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Wednesday, June 23, 2004

NY Times vs. Washington Times 

When will the media learn that being "balanced" is not the same as being objective? Here's CNN on the media reaction to the corporate tax giveaway recently passed in the House:

The $34 billion corporate tax bill passed last week by the House of Representatives has been called "a masterpiece of bad legislation" by the editors of the allegedly liberal New York Times and "an arbitrary auction of taxpayer money" by the editors of the allegedly conservative Washington Times.

So the country's leading paper is "allegedly liberal," while the moonie-controlled Washington Times is merely "allegedly conservative." CNN can take "allegedly unbiased."
Thursday, June 17, 2004

Another tax cut? 

Today the house passed a corporate tax giveaway worth $150 billion. No less than 48 Democrats voted for the bill because of various pork projects included to win their support. The "analyst" on CNN kept bringing up the fact that this is an election year: you can't pull these tricks all the time, but right now those representatives really need to "show they can bring home the bacon." Two things. In the House, every other year is an election year! So he's saying that such tricks work about half the time, which is far too often as far as I'm concerned. Second thing, we keep hearing about how 9 out of 10 house races aren't even competitive. If they have no chance of losing the seat, then it doesn't matter whether or not it's an election year.

The Democrats could take a few lessons from the Republicans when it comes to party unity.
Wednesday, June 16, 2004

The real transition 

Juan Cole predicts the real significance of the coming transfer of power in Iraq:

On June 30, the real transition will be from Defense Department dominance of Iraq to State Department responsibility for Iraq.

The State and Defense Departments have a long history of conflict dating back to the early stages of the Cold War. In the course of the intermittent power struggle between the two agencies, the power of the State Department has gradually declined, while the Pentagon has taken on new responsibilities and gained additional influence. Over the past decade, the Defense Department has expanded enormously in scope, obtaining supervision of many programs not of a strictly military nature, such as nation building, intelligence gathering, and homeland security. As a result, it is predominantly the Pentagon, rather than the State Department, that controls the occupation of Iraq.

Prof. Cole is of the opinion that the State Department, had it had more control over U.S. policy in Iraq, may have managed to avoid many of the costly blunders committed by the Defense Department. State Department officials, for example, have long advocated negotiating with Muqtada al-Sadr, whereas military officials precipitated a long and bitter struggle, perhaps an unnecessary one, by stubbornly insisting that capturing or killing al-Sadr were the only options. Let's hope that Cole is right both that State will assume more power in Iraq after the June 30th transition, and that it will use its power more wisely than Defense.
Tuesday, June 15, 2004

October surprise 

Everyone's heard the conspiracy theory that Bush & Co. could try and pull an orange/red alert to delay or cancel the presidential election if they believe they are likely to lose. Tradesports recently added contracts for betting on alert levels in each month from now until December. Not much trading has occurred on these, so the figures should be viewed as extremely speculative. Nevertheless, the results are fascinating. Below are the most recent closing prices for red and orange alerts in each month.

Month Chance of red alert Chance of orange alert
June 2.0% 14%
July 3.0% 17%
August 2.0% 18%
September 2.0% 19%
October 4.5% 41%
November 4.0% 17%
December 3.0% 18%

For all months other than October and November, this data is remarkably consistent. Red alert is at 2-3% and orange in the range 14-19% every month. Although it is viewed as extremely unlikely, the chance of a red alert in October or November is noticeably higher than in the other months. But the really amazing thing is the chance of an orange alert in October, which at 41% is more than double the chance in any other month!

When you consider the fact that election day is early this year -- November 2nd -- it makes sense that a terror alert is anticipated in October rather than November. According to the trading rules, the day of reckoning is the last day of the month: if you buy a share of orange for the month of October, you are betting that we'll be on Orange alert on October 31st, two days before the election. Likewise for November, it's November 30th, which is four weeks after the election.

There is another, less cynical, but no less alarming interpretation of these figures. Perhaps people are betting that the ugly pattern of 3/11 in Spain will be repeated in this country; Al Qaeda for whatever reason may have an interest in influencing or disrupting U.S. elections, and could be planning a major terror attack for shortly before election day.

I'll be keeping my eye on these trading prices, and will post again if there is any significant change.
Friday, June 11, 2004

Reagan's funeral 

Why is it that 95% of the time I can flip between CNN and Fox News (adjacent channels) and they have the exact same camera shot from the exact same angle? They cut to a close-up at exactly the same time. They're obviously buying the camera feed from some third party. Who, I wonder? I've always wondered why competitors in the same line of business seem to become such exact mirror images of each other. Look at the airlines - they all have exactly the same planes, the same beverage service, same meals (now lack of them), same frequent flyer programs, same safety videos, everything. The two competing supermarkets in my area of Berkeley even have the same items on sale week after week. It's almost as if they're afraid of giving people any reason, no matter how small, to switch companies. So when one does something new, they all have to copy it. Doesn't this go against the spirit of capitalism? If competing businesses are all offering me exactly the same service, choosing between them is meaningless.
Monday, June 07, 2004

Good News 

General Paul Kern, commander of the Army Material Command, says that all our soldiers in Iraq now have body armor. About time.
Saturday, June 05, 2004

Reagan dead at 93 

Ronald Reagan died today. For a very different perspective on his presidency, check out "Reagan's Liberal Legacy" (yep you read that right!), thanks to Kevin Drum for the pointer. I especially like the part about how all the obituaries, tributes and whatnot were written months in advance.
Friday, June 04, 2004

Senate races in red states 

This year's competitive senate races are nearly all in red states: Alaska, Colorado, South Dakota, Oklahoma, Louisiana and the Carolinas. So naturally, we're going to see a lot of Democrats positioning themselves uncomfortably far to the right. Witness Tony Knowles, Alaska's Democratic Senate candidate, defending himself from "attacks" alleging that he is not sufficiently supportive of oil drilling in the Arctic National Wildlife Refuge; or Tom Daschle's support for a bill which would have granted gun manufacturers blanket immunity from civil lawsuits.

