TwentyFirstCentury

Spender in chief

2007-06-17T15:05:00.000-07:00

Federal government spending during the all-Republican era rose from a four year average of 18.7% during Clinton's last four years, up to 20.2% of GDP for the past four fiscal years. That's an increase of about $180 Billion a year, with nary a single veto by President Bush.

Now, President Bush is warning that he will "veto runaway spending".

Talk about closing the barn door after the horse escaped.

Federal debt is up more than $3 Trillion since Bush took office, and increase of 50%.

Bruce Webb Appreciation Day

2007-04-23T12:46:00.000-07:00

I propose a new national holiday, the day the SSA announces the Social Security trust fund has miraculously extended its depletion date by another year. Bruce Webb appreciation day honors the economist who identified this natural law of trust fund depletion.

In other news, I decided to change my home page from MSNBC.COM to NEWS.YAHOO.COM following last week's killer's press release, sent to NBC and dutifully reported as news. With accomplices like our national media, I fear for my still-young children's longevity.

2007-03-06T08:17:00.000-08:00

The Drunk in Chief strikes again

White House likely to update Iraq war request .

Come on guys, your chain has been pulled for seven years now. Time to get a clue.

A queasy feeling

2007-02-09T10:58:00.000-08:00

I like Richard Branson and Al Gore.

But I'm not convinced that sucking CO2 out of the atmosphere and binding it up for aeons is the way to go. We'd be fiddling with the basic balance of organic material. The planet has served pretty well for a few hundred million years for supporting life, and I'd hate to set a new experiment in motion involving the balance of organic materials in order to offset our choice to burn up most of the stored hydrocarbons on the planet.

I haven't studied the processes proposed or the organic balances, but I sure hope someone does before we embark on any sort of large scale experiment to bind up CO2 using anything other than photosynthesis.

Pay As You Go

2007-01-06T21:07:00.000-08:00

Well, suprise, suprise.

In the US House of Representatives, the GOP does not favor a balanced budget, but Democrats do.

I guess the Pelosi congress has more backbone than I thought they might.

The primary Social Security problem is a general fund problem

2006-11-14T15:35:00.000-08:00

Message to Hoyer: until the Wall Street Journal agrees that the treasury bonds held by the Social Security trust fund are backed by the full faith and credit of the US government, there is no reason to either increase Social Security revenues or cut future Social Security benefits.

Right now, the primary problem is the general fund deficit. A fair amount of this will self-correct when the sunset clauses in legislation drafted by Bush and the GOP expire, and tax deferrals are phased out. But that won't happen for four more years, and might never happen if we increase Social Security surplusses in the short term.

Budget Deficit Fudge

2006-10-11T23:47:00.000-07:00

The WSJ editors predictably rejoice in today's paper over the decline of the federal deficit.

The change? Down from $596 Billion two years ago, to $574 Billion this year. Woo Hoo!

But things aren't quite as rosy as they seem. It appears the Feds have run up $39 Billion more debt in the first 10 days of the new fiscal year. Quite a feat, at this rate, next fiscal year's deficit would reach 1.4 Trillion. It appears at least 32 Billion of the stated deficit was a result of end of year shell games.

The WSJ quotes the deficit at only $248 Billion, but doing so writes off the Social Security trust funds as worthless IOUs. Of course, the WSJ editors really would prefer that the excess taxes collected from workers for the past 25 and the next 13 or so years never would be repaid, and thus they cheer the net change of $557 Billion a year on the balance sheet since the fiscal year ended 9/2000.

Half a trillion bucks a year - that is how much the Bush administration is stealing from future taxpayers, compared with the balanced budget left by the Clinton administration.

Sleazy Republicans

2006-10-05T22:59:00.000-07:00

Now hold on. Blame Democrats because the GOP short circuited the ethics committee, along with most other committees, for the past six years?

There is really no excuse for any more GOP lawmakers. Sweep them all out.

If the Democrats don't win, they should go the way of the Whigs

2006-10-05T20:41:00.000-07:00

That is what a couple conservatives have said, including today's George Will op-ed.

I tend to agree, but it may be that the deck remains sufficiently stacked that even a landslide vote for Democrats doesn't result in a shift in the House or Senate.

Republicans still have whopping big financial advantages, as well as a big advantage in gerrymandering. Few districts are competitive, and I suspect the GOP has better statisticians on its payroll than the Democrats. Then there are the places like Texas, where Tom Delay is history, but the districts he carved out are not.

I don't see a Zogby poll on this subject now, but I recall seeing that less than a third of the population wants a GOP majority in the House, and a strong plurality favors a Democratic majority in the House and Senate. It may be that the GOP can retain power in spite of the will of the people agains them.

If that happens, maybe the Democrats should go the way of the Whigs, but whoever follows them better have a good statistician working for them.

There he goes again.

2006-09-11T20:45:00.000-07:00

The President says:

“America did not ask for this war, and every American wishes it were over,” Bush said. “The war is not over — and it will not be over until either we or the extremists emerge victorious.”

But, Mr. President, you've squandered our precious capital with the diversion in Iraq. Conflating Saddam Hussein's repressive regime with the terrorists that attacked civilization has been a costly mistake for America.

So is the misguided notion that America is in a fight to the death with the terrorists who DID attack civilization, with only one emerging victorious. We should be thankful that the terrorists do NOT have the capability to destroy civilization, but mindful that civilization is capable of destroying itself.

Indeed, patriotic Americans who are aware that the US is a strong nation that should not be distracted and discard its core values have a duty on election day. We've got a Democracy, and it is time to hold the President accountable for squandering the US's precious resources abroad, of human capital, of economic capital, and of diplomatic capital.

Hold On a Minute.

2006-09-08T07:39:00.000-07:00

Charles Krauthammer calls Iraq "A Civil War We Can Still Win".

I think it's safe to say the concensus talking point among conservatives remains that if the US withdraws from Iraq, then there will be a civil war, but right now, the US occupation is the only thing preventing outright civil war. And that is probably about accountability, or at least it sure ought to be.

The principal objections to going to war with Iraq were first that Iraq had nothing to do with the terrorists who bombed the World Trade Center; second, that Iraq probably did not have the capability to develop serious weapons of mass destruction; and third, that it was quite likely that deposing Saddam would lead to a destabilized Iraq ripe for development of terrorist groups opposing the US occupation and a civil war.

If, in fact, four years later, there is a civil war in Iraq, then there should be some accountability for that here at home. Someone should take responsibility. If this was the corporate world, the CEO would resign. In another time, those responsible would fall on their swords, or perhaps flee into exile. In the US governing tradition, we would at least see a sweeping clean of the advisors to the President who pushed the policies that lead us astray.

Lacking anyone accepting accountability, the only reasonable response in a Democracy is to throw out the ruling party.

An Act of Preemptive Global Hygine.

2006-08-22T22:11:00.000-07:00

Good grief. The WSJ is at it again with today's Op-ed about Saddam's "weapons of mass destruction".

The WSJ refers to events in 1987-1988. Back in the day, when the CIA was paying Saddam's bills . Where was the WSJ editorialist's righteousness then, or in 1990?

A vote for change is a vote for Osama.

2006-08-22T13:37:00.000-07:00

I guess it is just election season, and the incumbents are probably just trying to maintain the status quo. But I have to ask.

What's the purpose of a Democracy, if not to allow voters to choose different leadership and ideas when old leadership has been proven wrong?

The Bush Administration's New Stealth Plan to Cut Social Security Benefits

2006-07-25T22:58:00.000-07:00

The Treasury Department has concluded that dynamic scoring of Bush's tax cuts would result in an increase of $90 Billion a year of GDP, in the long run, but only if the tax cuts are eventually paid for by slashing future government spending.

When is "eventually"? The treasury assumes it means "in ten years", or for now, in 2017. That is, if the govt continues to run big deficits between now and 2017, and then cuts spending to the level necessary to make the interest payments on the debt that builds up between now and then, then the economy would be bigger than if we start bringing in enough revenue now to match current spending.

Now, for those uninitiated, 2017 will be the last year when the treasury debt held by the Social Security trust fund does not have to make good on any of the few hundred billion a year of interest that is currently accruing. That is, Social Security still runs a cash surplus each year until 2017. Of course, the administration considers those particular treasury bonds to be worthless IOUs that never need to be repaid.

So, presumably, the adminstration would like to both default on the Social Security trust fund debt, AND cut spending to match the $3 Trillion or so of debt that will be racked up to finance Bush's tax cuts until 2017.

One wonders if any thought was given to the dynamic impact on the economy of throwing a bunch of starving elders onto the streets was given any consideration.

And, isn't it convenient to set things up so politicians ten years from now are supposed to make whopping big cuts in government spending, while partying on during the last few years when the Social Security trust fund runs surplusses?

Below is the conclusion to mull over. And remember, the static assumption of this budget exercise is that government spending would be cut from the BASELINE in 2017. That doesn't account for the known future liability of financing the baby boomer bulge through Social Security.

If, instead, the tax relief is extended only through the 14 end of the budget window (i.e., it is temporary), the tax relief would increase national output in the short run, but long-run output would decline as future tax rates increase.

That is to say, the freaking idiots running our country don't care if they steer the Titanic into an iceberg field.

Two numbers it would be nice to know.

2006-07-24T09:02:00.000-07:00

How much of the "surge of revenue" claimed by the Bush administration is coming from AMT? How much from rising interest payments?

Freaking idiots.

2006-07-13T17:32:00.000-07:00

Oil, $76 a barrel. North Korea has nuclear weapons. Iran will soon have them.

