Coyote Blog

This year has been a frustrating year for my business.  As many of you know, I am in the business of privatizing public recreation.  We take over the management of public recreation facilities, and are generally able to run them to the same or better standards as the government for less money.  Whereas before we take over, the government typically loses money on a park, we often can run it at a profit AND pay the government rent for the concession rights.

This year, numerous state parks have been threatened with closure in states all across the country.  In many of these states, I have communicated with everyone I could think of, from the governor to state parks leaders, trying to say that companies like ours could probably keep many of these parks open. I told them I wasn't looking for a sweetheart deal - we weren't afraid to bid against other companies, but it was crazy to close parks that could easily remain open.   We have been told any number of times by numerous state leaders that they would prefer to close the park rather than put it under private concession management.

To some extent, this is due to the pressure of public employees unions, who have every incentive to play brinkmanship and force closure of parks rather than set the precedent of having them managed by a non-union private company.  This is unsurprising.

I also understand that there is a fear of private management of public recreation facilities.  I swear the first think I hear almost every time I present on what we do  is that they fear we would put a billboard or a McDonalds in front of Old Faithful.  I kid you not, this charge is as regular as clockwork.  Fortunately, we manage about 175 public recreation facilities to a pretty high standard, and not one billboard or McDonalds can be found at any of them.  A large part of the bid process for any facility management contract is not just the rate or the rent but also the detailed operating standards to which it will be managed.  So this is a normal, but surmountable hurdle.

But even taking into account these usual sources of resistance, I am always just amazed at how vociferous the opposition is to even experimenting with private management.  States like California are simply hell-bent on closing parks a company like ours could easily keep open for the public (to be fair, Ruth Coleman, head of California State Parks, is very open to new models but she gets absolutely no support either within her organization or in the legislature for such new ideas).

But I think I understand this phenomenon better now after reading Kevin Drum today. This is what Drum wrote in response to the DNC ad, which clearly stretched the truth, claiming that Republicans voted to end Medicare:

Why not just tell the truth: Republicans essentially voted in favor of turning Medicare over to private industry.  With only a few words of explanation, this could easily be more effective than the ad that actually ran.  Like so:

Republicans voted to turn Medicare over to private insurance companies!  You heard right: they want to hand Medicare over to the same companies that [insert two or three insurance company outrages here, maybe a Wall Street reference, something about profits over people, etc.].  Democrats will never do that.  Blah blah blah.

Would that really be any less scary than the ad that actually ran?

So for Drum, and I presume for much of the Left, the suggestion that a government service be managed privately is just as bad as the suggestion that the service be ended. In essence, Drum is saying he would almost rather have no Medicare than Medicare provided privately.

It certainly explains a lot, and puts the phenomenon I see in public recreation into a larger context.

Update: A couple of the comments hpothesize the problem is that many in government and on the left just hate profits and the profit motive in general.  One related story -- I was in a meeting with a large state parks organization where a senior person raised the idea of private park management.  Well, everyone hated the idea, but when it looked as if the leadership might still seriously consider the private option, one person in the room said "well could we at least mandate that they can't make a profit."  There was a lot of head nodding at this.

I didn't go off on this and kept a smile on my face.  But I did lose it in an earlier meeting with the head of some government parks we actually did run.  We were discussing park fee increases for the next year (the state had just raised minimum wages about 30% and we were scrambling to make ends meet).  He said he was uncomfortable with the level of profits we made.  I asked him, "Jim (not his real name) does this state pay you more than $25,000 a year to run this park?"  He nodded.  I said, "then you make more profit in this park than I do, and what is more, you didn't have to invest $100,000 in equipment to get your job, nor do you have to rebid for your job every 5 years, nor does you salary go down if for some reason park visitation decreases."

Sometimes I wish I had stood up in that state meeting and said something similar, as in "Why is the money I make in a park somehow tainted because it is the difference between my revenues and expenses and the result of substantial investments and subject to extraordinary risks, while the virtually guaranteed-for-life salary you make, paid for by the same visitors, is somehow pristine?"

Kevin Drum links to a NY Times article that, mainly through annecdote, seems to be trying to fabricate the "next" consumer crisis, over debit card overdraft fees.  The key chart, containing about all the real non-annecdotal data in the article is below:

I wrote in the comments:

Wow, the NY Times almost fooled me with this chart. Yet again they play games with scale and timeframes to make a point that is not correct. For example, it looks like overdraft fees may have risen faster than transactions, but that is because the overdraft fee revenue chart goes back to 1992 and the transaction chart only goes back to 2000.

If we look at both from 2000, we see overdraft fees on debit cards have gone from $20 billion to $38 billion today, or about a 90% increase. At the same time, dollar amount of purchases on debit cards went from $0.3 trillion to $1.3 trillion (as well as I can read the graph) or an increase of 333%. I understand that there may be a mix shift I am missing - the overdraft numbers include charges for checks as well as NSF fees, but the article does not have the changing mix. This is another topic, but why can't reporters even at the Times include all the numbers you really need to analyze this stuff - don't they try to do these calculations? They have graphs side by side, implying one should compare trends, but they have apples (debit card transaction volume) next to oranges (all overdraft charges, including debit cards but other stuff too) on completely different time scales.

Anyway, by the article's own numbers, the overdraft fee volume has grown 3.5 times slower than transactions, meaning that overdraft fees have dropped from 6.7% to 2.9% of debit card transactions. This shift may be less dramatic if there are mix changes in the fees, but never-the-less, why isn't this good news? The world is never going to make the price of carelessness=0, if for no other reason that the moral hazard would be so large. But the high price on carelessness in this case seems to be reducing the frequency of people being careless (if the price of an overdraft has really gone up as implied anecdotally in the story, then the frequency must be way down -- sure missed that data in the article). We want to raise the price of Co2 to produce less of it - why don't we applaud when we raise the price of carelessness and we get less of it?

