Asymmetrical Information

From the desk of Mindles H. Dreck:

Wouldn't have happened?

Al Gore, like Krugman, Scheer and others, is trying to pin the current corporate Scandalaise on Bush.

The idea that most directly implies Bush administration culpability for Enron is, unfortunately for these critics, the silliest. They make the amusing and tired assertion that if Phil Gramm's wife hadn't exempted Enron from CFTC regulation, and congress had not passed the Commodity Futures Modernization act, Enron would not have failed. This is absurd on its face - as absurd as saying Clinton was responsible for the failure of Long Term Capital Management.

Looking at history, one might conclude that scandal and fraud are more common in regulated rather than unregulated industries. Librarian Roy Davies has helpfully compiled a a list of 30 of the biggest financial scandals in the last twenty years. I count seven that involved regulated commodities and futures trading, the CFTC's bailiwick. In fact, all but a handful of these scandals involved regulated entities.

Furthermore, when a company is regulated, they typically isolate the regulated activity in a subsidiary. When you consider that the bulk of Enron's problem assets were hidden in affiliates, it seems increasingly unlikely that CFTC regulation would have made much difference. Finally, the CFTC exists primarily to protect commodities investors and the exchanges, areas where Enron was not particularly active.

Yessirree, that CFTC regulation would have been pivotal.

Oh, by the way, there was a futures trading scandal some years ago involving a company that was "allocating trades". Allocating means doing a bunch of trades and then deciding whose account to put them in later. It's an old scam that allows a broker to run a ponzi scheme whereby he makes sure new, growing clients get the winning trades, and older ones get the losers. The CFTC, which specifically prohibits allocating trades, regulated the entity and brokers in question, who ultimately settled. That was long after they made a suspiciously tidy sum in cattle futures for a certain Governor's wife.

For those still trying to blame the world's problems on the Clintons, it's too bad Enron wasn't regulated by the CFTC. Then they could have blamed Enron on Clinton and been just as credible as Robert Scheer. Actually, they already are.

From the desk of Jane Galt:

Eleanor Clift just attributed WorldCom

Eleanor Clift just attributed WorldCom and Xerox to Bush's failure to promulgate government regulations after Enron.

Because, you know, those regulations would be in effect by now.

And regulations regarding the consolidation of limited partnerships would certainly have prevented WorldCom from incorrectly restating expenses as capital expenditures.

I am hereby calling for a moratorium on people calling for more government regulations unless they actually know something about accounting, and have some idea about what regulations would work.

A brief survey of left and right accounting-savvy people I know shows that every single one of them wants reform, and none of them have the faintest clue as to how to implement it.

From the desk of Jane Galt:

So there's been a lot

So there's been a lot of noise lately about stock options and whether they're a good idea or a bad idea, with the liberals and conservatives predictibly screaming across the ideological chasm, and the sense getting lost in the meantime.

Well, here's a little explanation for those of you who slept through this part of CorpFin 101.

Why do we use stock options?
Stock options are a solution to the principle-agent problem, which is a fancy way of saying that the professional executives who run companies have conflicts of interest with the shareholders who own said firms, and we can't just rely on the executive's altruistic sense of what is right and good to bridge the gap, any more than we can hope that if we sing Kum-bah-yah enough times Bin Laden will sashay out of whatever hole he's hiding in and stick a daisy in the rifle of the first Green Beret he sees.

We can't watch the bastards every minute; after all, we've got jobs and kids and bathrooms to regrout and the Lord of the Rings DVD we haven't even looked at. Think of a big corporation, say Exxon, as the equivalent of a gas station whose owner is on an extended vacation. When the cat's away, the mice will play.

While liberal commentators would have you believe that the sixties and seventies were a halcyon era of corporate responsibility and managerial modesty, they were also the era of bloated conglomerate empires, seven-figure expense accounts, and the Chrysler bailout. Managers, believing that forcing American consumers to buy whatever crap they made was their God-given right, were less concerned with innovation or competitiveness, and more concerned with building immense private fiefdoms for themselves, from which their vassal lords would bring them tribute in the form of junkets, three-martini lunches, and ludicrous perks suh as a corporate jet to fly you to the Tasti-Freez.

They also failed to optimize shareholder value, because their risk-reward profile was far different from the shareholders. When times were good, they were unwilling to take potentially profitable risks, because they weren't going to see much of the upside, while the downside meant they would lose their jobs.

When times were bad, they were willing to take insane risks, because hell, they were going to lose their job anyway, and if there was any chance that that bionic tweezer could turn things around, why not try? After all, they were going to lose their jobs anyway. Why leave assets to be repatriated to all those ungrateful shareholders when there was still the possibility that the CEO's corporate jet might be saved?

Stock-based compensation is meant to align the interests of the managers with those of the shareholders, by making a substantial portion of their compensation dependant on the share price.

So why didn't stock options work as well as we thought?

Well, for one thing, stock prices are an imperfect measure of a company's worth; the managers of a company, unless they are deluding themselves, always have a better picture of the actual health of a company than outside investors. This difference between insider and outsider knowlege is most pronounced over the short term.

Which brings us to the real problem: the risk-reward pattern of stock options is not identical to that of shares.

To understand why, we need to look at the relative compensation patterns of equally-valued stock and stock-option compensation packages. You there in the red shirt! Take your mouse off that "Back" button. This is important! You can look at naughty pictures later.

Let's look at two executives, both getting $1 million in salary, and $4 million worth of stock-based compensation.

Executive A, who we'll call Annabelle, is getting 4,000 shares valued at $100 apiece.

Executive B, who we'll call Belinda, is getting 16,000 options to buy shares at their current price of $100, excerciseable within 3 months.

[Why don't they get the same number of grants, you ask? Because we're not trying to equalize grants; we're trying to equalize the expected value, or the probability-weighted value, of the compensation.]

We'll assume, for the sake of the model, that we have perfect knowlege of probable outcomes, and that there is a 50% chance that the stock will be worth $50 in three month's time, and a 50% chance that it will be worth $150.

Wake up! We're through the boring part. Okay, so in three months time, what happens?

Annabel's stock is worth either $2 million or $6 million. Expected value: $4 million.

Belinda's stock options are either worthless, because the stock price is lower than $100; or very valuable, as she excercises her options at $100, sells them at $150, and pockets an $8 million profit. Expected value: also $4 million.

[How can this be? I hear you cry. Do the math:

Annabelle: (50% * $2 mm) + (50% * $6 mm) = $4 million
Belinda: (50% * $0) + (50% * $8 mm) = $4 million

And now you know how to do an expected value calculation. Isn't that exciting? I'll wait while you run out to phone your friends.]

Now, what does this tell us?

First, that Belinda is now willing to take more risks than Annabelle? Why? First of all, because Belinda's grant is all up-side. If Annabelle takes a risk that could put the company out of business, she loses everything. Belinda, on the other hand, loses no more if she puts the company out of business than she does if she just misses her earnings targets by a little; either way, she can't cash in.

The second reason is even more interesting. It's something called loss-aversion. What does that mean? It means that we'll do more to avoid losing what we have than to get more. This can lead to unhealthy risk-taking behavior. But it also leads to personal sacrifice and hard work to preserve the value of what you have. The executive with stock wants to avoid losing money more than the executive with options wants to gain it.

So in two important ways, the stock-option holder's interests are not aligned with those of the shareholders.

So why do we use stock options instead of stock grants
Two reasons: taxes, and financial accounting. Stock options allow you to play with the timing of expenses on both in order to maximize value.

Even more importantly, stock options don't show up on the balance sheet. Oh, they show up in the notes. But who cares about the notes? They don't show up in analysts model or the almighty EPS the same way that stock grants would, and that's the important thing. I'd explain the exact difference to you, but if you fall asleep that suddenly you might hurt yourself when your head hits the corner of your desk, and I couldn't live with that.

So what should we do?
You may not be aware of this, but Harvey Pitt is not knocking down the doors of Live From the WTC's editorial board to seek our opinion on this crisis. However, here is our opinion:

1) Change the accounting for stock options. Yes, we know that Black-Scholes has issues with long-term stock options, but not as bad, in our ham-fisted opinion, as the current valuation method.

2) Change the term and the blackout periods so that executives can't sell immediately after they excercise.

3) Eliminate the practice of re-pricing options, where an executive's pet board gets to decide that the stock decline wasn't really his fault and he should get to make a profit off his options anyway.

4) Preferably, move away from options and towards either a stock grant with a lengthy blackout, or the elegant solution proposed by Mindles H. Dreck: base compensation on the company's stock's outperforming stocks in it's industry sector; after all, we don't want the executive to benefit or be penalized by changes in the sector, but for how well said executive manages to maximize profits given market conditions.

I hope this answers your questions.

From the desk of Mindles H. Dreck:

Early is Wrong

Let's try a thought experiment. You are about to take a one year position in the Ten-year Treasury Note. You have access to a clairvoyant. He/she can answer one market question with perfect foresight. What question would you ask?

The answer is obvious, you ask the yield on the 9-year Note (a year has gone by) in one year's time, as that would directly determine the price of your asset. OK, now let's stipulate that the psychic can't answer this direct question (isn't that how it works anyway? the future always comes in riddles).

One's first instinct is to think fundamentals: Has GDP grown? What about consumer demand, the deficit, etc.? Perhaps one of these fundamentals will tell us enough to suggest the appropriate yield on the 10-year. But that won't help you. You don't really want to know what's happened during the year, you want to know what the market's consensus expectation for yields will be one year from now. The factors that determine the yield you can't ask for are entirely a function of the future the market attempts to discount. You ask the psychic what the market's expectations for inflation and nominal interest rates are one year from now.

In other words, it doesn't matter what happens to your asset while you own it so much as what someone thinks it is worth at the time you want to sell it.

This is a crucial distinction about markets that is repeatedly lost in the coverage of Wall Street Analysts, market bubbles and Elliot Spitzer's crusade. We tend to lose ourselves in a specific case of efficient market theory where all news is discounted, and an asset has only one true worth. That allows us the conceit of suggesting that the 'one true value' is either concealed or revealed by some overpaid smartypants analyst. But if you think about it, your not so interested in the value per se as in your ability to sell it later for more.

This is a simple and obvious experiment, but it brings into focus some difficult truths:

1) It is possible for an analyst to have a screaming buy on something he thinks is a piece of shit.

2) Said piece of shit may turn out to be a good investment, as long as the market for pieces of shit remains ebullient. How long that lasts is anyone's guess.

I distinctly remember clients criticizing us for not owning internet stocks. I remember sitting in a room discussing Amazon with about 70 other senior investment professionals at a week-long program run by AIMR in the spring of 2000. Only one of us had ever owned the stock (she ran the pension fund for a Fortune 500 company, but she owned the stock personally, not for the fund).

Portfolio managers have a saying - early is wrong. Saying we all knew the bubble would burst is a far cry from knowing when. As much as dot-coms seemed overvalued, it also seemed perfectly plausible they would be worth more in the future. As long as so many believed in their overly-rosy prognosis, that market share would turn into profits, they would be worth more later.

Don't get me wrong. Selling something you think is worthless is immoral. However, refusing to sell internet stocks into the 1996-2000 market would have been a nearly impossible choice for a bulge bracket brokerage firm. I'm glad I didn't work for one of them.

From the desk of Jane Galt:

My Polish co-worker's words, when

My Polish co-worker's words, when asked why people in Poland want to go back to Communism:

"There's a large group of people in Poland who are worse off now."

Who's in that group?

"It's people who are

1) Uneducated
2) Unskilled
3) Mostly drunk

Those people did better under communism."

So how can that one group be so powerful in elections?

She pauses.

"Well, you have to understand, that's like half of Poland."

From the desk of Jane Galt:

So I was reading an

So I was reading an editorial about the Southwest Airline fat scandal. For those of you who aren't familiar with this tempest in a tinpot, Southwest Airlines told overweight passengers that if they didn't fit into their seat (as measured by the objective standards of a) needing to raise the armrests in order to fit or b) needing a seatbelt extender), and the flight was full, they'd need to pay for that extra seat they were taking up.

The editorial was written by a member of the fat acceptance movement who, unsurprisingly, desired the repeal of this rule. Of course, she had a hurdle to get over, which is that while she's trying to fight Southwest, there's the fact that the extra girth doesn't bother the flight crew -- it bothers the person sitting next to the overweight person, who is sacrificing a third of their seat to their neighbor's Big Mac attacks.

How insensitive of me. It's not that overweight people are unhealthy; they're just unlucky. 'Fraid not; most fat people are fat because they are eating more calories than they burn off. Oh, there are exceptions, but according to the doc I interviewed for my last Salon article, metabolic disorders account for less than one percent of the overweight -- and as it happens, I am blessed with the most common of these, hypothyroidism. You pop your Synthroid like you're supposed to and the weight comes off. I'm sorry, but eat more, weigh more; it's not a mysterious formula.

Now, of course, everyone is entitled to weigh as much as they want -- but I don't see how that translates into an entitlement to take up space that other people have paid for. Losing weight is hard, but so is spending seven hours jammed against the wall of an airplane because your neighbor is spilling over into your seat.

The fat acceptance woman tried to get around this by proclaiming that she didn't want to take up her neighbor's seat; she wanted Southwest to make the seats bigger. Of course, she doesn't want to take anything from regular ol' folks like you and me; just the greedy corporation who wants to penalize her for her weight with no good reason.

Sorry, that won't fly. To see why, we have to take a look at a little airline economics. That's right, it's time for another timely lesson at Jane Galt U!

Try to make your gleeful clapping a little quieter; it's disturbing the people in the other cubes.

Our subject today is that age-old question: Why can't they just make those [Censored] seats a little [Expurgated] bigger?!

As with most questions that start with "Why can't they just. . . " the answer is cost.

The airline industry is an interesting kettle of fish. Ever wonder why you never get the same price twice for a ticket? That's because airlines are, or so their shareholders light-heartedly hope, extremely adept at upending their customers to shake every last nickel they're willing to pay out of their pockets. It's called price discrimination, and while it sounds scary and mean, it's actually a form of corporate socialism whereby business travelers subsidize your Hawaiian vacation -- so shut up and be grateful.

To see why this is, let's look at the major cost components of a given flight.

There's the guys running around in khakis and golf shirts back at headquarters nattering about revenue-per-passenger-mile and other things that make us dizzy and slightly nauseated with boredom when we dwell upon them too long; have to have 'em, if only so there's someone to appear in the commercials explaning the company's last plane crash, so we all have to kick a little into the kitty to support them in the style to which they'd like to become accustomed.

There's the landing slots at the airport, which are very valuable and handed out in a byzantine procedure which no one, including the airlines, entirely understands.

There's the airplane itself. Every time you use the airplane, it takes a little more wear and tear. Imagine that there are a fixed number of miles that an airplane can travel, even with great maintenance; you've just dipped into the mileage piggy bank and spent a little of it, decreasing the value of the airplane in the process. This is known as depreciation, and now you know what that mysterious thing is you've been hearing about all these years.

That maintenance doesn't come free either.

There's the jet fuel. This is an enormous component of airline expenses, which is why every time Saudi Arabia sneezes, airline stocks catch cold.

There are ticketing and baggage systems and union negotiators and Commodore Lounges, and the slow-normal girl who you talk to when you have trouble with your frequent flyer miles. . . all these things have to be paid for out of the revenue from flights.

Then there's labor. Oh, boy is there labor. Every time the flight attendants go on strike for higher wages, guess who's picking up the tab?

From the point of view of the flight, all of these things are fixed costs; whether you carry one passenger or three hundred, they stay pretty much the same.

There are also variable costs on each flight, costs that vary by the number of passengers on the plane, but you're not going to offset your jet fuel costs with fantastic savings on cocktail napkins. Almost all the cost of every flight is fixed.

That means two things. First, the airlines want each flight to be as full as possible. And second, because the number of passengers is limited by the number of seats, they want to shake as much revenue out of each passenger as possible.

It also means that there is a lower limit on the number of passengers that a flight can carry and still break even. The numbers I've heard with our new, more stringent security regulations, are around 73% of the current, tightly seated, capacity of the airline. Obviously, not all flights make money; some are used as loss leaders, to sell into the lucrative business market. Still, on average, the planes have to be pretty full just to break even on an operating basis, which is to say, leaving aside investment and financing costs. And for the airlines to actually make money, which is by no means a regular occurrence, they have to be fuller still.

Can you see where this is going?

Fewer seats mean the airlines can carry fewer passengers. Which means that they have to get more money out of each passenger who flies. Let's look a one aisle plane. The aisles are as small as they're going to get; for starters, if they were any narrower, our friends in the fat acceptance movement couldn't get down them, much less the beverage cart. So where is that extra roominess going to come from? You know the answer; from removing a seat. In each seat bank. In a standard one aisle plane (three seats to a side), that would mean cutting the carrying capacity of the airplane by a third. As you may notice from some simple arithmetic, this means that at current prices, the plane would lose money even if fully loaded.

So how do the airlines finance this goodwill gesture? From the vast corporate vaults where they store their ill-gotten gains? Brother, find me a consistently profitable airline and we'll talk. Post 9-11, the idea is ludicrous. No, they'll get the money from you and me.

In other words, rather than losing a third of our seat, we'll lose more of our hard-earned cash. And why should we do this? So that the fat acceptance folks don't have to bear the costs of their weight alone. Where do I sign up?

I'm not entirely unsympathetic. I'm 6'2 and all leg, and I don't fit into normal airline seats; I spend the entire flight with my knees wedged around my ears. I hate flying with Wagnerian passion. It's miserable, time consuming, and it makes my ears hurt. I can tell you stories about unsympathetic short people that would make your heart bleed. . . and no matter how much I diet, those extra inches won't seem to come off.

And sometimes I ask myself why they can't just give me a couple of extra inches of leg room when it's not my fault I'm so damn tall. And as with most questions that start off "why can't they just. . . " the answer I give myself is cost.

Because I don't want to pay more for my tickets. And I'm damn sure that you don't want to pay more for my personal comfort.

And if I don't like it, I can always walk.

From the desk of Jane Galt:

Xerox was one of the

Xerox was one of the early innovators in the recent trend towards declaring mind-bogglingly large accounting errors.

However, like many early adopters, they found themselves eclipsed by late-comers with more refined technology: WorldCom and Global Crossing are setting new records in accounting disclosures.

But don't count Xerox out yet -- the company's a fighter. They just came back with another $1.9 billion charge for improper accounting.

From the desk of Jane Galt:

Amy Langfield on why we

Amy Langfield on why we shouldn't let things get back to too normal. Beautiful.

From the desk of Jane Galt:

I meant to blog this

I meant to blog this outstanding article by Arnold Kling, whose site you should be stopping by every day for a beautifully balanced view of the economic news. But I forgot. Luckily, I remembered again, and here it is.

Arnold offers some good reasons why blogging isn't a fad, and then goes on to talk about how the market could compensate it. Personally, I know the tip jar's been a little light these last few months, and I'm all ears.

From the desk of Jane Galt:

We've been named The Safety

We've been named The Safety Valve's Blog of the Day! You like us. . . you really, really like us. . .

From the desk of Jane Galt:

Supreme Court has okayed vouchers!

Supreme Court has okayed vouchers! Rah! Rah! Sis-boom-bah!

On the down side, the ruling was 5-4.

Well, from my recent post we all know how I feel about the establishment clause; it was designed to protect religion, not surgically remove it from the public square. Even beyond this, I find it hard indeed to see why parents executing private choices to pick religious schools for their children is an unconscionable "establishment" of religion, and I heartily disapprove of the people going to court to try to argue that the way in which other people choose to educate their children somehow violates their freedom of religion. All in the name of "the children" -- the ones they want to maroon in failing schools so the teacher's unions can have a few more years of life. Ick.

From the desk of Jane Galt:

WorldCom's in a big mess,

WorldCom's in a big mess, and many of you have questions about it, so I thought that I would, in my ham-fisted, amateur way, attempt to answer them. Most of your questions run something like this:

What the [Expletive Deleted]!!!!!!!

Good question. Let me see if I can answer that.

One of the driving forces at the end of the nineties was that most research analysts were rather like fiancees. They had developed unrealistic expectations of the future based on the very short, and unusually rosy, period through which they had just lived. In the case of the equity analysts, they had begun to feel that they were entitled to see beautifully rising earnings each and ever quarter even though it was clear that if one extrapolated their expectations into the not-so-distant future, Toys 'R Us would be producing more revenue than the entire US economy. Much like a fiancee who is told that she should not expect her prospective groom to indefinitely continue to give up his best friend's superbowl party in order to escort her to the mall, research analysts got very cranky when they were told that their dreams of infinitely expandable earnings might be a tad unrealistic.

Like prospective grooms, CEO's were very anxious to please the equity analysts, because they were very afraid that if they didn't meet expectations, their beloved would start throwing the wedding china at someone's head. Ha-ha, no, what they were really afraid of was that the analysts, and the shareholders who listened to the analysts, would hammer their share price. Of course, this would lower the value of their stock-based compensation. It might also lower the value of the rest of their compensation -- to zero, when the angry shareholders kicked them out. CEO's have wives, and wives say things like "You'd better not expect to hang around here all day, because the servants have work to do, and I'm not having you interrupt my bridge party, so if you lose your job at WorldCom, you'd better start talking to the assistant manager down at the Tasti-Freez ASAP." This combination of greed and fear bred an unhealthy willingness to shade the truth.

However, shading the truth just created more problems. Like the bridegroom who attempts to assuage his demanding fiancee by cancelling his tee-time in order to drive her to her hair appointment, they found that meeting unreasonable expectations once simply established more firmly in the analysts minds the belief that their expectations were reasonable and deserved to be met, and thereby worsened the tempest that would follow if such expectations were, for any reason, disappointed. CEO's were further incented to cheat, and each round of cheating both increased the size of the "adjustment" that would be necessary next quarter, and increased the consequences that would follow if the adjustment were not made. CEO's were praying for a boom to bail them out, much as the internet boom rescued AOL from its shoddy accounting in the mid-90's. When the boom failed to materialize, eventually the scam got so large that it could no longer be hidden, and the entire house of cards came tumbling down.

Does that answer your question?

What, exactly, did WorldCom Do?

Well, when WorldCom started feeling the heat, they looked around for ways to increase revenue. Unfortunately, what with all this competition stuff in the telecomm area, they found the same thing that you have probably found when you looked for ways to increase your revenue: that it's would require more effort than you care to expend. So they started looking around for ways to reduce costs. And just as with your last cost-cutting drive, this too foundered on the rocks of self-interest, so rather than trying to actually reduce costs, they sought ways to look like they were reducing costs, figuring that, as in most relationships, it doesn't matter what you feel inside, as long as the other party buys your act.

Specifically, WorldCom took one of its biggest expenses and changed it from an operating expense to a capital investment. The expense was the fees that they paid local carriers in order to complete long distance calls; they treated it, accounting-wise, as if it were the same thing as building new fiber capacity or putting up a new switching station.

So either way, it says they spent money; what's the difference?

The difference is in the accounting. Normally, when a firm spends money to provide a service, that money is recorded as having gone out the door, poof, hit the road jack and don't you come back no more. This is what's known as an Operating Expense, or what a layman would call "What I'm spending to stay alive". Capital Expenditures, on the other hand, produce a corresponding asset on the balance sheet: whatever the money purchased, such as land, machinery, or valuable fur-bearing trout farms. This is what a layman would call "My investments".

Think of operating expenses as your grocery bill; you spend the money, you eat the food. Your net financial position has deteriorated by whatever your grocery bill was this month.

Capital expenditures, on the other hand, are like buying a house. On the one hand, you've got less cash in the bank, and probably a hefty mortgage to boot; on the other hand, you've also got a house, which is presumably worth at least what you paid for it. Your net financial position doesn't change; you've simply changed your asset base from cash to house.

We, as wage slaves, are accustomed to thinking of income in a very narrow way: what we got paid. But the root idea of an income statement is to capture the change in the financial position of the company, otherwise known as its net assets: its assets (things is has, or has a reasonable expectation of getting, like factories or accounts receivable) minus its liabilities (things it's pretty sure it's going to have to give to someone else, like debt payments or accounts payable). Okay, breathe, little butterfly. You don't have to understand all the jargon; all you need to know is that when you record something as a capital expenditure, you don't record any net change in your financial position, because the decrease in cash, or increase in debt, is balanced by the asset that you are supposed to have purchased with your cash or debt; while when you record an operating expense, the decrease in cash, or increase in debt, is not counterbalanced by another asset, so that your net financial position gets worse; in other words, you lose income.

Clear? Next question.

Is this legal? Do we need to fix the law, or what?

Not hardly. You don't need another law for this one; it's quite clear. Capitalizing the fees they paid to local carriers to complete the calls made on their long distance network is the equivalent of your trying to tell your banker that the groceries you bought are actually a capital expense because they're, you know, in your house. Accruing mold at the rate of 1% a day, no doubt.

It's totally illegal, not even a vaguely close call, at least according to my CPA buddies. We don't need a new law; we need to find the executives who did this and throw them in the pokey for a long time.

I'm Confused

Don't worry; that's a common feeling in the post-millenial angst zone. Have you tried herbal tea?

What if I have other questions later?

Just shoot 'em along to janegalt -at- janegalt.net and I'll see what I can do about answering them.

From the desk of Jane Galt:

So an appeals court just

So an appeals court just ruled that its unconstitutional for students to be led in a Pledge of Allegiance that contains the words "Under God". And I know that you all rushed to your computers with the burning question: "What does Jane think about that?"

Well, on the one hand, I think that the words "Under God" don't belong in the Pledge. It's more sonorous without them. Go ahead, try it: "One nation, indivisible, with liberty and justice for all." And it doesn't belong in a nation where not all the people believe in God.

On the other hand, what the hell is wrong with our country that this kind of stupid liberal hissy fit gets raised to a constitutional case? I mean, c'mon. . . "my kid can't be exposed to the word God, because they might be so contaminated by it that they'll never recover, and there's no reason that I should teach her to skip the "under God" part, because why the hell should I be expected to display a little moral courage?" Okay, I'm ranting, but why are we wasting time on this? Is having those words in the pledge what the Founders were worried about with the separation of Church and State? No, dear, they were worried about burning heretics, not burning cheeks from the shame of Not Fitting In, as if never feeling uncomfortable were some sort of implied constitutional right.

And think of what else this implies. It means we can't ever have anything said in class that might disagree with someone's religious beliefs; bye-bye, evolution. It means that we have become a nation of such pantywaists that the mere word God can send both coasts into a swooping faint. Oh, I think the court should uphold him. And then I think we should all dedicate a tiny portion of the rest of our lives to making fun of the idiot who brought this suit until he's ashamed to show his face in decent company.

From the desk of Jane Galt:

WorldCom just reported the largest

WorldCom just reported the largest accounting fraud in history -- a $3.6 billion fraud in which expenses were charged as capital expenditures, which is, for the unitiated, a big no-no. It's also, curiously enough, similar to what Amtrak did in leveraging capital assets to cover operating expenses. Wahoo! Dorothy, get in the storm cellar!

From the desk of Jane Galt:

So InstaPundit has his own

So InstaPundit has his own Watcher: InstaPunditWatch.

However, for a site designed to fact-check InstaPundit's ass, there's curiously little, y'know, fact checking:

Instapundit Watcher will let slide the crack about being an affiliate of Warblogger Watch, though she won't deny their efforts helped inspire this site.

More interesting is how Instapundit reacts. He calls Instapundit Watcher a "parasite", which she learned in school is usually defined as a hanger-on, a toady, a sycophant. Instapundit Watcher defies anybody to call her that. That title better fits some of Instapundits warblogging friends, especially the ones with the oh so clever variations on the "-pundit" theme, aka the "I want Instapundit's traffic" crowd.

I don't know what college Instapundit Watcher attended, but my dictionary defines a parasite as "something that resembles a biological parasite in dependence on something else for existence or support without making a useful or adequate return". Which I think more than adequately describes a site called Instapundit Watcher.

From the desk of Jane Galt:

There have been a lot

There have been a lot of dumb corporate decisions in history. But somehow you knew that the dumbest was going to have to come from the same chaps who located two of their stores on either side of my building: one between 93rd & 94th, and one across Broadway between 94th & 95th. No, I am not making this up: they have two full service stores a block from each other. It gives whole new meaning to that immortal analyst pitch "It's like the Gap with coffee!"

[That's a little -- heh, heh -- in joke. The Gap is in trouble because they massively overexpanded when they were hot, and then had to retrench. -- ed.]

Yes, the folks at Starbucks have outdone themselves this time. I don't know whether they thought it was hip, or they just didn't notice. Either way -- dumber than a bag of hammers, folks.

From the desk of Jane Galt:

This Washington Post article makes

This Washington Post article makes the good point that we're blaming Amtrak for failing to fulfill the impossible task we've set it: run a bunch of impossibly unprofitable passenger routes through every whistle stop that has ever been served by passenger rail in every powerful Congressman's district, while not losing money like a lottery winner in Vegas.

However, I must take issue with the core assumption that running impossibly unprofitable passenger routes is something that every right-thinking citizen supports. Consider this telling quote:

Just about everybody is in the game: The Office of Management and Budget, the Federal Railroad Administration, several congressional committees, a consortium of banks that extend Amtrak credit, the rating agencies and a crew of auditors. The only constituency without a voice seems to be the hundreds of thousands of passengers in the Northeast Corridor, California, Chicago and elsewhere who will lose their mode of transportation if action to save the rail system is not taken immediately.

As far as I can tell, the only constituency without a voice is the large number of people who have never ridden the train and have no intention of starting, and yet are expected to dole out their hard-earned dollars in support of the abovementioned impossibly unprofitable passenger lines.

Or consider this treasure:

Under a starvation diet of subsidies, Amtrak still has produced the nation's first high-speed rail system [Which would be even better if it, you know, ran at high speeds -- ed.] and has kept a federally mandated unprofitable national route structure in business [Fantastic! There's nothing like keeping unprofitable operations in business to make a nation great -- ed.]. To balance this high-wire act, it has deferred maintenance and leveraged assets within its control. [Journo-speak for "It's mortgaged itself to the hilt to cover current operating expenses", behavior that would land a private CEO in a lot of hot water, if not the pokey. -- ed.] Passenger revenue has grown 44 percent in the past five years; expenses have kept pace with revenue until this year.[If you can't grow your passenger-to-expense ratio in a year when your major competition turns into a gigantic flying bomb, when should we expect improvement? -- ed.]

Or, you could just feast your eyes on this:

Highway users rely upon a highway trust fund generating more than $30 billion a year. Since Sept. 11, the aviation industry has seen a $17 billion loan-guarantee program added to an already significant government investment. Yet Amtrak, requiring a bare minimum of $1.2 billion a year, is budgeted to receive $521 million.

