Bad math at Fox News

The other day I was working out and flipping channels, and I saw Fox News folks commenting about a recent poll that showed support for the public option in the health care debate. What struck me was that they were latching on to the fact that more of the respondents to the poll identified themselves as Democrats than as Republicans, and they claimed that this made the poll flawed. In fact, they specifically said that the poll should have sampled an equal number of Democrats and Republicans.

Nice sentiment, but bad math. The point of a poll is to figure out the popularity of an issue among the general population (or a specific subset of that population such as voting adults, or seniors, or such if that is the specific goal of the poll). If you believe that the poll should equally sample Democrats and Republicans, that is basically assuming that the percentages of Democrats and Republicans are equal, which they are not. Rather, the ratio in the poll of Democrats and Republicans, if done correctly, should approximately match the ratio in the target population, and this almost certainly is not 1:1, as the Fox commentators seemed to think.

I do not know whether the ratio reported in the poll does match the broader population; if it was off by a meaningful amount, then that would have been a sign of a potential flaw in the poll. But alas, Fox did not report this information, so I find myself strangely uninformed by their broadcast.

Obama wins the Nobel Peace Prize

This was a dumb decision by the Nobel committee. Really bad. It will only confirm the worst cynical accusations of political bias by the committee.

Don't get me wrong, I have nothing against Obama, and there are many things I like about him. But the fact is that he has not yet had any meaningful "peace" accomplishments. He's changed the tone of the debate, he's had great rhetoric, that's all well and good and in the right direction, but that's only a prelude to accomplishment, not an accomplishment itself.

I don't know if the committee was trying to reward those gestures - in which case it is premature and can be legitimately accused of fawning over the young presidency. Or perhaps it is trying to influence decisions such as how to proceed in Afghanistan, in which case it is truly political.

But without any concrete accomplishments to cite - just "hope" and "tone" - this debases the value of the peace prize as a neutral reward for making the world a better place. I really hate to say this, but this decision demonstrates the peace prize committee (physics/chemistry/medicine, so far, still appear untainted) to be far more politically oriented than they are supposed to be.

The smart thing here would be for Obama to turn down the prize, pointing out that he has not had any success yet that would warrant it. That would gently, gracefully (and diplomatically) chide the committee and I think Obama would actually earn a lot of credit for doing so. I'm not optimistic he will do so, though.

Health Care Debate

I've resisted weighing in on the health care debate because it's a super complicated issue about which I don't know a lot. But I've been listening and learning, and I have reached some conclusions, more about the debate itself than about any specific policy within it.

The first issue, I think, is how we characterize the problem. I don't generally quote communists or Chinese leaders, but Deng Xiaoping is widely credited with the quote "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice." While the quote probably predates him, the point is good: we should not be caught up in ideological purity, we should worry about whether a given proposal "catches mice." Labeling the various proposals "socialist" is not helpful. Whether or not the proposals meet the bar of being "socialist," the label is an emotionally charged one and it puts the recipient on the defensive at a personal level, which eliminates any chance of a productive discussion on the issues.

Even the implied personal insult of "socialist", we forget that the reason that we typically do not like "socialist" things in this country is not because they are "socialist" per se, but rather because most socialist solutions to problems are far worse at "catching mice" than free-market/private enterprise-based alternatives, and usually with other negative consequences (such as government control of decisions that we view as our own.)

These are good reasons to be exceptionally skeptical of "socialist" programs. We should, however, remember two things. First, we have had a number of generally accepted "socialist" programs for decades already - social security and medicare come to mind as two prominent examples - and they haven't destroyed our country (their biggest problem, I would assert, is that they are huge and growing budget items). The second thing to remember is that these two "socialist" programs are also hugely popular, and that politicians view them as 3rd rails. Funny thing: as a country we hate socialism but love socialist programs.

But there's a third reason we should take the word "socialist" out of the debate. As I said above, when comparing socialist solutions to market-based solutions, market-based almost always perform markedly better, which is why "socialist" has become a shorthand for "grossly inferior to market based solutions." But alas, in healthcare the "free market" is quite distorted in many significant and fundamental ways, so it is not at all obvious that "socialist" would be worse the way it would be in other similar situations.

Anyhow, my point above is NOT to defend socialist solutions to our healthcare problems (heck, if we can find a way to fix the market, that strikes me as vastly preferable.) Rather, it is simply to argue that the name calling is not helpful, and far better would be to judge whether one model "catches mice" better than another model.

Alas, this leads to the next question: what does it mean to "catch mice?" I think a huge part of the gap between our leaders is that there is no real agreement on the problems to solve, on what "success" looks like. Broadly speaking (and at the risk of stating the obvious), many Republicans believe that the system is basically sound, but needs incremental improvements such as malpractice reform, better use of information technology, and such. And obviously, they want as little governmental role as possible. Many Democrats believe that the system is fundamentally broken and needs more structural changes, including a stronger role for government.

Since there isn't agreement on the problem, we're unlikely to find agreement on solutions.

My personal view, as is often the case, is somewhere in between - we need to fix what's broken, but I don't see any reason to upend the pieces of the system that do work. I think there are areas, such as uniform insurance regulations or requirements for everyone to have some sort of insurance, or portability, can only be done by the federal government. But I also do not welcome a huge new government bureaucracy managing health care, even if such a thing already exists with Medicare.

