Bye-Bye Karen Hughes

Karen Hughes resigns her post at State as Undersecretary for Public Diplomacy and Public Affairs. If you believe Fred Kaplan, America's image in the world can only improve as a result of her departure.

Seriously, though, I hope the valedictories on her tenure will give some idea of what she actually has been doing for the last two-and-a-half years. The State Dept. website provides few answers.

More on Leonhardt

Beyond the two points in my last post, two of Leonhardt's tax facts deserve brief comment.

First, Leonhardt notes that despite the corporate income tax rate remaining unchanged at 35 percent since 1993, corporations have continually found ways to lower the portion of their profits going to federal income taxes (down to 22 cents of every dollar by 1998). Johnston (Perfectly Legal 14) notes that for almost three decades corporate profits have been growing faster than corporate income taxes.

A major cause of this tax avoidance is American-owned multinational corporations shifting profits to lower tax jurisdictions (e.g. Ireland or Bermuda). America's complicated approach to taxing income from multinationals enables such profit-shifting schemes. For a better approach to multinationals' profits, see discussion paper from my Reed Professor Kim Clausing (with Reuven Avi-Yonah). Clausing and Avi-Yonah contend that their reforms would increase corporate income tax revenue enough to make reductions in the corporate income tax rate revenue-neutral. Someone ought to mention these ideas to Charlie Rangel.

Second, consider this summary of Leonhardt's first two facts:

As a group, the rich pay a greater share of taxes than in the past.

The top 1 percent of taxpayers — those with adjustable gross income of at least $267,000 in 2004 — paid more than 25 percent of all federal taxes that year, according to the Congressional Budget Office. That was up from 15 percent in 1979.

The affluent are paying more of the taxes because they’re making so much more money.

A family in that top 1 percent of earners paid a total federal tax rate — including everything from payroll taxes to income taxes to capital gains taxes — of 30 percent in 2004. That was down from 41 percent a decade before. Since the 1950s, tax rates on high-income families have generally been falling.

The top earners pay a bigger share of the government tab than in the past because their incomes have risen so sharply — even more sharply than their tax bills.

The affluent, in short, are paying less in taxes on every dollar they earn but earning many more dollars.

While noting that the incomes of the richest 1 percent have grown more quickly than their tax bills, Leonhardt neglects to numerically compare the richest 1 percent's slice of the tax pie with its slice of the income pie. In 2004, when the richest 1 percent payed 25 percent of all federal taxes, they earned 19 percent of national income. In 2005 the richest 1 percent's take of national income rose to 21.2 percent, the highest share recorded since the IRS began tallying the figure in 1986. Thus, not only is a rising share of national income the cause of the richest 1 percent's rising share of the national tax bill, the two percentages are fairly close.

Leonhardt on Taxes

David Leonhardt sensibly highlights five facts crucial to the tax debate. While acknowledging that facts alone cannot dictate what constitutes "fair" tax policy, Leonhardt at least sets the table for fair argument. Valuable as Leonhardt's list is, however, any discussion of the American tax system must also include these two points.

The Entire U.S. Tax Code - Federal, State, Local - Resembles a Flat Tax System

Warren Buffett caused a splash recently by arguing that his federal taxes equaled a smaller percentage of his taxable income than did his receptionist's of her income (17.7 percent versus 30 percent). Greg Mankiw criticized Buffett's calculation as inaccurate, and Mankiw's corrections indeed show the federal tax system to be progressive.

The spirit of Buffett's objection, however, is valid even if his focus on federal taxes alone is misplaced. Since America has enacted a federalist system - allowing taxation powers to devolve to states and localities - the President and Congress have an obligation to consider how federal tax laws interact with state and local ones. It makes no sense to consider a federal tax burdens in a vacuum. And since states and localities rely heavily on sales taxes whose burden falls as income rises, the overall American tax system is far less progressive than the federal system alone. David Cay Johnston states the case (Perfectly Legal 96):

The federal Bureau of Labor Statistics, in its annual consumer expenditure survey, looked at the burden of local and state taxes as well as federal levies... For 2001 the government found that all taxes at all levels of government consumed 19 percent of the incomes of the best-off fifth of Americans, those individuals and families whose average income was $116,666 that year. Down at the bottom of the poorest fifth, whose average income was $7,946, paid 18 percent.

What this means is that the entire tax system at all levels amounts to a crushing flat tax, one that is crushing the poor and one that does not extract the harsh levies so often cited by politicians who owe their allegiance to the political donor class. This leveling of tax burdens between those most able to pay and those least able to pay reflects the regressive nature of sales taxes on merchandise, excise taxes on various consumer goods, and the high rate of property taxes in poor communities. The burdens of these taxes diminish as incomes rise.

Though Johnson's figures are slightly dated, I doubt the situation has changed much since 2001, especially given the dire fiscal condition of many states in the intervening years. Leonhardt's discussion ignores state and local taxes, and this is standard in debates over federal tax policy. I believe this is unwise. If the federal government permits states and localities to adopt regressive taxes, one might argue that the federal tax code should be all the more progressive to compensate.

The Very Rich Have Gotten Fabulously Richer (to quote chapter three title of David Cay Johnston's Perfectly Legal)

Leonhardt discusses the extraordinary income gains of the richest 1 percent of Americans over the past thirty years, and rightly diagnoses this as the main reason the richest 1 percent is paying a larger portion of federal taxes (in 2004 paid 25 percent of federal taxes and earned 19 percent of national income). To treat the richest 1 percent as homogeneous, however, is to ignore the astounding income gains among the top rung of this class, those 13,400 households in the top 1/100th of one percent who in 2000 had an average income of $24 million (560 times the average U.S. household income of $42,700). I would contend that we cannot discuss tax fairness until everyone truly appreciates the extent of wealth concentration in America.

Between 1970 and 2000 this elite group's share of national income grew from 1 percent to 5 percent. This enormous income growth for the top 1/100th of one percent (henceforth "the Fortunate Few") vastly exceeded even the income gains of other households in the richest one percent; the incomes of the Fortunate Few grew almost 1,000 times faster than those in the bottom half of the richest one percent (meaning that in 2000 the bottom half had an average income of f $777,450 while the Fortunate Few had an average income of $24 million).

When compared to the income gains of the bottom 99 percent, the strides of the Fortunate Few become truly spectacular. Johnston reports that from 1970-2000 "For each dollar of additional income going to each of those in the bottom 99 percent of Americans the richest each averaged an astonishing $7,500" (Perfectly Legal 41). This disparity in income growth has produced a sea-change in the distribution of wealth. Whereas in 1970 the poorest third of Americans had more than ten times the income of the Fortunate Few, by 2000 the Fortunate Few (a mere 13,400 households) had slightly more income than the 96 million poorest Americans (e.g. roughly the poorest third). Johnston puts it well (Perfectly Legal 41):

Here is the most important news in these pages - just 28,000 men, women, and children had as much income in 2000 as the poorest 96 million Americans. Each group had about 5 percent of all reported income that year. To visualize the enormity of this chasm imagine these two groups in geographic terms. The super rich would occupy just one third of the seats at Yankee stadium, while those at the bottom are the equivalent of every Americans who lives west of Iowa - plus everyone in Iowa.

Given this almost comic disparity, discussions of U.S. tax equity ought to focus on the position of the Fortunate Few in particular as opposed to the top one percent in general. In 2000 the Fortunate Few earned 5 percent of national income; what share of federal taxes did they pay? This information is difficult to come by because the IRS data does not disaggregate among the top 1 percent, even though there is an obvious difference between a family earning $700,000 and a family earning $24 million.

