The Laffer curve has come up and has been a popular topic for conversation. This has caused me to do some pretty serious thinking about lately.

I have always thought that yes the Laffer curve is real the logic behind it is sound and the empirical studies have backed it up. The estimates that I have seen where the maximizing point for government revenue is most likely in the range of high 50s percent to low 70s percent top marginal tax rates.

So when the topic of raising taxes comes up I have never been of the belief that it wouldn't bring in more revenue because we have a lot of room to raise taxes to even the low range of the estimates.

The one thing that has really gotten me though is that there has been very little debate in what is the maximizing tax rate for growing the economy. This is an important thing to also consider along with government revenue and the rate is most likely pretty low maybe 10 to 15 percent.

A hypothetical situation where at the government maximizing tax rate economic growth averages 2% annual growth and in the maximizing economic growth tax rate the economy grows at 5% annually will lead to very different outcomes even over relatively short horizons.

Taking our current GDP of $14.59 trillion at a 5% annual growth rate will grow 63% to $23.77 trillion in 10 years. If the growth rate is just 2% the economy would only grow 22% to $17.79 trillion in 10 years. Over a generation (20 years) the difference is even starker, at a high growth rate the economy grows 165% at the revenue maximization growth rate the economy grows 49%.

Economic growth and short-term revenue maximization are a trade-off and this must be discussed along with the long term consequences of the changes. The actual turning point on the Laffer curve is a lot closer to European tax levels than our own, but the anemic economic growth seen in Europe suggests that they're sacrificing economic growth for today's tax receipts. America hasn't followed this same road, which is why our economic growth (and over time, now, our per capita GDP) are much higher than Europe.

It is fairly clear that we could increase government revenue by raising taxes, but there are good reasons for remaining below that rate. A higher growth rate makes a better world for our children and grandchildren through the possibilities those higher standards of living will open up to them. We have put ourselves in a tough position by irresponsibly spending our way to the point that we must consider raising taxes so not only will our children pay for our high credit card bills and short term fun in higher taxes but also in a lower standard of living then if we didn't have to raise taxes.

NY Mayor Michael Bloomberg has done some things that don't exactly endear him to me but this today is something unexpected and quite nice to see:

This building is private property, and the owners have a right to use the building as a house of worship, and the government has no right whatsoever to deny that right. And if it were tried, the courts would almost certainly strike it down as a violation of the U.S. Constitution.

Whatever you may think of the proposed mosque and community center, lost in the heat of the debate has been a basic question: Should government attempt to deny private citizens the right to build a house of worship on private property based on their particular religion? That may happen in other countries, but we should never allow it to happen here.

This nation was founded on the principle that the government must never choose between religions or favor one over another. The World Trade Center site will forever hold a special place in our city, in our hearts. But we would be untrue to the best part of ourselves and who we are as New Yorkers and Americans if we said no to a mosque in lower Manhattan.

Let us not forget that Muslims were among those murdered on 9/11, and that our Muslim neighbors grieved with us as New Yorkers and as Americans. We would betray our values and play into our enemies' hands if we were to treat Muslims differently than anyone else. In fact, to cave to popular sentiment would be to hand a victory to the terrorists, and we should not stand for that.

Sometimes it is nice to be surprised.

Full story here.

One of my other hobbies outside of talking about politics and economics is talking about Giants baseball.

I strated a blog with my brother as a place for us to talk about it and this afternoon I was checking the traffic which is practically none seeing we just started it, now you may be asking what the hell does this have to do with anything? Well let me tell you, as I was going through the list of referals one refering site jumped out at me. The name of the site...thejimmyzshow.blogspot.com!!!

I am shocked! I thought that this troll was out of my life forever only to reapear in a completely different context. Luckily for me he was not there long and didn't leave behind any venom but man I really hope he never comes back.

So I thought that I would share this with everyone.

For those of you who were not around for Jimmy Z you can see the horrible things he said and did by doing a search for him his username was "thejimmyzshow".

So basically wow. I am speachless.

I saw this linked at kottke.org and thought I would share it here. I made a couple additions because well it is a little lame, but anyway.

The original was posted down in the quick hits not too long ago so thought I would share it.

This morning I was awoken by my alarm clock, powered by energy generated soley by Southern California Edison and manufactured by the Sony Corporation.

I then took a shower in my house constructed by Centex Homes, sold to me by a Century 21 real estate agent, and mortgaged by Citibank.

After that, I turned on my Panasonic television which I purchased with a Washington Mutual credit card at my local Best Buy to a local NBC Corporation affiliate to see what their team of hired meteorologists forecasted the weather to be using their weather radar system.

While watching this, I ate my breakfast of eggs and bacon, both produced by a local farm and sold to me by my local grocery store, and took my prescribed medication manufactured by Pfizer, GlaxoSmithKline, Astra-Zeneca, and Novartis.

When my Motorola-manufactured Cable Set Top Box showed the appropriate time, I got into my Toyota-manufactured and Consumer Reports tested and reccomended best buy Prius and set out to my graphic design workplace and stopped to purchase some gasoline refined by the Royal Dutch Shell company, using my debit card issued to me by Bank of the West. On the way to my workplace I use the private toll road to beat the traffic and save time, I dropped off a package at the local UPS store for delivery, and droped my children off at a local private school.