Many on the right have spent all their time trashing the various Democratic plans, which is a shame because frankly I'd like to better understand their own definition of the problem and their proposed solution. I suppose such is the lot of being in the minority.

But there are quite a few for whom it seems the best solution is "do nothing." I cannot support that position. We do have very good healthcare in this country, but it is not demonstrably better than in other countries, and yet we pay more per capita than other nations. This strongly suggests that something is wrong, and it shouldn't surprise anybody. Healthcare, after all, is a highly distorted market:

• Consumers (patients) do not weigh cost/benefits (as they would in any functioning market), and have no incentive to do so. (This is not necessarily a bad thing, after all - we want people to get the care they need.) If they have insurance, then that will pay for everything after a duductible or co-pay. And with or without insurance, this is people's health so they will make decisions not on the economic inputs but on whether they can get well.
  
• Doctors have few incentives to contain costs. First of all, most doctors are fee for service, so they get paid for doing more, not less procedures. But more to the point, our litigious environment strongly encourages the doctor to do everything possible to ensure that nothing gets missed.
• People without insurance make disproportionate use of emergency rooms, which is one of the most expensive ways to provide health care. People don't get denied care here, even if uninsured, so this cost gets absorbed into the system and ultimately gets paid for by insurance premiums of covered people.
  

(NPR's Planet Money podcast, by the way, has done some great stories recently specifically explaining the economics and incentive structure in our current healthcare system.)

As a result, nobody should be surprised that insurance rates have doubled in just a few years or that insurance companies deny coverage to customers that could cost them money. In fact, I believe that we should be seeking universal coverage not because it's a wonderful lofty "human right" goal as the left often portrays it (that's not a sufficient reason, laudable though it may be), but rather because (a) we're paying it anyway by covering the uninsured in emergency rooms, and (b) we're paying higher rates than we would need to if everyone - including healthy people who don't use a lot of services - is paying into the system. That's the purpose of insurance, after all, is to spread the risk around. (I've blogged about this previously.)

So we have a pseudo-free-market system. Once can try to remove these distortions and let the markets do their gloriously efficient thing. Or we can say that it's fundamentally not a market system and try government. My instincts are to try the former and only go to the latter as a last resort, but I reach the limits of my competency in this space when I try to suggest my own solutions, so I can only use these guidelines to judge proposals made by others.

I have come to a few conclusions, though:

• The status-quo is going to become ever more expensive. So while I cringe when I hear the huge price tags associated with the various proposals in congress, I remind myself that the right metric is NOT what the cost of the program is. Rather, the metric is how that cost compares with the cost to the economy of doing nothing.
• The "Rationing" scare is a red-herring. The fact is that we have rationing today, based on economic situation (which is acceptable in a functioning market, which is not what we have) and by insurance company bureaucrats. People are concerned about government bureaucrats making health care decisions based on cost, but does it really make any difference if that bureaucrat is paid by the government or by an insurance company? Black cat/white cat. In any case, unless one supports the idea that everybody should have unlimited access to unlimited healthcare regardless of cost (which I presume nobody actually supports), then one necessarily accepts "rationing" of some sort or another. So the question is not whether there is rationing, it's a question of finding the best mechanisms for doing that rationing.
  
• The fundamental issue is that treatment is and always will be more expensive than healthy maintenance. The best thing that we can do to lower the cost and improve the quality of health care in this country is to provide incentives for healthy living and disincentives for unhealthy living. Obviously someone falling and breaking an arm, or suffering from a genetic disease are not the results of lifestyle choices and thus it is not fair to penalize people for this. But when lifestyle choices - smoking and obesity are two obvious examples - put a burden on the system that do not come with corresponding economic consequences, there is yet another market distortion to correct. And correcting that can lead to vastly more efficient (by which I mean "high quality at low cost") health care.
  

Joe Wilson Racist?

So now even Jimmy Carter is spouting off that Joe Wilson's "You Lie!" outburst was racially motivated. C'mon, people, this is ridiculous speculation. There's no way to prove that it wasn't racially motivated, and there's only one way to prove that it was (namely Mr. Wilson coming out and saying it was racially motivated, which I'm not expecting him to do), so it's pure hypothetical speculation of the form "it could be true and it can't be proven false, so it must be true." Never mind that there is plenty of evidence to suggest that the true motivation for the outburst was (gasp!) political.

This is frankly a waste of everyone's time to debate such issues.

Racism is a real problem and it exists in many places, sometimes openly, sometimes subtly. But it is counterproductive to the goal of eliminating racism when we make it up where it doesn't exist. Let's get angry about real instances of racism. And it is especially counterproductive to useful debate when people who disagree (even rudely, as Wilson did) politically with a black president are labeled a racist or "uncomfortable with a black president."

And another good post on global warming

With all the "heat" (pardon the pun) around global warming, local meteorologist Cliff Mass has a good comment about the recent heatwave in the Pacific Northwest and what it means in the bigger picture of "climate change."

I don't know if I could have said it better myself.

A great post on TechDirt about how media companies are taking entirely the wrong approach to their customers. I've blogged before about how various industries (airlines and the recording industries in particular) seem to hate their customers, and this Techddirt post does a great job of making my point for me, both from the business model perspective and from the legal perspective.

Quit calling it a "tax"

The Waxman-Markey bill, which would establish a cap-and-trade system for carbon emissions, is making its way through congress. While I do favor the establishment of a cap-and-trade system, my purpose in this post is not to debate the merits of such a system in general or of Waxman-Markey in particular, but rather to focus on one part of the debate over the bill which I think is disingenuous: calling it a tax.

