Greg Sanders

Is fiscal discipline a plausible way out of the U.S.’s strategic overreach?

This December, as part of CSIS’s National Security Bad Ideas series, I critiqued Adm. Mullen’s argument that “the most significant threat to our national security is our debt.”  The core of my argument is that in recent decades, persistent low interest rates and an economy recovering from a series of shocks mean that the debt is presently not at problematic levels right now:

In absolute and percent of GDP terms, the debt has grown over the last decade and especially under the Trump administration. The deficit was projected to hit $1 trillion in 2020 even before the pandemic occurred, but ended up near $3 trillion due to the ensuing economic recession and stimulus measures. Despite all this, there is no debt spiral, and an assessment of the cost of debt as a share of GDP shows that fears that the deficit would crowd out other spending and investment — while justified in the early 1990s — are misplaced. At its peak in late 1995, debt interest accounted for nearly 5 percent of all economic output. Yet the recent peak in the second quarter of 2020 was still under 3 percent and has since dropped.

I had the honor of a 35 tweet rebuttal from Chris Preble, co-director of the Atlantic Council’s American Engagement Initiative which hosts many great pieces and events. I’ve rolled it up here for ease of reading. His concerns on the deficit are not dependent on who is President, and he has been making the case for years that at the margins we should draw down conflicts and invest more in domestic spending.

Preble aptly summarizes my core point and gamely concedes that there may be particular cases where one can be overly focused on the deficit and that the research does not tie deficits to growth. He then gives a nuanced reading of Eisenhower's the Chance for Peace speech and his larger, balance-oriented governing philosophy. I’d encourage reading the speech, or at least the summary in tweets 6-11. Even if you know the highlights, the speech is quite bracing as one considers the Sino-U.S. security dilemma and the risk that we will both trade away a brighter future. He also captures Eisenhower’s larger philosophy of balance:

But that did not imply hostility to all forms of government spending – only spending that did not increase productivity, or which was not offset by adequate revenues. /15

— Christopher Preble (@capreble) January 22, 2021

Preble then develops the idea of fiscal discipline as a key strategic planning technique, a point also made by Gordon Adams. Strategy is about trade-offs, and if limitations are not front and center it is easy to overextend. Moreover, polling gives good reason to believe that budget-wide fiscal displace would favor domestic investment: butter, not guns. He accurately critiques way that Overseas Contingency Operations undercut the discipline the Budget Caps were intended to engender, and concludes that a sustained expectation of discipline might be the best way to prompt actual thinking and action to resolve present U.S. strategic insolvency.

Balance is the Wrong Approach to Recessions

I think Eisenhower's philosophy of balance makes a great deal of sense when large numbers of workers are not sitting idle. But after the blow suffered by the great recession and as we endure the pandemic and build back after vaccination, I think Furman and Summers make a good case for copious investment.

If you’ll indulge me in an analogy that was cut from my piece, in October I underwent surgery to remove a benign tumor the size of a grapefruit. The health advice I received once I woke up post-surgery strictly limited my exercise. Nothing more strenuous than a good walk for 8 weeks after the hospital. When it came to food, I was on a liquid and then a soft diet. When I tried light aerobic exercise, my doctor said I was scaring him. I cut back and not long thereafter my surgical wound finished closing. In that situation, exercise was bad and ice cream was good. A recessionary economy where interest rates are low, limiting the boost that can be provided by monetary policy, needs spending. As Furman and Summers argue, the Bowles-Simpson attempt at a grand fiscal bargain was the wrong approach:

The Bowles-Simpson plan would over time have represented about a 4 percent of GDP annual shift towards austerity by the end of the decade. Given that for much of the period unemployment was above its sustainable non-accelerating inflation rate of unemployment (NAIRU) level, this would have adversely impacted aggregate demand. For 5 years during this decade the federal funds rate was at its lower bound and at no point did it exceed 2.5 percent. It is therefore not remotely plausible that a lower rate path could have offset more than a small fraction of the reduction in aggregate demand the fiscal contraction would have produced. The result likely would have been even more economic slack and inflation further below target.

This is of course a hypothetical calculation. Had a major recession ensued, fiscal policy responses would surely have been implemented. The point is that with our current economic environment, fiscal policies need to be set with a view to maintaining full employment.

This would be best done by automatic stabilizers rather than what Matt Yglesias calls an ice cream for everyone party. But we live in a second best world, which brings me to my next point.

How to Sequence Discipline and Domestic Investment

If Furman and Summer are right, and the U.S. budget has slack even outside of recessions, let alone during them, then this strengthens the fiscal sustainability portion of Friedman’s and Logan’s 2012 diagnosis of “foolish but sustainable:”

But reason does not determine U.S. military strategy. Opportunities and constraints do. Americans tolerate waste and foolishness in the name of security primarily because we can afford it. It is not a great over simplification to say that we do what our wealth and relative power allow and call the product a security strategy.

Interest rates can explain why the peace dividend in the 1990s had endured at least in part through 9/11, despite a policy prone towards humanitarian intervention, but that 2013’s budget caps did not hold. Adm. Mullen does not explicitly invoke “debt spiral” when he makes his diagnosis, so I don’t know the exact mechanism he had in mind. But most using that rhetoric point to CBO projections of rising interest rates, which have consistently failed to materialize. I’d argue that the increasing exploitation of the Overseas Contingency Operations account was not so much a failure of will or drafting, but a side effect of the fact that the invisible bond vigilantes never decloaked.

As a result, in the present environment, the primary constraint on the U.S. fiscal budget is political, not economic. We are a sclerotic kludgocracy with many veto points, high polarization, and little trust. Moreover, with increasingly divergent swings between powerful executives, it remains quite tempting to wait out an administration rather than make hard choices. When the constraints are a lack of political agreement rather than true economic hard limits, credibly enforcing discipline is hard as there’s always the slack left in the budget. The magnitude of Ike’s tradeoffs remain stark, but if we want to, we can build both houses for 34,000 Americans and another DDG destroyer rather than having to choose.

I would propose an alternate mechanism that would both give the American people what they are asking for with the secondary effect of applying fiscal discipline via personnel costs: full employment. I think Karl Smith has a credible argument that President Trump came as close to re-election via the electoral college as he did because the economy approached full employment during his term and people remembered that even after the bungled the pandemic contributed to an economic downturn. If we could achieve any sort of bipartisan consensus, I think we should first use it to actually make domestic investments and let that set the stage for discipline.

Once our labor markets are not slack and we start making productive investments, then we will begin to encounter the most relevant of Ike’s observations on genuine limits on military capacity:

“This world in arms is not spending money alone.
“It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. 9/

— Christopher Preble (@capreble) January 22, 2021

In general, the national security enterprise is labor-intensive, personnel costs are disproportionately up, and Baumol’s cost disease cannot be overcome by services contracting alone, even if uncrewed systems improve productivity. A medic freed from wartime injuries could be treating the sick at home, anyone that meets the military physical health standards is likely well suited for a wide range of jobs at full employment, and acquisition types could get to address our horrendous transit capital costs.  Yglesias also makes plausible argument that policies I favor will likely raise inflation and interest rates over time, getting us back to a more conventional economic system and healthier and more fiscally disciplined place to hash out a better strategy. When economic rather than political factors are the constraint, the fiscal discipline is more credible and can be informed by a new edition of Preble’s The Power Problem, updating Ike’s trade-offs once again in a way that accounts for higher labor costs.

Race and Defense Acquisition: Renaming the Stennis

When my field of defense acquisition comes up in present national debates about equality, it tends to be in terms of resources/national priorities or spillover effects and police equipment (see Radley Balko’s Rise of the Warrior Cop or Spencer Ackerman’s upcoming Reign of Terror), or questions of minority owned small business promotion policies. I hope to write some on those topics in this coming year, but for now am thwarted from applying my quantitative analyst lens by my slow writing and a backlog of old reports I need to publish.

In the meantime, Rueben Green makes a compelling case for removing the name of renaming the carrier USS John C. Stennis:

Stennis, on the other hand, almost singlehandedly derailed the cultural changes being attempted by then-Chief of Naval Operations Admiral Elmo Zumwalt, as Zumwalt detailed in his memoir, On Watch. Stennis was vehemently opposed to black equality, and spent his entire career, both as a Mississippi prosecutor, judge, and state senator attempting to ensure it did not happen. He ordered congressional subcommittee hearings on “Permissiveness” in the Navy, led by Louisiana Senator Eddie Hebert, in a thinly veiled attempt to thwart Zumwalt’s initiatives.  . .

During a meeting on the topic, requested by Zumwalt, Stennis told Zumwalt, “Blacks had come down from the trees a lot later than we did.” The subcommittee ignored the mountain of evidence Zumwalt presented that showed systematic and pervasive racism in the Navy. Zumwalt still prevailed, however, with his seminal directive, Z-Gram Number 66, on equal opportunity, but the battle continues.

Green goes into additional detail and draws on his personal perspective as an African American naval officer (he’d written about the topic in his memoir Black Officer, White Navy). I think he makes a very compelling case as, like the critique of Woodrow Wilson in the context of the Public Policy school, this is based primarily not just on Stennis’ beliefs and words, but his use of power to the detriment of those serving in the U.S. Navy and civil service respectively.

I did a little searching and the most prominent defense of the name comes from columnist Sid Salter who lays out the case for the positive parts of Sen. Stennis’ legacy, in particular his role as a champion of the carrier program and opposition to Joseph McCarthy. However, neither Salter, nor the family members quoted in other articles I’ve skimmed, present any evidence to counter Green’s case.

Robert Farley, whose post first brought the Green piece to my attention, adds on a useful practical point in favor of renaming; “Nobody outside the United States knows who John C. Stennis was (most people inside the U.S. have no idea), and acknowledging the political role that aircraft carriers are intended to play demands an appreciation of how names affect the reaction of foreign audiences. “ An obscure name can educate, of course, but this is a name choice that seems aimed at a Congressional audience rather than the sailors who will serve on it or the friends and rivals who will note its presence in nearby ports or waters.

Finally, there has been some backlash to the recent resignation of a Boeing communications executive who had written a piece in 1987 that he renounced as “embarrassingly wrong and offensive.” I’ve skimmed the piece and agree with his current assessment. In particular, re: Personnel Management, I’d note that if male members of our military cannot be trusted around female colleagues, then they also cannot be trusted to interact with the local population on overseas deployments, interaction which is often core to counterinsurgency, hybrid conflicts, or maintaining alliances. Regardless, I don’t know any specifics of the Boeing case beyond what was reported, but I don’t think the two cases are comparable. Green easily clears the bar set by the Yale Committee to Establish Principles on Renaming. Green’s case against Stennis doesn’t just rely on Stennis’ views and the terrible Southern Manifesto he signed along with all other Southern Democrats; it comes down to specific things he did with power that are directly relevant to the CVN-74’s ability to fulfill its mission today. The process to rename it should begin post-haste.

Marylanders: The fate of the Purple Line does ride on tomorrow's election

I hope all U.S. citizens vote tomorrow. I recommend Vote411.org as a way to help you get information about your polling place and learn the candidates' stands on the issues.

One race particularly important to me this year is Maryland's gubernatorial election where Lt. Gov. Brown (D) faces off against Larry Hogan (R).

Hogan is explicitly an enemy of the Purple Line:

Hogan says he would put a far greater priority on building and repairing roads than on mass transit. He pledges to block two major light-rail projects: the Purple Line in the Washington suburbs and the Red Line in Baltimore.

Hogan's emphasis on new roads ultimately does not make sense. Vehicle Miles Traveled are down across the country. Infrastructure repair is important and specific projects might be worthwhile, but Hogan is pursuing road building as a culture war issue rather than an governing agenda for Maryland that actually makes sense.

