No Grownups in Charge: Federal Deficit Edition

Conceding the fact that you should aggressively wash your hands with antibacterial soap should you ever shake hands with Elliot Spitzer, the guy has a point about the federal budget deficit.  Actually, he has half a point.  He is correct for calling Republican House leaders to task for taking cuts to defense, Social Security, Medicare, Medicaid off the table as well as for refusing to consider tax increases.  As Spitzer notes, the numbers are clear and clearly out of whack.

4. Our annual budget is significantly out of balance:

a. Spending is about $3.8 trillion.
b. Revenue is about $2.5 trillion.
c. This leaves a deficit of about $1.3 trillion.

5. The big buckets of spending are pretty clearly separable:

a. Defense—about $900 billion.
b. Social Security—$730 billion.
c. Medicare—$490 billion.
d. Medicaid—$300 billion.
e. Interest—$250 billion.
f. Nondefense discretionary—$610 billion.

Defense. the major federal entitlements, and interest on the current debt are about 80% of federal spending.  Completely eliminating nondefense discretionary spending---everything the federal government does except the military, Social Security, health care for old people and poor people, and paying its credit card bills---would only reduce the current deficit by about half.  So, we could stop building highways, let everyone out of federal prison, eliminate NPR, stop arts funding for homoerotic photography, quit giving poor kids school lunches, ban all earmarks, etc., etc., and still only be halfway done.

To balance the budget, there have to be major cuts to defense, entitlements, and, probably, tax increases.

I say Spitzer has half a point because his critique of Republican intransigence on the deficit goes just as much, if not more so, for Democrats who seem to have no serious deficit reduction plans above and beyond increasing the top marginal income tax rate.

The problems are huge, however, the solutions are as painfully obvious as they are painful.  Retirement ages must be raised and benefits for future retirees must be reduced.  Medicare and Medicaid eligibility have to be tightened and benefits capped.  Defense spending has to be cut.  Sadly, it is also likely that taxes will have to be raised, at least in the short term, to payoff the over-commitments we have previously made to current retirees in terms of benefits and medical coverage.

There are, however, absolutely no grown-ups in charge of our national government.

Neither the President nor congressional leaders have bothered to explain any of this to the country in plain language.  Neither the President nor congressional leaders have bothered to make plans to actually deal with this problem.  Instead, both the President and congressional leaders are content to continue their bipartisan aversion to problem-solving as our nation digs itself deeper and deeper into a fiscal crisis.  Both the President and congressional leaders are content to let things get worse before they get better, to kick the problem down the road to someone else at some other time to deal with, and to work hard together to hoist the anvil that will eventually crash down on our heads, Wile E. Coyote-style, to ever greater heights.

Law School Bound?: New Policy on Letters of Reccomendation

Over the last couple of years, I have become a great skeptic of law school as an appropriate post-college choice for most students.  (I am not alone, of course. See here and here, for example.)  Law school is, typically, very expensive both in terms of the nominal cost of tuition, books, fees, etc., but also in terms of the opportunity cost of lost wages and spending three prime years of young adulthood in yet another structured educational environment.  Given these the tremendous investment up front, it is likely to take most students a very long time to amortize the startup costs of a legal career and earn any sort of reasonable net return on that investment both in terms of compensation and in terms of professional happiness and overall quality of life.  This is especially true for students who are unable to earn places in nationally prominent law schools from which major national and regional law firms draw their new associates. 

A third of new law school graduates in 2009 accepted positions paying $65,000 or less.  That works out to take home pay of about $4,500 a month after federal taxes---though not counting state taxes, health insurance, retirement, or other payroll deductions.  Payments on $50,000 of student loans would be about $400 a month (for a 20 year note at 6.8%), and double that on $100k of student debt (which is not unusual if a student has borrowed money for college and law school).  Asking someone to pay between 10% and 20% of their real income to service student loan debt is an enormous burden and perhaps a crippling one.

Even though I have made a habit of counseling students to be very careful in their choice to attend law school, most students who see me about letters of recommendation eventually ask me to write on their behalf.  Generally, I comply with students' requests, writing letters that convey my evaluation of each student for better or for worse.  I am not playing along any more.  I will no longer write letters of recommendation for students applying to law school who are unlikely to  be competitive for admission to programs that offer a reasonable chance for employment remunerative and engaging enough to justify its cost.

From now on, I will not write on behalf of a student unless he or she has:

1. earned a cumulative GPA of at least 3.5.
2. taken an LSAT exam and earned a score of at least 160.
3. completed some sort of internship, career shadow, or other professional or educational experience that might have reasonably shown them the kind of work that lawyers do day-to-day.
4. researched the cost of law school and made a plan for paying for it.

I realize this policy will exclude a lot of very good students and lead to some awkward conversations.  Still, I can't, in good conscience, support educational choices that I don't support, no matter how much I may like a given student. 