1) The highway trust fund is generated from passengers using the highways, which is how we'd like to see our trains be funded, thank you very much.

2) A loan guarantee is not the same thing as a direct subsidy because it is

a) One time
b) Worth less than $17 billion even in a worst-case scenario because a dollar tomorrow is worth less than a dollar today
c) Probably not going to cost $17 billion, because it is unlikely that every single airline will declare bankruptcy.

3) Go figure? We're not giving Amtrak any money because NO ONE IN THE COUNTRY WANTS TO RIDE THE TRAIN! You've probably noticed this, manifested in the lack of passengers on most of your trains.

Which is, of course, why he wants to hold them up at gunpoint to get more money. Imagine if Johnson & Johnson could do this. "Toothpaste sales are down! Quick, taxpayers, pay us for not making toothpaste!"

Take Amtrak out in the yard and shoot it quietly, then carve it up and give the pieces to teh needy. Or some such. But stop wasting our money.

From the desk of Jane Galt:

Very nifty post on the

Very nifty post on the judicial confirmation process by the inestimable Martin Devon.

From the desk of Jane Galt:

Sigh. Daddy Warblogs is reporting

Sigh. Daddy Warblogs is reporting that Neale Talbot of WarbloggerWatch has entered into the discussion of InstaPundit's visitor statistics with that tired old lefty chestnut: "[Name your discussion of something's size] is a proxy for penis size". Honestly. Psychiatry has moved past Freud -- why can't the left? Besides, which, even Freud admitted that sometimes a tree is just a tree. Every time I hear someone drag that old saw out, all I can think is "Oh, snore. Hasn't this person read anything since 1971?"

Which reminds me of a story.

I was working on a move at an investment bank. They were relocating into a beautiful new building with glass-fronted offices that reflected the 90's open office aesthetic without actually requiring the MD's to mingle with the proles. So, as is usual with relocations, chaos prevailed on the first day -- people who couldn't print, login, use their computers, what have you. I was just starting out in the industry, and as low man on the totem pole, was running around like mad trying to get everyone fixed.

So in the middle of all this I got a call from one of the MD's, who we'll call Ted Tyler. He was a large, burly Aussie with a flaming temper when he didn't get what he wanted, and I was quaking as I ran, not walked, to his new glass office. I am sure my voice trembled as I asked him what the problem was.

"This [expletive deleted] [censored] monitor," he said, gesturing to the piece of equipment in question. I stared at the monitor. It appeared, to my inexperienced eyes, to be working perfectly. I tapped it, moved the mouse around, turned it on and off, and still couldn't see a problem.

"What exactly is wrong with it?" I asked tenatively.

"It's too [expurgated] small!" he said. "I was walking around the floor and I looked into all the other offices and their [expletive deleted] monitors are much bigger than mine!"

"So you want another monitor," I said, simultaneously relieved and somewhat bewildered.

"[Censored] right, I do."

"How big a monitor would you like?" I asked.

He removed his cigar from his mouth and regarded me. "Oh, I want a big monitor. I want the biggest monitor you've got. I want a monitor twice as big as any other monitor on this floor."

I saluted and marched off to order him the largest monitor available -- a 31-incher designed for graphics stations and priced around the level of a mid-sized car.

Sometimes a tree is just a tree.

And sometimes, it's not.

From the desk of Jane Galt:

Well, it's been a hell

Well, it's been a hell of a week my friends, a hell of a week. I feel like the pulp that's left clinging to the side of the glass after you drink a glass of homestyle orange juice. I think I've invented a new cocktail:

The Jane Galt
Take six ounces of vodka
Place in water glass
Drink at once.

So now I'm off to the Poconos for a celebration (Happy Birthday, Tatiana!) Yes, that's right -- I'm heading to the land of horseback rides and heart-shaped beds, and a champagne glass whirlpool for two. I'll be back Sunday night. If in the interim you want to drop me a line pouring out your heartfelt adoration, or telling me how generally wrongheaded I am, just drop me a note at my new email: janegalt -at- janegalt.net. Don't use the hotmail box, as it's already full. Otherwise, tra-la, my little chickadees! I'll see you all on Sunday.

From the desk of Jane Galt:

KrugmanWatch Summary The Bush Administration

KrugmanWatch

Summary
The Bush Administration wants to privatise social security. This is a bad idea. Their report is bad. The people in the Bush Administration are bad. Someone deserves a good spanking, but we're not saying who.

Highlights
-- He's perfectly right that privatisation will play havoc with the government's accounting. Krugman correctly points out that establishing a private system means paying double: paying for current retirees as the same time as we are paying into private accounts.

Social Security as we know it is a system in which each generation's payroll taxes are mainly used to support the previous generation's retirement. If contributions from younger workers go into personal accounts instead, the problem should be obvious: who will pay benefits to today's retirees and older workers? It's just arithmetic: 2-1=1. So privatization creates a financial hole that must be filled by slashing benefits, providing large financial transfers from the rest of the government or both.

-- The weakest part of the argument for privatisation, and unfortunately about the only part that makes it into the media, is the argument that investors will suddenly become rich off their investments. The 90's are over, 'kay? Private accounts are not going to turn the nation's graybeards into itinerant millionaires anytime soon. Krugman hits on this every single time he writes about SS, and he's right -- those pushing private accounts are usually using inflated or unreliable numbers to exaggerate the potential returns.

Lowlights
-- Who cares what happens to the government's accounting? Government accounting makes Enron look like a model of financial probity.

Social Security is essentially a Ponzi scheme; the ones who get in early get a good payoff, and the later suckers get stuck trying to pay their rent with Amway crap. The government has covered this up by using those fake bonds in the "trust fund" to pretend that we aren't going to have to raise taxes, cut other spending, lower benefits, or borrow more money, soon. Even most people who are educated about the issue do not understand how soon the deficits will start affecting the taxpayers. Given this, who cares if the private accounts play havoc with the system?

Any money paid into it now comes out of taxes; any money paid to retirees later will come out of taxes. The trust fund is a myth. In ten years (sigh, people who want to rant at me can go to the SSA and read the numbers for themselves, 'kay? My numbers are right. I'm not arguing with you about this. You can read the numbers or not. I've read them, I know what they say, I know how they derived the projections, and I know the margin for error. Sshhhh! Zip it! You're wrong, and I have no interest in debating the matter. If you are merely ignorant rather than ornery, and you want an explanation rather than an argument, you can email me after you read what the Social Security Administration has to say.) or so, the tax revenues into the system from FICA will be less than the benefits going out of the system under the current regime. At that point, we will need to raise taxes, cut spending on other programs, lower benefits, or borrow money.

But the bonds! I hear you cry. Where do you think the money comes from to pay the bonds, my sweet? Say it with me: raising taxes, cutting spending on other programs, or borrowing more money. It's very nice that the Social Security Administration has equal standing with other bondholders (except it doesn't, because, among other things, the instruments are non-negotiable and don't count against the government's bond rating if it defaults) but it is irrelevant to the question of how much we, as taxpayers, are going to have to pay in taxes to cover retirees.

Note that exactly what Krugman complains we will have to do now to cover privatisation is exactly what we'd have to do in the future to cover non-privatisation.

So why do it now?

Because if privatisation is to work, the earlier the better; the money needs time to work. And that leverage works in the other direction as well; the longer we wait to do something about Social Security (whether or not that something is privatisation), the bigger the problem becomes. No, I'm not being alarmist. People make their retirement plans 10 or 20 years out based on current benefits. The longer we wait, the larger the pool of retirees and near-retirees who have not planned to live on lower benefits, and the smaller the percentage of workers who have not planned to pay another 5% of their income to the government every year.

-- Ultimately the point that establishing private accounts will mean paying more now is exactly the indictment of the sytem that Krugman is trying to avoid. Because, my little lefty buddies, ask yourself this: if we don't have the money to establish private accounts, then where is all the money from the "trust fund"?

It's in the farm bill and the prison system and the military and the Robert Byrd Memorial Parking Lot (formerly known as the State of West Virginia). It's gone. In other words, the reason we can't privatise is that this would reveal the fact that our politicians have been raiding the pension funds to cover operating expenses -- behavior that would put private executives in jail.

-- Then there's this:

A sample of [Bush administration man railing about a new report on SS]'s tactics is his insistence that private accounts don't weaken Social Security, because diverting money from the trust fund into those accounts doesn't reduce the total sum of money available — if you still count private accounts as part of the total. As they say in the technical literature, "Well, duh." Of course the money doesn't disappear — but it is no longer available to pay benefits to older Americans, whose own Social Security contributions were used to pay benefits to previous generations.

You know, I'd be sympathetic to this argument. I really would. If he weren't neatly reversing this chap's argument and using it himself.

This yahoo from teh administration is pulling some fast accounting to argue that there's no current cash deficit in the system if you include the private accounts in the system. In other words, he's looking at the asset base, rather than the cash flows, and arguing that we won't have to (One more time! Everybody sing it now!) raise taxes, cut other spending, shrink benefits, or borrow more money, because the money being diverted into private accounts will still be there, in the system. This is not true. It will be in the system, but it will not be available to pay current retirees.

Problem is, Krugman's doing the same thing at the other end. He's pretending that the mythical trust fund actually exists and that we will therefore not have to (Final chorus!) raise taxes, cut other spending, shrink benefits, or borrow more money, because the "Trust Fund" has the bonds -- without mentioning that in order to make the payments on the bonds, we are going to have to do exactly the same things to make the pension payments as we would if the bonds were not there.

But the issue is not, as he tries to paint it, whether we have to do these things; only when. The Bush administration has no monopoly on wishful numbers.

-- So why is the Bush Administration doing this? Yes, Pete, sit down; I know that you want to tell me it's because Bush and His Evil Capitalist Cronies are Trying to Take Us All for A Ride. Thank you for your opinion, now please SIT THE HELL DOWN.

No, the Bush administration is putting out these wacky numbers because it wants to sell its program.

And why does it want to sell its program? Yes, thank you, will someone please escort Pete to the men's room? His brain appears to be leaking out his nostrils, and it's ruining the carpet.

It wants to sell privatisation because the Administration believes (no, really!) that it's the right thing to do; just as Clinton, whether or not you agreed with him, believed about NAFTA and Universal Health Care.

So is it?

Well, here's my take on it; it seems to be shared by most of the economists I know.

The benefit of privatisation is not that it will provide outrageously amazing returns; if the economy is growing at 3%, stocks are not going to return 8% year after year. The risk premium isn't that big.

The benefit of privatisation is that it diverts resources into productive investments that the government can't make.

It is black-letter, I'm-not-going-to-argue-about-this-because-it's-proven-beyond-a-reasonable-doubt economics that the government utilizes resources less efficiently than private enterprise for a number of reasons, most of which are some variation on the agency problem, the free rider problem, or the tragedy of the commons. This is not to say that private enterprise utilizes resources perfectly efficiently; only that it is more efficient than the government.

The most basic reduction of the social security crisis is this: currently, each retiree collecting social security is supported by more than three workers. By 2050, that number will be less than 2. If we want to have more people supported by fewer workers without an overall decline in the standard of living, we are going to have to increase the productivity of workers. This is true whether they are taking their living out of the economy through government payments, or payments from private industry. It is the (correct) opinion of the privatizers that investing in private companies now is vastly more likely to produce the productivity increases we need in the future than spending the money (now) on the Trent Lott Memorial University of Mississippi Hogback Research Center and such.

Because money spent by the government almost never increases productivity. The farm bill isn't going to increase productivity, except of things we already have in excess. The military doesn't increase productivity. The many, many "social investment" programs have (look up the numbers yourself!) a dismal productivity record. Of course, that isn't the only reason we have those programs -- but the privatizers (rightly, I think) conclude that making sure that the workers of the future can support all their societal dependants in some modicum of comfort is more important than making sure that every underprivileged green-haired lesbian mother is being the absolute best that she can be.

By taking money out of the tax system and plugging it into private investments, the privatizers hope that productivity increasing investments will plug the demographic gap. They want to get the money out now in order to give the money time to work; investments take time to pay off.

The cheerleaders, like all cheerleaders, play down the problems. For one thing, there's no guarantee that the investments will increase productivity by the amount needed. For another, there's the possibility of distortionary effects on the market and the economy that can't be ignored. And then there's the Keynsian excess savings argument, which I find somewhat convincing, at least to the extent that investors generally overestimate probable returns. Privatizers are not unaware of this; they simply think that the alternative is worse. Leaving the money in the government's hands means lower productivity. And while other changes that have been proposed to fix the current system are certainly necessary and good, there's no reason to think that they will be sufficient; to take just one example, is it really reasonable to think that people are going to work until they are 75? Some people are healthy at that age, but a lot of people aren't -- and the ones the most in need of government support are also the ones most likely to be in jobs that are too physically demanding for a senior citizen.

Howlers

"It is difficult to get a man to understand something," wrote Upton Sinclair, "when his salary depends upon his not understanding it." To make sense of what passes for debate over Social Security reform, one must realize that advocates of privatization — of replacing the current system, at least in part, with a system of personal accounts — are determined not to understand basic arithmetic. Otherwise they would have to admit that such accounts would weaken, not strengthen, the system's finances."

Those wacky economics professors of mine -- poor sods didn't understand arithmetic! That's why they ended up at Chicago, famous refuge for Economists Who Can't Do Math.

Predictive Validity

Singles out the Bush administration. I'm tempted to take off points because he's right; but after accusing the other side of what he himself is doing, not that tempted. PV stands at 9 out of 11, or 82%.

From the desk of Jane Galt:

KrugmanWatch Teaser Something bad happened.

KrugmanWatch Teaser

Something bad happened.

It's the fault of the Republicans.

Current Predictive Validity of Charges of Krugman's bias: 8 out of 10, or 80%.

From the desk of Jane Galt:

Okay, personally, I think that

Okay, personally, I think that executing the mentally retarded is wrong. Of course, you'd expect to hear me say that, because I'm against the death penalty. But I think that executing the mentally retarded is even more wrong; mental children should not be punished as adults.

But what is this "evolving national consensus" nonsense? If there were such a consensus, legislators wouldn't make laws that allowed it, and DA's, hyper-political creatures that they are, wouldn't prosecute. What the Supreme Court is saying is that they want the national consensus to evolve in that direction, and are therefore giving it a kickstart by imposing their consensus on everyone else.

I'm a soft communitarian: I believe in the hidden law, and that within reason, it's okay for us to get the right result with the wrong legal argument. But when the court is this high, a good result from bad legal reasoning is worse than a bad result from good reasoning, for it opens the door to an unknowable number of bad rulings to follow.

From the desk of Jane Galt:

The law of unintended consequences

The law of unintended consequences in action:

First, the Communist revolution encourages a huge baby boom. Mao dismisses worries about overpopulation by saying "every mouth to feed also comes with two hands and feet." Fails to notice that it does not also come with two acres of arable land, that being the minimum needed to support life in a country dependant on pre-industrial agriculture.

When the Chinese notice that they now have over a billion people, and that the country can't really support two billion in the next generations, they implement the draconian "1 child" policy.

Unintended result: the country now has 40 million more men than women.

From the desk of Jane Galt:

Apple just gave notice that

Apple just gave notice that it's going to miss its earnings targets by 10%.

Now I'm interested: will the "Mac is going to rule the world! 20% market share by 2005, baby!" crowd react to, overreact to, or ignore, this information?

From the desk of Mindles H. Dreck:

Gone Fish and Chipping

I'm off to London to celebrate my 15th wedding anniversary. This is a laptop-free trip. I'll be back Sunday night.

The post on why Dominic Basulto hasn't considered the long arm of securities regulation will have to wait.*

Cheers.

* As I said over on the right, an investment blogger would have to disclose his own holdings, create a compliance infrastructure to vet his blog, which would be both research and an advertisement, and he would be vulnerable to touting accusations a la Jonathan Lebed.

From the desk of Jane Galt:

Josh Marshall thinks Pat Buchanan

Josh Marshall thinks Pat Buchanan is Deep Throat.

I'm not saying he's not; frankly, I don't care enough to know anything about the subject. But some of the reasoning's hilarious:

One of the great mysteries of Watergate and Deep Throat's identity is why exactly he's wanted to remain anonymous for so long. I mean, during Watergate? Sure. For a while after? Fine. But ten, twenty, thirty years later? Deep Throat may be an odd figure in American history. But for most he'd be a hero, someone who turned on a corrupt administration, the ultimate whistleblower, etc.

After all this time, why wouldn't this person come forward to get some of the limelight?

It's hard to figure ... unless he was someone still operating in those Republican circles where that sort of disloyalty would be very damning and even career-threatening. That is, unless it was someone like Patrick J. Buchanan.

It seems to me that if Buchanan were really concerned about alienating his peeps in the GOP, he'd be more worried about, oh, say, his running for national office on a third party ticket and thus siphoning off some of the party's base during a tight election year than he would about admitting he blew the whistle in a 30 year old political scandal.

But I'm just a lone weblogger. What do I know?

From the desk of Jane Galt:

KrugmanWatch Summary Congress is considering

KrugmanWatch

Summary
Congress is considering a prescription drug benefit. The Democrats are nice and have a good plan. The Republicans are mean and have a bad plan. Neither plan is probably going to get passed.

[For which we can all humbly thank God every day -- ed.]

Highlights
-- The best part of the article describes adverse selection, which is a major problem with all types of insurance, but especially those designed to cover risks that are already known, such as current prescription drug costs; only those with above-average risk/consumption will want to buy the insurance, so the average cost goes up, so the insurance company has to raise the price to the new average cost, which means that all those with risk/consumption below the new average cost drop out. . .

-- He does a good job of describing why Medicare doesn't cover prescription drugs

Lowlights
-- He predictably shills for the Dems single payer model, but glosses over the most probable outcome of such a plan, which is to destroy the pharmaceutical market for new drugs that are primarily consumed by the elderly. Why? We've been through this before; such a plan will inevitably involve bargaining the price of the drugs consumed by those over 65 to near marginal cost, which will mean no one wants to undertake the task of researching new drugs for that market.

-- He repeats forecast numbers as if they are actually meaningful, so that he can compare them with Bush's tax cut -- and hey! Where's the guy who was complaining about the Bush administration relying on far-off cost calculations?

-- More to the point, if they're political numbers (and they are) those numbers are projected on a trendline; in other words, they assume that having someone else pay for your drugs has absolutely no effect on your consumption of drugs. Done this way, I was recently told, the current cost of Medicare would be 1/10th of what it actually is. The Dems say that their plan would cost $500 billion over ten years. Hah! Want to bet?

Predictiva Validity Test Shills for the Democrat plan; criticizes the Republican plan. PV of 1. Current PV is 8 of 10, or 80%.

From the desk of Jane Galt:

Okay, so I cheated. I

Okay, so I cheated. I didn't read the column, but I did see the teaser, so I knew it was going to be about prescription drugs. That's how I knew that Paul Krugman would be plugging the Democratic plan.

[Memo to those who ask how the predictive validity is relevant: if I can predict, before I read them, that Paul Krugman's arguments will inevitably bolster the Dems, how compelling do you think those arguments are from an objective viewpoint?]

From the desk of Jane Galt:

Krugmanwatch Teaser Something bad happened.

Krugmanwatch Teaser

Something bad happened.

It's the fault of the Bush Administration.

If we'd only listen to the democrats, the planet would be saved.

Current predictive validity of accusations of Krugman bias: 7 out of 9 or 78%.

From the desk of Jane Galt:

So here's a serious offhand

So here's a serious offhand question: why the hell do women in Saudi Arabia and like countries cover themselves head to toe in black?

No, that was not an invitation for comments about the Islamic interpretation of the Koranic verses regarding the attire of women (which do not, by the way, mention anything about dressing up like a bed every time you leave the house). What I want to know is, why black? In the world's hottest, sunniest, most miserably prickly-heat-inducing climate, why are these women wrapping themselves in fabric that absorbs heat rather than reflecting it? I mean, maybe the images I'm seeing on television are not a representative sample, and the women only wear black for formal occasions like anti-US rallies. Does anyone have an explanation for this?

From the desk of Jane Galt:

Funny how when the New

Funny how when the New York Times rails against special interests lobbying the government for tax breaks, it forgets to mention the $80 million the Gray Lady is planning on costing New York City withthe sweetheart deal it got for its new building.

From the desk of Jane Galt:

Every so often I ask

Every so often I ask myself why I do this. Why do I keep reading stupid European columnists saying incredibly stupid things about America, things that they would pounce upon like a flaccid, over-cooked, smothered-in-cream-sauce-and-capers wedge of trout if we said such an ignorant, limited, foolish thing about their little plot of blessed soil? Why do I do this to myself?

Take this [expurgated] [expletive deleted] from the Independent. There are, of course, many things to criticize in the Bush administration. And what does this lackwit git seize upon? His foreign policy? His trade protectionism? His uncertain compromise on education?

Why no, of course not. The problem with our president is none of those things, you see; it's his grammar.

I consider myself something of an amateur grammarian. I reveal myself now as that difficult person who spoiled the curve on the SAT's. The Chicago Manual of Style is my bible; Strunk and White, my concordance. I have friends who can be found, in the midst of arguments, shouting "you are not supposed to talk like you write!", which is to say in complete sentences and without split infinitives or incorrect transpositions of "like" and "as".

All of which is to say that I am second to none in my horror of the sin in which the columnist has caught George W. in flagrante delicto: the misplaced modifier.

I have lost count of the times I have been ticked off in recent months, sometimes by quite senior politicians, for suggesting that George W Bush is a complete idiot. He is nowhere near as stupid as he seems, I have been told, a proposition that has some force solely because it is hard to imagine any world leader being afflicted with quite the degree of bovine incomprehension that the President habitually displays. On Monday, for instance, he was on cracking form, announcing in halting English – you'd think he'd be fluent by now – that a dangerous terrorist had been detained and "is now off the streets, where he should be".

As so often with Bush's pronouncements, what he appeared to say – that terrorists should be on US streets – was the opposite of what he meant. Unfair, unfair, his defenders will say: we have never claimed that our man is an accomplished public speaker.

Or they might point out that no one in the entire known universe, not even writers for the Independent, speaks in perfectly arranged sentences every moment of their life because that is not how the human brain is constructed; making sure that none of our modifiers dangled or modifiers were misplaced would slow down conversation to a crawl. The purpose of rigid grammatical rules, in writing, is to substitute for the redundancy inherent in conversation: the context, tone, body language, and ultimately, the ability to correct a misapprehension immediately which, should it occur with a piece of written work, would remain uncorrected.

Of course, this is not an excuse for horrendous grammar, in speech or in writing. Yet the lapses upon which the press pounces are inevitably trivial, evident only in transcripts of speeches; the speeches themselves, when viewed, are perfectly comprehensible. Of course, I may be setting the bar a bit too high in the case of this columnist; as a friend once remarked, the first thing she assumes when she hears that someone is a European journalist is that they are probably just a bit thick.

Of course, it may just be the language barrier. For example, Americans customarily view it as -- I'm afraid I don't know the word in your language -- wrong to use a complete clause as a parenthetical expression, especially when its content is not parenthetical but integral. However, since I understand that the journalist, being unfamiliar with the rules of our language, may have made this mistake inadvertently, I will not draw the logical inference about her total [deleted] stupidity that her article seems to suggest.

Fine, but my other reaction to the announcement – I am being unusually frank here – was, "You credulous git, do you believe every single thing anybody in the administration tells you?" US intelligence agencies are trying to deflect accusations that they failed to pick up warnings of last September's suicide attacks and desperately need the kind of crowing headlines – "US foils al-Qa'ida 'dirty bomb' plot" – that the announcement prompted.

Hello, I'm from the Royal Non-Sequitur Society. Tea cozies make lovely summer gifts!

Did I miss a memo? Was a transition edited out in order to save space for the earth-shaking observation that Bush does not deliver his informal remarks in gilt-edged, copper-plated sentences scripted by one of the itinerant Flauberts on his speechwriting staff?

I am lost. I was wandering around in Bush's grammatical errors, admiring the scenery, when the columnist coshed me on the back of the head and, while I was out, dumped me in the uncharted territory of his foreign policy mistakes. Now, like any kidnapped American tourist, I am in trouble. I don't know how I got here. I don't know why they've brought me to this place. And I haven't the faintest idea as to how I get back to somewhere I recognize, much less somewhere I'd actually care to be.

But the administration was soon backtracking, accused of exaggerating the importance of a US citizen known as Abdullah al-Mujahir, a former Chicago gang member who converted to Islam and changed his name in prison. The deputy defense secretary, Paul Wolfowitz, admitted "there was not an actual plan" to set off a radioactive device in Washington, and it now seems that al-Mujahir's research had not gone much further than surfing the internet. Nor is it clear why he was arrested while on a reconnaissance trip to the US from Pakistan on 8 May, after being under 24-hour surveillance since February, when further observation might have yielded valuable information about al-Qa'ida associates .

It must be the language barrier. The thesis of the article appeared, to my American eyes, to be that he was stupid. Then it appeared to be that he was a liar. I had attempted to synthesize these two into the thesis "Bush is a stupid liar", but this is seemingly belied by her plaints that he has put one over on Britain's senior politicians. With the new paragraph, however, I've given up. Clearly, she doesn't like the Bush administration, and harbors a sneaking fondness for those who wish to blow up things in America. But there does not seem to be any unifying thread holding it all together.

[Yes, I am starting my sentences with conjuctions. I revel in it. And occasionally, I do it just to prove I can. I dare you to correct me. I dare you. I'll have you up to your ass in incorrect idioms and dangling particples faster than you can say "William Safire".]

Meanwhile, a terrorist whose plans were at a rather more advanced stage succeeded in bombing the US consulate in Karachi on Friday, killing 11 people. None of this seems to have fazed the President, whose announcement about al-Mujahir coincided with a decision to transfer him to military custody, thus avoiding the embarrassment of having the more lurid allegations against him tested in open court. Bush's Defense Secretary, Donald Rumsfeld, was not so lucky, having been foolish enough to make grand claims about al-Qa'ida operating in the disputed border territory of Kashmir without a shred of evidence. Rumsfeld's announcement during a visit to India on Wednesday collapsed under questioning from journalists in Islamabad. "I don't have evidence and the US doesn't have evidence of al-Qa'ida in Kashmir," he admitted.

Still looking for evidence to any of the originally identified theses. Stupid? Nope. Liar? Nope. Columnist went out last night on the premise that she'd just write it in the morning, but rosy-fingered dawn has found her too hung over to think straight? Ah. . . .

That is not to say I underestimate the threat from Islamist groups whose motivation is as much their complex and ambivalent relationship with secular modernity as the genuine grievances – the US's uncritical support for Israel and undemocratic regimes such as Saudi Arabia – felt by moderate opinion in Arab countries. But what I am suggesting is that the response of Mr Bush and leading figures in his administration, with the exception of his sadly marginalized Secretary of State, Colin Powell, is akin to a bunch of ham actors staging a noisy hunt for pantomime villains. Think about the search for Osama bin Laden and the Taliban leader, Mullah Omar, whose whereabouts appear to be as great a mystery to Bush, Rumsfeld, Dick Cheney and John Ashcroft as they are to readers of this newspaper.

A-ha! She's found her nut graf! And I realize that I too, have been leading one of those noisy pantomime hunts -- and that was the point the entire time! She makes us think she's a marginally competent thinker with a thin veneer of recycled wit, when actually she's staging one of those elegant structural prose excercises that used to captivate writers before they abandoned elegance in favor of navel-gazing.

This reminds me of a story.

When I was in college, some of you may be aware that I majored in English. During my stay there, I perfected the art of working exactly hard enough on a term paper to get an A. This was not, I regret to confess, always very hard. In an ideal world, I would have worked as hard as possible, motivated by the pursuit of knowlege, rather than grades. However, in many of my classes, knowlege was rather thin on the ground, and pursuing it would have interfered with my other pursuits, of which more later.

At any rate. I was given an assigment in one class to write about similarities and differences between Uncle Tom's Cabin and a book called Incidents in the Life of a Slave Girl, which was a slave narrative from before the civil war. As I racked my brain for something to say, it occurred to me to comment on the fact that the actual slave narrative spoke much more kindly of the slave owners than did Uncle Tom's cabin, even though some fairly horrifying things had happened to the author's family. I therefore hit upon the idea of writing about Stockholm Syndrom, which you probably already know is the phenomenon whereby captives (in the epynoynmous case, hostages in the embassy in Stockholm) come, through a mixture of proximity and terror, to identify more thoroughly with their captors than their rescuers.

Tossed off the paper and handed it in. A month passed. Finally, I got it back from the graduate student who had graded it who said, "That was the best undergraduate paper I've ever read. I didn't understand all that stuff you said about Helsinki, but it was incredibly well-written and thought out." Now, keep in mind, I'd written the paper in a couple of hours and forgotten it as soon as I'd handed it in. I couldn't remember what I'd written about, but I was mystified as to how Helsinki might have entered into it. So I smiled and nodded and took back the paper -- A+ -- and read it as soon as I was out of the TA's sight.

I'd been so carried away with my Stockholm Syndrome idea that I'd forgotten to define the term.

Now, this was the backbone of the paper. If you didn't know what Stockholm Syndrome was, it was literally impossible to understand what I'd written about -- I tested this thesis by handing it to multiple friends who had never heard of Stockholm Syndrome.

The TA had given me an A+ because he didn't understand what I was talking about, and therefore figured that I must be smarter than he was, and therefore figured that my paper must be good. That, my friends, is the secret to success in this world; confuse them, then take the money and run.

And what does this have to do with the rest of this post? Well, at first glance it might seem to be an unrelated digression. But dig deeper. You will notice that while the individual paragraphs of my post may have nothing to do with each other on the surface, you are actually being cleverly led to the inescapable conclusion. Which is that I am not very clever, and also that I am insane. Which is exactly the same conclusion I have reached about the author of this piece.

It all comes together now, doesn't it? Take that, PoMo.

Readers of this newspaper, however, are not supposed to know that kind of stuff. It is not your job, or mine, come to that, to have advance knowledge of terrorist outrages. But we are entitled, in a world where what the US President says may affect all our lives, to expect something better than the overblown claims and ignominious climbdowns that are the hallmark of this ignorant, inept administration.

We are entitled, in fact, to direct US foreign policy, even though we have just proclaimed that it is not our job to know anything about potential threats, security issues, or US goals.

How will we do this, you ask? Luckily, the Psychic Friends Network is still operating in Britain.

Frantic displays of patriotism, random round-ups of hundreds of foreigners and unverifiable claims about imminent terrorist attacks cannot conceal the fact that its members do not know what they are doing; any day now, I expect to hear that Switzerland, or perhaps Belgium, has been added to the axis of evil.