By comparison, the Purple Line and Red Line are near ready for construction start.  The economic benefits are immense, especially at a time where the construction market has yet to fully recover and interest rates are low:

• 69,300 daily riders.
• $3 in economic returns anticipated for every $1 invested.
• 17,000 cars off the roads in the Montgomery and Prince George's Counties.
• Completion of the Capital Crescent trail.
• 2,380 to 4,140 new jobs for every $100 million of cost.

The Maryland governor is entirely capable of putting a project like this on hold. For those of you Marylanders will not directly benefit from the transit, this is still an investment in the state's long term future. Much of the funding comes from the federal government, with $800 million in federal matching funds to help build it. The economic activity generated will support the state's tax base and among other things help keep tuition low at Maryland's university system, a particularly remarkable accomplishment of the O'Malley-Brown administration when much of the country was experiencing jumps in public school costs. The Lt. Governor has taken his hits, rightfully, on the healthcare website debut. That ship has been righted, but for those with ongoing concerns about implementation I'd point to his own Lt. Gov. candidate, Howard County's Ken Ulman. As a present resident of Howard, I've got to say I've been consistently impressed by our young executive. I hope he has the chance to serve the state as a whole as well as he's served Howard County.

In closing, I certainly confess to being a partisan Democrat. But I'm also a proud Marylander. I think our state has managed great things in these past eight years, even when the national situation had headwinds against us. I'm asking Marylanders to vote for the Lt. Gov. because he'll build on the successes of the O'Malley administration and not undercut our economic future to fight culture war battles over infrastructure. I know this election can feel like there's not much as stake, but when it comes to the Purple Line, the opposite is true.

Speaking for myself and not my employer. Similarly, I'm not speaking for any non-profits I volunteer for. That said, Kate does back with me!

Recovering from Jetlag on our first night in Japan 2014-05-25

The ride into Tokyo takes an hour on the N'ex (Narita Airport Express). That fact, combined with the sexy streamlined N'ex engine you see on the right, confused me as I knew high speed rail should be able to travel the distance between even a far flung airport and its base city in a fraction of the time. The answer was quite straightforward, mere streamlining does not high speed rail make. The actual Shinkansen require far straighter track and have streamlined nose cones that are reminiscent of airplanes.

The countryside witnessed on the journey into Tokyo is not rural but does include rice paddies. As in China and Egypt there is no arable land to spare, in large part because of the widespread hills and mountains. As I understand it, the difference is that Japanese production is artisanal rather than subsistence. Japan is a net importer of rice but has particular standards when it comes to that staple and other crops.

When we arrived at Tokyo station, Moti took a moment to exploit the JR station provided free wifi and get a map for our hotel. That said, don’t necessarily rely on that trick, in part due to use of a range of bands, some of our phones often did not see or could not use any given wifi service. We did already have an address, but under the Japanese system, addresses refer to neighborhood and block numbers rather than position on the street. The numbers are sequential within the neighborhood, but there are no numerical avenues or grid-style positioning reference points. Thus, if you don’t have mobile internet access, it is best to have the closest transit stop with a map image handy for any locations not listed in a guidebook.

Fortunately, our hotel, the Mitsui Garden Hotel Shiodome Italia-ga, was labeled on the station map. The Italia-ga part of the name refers an Italian theme in the district as a whole, also reflected in the Italian restaurant in the hotel. That said, we favored cheaper fare for the night and went to one of the local convenience stores, a FamilyMart. The name convenience store does accurately describe the longer hours and range of products, but notably these stores offer a range of fresh pastries and food choices more in keeping with the prepared food section of a high-end grocery store than any counterpart in the U.S. What’s remarkable is that the prices are in line with conveniences stores in the U.S., the breakfast and snack items on the right were under ten dollars and will easily feed two. FamilyMart was Moti’s favorite variant, and indeed this one had a nice seating section and had a melon pastry (in the center top of the photo) that was a favorite of Kate throughout the trip.

We made an early night of it, to better handle the jet lag. The next morning, we would rise early to head over to Tsukiji, Tokyo’s famous fish market and the associated vegetable market. After that it was on to Hiroshima for the first leg of our trip.

Legend of Korra continues Avatar's tradition of excellent antagonists

Sympathetic antagonists are one of my favorite things in fiction, if for no other reasons then that they add variety to the stories. If the enemy is nihilist or totalitarian evil then their degree of success is just a matter of how dark the pieces is. However, if the threat actually has a sympathetic cause, in this case standing up for ordinary people in a city largely run by those with special bending abilities, then it is far from clear how things will shake out.

I don't want to get into too much speculation at this point. Let me just say instead that if you were a fan of the first series be sure to check out Legend of Korra. This is particularly easy because the episodes are available, with commercials, for free online. Coming in without having seen the first series won't tell you as much about the world and will indirectly spoil some things about the ending. However, if you don't have an easy means to get a hold of it then I'd say that the core plotline should be perfectly enjoyable and the 70 year time skip means that the world in question is a very different one.

Event: SIPRI military expenditure data 1988-2011

The briefing: The Stockholm International Peace Research Institute (SIPRI) is well known for their military expenditure data which emphasizes consistent global coverage. Sam Perlo-Freeman went over the data. World spending is $1.7 trillion and for the first time since 1998 did not increase in real terms. That comes to $249 per person or 2.5% of world GDP. This leveling off was driven by the United States, although otherwise patterns from 2010 to 2011 I hard to discern. Russia and some developing world countries have been moving up on rankings and European countries have been down, although the U.S. is still dominant at 41% of global military spending. One regional point: Asia and Oceania has overtaken western and central Europe in the past few years.

SIPRUI puts the U.S. at $711 billion in outlays, which includes State department military age. That puts it at 4.7% of U.S. GDP, one of the higher rates in the world. They anticipate overall spending to fall given the end of the wars, assuming no new ones start, and if sequestration starts in January 2013 it will mean much steeper declines. By comparison, the total for Europe was fairly constant, but only thanks to increases from Russia and Azerbaijan (89%!). In central Europe the cuts started in 2009, spending in western Europe  ha been declining more recently although France, Germany, and the U.K. have been making smaller cuts so far. As you might expect, Greece, Spain, and Italy have all had fairly dramatic cuts.

Is class segregation driving American inequality?

In his defense of the newest Charles Murray book, Ross Douthat raised what may be the heart of the issue [emphasis mine]:

Second, “Coming Apart” offers a convincing account of how meritocracy has exacerbated the problems that Murray describes — encouraging the best and brightest to work and live and (especially) mate within the cocoons of what he calls the SuperZIPS, segregating Americans by intelligence to an unprecedented degree, and creating a self-reinforcing pattern in to those with much social capital, much more is given, while to those without, even what they have is taken away. Again, he’s drawing on other authors and other works — Bill Bishop in “The Big Sort,” Richard Florida (by implication) in his various paeans to the so-called “creative class” and the “creative cities” they call home. But Murray has been thinking and writing about these issues for a long time, and it shows. I’ve rarely read a better distillation of the case for meritocracy’s in-egalitarian, anti-communitarian, and even anti-democratic tendencies, and what the cultivation of a meritocratic elite can mean for the people left behind.

I would argue that the mechanism for this segregation is the unaffordability of property values in these SuperZIPs. Many of America’s great liberal cities and enclaves are unaffordable as Dan Reed recently documented in detail for the DC area. Given that most American schools are funded by property taxes, those areas that are affordable are often unattractive for those with children. I think this could also partially explain why so many young people have responded to the bad economy by moving back in with their parents. Saving money on rent is nice, but moving in with your parents might be the only way may young people can get into a neighborhood with good opportunities.

In the larger sense, this gets to the issue of why Blue States subsidize Red States. Many poor people live in Red States (although the poor people there are still fairly economically liberal). So why don’t these people just move to Blue States which have more jobs and often a better social safety net ? Why be in the lower class in Alabama when you could be poor in Massachusetts? Cultural issues and proximity to family shouldn’t be discounted, but I think the answer is property values again. If you want a nice house or even a crummy house and a rental but in a nice school district, I suspect it’s easier to find it in a Red State.  Yglesias specifically argues that this is a big driver of population growth in Texas.

I think the affordable housing movement will help at the margins, but I don’t think set asides and subsidies and the like have managed to scale. Charles Murray argues that the solution to the top 5% bubble is to preach what your practice, Andrew Gelman does a good job of examining this argument and showing its flaws. I think the solution is different, we need to break down the barriers to increasing the supply of housing for rent or purchase in blue state cities and inner suburbs. Segregation by class is a fundamental in justice and we can do things about it. Local politics can be one of the easiest places to influence, albeit also the place of the most vicious fights. The battleground against inequality may well be homeowners meetings, zoning hearings, battles over accessory apartments, attempts to block new townhouses and multistory buildings. My favorite related issue is mass transit, which can expand the reach of cities and inner suburbs and enables density as roads are inevitably overwhelmed with congestion. I should also add, I don’t think I’m doing full justice to Sheryll Chasin’s argument, but many of these ideas I developed after reading her book “The Failures of Integration.”

Amazon and sales tax

I had occasion to order something today from Amazon.ca and I noticed that they charged sales tax. This isn't that much of a surprise, Amazon.com has long claimed they'd be happy to charge tax, they just want a consistent national standard first. Unfortunately, developing such a standard would require legislation and at present our  system seems to barely be capable of delivering a handful of complex bills a year so no national solution is likely to happen.

That's all old news, but that leaves consumers with a predicament. The argument that internet commerce needs protection is as outdated as our Borders Reward cards. I think my solution will be that when I'm doing price comparison I'll look at pre-tax prices. That's probably not enough, perhaps I should preferentially buy things from brook and mortar chains or indies. I don't think I'm willing to go full boycott, Amazon's still my go to source for electronic music and stuff not easily available in stores and some of those are good ways to support smaller scale creators.

Maybe rather than making the odd impulse buy of books or more common CDs, I should just keep a shortlist version of my wishlist and try to pick something up at those times when I'm hanging out in bookstores. Given my commute, that isn't as often as it once one, but may still be a way to do my part. Bibliophiles will ultimately need to pay to keep our social spaces, although I'd also gladly by snacks from a library store and am happy that my tax dollars go to that cause.

A peace between Wikipedia and professors?

Back when I was going to school, various instructors regularly made a point of noting that information on the internet wasn't necessarily reliable. This always seemed amazingly self-evident to me as it should be to anyone that's ever posted documents online. I'm not sure if the warnings were driven more by curmudgeonliness  or by receipt of far too many poorly sourced sourced papers. Regardless, I was pleased to see Jenna Johnson report in the Post that the Wikimedia foundation has found ways to encourage more productive engagement:

This school year, dozens of professors from across the country gave students an unexpected assignment: Write Wikipedia entries about public policy issues.

The Wikimedia Foundation, which supports the Web site, organized the project in an effort to bulk up the decade-old online encyclopedia’s coverage of topics ranging from the Toxic Substances Control Act of 1976 to Sudanese refugees in Egypt. Such issues have been treated on the site in much less depth than TV shows, celebrity biographies and other elements of pop culture.

Many students involved in the project have received humbling lessons about open-source writing as their work was revised, attacked or deleted by anonymous critics with unknown credentials…

"I start every semester with the typical speech: ‘If you are turning in a paper and cite Wikipedia, then we have a problem. We need to talk,’ ” said Matt Dull, who is Pearson’s professor at Virginia Tech. But this time, he gave that speech and followed it with the Wiki assignment.

As the article makes clear, this work isn't accepted with open arms by all wiki-editors. Nonetheless, the students seem to be having some productive engagements and the quality of content is being improved. One of the things I always found unsatisfying about school was the meaninglessness of the work I produced. Sure, I was learning things, but it still seemed like quite a waste. This is part of why I blog: even if my audience is rather small it's satisfying to know that my thoughts are recorded in an accessible way online. While nasty editors are a downside, editing Wikipedia entries is a step up from personal blogging. That online dictionary, like other open source projects, are public goods. Even if only a portion of changes make it by other editors, that small improvements makes things a little better for all internet users in the language in question. One of the instructors sums it up nicely:

“It’s the ability for students to feel that their work matters, that it doesn’t get trapped in the classroom,” said Adel Iskander, a Georgetown instructor who assigned Wiki entries in his graduate-level Arab media course. “We’re kind of challenging the academic establishment, in a way.”

