Matt Yglesias

Football Research

New Orleans should not have kicked that forth quarter field goal. People need to read David Romer’s ”
Do Firms Maximize? Evidence from Professional Footbal”.

Declining Marginal Utility of Consumption

Kevin Drum on a hypothetical he recently discussed:

So how to get at the difference? Well, I figured one possible way is this: if you really were a fairly ordinary upper middle class wage earner making $100K per year, and you had a 50-50 chance of either joining the ranks of the elite or falling down to the bottom of the working class, which seems further away to you? The answer from comments was loud and clear: the bottom of the working class. I didn’t count, but I’d say only about 10% of commenters were willing to take the coin flip. The other 90% would stick with their $100K lifestyle.

So what does this mean? Probably not much. But it’s suggestive that in terms of lifestyle, if not political goals, a $100K wage earner actually feels somewhat closer to the zillionaires than to someone barely scraping by. We intuit, correctly I think, that life at the bottom of the working class is pretty damn tough, while life at the tippy top is more exciting, but perhaps not fundamentally different from life in the upper middle class.

The specific coin flip offered was this:

— Heads: You will be stripped of most of your assets and will earn $30,000 per year for the rest of your life. That’s all you get, and neither friends nor family can top it up for you.

— Tails: You will earn $1 million per year for the rest of your life.

I actually think Drum is pointing to something profoundly important here, namely that even though a dollar is a dollar the marginal utility associated with an additional dollar of consumption declines pretty sharply. This matters for politics in two important ways. One is that tippy-top inequality—the tendency of the top 0.01 percent to pull away from the rest of the 98th percentile—is perhaps important in political economy terms, but perhaps not so significant in terms of overall human welfare. The other point is that redistribution of consumption opportunities from the rich to the poor is an extremely effective means of enhancing overall human welfare.

The Libertarian Theory of Electoral Politics

Here’s Nick Gillespie’s view of the past few years’ worth of politics:

The GOP got kicked to the curb in 2006 because they were up-to-the-neck-complicit with the profligate and stupid spending (and bellicose) ways of George W. Bush. If after four years in the supposed wilderness you get power and the first thing you do is walk back the suggestion that you’re gonna cut $100 billion out of fiscal year 2011 (still without a budget!), and then your main guy bumbles the query above…well, you’re not winning any fans among the growing ranks of independents (read: crypto-libertarians) who want a smaller government that does less and costs less.

This is a commonly voiced view on the right. But if spending cuts—meaning actual, concrete cutting of specific programs as opposed to vague talk about “spending cuts”—are popular, then what’s the explanation for why they’re so rare?

Affordable Care Act Delivering Affordable Health Care to More People

Rick Unger reports:

The major health insurance companies around the country are reporting a significant increase in small businesses offering health care benefits to their employees.

Why?

Because the tax cut created in the new health care reform law providing small businesses with an incentive to give health benefits to employees is working.

Driving a stake through the heard of the health care repeal movement looks like it’ll be a somewhat lengthy process. But the road begins with little things like this. The people who own the businesses that are benefitting from these tax credits will get in touch with members of congress and ask them to please, no, not repeal that part of it. And so on.

Shooting in Arizona

It looks like Representative Gabrielle Giffords and several of her staffers were shot at an event this morning in Arizona. I think as of now we don’t know anything about the motives, if any, of the shooter but I hope people take something horrible like this as a reminder that we’ve seen a lot of overheated political rhetoric over the past couple of years.

Times Change

Cut French kids are asked to identify various forms of obsolete technology:

Now sure why a couple of the remarks lack subtitles. It’s all funny.

State and Local Taxation

“Who Pays?” (PDF) from the Institute on Taxation and Economic Policy offers an interesting look at regressive state/local taxation:

Several points:

— Questions about whether things should be done at the state or federal level aren’t just about abstract constitutional views; state revenue sources are regressive.

— There is no reason that consumption tax revenue needs to be raised as a regressive retail sales tax. You can instead do a income tax with a progressive rate structure in which taxable income is defined as “income minus savings.”

— Property taxes are regressive, but much less regressive than sales taxes. Consequently, measures to cap property taxes are a kind of fake assistance to the middle class that actually helps the top 20 percent.