You see how I have cleverly foreshadowed the discovery that this columnist is trying to fight a battle of wits with a regiment that's half-strength.

It is not just Mr Bush, as I naively hoped, who is absolutely clueless.

She fooled you all! You thought you'd found the nut graf earlier, but here it is; clever modern inverted design. And it is impossible to disagree.

No, I think we've all got our eyes on someone else who fits that description.

From the desk of Mindles H. Dreck:

Rewrites

Due to implausible interest from more mainstream media, I have spent some time re-working two old posts. I'm particularly pleased with the new version of "Save Me From Important", especially since I've worked in both Hegel and Flanders & Swann. Have a peek.

From the desk of Jane Galt:

I've gotten some emails over

I've gotten some emails over the past few months from liberal correspondents who seem to be unaware that there are economics departments outside of Stanford and Berkely.

Specifically, several of them have mentioned that they have no interest in economists who do not come from those two august institutions, because they seem to be "generally wrongheaded". One correspondent has stated that he refuses to read other economists because "they're a waste of time".

What's shocking is that this fellow works at a University.

Okay, it's not shocking that he's liberal. But it is shocking that he would choose to take all of his economic information from a single school. I went to possibly the most reputable single school in economics, and I wouldn't limit my reading to Chicago economists; for one thing, I'm suspicious of some of their more aggressive theories, and for another, there's a lot of good work going on at other schools; it would be ridiculous to confine myself to one or two departments, no matter how fine. In addition, programs usually end up specializing to some degree, because powerhouse economics professors, just like famous professors in other fields, attract young professors who want to work in the same specialty. So a great program for energy economics might be only mediocre in, say, labor or trade.

But it did make me think more generally about the phenomenon. What are we saying when we say that there are only one or two schools we like? Well, for one thing, it means that the programs are probably outside the mainstream of their profession. Now, they may be doing excellent work. They may even be right; for a long time, political scientists could only work on certain theories at Rochester, because departments everywhere else were in violent, pig-headed disagreement with their ideas. But the broader the scope, the less likely that this is so. In other words, if you think Chicago is the last word in Finance, that's one thing; if you've decided that they are the Only Source for economics of all kinds, you're probably seeking confirmation, not information.

Academic departments, like any organization, are prone to being colonized by those who shut out, through selective hiring, those who disagree with them; that's why companies develop cultures and regulatory bodies almost never change their style after the early years of their inception. The tenure system only makes this more likely, as the colony sticks around for the next fifty years to make sure none of those bad-type people with different ideas get on board. It doesn't happen with every institution, or every single brand of thought, but I think few who have labored in academia (or seriously considered doing so) would fail to recognize the phenomenon.

Which is why I found it surprising that a reader with academic experience would confess that they are so disinterested in learning things about economics that they refuse to have any truck with information sources outside of Northern California. They can't be unaware of the likelihood that these departments, if they are so comfy and other departments are not, are probably colonized by a particular brand of politics. And even if you share those politics, it's still a very good idea to seek information from non-believers.

First of all, all scientists look for data that confirms their beliefs; peer review mitigates, but does not eliminate, this bias. (Ironically, this has been demonstrated by multiple peer reviewed studies, including ones which reviewed not social science, but Biology and Physics.) So it's important to seek academics from the other side; even if you don't agree with their conclusions, they will have apprehended the weaknesses and potential downfalls of your theory more fully than you have. And second of all, in a field like economics there is always the hope and expectation among many in a top-flight department of working in some administration; work does get curtailed or steered away from things which might hurt your chances with your political party of choice. J. Bradford DeLong and Larry Summers are unlikely to voice cogent criticism of the Clinton administration, any more than you'll expect to see Larry Lindsay headlining the problems with Bush's economic plans in 2 or 6 year's time.

A toiler in the groves of academe, even one who isn't a professor, should know this. That's why it's odd that you would say this to me. It's tantamount to saying "I have no interest in finding any information that does not confirm what I have already decided to believe." Okay, but then why do you want to get into an argument with me? It is unlikely that you are going to pop up with some startling economics I haven't seen before (given that we're usually arguing matters of broad public interest); I'm probably not going to be converted by someone who isn't better versed in the subject than I am; and I am certainly not fulfilling your stated goal of keeping you free from uncomfortable facts.

On the other hand, you're reading the site. Probably you're just reading it to find things to rant about on your own web site, but hey, the smallest journey begins with one step. So welcome, pinko trolls; stay awhile and let's chat.

From the desk of Jane Galt:

James Lileks is trying to

James Lileks is trying to make me hang myself.

Oh, sure, he acts all innocent, like all he's trying to do is write about his dog. Bah! I say, and Bah! again because it felt so good the first time. What Lileks does, of course, under the guise of producing his daily bleat, is write about dogs so beautifully and completely that there is nothing left to say about doggishness except that Finnegan appears to be the coolest dog ever in the entire universe and also makes me laugh like a child.

From the desk of Mindles H. Dreck:

We've heard this song before

To the authors of the ridiculous letter published in the Guardian, I have only these lyrics, from the immortal Flanders & Swann. Perhaps they might consider using them in their next communication:

Some folk like music, some folk like tea, Some folk like women, they're not for me. Here is my motto, simple and terse: Everything;s lousy, and going to get worse! Oh, I wish Oh, I wish Man had never evolved from a fish. Oh, I wish I were dead, Wish I'd been dropped on my head, Broken my neck, lost the toss with a bull, Parachute jumped and forgotten to pull, Oh, I long to be dead, Wrapped in a casket of lead, Wish I'd been drowned in a barrel of stout, Dived off the pier when the tide was still out.

The grave, the grave,
Is a fine and private place,
The grave, the grave,
And who the hell wants to embrace?
I wish, I wish I were dead,
Laid out with a lilly in bed,
Wish that I'd drunk some carbolic for fun,
Tested the trigger while cleaning my gun,
Or just shrivelled up in the heat of the sun,
Oh, I wish I were dead, dead, dead,
Oh, I wish I were,
Oh, I wish I were,
Oh, I wish I were,
I wish I was dead.

P.S. - A "Spoken Word Artist" (see 'Saul Williams' among the signatories) is apparently a Poet.

From the desk of Jane Galt:

Chris Suellentrop offers some timely

Chris Suellentrop offers some timely advice on becoming the next world-famous Evil CEO. Finally, a reporter delivers a handy how-to guide in a simple, easy-to-read format. I smell Pulitzer.

From the desk of Jane Galt:

Bill Quick has a post

Bill Quick has a post on medical residencies that I think is interesting. I've commented there on the economics of it, but I just want to say that this is a law I'm actually in favor of.

For those who aren't aware of it, medical residents work shifts between 24 and 48 hours, even though they're technically not supposed to. I've had doctors I know argue about how this isn't so bad and the doctors are used to it. My Aunt Fanny. I've worked 24 and 48 hour shifts, and I don't care who you are or how well trained you may be, after you've been awake for 36 hours you are stupid. It takes longer to make decisions. You get easily distracted and confused. You forget things. You get short-tempered and don't think things through.

But Jane, you say, you did it.

Okay, but I was working on a box of bolts. If I made a mistake, the worst thing that happened was I had to reboot and try again. If doctors make mistakes, people die. Miserably fighting exhaustion is not the condition I want my doctor in.

Moreover, the reason that residents are in that condition is that they are victims of a cartel. They work these outrageous shifts for low pay because there is no Option B except writing off the $100K of debt they've acquired and joining Uncle Fred in the air-conditioning business. If hospitals actually had to compete for residents, these conditions would disappear. But because they engage in what is essentially a wage-fixing cartel, the residents have to work hours that put our lives in danger.

So for everyone who wondered if there are any laws that Jane supports, here's one: down with the medical monopoly! Long live the market!

From the desk of Jane Galt:

I've gotten several angry emails

I've gotten several angry emails claiming that I called Brad DeLong a partisan hack, with tedious defenses of his economic work.

I don't think that Brad DeLong did anything wrong by talking up the stuff he worked on. Presumably he believed in what he was working on; one assumes that that's why he did it.

Nor do I think Krugman did anything particularly wrong by citing him on the topic. But in the same way that you wouldn't mention Ken Lay's opinion on energy deregulation without mentioning he headed a company that stood to benefit from it, you don't cite someone on the subject of work they did without mentioning they're the author. "Jane Galt of New York calls Live from the WTC without a doubt the finest web site in existence." More compelling if you don't know I'm the author, no?

It's not a mortal sin. But it's nonetheless true that he should have mentioned it.

From the desk of Jane Galt:

KrugmanWatch We're inaugurating a new

KrugmanWatch

We're inaugurating a new format for Krugmanwatch.

It's gotten kind of petty. I mean, he's partisan, but hey, so am I, at least until the Bush administration does one more protectionist thing, at which point I'll be joining the Kruggy brigade as we light up the torches and head for the castle. So I'm not going to pick on the cheap shots or petty partisanship, or dissect the column line by line; I'm going to present the highlights (things I liked) and the lowlights (unspinning the spin). Then I'm going to assess predictive validity on the following scale:

0 Does not single out Republicans or the Bush administration for ridicule over Democrats
.5 Blames Republicans and/or conservatives for a substantial portion of ills in our society, but does not name names
1 Singles out specific Republican politicians or the Administration to blame for a substantial portion of ills in our society, while wholly or partially absolving Democrats from similar sins.

We also have
- .5 Blames Democrats and/or liberals for a substantial portion of ills in our society, but does not name names
- 1 Singles out specific Democrat politicians to blame for a substantial portion of ills in our society, while wholly or partially absolving Republicans from similar sins.

But since this hasn't happened in the history of the column, I wouldn't bother to remember it.

Now, onto the column.

Summary
Inequality is increasing in our society. We should be worried.

Highlights
It's an interesting topic, and certainly, it could be worriesome.

Lowlights
-- Where's the beef? The whole article is a complaint about the inflation of CEO pay, based on the pay of the top 10 CEO's from 1980 to now. But there's no sense of whether this is a class-wide phenomenon, or simply a couple of guys who got very lucky. The top CEO's he cites have an annual income not that much greater than Michael Jordan's. Is Michael Jordan the harbinger of a new plutocracy?

Perhaps, but there's no other data. It's like deciding that society is doomed because the income gap on your block has widened; on the one hand, Bill Gates now lives on your street, and on the other hand, your neighbor's brother Bob is out of rehab and living in the Gazebo. Does this portend a crisis, or a statistical anomaly? Who knows.

-- What about inflation? CEO pay, if left unchanged from its $3,500,000 height, would be over $7,000,000 today -- which is not $154 mil, but not chicken feed either. Likewise, if left unchanged until 1988, it would have been $4,825,000. These are not inconsiderable gains.

-- What about growth? I couldn't, in my quick scan of the net, find a good chain-weighted measure of the change in median income, but per capita GDP has increased by about 50%. So even if our CEO had gotten no net increase except inflation and GDP growth, he'd be making around $10,500,000. So the correct inflator is not 43 times (and doesn't 4300% sound so much scarier than 43x?) but around 10 times.

-- Most of that extra income is in stock. Those CEO's did well because their companies did well.

And of course, now some of those companies aren't and the CEO's are parachuting away. And it's tempting to say "there ought to be a law". But fer goshsakes, what law? No estate tax is going to make these CEO's any less feckless, nor can you pass a law against bad judgement; you'd freeze the economy in its tracks, as everyone refused to take any risk or make any decisions. And a law telling CEO's not to be such screw-ups wouldn't prevent these golden parachutes they've written themselves.

What would? Who are these yahoos hurting? The shareholders. Who could have prevented them from writing themselves sweetheart deals with captive boards? The shareholders. And why didn't they? Because the little shareholders don't have a clue, and don't know that they don't have one, and the large shareholders are often short-timers. The institutional investors that hold these stocks could get serious and start demanding some long term value from the CEO's.

But how do you make them do it? Mutual funds and pensions are already some of the most regulated entities this side of kiddie porn. It hasn't made them any more sensible either, at least not to judge from my last Fidelity statement. And again, the law would be worse than the problem it's designed to replace; telling mutual fund advisors "If you don't do the right thing -- no, we don't know now what the right thing is, but you can be sure we will, after you've made your decision and we see what happens" would paralyze the capital markets.

-- "First we will hear that vast fortunes are justified because they are the reward for vast achievement. Here's where that table comes in handy, because it tells you what achievements actually get rewarded. Only one of the 10, Tyco's Dennis Kozlowski, has actually been indicted."

The implication being that the rest are but one bad stock trade from the pokey. But I don't know of any evidence to that effect. Neither, it seems, does Paul Krugman; he moves quickly on.

"But of the rest, three — four, if you count John Chambers of Cisco — were Andy Warhol C.E.O.'s: their companies were famous for 15 minutes, just long enough for the executives to cash in their stock options. The list also includes Gerald Levin, who engineered Time Warner's merger with AOL at the top of the Internet bubble; even at the time it seemed obvious that he was trading half his original shareholders' birthright for a mess of cyber-pottage. "

Cisco's not exactly in the same class as Global Crossing, and Gerald Levin did actually run Time Warner for many years before the merger, and in fact, built it up quite a bit before then. The merger was a capitally bad idea, but he was hardly the only person in America to buy into the peak of the internet bubble. Of course, the golden parachute's upsetting -- but that's discussed above.

-- There's the standard Paul Krugman plaint about the estate tax. And maybe this is the argument that will change my mind about the tax -- I, for one, had no idea that the estate tax could be used to prevent companies from paying their CEO's nine-figure salaries. The mechanism is unclear from the article, but it's certainly an exciting development.

More to the point, for all his maundering about the estate tax, it hasn't done anything to break up the great fortunes of our era.

You are confused. You know that the estate tax did break up many of the robber baron fortunes, or at least make them more modest.

Actually, inflation did a lot of that, and the 1929 crash. The estate tax helped, but it's a one-trick pony. Before the estate tax, there were no estate planning services. Why would there be such a thing? Oh, there were trust and will departments, but there were not legions of accountants who did nothing but sit around all day thinking up clever ways to cheat the tax man out of his death duty. Now that there are, it isn't going away. The only people you get significant estate tax out of are people who are either too ignorant or too illiquid to plan around it. You can change the tax around all you want, but the instant you do the financial planners will be on it like white on rice.

Oh, the superrich pay something. But Krugman offers a datum that is misleading in the extreme: "I've even been assured by some correspondents that inheritance taxes on the very rich are impractical, that they will always be evaded — this in spite of the fact that in 1999 the estate tax raised about $15 billion from estates worth more than $5 million."

Hold on there. The estate tax raises about $50 billion a year. By my estimates, that means that $35 billion is raised from estates under $5 million; I don't think Ken Lay or Gerald Levin qualifies. In other words, the majority of the revenue from the estate tax comes not from the superrich but from moderately high-income savers with small businesses or appreciated assets. The owner of your local 7-11 is paying this thing while Jon Corzine's heirs toss some pocket change at the tax man and stroll away.

But the net effect is not to break up the estates; it's to put them into irrevocable trusts beyond the tax man's reach. The lives of the heirs may have been made marginally more inconvenient, their holdings more illiquid; they may even have to show up at a charity office once a week to justify their six-or-seven figure annual salary. But they are not impoverished by it. The estate tax is much more effective at gutting the upper middle class than the ultra-wealthy. And I don't think that Krugman is trying to get us hysterical about the coming rule of the lawyer-and-accountant aristocracy; even if he buys it, those folks are his readers.

Howlers

" But the Gilded Age looked positively egalitarian compared with the concentration of wealth now emerging in America. Pretty soon denial will no longer be possible. What will the apologists say next? "

On the contrary, we live in the most egalitarian age in history. Think about it: how much better is Bill Gates' life than Andrew Carnegie's?

He's healthier and will probably live longer. But is his house more comfy? His art better? His life more convenient? His clothing better quality? His food tastier and better prepared?

Nope. Healthcare and Gadgets aside, Bill Gates and Andrew Carnegie have little between them.

Now compare the worst paid guy in Carnegie's empire to the worst paid guy in Bill's.

The worst paid guy in Carnegie's empire lives in a couple of rooms with his wife, several children, and extended family. He eats meat once or twice a week. He owns one or two sets of work clothing and a good suit, probably the one he was married in. He has an ordinary hat, a good hat, and some seasonal apparel. He works twelve hours a day. He has no personal transportation; he walks or takes a horsecar. He does not vacation. He cannot afford books, plays, or other entertainment. His entertainment is church, conversation, and possibly music. He probably cannot read.

In human terms, it may be a rich life. In material terms, it wouldn't do a modern welfare mother for a camping weekend.

I don't think I need to itemize the fate of Bill Gates' mail boy for you to see the difference.

The rich were comfortable then and are comfortable now; the improvements are strictly marginal. The poor, on the other hand, have improved their lot immensely. Plutocracy, my Aunt Fanny.

Now, in fact, I am under the impression that inequality is increasing broadly. The problem is that Krugman knows as well as I do why that is: technology puts a higher premium on skilled than unskilled labor. If all you're good for is your muscle power, a machine will work cheaper and quicker and won't unionize. Bye bye human draft horses.

Neither the estate tax nor any other law man can make will remedy this. Only three things might: a subsidy to employers to hired unskilled labor, which is massively unproductive and distortionary, and would involve rolling back productivity increases in some industries; training, which has a dismal record last time I looked; or a negative income tax combined with a repeal of the minimum wage, enabling workers to labor with dignity at a price they are worth. As you can see from the spin, that last is my prescription.

PV He singled out a Bush adminstration guy; that should be a 1, but on the other hand, he's an economist, which is fair game; but on another hand entirely, he didn't treat his analysis all that fairly (it's flawed, but not that flawed). The kicker is, he mentioned that this guy was associated with the last Bush administration, which is irrelevant. .5 on the bias watch (hey, it's subjective.) PV now stands at 7 out of 9, or 78%.

From the desk of Jane Galt:

KrugmanWatch Teaser Something bad happened.

KrugmanWatch Teaser

Something bad happened.

It's the fault of the Bush Administration.

Current predictive validity of accusations of bias against Krugman: 81%.

From the desk of Jane Galt:

Krugmanwatch never sleeps: Thomas Maguire

Krugmanwatch never sleeps: Thomas Maguire points out something I should have noticed, which is that Krugman cites Brad DeLong on the subject of government initiatives he worked on while he was at Treasury without mentioning that fact.

Maguire also points out that DeLong testified on statistical questions of whether some ballots should be thrown out in Florida.

Which reminds me of a story. I don't know if it was the same trial; there were so many of them! But Kevin Murphy, who is a frighteningly brilliant man whose class I desired to take while I was at Chicaago, but was unable to attend because of a conflict with a class I had to take in order to graduate, testified at one of these trials. Yes, he testified for Bush. But I find it hard to believe accusations of bias against him. When you go to Chicago, one of the neat things is that you get to speculate about which of your professors will be the next Chicago economist to get a Nobel; it happens with some regularity. Well, the next guy isn't going to be Murphy; it's probably going to be a chap named Eugene Fama, who is also brilliant and also teaches classes which are sparsely attended because MBA's are in deep fear of the power of his mind. But Murphy is expected to be the guy after Fama. He's already got the John Bates Clark medal, which is actually more prestigious than the Nobel; it's awarded only every two years, to an economist under the age of 40. Of course, so does Paul krugman, so it's not a guarantee against partisanship.

Nonetheless. Paul Krugman doesn't allow partisanship to affect the main body of his work on international trade and monetary policy; he confines his misstatements to areas he doesn't know much about, like energy economics. Nor would Murphy; it's inconceivable that an economist of that stature would allow partisanship to tamper with his work. So generally, when he testifies, as in the Microsoft trials, you can take it to the bank.

Anyway, so Murphy was testifying for the Bush team on statistical analysis of the ballots. I have no idea who the other side's hired gun was, whether it was Brad DeLong or not, though it certainly might have been; the point is, Murphy had the goods. It's a long, boring explanation, so I'll skip it, but while the Gore guy was putting forth speculative statistical theories, the Bush side had done some legwork and had actual counts of the ballots in dispute, as well as statistical evidence, that was going to blow the Gore guy's theory that the ballots in dispute might have put him over the top, out of the water.

So the Gore guy was up on cross, and getting hammered by the very well prepped Bush lawyer, who led him step by step through all the holes in his theory. And then the lawyer asked him, "So do you still believe your theory?"

Allegedly, the Gore guy looked at Murphy sitting in the courtroom. And Murphy, his arms folded across his chest, slowly shook his head. The Gore guy lost it.

"No," he said. It was all over.

There's no point to this story. I just like it, that's all. That's the power of being the best. Power, I might add, that I will never feel.

From the desk of Jane Galt:

The Salt Lake Tribune is

The Salt Lake Tribune is reporting that the police are looking harder at extended family memebers in the Elizabeth Smart case. Apparently, at the window where they thought the point of entry was, the screen had been cut from the inside.

What a terrible thought. Bad enough that a stranger would abduct your child, but to think that your family might have harbored some evil person who plotted and planned to steal a young girl they knew and were supposed to love. . .

From the desk of Jane Galt:

John Cole's looking for some

John Cole's looking for some links. He's had an awful month that's kept him from posting. So go give his site some love. Start with this and work down from there.

From the desk of Mindles H. Dreck:

Volatility Achievement

Holman Jenkins, in an otherwise sound column pointing out that corporate scoundrels are not new to the U.S., observes:

In the markets, the most visible trend has been toward more and better information, analyzed more intelligently, with a resultant decline in the volatility of stock prices.

The rest of the article is on point, and yet that statement, which formed the pullquote in the print version, is dead wrong. For starters, market volatility is up over the long term, but therein lies a tale.

In the late 1980s and early 1990s, the economy absorbed the savings & loan crisis, suffering a mild recession in 1991 but recovering to strong growth before the year was over. Specific fallout was severe - you could see through the skyscrapers in several cities in the South and West of the country, and hundreds of banking institutions failed. Pundits pointed to the S&L crisis and made bland overreaching pronouncements about business ethics and the evils of deregulation (in fact, as in California's energy problem, partial deregulation created a massive trap), but the job and market losses were soon absorbed by other sectors of the economy. Institutions like GE went bottom-fishing in thrift-distressed real estate and made a killing.

1994 was an interesting year in the stock market. The S&P500 was down 0.5% (price only). Underneath the calm surface, however, was a riptide. By the end of the year half the stocks on the New York Stock Exchange were 40% off their 52-week highs. Several hedge funds went "belly up", mostly those selling interest rate volatility in one form or another, such as David Askin's. Pundits pointed to the crisis and made bland overreaching pronouncements about business ethics and the evils of speculation....

In 1998, Russia defaulted on its debt and Long Term Capital failed. The S&P 500 appreciated about 26%. Pundits pointed to the crisis and made bland overreaching pronouncements about business ethics and the evils of speculation....

Accounting irregularities and company failures cropped up throughout the entire period. The 2000-2001 capital spending bust aggravated the problem, piercing bubbles in telecom and internet-related stocks. Pundits pointed to the crisis and made bland overreaching pronouncements about business ethics and the evils of speculation and deregulation...

Trailing 5-year percentage volatility in the S&P 500, as indicated in the graph linked above, is around 17-18%. This is above 1950-1960 levels, but commensurate with levels since then. Much like 1994, however, the index masks much higher levels of volatility in economic sectors and individual stocks. For instance, volatility over both shorter and longer term time frames has been higher than the broad index in every sector of the S&P (i.e. energy, information technology, etc.) apart from consumer staples and health care. Information technology exhibits more than double the volatility of the S&P 500. Subsectors and individual stocks are even more volatile. The insurance subsector has shown volatility of about 76% over the last three years. Citibank's common stock volatility runs about 32%. As Jenkins says to conclude his article:

No amount of rule tinkering will prevent a Kozlowski or Enron from discovering new ways to blow themselves up. Investors who find this thought unduly scary haven't figured out the oldest rule in the book: You can never be too skeptical or too diversified.

A similar phenomenon exists in the broader economy. In this case personal income and GDP are actually much less volatile than in the past..

...but their constituent parts, regional economies and sectors of the economy, can be much more volatile. There is micro-volatility but macro-stability. Instead of general brown-outs, we get rolling black-outs. These rapid adjustments, and the market and job losses brought about by the Andersen, Enron and Tyco scandals are part of a free market economy healing itself. The specific, wrenching dislocation they cause is part of a process that actually reduces risk to the economy as a whole.

In another time, the combined shock of September 11 and the capital spending bust would bring the whole economy to a halt. Time was, if your local manufacturing company wasn't hiring, there weren't any jobs in your town. Today's economy seems to absorb its pain faster and more dramatically, but isolate the shock to the sector in question. Mobility of capital and labor and a lower dependence on asset-intensive manufacturing industries are at least partly responsible for this change.

So why is market volatility higher than 40 years ago?

Some of the acute, localized volatility as a positive sign of economic adaptability, kind of "good" volatility or Schumpeter's "creative destruction". In stabilizing broad measures of economic volatility, it serves to decrease exogenous risk in the markets and the economy. However, we also see a measurable increase in endogenous risk in financial markets. Keynes called this bad risk "animal spirits", and it is the stuff bubbles are made of.

So, while Jenkins is correct about the lower risk he perceived because of our system's ability to absorb and adapt, and the lower fundamental risk to the market, he is wrong about the total market risk, which has not decreased meaningfully, and has increased over the longer run.

A professor at Stanford has put forth a brilliant theory quantifying the growth in market "animal spirits" in a market general equilibrium theory called "Rational Beliefs". Economists I admire have suggested that RB is to current market theory as quantum physics is to Newtonian physics.

I hope to discuss this, and speculate as to whether this increased endogenous risk is evident anywhere in the economy (I'm afraid labor markets may be a case in point) in a future post. At which time you will all be sleeping soundly or checking out the latest pics over at unablogger. It takes more than a handy Bloomberg to check those curves.

From the desk of Jane Galt:

Rabbit thinks I'm boring. I

Rabbit thinks I'm boring.

I could get all hurt and defensive and whiny about this, and call Rabbit a bad name that rhymes with "slitch" and say that she may be having fun now but there's the kind of girl men like to have fun with and the kind they want to marry and we'll see how much fun she's having in ten years when everything starts to sag, and oops! I've stumbled into a Lana Turner movie again.

Instead I'm just going to be hurt, because I love Rabbit. I'm giving myself carpal tunnel syndrome checking her blog every hour, on the hour, for her updates. And all I want to say is that just because some people write for NPR, and some people are about a million times funnier than me, doesn't mean that some people couldn't be a little kind once in a while. And if I should happen to be found floating in, say, the Hudson River, with, say, a laminated card stapled to my lifeless carcass reading "Take that, Rabbit!", I just hope that some people will take that valuable opportunity to rethink their life and the way they treat people. That's all I'm saying.

On the other hand, I look at the blog, and it's global warming this and monetary policy that and where's the fun? Unfortunately, I'm an MBA, and I don't really know anything about fun. If you know anything about fun, you don't have time to get the job that gets you into business school. MBA's think they know a lot about fun, but the things they think they know usually involve throwing large parties that bear a suspicious resemblance to the ones thrown by the fraternities that wouldn't let them in when they were undergraduates.

On the other hand -- um, out of hands, just use your big toe for now -- I was an English major. English major's know a lot about fun. Well, some English majors, anyway. The kind of English major that droops around in all black, or flowing poetic dresses that drape around their figure like a burlap sack and isn't that a blessing -- those people do not know about fun. Those people are busy being melancholy, because they've read so much about it and it seems interesting. There is nothing in the entire world as tedious as affected misery. Really miserable people eventually get bored with it and lighten up. People who are just being miserable because they think it makes them cool never know when to stop.

No, for fun English majors, you want the kind of English major who is an English major because being an English major leaves them more time for fun. Unexpected things happen when you are around this kind of English major; spontaneous, amusing events, like contests to see who can eat the most jalapeno peppers or get the most phone numbers from doctors in the intensive colon care unit, sudden trips to Mississippi to see if it's really there, or applications to business school.

And what do you do with this, particular, fun English major? Is this English major fun, or is she still carrying a heavily annotated copy of The Bell Jar everywhere she goes? Well, I'm afraid to find out, you're going to have to come to Blogapalooza 2002. All I can say for now is, don't forget your slinky.

From the desk of Jane Galt:

Meanwhile, Japan heads rapidly down

Meanwhile, Japan heads rapidly down the drain.

Japan is vindication of Keynes to this extent: it turns out that Keynes was right about at least one thing.

The basic idea is this: for various reasons, people decide to put off spending into the future. The technical term for this in economics is "saving".

[This is all vastly simplified because I'm writing a website, not a Macro textbook. 'Kay?]

Because you (and 120 million other consumers) aren't buying things, factories produce less. This throws people out of work. This produces even less current demand for goods, which means factories produce less . . .

Keynes theorized that an economy could essentially stall out; for it to pick up, people would need to start buying things, but they would refuse to do so, because of deflationary expectations, uncertainty about the future, and other sundries. With this vicious circle in operation, production would get permanently stuck at an artificially low level, like the car you had to sell because it wouldn't shift to second gear.

It also turns out that Keynes was wrong to this extent: his solution doesn't work. The Keynsian solution to this is government spending. Japan has a deficit of 7% of GDP and debt approaching 150% of national income, and a very large number of roads going nowhere, government buildings where nothing happens, and bridges connecting two places that were already quite well served by the bridges they had. Yet the stagnation drags on.

The monetarist solution is lowering interest rates. Also didn't work; the Japanese government is practically begging people to take these yen off their hands -- take as much as you like! Are you sure you don't want thirds? -- and the economy's still moribund.

There are some people arguing that they should just start printing money, but it's not clear that that would work either; Japan's credit is already on the rocks, and people seem to suck up any excess liquidity in the system by sticking it under their mattress with the rest of their cash.

So what the hell's going on?

Japan seems to have four overlapping problems.

The first, and probably the most important, is the demographic crisis. Japan averages 1.3 children per mother, far below replacement rate. Women in their 20's and 30's are refusing to get married, because the familial structure of Japanese marriages seems to be somewhat onerous. Whatever the reason, the population is aging fast. People alive today know that there are not enough people in the workforce to support a public pension; they're trying to sock it away for their retirement. Unfortunately, all this saving, much of which goes into government bonds for boondoggle construction projects with a negative net return, is killing their economy now, which doesn't improve the future outlook. And since the outlook is so grim, they figure they'd better put some money away. . .