Kevin Drum shows this chart as evidence we need government health care like the rest of the "civilized" world:

I write back in the comments:

I wonder if the graph you show is a bug or a feature.  My guess is that you could draw the same chart in the same shape with the US on the far left for consumption of items as diverse as "big screen TVs" and "pro sports tickets."  We would chalk up spending in any other area as simply a result of wealth.  Why not on health care?  Why is it so bad that we spend more money on something like health care which is arguably less frivolous and more critical than TV's or baseball games?

I would understand it if the argument was that we are not getting our money's worth, but that meme is just about dead.  The evidence is pretty clear that though life expectancy in the US is lower than some of these other countries, this is due to issues unrelated to health care (specifically murders and auto accidents).  When the cause of death is limited to things amenable to the health care system, the US ranks #1 in the world in life expectancy.  This is not even to mention the customer experience in accessing the health care system, which for all its irritations, is still ranked the best in the world.  We pay the most, and get the best results, because we can afford the best.

It makes me nervous that you think this is a problem.

PS- I certainly think there are efficiencies that could be wrung out from the health care system if people actually shopped with their own money for their own health care, as they do for every other product and service they buy.  This is proved out in the falling prices for non-insurance covered health procedures, such as laser eye surgery.  But it is a laugh to think the government will wring these savings out.  The government has never, ever, ever made a process more efficient.  All it can do to cut costs is a) institute price controls on suppliers, which eventually lead to shortages and reduced R&D and/or b)  Eliminate services.

Update: OMG, we need government take over of the automotive sector, because we spend more money on cars than any other country, and by the left's logic that is a sign of failure of the status quo.

Kevin Drum says:

The Consumer Product Safety Improvement Act makes it illegal to sell toys that haven't been tested for lead content.  In general, I think that's a perfectly fine idea.

He can't understand, though, why its effects seem so perverse and Draconian when its core is such a "perfectly fine idea."  It is amazing to me that the law of unintended consequences is so hard even for seasoned political observers to grasp.

A sensible restriction might be that a child cannot by any reasonable use of the product ingest more than X concentration of lead.  But of course that is not what the government does.  The government requires that every toy undergo expensive testing and batch tracking (almost like that of an aircraft part).  This is not by any means the same as simply requiring products to limit lead exposure.  It is a one-size-fits-all regulation of process, rather than true safety.  It imposes huge testing and tracking expenses on products that can't possibly have any lead in them.

And, like many laws of this kind, it imposes a huge penalty on small competitors and new entrants and rewards larger toy makers who both have the scale to pay for the testing and the political clout to shape the law in their favor.  In fact, the big winner from the legislation has actually been Matel, the company whose recalls actually led to the law in the first place.

The Consumer Product Safety Improvement Act (CPSIA) requires third-party testing of nearly every object intended for a child's use, and was passed in response to several toy recalls in 2007 for lead and other chemicals. Six of those recalls were on toys made by Mattel, or its subsidiary Fisher Price.

Small toymakers were blindsided by the expensive requirement, which made no exception for small domestic companies working with materials that posed no threat.

"¦

So while most small toymakers had no idea this law was coming down the pike until it was too late, Mattel spent $1 million lobbying for a little provision to be included in the CPSIA permitting companies to test their own toys in "firewalled" labs that have won Consumer Product Safety Commission approval.

The million bucks was well spent, as Mattel gained approval late last week to test its own toys in the sites listed above"”just as the window for delayed enforcement closed.

Instead of winding up hurting, Mattel now has a cost advantage on mandatory testing, and a handy new government-sponsored barrier to entry for its competitors.

Update: Brad Warbiany has similar thoughts.

Congress now understands that the majority of the public has deep concerns about their government health care bill.  So, they are responding by ... finding new and creative legislative approaches to a) avoid public scrutiny of what they are actually putting into the bill and b) reduce the number of votes they need for passage.  Kevin Drum explains the game:

The latest trial balloon from the Democratic leadership is that they might split healthcare reform into two bills.  The first would have all the controversial provisions and would go through the reconciliation process, where it needs only 50 votes.  The second would go through the normal process and therefore need 60 votes, but since it includes the stuff that's widely popular it would pass anyway.

I told you weeks ago they were going to pass this pig no matter what it took.  So now the only real floor vote will be on percieved benefits (more coverage, more spending, consumer mandates) while the costs, taxes, and individual restrictions will get done in the back room, where blue dogs can disavow any responsibility.

If this becomes unstoppable, I think the Republicans should make a high profile effort to move the implementation date up from 2013 to well before the next presidential election.   You can always tell whether legislators know in their hearts if something they are passing is really going to suck for a lot of people.  They push the implementation date back  (despite the fierce moral urgency to hurry up on this, as we are told) to after the next election.

Just as a brief aside, it is sometimes entertaining to be a libertarian without an affiliation to either the Coke or Pepsi party.  It's amazing, from the perspective of standing off to the side on a point of the political spectrum that most civics books don't even acknowledge exists**, how much of political discourse is team-loyalty politics rather than meaningful policy discussion.

