one in real life too...
As it turns out, the "Hitch" shoot in New York last summer brought up its share of relationship challenges in Smith's own marriage - though he and wife Jada Pinkett Smith handled them with customary aplomb.
"I mean, wow, Eva Mendes is freaking gorgeous," Smith says - and he insists he would say the same thing to Jada's face. "Our perspective is, You don't avoid what's natural. You're going to be attracted to people."
"In our marriage vows, we didn't say 'forsaking all others,'" he adds - though he insists he'd never cheat on Jada without asking her permission.
"The vow that we made was that you will never hear that I did something after the fact. If it came down to it, then one [spouse] can say to the other, 'Look, I need to have sex with somebody. I'm not going to if you don't approve of it - but please approve of it.'"
Now, that doesn't mean that Will Smith is about to screw up Hollywood's last good marriage. For him, it comes down to one thing, he says: "Are you a person of your word or not?"
That's the secret, he says, to why his marriage has lasted, while so many other celebrity love matches have bitten the dust.
"I spend hours reading, studying," Smith says. "And my wife and I talk about things that work - and don't work."...
Will and Jada's solid relationship is such a Hollywood rarity other famous couples have turned to them to help salvage their unravelling marriages...
"With Bruce and Demi, we spent hours talking to them. And Tom and Nicole - hours..."
Of course, even the Smiths' expert marriage counseling couldn't save either of those relationships, but the experience, he says, has helped them in their own... [NY Post]
Monday, February 14, 2005
Tough and effective law enforcement -- including tough jail sentences -- deter crime, which leads to lower crime rates, fewer criminals and the emptying of prisons. New York shows the way...
Reinforcing New York City's improved policing strategies in the 1990s were tougher sentencing laws and a significant expansion of the city and state correctional systems. Would-be criminals in the Big Apple came to realize that they were not only more likely to get caught, but more likely to end up serving hard time.Yes, now that last sentence was the subject of a recent story in the NY Times, Despite Drop in Crime, an Increase in Inmates, in which the Times, despite its being a New York paper, somehow managed not to mention that the opposite is true in its very own home town and state, where the serious fight against crime started first and crime as has dropped by far the most (barely mentioning in a brief aside only that there has been a reduction in "new" inmates).
The results have been nothing less than spectacular: by one key measure, serious crime in the city has dropped 70 percent over the past 15 years.
But that success is also yielding another, less widely noticed, dividend: with felony arrests dropping as a result of the falling crime rate, New York's once-swollen city jails and state prisons are becoming less crowded...
...The decreasing jail population has enabled the city to close its detention facilities in Brooklyn, Queens and The Bronx, to close some wings in other facilities and to cut the headcount of jail employees, saving at least $185 million a year in staff costs alone...
At the state level, the number of corrections officers has dropped some 1,500 since 2000, generating a wage-and-benefit savings of roughly $120 million a year...
Nationally, the number of criminals behind bars continues to grow... [City Journal]
That journalistic peculiarity, and some odd things that did make that Times story while the drop in the New York prison population did not, was together with some more data about the crime/prison situation here the subject of an earlier post, on the off chance you are interested.
Sunday, February 13, 2005
Five years ago I was a big fan of Paul Krugman's popular writing in Slate and elsewhere, and looking forward to his column appearing in the Times.
Yes, he had the occasional penchant for gratuitous name calling and impugning the character of those he didn't like -- and, when in such a snit, not bothering to check the relevant facts, apparently believing that his snit determined what the facts must be. (See the Fraga and Arthur/Arrow episodes at Slate, among others.)
But we all have our little personal peccadilloes, and his blemished only a small part of his writing. When he stuck to true facts and analysis, he was about best economics writer around. He was original and insightful, had the intellectual integrity to critique even those on his own side of a political argument, and took care to clearly communicate with the average interested reader -- a concern not at all common among academic economists.
I also assumed that when he moved up to the august editorial pages of the New York Times he would naturally emphasize his best and control his worst, and we'd all be reading an even better Krugman. And I assumed the Times had fact checkers and a serious accuracy-and-corrections policy for its editorial page writers that of course he, like anyone, would take care to heed.
So I was really kind of stunned, to the point of spitting my morning coffee, when barely into his second month at the Times -- five years ago today -- I read this column: Lost In Cyberspace
It was about how the Internet Tax Freedom Act, sponsored by Senator John McCain, prevented the states from collecting sales taxes from Internet retailers...
Right now, if you buy a book at your local bookstore, you probably pay sales tax. If you order it from Amazon.com, you don't ... the Internet Tax Freedom Act of 1998, of which John McCain was a chief sponsor, imposed a three-year moratorium on Internet taxes.He then segues into a very credible, clear, sound, and understandable economics lesson....
Why is this a bad idea? A basic principle of taxation is that different ways of doing the same thing should face more or less the same tax rates ...Indeed. And since doing so was obviously a bad thing, there must be bad people with bad motives behind it, making it happen...
The same principle applies to any tax. If I really prefer roaming the aisles of a physical bookstore to browsing the Web, but I nonetheless decide to order from Amazon to avoid paying sales tax, my decision has been distorted.
So why exempt the Internet from the taxes imposed on the material world?
Right-wing think tanks like the Heritage Foundation have blithely brushed aside the normal principles of taxation and their usual opposition to industrial policy -- not to mention their usual solicitude for states' rights! -- when it comes to the Internet.And for the closing, a personal shot...
I have always assumed, however, that this is basically a fund-raising ploy. Opposing Internet taxes panders both to crude anti-tax conservatives -- who don't really want to live without a government but can't bring themselves to admit that any tax is necessary -- and to the new money of the cyberelite, which like any elite thinks that it deserves special treatment...
I'd like to think that Mr. McCain isn't engaged in that kind of pandering. So let's hope he's just confused.OK, that all may seem very plausible. But I was having a hard time while mopping up my coffee believing it was all in print in the Times under Krugman's name.
Why? Because I worked professionally in the field he was writing about -- and his entire premise was 100% factually false. The Internet Tax Freedom Act had absolutely nothing to do with state sales taxes. (Actually the term is "use taxes", he didn't even bother to get that right.)
Hey, if you don't believe me, read Bruce Bartlett on this -- he actually worked at the Treasury and knows a little about tax policy. Or you can take 30 seconds to Google up the text of the Act -- which is certainly more than Krugman troubled to do.
For if he had, he'd have learned not only that the Act did not do what he said it did, but that it did do exactly what he recommended as good policy! It prohibited, and I quote it: "multiple or discriminatory taxes on electronic commerce". Krugman was not merely wrong, he had it exactly backwards!
The Act most certainly did not protect Amazon.com from sales (or use) taxes -- to the contrary, Amazon.com remained subject to tax on sales just exactly like any other firm that sold by catalog, phone, or whatever: Sears, Lands End, name 'em.
But with an e-commerce boom then thought to be coming, the states were preparing an onslaught of special, new taxes targeted at just e-businesses to tax their anticipated new revenue streams.
What the Act did do is protect Amazon.com from taxes that did not apply to the "physical bookstore" Krugman talked about -- and protect e-commerce firms generally from "multiple and discriminatory" taxes that did not apply to brick-and-mortar firms in the same business.
Isn't that what Krugman said he wanted??
I sat there and re-read that column and wondered: How could he be so wrong? And, geeze, then top it off with an insult of John McCain as "pandering or confused" too?
There was only one explanation I could think of: The Act was supported by Republicans and Heritage and the like. Those are bad people on all policy matters, as Krugman explained above, so they would support bad law. And a bad law would say what Krugman said it would -- and there's no reason to check that fact. QED!
I waited for a while to see if there would be any graceful apology to Senator McCain:
"I want to say that it was not he but I who was confused on this one, and as far as pandering to prejudice about tax policy, I might have been pandering to my own prejudices too..."
But, well ... if you clicked on the link you know the column is still in his archives right now, uncorrected, for people to read today five years later, just as if it were true.
Fraga said of Krugman...
Paul Krugman is a great economist... As a journalist, however, he was careless, and I happened to be his unlucky victim. His accusation is false. He did not bother checking with me...... just before Krugman wrote his please-don't-sue "apologies to Arminio Fraga for my carelessness" at Slate.
Nobelist Kenneth Arrow wrote of Krugman's "attack on Brian Arthur" in Slate...
Krugman admits that he wrote the article because he was "just pissed off," not a very good state for a judicious statement of facts, as his column shows...A little while after Krugman started at the Times, I believe the then observer of the latter, Smartertimes.com, speculated that he was making an undue amount of factual errors because the Times had made a special exception for him, allowing him to be an op-ed columnist while carrying on a full-time job, so he didn't have time to research facts. So his column wasn't going to be analysis disciplined by true factual details, but a personal opinion column.
Then I realized, my gosh, this Times gig isn't going to bring out the best in Krugman, it's going to bring out his worst.
(Later, of course, we learned in the Dan Okrent era that the Times' accuracy-and-corrections policy for op-ed columnists was that something was factually accurate as long as they said it was, and when a correction was needed was decided by them.)
And it was so. He's been in an endless snit ever since.
Has it really been five years of it already?
Saturday, February 12, 2005
Now there's one for the philosophers: how to tell if a penguin is really gay?
Zoo tempts gay penguins to go straight
A German zoo has imported four female penguins from Sweden in an effort to tempt its gay penguins to go straight.
The four Swedish females were dispatched to the Bremerhaven Zoo in Bremen after it was found that three of the zoo's five penguin pairs were homosexual...