Cap-and-trade is fundamentally different from a tax in just about every sense of the word, especially so if the carbon emission credits are initially given away (and in Waxman-Markey as it currently stands, 85% are given away).

So why is this different from a tax? I see at least 4 reasons:

• Other than the initial auctioned permits, the government is not receiving revenue from the cost of carbon permits. Taxes are levies where the money goes to the government. In a cap and trade system, most of the money is going into the secondary markets. And the initial auction permits are no more a tax any more than the government selling radio spectrum could be called a "radio tax." If the government has a valuable resource owned by the people (such as radio spectrum or the right to pollute), it is quite reasonable to get compensation for letting individual people or companies use that shared resource; this is a permit, not a tax. Any amount that individuals pay on the energy bills is not going to the government, which makes it difficult to call it a tax.
  
• Tax rates are set by governments, not by markets. In a cap and trade system, markets set the price for carbon emissions. If the price goes up, the government does not make any more money. If the price goes down, the government does not lose any more money (again, excluding any initial sales of auctions).
• Taxes cannot go to zero by the behavior of the people being taxed. But under cap and trade, if the economy produces less total carbon than the cap allows, then the price of carbon can go to $0. This would actually be a good thing (though I don't expect it will actually happen).
• You're not allowed to offset your taxes, but you can in cap and trade. If I go into a high tax bracket, I can't average my salary with a homeless person's salary to get a lower tax rate. If I buy a house, I have to pay taxes on the land even if I give land away somewhere else. True carbon taxes have also been proposed, where the emitter would pay a price (probably set by the government) for each ton of emissions, regardless of how many trees they plant or how much they reduce carbon elsewhere. But with cap and trade, if I raise my carbon here and lower it there, I have no need for more permits and thus pay no more.

I'm not trying to argue that cap-and-trade systems have no cost (they certainly do), or that this particular bill is either a good implementation of cap-and-trade or effective at fighting climate change (I actually don't know enough to answer that, although my inclination is "yes" if only because it establishes a price for carbon, which currently has a rather arbitrary - and almost certainly incorrect - price of $0.) I'm sure there are lots of valid arguments against this bill, or against the timing (although I'm getting somewhat tired of the weak arguments that we shouldn't do anything at all, especially the arguments that climate change is a "hoax" or has no manmade cause).

Rather, I just want to make sure that we're calling this for what it is: it is an attempt to put a price on carbon, which is currently unaccounted for in our economic activity. This is a fundamentally different thing than a "tax."

The US position on the Iran elections

There's been a bunch of consternation over the past week over whether or not Obama has taken a tough enough stand on Iran's elections. He resisted for a while and finally gave in to the pressure, condemning the violence and repression of the demonstrations, while not directly saying that the election was a fraud. This I think was an appropriately tough stance.

Last week, Congress voted overwhelmingly to condemn Iran. I think this was a mistake.

Shouldn't we be supporting democracy and human rights around the world? Of course we can. The problem with the congressional vote and with a stronger statement from Obama is simply that it is counterproductive.

Look, everyone knows that the Iranian election was stolen. Saying so only gives the regime an excuse to say that the opposition is a puppet of the Americans, and as such actually hurts the cause of democracy. (Never mind that Mousavi isn't exactly our dream candidate). Pointing out that the election was a sham won't get them to change it and simply gives them an excuse for a crackdown. We should just be quiet on this point.

Focusing on the repression of demonstrators (rather than the election itself) makes much more sense, for the simple reason that it is not a direct commentary on a political process, and that beating up civilians is a much less tenable position than claiming that a rigged election is legitimate.

Dumb application of copyright law

Once again we have various content organizations misapplying copyright law. First, the usual caveat that I am not a lawyer, I'm approaching this from a layman's point of view regarding what the purpose of the law is, and what constitutes reasonable application thereof. Now we have ASCAP claiming that ringtones should be subject to a royalty each time they are played, claiming that it amounts to a "public performance."

An analysis based on the law is here, which reaches the conclusion that this is an untenable position to take, but I'll provide my own reductionist reasoning to prove that ASCAP is being ridiculous.

In fact, I have created my own ringtones out of music that I have legally purchased. The copyright holders for that music would probably believe that I need a separate license to use the music as a ringtone, but I believe that this is an unsupportable position.

I'll do this step by step. Please stop me (especially if there are any lawyers reading this!) at the point that I cross a legal or ethical line.

1. I purchase a song from Amazon. Technically, I have purchased a license to play a song and the MP3 file representing that song, but I do not have rights to "public performance," I do not have rights to resell it or sublicense it, etc. Since Amazon has not been sued for the MP3 business, I will assume that this is entirely kosher.
   
2. I put the music on my iPhone. It's an MP3 player, it seems hare to argue that putting MP3 files on an MP3 player is problematic.
3. I put my iPhone into a docking station with speakers to listen to it. This is where ASCAP is making the dubious claim that a "public performance" is taking place because others could walk by and hear the music. But that claim is ridiculous because people have been able to listen to music on boom boxes in public for decades and nobody has ever claimed that this crosses some "public performance" line unless the music is clearly there with a purpose of entertaining other people. I.e., if I own a bar, then I may need to pay royalties for playing music for my customers. But a private party is OK because it's private, and if I go to the park and listen to the music while I lie in the sun but other people passing by can hear it that's also OK because I'm not doing it for their benefit - I'm still enjoying music that I have every right to listen to.
4. Now I decide I like this song so much I'm going to play it over and over again. No violation here - that's something I'm allowed to do. I could do it with records, with tapes, with CDs, an MP3 is just a different medium.
5. In fact, it's actually just the first 30 seconds of the song that I really like, so every time the song gets 30 seconds in, I rewind it and start over. Again, something I could do with all previous media, and nobody ever claimed that I am somehow legally or ethically required to listen to the full song.
   