Hey Flanagan

Kinda seems like the Dookies have it in for you:

Flanagan’s a hack and the worst kind of pundit; after years of her hysterical essays, this is common knowledge. But that doesn’t excuse The Atlantic for having printed pages of what is essentially deception, unprofessionalism and, in at least one instance, outright lies.
...
Clearly, Flanagan doesn’t know any better than to write nonsense like this. But the fact that The Atlantic continues to publish her isn’t just shameful—it’s irresponsible.

Failing Stimuli and the Great Recession

Policymakers in the United States have thrown everything they can at the "Great Recession."  Putting aside efforts to rescue specific firms (like AIG or GM) or industries (TARP), which seem to me more complicated cases, the federal government has taken both of its big anti-recession dogs for a walk: fiscal stimulus (borrowing money against future revenue collections to spend now) and monetary stimulus (printing more money to put into circulation).  Neither seems to be doing much, though.

The economy is growing, but its not growing fast enough to add enough to keep up with growth in the labor market.  In general, the whole situation seems like a major win for real business cycle theory.  Having said that, though, I think there is some reasonable historical  evidence that Keynesian and monetarist interventions have had more substantial, positive effects on economic growth. That leads me to some interesting questions: Have the effects of stimulus interventions declined over time?  Have we reached a tipping point beyond which stimuli are not longer sufficiently beneficial in the short run to justify their long runs costs?

My hunch about the first is that stimulus activities are less effective than they used to be for at least reasons.

1. Better information and increased sophistication.  Individuals and firms---particularly the latter---are increasingly better informed about economic policy and its implications (via increased formal education about economics in business education, new sources of economic analysis like cable business news channels, and widely accessible computerized forecasting tools for example) and more sophisticated in their approach to using policy information in spending and investment decisions.  Increasingly, economic actors see through stimulus actions---we know that a deficit has to be repaid by future taxes and that more money in circulation just reduces the value of the dollars we already had.  Handing out stimulus checks or Monopoly money won't catalyze as much new activity from those waiting for the boomerang to come back at them.  Our collective animal spirits are harder to manipulate than they used to be, which reduces the aggregate effectiveness of a stimulus policy.

2. Less elite consensus about the value of stimulus.  Same idea in some ways.  A stimulus depends on motivating "spontaneous optimism rather than mathematical expectations."  A stimulus works (if it works), in part, because it creates confidence.  When people get more confident, they pull money out of their savings accounts, CDs, and mattresses to invest in new ventures and to buy stuff.  Firms get capital to expand, retailers profit, manufacturers get more orders, win, win, win.  When political elites and professional economists give us a unified diagnosis of our economic malady and, in unison, propose taking the same medicine, ordinary economic decisions makers in firms and families may actually get the psychological boost they need to flip their mindset from hoarding to binging (at the margins, of course).  When politicians and economists disagree amongst themselves and express only mixed support for a proposed solution, even the same policy enactment will have less impact on psychological dispositions to spend and invest.  This would reduce the effect of a stimulus policy.

3. Globalization.  Even if the US government can stimulate US consumers into spending and investing, we are increasingly spending and  places besides the US.  Let's just say that Nancy Pelosi's claim that a dollar of stimulus spending nets two dollars of economic growth is right.  In 1960, almost all of that second dollar stayed in the US.  American consumers largely bought products made in American factories, and American investors largely invested in American firms.  In 2010, not so much.  A stimulus program in the US may, indeed, stimulate just as much total economic growth as it did in the past, but that economic growth is dissipated globally.  Again, this would reduce the effectiveness of stimulus policies for growing the domestic economy, and, as a result, Americans would end up subsidizing economic growth in other countries.

Brady Campaign Representative Says Numbers, Tells Us Nothing

In the midst of this story about gun sales in the wake of the shootings in Arizona,

Daniel Vise, senior attorney with the Brady Campaign, said Arizona received a score of two out of 100 on the organization’s rating of state gun laws, and that the rate of gun deaths in the state is one and a half times the national average.

First of all, Arizona's rate of murders by firearms (3.04 per 100,000) is almost exactly the same as the rate for the country as a whole (2.98).  Leaving that aside, though, telling us Arizona's Brady Campaign score and its gun death rates without other data is meaningless.  Here's a scatterplot of 2009 firearm murders rates by state and 2009 Brady Campaign scores:

Arizona is the blue dot in the bottom left corner, right on the regression line.  It has the same Brady Campaign score as Louisiana (10.46 firearm murders per 100,000) and Idaho (0.33 firearm murders per 100,000).  It has about the same firearm murder rate as Illinois (Brady Campaign score 29) and California (Brady Campaign score 79---the highest in the nation).  As the equation for the regression line indicates, there is essentially no bivariate relationship between firearm murder rates and Brady Campaign scores.

As I wrote earlier today:

[S]tate-level variance in gun-related crimes is no-doubt tied up with cross-sectional variance in cultural, economic, and demographic factors as well as public policy choices, all of which are temporally related to one another and to changes in national patterns of crime and policy.  Taking any slice of data and trying to sort out the various causal mechanisms at work in the face of terrible problems of measurement, endogeneity, serial correlation, and cross-level effects pushes the limits of meaningful statistical analysis.

Asserting a causal relationship between gun laws and crime on the basis of a single case is silly at best.