A couple weeks ago, the GOP started an offensive, just after al-Zarqawi was killed, seeking to justify the US's invasion of Iraq and use it as a means of restoring both George Bush's falling approval rating and the GOP's electoral hopes for the fall. George Will lionized al-Zarqawi as a genius who single-handedly turned Iraq from a hotbed of democracy to a breeding ground for al-Qaeda operatives.

Last headline I read in Iraq was about bombings killing several dozen in Bagdad.

Why do we have to be ruled by such stubborn idiots?

NSA Phone Call Database

2006-05-12T10:41:00.000-07:00

I think I'm beginning to agree; George Bush is no conservative. At least not in the post 1984 sense.

What limited government advocate could approve of a national database recording every phone call made in the country?

I think George Bush, Jr. grew up on the inside. His dad was CIA director. He got to kick around Ronald Reagan's White House. He learned along the way that access to money and power could bring you a lot of rewards. He picked up on the language of the Reagan revolution; but he internalized a sense of entitlement to the use of power and money.

I guess I should be happy to see the principles of modern conservatism being shredded by the guy in charge of the movement. But maybe there are some things more important than just politics.

Rebate Scams.

2006-05-10T11:41:00.000-07:00

Hewlett Packard just informed me that the computer I bought from Best Buy, including a rebate form printed for me at the checkout counter, does not qualify for the advertised rebate because the purchase date was outside of the rebate period.

This seems to be par for the course with rebates; but what I wonder is why there haven't been a series of class action lawsuits, and congressional hearings.

Intel gets Back on Track

2006-05-08T10:07:00.000-07:00

Last summer, I observed that computers consume a whole lot of power, and in particular that desktop computers burn through electricity like it is free, while laptops are much more efficient.

At the heart of this divergence is a decision Intel made about 15 years ago, to try to maintain its lead in microprocessors primarily by accelerating clock speed. Power consumption goes up something like the square of clock speed; so Intel's processor decision locked in a 15 year trend towards increasing power consumption on desktop PC's.

But along the line, Intel split its product line. They delegated an older architecture determined to have limited potential for increasing clock speed to mobile processors, the line that is currently dubbed the Pentium M series. In this line of chips, Intel put power consumption as its highest priority (while trying to improve performace as well), and lo and behold, after a few iterations, Intel figured out how to get similar performace out of these lowly slow-clock chips as they can get from their souped-up hyper-clocked, consume power like it is going out of style chips.

For the past few years, AMD has been catching up with Intel on performance - some say exceeding Intel's performance - using somewhat slower clocked chips. Intel, meanwhile, hit a wall on clock speed, because consuming more power (square of the performance gain) creates a lot of heat, and you have to get more and more sophisticated about how you get that heat away from the processor (and into your air-conditioned building).

The press attributes Intel's lackadasical performance not to this abandon efficiency if it gives a boost to clock speed decision in the CPU wars, but rather to a maturing company in need of restructuring. But the real restructuring Intel needed was to recognize that they went down the wrong path in the clock speed wars.

And today, Intel's new procuct line announces a new line of more efficient dual-core processors that increase performace per kilowatt consumed.

I suspect Intel's recovery is under way.

The Unprofessional President

2006-05-06T07:46:00.000-07:00

What's wrong when the President bends rules to suit his political agenda, and then seeks to tightly enforce similar rules to prevent opponents from exposing unpleasant issues for the administration?

I think it's a stark contrast from the professional ethic that brought the US world respect during the middle of the 20th century. After World War II, the US was respected around the world for its professional conduct. That conduct, in turn, was rooted in respect for the institutions and the individuals working for the institutions of America's civil, foreign, and military services.

When a President undermines the rules that guide professional respect, both at home and abroad, that corrodes America's position in the world.

The Bush administration came in to office with a promise to manage the government like the executives managed private sector companies. But this sort of unprofessional management wouldn't survive long in the private sector.

A positive development in Iran

2006-04-21T07:12:00.000-07:00

Iran's President hails the rise in oil prices as "very good".

This could play right into our President's strength of stubborn opposition. If the bad guy thinks high oil prices are good, then our fearless leader will surely do everything in his power - including maybe even avoiding a war and shifting the subject elsewhere to take the edge off of the tension - to take pressure off of oil prices!

Wagging the dog.

2006-03-16T07:49:00.000-08:00

The President, keenly aware both that things have not gone nearly as well as anticipated in Iraq, and that approval of his Presidency has plumetted to a level approach the lows of Richard Nixon's Presidency, all in an election year when his party appears vunerable, seems to want to go back to the only playbook his administration feels competant at playing.

We've got the President restating his doctrine of Preemptive War, Josh Bolton comparing Iran with 911, and Iran apparently willing to defy the President's ultimatums based on the facts on the ground.

Boss cousin probably doesn't know any way other than this. Hopefully, that won't put the US in a hole for the next 50 years.

If I were King.

2006-02-27T18:59:00.000-08:00

I'd want routing information for things going in and out of ports to require a security clearance, and only be available in bits and pieces on a need to know basis.

It seems that the Bush administration has identified its priorities; money first, security second. I'd offer the way to do that, if they really want or need Dubai's capital, is to allow foreign ownership, but not allow the routing information to be seen except by US citizens with a security clearance.

I guess I'm dabbling in a field I know nothing about. But I'd really not be suprised if noone in a position of power who cares as much about security as they care about closing the deal for capital in the Bush administration who reviewed this deal knows as much as I.

A fine mess.

2006-01-26T10:11:00.000-08:00

I've just been a casual observer of the Palestinian elections, but I have to say, the things that have stuck out from the few news reports I've browsed have been the spectacle-scandal of US funding to try to inflewence the election, and our President's belicose bungling of public relations both in the Middle East in general, and in recent weeks, in the way he tried to meddle in the election and posture for US consumption.

Score: Democracy 1, Inflewence Peddling negative one.

No, Mr. Rove.

2006-01-22T20:48:00.000-08:00

Karl Rove wants to frame the President's illegal domestic warrantless searches as a matter of critical national security.

This isn't an either, or issue, Mr. Rove. We don't have to sacrifice freedom for security.

The President can legally tap phone calls from suspected foreign agents by using the FISA court. FISA court even provides for retroactive requests for a warrant, if the President was concerned about expedience.

There was no NEED for the President to break the law to protect the national security, because there was a legal way to protect national security.

US industrial policy for cars and oil.

2006-01-11T07:04:00.000-08:00

The US has protected the marketplace for US-built automobiles by tipping the scales to favor low efficiency vehicles and low efficiency driving patterns. This has been a voluntary policy, relying on the US consumer's choices, but the end result has been the same: the US has the lowest efficiency fleet of automobiles anywhere in the world.

Does fleet efficiency matter? I think it will increasingly matter in a world where developing economies, particularly in China, India, and the rest of Asia, consume a growing portion of world oil output. Potential demand will continue to rise at a faster rate than potential supply as long as fossil fuels are the primary fuel for transportation. Thus, real prices for fuel will continue to rise; and eventually, this has to work to the competitive disadvantage of low-efficiency nations, which will have a higher cost structure built in to a core component of the economy.

How has US policy encouraged low efficiency vehicles and driving patterns? Without comment, here are a couple ways.

- National fuel efficiency standards are different for "trucks" than for "cars". This policy seems innocent enough, since trucks traditionally have been work vehicles intended for carrying heavy loads, but in practice, the US auto industry has shifted its production to build vehicles that are classified as "trucks" but which appeal to general consumers. In effect, this has been an industrial policy that helped US-based manufacturers temporarily ward off foreign competition. OK, In practice, this reliance on protecting the traditional US car market has left US manufacturers poorly positioned in new technologies, such as hybrids, and only slowed the downfall of the US auto industry rather than positioning the industry for future global growth

- Middle East policy and tax policies oriented towards cheap and plentiful oil rather than towards efficient use of oil.

The auto companies are teetering on the edge of insolvency, with the primary blame put on failed pension planning and resulting "unfunded liabilities", and the suggested remedy of cutting benefits, this leveraged by negotiations in which current employees are pitted against current or near-retirees. It's really too bad unions didn't require that fiduciary responsibility for following through on pension obligations were separated from the companies way back when, rather than letting the companies remain responsibile for coughing up deferred compensation half a century after incurring the obligation; if this had been done, companies could never have gotten away with raiding pension surplusses in the good years, and they wouldn't be in a position now to force negotiations about cutting benefits promised decades ago.

But that's all a divergence from the point of this post. The point is, the US has been engaged in a defacto industrial policy that has given a wobbly crutch to US auto manufacturers that has given a modest assist for the past 25 years, but which has left the US manufacturers poorly positioned for global competitiveness, and which has left the US with a low-efficiency transportation installed base .. including both low efficiency cars, as well as poorly conceived housing infrastructure based on the idea of cheap energy. This low efficiency is likely to become a bigger and bigger problem for international competitiveness, as well as likely becoming a political problem as competition heats up for fossil fuel supplies.

Maybe when and if the US auto industry comes to congress seeking a bailout, it's time to get the industry and the nation better positioned for the future, by abandoning the existing de-facto industrial policies that support low efficiency vehicles?

People unclear on the concept

2005-11-11T19:38:00.000-08:00

of science.

Headline for today is "Pope Weighs in on creation controversy" . The article quotes the pope:

“How many of these people are there today? These people, ‘fooled by atheism,’ believe and try to demonstrate that it’s scientific to think that everything is free of direction and order,” Benedict said.

And follow that up with:

His comments were immediately hailed by advocates of intelligent design, who hold that the universe is so complex it must have been created by a higher power.

