Saturday, May 31, 2008
Freeman Dyson on Global Warming
Freeman Dyson has a take on global warming in the NY Review of Books.
He cites William Nordhaus, perhaps the leading economist on the issue, projecting the net cost of global warming over 100 years at present value in today's dollars in the case of...
[] No action taken: $23 trillion.
[] Optimal policy, a best-case carbon tax: $20 trillion ($3 trillion of benefit).
[] Kyoto protocol, everybody participating: $22 trillion ($1 trillion of benefit).
[] Stern proposals followed: $38 trillion (things made worse by $15 trillion).
[] Al Gore's proposals: $45 trillion (Go Al!).
100-year projections no doubt have some small margin of error in them, but that being as it may, Dyson is a giant and this article, which is a review of Nordhaus's book and another, is entirely worth reading for his own thinking on the subject.
Freeman Dyson has a take on global warming in the NY Review of Books.
He cites William Nordhaus, perhaps the leading economist on the issue, projecting the net cost of global warming over 100 years at present value in today's dollars in the case of...
[] No action taken: $23 trillion.
[] Optimal policy, a best-case carbon tax: $20 trillion ($3 trillion of benefit).
[] Kyoto protocol, everybody participating: $22 trillion ($1 trillion of benefit).
[] Stern proposals followed: $38 trillion (things made worse by $15 trillion).
[] Al Gore's proposals: $45 trillion (Go Al!).
100-year projections no doubt have some small margin of error in them, but that being as it may, Dyson is a giant and this article, which is a review of Nordhaus's book and another, is entirely worth reading for his own thinking on the subject.
Friday, May 30, 2008
Why is politics so much more bitter today?
I see this question in news commentary all the time, and even one of my kids asked me.
Yes, back in 1963 John Kennedy and Barry Goldwater were good friends planning to barnstorm the country together holding friendly debates during the 1964 presidential race. And from 1932 to 1964 the press gave every president countless "free passes" -- going along with completely hiding from the public the fact that FDR lived in a wheelchair, minimizing Ike's heart attacks, never mentioning any of JFK's litany of serious health problems (much less his womanizing), etc.
Yet today even intra-party politics (Hillary v Obama) is full of bitterness and name calling, and the press plays a never-ending game of "gotcha".
How come? Is civil society really coming to an end? Three quick thoughts:
1) When the division of power is close tempers get hot, and to win the marginal vote that will bring their party victory and power people will do anything. On the other hand, when one party has an insurmountable advantage over the other, the opportune strategy for both sides (especially the minority) is "go along to get along". There's no reason to kill each other when there's nothing particularly urgent at stake.
In 1942, FDR's Democrats held 66 of 96 seats in the Senate and a 105-seat majority in the House. In 1963, JFK's Democrats equally dominated with 66 seats in the Senate and an 83-vote majority in the House. There was nothing at stake for either side worth "going to war" over. But for the last decade, with the electorate near evenly split and power see-sawing from election to election, that marginal vote has been worth going to war over. (See, "Florida, 2000".) So they have.
2) When real differences on the issues are big candidates are able to run on that and have no need to personalize things to motivate voters. Kennedy and Goldwater were worlds apart on the issues so they could get their votes by debating as friends. But as to Clinton and Obama, guess who are the two Senators out of all the 100 with the most similar voting records. Well, if the reason to vote for you instead of the other guy isn't the issues, then it has to be the person, or some higher moral cause that's worth fighting for ... or the person.... and you have to work hard to make sure the voters know that!
3) It's a myth that politics is more bitter now. Politics has always been bitter and dirty, and through most of US history more so than now. Back in the Golden Age of the Founding Fathers itself, while sitting in adjoining offices as members of George Washington's own cabinet, Alexander Hamilton used Treasury agents against Thomas Jefferson's allies, while Jefferson used State Department funds to bankroll press attacks on Hamilton and largely ruined Hamilton using a "honey pot" sting sex scandal. (As for the propriety of the press back then, and how it could turn on a favorite, see Jefferson's one-time good friend James Callendar) ... Oh, and just a little while later the Vice President of the United States shot his most vociferous political critic dead, then returned to his job of presiding over the Senate and duly finished out his term of office. Things are not so bad today. (Dick Cheney did not shoot Paul Krugman.)
So here's the bottom line answer: It is true that the press was largely indulgent of the president during the period 1932 to 1964, and people who grew up during that period took that to be the norm. But a larger view of history shows that period to aberrational both politically and economically in many ways due to the national crises of the Great Depression, World War II, and Stalin-era Cold War. (And there was plenty of bitter, underhanded, dirty politics even then, largely forgotten today).
National politics is back to normal now, that's all. And as long as its division of power remains close, expect it to remain bitter, playing to the emotions, and personal. It's only rational.
I see this question in news commentary all the time, and even one of my kids asked me.
Yes, back in 1963 John Kennedy and Barry Goldwater were good friends planning to barnstorm the country together holding friendly debates during the 1964 presidential race. And from 1932 to 1964 the press gave every president countless "free passes" -- going along with completely hiding from the public the fact that FDR lived in a wheelchair, minimizing Ike's heart attacks, never mentioning any of JFK's litany of serious health problems (much less his womanizing), etc.
Yet today even intra-party politics (Hillary v Obama) is full of bitterness and name calling, and the press plays a never-ending game of "gotcha".
How come? Is civil society really coming to an end? Three quick thoughts:
1) When the division of power is close tempers get hot, and to win the marginal vote that will bring their party victory and power people will do anything. On the other hand, when one party has an insurmountable advantage over the other, the opportune strategy for both sides (especially the minority) is "go along to get along". There's no reason to kill each other when there's nothing particularly urgent at stake.
In 1942, FDR's Democrats held 66 of 96 seats in the Senate and a 105-seat majority in the House. In 1963, JFK's Democrats equally dominated with 66 seats in the Senate and an 83-vote majority in the House. There was nothing at stake for either side worth "going to war" over. But for the last decade, with the electorate near evenly split and power see-sawing from election to election, that marginal vote has been worth going to war over. (See, "Florida, 2000".) So they have.
2) When real differences on the issues are big candidates are able to run on that and have no need to personalize things to motivate voters. Kennedy and Goldwater were worlds apart on the issues so they could get their votes by debating as friends. But as to Clinton and Obama, guess who are the two Senators out of all the 100 with the most similar voting records. Well, if the reason to vote for you instead of the other guy isn't the issues, then it has to be the person, or some higher moral cause that's worth fighting for ... or the person.... and you have to work hard to make sure the voters know that!
3) It's a myth that politics is more bitter now. Politics has always been bitter and dirty, and through most of US history more so than now. Back in the Golden Age of the Founding Fathers itself, while sitting in adjoining offices as members of George Washington's own cabinet, Alexander Hamilton used Treasury agents against Thomas Jefferson's allies, while Jefferson used State Department funds to bankroll press attacks on Hamilton and largely ruined Hamilton using a "honey pot" sting sex scandal. (As for the propriety of the press back then, and how it could turn on a favorite, see Jefferson's one-time good friend James Callendar) ... Oh, and just a little while later the Vice President of the United States shot his most vociferous political critic dead, then returned to his job of presiding over the Senate and duly finished out his term of office. Things are not so bad today. (Dick Cheney did not shoot Paul Krugman.)
So here's the bottom line answer: It is true that the press was largely indulgent of the president during the period 1932 to 1964, and people who grew up during that period took that to be the norm. But a larger view of history shows that period to aberrational both politically and economically in many ways due to the national crises of the Great Depression, World War II, and Stalin-era Cold War. (And there was plenty of bitter, underhanded, dirty politics even then, largely forgotten today).
National politics is back to normal now, that's all. And as long as its division of power remains close, expect it to remain bitter, playing to the emotions, and personal. It's only rational.
Why urban public schools don't work, continued.
Reason # ... oh, count 'em yourself:
It took more than four years and $253,000 for the city's Department of Education to get rid of just one tenured teacher in 2007, according to data obtained by The Post.By paying them $169,000 to do nothing. Fire me inhumanely! Please!
Former PS 197 teacher David Salkin, 56, had taught for only five years in Queens before administrators accumulated enough documentation asserting he couldn't control his classroom -- and in 2005, bumped him to the department's "rubber room," where educators get paid to do nothing while under investigation, records show. It then took another 2 1/2 years for the school system to cut him loose -- while Salkin, who had earned tenure after his third year teaching, collected a total of $169,000 in salary.
Salkin's case is just one example of what officials call the needlessly long and arduous process for removing inadequate teachers...
"The process that leads to getting folks out of the system is completely ineffective," Deputy Chancellor Chris Cerf said.
UFT President Randi Weingarten said the department doesn't "help [teachers], and then ... once they made a decision that they think someone's not competent, they then go after them in a real inhuman and dehumanizing way."
Update: The Department of Education just obtained an appeals court decision allowing it to dismiss another teacher...