The posts that happened to set me off down this path were a pair from Kevin Drum about poor Barney Frank having to meet rowdy protestors and a lament on the frustrations of cloture in the Senate, but I am not particularly singling him or the left out.  In fact, I read Drum because he is less bad on the team politics angle than others.  I force myself to read a couple of political blogs on the left and right to see what they are saying.  A few observations:

• Both teams are absolutely convinced that they are occupying the high ground and it is the other side that is resulting to personal attacks, negative campaigning, astroturfing, whatever.  Seriously, its really hilarious -- I see exactly the same posts written about "our side is losing because we don't resort to the low tactics of the other side" written by bloggers on both sides of the political spectrum on the same day.
• Both teams are absolutely convinced that the media does not give their side the coverage or respect they deserve.
• Both teams are guilty of trying to block dissent through clever rhetorical games without having to actually answer policy critiques.  Team red did it with the Iraq war, saying it was wrong to criticize a President in wartime, a useful concept when it is combined with the theory that the President can declare any time to be wartime.   Team blue takes a different approach, by claiming any opposing argument on subjects like climate or health care are being raised as part of plots funded by nefarious interest groups, and so therefore don't deserve a response.
• Both teams hold up wacky members of the opposing team's fringes and attempt to portray them as representative of the mainstream opposition.  (OK, I may have been guilty of this once or twice myself)
• Both teams can be loud and strident where they are energized and ticked off (this is a good thing).  Both teams have recently compared the opposition president to Hitler.   Both teams have been "obstructionist" as the minority in Congress.  Both teams have dreamed of changing the filibuster rules in the Senate while in the majority.  Both teams have freaked at suggestions the filibuster rules in the Senate would be changed while in the minority.  Both teams have promised bipartisanship when they were in the majority and not delivered on it.  Both teams have members who are corrupt.  Both teams have members who have had affairs.
• Both teams have supposed evil genius schemers in the background (Rahm Emanuel meet Karl Rove).  Both teams have found it convenient to make concerted personal attacks on individual opponents (Sarah Palin meet Bill Clinton).
• Both teams have promised respect for the Constitution in the Executive office and not delivered on it.  Both teams have promised a less interventionist foreign policy and never delivered on it (people forget GWB first campaigned almost as an isolationist against Clinton's Kosovo interventions).  Both teams have Presidents who are addicted to signing statements.  Both teams have really gone after selected Supreme Court nominees.
• Both teams have Congressmen who support ethanol subsidies, which thoughtful people agree are stupid.  Both teams have Congressmen who support farm subsidies, which thoughtful people agree are stupid.  Both teams have Congressmen who support trade interventions (e.g. sugar tariffs) which thoughtful people agree are stupid.  Both teams have actively supported ratcheting up the war on drugs, which some thoughtful people may agree with but I think is stupid.  Both teams have voted in the last 15 years for major government interventions in medicine, education, and limitations on personal freedoms in the name of security.  When team blue was in power, it supported a law that was basically the Patriot Act, but had it voted down due to team red opposition.  When team red was in power, it forcefully pushed through the Patriot Act which it had previously opposed, this time against the opposition of team blue members who had previously supported it.

All this is not to say that libertarians are necessarily better people.  If we had a real team that wasn't a political joke, we'd probably engage in similar behaviors.  Of course, the difference is that we would be trying to lower the stakes of the political game rather than continue to raise them.

** Footnote: I don't know about you, but my civics textbooks in elementary school described a 2-dimensional political spectrum that ran from "fascism" on the political right to "communism" at the extreme of the left.  How does a libertarian even place himself on a spectrum that ranges from totalitarian statism to totalitarian statism?   I haven't seen such textbooks lately, so I don't know if this "heads statism wins, tails freedom loses" approach to the political spectrum still exists.

By the way, I have been reading a book called The Vampire Economy by Gunter Reimann, published in 1939.  It is a description of the economic policy of Nazi Germany, a subject that gets very little coverage because, frankly, later Nazi atrocities are such a magnet for attention.

I challenge anyone to read that book and find any substantial point of differentiatoin between Hitler's economy and a strongly socialist country.  And the section on strong-arming the banking industry for political goals was especially entertaining the context of the last 2 administrations.

Hitler approached his later war with Russia as an ideological war to the finish between polar opposites, but in fact it was really a feud between blood brothers.

Full Quote Referenced in the Title from Zoolander: "The man has only one look, for Christ's sake! Blue Steel? Ferrari? Le Tigra? They're the same face! Doesn't anybody notice this?  I feel like I'm taking crazy pills!"

Sent to me by a bunch of readers, from the Atlantic interview with Thomas Schelling:

I sometimes wish that we could have, over the next five or ten years, a lot of horrid things happening -- you know, like tornadoes in the Midwest and so forth -- that would get people very concerned about climate change. But I don't think that's going to happen.

This reminds me of a post from way back, when Kevin Drum wrote:

Seeking to shape legislation before Congress, three major energy trade
associations have shifted their stances and decided to back mandatory
federal curbs on carbon dioxide and other man-made emissions that could
accelerate climate change.

I responded:

Having some Washington lobbying organizations switch which side of this incredibly difficult trade off they support is not "good news."  Good news is finding out that this trade off may not be as stark as we think it is.  Good news is finding some new technology that reduces emissions and which private citizens are willing to adopt without government coercion (e.g. sheets of solar cells that can be run out of factories like carpet from Dalton, Georgia).  Or, good news is finding out that man's CO2 production has less of an effect on world climate than once thought.  Oddly enough, this latter category of good news, surely the best possible news we could get on the topic, is seldom treated as good news by global warming activists.  In fact, scientists with this message are called Holocaust deniers.

Postscript: It is particularly telling of a certain mindset that Schelling specifically wishes bad things to occur in the Midwest.   By most leftish standards, people in flyover country (except maybe Ohio since it is a key swing state) don't really count.

