iCount

I have never gotten a satisfactory answer to this question. I have posed it to very prominant people on both sides of Social Security only to have it dismissed by the privatizer and answered by the SS supporter in a way that went over my head. But it is not crazy talk, between 1997 and 2004 outcomes at or better than Low Cost were routine. But perhaps I am getting ahead of myself. What is Low Cost anyway? Well one answer is that it is outcome I on the following figure:

This figure shows in graphic form the outcomes of Intermediate Cost (II) vs High Cost (III) vs Low Cost (I)

The answer begins with examination of three tables in the Social Security report:

Table V.A1: Principal Demographic Assumptions

Table V.B1: Principal Economic Assumptions

Table V.B2: Additional Economic Factors

My position from 1997 to 2004 was that Intermediate Cost was ridiculously pessimistic particularly on the economic side but also on the demographic side. Its demographic model suggests that in the face of labor shortages going forward that this country will sharply slow not just illegal immigration but legal immigration as well, and not just in absolute numbers but in relative ones as well. If we were to take this seriously we would have to believe that the proportion of foreign born Americans was going to steadily shrink over time. And while I am sure there are xenophobes out there to whom this would come as really good news, it doesn't make a lot of sense from an economic standpoing. If America needs more workers to maintain a good worker/retiree ratio it can get them where it always has: from overseas. On the other hand Low Cost has immigration in the future at numbers comparable to 2005 in absolute numbers but still shrinking in relative terms. If anything this still seems too cautious (a point brought out by the recent Report on Assumptions by the SSAB Technical Panel-see post XVIII).



One standard response is to point out that Low Cost fertility rates are too optimistic. And this is a fair point though one largely to be explained by the design of the model which has every variable of Low Cost working to the upside (see Technical Panel Report for their recommendation on this point). On the other hand an examination of Table V.A1 shows that the trend over the last decade has been to see small increases in this measure, a trend that seems to have accelerated last year More U.S. babies born, fertility rate up, defying low-birth trend in Europe. So combined with higher immigration (itself associated with higher fertility rates) I am going to just say that the case needs to be made for Intermediate Cost demographic projections.



But it is on the economic side that I see a smoking gun. Take any measure you like whether Productivity or Real Wage (Table V.B1) or Unemployment and Real GDP (Table V.B2) all of them show massive and permanent crashes from 1999 numbers to 2012. For example Real GDP growth is projected under Intermediate Cost to drop by 50% over that time and never recover. On the other hand the 'optimistic' Low Cost still produces fully funded Social Security with a 33% drop in Real GDP growth over that same period. Take one final glance at Figure II.D6 above, examine some of the data Tables and then explain if you can why I shouldn't just assume results closer to Low Cost than Intermediate Cost. {The original post suggested that total GDP would drop. h/t spencer}

by Bruce Webb (noreply@blogger.com) on August 08, 2008 05:50 PM

I'm going to try a Cactus post and look at the Bush record.



On 11 June 2004 Milton Friedman published an interesting article in the Wall Street Journal Editorial page called Freedom's Friend. In the article he used the number of pages in the Federal Registry each year as a measure of government interference in peoples lives and a measure of freedom.



It was a good idea and I though I would update his research.



Since Reagan cut the number of pages in the Federal Registry it has been rising again and the Bush administration is on course to set a new all time record of pages published in the Federal Registry. In the first seven years of the Bush administration the number of pages averaged 75,208 pages as compared to 71,592 under Clinton. The Bush average is even larger than the Carter average of 72,333 pages.



So it appears that Milton Friedman would not claim Bush as Freedom's Friend.

by spencer (noreply@blogger.com) on August 08, 2008 02:20 PM

OMB Watch lists some main items needing passing to continue the government, and indicates progress through the Congressional approval maze.



This is only a partial list of course, and just a beginning for YOU as a congress critter to analyze. The challenge is to begin to choose how to bring the budget out of the spend and borrow course that dominates current thinking on the Hill. Of couse this is purely imaginary.



It is not an accident entitlements are not mentioned. Be brave.

by rdan (noreply@blogger.com) on August 08, 2008 10:00 AM

I think Amy Sullivan is confused:

You're pro-choice. Does that interfere with being an evangelical? Well, I don't like the [pro-choice] label. I guess the reason I wrote about abortion the way I did in the book is because I have serious moral concerns about abortion, but I don't believe that it should be illegal. And that puts me in the vast majority of Americans. But unfortunately, there's no label for us.

Excuse me but I’m a Methodist and I’m proud to say I’m pro-choice. Amanda Marcotte almost captures what I’d like to say to Amy:

Yes, there is. If you think abortion and other forms of contraceptive birth control should be legal—i.e. that women should have the legal right to decide when they have children—you are pro-choice. Even if you still reserve the right to judge them for it. This entire interview with Amy Sullivan, like all her talk on getting the evangelical vote, makes me tired. She appears to have a definition problem, basically, characterizing evangelicals as if they are all Bible-believing Christians, when most self-identified evangelicals are patriarchy proponents with a thin veneer of Christianity over everything as a moral justification.

This is a simple issue – even if the anti-choice crowd tries to obscure it. I don’t want the government involved in the decisions that women such as my 20-year daughter might have to make. But there’s a difference between myself v. either Amanda or Amy. I’m a guy so I’ll never have to face the decision that some single women who happen to become pregnant have to make.



I have no idea whether my daughter is sexually active or not but if she is, she has yet to become pregnant. If she did and her boyfriend was just a jerk as to abandon her – I’d hope she’d ask her dad for advice. But advice is all I’d have the right to give her. And the advice would start with this simple fact – it is her choice not my choice or the choice of some yahoo who’d dare try to use government coercion on what may be the most difficult choice of her life. The second thing I’d tell her is that if she did decide to make me a grandfather, I’d financially support mother and child. But if she decided to terminate the pregnancy, I’d tell her to get a good doctor. And if some yahoo tries to judge her in a negative way – that yahoo would have to deal with me telling the idiot to leave my daughter alone.

by PGL (noreply@blogger.com) on August 08, 2008 09:50 AM

(Erroneously put up as XXXVII)

Prior to 2004 Social Security Crisis was explained with a simple narrative: Boomers retire placing enormous strain on system, Trust Funds go bankrupt in short order, checks stop. Result? Social Security won't be there for me.



This storyline was always nonsense, as long as payroll tax is being collected benefits would be paid out at some level. And on examination of the numbers it was clear that the result would still be better in real terms than today. But these facts flew mostly under the radar, and given that no one was actually proposing anything concrete social security supporters by and large just kept their powder dry. Until Bush declared war in November 2004.



The result was the 'There is No Crisis' battle of Spring & Summer 2005 with the result being a near total rout of the crisismongers. They simply were not prepared with real numbers, instead they brought rhetorical rubber knives to an economic gunfight. Faced with the reality that Trust Fund depletion was not projected until 2041, well after the peak impact of Boomer retirement, and that depletion did not in fact equate to 'bankrupt' or 'flat broke' they retreated from Crisis at Depletion to Crisis at Shortfall.



Shortfall refers to that time when Social Security receipts from payroll tax and tax on benefit falls behind cost. We should note that this doesn't mean that total Income falls behind Cost at shortfall, interest is still accrued on the Trust Fund balances, but shortfall does mark the point that cash transfers have to be made from the General Fund to pay a portion of Social Security benefits. Crisismongers generally present this as some massive fiscal shock requiring huge tax increases or massive benefit cuts leading commenters to ask questions like this:

Movie Guy: "I'm interested in knowing, though, what we will say when it's time for the U.S. Congress to pay back some of the borrowed monies during the next decade (based on current funding rates). Which discretionary programs will take the hit or will new taxes be applied to offset the Federal Budget shortfalls that may occur?"

Well the short answer is that it may not be necessary either to cut other discretionary programs or raise income taxes. To see why we have to start with the actual numbers in question. Which are to be found below the fold.



Social Security reports future numbers in two forms. Current dollars are the actual cash dollars needed in that future year. Constant dollars adjust that for inflation and so are the better measure for assessing relative impact. Crisismongers will always use current dollars because they are scarier, so I propose to use both.

Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, in Current Dollars, Calendar Years 2008-85 [In billions]

Table VI.F7.—Operations of the Combined OASI and DI Trust Funds, in Constant 2008 Dollars, Calendar Years 2008-85 [In billions]

These tables give annual numbers for needed transfers to or from the General Fund for the first ten years and then in five year intervals after that. Coincidentally Shortfall is projected for year ten or 2017, meaning that all these numbers represent transfers from the General Fund. Numbers are in billions.