— Conservative intellectuals like to complain about the federal deduction for state and local taxes, but conservative politicians will never eliminate it since this is a form of tax break for rich people.

That’s all I’ve got.

Competition Slowly Coming to Television

The cable television business has long been one of the most uncompetitive in America. Most households are served by only one cable company, and most households are unable to get satellite. A truly stupendously lucky consumer might have the ability to choose between one of three vendors. Consequently, the whole landscape is pretty dystopian. But cable companies do face a somewhat broader set of competitive pressures from the entertainment world writ large.

Tim Duy says he’s through with cable:

I see that Comcast just raised cable prices. I find it remarkable that cable companies apparently can not see the train wreck ahead. I figure that I can drop the cable and the phone (who uses a landline anymore?), ugrade to a faster internet connection and still come out ahead nearly $100 a month.

$100 a month will buy more AppleTV rentals than I can watch, especially given the vast amount of free content now available. Pay a dollar, rent a show commerical free, or watch online for free with limited commerical interruptions. Skip the middle men of the cable companies. How long do the cable companies think they can last charging people for dozens of channels they never watch? I don’t see how that model survives.

I think I love sports too much for this to work for me. But my fondest hope is that more people will start doing this and Comcast and its ilk will start feeling some heat to deliver a better product in order to justify the prices they ask for. The problem, as I see it, is that the broadband internet market is itself not very competitive and the cable companies are major players in it. The mobile data universe, for all its flaws, features much more robust competition and I don’t think it’s any coincidence that this is where we’ve seen all the exciting gains in the past few years. This uncompetitive broadband market has for years now been this lingering problem that everyone knows about and nobody really seems to do anything about.

Endgame

Si t’as pas compris ça veux dire non merci:

— The last paragraph here is a nice distillation of conservative thinking, such as it is, about international security: basically, endless repetitions of Iraq.

— When building student housing is outlawed, only rich kids will be able to afford college.

— Outgoing Mossad chief dials back nuclear Iran alarm.

— Boehner wants $100 billion in spending cuts.

— Boehner can’t name a program he wants to cut.

My impression based on admittedly weak grasp of the language is that more things rhyme in French than in English, leading to a lot of funny lyrics (and, you know, Molière) such as in Fatal Bazooka “Parle à Ma Man.”

No Negotiations on the Debt Limit

Here’s Paul Ryan talking about the debt ceiling:

But House Budget Chairman Rep. Paul Ryan says that tactic isn’t viable. “Just refusing to vote for it, I don’t think that’s really a strategy,” he said, noting that a failure to raise the ceiling could result in the nation defaulting on its debts to investors.

“Will the debt ceiling be raised? Does it have to be raised? Yes,” he said at an event sponsored by economics21 and the Manhattan Institute at the National Press Club Thursday.

But Ryan suggested that Republicans can tweak some specifics of the move – how many years the increase covers, for example. And, more importantly, they can tack on requirements for deep spending cuts as a condition of passage. “I want to make sure we get substantial spending cuts and controls in exchange for raising the debt ceiling,” he said.

As I said yesterday, this is why it would be foolish for Barack Obama to get sucked into any kind of negotiation over the debt limit. Barack Obama favors raising the debt ceiling. Key House Republicans such as Paul Ryan and John Boehner also favor raising the debt ceiling. To raise the debt ceiling requires two things. First the President has to ask for an increase in the debt ceiling. He’s done that. Second, Congress needs to pass an increase in the debt ceiling. Since Boehner and Ryan both favor increasing the debt ceiling, the burden now falls to them to round up the votes. There’s nothing to negotiate with Obama about.

Impediments to Massive Change

Felix Salmon says the US government could cut the financial sector down to size:

Government is perfectly capable, were it so inclined, of shrinking the financial sector and making it much less profitable. Banks could become highly-regulated utilities, bonus culture could be eradicated, hedge funds would no longer be exempt from SEC rules about transparency and investor protection, private-equity honchos would have to pay income tax on their income, leverage would be discouraged in the tax code by eradicating the tax-deductibility of interest, and so on and so forth.

