Thursday, October 30, 2008

Write-in Candidates in Saint Louis

Glenn Reynolds mentioned Robert Heinlein's advice to vote against candidates, even when you can't find one worth voting for. It's long been my policy to never vote for a candidate that is running unopposed. If they can't drag themselves and their mother to the polls, then they do not deserve to win and I refuse to pile-on against some unknown write-in challenger.

This year, I want to find-out who the unknowns are. If you're running a write-in campaign in St Louis, please leave your name and a link to your website in the comments.

Wednesday, October 29, 2008

American Awakening

A common refrain earlier this political season was: "there's more that unites us than divides us." We are all Americans, after all. We must focus on that which unites us for the civility of our public lives. We must set aside our skin color, though we are still proud of our heritage. We must set aside our religion, though it is still paramount to each of us. We must unite as the American race.
"Keep ancient lands, your storied pomp!" cries she
With silent lips. "Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"
Statue of Liberty National Monument, The New Colossus by Emma Lazarus
Such were and will be the ancestors of the American race because we are a race defined by our love of liberty and united by our differences. Out of many different ingredients, we have created one American race in our great melting pot. This race is defined by an ideal that transcends time and place, a dream of freedom, a dream of unity for which we all strive.

We know of the slave's dreams of freedom and equality. We know of the African-American's dreams of liberty and justice. Americans have heard of these dreams deferred. We see how beautiful our black siblings are and we are ashamed of our wrongs against them. And in our shame we have fought for those dreams and for our own unity. We fought and died. Through that tumult we were able to advance our American ideal of freedom. But, though we remained one country, our civil fabric was horribly torn.

Dream of the American race transforming the jangling discords of our nation into a beautiful symphony of brotherhood! Hold fast that dream within your heart! That dream brought countless Americans to Washington DC on an August day in '63. America responded with the Civil Rights Act of '64 and other incremental steps toward our American ideal: Loving v. Virginia effectively legalized interracial marriage, Jim Crow laws were repealed, and affirmative action policies implemented to name a few.

As Americans we are dedicated to the proposition that all are created equal. Again and again our tweaks begin to approximate equality and rectify passed wrongs. Our instruments of change are not perfectly tuned. We see the over correction in affirmative action when one American is granted a job and a "more qualified" American is denied that job. Affirmative action is a blunt instrument that can mar our civil fabric. If affirmative action works it will someday no longer be required and if it does not work, then all it does is foster racial strife. We can do better. We must.

To end affirmative action by legislative decree would be far too jarring, rending the civil fabric. Yet, America’s first woman Justice, Sandra Day O’Connor, captured the feelings of many Americans when she remarked that the Court “had tried to be careful in stressing that affirmative action should be a temporary bandage rather than a permanent cure.” We need a mechanism to allow affirmative action to fade away while it continues to right past wrongs for a time. This is our dream of a future free from shame and bright beyond the telling of it.

There is a mechanism to gradually bring about that future—an American approach that is a novel appeal to individual liberty. When presented with a job application or when applying to college, indicate that your race is only American. In so doing, you opt out of affirmative action. Some Americans will do this and some Americans will not. In time, as we realize our dream of unity and mend the fabric of our civility, more Americans will do this than will not. In time, affirmative action will pass away by our collective resolve to be American.

Americans are foremost in the fight of the battles of the free because we dream that one day this nation will rise up and live out the true meaning of its creed. Our common American heritage is what unites us, but we lack an analytic tool, a metric, that would allow us to asses our unity. We do not know when one American has slighted another. We only learn of injustice and resentment when it boils over in violence described in the news. Oh, then we know the civil fabric was torn. We must know ourselves better. We must look into our soul.

We must be introspective. The American centre can be the cap stone that prevents things falling apart. When you complete the census form in 2010 and when pollsters enquire about your race, indicate that you are American. If permitted and so inclined affirm your other racial identities. Claiming to be part of the American race demonstrates your solidarity with other Americans. Choosing not to identify as American communicates that we are not collectively living up to the American ideal. You are rendering a judgment on the sins of other Americans when you do not self-identify as American and in so doing you anonymously challenge us to work harder toward the American ideal. Both are required, both patriotic.

It is the contrast of these choices that creates our introspection. The mere act of self-identifying as American does little, though we hope and pray that it may mildly warm our civil fellowship. Poll after poll, census after census, we will begin to see the places where more Americans self-identify as such and where fewer do. O beautiful American dream that sees beyond the years! We will learn what brings Americans together and what sunders them. We will see hideous racism and glorious integration. And we will know better for we will know ourselves. If America is to become a greater nation, this must become true.

