SCSUScholars

The Census ad: Thinking marginally

2010-02-08T08:38:00.002-06:00

While watching the Super Bowl and tweeting like a fool, I commented on the Census ad, wondering how much this cost. The answer, according to the Hill, was $2.5 million; the total budget for advertising the Census is $340 million. The Census twittered itself (spread by many notably liberal sources)

If 1% of folks watching #SB44 change mind and mail back #2010Census form, taxpayers save $25 million in follow up costs

The way the Hill reports this is "one percent of the more than 100 million people expected to watch this year�s Super Bowl football game opt to mail back their Census forms," but we have forms by households. Last year 48 million households, out of about 118 million (304 million people at 2.59 people/HH, via Census), watched the Super Bowl. The response rate from households to the 2000 Census was about 67%. So if 48 million households watch the game, 32 million can be expected to respond anyway. To get a million (actually, 1.18 million) more households to respond out of the remaining 16 million -- off a single ad, shown in the third quarter when many have stopped watching or are well into the adult beverages -- is a bit much. It's this failure to think on the margin that makes me shake my head at the Census' response.

Of course they only need 100,000 additional responses from this ad to break even. But the question isn't break even -- it's whether that is the best use of $2.5 million? Would that be better than several ads placed elsewhere? We'll never know. All I know is I want to see a new Christopher Guest movie, soon.

By the way, does it really cost $25 to collect one more household of Census information? Back in my college days I worked one summer for R.L. Polk to get addresses and phone numbers for their directory, door to door. What are the arguments for not privatizing the Census?

That jobs report

2010-02-05T16:22:00.003-06:00

We'll cover it on the show tomorrow. 9am CT on KYCR, link goes to the show page and you'll find streaming from there on that LISTEN LIVE link. I am working on editing last week's show into a podcast that I will find space to share, as the station doesn't seem motivated to do it themselves.

I'll cover it more then, but I would take some time to read David Altig, Menzie Chinn, and Mike Shedlock and the links they provide. You have three things going on this month that may be slowing others down (and IS slowing me down): We had a revised format of the report, the annual benchmarking, and a change in population controls. That's wonk-speak for "they changed the book." None of this was unexpected, but with so many numbers being multiply revised, teasing out which did what is awfully hard. Altig's summary is a good start:

...overall the news was a mixed bag of a little better news than was expected (the fall in the unemployment rate even as the labor force participation rate rose), a little worse news than was expected (the net three-month loss in payroll employment), and some relatively bad news that was largely expected (the large downward revision in employment growth for the period April 2008 through March 2009).

Certainly, the employment picture is a lot better than this time last year, but it is still a good distance from what anyone would regard as "cheery."

I would point out that today's revision now puts the job loss since January 2009 at 4.022 million workers. Of course some will say it would have been six million without the stimulus. If you get to define the goalposts, I guess you can move them wherever you like.

See you in the morning.

How would they know?

2010-02-05T15:52:00.003-06:00

I have a very short reaction to this poll (HT: PowerLine) that 36% of Americans, including 61% of those who identified themselves as liberal and 53% of those who identify themselves as Democrats, had a favorable view of socialism. My answer would be influenced by what I thought socialism is. If I read Yahoo Answers, I'd find out socialism is a midpoint between capitalism and communism. If I tried to read Wikipedia, I'd get this hopeless list of possible socialisms. If I read Marxists calling it the society of the free and equal, it's hard to oppose.

If on the other hand you thought of socialism as immiseration and murder, you would have a different opinion.

Jonah Goldberg, in his letter from yesterday (by free subscription) makes this same point:

I think this is one of the most fascinating and under-explored areas of 20th-century history. Not just the liberation theology angle, but the whole effort by the Soviets to manipulate world opinion, and thereby politics, in countless and often little-understood ways. So many of the conspiracy theories that have inflamed the moonbat Left over the years were, at least in part, psyop cons by the Soviets. Some scholars made their careers by making pro-Soviet arguments in good faith and then being rewarded with more access to the Soviet Union. Some people were bribed and others simply flattered into aiding and abetting the Soviet cause.

The effect of these academic scribblers lives on and influences how people respond to pollster questions on socialism.

Mrs. S writes "created or saved too ambiguous"

2010-02-05T11:28:00.004-06:00

She writes about a place I call "Obama Road".

According to Stephen Gaetz, director of public services for St. Cloud, it is hard to answer questions about Pinecone jobs without an operational definition of �job,� especially as it concerns the seasonal nature of the construction industry.

Gaetz reported 162 workers worked �from a few hours to several weeks� for a total of 4,528 hours. That comes out to about 28 hours per worker. One can say this is good, but it�s not even close to 162 full-time jobs � 40 hours a week year-round.

Construction jobs are certainly not like all other jobs, but the administration simply uses the vague word �jobs,� blending them with other kinds of work. Overall, it�s a mistake to use an undefined term like �jobs� as a metric to measure the stimulus. It�s too ambiguous.

...without a workable definition of �job,� it is hard to unravel the question of �created� or �retained.�

I also wrote to Kristen Morrell from the Minnesota Department of Employment and Economic Development. She wrote that the money �was used to augment existing programs that help people who are unemployed and looking for work.�

She cited a public works program for water projects called the Public Facilities Authority that used $107 million and �created or retained 178 construction jobs.� For how long did those jobs last? Projects take six months to two years, she answered. Not all of the 178 workers work that long.

I'm proud of Barbara's efforts to get actual data to look at, and I for one thank Mr. Gaetz for straight answers.