This both feeds into, and off of, deflationary pressures. Deflation is the opposite of inflation; it means a dollar tomorrow will buy more than a dollar today. Since we're all raised on a 70's fear of inflation, this sounds like a good thing. But deflation has problems. For starter's, it was a major cause of the Great Depression. Deflation crushes borrowers, who have to pay each loan installment with ever-more-expensive money. While it makes people eager lenders, it makes reluctant borrowers. While theoretically, interest rates should move to equialize demand for savings and demand for investment, interest rates cannot go below zero. Therefore, when deflation gets too bad, the monetary policy of the central bank can't use the usual means to stop it. Think of it this way: if I offer to just give you five bucks on the condition that you pay it back in a week, and in a week you know that you'll be able to buy 20% more stuff with the five bucks, this is not, for you, a good deal; it's an effective interest rate of 20%. And you can't lower it any more unless I offer to pay you to take my money.

Japan has a lot of people willing to lend (save) but no one who wants to take them up on it; it's just too expensive.

Which leads us to the third major problem: the banks.

The banking system is a disaster. Large parts of it appear to be insolvent; only the willingness of the central bank to prop them up through a combination of bad loans and bad accounting is keeping them afloat. But no one really knows, because Japan Inc. didn't, apparently, thrive on transparency.

Banks are the primary vehicle of money creation in a modern economy. The central bank pumps in liquidity; the banks make loans; the loans expand the money supply. Only any money that goes into the banking system goes to prop up the disastrous balance sheets. And no one wants to borrow any money, anyway, because the future doesn't look so bright, which is not a good time to start a new business, and the deflation means the interest rates are too high, and besides, the potential borrowers all busy saving for retirement.

Meanwhile, the deflation and the crappy economy, which are caused by. . . the deflation and the crappy economy, are eating away at the bank's balance sheets because each bout of deflation/crappiness produces more borrowers who can't meet their loan payments, and the deflation means that whatever was securing the loan is probably now worth less than the loan so there's no point in foreclosing; the banks string them along hoping they'll be able to pay at some unspecified point in the future. Meanwhile, the banks can't afford to make new loans because they're insolvent, and even the banks that are solvent have difficulty finding loans to make because people don't want the money, but also because the uncertain economic outlook makes such loans risky. Which causes. . . deflation and a crappy economy.

On top of all this, the only people in Japan who are spending any money are the aforementioned young single women who are rapidly driving the nation to its demographic doom. Everyone else has developed a mania for making do with less. If there's anything a nation in a deflationary crisis needs less than a "Back to Basics" movement, it's hard to imagine what it could be, but that's exactly what Japan has developed; it's a thriving fad to find out exactly how little you can spend.

So what to do? People are fresh out of ideas. Something has to be done to force consumers to digorge their cash in favor of consumer goods. But what can they do? Create inflation, somehow. But other than operating the printing presses on a Weimar Republic scale (which is what Paul Krugman, among others, has advocated and who knows, maybe it's the answer), how do they do it? The ex-boy's father was an economist specializing in Japan, and his particular prescription was announcing a sales tax to be phased in over a number of years; it's as good a thought as any, I suppose, though the political fallout is apparently unacceptable. But now, with the debt downgraded and the risk of default looming, perhaps they'll try such a scheme. They've got to try something.

And why should you care? Because we're going to have ANOTHER GREAT DEPRESSION RIGHT NOW! No, that's not why, although I did recently read a hysterical article claiming it was so. Rather, because Japan is the canary in the gold mine.

No large industrial society in history has attempted to cope with the kind of massive demographic shift that's occuring in all Western countries, with the old living longer past their productive years, and fewer and fewer young people to support them. Japan is the first nation to hit that shift, because its diet makes people longer lived, and its birthrate is extraordinarily low. Even absent the banking crisis, this kind of deflationary pressure may result when our own crisis hits, as people desperately try to save for future consumption, and thereby tank the economic growth that could provide that consumption. Japan's crisis may be unique in the conflation of a banking disaster, but that doesn't mean we shouldn't be taking a long, hard look in the mirror.

Hang in there, folks; we're in for a bumpy ride.

From the desk of Jane Galt:

Poland's having trouble. Growth has

Poland's having trouble. Growth has slowed, and now people, threatened with unemployment (my Polish coworker claims it's 35% in some areas), they're looking to statism to bail them out.

The problem with this is that it doesn't work. As this moving article points out, the drive to industrialize the Soviet union used, at one point, 20% of the workforce as slave labor. The other countries that have managed to improve their standards of living significantly through statism were either using massive technology transfer from the West (if you're an agrarian country with $100 per capita GDP, the only way to go is up), or massive financial transfer from the Soviet Union. Scandinavia, which is usually cited as the evidence that social democracy breeds success, doesn't work either; Norway is surviving on its natural resources, not its productivity, and Sweden seems to have been cannibalizing its earlier free market revolution. If Poland re-nationalizes, the evidence says they'll have slower growth. And they'll have no one to blame but themselves.

From the desk of Jane Galt:

It seems like every time

It seems like every time I post anything these days, whether it be my opinion that Bush's popularity ratings are holding up better than I would have expected, or a wee bit o' number crunching on global warming, I get someone emailing to say "but that's not peer reviewed data" or "where are the studies you used to get that result?". Okay, I don't know how I gave people the impression that I sit around with my supercomputer, feeding various analyses into it and then reporting the results with a modicum of trenchant wit, but my analytical equipment consists of Excel (and I don't even know how to use most of Excel's statistical functions; I'm a Minitab gal) and whatever's on the internet. Nothing I write here is going to be published in the Journal of Galt, or what have you. For one thing, I have a job, which does not leave me the weeks and weeks I would need to construct a rigorously controlled model for every single thing I say.

So let me state, before I start, that this is my opinion.

Ted Barlow, who is always food for thought, had an interesting debate raging about global warming, and since I addressed the topic myself, I thought I'd weigh in.

He made a wonderful comment:

For example, many on the left are motivated by the wish for full racial equality. This is well and good; the civil rights movement is one of the most beautiful stories of the 20th century, and racial minorities still need vocal advocates at least as much as, say, Microsoft. But too many people on the left assume that their political opponents must, by definition, feel the opposite way about racial equality. Too many assume that "right-wing" means "racist". It's not true. It's an insulting argument that does a huge disservice to racial issues. Furthermore, it's one of the most effective ways to make conservatives stop listening to liberal arguments. If I was being called a racist, I would stop listening, too.

But then undercuts it:

Similarly, I keep coming across the assumption from bloggers on the right that "environmentalism" is just anti-capitalism by other means. People who want cars to be more fuel-efficient, or want clean air or water, or don't want the tops of mountains dumped into rivers- i.e., the large majority of Americans- aren't motivated by the wish to live longer lives with fewer environmental toxins, or by a love of nature, or by the wish to forestall disaster by delaying the exhaustion of irreplaceable natural resources. Rather, they must be motivated by a loathing of capitalism, progress, and success. What else could it be?

Et tu, Ted? People who disbelieve global warming or other environmental disaster predictions belong to that majority of Americans who do not want polluted water, ravaged landscapes, or the earth's mean temperature increased above the boiling point of water. No matter how much it may feel like it, neither side has staked out the "against" position in the "total destruction of life as we know it" debate. Everyone is for the environment, in abstract, just as everyone is for mother love and puppies. It's not a question of whether or not most Americans are against those things, but of what they are willing to pay to avoid them.

I think the biggest problem is the knowlege gap on both sides. We all like information that confirms ideas we already have; we seek it out. We underweight disconfirming information. Now, I know I may not have a ton of new readers, but anyone who did not read my piece on global warming, answer a few questions for me. Jot the answers down on a piece of paper, to avoid the temptation to fudge:

How much do you think Kyoto would cost, as a percentage of GDP?

How much do you think Kyoto would reduce global warming, in degrees (i.e. 1 degree, 2 degrees, 3.5 degrees, etc.)?

How much do you think Kyoto would reduce global warming, as a percentage of total warming? (i.e. 1%, 10%, 100%)?

Are you for or against Kyoto?

If you are for Kyoto, are you against even stronger measures than Kyoto?

How much of your personal income would you, personally, be willing to give up to stop global warming?

By what percentage do you think national income would have to be reduced to stop global warming?

You can check out the answers here. Do it before you read any further.

Funny, huh? I'll bet you that most of you who are supporters of the "Global warming is real and dangerous" side of the debate drastically underestimated the cost of reducing emissions, and overestimated how much Kyoto would do to reduce global warming. And I'll bet equally that most of you who are against the "Global warming is real and dangerous" side of the debate overestimated the costs of reducing emissions, and underestimated what Kyoto would do. C'mon, admit it. There's no one here but us chickens. A little biased, right? That's okay. We're all a little biased. The problem is that we all carry around these beliefs we've acquired and nurtured, and very seldom stop to do a quick reality check on them. It makes it a little hard to get a dialogue going.

My personal take on what is going on in the environmental argument (WARNING: NON PEER-REVIEWED OPINION BACKED UP BY NO STATISTICAL ANALYSIS) is that one side has seized on one set of costs, while the other side has seized on a different set of costs, and both are busily screaming about their set of costs while ignoring what the other side has to say.

GW believer groups have some science to back up the conclusion that there is anthropogenic global warming. They hurt their scientific credibility, however, because they seem to believe every single report put out by a climatologist, no matter how tenuous its conclusions.

GW non-believer groups have considerable data to back up the conclusion that halting anthropogenic global warming would be disastrously costly. They hurt their scientific credibility, however, by resisting comparison with the costs of global warming.

GW believers ignore or minimize the costs associated with reducing global warming, displaying a monolithic ignorance of economics or engineering. They either assume that it will be possible to maintain something close to our standard of living while drastically cutting our energy usage, or they are a member of the small minority who thinks it would be fun to re-enact Little House on the Prairie, for real. (But we won't deal with the latter group here, they're not the majority, and most of them get over it when the buzz wears off). The assumption that we can cut our energy use but maintain our economy is either based on ignorance of the engineering involved, or ignorance of the economics. The latter group doesn't understand that the largest part of GDP is composed of energy-intensive products, and that the products that are most vital, such as air conditioning, heating, food production, and transportation of goods, are also the most energy intensive. Most of the scientists pushing for radical changes fall into this group; they imagine running an industrial economy is only slightly more complicated than running the Physics department.

The former group doesn't understand the physical limitations on conservation. They either think that renewables are viable, because they don't realize the physical requirements of renewables (where are you going to put the solar panels for New York?), the storage issues (you can't produce base-load electricity with a variable power source, such as wind or solar), the transmission issues (electricity doesn't travel well), or the chemical properties (fuel cells take more energy to produce the hydrogen for the fuel cells than they give off in your car or house). Or they do not understand the limits to efficiency presented by the physical properties of heat engines. They think, for example, that auto fuel efficiency is going to increase on a trendline, like this:

(Note: I have no idea what actual average efficiency looks like. This is a made up graph. For illustration purposes only.)

Which is not true. Engine efficiency has physical limits, set by the laws of thermodynamics and the properties of the metal, of about 30% for an internal combustion engine. Easier, bigger efficiency increases are made earlier. So efficiency increases asymptotically to the theoretical limits, like this:

Now, when GW believers say things that the engineering or economics savvy know aren't true, like "minor increases in engine efficiency can take care of a large part of our emissions problem", those who are cost-aware get hopping mad and decide that the people on the other side are idiots. Since they, being cost aware, would already like very much for GW to go away, they seek out information that confirms their beliefs, and discount information that doesn't. So when a lone study appears to cast doubt on the weight of global warming evidence, they believe the study. They make arguments about the magnitude of anthropogenic v. non-anthropogenic warming that they would never dare to make in a budget meeting. Saying that the largest part of the earth's temperature comes from the sun, and therefore we shouldn't do something about the 5% that won't, no matter how costly that 5% might be, is like arguing that since you can't do anything about 95% of your fixed costs, there's no reason to bother lowering the 5% that's within your control. Or they simply choose to disbelieve the science, even though they have little ability to evaluate it on scientific terms.

When GW believers hear non-believers make these sorts of arguments, they decide that everyone on the other side is an irrational idiot. They therefore dismiss everything the other side says about the potential costs as so much carping from People Who Don't Care About Our Planet and Our Future, even though they almost never have the ability to evaluate the arguments on economic or engineering terms. Since they are already predisposed to believe in global warming, they don't examine disconfirming evidence from their own side, while ignoring the weight of economic evidence from the other side in favor of lone, non-peer reviewed studies that don't pass even elementary common sense tests. (Study shows that environmental regulations actually increase GDP because of all the new jobs created in environmental cleanup industries!)

This, of course, makes the other side hopping mad, and the entire cycle begins anew. Is it any wonder that the two sides are talking past eachother?

Not that closing the information gap means we'll all agree on exactly what we should do. Part of this is a value judgement: do you value pristine streams a couple thousand miles away more highly than your own creature comforts? But it's certainly a start. And it starts with looking at the good evidence from both sides. If you're single sourcing your data from either Pro- or Anti- GW people, you're getting a skewed picture. And reading a single article in National Review which you hurl across the room because it's author is so obviously wrong about GW does not count as broadening your knowlege.

A value gap we can deal with -- we hammer out such compromises all the time. But the information gap is fatal to a sensible solution.

From the desk of Mindles H. Dreck:

The New Aristrockracy

This Steyn column appeared in Yesterday's New York Sun. It had me giggling like a 6th grader at a school dance:

Rock stars aren't a welcome break with the old hidebound aristocracy, they're the new hidebound aristocracy. Over the years, I've met her majesty, and I've met a lot of rock stars, and I can tell you the rockers are a lot queenlier than the queen. They're far more hung up on protocol than your average prince or duchess...

...It's fashionable to bemoan the way celebrity has contaminated every aspect of public life, but, happily, a growing number of celebrities now behave with the decorum and restrained formality previously associated with the royal family. Even Sir Elton, whose country house in Berkshire was once full of glitterballs, strobe lighting, amyl nitrate, cocaine, and louche young men, has signed up for the New Gentility.

"I've never seen so much porcelain," bemoaned Mick Jagger after a recent visit. "If I see another piece of f---ing porcelain, I'll go bonkers."

A few months ago, Sir Elton and his male partner were invited by the queen to join her for tea in the Royal Enclosure at the Ascot races. On another occasion, her majesty gamely escorted Elt onto the floor and whirled daintily around to "Rock Around the Clock," dancing queen to queen, while Prince Philip, displaying a visible reluctance to get with the program, was obliged to stand at the side and make small talk with Elt's boyfriend.

How far will it go? Prince William and Britney were rumored to be an item awhile back, and I can't be the only one who wondered what might have been when Streisand let it be known a few years ago that she'd once been sweet on the Prince of Wales. He could, it seems, have married a genuine Jewish American Princess instead of the manipulative bulimic neurotic he wound up with. Barbra is a model of regal dignity: She issues Christmas messages to the peoples of the world, just like the queen and the pope do; at the Democratic Convention, she sings "Happy Days Are Here Again" so butt-numbingly slowly it sounds far more like a national anthem than "God Save The Queen" or "The Star-Spangled Banner." Incidentally, I'm not sure if Bono and Treasury Secretary Paul O'Neill have danced together on their extensive African tour, but, like the queen and Sir Elton, they make a lovely couple, especially in that exotic native sleepwear they were pictured in the other week. Nothing but good can come of sober rockers like Bono lending their deep sense of duty and public service and commitment to good causes to a decadent ruling class of chaps like O'Neill who otherwise would be spending their days nailing chicks, trashing hotel rooms and driving their Rolls into the swimming pool.

When I looked at that picture of O'Neill and Bono I kept wanting to draw a thought balloon in next to the fellow in the middle background - "I'm glad my wife didn't let me throw those away!". Or maybe some direct dialogue - "Are you guys gonna buy something or just stand around?"

At any rate, read the whole Steyn, it's hysterical.

From the desk of Mindles H. Dreck:

The Litmus Test

If you answer yes to 10 or more of the questions below, you are one of the hypersupersensitive uber-class of "cultural creatives". Welcome to the elite group that includes Bill Moyers, Anita Roddick (oh boy) and some Mayor you never heard of (This Anita Roddick?). You can come in and sit in the comfy chairs with the other folks who truly get it:

Cultural Creatives need this kind of caring now. Making their way towards a new territory of values and a new way of living, they need to hear true stories of others who are also making this journey. It can be bread for the journey. Indeed, as Badger says, "sometimes a person needs a story more than food to stay alive."

The quiz:

You...
1. ...love Nature and are deeply concerned about its destruction

2. ...are strongly aware of the problems of the whole planet (global warming, destruction of rainforests, overpopulation, lack of ecological sustainability, exploitation of people in poorer countries) and want to see more action on them, such as limiting economic growth

3. ...would pay more taxes or pay more for consumer goods if you could know the money would go to clean up the environment and to stop global warming

4. ...place a great deal of importance on developing and maintaining your relationships

5. ...place a lot of value on helping other people and bringing out their unique gifts

6. ...do volunteering for one or more good causes

7. ...care intensely about both psychological and spiritual development

8. ...see spirituality or religion as important in your life, but are concerned about the role of the Religious Right in politics

9. ...want more equality for women at work, and more women leaders in business and politics

10. ...are concerned about violence and abuse of women and children around the world

11. ...want our politics and government spending to put more emphasis on children's education and well-being, on rebuilding our neighborhoods and communities, and on creating an ecologically sustainable future

12. ...are unhappy with both the Left and the Right in politics, and want a to find a new way that is not in the mushy middle

13. ...tend to be somewhat optimistic about our future, and distrust the cynical and pessimistic view that is given by the media

14. ...want to be involved in creating a new and better way of life in our country

15. ...are concerned about what the big corporations are doing in the name of making more profits: downsizing, creating environmental problems, and exploiting poorer countries

16. ...have your finances and spending under control, and are not concerned about overspending

17. ...dislike all the emphasis in modern culture on success and "making it," on getting and spending, on wealth and luxury goods

18. ...like people and places that are exotic and foreign, and like experiencing and learning about other ways of life.

Well, at least they understand the connection between paying more taxes and limiting economic growth. I checked 4,5,9,12, 14 and 18. But I also noted that that last clause in 2 is directly at odds with 14, not to mention the thoughts preceding.

They claim to be 50 million strong, and not just "hot tub yuppies".

From the desk of Mindles H. Dreck:

The Power of Government

I'm with Jane. Thank God it isn't just law professors having fun with their discipline on the web .

Here's a component of professor Sala-i-Martin's rebuttal to Keynesian faith in government:

From the desk of Jane Galt:

James Glassman has a great

James Glassman has a great piece on earnings growth. You should read it before you buy your next stock. And some scientists explain what I've been saying about renewables, but with more science.

From the desk of Jane Galt:

I love this man. I

I love this man. I know you're not supposed to love someone you've never met, but whoever said that had obviously never seen Professor Xavier Sala-i-Martin's web page. And he's -- sigh a mere twenty blocks, a meager mile, from my house.

From the desk of Jane Galt:

Okay, I admit, I thought

Okay, I admit, I thought the keyboard thing was funny. And swiping souvenirs from Air Force one is hardly unexpected; I'd be tempted to take an ashtray or something too, if I'd served in the administration.

But the rest of the White House vandalism is juvenile, destructive, and quite frankly, unbelievable for people who are supposed to be mature enough to have their hands on the executive branch of the country. I'm actually shocked -- no, really -- at the pettiness of it. And the GAO says that yes, it really happened.

This, on the other hand, made me laugh.

From the desk of Jane Galt:

When I find myself agreeing

When I find myself agreeing with Richard Cohen and Nicholas Kristof on the same day, I begin to wonder whether it's possible that the Harmonic Convergence, whereby everyone in America comes together in one big bi-partisan hugfest, is not imminent. But I do have to take issue with one statement in his otherwise good column:

George Bush clearly has his work cut out for him. Much of Europe still sees him as a unilateralist, the president who came into office determined to abrogate this or that treaty and who, either in word or manner, considered Europeans to be wimps.

What's more, the Continent is suffering from an inferiority complex. For years, it was so stingy with defense funding that its militaries were almost entirely ignored in the planning -- not to mention the execution -- of the war in Afghanistan.

Still, Europe cannot be ignored.

Which begs the question: why not? And Cohen doesn't offer any good answer; it's just our habit. Like smoking. We're so used to paying attention to Europe that it never really occurs to us to stop.

But seriously: why not? And I mean it. Readers who think we should pay attention to Europe, offer your arguments. Those who think we should ignore them, do the same. To heck with consensus: let's argue!

From the desk of Jane Galt:

Meanwhile, I was perusing the

Meanwhile, I was perusing the rest of the Times, and my eye was caught by a couple of things:

First, this headline:

Monday's announcement on the alleged plot to build a "dirty" bomb seemed to reinforce the Bush administration's repeated warnings that Al Qaeda remains a threat.

Sample New York Times headlines:

"Hitler's Invasion of Poland Seems to Indicate Germany may plan to expand."

"Vote counts from 1984 election seem to indicate that American Public likes Reagan."

"Fall of the Berlin Wall seems to indicate that Communism may not have worked as well as we thought."

Write your own -- it's fun!

And then, this line from a Nicholas Kristof editorial:

At Harvard, many students and faculty members are hostile to military and R.O.T.C. training because the military discriminates against gays. It's a fair point, and the discrimination is worth fighting. But it was the American military that deposed the Taliban, the most viciously anti-gay regime in the world, one that executed gays by knocking over walls on top of them. America's military does discriminate against gays and is a bastion of anti-gay attitudes, but it has also done more for gay rights — albeit in Afghanistan — then all the gay organizations in the Ivy League put together.

Of course, I applaud the realization that yes, freedom in the world is actually and truly maintained in part by a willingness to kill bad guys who want to take it away. But that's not what I want to talk about. What I want to know, is, who the hell kills someone by toppling a wall on them?

[Before you begin mentally composing your angry emails, please note that the editorial position of Live From the WTC is firmly against executing people for their sexual proclivities, unless those proclivities involve living creatures incapable of giving consent, such as children or animals. Taliban=Unspeakably Evil for so many reasons, including this. But I've already beaten that subject to death, so now it's on to Methods and Means.]

I mean, first of all, it's bad for the nation's capital infrastructure. And in a country like Afghanistan, walls are a pretty major part of their physical plant. Why go around knocking them down?

Second of all, there must be a limited supply of walls, at least ones that aren't holding up something you don't want to fall down, like a roof. What do you do when you run out?

And third of all, it's bizarrely complicated and inefficient, like those death plots in James Bond movies. ("I am not going to shoot you now, Movie Spy Hero, even though I have a gun, because that would not fit in with my Evil Movie Villain plans. Instead I am going to smear you with Alpo and toss you into this pit full of ravenous golden retriever puppies, who will lick you to death while I make my escape. While you are slowly dying, you may meditate on my Evil Plan, which I will disclose to you now: I am going to assassinate the assistant comptroller of Columbus, Ohio, and thereby unleash financial ruin on the world!!!! Bwa-ha-ha-ha-ha!) You could stone the person to death. You could smack them in the side of the head with a big rock. You could push them off a cliff. All of these things would have pretty much the same physical effect on the perpetrator, without involving time consuming wall-pushing-down-arrangements, or accelerated depreciation of capital assets. So why the wall?

No wonder Afghanistan is poor; with classic government-imposed regulatory regimes like this one, the market for executions is sucking up resources that could otherwise be productively invested elsewhere. Humanitarian aid is good and all, but I think they also need some economists.

Hey, Paul Krugman's not that busy, is he?

From the desk of Jane Galt:

Meanwhile, I was perusing the

Meanwhile, I was perusing the rest of the Times, and my eye was caught by a couple of things:

First, this headline:

And then, this line from a Nicholas Kristof editorial:

At Harvard, many students and faculty members are hostile to military and R.O.T.C. training because the military discriminates against gays. It's a fair point, and the discrimination is worth fighting. But it was the American military that deposed the Taliban, the most viciously anti-gay regime in the world, one that executed gays by knocking over walls on top of them. America's military does discriminate against gays and is a bastion of anti-gay attitudes, but it has also done more for gay rights — albeit in Afghanistan — then all the gay organizations in the Ivy League put together.

Of course, I applaud the realization that yes, freedom in the world is actually and truly maintained in part by a willingness to kill bad guys who want to take it away. But that's not what I want to talk about. What I want to know, is, who the hell kills someone by toppling a wall on them?

[Before you begin mentally composing your angry emails, please note that the editorial position of Live From the WTC is firmly against executing people for their sexual proclivities, unless those proclivities involve living creatures incapable of giving consent, such as children or animals. Taliban=Unspeakably Evil for so many reasons, including this. But I've already beaten that subject to death, so now it's on to Methods and Means.]

I mean, first of all, it's bad for the nation's capital infrastructure. And in a country like Afghanistan, walls are a pretty major part of their physical plant. Why go around knocking them down?

Second of all, there must be a limited supply of walls, at least ones that aren't holding up something you don't want to fall down, like a roof. What do you do when you run out?

And third of all, it's bizarrely complicated and inefficient, like those death plots in James Bond movies. ("I am not going to shoot you now, Movie Spy Hero, even though I have a gun, because that would not fit in with my Evil Movie Villain plans. Instead I am going to smear you with Alpo and toss you into this pit full of ravenous golden retriever puppies, who will lick you to death while I make my escape. While you are slowly dying, you may meditate on my Evil Plan, which I will disclose to you now: I am going to assassinate the assistant comptroller of Columbus, Ohio, and thereby unleash financial ruin on the world!!!! Bwa-ha-ha-ha-ha!) You could stone the person to death. You could smack them in the side of the head with a big rock. You could push them off a cliff. All of these things would have pretty much the same physical effect on the perpetrator, without involving time consuming wall-pushing-down-arrangements, or accelerated depreciation of capital assets. So why the wall?

No wonder Afghanistan is poor; with classic government-imposed regulatory regimes like this one, the market for executions is sucking up resources that could otherwise be productively invested elsewhere. Humanitarian aid is good and all, but I think they also need some economists.

Hey, Paul Krugman's not that busy, is he?

From the desk of Jane Galt:

Good postfrom Alex Whitlock about

Good postfrom Alex Whitlock about the two-party system and why it isn't as bad as we used to think back when we were idealistic undergrads full of cheap wine and glib ideas.

But I think there's a possibility he misses: that a 3-Party system can consist not only of left/right/center, but of either the left or the right split into two parties, with one party on the other side. Such as Canada, with it's right in disarray. Or our own 2000 election. Whether or not you think this is bad, of course, depends on whether or not your horse came in first in the last election. Canadian liberals think it's just ducky. And conservatives here aren't weeping too hard about the Nader Effect.

From the desk of Jane Galt:

KrugmanWatch Tee-hee! Partisan hacks claiming

KrugmanWatch

Tee-hee! Partisan hacks claiming that the issue isn't that they're partisan hacks, but that the other side is the American reincarnation of Darth Vader, always make me laugh. Bill "That's one order of Filet of Soul for $7.50, and would you like a side order of fries with that?" Clinton praising David Brock for revealing that the Vast Right Wing Conspiracy was populated with Soulless Corporate Demons determined to bring down ol' Pure of Heart and Brave of Deed Bill -- I haven't laughed so hard since I heard Rush Limbaugh proclaim that democracy was in mortal danger because a secret cabal of feminist and race-baiters was plotting to destroy him so that they could pursue their Perfidious Agenda unfettered by The Truth. Unfortunately, as I was rolling around on the floor, writing with uncontrollable laughter, I smacked my head against my fully aluminated beverage cooler, and became so disoriented that I actually registered with the Green Party. Now Ralph Nader won't stop calling me, and I'm signed up to hold the megaphone at a demonstration against the Harvard Whaling Club next weekend. Can anyone give me a ride to Boston?

That's how I felt when I read Krugman's opening line. I wouldn't want to call it transparently pompous and self-serving, because that would be rude. You just read it for yourself:

"Some months ago an academic colleague — a man with strong Democratic connections — urged me to write a couple of columns praising the Bush administration. "What should I praise?" I asked.

There was a long pause — funny, isn't it, how "balance" becomes a goal in itself? — but eventually he came up with something: "How about its commitment to free trade?"

Ahem. In fact, George W. Bush has turned out to be quite protectionist

How about privatising social security, when all reputable economists say that the free market is much more likely to produce the extra productivity we'll need to confront our looming demographic crisis?

(How about not blaming Bush for the farm bill? It was a done frigging deal. And you know why? Not because of the imbalance between rural and urban states. New York is a farm state, you know in the 90% of the state outside New York city, the part where Paul Krugman & Co. wouldn't be caught dead -- the part my family is from. They love the farm bill up there. California is a farm state. Texas has farmers. About the only states without a significant farm vote are Massachussets, New Jersey, Rhode Island, and Delaware. Farmers like the farm bill, and will vote against anyone who votes against it. Non farmers think farmers are cute, and mostly don't care. Advantage: farm bill.)

How about the education bill, that at least tries to improve an education system that provides a significant drag on productivity -- at least for the children of people who aren't educated in lush suburbs or expensive private schools.

Yet I am second to none in my loathing of the foolish, horrendous, horrifying farm bill, and it's idiot little brother, the steel tariffs. And to be honest, I can' t think of much he's done right either, economically speaking. And you know why?

Because we are in the middle of a war. And in the middle of a war, there are, yes, more important things to accomplish than trade policy.

That hurts me to say. In Jane's world, there are very few things that are more important than trade policy. Food. Certain other essential life activities. But not many.

But one of those essential life activities is breathing. The editorial board of Live from The WTC is strongly in favor -- unanimously so -- of continuing to breathe. Therefore, national defense first, trade policy second.

I know this hurts Krugman even more. First, because trade policy isn't just a hobby; it's his job. Or at least, it was until the partisan hack gig came along. And second, because the Democrats don't get to be in charge of the war. And the Republicans are daring to do -- so far, awarded only provisionally until all the evidence is in -- an OK job. That's gotta hurt. First your cause, and then your party, taking it on the chin.

Anyway, this opening must have sounded good when he wrote it. It probably sounded good to his wife. And what he should have done then is found a Republican colleague and asked him to read it. Because the posturing just makes anyone to the left of, say, Ted Kennedy, cringe.

First of all, Krugman couldn't, in the two years that Bush has been president, find one single thing nice to say about the administration? Not one. Nope, never, the Bush administration hasn't done one single thing right. Neville Chamberlain didn't do that badly at running his country, friend; no one believes it except the bi-coastal echo chamber. Krugman's clearly trying to respond to the charges that he's partisan. But this won't convince anyone who didn't already believe that the Democratic Party is the sole source of widsom and good in the world, and they weren't listening to the charges anyway.

The rest of you: raise your hand if you think Bush would have gotten a nice congratulatory column from Krugman if he'd vetoed the farm bill or steel tariffs.

Okay, you in the back, go home. You're too sick to be reading.

The rest of us just laugh. Except that we're appalled that Krugman is trying to imply that the entire field of economists is on his side against the Evil Bush Administration, while the economists I know are not only not with Krugman in his odd fight; they think he's laughable.