Americans are not constrained to a single race. This is captured in the label African-American. These Americans identify as both fully American and fully African. It is as if two roads diverge--a choice between two races, two identities. But it's a false choice. Americans, African-Americans, gladly choose to travel both and be one traveler. And that makes all the difference. The individual American striving for that ideal of liberty and unity… the American whose heritage includes European, African, Asian, or Native American blood… the American whose ancestors were Hindu, Christian, Islamic, Atheist, or Jewish… these Americans wear the great seal on their hearts: E Pluribus Unum. Out of Many, One. Just as the individual American is One, though of diverse origin, so our body politic is One, though of diverse composition. Let our future radiant shine with sweet hopes American!

There is much change and promise in this American future. Will we rather bear those ills we have, than fly to others we know not of? We will soar on wings like eagles because, united as Americans, our strength will be renewed. The change here proposed is an appeal to all Americans to make a positive difference in a small way. The magnitude of this change is amplified by the tranquil deliberations and voluntary consent of so many distinct communities. Every American is empowered to play a critical part.

The American soul yearns for racial reconciliation. The preservation of the sacred fire of liberty is justly considered, perhaps, as deeply, as finally, staked on this experiment entrusted to the hands of the American people. There is no shortcut. But we will laugh as we go because we will learn that we all have something in common: we are American.

Tuesday, October 28, 2008

Standing Up for Greg the Economist

Tim Wu takes a couple of shots at Greg Mankiw's work incentives under an Obama tax regime. Greg made the point that Obama's tax plans make it preferable for him to spend time with his family instead of putting out the extra effort to earn another dollar. Tim makes the following two arguments:
1. It assumes that his only incentive to do any work outside of his regular teaching and research is to make money. This seems so counter to what the idea of academia is for, and is passed over so easily.

Tenured academics like Greg M. have an incredible luxury: the time, freedom to work on what he wants, and a guaranteed paycheck (in his case, a large one). To say in that position you’ll only do “more work” if paid seems an offense to the idea of academia itself. Academics aren’t supposed to be on sale or work only on commission.
It appears to me that Tim is suggesting that tenured professors should not be paid for speaking engagements or consulting services. Since that can't be what he really means, I feel that Tim is being disingenuous. He is using the Professor's occupation to deny Mankiw the opportunity to freelance by implying that speaking and consulting are somehow part of his professorship. Neither Tim nor I know what the Professor's compensation includes, but I would not be surprised if it explicitly allowed and even encouraged Mankiw to pursue consulting and paid speaking engagements.
Greg M. himself is disproof of his own ideas. He spends alot of time blogging, and writing advice for junior professors and so on, all for free. If Obama wins, it looks like he’ll be doing more of that in the future. Obama, if his blog post is right, will alter the balance of commercial and non-commercial work he does. The irony is that that result might be better for society than Greg M. doing a bunch of consulting or paid-speaking.
The professor does not blog "for free." He blogs to receive the accolades of people like me, to improve his name recognition to advantage himself in future salary negotiations, and (perhaps most importantly) to sell his favorite text books. Similar, I blog in the hope of someday receiving a free, signed copy of the Professor's wisdom for defending him against economically illiterate attacks.

As to what is best for society, I do not think Tim is the one to judge. Surely a teenage neighbor of the Professor would benefit from a sitting job while Mankiw lectures out of town. Or perhaps one of his own children is old enough to be entrusted with the care of their siblings and the stimulation of the local economy. With a more favorable tax structure, the good Professor might hire a nanny or au pair to help raise the children, prepare meals, and clean the house. This would not only employ someone directly, but on that rare Friday night when the Professor has no speaking engagement, he and his wife could go out for a truly spectacular dinner at Aujourd'hui thus employing, in part, a few more people.

All of that is the work of the invisible hand.

Tim continues:
2. The implication, taken by other writers like “Beldar” though not by Greg himself, is that Greg working less is proof that Obama’s tax cut will hurt the country. But hold on - Greg represents 5% of the country. The rest — the 95% percent who get a tax cut, will presumably have reasons to want to work harder, because their taxes are going down.
Roughly 40% of wage earners pay no income tax. They do pay payroll taxes, but then a plan to return Social Security revenue is surely a plan to accelerate the collapse of that great ponzi scheme.
It’s a simple calculation. The tradeoff is those who make more than $250,000 doing less commercial and more non-commerical work, versus 95% percent of the population who have reasons to do more.

