Moved

There are some things you do because your spouse tells you to do so. I was instructed to move my blog to WORDPRESS. You can find me blogging at
http://noconsensushere.wordpress.com/ . 
So please click on the link to get to No Consensus Here. I hope you will follow me to WORDPRESS. Amongst other things it seems easier to sign up to get blog updates on your email.

On Tax Pledges and Taxing Vows - Countering Grover Norquist

This paragraph is actually a post-script. On re-reading what follows (starting the next paragraph) I realized that I can be easily misunderstood. I am therefore clarifying my personal view on pledges and vows. I fundamentally dislike pledges and vows, whether they be tax pledges, marital vows, or… . There is nothing (except honoring the act of keeping the pledge or vow) that you can do having made a pledge or a vow, that you cannot do without making the pledge or vow. A legislator can vote to not raise taxes without having pledged that he will not raise taxes. An individual can be faithful in his/her relationship, can have only death do the breaking from his/her spouse without vowing that he/she will be faithful till death do him/her apart. In the language of the liberal economist, a pledge simply shrinks your choice set. The option to act (or not act) is not the same thing as the acting (or not acting). Having clarified my position on pledges and vows, I also want the reader to be clear that I have a clear position on divorce (and for that matter infidelity). It is a matter for the individuals involved, and nobody else’s business. Of course, except in exceptional circumstances, like that outlined below. 

The recent attempted demonization of the tax pledge sponsored by Grover Norquist and his American for Tax Reforms exposes the weakness of the American press. Grover Norquist and the pledge should have been scrutinized, analyzed, and demonized a long time ago. It is by all reasonable logic a dumb thing to sign. Unfortunately Norquist seems to have many in the Republican Party by the proverbial part of the anatomy and a number of them seem to be running scared. 

Let me be clear here – the position I take above does not call for or advocate for tax increases. It only calls for not pledging to never increase taxes. To tax increase or not to tax increase is not the question. To pledge or not to pledge, that is the question.

Clearly those who signed the pledge have a couple of things that they should be made to answer – why did they sign it in the first place, and why will they not break the pledge now? 

I suspect the answer to the first question was that they were earning their credentials as true conservatives. An initiation right, if you will, the way eighteen year olds on college campuses prove their maturity by indulging in over-drinking. But just as eighteen year olds grow up and redefine maturity in more sensible ways, seasoned members of the Republican Party (for example, someone like Gingrich) who have signed the pledge should repudiate the pledge (note I am not calling for them to break it – I THINK WHETHER ONE SHOULD SUPPORT A TAX INCREASE IS A DIFFERENT QUESTION FROM WHETHER ONE SHOULD PLEDGE NEVER TO RAISE TAXES). It is unlikely that the Gingrich’s of the world will follow my advice. Why?

Because it seems that Norquist and the ATR have them cornered and scared. If they displease Almighty Norquist, then their electoral prospects will be seriously harmed. At this point this is simple reality, and so fear and the lack of courage on the part of some Republicans while deplorable is clearly understandable. If asked why they will not break the pledge, they will not tell you that they fear Norquist.  I suspect they will mumble loudly about how we do not have a revenue problem but a spending problem, and they may or may not be right about that. But the issue should not be about taxes. The issue is the pledge. Why will they not repudiate (not break) the pledge (and then not raise taxes)?

To my mind the only reasonable, publicly state able answer is, “Because you do not break a pledge.” And if that be the reason, then it seems to me a completely reasonable question to inquire into how they feel about pledges. There is a convenient subset of Norquist pledgers who can be questioned – those who have been married and have not lived up to the explicit (or implied) sanctity of their marital vows. The question simply is, “Which do you think is more sacred – marital vows or the tax pledge?” 

If they answer, “Marital vows,” the follow up question is, “So how come given that you broke those, you will not repudiate the tax pledge?” 

If they answer, “The tax pledge,” I think it will tell pro-family primary voters a lot about the candidate which may put them in at least as much trouble in a primary as if they broke the tax pledge. 

Is this hitting below the belt? 

Unfortunately, absolutely! But pledges like the tax pledge hit hard below the social belt. And exposing hypocrisy which may help us dismantle a culture of single issue politics by pledges may be an end well worthy of unfortunate means.  

If you know a member of the press who will be willing to use this line of questioning, please pass the suggestion on to him/her. 

P.S. Lest this be read as a partisan voice from the Left, I hope you will look out for my soon to be appearing piece on the Democratic Party, Teachers’ Unions and School Choice (title will be different, I hope!).

No Chance of Realizing this Hope – A Suggestion to Penn State

The scandal in Penn State is tragic on many levels. The events at State College simply remind us that different dualities lead to tragedies. Two kinds of humans can contribute to tragic outcomes – the good and the bad. Two kinds of actions can lead to tragic outcomes – acts of commission and acts of omission. Two kinds of people can be silent when bad things happen – the powerful and the powerless. Unfortunately this will not be the last time that something terrible happens. 