Year:::::Current:::::Constant

2017:::$24:::::::::::$19

2020:::$107:::::::::$77

2025:::$275:::::::::$172

2030:::$471:::::::::$257

2035:::$656:::::::::$313

2040:::$808:::::::::$335

2045:::$0::::::::::::$0



With war costs FY 2009 deficits are projected to be about $600 billion. So adjusted for inflation amounts of just over half of current year borrowing would be needed to pay for Social Security in the years after 2032. If we make serious attempts to control General Fund spending and most importantly get overall health care costs under control, the cost of Financing Shortfall is not some crippling blow requiring massive cuts in discretionary spending, it can be financed like we have been financing General Fund deficits all along-by borrowing. Now sure as shooting someone will jump up crying 'Current account deficit!!'. Well that may or may not be a problem going forward, because we can listen to liberal Mr. Gore or ultraconservative Mr. Pickens and find agreement that we can cut the cost of imported oil drastically over the next ten years and so automatically improving the trade deficit at the same time.



In any event nothing in these numbers suggest that Social Security in and of itself is much of a fiscal challenge. Global warming, Peak Oil, Health Care: huge problems that need immediate attention. Social Security? Not so much.



Note too that these numbers use Intermediate Cost assumptions. Under Low Cost transfers don't start until 2023 and are much smaller. If I get time will post those numbers in comments, but if we just take 2035 as a sample and use constant dollars we can see a needed transfer of $160 billion or just about half of IC's $313 billion.



(But what is with those $0 figures for 2045? Well I'll leave that as an exercise for the reader. My answer will come in comments.)

by Bruce Webb (noreply@blogger.com) on August 07, 2008 09:51 PM

In November of 2004 Dean Baker issued his 'No Economist/Policy Analyst Left Behind' challenge. In it he asked people to show that they could produce the 6.5% return on stocks assumed by the Council of Economic Advisors under the actual economic projections of the Intermediate Cost alternative. (Oddly enough for an open and public challenge this has been moved behind a CEPR firewall. For those of you who have access the link is here) {Per D R in comments this was just a glitch that will be fixed shortly.}



Baker couldn't make it work. He came up with something like 4.9% (the actual number being behind that firewall).



Then Krugman and Baker together took a shot at it with Krugman reporting results back as follows: No Economist Left Behind (the link goes to a blog post from Feb 2005 and not to Krugman himself).

The Social Security projections that say the trust fund will be exhausted by 2042 assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the last 75 years, will average only 1.9 percent over the next 75 years.



In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade.



The price-earnings ratio - the value of a company's stock, divided by its profits - is widely used to assess whether a stock is overvalued or undervalued. Historically, that ratio averaged about 14. Today it's about 20. Where would it have to go to yield a 6.5 percent rate of return?



I asked Dean Baker, of the Center for Economic and Policy Research, to help me out with that calculation (there are some technical details I won't get into). Here's what we found: by 2050, the price-earnings ratio would have to rise to about 70. By 2060, it would have to be more than 100.

And just to put another nail in the coffin Baker and Krugman joined together with DeLong to author Asset Returns and Economic Growth otherwise known as 'BDK'. Those inclined can read the whole thing. (Beware. What they call 'Arithmetic' doesn't look anything like your fifth grade math class. And what they call 'Algebra' doesn't match my 9th grade experience. But if you like lots of Greek letters and exponents feel free to take a shot at it.) In any event the baseline answer was 'No'.



I don't always agree with every single opinion of Baker, DeLong or Krugman. But when they all have their Economist hat on and end up pulling the wagon in the same direction my inclination is to jump on the wagon and not stand in the way and get crushed under the wagon wheels.



The point is that it is pretty clear that most privatization or personal account plans implicitly build in a better set of economic assumptions than the one projected by the Trustees. The problem is that they generally refuse to acknowledge that the NELB challenge exists. Now it is a little unfair to make that charge against the Ferrara Plan, because the version linked is dated a full seven years before the date of Dean's challenge. But even so you would think the contradiction would be pretty obvious. On the other hand the Liebman, MacGuineas, Samwick Non-Partisan Social Security Reform Plan was published in final form a whole year after NELB. Yet all we see is a vague appeal to an 'Expected Yield on Mixed Portfolio'. Maybe there is some extended version that actually lays the numbers out and shows them meeting the NELB challenge, all I know is that after years of asking no one actually has been able to point me there.



In running a conventional business having one set of books to show the auditors and tax men and another to show to your investors is a recipe for a little stay in your nearest minimum security Club Fed. But in selling Social Security 'reform' it seems to be business as usual.



Since I can't get access to their numbers there is no way to confirm what I have suspected for years. Not only do these guys know that Low Cost is out there, they are counting on similar numbers to make their PRAs work. The idea being taking ordinary economic growth, growth that would fully fund Social Security anyway, and hijack the results to 'prove' that private accounts are superior to traditional Social Security.



Hold their feet to the fire. Demand that they can meet NELB with numbers less than those of Low Cost. Otherwise it is all a game of bait and switch.

by Bruce Webb (noreply@blogger.com) on August 07, 2008 07:57 PM

This is a bad person:

But that wasn’t bad enough. Tinker then released this ad just today, and it has drawn so much negative reaction from all over the country, that her campaign has already removed it from YouTube. But we still have the transcript.

CHILD’S VOICE: “Now I lay me down to sleep…”

ANNCR: “Who is the real Steve Cohen anyway?”

CHILD’S VOICE: “I pray the Lord my soul to keep…”

ANNCR: “While he’s in our churches, clapping his hands and tapping his feet…”

CHILD’S VOICE: “If I should die before I wake…”

ANNCR: “He is the only senator who thought our kids shouldn’t be allowed to pray in school.”

CHILD’S VOICE: I pray the Lord my soul to take.

ANNCR: “Congressman, sometimes apologies just aren’t enough.”

TINKER: “I’m Nikki Tinker, and I approve this message.”

The announcer’s voice specifically stressed “our” in that ad. That’s about as blatant as an anti-Semitic dog whistle you’re ever going to hear on TV.

There is much more: blatant racism from her supporters and a flier that says “Steve Cohen and the Jews HATE Jesus”. This reprehensible piece of work, this walking embodiment of the politics of hate is Niki Tinker and she is running in the Tn-09 Democratic primary against the current occupier of the seat, Steve Cohen. If you live in the Ninth (which covers almost all of Memphis), please, please, please vote for Cohen today. Not only has he been a strong progressive for the district (voting against the FISA capitulation and sponsoring a bill apologizing for slavery, for example) but we don;t need Tinker’s kind of filth anywhere near Congress.

by Kevin on August 07, 2008 07:41 PM

Over at EconoSpeak, I praise Martin Feldstein as he notes that the tax rebates had little bang for the buck. But then his attacks on Obama’s fiscal proposals struck me as sheer heresy.

by PGL (noreply@blogger.com) on August 07, 2008 05:49 PM

Much has been written on the foundering and significance of the Doha rounds of talks, and how the agricultural policies of nations was the stumbling block. However, notice Mode 4.







Center for Policy Reseach and Mode 4



India proposed a policy of treating trade services as commodiities, not people, and the US team agreed. Hence the normal procedures of a guest program for workers of many types we are accustomed to could have been challenged in closed WTO arbitrage proceedings.



This is one area that should not slip by. The commoditization of people for guest workers needs careful consideration for intended results (perhaps unintended for most of us regular folk). Anyway, it could have cut a swath across our immigration discussions with nary a peep. Does anyone know more?

by rdan (noreply@blogger.com) on August 07, 2008 05:08 PM

What is it with normally reasonable republicans that when it comes to the Windfall Profits Tax that makes them become completely unreasonable and accept the republican spin machine bull about it.



I keep seeing at various blogs the claim that the 1980s windfall profits tax caused oil production to fall when the facts clearly show that claim is completely untrue.



Actually, since US oil output peaked in 1970s about the only time that US oil production rose was when the Windfall Profits tax was effective.



Some may respond that it was Alaska, but it was not Alaska as this chart shows.









I am not making an argument in favor of the tax, all I'm doing is asking for a little honesty from people who are normally reasonable on such things.





P.S. A related point about oil. Since the last US oil refinery was built in the US in 1976 US crude oil output has fallen about 40%. If we are producing 40% less crude oil, why do we need new oil refineries?





P.P.S. Ok here is an addition. The chart shows oil production in the lower 48 states versus a trend. What is shows is that the only time output rose significantly above trend was when the

windfall profits tax was in effect. So we are right back where we started. I'm still waiting for someone to provide a defense of the repeated republican claim that the WPT causes production from existing well to fall.

by spencer (noreply@blogger.com) on August 07, 2008 04:33 PM

Did you notice.



Obama mentioned selling oil out of the strategic oil reserve and the price of oil fell

almost $5. That is a bigger drop than suspending the federal gasoline tax would produce.



