Coyote Blog

Does Ben Rhodes victory lap bragging about how he pulled the wool over the eyes of a stupid and gullible America on Iran remind anyone else of Jonathon Gruber?  Remember these famous words from Gruber?

"You can't do it political, you just literally cannot do it. Transparent financing and also transparent spending. I mean, this bill was written in a tortured way to make sure CBO did not score the mandate as taxes. If CBO scored the mandate as taxes the bill dies. Okay? So it’s written to do that," Gruber said. "In terms of risk rated subsidies, if you had a law which said that healthy people are going to pay in, you made explicit healthy people pay in and sick people get money, it would not have passed. Lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter or whatever, but basically that was really really critical to get for the thing to pass. Look, I wish Mark was right that we could make it all transparent, but I’d rather have this law than not."

Even the justification is the same -- its OK to break the law and lie about it in order to break up gridlock.  (By the way, my mother-in-law -- who tends to be a reliable gauge of mainstream Democratic thinking -- argued the same thing with me, that extra-Constitutional Presidential actions were justified if Congress did not accomplish enough.   Asked about whether she was comfortable with the same power in a Trump administration, she was less sanguine about the idea).

While political lying is old as time, it strikes me that this bragging about it is a new phenomena.  It reminds me of the end of the movie "Wag the Dog", when the Dustin Hoffman character refused to accept that no one would ever know how he manipulated the public into believing there had been a war, and wanted to publicly take the credit.  In the movie, the Administration had Hoffman's character knocked off, because it was counter-productive to reveal the secret, but I wonder if in reality Obama is secretly pleased.

At some point in the election, based on some criteria I do not understand, a Presidential candidate crosses some threshold of seriousness and they are given Secret Service protection.

I have a similar idea.  At some point in the election, candidates should have the ability to have a certain number of their proposals (spending, regulatory, tax plans) scored by the CBO, just as legislation is scored.  Use of such services would not be mandatory, but I would assume that there would be a certain pressure to get one's own plan scored if one's opponent is waving around a scored plan.

CBO scoring has all sorts of problems, not least of which is the common trick of spending like crazy for 9 years and then inserting some huge imaginary savings in year 10 that makes the whole thing score as budget neutral.  But folks will be able to see that (if they want to) and I think the advantage of being able to see actual costs and revenues of candidate plans in the same way they would be viewed as legislation  (which presumably is the goal of candidate proposals, to turn them into real legislation) would outweigh these shortcomings.

Dynamic scoring of budget proposals has been on the Republican wish list for decades.  They have always been frustrated that tax cut proposals look like such budget losers with static scoring.  In their supply-side bones, Republicans know that tax cuts will stimulate economic activity and thus increase future tax revenues.  Taking this second order effect into account is what they mean by dynamic scoring (see: Laffer Curve).

I have some sympathy for this argument, but in making it Republicans are falling for the "this will work great when our guys are in charge" fallacy  (I need to find a name for that).  Democrats fall into this all the time, expanding government power only to be shocked at what their political enemies do with this power once in charge.

Because it is pretty clear what dynamic scoring will mean in a Democratic Congress.  Remember that stimulus bill?  Democrats all thought that expanded the economy, so its costs would, by their Keynesian assumptions, appear much lower under dynamic scoring.  The Left thinks the auto bailout was stimulative.  They even think that Obamacare was stimulative.  Do you really want some BS Keynesian fudge factor obscuring the true cost of such proposals in the future?

Related:  Greg Mankiw discusses why, if I read him right, dynamic scoring is impossible to do correctly

I am pretty freaking cynical about the political process, so it takes something pretty bad to catch my attention.  This attitude by Obamacare architect Jonathon Gruber, which is likely shared by most of the Administration, simply makes me sick:

An architect of the federal healthcare law said last year that a "lack of transparency" and the "stupidity of the American voter" helped Congress approve ObamaCare.

In a clip unearthed Sunday, Massachusetts Institute of Technology Professor Jonathan Gruber appears on a panel and discusses how the reform earned enough votes to pass.

He suggested that many lawmakers and voters didn't know what was in the law or how its financing worked, and that this helped it win approval.

"Lack of transparency is a huge political advantage,” Gruber said. "And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass."