I have written before about the  demagoguing going on about "health insurance profits" and just how BS those charges are.  Here is Obama yet again:

"There have been reports just over the last couple of days of insurance companies making record profits, right now," Obama said during a prime-time news conference. "At a time when everybody's getting hammered, they're making record profits, and premiums are going up. What's the constraint on that? ... Well, part of the way is to make sure that there's some competition out there."

This follows Pelosi saying:

I'm very pleased that our Chair of our Democratic Congressional Campaign Committee and member of the leadership will be talking too about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years. We all believe in the profit motive; we all want to reward success.  But having that success come at the expense of America's working families "” have that success come by withholding care, when a person becomes ill, is just not right and we're going to take this issue in a new direction.

And pundits saying even crazier stuff, including Kevin Drum (who is actually one of the saner members of the left) writing:

It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.

Rick Perry links to several posts debunking this claim, and shows a profit margin consistent with what I have found in my research -- about 3.3% of revenues, which my posts (linked above) showed has fallen over the last several years.  This profitability level ranks 86th(!) on the list of American industries, behind such rapacious industries as auto parts wholesalers and confectioners (see table in his post).  Look out everyone, if this industry is too profitable for this administration, then just about every industry in the country is too profitable.  Heck, this margin is even worse than mine, and I operate in an industry universally described as having "thin margins."

What do you call a man who thinks a 3.3% profit margin is too high?  How about "Marxist."

Update: My guess is that there is some health insurer who due to a merger grew larger and therefore made a higher profit in absolute dollar terms, so my guess is that Obama is not flat out lying.  But he is freaking close, given that he credits such profits to fee increases and denying services rather than business growth.  Profitability should be judged on margins, not total dollars (even better, it really should be judged on return on equity or return on assets employed, but that is rocket science to the economic monkeys wielding bone tools we have in the media).

The other day, there was an intriguing story in the USA Today that a disproportionate share of stimulus money is flowing to counties that voted for Obama.  In fact, counties that voted Obama are getting twice as much per capita so far as counties that did not.  Matt Yglesias writes:

The insinuation of the piece is that the stimulus bill's funding streams are being artfully manipulated or something to disproportionately direct resources toward Obama-loving constituencies....[But] the secret to the riddle seems to be that areas that benefit from federal spending formulae tend to support the Democrats. Not as a result of short-term fluctuations in voting patterns or federal spending levels, but as a structural element of American politics.

Kevin Drum misses Matt's point, I think, when he responds:

Actually, that's not quite right.  It's weirder than that.  I just got around to reading the piece, and aside from the factual statement in the lead, it doesn't insinuate that the money is being unfairly distributed.  In fact, every single paragraph after the lead quotes people saying that there's nothing dubious going on and the money is just being distributed by formula.  The piece doesn't quote a single person, not even Sarah Palin, suggesting that there's any monkey business going on here.

But this does not refute Matt's point as I understand it, that "tinkering" is not necessary because the formulas themselves have been worked over time to preferentially send money certain places.  I would use the analogy that there are well worn channels where the money preferentially flows.

I must disagree that a story that money tends to flow preferentially (on a ratio as high as 2:1) to Democratic districts should be spiked, as Kevin Drum advocates. I think there is a story in this, though certainly I agree with Kevin it is not the story the author set out to write (one of micro-manipulation by Administration employees).

My sense is that the causality involved would be impossible to discover. Does money flow preferentially to these districts because Democrats are better or more focused on bringing home the taxpayer largess to their districts? Or does our money preferentially flow to these districts based on, say, economic or demographic factors that line up well with Democratic constituencies. Or is it, more likely in my mind, a virtuous circle with both factors involved.

Either way, this is an interesting story and some interesting new data in our endless red state-blue state analyses.

From Kevin Drum today on health care:

But here's the tidbit that caught my eye:

A fascinating series of pilot programs, including for prostate cancer, has shown that when patients have clinical information about treatments, they often choose a less invasive one. Some come to see that the risks and side effects of more invasive care are not worth the small "” or nonexistent "” benefits. "We want the thing that makes us better," says Dr. Peter B. Bach, a pulmonary specialist at Memorial Sloan-Kettering Cancer Center, "not the thing that is niftier."

When I read about healthcare, pretty much the only thing I hear is that everyone wants infinite amounts of it.  And they always want the latest and greatest stuff.

Not me.  My motto is, "That healthcare is best that cares the least."  Or something like that.  Basically, I prefer to get the minimum reasonable amount of healthcare possible, and I have a strong preference for the simplest, oldest, best-known treatments.  I'm not exactly a fanatic about this, but generally speaking I think that most new treatments turn out not to be nearly as effective as we think, and the more time you spend around hospitals the better your chances of catastrophe.

Wow, that's amazing!  Its almost as if we shouldn't have one bureaucracy in Washington making health care decisions for everyone!  In fact, there are several things in here that tend to challenge leftish assumptions:

1. Contrary to leftish assumptions, individuals do seem to be grown up enough to make health care tradeoffs for themselves
2. Individuals seem to want to make different cost-benefit-treatment trade offs from each other, belying the notion there is some universal optimum that bureaucrats in Washington are capable of achieving
3. Allowing individuals to actually shop and make price-benefit decisions in health care might actually reduce costs and improve satisfaction (though absolutely no one in DC seems to be proposing a plan along these lines)

Unfortunately, Drum seems to take none of these lessons from his own post.  Here is the conclusion he draws:

But maybe the difference is just information: I read an awful lot about this stuff, and it's convinced me that there dangers to overtreatment just as there are dangers to undertreatment.  Leonhardt's "fascinating series of pilot programs" suggests that with better information, more people might agree.

