A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

End this attack on Paul Krugman now!

by pdxblake

As is probably clear from my earlier post on the expiration of the Bush tax cuts, I am a big fan of Paul Krugman.  I have been for a long time (going back to when I was in college reading his academic texts), and after a few bits of regret that he had directed efforts towards public intellectual rather than academic production, I’m fully on the Krugman bandwagon (and why not since he has been right more than he has been wrong.

Last week after a disaster of an interview ostensibly focused on his latest book “End This Depression Now!” (video if you dare) with CNBC’s right-wing Joe Kernan and Milton Friedman devotee Michelle Caruso-Cabrera (Kernan called Krugman a ‘unicorn’), Business Insider’s Joe Weisenthal sat down with Paul Krugman for a series of interview segments including

  • Deficits (and why the government should be spending more) [video]
  • Very Serious People, [video]
  • the Euro crisis, [video]
  • how Krugman is the “fastest damn writer in economics”, [video]
  • why the Republicans are to blame for today’s “nightmarishly disfunctional political system” [video]
  • and why we should stop listening to Alan “Snoopy Snoopy Poop Dog” “Enema Man” Simpson

Krugman is not the best TV guest, looking uncomfortable throughout, but he gets the point across and it should be required viewing for people wondering “what the hell is going on?”. But he gets to some very important points including about the European debt crisis, where he says there are two bad choices for Germany to end the crisis: step up and let the European Central Bank buy Italian and Spanish bonds to stop the death spiral, or leave the Euro themselves.

The problems in Italy and Spain are different from Greece (which lied its way into the Euro to begin with, see November 2004).   Italy had high debt but low deficits going into the crisis and even today, when you look at the debt payments excluding interest, the primary surplus.  Spain had lower debt and was in surplus before the crisis, mostly because it was getting additional tax receipts from a big housing boom, but is now in deficit, due in large part to the recession caused by the housing bust (sound familiar?).

The crisis in confidence in their debt is caused by a concern that they are uncompetitive, and because they cannot devalue their currency or let a little inflation into their economies, will remain so into the future.  If they remain uncompetitive, they won’t be able to service their debt in the future.  If they were outside of the Euro, like Iceland is, they could just let their currency devalue and regain competitiveness and start the economic recovery, but they can’t because they are reliant on the ECB, which is controlled by the Germans (whose investments were partially funding the bubble that started the mess).

As it is, they are stuck and it is up to the ECB and the German government who pulls the strings to decide how to resolve the situation.  There are two possible solutions that Krugman describes:

  1. The ECB allows inflation to creep above their “below but close to 2% target” for the Eurozone as a whole, and makes this an explicit promise, backed up by their own quantitative easing program buying Eurozone countries’ debt (including Italy and Spain) to drive down yields on those countries’ bond, to make their debt service affordable.  In addition to the help on the interest payments from falling yields, it will also stimulate the Eurozone economy, which is why they must also commit to allow slightly higher Eurozone inflation (which will mean escaping deflation in Southern Europe and 3-4% inflation in Germany).  This is costly for Germany because its purchasing power will decline, but the benefit they get is that the Eurozone stays together and Southern Europe has a chance to escape from deflationary hell (Dante, meet Franz, who has wrought many levels of deflationary hell on Southern Europe).
  2. Germany exits the Eurozone and takes explicit control over its monetary policy.  The rest of the Europe, “freed” from Germany’s strong economy, sees its currency depreciate, bringing the changes needed to make their economies competitive again.  While simpler to explain, the effects would be more complicated.  Germany, without the weight of depressed Southern European countries, would see its currency soar in value, which would hurt severely their competitiveness, which would depress their large export sector.  But at that point, with them in control of their own monetary policy, they can let the regions within Germany fight about it (export heavy regions ask for looser monetary policy to depreciate the currency to bring back competitiveness while other regions support maintaining the high value of the currency so that they can buy more suddenly cheap imports, sound familiar?).

Krugman wisely chooses not to handicap the probabilities of these two outcomes, giving a bland 50-50 probability.  And I’m going to follow him, since I have no more insight into internal German politics than he does, but I think the fallout for the global economy would be far less with the first choice than with the second (especially since it would probably cause a cascading effect since it would not be an orderly withdrawal).

