Romney is not a shoo-in for the flip-flopping gold medal

Barack Obama, March 2011:

"With respect to the notion that I can just suspend deportations through executive order, that’s just not the case, because there are laws on the books that Congress has passed,"

The CBO and potential output

Jim Bullard from the St. Louis Fed has been pilloried for his comments about what affects potential output.

Noah Smith accuses him of being a Solow Model denialist (saints preserve us)!

Tim Duy says that can't be right because Bullard is too dense to even realize that Potential GDP is calculated using the Solow model.

People, I'm not here to defend Jim Bullard. But I am here to say that according to the link provided by Duy to the CBO's description of how they calculate potential output, the statistic is a mess. Making sausage is a much cleaner enterprise.

First off, it's based on an accounting identity! God I love the government:

Q_nfb = AL^aK^1-a

(this is my crudely typed version of equation 3 in the CBO document)

Sadly they forgot the third bar in the equal sign. This is an accounting identity! A is TFP which is defined as what's left over in output after we impute the effects of labor and capital (the CBO freely admits this by the way). a is assumed to be 0.30 and constant over time.

So, forecasting potential output means forecasting potential TFP, potential labor, and actual capital (read the document if you doubt me) and plugging those values into the equation.

People, they ain't using the Solow model to accomplish those tasks!

Potential labor and potential TFP are forecasted by piecewise linear regressions where the breakpoints ARE NOT DETERMINED BY ANY SORT OF STATISTICAL CRITERION (again, read the document if you doubt me).

The CBO method is arbitrary and weak. Defending it via appeal to authority by saying "it's based on the Solow model" is pathetic.

First of all, the Solow model stinks! It cannot come close to describing the evolution of the world income distribution since 1950.

Second, the measure of potential output is crucially dependent on all the forecasting assumptions used to produce potential Labor and potential TFP, which are not based on any real economic theory or optimal statistical algorithm.

Finally, the CBO itself says things that are remarkably Bullard-like right in the document Duy links to:

"CBO's framework explicitly models the factors that determine the accumulation of capital, so the projection for the capital stock is fully consistent with CBO's projections for private saving and the federal budget. Specifically, a higher projected rate of saving will lead to faster accumulation of capital and faster growth of potential output. Therefore, a higher projected federal surplus, which generally raises

the rate of national saving, will speed up the growth of the capital stock and potential output in the model. Conversely, a recession or other event that depresses the saving rate will temporarily slow the accumulation of capital and the growth of potential output."

That's right, according to the CBO, federal deficits lower the path of potential output! It must be true, after all, it's based on the Solow model.

Give me a break.

Some partial year end good news!

People, it looks like both the 45 cents / gallon subsidy for domestic ethanol AND the 54 cents / gallon tariff on imported ethanol are both dead as of January 1!

Amazing. I guess when the economics actually lines up with the political correctness, good things can actually happen.

Sadly though, the ethanol mandate (how many gallons of ethanol must be blended into gasoline each year) is still alive and well. At least it can be filled by cheaper and less environmentally wasteful Brazilian sugar-cane ethanol.

Maybe someday, we can just have a Pigouvian tax on carbon and drop the command and control BS. Not holding my breath though.

Hiding the Sausage....

The story of how the for-profit colleges survived the threat of a major federal crackdown offers a case study in Washington power brokering. Rattled by the administration’s tough talk, the colleges spent more than $16 million on an all-star list of prominent figures, particularly Democrats with close ties to the White House, to plot strategy, mend their battered image and plead their case...The battle got so testy that Senator Tom Harkin, the Iowa Democrat who has led Congressional hearings into the colleges, got into a heated exchange with Mr. Stein, the Education Corporation investor. The senator said that during a hallway conversation after lunch in the Senate dining room, Mr. Stein promised to 'make life rough for me' if Mr. Harkin kept up his attacks. 'I took it as a threat — it was one of the most blatant comments ever made to me in my years in the Senate,' Mr. Harkin said. [NYT]

It appears that it was easy to find Democrats who would sell out the poor people they care so much about, as long as the Democratic elite gets paid. They must be so proud to have Michael Miliken on their side...

