What caused plain wisdom about human nature to get so mauled in the last 100 years or so? Did it start with Freud and his cult? Was the Blank Slate dream of liberals the driving force for unhinging? Or did the national culture become less hard-headed and more emotional due to changing sex roles? Lots of old ideas (like be strict with kids) got rejected as oppressive and then re-embraced in kooky ways. A Washington Post piece on how states have gotten carried away with criminalizing juvenile behavior starts out with an example where a 4th grader in Texas who got into a scuffle on a bus was brought up on charges before a court of law. Would Americans of 75 years ago have thought twice about the idea of charging 10 or 11 year olds as criminals for fighting on the us?
SPRING, TEX. — In a small courtroom north of Houston, a fourth-grader walked up to the bench with his mother. Too short to see the judge, he stood on a stool. He was dressed in a polo shirt and dark slacks on a sweltering summer morning.
“Guilty,” the boy’s mother heard him say.
So the kid can't get spanked in school but he can get arrested for fighting with other kids. It is perverse.
We do not even have enough competent people to serve on juries. Therefore incompetent juries reach absurd conclusions (and this brings into question the mythologized idea of a right to trial by jury). We can't afford to criminalize the fighting of 4th graders. The criminal justice system costs too much and has a limited capacity for competent decision-making.
Kids have a lesser capacity to control themselves than adults do. The parts of the brain that regulate behavior develop up thru the age of 25 or so. To treat 10 year olds as criminals for fighting is akin to treating puppies as dangerous for biting. it is just plain stupid unless the kids are attempting to commit murder. Kids should be disciplined using old traditional methods that should be fit to the kids in question. The legal system can't possibly use the level of nuance needed to deal with substantial differences in what works best for controlling kids. The legal system is a flawed blunt instrument, inherently so.
So what's next? My guess is arguments based on disparate impact (that "no tolerance laws" hit blacks and Hispanics hardest) will shift the pendulum back too far in the other direction. Kids that are disruptive or dangerous won't be suspended or expelled. Instead the better-behaved kids will be forced to put up with hyperactive, violent, and generally disruptive kids even more than they do today.
Why has the inflation-adjusted cost of higher education tripled since 1980? Writing in Washington Monthly Benjamin Ginsberg argues Administrators Ate My Tuition.
Between 1975 and 2005, total spending by American higher educational institutions, stated in constant dollars, tripled, to more than $325 billion per year. Over the same period, the faculty-to-student ratio has remained fairly constant, at approximately fifteen or sixteen students per instructor. One thing that has changed, dramatically, is the administrator-per-student ratio. In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students.
Education has grown up a big parasite class that lives off it. They run a university prestige racket that cons parents and prospective students, graduating students into debt peonage. We can no longer afford this, what with stagnant (or worse) living standards and bleak prospects for economic growth. Plus, the returns on investment from higher education are exaggerated. I argue for online education in large part because we need to break away from the high cost model that conventional higher education has evolved into.
A Washington Post piece looks at a trend of affluent Mexicans moving to the United States to escape violence. Will Mexico's upper class shrink so far that it will get into a vicious cycle and spiral downward?
SAN ANTONIO — For years, national security experts have warned that Mexico’s drug violence could send a wave of refugees fleeing to the United States. Now, the refugees are arriving — and they are driving BMWs and snapping up half-million-dollar homes.
Tens of thousands of well-off Mexicans have moved north of the border in a quiet exodus over the past few years, according to local officials, border experts and demographers.
Some of the middle and upper classes who are staying are opting for embedded tracking devices to make it easier to find them if they get kidnapped. But range limitations make this a questionable approach unless someone can signal and get a very quick response right as they are being kidnapped.
We should discourage Mexicans from fleeing. They need to stay and fight. We have a vested interest north of the border in making Mexico become more, not less, stable. The US should escalate its own fight against the criminal groups in Mexico while at the same time making the border far harder to cross.
Incomes in some areas of China are getting high enough to spawn popular anger against pollution. The Chinese government shows wisdom in moving quickly to placate the middle class.
DALIAN, China — Chinese authorities’ swift decision to close and move an urban chemical factory after weekend street protests underscores the ruling Communist Party’s fear of alienating the increasingly outspoken middle class.
The Chinese Communist Party had better start planning how to cut back on all the air pollution. As living standards rise the air quality will be seen as unacceptable by an increasing portion of the urban workforce in China.
What I'm wondering: Will the Chinese middle class develop concerns about the rest of the world. For example, will the Chinese middle class start to show any opposition to factory farms in Somalia and other parts of Africa which produce agricultural products for China from land taken from local production? I'm guessing the development of concern for non-Chinese is still a long way off at best.
When "helicopter Ben" Bernanke was trying to prevent another Great Depression back during the global financial crisis in 2008 and 2009 the US Federal Reserve Bank lent large to the biggest banks in America and abroad. Bloomberg News won a court case to find out how ginormous the lending was. The cost of preventing (delaying?) Great Depression II:
The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
What I'd like to know: Why the big lending to German, British, and other foreign banks? Couldn't their own central banks bail them out? Or are too many of their loans in dollars?
Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc (BARC) borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG (DBK) got $66 billion.
$84.5 billion for the Royal Bank of Scotland too.
There's another aspect of this that's interesting: The timeline of the big borrowing. Most people think that the big borrowing started after Lehman collapsed in September 2008. But there's this:
U.S. Federal Reserve borrowings by Societe Generale SA, France's second-biggest bank, peaked at $17.4 billion in May 2008,
Societe Generale was in trouble at the time due to their trader Jerome Kerviel losing $7.2 billion. But why didn't the French government or the European Central Bank lend to Societe Generale? Why did this burden fall on the Fed?
Also, Citibank's TAF (Federal Reserve's Term Auction Facility) borrowing started in December 2007 on the day TAF opened. So the financial crisis really was already playing out in late 2007.
All the above is worth thinking about because we might be heading into another financial crisis. A debate is currently raging about the financial soundness of Bank of America with Henry Blodget (see link) taking a skeptical view of BofA's soundness. Since BofA hides too much about its financial position we can't be sure.
With much greater certainty it is possible to see a big sovereign debt and banking crisis brewing in Europe. a silent bank run in Greece and signs that other southern European banks are getting frozen out of credit markets suggests that at very least the countries of southern Europe, Ireland, and possibly Belgium are at risk of sovereign default, major bank failures that their own governments can not afford to handle, and even exit from the Euro zone. Hard to see how all that can go wrong without at least another recession.
Men with a preference for 'one-night stands' and negative sexist attitudes towards women are more likely to use aggressive courtship strategies. They compete with other men who are also interested in the woman, tease the woman, and isolate her away from her friends. In response, women with a preference for 'no strings attached' sex and negative attitudes towards other women are more likely to respond to men's aggressive strategies. These findings by Jeffrey Hall and Melanie Canterberry, from the University of Kansas in the US, are published online in Springer's journal Sex Roles.
So more masculinized men and women find each other. I bet both the men and women hooking up this way have higher ring-to-index finger ratios. The "negative attitudes toward other women" is an important clue. I bet these women also have a lower desire to gossip, are taller, and have stronger career ambitions. Do they have less baby fever?
Came a Congressional Budget Office web page with some charts about who pays taxes. One of them is especially interesting because it goes to the question of whether the top earners are paying more or less in taxes than they used to. From 2001 projected thru 2014 under current tax law the top 20% have consistently paid over 60% of all US federal taxes. There's been a slight shift of a couple of percentage points from the top 20% to the other groups.
|Share of Total Federal Tax Liabilities|
|Top 10 Percent||50.0||48.5||48.5||47.6||48.8||48.7||48.5||48.3||48.6||48.5||47.9||47.7||47.6||47.4|
|Top 5 Percent||38.5||36.9||36.9||35.9||37.3||37.3||37.0||36.7||37.1||36.9||36.6||36.5||36.3||36.1|
|Top 1 Percent||22.7||21.2||21.1||20.1||21.5||21.3||21.1||20.7||21.1||20.9||21.2||21.0||20.8||20.7|
Think of it this way: How much would taxes have to increase on the top 20% to balance the budget? For 2012 the projection is for $2.627 trillion total revenue, $3.729 trillion total expenditures, and $1.01 trillion deficit (and I think it will be worse than that due to Peak Oil Recession II). Well, if the top 20% really pay 63.1% of total federal taxes (see table above 2012 column) then they are paying 0.631*$2.637 trillion or $1.66 trillion. Their total taxes paid would have to rise about 66% in order to close the federal budget deficit.
The page has other tables of interest. Note that since the top earners have experienced much larger increases in compensation their tax burdens have declined as a percentage of income.
The fiscal health of the United States government depends very heavily on the earning power of a small fraction of the population. The bottom 40% pay only 7% of total federal taxes. As the size of the lower earning sub-population grows faster than the higher earning sub-population will the burden on the top producers grow to support the lower earners and zero earners?
What I'd like to know: What fraction of the American population are net taxpayers? In other words, what fraction of the population gives the government more in money than it gets in services, money, and other support? I suspect the net taxpayer portion of the population is a shrinking fraction of the whole.
California's weak economy has voters cutting back on current expenses and largely unable to meet essential future ones, such as the cost of long-term care, according to a new poll from The SCAN Foundation and the UCLA Center for Health Policy Research.
The poll, in its second year, sought to better understand health and long-term care issues facing middle-aged voters, given the state's current economic crisis and the rising number of Californians older than 60, a figure that is projected to nearly double to 12 million people in the next 25 years.
The poll found that Californians, regardless of political party or income level, were worried about the costs of growing older. Two-thirds (66 percent) of respondents said that they are apprehensive about being able to afford long-term care. Sixty-three percent worry as much about paying for long-term care as they do about paying for their future health care.