Man, I wonder how the Republicans are going to give Bush credit for this drop.



Of course, It could not have happened if Bush had not been speculating in the oil market and putting oil back in the ground.



That is what the libertarians at GMU and some others were giving as the reason that Krugman was wrong in saying that speculation was not important in explaining the high oil prices. As far as I know Bush was the only one putting oil back in the ground. Of course there is some chance I could be wrong on that-- right FA?





rdan here: hat tip to vtcodger on great information on drilling...Robert Kauffman at Boston University.

by spencer (noreply@blogger.com) on August 07, 2008 03:24 PM

Earlier this week, when Brewers 1B Prince Fielder shoved P Manny Parra during a 6-3 loss to Cincinnati, all the coverage (in print, and on ESPN, etc.) was about how the Brewers were a team in “free fall” and about how awful things were going suddenly, and about how just a week earlier the team had been tied for first with the Cubs, but was now five games back. This narrative, in my estimation, seriously lacked perspective.

The truth of the matter is, the point at which the Brewers supposedly “hit bottom” was actually the point at which they leveled out to more or less where they’ve been for some time. The anomaly, in fact, was the high point for the Brewers, when they had tied the Cubs on July 26 — this happened after a stretch during which the Brewers had won nine of their last ten, including a season-long 8 games in a row, a pace which nobody really expected them to continue. At the same time, the Cubs had been in an unusual slump, losing seven of their last ten.

What happens, then, if we compare Aug. 4, the supposed “bottoming-out” point for Milwaukee, with the All-Star Break, widely considered to be a good breaking point for evaluating where teams are? Let’s have a look.

Aug 4:

Pos	Team	W	L	Pct	GB
1	Cubs	67	46	0.593	–
2	Brewers	62	51	0.549	5
3	Cardinals	62	52	0.544	5.5

Now, what about the All-Star break, three weeks earlier?

Jul 13:

Pos	Team	W	L	Pct	GB
1	Cubs	57	38	0.600	–
2	Cardinals	53	43	0.552	4.5
3	Brewers	52	43	0.547	5

So, when we look at it, what had happened to the Brewers between the All-Star break and their supposed “bottoming” out? They had kept pace with the Cubs, they had slightly improved their winning percentage, and they had surpassed the Cardinals for second place in the division. Hardly a “bottom out” in my estimation.

Yes, they got swept at home by the Cubs in a four-game set, and yes that was tough. I whined about it myself. But these things happen, and they don’t constitute a team in some sort of free-fall, especially when there are still two months of baseball left to be played. Still, let’s not let a few facts and some rational analysis get in the way of a compelling story line…

(Side note: As of Aug. 6, all three teams have won two more games, and their winning percentages are exactly what they were at the All-Star break, except for Milwaukee, which has a slightly better percentage.)

by tgirsch on August 07, 2008 01:44 PM

Health Beat Blog also has an opinion on how far Big Pharma has gone on producing research and how it is used. When do you say innovation needs to be funded differently in the drug business, and when does advertising become propaganda, and the coercion of the government protecting copyrights and patents need amending. It is worth a visit.

There’s something uniquely unsettling about the fact that the pharmaceutical industry is ready, willing, and able to claim that its marketing is actually some perverse form of community service. It’s one thing to claim that a drug works when it doesn’t, but there’s something especially weird about insisting that advertising can—and should—effectively structure patient-physician interactions. This point is all the more perverse because the same organization that’s saying marketers should mold discussions is also claiming that DTC advertising doesn’t do so. There’s a disturbing undercurrent of social conditioning here that is played up or played down depending on what is most convenient for prescription drug companies.



This is all very audacious, even for Big Pharma. The lengths to which these marketers are willing to go to prove that their product is beneficial and desirable are stunning, and this drives home a point that health care reformers need to keep in mind: These are not the people we want involved in medical research. They have a deep interest in choosing spin over science and pursuing “research” in the service of marketing. These are not the priorities of a high quality health care system. The CommonHealth PR logic needs to be kept as far away from the proposed Comparative Effectiveness Institute—and health care in general—as possible.

by rdan (noreply@blogger.com) on August 07, 2008 10:00 AM

The war on the working class* continues unabated

By Kathy G.

Proving once again why the Wall Street Journal should be required reading for all good lefties, today the paper reports on yet another way corporate America has found to screw the wage slaves among us. As the Journal explains, companies are using our pension funds to finance lavish executive perks:

At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay.

In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives' supplemental benefits and compensation.

What's the problem with this? Well, there are basically two of them: a) it's illegal, and b) it causes serious harm to ordinary workers:

A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.

Worse, your tax dollars, and mine, are subsidizing the perks for these already extravagantly compensated execs:

Hat tip to reader Jack for this link to CPA Journal reading.

Normally, companies can deduct the cost of deferred comp only when they actually pay it, often many years after the obligation is incurred. But Intel's contribution to the pension plan was deductible immediately. Its tax saving: $65 million in the first year. In other words, taxpayers helped finance Intel's executive compensation.

[. . .]

. . . [A] majority of the tax-advantaged assets in Intel's pension plan are dedicated not to providing pensions for the rank and file but to paying deferred compensation of the company's most highly paid employees, roughly 4% of the work force.

On the Hook

And taxpayers are on the hook in other ways. When deferred executive salaries and bonuses are part of a pension plan, they can be rolled over into an Individual Retirement Account -- another tax-advantaged vehicle.

Troublingly, this reverse Robin Hood strategy of raiding the pension funds of ordinary workers and handing over the loot to the most highly paid executives has for the most part been carried out in secrecy. Often, the ordinary employees potentially getting screwed out of their pensions have no idea what's going on -- and the bosses and their bottom-feeding consultant aparatchiks take great pains to keep it that way:

Generally, only the executives are aware this is being done. Benefits consultants have advised companies to keep quiet to avoid an employee backlash. In material prepared for employers, Robert Schmidt, a consulting actuary with Milliman Inc., said that to "minimize this problem" of employee relations, companies should draw up a memo describing the transfer of supplemental executive benefits to the pension plan and give it "only to employees who are eligible."

Ya gotta love the weasel words there -- "minimize this problem" of "employee relations," indeed!

Mucking with employee pensions in this way is of dubious legality, but usually the understaffed, overworked regulators have no idea it is even going on:

With too little staffing to check the dozens of pages of actuaries' calculations, the IRS generally accepts the companies' assurances that their pension plans pass the discrimination tests, the official said.

Of course, there is something our elected officials can do about it:

To halt the practice, Congress would have to end the flexibility that companies now have in meeting the IRS nondiscrimination tests.

Does Congress have the huevos do the right thing, and thoroughly investigate -- and regulate! -- this and many other dubious corporate practices and financing schemes that have taken hold over the past couple of decades? Would President Obama's SEC and Justice Department have the backbone to enforce the law by going after the corporate crooks and meting out appropriately stiff punishments to the offenders?

I wish I could be more confident that the answer to those two questions is, "Hell to the yeah!"

*H/T: Sir Charles

by rdan (noreply@blogger.com) on August 07, 2008 04:25 AM

I’ve said before, including in recent threads here, that I think WHIP (walks and hits per inning pitched) is probably the best stat for evaluating a pitcher’s effectiveness — better than wins, and better than ERA. Better, even, than BAA. But even this statistic is flawed, because a pitcher who gives up just three walks in a 9 inning complete game will have the same WHIP as a pitcher who “only” gives up three home runs in a nine inning complete game.

So I’d like to suggest that what we should be tracking is TBIP - Total Bases per Inning Pitched. It’s not an acronym like “WHIP” is, so there’s no easy way to pronounce it, but I think it would be more meaningful. Both pitchers in my example would have a WHIP of 0.333, but the first pitcher (obviously the better performance) would have a TBIP of 0.333, while the latter pitcher would have a TBIP four times as high — 1.333.

Discuss. Otherwise, open thread.

by tgirsch on August 06, 2008 06:00 PM

In the course of the two posts on Backwards Transfers (XXXVI & XXXVII) it became clear that even experts had a somewhat confused concept of the relation of past and future as it comes to Social Security finance. So this post will attempt to add some clarity.



Social Security is by design a Pay/Go system in which current premiums/taxes are used to pay out current benefits. Despite some hysterical hand-waving this is not a 'pyramid scheme' or a 'ponzi scheme', it is an insurance plan functioning much like any other insurance plan. The major difference between the Social Security Administration and New York Life is that the United States government functions as its own re-insurer with Full Faith and Credit backed up by the inherent power to tax.



