Articles by Daniel Rothschild

Daniel Rothschild was born in our nation’s capital but grew up in Houston, allowing him to play the insider and outsider cards as fit any given social situation. His popular writing, articles, and reviews have appeared in the Wall Street Journal, Washington Post, Los Angeles Times, Reason, Slate, the Daily Caller, the Chicago Policy Review, the Michigan Journal of Public Affairs, and Economic Affairs. Oh, and the What Cheer (Iowa) paper, the What Cheer Paper. He has appeared on television and radio in the United States and abroad, if by abroad you mean Canada. Dan earned his bachelors degree in history at Grinnell College, where he was a weekly columnist for the student newspaper, taking various center-to-right positions with various degrees of genuineness. He believes he still holds both the record for the number of letters written to protest a column and the number of angry phone calls from administrators received in a one-week period (for separate columns). Dan earned his MA in modern British history from the University of Manchester and his MPP from the Gerald R. Ford School of Public Policy at the University of Michigan. By day, Dan is the managing director of the State and Local Policy Project at the Mercatus Center at George Mason University, where he coordinates the organization's research on state and local economic policy. Nothing he says here has anything to do with his employer. Dan and his wife Jennie, a children's librarian, live with their dog Sassy in Arlington, Virginia.

Your Point?

South Carolina governor Nikki Haley on signing her state’s new voter ID law:

If you can show a picture to buy Sudafed, if you can show a picture to get on an airplane, you should be able to show a picture…to vote.


How do people miss the point of Atlas Shrugged?

What’s with the Washington Post totally missing the smack-you-in-the-face obvious point of Atlas Shrugged, a novel routinely dismissed by its critics as stilted, didactic, and puerile?

I’m not trying to defend the book from these charges — it is, indeed, all of these things on one level or another. Nor am I defending Objectivism or Rand herself.

But the Post seems intent to allow its writers to pen screeds against the book and its author while missing the underlying point.

Last week, film critic Mark Jenkins gave us a review with this leap of logic:

The bullet-train theme is somewhat ironic. A roaring locomotive is a dynamic image of American industrial power, but even in 1957 — when the book was published — the future of railroading was in Europe and Asia. And the right-of-center types who revere Rand tend to dismiss public funding for high-speed rail.

And then today, Bush speechwriter Michael Gerson gives us this gem:

But Rand’s distinctive mix of expressive egotism, free love and free-market metallurgy does not hold up very well on the screen. The emotional center of the movie is the success of high-speed rail — oddly similar to a proposal in Barack Obama’s last State of the Union address. All of the characters are ideological puppets. Visionary, comely capitalists are assaulted by sniveling government planners, smirking lobbyists, nagging wives, rented scientists and cynical humanitarians.

Setting aside the general inanity of Gerson’s entire column, ably dismissed here by Jesse Walker, the question remains: What do you people not get about the point of this book?

Hint: it’s not about high-speed rail.

It’s about human achievement and a couple of characters making happen something the rest of the world has deemed impossible.

It’s not about the benefits of funding rail transit from the public purse. It is in no way “ironic,” nor is it “oddly similar” to any proposal from any elected official anywhere in the world.

The critics who assail Atlas Shrugged for its over-the-top didacticism, one-dimensional characters, and simplistic philosophy (charges I won’t defend it against) should be sure they understand the underlying point. You know, the one that they criticize Rand for making too obvious.

And it’s not a meditation on the utilitarian benefits of different means of passenger transport.

Is there a BitCoin bubble?

Tim Lee writes about the BitCoin bubble, where he argues that demand for BitCoin represents a bubble that will, like most bubbles, pop.

While I’m still skeptical that BitCoin will ever be a serious currency, I don’t think it’s likely that there’s a bubble, at least not yet. Currently, BitCoins are trading at around $1.15 each on the exchanges that convert BTC and USD. And since there are just under six million BitCoins currently in existence (the number of coins “mined” in BitCoin parlance), that means the BitCoin economy is somewhere in the $7 million range. By 2140, the last BitCoins will be mined and the total number of BitCoins in existence will level out at about 21 million. Based on the current exchange rate, that’s somewhere around a $25 million economy.

I don’t see how this represents a bubble. Given current American macroeconomic policy, you’ll be lucky if you can buy a haircut for $25 million in 2140. And $7 million in 2011 is still pretty insignificant; it’s less than the budget deficit of Las Vegas. If a bubble existed, we’d be talking about the world of BitCoin being valued in the billion or tens of billions of dollars.

