Thursday, December 31, 2009

Obama and Golf

Michele Cottle criticizes the President for playing golf, and Paul Kruman approves. This is one of the stupidest articles one can read. For example,
As a senator, John F. Kennedy scored political points on Eisenhower by mocking Ike’s golf obsession--while taking pains to keep his own golfing gifts under wraps. (As Van Natta recounts, JFK forbade the media from photographing him at play.) Bushes 41 and 43 were both slammed for golfing during wartime. It has been posited that W. quit the game in part because of the stinging coverage of comments he made on the golf course in August 2002, following a suicide bombing in Israel. “There are a few killers who want to stop the peace process that we have started, and we must not let them,” Bush told the assembled journalists. “I call upon all nations to do everything they can to stop these terrorist killers. Thank you. Now watch this drive.” The tone-deaf clip eventually made its way into Michael Moore’s Fahrenheit 9/11. It was not one of golf’s finer moments.
So JFK hypocritically criticized Ike for playing golf even though he was a golfer (don't even get me started on JFK sending Pierre Salinger to buy all the Cuban Cigars he could find before announcing his boycott of Cuban imports). And George W. Bush made stupid comments on a golf course. Obama should thus quit golf because he can be falsely accused by some hypocrite? Or because a stupid President made stupid comments on a golf course?

This is what happens to liberals when they consider golf. Their minds go numb. Then there must be the ritual comment that golf is a white elitist pastime. This can only be said by a non-golfer. I played today at Wilson Golf Course in LA. The course is a United Nations meeting. I doubt there is a place in America -- except on other public golf courses -- where you get Blacks, Whites, Jews, Hispanics, and Korean Americans interacting in such a friendly, equal, manner. Obama's natural constituency plays golf at public courses all over America.

Derman on Regulators

Emmanuel Derman dreams about the TSA and the FED trading places.

If a bank failed at 9 a.m. one morning and shut its doors, the TSA would announce that all banks henceforth begin their business day at 10 a.m.

And, if a terrorist managed to get on board a plane between Stockholm and Washington, the Fed would increase the number of flights between the cities.

That does sum it up pretty well.

Monday, December 28, 2009

Hamilton Channels Shiller

Jim Hamilton channels some Bob Shiller to explain why stocks have performed so poorly for the last decade. Worth reading.

Sunday, December 27, 2009

Friday, December 25, 2009

Great Article

I had not noticed this parody about our health care system by Jonathan Rauch until today (when David Brooks mentioned it here). Here is a bit of the flavor of it:

"Hello! Thank you for calling Air Health Care, the airline that works like the health care system. My name is Cynthia. How can I give you travel care today?"

"Hi. My name is Jonathan Rauch. I need to fly from Washington, D.C., to Eugene, Oregon, on October 23."

"Yes, I'd be happy to assist you with that. It does look like we can get you on a flight on January 23 at 1 p.m. or February 8 at 3 p.m. Which would you prefer?"

"Neither. I need to be in Eugene on October 23. As in, the 23rd of October."

"I'm sorry, we have nothing open on that date. You might try another carrier."

"I suppose I'd better. Who has availability?"

"I'm afraid I have no way to know that. I have no way to look into their systems."

"Who would know?"

"You can call them individually and ask. I'm sure you can find one."

"Look, I don't have time to call two dozen airlines. It's important that I get to Eugene on the 23rd. There must be something you can do."

"Well, it looks like maybe we could squeeze you in on October 26, if you don't mind departing Washington Dulles at 5:35 a.m."

"Good grief. All right, I suppose it will do."

It just keeps getting better.

Of course one reason for the difference between airlines and health care is that consumers pay directly for the former. So the airlines try to attract us. But insurers make decisions for consumers regarding health care. Of course we all pay for health care too, but we don't make choices and we don't individually pocket the savings. Not sure that health reform will fix this.

Health Bill

Paul Krugman criticizes those who are unhappy about the Senate's passage of health care. In the spirit of the holidays he updates Dickens:
It begins with sad news: young Timothy Cratchit, a k a Tiny Tim, is sick. And his treatment will cost far more than his parents can pay out of pocket.