He rightly says it won’t happen, but I don’t think this diagnosis of why it won’t happen is right:

But it’s not going to happen, because the public servants who could enact such a change currently have the ability to earn millions of dollars per year when they leave DC. Government work pays well, but not that well. The real value of a government position, especially in the economic team, is in the marginal net present value of all those juicy future earnings that you’ll be offered upon your departure from the administration. And so any reforms aimed at shrinking the financial sector would do massive damage to the economic health of the reformers themselves. And those reformers are wonks, remember: precisely the kind of people who consider probability-weighted future earnings to be genuinely valuable things.

Let’s imagine that Bill Gates had offered bribes to every single member of Barack Obama’s economic policy team to persuade them to go full-tilt in favor of this agenda in 2010. Would it have happened? Of course it wouldn’t have happened! You’d need sixty votes for this stuff to get through the Senate. There were, at the time, 59 Democratic Senators. But of course Chuck Schumer and Kristen Gillibrand don’t want to precipitate a massive shrinkage of New York City’s key industry. For that matter, neither do the four Democratic Senators who represent New Jersey and Connecticut.

And of course New York City’s not the only place where representatives care about the health of their local banking industry. Scott Brown ultimately voted for Dodd-Frank, but the price of his support was to create some loopholes for Massachusetts-based institutions. He’s the most popular politician in the state. And then there’s Kay Hagan of North Carolina, a Democrat from a reddish state where Merrill Lynch is the second largest employer. And think of Delaware and its bounty of credit card firms!

This is mighty interest-group strength behind not kneecapping the financial services industry even without positing any form of corruption on the part of anyone involved in public life. Then on top of that, there’s the matter of campaign contributions.

The issue here is the lack of counterveiling force. Salmon says we should do this because though “the economy might lose a bit of possible debt-fueled upside” it “would be much less fragile and much less prone to banking crises.” You’d think the non-financial swathes of the American business community might be excited about that agenda. But they’re not. The Chamber of Commerce wasn’t fighting for stronger Wall Street regulation, it was fighting for laxer regulation.

Race and Entitlements

Atrios says:

For some reason I seem to be one of the few people who noticed that Republicans ran on the truthy claim that Obama & Dems had cut Medicare. Combine that with the looming catfood commission making it impossible for Dems to style themselves credibly as defenders of Social Security and you have a bit of the reason they voted for Republicans. I’m not discounting the impact of the various race-infused freak show stuff that were tossed around, but if you want old white people to vote for you maybe you should give them a reason.

I agree with that. But it’s important to note that talking up retirement programs and race-infused freak show stuff is synergistic process. Among white Americans, more ethnocentric voters are more supportive of Social Security and Medicare and less supportive of means-tested social spending. The Affordable Care Act restrains increases in Medicare and uses the money to finance a means-tested program to make health care affordable for non-elderly poor people. When an initiative like that is on the table, there’s no need for race-infused dog whistles or anything else.

Gene Sperling Flashback

Matt Miller’s 1999 Gene Sperling profile is worth checking out, both because it’s an interesting article about the Clinton administration’s legacy, and also because it was written eleven years ago so it’s not part of some deliberate campaign to reassure progressives about Barack Obama:

In the meantime, on the second floor of the West Wing, the lights are on late again. If you think life is unfair, and that government should help create opportunities for those born with the odds set against them, you should sleep better knowing that Gene Sperling is in there scheming, coaxing, plotting, conniving and generally working every angle he can think of to move the ball another three yards down the field, with a cloud of dust. In a world of divided government at the edge of the millenium, that may be the most a liberal can hope for.

I do think it’s remarkably, though, that at OMB and NEC we’re going to have literally the same guys who were in charge at the end of the Clinton administration. You would expect the Obama administration to be populated with veterans of the Clinton administration, but people literally repeating in jobs they used to have is pretty unusual.

Congressional Dorm Needed

What people normally do when they get a job located in Seattle is move to the Seattle area. And when people get a job located in Chicago, they typically move to the Chicago area. And when people get a job located in Washington, they typically move to the Washington area. It’s common sense. But over the past few decades, a weird tradition has developed whereby people who get jobs as members of the US Congress don’t move to Washington and instead awkwardly commute back and forth between DC and their homes. But of course you can’t go to Washington and back every morning, so you need accommodations in the DC area. But maintaining two households is expensive, so many members of congress sleep in their offices.