Creepily, he seems to conclude from all this that if we can just "educate" the public more, they will be more likely to accept the one-size-fits-all treatment constraints to be implemented by Washington.

PS: I am generally with Drum on doing the absolute minimum for run of the mill health problems I encounter.  If I have a cold, for example, I don't start dosing myself with every over the counter drug I can find.  And our family tries very hard not to use antibiotics unless the condition is really serious.

But my sense is that my attitude will change a lot if the "C" word ever comes into play.  Cancers are much more solveable early than late, and my tendency would be to hit the crap out of it early with  as much of the arsenal as I could.  I don't know what Drum's personal medical history is, but my sense is that it is unwise to extrapolate linearly one's treatment preferences from colds to cancer.

Kevin Drum, echoing Paul Krugman, looks at rising interest rates on Treasuries and decides that there is nothing to see here, move along.   You will all be relieved to know that these rising interest rates have nothing to do with a couple of trillion dollars in new government borrowing, and the effect that this borrowing (and wild money printing) might have on

• Inflation
• Sovereign risk
• Supply and demand for credit

Boy, do I feel better.

PS - And remember, if interest rates do start exceeding historical norms, Krugman will discover that it is Bush's fault.

Kevin Drum posts (sorry, I have to quote the whole post or it won't make sense):

From a Washington Post story about wage cutbacks:

Members and employees of the Virginia Symphony Orchestra are bracing for more hard times. The orchestra has had to contend with a $1.5 billion debt....The musicians were furloughed, and the administrative staff, including Johnson, took a 20 percent pay cut. The two moves saved the VSO about $500,000.

Not bad!  At that rate they should have their debt paid off in another 3,000 years.

I know I'm being sort of prickish for even bringing this up, but seriously: at least one reporter and two editors worked on this piece, and apparently none of them were taken aback by the idea of a regional orchestra being $1.5 billion in debt.  At any rate, not taken aback enough to wonder idly if maybe it was $1.5 million instead.  Sheesh.

I don't know, Kevin.   Your guy Obama proposed to deal with a trillion dollars of deficit by seeking $100 million of savings, and everyone in the press nodded their head and said how wonderful that Obama guy is.  On a percentage basis, a $500,000 cut in a $1.5 billion debt is actually three times more impactful than what Obama proposed.   Is it any wonder the press accepted these numbers without skepticism?  Obama has trained them well.

This post from Kevin Drum didn't start auspiciously, repeating the leftish meme that the tax day protests were all Astroturf events.  But I must admit I had a real double-take on his last paragraph, wherein he points out something about tax polls that most people seem to be missing:

With Tax Day coming up, and astroturf tea parties being organized around the country, a lot of people have been linking to polls showing that most Americans aren't, in fact, actually unhappy with the amount of income tax they have to pay.  Gallup, for example, reports that 61% of Americans think the amount they're paying this year is fair. Or there's this one, also from Gallup, that asks directly whether the amount you're paying is too high or not:

Not bad!  49% think their income taxes are just fine or even a bit low.  Except for one thing: this chart shows exactly the opposite of what it seems.  Consider this: about 40-50% of Americans pay no federal income tax at all¹.  That's zero dollars.  I think we can safely assume that these are the people who think that their taxes are about right.  What this means, then, is that virtually every American who pays any income tax at all thinks they're paying too much. There are various reasons why this might be so (a sense of unfairness regardless of amount paid, a fuzzy sense of how much they're paying in the first place, simple bloody-mindedness, etc.) but overall it's not exactly a testament to our collective willingness to fund the machinery of state.

Outstanding.  Which only leads me to wonder why, if he realizes this, does he believe that people might not spontaneously organize protests, rather than it having to be a Rove-Fox News plot.  I think the answer to that is the Left just can't shake their own perception that protest marches belong to them in the same way the Right feels that AM Radio is their media to rule.  (What, by the way, does that leave for libertarians, other than Rush, Ayn Rand, and Firefly reruns?)

I hate to pick on Kevin Drum twice in a row, but my God is this the worst economic prescription you have read of late:

The only sustainable source of consistent growth is rising median wages. The rich just don't spend enough all by themselves.

The flip side of this, of course, is that rich people are going to have to accept the fact that they don't get all the money anymore. Their incomes will still grow, but no faster than anyone else's.

How do we make this happen, though? I'm not sure. Stronger unions are a part of it. Maybe a higher minimum wage. Stronger immigration controls. More progressive taxation. National healthcare. Education reforms. Maybe it's just a gigantic cultural adjustment. Add your own favorite policy prescription here.

This isn't just a matter of social justice. It's a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama's biggest economic challenge. Until median wages start rising steadily and consistently, we haven't gotten ourselves back on track.

This is so crazy, its is hard to know where to begin.  And since it is after midnight, I will keep it short.  But here are a few thoughts:

• Note the embedded theory here of income and wealth, which is really startling.  For Drum and most of the left, income is this sort of fountain that spews forth on its own out in the desert somewhere.   Rich people are the piggy folks who crowd close to the fountain and take more than their fair share of what is flowing out.  There is absolutely no recognition that possibly wealth is correlated with individual initiative, work, intelligence, and behaviors.  More on zero-sum economic thinking here and here.