To answer at least one critic in the comments on her article -- it would be a straightforward, honest answer for the Administration to say "we used $1.6 million to spread 4,528 hours of paid work over 162 people." When you say "we saved or created 162 jobs", (or 80, if I'm reading the report from recovery.gov right -- that's a problem) you imply that is a permanent job, not a drive-by job for a day or a week. That's the ambiguity.

There is also the question of whether the project provides some value to the area. Part of the problem I thought about for this road is that it largely lies in one community (St. Cloud) but serves another (Sartell.) If you just grant money to St. Cloud they might want to use it somewhere else of greater benefit to their own population. St. Cloud is a destination for Sartell much more than the reverse flow, I am assuming. So it may be that a higher level of government (county, state or national) solves a coordination issue. That's not the stated goal of the money, though -- the metric we get is only "jobs saved or created."

Could not have said this better

2010-02-05T10:54:00.002-06:00

Bottom Line: An improvement in labor markets would not be unexpected given the GDP surge at the end of 2009. But sustainability is the key, and sustainability requires 4Q09 GDP numbers in the absences of inventory effects. Few forecasts are looking for such growth, certainly not yet at the Fed. ... I don't see an actual return to recession short of another negative demand shock, but I am expecting the economy to settle into an anemic pace of growth. In this environment, I don't see how the Fed is interested in substantially tightening policy...

Tim Duy, reviewing the case for the inflation hawks. I'm still reviewing the employment report and may not post on it until this afternoon as I try to the rebenchmarking, but the quick peek indicates concerns about the birth/death model were justified. I'll try to explain in the next post.

The power to shower favors

2010-02-04T11:25:00.000-06:00

I have been recording episodes of John Stossel's new show on Fox Business and a couple of weeks ago was pleasantly surprised to see two people from Minnesota on it. They were discussing a company called Serious Materials which seems to get a high amount of tax credits from the energy programs of the Obama Administration. Then we learn that the connections run much deeper: There are frequent visits from both the president and vice-president, but even more frequent are the visits between Energy Department official Cathy Zoi and Robin Roy, vice president for policy at Serious. You see, they're married. The Freedom Foundation of Minnesota provided much of the evidence that demonstrates this non-transparent use of weatherization funds. They've provided a video you can watch to see more.

Stossel writes that the real issue here is the government power that permits it to choose who gets tax credits and who does not.

On its website, Serious Materials says it did not get a taxpayer subsidy. But that's just playing with terms. What it got was a tax credit, an opportunity that its competitors did not get: to keep money it would have paid in taxes. Let's not be misled. Government is as manipulative with selective tax credits as it is with cash subsidies. It would be more efficient to cut taxes across the board. Why should there be favoritism?

Because politicians like it. Big, complicated government gives them opportunities to do favors for their friends.

Births and deaths

2010-02-04T10:18:00.002-06:00

A story bubbling around the econoblogosphere (you like that? I think we should coin it) is an expected change in reporting the number of jobs lost since April 2008, due to a bad forecast in the number of new firms that adjusts the payroll employment survey figure reported by the Bureau of Labor Statistics. You can get an illustration from Bloomberg to see the issue. CNN is also reporting:

Job losses during the recession may have been underestimated by close to a million jobs. So instead of employers cutting just over 7 million jobs from their payrolls since the economic downturn began in December 2007, it's expected that the Labor Department's new estimate will be a loss of 8 million jobs.
"It's an enormous understatement of the severity of the crisis," said Heidi Shierholz, labor economist with the Economic Policy Institute, a union-supported think tank. "It confirms that things were actually worse on the ground than what the reports suggested."
The new reading will come when the economists at the department's Bureau of Labor Statistics release their annual revision of U.S. payrolls from April 2008 through March of 2009 Friday, using data that wasn't available as the monthly readings were being estimated and reported.
...There is a concern that this problem didn't end in March of 2009. In fact, the adjustment added even more jobs -- 990,000 -- in the nine months reported since then.
So another big revision in the payroll numbers could be looming a year from now. That means this Friday's report should give pause to anyone who is depending on the official numbers to signal real improvement in the economy.

Mike Shedlock says the birth/death model is broken (if so, how would someone fix it? Hard to say.) Casey Mulligan thinks this brings the data from the two employment surveys (households and payroll) into closer alignment. He has argued for awhile that the household data may be better to use right now, which I think is a minority position among economists.

The important issue to remember is that if birth/death misses turning points we may see an upward revision in a few years that offsets this one. The data for this one covers most of 2008 and a few months of 2009, so watch and reprimand those who want to use this as an argument against Porkulus. This data revision ends about when Porkulus starts. But another revision in February 2011 will possibly increase the size of job losses experienced since its passage. For now, we just don't know.

Take the ratings pledge

2010-02-04T07:32:00.001-06:00

If there's to be a Question Time, I have a proposal for the first question. "President Obama, will you agree that your presidency's success on fiscal policy should be judged on whether or not you maintain the U.S.'s AAA ~~corporate~~ sovereign debt rating?" (UPDATE: Corporate? What was I thinking??)

It appears the Conservatives in the U.K. are willing to make that pledge.

U.K. opposition Treasury spokesman George Osborne said Tuesday that if elected, a Conservative government should be judged on whether it can defend the country�s AAA credit rating. ...

�Judge us by whether we can protect the U.K. credit rating,� Osborne said in a speech in London, adding that this was a �political gamble.�

�But the economic risk of not setting ourselves this benchmark is not one I am willing to take,� Osborne said.

Who else will step up? The threat in the U.S. is not idle:

Steven Hess, senior credit officer at Moody�s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.

�Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,� the rating agency added in an issuer note.