Like any insurance plan Social Security takes on future obligations, obligations that will have to be met using resources available in the year of benefit collection. These obligations create legal liabilities, the law requires that Social Security to the best of its ability payout future benefits per the current benefit schedule. Now under Pay/Go the assumption is that these future obligations will be met by a continuation of the taxation mechanism currently in place (FICA payroll plus tax on benefits) backed up by a reserve fund (the Trust Funds) which itself generates a moderate amount of income in the way of interest on the Special Treasuries.



Which leads me to pause for a moment and shout: SOCIAL SECURITY IS NOT THE TRUST FUND. The Trust Funds exist to smooth out short to medium term discrepancies between income from tax collected and cost from benefits paid out, they were not designed and do not serve as an investment fund a la CalPers.



Okay we have an insurance plan whose benefit payouts fundamentally depend on future tax collections. Are those payouts 'liabilities'? Well yes. Are they 'unfunded liabilities'? Well it depends on your definition of 'unfunded'. When the Federal government enters into any contract whether for aircraft carriers or retirement security it rarely if ever actually has dollars tucked away to pay for the entire contract over its entire span, instead it relies on future income streams. In the case of Social Security that income stream primarily is a dedicated FICA tax. My argument or maybe just by bare assertion that those future benefits are funded liabilities for as long as we can project that total income and Trust Fund claims on the Treasury will meet cost. So what are "unfunded liabilities' in the context of a Pay/Go system? One answer (if not necessarilly THE answer) can be found under the fold.



My answer is that the term 'unfunded liability' is limited to the gap between the scheduled benefit and projected income going forward. It has nothing to do with benefits paid to past beneficiaries, those obligations have been fully satisfied with ongoing Pay/Go collections. In this case the past is really the past and done is done. The notion that unfunded liability going forward is a result of extra payouts in the past is simply wrong, for one thing the current unfunded liability totals more than the totals of all benefits paid out to date (Infinite Future unfunded $13.6 trillion, past total benefits $12 trillion), for another those payments were funded. But lets go to the numbers:





These may not be legible on your screen but the relevant links are: IV.B6-Unfunded Obligations Through the Infinite Horizon & IV.B7-Present Values of OASDI

The tables are laid out in different ways but what they deliver in toto is six values: total gap between future income and future cost for the 75 year, 100 year, and Infinite Future Horizon, and then those numbers discounted by the Trust Fund balance at year end 2007 ($2.2 trillion). So the following will lay out the gross and the net for all three periods:

75 year: $6.6 / $4.4 trillion

100 year: $17.1 / $15.2 trillion

Infinite: $15.8 / $13.6 trillion

What is the significance of these numbers? Well I think I will follow up in comments.

by Bruce Webb (noreply@blogger.com) on August 06, 2008 05:37 PM

Guess who said the following back in April of 1977:

The oil and natural gas we rely on for 75 percent of our energy are running out. In spite of increased effort, domestic production has been dropping steadily at about six percent a year. Imports have doubled in the last five years. Our nation's independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil that it can produce. The world now uses about 60 million barrels of oil a day and demand increases each year about 5 percent. This means that just to stay even we need the production of a new Texas every year, an Alaskan North Slope every nine months, or a new Saudi Arabia every three years. Obviously, this cannot continue ... We can't substantially increase our domestic production, so we would need to import twice as much oil as we do now. Supplies will be uncertain. The cost will keep going up. Six years ago, we paid $3.7 billion for imported oil. Last year we spent $37 billion -- nearly ten times as much -- and this year we may spend over $45 billion. Unless we act, we will spend more than $550 billion for imported oil by 1985 -- more than $2,500 a year for every man, woman, and child in America. Along with that money we will continue losing American jobs and becoming increasingly vulnerable to supply interruptions ... We will feel mounting pressure to plunder the environment. We will have a crash program to build more nuclear plants, strip-mine and burn more coal, and drill more offshore wells than we will need if we begin to conserve now. Inflation will soar, production will go down, people will lose their jobs. Intense competition will build up among nations and among the different regions within our own country. If we fail to act soon, we will face an economic, social and political crisis that will threaten our free institutions. But we still have another choice. We can begin to prepare right now. We can decide to act while there is time.

Via Brad DeLong, this is from a speech delivered by President Carter. Alas, some in Congress was too busy criticizing this President to actually listen to what he was saying.

by PGL (noreply@blogger.com) on August 06, 2008 05:22 PM

Some of you probably are familiar with this; I just came across it. Randy Newman’s reply “to [the] scorn” of Europeans and the rest of the world.

“A Few Words in Defense of Our Country“

I’d like to say a few words

In defense of our country

Whose people aren’t bad nor are they mean

Now the leaders we have

While they’re the worst that we’ve had

Are hardly the worst this poor world has seen

Let’s turn history’s pages, shall we?

Take the Caesars for example

Why within the first few of them

They were sleeping with their sister

Stashing little boys in swimming pools

And burning down the City

And one of ‘em, one of ‘em

Appointed his own horse Consul of the Empire

That’s like vice president or something

That’s not a very good example, is it?

But wait, here’s one, the Spanish Inquisition

They put people in a terrible position

I don’t even like to think about it

Well, sometimes I like to think about it

Just a few words in defense of our country

Whose time at the top

Could be coming to an end

Now we don’t want their love

And respect at this point is pretty much out of the question

But in times like these

We sure could use a friend

Hitler. Stalin.

Men who need no introduction

King Leopold of Belgium. That’s right.

Everyone thinks he’s so great

Well he owned The Congo

He tore it up too

He took the diamonds, he took the gold

He took the silver

Know what he left them with?

Malaria

A President once said,

“The only thing we have to fear is fear itself”

Now it seems like we’re supposed to be afraid

It’s patriotic in fact and color coded

And what are we supposed to be afraid of?

Why, of being afraid

That’s what terror means, doesn’t it?

That’s what it used to mean

[To the first eight bars of  “Columbia The Gem Of The Ocean”]

You know it pisses me off a little

That this Supreme Court is gonna outlive me

A couple of young Italian fellas and a brother on the Court now too

But I defy you, anywhere in the world

To find me two Italians as tightass as the two Italians we got

And as for the brother

Well, Pluto’s not a planet anymore either

The end of an empire is messy at best

And this empire is ending

Like all the rest

Like the Spanish Armada adrift on the sea

We’re adrift in the land of the brave

And the home of the free

Goodbye. Goodbye. Goodbye.

From February 2007.

by KTK on August 06, 2008 03:58 PM

Barack Obama got a good shot in on the energy policy debate by noting that his critics take pride in being ignorant. But it seems Paris Hilton is working on a consensus energy plan when she’s not busy getting a tan!

by PGL (noreply@blogger.com) on August 06, 2008 03:11 PM

Sam Wang explains why he reports a 99% probability of an Obama win and fivethirtyeight.com has only a 62.4% probability.







I learned a lot from his post due to my incredible ignorance. I go to www.fivethirtyeigth.com often enough that Firefox proposes it first when I type www, but I had never bothered to read the description of the method used to calculate the probabilities.





In case others are as lazy as me (unlikely) or have lives (likely) I will discribe my ignorance below after discussing issues of interest to the non pathetically ignorant.

Today I’d like to outlline the basic contrasts between this calculation and a popular resource, FiveThirtyEight.com. That site, run by Nate Silver, a sabermetrician, is a good compendium of information and commentary. However, both our goals and methods differ on several key points. The biggest difference is that this site provides a current snapshot of where polls are today, while he attempts a prediction. His approach also has a conceptual problem…

I think the conceptual problem is that Silver calculated probabilities from 10,000 simulations and Wang uses an analytic formula.

Silver’s approach is to carry out thousands of simulations, then tally the simulations. That method reflects the fantasy baseball tradition, in which individual outcomes are often of great interest. However, such an approach is intrinsically imprecise because it draws a finite number of times from the distribution of possible outcomes. The Meta-Analysis on this site calculates the probability distribution of all 2.3 quadrillion possible outcomes. This can be done rapidly by calculating the polynomial probability distribution, known to students as Pascal’s Triangle.

Wang claims that Poblano (AKA Nate Silver) should have obtained a normal distribution for electoral college votes. I don't agree. This is only true if there is no correlation between shifts in support for Obama and McCain in different states. As usual, I argue using an extreme example. Assume no sampling error (each poll is of the whole population) and perfect correlation of changes in support in different states. If this were true then the ranking of states by Obama minus McCain would not change and there would be only 50 different possible outcomes in the electoral college. That's not a normal distribution. I think that the argument is valid unless changes in support in different states are independent. This is a very implausible assumption. (note young Ezra who is neither a statistician nor a political scientist made this argument before I did).