City housing should be family, roommate, and polygamist-friendly

by drewnilsen

Having recently relocated to Washington, DC, I’ve been grappling not only with the stratopheric rents here, but also with the difficulty of renting a place. I actually wanted to live in one of DC’s larger, beautiful rowhouses — I’m 33, but I still enjoy living in a big house with roommates. However, as the process unfolded, I discovered how aggravating it was — I was competing for every 3-4 bedroom house — even those off the Metro in “transitional” neighborhoods — with 20+ other groups. The fact that I lack an income (I’m still job-hunting! Anyone? Bueller?) — though I have a great credit score and enough savings to pony up an extra-big deposit — and one of my roommates is tromping around the West African nation of Guinea, while my other is from Italy and lacks a social security number, made us untouchables to every individual landlord in town.In desperation, we went to a newer, modern condo, where we figured a larger entity might be more flexible on the financial angle. And, pending my criminal background check (DON’T LOOK IN SOUTH DAKOTA!), they were. Yet, I initially inquired about three bedrooms apartments, and I was surprised that they only had one 3 BR unit in a complex of, perhaps, 100 units.I found this odd, because plenty of 20- and 30-somethings want to live in groups — out of financial necessity or because they want to (I’m sure there’s some theory of Millennials in here somewhere). Or, if you’re doing well, you might want an extra room (or two), and still live in the city. The fierce competition for every large house in DC backs me up on that.

I hadn’t even considered the impact on families, though. Atlantic Cities — my catnip — wrote about the Toronto* Deputy Mayor opposing a requirement that at least ten percent of a new, large development be at least three bedrooms, to accommodate families.

My former colleague and neighbor in DC helpfully pointed out that it’s all about profit; you can command more per square foot from a studio or one bedroom than a 3 BR. His 60s-era urban renewal building, which I can see from my window in SW DC, is in the process of ripping out its 3 BRs to convert to smaller units.

Families and children — like all forms of diversity — are vital to the thriving energy of cities. Plenty of parents still want to live in the suburbs, but many parents my age want to raise their kids in an urban environment. Schools are usually the biggest hurdle (besides expense and space), but city policy and developer short-sightedness shouldn’t also be conspiring against them.

Yet, my own anecdotal house-hunting experience in the last month underscores that there is demand for larger housing units (not to mention the architectural tragedy of chopping up rowhouses and brownstones).

Hopefully, developers will realize this is find a way to not force everyone who wants to live in cities to live in the most little boxes, little boxes. But, cities have the leverage to force developers to build family (and group house) friendly accommodations, to ensure that cities retain a true diversity of residents and options.

*As I’ve learned from the Toronto-native boyfriend of my cousin (both of whom are moving to the thrilling urban environment of Ottawa next month), it’s pronounced “Toronno,” not “ToronTO.” Impress the next Canadian you meet!

Parking Lots, Coffee and Taco Bell: When Big Business Opposed Less Regulation

by drewnilsen

Despite the gutting and eventual pulldown of my native California’s Minimum Parking Requirement reform bill, the fact that this issue has become a legitimate part of the policy discussion is encouraging. Minimum Parking Requirements (MPRs) are a long-standing zoning requirement for new development and businesses that exist in cities and suburbs. While the genesis of them aren’t insidious — sure, people do need to park, sometimes — they often suffer from sloppy or outmoded calculations, or they inadvertently deter users of the development from walking or using public transit. Or, MPRs end up creating unnecessary expanses of hot, ugly asphalt that adds to environmentally-damaging impervious cover and sprawl, makes it harder for non-drivers to access, and adds unnecessary costs that get passed on to the consumer, whether they use the parking lot or not.

Reducing or eliminating MPRs in urban areas near transit nodes wouldn’t prohibit developers from building as much parking as they want, it would just relax the regulations they generally face. Many MPRs in America still mandate one car per bedroom, even in residences that are attractive because they are in walkable, transit-friendly areas. In cities and suburbs, parking lot sizes are determined by a metric of 85% of peak capacity — meaning that the vast majority of the time, a parking lot will be mostly empty. Or there are situations like this “green” library in Austin with a huge, underutilized parking lot that ignores its location in a residential neighborhood with ample free street parking during the daytime.

Old habits die hard, and many developers will continue to build more parking spaces than are necessary. But relaxing MPRs, especially in urban areas where other transportation options exist, is a good way to free up more progressive developers to create more efficient, urban places.

In the meantime, it would be nice to see neighboring businesses voluntarily enter into mutually-beneficial parking-sharing arrangements like this, whereby a coffee shop (peak hour: morning) uses a Taco Bell parking lot, and the home of the Doritos Loco Taco (peak hour: whenever teenagers are awake and stoned, e.g. not morning) can use the coffeehouse lot the rest of the day (and late night. Fourth Meal, bro!). Cities could spur such arrangements by offering to waive MPRs when contiguous parking options are available.