Plus, unlike dot-com shares or houses or tulips, the supply of BitCoins is fixed (though I look forward to seeing Tim’s thoughts on this tomorrow). About 30% of the total BitCoins ever to be mined already exist, and we know pretty much what the trajectory looks like over the next 130 years. This is as stable a supply as can exist, which makes it easier for markets to equilibriate. And to the extent a bubble does develop, it will likely be more a reaction of holders of US dollars to the fear of future inflation.

Finally, even if BitCoin remains a tiny, niche currency — so what? The costs of converting USD and BTC are negligible. As long as some sites and people take BitCoins, the currency can thrive. Think of PayPal. Now, certainly, PayPal accounts are denominated in dollars and Euros and sterling and other real-world currency. But I can’t send PayPal money to just anyone. Restaurants and meatspace retailers generally don’t take it. Many if not most people won’t take it. I can’t pay my doctor or my mechanic with PayPal money. But because I can make many transactions with it — and freely convert my PayPal dollars with dollars in my bank account — it’s still useful to me. BitCoins can play the same role with the feature not bug of having no central bank inflating their value and being exchangeable with traditional currencies.

So in short, while I doubt we’ll still know the name BitCoin in a decade, I’m not convinced that there’s any irrational exuberance inflating the value of BitCoins to unsupportable levels.

The rightest guys in the room

Yesterday the New York Times ran a lengthy front-pager asking the question: “Why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?” Long answer: these cases are very complicated and costly to prosecute, and it’s not completely clear exactly what crime was committed, and both major political parties are in bed with Wall Street. Short answer: blame George Bush.

This fits the story into what Will Wilkinson helpfully calls the “progressive master narrative.” In the case of financial service prosecutions, the story runs something like this:

During the Bush administration, regulators were asleep at their jobs, because nobody believed in regulation. The Bush team slashed regulatory enforcement budgets [false] and allowed Wall Street firms to commit egregious criminal fraud because these firms are solid GOP donors [false]. They refused to prosecute obvious crimes or go for long sentences on miscreants [false]. Because the wrong people (i.e., Republicans) were in charge, they allowed these guys to get away with the financial equivalent of murder.

Despite some false premises, blindness to conflicting evidence, and leaps in logic, this isn’t an entirely indefensible worldview. You can argue — and conservatives tend to be as guilty of this as progressives — that having the right people running things matters most, and that the right guys will make the right decisions that lead to the right outcomes. Of course, at most this means that the right thing happens only about 50% of the time, but set that aside for the moment.

Where this train of thought falls apart is when Obama (to progressives, the right guy) is elected and begins to run things. So since progressives now have the right guy in charge, why aren’t the sociopaths and idiots who ran Wall Street into the ground facing charges?

The Times offers one hypothesis: because Bush-era regulators didn’t collect much evidence, it’s hard for the Obama DOJ to build a case. There’s little analysis to back this up. But it still fits nicely into the progressive master narrative. Later in the story, they suggest that the FBI didn’t invest significant enough resources into financial crimes because those resources were needed in other investigations. Again, this fits the progressive master narrative that government is under-resourced.

But my question to progressives is: If the right guys can’t or won’t bring criminal prosecutions after the meltdown of an entire sector of the US economy, despite having wide-ranging rules on the books like the “honest services fraud” law which would allow a decent federal prosecutor to indict a ham sandwich, under what set of circumstances do you think the right guys can identify a crisis (i.e., crime) before it occurs and stop it from occuring?

That the wrong guys didn’t collect evidence isn’t much of an answer. After all, that evidence didn’t exist before the crisis. Evidence is what is built up in the commission of a crime. If you can’t prosecute once all the facts are known, it’s impossible to say you could have seen it coming. You can’t see the future but not the past without an accident involving a contraceptive and a time machine.

A corollary to the master progressive narrative is that, had the right guys been in charge, they would have prevented this meltdown, this series of crimes, from occurring, because good regulators would have seen what was happening and stopped it.

But if prosecutors working for the right guys can’t prosecute a crime after it occurs, by what mechanism could regulators working for the right guys have stopped that crime?

The honest answer here is to admit that the Obama administration isn’t the “right guys.” And then the progressive solution falls apart entirely. Obama is the most progressive president since Johnson, and probably the most progressive president we’ll see for a generation. He’s the paragon of electable progressivism. If this administration isn’t “right” enough, no administration will ever be. And the progressive solution is thus assuming a can opener.

