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.”

The Question of Options – The Health and Education Debates in the U.S.

Ideological and partisan mindsets can do much to foster inconsistent (and I daresay illogical) positions by people on all sides of the political spectrum. Below are examples of the initial phrase used in such ‘cart before the horse’ thinking:
- I’m for it because the Democrats …
- I’m a Republican and therefore am against…
- It’s socialist and …
- That’s crazy – it’s a market solution…

The issue of options in American public policy is a victim of this phenomenon. The issue of a public option in the present debate on health care reform in the U.S., and that of choice for parents and students in school education highlight how ideological and pre-judicial positions lead to completely inconsistent policy positions on the left and the right. There are good reasons why people in electoral politics maintain these inconsistent positions. What doesn’t make sense is why the general public follows their lead.

What is the general logic for expanding options (as the term is used in the health care debate) or choice (the preferred term in the education debate)? In one word, competition. If the present system results in an outcome where a large number of people are being ill-served, and if there is a prima facie case that the unsatisfactory outcome is because of monopolistic or oligopolistic market structures, then expanding options and choices will provide competition to the status quo providers of the services. Essentially, expanding options (or choice) is a policy intervention that deals with a market failure caused by a lack of competition.

Let us apply this logic to health care in the U.S. The present health care system is too expensive in general and a large number of people are not capable of receiving adequate medical attention when they are sick. One major reason for this is a lack of insurance, caused by how costly private insurance is. A solution to the problem of high cost of insurance is to introduce a public option – the ‘public’ meaning it is provided by the government, and ‘option’ meaning that those who prefer what the government offers to what the private sector offers may choose it. If the public option is affordable and attractive relative to what the private sector offers, then people will gravitate towards the public option. The obvious result will be that the private insurance market should respond to the much more attractive public option by becoming less expensive and offering better services. At the end of the day (I don’t get why this is a much reviled phrase), the general public will get a better insurance product at a cheaper price. The policy intervention (the public option) will help correct a market failure (lack of competition – interestingly, in great part a result of an act of Congress, the McCarran-Ferguson Act of 1945, which exempted insurance companies from federal anti-trust laws).

If the public option is competition enhancing, then why are most Republicans and some Democrats (RASD) in Congress against it, given that in principle they claim they are for competition? Apparently, their objection stems from the public part – that the government is doing it. In which case, RASD will do well to provide a non-public solution to the lack of competition problem in insurance markets, as they oppose the public option. Unfortunately, they have not done this. You don’t need deep training in political economy and a team of investigative journalists to figure out that those who oppose the public option have deep connections with insurance companies and dollars are involved. Opponents of the public option are trying to protect the market power of the insurance companies, at the expense of millions of folks getting more affordable healthcare insurance. Using the argument about the proposed option’s public nature is simply a ruse to kill the option to protect the interests of the insurance companies. A not so bad strategy in a country where bad-mouthing government and labeling many government programs ‘socialist’ works quite often. It makes sense that the RASD opposes public options – but why do a whole host of others follow?

However that does not mean that those who are for the public option in the health debate are always on the side of those who are getting a raw deal. They have their interest groups to protect too, and will sell the common person short in doing so. Here I’m thinking about the education sector. A great majority of K-12 students in the U.S. attend a public school. Public schools are run by local school boards funded by a combination of local, state, and federal tax dollars. There is a big range in the quality of these schools, and a not so small number of students receive a bad education in what are simply bad schools.

In most cases where you live determines which school you attend. Unfortunately if you are not well off financially then you get to live where you can afford to and your children go to the neighborhood schools. There is a strong correlation (with much causal underpinnings) between income level of neighborhood and quality of school – poorer the neighborhood, poorer the quality of the school. The way relatively wealthy families with school-going children determine where they live is to a great extent based on the quality of the school. So the relatively rich get to choose the school for their children, even if their children are going to public schools. And if your family has to stay in a neighborhood which has a bad public school, often there are expensive private school options which the family can avail. Very rich families who are dissatisfied with their very good public schools send their children to very expensive (and presumably very good) private schools. Put simply, if you are born into a poorer family the chances are much greater that you go to a worse school.

This wouldn’t be all that bad if the schools in poorer areas were relatively worse, but were decent in some absolute sense. However in a number of cases, enough to matter, the schools are terrible by any standard. One way to help students in bad schools (majority of whom will be from poorer families) is to give them a choice of either attending another public school in another neighborhood (or another school district), or by giving them the resources (vouchers) to attend private schools instead of a public school.

By and large such a policy move in education is opposed by a majority of Democrats in Congress (MOD), and close to no Republicans. The objection of the MOD comes from their interest in preserving the public aspect of education. They claim that their fear is that if competition to the public schools is introduced in the form of school choice for parents and students then a number of people may choose private schools (taking advantage of the vouchers) thereby weakening public schools. They surely must realize that the only reason a family will take advantage of a voucher to a private school is because it provides a better education than the public school. But even if there is some reason why there is a compelling State interest in preserving public education, that is only an argument against vouchers to private schools, not giving families and students the choice to attend any public school.

So why the opposition? Because the powerful teacher’s union the National Education Association (NEA) wants to ensure that the monopoly of public schools in education is maintained. The NEA is deeply connected with the Democratic Party and the adults are serving each other’s interests when many a child suffers. The detrimental effects of having a strong teacher’s union, and no choice for parents goes a long way in perpetuating incompetence in many a public school. I do not know the NEA’s position on competition across public schools (both across neighborhoods in the same school district, and across different school districts), but suspect that they are do not strongly support it. I’ll be happy to be corrected on this, but my suspicions are because if they were for it, it would have happened! Again, it makes sense why the MOD are opposed to school choice – but why do a whole host of others follow?