But not content to portray himself as Paul Krugman: Hero of the Trade Wars (hardcover, HarperCollins, $29.50), he then proceeds -- by way of prooving how non-partisan he is, just one objective academic out to Tell the Truth and Damn the Consequences, to string together a series of howlers.

For the most distinctive feature of Mr. Rove's modus operandi is not his conservatism; it's his view that the administration should do whatever gives it a political advantage. This includes, of course, exploiting the war on terrorism — something Mr. Rove has actually boasted about. But it also includes coddling special interests.

One of Bill Clinton's underappreciated virtues was his considerable idealism when it came to economic policy.

A-ha-ha-ha-ha-ha. . . please, stop, I can't breathe. He did it. He tried to contrast the power-hungry Bush White House, willing to do anything for political advantage, with the idealistic naifs at the Clinton Administration whose guiding principles were Truth, Justice, and the American Way. Someone call Dick Morris in his office over at Peace Corps Headquarters and see if they can get an interview.

First of all, I appreciated NAFTA. Whenever anyone has asked me what I liked about Bill Clinton, I've always said NAFTA and Welfare Reform. I mean, I'm under the impression that he had those things forced on him by a Republican congress, but I'm glad he signed them.

However, I did not appreciate Bill Clinton's idealism in the form of thinking he could nationalize 1/8 of the economy into an enormous, sucking bureacracy. If there's one thing I think that the world doesn't need, it's more government agencies. (But Jane, you say, you're on the fence about the Department of Homeland Security. True, but we're already doing all the things that agency does; just not in one place. Also, the functions that agency has -- keeping scary people from entering the US -- are things that I think only the government is equipped to do.)

I might mention that Clinton had his own experience with record-breaking farm bills. (I can't remember the year. But if I remember it, it had to be after '94, because in college my interest in matters outside smoking, drinking, and chasing boys was nil.) Krugman seems to have a little selective amnesia.

So the economic idealism -- decidedly a mixed bag.

And yet magically, of the mixed record, only the good bits emerge from Clinton's years, while the bad bits from the Bush administration make the cut. I can't imagine why people are calling this man partisan.

What's sad is that I think it's possible that Krugman really can't imagine it. Or he thinks that we're so stupid we won't notice.

Take this bit:

expanded government power to seize private land (for transmission lines), large tax incentives for energy sources that don't pay their way at market prices (nuclear power in particular). The energy plan wasn't about principles; it was about payback.

The tax incentives were about payback when it's ethanol, otherwise known as The World's Most Retarded and Inefficient Fuel Idea Ever. When it's the other main beneficiaries, which are renewables and nuclear, it's about trying to equalize non CO2 emitting fuels with fossil fuels that have unpriced negative externalities. Of course, a tax on CO2 would be more efficient, but the Clinton administration was far worse on the 80-zillion inefficient special tax breaks school of government, and Al Gore was set to go hog wild in that direction, so it's hardly a special indictment of the Bush administration. And given Krugman's obsession with Kyoto, you'd think that he'd be in favor of tax subsidies for non-emitting energy given that tax increases are politically impossible -- if, that is, he cares about global warming as anything other than a club with which to beat the Bush administration.

Krugman could have written an interesting column -- one that rightly indicted the Bush administration for protectionism -- about the way that swing politics has shaped the political landscape. The only major accomplishments of Clinton's Presidency, after all, were conservative pet causes: NAFTA and Welfare Reform. (If you have other major accomplishments you think I've neglected, feel free to name them. But I don't want to hear about how his lack of major items is the Republicans fault. First of all, Presidents rarely accomplish anything major after their first term, and second of all, it's an insanely boring and pointless argument. The Dems would have done it if they could. Washington is a swamp.) Bush seems hamstrung on economic policy, even though he has some decent free market credentials. What's going on here?

And does this mean that next time around, us free marketers should vote for a Democrat?

Current KrugmanWatch Predictive Validity: 6.5 out of 8 (81%)

From the desk of Jane Galt:

Brilliant. Government to oil companies:

Brilliant. Government to oil companies: fix your gasoline so it pollutes less, or we'll haul you into court.

Addendum: You figure out how to do it. But if we don't like what you do, we'll haul you into court anyway.

That's the kind of innovative legal system this country needs.

From the desk of Jane Galt:

KrugmanWatch Teaser: Something bad happened.

KrugmanWatch Teaser:

Something bad happened.

It's the Bush administration's fault.

Current PV of accusations of Krugman's bias: 5.5 out of 7.

From the desk of Jane Galt:

You know, I don't know

You know, I don't know if I've told you this lately, but I love you guys. All of you. You're so witty, and clever, and charming. . . yet sensitive and deep as well. Not to mention, of course, your handsome appearance and scintillating coversation, your kind heart and diplomatic mien. . . you're perfect, each and every one of you, just as you are.

Which is why I know that it's just an oversight that you haven't yet voted for me in the Sexiest Female Blogger contest. You've been busy working for World Peace and saving Guatamalan orphans from earthquakes and such. But don't worry -- there's still time. You can head right over there and
vote now.

Remember, a highly competitive MBA who has just won a contest is a happy MBA. And happy MBA's often show signs of irrational exuberance in the most unexpected places. I'm just saying.

From the desk of Jane Galt:

Don't forget to mark your

Don't forget to mark your calendars for NYC Blogapalooza, the third New York blogger get together. It's this Friday, June 14th, at 6:00. It promises to be a great time -- just look who's already coming! (And please, drop me a line if you intend to come so I can add you to the list)

Remember, it's not just for bloggers -- it's for anyone who wants an evening of (extremely) lively conversation & drinking.

From the desk of Jane Galt:

Very good, very long piece

Very good, very long piece on the tech bubble from Objectionable Content -- the author of which will, by the way, be at the blogfest this Friday! It's not too late to sign up -- just follow the link at left for details!

From the desk of Jane Galt:

Tee-hee! Swen Swenson has a

Tee-hee! Swen Swenson has a funny rejoinder to Nicholas Kristof's fears of the redneck militias in Big Sky country:

Yes, I too live in fear that one day these fruit loops will realize their power and rise up! Yes, rise up with their aluminum foil helmets and their quantum deframulators to wreck havoc on a scale previously unimagined. What utter balderdash.

Given their tendency to crawl off into the woods and mumble to themselves, and their lack of the outside financing that Kristof, as a foreign affairs journalist, should know is the prerequisite for a successful guerilla/terror organization (or control of a scarce natural resource such as diamonds or cocaine, but last I looked, the Federal government still had firm control over the lush ruby pastures and methamphetamine orchards of Idaho and Montana), I don't really understand why the bi-coastal media folks get so hysterical about the militia. Except that they need some bogeyman on whom to fasten their existential, post-modern angst, and praying regularly is the only wierd belief system it's acceptable to make fun of in the Land of the Lost Weekend.

From the desk of Mindles H. Dreck:

Whitman Claims She Didn't Sandbag Prez

In a letter to the Wall Street Journal Christie Whitman objects to the press characterizations of the latest EPA report on global warming:

Your June 5 editorial "More Hot Air on Kyoto" is an interesting combination of fact and fiction. You're on solid ground in your discussion of some of the reasons the administration opposes the Kyoto Protocol; our policy has been clear and consistent. The U.S. will not ratify Kyoto because its targets are arbitrary and not based on sound science, because it would have a devastating effect on the American economy, and because it requires no action from the vast majority of the world's nations.

But you slip into the realm of fiction when you attempt to drive a wedge between EPA and the rest of the administration on climate policy. On climate change, there is only one Administration policy, which received the unanimous support of the president's cabinet and senior advisers. Any implication that there is a lack of unity on the issue within the administration, or a lack of steadiness in the policy, is simply not true.
The administration's Climate Action Report as a whole does nothing to undercut the president's policy. It highlights the significant remaining uncertainties in the science of global climate change, particularly regarding any future effects, and the need for thoughtful actions -- including more than 67 ongoing programs detailed in the report -- that will reduce emissions of greenhouse gases without jeopardizing economic growth.

On Feb. 14, 2002, President Bush announced his climate change policy, noting that global climate change presents a set of challenges different from those involved in cleaning up air pollution, and that it requires a different strategy. He pointed out that the science is far more complex, the answers less certain, and the technology less developed. He called for a flexible approach that will promote and adjust to new information and new technology. And he announced that the U.S. will cut greenhouse gas intensity -- the amount we emit per unit of economic activity -- by 18% over the next 10 years. This policy is appropriately calibrated to our state of knowledge of climate change science, current energy and sequestration technologies, and the need to preserve a strong American economy.

Her comments address the content of the report adequately, if not the timing of its release.

From the desk of Jane Galt:

Doug Turnbull thinks that the

Doug Turnbull thinks that the plane that crashed into Far Rockaway was probably on fire.

I think that if he's right, the report confirming it will probably be released on a timetable that helps our bid in Iraq.

From the desk of Jane Galt:

The Supreme Court has declined

The Supreme Court has declined to review two second amendment cases. What does this mean? I have no idea. I'll be waiting for the lawyers to chime in. Professor? Professor? Dave? Lane?

Hey, why are there so many lawyers in the Blogosphere?

From the desk of Jane Galt:

Someone at Metafilter wants to

Someone at Metafilter wants to see a catfight between me and Meg Hourihan. About what? Lacto-ova vs. veganism? I'm not a fighter; I'm a ranter.

From the desk of Mindles H. Dreck:

If a tree falls in the private sector..

On Saturday, The New York Times lauded Goldman Sachs C.E.O. Henry M. Paulson's suggestions for corporate governance reform (apparently his remarks track the Business Roundtable Guidelines well). In typically melancholy tones, Raines & Co. suggested:

Self-interest is forcing meaningful, if piecemeal, reforms. This crisis of investor confidence is a serious economic threat. In order to advance the national interest, Congress ought to join the reform effort.

Why? Why shouldn't Congress focus on the next terrorist threat, or whether to approve and fund the President's reform plan?

Today, however, a Times reporter suggests congressional reform is dead:

Bills imposing more stringent accounting standards, changing the tax and accounting treatment of employee stock options and setting tougher conflict-of-interest rules for stock analysts and accounting firms have all fallen victim to political gridlock.

Well, two cheers for gridlock! The private sector is healing itself without a bunch of new and useless compliance requirements serving as cover for two transportation museums and better funding for daffodil research. "Piecemeal" is a rather appropriate way to tackle the myriad and complex reporting and governance weaknesses the market would like to see corrected.

The notion that Congress, an institution that has squandered immense amounts of trust in the last twenty years, can "restore trust to the financial markets" with a few sweeping bills is ludicrous. Companies are run for stockholders, not voters per se.

From the desk of Mindles H. Dreck:

Painful blog hiatus

Can't blog tonight. I have a mild back injury that makes sitting at the computer excruciatingly painful. Check out the links on the left or in "droppings".

From the desk of Jane Galt:

How compatible are you with

How compatible are you with me? Via Lane, and I won't disclose how compatible Lane and I are.

From the desk of Jane Galt:

John and Antonio, whom I

John and Antonio, whom I would love madly if they would only install permalinks, have an absolutely outstanding piece on pacifism, anti-americanism, Jingoism, and our old friends at Warbloggerwatch. Go check it out before it disappears!

From the desk of Jane Galt:

John Braue, who always has

John Braue, who always has a ton of nifty things on his blog which is why you should read him every day, has this interesting piece on trying to grow your own food. What appears to have started it off is a post bemoaning the fact that the urban poor can't afford fruits and vegetables and have to eat cheap, malnutritious food.

Not necessarily so.

First of all, fruits and vegetables aren't that expensive if you stay out of the raspberry case. I'm a vegetarian (I will allow a brief pause for shocked exclamations at the thought of a conservative vegetarian, but there you are. I am. A non-political, lacto-ova vegetarian. It's a health choice, not an idealogical one, and I do occasionally eat a steak. But I'm getting off the point.) Anyway, my diet, even eating off the expensive end of the vegetable case, is a lot cheaper than a meat-eater's, even if they're eating cheap meat. Eggs: $2 a dozen, vs. $3-$4/pound for the cheapest chicken or fatty ground beef (In New York. But we have a lot of urban poor, so I think it's relevant.) Beans and rice: about $1.00 per serving, if you use the more expensive canned beans and toss in pricey accoutrements like fresh red peppers and cilantro. Corn casserole can be made for under 50 cents a serving if you use the generic crackers. If you focus your budget on fruits and vegetables instead of crappy meat protein sources, you can more than afford them.

And it's not like the urban poor don't have the ability to cook with less expensive protein. Any latin american or afro-caribbean immigrant comes from a culinary tradition that relies on vegetable, not meat, protein. African americans, too, have many dishes in their cultural repertoire that could substitute for fast food, more cheaply and nutritiously, although of course african americans are a couple generations further removed from such food as a dietary staple. As the health experts I spoke with for my fast food article told me, the various impoverished communities in New York have a traditional diet that's very healthy, and loaded with nutrition.

So why don't they cook that way?

First of all, because they don't have to. Meat is a status food. People coming here from Mexico where meat might be on the table a couple of times a week unsurprisingly revel in the ability to have it every single day -- just like your grandparents did in the American dietary revolution that followed World War I. People are both culturally and biologically conditioned to eat as much of the stuff as possible. I can't tell you the consternation that my dietary habits cause my farming family.

Second of all, those traditional foods take time. Your affluent New Yorker gets lower fat takeout food, or buys something healthy that's pre-prepared from the supermarket. The poor are both less likely to understand how bad their diet is for them, and lack access to fast, healthy food. Whether it's because work is more pressing than it used to be, or leisure is simply too appealing, they choose fast, unhealthy food over the equally inexpensive traditional foods that would take longer to prepare.

Fresh fruits and vegetables take time. Oh, tomatoes are great raw -- but green beans? Peas? Squash? Even a salad takes too much time when you're tired . . . the problem isn't that the poor lack access to fresh fruits and vegetables; it's that they make choices about what to consume that are very unhealthy. But, given the rest of their lives, unhealthy may turn out to be their best option.

From the desk of Jane Galt:

Special Guest KrugmanWatch: Our favorite

Special Guest KrugmanWatch:

Our favorite correspondant sends this note:
In the ever more intense race between Brad DeLong and Paul Krugman to be the first to destroy his reputation completely, we have the latest effort at:

http://www.nytimes.com/auth/login?URI=http://www.nytimes.com/2002/06/07/opinion/07KRUG.html

In which Paul decides that it is EVIL to employ the tools of economics to compare alternative uses for scarce resources. Specifically, to do what David Friedman has done recently on sci.econ; compare the costs and benefits of the Kyoto treaty with the costs and benefits of (as Krugman derisorily puts it) "only ... adapting to the changes" .

Of course, who could be behind this but No Blacks in Brazil Bush, dastardly head of SMERSH-ENRON who will leave no stone unturned in advancing the cause of that Great Malefactor of Wealth.

Except, wait a minute, NBiBB outfoxed himself a while back in the turf war with the Clinton-Gore family:

http://www.cato.org/dailys/02-06-02.html

<<

From the desk of Jane Galt:

Demosthenes thinks my assertions that

Demosthenes thinks my assertions that really cutting emissions would mean cutting back to much lower levels of standard of living are funny, ha ha. Of course, he doesn't have any facts or numbers to back this up (or if he does, he hasn't shared them with me); just his insouciant certainty that it can't be all that hard to make radical changes in an economy the size of ours. Well, Demosthenes is about to find out why it's not a good idea to make fun of MBA's about things with numbers. Because now we're going to see what an MBA's idea of fun is.

Which is to say, running the numbers and seeing how they come out. When quant jocks argue with each other, the usual response is for the better informed one to chuck a file full of data at the offender and say "you do the math". In this case, I'm not sure my detractors can, so I've done it for them. Oh, Demosthenes, it didn't have to be this way. Really it didn't. And next time, when I say something about GDP, I have a feeling that Demosthenes is going to trust me.

Methodology
This section is only for the people who are going to pick through it so that they can
a. (Liberals) Scream that my treatment of the transition from GNP to GDP in 1955 invalidates everything I say
b. (Conservatives) Pick through every decision I made with a fine-toothed comb for the sheer joy of proving someone else wrong.

If you must read this section, turn off any heavy machinery you may be operating. Do not mix with alcohol. And if you are doing something important, like heart surgery, or inventing the next furby, maybe you should put off on this. Like, 'til you retire.

My methodology is extremely crude; I'm sure others can pick holes in it at their leisure. But in the main, it seems pretty solid to my humble eyes. I downloaded, from the National Bureau of Economic Research, and Free lunch (both very cool sources of free economic data compiled from government sources. I mean, if you think that such things as free economic data are cool. Oh. . . it's just me, then. That's okay. If you invite me to your parties anyway, I'll just stand behind the bar and pour drinks, and I promise I won't try to talk to anyone.)

For standard of living, I've used per-capita GDP. Yes, I know it doesn't capture all the intangibles of clean air and such, but our air is cleaner than it was in 1950, we live longer, etc. It is, as far as I am concerned, an adequate proxy.

I wanted to get the GDP data and the population data from the same source (the BEA), so I annualized quarterly GDP figures with a non-weighted average of the quarterlies. It's not exact, but the differences are, for my purposes, trivial.

GDP data is only available from 1947 on, so 1947 is our starting year for the numerical analysis, although I did use one figure, population for 1900, from the BEA source.

I downloaded a terrific spreadsheet from the Carbon Dioxide Information Analysis Center, another government site, showing carbon emissions from all the countries they could get data on since 1791. It's fascinating -- and not only for the emissions data, but because there are sad little pieces of the spreadsheet which show historical data, like that for "Unified Korea" until 1947, that illustrate that CO2 isn't the only footprint industrial society has left. I used their number for net CO2, which includes fuel and industrial uses such as cement production, but not things like people breathing, which is fine because I don't think any of my readers want to see a plan to cut down on the latter sort of emissions.

Carbon emissions data ends in 1998, so that's where my calculations end.

Using these three basic numbers -- population, CO2 emissions, and GDP -- I proceeded to extrapolate some figures. The full spreadsheet can be found here.

Highlights from the Data
So, what did we find out? That GDP used to be very damn low, for one thing. Also, you don't realize, emotionally, how devastating the Great Depression was until you realize that per-capita GNP was virtually the same in 1940 as it was in 1930 -- and as it was in 1919. In 20 years, the economy had gone nowhere. On the other hand, GNP more than doubled during WWI.

(Note: The primary measure of national income prior to the 50's was Gross National Product. We now use Gross Domestic Product. The differences, for our purposes, are trivial. I would explain it to you, but you're already having difficulty staying awake. Also, before I get the inevitable crank who emails me to tell me that of course I can't compare 1900 to 1998 because of inflation, the numbers are calculated in constant dollars; in other words, the GNP number approximates, on average, the purchasing power of 1900's GNP today. 'Kay?)

The summary numbers are (drumroll please):

That's right: per capita income in 1900 was around $2500.

Try this little excercise. Take your, personal family income. Now, multiply per-capita GDP by the number of people in your household. Then divide your income by your family's "share" of GDP. That's going to be your income multiplier.

Now, multiply 1900's GDP by the number of people in your household. Then multiply that number by your income multiplier.

The result is how much money you would have had to live on in 1900 -- in today's dollars. Our great-grandparents were poor.

They also emitted a fair amount of carbon -- although, of course, not nearly as much as we do. Now let's look at a few charts. Yeah, charts! I hear you cry. The clapping and cheering are ringing in my ears. I know, there's nothing more fun on a gorgeous Saturday afternoon than charts -- and have I got some great ones for you!

First, let's look at per-capita GDP growth since 1947. Why 1947, you ask? Well, because that's the year that I could get GDP data from, and while the differences between GDP and GNP are fairly trivial, I wanted to work with a single, continuous data set. If you're interested in finding out what our ancestors were doing before 1947, download the spreadsheet and enjoy the full majesty of the various data sets for yourself.

And what is Per-Capita GDP? It's the number of GDP's you have for every capita, of course. Tee-hee! If I only amused you guys as much as I amuse myself. No, seriously, it's the amount of national income divided by the number of people -- each citizen's "share" of GDP. It's a good approximation for standard of living. So let's take a look:

We've gotten richer since 1947. Much richer. But let's look at that little pink band. What is it, you ask? That's the period from 1973-1983, I reply. And why is it accented in pink? Because for people who are interested in the potential for reducing carbon emissions, that's a veyr interesting period; it's the impact of the oil shocks and the subsequent runaway inflation which (I would argue) was a result of the oil shocks as much as monetary policy. Now, if we look at the graph of our per capita GDP per ton, we can see that prior to 1973, there was a long run-up of per-capita carbon emission (the pink section illustrates the same time period on each graph) and then a precipitous drop following the oil crisis:

Notice anything about the two graphs? GDP was stagnant as hell. It's even more striking if we graph per-capita GDP on a logarithmic scale. Why would we do this, you ask? Well, because a $1,000 change in GDP is more important if GDP is $10,000 than if it is $100,000. Log scale charts allow us to think in relative changes rather than absolute changes. Clear? It will be. Look at the log scale chart:

As you can see, at the same time as per-capita carbon emissions are dropping, so is growth. Or maybe you can't see it if you're not used to staring at these charts for hours on end until your eyes glaze over and your tongue dries out and your nails bleed from biting them while you wonder what you can possibly find to say about the performance of the poultry industry during the great Salmonella crisis of 1974 that hasn't been said 800 times before by people who are smarter than you, and prettier, and sit in the front of the class with their shiny little palm pilots, hurling their hands in the air before the teacher has finished the question. . . . oh, excuse me, are you still here? Anyway, for those who aren't used to looking at the charts, I've taken the liberty of drawing straight lines through the starting and finishing points of per-capita GDP for the relevant period, and done the same for the 10 year periods before and after. And I'm sure you're staring at the page and thinking. . . how nice that she has a hobby. Aren't they supposed to teach them woodworking or something before they release them into the community? No, really, take a look:

As you can see, the band we're interested in is much smaller than the one either above (after) or below (before) it. What does that tell us? It tells us that the drop in per-capita carbon emissions was correlated with a drop in GDP growth, even though we were increasing our carbon efficiency, per dollar of GDP, like hell:

As you can see, while the overall trend in carbon efficiency per dollar of GDP is great -- we're using less than half as much carbon for each dollar of GDP as we were in 1947 -- the movement downward occurred primarily in two periods: immediately following WWII, when we switched from coal to oil for much of our fuel, and during the oil crisis. That's why although it's tempting to say that "Well, we increased productivity once -- we can do it again", it's dangerous. We'll never again see efficiency improvements like we got from the coal to oil switch unless we go nuclear (or discover some energy source I don't know about); for an explanation of why not, see this excellent piece on the efficiency of various energy sources. And the efficiency improvements following the oil shocks came after an enormous run-up in per capita consumption. We were driving inefficient boxes and otherwise wasting oil like hell; there's no reason to think that we can make similar improvements. And, as you can also see, even the efficiency improvements we made cost us, GDP wise.

The Payoff
Demosthenes and others are challenging my assertion that in order to get back to 1950 level carbon emissions, we'd have to get back to 1950 level GDP. (Actually, I said "near".) Am I right? Well, as I hope you now understand from the foregoing, GDP growth is extremely well correlated with CO2 emissions. Which makes total sense. CO2 comes from producing energy. And energy is, at the heart, the stuff that makes everything else, whether it's your body burning fuel to think up smart posts on global warming (and you produce C02 while you're doing this), or your automobile burning gas to turn the wheels to get you to work at the factory where the electricity from the hydro dam powers the machines that make all the cool stuff we use. Given that we don't all have a hydro dam in our backyard, more stuff requires more energy, which means more CO2.

So: how much would we have to cut our standard of living in order to get back to still-somewhat-worriesome 1950 levels of carbon emissions, or pretty-comfy 1900 levels? Let's do the math:

Sit down, my little green buddies. I'm sorry you don't like the answer, but that's the truth. We've increased our carbon efficiency amazingly since 1950 -- but we've more than doubled the population of the country. To get back to their levels of emissions, we would have to cut our standard of living in half. And think that's scary? Take a look at the implied standard of living if we cut back to 1900 levels:

Now I know what you're going to say: We'll just have to be more efficient. Of course we will, but that isn't free. All the inefficient equipment, from coal plants to old cars to god-knows-what's-lurking-out-there-in-the-dark-industrial-heart-of-America has to be replaced. And all the resources we use to replace all the plants and cars and what have you don't get used to make other stuff we want, like cell phones and heart/lung machines and really good wild mushroom pate.

People who say things like "Well, we can make our cars more fuel efficient while we look for the answer" are deluding themselves. First of all, there's a limit on how efficient cars can be made. The Honda Insight gets up to 70 mpg, if you drive it under the absolute perfect conditions with a naked jockey at the wheel and no luggage (not that you can fit any in anyway). Don't let him stop for a beer, either, or the mpg will go down.

This is not practical for, say, a family of five. Even if the dog stays home.

And other, less efficient vehicles are less efficient because, in large part, they need to be. Trucking firms, believe you me, pay close attention to the price of fuel. Now, I'm not saying that they're perfectly efficient, but if there were a painless way to get 10 mpg more on their trucks, they'd be doing it. Not only is it cost inefficient (please, stop nagging me about the negative externalities. I'm getting there); but also, you really don't want an underpowered 18-wheeler with a chemical trailer full of cyanide sliding back down the hill when you're behind him. The tradeoff for fuel efficiency is either weight or engine power. Very hard to drag that kind of efficiency out of a passenger car, after a certain point; damn near impossible when your truck might have to haul a heavy load over, say, Wolf Creek Pass.

Renewables? Honey, they just aren't there. We're out of hydro sites. And as for the others, forget cost -- where are you going to put the solar panels to power New York City? Electricity doesn't travel well, and it's a bitch to store; you can't make the power in New Mexico and ship it to New Jersey. Nor can you put a major urban area on a power source that is highly variable for its base load. Oops, guys, it's overcast and the wind just died -- shut off the TV and go practice your butter-churning. C'mon. Yes, hopefully we'll get there someday. But that day isn't going to be now, or any time in the next ten years, absent a major breakthrough. You cannot put major breakthroughs that haven't been made yet into your model.

But let's say that we conserve. I'm going to throw you a bone and pretend that our increases in efficiency are magically costless, but don't go around thinking that this is so. Any efficiencies we achieve will almost certainly cost nearly as much in the short term as the money they save; in other words, if using 10% less carbon was going to cost us 10% of GDP, in the short term making our economy more efficient will still cost us 10% of GDP, even if we wring all the emissions savings out of efficiency rather than production. Capisce?

The reason that I am pretending it's costless is that I have neither the time nor the inclination, nor the knowlege, to build a working model of how productivity and CO2 efficiency would interact under an emissions reduction scheme. Just keep in mind that any savings would, over say a 10 year period, wash out in terms of improving GDP.

Let's look at our 1950 scenario:

If we improve our total efficiency by 10% -- which is, I am told, a stretch -- we get to live in 1967 instead of 1963. A wildly unrealistic 30% improvement in our CO2 efficiency brings us to 1977. To get back to now, we have to reduce our CO2 emissions, per dollar of GDP, by more than 50%. That's an implied increase in energy efficiency of over 200%.

So to get our economy back up to 1998 levels, with 1950 levels of emissions, your car would have to get an average of over 55 mpg. Your air conditioner would have to use half as much electricity. Every single thing that you use would have to magically become twice as efficient as it is now. Every factory would have to use half as much juice to produce the stuff you consume. If you think that this is even vaguely possible, go find the nearest mechanical or electrical engineer and let him explain to you, gently, how things work.

And if we wanted to really slow down global warming?

Your car would have to get 8 times its current mileage: 220 mpg. Your air conditioner, etc. would have to use 1/10th their current electricity. And that's not even to stop global warming -- just to slow it down a lot. Do you see why getting more efficient isn't going to get us there?

And please don't be fooled by the numbers. I'm sure that a fair number of you are sitting there thinking, "well, that's not so bad. $5,400 went a lot further in 1900". No, no, my friend, you do not understand. That number means that you try to do all the things you do today, such as eat, dress, and buy Eminem CD's, on $5400 -- at today's prices. The only people I've ever met who could do it were living in a squat. And keep in mind that this means that if you manage to get your hands on a more than your "share" of GDP -- someone else has to live on even less.

I am about to be bombarded with a litany of changes we could make, like moving closer to work. Okay, let's take New York. There are between 30 and 50 million people in the New York metropolitan area (depending on how you count). Where are you going to put them? How are you going to move them from place to place, when New York's transportation network is maxed out? How will you get them food, medicine, and the consumer goods they have come to enjoy? Whatever answer you come up with, it's going to be expensive as hell. Ripping up the domiciles of every person in the US who owns a car will leave you surprisingly far from your emissions goal, with an enormous bill and a lot of angry voters.

Conclusion
Of course, there's always the possibility that I got something wrong; I am not, after all, a professional energy economist; I'm just an MBA with an internet connection and a little time on her hands. But, my chartreuse companions, that is not your way out; you do not have permission to sigh and say, "Oh, well, that's all right -- she must be wrong". If you think I'm wrong, you'd better be able to explain why. Otherwise, as long as my numbers are better than yours, you have to take them seriously.

And that's what this is about: taking global warming seriously.

I'm not a climatologist; I don't even play one on the internet. The evidence that I've seen has convinced me, grudgingly, that there's probably something there. Many of those who don't like what global warming implies are too quick to dismiss it. That's a cop-out; "I don't want to think about it, so if I close my eyes real tight and wish as hard as hard can be, maybe it will go away." It's valid to have a different opinion from mine; I'm certainly no expert. But if you do, it should be because you've analyzed the data, to the best of your ability and without wishful thinking; not because you want it to be so.

Stop laughing, global warming advocates; I'm coming to you.

The advocates are just as bad. They think global warming is a real problem. But when confronted with the enormity of the solution, they stick their head in the sand as far as it will go and say "I do believe in renewables! I do believe, I do believe, I do believe. . . " This is, frankly, -- well, my ladylike demeanor prevents me from putting a name to it, but it has no foundation in the real world. You are not going to cut our emissions back to safer levels without sacrificing a lot of GDP. 2/3 of the people living in 1900 lived under today's poverty line. They worked 12 or 14 hours a day for what they got, and many of them didn't have enough to eat. Those who lived in the cities usually lived in a couple of rooms with no electricity, no private plumbing, and sometimes no heat either. The ones outside the cities had more rooms and private plumbing -- if you can call a shack 25 feet from the back door "private". They ate less of everything. They died younger. In all measures of life, they were vastly worse off than we are today.

