Another One Bites the Dust

It looks like Lehman Brothers will cease to exist by this weekend.

Crappy Sports Names

The Oklahoma City Thunder it is, formerly the Seattle Supersonics. I think it is a craptastic name, but then again, my team is the Washington Wizards. I wish teams would make more of an effort to adhere to naming conventions that have something to do with the city they play in: such as, the Seattle Supersonics.

The People's History of the United States

...by Howard Zinn is about to be made into a documentary.  I have it but have never gotten around to reading it and now I don't have to...hahahaha.  Just kidding, I'll get around to it one of these days.

The Social Security Trust Fund

Arnold Kling describes the trouble with the social security trust fund pretty well in responding to Felix Salmon:

"Felix Salmon writes,

'the obligations of the [Social Security] trust fund aren't tangible obligations fungible with other government debt. But at the same time they are obligations: they oblige the government to issue debt in the future, insofar as its tax revenue won't be able to cover its pension promises.'

A trust fund = an obligation to borrow? If your uncle Louie told you he was setting up a trust fund for you, and its assets consisted of his obligation to borrow the money, how secure would you feel?

On the other hand, you may feel confident that Uncle Sam will always be able to borrow. Don't be so sure. A few months ago, one might have thought that Uncle Freddie and Aunt Fannie would always be able to borrow. That ended rather suddenly.

What do you like better about Sam? His balance sheet? His management team?"

This is one of the things I have never understood when those who claim that Social Security is not a problem or even has a strong financial position. The trust fund presently has $5 trillion dollars worth of obligations that we have pissed away. These are funds that will have to be paid out between 2018-2040. To state Social Security's finances are in sound shape presumes faith in the taxpayers willingness to accept higher marginal tax rates to redeem those bonds in the trust fund. I don't share that faith.

Earmarks and the Bridge to Nowhere

Sarah Palin's bit about saying "thanks but no thanks" to the "bridge to nowhere" is an outright lie. This is amazingly arrogant that the McCain team persists in using this line. However, what concerns me more about this is the fetish surrounding earmarks. Simply put, they aren't that big a deal. Earmarks are a miniscule part of the budget. The represent roughly $18 billion in outlays out of a budget of $3 TRILLION. In other words, 0.006 % of the federal budget. This is not to say that minimizing earmarks is not a worthy goal, we shouldn't make such a big deal about them. This was one of the things that drove me batshit crazy about Tim Russert. Russert, the great Daniel Patrick Moynihan's former chief of staff, who surely should have known better, always made earmarks one of his infamous gotcha!s, thereby raising their relative importance of earmark reform in our national discourse. But really, they are just a distraction.

DFL

The RNC says thank you.

What I'm Listening to

Jacqueline du Pre: The Early BBC Recordings 1961-1965. I am a huge fan of Yo-Yo Ma but as far as cellists go he does not come close to Jacqueline du Pre. Here is her wikipedia.

PeP Updates

I have added Greg Mankiw and Ta-Nehisi Coates to the blogroll. Professor Mankiw has one of the bigger econ blogs and is an Economics professor at Harvard. He was previously a chair of the CEA under Bush, he routinely writes economics columns for the NY Times, and writes the best selling economics textbook. He manages to write about complex issues in an accessible manner. I suppose this shouldn't be surpising given that he is a best selling text book author. Oh, and Professor Mankiw was kind enough to quote this very blog in one of his recent posts which has me positively tickled. Yes, I am a dork.

Ta-Nahisi Coates is a blogger for the Atlantic and blogs about anything and everything. I find him fascinating and he discusses race and culture extensively in a manner that is seldom found on the blog0sphere or elsewhere.