Without even discussing raising statutory rates on the Fortunate Few above those currently imposed on the top 1 percent (something I would support), Johnston's Perfectly Legal explains the many tax and accounting schemes employed by this elite to artificially reduce their taxable income. Taxing the super-rich is indeed difficult, because they can hire an army of lawyers and accountants to outsmart the IRS (assuming they have not already persuaded Congress to pass ill-conceived laws, such as the preferential treatment of income accruing to hedge funds and private equity firms). Nonetheless, before getting swept up in debates over what share of a person's income the government can legitimately take, we should be studying ways to ensure that the Fortunate Few among us pay the taxes they owe.

(For a history of U.S. income inequality and taxes see Pikkety and Saez)

Clifford Brown Birthday Broadcast

WKCR FM plays all Clifford Brown to celebrate what would be the great trumpeter's 77th birthday. Bebop fans can tune to 89.9 (if in NYC) or listen live via stream on the WCKR website.

When Brownie speaks, wise men listen!

Eardrum

For anyone who thinks hip-hop is in a sorry state, buck up your spirits with Talib's latest album, Eardrum. This album is ridiculous; I would say over three-fourths of the songs are great. Though I was skeptical of the album's many collaborations (from Norah Jones to KRS-One), Talib makes them all work, especially "Country Cousins" with UGK. The man is a master.

A Prescient Blogger Explaining his Method

My high-school classmate and superstar blogger Matthew Yglesias alerts us to Daniel Davies' famous success in using his MBA-education to critique the claims of Iraq War advocates. Davies' post really is a fine piece of blogging.

Global Health

The latest installment of the Charlie Rose Science Series focuses on global health. The program featured a distinguished panel, including Jeffrey Sachs, Ann Venamen of UNICEF, and Tonya Villafana of the Malaria Vaccine Institute.

Though the panelists said many smart things, I'll summarize what struck me as the main lessons: global health is improving, but we can still save millions of lives at between 50 cents and five dollars apiece. Because I've egregiously buried the lede, impatient readers should skip to my third paragraph ("Life-Saving Measures are Available for a Pittance").

Global Health is Improving: The discussion began optimistically, emphasizing that in 2006 the death toll of children under five from infectious diseases dropped below 10 million for the first since the statistic has been collected. The 2006 toll represents a 23 percent drop in mortality of children under five since 1990 (when about 13 million children died), and a 60 percent drop since 1960. Mind you, the decline in under five mortality over this period has occurred despite an overall increase in the number of such children due to population growth. Since 1997 we have also seen tremendous reductions in mortality due to measles (a 75 percent reduction in Sub-Saharan Africa alone), increases in access to clean drinking water (hence reduced susceptibility to diarrheal diseases), and increases in breast feeding (which vastly improves health of babies).

Yet Sickest Parts of the World are also the Poorest: Peter Hotez noted that of the 2.5 billion people who live on less than two dollars are day, one in three of them suffer from hookworms or some other form of microbial disease. Not only do hookworms cause debilitating and stigmatizing inflammations - such as of the genitals - they also increase susceptibility to malaria, exacerbate existing malarial symptoms, and increase parent-to-child transmission of HIV/AIDS. Much econometric evidence establishes that contracting hookworms, malaria, or HIV significantly reduces an individual's wage earning capacity. Ann Venamen observed that Sub-Saharan Africa, as the poorest region in the planet, had also enjoyed the slimmest increases in life expectancy, chiefly because of the spread of HIV/AIDS, which over the last twenty years has reduced average life expectancy in the region from the 60s to the mid-30s. Needless to say, the link between poor health and productivity losses means that most public health measures are also economic development measures. The links among diseases - such as hookworms promoting susceptibility to malaria - also means that immunizing people against one disease will usually protect them against other diseases as well.

Life-Saving Measures are Available for a Pittance: Here is the most important fact from the program - how astoundingly cheap it is to help sick people. Immunization against hookworms costs 50 cents per person per year. For about $416 million annually, we theoretically could immunize all of those aforementioned hookworm sufferers who live on less than two dollars a day. With roughly one billion people in countries of the developed world, this would amount to less than 50 cents per rich country citizen per year. Or, consider that the U.S. agricultural budget in 2006 was $21.1 billion. For about one-fortieth of what we Americans spend subsidizing our (usually already rich) farmers each year, we could help protect 800 million people against worms.
To be fair, worms by themselves do not kill (they merely disfigure and aggravate susceptibility to other fatal diseases). But when it comes to actual life-saving interventions, the economics are no less stunning. Jeffrey Sachs became animated describing the massive benefits and low cost of antimalarial bednets (bednets sprayed with insecticide). Recent randomized clinical trials from Kenya found that use of such bednets reduces mortality from malaria by 44 percent. A bednet lasting five years costs about five dollars. Yet despite the enormous gain, many poor people simply cannot afford these technologies. Sachs' argued that in the average poor country charging even one dollar for bednets reduces their use by 50 percent. Sachs then offered the following calculation (which I paraphrase):

300 million sleeping sites in Africa. A five year bednet costs five dollars. Provide bednets to everyone in Africa for five years for $1.5 billion. This would be about $1.50 from every citizen of a rich country. To put $1.5 billion in perspective, is equal to one day's worth of what Americans spend on the Pentagon. One day's Pentagon is equal to five years of malaria protection for everyone in Africa.

Though thinking of the Pentagon budget temporally is somewhat odd (with money tied up in troop operations and weapons development, shutting down the Pentagon for one day is not as easy as turning off your air conditioner), Sachs is roughly correct on the numbers: the FY 2007 DOD baseline budget is $493.3 billion; throw in a $50 billion supplemental for Iraq and Afghanistan, and you are at $543.3 billion, just about 365x 1.5 billion.

Environment Matters for Health: Beyond the obvious - e.g. polluted drinking water spread microbial diseases - Sachs mentioned two interesting examples of environment affecting health. On the local side, he emphasized that the poor live in an extremely hazardous environment: evidently almost a million poor people each year die from respiratory infections due to inhaling smoke from wood fires. On the global side, climate change can precipitate the spread of diseases into heretofore unknown regions. For example, by raising average temperatures, climate change could expand the zone in which malaria can thrive further away from the equator and toward the poles. Sachs' recent book contains maps illustrating this phenomenon.

On an economic note, the program also contained a brief discussion of different methods for persuading drug companies to research vaccines to cure diseases that affect only or predominantly poor people (and thus for which a large private market does not exist). On one hand is the Gates Foundation approach - committing large grants up-front to finance research. Another method is the Advanced Market Commitment (AMC), whereby a government (or foundation) does not give up-front money, but rather promises that if a drug company creates an efficacious vaccine, it will guarantee a specific per-unit price for the first however many units produced. The idea of ADM is to provide market-like incentives where no market yet exists. This article conveys criticisms of the feasibility of the ADM approach.

The overall lesson - despite improvements, there is still a huge amount of easily and cheaply preventable death. Hopefully in ten years de-worming vaccines and bednets will universal enough to no longer warrant mention.

Red Barber - Oh Doctor, Resurrect This Man!

For anyone who laments the demise of sports broadcasting into colorless truisms, you ought to check out Red Barber's list of catchphrases. I first encountered Red last month at the Museum of the City of New York's outstanding exhibit "The Glory Days: New York Baseball 1947-1957." Barber broadcast Brooklyn Dodger games on radio, and later Yankee games on television. His call of Bobby Thompson's 1951 Shot Heard Round the World is gorgeously restrained (for 54 seconds, he simply lets the roar of the Polo Grounds speak for itself. Can you imagine a modern broadcaster keeping silent for 54 seconds in that situation? In any situation?)

