Citizens For Rational Discourse

The Ridiculousness of Politics

2012-09-18T09:27:00.001-07:00

David Frum points out that most seniors still net moochers:

Among today's elderly, the great majority will receive more in Medicare benefits than they ever paid in taxes - dependency again. You can do the math for yourself and your parents right here

Romney promises to free the makers from the moochers by reducing transfers to the poor. Unfortunately the actual spending problem is too many transfers to the middle class via Medicare and Social Security (oh and a giant military).

We have a serious entitlement problem. The most serious part is that those who receive the majority of the entitlements in dollar terms have no idea.

To The Apple Fanboys

2012-09-17T09:35:00.000-07:00

I read a comment that got me seething in response to Apple winning their suit against Samsung:

"if you like the way iPhone does things, why don't you just buy an iPhone"

In words even fanboys can understand, the answer to this is:

1. I like pinch to zoom, but I hate iTunes. I'd like an alternative that does that. Overly restrictive patent laws reduce consumer choice.

2. Only Apple wins with restrictive patent laws. EVERYONE else loses. Even Apple Fanboys. This is because Apple is allowed to rest on their laurels instead of coming up with better products to stay ahead of the competition.

*Update: removes non sequitur

And if it's all Structural?

2012-09-13T11:31:00.002-07:00

QE3 has been announced. Inflation hawks will no doubt complain that either inflation is just around the corner, or it's already here and the government is cooking the books.

Here's an answer for the cooking the books crowd. If high inflation is here, then since nominal gdp has been growing sluggishly for years, then by definition the real economy has been shrinking. Should the Fed tighten money in a shrinking economy? Most would say no.

The fact remains, that even if inflation is 10%, if real growth is -8% due to structural factors, the Fed will pile on a cyclical component if it allows ngdp to fall. If NGDP is allowed to fall precipitously, then people cannot service existing debt and continue to buy things, resulting in a giant drop in demand on top of the supply limitations.This is on top of the massive unemployment sticky wage/price theories would predict.

In the end I think the Fed should focus on a slow steady growth in incomes: NGDP growth is a pretty good target.

Oh Dave

2012-06-29T14:02:00.001-07:00

I just listened to Dave Ramsey's response to the health care ruling. It turned out to not be a response at all but rather a rail against the Employer Shared Responsibility portion. Let me first say I think that I think that employer based health insurance is a silly relic. I completely agree that the burden of providing healthcare should not be on employers. I just don't think that hyperbole is getting us anywhere useful.

Dave Ramsey gave the example of a struggling restaurant with 60 employees that will be out at least $50,000 extra because of PPACA or 1000 a month per employee if they decide to provide insurance. So let's read the law with my bolds.

Generally, a large employer will be subject to an assessable payment if any full-time employee is certified to receive a premium assistance tax credit and either the employer does not offer full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an employer plan (Code Sec. 4980H(a)) or the employer offers full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that either is unaffordable or does not provide minimum value (Code Sec. 4980H(b)). The shared responsibility payment requirement is scheduled to be effective after 201

The PPACA describes how to calculate the shared responsibility payment. The annual assessable payment under Code Sec. 4980H(a) is based on all (excluding the first 30) full-time employees. The annual assessable payment under Code Sec. 4980H(b) is based on the number of full-time employees who are certified to receive an advance payment of an applicable premium tax credit.

The shared responsibility payment requirement applies to “large” employers. The PPACA describes a large employer as generally an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. The PPACA includes special rules for employers that employ seasonal workers. The PPACA exempts small firms that have fewer than 50 full-time employees.

So first, the employees must be full time employees, this is less and less likely a restaurant, and honestly, less and less likely a place that doesn't already provide some kind of health insurance plan anyway. In fact a restaurant would likely be helped by the law because of the provision for 25 and under full time employees. Secondly, the employer would be cost sharing a new insurance plan with the employees, not providing the entire cost. They might even be able to charge the full cost to many of their employees (the problem being "affordable" is as yet undefined).

Thirdly, his penalty math is worse than double the worst case. I have a worst case of 750 * (60-30) per year, or 22500 for 60 full time employees that are "certified to receive a premium assistance tax credit" . It is also unlikely that a business, as Dave puts it, that is "hanging by a thread" would not be able to appeal the penalty or get a waiver. Indeed, a bigger issue here is that most of the regulations have yet to be written. One thing I'm quite sure of though is that businesses exposed to the worst case scenario (which Dave more than doubled) will be few and far between. As much as Dave wants to paint Democrats as happy job killers, most would see the logic and want to reduce the burden. These yet unwritten rules are there precisely because painting all employers with the same broad brush would be crazy.