If you think you've got some magic way to live better on less, you'd better have some numbers to back it up -- not angry accusations as to the politics of the people who highlight the costs, or sarcastic comments about how I think we all have to go back to twirling parasols etc. First of all, parasols were not fashionable in the 1860's (when carbon emissions took off); they emerged in the 1870's and 1880's during the Parisian movement towards smaller hats, when ladies sought some way to stay fashionable yet still keep their skin a delicate white. (And with today's worries about skin cancer, you could do worse) But really, now, refusing to actually confront the costs of your goals is infantile, and is the reason that no one on the other side takes you seriously. You're giving them the ammunition to ignore global warming. You. Think about that.

A real dialogue about this -- the one we're not having because both sides are too busy screaming about the other side's dumb positions instead of addressing the real weaknesses in their own -- starts with taking the best scientific evidence about global warming and assessing the costs. And assessing the costs of stopping global warming. And talking, in a calm and rational manner, about where it is effective to lower emissions, and where to deal with the costs of warming. This is an attempt to set out some of the costs of emissions reduction. And unless you have something intelligent and reasonable to say about the numbers, I don't want to hear another parasol joke.

Demosthenes, I hope that this convinces you.

And if it doesn't -- you do the math.

From the desk of Jane Galt:

Can't they do anything right?

Can't they do anything right? Have you seen Captain Euro? The Europeans have dressed their erstwhile hero in what appears to be a track suit left over from the costume pile one of the earlier episodes of "Murder, She Wrote"

Captain Euro, real men wear tights.

From the desk of Mindles H. Dreck:

We'll Tax You if You Make Fun of Us

The Museum of Sex has been denied non-profit status by the New York State Board of Regents.

It appears to be a serious enterprise:

Mr. Gluck, 34, who made money from a software company he sold, said the inaugural exhibition would be titled "NYC Sex: How New York City Transformed Sex in America." It will start off with a look at the murder of Helen Jewett, a prostitute who was axed to death in the 1830's, said to be the city's first sex scandal. There will be displays about prostitution and obscenity laws as well as ones about the AIDS crisis and the transformation of Times Square.

But others didn't cotton to it:

Mr. Gluck said he originally wanted the Museum of Sex to be a nonprofit institution, but the big cultural foundations didn't warm to the idea. What's more, the New York State Board of Regents, which oversees nonprofit cultural institutions, wouldn't accept the name "Museum of Sex." The board suggested that the word museum could not be used in a way that would make fun of the term.

I"m sure someone will read this and say government doesn't need to "subsidize" such things. I agree, but I don't view restraining oneself from taking money by force as a subsidy. This is just another reason there shouldn't be any corporate tax.

At any rate, the Board of Regents is a bunch of sticks-in-the-mud.

From the desk of Jane Galt:

The American missionary being held

The American missionary being held hostage by Muslim guerillas in the Phillipines has been killed in a rescue attempt; his wife was wounded, but rescued.

From the desk of Mindles H. Dreck:

Effective Organizations

An effective organization:

- is focused in its mission;

- allows its people to take risks and occasionally fail ("empowerment"'s more important flipside);

- is "flat"; it allows information to flow in both directions, usually through a lack of hierarchy;

- provides opportunities for advancement through initiative;

- has flexible rules and incentives;

- recognizes both teams and individuals for their accomplishments;

Instantman suggests that corporations reorganize "when they don't know what else to do." A fair point, but reorganization is necessary when goals change. Any organization begins to form itself and stiffen around tasks it performs regularly. Moving in a new direction, or stressing different priorities is very difficult without a shakeup. New leadership or organization wipes the slate clean and allows actors within the organization to take risks with less downside. Reorganization is important from a behavioral psychology point of view.

If a boss who has never listened to you or cared says "I want to hear your ideas, we're a flat (or "bottom-up") organization now" would you really believe it? The Rowley memo and the warnings about Moussaoui were risky communications. Unless you change the structure that created that risk, it will be difficult for field personnel to behave differently. If the chain of command remains the same, the behavior will slip back into old patterns.

I haven't read through Bush's entire proposal, so I'll reserve judgement. A clearinghouse at the top is nice, but it sounds like a clearinghouse at the bottom would be better.

Unfortunately, flat organization has never been government's forte, mostly because of the silly "1000 pound" rules about hiring, firing and paying personnel (and then there's procurement...thank you Taegan). Readers of Dreck will know that I lean towards private solutions. My reasons aren't entirely philosophical. Our government has organizational and incentive problems. Look through the criteria at the top and ask yourself how many government organizations fit the majority of those criteria. Perhaps the Secret Service and the Marines?

From the desk of Mindles H. Dreck:

Meeting Mr. Atta

The New York Times today tells the chilling story of a Department of Argriculture official who met with Mohammed Atta. Atta was applying for a loan for a crop duster with an especially large tank. During the course of the meeting he:

-praised Osama bin Laden and Al Qaeda and, unbelievably, recruited her;
-asked questions about security around the WTC and national monuments;
-accused her of discrimination against non-citizens when she denied the loan;
-threatened (only a little obliquely) to slit her throat and steal the money from her safe;
-"When she told him that there was no money in the safe and that she was trained in martial arts, he asked how he could get such training";
-asked to purchase an aerial picture of Washington from her wall; and
-described the "hole in the roof" where the Dallas Cowboys play.

"Should I have picked up the telephone and called someone?" she said. "You can't ask me that more often than I have asked myself that. I don't know how I could possibly expect myself to have recognized what that man was. And yet sometimes I haven't forgiven myself."

I'm afraid the answer is unequivocally "YES". What's appalling here is that Atta shows himself to be stupider than many of us had previously thought. He completely revealed his sympathies and intentions. Reading this makes you feel as if we failed to uncover Baldrick's "cunning plan". A few other oddities from this conversation:

-Is $650,000 out of reach for Al Qaeda? Did they really need federal financing?
-Aerial photos of Washington are easily available on the net and elsewhere, why offer to buy one from a government official?

Ms. Bryant said she thought she was simply helping a new immigrant learn about this country.

Does anyone doubt that embedded bureaucratic political correctness is a problem in law enforcement?

From the desk of Jane Galt:

KrugmanWatch In a way, I

KrugmanWatch

In a way, I feel sorry for Paul Krugman. The poor guy's been OTBE'd -- OverTaken By Events. I wrote a piece for Salon on the Microsoft lawsuits, and lo and behold, the day I sent it in, someone else filed a suit against them. So I have some sympathy. Krugman, quite innocently, files a column blaming the Bush administration for not doing anything about our intelligence problem, and those bastards go and do something right before it runs. Some days, it just doesn't pay to put your column to bed.

As Senate investigators examine evidence on the administration's Enron contacts, the White House counsel, Alberto Gonzales, has already delivered the verdict: Everything's fine, because officials did nothing to help Enron as it was collapsing.

I believe him. I also believe that the administration played no role in the death of Elvis Presley, an equally relevant assertion.
Mr. Gonzales is pulling the same trick on energy policy that Dick Cheney has pulled on antiterrorist policy: Respond to real, serious questions about the administration's actions by self-righteously denying charges that nobody is actually making. Nobody has accused the White House of helping Enron when it was down, just as no Democratic leader has accused the administration of deliberately allowing Sept. 11 to happen.

Now, first of all, it isn't true that no one has accused the administration of doing anything to halt the collapse; several representatives have, for starters, as well as columnists in the Washington Post and -- if memory serves -- the New York Times. Even Paul Krugman, as I recollect, made much of Ken Lay's phone calls to the president at the time.

And second of all, the reason that the Senate is investigating Enron is that collapse -- not because of any influence it may or may not have had on energy policy. The Senate is seeking information about those meetings because the Senate wants to associate the words "Enron" and "Bush" in the minds of the public, not because it gives a rats ass about the influence of a defunct energy company on some now irrelevant energy initiatives.

The real questions in both cases are whether the administration failed to act against real threats because it was preoccupied with a preconceived agenda; why officials who manifestly got it wrong have not been held accountable; and whether, because nobody has been held accountable, the administration is continuing to make the same mistakes.

I know that I'm about to get a barrage of mail saying that energy policy and terrorism are not comparable; but bear with me for a minute.

In the case of energy policy, the administration still won't release information about Dick Cheney's energy task force. But it's clear that energy companies, and only energy companies, had access to top officials. The result was that during the California power crisis — which, it is increasingly apparent, was largely engineered by Enron and other companies that had the administration's ear — the administration did nothing.

This would be more compelling if the putatively excluded groups hadn't refused to meet with the commission.

As for the "increasingly apparent", it is nothing of the sort.

It's a ridiculous assertion. Enron lobbied California's government. So did CalPIRG and about 8 zillion other special interest groups. Both got parts of their agenda written into the deregulation. Which particular little pieces of the deregulation caused which parts of the crisis will be debated for years to come, but there's plenty of blame to go around, including the main causes of the crisis, WHICH WERE A DROUGHT THAT DREW DOWN HYDRO RESERVOIRS AND A BOTTLENECK IN THE NATURAL GAS PIPELINE, COMBINED WITH CALIFORNIA'S DRACONIAN AIR-QUALITY LAWS. AND AN INSISTENCE ON USING THE SPOT MARKET, WHICH WAS NOT ONE OF ENRON'S PET PROJECTS. Why aren't we hearing about Gore's tie to the energy crisis in California?

But just as John Ashcroft, who brushed aside appeals to make terrorism a priority, remains in charge of our effort against terrorism, Mr. Cheney — who ridiculed conservation and price controls, which in the end were what saved California — remains in charge of energy policy. And that scares me more than terrorism.

That scares me more than terrorism>? Well, of course it does, Paul; you live in Princeton, New Jersey. You are secure in the knowlege that if the terrorists every try to come out your way, they'll miss the exit like everyone else does, and drive round and round until they accidentally get back on the turnpike and end up in Tom's River.

Okay, I know that this is hyperbole, but let's get real here. Krugman is afraid that Cheney has his hands on our nation's energy policy because Cheney's going to put us on the path to a global warming disaster. This is presumably as opposed to the alternative in some fairytale Gore Administration.

Now, I'm sure that the Gore Administration would be friendlier to environmentalists, and less so to energy companies. But this is a democracy, not Stalinist Russia. The Gore Administration would be exactly as friendly to environmental groups as the congress and the polls allowed. The congress and the public fall somewhere to the right of those who think Kyoto is the perfect solution, as evidenced by the Senate's 99-0 vote against Kyoto. And, as I demonstrated earlier, Kyoto would have done very little about global warming. So, if you think that Cheney's going to lead us into a global warming disaster, you also have to believe that the Gore Administration would have lead us into the same disaster -- or any other administration that could conceivably actually be elected in the US.

And John Ashcrof ignored appeals from whom? No citation; I'm sure if anyone writes them, he'll come up with one obscure guy in Oregon whose newsletter -- circulation 23 -- was making these appeals, but I've yet to hear from anyone other than wing-nut defense hawks who can honestly say that they were calling to make terrorism a priority before 9/11. Krugman, as I recall, was calling for cuts in our defense budget.

Earlier this week the Environmental Protection Agency released a report confirming what the vast majority of climatologists, and every other advanced-country government, had already concluded: human activity is causing global warming, and the consequences will be nasty. But the E.P.A. did not propose any preventive action. Instead, it talked only about adapting to the changes.

Krugman isn't quite brave enough to talk about what changes might actually work, because, as an economist, he'd either have to tell unpalatable truths, or lie through his teeth.

Old hands recalled the days of James Watt, the interior secretary back in the 1980's. When scientists discovered that industrial chemicals were depleting the earth's protective ozone layer, Mr. Watt suggested that people wear hats, sunscreen and dark glasses. Luckily for the planet, he was overruled; the United States joined other countries in curbing production of ozone-depleting chemicals. The ozone hole is still growing, but disaster has at least been postponed.

In other words, we took action, and it didn't do any good. (I'm told the ozone hole is actually caused by the sun and the earth's magnetic field, rather than the chemicals.) Now that's something to celebrate.

No such happy outcome seems likely on global warming. After a curious pause, George W. Bush rejected his own administration's analysis. "I read the report put out by the bureaucracy," he sneered.

Clearly, this was a replay of what happened early last year, when the E.P.A.'s Christie Whitman assured the public that Mr. Bush would honor his pledge to control carbon dioxide emissions — only to be betrayed when the coal and oil industries weighed in on the subject. So the administration learned nothing from the California crisis; it still takes its advice from the energy companies that financed its campaign (and made many administration officials, including Mr. Bush and Mr. Cheney, rich).

Umm. . . Halliburton's a construction company, Paul. Yes, they construct oil pipelines and drilling rigs and such. But they made Cheney rich in the same sense that 250 million Americans driving cars made Cheney rich. And those energy companies didn't make Bush rich; his ancestors took care of that.

And it's one thing to reward your friends with subsidies and lax regulation. It's something quite different to let them dictate policy on climate change.

Many people believe that the Bush administration had a special window of opportunity on global warming policy. Politically, it could have been a Nixon-goes-to-China moment: Mr. Bush could have passed legislation that would have been totally out of reach for a Democrat. Furthermore, many corporations were actually eager for guidelines that would allow them to make long-term plans.

The fact that I might like to know when I'm going to die so I can make a will doesn't mean I'm quite ready to throw myself off the bridge yet. And as pointed out, ad infinitum, legislation that would actually do something about global warming -- as opposed to creating the perception of doing something about global warming -- is not legislation that any company outside of the manufacturers of solar panels is eager to see.

But because the administration continues to listen only to the usual suspects, that window of opportunity is closing fast. And bear this in mind: Whatever he imagines, Osama bin Laden can't destroy Western civilization. Carbon dioxide can.

And if it will, it's going to anyway, no matter who's in office. Neither Democrats nor Republicans are ready to tell the public they have to sell the split-level and move back into a one bedroom flat like the one Grandma used to live in. If we're headed for the abyss, we're all rushing there together.

Predictive validity: I'm tempted to slack off because it is hard when you write a column that's obsolete before it runs. But fair is fair: PV now stands at 5.5 out of 7, or 79%

Update Tom Maguire piles on.

From the desk of Jane Galt:

KrugmanWatch Teaser Something bad happened.

KrugmanWatch Teaser

Something bad happened.

It's the fault of the Bush administration.

Current predictive validity of accusations of Krugman's bias: 4.5 out of 6.

From the desk of Jane Galt:

Warbloggerwatch strikes back. Tee-hee! They're

Warbloggerwatch strikes back. Tee-hee! They're funny.

Warblogger Watch has come under fire from a woman reporting "Live from the World Trade Center." An unemployed MBA alumna of the University of Chicago - that place where interned academics examine equations instead of actually existing economies, and enjoy their Austrian fantasies in cognitive dissonance-free comfort - takes us to task endlessly. Allow me to register a few words in our defense from my station beneath the "slush pile at a third-rate college newspaper."

Let's start with the facts:

1) I'm not unemployed

2) As far as I'm aware, the academics are allowed out at any time

3) Chicago is not part of the Austrian school. It is part of the -- ahem -- Chicago school.

4) Grady whatever his name is knows absolutely nothing of the practice of economics as it occurs outside the Macro class he got a B in an unnamed number of years ago. Economists very rarely sit around waxing theoretical; it certainly isn't the exclusive activity of any serious academic, and certainly not at Chicago, which is famed for it's quantitative approach. What those academics do is sift endless (I mean really endless -- I've seen it) amounts of data on the real world, applying rigorous data analysis to develop new hypotheses and test old ones. I mean, I realize it can't compare to writing books about your fictional boyhood in Jerusalem, or credulously repeating every allegation from but it's something.

"Jane Galt's" principal complaint against us is our juvenile refusal to give proper hearing to the arguments of our opponents. Given that nearly every posting is deals with a specific instance of warmongering on someone else's behalf, I find this assertion curious. If we don't engage the quote thoroughly - and for my part, I emphatically do not - it is likely because the words before us are from a yabbering ass, offered at maximum volume and with minimum acquaintance with both fact and logic. How, I wonder, did those encountering Lee Perry respond when they found him walking backward and striking th eground with a hammer?

Actually, my principal complaint with them is stylistic. They are only interesting unintentionally. My secondary complaint is that they don't argue intelligently. Their subsititution of phrases like "yabbering ass" for rational discourse is only my tertiary complaint with the site.

She is spot on re: some of her other charges. My shop teacher told me back in 1976 that I was perhaps the most competent builder of strawmen he had ever seen in practice, and I feel I owe very little the way of courtesy to someone who delights in other peoples' sufferings and indulges in the truly scatological. If admirable conduct these days demands quiet deference before the perpetrators of one of the grossest crimes against public discourse since the enactment of the Sedition Act, I proudly inscribe myself among the uncivilized.

In other words, I think hyperbole is a substitute for reason. Oh, stand proud, little man. Stand proud.

Though insufficient to land her a paying job, Galt seems to have read all the required management texts and Paul Samuelson books. She's got the telltale arrogance. Noam Chomsky and Edward Said et al., she says, have been saying the same thing for thirty years, and have been overtaken by history in the interim. If she had actually familiarized herself with either the works of Chomsky and Said or with history itself, she would probably not have ventured this statement. But then again, the disdain required by the boardroom impressed upon her sputtering brain by Chicago, she probably would have. Chomsky is profoundly anti-theoretical, and what he has been doing for the past thirty years (in addition to that little side job he's got redefining linguistics and dethroning the behaviorism that so enamored conservatives) is cataloging the misdeeds of the American government. If your appreciation of history is so minimal as to not apprehend the fact that we have put down almost every secular, progressive indigenous movement to rise, then it seems pointless to continue. Likewise, if Said has been saying the same thing for thirty years, perhaps he was writing in response to an unchanged constant, viz. the unremedied wronging of the Palestinians.

Grady is clearly not familiar with my whole bio, such as the piece where I was a quasi-socialist lit major. I've not only read Said and Chomsky; I've defended them from people like me. More ably than anyone at Warbloggerwatch, I might add.

So the situation in the Middle East hasn't changed. At all. Nothing. 1972, 2002. Same year. Indistinguishable. No reason to change a single opinion you've held. It's amazing how that flighty Thomas Friedman just abandons principle by responding to changing conditions.

And Chomsky is "profoundly anti-theoretical". Which is just what you want in a tenured professor of linguistics. Of course, credulously repeated every tenuous accusation made against the US, while simultaneously discrediting even the most well-confirmed statements by the US unless they support the conclusion you've already reached, can hardly be qualified as "practical", either.

But why am I bothering to refute this chap? It's not like he refuted anything I said. If your appreciation of history is so minimal as to read Chomsky without the numerous sources that ably refute him, and your knowlege of economics is so minimal as to make fun of the Chicago school for exactly the things that are not wrong with it, then it's hard to refute much of anything; it's hard to do much more than flap your lips when you talk.

Galt, while projecting a reasonable enough persona at times (though wrong nearly always), is just as flawed as her warblogging brethren. Convinced of her own heroism in defending the status quo, she is best left alone to contemplate the perfection of markets and the moral beauty of Richard Perle.

Note that my wrongness requires no proof, nor even examples; it is enough to know that I disagree with Said and Chomsky.

But it's hard to find proof when you don't read the material you're critiquing. (Strange, isn't it, how the sins of which the Warbloggerwatch crew accuses others are usually the ones to which they are most prone?) And if you read my stuff, you could hardly accuse me of defending the status quo. Unless you define the status quo solely in opposition to the utopian foolishness of the Chomsky crowd.

From the desk of Jane Galt:

Speaking of the principal-agent problem,

Speaking of the principal-agent problem, Amtrak says if it can't get an emergency loan, it'll have to shut down next month:

Gunn, with longtime railroad and transit operating experience including heading Washington's Metro system, said he realized when he agreed to take the job that Amtrak was in financial trouble. But he indicated that after digging through Amtrak's confusing financial accounting, he discovered the situation was worse than he expected.

Amtrak has already mortgaged almost everything it owns, including New York's Pennsylvania Station, and its debt has ballooned to $3.76 billion. That includes a $700 million debt increase this fiscal year that was used mainly just to keep the system running.

"What did we get for that investment?" Gunn said. "We got to survive another year -- maybe."

Gunn said previous Amtrak management " should have blown the whistle on this thing much sooner."

Think of Amtrak as a company owned by 300 million shareholders. Yes, that's us; the bunch of suckers they took for a ride.

What do we want? A decent rail system that doesn't require us to continue shoveling our money into the sucking vortex of its collapsing system. (Note, this may not be an achievable goal. But that's what we want.) At the very least, we want to stop the cash shoveling part.

What do the managers want? To continue holding their jobs. And how do they continue holding their jobs? By providing not-terribly-awful service to every minor county seat located near a powerful congresscritter. Hence the train that runs, virtually empty, between Chicago and Ann Arbor. Not once, but three times a day. And to do this -- and of course, also to provide jobs for 84(!!!!!) vice presidents and associated useless staff, they gutted the company. They took out loans to cover ordinary operating expenses, even though there was no conceivable reason to think that the situation would change ("while revenues were down again this year, for next year we've forecast a 90,000% increase in ridership due to the horde of space trolls that we confidently predict will destroy the nations airports and bus terminals, while leaving our train stations intact"); even the most captive of idiot boards wouldn't have allowed this, nor would the crookedest auditor. Make no mistake, if this were a private company, and it were in this state, it would be in receivership. And if its managers had declined to give the public the kind of information that this Gunn fellow is now disclosing, they would be in jail.

And Amtrak is precisely the kind of public-private Great Society partnership that 70's business was all about. After all, the important thing is not that this system is bloated, expensive, and immune to the prodding of common sense; the important thing is that the people who work for Amtrak need jobs, and there are people who need the trains to get from one place to another, and it doesn't matter that it would be cheaper to buy an economy car for every single previous Amtrak rider, because automobiles are tools of the devil. Rail transportation's the wave of the future, dude. Sustainable development is groovy.

Rail isn't even profitable where rail is supposed to work; the subway in New York loses moderate amounts of money (and is perennially starved for capital development funds that could improve New York's transportation picture); the commuter rail system loses a lot. And that's in the most densely populated area of the United States. How in hell is rail supposed to work in Nebraska?

Shutter it. Sell of the Boston-Washington line to a company that can actually operate it with a profit and without dumb politicians making sure that the trains go to every idiot whistle stop installed 100 years ago. Give the rest to the freight companies, or tourism companies, or anyone else who wants 'em. But for Gosh sakes, stop wasting our money trying to bring back the good old days of 1910.

From the desk of Jane Galt:

Sasha Castel does a little

Sasha Castel does a little discreet shredding of Warblogger Watch that's minutes of fun for the entire family.

Memo to Warblogger Watch: The reason that we're worried about terror attacks, my little red smurf, is that we live smack dab in the middle of the biggest terror target outside of Israel. If there's a suicide bomber, it will go off within five miles of me, and I could easily be in its way. If it's a dirty bomb, I -- like five million others -- am a dead woman. That's cause for a little worry. When there are demonstrably people in the world with the interest and determination to blow your fat ass off the map, the insouciant "can't happen to me" approach isn't sophisticated, it's stupid.

My current favorite bit of juvenalia at Warbloggerwatch is about Lileks:

Any third-year psych major could tell you that someone so profoundly alienated from his fellow men and so uncomfortable with his sexuality as to eschew all non-violent interpersonal contact with other males is in for serious trouble at a later date.

Yes, I'm sure that's true. And then the psych major would graduate and get some patients in the real world, and stop trying to make predictions about people based on pseudo-scientific, Pop-Freudian snap judgements.

Are any of these people old enough to drink? Emotionally, I mean. Their writing seems like random samplings from the slush pile at a third-rate college newspaper.

Update
Gosh, this is hours of fun for the entire family. Another treasure leaps out:

"Susan Sontag and Noam Chomsky and Edward Said and Harold Pinter got their names in the papers again... You're still here? You're still talking? Why? The most obvious fact about the people who bravely -- oh, so bravely, so bravely -- dared to tell truth to power in the New York Review of Books and the London Review of Books, and the Cosmic Review of Blah-Blah, was how old they were... Old, old, old. Also tired, tired, tired. These people -- precisely these people -- have been saying these things -- precisely these things -- since, in many cases, the early Dylan years (Bob, mostly, although in some cases Thomas)... How interesting, gramps, how interesting; did you really know John Reed..."

This is a little wordier than the adolescent flip-offs used by the blogbrethren (e.g., Matt Welch to Gore Vidal: "Whatever, freak!"), but the animating spirit is the same: we are the New, you are the Old, so let's not even bother with you, gramps.

This can be an amusing approach when you're talking about fashion faux pas and such like. But if you're talking about war and peace, I should think that age and achievement would warrant more respectful attention.

I mean, Pinter wrote several of the 20th Century's best plays; Kelly wrote this stuff. You tell me who's irrelevant.

Assumption 1: Pinter wrote several of the 20th Century's best plays.

I find his dramas tedious and overwrought. But let's not argue this one; let's just call it unproven.

Assumption # 2 (assumes proof of assumption #1): . . . and therefore we should listen to him about geopolitical defense issues.

Corollary assumption: Vladimir Nabokov wrote some of the century's best novels . . . and therefore I should let him perform my root canal.

Warbloggerwatch completely missed the point. The point is not that these people are old; it's that they've been saying exactly the same thing for the past thirty years or so. "Age cannot wither, nor custom stale" their infinite repetitions of the same tropes they adopted at an age when hormones are high and common sense minimal, despite the fact that their central beliefs about

1) markets
2) national defense

have been Overtaken By Events, or in layman's terms, conclusively disproven. Refusing to change when contrary evidence is presented isn't brave; it's idiotic. Whether or not you write plays.

And then there's this bit:

"Now, as a terrorist, you would be facing an unknown number of guns potentially pointed at you from all directions. Go ahead; take that flight attendant hostage. You can't use her to make people give up weapons neither you nor she knows they have. You have to assume you're outnumbered, and you dare not turn your back on anyone, because you don't know who might be packing."

Of course there might be a few problems, like shooting holes in the plane. But don't worry, the plane with crash slowly:

"And, about that stray-bullet thing. Airplanes aren't balloons. They don't pop when you put a round through the fuselage. A handful of bullet holes simply cannot leak air fast enough to be dangerous; there would be plenty of time to drop the plane into the troposphere. To sidestep the problem, encourage air travelers to carry fragmenting ammunition like Glaser rounds."

I'm no engineer, but even I don't think that a bullet-size hole in the plane will cause it to crash. Nor do I think, as Warbloggerwatch apparently does, that fragmenting rounds increase the risk of catching another passenger in the crossfire:

And of course some passengers will get caught in the crossfire, but no biggie, it's all for the greater good:

"The worst realistic case from arming passengers is that some gang of terrorist pukes tries to bust a move anyway, and innocent bystanders get killed by stray bullets while the passengers are taking out the terrorists. That would be bad -- but, post-9/11, the major aim of air security can no longer be saving passenger lives."

No, we definitely don't want to risk getting other passengers in the crossfire. There's no need, really, when by waiting only an hour or so, we can blow up all the passengers, instead of the one or two who would be caught in crossfire.

Just think how cool that would be!:

"Think of it. No more mile-long security lines, no more obnoxious baggage searches, no more women getting groped by bored security guards, no more police-state requirement that you show an ID before boarding, no more flimsy plastic tableware. Simpler, safer, faster air travel with a bullet through the head reserved for terrorists."

Sounds great! And if granny gets her head blown off in the crossfire because a couple air rage jerks have had one too many drinks, well, that's the price you pay for efficiency!

Now, I don't know that I favor arming passengers; I haven't developed an opinion on the matter. But this is just stupid. People don't want to arm passengers because they think it would be fun to carry guns, and don't really care if a passenger or two buys the farm in the process; they think (rightly or wrongly) that it will cost fewer lives, not more. But Warbloggerwatch has at least achieved this distinction: most straw man arguments rely on putting silly arguments into the mouths of nebulous unnamed opponents. Warbloggerwatch, on the other hand, quotes their opponents -- and with the arguments right there, bravely ignores them and pretends that they're talking to straw men. Other people are content to wait for their opponents to refute their arguments, but not the folks at Warbloggerwatch -- they jump in and do it themselves. Which is, after all, the only way to make sure that the job gets done right. That takes a certain level of guts, if not good sense.

Overall, I really can't get over how juvenile and third rate these folks are. It isn't because they're on the left; there is a fine tradition, from Orwell to Hitchens, of engaging, intelligent writing from the rosy-hued crowd. There isn't any particular reason for it, but there it is: ad hominem attacks instead of argument, dripping sarcasm of the sort I last saw in the eighth grade lunch room, willful ignorance of the reasonable elements of their opponents' positions, and a repeated recourse to juvenile phallic and scatalogical humor that ensures that any valid points they might have are lost to one's general distaste for the crudeness of the minds that produced them.

On the other hand, they are, if taken in limited doses, funny as hell. In a laugh-at, rather than laugh-with, sort of way.

From the desk of Jane Galt:

Rand Simberg says that he's

Rand Simberg says that he's in the two percent. So am I. Go read the post and you'll see what I mean.

But he may point to a clue to why we both were: we're verbal thinkers. I'm completely verbal -- I think it's why I rocked at math until I hit integral calculus. I simply don't visualize well. I can render a picture perfectly -- from a photograph. But I can't draw in 3-D, and when I think, it's always in words. As me to picture my mother's face right now and I can't do it. Oh, if I think really hard, I can call up a shadow, but not a good picture of her. And yes, I'm very fond of my mother. I can't picture anyone else either.

I remember talking to a friend who's an artist about reading novels. "When I read novels," she said, "I have to draw the picture in my head."

"That's funny," I said, "because when I see a picture, I have to make up a story about it."

Two totally different ways of seeing the world.

That's also probably what makes me a good blogger (or so I light-heartedly hope). I don't just think verbally; I think in words. Which is to say, I don't vocalize when I read; I think of the words apart from their sounds. Don't ask me how; either you do it, or you don't. Most people do vocalize, at least in their heads, when they read. I don't hear the words at all. Whatever center of my brain is devoted to reading is developed in such a way that it's disconnected reading and writing entirely from the vocal/hearing process. I can't explain it; either you already do it, or you don't. I type 80 words a minute, and I can pump out sentences at about 70-80% of that rate. It makes people very nervous when they work on projects with me. It makes people even more nervous when I talk, as I am prone to do, the same way that I write -- in complete, grammatical sentences. Which is not to say that I do this all the time. But the fact that I can do this, extemperaneously, makes several of my friends rather jumpy.

On the other hand, most of my friends are better at math than me. And physics. And they care about music, which I don't. I mean, I like it. But I couldn't care less about the theory, and I can think of almost anything I'd rather be doing than talking about new bands and their sound, and their influences, and hell, I don't even care enough to describe the things I don't care about. Ol' one track Jane, that's me. And can draw. Me, I'm the evolutionary apex of the maxim pick one thing and do it well.

Now if I can just find someone to pay me for reading six pages a minute, I'm all set.