Now, I think it is fine for the Pope to weigh in on The Creation, though probably a bit of a miscalculation or misunderstanding for the pope to mix atheism and science. And it's an outright blunder for anyone who wants Intelligent Design theory to be considered as an alternative scientific theory to Darwin's evolution theory. Science, and scientific theory, aren't based on faith - they are based on observation and experimental investigation.

We've now got experimental data that "advocates of intelligent design" - at least some of them - are approaching their theory as a way to validate their faith - not as a way to scientifically explain the origin of species.

It seems to me a shame that these folks can't let go of a literal interpretation of the Creation story and accept the idea of some greater intelligence as a leap of faith rather than as a trump card in a war with science. Lots of scientists are comfortable making a leap of faith and separating their scientific work from their spiritual relationship with the world; but most of those same scientists don't believe that intelligent design theory is based on science, rather than on faith.

An alternative religious thread was reported on last month that I thought offered promise to theologians who believe that faith and science are separate domains. Schoenborn appears able to accept science as science, at least as long as science doesn't try to disprove The Creator. But the pope's line of thought appears to be that the church would like to have The Creator literally acknowledged by scientific theory, and historically, that has proven to be a dangerous position for the church to take.

Bush's tax panel: Eighty-Seven Percent

2005-10-11T20:19:00.000-07:00

Bush's tax panel has apparently concluded that a national sales tax would have to be applied at an 87% rate in order to replace the income tax, if essentials such as food and health care are not taxed.

Pity the poor Fair Tax folks who thought candidate Bush was speaking to them when he promised to radically reform the tax code.

Recall election.

2005-09-28T09:47:00.000-07:00

There's no such thing as a national recall election, so we can be spared of the California spectacle going nationwide.

However, it certainly seems that the President has bungled his job enough to merit a national recall campaign, and the time-honored way to conduct a national recall election is to make the mid-term congressional election into a referendum on the President's job performance.

Next year looks like it could shape up as a perfect storm for Republican incumbents. The Majority Whip has just been indicted. The Senate Majority Leader is under investigation for insider trading. The White House is mired in the Plame case on the legal front, and has bungling of Federal Emergency Management and Social Security to answer for on the policy front, not to mention the quagmire in Iraq. It really is a year when the bums ought to be thrown out.

A couple numbers that would be worth knowing.

2005-09-10T20:58:00.000-07:00

How much would it have cost to build New Orlean's levies up to category 5 storm level?

How much is it costing to evacuate and revive New Orleans?

Another number worth knowing. What's the cost of sacking a FEMA head assigned as a patronage figurehead a week after a major disaster?

IOU

2005-08-18T10:46:00.000-07:00

Alan Abelson is always a good read in the opening piece for Barrons.

Abelson latched on to the term "IOU" last Saturday, the catch phrase conservatives hoped would convince voters that the treasury bonds held by the Social Security trust were worth less than bonds held by folks like George Bush.

Abelson playfully equates the term "IOU" with bonds and debts of all sorts, with a predictably hilarious outcome. I'm always amazed at Abelson's ability to craft humor out of a few carefully selected words.

Sixty-five or Eighty Percent Efficient?

2005-07-16T21:19:00.000-07:00

Pardon my long silence, which I attribute to two things. One is that the President hasn't said a whole lot about Social Security lately, the other is that I've been busy working.

Which brings me to an observation about efficiency. Laptop computers run very nicely with a power supply that provides less than 100 watts - including the built-in video display. Desktops typically require 300 or more watts, plus whatever your video display draws. PC's are one of the bigger electric power consumers in the USA. So, it is nice to know, if electric power ever either gets scarce enough or expensive enough for people to notice, there is a whole lot of room for improvement.

Another little noticed efficiency item for computers is how efficient the power supply is. Most typical desktop computers, to get that 300 or so watts of power on the inside of the computer, use a power supply that is 69% or less efficient. That means they require something like 550 watts from your AC power line to deliver 350 watts to your CPU and assorted accoutrements.

But there are also power supplies that are 80% efficient at converting power from your power line for use by your power-hungry peripherals. If you've got one of those, instead of 550 watts, you only need 440 watts to power your dream machine.

The difference, if you like to leave your PC turned on all the time, is something like 1000 kilowatt hours every year, or for those who pay ten cents for a kilowatt hour, about $100 - every year.

If this total lack of awareness of something that costs 50 or so million Americans $100 a year of wasted electric power bugs you, here's something you can do about it. Next time you buy a PC, shock the hell out of the salesman, and ask them what the power bill to run the thing for a year would be. If they can't tell you, ask them if they know the efficiency rating for the power supply for the PC. If they can't tell you, tell 'em "have a nice day" and walk out.

You could also ask the folks that put those Energy Star stickers on things like washing machines and refridgerators don't put the same stickers on PC's, showing how much it costs to run one of the things every year. It'd be a real eye opener for a lot of people, to find out their $250 PC might cost them another $250 a year to run.

Lobbying, the Great American Growth Industry

2005-06-21T21:32:00.000-07:00

The Washington Post reports that the number of registered lobbiests has more than doubled since 2000.

Little wonder. In the 1990s, there were three major tax bills. Since 2000, we've switched to a major tax bill every year. Ten thousand pages have been added to the tax code - the fastest rate of increase in history.

With the annual changes, tax compliance costs are high simply to keep up with the changes. We could cut compliance costs simply by keeping the tax code the same for two years in a row. And that doesn't even include the savings in lobbying costs or eliminating the drag of inflewence peddling on the economy/

Coingate.

2005-06-09T21:54:00.000-07:00

GOP governor of Ohio hides hedge fund losses in workers compensation fund from public during election campaign.

Krugman - what could the next bubble be?

2005-05-26T20:46:00.000-07:00

Krugman in today's NYT follows the bouncing bubble. First, we had the stock market bubble. Then the FED chose to avoid an adjustment in 2001 by creating a new bubble, lowering interest rates and pumping up real estate. Krugman wonders where the FED can go from here, as there isn't any other obvious asset class to inflate to keep this rolling bubble from running out of hot air.

A few days ago, Bernanke said if we hadn't run big fiscal deficits the past few years, the imbalance in the real estate market would have just been that much bigger and it would have that much further to fall.

But I wonder. What would really have happened if the government had limited its fiscal intervention to the rebates of 2001, rather than cutting tax revenues to the lowest level post WW II?

I can't imagine all that money would just have flowed into the home mortgage market, with negative real interest rates. Some of it, perhaps, but not all of it. Something else would have to happen. Maybe, just maybe, the classical thing would have happened: we wouldn't have gotten quite so far out on a limb with our fiscal and external deficits.

Those are two more bubbles that have been inflating alongside the real estate bubble. And maybe the answer to Paul Krugman's question is, too bad we won't have the option of relaxing fiscal and trade positions as an alternative when the real estate bubble, since there's already an unsustainable level of froth in both the fiscal and external trade balance fronts.

Maybe, just maybe, a good chunk of that excess fiscal stimulus might have ended up as national savings, and a somewhat smaller trade imbalance, and somewhat less inflationary pressures on commodity goods like oil and steel. Maybe, just maybe, we could have worked though the excesses rather than pushing into new asset classes to inflate.

WSJ Leaps to Conclusions

2005-05-23T19:19:00.000-07:00

The Wall Street Journal leaped at the opportunity to extoll the incredible increase of tax revenue for the first seven months of the fiscal year, with the predictable conclusion that the revenue was increasing because of tax cuts; to keep the revenue increasing, we have to make the tax cuts permanent; and the big problem is that the government spends too much.

To get some historical perspective on this unusual "first seven months of the fiscal year" snapshot, you can find data here .

From this, we can glean that the first seven months of FY 2005 brought in more revenue than the first seven months of FY 2000, just barely. Hallelujah! Of course, it was still 36 Billion less than the comparable seven month period in FY 2001, when the government brought in 1.25 Trillion of revenue and ran a $165 Billion surplus instead of the $237 Billion deficit run during the first seven months of FY 2005. But what the heck.

A broader historical perspective can be gleaned by comparing the change of revenue for the past five years with other five year gains. There, we find that revenues increased 48% between 1995 and 2000; 32% between 1990 and 1995; and 37% from 1985 to 1990. That's compared with the 3% gain from 2000 through 2005.

For the most part, tax revenue gains follow GDP gains over longer timeframes, historically. For example, nominal GDP grew by 37% from 1985 to 1990, exactly matching the 37% increase in tax revenues. From year to year, tax gains are more volatile, following the business cycle.

So, it isn't particularly suprising for tax revenues to increase by 11% from year to year during a rebound in the business cycle, as we've seen in the past year.

It is rather unique, though, to have a five year period when GDP increases by 26%, while tax revenue only increases by 3.7%. Now, the 26% nominal GDP increase for the past five years is pretty small, compared with other recent five year periods. But having federal tax revenue roughly flat - in nominal dollars - for a five year period - is way off the charts.

So, before we leap to a conclusion based on the new 7-months-out-of-a-fiscal-year accounting standards, perhaps we should remember that the federal government is still spending a few hundred Billion a year beyond what it brings in, and that is above and beyond the Social Security surplus, which is also being spent to cover general obligations. It's great to see federal revenue creeping up above the 17% of GDP mark, but that's still 17% short of matching spending, and that's for the easy seven month fraction of the fiscal year ending in April, and with a Social Security surplus of a couple points of GDP.

It's really time to start adjusting tax revenue so we'll bring in something closer to what we spend without having to goose general revenues with a big Social Security surplus. If the government can't come close to breaking even now, near the peak of a business cycle and with near-peak Social Security surplusses, it's time for a change of leadership.

