Fiscal responsibility

As we get further into the debt conversation, I think this is worth remembering:

People have largely forgotten about this, but back in the 1999–2001 era instead of complaining about the deficit being too high conservatives were obsessed with the need to prevent the national debt from getting too low. The reason was that they feared that there might not be enough "on-budget" debt for the Social Security Trust Fund to buy, which would lead the Social Security Trust Fund to act like the Canada Pension Plan and start investing in equity and other financial vehicles. This, according to Alan Greenspan and others, would rapidly put us on the road to serfdom.

But as sovereign wealth funds are spreading from Persian Gulf petrodictatorships to oil-free dictatorships (Singapore) and oil-rich democracies (Norway) and now even America's friendly next door neighbor Canada, I think it's time to rethink this opinion.

And also this:

But the larger point here, surely, is that Rehn has let the mask slip. It’s not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state. How dare the French take the alleged worries about the deficit literally, while declining to remake their society along neoliberal lines? 

In a sense I think we should be mad at the Austerity advocates for hopelessly confusing the debt issue.  Debt is bad but increased taxation is always worse seems to be the argument.  But by trying to confuse the issues they are merging two very different propositions.  High taxation can be bad but the evidence for this is much weaker than for government financial crisis due to debt loads. 

But it becomes impossible to talk about the debt without getting drawn into the quagmire of the appropriate level of taxes.  But it is notable that the argument against running a surplus appears to be bogus (the disaster of paying off the debt seems to not be a disaster elsewhere).  The level of taxes in the United States is low relative to other first world countries -- that makes it hard to argue that small tax increases would immediately lead to disaster. 

This is making me want to be almost dismissive of the deficit.  Not because the debt wouldn't be lower in my ideal world, but because all of the action is about the size and scope of government (and a strange argument about whether government should be intrusive at the federal or state level).  These are interesting arguments, to be sure, but they are only distantly related to the question of fiscal responsibility.

Urban Sprawl

Mark Thoma's site has a link to Paul Krugman's discussion of the association between sprawl and low social mobility.  It appears that if you do a plot of urban density versus social mobility of the lowest quintile to the highest quintile you get a very surprising linear relation: as density drops it looks like persistent inequality rises.  Paul Krugman is appropriately skeptical that this is the whole story:

Is the relationship causal? You can easily think of reasons for spurious correlation: sprawl is associated with being in the sunbelt, with voting Republican, with having weak social safety net programs, etc.. Still, it’s striking.

Matt Yglesias adds additional data about what happens with kids who move into high density urban areas as well as a few other possible explanations:

So what drives this? The study does not really make a high-powered effort to draw strong causal inferences. But the study does show that kids who moved into a high-mobility area at a young age do about as well as the kids born in high-mobility areas, but kids who move as teenagers don't. So there seems to be a factor that isn't parent-driven. The authors report that tax policy, the existence and affordability of local colleges, and the level of extreme local wealth do not appear to be strong correlates of intergenerational mobility. Metro areas where the poor are geographically isolated from the middle class have less intergenerational mobility, while metro areas with more two-parents households, better elementary and high schools, and more "civic engagement" (measured through membership in religious and community groups) have more.

 So clearly it would be a mistake to over-interpret these data. But they do have one major policy piece embedded into them -- it makes absolutely no sense to subsidize sprawl as a positive good.  It may not be worth it to try and discourage it, but generally there are a lot of laws (think zoning laws and car centered transportation grids) that implicitly subsidize sub-urban communities.

There are still pieces to be considered -- like does the poorest quintile do objectively better or worse in the low social mobility environments (you can justify low mobility if everyone is better off as a result).  However, the two extremes in Paul Krugman's graph are Atlanta (low density and mobility) and Los Angeles (high density and mobility).  It's not 100% clear that it is better to be poor in California than Georgia, but it isn't like it is far worse in California so far as I can tell.  Maybe Mark can weigh in here? 

But this all points to a big picture that urban planning is actually a much bigger deal than I had previously realized. 