From the desk of Jane Galt:

The Israeli's are unleashing a

The Israeli's are unleashing a can of whup-ass on Arafat. Can't tell what's going on, but it looks serious to my non-military eyes; stuff is blowing up.

From the desk of Jane Galt:

There are two idiots from

There are two idiots from Harvard on O'Reilly trying to defend

a) Harvard refusing to allow the military on campus in the form of ROTC
b) Harvard's total willingness to allow groups on campus that raise money for terrorists.

Section b), you see, is an issue of academic freedom -- you know, the free interchange of ideas. Apparently, if you are an American soldier, you have no opinions, issues, or activities of academic interest. War is only academically interesting if you are killing Americans or Israelis.

I'm not calling them idiots because they're idiots. I'm calling them idiots because they are, collectively, dumber than a bag of hammers. White, suburban hammers with good extracurriculars, of course. Harvard hammers. Why is it that I've only ever met one person from Harvard who could, upon meeting someone, let more than five minutes pass without mentioning, ever so casually, where they did their undergrad?

Now, I'm not a huge fan of O'Reilly. And I can't help but think that he picked these two little weenies because they're too stupid to formulate a good argument. (To be fair, I can't formulate a good argument for it either. But I'm not trying that hard.)

But what really struck me is the arrogance of these two. O'Reilly pressed them to explain how it was different, and they kept explaining that it was different because -- well, because it's different, that's why. As O'Reilly badgered them, one of them, a junior, finally snapped "If you'd just let me finish, I can explain it."

No you can't, little boy. You just said the same thing five times and it's stupid. A sixth chorus is not going to convert anyone.

But this kid doesn't even know that his faith in the power of his ideas is overblown. The academic powerhouse hasn't given him a good grip on the most important of all intellectual skills: carefully examining each and every idea and asking "so how could this be wrong?" He hasn't had to. His intellectual abilities have been formed by sitting around with his friends exclaiming how stupid and wrong-headed and uneducated and just not-as-smart-as-us-Harvard-types are those who disagree with him -- whom he encounters only in heated classroom-style debates in which participants bounce in and out of their seats like well-moussed jack-in-the-boxes without ever hearing what the other side has to say. This kid not only thinks he's right; he is totally unacquainted with the idea that he might be wrong.

I think Harvard has more pressing academic issues to worry about than whether or not its students really understand where Hamas is coming from.

And is it hopelessly reactionary of me to think that any school that doesn't allow ROTC should be forbidden to receive federal funds? Harvard, as a private institution, is, of course, free to do exactly what it wants regarding the military.

But not on my dime.

From the desk of Jane Galt:

Instapundit thinks we talk about

Instapundit thinks we talk about cloning instead of neuroscience because it's a simpler issue. I don't think it's because it's simpler; I think it's because the issues of neuroscience challenge the idea that we are unique and irreducible beings, and we don't want to think about it. I mean, it's interesting to debate when life begins, and genetics vs. environment, but in the end it doesn't make me any less uniquely me; identical twins tell us that much.

On the other hand, the idea that my wants, needs, and dreams are nothing but chemicals floating around the vast empty sea of my brain means that I may not be, in some sense, me; I may be a predestined glob of chemicals with no more volition or intrinsic value than a salt lick. Who wants to spend their time meditating on that happy thought? Every time I read Oliver Sacks, I am simultaneously fascinated and depressed by what neuroscience has to say about human beings. That, more than the complexity of the science, is what I think makes us shy away from discussing it.

From the desk of Mindles H. Dreck:

Dreck's Last Weekend

How is one expected to maintain equilibrium with aesthetically challenged hobgoblins stumbling around one's hometown?

(If you don't know who this is, click on the picture)

From the desk of Mindles H. Dreck:

Cheap Superhero Sex Jokes

Jane Galt already pointed out this terrific Steven Landsburg column in Slate:

In his decision, Justice Stevens expresses quite explicitly the belief that if governments had to pay for the costs they impose on landowners, then in almost every case, a sufficiently reflective policy-maker would opt for almost zero government. I'm not sure whether that's true or false, but if it's true, then it follows that we should have almost no government. So the court's position comes down to this: We should exempt governments from compensating landowners because that's the only way we can continue having more government than we ought to.

If you haven't read it, go do so. Since Megan was way ahead of me, I looked around for another slant on the story. A link below caught my eye - an article on superhero celibacy:

It's startling to see putatively liberal moviemakers portray celibacy as a noble, selfless, even rational endeavor. Of course, it's possible that the Hollywood message is more subversive and underhanded than that: Only superheroes are fit for lives of celibacy, and as we've learned, not all priests are superheroes.

Immediately, one of the oldest and deepest humorous riffs I mined as a teenager came rushing back. Drat! That's covered as well, in another linked article, "Man of Steel, Woman of Kleenex". Our author posits that intercourse might be dangerous to Lois Lane and then examines artifical insemination.

Were they human sperm, they would be out of luck. But these tiny blind things are more powerful than a locomotive. A thickened cell wall won't stop them. They will *all* enter the egg, obliterating it entirely in an orgy of microscopic gang rape. So much for artificial insemination.

But LL's problems are just beginning.

Unfortunately, the Slate author does not speculate on the logistical challenges of sex with spiderman. First of all, the strength issues of superman are still an issue in the mini-epileptic seizure of sex. Secondly, I suspect it is, somehow, a sticky endeavor. Finally, and most disturbingly, many men may enjoy certain non--reproductive sex acts, but for Spiderman, being eaten may be reproductive behavior:

[Researcher Maydianne Andrade says] there’s no cute courtship and mating ritual here. After a courtship period lasting an average of four hours, the much smaller male launches himself into the jaws of the female as they begin to mate, and while they are copulating she begins to eat him.

The process is fascinating to watch. Really. During copulation, the male redback manages to use one of his reproductive organs to somersault himself and land with the back of his body directly onto the fangs of the female. Due to their unique reproductive biology, redback males are able to transfer sperm while they’re being eaten. Andrade even has a movie on her Web site showing just how it’s done.

Even more startling, the male generally survives the first mating and goes back for more. “They actually survive that copulation, go back to the web, court her again, get back on to do the second copulation, do the somersault again and then she finishes him off the second time,” she said.

M.J., some men are just too demanding in the sack.

From the desk of Mindles H. Dreck:

Through the LEUking Glass

European Union officials recognize the precarious state of European pension systems (your own M.H. Dreck has also pointed it out on several occasions). Commissioner for Employment and Social affairs Anna Diamantopoulou has a rather soviet-sounding solution - make the women and elderly work!

"The immigation to Europe will help to close some gaps on our job markets. It has however no effects on the fundamental adjustment of our employment policy", said the Commissioner for Employment and Social affairs Anna Diamantopoulou to the Austrian newspaper "Die Presse." "We still need a radical reform with emphasis on the increasing participation of women and older workers to secure our job markets and pension systems."

One wonders what these "reforms" might be? Given that they want them to work in order to tax them (to fund the pensions), you can rule out tax incentives.

Women and elderly first. Could children be far behind?

For another example of euro-conomics, read about the inflation caused by the Euro:

A summit in Berlin on Friday to investigate claims that prices have gone up appreciably since the introduction of the euro in Germany was hampered by the fact that the government admitted it had no legal powers to prevent the practice. Convened by Renate Kunast, the minister for consumer protection, after growing public outcry over prices, the conference was therefore unable to take any concrete measures.

You mean you can't legislate away inflation?

....Speaking to the Welt am Sonntag, the German finance ministers, Hans Eichel, said that “we are noticing price increases in many places, which is bad for the consumer and for the just-beginning economic upturn.” A few black sheep are leading to consumers generally buying less which “is a problem that depresses economic growth” said Eichel to the Welt am Sonntag, reported in the Süddeutsche.

(more) Can you imagine Alan Greenspan saying "a few black sheep are raising prices"? The scary thing about coverage of the European Union is you get the feeling there is no economic outcome they wouldn't consider fiddling with by legislative fiat. Brink Lindsey is right, the Dead Hand hasn't been buried. And it has five thumbs.

From the desk of Jane Galt:

In a column provocatively titled

In a column provocatively titled "Greed Is Bad", Paul Krugman takes on one of the greatest corporate villains of our day: Gordon Gekko.

There are some of you who may have thought that we had better things to do, as a nation, than debunk the rantings of third-rate Oliver Stone characters from the eighties -- especially when we could be raking over the coals more current ranting bumblewhoofs created by Mr. Stone's fervid imagination. For example, Oliver Stone. But that's just the kind of short-sighted, unimaginative thinking I'd expect from you yahoos. After all, why do you come to this site? Because you're market-oriented libertarians. And what do market-oriented libertarians prefer to the beneficent hand of the government? Corporations. And what do we call people who prefer corporations to the government? Republicans. Or, if we're in mixed company, vicious, scum-sucking yuppy larvae who, when the revolution comes, will be the first ones with their backs against the wall.

So you see, it's important to talk about Gordon Gekko. Because even though we all know that corporations are evil, unfortunately, they haven't been quotably evil this week. Which leaves us with quotes from blockbuster movies. Next week, I'll be illustrating the same concepts about Republican Monstrosity using "All The President's Men".

But I digress.

Opening paragraphs:

The point is, ladies and gentlemen, greed is good. Greed works, greed is right. . . . and greed, mark my words, will save not only Teldar Paper but the other malfunctioning corporation called the U.S.A."

Gordon Gekko, the corporate raider who gave that speech in the 1987 movie "Wall Street," got his comeuppance; but in real life his philosophy came to dominate corporate practice. And that is the backstory of the wave of scandal now engulfing American business.

Okay, I'm not saying that I would put it past corporations to model their corporate philosophy after the movie "Wall Street". I have, after all, worked with corporations that modeled their philosophies after the Code of the Samurai, How to Win Friends and Influence People, Dress for Success, and -- I swear I am not making this up -- the light humor of Will Rogers. However, one of the things that I have noticed about corporations is that despite their basic conformist impulse, they usually select different idiot philosophies around which to build their corporate culture, in the futile hope that this will confer some competitive advantage. Also, since I worked on Wall Street at the height of the financial boom, I feel I would have noticed if they had all, en masse, embraced Gordon Gekko. If nothing else, it would have been very hard to get copies of Wall Street at the Blockbuster on William Street.

Let me be clear: I'm not talking about morality, I'm talking about management theory. As people, corporate leaders are no worse (and no better) than they've always been. What changed were the incentives.

Twenty-five years ago, American corporations bore little resemblance to today's hard-nosed institutions. Indeed, by modern standards they were Socialist republics. C.E.O. salaries were tiny compared with today's lavish packages. Executives didn't focus single-mindedly on maximizing stock prices; they thought of themselves as serving multiple constituencies, including their employees. The quintessential pre-Gekko corporation was known internally as Generous Motors.

The quintessential pre-Gekko corporation was also losing money and market share hand over fist making big steel boxes that got 13 mpg when they bothered to run at all.

These days we are so steeped in greed-is-good ideology that it's hard to imagine that such a system ever worked. In fact, during the generation that followed World War II the nation's standard of living doubled. But then, growth faltered — and the corporate raiders arrived.

Krugman neatly associates corporate socialism with that double digit growth. Very cute verbal trick, because there's no demonstrable link to the doubling standard of living. We could write the same column attributing America's 1945-1970 glory to women's being where they belonged (in the kitchen), and the decline in productivity to those hormone-addled women's insistence on doing jobs that only a man could really handle. No one knows what caused productivity growth to falter; growth is discontinuous, obviously, but we don't really know why.

The raiders claimed — usually correctly — that they could increase profits, and hence stock prices, by inducing companies to get leaner and meaner. By replacing much of a company's stock with debt, they forced management to shape up or go bankrupt. At the same time, by giving executives a large personal stake in the company's stock price, they induced them to do whatever it took to drive that price higher.

Which is bad because, as we all know, there's only a fixed supply of jobs and wealth. That's why it doesn't matter that the cars GM made were basically super-sized Hot Wheels, because the important thing is that they distributed the jobs and wealth more equally. Now the corporate raiders have all the money and jobs, and they won't share. That's why you're reading this from a Maytag box under the Brooklyn Bridge.

All of this made sense to professors of corporate finance. Gekko's speech was practically a textbook exposition of "principal-agent" theory, which says that managers' pay should depend strongly on stock prices: "Today management has no stake in the company. Together the men sitting here [the top executives] own less than 3 percent of the company."

And in the 1990's corporations put that theory into practice. The predators faded from the scene, because they were no longer needed; corporate America embraced its inner Gekko. Or as Steven Kaplan of the University of Chicago's business school put it — approvingly — in 1998: "We are all Henry Kravis now." The new tough-mindedness was enforced, above all, with executive pay packages that offered princely rewards if stock prices rose.

Ouch. Steven Kaplan is the single most popular professor at Chicago; his class on Venture Finance is impossible to get into.

And until just a few months ago we thought it was working.

Now, as each day seems to bring a new business scandal, we can see the theory's fatal flaw: a system that lavishly rewards executives for success tempts those executives, who control much of the information available to outsiders, to fabricate the appearance of success. Aggressive accounting, fictitious transactions that inflate sales, whatever it takes.

It's true that in the long run reality catches up with you. But a few years of illusory achievement can leave an executive immensely wealthy. Ken Lay, Gary Winnick, Chuck Watson, Dennis Kozlowski — all will be consoled in their early retirement by nine-figure nest eggs. Unless you go to jail — and does anyone think any of our modern malefactors of great wealth will actually do time? — dishonesty is, hands down, the best policy.

And no, we're not talking about a few bad apples. Statistics for the last five years show a dramatic divergence between the profits companies reported to investors and other measures of profit growth; this is clear evidence that many, perhaps most, large companies were fudging their numbers.

Now, distrust of corporations threatens our still-tentative economic recovery; it turns out greed is bad, after all. But what will reform our system? Washington seems determined to validate the judgment of the quite apolitical Web site of Corporate Governance (corpgov.net), which matter-of-factly remarks, "Given the power of corporate lobbyists, government control often equates to de facto corporate control anyway."

Perhaps corporations will reform themselves, but so far they show no signs of changing their ways. And you have to wonder: Who will save that malfunctioning corporation called the U.S.A.?

Actually, I don't disagree with Paul Krugman that

a) the principal-agent theory, which makes perfect logical sense, still needs some work on how to implement appropriate compensation schemes. In particular, it rewards executives for artificially inflating earnings to impress idiot analysts, and it rewards them for fluctuations in the stock market which have nothing to do with their contribution to the company.

b) government reforms of accounting standards are unlikely to work. Not just because the government is captive of the interests it's supposed to be regulating (although that is certainly true); but also because we're asking too much of the government. I was talking to a lawyer the other day who had taken a securities case to trial, and she was telling me how impossible it all is. The lawyers themselves don't fully understand everything they're talking about often, and the jury not only doesn't have the faintest clue, but also resents you for making them sit there and listen to it.

"So how do the juries decide the case?" I asked.

She shrugged. "Beats me."

We expect our Senators to understand accounting better than jurors and lawyers.

Also energy regulation.

And food and drug safety.

And environmental standards.

And the rental car market.

And the country's strategic helium needs.

Etc.

Etc.

Etc.

Unless his staff is the size of -- well, actually, unless his staff is the size of all the people who are out there running the companies that he's regulating, that senator or congressman does not sufficiently understand each issue to rule with the wisdom that the one-shot nature of government requires. Whether or not he's captive to any set of interests. Whether or not lobbyists provide him good information. Even with all the information in the world, he's going to get it wrong a good percentage of the time. That's because he's human, remember? Not some massive omniscient supercomputer that runs on money, as the campaign finance folks would have you believe.

At any rate. It's not that I think Krugman is wrong; longtime readers know that my suspicion of the widsom of corporations is exceeded only by my suspicion of the wisdom of corporate regulators. But the fascination with the 70's is just bizarre.

The principal-agent theory arose because of the 70's -- because the technocratic fantasy of the New Deal, and then of the Great Society, turned out not to work. We couldn't engineer our way to a better society, and we couldn't build a Worker's Paradise by institutionalizing behemoth corporations with professional managers who had little at stake in the success or failure of the company.

Corporations were a bloated mess of competing fiefdoms and initiatives designed to benefit the managers at the expense of the shareholders. Reading Barbarians at the Gate, it's easy to hate the corporate raiders -- but ol' Ross was living the high life at the expense of the company's owners. The board was captive. The company was in trouble. And what was ol' Ross doing? Flying his fleet of corporate jets hither and thither, having a grand old time on the shareholder's dime.

Generous Motors? GM thought American consumers should be forced to buy their cars whether they were any good or not. All he had to do was keep giving stuff to the auto workers, and passing the price increase on to consumers, and to hell with making a good product or providing good returns for his shareholders -- who the f*** did they think they were, anyway, asking the President of GM to do their bidding? The autoworkers, meanwhile, didn't think it mattered whether GM produced any cars at all -- the purpose of the company wasn't making cars; it was providing jobs. Think I'm exaggerating? After Michael Moore came out with his ridiculous movie, Oprah had the entire town of Flint on her show (except for the ones who still had jobs. The mailman, I mean). One after one, they all came up to the microphone to say, yeah, we shut the plant down with trivial labor disputes, and hey, the cars we made sucked, and yes, we drove up the cost of cars at the plant, through wastage and sick days and the rest, until GM kinda lost money on the cars that rolled out of the plant -- but hey, that's not the point. We needed the jobs.

That was the Worker's Paradise, my friends, and if you long to return to it, go drag out your parents' old black and white Zenith.

The 70's model saw companies as servants of society, rather than, say, their owners. But as with public toilets, when "society" owns something, everyone takes their turn crapping all over it, and no one cleans up the mess, and we're all a whole lot worse off.

Of course, many corporations are still bloated masses of competing fiefdoms and initiativs designed to benefit the managers at the expense of the shareholders. Which is to say, human nature has not changed. But it's a hell of a lot better than it used to be.

And why? What did the government do to improve it?

Nothing, that's what the government did. It didn't raise tariffs on Japanese and German automobiles so we had to keep driving GM crap. It didn't make laws insitutionalizing some artificially determined level of executive compensation. It didn't start issuing directives, making regulations, or creating new agencies to make American companies more competitive. And eventually, competition did the job for them. Corporate raiders trimmed the bloat, and got rid of managers who couldn't respond to the market. Corporations realized no one was going to bail them out, and got busy bailing themselves out of the mess they were in.

Did they do the job perfectly? Nope. The market doesn't do it perfectly every time. The difference is, when the government does something, it has to get it right, because it's only going to do it once -- only oops! the government doesn't have a very good track record. The market tries a bunch of things, some of them fail, and eventually the right things succeed. The failure is the price of the success.

Just as these are. Note, the high-profile failures didn't involve Proctor and Gamble issuing complex toothpaste derivatives that no one understood how to value correctly. The businesses with accounting issues are telecomm, energy trading, technology -- new businesses, whose risk structures and business models aren't settled yet. Eventually, these businesses will mature, and we'll value them with boring regularity, and then it'll be nano-technology or space stocks we'll be worried about.

There are issues in the current market, both with ownership and corporate governance; the ownership in fact creates the corporate governance problems, by separating the owners from the management of the company. But these aren't new either; ever since there have been investors, there have been investors being taken for a ride. Stock options were a way to make executives more involved with the fates of the companies. Clearly there are still issues to be worked out. But that's not a call to throw the baby out with the bathwater. And I confidently predict that Enron will not bring down Democracy as We Know It.

From the desk of Jane Galt:

This Epstein guy claims there's

This Epstein guy claims there's no reason to think that "plastic knives and box cutters" were the primary weapons used to take over the planes.

Check out his other questions and answers -- there's a lot of food for thought.

From the desk of Jane Galt:

KrugmanWatch Teaser Something bad happened.

KrugmanWatch Teaser

Something bad happened.

The Bush Administration is somehow at fault.

Current Predictive Validity of Krugman Bias Claims: 4.5 out of a possible 5.

From the desk of Jane Galt:

Outstanding little piece on regulatory

Outstanding little piece on regulatory economics from Steven Landsburg:

What if the court had ruled differently, requiring governments to bear the costs of their own regulatory activities? Then those governments would be forced to think hard about which regulations are worth preserving. That's all to the good. We should encourage policy-makers to be reflective. Instead, the court has encouraged policy-makers to ignore the costs of their own decisions; that's a recipe for bad decisions.

In his decision, Justice Stevens expresses quite explicitly the belief that if governments had to pay for the costs they impose on landowners, then in almost every case, a sufficiently reflective policy-maker would opt for almost zero government. I'm not sure whether that's true or false, but if it's true, then it follows that we should have almost no government. So the court's position comes down to this: We should exempt governments from compensating landowners because that's the only way we can continue having more government than we ought to.

From the desk of Jane Galt:

Matt Welch suggests that there

Matt Welch suggests that there is no sheriff in town. I'm kinda starting to agree.

From the desk of Jane Galt:

Ask the MBA

Ask the MBA

Reader Jane Z. asks this question regarding my maunderings on the estate tax: "Are there economic reasons, as opposed to moral ones, for opposing the estate tax?"

Interesting question.

First of all, the estate tax certainly impedes capital formation. We can argue about the extent: supporters argue a little, detractors argue a lot; but there is some effect, particularly on small businesses and family farms. Smaller firms can't afford estate planning the way big firms can, which is why my grandparents' estates, and probably yours, will pay a higher percentage of total wealth to tax than Bill Gates or his Dad (I refuse to listen to one more rich idiot advocating for the estate tax unless and until they eschew all estate planning and allow Uncle Sam to take his full 55% bite. Even one tax-free foundation dedicated to providing six-figure salaries to your dimwitted descendants invalidates any claim you may have to speak on the subject. But I digress.) There are transaction costs associated with the breakup or transfer of these assets that are a net economic loss to society. But it's probably not going to put us in the poorhouse, as a nation.

More costly is the re-allocation of assets to lower-valued uses because of their tax-advantaged status. (Sorry -- just proving to myself that I can still talk like an MBA). In other words, setting up a "Save the Guppies" foundation which is partially devoted to its stated goal of Making the World Save for Pet Fish, and partially devoted to providing the aforementioned jobs for your dimwitted descendants.

Maybe you like charitable foundations. But even if you do, you note that perhaps there are other people more qualified to hand out charity than the eighty-zillion little Fordettes employed by the Ford Foundation. Charity money is artificially diverted into the pockets of people who have done nothing to deserve it, pretty much exactly the way that it would be if they, say, inherited it. All at a considerable transaction cost to create and run the foundation. As well as the cost of stupid projects initiated by stupid heirs who show up at the office once a week in order to see how things are getting along without them, and thereby justify their salary to the IRS.

Oh, those aren't the only drawbacks. Blind trust, generation skipping trusts, more different kinds of gimmicks to escape the estate tax than you can shake a stick at. All are expensive to set up and maintain -- activity that generates absolutely no net economic wealth; in fact, destroys wealth. Those people we pay to tell us how not to give all our wealth to Uncle Sam could be out dreaming up ways to make a really good fat-free ice cream. And because in many cases the kinds of assets that these funds can hold, or the way that they can dispose of them, or manage them, are limited, these asset concentrations reduce liquidity, and thus efficiency, in asset markets. It's also an invitation to fraud (although of course big piles of money often need no invitation) -- the structure of the trusts often makes it hard to remove an executor who you think is crooked or incompetent, especially when that executor is, as it often can be, your Dad.

Finally, let's think about why society would have estates in the first place. Remember, property rights enshrine earlier customs: why would this particular one come about?

I would argue that in large part, its advantage is twofold. First of all, it reduces the risk inherent in savings. Not investment risk; the risk that you will save too much. You laugh, but it's a real risk. Without inheritance, the only purpose of saving is to defer consumption to some period when you will enjoy it more. One of the chief reasons we do this is so that we can enjoy leisure at a time when working is particularly unattractive -- when we're old and tired. So we give up some consumption now, so that we can consume more later, when our relative enjoyment of leisure will be particularly high, or when we may not be able to work due to infirmity.

But we don't know exactly when we're going to die, or whether the cost of living will rise, or we'll have a lot of medical expenses. . . we therefore should be conservative in our savings, and accumulate the maximum amount of assets that might be necessary to care for us in our old age.

But this is risky. Imagine no estates -- 100% of your wealth passes to the governmetn when you die. This makes it very risky to save conservatively; get hit by a bus when you're 50, and you're a big loser in life's lottery. Without estates, then, and with a minimal safety net such as we have, people will eschew savings in favor of current consumption, and let the government pick up the tag when they run out of dough. Note that this is exactly what a lot of people are doing now.

But if you allow people to pass on accumulated wealth to their children, you allay the fear of oversaving and denying yourself consumption you could have enjoyed -- because the ability to pass on wealth to your children is an economic good from which many people get a lot of pleasure. So in some sense, all the wealth saved is fully consumed -- that which is not spent on retirement is spent on passing an inheritence to the kids.

The other way in which estates provide a positive economic good is that it encourages people to keep working when they would otherwise retire.

Couple of basic economic concepts. First, there are basically only two inputs into an economy: capital and labor. Increasing the labor supply increases the net economic wealth we all enjoy (although of course this increase may not be evenly distributed). And second, leisure is a consumption good, just like anything else; the cost of leisure is the lost wages that you could have earned during the time you spent loafing around watching television and arguing with your husband about who was going to drive to the picnic. This cost is known as the opportunity cost: the value of the next best alternative use of your time.

Again, let's imagine a world with no estate tax. You're fifty, very successful, and you've accumulated enough money to pretty much replicate your current lifestyle -- less the money which goes to cover work-related expenses -- for the rest of your expected life.

Why wouldn't you quit? Of course, there are people who just enjoy working. But someone who has, say, accumulated three convenience stores might not feel so compelled to spend another ten years heading in to fix the slushy machine at 3 am because the night manager called in sick. Not when he has more than he really wants to spend now -- and when, with age creeping up and those 3 am trips ever harder on the body, leisure has become much more valuable relative to the extra consumption goods he could purchase if he doesn't retire.

But people like this -- people who have built up wealth through their own efforts -- have valuable skills and experience that create wealth for society. Their early retirement is, for us, a big loss, especially right at their peak years of experience. So how do we prevent it?

By allowing them to pass on any wealth they accumulate in excess of their consumption needs to their children, since most people are willing to exert a tremendous amount of effort to improve their children's lives. In this sense, the dimwitted children of the wealthy are actually doing the rest of us a favor, by making it utterly necessary for their clever parents to work as long as possible to make sure that they are taken care of.

So, to sum up: the estate tax has several economic costs. It discourages small- and medium- sized businesses from capital formation. It moves assets to less-valuable uses because they are not subect to the estate tax. It creates considerable transaction costs, both in breaking up and selling taxable assets, and in avoiding the tax. And it discourages personal savings. So the objections to the tax aren't just moral; they're financial as well.

From the desk of Jane Galt:

Red Badge of Courage Award

Red Badge of Courage Award

Goes to Tapped for this post. Now, we all know that campaign finance supporters support it because they think, in their hearts, that it will help their interests at the expense of the opposition.

But until now, few supporters have the courage to come right out and say so. This includes an exhortation to the Democrats to come out and think about "real reform", along the lines of the (unconstitutional at the Federal level) Maine and Arizona public financing schemes. Normally, I'd say "Me no understand -- the reformers got pretty much everything that they want" (until the Supreme Court overturns, anyway). But Tapped has made it all too clear -- real reform is reform that helps the Democrats while hamstringing Republicans. Object-neutral laws are for toddlers.

New slogan for campaign finance reformers: "Now you're playing with power".

From the desk of Jane Galt:

Via Benjamin Kepple: War Propaganda

Via Benjamin Kepple: War Propaganda for the new Milennium. It's keen!

From the desk of Jane Galt:

What I'm Reading this Week

What I'm Reading this Week

The Gallery of Regrettable Food

So on Sunday, I was in Barnes and Nobles, and there it was: Lileks' book. I was unable to resist the temptation to put it into my shopping basket, despite the $22 price tag.

It was worth every penny. It's been a long time since a book made me laugh out loud: this one turned the trick page after page. Every time I'd think the novelty must be just about to wear off, there would be another caption that threatened to make me spurt Diet coke out my nose in a teeming fountain. My family kept wandering in from other rooms, demanding to know what I was snickering about. Just as I was finishing it, my mother came into my room and said "What's so funny this time?"

"Same book," I said.

"Again?" she said, shaking her head, and turned around to go back to the kitchen. Then she stuck her head back in. "Can I have it when you're done?"

Now we're both snickering.

From the desk of Jane Galt:

Great post on currency pegs

Great post on currency pegs from Brink Lindsey:

Bob is right that, when capital starts to flee, it can be brought back by nonmonetary policy -- tax cuts, deregulation, privatization, etc. But, still, there's something wrong with any monetary arrangement that requires a nonmonetary deus ex machina to stave off collapse. Pegged systems in a world of mobile capital are poison. All the big blowups of the 1990s -- Mexico, East Asia, Russia, and Brazil -- featured pegs that self-destructed.

There are only two viable exchange-rate policy options: Float your exchange rate or give up independent monetary policy (which may include, with dollarization, giving up your own currency altogether). Trying to have your cake and eat it, too doesn't work in the long run.

I'll add that in my (not too erudite) opinion, Argentina would have been better off dollarizing entirely than fixing it's exchange rate. Keeping the peso was like that pack of cigarettes you leave in the closet just, you know, to remind yourself why you quit -- until the sewer pipe in the basement breaks, your boss screams at you about the report you just submitted, and your mother announces she's divorcing your father and moving to Bali. Helloooo, Joe Camel.

From the desk of Jane Galt:

Another energy exec, this one

Another energy exec, this one from El Paso, seems to have committed suicide.

When apprised of this by my exclamation, one of the chaps I worked with said, "It's pretty amazing how far these guys will go to avoid taking their medicine."

I can't think of any better commentary than that.

From the desk of Jane Galt:

So apparently there's a contest

So apparently there's a contest for sexiest female blogger. And apparently, I'm on it.

Now, I wouldn't want to suggest that you should hop on over there and vote for me. That would be pandering. However, I would like to suggest that a certain blogger, flush with newfound confidence at winning the poll, would be very grateful to the people who helped her get there. Very grateful. In fact, you can't imagine how grateful with your puny human minds. But that irrational exuberance might spill over onto these pages here, if you know what I'm saying. And I think you do.

Of course, if I should not win the poll. . . well, remember how your mother acted when you forgot her birthday? Didn't do that again, did we? Not if we didn't want to spend the rest of our lives trying to forget the image of our weeping, prone mother refusing to take her head out of the oven, we didn't. Now we have to have an electric stove even though it takes 25 minutes to heat a can of soup, and need to cut our cocaine with the back of a comb because straight razors cause flashbacks.