But in the present circumstance, hopefully there will be no more cover-ups and whitewashing. What is still happening in the Catholic Church should not happen in State College, PA. Those in positions of power must do everything they can to see that the appropriate things are done. Clearly the legal authorities must act and the law must prosecute all those responsible. The right thing must not only be done, but must be seen to be done.  

What should Penn State do? The Trustees of Penn State University will be meeting shortly. I hope they simply announce that Penn State will not field a football team for the next five years. The logic is simple – irrespective of the details of what actually happened, and who is responsible for the specifics of the tragedy, as an institution Penn State failed. And central to the failure was the importance of football in the identity of the university. This is not unique to Penn State. And it is easily explainable. NCAA Division I Football (among many other College sports) is an institution which delivers money, prestige, and power to its participants. Money, prestige, and power corrupt, and scandal is nothing more than corruption exposed.

Calling a halt to the activity sends a strong message – there are more important things than Football at State College.  And Penn State should reflect on those things and begin a serious national dialogue on the role of sports in American colleges.  Among the things Penn State should reflect on are - doing the right thing, keeping things in perspective, understanding balance, setting one’s priorities right, defining the appropriate  role of sports in the life of a university….. the list is endless. And to do it right we need to reflect on this over the next five years at least. And as an act of repentance and redemption Penn State must take the lead. It is the right thing to do. And for a long time the right thing has not been done at Penn State.

Joining Penn State in starting a national dialogue on the role of sports in American colleges should be the NCAA. It is time for the NCAA to think long and hard about the (possibly unintended) consequences of its existence, organizational structure, and incentive framework. The NCAA takes actions that young eighteen years old may do which are completely legal (like getting goodies from a booster) and makes it against the rules, and does not have rules for things that are blatantly illegal and unethical that fifty year olds may do. Something has got to change – it might as well be the NCAA.

Do I expect my hope will be realized? Absolutely not! Why? Because NCAA Division I Football is an institution which delivers money, prestige, and power to its participants.  Money, prestige, and power corrupt, and those who participate in corruption will not stop it.

Unfortunately, I will have the opportunity to reprint this blog with a few changes in the not so distant future. There are many more Penn States out there – this time the one in State College, PA got exposed.

P.S. For readers outside the U.S. who are wondering what this blog is about, please Google ‘Penn State Scandal’ and you will learn all that you need to know. If you are a reader inside the U.S. who is wondering what this blog is about, you may want to come out from under that rock!

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Steve and Fred

Many people died on October 5, 2011. Two of them did amazing things. We’ve heard so much about one of them – Steve Jobs. The other was Fred Shuttlesworth.

This piece is not to praise Fred and minimize Steve. It is to have us reflect on the things that we value, celebrate, and remember when push comes to shove, when death visits us.

By 8.45 p.m. on Wednesday, October 5, 2011 evening a number of my Facebook Friends had posted touching and evocative messages about Steve Jobs (this was about an hour after he passed away). One of my friends posted the following message on Facebook on Thursday, October 6, at about 11 p.m. – “Jesus, FRED SHUTTLESWORTH passed on Wednesday? I love my Macbook, but I REALLY love my civil rights! RIP. Get it together, news media.”  This was the only message about Rev. Shuttlesworth that any of my FB friends posted. Below is a copy of the comments that followed – I’ve only taken people’s responses without their names for obvious reasons.

• I mean, have coverage for both of them. ♥ Steve Jobs. Very, very thankful for Rev. Shuttlesworth.
• I posted about both to my FB page and no one commented on Rev. Shuttlesworth passing. It bummed me out.
• He was ill for so long but gotta say, he lived an amazing life. 
• I KNOW. I was home listening to NPR all day on Wednesday, and they were talking about Rev. Shuttlesworth until the minute Steve Jobs died. Then nothing. In today's paper, Jobs was huge front page, and the Rev. got a tiny little paragraph.
• Man, welcome to my world. I work in a Human Rights Division that sits in a Human Services Dept...lets just say I get real frustrated with some of the ppls views on life.

For those who are wondering what the Rev. Shuttlesworth did, simply Google his name on your iPad and read about him. Then ask yourself:

1. Which is more important – what you are reading with, or what you are reading about?
2. Who should we have been celebrating when they passed away - the person responsible for what you are reading with, or the person you are reading about?

I’ll give you my answer to Question 2. Both.

The tragedy is on this sad day when we lost many people, at least two of whom did amazing things, and one of whom did really life changing stuff, we seem to have, kind of, forgotten the person who did the really life changing stuff. We seem to have, kind of, forgotten Fred.

Thank you Fred for all you did. It matters even if we don’t remember and celebrate you with all the glory you deserve.

