Asymmetrical Information

From the desk of Jane Galt:

Conundrum

If I'm pro-choice--and I am--then how come I'm always gleefully reporting setbacks for my side?

Dunno the answer to that one. When I get a spare moment, I'll head off to the ashram and see if I can't figure it out.

Meanwhile, I am pleased to report that the ridiculous and despicable attempt to halt protests at abortion clinics by charging them under the (itself pretty ridiculous) RICO statute has been decisively struck down by the Supreme Court. No, abortion clinic protesters are not terrorists, or racketeers, or extortionists; they are people who want abortions to stop. Where would this nation be if Sheriff Park had had RICO at his disposal when Dr. King marched into town?

From the desk of Jane Galt:

Quote of the day

From Jesse Walker:

There are many reasons I don't believe the president plotted 9/11. The biggest is that I'm just not optimistic enough to think the problem could be eliminated that easily.

From the desk of Jane Galt:

Four spouses good, two spouses better?

Tyler Cowen takes a brave stand against polygamy on economic grounds:

How about the trade-off between quality and quantity of children? A genetically talented father with many wives will likely maximize the quantity of children rather than their quality. This has a long-run negative externality, especially if you believe in the Lucas-Uzawa models of economic growth, or some approximation thereof. You would rather be in a society with fewer but more talented people. Switzerland rather than India. The loser is not the wives but rather the next generation of children. A piece in the February JPE also notes that the children may substitute for savings and thus polygamy can stunt capital formation; I take this as another version of the same argument.

The bottom line? We should encourage family structures that spur human capital formation. Polygamy does not do the trick. Comments are open...

Let me offer my own, strictly non-economic viewpoint: human nature being what it is, polygamy is only a stable social institution as long as one gender is pretty radically oppressed. Otherwise, jealousy and competition between spouses for resources, particularly by mothers for their children, will destroy the family.

From the desk of Jane Galt:

Bloggers v. the MSM: advantage--bloggers! If you have a Y chromosome, you'll want to read this.

From the desk of Jane Galt:

Is the left out of ideas?

That gets batted around every so often, and it (understandably) enrages liberals. And yet, it seems to me that there's a kernel of truth there. Not in the literal sense: liberals do not vote Green or Democrat just because they like the logos. But the left, as a movement, does not have any very coherent Big Idea that it can sell. The Movement doesn't agree on much, except that it hates George Bush. Orwell to the contrary, hate does not sell particularly well in American politics.¹ Fear . . . now, fear sells. But only if it's at least quasi-believable, which, to the vast swath of the American public, "George Bush is planning to lynch minorities and put everyone else in illegal detention camps" doesn't. Fear only works if the majority of American voters believe that whatever they are supposed to fear will happen to them, not some comfortably anonymous nobody in a far-off state.

Conservatives have a few things that pretty much all of them can agree on: the lower taxes are, the better; government programmes and regulations often create more problems than they solve; keep your damn hands off our guns. Pretty much everyone from the Libertarians to James Dobson and Co. can get behind this platform, and sell it to the American public. You can even add "The US military should be able to kick the [expletive deleted] of anyone who threatens us in any way" and keep all but the most hard-core Libertarians. I'm sure there are a couple of other things you could throw in, and still get a platform that is reasonably large, coherent, and agreeable to not only pretty much the entire conservative movement, but a fair number of moderates besides. There are lots--LOTS--of things that the conservatives disagree on, from gay marriage to flag burning. But there are enough that the conservative movement can craft a mission statement and sell it to America.

What's the liberal Big Idea? Raise taxes? I'd say pretty much all the liberals I know are for that . . . but raising taxes, even "raising taxes on the rich", is not an ends, but a means, unless you're the kind of emotional toddler who wants to take other people's things away just because you can't have them. And the left (into which I throw moderate Democrats, just as I'll throw moderate Republicans on the right) does not agree what it wants to do with the taxes it raises. The DLC types (and swing voters) want to close the budget deficit in a (IMHO futile) attempt to build the Clinton legacy. The left-liberals want a big government health care programme, and other sorts of Great Society style social programmes. The far left wants . . . ohhh, a lot of things, but they're not going to get any of them, so that hardly seems relevant.

Kerry tried to gloss over this issue by promising both things, but this promise made no sense, and the American public, who are not quite the drooling morons that frustrated centre-left journalists like to imagine, could tell that it made no sense. He tried to paper over huge differences over Iraq by waffling like mad on whether he was for or against it, which only succeeded in alienating some moderates. Commentators at the time blamed Kerry, and while some of his straddles were pointless, and nonsensical², I suspect many more of them were institutional; Kerry was simply unable to take a coherent position on many issues because doing so would alienate one or the other of the party's major interest groups.

The positions he did take were wonkish, replete with technical detailery designed to obscure the costs or the decidedly modest benefits such programs would produce. 99% of the people who read all of these wonderful plans on his website had already decided to vote for Mr Kerry, and 99% of the rest were journalists like me who had to read them so that we could summarise his campaign platform in 200 words. And I, who have read them, can testify that they were tedious and completely immune to the kind of easy sound-biteization that makes for a good campaign. That left Kerry with "I've served in Vietnam, and George Bush sucks weasels!" which was a lot less compelling than it undoubtedly sounded when his campaign advisors were brainstorming it. When he did talk about policy, it came out as "I'm going to do a lot of good stuff. To be sure, I can't tell you what it is, because that would take too long. But it'll be good, I promise." Except for health care, which I suspect sounded to anyone who already has insurance like an expensive boondoggle, his plans were modest tinkering that would, at best, produce largely undetectable results. So, for that matter, were Mr Bush's tax cuts, which produced modest economic benefits, if any. But tax cuts sounded big. Better pre-K education didn't.

Democrats have been blaming the candidates: the wooden Gore, the hapless Kerry. But it seems to me that the problem is that the fissures on the left are so deep that it takes a political genius like Clinton, who zeroed in on symbolic wedge issues with the daring precision of a World War II ace, to cover over them long enough to get elected. Neither Gore nor Kerry were particularly good candidates, to be sure, but it's not like George Bush is a stunning rhetorician or a dazzling political strategist. His main skills (and weaknesses) lie in dogged determination and keen administrative abilities. Yet he defeated Al Gore, who should have walked all over Bush, given that he was running as the incumbent's successor in the sunset year of America's longest postwar economic expansion. Kerry couldn't beat Bush even though the guy had been caught in bed with a naked economic recession, suffered through a subsequent jobless recovery, and got the country into an enormously expensive, and prolonged, conflict in Iraq. Is that really a problem of the candidates, or the party?

The left used to have a Big Idea: The free market doesn't work, so the government will fix it. The social democrats disagreed with the Socialists and the Scoop Jackson democrats about how much fixing was necessary, but they all agreed on a basic premise, and could sell that simple message to the public. Then, after fifty years or so, people noticed that the government didn't seem to work any better than the free market . . . worse, actually, in a lot of cases . . . and it was awfully expensive and surly. Conservatives stepped in with their Big Idea: the government screws things up, so let's leave more stuff up to individuals, which, if nothing else, will be a lot cheaper. Obviously, liberals disagree with this . . . but they have not come up with a Big, Easily Sellable, Idea With Obvious Policy Prescriptions to replace it. Some of them have just kept repeating the old Big Idea, which it seems to me that fewer and fewer people believe, as the US continues to pull ahead of its economic peers. Others have focused on coming up with lots of little ideas . . . but those take up too much time and energy to attract voters. Gore tried to whang up anger against pharmaceutical companies, and Kerry tried to stoke anger against Bush, as replacement. But in politics, there's just no replacement for the Big Idea.

¹ Negative ads work, of course. But they work by telling the audience something specific about the opposing candidate that they did not previously know (often because it is not true). Few candidates get elected on the platform of "My opponent is a big, fat poopyhead"--not even when that opponent is James Earl Carter.

² My favourite moment in the debates came at the "town hall" style one, where Kerry told a pro-life questioner that while he personally agreed with her that abortion was murder, he couldn't legislate his morality. Pro-choice readers should substitute the words "lynching" for "abortion" and see if this position would overcome their reluctance to vote for a Dixiecrat³.

