Baldwin & Pocan - misguided efforts on taxation of domestic partner benefits

Wisconsin's last budget included the extension of health benefits to the unmarried partners of state employees. The program is about to go into effect and some are finding that the new benefit carries with it higher costs since these benefits are treated as taxable income by the federal government.

The Wisconsin State Journal reports that US Representative Tammy Baldwin (D-WI2) is working to end the taxation of these benefits at the federal level:

Democrats in Congress like Baldwin are pushing to give unmarried couples like Merry and her partner similar treatment for their health benefits under federal tax law as married couples. The proposed change is part of the House version of the health reform bill but not the Senate version and is also in separate legislation in the House....

"This is a critical step toward ensuring health care for all," Baldwin said in a statement.

Preferential tax treatment of health benefits contributes to their continued high rate of inflation. The tax on Cadillac health plans in the Senate reform bill is an acknowledgment of this. An effort by Baldwin and others to expand the pool of benefits receiving tax exempt status would only worsen the problem. Perhpaps though, cost control is not central to this undertaking.

Obviously, supporters of Baldwin's efforts may claim that this change would simply equalize treatment of benefits. If equality is a main concern, I suggest that Baldwin turn her attention to an even more glaring discrepancy when it comes to taxation of health benefits here in Wisconsin: The tax treatment of contributions to health savings accounts.

In Wisconsin, there is no deduction allowed for employee contributions and employer contributions to the employee's HSA are taxable as income. So an employer's contribution to an insurance premium is not taxable. However, if an employer switches to a high deductible plan and, because of the lower premiums, decides to contribute cash directly to an employee's HSA that money is taxable. How's that for inequality in taxation of benefits?

In terms of the number of people affected, the HSA taxation is clearly a larger problem. The State Journal noted that, "1,000 state employees in all have signed the affidavits, suggesting they will seek some benefits." According to the insurance industry group America's Health Insurance Plans (AHIP) January 2009 data shows that over 200,000 people were covered by high deductible/HSA plans here in Wisconsin.

Perhaps since this is a sate taxation issue, it's not entirely fair to criticize Baldwin. State Representative Mark Pocan (D-Madison) though, has no excuse for his support of the continued unequal treatment of HSA contributions. This issue is not a new one (here's a Biz Blog post on the issue from 2007) yet Pocan seems untroubled by this continuing discrepancy. Here he is in the State Journal article:

Rep. Mark Pocan, D-Madison, a key supporter of the benefits, said the change would end UW-Madison's status as the only Big Ten university not to offer the benefits to its employees.

"It's great that we're finally catching up to most larger businesses and all the other Big Ten universities," Pocan said.

As of 2008, only four other states and the District of Columbia didn't allow individuals to deduct HSA contributions. Wisconsin would be better served if Pocan and Baldwin spent less time and effort trying to keep up with the other Big 10 states and more time moving away from the small group of states that continue the unequal tax treatment of contributions to health savings accounts.

Successful Blogs Have Links

Jim Lehrer shares the secret of his success.

A heartfelt appreciation of The Replacements.

If Star Wars had facebook.

A classic on marriage from The Other McCain.

Happy Boxing Day!

Merry Christmas.

Mild He lays His glory by
Born that man no more may die
Born to raise the sons of earth
Born to give them second birth
Hark! The herald angels sing

"Glory to the newborn King!"

True even when these guys sing it:

Brief tour of WI-8 Congressional District

Wisconsin's 8th congressional district has been mostly quiet lately. This soon will change as we start the new year and as the 2010 election season gets underway in earnest.

Here are some recent items related to the candidates for WI-8 (in no particular order)

As of 12/17 only Kerry Thomas and Terri McCormick were listed as official candidates by the Government Accountability board.

I couldn't find a website for Joe Stern so I'll link my original post on his candidacy.

Andy Williams For Congress now has a facebook page. Become a fan today.

Marc Trager recently spent three days in Washington meeting with Paul Ryan and others.

Reid Ribble sold his business to campaign full time (H/T Fox Politics), signed AFP's no climate tax pledge, but hasn't yet moved into the district.

Christmas wishes from Roger Roth.

Marc Savard is looking to raise $2,010 for 2010. Doing it $9.14 at a time.

Kerry Thomas offers a strategy for saving money on a Disney vacation. I wasn't really interested so I dove into the archives. His Personal Message to Paul Ryan was scathing but well-written.

Terri McCormick on the issues. She is also featuring a good introductory video on her home page.

Steve Kagen joins group seeking Don't Ask Don't Tell data

Steve Kagen signed a letter by congressman Jim Moran (D-VA) to the Secretary of Defense seeking data on the military's Don't Ask Don't Tell policy.

Though the request is only for data, it is clear from the letter that the ultimate goal is an end to the policy:

We write yoday with regards to the current prohibition on openly gay and lesbian service members in the military, commonly known as “Don’t Ask, Don’t Tell” (DADT)....

Through these monthly updates, Congress and the public will get a clearer picture of the continued costs and damage to our national security inflicted by this policy.

Moran's press release states explicitly that he seeks repeal of DADT.

Liberal Bloggers Wrong on Private Vice & Public Virtue

I haven't been in the Milwaukee County Courthouse, ever, but to hear Capper tell it Scott Walker's plan to privatize housekeeping services at the courthouse has resulted in a breakdown of social norms and near anarchy!

Now we have Chris Liebenthal reporting on the foodservice at Milwaukee County's Behavioral Health Division:

I was able to verify today that there was an incident a couple of weeks ago, when one of the trays brought to a patient was infested with bugs, reportedly maggots.

This is not only outrageous, but it completely unacceptable!

Fortunately, a county worker spotted this before it was served.

As if county workers are some type of superhero keeping the world safe from maggot-infested private sector food.

Reading these reports I couldn't help but desperately wish to tell both of these guys that as a private sector worker, I would never serve bug-infested food to someone and if I was paid to clean the toilets at the courthouse, then that is what I would do. My wife has, in fact, previously served as a private sector worker in the health care industry, and she too would never have served anyone food that was bug-infested. This is important since Liebenthal's tale of horror took place in a hospital setting.

