Coyote Blog

David Roberts (via Kevin Drum) gives us a simply outstanding view of the mind of a statist:

In these grim economic times, one U.S. industry has defied gravity. Not only is it growing, it's thefastest growing industry in the country. It now employs 100,000 Americans at 5,000 mostly small businesses spread across all 50 states. Unlike in so many others, in this industry the U.S. has a positive trade balance with China; it is a net exporter of high-tech manufactured products....

The startling counter-cyclical growth of this industry had been unleashed by a modest bit of economic stimulus: a cash grant program that helps project developers compensate for the crippling credit crunch. In contrast to the familiar tax credits -- which tend to go to large, mature companies that have enough profit to benefit from them -- cash grants help small, innovative, growing businesses that are plowing revenue into growth. In fact, a recent study found that they work twice as well as tax credits. In 2009, this cash grant program pulled in $4.50 of private capital for every public dollar it invested.

The cash grant program expires at the end of the year. Extending it for a single year could support 37,000 additional jobs over and above the industry's baseline. And here's the capper: Since the cash grant program is simply repurposing money that's already devoted to a tax credit program, it requires no new federal revenue.

So you'd think this would be a home run, right? At a time when jobs are at the top of every politician's mind, surely a bit of low-cost economic stimulus that doesn't increase the deficit and leverages tons of private capital and creates tens of thousands of jobs can serve as the rare locus of bipartisan cooperation. Right?

Except the industry in question is the solar industry. And because this industry involves clean energy rather than, I dunno, tractor parts, it has been sucked into conservatives' endless culture war. Rather than lining up to support the recession's rare economic success story, Republicans are trying to use the failure of a single company -- Solyndra -- as a wedge to crush support for the whole industry. Odds are they're going to succeed and the cash grant program (Sec. 1603) won't be renewed next year.

Do you see the basic assumption -- if we don't take money from taxpayers and give it to businesses in a certain industry, that means we don't like that business.  Really?  That means that there is not a single industry in this country that I like, since I don't support subsidies for any of them.   Unless you believe the state is mother and father to us all, the fact that I don't support state subsidies does not mean that I don't like the industry somehow.  Kevin Drum even goes so far as to say that opposition to solar power subsidies is an aspect of the culture wars.  Huh?   Oh and by the way, the politicization of this loan process is just amazing to me.  More and more people at Solyndra seem to be fund raisers for Obama, and here is a story of how a cleaning products company turned donations to Democratic candidates into taxpayers subsidies for themselves.

It is interesting that he would mention tractor parts.  Guess what, folks who don't like the solar subsidies probably don't support subsidies for tractor parts either.  I was going to say something like, "guess what, we don't subsidize tractor parts" but in our screwed up corporate state, we probably do at some level, like with some special export program snagged by a John Deere lobbyist.  But I can pretty much guarantee that we don't subsidize anywhere near the total value of the tractor parts industry like we do the solar industry.

In one silly passage, he says

"In addition to being successful, this industry is wildly popular with the American public, across regions, demographics, and political parties. It has been embraced by mainstream institutions from Walmart to the U.S. military"

I could say the same thing for iPods too, but no one is rushing to provide grant programs for their manufacture.  If it is so wildly popular, why does its use require so many government incentives and subsidies.  Because the author pulls the trick of looking at one narrow solar program, and attributing the entire solar industry growth to that one program.  And then he says, see, look how much benefit we get from this tiny sensible expenditure.

But solar's growth (I don't have the data, but I am willing to be real money that his "fastest growing industry" claim is BS) is due not to just this tiny programs but to a plethora of federal, state, and local subsidies and mandates.  The government gives money to capitalize companies, and then then provides tax credits for up to 30-50% of their customer's purchase, and then through public utility commissions enforce above-market feed-in tariff rates for solar power.  One reason we export so much (the export market for US solar is nearly entirely to Europe) is that European governments have feed-in tariffs for solar power more than 5 times higher than the market rate for electricity.   They are paying something like 70 cents a kilowatt for solar electricity.

So of course solar is growing.  If the government were to buy small cars for $150,000 each, there would be big growth in car manufacturing. This does not mean the product makes sense -- in fact, the necessity for so many government supports at every step of the process means almost by definition that it does not make sense economically.  Look at corn ethanol.  Corn ethanol is the stupidest product ever, but it has grown like crazy due to the same combination of government subsidies, price floors, and mandates.

By the way, I am a huge fan of solar, in theory.  I honestly think that solar will some day be the power system of choice in this country, as companies figure out how to roll solar sheets out of the factory as cheaply and quickly as carpet comes out of Dalton, Georgia.  We are not there yet, and I am not at all convinced that the current approaches are anything but dead end technologies.  Beyond wasting a lot of money, there is a real risk the government actually slow ultimate implementation of sensible and economic solar, just as I would argue they did by forcing manned space flight and the transcontinental railroad ahead of their time.