Then, after spending another day not being maimed or killed at work thanks to the company-mandated standards enforced at my workplace, I drive back to my house which had not burned down in my absence because of the high manufacturing quality of the products inside the are all certified safe by the underwriters laboratory and of the company which built my house, and which has not been plundered of all its valuables thanks to the alarm services provided by Brinks Home Security. I was able to rest easy knowing that even had this happened, I would have an Allstate insurance policy which would cover any damage to my home and anything that was stolen.

I then logged onto the internet, financed and ran in part by various different private corporations such as Google, Comcast, AT&T, and Verizon, and posted on the Huffington Post and Daily Kos about how capitalism is the source of all evil in this country.

I just wanted everyone to know that I am still visiting the site this has just been a very hard week because I have been bed ridden sick.

I think that I may have by accident made some sort of pact with the devil. You see I was in Tahoe last weekend to help out with some stuff for some friends that are getting married in the summer. After all of our appointments we headed to the casino to have some adult fun. I was at the craps table doing pretty good and then there was this odd looking girl at the table who looked almost Sarah Palinish. She leaned in gave me a wink and then was gone, vanished just as mysteriously as she had appeared.  I felt something odd and cold rush through my body but I couldn't figure it out the dealer was calling for me to shoot. After that moment I went on a historic heater finishing up nearly $1000 and called it a night.

The next day I woke up with a horrible cough and my voice gone. That bitch took a piece of my soul so I could go on a heater! So I now I am trying to recover from my apparent brush with pure evil.

Actually that isn't true but I have been sick and I wish I could blame this sickness on the pure evil that is Sarah Palin but it is probably just from being around others in the casino or at work. Anyway I have been bed ridden and only enough energy to take the conference calls that I need to be on for work. I should be back to full strength in a couple of days and back to my regular commenting. I will leave this video because it puts me in a good mood while I am sick in bed.

I am writing this in response to the diary that is posted by the “fearless leader” on the front page Republicans: Not just wrong, but really, really, really stupid too. I have to say that at first glance I agree there are a lot of really stupid republicans. 

However after looking at the numbers something seemed off, yes people have some crazy beliefs but I wasn’t buying that large numbers of peoples hold these thoughts. So to take a cue from the wise member "THE PARDU" I wanted to examine the motives that are in play here. 

Here is what I found, the poll was commissioned by the author of the book “Wingnuts: How the Lunatic Fringe Is Hijacking America” John Avalon. This right here is probably one of the biggest strikes against the poll, he has a decided interest in the poll showing some crazy thoughts to try to sell books. If this alone where the only issue it may still be conflicted and questionable but still reliable however there is more.

 The poll was conducted by Harris Interactive using people who sign up to click through questionnaires via the Internet in exchange for points redeemable for cash and gifts. So this is by far not a random sampling of America and it uses a sampling method that has been shown to have very little value in telling the opinions of a population.  This is an example of non-probability sampling which suffers from a number of statistical problems. 

The next issue is the way that the questions are created, the questions are begin with “People have said about President Obama,…” then the question and whether they think that it is true or false. This is a biasing opening statement and will skew the results toward the positive parts of the question as it makes the statement seem credible because others have said it. You can see this as the number of true responses is high even among democrats, independents, and the college educated who we wouldn’t expect to be as “stupid”.

 So there is a motive of the person who wanted to poll to have outlandish numbers to bring about monetary gain and there are problems with the design and sampling of the poll. This adds up to something that is very unreliable and not really worth the space it takes up on the computer server.   I am rather disgusted at the responses and unquestioned acceptance of this by progressives community here it makes one tend to think they are not too different from the republicans in this poll. Even fearless leader starts off with the caveat that he knows a lot of very smart Republicans which suggests that even he does not fully believe the numbers but did not care to put in the research to see what was behind them. I understand that this is more a piece that we can laugh at and say “oh those silly republicans” but really they already do enough on there own that we don’t need a very poorly made poll to allow us to make fun of them. The take away from this should be that everyone must be more diligent in looking behind things and not just taking everything we see on the internet as the truth. Otherwise you are on the path that many of the people who DO hold these beliefs are on, which is not one that I want to go down.

From marginal revolution:

I was thinking that Scott Brown's election was instrumental in yesterday's passage of the health care bill, in the game theory sense.  The Senate managed to pass a bill, and then, with Brown's election, credibly declare that it would not be able to consider any changes to the bill. No health care legislation would make it through the body again. House Democrats, faced with this take it or leave it scenario, were forced to pass the Senate version without modification (or let it fail).

I wonder how things would have proceeded if Martha Coakley had won?  The House would have had (and certainly used) the option to force changes. This would have required the Senate to hold its super-majority coalition together for one more vote. Would all 60 senators have held the line? Would the use of reconciliation have been a viable political alternative? Would we have been debating health care all summer as negotiations dragged on?

I think it is entirly possible that things may nit have turned out as well for this bill. What does everyone else think about this little unintended consequence of the Scott Brown election?

There seems to be A LOT of confusion going around about what is happening with the Health Care Reform Bill. So let's go through this step by step to try to make some sense.