Douglas Lackow told one of his biology students to take a good look at the model of female reproductive organs he was holding because he "would never see one, so enjoy it." When a female student as Susan Wagner HS in Manor Heights yelled "Lackow sucks," he responded, "No, you suck. Well that's what it says in the boys' bathroom," court papers say. He also allegedly talked to his class about masturbation, ejaculation, bestiality and necrophilia, despite warnings.After the entire administrative dismissal process, it takes arbitration, then a full court trial, and then a full appeals court trial and decision, to get rid of a teacher like this. Think if that money had been spent on "education".
Lackow contended those were "isolated" incidents...
Update: Another teacher still being paid after not teaching since 2005, when she approached a 15-year old student romantically by e-mail and blogged about him erotically. The case goes through administrative processes, to arbitration, to court, back to arbitration ...
It brings to mind what a NYC public schools teacher wrote a little while back about the school system.
Thursday, May 29, 2008
America sends an expedition to New York
New York City is not America. America starts just west of the Hudson and extends to somewhere a bit east of Hollywood. But every now and then America comes to New York.
During this past week America sent a naval expedition to New York City via Fleet Week. Small groups of sailors in their dress whites have been bobbing through the street crowds all over town.
The navy must not give them any guidance or direction because they've seemed to be randomly distributed all over the place, in locales where there's certainly no reason for a tourist to go. This sight is strange to New Yorkers. When New Yorkers visit, say, Washington DC -- that is, America -- take a subway ride there and see people in military uniforms, even generals and admirals, sitting on the train seats reading the paper just like they are normal people going to and from work, it's a bit of a shock. Military people just aren't seen as normal people (both literally and figuratively) here in Manhattan -- not like in Washington DC or Texas or San Diego ... America.
Well, when the American fleet's sailors hit town you know for sure they are not New Yorkers, and that the navy doesn't give them any more money than street guidance, when a group randomly bob into my local pub (one of the last family-owned local Irish bars in lower Manhattan that can fairly be called that) and you hear: "... beer costs how much? Don't you have any with American names? Budweiser costs HOW MUCH? "
Culture shock is just as great the other way. The big ship in town hosting the public has been the USS Kearsage, (pictured above) a big aircraft carrying, hovercraft carrying assault ship, loaded up with all the guns, light tanks, artillery and such that you'd ever want to pour onto an enemy beach. You walk on board, are greeted by marines and sailors who are kids, 18 or 20 years old (much younger than New York police, the only armed uniformed force New Yorkers are familiar with) and you see how they love their guns.
A parent bringing children on board -- OK, most of us adults were there to keep our kids from punishing us for not taking them -- has a friendly, smiling marine greet them right away with "Hi, junior, what's your name? ...Well, Johnny, have you ever held an assault rifle before? Here, see how light it is? Your Super Soaker weighs more when it's loaded with water. Now try the trigger...." I mean, this before watching parents in freaking politically correct New York "there can never be enough gun control" City. Ten-year, eight-year, six-year olds being introduced to the joy of assault rifles. If Bloomberg had visited he'd have shat. And the smiling parents all enjoy it and get a kick out of it. (Well, being the kind of parents who bring kids on board a navy assault ship for a holiday.)
Next display, the machine guns. The marines have a landing craft rigged up with all kinds pointing out in all directions. The little kids get lifted up there and rush right to them. (My 13-year-old went up too but "I only looked at the engines and steering, I didn't want to keep the little kids from having fun").
Have you ever seen a 7-year-old pointing a .50-calibre machine gun and getting instructions on how to shoot it? "You pull this bolt back and the action works like this. Yeah!" To a 5-year old on a MK19: "Well, maybe that's too heavy for you, let's try this M249". And the parents down on the main deck are loving it, shooting off the flashes of their digital cameras like paparazzi catching Lindsay Lohan and Paris Hilton on a double date. "C'mon, José, point it at mommy and smile!" All except dumbass me, who forgot to bring my camera, or even my cell phone. So I missed a hundred great pictures to illustrate this tale (and have only the one on the right from a local newspaper.)
Well, my kid skipped the machine guns but wasn't disappointed because he got ahead that much faster to try out the "virtual reality" machine. We're not talking about something from Nintendo here -- this is anindustrial Pentagon research-strength helmet-and-surround sound system that "puts you there". Flat-screen monitors stationed about display what the helmeted-one experiences. He's standing on a road, a 16-wheeler comes roaring down it and, although he knows he's standing on the deck in the interior of a ship, he hurls himself out of the way. Junior they placed on the edge of a cliff among several other people looking down, then the cliff edge started to crumble and the person next to him fell off and down. He said it made him totally sick to his stomach -- a two-minute experience worth the entire trip!
On the way out we passed a lonely, classic M2 .50 caliber "Ma Duce" machine gun. The little kids being elsewhere, this one Junior had a chance to try out. He's become a fan of engineering from watching some of the better cable TV channels, so I started to tell him about how the M2 is one of the great design and engineering achievements of last 100 years. It's original design and construction was so perfect that it is still being used virtually unchanged since the days shortly after World War I, and the military is still using stocks of it manufactured decades ago.
A passing marine, maybe 18 or 19 years old, overheard me and changed course to jump into the conversation. "You know your weapons, sir! This particular version of the M2 has been in use unchanged since 1954". We had a friendly little talk from there and I asked if he'd had any chance to enjoy the city. He said he loved the city, and "I'm moving here next year!" Really? Was he mustering out, or getting married to someone here? He said, "No, the marines have a small outpost in the city in Brooklyn and I'm going to be stationed there, I'm really looking forward to it."
Outpost. I swear he said "outpost". I think he said "outpost".
Well, the fleet's sailed off now and he's gone with it. I wish them all nothing but the best. And the next time the fleet hits town I'm going to try to remember to bring my camera.
New York City is not America. America starts just west of the Hudson and extends to somewhere a bit east of Hollywood. But every now and then America comes to New York.
During this past week America sent a naval expedition to New York City via Fleet Week. Small groups of sailors in their dress whites have been bobbing through the street crowds all over town.
The navy must not give them any guidance or direction because they've seemed to be randomly distributed all over the place, in locales where there's certainly no reason for a tourist to go. This sight is strange to New Yorkers. When New Yorkers visit, say, Washington DC -- that is, America -- take a subway ride there and see people in military uniforms, even generals and admirals, sitting on the train seats reading the paper just like they are normal people going to and from work, it's a bit of a shock. Military people just aren't seen as normal people (both literally and figuratively) here in Manhattan -- not like in Washington DC or Texas or San Diego ... America.Well, when the American fleet's sailors hit town you know for sure they are not New Yorkers, and that the navy doesn't give them any more money than street guidance, when a group randomly bob into my local pub (one of the last family-owned local Irish bars in lower Manhattan that can fairly be called that) and you hear: "... beer costs how much? Don't you have any with American names? Budweiser costs HOW MUCH? "
Culture shock is just as great the other way. The big ship in town hosting the public has been the USS Kearsage, (pictured above) a big aircraft carrying, hovercraft carrying assault ship, loaded up with all the guns, light tanks, artillery and such that you'd ever want to pour onto an enemy beach. You walk on board, are greeted by marines and sailors who are kids, 18 or 20 years old (much younger than New York police, the only armed uniformed force New Yorkers are familiar with) and you see how they love their guns.
A parent bringing children on board -- OK, most of us adults were there to keep our kids from punishing us for not taking them -- has a friendly, smiling marine greet them right away with "Hi, junior, what's your name? ...Well, Johnny, have you ever held an assault rifle before? Here, see how light it is? Your Super Soaker weighs more when it's loaded with water. Now try the trigger...." I mean, this before watching parents in freaking politically correct New York "there can never be enough gun control" City. Ten-year, eight-year, six-year olds being introduced to the joy of assault rifles. If Bloomberg had visited he'd have shat. And the smiling parents all enjoy it and get a kick out of it. (Well, being the kind of parents who bring kids on board a navy assault ship for a holiday.)
Next display, the machine guns. The marines have a landing craft rigged up with all kinds pointing out in all directions. The little kids get lifted up there and rush right to them. (My 13-year-old went up too but "I only looked at the engines and steering, I didn't want to keep the little kids from having fun").
Have you ever seen a 7-year-old pointing a .50-calibre machine gun and getting instructions on how to shoot it? "You pull this bolt back and the action works like this. Yeah!" To a 5-year old on a MK19: "Well, maybe that's too heavy for you, let's try this M249". And the parents down on the main deck are loving it, shooting off the flashes of their digital cameras like paparazzi catching Lindsay Lohan and Paris Hilton on a double date. "C'mon, José, point it at mommy and smile!" All except dumbass me, who forgot to bring my camera, or even my cell phone. So I missed a hundred great pictures to illustrate this tale (and have only the one on the right from a local newspaper.)Well, my kid skipped the machine guns but wasn't disappointed because he got ahead that much faster to try out the "virtual reality" machine. We're not talking about something from Nintendo here -- this is an
On the way out we passed a lonely, classic M2 .50 caliber "Ma Duce" machine gun. The little kids being elsewhere, this one Junior had a chance to try out. He's become a fan of engineering from watching some of the better cable TV channels, so I started to tell him about how the M2 is one of the great design and engineering achievements of last 100 years. It's original design and construction was so perfect that it is still being used virtually unchanged since the days shortly after World War I, and the military is still using stocks of it manufactured decades ago.
