PQuincy's Blog

The weirdness of sovereign finance (continued)

2010-05-29T03:49:36Z

Today's unintentionally hilarious Bloomberg headline:

Spain Loses AAA Rating at Fitch on Concern Debt Burden Will Hamper Growth

And why, pray tell, are Spain's future debts less valuable? The old monetarist argument was that all that debt would 'crowd out' private investment by entrepreneurs. The only problem is that interest rates are already terribly low across Europe and the world, but most entrepreneurs still can't borrow (banks are being cautious) or don't want to borrow (because, well, we're in a major recession). But all of that Debt Burden will, indeed, Hamper Growth in Spain. It will do so because foreign bondholders are demanding sharp cutbacks in government spending. Since the economy is already sluggish and unemployment high, those cutbacks will worsen the situation. Thousands of government employees will have less to spend; tens of thousands of the jobless will get fewer benefits, and thus also spend less. Less spending will make the government poorer, too, causing further cutbacks. The net effect is likely to be a deflationary and recessionary spiral.

And what will be the consequence of Fitch changing Spain's debt rating? Well, it's Debt Burden will grow even more, because Spain's government will have to pay more to borrow money. That raised debt burden will Hamper Growth more -- again, not because some hypothetical private investment is being crowded out, but because the recession and deflation will get worse. That, in turn, should rationally lead Fitch to further lower Spain's bond rating further...causing more Debt Burden...

It's really important to remember that in the bond market in general, and in sovereign debt in particular, there are many powerful positive feedback loops, and what appears to be 'rational' behavior often has systemic effects exactly the opposite of what the intention of the behavior is.

Trying to preserve the value of government bonds by demanding immediate sharp cutbacks in government expenditures during a recession (which is when government bonds are most risky) ensures that the value of those bonds will in fact drop. And trying to apply 'rational' metrics to guessing the future value of bonds in fact makes the future value of those bonds more unstable and therefore harder to predict.

It's a Catch-22 topsy-turvy world, and bond traders presumably know this, yet they persist in the kind of self-negating behavior that they always have, because it just seems so common-sense and sensible! And if bond traders can get it so wrong so often, it's not surprising that voters fall for this kind of 'common-sense' (that turns out to be exactly wrong).

Unintentional Hilarity: fiscal crisis edition

2010-05-17T03:43:37Z

I checked a financial website a minute ago -- Bloomberg -- and burst out laughing at the top headline:

Breaking News: Asian Stocks, Euro Plunge on Concern Austerity Plans Will Derail Recovery

This is hilarious! For the last month, the financial sites, and the media in general, have regaled us with stories reporting how stocks and the Euro are plunging because of Greek (and other PIIGS) profligacy in spending. Every time a new austerity plan was launched, in Greece and Spain and Portugal, the markets blipped upwards, relieved that irresponsibility was on the wane, and that workers would stop expecting a living wage for their work.

I guess the Masters of the Universe had time this weekend in the Hamptons to sit back and think, or maybe some economist who had slipped into a cocktail party launched the meme (pervasive last week on economists' blogs) that maybe it wasn't a really really good idea to force major cutbacks in public spending in the middle of a recessionary deflation, (or is it a deflationary recession).

More likely, the Masters listened to the weekend news shows, and discovered that Republicans were picking up the financial media talking points (California is Greece! The United States is Greece! We must all immediately cut all public spending!). Knowing that anything that the public leaders of the Republican party say is indisputably complete c**p, they realized that it was time to pivot to the next crisis.

So, there we have it: The Crisis Resulted From Government Overspending, And The Urgent Immediate Need To Fix It Is More Government Spending! Otherwise, the markets will tank, and Armageddon will roll again.

(The cynic might wonder whether the whole two-step was all about extorting more stimulus from the big economies, plus a little 'quantitative easing' from the Fed and the ECB to keep funds rates at zero, and spreads wide, so that the bankers and traders could reliably keep raking in their billions, but that would imply a conspiracy theory and we know those nice men at Goldman Sachs and that nice man Mr. Murdoch would never do anything like that).