The fact of the matter is that public sector employees don't have a monopoly on virtue and private sector employees certainly don't have a monopoly on vice. There are people who do a terrible job and those that do excellent work in both the public and private sectors.

It's important to say that there are clearly some areas where privatization of government duties is not appropriate. The recent revelations about activities by Blackwater are illustrative. We the people grant a monopoly on coercion to the government in return for security. For the government to cede this to the private sector is a grave threat to liberty and should be resisted as such.

Cleaning the toilets at the courthouse, not so much.

In fact, I would argue that no compelling case can be made that either of these functions have to be performed by county employees. This leaves filling union coffers and increasing bargaining power as the only arguments for keeping these functions in the public sector. Neither of which are very convincing.

Even liberal blogger Matthew Yglesias can appreciate the distinction between essential public and private responsibilities:

Robust disagreement exists about whether public education should be provided exclusively through government-managed public schools or also through government-funded and government-regulated privately-managed charter schools, but nobody thinks it’s objectionable for public schools to buy desks from private desk-makers. [E.A]

Nobody except Capper and Liebenthal apparently. These gentlemen can continue to beat the anti-privatization, anti-Walker drum, they just shouldn't expect me, or anyone else, to get up and dance.

***Update - Someone a little smarter than me just reminded me that Capper is Chris Liebenthal. The way I wrote this it sounds like they are two different people! Talk about cognitive dissidence.

FDIC & Moral Hazard

On a recent episode of the EconTalk podcast, Columbia professor Charles Calomiris argues that deposit insurance is at least part of the source of financial crises. He argues that deposit insurance frees banks from competing along dimension of risk.

His take is arresting, interesting, and worth consideration. He also discusses how the rich are able to essentially receive unlimited deposit insurance through certain sophisticated financial arrangements.

Megan McArdle, for one, is not convinced:

The sticking point for me is twofold. The first is that we had crises before there was moral hazard--really, really dreadful crises, crises far worse than the one we're having now. I just don't see how you can look at the 1930s and name the FDIC as the decade's biggest financial problem. Or this decade's biggest financial problem. The closest our era came to a really devastating financial crash along the lines of the 1929-1933 period was in the total unguaranteed institutional money market funds.

Nor do I find the central story of how the FDIC induced this moral hazard very compelling. Supposedly, ordinary depositors don't bother to check the soundness of their banks because they don't actually have skin in the game.

Anyone making this argument cannot have met many ordinary depositors. If you stripped away my mother's FDIC protection, she wouldn't do any better of a job at evaluating Citigroup's finances.

While I was initially taken with Calomiris' claim, I'm back in the unconvinced camp. In fact, I'm not sure deposit insurance is for the benefit of depositors at all. It seems to me what deposit insurance really does is free banks from the threat of a run and subsidizes borrowing.

When banks make loans they have to get the money from somewhere. They 'borrow' it from depositors, bundle it together, and make loans. The need to repay depositors on demand can obviously be a problem when you are in the business of loaning out most of the money you take in as deposits.

The assurance of a government guarantee on deposits decreases the likelihood that most or all of the depositors will show up on any given day demanding their money back. If this was a real danger, banks would have to offer higher interest rates to attract and retain deposits. This, in turn, would lead to higher interest rates on the money they lend out. In essence, deposit insurance is subsidizing borrowing, not depositing.

In order to be profitable banks still have to compete along the dimension of risk in that they have to make loans that ultimately perform. Deposit insurance though, allows banks the flexibility of managing their portfolio of loans without having to worry about mobs of depositors at their door demanding their money. A phenomenon that history has shown can destroy a bank and cripple an economy.

Thinking Outside the Shoebox

Via Fairly Conservative.

Shoebox excoriates Republicans, and Mitch McConnell in particular, for what he sees as capitulation on the healthcare bill:

Late this afternoon, Senate Minority Leader, Mitch McConnell waved the white flag. As reported by RollCall, McConnell made an agreement with Harry Reid to pass a two month extension on the debt limit and waive the remaining time required to get to the final vote on the passage of Placebocare....

I really like 'placebocare' that's the first time I've heard this particular moniker. From here Shoebox's indignation level only rises, concluding with a rousing call for Senate Republicans to use the unpopularity of the health reform for all its worth.

Perhaps, though, all is not as it seems. Open Congress reports:

the Republicans also got a pretty significant concession from the Democrats in exchange for allowing the earlier vote....

Under the agreement allowing the earlier health care vote, Senate Republicans have been guaranteed votes on four amendments to the second debt ceiling bill that the Democrats would probably rather have avoided. According to the Senate Calendar, the Republicans will be allowed to hold votes on the following amendments (all will be subject to a 60-vote requirement) when the second debt ceiling vote takes place in January:

Sen. Thune [R, SD] TARP amendment — would end the Troubled Assets Relief Program (Wall Street bailout) and require that all TARP funds that are repaid by banks be spent on reducing the debt. Many Democrats want to use repaid TARP money for job creation measures.

Sen. Murkowski [R, AK] EPA amendment — seeks to prevent the Environmental Protection Agency from regulating greenhouses gas emissions if Congress fails to pass their own climate change legislation....

Sen. Sessions [R, AL] spending caps amendment — would set spending caps for the next five years on all discretionary government spending. Besides entitlement programs like Medicare and Social Security, the amendment would limit spending growth to a maximum of 2 percent per year for the next five years.

Every one of these three amendments are absolutely winning issues for Republicans, even (especially?) if the amendments don't pass. I mean try running a Democratic Senate campaign in 2010 defending a vote to extend the Wall Street bailout or the regulation of a substance everyone of us produces by simply exhaling.

Generally, I'd say McConnell is more inclined to clueless repetition of talking points than legislative jujitsu, but maybe in this case Shoebox is wrong and there is more to the apparent white flag waving than meets the eye.

What Really Keeps Me Up at Night

Slate's liberal blogger Mickey Kaus discusses the possibility of a left/right fusion around opposition to the Senate health bill. He's not buying it and uses the opportunity to bludgeon Big Labor, so if you are in to that sort of thing, go check out the whole post.