What has Happened:

1. The House passed the Affordable Health Care for America Act (or HR 3962)on November 7, 2009 by a vote of 220-215.

2. The Senate passed the Patient Protection and Affordable Care Act (or H.R. 3590) on December 24, 2009, by a vote of 60-39.

These bills are not the exact same thing so in order to go to the President to sign they must be combined and amended which happens during the conference committee which has not happened.

After the bills are combined and the same they are sent back to the respected houses for the final vote. This is not what is happening because if it was sent back to the Senate it would again require 60 votes to end debate and that looks like a near impossible task.

There was going to be a conference but after the election of Scott Brown that was shelved and a new path forward had to be thought up. This is what they came up with

What is Planned to Happen:

So instead of going the regular way the following is what is being done to get something passed.

1. The House will vote on the Senate Bill as is. This would make it so each house has passed the exact same bill.

2. The House would then vote on a bill that amends the one that has just passed.

3. The amendments would then go to the Senate to vote on and by using the reconciliation process that is designed to make changes to budget related amendments a simple majority would only be needed to pass the amendments. There are a number of rules here though as well that make this complicated, to be able to be passed through reconciliation the bill must not be considered "extraneous" which is determined by the Byrd Rule:

1. if it does not produce a change in outlays or revenues;
2. if it produces an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions;
3. if it is outside the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure;
4. if it produces a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision;
5. if it would increase the deficit for a fiscal year beyond those covered by the reconciliation measure, though the provisions in question may receive an exception if they in total in a Title of the measure net to a reduction in the deficit; and
6. if it recommends changes in Social Security.

So the amendments to the bill must lower the deficit or not reduce revenue which will be tricky. Especially if subsidies will be increased, excise taxes lowered, etc. The Washington Post has some insight into the current issues:

Because Democrats are using special budget rules, known as reconciliation, to protect the package from a Republican filibuster, the measure must reduce the deficit by at least $2 billion over the next five years and avoid increasing the deficit in any year thereafter. Under normal circumstances, that rule would require the bill simply to contain enough revenue-raising provisions to offset new spending. But, like so much else in the health-care debate, this time it is more complicated.

Instead of being measured against current law, the deficit-reduction potential of the "fixes" package will be measured against the Senate bill, which must be passed by the House before the Senate can approve the fixes. The Senate bill would trim $118 billion from the deficit over the next decade and hundreds of billions of dollars in the following 10 years. For the fixes package to comply with reconciliation rules, it must also promise significant long-term deficit reduction, aides said.

But virtually everything House Democrats want to achieve in their package costs money. For example, Obama and House leaders have promised to increase government subsidies to help lower-income people purchase insurance, to fully close the coverage gap known as the doughnut hole in the Medicare prescription drug program, and to extend to all states the deal cut with Nebraska Sen. Ben Nelson (D), under which the federal government would pay for a proposed expansion of Medicaid.

Meanwhile, House leaders want to dramatically scale back one of the most powerful deficit-reduction tools in the Senate bill: a 40 percent excise tax on high-cost insurance policies. Obama has proposed to delay implementation of the tax until 2018 and to limit the number of policies that would be subject to the tax

Basically this is complicated and the Democrats are trying to do anything they can to message the numbers including adding an unrelated bill to try to cut costs such as a bill on a student loan program to get the changes that the members want but it is not going all that well.

4. Continuing on, so if a bill is not extraneous it can be voted on by the Senate and passed with a simple majority. Then this amending bill would go to President to sign which would make the changes the House Democrats want to the previous bill that was passed(or maybe deemed passed). The President would sign the first bill first and then the reconciliation bill and then that would be the end.

Or at least that would seem to be the end, now the matter of getting the bill passed through this process is being further complicated because the House doesn't want to go on record for voting for the Senate bill as is like what is required in step one. There proposed method to get around this is to create a rule that if the amended bill is passed the original bill is "deemed" passed as well. This is known as a "self-executing rule" which is a rule saying that when the House adopts it, the House simultaneously agrees to some other matter-in this case, the Senate health care bill.

So the question is does this pass constitutional muster? Maybe or maybe not, in the Clinton v. New York decision the Supreme Court said that because the constitution doesn't say something is allowed that it is considered prohibited this could fall under that decision but maybe not. As with anything this is open to interpretation and could go either way. At the least it will give Republicans more to throw at Democrats during election time and just adds a lot of confusion to the whole thing.

The fact that a reconciliation bill is having trouble getting the right score from the CBO makes it even more difficult to get some House members to vote for the original bill because they are less likely to get the changes that they really want.

Another problem is that House Democrats don't really trust the Senate to quickly pass the reconciliation bill. The is one thing that the Senate is not known for is speed, it prides its self on the debate that happens there which makes the chance of the Senate Bill becoming law without changes a possibility.

To recap, the House doesn't want to pass the Senate Bill because they think it has major issues so they don't want to vote on it and instead use a procedural technique to deem the bill passed which may have constitutional issues. They want to make changes to it which cost more than the current Senate bill which makes passing through reconciliation impossible without doing other spending cuts or revenue increases. The House doesn't fully trust the Senate to pass their changes quickly which makes them nervous about passing the original bill because they don't want to be hung out to dry with out the required changes made.