Spinach is supposed to make you stronger -- Infrastructure and the Kinsley/Krugman fight

Virtually everyone who reads this blog has heard about (and is probably sick of hearing about) Michael Kinsley's contrarian defense of austerians that ended with this analogy:

Austerians don’t get off on other people’s suffering. They, for the most part, honestly believe that theirs is the quickest way through the suffering. They may be right or they may be wrong. When Krugman says he’s only worried about “premature” fiscal discipline, it becomes largely a question of emphasis anyway. But the austerians deserve credit: They at least are talking about the spinach, while the Krugmanites are only talking about dessert.

To get a feel for just how odd this analogy is, you need to remember that a large part of this 'spinach' is saying no to people who want to borrow money almost interest-free and spend it on infrastructure, education and research thus avoiding far greater costs in the future.

These are all urgent issues but the infrastructure crisis in particular demands immediate action. Civil engineers have been ringing this alarm bell for years:

Back in March, when the American Society of Civil Engineers issued an infrastructure report card for the entire country, its very best grade — a B-minus — went to solid-waste disposal. Thanks to our decent progress in recycling, the United States’ overall grade-point average in subjects ranging from aviation to water systems actually ticked up from the previous GPA.

To a pitiful 1.30, that is, on a 4.00 scale.

Those warnings became considerably less abstract yesterday:

SEATTLE — A large section of a bridge on Interstate 5 north of Seattle collapsed Thursday evening, sending vehicles and people plunging into the swirling, frigid waters of the Skagit River.
Three people were hospitalized in stable condition, officials said. No one was killed.

The bridge failed without warning between the towns of Burlington and Mount Vernon on the major route linking Seattle with the Canadian border, the Washington State Patrol said.

"Without warning" here is a bit of a relative term:

The 58-year-old bridge in Washington, a crucial link to the Canadian border traveled heavily by trucks, was inspected every two years, most recently in November, state Department of Transportation spokesman Bart Treece told the Los Angeles Times.

“It’s an old bridge. We have to look into the specifics. We do have a lot of old, aging structures, and a lot of them hold up really well,” he said.

The National Bridge Inventory lists the bridge as “functionally obsolete,” with “somewhat better than minimum adequacy to tolerate being left in place as is.” It received a sufficiency rating of 57.4 out of 100.

Putting aside for the moment the question of public safety, the economic impact of bad infrastructure can be huge (from the same story):

Washington’s main north-south thoroughfare, though, was likely to remain closed 60 miles north of Seattle for an indefinite period, state officials warned. The nearly 71,000 vehicles a day that travel the bridge between Mt. Vernon and Burlington were diverted through city streets to another nearby bridge.

Just to be clear:

dessert = making repairs now

spinach = deferring repairs now and making more costly ones later when interest rates will be higher

Kinsley's analogies are like America's bridges; they need a lot of work.

Krugman versus Yglesias

Paul Krugman has two explanations for why profits are rising at the expense of workers:

As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.
 

Matt Yglesias advances what I think is a better explanation:

 To put it nonpolemically, you can see in the chart that not only is there a structural trend in the labor share of output, there's also a strong cyclical trend. The labor share declines during recessions and rises during booms. And the problem of the Federal Reserve is that over the past 30 years, it has a perfect track record of never allowing inflation (which is to say a sustained period in which wages rise faster than productivity), but it doesn't have a perfect track record of never allowing recessions. The inevitable consequence of this asymmetrical success is for the labor share to steadily decline.
 

I like this argument for the simplicity: it is based on a clear policy choice that was made and which continues to this day.  There is no need for an appeal to "the world has changed" over and above the decision to be willing to hold price stability in place at the cost of employment.  This is directly relevant to today as the Federal Reserve has a dual mandate.  On one side of the mandate, they have the requirement to ensure price stability.  On the other side of the mandate they need to encourage full employment.  It's pretty clear that they are doing much better with one piece of this mandate than the other. 

MedicAid

Paul Krugman discusses the success story of MedicAid:

So Medicaid does a vast amount of good. But at what cost? There’s a widespread perception, gleefully fed by right-wing politicians and propagandists, that Medicaid has “runaway” costs. But the truth is just the opposite. While costs grew rapidly in 2009-10, as a depressed economy made more Americans eligible for the program, the longer-term reality is that Medicaid is significantly better at controlling costs than the rest of our health care system.

How much better? According to the best available estimates, the average cost of health care for adult Medicaid recipients is about 20 percent less than it would be if they had private insurance. The gap for children is even larger.

