The Ever Wise Boonton

I've been leaning towards supporting an auto bailout but with a lot of reluctance. We've lived for decades with major airlines in bankruptcy and the economy can function normally. The bailout drug is very seductive once you start taking hits off of it. Detroit also needs a falling out. Bailout or not will not return the Big Three to their old glory nor will it return the old auto towns to what they were.

On the other hand these are not normal times. Credit is frozen and while the economy is on the edge of collapsing. I'm not sure the people who would normally pick up the pieces are able to at this moment. Additionally, since we are guaranteeing a lot of debt indirectly by asorbing AIG's 'insurance' on various corporate bonds, maybe this might be best way to avoid paying a lot more on the other end of the equation.

On the other, other hand I don't trust the government here. They don't have the incentive to force serious change on the Big Three, especially when that change is going to need to include serious union concessions, plant closings and a lot of other things the political system doesn't do very well.

Perhaps the best idea I've heard then is a concentrated effort to pick up the pieces. Namely the people and communities harmed by a collapse of the automakers. Target unemployed workers with additional unemployment insurance, grants for education and business starting, relocation grants for them to move to growing communities and assist towns devasted by plant closings. In the long run this is probably a more efficient bailout because even if the corporations survive, they are probably going to lay off thousands of workers anyway.

Yes you heard me. Perhaps you’ve heard about the Project for Excellence in Journalism's report on positive versus negative stories. McCain has 57% negative versus 14% positive. Obama enjoys 36% positive, 29% negative and 35% neutral.

Well right now (about 9 PM EST 11/3/8) Intrade contracts for a McCain win are trading at $10.10 and an Obama win are at $91.20. I’ll go on the record now that Obama’s going to win because that’s where the money is. So why should the media be carrying positive stories on McCain?

This is probably the most intensely covered campaign ever. After nearly two years of nonstop campaigning, record numbers of convention and debate viewers and the maturation of blogs (the news cycle is now driven by blogs with the mainstream media summarizing what you missed by not watching your Google Reader) we have finally hit an end point. Let’s ask why people bother to consume media coverage of the campaigns.

One answer is to learn about the issues and where the candidates stand on them. Yes I hear the laughing too but we got to give this due diligence. If you watch media coverage you’ve probably noticed that very little is about learning about where the candidates stand. On most issues, you don’t really need to know where candidates stand…quick name the pro-choice candidate here, the pro-life one? Don’t know? Have you been in a coma since 1980?

The real answer is that we consume media coverage because we want to know whose going to win. We consume CNN and FOX the way odds makers consume the Betting News. Few of us actually bet on the election (although I wish I had some spare cash to buy Obama contracts from Intrade when they were selling cheap a few months ago) but most of us act as if we are. If, though, that is what we are demanding from the media then what has the media been giving us?

The media’s been bending over backwards to give McCain the benefit of the doubt. Why does every newscast feature paths for McCain to win? To be fair? How many times have you heard the major newscasts present a way for Libertarian candidate Bob Barr to win? The anecdote that sums this up perfectly, in my opinion, was the final debate where CNN’s analysts all declared McCain either the winner or ‘much improved’ only to immediately backtrack when the first polls found that most people thought he lost the debate (again).

So if the media is liberal and leans towards Obama, (Fox News excepted of course) what’s up with only 57% negative stories for McCain while Obama’s stories are more or less split evenly? McCain should be getting 90% negative stories. He is losing the election big time. If you’re using the media to bet on the election they are misleading you with this pathetic ‘fairness’. The media’s primary bias, though, is for money and a close race keeps more eyes on the TV than one that’s already done. So the media will do the best it can to pretend there’s still a cliffhanger here but there isn’t.

That’s it for tonight. We will see tomorrow if I’m made a fool but an insane upset. Go vote everyone!

Greg Mankiw's Blog: My Personal Work Incentives

Another thought on incentives. Imagine a hypothetical world where everyone's tax rates were 0% except for one unlucky person who gets hit by the 100% rate. Using Mankiw's analysis, this world would be a much more horrible place than it is now or would be under either the Obama or McCain plans.