Gruber made the comment while discussing how the law was "written in a tortured way" to avoid a bad score from the Congressional Budget Office. He suggested that voters would have rejected ObamaCare if the penalties for going without health insurance were interpreted as taxes, either by budget analysts or the public.

"If CBO scored the [individual] mandate as taxes, the bill dies," Gruber said.

"If you had a law that made it explicit that healthy people are going to pay in and sick people are going to get subsidies, it would not have passed," he added.

By the way, Jonathon Gruber was the one in 2012 who said over and over that the limitation of subsidies to state-run exchanges was not a drafting error, but was an intentional feature meant to give incentives to states to create exchanges.  Now that it is clear that incentive did not do its job, and a case is in front of the Supreme Court attempting to enforce the plain language of the law, Gruber is now saying that he mispoke (over and over again) in 2012 and it was a typo.  Given the fact that he has now admitted he would gladly lie (and has) to the public to defend Obamacare, how much should we believe his current claims?

RAND has a study out on changes in people's sources for health insurance.  Once you get the hang of reading it, this is a great table:

This is how to read it -- of the 40.7 million uninsured in September of 2013, 26.2 million remained uninsured, 7.2 million got new employer health insurance (ESI) , 3.6 million joined medicaid, etc.  But then some new uninsured were added back so the new total uninsured is 31.4 million.

One of the first things to notice is the marketplace number of 3.9 million is well below the Administration's claim of 7.1 million.  The Administration's number is not even within the error bar here, so one needs to be skeptical, if he was not already, of Administration sign-up figures.

We also can notice that the individual marketplace seemed to have shrunk from 9.4 million to 7.8 million.  No huge surprise, with all the cancellations that made the news last year.

The really interesting question, of course, is what happened to the uninsured.  We can use this table to look at net changes (millions of people).

To make sure everyone understands the math, 7.2 million left the ranks of the uninsured to get an employer policy, but 2.1 million previously insured by employers became uninsured.  The net is -5.1 million as shown.  All the other numbers are calculated the same way.

I have always had serious questions about the value of the Medicaid signups during this period.   Medicaid is not a limited enrollment product.  You can sign up bleeding on a gurney being rolled into the operating room, and in fact many do -- Hospitals are very good at enrolling people into Medicare as they walk in.  So it was really a misnomer in the first place that someone eligible for Medicaid is "uninsured" -- they are in fact insured, they just have not done the paperwork.  The Medicaid expansion in the PPACA probably helped, but many states that did not expand Medicaid had a lot of signups as well.

The exchange seems to have done little to affect the uninsured.  Net of the reductions in individual insurance presumably driven also by the PPACA, the exchanges reduced the uninsured by 1.2 million.

The really interesting number everyone is  looking at is the huge number of the insured that gained employer coverage.  Three quarters of the non-Medicare related reduction in uninsured (since I don't consider a lot of the Medicare signups a real reduction) were from people going onto employer plans.

Kevin Drum quotes Andrea Mcintyre as saying

If it’s correct, it was probably motivated multiple factors—I hate the word “synergy” on principle, but it comes to mind. The economy has been improving, so some of the previously unemployed have secured jobs with benefits. But CBO built in expectations about economic recovery, so I don’t think it’s quite right to try pinning all (or even most?) of the 8.2 million on that. The individual mandate, while weak in its first year, might be a stronger stick than we expected, nudging people to take their health benefits where they’d previously been opting out. Employers could be helping this move this trend along; the University of Michigan, for example, eliminated “opt out dollars” in 2014 (cash compensation for employees who declined coverage).

Drum add triumphantly

If this finding is confirmed, it's a genuine shocker. Although CBO projected that ESI would stay steady, there's been a lot of chatter about the likelihood of employers dropping coverage thanks to Obamacare. But that sure doesn't seem to have happened. So in addition to the usual sources of coverage—Medicaid, exchanges, sub-26ers—it looks like Obamacare has yet another big success story to tell, one that was almost completely unexpected.

Uh, maybe.  The employer insurance changes could also be an artifact of normal churn and of the odd study period.   The study period is only about half a year.  If there were annual patterns, ie with people losing employer health care early in the year and then gaining it at the end of the year, then only the gains would show up in the study and not the losses.  In fact, there is some reason to believe this is the case, as most corporations have open enrollment periods at the end of the calendar year.