S&P Lives Up To Its Name – A Rather Poor Downgrade

Markets are opening shortly for the first time after S&P’s downgrading of U.S. debt. In about 24 hours a number of pundits will have mind numbingly obvious explanations of why the markets did what they did. An increase or decrease in the price of Treasuries, a rise or fall in equities, an increase in interest rates and a fall in equities or vice-versa will all be attributed to either the S&P downgrade, or the indifference of the markets to the S&P downgrade. None of this takes away from one fundamental issue – the S&P downgrade makes little sense. And in reaching this position I am willing to completely discount S&P’s credibility problems given their (and other rating agencies) past performance with mortgage backed securities.

A rating is simply an indicator of the probability of a borrower’s ability to repay their loan. Or as David Beers head of S&P's government debt rating unit said in an interview on Sunday morning on Fox News in the U.S., “What ratings are meant to do is provide a meaningful indicator of credit risk.”

Does anybody seriously think the U.S. will default on its debt obligations? The recent political mess in Washington may make you say, “Maybe.”  But think about it for a second. In spite of a bunch of politically motivated, not so intelligent, partisan, ideologically driven bozos who cannot even be personable to each other running things in Washington, when push came to shove, when they had the opportunity to default, they didn’t. The last month in the U.S. simply shows us that even in terrible economic times, when the political system is quite broken, the U.S. will not default on its debt. So if you are thinking, “Maybe,” think again. The U.S. will not default on its debt. The past month has confirmed that view.

None of this is to suggest that governance in the U.S. is not badly broken and if things don’t get better soon then there is more trouble down the road. But that doesn’t change the fact that S&P is wrong about the U.S.’s credit worthiness. And that is true irrespective of what markets do shortly, and what the pundits say after that.

Military Service, Budget Deficits and the Concept of Sacrifice

- if you do not pay in Red, then you should pay in Green

Memorial Day was about a week ago. So I read the obligatory references to the brave women and men and their sacrifices, and how but for their valor our way of life would be endangered.  However one feels about such patriotic sentimentality, I know that many people are sincere in their gratitude. It makes sense to tap into the notion that sacrificing for your country is a good thing. And as an economist it got me thinking.

This piece is specifically directed to those who have the following ideological arrows in their intellectual quiver:

1. That joining the U.S. Armed forces constitutes a sacrifice.
2. That sacrificing for the nation is a good thing.
3. That the present budget deficits in the U.S. are going to be the cause of serious disruptions to the American economy and way of life.
4. That tax rates on the rich and super-rich (I define them as families with annual incomes greater than $124,614) should not be increased as part of a package of policies to combat the budget deficit.  

 The mathematics of the budget deficit seems pretty simple

Budget Deficits = Government Expenditure – Taxes.

So to reduce the size of the budget deficit one might be tempted to think that the solution is pretty simple – reduce spending or increase taxes. Unfortunately, the economics of budget deficits are a lot more complicated.

First, there is an honest debate as to whether the budget deficit is too big or not. And many credible folks who know something about this stuff suggest that short term deficits should not worry us, especially in times of deep unemployment. It is long term, structural deficits that should be the concern of policy makers, though there is a debate as to whether even that is too big in the U.S.  For our present discussion let us assume that the folks to whom this piece is directed are correct, and point (3) above is on the mark.  

The second problem with the ‘simple math’ solution to the budget deficit is that the effects of decreasing spending or increasing taxes on variables that impact the level of spending and tax revenues may be such that the deficit might become bigger with the ‘pretty simple’ solution outlined above, due to the endogenous effects of a policy. That is the primary argument against increasing taxes on the rich and super-rich to combat the deficit – the argument goes that if further taxed those with plenty of money will seek tax shelters in other lands, and not invest in job creating ventures in the U.S. deepening unemployment and make the budget deficit bigger.

I’m just guessing here, but my sense is that the vast majority of kids signing on to go to fight in wars being waged to preserve the American way of life come from the not so rich and super-rich families. So how about asking the rich and super-rich to sacrifice by paying higher taxes and not changing their behavior? The logic is simple - your tax rate will be linked to your income (as it is now) and a Binary Sacrificial Value (BSV). Any families BSV is either a 0 or a 1. A ‘0’ if no one in your family was or is enlisted in the Armed Forces (family being defined as someone who is presently or was claimed on your tax form), and a ‘1’ if someone in your family made the decision to put their lives on the line and was willing to make the ultimate sacrifice. And here is the policy:

At all income levels of the rich and super-rich, if your BSV is ‘0’ then your tax rates will be significantly higher than if it is a ‘1’. Put simply -  if you do not pay in Red, then you should pay in Green.