But in just setting up the scene Kaus has provided what to my ears is the absolute best summation of exactly what it is that is wrong with our current situation:

Today's left and right anti-Reid activists have a common enemy in corporatism, the easy alliance between Big Government and entrenched, favored too-big-to-fail businesses (Aetna, AIG .... ) that threatens to combine the inequality of capitalism with the dynamic innovation of socialism.

The recent economic crisis and the government response under both Bush and Obama may have gone so far as to institutionalize failure as one company after another lines up for public rescue from its own bad decisions.

This isn't simply cushioning the blow for the average worker during a painful period of readjustment. Recent bailouts provide government approval for failure in business whether from negligent leadership or out-dated business models. The result of which is that companies that should be gone remain on taxpayer funded life support; alive enough to be a drain on resources but not dead enough to disappear.

That Americans could be forced to support an economy that no longer provides the growth that improves lives is a very real and very scary possibility.

Next!

Hope you weren't planning on catching your breath anytime soon:

Open Congress reports:

While Congress continues to plow full steam ahead on health care, Democrats in the House recently took a big step forward on another huge and contentious issue, immigration. On Tuesday, Rep. Solomon Ortiz [D, TX-27] and Rep. Luis Gutierez [D, IL-4] introduced comprehensive immigration reform legislation that will serve as the starting point for Congress’ work on the issue this session....

H.R. 4132 – Comprehensive Immigration Reform for America’s Prosperity and Security Act of 2009

As a first step on immigration reform for the 111th session of Congress, it’s pretty aggressive. The bill touches on just about all elements of immigration reform, from border security to foreign worker visas to employment eligibility verification. It generally follows the same framework of the comprehensive immigration bills that were attempted by the 110th Congress under President Bush and failed mainly because of public opposition to providing a process for immigrants who are currently undocumented to eventually become legal residents.

Is there a sense anywhere that public opinion on immigration has changed since the last time this was attempted? Given the low opinion of Congress, I would think that sentiment on immigration would have to have improved dramatically since then, something that I see little evidence of.

On the up-side, at some point we are simply going to run out of big issues to tackle. At which point we will no doubt begin tackling the unforeseen consequences of our earlier actions.

Blogs vs. Big Brother

Julian Sanchez at Cato discusses a Pew poll that finds more people think that "Increased surveillance/security" has been a change for the better than "Internet blogs".

First, are there any blogs other than "internet" blogs? I'm not really sure what exactly the purpose of that modifier was.

Second, to those who answered blogs have been a change for the worse, or haven't made much difference, I can only ask: What blogs are you reading?

I really doubt that anyone who spends time on well-written blogs would have such an opinion. I would think this was even (especially?) true if you read well done blogs that come to conclusions with which you disagree.

Sanchez makes a sensible point about why we probably shouldn't get too concerned over the high polling of the surveillance state, but adds a cautionary note about its negative effects being largely invisible even though they are real.

So the next time you take a break from worrying about the creeping surveillance state, go read some good blogs like these: Fairly Conservative (hurry, before its too late!), Marginal Revolution, Matthew Yglesias, Lakeshore Laments, Illusory Tenant, Dad29, Waxing America, Cognitive Dissidence, Fox Politics.

H/T Yglesias

Successful Blogs Have Links

Some tips on how to enjoy facebook and still maintain some of your privacy.

The Baseline Scenario says Paul Volcker has had it with the big banks.

Is authoritarian democracy our future?

Apparently, ripping off the band-aid IS less painful.

Leverage Your Giving This Holiday Season

The latest financial crisis has given leverage a bad name, but this Christmas season presents an opportunity for leverage to have a positive impact.

Freedom House is a Green Bay non-profit organization whose mission is to address the issue of homelessness. Our oldest volunteered there with the church youth group.

Now through December 31st a donor has stepped forward and pledged to match all donations to Freedom House up to $70,000. With this offer in effect, your contribution immediately doubles. Even a small donation on your part can go twice as far.

Consider giving to the Freedom House before the end of the year to take advantage of this generous offer. You can donate online by visiting the Freedom House web page.

If you prefer the mail, here is the address:
Freedom House Ministries
2997 St Anthony Drive
Green Bay, WI 54311

The SEIU on health reform

Service Employees International Union President Andy Stern published a letter to members in which he recounts the great effort expended by organized labor in electing President Obama and lamenting the fact that it appears the health care reform won't take the shape that SEIU prefers.

At the end of the letter he exhorts the President, the Senate, and the House to "fight like hell" to deliver on health reform, but from my perspective Stern is confused on what is the fundamental obstacle to the expansion of health insurance coverage.

Stern claims:

the result of this Senator saying "we can't?" The public option is declared impossible. Americans cannot purchase Medicare at an earlier age. The health insurance reform effort we have needed for a century is at risk.

The real obstacle is, of course, cost.

Stern quoted some SEIU members in his letter, and if he had only paid a little more attention to what they were saying, he might have come to this realization himself:

We talked to more than 200,000 of our sisters and brothers all around the country as part of a Town Hall-style telephone call last week to talk about your questions, your concerns and your frustrations about what is happening in Washington with health insurance reform.

Cynthia from Maryland was worried about her health benefits being taxed.

Maria in California didn't understand why the public option might be off the table

Maria wants a public option, but Cynthia doesn't want higher taxes. I'd bet Maria doesn't want to pay higher taxes either. And that, in essence, is why the public option is off the table. Everybody wants free health care (including me). Nobody wants to pay the bill (definitely including me).

Stern is either oblivious to this fact or is willfully ignoring it while continuing to stir hopes of a full coverage no cost health system in the hearts and minds of his members.

Either way, he has a lot of company. It's just too bad that so much of it staffs our current governments.

Ratings agency reform may miss the mark

NPR's All Things Considered had a story today about a House bill intended to reform the credit ratings agencies.

H.R. 3890 - Accountability and Accountability in Ratings Agencies Act is sponsored by Representative Paul Kanjorski (D-PA).

It's true that the ratings agencies have proven to be incredibly bad at providing accurate analyses of at least some types of securities. It's also true that the agencies are paid by the people that create the securities. This seems like an obvious conflict of interest right?