So here is an interesting local story giving us a window into race relations.    First, a black comedian named Katt Williams (I never heard of him either) called a Mexican man a "nigga" and told him to go back to Mexico.   Then a Hispanic woman created a profanity-laced 6-minute video calling Katt Williams "a white supremacist."

Outstanding.  Actually, I think that this has little to do with race relations and more to do with a post-modernist view of language.  I am still working on writing about this phenomenon, wherein certain political phrases have become all-encompassing insults or descriptors of the opposition, wholly stripped of their original meaning.  Thus "Soros-funded" or "Koch-funded" become synonyms for being extreme left or libertarian, rather than actually being supported by any evidence of such funding.  My interest in this topic began with a comment on Kevin Drum's site, where one sympathetic reader smacked Tea Partiers as merely mouthing Republican talking points, and the proceeded to repeat in now-standard terminology every Democratic talking point about the Tea Party.  The juxtaposition was so obvious I thought it might be performance art rather than a real comment.

via Kevin Drum, personal debt in the US:

One of the problems with the stimulus, in my mind, is that it was aimed at interrupting this process.

Kevin Drum argues that Conservatives have vastly over-estimated the effects of capital gains tax changes on investment.

I can't agree with parts of the article that seem to argue that all taxes have limited effects on behavior (this is easily disproved, just look at what the tax code does for preferences of issuing debt vs. equity, or even look at the mortgage market).  But I have always suspected that the political focus on the capital gains tax represents another piece of evidence that financial players (Wall Street, banks) dominate much of economic regulation.

All things being equal, a low capital gains tax is fine.  If I sell some stock, its nice to pay a lower tax on the profits, particularly since at some level those profits have already been taxed once at the corporate level.  Financial players who buy and sell securities live and die by the capital gains tax, and I suppose for businesses there is some advantage in that it perhaps reduces the cost of debt and equity.

But as a business person with my own company, that capital gains tax is largely irrelevant to my investment decisions.   That is because all my investments are made to generate cash flow, and thus the regular tax rate is the ordinary income tax rate.  Perhaps one time in my life, if ever, the capital gains tax will be hugely relevant when I sell my business, but that is at some time in the future so nebulous that it does not affect my behavior.   Other than the double taxation argument, I have never understood why those who take their investment gains in asset value appreciation rather than in income should get different tax treatments.

When the Left has talked about oil and gas subsidies, I have generally nodded my head and agreed that any such things should be eliminated, just as they should be eliminated for all industries.   They have in the past thrown out huge numbers for such subsidies that seemed high, but I have not really questioned them.  But then I see this chart at Kevin Drum's site

Seriously, nearly half the "subsidy" number is the ability of a company to use LIFO accounting on inventory for their taxes?  Since the proposition is to eliminate these only for oil and gas, what is the logic that somehow LIFO accounting is wrong in Oil and Gas but OK in every other industry?   In fact, at least the first two largest items are both accounting rules that apply to all manufacturing industry.  So, rather than advocating for the elimination of special status for oil and gas, as I thought the argument was, they are in fact arguing that oil and gas going forward be treated in a unique and special way by the tax code, separate from every other manufacturing industry.

In fact, many of these are merely changes to the amortization and depreciation rate for up-front investments.  Typically, politicians of both parties have advocated for the current rules to encourage investment.  Now I suppose we are fine-tuning the rules, so that we encourage investment in the tax code in everything but oil and gas.  I will say this does seem to be consistent with Obama Administration jobs policy, which has been to try to stimulate businesses that are going nowhere and hold back the one business (oil and gas drilling) that is actually trying to grow.  I am fine with stopping the use of the tax code to try to channel private investment in politician-preferred directions.  But changing the decision rule from "using the tax code to encourage all manufacturing investment" to "using the tax code to encourage investment only in the industries we are personally sympathetic to" is just making the interventionism worse.

This is really weak.  Not to mention flawed.  Unless I am missing something, a change from LIFO to FIFO or some other inventory valuation rules will create a one-time change in income (and thus taxes) when the change is made.  LIFO only creates sustained reductions in taxable income, and thus taxes, if your raw materials prices are consistently rising (it actually increases taxes vs. FIFO if input prices are falling).  Given that oil and gas prices are volatile, its hard to see how this does much except extract a one-time tax payment from oil companies at the changeover.

By the way, I am pretty sure I would be all for ending government spending on "ultra-deepwater and unconventional natural gas and other petroleum research," though ironically this is exactly the kind of basic research the Left loves the government to perform.

I have no particular opinion on Texas tort reform.  Certainly something in that state was very broken in terms of crazy, stupid unfair malpractice jury verdicts, but I am not a big fan of setting damage caps as a solution.

Anyway, as part of the great Leftish dogpile on all things Texas, Kevin Drum argues it failed because ... the total percentage of people in Texas with health insurance did not change.

Huh???  First, only the Left believes that the statistic on percentage of people with health insurance means anything when evaluating the health care system.  Percentage insured is more a proxy for the type of jobs in the state and the number of illegal aliens as it is a measure of anything meaningful about health care access or quality.