GOP Pans One Half of the Wexler Plan

2005-05-19T11:03:00.000-07:00

Here's the second half of the Wexler plan to assure Social Security solvency:

The proposal also institutes a pay-as-you-go “paygo” budget measure that will help to reduce future debt and safeguard the Social Security Trust Fund by requiring future Congresses to pay dollar for dollar any new tax cuts or spending programs they enact.

We've seen the WSJ comment on the Wexler Plan, and today, Luskin . Neither mentions that the Wexler plan puts pay as you go budget rules back in place so the rest of the government can't keep spending so much more than it brings in.

Luskin even goes out of his way to say bringing in new SS payroll tax revenue now would require tax hikes later since Congress would simply spend any additional revenue that comes in to the Social Security trust fund. You'd think he'd mention that Wexler's plan would solve that particular problem by fixing the rest of the budget now, if he were seriously trying to comment on the Wexler plan, rather than simply falling into demagoguery.

Elected Democrats have distanced themselves from the Wexler plan. Not a bad idea, given that the current congress would will game anything that is put forward in order to pass a bill that would eventually phase traditional Social Security benefits out. But I do hope somebody steps up to dismantle the straw man that Luskin and the WSJ have been posturing against.

Conservative Crackup Continues.

2005-05-18T06:18:00.000-07:00

John Tierney's Sunday op-ed trying to make an analogy between the highway trust fund and the Social Security trust fund was so bad I haven't even bothered to follow up on it.

Today's WSJ editorial is more interesting, though. It's one of those rare instances when the WSJ editors throw up their hands in exasperation and complain that the GOP congress can't control spending and won't bring in enough revenue to cover their spending.

A couple quotes from WSJ:

What's meaningful about the bill the Senate passed yesterday, however, is just how quickly and utterly some Republicans have abandoned all spending principle.

And

The highway trust fund, supported by federal gas taxes, is the main source of money for highway projects. To claim deficit "neutrality," the Senate bill mainly diverts general revenue funds into the highway trust, or shifts highway trust fund liabilities into some other fund. But either way, it constitutes deficit spending. The only proper way to "offset" something is to cut expenditures or increase revenues, and this bill by and large does neither. Moving gas guzzler tax proceeds from the general fund to the highway trust is gimmickry, plain and simple. It may bolster the highway trust, but it's a drag on the general Treasury, which by the way isn't exactly in the black right now.

The WSJ doesn't even bother to try to follow up on Tierney's "the Highway Trust Fund has been Raided, just like the Social Security Trust Fund". I sense Social Security fatigue among conservatives. The approach of summer might give them an excuse to try to let the issue fade away. What will progressives do if conservatives simply stop talking about phasing out Social Security?

Nor do they dwell on the details of pork spending. They complain about the overall spending level, but instead of the usual dwelling on the rhetorical details, they focus on the big picture - the GOP is willing to spend too much, and not willing to bring in revenue to match their spending.

Think anything will come of this? Nah.

What She Said.

2005-05-14T20:44:00.000-07:00

Katherine Sloan writes for the Washington Post Sunday Outlook about the tsunami in private defined benefit pensions.

It's a much better and more complete version of a short post I made a few days ago.

Bartlett again.

2005-05-12T07:27:00.000-07:00

Oh yes, about that VAT and Medicare reform. If you'd like to do the heavy lifting to get a VAT to pay for Bush's prescription drug benefit, I won't complain.

But I'd be a cheerleader if you'd like to go about Medicare reform with a serious health care reform that broadens access to health coverage, fixes the way health care is delivered so costs can be contained, and is paid for with a VAT. Unlike the case with the general federal budget, I think we can buy a whole lot more health care with only a little bit more pooled spending. Health care in America is just way out of control, and it's time to fix it. Why just leave the messy prescription drug plan in place and pay for it with a VAT, when we can fix the whole system for the same money?

Bartlett is honest again.

2005-05-12T06:39:00.000-07:00

Bartlett writes in National Review today.

The topic is taxes and spending. Bartlett concludes that spending isn't going to be controlled unless the GOP tackles Medicare costs, and that tax rates are going to have to go up a lot.

Too many conservatives delude themselves that all we have to do is cut foreign aid and pork-barrel spending and the budget will be balanced. But unless Republican lawmakers are willing to seriously confront Medicare, they cannot do more than nibble around the edges. With Republicans having recently added massively to that problem, and with a Republican president who won’t veto anything, I have concluded that meaningful spending control is a hopeless cause.

Therefore, we must face the reality that taxes are going to rise a lot in coming years. I believe that a VAT is the least bad way of getting the hundreds of billions of dollars per year that will be needed. The alternative is higher tax rates that will be far more debilitating to economic growth.

Bartlett says he'd like a flat tax but getting the tax base right is more important. I agree with Bartlett that we should get the tax base right, but disagree about capital income, which Bartlett would exclude from taxation, favoring instead a VAT tax. I think capital income has to be taxed. A VAT won't get anything from someone who does most of their consumption cruising around the world, and without some taxation of capital, earnings can simply go untaxed for generations. With labor income having shrunk to the lowest fraction of GDP in history, it is unreasonable to say you can broaden the tax base while excluding capital income from taxation.

Bartlett laments Bush's marginal rate increase, saying it paved the way for Clinton's raising the marginal rate again. My recollection is that there was fairly broad support to fix the marginal rate so there wasn't - I forget what it was called, but there was a middle income bracket where the marginal rate was higher than the top marginal rate, I believe because of phasing out of preferences. That was a mistake in the 1986 reform.

Bartlett doesn't directly say so, but I believe he also laments the lobbiest gravy train that drives the annual tax cut bill today. Barlett says he doesn't believe it will be possible to get a real reform and incremental changes to the income tax code are the best likely outcome.

Well, maybe. Somehow, I doubt the current crop controlling Congress, the Senate, and the White House will engage in any sensible reforms, since the gravy train is just too powerful. Also seems unlikely that any conservative movement can push folks like Delay aside. So my sentiments lie with sweeping the bums out. But more power to ya, Bruce, if you'd like to try to reform the conservative movement incrementally.

Liberal Media At It Again.

2005-05-11T10:36:00.000-07:00

We've recently learned that President Bush has failed to sell the idea of phasing out traditional Social Security benefits because of the liberal media.

And lo! The liberal media is at it again!

First, a quick primer. Social Security has promised more future benefits than it will be able to afford. To restore balance, we have to get fewer benefits than we otherwise would, pay higher taxes, or both.

Congratulations, liberal media! You've succeeded in reducing the complexity of the debate so that now, instead of a possible (some say likely) scenario in which Social Security can pay promised benefits indefinitely, we understand that "more benefits have been promised than we can afford and painful choices have to be made". Oops! I guess that's a conservative simplification. But for a liberal alternative, try Bruce Webb

Ok, onward, liberal media!

Although Pozen has become a White House favorite, his approach is far different than Bush's. Pozen is a big fan of the private accounts Bush touts as part of his "ownership society," but wants to fix Social Security's finances before dealing with the controversial accounts. "Solvency first," Pozen says. Bush wants to begin with private accounts, which do nothing to make the system solvent. The obvious solution fits on a bumper sticker: compromise.

Lo, the obvious bumper sticker solution! Phase Social Security out by alienating the middle class with big benefit cuts, but paying them their benefits while they are still working so they'll tire of supporting a welfare program when they retire! Thank goodness the "liberal media" has given us the bumper sticker solution that a "compromise" should blend the Pozen plan with Bush's private accounts on top.

Even though the polls run about two to one favoring maintaining traditional Social Security benefits, thank goodness the liberal media has reeducated us on the obvious compromise!

Pension Math

2005-05-11T09:41:00.000-07:00

The major airlines got a get out of debt free card when a judge allowed United Airlines to shed responsibility for its employee pension plans. It seems only a matter of time until the private pension system collapses under the weight of failed plans.

One of the lessons to be learned from this is that many of the pensions that have failed did so because of overly optimistic assumptions about future returns on financial assets. This is rather remarkable given that stock and bond returns have been in a twenty-five year bull market. To be sure, companies elected overly optimistic assumptions partly to avoid putting appropriate reserves behind their responsibilities to their employees. Why pay the hired help when the alternative is higher compensation for owners and management?

But, as we watch what was thought to be a "sure thing" zap 40 million or so retirees and the taxpayers that may be called upon to bail them out, it seems a good time to remember the role of risk in projecting returns on financial assets. If the Fortune 500 was overly optimistic in projecting future returns on financial assets, why should 250 million Americans assume that George Bush would be more level headed in urging them to go for the "sure thing" of high returns on their private asset accounts?

We'll cut your benefits, but pay them in advance

2005-05-07T20:37:00.000-07:00

David Brooks is sermonizing against Democrats today. His complaint? Sermonizing Democrats.

Brooks thinks Bush has "called Democrat's bluff" and "stolen the Democrat's ideas" by proposing to cut middle class Social Security benefits.

I can't for the life of me recall when Democrats, during their fifty years of controlling congress, tried to turn Social Security into a welfare program, which is what progressive indexing would do.

And I sure can't remember Democrats offering folks at the top the opportunity to grab their Social Security benefits up front, while the government still has some money to offer, which is what the combination of progressive indexing and debt-financed privatization would do. Folks at the top would have practically all of their benefits paid in advance, because of the way "clawback" works. Meanwhile, the government would take on $Trillions of dollars of debt to finance paying not only current retirees but also the 18 to 62 year old's benefits.

We'd be left with a welfare program and a government reeling in debt. Is there really even any question where that would lead?

