Asymmetrical Information

From the desk of Mindles H. Dreck:

IOUs for dummies

What sort of "asset" requires that you yourself borrow more money to cash it in? If I have to incur a new liability in the exact same amount to liquidate it, do I really have an asset?

In the extended entry, I explain one more time with pictures and ledger balances for the financially illiterate and/or analogy impaired that the assets in the Social Security Trust Fund are of no particular consequence (as my co-blogger already explained).

It is surprising that Democrats have made private accounts their Maginot Line in the Social Security* debate. In addition to the arguments made by the President, and his willingness to take this opportunity to make the system more progressive, there is the simple fact that creating private accounts is the only way to create a funded reserve for promised future social security benefits. To me this is the greatest benefit of such a plan. The government has proved itself incapable of maintaining reserves such as we normally demand from the private sector.

PRESS ECONOMIC ILLITERACY UPDATE: What's amusing is that I'm arguing below against calling the Trust Fund an asset from an external debt point of view. Anna Bernasek, exploring the limits of national debt in the Times on Sunday, doublecounts it as a liability alongside the actuarial shortfall. She actually increases government's net liability for Social Security to over $6 billion! It's both - it's neither! Could we get this straight? [of course this is the reporter who writes about taxes and incentives and conveniently ignores the work of our latest Nobel Prize winner on the subject. It didn't support her desired point, I guess]

DOUBLE UPDATE/CORRECTION: I see now, courtesy of commenter "Tom". I didn't realize the $4.4 Trillion shortfall is shown net of the $1.7 Trillion Trust Fund notes. The total of $6.1 is therefore not doublecounted, but it still is not entirely accurate from an external creditor point of view. The SS block should be $6.1 billion and the Trust Fund notes consolidated away in a presentation of "National Debt". However, I have just issued a special Trust Secured Lockbox Note (TSLN) to the Commenter Ridicule of Dreck Administration (CRDA), a wholly owned subsidiary of me! Now Tom can sleep at night knowing his future ridicule allowance is secured.

TRIPLE UPDATE: The One-Handed Economist did this in simple tabular form in early April.

The 'forces of real' have taken a serious beating in the comments. As well as the purported defenders of FDR. A puzzler for the impaired - what sort of "asset" requires that you borrow more money to cash it in?

*The program that shall not be criticized™ brought to you by the party whose ancient and noble schemes must not be questioned™

**charts have been updated to include gross SS liability of $6.1 Trillion and Medicare's $30 Trillion sinkhole**

Now, on to the accounting lesson....

Hypothetically, my wife and I co-sign a mortgage for $100,000. In exchange for an IOU, I also write her a check for $1 billion which she endorses to the governor, which he uses to educate a handfull of children in Camden, New Jersey. Our balance sheets are as presented. Does our mortage holder take comfort in my $1 billion net worth? Does it make a difference at all?

Now let's look at the SSA and the government as the "Trust Fund is Real" crowd sees it - just make up some balance sheet numbers. The theory here is that the SSA is stronger because it holds the notes from the government. True, as far as it goes. The problem is that the SSA is part of the government, implicitly backed by its full faith and credit. The Social Security beneficiary is in the position of my hypothetical mortgage holder. It makes no difference to the SSA beneficiary where the assets are located between these entities. The note is an 'I-O-ME' it is offset by an equal liability, and the payment or forgiveness of each side of the transaction is controlled by the same entity on the hook for SSA benefits. And just to drive the point home, imagine the notes didn't exist. Make any difference? None. In fact, this is how the government consolidates their accounts, for the reasons outlined above. You can also imagine here that the President instructs the SSA to forgive the notes and the Treasury to retire them. It makes NO DIFFERENCE.

By contrast, if these notes make such a material difference to the solvency problem, let's increase them to $170 Trillion! Does that make a difference? No, SSA beneficiaries still have a claim of $6.1 Trillion on a government net worth of -$43.7 Trillion:

For those of you who would like to know what an actual government reserve would look like - here it is. Note that the net worth in the system is higher by the amount of the reserve, because the money has not been spent in the general budget. Note that the government's consolidated net worth has improved by the amount of the reserve - $1.7 billion. The asset could also be located on the SSA's balance sheet without the intra-govt. note.

And here's what happens if we transfer the notes to the beneficiaries - assuming that they are used to satisfy, dollar-for-dollar, the social security obligations. The situation remains the same in dollars, but not in terms. The beneficiaries still have $6.1 million in claims against -$43.7 Trillion, but the terms of the $1.7 Trillion are now fixed, and these notes can be sold for something that pays a risk premium, potentially bringing more dollars into the system in the future. By 'fixed', I mean they no longer change with political decisions about payout ratio, demographics or longevity of the beneficiary.

Government and SSA figures approximated from here and here. The presentation above does not require exact, current or correct figures anyway.

ANOTHERUPDATE. There is some confusion in the comments that if employers are allowed to put their stock in their defined benefit plan, that must mean that doing so enhances pensioner security. It does not. It is merely a redundant unsecured claim on the company, as the pensioner already has a general claim on the company for his/her DB benefits. This is exactly analogous to the situation of the SSA pensioner with and without the 'Trust Fund'.

This can be illustrated by comparing the total resources available to pay a pensioner's claim with and without a note from the company to the plan using "XYZ Co." and their pension plan:

First XYZ co., its plan and pensioners with with the employer note:

Now without:

In both cases, the total resources available to back up the pensioner's claim remain the same. Hence the note makes no difference to the pensioners until it or its yield is converted into an obligation of some other entity.

From the desk of Mindles H. Dreck:

Wouldn't you like to be a 'fanatic' too?

Via Alex Tabarrok, we read this:

The Government Accountability Office found statistically significant evidence that passenger screeners, who work under a pilot program at five airports, including San Francisco International Airport, perform better than their federal counterparts at some 450 airports, Rep. John Mica, R-Fla. and chairman of the House aviation subcommittee, said Tuesday.

I took issue with Paul Krugman when he described the opposition to federalizing airport security as follows:

The story here is bigger than airport security. What's now clear, in case you had any doubts, is that America's hard right is simply fanatical — there is literally nothing that will persuade these people to accept the need for increased federal spending. And we're not talking about some isolated fringe; we're talking about the men who control the Congressional Republican Party — and seem, once again, to be in control of the White House.

For the Bush administration, after flirting with moderation in the weeks following the terrorist attack, seems in the last few days to have returned to its conviction that the hard right — which is relentless, and bears grudges — must always be deferred to, even in times of national crisis.

Or they could have simply disagreed and subsequently been proven right. Nah....

On a separate note, I dare you to say about the Bush Administration "there is literally nothing that will persuade these people to accept the need for increased federal spending" and keep a straight face.

UPDATE: The comments have gone AWOL, thanks to a commenter who somehow misread the above to read "proven right..about the 'war on terror' "and hijacked the thread. Should I parrot Atrios and just say "Open thread on the costs of the Afghanistan and Iraq wars"? Plug away!

From the desk of Jane Galt:

Economic trouble the whole world round

In America and Germany, at least.

Some slowdown was inevitable; higher oil prices mean consumers (and companies) buy less of everything else. And America's had a remarkably easy ride since the 2001 slowdown, with Alan Greenspan practically giving money away, and yet no inflation. That had to end sometime.

Still, there are dark clouds on the horizon. They're little right now, but there could be a storm comin' . . . if the housing bubble collapses, instead of tailing off, American consumer finances will start to look ugly. And if the rest of the world decides to stop buying our debt (private as well as public) . . . well, get out your rainslicker, friends.

From the desk of Jane Galt:

Fake compassion

Why is it that movies don't portray developmentally disabled people as anything like, well, actual people who are developmentally disabled? I'm talking about movies like "I Am Sam" and "Forrest Gump", which portray people who just talk slower and louder than normal people, and are of course a whole lot nicer and more true to their basic selves than those without cognitive disabilities. Or movies like this apparent Rosie O'Donnell gem. Like all the other movies of this type, it declines to show a consistent pathology. Why is thi? There are any number of places where one can go to find out how people with cognitive disabilities actually act; what problems they actually struggle with; what their lives are actually like.