Nevertheless it's still bad policy. Employer based healthcare is onerous and unnecessary, and this portion of the law introduces a lot of uncertainty to business owners. If only we had a party interested in fixing government instead of insisting it can't be fixed and putting their heads in the sand when it comes to society's problems.

The biggest problem I have is that Republicans like Dave had ample opportunity to see the inevitability of universal health care passing and didn't get rid of employer based health coverage in return for some votes. This kind of "scorched earth" governing is not helpful and neither is this rant.

Caplan's Experiment

2012-05-01T16:26:00.000-07:00

Bryan Caplan gives us a thought experiment designed to make everyone re-think redistribution. Given just the four points, I think that most people would view anything that forced Able Abel to do anything as unfair. What if we looked at WHY Able Abel was able to produce more. If it is because the society granted Abel private property with which only he is able to create a surplus, then it changes everything.

Here is Greg Mankiw on why property rights justify higher taxation of the wealthy and redistribution:

Surely, those with higher income and greater property benefit more from a governmental system that protects property rights.

and:

What about transfer payments to the poor? These can be justified along similar lines. As long as people care about others to some degree, antipoverty programs are a type of public good. [Thurow 1971] That is, under this view, the government provides for the poor not simply because their marginal utility is high but because we have interdependent utility functions. Put differently, we would all like to alleviate poverty. But because we would prefer to have someone else pick up the tab, private charity can’t do the job. Government-run antipoverty programs solve the free-rider problem among the altruistic well-to-do.

To be clear: Mankiw is not advocating progressive income taxes here which my out of context quotes might indicate.
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Mankiw's SOPA Metaphor is Wrong

2012-01-20T08:50:00.000-08:00

One reason I'm O.K. with Romney is that he has Greg Mankiw as an economic advisor - and Mr. Mankiw is unlikely to want a Gold Standard or some other crazy thing that would throw the economy off a cliff. This is Greg Mankiw the Free Market economist.

Greg Mankiw the rent-seeker is way wrong on SOPA though.

He says:

it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock.

It's not like that at all actually. If I steal merchandise from a manufacturing firm, they lose something tangible. Let's assume this firm is producing something out of patent. Pink Flamingos. If I'm able to make an exact copy of the pink flamingo and produce and distribute it for free Greg Mankiw the free market guy would call this a productivity increase and praise it as the wonderful free market in action. He would never ever ever say that the government should step in and force everyone to buy pink flamingos from the more expensive company.

Now, Greg Mankiw the Copyright rent-seeker is really saying that HE loses money if someone makes a copy of his textbook. However, in much the same way he "loses" money if I buy a used textbook instead of a new one. He also "loses" money if I borrow the textbook. The only difference is that the government has defined that one is illegal and the other two as not illegal.

The reason the government has defined one as illegal is so that Greg Mankiw will be able to make a profit writing textbooks. It is in everyone's best interest if Greg Mankiw can make a profit writing a textbook. But there is a balance. Obviously most people think it would be ridiculous for the government to make borrowing textbooks and buying used textbooks illegal. Good for Greg Mankiw the rent-seeker, but bad for almost everyone else.

Don't Try to Make Income Inequality Irrelevent

2011-11-09T14:56:00.000-08:00

At least not before you address the portion due to rent seeking. Income inequality is a problem if it is due to corporations or individuals using their government connections to secure more and strengthen current economic rents.

When income inequality is high, it's not a reflection of how it should be in a free market. Conservatives should be asking "Why is the market not evening out incomes more?". If one person can make 60 billion dollars on a product, why hasn't someone who is satisfied with making 50 billion tried to compete with them?

Absurd

2011-11-09T11:42:00.000-08:00

We can't fix our high unemployment with inflation, because inflation is hard to get rid of once it's in the system. How do you get rid of high inflation? Volker did it by causing a huge demand glut, which caused unemployment.

So the problem of unemployment cannot be solved by increasing demand (and thus inflation) because if it works, we might overshoot and then have to do something that causes high unemployment again when the Fed reduces demand to get rid of it.

The problem I hope is obvious, if we do NOTHING we are GUARANTEED the bad outcome that would result in having to fix high inflation expectations, not just the chance of it. Everyone accepts that unemployment was necessary to bring down inflation expectations. Why can no one accept that higher inflation is necessary to bring down unemployment expectations?

