Coyote Blog

Kevin Drum, referencing an article by Christopher Caldwell, says

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Further, I wrote this in the comments section:

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

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

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

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

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

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

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

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

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

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

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

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

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

A few thoughts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Patrick at Popehat observes how a media outlet probably missed the fact that they were hearing sarcasm.  But there is a very good explanation of why sarcasm does not work on the web.  Think of a couple of sarcastic comments, like “Boy that Joe Arpaio is sure a friend of civil rights” or “wow, that Cynthia McKinney is one sharp legislator.”  The problem is that on the web, there are likely any number of people arguing, quite seriously, that Arpaio is the greatest friend the Constitution ever had or that McKinney is a bastion of well-reasoned, sober deliberation.  We are getting to the day that without regularly reading an author on the web, it is virtually impossible to be sure a given remark is sarcasm.  I mean, if I didn’t know where he stood politically, I would have initially pegged Kevin Drum’s assertion that Tip O’Neil cut a deal to have poor people pay the taxes of rich people as some sort of clever joke.

From Kevin Drum

Bob Somerby is following the latest Social Security chatter and hopes that Paul Krugman can explain how the trust fund works in an understandable way:

The trust fund is just an accounting fiction — a pile of worthless IOUs! Generations of voters have been misled by such skillfully-wrought presentations.

….Krugman is our most valuable player by far — our only player at the top of the press corps. Can he disentangle the trust fund scam in a way average people will understand? We don’t know, and it isn’t his job; no player should be expected to carry the ball on every play from scrimmage. Tomorrow, we’ll offer our own ideas at how the “there-is-no-trust-fund nonsense” might best be approached, in a way average people can follow.

Well, hell, I’ll take a crack at it. Here’s the simple version.

In 1983, when we last reformed Social Security, we made an implicit deal between two groups of American taxpayers. Call them Groups A and B. For about 30 years, Group A would pay higher taxes than necessary, thus allowing Group B to reduce their tax rates. Then, for about 30 years after that, Group A would pay lower taxes than necessary and Group B would make up for this with higher tax rates.

This might have been a squirrelly deal to make. But it doesn’t matter. It’s the deal we made. And it’s obviously unfair to change it halfway through.

This is an incredible fantasy.  Absolutely no one thirty years ago (Drum dates the “deal” to 1983) explicitly or even secretly crafted any such deal.  Seriously, is Drum really positing that a Democrat-dominated Congress led by for-god-sakes Tip O’Neil really said “lets have poor people pay some of rich people’s taxes for thirty years?”  Just last night I was reading a quote from Hitler late in WWII that asserted he actually let the British escape from Dunkirk on purpose because he wanted the British to know he had no real quarrel with them.  While it certainly is true Hitler never really wanted a war with Britain, this is just a self-serving rewrite of history.  Drum is doing the same thing.  Its amazing to me that an obviously intelligent person can convince himself of this.

Here is the real, simple explanation of the Social Security trust fund:  Social Security was spinning off huge piles of money and no Congress person of either the Coke or the Pepsi party could resist grabbing it and spending it in a way that would support their reelection.  They ended up spending it all.  Every bit of it, all gone.  The Social Security trust fund is the Enron 401K plan stuffed with Enron stock.

Drum gets to his bizarre theory because he believes the fiscal discipline problem over the last 30 years was all due to tax cuts rather than spending, and that all these tax cuts were for rich people.   Of course, throughout the last 30 years, the share of taxes paid for by the rich have steadily risen, so the claim is absurd on its face, but the false assumptions it is built on are ones that every progressive accept as holy writ.

This paragraph is particularly a howler:

The physical embodiment of this deal is the Social Security trust fund. Group A overpaid and built up a pile of bonds in the trust fund. Those bonds are a promise by Group B to repay the money. That promise is going to start coming due in a few years, and it’s hardly surprising that Group B isn’t as excited about the deal now as it was in 1983. It’s never as much fun paying off a loan as it is to spend the money in the first place.

It would be some exercise to try to define groups A and B in a non-overlapping manner.  The fact is everyone is in group A, as almost everyone overpays into Social Security on a return on capital basis — the retirement income most people get represents generally a negative net ROI on the “premiums” paid.  And it is amazing to me that I have never heard that we now have government bonds that must be paid back only by a specific sub-section of the population.  It may very well have been a progressive assumption that only rich people would be on the hook for every dollar of government debt run up over the last 30 years, but that fact will likely be a surprise to just about everyone else in the country.  Here is his conclusion:

But pay it off they must. The rich have been getting a loan from the middle class for decades…

Delusional.