A passing marine, maybe 18 or 19 years old, overheard me and changed course to jump into the conversation. "You know your weapons, sir! This particular version of the M2 has been in use unchanged since 1954". We had a friendly little talk from there and I asked if he'd had any chance to enjoy the city. He said he loved the city, and "I'm moving here next year!" Really? Was he mustering out, or getting married to someone here? He said, "No, the marines have a small outpost in the city in Brooklyn and I'm going to be stationed there, I'm really looking forward to it."
Outpost. I swear he said "outpost". I think he said "outpost".
Well, the fleet's sailed off now and he's gone with it. I wish them all nothing but the best. And the next time the fleet hits town I'm going to try to remember to bring my camera.
Wednesday, May 28, 2008
Is Mugabe trying for the book of economic world records?
Zimbabwean inflation measurements are very precise:
Mugabe may be the inflation champion of Africa, but the world record is still a good ways ahead.
Zimbabwean inflation measurements are very precise:
HARARE, Zimbabwe (AP) — ... annual inflation rose this month to 1,063,572 percent based on prices of a basket of basic foodstuffs.[HT: Roland Patrick]
Economic analysts say unless the rate of inflation is slowed, annual inflation will likely reach about 5 million percent by October.
As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars ... fresh price rises were expected after the state Grain Marketing Board announced up to 25-fold increases in its prices to commercial millers for wheat and the corn meal staple ...
The economy was on shop clerk Jessica Rukuni's mind as she left the public swimming pool in downtown Harare's central park with three disappointed children. She found the new admission price of 100 million Zimbabwe dollars — 30 U.S. cents — out of reach...
Mugabe may be the inflation champion of Africa, but the world record is still a good ways ahead.
The most severe known incident of inflation was in Hungary after the end of World War II, peaking at 4.19 × 10^16 percent per month (prices double every 15 hours). [wikipedia].Pray for his peoples' sake that the Devil comes to claim him and take him home long before then. Soon, in fact. Tomorrow.
Monday, May 26, 2008
About and around.
It's a holiday, Congress takes a few days off, and Uncle Jay explains Congressional Recess.
Out of this world.
The biggest sign in the world: Today it's 212 feet tall, has 12 million LED lights that are computer controlled, and says "Walgreens" (or soon will) .... 101 years ago it was 68 feet tall, had 1,400 light bulbs that were arranged to fit around the external fire escapes, and said "Butterick". The new sign is in Times Square on the former New York Times building, reaching 31 stories up. The old sign was on a building on the corner of Spring Street and MacDougal Street in (what is now) downtown Manhattan, and the Butterick Company is still in it. I've walked by that corner many times. Who knew?
Doctor's prescription: France must "Dare to fart!"
Green technology of the future today...
It's a holiday, Congress takes a few days off, and Uncle Jay explains Congressional Recess.
Out of this world.
The biggest sign in the world: Today it's 212 feet tall, has 12 million LED lights that are computer controlled, and says "Walgreens" (or soon will) .... 101 years ago it was 68 feet tall, had 1,400 light bulbs that were arranged to fit around the external fire escapes, and said "Butterick". The new sign is in Times Square on the former New York Times building, reaching 31 stories up. The old sign was on a building on the corner of Spring Street and MacDougal Street in (what is now) downtown Manhattan, and the Butterick Company is still in it. I've walked by that corner many times. Who knew?
Doctor's prescription: France must "Dare to fart!"
Green technology of the future today...
A Japanese lingerie firm has unveiled the perfect gadget for eco-friendly sun worshippers - the solar-powered bra. (Illustrated)
It comes with a detachable solar panel which can produce enough energy to power an iPod or mobile phone ... It is also equipped with plastic pouches that can be filled with water, allowing wearers to quench their thirst without having to buy and then throw away drinks bottles.
The bra is made of high quality organic cotton to ensure its production has the smallest possible impact on the environment.
Triumph International Japan concedes the bra will not become popular in its current form, as outer clothing renders its solar panel ineffective.
Sunday, May 25, 2008
Theme songs added
This blog's theme songs are up. The theme itself, well, you ought to know. The closing theme is performed by the late Isaac Guillory, whom you can hear more of via Antarctica's "A" Net Station.
This blog's theme songs are up. The theme itself, well, you ought to know. The closing theme is performed by the late Isaac Guillory, whom you can hear more of via Antarctica's "A" Net Station.
Thursday, May 22, 2008
Can we talk China into building more windmills?
Prof Hamilton produces a trend line for oil consumption in China that is, ah, impressive, at Econbrowser:
The gist: On the chart below the US consumes 20, while the rising line shows China going from consuming about 7 today to 40 in the year 2030 -- or from about one-third of what the US consumes to double as much in 22 years. (He didn't mention what happens if you add India.)
Of course, straight extrapolations are naive. This rate of growth may be restrained by rising oil prices...
He wrote a lot of other interesting things I think, but I didn't get past this.
Is it possible to run electric cars charged off windmills? Can we talk them into doing it, or is it going to be us?
Prof Hamilton produces a trend line for oil consumption in China that is, ah, impressive, at Econbrowser:
The gist: On the chart below the US consumes 20, while the rising line shows China going from consuming about 7 today to 40 in the year 2030 -- or from about one-third of what the US consumes to double as much in 22 years. (He didn't mention what happens if you add India.)
Of course, straight extrapolations are naive. This rate of growth may be restrained by rising oil prices...
He wrote a lot of other interesting things I think, but I didn't get past this.
Is it possible to run electric cars charged off windmills? Can we talk them into doing it, or is it going to be us?
Wednesday, May 21, 2008
How much will income taxes have to go up to pay for Social Security and Medicare?
The Congressional Budget Office updates its estimate. Here's how it projects spending on Social Security, Medicare and Medicaid to increase as a percentage of GDP from 2007 to 2030 and 2050. (I've deleted the 75-year projection to 2082 because the numbers get too big to be plausible.)
Combined spending increases by 6.1 points of GDP by 2030, and by 10.2 points of GDP by 2050.
In 2007 total income tax collections (individual and corporate) were 11.2 points of GDP.
Thus, to cover such spending increases, total income taxes as a portion of GDP would have to increase 54% from today's levels by 2030, and 91% by 2050.
Well, 2030 is only about two-thirds of the length of a typical home mortgage away. That's not so far. How easy will it be for Congress to increase taxes this much by then? We can look at the record of past tax increases for perspective...
[] The 1983 tax increases that "saved" Social Security the first time it went broke -- and which traumatized the Washington political establishment sufficiently to paralyze it into inaction until the very last moment -- amounted to 0.24% of GDP, or about 1/25th of the tax increase needed by 2030, 1/42nd of the increase needed by 2050.
[] The 1993 Clinton tax increase -- which was able to pass the Democratic-controlled Senate only with vice-president Al Gore's tie breaking vote, after passing a Democratic-controlled House by only 218-216 (a single voter's difference) -- amounted to 0.83% of GDP, less than 1/7th of the tax increase needed by 2030, and less than 1/12th of that needed by 2050.
[] The post-Pearl Harbor 1942 tax increases enacted to fight World War II were 5.0 points of GDP -- 18% less than the tax increase needed by 2030, and less than half of that needed by 2050. The total post-Pearl Harbor tax increases enacted to fight World War II amounted to 6.6% of GDP -- only 10% more than needed for 2030, and a full third less than needed for 2050. And of course those war-time tax increases were largely temporary, taxes were reduced by 4.8 points of GDP from 1944 to 1948.
So ... it doesn't look like it will be all that easy.
And presumably it will be just as difficult politically to cut benefits that have been promised to retirees their entire lives, that they have relied upon.
What happens if Congress keeps on its current course, not increasing taxes while preserving promised benefits? Standard and Poor's projects U.S. Treasury Bonds will become "junk" by 2027, due to a national debt that is rocketing upward with compound interest.
What if Congress does what it instinctively does in such situations, produce a political deal tocut the baby in half "split the difference" -- to close the funding gap 50% with tax increases and 50% with benefit cuts? For instance, this is exactly what Congress did in 1983 to save Social Security the last time, increasing taxes (on the young) while reducing benefits (for the young) by nearly precisely offsetting amounts (thus converting Social Security into a such a bad deal for the young ... but that's for another post).
Well, Medicare cost is projected to grow by 3.2 points of GDP by 2030, to 5.9 from 2.7 in 2007. "Split the difference" thus would require reducing its cost then by 1.6 points of GDP to 4.3 points. But since 5.9 points is projected as needed to continue providing the current level of benefits, "split the difference" requires reducing Medicare benefits provided to individuals by more than 25% from today's levels (how are seniors going to like that?) while also increasing income taxes by 27% across the board (including on seniors, of course -- their pensions, IRA distributions, investments, and so on). And 2030 is just the start of the process.