Now Wang also argues that 10,000 simulations aren't enough. I agree. I recently calculated something using 1,000,000 simulations for each of several different parameters (actually just 2 sample sizes). This was a distribution which I think I derived analytically. The millions of simulations were to check my reasoning, my algebra and, especially, my typing when writing the program which calculates the analytically exact distribution (the fact that I fail to reject the null that it is accurate with 1,000,000 simulations convinces me that I typed write for wunce).



The convention that simulations are repeated 10,000 times is a historical artifact of the slow pc age. I would like to ask Silver how long his computer takes to simulate. I would guess that his simulations are quicker than some of mine and waiting for 1,000,000 simulations was barely a nuissance.



Just to go back to my other obsession. I blame microsoft. I don't think people fully realise just how much faster cheap pc's have become, because microsoftware is designed to run intollerably slowly on any but the latest generation computers so computers take as long as ever to boot up, open a word file, open excel or well all that stuff even though they also take as long to do 1,000,000 simulations as they used to take to do 10,000.



I'd guess that 1,000,000 simulations won't change Poblano's calculated probability much and I would bet that he does them and reports the result.







OK what I should have known already.



I knew that Poblano (AKA Nate Silver) used old polls as well as the latest polls. His success during the primaries shows that true shifts in opinion were of limited importance. I did not know that he used a weighted average with the weight decreasing exponentially so that they fall by half after 30 days (weight = 0.5^(age/30days)*(other stuff) and that in past elections this calculation predicts better than others he tried. I see that just as I finally read the old faq (the link above) Silver wrote a new one (still doing 10,000 simulations)





Worse I didn't even know that he considers the correlation of future changes in support for different candidates in different states.

It can reasonably be argued that I'm essentially double-counting the amount of variance by accounting for both state-specific and national movement. That is, some of the error in state-by-state polls is because of national movement, rather than anything specific within that state. However, I have chosen to account fully for both sources of error, because (i) this is the more conservative assumption, and (ii) I suspect that 2004, where voters divided into Bush and Kerry camps early, was inherently a more stable sort of election than 2008 is likely to be.

I had assumed that he did something like what Wang did, so the 67% was a snapshot not a forecast. I am pleased and reassured.

by Robert (noreply@blogger.com) on August 06, 2008 10:05 AM

The Century Foundation Medicare Reform Working Group

I am delighted to announce that The Century Foundation has created a working group to look at Medicare Reform. I’ll be directing it. We’re going to do the work online, communicating with each other on a closed list-serve. In this way, we’ll be able to get a lot done without wasting time traveling to meetings. In the end, we’ll issue a report, and then we’ll get together and host a conference with keynote speakers and panels. (See our Press Release below for more information).



We’ll be looking at many of the issues I have been discussing on this blog: how physicians are paid; the secretive panel, dominated by specialists, that sets fees; the need to reward providers for quality, not volume; over-paying for Medicare Advantage; overpaying for drugs; unwarranted regional variations in how much Medicare spends in different parts of the country; the need to squeeze the hazardous waste out of the system; the need for a comparative effectiveness institute that is truly insulated from Congress and lobbyists; the need to co-ordinate care; and the need for health IT.

Rdan here: Further information if interested can be obtained at the website.

by rdan (noreply@blogger.com) on August 06, 2008 10:00 AM

Hat tip to Robert's Stochastic thoughts for this link to Steve Benen. The bet is on for 100 flip flops before election time. What is a flip flop versus reasoned change of viewpoint?

by rdan (noreply@blogger.com) on August 06, 2008 05:04 AM

Aguanomic's David Zetland is collecting great sources on the rights and economic of water. My time is restricted currently, but think it is worh passing on as it stands.



TP1: Favoring Farmers



This week, we have a few rants from an anonymous guest (The Teal Pimpernel?). Here's the first:

There is a water conservation bill under consideration right now that your readers really need to understand because it contains some truly awful mathematics. AB2175 says all urban water use in California accounts for 9 million acre feet (one AF equals approximately 326,000 gallons) and demands that urban water users conserve 20% by 2020. It also says California’s huge agribusinesses account for 34 million AF and it requires farmers to take a 1.5% reduction in that amount.In other words, households will have to conserve 1.8 million AF while farmers only have to conserve one half a million AF.The math gets worse. Households pay $1,000 or more for an AF while farmers pay as little as $2. And how is this water used? In households, 45% of the water use is for flushing toilets, 19% for showers and 14% for laundry. Farmers use almost all of the water for irrigation, primarily by flooding fields or spraying it into the air. A full 60% of irrigation water never reaches the crops it was intended to irrigate! That means agriculture wastes 21 million AF every year. That is two and a half times more than all the water used in urban uses.Why do farmers waste so much water? Because it is so cheap. It is as simple as that. California’s entire water problem could be solved with one simple, fast, easy action. That is re-price water according to its real value. Nothing else will solve the water problem so completely. In addition, farmers will shift to higher value crops to recover the new water costs so the value of California agriculture will increase sharply. Everybody wins.

David asks: Although I didn't write this, I agree with its main points. Do you? (David asks)



Reader Francis replies:

Farmers in Imperial Valley (due east of San Diego) pay about $12 per acre foot for ag. water. Why so cheap? Because it's all downhill from Hoover Dam and the water's not potable.



Households in San Diego pay about $1,000 per acre foot. Why so expensive? San Diego's at the end of a very long pipeline that goes over mountains. (The energy cost of water delivered into LA and points south is enormous.) The water is potable. The system meets fire flow standards. San Diego's an expensive place to live, so water department staff get paid accordingly. etc.



Put another way, even if San Diego could take the water currently flowing to Imperial Valley, the price wouldn't drop any.

by rdan (noreply@blogger.com) on August 06, 2008 01:19 AM

As noted last week, we are in Montreal, and Videotron was scheduled today to install telephone, television, and internet services.



They came through with flying colors.



Around 12:50, I called them, wondering when they were coming by. The representative noted that they were scheduled to arrive "sometime during the day," not specifically in the morning as I had thought.* He also noted that they did not have my (current) cell phone number, so they had no way to contact me. And the apartment apparently doesn't have buzzer service until and unless it has telephone service. So we established that there was no way for the tech to get to my apartment.



While we were talking, the tech (somehow) appeared at the door.



By 3:00p.m., everything was in and working, including installing new cables and working with some jerry-rigged electrical plugs from our side.**



The only problem was a "last mile" issue about the door buzzer itself. It took us an extra five or ten minutes because the (Bell Canada based) buzzer system uses a different entry code than the normal.



So I can safely say that the Canadian installation experience worked. But it appears I missed a plethora of really solid posts about fuels.



*Which turned out to be a good thing, since we went to Costco in the morning to buy a television and telephones.



**It is not a good idea to plug a power strip into another power strip, but it does work in the short term.

by Ken Houghton (noreply@blogger.com) on August 06, 2008 01:15 AM

By: Divorced one like Bush



Being that there is a lot of “authoritative” talking going on about the cause of the up's and down's of oil and one cause being suggested is the anticipation of storms, I thought looking at the history of storms and oil price would help toward answering the hypothesis of oil prices rising in anticipation of storm damage.



Using the daily price of WTI Cushing/Oklahoma oil I charted the relationship of price to the storm dates. I use 6 price points. A. 2 Monday's before, B. Friday before, C. Monday before, D. Day of Storm, E. Friday after, F. 1 week after day of storm. Any number in parenthesize is the price for the next open trading day. When the storm fell on a week end, I counted 1 week after and used the next Monday.



Chart after the fold.





I do not do correlation calculations. But, I think this chart shows that there is no significant speculation in pricing based on Gulf storms. There are 4 times that the price 1 wk post storm is lower than 2 Monday's prior to the storm. They are in order: Dolly 7/23/08 down $22.95, Dennis 7/10/05 down $2.66, Rita down 2.58 9/24/05 and Opal 10/4/95 down $0.10. Of these 4, Rita has the highest pre-storm climb of $3.92 or 6%. Dolly only showed a 2% climb pre-storm but there has been a 16% drop since her high 2 weeks before she hit.



The interesting string is the 4 storms of 2005. Katrina and Rita are the only storms that show some possibility of a storm pricing effect within this series. Katrina with an almost $2.00 (3%) rise in 2 wks and then a decline of $4.50 until the price jumped $4.30 in 1 week before Rita. However, the next trading day after Rita, the price was down $1.23 and 1 week later it was within $0.93 of the 2 weeks prior to tropical storm Cindy of 7/5/05 ( 2.5 months time between the two). As to this year, the price is just plain going down since the peak 2 weeks before hurricane Dolly which is 1 month of downward trend before the republicans started filling hot air balloons.