Director Heike Kueck said ... the birds had been mating for years and one couple even adopted a stone that they protected like an egg.... the penguins, which are native to South America, are an endangered species.
But introducing the Bremerhaven penguins to their new Swedish friends may not be as successful as hoped after earlier experiments revealed great difficulties in separating homosexual couples.
In case they show no interest, the zoo has also flown in two new male penguins "so that the ladies don't miss out altogether", Kueck added. [Ananova]
German "gay" penguins spark protest
A plan by a German zoo to test the sexual appetites of a group of suspected homosexual penguins has sparked outrage among gay and lesbian groups, who fear zookeepers might force them to turn straight.
"All sorts of gay and lesbian associations have been e-mailing and calling in to protest," said a spokesman for the zoo in the northwestern city of Bremerhaven on Friday... when word got out about the plan, the phones started ringing.
"Nobody here is trying to break-up same sex pairs by force," the zoo's director Heike Kueck told public broadcaster NDR. "We don't know if the three male pairs are really gay or just got together because of a lack of females." [Reuters]
Thursday, February 10, 2005
The only known Brookings fellow to write a column on NFL football reports...
Which brought to mind how, not so long ago, the amusing trials and tribulations of getting an op-ed piece past the Times' editors were related in this tale told by Boris Johnson, himself editor of Britain's Spectator.
On Sunday, yours truly contributed this article about the Super Bowl to the august New York Times. (That’s the august paper, not an August edition.) But the article did not run in the sports pages, it ran in the Week in Review, the section of analytical articles about solemn subjects, slipped among somber think-pieces on Social Security restructuring and Japan-China relations. I am now officially a football intellectual! But then, it's not like there is competition.
Cultural note: Editors told me I could not say "cheer-babes" in the august New York Times. "Cheer-studs," on the other hand, was acceptable...
... So I began the piece with the words, "Gee, thanks, guys," and Tobin wanted those words removed. For the life of me, I couldn't see why.Well, it seems those editorial standards are a little different from whatever ones apply to the Times' in-house op-eders. Imagine if Maureen Dowd had to get each of her columns past such propriety police. Does anyone think she would be barred from writing "Gee", or even "babes", if she wanted?
All right, it was a bit colloquial, but the idea was to try to be snappy, and to draw the reader in: the New York Times might be grand; she might be a crinolined beldame of political correctness, but surely she could tolerate a little slang. At last, Tobin revealed the true concerns of his multitudinous line-editors and page-editors.
"OK, Boris, I'll tell you what the problem is. Our problem is that 'Gee' is an abbreviation for Jesus..."
And Krugman puts "Satan" and "Republicans" in the same sentence all the time...
The Council of Economic Advisors gives an economics lecture to Paul Krugman and Dean Baker. And a new challenge arises for economists who don't want to be left behind!
Sayeth the CEA: an international economist should remember the economy is international; and prices (even of such things as equity investments) are set by supply and demand, not the growth rate of an economy.
THREE QUESTIONS ABOUT SOCIAL SECURITY
This white paper addresses three questions ...
II. Are projections of future stock returns realistic given the outlook for long-term economic growth?
Yes. The Social Security Actuaries assume that stocks will provide an average real return of 6.5% per year over the next 75 years. Some argue that this is unreasonably high if, as the Social Security Trustees predict, economic growth will average only 1.9% per year in the future. This argument is incorrect; the stock return and economic growth assumptions are not inconsistent.
The Actuaries’ financial assumptions are consistent with historical experience and other professional estimates.
...In its most recent analyses, the non-partisan Congressional Budget Office (CBO) makes similar projections. CBO estimates that the long-run real return on government bonds will be 3.3% per year and the real return on stocks will be 6.8% per year...
The Trustees predict that economic growth will slow primarily because of slower population growth. Slower population growth need not imply lower stock returns.
• The Social Security Trustees project that economic growth will slow in the future, primarily because of slower population and labor force growth. Some observers believe that this growth slowdown will reduce future stock returns.
• Although short-run movements in growth can affect stock market returns, there is no necessary connection between stock returns and economic growth in the long run.
Long-run economic growth is determined by productivity growth and labor force growth here in the United States, while stock market returns are determined by the overall cost of capital in the global economy and by the return investors require to bear the risk that comes with equity ownership.
There is no reason to believe that slowing population growth in the United States would significantly lower the cost of capital, as set by increasingly globalized capital markets, or the premium required by stock investors... [CEA (.pdf)]
" ....stock market returns are determined by the overall cost of capital in the global economy and by the return investors require to bear the risk that comes with equity ownership ... There is no reason to believe that slowing population growth in the United States would significantly lower the cost of capital, as set by increasingly globalized capital markets, or the premium required by stock investors".
... doesn't seem a whole lot different in substance to me than what was written here all of two days ago...
In light of which we now post right here a new Scrivener.net "No Liberal Economist Left Behind Challenge" for Paul Krugman, Dean Baker, and those who proselytize their case. To wit:
But the simplest answer to the Krugman challenge is just to set the GDP growth rate that determines the rate of growth of US corporate earnings as the world GDP growth rate.
Do that and if world GDP grows at 4% over the next 75 years that's two extra points and there we are -- right back to the stock market's historic 7% return...
After all, economists have long observed that market conditions in different parts of the world tend to equalize when they come into contact.
So investors in Stockholm today have the opportunity to invest their private social security accounts to earn pretty much the same returns as are available to investors with private social security accounts in London -- irrespective of how the trend lines of Swedish and British GDP growth may diverge...
Assume for the next 75 years a 3.5%-or-greater world GDP growth rate that will be sufficient to support 6.5% equity returns in the rest of the world, as per historical experience and the Baker/Krugman "GDP growth determines equity appreciation" principle ... a 1.9% US GDP growth rate ... and the continuation of the trend of steadily increasing globalization of international markets -- financial markets in particular -- with barriers between them falling and declining transaction costs.
Given the above, please state exactly what will be the mechanism that will restrain equity appreciation in US financial markets to only about half the rate of that in the other financial markets of the world (that is, to about 2% in the US versus 3.5% to 4% elsewhere), reducing the total rate of return on US stocks to significantly below that on stocks in other world markets.
Note, this mechanism must be so forceful and convincing as to make it "mathematically impossible" (Krugman's words) for rates of return in open US financial markets to equalize with those in other open global markets -- even as the economy of the rest of the world triples in size relative to that of the US over 75 years.
Specify that mechanism!
Contest winners and prizes awarded will be determined in the sole opinion of the judge(s), no matter how arbitrary that decision may be. All attempts to influence the judging will be welcomed.
Now there's a bar where everybody knows his name.
A Dutchman sick of noise from the Irish pub next door nailed the doors shut, drilled a hole in the wall and flooded the crowded bar with his hosepipe.Tom!
Murphy's pub, in Deventer, was full of people celebrating an annual carnival when the water came gushing in.
Pub manager Rianne Jansen said people tried to get out but couldn't as the doors had been nailed shut...
Neighbour Tom van den Belt who admitted he blocked the doors, drilled a hole in the wall and then flooded the pub before calling out the fire brigade, told police he was sick and tired of the noise... [Ananova]
Wednesday, February 09, 2005
The Cleveland Browns have a new head coach, Romeo Crennel...
Browns president John Collins called Crennel "about two minutes" after the Patriots beat the Philadelphia Eagles to offer him his first head coaching job. "He has accepted"...Now if the parties had been able to discuss terms of this multi-year, multi-million dollar contract while the Pats were still playing, they might have reached a deal rather more expeditiously...
Crennel's move to Cleveland is no surprise. It had been expected for weeks, and was only delayed because the Browns weren't allowed to have contact with the 24-year NFL coaching veteran while the Patriots were still playing... [Fox]
Public education meets the 21st Century -- and profits!
Tiny District Finds Bonanza of Pupils and Funds Online
BRANSON, Colo. - With no grocery store or gas station and a population of 77 souls, this desert village seems an unlikely home for a fast-growing public school that has enrolled students from all across Colorado.
There are just 65 students attending Branson's lone brick and mortar school, but there are an additional 1,000 enrolled in its online affiliate. And with the state paying school districts $5,600 per pupil, Branson Online has been a bonanza. Founded in 2001, it has received $15 million so far.
The school district has used the money to hire everyone in town who wants a job, including the mayor, who teaches 15 students via e-mail...
"Cyberschools are the 800-pound gorilla of the choice movement, although vouchers and charter schools get a lot more attention," said William Moloney, education commissioner in Colorado, where state financing for online schools has increased almost 20-fold in five years - to $20.2 million for 3,585 students today from $1.1 million for 166 full-time students in 2000.
"That's a mighty steep curve, and nothing says it won't keep growing," Mr. Moloney said... [NY Times]
The White House undercuts its own case for private accounts in Social Security, part II.
A couple days ago I put up a post far too long for anybody to read that criticized the White House for its proposal to dock Social Security benefits at a full 3% annual rate applied to all amounts contributed to private Social Security accounts -- rather than the much more logical, and lower, actual rate of return the contributions would have earned if made to traditional Social Security instead.
This significantly reduces the gain from any private account -- and in some realistic scenarios could turn private accounts into losers even when they earn a return higher than what traditional Social Security would provide their owners. (As explained earlier).
To me, this is self-evidently both bad policy for workers and bad politics -- since it is certain to sap political support for private accounts. But what do I know compared to Karl Rove?
Because that earlier post ran so long I deleted from it my wonderment about a second and related self-defeating action by the White House that I can't explain (though I kept a mention of it in the last sentence, so you can see the thought was there.)