But it would be just the opposite. 99.9999% of the population would enjoy the massive $28 incentive for earning an extra $1. The one unlucky guy could even be well compensated if just a portion of the population were willing to pitch him a buck for drawing the short stick in the tax lottery.

Which leads us to a flaw in his analysis here. He focuses only on the worse case scenario rather than examining the entire population. For example, for most people the estate tax is 0% because their estates will not be more than the exemption. When confronting the issue of whether to push a bit harder to make that extra $1 they don't care about Warren Buffet's incentives, they care about their own.

To really measure the incentive impact of the different tax plans one has to divide the population into groups and calculate an incentive rate for each one. Computationally challenging but not impossible and it provides a better picture than simply looking at the worse case.

UPDATE: Greg Mankiw has covered this before here. However the calculation does not seem to take population into account. In the above hypothetical the average tax rate is 50% (100% + 0% = 100% /2 = 50%) but that's a very different economy than one where half the population is paying 0% and the other half is paying 100%.

Over on Pseudo-Polymath I was having a discussion over whether or not Obama is a socialist (or, ‘more socialist’ than McCain). I made the point that McCain’s health care plan is estimated to cost $2T while Obama’s is $1T.

McCain’s health plan is $0 you know. What sort of plans of his is he going to be able to push though a Democratic locked Congress?

Here we meet the old friend of economists, ceteris paribus or “all else being equal”. There are real relationships between variables in our world. If you raise the price of something, people will buy less of it and vice versa. But lots of stuff is always happening. You may raise the price of something and end up with more sales because people have suddenly decided it is popular, or because something else is sold out and this is the next best thing or any one of an uncountable number of possible scenarios.

So we usually say, without actually saying it, that if everything else stays the same then something will happen if a certain other thing happens. Raise the price and you’ll get fewer sales. If the price of milk skyrockets, coffee demand will probably fall (most of us don’t drink it black) and you can probably come up with a million other examples.

In this debate the response is a bit unfair. Of course neither candidate’s plan will ever be enacted as currently written. If McCain, through some odd chance, wins the election he will face a very angry and very Democratic Congress and even if he is serious about pushing his healthcare plan, it almost certainly would end up dead on arrival or drastically changed in its final form. But if we are going to ask who is ‘more socialist’ we should try to hold everything else constant. What is Obama’s plan, what is McCain’s plan and let’s try to measure ‘how socialist’ they are. If we are going to try to predict what type of policies will actually be passed 1, 2, or 3 years from now we are going to have to play a lot of speculative games. McCain, for example, might agree to a ‘very socialist’ health plan in exchange for Congress not yanking the funding for an extended Iraq occupation. A President Obama might have to ditch healthcare if the financial collapse makes gov’t borrowing impossible. (Don’t get me wrong, I think this whole socialism debate is nonsense. In less than a month we just decided to spend almost a trillion dollars to buy up banks, bad debt and bail out huge companies….the ‘socialism’ argument at this point is a bit like the arguments over Star Trek versus Star Wars...except the people who get impassioned about that are typically more reality grounded).

But Ceteris Paribus isn’t always our friend. Over on Greg Mankiw’s blog, he has a fascinating post comparing work incentives under Obama versus McCain’s tax plans.

Basically he looks at a no-tax world. Assume you work today to feed yourself and your family and provide a standard of living that you find acceptable. You would take on extra work (an hour of overtime, a side job, etc.) primarily to benefit your kids by being able to leave it to them. If you earn $1 extra today, he estimates that it would benefit his kids by $28. Why? No taxes plus compound interest.

Under McCain’s plan the benefit is $4.81 and Obama’s it is $1.85. This is, of course, due to taxes. Some of this, though, is a stretch. For example, the estate tax would only be relevant if you’re estate was going to be larger than the relatively generous exempt amount. This assumes you do not shelter your earnings either as unrealized capital gains or inside a 401K/IRA but the general point is valid. You do suffer a lower incentive with Obama’s plan than with McCain’s and that is a real cost.