Now, of course, this is Hollywood; one should not be surprised that the disabled are, like everyone else, considerably airbrushed. But these sorts of movies aim, with gooey smugness, to teach us to embrace disability. Getting America to be kinder to people with disabilities is a very worthy goal. But what purpose is served by teaching people to show love and kindness to a fictionalised version of disability that shows little relation to reality? America enjoys Forrest Gump, but it's not really that hard to learn to deal with someone who talks a little slow. Where are the movies covering the people who seriously discomfort us--the unverbal, or inappropriately verbal, or whose verbal skills just aren't up to sermonettes on love? Where are the realistic portrayals of the emotional difficulties that many cognitively disabled people have, because, like small children, they have no sense of the future and thus have a very difficult time dealing with broken promises or changed routines? Why are they trying to teach us to love people who don't exist, instead of the many helpless people, often treated shamefully, who deserve to be accepted by the society around them?

From the desk of Mindles H. Dreck:

A change in the denominator is not a change in the numerator

I have to agree with Brendan Nyhan's criticisms (and Drum and Atrios) in this discussion. The WSJ presents an incomplete argument here.

After all, if tax rates stayed exactly the same, and the shares of income changed as they did, the 'burden', as the WSJ carefully says, would fall 'more progressively'. Can we truly say that a tax system is more progressive even though the majority of the change is due to the change in pretax income distribution as opposed to any change in the tax structure? In a way, the WSJ is performing a variation of an error that it always bitches about when it appears on the other side of the debate- that the percentile cohorts of income distribution move around, so its difficult to compare the top percentile of this year to the top percentile of twenty years ago. They are often different people with a different share of the pie. Percentages, dollars, 'burden' - people defend the measurement that supports their view.

It does suggest that the tax system hasn't really become less progressive, but that's a different assertion. Indeed, it appears that most of the significant changes in tax system progressivity have taken place between the groups within the top decile. As David Cay Johnston pointed out*, we're really good at taxing earned income. Other stuff-not so much.

Interesting book, but Johnston does seem to confuse evasion and avoidance in parts - lumping together offshore credit cards and legitimate tax planning vehicles.

From the desk of Jane Galt:

Student loans getting you down?

You could be this guy, who is having his Social security checks garnished to pay his back debt of over $80K. When my friends and I complain that it feels like we'll never pay off our student loans . . . well, I had no idea that might be literally true.

From the desk of Jane Galt:

I am now less inclined to think that the parks department's refusal of permits for Anti-Republican rallies during the convention were viewpoint oriented, thanks to this New York Times article, which points out that the policy of not allowing groups llarger than 100,000 has been in place since 1997. Moreover, a Dave Matthews concert which drew a mere 80,000 in 2003 (against a projected 250,000 for the big rally) cost the parks service $120,000 in damage. As a New York City taxpayer, this makes me eager indeed to restrain the number of people allowed to tramp on the Great Lawn. Unless the Parks Service charged admission--say, $10 a head--in which case, hey, protest to your heart's content.

The actual subject of the article is the Parks department's new move to cut the size of crowds to 50,000, and allow only six a year, four of which will go to performances of the opera and the Philharmonic. The activists who organised the rally try to portray this as targeted at keeping them from holding future rallies, an argument which is undercut by the fact that the Parks department is apparently letting them protest away on unrestored sections of the park. They complain that there are few wide open spaces in New York City in which to protest, which is true, but that doesn't make it some sort of civil right to tear up the grass; you have a right to peacably assemble, not a right to hold your demonstrations in scenic & enjoyable locations. The Great Lawn is a public accomodation, and as such, competing interests have to be weighed. Protesting is a highly secondary purpose to the everyday function of the Great Lawn, which is to allow people to sit on a nice piece of grass that doesn't have to be fenced off and re-sodded every few years.

The Parks Service are totalitarian in defense of the grass, and it can be annoying, particularly to those of us with dogs who find 99% of Riverside Park's greenery has been fenced off for the sole enjoyment of the squirrels. I am well prepared to concede that they may go too far in their desire to defend their little patches o' emerald. But, remembering what the parks were like before the Parks Department became hypervigilant (ever seen pictures of the Dust Bowl?), I also realize that there are just too many people in this city, with too many competing desires, for them to allow everyone the unfettered access they long for. They are not targeting us because they hate dogs, or protest groups, but because they hate the site of raw brown fields where grass used to grow.

From the desk of Jane Galt:

Auld lang syne

This may just be the coolest site ever. Check out The QVC of the future! or engage in some fond nostalgia for those bygone days

of peppermint sticks and electric dog-washers, a magic time when running barefoot through the grass and having your cocker spaniel buffed and pressure-rinsed to a glossy sheen at the flip of a switch was every boy's birthright. Of course Rags is long gone now -- that unfortunate business with the faulty shutoff relay -- but you'll always have those stains on the ceiling to remember him by.

From the desk of Jane Galt:

Balancing the scales

Fantastic piece by Martin Wolf on those global imbalances I've been talking about. One of the most interesting arguments is an idea I've been toying with, but Mr Wolf fleshes out:

For some years a number of non-US observers, including Cambridge University's Wynne Godley (and me), have argued that US current account deficits are explained more by the behaviour of the rest of the world than by that of the US. Ben Bernanke's Homer Jones lecture, in March, marked official recognition of what the Federal Reserve governor called the "somewhat unconventional view" that it is the surplus savings of the rest of the world that have created US deficits.***

Yet the view should never have been unconventional, given two points: first, the US accepts the exchange rate policies of everyone else; second, US monetary and fiscal policies are aimed at achieving the economy's non-inflationary potential output. At the real exchange rate set largely by foreign decision-makers, a huge excess demand for tradeable goods and services - and so the trade deficits - emerges. Until 2001, the counterpart of the foreign lending was an unprecedented private sector financial deficit. After the bubble burst, the public sector took much of the strain.

If Al Gore had been president there would also have been a big increase in the fiscal deficit, though its composition and likely duration would have been different. Without such a fiscal expansion, the US would almost certainly have seen interest rates at zero, in a desperate (and probably unsuccessful) attempt to maintain the private sector's financial deficit.

This implies that even if the government reduced its budget deficit--something I think it should do, preferably through lower spending, but if not, through higher taxes--the massive problems with our national savings rate (we don't seem to have one) would not go away. For example, lending to Fannie Mae and Freddie Mac, with their implied government guarantees, is a nice substitute for lending to the US treasury. From the low long-term mortgage interest rates we're currently experiencing, against all reason, it's reasonable to assume that quite a lot of the Chinese treasury purchases are already spilling over into other credit markets.

Update Robert Samuelson has more.

From the desk of Jane Galt:

What do you mean by rich?

Ever noticed how no one in the United States--except for Paris Hilton--is rich? People making incomes well into the six figures don't think of themselves as rich; they're just upper middle class. That may be because someone on the Upper West Side making $700K is cramming his family into a seven room apartment that would hardly do for a garage in whatever leafy suburban haven spawned him.

What does it mean to be rich? We have only the vaguest idea, generally, which is why it's so hard to pinpoint in ourselves. My idea of being rich, having grown up on the Upper Westside, has less to do with several thousand square feet to dust and vacuum, and more to do with never having to worry about money.

But, of course, we can always find new things to worry about. By the standards of, say, 1920, every single one of us, even welfare mothers, is rich. Every single one of us has enough food that we never need to go to bed with our stomachs crying out to be filled. Every single one of us has running water--running hot water--and bathtubs and indoor toilets to put the water into. We have stoves that do not need to be carefully tended to keep the fire going. We have central heat. We have cars or public transportation to take us wherever we want to go for a trivial sum. Almost every poor person in America has a color television, offering free entertainment 24 hours a day, and most of them can afford to buy cable to go along with it. We are so wealthy that even a welfare mother can afford to let her children stay in school until they graduate--indeed, so wealthy that a once-unbiquitous dramatic scene, the child vowing to drop out of school in order to help the family out, has entirely dropped out of the literary canon. The average middle class man of 1920 would have regarded all but the most hopelessly drug addled or mentally ill street people as wealthy beyond dreams of avarice.

And yet we have not stopped dreaming, have we? There is always another IPod to buy, a vacation to take, an expensive school that our children must attend in order to make sure that they can afford to send their children to still more expensive schools. As long as human beings can dream, they will never get to be rich.

From the desk of Jane Galt:

I don't know quite what to say to this

Mark Kleiman seems to think that the US shouldn't favour democracy in Lebanon because it's bad for Israel, and that this is a sufficiently damning criticism as to need no explanation. As longtime readers know, I support the existance of Israel. But I don't think that America is supposed to run her foriegn policy for the benefit of Israel, at the expense of American interests like a broadly Democratic middle east.