So hopefully this makes some sense and paints a clearer picture of the very messy process.

 

 

Every morning and every evening I drive by this memorial and I am saddened. Every day that we are at war seems like one too many.

At times it feels like the forgotten war but it is coming time that the war in Afghanistan must come to an end. There is a great article in Politico which gives some hope titled "Leaving Afghanistan moves beyond left vs. right" that explains that the opposition to the war should be bi-partisan. There is a bill that has been proposed by Dennis Kucinich to make the withdrawal a reality.

Rep. Dennis Kucinich (D-Ohio) plans to use a parliamentary maneuver to force a Wednesday House vote on the removal of U.S. forces from Afghanistan. Kucinich's resolution directs President Obama to remove troops 30 days from the day it is passed or, depending on whether troops can be removed safely in that time frame, no later than Dec. 31... There is a growing bipartisan realization that our troops are being deployed to prop up a regime Washington doesn't trust, for goals our president can't define. Concern has begun to escalate among lawmakers of both parties that this prolonged military adventure is weakening the country militarily and economically.

I am not sure that there ever were clear measurable goals that can be realistically accomplished before the war even started. That is not a good way to about trying to accomplish anything, especially now with the ever mounting costs associated with fighting the war.

To politicians of any stripe, the costs on paper of staying in Afghanistan are jarring. The Pentagon is requesting an extra $33 billion to escalate combat operations, on top of the $65 billion already authorized for FY 2010. The Pentagon found that each additional 1,000 U.S. soldiers in Afghanistan would cost about $1 billion a year.

While there may be differences of opinion on what to do with the savings that come from ending the war the costs of the mis-adventure cannot be ignored. This to me is the real point that must be driven home:

War should no longer be a left-right issue. It's a question of scarce resources and limiting the power of government. The immense price tag for war in Afghanistan can no longer be swept under the carpet or dismissed as an issue owned by peaceniks and pacifists.

There may be a lot of things that the people of the site disagree with me upon but this should be something that we can all unite under. I urge you all to continue the fight against this war. It has gone on long enough, let your representative know that this needs to come to an end. I will leave you with a quote from the late Howard Zinn that rings very true to me, "War itself is the enemy of the human race."

I saw this editorial piece in the Wall Street Journal , it may be gated but you should be able to access it by going a Google News search for "The Lost Wages of Youth".

The argument is as follows, by raising the minimum wage you are hurting those that it is intended to help. As the accompanying graph suggests the unemployment rate for teens is up significantly higher than for the general population and black teens even more so.

Since 2007 the over all unemployment rate is up about 5.1% (4.6% Jan '07 to 9.7% Feb '10) the teen unemployment rate is about 11% (just eyeballing but it looks like 15% Jan '07 to 26% Feb '10) and the black teen unemployment rate is up even more about 17% (just eyeballing but it looks like 27% Jan '07 to 44% Feb '10). So the teen unemployment has increased twice as much and the unemployment rate for black teens three times as much as for the general population from 2007 to 2010. Over this same time the minimum wage has gone up nearly 30%. It seems that this has been a factor in the rising unemployment seen.

This is expected, when you raise the cost of something you expect people to buy less of it. In this case we are talking about generally unskilled labor and employers hiring less people when the minimum price is increased.

A higher minimum wage has the biggest impact on those with the least experience or the fewest skills. That means in particular those looking for entry-level jobs, especially teenagers. And sure enough, as nearly all economic models predict, the higher minimum has wreaked havoc with teenage job seekers, well beyond what you would expect even in a recession.  

I know that people who want a minimum wage are trying to help people but it really seems like we are cutting down on opportunities if these same people are looking for work instead of actually working and acquiring skills. This is just one example of a policy that has harsh unintended consequences that negatively effect he people it is supposed to help.

If you want to help those that are most in need in our soceity you should write your congress person to tell them to repeal the minimum wage law or at least the latest raises.  

Just saw this story come accross my twitter feed.

This guy is a dick and deserves to be having the bad day that comes with this story.

BAD: CBS affiliate CBS13 reports that Roy Ashburn, a state senator from Southern California was arrested for allegedly driving drunk.

WORSE: CBS affiliate CBS13 reports that Roy Ashburn, a state senator from Southern California was arrested for allegedly driving drunk AFTER LEAVING A GAY BAR.

WORSER: CBS affiliate CBS13 reports that Roy Ashburn, a state senator from Southern California was arrested for allegedly driving drunk after leaving a gay bar WITH ANOTHER MAN IN THE CAR.

WORST: CBS affiliate CBS13 reports that Roy Ashburn, a MARRIED state senator from Southern California was arrested for allegedly driving drunk after leaving a gay bar with another man in the car.

WORSTER: CBS affiliate CBS13 reports that Roy Ashburn, a married, REPUBLICAN state senator from Southern California was arrested for allegedly driving drunk after leaving a gay bar with another man in the car.

WORSTEST: CBS affiliate CBS13 reports that Roy Ashburn, a married, Republican state senator from Southern California WITH A HISTORY OF OPPOSING GAY RIGHTS was arrested for allegedly driving drunk after leaving a gay bar with another man in the car.