But what is even more fascinating is the ‘no tax’ case where the incentive is a whopping $28 (nearly 6 times as much as with McCain’s supposedly ‘market friendly’ plan). Why not simply propose no taxes?

Here is where Ceteris Paribus isn’t so much of a helpful friend. We during the ‘good years’ of the Bush administration we ran up over a trillion dollars of debt. In the blink of an eye, at the last moments of the Bush years, we just added another $1-3 trillion (depending on how you count the bailout combined with various ‘guarantees’ by the Federal Reserve and Treasury Dept).

There are two sides to the incentive to earn that extra $1. The first, of course, is the relatively easily measured tax implications of earning that extra $1. The arithmetic might get a bit complicated but it’s basically simple stuff. The second, though, is exactly how easy is it to earn that extra $1? Is spending 3 weeks looking for work as good as hopping on Craig’s list and discovering the local store is willing to pay you to spend a night helping them do their year end inventory? Certainly not and that has nothing to do with tax rates.

The question then is assuming we adopt a policy of lowering tax rates, what will that do to the economy over the long run after we have been aggressively adding to our debt and spending? If you answer is ‘everything will be great’ you are either totally deluded or you have discovered the ‘free lunch’ (hike government spending, drop all tax rates to zero and everyone will be happy). The non-existence of the free lunch is one of the few truths economics has that is non-debatable.

Mankiw, though, creates an artificial free lunch by the cleaver deployment of ceteris paribus. Because ‘all else is held equal’ the economy says nothing as tax rates are lowered as the government absorbs trillions in debt. All we are left with is asking ourselves do we prefer to have more incentive or less incentive…if only life were that simple.

Back again, I’ve been trying to keep my promise but as someone once said, the spirit is willing but the flesh is weak. Unfortunately it isn’t flesh that’s keeping me away but a host of other distractions which I’ve allowed to disrupt my blogging. This is not good, though, because I see my traffic has been literally exploding by several hundred percent in the last few days. Soon I will break into the double digits of visitors per day, at that point you’ll be happy you were reading me in the early days.

For a while I’ve been arguing that the right wing in the US is intellectually bankrupt. By that I mean a while ago (I’m going to say around the first Bush administration) they ran out of ideas. Not so much ran out as in using them all up but as in ran them down. Cheap tricks, character assassination, ‘spin’ replaced thinking as their defining characteristic. This is a shame because ever since the 1970’s the Conservative movement saw itself as an intellectual movement that got the ideas right even if they lost elections.

Of course all intellectual movements are limited in their access to truth and need to be taken with good humor and a healthy grain of salt. Getting access to power, though, is rarely good for an intellectual movement. Needless to say, that doesn’t mean that out of power ideas are best. A lot of ideas are out of power simply because they are stupid and don’t work.

Paul Krugman has a good piece on Graeme Frost. He is a 12-year old boy who suffered brain injuries after a car accident. He was selected to give the response to Bush’s weekly radio address two weeks ago. Frost received insurance through Maryland’s SCHIP program because his parents could not afford it. Soon afterwards the right went after him (technically after his parents) accusing them of not needing a government program to insure their kids. Many of the initial rumors, though, turned out to be false:

Soon after the radio address, right-wing bloggers began insisting that the Frosts must be affluent because Graeme and his sister attend private schools (they’re on scholarship), because they have a house in a neighborhood where some houses are now expensive (the Frosts bought their house for $55,000 in 1990 when the neighborhood was rundown and considered dangerous) and because Mr. Frost owns a business (it was dissolved in 1999).

What’s interesting about this story is that this is exactly what government help should be. It sounds like the Frosts are your typical Americans trying to always improve their lot and sometimes having setbacks (losing a business) and sometimes getting it right (getting a house cheap that is now worth a lot more).

The original New Deal was similar in that it tried to address the concerns of ‘normal Americans’ with typical values. Take Social Security, for instance. You work hard and it provides you with something when you’re so old that you may not be able to work again. Take unemployment insurance, you pay while your working and collect should you get laid off. Neither program was designed or sold as tool for counter-cultural values. In fact, they were tools to make it easier to conform with what are normal values for most people.