Fortunately, our story is set in 2014, and the Cratchits have health insurance. Not from their employer: Ebenezer Scrooge doesn’t do employee benefits. And just a few years earlier they wouldn’t have been able to buy insurance on their own because Tiny Tim has a pre-existing condition, and, anyway, the premiums would have been out of their reach.

But reform legislation enacted in 2010 banned insurance discrimination on the basis of medical history and also created a system of subsidies to help families pay for coverage. Even so, insurance doesn’t come cheap — but the Cratchits do have it, and they’re grateful. God bless us, everyone.

Of course, one might also note that somebody must pay for the increased coverage. Perhaps as the tale proceeds, Cratchit loses his job as Scrooge goes out of business.

Krugman does not consider that because he has his own straw men to consider. He divides opposition to the health bill to three groups: irrational tea baggers; "Bah Humbug" fiscal scolds; and disappointed progressives. Obviously the only sensible reason to be unhappy is if you are disappointed that we are not enacting a single payer system, but you have to be realistic.

There are reasons to be unhappy with the bill that does not fall into his three categories. The fiscal impact of the bill that Krugman is so happy about depends on Congress carrying out commitments that all know they won't follow. Even supporters like Ezra Klein believe that the individual mandate in this bill is a sweetheart deal. The penalty for not buying insurance is so small that for many the best option will be to just pay the penalty and sign up for insurance only after you need it. But someone will have to pay the cost of this, will they not?

The most pressing problem, perhaps, is that the bill does not allow competition across state lines. Krugman never discusses this issue. The exchanges are set up on a state level, and private insurers cannot compete. Given that the bill limits administrative costs, small insurers will likely go out of business -- they cannot spread the fixed costs sufficiently -- so in some states the number of options will decrease under this bill. As Richard Epstein argues, the current bill turns health insurance into a regulated public utility.

I suppose that Krugman really approves of this but he never discusses it. He cannot. This argument does not fall into any of his straw man categories.

Tuesday, December 22, 2009

CO2 Emissions and Taxes

The big problem at Copenhagen was the difficulty in getting the US and China to agree on sharing the burden of reducing CO2 emissions. The problem is the difference between size of country and size of income. China produces slightly more CO2 than the US (data is for 2006), perhaps 9%, but in per-capita terms the US produces 4 times as much. But the US is also ten times wealthier in per-capita terms. So if we calculate tons of CO2 emitted per unit of per-capita GDP, the figure for the US is 133,680 and for China it is 1,358,217. That is, we emit about one-tenth that of China per unit of per-capita income. This means that if the US and China were to reduce emissions by one million tons, and if the efficiency of production is unchanged, then US per-capita income would fall by about 13 cents, and Chinese per-capita income would fall by $1.36. So the incidence of the "tax" on emissions would be ten times higher on the average Chinese person than on the average American.

If we think of this as taxation then a fair way to share the burden might be to have a flat tax per unit of per-capita income. Then we ought to face an emission target ten times higher than China. Of course, if we believe in progressive taxation our tax rate ought to be even higher.

Before setting tax rates one ought to consider where are the greatest gains for reducing emissions -- that is efficiency gains that do not reduce GDP. Is that in China or the US? This could go either way, I suppose. One could argue that China has less efficient plants, so easy fixes are available since they have regulated less. But it may also be the case that it is easier to implement many technological fixes in the US than in China. My guess is that the efficiency differences are unlikely to be of the same order of magnitude as these income differences.

Monday, December 21, 2009

Samuelson Appreciations

Here are three good Samuelson appreciations: Dixit, Krugman, and Warsh.

How Sausage is Made

The Health Bill passed the Senate, and this article in the NYTimes illustrates how legislation is passed, with all sorts of special deals for key Senators. Some highlights:

Another item in the package would increase Medicare payments to hospitals and doctors in any state where at least 50 percent of the counties are “frontier counties,” defined as those having a population density less than six people per square mile.

And which are the lucky states? The bill gives no clue. But the Congressional Budget Office has determined that Montana, North Dakota, South Dakota, Utah and Wyoming meet the criteria.