³ No, I am not comparing abortion to lynching. I'm simply pointing out that if you think abortion is murder, being told that someone agrees with you that it is murder--i.e., the deliberate taking of a human life, but has no plans to do anything about it because that would be "legislating his personal morality" is unlikely to endear him to you as a candidate.

From the desk of Jane Galt:

Austan Goolsbee for Krugman!

I've made no secret of the fact that I'm not over-fond of Paul Krugman's New York Times column. I don't hate it on ideological grounds; I hate it for reasons of economic efficiency. Surely we have better uses for our nation's tiny stock of really smart economists, than using one to write 1400 words a week proving that the Bush administration is at the root of every single bad thing that ever happens in the world?

I don't blame Mr Krugman entirely. For one thing, it is Mr Bush's fault for getting elected; if you read through Mr Krugman's 2000 columns, it is clear that this event unhinged him. The slow decline starts in the summer of 2000, and by Jan 1, Mr Krugman has been transformed from Dr Jekyll, the economist who wrote so elegantly and eloquently on issues like trade and productivity, into Mr Hyde, the economist who thinks that his PhD somehow elevates his poorly researched forays into politics and international affairs into something worth reading, and who hates the Bush administration so much that no crime is too ludicrous to accuse them of--including forcing the outgoing president of Indonesia into making anti-semitic remarks.

For another, the medium is a poor one for anything weightier than Maureen Dowd's fluff. (I don't particularly enjoy said fluff, myself, but it is sufficiently vacuous that the time and space constraints do it no damage.) Writing twice a week is too heavy a burden for a columnist, particularly one with a day job. 700 words is far too short to say anything interesting or meaningful about economics. And Mr Krugman has had his column for going on six years, which is too long. One gets the sense that he keeps repeating "I hate George Bush" because he has long ago exhausted his supply of insight.

I also think that the venue is reinforcing Mr Krugman's already noticeable tendencies towards paranoia and savage assaults on those who disagree with him. Now, all political administrations can use a few good savage assaults. But the ratio of savagery to sense is getting rather top-heavy. And the New York Times reinforces this tendency, because its readership is so heavily weighted towards coastal liberals who really, really hate George Bush. They encourage Mr Krugman in his spleen, which can't be good for his personal development. A little time off, in a nice ashram, would not be amiss.

But who could replace him? My candidate is Austan Goolsbee, one of my most favoritest professors from the University of Chicago. He's a die-hard Democrat (advised the Kerry campaign), super smart, and did I mention he's from the University of Chicago? Plus he's early in his pundit career so he's got lots of ideas, and he's of the funny, rather than savage. school of economic argument. Let's start a write-in campaign to get Mr Goolsbee the recognition he deserves, and give Mr Krugman a well-earned vacation.

Paid for by the Goolsbee for Krugman campaign. This campaign is not affiliated with Austan Goolsbee, or any of his employees or family members or pets. Any resemblance to any persons, living or dead, is entirely coincidental. Failure to read this warning will render the warranty null and void.

From the desk of Jane Galt:

And now, a word from the negativity police

It is the base axiom of journalism: "If it bleeds, it leads". We are all worriers by nature, and more likely to watch the news if it tells us all the things we ought to fret about, rather than the many things that are going right in the world. I mean, I was asked by a friend to blog about the State of the Union--not the address, but the actual state of the union, and I thought, "You know what? Once you're living in a Western democracy, it's all frigging quibbling." By the standards of history, the homeless guy sleeping on the church steps next to my building is rich beyond dreams of avarice¹. Whether we get a few more bucks for Medicare, or HSA's, just doesn't . . . well . . . matter very much. Yet to go by the picture you get from the media, the four horsemen are ever saddled up and ready to ride.

So here's a nice change . . . one of those rare stories that tell you how something's going right . . . and not only going right, but going right in a way that could go right in many other places that desperately need things to go right. From New York magazine, no less.

At the time of Greenblatt’s visit, P.S. 65Q was staring down the loss of an important grant. Under Iris Nelson, the principal who had started at the school a year after it had opened, P.S. 65Q had secured government funds for a reading program called Success for All. The program had led to some promising gains in reading scores, but the grant was expiring at the end of the year. Greenblatt, who had developed an interest in public education only a few years earlier, had become a fan of Success for All and was looking for a school where he could introduce or broaden the program to boost overall achievement. The Success for All Foundation’s director, Bob Slavin, arranged a meeting between Greenblatt and Nelson to try and make a match.

. . .

Today, thanks to Joel Greenblatt’s friendly takeover, P.S. 65Q is a turnaround story worthy of a Harvard B-school case study. Perhaps no school in New York City has ever bounded so swiftly from abject failure to unqualified success. From 2001 to 2005, the proportion of fourth-graders passing the state’s standardized reading test doubled, rising from 36 to 71 percent of the class—and since then, the students’ performance has only gotten better. Nearly every child who has been at the school for three years or more now reads and does math at their proper level or beyond—even the special-ed kids. Last spring, the school was one of fourteen statewide to win the public-school version of the Nobel Prize: a Pathfinder Award for improved performance. The city schools that usually win are in rapidly gentrifying neighborhoods like the Lower East Side or Fort Greene—what one P.S. 65Q administrator calls “God’s country.”

The reading program it describes, Success for All, has been used by a friend of mine who is a teacher in a low-income school. This friend is a) impeccably credentialled b) fairly conservative and c) devoted . . . even desperate . . . to the cause of teaching poor kids to read. She gives it two thumbs up. The world, my little chickadees, is not only a pretty good place; it's actually getting better almost all the time.

¹ Not to say that he's happy, mind you. Being mentally ill and addicted to drugs or alchohol is not much of a recipe for happiness. But he lives in a society that allows him to eat more than adequately, and gives him blankets to keep himself warm and a stoop out of the wind, even though he is self-medicating with alchohol instead of the stuff the doctors give him. Some might argue that it would be even nicer if we forced him into an institution, where he would get good medical care, psych meds to control his schizophrenia, and no alchohol or heroin. But compared to, say, your average African farmer, that homeless guy is a zillionaire--even before you consider the fact that no roving bands of bandits or government thugs are going to ride through and steal his blankets.

From the desk of Jane Galt:

Why don't we have PSA's on savings?

Ted Barlow's post on all the things that the government pays to advertise made me wonder something: why don't we have lots of PSAs on personal finance? After all, that is one area where we know that people are often incredibly ignorant, and where a little advice could presumably go a long way. In general, I think public health/public awareness campaigns are a complete waste of time and money, and more than occasionally do more harm than good (anti-drug/anti-smoking campaigns, for example). But I'd be willing, as a taxpayer, to spring for a series of commercials that:

* Told people how much of their income they'd need to save in order to maintain their lifestyle in retirement--and how much *more* they'd have to save if they started later, rather than earlier

* Made people aware of just how ruinous making the minimum payment on credit cards is

* Taught people how to analyse whether they should rent or buy

* Encouraged people to pay off debt as quickly as possible

* Educated people about things like annuities, insurance, and mutual funds (obviously, the commercial would have to be a quick--but informative!--teaser for a website)

* Advised our fellow citizens to "look before you leap"--get a rational estimate of the potential payoff before shelling out for training courses, home improvements, or other alleged "investments"

* Told people how much life insurance and disability insurance they needed

* Discouraged people from buying individual stocks, or trading frequently, by laying out the costs of frequent trading

* Told people not to pay attention to Morningstar ratings, which are a crock (mutual funds kill off low-performing funds, so all Morningstar is is a giant excercise in survivor bias), but index their money instead.

* Urging people to have at least 12 months of expenses in liquid savings (savings account or money-market fund)

After all, if these things worked, they'd not only help the people involved, but also actually relieve some of the burden on the rest of us for things like Social Security. And government estimates would be (though it pains me to say it) a more neutral source than, say, insurance companies assuring you that you need lots and lots of homeowner's insurance.

Of course, that would be my ideal campaign. But even a cruddy campaign might well do some good. So why have I never seen one? I can think of a few explanations:

1. There are such campaigns, but I don't watch the right channels.

2. The government doesn't want to run commercials that make people feel insecure about their finances, since for many people this is tantamount to admitting that the government is not doing a good job.