But there is a more interesting issue here.  Folks arguing for Obamacare in the first place sold it by implying that most all the uninsured were uninsured because they could not afford coverage or did not have access.  Now it turns out a large block of the uninsured actually did have access and could afford it, they just chose not to buy it, for whatever reason.  Was this really what it was all about from the very beginning, forcing people to buy a product that they could afford but did not want?

Defenders of the President are arguing that we are misreading the CBO report on job losses due to Obamacare.  And I have to agree.  Partially.

Looking more closely, the CBO report does in fact say that it cannot find that many companies eliminating full-time jobs due to Obamacare.  I think they are missing the boat, as I explained earlier, but perhaps my personal experience as a business owner is unusual.

The President's defenders want to make sure that we understand that the CBO is actually saying the 2 million job losses are from people dropping out of the work force because they have lost the incentive to work and/or they want to make sure they don't earn their way out of government freebies.

Whew.  I am sure relieved that all Obamacare is doing is destroying the incentive to work.  I thought for a second there we had a real problem.

The Washington Post reports on an updated CBO report:

The Affordable Care Act will reduce the number of full-time workers by more than two million in coming years, congressional budget analysts said Tuesday in the most detailed analysis of the law’s impact on jobs.

After obtaining coverage through the health law, some workers may forgo employment, while others may reduce hours, according to a report by the Congressional Budget Office. Low-wage workers are the most likely to drop out of the workforce as a result of the law, it said. The CBO said the law’s impact on jobs mostly would be felt after 2016.

This almost certainly underestimates the impact.   Why?  Well, one reason is that a lot of full-time jobs were switched to part-time jobs way back in late 2012.  That is what our company did.  Why so early?  Because according to rules in place at the time (rules that have since been delayed at least a year) the accounting period for who would be considered full-time for the purpose of ACA penalties would be determined by an accounting period that started January 1, 2013.  So, if a business wanted an employee to be considered part-time on January 1, 2014 (the original date employer sanctions were to begin), the changes to that employees hours had to be put in place in late 2012.  More on this here in Forbes.

In addition, this CBO report is  a static analysis of existing business.  It does not seem to include any provisions for businesses that have dialed back on investment and expansion in response to the ACA (we have certainly cut back our planned investments, and we can't be the only ones.)  This effect is suggested (but certainly not proven) by this chart.

The sequester and government shutdown were cited by the Left as reasons for a sluggish economy.  Which government action seems most correlated with a flattening in job growth?

Ross Douthat in the NYT quoting Patrick Brennan

About one-fourth of the people who have entered their income information on their applications were deemed eligible for subsidies on the exchanges (about 900,000 out of about 3.6 million), which is lower than the number we saw in October alone and remains really far from what was projected. The CBO projected that just 1 million out of the 7 million people to enroll in the exchanges in the first year would be ineligible for subsidies, so the ratio is way off from what was expected (15–75 vs. 75–25). I had some thoughts on that surprising fact a month ago, and I’ll add a couple now: Unsubsidized customers (basically, those above the national median income) are generally savvier and more likely to have the resources to enroll and make their payments ahead of time, so maybe this is understandable and doesn’t say anything about who will eventually enroll. On the other hand, it may demonstrate that the people to whom insurance was supposed to be expanded — the uninsured, who tend to be low-income and not well educated — aren’t getting to the exchanges at all, and covering them will be a much longer term project.

There is a huge, enormous analytical problem with this-- they are looking at entirely the wrong numbers.  Incredibly, Meghan McArdle makes this same mistake, and I generally respect her analysis of things.   I am going to pull out my summary chart of the Exchange numbers to try to make things clear (click to enlarge):

There are 3 major mistakes, each worse than the one before.

MISTAKE 1:  The 3.6 million total applicants number is in line 3 (3,692,599).  This is the wrong number.  The number he should use is line 4, the number of people who have had their eligibility processed.  So the denominator should be 3.1 million, not 3.6 million.

MISTAKE 2:  He leaves out the Medicaid piece.  Seriously, if we looking at numbers that are partially subsidized, why leave out numbers (Medicaid and CHIP) that are entirely subsidized?   This means the applicants eligible for subsidy are 803,077 + 944,531 or 1,747,608 which is 56% of the processed applicant pool.  The subsidy number may be lower than expected but I get the sense that the Medicaid percentage is higher than expected.