This not pretty. And it does not consider other very significant unfunded costs coming due at the same time (federal employee/military pensions and benefits, state and local government pensions and retiree health benefits, etc.), which make the situation even worse.
OK we have got to get a grip on this -- whatever your proposed solution, on that we should all agree.
So what are our Democratic and Republican politicians making their big political-economic issues of the election season? Gas tax holidays ... more tax cuts ... expanding medical entitlements to be "for all" with no tax increase to pay for it on any income under $200,000...
It's enough to make one vote Independent (and bury a stockpile of gold bullion in the basement to fund one's own retirement...)
Combined spending increases by 6.1 points of GDP by 2030, and by 10.2 points of GDP by 2050.
In 2007 total income tax collections (individual and corporate) were 11.2 points of GDP.
Thus, to cover such spending increases, total income taxes as a portion of GDP would have to increase 54% from today's levels by 2030, and 91% by 2050.
Well, 2030 is only about two-thirds of the length of a typical home mortgage away. That's not so far. How easy will it be for Congress to increase taxes this much by then? We can look at the record of past tax increases for perspective...
[] The 1983 tax increases that "saved" Social Security the first time it went broke -- and which traumatized the Washington political establishment sufficiently to paralyze it into inaction until the very last moment -- amounted to 0.24% of GDP, or about 1/25th of the tax increase needed by 2030, 1/42nd of the increase needed by 2050.
[] The 1993 Clinton tax increase -- which was able to pass the Democratic-controlled Senate only with vice-president Al Gore's tie breaking vote, after passing a Democratic-controlled House by only 218-216 (a single voter's difference) -- amounted to 0.83% of GDP, less than 1/7th of the tax increase needed by 2030, and less than 1/12th of that needed by 2050.
[] The post-Pearl Harbor 1942 tax increases enacted to fight World War II were 5.0 points of GDP -- 18% less than the tax increase needed by 2030, and less than half of that needed by 2050. The total post-Pearl Harbor tax increases enacted to fight World War II amounted to 6.6% of GDP -- only 10% more than needed for 2030, and a full third less than needed for 2050. And of course those war-time tax increases were largely temporary, taxes were reduced by 4.8 points of GDP from 1944 to 1948.
So ... it doesn't look like it will be all that easy.
And presumably it will be just as difficult politically to cut benefits that have been promised to retirees their entire lives, that they have relied upon.
What happens if Congress keeps on its current course, not increasing taxes while preserving promised benefits? Standard and Poor's projects U.S. Treasury Bonds will become "junk" by 2027, due to a national debt that is rocketing upward with compound interest.
What if Congress does what it instinctively does in such situations, produce a political deal to
Well, Medicare cost is projected to grow by 3.2 points of GDP by 2030, to 5.9 from 2.7 in 2007. "Split the difference" thus would require reducing its cost then by 1.6 points of GDP to 4.3 points. But since 5.9 points is projected as needed to continue providing the current level of benefits, "split the difference" requires reducing Medicare benefits provided to individuals by more than 25% from today's levels (how are seniors going to like that?) while also increasing income taxes by 27% across the board (including on seniors, of course -- their pensions, IRA distributions, investments, and so on). And 2030 is just the start of the process.
This not pretty. And it does not consider other very significant unfunded costs coming due at the same time (federal employee/military pensions and benefits, state and local government pensions and retiree health benefits, etc.), which make the situation even worse.
OK we have got to get a grip on this -- whatever your proposed solution, on that we should all agree.
So what are our Democratic and Republican politicians making their big political-economic issues of the election season? Gas tax holidays ... more tax cuts ... expanding medical entitlements to be "for all" with no tax increase to pay for it on any income under $200,000...
It's enough to make one vote Independent (and bury a stockpile of gold bullion in the basement to fund one's own retirement...)
Tuesday, May 20, 2008
About that gas tax holiday -- all the economists in the world are wrong again?
From behind the mighty pay wall at Tax Analysts...
~~~~~
... For weeks truckloads of press accounts reported that almost every economist believed the gas tax holiday would provide little or no relief to drivers. In The New York Times (Apr. 29, 2008), Paul Krugman wrote: "Cut taxes, and all that happens is that the pretax price rises by the same amount."
The Huffington Post (May 13, 2008) quoted James Hamilton, a professor of economics at the University of California, San Diego: "I don't think that a gas-tax cut would result in a really big drop in gasoline prices."
And finally, a petition opposing the gas tax holiday, signed by over 300 economists, including three Nobel laureates, makes the case that "waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers"
It is intimidating to disagree with all that academic firepower. But there is a compelling set of facts that strongly suggest the economists have got it wrong. A gas tax holiday may provide a lot more value to consumers than the experts have led us to believe.
Japan's Holiday
If you are trying to predict the effect of future policies on the world's largest economy, one good place to look is at similar past policies in the world's second-largest economy. In April 2008 Japan had its own gas tax holiday. The opposition party, against the gas tax, was able to force its expiration on March 31, and it took the ruling party a full 30 days to get the tax reinstated. The tax was 25.1 yen per liter -- about 91 cents a gallon.
What happened to gas prices? As you can see for yourself, when the tax was removed, prices declined by almost the full amount of the 25.1-yen tax, and when it was reinstated the price shot up by slightly more than the 25.1-yen tax. It doesn't matter how many degrees you have; you can't argue with facts like these. When you cut gas taxes, gas prices fall.
Of course, nothing in this analysis changes the fact that the Clinton-McCain holiday is a gimmick. And yes, it will increase global warming and oil imports. Yes, it will move America away from its long-term energy goals. But the evidence from the recent temporary gas tax cut in Japan shows that more likely than not -- like a beer and a shot -- it will ease the pain of some hardworking Americans.
~~~
Theory is so clear and convincing. It's damn facts that muck everything up.
From behind the mighty pay wall at Tax Analysts...
~~~~~
... For weeks truckloads of press accounts reported that almost every economist believed the gas tax holiday would provide little or no relief to drivers. In The New York Times (Apr. 29, 2008), Paul Krugman wrote: "Cut taxes, and all that happens is that the pretax price rises by the same amount."
The Huffington Post (May 13, 2008) quoted James Hamilton, a professor of economics at the University of California, San Diego: "I don't think that a gas-tax cut would result in a really big drop in gasoline prices."
And finally, a petition opposing the gas tax holiday, signed by over 300 economists, including three Nobel laureates, makes the case that "waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers"
It is intimidating to disagree with all that academic firepower. But there is a compelling set of facts that strongly suggest the economists have got it wrong. A gas tax holiday may provide a lot more value to consumers than the experts have led us to believe.
Japan's Holiday
If you are trying to predict the effect of future policies on the world's largest economy, one good place to look is at similar past policies in the world's second-largest economy. In April 2008 Japan had its own gas tax holiday. The opposition party, against the gas tax, was able to force its expiration on March 31, and it took the ruling party a full 30 days to get the tax reinstated. The tax was 25.1 yen per liter -- about 91 cents a gallon.
What happened to gas prices? As you can see for yourself, when the tax was removed, prices declined by almost the full amount of the 25.1-yen tax, and when it was reinstated the price shot up by slightly more than the 25.1-yen tax. It doesn't matter how many degrees you have; you can't argue with facts like these. When you cut gas taxes, gas prices fall.
Of course, nothing in this analysis changes the fact that the Clinton-McCain holiday is a gimmick. And yes, it will increase global warming and oil imports. Yes, it will move America away from its long-term energy goals. But the evidence from the recent temporary gas tax cut in Japan shows that more likely than not -- like a beer and a shot -- it will ease the pain of some hardworking Americans.
~~~
Theory is so clear and convincing. It's damn facts that muck everything up.
Social Security perspectives
From Chile's guy...
~~~~
We had dinner with a fellow who made a real change – Jose Pinera. As Chile’s Labor Minister in the ‘80s, he completely changed the system of public pension financing and provided a model for the rest of the world. We’ll let Jose tell his story as he told it to us last night...
“A little background: You see, almost all the world’s pension systems came from the same source – Otto von Bismarck. He set up the first one in Prussia and it was later taken up in almost all the developed countries. We set it up in Chile in 1925. It wasn’t set up in America until ten years later.
“Bismarck was very clever. He offered people a pension on what is called here in France a ‘repartition basis.’ That is, all the money goes into a pot ... and you get from the pot whatever the politicians decide you can have. Bismarck offered people who retired at 65 a nice pension, for the time. Bismarck knew that the average life expectancy in Prussia at the time – this was the middle of the 19th century – was only 45 years old. So he knew he couldn’t have to pay out many pension claims. But the average person didn’t know how long he would live, so he could imagine himself living to a ripe old age and taking advantage of the public pension system...