The AP editorializes right-wing talking points in "news", again

2010-04-22T19:25:16Z

Quoted from the LA Times article on CBO projections about how many people might pay a fine for failing to acquire health insurance, by 2016:

"The vast majority of people paying the fine will be middle class, which would violate Obama's 2008 campaign pledge not to raise taxes on individuals making less than $200,000 a year and couples making less than $250,000."

Once again, AP shows how shamelessly political it can get.

After all, none of these purely hypothetical people who might pay a $1000 fine for not buying health insurance 6 years from now would otherwise have any healthcare costs, right? So their breaking a law that applies to all, which leads to a fine clearly laid out and easily available in a way that both protects them and furthers the "general welfare" (as mandated by the Constitution), is a "tax" that violates a campaign promise.

Wow!

Honest libertarian healthcare economist: let them die

2010-04-22T15:40:02Z

I have just looked at a proposal for regulating entitlement spending into the future published by Arnold Kling, a libertarian / conservative economist, over at http://mercatus.org/publication/simple-solutions-america-s-long-term-budgetary-challenges

Kling deserves credit for some honesty: one way or another, as health care costs rise, and a larger proportion of the population is elderly and at risk of expensive medical treatment needs, the costs will either rise, or must be controlled. Rise without some constraint will have a serious impact on the Federal budget and deficit, under current projections.

Kling's proposal suggests raising full benefits ages for Social Security more quickly than currently projected -- a hardship for the working poor, a minor annoyance for the upper middle class and above. But as most commentators agree, (and so do his own charts), the growth of Social Security costs (as a share of projected GDP) is relatively minor under the current scenario, meaning that the adjustments needed, whatever shape they take, are not drastic.

The situation for Medicare is different: it's the expense that, at current projections of population changes and cost increases, threatens to eat the whole GDP (which is obviously impossible).

Kling, like most conservatives and libertarians, sees salvation in a regime of vouchers plus catastrophic public reinsurance,which he argues must be only partial and set in at a high threshold. And, unlike the lying Republicans who promise that this would bring about happiness for all, he's willing to admit that the needed changes under such a regime would put huge burdens on the under-40 crowd, and on those with modest means but high medical costs.

In his words:

Thus, people who are in their forties (and younger) today should be warned of a need to save more in order to pay for a large share of their health expenses after they reach age 65. Recently, total spending (not annual spending) between age 65 and the end of life has averaged about $100,000 per person. A prudent individual would want to save at least that much by age 65, and even more under the assumption that medical care is going to continue to become more specialized and capital intensive.

So far, so good. Prudent individuals will save $100,000 for their senior healthcare...or rather, prudent individuals with the means to do so will save that much.

But: how many Americans today, despite good prudent reasons to do so, save (or even could save) that much? And what happens to those who don't? Kling has an answer:

As individuals share more of the cost of medical treatment, they will make the necessary decisions to forego some medical procedures that they would undertake if those procedures were paid for by third parties.

There we have it: if you haven't been prudent, once you use your (small) annual voucher, and use up your savings, you will "forego some medical procedures." Well, you could also switch to dogfood and live in a cardboard hut to preserve your (reduced) Social Security check for those medical procedures, though Kling does not mention this possibility.

I think it's important to respect Kling's honesty. He lays it out again, a bit later:

That means that people who are in their forties and early fifties today will face three choices:

consume less now, in order to save for future medical expenses
consume less of other goods and services as seniors, in order to pay for medical expenses
spend less on medical services in their old age

These may not be the choices that they would prefer, but at least they represent choices.

If you haven't been, ahem, 'prudent' when younger, you "spend less" (i.e., you forgo available treatments, even if these treatments were cost-effective or forestalled other, higher costs) or you "consume less of other goods and services" (i.e., live in poverty). As Kling says, consistently, these may not be pleasant choices, but at least they are choices, and we know that conservatives and libertarians love to fetishize 'choice' (as long as it doesn't have to do with women's bodies).