To be sure, by all accounts Angelo Mozilo of Countrywide and a number of the other executives at the helm of this Titanic were bozos who were really bad at their jobs and really good at scamming the system. And they largely reported to boards of directors who seemed to think that they had no real obligation to oversee the companies they were overseeing.

But it’s not obvious that a prosecutable crime occurred. And it’s even less obvious that anyone could have foreseen these crimes occurring before they did.

The challenge to progressives is to articulate a system of regulatory oversight and government regulation more generally that doesn’t depend on the right guys being in office — especially if the right guys as defined by progressives means officials to the left of Obama. And since the right guys seem unable or unwilling to prosecute crimes (statutory, common law, or imagined) after the fact, what makes it likely they would be able or willing to stop them before the fact?

Ye Olde MOdulator-DEModulator Procured News-Paper

On the eve of the New York Times’ second attempt at establishing a paywall, Radley Balko points to a 1981 news report about using your home computer to read the newspaper. I love the fact that, in my lifetime, “Owns Home Computer” was text that one might put on a chyron.


What’s amazing though — acoustic coupler modem, ASCII-only display, and feathered haircuts aside — is that newspapers didn’t really know what they were doing in 1981, just as they don’t really seem to know what they’re doing now. Reports one editor, ”This is an experiment. We’re trying to figure out what it’s going to mean to us as editors and reporters, and what it means to the home user. And we’re not in it to make money, we’re probably not going to lose a lot but we’re not going to make much either.”

Spoiler alert: The clip closes with b-roll of a newspaper street vendor, concluding that he “isn’t worried about being out of a job.” But as the anchor reports, it cost $5 per hour to access the network (above marginal cost, by the way) and took 2 hours to download the paper; this means a price some fifty times higher than the dead-tree edition.

Responding to Tim Lee on Reporting

At his blog, Tim Lee responds to my post from last week about the New York Times paywall, in Canada now and coming to the US next week. (How many things can you say that about?) I owe Tim an apology for not responding to his comments on my post, but I spent a large part of the weekend ensconced in my home office, attempting compliance with the federal tax code.

I’m not trying to blindly defend the existing model of journalism, or at least the model that has predominated for the previous decades. Like Tim, I’m excited to see new modes of journalism come up, and I agree with him that for much industry and niche reporting, the new model is extremely promising.

I’m just a bit more conservative than Tim about proclaiming that old media is dead and that the value provided by old-school journalists relative to bloggers and other new-media types (particularly amateurs) is negligible.

First, let me address the topic of shoe leather reporting. I don’t think of reporting on presidential press conferences as shoe leather reporting; that’s stenography. Tim’s right, very little original information is generated by the marginal reporter in the White House briefing room. But I don’t think that’s the right way to think about what quality reporting is.

What I mean by “shoe leather reporting” is, for instance, Dana Priest’s discovery of CIA black sites, or Sheri Fink’s incredible recreation of the struggle for survival in New Orleans hospitals during Hurricane Katrina. (Fink is a reporter with ProPublica, which Tim rightly cites as going good work. But this article wasn’t published on their web site; it was published in the New York Times, and for a reason.) For that matter, look at the incredible work done by the heroic reporters from the Times-Picayune in the days and weeks following Katrina; there were no bloggers or desk reporters with the capacity or capability to do the kind of quality reporting they did, day in and day out. I’d be happy to see a whole mess of either real journalists at streamlined operations or amateur reporters do this kind of work. But outside of niche publications, I don’t see it.

As an aside, I’m not sure that Tim’s point about sports reporting is exactly correct. The Internet doesn’t lower the costs of the Times reporting on Blue Jays games; ICTs generally do that, and we’ve had the basic tools of remote reporting in place for generations. I’m not sure why, if newspapers didn’t hire stringers to report on pro games in the 1950s and 1960s, the Internet makes that possible today. If the Times sent someone to Detroit in 1955 to report on a Dodgers-Tigers game, he would have phoned his story back into the Times newsroom. So would a stringer based in Detroit. So I think the case that the Internet has reduced the need for traveling reporters is a bit overstated.

Second, I think I’m not as willing as Tim to just write off an old business model simply because something that looks better comes along. Recall that people have been doing that with the legacy airlines for two decades, yet they still fly. The Times is still a valuable brand, and it may be that what it ends up doing in a decade is substantially different than what it does today or what it did ten years ago. I’m interested in observing the evolution of this business (think General Electric) and the news gathering industry. I hope the Times and others are challenged by the sources Tim names, because competition is good, not because I believe in a teleology of newspapers where their death is certain and it’s just a matter of time. The bigger question is whether the newspaper industry embraces modernity or acts completely idiotic like the recording industry. And I see the evidence as leaning towards the former.