3. Running commercials that tell people how much they need to save will alienate powerful constituencies, such as mutual funds, insurance companies, and credit card firms. Even if the government did run such commercials, it would have to cater to those constituencies (in much the same way that the USDA diet recommendations are hampered by the need to make the beef and dairy industries happy¹), so that if they did run such PSAs, they would be of low quality, and possibly even do more harm than good. This discourages well-meaning bureaucrats from proposing such a thing.

4. Personal finance is one of the few areas of modern American life that we don't have a government agency in charge of. The government would run such PSAs, if only there were a Department of Savings to oversee it.

I suspect it's a combination of 2, 3 & 4. What do y'all think?

¹ I tried to use the Food Pyramid Tracker to monitor my diet, but it continually yelled at me for not consuming enough meat, bread, and dairy products, while going way over my fruit and vegetable allowance. This is your government's idea of good nutritional advice, courtesy of the American Dairy Council.

From the desk of Jane Galt:

What does it mean to be a "moderate"?

In my previous post, there's a hot debate going on as to whether Ann Althouse is a moderate, or a right wing hack. She's certainly never struck me as being particularly right wing (other than on issues of national defense); I get the sense of a Scoop Jackson Democrat, rather than a conservative. But perhaps my GOPdar is down . . .

The argument is made more difficult by the fact that my commenters seem to be using so many different definitions of moderate. Many conservative commenters are saying "Ann Althouse is a moderate, because she usually votes Democratic, but crossed the line to vote for Bush!" And some of the Democrats aresaying "Ann Althouse is not a moderate, because she crossed the line to vote for Bush!" This latter definition of moderate seems to include voting for Kerry as one of the defining criteria. This does not seem to me to be a reasonable criteria. "Moderate" means "of the centre, not at the extremes", and though I know it pains you, my little pink chickadees, the centre voted for Bush last time around.

Now, again, perhaps I'm just insensitive to these things, but I haven't found Ms Althouse to be an apologist for Bush. She clearly does not hate his policies as much as my more liberal commenters do. But of course, that would probably be why she voted for him. She, and Instapundit (who is also being singled out for opprobrium), have criticized the administration; it's just that when they criticize the administration, it's in a tone of "The Bush administration is doing something I don't like", rather than "The Great Satan is again unleashing the powers of Hell to destroy a Once Great Nation." I haven't noticed her, or Instapundit, criticising the administration's conduct of the WOT, but--I'm going out on a limb here--maybe that's because they generally agree with it, not because they're "apologists" for the administration.

I readily concede that those who supported the war, have, in general, displayed substantial confirmation bias in their blogging about Iraq; they seize on the good news, ignore the bad. But that's not being an apologist; that's being a normal human being. The gleeful tone of liberal/antiwar-libertarian blogs when something goes wrong in Iraq or Afghanistan is not quite what one would expect to hear from your average patriotic American who is reporting that their country is getting their ass kicked. Is that because they're partisan hacks, or because we all loooooooooove information that proves us right?

But back to that slippery word, "moderate". If we remove, as I think we must, "hating the Bush administration" from the definition, what are we left with? We could say that a moderate is someone whose partisan ties are weaker than most, so that they are more often willing to cross the line to vote for a candidate outside their usual party. By that definition--the definition that most of my conservative commenters seem to be using--Ms Althouse is most certainly a moderate. But by that definition, I too am a moderate. For a libertarian, I am moderate--but that's kind of like being a "moderate socialist". It nonetheless puts you well into the extremes on most issues.

I think it's more correct to view weaker partisan ties as a symptom, rather than a condition. What we're really trying to see is how far this person's views are, on average, from the median opinion on a given issue.

That's hard to gauge, not merely because on many issues we don't know precisely what the median opinion is, but also because people may be moderate on some issues, extreme on others . . . or because they may have strong opinions on one or two issues that cross party lines. And party lines are, for better or for worse, generally how we decipher the extremeness of someone's views. Nat Hentoff, for example, is a pretty extreme lefty--except that he's a libertarian on civil rights issues, and he's pro-life. Where do you put him? I'd put him on the left, in a strain of what one might call "muscular socialism" that is rapidly going extinct (more's the pity). But I might put Dorothy Day on the right, if her committment to pro-life, "family values", and agrarian populism trumped her "feed the poor and strengthen the unions" agenda--as I suspect it would, in modern-day America.

But wherever I put her, I wouldn't call her a moderate.

Perhaps the best definition of a moderate is someone who does not derive all of their political opinions from one or two first principles and stick to them no matter where that may lead them. Those first principles may be relatively crude ("the moral environment that prevailed in the 1950s should be held onto") or fairly sophisticated ("we must maximize the power of the weak over the strong"), but regardless of their origin, they tend to make people into extremely rigid voters. People who see themselves as trading off a whole bunch of values, will have political opinions that are in general less extreme. They will also be more tolerant of other peoples' viewpoints, because they tend to assume that other people are simply weighting different values differently--rather than concluding that the difference of opinion must be caused by some terrible moral failing on the part of others.

I suppose in one way, you could see Mr Reynolds and Ms Althouse as extremists: they are effectively dancing up and down and shouting at Democrats, saying "Don't you see! This is REALLY, REALLY important!" And their tone is more than occasionally incredulous and/or intolerant. But the fact that they are talking at all would seem to me to indicate that they are not extremists; the reall hard-core partisans of left and right don't bother addressing those who disagree with them. I see them as saying "Your first principles are blinding you to a huge threat!"

Now, they could be wrong about this. I think that there is something irrational about the magnitude of America's response to a really quite small threat of terrorism--though, being the mushy, too-many-first-principles kinda libertarian I am, I'm not sure that that's a bad thing. Deterrant and all that, y'know. But if they were wrong, that wouldn't make them bad people, partisan hacks, or what have you. It would make them incorrect. One of the wonderful things about being a journalist is that your past failed predictions make you very conscious of the fact that we are all--even smart, good-looking and truly charming economics journalists with fancy degrees from top-flight universities--wrong quite amazingly often.

I seem to have wandered away from the original question: "Is Ann Althouse a moderate"? But if moderate is defined as I have argued, by someone who sees their positions as a weighting of many competing values, rather than the logical extension of bedrock principles, then yes, I think she's a moderate. I think she's a moderate who cares a great deal about national security, and who thinks that the Republicans are better on this issue than Democrats. She might be incorrect. But that doesn't make her immoderate.

From the desk of Jane Galt:

I'll bite

Ted Barlow has a great post on government advertising, during the course of which he asks a question:

P.P.S. I've just defended the Bush Administration from a Democratic attack, and pushed for spending discipline. Why won't the right reach out and engage a moderate like me? What I've noticed, over and over, is that the bloggers on the left link to you when they agree and ignore the disagreements, and the bloggers on the right link only for the things they disagree with, to denounce you with short posts saying you're evil/stupid/crazy, and don't even seem to notice all the times you've written posts that take their side. Why is this happening?

The answer is that I do, sometimes, but I tend to link posts that are less obviously political, like Mark Kleiman on drugs, for the precise reason that I get annoyed when liberal bloggers link my contrarian political posts on, say, budget deficits, but never my also-contrarian, and I think actually quite novel, posts on abortion. It seems to me that whenever I make a good point that liberals should consider, there is a vast wave of silence across the liberal blogosphere; on the other hand, let me use a throwaway line that liberals don't like, and suddenly Technorati explodes with links to my post. So I have tried, out of courtesy, not to make those "See, my position is so obviously superior that even liberal Ted Barlow agrees with me!" posts. It never occurred to me that those liberals might be getting irritated by something entirely different. I guess some of my readers are right when they refer to me as a "blinkered conservative".

Anyway, we here at AI love Mr Barlow, and you should be reading him whether we are annoying him by linking, or not linking, his writing.

From the desk of Winterspeak:

My final thoughts on budgets

Just to beat a dead horse even more, I will add one more comment on federal budget deficits. Jane says (rightly) "To sum up, I don't think that deficits are particularly worrying; but I also don't see why we should be running them."

I agree. In a low interest rate environment, when borrowing money is cheap, deficits do not matter. If that environment changes (and it will) then the budget deficits will become much more painful and will need to be reduced.