The Things Campaigns Do to You

"The most promising way to move forward in all three dimensions – coverage, cost, and
long-run fiscal situation – is to replace the employer exclusion with a tax credit, a step that has been proposed many times before (e.g., Butler 1991 and Pauly and Hoff 2002). Firms would still be allowed to deduct the cost of their contributions to employee premiums, just as they can deduct wages and other expenses today for the purpose of calculating taxable income. But workers would now have to include employer contributions to health insurance in their earnings for the purpose of calculating taxes (precisely which taxes is discussed below). In exchange for, workers who purchased qualifying insurance would get a refundable tax credit. Qualifying insurance would be along the lines proposed by the President in his standard deduction for health insurance, including limits on out-of-pocket payments, coverage of a general range of medical care, and guaranteed renewability by the provider (Treasury 2008)."

This is a pretty fair description of the McCain health care plan. The funny thing is, this is not be found in McCain campaign literature or on his senate website, but rather in a paper written by Jason Furman, Obama's Economic Policy Director, who now is arguing about the perils of this very plan. Now Furman would probably be right to respond that the McCain plan doesn't go far enough to facilitate risk pooling in the individual market and maybe that the tax credits are insufficient. But the general thrust of the McCain plan is one that he championed before he became an Obama staffer, now his job is to criticize that very plan.

Furman's counterpart in the McCain campaign, Douglas Holtz-Eakin, was a real deficit hawk and had a sterling reputation coming from the CEA and a stint as the CBO director. Now Holtz-Eakin's main task is defending the indefensible, McCain's tax policy. He surely knows that he will not bring the budget with the tax cuts McCain has proposed back into balance merely by curtailing earmarks. But that is the company line.

Both are incredibly intelligent men, highly accomplished in their fields, but their current job description is to say stupid and false things. That is politics.

Here is a video of the two going at it on CNBC and in Arnold Kling's words, "squandering their cognitive surplus."

hat tip: Greg Mankiw and Arnold Kling

random note: Mankiw was actually Furman's dissertation adviser.

More Thoughts on Palin

It appears that Palin will be quite capable as an attack dog. The problem for McCain is that this isn't a particular need. What McCain needs is policy credentials and a credible governing narrative. For all of his years in the senate McCain seems remarkably weak when it comes to actual policy. His narrative is summed up in one word: Honor. However, this doesn't really translate into what to do about rising health care costs, the looming entitlement disaster, a decaying public education system, and a safety net with gaping holes when it is needed most.

My Thoughts on Palin

I was initially rather excited by the Palin pick, though for somewhat unconventional reasons. I think her pick is a disaster and simply shows how impulsive McCain is and one would argue on that basis alone ill-suited for the presidency. That said, I view this election as a throwaway for the Republicans. I don't think there is a snowflake's chance in hell that McCain wins. The electoral math just doesn't add up for Republicans. The Republican brand is so tarnished that you could submit a ticket of Jesus and Mother Theresa and it would be walloped. McCain's pick of Palin gives an up and coming politician a chance to get some national exposure that she would not get merely as the governor of Alaska. If Palin's basic defect were that she were inexperienced than all would be peachy in my book, though it looks like she might be a bit loony and ethically challenged.

On the plus side, she is a stone cold fox. I think Michelle Obama is immensely attractive and so is Governor Palin and that makes this election much more palatable.

More Thoughts on Biden

The problem with Biden is not substantive. He seems intelligent, if not exceptionally so. He is quite affable, sensible in his policy prescriptions, and on paper complements Obama nicely. He brings foreign policy gravitas to the campaign, and in general, experience. His sins are his candor and verbosity. The former is refreshing and is actually consonant with the general "change" theme of the Obama campaign. The latter, his verbosity, or really a propensity towards verbal diarrhea, is what is potentially toxic in the modern campaign. In his own campaign for president, which unfortunately never gained traction, he seemed to tame his tendency to put his foot in his mouth.

I hasten to add, my observation and the core of my criticism is exceedingly shallow. But alas, so are presidential campaigns and their media coverage.

Biden as VP

This one surprised me. I like Biden, and on paper, he was the ideal pick. However, I think he is an awful, awful campaigner and this is the one time where I thought McCain has a chance.