They should be apprehensive and they should respond by substantially increasing their long term savings rate. Get out of debt. Cut back on optional purchases. Look for opportunities to learn more skills and make more money. You can't count on promises of governments that are running large deficits and looking to slash outlays.
Here's the most interesting part: 48% of voters 40 and older experienced a decline in household income in the last 12 months.
Voters' ability to save for long-term care expenses is hampered by California's weak economy. Nearly half (48 percent) of voters 40 and older said their household income has declined in the past 12 months, and 50 percent said they had to take money out of savings to meet their expenses. Four in ten (41 percent) have had to cut down on the amount they spend on food in the past year.
I've been making the argument that governments are in deepening financial trouble, partisans who think their guy or their side can fix the economic problems that hold back growth have missed out on how much the economic fundamentals have changed in ways unfavorable to growth, and that spiking oil prices will choke off any economic growth. It is telling that even during a supposed recovery from the last recession nearly half of households say they've stepped down in living standards.
While economist James Hamilton thinks the recent oil price spike wasn't quite enough to put the US economy into a recession he thinks the spike makes the US more vulnerable to the effects of the sovereign debt default risk in Europe (which is threatening to create a bank crisis). But the sovereign debt crisis is itself in part due to oil prices. So some of the shocks coming in to the US economy that aren't labeled as oil price shocks really ought to be. If we had $25 per barrel oil right now the economies of Spain, Portugal, France, Italy, and Greece would be doing much better. They'd send far less money abroad to buy oil, their economies would grow faster, more would be employed, the governments would get more tax revenue from higher incomes, and fewer would be living on the dole.
At The Atlantic Daniel Indiviglio argues jobs growth brings higher oil prices which brings an end to jobs growth.
Since May, the U.S. economy has struggled. From May through July, just 72,000 new jobs per month were created on average. Yet February through April averaged 215,000 per month. What killed the promising progress we were seeing earlier this year? A couple of factors are often blamed, but the biggest problem was rising gas prices. Even though they have been declining lately, this might not be the last time that this recovery is plagued by consumer sentiment plummeting due to the price at the pump. We could see gas prices create a sort of catch-22 that makes it difficult for the U.S. economy to stay on its feet.
It is good to see articles like this one on a mainstream media site. Though Indiviglio's suggestion of a gasoline tax that varies inversely with the price of oil shows he doesn't get the scale of the change needed to deal with Peak Oil. One can find long time writers on Peak Oil who tie the depth of the current recession to oil supply problems and who propose solutions aimed at the root cause. For example, Gregor Macdonald says what Keynesian stimulation we do should be solely aimed at cutting energy input costs. Note that encompasses both efficiency and supply measures. Peak Oil writer (and former oil industry engineer) Robert Rapier expects the US economy won't be able to grow. Then when the US inevitably slips back into recession its oil demand will free up supply that China can buy. So every recession will shift oil away from the US toward China, India, and other industrializing countries. I see the same pattern. At some point China's own bubble will burst and dampen their oil demand. But we'll be poorer by the time that happens and will continue to be poorer afterward.
UCSD economist James Hamilton, who does a lot of modeling research on oil price shocks, believes believes that even though the price of oil has dropped (to a still high level in historical terms) the biggest effects of the previous price spike are still to come.
It is interesting that the biggest effects on GDP come 3 or 4 quarters after oil prices have gone up. This is not a result unique to this specification, but is something one finds whether one uses linear or a variety of nonlinear specifications and regardless of the data set. We often see some economic responses right away, such as a drop in consumer sentiment, fall in sales of less energy-efficient vehicles, or build up of inventories. But it usually takes some time for the effects of these to be multiplied as they ripple through the rest of the economy.
Fund manager Jeremy Grantham thinks Peak Oil is just the tip the iceberg for a much bigger natural resources limitation problem.
In the comments of a post in which Razib presented an interesting typology of terrorists from the standpoint of their sanity and rationality a commenter named Sean who says he spent a few years in Iraq doing intelligence work comments on the inner dynamics of polygamous marriages as he learned about them in Iraq. These do not sound like peaceful households.
Incidentally, I’ve spoken with well over 100 men who are married to more than one woman, and children of those family arrangements. Being the person I am, I never failed to ask “what’s it like?”
I found that in about half the households, the wives manipulate the husband in a constant battle for supremacy over each other, while in the other half the wives conspire against the husband in a battle to dominate him together. Or the situation fluctuates between those two extremes. (In principle, there’s a strict hierarchy of wives but in practice, people are people.)
I only heard a positive review of polygamy from two men, one of whom was wealthy, so he could keep his wives in different houses, and one of whom was a dwarf with a major Napoleon Complex. Make of that what you will.
I expect eventually polygamists will use sexual selection to make more female babies. I also expect they will select for genes that make their wives have personalities that are more at peace in polygamous marriages. Genetic engineering will be used eventually to make females who will become unjealous and uncompetitive wives.
Will genetic engineering also be employed to make cousin marriage more sustainable? Imagine, for example, removing all the harmful genetic recessives so that cousins making babies make healthier babies. One could imagine cousins making lots of daughters so that they can trade those daughters for lots of daughters of their cousins to give their sons more wives.