6. I get so tired of selecting the song, playing it for 30 seconds, and rewinding it to play it again that I program my iPhone to play that song whenever I press a button, wait 30 seconds, and then stop it. I haven't changed anything here but the means of activation, which clearly is not covered by copyright law. I.e., copyright law covers the rights to the music, not the user interface for the player of that music.
   
7. I decide that a physical button is too much work and instead decide to hook up the button to an electronic signal that is triggered whenever somebody calls me. Again, I have simply changed the activation method.

Presto, in seven perfectly acceptable steps I have a ringtone. Of course, the copyright holders and/or Apple would far prefer that I purchase a ringtone from them, and that's fine. (In fact, on my iPhone, I have to go through a few contortions to do the above process - they've deliberately made it obscure how to do this precisely to support purchase of ringtones rather than do-it-your-self.) But they cross the line when they demand that I do so or claim that somehow I am unethical or breaking a law when I do so. As long as I have purchased the MP3 and did not explicitly agree to additional contract terms (i.e., beyond simple copyright), I am entirely within my rights to do so (and even then, if I violate the contract then I have not broken copyright law but rather have broken a contract - a civil matter). And if the phone rings where other people can hear it, oh well. It's simply not a public performance anymore than playing a legally purchased CD on my boom box where others can hear it is.

This seems to be a specific application of a more troubling broader trend by content holders. The purpose of copyright is to protect content owners from the stealing of their intellectual property; this is a perfectly reasonable goal. When you buy an album or a movie you are really not buying the content per-se, but rather buying a license to consume it. (This is why you cannot legally make copies and redistribute it; that is beyond your licensed right.) But over the past ten years or so, we are seeing more and more attempts to control the exercise of that right, not just the granting thereof. The DMCA, for example, makes it illegal to copy a DVD to your computer's hard drive (because doing so requires bypassing the anti-piracy encryption on the DVD), even though the specific medium (DVD or hard drive) is immaterial to one's right to watch a movie. The ASCAP claims are another example of not only controlling whether you can consume their content (which is reasonable) but to also control the where/when/how of that consumption, which is a disturbing trend and which should not be enshrined in law.

More homegrown terrorism

The shooting at the Holocaust museum in Washington DC earlier this week reminds us that the threat of terrorism is not confined to foreigners or to followers of any particular religion. And yes, it is terrorism: the shooter targeted innocent, non-combatant civilians in order to make a broader political point. If that isn't terrorism than I don't know what is.

This is why we must go beyond basic profiling or bureaucratic mechanical charades that value appearance over actual provision of security. Terrorists can be hard to identify (although it seems that in this case, von Brunn, the accused shooter, had a long and public history of indications that he could do something like this), and neither removal of shoes at airports or the closing off of public areas do anything meaningful to help identify them. It takes intelligence and behavioral observations - tasks which are less easy to farm out to $10/hr unionized rent-a-mall cops, but which ultimately yield much greater bang for the buck in terms of actual security.

Why China doesn't deserve the respect it craves

Two words: "North Korea."

Despite all of the good it's done economically for China, the Beijing government recognizes that it would likely not remain elected were it freely chosen by its population. This is why it bristles so strongly at any notion of "interference in internal affairs." It values stability (translation: status quo, with it in power) above all else, and thus it is unacceptable for other nations to so much as comment on how the Chinese regime runs its affairs.

Alas, China also wishes to be respected as a first rate power on the world stage, and this desire, unfortunately, runs headlong into their first goal to be left alone in their authoritarian ways. Nothing exemplifies this more than North Korea. Here is an outlaw nation, which flouts every standard of civilized behavior both within and beyond its borders, which abuses its population mercilessly and threatens other nations recklessly. It is a problem which must be dealt with. And it has one clear Achilles heel: it is utterly dependent upon China.

China thus has a dilemma. It can do the right thing on the world stage and show that it is a responsible member of the world community, not a threat to others, a nation whose power others should welcome rather than fear. In other words, it can wield its influence over North Korea - by carrot and by stick - to get that petulant brat of a nation to behave or face consequences.

Or China can take the cowardly and self-serving approach of "stability" and consistency with its own mantra of not meddling in any other country's internal affairs. After all, if it is OK to influence a country from the outside (no matter what manner of evil is happening within that country's borders), that opens China up to similar inspection from the outside. It's pretty obvious that if Hitler were to come to power today that China might make some weak statement of protest, but would utterly refuse to stop trade in Zyklon B. After all, cutting off trade would be meddling in the internal affairs of another country. If you think this is a harsh statement, consider that genocide is occuring in Sudan, and China is doing a brisk business there.

True leadership and maturity come when one does things that are not necessarily in one's own direct interest, when one puts the broader good ahead of one's own personal good.

China is being tested, and it's obvious which approach it is choosing. And as long as it does so, it proves that it has not matured to the point where it deserves respect in world affairs. It simply is not yet a constructive member of the world community.