And the gap has been widening over time: Medicaid costs have consistently risen a bit less rapidly than Medicare costs, and much less rapidly than premiums on private insurance.

How does Medicaid achieve these lower costs? Partly by having much lower administrative costs than private insurers. It’s always worth remembering that when it comes to health care, it’s the private sector, not government programs, that suffers from stifling, costly bureaucracy.

Also, Medicaid is much more effective at bargaining with the medical-industrial complex.
 

I often wonder if the hatred towards programs like MedicAid and Social Security is that they exist as counter-examples to current ideology that the free market is always the best solution.  If so, I think that would be a massive mistake.  The traditional of American Pragmatism has been to do what works regardless of the source and that has been a huge relative advantage.

If anything, we should be expanding MedicAid, not shrinking it. 

Back on the higher ed beat

Paul Krugman weighs in on recent comments from GOP candidates on the subject of higher education:

About that hostility: Mr. Santorum made headlines by declaring that President Obama wants to expand college enrollment because colleges are “indoctrination mills” that destroy religious faith. But Mr. Romney’s response to a high school senior worried about college costs is arguably even more significant, because what he said points the way to actual policy choices that will further undermine American education.

Here’s what the candidate told the student: “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Wow. So much for America’s tradition of providing student aid. And Mr. Romney’s remarks were even more callous and destructive than you may be aware, given what’s been happening lately to American higher education.

For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.

The choice of California is sadly apt. The state's three-tiered UC/CS/community college system is, even after these devastating cuts, a remarkable achievement. Residents have access to an impressive spectrum of educational options, ranging from inexpensive schools designed to be friendly to disadvantaged and non-traditional students to some of the world's best public universities (with surprisingly reasonable tuition).

In case you think I'm exaggerating, check out this post from Joseph:

From the Academic rankings of world universities:

1. Harvard University (private)

2. Stanford University (private)

3. Massachusetts Institute of Technology (MIT) (private)

4. University of California, Berkeley (public)

5. University of Cambridge (British)

6. California Institute of Technology (private)

7. Princeton University (private)

8. Columbia University (private)

9. University of Chicago (private)

10. University of Oxford (British)

11. Yale University (private)

12. University of California, Los Angeles (public)

13. Cornell University (private)

14. University of Pennsylvania (private)

15. University of California, San Diego (public)

16. University of Washington (public)

17. University of California, San Francisco (public)

18. The Johns Hopkins University (private)

19. University of Wisconsin - Madison (public)

20. University College London (British)

Some interesting patterns immediately jump out. Of the top 20 schools, 17 are American, which is pretty impressive given the share of the world population held by the United States. Of the 17 American schools, six of them are public (which is amazing given how many resources the private schools have). Of the public schools, 4 of them are in California.

If you check out the rest of the list you'll find all of the UC schools have respectable rankings. Given their caliber, they are also quite affordable. I took a grad course in Bayesian networks a couple of years ago at UC Riverside. It cost me eight hundred dollars and was an extraordinary bargain.

It should be noted that some pundits don't think much of California's commitment to great universities. Here's Kevin Carey:

If Berkeley’s star professors are lured away to Stanford, it’s bad for the university but not necessarily bad for America, particularly if (as is frequently the case) those professors teach few if any undergraduates. They’ll be the same people doing the same thing at another university an hour away.

Of course, Carey also believes Rick Perry Is a Higher-Education Visionary.

Statements that I violently disagree with

From Tyler Cowen via Scott Sumner:

Congratulations to Matt Yglesias on his new gig. He’s arguably the best progressive economist in the blogosphere, which isn’t bad given that he’s not an economist. I said “arguably” because Krugman’s a more talented macroeconomist. But Yglesias can address a much wider variety of policy issues in a very persuasive fashion. So he’s certainly in the top 5. His blog is the best argument for progressive policy that I’ve ever read. (But not quite persuasive enough to convince me.)

Now do not get me wrong: I post a lot about Matt Yglesias because I think that he is a fine thinker and has some really nice points to make. But there is now way he is competitive to be the top progressive economist in the blogosphere. I can't claim to be an expert but, off the top of my head, I have have:

Noah Smith
Paul Krugman
Bradford Delong
Mark Thoma

Plus the Worthwhile Canadian Initiative folks occasionally drift into progressive territory and are always worth reading. And this is just off the top of my head and including blogs I read regularly. Again: the provocative policy thinker with good ideas and a solid grasp of economists label definitely applies to Yglesias. But I find him a very odd choice for #1 given the alternatives. If anything, I find him awfully centrist on economic matters, at times (which, I suppose, could explain the appeal).