Jamelle Bouie isn’t pleased, asking “Who is more serious about legislating? The member who sacrifices his well-being for bragging rights, or the member who treats himself well with the aim of peak performance?”

That said, I understand the symbolism of refusing decent accommodations; they are doing “the people’s work,” and the people — supposedly — wouldn’t stand for representatives who spent a little money on themselves. It’s somewhat laudable, but mostly silly.

On a related note, if members can’t afford decent accommodation, then maybe we should pay them more, instead of making symbolic cuts to their salaries.

I think affordability is actually a genuine concern here. If you’re only in DC part time, you’re going to want a place that’s a super-convenient commute to congress. And while that kind of housing should be affordable on a congressman’s salary, it can be quite hard to afford as your second home unless you have pre-election wealth.

Fortunately, I think a solution is at hand that doesn’t involve an across the board congressional pay raise. Instead, Congress needs to repurpose the dread Capitol South parking lot:

Instead of an open air lot, they should build some spartan cheap dorm-style accommodations here for members and their staff. It would be attractive to thrifty members of congress, to interns, to folks new to town who want a place to sleep while they figure out where they really want to live, and possibly to people with low-paying entry level jobs. Using the land as a congressional parking lot is already congress giving itself a perk. But right now it’s a very inefficient perk. Turning it into a dorm would be a little short-term stimulus project and then we could solve this problem. Plus it would give the poorer members a chance to hang out across party lines and develop class resentment against their richer colleagues.

Killing Jobs, Killing People

(cc photo by LateNightTaskForce)

Steven Pearlstein has a great column on the right’s obsessive use of the phrase “job killing”:

What’s particularly noteworthy about this fixation with “job killing” is that it stands in such contrast to the complete lack of concern about policies that kill people rather than jobs. Repealing health-care reform, for instance, would inevitably lead to thousands of unnecessary deaths each year because of an inability to get medical care.

Although lack of effective regulation led directly to the deaths of 78 coal miners last year in West Virginia, Republicans continue to insist that any reform of mine safety laws is bad for miners’ employment.

Republicans also continue to oppose food safety legislation that could save the lives of hundreds of Americans killed each year by contaminated food, just as they oppose any regulation that would effectively keep assault weapons out of the hands of convicted criminals and narco-terrorists who kill thousands of innocent victims on both sides of the Rio Grande.

One reason I’m increasingly convinced that liberals need to learn to talk about monetary policy is that this jobs talk is both very powerful and also quite misguided. For any given state of US public policy, there’s going to be some level of “full employment.” That doesn’t mean no unemployment. It means that efforts to stoke further reductions in unemployment through monetary expansion will lead to accelerating inflation. Once you’re at full employment, to achieve further increases in national output you need to make more growth-friendly public policies. And in general, growth-friendly policies are a good thing to adopt, though I personally prefer to think of growth-friendly policies that don’t lead to dead miners.

But suppose the economy is operating below potential. Suppose 9.4 percent of your workforce doesn’t have a job. Suppose a rising number of able-bodied adults aren’t even in the labor force. Suppose many of your part time workers would like full-time work. Well in that case you don’t need to run around being paranoid about how many people would have jobs in the hypothetical scenario where the economy’s running at full-tilt. You just need to step on the gas!

China As Number One

Back in the requests thread, someone asked for “[m]ore about demography. What are the overall trends? Have Chinese-style anti-natalist policies been vindicated by Chinese growth? Have European pro-natalist policies worked, and at what cost?”

This is an under-contemplated subject in international comparisons. If you want to know about what living standards a country is able to achieve, you want to talk about GDP per capita. That’s output over people. But if you want to know about how mighty a country is on the world stage, you just want to talk about GDP. And if you want to talk about how efficiently a country’s economy is working, you probably want to talk about GDP divided by working age population. Daniel Gros cites GDP/WAP to say that Japan’s economic decline is largely an illusion. But I think this illusion is, in turn, a bit of an illusion. The bottom line about Japan is that if your working age share of the population declines, this drags average living standards down. What we’re seeing in China recently is in part huge efficiency gains, but in part a big increase in the working age share of the population driven in part by anti-natalist policies. Declining birth rates offer a one-time demographic dividend followed by rapid population aging.