Third, and finally, packaging and appearance and form still matter, and for this reason I’m not as willing as Tim to write off the value of non-reporters working for newspapers. Getting the Sunday Times on my Kindle for a buck reduces my search costs for news, and for me it’s worth that price. I’m also in love with the Economist’s iPhone app, which reads the whole magazine to me on the weekend while I’m jogging. Again, that’s worth the price of admission (about $2 per week). If someone else will provide me with a weekly roundup of news from around the world combined with tempered (if cheeky) analysis read in a lovely English accent at a lower price, then please let me know where I can find it.

I don’t think that Tim’s point any my point are mutually exclusive: Tim just has more faith than I do that the legacy news gatherers and sharers are relics of a bygone era and that suitable alternatives have already revealed themselves. Ultimately, it comes down to a question of taste for the consumers of news, and the more vibrant and varied a market we can have, the better we’ll all be.

There Is No Great Stagnation in Debating Stagnation

This morning I attended the debate between Rob Atkinson and Tyler Cowen on Cowen’s much-discussed ebook The Great Stagnation, hosted by the Information Technology and Innovation Foundation.

One of the topics discussed, though not at length, was gains in health care. The Cowenian take on this is that we’ve seen massive increased in health care spending over the previous decades with declining returns; this contrasts with huge gains in life expectancy and quality in the first three-quarters of the twentieth century. We have, as Cowen concisely puts it, picked the low-hanging fruit of medical innovation.

I was reminded of this excellent story from the Washington Post in 2009 on the cost of marginal heart attack interventions over several decades. Were it to run today, it might be linked to as “The Great Stagnation is Real, Cardiac Arrythmia Edition”:

Two decades ago, a famous clinical experiment showed that if a patient in the throes of a heart attack chewed and swallowed an aspirin tablet, the risk of dying fell from 13.2 percent to 10.2 percent.

If progress since then had come so cheap and easy — a 23 percent improvement for an investment of three cents — health care in the United States wouldn’t be in the state it is.

But that’s not how things happened.

Instead, the fight against heart disease has been slow and incremental. It’s also been extremely expensive and wildly successful.

In the 1960s, the chance of dying in the days immediately after a heart attack was 30 to 40 percent. In 1975, it was 27 percent. In 1984, it was 19 percent. In 1994, it was about 10 percent. Today, it’s about 6 percent.

Over the same period, the charges for treating a heart attack marched steadily upward, from about $5,700 in 1977 to $54,400 in 2007 (without adjusting for inflation).

The treatment of coronary heart disease — of which heart attack, or acute myocardial infarction, is the most significant component — this year will cost about $93 billion. It’s a huge contributor to the $2.3 trillion annual bill for medical care in the United States. Cardiovascular disease is responsible for 35 percent of deaths in America and has been the leading cause of death every year since 1900, except 1918, the year of the Spanish flu epidemic.

The evolution of heart attack treatment over the past three decades is a story of doing more things to more people at greater expense with better results. It is a portrait in miniature of medicine in the United States.

Although inappropriate care, high administrative costs, inflated prices and fraud all add to the country’s gigantic medical bill, the biggest driver of the upward curve of health spending has been the discovery of new and better things to do when someone gets sick.

“Money matters in health care as it does in few other industries,” wrote Harvard University health economist David Cutler in 2004. “Where we have spent a lot, we have received a lot in return.”

A great deal of the debate centered around measurement and teasing out the secular trends from statistical aberrations. (Starring in much of this were zero marginal productivity workers, who were not mentioned by name.) In the case of health care, this is really important, and Cowen points out that government and health care expenditures are wrapped into measured GDP at cost, which probably overstates their true effect on wealth creation. (And this goes to a larger point about the weakness of GDP measures in getting to underlying discussions of societal progress, for instance after natural disasters where wealth is destroyed making societies indisputably worse-off, but GDP can be up as a statistical artifact.)

Measurement is an important discussion, but it misses Cowen’s big, underlying points: no matter how measured, the rapid and life-altering innovations that occurred before 1973 simply haven’t been seen since. My grandfather went to medical school before penicillin had been discovered, when kids got polio and pertussis. My generation got smartphones. And to the extent we’re still seeing big, pathbreaking discoveries (which Atkinson argues) in information and communications technologies, the gains from these are not greatly affecting the median American household.