I am expecting a couple of communications people from the Congressional Republican staffs to start emailing me about this. If you want me to take you seriously, you had better be willing to match Mr. Osborne's pledge.

Great news for the Minnesota economy

2010-02-03T17:31:00.005-06:00

South Dakota is contemplating economic suicide.

After a number of years of finishing second to Wyoming, South Dakota had the best business tax climate in the nation. Perhaps owing to their humble nature, South Dakota seems to have its minds made up to not repeating their performance. HJB 1002 if passed would impose a 6% corporate tax.

Here's one of their gubernatorial candidates pitching the idea.

A recovery borne on gossamer wings

2010-02-03T17:00:00.002-06:00

I was reading John Taylor this morning and needed a free 20 minutes to redraw the first graph he has. He is trying to make the point that there has been no effect of the stimulus, by first showing (in an earlier post) that increased tax rebates and transfer payments were not stimulating consumption. In yesterday's piece, he adds that "changes in government purchases have had virtually no effect. The turn-around in growth has been mainly due to private investment." But I looked at his graph and it has total private investment. Much of that increase has come from inventories. How much? I've redrawn his graph dividing his investment figure between fixed investment (including residential investment) and inventories. The green line is inventories and the red line is fixed investment.

Inventories were responsible for $105.7 billion of the $182 billion change in GDP in quarter 4. This is just another way of saying pay attention to final sales of domestic product instead, which was up 2.2%. Up, yes. Up more than the previous quarter, yes. But again it needs to reach a more sustainable level.

As to Prof. Taylor's earlier point, worth noting that personal income less transfer payments has fallen by 4.1%. As many people are now learning, those transfers don't last forever, and spending on their basis may be more tentative than spending from income one thinks is more permanent. Seems we learned about this once. Between transfers and inventories, we are seeing a good deal of this statistical recovery based on temporary phenomena.

Hide the chaos

2010-02-03T10:36:00.003-06:00

Scott Beaulier reports on a presentation at his school by Joshua Hall, in which Hall discusses a loss of data for measures of economic freedom. (Hall blogs at Division of Labor.)

When discussing the Economic Freedom Index, Josh talked about some of the challenges they may soon be facing. According to Josh, organizations like the ILO might be making it more difficult for them to gather labor data for the index.

The World Bank and other organizations are being pushed to stop asking questions about paid leave, the costs of hiring workers, and hiring/firing regulations. Critics argue these "costs" are actually "benefits." Rather than allow organizations to recode these data as benefits, pro-labor organizations are putting strong pressure on them to stop asking questions about labor market policies altogether.

If successful, this would have a big effect on one of the core components to the EFI.

As Bryan Roberts and I wrote in our book, The Design and Use of Political Economy Indicators, governments in developing countries respond to these rankings by seeking to enact policies that increase economic freedom. That is, the measures are educational to policymakers in the developing world. Critics of growth-generating policies would rather not have this response, so they attempt to suppress the data.

I argue in that book that labor policies are largely a subset of property rights. If you have properly measured the presence or absence of laws that support private property -- including the right of contract between worker and entrepreneur -- you may not really need all of the elements in that index. Strict labor laws, expropriation of private property, and even central banking that credibly commits to price stability are simply facets of one of two logically consistent economic systems. (See Mises, Planned Chaos.)

What do econ bloggers think?

2010-02-03T09:51:00.002-06:00

As I teased on Monday, there is a new survey of economics bloggers out from the Kauffman Foundation, based on a list of 200 economics bloggers kept by Palgrave. I was 1 of the 80 who responded. The poll is pretty well balanced across ideology: respondents self-identified as 16 percent Republican, 19 percent Democratic, 47 percent independent, and 18 percent libertarian/other.

71% thought government was doing too much. What should government do more of? The only answers with broad support concerned immigration (57% supported increasing all legal immigration, and slightly more supported increasing it for high-skill workers.)

What should they do less of? Less business regulation (only 9% favored more of it) and lower tariffs. I think that simply represents the profession as a whole, as it has for many, many years. As Arnold Kling notes, economists do have some substantial differences in viewpoints from the general public, and on these two there is much more consensus than average.

Another example of that comes from taxation -- 47% support flatter taxes and a strong majority want fewer taxes on income and wages. However, taxing carbon and gasoline, and consumption generally, won support from the group.

The most interesting point to me was the split between those who thing the government should address high budget deficits now and those who think that should wait while job growth is stimulated. That debate is reflected in the current political discourse. A majority want entitlement reform ... though if you dug into that position I doubt you'd find consensus on how to do it.

23% of the panel thought recession was still with us, while only 7% thought the economy was strong. That should be a sobering thought for the V-shapers out there.

Caucusing, and thanking those who give them

2010-02-02T14:36:00.004-06:00

I grew up in New Hampshire, where they did not have a Caucus Night for precincts. Everyone in a ward voted in the same church or school basement, you passed a neighbor perhaps in a line, and that was it. When I moved to Minnesota I went first out of curiosity. And, 'tis true, I tried both the Republican and DFL caucuses in my youth -- and I don't consider it a bad thing to learn the views of all your neighbors. (My former broadcast partner Michael Brodkorb gave me all kinds of grief over this.)

We New Englanders know a thing or two about participatory politics. Most of our towns have Grange Halls where a town meeting happens annually. Most of the town's major political decisions happen there. But it's not the same as a caucus. You talk about resolutions, things that matter greatly to you. You talk about candidates and maybe meet a neighbor who's decided to take the plunge and run for a legislative office. One of them may be sitting next to you tonight. We live in a republic, I tell my students, but there are places where democracy happens, and caucus night is one of them. Maybe the biggest.