Maybe this sort of thing happens every election cycle. After all, there are more red states than blue states. Al Gore carried 20 states and DC in 2000 to Bush's 30 states. Since the blue states are more populous, the two groups are roughly equal in electoral votes. But in the senate, where every state is represented equally, the Democrats need to pick up at least a half dozen seats in red states just to get to 50-50.
Tuesday, June 01, 2004

Refuting David Brooks 

David Brooks' column in this morning's Times is directed to those of us who disparage the Bush tax cuts. He tries to defend the cuts, but if you take a minute to think about it, you'll find his arguments don't hold up. Brooks articulates the four main objections to the tax cuts and then addresses them. Let's take the objections one at a time. In Brooks' words:

The first [objection] is that you don't cut taxes in a time of war. This is the least persuasive. Some outside economists say the cuts created or preserved 1.5 million jobs. It's hard to see how the war effort would have been enhanced with those people out of work. If we had wanted to create a sense of shared sacrifice, which we should have, it would have been far better to institute an ambitious national service program.

Brooks assumes here that the people who argue against tax cuts in time of war do so ONLY because they wish to create a sense of shared sacrifice. This is nonsense. The main reasons that people argue against wartime cuts is that wars are expensive. When a government spends more money than it takes in from tax revenues it runs budget deficits, which, if uncorrected, are bad for the economy. Although Brooks neglects to mention that point here, he does get to deficits in his analysis of the fourth objection.

The second objection is that the cuts were poorly designed. They were drawn up in the midst of prosperity and then wheeled out in response to recession. Even Decision Economics' Allen Sinai, a big supporter of the cuts, says the stimulus could have been stronger if more of the cuts had been distributed down the income scale. The White House lacks a compelling response to this.

Although he doesn't let it distract him from his conclusion, it is cool that Brooks admits that the cuts were poorly designed. He is right to question the impact on the economy of a tax cut skewed overwhelmingly to the wealthy. This is because the level of economic stimulus created by tax cuts depends on the distribution of those tax cuts over the income scale. If someone in the middle class gets a tax cut, he will probably spend the excess cash on a product or service he needs or wants, but would have been unable to buy otherwise. Spending his tax cut money strengthens the economy because the money goes to the firm that provided the product. If tax cuts create sufficient consumer spending, firms will be able to hire more workers, reducing unemployment.

Rich people, on the other hand, are generally able to buy most things they want before they receive their tax cut. While they may spend some of the money on big-ticket items, most of it will be invested, rather than consumed. Buying stocks or bonds with tax cut money increases the rich person's future net worth, but has no immediate effect on the economy. This is especially true if the investor puts his money in foreign assets, which offered better returns than domestic assets in 2001 and 2002.

The third argument is that the cuts should have been temporary. White House folks argue persuasively that given the rolling series of blows — the bubble, the corporate scandals, the war jitters — a short-term stimulus would not have worked. "You were not going to get a sustained recovery from something temporary," Friedman says.

I completely agree with Brooks that temporary tax cuts are not stimulative. Consumers who get one-time tax cuts are just as likely to save as spend them, and saving them does not directly stimulate the economy. If the consumer believes that the cuts are permanent, however, he will be more likely to spend today, because he knows he can save a greater portion of his future income by paying less taxes tomorrow. All very true. Tax cuts stimulate the economy only if they are spent, and will be more likely to be spent if the recipients believe the cuts are permanent.

But wait! In discussing objection two Brooks admitted that most of the tax cuts went to the rich, who will be less likely to spend. If giving the cuts to the rich makes those cuts less effective, whether or not middle-class taxpayers believe the cuts to be temporary is beside the point. Brooks' point would have made perfect sense here if it wasn't inconsistent with the paragraph he had just written.

The final and most serious argument is that whatever the short-term benefits, the tax cuts have left us with a long-term fiscal mess. When you ask administration folks about the deficit problem, they argue that it isn't caused primarily by the cuts, but by rising health care costs and the aging baby boomers. That's true, but it evades the fact that the tax cuts made the situation worse.

Very reasonable of Brooks to point out that the long-term ramifications of the deficit are a real mess. I posted on that on May 7. However, his idea that the deficit is "caused primarily...by rising health care costs and aging baby boomers" is just nonsensical. Deficits are not caused by one thing or another, they occur whenever government spending exceeds taxation. Bush was given a surplus and chose to turn it into a deficit by blowing the money on missile defense, tax cuts, and war. Deficits do not just happen. They are the result of policy and choices. Gore may have sounded like a loser when he talked about the social security "locked-box" (the SNL skit of that debate WAS pretty funny), but there is nothing unreasonable about putting surpluses away for the future, rather than giving them to the rich.

Brooks' argument is kind of a mess. He creates a straw man, admits the tax cuts were poorly planned, ignores that poor planning in his very next paragraph, and distracts us from what he admits is "the most serious argument" by playing word games. His writing style makes him seem really reasonable, but today's column just doesn't hang together.
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