It is always seems like the ones that are most opposed to Gay rights are the ones who are Gay on the down low.

Here is the actual news report that is referenced.

Updated: I changed the graph to include when recessions have happened over the last 100 years. I also added a few more thoughts down at the end.

I posted the majority of this as a comment in a diary but I thought it could use a little more thought and could warrant a full diary.

There has been a lot of talk lately about the national debt; faultguy posted an interesting article that said something to the effect that the national debt to GDP ratio is on its way to be at the highest level since 1950. So I wanted to look at what were the factors that contributed to getting to this level. My main hunch was that military spending would be a large factor.

This graph shows the relationship between gross public debt as a percentage of GDP and Defense spending as a percentage of GDP. What stood out to me as that there seems to be more or less two different eras for the debt to GDP: 1900-1979, and 1980-2010. I have also included the recessions that are shaded in grey which correspond with some of the spikes in the national debt.

From 1900-1950: increases in Defense spending as a percentage of GDP (proxy for war spending) were positively correlated with the national debt. Changes is defense spending as a percentage of GDP explained about 51.68% of the change in national debt as a percentage of GDP over the period. This suggests that a large portion of the national debt is due to war spending. The coefficient is 2.35, which means that for every 1 percent increase in defense spending as a portion of GDP the gross national debt as a percentage of GDP increase 2.35 percent.

1900-1980: I added this and it seems to have even stronger predictive power than 1900-1950 but it still is pointing in the same direction. This has an even stronger positive correlation, and explains 53.98% of the change in national debt as a percentage of GDP. The coefficient is a little larger as well at 2.497 which means that for a 1 percent increase in defense spending it increases the national debt by about 2.497 percent.

1979-2010: This is going to blow your mind because it certainly blew mine. 1979 is the point where the gross public debt/gdp ratio is at it's lowest. It reached a point of 32.26%, so from this date to the present defense spending as a percentage of GDP is still correlated only now it is negative! The explanatory power has fallen as well to about 23.4% of the changes can be explained by defense spending as a percentage of GDO for gross national debt as a percentage of GDP.

Now this is the part that will blow your mind. For an INCREASE in defense spending it will LOWER the deficit. So the interpretation is a 1 percent increase in Defense spending as a percentage of GDP will lower the gross national debt by 6.15%!

If I were interpreting this I would say that something else became the driving factor in the National debt. When you look at the percentage of the budget dedicated to defense it has been shrinking considerably since 1900. From 1900-1970 it averaged 49.02% of government spending; from 1971-2010 it has only 27.24% of spending.

This shows the percentage of the budget that is dedicated to defense. If we again look at the period 1980-2010 the amount going to defense is pretty flat and actually down.

After considering these factors I think that it is fairly safe to say that yes the previous high was due in a large part due to war/defense spending. We were spending 54% of our money on that category and were only 5 years removed from spending nearly 90% of the federal budget on that. Compared to now where we spend only 24% of the budget on defense (still a whole lot) and over the last 20 years it has been roughly flat with a max of 24.27% and a minimum of 19.55% with an average of 22.37%.

So something changed considerably from the last time the debt was at this level, then we spent a lot of money on a war and the debt came down as we lowered defense spending. Now defense spending is at among the lowest levels in the last 100 years (But trending upward) and we are still approaching record debt levels.

I think that it would be very hard to say that our current debt is due to fighting a war and it will return to manageable levels after the war is over and defense spending decreases like was the case after World War One/World War Two/Korea/Vietnam (even this is hard to see in the numbers but could be due to trying to accomplish having both "guns and butter" so increasing both war and other spending).  The other lines in the budget (namely Medicare and Social Security which together make up about 40% of the budget and growing) seem to have taken a diminished the importance of defense spending in relation to national debt.

So I do strongly believe that the National debt is something to worry about and that unlike the previous high's reached after World War Two where we could rapidly lower spending after the war was over this time it will not be so easy.

The solutions are not really palatable for either party. It would take large substantial cuts in entitlments and some form of tax increases.

The entitelments and other non-discretionary portions of the budget are large and growing and at the current projection can not be maintained, these need to be addressed. The likeleyhood of that any time soon is not good, as we can see we would rather kick the can down the road and make more promises on top of the ones that we can not pay.  

A journal article titled "Campaign Finance Laws and Political Efficacy: Evidence From the States" that finds that no large positive effects on trust in governmnet with campaign finance laws.

Supreme Court decisions upholding the
constitutionality of campaign finance regulations acknowledge that the maintenance of confidence in government can sometimes override free-speech concerns. Yet the purported link between campaign finance law and perceptions of government has never been established systematically. In fact, there is good reason to doubt the existence of such a link, as both Primo (2002) and Coleman and Manna (2000) argue that there is little or no relationship between total campaign spending in federal elections and average trust in government at the national level. In fact, Freedman, Franz, and Goldstein (2004) find that campaign advertising (and, therefore, campaign spending) increases interest levels, knowledge, and turnout, suggesting that spending may in fact be a net positive for democracy.

Some of the other findings that were pretty interesting is that more spending tends to produce more interest and more trust in governmnet.