It appears that for a principled defense of property rights, the exercise of religion in America, and limited government we have to turn to … liberal blogger Kevin Drum

We already know that a large majority of Americans are opposed to building it, but here are the results of an Economist poll on a slightly different question:

Whether or not you think the Islamic cultural centre and mosque should be built near the World Trade Center site, do you think that Muslims have a constitutional right to build a mosque there?

Technically, I think the wording of this question should have been turned around: not whether Muslims have the right to build a mosque on Park Place, but whether the government has the constitutional right to stop them from building a mosque on Park Place.

Still, I think everyone probably understands what this means, and it’s just depressing as hell. It’s one thing to oppose the mosque just because you don’t like the idea, but to deny that Muslims even have a constitutional right to build it? That should be a no-brainer. Of course they do.

Seriously, this is from a man who probably does not think you have the Constitutional right to choose your own doctor. Why are Republicans ceding the high ground on this to Democrats? Well, it turns out that is the theme of my new column this week in Forbes.

…prospective mosque-banners would argue that I simply don’t understand how utterly, deeply offensive the proposed location of this mosque is to them. But that is not the case. I am offended as well by what might be a laudatory memorial to a terrorist incident. But the question for me is, do we have a right not to be offended?

The irony is that for the last decade or so, conservatives have fought the political correctness movement over exactly this issue. Conservative commentators, rightly I think, were up in arms over the “hate speech” trial of Mark Steyn in Canada, and more recently the cancellation of Ann Coulter’s Canadian speaking tour. In both cases Canadian government and university officials argued that Steyn’s and Coulter’s criticisms of radical Islam were too divisive, too defamatory to Muslims, and in general too offensive to be allowed public voice….

This is what truly floors me about the Ground Zero controversy: Republicans all over the country are standing up and begging House Speaker Nancy Pelosi and President Barack Obama to void the property rights of a private entity, shut down the construction of a church, and do so to protect some mythical right not to be offended, a right that, until recently, conservatives argued did not exist. Do Republicans really want to encourage the federal government to tear up property rights and First Amendment protections, all in the name of hurt feelings? If conservatives set this precedent today, they are almost certainly not going to like how it is used tomorrow.

Postscript: I notice something in this poll that I have seen several times lately.  Traditionally, poll results for independents always fell somewhere between Republicans and Democrats.  In this poll, as in several others I have seen, Independent responses actually fell outside of these bounds.  Increasingly independents are shedding the “moderate” label and actually pacing the two political parties.  I find this encouraging, though it is probably too much to hope for that this is the leading indicator of some type of radical ideological restructuring of the Coke and Pepsi parties.

I have no particular problem with this post from Kevin Drum where he would like to see some different polling questions about the Ground Zero mosque (though I do think they reflect some naivite about the founders’ intentions in building the mosque, as telegraphed pretty strongly by its proposed name).  I think the underlying desire to raise awareness about how small changes to poll question wording can make big changes to poll outcomes is a good one.

Here is my problem with all polls like this.  Consider the question

Do you oppose construction of the Ground Zero mosque?

How I answer this is influenced by the unstated intent of the poller or whomever is paying for the poll.  That is, the answer is likely be used as justification for some government action, in this case confiscation of the property rights of the owners of the land by not allowing them to do with the land as they wish.

In this nanny state of micro-fascism, we have a very hard time separating opposition to something from be desirous of government intervention.  For example, I oppose teenagers spending all day watching crappy TV and playing PS3 games rather than reading.  I oppose overcooked steaks.  I oppose people who take forever in buffet lines, selecting one leaf of lettuce at a time.  I oppose airplane bathrooms that smell bad.  I oppose using “incent” as a verb.  I oppose writers who have really long passages without paragraph breaks.  I oppose commenters who constantly harass me about my horrible proof-reading rather than just getting over it and accepting that I suck.

However, in none of these instances would I advocate government action.  Now, of course, I go further than most, in that I also oppose government action in any number of more controversial activities that I also personally oppose but would never ask to be banned, including prostitution, meth use polygamy, driving without a seat belt, and pulling tags off mattresses.   So a better question would be:

Do you oppose government action to block construction of the Ground Zero mosque?