With President Obama’s reelection on the line, Democrats are increasingly anxious about what they see as his failure to advance a coherent and muscular strategy for addressing the nation’s economic ills.
The political class in America have not yet figured out that we have big problems that aren't solvable. Their great expectations go unmet and they think it must be due to a lack of leadership. But the problem is with their expectations given the conditions.
Growing numbers of Obama’s allies, beyond the liberal activists who have expressed disappointment in the past, contend that he has trimmed his sails too much since the party’s electoral defeats last fall. This sentiment has sharpened in the wake of the negotiations over the debt ceiling, when the president accepted Republican demands for spending cuts without obtaining guarantees of tax revenue increases, which he said were necessary for a “balanced approach.”
These criticisms are unfair for a basic reason: A mere President of the United States can not fix what is wrong with the US economy. Getting to this state of affairs took decades. Some of the changes that brought us to where we are were inevitable.
Other problematic changes in theory could have been avoided with wiser and less corrupted leadership. For example, total debt rose from 150% of GDP in the 1960s for decades until peaking over 350% of GDP as the real estate bubble began to burst. The rise in total debt began in earnest in the late 1970s and continued across multiple presidents of both parties and many Congresses. Bill Clinton and Bob Rubin contributed to it. But so did George W. Bush. Obama inherited a problem decades in the making as a result of bad policies with bipartisan elite support. That debt overhang problem has a long way to go to unwind.
Harvard economist Kenneth Rogoff (he who co-authored This Time is Different: Eight Centuries of Financial Folly) sees the debt as such a huge burden that it will stifle growth for years. Rogoff advocates inflation in order to reduce the size of the debt. Well, Obama can't turn on the inflation. Debt deleveraging takes years, especially when accumulated debt is over 3 times GDP. Unless the US government cuts its deficit all that is happening now is private debt is getting converted into public debt. Arnold Kling correctly argues government policies aimed at speeding deleveraging via mortgage modifications are likely to do damage. We have no easy way out of where we are now.
Similarly, the immigration policies supported by a bipartisan elite for decades have created a US labor force increasingly less able to compete. While Obama supports these policies he's not their architect and he's coming in at the tail end of their history. The Left refuses to even recognize that immigration is a drag on per capita income. That drag will grow even if all illegal immigration were to stop today.
The many limits to growth have few quick fixes available to address them. Technological advances might eventually provide us with a way around the limits to allow growth to resume. But those advances aren't coming soon enough. Conditions will get much worse for years (possibly decades) before they get better.
Update: Since the economy is unfixable and yet economic well-being is key to popular approval of government it is not surprising that people are losing faith in government. Obama is still trailing the Republicans in the race to the bottom of total loss of faith in government.
Confidence in Obama to make the right decisions for the country’s economic future is down 10 points, to 33 percent, since January. Confidence in congressional Republicans, at 35 percent in January, dropped to 18 percent.
The voters will toss out incumbents and things still will not get better. Then the voters will toss out some more incumbents. Again, stagnation will continue. American politics has become a zero sum game because the pie isn't growing as fast as the populace.
Jim Goad comments on the retarded state of US public debate over the debt ceiling and spending.
Since there will be no happy ending, this weeks-long “debate” boiled down to a drunken saloon argument over whether we drive into a brick wall at 85MPH or 95MPH. This country’s financial wad is red, white, and blown. Neither side wanted to admit that the nation’s financial condition is way beyond redemption. All they did was argue over an acceptable size for the tumor and tried to place blame for who caused it. Neither side is willing to admit that it’s terminal cancer.
My take: the political class is a reflection of the deluded voters who put them there. As the Democracy In America blog at The Economist points out, the American people do not want either fewer benefits or higher taxes - except on a few.
ACCORDING to a new CNN poll, 63% of Americans want the imminent "super committee" to call for tax increases on high earners and 57% want large cuts in domestic spending. Sounds sensible! But don't get your hopes up. Only 47% favour big cuts in defence spending. Worse, a mere 35% support "major changes" in Social Security and Medicare.
The position of the vast majority of Americans is that, except for a small number of fat cats, we shouldn't have to give up anything to close the monstrous deficit. Brink Lindsey points out that entitlements spending is set to grow so much that just taxing the rich won't generate enough income to pay for the projected future growth in entitlements.
And, as Mr Lindsey notes, citing the CBO, maintaining anything in the neighborhood of status quo growth rates in entitlement spending would require huge across-the-board tax increases. Yet 87% of Americans oppose tax increases on the middle- and lower-classes. If I were a big credit-rating agency, this is what I would cite in support of the proposition that American debt is increasingly risky. Politicians naturally fear straying too far from public opinion, and this makes the incoherent cast of American public opinion dangerous.
If you aren't familiar with the details of the the entitlements problem read my category archive on entitlements. The story is bleak. The population is aging and other things are going wrong. The ratio of productive employed workers to everyone else is falling. The productive can't fund a larger number of non-workers without giving up quite a lot - like in Euro welfare states with much higher overall taxes.