Anyhow, as the link above shows, apparently Barber cultivated a "Southern Gentleman" image through the use of signature catchphrases. Man, I would give anything to tune into WFAN and hear Howie Rose say"the Mets are walkin' in the tall cotton now" - evidently a phrase Red used to describe success. Even occasional use of the exclamation "Oh, Doctor!" would do.

Red Barber was also a mentor to the young Vin Scully, which I know will be of intense interest to at least one potential reader.

Giuliani - Again Showing Exquisite Professional Judgment

Displaying characteristic good judgment of the kind that marked his support for Bernie Kerik as Homeland Security chief, Rudy Giuliani is now apparently taking his foreign policy cues from Norman Podhoretz. Podhoretz's views - particularly in regard to Iran - strike me as simply deranged, but read this interview and addendum in the New York Observer and make up your own mind.

For those who upon reading such an interview simply itch for a counter-punch, read Krugman's op-ed today.

Hillary the Healer?

I attended the Hillary Clinton rally at Abyssinian Baptist Church in Harlem this past Saturday. All the New York Democratic bigwigs were there, but fortunately I missed all of their speeches and arrived just in time to catch the President's introduction of Hillary. His introduction was vintage Bill Clinton, particularly the parts where he rhapsodized about how promoting alternative energy sources would not just reduce carbon emissions and dependence on Arab autocracies, but also create jobs immune to outsourcing, since "somebody's gotta go put up those wind mills and solar panels, and that kinda work can't be done from China or India." Hardly a slam-dunk in itself, but an interesting observation.

The most noteworthy part of Bill's stump speech, however, is that he touts Hillary as the candidate most likely to enact needed reforms because she will be best able to achieve compromise with Republicans. The need for compromise is uncontroversial; unless the Democrats find 60 seats in the Senate (a remote possibility), they will need Republican support to pass anything beyond a budget. The striking part is that Hillary is now the candidate who will best be able to reach across party lines. For anyone familiar with the depths of conservative hatred for Hillary (or for anyone who has watched five minutes or more of Fox News), the idea of Hillary as the most bipartisan of Democratic candidates requires some reflection to accept.

Not that Bill is necessarily wrong. Hillary by all accounts has won grudging respect from conservatives in the senate, probably because of her hawkish foreign policy stances (Iraq, the Iranian Revolutionary Guard terrorist Resolution) and support for select "moral values" resolutions (namely federal intervention in the Terri Schiavo case). She has also largely dropped the self-righteous rhetoric that distinguished her early public profile, most notably in the 1993 health care fight. But being a Senator is different from being President; facing a President Hillary Clinton, it seems to me the Republican strategy would be to attack mercilessly and not concede an inch.

Perhaps Hillary could engender fervid opposition and still find a way to work with Congressional Republicans. As Trent Lott recounts in his memoir, after the 1995 government shutdown Bill Clinton and the Republican Congress produced a shocking number of legislative compromises considering how viciously Limbaugh and co. were attacking Clinton in public (I don't share Lott's enthusiasm for all of the laws passed). Maybe Hillary could repeat this feat. But I'm not yet quite ready to rule out the possibility that someone without Hillary's baggage would have an easy time crossing party lines. To me Hillary is undoubtedly qualified, but her decision to tout her bipartisan credentials in particular still strikes me as a bit peculiar and premature.

As for Hillary's speech, it was solid but unremarkable. Iraq, education, housing, healthcare - the expected fare. Following Bill Clinton is not an easy task, but she sounds convincing enough and I would certainly vote for her over any Republican.

For you non-New Yorkers, the location of the rally held special importance because of Abyssinian's hallowed place in Harlem history. Consider Big L's lines from the 95 Stretch Armstrong Freestyle:

And every time a mack eleven bucks/ I'm killing at least seven ducks/I never was a follower of Reverend Butts.

Here Big L is referring to Calvin O. Butts, Reverend of Abyssinian Baptist. Big L's home block of "139 and Lenox" is about two streets away from the church. Just to put the event in context.

Stay Positive - The Externalities of Smoking

With Democrats' S-Chip legislation proposing to fund increased child health insurance subsidies with higher tobacco taxes, now is an opportune time to discuss the externalities from smoking.

Traditionally we think of smoking as imposing costs on third-parties not fully borne by the smoker - health care costs of nonsmokers associated with secondhand smoke, medical costs paid by the government to care for ill smokers, and fires caused by cigarettes. These third party costs are the negative externalities; to the extent that they reduce tobacco consumption, we generally applaud policies that raise the price of tobacco (e.g. taxes) for forcing smokers to take these third-party costs into account.

Yet here come Stock and Watson relaying a fascinating observation about positive externalities from smoking (p. 446):

The biggest economic benefit of smoking is that smokers tend to pay much more in Social Security (public pension) taxes than they ever get back. There are also large savings in nursing home expenditures on the very old - smokers tend not to live that long... All the studies agree that, by tending to die in late middle age, smokers pay far more in taxes than they ever back in their brief retirement.

Here that, Platzer? With every puff you're subsidizing my twilight year leisure!

Seriously though, Stock and Watson note that the beneficial impact of smokers' early death on public finances could significantly reduce cigarette's per pack external cost (hence appropriate level of tax). Maybe. Without getting into this technically and morally thorny issue too deeply, I simply interpret this research as a reminder that to the extent our public programs succeed in reducing smoking - and the propriety of such programs is to me beyond question - they may increase public health expenditures later on. Rather than treating cigarette taxes as solely win-win (either people smoke less, or they smoke the same amount and government raises needed revenue), we should recognize that such taxes could be both a boon to public finances in the short-term and a drain in the long-term. Ideal would be a way to protect a portion of cigarette tax revenue to cover future increases in health expenditures; given our government's difficulties respecting such "lock-boxes", however, maybe we had better not go there.

Argentine First Lady Becomes President. - a Peek into America's Future?

Supporters of Hillary Clinton may take heart from the recent Presidential election in Argentina, where voters have elected current senator and first lady Cristina Fernandez de Kirchner to succeed her husband Nestor as President. Will American voters in 2008 follow the lead of their Argentine brethren in selecting a first-lady to be President?

In both Argentina and America, any democrat (small d) ought to greet the election of a President's wife with mixed emotions. A woman President represents the ascendancy of a historically disenfranchised minority into the nation's highest office, and this shows welcome success in dismantling unjust barriers to political participation. In one of her most effective anecdotes, Hillary Clinton describes meeting 95 year old women who proudly recount that "they were born before women could vote, and now they'll live to see a woman President."

On the other hand, that free and competitive elections simply produce a transfer of power from one spouse to another (either immediately or with a lag) suggests dynastic dominance of a nation's political system. To the extent that dynastic succession centralizes political power along blood lines, the cause of popular sovereignty is erosion. Americans' attitudes toward the political dynasties which dot our nation's history - slightly embarrassed acknowledgment rather than celebration of the Adamses, the Roosevelts, the Kennedys, the Bushes, and now perhaps the Clintons - reflects unease over this erosion. I have been somewhat surprised at Barack Obama's reluctance to attack Senator Clinton by framing dynasties as damaging to democracy. If I were him, I would simply repeat George Will's observation that "change in America is not represented by Bush, Clinton, Bush, Clinton."