Wow!

2011-11-07T14:58:00.001-08:00

This is very promising.

One huge complaint I have as a "small time" investor is that my good investment choices are dwindling. Management of current public companies seem to be paying themselves rather than their shareholders. A good reason for this is the lack of will to go public given the paperwork nightmare.

Go Galt, Peter Schiff part 2

2011-11-07T11:43:00.000-08:00

To make my point another way:

There's really no way to "Go Galt" with a result that in any way that will prove your point.

What Peter Schiff would most likely do is hand the reins of Euro Pacific Capital to a capable person, keep his wealth as equity in the company, and the employees would be fine.

Or he could sell Euro Pacific Capital and, Euro Pacific Capital being really just a fantastic collection of 150 employees, they'd still be fine.

If he was really really stupid, he would dissolve the company. If Peter Schiff laid off everyone at Euro Pacific Capital, he would lose an enormous amount of wealth. Why? Because a good part of the value of Euro Pacific Capital IS that it has a fantastic set of employees and will continue to add them and grow. In this case his employees would probably be hired elsewhere, and several would start their own firms to become billionaires so that they too can threaten to "go Galt".

CPI is Maddeningly Wrong

2011-11-07T09:07:00.001-08:00

Matt Yglesias points out that CPI is justifiably different for everyone depending on what they view as better quality. Scott Sumner, in another inflation targeting smack-down, again points out the shelter component of CPI has been steadily on the rise even though actual housing has probably yet to bottom out.

It is a huge problem when people just assume CPI is right before they proceed to justify inflation targeting as a policy.

EITC is Good

2011-11-04T13:22:00.001-07:00

Means tested welfare and EITC should be designed in a way that an incentive is created to get out of the safety net.

Say a single mom is on SNAP, section 8 housing, and Medicaid. If I were to pay her 30k, she would be worse off because she would lose access to all those means tested programs. If I were to pay her 36k she might not be so bad off. The only problem is she is inexperienced and not worth 36k. What if the government ponied up that 6k (but also didn't have to pay 6k worth of means tested benefits for a net cost of 0).

All of the sudden she has an incentive to get off welfare over an above her ethic, and two years later may even be making 50k because she's got some good experience under her belt.

(the numbers are not exact, but you get the idea. A good EITC would soften the implied marginal tax rates that are the result of losing access to a means tested benefit). It is a really bad policy to get rid of EITC instead of just streamlining it and the myriad means tested programs.

Go Galt, Peter Schiff

2011-11-04T12:46:00.000-07:00

Peter Schiff employs 150 people, how many do you employ?

Fine. In my perfect world, Schiff would have 300 employees and enjoy less consumption because our tax system made it more advantageous to invest more and consume less, though.

But - he also said, if his taxes go up he may just decide to stop working and lay off those 150 people.

Peter Schiff is very wealthy. It is insulting to those 150 people to imply they are charity cases. In other words, a good deal of his wealth is due to the returns generated by a good portion of those employees. He is probably a very good judge of employees; so good in fact, that I'm quite certain they will find jobs. Several of them may even risk it all, venture out and grow their own 150 employee companies when faced with the loss of their cushy Peter Schiff job. They will almost certainly be fine without Peter Schiff, perhaps better off in some cases. Peter Schiff would probably be racing to invest in the startups of his most promising employees.

Steve Jobs died, yet the world kept turning. If we can survive without Steve Jobs, we can certainly live without a working Peter Schiff.

There's a Lot Of Rent Seeking in the 1%

2011-11-04T10:25:00.000-07:00

My only problem with Brad Plumer's piece on whether online piracy is really hurting the industry is this word:

earning record profits overseas

Let's call it what it is: "rents", not profits. Let us not forget that a government granted monopoly should be balanced with the actual capital cost of creating and distributing the product. Technical advances have made content far cheaper to produce, and practically free to distribute, yet consumers do not see the benefits as copyrights have become more restrictive rather than the other way around. I do not condone piracy, but it is probably responsible for all recent legal innovations in distribution.

The Redistribution of Wealth We Should Care About

2011-11-03T09:57:00.000-07:00

The biggest wealth transfers in America occur between people without a lot of wealth to people with a lot of wealth. This is in the form of Social Security and Medicare.

The EITC is a very efficient way to redistribute consumption, it encourages the poor to work more instead of staying on welfare, and used to be championed by conservative economists.