The top 3% earn 26% of total income. The top 3% are those who make $200k and higher. Putting 74% of earned income off limits for tax increases won't provide for enough taxable income to keep the government funded. If the tax rates go way up to 60+% on the top earners some will just leave. Others will stop earning as much. That's why European countries use a Value Added Tax (basically a sales tax). They tax consumption because it lets them raise more than income tax alone. But a tax on consumption is a broad based tax that would hit everyone, not just the top 3%.
A recent paper by Swedish economists Andreas Bergh and Magnus Henrekson surveys and untangles the confusing, apparently conflicting literature on the relationship between the size of government and economic growth. They find that once the focus is narrowed to rich countries only, and consistent measures of the size of government are employed, a reasonably consistent picture emerges. “The most recent studies,” they conclude, “find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.”
I already expect economic stagnation anyway due to Peak Oil and other limits to growth. Since oil prices are going to go back up and that will cause a recession all the official government projections of future budget deficits are way too optimistic. US government financial soundness depends on growth. Take away growth and the money for big entitlements promises to the elderly and poor will not materialize. Our financial system's accumulated debt can't be paid back once Peak Oil hits and therefore our government's promises can't be kept.
Those big deficits the US government is running are all claims on your future earnings ability. Since the deficits are going to continue the claims against your future living standard are going to get bigger. Therefore, as I said in my previous post, you've got to try harder just to maintain your current position. Excel in your skills development and career or go down. The middle will not hold.
Maria Agthe and her team had 400 students appraise one of four job candidates based on his or her CV, with their photo attached. Although the detailed CVs suggested all the candidates were equally qualified for the job, appearances affected the results. Participants judging a candidate of the opposite sex showed the positive bias you'd expect for highly attractive candidates, being more likely to recommend them for the job. By contrast, participants judging a same-sex candidate showed the opposite pattern, exhibiting a negative bias towards same-sex good lookers. This pattern was mediated partially by the desire for social contact with the candidates - that is, participants were more likely to say they wanted to work with and be friends with opposite-sex beauties, but showed the opposite pattern for good-looking, same-sex candidates. Men and women were similarly prone to negative bias against attractive specimens of their own sex (the effect size was -.5 and -.39, respectively).
But there's a twist: The participants who had the highest self esteem did not discriminate against same sex candidates. What I would like to know: What attributes caused the high self esteem? Good looks? High status background? Personality?
What would also be interesting: Do male and female homosexuals discriminate against same sex or opposite sex beautiful people?
Also, should a company use very high self esteem people to do job interviewing? On the one hand, such people will not discriminate against good looking people of the opposite sex. But will they do a generally better or worse job of choosing employees?
Personnel decisions are crucial to the success of organizations. Yet we do not understand well enough how to make optimal choices.
An article in The Atlantic entitled "Can The Middle Class Be Saved" (answer: no) explores rising wage inequality. In the process of comparing the most meritocratic parts of America to the rest the writer reveals that wages are rising more rapidly in Manhattan than Silicon Valley. Hmmmm...
It’s hard to miss just how unevenly the Great Recession has affected different classes of people in different places. From 2009 to 2010, wages were essentially flat nationwide—but they grew by 11.9 percent in Manhattan and 8.7 percent in Silicon Valley. In the Washington, D.C., and San Jose (Silicon Valley) metro areas—both primary habitats for America’s meritocratic winners—job postings in February of this year were almost as numerous as job candidates. In Miami and Detroit, by contrast, for every job posting, six people were unemployed. In March, the national unemployment rate was 12 percent for people with only a high-school diploma, 4.5 percent for college grads, and 2 percent for those with a professional degree.
If this is true then does this mean that the financiers are even gaining ground relative to the most productive workers in America? Or with US corporations increasingly focused overseas do their top managers rake in big bucks on their management global operations from Manhattan headquarters?
My deeply felt advice: Raise your game. Become more ambitious, aim higher, work harder, and advance. You can't stay still. Either you go up or you will go down. The upper class is unmooring itself from national ties and it doesn't need as many Americans to serve it. The competition is getting more intense, the stakes higher. Rise and shine or sink.
Just how far can one sink to? Even as wage inequality rises there's something even worse than stagnant or slowly declining wages: getting relegated to the ranks of the long term unemployed. As Catherine Rampell reported in the New York Times some help wanted ads exclude the long term jobless. For companies that want to hire the very best this bias against the unemployed is even rational.
Since less than 40% of our high school drop-outs have jobs the plight of the least educated is especially bleak. Yet the elite still want a big influx of the least skilled and least educated. Gardeners can never be too cheap.
I think a country should be founded called Global Community. Everyone who feels like they belong to the Global Community could move there.
It has taken an insanely irresponsible level of federal deficit spending with deficits projected out for decades to get the US Senate to oppose a wasteful subsidy.