Quick thoughts on the NYT paywall

Quick thoughts on the New York Times paywall that’s generating so much ennui in the Twitterverse:

  • Most of the complaints seem to be motivated by status quo bias. People paid for newspaper subscriptions for decades; then in the last few years we started getting the same deal for free over the Internet. Now we’re being asked to pay again. The last few years are an aberration, kind of a free trial period. The question has always been how to monetize news in the Internet era, not whether to do so. Whether it was distribution costs of paper or otherwise should be irrelevant from the perspective of the consumer. The relevant question is: do I value paying X dollars per month for a subscription? As paperboys were replaced with more efficient forms of delivery (guys in cars), we didn’t expect rates to fall, nor should we have. It’s not a perfectly competitive market. The relevant question is whether you value the Times‘ content by their asking price, not how the Sulzbergers make their bones.
  • There’s no reason to expect newspapers at marginal cost. Indeed, it would be great to make news collection and analysis profitable again. Profit incentives drive investment, competition, and improvement. If the Times (and WSJ and FT and others) can charge for their services and make money, more power to them. The effect may well be to encourage innovation and competition in the news industry. Imagine if America had a dozen world-class daily newspapers and well-compensated professional journalists doing in-depth reporting from across the globe. We’re only likely to get this from vigorous, profit-driven competition.
  • Relatedly, saying “advertising” in response to the previous point strikes me as a bit of hand-waving, like libertarians glibly saying, “oh, the market will fix it!” in response to any and all complaints about anything. If advertising were a silver bullet, presumably someone would have figured out how to really make it work by now. Similarly for micropayments, foundation support, etc. This isn’t to say that subscription-based payments are the be all and end all, but they may work for now. Other forms of financial support may come out in the future. But it’s amazing how conservative people who usually have a deep-seated belief in innovation can become when faced with having to pay the piper.
  • I wish Kindle content was part of the package. I still prefer to Kindle reading experience to other experiences (though I’ve not yet broken down and bought an iPad). But nothing I read on the Kindle has tied my Kindle subscription to online content. Hence my weekly paper delivery of The Economist, which pretty much goes straight into a recycling bin.

Freeze our borders, hostile and incompetent agency!

Yesterday, after an eight hour flight from Amsterdam, I landed in Washington at Dulles airport, where I proceeded to spend an hour in line to clear immigration. The reason was that, despite six international flights arriving within about an hour (according to the arrivals board that I had plenty of time to stare at), Immigrations and Customs Enforcement only had about 9 on-duty officers to process all US citizens and permanent resident.

It’s not like they didn’t have the physical capacity for more officers; about half the lanes were closed. It’s not like they didn’t know these flights were coming; Lufthansa doesn’t just say, “Hey, let’s fly an unscheduled A340 from Frankfurt to Washington this afternoon!” Afternoons are a busy time on the east coast for arrivals from Europe. This happens every day. And Dulles processed just under 3 million arriving international passengers in the last 12 months; it’s not like this is something unusual.

It’s just that ICE didn’t schedule enough people to process all these flights in a timely fashion. Whether this is due to the fact that they are incompetent or just don’t care is immaterial: the experience was terrible for everyone involved.

Which brings me to my point: I have a feeling that there is an inverse correlation between people demanding that the US “secure our borders” (meaning locking down about 7500 land miles, plus tens of thousands of sea miles) and frequency of international travel. People who have experience dealing frequently with the guardians of our sovereign borders realize the incompetence at basic issues like agent scheduling that plague the agency. It’s said that a liberal is a conservative who’s been arrested; perhaps a border realist is someone who’s spent a lot of time queuing to get into his country of residence.

It’s no secret that, even as a native-born American with a blue passport, getting into the US can be a pain in the backside. I’ve waited as long as two hours to clear immigration in the US — though in the many crossings I’ve done into other countries from the Schengen Zone states to China to Ethiopia to Ecuador, I’ve never waited more than perhaps 15 minutes (excepting once when I was detained, for the whole of 20 minutes, by the UK border guards over a visa misunderstanding.)

Moreover, other countries’ immigration agents tend to be courteous and welcoming. ICE agents are hostile and intimidating. Yesterday the agent asked me how much I got paid. (I refused to answer.) Last month an ICE agent in Toronto asked me how I was getting to DC — while he was holding my boarding pass. He also demanded to see my drivers licence to let me in to US territory. Where, may I remind you, I am a citizen. This after a delayed 14 hour flight from Asia that left me 45 minutes to catch my connection. Messing with the minds of citizens just off long-haul international flights seems to be sport.

