Monthly Archives: December 2012

Utterly Profound

Random profanity.

Music Monday: Stay With Me Jesus

I think different people will have different reactions to this.  Christians will find it comforting, but a questions hangs in the air:  why some are saved, but not others?

Calvin and Hobbes for December 26, 2012


Calvin and Hobbes for December 26, 2012
Wed, 26 Dec 2012 09:32:32 GMT


Dealing with the Cliff Is the Easy Part



Just ask Alice!  Alice Rivlin and Pete Domenici have put out “Domenici-Rivlin 2.0″ as a guidebook for policymakers negotiating and still struggling with this well-hyped “fiscal cliff” issue.  The plan’s basic, eminently sensible components are the same as the 1.0 version put out by their Bipartisan Policy Center task force:  reduce the deficit over the longer term with a balanced package of both (thoughtful) spending cuts and (thoughtful) revenue increases, but don’t do it in a “cliff-like” (sudden) manner, and in fact, throw in some deficit-financed stimulus up front.  From their summary:

Now, the fiscal cliff demands that policymakers pass a law** in the coming weeks to avoid dramatic tax increases and mindless across-the-board spending cuts that would take discretionary spending to levels far below those that we recommended. CBO and other analysts have projected that if these measures take effect, they could choke off the nascent recovery, increase joblessness and send us back into recession. There is too little time remaining in the 112th Congress, however, to draft and pass legislation to fundamentally reform taxes and entitlements.

Therefore, we propose a “stepping stone” approach – a “Framework for the Grand Bargain” – that will sustain near-term support for the economy, demonstrate a commitment to deficit reduction, and set the stage for the necessary broader agreement along the lines of D-R 2.0 in the 113th Congress.

The Framework for a Grand Bargain”: D-R 2.0’s Recommendations for the Fiscal Cliff and Debt Stabilization

Pass a law in the lame duck session of Congress that does the following:

  • Avoids the fiscal cliff by extending current policies (i.e., continuing the 2001, 2003, 2009, and 2010 tax cuts; shutting off the sequester; “patching” the Alternative Minimum Tax; etc.);
  • Enacts a procedural framework, which we call “accelerated regular order,” to facilitate passage (e.g., by bypassing the filibuster) of a large deficit reduction package next year, and compel cuts in entitlement spending and tax expenditures if the 113th Congress fails to act within a time certain;
  • Contains a down payment on deficit reduction, if necessary, consisting of easily drafted and widely understood changes in current tax and entitlement law; and
  • Incorporates an income tax rebate for 2013 in order to accelerate the economy above present projected very slow growth.

** Action by the lame duck Congress to avoid the fiscal cliff must consist of a bill subsequently signed into law by the President. All elements of the fiscal cliff are current law. Only a new law can vitiate any or all of these elements.

Note that the only part that has to be done between now and the end of this year is the first bullet: avoiding the fiscal cliff just requires Congress extending current policies–temporarily.  Extending deficit-financed tax cuts or spending isn’t anything lawmakers have had any trouble with in the past; bipartisan compromise is easy when everyone gets what they want (rather than everyone having to sacrifice something they want).  The difference this time is whether in giving everyone what they want temporarily, will our politicians be able to agree on some mutual sacrifices they want each other to commit to now, that they’ll be willing to actually follow through on starting maybe next year?

So “dealing with” the “cliff”–either avoiding it or going over it (inevitably only temporarily if that happens)–is the easy part, relevant only for the next month or two.  The hard part is what to do next.

Dealing with the Cliff Is the Easy Part
Fri, 07 Dec 2012 15:17:57 GMT

I Think I’ve Figured Out Why Austrians Don’t Do It With Models…


If you don’t get the headline, here is a great article by Bryan Caplan that, in its critique of the Austrian School, does a good job of outlining what the fundamental Austrian principles actually are.

I Think I’ve Figured Out Why Austrians Don’t Do It With Models…
Sun, 02 Dec 2012 17:25:25 GMT

Are these the shadows of the things that Will be…

I take the debt seriously, but even so this is a bit over the top.

But it fits for Christmas.

via Economics One

(John B. Taylor) on 12/24/12

. . . or are they the shadows of things that May be, only?
But if the courses be departed from, the ends will change. So go back to First Principles, 102ff

Things you can do from here:

Before you start a war against poverty, …


…, gather  information to help figure out how to win.
The folks at MarginalRevolution University have a nice set of short videos on poverty.  My favorites are on the value of randomized control trials. 