The rhetoric on the Right wants to keep middle class wealth redistribution, and eliminate an efficient consumption redistribution. This is, in a word, stupid.

I Don't Have the Facts to Back This Up, but

2011-11-02T12:08:00.000-07:00

I think Democrat's have underestimated how much benefits extensions and cobra subsidies are contributing to the unemployment rate. A lot of the unemployed have other options. For instance, a 17 year old would gladly collect unemployment benefits for the full 99 weeks while attending school. Same with college students, or people with working spouses who don't really need to work. I know some other people who regularly exhaust their benefits before even looking for another job.

The 5 unemployed for every opening argument is compelling, but are there REALLY 5 people actively looking for those positions and not just staying "unemployed" so they can continue to collect benefits until they are exhausted.

In other words, is the unemployment rate inflated because we are giving benefits to people who would otherwise not bother being counted as "unemployed"?

Yes, I realize this is exactly the opposite of what I said in a previous post.

Simple ShadowStats Smell Test

2011-10-27T11:09:00.000-07:00

People who worry about inflation tend to point to shadowstats.com as a truer measure of inflation. They likely don't do this simple test to see how valid it is:

What was my income X years ago, what it is now, and is my standard of living reduced as much as this inflation measure says it should be?

I didn't move to the U.S. until 2003, and from a higher tax nation, so I'm going to start there. At that time my household income was about 100,000. Eyeballing the chart here, I can see what our income should be to keep up with the alternate inflation measure.

2003, 100,000
2004, +7.5%, 107,500
2005, +9.5%, 117,712
2006, +11%, 130,660
2007, +11%, 145,032
2008, +10%, 159,535
2009, +5.5%, 161,979
2010, +10%, 178,176
2011, +11%, 197,775

Our household income is much less than $197,775, which is what shadowstats claims we need just to keep up with inflation. Yet miraculously we feel much better off than we felt in 2003. That includes now having 2 kids we have to spend money on, and a larger house! Weird.

Incidentally, regular CPI says we need $123,309.24 a year to have roughly the same standard of living as in 2003. That seems more reasonable to me...

I'm The 99 and The 53 (part 1)

2011-10-26T09:35:00.000-07:00

I'm the 99:
- Income inequality reflects a problem. Government granted monopolies in the form of licensing, copyrights, and patents have a specific purpose: to overcome the large capital costs involved with creating a new product or work. When huge technological leaps are made to make the creation of media or products cheaper and easier, it's time to RELAX these government protections ("rents"). Rent seeking accounts for a huge amount of income inequality.
- Equality of opportunity needs a safety net and redistribution of consumption is the best way to pay for it.
- Hating government in the abstract is not a good way get streamlined, efficient government.
- Suffering in the name of "personal responsibility" is necessary, but it can be excessive enough to be counter-productive in a laissez-faire system.

I'm the 53:
- I will never feel sorry for someone who willingly entered a contract that they had perfectly reasonable alternatives for and then complained about the outcome. You have to take responsibility for your own bad decision, lack of action, or dumb behavior.
- Bailouts that prevent you from gaining the wisdom that comes from learning from your mistakes will hinder you. Bad decisions need to have bad outcomes.
- 99ers should read "The Millionaire Next Door". When I did, I recognized that life needs to include SOME hardship or less people will choose to be exceptional out of necessity.

VAT and Flat Taxes are Not Equivalent

2011-10-24T16:08:00.001-07:00

In the long run they are, but if immediately enacted, old capital is treated much differently. When a VAT is enacted and a saver switches to consumption, he still pays tax. In a flat tax, realized capital that is used for consumption is not taxed.

There are some "fairness" issues that are different depending on the version. For example, is it fair that a retiree who saved after tax income is now double taxed with a VAT? Is it fair that a trust fund kid pays 0 tax even if all he does is consume under a flat tax?

Inflation Protection

2011-10-24T12:58:00.000-07:00

My neighbor asked me a few years ago what he should do with his money. He's a hardcore right-wing talk radio listener and I knew he just wanted me to say "gold". I thought then, and still think now that gold is a horrible idea, but I didn't have any better ideas either. I'm starting to come up with some now though:

- Invest in companies with large economic moats. That is, companies with the best ability to simply pass higher prices on to consumers. The most obvious of these are oil and basic materials companies who own quality wells and mines. As of today it seems some inflation is already priced in to these companies, but there will likely still be some buying opportunities ahead.

