Yglesias » Film Subsidies

Are film subsidies a good idea? Do they correct a market failure that is big enough to justify the taxes? I also wonder about subsidies to sports teams. 
Yglesias » Film Subsidies:

why would you think a target tax subsidy for the movie industry is a smart economic development strategy. Let’s say you start with a certain quantity of public services and a balanced budget. Your money’s coming in from property tax, sales tax, income tax, and a few licensing fees. Now it’s definitely true that a tax break for folks who film movies in your city might spur some additional business activity in your city. But you’ll have to pay for it with either higher taxes or else fewer services. Won’t the higher tax rates just offset the positive impact of the targeted tax break? And if you’re willing to live with fewer services in exchange for lower taxes, wouldn’t it be more beneficially to cut rates across the board?

Regulating Land Use

There are numerous land use regulations that encourage sprawl.  The reason that new development usually has lower density than older developments is largely government action to encourage sprawl by using regulations and providing millions of dollars worth of roads, sewers, and utility connections.  One common regulation mandates that each house must have a minimum amount of yard.  Yglesias:

As Atrios says, the problem with lot occupancy rules isn’t that there’s something terrible about backyards (or front yards or side yards or rows of bushes in front of buildings or what have you) it’s just that land is a valuable commodity. Think about something else. I like television. And most Americans like television. If we had a rule mandating that every new housing unit include a television, it’s not like people would be sobbing in the streets saying “oh noes, this television is ruining my life.” Most people would just watch TV and some minority of cranks would maybe smash TVs in back alleys or whatever.
But this would still be a stupid policy and inefficient allocation of televisions! In a world where TVs are not mandatory, most people buy TVs. Some buy expensive ones, some buy cheap ones, many households own several, and some households own none. Lawns should be just like that, available to those who want to pay the market price, but not cross-subsidized through arbitrary rules. There’s no collective action problem posed by contemplating a world in which most houses include some green space many do not. There’s no adverse selection issue. There’s nothing.

Notes On Government Employment - NYTimes.com

Notes On Government Employment - NYTimes.com:

...most government workers are at the local level, and most of the rest are state workers; the federal government is a small piece of the total. And if you look at what they do, a lot of them are teachers; many of the rest are firefighters, police, and other occupations we sort of like.

Third, why has government employment grown over time? Because, um, we have a growing population. Here’s government employment as a share of the population:

Yes, government got bigger under those socialists Dwight Eisenhower, LBJ, and Nixon. Since then, however, there has been no trend relative to population.

And bear in mind, again, that the representative government employee isn’t a bureaucrat trampling on your liberty; he or she is a schoolteacher.

Yglesias » Home Page

Yglesias » Home Page:

Paul Waldmann produces a very interesting chart which illustrates that not only have the
top marginal headline tax rates declined over time, the income cutoff for paying them has fallen:

This is a difficult to justify response to a world in which there’s more dispersion of incomes at the very high end than their used to be. More tax brackets would be a welcome development. Indeed, thanks to the widespread available of computers these days it should be possible to entirely dispense with the idea of “brackets” and express the rate as a continuous function of taxable income or consumption or whatever it is you want to use as the tax base.

How should higher education funding be distributed?

Yglesias » Higher Education From 50,000 Feet:

I can think of two broad principles that would be more defensible than funding by exclusivity. One would be funding by need. This would say that teenagers whose parents have modest incomes need resources more than do teenagers whose parents have high incomes. So institutions that attract a disproportionately high income client base should attract little support from the public. That means reduced direct appropriations, and at a minimum social pressure on civil society actors not to donate to highly privileged institutions. Another would be funding by quality. Here you would say that resources ought to flow to institutions with a proven track-record of producing unusually large student learning gains. In our current system, I think that funding quality is what we think we’re doing. Yale is “better” than the University of Connecticut so funds flow to it. But in our current setup, better simply means more exclusive. It’s a measure of the quality of the inputs, not the quality of the instruction. The result is that both the public sector and the civic sphere are essentially acting to redistribute wealth and opportunities upwards.

Yglesias » Home Page

Yglesias » Home Page:

In his classic essay “The Perils of Presidentialism” (PDF) political scientist Juan Linz noted the striking fact that “the only presidential democracy with a long history of constitutional continuity is the United States . . . [a]side from the United States, only Chile has managed a century and a half of relatively undisturbed constitutional continuity under presidential government—but Chilean democracy broke down in the 1970s.” By contrast, many parliamentary democracies have managed to hold together for a long time.

Linz briefly treats the question of why presidential democracy, which basically doesn’t work, has managed to work in the United States:

"the uniquely diffuse character of American political parties—which, ironically, exasperates many American political scientists and leads them to call for responsible, ideologically disciplined parties—has something to do with it."

Linz’s article was published in 1990 at a time when the observation about the lack of ideological coherent and rigorous discipline had been true for the overwhelming majority of American history. And, indeed, as recently as 1988 one could have witnessed moderate Democrat Joe Lieberman successfully challenging incumbent liberal Republican Senator Lowell Weicker with the support of, among others, William F Buckley, Jr.