This is that the White House's explanation of the setoff repeatedly referred to the 3% rate selected for it as "the federal bond rate" -- the real, over-inflation rate of interest paid on federal bonds. So presumably the setoff is meant to cover the interest cost on any bonds that must be issued in the process of funding private accounts.
Now the logic of that is dubious enough to me -- but the main point here is that 3% is not the federal bond rate. As Jeremy Siegel of Wharton has documented, the average return on federal bonds since the US went off the gold standard back during the Depression has been 2%.
This extra 1% is no small deal when compounded over 40 years or so of participation in Social Security -- and makes private accounts that much less attractive.
In today's Wall Street Journal Jonathan Clements catches this...
OK, that proves I didn't make all this up.
... This is where the politicians could really blow it.
Three weeks ago, I wrote about the 2001 commission's "model 2." That set the break-even rate of return at two percentage points a year above inflation. In other words, private-account holders whose investments earned more than that rate would be better off at retirement than if they had fully funded the traditional system.
That low break-even made private accounts appear attractive. But now, based on an overly optimistic forecast of stock and bond returns, the administration is talking about a break-even rate of three percentage points above inflation. Tack on projected annual expenses of 0.3%, and the break-even would be 3.3 points.
Unfortunately, at that level, private accounts lose a lot of their appeal, especially for investors inclined to buy bonds. After all, inflation-indexed Treasury bonds today yield less than two percentage points above inflation -- and that is before factoring in costs.
So someone please explain to me, granting that the White House for some reason wants to weaken its proposal by applying a bond rate setoff to private accounts, why would it go further and sandbag itself by publicizing an intent to do so applying a federal bond rate that is higher than the actual federal bond rate?
Granted nobody knows what future real bond rates will be, but the best evidence would seem to be the last 70 years of the historical record and current rates -- so if the people in the White House are trying to sell their proposal, why wouldn't they give themselves the benefit of the doubt and cite that?
I mean, if they really were the effective lying deceiving schemers of Democratic repute, they'd be selling a bond rate of 1.5%, or 1%.
Karl Rove, call your new office!
Tuesday, February 08, 2005
This sort of question can have interest in its own right for those of a certain speculative bent. But it particularly pops to mind now in light of Paul Krugman's claim in his recent column that stock returns must decline in the near future from their historical levels.
His reasoning: Corporate earnings grow only as fast as GDP, stock values only rise with earnings, and GDP growth in the US is projected to slow to only about 2% when the baby boomers start retiring (due to the slowdown in the growth of the number of working age people), therefore the rate of appreciation in stock values must slow correspondingly from its historic average. And total return from US stocks must drop from the historical 7% to about 5%. QED.
Well, that's all reasonable enough, except for the "must" part and his challenge for people out there to find some way that the historic rate of return on US stocks can be maintained for the next 75 years with only 2% domestic GDP growth. Absolute statements coupled with challenges to refute them draw responses in the Internet!
As to that, the obvious simple possibility quickly suggested (elsewhere as well as here) is that US firms may in the future earn more profits from abroad, where GDP growth will be faster, and thus increase their ratio of total profits to US GDP. After all, is the growth in the total earnings of Sweden's international corporations (Nokia, Ericsson, Saab...) limited to no more than the growth in Swedish GDP? Are stock returns available to investors in Missouri limited by the growth of Missouri's GDP?
But this suggestion tends to elicit disbelieving responses along the line of: "Look at how much larger the US economy is than any other. Where are all those extra profits supposed to come from? Mexico??"
Thus, it becomes an empirical matter. The "Mexico" quip relates to today, but the challenge is for 75 years. So the question is: over the next 75 years will the US economy decline in size relative to total world GDP sufficiently to expect a substantial increase in the percentage of the total profits of US firms that is earned abroad?
Of course, nobody knows for sure as 75-year projections have wide error margins. Over the next 75 years we might have World Wars III & IV and a comet hitting the earth. And anybody who has a crystal ball that reliably predicts such things is greedily hoarding the profit opportunities it provides by not telling.
But we can make quite plausible ballpark projections based on the state of the world today and the most credible economic projections from here.
OK. Checking with The Economist and CIA Fact Book we find current World GDP at purchasing power parity of $51.5 trillion. Of this US GDP is $11 trillion -- or 21% (numbers rounded for convenience, as there's no point in making 75-year estimates to multiple decimal places.)
It's stipulated that US GDP will grow 1.9% annually over the 75-years, as per the Social Security actuaries and Krugman. How fast will the GDP of the rest of the world grow?
To figure this we need to separate the rest of the world into two parts. One consists of the other economically developed but aging nations, which today are the US's major trading partners but are in the same demographic situation we are in, or worse. Count among these the western European nations of the European Union plus Japan and Canada. Their combined GDP: About $15.5 trillion.
Then the remaining nations comprise the rest of the world, with GDP of $25 trillion.
Now let's look into the future...
We've stipulated that US GDP growth will average 1.9% -- so after 75 years GDP grows to $45 trillion from today's $11 trillion. For the other developed but aging nations let's estimate the same low 1.9% growth rate for pretty much the same reasons -- after 75 years their GDP reaches $63.6 trillion from today's $15.5 trillion.
What growth rate shall we estimate for the rest of the world? Well, 4% seems entirely credible and perhaps even conservative, being that it is well within the range of experience (world GDP grew 5% last year) and quite modest compared to the growth rates recorded historically by Asian and other fast-developing nations, which will constitute most of the rest of the world we are talking about.
So let's use 4%. At that rate in 75 years the rest of the world's GDP reaches $474.5 trillion, up from $25 trillion today.
Thus, for 75 years from now we get a projection of Total World GDP of $582 trillion, of which US GDP is $45 trillion, or 7.7%
The US economy winds up about only one-third as large relative to the rest of the world as it is today. (China's GDP becomes 2.8 times as large as US GDP, while India's becomes 1.3 times as large, assuming the same 4% growth rate for them. And little Mexico grows up from having GDP about 8% as large as the US to about 40% as large.)
How much will the foreign earnings of US corporations rise as a proportion of their total earnings (currently 17%) as the economy of the rest of the word triples in size relative to that of the US?
You can estimate that for yourself.
But the simplest answer to the Krugman challenge is just to set the GDP growth rate that determines the rate of growth of US corporate earnings as the world GDP growth rate.
Do that and if world GDP grows at 4% over the next 75 years that's two extra points and there we are -- right back to the stock market's historic 7% return.
(If anyone wonders why this should be the case in the 21st century when it wasn't in the 20th, well, back then there were little things operating like Communism and socialism taking most of the world out of the market, a couple of World Wars, capital controls, Smoot-Hawley and so on ... but past record is not a reliable indicator of future performance.)
After all, economists have long observed that market conditions in different parts of the world tend to equalize when they come into contact. So investors in Stockholm today have the opportunity to invest their private social security accounts to earn pretty much the same returns as are available to investors with private social security accounts in London -- irresepective of how the trend lines of Swedish and British GDP growth may diverge.
Perhaps someday US owners of private social security accounts will be given the same opportunity as well.
Monday, February 07, 2005
(Or: More fun with notional accounts for Tom Maguire)
[Warning: a long post -- if you really aren't interested in this subject, thanks for visiting but you'll be happier elsewhere today. ]
As a long-time supporter of private accounts in Social Security, I've been pretty disappointed by the White House's arguments for them to date. And the performance of the Mr. Senior Administration Official last week explaining them to the press before the State of the Union Address didn't make me feel much better about it.
At best the picture of the White House's intentions that emerged is confusing. At worst, if some of Mr. SAO's statements are to be taken literally, the White House proposal would significantly limit the benefit that private accounts would provide to workers in comparison to the status quo -- and thus reduce the merits of the program and undercut the political support it can expect to draw.
From the start the White House has been leading with the wrong foot, it's major strategy being to keep talking about Social Security's "bankruptcy" of 40 years from now, or lack of resources in 20 years.
But precious few voters (and even fewer in Congress) worry much about 20 or 40 years from now. And private accounts in fact do little to close Social Security's long-term funding gap. So this is an argument that is weak both politically and on the merits.
The killer argument for private accounts that reformers do have -- both politically and on the merits -- is that Social Security is right now becoming a terrible deal for the young at best, and will make many of them outright poorer on a lifetime basis -- especially after the 30% underfunding of the young's low scheduled returns is considered.
Moreover, this is a major new change in the system that has treated everyone up until now much better -- a change that Democrats are absolutely loathe to admit because it contradicts both long historical practice and the very founding principles of SS as pronounced by FDR himself.
Private accounts can fix this new failure of Social Security by providing positive returns to the young, as all prior generations have had, and do so in a way that doesn't worsen the funding gap -- not cure the gap, but not worsen it either, and maybe help some. (Private accounts are fundamentally neutral for the funding gap, which has to be closed otherwise even under the status quo.)
Now, paleo-liberals are smart enough to realize how helpless they are on this issue of Social Security becoming a terrible deal for the young, as the status quo has no possible answer for it. That's why paleos like Krugman keep so virulently attacking the higher returns possible from private accounts, trying to discredit them, while never, ever mentioning the sub-bond-rate-returns and outright losses now assured to workers by the status quo. They know they've been dealt the politically losing card on this.
Yet the White House just doesn't seem to know how to present its own case -- how to play against that losing card. Let's look at how last week's White House briefing mucked things up further. (The whole briefing is available through the prior post).
Here's the key issue: Under the White House proposal, a worker could voluntarily place up to $1,000 into a private account instead of the traditional Social Security program. But of course a person doing that can't expect to retire with both that money (plus earnings on it) in a private account and a full traditional Social Security benefit too -- as if the same $1,000 had been contributed to the traditional program too. Thus, contributing to a private account must reduce the standard benefit in some proportional manner.