It appears that if there is a storm pricing effect, it is a recent phenomenon and of a rather small and short lived event. Being a new event in oil pricing, I would suggest that what effect there is, is purely emotional and related to the emotional climate we are living in. Gun shy? We only have fear to fear? Or, maybe it is an herd mentality learned that a storm is a good excuse to make a quick dollar. That would be herd mentality market manipulation. Oh no, did I just ruin it for everyone?



Guess we are going to have to find someone talking with more authority than what we have had so far regarding the cause oil pricing.

by Divorced one like Bush (noreply@blogger.com) on August 06, 2008 12:08 AM

The Crypt reports:

House Republicans issued the boldest claim yet in their three-day energy protest, insinuating on Tuesday morning that their demonstration may in fact have already begun to lower gas prices. “The market is responding to the fact that we are here talking,” said Republican Rep. John Shadegg. “I think the market realizes that this kind of pressure may in fact lead to a change in policy.” Speaking to reporters before entering the House chamber for a third day of speeches calling for votes on domestic oil drilling, GOP members said they had no plans to end the protest, which began when House Democrats adjourned for the summer last Friday. Oil prices did fall $2.18 on Tuesday, however, analysts told the Associated Press that the fall was due expectations the economic downturn in the U.S. will erode consumer demand and the weakening of Tropical Storm Edouard in the Gulf of Mexico.

Actually, I think Shadegg is onto something. OK, recessions lower energy demand and Mark Thoma comments on the Tropical Storm Edouard effect:

Suppose you think that a hurricane might disrupt oil flows in the future. What should you do today? Tropical storm Edouardo gives an example. As the storm approached, people believed there was a chance that oil flows would be disrupted in the future, and the current price began rising as a consequence. If you expect a higher price in the future due to reduced supply or any other reason, you should begin purchasing and storing oil now to take advantage of the higher price in the future, and the increased demand for oil drives today's price up.

Fortunately for those who wish to purchase gasoline – all that GOP hot air likely pushed back on the winds from Tropical storm Edouardo. And I bet some key economic decision makers went into despair when they heard the stupidity emanating from Congress, which of course increased the likelihood of a deeper recession. Well done Congress. Paul Krugman takes this one step further:

In other news, Republicans credited their speeches for the fact that the sun rose today.

by PGL (noreply@blogger.com) on August 05, 2008 07:46 PM

We need to follow-up on this post especially in light of the following comment from a rightwing troll:

PGL "I believe the point was how quickly McCain flipped AFTER receiving those contributions. A point both Sammy and FA chose to ignore in their replies." Actually PGL, he got the donations AFTER the donations

I have already pointed out that the troll is criticizing something said by rand. And it appears rand was correct and the troll was dead wrong as Greg Sargent notes:

The Los Angeles Times digs up some more detail on the Hess Corporation-McCain story, reporting that the big fundraiser where all the Hess execs chipped in huge sums took place just before McCain reversed his previous opposition to offshore drilling

Greg goes onto to note that the timing is less of an issue than some would have it to be. Big Oil knows that McCain will do their bidding – even if that means flip-flopping on positions McCain took earlier when McCain wanted to be seen as the moderate maverick. Which is why their money is flowing into the coffers of Team McCain. But the trolls will find some way to defend this – even if it means telling us a bunch of their usual lies. Or maybe they’ll find some way to blame Obama for McCain’s actions!

by PGL (noreply@blogger.com) on August 05, 2008 03:51 PM

The always smart Kevin Drum writes

The windfall profits tax is a dumb idea, and I wish Obama didn't support it, but I guess politics is politics. It's not the biggest deal in the world.

I asked in comments what's so dumb about a windfall profits tax. I haven't checked how many commenters responded to me, but some which I've found are after the jump.



My thoughts on a windfall profits tax on Oil companies (I consider an additional rebate a separate issue).



I start with the simplest assumptions so it is assumed that the tax won't affect incentives, because it refers to the past and it is assumed to be a one off move (starting simple). Also assume the very old theory of the firm which acts in shareholders interest and is not liquidity constrained. In that case, the tax is a tax on oil company shareholders who are (including people with 401(k)'s) relatively rich. So I like it.



It seems, see below, that oil companies are passing their profits to shareholders through share buybacks. I think this helps support the old theory of the firm assumption. However, if they insistend on reinvesting profits, I would consider that an additional reason for the windfall profits tax. Last time they had a windfall (the second oil shock due to the Iranian revolution and the Iran-Iraq war) they decided to diversify and made some of the least productive investments in US history. Have you ever heard of Exxon office systems ? Big investment in smart typewriters which were like pc's but dumber and ten times as expensive. Oil companies handle oil. They are not suited to act as investment bankers and, still less, as venture capitalists. generally high profits are a sign of skillful management which maybe can improve firms they take over. In this case, it was dumb luck. I'd say stock buybacks are the lesser waste, but reducing the deficit would be much nicer.



Now what if they assume that this is the first in a series. Often confiscation now and never again would be good policy if the promise were credible. The belief that there will be more windfall profit taxes in the future seems to me to be desireable. It means that Oil companies don't gain as much when the price of oil goes up. Since they are imperfectly competetive, it seems to me that this would drive their actions twoards the social optimum. For example, if they aren't helped with oil prices go up, they won't oppose a carbon tax so fiercely. Also actual investment in alternative fuels now has the cost that production of alternative fuels causes the price of oil to decline. The threat (or promise) of further windfall profits taxes would increase their incentives to invest in alternative fuels. If designed rationally (see below) it would also increase their incentive to look for oil (which isn't so key if there really isn't so much left to be found).



I'd propose making a forecast for Oil holdings (inventories including proven reserves underground, crude in tankers and tanks and unsold petroleum products) and tax alpha times the price times this quantity from oil companies (with alpha positive but less than one). If the forecasts were exact, this would make the oil companies act as if they were perfectly competative. They won't be, but so long as they are not so optimistic as to drive a company bankrupt, the costs of forecast errors will be a transfer plus something second order in the forecast errors. No such policy is like making a forecast of zero which is worse even than my forecasts.









OK at least one flame war from Drum's site



The problem with a windfall profits tax is that it is the kind of ad hoc solution that Obama criticized when it took the form of a gas tax holiday. It may be a more effective gimmick, but it's still a gimmick: pure pander.

Posted by: lampwick on August 4, 2008 at 12:21 PM | PERMALINK



Huh ? more like the opposite. Given that Oil refining and pumping are close to capacity, a gas tax holiday is similar to a windfall profits subsidy not tax. Both are ad hoc, but they have opposite effects. I would consider an argument that there is something wrong with a windfall profits tax to be an argument that something bad will happen if one is imposed.

[snip]

Big Oil's profits by percentage are far less than Google's, for example. Google's profit is around 25%. Now there's a windfall. Why aren't we taxing them extra heavy? No way they should be making that much money when there are starving people out there.

[snip]

Posted by: SJRSM on August 4, 2008 at 12:23 PM | PERMALINK



This is interesting. First many of my arguments apply to an increase in price and not to increase in production (searches for google I guess). Second the windfall was a windfall (the behavior of inventories suggest that Oil company executives didn't even see it coming as, say, Kevin Drum did). The google guys have demonstrated an ability to create wealth. I really like the idea of google venture capital. They got money by being very smart. I suspect that they will do smart things with it and won't capture all of they wealth they create.

The only thing I could support was a windfall profits tax where the companies get to deduct from their payment every dollar they spend on renewables.



But as a general rule, resentment and vengeance are not good foundations for tax policy.

Posted by: lampwick on August 4, 2008 at 12:41 PM | PERMALINK



I'm not sure I want oil companies working on renewables. Why do we think they are better suited to manage that than other firms (I love what Shell is doing by the way) ? I am more pro market than lampwick so I think incentives to invest in renewables should be those implied by a carbon tax and not directed at any particular firms.



Remember the last time we based tax policy on resentment (hint did a plurality of Americans tell a Clinton pollster that they supported increased taxes on the rich to fund waste fraud and abuse). I'd say that the record of US tax policy based on resentment is, as a general rule, excellent.

There already is a tax on that "windfall." It's called the corporate income tax, and Big Oil is currently paying Uncle Sam to the tune of billions as their profits skyrocket. The proposal to effectively increase the corporate tax rate on a specific industry is unwise because consumers will pay for the tax increase in the form of higher fuel bills (as energy companies reduce exploration and development budgets). They'll also "pay" to the extent that energy stocks are found in their portfolios.

Posted by: Jasper on August 4, 2008 at 12:47 PM | PERMALINK



a windfall profits tax isn't just an increased tax on profits. It depends on the price times inventories not production minus costs. My proposal would, if anything, increase the incentives to oil companies to explore and develope oil fields. Someone in a thred below pointed out that average != marginal. I think Jasper really doesn't understand that, but it could be that he assumes that the windfall part will be a fraud and will be perceived to be a fraud.