Its at least ambiguous. And since the money is worth more, on the margin, to people who make less than $250,000, they have more reason to want to work for it. $1000 means more to someone who makes $60,000 than to Greg M.
I agree with Tim; however, I think that the "Pigovian" income tax that I propose creates even greater incentive for lower wage earners to do additional work while also potentially increasing the Professor's incentives. It's not an either or.
The upshot: Obama’s tax plan will encourage a rich man like Greg M. to devote more time to the public and his children instead of paid speaking gigs, and gives a lot more other people more incentives to earn more money. Sounds pretty good to me.
I do not know if the Professor is rich since I only know that his income is in the upper middle class. Perhaps he is not particularly frugal, but would become so if allowed to work for and save more money. I'll agree that it "sounds pretty good" in one respect: Joe the Plumber can lowball Mankiw on a lot of those speaking gigs and probably do a reasonable job at the lectern.

Update: Welcome Instapundit readers!

Sunday, October 26, 2008

Hell Hath no Fury

Glenn Reynolds linked to this Helen McCaffery piece and this Power Line post about the rampant misogyny on the Left. McCaffery puts it best:
I cannot predict who will win the presidential campaign, but I already know who will lose big: all women.
What's amazing to me is that the Left has managed to offend women on both sides of the political spectrum. Hillary was pilloried with sexist attacks during the nomination and the vitriol that has been showered on Palin is reprehensible. So, even if Obama wins November 4th, I think Hillary will get the Democrat nomination in 2012. Not only will she be the novel new historic candidate, but she'll have a tsunami of pent of rage at her back.

Friday, October 24, 2008

Lesson Learned

We've been hearing about the media bias in this election for months now. This Pew Research Center for the People and the Press poll captures in startling detail how blatantly biased the media has been. By an astounding margin of 61% (70% to 9%) voters say that the press want Obama to win.

Lesson: Propaganda does not require government sponsorship.

Update: The Anchoress makes the point that the MSM are bidding to become propagandists. Hey, everyone's NPR now! Here's how she puts it:
I personally believe that the press is going “all in” on Obama because they figure it’s the best way to shut down alternative media - which is killing them - and go back to being the only game in town. The only game in town, and completely beholden to the government. That’s scary as hell.
Glenn Reynolds (and The Anchoress) points to Michael Malone's Editing their Way to Oblivion post. The quote I found most interesting was: "A few days ago, when asked by a new acquaintance what I did for a living, I replied that I was “a writer”, because I couldn’t bring myself to admit to a stranger that I’m a journalist."

Thursday, October 23, 2008

Your Tax Dollars at Work

With declining circulation numbers plaguing most (all?) of America's newspapers, The Fed has developed a rescue package focussed on buying up "unneeded" paper and ink.

See also: Professor Mankiw, Money Supply

Tuesday, October 21, 2008

A Pigovian Income Tax

In a shameless bid to join Greg Mankiw's Pigou Club, I've devised a Pigovian income tax. I first thought about this a couple weeks ago after Professor Mankiw proposed a new metric for computing average marginal tax rate. In a follow-up post a reader suggested an improvement to the metric and dubbed this the "Mankiw effective tax rate".

At that phrase, my mind wandered. I began to think about what income tax policy Professor Mankiw would prefer. Readers of his blog would instantly know that he would prefer a Pigovian income tax, but what exactly is that. Let's start with a definition

Pigovian tax: (n.) a tax levied to correct the negative externalities of a market activity

This begs the question: what are the negative externalities of our current income tax policy? Obviously, the answers to that question are debatable. Here are the two negative externalities that I'll try to address:
  1. Free riding (The poorest people pay no income tax)
  2. Greed (The rich do not "pay their fair share")
Free riding and greed are related. The tax burden in modern America falls almost exclusively on the high income earners. The top 50% of earners pay 97% of income taxes. The top 5%, pay 60%. We're already soaking the rich. The bottom 40% of wage earners pay no taxes. They're free riding.

A corollary to both free riding and greed is class warfare. If the tax rates of the low and high wage earners could be linked, we could address not only greed and free riding, but also class warfare. So, my Pigovian income tax would tightly couple the interests of high and low wage earners. I would accomplish this by making the tax rate for the top wage earners a multiple of the tax rate for the bottom wage earners. For example, if we chose a multiple of two and set the bottom tax rate to 20%, then the top tax rate would be 40%. Let's apply the 20% rate to the bottom quintile and the 40% rate to the top quintile.

That leaves the middle three quintiles up for grabs. Tax brackets could be divided up differently and probably would be in the real world. Still, quintiles offer a simple way to illustrate my point. If we used a typical progressive scheme, we would wind up with progressively higher tax rates, say, 25%, 30%, and 35% for the middle quintiles.