But exactly how?
Mr. SAO, to our confusion, seems to give us two contradictory answers in one presentation.
The first logical answer that comes to almost everyone is that future traditional benefits will be reduced by the amount the individual did not pay into the traditional program (but instead placed in a private account) plus the rate of return on that amount that would have been paid by traditional Social Security.
Thus, if one puts $1 into a private account rather than traditional Social Security 20 years before retiring, and traditional Social Security earns for one 2% annually, then upon retiring 20 years later one's traditional benefit will be reduced by $1.49, while one's private account will hold that $1 plus whatever it has earned -- hopefully more than $1.49.
This seems to be exactly how the White House proposal was reported in the Washington Post -- in a corrected story, after the White House had had two chances to get its message across to it (with key comments emphasized):
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceed the amount their money would have accrued under the traditional system...All fine -- except for the very odd statement that 3% is the rate "that the money would have made if it had stayed in the traditional plan" -- and going on further to identify it as the federal bond rate.
The original story (available here) should have made clear that, under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.
That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system....
That sure reads to me like a statement that contributions to Social Security under the "traditional" current system earn the real rate paid on federal bonds, 3%. Therefore workers with private accounts will come out ahead to the extent their private investments earn more than 3%, the bond rate, which is what their money "would have made it if had stayed in the traditional plan."
But such a statement is just plain wrong, and works to undermine the case for private accounts.
Contributions to today's Social Security do not earn the federal bond rate -- they are not invested in federal bonds. They receive a formula return that is less than the federal bond rate on average, and which declines the younger you are, moving into outright negative territory for some -- such as for the average male born after 1970.
For charts showing returns for participants of various ages and descriptions see here (.pdf).
Look at where 3% is on those charts compared to where you are.
Now, if the White House is trying to say that workers with private accounts will gain to the extent that earnings on their contributions to private accounts exceed what the same contributions would have earned in traditional Social Security -- which is entirely logical -- then it is a big mistake for Mr. SAO to say contributions to today's Social Security earn the rate paid on federal bonds -- because it makes today's Social Security look much better than it is.
To quote the author of the charts cited above...
The study finds that ... those born in the early 1970's will average about a 1 percent real rate of return, and those born at the end of this decade will average essentially a zero rate of return.So such owners of private accounts should benefit to the extent that their returns in them exceed 1%, or 0% ... yet Mr. SAO is saying participants will gain only to the extent returns exceed 3%.
That is no small difference compounded over 40 years. A three point increase in investment return for funds invested at an even rate over that time doubles the amount of money in the end. Why doesn't the White House want its proposal to get credit for this?
Why is the White House underselling the benefits to workers of its own proposal?
Moreover, this mistake plays right into the hands of the anti-reformers who keep saying: "Do you want your money in safe, secure government bonds or in risky stocks?"
That's a false argument -- but it sounds convincing to a great many voters out there who still believe that their FICA taxes somehow actually do get invested for them in safe government bonds in the trust fund.
Hey, the White House should be out there every day pounding home the fact that Social Security pays less than government bonds -- and that workers with private accounts would be better off than today even if they invested their private accounts in government bonds.
Unless the other possibility that can also be read from the literal statements of Mr. SAO is true. This is: the White House plan actually does intend that private accounts will provide a net gain to their owners only to the extent that they provide a return higher than 3% -- no matter how low one's return from traditional Social Security would be.
Mr. SAO in fact explicitly says this:
SR. ADMIN. OFFICIAL: Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return...There we are. And what happens if your private account earns less than 3%?
Q.: So he would only get a benefit to the extent that his portfolio performed in excess of 3 percent?
SR. ADMIN. OFFICIAL: Right.
OK, off of this it seems unambiguous that if you don't get 3% from your private account you lose compared to the status quo, period. No matter how little the return it promised you, even zero.
Q.; Short of 3 percent, would he make whole or would he get less than the current guaranteed benefit?
SR. ADMIN. OFFICIAL: Well, there's a implication at the end of your question which -- you have to remember, the current system can't pay the current guaranteed benefit-- ...
Q.: So people who don't -- people who choose not to take a personal account are not guaranteed the current schedule of benefits, they're --
SR. ADMIN. OFFICIAL: Under the current system, they are definitely not.
Q.: And they're not under this --
SR. ADMIN. OFFICIAL: Under no scenario are they -- could they be. Unless you posit a very large tax increase.
(Mr SAO tries to weasel out of saying this by contending that the status quo won't be able to pay this benefit either, but reality is maybe, maybe not -- let's be honest, that's a weasel.)
Now, this would be the case if a contribution to a private account reduces your future benefit from the traditional system by the amount of the contribution multiplied by an interest rate equal not to how much your contribution would have actually earned in traditional Social Security, but equal to the federal bond rate, which is higher. For some, much higher.
But if this is true, we have an entirely different story from our first one.
If your return from traditional Social Security is only 1%, but you will benefit from a private account only to the extent that it performs in excess of 3%, then if you have a private account the government is taking that 2% difference.
This has big consequences. Imagine you are the average male born 1970, age 35 now, scheduled to get a 0% return on your contributions to traditional Social Security. A 0% return is not good -- any return beats that! This sure makes you a prime target to be won over as a supporter of private accounts. Look at the proposition in dollar terms:
The Social Security actuaries project a real 4.6% average return from private accounts, after all expenses. Now, $1 invested per year for 40 years earning 4.6% provides $115 at the end. In contrast, traditional Social Security with a 0% return gives you only $40 for the same investment after 40 years. You are almost three times better off with a private account! Does that get your vote?
The prospect of tripling one's money compared to a receiving a miserable 0% return would hold the promise of gaining many votes among the young, one would think.
But wait -- suppose you benefit from your private account only to the extent that the return in it exceeds 3%. At that rate, $1 invested per year for 40 years grows to $78. Subtract the interest portion of this ($38) from the appreciation on the funds invested at 4.6% ($75) and the net gain in excess of a 3% return is only $37.
(The mechanism here is, apparently, that your private accounts ends up with $115 consisting of your $40 of contributions plus 4.6% earned on it, but your traditional benefit is reduced by $78 consisting of the $40 you didn't contribute to it plus 3% interest on that -- leaving a net gain of $37).
More than half the gain from switching to a private account is gone. And a proportional amount of the political support for switching to private accounts will be gone too, you can bet, as a direct result.
Even worse, it's now possible to lose outright from a private account even if its return is higher than you'd get from traditional Social Security!
Say your return from traditional Social Security is 0%, but your private account earns 2.5%. Since you benefit from it compared to traditional Social Security only to the extent that its return exceeds 3%, you lose compared to traditional Social Security by 0.5% compounded over 40 years. (By $4 of your $40 contributed -- a 10% loss compared to a 0% return from traditional Social Security.) Even though your private account paid 2.5% more annually than traditional Social Security!
This is extraordinarily unlikely to occur for those who make long-term equity investments -- there's never in the last 200 years been a period where equities returned less than government bonds even over 20 years, much less 40 years -- yet the possibility exists, and you can expect the opponents of private accounts to pound on it.
Moreover, this set-up really does destroy the attraction of many safe investments in private accounts for the shorter term, turning them into losers.
Imagine that as retirment nears you want to move much of your savings out of stocks, and that the outlook for bonds over the next few years is poor, capital losses are expected because rates are rising (that's easy, as it's the case right now). To avoid risking a capital loss on bonds you put your money in an investment paying less interest than bonds -- such as a money market account, CD or T-bill.
Even if it pays more than you would have earned from traditional Social Security -- say, 2% versus 1%, you lose because your traditional account is docked by the amount of your contribution plus 3%, as per Mr. SAO.
This is bad on the merits if the intent of private accounts is to help workers escape the miserable low returns of the status quo -- and it sure as heck is bad politics for those who support private accounts. It can't help but sap support for private accounts among many voters who would support them if such accounts gave them the full gain over what Social Security will provide them, without diminished gains and risk of outright loss due to the 3% hurdle.
So if it's bad both for workers on the merits and politically too, why would the White House make such a plan?
Well, the government's pocketing the 3% on contributions to private accounts would help do something to close the long-term funding gap -- presumably by covering the interest cost of bonds issued to finance private accounts. (Note that this take by the government would actually reduce the funding gap, not simply keep it from growing, since under the status quo the government is incurring corresponding "implicit debt" in the form of unfunded promised benefits and doing nothing at all to cover their costs.)
But this idea just doesn't make much sense. First, taking that first 3% won't close the $10 trillion funding gap by much -- and the political cost in loss of support for private accounts today is sure to be much larger than the small solvency gain that won't be realized for decades.
Second, the White House has finally -- sensibly, honestly and accurately -- gotten around to admitting that private accounts are not about closing the funding gap, they are neutral towards that.
Great, that's clear enough then. Private accounts are not trying to deal with the solvency issue. And that statement, at least, is indeed progress for the Administration -- it gets a false issue out of the way.
Q.: ... am I right in assuming that in the way you describe this, because it's a wash in terms of the net effect on Social Security from the accounts by themselves, that it would be fair to describe this as having -- the personal accounts by themselves as having no effect whatsoever on the solvency issue?
SR. ADMIN. OFFICIAL: ... that's a fair inference.
But then what's the point of docking the traditional benefits by contributions not made to it plus 3%, instead of only the returns that would have actually been earned -- a policy that would in fact be solvency neutral in the long run? It makes no sense.