And what is the sacrifice that the BSV = 0 types you will be making? They should not make behavioral changes to nullify the deficit reducing effects of their increased taxes. Their response to the higher tax rates should be to go for one less vacation in Madagascar, or drive a Ford instead of a BMW, or god forbid not eat at Tru in Chicago, or Masa in New York, or Cicada in Los Angeles.

I realize that this is just a thought. I’d like to put some numbers to this to see what the deficit reducing outcomes will look like. But before that I’d like to see if the idea has some merit – even if only in theory.

P.S. Full Disclosure - my family’s BSV = 0. Also I teach in a liberal arts college where a number of my students pay a reasonable amount of money to attend. My guess is a lot of their families have a BSV = 0.

Is 2008 Obama Back?

At the recent and widely reported White House Correspondents’ Dinner, Seth Meyer’s had a line which I predict will be analyzed down the road – “"I'll tell you who could beat you: 2008 Barack Obama. You would have loved him."

With his speech yesterday on the Middle East, I hope the 2008 Obama is back. His call for a settlement based on 1967 borders[1] can be either seen as a continuation of, or a radical departure from the Clinton/Bush strategies. One can point to different points of time and words to describe America’s view on what a Middle East solution should look like. Purposeful ambiguity was built into any policy position on the Middle East so that politicians could appeal to different domestic interest groups without offending anybody. The biggest difference from the past in Obama’s May 19 speech is that clarity has replaced ambiguity on what the American sense of a Middle East solution is.  

Why does clarity matter? Because it signals principle over pragmatism, and sincerity over strategy. Obama has de-linked his domestic political interests in laying out America’s role in a Middle East solution. His speech is going to do him little good in his reelection campaign, and may actually hurt him a little - or maybe a lot, It may cost him Florida. I wouldn’t be surprised if his reelection campaign strategists discussed this with him, or he with them. If they did talk about it and he still gave the speech, more kudos to him.

But principle over pragmatism, and sincerity over strategy have not always been hallmarks of the Obama Presidency. Obama’s base has expressed its disappointment in his Presidency on these grounds for some time now. The dilution of the health reform package, the capitulation on the financial reform package, the extension of the Bush tax cuts, and the continuation of the military adventures in Afghanistan and Iraq are manifestations of the victory of pragmatism and strategy over principle and sincerity.

What made 2008 Obama appealing beyond his racial background was that he seemed to stand for principle and oozed sincerity. Principle and sincerity seemed to be a brilliantly employed strategy in the campaign. The promise seemed a mirage. With his May 19 speech, one can only hope that 2008 Obama is back. For the execution of principle and sincerity are victories in themselves and will contribute to nation building far more than any electoral or political win. That was the promise of Obama 2008, and we should expect no less.

We will know that 2008 Obama is back if he does not dilute his call for Israel to withdraw to 1967 borders, and if he is willing to take on the Republican House as it sips its tea. In other words, if he starts doing some things that may even have negative reelection consequences.

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[1] “We believe the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states.”  For the full speech click here.

Hope They Fly Better Than They Price

Given that I am going to be flying with them in the near future, I hope British Airways employees use more logic and reason in the cockpit than they do pricing flights.

I suppose that there is some way to explain my discovery in a ‘Freakonomics’ sort of way. I refuse to try. I’ll simply present the facts and see if some of you can explain whether this makes any sense. Explanations forthcoming or not, if someone knows someone in British Airways who is responsible for pricing policy, tell them I’m willing to help. Why would I think they need help?.

I am flying to Bengaluru with a stopover in London in June returning in July. Chicago is my take off point. Economy seems uncomfortable (a combination of my girth inflation and airline seat size deflation), and Business is simply pricey. Maximizing across the two variables of comfort and price, and given my route British Airways World Traveller Plus and Virgin Atlantics Premium Economy became contenders. Web research and reports suggested that Virgin Atlantic is the better deal on price and comfort, except they only fly to Delhi in India. British Airways flies Bengaluru directly from London. So I thought I’ll split the difference. Fly BA in and Virgin on my return. I could always stop for a day in Delhi and see folks on my way out.

So I go to price One Way ORD to BLR with stopover in LHR and it tells me that the price is $ 4442.41.

Except when I checked out Round Trip ORD – BLR, going ORD to BLR with a stopover in LHR (exact same flight as one way above including flights and dates), and returning BLR – ORD the price was $ 3,533.32!

And in case you are wondering, I fired up my laptop and my netbook and had both these quotes simultaneously at about 1517 Hrs. on Friday, May 13, 2011. I present the relevant parts of the quotes below - click on them please.

One Way ORD to BLR

One Way ORD to BLR and Back

Now as I said, you may be able to explain the logic and reason for this. I however am changing my mind and turning to prayer. I’m flying BA and my plea to the Lord is, “Dear Lord, Please make sure that there is more logic and reason in BA’s cockpit than in their pricing.”