“Well, now, everyone is living much longer, and the politicians aren’t as smart as Bismarck. They’ve promised greater and greater benefits, and even lowered the age when you can get them, so the pension systems are going broke. They’re all going broke – you can count on it...
"Recently, I was in China, for example. You want to see a pension problem ... look there. That policy of one family, one child is a catastrophe from a pension financing point of view. They’re going to have hundreds of millions of old people, and very few young people to support them.
“Anyway, back in the ’80s, I went on TV in Chile, with ideas about how to reform the pension system. I was just a young economist ... only 29 years old ... Minister of Labor.
“... I had to explain to the people what was wrong, and had to explain to them how to fix it. So, the first thing I needed to do was to win their confidence ... I took my mother’s egg timer and I held it up and I said, ‘I’m only going to talk for three minutes. Give me three minutes and I’ll explain what’s wrong with the pension system and what we’re going to do with it.’ And I told the cameraman to just cut me off after three minutes.
“This worked beautifully, because it made me look humble ... I wasn’t going to waste the people’s time with a long, windy speech like Castro ... I was just going to tell them something simple, fast ...
“They called me the Minister of the Egg Timer, but they began to trust me. And then, I went back on TV, over and over, each time for only 3 minutes, and each time with my egg timer to keep me honest ... I laid out everything ... why the system went broke, and what I was proposing to put in its place – a different system in which, instead of dumping all the money into a big pot that the government could do with as it pleased, each worker had his own personal pension account. It took some explaining. But I kept going ... each time explaining more and more.
"I had to explain, for example, that the idea of the ‘employer contribution’ is a myth. The employer just looks at it as part of his labor cost. But once you call it an ‘employer contribution,’ the employee gets the idea that it’s not really his money that finances the system and he feels he has no control over what he gets out of it anyway.
“My system is very simple. The worker makes exactly the same contribution as he did before. But it’s his own money and he knows it. And he has some control over how it’s invested. And if he dies, it goes to his family. He’s an owner of it, not just a recipient of government handouts.
“So, when I had finished laying all of this out, over a 9-month period, I then admitted that I could be wrong. ‘Maybe this won’t work as well as I think it will,’ I said. And I said I didn’t want to force anyone to go with my system. So, we decided that anyone who wanted to stick with the old system – which is the system you still have in France, and America – could do so....
"Now, guess how many people went with the new system? We thought 51% would be a victory. Instead, 95% signed up for private retirement accounts.
“And here’s something interesting. About a third of the population of Chile are leftists ... socialists, communists, or Hillary Clinton liberals. Even these people – when it came to their own money – preferred to have it in their own retirement accounts, invested in stocks and bonds, rather than in some black hole in the government accounts.
“And the best thing about this is that it turns the whole country into capitalists. Even the leftists think twice before they vote for higher business taxes or more regulations. They worry how their retirement account will be affected.
"And that’s why Chile is now the richest country in Latin America.”
A companion noticed the problem right away: “That must be why the left fights so hard to resist this kind of reform,” he said.
“Yes ... but it will come. You just have to wait until your current system goes bankrupt. And it will..."
-- via The Daily Reckoning Australia.
From Chile's guy...
~~~~
We had dinner with a fellow who made a real change – Jose Pinera. As Chile’s Labor Minister in the ‘80s, he completely changed the system of public pension financing and provided a model for the rest of the world. We’ll let Jose tell his story as he told it to us last night...
“A little background: You see, almost all the world’s pension systems came from the same source – Otto von Bismarck. He set up the first one in Prussia and it was later taken up in almost all the developed countries. We set it up in Chile in 1925. It wasn’t set up in America until ten years later.
“Bismarck was very clever. He offered people a pension on what is called here in France a ‘repartition basis.’ That is, all the money goes into a pot ... and you get from the pot whatever the politicians decide you can have. Bismarck offered people who retired at 65 a nice pension, for the time. Bismarck knew that the average life expectancy in Prussia at the time – this was the middle of the 19th century – was only 45 years old. So he knew he couldn’t have to pay out many pension claims. But the average person didn’t know how long he would live, so he could imagine himself living to a ripe old age and taking advantage of the public pension system...
“Well, now, everyone is living much longer, and the politicians aren’t as smart as Bismarck. They’ve promised greater and greater benefits, and even lowered the age when you can get them, so the pension systems are going broke. They’re all going broke – you can count on it...
"Recently, I was in China, for example. You want to see a pension problem ... look there. That policy of one family, one child is a catastrophe from a pension financing point of view. They’re going to have hundreds of millions of old people, and very few young people to support them.
“Anyway, back in the ’80s, I went on TV in Chile, with ideas about how to reform the pension system. I was just a young economist ... only 29 years old ... Minister of Labor.
“... I had to explain to the people what was wrong, and had to explain to them how to fix it. So, the first thing I needed to do was to win their confidence ... I took my mother’s egg timer and I held it up and I said, ‘I’m only going to talk for three minutes. Give me three minutes and I’ll explain what’s wrong with the pension system and what we’re going to do with it.’ And I told the cameraman to just cut me off after three minutes.
“This worked beautifully, because it made me look humble ... I wasn’t going to waste the people’s time with a long, windy speech like Castro ... I was just going to tell them something simple, fast ...
“They called me the Minister of the Egg Timer, but they began to trust me. And then, I went back on TV, over and over, each time for only 3 minutes, and each time with my egg timer to keep me honest ... I laid out everything ... why the system went broke, and what I was proposing to put in its place – a different system in which, instead of dumping all the money into a big pot that the government could do with as it pleased, each worker had his own personal pension account. It took some explaining. But I kept going ... each time explaining more and more.
"I had to explain, for example, that the idea of the ‘employer contribution’ is a myth. The employer just looks at it as part of his labor cost. But once you call it an ‘employer contribution,’ the employee gets the idea that it’s not really his money that finances the system and he feels he has no control over what he gets out of it anyway.
“My system is very simple. The worker makes exactly the same contribution as he did before. But it’s his own money and he knows it. And he has some control over how it’s invested. And if he dies, it goes to his family. He’s an owner of it, not just a recipient of government handouts.
“So, when I had finished laying all of this out, over a 9-month period, I then admitted that I could be wrong. ‘Maybe this won’t work as well as I think it will,’ I said. And I said I didn’t want to force anyone to go with my system. So, we decided that anyone who wanted to stick with the old system – which is the system you still have in France, and America – could do so....
"Now, guess how many people went with the new system? We thought 51% would be a victory. Instead, 95% signed up for private retirement accounts.
“And here’s something interesting. About a third of the population of Chile are leftists ... socialists, communists, or Hillary Clinton liberals. Even these people – when it came to their own money – preferred to have it in their own retirement accounts, invested in stocks and bonds, rather than in some black hole in the government accounts.
“And the best thing about this is that it turns the whole country into capitalists. Even the leftists think twice before they vote for higher business taxes or more regulations. They worry how their retirement account will be affected.
"And that’s why Chile is now the richest country in Latin America.”
A companion noticed the problem right away: “That must be why the left fights so hard to resist this kind of reform,” he said.
“Yes ... but it will come. You just have to wait until your current system goes bankrupt. And it will..."
-- via The Daily Reckoning Australia.
Monday, May 19, 2008
Multimedia Monday
Uncle Jay explains the U.S. Government.
Using sexy pictures to sell free trade in ethanol.
So you want to be an action hero? Do you think your audition will beat out these guys?
It's the offseason for football, but as these three short video clips show, this is a sport that can teach valuable character lessons all year round. (Football-like language not entirely workplace friendly.)
Uncle Jay explains the U.S. Government.
Using sexy pictures to sell free trade in ethanol.
So you want to be an action hero? Do you think your audition will beat out these guys?
It's the offseason for football, but as these three short video clips show, this is a sport that can teach valuable character lessons all year round. (Football-like language not entirely workplace friendly.)
Saturday, May 17, 2008
You read it here first.
From an idea, to a movement, to a global concern, to the key to the world's ills.
Keep reading this blog for the absurdities of the future today.
From an idea, to a movement, to a global concern, to the key to the world's ills.
Keep reading this blog for the absurdities of the future today.
Friday, May 16, 2008
News you are unlikely to use.
Crime scene investigatee.
Updating the quote file: "A woman is like a tea bag, you never know how strong she is until she is in hot water". -- Hillary Clinton, repeating Eleanor Roosevelt. (Feminism may have come a long way in 70 years -- its speechwriters, not so far.)
Federal Appeals Court case of the week, US v Sanders (.pdf):
How much sympathy can you give a guy over his $158,000 "hybrid energy saving" car that goes 155 mph, even if he is a Beatle?
If the mullahs fear Barbie is subverting Iran, just wait until they notice the Butt Bra moving things up under the burka.
Crime scene investigatee.
Updating the quote file: "A woman is like a tea bag, you never know how strong she is until she is in hot water". -- Hillary Clinton, repeating Eleanor Roosevelt. (Feminism may have come a long way in 70 years -- its speechwriters, not so far.)