Good policy at a bad time is still good policy

by pdxblake

The Democrats are going to try again to get through good policy against Republican obstructionism, replicating a failed effort from 2010 to hold strong behind letting the Bush tax cuts expire for people earning more than $250,000 per year.  The politics are generally in favor of the Democrats’ argument, but that was also the case in 2010.  From a policy perspective, it is much more preferable to raise marginal tax rates on those with high incomes than those with lower incomes.  It is easier to do it when the economy is booming and the argument that adding any drag to the economy does not hold water, but it is never possible to pick the timing of things like the second coming of the expiration of the Bush Tax cuts (which was conveniently timed to originally expire a couple years after Bush’s second term).

The main argument against raising tax cuts on high income people is the old Laffer Curve argument that raising marginal tax rates will discourage by high income people enough so that its revenue-raising impact will be negative.  This has been re-branded into the simplistic (and cringe-inducing) reference to rich people as “job creators”.  However, economists Peter Diamond and Emmanuel Saez find that the optimal level for the highest marginal tax rate is close to 70%, much higher than both the current 35% and the 39.6% rate that will be the end result of the high-end Bush tax cuts expiring.

Paul Krugman described the logic behind the paper’s conclusion:

In the first part of the paper, D&S [Diamond & Saez] analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

Now, this doesn’t imply a 100% tax rate, because there are going to be behavioral responses – high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%.

Everyone and their mother likes to bitch and moan about the inefficiency of the tax system, and there are numerous solutions proposed, like flat taxes and removing all tax expenditure (the government encourages certain behavior by giving people money through the tax code rather than by spending directly), which all have their own problems.  The main goal that everyone pretends to support is that taxation should pay for the things we want the government to spend money on few distortions on the economy.  This is the same thing as what Krugman describes, and a part of creating the most efficient tax system is finding the point where the marginal tax rate on income maximizes revenue.  If the data show that the top maximum rate should be 70%, then by not having it at 70%, the government has to either borrow or levy taxes elsewhere, which will have a more significant impact on the economy in the long run.

The economy is not at the best point for fiscal tightening (i.e. spending cuts or higher taxes), but it is likely to be the best chance for a while to make a change that will help both lower income inequality and will be the first step towards lowering long-run fiscal deficits.  It is also a much less harmful idea than the Republicans alternative:

  • Save the tax cuts for the rich or let all of the Bush tax cuts expire
  • Offset Defense Department spending cuts by taking the knife to discretionary spending including assistance to the unemployed and lower-income people.

The Republican policy ideas are far more harmful to the economy than anything the Democrats have proposed.  But if they lose this fight, the Republicans will have no other choice but to go and ask the EPA and the Sierra Club to save the “job creators” from extinction.

For more information on empirical studies of the economic effects of raising the wealthy’s taxes, I recommend a report from the Center on Budget & Policy Priorities released in April 2012.

SHUT UP EVERYBODY JENNIFER RUBIN CAN’T HEAR HERSELF BE RIGHT

by evanmcmurry

Under the Jennifer Rubin formula, in which “[anything] x a Jennifer Rubin column = Mitt Romney,” the coming economic forecast x today’s Jennifer Rubin column = Mitt Romney. I let her ‘splain, since she’s so good at it:

The divergence between what the Obama campaign and the media (I repeat myself) are talking about (Bain, Bain and Bain) and the most important economic (and hence political) news of the year is breathtaking. To put it bluntly, we are looking at economic contraction. In lay’s terms that is a recession.

Speaking on behalf of the lays, thanks; we preesh the jarg.

For the left flogging the Bain story and the right bemoaning Mitt Romney’s response, stop. Just stop. You’re making fools of yourselves. If we are indeed heading for zero percent growth (and/or zero job gain-territory), there is no way that anything else matters. Obama can call Romney a criminal. The lefty bloggers can attack Congress (really, this is the formula for reelecting Obama?). But it will make no difference. None.

Good to know. Actually, the economy’s been in full slowdown mode for three months. It’s been rather covered in the media, however you define that word. People, even lays, know about it. And yet Obama’s approval ratings have remained where they are—not great, but not the poll numbers of a president who’s got 8.2% unemployment around his neck, either. Actually, not only do a sizable portion of voters still blame Bush for the Great Recession, but there’s a sliver of an indication that blame for the economy is shifting onto the GOP House, as their little debt ceiling escapade was also covered by the media, and the lays seemed to have noticed.