• I am sick and tired of the "stagnant median income" meme.  How many times does this have to be debunked?  But the quick version is

1. Median total compensation per individual is not stagnant, it has risen steadily.  The only way to show stagnant incomes is to look only at cash wages, and ignore the shift in compensation value to health care and other non-cash benefits.  Also, folks trying to push this meme typically look at household income rather than individual income, but since household sizes have been shrinking rapidly, it skews the data.
2. Median income numbers are weighed down by strong (legal and illegal) immigration.  New immigrants entering at the bottom bring the median down.  If one were to look at apples and apples, ie the same people without immigrants ten years ago and today, one would see strong median income growth.  Just to drive the point home, if there have been 10 million new immigrants at the poor end of the economy, then one needs to count up the list of incomes 10 million spaces to get the true apples-to-apples median income comparison.
3. Individuals matter, not medians.  Even with a stagnant median income, all individuals can and probably are doing better as incomes improve with age.
4. A lot more here

• I feel like I am living in some weird new incarnation of Brave New World or Midas World where the government sets its highest purpose as promoting ever-higher consumer spending.  The last such goal the government set for itself was increasing home ownership.  And that worked out really well.
• This is back to the 70's time, something I have been predicting for a while.  How is it that educated people can believe that protectionism + strong restrictions on the free movement of people + higher taxes + government tilt of the labor management bargaining power further towards the unions + creation of a massive new government bureaucracy = increased prosperity?  I think of all the crap I catch from leftists that I am somehow anti-science and anti-reason for being a climate skeptic.  But economics is a science too, and willful ignorance of that science is far more destructive than other instances of scientific ignorance to which they point.
• Isn't protectionism + strong unions + comprehensive 3rd party-paid health care + high government regulation exactly the approach the US auto industry has taken.  How's that working out?

What better way to inaugurate the new blog site than to rant about a Kevin Drum post?  Drum posts this chart today from the NY Times showing a drop-off in the effective total tax rate (income+social security+other stuff) at very high income levels.

Well, no freaking duh.    I suspect that this has been true practically forever.  Why?  Because this is NOT an income tax chart, it is a total tax chart.  And as such, it includes social security and medicare taxes (collectively, with a couple of other minor things, called "payroll taxes".  These taxes, about 8% of total income, are a flat tax with a cap around $100,000.  This means that everyone with income under $100,000 pays 8% of all income.  Someone at $5,500,000 (midpoint of the $1 million to $10 million band) pays only 8%  of the first $100,000 or an effective rate of 0.146% of total income on payroll taxes.  For someone in the top 400 taxpayers, the rate is close to zero.   So you really have to add 8 percentage points or so to the higher rates to make them comparable ex-Social Security to rates for earners under $100,000.

Now, we can argue about the regressive structure of Social Security.  But many on the left have opposed making it more progressive.  They want Social Security to perceived as an insurance program, not a welfare/transfer program.   To be insurance rather than welfare, effectively the same income that is used as the basis for benefits must also be the income basis for taxation.  Income over $100,000 is not used to calculate benefits, so it is not taxed.

Here is one person on the left making this point in 2005:

...when his aides presented him with their initial Social Security proposals 70 years ago, FDR balked: "No dole," he said, "mustn't have a dole" "” because he knew instinctively that welfare programs are both fundamentally unpopular as well as corrosive to the human spirit. Conservatives understand this better than liberals, and know perfectly well that the best way to kill something is to convince the public that it's actually a welfare program.

But that's not what Social Security is. It's a modestly progressive social insurance program that's paid for by everyone and that benefits everyone. If it ever stops being that, if it ever stops being universal, it will eventually cease to exist. Don't let anyone fool you into thinking otherwise.

The person who wrote this was ... Kevin Drum.  It is wildly disingenuous to look at income taxes and payroll taxes mixed together.  It is even more so given Drum fully understands why payroll taxes are structured as they are.

Which is all not to say that there is not a really halide point in the article that people in the 100,000-200,000 range are getting hosed.  But I would submit this hosing is more due to work by Drum's intellectual allies than the reverse.  Phase-outs of deductions  occur mostly in this range in the tax code, as does phase-in of the AMT.  Both are leftish creations.

Also, there has clearly been something regressive in the tax code for the top 1% of earners over the last 10+ years.  I am not sure what it is, because it certainly is not in the base rate schedule.  My guess is that they just spend a hell of a lot more on managing their tax bill than you or I do.  I am sure if I spent a million dollars on tax advice, I would cut my bill by 3 percentage points.  Of course, that is a losing proposition for me, but a winning proposition for someone who makes $100 million a year.  But hasn't this always been the case?  And won't it always be the case, at least until we decide to radically simplify the tax code?

I wrote more about Drum's 2005 post here.  I demonstrated how Social Security is promising me a negative rate of return on my money here.  I showed despite Drum's protestations that Social Security is in fact mostly a transfer program here, if one defines a transfer as the difference in the return I get from SS and the return I would get on the private market.

Apparently, there is a debate on the Left as to whether the 0.01% change in the world's atmospheric composition over the past century is sufficient justification for implementing fascist rule in the US.  David Roberts argues yes.  Kevin Drum, to his credit, argues no.

Kevin Drum and I disagree about many things.  I read his blog specifically to find things to refute.  But it turns out we had the exact same two reactions to Quantum of Solace:

Now, I also happen to think Quantum of Solace wasn't a very good movie. The pace was so frenetic "” chase, fight, chase, fight, chase, fight "” that there was hardly any story that seemed worth following, and what story there was just wasn't very interesting. (Cornering the water supply of Bolivia? Seriously? And you thought the later Roger Moore movies were ridiculous?)

My reactions were here and here.