As Kevin Drum notes, this means China will run into a serious demographic headwind pretty soon:

By 2030 they’ll have a greater proportion of the elderly than the United States. This is one reason why I’m skeptical of alarmism about China’s imminent takeover of the world. I don’t doubt that China will continue to grow and flex its muscles, but in the long term they have a demographic time bomb to deal with that’s worse than ours, and they’ll have to tackle it as a considerably less wealthy country than us. It doesn’t mean they’re doomed, but it does mean that their path to world domination has a few roadblocks in its way.

Very true, but what I think this misses is that China surpassing the United States in aggregate GDP terms is likely to happen much sooner than people realize. The Economist says it’s likely to occur during Jeb Bush’s first term around 2019 or so. You’ll then have a situation in which the mightiest economy on earth is also quite poor (think Mexico) and facing a rapidly darkening future economic outlook. I think it’ll make the 2020s and 2030s a pretty hairy decade in East Asia.

Inequality and the Labor Market

I cooked up this model in my head whereby asymmetric time spans of slack and overheating labor market conditions would exacerbate inequality, but then I thought I might be wrong because normally I try to avoid espousing economic theories I haven’t previously read from someone with a PhD. Fortunately, Tyler Cowen does have a PhD and says this was cut from a draft of something he was working on:

A worker who wasn’t worth much sweeping up the back room is suddenly valuable when new orders are flowing in and he is needed to ship the goods out the door. And if all those new orders require keeping the warehouse open late, the company may need to bring in a new night watchman. To paraphrase a common metaphor, a rising tide eventually lifts most boats. When the economy’s expanding, a worker who previously was worthless will at some point become valuable again. But this means that workers at the bottom of the economic ladder will have to wait until the entire economy has mended itself before they have the chance to improve their lot: That can be a painstakingly slow and uncertain process.

But Cowen is a libertarian, so his way of phrasing this is kind of in the mode of “unemployed folks are going to have to gut it out.” But Google revealed a similar point in the 2003 edition of The State of Working America from Lawrence Mishel, Jared Bernstein (now of the vice president’s office), and Heather Boushey (now my colleague at CAP) from the Economic Policy Institute:

Monetary policymakers aim at maximum employment consistent with long-term price stability. In other words, an economy that avoids either an output gap or an overheating scenario. Both kinds of failure are bad, but the failures have different consequences for different types of people. Low-skill individuals and the working class suffer disproportionately form output gaps and benefit disproportionately from full employment. Elites—meaning not just 23 rich bankers and Fred Hiatt, but a much larger minority of the country—faces a different set of incentives.

A Gene Sperling Primer

I’m really excited Gene Sperling is going to head up the National Economic Council. I’m a Sperling enthusiast first and foremost because I think he’s one of the best writers and thinkers on constructive economic policy that we have on the progressive side. A lot of the work that’s been done by “our side” over the past ten years is much better at lamenting the sorry state of things than it is at developing concrete ideas for improvement. I know that not everyone agrees with me, but I think Sperling excels at the latter and that the latter is important.

But like him or hate him, I just wish the past week’s worth of commentary on him hadn’t relied so heavily on “six degrees of Robert Rubin” versus “here’s a thinly sourced anecdote from the 1990s.” Sperlings views on economic policy are not a state secret. He published a good book in 2005 or if you want a briefer precis of his views, you can read his 2007 article for Democracy.

He’s also published a lot of shorter stuff for CAP. You can read him on why the tax code is unfair to low-income Americans and should be made more progressive. Or about his proposal for a universal 401(k) program featuring “[g]enerous $2-to-$1 government matching contributions for initial savings of low-income families and $1-to-$1 matches for middle-income families . . . financed in a fiscally responsible manner” by avoiding estate tax repeal. Or here he is in the Washington Monthly talking about the need to go beyond Unemployment Insurance and offer a comprehensive wage insurance program. Here’s some stuff he did for the Huffington Post.