Another way to think about deficits is: when is it right to run them? The standard Keynsian answer is that it is useful for a government to deficit spend during recession to help smooth out the bumps in the business cycle. I agree with the theory behind this but, in practise, I think it does not work. Usually, new spending money hits markets way too late for it to have any stimulatory effect. Also, once spending money is in place it never goes away, so the Keynsian model (deficits in recessions, surpluses in expansions) never happens -- you get deficits all the time.

There is one weird argument for running deficits though, and that is that it is correct to transfer money from people in the future to people today. After all, people in the future are much richer than we are, just as we are much richer than people were in the past. We have Netflix and the Internet. They had PBS and folk dancing. Why not be generous and transfer a little between generations just as wel transfer money from richer folk to poorer folk within a time period. This argument, by the way, also applies to why it was right to set up social security as a pay-go system. Its first beneficiaries were genuinely very poor old people, and to deny them money just because they were born at the wrong time is mean.

Tyler and Jane have a very sophisticated point about this ("...be careful in asserting that future generations bear the burden of deficits. They pay the taxes but they also inherit the bonds. Often the relevant transfers are within generations. Much depends on timing) which I do not understand.

From the desk of Jane Galt:

All budget, all the time

It's funny . . . I can predict many of the topics that will inflame my readers into a frenzy, like abortion and the Israel/Palestine debate, but others . . . the budget, Linux, the abysmal quality of technical support at our nation's computer companies . . . constantly surprise me.

Anyway, Democrats are way too happy with my previous post, so obviously I didn't do my job. Let me try another tack to illustrate just how ridiculous the claims that Bob Rubin has made about the deficit are. Bob Rubin thinks that the swing from surplus to deficit reduced the real interest rate on the 30-year treasury by "as much as"¹ 2.8%. Given that the 30-year is now trading around 4.6% yield, and inflation is running at roughly 3.3% annually, that would imply that if the budget deficit were in surplus, real interest rates would be . . . -1.5%.

Imagine, if you will, Japanese bankers flying into our nation's cities to plead with the American investor

"Hey, please, take this million dollars! We'll pay you! $15,000 a year! Pleeeeeeease . . . "

Or let's just assume that the budget deficits were closed. Using the same calculation that Mr Rubin did (a .4% increase in the natural interest rate for each 1% increase in [budget deficit/GDP]), that would imply that the real interest rate would drop to . . . 0%. That's right, savers would be in the business of handing out money for free.

"Don't worry about interest, just pay us back if you can".

This implies that we've found an entire capitalist class somewhere comprised entirely of concerned parents.

It's not that real interest rates are never negative, but they don't tend to stay that way, and it's generally not a good thing when they are. Indeed, there's quite a lot of worry going around about the low state of interest rates, which is encouraging a rather unhealthy number of people to sink everything they have, and then some, into a two-bedroom split-level fixer-upper with a bad roof in an iffy neighbourhood. Given the (until last quarter) healthy state of GDP growth, and growing worries about a housing bubble, if the deficits are increasing the real interest rate, the government has been doing us a favour.

In short: I am thoroughly unconvinced by the argument that the budget deficit is having a bad effect on the economy . . . and also thoroughly unconvinced by the argument that closing the budget deficit under Clinton had a good effect on the economy. Clinton helped close the budget deficit-- but that's all he did. He didn't increase the rate of economic growth through his Magic Deficit Reduction Machine . . . or his Urban Empowerment Zones, or any of the other wildly implausible mechanisms I've seen posited by Democrats positively desperate to find some legacy of the Clinton years other than Monica Lewinsky memorabilia and the return of bell bottoms². The economy was good under Bill Clinton because he got lucky. We cannot bring back the nineties by electing another Democrat, any more than we can do so by resurrecting the Webvan billboards in major metropolitan areas.

But why, you ask, in such a queer trembling voice . . . why then, Jane, do you persist in this senseless war against deficits?

My co-blogger Winterspeak poses this very puzzler in a particularly eloquent way. Mr Speak is something of an iconoclast--at the dinner he references, he was actually arguing that it would be irresponsible of the government not to run deficits, given how low real interest rates are. But his question is not unreasonable.

I fully agree with Mr Speak--and disagree with my Democratic interlocutors--that deficits are not doing anything bad to the economy now; if they are having any noticeable effect, it is probably keeping the housing bubble from further inflating, which is to my mind a very good thing indeed. But I don't really think they're having much effect at all--just as with tax increases and prescription drugs, the dose makes the poison. A 1% increase in marginal tax rates probably doesn't have a measurable effect; a 10% increase probably does; and a 20% increase certainly does. Similarly, I doubt that a 3% budget deficit has an effect large enough for us to pick it out of our incredibly noisy jumble of economic data. A 6% (sustained) budget deficit probably would, and a 12% budget deficit definitely would. An increase in the national debt of 3% of GDP will probably be mostly taken care of by inflation and economic growth.

But just because our budget deficits aren't doing any damage in today's low-interest environment does not mean that they won't, ever. After all, much of that debt is in shorter term instruments; if interest rates are sharply higher when we have to roll it over, we could have the recipe for a nasty fiscal crisis on our hands. Argentina was doing just fine . . . until it had to devalue its currency and default on all the unsustainable debt it ran up in the 1990's. I don't say, or even imply, that we are headed for an Argentina-style crisis; indeed, such a thing is most unlikely, given that we borrow in our own currency (and have an economy that doesn't behave like a manic-depressive on crystal meth). But the lesser crises that strike me as more likely will be similarly invisible until they are suddenly inevitable.

My unread mail pile is currently overflowing with credit card companies offering to lend me money at 0% interest. Would it really be "irresponsible" of me not to borrow the money? Or am I not likely to end up in a cash crunch when they jack up the interest rate?

Mr Speak asks another question, which I think highlights the real difference between us:

And I would ask Jane if, hand on heart, she can say that having a balanced budget would restrain spending more than having a budget that is in deficit, particularly given the fact that both Parties have made their peace with big government. (I would not even have to mention that every time a state stumbled upon a balanced budget, say California during the tech boom, they ratcheted up spending to make sure that every extra temporary penny was put to good use).

I would also ask her if she could say, hand on heart, and raising taxes to balance the budget (by repealing the evil Bush tax cuts and then raising taxes on the upper-middle class some more) would, 24 months later, do a thing to limit new deficit spending, or if it would make it easier to run a new deficit with higher overall spending.

My answer is that I don't know. I'll concede easily that it might not constrain spending. But deficits constrain spending only if a) the bankers are reluctant or b) the voters care about deficits. Neither condition seems to prevail right now; China's central bank is shovelling money into US treasury debt faster than we can print the stuff, and voters seem primarily interested in how much money the government will give them to spend on prescription drugs. On the other hand, we know that some segment of the voting population cares enough about tax increases to vote on them, thus increasing the political pain that politicians suffer when they raise them.

On the other hand, it is also possible that American politicians will adjust spending so that G=Y+[Whatever the hell the markets will let them borrow]³, in which case I concur that raising Y will merely give politicians license to spend more. So I should clarify that I am in favour of raising taxes if and only if it occurs in the context of balancing the budget: i.e. if a politician runs on a platform of "I will ruthlessly raise taxes and cut spending until Y=G". I am not in favour of it along the Democrats' favoured line of "let's raise taxes now, and then . . . well, will you just look at all this extra money we have to spend!" But I am also not in favour of the Republicans preferred formulation: "I will cut taxes, and then . . . well, you don't really expect me to tell my parents they can't have their new drug benefit, do you?" Disdain for one does not, as so many of my commenters seem to believe, imply endorsement of the other.

If I were in charge of the budget, we would massively reform entitlements, transforming Social Security into a system of forced savings combined with a means-tested fallback for those too poor to save, or whose investments tanked at the wrong time. We would kill the whole Medicare/Medicaid debacle, along with the tax deduction for corporate-provided health care benefits, replacing it all with catastrophic federal insurance for those whose medical bills exceed 15-20% of gross income (phasing out for those whose incomes put them in, say, the top .1% of earners) and another means-tested benefit for those who genuinely cannot afford to spend 15% of gross income on health care benefits. I would combine this with the Jane Galt Tax Plan to save the government a whole mess o' money, while making the economy more efficient, and increasing the incentives for everyone, rich and poor alike, to create value for society. Forget Win-Win . . . that's like Win^win!