Treasury Blinks.

2005-05-04T10:12:00.000-07:00

The treasury department announced it is considering issuing 30 year treasury bonds again for the first time since 2001.

Explains the undersecretary in charge of financial markets, who may be the number two at the department these days given all of the unfilled positions at treasury:

``We are doing this because times have changed, and our debt portfolio has changed,'' said Timothy Bitsberger, assistant secretary for financial markets, in a press conference. ``We believe now we have the flexibility to issue 30-year bonds and maintain liquid issuance in all of our other securities.''

"Flexibility" ? I guess the Bush administration is finally acknowledging that they've run up a lot of short term debt, enough to allow considerable "flexibility" in issuing debt of various stripes and denominations going forward. Just how much short term debt has the treasury racked up since 2001? As the undersecretary explains,

``This is a decision independent of what our deficits are,'' Bitsberger said.

In other words, plenty . We'll be rolling debt over for years, even if we somehow manage to run surplusses again any time soon. Or, put another way, Alan Greenspan's 2001 testimony is now well into the conditional fine print part about how any tax cuts enacted to assure that the treasury doesn't run out of marketable debt ought to include a clawback just in case there turns out to be more than enough marketable debt so that Social Security surplusses might be used to pay down debt.

We no longer have to worry about what the US Treasury might have to do with the Social Security surplusses. There's plenty of marketable treasury debt available to retire. Hey, doesn't that wipe out one of the biggest rationalizations for putting the "surplusses" into private hands?

Talking Point Memo Hits a Nerve!

2005-05-03T19:18:00.000-07:00

Those of you who've read my blog (all three of you!) know one of my pet peeves is the WSJ editorial page.

Today, Matt Yglesias subbing for Josh Marshal issued a WSJ challenge , asking for a reader with access to WSJ archieves to find an op-ed that contradicted an assertion in a radio interview today.

And a reader found it.

You can read about the particulars at Talking Points Memo.

I think this WSJ challenge thing is a good idea for practically every political op-ed the WSJ writes, because the WSJ editors are so sloppy with their rhetorical flourish, and has such a long history, that practically everything they write contradicts something else they wrote long ago. The contradiction often takes the form of rhetorical embellishment that sounds really convincing if you just read a single op-ed and you don't have the resources to critically examine it.

I don't have the archives, so I can't be a historical reference. But, go Matt!

If only we were all millionaires!

2005-05-03T18:31:00.000-07:00

Scrivener touts Vanguard's admiral shares as a way to cut administrative costs for privatized Social Security accounts.

A great idea. Let's see, how much money would personal accounts need to qualify for Admiral status?

Vanguard is expanding eligibility for Admiral Shares by reducing the minimum required to qualify for the shares to $100,000 per fund account, from $250,000.

Wow, cool! How long would it take to accumulate the $100,000 required to qualify for admiral status in a privatized SS account? Oh, say, 30 year, if you get a 6.5% return, or all of your working life, if you get a 3% return.

The reason account fees would be high is because the accounts start tiny by investment account standards. For an account with a thousand bucks, a $25 annual management cost zaps two and a half points right off the top.

There's also the problem that compliance cost would be high, and particularly high for small businesses or the self employed. The government run Thrift Savings program has a low overhead mainly because there is a single employer, so it costs very little to administer the accounts. With a few million employers and tens of millions of self-employed, administrative costs would be huge. The federal staff alone would be one of the biggest in the federal government, and that doesn't even include the complaince cost for businesses.

WSJ Editors dance on head of pin!

2005-05-02T15:33:00.000-07:00

The editors repeated their assertion that interest payments from the treasury bonds held by the Social Security trust fund are real:

... what we do know with confidence is that, between now and 2017, the payroll tax will raise at least $2.2 trillion more in taxes than will be paid out in benefits.

How do we know this? Because the Social Security Trustees tell us that, of the $2.2 Trillion by which the SS trust fund will increase between now and 2014, $1.4 Trillion will be interest payments, leaving only $0.8 Trillion of payroll taxes in excess of benefit payments during that period.

Another item of interest is the editors request that Bush should STOP asserting that only proposals that will solve the Social Security solvency problem once and for all should be up for consideration:

We also wish Mr. Bush would stop promising that any reform will somehow be "permanent," or last at least for 75 years.

Perhaps the editors didn't notice that the plan Bush endorsed only cuts the 75 year acturary deficit in half. But now that the WSJ editors mention it, didn't Bush on multiple occaisions explicitly say that any proposal that he would consider would have to solve the problems once and for all time?

No input from Democrats on Supreme Court nominees?

2005-04-28T17:54:00.000-07:00

I'm way out of my element pondering about this filibuster stuff, but in my naivete, it seems like the obvious reason the Republicans want to end judicial filibusters has little or nothing to do with the ten out of two hundred or so judicial nominations that Democrats have blocked on lower court nominations, and everything to do with the Republicans being able to make nominations for the two or three likely supreme court vacancies during the next four years without having to make choices that have bipartisan appeal.

Is that the case?

WSJ editors don't know the meaning of "Progressive"

2005-04-25T22:41:00.000-07:00

The WSJ's misdirection of the day seems to be a study that shows that the income tax code is just as progressive today as it was in 1979.

~~The basic fallacy of~~ My first reading of the reseach paper behind this op-ed suggests that the WSJ editors are referencing the share of tax revenue collected from different segments of the income distribution, but fail to account for the change of the income distribution. The share of income for those in the top tenth of one percent of the population roughly TRIPLED since 1979, but the fraction of federal taxes paid by the top tenth of a percent of earners went up much less than that.

Here's a link to the paper apparently referenced by the WSJ.

If the tax code in 1999 was as progressive as it was in 1979, the fraction of taxes paid by the top one-tenth of a percent of the population would have more than tripled in the 20 years from 1979 through 1999; instead, the top tenth of a percent tripled their income, but paid considerably less than three times the share of taxes.

That's a regressive shift. So, while the tax code remains "progressive", according to the authors of the quoted paper, it is considerably LESS progressive than it was in 1979.

So. Two possibilities: either the editors of the WSJ are unable to compare progressivity of two eras because they were confused by a relative tripling of incomes; or the editors of the WSJ are once again pulling a rabbit out of a non-existant hat.

Hop, hoppity hop?

Heritage Foundation Doesn't Understand the Stock Market

2005-04-16T08:12:00.000-07:00

The Heritage foundation released yet another Social Security calculator, this one supposedly based on "extensive demographic information and econometric modeling".

As with most of the other calculators out there, this one spits out a single number for an estimated benefit you "could" receive. Yes, you "could" receive that benefit, if your stock market account happens to have the exact rate of return presumed by the Heritage Foundation. But this model has two basic flaws. First, it says absolutely nothing about risk. It doesn't say, you could get a benefit of X, or if you're lucky, 2X, or if you're not so lucky, 1/2 X. It says, you can get a return of X.

And not only that, but X is based on the presumption that the stock market in the next 50 years is going to look like a repeat of the stock market during the past 50 years. As analysts always say, "past performance is not a guarantee of future returns". Economists in general project future returns are likely to be somewhat lower than recent historical returns.

Down in the Heritage Fondation's small print we read:

DISCLAIMER

This calculator is an educational tool designed to help citizens better understand Social Security. It is not intended for use as a retirement planning tool. The data, assumptions, and formulas used in this calculator are based on the best information currently available to The Heritage Foundation.

So, the Heritage Foundation says their model isn't good enough for you to plan your future on, but it is good enough that you should gamble with the most predictable part of you retirement security.

Here, fishy fish fish!

Wall Street Journal embraces Complex Tax Code

2005-04-15T11:11:00.000-07:00

The Wall Street Journal editors today endorsed leaving the AMT unreformed until inflation forces millions more taxpayers to pay the tax and it can replace the income tax.

Many economists also believe that tax reformers could do worse than letting the AMT grow until it actually replaces the regular code . The AMT is a modified flat tax with lower rates (26%, and 28% on more than $175,000) than the current top marginal rate of 35% (or about 37% with PEP and Pease). It would have to be indexed for inflation, and its wicked complexity would have to be undone so it didn't raise marginal rates for most Americans. But moving in the AMT's direction of top marginal rates in the 20-percent range and fewer deductions is where useful reform will have to go.

For those of you afflicted by the tax, the WSJ editors think it should be used as a bargaining chip to force Democrats to accept other tax reforms the WSJ considers a higher priority.

So, for those of you among the 34 million expected to be hit by the AMT within the next few years, you now know the WSJ editors don't really care if you get hit with the AMT, and that the WSJ editors don't really want tax reform to minimize complexity, but instead, they want tax reform to minimize taxes on people richer than you who work for less of their income than you do. They'd go along with reform of the AMT, but only if as part of a bargain.

The price of admission on the GOP tax cut wagon seems to be getting higher. Must be all of Tom Delay's legal defense bills and the high cost of trying to sell the American public on phasing out Social Security.

Tom Delay's New Gerrymandering Plan

2005-04-13T22:07:00.000-07:00

It appears that Tom Delay, having won the battle of redistricting Texas's congressional districts, has his sights set on redistricting the federal judiciary . This, after recognizing in retrospect that it is inappropriate to simply go for vigilante justice against wayward judges.

Go, Tom!

Conservatives laud Bill Clinton

2005-04-13T08:07:00.000-07:00

Who would have thunk that conservatives would laud Bill Clinton for his proposal to reform Social Security? You'd think Clinton was John F Kennedy, to hear the gushing praise heaped on Clinton's alleged proposal to privatize Social Security.