Yglesias » Earmark Ban

Yglesias » Earmark Ban:

But all that said, any kind of sensibly operationalized ban on earmarks really will, in a small way, be a good thing. Since members of congress are elected to represent specific geographical constituencies, it’s inevitable that parochial interests will be overrepresented in the legislative process relative to national interests. Any procedural rule that leans against that tendency is, in my view, a good thing. It’s good not because representation of local interests is a bad thing per se, but simply because our political system is very heavily weighted in that direction anyway.

If you look at the long-term budget projections, the fact of the matter is that the aging of the population and the growth of health care costs is set to increase federal spending above a sustainable level. That means we’ll need higher taxes. And it means will need better approaches to health care. But it also means that all public spending on everything that’s not health care for senior citizens is going to come under substantial pressure. Under the circumstances, if you care about the purposes advanced by domestic discretionary spending it’s important to make sure that pot of money is spent as efficiently as possible. Curtailing earmarks should advance that goal

Subsidizing Mansions

Should we give a tax subsidy to encourage wealthy people to buy bigger mansions? We could easily fix this hidden subsidy by capping the mortgage benefit at $200,000. That would preserve the benefit for the middle class and the wealthy would get the full benefit too, but we would stop subsidizing larger mansions.

Ezra Klein - Who does the mortgage-interest deduction benefit?:

Alex Hart has a good post examining whether the mortgage-interest tax deduction -- which will cost taxpayers $131 billion in 2012 -- is really a "middle-class tax break," as some people like to claim. The answer is no,
...the less money you make, the less the mortgage-interest tax deduction does for you. ... here's the same graph in raw dollars:

...the benefits for the bottom 40 percent of the income distribution are invisible. That's not because they literally don't exist, but because the deduction is worth $2 to people between in the bottom fifth and $32 for the quintile after that. As for the top 1 percent? They're getting a break of more than $5,000.

Yglesias » Israeli Airport Security

Yglesias » Israeli Airport Security: "the most sensible approach to airport security would be to simply accept a slightly higher risk that someone, somewhere might blow up a plane. Right now in the United States flying somewhere is orders of magnitude safer than driving their in a car. But it’s become a huge pain in the ass. Reducing the “pain in the ass” factor would be a good idea.

- Sent using Google Toolbar"

Yglesias » Home Page

Yglesias » Home Page:
raising the eligibility age for Medicare. ...Instead, everyone seems to want to raise the eligibility age for Social Security. This makes little sense to me for two reasons. One is that seniors can buy healthcare with money if they want to but can’t sell Medicare benefits in exchange for food or whatever. I’m not of the school of thought that believes cash benefits are always superior to in-kind benefits. But the merits of in-kind benefits, if any, are normally paternalistic in nature. And there’s really no reason to be paternalistic about senior citizens. Whatever total quantity of money we decide to dedicate to retirees, the retirees themselves should decide whether that money is used to buy hip replacements or presents for grandkids or whatever.... I suspect that part of the issue is that the implications of the Affordable Care Act haven’t really sunk in yet. Traditionally raising the Medicare eligibility age more than a teensy bit would be unthinkable, since absent Medicare an elderly person would be totally uninsurable. But under ACA that’s not the case. Of course subsidies will be needed for most retirees, but a workable highly progressive system would be in place to ensure that nobody has to go without access to health coverage....You add a public option with Medicare payment to the ACA exchanges and you raise the Medicare eligibility threshold. Basically we'd transition over time from a single-payer system for seniors and a crap for non-seniors, to a means-tested single-payer system for everyone.

There Is No Fun in Measuring GDP « Modeled Behavior

There Is No Fun in Measuring GDP « Modeled Behavior:
GDP is simply not welfare, even for market based goods. ...

Suppose I have an economy with two sectors that each use half of the workforce. One sector produces fish and the other produces beaded jewelry. (An economists mind always goes to desert islands when constructing these examples.) Both fish and necklaces cost $1 and the economy produce 1000 of each per year. The two sectors are equal in size and equal in their contribution to GDP.

Does that mean that they each make people equally well off? Do necklaces add as much to quality of life as food? Probably not. More likely the supply and demand graphs for each sector look like this.

GDP is the same

Welfare or the total benefit to society each market is quite different.

A steeper demand curve or a shallower supply curve can produce huge welfare gains at relatively small GDP gains. Indeed, some of the goods like running down a hill or reading new material posted to the web have a supply curve so shallow that they are provided at nearly zero cost. This is why they show up with such a disparity between GDP and welfare. This isn’t limited to free goods, however, my classic example is water. How much better is your life because of clean water vs. how much of your income do you devote to water cleansing.

The right and the wrong way to do incentive pay.