Now, if I should happen to lose, and if -- probably coincidentally -- I should happen to throw myself off a bridge or under the 1/9 subway tracks, or accidentally swallow sleeping pills or drop my toaster in the tub while I'm taking a bath, or take my 1997 Ford Taurus off a high cliff while guzzling whiskey like the Lost Allman Brother, well, I wouldn't want you to feel guilty. It's not your fault. You just voted your conscience, that's all, and if that happened to result in the untimely death of a lovely and talented young pundit-cub who, incidentally, loves each and every one of you with a passion seldom found in one so young, well, that's just the way things turn out sometimes. I don't want you to dwell on it.

It's not like I will, or anything.

So what are you waiting for? Vote now!!!!

From the desk of Jane Galt:

A sharp-eyed reader sends in

A sharp-eyed reader sends in this note:

I look forward to the next Kinsley column suggesting, "It would be the sheerest demagoguery to suggest that a person should take the blame for a company's shenanigans just because he happened to be CEO at the time."

The guy in this story, that is:

http://seattletimes.nwsource.com/html/businesstechnology/134466879_webmicros
oft03.html
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Posted by Jane Galt at 2:21 PM | TrackBack

From the desk of Jane Galt:

A few posts below, I

A few posts below, I talked about R&D costs. Derek Lowe weighs in on me-too drugs, saying pretty much what I did: sure, they're out there, but redundancy is the price you pay for having a distributed, decentralized market system.

From the desk of Jane Galt:

Excellent post on recent challenges

Excellent post on recent challenges to First Amendment rights which are thinly disguised attempts to regulate certain speech on the basis of content, from Peter Sean Bradley, Esq.

From the desk of Jane Galt:

Ask the MBA Reader Jim

Ask the MBA

Reader Jim Bennett writes in with this question about Kyoto:

haven't seen commentary on this from any of The Usual Suspects - but it seems likely to have economic consequences - that is, if the individual EU countries actually pay attention to the requirements handed down from above. Or was this treaty designed to be harmless to EU economies while handcuffing ours? So that the ratification really requires no changes on their parts?

I want to leave aside the question of whether global-warming treaties are necessary; that's an issue for another time. (And yet I guarantee that there will be at least one email which starts: "You say that it's an issue for another time. But it's the central issue that we MUST address before we talk about Kyoto. . . ).

Which leaves the following questions:
1) How much will it cost?
2) Is the cost outweighed by the benefit?
3) Is the treaty designed to screw the US?

How much it will cost is a tricky topic, because of course the advocates are out in force on the numbers. (For a good discussion of how the Clinton Administration got the forecasts it used, look here. Yes, it's Cato, my green-fingered goslings, and we all know they hate Kyoto. But all this paper is talking about is methodology, 'kay?) Best guess is between 1-2% of GDP, with best case scenarios estimating that we will be able to buy Russia's emissions permits, which would be based on their pre-collapse Soviet emissions levels, and that we can make a quick, optimally efficient switch to natural gas from coal, producing a negligible impact on GDP; while worst-case scenarios, in which Russia's economy booms and we have to actually reduce our own emissions, place the damage at over 4% of GDP. Neither best nor worst is particularly likely.

Doesn't sound like much, does it? Couple of things: First of all, that's a moderately bad recession. (For purposes of comparison, GDP shrank by about 25% during the Great Depression. We aren't talking about an economic holocaust). But unlike a recession, it's permanent. Second of all, our population is growing. A smaller pie, divided among more people, means a real decline in standards of living.

But no one really knows how much it will cost, because there are too many variables. But it certainly will not be, as environmental activists would like to make out, practically painless. For one thing, the coal industry will have its workforce cut by at least 1/3. That's a lot of angry, unhappy, vote laden miners, and a couple of regions losing their last source of employment. Labor mobility in the US is good, but certainly not perfect. Thousands of problems like this, on top of the reduced productivity from pricier electricity, will cost us.

So yes, there is a pretty serious cost.

Does the benefit outweigh the cost? Not according to anything I read, but of course, my sources are not exhaustive. But the environmental sources, while embracing Kyoto, wailed that it wouldn't go far enough, conceding through backdoor comments that it wouldn't do much; anti-Kyoto forces said the same thing, emphasizing the cost-benefit analysis. But serious carbon controls, the kind that would really dent global warming, would take us back to approximately the economic level last seen when global warming was not a problem. That's 1850. But say we're willing to accept a slower growth of global warming. 1900? Ouch. 1950? Doesn't sound so bad? Turn off the appliances, baby: your dishwasher, air conditioning, washer-dryer, and refrigerator are a major factor in global warming. Get rid of the second car; hell, half of you get rid of the first car. No air conditioning at work, either. That computer sucks a fair amount of juice; so does that plane trip you took to visit Mom -- and the Hawaiian vacation you were planning. Ever wonder why those resort communities in the Catskills and Poconos are dying? Because people can afford to go somewhere better, these days.

Maybe that's what we need to do. But that's going to be the price of serious global warming controls -- a serious decline in our standard of living. Or a serious conversion to Nuclear, and hey, I'm all for it.

Fuel celled cars won't help. It takes more energy to extract the hydrogen to put in the fuel cells than you get from the cell. Unless we build the nuclear plants first, no net gain in emissions. Conservation's no panacea either. Cost-effective conservation is not exhausted -- but it's a shallow well. And non-cost effective conservation cuts GDP.

Excuse me, I'm ranting. Here's the answer to your question, from Cato:

What would Kyoto do about [global warming]?

The answer is, nothing.

At least nothing that could have any discernible impact on how climate influences our lives. Clinton administration scientists answered this one for us: If all of the nations did what they said they would do under Kyoto, the net amount of warming reduced by the year 2100 would be 0.14ºC. That’s 6.4 percent of the average warming of those U.N. models.

So, answer to Question 2: Kyoto's benefits only outweigh the costs if you put a much higher price on the environment than most of us do.

Does it favor Europe over the US? Well, check out the graph on page 2 of this paper, and the answer seems to be yes. Columnists like to point out that the EU's target is even higher than ours: 8% for them, 7% for us. (Against a worldwide average of 5.2%). But that's getting too cute by half with the numbers. They get a huge drop from closing the polluting industries of the East German worker's paradise; then there's Britan's (independantly motivated) switch from dirty Welsh coal to clean North Sea gas. France gets a boost from nuclear plants and a shrinking population. Etc.

Kyoto won't hurt Canada much, either, with it's untapped Hydro -- but Canada's net GDP loss is even higher than ours. Why? Because Canada is a net exporter of energy, and not just renewable energy. Net energy exporters get hurt badly by Kyoto -- and I won't fault you for smiling a little at the discomfited Saudis.

So, overall, the answer is that, yes, it's economically costly; no, it's not particularly beneficial, and yes, it disfavors us at the expense of Europe and developing nations, who hope to gain competitive advantage by it.

It has to, in order to get signed.

This is what I think happened with Kyoto (and I'm about to get slammed for Europe bashing, but no matter):

The European politicians who pushed it care less about absolute prosperity than relative prosperity. They're okay with hurting their economies if ours is hurt more.

[Note: I'm not saying that this is the only reason that they signed it; you can decide whether it's altruism or naked political interest. I'm talking now about the shape of the treaty]

Let's look at key provisions:

Base year: 1990. Just in time to let Russia and Eastern Europe cash in on the closure of their inefficient companies (and in some cases, the collapse of their economies), Britain cash in on the gas conversion. Why not 7% below 1995, when the treaty was negotiated, instead of 5% below 1990? You know the answer.

No carbon sinks: Europe and most developing nations have little forest, the US has a lot. Can't let the US cash in by planting trees.

Developing nations excluded: China loves this.

These provisions were necessary to get it signed. Otherwise, Europe would end up worse than us, even with the same overall level of carbon emissions. Europe, with its 30 nations, would never sign. Nor would any developing country sign away their right to grow. Even Canada, I think, was willing to suffer as long as we suffered along with her. After all, it's not like the Canadian standard of living is miserable. As long as the voters couldn't compare it to a more prosperous America, the politicians signing the treaty have little risk of getting unelected.

So in order to get it signed, the majority made sure that whatever else it did, the treaty disproportionately harmed our interests. Who are the exceptions in the developed world? Australia and Canada, with small populations, not powerful enough to affect the outcome whether or not they do sign. Everyone else does better than we do. No, the target is us.

And they assumed that if they got enough of a majority, we'd go along. Clinton would have, I think; you can judge for yourself whether or not this is the high moral ground. But if it weren't for the Republican congress, I think we'd have had a treaty. To help Al Gore win, if nothing else. So it wasn't a bad gamble, overall.

And the upshot of all of this is that I will find it funny as hell if this explodes in Europe's face and 55% of all respondants sign, putting the treaty into effect for them -- and their constituents begin screaming about our unfair advantage.

Because when they back out because of that "unfair advantage", they're going to have to do some 'splaining about why they thought we should bear an "unfair disadvantage" about 3 times as large.

From the desk of Jane Galt:

Well, if you want to

Well, if you want to get something done, you have to do it yourself. So I'm hereby declaring Blogapalooza 2002 for Friday, June 21. There will be no live music or anything else associated with the original Lollapalooza, except of course, fun. The bar's a great little Moroccan place with a ton of small rooms to hang out in, and it's conveniently located near the 1-9 trains. . . . Hope to see all the bloggers out in force. The information is here, at this disgraceful display of my lack of web design skills. Be there or be . . . somewhere else more fun, I guess.

Update: People Who Can't Count, and the People Who Love Them
Ack!!!! That's Friday, June 14. On Friday, June 21st I myself will not be here, but in glamorous Berwyn, PA. I will update the invite page tomorrow.

Also, email me if you're planning to attend; I'll make a reservation, of sorts, once I know who's coming.

From the desk of Jane Galt:

Instapundit dropped me from his

Instapundit dropped me from his permalinks. Sniffle. Sob. What did I do, O Fearless Leader, to offend thee?

It's just you and me, dear reader. But don't worry -- we'll muddle through. We're going to keep a stiff upper lip, and keep blogging just as if nothing had happened, and -- WAAAAAAA! Why doesn't he love me any more? Is it my hair style? My Florida vacation? The way I used to nag him about teen sex? Whatever it is, I could change! I could be shorter, blonder, more focused on tort reform!

We're going to get him back, reader. [maniacal gleam] You'll see. [/maniacal gleam]

From the desk of Mindles H. Dreck:

Indoctrination (2)

Second in a series:

From the desk of Jane Galt:

Followed a Tapped link to

Followed a Tapped link to this Ted Barlow piece on single-payer health care.

I'm not going to wax sarcastic about it, because it's a serious piece that deserves a serious rejoinder. But I will point out that the primary thrust of his argument is that single-payer is less expensive in Europe than our system, and therefore it will be here, too. This is a common logical fallacy -- but I must point out that several posts later he (correctly) slams the National Review for making exactly the same logical mistake in equating Russia's tax environment to ours.

But Russia's much different than we are! I hear my rosacious readers cry. Europe's practically the same!

Umm. . . European health care takes place in the context of a broad social welfare system that we haven't got, and which imposes serious costs on its society, like an ENORMOUS tax burden and a stagnant entrepreneurial environment, that we aren't willing to bear.

We can sit around and argue for weeks about what those differences are and which are relevant. The point is that it is not valid to make an a priori assumption that our experience will be like Europe's.

For one thing, there's the empirical evidence that turning anything over to the government makes it cost more, and suck more, than leaving it private. Exhibit 1, the Post Office, which provides worse service than UPS or FedEx, charges almost as much, and is still hemorraghing money despite its special tax status and the implied government funding guarantee that lowers capital costs. Exhibit 2, municipal swimming pools. Exhibit 3, public education versus Catholic schools. Etc. . . . You need some powerful model of how health care will be different to overcome that.

And how will it be different? Why, administrative costs, of course! Not so fast. Those administrative costs don't come from the outrageous price of paper; they come either from competing technological/administrative systems inefficiencies (and if you think that the government will fix these in a snap, note that some agencies are still finishing up their Y2K work), or labor. The idea that the government would arrange to fire a large group of potential voters is of dubious merit, and not borne out by historical experience, here or in Europe. Which applies to all labor costs: if you nationalize 15% of GNP, that means an additional 15% of our labor force in a civil service union. Prosperity is not just around the corner. There are certainly savings from having one set of billing procedures -- but absent competitive cost pressures, not as many as you'd think.

Please note that the wastefulness of competition was the almost plausible argument for every socialist system ever proposed. Which is true; it is wasteful. Just not as wasteful as a centralized bureacracy that only knows how to do things the same way it always has. Anyone who wants to convince me that centralizing billing is going to provide all the costs savings we'll ever need is going to need a passel o' proof.

Other costs might be lowered, but not to good effect. Medical and pharmaceutical research, and medical technology entrepreneurship, are vastly more innovative here than in Europe. Because here it pays. But after we've realized those vast administrative savings, and taken out the incredibly modest savings to be had from better preventative medicine (sure it saves money on more expensive emergency room treatments. Two problems: it also loses money to people who run to the doctor every time they have a sniffle. And the infrastructure for all that non-emergency care for the uninsured doesn't exist anywhere near where they live. Maybe we should build it, as a moral issue. But it isn't going to be cheap.

Third problem: much preventative medicine is dependant on the patients. Demonstrating that they will follow preventative regimes as well as the hyper-attended people in the expensive studies that showed reduced disease incidence will be a challenge.) -- after we've done those things, there's only one place the money is coming from: price controls on inputs.

So who's it gonna be? The doctors? They don't get paid all that much now, given their workload and education level, and the years they currently sacrifice being paid 32K a year with 100K of debt hanging over their heads while they finish their residency. Oh, you could make their education free, but that's an added cost you have to take into account -- and no matter how free you make it, they aren't going to go to grad school for 4 years to make 32K for working 100 hour weeks when they get out -- not when you cap their ultimate salary at, say, $75K. Sure, social workers do it, but forgive me, my English major friends -- social workers don't have many lucrative alternatives in the private sector. Smart people with a flair for science do. No one will work the hours residents do no matter what you do, for that kind of money. In other words, your costs for doctors are going up, or your quality is going down.

The nurses? There's a shortage now; you have no leverage to lower their pay. You can't change the total cost equation, though you can certainly shift where those costs lie. If you reduce their pay, you'll have to reduce their working hours, up their benefits or vacation pay, or something else to compensate them -- or soon you'll have only the dregs of the nursing community left.

The assistants? Maybe. But unlikely. The shortage of skilled PA's and lab technicians is forcing hospitals to raise their pay as well.

The adjunct staff, such as orderlies and janitors and cooks and receptionists and administrative staff and nutritionists? Brother, you do not grok civil service. These are the last people who will ever have their salaries reduced. Plus their benefits package just got much more generous when they joined the good old AFSCME.

Oh, you weren't going to let them join the civil service? I'm flat broke and I'll bet anyone who likes $1,000 that if we nationalize our health care system, all employees at nurse level or below, and possibly physicians, are unionized. But I'd check with the airline screeners before you make that bet.

The executives? 'Kay -- though I'd be uncomfortable trying to run a hospital without some administrators. And if you think that the guys you're working with now are bad, just wait until you meet Big John, who's been toiling at a back desk in Health and Human Services for 20 years and just wants to get out in five with a higher pension.

Plus their salaries may seem outsized, but are not the major component of most organizations' budgets.

Plus, I think we already cut them as part of our vast administrative savings.

So not much there.

Labor, in America, and unlike in most European nations, is subject to the call of more lucrative positions from the private sector. That's why it's the fastest growing element of our health care costs, after prescription drugs.

Oh, those prescription drugs. How are we going to save money? Cap prices on drugs and medical technology. And where are those savings going to come from? Well, the angry health-care investors you just bankrupted, of course (wouldn't try that in an election year!) That's not what we want, the advocates say, but c'mon -- if health care gets nationalized, you can kiss the biotech and pharmaceutical industries good-bye.

I'm being alarmist, you say. No I'm not; I'm being totally realistic. Where's the money going to come from? The profits that cover a) financing and b) R&D.

But that's not what you want, you say. You're willing to let 'em make a reasonable return, say 5%. It's those outsized profits you want to recapture.

Oh? Going to subsidize their losses, then, in bad years?

Ahem -- anyone home? Oh, hear that hollow echo.

The outsized profit argument is based on a misunderstanding of the way capital markets work. Those profit margins are what is necessary, more or less, to get investors to subsidize the risk inherent in an industry where profits are completely dependant on luck. If it were not, we'd have more me-too drugs than we do already, until profits were competed down the to point where new entrants couldn't raise capital. Bio-tech firms, which are even riskier, make even bigger profits -- the ones that survive. The other 9 out of 10 don't make any money at all. Kill the profit margins, and you kill their access to capital.

We'll arrange loans, you say.

Which worked so well in Japan and Indonesia.

Oh, you're just being ridiculous, I hear. We'll get the money back from advertising. Okay, in 1999 the Pharmaceutical industry spent $1.6 billion on consumer advertising. (Many people are confused because the SG&A -- selling, general and administrative expenses -- item on the Income Statement includes pretty much all non-factory overhead, which is a much larger number than marketing expenses. And even then, 85% of pharmaceutical marketing consists of providing fact sheets and samples -- and, to be fair, dinners -- to physicians. But that doesn't change when you do business with the government). Now, the revenues of Pfizer -- which was hurting, pre-Viagra -- were $14 billion. That's one company that wasn't doing much business. How much did you say we were going to save on advertising?

Not to mention that if we really thought this could work, we could accomplish it much more cheaply by banning consumer advertising again.

No, the money's coming out of profits. And that means investment and R&D. And that goes double for pricey new medical technology.

Which means we aren't getting any new pricey medical technology, or drugs either. The day we nationalize health care is the day we say bye-bye to medical innovation. Think I'm being alarmist? Almost 50% of the world's pharma companies now reside here, many of which moved in the last ten years, as we became their primary market. The reason pharmaceutical prices are increasing so fast is that we're subsidizing R&D for the rest of the world. Don't tell me we're not, feisty person: the rest of the world buys close to marginal cost -- the cost of producing one extra pill. Yet R&D is close to 20% of worldwide revenues. Someone's paying for that R&D, and I don't think it's the health care fairy. Now, do you think that the politicians who will set prices will, when push comes to shove, consider the long term consequences of cutting pharma profits below the level required to sustain R&D, or the short-term consequences of making the AARP pay more for their drugs? If you think a) is the answer, justify this in the light of Europe's unwillingness to do so.

But what about all that needless duplication? You cry. Again, that was the rational for central planning. "We do not need all these wasteful 'me-too' shoes! We will produce one best shoe for all workers and save much money!" Zoloft and Prozac do basically the same thing (or so I'm told) but sometimes one works where the other doesn't. And in cases where that isn't true, having two drugs on the market that do almost exactly the same thing pushes down prices for consumers.

The point is that the much vaunted potential savings in health care come almost always from people who've either never worked for the government, or never worked for a business. They assume that they can cut here and there without much thought for the systemic changes that such cutting would make. This is not to say that you couldn't cut some costs; you could. But I'm sorry -- the government is not going to squeeze major new efficiencies out of the system; if you think that insurance billing is byzantine, go check out some government procedures for reference. It's going to cut costs by cutting back on some of the stuff that the health care system currently does. Pharma and medical research. Training. Service provision. The reason that Canada can do things on the cheap is first, that they have a different population from ours whose health care needs are probably not the same, and second, that they free ride on our research establishment. I'm sure it's possible to cut some of the profits out of that establishment without destroying it -- but do you trust the government to surgically detect that amount? Because the companies can be destroyed quickly -- their R&D burn rates are huge. But once you've pulverized them, it will take a decade or more to rebuild. More, actually, because the organic chemistry students and medical technology engineers will drop out of the pipeline. And investors will be a little gun-shy about handing money over to a firm after you nationalized it once -- better make that profit margin 40%.

An industrial economy is like a complicated engine. You can't pull a big chunk out of it and expect it to keep working -- nor imagine that once you've disassembled it, you'll be able to put it back together the way it was.

Advocates of single payer claim that the problem is the free market -- when health care hasn't functioned like a free market since WWII. Oh, it's freer than elsewhere -- but Medicare spending is 17% of the total market; Medicaid another 5% or so, and almost all of the rest comes from employer subsidized health insurance -- which is not a free market item, thank you very much; it's a product of the deductibility of medical insurance, which is an otherwise ludicrously inefficient item for employers to buy. And what does that mean? It means that the consumer of the health care -- you -- is not the one paying for it. The free market doesn't work? An economist could predict exactly what is happening in the health care market. The consumers want to consume as much as possible. The payers want to pay as little as possible. And the companies providing the insurance pretty much don't care, because they're screwed either way -- either they get unhappy employees, or higher insurance prices.

And the government will do so much better? No. Remember, the government isn't incented to see that you get good health care; it's incented to see that you don't get mad enough to vote the politicians out of office.

But you've just created another, immensely powerful interest group who will vote on the issue, every single time: the employees 15% of the economy you just nationalized. Focused interest groups, unless they are very small, and the costs are very high, almost always win over the national interest, because for you and me our crappy health care is just one of many issues that we vote on, while for that fifteen percent, if their interest is harmed by, say, budget cuts, it's the only one -- and 15% is enough to swing a lot of districts. Imagine our health care system as the school system with IV's and blinking lights.

All right, feisty person: explain to me how health care is different from education, politically speaking. It's vital and we all use it at one time or another, and most of us who use it lack the background to determine whether we're getting good care. That's exactly the place where special interest groups with a lot of votes, like the one we just created, exert the most leverage.

We'd do a lot better to try a free market mechanism: let the people consuming the health care pay for it. End the tax deduction, or transfer it to the individuals in the form of Medical Savings Accounts. They're the only people, ever, who will be incented to make sure that they get the best possible deal for their money.

And that's what we call a free market.

From the desk of Jane Galt:

This is a treasure from

This is a treasure from TNR:

But no matter how the ASDC is reorganized, it's unlikely to have the money to conduct the extensive issue ad campaigns on which both parties have lavished millions since the days of Dick Morris. It's here that Democrats hope liberal interest groups will pick up the slack. The problem, of course, is that a wave of chaotic, uncoordinated ads funded by a variety of liberal groups interested in different issues could do nearly as much harm as good. Enter Mike Lux, a veteran of People for the American Way and of Bill Clinton's Office of Public Liaison. Last year, long before it was clear McCain-Feingold would pass, Lux set up a group called the Progressive Donor Network to improve the electoral coordination and efficiency of liberal groups like the League of Conservation Voters (LCV) and the National Abortion Rights Action League (NARAL). And McCain-Feingold's passage makes Lux's network much more powerful. "We're always going to do independent work," says NARAL's Kate Michelman. "But Mike Lux's group could help us think carefully about the issues that really are most mobilizing. We can save ourselves from duplicating efforts and coordinate where each of us is going to be."

Explain to me, please, how moving soft money from the Democratic party to a closely allied PAC is going to revolutionize our campaigns, except by making them less accountable?

From the desk of Jane Galt:

I'm no evolutionary biologist, but

I'm no evolutionary biologist, but this article was certainly thought provoking -- particularly this bit:

This leads to a subject that Ewald is not shy about bringing up in discussions with colleagues and in professional lectures: homosexuality. Various pieces of evidence have been adduced in recent years, by prominent researchers, for some sort of genetic component to homosexuality. The question arises as to whether natural selection would sustain a homosexual trait in the gene pool for any length of time. The best estimates of the fitness cost of homosexuality hover around 80 percent: in other words, gay men (in modern times, at least) have only 20 percent as many offspring as heterosexuals have. Simple math shows how quickly an evolutionarily disadvantageous trait like this should dwindle, if it is a simple genetic phenomenon. The researchers Richard Pillard, at the Boston University School of Medicine, and Dean Hamer, at the National Cancer Institute, are not persuaded that natural selection would necessarily have eliminated a homosexual trait, and offer ingenious counterarguments. (And they note that historically the fitness cost may not have been very high, when gay men stayed in the closet, married, and had children.)

No one, of course, has ever isolated a bacterium or a virus responsible for sexual orientation, and speculations about the manner in which such an agent would be transmitted can be nothing more than that. But Ewald and Cochran contend that the severe "fitness hit" of homosexuality is a red flag that should not be ignored, and that an infectious process should at least be explored. "It's a very sensitive subject,"Ewald admits, "and I don't want to be accused of gay-bashing. But I think the idea is viable. What scientists are supposed to do is evaluate an idea on the soundness of the logic and the testing of the predictions it can generate."

Which leads to the question: if we could cure it, would we?

From the desk of Jane Galt:

Hmmmm. . . . The

Hmmmm. . . . The C-Man suggests that all those public service programs like the Peace Corps and Teach for America are really jobs programs for the affluent.

From the desk of Jane Galt:

Another thought about the infantilisation

Another thought about the infantilisation of teens: perhaps the problem is less that we infantilize them than that we treat them like adults before they're ready.

In the 19th century, a boy was the property of his father until he turned 21 -- he was owed that son's labor and obedience until his majority. A girl remained under the control of her parents until she was married. In neither case were they adults at 16, no matter how much responsibility they were taking.

Nor were they permitted to act like adults. The way that today's ninth graders are allowed to comport themselves would be wildly libertine for a 19th century community. They were not allowed to go to mixed-sex parties without a chaperone. Girls weren't allowed to go much of anywhere without a chaperone, even in very poor communities. They didn't have the run of the house when their parents weren't there, because there parents were never not there -- and if their parents went away, they would be left either with servants, or with relatives, to make sure that they didn't stray. The opportunities for premarital sexual activity were not non-existant, of course, but they were drastically restricted -- and extremely risky. A couple caught was, as long as the couple stayed within broad class and race lines (and fifties movies aside, most girls didn't stray too far outside those lines), a couple married.

All of which goes back to my original point, which is that early sexual activity and parenthood took place within a strong, broad community structure that supported early marriage -- and took great pains to prevent premarital sexual activity. Trobriand Island tropes aside, this is true, as far as I know, in most communities that endorse teenagers having sex. Without the latter two systems in place, I see no reason to think that we can healthily endorse the early sex -- not without aiding children in pretending that pregnancy is vastly less serious than it is.

From the desk of Jane Galt:

After reading this bit by

After reading this bit by Tony Blankley, all I could say was "Ouch! That's gotta hurt."

Presumably without checking with their own intelligence experts or the White House, the three Democratic leaders went public with their incendiary innuendos. The next morning, Friday, both the New York Times and The Washington Post wrote stern editorials in which they completely exonerated the president of culpability in the matter. The Post had a major front-page story that provided the history and context of the briefing and pointed the finger, correctly, at the FBI bureaucracy.

But by then it was too late for the heroic Democratic Three. They had allowed themselves to be swept up on a high-tabloid tide. Then, as the tide receded, they were stranded on the beach — three jellyfish, their venomous sticker-laden extremities hanging helplessly and harmlessly on their drying bodies. This is not the sort of loyal opposition leadership that the Democrats need and our nation deserves.

From the desk of Jane Galt:

Professor Volokh writes about the

Professor Volokh writes about the curve at UCLA law school. Is it fair? Well, I have some experience in the area; the University of Chicago Graduate School of Business had a mandatory curve to a ceiling of 3.25. Professors could distribute this in any way they liked -- or as we liked to say, every C subsidized an A for someone else.

Broadly, I'd guess it was fair, although I had some very pungent words for one of my professors who deprived me of an A by deciding to curve to a 3.0 -- I was one point lower than the lowest A.

Of course, there were always people who complained when an absurdly easy test, or class, meant that everyone below a 97 or 98 average got a B. That happened to almost everyone at least once. On the other hand, I didn't see them complaining when the curve lifted their substandard performance up to B level. I'm pretty sure it evened out in the end. And grade inflation is a problem; at Northwestern, down the road from us, rumor had it that the average GPA was a 3.8 or 3.9. At that point, grades are no longer useful information -- why bother giving them? Unless you're a total screw-up, you're getting an A. This isn't uncommon at Business schools, which put us in the uncomfortable position of trying to explain to interviewers who hadn't attended Chicago why my 3.6 was really more impressive than a Northwestern grad with a 3.8 -- but other than that, really not a big deal. So while ideally I think it would be nice to have an objective, fairly difficult standard that you need to reach, in a world of essays and case studies, you need some quasi-objective way to make grading fair. It's certainly fairer than the alternative: my professor's average grade is a C, yours is an A- -- and both of us have to compete for the same job.

From the desk of Jane Galt:

Brilliant article by Robert Kagan

Brilliant article by Robert Kagan (Via Mindles:

Thus we arrive at what may be the most important reason for the divergence in views between Europe and the United States. America's power, and its willingness to exercise that power - unilaterally if necessary - represents a threat to Europe's new sense of mission. Perhaps the greatest threat. American policymakers find it hard to believe, but leading officials and politicians in Europe worry more about how the United States might handle or mishandle the problem of Iraq - by undertaking unilateral and extralegal military action - than they worry about Iraq itself and Saddam Hussein's weapons of mass destruction. And while it is true that they fear such action might destabilize the Middle East and lead to the unnecessary loss of life, there is a deeper concern.7 Such American action represents an assault on the essence of "postmodern" Europe. It is an assault on Europe's new ideals, a denial of their universal validity, much as the monarchies of eighteenth- and nineteenth-century Europe were an assault on American republican ideals. Americans ought to be the first to understand that a threat to one's beliefs can be as frightening as a threat to one's physical security.

I've wondered over the last few months whether Europeans really, genuinely don't get it that their peace is purchased by our willingness to act militarily. The European miracle of integration, after all, was made possible first by our destruction of Germany, and then by the military guarantees that made intra-European belligerence not only unnecessary, but also impossible. Oh, they did a fine thing, I'm sure, weaving all those disparate states together; I might not like the hyper-statist form of the EU, but I applaud the idea. Nonetheless, it wouldn't have succeeded without our military guarantees, and not just because they'd have to hold their meetings in Russian.

But Kagan makes the opposite point as well, which is that we, for many years, dreamed of a peaceful isolationism that many of us, including me, still look back upon wistfully. It wouldn't particularly bother me if the situations were reversed, and we had to retreat within our borders and look inward. Or at least, I don't think it would. If we were not threatened by Iraq et al. I think I could be quite content to let the Europeans handle it whatever way they like. Oh, I'm a champion of liberty to all the corners of the earth, but there's sufficient ambiguity in pursuing it for foreign nations that I'd be content to let Sweden and Italy handle the job. So it's not too hard to understand that the Europeans have built their own ideology out of powerlessness; nor is it necessary to ridicule it in order to point out its insufficiency. Multilateralism does have its charms.

But for now, I guess, I'll stick with our way.