But I'm not in charge of the economy, and I never will be, in part because I advocate things like scrapping Medicare and Social Security and the corporate income tax. Living, as I do, in a representative democracy, spending will be higher than I would like it to be for . . . well, forever, frankly. That means that taxes are also going to be higher than I would like them to be.

Why make fun of Bush for saying "Do the responsible thing, and make the tax cuts permanent"? For the same reason I would have made fun of Bush for saying "Do the responsible thing, and pass a big honking new entitlement for senior citizens!" They're both ways of being wildly irresponsible: of spending more money than you take in. I am not neutral between the two choices; I vastly prefer spending cuts to tax increases. But when you are already sporting a hefty budget deficit, urging Congress to take action to make Y diverge sharply from G, in the wrong direction, seems to me to be a very funny usage indeed of the word "Responsible".

But perhaps these are merely my Yankee prejudices showing. Tyler Cowen points out in the comments that the debt doesn't always represent an intergenerational transfer (or, as I put it, leaving the debt to our as-yet-unborn children); since the debt is often inherited, it actually often an intragenerational transfer. This is a good point. But it represents an intragenerational transfer from wages to capital, which in my Yankee heart seems like a bad thing. It also isn't always intragenerational--some of those T-bill owners manage to hold on for quite some time. My ex-boyfriend's upstairs neighbour was a retired teacher living quite handsomely off the proceeds of 30-years purchased in 1980⁴. Plus a lot of our debt right now is being financed by the Chinese central bank, which probably doesn't have a lot of American grandchildren to leave its bonds to.

To sum up, I don't think that deficits are particularly worrying; but I also don't see why we should be running them. We're a wealthy nation, and our economy is in pretty good shape. There's no reason to run deficits now, except that the American people don't want to hear that they can't have their cake and eat it too . . . and American politicians lack the courage to tell them different.

¹ Eternal refuge of the lazy journalist, and the smarmy political type trying to sell you something. Figures are funny things: if we're only given one number, we tend to regard it as an actual figure, rather than, as this is, an outlying value supported by evidence that's thinner than an Olson twin stranded on Donner Lake.

² He did have one genuine legacy: he signed NAFTA (though some centrist Democrats are under the erroneous impression that he also negotiated it, which is untrue; the bulk of NAFTA is the legacy of Bush I) He didn't have to, and he did anyway, and Democrats can be rightly proud of his behaviour there. It certainly goes a long way towards erasing my bad memories of the Rector affair.

³ These are macroeconomic variables used by economists: Y= income (taxation) and G = government spending. Does anyone know of a good list of these on the internet? I tried to find one, but couldn't.

⁴ In one of my kinder moments, I made him go upstairs and explain to her, gently, what was going to happen to her income come 2010; apparently, she hadn't realized all the developments that had occurred in our nation's debt markets since she bought bonds that yielded 20% of face. She didn't take it very well.

From the desk of Winterspeak:

More Deficit Dogma?

I had to add a few comments to Jane's excellent post regarding the budget deficit. It mirrors a conversation we had in New York several weeks ago.

Jane says:

what I meant when I said that you should care about the budget deficit is that you should educate yourself on the subject, and worry about our seeming inability to match revenues to spending, even when our economy is in relatively fine fettle.

She later quotes Tyler Cowen saying

We could raise (nominal) tax rates sooner rather than later, and hope that the subsequent "financial calming" effect will improve the chances for better policy in the future. Alternatively, we could play "chicken" with the marginal tax rates, and hope that holding them lower, for longer, will increase the chance of the appropriate entitlement reforms. I don't have any strong views as to which is the best way to proceed, at least assuming we cannot raise the gas tax instead.

Forgive me but this does not compute. I agree that politicians seem unable to balance annual revenues with annual expenditures, and I agree that they also seem unable to enact entitlement reform. The consequences of this is that future generations will have higher debt, higher taxes, and less money transfered to them from younger generations than this one.

What I don't see is how raising taxes now will help any of this. Jane states that "there's a chance that politicians forced to pay for any new spending with higher taxes might blanche; we know that higher deficits don't bother 'em" and Tyler states "We could raise (nominal) tax rates sooner rather than later, and hope that the subsequent "financial calming" effect will improve the chances for better policy in the future" but I don't see why higher deficits in this interest rate environment *should* bother them, and I have no clue why Tyler means (or could mean) by "financial calming effect". What is that? Perhaps it involves magic and pixie dust?

Given real interest rates are so very very low, I do not see why the government should be aggressive about paying down debt now. Debt is current cheap, and arguably much cheaper than it should be. People expect inflation to pick up, interest rates to rise, and Asian banks to become more reluctant to take money from their savers and give (yes, GIVE) it to America. However, none of those events have happened yet, and until they do, raising taxes to pay down national debt makes as much sense to me as aggressively paying down government subsidized, below-market student loan debt.

And I would ask Jane if, hand on heart, she can say that having a balanced budget would restrain spending more than having a budget that is in deficit, particularly given the fact that both Parties have made their peace with big government. (I would not even have to mention that every time a state stumbled upon a balanced budget, say California during the tech boom, they ratcheted up spending to make sure that every extra temporary penny was put to good use).

I would also ask her if she could say, hand on heart, and raising taxes to balance the budget (by repealing the evil Bush tax cuts and then raising taxes on the upper-middle class some more) would, 24 months later, do a thing to limit new deficit spending, or if it would make it easier to run a new deficit with higher overall spending.

As imperfect as they are, and as ineffectual as they currently seem, I do not know of a better mechanism to constrain spending than deficits.

From the desk of Jane Galt:

Deficit Dogma

I confess to being shocked at the level of rancor and partisan sloganeering that the subject of budget deficits continue to attract. I'm reminded of this famous¹ post by Sgt. Stryker on the subject of steel tariffs:

Dude, let me clue you into something:

NOBODY GIVES A [Expletive Deleted] ABOUT STEEL TARIFFS

I can see it now: "Honey, how about we go out to the porch, sit on the swing and watch the grass grow as we discuss the finer points of trade law and it's effects on the economy?"

"Oh, Robert..."

Or how about, "Timmy, I think it's time we've had a talk. You're going to be growing up fast soon and going through changes at a rapid pace. You'll be confused, you'll experience new sensations, and you'll be looking at Steel Tariffs in a whole new way."

I mean, hey, guys, we're talking about the drier points of fiscal policy here. No one's going to die from them--at least not until my generation of senior citizens is handed the bill for our medical care. And the mass heart attack that ensues may well take care of any budget issues, so what's the fuss?

"But Aunty Jane!" I hear you cry, "'twas but a few days ago when you told us we should care about the budget deficit!"

. . . erm . . . yes, well, a foolish consistency is a hobgoblin of little minds, my little chickadees. Besides, what I meant when I said that you should care about the budget deficit is that you should educate yourself on the subject, and worry about our seeming inability to match revenues to spending, even when our economy is in relatively fine fettle. What I did not mean is that you should care about this so much that you are tempted to engage in nasty interpersonal exchanges. This is not a Detroit Pistons game.

Let me clear up some of the questions, anguish, and misinformation currently flying through my comment section.

Question Number One: You want us to raise taxes to close the budget deficit? How can you stand there and call yourself a libertarian with a straight face?

Well, really, should anyone call themselves a libertarian with a straight face? Or want to, given that the Libertarian Party apparently thinks that tax-dodging, driver's-license-refusing, barking moonbat Michael Badnarik is the finest that we have to offer the country? But I digresss . . .

I agree with Tyler Cowen: once the government raised spending, we got the tax increase, whether we want it or not. The question is only whether we pay for it now or later. To my commenters moaning that they shouldn't have to pay the taxes because they don't want the spending, I ask: what's fairer? That you pay taxes for spending you didn't want--or that an as-yet-unborn child who doesn't want the spending, gets not even the most trivial benefit from it, and doesn't even get to vote against the spending, pays the taxes for it? I mean, welcome to representative democracy. The fact that you don't agree with all the decisions made by your representatives doesn't mean that you get to selectively opt out, else very soon we'd be living in anarchy (and I'm not the sort of libertarian who thinks that that would be a good thing).