Federal Appeals Court case of the week, US v Sanders (.pdf):
Nimrod Sanders appeared at the United State Probation Office and asked to be taken into custody. The Probation Officer explained that Sanders was not in violation of the terms of his release. Sanders responded, “Do I need to commit another crime or do something, because I want to go into custody.”...So there was a reason why his parents named him Nimrod.
How much sympathy can you give a guy over his $158,000 "hybrid energy saving" car that goes 155 mph, even if he is a Beatle?
...environmentalists quickly pointed out that the use of a cargo plane to deliver the car to England [from Japan] completely offset any environmental gains resulting from the car's use. "It's like driving the car 300 times around the world," says Gary Rumbold, the director of the British branch of co2balance...
Rumbold also questioned whether a high performance car such as the LS Lexus 600h — with a powerful 1.3-gallon (5-liter) V-8 engine and a top speed of 155 mph (250 kph) — is actually the best use of promising hybrid technology..."
If the mullahs fear Barbie is subverting Iran, just wait until they notice the Butt Bra moving things up under the burka.
Wednesday, May 14, 2008
How to start a nuclear war with a spoon and a piece of string.
Are you old enough to miss that background thrill to life that came with living through the Cold War and everyday risk of nuclear annihilation? (I still remember the unique feeling of being a student walking across the grounds of the Kremlin during the Soviet era and realizing that all the nuclear warheads aimed at me at that moment were American.)
Maybe the thrill is back! It turns out that when all those American and Russian nuclear missiles were "detargeted" a few years ago, to prevent an accidental or automated strike on the other side, they weren't really detargeted.
Moreover, it seems the Soviets really did design a Dr. Strangelove-like semi-doomsday machine and the Russians have activated it.
Spoon, string, doomsday machine ...
Are you old enough to miss that background thrill to life that came with living through the Cold War and everyday risk of nuclear annihilation? (I still remember the unique feeling of being a student walking across the grounds of the Kremlin during the Soviet era and realizing that all the nuclear warheads aimed at me at that moment were American.)
Maybe the thrill is back! It turns out that when all those American and Russian nuclear missiles were "detargeted" a few years ago, to prevent an accidental or automated strike on the other side, they weren't really detargeted.
Moreover, it seems the Soviets really did design a Dr. Strangelove-like semi-doomsday machine and the Russians have activated it.
While on our side ... you know that comforting explanation you've always heard about how to launch a missile from one of our silos requires two men on opposite sides of the control room to turn separate keys simultaneously? Well......if Perimetr senses a nuclear explosion in Russian territory and then receives no communication from Moscow, it will assume the incapacity of human leadership in Moscow or elsewhere, and will then grant a single human being deep within the Kosvinsky mountains the authority and capability to launch the entire Soviet nuclear arsenal.
Kosvinsky came online recently ... which could be one explanation for U.S. interest in a new nuclear bunker buster...
missile crewmen I talked to told me ... You just "rig up a thing where you tie a string to one end of a spoon and tie the other end to the other guy's key. Then you can sit in your chair and twist your key with one hand while you yank on the spoon with the other hand to twist the other key over."Hey, you sink healthy young men in a hole for months on end without girls, beer or an Internet connection, and they're bound to figure out something to do.
Spoon, string, doomsday machine ...
Tuesday, May 13, 2008
The invasion of Iran has begun.
And this time we're doing it right.
Resistance is futile. You will be assimilated. The sun never sets on Coca Cola.
And this time we're doing it right.
Iran's top prosecutor has warned of the "destructive" social and cultural consequences Barbie dolls are having on his country. ... Ghorban Ali Dori Najafabadi [wrote] "The appearance of personalities such as Barbie, Batman, Spiderman and Harry Potter and... computer games and movies are all a danger warning to the officials in the cultural arena." ...
"Undoubtedly, the personality and identity of the new generation and our children, as a result of unrestricted importation of toys, has been put at risk and caused irreparable damages," Mr Najafabadi said.
In 1996, the head of a government-backed children's agency labelled Barbie a "Trojan horse" that was sneaking in Western influences such as makeup and revealing clothes.Authorities launched a campaign of confiscating Barbies from toy shops in 2002 ... Also in 2002, Iran introduced its own competing dolls — the twins Dara and Sara — who were designed to promote traditional values with their modest clothing ... But the dolls proved unable to stem the Barbie tide.
Resistance is futile. You will be assimilated. The sun never sets on Coca Cola.
Monday, May 12, 2008
Tax Harvard now! Not just its endowment, its entire dang operation.
Harvard University now has an endowment of $36 billion, far more than it will ever spend on, or can in any credible way be connected to, its "tax exempt purpose" of education. Especially when it is charging its Business School students as much as $77,000 per 9-month academic year, through $44,000 in tuition plus another $33,000 in board and fees (with the helpful warning that "fees may increase") ... charging Law School students $42,000 per year, plus the rest ... charging undergraduates more than $30,000 in tuition plus fees bringing their total cost to over $45,000, etc.
Private charitable foundations generally are legally required to distribute a minimum 5% of their assets annually to a charitable purpose, but university endowments are exempt from this rule. If Harvard had its endowment pay out only this minimum 5%, it would provide $90,000 annually for each one of its total of 20,000 students in all is schools -- which would seem a good deal more than the actual cost to it of educating them. Instead, while charging students up to $77,000 per year, it keeps growing its endowment relentlessly -- to the present $36 billion from "only" $12.8 billion just 10 years ago, an 11% annual rate of increase.
So just what is the purpose of this endowment? Apart from paying many millions of dollars in fees to its managers, and also doubtless obtaining many fine perquisites for university administrators (when you control $36 billion of investment funds you are gifted front-row-center seats to the opera, literally and figuratively).
Is the endowment really supporting Harvard's students -- or are the students' fees instead supporting the endowment? Inquiring tax law writers want to know. Specifically, the bipartisan leadership of the Senate Finance Committee (Max Baucus, D-Mont., and Chuck Grassley, R-Iowa) has requested (.pdf) that Harvard and 135 other, um, generously endowed universities explain the operation of their endowments (which under current reporting may be described as "opaque".)
And now Massachusetts state tax writers have gone even further....
But let's go beyond the endowment issue and ask a more fundamental question: Why is Harvard tax exempt at all?
A question relevant to that is: how can Harvard charge students as much as $77,000 for a nine-month academic year? The answer to which is easy: because it can get it. But that easy answer makes the answer to "why is Harvard tax exempt?" very problematic.
The original purpose of the tax exemption provisions of the tax code was not to support the providers of beneficial services to society -- the services of providing food, clothing and housing to the masses are pretty darn beneficial to society, but tax exempt status is not awarded to farmers, grocers, haberdashers and building contactors.
The purpose of tax exemption was to support providers of socially beneficial services who, because they were not operated commercially, were at a handicap in attracting financial support. The country hospital or school that was financially handicapped because it could not attract investors as compensation received a break on its property taxes, income taxes and other tax bills, that enabled it to survive and be able to afford to pay its employees.
Does Harvard -- as it charges students up to $77,000 per year, grows a $36 billion investment fund, and has the nation's highest-paid professors/consultants -- strike anyone as being financially handicapped?
There is no such thing as a "non-profit" organization, despite constant use of the term. (Harvard's return on its $36 billion endowment very clearly is economic profit.) But the tax code does allow "tax exempt" status for entities that are operated "not for profit".
Is Harvard really operated on a not-for-profit basis? Or is it operated very for profit, with the profits distributed among its stakeholders -- its endowment managers, university administrators, tenured professorate class, etc. -- with the happy extra benefit for all of an archaic but very lucrative tax exemption?
As the Massachusetts legislator asks: "When does a nonprofit stop being a nonprofit?" It's a question many more will be asking in time.
More on this later, regarding universities and some other notable tax exempt organizations as well.
Harvard University now has an endowment of $36 billion, far more than it will ever spend on, or can in any credible way be connected to, its "tax exempt purpose" of education. Especially when it is charging its Business School students as much as $77,000 per 9-month academic year, through $44,000 in tuition plus another $33,000 in board and fees (with the helpful warning that "fees may increase") ... charging Law School students $42,000 per year, plus the rest ... charging undergraduates more than $30,000 in tuition plus fees bringing their total cost to over $45,000, etc.
Private charitable foundations generally are legally required to distribute a minimum 5% of their assets annually to a charitable purpose, but university endowments are exempt from this rule. If Harvard had its endowment pay out only this minimum 5%, it would provide $90,000 annually for each one of its total of 20,000 students in all is schools -- which would seem a good deal more than the actual cost to it of educating them. Instead, while charging students up to $77,000 per year, it keeps growing its endowment relentlessly -- to the present $36 billion from "only" $12.8 billion just 10 years ago, an 11% annual rate of increase.
So just what is the purpose of this endowment? Apart from paying many millions of dollars in fees to its managers, and also doubtless obtaining many fine perquisites for university administrators (when you control $36 billion of investment funds you are gifted front-row-center seats to the opera, literally and figuratively).