It’s likely that Obama will still suffer more than he has for the stagnant labor market. But as there’s no evidence that it’s happened yet, I don’t get how anybody’s making fools of themselves by acting as if it hasn’t happened. Rubin’s calling the media irresponsible because they won’t report a narrative that has no empirical basis.

Instead, Rubin’s real hand is accidentally tipped in the paragraph above. “There is no way that anything else matters. Obama can call Romney a criminal…But it will make no difference.” Sure, Obama can call Romney a criminal, or Romney can be a criminal, it doesn’t matter: if the economy sucks, Romney wins. This exact strategy—that Romney should do nothing but sit on his hands while he gets called a vulture and outsourcer and a fetus disposer and a liar, while he waits for the economy to tank—is why he really, really appears to be losing the election.

Earlier I asked if anybody saw an out for Romney from the Bain Capital trap the Obama campaign had set for him that didn’t involve closing his eyes and wishing for 10% unemployment. That’s almost literally what Jennifer Rubin is proposing he do. Can the Washington Post really not find a better conservative columnist?

The “Capitol” of Capital Misspellings

by drewnilsen

I lived in Austin on-and-off for about nine years, and my heart still resides in the land of great live music, cheap rent (compared to DC, anyway), cheap beer (ditto), liberal politics, flip-flops, Longhorn football, and breakfast tacos (the world’s greatest morning food).

I suspect, though, that every single resident was getting high on the Barton Springs Greenbelt on the day in middle school English when they taught the difference between “capital” and “capitol.” It’s certainly an easy error to make, but every other city seems to grasp the distinction — “capital” (with an “a”) is the city, “capitol” (with an “o”) is the building. For example, Washington, DC, is our nation’s capital, but the neighborhood where underpaid congressional staffers hit free happy buffets is called “Capitol Hill.”
Today, a writer at the excellent Texas Monthly referred to “the capitol city” in an article about Robert Plant living in Austin with singer Patty Griffin. I loved the steak frites at the now-closed Capitol Brasserie, which was downtown and not within view of place where the bidness of Texas — notably, slashing $28 billion from the budget and legalizing the shooting of feral hogs from helicopters — is done. A budget car dealer out in the suburbs — with no apparent fondness for Italian Renaissance Revival-style government buildings — is also named “capitol.” (I’ll cut Capitol Kia some slack, though, because it finally stopped erroneously referring to its location as “Interstate” 183, which does not exist.)

I’ve lived in a few English-speaking capitals — Providence, Cape Town, Austin, and now DC — but I’ve only noticed this issue in wide practice in Austin. What gives?

Double Irish with a Dutch sandwich with a vengeance

by pdxblake

One of the big conservative talking points is that businesses are hoarding their billions overseas instead of creating jobs because it is unfair to tax overseas profits, and if only the US allowed them to not pay US taxes on foreign earnings, they would create so many new jobs.  Nevermind that it is more likely that allowing businesses another “repatriation tax holiday” like the Bush Administration did in 2004 did not lead to a big surge in hiring, and instead just gave businesses the extra incentive to continue to hide their billions overseas until the next time they can bring it back for cheap, and to increase their use of offshore tax havens where they can shift profits (even those actually generated in the US, as the NY Times described in a detailed article about Apple’s Double Irish with a Dutch sandwich)

However, one of Mitt Romney’s policies is to end corporate taxation on foreign income, or translating to wonk, move to a “territorial tax system” where the US only taxes income earned in the US.  He claims this would put the US tax system more in line with other countries that use the territorial system.  However, it is more likely to lead to additional offshoring of jobs, based on the research of Reed College economics professor Kim Clausing who estimates: “In 2008, U.S. multinational firms employed 10 million workers in affiliated firms abroad. Under a pure territorial tax system, the tax incentive to locate jobs in low-tax countries would increase significantly, and I calculate that this would increase employment in low-tax countries by about 800,000 jobs” (emphasis added).  This represents an increase of 8% in foreign employment (who would most likely be replacing US-based workers). The Romney plan also excludes (as far as we can tell) the main feature of most territorial tax systems: taxation of some foreign earnings from low-tax countries to reduce abuse of the system through income shifting.

The argument about whether outsourcing is good or bad will continue and I’m going to skip the argument for now just agree with Jared Bernstein at the non-partisan Center on Budget and Policy Priorities (CBPP) who noted in a blog post today about territorial tax systems: “Here’s my take on the offshoring of jobs: it happens…it’s part of globalization.  But the last thing you’d want to do from a policy perspective is incentivize more of it!” (emphasis in original).