Lest I be accused of sexism in writing on the Argentine-American parallel, let me note that the men in question also share an interesting similarity. Both Bill Clinton and Nestor Kirchner entered office confronting by major challenges of national indebtedness. In Clinton's case, the tax cuts and spending increases of the Reagan years had created large federal budget deficits and a skyrocketing national debt. Clinton's first major policy initiative was a combination of tax hikes and spending cuts known as the 1993 Budget Reconciliation Act (predictably pilloried by Republicans as "the largest tax increase in history); implementation of this legislation contributed mightily to restoring fiscal soundness in America (alas, at least temporarily).

Ten years later, President Kirchner entered office to a fiscal situation far more dire than the one Clinton had faced in 1993. Argentina was burdened with $178 billion in public debt and largely unable to access international capital markets. In an act of considerable courage, Kirchner refused to adopt policies of budget austerity prescribed by the IMF and insisted that the IMF as well as private creditors must agree to a restructuring and rescheduling of debt payments if they hoped to be repaid any of the $93 billion in loans that Argentina had defaulted on in 2001. Though at the time many commentators warned that Kirchner's defiance would consign Argentina to economic ruin, his government in fact succeeded in persuading private creditors to accept repayment on terms far more lenient to Argentina. In 2005 Kirchner canceled completely Argentine repayments to the IMF. Kirchner's willingness to negotiate firmly with the IMF saved his country billions in loan payments, and was just on account of the IMF's bad policy advice in insisting that Argentina continue peso-dollar convertibility (a fixed exchange rate) even at the cost of crippling Argentina's export industries, mandating cuts in sorely needed social programs, and precluding a currency devaluation that could have averted a default and the ensuing disruptions. Since the IMF was partly to blame for Argentina's troubles, Kirchner was right to force the IMF to sacrifice some repayment in the interest of Argentine welfare.

Though the situations differed in severity and complexity, both Clinton and Kirchner responded to their nation's political distress with far-sightedness and courage. Clinton raised on the wealthy while also cutting spending, in the process gaining enemies on both the left and right. Kirchner defied the orthodoxy of international finance and showed that a nation could endure the largest national default in financial history and, with the right policies in place, still enjoy strong economic recovery. The electability of both men's wives is due in no small part to the salutary consequences of their husband's fiscal prudence.

Lesson? Anyone President seeking for his wife to someday succeed him should strive to make his nation less indebted, rather than more. This, among other reasons, is why I don't expect to see a "Draft Laura Bush" campaign anytime soon.

Blogging on the Brain is Hard

Aiming to distinguish myself from the horde of left-of-center bloggers, I had hoped to blog about subjects other than politics. Since I have fairly varied interests, I thought achieving a breadth of high-brow content would be fairly easy.

It isn't. To illustrate this, consider my attempts to post about neuroscience, a subject whose literature I'm becoming conversant in. The difficulty with making intelligent observations about neuroscience is that... the brain is really complicated, and our understanding of its workings constantly evolves through new research. Whereas a single monograph in the New York Review of Books can provide a succinct and thorough overview of, say, health-care economics, even the most articulate neuroscientists such as Michael Gazzaniga require full-length books to convey their ideas appropriately.

If I cannot add anything to even lay debates about neuroscience, I least I can relay useful summaries of the specialized knowledge one must have to even comprehend what the debates are about. Here is Gazzaniga's conclusion to quick-and-dirty overview of neuro 101 (The Social Brain p. 25).

These few glimpses into basic brain mechanisms are sufficient to tell us what we need to know about the basic nature of the issue. Four principles emerge: (a) the brain develops under tight genetic control; (b) its basic architecture can be modfied only very early in life and then only in a negative way; (c) it is organized in such a way that relatively independent processing modules exist everywhere throughout the brain system; and (d) it has methods of self-modulating influences from the environment through an intricate, self-governed brain chemical system.

Translation:

• (a) genes largely determine brain development;
  
• (b) environment cannot measurably improve the brain, but can harm it, such as a head injury decreasing verbal IQ (and the brain is most susceptible to such injury in the first year of life);
  
• (c) when there is sensory input to the brain, it is not processed once-at-a-time in different areas, but rather processed simultaneously in many areas (the brain as a parallel processor as opposed to a factory line);
  
• (d) the body's chemical system mediates environmental influence to modulate pain and pleasure. For example, the (p.14) "self-produced opiates called endorphins which are crucial to a body's well-being. These chemicals are activated under conditions of bodily stress and serve to curb some of the pain we would otherwise feel in their absence. There is no doubt that we would feel more pain without them."
  

Feeling smarter yet?

Reed Grads Lead Pack in Collegiate Happiness

NYT poll finds 76 percent of Reedies to rate their college experiences as excellent, whereas nationally only 54 percent of graduates rated their schools such a high rating (65 percent of both Penn and Michigan grads described their college years as excellent). Evidently the recipe for a happy undergraduate education is "Communism, Atheism, Free Love."

The aforementioned poll has many rich findings, which I hope to f ind time to digest. Though a survey of graduates is not necessarily the best way to judge the "quality" of a school (much less its appropriateness for any particular student), the NYT poll's detailed analysis outperforms the crude aggregate indices of U.S. News and the impressionistic summaries of guidebooks in suggesting how Penn, Reed, and Michigan fair in promoting students' intellectual and personal development.

Jacques Steinberg's discussion of the poll results ends with this thoughtful conclusion, which he gives after quoting a Reed alum who found his college years most valuable:

One conclusion to be drawn from Andrew’s obvious satisfaction with his education, when laid alongside the responses of so many of his peers, is that the convoluted process of matching students to colleges ultimately does what it is supposed to do. But in the end, I also find myself reflecting on the ongoing regrets expressed by so many of the alumni we contacted — not with their overall college experiences but with the day-to-day choices they made, whether it was the belly-dancing class that one Reed graduate said she missed out on because she was studying too hard or the Greek tragedy that lay untouched on another Reed student’s dorm-room bookshelf and now, in all likelihood, will never be opened.

Perhaps we should be spending a little less time coaching and cajoling high-school students about how to get into college, or even how to identify that mythical “right” college, and instead help them prepare a little better for how to strike a balance, or explore what they hope to accomplish, once they get there.

Having throughout college skipped debate tournaments in order to do yet more studying - and
now occasionally lamenting those choices (particularly since, given my current state of unemployment, I was obviously studying the wrong things) - Steinberg's plea struck me as on the money.

Trash-Talk 101

Strolling through Morningside Park on a perfect fall Sunday in New York City (sunny and windy), I overheard a cackle of laughs from a group of guys about to play touch football. Apparently, the group was ribbing one of its members for a new haircut that made him "look like a cop." The butt of the joke did not take this ribbing kindly. When the belly-laughs subsided, he addressed the group thusly: "Choke on your spit, die in your sleep, and to anybody else who got something to say - I hope your girl gets herpes." Ouch.

The solution for avoiding such nasty exchanges over hairstyle is obvious: male friends all ought to have the same haircut. The salutary effects of such uniformity are on display here.

S-CHIP Expansion and AMT Elimination

That House Democrats failed yesterday to attract enough Republican support to override the President's veto of S-Chip expansion - despite altering the legislation to satisfy the President's stated concern for putting the poorest children first and capping S-Chip eligibility at 300 percent of the federal poverty level - only underscores the obvious - electing a Democrat in 2008 will be absolutely critical to achieving comprehensive health care reform. A Democrat in the White House alone won't do it, but without it one you can pretty much kiss the chance good-bye.