Judicial and legislative actors have long assumed that campaign finance reforms can and do influence public perceptions about the workings of democracy. Until now, there has been no systematic study of the presumed link between campaign finance regulations and public opinion. While ours is surely not the last word on the subject, our findings are in stark contrast to what has been accepted as the common sense and self-evident connection between campaign reform and the perceived integrity of the American democratic process.

So while it may be against the conventional wisdom, more spending may be good for vibrant democracy. When there is more spending it draws more interest and encourages people to become more knoweldgable about what is going on in politics.

Some ideas to move forward with a more bipartisan health care reform package. I saw this written by economist Arnold Kling.

If I were a Republican, I would use any health care summit to set the following conditions for agreeing to support a bipartisan health plan.

1. All Medicare savings must be used to shore up Medicare. None of those savings can be used to fund new insurance subsidies or entitlements. Medicare is unsustainable, and it is going to need every dollar that we can save, and more. There is nothing to spare for a new entitlement.

2. Medical savings accounts must not be killed.

3. Catastrophic health insurance must not be killed or heavily disadvantaged relative to comprehensive insurance.

4. All new subsidies that enable people to purchase health insurance must be on budget, rather than through insurance company regulations that are likely to result in cost-shifting.

5. The bill must provide for at least one of the following:

a. Interstate competition in health insurance.

b. greatly reduce (preferably eliminate) the tax inequity between obtaining health insurance on your own and getting it through your employer.

As far as I am concerned, any bill that fails to satisfy all five of those points deserves opposition.

I think that for the most part if a reform bill included these conditions I would support that bill. To me the biggest ones would be numbers 2, 3 and both 5a and 5b.

With number 1, I think that any saving would be phantom and reversed by future Congresses anyways (similar to how now all the automatic cuts are overturned) but I think that is still a good provision to have.

Number 4 to me is more of a truth in advertising kind of thing so that costs are not shifted out of the bill and on to consumers. I think it is important but wouldn't be a show stopper for me.

As for number 5, I would think that having both would be great and I may not be so quick to say I would be satisfied with only one or the other but I guess it would depend on the rest of what is in the legislation.

I enjoyed this video and thought that I should share it with you all.

While most people are certainly fimilar with J.M. Keynes most are unfamilar with F.A. Hayek. This video is a good illistration of the debate between the two that occured in the 1930's and continues to this day between their inteletual heirs.

The video opens with Keynes and Hayek standing at the front desk of a hotel, both in town for the "World Economic Summit." The clerk is like a groupy meeting Keynes, treating him like a rock star. Keynes arrogantly announces that he needs no agenda because he is the agenda. Meanwhile, Hayek humbly notes his presence. The person behind the desk has never heard of him probably like many of you. This captures the theme of what still occurs today the world-famous Keynes vs. the unknown Austrians.

The video portrays each character similar to the way that each's theory says we should take action. The first example is when they meet in the lobby and head out, Hayek with his subway ticket in hand. Keynes orders a stretch limousine, while Hayek shakes his head in disgust.

The brunt of the argument are laid out very clearly. Hayek says business cycles are caused by "low interest rates" born of intervention, whereas Keynes wants to blame "animal spirits" loose in a market crying out for management.

Up first to explain his theory is Keynes. he says that the bust is caused by sticky wages and can only be cured by boosting aggregate demand through government spending and the printing press. The animal spirts must be guided.

To do this he proposes things such as public works, war, even broken windows which "helps the glass man have some wealth." He warns against the liquidity trap, favors deficits and finally ends that he has changed the economics profession, and concludes, "Say it loud, say it proud, we're all Keynesians now!" All the while, the viewer is witness to wild antics of drunken partying.

After that night of partying it is left to Hayek to restore reality to the discussion. He dismisses Keynes on the grounds that there is too much aggregation in his equations, which ignore human action and motivation.

Hayek compares postrecession stimulus to drinking the "hair of the dog" to cure a hangover. Trying to cure the disease with what caused it is no solution.

He points out that there can be no wealth creation without saving and investment, and he proceeds to school Keynes in the Austrian perspective.

To do this he focuses on the boom, which he regards as having planted the seeds for the bust. The boom starts with an expansion of credit created by loose monetary policy. The new money is confused with real savings and is invested in new projects like housing construction.

But there was never sufficient resources to complete these projects. They are malinvestments. The "grasping for resources reveals there's too few" and the boom turns to bust. As for the liquidity trap, that is only evidence of a broken banking system. The lesson: "You must save to invest, don't use the printing press."

This entire explanation takes place against the backdrop of Keynes trying to sleep off a hangover and then hurrying to the bathroom to throw up - the aftereffects of partying the night before. A not so subtle metaphor for a boom (the party) followed by a bust (the hangover).

A report from the Inspector General (SIGTARP) for the TARP has come out saying that "even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car." So in other words TARP hasn't really done anything but spend a lot of money that has not made anything better.

One of the most striking things in the report is the lack of problems that were supposed to be addressed but haven't.  From the executive summary:

The substantial costs of TARP - in money, moral hazard effects on the market, and Government credibility - will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years' time. It is hard to see how any of the fundamental problems in the system have been
addressed to date.

• To the extent that huge, interconnected, "too big to fail" institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.