But they don't happen spontaneously. There are people working hard to make that caucus happen. This year, for the first time, and as result of Mrs. S becoming part of the local party leadership, I've been able to see up close the work it takes to put on a caucus. And it's much more than I thought. Training conveners -- I'll do that for the first time tonight -- hiring the hall, getting maps so people find their precincts ... it's more than I had imagined. I spent a few hours making copies, running convention calls to other precincts, stuffing envelopes, etc., with several people I now can call a friend who I didn't know before. I have found it rewarding as well as tiring. And I know some of those friends worked many more hours than I did.

When you go to your caucus tonight -- and you should, no matter your party -- thank the people who work the registration table and the people who bring the caucus together. They worked hard to give you the chance to exercise the most democratic part of our political process.

Last gasp of color revolutions?

2010-02-02T13:29:00.000-06:00

Many readers of this blog first found it via my coverage of the Orange Revolution in Ukraine, where I had worked in 1995-96 at its National Bank. (This was around November 2004 -- scroll the archive if you wish.) The governor at that time was Viktor Yushchenko, and his rise to the presidency in 2004-05 was one of the high points of U.S. foreign policy, along with a Rose Revolution in Georgia and democracy movements in Lebanon and elsewhere.

Sadly, most of those programs have fallen by the wayside. Georgia's democratic leaders have made a series of blunders and lost land and momentum to secessionist movements. Lebanon appears to have traded Syria for Iran in terms of foreign meddling. And in Ukraine the presidency of Yushchenko comes to an end with a whimper and many unfulfilled dreams.

Part of this was predictable. In order to secure a peaceful transition, Yushchenko bargained away much presidential power to the Parliament. Whomever controlled it would actually be more powerful than the president, and Yushchenko would have had to find ways to deal with that leadership. Alas, the two most powerful figures there were Orange Revolution heroine Yulia Tymoshenko, whose designs on power were obvious even during 2004-05, and the person who tried to steal the election in 2004, Viktor Yanukovych. Since peaceful transfer had to include a deal for him, his power base was never broken after Yushchenko took power and in first-round elections last week he rose to top of the polls again. Tymoshenko came in second; Yushchenko was an also-ran. After working with her in 2007 to help her win the premiership, the relations between the two soured.

So this Sunday the runoff occurs, and we tend to look sadly at the possible result. The Economist reviews the options between the two remaining candidates and argues "the biggest threat to Ukraine is its inability to govern itself." But the seeds of that were laid when the Orange Revolution did not permanently cripple the corrupt regime before it. To elect Yanukovych now would render it meaningless, Tymoshenko now argues. In fact, it's the only argument she has left.

FHA faces the music

2010-02-02T10:17:00.001-06:00

Fresh warnings from the mortgage market indicate the worst is not yet over. The Federal Home Administration (FHA) is in some deep trouble, and bailouts are potentially in the works.

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.

About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency's figures show.

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.

The roots of this crisis go back a long way, perhaps to its beginnings in 1951. In testimony before the House last October, mortgage specialist Ed Pinto gave testimony that showed it already had a default rate of 2.36% in 1998 before heading to current levels approaching 5%. The agency has jacked up the fees borrowers pay for FHA loans to more than double previous year revenues -- which of course reduces the amount of borrowing and depresses the housing market. But that may not be enough money still. And worse, as Pinto points out, increasingly those willing to pay the fee are exactly those you'd least like to loan the money to.

The loan portfolio FHA holds has clearly deteriorated, as shown by the rise in the share of mortgages with three missed payments. (This number was closer to 3% in the middle of the last decade.) And the capital level has now fallen to around 0.5% of assets, far below the statutory minimum of 2%. (I had reported on this in November.) Fees will perhaps cure this in the short run, but more likely continued foreclosures will chew up most of that money. Pinto thinks the FHA needs $40 billion in cash from the government, and there is nothing in the Obama budget to prepare for this possibility.

Peter Wallison put the blame squarely where it belonged last November:

The role of the FHA is particularly difficult to fit into the narrative that the left has been selling. While it might be argued that Fannie and Freddie and insured banks were profit-seekers because they were shareholder-owned, what can explain the fact that the FHA�a government agency�was guaranteeing the same bad mortgages that the unregulated mortgage brokers were supposedly creating through predatory lending?

The answer, of course, is that it was government policy for these poor quality loans to be made. Since the early 1990s, the government has been attempting to expand home ownership in full disregard of the prudent lending principles that had previously governed the U.S. mortgage market. Now the motives of the GSEs fall into place. Fannie and Freddie were subject to "affordable housing" regulations, issued by the Department of Housing and Urban Development (HUD), which required them to buy mortgages made to home buyers who were at or below the median income. This quota began at 30% of all purchases in the early 1990s, and was gradually ratcheted up until it called for 55% of all mortgage purchases to be "affordable" in 2007, including 25% that had to be made to low-income home buyers.

It was not easy to find candidates for traditional mortgages�loans to people with good credit records or the resources for a substantial downpayment�among home buyers who qualified under HUD's guidelines. To meet their affordable housing requirements, therefore, Fannie and Freddie reduced their lending standards and reached into the FHA's turf. The FHA, although it lost market share, continued to guarantee what it could, adding to the demand that the unregulated mortgage brokers filled. If they were engaged in predatory lending, it was ultimately driven by the government's own requirements. The mortgages that resulted are now problem loans for the GSEs, the FHA and the big banks that were required to make them in order to burnish their CRA credentials.

The significance of the FHA's troubles is that this agency had no profit motive. Yet it dipped into the same pool of subprime and other nontraditional mortgages that the GSEs and Wall Street were fishing in. The left cannot have it both ways, blaming the private sector for subprime lending while absolving the government policies that created the demand for subprime loans. If the financial crisis was caused by subprime mortgages and predatory lending, the government's own policies made it happen.