Is the endowment really supporting Harvard's students -- or are the students' fees instead supporting the endowment? Inquiring tax law writers want to know. Specifically, the bipartisan leadership of the Senate Finance Committee (Max Baucus, D-Mont., and Chuck Grassley, R-Iowa) has requested (.pdf) that Harvard and 135 other, um, generously endowed universities explain the operation of their endowments (which under current reporting may be described as "opaque".)
And now Massachusetts state tax writers have gone even further....
During debate over the state’s budget for the 2009 fiscal year Monday, members of the Massachusetts House of Representatives considered imposing a 2.5 percent tax on assets exceeding $1 billion in any college’s endowment...Among Tax Court judges there is a long-time saying, "When a pig becomes a hog it gets slaughtered." Harvard could soon be leading a procession of sows from the trough to the abattoir of the tax collectors -- that's nine billion-dollar-plus university endowments facing their first prospect of a tax bill right there, thanks to Harvard. It won't be their last prospect (especially with the huge fiscal pressures that will be arriving soon). And it shouldn't be.
“Why do we want to tax the poor all the time, but we let off the hook the richest of the rich?” said State Rep. Angelo Scaccia, a Democrat ...
The sponsor of the proposal, Rep. Paul Kujawski, another Democrat, said in a telephone interview late Wednesday that “when you realize that you do have some institutions of higher learning where wealth has grown above and beyond where you really wouldn’t imagine, you say to yourself, ' When does a nonprofit stop being a nonprofit? How on Earth can they possibly utilize $35 or $36 billion?'"...
Kujawski’s proposal would have applied to 9 institutions ... with endowments over $1 billion (Harvard, Massachusetts Institute of Technology, Williams, Boston, Amherst and Wellesley Colleges, Tufts University, Smith College and Boston University) ...
But let's go beyond the endowment issue and ask a more fundamental question: Why is Harvard tax exempt at all?
A question relevant to that is: how can Harvard charge students as much as $77,000 for a nine-month academic year? The answer to which is easy: because it can get it. But that easy answer makes the answer to "why is Harvard tax exempt?" very problematic.
The original purpose of the tax exemption provisions of the tax code was not to support the providers of beneficial services to society -- the services of providing food, clothing and housing to the masses are pretty darn beneficial to society, but tax exempt status is not awarded to farmers, grocers, haberdashers and building contactors.
The purpose of tax exemption was to support providers of socially beneficial services who, because they were not operated commercially, were at a handicap in attracting financial support. The country hospital or school that was financially handicapped because it could not attract investors as compensation received a break on its property taxes, income taxes and other tax bills, that enabled it to survive and be able to afford to pay its employees.
Does Harvard -- as it charges students up to $77,000 per year, grows a $36 billion investment fund, and has the nation's highest-paid professors/consultants -- strike anyone as being financially handicapped?
There is no such thing as a "non-profit" organization, despite constant use of the term. (Harvard's return on its $36 billion endowment very clearly is economic profit.) But the tax code does allow "tax exempt" status for entities that are operated "not for profit".
Is Harvard really operated on a not-for-profit basis? Or is it operated very for profit, with the profits distributed among its stakeholders -- its endowment managers, university administrators, tenured professorate class, etc. -- with the happy extra benefit for all of an archaic but very lucrative tax exemption?
As the Massachusetts legislator asks: "When does a nonprofit stop being a nonprofit?" It's a question many more will be asking in time.
More on this later, regarding universities and some other notable tax exempt organizations as well.
Friday, May 09, 2008
Around and about...
With Beer to Eternity. Bill Bramanti, 67, of Chicago, plans to be buried in a custom built silver casket designed as giant can of his favorite beer, Pabst Blue Ribbon. "I'm going to use it as a cooler until I really need it," he said. "You see, I'm going to get my money's worth..."
Clever criminal of the week. "Police didn't have to do much guesswork to identify a suspect in the armed robbery of an Athens, Ga., convenience store ... Demetrius Robinson filled out a job application while waiting for an opportunity to rob the Golden Pantry store last week. He left his real name and his uncle's phone number on the application... "
Woman bites dog. "I ended up biting the pit bull on the nose ... I didn't plan it, that's what happened. I broke the skin and had pit bull blood in my mouth..."
Green transportation -- the electric Uno. "The bike is fairly easy to ride, but takes a bit of getting used to because you have to learn to trust it."
With Beer to Eternity. Bill Bramanti, 67, of Chicago, plans to be buried in a custom built silver casket designed as giant can of his favorite beer, Pabst Blue Ribbon. "I'm going to use it as a cooler until I really need it," he said. "You see, I'm going to get my money's worth..."
What kind of "specially made shoes" make your feet smaller? "A German court has ruled that car maker Volvo has to pay compensation to a man who claimed his size 12 feet were too big to use the accelerator on his new car ... Under a court-supervised settlement, Herzog obtained a £1,350 refund to pay for a specially made pair of shoes that allowed him to squeeze his foot into the space. He was also compensated for the time spent changing back into street shoes each time he got out of the car ..." (The teeny vehicle.)
On the one hand ... but then on the other... Jens Wilhelms, 27, survived a 25ft plunge down an elevetor shaft when his fall was broken by landing on a 57-year-old woman who had fallen down it the day before and was lying there unconscious. He was unhurt and called out rescue services who took the woman to hospital. "Doctors said she is in a critical condition after sustaining injuries in her original fall, and then again when Wilhelms landed on her ... but it also probably saved her life that he fell on her", because that's how they found she was there and saved her from dying of internal bleeding.
Road kill on the grill, and in the fridge and freezer. Fergus Drennan, 36, vows to live naturally for the next year eating only wild foods he scavenges gathers by hand within a ten-mile radius of his home near Canterbury. That would be the like of fruits, berries, and dead animals he comes upon, including road kill.
"A bird!" he shouts. "It's not even been dead that long; you can tell from the rigor mortis. It's so cute, isn't it?" ... "One of the few things that I tend to avoid are cats and dogs," he explains. "In theory, I'd have no problem with eating them. But they've always got name tags on their collars..." Drennan is on a mission to convert Britons to his way of thinking....I don't know about that. Drennan refrigerates and freezes his finds at home, and on his web site he offers up recipies for delicious cooking and grilling ... But just how "wild" is kitchen roasting a defrosted possum that was squashed by a van?
Clever criminal of the week. "Police didn't have to do much guesswork to identify a suspect in the armed robbery of an Athens, Ga., convenience store ... Demetrius Robinson filled out a job application while waiting for an opportunity to rob the Golden Pantry store last week. He left his real name and his uncle's phone number on the application... "
Woman bites dog. "I ended up biting the pit bull on the nose ... I didn't plan it, that's what happened. I broke the skin and had pit bull blood in my mouth..."
Green transportation -- the electric Uno. "The bike is fairly easy to ride, but takes a bit of getting used to because you have to learn to trust it."
Wednesday, May 07, 2008
You thought the 2007 federal budget deficit was only $163 billion? How about $2.4 trillion by the accounting rules the private sector uses!
UPDATE: The deficit for 2008.
The US government's budget deficit for 2007 was $163 billion as officially reported by the Treasury -- the number given in the news that everyone writes editorials and op-eds about. And most observers have described it as good news, since as a percentage of GDP it is the smallest in six years and well below the average for the last 35 years. The White House and Congress take credit!
But wait ... the Treasury has also published another set of numbers on its web site, in its 2007 Financial Report of the United States Government, that give a very different figure for the increase in its net liabilities for 2007, albeit one that receives very little publicity: More than $2.4 trillion. Yes, with a "t".
For starters, the one-year increased liability for Medicare and Social Security alone is more than $2 trillion:
UPDATE: The deficit for 2008.
The US government's budget deficit for 2007 was $163 billion as officially reported by the Treasury -- the number given in the news that everyone writes editorials and op-eds about. And most observers have described it as good news, since as a percentage of GDP it is the smallest in six years and well below the average for the last 35 years. The White House and Congress take credit!
But wait ... the Treasury has also published another set of numbers on its web site, in its 2007 Financial Report of the United States Government, that give a very different figure for the increase in its net liabilities for 2007, albeit one that receives very little publicity: More than $2.4 trillion. Yes, with a "t".
For starters, the one-year increased liability for Medicare and Social Security alone is more than $2 trillion:
How can two such hugely different numbers -- one almost 15 times larger than the other -- be provided by the US Treasury for the same thing? The answer lies in accounting methods: the difference between cash and accrual accounting.
Cash accounting is what the government uses for its books. This computes net income or deficit by counting only cash income "in" and cash expenditures "out" during the year.
Accrual accounting, in contrast, also counts legally incurred rights to receive future income and obligations to make future expenditures that accrue during the accounting period.
Accrual accounting is used in the private sector -- in fact, cash accounting is illegal for most businesses much larger than a newsstand. The reasons should be obvious, but a simple example can make them clear.