I would prefer a tax policy that incentivizes productivity, so I will examine a policy of declining tax rates, say, 12%, 6%, and 0%. Let's consider these tax rates, but replace the quintiles with household income ranges so we can see what this might look like with real numbers.

Income RangeTax RateRevenue Est.
$0 to $20,00020%$51,401,950,000
$20,000 to $40,00012%$114,728,120,000
$40,000 to $62,0006%$155,023,760,000
$62,000 to $100,0000%$171,086,480,000
$100,000 and up40%$776,028,380,000

Note 1: I assume 22.25 million households per quintile which is slightly higher than the 2007 number implied at
Note 2: Quintile ranges are based on data from I used the mean income data there to calculate my revenue estimates.
Note 3: The also implies that total income tax revenue is about $1.25 trillion.

Are you shocked at that 0% rate for the upper middle class bracket? It has a couple of nice side effects. First, it clearly marks the transition to the higher "greed" tax. Second, it reduces the burden of filing tax returns for a quintile that is likely to have numerous deductions. If you're at the upper end of that quintile, there's no reason to itemize unless you can muster almost $40k in deductions. This would also apply, though to a lesser extent, with the middle class bracket of 6%. In that case, filers would have to decide if the burden of documenting a deduction was worth the 6% savings that it would net.

This incentive structure is the inverse of what currently exists. Because each tax bracket is at a higher tax rate, the incentive to itemize increases as earnings increase. I suspect that discouraging itemization (as my proposal does) will reduce fraud and raise revenues.

Monday, October 20, 2008

Great American Ponzi Scheme is running a great video series on social security or, what I like to call, the Great American Ponzi Scheme. The first presidential candidate to call it that, gets my vote. I suspect I'll be well into my 80s, awaiting my first social security check, before that happens.

McCain Rally in St Charles

I made it to the McCain rally in St Charles this morning, but just barely. I was on the last shuttle bus from the remote parking to the event and got there after McCain's motorcade. In fact, he was just starting to speak when I arrived. I was able to snap a few pictures.

I was welcomed to the event by the minions of our (presumed) Dear Leader.

McCain warming up the crowd.

McCain wrapping up his exhortations to the Forces of Light.

Wednesday, October 15, 2008

Ready... Aim... Fire!

Tyler Cowen summarizes Obama's economic plan. I don't get the $3,000 per new hire. If Obama's elected, won't employers just fire lots of people November 5th? They could rationalize it on economy/market uncertainty and wait for Obama's new hire bonus to kick-in before raising head count again.

Update: Here's the bullet point from Tyler's post:
— for the next two years, give businesses a $3,000 income-tax credit for each new full-time employee they hire above the number in their current workforce;
The more I think about this, the more I think it's going to drive up unemployment in November when employers just fire lots of people November 5th. Doesn't "current workforce" mean the headcount of companies when the bill is signed? Assuming I'm wrong and that "current workforce" means workforce in October 2008, doesn't that create the incentive for employers to fire workers Nov 3rd and let them know they'll all be re-hired on the 5th if McCain wins? Is Obama intentionally trying to make workers worry about their jobs? And how does this restore confidence in the markets?

Please tell me I'm missing something....

Tuesday, October 14, 2008

Who's Better for the Stock Market?

Harvard's Greg Mankiw blogged today about Republicans, Democrats, and the Stock Market. His main point is that the efficient market hypothesis implies that the incoming president moves the market prior to taking office; therefore, it is meaningless to measure market performance from their respective start and end dates in office and conclude that Democrats are better for the market.

It seems to me an analysis that omitted the first and last years of each president's term would be a much better barometer. Investors with longer time horizons for their investments might skew this measure slightly, but not too much, I would think.

There's still the correlation-does-not-prove-causality issue...

Comment Policy

Due to popular demand, I'm going to enable commenting on future posts. I reserve the right to delete comments on a whim. Profanity, personal attacks, off-topic remarks, and spam tend to make me whimsical, if you know what I mean.

If I think you're a troll I will ban you (if I can figure out how).

I plan to close comments after a period of time not less than one week from the posting date.

Monday, October 13, 2008

Money Supply

Printing Press (noun): Mechanical device used by the Weimar Republic to deter rampant monetary expansion.

Last Friday I saw this graph at the von Mises Institute. Today (Monday), I noticed that the graph had changed—click on the picture to see the latest graph of our Monetary Base. (Update: The Fed dataset is for every two weeks. The picture below ends with the 9/24 data point. You'll see the 10/8 data point after the jump.)