Why has the White House made such a plan?
Well, maybe it hasn't.
When the second type scenario was reported in the Washington Post's original story on Mr. SAO's briefing, a small firestorm resulted which produced a retraction of the original claim and a corrected description of a scenario more like our first one -- here's the tale of those events.
So what's the real plan?
Will contributions to private accounts reduce traditional benefits by the amount of the contribution plus "the amount the money would have accrued under the traditional system", or plus the federal bond rate? Both of which have been stated.
The fact is I'm still not entirely sure.
And that's got to be bad for the White House. Because no matter what its plan is, it has to sell it convincingly to millions of doubting voters -- yet so far it can't even explain it to little ol' me.
But I do have an odd guess as to what's gone on here. Back to the WaPo correction...
Even the WaPo correction is plain self-contradictory right there in its opening -- as we've seen already, at too much length.
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceed the amount their money would have accrued under the traditional system....
They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.
That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system.
But it all becomes right -- and all the confusion and conflict is explained -- if one thing is true: Mr. SAO believes benefits accrue on contributions in the traditional Social Security system at the federal bond rate, 3%.
Occam's razor: That explains what the WaPo correction's continued error and everything in Mr. SAO's comments.
But how could the White House's leading spokesman for private accounts believe something that is so false?
Well, no, I don't believe that either.
Here's my advice for Mr. SAO on private accounts: Reduce traditional benefits by the amount contributed to a private account plus the actual amount that would have been earned on it in traditional Social Security. If it's too complicated to work out for individuals use the average return per retirement cohort by year as is known and was cited above 1%, 0%, etc.
Really, how difficult is that? And why would one want to do anything different?
Oh, and by the way, 3% isn't the federal bond rate either, another fact that has consequences throughout -- but, mercifully, not to be discussed here.
Saturday, February 05, 2005
[Excerpts from the from the full transcript of yesterday's White House briefing as recorded by Federal News Service Inc, via the NY Times.]
MS. BUCHAN: The briefing today is on background, so all of the comments here today are to be attributed to senior administration officials ...
SR. ADMIN. OFFICIAL: Thanks, Claire. Thanks, everybody...
[My note: Mr. Senior Administration Official says several times that he is talking only of intended elements of a reform of Social Security -- not a full plan resolving its long-term funding shortfall and other issues, which will have to be worked out with Congress.]
... the President is going to outline some specifics about the personal accounts tonight, and I'd like to go through a few of them. First of these is that there will be no changes in the current system for people who were born before 1950 -- these are people who are 55 and older now. If you were born in 1949 or before, you would not be impacted by any of the changes envisioned by the President for Social Security. You would not have any changes to your benefits; you would also not be participating in personal accounts.
For individuals who were born in 1950 or later, they would have the opportunity -- the voluntary opportunity -- to participate in personal accounts...
With respect to the structure of the personal accounts, the administrative structure, we would establish a structure that is somewhat similar to the Thrift Savings Plan that federal employees, like myself, participate in.
This is a centralized administrative entity. It should lay to rest any suggestion that we're thinking of privatizing the Social Security system. The thrift savings plan is not a privatized system.
It's actually -- it's publicly administered; it's administered by the federal government. And it enables participants -- like myself and like other federal employees -- to realize the advantages of investment gains by having personal accounts that can be invested in diversified and secure funds going forward, and also a number of safety protections that we want to be able to provide to Social Security participants.
Specifically, the investment options that individuals would have would be somewhat similar to the thrift savings plan. In the thrift savings plan, individuals are given presently a choice of five funds.
There is a stock fund -- a large cap stock fund, a small cap stock fund, an international stock fund. There is a corporate bond fund, and there's also a fund of Treasury bonds. It's a very small, limited number. They're all broadly diversified. And the number of choices that individuals face is very limited, but also very simple. You don't have to be a financial genius to be able to save money in a thrift savings plan. And I'm living proof of that.
The thrift savings plan will also be offering shortly something called a life cycle fund. This is a fund where the proportion of the fund that is invested in stocks declines as an individual ages. And the closer they get to retirement age, the smaller the proportion of the fund that is invested in stocks.
This life cycle fund works on the premise that when you are younger, you would want the higher growth and the more aggressive investment that would come from equity investments; as you get closer to retirement, by the reasoning of the life cycle fund, you would want a more certain -- not as high or aggressive a growth, but a more certain annual return in your investments as you head closer to retirement.
The life cycle fund would simply be another choice that's made available to participants in the Social Security personal accounts.
For those workers who are nearing retirement, it would be offered as the standard choice. If people didn't make a choice to the contrary, they would be -- their standard selection would be deemed to be this life cycle fund. Individuals would have the opportunity to increase their amount of investments in other instruments beyond what is available in the life cycle fund, if they chose. However, they would have to sign some forms and get the sign-off of their spouse, if any, to show that they're aware of the implications of having a different investment mix that close to retirement.
The thrift savings plan has the virtue of offering very low administrative costs, certainly much lower than many have talked about with respect to Social Security personal accounts. For the types of personal accounts that I've just described, we have an estimate from the Social Security actuary of 30 basis points for the administrative costs -- that equates to 0.3 percent of account balances in a particular year...
Participants would not be permitted, under the system, to have pre-retirement access to their personal accounts. The accounts will be held and protected to fund benefits when they hit retirement age. They would not be permitted to make loans to themselves through the accounts, nor would they be permitted to borrow against them.
Upon retirement, upon reaching retirement age, there would be some limitations on how they could withdraw money from the accounts. If an individual had a personal account balance, if they had chosen to take a personal account, they would not be able to withdraw money from their account to such a degree that by doing so they would move themselves below the poverty line.
In other words, there would have to be a sufficient amount coming to them, in terms of a monthly inflation index benefit stream, from the traditional system and the annuitized portion of their personal account to be able to fund a poverty-level benefit.
Now, to the extent that their personal account enables them to have total benefits that are higher than that, they would have flexibility over the disposition of those funds. They would be permitted to leave those funds in the account to continue to appreciate; they could withdraw those amounts as lump sums to deal with a pressing financial need -- and, obviously, any additional accumulations in the accounts could be left as an inheritance.
But the main restriction, again, to repeat, is that people would not be permitted to withdraw money from the accounts to such a degree that by doing so they would spend themselves below the poverty line...
The size of the personal accounts would be limited to 4 percent of a worker's wages from their payroll taxes. But there would be a cap placed on the accounts in the first year -- contributions to the accounts of $1,000. Now, each year that cap thereafter would rise in increments of $100 on top of the natural wage growth that drives the growth in payroll taxes. And what that means is that over time, more and more of the work force would be able to contribute the full 4 percent of their wages to the personal accounts...
With respect to the fiscal effects of the personal accounts, in a long-term sense -- and I know those of you who have talked to me have heard me say this before -- but in the long-term sense, obviously, the personal accounts, as we would structure them, would not create a net new cost for the system.
To the extent that people put money in these accounts and invest in these accounts, there would be a corresponding reduction in the government's liabilities from the Social Security system that is equal in present value to the money placed in the personal accounts up front. So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government...
In the near-term, however, of course, there will be transition financing required. Our estimate of the total amount of transition financing for the accounts, according to the schedule that I've outlined before, is about $664 billion through the end of the budget window of 2015. If you assume that -- debt service effects on top of that, that would be another $90 billion...
Q.: And the administrative fees that you talked here, how does that compare with out in the private sector?
SR. ADMIN. OFFICIAL: They're considerably smaller. These are 30 basis points. The private sector tends to be higher. It's not quite as low as the thrift savings plan now has. The thrift savings plan, by different estimates, is about 6 or 8 basis points, reflecting the fact that the thrift savings plan only has to administer the accounts of employees of the federal government. So the Social Security actuaries' estimates are a little bit higher than for the thrift savings plan, mostly from a record-keeping perspective. There wouldn't be any increase in the cost of things like fund management and other things that are controllable by economies of scale.
Q.: So if I had $100, I'm paying 30 cents? Is that correct?
SR. ADMIN. OFFICIAL: That's right.
Q.: You talked about the $664 billion for the near-term costs. There's been a lot of speculation in advance that it would be something like $2 trillion. Talk a little bit more about that. How do you squuare that?
SR. ADMIN. OFFICIAL: ... Obviously, the $2 trillion number is not a number that was ever generated by us or by the Social Security actuaries, or any of the other nonpartisan scoring agencies...
Q.: Can you talk about over periods of time what an average rate of return is on some of these accounts...?
SR. ADMIN. OFFICIAL:... the Social Security actuaries make their own estimates about the portfolio returns on personal accounts. And those tend to reflect an assumption of a blend of 50 percent equities, 30 percent corporate bonds and 20 percent government bonds. And when they put all that together and subtract out administrative costs, they come up with a 4.6 percent above inflation. It's 4.9 percent before the administrative costs, and then 4.6 percent after. That's the actuaries portfolio assumption.
Q.: ... am I right in assuming that in the way you describe this, because it's a wash in terms of the net effect on Social Security from the accounts by themselves, that it would be fair to describe this as having -- the personal accounts by themselves as having no effect whatsoever on the solvency issue?
SR. ADMIN. OFFICIAL: ... that's a fair inference.
Q.: In saying that there is no net added cost to the program, are you implying -- is it implicit that there is a benefit offset of one-third current guaranteed benefit because you're diverting one- third of revenues away from this program? If that's not correct, what would the benefit offset be to traditional benefits, and how would it be calculated?
SR. ADMIN. OFFICIAL: The way that the election is put before the individual in a personal account structure of this type is that in return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system.