An ubelievably bad argument against gay marriage

RNC chairman Michael Steele tried the other day to turn the argument over gay marriage into a financial one. Here is what he said:

"Now all of a sudden I've got someone who wasn't a spouse before, that I had no responsibility for, who is now getting claimed as a spouse that I now have financial responsibility for," Steele told Republicans at the state convention in traditionally conservative Georgia. "So how do I pay for that? Who pays for that? You just cost me money."

I think Jon Stewart on the Daily show and Matt Bandyk's comments in US News and World Report pretty well summed up how farcical this particular argument is, but I'll pile on as well.

Specifically, I think this line of reasoning has one of two logical consequences:

• Since this is true for straight marriages as well, this would mean that Steele - head of the party that prides itself on its support of traditional family values - is arguing against straight marriage as well, since that obviously also costs business owners the cost of providing benefits.
• Or perhaps he's making an alternate point that businesses are currently able to save money by hiring homosexual employees, and allowing gay marriage would erode this current savings. Republicans have also traditionally been the ones who opposed what they perceive as "special rights" for gays; a policy that promotes the hiring of gays over straight people (who run the risk of getting married and thus driving up costs!) sounds like a special right to me! As a married heterosexual, I find such a policy of discriminating against non-gays to be quite disturbing.
  

I don't offer any of this as an argument in favor of gay marriage (with which, as it happens, I don't have a problem), I'm just pointing out that the absurdity of this particular line of reasoning. If this is the best argument against gay marriage, then there is no real debate here. Bring on some real issues we can discuss!

Why I like Wikipedia

A common refrain I hear about Wikipedia is that it is not to be trusted because anybody can edit any article, that unlike a traditional encyclopedia, there is no enforced expert review of articles. While those observations are true, I think dismissing Wikipedia as a result is the wrong conclusion to draw from them.

It seems to me that in general, the very fact that the broad community can edit articles is actually Wikipedia's strength. The argument behind this is essentially the thesis of the book The Wisdom of Crowds, and can be summarized as this: large groups of people - including experts, amateurs and even crackpots - collectively contain more wisdom on a given topic than any single expert.

We actually see this every day in the stock market. What is the value of a specific company? Any given stock analyst - who we typically consider experts in the field - can give an answer to this, yet multiple analysts often disagree with each other by a considerable degree. So why would we trust any one of them to give a "valid" answer when we have no way to know whether one is any more accurate than another? Well, we actually do have a way to know this: the stock market itself - composed of experts, amateurs, and crackpots alike - does a pretty good job ("pretty good" is a key qualifier - I'll come back to that below) at figuring out the value of a company, and most people put a lot of trust in that value, and it is remarkably accurate at doing so over long periods of time (i.e., not so much on a day-to-day basis).

The same dynamics are at work at Wikipedia. Any given article is created and edited by a collection of experts, amateurs, and crackpots, and yet the net result can be remarkably accurate - not perfect, but "pretty good," as with the stock market.

Just as there are day-to-day fluctuations in a stock's value that have nothing to do with its intrinsic value, there are edits that are made day-to-day to articles on Wikipedia that may be accurate, biased, or outright nonsense. This is what Wikipedia's naysayers tend to focus on, but I think it misses the point. Rather, the more interesting fact is that Wikipedia's community and process has a set of rules that not only allow anyone to edit, but also anyone to flag something as problematic, so that discussions can take place and - equally important - controversies can be exposed.

Pick an article on, say, butterflies, and you're not likely to get a lot of controversy. Pick an article on George W. Bush and you're likely to get somewhat more. Readers do need to understand that while Wikipedia in general is quite accurate and unbiased, that any given assertion in any given article may or may not be; one must decide for oneself how much to trust these statements. (This, by the way, is why Wikipedia values references and attributions for assertions).

Yes, Wikipedia can be gamed, yes it can be flawed. But for the most part, it is like the stock market - much more comprehensive, up-to-date, and (yes) accurate in the big picture than any collection of "experts" could produce.

Cuba policy

Yesterday the Obama administration eased some restrictions on travel and transfers of money to Cuba. Seems to me that this is a reasonable step to take.

I've thought for a while that we should scrap most of our current embargo against Cuba. To be clear, the Cuban government is an evil dictatorship that abuses and represses its people, and we should not be supporting it. But I think our Cuba policy is emblematic of a mistake that we make quite frequently in our policies: we very often confuse what is justifiable or morally right with what actually achieves worthy goals. We're all familiar with the admonition that the ends don't justify the means. Our Cuba policy is a great example of the inverse to this rule: justifiable means failing to achieve our end goal.

The Cuban revolution was 50 years ago. We've been using the embargo to try to undo the revolution for 50 years. And yet Castro is still alive and has achieved a peaceful transfer of power. And meanwhile, other nations have established productive trade relations with Cuba, which means that they not only fill in the void left by the U.S. but also make it harder for us to eventually establish similar relationships. The net result is that I suspect we hurt ourselves much more than we hurt Cuba. I think that anyone who claims that the policy of isolation has been effective is out of touch with reality.

So why do we cling to it? I suspect it's two reasons: primarily the distaste for "legitimizing" the Cuban regime (never mind that that cat is out of the bag), but the other reason is of course the political clout of the Cuban-American community that cannot let go and has a degree of political clout that is quite disproportionate to their size.