Kudos to everyone involved and Jenna Johnson for a non-embarrassing write-up of an internet phenomenon. That's no mean feat.

Back to urban life in Luxor 2011-04-18

After crossing the Nile to return from our rural west bank adventures, we had some free time in Luxor city. We decided to take a walk up to the promenade. This was probably a mistake, the walk itself was alright, but involved constantly turning down various carriage drivers. My guide and guide book both agreed to be careful with such rides, as drivers were known to take passengers away from the tourist area and then charge more to give the trip back. Nonetheless, taxis aren't a problem and they may have gotten us past the gauntlet to enjoy a more leisurely walk in the city center. That said, some of our fellow travelers walked the same route without incident, so perhaps it was something in the way we carried ourselves.

On the trip back, we paralleled our route one block away from the main street. This made all the difference in the world, Luxor is dense but it's no Cairo and the side streets on a workday are neither vacant nor bustling. The people we saw weren't looking to sell us things, they were just moving around their neighborhood, running errands, and the like. I don't travel in a search for authenticity, but I do enjoy seeing parts of other countries that aren't there to cater to me or sell me things. Of course, the incentives for vendors are particularly strong in the developing world: the ratio of per capita GDPs between the U.S. and Egypt 47,400 to 6,200. However, as we'd see in more detail in future days, Luxor, ancient capital of upper Egypt, is more than just a tourist town and has a pleasantly different character when you get oft the main strip.

A seamstress shop in West Luxor 2011-04-18

In Egypt I was fairly consistently surprised by the high percentage of men in fields that are balanced or dominated by women in the States. Service industry jobs like clerks, maids, wait staff, and the like were disproportionately likely to be male. I think this can be fairly directly traced to low rates of labor participation by females and the high unemployment rate for men. The chart below is from the Population Council and while the labor participation rate increases for men as they age it stays low for women. I found the study via the viable opposition blog, it has a lot of other good demographic information.

 

The trip’s tour company, does charitable work in Egypt through the Grand Circle foundation and took us to see a seamstress shop that they’d provided with some start up capital and sewing machines. The hire widows, unmarried women, and other females who have insufficient other means of support. The west bank of Luxor is some mix of Rural and Urban Upper Egypt and as the chart above shows, women generally don’t find a lot of opportunities to work.

The woman in charge described how they try to reinforce the economic opportunities with education. The workers are told of the benefits of birth control, delaying one’s first child, and of spacing out children. The workers then tell their families and friends in an attempt to leverage the work in the larger community. They claim fairly dramatic success which would suggest that the high rural birth rate is driven in good part by ignorance of family planning methods rather than directly by cultural or religious pressures. This seems consistent with a Rand study by Mona Khalifa, Julie DaVanzo, and David M. Adamson. In the chart space refers to time between pregnancy and limit refers to restricting overall family size. I’d expect the west bank near Luxor to be one of the more prosperous parts of rural upper Egypt, but even so the need for family planning services is striking.

We picked up a few items in the shop and didn’t get a great deal on them, but I’ll skip the bargaining practicum as this is the sort of thing I’m willing to pay a premium to support.

Addendum on farmland in Egypt [2011-04-18]

I spoke with our tour guide more today to nail down some uncertainties about land ownership in Egypt. She said more than 60% of the arable land is under government ownership, and that the farmers who work the land pay rent in taxes or in kind. The government does often want to claim the land for other purposes, but it sounds like the farmers successfully resist in a fair number of cases. I just saw today (April, 27) one notable example of successful resistance in the middle of Cairo. What's more, when land is seized it is reimbursed with other land. The replacement will likely be of lower quality, but that sounds like a hedge against lowballing and as a side effect slows the standard developmental transition from being a rural country to an urban one.

On the whole, these policies sound like a hedge against absolute poverty but that may also lock-in farmers. That lock-in could become a problem should urban unemployment decrease. Apparently the new government's agenda includes transitioning land from government to farmer ownership and renewed irrigation projects. Given the level of backlash against some of Mubarak's privatization policies, I'd suspect that any such steps would be pursued rather gingerly. Apparently achieving wheat self-sufficiency is also being discussed as a policy goal. I don't recall reading even liberal economist talking up self-sufficiency as a goal, but it may be a proxy for moving from subsistence farming towards a higher productivity agriculture. As an example, there's a narrow-gage railway in West Luxor for moving sugar cane which suggests that it is, or at least was, a crop that could be sold at market. I suspect that agriculture reform paired with the urban unemployment problem, will be the key tests for the upcoming democratically elected government.

Next: Luxor temple. That involve going out of chronological order, but I figure what readers I have left may be sick of farm talk.

A limited look at land distribution in Egypt 2010-04-18

The farm we visited on the banks of the Nile hadn't existed more than half a century ago. This may seem odd, Egypt is one of the world's oldest civilizations and since the beginning it has been centered around the Nile. However, until the building of the Aswan high dam, the great river's flooding was uncontrolled. When we later visited the dam, I learned that it had increased Egypt's arable land by some 30%.

When the land became safely available, Ahmed's family had claimed a small portion of it. As I understand it, West Luxor has any number of similar claims for 4-5 acres with nebulous ownership status. Denial of electricity in some cases aside, the farmers are allowed to keep their land but it wouldn't officially be there property. From what I've read elsewhere, this is important as it would mean that the land wouldn't be part of the official economy and thus couldn't easily be loaned against or sold. This, in combination with unemployment in the cities, would give farmers a reason to prefer subsistence agriculture to many alternatives.

I don't have a clear sense of whether the middle class farm we visited was representative. We did often drive by fields that were far greater than half a dozen acres. However, I'm told that in many cases the expanses are subdivided into any number of smaller farms. Thus the dam and land policy seems to effective guarantee an opportunity to earn a livelihood for some farmers, weather allowing. 

All that said, as Ahmed was the first to acknowledge, the 30% gain in arable land was not without a price. First off, there's an opportunity cost in losing the economics of scale from larger farms. More important is a legacy I'll discuss when we get to Aswan: building the dam meant that tens of thousands of Nubians were relocated from the banks of what became Lake Nasser. The human toll was supplemented by other environmental impacts such as the denial of rich silt and a raising of the water tables.

Subsistence farming: not just for the Egyptian lower classes 2011-04-18

When I think of reasonably successful farmers, I normally assume that they'd be selling their farm goods at market. However, our host Ahmed was a subsistence farmer in the Egyptian middle class. The 4-5 acres he was cultivating was aimed at feeding his twenty-some person extended family household. As you'd expect, this involved any number of ingenious techniques for making a range of products. For example, on the right is more than a dozen loafs of sun bread. While they do have an oven, the climate gives them the ability to get a fair amount of their baking done by just leaving the dough out. The end product is fine, not the best bread you've ever tasted, but it could work well combined with a good dip. The ingenious part is the baking 'stones' which are a reprocessed version of a common material that merchants are happy to give away with a purchase: egg cartoons.

Avoiding the market involves using a fair number of hand made tools, some of which are passed down through the generations. For one example, see the grindstone the family uses. While the weight is fairly daunting, the end of the video shows that even a child could operate it once you overcome the static friction when it is at rest. From what Ahmed said, not every farm has such a tool, others from the village come by to use it. I suspect that there is some in-kind trading involved as various households allow others in the village to take advantage of their specialty tools.

Manually operated grinding wheel.

Finally, those that read the last entry may be asking: so how did they afford new lights and a washing machine? The answer is that instead of selling food they use surplus labor to produce handcrafted furniture. The techniques involved in creating the wooden furniture were easily demonstrated but effective. Holes were bored with hand crafted tools and attachments made by exploiting the natural expansive properties of wood. The final pieces were great to sit on and quite attractive and I'm guessing could be sold at a much higher margin than agricultural goods. Obviously the family were good savers, reserving money for major purchases like an appliance or a trip to Mecca for Ahmed's mother. I think the key enabling factor is the small size and wide distribution of the farms, which I'll discuss in a future entry.

[Minor update: I've decided to mention Ahmed by name.]

Practical impact of the Egyptian revolution [on a farmer] 2011-04-18

Being in country for only a few weeks, let alone on a tourist trip, is regularly disparaged as a means of gaining in country knowledge. However, while hardly science, it still is a means of augmenting knowledge about a country. In this case, Overseas Adventure Travel includes a few interviews with admittedly a rather biased sample: a farmer in Luxor, a dinner with an Arab family in east Aswan, and a visit with a Nubian family in west Aswan.

Our talk with a middle class farmer was quite illuminating, his English was excellent and based on the answers he gave to our group he seemed both willing to speak honestly about his life and wise enough to see beyond his immediate situation. Like everyone else we've spoken to on the issue, he strongly favored the revolution. There wasn't much in the way of protests in west Luxor, based on what he said, but citizens did gather downtown to watch the news and cheer on the protesters.

The most immediate impact on their lives is that their farm now has electricity. That was a fairly shocking rate of progress until he explained the reason: the Mubarak government hadn't been extending electricity to parts of west Luxor in hopes that the farmers would move, which would free up more land for development. Based on this anecdotal evidence, it seems as if the difference between west and east Luxor may be the result of political battles rather than special traits of the Nile or a lack of bridges. However, that policy has now been reversed and electricity has reached the farm. This seems to be a fairly straightforward case of popular accountability sweeping away low-benefit unpopular policies. I have no idea what development approach would be best for Luxor in the long term, but I do think the high unemployment rate in Egypt shows the limitation of resort oriented development. In the meantime, I'm glad electricity has arrived to this farm and with it not television, but a washing machine (my mother noted that particularly delivery), which should greatly change how the females of the household spend their busy days.

What a difference the Nile makes: East vs. West Luxor 2011-04-18

As much as I enjoyed the trip to the Egyptian Museum, I really started to feel like I was in Egypt on the first day in Luxor. We boating over the Nile, visited with a middle class farmer, and walked the streets to a business that empowers local women, and enjoyed the view from a rooftop restaurant. I'll post on each of those in turn, but first the journey to the west and back. As a bit of context, ancient Egypt's cities were on the east bank of the Nile while the tombs were on the West side. Our guide has told us that this belief resulted from the path of the sun which when it sets in the west travels through the underworld to return to the East. While the Nile runs the length of the country there are only twenty some bridges and between Luxor and Aswan the two sides were often quite distinct from one another at times almost seeming like different countries.

Luxor proper is a city with a tourist district along the water with continuing density, five story plus buildings and the like, further in. By comparison, we spoke to a farmer directly on the west bank of the Nile and he didn't really consider himself a resident of the city. There are towns and some reasonably tall buildings amid the west bank farms, but I'm told that most of them are multi-generational extended family dwellings. [The picture to the left is of a few such buildings in West Luxor]. Population growth is fairly high here, 2-3 children for middle class farmers but 5-6 for poor ones, and from what I'm told that's driving most of the construction. Due to this growth, upper levels of buildings are often left intentionally unfinished, with rebar showing. This allows for adding more floors when finances allow or family size demands expansion. This didn't seem as common in the center of west bank towns, I would guess that this may be a somewhat recent trend.

[Update: I changed the post date to properly position it chronologically.]

Bob Herbert’s last column

Bob Herbert is leaving his op-ed column at the NY Times “to write a book and expand my efforts on behalf of working people, the poor and others who are struggling in our society.” His swan song is well worth reading:

The U.S. has not just misplaced its priorities. When the most powerful country ever to inhabit the earth finds it so easy to plunge into the horror of warfare but almost impossible to find adequate work for its people or to properly educate its young, it has lost its way entirely…

His analysis of the reason why echoes the Hacker and Pierson thesis:

Overwhelming imbalances in wealth and income inevitably result in enormous imbalances of political power. So the corporations and the very wealthy continue to do well. The employment crisis never gets addressed. The wars never end. And nation-building never gets a foothold here at home.