WASHINGTON, D.C.– A bipartisan group of 12 Senators, led by Senators Jim Webb (D-VA) and Tom Coburn (R-OK), today sent a letter to Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) urging them to make full elimination of costly ethanol subsidies and tariffs a priority. In June, a measure offered by Senator Dianne Feinstein (D-CA) and co-sponsored by Senator Webb that would have terminated the Volumetric Ethanol Excise Tax Credit (VEETC) and tariffs on imported ethanol, passed with bipartisan support in a 73-27 vote and would have saved taxpayers $6 billion annually.
Earlier this month, a compromise on ethanol subsidies was reportedly reached in the Senate. Although the deal would have ended the blender credit subsidies, it proposed to create new subsidy programs to support ethanol infrastructure.
“The Senate recently voted overwhelmingly to adopt an amendment offered by Senator Feinstein to terminate the Volumetric Ethanol Excise Tax Credit (VEETC) and tariff on imported ethanol by July 1, 2011,” the Senators said in their letter. “In keeping with the results of the recent vote, we should ensure that both the VEETC and import tariff are ended as soon as possible.”
Corn ethanol has a low Energy Return On Energy Invested. The fossil fuels required to create fertilizer and pesticides, to power tractors to plow and harvest, to power trucks to haul the corn to ethanol plants, and for other steps in the process has to be deducted from the energy in the ethanol. Some estimates put the EROEI at 1.3 and others at below 1 (more energy used as inputs than returned as ethanol). My guess: the corn ethanol EROEI is above 1 but below 2. Given the limited amount of high quality farm land available corn ethanol does not scale and is a bad idea.
Another source puts the subsidy at $5 billion per year. We can't grow our corn ethanol use without growing the subsidy. Well, we can't afford the subsidy now (and we can't afford about another $1 trillion per year of US government deficit spending). We've got to start cutting out the stuff with low or no value. Corn ethanol fits the bill for things to cut.
An end to the subsidy would also lower the price of food, especially meat. Corn prices would drop and since corn is used as animal feed beef, turkey, chicken, and pork prices would drop.
Grover Norquist is so dedicated to preventing tax revenue increases that Norquist sees opponents to ethanol subsidies as enemies. The man has become unhinged.
The conservative power broker Grover Norquist has battled Coburn, arguing that ending the handouts is equivalent to increasing taxes, meaning that candidates who signed a no-new-taxes pledge would be breaking their word. He has charged that Coburn "lied his way into office."
The subsidy for ethanol is akin to subsidies for medical care. The government pays. Therefore things get done that would otherwise not get done. The fact that the subsidy is distributed by the IRS is really irrelevant.
You might be shocked to learn the United States still provides development aid to China. Then again, you might already have adjusted your assessment of America's political elite low enough not to be shocked. (h/t Lou Pagnucco)
Washington, DC—Senators Jim Webb and James Inhofe, chair and ranking member of the East Asian and Pacific Affairs Subcommittee, today called for an end to U.S. development aid to China, now the world’s second-largest economy. Since 2001, the U.S. has provided more than $275 million in direct assistance to China for projects such as expanding internet access and improving public transportation. In addition, China receives billions from multilateral institutions like the United Nations, to which the U.S. is among the largest contributors.
“With more than $3 trillion in foreign exchange reserves and a double digit economic growth rate, China certainly has the financial resources to…care for its citizens without relying on U.S. assistance,” the Senators wrote to appropriators. “As the committee reviews current appropriations bills, we would request that in FY2012 you end all U.S. aid to China—other than programs that assist the people of Tibet or promote respect for human rights and democracy in China—and direct our representatives at international organizations to work to end multilateral aid to China.”
China currently owns $1.2 trillion of U.S. Treasury debt and has launched its own multi-billion dollar foreign assistance program to rival the U.S.
Both the United Kingdom and Australia announced this year that they will no longer provide direct assistance to China.
The bipartisan letter was also signed by Senators Kyl, Boozman, Levin, Reed, Manchin, Casey, Kohl, Rubio, Tester and Menendez.
To put that in perspective, in May alone the US ran a $25 billion trade deficit with China. Their leaders must be laughing at us. Our total trade deficit in May was $50 billion. We are in hock to the world and still giving out development aid.
China's not amused by our spendthrift ways. China's official news agency just sent out an editorial calling on the US to make substantial cuts.
In addition to recommending "substantial cuts" to "bloated social welfare costs" in America, the Xinhua editorial pointed to what it characterized as a "gigantic military expenditure."
China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets
Since Bill Gross says the latest deficit reduction deal will have very small impact I think we are letting down our bankers in Beijing.
Robert Samuelson says "Why are we in this debt fix? It’s the elderly, stupid." Yet as he points out, cuts for the elderly remain taboo. How much longer will that taboo last?
By now, it’s obvious that we need to rewrite the social contract that, over the past half-century, has transformed the federal government’s main task into transferring income from workers to retirees. In 1960, national defense was the government’s main job; it constituted 52 percent of federal outlays. In 2011 — even with two wars — it is 20 percent and falling. Meanwhile, Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.