Before you start a war against poverty, …
Luke Froeb
Wed, 19 Dec 2012 22:23:00 GMT

Your ideal World and Guns

It occurs to me that you could look at gun control two ways.  One is that it can’t be done effectively, and thus you oppose it.

Folks who think this focus on the if guns are illegal only criminals will have guns.  As a practical matter this has a lot to recommend it.  Rounding up the dangerous guns completely will almost certainly be impossible.  That said gun control likely wouldn’t have save the children of Sandy Hook.

But I find that I wonder something about gun advocates.  If you had God like power to eliminate all lethal weapons would you?  Do you oppose gun limits even if they could be made effective?

I tend to feel that aside from the practical difficulty of gun control, I’d favor no guns.  My thinking is the strong pro-gun folks even in principle like a heavily armed world.  Here’s a related take.

[UPDATE below.]

Suppose someone says, “You know, rather than waiting for the politicians in Washington DC to solve the nation’s drug problem, maybe parents ought to focus on keeping their own kids from using pot.”

Or, suppose a short guy said, “Be the change you to want to see in the world.”

Not only do I think the above statements are correct, I think the second one is downright profound.

And yet, apparently that makes me a non-economist. Here’s Russ Roberts commenting on the subject of today’s two-minute hate amongst libertarians (HT2 DK):

This short piece by Amitai Etzioni captures the difference between economists and non-economists. He says that rather than wait for gun control laws, we should just ban them in our own homes and post signs outside announcing that our homes are gun-free thereby becoming “ambassadors for gun control.”

I am reminded of the Hillaire Belloc poem:

Pale Ebenezer thought it wrong to fight.
But Roaring Bill who killed him thought it right.

Look, I’m not being coy. The Etzioni piece is ridiculous, but not because of his opening line. That was actually one of the most sensible things I’ve heard since the awful events last week–if you’re for gun control, instead of asking the politicians to do it, do it yourself! Amen brother. I don’t have guns in my house, and I haven’t kept that a secret.

No, I don’t put up a sign about it, but Etzioni’s point with that was to make it clear to everyone that you personally will not tolerate guns on your property. Russ–and I’m just picking on him because 99.99% of libertarians undoubtedly shared his hilarity at Etzioni’s wide-eyed article–captures the difference between general and partial equilibrium analysis. I’d love to live in a society where 99% of the property owners have a big sign that nobody is allowed to enter the property with a gun. Oops no standing army or SWAT teams in that society; they’d have nowhere to stand. Are we sure it would really be so horrible a place to live?

I know, I know, violence is just so seductive that most of you are still sure I’m speaking nonsense. OK let me end with a poem myself, just like Russ did:

Pale Uncle Sam thought it wrong to use drones.
But Red China didn’t and caused many moans.

What’s the moral today, kids? Often times someone’s argument sounds “from the Onion” only because you disagree with his conclusion. The exact same argument in defense of your position would sound great, and you’d be exasperated with the “idiots!!” who dismissed you with glib poetry.

Last thing: I hope the above post doesn’t come off as an angry young man. Believe me, I understand why people are laughing at Etzioni, and I understand why Russ was just having a quick bit of fun. But by the same token, I can understand why people at MSNBC thought it was hilarious when Ron Paul suggested going back on gold or that US foreign policy might have invited 9/11. “What the heck?! What a weirdo thing to say, ha ha who is this old guy?”

UPDATE: I should be clear that I am not “for gun control” in the way most Americans would mean it. I don’t want armed guys from the government trying to make society gun-free, since that would be using violence to try to change the world–something I oppose as a pacifist.

Also, apparently Gandhi may not have actually said that famous “quote.”

Shooting Down Russ Roberts
Bob Murphy
Sat, 22 Dec 2012 04:44:39 GMT

A Question for Paul Krugman


Source: Wikipedia

Paul Krugman has a dash of cold waterfor those who think that trade liberalization is a path out of our current growth slump:

First, there’s an especially strong tendency to mythologize the power of free trade. Not that open world markets are a bad thing; they’re definitely a force for good, especially for small, poor countries. But my experience is that the less somebody knows about international trade, the more likely he or she is to imagine that modest moves toward or away from protectionism will have huge effects. Trade economists, who have actually worked with the models, have a much less grandiose view.

Second, even to the extent that trade liberalization would raise the efficiency of the world economy, it is not, repeat not, a route to overall job creation. Yes, everyone would export more; they would also import more. There is no reason at all to assume that the jobs gained from export creation would exceed the jobs lost to import competition.