Beyond being impressed at the President's ability to kill S-Chip expansion, the combination of yesterday's House vote with the beginning of Republican attacks on Charlie Rangel's proposed tax reforms - including elimination of the Alternative Minimum Tax - made for an interesting juxtaposition. I find it hard to take seriously Republicans' concern for stopping the middle-class from cheating the poor on the spending side. when they have done so little to keep the rich from cheating the middle-class on the tax side. Let me explain.

On the one hand, you have Republicans accusing Democrats of distorting S-Chip - a program intended to help poor children obtain health insurance - into a vehicle of middle-class largess. This was the source of complaints about New Jersey extending eligibility to beyond 300 percent of the poverty level (to $72,000 for a family of four, hardly a princely sum in Garden State), about the alleged impropriety of allowing adults to enroll in the program (even though this is often the best way to get children covered, and the reform bill forced states to drop S-Chip coverage of childless adults), and most pointedly in the battles over Graeme Frost. Basically, Republicans object that middle-class Americans are piggybacking onto a program intended for the poor.

Interestingly, even the most vehemently anti-tax Republicans have voiced little objection to the expanding reach of the Alternative Minimum Tax, which presents a case of a tax targeted at the rich increasingly ensnaring the middle-class. In 1969 Congress adopted the AMT as a backstop that would prevent rich citizens from taking so many deductions and exemptions ("tax preferences) that they effectively had no taxable income. The initial AMT law specified certain tax breaks used mainly by the rich (e.g. the capital gains payments and the oil depletion allowance), and stipulated that use of these tax breaks on income beyond $30,000 (about $150,000 in 2003) would trigger a tax of 10 percent on each dollar deducted. Unsuccessful in even its original intent, over the years both Republicans and Democrats have unwisely expanded the list of "tax preferences" to include deductions used by taxpayers of all incomes - including the standard deduction, child deduction, and medical expenses deductions.

The upshot is that, in the words of the Urban Institute's Len Burman, "what was a class tax is a becoming a mass tax." Or as David Cay Johnston says, the AMT is the "stealth tax." By 2010 about 85 percent of all taxpayers with two or more children will be forced off off the regular income tax and onto the AMT. In other words, the share of taxes paid by middle-class people - especially those with children - will explode due to misapplication of a law initially targeted at the wealthy. In the six years they controlled both houses of Congress and the White House, Republicans slashed tax rates on many things - income (especially for the wealthy), capital gains, dividends. Yet no effort to reform the AMT. Here comes Rangel proposing to eliminate the AMT, and the immediate conservative response is a predictable "biggest tax increase in history." If Republicans are so concerned with keeping class-based policies toward their original intent (as they claim to be with S-Chip), why so little advocacy of AMT reform? It looks frighteningly as is Republicans only care about cutting taxes that harm and the rich and very rich, while employing any arguments necessary to torpedo programs that aid the poor.

The AMT is a complicated issue, and I fear I have done a poor job in explaining it. I urge anyone seeking in-depth explanation to consult chapter seven of David Cay Johnston's Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else. What I am getting at here is the basic injustice of crying foul when the middle-class allegedly exploit a program for the poor, but remaining silent when taxes aimed at the rich end up punishing the middle-class. National attention should focus on this incongruity.

Lastly, Johnston's book makes clear that the AMT really is one issue where middle-class Americans are getting a raw deal. The economic welfare of middle-income families over the next decade will suffer far more as a result of AMT creep than it will as a result of illegal immigration. Anyone mind telling that to Lou Dobbs? Actually, given Dobbs' failure to understand even basic economics, best not confuse him with this.

Hillary in Harlem World

Got an automated call this afternoon inviting me to this event. Anyone wanna go? Always a chance Charlie Rangel will say something funny...

The Old Shall Inherit the Earth - Even if They Won't Remember Doing It

Michael Gazzaniga's The Ethical Brain contains a fascinating discussion of aging and the causes of memory loss. He motivates the social import of this issue with the following statistic (p. 23):

According to a recent report on the demographics of aging, in the year 1900 3 million people were over the age of 65, 4.1 percent of the population. By midcentury, 12.3 million people, or 8 percent of the population, were over 65. Now 34 million people in the United States are older than 65; soon that number will climb to 15 percent of the population, The number will double by 2030. [emphasis added]

Because of potential brain enhancements that Gazzaniga discusses, 65 year olds in 2030 will likely have mental faculties superior to those of contemporary 65 year olds. Nonetheless, we ought to contemplate what it will be like to live in a society where 30 percent of the population is 65 or older. I, for one, am ready. Swimming and lunching at the 92nd Street Y allows me to effectively visit the future each morning (albeit in slightly exaggerated fashion, since about 90 percent of these people are over 65). Let me say this: it can be eye-opening. First, I've learned that vanity never dies. These silverbacks seem to lift weights for hours on end! It would be nice if more of them did so in full clothing - as opposed to jockey shorts and headphones, the preferred workout gear of this set - but I guess it's reassuring to know that basic human traits never diminish.

I've also noticed that older people do not seem any more sensitive to the passing of time. For example, today I witnessed a perfectly sentient older gentleman spend about half an hour trying to convince some toddler -presumably his grand son - that scraping peanut butter off of a bagel with a knife was less efficient than simply biting the bagel. The man's effort was futile, but not for want of trying. This also reassures me - never too old to waste time.

Surely the Y will teach me much more about our seniors, and I will not hesitate to pass this knowledge along.

Hysteresis - Do I Have it? (hist-a-REES-is)

If college education is a means to gain knowledge into one's self , then economics probably lags well behind psychology, biology, or even philosophy in delivering the goods. Beyond a few nuggets from behavioral economics (e.g. myopic loss aversion), this has more or less been my experience.

Fortunately for me, I have now entered a state about which my discipline has loads to say: unemployment. Relating theoretical models of unemployment to my own experience has not been difficult. For example, I have occasionally cited insights of search-and-matching models to justify my period of joblessness - reminding friends that in a world where workers and jobs are heterogeneous, the optimal length of search time (unemployment) may be positive. One of these smart-ass friends retorted that my reservation wage was simply too high. To which I say, at least I don't still live with parents! (oh wait...)

Anyhow, thumbing through Romer's Advanced Macroecnomics raised a frightening new possibility - as I succumbing to hysteresis? Romer defines the condition as follows (p. 473):

Situations where one-time disturbances permanently affect the path of the economy are said to exhibit hysteresis. In the context of unemployment, two sources of hysteresis... have received considerable attention. One is deterioration of skills: workers who are unemployed do not acquire additional on-the-job training, and their existing human capital may decay or become obsolete... The second additional source of hysteresis is through labor-force attachment. Workers who are unemployed for extended periods may adjust their standard of living to the lower level provided by income-maintenance programs; in addition, a long period of high unemployment may reduce the social stigma of joblessness. Because of these effects, labor supply may be permanently lower when demand returns to normal.

This idea became influential in the early 1980s and has subsequently been used to explain the persistence of high unemployment amid business cycle recoveries, particularly in those countries thought be stricken by Eurosclerosis. With Nicolas Sarkozy now exhorting France to "roll up its sleeves" and "get up early," now is not the time to contract a malady closely associated with lazy Frenchmen. So I wonder - am I exhibiting any symptoms of hysteresis?

• deterioration of skills, lack of on-the-job-training, decay of human capital: Given the monotony of many entry level positions, I can flatter myself into believing that my stock of human capital is holding up at least comparably to how it would be if I had a job. But lack of on-the-job-training is clearly a concern. When everyone else is mastering tricks in Excel, VBA and Matlab... I'm trying to convince a Time Warner guy that crawling beneath my floor really won't be that uncomfortable. I've also made no progress in developing the skill that strikes me as most important for entry-level work: how to appear busy without actually working.
• Adjusting my standard of living to a lower level provided by income-maintenance programs: Ha! Most adjustments to my standard of living have been upward, baby. Who in the working world can spend twenty minutes at Yura deciding what to eat for lunch? I have begun taking the bus far more, but given the price of cabs in new york, this is probably a habit to be welcomed rather than a lapse to be denigrated.
  