But second, the whole point of malpractice reform was to bring down insurance rates for doctors and try to keep doctors from leaving the state.  Further, it was a basic fairness issue of trying to deal with large settlements no reasonable person thought were really the fault of the doctor.  So how about stats on malpractice rates, or doctor retention, or doctor satisfaction, or queue times?  He's got nothing.

Several years ago, I made a bet that California high speed rail would, if built, end up costing over $100 billion.  Incredibly, Kevin Drum is making the same bet.

The disappointing part is that he is quick to say that this project is an outlier, that certainly he still supports other HSR rail projects.  But they all look as bad as the CA project.  The CA project has just gotten more attention and scrutiny because of its size.  If memory serves, Drum was right there supporting the Tampa to Orlando line, which if possible is even dumber than the California line.  In my experience, the difference between a good high speed rail project and a bad one is basically how much one digs into the numbers and challenges the assumptions.  With enough leg work, they all look bad.

I agree with this assessment but did not expect to see it coming from Kevin Drum's keyboard

Contrary to his reputation, Bush mostly succeeded by pressing a moderate, and sometimes even liberal, agenda. Tax cuts aside, which he passed solely primarily with Republican support

He goes on to point out that a lot of Bush's domestic legislation was really liberal (NCLB, Medicare part D).  I agree.

But I think this is related to where Democrats go off track in understanding Tea Party and libertarian spending anger.  Their rejoinder tends to be "much of current spending is Bush's fault."  Leave aside the absurd implicit assumption in this that once a spending level is achieved, no president later has any ability to ratchet it back down.  No, what they really miss is that I think the Tea party would agree.    They are just as angry about Bush's spending and expansion of government, so the "Republicans started it" playground argument does not really get much traction.  The best analog would probably be expansion of Executive power.  Drum is not OK (I am pretty sure) with the notion that the President can have any American he chooses summarily executed in the war on terrorism, and isn't likely to change his mind if reminded that "his guy" Obama invented the power.

Kevin Drum, referencing an article by Christopher Caldwell, says

What is Amazon.com's biggest advantage over its competition? One-click ordering? The ability to go shopping in your pajamas? Its enormous selection? Those all play a role, but Christopher Caldwell thinks the real answer is the fact that Amazon's customers mostly don't have to pay state sales tax...

The latest state to insist that Amazon collect state sales taxes is California. Amazon's response? As in Illinois, they summarily severed the contracts of every one of its affiliates in the Golden State. But that's not all. Like mafia goons going to the mattresses in a gang war, Amazon immediately announced that it would spend millions of dollars to place a referendum on the ballot to nullify the new California law. And in the meantime? Law or no law, they won't be collecting sales tax in California, and that's that.

Amazon customers do have to pay sales taxes, or the substitute in states called a use tax.  So the wording in the post in technically incorrect.  The correct statement is that Amazon does not have to collect the taxes as an agent of the state.

Both Mr. Drum and Mr. Caldwell are likely required by their state to report out of state purchases from online suppliers and pay taxes on these purchases.  Most people don't do it, and I would bet that both Drum and Caldwell do not.  If I am wrong, Mr. Drum is welcome to post a copy of his return.  Otherwise, he and Caldwell are the ones illegally evading taxes, not Amazon.

Clarification: I personally couldn't give a rip about these gentlemen evading taxes the government chooses not to enforce.  Join the ranks of tax protesters, guys!  The point of the post is hypocrisy.

So, should our deficit today be considered a spending problem or a taxation problem?  Kevin Drum argued yesterday it is a tax problem, and used a historic chart of spending as a percent of GDP to make his point.

I have to thank him.  I would have normally been skeptical of such an analysis yielding much that was useful, but I was forced to do the analysis to correct some obvious data errors in Drum's chart.  Having done so, I found the exercise useful and it became the basis for my column this week at Forbes.  The short answer, its a spending problem.  For more, hit the link.

Update:  Make sure to see bottom of post, I have run the numbers from the source and the chart below is proven to be totally BS.

In an effort to paint the current budget deficit as a tax shortfall (ie we don't take enough of others people's money) rather than a spending problem, Kevin Drum offers this chart:

OK, I was going to talk about how they cherry-picked the start date (which is the peak of spending at that time since WWII) and the end date (the left off the ugly 2011).  But I just can't bring myself to talk about anything else except those trendlines.  Not sure what algorithm Drum uses to create the trendlines -- they seem suspicious but surely someone in the science-based, reality-based community would not just draw them on by eye!

It is just incredibly disingenuous (and ballsy) to try to portray 2009 and 2010, which represented the highest numbers since WWII, as a declining trend line falling faster than revenues.

Postscript: Here is the longer view, from here, with projections which I presume come from the Obama budget.  I think if I took 1950 as a start point I would get pretty different trend lines.

Update: Here is the data right from the Federal web site with Excel adding a linear trend.  Sure looks like Drum is wildly exaggerating.  Just as in Drum's chart, red is outlays as a percentage of GDP, blue is collections.