Evaluating evidence

I want to steal a quote from Paul Krugman to illustrate a point:

And in the end, Ryan’s answer is that we need strong economic growth, the kind that we get by cutting taxes on the rich. Because that’s why the Clinton years were an economic disaster and the Bush years so prosperous.

Is this strong evidence?

First of all, we need to consider a number of causal hypotheses:

1) Tax rates on the rich are unrelated to economic growth
2) Higher tax rates on the rich increase economic growth
3) Economic growth makes it easier to tax the rich
4) Higher tax rates on the rich decrease economic growth

Then we need to consider lags between tax policy and changes in economic growth. I am suspicious of anyone who says that this is an easy problem. After all, what we really want (the counterfactual of what would happen if Bush/Clinton not changed tax policy) is completely unavailable.

So what value is this evidence?

It does rule out one very clear talking point in the debate. It suggests that moderate changes in tax policy (Bush Tax cuts) do not have a stronger effect on economic growth than the economic fundamentals do. We may even take this as weak evidence of hypothesis #4 above (with all of the caveats about not being able to make a strong inference).

So the ideas that tax cuts [focused on high income earners] are a good response to short term problems with weak economic growth seems to be contrary to the best evidence available. Nor does looking at period like the 1950' (with very high marginal rates and rapid growth) seem to provide a lot of support for Hypothesis #2.

But if it is case that Hypothesis #2 is true, we know that it is unlikely to overcome other economic issues (or it would have made the Bush years a time of prosperity). Or, in other words, that the overall effect size of this tax policy change is small relative to other factors (if it works in the direction predicted by Hypothesis #2). Now one can reframe this as a moral question, and some do.

But it is worth considering that, in the absence of controlled experiments, how do we update our expectations when a strategy that sounds reasonable doesn't seem to give expected results.

Different visions of Health Care

One question that has been pretty persistently part of US public health efforts has been a fundamental disagreement about the role of government in health care. This shows up in all sorts of interesting places but has new entered the debt ceiling negotiations. From Paul Krugman:

It turns out that in the final stages of the debt negotiations, Republicans suddenly added a new demand — a trigger that would end up eliminating the individual mandate in health care reform.

This is telling, in a couple of ways.

First, the health care mandate has nothing to do with debt and deficits. So this is naked blackmail: the GOP is trying to use the threat of financial catastrophe to impose its policy vision, even in areas that have nothing to do with the issue at hand, a vision that it lacks the votes to enact through normal legislation.

Second, this is a demand Obama can’t accept, unless he plans on changing his party registration. Health reform doesn’t work without a mandate (remember the primary? Maybe better not to). And if health reform is undermined, Obama will have achieved nothing. So by adding this demand, Republicans were in effect saying no deal . . .

The alternative interpretation is that there is a large segment of the US population that would rather freedom to choose health care than efficient health care. The focus on individual decisions over public well being has implications on a whole host of medical decisions affecting issues like: disease management, fraudulent medications, antibiotic resistance and so forth.

It is hard to see a clear road forward when there is a legitimate difference in such basic questions of health care organization.

Canadian Health Care

Aaron Carroll provides support for the Canadian Health Care system after comments by Paul Krugman. It is a pretty devastating critique (quality seems slightly higher) made even more so when you consider cost and universal access.

The universal access point is important. When people talk about fear and uncertainty (for business) as being a concern, I think it could also be an issue at the individual level. After all, the fear of an unexpected dread disease appears to be a major concern for most people. How much better would it be if we could eliminate these concerns by breaking the link between health coverage and employment while controlling costs in an effective manner?

The most startling thing in Dr. Carroll's graphs was that physicians are beginning to emigrate to Canada (on net). So even the medical care specialists (with requisite wage controls) seems to like the system.

One of Krugman's talents

...is the ability to dig up or create a simple picture that effectively rebuts a popular but flawed narrative.