They see me rollin'. They hatin'

Despite last minute hysterics from the usual suspects, the first Mexican truck rolled across the border on Friday. Mexico has now cancelled the $2 billion in tariffs they put on American products in retaliation for Obama's 2009 cancellation of an earlier Mexican trucking pilot program.

According to the NAFTA agreement of 1994, Mexican trucks were supposed to have full access to border states by 1995 and access to all of the USA by 2000 (Canadian trucks enjoy this same full access)!

The current "program" for letting Mexican trucks in is so protectionist that only 11 companies are going through the certification process. There are electronic monitors to measure how long the trucks are running. There are drug tests and English tests for the drivers. All things we do not mandate for drivers of American trucks. If it really is a safety issue, then these measures should be applied in a non-discriminatory manner.

The mix of protectionism and racism on display here is unseemly to say the least.

Look on my works, ye Mighty, and despair

Here is a picture of a new Congressional district cooked up by a bunch of geniuses in Maryland:



YIKES!!

Government by waiver

The Obama administration has really gotten into a groove with selective non-enforcement of unpopular laws. First Ms. Sebelius got the ball rolling with hundreds of waivers from the provisions of Obamacare. Now Arne Duncan gets his chance with the announcement that the Dept. of Education will selectively grant waivers from the consequences of not hitting the educational targets in NCLB.

Aaaargh!

They are giving waivers now for targets that come due in 2014!

Of course, "comply or face the consequences" is totally out of the question. Just ask Matt Yglesias:

"Simply refusing to grant waivers would be an unworkable non-starter. The issue is whether to just hand the waivers out, or to impose conditionality."

Anybody still think we can pass a bill now that actually would lock in long-term deficit reduction?

Anyone?

Bueller?

There's a program for that!

I am very happy to hear that all 1,100 employees of Solyndra have applied en masse for Federal Trade Adjustment Assistance. I really hope they get it. What's another $14 million amount to anyway?

Maybe congress can pass a "Federal Failure of Trade Adjustment Assistance Assistance" act to help these fine folks when their FTAA money runs out.

Hat Tip to Dip!

Will politicians ever stop lying to the public?

People, maybe we should extend unemployment benefits yet again. The job outlook is bleak, unemployment is high, and lots of people are hurting bad. Maybe it's the civilized thing to do.

But could we please just stop yapping out the bald faced lie that unemployment benefits create jobs?

Please?

Obama and Pelosi were again claiming that yesterday. The closest thing to any analysis of why was Nancy's "it injects demand".

Today, Mark Thoma has found an economist to parrot the company line as well. He offers absolutely no analysis or evidence for the proposition.

You know why there's no analysis or evidence given? Because, even on the crudest of Keynesian grounds, its horse-hockey!

The proposed bill would affect around 1,000,000 workers and we'd be giving them a few hundred bucks a month for what, another year? so thats, say $300 x 12 x 1,000,000 or $3.6 billion passed out in 12 "doses" of $300 million each in a geographically diffuse pattern.

Yeah, I can see entrepreneurs all over the country rushing to hire new workers to handle the massive increase in demand created by this program.

It never seems to enter their heads that at the margin, subsidizing unemployment tends to create more unemployment. There are a lot of studies in economics showing that employment spikes at the time when unemployment benefits run out.

Yes, I know the benefits are small compared to a job. No I am not calling unemployed people lazy. I am perfectly willing to concede that the humanitarian case for extending benefits may trump the marginal incentives they create to postpone taking a job.

What I won't concede, what I'm very very tired of hearing asserted as if it was obvious, is that extending unemployment benefits will create jobs.

Obama and Pelosi remind me of that movie about the bus. It's like if they stop spending money at a certain high rate, they will explode.

Debt ceiling blues

Ok people, we are now, what, like 2 weeks away from Armageddon? Pretty impressive.

I thought I'd offer some thoughts.

First off, there shouldn't be a debt ceiling. Looking at US debt experience in WWI and WWII should be enough to convince one of that. Maybe some kind of conditional ceiling, like 70% of GDP with a suspension for declared wars and a provision to get back to 70% within 5 years of the cessation of hostilities.