As I noted in my post Ratings Agencies Resconsidered, what is going on here may be far more intricate than this simple narrative, and thus far more difficult to legislate away:

Buyers of these securities were in need of places to invest their funds that also fit the regulatory criteria to which they were subject, so they were the ones to benefit from the grade inflation just as much, if not more so, than the sellers of the securities. Even in cases where one of the rating agencies provided the highest rating and another did not, buyers of these securities didn't seem to be troubled by the conflicting signals. They had their AAA and that is what they needed. If things went sour, they could point to that as some proof of their diligence in money management, and we can all see how well that strategy has worked.

This is not to say that acts of sloppiness and perhaps even fraud didn't occur at the ratings agencies; it would be more shocking if they didn't. Taking the time to think through where the incentives lie and who was in the position to inject some sanity into the market can help shed some much needed light on these problems.

This notion of the ratings agencies and the buyer's incentives, comes from an episode of EconTalk featuring Charles Calomiris of Columbia. You can listen to the podcast or read a transcipt at econtalk.org. The ratings agency discussion comes at about 54 minutes.

Buy More Ammo!

I used to think this was just something Dad29 liked to post in the comments, but maybe he was on to something:

The recent rise in gold prices is only partially justified by fundamentals. Nor is it clear why investors should stock up on gold if the global economy dips into recession again and concerns about a near depression and rampant deflation rise sharply. If you truly fear a global economic meltdown, you should stock up on guns, canned food, and other commodities that you can actually use in your log cabin.[EA]

That's NYU professor and economic commentator Nouriel Roubini. True, Roubini has a reputation as something of a doomsayer, but he is a professor at NYU.

Via Real Time Economics

The antidote to a state guided economy

At National Review Online, Reihan Salam worries that with the proliferation of government intervention into business we are veering into the territory of a "state-guided" economy. The problem isn't just that the government is spending taxpayer cash indiscriminately, it's that all this cash comes with strings attached, and the fact that those in power will have influence over where and how this money will be spent.

Once such a system becomes dominant, industry will shift from innovation to rent-seeking. That is, influencing those in power to steer money and business their way. This isn't because our business leaders are evil, or see backroom deals as the preferred business model. This is because once we establish a system of resource allocation that is based on political influence, then the natural tendency of those seeking profit will be to first seek influence. If you think pursuing political influence rather than the encouragement of creativity is the basis of a sound economy, you are sadly mistaken.

Salam looks at the case of Vice-President Biden and a closed GM plant in Delaware as an example. He doesn't fault Biden for his efforts to lure new business to Delaware, that's perfectly natural, but it has negative consequences:

I don't actually think that the vice president did anything untoward. He used his influence on behalf of a community he has represented for decades, and that is perfectly understandable if not admirable in some sense. But it's worth keeping in mind where the push for industrial policy is really taking us. The largess that the DOE and Biden are dispensing isn't really theirs to give away.

For Biden, the reopening of Delaware's Boxwood Road plant is "a metaphor for the rebirth of the country." There ought to be a second half to that sentence: "a metaphor for the rebirth of the country as a haven for crony capitalism." That's a little harsh. But this is really bad, guys.

This critique seems utterly sensible and I think it would appeal to anyone with even the slightest tendency toward free markets.

Of course, if I lived in Delaware, I might see this whole issue differently. I don't, but I do live in Wisconsin.

Here's My Two Cents blog bemoaning the inability of the Wisconsin legislative delegation to use their position to help Oshkosh Corporation secure government contracts:

While we would all like to think that things like major military contracts are awarded strictly on lowest bid and highest quality of work--anyone who knows anything about Washington knows that politics plays a major role in that process as well.

Instead of calling for an end to this influence, he proceeds to detail just how inadequate our legislators are at playing the game when it comes to the military contracts sought by Oshkosh. He ends on this note:

So, as Oshkosh and the Fox Valley enter the biggest game of Hardball ever, Wisconsin is fielding a team of Punch-and-Judy hitters--when we all know that chicks dig the long ball.

Nice touch there at the end, but the whole thing misses the point entirely. Do we send our legislators to Washington to insure we get a big slice of an enormous tax-dollar pie? I'd like to think that those on the right would prefer that legislators in Washington shrink the size of what is undoubtedly a wasteful government bureaucracy, even if this means fewer dollars return home. Better that they never left, I would say.

In closing, Salam offers a real recipe for improvement and hints at why it doesn't get the attention it deserves:

Imagine what we might accomplish if we abandoned targeted giveaways in favor of, say, a lower corporate income tax, better schools, and better roads. That, alas, sounds rather mundane.

When it comes to government I'll take mundane any day of the week.

Medicare (and higher taxes) For All

A major component in the debate over healthcare has been the size and scope of the public option. Some on the left have argued for a national single-payer health system, in essence Medicare for all. While the goal of universal access to health care is a noble one, achieving it through Medicare for all without also raising taxes is not possible.

Medicare reimbursement rates are widely regarded as being lower than the actual total costs of treating Medicare patients. There is some debate about just how much the underpayment is, but everyone seems to agree that Medicare payments to providers do not cover all of the costs of treating Medicare patients.

Liberal blogger Matthew Yglesias even declares that this is a feature, not a bug, of the system. So, the argument goes, if Medicare has shown an ability to pay less for care why not open it up to everyone. That way we could achieve universal coverage and bend the cost curve! Unfortunately, this can only happen after congress repeals the basic laws of supply and demand.

Moving to a single-payer system that as a rule pays less than the cost of medical care is in essence the government setting a price ceiling in the market for medical services. The consequences of such a policy can be seen in this graph of a price ceiling (don't panic):


The blue line is the supply of medical services and the red line is demand. Point E is the equilibrium (where supply equals demand). The green dashed line is the price ceiling, which you can see is less than the equilibrium price.

What, exactly, does that mean? If you follow the green dashed line moving left to right, the point where it crosses the blue line is the quantity of healthcare that will be supplied at the Medicare price. Now keep moving to the right, the point where the green dashed line crosses the red line is the quantity of healthcare demanded at the Medicare price. The important thing here is that the green line crosses the blue line first, then the red line.

In other words, the distance that the dashed green line travels after crossing the blue line, but before it hits the red line, is the shortage of medical services in our system with a price ceiling. This area is one in which people still want medical services and they are willing to pay the set price. The only problem is that there are no suppliers willing to meet that demand because the price, form their perspective, is too low.