• Reducing the social stigma of extended joblessness: Here's where the real fear lies. I would not yet consider my time of leisure to be "extended," but the embarrassment from being a bum does diminish over time. You never relish the question of "what do you do?" circulating around the table, but after a few times you realize that "nothing" isn't an answer that warrants immediate ostracizing. Some people become noticeably less interested, others don't, but usually the conversation drifts to greener pastures.
  

So is hysteresis afflicting yours truly? Probably no reason to worry just yet. I'll check back in a month to see how my symptoms are progressing. In the meantime I'm not too worried: my youthful petulance made me too restless to indulge life's other great pleasures (drinking, drug use, talking back to one's parents)... toward the joy of working I'm showing admirable restraint!

A Small World at 1255

New York City's international diversity never ceases to impress me - even when sitting in my own kitchen! Over lunch our Malaysian housekeeper, Moy, (who, in addition to Malay and English, speaks Mandarin, Cantonese, Vietnamese, Thai, and some Japanese - leaving me to often ponder whether she couldn't find more lucrative work elsewhere) began inquiring about the nationalities of the various gentleman working in our apartment this afternoon. Turns out we had two painters from Chile (Gabe and Italo) and one computer guy from Argentina (Lucio), both assisted by our Ukrainian superintendent (Peter) and rung up our Latvian doorman (Yuri). Anyway you cut it, that's a pretty broad swath of the global landscape represented in one tiny apartment. And I'm not even counting my other doorman - a Spanish-speaking second-generation American named Ismael - who's background I never have quited pinned down.

Predictably, the only worker to disappoint this afternoon was the one native born American: a Time Warner Cable rep (Jimmy) who balked at having to crawl under the floor in my brother's room in order to reach the cable wires. Can't blame him. As my ingenious father designed it, you literally have to lift a trap door in the floor, drop down into a little crawl space, and slither commando style toward a gaggle of wires. My superintendent's instructions for even accessing this crawl space seemed clipped from a Ukrainian Legends of the Hidden Temple:

Reid, stand in your brather's room facing the air conditioner. Move the stone elephant sculpture toward the desk. Now stand with one foot on the exercise machine and one on the window sill. See the little hole in the right corner between the air conditioner and the bed? Stick your finger down there and pull up the piece of the floor.

Upon finally lifting the trap door, I found no silver monkey waiting assembly - only lots of dust and, oddly, a miniature wicker chair from our old country house that for some reason my dad saw fit to store underground. Jimmy the cable guy promptly declined to crawl into the whole, informing me that "We don't get paid enough to crawl." Anyhow, at least my floor-lifting skills impressed Peter - he only half-jokingly offered to hire me as his assistant (news of unemployment travels fast in this building). Regrettably, I'll have to decline Peter's offer. With my dad planning a major renovation of the living room, our little fiefdom of international laborers will grow by the day. If I actually had a job, who would there be to celebrate this tapestry?

Debates Update

Michael Barone proposes letting Republicans and Democrats mix it up in the primaries with two-party debates. Since Republican debaters spend half their time attacking Hillary Clinton anyway, this is surely a good idea (at least once the early primaries weed out a few candidates). The combination of our new super-long election cycle plus legitimate political differences in this country makes for a weird dynamic - much policy debate, but confined within certain taken-for-granted boundaries (in the Dem debates every participant wants to leave Iraq, and the question is merely over the time and method; in the Republican debates everyone wants to get tough with Iran, and the question is only who will be most tough).

Since the next President will almost certainly not have a filibuster-proof majority in the Senate, and since the liberal/conservative and centrist wings of both parties often clash in any case, moving forward on the most important issues - Iraq, health care, detainees - will inevitably involve compromise. To find those compromises, we should start comparing the views of each side now, rather than waiting until basically two-thirds through the election cycle.

Put differently, I would much rather hear a debate between Republicans and Democrats over how much government should intervene in the health care market (and how we should pay for that intervention) than a debate between two Democrats over the role of mandates in securing universal coverage. I would rather hear John Edwards attack Republicans for preferring tax breaks for millionaires over coverage for 48 million uninsured than hear him attack Barack Obama for a plan that only achieves near-universal coverage. When Mitt Romney ludicrously proposes to "double Guantanamo", having Democrats present to respond will enliven the debate, whereas now John McCain simply seethes in silence.

There are some issues - e.g. abortion - in which even bipartisan debate will probably not change anyone's mind. But anyone with faith with progressive ideas should welcome clash with conservatives as early and often as possible. The case for raising taxes on the rich to fund universal health care, for engaging in diplomacy with hostile countries, and for respecting basic human rights of detainees is already persuasive to Democratic primary voters. Forcing these ideas to engage the conservative counter-punch early on can strengthen their appeal to independents and moderate Republicans as well.

Presidential Debates.... Not a Waste of Time After All

Everyone from George Will to Jon Stewart has taken to mocking the supposed excess of Presidential debates. The debates thus far have been far from perfect: the large number of candidates forces discussion of complex issues down to thirty-second sound bites, compromising intelligent discourse even more than in election cycles past. Organizing debates with fewer candidates might mitigate this problem, but this raises the inevitable difficulty of deciding fairly who will participate in each debate - and the specter of lesser-known candidates crying foul anytime a debate occurs without them (recall Kucinich's indignant response to the Clinton-Edwards private exchange over smaller debates).

Flawed as they are, the primary debates thus far been undeniably successful in helping citizens to get a better understanding of candidates. For those of us who do not live in Iowa or New Hampshire, and are not rich enough to attend fund-raising dinners, they represent one of the precious few changes to see candidates in action. This is especially true for dark-horse candidates - e.g. Mike Huckabee or Bill Richardson -and the free media exposure that comes through the debates can at least conceivably mitigate the phenomenon of requiring that people already be famous before they can be Presidential contenders.

More than mere familiarity, however, the practice of having competing candidates answer the same questions has drawn attention to substantive differences among the front-runners in each party. It was in response to a question during the August YouTube debate that Obama vowed to talk with leaders - of Syria, Iran, Venezuela, et al. - that the U.S. currently shuns; citing Cold War history, Obama criticized the notion that "the U.S. can punish or change hostile states simply by ignoring them." In response to the same question Hillary pounced on Obama as naive, refusing to commit to talk with leaders who would exploit her for propaganda purposes (specifically Ahmadinejad).

Whatever your position on the merits, the exchange revealed one of the first substantive foreign policy differences between Clinton and Obama (Hillary's vote to brand Iran's Revolutionary Guard as a terrorist organization has subsequently revealed another). The debates have also drawn attention to lesser policy differences, such as the disagreement between Edwards and Obama over whether a health care plan can achieve universal coverage without mandating that everyone purchase insurance.

Beyond highlighting policy differences, one learns a lot about a candidate's character by him to think on his feet. Thus, perhaps the most revealing moment of the debates thus far was Mitt Romney's answer to a question about whether the Constitution would oblige the President to seek Congressional authorization for a strategic attack on Iran's nuclear facilities (think Osirak).
Romney replied:

You sit down with your attorneys and tell you want you have to do, but obviously the president of the United States has to do what's in the best interest of the United States to protect us against a potential threat. The president did that as he was planning on moving into Iraq and received the authorization of Congress.