So lets look at the longer trend.  WWII was obviously an anomaly, so we will jump to 1950 to make sure we are well past it.  And we will go through 2012, because those projections are probably pretty good (though optimistic on the spending side).

Here is Drum's chart, with the longer trend and actual mathematically rather than politically calculated trend lines.

Hmmmm.  Revenue or spending problem.  You make the call.

Kevin Drum had a post lamenting that Congress is doing nothing when it could be spending money that would, in his view, stimulate the economy out of a recession.  All well and good, and predictable based on his assumptions.  But he ended with this

We are ruled by charlatans and cowards. Our economy is in the tank, we know what to do about it, and we're just not going to do it. The charlatans prefer instead to stand by and let people suffer because that's politically useful, while the cowards let them get away with it because it's politically risky to fight back. Ugh indeed.

I was horrified by this sort of discourse, and wrote back:

It is so tiring to see both parties ascribing horrible and hostile motivations to their political opponents.  Your last paragraph is just absurd, implying that everyone agrees with your economic prescriptions and that the only reason everyone is not following them is either a) political self-interest or b) loathing for the poor and helpless.

Is it really so hard to understand that well-intentioned, intelligent people who honestly want the economy to get better might disagree with you about the benefits of deficit spending? The literature is at best mixed on this topic and certainly there is nothing about the last stimulus that causes me to become a believer.

Those of us who believe strongly that diverting trillions of dollars of capital from private to public hands (ie from hands focused on productively employing it to hands focused on politically employing it) makes the economy worse by necessity are just as motivated by trying to improve the economy as you.

I really don't understand this absolute insistence on ascribing bad motivations to those with whom one disagrees.  Is it ego, or just insecurity?  If one admits his or her opponents can be smart and well-motivated, it certainly creates an edge of doubt and uncertainty.  Deal with it.  That's healthy.  It keeps us intellectually honest.

Corporate profitability is back up, and output has returned to nearly pre-recession levels.  But employment still has not recovered.  Why?

Well, I am sure there are a lot of reasons, but one potential reason I have pointed out for a while are Federal efforts to increase the cost of employment.  If the true cost of an employee is higher, or even more uncertain, then investments are going to be funneled preferentially into capital rather than labor.  Certainly that is what our company has been doing for a while.  Thus productivity is way up, and employment is low.

I believe that Obamacare is a very important element in raising the cost and uncertainty of hiring new employees, particularly for small and middle-sized businesses that so often drive much of American employment growth.  Certainly in the NFIB, the small business group to which my company belongs, the entire character of our internal discussions has changed.  Three years ago we might have been discussing a mix of 10 or 12 issues we had.  Now all you hear is Obamacare discussion.  [Note - some on the Left like Kevin Drum argue that this concern is irrational.  I seldom take seriously the opinion of people who have never tried to make a payroll about what business people should and should not be concerned about, but it almost does not matter.  Whether it is irrational or not, the concern is a fact.]

Let me share a chart I just saw on Kevin Drum's blog (which he used to make an entirely different point).  Let's look at the recession up to March 2010:

Look at the orange line which is private sector employment growth (the blue bars include government and get squirrelly in 2010 due to temporary census workers).  This looks like a normal (though deep) recession with a nice recovery beginning.

Then, on March 18, 2010, Obamacare passed.  Now lets play the numbers forward.  Again, pay attention to the private job growth in orange - the blue spike in April in May is all temporary census workers

Correlation is not equal to causation, but Obamacare looks to me to be exactly like the National Industrial Recovery Act under FDR, a huge source of regime uncertainty and stab at free markets that killed an incipient recovery.

Here is a portion of Kevin Drum's argument against lowering the minimum wage to stimulate employment

Is this really what we've come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we're willing to throw them under the bus, who aren't we willing to throw under the bus?

Part of the problem is that Drum is absolutely convinced that our intuition (and, oh, 200 years of experience) that demand curves slope downward is flawed in the case of low-skill labor.  He has read the two studies out of a zillion that, contrary to all the others, suggests that minimum wage increases may not affect employment and has convinced himself that these are the last word in the science.    As an employer who has laid people off and made larger and larger investments in automation with each successive minimum wage increase, I will continue to trust my intuition that higher minimum wages makes hiring less desirable.

I will say, though, that there are a number of reasons why a change in the minimum wage may have a smaller overall effect nowadays than one might expect.  That is because the minimum wage vastly understates the cost of taking on an unskilled worker.  Even with a lower minimum wage, these government costs will remain:

• Soon, the employer will have to pay for the employees health care, a very expensive proposition
• Workers comp and other labor taxes add as much as 20% to the cost of labor
• In states like California, bad employees have an increasing number of avenues to prevent employers from firing them, from appeal to an ADA law stretched out of recognition to any number of other legal presumptions that employers have to just live with hiring mistakes

Hiring employees used to be a joyous occasion.  Now I cringe and wonder what kind of liabilities I am taking on.