This is not to say that a hospital or doctor would turn away someone who needed medical attention at the door. This shortage will mean some doctors and hospitals will never even exist. Those people who considered medical school will find some other profession and the capital that could have built a hospital will go to build something else entirely.

So the question then becomes how to eliminate the shortage. The graph shows how this can be done. Namely, by raising the price to the level where supply equals demand. Raising the price that Medicare pays has two consequences. The shortage disappears, but so does Medicare's ability to keep costs down by paying less than the full cost of care.

Since Medicare (or any government run single payer system) is financed by taxes, paying higher prices to eliminate the shortage will mean that taxes have to rise as well. I suppose we could borrow the money rather than raise taxes, but this is a short term strategy, not a long term response to increased medical spending.

Arguing for healthcare for all without any means of accomplishing it is largely meaningless. Arguing for Medicare for all without any means of paying for it may be worse.

Possible Employment Turnaround

Alan Greenspan was on Meet The Press this morning and offered this analysis on employment:

it's very apparent to me that business got very frightened when the crisis occurred and presumed that the economy was going to go down far more sharply than it actually did. Indeed, I think Dr. Romer was making much the same point. What this means is that we have a level of--a level of employment at this stage which is barely adequate to staff the level of output, and that it seems to me virtually inevitable, if nothing else were to happen, that employment would start to come back fairly quickly.

It's not that I don't believe anything Mr. Andrea Mitchell says, but let's face it, the Maestro's words simply don't have the air of infallibility that they did in the past. Perhaps, though, Greenspan is on to something.

On his blog, Econbrowser, Professor Menzie Chinn highlights a report from Deutsche Bank:

Okun's Law is an empirical regularity that holds that for every one percent decline in GDP growth relative to potential, the unemployment rate will increase by about 1/2 percentage point....

So during the recent period, did this relationship hold?

Both charts show that the change in employment during this recession was noticeably more negative than the standard Okun's Law regression would predict. On the assumption that historical relationships reassert themselves, we surmise that employment could bounce back more strongly during this recovery...

That last sentence is meant to remind you that past performance is no guarantee of future results, but it is still a hopeful sign.

Greenspan was quick to remind viewers that even as employment recovers, the headline rate may not decrease due to the re-entry into the labor market of some that had previously given up on looking for work.

If payrolls were slashed this year further than the underlying conditions really warranted, perhaps a turnaround of the employment situation will happen sooner rather than later.

Successful Blogs Have Links

Yes, I would want my son to be a plumber.

Even if you are right, employing a Star Trek metaphor may be counterproductive.

The climate change debate summarized in a chart.

The Patriot Act as refuge for scoundrels.

For Mrs. RWC

Haystacks, needles, and networks.

Sometimes I wonder if our recent rapid technological changes haven't quite lived up to their potential.

Then I hear about how technology can be used to solve a problem:

In less than nine hours, a team from the Massachusetts Institute of Technology Media Lab scooped a $40,000 prize by cracking DARPA's Network Challenge. They found 10 red weather balloons, which the US military research agency had tethered in public locations across the US last Saturday.

How did the MIT group succeed so quickly? Team leader Riley Crane says their incentive programme helped.

To recruit people into their network of balloon spotters, the MIT team offered to split the prize money, so that if the team won, the person who correctly identified a balloon's location got $2000. Finder fees were also offered, so that whoever referred a successful spotter would be given $1000; $500 went to the referrer of the referrer, $250 to the referrer of the referrer of the referrer, and so on, with any remainder going to charity.

"In 48 hours, we went from a team of five to a team of 5000," says Crane

A trivial problem I realize, but one that demonstrates a fundamental, and fundamentally good, aspect of the new kinds of communication and networking that were previously unavailable.

This was a zero sum game to be sure, so a strategy that increased team size reduced the size of the winnings that an individual team member would get, but it also greatly increased the chance of winning.

The metaphor of a pie is often used when talking about economic growth. With the debate often coming down to a discussion of cutting the pieces of the pie so that they are the same or nearly the same size versus increasing the overall size of the pie so that everyone's piece is bigger, even when there is great variability in the size of the individual pieces. The collaborative competition used to win this game showed how a group might actually be able to bring a whole new set of the pies to the table. Pies that previously nobody ate because the cost of making them was simply too high for one person.

If this game required that only a single person locate the balloons there is a good chance that the prize money would never be claimed. $40,000 may not get you very far if you are trying to find ten balloons scattered randomly throughout the United States. By using technology to communicate with people around the country, the team was able to include people whose cost of finding a single balloon that just happened to be in their area was much much less than the $40,000.

This team combined the need for incentives to encourage collaboration with the recognition that there are diminishing marginal costs and won. The winning team was successful by increasing the number of payouts the game had. Literally changing the rules of the game. This is something that we often hear technology is capable of, it's encouraging to see that change in action.

Appropriations Bills Move Forward.

What's another 1,000 pages of legislation among friends, huh?

All remaining appropriations bills with the exception of Defense, have been rolled into a single bill and passed the House. Open Congress is calling it a minibus (as opposed to omnibus) but that is only because it doesn't include defense. There is nothing mini about the spending.

Here's the Heritage Foundation on the spending bill:

Congressional leaders are attempting to rush through a mammoth, 1,088-page fiscal year (FY) 2010 omnibus appropriation bill[1] that:

• Provides an 8 percent discretionary spending hike for the third consecutive year;
• Provides these spending hikes in addition to $311 billon in earlier stimulus funding for these discretionary programs; and
• Includes approximately 5,224 earmarks, bringing the FY 2010 total to 8,939, with a pork-laden defense bill expected to push the final total over 10,000.

As worrying as the size of the bill is the manner in which it has moved through the House. Here's Open Congress on the process:

We’ve been advocating for a 72-hour rule for a long time, and I was planning to use this post to show that the bill was not going to be available online for 72 hours before a vote. Before I could do that, it was approved in the House (by a vote of 221-202, full roll call coming soon). We don’t even have a page on the bill here on OpenCongress yet.