One thing Kling doesn't address -- or simply takes as another acceptable outcome of 'choice' -- is the moral hazard issue. The imprudent youth who don't save $100,000 per person before retirement for their health costs might hope that emergency rooms, etc., would continue to provide some essential health care; or they might hope that failure to save followed by bankruptcy might yet give them access to some public support after all. The more the risk of senior health care costs is individualized (by vouchers and savings demands) rather than pooled (through social insurance, as every other developed economy in the world manages them, though with real cost issues, to be sure), the greater the incentive (or the unavoidability) of individuals who don't or who can't save the large sums discussed here throwing themselves on the mercy of the system, thus re-socializing the individualized costs.

So, once again: the rigourous libertarian answer is that such individuals must NOT be allowed to do so: they must "forego some medical procedures." The only plausible disciplining mechanism in this system is rigorously allowing those without the funds (from vouchers, catastrophic reinsurance, or personal savings) to not receive treatment.

Kling doesn't indicate whether he thinks the private market or government might start creating 'non-treatment hospices' of some kind, or whether the imprudent should simply suffer quietly in their cardboard hovels once they have spent their savings, but I'm sure others will discuss such options further, especially if they could be arranged profitably.

Nat. Humanities Medal: is TPM rather confused?

2010-03-03T04:45:41Z

Kudos to TPM for showing the White House ceremony at which various medals were given. I looked through the pictures with pleasure.

But as I looked, I also got more and more confused: awardee after awardee, beginning with Rita Moreno, were actually artists! To be sure, artists play a major rule in helping us appreciate our humanity, but what they do is not usually called 'humanities', and there are in fact two separate federal endowments -- the National Endowment for the Arts, for artists, and the National Endowment for the Humanities for, well, the humanities.

Confused, I went to the webpage of the NEH, where they proudly list this year's National Humanities medalists: Caro, Gorden-Reed, Levering Lewis, McNeill, de Montebello, Small, and Sorenson. No Moreno, no Frank Stella, no Maya Lin.

A quick search at the White House website brought up the following: "President Obama Presents Medals in Arts and Humanities."

Now, if one could only find, without difficulty, an e-mail for TPM, I would have sent this little notice to that...but I couldn't, so now it's on the blog!

If you can't get the details right when they don't matter, why should we trust TPM's journalism when they do matter, after all?

Socialism in America

2009-12-14T14:50:32Z

Observed this morning in the NY Times:

''I believe we have a good argument for providing direct payments to farmers whose crops have been ruined this year by floods, drought and other disaster conditions,'' said Sen. Thad Cochran, R-Miss.

Direct payments to those whose economic plans have not turned out well...sounds like socialism to me! How about:

"I believe we have a good argument for providing direct payments to citizens whose medical condition has been ruined this year by diseases, accidents and other disaster conditions."

What's sauce for the goose, is sauce for the gander: either the Federal government provides various safety nets, or it does not!

There goes the AP, blindly followed by the NYT, again

2009-10-21T18:31:46Z

The AP tells us about moves to change the current anti-trust 'exemption' for insurance companies. They're probably right that this move is going forward now because of AHIP's turn to undermine health care finance reform by issuing and trumpeting a wildly misleading assessment of the effect that reform would have on premiums -- so misleading that the accounting firm that prepared it issued a public notice that they had been commissioned to assess only aspects of the bill that might increase premiums, but to ignore features that might decrease premiums.

How the AP (followed blindly by the NT Times), decribe this?

"The events occurred less than a week after the insurers' trade association issued a report saying a measure that cleared the Senate Finance Committee would produce sharp increases in premiums for millions who currently have insurance. Democrats and the White House reacted angrily, attacking the study as flawed and politically motivated."