The right way to think about "incentive pay" is that pay should give the long run incentives that attract good employees and the incentives to get them to stay with you long run.  Incentive pay does not usually work well for motivating workers on a day-to-day basis except in certain kinds of easily measurable work like piece-work manufacturing or some kinds of sales that have few externalities for the firm.  Even in these cases, it is not clear whether the incentive pay really motivates employees on a day to day basis or whether it works by screening the pool of workers to make a biased selection for people who want to work hard. 
The following study shows that incentive pay does not work for motivating good work.  However, high pay can bring good teachers to the profession and keep good teachers from quitting and working elsewhere.  This kind of long run incentive pay has never been studied to my knowledge and the optimal incentives would be different.  It would probably be best to pay teachers a salary that is adjusted according to their best year of results in the past four years.  That way if a teacher gets a bad class or has a rough year or two, they can make up for it another year.  This is better than paying teachers according to their yearly results because there would be much less variation and teachers are currently a risk-averse lot.  They are used to high job stability and it would be best to continue to give them fairly stable pay.  It might also be good to have a small component of their pay vary according to how their school is doing so that they have some team spirit in making their school function well.  We want teachers to work together well and we want them to encourage effective management. 

Matthew Yglesias:

Linda Pearlstein summarizes a pretty good new controlled study from Vanderbilt University that tested the idea that offering teachers bonuses of up to $15,000 could improve student outcomes. The results—nope...

The right way to think about teacher compensation, I think, is this. You could have a system in which all teachers are paid the same amount. But we don’t have that system. Instead we have a system where veteran teachers are paid much more than novice teachers, and teachers with master’s degrees are paid more than teachers without master’s degrees. We could switch this to a system where teachers whose kids do much worse than average on value-added measures get fired, and teachers whose kids to much better than average get paid more than average teachers. The idea here wouldn’t so much be to create an “incentive” as simply to ensure that the best teachers aren’t tempted to leave the profession while the worst teachers are encouraged to do so. If you want to do something through a bonus/incentive mechanism, what would make sense is to offer teachers extra money to take on challenging assignments in high poverty schools.

The point is that an absolutely flat salary structure makes no sense. Instead, we prefer to rely on proxies for quality. Currently, we use length of service and possession of a master’s degree as our proxies. But the evidence suggests that these are bad proxies and that value-added metrics, despite their flaws, are better.

Another, unrelated issue with incentive pay is that regression to the mean would tend to make negative incentives look more effective than positive incentives.  After a punishment for exceptionally bad performance, it will usually look like there is improvement due to random regression to the mean and after a reward for unusually good performance, there will usually be worse performance due to random chance.  A controlled experiment like the above can eliminate this problem, but it is something that we need to be careful about.

A Symbiotic Relationship – The AMA And The Health Lobby

Wonk Room:

...the tobacco industry leaned on the AMA [American Medical Association] to substantiate its dubious health claims. Beginning in 1933, JAMA [the Journal of the AMA] published tobacco advertisements, stating that it had done so only “after careful consideration of the extent to which cigarettes were used by physicians in practice.” The tobacco industry became the AMA’s largest advertiser, and its implicit endorsement of tobacco products allowed companies like Camel to proclaim slogans such as, “More doctors smoke Camels than any other cigarette.”
Of course, during this period of heavy of tobacco and industry influence, the AMA defeated the health care reform proposals of both President Franklin Roosevelt and Harry Truman using the specter of “creeping socialism” that would bring “debased standards of medical care.”
Currently, the Pharmaceutical Research and Manufacturers of America (PhRMA), the nation’s largest pharmaceutical lobbying group, is pursuing a multimillion dollar campaign against many aspects of health reform. A public insurance plan might pay less for branded drugs, or would opt for generics in many cases, so drug companies want to maintain the status quo. But if this is the concern, why is AMA stepping up to the plate for the drug lobby?
AMA derives at least a fifth of its budget from drug companies through an arrangement known as “licensure.” The program consists of AMA selling drug companies its “Masterfile” of doctor profiles, spanning everything from detailed biographic information to an individual doctor’s prescription-writing history. The program is extremely controversial since drug companies in turn use the information to aggressively market their products to doctors. Controversial drugs Vioxx and Avandia, which have subsequently been found to pose significant risks to patients, have been marketed to doctors, in some cases, using information obtained from the AMA.
After an uproar in 2007, the AMA, through a policy of self-regulation, claimed to have stopped selling doctor prescription-writing information. But that pledge must be viewed with skepticism given the AMA’s track record.
During a Senate investigation of abuses of the licensure practice in 1990, the Boston Globe reported that AMA and PhRMA lobbyists came to Capitol Hill to promise Sen. Ted Kennedy (D-MA) that the program was not part of any effort to convince doctors to prescribe PhRMA drugs. This promise to self-regulate was never kept. In 2001 the New York Times reported that the AMA generated $20 million dollars a year from licensure sales to drug companies in a complex scheme to market drugs like Baycol to doctors. In 2006, that number climbed to $40 million, and in 2007 it was reported to be $45 million.