My personal opinion is that we should hold our noses and scrap the embargo. We can achieve more change in Cuba through a bear hug embrace than we can through an arm's length relationship. China and Vietnam are political paradises by nobody's standard, but their populations today enjoy both a much higher standard of living and considerably more freedom than they enjoyed just 20 years ago, all due to engagement in trade. Having a Cuba that is like China or Vietnam, while distasteful, is certainly a step up from what Cuba is now.

It's been 50 years and the policy of isolation simply hasn't worked. If for no other reason than that, we should try a new policy.

Is Canada preparing to attack the US?

I'm getting quite worried about an imminent attack on the US, and this time the threat is not from radical Islamicists. I fear that our neighbor to the North is plotting an attack.

All of the evidence is there, if we as a nation would only open our eyes and face up to the facts.

First of all, I notice that Canada has slowly been creeping closer and closer - almost imperceptibly - until it has come right up against our northern border. In fact, if you just step across the 49th parallel from south to north, you'll discover that Canada is right there!

They've also been moving their populations closer to us in anticipation of an attack. Something like 75% of all Canadians live within just 90 miles of the US border! They seem so friendly, those Canadians, but why else would they be inching their country and their people so close to us if there were no underlying sinister intentions?

Finally, I'll point out the most shocking fact of all: Canada has quietly gone ahead and created their own military, their own government, and has even begun printing their own money. Why would they do these things if not for an intent to govern? Clearly they are intent upon imposing themselves upon us, usurping all for which we stand.

It is time for Americans to recognize the Canadian threat and go to defend our borders!

Twisting fairness

This morning I read a news article about an Obama administration proposal to raise taxes on the wealthy. One of the mechanisms for doing this in the proposal is to cap deductions at the 28% tax bracket.

In other words, someone in the 28% tax bracket who makes a $100 donation would effectively get a full $100 reduction in their taxable income (and a corresponding $28 reduction in taxes owed), but someone who is in the 35% tax bracket who makes a $100 donation would effectively only be able to get an $80 reduction in their taxable income. (To help with the math here: they would get the same $28 reduction in taxes as the 28% tax bracket individual. Since they are in the 35% tax bracket, this is equivalent to a reduction in taxable income of $80, since 35% of $80 is $28.) In other words, people in high tax brackets could only deduct 80% of their donations.

The piece of the story that raised my hackles a bit was where they said "White House officials said it is unfair for high-income people to receive a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions."

This is twisting the notion of "fairness" into a pretzel, and it is an unfair (pardon my pun) characterization of how the tax deductions work.

The problem arises from the fact that we have a progressive tax system, which is by definition unfair. I don't say that as a judgment about progressive taxation - in fact, I am quite OK with it - but let's not kid ourselves by pretending that it is "fair." "Fair" means everyone gets treated equally, and progressive taxation explicitly makes a point of NOT treating everyone the same; only a flat tax would truly be "fair." We (generally) accept this unfairness, though, because it has pragmatic benefits for the country as a whole, among them (a) it allows for a lower rate of taxation for the poorest people than a flat tax would allow (for a particular level of revenue), since the wealthy effectively subsidize the poor; (b) the wealthy are presumably most able to contribute and have most benefited from societal infrastructure that made their wealth possible, so it is reasonable to ask them to pay more than others, and (c) even the higher tax rate on the wealthy consumes a smaller percentage of their required income for necessities like food and housing. It's certainly possible to have too much progressivity in the income tax (perhaps we do today, though I doubt it; it's less progressive now than it has throughout most of its history), which can amplify the differences in taxation, but the right level of progressivity is not something I feel competent to debate. My point is that if we as a nation agree to have progressive taxation, then we have thus decided that an intrinsically unfair system is something we're OK with.

Given that, to imply that people in the 35% tax bracket should not get the full deduction from charitable giving is not correcting an unfairness; rather, it is compounding unfairness upon unfairness. In particular, it conveniently forgets the fact that the high-income person seeking the deduction is already paying a higher rate of taxes. So it seems quite hypocritical to complain about them getting a bigger deduction than the 28% tax bracket donor without complaining that they are already paying more taxes on $100 of incremental income than that 28% tax bracket earner; one cannot occur without the other, after all.

So if one is to accept a progressive tax system, which has an inherent unfairness built-in, the only "fair" thing to do is to allow that wealthy individual to get the full write-off of a deduction.

As an aside, this is also precisely the reason that I get annoyed when people complain that "the wealthy" get all of the benefits of a tax cut. Well, duh - it's because of precisely this math. The wealthy pay the most in taxes, so if you cut their rates, it has the greatest dollar effect on the wealthy. It's another immutable attribute of a progressive tax system.

If all of the above sounds like a rant against progressive taxes or against taxing high-earners, please don't take it as such; I don't have a philosophical problem with either concept, and I don't think the practice has been carried beyond any appropriate boundaries. My problem is simply with the notion that the White House is advancing that somehow we should compound unfairness in the name of being fair.

As a policy matter, I'd also add that this is a bad idea for another reason. As a nation, I'd think we'd want to be encouraging high-earning individuals to be giving more to non-profits and similar, especially in tougher times when people at lower income levels are giving less. It's high-earners who are going to be providing a larger portion of non-profit budgets over the next few years. This tax proposal specifically provides a disincentive for that, which will undoubtedly lead to lower giving.