Since conservatives seem to think Clinton knew how to save Social Security, let's set the way back machine to 1998 and 1999, and see what Clinton actually proposed.

PRESIDENT CLINTON: I believe, first of all, we have to reform Social Security in a way that strengthens and protects the guarantee for the 21st century. We should not abandon a basic program that has been one of the greatest successes in our country’s history. Second, we should maintain universality and fairness. For half a century this has been a progressive guarantee for citizens. We have to keep it that way. Third, Social Security must provide a benefit that people can count on. Regardless of the ups and downs of the economy, or the financial markets, we have to provide a solid and dependable foundation of retirement security. Fourth, Social Security must continue to provide financial security for disabled and low-income beneficiaries. We can never forget the one in three Social Security beneficiaries who are not retirees. And, fifth, anything we do to strengthen Social Security now must maintain our hard won fiscal discipline. It is the source of much of the prosperity we enjoy today.

And then there was the Heritage Foundation's assessment:

Clinton's Newest Social Security Plan: From Bad to Worse

including this gem:

Using general tax revenues for Social Security would set a dangerous precedent. Social Security has always been self-funded through an explicit tax. However, the IOUs added to the trust fund under the President's plan would have to be repaid with general tax revenues. Funding the system with other tax dollars would break down what little fiscal discipline remains and open the door to more irresponsible spending.

So. It sounds like Heritage is flat out against the idea of issuing real treasury debt to finance a "transition" to private SS accounts, doesn't it!

How about this. Since conservatives praise Clinton on Social Security, why not just use his guiding principles? Oops. The proposals put forth by the Bush administration fail every one of Clinton's guiding principles.

Bipolar Disorder?

2005-04-11T07:59:00.000-07:00

You read them , and decide .

NRO Acknowleges Trust Fund Generates Real Interest Payments, Too!

2005-04-06T19:54:00.000-07:00

A couple weeks ago, the WSJ editors acknowledged that the Social Security trust fund bonds generate real interest income.

Now, National Review says the same thing:

In fiscal year 2004, Cato Institute scholar Michael Tanner reports, the Treasury collected $570.7 billion in payroll taxes and credited Social Security with $89 billion in interest. Social Security recipients received $501.6 billion in benefits. This $158.1 billion balance — which could have funded personal-retirement accounts — instead flowed into general revenues.

Both the WSJ and NRO want to have it both ways. First, they say the trust fund is worthless. Then, they say at the same time that the interest paid on the worthless trust fund bonds can be used to put real cash into private accounts.

The NRO says the interest paid is so real that it flowed into general revenues last year. That's sort of like saying the interest on savings bonds flows into general revenues as long as you don't cash in your savings bond. Well, maybe, guys, but the revenue had to flow OUT of general revenues to pay the interest, so, for savings bonds, and for the SS trust fund bonds, the interest payments really are just bookeeping entries, until the bonds are redeemed.

But the basic point is this. The WSJ editors, and National Review, are making a political statement. They have no qualms about diverting the Social Security trust fund assets and interest into private accounts. But they do have qualms about using the trust fund assets and interest to pay traditional Social Security benefits. They've never liked Social Security, they've always wanted to get rid of it, and they're playing gamees with the trust fund - which they can claim as an asset if it is a way to phase out Social Security, and a liability if it must be used to pay benefits to people who've paid Social Security taxes all their working lives.

But come on, guys. You can't have it both ways. If the trust fund is good enough to generate interest payments that can be diverted to private accounts, it is good enough to pay the benefits that congresses for the past 70 years have structured it to pay. No more whiny, hypocritical conservatism, please.

When will Bush have Spent the Trust Fund?

2005-04-05T20:47:00.000-07:00

You know those national debt clocks?

I think someone should make a "He Spent the Trust Fund" countdown clock. It would project the day when the Bush administration has spent all the money in the Social Security Trust fund.

Technically, I think the day has already come and gone, since the gross public debt has increased by more than $2 Trillion since Bush was inaugurated in 2001, while the trust fund has only about $1.7 Trillion.

But if you go by the increase of the publicly held debt, we've only borrowed about $1.2 trillion, and the administration doesn't project it will have borrowed $1.7 Trillion until fiscal year 2006.

Go Tar Heels!

2005-04-04T22:58:00.000-07:00

A small tribute to the group of players Matt Doherty brought to Chapel Hill, and their wide open style of play, and their awesome season this year under the classiest college coaching act since Dean Smith.

And a tip of the hat to the other 64 teams that went home with a loss in the tournament.

Illinois .vs. Carolina was one of the classics. Wish both team could've won. Glad my team did.

WSJ editors acknowledge value of "Worthless IOU's".

2005-03-25T08:25:00.000-08:00

In today's Wall Street Journal, the editorial board equates interest on the US treasury assets held by the Social Security trust fund with revenues from payroll taxes.

That is to say, the editors consider the interest from what they call "worthless IOU's" to be real money.

That number is $2.2 trillion, which is the difference between the current size of the Social Security "Trust Fund" ($1.7 trillion) and what it will grow to become over merely a decade through 2014 ($3.9 trillion). More precisely, that is the amount of payroll tax revenue that workers will pay between now and 2014 that exceeds what will be spent over that same period on retiree benefits.

The editors appear to be referencing this table from the 2005 trustees report, where net assets at the end of the year are projected to be $3.964 Trillion at the end of 2014. But if you look at the table, you'll see that $1.4 Trillion of that $2.2 Trillion increase of assets will come from interest paid on the treasury bonds held in the Social Security trust fund.

The editors are now on record equating interest paid on "worthless IOUs" with payroll tax revenues. And hey, so is the Club for Growth

The editor's intent was to justify diverting that $2.2 Trillion to private accounts, since congress will otherwise just spend the money.

How about this advice to Congress: if you borrow the money and spend it, future congresses will have to come up with interest payments and eventually repay the debt, since the bonds held by the Social Security trust are just as real as the bonds held by individuals like George W. Bush. There's already a lock box on the money, according to the WSJ editors. The real problem is that the current President and Congress are spending a whole lot more than they're willing to raise in tax revenue.

Shiller questions private account returns

2005-03-18T23:51:00.000-08:00

Today's Washington Post has an article about a paper to be published by Robert Shiller that suggests about one-third of participants, or perhaps as many as 71% of participants, would not expect to match current Social Security benefit payments if they use the appropriate recommended life cycle accounts.

The article quotes Jeremy Siegel:

I'm one of these people who maintain the 3 percent rate is too high a trade-off," said Jeremy J. Siegel, a finance professor at the University of Pennsylvania's Wharton School and a longtime advocate of stock investing. "You can't get 3 percent in the market anymore."

And also quotes an American Enterprise Institute privatization advocate:

But Hassett, another supporter of private accounts, called the paper "a very thorough and interesting piece." The White House's response should not be to dismiss the paper's conclusions but to rethink the life-cycle portfolios or lower the 3 percent threshold, Hassett said. The latter is an action administration economists are already considering, he added.

But this begs an analysis of why a "3 percent threshold" is needed in the first place. The "clawback" is necessary because the money to finance these accounts has to be borrowed .

This is the same 3 real interest rate that is used to show the infinite horizon liabilities of Social Security increasing by $600 Billion a year that privatization advocates have been touting this week.

Maybe we can legislate the real interest rate to be something lower than three percent. But I doubt you'd get Alan Greenspan to advocate for the legislature controlling US treasury debt interest rates. If we let the market set the appropriate interest rate, and decide to finance $6.5 Trillion, or whatever it is for the privatization flavor of this week, required for transition costs, presumably, a study by someone as qualified as Shiller would conclude that there is a chance the real interest rate really will turn out to be 3% or perhaps even higher.

So, we're back to the basic question. Is it really a great idea for the US government to leverage up on treasury debt and gamble that the stock market will outperform US treasuries consistently over the next 50 years?

Is it really in the nation's best interest to try to borrow our way out of a savings deficit?

Why Paygo has to include revenue

2005-03-16T08:49:00.000-08:00

The GOP like to set up pay as you go voting rules so they only apply to the spending side of the equation. Indeed, have set up rules this way since 2001, leaving the rules in place only for spending.

Witness the outcome. Revenues are way, way down, and not only that, but spending is up, too!

Why would spending go up if the rules are still hypothetically set up to make it hard to approve an increase of spending? It's pretty simple, really.

We've selected a congress that rails against big government, but gets elected by virtue of delivering to favored constituents. Along the way, the evolutionary selection process has adapted the idea of "starving the beast" into an electorally more rewarding form. Cutting revenues masquerades as fiscal conservatism, because it will hypothetically force big cuts later. No elected official ever has to make a hard choice, since cutting taxes will do the hard work for you!

You can see where this leads. Why should an elected official who theoretically has a goal of shrinking government stick their neck out and risk getting voted out of office, or perhaps even worse, losing quid pro quo voting deals and being unable to deliver goodies to big campaign donors, when they can capture the "starve the beast" voting block just by cutting taxes and then just advocate for spending they want without opposing spending they despise?

You simply can't get to a rational form of fiscal conservatism with one-sided PAYGO voting rules. You need to have the same rules on the revenue side as on the spending side to establish the dynamics of winners and losers - one person's spending initiative by necessity is in conflict with another person's tax cut (or even the SAME person's tax cut!).

Interest rates and fiscal policy

2005-03-14T14:31:00.000-08:00

Is it a conundrum that long term interest rates would stabilize or fall during a period when government controlled short term interest rates are rising?