At first I thought Kevin Drum was re-branding “laissez faire” into “economic nihilism.“  But after reading the linked article, which blames deficits 100% on Republican tax-cutting rather than either Democratic or Republican free spending, I suppose he is really equating the policy of opposing tax increases to economic nihilism.    For this to be true, given the definition of nihilism, it means that all meaning, purpose, and everything of intrinsic value flows from the government.  Denying government more money = nihilistic negation of reality.

Megan McArdle writes:

There was a great deal of back-and-forth in the left half of the blogosphere this weekend over employers who use FICO scores as a way of weeding out job candidates.  In a sort of peculiarly American fashion, our nation seems to have decided that one’s credit history is a good proxy for one’s worth as a human being, and thus should be used to determine eligibility for everything from employment to excellent rates on car insurance.

I have no trouble believing that the FICO score is often a proxy for what some researchers call conscientiousness; I’ve certainly had roommates and others around me who had terrible credit because, well, they didn’t bother to pay their bills, and regarded rent as something optional that could be turned in if no more exciting commercial opportunities immediately presented themselves.

That said, it’s going to be at best a weak proxy.  It’s also a proxy for things that, as a society, we may not want employers to consider, like a past history of depression.  And for things that have nothing to do with your job performance, like a car accident that left you with huge medical bills and no job, or a sudden job loss.  Looking at our national savings rate, lots and lots of Americans live very close to the edge of their paychecks; they can’t all be terrible employees.

I have never really even considered asking employees for their FICO score, in part because all small business people hate these scores as, even with perfect credit records, our scores tend to be smaller than people with similar income and history due to the constant credit checks made on us by vendors and other partners.

That being said, as someone who has 500 service employees working for me, I understand the insatiable desire for information on employee reliability and conscientiousness.  A large number of our employees we hire who interview well tend to get released within 60 days of their hire.  I can’t tell you how many people who seem totally normal and friendly turn out to be raving maniacs in stressful customer contact situations.

The elephant in the room that neither McArdle or folks like Kevin Drum mention is that businesses are starved for reliability information on potential employees.  It used to be the best source was to check job references.  Nowadays, though, very few employers will give a honest job reference, or will provide any information at all.  I know I am guilty of that — my company does not allow any manager to give out performance data on past employees.  I only needed to be sued once over somehow interfering with someone’s living by giving honest information about that employee’s reliability to change my behavior.

I understand that this is exactly what the Left is shooting for – an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

The only saving grace in this country is that employment is still mostly at-will, meaning we can fire our hiring mistakes and move on.  Of course the Left wants a European-style system where it is impossible to fire anyone too — this is the system the post office has, and one can see how well it works out.  If they are victorious on this final front, I will be forced into a game of Russian Roulette, where I can’t find out anything about those I hire, I can’t fire the incompetent people I do hire, and I am infinitely legally liable for any mistakes any of these employees make.

Kevin Drum observes that the Post Office is more efficient and effective than we give it credit because … it fully accrues for future pension and medical costs.

Over at Jon Cohn’s place, Alexander Hart explains why the post office is better run than you think. Go read it. I don’t have any big axe to grind in favor of the USPS — in fact, I’m pretty annoyed at how complicated it is to calculate postage these days on supposedly “odd” size envelopes — but the fact is that they’re actually pretty efficient and pretty cost effective. I’d welcome private competition for first class mail, but just go ahead breathe the words “universal service” and see how many private sector companies are still eager to compete with the post office for 46 cents an ounce.

Wow, I have been so unfair to the post office.  I commented:

Great – the post office is really efficient because … it fully accrues for benefits plans that are way beyond anything paid in the private sector, and reliably pays these benefits to huge, bloated work forces.  I am confused Kevin.  I read the article you linked.  What the heck did you find in the linked article that had anything to do with “efficient” or “cost effective.”  Postal rates have grown at something like twice the rate of inflation.  Even industries you demagogue against, like oil, have raised prices less than the post office.

I don’t know much about Alexander Hart, but my suspicion is that this is somehow a broadside in the public-private battle.  If so, then his focus is awfully narrow.  The feds may have accrued for their pension and health benefits, but they sure have not socked away any assets besides government IOU’s to pay for them.  At the end of the day, most private company health and retirement plans are actually backed with real, 3rd party assets.  If you want to talk about pension law, private companies are not allowed to invest but a small percent of pension funds in their own stocks and bonds.  Not so the Feds — the Post Office is running the equivalent of the Enron 401K invested 100% in Enron bonds.