But back to Drum's statement, how sick is it that allowing people off the dole to actually get a job is called "throwing them under the bus?" Drum, for someone so fired up to make decisions based on academic work, sure is willing to put on blinders to all the academic work that actually characterizes who works for minimum wage and how long they stay on it.  He who argues against making policy based on flawed intuition is operating here entirely from a flawed perception of who minimum wage workers are.  He seems to want to picture families of eight supported for decades by someone trapped in the same minimum wage job, for whom a raise only comes when Congress grants it, but that is simply not the reality.

Just as one metric, for example, the percentage of all wage and salaried workers making minimum wage or less fell from 8.8% in 1980 to 1.7% in 2008.  In fact, the actual absolute number of people making the minimum wage fell by over 2/3 during these years.    I would argue that this number is probably too low.  A dynamic labor market needs to bring people in at the bottom, and raising the minimum wage makes this harder, and so traps people into unemployment.  In fact, the number of unemployed in this country is at least 6 times larger than the number of minimum wage workers.

If we dropped the minimum wage, only a fraction of the 2 million or so who make the minimum wage would see their wages go down, but lets assume a quarter of them would.  We are therefore trying to prop up wages for 500,000 but at the same time creating barriers for 13.9 million people who are unemployed and are looking for work.  And it is low-skilled workers who we are most particularly throwing under the bus by keeping minimum wages high.

I am certain that I have made this mistake myself, but Kevin Drum is careless about using data just because it 1) is labeled in a way he thinks he understands and 2) it supports his pre-conceived notions.

He tries to use the above chart to make the point that Medicare is superior to private insurers because it is more "accurate."  Accuracy in claims seems like a good thing, but I started to wonder how it was defined in this study.

So I spent like 30 whole seconds clicking through to the study.  It turns out the data is based on surveys of doctors.  This chart is explained this way:

Description:  On what percentage of claim lines does the payer's allowed amount equal the physician practice's expected allowed amount?

So really, this chart is not a measure of insurance company accuracy, it is really a measure of doctor accuracy in estimating insurance company claims payment behavior, or perhaps of insurance company claims transparency.  Because Medicare pays fixed, published, below-market rates, and because they are so large, it is not at all surprising doctors are better at predicting what Medicare will pay on a claim.

In other words, doctors disagree with Aetna on claims more frequently than they disagree with Medicare?  Is this bad or good.  I have no idea.

But one could go further and say that another way of heading this chart, rather than "accuracy," would be "willingness of insurer to roll over and pay whatever the doctor asks for."

In the past, Drum and others on the Left have also bragged that Medicare's overhead is lower than private insurers.  These are all related issues.  Private insurers put more scrutiny on claims, which costs more in overhead and causes claims to get paid slower, but presumably results in lower claims payments and less fraud.

Medicare's approach may be net better (ie overhead savings could be larger than claims and fraud savings) or it could be worse, but this chart in isolation tells us nothing.

PS - this is not the first time I have found Drum running health care numbers that do not mean what he thinks they mean.

Kevin Drum seems upset that the US Government does not mandate paid time off for all US workers

The map below shows this starkly: the United States is virtually alone in not mandating any annual time off for employees, right along with such economic luminaries as Burma, Guyana, and Nepal. More charts on American overwork here.

I could take the same map and make this statement: "unlike such freedom-loving luminaries as Iran, Russia, Mali, and Chad, the United States government does not interfere in private decisions about vacation pay policies."

By the way, why is it for statists that the lack of a government mandate for something desirable is considered equivalent to the desirable policy being non-existent?  In fact, Kevin Drum himself says his employer has a good paid leave policy.  Wow, how could such a thing have happened without a government mandate?

Kevin Drum doesn't buy the regime uncertainty argument as a partial explanation of the slow recovery.

Here's what's remarkable: Carter, a law professor at Yale, apparently never once bothered to ask this guy just what regulations he's talking about. Is he concerned with general stuff like the healthcare law? Or something highly specific to his industry? Or what?

Regardless, I've heard this kind of blowhard conversation too often to take it seriously. Sure, it's possible this guy manufactures canisters for nuclear waste or something, and there's a big regulatory change for nuclear waste storage that's been in the works for years and has been causing everyone in the industry heartburn for as long as they can remember. But the simple fact is that regulatory uncertainty is no greater today than it's ever been. Financialuncertainty is high, but the Obama adminstration just hasn't been overhauling regs that affect the cost of new workers any more than usual. The only substantial exception is the new healthcare law, and if you oppose it that's fine. But it was passed over a year ago and its effects are pretty easy to project.

First, the costs of the health care law are NOT easy to project, and are made even harder when your company might or might not get waivers from certain provisions.    Second, he seems to forget cap and trade, first by law and then by executive fiat; the NLRB's new veto power over corporate relocations it exercised with Boeing; the absurdly turbulent tax/regulatory/permitting regime in the energy field, and particularly oil and gas.  How about trillion dollar stimulus projects, that until very recently Obama was still talking about replicating (and Krugman begs for to this day).  I could go on and on.  This is spoke just like a person who never had to run a business.

Further, I wrote this in the comments section:

I think you are both right and wrong.  I am sure the discussion about this is to some extent overblown.  But you are thinking about business and hiring much too narrowly.