MISTAKE 3:  They are looking at the application pool, not the sign-up or enrollment pool.  That is understandable, because the Administration refuses to give the subsidy percentage breakdown of those who have selected a plan (a number which they certainly must have).  My guess is that people are putting in applications just to see if they are eligible for subsidies.  If not, they quit the exchange process and go back to their broker.   That is what I will probably do (out of curiosity, I would never accept taxpayer money for something I am willing to pay for myself).  The people who actually sign up for coverage are almost certainly going to skew more towards subsidized than does the applicant pool.

Making reasonable assumptions about the mix of subsidies in the "selected a plan" group, one actually gets numbers of 80-90% Medicare and CHIP and subsidies in the enrollment pool.

I do think McArdle is correct in saying that the uninsured numbers were both exaggerated and mis-characterized.  I have been saying that for years.

From the recent exchange activity report (I can't call it their enrollment report because they do not actually report enrollment numbers)

• Number of people added to Medicaid or CHIP:  803,077
• Number of people who have selected** a private plan:  364, 682

The Administration knows, but refuses to tell us what percentage of the 364,682 are eligible for subsidies.   By the unfailing rule of political life, this means the news is bad (ie the percentage subsidized is high).  We do know the percentage of applicants who were determined to be eligible for subsidies:  41%.  Since a lot of people who go through the process are doing it just to see if they get a subsidy, there is good reason to believe that applicants who actually are selecting policies will be subsidized at a higher rate, but certainly no less than 41%.  So using that number we come up with

• Medicaid or CHIP:  803,077
• Subsidized private:  153,166 (at least, probably more)
• Entirely private: 211,516 (probably less)

So, at best, only 18% of the people enrolling** in an exchange are doing so with their own money.  82% or more are doing so partially or entirely with taxpayer money.  Note that these are all people, by definition, who were paying for their own health care before, so the one thing the exchanges are definitely doing is converting independent citizens to government dependents at an 80% rate.

By the way, I am pretty sure the CBO did not score the PPACA as being "deficit neutral" based on more than double as many Medicaid applicants as private applicants and a less than 20% unsubisidized rate.

** These are not actual enrollments until the customer pays.  Essentially these are the number of people who have put a plan in their online shopping cart.

The extent to which the media is aiding and abetting, with absolutely no skepticism, the sky-is-falling sequester reaction of pro-big-government forces is just sickening.  I have never seen so many absurd numbers published so credulously by so much of the media.  Reporters who are often completely unwilling to accept any complaints from corporations as valid when it comes to over-taxation or over-regulation are willing to print their sequester complaints without a whiff of challenge.  Case in point, from here in AZ.  This is a "news" article in our main Phoenix paper:

Arizona stands to lose nearly 49,200 jobs and as much as $4.9 billion in gross state product this year if deep automatic spending cuts go into effect Friday, and the bulk of the jobs and lost production would be carved from the defense industry.

Virtually all programs, training and building projects at the state’s military bases would be downgraded, weakening the armed forces’ defense capabilities, according to military spokesmen.

“It’s devastating and it’s outrageous and it’s shameful,” U.S. Sen. John McCain told about 200 people during a recent town-hall meeting in Phoenix.

“It’s disgraceful, and it’s going to happen. And it’s going to harm Arizona’s economy dramatically,” McCain said.

Estimates vary on the precise number of jobs at stake in Arizona, but there’s wide agreement that more than a year of political posturing on sequestration in Washington will leave deep economic ruts in Arizona.

Not a single person who is skeptical of these estimates is quoted in the entirety of the article.  The entire incremental cut of the sequester in discretionary spending this year is, from page 11 of the most recent CBO report, about $35 billion (larger numbers you may have seen around 70-80 billion include dollars that were going away anyway, sequester or not, which just shows the corruption of this process and the reporting on it.)

Dividing this up based on GDP, about 1/18th of this cut would apply to Arizona, giving AZ a cut in Federal spending of around $2 billion.  It takes a heroic multiplier to get from that to  $4.9 billion in GDP loss.  Its amazing to me that Republicans assume multipliers less than 1 for all government spending, except for defense (and sports stadiums) which magically take on multipliers of 2+.