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a conseQ.:uence of making that decision.
Q.: So he would only get a benefit to the extent that his portfolio performed in excess of 3 percent?
SR. ADMIN. OFFICIAL: Right. You can think of it as saying -- if you were making a decision on where to put your money going forward over the next 10 years, and you're saying, should I put it in this account or that account, if you're choosing to put your money over here instead of over here, then the net effect on you, as an individual, is to compare what would be the rate of return you get from this system, as opposed to putting it over here. And that would be the difference between the two.
Q.: Short of 3 percent, would he make whole or would he get less than the current guaranteed benefit?
SR. ADMIN. OFFICIAL: Well, there's a implication at the end of your question which -- you have to remember, the current system can't pay the current guaranteed benefit-- ...
Q.: So people who don't -- people who choose not to take a personal account are not guaranteed the current schedule of benefits, they're --
SR. ADMIN. OFFICIAL: Under the current system, they are definitely not.
Q.: And they're not under this --
SR. ADMIN. OFFICIAL: Under no scenario are they -- could they be. Unless you posit a very large tax increase.
Q.: Can you just clarify whether or not this does address the "crisis," or is this -- are we correct in reporting if you say this is neutral and yet to be decided as to how you'll basically come up with the money to solve the "crisis"?
SR. ADMIN. OFFICIAL: The President is going to talk about the need to take action to fix Social Security. We're not making representation that the personal accounts alone are fixing the system's finances.
Q.: Are they helping at all?
SR. ADMIN. OFFICIAL: The personal accounts help in the sense that the personal accounts enable the worker to be better off in the context of a plan to fix Social Security. You could, in theory, fix Social Security finances without a personal account and then the worker would be far worse off than if you offered the personal account. So it's an important part of the overall plan to fix Social Security, because it's an important part of having a plan that, in the end, treats workers well.
When you consider going forward, what we're looking at, in terms of the gap between the system's promises and its ability to pay them, we could be in a very difficult situation in the 2020s or 2030s, with respect to keeping people out of poverty in old age. It's very important that the personal account be a component of the overall solution, because otherwise we're going to have much worse treatment for workers as the plan is fixed...
Q.: Related to this, what are the opportunities for a worker who may opt in at 18 or 20 or 25, to then decide, based on circumstances, either their own or the market performance, that they want to opt out; and then maybe at 40 or 45, they say, oh, the market is doing better, or, my circumstances are different, I want to opt back in -- what happens?
SR. ADMIN. OFFICIAL: Well, one of the things that it's important to remember about the nature of the election and the investment choices that we're giving people is that people can, in effect, sort of decide the degree to which they want to receive something like the Social Security defined benefit, or pursue a different rate of return through the investment in bond funds or stock funds. Let me give a specific example.
Suppose you had a person who opted for the personal account when they were young, and then they got buyer's remorse later when they were 30, and they decided, I don't really want the personal account. Well, at that point, they could just have the option of leaving all of their money invested entirely in the Treasury bonds because then, by definition, their benefit is not going to change relative to their promised Social Security benefit because the Treasury bond is earning a rate of interest that is exactly equal to the offset they're giving up for taking the personal account. So in other words, if you have someone who opts for the personal account, all they have to do to replicate their current traditional Social Security benefit is just to leave all their money in the Treasury bond fund...
Q.: What's the significance of permanence? That's been said about five times. Why is it so important to make a permanent solution? If they tried to do that in the 1930s when they set this up, we could have never anticipated all the changes in the economy that would have happened. We didn't have computers, we didn't know any of this stuff. Why do we have to do something now to take care of all time? And why is the President so insistent on that?
SR. ADMIN. OFFICIAL: Well, that's a very good question. If you look back at the history of Social Security, you will see a history of frequent and recurring tax increases. The tax rate was 2 percent -- 1 percent employee, 1 percent employer -- when the system was created. It has had to be raised repeatedly, most recently up to 12.4 percent. If we were to do, say, a temporary fix, then 10, 20 years from now, we'd be right back in the same boat that we are now. In fact, in 1983, they did what was categorized as a 75-year fix. But if you look at the projections that took place since then, starting in 1983, the trustees found the system was insolvent again. And here in 2005, we're facing an actuarial deficit that is about as big as they faced in 1983.
If we were to confine ourselves to a temporary fix, then 20 years from now people would be looking at a deficit just as big as we're looking now. And they'd be looking at a lot of tough choices all over again, except they'd be in a much worse position because the costs of the system would be much higher than they are now...
I'll have the fun of making my own observations on this -- and on the various crak'd reactions to it we've already seen in just one day -- on the morrow, after getting a little sleep.
I do have at least one significant problem with the plan as described above, and also with the way the White House is trying to sell it -- but don't want to rush out foolishness as have ... oh, some who shall be chastised later.
Friday, February 04, 2005
Steve Conover, a good friend from days of yore in the sci.econ newsgroup, has a new blog up and running, Skeptical Optimist (great name!), on which he is compiling the story of the national debt. And he's got illustrations like he'll have to teach me to make someday.
It's already been picked up by Power Line and Econopundit, so you know it's a tale worth reading. Go see.
I haven't had a conversation with Steve about such things for a long time. As far as his take on the national debt goes, I'm full with him. As to those accruals ... we'll have to wait and see. I'm looking forward to renewing our former exchanges.
Sanity breaks out among British Greens.
Such is the good news from Tim Worstall, as he reports the recent statement of the British government's chief science advisor, who thinks global warming is a greater threat than terrorism...
A new generation of safe nuclear power plants and coal-fired stations that capture their carbon emissions could solve the problem of global warming, Prof Sir David King, the Government's chief scientist said yesterday...Good for him, I hope the infection spreads to our side of the water.
Prof King expressed interest in the latest generation of small-scale Chinese pebble-bed nuclear reactors, and a different design made by Westinghouse in South Africa, which can be used in series to produce large quantities of power. He said new -generation nuclear power stations would add only 10 per cent to Britain's existing nuclear waste over 60 years.
He said the world needed to explore "every avenue" to tackle climate change including nuclear fission, nuclear fusion, renewable energy, and carbon sequestration, to prevent the worst effects of climate change.
Observers noted that his support for nuclear power goes beyond present Government policy.... [Telegraph]
Support for nuclear is the quick test I apply to determine if someone who claims to want to reduce greenhouse gasses is for real or merely a poser (or Luddite).
The world is going to want its distributed-over-the-power-grid-electricity for the next hundred years, and lots, lots more of it -- and is going to get it. And windmills aren't going to supply it.
The only options are burning ever more coal, oil and natural gas and producing all the resulting additional CO2 on the one hand, and nuclear with no CO2 on the other. So there you are, make your choice.
Nuclear also provides the remedy for what ails the proposed CO2-free "hydrogen economy" of hydrogen-powered cars and so forth. Namely the need for power, and lots of it, to separate the hydrogen -- which sends you back to burning coal, oil and gas, unless you choose nuclear.
When you have a choice to make about the real world you have to make it. Anyone who claims to be for reducing greenhouse gases but against nuclear isn't making it -- and just isn't serious.
Corporal Klinger lives in Norway.
OSLO, Norway - A Norwegian doctor called in for military service would have made the malingering Cpl. Klinger of "M A S H" proud.And Norway isn't even fighting a war for the guy to try get out of.
The doctor rubbed sour cream in his hair, poured sticky liqueur in his shoes, spilled beer on his clothes and sat in a closet smoking 40 cigarettes at once in a bid to convince the military that he wasn't fit mentally for service, the Fredrikstad Blad newspaper reported Thursday.
And just to be sure he looked and felt his worst, he stayed awake for two days before his physical, the newspaper said...
It worked, too. He was so convincing that the military doctor alerted the national health authority about the man they had licensed to work as physician.
An analysis of his records, however, showed that not only was he not insane, but he had received high marks from his patients, the newspaper said. Now, the doctor is facing likely disciplinary action from the military and the medical board. [AP]
However, Norway is different from most other Western European
Norway's Defense Minister, Kristin "War Kristin" Krohn Devold (posing at right just after the start of the Iraq war) is one of America's most notable friends in a leadership position on the Continent -- in more ways than one.
So maybe the doctor did have something to fear.
Thursday, February 03, 2005
This report (drawing from a WaPo story) says "legislatures in at least 25 states are currently debating more than 140 bills aimed at curbing obesity"... indirectly.
New state laws currently under consideration would ... attempt to tax the fat away.Yes, I'm sure, just like NYS is using its tobacco settlement money to fund anti-smoking programs, the way it said it would. ;-)
According to the Post, six bills proposed by New York State Assemblyman Felix Ortiz (D) would slap hefty taxes on not only fatty foods, "but also modern icons of sedentary living -- movie tickets, video games and DVD rentals." Ortiz estimates his tax laws would haul in over $50 million a year, which New York could use to fund public exercise and nutrition programs.
Look, taxing fat in food to fight obesity is not only unfair to people who aren't fat and enjoy that food, but is also economically inefficient and costly for everybody.
I run 30 miles a week and bench press my weight regularly to keep my body mass index the same svelte 20 as it was in college days (believe it!) ... so why should I be deprived of, or have to pay double for, the occassional Monster Thickburger (much less a DVD rental!) when the urge comes on? Just because some lardbutt is stuck in front of the tube somewhere popping bon bons?
Depriving me of what I want, reducing employment at Hardee's, and cutting the local video shop's rental revenue from Stooges DVDs, is not going to get lardbutt up on his feet, away from the tube and off to Jenny Craig's. It's all a waste.