But Hezbollah is going to win! wail critics, and to them I say, "So what?" Not that I'm in favour of Hezbollah; murderous thugs aren't my style, no matter how good their social services network. (See Hussein, Saddam). But I'd be much happier with a democratically elected government in which Hezbollah is the biggest part (provided of course that they can be democratically unelected if the population so desires) than with a government imposed by Syrian fiat. And I think that most people should be. It could well be against the short term interest of the US as well as Israel, but in the long term, a stable democracy is always better to deal with than the restless client state of an unstable dictatorship. Not to mention the fact that, as in Europe and elsewhere, every additional democracy in the Middle East increases the likelihood of more such forming.

Let's clear something up: any Arab democracy is going to be unfriendly to Israel. I am not going to debate the Israel/Palestinian question here, since no one ever wins those arguments. (And I will ruthlessly delete any comments that attempt to broach the question). But that is a fact on the ground: Arabs are very mad at Israel. The idea that because they are mad at Israel, they should be ruled over by despots who will make deals they hate with Israel and America is really pretty foul. That is what imperialism looks like, to those who have been carelessly throwing the word around lately, and I hope I'm not the only person who supported the Iraq war who would stand foursquare against interventions with such purposes.

Update I'm informed that Jonathan Zasloff, not Mark Kleiman, wrote the post in question.

From the desk of Jane Galt:

Finger food

They've arrested the woman who claimed to find a finger in her Wendy's chili.

From the desk of Jane Galt:

Notes from Britain

Everyone has their favorite exhibit at the British Museum. Mine is something that I never previously even dreamed existed: The New Soviet Man Commemorative Plate Collection

Yes, that's right, not satisfied with establishing the Worker's Paradise, the Bolsheviks apparently also established the Franklin Mint of the Proletariat in order to churn out very special plates honoring the (historically inevitable, but oh-so-collectible!) triumph of socialism.

On the left (closer look here), you can see the New Soviet Man striding towards the City of the Future with a hammer in his hand, the better to destroy the Spectre of Capitalism, which is still fighting its historically inevitable denouement, as you can see on the right. Apparently, free markets give you really bad halitosis.

But my favourite is this one:

It's a little hard to see (I was using a friend's camera), but you get the idea . . . weary workers gazing off into the bright Soviet future. There's a lot of that, in this collection, and in Soviet art in general. You get the idea that for some reason, the future will contain a lot of obelisks. Perhaps they're good for impaling the imperialist oppressor, or perhaps erecting obelisks is just what the proletariat will get up to once the Tyranny of Capital is ended and workers need to find some way to fill up all that spare time. It's impossible to shake the feeling that if you turned the plate over, you'd see a badly glued label promising that the plates are guaranteed to until the State withers away and True Communism arrives.

Really, if you only see one thing at the British Museum . . . you should see the Rosetta stone. But if you see two things, this had better be the second. It's truly, as the Franklin Mint might say, priceless.

Update A commenter points to his pictures of Soviet sculpture, which are not to be missed.

From the desk of Jane Galt:

Flattened

Ain't nothing finer than Matt Taibbi on the subject of Tom Friedman:

Thomas Friedman in possession of 500 pages of ruminations on the metaphorical theme of flatness would be a very dangerous thing indeed. It would be like letting a chimpanzee loose in the NORAD control room; even the best-case scenario is an image that could keep you awake well into your 50s.

So I tried not to think about it. But when I heard the book was actually coming out, I started to worry. Among other things, I knew I would be asked to write the review. The usual ratio of Friedman criticism is 2:1, i.e., two human words to make sense of each single word of Friedmanese. Friedman is such a genius of literary incompetence that even his most innocent passages invite feature-length essays. I'll give you an example, drawn at random from The World Is Flat. On page 174, Friedman is describing a flight he took on Southwest Airlines from Baltimore to Hartford, Connecticut. (Friedman never forgets to name the company or the brand name; if he had written The Metamorphosis, Gregor Samsa would have awoken from uneasy dreams in a Sealy Posturepedic.) Here's what he says:

I stomped off, went through security, bought a Cinnabon, and glumly sat at the back of the B line, waiting to be herded on board so that I could hunt for space in the overhead bins.

Forget the Cinnabon. Name me a herd animal that hunts. Name me one.

For my take on Tom Friedman's abusive, even criminal, deployment of metaphor, click here. Meanwhile, does the man know how many calories there are in a Cinnabon? I mean, seriously, now. What was he thinking?

From the desk of Mindles H. Dreck:

Not all class warfare, folks

Reading through the hysteria cited by my co-blogger I'm struck at the level of ignorance of the actual mechanics of the Estate Tax and the implications of repeal. Nor do any of the comments show an understanding of why so many who are not subject to it still think the estate tax is unfair.

It is instructive that just as Matthew Yglesias cries out in frustration over Estate Tax repeal "F*** the small businessman", the Small Business Council of America asserts that it does precisely that:

BETHESDA, Md.--(BUSINESS WIRE)--April 14, 2005--The Small Business Council of America ("SBCA") warned today in testimony before the Subcommittee on Tax, Finance and Exports of the Committee on Small Business of the House of Representatives that more small business owners would be hurt if the estate tax were to be permanently repealed in 2010, than if the law were frozen in 2009. "Proponents of repeal tout the benefits of estate tax repeal to the small business owner when, in fact, repeal will actually harm most small business owners because of the loss in the step-up in basis," said Paula Calimafde, Chair of the SBCA.

There is no case for saying, as the New York Times inexplicably does, that "Repeal would shield the estates of the very wealthiest Americans from the tax." It does not. It does, however, defer taxation. Because basis will no longer be 'stepped-up' after death (except for a $1.3 million exemption) they will simply be taxed like all other capital gains - at the time those gains are realized.

Stepped-up basis is one of the four legs of the estate-planning stool along with the life insurance tax exemption, minority discount valuations and the division of income and principal interests (such as the "estate freeze"). It is not entirely clear that beneficiaries of large estates are better off after repeal when the full toolkit of estate planning techniques is taken into account - unless capital gains tax is done away with altogether and the states stop taxing estates. Neither is likely to happen.

Given the large estates I've seen avoid taxes, I am skeptical of analyses that suggest an enormous impact to revenues from this repeal. I don't believe they factor in the new potential revenues from carryover basis outside the traditional estate tax shelter vehicles. Certainly, the capital gains rate is lower than the estate rate, but when estate tax shelter vehicles dwindle away, more assets will ultimately be subject to capital gains taxation. Based on what estate planning professionals tell me, it will be a wash in many cases and more expensive in some significant estates. In other words, with respect to the Estate Tax, we may still be in the fat part of the Laffer curve, where a lower statutory rate may yield higher revenues over time (due to avoidance behavior, not a lack of work incentives).

The end result of repeal is that taxes on appreciated assets will be paid, but death will no longer cause forced liquidation of illiquid assets, privately-held businesses in particular. I realize that folks over at MY's place have no sympathy for the rich, but I see this as positive, and not just for heirs. As an investment banker earlier in my career I had a front row seat at several forced liquidations after the death of a wealthy business owner and they are sad affairs, much like divorce. The death of a company founder/owner is a terrible time for rational decision-making. Yet the future of an enterprise, the current valuation of the business and many ordinary jobs often hang in the balance as the relatives grieve, squabble and fight off vultures.

Liberal commenters seem to miss the irrelevance of class envy to the popular dislike of this tax. The outrage isn't so much about who is being taxed but the punitive rates and unintended consequences of the taxation method. Also, as surveys have shown, people tend to believe that a fair tax rate is about 20%, but certainly less than 30%, and that wealth taxes (property and estate) are the most unfair. The estate tax is a wealth tax with rate brackets significantly higher than 30%. Fair is fair, as they say, regardless of how stinkin' rich the deceased may be.

Apart from the ignorance of how large estates are settled, one has to stop and laugh at some of the logic in this thread, such as the hoary notion that you 'get rich' by simply having the taxman overlook you. Then there is the Willie Horton theory of taxation - 'don't cry for them'. we learn there is no injustice in taking things from people who don't deserve it. Who selects the deserving? Perhaps the United States Handicapper General?

From the desk of Jane Galt:

This is cute, and one hates to quibble, but feeding one's pig dynamite will not, in fact, make the pig explode. That's why those people using dynamite on television have to light a fuse and all, instead of just forcing a pig to eat it.

From the desk of Jane Galt:

Jimmy, we hardly knew ye . . .

So Jim Jeffords is retiring. I never understood the outrage of Republican voters at his switch; we don't have a parliamentary system, and the voters of Vermont elected the guy. Booting him out of the Senate is properly a job for them, not the Republican Party.