You seem to have a mental model of business showing up at the door, and someone turning that business down because they don't want to hire an employee to serve it (or out of sheer petulance because Fox News told them to sit on their hands, lol).  You find it unlikely anyone would refuse the business, and so do I.

But I run a small to medium size business, and a lot of hiring decisions don't work that way.    I do have some situations that fit your model - I have a campground that is really busy this year, so we hired more people to serve the volume.   No problem.

But most of my hiring decisions are effectively investments.  I am going to create a new position, pay money to train that person, and pay their wage for a while in advance of demand.  Or I am going to open a new site or department or location and make a lot of investment, and the return on investment may be very sensitive to small changes in labor or regulatory costs.

For our business, with labor costs over 50% of costs, the issue is definitely labor costs.  Our pre-tax margins are in the 6-7% range.  So if labor costs are 60% of revenues, then a 10% change in labor costs might wipe out the margin entirely, and a much smaller change in costs might flip the investment from making sense to not making sense.

We run a seasonal business with part-time workers who are older and on Medicare.  Regulations about exactly how much we will have to pay under Obamacare have not been written, so we have no idea how much our employment costs will go up in 2014, so we sit and wait.  I have cancelled two planned campground construction projects in the last 6 months because we have no freaking idea if they will make money.

If I am having trouble with just this one law figuring out whether to make investments, what are, say, oil companies doing in evaluating investments when they have absolutely no idea what their taxes will be, whether they will be permitted or not to drill, or whether they will be subject to cap and trade?

One other thought, it strikes me that there is a lot of good scholarship that suggests that the Great Depression was extended by just this kind of regime uncertainty.  Now, of course, the proposed structural changes to the economy being proposed at the time were more radical than anything on the table today.  The National Industrial Recovery Act was essentially an experiment in Mussolini-style economic corporatism, until most of it was struck down by the Supreme Court.   Nothing so radical is being proposed (unless you work in health care).

Look, I know the Left has convinced itself that only consumer demand matters in an economy, but business investment has simply got to matter in a recovery.   If the returns on future investments are harder to predict, and therefore riskier, businesses are going to apply a higher hurdle rate to new investments, meaning they don't stop entirely, but do invest less.

One interesting may to confirm this some day would be to look back and see if larger corporations with political access invested more than smaller ones or ones with less access.  Did GE, who clearly can get whatever it wants right now from the government, invest more than a small company or even than Exxon, which is on the political outs?  If so, this in my mind would confirm the regime uncertainty hypothesis, because it means that the companies doing most of the investing were the ones confident that they could shape the mandates coming out of the government in their favor.

Beyond regime uncertainty, if you want to talk about Obama and the recovery, you have to mention that a trillion dollars was diverted from private hands to public hands.  Does anyone believe that taking a trillion dollars out of whatever investments private actors would have used the money for and diverting most of it to help maintain government payrolls is really the way to increase the strength and productivity of the economy?

I know that this pathetic bit by Kevin Drum was done to death by blogs last week, but I was on the road and still want to get my innings.  For those who have not seen it, Drum said (in a post about Obama and Libyan war):

So what should I think about this? If it had been my call, I wouldn't have gone into Libya. But the reason I voted for Obama in 2008 is because I trust his judgment. And not in any merely abstract way, either: I mean that if he and I were in a room and disagreed about some issue on which I had any doubt at all, I'd literally trust his judgment over my own. I think he's smarter than me, better informed, better able to understand the consequences of his actions, and more farsighted. I voted for him because I trust his judgment, and I still do.

A few thoughts

1. Leaders on the Left have a strongly arrogant belief that they are smarter than ordinary citizens, and so it is their duty to make decisions for individuals because politicians will do a much better job of running people's lives than ordinary folks would themselves.  I have always supposed that for this governing philosophy to be successful, there had to be a deep parallel desire among the rank and file of the Left to be led, to put their own life in the hands of politicians who can be better trusted to make decisions for them.  This bit from Drum seems to be evidence of that desire.
2. I know of absolutely no one, politician or otherwise, whose judgement I would generally trust more than my own.  Seriously, this is just pathetic.  Sure there are folks whose judgement I might trust, based on long experience, over my own on narrow issues (e.g. my wife on restaurant choices or my son on who to draft for my fantasy football team).
3. Drum completely ignores the issue of incentives (as do most folks on the Left).  Even if a politician's judgement were better than mine on a certain issue, could I trust his or her incentives to make the decision based on the same goals I might have?  In the case of Libya, Obama has any number of incentives -- his poll numbers, reelection in 2 years, pressure from members of his own party, his legacy, his image in other countries, finding consensus among his advisors, etc  -- that might affect his decision-making but which I do not share.
4. What in God's name in Obama's pre-Presidential career provided the basis for Drum's staggering trust in his judgement?  Where have we ever, ever seen this judgement exercised in any meaningful way, particularly on an issue with this many chips on the table?  Even since he has been President, where has this judgement been evidenced?   As I have said any number of times in the last two years, having a really, really good speaking voice is not a proxy for intelligence.
5. To the extent that Drum voted for Obama based on his foreign policy judgement, Drum's perception of Obama's judgement had to have been based in large part on campaign statements and speeches Obama has made on foreign policy.  And those statements basically said that what Obama is doing now is illegal.  How can Obama have universally good judgement if he promised to do A in the campaign and is doing not-A today.  Both A and not-A cannot simultaneously constitute good judgement.