That the bill wasn’t online for 72 hours is, in itself, not the biggest consideration: it is a 1,000+ page piece of legislation that contains more than a trillion dollars in spending for five of the largest federal agencies in the country, plus Medicare and Medicaid

Senatus reports that the Senate has now voted to begin debate and then quotes the Associated Press description of the bill:

Senators have agreed to begin debate on an omnibus spending bill (H.R. 3288) by a vote of 56 to 43. The measure was recently adopted by a House-Senate conference committee. House members passed it earlier today by a vote of 221-202.

The AP notes that this is a “massive year-end spending bill awarding generous funding boosts to domestic programs despite massive budget deficits.”

The wrapup measure totals $1.1 trillion, combining six spending bills for 10 Cabinet departments into a 1,088-page bundle packed with more than 5,000 back-home projects sought by lawmakers.

[…]

The bill combines $447 billion in operating budgets for 10 Cabinet departments with more than $600 billion for federal benefit programs such as Medicare and Medicaid.

The borrow and spend method of governance (if you can call it that) cannot go on forever. When the end comes though, will it be because the citizenry demands it or because total ruin is upon us and there is simply no alternative.

I'd still like to think that it is not too late to change our ways, but lately I'm not so sure.

***Updated - Senatus reports cloture invoked. Be sure to click through and read the "additional provisions" of the bill.***

Roundabouts & Snow & You

Reminder to all drivers here in NE Wisconsin:

Just because it has been snowing, the basic traffic laws remain in effect. We have yet to descend into some hybrid universe which combines the post-apocalyptic anarchy of The Road Warrior and the brutal cold and snow of the Hoth Ice World from The Empire Strikes Back.

These basic traffic laws include the rules for using roundabouts. Chief among these:

• Yield to traffic on your left already in the roundabout
• Enter the roundabout when there is a safe gap in traffic

These reminders and many other useful information about roundabouts, can be found on the Wisconsin D.O.T. roundabouts page. Any questions, proceed there immediately.

Thank you. We now return to our regularly scheduled blogging.

What's Driving Commodity Prices

Professor James Hamilton has been examining the increase in dollar commodity prices and their tendency to move together on his blog Econbrowser. Last week's price drop offers some additional insight into the phenomenon.

Hamilton argues that there is a more convincing explanation for commodity prices than a strengthening of the world economy or inflation fears:

A more natural interpretation of Friday's commodity price moves would be based on the role of low short-term interest rates in encouraging the commodity price boom. The sooner U.S. employment recovers, the sooner the Fed will start raising interest rates, and the sooner the game of putting borrowed cash into commodities would be up...

The Fed is accustomed to thinking of unemployment as the key predictor of inflation, and of relative commodity prices as a separate factor beyond its direct control. I read Friday's market moves as one more suggestion that commodity price inflation may have more to do with U.S. monetary policy, and less to do with U.S. employment, than many within the Fed are prepared to acknowledge.

While it's true that low interest rates do not automatically mean an expansion of money in the economy, there would seem to be something to the notion that low costs of borrowing can have in inflationary impact on assets. As people are able to borrow relatively cheaply they may be inclined to bid-up asset prices. This seems to be at least part of the story of the housing bubble.

The way that interest rates, reserve requirements, savings habits (at home and abroad), and demand for currency interact is complicated and from what I can tell is not a settled question among the academics.

If in fact we are entering an era where a common side effect of low interest rates are asset price bubbles (even minor ones) Central Banking would seem to be little more than squeezing a balloon. And as anyone with kids can tell you eventually the balloon pops, then the crying starts.

Senate Abortion Amendment Defeated

Senator Ben Nelson (D-NE) offered an amendment to the Senate health care bill that would have placed restrictions on abortion similar to those in the Stupak amendment to the House bill.

The Nelson amendment has been defeated. While six Democrats voted with Nelson, the two Republican Senators from Maine voted against. For reaction to Wisconsin Senator Herb Kohl's stance on abortion and health care, please see this post at Freedom Eden (h/t Cindy Kilkenny)

What happens now that it appears the House and Senate versions of health reform differ? Open Congress has an interesting summary. Their analysis is based on differing versions of the public option, but the abortion provision could have the same affect on the process:

The conventional method is to bring both bills to an ad hoc “conference committee” made up of members of both the Senate and the House to iron out the differences into a final version that the committee can agree to. The committee bill, known as a “report,” then goes back to both the Senate and the House for a final vote. No amendments can be considered to conference reports, but senators can filibuster it and require 60 votes for it to pass.

For supporters of the healthcare effort, the conference method has drawbacks, not the least of which is the time the process takes.

That has Democrats considering a Plan B for reconciling the bills. "There is increased chatter on Capitol Hill about a possible “ping-ponging” of the Senate health care bill: that chamber would pass its health care bill, send it to the House and the House would be asked to pass it with no changes and send it directly to the president," reports Ryan Grim at the Huffington Post. Ping-ponging bills from the Senate to the House is not that uncommon. The 111th Congress has already used this method several times to pass some substantial bill, including legislation allowing the FDA to regulate tobacco (H.R. 1256), reforming the credit card industry (H.R. 627), the GIVE Act (H.R. 1388) and expanding S-CHIP (H.R. 2).

Again for supporters, there is a worry that accepting a Senate bill which is much less than what the more progressive members of the House want could have its own very serious negative consequences.

Now that the Senate has not included the Stupak abortion language, "ping-ponging" the Senate bill to the House has an additional hurdle. Namely, those forty or so Democrats who had allied themselves with Stupak and vowed to not vote for the original House bill until they had a chance to vote on the abortion amendment. Perhaps this group would consider the fact that they did go on record restricting abortion in the original House bill as sufficient, but I certainly wouldn't. Making a stand on an issue as important as abortion and losing is one thing. Making a stand and winning, but then capitulating to a Democratic majority Senate on such an important question seems unthinkable.

In case you think this abortion question is being overblown and all the Senate is doing is simply following current law, think again. From the NY Times:

The language that remains in the Senate bill would allow private plans to cover abortions. It would require at least one government-approved plan in each state to cover abortions and at least one government-approved plan in each state not to cover abortions.

Federal dollars could not be used to pay for abortions, so the Senate bill would require insurance plans to segregate privately paid premiums to use that money for abortions. Opponents of abortion rights have described the segregation of funds as a meaningless accounting trick.