On the other hand, I didn't think the move was particularly bright, either. He must have realised, given that he was breaking a 50-50 split, that there was a fighting chance that the Republicans would re-take the Senate in 2002. And given that this wasn't his first term, he must have realised that the payback was going to be a bitch. His switch accomplished little except alienating whatever shred of a Republican base exists in Vermont, and making it impossible for him to get even the tiniest concession for his state. Now, in the case of milk price supports, which are near and dear to Mr Jeffords' heart, I couldn't be happier about the whole thing, but still, you have to wonder what he was thinking.

And that goes double for naming his book "My Declaration of Independance". I mean, you could virtually see his head puffing up like one of those frogs that boys inflate with straws before putting them in the road to watch them explode when a truck crushes them. Hard to fathom.

From the desk of Jane Galt:

Bubblelicious

Is the American economy experiencing a housing bubble? Damn straight. And it looks like the party might be coming to an end.

Update Stephen Ayers has more. One quibble: he says that there's no short market for real estate. But in a way, renters are implicitly short the market; their rent is the carry.

From the desk of Jane Galt:

Pope-pourri

Not being Catholic, I haven't been following it too closely, but the BBC "Vaticam" is reporting we've got a new pope.

Update Gott im himmel, it's Ratzinger. All those adages about "He who goes in a Pope comes out a cardinal" seem to be falsified. And I think we can count out any possibility of ordained women, married priests, or condom bowls in the vestry.

Update II I can't say I think much of his Papal name: Benedict XVI. It's almost like getting to choose your own name, and picking "Melvin". But I'm sure it has all sorts of theological implications I don't know about.

Update III I'm pretty sure that we're going to see a lot of articles bemoaning the choice of Ratzinger (who is very conservative) and claiming that the Catholic Church is going to implode without ordination of married and female clergy, relaxed standards on birth control and divorce, and so forth. I don't think I buy this. Protestant denominations like the Anglican Communion have been liberalising like mad, and with each decline in membership, they decide that what they need is to liberalise some more. Doesn't seem to have worked so hard. Personally, if I were going to be religious, I'd want a religion that was demanding. Otherwise, what's the point? But on the other hand, my preferences in other matters are a pretty reliable guide to what the rest of the world doesn't prefer, so who knows?

Update IV Dumbest commentary so far comes from teh BBC fellow who I heard say that "Many of us never thought we'd see this day" -- which, he added, he'd been "Dreaming of for a long time". Probably not the best career move to tell viewers that you spent years fantasizing about the death of Pope John Paul II. Also, the announcer appears to be in his fifties. Pope John Paul II was in his eighties. Did he really think that John Paul II was going to live into his second century, stubbornly denying him his long-awaited dream of seeing another pope sworn in?

From the desk of Jane Galt:

Why aren't we doing anything about the budget deficit? Because no one cares that much

Oh, liberals say they care, just like conservatives cared when they were out of power. But what most liberals care about is rolling back the Bush tax cuts, not cutting the budget deficit. Why do I say this? Because they supported John Kerry's plan to roll back the Bush tax cuts, and replace them with new spending on health care. Even if we rolled back all of Bush's tax cuts to those making over $200K, that would raise (according to the Kerry campaign) about $700 billion over 10 years; this would make a dent in the budget deficit, but won't close it. But given the very high marginal rates that would be required to close it (presuming we don't want to raise taxes on the poor and middle class), it makes more economic sense to look at the spending side, for example by giving up the idea that Medicare should provide prescription drugs.

But given the choice between closing the deficit and getting spending they want--on national health care, for example--most liberals would be full of reasons that the budget deficit isn't nearly as bad as we all have been thinking. Similarly, if they were in the opposition, watching all that new spending get passed, most conservatives would be happy to wax lyrical on the terrible downfall that awaits countries that spend more than they earn.

That, in short, is why we run a budget deficit; whoever is in power has bigger priorities. Perhaps that's a feature of Americans, or the American political system, but it seems to me that the only way we'll see our budget balanced is if we have the same combination of things that hit us in the nineties: a huge capital gains surge that surprises the hell out of our politicians, and a political system too gridlocked to spend the booty.

In other words, I'm not holding my breath.

From the desk of Jane Galt:

Is the trust fund real

It's time for another argument with liberal defenders of social security who argue that the social security trust fund is too real, because it's got government bonds that have the Treasury secretary's signature right on them! Any attempt to say that it isn't real is a scurrilous attack on the sacred person of our government, denying that Our Fine American Politicians can be relied upon to pay their IOUs.

This is reductionism at it's worst. In case anyone thought it was in any doubt, I do, in fact, believe that there are bonds, and that the government will note the interest rates on those bonds in its account books. But the failure to understand that there is a difference between IOUs written to yourself, and IOUs written to someone else, strikes me as willfully obtuse. Upon even a moment's reflection, it's obvious that the trust fund does not exist in the way that its proponents are claiming -- as a guarantee of benefits -- because the bonds are not obligations to Social Security beneficiaries. They are obligations to the Social Security Administration. And the Social Security administration has no legal obligation to turn the accounting entry representing interest payments from the federal government into cash. According to the supreme court, Americans have no property right in their social security benefits, as they would as creditors of an underfunded private sector pension plan.

Let's say it's 2018, and Congress is running out of money, as the Social Security system stops paying money into the government coffers, and starts taking it out. Congress cuts benefits to the point where Social Security taxes are once again a net contributor to federal revenue. Have we violated the trust fund? Nope. Congress is still paying the interest on those bonds; it's just that the interest they pay is immediately lent back to the federal government. Congress could knock benefits to zero, and keep recording interest payments into the trust fund for all eternity, without violating anything except its constituents expectations.

Now, is this likely? Probably not, because the political cost would be high. But the point is that the continuation of benefits depends on the political cost of offending a highly motivated interest group, not the existance of this trust fund. And the effect on the government of continuing those benefits--forcing it to raise taxes, cut other spending, or borrow money to pay for them--is exactly the same whether or not the payments are recorded on the books as "interest on bonds" or "contribution from general revenue".

Moreover, liberals understand this difference very well. If some conservative jackass proposed a plan to, say, let companies top up their underfunded pension plans by stuffing them with their own bonds, liberals would be justifiably outraged, because that's not funding the pension plan; it's promising to fund it at some later date, provided there's money around to do so. When it's companies doing these sorts of things, liberals understand very well why such "trust funds" aren't, in any meaningful sense, real.

Of course, the US government is less likely to fold than a company is. On the other hand, if a company issued bonds like those, it would at least have to record the size of the liability on the financial statements it issues to its shareholders. Why we don't demand that sort of accounting from our government, I'll never know.

From the desk of Jane Galt:

Global imbalances? What global imbalances?

Let me explain just what I meant by global imbalances in the previous post:

The United States has been, as one particularly pretty metaphor has it, the locomotive dragging the global economy behind it. China, meanwhile, along with other Asian countries, have provided the coal to stoke the engine, by keeping their currencies artificially low against the dollar. This means, on the one hand, that we get fantastic deals on DVD players and lawn furniture. Americans have been snapping them up at a much greater rate than they've been selling goods to foreigners, to the tune of roughly 6% of GDP (our current account deficit).

The low exchange rate, and the current account deficit, also mean that the Asians are actually lending us a good portion of the money we use to buy their geegaws. A deficit in the current account (which measures the difference between the goods and services you buy, versus the goods and services you sell) must be matched by an equal-and-opposite surplus in the capital account (which measure how much money other people lend you, versus how much you lend them). You can think of it like this: a country is like a person. If it wants to consume more than it produces (run a current account deficit) it has to either borrow money from someone, or sell some of its assets (run a capital account surplus).

Deficits these sizes aren't really sustainable, any more than you can borrow 6% of your income every year (unless your income is growing really, really fast). Normally, the currencies would adjust; as people bought more Asian currencies to buy their goods, the value of their currencies would rise, and ours would fall, and the deficits would gradually move back towards balance. But the Asian central banks, which keep their currencies low in order to make their exports more attractive, have been stopping that from happening.

The only way that Asian countries can keep their currencies undervalued is to keep trading yen or yuan or won for dollars, thus pushing up the relative price of dollars in their currency. This leaves the central bank with a big pile of dollars they must do something with; that something is generally plowing them into the market for US treasuries. The result is a massive increase in the supply of capital in the US market, making borrowing more attractive for everyone, not just the government. The Asian central banks are effectively lending us the rope with which to hang ourselves.