Matthew Yglesias » Incentives For Saving Versus Giveaways to Rich People

Matthew Yglesias » Incentives For Saving Versus Giveaways to Rich People: "Moving to a consumption tax base would have an additional benefit of making discretionary fiscal policy much more workable. The thing that politicians are most inclined to do in terms of fiscal policy is cut taxes. But tax cuts don’t actually work very well as stimulus. Except they would work well if the only thing being taxed was consumption. In that case, 100 percent of the fiscal impact of temporary tax cuts would take the form of a temporary boost in aggregate demand.

Where does the Laffer curve bend?

Ezra Klein:

With the Bush tax cuts due to expire soon and debates about raising top rates further to cut the budget deficit soon to follow, the Laffer curve is bound to come up again. The idea, popularized by economist Arthur Laffer and writer Jude Wanninski in the 1970s and '80s, is simple. Tax rates of zero percent produce no revenue, for obvious reasons. Rates of 100 percent should produce no revenue either, as no one would bother making the money that falls into that bracket knowing it would all be taken away. Thus, presumably, there is some rate in between the two that maximizes revenue. Go above it and revenue would fall because people would avoid taxes or stop working; go below it and revenue would fall because less money would be taxed.

The Tax Experts

Emmanuel Saez, ...73% which means a top federal income tax rate of 69% (when taking into account the extra tax rates created by Medicare payroll taxes, state income tax rates, and sales taxes)...
Joel Slemrod ..."I would venture that the answer is 60% or higher.... The idea that we're on the wrong side has almost no support among academics who have looked at this....
Read Saez, Slemrod, and Seth Giertz's latest paper (PDF) on the subject.
...

Bruce Bartlett ..."Anthony Atkinson, probably the leading public finance economist in England, estimates (PDF) that the top rate could go as high as 63% to 83% before it became counterproductive in terms of revenue...The European Central Bank...finds that only two European countries are on the wrong side of the Laffer Curve. All other countries could raise substantial additional revenue by raising tax rates."

Progressive Consumption Taxes

Matthew Yglesias:

"it would be better to finance the government through a progressive tax levied on consumption... You can understand the virtues of this idea in moralistic terms (John Rawls says he prefers it “since it imposes a levy according to how much a person takes out of the common store of goods and not according to how much he contributes”) or in economic ones as laid out by Karl Smith. But what does that mean in practice? Fortunately, Dylan Matthews did a post yesterday laying out some options.

The one that’s easiest to explain, and I tend to think best, is Robert Frank’s idea. This would work exactly like the current income tax, except instead of a crazy patchwork quilt of tax-subsidies for savings you’d just exempt all savings from taxation. That would leave you with a simpler, more efficient, but less progressive tax code that also doesn’t raise adequate revenue. You need to respond by adjusting the rate structure to restore adequacy and progressivity. The resulting scheme is more conducive to long-term economic growth than our current system, equally progressive, and also somewhat simpler. And, importantly, the added simplicity doesn’t come from heroic assumptions about congress wiping away all deductions and exemptions and never putting any new ones in. It’s just simpler because it does something our tax code already does—try to encourage saving—in a simpler way.

multiple transferrable vote

...Fair Vote, an excellent organization pushing a variety of worthy reforms to the American electoral system.

...the related topics of gerrymandering and polarization,  [could be ameliorated by] ...multiple member congressional districts withsingle transferrable vote.

What does that mean and what does it have to do with polarization?

Well, take New York City. Instead of carving the city up into 13 or 14 different districts with members elected by plurality, all of them won by Democrats, the whole city could vote proportionally for a slate of 13-14 members of congress, and several of them would wind up being Republicans with the exact number depending on political fortunes. This would reduce what I think bothers people about polarization in congress in at least two ways. One is that though on many issues the NYC Republicans and NYC Democrats would fiercely disagree, on a bunch of other issues that have substantial regional or urban/non-urban elements to them the NYC bloc would be collaborating along with other bipartisan congressional blocks against other bipartisan congressional blocks. The other is that the balance of power in congress wouldn’t be determined by a relatively small number of “swing districts.” In any given election, Democrats and Republicans alike would have plausible pickup opportunities all across the country—even in New York City—meaning that it would make sense for the GOP to always at least think about trying to answer the concerns of American cities.

Then on the flipside, if Nebraska elected its three-member congressional delegation in a proportional manner you wouldn’t have the scenario where 41 percent of Nebraskans vote for Barack Obama but 100 percent of them are represented in the House by conservative Republicans. All regions of the country would have a measure of bipartisan representation, and both parties would have substantial blocs of members to advocate for the interests of different kinds of places.

Matthew Yglesias » The Cost of Fannie and Freddie

Matthew Yglesias » The Cost of Fannie and Freddie

If you look at the fiscal cost of TARP compared to the cost of the Fannie & Freddie takeover, it’s quite small. But the legislative measure authorizing the Fannie/Freddie nationalization, the Housing and Economic Recovery Act of 2008, was passed by a bipartisan congressional vote and signed by George W Bush with very little controversy back in July of 2008.