Under existing federal law, generally referred to as the Hyde amendment, government money cannot be used to pay for abortions, except with rare exceptions for rape, incest and the health of the mother. [E.A]

So we would go from the federal standard being one of paying for abortions only in rare cases to one where the government would mandate abortion coverage in every state. This would represent a substantial departure from the current environment. One which would be incredibly bad for the country and unspeakably bad for the unborn.

(Yet Another) Jobs Bill

The major news out of Washington today was the announcement of President Obama's new jobs proposal. From Slate:

Obama promoted a three-pronged approach to job creation, emphasizing small-business tax cuts, infrastructure investment, and clean-energy spending. The plan will likely be packaged as a single piece of legislation.

By my count this is at least the third "jobs" bill of the year, but you don't have to take my word for it.

Here's House Speaker Nancy Pelosi on 2/13/09 describing HR 1 the stimulus bill:

After all the debate, this legislation can be summed up in one word: Jobs.

Here's Pelosi on 6/26/09, this time discussing Cap & Trade:

There are four words that can describe this bill: jobs, jobs, jobs, and jobs.

In the space of four months Pelosi was able to quadruple the number of times she said "jobs" in discussing her latest legislative boondoggle. Unfortunately, this didn't create any, you know, actual jobs.

So the stimulus was a jobs bill, cap & trade was a jobs bill, and now we will add to this Obama's latest jobs bill. While bills about jobs have flourished in Washington, jobs in America have continued to wither.

Dick Durbin's Heroic Stand

On Fox News Sunday Illinois Democrat Senator Dick Durbin summoned up some real outrage for the cameras:

I have to say to my friend Senator Cornyn, the Senate Republicans have made such a heroic effort to help the private health insurance companies when it comes to Medicare Advantage.

Despite the fact that we are sending them a $170 billion federal subsidy, the Republicans every day come to the floor and plead with us, "Let this subsidy continue for these private health insurance companies,"

Prior to this, however, Durbin had the opportunity to put his vote where his mouth is.

Friday, Senator Debbie Stabenow (D-MI) offered an amendment, "to ensure that there is no reduction or elimination of any benefits guaranteed by law to participants in Medicare Advantage plans."

The amendment, an affirmation of Medicare Advantage, passed 97-1.

Durbin was NOT the one voting against, that was Coburn (R-OK).

Of course, roll call votes don't get the same viewership as Fox News Sunday, so Durbin's indignation developed at a most opportune time.

My favorite line of the day

Cindy Kilkenny on 4 year old kindergarten:

What? You want to pop them out and hand them over to the state now?

Go read the whole (short) thing at Fairly Conservative.

Bending The Curve: A Tragedy in Three Acts

Act I - Wherein our hero, Obama Budget Director Peter Orszag, citing the liberal but well-respected think tank Center on Budget and Policy Priorities, attempts to assure the audience that savings through Medicare cuts can, in fact, be achieved:

One of the criticisms leveled by skeptics of health insurance reform is that the hundreds of billions of dollars in Medicare savings being proposed won’t actually be implemented since efforts to cut waste never stick....

A new report by two former CBO officials – James Horney and Paul Van de Water – now working at the Center on Budget and Policy Priorities shows that this criticism is, in their words, a "mistaken belief."

Act II - In which the very same Center on Budget and Policy Priorities alerts us to the fact that Medicare Advantage plans

are paid 12 percent more, on average, than it would cost traditional Medicare to cover the same beneficiaries.

Act III - Enter Senator Debbie Stabenow (D-MI) offering an amendment which

affirms that “nothing in this act shall result in the reduction or elimination of any benefits guaranteed by law to participants in Medicare Advantage plans,"

Said amendment is then adopted in the Senate by a vote of 97-1.

Epilogue: The Chorus, in the person of historian Niall Ferguson, instructs us

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force.

I realize that Shakespearean tragedy requires a five act structure, but this is America, everything is faster over here.

What's wrong with being deliberative anyway?

I'm beginning to wonder if I should just stop reading Yglesias. He's still on his Senate kick, this time quoting Steven Hill from the Financial Times:

He also observes that not only is it ridiculous that 41 senators can block action, but the GOP 40 only represents about a third of the population!

To which I can only reply: Barack Obama only got about 53% of the popular vote when he was elected President, yet he controls a much larger percentage of the national agenda. About 70 million people voted for Obama, which seems like enough for a mandate until you remember that about 62 million people voted for someone other than Obama.

Only about 135,000 people voted for Nancy Pelosi in 2008! How's that for disproportionate influence on the national legislative agenda?

I fully recognize that elections have consequences. Someone should tell Yglesias that an inability to secure a filibuster proof majority in Congress also has consequences.

Successful Blogs Have Links

Ninjas shouldn't go to Denny's and other wisdom from the restaurant flow chart.

Warhol Brand: Art imitating life imitating art imitating....well, you get the picture.

When sci-fi worlds collide.......on a cake (h/t Mrs. RWC)

Just because preventive care is free to you, that doesn't make it free. Fixing this might go a long way to fixing health care in the U.S.

I couldn't resist............

Bunning v. Bernanke

I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled.

That was Fed Chairman Ben Bernanke at his last confirmation hearing.

Kentucky Senator Jim Bunning (R) reminded Bernanke of this statement during confirmation hearings for Bernanke's second term.

Bunning has become something of a "crazy uncle" of the Senate and he won't run for re-election (probably because even his own party's support was either lackluster or lacking entirely) but he did make the most of the Bernanke hearing and lived up to his reputation.

Bunning's statement to Bernanke included this:

you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government’s spending and hand out cheap money to your masters on Wall Street

And this:

the A.I.G. bailout alone is reason enough to send you back to Princeton.

When he closed with this, he even got a shot in at Treasury Secretary Tim Geithner:

Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed’s failures, and there is no better time than now.

Possible delay in improvements to Brown County GV

Anyone who travels Brown County highway GV south of highway 172 (including me) can tell you it is need of repair and expansion. Unfortunately, this may not happen in 2010. The Press Gazette reports:

A lengthy delay in widening Brown County GV has done little to clarify the future of a road improvement planned for many years in Bellevue and Ledgeview.