I've heard that people disagree about whether the earth is round, too.

It's classic he-said/she-said ventriloquism. There's nothing explicitily false about the AP's statement, but it's presented in such a way to dismiss critiques of the AHIP study -- which was transparently flawed, as noted above, and which was most obviously political. By saying that Democrats "reacted angrily", the AP substitutes the attribution of emotions to the reporting of facts.

Memo to NYT headline writers

2009-09-24T08:48:42Z

When your reporters write a story about how the status of Medicare Advantage plans--privately operated Medicare that uses large extra subsidies, running about 30% over regular Medicare--whose operators are fiercely defending their plump extra profits by threatening seniors with benefit cuts, think twice about what you headline the story.

Perhaps: "Nelson supports insurance company efforts to defend subsidies"?
Or: "Nelson plays along with insurance industry scare tactics"?

But please: who in Heavens' name came up with "Senator Tries to Allay Fears on Health Overhaul"

It's true that Advantage plans offer meager extra benefits, dangled before beneficiaries while most of the extra covers insurance company operating costs and profits. And it's certainly true that the insurance companies have used those profits not just to lobby Nelson and other directly with abundant campaign contributions, but also to whip up fear among their clients. But eliminating Advantage would not cut Medicare benefits a bit: it would rather remove an inefficient middleman.

Comment on NYT Cheney story (censored?)

2009-08-31T15:09:56Z

Being in Europe, I was the first person, I think, to comment on the NYTimes story on Cheney's latest statements. (Apparently, though, the Times did not post the comment; it appears when I'm logged in, but with no number or 'recommend' field, and it's not there when I view the comments page without being logged in).

Here's what I wrote:

"Cheney celebrates torture; sun also rises in East again." Why is this news?

The former vice president spent much of his term urging brutality in various forms, and has vocally insisted that we should immediately lower ourselves to the tactics of the worst regimes in history. There is nothing new in his latest statements, just repetition of morally repugnant claims and political posturing.

I appreciate for an article that discusses Senator Feinstein's views, the position of Senator McCain (who has personal experience with torture), and others. These are active legislators who all point out how difficult it is to deal with the sludge the Bush-Cheney administration left the country.

Mr. Cheney's outbursts, in contrast, are not new, and are not news. Stop offering such a repugnant figure the soapbox of the front page of the New York Times!

Ponnuru welcomes the Southern Democrats

2009-04-28T20:07:11Z

Ramesh Ponnuru comments in the New York Times:

Republicans are a more homogeneously conservative party today, but so too are Democrats a more homogeneously liberal party. Each party's trend has reinforced the other. As liberal Republicans joined the Democrats, conservative Democrats, feeling less at home, joined the Republican Party, making it more conservative

Indeed, he's right. The Southern Democrats, dead set against civil rights for African Americans, flocked to the Republican Party in the 1980s and 1990s. Now we see that Ponnuru sees this as an equal exchange, making the Republican party "more homogeneously conservative."

I'm glad it's clear, then, what "conservative" actually means in American politics!

NYTimes still providing cover: "arcane" "obscure" reconciliation rules

2009-04-24T18:26:37Z

Carl Hulse at the New York Times just posted a report on the Democratic leadership's plan to make some use of the budget reconciliation rules in the process of passing health care reform bills.

Hulse's description of reconciliation includes the following phrases:

"the use of an obscure procedure known as a reconciliation," and "the arcane maneuver"

Fromn Hulse's description, you'd never know that reconciliation was used to pass " tax cuts, oil drilling, trade authority, and much else" during the Bush years (quoting Ezra Klein at http://www.prospect.org/cs/articles?article=the_fifty_vote_senate).

Rather, the term "obscure procedure known as reconciliation" has become a bit of Washington-village cliche, preset and ready for journalists to import into every article that mentions the term. The very fact that there's a cliched form built on the term suggests that it's neither obscure or arcane, any more than the filibuster or the unanimous consent agreement is. Rather, reconciliation is a piece of Congressional rules that has been used regularly at least since the 1980s.