I think he’s right and wish him the best in his next venture.

Urbanization as the key to improving the standard of living

Thomas Jefferson was wrong about cities. Reihan Salam quickly summarizes why they are key to humanity’s future:

What anti-urban Jeffersonians fail to understand is that these all-important knowledge-intensive services thrive on the face-to-face contact that defines urban life… So when we prevent our cities from getting bigger and denser, when we see them as “pestilential,” we short-circuit the innovations that make us rich.

And it’s not just high-flying entrepreneurs and knowledge workers who benefit from density. The most productive workers place a very high value on their time, and they need to purchase time-saving services like restaurant meals from other workers in proximity. This creates opportunity for immigrants, young people, and the poor.

The whole piece in the Daily is just two pages and well worth the quick read. I think he’s also right that those taking up the anti-urban cause are sometimes go for spurious arguments about liberty or a twisted nimby version of environmentalism. While I’d hesitate to limit Salam to any single standard ideological grouping, I think it’s safe to say that he’s not calling for any sort of central planning as an alternative. Instead, he has a cause that could potentially appeal those with a wide range of views: lift the counter productive regulations that only allow for some of our most innovative cities or livable communities because they were grandfathered in.

The difference between a 2 percent and a 2 percentage point cut in payroll taxes

I'm a bit annoyed that even Ezra Klein is referring to the tax deal as containing a temporary "2 percent cut in the payroll taxes paid by employees." The cut will apparently reimburse $120 billion a year. This implies that it's a 2 percentage point cut and not a 2 percent cut (as the later would imply that we're paying $6 trillion a year in payroll taxes).

Quick explanation of the difference:

Let's say you paid 10% of you income in payroll taxes and you have an income of $30k a year. In that instance, there's a tenfold difference between the two forms of cut.

• A 2 percent cut would mean that you will be paying a rate of 9.8% or $2940. A saving of $60.
• A 2 percentage point cut would mean that you will be a rate of 8% or $2400. A savings of $600.

For the record, I'm picking on Klein because I count on him to get this sort of thing right even when the rest of the media doesn't. This isn't a matter of technical jargon, other terms could be used, but the public at large may rightfully take 2 percent to mean trifling, it isnt't.

[Update: Moved the bit about $6 trillion from the last paragraph to the first. I did it a minute after posting, so I'm not using the strikeout/[] notation I normally do for edits.]

CBO as Referee

Peter Suderman has a good piece up in Reason magazine about the CBO. I think he does a great job telling its story and describing the role it is playing in the current health care reform debate.  That said, I do disagree with the subhead describing the CBO as Obama-care’s chief obstacle (see comments).  Suderman was kind enough to respond to my questioning of that point:

But I think it’s a good enough subhead: part of the point of the piece (not the only point!) was that, during the summer, the bill lived and died by the CBO — it exercised a strong pass/fail authority over the bill’s life. And it proved a lot of trouble for Democrats. Indeed, if you look at where the debate’s at today, there’s still a lot of that going on — the sorta-kinda deal they put together last night is contingent upon the CBO’s analysis.

All true. That said, the chief obstacle is the fact that the filibuster has become a de facto 60 vote minimum on everything.  Absent that consideration, the CBO wouldn’t be playing nearly as prominent a role.  Moreover, having the CBO validate the public option as a deficit reducer didn’t bring any “fiscal hawks” around. 

As the title indicates, I think the CBO is best seen as a referee.  The President and Sen. Baucus both wanted to get to 60 votes by emphasizing deficit reduction, the CBO made the call as to whether they played fair while doing so according to its sometime idiosyncratic rules.  As Suderman notes, we do complain some about the calls, generally speaking, liberals argue that the CBO underestimates various saving measures and we have some cases to back us up.  That said, the CBO is also required to be credulous that Congress will implement certain provisions they consistently vote against, so the idiosyncratic bits can cut both ways. However, even if we don’t like some of the calls, playing with a referee is conducive to good policy.  I believe it is vital that we find ways to undermine the pernicious and unprecedented impact of the filibuster, but I think we should celebrate the prominence of actual accounting brought by the CBO even if it sometimes makes our lives hard.  After all, health care reform has gotten further under this set of conditions than it ever has before.

A defense of the fiscal responsibility of the Senate Health bill

Tyler Cowen attacks those of us who support the bill claiming we retreat into the relative.  In short, he doesn’t believe the various automatic cuts will happen and is unsatisfied with our defenses of those cuts.

This fight gets more into political science than economics as such.  The economics of the bill as written are covered by the CBO, the question is whether the politics of the bill are sustainable.

Here’s why I think they are:

1. Assuming no changes to the filibuster as implemented in the 21st century, post-passage it will be possible to defend the fiscal responsibility of the bill with 41 votes rather than the 60 votes otherwise required (or 51 votes and luck of the draw if using reconciliation).
2. People with expensive health plans are elite, but they lack the organizational infrastructure and natural ties held by the doctors and elderly who have blocked automatic Medicare cuts.  Their negotiating clout is undercut by the fact that the group contains natural enemies: union workers and corporate execs.  Further, their numbers will be decreased by many companies choosing to simply avoid the health care excise by giving more taxable income.
3. Democrats, under the prior Democratic president, managed to balance the budget.  The good economic times of the 90s were certainly critical to that happening, but we managed it nonetheless largely due to the revenue raising that helped lose us the Congress.  Why would we do it again after losing the Congress the last time?  I don’t believe in politician fiscal hawks, but I do believe that your average Democratic Representative and Senator faces more elite pressure to do something about the deficit than expand health benefits.  Universal Healthcare does address a core middle class concern, but things like the level of subsidies and the benefits of the bronze plan are going to be lower priority for Democratic leadership than being described by the media as fiscally responsible.  If this wasn’t the case, then why did the Reid bill come it at $856B rather than maxing out the $900B the President suggested.  Liberal bloggers, such as myself, won’t get their in a better world cost reductions but we also won’t get our better world benefits for the poor.
4. This will make it easier to raise the eligibility age for Medicare once universal healthcare is in place.  We can do something sensible like index it to the expected lifespan.  Obviously this will be grandfathered in due to the political clout of the elderly, but those who aren’t that near receiving benefits are a larger group that won’t be as motivated.
5. Some of the bloggers Tyler is critiquing are willing to say that the new mammogram guidelines could well be a good idea and that critics should provide counter arguments based on science.  There may well be strong counterarguments, I’d be curious if the false positive downsides still outweighed the detection upsides if we’re talking African American and/or lower income women, but I need to see that data before I go along with the critique. Furthermore, when it comes to things like mammograms, many people are averse to getting tests in the first place, stopping government encouragement for those under 50 without special risk factors, even if coverage is maintained, should make a difference in usage.  I will concede that this up roar and HHS concessions does bad for us, but the strength of the response on breast cancer is the exception as advocates for breast cancer patients are highly organized and feminist groups are on edge after being backstabbed in the House.  There was not a political response of the same magnitude of recommendations on prostate cancer screens.  Interestingly enough, the American Cancer Society didn’t object to those, so I think their critique on changing mammogram standards should certainly get a fair hearing.  Also, I’ll note the fact that the timing of this release shows the scientific independence of the review process, the timing was awful.

There are nearly 200,000 contractors in Iraq and Afghanistan but most aren't toting guns

There are presently more U.S. contractors than troops in Iraq and Afghanistan. James Glanz of the NY Times reported on this parity back in September citing data from March 2009 in a Congressional Research Service report by Moshe Schwartz.

I've seen the latest data and in June of 2009 the trend still held: there were 194,000 contractors in Iraq and Afghanistan and only 190,000 troops. This high ration had first occurred during the U.S. mission in Bosnia where concerns about the size and duration of the U.S. peacekeeping mission made sending large numbers of troops politically costly. Waging two wars at the same time further strained the personnel side of the U.S. military and contractors handling support functions proved easier than a massive increase in recruiting, let alone restoring the draft.

The key word in that last sentence is support. While armed private security contractors spawn many news stories but as of June 2009 only represent 11% of the contractors in Iraq and 7% of the contractors in Afghanistan. Thus the typical face of contracting in Iraq may well be an employee at a base Cinnabon and not a Blackwater security guard.

This post is also available at ameasureofsecurity.org.

Random health reform thought

One benefit of electronic records and the like is that we could begin to see the effectiveness of various forms of medical training.  One of the limits on the supply of doctors is that it’s hugely expensive and time intensive to get a degree.  Early work in hospitals practically seems to represent a form of hazing through long hours.  In some specialties, that may well just be necessary.  On the other hand, classically professional organizations often try to limit the incoming supply of people of the same profession to keep both the prestige and the wages up.

This is an area where conservatism is appropriate.  Medicine is an old high and a risk field.  That said, I expect there’s already a fair amount of variety in teaching methods in the U.S. let alone the world.  Monitoring physicians success rates after graduating and seeing how it compares between various programs may indicate what educational methods actually work fairly well.

When wandering hospitals, I’ve seen a fair number of ads for the number of years all their radiologists were trained.  I think it was something like thirteen.  I can accept that such training may be necessary, but it seems more like a lamentable fact rather than something worth crowing over if that’s the case.  I’m more inclined to be impressed by outcomes than inputs.

The fight to get America a decent health insurance system

The conventional wisdom and Nate Silver’s analysis seems to show that a public insurance option isn’t going to make it into the bill.  This is rightfully angering many liberals, but I am of the belief that we can live without it in this round.  Kevin Drum notes that world-wide universal health care tends to come incrementally rather than in one grand bargain.

This isn’t to say that liberals should top fighting for it.  Ezra Klein argues that attempts to compromise with all but a handful of Republicans are futile.  The incentives to cooperate just aren’t there.  It will likely be necessary to give up the public plan to get enough votes in the Senate, but giving it up preemptively will just result in a new set of lies about some other part of the proposal.  However, it’s vital that if we can get the principal of universal health care in place that we take a deal public option or no.  I tend to think, despite bluster, that most of the real liberal fighters understand this and I trust they know

What we need is reform such that insurance is available to all and will not abandon them when they need it most.  This is not the case with the present employer based system although many people don’t find that out until it is too late.  Yglesias has a helpful White House summary of the key reforms necessary to remove the worst dysfunction from the system. 

Ultimately, I think in the long term controlling costs probably will mean providing a system that makes more sense than employer based insurance.  I want a robust public option, if it out competes private and non-profit insurance that’s great, if not than so long as costs are contained I don’t really care.  Moreover, I have no desire to place any sort of cap on spending even under my ideal system, I’m happy to have people buy supplemental insurance or putting all their wealth into buying all the care or medical research they want.  There are exceptions but an aversion to caps is the standard American liberal view, let alone the view of Democrats that are electable outside of liberal enclaves.

Finally, for those of you already on board here’s a bit of catharsis via Yglesias who argues against defensive crouches and for hitting back fearlessly.  The level of aggression here is dang satisfying and probably often a good idea, but I think not showing fear is the key take-away.  I don’t think that’s actually a useful lesson in overall strategy, but it’s quite important in the specific instance of public speaking.

Is multiplayer the key to engaging serious games?

Last was week the Games for Change festival where designers of serious games got together to discuss their nascent industry. One regular topic for discussion at such gathering is whether serious games need to be fun and what fun even means. Michael Abbott of the Brainy Gamer summarizes the discussion:

Perhaps games, and the audience for games, would be better served by design that emphasizes values beyond fun, but it’s clearly a difficult assignment. A notable undercurrent at this year’s festival was a sense that the current crop of games for change aren’t reaching their intended audiences. Most of these games are perceived by players as preachy, and even their developers admit they often fail to match the engaging gameplay offered by commercial games.