• To the extent that institutions were previously incentivized to take reckless risks through a "heads, I win; tails, the Government will bail me out" mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to
maintain a  war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.

• To the extent that large institutions' risky behavior resulted from the desire to justify ever-greater bonuses - and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions - the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.

• To the extent that the crisis was fueled by a "bubble" in the housing market, the Federal Government's concerted efforts to support home prices - as discussed more fully in Section 3 of this report - risk re-inflating that bubble in light of the Government's effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Further on the report says that it is now in explicit policy of the government to prop up housing and could very well re-inflate the housing bubble.

To the extent that the crisis was fueled by a "bubble" in the housing market, the Federal Government's concerted efforts to support home prices risk re-inflating that bubble in light of the Government's effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market...

Supporting home prices is an explicit policy goal of the Government. As the White House stated in the announcement of HAMP for example, "President Obama's programs to prevent foreclosures will help bolster home prices."

Here are the programs that been set up to support prices and their intended consequences (click to enlarge):

For all of the support that is going into this I still think once the support is taken away the bottom will fall out and find the true bottom for what is sustainable.

I am so glad that this emergency legislation was passed by our leaders who had to act and thought that they were wise enough to take over the mortgage market. Remember this "to the extent that institutions were previously incentivized to take reckless risks through a "heads, I win; tails, the Government will bail me out" mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions."

Before it was only assumed that large companies wouldn't be allowed to fail now it is practically official government policy, the tax payers will get screwed over again. When politicians say "no more bailouts" they really mean that we will have perpetual bailouts.

I have been thinking about this quite a bit lately and I thought that I would share it with you all. The argument that corporations are not people and therefore they should have no rights strikes me as wrong. I read this morning and it seemed to have a nice straight forword explanation.

This line of attack demonstrates a fundamental misunderstanding of both the nature of corporations and the freedoms protected by the Constitution, which is exemplified by the facile charge that "corporations aren't human beings."

Well of course they aren't - but that's constitutionally irrelevant:  Corporations aren't "real people" in the sense that the Constitution's protection of sexual privacy or prohibition on slavery make no sense in this context, but that doesn't mean that corporate entities also lack, say, Fourth Amendment rights.  Or would the "no rights for corporations" crowd be okay with the police storming their employers' offices and carting off their (employer-owned) computers for no particular reason? - or to chill criticism of some government policy.

Or how about Fifth Amendment rights?  Can the mayor of New York exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he'd like to move his office there?

So corporations have to have some constitutional rights or nobody would form them in the first place.  The reason they have these rights isn't because they're "legal" persons, however - though much of the doctrine builds on that technical point - but instead because corporations are merely one of the ways in which rights-bearing individuals associate to better engage in a whole host of constitutionally protected activity.

I have a feeling that some of you may differ in your opinions on this matter so pose to you a question:

Under the constituation why shouldn't individuals be able to pool there money in a group and do political advocating?

Huge Deficits May Alter U.S. Politics and Global Power

The proposed budgets of the President show some really bad news that is really hard to ignore and really need to be addressed.

The first is the projected deficit in the coming year, nearly 11 percent of the country's entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.

But the second number, buried deeper in the budget's projections, is the one that really commands attention: By President Obama's own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 - years after Mr. Obama has left the political scene, even if he serves two terms - they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

Essentially it will take an economic or political miracle to get back to a level that is considered sustainable, which even at the level still has quite a large yearly deficit.

I am not optimistic that this will happen, President Bush promised much of the same (actually he promised a balanced budget by the time he left office and that was not even close to happening) to no avail and I really doubt that their will be enough political fortitude to make the hard decisions. There really is only so much borrowing or spending that a country can do before it has serious negative effects on the rest of the economy.

Increased borrowing is sure to lead to much higher interest rates before too much longer (or high inflation if the debt is monetized) because there is only so much appetite out there for our country's debt especially when we pile on more and more.

I hope things get better but these projections show a murky picture ahead, we very well could be in store for another sluggish decade.

Obama wants to end wealthy farmers' crop subsidies

Here is a great example of why I don't think that there is a lot to be optimistic about in the future regarding the budget. Obama makes a rather modest request to limit farm subsidies for rich farmers and there is an up roar. Farm subsidies are pretty sickening form of corporate welfare and really hurt American consumers not to mention farmers in developing countries and I would really like to see all of them end but this is such a small cut and it is met like it is asking people to give up their first born child.

The administration plan would end crop subsidies to people with more than $250,000 adjusted gross income (AGI) from off-farm sources or more than $500,000 on-farm AGI. The caps now are $500,000 off-farm AGI and $750,000 on-farm AGI.

AGI is calculated by subtracting expenses from income.

But the cuts will be a tough sell for Congress with mid-term elections looming. Senate Agriculture Committee chairman Blanche Lincoln, Arkansas Democrat, said she will oppose "cuts that will harm farmers, ranchers and rural communities."

"It is Congress's job to write the annual budget, and based on my conversations with House Leadership, no one is interested in making cuts to the Farm Bill after the battle we just fought to pass it a year and a half ago," said House Agriculture Committee chairman Collin Peterson, Minnesota Democrat.