Because of these currency imbalances, the dollar has actually depreciated more against the euro than it otherwise would. This should be helping us by making our goods more attractive to Europeans, but unfortunately, they're having considerable economic problems of their own, as is Japan. There's not much demand there for extra goods, even at bargain prices.

The imbalances then, are between fast growth in China and America, and stagnation in Japan and Europe, and between producers and consumers; America and Australia are consuming more than they produce, with no signs of stopping, while the others are producing while they consume. These are not stable arrangements over the long run. Meanwhile, the rest of the world is far too dependant on American demand to support export-driven growth in their countries. If America halts its spending binge, everyone else will be thrown into a tizzy. Since America's borrowing isn't really sustainable, that's an exceedingly dangerous place for the world to be in.

From the desk of Jane Galt:

Everyone wants to go to heaven, but nobody wants to die

This was the weekend for spring meetings in Washington. The IMF, the World Bank, and the G-7 all met to hash out the problems facing the world, and suggest what might be done about them.

They didn't exactly come up with any surprises. The developing world is less poor than it used to be, thanks mainly to economic growth in India and China, but still a lot poorer than it ought to be, with billions of people living on less than $2 a day. Many people think that debt relief would help things a great deal, but though governments agree in principle, they're having trouble implementing it in practice; the US is blocking a scheme to sell off half the IMF's gold reserves in order to pay for all that relief. Why, I'm not exactly sure, since as far as I know the IMF isn't really using the gold for anything except the aesthetic pleasure of having a lot of shiny things crowded together in a vault.

[Many other people think the World Bank is the problem, not the solution. They spent the meetings camped out on the Mall, selling genuine replica Che hats and/or Club For Growth bumper stickers]

There was a great deal of fretting about oil prices. That's all people can really do--fret--since the causes of high oil prices, such as high demand in China, offer limited scope for even multinational action. Of course, the US could slap a whacking great carbon tax on, the way Europe has, but the political prospects for such an action seem remote at best.

To me, the most interesting part of the meetings is where the various government personnel confronted the problem of large and growing imbalances in the global economy. Basically, everyone knows what needs to happen. Europe and Japan need to kick up economic growth. America needs to kick up its national savings rate through some combination of tighter fiscal policy and household savings. And Asian banks need to stop flooding us with cheap capital in order to subsidize their export sector.

Unfortunately, while everyone knows what needs to happen, no one knows how to do it. Japan has been stuck in an economic quagmire for a decade, and hopes are fading that it has finally made its way out of the Slough of Despond. [There's an even bigger, scarier worry, which is that Japan is what a country in demographic decline looks like, and Europe will follow suit. But that's another post.] Europe has run into the fact that the one-size-fits-all monetary policy of a single currency can have disastrous effects when labour and capital aren't mobile; France and Germany, the eurozone's biggest economies, are stuck in nasty recessions, but the ECB, which wants to establish its street cred on inflation, seems to be preparing to raise rates this fall. And there is little political support for the kinds of broad-based microeconomic reforms that might goose growth at the cost of cushy employment protections.

China, meanwhile, feels it needs a low currency in order to keep its export sector workers happily labouring in their factories, instead of angrily converging on Beijing with torches and pitchforks. And it will take a braver politician than George Bush to tell Americans that they can't have their tax cuts and their government programmes. Everyone recognizes that the world has a big problem. Everyone is in favour of doing something about it--as long as someone else does the doing. No one is in favour of telling a restive citizenry that things can't go on as they are. And in some cases, it mighten't do much good. For example, it won't help to rein in America's budget deficit if Chinese central banks just start lending the money to Fannie Mae instead, touching off another wave of home refinancings.

The longer we wait to correct these imbalances, the more likely the correction is to be catastrophic. That doesn't mean that disaster is inevitable. As James Surowiecki points out, when you owe the bank $1 million, you have a problem, but when you owe the bank $300 billion, the bank has a problem; China and the other Asian central banks have every incentive to let us down easy, if they can, if only to prevent their huge portfolio of American bonds from, er, accelerated depreciation. But with every passing day that our leaders collude to do nothing, the darker scenarios grow more plausible.

From the desk of Jane Galt:

Damn theocrats

So I'm catching up on my blog reading. This post from Chris Bertram certainly caught my eye:

I had a conversation at the weekend where the topic of baby-farming came up. Unmarried mother in Victorian England? Can’t stand the social stigma? No problem, babies disposed of no questions asked …. The full details are in Dorothy Haller’s online essay Bastardy and Baby Farming in Victorian England . A sample quote:

Baby farmers, the majority of whom were women, ran ads in newspapers which catered to working class girls. On any given day a young mother could find at least a dozen ads in the Daily Telegraph, and in the Christian Times, soliciting for the weekly, monthly, or yearly care of infants. All these advertisements were aimed at the mothers of illegitimate babies who were having difficulty finding employment with the added liability of a child. A typical ad might read:

NURSE CHILD WANTED, OR TO ADOPT —The Advertiser, a Widow with a little family of her own, and moderate allowance from her late husband’s friends, would be glad to accept the charge of a young child. Age no object. If sickly would receive a parent’s care. Terms, Fifteen Shillings a month; or would adopt entirely if under two months for the small sum of Twelve pounds.

This ad may have been misleading to the general public, but it read like a coded message to unwed mothers. The information about the character and financial condition of the person soliciting for nurse children appears to be acceptable at first glance, but no name and no address is given. No references are asked for and none are offered. The sum of 15s a week to keep an infant or a sickly child was inadequate, and a sickly child and an infant under two months were the least likely to survive and the cheapest to bury. Infants were taken no questions asked and it was understood that for 12 pounds no questions were expected to be asked. The transaction between the mother and the babyfarmer usually took place in a public place, on public transportation, or through a second party. No personal information was exchanged, the money was paid, and the transaction was complete. The mother knew she would never see her infant alive again.

No doubt this practice flourishes in certain societies today and would do wherever the theocrats get the upper hand.

Someone really needs to think about switching to herbal tea.

First of all, the practice wasn't a creation of theocratic Victorian England; it was common at least a century earlier. The euphemism may have been new--as I recall, in the 18th c. the "baby farmers" were called "angel makers"--but the idea certainly wasn't, and was practiced not only on illegitimate infants, but various inconvenient children of all sorts of social classes, including, I believe, the lesser nobility.

Second of all, infanticide is hardly a theocratic invention; as I recall, both Christianity and Islam substantially reduced earlier pagan practices of infanticide, and continue to do so in some areas where they are spreading.

Third of all, the practice of infanticide for unwed mothers was economic, as well as moral; it wasn't merely social stigma she worried about, but the real impossibility of nursing an infant and working. The invention of formula, paid day care, and the eight hour workday have changed things considerably. They've also increased the tax base from which to support orphanages.

Fourth, the theocrats themselves were the main support of orphanages in the United States. Surprisingly, Victorian America, which was much more, er, theocratic, than Victorian England, had no angel makers that I'm aware of (though its orphanages weren't anything to write home about).

Fifth, technologically speaking, it's just a mite easier to keep from getting pregnant than it was in Victorian times. Even if the theocrats banned all contraception--something which, as far as I'm aware, no one but the Catholic
church wants to do--the rhythm method would be a great improvement over the "hope" and "prayer" methods available to the Victorians. Are we now back at the point where our Progressives are raving about the dark future in which a Popish conspiracy conquers western civilisation and ushers in a thousand years of darkness?

From the desk of Jane Galt:

About that article

Liberals are championing this Foriegn Affairs piece on broadband as if it just goes to show you that the Bush administration is keeping us from the high-speed broadband that is our natural right. If we just had a good regulatory scheme like Japan's, they say . . .

[All right, we'll take a moment so that those of you who know something about the regulatory environment in Japan can wipe the saliva off your monitor. If you've aspirated any Hi-C, make sure you're all right before you continue reading.]

But it's not some indefinable excellence of regulation that caused Japan to get more high-speed broadband; as the article makes clear, they subsidised the hell out of it. The piece is a little bit shifty . . . he keeps talking about "access" rather than uptake, which is the relevant number; if 90 percent of Japanese have been given, at great government expense, something that 1 percent of Japanese actually use, that's not a great deal. Anyway, color me skeptical. Plus, remember how Europe's cell phone network was, like, eighty zillion times better than ours until it turned out they couldn't afford to upgrade to 3G? Big, honking government sponsored infrastructure projects, in which the government picks a technology winner, generally look better than the market's bumbling trial-and-error approach right up until it turns out that the government has made a whomping big mistake and it's too costly to fix.