Second, I am actually with the Republicans here on the no taxes part of the negotiations. Look, we already have substantial tax increases baked into the next few years. Expiration of the Bush tax cuts and a host of new taxes and fees to finance Obamacare. Absent a Republican sweep in 2012, taxes are already going up a lot in the near future. If anything, I would cut taxes now.

Third, I believe that we need to cut spending soon. I am not a fan of Federal spending being at 25% of GDP and rising, but there are better places to start than social security. How about starting with the ridiculous subsidies we give farmers and big business that distort and cause harm around the world. Stop the Ethanol madness, the sugar subsidies, the cotton subsidies, the "green jobs" subsidies. Then turn to the Pentagon. People, defense is a public good. My consumption of it does not reduce the quantity available for your consumption. Thus, there is no reason for defense spending to rise continually with population/GDP. Get the hell out of Iraq and Afghanistan. Get out of Germany and Japan. WWII ended more that 50 years ago. Oh, and get out of Greece too (yes we have soldiers in Greece!). Cut defense spending by 25% at a minimum. Oh and let's eliminate NASA too while we are at it.

Fourth, I really admire Obama's spin job on the negotiations. First he wants a "clean" raising of the debt ceiling, then he demands that taxes have to rise in order to raise the debt ceiling, and he is getting a lot of buying that it's the Republicans who are recklessly killing the debt ceiling increase

Don't take the Deal!

David Brooks, Tyler, & Megan all implore the Republicans to "take the deal", meaning to accept some tax increases in exchange for "trillions in spending cuts" as conditions for raising the debt ceiling.

I disagree.

But, Angus, those are smart people, smarter than you, what is your problem?

Thanks for asking.

Let's ignore the fact that our economy is still in a big mess with high unemployment and underwater homeowners and just look at the terms of the deal.

The "cuts" are over a 10 year window. People, we have seen this movie before. Presidents are elected for 4 years, House members for 2 years. Current decisions are non-binding on future politicians. The cuts are a joke.

The tax increases, I'll wager, will NOT be coming over a 10 year window.

All current politicians can credibly do is cut NOW. So Republicans, please: cut or get off the pot.

It will never happen, but what we actually should do is (1) raise the debt ceiling with no strings attached. (2) Cut, not raise taxes, (3) pray that our credit holds out long enough for the economy to get healthy. (4) when either the economy gets healthy or our credit runs out, then cut spending down to size.

Retail politics

Ignacio, a loyal KPC reader from Chile, passed me a great article about politics in Argentina, which I will loosely translate here:

On the same day she announced her bid for re-election, President Kirchner also announced a new government program "TVs for Everyone" (televisores para todos). Initially there will be 200,000, 32 inch hi def sets available. People can finance them over 60 payments at 15% interest. Kirchner announced the program will start by offering the TVs to retirees because "they have the most time available to watch TV".

Oh Crissy, could it also be because old people vote more frequently than any other group?

If you think that 15% interest is a bad deal, consider that the actual inflation rate in the country right now is thought to be between 25 and 30%!

Hey boy, get a sweater!

The Senate voted today 73 - 27 to eliminate the federal subsidy for domestic ethanol AND eliminate the $0.54 per gallon tariff on imported ethanol!

Wow!

Before anyone gets too excited though, the Obama administration is not pleased:

"The White House issued a statement saying it was against a full repeal of ethanol subsidies, indicating it could use its veto power if the amendment continued to advance in Congress."

So I guess it's not expected to pass the House with a 2/3 majority?

Even so, kudos to the world's greatest deliberative body for actually getting one right for a change.

Mom's secret receipe

Start with a group of elderly activist moms who helped end Argentina's dirty war, then toss in some political opportunism and payback. Add in a pinch of patricide.

What do you get?

This.

The renowned "Mothers of the Plaza de Mayo" somehow have become providers of "an ambitious government funded housing program, known as "Sueños Compartidos," or Shared Dreams."

Really.

After all, nothing signals the ability to run large scale public works projects like wearing white scarves and carrying banners.