I don't know whether putting some or all of health care reform into budget bills and passing them under reconciliation rules is a legal or political good idea: I just know that there's nothing obscure or arcane about the possibility, and labeling it so is just unthinking cover for particular views.

As for Hulse's remark that employmen of reconciliation would " likely to touch off a nasty partisan fight with Republicans": Well, what do you call the current situation, where Republican legislators continually call the President a socialist, hold up lots of nominations on flimsy grounds, and filibuster 'most everything that comes up in the Senate? Would Hulse describe the current legislative atmosphere as "healthy bipartisan debate," perhaps? As "cooperation in moving the nation's agenda"? Has Hulse, a New York Times reporter, been paying any attention at all to the political discourse and actions of the minority party over the last month?

Moral Bankruptcy at the New York Times

2009-04-23T13:07:58Z

The moral bankruptcy of the NY Times and its 'news analyst' Scott Shane is on full display today. A front page (web) headline and blurb read:

At Core of Detainee Fight: Did Methods Stop Attacks?
By SCOTT SHANE

The entire article sustains the premise that the "core" of the debate over the United States' official deployment of torture during the Bush administration was "what if anything was gained" by torturing various detainees held by the CIA and US military interrogators.

The comments are quickly accumulating, and a substantial number of them attack the premise of Mr. Shane's absurd article. Again and again, readers point out that the debate over the Bush administration's torture policies is, at it's core, about the rule of law (torture is illegal by US law and international law and treaties that the US has subscribed), and about morals (torture is evil.)

Shane even makes the astonishing assertion that " the moral balancing would be far trickier if the C.I.A. methods were demonstrated to have been crucial in disrupting major plots."

No, Mr. Shane, the moral balancing would not be trickier.

The US media's fondness for 'reporting the controversy' -- "Is the earth round? Opinions differ" -- reaches its apotheosis in this article.

There is little debate among those familiar with the historical record that torture is never an effective way of eliciting information. It did not work when the Inquisition tortured heretics and Jews. It did not work when judges tortured witches. It did not work when the Nazis tortured Communists and liberals, nor when Stalin's thugs tortured anybody. Torture does not produce reliable information.

Yet a headline and the body of an entire "news analysis" article in our leading national newspaper treats this question as open while entirely ignoring the "core" issue that has indeed driven the debate over the Bush administration's policy: is torture depraved and illegal, or should states have the power to torture when they feel threatened, as Dick Cheney suggests.

Right wing ignoring reality (LA Times Prop 13 issue)

2009-03-01T20:19:22Z

The LA Times has an article by Evan Halpern, today, that claims that the "[s]tate's middle class [is] getting less for its tax dollars." Halpern points out that California once had great roads, a widely-accessible and inexpensive world class university system, and good schools. Alas, it now seems that the state no longer offers high-quality services; quoting a (conservative) expert, Halpern notes that you can't tell the difference between being in California and Texas, any more.

Halpern also identifies new kinds of spending that (he implies) explain the change: he mentions briefly the rising cost of long incarcerations, but mostly focuses on the "tattered" safety net for poorer Californians, which includes health care costs.

But nowhere....nowhere!...does he mention Proposition 13, which capped property taxes and also limited their rate of increase as long as ownership did not change. This is a huge oversight, one so large that it can scarcely be seen as accidental. It's the elephant in state fiscal planning, because the state now pays out of general revenue for all sorts of things that municipalities and counties used to pay for out of property taxes. California has also slipped from being an (admittedly) high-tax burden state in 1970 to the middle of the pack now: state taxes are relatively high on sales and income, but property taxes are quite low, putting the state around 17th in overall tax burden. But none of this is so much as hinted at in Halpern's dishonest analysis.

Here's the letter I sent him: we'll see if he, the LA Times, or the blogsphere picks up one more example of journalistic disingenousness. (See also the Calitics blog for more discussion).