Likewise many of the best liberal programs like the Earned Income Tax Credit work exactly like this. They reward positive values by limited help. Recently some on the right have gone ballistic because Hillary Clinton proposed giving every child born a $5,000 endowment.

Leaving aside the cost issue (which I suspect is not all that major. At $10K per year for 12 years a child already costs $120K or so to educate so a $5K endowment is actually minor in the big scheme of things), the idea is actually very good. It helps give everyone an equal opportunity but does not demand equal results. Some may simply cash in on their $5,000 at 18 and throw a huge party. Others, though, will do creative and productive things with it. Many will be unsurprising. They will pay for college, buy a car or maybe just roll it into retirement savings. What’s interesting is the surprising decisions many will probably take. They will start businesses, perhaps travel and explore, maybe religious ones will even found their own churches. The nice thing is that this will be their decision and their opportunity. I suspect many will make a lot of it.

Sorry I haven't kept my promise to post more often. Work and life always gets in the way but that is no real excuse since I seem to waste so much time doing other things.

One week and one day ago, Saturday morning, I was getting ready to go with my father-in-law on his truck (he has a garbage business). We received a call from Care One, a Morristown NJ nursing home/rehabilitation center. His wife was having trouble breathing and they were taking her to Morristown Memorial Hospital for an evaluation. A short while later he received a call from the emergency room. He knew where the doctor was going and couldn't listen to it. He handed me the phone. She had had a heart attack and died.


Patricia Delli Santi was a good friend for over ten years. Weight, diabetes and other health problems had taken their toll on her and in the end death won out as it always does over our mortal bodies. For the last, I don't even know, four months we had visited her almost every day as she slowly recovered from a previous heart attack and verbally sparred with her back and forth over all the problems, conflicts and other drama going on in the house. For decades nearly everyone came to her house and had coffee with her late into the night as they mulled over their divorces, affairs, fights, even indictments. More mayhem and chaos passed over her kitchen table than any episode of Jerry Springer. After spending a week thinking about this it seems so ironic now that all those supposedly important problems have passed into memories and history. What was important all along was the coffee and conversation.

There is nothing quite like the death of someone close. The rush of adrenaline as a funeral is quickly planned (we were literally picking out caskets before noon) and relatives are notified. The week was like running a marathon as the whole family had to dress, eat and attend the viewing and finally the funeral. At the same time there is so much that is normal still happens. People make jokes, there's small talk and always planning for the future.

Now that some time has gone by it is clear that we are all carrying around an emptiness. Feuds that took up so much of our energy before are now either on hold or have ended in a cease fire. What is ironic is that for so many months she wasn't even with us at home. Yet the house has changed from her loss. I have no insights to offer other than to say one has to always keep mortality in mind. This is something you all will go through at some point so we all must be as strong as we can and help others make it through.

The title of this entry comes from what Brad Warner wrote in his latest book:

One Zen master walks up to another and asks, "What does the Bodhisattva of Great Compassion do by using his limitlessly abundant hands and eyes?"..."He is like a person in the night reaching back with a hand to grope for a pillow."...It's not quite as nutty as it sounds. When you reach back for a pillow in the night, the action is totally unconscious. Someone is suffering from a stiff neck, and someone does something spontaneously to relieve that suffering. Forget about the way we usually conceive of both of these "someones" as being the same person. Just look at the action itself. It's totally spontaneous. There is no thinking involved. Something needs doing, and it gets done. When it's finished, no one even remembers it. There are no medals given out, no pats on the back from the master, no ticker-tape parades. In fact, there's no evidence it ever even happened. All truly compassionate action works exactly like this.

In retrospect I understand Patty's compassion for others. I see how the endless hours of conversation were not just gossip but was sincere compassion for all those people and their selfish problems. In the end we sit with a shrug and say "ten years ago I got a divorce", "I lost all my money" or "we were having some problems then" as if we were talking about a TV show. The most dramatic 'crises' we think we are experiencing are nothing in the big scheme of things. But those little things we didn't even notice at the time now loom so much larger and their importance is now so clear. I'm not even sure Patty would have understood what I just wrote about her. No doubt she would have told me she was just killing time and socializing with her family and friends. There were many times when she took direct action to help. Sought out people, found money and solutions for them. While important I don't think those times really made up the sum of her life. Her life was so many little acts while letting others take the 'center stage'.