As Tyler says:

We could raise (nominal) tax rates sooner rather than later, and hope that the subsequent "financial calming" effect will improve the chances for better policy in the future. Alternatively, we could play "chicken" with the marginal tax rates, and hope that holding them lower, for longer, will increase the chance of the appropriate entitlement reforms. I don't have any strong views as to which is the best way to proceed, at least assuming we cannot raise the gas tax instead.

I, like Tyler, favour a carbon/oil tax above either of the other strategies; I, like Tyler, recognize that politically, this is no more likely than a special law naming me "Queen for a Day" . . . a little less, maybe. And while I used to be hopeful, it seems to me that the "playing chicken" strategy has failed pretty miserably. Hence, I'm in favour of raising taxes. We're already passing off an enormous entitlement mess to our grandchildren; I don't see why we should add more debt on top of that. Plus, it seems to me that there's a chance that politicians forced to pay for any new spending with higher taxes might blanche; we know that higher deficits don't bother 'em.

But tax revenues grew after Reagan cut taxes!

Hold on there, partner. Reagan's early years included the worst recession since The Big One. Give me a monster recession to start with, and I can make tax revenues grow astonishingly rapidly in the following years just by performing my secret Tax Revenue Enhancing Dance (TRED for short). Besides, the Reagan rate cuts are heavily oversold by supply-siders. Along with cutting rates, Reagan got rid of a whole slew of deductions, which meant that effective tax rates dropped by much less than the marginal cuts would imply.

But tax revenue exceeded the Congressional Budget Office's expectations after Bush cut taxes! Doesn't that prove that tax cuts work?

Define "work". Do tax cuts reduce deadweight loss, spurring economic growth? Yes. Does that bring in more revenue than you would otherwise anticipate, if you merely multiplied the new, lower rate by the current amount of income? Absolutely. Does that mean that tax cuts pay for themselves, as supply-siders aver? No, no, a thousand times no! Thanks to the Bush tax cuts, revenue is lower now than it would have been if he hadn't cut taxes.

In some cases, I think the gains to economic efficiency outweigh the losses of revenue, particularly in the case of the much-reviled capital gains and dividends cuts, which have increased the returns to investment and lowered the incentive for companies to hoard big piles of cash for their executives to play with. In other cases, I don't think that there's much evidence that taxes make a huge difference: raising the top marginal rate from 35% to 39.5% will not, in my humble opinion, make all that much difference to the economy one way or another--though it undoubtedly will to the upper-middle-class professionals upon whom such tax burdens fall hardest.

Yeah, you know, I bet you wouldn't be so sanguine if you were going to pay more taxes!

Check your premises, chum--I live in the highest-taxed city in America, and pay almost 40% of my income to the taxman every year (more if you count sales tax, and the property tax buried in my rent), despite the fact that I make, oh, about one-fifth what those in the top tax brackets do². And to be honest, it's hard to work up all that much sympathy for the poor overtaxed upper-middle-class, when I'm in the supermarket trying to decide whether I can afford the brand name Ho-ho's.

Well, what about entitlement spending? Isn't that a bigger problem than the budget deficit?

Indeed, it is--and any of my liberal interlocutors who profess to care deeply about the budget deficit, while resisting entitlement reform By Any Means Necessary, have thereby forfeited any shred of credibility they have on the issue. The annual growth in the unfunded liabilities we're leaving our grandchildren of just the prescription drug benefit dwarfs the impact of the Bush tax cuts.

But . . . but . . . I thought this meant you were coming over to our side, Jane!

Check your premises, chum. I'm in favour of actual fiscal responsibility . . . not "fiscal responsibility as long as it doesn't interfere with my pet political projects". I mean, it's fine if you care more about spending huge gobs of money on senior citizens than you do about the budget deficit. There are things that I care about more than the budget deficit . . . like . . . well, I think World War II was a fine idea, despite the enormous debt it entailed. But to say you care about the deficit, and then fight anything that might conceivably reduce the terrible, horrible, no good very bad choice we are leaving to our children--i.e. to pay for the seniors who didn't save enough because the government implied they'd be taken care of, or put them on ice floes--well, a person could get seriously hurt laughing that hard. It's all fun and games until someone loses a hernia.

But the Democrats are the party of fiscal responsibility!

Doubtful. Clinton's deficit-reduction package did something to reduce the deficit; I give him due credit for that³. But only something. Clintonistas give him credit for most of the deficit reduction, which is a rather charitable interpretation; they get to that figure by assuming rather less deadweight loss to the tax hikes than neutral estimates, and by giving Clinton credit for some rather fortuitous events that kept spending down:

1. The end of the Cold War, which allowed him to slash military spending and reallocate it to other domestic programs at almost no political loss to himself or his friends in Congress

2. The election of a firebreathing Republican congress, who held domestic discretionary spending down after 1994

3. The untimely demise of his health care plan, which would have put enormous pressure on the budget. As you'll know if you spend any time observing non-US politics (strangely, most of the single-payer advocates I know don't), other Western parliaments seem to spend most of their time arguing about what to do with the health care budget.

In my book, Clinton gets credit for not, say, spending all the dough we saved on missiles on the William Jefferson Clinton Memorial Trenchmouth Research Center at the University of Arkansas . . . but only middling credit, since he was largely restrained from doing so by political exigency. The fetishisation of budget deficit closure by Clinton afficionadoes is mostly retrospective; it is just about the only substantive policy achievement they can point to after NAFTA, and they get mighty angry when you suggest that the surpluses were mostly caused by things he had nothing to do with: a booming stock market that caused capital gains income to balloon, a bubble economy, and a combination of tax cuts and spending increases implemented under Bush I.

But the budget deficit closure caused the economic boom!

Unlikely. For one thing, as Glen Hubbard has repeatedly pointed out, it is very, very hard to build a credible model in which budget deficits matter to investors, but taxes do not. The basic idea behind the "Deficit reduction causes growth thesis", known to journalists as "Rubinomics", is that by reducing the government's demand for capital, you lower interest rates. Ceteris paribus, I agree with that.

However, the Clinton deficit reduction was not ceteris paribus; he got as far as he got mostly by raising taxes. If you lower interest rates, but increase taxes, you increase the demand for investment capital, but you decrease the supply of it, because savers now make less of a return on each dollar they invest. Higher demand for capital, combined with a lower supply of it, raises interest rates right back up again. How far is a matter for debate, but I see no reason to believe that the positive effect of deficit reduction could be anything close to what the Clinton team claims.

Indeed, Robert Rubin's claims in his memoir border on the ludicrous. (Border? Hell, the hedges are growing well over the property line, and the neighbours are threatening to sue.) At one point, he asserts⁴ that the swing from deficit to surplus knocked 2.8% off the real interest rate. Since interest rates dropped by 1.3% between the day when Clinton took office and the day he left it, while inflation actually dropped by 20 basis points, that would imply that the underlying real interest rate actually climbed by 1.7% under Clinton.

When one listens to the Clinton team talk about the effects of the budget deficit, one hears them say things like "we were surprised by how large the effect was . . . ", which to a social scienctist should imply that there might be something else at work there. Bob Rubin's book contains passages like this:

In February 1993 there were already indications that the plan was having an effect, even before it had passed. In one of our morning briefings, I told the President that the bond market was reacting more quickly and strongly than I had anticipated.

So strongly that, two years later, the bond market was right back where it had been when Clinton took office . . . a situation that was reversed only when Uncle Newt and his Merry Band of Marauders took over. Not that I give Uncle Newt all that much credit either. Both he and Clinton benefitted from a long, slow, secular decline in interest rates that IMHO has much more to do with freer flow of capital across borders, more efficient financial markets, and the growing credibility of the Federal Reserve, which battered back entrenched inflationary expectations. You can see for yourself here.

No to repeat myself, but when you find yourself saying the phrases "the effect is much stronger than we anticipated" and "the bond market reacted to the act before it was passed⁵", that's a sign that you might want to look for some other cause of the remarkable effects you're experiencing.

But still, it did something!

Indeed. But even if Mr Rubin's lavish estimates were correct, there's not much chance we could pull the same stunt again. The current rate on a 30-year bond is about 4.7%. The inflation rate is around 3.3%. That means, my little chickadees, that real interest rates are very low . . . meaning that even if Rubinomics had worked before, it couldn't possibly this time, unless foriegners start paying us to take their money.