Emphasis added; you can't blame greedy lenders for FHA, because they were government officials. The Congress and the Administration are flat-footed on this one. They still can't figure out what to do with Fannie and Freddie, and they are soon to add another agency to the list of those waiting for Godot.

When all that's left is hope

2010-02-02T08:24:00.000-06:00

According to reports yesterday, CEA Chair Christina Romer now expects that unemployment will be 9.8% at the end of 2010, 8.9% at the end of 2011, and 7.9% at the end of 2012. Many liberal economists are exasperated that the Administration is focused on budget reduction rather than stimulating ever more jobs. For instance, Mark Thoma:

Additional fiscal policy measures could make a difference to the unemployed, but instead the administration is proposing policies that might sell well, but only address a tiny fraction of the long-run deficit problem.

Health care reform is the key to solving the deficit problem, but reform is being held up by the party of just say no. That's the message Democrats need to hammer into public perception, that true inroads into deficit reduction through health care reform are being blocked by Republicans. In the meantime, Democrats need to take care of ~~business~~ the unemployed. Yes, the party of no will try to block additional stimulus, but they fight everything, and helping struggling households is worth standing toe to toe and fighting back.

When the next election rolls around and unemployment is still too high, but falling, we'll hear all about how the administration helped to put us on the road to recovery.

So we get some people deciding damn the deficit, full stimulus ahead like Rep. Clyburn, Paul Krugman's new friend. But the Administration has turned back on this beginning in October. They will freeze, and maybe make a few more cuts.

Because all they seem to have left to save this is hope. They are clearly betting on the economy improving and, stung by their unrealized optimism of 2009, are now using Dr. Romer's dour forecast to in essence undersell the program. Ryan Avent explains the dilemma that faces the Administration.

Currently, America is looking at a budget deficit around 10% of output. Mr Orszag noted in the press conference that the administration would like to cut that to 3%. But their expectations are that the bulk of the improvement in the near-term deficit�producing a decline in the deficit from 10% of GDP to 5% by 2015�will come from economic recovery, and the resulting increase in tax revenues and decline in automatic stabiliser spending.

Near-term deficit reduction is almost entirely about the strength of the economy. And nothing anywhere in the president's policies will do anything meaningful about the long-term deficit, which is almost entirely about growth in spending on health care.

So how could this possibly work? I think the Administration positions itself to benefit greatly from a positive surprise to GDP and employment with the budget. Suppose the V-shaped recovery comes true. Tax revenues soar, and the Obama budget soaks up that money and can avoid issuing quite so much debt in the early years of the decade. I don't give that a high probability, but it's greater than zero. The administration uses a 2.7% forecast on GDP while private economists are averaging 3% and there is more than one forecaster north of 4%. (As opposed to last year, I'm largely in agreement with the budget's economic assumptions.)

So balancing the budget might be easier than Obama is making this out to be. Let me leave you with one last thought. Obama will certainly get a few dollars more out of the wealthy, but did anyone catch this change? He's not only ending the Bush tax cuts, he's ending his own.

[Obama] dropped a request to make permanent the payroll tax credit that fattened worker paychecks by $400 per person in 2010. In Monday's budget blueprint, Mr. Obama proposed extending only through 2012 that credit, which was his signature tax-cut proposal for middle-class workers during his campaign.

He's willing to raise taxes on the middle class out of his fear of the deficit hawks? Glory! Another campaign promise has expired.

The fruit falls far from the tree

2010-02-01T11:51:00.004-06:00

In an upcoming survey from the Kauffman Foundation, the Congressional Budget Office and the General Accounting Office receive relatively good marks from economics bloggers. However, Congress itself fails. Just on visual inspection it looks like the most varied grades were given to the Federal Reserve -- a few A's, lots of B's and C's, and more than 20% F's. 31% of bloggers gave a failing grade to Wall Street.

They sent 200 surveys; I don't know the response rate. I did participate in the survey. I am quite certain I failed Congress. I don't know what to think of how its creation gets such a higher grade than the parent organization. But then, you could say the same thing about the Fed.

The rest of the survey comes out tomorrow; this was just a teaser. I'll write more then.

Hey, I just cut 1/2 percent of the budget!

2010-02-01T11:44:00.001-06:00

The Obama administration has released a long document of its terminations, reductions and savings in the FY 2011 budget. Over the weekend it displayed a few of these for the Sunday news programs, calling them "tough choices." So how tough are these?

The largest three items of the $20 billion in reductions proposed are

Completing the nationalization of the student loan program. Ed has already written on this one. It removes $8 billion in subsidies to banks for making student loans, using the Federal government's ability to borrow money instead of the banks using theirs. They'll argue it saves money. But it greatly expands the Federal control of education, permits the handing out of favors to students who become public sector employees, and subjects students to Congressional whim instead of financial market uncertainty. I'm not sure students will like that trade-off. The administration is calling a takeover of the student loan market 40% of its "budget cutting exercise".

End the NASA Constellation program that sends astronauts back to the moon by 2020. $3.466 billion is to be saved by this. I'm usually inclined to like these privatizations, which is why I suspect it won't survive. There are states in the South that are already beneficiaries of this spending, and some people can't stand that other people are making money on space exploration. Most voters like space exploration (example) and it's just not something people will look at and want to kill.

Kill the C-17 program. It's baaaack, after being rejected by the Senate last October. You want to really believe they'll change their minds this time? Fuhgeddaboudit. That's $2.5 billion of the $20 b.