For example, take the profligate PIGS story -- the EU is in trouble mainly because four countries (Portugal, Ireland, Greece and Spain) were reckless spendthrifts. It's a widespread explanation. Edward Glaeser even used a Spain specific variant of it to argue against high-speed rail.

In response to this, Krugman shows us the debt levels and deficits of these four countries (plus Germany as a reference point) on the eve of crisis:




As Krugman summarizes:

Yes, Greece had big debts and deficit. Portugal had a significant deficit, but debt no higher than Germany. And Ireland and Spain, which were actually in surplus just before the crisis, appeared to be paragons of fiscal responsibility — the former, said George Osborne, was

a shining example of the art of the possible in long-term economic policymaking.

We know now that the apparent fiscal health of Ireland and Spain rested largely on housing bubbles — but that was by no means the official view at the time. And nothing I’ve seen explains how new fiscal rules would prevent a similar crisis from happening again.

Unemployment Forecasting

There was a nice discussion of the plausibility of the employment figures in the new Paul Ryan 2012 budget proposal for the United States by both Andrew Gelman and Paul Krugman. While this blog isn't really a political one, I do think that this current discussion is a good example of how to critically evaluate models in epidemiology. It is pretty rare that a model will be simply and obviously wrong. Instead, you have to look at the all of the different elements of the model and see what looks dodgy. After all, the actual headline result is almost always something for which we are uncertain about the actual answer. So we have to look for clues as what might be going wrong by looking at the other outputs of the model (and perhaps some of the modeling assumptions).

If a study shows that the use of statin class drugs prevents cancer that is a pretty interesting finding. But the finding gets less interesting if further exploration reveals that statins prevent all forms of disease except for cardiovascular disease. The latter would be a clue that something, somewhere, is going wrong.

In the case of the Paul Ryan budget, it seems like this estimate of unemployment is lower than it should plausibly be which might obfuscate the idea trade-off between taxes and economic growth. I am not an economist (in any way, shape or form) but am willing to conjecture that his dynamic scoring algorithm for the influence of tax cuts on unemployment might be an issue. Perhaps the algorithm should account for diminishing returns as unemployment falls (but fails to do so properly). Or maybe the model overstates the magnitude of the underlying relation (or, possibly, it might reverse it). Complex models have a lot moving parts and there are a lot of places that bias can be introduced into them. So it’s important to be critical (of both our own work and the work of others) when we try and do this type of difficult forecasting.

Why I still drop by Krugman's blog once or twice a week

Here, in handy graph form, is what the good people at Heritage claim will happen if we adopt Ryan's budget.


These are, of course, the same people who predicted the Clinton tax hikes would trigger a devastating recession.

Why we forgive him the puns

Today's column in the New York Times is another reminder of why Paul Krugman is so essential. It directly contradicts some of the most cherished conventional wisdom about the relationship between education and economic opportunity, but he doesn't say anything that I haven't been hearing from researchers and academicians.

It is a truth universally acknowledged that education is the key to economic success. Everyone knows that the jobs of the future will require ever higher levels of skill. That’s why, in an appearance Friday with former Florida Gov. Jeb Bush, President Obama declared that “If we want more good news on the jobs front then we’ve got to make more investments in education.”

But what everyone knows is wrong.

...

The fact is that since 1990 or so the U.S. job market has been characterized not by a general rise in the demand for skill, but by “hollowing out”: both high-wage and low-wage employment have grown rapidly, but medium-wage jobs — the kinds of jobs we count on to support a strong middle class — have lagged behind. And the hole in the middle has been getting wider: many of the high-wage occupations that grew rapidly in the 1990s have seen much slower growth recently, even as growth in low-wage employment has accelerated.

Why is this happening? The belief that education is becoming ever more important rests on the plausible-sounding notion that advances in technology increase job opportunities for those who work with information — loosely speaking, that computers help those who work with their minds, while hurting those who work with their hands.

Some years ago, however, the economists David Autor, Frank Levy and Richard Murnane argued that this was the wrong way to think about it. Computers, they pointed out, excel at routine tasks, “cognitive and manual tasks that can be accomplished by following explicit rules.” Therefore, any routine task — a category that includes many white-collar, nonmanual jobs — is in the firing line. Conversely, jobs that can’t be carried out by following explicit rules — a category that includes many kinds of manual labor, from truck drivers to janitors — will tend to grow even in the face of technological progress.