But the economy grew very rapidly when Clinton took office, and terribly before and after!

Correlation is not causation, my little chickadees. Clinton had the really astonishing good fortune to take office just as a recession was ending; Bushes I and II had the pretty astonishing good fortune to take office just as recessions were starting. Recessions tend to screw up your economic track record for years and years.

But still, Kerry was better than Bush on the deficit!

Oh, really? So how come his policy plans spent every single dollar he promised to collect by raising taxes? And that's if you accept his laughably lowball estimates of the cost of his health care plan, which using a very conservative guess, understated the ten-year cost of his plan by at least $500 million through the magic of "administrative savings", the last refuge of a lying politician.

But he said he'd adjust his spending plans if he needed to to close the deficit!

But he did need to. The defict was, IIRC, roughly $400 billion a year back then. The total cash value of his tax-cut repeal was about $700 billion over ten years. He could have poured every cent of that tax money into deficit reduction, and still had a very sizeable hole left. Or as one of my commenters put it:

Candidate A: I will raise taxes. Here is a proposed spending program but I am willing to cut it if I need to..

Candidate A's critics: You do need to. Why aren't those cuts already in your spending program?

Candidate A: (crickets.wav)

[Expletive deleted]. I hate you.

You do remember that we're talking about the budget, right?

¹ Or at least, it should be

² So move! you say. Sigh. Why don't you move to the Caymans? You mean, you have a job, a family, and a social life in the United States that you don't want to leave? Do you think maybe that I might have the same problem? In my career, there are two cities I can live in: New York, and Washington D.C., neither of which is a bargain, tax-wise.

³ Yes, Republicans, he did reduce the deficit somewhat, no matter what Uncle Laffer may have told you.

⁴ Strenuously implies, anyway. He kinda tries to weasel, while still leaving the impression in the minds of his more impressionable readers.

⁵ Indeed, if you look at the chart, you'll see that the 30-year treasury experienced nearly all of the putative benefit from the deficit reduction before it had even been proposed to Congress, an effect that would be . . . well . . . let's just say rather unusual if true.

From the desk of Jane Galt:

Capitalistic Thought for the Day

Capitalism is prey to excesses, self-evidently, and it creates, or leaves unattended, a host of problems that decent societies must address by other means. Even so, the prevailing culture of suspicion and disappointment is at odds with the facts. Mainly, what is missing is awe. Premodern scholars (Karl Marx is an exception) could scarcely have imagined the material advance that capitalism has delivered. Certainly Adam Smith never dreamed that his "invisible hand" would arrange things so well.

In the late 1980s, as Mikhail Gorbachev embarked on his perestroika program of economic reform, Soviet officials were sent abroad to see how things were done in the West. One visited London's main vegetable market. He asked how the market was organized, and how prices were set. He was told that the individual traders bought whatever quantities they wished, and set their own prices, and that these fluctuated throughout the day as the balance of supply and demand changed. At this, the Soviet visitor laughed. He said he understood that this was the official line--but, please, how did the market really set prices?

That, in fact, was the reaction of an intelligent man. It is fantastically improbable that markets work, at scale, as well as they do. It is astonishing that in an economy of Americ's size--to say nothing of the world economy as a whole--a limitless variety of goods and services is continuously offered at prices people are willing to pay, without persistent gluts or shortages, entirely without central direction. That the system also calls forth an endless flow of innovation and improvement is a miracle. The man from Moscow was right to be incredulous.

From the ever-brilliant Clive Crook, who is greatly missed at his old employer.

From the desk of Jane Galt:

Budget busters

"Enough about abortion!" you say. "What about the budget? Tell us about the budget, Jane."

Okay, you didn't actually say that. The words "Tell us about the budget" have probably never crossed any human lips, anywhere. But still, you should pay a little attention to the budget. After all, when you're digging into that can of Fancy Feast in 2037, you'll want to be able to reminisce about the Strategic Helium Fund and the Urban Empowerment Zone Deployment Tax Credit. Unless you're likely to be dead in 2037. In which case, you'll want to know all about it so that you can go to your grave cackling about how you really stuck it to those arrogant young whippersnappers.

So what do I think about the budget? This piece roughly sums it up.

From the desk of Jane Galt:

Specificity matters, or why abortion is different from birth control

Let's think of a health care rity that wants you to give them $10,000. With that, they can go to Africa and save the lives of 50 people. (Assume, arguendo, that you can be sure that the programme will actually save those people--and indeed, Africa is in such a dire state that you could save many more than that with airfare, a little rent, and $10,000 worth of bleach to help people purify their water at home.) Are you a murderer if you don't give them the $10,000?

Now, say I give you $10,000 and an airplane ticket to go to Africa and shoot fifty people. Are you a murderer then?

If you said no to the first question, and yes to the second, what's the difference? The result is the same: you have $10,000, and fifty people in Africa are dead. Logically, they're exactly the same thing.

But intuitively, they aren't, are they? There are all sorts of differences, but mostly they boil down to two things: we make a big intuitive distinction between active and passive, between probable and likely, and between specific and unspecific.

Let's say the guy from the charity shows you pictures of fifty people who have TB; without your money, those fifty people, who have names and faces and huts and argumentative mothers-in-law, will die. You feel worse about it than just hearing about some generic fifty people in Africa, don't you? (That's why those television charity appeals always tell you the name and details of some desperate child). It shouldn't make a difference--after all, no matter who it is that dies, that person will be a person, with all the details and relatives and names that generally accompany personhood. But we do care.

That's why abortion is different from birth control. Yes, if you reason from only one principle, you can ban birth control as akin to abortion. But there are a lot of principles tied up in analyzing abortion; that's what I've been arguing all along. You cannot refute my arguments by taking one of those principles and following it to a logical, but thoroughly unreasonable conclusion.

From the desk of Jane Galt:

Why I am unimpressed with the argument that a fetus is only a "potential" human being

This argument is a favourite on the pro-choice side, and it leaves me cold. Why? Because the fetus is not merely "potential"; it is inevitable. (If it isn't, why bother having the abortion?) When you have an abortion, you are making sure that the baby who would be born in six months or so, isn't.

So why am I not against birth control? Fuzzy intuition, I'm afraid; you're stuck arguing with people, not computers. There is a difference between something that might happen, and something that almost certainly will, which is why many of us support assisted suicide, but not letting doctors off people with a 50% chance of dying in order to free up the bed. There is a difference between taking action against a single specific potential baby, whose DNA blueprint is already written and under construction; and preventing the conception of any of a few million potential DNA combinations, of whom the fetus you are aborting was only one, improbable, combination. There is a difference between sperm swimming towards an ova, and a complete and fully functional set of human DNA. Just as we distinguish between the drunk driver, who could have killed someone but didn't, and the woman who guns her car towards her lyin', cheatin' bastard of a husband, I think that it is reasonable to draw moral lines between "coulda" and "almost certainly did".

So why am I not against abortion? Because I don't want to put the state in the business of compelling women to donate their bodies for gestational purposes, any more than I want to get the state in the business of preventing people from saying cruel and devastating things to their spouses. The fact that the baby depends on the mother's body for succor does matter to this libertarian, making abortion different from simple infanticide. But that doesn't mean I think it's the only consideration. That means that, denied the comfort of simple deduction from rigid first principles, I must grope for answers that are bound to be highly unsatisfactory, even to me.

From the desk of Jane Galt:

Is abortion "bad" or just "sad"?

William Saletan and Katha Pollitt debate the issue in Slate.

Let me see if I can clarify a little bit, for those who purport to be genuinely perplexed that others consider abortion to be morally, if not legally, wrong.

You are undergoing some fairly strenuous action to prevent another human being from being born. (We can argue about whether or not it is a human being when it is aborted, but I think we can all agree that it will be a human being by the time it is born. Yes, thank you, Mr Singer, your objection is duly noted. You can sit down now.)

To put it a different way, you are exerting yourself, consciously, to make another human being not exist. At its most charitable construction, it is time-lapse infanticide; you are killing the baby that would have been born six months from now, if not for your action. This is complicated by all sorts of factors, but it nonetheless seems to me that abortion is essentially different from murder in degree, not in kind. Note that this does not mean I think that it should be illegal; combat is also different from murder in degree rather than kind, but there are all sorts of times when I think it is not only justified, but positively to be celebrated.