The government should not be subsidizing home ownership anyhow. The US has better housing than anywhere else on earth and more home ownership.

And the idea that middle class families should basically live inside their lifesavings seems perverse. The good idea at the heart of mortgage securitization is that it doesn’t make sense for a bank to make a geographically undiversified investment in housing. But of course that’s exactly what a household is doing when it buys its home.

Matthew Yglesias » Why Does Alabama Need an Election for Agriculture Commissioner

Matthew Yglesias » Why Does Alabama Need an Election for Agriculture Commissioner
Democracy should be about accountability, not holding lots of elections. Too many independently elected officials makes lines of responsibility murky and makes it impossible for citizens to monitor their agents.

Our Lucky Ozone Escape | Mother Jones

Our Lucky Ozone Escape | Mother Jones

You all know the story of Stanislav Petrov, right? He's the Soviet lieutenant colonel who was on duty in 1983 when an early warning system reported that an American ICBM was heading toward the Soviet Union. Luckily (and correctly), he decided it was just a computer error and decided not to start World War III. Whew!

That's about how I felt when I read Brad Plumer's piece on possible planetary disasters in the last issue of the New Republic. I'd never heard this story before, but it turns out that back in the middle years of the 20th century Planet Earth dodged a serious ozone layer bullet thanks to nothing more than a chance decision by Dupont about how to manufacture chlorofluorocarbons:

As luck would have it, DuPont had been using chlorine instead of bromine to produce CFCs. As far as anyone could tell, the two elements were interchangeable. But, as another prescient ozone researcher, Paul Crutzen, later noted, bromine is 45 times as effective at destroying ozone as chlorine. Had DuPont chosen to use bromine, the ozone hole could well have spanned the globe by the 1970s instead of being largely confined to Antarctica — long before anyone had a glimmering of the problem.

It’s not hard to see what massive worldwide ozone depletion would’ve meant. Punta Arenas, the southernmost town of Chile, sits under the Antarctic ozone hole, and skin cancer rates there have soared by 66 percent since 1994. If humans had destroyed stratospheric ozone across the globe, we would likely be unable to set foot outdoors without layers of sunscreen and dark shades to prevent eye damage. Worse, the excess UV rays could have killed off many of the single-celled organisms that form the basis for the ocean’s food chain and disrupted global agriculture (studies show that bean and pea crop yields decline about 1 percent for every percent increase in UV exposure).

Matthew Yglesias » Filibuster and Accountability

Matthew Yglesias » Filibuster and Accountability

accountability is maximized when it’s relatively simple for ordinary people to deploy the means at their disposal (voting, or not) to effectuate their ends (throwing the bastards out, or not). When you combine majoritarian legislative procedures with strong party discipline, then all a voter needs to do is (a) remember which party is in charge, and then (b) decide if he likes what’s going on. But thanks to the filibuster, if you don’t approve of policy outcomes you’re likely to blame the majority party even if the outcomes are actually being determined by a minority.

Marginal Revolution: The public choice economics of spending cuts

Marginal Revolution: The public choice economics of spending cuts:
This issue deserves more attention and I cover it in my latest NYT column:

Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime minister and Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book “In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint,” Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget — a history that helps explain why the country has managed the current global recession relatively well.

To be sure, the spending cuts meant fewer government services, most of all for health care, and big cuts in agricultural subsidies. But Canada remained a highly humane society, and American liberals continue to cite it as a beacon of progressive values.

Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger.

It’s less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers. In many ways, this cynicism may be justified, but it is not always helpful, as it lowers trust and impedes useful social bargains.

Forces like the Tea Party movement argue for fiscal conservatism, though it isn’t obvious that they are creating the conditions for success. Over the last year, we have been treated to the spectacle of conservatives defending Medicare against proposed cuts, in large part to curry favor with voters and mobilize sentiment against the Democratic health care plan.

The column also offers up some general reasons for considering spending cuts and not just tax increases. Maybe Arnold Kling won't like this column, but when I look around the globe for episodes of successful spending restraint I see Canada, Finland, Sweden, and now possibly (probably) Ireland, which is in the midst of fiscal restructuring. I see change coming from elites and I see relatively left-wing governments (Ireland, admittedly, is harder to classify) which are trusted by their citizens. The Greek government, in contrast, doesn't operate with the same level of social cohesion and thus it is likely to fail.

I believe the "social trust" scenario for spending cuts is overlooked because it raises the relative status of groups which people who favor spending cuts do not wish to raise.

I wouldn't want to force the view that the United States will or can follow the path of these other nations. But when there is no other evidence, look to the path of what has been shown to be possible. This is a neglected point in the debate on fiscal restructuring and it suggests we are not currently on a propitious path. Right now many fiscal conservatives are looking to voter outrage to drive change and I'm just not sure there is a "there there." Here's one good post on how much conservatives like government spending.