If the administration wants to tax the wealthy more, then right way to do it, frankly, is to be upfront and honest: raise the top tax bracket by some nominal amount, but let people continue to take deductions to reduce their income dollar for dollar.

But it serves no purpose to distort the concept of "fairness" to make something palatable that is wrongheaded.

Wow, I sure hope it works

I have been learning a lot lately about Keynesian economics from all the economic news of late. The gist of this theory is that massive government spending can help pull a nation out of recession, in the same way that World War II is often credited with ending the Great Depression. Of course, this also has obvious impacts on interest rates, inflation, and the national debt; in fact, the Congressional Budget Office predicts that the stimulous plan could increase output by 1.4%-4.1% by the end of this year, but that it would actually lead to a shrinkage of 0.1-0.3% by 2019.

I've always been something of a deficit hawk. I don't mind carrying a small deficit: debt provides leverage, a little of which is a good thing. But the current crisis and collapse of so many financial institutions illustrates beautifully the problems of too much leverage when things turn sour. One should always have the cushion of being able to fairly easily take on more debt; if you're at your debt limit, you have little margin for error, and little maneuverability. But being a deficit hawk must also have its limits: attempts to balance the budget and tighten the money supply are widely blamed for exacerbating the great depression.

So what do I think of the Obama plan? Well, if Keynes was right, then it's probably the right thing to do, regardless of whatever warts it has. And if Keynes was wrong...well, I hope that the spending is at least productive and useful. Trouble is, I don't know which it is.

Either way: I'm very disappointed to see such lopsided voting. This is problematic for a few reasons. First of all, it suggests that for all the talk of bipartisanship, it isn't actually happening. Secondly, I want both parties to have skin in the game. When significant legislation passes with only one party's votes, then the other party can play blame-game and use it for political gain later. The Democrats did this during Bush's tenure, and the Republicans seem to be doing the same. If it's a more evenly distributed vote, then both parties are making a commitment to solving the problem and giving up the opportunity to use the vote as a political weapon. Finally, the lopsided vote certainly reinforces the suspicion that Democrats are more interested in pet spending projects or advancing other agendas than in a bill that is truly targeted to economic stimulus and only economic stimulus. I get that the Democrats won the election, but they are repeating Bush's mistake of confusing a victory with a mandate.

Taking DNA samples upon arrest

There is a somewhat controversial proposal in Washington State to take a DNA sample from people when they are arrested, regardless of whether or not they are charged with a crime (much less convicted).

I confess that I don't understand why this is controversial. If it's OK to take fingerprints from arrested people (and it seems to be), then a DNA sample is really nothing more than a far more accurate (and more commonly left-behind at the scene of a crime) means of identification. As long as the DNA sample is, like fingerprints, used strictly for identification purposes (rather than, say, determining hereditary diseases or other genetic information, which absolutely would be a violation of privacy), I can't see how this would be legally distinguishable from fingerprinting.

After all, the taking of fingerprints upon arrest is to enable identification, so the legal underpinning for this practice must supports the notion of enabling future identification. If that's the case, then DNA samples meet the same bar in terms of what it accomplishes.

Conversely, if DNA samples are somehow unconstitutional as an identification mechanism (again, assuming that it isn't used for anything beyond that), then it seems to me that fingerprinting must also be unconstitutional.

I usually agree with the ACLU's point of view on things, and I'm certainly not wild about increasing the government's ability to keep tabs on citizens, but I don't understand the distinction the ACLU proposes between fingerprints and DNA samples in opposing this measure.

Stimulous problems

Two details related to the bailout and the proposed stimulus bill caught my attention.

The first is the proposal to limit executive pay to $500,000 at any company receiving bailout money. This is a classic illustration of something that is a great idea that is nevertheless a terrible idea to mandate. Should companies that are receiving taxpayer rescues be paying obscene compensation, flying fancy private jets, etc.? Of course not. So if it's such a bad idea to engage in such practices, why is it a bad idea to ban them in the strings tied to the money? The biggest reason is the classic law of unintended consequences.

In particular, companies today argue that if they don't pay a lot of money to their CEO, they will not be able to retain good CEO talent. They're half right about that, but not in the way that they think. They will be able to retain their lousy CEO that got them into the mess because THAT CEO has nowhere else to go in this economy. But think about what is undoubtedly the best course of action for many troubled companies: they should dump their existing overpaid CEO and bring in smart, proven turnaround talent CEOs. I suspect that good turnaround artists are in fact in high demand right now, and $500K seems like it could well be a small salary to dangle for such a high-stress and high-risk role. (Yes, turnaround CEOs should be taking equity compensation to align long-term interests, but there typically needs to be a strong salary component as well to recognize the risk). At the very least, it is an arbitrary number.

Another example: Corporate jets. A corporate jet that is used as an executive perk is obviously wasteful and not a good use of taxpayer dollars. But there are many companies that in fact use their jets for very productive purposes, and for which a corporate jet actually makes operational sense. (I think our own president provides an example of this. Do we really want the President flying commercial?) A fact of airplane economics is that the fixed costs are enormously high, so any additional flying actually lowers the overall cost-per-hour of flight, so - assuming that the company is properly compensated (i.e., reimbursed at appropriate market rates) - letting a business jet make additional flights for personal reasons can actually lower the cost of business for the company. I am not saying that many companies with corporate jets do in fact make economically sensible use of them; I'm simply saying that corporate jets are not a-priori wasteful and inappropriate.