County officials have budgeted $2.3 million next year for the project — which includes a roundabout — to accommodate increasingly heavy traffic.

But the county has not decided whether to designate the road project as part of a long-discussed corridor leading to a new Fox River bridge in the county's southern sector. Adding to questions about the project, officials in Bellevue and Ledgeview do not unanimously favor starting work next year....

[Bellevue] Village Administrator Aaron Oppenheimer said he hopes the county will focus instead on the planned widening of Brown County EA, or Huron Road, another north-south road where Bellevue has seen growth.

While Oppenheimer agreed that GV needs repairs, he said EA is a higher priority because of the level of development there....

County Board members have approved a 2010 budget that includes $2.3 million for GV and $1.5 million for EA. Whether either project moves ahead, however, will depend on whether the county issues bonds to raise the money — a process that generally takes place in the spring.

Bellevue would be wise to hang on to Oppenheimer, he's obviously going to go to bat for them regardless of the facts. I doubt that any dispassionate observer could travel GV and Huron and then conclude that conclude that Huron was a higher priority.

I understand the uncertainty around the route related to a future southern bridge, but some level of improvement to GV cannot wait.

Obstruction is in the Eye of the Beholder

I regularly read liberal blogger Matthew Yglesias. Even though I often disagree with his policies, I would say he is generally willing to follow his views to their logical conclusions, even if that means being tough on people with whom he usually agrees. Well, so much for that.

One of Yglesias' pet peeves is Senate procedure, particularly things like the 60 vote filibuster and the practice of Senators placing a hold on a presidential nominee, which he generally views as blocking the progressive reforms he prefers.

Here he is on 11/25/09:

You’ve seen an evolution since then, just as you’ve seen an evolution of the “hold” from a senatorial courtesy to a hardball political tactic.

Now, Vermont Senator Bernie Sanders, who I believe describes himself as a socialist, has decided to place a hold on the nomination of Fed Chairman Ben Bernanke. How does Yglesias react?

Senator Bernie Sanders of Vermont is going to place a hold on Ben Bernanke’s confirmation. I expect what progressives excited about this are going to learn is that...a hold on an establishment priority, like Bernanke’s confirmation, won’t be substantially held up by this move. That said, at this point I welcome increased public scrutiny of the Federal Reserve.

So I guess when it comes to denouncing hardball political tactics that Yglesias regularly rails against as fundamentally undemocratic, the source is what really matters.

I'm assuming the Yglesias also welcomes the hold on Bernanke announced South Carolina's Jim DeMint, a Republican. Well, there's a first time for everything.

620 WTMJ on Steve Kagen

I was trying to work this into my latest Roger Roth post, but couldn't quite do it. Besides, it is good enough to stand alone. Jeff Wagner writing at 620WTMJ.com describing Steve Kagen:

Second-term Congressman Steve Kagen (pictured below with Barbara Lawton) is arguably one of the most vulnerable members of Congress. Kagen, a political gadfly, is largely an accident of history having been swept into office in the anti-Bush, anti-GOP fervor of the last two election cycles. Now, having to run on his own dubious merits and heading into a political headwind, smart money suggests that Kagen will be on the outside looking in come January of 2011.

Roth makes run for WI-8 official

Today was the day that the Republican field to unseat Steve Kagen got just a bit larger with Roger Roth's entry. The Press Gazette reports:

“This is between me and Kagen,” Roth said Tuesday after kicking off his campaign before a group of supporters at Coldwell Banker The Real Estate Group.

Roth, a 31-year-old Grand Chute homebuilder and two-term lawmaker, is counting on his legislative experience, military background and name identification to help him pull ahead of six other candidates in the 2010 GOP primary.

WBAY included this in the report on their website:

He's the nephew of former U.S. Representative Toby Roth, who served the 8th Congressional District for 18 years.

With the name recognition, legislative experience, and military background Roth will no doubt be a formidable candidate. He will have to be careful not to find himself on the receiving end of a quip like the one Reagan used on Mondale with regard to their respective ages.

I do have to say I'm a bit surprised at how muted the response to Roth's announcement is in general. Perhaps it's just too early, or Obama's Afghanistan speech just looms too large today. Either way, I did think that this particular announcement would have a bit more buzz surrounding it. Though Roth did update his website.

So at this point, Kevin is still right, Roth's entry takes the bulls-eye off of Reid Ribble, but also presents a major challenge to all the candidates. At this point though, I would characterize the race as still wide open with a long way to go toward the eventual goal of defeating Kagen.

The Lesson of the Soviet Union

Last week Paul Soglin had a post on the difficulty Dubai is having repaying its debt. The conclusion that he drew was that Dubai's difficulty was another piece of evidence in the case against capitalism.

I found this to be a bit of a stretch, so in the comments I asked Soglin that if Dubai's problems highlighted the dangers of capitalism, what lesson did he draw from the collapse of the Soviet Union. He was gracious enough to respond on Monday to this question. I'm not at all convinced by his argument.

He cites the usual overspending on the military and corruption as well as a general mismanagement in production, including, "not listening to the customers." This last point gets closest to what I think is probably the real case, but he can't quite get to the heart of the matter.

I would argue that the system of free-market prices is the best method we have yet developed for coordinating a system as enormous and complex as a modern economy. A system without this mechanism for coordination, like the Soviet system, is doomed to failure.

Prices are signals. They guide those within an economic system in making the correct decisions. Without prices you can get too many missiles and not enough bread, just like the Soviets ended up with. Without prices, there simply is no manageable way of "listening to the customers." The history of the Soviet Union was like one epic game of The Price Is Wrong, with the average Soviet bearing the brunt of this stupidity.

Soglin sums up his argument with this:

The one reason that Communism failed that was inherent to the system was lack of freedom of expression, which has less to do with economics and more to do with the power of rock n' roll.

A notion only a baby boomer could embrace, I'm afraid, and one that veers out of the realm of reality and into romanticizing the Soviet experience. Prices, profits, and losses are not dirty words, they are the necessary catalysts for creating a vibrant economy. And such an economy is the best hope for the average citizen to improve his quality of life.