Kevin Drum is off his meds, and is generating a lot of good fodder for me today. I made a couple of small edits in the name of intellectual honesty:

The news keeps getting better and better. The House Democratic caucus just voted 137-122 to replace John Dingell (D"“General Motors) as chair of the Energy and Commerce Committee. The new chair will be Henry Waxman, who cares deeply about [0.01% changes in atmospheric composition] and will be a huge ally in the fight to get serious[ly high fuel and electricity prices] next year. This is change we can believe in.

I am willing to put my disagreement with a lot of the world on whether on not global warming is dangerous into the "reasonable people can disagree" category.  But it just strikes me as outright insanity to try to push forward and pretend that anything that makes a meaningful dent in CO2, and so which has to make a meaningful dent in fuel and electricity consumption, will require either massive shortages or much higher prices.  Even a third-way plan that says we will evade this trade-off with new technologies  (whatever the hell those are) faces the massive dead-weight-loss of having to obsolete perfectly good power generation or transportation infrastructure and replace it wholesale with trillions of dollars of new stuff.  If we found out tomorrow that exposed brick caused global warming, and all of our houses had to be knocked down and rebuilt, would anyone really think we were all richer for that?

The amazing thing to me is that the left has all gotten on the "this will be a net positive for the economy, 5 million jobs, blah blah" message.  This is nuts.  This is the broken windows fallacy on Barry Bonds' entire steroid inventory.  Folks often respond to me, "but we will gain because we will reduce the cost of global warming."  But reasonable, non-loony folks don't really honestly think we are incurring any costs right now from global warming.  There is an argument that they might exist 50 years from now and that they might be high enough to get started on now, but for the next 10 years or more, there is just cost, no benefit.

Kevin Drum is glad the Democrats are ready to body-slam the health insurance companies, and is rooting them on:

It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.

Because everyone knows that most of the costs of healthcare reform can be paid for by ripping the excess profits out of the health insurance business like a liver from a fish.  Just to remind everyone, these are net profit margins reported by Google Finance for 3Q2008 of the largest health care providers and insurers:

Cigna: 3.50%
United Health Group: 4.56%
Aetna: 3.64%
WellCare:  4.08%
Amerigroup: 3.51%
Humana 2.56%
WellPoint: 5.49%

In a post earlier today on the mortgage market meltdown, I wrote:

And that is what the argument usually boils down to - someone smart should have been watching them.  But lots of smart people were watching all the time.  You can see one such person featured in Lewis's article.  Guys run all over Wall Street looking every day for some single digit basis point spread they can make money off of.  But untold wealth was just sitting there for someone who was willing to call bullshit on the whole CDO/CDS pyramid game.  These guys playing this game were searching for people to bet against them.

And despite this, despite untold wealth as an incentive, and companies looking for folks to take the other side of their transactions, only a handful saw the opportunity.  Thousands of people steeped in the industry with near-perfect incentives to identify these issues ... did not.  What, then, were our hopes of having some incremental government bureaucrats do so?  Usually, after this kind of crisis, there are lines of pundits and writers ready to suggest, with perfect hindsight, new regulations to avert the prior crisis.  But, tellingly, I have heard very few suggestions.

So in this context, I found these comments by leftish Kevin Drum, certainly no knee-jerk advocate of free markets, quite interesting:

No argument on the greed and ideology front, but I'm curious: was there really anyone who made the right call on all this at a policy level? There were, of course, plenty of people who recognized the housing bubble for the idiocy that it was (Alan Greenspan notably not one of them), but were there any major voices making specific policy proposals to slow down the bubble? Or rein in the mortgage market? Or regulate the CDO/CDS market in a way that would have prevented some of
the damage? I'm talking specifics here, not just general observations that the FIRE sector was out of control. Arguments about interest rates being too low count, if they were made for the right reason, but I'm interested mainly in more detailed recommendations.

I don't have any big point to make here. I'm genuinely curious. There were many moments in the past few years when perhaps something could have been done, but what? And who was proposing serious measures that would have helped? Any major Dems? Economic pundits? Wall Street mucky mucks? Who were the unsung heroes? Help me out here.

A while back, I criticized a story in the NY Times, as quoted by Kevin Drum, that said that California had among the lowest per capita electricity usage of any state (true) and that this was because of the intelligent regulation regime in the state (yes, but not the way they meant).  The implication of Drum's argument was that there was some sort of efficiency ideal that a smart group of technocrats could reach at limited cost to the state (false). Specifically, Drum argued:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

My response, in part, was this:

Well, here are the eight states in the data set above that the
California CEC shows as having the lowest per capita electricity use:
CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight
states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.
Unbelievable.  No way that could have an effect, huh?  It must be all
those green building codes in CA.  I suspect Drum is sort of right,
just not in the way he means.  Stupid regulation in each state drives
up prices, which in turn provides incentives for lower demand.  It
achieves the goal, I guess, but very inefficiently.  A straight tax
would be much more efficient.

As part of a presentation I am working on about global warming and proposed California CO2 abatement bill AB52, I had the occasion to do a bit more research.  All of my data is from the Energy Information Administration, whose page URLs keep changing and thus breaking my links but this index page to data seems to stay the same.

I found three factors that seem to be the main drivers of state electricity demand (which is measured in all of the charts below in thousands of kw-h per capita).  The first factor is climate, and certainly California has one of the milder climates.  The chart below looks at residential electricity demand vs. cooling degree days (weighted for population location).  Each data point is a state, with California is shown as the red data point:

We get something similar for heating degree days, with electrical use going down as the climate gets milder, though not as good of a fit, which is not surprising since electricity is less important to heating than cooling.  Since California is well below the line, mild climate can be said to explain some of its lead on other states, but not all.