This would affect just a small portion of the people who receive government money. So even a minor cut is met with a huge fight but this is just how things are done and why it is so rare for any subsidy to ever end in Washington. There is not a chance that without a gun to these people's head any hard cuts will ever be made.

Now to some depressing housing news.

Cloudy Future for Fannie and Freddie

The Great Bailout is mostly over for the banks. But for those troubled behemoths of the nation's housing bust, Fannie Mae and Freddie Mac, the lifeline from Washington just keeps getting longer.

Just let that sink in for a minute.

This is going to be a never ending bailout, the president can talk all he wants about that next time there won't be a bailout but I think that to anyone who sees the course of action will know different. There is no will to let failing entities to go bankrupt and go away. We will keep throwing money down the pit until we run out or go bankrupt too. Sometimes you have to cut your losses and forget about the sunk costs and let something that is dying just die.

And, given the alarm in some quarters over the mounting budget deficit, these two giants and their vast obligations are likely to remain conveniently - and controversially - off the federal books. Fannie Mae and Freddie Mac have obligations of $3.9 trillion to investors who bought bundles of mortgages that the companies assembled.

Powerful and often competing interests are grappling over the companies' futures. Lawmakers on both sides of the aisle, eager to demonstrate their scorn for the companies, have called for their eradication. But few policy makers are willing to take aggressive steps that might weaken the housing market. On Christmas Eve, the White House quietly disclosed that it had, in effect, given the companies a blank check by making their federal credit line unlimited; the ceiling had been $400 billion.

So here is more of the same, politicians talk tough but there is not enough will to act so instead they just keep adding to the problem. A housing bubble was at the root of the last great boom and bust but instead of letting it wind it self down politicians want to try to inflate it back to the good old days.

I wouldn't hold your breath waiting for politicians to make tough choices that could be potentially unpopular as our next story will show.

Rising FHA default rate foreshadows a crush of foreclosures

For all of the talk in the above story about if they stop propping up Fannie and Freddy the housing market will tank it looks like it is trying its best to get there regardless of the actions of the politicians.

The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market's recovery.

The way I see it is that the housing market is trying to get find its bottom and it will get there eventually. It could be quickly if we get out of the way and let things adjust or it could take a decade or longer like what has happened in Japan after there housing bubble burst and tried to prop it up. Personally I would rather let things adjust quickly with out wasting a lot of tax payer money trying to stop the inevitable and let resources move to things that are productive.

There is more and more bad news as you read the story. Here is another gloomy snippet.

Although the FHA's default rate has been climbing for months and eating into the agency's cash, the latest figures show that the FHA's woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses -- a first for the agency, which has always used the fees it charges borrowers to pay for its losses...

Adding to the trouble was a now-defunct FHA program that enabled sellers to cover the down payments of buyers. This meant many borrowers had no skin in the game and were more likely to walk away at early signs of trouble. The program resulted in excessive defaults before it was ended in late 2008, and it is projected to cost FHA an additional $10.5 billion in losses, Stevens said.

Things just keep looking better and better.

The title is in jest, this is an example of wasting taxpayer money.

The example comes from the great state of Minnesota.

The Minnesota Municipal Power Association bought 11 turbines for $300,000 each from a company in Palm Springs, Calif. Calif.

The only problem is they aren't working.

Wind turbines placed in cities across Minnesota to generate power aren't working because of the cold temperatures...

Special hydraulic fluid designed for colder temperatures was used in the turbines, but it's not working, so neither are the turbines.

Now I am not from Minnesota but I could have guessed that it is pretty cold there in the winter and would have wanted to test them out before spending $3.3 million. Because of this problem for 4-6 months out of the year these will be giant scupltures unless the hydraulic fluid is heated. To heat it will take electricity of natural gas which severly lowers the net amount of electrity produced.

Check out the kstp story for a little video on the story.

Update: Fixed The link- Thanks for letting me know

Editor's Note. Credit where credit is due.  Here's the original version.

Please see Left Take home page for more re: fair use vs. unfair use

Authours Note: Came up uncredited in my rss reader as an image file, I was lazy and didn't look up where it came from. Made some small additions/changes but largely took it from there.

I like to site sources, and I should have looked for the initial source thanks for putting it up there for me.

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Obama says "let me be clear"
Take one shot

Obama says "change isn't easy"
Take one shot

Obama says "make no mistake"
Take one shot

Obama says "Let me be clear, change isn't easy, so make no mistake..."
Take five shots because being drunk we'll make the hard truth he is about to drop easier to take.

Joe Wilson yells something
Take two shots

Obama yells back
Finish your bottle

Obama says "jobs"
Take one shot, two if you unemployed

Obama references anything "green"
Take one shot of wheatgrass

Obama says "health care"
Take your vitamins, liver replacements are not in likely in the future

Nancy Pelosi claps like a seal
Take one shot

Nancy Pelosi becomes a seal
STOP DRINKING YOU"VE HAD TOO MUCH ALREADTY

Joe Biden nods-off/laughs inappropriately/starts talking before the speech is over/starts surfing the internet
Take three shots

Obama uses the term "Congressional leadership"
Take two shots carefully; you don't want to spill after you laugh from the unintentional commedy

Most of all take every thing with a grain of salt especially if you are drinking tequilla.