When pressed by Chris Matthews for a clarification, Romney once again insisted that he would "sit down with his attorneys." For a Presidential candidate to punt on a question of such import reveals a frightening lack of seriousness. Coupled with Romney's proposal to "double Guantanamo" (also given during a debate), the Iran answer further illustrated to me the danger of putting Romney in charge of U.S. armed forces.

In the interest of more policy clash and more glimpses into candidate thoughtfulness, I say - more debates! If more candidates can candidates can ape the humor of McCain's Woodstock quip, these things might really become worth watching.

Ken Burns The War

The War is an incredible documentary. Hearing from soldiers and citizens firsthand makes the sacrifice and carnage of WWII real in a way that even the best History Channel documentary cannot even attempt. The soundtrack is also great. Check it out on PBS or order here.

Geoengineering as a Solution to Climate Change

Scientist Ken Caldeira makes the case for "geo-engineering" - shooting trillions of small particles of sulfate into the stratosphere as a way to reflect sunlight and cool the earth's temperature - as a last-ditch way to mitigate climate change without reducing carbon dixoide emissions. Such proposals are controversial - because the engineering problems are formidable, because sulfate is a harmful substance, and because of the fear that people will seize on geo-engineering as an excuse to ignore CO2 reduction. Nonetheless, I think Caldeira frames research into geo-engineering correctly - as an insurance policy that we ought to have in case we cannot resolve the economic and political challenges of controlling emissions.

The idea of geo-engineering first came to my attention through this WSJ article; it stuck in my mind because game theorist and Nobel laureate Thomas Schelling is a geo-engineering advocate (and presumably he knows a thing or two about collective action problems of the kind that bedevil climate agreements). Schelling briefly discusses the idea in his survey of climate policies here (see Kenneth Arrow's review of economics of climate change in same volume).

Lou Dobbs - Horse-Loving Hypocrite?

Lou Dobbs is a strong opponent of illegal immigration. In his campaign to cease the flow of illegals in this country, one of Dobbs' main tactacts has been to support laws punishing businesses that hire illegals (with severe fines and often imprisonment). As he tells it, hiring illegals should be made a felony.

Yet is Lou Dobbs himself funneling money to businesses that hire illegals? Anyone familiar with Dobbs' ties to the equestrian business would have to admit the possibility as at least possible. Let me explain. Dobbs has two daughters who are both accomplished horseback riders, competing at the highest levels in equestrian and show jumping competitions (in 2006, my sister was selected along with both of the Dobbs girls to join the U.S. Young Riders team, a collection of the top U.S. riders under 18). The Dobbs famiy owns multiple horses at their estate in New Jersey.

Anyone vaguely familiar with the horse world can tell you that it is rife with illegal immigrants. Of the hundreds of predominantly Mexican and Latin American workers who serve as grooms in high-priced barns, relatively few have Green cards. As a child tagging along at horse shows in Lake Placid, NY and Wellington, FL, I have found memories of visits by INS officials sending grooms scattering and shutting down competition for entire days. Excluding certain types of agricultural work, I would bet that the equestrian business has a higher percentage of illegals than just about any industry in America.

Lou Dobbs obviously pays for his daughters barn fees. Might the barns at which the Dobbs daughters ride employ illegal immigrants as grooms? Though I have no way of answering this question, some enterprising investigator would do well to check it out. I'm tempted to fly down to Palm Beach this winter and poke around the Dobbs daughters barn myself. Maybe befriend an INS agent tired of being ridiculed by Lou Dobbs as incompetent and enlist him in the cause.

My interest in this story is not simply a matter of playing Gotchca!, and certainly not in embarassing the children of a public figure. Lou Dobbs' payments to the equestrian business fascinates me because horse barns are such perfect examples of how illegal immigrants contribute to this country. Being a groom is a very physically demanding job at low wages; if we were to deport all illegal immigrants tomorrow, I doubt that many native Americans would be lining up to muck stalls or braid horse manes for minimum wage. At the very least, deporting all illegal immigrants would create considerable excess demand for grooms in this country.

So barn owners who employ illegal immigrants strike me as doing basically nothing wrong - they are providing jobs to very poor people, jobs that most native Americans would not want. Yet Lou Dobbs is intent on vilifying all business owners who employ illegals as anti-American criminals. If one could show that Dobbs himself is supporting the employment of illegals.... maybe this revelation could add some nuance to the immigration debate! Any immigration officials reading this?

Lou Dobbs - Angry and Confused

During breathers from his immigration tirades, Lou Dobbs continues his campaign to alarm and misinform the American public on economic matters. Moneyline of Monday October 22 included a segment on the U.S. trade deficit with China ominously titled “Red Tide Rising.” The segment touched on the expected points: the size of the U.S.-China current-account imbalance, China’s allocation of $200 billion to a sovereign wealth fund, and this fund’s investment in U.S. private equity firms Blackstone and Bain Capital (all voiced over alternating shots of Chinese factories and U.S. stock exchanges. This segment was remarkable for Dobbs’ total lack of argument as to why the U.S. current-account deficit with China was hurting the U.S. economy overall. As usual, Dobbs substituted hyperbole and intonation for evidence and explanation, taking for granted that a current-account deficit with China is a bad thing.

To assume this, however, is economic nonsense. Running a trade surplus is by no means necessarily indicative of overall economic health (ask Japan, whose large annual current-account surpluses throughout the 1990s arose despite anemic GDP growth). Similarly, running a trade deficit by no means consigns an economy to stagnation; the U.S. in the 90’s enjoyed fabulous macroeconomic conditions amid rising external imbalances. Though America’s massive demand for Chinese imports undoubtedly hurts certain domestic producers, sating this demand benefits American consumers. Simply denouncing the size of a trade deficit provides no framework for weighing this impact and thus conveys nothing.

Even more remarkable than Dobbs’ dubious mercantilist rhetoric is his willingness to denounce U.S. trade deficits and in the same monologue express outrage over recent declines in the value of the dollar, citing both as evidence of “the absence of American economic leadership.” An excerpt from the segment:

DOBBS: And the total surplus for China and its trade position works out it be just about -- oddly enough -- the same as the U.S. trade deficit with Communist China.

ROMANS: It's funny how that works out.

DOBBS: Isn't it interesting, too, that this government, this administration hasn't got a clue, has not been able to speak forward in any forward manner about what they're going to do in terms of a dollar that is falling like a rock against the euro -- and now the yen, as well -- and most -- and the largest basket of world currencies.

Don't you find the lack of leadership -- dare I say it, bush administration people -- listen up White House, you've got a job to do. It isn't just some sort of absurd free market, faith-based nonsense in which you keep your mouths shut and don't pursue the national interests. Yet here we are.

This is totally contradictory! As any intro econ student knows, a falling dollar will reduce U.S. demand for foreign imports and boost demand for U.S. exports (as has happened to some extent over the last two quarters). Other things equal, a falling dollar will shrink the size of the U.S. trade deficit; to be, as Dobbs is, both for a strong dollar and against U.S. trade deficits defies the simple logic of international trade.

Some might claim that fluctuations in the value of the dollar are irrelevant to trade with China because China pegs the yuan to the dollar (or at least restricts its float to within a narrow band). China’s intervention in the foreign exchange market, however, only serves to strengthen the dollar (at least vis-à-vis the yuan), contributing to Dobbs’ goal of a stronger U.S. currency. Unless Dobbs can articulate some reason why a current-account deficit with China is particularly dangerous, the yuan-dollar peg leaves intact the basic inconsistency between praising both trade surpluses and a strong currency as signs of economic health.