Perhaps it could be under normal circumstances, but the interest rate environment of the past four years, and in particular since November 2002 when the Federal Reserve cut overnight lending rates all the way down to 1.25%, followed by another quarter point cut in June 2003, has not been normal. The FED, arbiter of the punch bowl, was accomodating (spiking the punch) because of concern that the economy was so lacking in party spirits that a whole new form of drug might be necessary to bring some life back into the party.

By the spring of 2004, it was clear that the FED no longer needed to spike the punch. The dollar was in free fall, and oil prices were approaching record highs. Wage inflation, which the FED has targeted like a teenager eyeing the punch bowl for the past 23 years, was still nowhere to be found, but other traditional price signals made it clear that it was time for the FED to at least stop spiking the punch, even if it wasn't yet time for the FED to take the traditional role as party pooper.

Five interest rate hikes and an election later, long term rates were as low or lower than they had been in the months leading up to the first of five quarter point hikes in the overnight lending rate. Alan Greenspan coined the idea that it was a "conundrum" why long term rates had not responded to the FED's move.

What was going on? Was the FED really baffled about what HAD BEEN going in the bond market, or was the FED sending a signal to inflewence the FUTURE moves of the bond market? Is there really any question?

It seems pretty clear to me that short term rates were, indeed, accomodative around the 1% range, particularly in light of the uptick in prices. And, the accomodation was more than just a nudge or two. The FED had all the traditional stops pulled out and was just short of resorting to dropping $100 dollar bills in selected neighborhoods. It was rather remarkable that US dollar denominated debt was still in demand as of the spring of 2004. The FED signaled it would bring overnight rates back to a normal range (3% to 5%, perhaps, is a "normal" range within one standard deviation at present) at a "measured" pace.

"Measured", we learned, meant a quarter point at a time and only at scheduled intervals. Hey, bond market, party on! With knowledge that accomodation was being quietly withdrawn, it was rational for long term bond holders to be modestly exuberant in the knowledge that the FED was fighting inflation by cutting back on it's own excesses, but that short rates would stay low enough for a year that rising short rates wouldn't put any serious pressure on demand for higher intermediate and long rates.

NOW we've gotten to a place where short rates are getting closer to normal, and where continued upticks might have some traction in terms of traditional inflewence on the rest of the bond market. From here, the slack has been essentially taken up - or if it hasn't yet been taken up, slack indicates the inflation genie is out of the bag.

Short rates won't be DRIVING the inflation genie - fiscal policy and the trade imbalance are in the drivers seat. But the bond market might look to the FED for "signals", and a "conundrum" is of the same genus if not the same species as "irrational exuberance".

Marginal Tax Rates and the National Debt

2005-02-14T00:05:00.000-08:00

At the end of World War II, the US government had a debt of more than 100% of GDP.

The top marginal tax rate back then, which held steady through a two-term Republican Presidency and a brief period of Republican control of the House of Representatives, was about 90%.

By 1960, the federal debt fell to about 55% of GDP. Lo and behold - along comes President Kennedy, who cut the top marginal tax rate to 70%.

By 1980, the federal debt burden had continued to shrink - hitting a low of 32.5% of GDP in FY 1981. Along comes Reagan, who successively cut the top marginal tax rate all the way down to 28%.

The debt soared, doubling as a fraction of GDP in 12 years. George Bush increased the marginal tax rate to 33%, and then Clinton increased it to 39.5%.

Lo! The debt fell again. But by this time, an important divergence has occurred. The "Gross debt", which includes obligations to various trust funds including Social Security, fell to 57.5% of GDP, while the "Public debt" fell all the way down to 33% of GDP. With the growing SS trust fund, it has become important to differentiate between the "real" debt, which includes the trusts, and the "public debt", which does not.

Along comes George W. The top marginal tax rates are cut again, along with cutting dividend taxes by more than half, and planning to phase out Estate taxes at the end of a ten year window, for just one year. With a tailwind of Social Security surplusses, the tax-cutting faction went into overdrive, with many, including the Heritage foundation, opening a line of attack to disavow the SS trust obligations to Social Security beneficiaries.

But lo! Debt as a fraction of GDP is growing quickly again. The White House official estimate shows gross debt hitting 70% of GDP by the end of the decade, and that doesn't even include the cost of making Bush's tax cuts permanent, nor the ongoing costs for military operations and the like.

And lo! The President proposes to finance privatizing Social Security by issuing "transitional" debt that might reach 30% of GDP, as well as pissing away the SS trust assets (for a total increase of the publicly held debt around 60% of GDP).

That would bring our federal debt back up around the level at the end of World War II.

Do you suppose that the "deficits don't matter" faction of the GOP will continue to reign supreme as our debts approach the level required to win a World War? Or will traditional conservatives regain control of the GOP, and use traditional methods of paying down debt?

Signs suggest some conservatives would rather avoid letting the debt get that high again unless there's a real national emergency that calls for it.

It seems that some traditional conservatives might prefer to take a stand while the federal debt burden remains reasonable, but if they lose now, 90% marginal tax rates might come again, brought to you by a GOP majority in 2045.

Back in the day.

2005-02-04T13:58:00.000-08:00

Barry Goldwater, a real conservative who said what he meant, wanted to make Social Security 100% voluntary.

George Bush, used car salesman, figures he'll try making one-third of Social Security sort of voluntary.

Given all the talk of transition costs these days, let's imagine what it would take to allow some people to "opt out" of Social Security. Suppose you could choose to opt out, but you had to pay your share of the burden of paying benefits for everyone who has paid in to the system and has benefits owed to them.

What would your tax rate for those contributions have to be? With a rough, back of the envelope calculation, I calculate a liability of about 70% of GDP, or somewhere around $8.5 Trillion bucks, current value. That works out to about $31,000 bucks per capita, or $120,000 for a family of four, to immediately shut down Social Security but continue paying all benefits accrued.

OK. So, if you want to let someone now entering the workforce to voluntarily opt out of one-third of SS, you'd still have to charge them something like $20,000 bucks to cover their share of the legacy obligations to people who have already paid in to SS, and ALSO "claw back" one-third of their traditional Social Security benefits.

This is all back of the envelope calculations. But it does sound like people who are only going to be charged 3% real interest rate against full benefits in order to be allowed to voluntarily forgoe one-third of their Social Security obligations would be subsidized by everyone who stays in the system by about $20,000 bucks apiece.

If we weren't going to subsidize them, we'd have to charge a good deal more than just a 3% "clawback" for people voluntarily opting out of one-third of Social Security benefits.

But instead, it sounds like this will mostly be paid for by huge benefit cuts for everyone in the system, as well as a big runup in the federal debt.

Those huge benefit cuts will inevitably mean more people will want to stop participating in Social Security, since it will become a worse and worse deal.

Would the last person out, please turn off the lights? And hey, seniors, don't worry, your benefits will not be cut!

A simple proposal for the SS trust fund

2005-02-03T06:31:00.000-08:00

The US government currently is spending more than $1.40 for every dollar of revenue brought in "on budget".

Meanwhile, the old age Social Security trust is bringing in $477 Billion of FICA tax revenue and $78 Billion of interest, while old age benefit payments are only $413 Billion. That's a $138 Billion surplus, meaning the old age trust is bringing in more than $1.30 for every dollar spent.

But, we are told, the treasury bonds in the SS trust fund are meaningless. They don't represent borrowing that would have otherwise had to be financed publicly; instead, they are just worthless IOU's.

A simple solution to this problem is to uncap the FICA tax any year between now and about 2030 when the unified federal budget runs a deficit, and apply that tax not only to wage income, but also to capital gains, dividends, and interest income.

That would force the government to really balance the budget so fast that we wouldn't see another penny of red ink for 25 years. Lobbiests would line up pleading with the federal government to stop borrowing and spending.

Why do we have a budget deficit?

2005-01-30T23:37:00.000-08:00

The Club for Growth's Social Security phase-out website posted an item, You Can't Fix Social Security by "Taxing The Rich" , which postulates that federal revenues "began a scary decline during the last days of the Clinton administration, and that the 2003 tax cut "for the rich" has brought in more, not less, revenue.

The chart below shows a plot of federal spending and revenues for the "on budget" portion of the budget, which for practical purposes means the part of the budget paid for by income taxes. The graph plots these figures as a fraction of GDP. The plot in green shows revenues, while the red shows spending.

The most notable feature of this graph is that income tax revenues really fell off a cliff the past three years, compared with historical norms. If you review the spreadsheet data above, you'll find that on-budget revenues have not been this low since World War II, by a wide margin. Yet, as you can see from the chart, spending, which was constrained from 1993 through 2001, has grown considerably since then. Thus we have a combination of higher than average spending, along with abnormally low revenues.

This abnormally low revenue continued through the third year of an economic recovery, when revenues ought to be back to normal. Revenues finally seem to have hit bottom, but are growing now from an extraordiarily low level. Simply put, we're bringing in a much smaller fraction of GDP in revenues, while our on-budget spending as a fraction of GDP is now above the post-WWII average

The Club for Growth believes that if we restore the top marginal tax rate to the level Clinton set, federal revenues would go down, not up, because the top 1% of earners will stop working, stop investing, and go sulk in a hole if you raise their tax rate. "In the long run", we're supposed to make up for the gaping deficits with explosive economic growth.

But look what happened between 1993 and 2000. Clinton raised income taxes just for the top 2% of earners in 1993. Every year between 1993 and 2000, tax revenues grew. At the same time, federal spending grew more slowly than the economy. We went from record budget deficits and projections that deficits would stay near that record level as far out as projections went, to a balanced budget.

Meanwhile, economic growth during Clinton's two terms in office was the highest since the 1960s. The labor force participation rate hit a peak, and if some conservatives were sulking through it all, it was certainly made up for by exuberance from somewhere else that defied conservatives' predictions.