The remainder is a lot of small items, from turning off the lights at the Department of Labor (you actually win an award in government for suggesting computers be powered off at the end of the workday, for saving a whole $20,000 in a budget of $3,800,000,000,000) to consolidating reports from the Bureau of Labor Statistics. The items in the Saturday list saved relatively little (the Brownfield Economic Development Initiative they mentioned is about $18,000,000, for example.

But much like those larger program above, each of the smaller programs has someone backing them in Congress. While I completely agree that the Save America's Treasures program, established to help celebrate the millennium, is about ten years past its stated purpose, it does have a purpose to someone. Many of the ideas in here were ideas that existed before this administration. Many of them will outlive his administration, as well.

And at the end of the day, what will we have? If nary a one of these proposed cuts pass, what pain will be visited on the Congress? We will have a budget deficit of $1.29 trillion rather than a budget deficit of $1.27 trillion. Would anyone notice? That's what Congress hopes. Yes, I suppose someone will want to argue that it saves additional money down the road, but spending cuts are all about maintaining an option to cut later -- and favoring friends in the meantime -- rather than cutting now and losing those friends.

You knew what I meant

2010-02-01T10:16:00.000-06:00

Next time I visit Normandale, I have to meet this Jack Miller. I have talked about remedial classes at SCSU, but at Normandale, Prof. Miller points out, they are the courses that keep many of his colleagues employed. In an English class, he should be considered a saint for dealing with problems of grammar, punctuation and a complete unawareness of the rules of plagiarism. But these parts are teachable. What on earth do you do with this problem:

While there are some, especially older students, who carry around excess anxiety and who sell themselves short academically, the more common affliction is overconfidence: �I expected to do a lot better.� The bump in the road that is the developmental class is seen as an aberration, largely lacking the sobering effect it would have had 30 years ago. No one is going to flunk out of school. Plenty of warning is given if you are in danger of failure. Most developmental courses can be taken on a pass/no pass basis. One�s GPA remains intact in any case, including a withdrawal. A system is in place to cushion failure, and students who have always been praised for just showing up need it. They have been told time and again, �You can be anything you want.� All that is needed is �passion.� So when the academic path contains a detour, explanations to yourself and to others can come easily. Scholastic problems don�t emanate from within but from without. So determined is the college to offer �support� and so long is the list of reasons to receive that support that almost anything can be explained by or blamed on an external cause�poor time management, attention deficit disorder, you name it.

Not much to be done. We could get all tough love-y and just whack their self-esteem into place. But the drill instructor part hurts "retention", which means those classes that keep Prof. Miller's and my colleagues in subscriptions to Granta. So we throw money at the problem through academic services that give us students who ... are now more overconfident. And narcissistic. Why should they have to know grammar? You knew what they meant.

And we encourage that narcissism too.

As the college Web site says, the goal is �the development of persons as well as intellects.� Oblivious to signals of topic fatigue, some professors continue to assign readings highlighting racial or gender oppression, closed-minded fundamentalist Christians, wise elders �of color,� and any reading that focuses a spotlight on the warts of U.S. policy, history, or culture. Some professors operate on the mistaken assumption that students will be struck by �Aha!� moments as they are enlightened. So slight do we feel our influence to be that we take undue delight in satisfying our reformer�s instinct. Ah well, students must sigh, what else can be expected from college English professors?

Furthermore, students are asked to spend yet more time (as if they hadn�t spent enough in high school) dwelling on themselves, the ever-fascinating �I,� their own lives, their own �feelings,� their own variations on the endless quest for self-discovery. ...

And it's not just community colleges. Here at SCSU the "freshman English" class is numbered English 191. Its course guidelines say that all sections will have as "focal points" "Strategies for critically engaging information and developing it in writing as evidence for arguments" and "Study of writing in relation to articulating human values, cultural perspectives, or interdisciplinary understanding." Things like "copy editing" (where I think you might try grammar or vocabulary) or "revision strategies" and "research strategies" are "secondary points."

I am reading senior papers this term (one reason my blogging tends to be a little spotty lately.) I would like to spend my time working on developing how their education here allows them to see economic theory work on their topic. I would like to play with the results of their statistical work, refine it, be sure we used the right technique and had the right data. But I spend an enormous amount of time having them write and re-write their papers. And at this point I should not have to keep finding each mistake they make -- they should be able to find some. If they don't and I find it on re-write, they wonder why I didn't find it for them the first time. And it's all I can do sometimes not to say, "I'm not the one who let you down."

As narcissistic as they can be, they aren't entirely the ones letting themselves down either.

Your role in transparency

2010-02-01T09:31:00.002-06:00

From the Hon. Eric Lipman of the Minnesota Office of Administrative Hearings, word of a training session for citizens interested in how our state government makes rules and how you can influence them:

The Minnesota Legislature hopes that the process for making state administrative rules will be open and transparent. In fact, Minnesota�s Administrative Procedure Act is structured so as to increase the public�s access to government information, improve public participation in the formulation of administrative rules and boost the accountability of government agencies.

The MSBA Administrative Law Section will host a training session on citizen involvement in the rulemaking process. This course will explore how citizens can improve the effectiveness of their comments on proposed rules and a set of best practices for government officials when reviewing this important feedback.

The judge writes, "Mindful of your own work in educating the public on economics -- and particularly "public choice" -- I thought that this news would be of interest you and your NARN audience." I quite agree. $20 to register from the link above, including a meal, seems money well spent.