Whew! We can all rest soundly knowing that our (nominal) bank deposits are safe!

If this worries you, I'd recommend the Zimbabwe strategy: buy something of value on your lunch break.

Wednesday, October 8, 2008

Hu's in Trouble?

The last capitalist we hang shall be the one who sold us the rope. — Karl Marx

Economists assure us that international trade is a good thing. I agree, and I think the advantages of trade are well described by the Ricardian model and comparative advantage. Yet, I worry that every dollar of debt we incur with China is a little more rope for them to use against us.

Here's an imagined conversation between Hu Jintao and George W. Bush to illustrate a repugnant possibility of China's vast holdings of US currency and debt instruments:
[Phone rings in Oval Office. Bush answers.]
W: This is W.
Hu: Howdy cowboy! Hu here.
W: The 2008 games... Great show, great show...
Hu: Let's cut to the chase. We've got some of your spare change we could loan you.
W: Right.
Hu: Furthermore, we've got a lot people to keep occupied. We can keep them occupied by either working in factories making McDonald's Happy Meal toys or we can muster them into armies. We like the Happy Meal gig and I think you do to.
W: Yup.
Hu: So how about you recognize our territorial claims to the island of Formosa?
W: Hmmm... You know I can't do that.
Hu: We'll burn $700B worth of US Government bonds and you'll recognize us as the rightful sovereign of that little island.
The above dialog reaches a spectacular low in (imagined and implied) moral turpitude. Unfortunately, this sort of option is going to remain on the table as long as China has significant holdings denominated in US dollars.

I don't know if we should do anything. Inaction is sometimes the best course of action. Nonetheless, the reality of the Templeton curve looms large before us. Politicians are oddly promising more spending during one of the greatest financial crises in American history. As a result, debt forgiveness will become more politically appealing.

I'd like to know how economists see this playing out. Are there similar examples from history that we can learn from? What policy changes should we consider?

Tuesday, October 7, 2008

Rush the Hill!

The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure. — Thomas Jefferson

Both sides of the Congressional aisle are deeply mistrusted. A recent Rasmussen poll found that 59% of voters would like to replace our entire Congress. Yet the reelection rate is alarmingly high, sometimes reaching 98% in the House. Senate seats also favor incumbents though not to the same degree. It is time for the patriots and tyrants in Congress to go.

Term limiting members of Congress is politically difficult because existing plans rely on the Constitutional Amendment process. That approach would require Congressional approval—members of Congress would have to vote against their own interest, against keeping their high-paying jobs indefinitely. Their entrenched power tugs against such reform. The following is an implementation strategy that leverages state interests to overcome this political barrier and create a new kind of term limit.

This new term limit is distinct from past proposals. Instead of limiting the number of years that a member of Congress may serve, I am proposing that members not serve consecutive terms. There are several benefits to this approach. First, members will not campaign for themselves while they are on the public's dime (unless they run for an executive office). Second, after serving they will likely leave Washington, DC, and reacquaint themselves with their constituency in anticipation of another race two years out. Third, members will enter office with the expectation that they will have to find a new job—at least for a little while—at the end of their term. Perhaps the most important reason for this reform is that lobbyists would no longer have the pretense of an up-coming election by which to rationalize their "contributions" to sitting legislators. This may make a ban of such donations politically possible.

The main incentive for this term limit proposal already exists. Each state house is filled with legislators eagerly awaiting the opportunity to serve their constituents on the national scene as either a representative or a senator. State legislators have a political and a financial interest to increase the competition for Congressional seats since they would be the chief beneficiary. This incentive can propel state-level constitutional amendments and/or ballot initiatives that prevent members of Congress from serving consecutive terms.

Each state that adopts a term limit law provides an experiment in legislative reform. Collectively, they compose the Laboratory of Democracy. While I prefer the term limit plan outlined above there are many variations on this simple idea. Some states may only want to term limit their US Representatives, while not so constraining their Senators. Other states may choose term limits that follow the traditional approach of restricting the number of years that Congressmen may hold office. Perhaps a few bold states would impose term limits on both their Congressional delegation and their state houses.

The Promised Land of legislative reform is a term limit amendment to the US Constitution. Such an amendment would represent a compromise informed by the experiments within our Laboratory of Democracy. I suspect that such an amendment would be structured to impose term limits on state legislatures as well. Once a sufficient number of states have adopted some form of Congressional term limit the tipping point will be reached for Congress to act on a Constitutional Amendment.

The Tenth Amendment reads: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." It is time for the states and the people to refresh the tree of liberty.