The approach of this crisis was easily seen in advance. But due to high commodity costs and the housing bubble the timing was sooner than mainstream debt worriers (e.g. the Concord Coalition) probably expected. The aging population problem is being exacerbated by other things going wrong in the US and other Western economies (e.g. physical limits to growth, too low a rate of innovation, and unfavorable demographic changes) and also by the rise of China and India.
Those entitlements programs mentioned by Samuelson take up over half of US federal spending before the coming doubling of the number of people over age 65. Those spending levels are before medical spending rises a projected 58% more by 2020. With massive deficit and debt already before those things happen it only makes sense that S&P downgraded US sovereign debt from AAA to AA++. (anyone want to predict when it'll hit single A?)
All that debt and unfunded entitlements would become a smaller and more manageable problem if the US economy could grow rapidly. But as Steven Pearlstein points out, since we can't get the economy growing and we've shot our wad already we now face the need to do painful restructurings, just like the PIIGS of Europe.
Unfortunately, we never reached that escape velocity and have now pretty much exhausted our policy ammunition. As a result, we are now going to have to make the rest of those painful structural adjustments — eliminating jobs, closing companies, lowering incomes, reducing government services — in the context of a stagnant economy. And its not just the United States. Similar adjustments will be required in Europe, Japan, China and much of the rest of the world as well.
Since I believe long term growth will stay below post-WWII trend for many years to come I tend to agree with those like Peter Schiff who think federal debt will spiral out of control as tax revenue growth fails to materialize. So the deficit will grow. The debt will grow even faster if the economy goes into a double dip recession.
One of the very big problems we face in this crisis is that our elites do not yet grasp the absolute size and length of it. Signs of economic faltering bring a chorus of calls for QE3 (another round of central bank quantitative easing) as if we just need to prime the pump once again. In the political realm in the fight over the federal budget each side is still trying to close the deficit on their terms without giving up much. Yet both sides of the partisan divide need to give up more than even their opponents demand. Ross Douthat says the liberals have boxed themselves into a place where they find themselves defending middle class entitlements over programs for the poor.
Here American liberalism risks becoming a victim of its own longstanding strategy’s success. Because yesterday’s liberals insisted on making universal programs the costly core of the modern welfare state, on the famous theory that “programs for the poor become poor programs,” today’s liberals find themselves defending those universal (and therefore universally-popular) programs at the expense of every other kind of government spending — including, yes, programs for the poor. It’s a classic example of putting liberal political interests ahead of liberal policy priorities.
Showing a liberal awareness of this conflict Ezra Klein comes out against cuts in discretionary non-security spending. But by citing cuts in highway maintenance as an example of false economy (small potholes are cheaper to fix than big potholes) he tries to imply the obvious falsity that most of the non-security discretionary spending has the same characteristic. He wants that spending for redistribution, not economic efficacy. He ought to say so. Many forms of discretionary spending, for example housing subsidies aren't achieving real savings or wealth generation for the taxpayer. Such subsidies are just transfer payments to the poor which subsidize dysfunction.
Both resource limitations and demographic changes are becoming big weights on economic growth. Even if we inflate away some of our debt (as Ken Rogoff, Scott Sumner and Tyler Cowen all advocate) other fundamental drags on the economy will remain. Growth is not going to save us. Even Rogoff thinks debt deleveraging after a big debt bubble takes 7 years.
If I'm right about the other weights on the economy 7 years until the resumption of normal growth is optimistic. Therefore some of the promises made to all the old folks and other feeders at the public trough can't be honored. Raising the eligibility age for Medicare and Social Security seems inevitable. Also on the list of the inevitable: big cuts in the welfare state for the poor, big cuts in defense spending, and higher taxes.
Since we can't afford our lifestyles and our current size of government we need to find ways to do more with less. I'd love to see more liberals and conservatives think harder about how to do more with less (e.g. automate education and cut the administrative fat which has built up in higher education) and also to think about what's really necessary to do in the first place (e.g. militarily babysit the Middle East?). We live in an age of sharpening limits. We need to start accepting these limits and working more smartly within them.
Gov’t report: US health care tab to hit $4.6 trillion in 2020, averaging $13,710 per person. Currently it is $8,650 per capita. If the trend continues health care will cost over a fifth of the US economy.
Think about that. If the US Medicare Actuary is correct you are going to lose, on average, another $5k per year to medical costs in less than 10 years. I am reminded of Herbert Stein's Law: "If something cannot go on forever, it will stop". Will the US political system, economy, and populace go along with transferring another $5k per capita of output to medical care? I'm thinking no. We are getting close to the end of the trend just because the economy isn't going to grow enough to leave people with enough to spend on food, clothes, housing, et cetera after they spend another $5k each on health care.
A political fight over health care versus everything else in the US federal budget is going to gradually build up. Also, the private sector will shift more of the costs of health care onto employees and the employees will look for ways to economize out of necessity. Already the rate of growth of health care costs has dropped to 4% in 2009 and 3.9% in 2010. The 3.9% growth rate represents a record low spanning over decades of government tracking of health care cost growth. A double dip recession could easily knock it down even further.