Fiscal Fantasies - Paul Krugman Blog - NYTimes.com

Fiscal Fantasies - Paul Krugman Blog - NYTimes.com: "The basic picture of the federal government you should have in mind is that it’s essentially a huge insurance company with an army; Social Security, Medicare, Medicaid — all of which spend the great bulk of their funds on making payments, not on administration — plus defense are the big items."

Defense Budget 2011 Guide: Trillions to Burn? Defense Spending Surge

Defense Budget 2011 Guide: Trillions to Burn? Defense Spending Surge: "What Chart 2 makes clear is that (1) defense spending has moved in waves historically and that (2) the most recent surge reaches uniquely high. Indeed, total spending (actual and planned) after 2001 appears much above the average for the preceding five decades. The Obama administration is contributing substantially to this trend. It plans to spend more on defense in real (inflation-adjusted) terms than did any administration since 1948 – a period encompassing the entire Cold War, including two large-scale, protracted regional wars: Korea and Vietnam.

Comparing several eight-year administrations we find that:
· Ronald Reagan spent $4.1 trillion on the Defense Department (in 2010 dollars),
· G. W. Bush spent $4.65 trillion, and
· Barrack Obama plans to spend more than $5 trillion.

How does the 1998-2011 spending surge compare to previous surges? The most ready comparisons are to the 1958-1968 (Kennedy-Johnson) surge of 43% and the 1975-1985 (Reagan) surge of 57%. Notably, the 1998-2011 surge is as large as these two predecessors combined."

The psychology of power: Absolutely | The Economist

The psychology of power: Absolutely | The Economist: "Power corrupts, but it corrupts only those who think they deserve it"
This is a warning about meritocracy. The meritocratic should not think that they are entitled lest they abuse their status. Even merit is bestowed by grace and the recipients are no more morally worthy than anyone else. This is what humility should really be about.

Matthew Yglesias » Heuristic-Driven Public Opinion

Matthew Yglesias » Heuristic-Driven Public Opinion: "My view of the public is that it doesn’t have strong views on policy matters. But most voters do have strong views about famous politicians. A large minority of voters really like Barack Obama, for example, and if he tells them something is good they’ll assume he’s right. Another large minority of voters has strongly negative feelings toward Obama, and toward the Democratic Party writ large, but has positive views about the Republican Party and its leadership.

Then there’s another, smaller faction that takes a dim view of both parties and of politicians generally. But even though this group is small, it’s centrally located on the opinion spectrum. And it tends to assume that if elite leaders from both parties get together and say something’s a good idea—like George Bush and Dick Cheney but also Hillary Clinton and Tom Daschle and John Kerry and Dick Gephardt say we should invade Iraq—that it’s probably a good idea. On the contrary, if only one party will support something then it’s probably partisan and bad and probably the party pushing the idea didn’t try hard enough to reach a sensible compromise.

Therefore, almost anything that an opposition party succeeds in mounting unanimous opposition to—Bill Clinton’s 1993 budget, George W Bush’s 2005 Social Security privatization push, Barack Obama’s 2009 health reform push—will wind up polling poorly."

Matthew Yglesias » Money for Nothing, and Votes for Free

Matthew Yglesias » Money for Nothing, and Votes for Free:

Something worth mentioning in the context of the Citizens United decision, though not directly tied to the issue at hand there, is that a group doesn’t actually need to spend vast sums of money to have a decisive influence on politics. It just needs to be able to credibly threaten to spend said sums. Bank of America, for example, dedicates $2.3 billion to marketing in 2008 so it’s clear that they’ve got the budget to mount a $100 million series of scathing attacks on a Senator who pisses them off and basically laugh that off (and note that in 2004 total spending on Senate campaigns was just $400 million). And if you can have it be the case that just one Senator goes down to defeat for having pissed off BofA then everyone else will learn the lesson and avoid pissing them off in the future. You don’t need to actually sustain that volume of campaign spending.

I’ve seen a lot of jokes about the idea of corporate-sponsored candidates and such. But the real issue here isn’t so much affirmative activity on the part of businesses as it is negative activity on the part of politicians. We’ll be looking at one further step toward a political system in which large business interests have a de facto veto over all policy questions. Politicians will still be free, of course, to have feisty debates about which party is more to blame for the budget deficit, about who loves the pledge of allegiance more, about who’s more determined to pretend that there won’t be bailouts after the next financial panic, etc.

Federal Estate and Gift Taxes

Federal Estate and Gift Taxes: "The share of estates that were taxable rose substantially between 1950 and the mid-1970s, when that share reached almost 8 percent, but has declined sharply since then (see Figure 2). Since 1977, generally about 1 percent to 2 percent of adults who died each year have left estates large enough to be taxable. In 2000, before EGTRRA was enacted, 51,200 estates were taxable, representing 2.2 percent of adult deaths in that year. EGTRRA reduced the percentage of estates that were taxable. For example, 17,400 taxable estate tax returns were filed in 2007; most were for deaths in 2006, when the effective exemption amount was $2 million, representing about 0.7 percent of adult deaths in that year."