So I looked next at the percentage of electricity demand that goes to industry.  More heavily industrialized states will have a higher total per capita demand, because heavy industry chews up electricity that other types of businesses do not.  It turns out that California has a relatively low industrial use, which is not surprising given the regulatory environment there and the degree to which industry has been chased out of the state (one would have to be a madman to, all things considered, set up a new factory in California).  So here is the same type of chart of total electrical per capita use by state vs. the % industrial demand, again with each data point a state and California in red:

Again there is a pretty strong relationship, and again we see some but not all of California's low per capita consumption explained.  In effect, states on the left have exported their high-electricity-use industries to the states on the right (or to other countries).

I have saved the most obvious relationship for last:  price.  It turns out unsurprisingly that the states with the highest electricity prices have the lowest per capital consumption:

Rolling climate, industrial intensity, and price together, these factors seem to explain at least 80% of California's efficiency lead over other states.  California government regulatory policy does indeed drive lower electrical consumption, just not exactly the way they would like you to think.  By chasing industries out of the state and raising electricity costs above those of almost every other state, California has reached a lower per capita consumption level.

Kevin Drum posts this chart as a one-picture refutation of McCain's statement that we are living in the best of times.

Um, OK.  We all got wealthier.  And the problem is, what?  That someone else got even wealthier than I did?  So what.  Do we really have to keep refuting this zero-sum economics-of-envy argument?

I won't get into the whole zero-sum thing, because the chart itself proves that the world can't be zero-sum, since everyone got richer on average.  But here is a full refutation of zero-sum wealth arguments.  Also, a zero-sum wealth quiz here.

Looking at changes in income brackets is
always misleading. In the US, most folks are migrating up the brackets
as they age and gain experience. So most folks benefit not just from
the increase in their bracket but a migration to the next bracket.

To this last point, the bottom end of the bracket is being flooded
with new immigrants (legal or not) with poor skills and often no
English. They drag down the averages, again understating how well the
typical person is doing.  Lifetime surveys of individuals rather than percentile brackets always demonstrate that individuals gain wealth over time much fast than this type of analysis demonstrates.  And even the new immigrants at the bottom are presumably gaining vs. their previous circumstances, or else why else would they have immigrated in the first place.

Here is an alternate response to whether we are in the best of times.

By the way, here is an interesting article on why using a single inflation rate for the poor and the rich to get real income growth may be incorrect.  There is an argument to be made that the poor have a lower inflation rate than the rich, thanks to Wal-Mart.

Kevin Drum titles a post on providing government incentives for high MPG cars "Ending the Addiction,"  by which I presume he means addiction to gasoline.   I really struggle with the point of view on life that describes consumer affinity for enormously value-producing technologies to be an "addiction."  One could equally well refer to our preference for good health or prosperity to be an "addiction," particularly when fossil fuels have played such a central role in fueling the industrial revolution and the prosperity which it has brought.  With the current jump in oil prices tied so closely to growing wealth in China, never has the tie between fossil fuel use and prosperity been more obvious.

Drum advocates for what he calls a "progressive" proposal:

For cars, the most effective thing would be a "feebate": In the
showroom, less-efficient models would have a corresponding fee, while
the more-efficient ones would get a rebate paid for by the fees. That
way when choosing what model you want you would pay attention to fuel
savings over its whole life, not just the first year or two. It turns
out that the automakers can actually make more money this way because
they will want to get their cars from the fee zone into the rebate zone
by putting in more technology. The technology has a higher profit
margin than the rest of the vehicle.

I will say that this is probably less bad than other "progressive" proposals I have heard, but the logic here is based on consumer ineptness.  Higher gas prices, which drive higher lifecycle costs, are presumably providing exactly this incentive without any government program.  The problem, it seems, is that progressives don't think very much of the common people they wish to defend.  Just as the justification for Social Security is that the average person can't be trusted to make good decisions about their retirement savings so we elites will do it for them, this seems to be the logic here, but even more patronizing.   Here is the best bit which really demonstrates the point I am making:

Here's a further suggestion: require stickers to list the estimated cost of fuel consumption over a five year period.

Basically this calculation is total estimated miles per year divided by mpg times estimated gas prices times five. A simple piece of math with four numbers that can be completed on a calculator in 10 seconds or by hand in less than 30 seconds.  Mr. Drum, a big supporter of our current monopoly government school system, apparently does not think that people educated in this system can do this math for themselves.  Could it be clearer that "progressivism" is really about disdain for the common man and a belief that elites should make even the smallest decisions for them?

Kevin Drum is discussing a book by Larry Bartels that argues the bottom third of the US population (as measured by income) are disenfranchised, as their preferences seem to have no discernible effect on legislative votes.  I have not read the book, but I find this an astounding assertion on its face, particularly given that the US government is nearly entirely paid for by the other 2/3.  We exploiters don't seem to be doing a very good job of taking advantage of our oligarchy.  (By the way, if "oppressed" is defined as having one's preferences have no impact on Congressmen, then add us libertarians into the oppressed).

On the other hand, I would say that if an affluent neighborhood had 50,000 of its citizens per month randomly stopped and frisked in the street, we might see a little more pressure for police and prosecutorial reform.  I just finished Cop in the Hood, in which Peter Moskos spends a good portion of the book discussing these same issues of probable cause and street searches.

Kevin Drum and I seldom agree on business and economics related issues, but we both agree that consumer loyalty programs suck.  Here is Drum on loyalty programs, and here is my extended screed.