And the Main Mother's top advisor is none other than Sergio Schoklender, who did a bit in the Argentine slammer for beating his parents to death with a steel bar!

Really.

Somehow, the money that the Kirchner government is funneling to the Mothers in exchange for their political support was getting funneled by Sergio into his own pocket!

Man, I never would have seen that coming.

I hope my Argentine friends enjoy La Kirchner's second term; it should be a doozy.

Minnesota: Behold your Senator!

I expect moronic stuff like this from Senator Al Franken, but I am actually a little bit surprised at Ezra Klein's cheerleading.

Ezra, in his WAPO column proposes some "no brainers", proposed legislation that everyone should be able to agree on.

According to him, no-brainer #4 is the Franken-sponsored "Pay for War Act".

As Franken puts it, "war shouldn't add to the deficit".

Now, I'm guessing Al is opposed to the wars in Iraq and Afghanistan (me too!!), but that is just a completely idiotic principle.

People, in WWII the deficit reached 25% of GDP. Good thing for us Al Franken wasn't in office then!

"Gee whiz Hirohito, we sure don't like what you're doing, but we've about maxed out this year's tax revenues and hey, war shouldn't add to the deficit, so......."

Look at this picture and then reflect on the fact that Al Franken is a US Senator (clic the pic for a more glorious image)!

WWI and WWII stick out like wagging fingers rebuking Senator Al (and his boy Ezra).

If the US is in a war that poses a serious threat, we need to be able to spend whatever it takes to win. That's just common sense, as Al likes to say.

Trying to hamstring the future defense of this country as a reaction to the current situation certainly is a no-brainer, just not in the way Ezra means the term.

Angus tries to be a one armed economist

People, I'm trying!

I want to go on record as being bullish on 2011 for the US economy. I want to predict average growth for the year of 4.2%.

Yes, de-leveraging is not over. Yes, housing probably has not hit bottom. But, my view is we are poised for a semi-robust expansion.

But I'm afraid to come out and say it.

Why?

Well I'm not proud to admit this but I'm afraid of the House Republicans and the crazy sh*t they will no doubt try and pull. Yes I know, checks and balances and all that, but they worry me.

If they go after the Fed, throw a lot of heat and light on rolling back HCR and the financial oversight bill, and try to shut down the government over the debt ceiling, we could be right back into economic doldrums.

Look, I am not a big fan of the Fed or of HCR as currently constituted, but my advice to the Republicans would be to wait until after 2012 when the economy should be much sounder and maybe you also have the Senate to try and make your move.

The biggest thing Washington could do right now to help the economy would be to take a 14 month vacation.

They know what boys like

Harry Reid and the Senate democrats think they know what President O and the Republicans evidently don't: how to lure the House Dems into supporting the tax deal.

And their answer is........

PORK!!!!

A few billion here and there for ethanol subsidies and wind and solar subsidies is all they figure it'll take to get the bill past the opposition of the Democratic Caucus in the House.

I bet it works, but I'm surprised they didn't throw in a lil bit more high speed rail money just to clinch it.

Dems punt on tax vote

Maybe it's just me, but these guys (and gals) are really bad at their jobs. "Middle-class tax relief" (which in bizarre Dem-speak means continuation of the status quo for all but the top earners) was supposed to be a campaign plus for them, right? The president is still a Dem, right? Both houses are Dem right? Inaction raises taxes on everyone and they get to write the bill, so they have the Repubs by the proverbial S&Cs, right?

And they punt?

The only explanation I can think of is that the Dem leadership absolutely refuses to not raise taxes on the rich and they don't think they can get their rank and file to go for that before the election.

I guess they think that a bunch of lame ducks will be more likely to do the leaders that cost them their jobs one more favor in December before heading back home for good?

Tax Links

Here's a couple of long but interesting posts on tax incidence and tax "equity". One by Steve Landsberg and one by Scott Sumner. They are self-recommending.

Koch vs. Koch

In the spirit of the recent MR X vs. X posts, Koch Industries is both fighting the ACA and applying for subsidies from the ACA.