Globalization is not the answer to the Lesser Depression.

I don’t disagree with this, and I think it’s important for people to understand. I am a strong advocate of free trade, but trade is already very free, and while freer trade would be a good thing there just isn’t that much left to gain. And like Paul says, while trade liberalization would increase global efficiency and would be good for poorer countries it wouldn’t create many jobs. My question for Paul is this: does he think this is also true of migration liberalization?

I know that Krugman has written slightly pessimistically about immigration in the past, but all of his caveats appear to apply to low-skilled immigration. In this 2006 post, for instance, he lists a bunch of reasons he worries about immigration, including the impact on low-skilled natives and the fiscal burden. But then he acknowledges that his complaints don’t apply to high-skilled immigrants:

There is, by the way, a possible out from this argument in the case of high-skill immigrants. You could argue that, say, South Asian engineers who move to Silicon Valley add to the dynamism of the region, generating benefits much larger than their wages. (Economists know that I’m talking about “positive externalities.”) But that’s not an argument you can easily make about Mexican migrants who haven’t completed high school.

In a 2010 post he writes about the tension between immigration and the social safety net, but again this does not apply to high skilled immigrants who make a stronger social safety net more affordable. Krugman agrees with this elsewhere when he tells a reader:

I’ll post some material soon on the long-term fiscal consequences of immigration. The best work seems to show that high-skill immigrants help the long run problem, but low-skill immigrants make the situation worse.

And here in another reader question response:

The picture is much different for high-skill immigrants. By any criterion I can think of, the large numbers of South Asians — mostly engineers and other high-skill professions — buying houses in West Windsor, N.J., just down the road from me, are a net plus for America.

Not only do high-skilled immigrants provide a net fiscal plus, but as Krugman says they buy houses, and the economic benefits of this for natives are higher when we are in a recession. Globalization of capital may not be the solution to the Lesser Depression, but what about globalization of skilled labor? Has he elaborated more on the case for high-skilled immigration recently and I have simply missed it?

I and many others have argued throughout this economic slump that high-skilled immigration represents an important opportunity that help us achieve a variety of goals, from fighting the housing slump to decreasing inequality. Krugman is one of the most influential economists of our time, but it looks to me like he has been largely quiet on this issue. Does he disagree about the potential benefits? If not then why isn’t he writing about this all of the time?

A Question for Paul Krugman
Adam Ozimek
Mon, 10 Dec 2012 01:43:49 GMT

Krugman on the Budget deficit’>Further Notes on ONE TRILLION DOLLARS –

I generally agree with Krugman’s thesis.  The whole thing is below.  My quibbles would be:

1. He seems to assume we are willing to keep share of debt to gdp where it is now.  It’s almost as high now as right after the war, so I would question that.

2. I think his assumption about full-employment doesn’t recognize the reduction in full employment GDP that may be due to structural changes, some of a permanent nature from the recession among other things.

Together, I think this implies we have maybe a 100 to 200 billion hole in our budget even with full employment.

Yesterday I noted that the preoccupation with the size of the current deficit — which, as everyone reminds us, is ONE TRILLION DOLLARS — is completely misguided. Since then I’ve done some more arithmetic, which solidifies the point.

So, in fiscal 2012 (which ended September 30) we did in fact have a federal deficit of $1.1 trillion (pdf). The question is, however, whether this deficit represents, as everyone claims, a fundamental mismatch between what we want and what we’re willing to pay for — or whether it’s mainly just a reflection of the depressed state of the economy.

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

Meanwhile, on the spending side, a large part of the rise in spending came from “income security” payments — in this case, basically unemployment insurance and food stamps — which surged due to high unemployment, but are already coming down. Here’s what happened:


You don’t want to attribute all of the $250 billion rise since 2007 to the state of the economy, but a large fraction surely is slump-related. Also, the slump had impacts elsewhere too — for example on Medicaid spending, probably on more people taking disability, and so on. So a conservative figure for slump effects on spending would be at least $150 billion.

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

Let me say once again that this doesn’t mean all is well in the longer term. Baby boomers are retiring and health costs are still rising, so the budget prospect for 2020 or 2025 is troubling. But the current deficit has nothing to do with those troubles — which means that anyone who invokes ONE TRILLION DOLLARS to make a point about the budget thereby demonstrates that he has no idea what he’s talking about.