Kevin Drum reports this chart on tax progressivity, with the comment that "the US is more or less right on target."

This is wildly deceptive chartsmanship.  Just because there is apparently a trend line here does NOT mean that all of the countries on that line have equal tax progressivity.   That would only be the case if the line were at 45-degrees.  But in fact, the tax share is increasing by 10 percentage points for every 4 points in income share.   This means that, even for countries on the line, the farther right one goes (on the chart, not politically) the more progressive the tax system is, at least vis a vis the top 10%  (Drum is probably right that you would get different results for the top 1%, but I think he is wrong to say that state tax systems are wildly regressive).

Here is the corrected chart.  The further right of the red line, the more progressive, making the US system (again for the top-10% measure) the most progressive of those on the chart.

It is interesting to note that the original chart tells us one thing -- countries with wider income distributions have the most progressive tax systems.  Which is an interesting and not necessarily expected outcome.  Certainly it seems to refute much of the purpose for such systems in the first place.

Update:  I am guess these are the data points on the chart, with analysis at the always terrific Carpe Diem

Apparently the Left is still trying to argue that the stimulus (the process of taking money out of private hands to have it spent by government officials instead) was really a super-fabulous idea and only failed because it was too small.  Here is Kevin Drum:

But another reason [the stimulus failed] is that at the same time the feds were spending more money, state governments were cutting back. The chart below from CBPP tells the story. They have data for all but six states, and on average for 2012, "those 44 states plan to spend 9.4 percent less than their states spent before the recession, adjusted for inflation." That's not just less than last year, it's less than 2008. That wiped out nearly the entire effect of the federal stimulus pacakge [sic].

I have a different take.  A number of states, because they don't own a printing press as does Uncle Sam, actually tried to deal with economic reality and cut their bloated spending, an effort that was largely wiped out by Obama's "stimulus" spending.

Many of my Conservative friends often rail on liberals and liberal politics as being driven by envy.  I find that sort of assignment of motivation to be fairly unhelpful in most debates, though I do understand the case they are making.

In this context, though, I have to say that Kevin Drum gets the Chutzpah award of the week for claiming that Conservative politics are being driven by envy of government workers.  LOL.  I made a response in his comments section that was so obvious I hesitate to even repeat it here, but I will.  He made the point that government did not lay people off because it still had demand for its services

Kevin, you have it backwards because you confuse two terms. Private businesses did not lay people off because people stopped wanting their product, they laid people off because people stopped paying for their product. I am sure everyone still would like a Porche, just no one is paying for them right now. Ditto houses, etc.

Businesses reacted to the reality of less money coming in. They probably had many important things they could have continued doing in R&D or manufacturing streamlining, but the reality was that less money was coming in the door so they reduced their expenses to match.

The public sector issue is not different but identical. Sure, there are still lot of things they would like to be doing, but the fact is that less money is coming in the door. But rather than adjust to that fact, they arrogantly ignored it, running up debt in the taxpayers name so a bunch of deputy assistant principals could keep earning $80,000 a year. That is why folks are angry.

Kevin Drum is one of the few team politics blogs I read from either the Coke or the Pepsi side of the aisle because I think he often makes the leftish case more intelligently than most.  But I have been critical of him all week in his comments section for repeatedly defending public employees unions based on the benefits of private unions.  The two are very different, as pointed out by, well, about everybody who is not specifically beholden to the public employees unions.  Here is just the first one of many I found in my reader.

Kevin Drum wonders whether the proposed $700 million bid by Farmers Insurance for naming rights on a prospective LA NFL stadium makes any economic sense.   It is an interesting question.  I wrote:

This has always struck me as one of those agency problems, where the executive's incentives are different from the shareholders. Executives get a ton of benefits personally from this -- higher profile for the company which improves their profile and marketability, they get a prime box for the games, parties, etc.

Before the audience here slips into a round of corporate executive bashing, my sense is that the same perverse incentives are working for municipal leaders who have a mismatch with taxpayer interests when they shove huge amounts of taxpayer funds to owners in stadium deals (deals which economists speak with one voice on -- they never pay off for the community in full). One of the dirty secrets of these deals is that they generally include a sort of kickback in the form of boxes and club seats for the Mayor and city council's use (and sometimes multiple boxes for leaders of other government agencies in the town).

Well, as usual, the progressives have the rights and roles of private individuals vs. government exactly backwards, from Kevin Drum:

As I said earlier, I'm on the fence a bit about whether an indiscriminate release of thousands of U.S. embassy cables is useful. After all, governments have a legitimate need for confidential diplomacy. But when I read about WikiLeaks' planned financial expose [release of private emails from a private corporation], I felt no such qualms. A huge release of internal documents from a big bank? Bring it on!