Update:  I wrote the following letter to the Editor today:

I was amazed that in Paul Giblin’s February 26 article on looming sequester cuts [“Arizona Defense Industry, Bases Would Bear Brunt Of Spending Cuts”], he was able to write 38 paragraphs and yet could not find space to hear from a single person exercising even a shred of skepticism about these doom and gloom forecasts.

The sequester rhetoric that Giblin credulously parrots is part of a game that has been played for decades, with government agencies and large corporations that supply them swearing that even trivial cuts will devastate the economy.  They reinforce this sky-is-falling message by threatening to cut all the most, rather than least, visible and important tasks and programs in order to scare the public into reversing the cuts.  The ugliness of this process is made worse by the hypocrisy of Republicans, who suddenly become hard core Keynesians when it comes to spending on military.

It is a corrupt, yet predictable, game, and it is disappointing to see the ArizonaRepublic playing along so eagerly.

Via Hit and Run, this can't be said too many times

according to the CBO’s top official, the figures in this report and previous mandatory stimulus don’t actually tell us whether or not the stimulus created jobs. That’s because, as  I’venotedsomanytimesbefore, the reports rerun slightly updated versions of the same models of that were used to estimate that the stimulus would create jobs prior to the law’s passage. And lo and behold, if you create a model that predicts the law will create jobs, and then you rerun a mild variation of that model a few years later using updated figures about what money was actually spent, it still reports that the stimulus created jobs. But there’s no counting here, no real-world attempt to assess the reality of the stimulus—just a model that assumes that stimulus spending will create jobs and therefore reports that stimulus spending has in fact created jobs. As CBO director Douglas Elmendorf confirmed on the record last year in response to a question, “if the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis.”

Further, the fact that we can count individual jobs in stimulus programs (of which there are all too few, which is why the Administration doesn't do this), we still have to take into account an offset effect.  The trillion dollars came from somewhere, and in effect were diverted from private to public hands.  To justify the stimulus, one needs to be able to argue that the public use of these funds created more jobs than the private use of these funds.  Good luck with that.

My column for Forbes is up this week, and yet again I address issues related to the stimulus.  This time, rather than questioning the Keynesian multiplier, I observe that Congress has passed several pieces of legislation which act as "anti-stimulus" whose magnitudes dwarf that of any fiscal stimulus programs, even at multipliers greater than one.

Larger corporations are going to face different economics, but they too seem to be anticipating higher future costs from this legislation. For example, while they may not face the penalty for having no health care plan, they will face higher Medicare taxes, taxes on overly rich plans, and increases in health care premiums. If the average business is anticipating a 5% increase in payroll-related expenses, and given that total private payrolls in the U.S. are around $6 trillion, this implies that businesses may be planning for $3 trillion of health care anti-stimulus over the next 10 years.

Similar scale numbers can be found for the overall effects of cap-and-trade. Perhaps the best estimate we have is the CBO scoring of the Kerry-Lieberman bill, which estimated that payments for carbon allowances over the first ten years would total $751 billion. Assuming that the costs of most of these allowances are passed on to consumers, then this bill represents another three quarters of a trillion in anti-stimulus. In addition, expiration of the Bush tax cuts, card check, and a number of new regulatory initiatives all will drive this anti-stimulus expectation higher. Is it any wonder, then, that the private sector yawns when the Congress rushes back from vacation to pass a $26 billion jobs bill?

One point I have been making for a long time on health care is that all the studies showing waste and unproductive spending in health care are irrelevant to government policy because at the end of the day, the Federal government does not know how to capture these savings.  The CBO says basically the same thing in a chart from a recent presentation.  The chart is titled "Reducing Growth in Federal Health Spending"

On the upside:

• There is considerable agreement that a substantial share of current spending on health care contributes little if anything to people's health.
• Providers and health analysts are making significant efforts to make the health system more efficient.

On the downside:

• It is not clear what specific policies the federal government can adopt to generate fundamental changes in the health system. That is, it is not clear what specific policies would translate the potentialfor significant cost savings into reality.
• Efforts to reduce costs increase the risk that people would not get some health care they need or would like to receive.