Again, as with most of the policies emanating from the Republican Party, this is a policy that can be turned into a (misleading) bumper sticker to sell it as helping create jobs in the US, but in the end all it will do is benefit mostly large corporations and incentivize them to move jobs overseas.  It will also do more harm to the budget deficit (which Republicans only seem to care about when there is a Democratic president in charge).  Currently, income shifting by corporations costs the US Treasury $90 billion a year according to Clausing and it is hard to see a policy that incentivizes more shifting of jobs and profits to low-tax countries leading to higher tax receipts in the US.

Trains to Nowhere

by drewnilsen

Washington, DC’s Metro often receives praise as the nicest subway in America. Having just moved to DC after a short stint living in and traveling around Europe – I’d lick the floor of Lisbon’s subway, and a Brussels tram I rode smelled of rich, new cowhide – I can a little snotty about this assessment. Yes, Metro is carpeted and has coolly Modernist stations that don’t drip sewage onto copious amounts of rats, and local riders self-police each other’s behavior (“STAND RIGHT, WALK LEFT, YOU STUPID TOURIST!”).

Yet, Metro shuts down before midnight on weeknights and switches to painfully long intervals at an absurdly early hour (what this blog’s Founder coined “the Matlock schedule”).

But the biggest problem with Metro is coverage, owing to its genesis in an era when cities were out of vogue, and it doesn’t know if it’s an urban rail system or a commuter line.  Metro – and most other American public transit networks (other than New York City’s) – was predicated on a goal of shuttling commuters into and out of downtown, but not necessary to and from neighborhoods where people might live, work, and play.

Greater Greater Washington has a nifty animation of the evolution of Metro, from 1976 to the present.  It should be fun for any Washingtonian to see how the routes have expanded and morphed over the years, particularly in light of last month’s Rush Plus tweaks to the system.

Admittedly, it’s difficult for any system with only five lines to serve most neighborhoods. However, New York City’s MTA, Chicago’s El and Boston’s T all seem to benefit from the existence of complementary suburban commuter lines, which allow the urban rail to focus on the city itself.  Despite the existence of commuter rail in Maryland, Virginia lacks such a system, forcing Metro into a schizophrenia that adequately serves nobody.

Unfortunately, altering train infrastructure is prohibitively expensive and time consuming. If we could start from scratch, though, I suspect the DC Metro map would look much different, and that Chicago’s El lines wouldn’t all require going into the Loop to go from Andersonville to Roscoe Village.

As cities from Los Angeles to Austin to Atlanta create and expand rail and other public transportation in their metropolitan areas, they’d be wise to consider that American cities are no longer what they were in the 1960s and 1970s – people now commute from one suburb to another, not to downtown, and people choose to live and hang out off H Street, not flee to Woodbridge when the figurative foreman’s whistle blows (or happy hour ends).

 

Oh My Jesus, High-Speed Rail From NY To DC (Maybe)

by evanmcmurry

Puuuuuuuuuuuuhhhhhhhhhhleeeeeeeeeeeeeeeeaaaaaaaaaaaasssseeee:

A small privately owned Washington company is lobbying to develop a high-speed rail system that would take passengers from the District to Baltimore in 15 minutes and to New York in an hour.

The Northeast Maglev, a downtown D.C. firm with 30 employees, is working with Central Japan Railway Co. — which operates the Shinkansen bullet train in Japan — to develop a maglev network that would connect Washington and New York, with stops in Baltimore, Wilmington and Philadelphia, including BWI Airport, Philadelphia International Airport and Newark Liberty International Airport. Eventually, the company wants to extend the line to Boston.

It is a private company, and that sector likes to ink deals that fleece taxpayers, and puts profits ahead of safety even in the face of natural disasters. Still, Amtrak—which is pushing a competing proposal that looks like it will take as long to complete as a bus from NY to DC on a Friday afternoon—ain’t exactly the US government’s shining star here. I’m more than willing to hear what private industry has to say if it can get the job done.

Of course:

It is not the first time there’s been an interest in building a maglev system in the Northeast, but previous attempts were halted by lack of support from lawmakers and funding shortfalls.

The GOP currently hates trains for reasons unspecified, except when they’re in Ayn Rand novels. Hey, call the thing the John Galt Express. Just fucking build it already. (via WaPo)

We Need To Stop Making Things Up About Health Care, Medicaid Edition

by evanmcmurry

Aaron Carroll on just one of the stubborn memes against health care reform:

I get a bit annoyed when people claim that we can’t “afford” more government intervention or, god-forbid, single-payer. That kind of statement willfully ignores the fact that every country that has MORE government intervention spends LESS.

He has more. Full post is worth a read. (via The Incidental Economist)