Dear Mr. Halpern,

Your commentary in today's LA Times refers to some useful issues, such as the changing costs of some state services, or to the rapidly rising cost of incarceration in the state budget.

However, any discussion of state finances without mentioning Prop. 13 is, in my estimation, simply dishonest. Californians are not just "getting less for their tax dollars": property-owning Californians are paying fewer tax dollars, relatively, than they did in the 1950s and 1960s. Despite the erroneous statements of Republican politicians, California's state tax burden is now only middling -- approximately 17th nationally, and far lower than other high-cost/high-service states.

Your credibility would recover if you ran a second article, parallel to this one, that discusses the revenue side of the changes in California fiscal policy, rather than falsely suggesting that shifts in expenditures alone explain our current predicament.

We'll see if there's any response!

The ironies of compensation

2008-12-22T13:47:58Z

Read today, courtesy of the AP: Bank executives are still raking in large salaries:

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

Now, all those perks surely feel nice after a long day swilling government subsidies -- the chauffeur to the private plane that takes you to your country club.

But clearly, the compensation committees at banks have an evil subplot: they also offer professional money management. That is, they ensured that those executives' hard-earned millions were carefully invested in a balanced portfolio of hedge funds, private equity placements and highly leveraged equities strategies, all sheltered with appropriate derivatives.

The economy gives with one hand, but it takes with the other!

Republican tactics: a mystery?

2008-12-11T06:04:19Z

After the election results, and given the enormous pressures for action on various fiscal, financial, and economic fronts, one might assume that the leadership (such as it is) of the Republican coalition would have sat down together and calculated how best to shape the course of events along the lines they prefer.

In such a calculation, further, one might think that they would reason thus: "We can shape various bills and policies during the urgent lame-duck session, when we still have much more influence, especially in the Senate, or we can wait until January when the Democrats are going to be much better positioned, institutionally, to roll us or to pressure a few weak reeds to get what they want (oh the socialistic horror of it all!)"

The First Duck has apparently gotten this point: he's been surprisingly helpful and cooperative with the Obama transition team. Not only is this probably genuinely better for the country than gridlock and obstruction (as even a dyed-in-the-feathers crimson Repuglican might admit), but it's his last chance to affect outcomes at all. Better a modest mortgage rescue plan with limits he favors, than nothing now, deeper crisis, and a sweeping Obama/Democratic plan in two months. Better a modest auto company bailout with as many strings as possible, and taken out of the existing funds, than nothing now, deeper crisis, and sweeping Obama/Democratic plan in two months.

Moreover, Bush's approach is working, from his perspective. White House pressure really did scale back the auto bailout and shift the funding to Bush's preferred source. Heck, even Bob Gates is staying at the Pentagon....not Bush's favorite guy, to be sure, but still, he's Bush's appointment.

But the Senate Republicans -- about to lose a substantial number of their seats in the New Year -- apparently haven't gotten the picture. They are huffing and stomping about how terrible ANY bailout would be for the auto companies, and that now's their chance to break the evil UAW forever...which is simply stupid. They are certainly able to block an auto bailout bill now, but if that leads to an escalating crisis in Detroit, they'll own the consequences. Moreover, an escalating crisis -- and some escalation does seem likely if a bridge loan doesn't go through -- will probably lead the new Congress in January to pass something much more sweeping. Yes, the Dems don't have a filibuster-proof majority, it's true. But with the Minnesota race likely to drag until who knows when, and with 58 Democrats/Independents versus 41 Republicans seated, it seems much more likely that the Democrats can peel off the one or two votes they need to suppress a filibuster...and even if they can't, repeated filibusters will have a devastating effect on the Republican brand, which is not exactly in great shape even now.

In short, the law of politics, one would think, is always: use your power and influence when you have it, rather than obstructing until you don't have any power and influence.

Pity that McConnell and his band of dimwits never took Politics 101!