Plus, he's urging us to make sure that by 2010 there's high speed internet access to every nook and cranny of America for $20-25 a month, which seems to betray a fundamental, total lack of understanding of the difference between Japan and South Korea, which have population densities of 327 and 432 persons per square mile, respectively, and the United States, which has a population density of 27 persons per square mile. Oh, we cluster, but still, all those square miles are between people who need broadband access, like the ranch I spent my summers on in Wyoming, two hours by car from the nearest town and several miles from the next neighbour. And if you've spent time in American suburbs or exurbs, and then gone to Europe or Asia, you know that we really do live differently. That this fellow doesn't seem to realise this makes me suspect everything else he says.

From the desk of Jane Galt:

Reading comprehension

Can you spot the error in this Foreign Affairs article?

By contrast, U.S. mobile-phone policy was born of a colossal blunder from which the industry has yet to recover fully. In the early 1980s, after the management consultancy McKinsey estimated that there would be little demand for mobile phones and a small prospect of profitability, the FCC carved the United States into 734 tiny mobile-phone districts. It handed out two provider licenses in each district: one automatically went to the regional telephone company, and the other was drawn by lottery. The resulting infrastructure was cripplingly fragmented. It could not support nationwide calls, and inefficiencies and expensive connection rates translated into sky-high charges for customers.

Twenty years later, the Clinton administration made a belated effort to encourage nationwide cellular networks. The government opened up enough spectrum for six nationwide networks and invited bids. Thanks to an imaginative on-line auction, it had sold off the spectrum for $7.7 billion by early 1995. Although the networks that entered the market still struggle to offer consistent quality, competition among them sharply reduced the price of mobile-phone service and spawned millions of new customers.

Click below for the answer.

Let's not always see the same hands . . . yes, that's right, twenty years later than "the early 1980's", the Clinton administration had come and gone.

From the desk of Jane Galt:

A modest proposal on the estate tax

Why don't we just get rid of the estate tax entirely, and set the basis on anything one inherits to $0? That way, if you sell whatever it is you inherited, you have to pay 20 percent or so of its value to the taxman, while if you just use it (i.e. a family small business) you pay no inheritance tax. Ah, you will say, but then Paris Hilton will pay no estate tax. Ah, I will say, but you must have noticed that Paris Hilton really isn't paying that much estate tax, because her family has employed an elite squadron of tactical tax warriors, who have "structured" her inheritance so as to minimise the tax burden. Moreover, I don't see why kids of the middle class (aka me) shouldn't have to pay capital gains when they sell their parent's house; first of all, their parents would have, and second of all, it didn't cost the kid anything to get the house; it seems to me that their capital gain is 100%.

But what about cash? You say. What's to stop parents from selling the house before they die and leaving a huge wad of non-taxable cash for the kids? Well, most people have to live somewhere, but apart from that, why not treat that wad of cash hitting the kid's bank account as, oh, I don't know . . . income?

As you can see, I'm not against taxing people; I'm against the special, complicated, economic-value-destroying structure of the estate tax.

From the desk of Jane Galt:

Economics jokes

I was told this one the other night:

Three econometricians go hunting, and spot a large deer. The first econometrician fires, but his shot goes three feet wide to the left. The second econometrician fires, but also misses, by three feet to the right. The third econometrician starts jumping up and down, shouting "We got it! We got it!"

From the desk of Jane Galt:

How to turn me into a tax-hater

I make a good living, for a journalist. But it's not *that* good. I live in a 400 square foot apartment on the ground floor with no light and not even enough room for a microwave. I give over $600 a month to the nice people who lent me the money to go to business school. I can't afford to fully fund my 401(k), and my budget for things like entertainment, travel, expensive electronics and so forth pretty much doesn't exist. If I want to save money, or have a treat, I have to do freelance work, such as book reviews.

Now, I'm not one of those libertarians who gets all hot and bothered because people have to pay taxes higher than 1 percent. Nonetheless, the federal government, along with the city and state of New York, are assiduously working to turn me into one. Do you know what my marginal tax rate was on my freelance work? More than fifty percent. When I was spending my evenings and weekends at some company's server bank, more than half of every dollar I earned went into the government's pocket. And for book reviews, which pay, on average, $200-$300 dollars, I was making just a little more than minimum wage.

Part of my indignation has to do with the fact that I've hit a taxation sweet spot--my income is now high enough that all my deductions disappear, but low enough that I get the full, 17.5 percent Social Security hit. I had one deduction this year, for my state and local income tax, and that by itself was enough to justify itemising. Friends have advised me to see an accountant, but why? I don't have any spare income to devote to restructuring. You'd have to be crazy to give me a mortgage, and I'd have to be crazy to buy a house when interest rates only have one way to go.

But more of my outrage goes to thinking that every time I hauled my ass out of bed at some unreasonable hour on a Sunday morning, or stayed up late into the wee-sma's pounding away on a book review, more than half the time I spent was working for someone else. I don't have any problem with really rather high marginal rates of taxation, but when it gets to the point where majority of your hours are spent laboring for a third party in an involuntary contract the terms of which you can't control, even to refusing to enter it, the words "taxation is slavery" do begin to have some bite. And of course, the fact is that my marginal tax rates aren't any lower on wages--the employer side of my payroll taxes is invisible to me, but no less paid by me because the law says my employer has to remit the check.

It is at times like this that I start to believe the supply siders, even though the empirical evidence for their propositions is pretty shaky. Book reviews look a lot less attractive when I net 47 cents on the dollar--why not have my evenings and weekends to myself, instead? Why not move to New Jersey, where I can get rid of my city tax, lower my state tax, and pay less sales tax to boot? Or if my parents hadn't weighted me down with all these middle American ideas about obeying the law and playing it straight and narrow--and I didn't have a morbid fear of going to jail--I could take the "poor man's tax shelter" and ask my employers to move my income off the books. This is what economists call deadweight loss, and as Zimran Ahmed points out, estimates are that the United States government burns about 25 cents this way for every dollar it raises in taxes.

I've no doubt that the liberals who read this will think "Waaa! waaa! Poor educated white professional girl has to pay her taxes." But I was against marginal rates this high before I had to pay them. There is some level at which taxation becomes confiscation, and I'd argue that when you are working more hours for the government than you are for yourself, we have crossed that bright line. By what moral right does the government tell anyone, from Warren Buffet on down, that it has a right to more than half their life?

From the desk of Jane Galt:

WSJ online profits top print

. . . . Or so says the NY Post.

The problem with this sort of accounting is that media outlets generally charge all the cost of content generation -- except for online-only content -- to the print side. This tends to make the online numbers look artificially wonderful. As far as I know, no online mainstream publication could turn a profit just on the web.

Nonetheless, this should have media titans everywhere sweating bullets. The problem is that no one has figured out a way to make online advertising come within an order of magnitude of the profit on print advertising. For one thing, people like print ads (or at most, ignore them); they hate online ads. For another, there's all sorts of software to strip the ads off your page, which isn't really practical with a newspaper or magazine. And while marketing departments should theoretically be willing to pay as much for interested clicks as for eyeballs flipping past the page, they aren't. Unless the media figures out a way to make people like, and marketers pay for, online advertising, traditional outlets are wholly screwed if and when people start converting their readership to online editions, since advertising is what currently covers their costs. Besides which, people won't pay as much for online subscriptions.

The blogosphere no doubt chortles in triumph. Perhaps I would too, if the traditional media didn't hand me a nifty check each month. But the fact is that traditional media does a lot of valuable work generating information that would go away if they weren't there. As a blogger, I could not do what I just did for the last week: spend most of my waking hours being lectured by experts, reading academic papers, and tracking down legal histories, in order to write comprehensively about bankruptcy reform. Nor could I, say, go to Sudan to tell you what's happening there. I would have to get another job, and that would cut into the time I could spend producing content. Bloggers will say that a lot of journalism is crap, and that's true, because a lot of everything is crap. But without CNN, ABC, WaPo, NYT, WSJ, and so forth, how would bloggers even know what the weather was going to be like, much less what was going on in the world? Blogging is a complement to traditional media, not a replacement for it, and if the traditional media gets hurt, the quality of blogging will also suffer.

From the desk of Jane Galt:

Things that make you go hmmmm. . . .