He also casts doubt on the idea that a new generation that grew up on games would be more inclined to take games seriously given his experience with some freshmen regarding his class on video games. That said, Abbott found hope in the increasing awareness of the value of connections with commercial developers. From my experience with documentary films, I do think production values definitely matter. This doesn’t mean that serious games should be high budget, that’s impractical, but they should have a professional look.

On the fun breakdown, I’m inclined to think engaging is a better word. To find an audience beyond the equivalent of textbooks and corporate training videos people have to want to play serious games.

Making serious games engaging gets to the mention of multiplayer in my title. Economics and political science both heavily involve themselves in game theory with the classic example being the prisoner’s dilemma. The mechanics there are not particularly impressive, cooperate or betray, but I recall little grumbling when people paired up to experiment with it. I think that’s because the challenge and competition of playing with another person can up the engagement value substantially. This could even be faked I suspect, but probably only for one-off games.

The end of advertising as a cash cow?

James Fallows has been discussing the death of newspapers and today posted a piece by reader Hal on saying what was really at issue was the death of advertisement.  Essentially he argues that the internet has to proved amenable to advertising with the exception of Google’s tiny ads.  Hal ties that in to the ability to skip television ads and argues that the outlook is poor for the industry as a whole.   He name checks radio but I don’t think there’s that much evidence there, although digital radio might make it all the easier to just jump around to avoid ads and I do hear more solid music blocks these days.

I suspect that this is at least partially overblown, I’d like some revenue and profitability figures to say for sure.  However, assuming it is happening, this means we’re losing a major model for providing public goods.  Specifically, if you can’t make much (Newspapers) or (any) money off subscribers to your product, make the money selling access to your subscribers.  Newspapers probably weren’t a public good until the internet, but I think once some papers put their content online news collectively became a public good.  I think this would have happened even if the papers stayed offline, although it might have been slower.

I don’t buy the idea that newspapers are suffering under their old model because they’ve cut back on hard news and investigative reporting.  Another Fallows reader along with Ezra Klein has repeatedly made the point that the good coverage is typically a beneficial inefficiency under the traditional model.  This is why I, like Yglesias, oppose a monopoly exemption for newspapers, it’s not the classic profit model we’re trying to save, it’s the inefficiencies.  Non-profit status instead attempts to directly pay for the social good via donors who would get tax deductions.  This is where reprinting the arguments of both sides without fact checking or otherwise adding value will cost news sources money, why would people want to pay for that?  Of course sponsorship will be encouraging for more partisan news as people certainly are willing to pay for news that supports their biases.

For those wanting to stay in the profit sphere, I can’t find the source on this, but I’d read an interesting article on how the Wall Street Journal does it.  You don’t charge for breaking news or big stories.  Instead you charge for niche products of interest to few customers.  Your big news will get you the wide viewership and each of that population probably has niches they’re willing to pay dearly to get access to.

The end of credit cards as we know them?

So according to a Kevin Drum piece, credit card companies are actually the most hated industry in America and for good reason.  It appears reform might actually pass this year and there’s an interesting New York Times article by Andrew Martin up on what credit cards might look afterwards:

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems…”

For more information check out a 2005 GAO report that found that about 70% of Credit Card revenue came from interest charges with a growing 30% from fees to costumers and merchants.  Another aspect of the bill is that merchants would be allowed to pass those fees on to credit card users rather than splitting them among all customers.

I’ve enjoyed and exploited the long credit card free ride.  However, it was quite inegalitarian.  Those with less revenue are most likely to get stuck in debt spirals and hit by fees.  It’s particularly ridiculous that cash customers have to pay extra to subsidize those with credit.  This gets to a point discussed in a recent post by new graduate Jamelle and a terrific Washington Post article by DeNeen L. Brown: being poor is expensive.  Access to credit is an important tool to escape poverty, but as presently configured the lower classes subsidize the well-to-do.

Funny Numbers

Speaking for myself here.

William Wheeler goes to far in a Politico piece where he points out that the Department of Defense official numbers don't get to the entire budget (Hat tip, Ackerman).  That's true.

Here's his accounting:

• $534B - Topline
• $6B - Mandatory expenses for DoD
• $130B - War Supplemental

Those are all uncontroversial.  If someone doesn't at least reference the supplemental then they don't know the defense budget.  I haven't tracked the mandatory expenses in OMB before, I'll check that out.  [Here's what I find arguable:]

• $22B - DoE money for nuclear matters, selective service, and national defense stockpile.  Odd grouping there and I don't know the numbers off the top of my head, but it seems plausible.
• $106B - Department of Veterans Affairs.  Fair enough.  If we get universal health care than I might favor breaking up this number some, but until then the whole thing seems reasonable.
• $28B - Treasury Account to pay for military retirements.  Wasn't particularly aware of this.  Seems like a reasonable classification.

Here's the accounting I'm more dubious of:

• $43B - Homeland Security.
• $57B - Department of Defense's share of interest on the national debt.

We don't account for anything else by including its share of the debt.  Why should we do that with Defense spending?  Homeland security is arguable.  I could see counting the Coast Guard[, although it is more policing,] but I can't really see counting the Federal Emergency Management Agency.

Here's where I've got a major problem:

What about the military and economic aid to Iraq and Afghanistan, gifts and loans to Israel and others, U.N. peacekeeping costs, and all the rest from the State Department? Add $49 billion.What about the military and economic aid to Iraq and Afghanistan, gifts and loans to Israel and others, U.N. peacekeeping costs, and all the rest from the State Department? Add $49 billion.

The foreign military aid come to about $15B and some of that aid is already on the military books.  Economic aid to Iraq and Afghanistan via the State Department are civilian programs.  That I could see argument on, but what's crazy is he lumps in the entire State Department budget.  So all Foreign Policy is Defense Policy now?  Bull.  Look, the numbers above are already huge?  Why fudge them to sneak in an extra 5% or so?  The problem with this sort of tactic is that it throws his other numbers into doubt despite the fact that the base uncontroversial $670B number is already insanely high and is basis enough to argue for substantial cutbacks.  The only explaination I can see was that he really wanted to be able to justify rounding up to one trillion dollars.

That said, I agree with him on the F-22 and he makes a fair point critiquing the F-35.  It really isn't ready for a dramatic expansion.

Link round up 4-29-09

Culture

• N’Gai Croal finds a Maureen Dowd column amusing I do as well in this case, though she’s normally not my thing.
• Brainy Gamer discusses Mother 3 (earlier games in English went by Earthbound) The story sounds great and much of it involves one changing community rather than hopping around the world.  Sadly it isn’t officially available in English, but given the raves I might get a bootleg.

Political Economy

• The Monkey Cage notes that Democratic Senators are easy to herd after all and provides the data to back it up.  I think this phenomenon hasn’t been more noticed because as both parties get more unity each defection becomes more important.
• Emmanuel Saez won the Clark Medal for young economists and has done interesting work on equality.  The top 1% had hugely gained of late.  It’s well established that the top percentages tend to gain under Republicans, but I wonder whether that relationship goes both ways and they tend to win more thanks to a larger bankroll.  Such a phenomenon would still be contained by the inevitable crashes brought about by the excesses of inequality.

Rights

• Kevin Drum defends civilization against the torturers.  This might be my favorite tack combined with encouragement to have a stiff upper lip regarding terrorism which isn’t that big of a threat to the U.S. to begin with (See Cold War, WWII).  Manzi notes that countries that torture tend to be losers in their conflicts.
• Andrew Gelman explains that contradictory torture polling might be caused by the fact that people tend to make a lot of exceptions when you offer them specific scenarios.  Thus we probably do better in a big picture debate.
• Justine Fleichner discusses the risks to women from concessions to the Taliban.  I fear some concessions may prove necessary, but we should ensure that Afghan women are at the bargaining table to defend their interests.
• States with more men than women extended the franchise first in case you were wondering, why Wyoming took the lead.  I don’t think political violence was as much of an issue when it came to suffragettes, but we should still probably study our history to learn methods for dealing with Afghanistan.

Mutual funds losing to the market index funds

Ezra Klein explains:

Tangentially-related to the question of whether Wall Street types deserve their compensation packages is the yearly phenomenon in which actively managed mutual funds underperform the market. Between 2004 and 2008, 66.21% of domestic funds did worse than the S&P Composite 1500. In 2008, 64.23% underperformed. In other words, if you had a fund manager and his employees bringing their skill and knowledge to bear on your portfolio, you probably lost money as compared to the market as a whole. That's not to say you lost money in all cases. Just in most.

Full numbers here.

One commenter argued that these might be lower risk funds, but that doesn't really make sense to me.  Low risk funds should do better in 2008 as they should weather out the crash, right?

This fits with my personal experience.  I had some old mutual funds that got hit harder than the new index funds I'm putting my work retirment funds into.  I'm trying one socially responsible fund, it's doing pretty well, although I'm willing to take a slight hit on perfomance in an attempt to funnel more money towards green industries and such.  That said, I do think I should do some extra research and make sure that the fund is exploiting their stockholder voting power and such.

On a related note, I forget if I've mentioned this before, but I did learn an interesting financial company trick at an Edward Tufte class.  He used sparklines, a neat visualization tool, to show that many mutual funds basically followed the index funds, presumably these include the one that aren't underperforming.  Why might that be? Well, by shear luck a good percentage of fund managers should beat the market in any given year.  Over time, even with no special skill, some of those funds will get a good record.  You then drop all the funds that were underperforming (sometimes due just to bad luck) and keep the winners.  If you want to save staff time, you can switch a mutual fund over to just following the market.  The way Tufte described it, it sounds fairly malicious, certainly not what people are paying for.  However, given the perfomance numbers listed above, maybe everyone's better off that way.

FCS: Too big to succeed

The Future Combat System was the Army's attempt to buy the next generation of vehicles in a single project and by doing so to fully network them from the ground up.   According to numerous GAO reports, most recently on March 12, bthe program is failing due to its reliance on unproven technology (Here's the Army's response to the report).  Sec. Gates apparently found the GAO's case compelling and has recommended cutting and replanning the vehicle program of the FCS, effectively shattering the program.  With that summary completed, I'd like to take this moment to emphasize that I'm speaking for myself and not any institution that employs me.

Disclaimer out of the way, I'm with the summary of critics' views described by Noah Shachtman over at Wired: Danger Room:

When they first launched FCS six years ago, the Army's top generals made a bet — not just on the coming wars around the globe, but on the politics within the Beltway. Ordinarily, weapons systems are bought one class at a time: one particular tank, one particular network, a single model of a fighter jet. But in the 1990s and early 2000s, the Army saw several of its weapons programs killed off by the Pentagon brass. So the generals made a decision, to package what would ordinarily be dozens of programs — new vehicles, new robots, new networks — into a single effort called "Future Combat Systems." And they awarded the massive contract for the whole thing to a pair of companies, Boeing and SAIC. The executives and the generals said it was to make sure all the gear worked in concert. Critics countered that, by combining all those programs into one, it made FCS too bloated, too ungainly to ever work right. And by the way, they added, why was there so little government oversight of what Boeing and SAIC did?...

Bits of FCS will continue. Small ground robots and drones developed under the program will be "spun out" soon to the troops. But, if Gates has his way, the generals' original vision for Future Combat Systems is over. As one Capitol Hill source put it, "They wanted to make it too big to fail, and in the process, made it a failure."

To give the Army a little more credit, there's a reason to think that the networking would be easier if you're doing all the projects at once.  If you want a highly coupled network then the projects are by definition highly integrated.  However, while I can see the desirability of such a network, I think as presently conceived is far too complex to be achievable.   We do have a range of tools to deal with complexity, here's a series of workshops and reports from CSIS on the matter.  However, I'm skeptical of our ability to handle the ecosystem and emergent behavior of counterporary warfare via any  acquisition process, let alone a process as flawed as our present one.  I think instead we need to give warfighters robust tools and standards to mash-up loosely coupled systems.  In short, shoot for the internet and not for Windows Vista.