The most intelligent and accomplished guy quoted in the WaPo story comes closest to the truth...
Close, but not quite right. You don't want to give a special tax subsidy for normal behavior (as opposed to especially good behavior) partly because by rewarding it as especially good behavior you promote what formerly was bad behavior to the new norm -- and also because these folks you are trying to reward, still a majority of the population, also bear most of the cost of the reduction in government services (or increase in budget deficits) that follows from the budget cutbacks due to the lost tax revenue. So what you give with one hand you largely take back with the other. (Putting all libertarian arguments aside for the moment.)
"The word 'epidemic' doesn't even do this justice. It is one of the most profound medical crises we've had in generations," said Eric Topol, who as the chief of cardiology at the Cleveland Clinic treats the most serious obesity-related heart cases...
Topol said he would have every American weigh in at the post office on tax filing day each year. Slender taxpayers would receive a credit, while "the people ruining our health care economics would pay the standard tax," he said.
But the good doctor was almost there. There are few iron laws in economics, but one of them is: If you tax something you get less of it.
So if you don't want fat people, tax fat people. More precisely, tax the fat on their bodies. Don't tax fat everywhere you see it but on their bodies, if you want to get it off their bodies.
With this policy the people who are doing the wrong thing visibly pay the price for it, and what they pay might even pay for a small reward for the people doing the right thing. Justice.
Moreover, there actually now is an incentive for lardbutt to get himself up on his feet and off to Jenny Craig's -- he can put dollars in his pocket by doing so -- while I keep the few small pleasures remaining in my life, and Hardee's and the DVD shop maintain full employment. Efficiency!
So if one is serious about this, then the self-evidently logical and effective thing to do is increase everybody's tax bill by an increasing pecentage as their body fat percentage rises above a specified level. (Tax them for their children's excess body fat too.) And then have the states just get rid of all those other 140 pending laws.
Some insurance industry officials have suggested charging obese persons higher premiums...Well, that's a reasonable small start. A sort of a tax. At least it places upon those whose behavior is creating the crisis a small part of its cost -- which is an incentive for them to change their behavior.
HHS Secretary Thompson, however, cautioned that doing so could run afoul of federal anti-discrimination laws.Aye, there's the rub.
It is our government's official policy that when faced with "a profound medical crisis" caused by the behavior of a class of people who are "ruining our health care economics", it can lash out and penalize the behavior of everyone in sight -- from restauranteurs to DVD shop owners -- except those people whose behavior is actually causing the crisis. Because that would be "discriminatory".
How serious is that?
(The aforesaid moment has passed -- you may now resume considering libertarian arguments.)
PS: No, I don't really want to tax fat people. Because I don't want to use the tax code to achieve social objectives. (And because my body mass index isn't really 20 any more these days, either.)
But whenever politicians and social reformers of various stripes do propose using taxes to achieve social objectives by indirect means -- especially when they don't have the nerve to tackle the objectives directly -- these are the kinds of inefficiency costs and fairness issues we will all face. Don't let them fool you about that.
Sarbanes-Oaxley and Entrepreneurship
Over at Emergent Chaos Adam Shostack has thoughts on how the Sarbanes-Oaxley legislation affects venture capital. While this law might have been created with the likes of Enron and Worldcom in mind, it creates problems for start-up companies with the ambition to go public -- and when you are small, problems like this are bigger.
I was going to say Adam's thinking makes sense to me -- but what do I know about such things?
My wife, though, is doing Sarbox audit work these day (yes, my family benefits from the "full employment for auditors" largess of this legislation) and she says it makes sense, and she knows what she's talking about, so you can take it from there...
Rising to the Baker/Krugman challenge
In his latest column about the coming plunge in stock market returns (but surely not his last) Paul Krugman wrote:
Mr. [Dean] Baker has devised a test he calls "no economist left behind": he challenges economists to make a projection of economic growth, dividends and capital gains that will yield a 6.5 percent rate of return over 75 years. Not one economist who supports privatization has been willing to take the test.Not being an economist, I shall now go where they fear to tread and take that test!
First, a recap of the conditions set for it in that column as covered here as long ago as yesterday:
We utilize the Baker/Krugman-column-version model that states domestic profits are a steady portion of GDP in the long run, and thus increase only as fast as GDP does, with GDP growth stated to rise an average 2% annually in the US for the next 50 years. Also, stock prices can increase only as fast as profits, as modified by change in the P/E ratio, which can't get ridiculous. Thus to get a 6.5% future return with today's 3% dividend payout we need 3.5% annual appreciation in stock prices, in spite of only 2% domestic growth, without getting P/E ratios of 100+ from the disparate rates of compounding. OK...
Pausing to get empirical for a moment, one notes that the S&P 500 over the last 55 years through the end of 2004 has appreciated 0.9% a year on average faster than GDP, for a total increase of 64% relative to GDP.
About half that is due to the increase in P/E ratio from 15 to 20, which as Jeremy Siegel has noted is reasonable in light of reduced risk to corporate investors (better management, much easier diversification for investors) and accounting factors (due to the increased reliance on intellectual assets, etc.) The rest comes from ... somewhere.
Taking this as our lead we take on the challenge that economists flee:
With 3.5% real annual appreciation in stock prices required, our target stock valuation is 5.6 times greater than today in 50 years.
With the stipulated 2% growth we get stock prices 2.7 times greater than today in 50 years.
Add an increase in the P/E ratio over the next 50 years that matches that of the last, ocurring for the same reasons, and we obtain a stock price of 3.6 times today.
Then we've still got to boost profits a bit somehow.
Hey, it's not illegal for US firms to earn profits abroad!
Note this is one area where past experience really is not indicative of likely future performance. Apart from the various historical episodes of the 20th Century that made it impossible-or-impractical to invest abroad in most of the world for most of the century, capital controls also often made it outright illegal right into the 1970s. But that's all entirely different going forward!
With more than 4 billion mostly young people today in economies in Asia, South America and Eastern Europe (and dare we hope Africa?) that expect to be grow a lot faster than 2%-a-year well into the forseeable future -- and we'd better hope they do, for the world's sake -- is it unreasonable to imagine profits earned abroad will grow in proportion to total profits over the next 50 years, as US economic growth slows?
Say there is such growth so that total future corporate profits come two parts from the Baker/Krugman 2% domestic growth rate plus one additional part from abroad (that is, one part in three, one-third) and there we are, bingo! We've got profits enough for our 5.6x valuation, or 96+% of the way to it.
(Alternatively, of course, we could have the P/E ratio rise less and profits from abroad rise more for the same result).
Now are profits earned abroad on this scale 50 years in the future entirely implausible in light of the likely course of future world economic development?
If not, please have Mr. Baker contact me about where to send the trophy and prize check. (I hope I'm not disqualified for talking 50 years instead of 75.)
BTW, if sometime in the next 50 years I'll be able to invest directly in China or India -- or in the Vanguard Greater China and India Diversified Growth Fund -- as their GDPs come to exceed that of the US, then I really won't care whether or not staid old US stocks can appreciate only 2% year.
Warren Buffett picks up another $4.6 billion.
Just like he needs it...
Sixteen years ago, Buffett's Berkshire Hathaway Co. bought $600 million in convertible preferred stock from Gillette in what was seen then as financial assistance for the personal-products concern, which had repelled two takeover attempts.
Calling Gillette "exactly the sort of business in which we like to invest for the long term," Buffett tucked the Gillette shares away in his portfolio and hasn't touched them since...
Terms of Proctor & Gamble's pending acquisition of Gillette would turn Berkshire's stake into 93.6 million P&G shares... at the agreed-to exchange rate of .975 of a P&G share for each Gillette share, Berkshire's holding would be worth nearly $5.18 billion... [Forbes]
Wednesday, February 02, 2005
In his column yesterday Paul Krugman yet again proclaims that future stock market returns must be lower than in the past and thus can't possibly be "high enough" for private Social Security accounts to succeed. Although he doesn't say succeed at what. Nor does he say why 5% returns forseen for the future won't work while the 6.5% returns of history would have.
(I have my guesses about what he's talking about -- but let's just say that Krugman may not be the guy to unilaterally define the objectives and measures of success for private accounts, as far as many supporters of private accounts are concerned).
By arguing against he-says-not-what, the Professor sets up something of a straw man to play with, and Tom Maguire has the deal on that.
I'll limit myself to one little thing about Krugman's proclaimed limit on future stock market returns that strikes me as curious -- though I don't actually think it is a particularly big deal in this debate myself. I just don't understand it.
OK. What he's saying here in simplest terms is that the value of the stock market can't grow substantially and continuously faster than the economy, which is true (and self-evident, since if it did its value would grow to exceed that of everything else in the economy).
The yield on a stock comes from two components: cash that the company pays out in the form of dividends and stock buybacks, and capital gains. Right now, if dividends and buybacks were the whole story, the rate of return on stocks would be only 3 percent.
To get a 6.5 percent rate of return, you need capital gains: if dividends yield 3 percent, stock prices have to rise 3.5 percent per year after inflation. That doesn't sound too unreasonable if you're thinking only a few years ahead...
But ... the actuaries predict that economic growth, which averaged 3.4 percent per year over the last 75 years, will average only 1.9 percent over the next 75 years.
In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits....
This sometimes comes as a surprise to persons who've heard a lot about high historical stock market returns, but it has been true throughout history. For example the rise in the Dow Jones Industrial Average since 1926 has averaged about 2.5% a year above inflation, less than the growth rate of the economy. And the S&P 500 index since 1950 has risen about 4.3% year on average, compared to average real GDP growth of 3.4%, less than a point of difference.