An idiot's tale at Sundance

2010-02-01T07:34:00.000-06:00

The Sundance Film Festival was held in Park City, Utah this past week, and one of the films featured was Naomi Klein's The Shock Doctrine. Most of my readers will know I found the book intellectually dishonest, and this long trailer does no better. Indeed, it is worse. I'll spare you a review; all I have is that 7-minute clip and it's obviously not any better than the book in its shoddiness. I outsource additional comments about the book to Mike Moffatt and Tyler Cowen.

I did find it curious that Ms. Klein had reportedly distanced herself from the film, while wishing them well. The narrator of the trailer (and I take it the rest of the film) is not Klein. In August she reported to the Independent:

"I can confirm that the original idea was for me to write and narrate the film. For that to have worked out, however, there would have needed to be complete agreement between the directors and myself about the content, tone and structure of the film.

"As often happens, we had different ideas about how to tell this story and build the argument. This is Michael's adaptation of my book, and I didn't want there to be any confusion about that. I wish the film success."

There is no mention of the movie on her website for the book. And the adaptation, says the Independent's Johann Hari, is awful.

Winterbottom serves up a cold porridge of archive footage and soundbites that have some vague link to the book, without the connecting spine of Klein's explanations. It is as though an idiot has explained the book to another idiot, who then made a film.

This film should have been another Inconvenient Truth. Instead, it's just inconvenient and a shocking waste of a masterpiece.

And he means "another Inconvenient Truth" in a good way.

And yet at Sundance Ms. Klein makes an appearance (a chance to sit with Robert Redford should not be rejected lightly.) I wonder what she would make of the fact that the Michael Spence, chair of the Commission on Growth and Development (and writer of a report on growth) agreed with her prescription for Haiti that its victims should come to the US. However he also says that it's hard to change a developing country when things are not going well, and that there's nothing there to rebuild from. You are literally starting over.

So what would she like to start over with? Thailand. She really thinks the underlying cultural norms, infrastructure, government, and economy of the two places are the same. One country has six times the per capita income of the other. And by size, a tsunami on the coast has a much different impact than an earthquake under your capital. But these are trifling details, about as important as those Colby Cosh discovered her prattling on about ever since she wrote this book.

Enjoy your time skiing, Ms. Klein.

What's the matter with you Americans?

2010-01-31T14:57:00.001-06:00

More years ago than I�ll admit, I was a student in a class of the man who became my mentor, Tom Willett. The course was in economics and public policy, and the early part of the syllabus had us read on the nature of arguing about economics. One line that stuck out to me like nothing else was this: Saying �if you knew what I know you�d agree with me� is poor argumentation. I may know what you know, my professor argued, and yet find a flaw in your logic or add another piece of evidence that leads me to a different conclusion.

The notion that we know enough to know what is in someone else�s best interest is evidence of this fallacy, and I have found over the succeeding decades there are many academics that fall into it. Applied in the political sphere, it takes the form of �why does the public not understand what we are trying to do?� We heard it in President Obama�s State of the Union address last week in his claim that his failure on health care was "not explaining it more clearly to the American people." It characterizes the thoughts of Thomas Frank in "What�s the Matter With Kansas?, a book that I found alternately patronizing and pathetic, arguing that it must be false consciousness or hypnotizing demagoguery that leads the working class of Kansas, once home of agricultural Wobblies, to now vote consistently conservative.

That meme is now everywhere. David Brooks calls tea partiers anti-intellectual and Frank Rich calls them comatose. Responding to the election of Scott Brown, the BBC carries a column by David Runciman, a British academic political scientist of high birth (how else to describe someone whose Wikipedia entry notes his viscountcy?) that cannot understand why town halls are filled with people repulsed by Democrats health care reform. It�s to help them, dears!

But it is striking that the people who most dislike the whole idea of healthcare reform - the ones who think it is socialist, godless, a step on the road to a police state - are often the ones it seems designed to help.

In Texas, where barely two-thirds of the population have full health insurance and over a fifth of all children have no cover at all, opposition to the legislation is currently running at 87%.

Instead, to many of those who lose out under the existing system, reform still seems like the ultimate betrayal.

Why are so many American voters enraged by attempts to change a horribly inefficient system that leaves them with premiums they often cannot afford?

My friend Marty Andrade tweeted this link with the comment "But I stole this for you," says the plunderer. "Why do you not take it? Why do you not vote for me?" But it is not so much the politician but the wonk, the analyst who makes such pretty plans, that finds himself exasperated by the failure of the public to appreciate them. No place does this happen more than in academia, particularly in America, where as I�ve argued before the academic does not often travel in either the working class circles or in those the successful businesspeople.

The answer to Prof. Runciman�s question is inside America�s DNA. The founders, writes Prof. Carl Richard, were a deeply suspicious bunch.

The founders� immersion in ancient history had a profound effect upon their style of though. They developed from the classics a suspicious cast of mind. They learned from the Greeks and Romans to fear conspiracies against liberty. Steeped in a literature whose perpetual theme was the steady encroachment of tyranny on liberty, the founders because virtually obsessed with spotting its approach, so that they might avoid the fate of their classical heroes. It has been said of the American Revolution that never was there a revolution with so little cause. Whatever his faults, George III was hardly Caligula or Nero; however illegitimate, the moderate British taxes were hardly equivalent to the mass executions of the emperors. But since the founders believed that the central lesson of the classics was that every illegitimate power, however small, ended in slavery, they were determined to resist every such power. Even legitimate authority should be exercised sparingly, lest it grow into illegitimate powers. (pp. 118-19)

Doesn�t it seem the same today? When one points out the connection between parts of the Obama agenda and those of European socialists we are told �he�s certainly not one of those!� Of course not. But we called tyranny a level of taxation that many other places just accepted as their lot in life. Our common people believe they deserve explanations, and they are mistrustful most of those who say, �trust us.�

And this is a vital point -- a country that has the character to not use government power to plunder a minority for the sake of a majority (or vice versa, as in Saddam's Iraq) better resists the eventual trials of war, depression, famine, etc. Many Western countries took a sharp left turn after WW2. The US did only a little less so. In both the US and UK a swerve back came from Reagan and Thatcher. I still find the latter more remarkable than the former, but the common culture that ties them owes much to the ancient Greeks and Romans.