Say you are a business manager and make a deal for the business under which it receives a net $1 million cash payment this year. That looks good! But wait ... suppose that to get this payment up front you commit the business to make a $10 million payment to the other party ten years from now.
Using accrual accounting the $1 million of cash received up front is offset by the present value of the $10 million commitment to pay in the future -- which is that amount reduced by the market rate of interest for that long. If the interest rate is 5%, the present value of $10 million payable ten years from now is $6 million.
So when using accrual accounting -- as required by law and your accounting firm -- you are seen accurately to have created a $5 million loss for the business. You have some explaining to do to your boss.
But imagine that instead you use cash accounting. Then the $1 million that comes in today boosts the business's income and profits by fully that much while the attached $10 million liability is ignored. The business's owners don't know about the liability because it's not reported on the books. They give you a fat profit-sharing bonus, you take it, retire, and are long gone when the $10 million bill lands on them and everyone else in the business as a surprise -- bam! -- in the future. (Say: "Enron", which used sophisticated illegal techniques to do just this, report income on the books while keeping attached future liabilities off them.)
Yes, many people will then become very upset -- but you'll have gotten yours and be gone. All those angry people will be somebody else's problem.
Now imagine that instead you are the U.S. Congress. You exempt the federal government -- that is, yourself -- from using the accrual accounting methods that you impose by law on everybody else, and have it simply use cash accounting for programs such as Social Security, Medicare, Medicaid, federal and military pensions, and so forth.
Thus, for Social Security and Medicare for instance, you have the government count all the FICA taxes it receives in their name in income, and you use them to declare "Deficit reduced to only $163 billion!" -- while ignoring the more than $2 trillion of attached liabilities for Social Security and Medicare, present value, that accrue in the single year. (Say: "Mother of Mega-Enron", but all very simple and entirely legal, because you are Congress and you write the law.)
Add to the liability for Medicare and Social Secutity the reported increase in other on-balance sheet liabilities of $290 billion, and the one-year in increase in the net liabilities of the federal government becomes $2.384 trillion. (And there's more, the real final number is bigger yet -- I'm not counting other off-balance sheet liabilities for the likes of Medicaid, federal and military pensions and such because I don't want to become too depressed to continue).
For some perspective on the size of these numbers...
[] All federal income taxes, individual and corporate combined, in 2007 totaled $1.534 trillion. So to cover the accrual-rules single-year deficit for 2007 would have required income tax collections to have been increased to more than 2.5 times what they were (with the increase -- more than 1.5 times all income taxes collected today -- somehow "saved" in an interest-paying account in some unimaginable way).
[] The total U.S. national debt held by the public, accumulated since George Washington was inaugurated as President over 219 years ago, is $5.2 trillion. The off-the books accruing liability of the U.S. government now grows by that amount every two-and-a-half years.
Which brings us to another point, the national debt. Those who take the 2007 deficit number of $163 billion at face value are likely to do the same with the conventional national debt numbers of $5.2 trillion for debt held by the public, and $9.4 trillion including "intra-governmental debt holdings" such as bonds held in the Social Security trust fund and other such government accounts.
But the real total accrued national debt including the "implicit debt" of accruing social insurance liabilities, federal pensions and other items, is more than $53 trillion, says the Financial Report, and is growing by well more than $2 trillion annually. This implicit debt is every bit as real as the conventional national debt, if you believe the US government is obligated to pay off on the promises it has made to its citizens.
These numbers are so huge that when I mention them even generally well-informed people, including financial professionals, most often simply don't believe them. Yet they are published by the US Treasury itself every year. (It's amusing to watch people actually get angry about "George Bush's deficits" of $163 billion or so -- then go totally blank when deficits of $2.4 trillion are mentioned.)
Rationalizations appear, like: "Well, those aren't real numbers because they are over 75 years and anything can happen by then."
Not true! The government will have to start paying these liabilities with cash in a very real way starting in within 10 years. Standard & Poors projects that starting then, in only the ten years from 2017 to 2027, on current law the credit rating of the US government will plunge from AAA to "junk" . The decline of the US government's credit rating starting is 2017 is projected by Moody's too. (So much for the "risk free" US Treasury bond.) Folks, 2017 is only nine years away -- and 2027 is only 19 years away, less than two-thirds of the length of the typical home mortgage.
Another common rationalization is: "Well, there's nothing to do about it because Medicare is soooo complex nobody knows what to do about it, and Social Security is so small compared to it that there's no point in doing anything about it."
Not true again, on both counts. By the 2030s, if retirees are to be paid as promised (with the national credit collapse projected by S&P and Moody's avoided) tax increases equivalent to an over-50% across-the-board income tax increase will have to be imposed. About one-third of this will be attributable to Social Security (to finance paying down the trust fund bonds). And that will be just the start.
A 50% across-the-board income tax increase is no small thing! It's about 10 times the size of the Clinton tax increase of 1993 that passed the Democratic House and Senate by one vote. And one-third of a tax increase this size is no small thing. If we could alleviate it now -- and we could, for Social Security unlike Medicare is a simple program -- it would be no small benefit for the future. As to the other two-thirds of that tax bill for Medicare and all ... well ... if you really don't have any idea what to do about it, it's time to start thinking about it! The year 2030 is only 22 years from now, not so very far away.
So why, in this election year, are the leaders of both political parties striving to make the deficit even worse -- with more tax cuts (from Republicans) and more unfinanced spending on new entitlements (national health insurance for all, with no new taxes on anybody with income under $200,000, from Democrats)?
Because that's how they win elections. Republicans promise tax cuts, Democrats promise more unfinanced spending -- and if either admitted to the public the reality of $2 trillion+ annual deficits and income taxes going up 50% in the foreseeable future just to keep the nation from going broke meeting their old promises, neither party could do it. (You want "change" from your politicians? Admitting this reality would be change! Arguing over a summer gas tax holiday is not change.)
So, no matter how bitterly partisan politics may be today, one thing both parties agree upon in perfect bi-partisan harmony is: "Shhhh, nobody mentions accrual basis accounting for us."
And 20-odd years from now when the financial hammer comes down on the nation, with taxes going way up just to keep benefits that are already being slashed from being slashed faster, many millions of voters will be angry indeed.
But today's politicians will have gotten theirs and be gone. It will all be somebody else's problem.
Monday, May 05, 2008
The fun of writing op-eds for the New York Times -- and its special sensitivity to the word "Gee".
Boris Johnson has been elected Mayor of London. Boris is far more entertaining than any American politician dares to be, and in addition to being an M.P. was editor of the Spectator -- in which, a while back, he wrote about his experience writing an op-ed piece for the New York Times...
Boris Johnson has been elected Mayor of London. Boris is far more entertaining than any American politician dares to be, and in addition to being an M.P. was editor of the Spectator -- in which, a while back, he wrote about his experience writing an op-ed piece for the New York Times...
"Booris," said Tobin [the Times editor], "'we love it! Everybody loves it. But we have, uh, a few issues of political correctness that I have to go through with you." There followed a bizarre hour-long negotiation with New York, as I sat in the Grays Road carpark, and Tobin read out the politically correct version of my piece...Boris' full report. The Times op-ed.
I had said something to the effect that you don't make international law by giving new squash courts to the President of Guinea. This now read "the President of Chile." Come again? I said. Qué?
"Uh, Boris," said Tobin, "it's just easier in principle if we don't say anything deprecatory about a black African country, and since Guinea and Chile are both members of the UN Security Council, and since it doesn't affect your point, we would like to say Chile."
How craven and mealy-mouthed can you get? Why is a mild insult more bearable because it is directed at a crisis-ridden Latin American country, rather than a crisis-ridden African country? Is it, heaven forfend, because one country is Hispanic and the other is black? ... [etc.]
In the whole poker game, I took only one trick. Tobin had told me at the outset that he had "issues" with my introductory sentence... 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.
"OK, Booris, I’ll tell you what the problem is. Our problem is that 'Gee' is an abbreviation for Jesus. For a century this has been a Jewish-owned paper, and we have to be extremely sensitive about anything that might offend Christian sensibilities. "We can say 'God', 'God' is fine, but we have to be very careful about anything that involves the name of the Lord and Saviour."...
Saturday, May 03, 2008
Happy Birthday, Spam!
The date should be circled in black on your computer’s calendar: internet spam is 30 years old today.The infamous, if historic, message itself.
On May 3 1978, Gary Thuerk, a marketing man for DEC, a now-defunct American computer company, sent what is thought to be the world’s first junk e-mail. The unsolicited message was delivered to 393 users of Arpanet, the US government network that would become the internet... [Times of London]
Thursday, May 01, 2008
Historical perspective for the day
"It’s true, of course, that twentieth-century state societies, having developed potent technologies of mass killing, have broken all historical records for violent deaths.So much for the Garden of Eden
"But this is because they enjoy the advantage of having by far the largest populations of potential victims in human history; the actual percentage of the population that died violently was on the average higher in traditional pre-state societies than it was even in Poland during the Second World War or Cambodia under Pol Pot." [Jared Diamond]