The government and public officials acting in a public capacity have no rights to privacy of their work and work products from the public that employs them (except to the extent that privacy pays some sort of large benefit, which I would define pretty narrowly).  While things like the recent Wikileak are certainly damaging to things like sources and foreign relations, I have sympathy for such a mass dump when the government so systematically defaults to too much secrecy and confidentiality for what should be public business, mainly to avoid accountability.  The public has the right to know just about whatever the government is doing, in detail.

In the private sector, ordinary citizens have no similar "right to know" the private business of private entities, the only exception being in criminal investigations where there are clear procedures for how confidential private information may be obtained, used, and protected.  Had the proposed email dump related to alleged misconduct, I would have been pretty relaxed about it.  But the proposed document dump is just voyeurism.  One may wish for more accountability processes vis a vis banks, but in a country supposedly still founded on the rule of law, we don't get to invent new ex post facto rules, such as "if your industry pisses off enough Americans, all the material that was previously legally private is retroactively made part of the public domain."

Drum may be gleeful now, but someday he just might be regretful of establishing a precedent for consequence-free theft and publication of private information.   Had, for example, the words "big bank" in the paragraph been replaced by, say, "Major newspaper," we would likely see Drum in a major-league freak out, though the New York Times corporation has exactly the same legal status as Citicorp.

Everyone thinks his own information is "different" and somehow on a higher plane than other people's information.  Drum likely thinks his communication by email with sources is special, while I would argue release of my confidential internal communication about new service offerings and pricing strategies would be particularly damaging.  The way we typically settle this is to say that private is private, and not legally more or less private based on subjective opinions by third parties about the value of the data.

One aspect of the TSA debate I find hilarious as a libertarian is that we get to see yet another example of partisans switching sides on an issues based on whose team is in the White House.  Since when have Republicans had this deeply held concern about liberty and privacy vs. security against terrorism.  And now leftie Kevin Drum steps up to say that all the extract screening makes sense (to my college roommate Brink Lindsey:  Sorry, but the whole liberaltarian thing is a myth.  When in power, they seem to act just as authoritarian on social and civil rights issues as Conservatives).

Anyway, Drum is certainly not full-bore backing the TSA, but he does write

I hate the TSA screening process. Everyone hates the TSA screening process. You'd be crazy not to. It's intrusive, annoying, and time-wasting. It treats us all like common criminals even though most of us are just ordinary schlubs trying to get on a plane and go somewhere.

But guess what? The fact that you personally are annoyed "” you! an educated white-collar professional! "” doesn't mean that the process is idiotic. I've heard it called "security theater" so many times I'd be rich if I had a nickel for each time it popped up in my browser, but although the anti-TSA rants are often cathartic and amusing, they've never made much sense to me. All the crap that TSA goes through actually seems pretty clearly directed at improving the security of air travel.

The point is not, as implied by Drum, that current TSA screening isn't protection against certain types of threats. Let's be generous and assume that the TSA's screening, generally concocted in a barn-door approach after someone tries a particular approach, is effective at catching the threats it is designed to catch.

The point is that nearly anyone with a room temperature IQ can think of 20 ways to attack an airplane that is not covered by the screening. If there are, say, a hundred imaginable threats, how much privacy do you want to give up to protect yourself from 35 of them?

For example, you know what is in the cargo hold below your seat? The US Mail. You know how much screening is performed on the US Mail? Zero. How hard would it be to wire up a package with a bomb and an altimeter, or perhaps just a noise sensor, and send it off airmail.  They screen the crap out of your bags and body and then throw them on the plane right next to a bunch of anonymous, unscrutinized cargo.  And that is just one example.

Kevin Drum is, by my description (I don't know what he would call himself) a leftish technocrat.  My read on him is that he sees a beneficial role for government via smart people sitting at the top and optimizing systems (e.g. the economy, energy policy, climate, etc).  This is a consistent with a century-old branch of American progressivism, that distrusts chaotic outcomes of individual action and believes top-down optimization is called for.

The problem with this approach (discussed by Hayek and many others) is such top down optimization is impossible for a variety of reasons, from information to incentives.  There is simply a myriad of examples where supposedly smart government officials attempted such technocratic tinkering and only ended up with a mess.  I always supposed folks who argue for more of the same simply mentally ignored these examples.

But here is Kevin Drum lamenting the insanity of ethanol subsidies (for which he should be praised).  Ethanol subsidies are absolutely counter-productive, but have been central to our top down US energy policy for over a decade.

So what I can't understand is how he keeps these two ideas in his head simultaneously -- of this ideal of brilliant actors managing the economy from above and the reality of ethanol policy.  I suppose he could argue, as many technocrats do, that if only his guys were in power, everything would be different.  But his guys are in power, and in fact his guys have been the main drivers and supporters of ethanol subsidies.

I have written a number of times about why even smart guys fail to do smart things when plopped down in the government.