And oh by the way, if we turn our attention to the states or local governments, the situation is entirely reversed.  In fact, many US public entities have ZERO percent funding of health plans and ZERO accrual of future costs, taking retiree benefits entirely out of current cash flow.

Bruce McQuain tells some stories of bureaucratic frustration in the Gulf, as local governors trying to protect their state from the spill fights against a myriad of mindless bureaucracies.

The governor said the problem is there’s still no single person giving a “yes” or “no.” While the Gulf Coast governors have developed plans with the Coast Guard’s command center in the Gulf, things begin to shift when other agencies start weighing in, like the Environmental Protection Agency and the U.S. Fish and Wildlife Service. “It’s like this huge committee down there,” Riley said, “and every decision that we try to implement, any one person on that committee has absolute veto power.”

I would state the problem differently.  In the Federal bureaucracy, seemingly everyone has the power to say “no,” and absolutely no one is willing to risk their career or even a minor bureaucratic sanction to over-rule when someone else in the room says “no.”  I have seen it a hundred times in my business — we will be close to doing something for the public, building a new shower building in a campground for example, and some government employee in the room will say that their sister’s gynecologist’s barber’s housekeeper once overheard a conversation in a bar that some guy who may have visited a university once said he had heard a rumor that there might have been a Native American settlement somewhere within 100 miles of that spot 10,000 years ago — and suddenly the work on the shower has to stop for 6 months while we all run around calling in archeologists and taking this concern seriously.

The problem  in a government discussion, particularly a multi-agency discussion, is that EVERYONE can say “no,” and worse, since their incentives are loaded towards risk avoidance (they get punished for violating procedure, but never punished for missing an opportunity), they have a tendency to say “no” a lot, in fact to say “no” by default.  In the Gulf you have a thousand federal employees from 20 agencies whose entire incentive system, whose entire career, whose every lesson from every bureaucratic battle in a sort of long-term aversion therapy, prompts them to say “no” by reflex.

What is missing is someone who can say “yes,” and make it stick against all the no’s.  That does not have to be Obama — but it probably does have to be someone very senior who knows (and who everyone else knows) is backed to the hilt by the President and has an incentive system where the only measure of success is more or less oil damage, and thus for whom aggrieved bureaucrats (even senior ones) and petty procedure are irrelevant.  It does not appear such a person has been appointed.

Postscript: By the way, I don’t want folks to fall into the trap of thinking that these government folks are necessarily bad people.  I think that is a mistake both conservatives and liberals make — conservatives vilify government employees, while liberals want to believe that government would work right if we just had the right people in it.   I work with a lot of very bright, very good people in government.  The problem is that their incentives and information are awful.  How would you behave if for 20 years your main feedback was to be criticized for violating minor procedures or trying new things?  How would you have any understanding of business if you grew up in the bizarro world of government budgeting and accounting?   This is the problem with government – not that it is full of bad stupid people, but it takes good smart people and incentivizes them do counter-productive things.

Update: Here is a great example, from Kevin Drum, who is a smart guy but can’t do anything but dither in a decision among multiple risks:

It’s pretty hard to take the other side of this argument [ie defending the Coast Guard's decision to hold up the GUlf cleanup barges for minor rules violations]. But I wonder. We are, after all, talking about barges that are sucking up oil, and the last time I checked oil was pretty damn flammable. Everyone wants the cleanup operation to proceed with breakneck speed, but that’s exactly when people get tired and sloppy. And I wonder what everyone would think of the Coast Guard’s ridiculous rules if they waived them and then some boat went up in a huge fireball because a spark caught somewhere and no one had a fire extinguisher handy?

I will say again – I have been in many rooms of bureaucrats, both federal and private, and they all think this way.  These rooms are full of Kevin Drum’s wondering out loud, “I don’t know, what happens if…”  This is such a common phrase in these meetings I wish I had a dollar for every time I heard it.  Then everyone in the room defers to this hypothetical risk.   Bureaucrats are always more worried about sins of commission  (e.g. knowingly allowing a barge to go out without enough fire extinguishers in violation of guidelines) than the sin of omission (e.g. delay will allow the spill to get worse).  Even when the omission is 100% certainty and the danger from the act of commission is vaguely hypothetical.  It takes a leader to say “send the damn barges out now.”