On a more technical note, I would argue that one can assess the U.S.-China trade imbalance only by first understanding its root causes. Within the basic framework of (exports-imports)=(savings-investment), several forces can drive the size of a country’s external imbalances. In a recent working paper, Andrea Ferraro of the New York Federal Reserve Bank examines three potential drivers of trade dynamics between the U.S. and its G-7 trading partners (note that this does not include China). 1) Productivity Differences: If country A has higher productivity growth than country B, then country A assets will offer higher returns. In a world of perfect capital mobility, country B will seek to create a current-account surplus with country A and then use the foreign-exchange proceeds to invest in country A’s relatively higher-yielding assets. 2) Demographic Shifts: In a world where people of different ages have different propensities toward saving, the age structure of an economy’s population will determine its quantity of savings relative to investment, hence exports relative to imports. 3) Fiscal Changes: Since public saving or dissaving (e.g. a central government budget deficit or surplus) is on component of overall saving, fiscal changes can also affect an economy’s demand for imports relative to exports.

After constructing a stylized two-country model and fitting it to several years of data, Ferraro determines productivity differences to be the overwhelming driver of America’s external imbalances (demographic shifts played a lesser role and fiscal changes a very minor one). In other words, within the universe of G-8 trade, U.S. current-account deficits are a symptom of economic robustness – high productivity growth relative to other G-7 countries – rather than economic decay. One hopes that Ferraro or another researcher will extend this framework to U.S.-China trade to determine whether a similar pattern holds. Even without this, the Ferraro paper suggests one disastrous method to reduce America’s trade deficits: slow U.S. productivity growth. Hell, slower productivity growth wouldn’t only reduce our trade deficits, it would also probably create fewer job opportunities for illegal immigrants. Sounds like a policy Lou Dobbs nationalists could love!

Understanding Free Trade

Often embattled in both lay and elite opinion, free trade is in danger of losing majority support in this country. WSJ and Pew research polls show support for free trade slipping among both Republicans and Democrats. As Sherrod Brown and the rest of the 2006 "Lou Dobbs Democrats" assume their places in Congress, one should not imagine opponents of free trade as merely the likes of Nader, Perot, and Buchanan - harsh words for free trade are becoming mainstream. As an active member of the Democratic Leadership Council, Harold Ford Jr. criticizes China's "unfair trading practices." Recall that DLC was a mainstay of pro free trade thought during the Clinton years, especially during the early battle over NAFTA. At the "YearlyKos" blogger convention in Chicago this August, Hillary Clinton responded to a question about NAFTA with a thumbs down. John Edwards says if elected he does not even want Congress to renew Presidential Trade Promotional Authority (so-called "fast track" authority that enables the President to submit trade deals to Congress for an up or down vote, no amendments). Given that in 1998 - when the national economic mood was far brighter - President Clinton could not persuade House Democrats to support TPA renewal, it seems highly unlikely any Democrat elected in 2008 would be able to keep TPA anyway. In the next few years U.S. bilateral trade negotiations will probably grind to a halt.

All this brings to mind a fascinating (if dated) piece by Paul Krugman about why the idea of comparative advantage is so difficult for people to comprehend. This piece focuses mostly on elite opinion - the attitudes of financially anxious middle-class families or laid-off manufacturing workers are not foremost in Krugman's analysis. Yet the views of taste-makers inevitably filter down to ordinary Americans looking to find culprits behind their economic woes. Anyone with an interest in defending this beleaguered idea will do well to read Krugman's essay.

Toobin Predicts Obama as Hillary's Supreme Court Nominee

In conversation with Charlie Rose, Jeffrey Toobin predicts that if elected Hillary will nominate Barack Obama to replace Justice Stevens. His rationale for Obama was as follows: former editor of Harvard Law Review, U Chicago con law professor, African-American, would be the first Senator to serve on the Court in a long time – not impossible to imagine. Let’s not get ahead of ourselves, however, since in my view Obama still has a decent shot to win the nomination – despite the media as of late anointing Hillary as unbeatable. Even if Hillary does win, might Obama not be a plausible VP candidate?

More substantively, Toobin points out as the Court’s new swing justice, Anthony Kennedy is more powerful than Sandra Day O’Connor ever was. In the last term’s twenty-four opinions Kennedy was in the majority in every one. Kennedy’s decisive influence is at times welcome – as in Hamden and prior Guantanamo cases, where Kennedy has rejected administration claims of executive privilege – and at other times unwelcome – as in Kennedy’s absurdly paternalistic opinion upholding the partial-birth abortion ban in Gonzales v. Carhart. If you want to understand the future of the Court, watch Kennedy…

In discussing Clarence Thomas, Toobin reaffirmed the emerging consensus that Thomas is by far the most conservative member of the Court (much more so than Scalia). Though Toobin did not engage whether Thomas in fact believes stare decisis to be a bankrupt doctrine, he did argue that Thomas regards “large parts of the New Deal as unconstitutional,” inasmuch as they expanded executive power beyond the limits prescribed in the Constitution. One hopes Justice Thomas will eventually be more outspoken about his judicial philosophy. Regrettably, both in his new autobiography and in appearances to promote the book Thomas focuses exclusively on episodes from his life story, giving short shrift to legal matters.

As a final noteworthy fact, Toobin noted that this Court is unique in that each of the justices had served as judges prior to being appointed to the Supreme Court. Evidently this uniformity is rare in history; for example, despite a number of highly respected legal thinkers (Frankfurter, Brennan, Douglas, Black), the Warren Court that ruled on Brown v. Board of Education included not a single justice who had been a judge prior to acceding to the Court. Is there some value to having Supreme Court justices with non-judicial backgrounds? This would be an interesting question for students of American legal history to pursue.

Valerie Plame.... is smokin!

The 60 Minutes piece on Valerie Plame only further exposes the outrage over her illegal outing by Dick Armitage and Robert Novak. Covert or not, this woman is strikingly beautiful! Think about how many terrorist spies she could have recruited with those looks. A huge loss!

Tiki and the Bus

A funny juxtaposition on NBC NFL Tonight, with Tiki Barber sitting across the table from Jerome Bettis. Whereas Tiki left at the top of his game in order to avoid the weekly punishment and preserve his body, for sixteen years the Bus endured sixteen years of pounding and unbelievable weekly rehab routines that enabled to endure fresh whoopings every sunday. Yet despite these differences.... they both end up as studio commentators on NBC. Makes you wonder what it is all for (I bet Tiki has a much easier time getting out of his chair at the end of the show).

On another note, the duo of Bob Costas and Keith Olberman (with sprinklings of Peter King) is now the class of sunday night football shows. Finally NBC gives the criminally underused Costas a chance to do some sports. Goodbye Curt Menefee!

Protectionist Gephardt Becomes Mouthpiece for Turkey

A double irony involving Dick Gephardt here. First, that the most stridently protectionist politician in the second half of the twentieth century is now in the employ of a foreign government. The man who - most notably in his failed bid for the 1988 Democratic Presidential nomination - assailed proponents of free trade as putting the interests of other countries before those of Americans is now in fact paid ($1.2 million this year) to represent the interests of a foreign country.
Second, that Gephardt - who increasingly framed his opposition to trade deals as a matter of protecting human rights for workers abroad - is working to quash a long overdue denunciation by the U.S. Congress of Turkey's 1915 massacre of Armenians. Evidently Gephardt supports free trade (at least in lobbying services) and ignores human rights when it is convenient to do so. Just another example of why I am relieved this man no longer leads the Democrats in the House.