Prof. Runciman cites facts and wonders why they fail before the stories that critics of Obamacare have told. Some no doubt do not understand the facts as presented. But presenting them better will not work well in the face of America�s preternatural wariness towards power. It may worry over unemployment but that is something that is ultimately under their control. Government debt, however, appears out of their control and is used towards things we are told to trust. Trust in government is exactly NOT what this country was founded on.

UPDATE: Along with some other posts, this was cross-posted to HotAir, and has been linked by Instapundit. Thanks to all my readers, and hope if you're new here you'll check out the rest of the premises.

Welcome to Hot Air readers

2010-01-31T14:21:00.003-06:00

I will be joining several other writers filling in for Ed Morrissey and Allahpundit at Hot Air (the big board -- I've been posting occasionally in the Green Room for some months now) over the next few days. The boys are apparently off to parts unknown. It's for this reason you will see a rare (for me) Sunday post at the Scholars. Some material will be just here on Scholars alone, so you will want to read both places.

I take it is unnecessary to tell you that Hot Air is a favorite blog of mine, and that I think you should read it. But I just did, so there.

Behind the eye-popping GDP number

2010-01-29T12:03:00.002-06:00

I read the report and I think it's a half-full-half-empty story you can tell.

Half-full: the 5.7% headline number is supported by positive data on investment, including a 13.3% increase in equipment and software. Real disposable personal income rose 2.1% in the quarter. Personal outlays were up 4%. This would indicate some expansion of consumer spending. A sharp rise in inventories -- more than half the gain in GDP comes from there -- indicates businesses are more confident of future sales.

Half-empty: Reflecting that huge expected increase in GDP is an upsurge in business inventories. Real final sales were up 2.2% versus 1.5% in the third quarter. While better, it hasn't reached a level that gets you to a sustained decline in unemployment yet (I'd think that would happen with a final sales number in the 2.75-3% area.) The savings rate rose to 4.6% from 4.5%, so consumption growth was down to 2% from 2.8% in the third quarter. And durable goods consumption actually fell in Q4, perhaps reflecting the end of Cash for Clunkers. Personal income less transfers (my doppelganger for calling the recessions end is just back to Q2 levels, as government transfer payments added an extra $25 billion to pocketbooks.

After running out to a 100 point gain on the morning news, the Dow has slid back a good bit since mid-morning. I caution people not to read something into every turn, but I think the market is looking at these data as confirming their expectations, not changing them too much in one way or the other. I thought there was more danger from a negative surprise than happiness from a positive one, and while this number is the high end of expectations the mixture of good and bad news in these data will end up causing the largest increase in GDP in years to cause most to yawn. And that's pretty odd when you think about it.

Jim Hamilton concurs, but uses pretty graphs.

Saved or created: one consultant

2010-01-29T11:16:00.004-06:00

The local newspaper tells us it's raining trains.

Plans to bring high-speed rail to Illinois, Minnesota and Wisconsin got a major boost Thursday from President Barack Obama administration�s commitment of $823 million to get projects rolling.

The money comes from $8 billion set aside from the economic stimulus package passed last year to develop the nation�s first intercity high-speed rail service, a top priority for Obama.
Obama announced the funding during an appearance with Vice President Joe Biden in Tampa, Fla. A high-speed rail project linking Tampa and Orlando was awarded $1.25 billion.
In all, 13 rail corridors involving 31 states will receive funding.

Hot damn! Choo-Choo Jim must have come through for us. And $823 million sounds like a lot of money. Except that ... it's not for us, exactly.

Of the funding announced Thursday, $810 million is planned to go toward building rail service between Madison and Milwaukee, and $12 million is designated for the Milwaukee-Chicago corridor.

An additional $1 million is planned to go toward developing the Madison-Twin Cities line.

$1 million for the home state? Really? This has transportation advocates fuming, it seems. Noted progressive activist Dave Mindeman is steamed:

$1 milllion for a study? That's like saying..."thanks for trying, we'll put you on our mailing list."

You don't even build anything with that $1 million. It's for a study, which would do what? Let's ask Assistant Choo-Choo guy Tim Walz:

"I have always advocated for a data driven process to determine the route for high-speed rail that's in Minnesota's long term best interests," Congressman Tim Walz, vice chair of the House Transportation Committees Subcommittee on Pipelines, Railroads and Hazardous Materials said in a press release. "This funding will be used to study possible routes that Minnesota outlined in its recent Statewide Rail Plan - including the River Route and the Rochester Route and put Minnesota in the running for future rail construction funding that will create jobs across our state."

The rest of Bob Collins' reporting describes the back story -- infighting between the Rochester/Mayo coalition that wants the train to go through Rochester that requires more track to be laid down. There is an existing line through Winona that takes you up the river directly to the Twin Cities; going by Rochester compels you to continue on to Owatonna before you can pick up a line to St. Paul unless you lay all new track. (I base that on this map of Minnesota rail lines.) The million dollars basically buys a consultant to write a report while the two sides in this battle continue their argument.

I wonder what the conversations between Oberstar and Walz are like?

UPDATE: How could I have forgotten? Stephen Karlson has a view from the other terminus.