If you do not go into that clinic and pay that doctor to scrape out your womb, there is another person who will be born, go to school, eat fistfuls of candy on Halloween, learn to read and ride a bike, go to college, get their heart broken, break hearts, make friends, fall in love, and eventually, have babies of their own. You--you--are ending all of that when you choose to have an abortion, or to pressure your partner to do so. This is serious business, and yes, it is bad. I am tempted to say "D'uh!" How can anyone question that taking roughly 30,000 days and every good thing that humans feel from another person is a Bad Thing to Do?

Of course, it may be less bad than the alternatives. But I sense . . . I certainly know for myself . . . that many of us cannot bear to contemplate this, because the alternatives aren't really that bad.

The march of time has removed the stigma from unmarried sex, and thus removed the feeling that women ought to have to continue unwanted pregnancies simply because they deserve the consequences for being "bad"¹. I have no doubt that as the stigma on extramarital sex has decreased, support for abortion has increased.

Yet there is a countervailing force that is swinging the pendulum back towards the pro-life side: as the stigma on extramarital sex has decreased, the consequences of having an abortion have gotten much less bad. My great-aunt had an abortion in the thirties, to prevent a pregnancy that would have ruined her life: kept her from getting married, having a decent job, or having any sort of place in teh small rural community where she lived. I cannot imagine any modern woman credibly claiming to be facing the sort of utter ruin that she would have endured had she carried that pregnancy to term.

No, we are now having abortions so that we can have a really great career, instead of a mediocre one; so that we will not get stretch marks, hemorrhoids and that baby pooch; so that we can afford to have the really nice house, car, and stereo that we've always pictured ourselves with; so that we can find a great guy to marry; so that we can have a youthful, carefree college experience instead of a harried, burdened one. We are having abortions, instead of giving up our babies for adoption, so that we will not face the inevitable stigma from our bosses, our friends, and our families, who will wonder what kind of a heartless woman gives up the baby she bore rather than raising it.

For the left, this is, I think, a little harder, because the left is always dodging guilt about the things they do have. Why do you deserve that, when others suffer? is the eternal question of the left (and not a bad question, either, I think, though I don't want the State to get into the business of asking--or answering--it). Why do you deserve a big television, a fantastic vacation, your cushy job, your high income, when welfare mothers can't pay the gas bill, old people have to eat oatmeal in order to afford their drugs, African children die in the street?

And yet abortion asks that question much more powerfully, if we listen . . . for I got my electronic toys, my good health insurance, my wonderful, wonderful job entirely through a system of voluntary exchange, in which both parties thought that they were better off . . . and people who give me the money got it through a series of similarly voluntary transactions. And the capitalist system that produces this wealth, at worst, generally leaves people no worse off than they would be without it . . . compare the life expectancy of a New York City homeless man with a Tanzanian infant, if you don't believe me.

Abortion is an action where one of the parties to the transaction most certainly would not consent, if they were asked . . . whether you take that party to be the fetus, or that baby who will never live because of the doctor's knife in your womb. It takes some very fancy mental footwork to avoid asking yourself why you deserve to get your wonderful career, your lovely house, your thoroughly satisfying life, when in order to get them you apparently must prevent another human being (whether potential or actual) from ever tasting the spring air, or seeing a sunset, or smiling back at someone who loves them?

¹ Or have we? Many of the pro-choice commenters have pointed out that carving out exceptions for rape and incest seems to violate this new social norm. But though they may be correct in the case of certain religious sub-populations, I don't think they're right about the general American population, a majority of whom seem to believe that abortion is only legitimate in the case of rape, incest, or when the mother's life/health/fertility are at risk. I think, rather, that we're dealing with messy and illogical intuitions. The life/health/fertility of the mother exception is, except for certain religions, obvious and uncontroversial, except where "health" is construed so broadly as to mean "she'll be unhappy about having a baby". The incest exception is not, as far as I can tell, concerned so much with issues of consent and punishment (since those who believe in it would generally extend it to cases where the woman consented, such as some brother/sister sex); rather, it is based on (largely erroneous) beliefs about the probability of birth defects, and a completely irrational² disgust with incest and its products. The rape exception does seem to carry cultural freight about responsibility, but as I discussed here, it seems to me that this has much more to do with intuitive distinctions between active and passive responsibility than with a desire to "punish" women for having sex. I, personally, make a distinction between rape victims having abortions and others, even though I was raised in an admirably progressive home on the Upper West Side of Manhattan, and have no desire that I can discern to stamp out fornication.

² I don't mean this perjoratively; the incest taboo undoubtedly has all sorts of culturally indispensible functions. But the "ick factor" that attaches to incest, cannibalism, and so forth operates far below the level of rational, or even moral, judgements; I revolted by what those Uruguayan soccer players did, even though I think that it was perfectly morally all right, even admirable, in the circumstances. We endorse abortion in the case of incest because this disgust completely bypasses our moral circuits and commands our limbic system to get rid of the products of that disgusting union by any means necessary.

From the desk of Jane Galt:

Who are we signalling?

I've long argued that most post-secondary education (possibly most post-primary education), does not confer any useful skills upon students, but rather is a signalling mechanism: the education is a proxy for things like middle-classness, intelligence, and drive. Given that, increasing education will not increase the economic opportunity to teh currently uneducated; it will onl drive the elite to get more education as a way of differentiating themselves from the unwashed masses. (Witness the fact that almost everyone I know has a master's degree, while most of our parents are lowly BAs).

Tyler Cowen disagrees:

Men are born beasts. But education gives you a peer group, a self-image, and some skills as well. Getting an education is like becoming a Marine. Men need to be made into Marines. By choosing many years of education, you are telling yourself that you stand on one side of the social divide. The education itself drums that truth into you.

Similarly, if you become a Mormon or a Protestant in Central America, your life prospects go up. It is not that Mormons have learned so much more, but rather they have a different sense of self. They have a positive self-image about their destiny in life and choose a different set of peers. They also choose not to drink.

Of course, this does not necessarily change my argument. If everyone gets a college education, there's no divide for you to stand on one side of; finishing high school used to be an achievement, but now it is a prerequisite for all jobs that require you to do more than breathe and lift heavy objects.

From the desk of Jane Galt:

SOTU

I wanted to blog the State of the Union, but I was trying to help a coworker buy a computer while I watched it. My thoughts were not so deep that I feel you readers missed much.

Two moments stand out, because both made me laugh so hard I spurted Tang out of my nostrils:

First, there were the Democrats, clapping joyously at the news that they'd voted down Social Security reform. They looked like adolescents mocking authority. Memo to Dems: if the American voter wanted sullen, rebellious adolescents in Congress, they would have sent their own, if for no other reason than to get them out of the basement. George Bush let them applaud their intransigence for a while, then said, "Now we still have a giant entitlement problem." This made the Dems look foolish enough. But, in keeping with the role of teen rebel who is not paying close attention to teacher, they kept applauding. Brilliant! Why didn't those Machiavellian Republicans think of positioning themselves as the party that's glad we have a gigantic, intractable entitlement problem? About halfway through the moment, some of the brighter senators seemed to realise that they were applauding something that they oughtn't to be. But by then, they apparently figured it was too late to back down, and the best course of action was to bull through as if they'd intended all along to celebrate multi-trillion dollar budget shortfalls.

Then there was George Bush, with perhaps my favourite all time line in a SOTU: "These tax cuts are about to expire. I call upon you to do the responsible thing and make the tax cuts permament." (Paraphrase; emphasis mine)

What fantastic definition of the word "responsible" allows for this locution?

"Do the responsible thing, and teach your children how to smoke crack . . . "
"Do the responsible thing, and call in sick to work today so you can go fly fishing . . . "
"Do the responsible thing, and dump your aged parents in a substandard nursing home to far away for you to visit . . . "
"Do the responsible thing, and take $50 out of the till . . . "
"Do the responsible thing, and declare bankruptcy . . . "

Our politicians seem to have decided that if they can't give us good policy, they can at least provide a little comic relief. And about time, too.