Figure 2.

Estate Tax Returns

Source: Congressional Budget Office based on data from the Internal Revenue Service.

Matthew Yglesias » GDP Maximizing Policies

Matthew Yglesias » GDP Maximizing Policies: "Right now, if you take a childless single person who earns $60,000 a year, he pays a lower proportion of his income in taxes than does a two-parent, two-child family earning $240,000 a year. You could assess taxes on a per capita basis and dramatically shift the incentive structure."

Economic Mobility

Matt Zeitlin: Impetuous Young Whippersnapper: "Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago, has a paper which says that “Using administrative data containing the earnings histories of parents and children,the IGE is estimated to be around 0.6. This suggests that the United States is substantially less mobile than previous research indicated.” And, “estimates of intergenerational mobility are significantly lower for families with little or no wealth.”
Or, from Markus Jantti of Abo Akademi University:

The United States, Italy, and France all have high persistence, at 0.45, 0.44, and 0.42, respectively, which with a 12-fold income advantage in the parental generation would translate to roughly three times higher incomes among the children of the richest fifth compared to those of the poorest. Denmark has the lowest persistence at 0.12, and most other countries are quite close to 0.25. These numbers translate to 1.35 and 1.86 times higher incomes among the richest fifth offspring, holding constant the parental income advantage

In summary, “Intergenerational income persistence in the United States is quite high compared to other countries, and that persistence.”

And, from a Center for American Progress report ‘Understanding Mobility in America,’ “By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.”

Brendan Nyhan

Don't miss this extremely valuable story in the Economist on inequality and social mobility in the US. The magazine -- which is no bastion of bleeding heart liberalism -- has issued an important warning:

A growing body of evidence suggests that the meritocratic ideal is in trouble in America. Income inequality is growing to levels not seen since the Gilded Age, around the 1880s. But social mobility is not increasing at anything like the same pace: would-be Horatio Algers are finding it no easier to climb from rags to riches, while the children of the privileged have a greater chance of staying at the top of the social heap. The United States risks calcifying into a European-style class-based society.

The evidence on social mobility is hardly encouraging to those who believe that every American has a solid chance to pull themselves up by their bootstraps:

[M]ore and more evidence from social scientists suggests that American society is much "stickier" than most Americans assume. Some researchers claim that social mobility is actually declining. A classic social survey in 1978 found that 23% of adult men who had been born in the bottom fifth of the population (as ranked by social and economic status) had made it into the top fifth. Earl Wysong of Indiana University and two colleagues recently decided to update the study. They compared the incomes of 2,749 father-and-son pairs from 1979 to 1998 and found that few sons had moved up the class ladder. Nearly 70% of the sons in 1998 had remained either at the same level or were doing worse than their fathers in 1979. The biggest increase in mobility had been at the top of society, with affluent sons moving upwards more often than their fathers had. They found that only 10% of the adult men born in the bottom quarter had made it to the top quarter.
The Economic Policy Institute also argues that social mobility has declined since the 1970s. In the 1990s 36% of those who started in the second-poorest 20% stayed put, compared with 28% in the 1970s and 32% in the 1980s. In the 1970s 12% of the population moved from the bottom fifth to either the fourth or the top fifth. In the 1980s and 1990s the figures shrank to below 11% for both decades. The figure for those who stayed in the top fifth increased slightly but steadily over the three decades, reinforcing the sense of diminished social mobility.
Not all social scientists accept the conclusion that mobility is declining. Gary Solon, of the University of Michigan, argues that there is no evidence of any change in social-mobility rates, down or up. But, at the least, most people agree that the dramatic increase in income inequality over the past two decades has not been accompanied by an equally dramatic increase in social mobility.
Take the study carried out by Thomas Hertz, an economist at American University in Washington, DC, who studied a representative sample of 6,273 American families (both black and white) over 32 years or two generations. He found that 42% of those born into the poorest fifth ended up where they started—at the bottom. Another 24% moved up slightly to the next-to-bottom group. Only 6% made it to the top fifth. Upward mobility was particularly low for black families. On the other hand, 37% of those born into the top fifth remained there, whereas barely 7% of those born into the top 20% ended up in the bottom fifth. A person born into the top fifth is over five times as likely to end up at the top as a person born into the bottom fifth.
Jonathan Fisher and David Johnson, two economists at the Bureau of Labour Statistics, looked at inequality and social mobility using measures of both income and consumption. They found that mobility "slightly decreased" in the 1990s. In 1984-90, 56% and 54% of households changed their rankings in terms of income and consumption respectively. In 1994-99, only 52% and 49% changed their rankings.
Two economists at the Federal Reserve Bank of Boston analysed family incomes over three decades. They found that 40% of families remained stuck in the same income bracket in the 1990s, compared with 37% of families in the 1980s and 36% in the 1970s. Aaron Bernstein of Business Week points out that, even though the 1990s boom lifted pay rates for low-earners, it did not help them to get better jobs.