- Get Fixed Rate Debt / Pay off high interest debt. If you are carrying variable interest rate debt now is the time to get rid of it, if you can. Either pay it off or refinance to fixed rate debt.

- Become a landlord. This is counter-intuitive, I know. The thing is though, rents have not seen nearly the same decrease as property values (in fact they've been increasing), and rent vs. own ratios are very good in many cities. Remember that inflation cannot last without increases in wages. Wages won't increase until quality employees can no longer be picked up on the cheap. Multi-family properties are not being built, which will contribute to a shortage if inflation picks up. Once people are hired and getting raises I expect rental properties to be able to keep up with inflation.

I don't expect any significant inflation for a few years. It will be especially hard to register much inflation in 2012 where gas prices have to be significantly higher than $4 a gallon to match the change from 2010 to 2011. I also don't see the Fed doing what I see as the best recommendation which would immediately boost demand driven inflation. Instead what I predict is small spurts of growth when oil prices are low, followed by a general slowing as speculation pushes oil prices higher. In essence, energy prices will function as our monetary policy lever.

Student Loan Forgiveness Is a Bad Idea

2011-10-24T11:19:00.000-07:00

Eli Leher gets to half of the problem here:

This would amount to an open-ended subsidy that would benefit many of America’s largest corporations (the universities themselves) forever.

The other half was addressed in Josh Barro's post:

Consumers are not imposing discipline on the market in the way I would expect—they fail to shop around for the best education value, and sometimes they buy education products that are worth less than their cost.

Forgiving student loans prevents what needs to inevitably happen: We need to start getting our money's worth out of education.

Romney Has The Best Tax Plan For Me

2011-10-24T09:28:00.000-07:00

Actually I'd do better under 9-9-9, but I'm not under any illusion that it could pass. Romney's plan eliminates taxes on capital gains and dividends for the middle class. The chief "complaint" is that the middle class realize very little of these types of income. This is actually a feature of the plan. People would shift their saving habits given the new incentive and it would cost the government very little in lost revenue for them to do so.

The problem with the analysis is that the middle class has alternatives (Retirement and Education accounts) that eat up most of their savings. Given the alternative Romney offers, I'd expect shifts from these specialized accounts to general investment accounts, all at very little cost to the government.

I would certainly ditch my 401k with it's ridiculous 2-3% expense ratios in favor of an account I could run myself for under 1%.

Student Loans For "Useless" Degrees

2011-10-21T11:17:00.000-07:00

One of my favorite right of center pundits, Josh Barro says:

These are not people who got screwed. These are people who have gainful employment available to them and made follow-your-dreams life choices that reduce their incomes. That’s their prerogative; it’s not anybody else’s problem.

This is true, but the "following your dreams" part is not the bad part. Everyone who is capable of making money doing what they love and are best at should do that. What's dumb is to go into a huge amount of debt for an advanced degree that doesn't result in a suitably large change in income over a more basic or general degree.

Would Occupy Wall Street Protesters Understand What They Want?

2011-10-06T09:19:00.000-07:00

To put it succinctly, I think they want policy that is not so supportive of rentiers. This means reduced copyright and patent protection, reduced licensing, and elimination regulations and tariffs that only serve to reduce competition and enrich the few. In addition they should ask for monetary policy that is not so afraid of inflation. These things would increase employment and decrease income inequality.

What they'll get instead is populist lip service on higher taxes for the 1% and "getting money out of politics".

Fire Your Bank: OMG Edition

2011-10-05T17:33:00.001-07:00

Some time ago I fired my bank, Wells Fargo. The reason was twofold:

1) TARP - Instead of complaining about cronyism and the moral hazard of FDIC and bailouts, I decided to put my money in a bank that did not need a bailout.

2)The Fee Dance - I managed to avoid (most) fees by carefully paying attention to account types, minimums and add-ons. My father, who lives in Canada, decided to open a U.S. account to link to Paypal and did not pay attention to these details. They charged fees for "services" that cleaned out his initial 150 dollar deposit in less than 6 months, before he even had a chance to look at the account balance. Instead of whining about fees and carefully maintaining balances and watching for fee hikes, I just went to a bank with no fees on an interest bearing checking account, oddly enough there are plenty of these around.

When I see this story, the part that makes me sick is not the fact that he said they have a "right to make a profit". It's the part about "populist rage". The solution to this fee problem is easy: take your business elsewhere!

Stop being a doorstop for giant banks that assume you're too lazy to fire them. Search for "fire your bank" for more info and to get started on finding a better bank near you.