Expecting ICE to be able to lock down our borders is fatuous. They don’t seem capable of basic things like, you know, scheduling enough agents to process a known quantity of incoming planes. Their routine hostility towards Americans (and I can’t imagine with foreigners must put up with) is annoying, and their horrendous track record on everything from operating detention centers meeting basic standards of decency to actually looking at the photographs on passports, does not suggest an agency that has the willingness or capacity to lock down tens of thousands of miles of border.

I think Americans who routinely cross our border and come back are likely to understand that this is the case. And I suspect those who call for impenetrable borders have spent very little time thinking about the realities of implementing such a policy.

Why taxpayer receipts aren’t a good idea

Everyone is all aflutter over the idea from Third Way that people should get receipts for their federal income and FICA taxes that itemize them by program. It’s a neat gimmick, but at the end of the day, it’s just that: a gimmick. And it’s somewhat surprising to see so many bloggers who are normally skeptical of government gimmicks think that this one is somehow different.

People, of course, already know how much they pay in taxes, though the standard (and plausible) libertarian line is that, because we don’t write annual checks to the Gummint, we don’t really grasp the cost. It’s like the cost of regulation, which is high and real, but we don’t feel the pain of having money sucked out of our bank accounts. But stipulate for the moment that people understand, at least on some level, what they pay in taxes.

The idea of these receipts is to let people find out not just what their they’re putting into the system but what they’re getting out of it. And that’s a great idea — it would be fantastic if people understood exactly what their tax money was going to. But these receipts won’t do this, and here’s why.

  • The receipts will be gamed. The way that you amalgamate or disaggregate programs will have a massive impact on perceptions, and there’s no clear logic for how this should be done. On the Third Way prototype, the Iraq and Afghan wars are clumped together. Why? To make them appear higher. There’s no rhyme or reason, no inherent way, to display costs. If the government put out these receipts, these decisions will be made politically. (Democrats will disaggregate social spending, Republicans will disaggregate military spending.) And if they’re done by third-party groups, expect them to reflect the values of those groups.
  • The receipts list outputs, not outcomes. There’s no sense of what’s achieved here, what the final product is. When I get a restaurant bill, they bill me by the item, not the ingredient. The outcome is I get a hamburger. What is the outcome of health research or the DEA? Taxpayer receipts won’t give any meaningful sense of what social goals are achieved, thus giving taxpayers no sense of the benefits and costs of their tax dollars.
  • The receipts will lead to “earmarked” (and hence non-itemized) revenue streams. When I lived in Iowa, they had signs up in the interstate rest stops telling you that vending machine money went to support programs for the blind. Most states’ lotteries go to education. But money is fungible, and dedicating revenue streams to particular projects is just an accounting gimmick (think: “lockbox”). So if Amtrak wants to get off the tax receipt, all they have to do is lobby to get their funding from, say, the federal gasoline tax. And presto! It’s off the income tax/FICA receipt. Unpopular programs will make this standard operating procedure, so that educating children and feeding puppies will be the only things left on the receipts.
  • The receipts perpetuate budgetary lies. The federal budget and its supporting premises are already chock full of gimmicks, as my friend and colleague Veronique de Rugy has shown. Receipts do nothing to change this. All they do is take one multi-trillion dollar snow job and divide it by your tax bill. If you’re serious about getting accurate data into the hands of voters, start by getting an honest assessment of public long-term liabilities.
  • And finally, and most damningly: What of the fact that about half of American households don’t pay income taxes? What will their receipts show? That everything from incarceration to student aid is a freebie? It seems to me the last thing we should be encouraging is further divorcing the costs and benefits of programs. For half of America, then, receipts won’t give them a better sense of how their taxes are being spent. It will just remind them that they can vote for more spending because they don’t have to pick up the tab.

In the end, all these taxpayer receipts would do is lead to more budget shenanigans and a murkier citizen understanding of how the federal government spends its money and why. Sure, it’s a nifty gimmick. But it’s no more serious a plan for getting a handle on spending than a grammatically and intellectually inchoate call for slightly cutting a small fraction of the federal budget.

Isner and Mahut in a prisoners dilemma

So the longest Wimbledon match in history is currently underway. As I type, Isner and Mahut are tied 56-56 in the last set; they’re tied 2-2 in previous sets.