I am pretty confident from my experience with a high-deductible health care plan that the only way to start capturing savings is for individuals who recieve care to have the incentives and decision-making power to make cost-benefit tradeoffs in their own health care procurement.  This, however, is the absolute last thing this administration and Congress would ever allow, with the latest bill actually forcibly removing what small incentives that remained for individuals to make these tradeoffs.  All we are going to get are command and control care cuts  (based on the political power of the particular service or drug provider rather than medical efficacy) and price controls.

More at South Bend Seven

The CBO, which Democrats frequently tell us to pay close attention to only when it is giving them the answers they want, is not particularly sanguine about the US budget deficit:

President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.

Bruce McQuain, as always, has some good analysis.

States, apparently, are not in much better shape:

Pension plans for state government employees today report they are underfunded by $450 billion, according to a recent report from the Pew Charitable Trusts. But this vastly underestimates the true shortfall, because public pension accounting wrongly assumes that plans can earn high investment returns without risk. My research indicates that overall underfunding tops $3 trillion.

The problem is fundamental: According to accounting rules adopted by the states, a public sector pension plan may call itself "fully funded" even if there is a better-than-even chance it will be unable to meet its obligations. When that happens, the taxpayer is on the hook. Yet public pension plans ignore market risk even as they shift into risky foreign investments, hedge funds and private equity....

In a recent AEI working paper I've shown that the typical state employee public pension plan has only a 16% chance of solvency. More public pensions have a zero probability of solvency than have a probability in excess of 50%. When public pension assets fall short, taxpayers are legally obligated to make up the difference. The market value of this contingent liability exceeds $3 trillion.

Productive people in this country are about to get plastered with huge new taxes.  Hang on.

It has bothered me in an earlier post that I missed several critical tricks the Democrats in Congress are using to understate the cost of their health care bills.  These are important enough that I am re-writing the original post:

When reading the original House health care bill, it struck me that the new taxes on employers and such began immediately, but benefits were phased in between 2012 and 2017.  Apparently, this same thing is being done in the Baucus Bill, and I have learned that this is specifically aimed at gaming the CBO numbers.  Since journalism majors were such in large part because they didn't want to do any math, this ploy will likely work with the media, who will print the CBO findings but will be uninterested or incapable of deconstructing the numbers games.  From the Gormogons via TJIC:

What the CBO does not highlight, however, is that Sen. Baucus cooked the books. Under the Baucus plan, revenue enhancement (taxes) goes into effect immediately. Coverage does not kick in for two and one-half years. So, to make the numbers work, Sen. Baucus has to collect ten years of revenue to cover seven and one-half years of cost.

'Puter thought the whole thing smelled a little fishy, so he gave Sleestak and abacus, a quill and some parchment and set him on the CBO math. Using the above numbers, Sleestak calculates that projected revenues will generate $910 billion over 10 years. Outflows will be $829 billion over 7.5 years. Based on Sleestak's math, that's an average yearly inflow of $91 billion and an average yearly outflow of $110.5 billion, or a average annual deficit of $19.5 billion each year the benefits are actually paid.

TJIC rightly asks how this kind of game is any different from the one played by Madoff.  The only difference is that folks had the right to say "no" to Madoff whereas we will not have this ability with Congress.

Bruce McQuain points out something I think has not gotten enough attention in the health care bill.  The new taxes being proposed start in 2010, but the benefits don't begin until 2013 and are phased in through something like 2018.  That means for any 10-year budget look, there are 10 years of taxes but only 6-7 years of benefits.  And even with this trick, the plan STILL adds a trillion dollars to the deficit, even before the certainly more pessimistic CBO numbers come in.

Joe Romm of Climate Progress is a leading climate alarmist, telling the world that burning fossil fuels will increase CO2 concentrations by 0.04% of the atmosphere over the next century and thus destroy mankind.  As such, he is a supporter of the current cap-and-trade bill in Congress, whose purpose is to raise the price of fossil fuels (either directly as a tax or by restricting their supply) so that less will be used.

On a different but related topic, Joe Romm is also apparently a peak oil alarmist.  As I have written, I suspect real oil prices will rise steadily over the coming decades, but we aren't going to fall off some cliff and see a sudden hyperinflation of oil prices (temporary spikes are a different story).  He writes

The IEA's work makes clear that for oil to stay significantly below $200 a barrel (and U.S. gasoline to be significantly below $5 a gallon) by 2020 would take a miracle

I tend to doubt it, in part because I have seen so many very similar predictions ever since the mid-1970s, but I suppose some day someone will be right with one of these.   I wonder if there is some kind of psychological profile that causes people to see positive feedback-driven accelerating curves everywhere.