Matthew Yglesias » The Other Public Sector Pension Problem

Matthew Yglesias » The Other Public Sector Pension Problem: "Yesterday I mentioned the huge looming budgetary problem caused by the habit of giving public sector employees deferred compensation in the form of guaranteed benefit pensions rather than higher salaries, and then under-funding the investment plans that are supposed to pay the money out.

It’s worth emphasizing, however, that even if you did fund these plans properly it’s a really bad model for paying public sector workers. I have no problem with the idea of spending a healthy chunk of change on public sector compensation, but the point should be to achieve effective public services and that would be best done by just paying people more money up-front. Putting such a large chunk of people’s compensation into pensions creates bizarre incentives for people who’ve decided they’ve lost their passion or interest in what they’re doing to stay on the job. We should want a world where a guy who’s been a cop for twelve years and done a good job, but doesn’t really want to do it anymore just looks for another job and moves in. Instead, he has a lot of incentives to stay on for eight more years doing a really half-assed job in order to get the pension money that will otherwise vanish. Similarly for teachers. An awful lot of public sector functions, at the end of the day, work much better if you have properly motivated people. People doing work for purely cynical “I want to get money” reasons should really be encouraged to go work in the cynical “we’re trying to maximize profits” sector of the economy. But giving people generous pensions, instead of higher salaries, encourages the reverse.

Then by the same token, the knowledge that a lot of the monetary value of public sector work will only accrue if you stay on the job for a long time deters people from entering the profession in the first place, and also deters them from shifting from city to city. One strength the military has going for it is that it’s created a robust notion that there’s nothing wrong with signing up, serving competently for a few years, and then moving on with your life. People who do that are “veterans” not “quitters” —it makes the military mesh well with the modern private sector economy.

There’s no real upside for citizens or for employees. Instead there’s only the apparent upside that it looks cheaper on the budget to promise people a big pension 20 years from now rather than a raise tomorrow. Those savings, however, are entirely illusory as we’re about to find out when it turns out that a lot of state and local funds can’t cover their promises."

Our view: Warfare, outsourced: ADN Editorial | adn.com

Our view: Warfare, outsourced: ADN Editorial | adn.com: "Congress begins to rein in role of private contractors

Published: January 3rd, 2010 05:26 PM

Congress has finally begun to reconsider the nation's heavy reliance on private contractors to fight our wars in Iraq and Afghanistan. Measured by personnel numbers, the country has outsourced almost half of our war-fighting effort. As of September, 242,000 contractors supported 280,000 military in the two war zones, according to the Congressional Research Service. In Afghanistan, contractors actually outnumber troops by 40,000.

That outsourcing was supposed to help save money and liberate soldiers from doing routine, safe tasks behind the battle lines, so they could concentrate on fighting.

Congress is realizing it hasn't always worked out that way. In fighting an insurgency, there are no battle lines, and no secure rear areas for contractors to work in.

In that dangerous environment, it takes a lot of money to compensate for the risk of death on the job. U.S. civilians driving supply trucks through hostile territory, for example, could earn triple or more the pay of the GI grunts riding in the seat beside them.

Last year, Congress concluded that each military contract worker cost $250,000 a year. As the Washington Post noted this month, Congress expects to save $44,000 per worker in the defense budget by 'in-sourcing' about $5 billion worth of work now handled by contractors.

In Iraq, more than 12,000 of the contractors are handling security-related jobs - the kind of work a uniformed soldier should be doing. The infamous 2007 Blackwater massacre, where jittery 'security' contractors hosed a crowd with gunfire, killing 17 Iraqis, shows the hazards of letting hired guns use firepower without proper supervision and accountability.

The same dangers arise when the country lets 'contractors' interrogate enemy suspects, as happened in the Abu Ghraib scandal. This year Congress insisted that interrogations be conducted by military personnel, not contractors. An earlier 'sense of the Congress' resolution said contractors should not perform inherently governmental functions, such as providing security in high-risk conflict zones.

There will always be a role for private contractors in helping supply the country's military on the field of battle. As the Congressional Research Service noted, contractors have carried part of the nation's war effort dating as far back as the Revolutionary War.

But contracting out doesn't automatically guarantee the military will save money. When there are savings, they may come from cutting quality, rather than improving efficiency, so proper oversight is critical. Some jobs - like interrogating enemy suspects or pulling the trigger to kill people -- are just too important to outsource.

It's good to see Congress realize that when the nation is fighting to protect itself; only carefully limited functions are properly handed over to private business.

BOTTOM LINE: Hiring contractors to handle some military logistics can help, but hiring them to wield weapons is asking for trouble."