I thought I might disagree with the Armchair Generalist on this, but after a quick discussion in comments it appears that we're on the same page on complexity.  Instead, the Generalist's critique runs more towards Sec. Gates' emphasis on armored vehicles such as the MRAP:

I respect Gates' need to take charge of the FCS project and restructure it. I don't, however, believe he's thinking logically about the vehicle design. First of all, he's stated that at least 50% of the DOD programs are still oriented toward conventional warfare. Second, we've all seen the reports by people who've stated that the best way to avoid IEDs is to get OUT of the vehicles and walk around. Third, usually one accepts that there are tradeoffs between mission capability and protection. If Gates wants full protection, then the vehicle's going to weigh too much and cost too much. Not hard to figure out.

That makes sense to me, although I don't really have the relevant knowledge and experience to judget the mission capability and protection trade-offs that well.  I think it may be worth having vehicles that are so heavy that they take longer to get to the theater. On the other hand, some of our current vehicles are too heavy to operate in the challenging terrain of Afghanistan or to be able to manage some bridges in Iraq.  FCS attempted to maintain heavy armor survivability rates by striking first and via advances in armor technology.  That's not really going to work, lighter vehicles are going to take a survivability hit.  However, if this improves their ability to achieve their mission, then lives will be saved over the long term.

I actually only recently found the Armchair Generalist and Wired: Danger Room.  Still checking them out, but they both seem rather useful for information sources for my professional life.   If I'm still of that opinion in a week or two, I'll likely put them on the blog roll.

My position on relativism

Brad Delong has a fun not-Socratic dialog post.  Mainly he shows the implications of seeking Pareto optimality.   That sort of optimality is about seeking any change that leaves no one worse off and at least some people better off.  The criteria to leave no one worse off means that it automatically rejects any proposals with redistributional impacts.  I'm prone to agree with the critique, but I don't quite understand it well enough to properly summarize it.  [Update: Nic's explained it to me with formulas.  Quick summary: The marginal utility of money depends on how much money you have already.  $1 is worth more to a beggar than a millionaire.  So if all that matters is the total amount of money in the system then the millionaire has far more social value than the beggar.  If everyone has similar value, than more money to the beggar should matter more than more money to the millionaire.]

I particularly enjoyed the final bit:

Thrasymachus: "Ah. Marx thought unveiling was a good thing. I think it is neither good nor bad, for 'good' like 'justice' is really just another word for the interest of the stronger party."

Glaukon: "And we gave you tenure here at Berkeley?"

Thrasymachus: "Shhh! The humanities departments still think relativism is sexy. They haven't yet figured out that to assume a position of relativism--like the claim to be neutral on issues of distribution--is really a statement that you are on the side of the powerful."

Agathon: "And are you?"

Thrasymachus: "It is the just and the good--or, rather, the 'just' and the 'good'--thing to do.

Unpacking things a bit, if relativism just means taking the side of the powerful, why is it popular in some sections of the humanities?  The answer, I suspect, is that it is scene as an alternative to an absolutist scale established by the most powerful party.  Relativism can work like federalism, each local set of powers that be can have a different set of values.  The appeal of the more local setup is that the values will tend to reflect local conditions better than the set of values laid down by the hegemon.

However, I think it's ultimately just a cop out.  There's other ways to include local cultural conditions and sources of absolute values that aren't divine or simply based on the dictates of some other powerful actor.

What are the risks of counterinsurgency?

Some of the pushback against Gates' Defense proposal is that he's shifting too far from conventional warfare to counter-insurgency.  This is sometimes described as fighting the last war despite the fact that the wars are still ongoing and the programs being cut were made for the Cold War and thus even further out of date.  Regardless of what we need for counter-insurgency, we're overly invested in conventional warfare capability.  There is a risk in trying to make a force that can do both, better to split capabilities and allow specialization.

However, Michael Cohen does get to some of the real problems with counter-insurgency:

It is simply incorrect to say that only the Army can perform post-conflict reconstruction and I'm utterly unconvinced that its proper for the US military to be expanding its skill set to include aid and development functions. Isn't this why we have a civilian agency dedicated to aid and development?

Now as some of my friends at the Pentagon often remind me AID and State, as currently formulated, are not as well positioned as they should be to play these roles. But the solution is not to outsource this stuff to the military, it's to build up capacity at civilian agencies so they are better able to play their assigned roles! One of the reasons the military has taken on responsibilities that used to be restricted to civilian agencies is that they were given the responsibility at the outset of the Iraq War - and under the Bush Administration the capacity of our civilian agencies was allowed to diminish.

In the end, this is perhaps the greatest problem I have with counter-insurgency doctrine, and the most intractable divide between myself and COIN-danistas: embedding COIN in military doctrine is not a benign exercise. It risks shifting power dramatically and perhaps irreversibly toward the military and away from civilian agencies - and it provides a rationale for ever-expanding military budgets. Considering that the greatest security challenges facing the US in the future will come from non-state actors and transnational threats - and thus best confronted by the non-military elements of our national security toolbox -- the result could be a US national security and foreign policy apparatus that is ill-prepared and badly positioned to confront them.

So, ultimately, is the Gates budget spending too much on counter-insurgency?  The Sec. Def. estimated that 50% of the budget is conventional, 40% dual use, and 10% straight counter-insurgency.  That means between $50B and $70B that's completely counter-insurgency focused.  Given that we do have two wars going, that doesn't seem crazy.  However, it's also comparable to what we're spending overall on civilian foreign policy agencies.  That could give a rough rule of thumb, military counter-insurgency spending should not exceed civilian spending.

How do we get to wear a large scale civilian shift is possible?  I don't know.  However, until we find that political approach, I'm going to try to be careful not favor any interventions that, even if legitimate, the U.S. lacks the capability to successfully implement.

The European Dream

Ross Douthat has a post that concludes in a way that makes me glad he'll be one of the columnist I'll be arguing against over at the NY Times.  (For a far more critical take, check out Armanda Marcotte over at Pandagon or the critics Delong cites.  I think that social conservatives make up a large enough section of the country that there should be some place for them on op-ed pages.  That said, if there's one the critics find that's a better writer or more trustworthy than Douthat, then they should feel free to name said person.)

How much do you prize equality and ease of life? The more you do, the more you'll favor a European approach to the relationship between state and society. How much do you prize voluntarism, entrepreneurship, and the value of lives oriented around service to one's family, and to God? The more you do, the more you'll find to like in the American arrangement. Where this debate is concerned, I'm proud to stand with Charles Murray - but I don't think that we should labor under the false hope that scientific advances are going to tilt the argument dramatically in our direction.

I'd quibble a bit with the wording.  I personally would substitute "alleviation of suffering" for "ease of life."  I tend to think Americans could use more vacation time, but I think work itself is very important.  Below a certain number of hours, let's say 40 per week, including unpaid domestic work and volunteering, we'd be better off increasing the amount of satisfaction than further cutting back the time spent.  People tend to go a bit nuts when they're outright idle for prolonged periods.

Second I question the term voluntarism.  I think it should be qualified to resource voluntarism or something like that.  Economic necessity can be as great a compulsion as laws and taxes. Also, regulating sexual morality doesn't really seem to be consistent with general voluntarism.

The other principles could all use elaboration, but I think as is they describe things pretty well.

On this one, I proudly stand with the European approach.  I also think that Chait easily has the better argument than Charles Murray (here's one of many take downs of his Bell Curve book) for the degree that his favored policies are based on empiricism.  Last time I checked, the American approach just plunged the globe into a devastating recession and America continues to be the only OECD nation that doesn't manage to offer some form of universal health care.  It does come down to what you prefer at some point, but many of our policies are so bizarre and counter productive that there's nearly pareto optimal European alternatives available.

So why aren't we doing something that would benefit postively most everyone?  Because those it wouldn't benefit would be at the top and even if it doesn't hurt their income it would decrease their relative status.  Yglesias explains:

In the US and in Europe, income level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of “voluntarism.” It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests. In a broad sense, both the American and European models work quite well compared to living standards enjoyed in other parts of the world. But in comparison, the models work differently for different kinds of people because different people have different interests. I don’t think, for example, that America’s high child poverty rate reflects American preference for “service to one’s family” over “ease of life.”

The rich, not the poor, are more likely to vote their values (see Red State, Blue State, Rich State, Poor State).  That holds with traditional religious stuff but I think it might also explain the fervor of some rich egalitarians.  But I think Douthat gets at some of the competing values that are being weighed by the upper middle class.  Note that he says "service to family" not "well being of the family."  There's a difference between the two.  If individuals have access to resources they need to survive without relying on the family, they're likely to value service to family lower, aren't they?  Strictly speaking, we're also talking service to traditional gender roles as well, I didn't quibble with that above because I think even in the defenders formulation we're obviously talking about patriarcy.  In any event, their offering a pattern of service, we're working towards results.  This strikes me as very favorable philisophical ground to argue on.

Random gaming thoughts

Inspired by this Yglesias post:

Dave Weigel has a neat piece on the “going Galt” fad currently reverberating through the loony-bin known as the conservative movement.

With all this Atlas Shrugged talked going around, Bioshock 2 is really going to be incredibly topical.  Here's hoping they can exploit it properly.

Giving up on an international financial regulator

One aspect of the present global crisis is the largely unregulated flow of global capital.  Yglesias just summed up the problem:

It’s not controversial, even among pretty serious free market types, that some kind of effective financial regulation is necessary. Nor is it controversial to observe that any given country could still be subjected to “systemic risk” emanating from a differently-regulated foreign country with which it has economic ties. Nor is it controversial to observe that firms actively seek to engage in “regulatory arbitrage,” i.e. take advantage of opportunities to dodge regulatory burdens by, among other things, taking advantage of nation-to-nation difference in regulation.

One solution might be a global regulator.  Yglesias notes that this is probably impossible but he also notes that this sort of debate is not his specialty.  So now let's go to Dani Rodrik who does this sort of thing for a living at Harvard.

That is absolutely right.  But Ken's preference for a "global financial regulator with real teeth" overlooks three major problems. Global financial regulation is a bad idea because it is neither desirable, nor prudent, nor feasible.  

It is not desirable because countries at different levels of development and with different national preferences with regard to how much risk they want to encourage as the price of financial innovation will want to select quite different national regulatory regimes.  There is a large element of a "local public good" in the financial system, and you need to recognize the heterogeneity of national preferences. 

It is not prudent, because a common global regulator will require global harmonization of rules. What if we converge on the wrong ones?  That was one of the points brought out by Katharina Pistor recently.   

Finally, it is not politically feasible because I just do not see that major countries will surrender national sovereignty to a global regulator with teeth. There is not enough political convergence globally for this to happen.  But the major principled objections are the previous two, rather than this one.

What is the alternative?  Ken is right that the only real alternative is a system of capital controls.  But viewed in the context of the arguments I just made, it is not at all clear that a system that allows and legitimizes capital-account management would not dominate a futile and undesirable effort to set up a global regulator.  In fact, the danger is that we will obsess on getting international regulation right with no plan B, and in doing so will simply prepare the groundwork for the next crisis.

But if we create a world of nationally segmented finance, won't we give up the benefits of global financial integration? Please.   

Capital controls in essence are national policies that control the flow of money in and out of a country.  Here he is going in more detail retorting common arguments against capital controls.   Paul Krugman hasn't actively been advocating for them, but he had reversed himself on the Asian financial crisis by noting that at very least temporary controls helped some economies, such as China's, weather the crisis.  That said, they're no panacea, China still has controls and is definitely suffering along with the rest of us.

I don't really have the expertise to go much more deeper than that, but I thought people might be interested in learning about those who could.  I'm only able to go this far thanks to Prof. Haider Khan at University of Denver whose class on globalization introduced me to many economist I still follow.  Thanks professor!