But here is my confusion -- he is absolutely convinced that oil is going up by $140 a barrel or more.  Let's look at this in the context of Co2.  The CBO estimates the clearing price for a ton of Co2 emissions under the current bill will be between $20-$30 a ton.  Since a barrel of oil creates about a third of a ton of CO2 emissions, this implies the cap and trade bill might increase the price of oil by $7-$10 per barrel.  But if Romm think oil is going up by natural market forces by $140+, why even bother?  Why not just put a tax on coal and be done with it?

I congratulate Mr. Romm, however.  If he is so sure of 2020 oil prices, there are all kinds of fabulous ways to become ridiculously wealthy with this knowledge.

Postscript:  There are two reasons why people have been making this same forecast for 30 years and have been wrong most of the time.

First, there is a very human tendency to assume current conditions and trends will go on forever.  Everyone is subject to this bias, even the smartest analysts.  Romm might argue that these are savvy, detail-oriented commodities analyst, but I only have to point to the recent behavior of savvy detail-oriented debt security analysts.

Second, analysts tend to apply current understandings of what technologies and substitutes are economic at $60 oil to a world where oil is priced at $160.  It just doesn't work that way.   The market for petroleum and its substitutes is enormously multi-variate and complex.  A $100 bump in prices will do things that are sometimes hard to predict in detail to the markets for exploration, new technologies, substitutes, conservation, etc.  But in all this complexity, the one thing we do know is that time and again, such changes have occurred quickly and decisively in response to rising oil prices, and have acted to mitigate and reverse price increases.

One ironic way of looking at it, since this is Joe Romm, is to say that there are negative feedbacks that cut in to slow and even reverse sharp rises in oil prices.  Romm seems to reject these negative feedbacks, in favor of a price model that rapidly accelerates.  This is all ironic, since this issue of negative vs. positive feedback is what separates climate alarmists like Romm from many climate skeptics like myself.

I don't believe man-made global warming is substantial enough or catastrophic enough in its effects to warrant expensive public action.  But if we did feel the need to do something, John Tierney echoes a theme I have been sounding for a while (emphasis added):

The CBO report concludes that a tax on carbon emissions "would be
the most efficient incentive-based option for reducing emissions and
could be relatively easy to implement. If it was coordinated among
major emitting countries, it would help minimize the cost of achieving
a global target for emissions by providing consistent incentives for
reducing emissions around the world." But the major presidential
candidates aren't supporting such a tax, and the few proposals on
Capitol Hill to impose a tax are not expected to go anywhere anytime
soon.

Instead, the candidates and most legislators prefer to talk about
cap-and-trade schemes like the Kyoto protocol. These schemes have the
great political advantage of hiding the costs from consumers and
voters, but they cost more and accomplish less. The CBO calculates that
the net benefits of a tax would be five times higher than for a
cap-and-trade with inflexible targets. A more flexible cap-and-trade
system wouldn't be quite as bad a deal economically, but it would
create all sorts of political temptations for doling out exemptions and
subsidies to well-connected industries and companies.

President Bush has passed even Lyndon Johnson for the title of worst spender in the last 40 years.  While it is probably not a surprise that real military spending has grown an outrageous 8.8% per year during his tenure, it is amazing to see that domestic spending has grown 7.1% (yes, that's real, excluding inflation) per year.  Absolutely shameful.  More here in this Cato report (pdf).

Revised data released during the summer by the Congressional Budget Office (CBO) provide analysts the ability to make side-by-side comparisons of the spending habits of each president during the last 40 years.1 All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.

It is interesting to note that Bill Clinton, who drove Republicans into a frothing hatred, can rightly be classed, along with Reagan, as one of the two most fiscally conservative administrations in 40 years.  Granted the Republican Congress kept him honest on spending and carved off his roughest edges (e.g. Hillarycare) while Reagan had to fight his Congress tooth and nail, but this spending record in the Clinton years combined with his passage of NAFTA and welfare reform make him a far better free market defender than either of the Bushes that bracket him.  I wonder if, in turn, liberals who are driven into a frothing hatred for Bush, will someday come to appreciate the work he has done for them in expanding the size of government and slowing the pace of free trade.