According to reports (and common sense), the two men are exhausted and grimacing with each serve (though they seem to have rallied when they crossed the 10-game threshold). My guess is that they arms will be completely shot by this for the next few days. As a result, whoever wins this match will be at a severe disadvantage going into the next round, and will probably be so exhausted that he will lose. In other words, assuming winning the tournament is the goal and one that’s much more prized than merely advancing to a second round, it’s a classic prisoners’ dilemma. The dominant strategy by each player is to keep playing, even though every game further diminishes his likelihood of winning the next round, and therefore taking them out of contention for an overall win. In other words, every additional set that Isner and Mahut play decreases their chances of making it to the third round and thus reduces their combined expected utility.

Would there have been a way for them to have reached an optimal solution earlier on? Obviously sportsmanship precludes any kind of (spoken) match fixing, but mightn’t there be a rule change allowing a set to stop before it becomes a death match? For instance, before a match begins, players could agree to opt out of the normal rule and set a limit on the maximum number of sets they’ll play in a final, fifth match before the need to win by two games is eliminated. Setting this rule from the beginning of a match allows the players to circumvent the prisoners dilemma; whoever wins the match is more likely to win the tournament than in the absence of such a rule.

Efficiency concerns are seldom used in sports; we prefer the epic struggles and Pyrrhic battles. But that doesn’t obviate a little sideline thought experimentation.

Thanks, George W Bush, for the BP escrow fiasco

In today’s New York Times, David Sanger analyzes President Obama’s expansive use of the presidency not as a bully pulpit but to act as planner/shareholder/dad-in-chief:

But President Obama’s successful move to force BP to establish a $20 billion compensation fund that the company will have no voice in allocating — just a down payment, the president insisted — may have been the most vivid example of what he recently called his determination to step in and do “what individuals couldn’t do and corporations wouldn’t do.” With that display of raw arm-twisting, Mr. Obama reinvigorated a debate about the renewed reach of government power, or, alternatively, the power of government overreach. It is an argument that has come to define Mr. Obama’s first 18 months in office, and one that Mr. Obama clearly hopes to make a central issue in November’s midterm elections.

The real issue here isn’t — or at least shouldn’t be — the “size and scope” of government, to employ that chestnut. What’s really frightening about the way that Obama sees his role as unconstrained by law or regulation on what he can or cannot do. If the president decides that a private company should establish an escrow fund with the federal government, he doesn’t need a law or regulation to set up how this works. He just needs what Rahm Emanuel calls “a power other presidents have used — you call it jawboning.”

It may make every bit of sense for companies that drill offshore to, in the case of an environmental catastrophe, have an escrow fund managed to pay the victims of their recklessness, carelessness, or bad luck. And as Richard Epstein argued, BP doesn’t deserve to have its liability capped.

But if this is the case, there should be some kind of legal or regulatory means for addressing this. A whim of the president is not, in a country that can meaningfully be said to be governed by the rule of law, sufficient basis for this. And by putting the money in an “escrow fund,” it gives the illusion that there’s some kind of contractual or due process mechanism at play here. There isn’t. Procedure matters in a liberal democracy; getting to the “right result” isn’t enough.

Of course, Obama couldn’t do this if his predecessor hadn’t teed up such a perfect shot for him. So well done, Republicans. Your insistence that the “unitary authority” of the president allowed him to imprison and execute at will has been reapplied from real people to the legal persons that are corporations. Nothing Obama’s doing is inconsistent with the Bush doctrine on presidential power. The target has merely shifted. Heck, it’s really just a continuation of existing Bush administration policy: Hank Paulson did the same thing when forcing banks to take TARP money, though at least TARP could hide behind the fig leaf of congressional action.

Somewhere from his lair on Skullcrusher Mountain, Dick Cheney is smiling. And remember, libertarians told you so.

International soccer and fiscal policy

The list of countries that qualify for the World Cup is always a motley one. There’s Brazil playing against just-got-in and didn’t-register-properly North Korea, which Radley Balko suggested fielded a side with eight Kim Jong-Ils. Over in Group  E there’s defending world champions Italy, we’d-rather-be-playing-rugby New Zealand, Slovakia (motto: “No, sorry, you’re looking for Slovenia; they’re in Group C; no bother, it’s a common mistake”), and Paraguay (notice that every country ending with “guay” qualified for the World Cup).

Qualifying for the World Cup is a big deal and source of national pride (except in the United States). Could this pride be leveraged for macroeconomic ends? I have a modest proposal.

The Stability and Growth Pact limits the ability of Eurozone countries to run excessive deficits and incur excessive debts. Supposedly. As we’re seeing in Greece, it doesn’t seem to be doing a very good job at this. And Greece is far from the only country to openly flout the Pact.