America's new shadow economy

Alex Tabarrok picks up an interesting post by Hernando de Soto:

....The enormous amount of derivatives that had poured into the market—there are close to $600 trillion of these papers around—are also not recorded in a global or centralized manner, or in a manner that allows you to begin to quantify them. [Former SEC Chairman Christopher] Cox thought that maybe the toxic part of all of these assets was $1 trillion to $2 trillion. [Treasury Secretary Timothy] Geithner told us there's maybe $3 trillion or $4 trillion. Nobody really knows, so in a way [they've created an] informal or shadow economy. This unidentified paper is the source of uncertainty and the credit contraction.

...That shadow hopefully is a temporary condition in the United States and in Western Europe. And it might pass in a year or 10 years, but it will pass. That passing condition that's occurring now in developed countries, that's a chronic condition in developing countries. We're always chronically in credit crunches—because you don't know who owns what, nobody dares lend to somebody else. Bringing the law to emerging markets is possibly the most important measure that can be taken to help these countries become rich. 

De Soto has been studying informal economies and arguing for a conversion to documented property for some time.  I can definitely see how it applies here and for me at least our economic troubles make developing world troubles a bit easier to understand.  The main critique I've seen of his approach is that just making arrangements official can just result in the poor being ripped off as property is developed.  That said, I do definitely believe the argument that this is really a necessary step.  I think the trick to do it right is to figure out what informal and political protections the participants in the informal economy now use and try to figure out how to maintain or improve upon those in the transition.  I'm sure de Soto is looking into those issues as well, I just don't want anyone thinking that this is a silver bullet.

What may be the most import story for feminism this year

Michelle Cottle analyzes a New York Times piece on the gender gap in layoffs.  82% of the job losses have hit men and women may soon be the majority of the workforce.  She raises a few possible implications, tense marriages resulting from a change in breadwinner?  Men being less likely to leave women because the men are economically dependent?  Smooth adjustment?

The article itself had a few other points of interest beyond the topline stats:

Women may be safer in their jobs, but tend to find it harder to support a family. For one thing, they work fewer overall hours than men. Women are much more likely to be in part-time jobs without health insurance or unemployment insurance. Even in full-time jobs, women earn 80 cents for each dollar of their male counterparts’ income, according to the government data.

Universal health care will help with the health insurance problem.  The others won’t have direct changes, but I expect increasing economic power of women will improve their bargaining position both economically and politically.  Since some of these male jobs probably aren’t going to be coming back, I don’t think the changes will be as easily rolled back as some were post WWII, the Times throws out one case study:

She switched from being a full-time homemaker to a full-time businesswoman when her husband was laid off previously. She says she unexpectedly discovered that she loves her job, even if it is demanding…

In any event, having more money will help with household bargaining and also working to get better benefits for part time workers.  However, women working in and of itself hasn’t been enough so far to entirely change the home:

On average, employed women devote much more time to child care and housework than employed men do, according to recent data from the government’s American Time Use Survey analyzed by two economists, Alan B. Krueger and Andreas Mueller.

I think the change there will probably be most notable in new relationships.  It gets easy to get in a status quo pattern, I know I still rely too much on my Mom’s housework when I’m at the old family home.  However, I don’t think change will necessarily be generational.  Men who can’t find jobs equivalent to their old ones and that are unwilling to contribute more around the house will be more likely to be dumped if the women can afford it.  Women dating men with weaker employment prospects will likely put more of a premium on home economics skills.    All and all, as money and power are redistributed social norms tend to follow.  The one substantial caveat I’d add is that we’re not talking about economic elites here, that makes a big difference for achieving political change.  (This paragraph is obviously fairly heteronormative, implications differ for those in same sex relationships.)

What’s up with the financial bailout?

There’s  a lot of confusion out there, I found Brad Delong’s explanation easiest to understand.  Worth reading the whole thing, but the very short version is that this is using the latter half of the TARP money, $350B, and trying to leverage it “via the FED and the private sector” to buy up as many of the toxic assets as possible.  In addition the banks will be “stress tested” to determine which of them would still be insolvent after the $350B is used.  The next step is not clearly delineated, but it doesn’t foreclose on the Swedish model, namely nationalization.

As a side note, this plan is being strongly associated with Geithner and not Obama.  If it fails badly, Geithner may not be the one to implement the next step.

I personally would tend to prefer a more transparent approach, but I’ll withhold judgment for now and hope that Sec. Geithner has made the right call.

Can an economist help balance an MMO?

Game balance is an eternal challenge in MMOs.  Inevitably some abilities or jobs will be higher performing than the alternatives.  Much as a banker who didn’t make risky loans might lose market share, a healer without the most efficient cure spell may have a harder time finding a party.  This can encourage a boring homogeneity and make the game less fun for those more interested in non-optimal abilities.

What MMO programmers do to help with this problem is ‘nerf’ the highly effective or ‘broken’ abilities.  Sometimes these broken abilities are a result of bad design decisions and other times players have just found clever ways to use them.  Similarly, players are always responsible for coming up with a reasonable effective character build, even in a well balanced decisions not all choices can or should have equal outcomes.  Making all possible designs equally effective would require making limiting variability and making things boring.

Regardless, balancing is hard work and requires a lot of information gathering.  It’s also controversial and can easily result in overcompensating in the other direction.  One way to smooth out this process could be a market inspired by the price of ‘When the Saints Go Marching In’ at Preservation Hall.  Saints is heinously over requested so they charge more to play it. 

In a game, the program could automatically survey to determine the most popular abilities on each server.  Then the numerical properties: damage, healing, likelihood of success could be adjusted from a 15% penalty to a 15% bonus based on popularity.  This would automatically reduce the effectiveness of ‘broken’ abilities while giving less popular abilities a new chance at life.  This information should be shared with the players although the pace and magnitude of updates should not be so drastic as to result in regular rebuilds.

Of course this raises the question, what if an ability is popular because it’s fun to use rather than particularly effective?  Well that’s where you still need the designers.  If an ability still isn’t popular with a 15% boost after a few months, then perhaps it should be dropped.  Similarly if an ability stays popular despite the 15% penalty then it could be split into two variants that both try to capture the core appeal of the ability.  Designer skill will still be required here, that can’t happen automatically, but when it’s a matter of numerical effectiveness and not fun than economics can help.

Update after running past friends: Note that this won’t end whining about gaming.  It’s just a way to move from occasional dramatic changes to more regular smaller ones.  Also had some interesting discussion of implementation that improved on a few of my starting ideas, but I’ll save those for comments as they’re kinda technical.

Photo by jasonrowland.org used under a Creative Commons license.

Rethinking the American Dream

Tyler Cowen argues that homeownership shouldn’t be subsidized.  First he quotes Eric Posner arguing that both Clinton and George W. Bush encouraged low-income people to make high risk investments which ultimately left some of them worse off.  Here’s Tyler’s extension of the argument:

You'll note that Henry Paulson has been calling for the mortgage agencies to be resurrected as "public utilities" of some sort.  I don't understand this path.  There is a very good (modern) liberal case against more home ownership: behavioral economics is true, people overestimate their prospects, poor people shouldn't take too much risk, and the natural market tendency is too much home ownership, not too little. That's without taking environmental issues into account.

Here is a recent Richmond Fed article, skeptical of the idea of homeownership subsidies.

For those who want a summary, the other modern liberal critiques are that subsidizing housing tends to lead to bigger houses for the rich and to crowd out affordable housing (both rental and owned).  In addition, homeownership rates tend to be highest in cities like Detroit, which discourages people from moving to cities where there are jobs.  I tend to think the marginal cost of middle class job creation is lower in cities that are booming than those that are depressed so redirecting funds to save towns with high home ownership isn’t really an effective full employment policy.

Anyhow, housing is a fundamental need, and I do support the approach of getting long-term itinerant people in secure housing rather than on the streets, though not concentrated facilities like public housing of old.  But once you’re dealing with people with jobs, some sort of housing subsidy might make sense, but it should apply just as well to renters as owners and should be capped in either case.

Follow-up to charitable comments

Got a few comments on my “more charitable” post. Since I’m content light, and I fell asleep before managing to reply, I’ll just address them in a new post.

First, my finacee helpfully pointed out that my linking scheme made it seem as if the book was titled: “"Who Really Cares, Here's Ezra Klein Summing Up the Results."  I actually wouldn’t be shocked to see a blogger book with a title like that, I’d be surprised to see it sell though.

On a more serious note, first Mecha quite effectively zings the blood comment: “I wonder what would happen to the ratio if, say, a certain class of people who just happened to trend liberal could not give blood. Like, say... people who have had gay male sex and are willing to admit it.”  Err… yes, I blame the influence of hospital prescribed narcotics for not thinking of that myself. 

I don’t know if it would be enough to sway things, but the Kristof article already mentioned that homosexuals ranked high in terms of giving, so they’d probably have a disproportionate impact and should certainly be mentioned when citing that factoid in any event.  I’m presently blood banned from surgeries and had been for a year because of visiting the province with Ping An village in China which is apparently a malaria risk.  But those, unlike the restrictions on gays, are fair enough.

Next point key line, summarizing a bit: “'Conservatives are more likely to be pushed to give money to their churches' as a metric of 'good', which certainly might want to be weighted against all of the bad things that societal pressure can cause.”  I’d acknowledge that but we’ve already won the ‘all in’ argument as it were.  More liberal counties, states, and countries are generally better places to live if you’re poor (albeit with serious affordable housing problems).  Going by charitable giving vs. charitable giving, liberals are taking on a tougher fight.  But I think it’s a worthwhile one to consider, if we can win this one, then we can completely destroy the argument that regardless of moral merit of the restrictions, traditional social controls lead to better behavior.

Last point: “Finally, on the religious point, charity is giving to others for their benefit, and not yours. Not, essentially, paying dues.”  I know I’ve given on occasion to non-religious causes I support with not so much a happy heart as one that just wants to pay my bit and have the fundraiser go away.  Similarly from personal observation I think that bigger regular donors to Churches often are not those motivated by fear of punishment or the like (Not sure if that’s true of massive one time gifts).  I would buy that probably those that put the most emphasis on tithe or go to hell are probably the least like to be charitable with intakes, but I’d generally just prefer to measure charitable output. 

s a person who generates because they love so much a better person than one who gives because they think what goes around comes around?  Probably, but I’m a bit too utilitarian to really care.  My ideal measure would be to see how much the charity directly helped people, but that’s pretty hard to judge, let alone across categories.  That said, it would be interesting to see some data on why people think they give and as you say to cross-reference motive with the output.

Image of offering tray by Daniel Hoye used under a Creative Commons license

Which side is more charitable?

The Arthur Brooks of AEI has a book called Who Really Cares, here’s Ezra Klein summing up the results:

[It] cites data showing that "households headed by conservatives give 30 percent more to charity than households headed by liberals." Every so often, his findings are trumpeted as proof that conservatives are more genuinely compassionate than liberals. And that's exactly what Nick Kristof did over the weekend.

But the difference can be explained in one word, and it's not "compassion." It's "religion." A recent survey from Google similarly found that self-identified conservatives gave more to charity than did self-identified liberals. But they also found that "if donations to all religious organizations are excluded, liberals give slightly more to charity than conservatives do."

If liberals give only slightly more after religious organizations are excluded, then I’m guessing liberals are giving less over all even after you account for the fact that a good percentage of religious donations essentially go to member services.  Ezra talks a bit about what really counts as charity, there’s a good argument that we’re overvaluing donations to the Ivies and that sort of thing.  They aren’t adding that many more students so better Ivies are not going to help the poor that much even if they do a good job of expanding need-based aid.

Anyhow, I think Ezra gets it wrong when he queries what really counts.  I think it is fair to exclude funding spent on overhead, fund-raising, and member services.  However beyond that we’re best off categorizing into the type of benefit provided rather than arguing what counts.