The rest of the 7%-a-year real average return from the stock market over long experience has come in the form of dividends and other distributions.
Now, over the coming 40 years -- which is the period that counts for the coming fiscal crunch -- the actuaries predict real GDP growth at an average of a tad over 2% (The actuaries say income taxes will have to rise near 100% from today's level in that time to service the Trust Funds and Medicare; and 75 years from now, in 2080, whatever we did before 2045 to deal with that will be ancient history).
This coming decline in annual GDP growth from the higher level of today and the past is expected as a result of the coming decline in the growth rate of the work force.
So... putting together the current 3% dividend rate with 2% future growth in the domestic US economy that allows 2% growth in stock valuations, we get via Krugman's logic 5% as the sustainable yield on US stocks in the future.
As far as that goes, I have no problem.
In fact, a 5% real return -- being so much higher than the 1%-to-negative returns to be provided by Social Security to its young participants, as per its actuaries; and than the 2% real return provided by federal bonds since the end of the gold standard (with less than that expected in the next several years) -- clearly creates many attractive opportunities for, and potential benefits from, private accounts in Social Security. But those will be for another post.
Yet I still have this one question.
Krugman got his name in international economics. But in his analysis here he follows the model of Dean Baker ...
I asked Dean Baker, of the Center for Economic and Policy Research, to help me out with that calculation (there are some technical details I won't get into).He asked Dean Baker? Why, Krugman
Krugman the international economist follows the model of Dean Baker that limits growth in future investment returns available to Americans by the 2% domestic GDP growth speed limit.
That's my one question. Why does he think that domestic GDP growth limits the profit growth of companies -- domestic and foreign -- that are and will be available for US citizens to invest in?
Note that through most of the 20th Century it was indeed difficult to invest abroad due to the various problems we may remember from history books as well as capital controls that lasted into the 1970s. But in today's world, if investment markets aren't globalized then nothing is.
There are more than 4 billion mostly young people in Asia, South America and Eastern Europe who fully expect to experience growth rates far above 2% -- who will need to do so to obtain the level of welfare we have in our western world, so we must hope they succeed. And they are going to need one heck of a lot of capital and investment from abroad to do so.
US corporations won't be able to invest in these places? US investors won't be able to invest abroad? Investment opportunities among nations of 4 billion people growing at 5%, 6%, 8%, annually won't possibly be able to lift the future profit growth rate available to US investors (a subset of 300 million) from 2% to 3%?
You know, that little increase would make a big difference. Just a 1% increase in return compounded annually for 40 years increases wealth by about 50%.
So I'm curious, why do Dean Baker and the international trade economist Paul Krugman deny the possibility of any gain from international economic growth to US investors in the coming 21st Century?
Krugman back in his Slate days certainly used to argue ardently -- against protectionism -- that productivity-adjusted wage levels quickly equalize among industries in international markets, so that supposedly "cheap" foreign workers aren't really the threat to US workers they are often made out to be.
But today he thinks that in investment markets equalization is less likely to occur? That investment markets are less globalized than labor markets?? So that growth rates of 4%, 6%, 8% across nations with populations of billions represent zero net opportunity to US investors?
(I mean, do people in Ontario have their potential investment returns limited to those of firms with exclusively local dealings that are listed on the Toronto stock exchange? Do retirees in Florida have their investment options limited to businesses operating solely in Florida?)
I'm just curious -- why would the international trade economist write off dealings with the rest of the world for the coming 75 years?
And if he didn't, how much higher than 5% might he say possible future returns could be to US investors? 6%? 6.5?
(Remember, the S&P 500 has appreciated faster than GDP by an average 0.9 points a year for the last 55 years. If that keeps up we are already at 5.9% to start with.)
Which brings us to the privatizers' Catch-22.... if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.Which economy? The Chinese and Indian economies with 2 billion modernizing people? I can see them providing us with some handsome investment returns in future decades -- but not much in the way of payroll taxes, frankly!
(And by the way, getting enough investment returns to extend the solvency of Social Security is not the test of making "privatization work" -- not the test applied around these parts, at least. )
Mr. Baker has devised a test he calls "no economist left behind": he challenges economists to make a projection of economic growth, dividends and capital gains that will yield a 6.5 percent rate of return over 75 years. Not one economist who supports privatization has been willing to take the test.Does Mr. Baker think China and India will grow at an average exceeding 2% over the next 75 years? If so, then I don't care about his number games for economists regarding domestic firms.
Just have him tell me whether he expects I'll be able to invest in the Vanguard Greater China and Greater India Diversified Growth Funds sometime in this century.
Now we get some idea of why Canada has a stripper shortage.
Canada's special visa program for foreign born exotic dancers, some political complications that ensued, and laments in the land of the north along the lines of "What's lacking in our national character that we cannot turn out enough people who can figure out how to take off their clothes?", were noted here previously.
We speculated then that this might simply be a normal case of comparative advantage in international trade: Canada exports Molson, imports strippers, and everyone is the better for it.
But new evidence may indicate sub-optimal incentives in play...
$400k versus $1.7 million...
A stripper mauled by a tiger in an Ontario safari park has won $800,000 in damages because her scars meant she could no longer work, Canadian media said on Friday. Jennifer-Anne Cowles was driving through the park nearly nine years ago with her then boyfriend when a tiger jumped into their car and tried to drag them away...
[The court] awarded Cowles some $800,000 in damages, almost half of it to compensate for income she would have made as a stripper.
Her musician boyfriend, David Balac, won $1.7 million, because his injuries left him unable to work as an accordion player. [Reuters]
Canadians value accordian players more than four times as much as strippers.
I'd say that's a market failure.
Tuesday, February 01, 2005
The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)!Ah, so "Ponzi" wasn't always a bad word to liberal advocates of Social Security!
How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population.
More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.
Social Security is squarely based on what has been called the eight wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.
-- Writing in Newsweek, 1967 [Quoted by Schieber & Shoven]
In today's world Samuelson's description seems almost quaint. But it's not quaint, it's important and entirely relevant to the current debate.
The thing for both sides to remember is that the Social Security that Samuelson was writing about -- the Social Security that so many remember so fondly -- is already gone.
Samuelson could write...
Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times...!But today Social Security's actuaries say that from now on all annual classes of retirees will get back less from Social Security than they put into it, discounting at the federal bond rate -- that is, they will lose money compared to if they had simply put their Social Security taxes in a federal bond.
Moreover, a great many -- including the average male born after 1970 (age 35 today or younger) will lose money outright to Social Security as it is, and be made poorer by it on a lifetime basis.
Yet when people express opinions along the lines of...
"Social Security is the most successful and most popular government program in American history, we should preserve it, not change it."
... they inevitably are thinking of the golden age Social Security of Samuelson's time.
Alas, we can't preserve what is already long gone.
There is no option to "save" Social Security as it was when it became the most successful and popular government program in American history.
The only options are to change it from what it was.
The only question is "how?"
"We will build a statue for Bush."
BAGHDAD - The man replacing the mayor of Baghdad — who was assassinated for his pro-American loyalties — says he is not worried about his ties to Washington. In fact, he'd like to erect a monument to honor President Bush in the middle of the city.
"We will build a statue for Bush," said Ali Fadel, the former provincial council chairman. "He is the symbol of freedom."... [NY Post]
Say "Goodbye" to AT&T, as Baby Bell eats Ma.
First the kids eat Ma's business, then they eat Ma.
Plenty of us are old enough to remember when every phone was an AT&T phone. But this is what kids do to even the mightiest of parents.
SBC Communications has agreed to buy former parent AT&T for $16 billion, creating the nation's largest communications company and ending the independent run of a company whose roots stretch back to the telephone's invention...
Once known as Ma Bell, [AT&T] handled the nation's telephone calls before it was broken apart 21 years ago. The Bedminster, N.J.-based company today has nearly 30 million long-distance customers.
"Today's agreement is a huge step forward in our efforts to build a company that will lead an American communications revolution in the 21st century," Edward Whitacre, SBC chairman and chief executive, said in a statement...
AT&T, whose market value and revenues peaked in 1999, has been slammed by increasing competition from SBC and other dominant local carriers in the long-distance market ...
AT&T last July withdrew from its traditional residential phone market, stung by government regulation and a changing marketplace as consumers turn increasingly to wireless services...
In 1984, AT&T settled a Justice Department antitrust lawsuit by agreeing to spin off the regional Bells, companies known today as SBC, BellSouth, Verizon Communications and Qwest Communications (Q, news, msgs).
Former Federal Communications Commission chief Reed Hundt had deemed a reunion "unthinkable" in 1997... [MSN]
How many men get the chance to write their entire autobiography in the snow?
It was a good thing he hadn't stashed it in the trunk, too.
Man Peed Way Out Of Avalanche
A Slovak man trapped in his car under an avalanche freed himself by drinking 60 bottles of beer and urinating on the snow to melt it.
Rescue teams found Richard Kral drunk and staggering along a mountain path four days after his Audi car was buried in the Slovak Tatra mountains.
He told them that after the avalanche, he had opened his car window and tried to dig his way out. But as he dug with his hands, he realised the snow would fill his car before he managed to break through.
He had 60 half-litre bottles of beer in his car as he was going on holiday, and after cracking one open to think about the problem he realised he could urinate on the snow to melt it, local media reported.
He said: "I was scooping the snow from above me and packing it down below the window, and then I peed on it to melt it. It was hard and now my kidneys and liver hurt.
"But I'm glad the beer I took on holiday turned out to be useful and I managed to get out of there." [Ananova]