Would World Cup disqualification work any better? That is, what if FIFA or the regional governing bodies (like UEFA) only certified for World Cup participation countries that adhered to some basic rules of fiscal discipline, keeping their deficits in check and debt below some reasonable percentage of GDP?

It wouldn’t be unprecedented. After all, in club soccer, teams are regularly disciplined for financial irregularities with point deductions and even outright relegation. This seems to be a more-or-less effective way of keeping team management on the up-and-up. The same might well hold for nation-states.

Obviously this isn’t foolproof, and surely there will be countries that game the system. But it would at least allow the exclusion of countries like Greece who threaten the financial stability of an entire continent. To mix my sport metaphors, Greece deserves some time in the penalty box. That need not be executed just by diplomatic means.

Since the endogenous costs of reckless fiscal policy don’t seem to effectively dissuade countries from marching into the abyss, perhaps the damage to national pride accompanying disqualification from international soccer’s biggest quadrennial tournament would prove more effective.

Ask not for whom the watch beeps

I’m at a conference in Philadelphia today with about 100 people in an auditorium. Around two in the afternoon, someone’s watch made a “beep beep” sound, and it took me a minute to realize that this was a sound marking the hour and one that I hadn’t heard in years.

Do you remember in the 1980s and 90s when a chorus of digital wristwatches emitted perfunctory peels every hour on the hour? I realized today that this seems to have completely disappeared. Why is this? A few hypotheses, ranging from the blindingly obvious to the more subtle (and therefore less likely correct):

  1. People are less likely to wear watches. This is the most obvious theory. Some estimates show that watch sales have fallen off over the last few years, but not by the order of magnitude that would be required for the virtual elimination of the hourly watch chime. Even if 50 percent fewer watches were sold this decade, and stipulating for the moment that watches are not durable goods, that still doesn’t explain it. Anecdotal evidence suggests that cell phones and iPods have rendered the wristwatch obsolete (at least as a method for telling time), but they haven’t gone the way of the buggy whip yet.
  2. Preferences have changed towards analog wristwatches. This makes some sense; since we have the time in our pocket (plus calculators, contacts, appointments, memos, and all the other snazzy things our watches used to do before PDAs and cell phones), watches perform only two functions: telling the time and signaling status.
  3. People no longer want to be told when the hour strikes. What explains this change in preferences, however? Why would this have changed?
  4. People never wanted hourly chimes to begin with but watches came with them turned on by default. Call this the Sunstein and Thaler theory.
  5. People still want hourly chimes but don’t want to wear watches to get them. This makes little sense since presumably cell phones could be made to chime hourly, or developers would create an app. (Oh wait, they did.)
  6. My sample has changed. I’m in a professional environment now rather than school and college. Since I graduated from college about the time that cell phones became ubiquitous, I have a difficult time disaggregating a number of social trends from this other revolution.

Granted, this is a completely pedestrian observation. But it is remarkable that, at least from my perspective, something as ubiquitous as the hourly watch chime seems to have disappeared overnight, and without much fanfare.

War + Lithium = Democracy. The Aristocrats!

The United States has discovered a trillion-dollar trove of metals in Afghanistan:

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe. An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and Blackberries.

Referring to a country as “the Saudia Arabia of” anything hardly augurs well for its future since Saudi Arabia is, well, a theocratic petrostate whose rulers virtually imprison a group of foreign workers whose numbers total about a third of the kingdom’s population and whose native population is subject to the whims of a fascist religious police that, among other feats, murdered fourteen schoolgirls in 2002, prohibiting them from leaving a burning school building because they were not sufficiently veiled.

Afghanistan is not a country that has always been an anti-modern failed state, but one that was at one time, not so long ago, a relative symbol of progress and liberalism in the Muslim world. So moving to being the Saudia Arabia of central Asia isn’t really a great step forward.

Perhaps Afghanistan can join Nigeria or Venezuela in the list of countries whose natural resources have done so much to initiate prosperity, growth, and opportunity. But “central Asia’s Nigeria” doesn’t really have much of a ring to it.

For the umpteenth time: natural resources are not an unalloyed good that move a country from poverty to prosperity. At the risk of sounding like a broken record, the rule of law and favorable institutions have a lot more to do with it than minerals. Given that the Soviets, then the Taliban, and now the US are presiding over an effectively broken institutional climate in Afghanistan, the discovery of mineral deposits is nothing to cheer about. In many ways, it’s a step backwards. At least for the people of Afghanistan.

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