Medicare's Efficiency

One of the points that single payer advocates make is the potential cost savings we could reap from low overhead costs, they then point to medicare. This, they conflate with efficiency. However, that Medicare has low administrative costs should not surprise us, all medicare does is process claims. Thus, if medicare were to process ten times the claims it does now while maintaining its staffing concerns, it would be even more efficient by such a metric. Never mind the fact that costs could as well grow ten fold without having a discernible impact on health outcomes. I don't point this out to indicate that private health insurance is the answer, just to note that administrative efficiency shouldn't be considered such a potent talking point.

The Enquirer Sacks John Edwards

I would guess at this point his potential VP nod or Attorney General post is off the table. For those of you who doubt the National Enquirer, I have six words for you: Jesse Jackson, Rush Limbaugh, Gary Hart.

More Fannie and Freddie

One of the other disturbing aspects of the housing bill is that on top of raising the cap for conforming loans that fannie and freddie can buy (essentially rewarding their insolvency), Congress seems to think it can wipe away all of Fannie and Freddie's ills with a new regulator. In the recent housing bill Congress abolished OFHEO (FM/FM's prior regulator) and created a new one with a new fancy name. I don't see what this will accomplish other than delaying eventual regulatory capture. If Congress was worried about systemic risk it would tide Fannie and Freddie over and then wipe out its shareholders, potentially nationalize the whole affordable housing part, and sell of the rest of Fannie and Freddie in pieces.

Housing Crisis

I think one of the elements missing in the discussion of the housing crisis is whether or not the government should be subsidizing home ownership to the extent it does or at all. Home ownership is generously subsidized through the tax code in the form of the mortgage interest deduction and additionally in the form of the implicit now made explicit guarentee of Freddie and Fannie's debts. Home ownership is something of a fetish in American political discourse and thus has long been untouchable. Maybe we can use this moment to move towards a more rational approach on home ownership rather than doubling down.

Fannie and Freddie

It appears that Fannie and Freddie are about to be rewarded for their failure. While it is understandable that the government would want to bail out the GSEs because they are "too big to fail", it is not understandable that Congress seeks to reward the GSEs by lifting the cap on conforming loans from $417k to an excess of $600k that Fannie and Freddie can buy. I think the discussion of what to do with Fannie and Freddie should focus on whether to nationalize or privatize (and by privatize, I mean no implicit nor explicit guarentee) Fannie and Freddie. And in either scenario the shareholders should be wiped out.

Brilliant Blog Post on GSE's by Larry Summers

Courtesy of Creative Capitalism:

Here is a really good creative capitalism idea. All Americans benefit from increases in home ownership because of the values like hard work, community, and respect for property that ownership instills. Families want desperately to own their own homes and accumulate equity. Yet it is very hard for conventional banks that borrow money over the short term to lend over the kind of 30-year horizons that best help families buy houses.

How can the objective of ownership be best supported and how can the most adequate financing be assured? Voila, creative capitalism! How about chartering private companies as government sponsored enterprises with the mission of promoting home ownership affordability? Give them boards with some private representatives and some public representatives. Make clear that government stands behind their capital market innovations so they can borrow more cheaply and pass the savings on. Exempt them from the state local taxes that others pay. Give them specific objectives on affordability that they must meet. Rely on a special government regulator to assure that they balance their social responsibility with their drive to profit. Harness the profit motive to meet a social objective.

This is roughly the rationale behind Fannie Mae and Freddie Mac. I would submit that it is about as good or as bad as most creative capitalism ideas involving joint profit making and social objectives. But one hopes that ee are now witnessing the end of this particular experiment in creative capitalism: the government is moving to pick up the pieces of the mess the GSEs have made and their shareholders are losing most of their money.

What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were "private companies.” But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.

I wonder how general the lesson here might be. My fear is fairly general. Inherent in the multiple objectives urged for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities it is necessary that they be supported in competition to the detriment of market efficiency.

It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.

Twitter

What the hell is it?