From Tyler Cowen:

In the study, women said they had a deeper emotional connection with their pets than men did. Nearly all women respondents (99%) reported that they frequently talked to their pets (vs. 95% of men) and an astonishing 93% of women think that their pets communicate with them (vs. 87% of men).

What exactly does communicate mean? I mean, my dog communicates things like "I want to go outside" and "I think you should feed me right now" very well, but he hasn't exactly come up with Unified Field Theory or anything.

From the desk of Jane Galt:

The Economics of Bankruptcy

If you're interested in the economic aspects of bankruptcy--and I'd argue that you should be much more interested in this than, say, whether Capital One is or is not the worldly embodiment of pure evil--then you should read this excellent post by William Sjostrom.

Y'all thought I was joking about how busy I was with bankruptcy, didn't you? Little did you dream . . .

From the desk of Jane Galt:

Who's to blame for bankruptcy?

I have to say, for all that I do wonder how credit card executives sleep at night, I find the consumer advocates' attempt to blame peoples' indebtedness on them pretty unconvincing.

This is partly because those opposing bankruptcy tried to have it both ways: "people going into bankruptcy are desperate, not deadbeats" and "it's the credit card company's fault anyway for lending them too much money".

But these cannot both be true. If people really needed the money, to put food on the table or shoes on the kids, then it's hard to argue that they would have been somehow better off without the credit cards. And if they spent the money on things they didn't need, well then surely most of the responsibility has to lie on their shoulders?

Mark Kleiman gets around this problem by arguing that you've got two villains here--the tempters and the tempted--and it's unfair to punish only the tempted. Fair enough, except that I don't exactly understand how requiring people to fulfil contracts they've undertaken is "punishment". The consumer advocates spend a lot of time talking about punishment, especially "punishing" the credit card companies for their "abusive lending tactics". This makes no sense to me. You can't "punish" a corporation; what you can do, if you think it a good idea, is make laws requiring them to curtail their lending. But those sorts of laws reek of arrogant paternalism, with their presumption that a large class of people can't be trusted with credit. Also, the sources that poor people turn to for credit when they can't get credit cards are even worse: loan sharks, pawn shops, payday lenders. The cure is worse than the disease.

The other problem with saying we shouldn't punish the temptee unless we also punish the tempter is, of course, that none of the people making this argument have any interest in punishing the temptee. Would consumer advocates claiming that the bill was unfair because it did nothing about "abusive lending practices" actually be happy if we made consumer bankruptcy more punitive, and also came down hard on the credit card companies? No, of course not--they only want to punish the tempter, like people who want to go after drug dealers but not drug users. There's possibly a "least cost" argument in favour of this strategy, but morally it's hard to argue people who borrow money they have no reasonable hope of repaying are somehow less culpable than the fellows who lent them the rope with which to hang themselves. To say otherwise is to deny moral agency to a huge swathe of our citizenry, which raises the question: why are we letting such moral lackwits vote?

The bankruptcy bill was flawed in many ways. But the way that both sides made it into a moral issue about "cracking down on abuse" and making people, or credit card companies, "take responsibility" for their behaviour, leaves me cold. Bankruptcy strikes me as an eminently practical matter; can people pay their debts, and if not, how do we settle matters with the least pain and the best economic effect? There are better and worse ways to determine who can pay what, and what economic and social effects are best--but people seemed to have no interest in anything but punishment. As far as I'm concerned, punishment is what criminal law is for. If you're not going prosecute people, then it's best to give up ideas about punishing them for some alleged wrongdoing.

(I should note that in Europe, unlike America, judges will actually look at what you've spent the money on, and may well deny you bankruptcy protection if you've spent it frivolously. That's punishment. But practically speaking, what's the point? Whether I charged prescription drugs or a trip to France, my creditors are out the money; if I can't pay it, it doesn't do them much good to deny me formal discharge of my debts. The European system incurs a lot of costs in search of justice, plus most Americans would be outraged if judges started getting to decide whether they really needed that extra case of Miller Lite.)

From the desk of Jane Galt:

How much bankruptcy fraud is there?

The true answer seems to be that no one knows. The best number out there is from the FBI, which sets it at around 10%, but government bureaucrats have been known in the past to pull numbers out of thin air in order to comply with the regulatory mania for quantitative precision in the face of uncertainty. The American Bankruptcy Institute, which is roughly neutral, estimates it's more like 3.5%. And these folks have done a study which I won't vouch for, but which is certainly entertaining reading:

We gathered a random sample of Chapter 7 petitions in 24 states, all filed the same day: June 5, 2002. It was the day in the middle of the worst year for filings. Our sample size was about 7.9% of all the Chapter 7 filings of that day.

All the cases we studied were successfully discharged.

We created a database of asset, debt, income, and living expense numbers and looked at the statistical results. We also did something judges don’t always do: We read some of the petitions carefully.

The FBI estimates that 10% of bankruptcy filings involve fraud of some kind. But fewer than 0.1% of filers are convicted. And our statistical analysis suggests that even the 10% fraud estimate is probably low.

For instance, in what amounts to a wild supposed coincidence, nearly one-third of filers say they spent their very last cash on their legal and filing fees.

Among individual petitions, one after another stretched credibility to its limits. We illustrate with 30 case studies, all pretty clear stuff. Check James, who had $800,000 of unsecured debt but claimed the assets he acquired were gone after being struck by lightning. Russ in California had no job, no income, and no cash but somehow maintained his monthly gym membership. Brian owed money on a hot tub he claimed was stolen (by a gang of patient thieves, apparently; it takes hours to drain one and at least six large men to lift the shell.)

Bob and Susan had $120,000 of annual income but couldn’t pay their debts for one big reason: $826 per month they spent on a SeaRay boat. Still, they reaffirmed the boat loan. Alexis filed, owing only $2,088 in total debt, even though she had a good job and could have paid half the debt with what she spent on lawyer and filing fees.

That last case, by the way, is malpractice by her bankruptcy lawyer; you should never, ever consider filing bankruptcy for a sum that you could pay back in a couple of years by working one shift a week at McDonalds. Those sorts of bankruptcies are far more costly to the "abuser" than the credit card companies.

But that brings up the question: what is fraud? Most of us would agree, I think, that there is a difference between, say, not listing your grandmother's engagement ring among your assets, and "forgetting" to mention a boat, some rolexes, a rembrant sketch and a numbered bank account in Switzerland. When the FBI says that 10% of cases involve fraud, how many of those cases are the former, and how many the latter?

That matters, because as with all social policy, there is a tradeoff between catching the guilty and persecuting the innocent. Living, as we do, in an imperfect world, having to make do with bankruptcy courts staffed with human beings rather than angels, we must deal with the fact that eliminating more fraud also means denying just relief to more innocents. If 10% of bankruptcy filings involve gross abuse of the process, then perhaps it's worth it. On the other hand, if 1% of filings involve gross abuse, and 9% involve people trying to hang onto a couple hundred bucks of extra stuff, then is it worth punishing the innocent in order to root this out?

From the desk of Jane Galt:

More on the bankruptcy bill

Two pieces from The Economist on our new bankruptcy bill, one comparing American bankruptcy law to Europe's, and the other on the relationship between entrepreneurship and personal bankruptcy (the latter requires a subscription). The first touches on the corporate side, which has been largely ignored in this debate, partly because the changes on the consumer side are much more radical, and partly because the corporate lobbies opposing the changes are a lot less popular and publicity-savvy than the consumer advocates pounding on the changes to personal bankruptcy. The Wall Street Journal's article has more detail, god bless it:

To speed up business bankruptcies, the measure specifies that companies filing for Chapter 11 protection will have a limit of 18 months to offer a reorganization plan. The bankruptcy code currently gives business filers the exclusive right to file their own reorganization plans within four months, but judges normally grant numerous extensions that allow companies to control the process for years.

For instance, Owens Corning Corp. of Toledo, Ohio, has been operating under bankruptcy protection since late 2000 because of asbestos claims.

Now, if a business doesn't have its own reorganization plan within 18 months, creditors can step in with their proposal.

"Lawyers who advise companies, which are considering filing Chapter 11, may recommend that it would be desirable to do it now" before the bill goes into effect, said Philip Corwin, an outside attorney for the American Bankers Association.

A new provision also requires companies operating under bankruptcy protection to commit within 210 days after the filing whether to continue lease arrangements. This will particularly affect retailers that have expensive leases, including space in shopping malls. The provision is meant to prevent companies from avoiding rent payments during bankruptcy proceedings and then canceling leases after reorganization.

The measure also restricts special bonuses from being paid to retain executives during bankruptcy proceedings.