Yes, the windfall tax is a bad idea, and the energy rebate is even worse. We're at a sad state when we count on stipends from the government to help spur the economy. What we need are policy changes that will impact how people buy and use energy in the long-term, not a panacea fix.

Posted by: MeLoseBrain? on August 4, 2008 at 2:16 PM | PERMALINK



Yes we must make the best the enemy of the good. Plus Keynesianism unbuilds character.



Someone notes that Becker and or Posner claim that the windfall profits tax was not good policy. Support for their assertion is missing. But the great part is this



.. "I was careful with my reference not to use a right wing source for the argument. Unless Becker-Posner is a right wing source."



The scary thing is that I don't think the commenter was joking.



I'm not done with the thread but I'm sure I've exhausted your patience.

by Robert (noreply@blogger.com) on August 05, 2008 01:30 PM

Bloomberg reports:

ExxonMobil bought back $29 billion of its own stock in 2006, $28 billion in 2007 and has already bought back $16 billion in the first half of 2008. Even so, it reports $39 billion in cash on hand and is all but certain to report more than $40billion in profit, along with $32 billion in stock buybacks, for all of 2008.



...



For instance, Exxon refuses to help pay for a pipeline to transport plentiful Alaskan natural gas that goes unused, demanding a better tax deal from the state. It backed out of a deal with Qatar last year to turn natural gas into diesel fuel. It spends nothing on production or development of renewable energy.



...



Unlike U.S.-based companies, Shell initially reports its profit percentage as return on capital. Its 24.5% figure shows how profitable the oil business actually is, said Consumer Watchdog. Exxon and others will initially spin their profit as a percentage of revenue, a smaller and grossly misleading figure. Last year, Exxon reported to major investors and the SEC that its return on capital was nearly 32%.



As a recent AP story based on Pew Center research noted, the five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, while investments in new oil have stayed in single digits.

Obviously the debate heard in the offices of Exxon are different than the ones in the media or the campaign.

by rdan (noreply@blogger.com) on August 04, 2008 10:22 PM

Hat tip to Economist's View for this post from Vox EU:

Obama, the optimist on trade, by Susan Ariel Aaronson, Vox EU: Around the world, the press has portrayed the 2008 US presidential election as a choice between freer trader John McCain and “protectionist” Barack Obama. That traditional paradigm has helped the media simplify the differences between the two men. However, such these labels do not accurately describe either candidate. And it does not fully portray the candidate, Mr Obama, who has the more optimistic vision of trade.



The conventional wisdom labels Mr McCain as a freer trader because he supports three bilateral trade agreements negotiated by the Bush administration.[1] Mr Obama, in contrast, has come out forcefully against these agreements. Moreover, because Mr Obama states that he wants to review the effects of existing trade agreements, the press has found him to be unenthusiastic about trade liberalisation.[2] (It is important to note that the United States is already conducting a similar review of the World Trade Organisation.)



Finally, Mr Obama has support from many US unions, which traditionally have taken a protectionist stance.[3]



In fact, both men are pro-trade. They each support using trade agreements to open markets and create economic efficiencies. But the two have different perspectives regarding what trade agreements should do, what rules these agreements should include, and whom these agreements should directly benefit.

Mr McCain sees trade as a means to the end of economic growth and trade agreements as simply economic instruments. While he consistently expresses a more forceful commitment to using trade agreements to free trade, he has said very little about how he would use trade agreements to address negative side effects of globalisation, such as pollution. Nor has he articulated how the United States can ensure that the economic growth stimulated by trade is equitable.[4] Beyond suggesting tax breaks for business, he has not explained how the United States can ensure that companies remain in the United States and continue to hire US workers, rather than rely on technologies to remain productive. To bolster his freer trade bona fides, he has stated: “Only risks to the security of our vital interests or egregious offences to our most cherished political values should disqualify a nation from entering into a free trade agreement with us.” But Mr McCain’s support for freer trade has limits – especially when important constituents are adamant about trade bans. As an example, he supports continued trade sanctions against Cuba and Iran and enhanced targeted sanctions against human-rights-abusing nations Zimbabwe and Burma.



Mr Obama, in contrast, is a trade enthusiast as well as a trade agreements reformer. He sees trade as a means to the end of enhancing human welfare. Thus, he has stated: “From financiers to factory workers, we all have a stake in each other’s success.” He recognises that Americans cannot succeed unless globalisation promotes greater access to resources and opportunities for more of the world’s people (our future growth markets). Mr Obama also believes that trade agreements are essential tools of global governance.[5] He seems to understand that public concerns about trade are really concerns about inadequate governance – instances where our trade partners are unwilling or unable to adopt and enforce rules to protect workers, consumers, and the environment. Demanding such standards in bilateral agreements will not alter global market conditions or empower all workers. Nonetheless, trade agreements can, if properly written, improve both the supply and demand for good governance at the national and international level.



Mr Obama also has put forth a consistently positive vision of the potential of trade to promote human rights. Many human rights activists think trade with human-rights-abusing regimes is a form of complicity that can indirectly perpetuate wrongdoing in countries such as Sudan. But Mr Obama has openly questioned this view, asking whether the US has more or less leverage with less commerce. He has argued that cutting off trade may not be the best (or only) strategy to bring democracy to Cuba or Iran.



Like Mr McCain, Mr Obama’s vision of trade has some inconsistencies. He has yet to reconcile his internationalist and co-operative worldview with his promises to Democratic special interests. In addition, he has relied on jargon such as fair trade, without defining such terms in a global context.



Press coverage and public rhetoric about trade lags reality.[6], [7] Clearly when we talk about trade agreements today we are talking about regulations that can affect productivity, investment levels, prices, and other important economic factors. But trade agreements can also ensure that more people have access to more resources such as credit, education, safe food, and healthcare as well as greater opportunities. While Mr McCain sees trade agreements as a means of increasing the nation’s riches, Mr Obama sees trade agreements as tools that can both empower individuals and help our trade partners improve governance.



1 On McCain see this.

2 Direct sources include on Obama’s trade stance see here, and here.

3 For an analytical overview see Susan Ariel Aaronson, “On Righting Trade: Human Rights, Trade and the 2008 Election,” World Policy Journal ,Vol. XXIV, No. 4. Winter 2007/08, pp. 19-28; and Bruce Stokes, “Trading Jibes,” National Journal, July 24, 2008, pp. 36-40.

4 See McCain’s web site on trade.

5 Barack Obama, “Strengthening Our common Security by Investing in our Common Humanity.”

6 On press coverage conveying the simplistic free trade/fair trade or free trade/protectionist dialectic, see here, here and here.

7 On U.S. public opinion on trade, see Ben Muse, “What did Americans thinks about trade in 2007?” The Custom House Blog, 1 January 2008; Mark Champion, “Fewer Americans Favor Free Trade, Study Finds,” Wall Street Journal Online, December 5, 2007; also here. For context see this.

by rdan (noreply@blogger.com) on August 04, 2008 09:54 PM

Greg Sargent and Eric Kleefeld report:

Ten senior Hess Corporation executives and/or members of the Hess family each gave $28,500 to the joint RNC-McCain fundraising committee, just days after McCain reversed himself to favor offshore drilling, according to Federal Election Commission reports.

And we liberals used to complain how Bush-Cheney was bought and paid for by Big Oil as well as Big Pharma! Wow!

by PGL (noreply@blogger.com) on August 04, 2008 06:46 PM

Michael D. Shear and Jon Cohen report:

Democratic Sen. Barack Obama holds a 2 to 1 edge over Republican Sen. John McCain among the nation's low-wage workers, but many are unconvinced that either presidential candidate would be better than the other at fixing the ailing economy or improving the health-care system, according to a new national poll. Obama's advantage is attributable largely to overwhelming support from two traditional Democratic constituencies: African Americans and Hispanics. But even among white workers -- a group of voters that has been targeted by both parties as a key to victory in November -- Obama leads McCain by 10 percentage points, 47 percent to 37 percent, and has the advantage as the more empathetic candidate.