And here’s the thing: Most of the manual labor still being done in our economy seems to be of the kind that’s hard to automate. Notably, with production workers in manufacturing down to about 6 percent of U.S. employment, there aren’t many assembly-line jobs left to lose. Meanwhile, quite a lot of white-collar work currently carried out by well-educated, relatively well-paid workers may soon be computerized. Roombas are cute, but robot janitors are a long way off; computerized legal research and computer-aided medical diagnosis are already here.

And then there’s globalization. Once, only manufacturing workers needed to worry about competition from overseas, but the combination of computers and telecommunications has made it possible to provide many services at long range. And research by my Princeton colleagues Alan Blinder and Alan Krueger suggests that high-wage jobs performed by highly educated workers are, if anything, more “offshorable” than jobs done by low-paid, less-educated workers. If they’re right, growing international trade in services will further hollow out the U.S. job market.

As a statistician, I might quibble with the "If they're right."

So what does all this say about policy?

Yes, we need to fix American education. In particular, the inequalities Americans face at the starting line — bright children from poor families are less likely to finish college than much less able children of the affluent — aren’t just an outrage; they represent a huge waste of the nation’s human potential.

This is another point worth dwelling on for a moment. The educational reform movement likes to draw its poster children from poor urban and rural schools. Having taught in both Watts and the Mississippi Delta, I'm usually glad to see attention focused on these areas, but it's clear in this case that the plight of these kids is being used to market general changes in education that have little if any special relevance to the schools that need the help.

But there are things education can’t do. In particular, the notion that putting more kids through college can restore the middle-class society we used to have is wishful thinking. It’s no longer true that having a college degree guarantees that you’ll get a good job, and it’s becoming less true with each passing decade.

So if we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.

What we can’t do is get where we need to go just by giving workers college degrees, which may be no more than tickets to jobs that don’t exist or don’t pay middle-class wages.

Update: Lawrence Mishel makes some important related points here.

The biggest burdens go on the smallest shoulders

In today's New York Times, Paul Krugman reminds us just how hypocritical all the talk we hear about "putting children first" really is:

And in low-tax, low-spending Texas, the kids are not all right. The high school graduation rate, at just 61.3 percent, puts Texas 43rd out of 50 in state rankings. Nationally, the state ranks fifth in child poverty; it leads in the percentage of children without health insurance. And only 78 percent of Texas children are in excellent or very good health, significantly below the national average.

But wait — how can graduation rates be so low when Texas had that education miracle back when former President Bush was governor? Well, a couple of years into his presidency the truth about that miracle came out: Texas school administrators achieved low reported dropout rates the old-fashioned way — they, ahem, got the numbers wrong.

It’s not a pretty picture; compassion aside, you have to wonder — and many business people in Texas do — how the state can prosper in the long run with a future work force blighted by childhood poverty, poor health and lack of education.

But things are about to get much worse.

A few months ago another Texas miracle went the way of that education miracle of the 1990s. For months, Gov. Rick Perry had boasted that his “tough conservative decisions” had kept the budget in surplus while allowing the state to weather the recession unscathed. But after Mr. Perry’s re-election, reality intruded — funny how that happens — and the state is now scrambling to close a huge budget gap. (By the way, given the current efforts to blame public-sector unions for state fiscal problems, it’s worth noting that the mess in Texas was achieved with an overwhelmingly nonunion work force.)

So how will that gap be closed? Given the already dire condition of Texas children, you might have expected the state’s leaders to focus the pain elsewhere. In particular, you might have expected high-income Texans, who pay much less in state and local taxes than the national average, to be asked to bear at least some of the burden.

But you’d be wrong. Tax increases have been ruled out of consideration; the gap will be closed solely through spending cuts. Medicaid, a program that is crucial to many of the state’s children, will take the biggest hit, with the Legislature proposing a funding cut of no less than 29 percent, including a reduction in the state’s already low payments to providers — raising fears that doctors will start refusing to see Medicaid patients. And education will also face steep cuts, with school administrators talking about as many as 100,000 layoffs.