. . . but if you're really consumed with curiosity about the changes in corporate bankruptcy, this is one of the best explanations I've read.

From the desk of Jane Galt:

On pharmacists refusing to prescribe birth control

Dalia Lithwick writes about the latest legal tizzy over pharmacists who refuse to dole out birth control. Why is it that no one seems to be suggesting the obvious compromise: allow pharmacists to refuse to fill prescritions for birth control pills, if they're morally opposed; and allow pharmacies to fire their asses if they want, and replace them with pharmacists who will? Have we really come to the point where every minor dispute must be made into a federal case?

From the desk of Jane Galt:

Reading comprehension test

Can you find the error this selection from the New York Times' article on the bankruptcy reform bill that passed last night?

"It feels like we've been waiting as long to pass bankruptcy reform as Washington spent trying to get baseball back in town," said Steve Pfister, the senior vice president for government relations at the retail federation. "The House hit one out of the park today. Now we're just waiting for President Bush to cross home plate by signing this bill into law."

Mr. Pfister said the legislation would lower costs for all consumers because they wind up making up the difference on the unpaid debts of those who abuse the system.

But others disagreed.

Opponents of the legislation said that the move by Congress was a harsh attack on the poorest and most needy and came just one day after the House adopted a measure of huge potential benefit to the wealthiest when it voted to eliminate the estate tax.

"The G.O.P. is practicing Robin Hood in reverse," said Representative John Conyers Jr. of Michigan, the ranking Democrat on the House Judiciary Committee. "Last night they repealed the estate tax, a gift to the wealthiest individuals in our society. Today they pushed through the special-interest bankruptcy bill, punishing the very poorest members of society. This shows all the world that all of that talk about values in the last election was just that - talk."

In fact, 73 Democrats joined the 229 Republicans in voting to approve the measure. It was opposed by 125 Democrats and Bernard Sanders of Vermont, the lone Independent in the House.

The legislation had been opposed by many bankruptcy law professors and judges who testified in recent months that it was unnecessary and would create more problems than it would solve. They said that it would impose new obstacles on many middle-income families seeking desperately needed protection from creditors, and that it would take far longer for those families to start over after suffering serious illnesses, unemployment and other calamities.

In a letter to Congress two months ago, 104 bankruptcy law professors predicted that "the deepest hardship" would "be felt in the heartland," where the filing rates are highest -Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho. A study conducted by legal and medical specialists at Harvard University of 1,771 personal bankruptcy filers in five federal courts found that about half were forced into bankruptcy because of heavy medical costs.

(Find the answer by clicking below)

Yes, students, that's right . . . none of the people quoted in the second half of the selection actually disagree with Mr Pfister. Mr Pfister has said that this will lower costs for all consumers by reducing bankruptcy. The people the second half quotes say that the burden will "punish the very poorest members of society", " impose new obstacles on many middle-income families seeking desperately needed protection from creditors", and "be felt in the heartland", none of which have anything to do with costs to consumers. If one says that deregulating trucking "lowers costs for all consumers", this is not contradicted by the fact that some truckers will be worse off after the change.

Now, conceivably, one could have found someone to argue (as many bankruptcy attorneys are), that some group of consumers will actually be paying higher costs because several provisions in the bill will cause attorney fees to rise. But while the people quoted in the second section undoubtedly disagree with Mr Pfister's unstated implication that the new bankruptcy law is a great thing for America, nothing they've said actually disagrees with anything he stated.

From the desk of Jane Galt:

Interesting bankruptcy chart

Sounds like an oxymoron, doesn't it? But this one, from the American Bankruptcy Institute (the closest thing one gets to a neutral source in this astonishingly charged debate), shows that the aggregate level of debt payments as a percentage of income don't seem to be related to the number of bankruptcies. The right-hand scale is a little silly, but it's still worth taking a look at.

From the desk of Jane Galt:

When you're in a hole, stop digging

Matthew Yglesias ably demonstrates why middle America hates blue state folks like us.

From the desk of Jane Galt:

Justice Delayed

I haven't been blogging about Tom DeLay because, well, I'm just not much of a scandalblogger. Also, I have a job. From what I understand, Mr DeLay, whatever the rules on the matter, has not comported himself as one would wish. The Republican leadership would do well to be rid of him, both because he lacks the moral authority to hold a leadership position, and because leaving him in place makes them look bad. But I lack the time or interest to investigate the various charges against him, so that's all I'll say on the matter.

But for bloggers wondering why the Democrats haven't leapt on this like white on rice, the answer is that Mr DeLay is probably not the only one guilty of this sort of thing. When it comes to ethics charges like these, no one wants to open their glass door and start the stone-throwing competition.

From the desk of Jane Galt:

Public service announcement

I am unbelievably, crazily busy with bankruptcy reform. Posting is likely to be nil between now and Thursday, after the House is expected to pass it. I note only in passing that a lot of the coverage is missing the stories: failing to mention the corporate side of puzzle, picking out the wrong things to criticise about the bill, making it sound much more radical a change than it is, and generally repeating the absurd exaggerations of advocates on both sides as if they were fact. I, of course, hope to avoid these pitfalls. Unfortunately, for the next couple of days, doing so will take all my time.

From the desk of Jane Galt:

Democracy isn't just a river in Egypt

Mark Kleiman wants to know what the American right is going to say about the current contretemps in Mexico, where the powers that be are using a legal strategy to prevent Mexico City's popular left-wing mayor from running for president in 2006. Personally, I think it's very, very dangerous. Having a legitimate democratic process is far more important than having someone whose policies I agree with in office, and I hope that other libertarians and conservatives feel the same way.

The Mayor is being removed over a technicality: you can't run for the office if you've committed a crime, and the Mayor apparently violated some judge's order about building an access road to a hospital. This is transparently . . . well, this is a family blog, so I can't say what it is, but you all know what I mean. I was against the Democratic attempts to keep Ralph Nader off the ballot in as many states as they could, which violated the spirit of election law while adhering to the letter. I'm against this for the same reason.

Update Yes, there's a fair amount of "tu quoque" that can be done at all the liberals staring hard rightward; as I said, most of them were curiously uninterested in the questionable democratic effects of using technical legal points to throw people off the ballot when the victim was Ralph Nader. But so what? Even a stopped clock is right twice a day, and this is one of those times. Moreover, I think this is pretty important. Mexico is close, and poor, and has a history of sclerotic and unresponsive government run by a political cartel. It has made admirable strides in recent years towards more democratic access, and it is not in our interest to see them take a step backwards.

But American politicians, like politicians everywhere, are tempted to put short term interests about things like help with illegal immigration, over America's clear long-term interest in having a stable, prosperous democracy on its southern border. Citizens can counteract that by putting pressure on their politicians to do the right thing: in this case, leaning on Mexican politicians to cut it out. We should do it not because Mark Kleiman says so, but because it is in keeping with the fine American tradition of liberty and justice for all.

From the desk of Jane Galt:

Holy cow!

Economics in One Easy Lesson, which is, like, the best popular book on economics ever, is online. If you haven't read it, trot over there right now, you lucky dog, you.

From the desk of Jane Galt:

A waste of a perfectly good snit

Okay, so as long-time readers know, I'm not a huge fan of Jimmy Carter's attempts to conduct his own foreign policy while Bush was in the White House, or what I consider to be his really quite dishonorable attempt to prepare the ground for fraud accusations in Florida prior to the 2004 elections, at the expense of ludicrously likening his own country to a banana republic in a national newspaper. Nonetheless, I was prepared to get all huffy because the Bush administration didn't invite him to the Pope's funeral; such a move struck me as strictly declasse. Now it turns out that Bush did invite him, but may--or may not--have "subtly discouraged" him from attending. What am I supposed to do with all this righteous indignation?

From the desk of Jane Galt:

Your right to live stops at the end of my power of attorney

Regardless of what your feelings were about the Schiavo case, I think we can all agree that this sort of thing is desperately wrong (provided the facts are correct). How about a nice big bipartisan blog hug on this one?

From the desk of Jane Galt:

Words to live by

A must read for anyone who is thinking of becoming an evil overlord.

From the desk of Jane Galt:

Handyman's corner

If I have two DC bricks which only take 60hz, can I really, truly not use them with my 50W converter? Engineers?

From the desk of Jane Galt:

Just say no to debt . . .

America and Asian central banks: enabling each other's addictions.

From the desk of Jane Galt:

The end of an era

The Atlantic Monthly will no longer publish fiction in the magazine.