All I can do now is sigh. She probably owed us a few more years but we will have to forgive that unpaid debt. She sometimes said all she wanted was to see everyone happy and getting along with each other. How ironic that her home often had so many people at war with each other. Perhaps, though, she was just unconsciously doing what needed to be done.

Many of you have probably been asking yourself where have I been? Actually, I doubt that because I doubt many of you are even here. At best a few people came across my blog posts from back in January of 2005... So where have I been since then?

Numerous things in my personal life but mostly a random post about creationism on Andrew Sullivan's blog (www.AndrewSullivan.com) lead me to Joe Carter's blog (www.EvangelicalOutpost.com). Joe is not at Sullivan's level. He is quite an amateur but that is what blogging is supposed to be about. No one blog will contain all wisdom, the average of all of them, though, will contain quite a bit. It's the wisdom of crowds, which I'm sure you have all heard about in one form or another. If you haven't, here's the short story from economics. One time there was this fair which included a contest to guess a pig's weight. An economist didn't much care about the winner but instead cared about all the guesses. He took the entries and averaged them all together and discovered that the average of all the guesses was much closer than the winning guess. In fact, it was almost amazingly close to the true value. So I keep maybe thirty or forty news feeds going in my Google Reader.

As the comment writers on Joe's blog know quite well, I've spent much of my free time there inflicting much pain on their poor souls. While many of them might have wished I kept to my own field here (where they wouldn't read me since no one does here...just about), I think the crossing sides is useful to both of us. A blog is kind of like a whale. It cruises the ocean and tourists and documentary filmmakers love to watch it. The whale, though, is surrounded by a little city of various parasites, hangers on, helpers and so forth. A blog that is updated often develops its own little city around it of comments and hopefully fellow blogs that reference it.

Like any city, what usually makes it fresh and exciting is its diversity. Sure sometimes you don't want diversity in a city. Visiting the Amish country, for example, would be missing something if right next to bearded farmers there were hip-hop kids, techno-geeks, and Republicans (then again I've never been there, I wouldn't be surprised if those types were right there in 'Amish Country'). Just like in any city you get community types that try to preserve the culture, flavor, style of the 'authentic city' and you get disrupters. You need both. A disrupter can be a developer who wants to tear down those 'historic' buildings to make condos or it can be someone challenging an unjust prejudice. The community builder can be the noble activist seeking to stop that mega-highway from tearing the neighborhood apart or it could be the less noble activist trying to keep out 'undesirables'.

Blogs need their communities and it's good to be part of them. I know here I'm speaking to more people than I would if I just addressed blog owners. After all, there's usually one blog author but maybe a dozen regulars who comment and perhaps dozens more who chime in every now and then.

If you have a monochrome community things get stale quickly. As much as one should value traditions and history you wouldn't want to live inside a 'historic recreation' all the time. The old historic building that is so charming is so charming because all the other buildings are new. So like everything else in life you need a mix of disruption and conservation, yin and yang if you will.

So for quite some time now I've given a lot of effort playing the role of devil's advocate over on Joe's blog. For that I'm quite thankful. Even though I disagree with Joe on just about everything, his blog is a wonderful place where all types of issues get discussed and explored. While I would happily change every part of it, I also wouldn't change a thing about it. (BTW, Joe had a post once on how a rational person cannot embrace such contradictions....) If my role as the disrupter has helped some over there be a little bit less full of themselves, a little bit more willing to explore their positions a bit more deeply then my time has been well spent. If not, at least I've spent some good time practicing my writing.

But balance is important. While I will continue to comment all over the place on other people's blogs, I should work on my own home rather than being forever the traveling tramp. So I'm going to make an effort to post here more often. At least once a week although I'd like to post once a day. So hopefully some of you are still reading this and some will come back and some new faces will show up. So here we go...