Unemployment fell consistently below five percent, again for the first time since the 1960s.

There isn't any empirical data that suggests marginal income tax rates around the level set by Bill Clinton in 1993 significantly constrain economic growth. On the contrary, there are "facts on the ground" that the sort of fiscal discipline the Clinton administration engaged in helps the economy more in the long run than borrowing money to finance tax cuts and spending beyond our means.

There's no good reason for the federal government to habitually bring in a lot less revenue than congress chooses to spend. Right now, the federal government is bringing in a whole lot less revenue than it is spending, and as the chart shows, the biggest gap is on the revenue side - we just aren't bringing in as much income tax revenue as we've brought in for the past sixty years.

Conservatives debate Free Lunch

2005-01-09T22:52:00.000-08:00

Today, the National Review Online debates the political merits of a free lunch , where we get to divert up to 40% or more of Social Security old age revenue to private accounts without cutting benefits. Excerpt below: .

The going is getting tough in Washington, so a lot of conservatives are going the other way. The White House is considering a Social Security reform that includes a substantial reduction in the growth of benefits. A number of influential conservatives say this would be "political suicide," to use the phrase favored by Newt Gingrich. Among the balkers are people who are usually White House allies, such as Gingrich and Grover Norquist. They are joined by Jack Kemp, longtime Social Security reformer Peter Ferrara, and some congressmen, all of whom want to push a personal-accounts bill with no benefit cuts. John Shadegg of Arizona, an influential House conservative, leans toward this camp.

I'm not prepared to endorse their argument, at least yet. In a future article, I'll explain some of my reasons for holding back. But it must be admitted that the so-called free lunchers make a strong case.

That case is almost entirely political. The argument is not chiefly that reducing the growth of Social Security benefits would be a bad policy, but that proposing such a reduction is too risky politically.

Anchoring the other side of the war among conservative factions, here's an economist's case against the free lunch bunch.

This progressive wonders why accelerating the date when revenues go negative from 2018 to 2006, while still leaving benefit payments in excess of revenues all the way out till 2050, is fiscally responsible in an era when "transition costs" are only accounted for during the first 10 year budget plan.

If you think it's bad that we'll have acknowledged "transition cost" of $1-2 Trillion during the next "10 year plan", it's worse that these "transition costs" will recur during the 10 year plans for the 2010s, 2020s, 2030s, and 2040s.

But worse still, all it would take would be an act of congress to switch back from "price indexing" to "wage indexing" anytime between now and 2050 to make those "transition costs" go out to infinity.

I suspect Newt Gingrich will win this debate, especially if the Bush administration leaves the heavy lifting up to congress.

Who can turn down a free lunch?

Who would benefit from private Social Security Accounts?

2005-01-07T09:30:00.000-08:00

Social Security provides a low risk, lifelong, inflation adjusted old age insurance benefit as well as disability and survivor benefits. The structure of Social Security old age benefits is an inflation-adjusted annuity.

Private fixed annuities are available now - these annuities provide a fixed lifelong payment, but not a payment that keeps up with inflation. And, these fixed annuities typically have a fairly high cost for a given level of benefit. This issue was studied by CBO when evaluating personal investment accounts as a component of Social Security. Table 1 of that report shows the discount from expected value available with current annuities. The report poses the problem:

If markets for private annuities are imperfect, however, those annuities may be costly or unavailable, and long-run gains from prefunding a privatized social security system may be smaller than suggested in some recent papers.

The conclusion is that private, self selected annuities have a lot of overhead. If annuities are an important component of retirement security, then the cost of converting personal Social Security accounts into annuities, as well as the market timing risks and the inflation risk, have to be compensated for to achieve equal value to traditional Social Security benefits. The overhead for converting to an annuity might be 10 to 20%, and the risks of inflation and of market timing significantly increase the assets required to assure lifelong livings standards.

Who might find the benefit of personal accounts exceeds these risks and costs

As it is currently structured, Social Security provides a secure complement to private retirement savings for those who have sufficient assets. The security of a lifelong, inflation adjusted annuity with survivor benefits allows those with adequate assets to take measured risks with retirement savings, as well as allowing them to plan to leave assets to heirs. Asset allocation models used for defined contribution savings plans like 401Ks build in the presumption of complementary Social Security benefits. Presumably, rational individuals using professional guidance would have to adjust their voluntary personal investment portfolios to achieve the same risk-adjusted profile they've had with a Social Security annuity. If they shift privatized Social Security assets into equities, they'd have to make an equal shift OUT of equity in their voluntary savings, to keep the same balance of risk.

If they trade off SS annuity benefits at a rate equal to the treasury bond yield plus 7/10ths of a percent, and they intend to replace the complementary security of a lifelong annuity, exactly how much more savings would they need to assure their minimum goals would be met?

You certainly wouldn't want to hold treasury bonds in your private Social Security account, since you'd be losing 7/10ths of annual yield at the start, in addition to the loss of the annuity benefit. You'd also lose the 10 to 20% cost for converting the account to annuity upon retirement.

But if you hold more equity in your privatized account, you'd want to adjust your risk in the voluntary savings. You'd need to shift out of equity into bonds there. Whoops! You just lost 7/10ths of a percent of annual yield. And you still have to compensate for the cost of converting to an annuity, plus add additional assets to compensate for the possibility you will outlive the fixed benefit annuity.

So, for those who already have adequate voluntary savings, the value of converting your traditional Social Security benefit into a private account seems questionable. As long as the government can keep its promise to pay, it's quite likely you'd want to stick with traditional benefits.

What about for those who don't have adequate personal savings, or for those who outlive their personal savings?

For those who lack or who have outlived their retirement savings, Social Security provides a safety net, assuring sufficient lifelong income so that most elders are able to maintain living standards above the poverty level.

The evaluation is different here, because there are few assets outside of Social Security to consider. There may be a benefit allowing these individuals to capture the equity premium, but for each dollar shifted out of a guaranteed anuity, there is a much bigger risk. Would we, collectively, require this group to purchase an annuity? Would the annuity have to be inflation adjusted and insured? Would compensating for these risks and costs require a larger program than a basic, simple defined benefit Social Security program?

Might we do better to try to capture the equity premium within the Social Security trust itself, and keep the benefit side of Social Security simple and minimal?

Objectivists in the Reality Based World?

2005-01-02T06:46:00.000-08:00

An opinion expressed over at the Any Rand institute extolls about the evil of foreign aid:

As the death toll mounts in the areas hit by Sunday's tsunami in southern Asia, private organizations and individuals are scrambling to send out money and goods to help the victims. Such help may be entirely proper, especially considering that most of those affected by this tragedy are suffering through no fault of their own.

The United States government, however, should not give any money to help the tsunami victims. Why? Because the money is not the government's to give.

The USA is spending $5 Billion a month nation-building in Iraq. The $35 Million of aide proposed by the Bush administration at the time of the above op-ed amounted to seven hours of Iraq funding. With the increase to $350 Million, now we've committed funding sufficient to maintain our presence in Iraq for three days, though hopefully, we haven't also offered two or three American lives that go along with the $350 Million of funding. At $350 Million, we've committed to 0.3% of the funding we've committed to war in Iraq.

I can't quite figure out the Ayn Rand Institute's position in our war against terror or in particular to our war against Iraq . Some of the objectivists seem to think we've botched things up, but the botching seems to be that we haven't asserted our force sufficiently to demonstrate our will to enforce our rationalist (god-given ?) right to the pursuit of life, liberty, and happiness. There generally seems to be some confusion about who the enemy is - a recognition that our first war in Afganistan failed because we didn't target the terrorists, but a breakdown of reason by jumping to the conclusion that states are the primary sponsors of terrorism. States, in the plural, no less.

Another interesting bit of surreality is the conclusion that the US, in pursing state sponsors of terrorism, must lose its inhibitions about collateral damage to innocent civilians in other nations, as well, apparently, as our concerns about casualties among our own soldiers, since we must fight a war to the finish and winning that war (eradicating ALL of the individuals in those nations that support the hypothetical governments that support terrorism) will require a serious ground war, not just a remote-controlled war.

But I digress. I'm not trying to fully understand how objectivists think about the US government's war on states that sponsor terrorism, or about the US government's actions in providing foreign aid relief for a disaster about 50 times the scale of 9/11 and 100 times the scale of the Florida hurricanes of 2004. I'm looking for a connecting thread of logic or reason between the two, instead.

If war is diplomacy by other means, and foreign aide is a form of diplomacy, and wars against states that sponsor terrorism put the USA into a position in which we're killing many more innocent civilians than the terrorists that sponsor terrorism - putting the US into a position of building nations in our image - shouldn't we also concerned enough about our image in the world, and particularly among Islamic nations, about the positive aspects of US policy? A carrot and a stick, perhaps?

At $350 Million for tsunami disaster relief, we've got a one-inch carrot compared with a 35 foot stick ($200 Billion and no apparent exit strategy for Iraq).

Perhaps the US government shouldn't be offering carrots, or helping hands, for tsunami relief at all. Perhaps in our enlightened self-interest, our government shouldn't be engaging with the world with that sort of diplomacy. But if not, then perhaps we should reconsider the much larger committments of force against the ozymoron of "states that sponsor terrorism", since no state sponsor of terrorism has ever attacked the USA.

If we can't see the comparatively low cost rational benefit of the US government taking a leading role in providing disaster relief in Indonesia, perhaps the USA would be best served by withdrawing from the world stage, rather than trying to remake the Middle East in our own image.