The long term trend in college costs is similarly not sustainable.
Since I expect the US economy in the 2010s to dramatically under-perform as compared to the post-WWII era I expect the unsustainable trends of rising health care and educational costs to end during this decade.
Texas governor (and likely US presidential aspirant) Rick Perry wants to force Texas state universities to lower their costs.
More recently, Perry has proposed that the state’s top colleges come up with a four-year degree that costs no more than $10,000 — a goal that skeptics say cannot be achieved without sacrificing academic quality and prestige.
The whole article makes no mention of separating certification testing from teaching and course work. Yet that's key to lowering the cost of education. If someone does not need hand-holding and doesn't mind watching videos and taking online practice tests why should that person pay the very high cost for enrolling for a bricks-and-mortar education?
Perry wants to measure costs and benefits of each faculty member. This has basically caused an "Empire Strikes Back" where influential and powerful alumni fight to protect their favorite university from Perry's reform attempts.
On May 3, nearly two dozen people who had been honored as distinguished alumni by the Association of Former Students of Texas A&M released an open letter to their fellow Aggies: “Our concern is the result of the extraordinary level of political intervention in our university. . . . It is our observation that individuals, including the Boards of Regents, often misunderstand the fragile nature of academic prestige.”
State Sen. Judith Zaffirini (D-Laredo), who chairs the Senate Higher Education Committee, said of Perry: “He bit the giant, and that giant is the alumni, who care more deeply and passionately about their alma maters than they do about his politics.”
Perry's wasting his time trying to reform the existing (and inefficient and corrupt and manipulative) higher education system. Take a lesson from Sun Tzu. Do not attack directly. Reformers should focus on building up pieces of a parallel system and avoid political warfare with loyal alumni. Western Governors University is a useful model. But I would go further and divert some dollars toward producing free-to-download lecture series. Then allow people to just pay for tests to prove their competency for a variety of basic university courses. Best to start out with highly objective subjects like calculus, physics, and other science basics where the knowledge does not change for years.
Investors drove borrowing costs for Italy and Spain to 14-year highs, fueling sharp stock market drops in London, Frankfurt, Paris, Milan and Madrid. Though Italian and Spanish bonds later rebounded, borrowing rates for both nations remained dangerously high, at more than 6 percent — and closing in on the 7 percent threshold that eventually triggered bailout talks with Greece, Ireland and Portugal.
The weak economic recovery this year has made the markets doubt tax revenues will grow fast enough to pay the interest on the large debts of the southern European countries. The amount of debt outstanding today was issued based on rosier expectations for economic growth. Take away economic growth for an extended period of time and the result will be massive defaults.
Since the PIIGS (Portugal, Italy, Ireland, Greece, Spain) owe European banks and even some American banks big bucks sovereign defaults run the risk of triggering bank failures and a freeze-up in the willingness of banks to lend to each other. We could go thru a re-run of the late 2008 financial crisis.
Before we reach an acute crisis stage the European Central Bank might step in and buy up large amounts of Italian and Spanish debt at lower interest rates. But that's just kicking the can down the road if robust economic growth does not come back. Since I expect Peak Oil to weigh down Western economies I do not expect we will see a return to fast economic growth. Rather I expect the choice faced by central banks is between high inflation or many more sovereign defaults, bank failures, and future financial panics.
What is still not clear: do our financial problems indicate that we are nearing the end of empire?
Chi-Hua Chien of legendary Silicon Valley venture capital firm Kleiner Perkins (e.g. they funded Amazon, Sun Microsystems, Google, Genentech) thinks the educational market is in need of massive restructuring.
Secondly, education is a trillion dollar market “that’s completely screwed up”, because it involves millions of children going to sit in a classroom for 7 hours, and it combines three different businesses for the state: the real estate business, the union labor management business, and certification business.
When, in reality, education should be delivered in a realtime basis to students who are learning at their own pace, who don’t have to sit in a room full of 30 people in an antiquated environment — a realtime, mobile solution that’s learning based as opposed to curriculum based. This second idea is a bit more nebulous, but Chien is hitting on an important theme here: How badly American education is in need of disruption and innovation, especially as that would relate to mobile.
He's not slicing up education into enough pieces. The real estate and labor management pieces should disappear as online course delivery makes unions powerless and building usage minimal.
Certification should be broken up into course delivery, tutoring of groups and individuals, and testing. But testing really has two distinct uses in education: testing for learning (frequent testing enhances learning) and testing for certification of knowledge and skills acquired.
Each of these pieces could be delivered by different organizations for the same topic area. So you could get video lectures from one source, tutoring from another source, learning tests from yet another source, and certification testing from still another source.
A big need: certification standards for assorted fields of expertise. Many fields have certification tests. But too many also require bricks-and-mortar education and accredited institutions before becoming eligible to take the tests. For example, with one exception I'm aware of (Virginia) one can't pass the bar to become a lawyer without first going to law school.