There’s a lot of economic injustice in the world, and there’s a place for high dudgeon in calling it out. That’s not really his strong suit. But there’s also a case for outlying conceptually sound proposals to improve things in a clear and concise manner. That sounds a lot like the National Economic Council chief’s job, I think he was good at it in the late Clinton administration, and I think he’ll be good at it today.

Force Structure! Doctrine!

So I decided to take the Farley Challenge and come up with something to say about the question of “What should US force structure and military doctrine look like?”

The beginning of the framework is that we should reduce the scale of our economic commitment to the military, which over time means not just fiddling with procurement but actually doing less and having a smaller force structure. Less what? In particular, I think we should actually move away from the COIN/MOOTW paradigm and focus on the idea of deterring and defeating military attacks on the United States and sundry allies. It should be possible to do that without representing 50 percent of global defense expenditures, especially when the allies in question are generally the richest countries on earth.*

I think COIN has a poor track record of success, a terrible track record in a cost/benefit sense, and that the self-conscious development of COIN capabilities risks inducing demand for military action. When someone asks “what’s the point of having this magnificent military if you’re not going to use it” I want the Chairman of the Joint Chiefs to have a very good answer at his disposal like “it’s there so that we don’t have to use it” not “eh, maybe so.”

That said, wars undertaken for perfectly good reasons of collective self-defense can swiftly turn into situations that require post-conflict stabilization. North Korea might attack South Korea in a way that demands response, and the response could well lead to the collapse of the DPRK state requiring the victorious allies to administer former DPRK territory. So it’s not smart to just say “COIN is bad, so let’s make sure we can’t do it and then hope for the best.”

What we need, I think, is some form of American gendarmerie—a quasi-military federal organization specialized in police/security functions rather than finding and killing bad guys per se. Such a force would, unlike today’s military, have a valuable peacetime domestic role to play as a flexible auxiliary police force that could assist high-crime jurisdictions with the kind of temporary infusion of extra personnel that can help push crime rates down to a lower equilibrium.** A “surge” if you will. But it would also be prepared to deploy abroad in the case of contingencies. The regular military would be big enough to beat an adversary (i.e., a lot smaller than the regular one) but it would need to call on the gendarmes (who naturally would need a less French name) to conduct an occupation. This means we wouldn’t be caught lacking capacity in a real emergency, but since the gendarmes would be performing a useful peacetime domestic service politicians would (appropriately) feel that initiating situations that require their mobilization is high cost situation that ought to be avoided if possible.

Anyways, that’s the upshot of a couple of hours’ worth of thinking and a chat with a coworker, not real research or deep thinking. But I thought I’d put it out there for discussion.

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The Epistemic Impact of Leaking the Known

(cc photo by Marcus Vegas)

Important insight from Henry Farrell about the value of leaking things that people “already know.”

Finally, the most interesting consequence of Wikileaks is not that it has released much genuinely new information into the world (there are some consequential facts that were not widely known, but they are a relatively small part of the story). It is that it is redefining the boundary between facts that ‘everybody’ (for political elite values of ‘everybody’) knows but that are non-actionable in the public space, because they are not publicly confirmable, and facts that are both perceived as politically salient and confirmable, and hence are legitimate ‘news.’ Wikileaks means that many issues that are known are now also confirmably known, and confirmed as being known by the gatekeepers of public knowledge. I strongly suspect that this would not be true if Assange had not struck alliances with respected media organizations. The interesting action is precisely in the interaction between media organizations and organizations like Wikileaks, which are neither traditional sources nor media organizations themselves. This relationship is what will largely determine how the balance between ‘news’ and politically salient but non-actionable information shifts.

That seems about right. I wouldn’t say that I, or anyone else who really cares about the question, actually learned from WikiLeaks that Arab dictators represent themselves to Western officials as very hawkish on Iran. But thanks to WikiLeaks it crossed the line from being something “everyone says” to something people in the media can straight-up report. And Washington, as a company town, is filled to the brim with these kind of things that “everyone knows” but few people really know for sure and nobody wants to publish.

Hollywood is also like that. For all the celebrity gossip that’s published, there’s a remarkable quantity of stuff that “everyone knows” and is nonetheless held back because it’s not really verified or verifiable.