Isn’t it interesting… by and large in Congress, those who are for the public option in the health insurance market on the grounds that increased competition is good, oppose school choice and vouchers; by and large, those who are for school choice and vouchers in education on the grounds that increased competition is good, oppose the public option in the health insurance market? Special interest groups have made ‘public’ and ‘private’ interests dominate the debate – when the real issue is competition.

Finally, to put my cards on the table – I’m for options and choices – both the public option in health care, and public and private choice in education. Looks like we’ll get neither in the near future, given that the cart will be placed before the horse by many an American.

The Art of Living - A Personal Experience

I am cynical of religion in general and Godmen in particular. I am very suspicious of anyone who claims or institutionally organizes claims to be closer to the Divine than the rest of us plebians. Not that I can do much given my suspicions. I simply stay away.

However, word came down that the Sudarshana Kriya Course taught at the Art of Living Foundation (AOL) was worth trying. A friend in Singapore told me so after a couple of beers in a bar behind a Borders bookstore in Singapore. That was after a second cousin who is deeply involved with the AOL, teaching courses and trying to convince people that breathing right will put them on the road less traveled but more fruitful, had been trying to get me to try it for a long time.. Her attempts to get me to do the Sudarshana Kriya course were met with my initial polite deflections. She didn’t stop trying to persuade me till I clearly told her that I’d do what she wanted me to, if she did what I wanted her to – and I wanted her to stop dishing out unsolicited advice. My friend convinced me to do what my cousin wanted me to do – I enrolled in a Sudarshana Kriya course. Below is how I feel about it three weeks after participating in the course.

There are two aspects to the course – the physical part and the psycholo….okay call it what it really is – the brainwashing part! I’ll deal with these two separately.

The physical part of the course consists of two parts – an initial set of breathing exercises which apparently prepares one to do the Kriya itself. The Kriya consists of a series of rhythmic breathing sequences and ends with a meditative rest. The entire process takes about half-an-hour to do. It’s now been about three weeks and I do it more or less everyday. My sense is that I was taught the mechanics pretty well – though I don’t have independent confirmation of how well I’m doing it. Maybe I’ll ask my cousin to evaluate my technique the next time I’m in India! And my guess is that I’ll keep doing it till I know it’s doing no harm, or am certain that it will do no good.

It was the other part of the ‘course’ that was troubling. Many a tip on how to live well was passed along. Some of the stuff made sense – you can only control your actions. But some stuff was debatable – don’t worry about a person’s intentions, because as the Guruji would say, it only causes tension! My trouble was not that it was debatable, but it wasn’t debated. The course instructor would state a proposition, preface it with a “You know” and end it with a “Right” in a sing song way. And the six or seven of us course participants would nod in agreement. There was no discussion, just acceptance of wisdom, even when there was none.

You don’t understand, you say. Let me give you an example. On the final day we were told, “You know, have you noticed people who do seva (service) but not sadhana (live right) do not seem happy, - have you noticed? Right?” And we all, once again said, “Yes!” Actually that’s not the whole truth. This time I objected. I not only disagreed with the notion that those who did seva but not sadhana were unhappy, but really didn’t know how to identify whether or not people who did seva did sadhana, to have an opinion on the need for seva and sadhana to exist for one to walk the path of bliss. I went a step further and protested that the my fellow students and I were acting like a cult, and told the instructor that he was being profoundly judgmental. “Do you know what a cult is?” thundered the instructor who earlier had advised us that we may show anger, though we must not be angry. He carried on, “The Art of Living is not a cult, and you are being judgmental!” I never accused the Art of Living of being a cult, so the response was quite revealing. And when I got the ‘you are what you are accusing me of being’ response, I felt like I was having one of those occasional conversations with my spouse.

The other part was the massive public relations drive on behalf of the Guruji. We were told how the Guruji was our instructor’s idol – “I idolize Shri Shri.” And there was good reason to. For it was the blessings of the Guruji that led to a series of completely improbable (actually impossible, but who’s keeping track) series of events, that got our instructor to go to India to do the teacher’s course – I won’t bore you with the details, but the invisible hand of the Guruji did play a role! Another time the Guruji played a role was when our instructor once told his boss that he would work from home when he had AOL affairs to attend to, did no work, but was given a bonus of $7,000 for his good work. No prizes for guessing who was responsible for this sequence of events! But the most bizarre story was about his mother who came to the U.S. and got very sick after eating out. She had a miserable night and in the morning the instructor on his way to the local drug store thought within and asked his Guruji why his mother was going through this suffering – if she was in India a doctor would come and see her at home - after all they came from a well to do family in India. He then called a friend who suggested he call a doctor. And the doctor insisted that he will come and see the patient at home on his way to the hospital. This story may well be true. What I find troubling is the sense that someone far away was listening to the anguished plea and responded. I’m simply left to ask, why weren’t the good wishes and positive energy not used to make sure that the mother didn’t get sick in the first place? Like all the others, this time even I stayed silent, and nodded my head. Happy to be a trouble maker a couple of times, but even I don’t overdo it.

Much more of a not so complementary nature can be said about not so subtle attempts to present the AOL and the Guruji in positive light. But I think I’ve made my point. Suffice to say, my problem with all forms of organized religion/spirituality was reconfirmed. While it is possible that either for real or psychosomatic reasons good comes out of these institutions, the level of sycophancy and personal attribution of power and powers to some of our fellow humans boggles the mind. I’ll never understand the worship of other humans, but I am happy to see if breathing a certain way will have a positive impact in my life. If it will, I’ll carry on breathing in purposeful fashion.

It's Starting Now With a Test Run

Just seem to have set up this blog. Hope I did it right. Arriving shortly, my first real piece, On The Art of Living.