There are more, but in general even with the best of intentions (and the intentions behind this provision are noble indeed!), government is not good at running businesses, and this is a one-size-fits-all approach that in practice will likely be one-size-fits none.

The second stimulus detail to catch my eye is the "buy American" restriction that is proposed. There's a great commentary on this in the Los Angeles Times, but this is another case of Great Idea/Bad Rule. Do I want money spent in America on American products and services? Heck, yes. But it has to be because the right products/services are here. And it is in our interests and the interests of our economy to have healthy trading partners who also prosper and become customers for American products. Protectionism has been shown time and again to reduce overall trade and raise prices, which are precisely two outcomes we do not want to have. In fact, there is a lot of evidence that the Smoot Hawley Act was a factor in prolonging, rather than relieving the depression. Why on earth would we do something that is likely to make things worse?

While I take points away from Obama for letting the whole stimulus bill get weighed down and lost, I give him credit on this one: he has signaled opposition to the Buy American provision. Good for him. As painful as it might be for stimulus money to go out of the country, that medicine is almost certainly less painful and more effective than protectionist restrictions.

Taxes

Twice yesterday I received an email that is being forwarded around that lists all of the taxes that we pay now, claims (erroneously) that 100 years ago none of these existed, etc. and basically makes the point that taxes are simply too high.

I think that this claim is meaningless at best and whining at worst. It's like making the claim that "boxes are too big." Ummm...ok, boxes are too big...for what? Which boxes? A matchbox is too big too hold a crumb, too small to hold a dishwasher.

The claim "taxes are too high" only has meaning in relation to what we get for those taxes. If the government's budget is $1, then our tax rate is clearly too high; if the government's budget is $10 Trillion, our tax rate is clearly too low.

So I think that any productive claim about tax levels can only be had in relation to:

• How much is government spending, and whether it is too much or too little (and, of course, whether it can be done more efficiently)
• How much financing we are willing to bear to support that level of spend (some national debt is a good thing, too much is a drag on the economy in the same way that too-high taxes are also a drag)
• How the tax burden that remains is distributed among taxpayers.

Only in this context can any statement about whether taxes are too high or low have any meaning whatsoever. Thus I tend to be quite dismissive about claims that our taxes are too high (never mind that for much of the past hundred years they've been a lot higher) when they come without corresponding suggestions of significant spending to cut.
There are additional arguments for lower taxes. One is the trickle-down argument, whereby lower taxes lead to greater economic activity, which leads to higher overall receipts. I'm not an economist so I can't evaluate the merits of this although it does seem like a reasonable theory. But it doesn't change the fact that it is still arguing for alignment of tax revenue with spending. The other argument is "starve the beast" whereby reducing revenues will lead to lower spending. Again, this still tries to reconcile spending and receipts, so it is a rational discussion to have. (Of course, even with my earlier disclaimer, I believe that we have ample evidence that the beast keeps spending even when starved, leading to huge deficits. Exhibit A here is the Reagan years.)

I am particularly amused by the anti-tax missives that whine about how the tax system punishing entrepreneurs and other successful people. They, after all, do pay the highest incremental tax rates. This is, of course, a direct result of having a progressive taxation system. There is only one way to avoid this consequence: eliminate the progressive rate structure and go to a flat (or a declining-rate) tax. I've actually pointed this fact out to some of the anti-tax people, who have surprisingly disagreed with this conclusion. (If anybody can tell me how I am wrong, though, I'd love to hear it, but I think the mathematics is pretty clear).

I'm not opposed to a flat tax or declining-rate tax per-se, but here's another fact about them: for a given level of government spend, switching from a progressive to a non-progressive tax scheme must necessarily shift more of the burden to the poorer segments of society. At some level, this is a good thing: I'm a huge believer that we want broad participation, that we want as many people as possible to be a paying customers of government services, even if it's paying just a little. Of course, the downside is that the poorest segments of the population are by definition not a great source of revenue, so if you went flat you'd have to give them a fairly substantial rate hike to generate enough revenue to compensate for the substantial cut that going flat would give to the wealthiest. And a rate hike on the poorest segment would be a far greater hardship for a far greater number of people than the current progressive system imposes on the wealthiest. I'm going to go out on a limb and suggest that this is perhaps the reason we decided to adopt progressive taxes.

There's another thing about the tax "debate" (I use that word generously) that irks me, and that is all of the class-warfare terminology that gets thrown around. Particularly, the Democrats love to complain about "tax cuts for the rich." Of course tax cuts benefit the wealthy more than the poor - the wealthy pay vastly more in taxes! (And our progressive tax system amplifies this. If you don't believe me, just do the math.) So if you cut taxes, the people that pay the most will get the most benefit. There's really only one way to avoid this artifact: only cut the taxes for the lowest end of the spectrum, the people that are barely paying taxes at all., and keep the taxes the same for everyone above that level. While such a policy would be good for those poor people, it's a bad idea for several reasons: (a) we're simply not talking about much money, so why bother; and (b) you would inevitably end up making many people pay essentially no taxes, which is a very bad idea from both a fairness point of view, but also from the participation point of view mentioned above; and (c) it's not a fair way to distribute a tax cut if most people - particularly those who pay the most - get none of the benefit of the cut.

Cut taxes or don't cut taxes, I don't really care beyond how the resulting revenues compare to the level of spending and debt (both of which I do care a lot about). But if taxes are cut, don't complain about the fact that it affects different groups differently.