Another provision would give $100 million to an unnamed “health care facility” affiliated with an academic health center at a public research university in a state where there is only one public medical and dental school.

The latter may be in PA, though nobody seems to be sure. I wonder if the PSU Hershey Medical
Center qualifies as a public medical school?

This reminds me of a bill (in the 80's) that provided a certain tax break only to cities with an American League Baseball team and a population of more than one million people. This still left two candidates (pretty obvious), so another provision in the bill limited the tax break to States that had a Republican Governor in 1980. The two provisions were several hundred pages apart in the bill. Guess which city won?

Monday, December 14, 2009

More on Credit

The President told the bankers they have to start lending to help us get out of the recession, and that they owe us this:
“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” Mr. Obama said. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”
The President argues that credit difficulties are hurting small business:
President Obama reiterated his call Monday for the nation's banks to increase lending, saying that he was getting too many letters from small businesses unable to borrow money.
The story seems to be that the recovery is now held back because of a lack of credit. It is hard to understand what model might suggest this. The normal story is that we suffer from a lack of demand. Many observers, like Paul Krugman, have been arguing that we need more stimulus to fuel the recovery. That seems like what we need is more demand. In a recession the demand for loans declines. That is why the yield curve steepens. The quantity of credit extended depends on supply and demand. Given how low interest rates are, it is hard to believe that the recovery is really being stifled by a lack of credit supply.

Sure, we hear a lot about the troubles small businessmen are having obtaining credit. And surely banks are busy improving their balance sheets. But it must primarily be a lack of demand which hinders credit from flowing. Banking is a competitive industry. If there were companies with good collateral that were trying to borrow it is hard to believe they could not get credit.

More likely, the problem is that the quality of collateral is quite poor right now. Banks don't need more real assets. What kind of paper can companies pledge in a recession? Given that bank regulators want banks to improve their balance sheets this pressure must be what is limiting loans.

Credit and the Bankers

President Obama called the big Bankers to DC today to tell them to make more loans. See here and this article from Bloomberg. The purpose of the meeting was to "to ratchet up pressure on banks to extend more credit to small businesses and ease opposition to his regulatory overhaul."

Federal Deposit Insurance Corp. Chairman Sheila Bair said she’s “concerned” that U.S. banks are making only the safest loans. “There needs to be well-managed risk-taking to get the economy going again,” Bair said today in a Bloomberg Television interview at the White House.
Now it seems clear that credit for small business is a problem. But does it really make sense for regulators to call on banks to make more risky loans when the financial crisis arose because of excessive lending and an asset bubble?

Moreover, the whole process seems backwards to me. It was only six months ago that the Treasury was assessing the health of individual banks because we were worried about their solvency. In the wake of the financial crisis prudence would suggest that they should be worried about the quality of their balance sheets.

But the questions arise why the banks don't lend given that we bailed them out. We helped them, why don't they help Main Street? Well, one problem might be the restrictions put on those banks that took TARP money. They are paying a large price to get out of TARP, as this article in the NYTimes about Citibank suggests.
The moves will result in a $10.1 billion hit to Citigroup’s fourth quarter results, because of accounting charges taken on the value of the repaid preferred shares and the cancellation of loss-sharing agreement. The new stock offering, meanwhile, will severely dilute the value of existing Citigroup shares.
Why do it then? Clearly to get out from under the Pay Czar. It is better for the big banks to raise capital costly and pay back Uncle Sam than to be subject to the restrictions mandated by Congress. And if you are raising money to pay back Uncle Sam it must be harder to lend to Aunt Main Street. Nobody wants to mention that connection, however.

Addendum: Wells Fargo has announced that it too will repay TARP funds.

Sunday, December 13, 2009

Paul Samuelson passes away

Paul Samuelson, the father of modern economics, passed away. Here is the NYTimes obit. Samuelson is clearly the most influential economist of the last century, even including Keynes. While the Keynes may have made a revolution, Samuelson made contributions to so many basic areas of economics that it is hard to enumerate them all. Clearly, he could have won several additional Nobel Prizes if these were given for specific contributions rather than lifetime achievements in the early days.