In part 1, which you should read first, we discussed how the US has crossed a milestone where fewer than 50% of the taxpayers in this country pay about 100% of the personal income taxes. We also discussed how the recent tax cuts actually shifted personal income tax burden more onto the rich, rather than less.

However, John Kerry has cited the same CBO Report I used to make the points in the previous post to say just the opposite - i.e. that the recent tax cuts actually shifted the tax burden away from the rich to the middle class. Assuming he is reading the study correctly (which he is) how can this be?

The answer is in the difference between Federal income taxes and total federal taxes. The tables I used in part 1 were for income taxes only. It strikes me as reasonable to use income tax numbers for analyzing income tax changes. The total tax numbers Kerry uses includes not only income taxes but social security and Medicare taxes (including the employer contribution), federal excise taxes (such as the gasoline tax) and the corporate income tax. Lets look at who bears the brunt of these taxes.

1. Social security taxes are regressive. Very regressive. While your paycheck may show 6.2% FICA, the bill is really 12.4% because your employer matches this payment with funds they probably would otherwise pay you in wages. What makes this tax regressive is that it is a straight 12.4% of every dollar up to a limit, currently $87,900, after which the tax is zero. This kind of profile would never be tolerated in the income tax system. The reason for this is the carryover of the original idea that social security is not a tax and social benefit program but an insurance and retirement plan, a characterization that is becoming increasingly out of whack from reality. (If it was a private retirement plan, the managers would all be in jail right now for the terrible long term returns it pays out).

2. Gas and excise taxes are generally considered regressive as well, since gasoline is probably a much higher percentage of lower and middle class spending than for the rich (those rich who own Hummer H2's notwithstanding).

3. Its harder to pinpoint who pays corporate income taxes. The CBO report allocates corporate income taxes in proportion to dividends reported on income tax statements, which seems reasonable. Fifty years ago, one would have said that this meant the rich pay it, since we pictured the rich as owning all the stock. Today, in our mutual fund world, a lot is probably born by the middle class, particularly middle class retirees.

As a result, the sum of these non-income taxes are probably net regressive - i.e. they disproportionately hit the lower and middle classes. This means that an income neutral income tax cut, i.e. one that does not shift the tax burden but lowers it proportionately for everyone, will still shift the total tax burden to the middle class, because it reduces the amount paid in the progressive system (e.g. income taxes) in proportion to the amount paid in the regressive system (e.g. social security).

This leads me to a couple of thoughts. First, I think while he is quoting correct stats, Kerry is using the data a bit disingenuously. First, it implies to people that the middle class is paying more so the rich can pay less, which is untrue - everyone is paying less. Second, he is trying to use the data to show that personal income tax burden is shifting to the middle class, which we showed in post 1 that it is not - it is actually going the other way. Third, he uses it to justify a tax increase (or a tax cut rollback) on the richest Americans. We showed that already the Bush tax cuts shifted more of an already ridiculously high burden to the rich. This will shift even more.

However, there is a point here if Kerry wanted to latch on to it. Forget the class rhetoric about the income tax system - focus instead on social security. There are two good reasons for this: 1) Social Security is broken, and the financial reckoning is coming 2) unlike the income tax system, social security is truly indefensibly regressive. Yes, you can dig through Kerry's web site and find something on this, but he is for some reason so drawn to the income tax issue he never really hits it hard.

If John Kerry really wants to take up a populist tax banner, leave income taxes as they are (for all the fiscal deficit crisis talk, an economic recovery plus fewer new military invasions will bring the deficit back in line without tax increases). He should instead propose a reduction in the 12.4% FICA tax rate and then an elimination of the $87,900 wage cap. To make this palatable to Congressional Republicans (and me, if I were voting) it should be tied to a package of other reforms such as allowing some investment choice by individuals.

Of course, this is not going to happen. Politicians have used Social Security scare tactics with retired and older people so often that these folks have come to react negatively to any hint of change to Social Security. Reasonable discussion about the future of Social Security is just not possible in the last five weeks of an election, particularly with Florida in play.