Social Security

Some thoughts on social security:

First, let's remember that Social Security actually provides support at a very modest level. Last year, the average retirement benefit was $1,170 a month, or about $14,000 a year, with the average disabled worker or widow receiving slightly less. (It would be wonderfully educational for the cable talkers and newspaper editorialists to live on that amount for a few months — they would not only lose weight but gain empathy.)
Remember, too, that despite our status as the largest and most productive economy in the world, Social Security is among the least generous retirement programs among all the developed nations. As a percentage of the average worker's pre-retirement wages, the benefit has been declining for years and will continue to fall without any further cutbacks.

and

The actuarial experts whose job is to monitor Social Security's fortunes have long assured us that small and gradual rises in the tax revenues that support Social Security, accompanied by small and gradual shifts in benefits over the coming years, will solve whatever fiscal challenges the program may eventually confront. There is no reason to panic, and there is certainly no reason to consider wholesale changes in benefits.

Well, there is a reason, but only if your real aim is to destroy the system and replace it with something less useful but more profitable. Wall Street and its servants on Capitol Hill have lusted after Social Security's revenues for many years. And they regard the current uproar over the budget as a fresh opportunity to get their hands on a trillion-dollar bonanza. Given their record in recent years, it is all too easy to imagine how badly that would work out for everybody — except them, of course.

I think that this is precisely correct. The amount of profit that could be derived from the privatization of social security is astounding and I think that it is the real reason that the program is always under attack. Consider this:

But Fred Reish, an employee benefits lawyer, says it is not uncommon for fees on a small 401(k) plan to break down like this: 0.25% a year for the plan adviser, 0.25% a year for the record keeper and 0.75% a year for mutual funds, totaling 1.25%.

Note that this is in addition to the fees charged by mutual funds that most 401k plans allow you to invest in. The average equity mutual fund charges around 1.3%-1.5% The real rate of return on the United States stock market is typically between six and seven percent; likely less under current market conditions. It is easily to imagine half of a person's returns being eaten up by fees (which is a very good deal for people who run retirement funds).

So it is worth keeping in mind that attacks on Social Security, as a program, seem to mostly revolve around attempts to create new markets for investment bankers. In terms of actual budget issues, Paul Krugman puts it best:

What would a serious approach to our fiscal problems involve? I can summarize it in seven words: health care, health care, health care, revenue.

I just wish we would see more of this sort of sanity in the discourse about government fiscal problems.

EDIT: See also; most interesting quote:

Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare.

But the article is interesting throughout.

Zonkers and millionaires

Partially making up for recent indiscretions, Paul Krugman gives us a wonderful analogy for proposals that leave out the hard part:

When I was in college, we sat around eating, among other things, Screaming Yellow Zonkers; they weren’t especially tasty, but the copy on the boxes was fun. Among the instruction was the Disappearing Zonkers Trick:

After putting on your magician’s outfit, look around the house for a handkerchief, two hard boiled eggs, and a small piece of radium. Then take seven Zonkers and place them neatly into the exact center of the handkerchief. Two eggs are arranged near each other and under your hands. Tie a half-hitch knot in the radium. Then make the seven Zonkers disappear. Your friends will be amazed.

It occurred to me that this is a pretty good description of the Ryan Roadmap plan for controlling health care costs — make a lot of proclamations about responsibility, dress up in a reformer’s costume, then make cost growth disappear.

Paul Krugman still has no shame

An Asterix the Gaul pun? Has it really come to that?

(this is not a first offense)

Krugman does stat 101

Nothing fancy, no big insights, just a couple of bell curves, but this post by Paul Krugman does a nice job presenting weather trends and extreme events in terms of probability. He makes it simple but not overly simplified. We need more of this.

Krugman also deserves bonus points for describing economist's practice of putting the independent variable on the wrong axis as a QWERTY problem.

Damn you, Paul Krugman!

I'd been planning a post drawing an analogy between the way certain academics forced the data to fit their models and the efforts made in the dying days of the Ptolemaic system. I guess the bloom is off that one.

Nobel Prize winners who work on Saturday are just showing off.

You can, if you’re desperate, try to explain this away by saying that there was some fundamental structural change in the early 1970s, but at that point you’re deep into epicycle territory. And there’s more — for example, Ireland went abruptly from having a stable real exchange rate against the UK to having a stable rate against Germany when it joined the European exchange rate mechanism, etc..

[Emphasis added.]