This polling shows that the concern from Team Clinton that Obama would not do well with the group was silly. But this ain’t exactly settled either:

Still, one in six of the white workers polled remains uncommitted to either candidate. And a majority of those polled, both white and minority, are ambivalent about the impact of the election, saying that no matter who wins, their personal finances are unlikely to change ... In May, as the race between Obama and Sen. Hillary Rodham Clinton raged on, McCain adviser Charlie Black told reporters that the campaign would reach out to working-class white voters, in part because of Obama's difficulties wresting such voters from the Clinton camp. "Senator Obama doesn't appear to have the ability to hold the traditional Democratic coalition together as well as Mrs. Clinton might," he said at the time. In an interview last week, Black said the campaign still plans to target working-class white voters, particularly by appealing to them on economic and energy issues. Jobs and gasoline prices are "very big to people in that income range," Black said. Nearly two-thirds of the white workers surveyed want the government to make lower gas prices a "top priority," something McCain pitched earlier this year in advocating for a suspension of the federal gas tax. One respondent was particularly clear on this point: "I'll vote for whoever can bring the price of gas down," said Brian Levesque, 25, a social worker from Lansdale, Pa. But slightly more, seven in 10, say government should focus on helping people like them find more affordable health insurance, a core component of Obama's campaign. Fewer, just over four in 10, favor placing a top priority on tax cuts or the creation of new jobs through an expansion of public works projects.

Pandering with ineffective but nice sounding energy policies has become McCain’s stock in trade. And free lunch tax cuts for everyone have been the GOP play book as far back as 1980. It’s not leadership but it has helped the GOP in the past.

by PGL (noreply@blogger.com) on August 04, 2008 03:55 PM

Last week, the Senate failed to invoke cloture on S.3335, a measure which among other things would extend the production tax credits for solar and wind energy, plug the Highway Trust Fund deficit, and keep the Alternative Minimum Tax at bay for elements of the lower-upper-middle-classes for another year. The vote was 51-43, with a few mostly endangered Republicans joining the Democrats, and Harry Reid voting Nay for procedural reasons — so the bill does have at least majority support.



In fact, since the elements of the package are broadly popular if not useful, this bizarrely enough seems to be an effort of the Republicans to be against a package of tax cuts before they're for it. (More Republicans than Norm Coleman and Gordon Smith would be hard pressed to vote Nay in a final vote, methinks.) Whether this represents Pyrrhic support for the Bush administration's idiotic plan to raid transit funds for the highways, or an effort to get the Democrats to accept oil drilling to get essential legislation passed, is unclear from the reporting I've seen.



I'd seen Tom Ridge on TV yesterday claiming that it's the Republicans with a comprehensive energy plan, whereas Obama is supposedly opposed to the zero nuclear plants currently under construction. In fact, not only are the Republicans working to effectively throw a spanner in the works of the rapidly expanding renewables industry — providing generating capacity with no sensitivity to fossil fuel prices in multi-gigawatt quantities now. In fact, it may be down the page but McCain supports the tax credits his caucus is opposing.



It makes me wish I were rich enough to get on the air with an ad on this flip-flopping and obstructionism by the Grumpy Old Party.

by Tom Bozzo (noreply@blogger.com) on August 04, 2008 03:23 PM

BankAtlantic Bancorp is suing Richard Bove, a respected bank analyst, for

for defamation and negligence stemming from a widely distributed and frequently republished report by Bove and Ladenburg

Bove printed a list of possible bank failures, entitled "Who's Next."

What followed was a list of 107 banks, ranked according to two measures of their financial strength. The share prices of some of the banks promptly collapsed.

But No. 10 on the first list, BankAtlantic Bancorp of Fort Lauderdale, fired back. The bank said Mr. Bove’s numbers were wrong — and sued him and his employer, a small brokerage firm called Ladenburg Thalmann, for defamation. Mr. Bove would not comment on the suit. A lawyer for BankAtlantic said the bank planned to ask the judge to expedite the case.

According to the NYT, the crux of the matter is that BankAtlantic claims that

Mr. Bove based his analysis on incorrect figures — he should have used the capital of the bank’s holding company, rather than of the bank itself, BankAtlantic said — Mr. Bove sent a note to clients explaining BankAtlantic’s view. BankAtlantic is not among the 27 companies that Mr. Bove regularly covers.

The first response of outsiders to the banking industry may be: "Hey, BankAtlantic is right. Bove's list may well create a false run its bank." My wife's response was just that.

But before, you jump to that conclusion, consider the following:

1. Ladenburg Thalman Ladenburg Thalman and Richard Bove are highly respected in the industry.
   
   
2. How Bove arrived at his numbers and what interpretation he gave them. (In effect, he calculated what banks were above, in, or below the danger zone. As far as I can tell, he did not say if particular bank would fail.)
   
   

Unfortunately, I do not have access to the actual Bove report. Nonetheless, BankAtlantic's suit raises interesting questions.

First, there is the question of potentially creating a false run on a bank.

Second, and on the other hand, there is the question of industry transparency. That banks may have packaged and sold toxic products does not exactly create an air of trust.

Third is the relationship between this holding company and the bank in question. Will the holding company dump its child if it becomes unprofitable?

Fourth, and perhaps most interesting, is: Can an analyst safely forward his own analysis and not risk the threat of lawsuit? In short, can banks muzzle honest and fair analyses?

Jane Wells quotes Bove as saying:

"All of the actions are to deepen the trend. It really is beyond inexcusable for top policymakers to argue that large financial institutions should be allowed to fail. It is, of course, just as inexcusable to look the other way while excesses are driven through the system."

And, from 24/7 Wall St.

Frankly, this is shocking that a bank would sue a brokerage firm and such a respected analyst on Wall Street over their analysis. Everyone conducts their own analysis and has their own methodology. If Bove would have reported the firm IS going under or IS imploding or if he attempted to cause a scare with no data to point to then we'd understand, but the fact that BankAtlantic is going after a right to an opinion or a right to openly present data is one which very few large firms ever attempt.

by Stormy (noreply@blogger.com) on August 04, 2008 03:17 PM

hat tip Old Vet



McCain, who’s obsessed with skinny blond women, made a stupid ad equating Obama with a vacuous young blond Paris Hilton and also Britney Spears. Pure celebrity based on nothing but hype and looks. Wait a minute!



Let’s talk about vacuous blond rich girls for just a minute, and who has them hanging around him.



Cindy McCain





Paris Hilton





Looks like old John McCain is making fun of his own daughter, doesn’t it?

by rdan (noreply@blogger.com) on August 04, 2008 10:06 AM

by reader ilsm



From the comments, CoRev states:

"ILSM, breaking the rqmts [requirements] into bite sized chunks (design or parts of it) can work if the rqmts are reasonably well defined. Buying an entire Weps [weapon system], even with a fly-off, is/was ludicrous. Every engineering change and there will ALWAYS be many open/re-opens and re-re-opens (ad infinitum) negotiations. Ends up in a near continuous loop of negotiations with few deliveries."

Thanks for capitalizing ilsm.



I have extensive experience watering down specifications, allowing substandard materials and generally portraying the changes as 'enhancements' and when the costs go out of sight, alleging that the government made all these chnages because it needed better performance.

CoRev makes points which are valid if frightening.

One, the whittlers are not up to doing airplanes or anything large and need to stop doing what they always fail at. Which is sort of the purpose of me writing whittle posts. Thanks CoRev.



The inept need to refrain from doing what they cannot do. Such a logical propostion is alien inside the belt way.



"Ends up in a near continuous loop of negotiations with few deliveries."



Great catch. The endless negotiations are caused by two things: the government (the original management team already escaped) has no idea what it has "required" the suppliers to do, and the suppliers could not deliver even the easiest engineering task. It is very profitable to keep doing things over and over. CoRev is correct here, it is a miracle if anything of use is delivered.



The point of fixed price versus cost plus is the profit margin is much better in fixed price. In both forms the fraud, waste and abuse of the tax payer and the soldier are the same.



Final point, change proposals (which are sent in after the incompetent government has control of the design) and change notices (when the industry side is charging to water down the "requirement") are a continuous, expensive and unproductive loop which marks CoRev's first point.



After the series of continuous changes and renegotiations neither the government nor the suppliers remember that what they were supposed to deliver was something that is worth the expenditure of the taxpayers' grand kids' scarce resources.



Better to whittle beaks than try to get the pentagon to buy anything more complex than a mouse trap.

by rdan (noreply@blogger.com) on August 04, 2008 10:00 AM

AP tells us – apparently not:

Despite intense U.S. pressure, Iraqi leaders failed Sunday to resolve differences over how to govern the oil-rich city of Kirkuk — a dispute that is blocking provincial elections and stoking tension in the volatile north. Also Sunday, a truck bomb exploded in a Sunni area of northern Baghdad, killing 12 people, wounding 23 and raising concern about a revival of sectarian conflict. Parliament had called a special session Sunday to try to reach agreement on a bill authorizing elections in all 18 Iraqi provinces — a move the United States considers essential to reconciling Iraq's rival ethnic and religious communities. But the session never convened because intensive talks among party and legislative leaders were unable to produce agreement on a formula that would satisfy Arab, Kurdish and Turkoman demands for governing Kirkuk.

The success of the surge – or lack thereof - can not be solely measured in military terms.

by PGL (noreply@blogger.com) on Aug