Beyond that, I think there’s a few ways to consider this:

1. Getting averaging the percentage given by household rather than dividing the amount given by the number of households.  Doing it the latter way emphasizes how much the rich give.
2. Beyond that, apply the Widow’s Mite principle.  Giving out of scarce funds counts more than giving of abundance.  Breaking down to compare similar income quartiles or perhaps by how household income compares to the poverty rate.
3. Include state and local taxes that get spend towards charitable ends.  We vote both with our ballots and our feet, choosing to live in a higher tax but better service providing community is a charitable choice.

Kristof does note that apparently conservatives give more blood, which is about as equitable of a measure as there is out there.  So I’m guessing that liberals won’t necessarily out perform conservatives even under some of these criteria.

I think I had that operation done in… 2002? Summer maybe? The name started with a V.

Ezra Klein provides a compelling parable:

If you walked into a bank and asked to open an account, and they opened a huge ledger book and began paging to your letter in the alphabet, you'd gape for a second, walk out, and call your friends. Or maybe you'd Twitter the experience. It is the 21st Century, after all. What you wouldn't do is use that bank.

But what we'd never allow with our money is constantly endured with our health.

I can personally testify to this.  I’ve spent a lot of time around hospitals this year and have often had to repeat information about what I’ve had done, including stuff that took place at that very hospital.  I found that some of my older records were even lost to the ages because the doctor didn’t retain them.  Particularly in the diagnostic phase, I spent much of my time recounting, with medium fidelity, my health history.  With the assistance of my parents, we have a pretty good file on me, this has got to really suck for those who aren’t good record-keepers or don’t have assistance from one. 

So far I’ve dealt with one of the 20% of the physicians that had extensive electronic records.  Took an extra hour or so the first time I saw him, but every subsequent time has been much faster and I haven’t had to pull open my datebook.

Electronic medical records are part of Obama’s stimulus package.  That makes sense, it will apparently cost about $50k per physician to implement it and that spending will probably be mostly in the U.S.  Happily, we should recoup that investment within two years:

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The evidence is clear on this score: Electronic health records not only save money, they save lives. The remarkable achievements of the Veteran's Health Administration are largely the work of VISTA, their electronic health records architecture. Indeed, the Commonwealth Fund found that the savings from EHRs are considerable:

This is basically a classic public goods problem.  The benefits are dispersed, costs are concentrated, and standards are needed.  Happily Obama is actually doing something about it.

Cable news, getting dumber

Disturbing news via Kevin Drum from CJR:

CNN, the Cable News Network, announced yesterday that it will cut its entire science, technology, and environment news staff, including Miles O’Brien, its chief technology and environment correspondent, as well as six executive producers. Mediabistro’s TVNewser broke the story.

24 hour news is really a medium that decreases the value of the information that flows through it.  I think the competition from the web has generally made this trend worse, not better. 

What we really need is a news station with an on demand model.  Users set their preferences and a default length and it selects the most recent coverage available on certain those topics.  Viewers could be pinged when there’s a new segment.  When news is actually breaking you can stream live segments.  Also, since the user is customizing what they get, you can better target adds and have more detailed viewership numbers.

I don’t think those better numbers would reveal a lot of pent up demand for good news.  People care a lot about stupid celebrity stuff.  But this model would let me get what I actually want from the news and let those who want celebrity news get it to.  Obviously the tech isn’t there for basic cable, but it’s certainly there for the net and it may be there for on-demand cable.

A non-profit future for journalism?

Joel Achenbach, great Washington Post journalist and often lonely defender of the current papers raises an interesting idea in his latest post.

"... no nonprofit -- and no for-profit -- news media organization in the U. S. today can match the audience growth of National Public Radio (NPR), which began in 1970 and now has thirty-six bureaus in the U.S. and worldwide and approximately thirty million weekly listeners, double what it had a decade ago. NPR news reaches audiences around the world through broadcast, satellite, and digital radio, as well as through online, mobile, and on-demand services. Today NPR has seven hundred employees and its programming is heard on more than eight hundred independent public radio stations nationwide; its flagship programs, Morning Edition and All Things Considered, are the top and fourth most listened-to radio programs in America. Thanks in substantial part to a huge bequest by Joan Kroc, NPR's operating budget is about $144 million today, with total assets exceeding $436 million. It is hard to believe that at the end of 1983, it had only about two million listeners and was $7 million in debt. In the late 1990s and again, especially after September 11, NPR turned some kind of significant corner, becoming a primary news source for millions of Americans."

Could the big papers become non-profits? That's way above my pay grade. But we need to do something -- before it's really over.

I think many periodicals already take this model.  I’m fairly certain the Washington Monthly, Mother Jones, and the Washington Independent are all non-profits; not sure about The New Republic.  Jack Shafer approached this idea from another angle: bashing the Newseum:

Of all the slow-moving targets that bleed profusely when you hit them, can there be a fatter, slower, juicier bull's-eye to sight your scope on than the $450 million Newseum, the four-years-in-the-building, seven-story, steel-and-glass monument to journalistic vanity just anine iron away from Washington, D.C.'s National Mall?

Avoid the gilded disaster that is the Newseum. Avoid paying the $20 they charge for admission. I want the Freedom Forum to sell off their monument valley installation and use the proceeds to actually support journalism. Like endowing a newspaper, for instance.

I think non-profits may be the future of many forms of journalism.  Does this mean the death of the daily print paper?  Perhaps, I don’t think I’ve seen any non-profits managing a daily print schedule and if as non-profits they can’t do nearly as many ads, I don’t see that changing.  Probably a few big good papers will be able to keep it up and a lot of smaller lame ones will as well.  For quality journalism not at one of the top 5 papers, you might have to go to the net, periodicals, or perhaps some sort of on-demand printing solution enabled by new tech.  E-book readers may be a bit help for this.

I hope Achenbach actually does put a good bit of thinking into what can and can’t be done on a non-profit model.  I’m sympathetic to some of the MSM bashing, but the Post won a lot of Pulitzers of late for good reason.  Because we need to figure this stuff out before some of the capacity is sold off or destroyed.

Two areas where I give libertarians some credit

First local housing regs.  Many of the things wrong with the suburbs and exurbs are not the result of free market forces so much as single-use zoning regs, minimum parking requirements, and uncapped mortgage tax deductions.  Communities that evolve more naturally are often walker friendly with a greater mix of shops and housing rather than just vast stretches of ‘burbs with occasional mini-malls.  On the micro level, the local governments sometimes make inexplicable decisions like Metro offering free parking on inauguration day.  That will obviously lead to even more demand for the lots and provide no incentive for those who live in walking distance to leave the car at home.  Oddly enough even people who oppose universal healthcare seem to believe in a right to free parking.  That said, I do tend to think that contracts can lead to neighborhoods with discriminatory policies even without any government policies.  I think such policies can slip in much the way anti-competitive cartels can.

The other area where I give them so credit is the war on drugs.  I’m perfectly happily with heavily regulated tobacco companies and even tougher regs, but I wouldn’t support a ban.  I do see Democratic candidates saying some good things about criminal justice reforms and focusing on harm minimization strategies, but at the national level we’ve been largely unwilling to take on the ‘war on drugs’ to the degree that we’ve been willing to take on the ‘war on terror’ (could have done more there too obviously).  Thus I’m a bit worried that the proposed Attorney General, Eric Holder, supported mandatory minimums for drugs.  Hopefully that’s not his current stance.

Blog roll addition: Haider Khan’s Globalization, Development and Democracy

I meant to add this a couple weeks ago but got distracted.  Prof. Khan had been one of my favorites in grad school, I first read Krugman’s and Rodrik’s books in his class.  I feel much better equipped to understand the current crisis and the net positive but mixed bag of globalization.  I think I would have had a rudimentary sense of many of these discussions from the news, but now I have some sense of the theory and the possible solutions.  As we as a nation debate what to do about the auto-industry or green infrastructure, I think Prof. Khan will continue to be a great resource.

His new blog covers the same issues I learned about in his class: globalization, development, and democracy.  He’s got one post up so far on whether Obama is going to be able to pull off his goals.  Here’s one point that’s of particular interest in my present line of work:

The good news is that the money spent on green development projects will create more jobs than other public investments. By using a social accounting matrix for the US, I estimated that more than 22 jobs will be created by spending an extra one million dollars on green public investment projects. By contrast, even progressive, non-military projects at best create approximately 15 new jobs per million dollar expenditure. Of course, military-industrial complex creates even fewer jobs; fewer than 10 for every million dollars of added expenditures.

I recommend the post if you want to get a better idea for some of our options and their likely effects.

My initials make the big leagues

Yglesias argues that we should consider using industrial policy to help build a green collar economy.   Industrial policy, that is having the government intervene in the economy to build or protect key manufacturing sectors.  This doesn’t make sense if you’re following a full free-trade model, but that model assumes no economics of scale among other things.    Industrial policy is hard but the countries that developed in the later half of the 20th century had such policies as did some that didn’t.  However, in some ways industrial policy might not be harder than other things that governments do.

In any event, Yglesias sited an article on how Defense Industrial Policy effectively props up the aviation and electronics sector.  The author, Steve Coll, went on to argue that it’s worth considering some such measures for the auto industry to further America’s energy interests.  He doesn’t necessarily endorse such a policy, but says that those favoring defense industrial policy can hardly dismiss such an idea on principle.  My contribution, which got me an initial credit (Yay!) was letting Yglesias know that industrial policy does indeed speak its name and even has an official Deputy Under Secretary.

So, is Coll right?  Yes with a few caveats.  Defense industrial policy tends to be concerned with having domestic sources in case conflict cuts off access to foreign supplies.  We’re probably a bit too concerned about that, I think we’d be better off making sure we don’t have to fight without our allies than making sure we can fight without them, but that’s a different topic.

So, in that sense, industrial policy doesn’t really apply outside of defense.  However, Industrial Policy also plays a role when we’re working with allies.  See the tanker example Cole mentions where Northrop is working with a European consortium.  The purpose there is to make sure that industry can support Defense Department needs even with support from allies.  Also, for better and worse Congress often treats defense industrial policy as a jobs program.  Whether guaranteeing supply or ensuring jobs, this mainly matters when we’re talking about industries with high barriers to entry and economics of scale.  That’s hardly a unique to the defense sector, so  I think Coll’s argument holds up.  If defense industrial policy, as commonly implemented in the U.S. makes sense at all, then it also makes sense for other sectors.

Photograph from DoD by Seaman James R. Evans.

Blogroll addition: United States of Jamerica

I'd been meaning to provide a blogroll link to the United States of Jamericapolicy blog for a bit, and the Dean post provided a useful reminder.  For a sample post, here's a recent entry on a statement by the Defense Business Board calling for cutbacks in wasteful programs.

Arguably, one of the largest obstacles to the progressive project (at least in the long term) is the sheer scale of military appropriations.  The Pentagon’s proposed budget for 2009 (not including spending on Iraq and Afghanistan) is $515 billion. That is a substantial increase over 2008’s budget, and the Joint Chiefs are proposing an additional $450 billion on top of that over the next five years.  As the Defense Business Board notes, a good deal of these spending increases are going towards wasteful — and in some cases, strategically unnecessary — development.

A simple ten percent cut in Pentagon funding would be more than enough (four times more, in fact) to both pay for a universal pre-K program (estimated $10 billion annually) and provide a needed 250 million mosquitonets worldwide (estimated $3 billion).  The latter of which would probably have more impact with regards to national security than spending $30 billion on the Joint Strike Fighter program.  But, as long as Pentagon spending is so ridiculously high, it will unfortunately crowd out spending for progressive domestic and foreign policies.

True enough.  Cutting programs is a complicated business.  There are fees for breaking contracts and depending on how we want to affect the size of the military, we’ll probably end up buying more of present day technology or pay for additional block upgrades to spiff up what we have now.  Of course many of these mega-programs have only begun to go over-budget, so the existing estimates may well prove optimistic.  I’ll probably post more on this later.