Gas goes up, gas goes down... you can't explain that!

My favorite Bill O'Reilly moment came during an interview last year with David Silverman of American Atheists. O'Reilly was arguing that the regularity of phenomena in the universe supported the existence of God.

O'REILLY: I'll tell you why [religion's] not a scam, in my opinion: tide goes in, tide goes out. Never a miscommunication. You can't explain that.

SILVERMAN: Tide goes in, tide goes out?

O'REILLY: See, the water, the tide comes in and it goes out, Mr. Silverman. It always comes in, and always goes out. You can't explain that.

There's nothing better than a guy who calls people he disagrees with "pinheads" revealing his profound ignorance of 8th grade Earth Science.

This week, O'Reilly went on The View, and when the topic turned to gas prices, O'Reilly criticized the Obama Administration:

O'Reilly pushed back and said, "gas will be at 8 dollars a gallon." Host Joy Behar jumped in, criticizing O'Reilly's argument. "Americans know that gas prices don't have to do with Obama. It has to do with world affairs. Everybody knows that," she said. "I don't know that. I don't know that," O'Reilly charged.

Whether or not O'Reilly knows it, gas prices are set in a global market. How do we know this? The best evidence is the extent to which gas prices are correlated across different countries. If countries that have different energy policies see gas prices move the same way, then it's clear that they are exposed to the same global market. As the chart below shows, this is most certainly the case:

Source: U.S. Energy Information Agency

Given that these countries have differing energy policies, it seems that global economic trends overwhelm domestic concerns. Further, it's not clear what the Obama administration could even do here. The most frequent Republican criticism on this issue is that the U.S. needs to drill more, but the inconvenient truth is that U.S. oil production is at its highest level since 2003 and has grown considerably since 2008. Whether or not you think it's a good policy, the charge that the Obama administration opposes domestic drilling is patently false.

The U.S. accounts for roughly 9% of global oil production, so in order to impact the global price it would need to expand production far beyond any reasonable estimate of remaining reserves. Even then, the increased production would be offset by reduced output from OPEC member states (most of the world's oil is produced by countries with considerable market power).

So yes, Mr. O'Reilly, gas prices are set in a global market; we can explain that.

And by smaller government we mean...

I'm trying really hard not to dismiss the Tea Party out of hand. I think it's reductionist and unfair to regard its members as simply motivated by racism (though perhaps some are) or suggest that the whole movement is part of some fell funded Republican campaign (though some of it is). That being said, I'm having a tough time buying the argument that the Tea Party really wants smaller government. Take this recent New York Times profile of recently unemployed supporters of the movement:

"When Tom Grimes lost his job as a financial consultant 15 months ago, he called his congressman, a Democrat, for help getting government health care. Then he found a new full-time occupation: Tea Party activist...

Mr. Grimes, who receives Social Security, has filled the back seat of his Mercury Grand Marquis with the literature of the movement, including Glenn Beck’s 'Arguing With Idiots' and Frederic Bastiat’s 'The Law,' which denounces public benefits as 'false philanthropy.' 'If you quit giving people that stuff, they would figure out how to do it on their own,' Mr. Grimes said...

He blames the government for his unemployment. 'Government is absolutely responsible, not because of what they did recently with the car companies, but what they’ve done since the 1980s,' he said. 'The government has allowed free trade and never set up any rules.' He and others do not see any contradictions in their arguments for smaller government even as they argue that it should do more to prevent job loss or cuts to Medicare. After a year of angry debate, emotion outweighs fact."

Obviously smaller government would have less trade restrictions and fewer retraining programs for workers. In fact, one of history's most vocal supporters of free trade is Bastiat, who is required reading for libertarians. These are not small contradictions.

Of course these are just one person's views. But polls of Tea Party supporters seem to suggest similar inconsistencies. For example, a recent Bloomberg poll found that while 90% of Tea Party supporters fret that the US is moving toward "socialism", 70% favor the federal government fostering job creation. Further, half of those polled favored government restrictions on Wall Street salaries and their views were mixed about privatizing Medicare and other federal programs.

In fact the real gripe may not be the size of government, per se, but the perceived bias in policy. A CBS News/New York Times poll found that Tea Party supporters were more likely than other Americans to feel that "President Obama is working mainly on behalf of the poor, and not the middle class."

These polls pose interesting questions about the future of the Tea Party and what its impact on policy will ultimately be. Will the movement maintain its relevance when unemployment falls below 7%? Will deficit concerns impact legislation that largely benefits the middle class? (Note, that the 2003 passage of Medicare Part D, the hugely expensive but unfunded expansion of Medicare, met with no opposition from anti-deficit campaigners.)

Personally, I think the Tea Party will fizzle as the economy improves. While Americans in general are less amenable to large government than Europeans, the views expressed by Tea Party supporters don't indicate any large ideological shift. People are angry because times are tough and they feel neglected. But that doesn't mean we're headed toward some small-government Randian utopia.

Now That's What I Call Progress!

Gail Collins reminds us that things are always getting better:

"There was a time when, if people got worried about the way things were going, they would throw a virgin off the side of a cliff. Now they just kill a politician. And only metaphorically! Is this a great country, or what?"

How I learned to stop worrying and love the deficit

Large deficits can elicit emotional reactions (see Tea Party Movement). But Robert Frank gives some good reasons not to be too worried about our current fiscal situation:

"...when total spending falls well below the level required for full employment, the economy won’t recover quickly on its own. Consumers won’t lead the way, because even those who still have jobs are fearful they might lose them. And most businesses won’t invest, since they already have more capacity than they need. Only government, Mr. Keynes concluded, has both the motive and opportunity to increase spending significantly during deep downturns.

Of course, if the government borrows to do so, the debt must eventually be repaid (or the interest on it must be paid forever). That fact has provoked strident protests about government “bankrupting our grandchildren.” It’s an absurd complaint. Failure to stimulate the economy would mean a longer downturn. That, in turn, would mean longer stretches of reduced tax receipts, increased unemployment insurance payouts, and depressed private investment. The net result? Higher total public borrowing and a permanent decline in productivity compared with what we would have had under effective economic stimulus. Once the economy is back on its feet, deficit logic changes. At full employment, extra borrowing often compromises future prosperity, just as critics say. On President George W. Bush’s watch, for example, the national debt rose from $5 trillion to $10 trillion. Some of that borrowing paid for an expansion of prescription coverage and a financial bailout a year ago, but most went for a war in Iraq and tax cuts that largely just allowed for additional consumption. Our grandchildren will be forever poorer as a result.

But the reverse would be true if government borrowing were used for productive investments. After decades of neglect of the nation’s infrastructure, attractive public investment opportunities abound. It’s been estimated, for example, that eliminating bottlenecks on the Northeast rail corridor would generate $12 billion in benefits at a cost of only $6 billion. These are present value estimates. When government undertakes such investments, our grandchildren become richer, not poorer...

In the meantime, however, such commentary continues to render intelligent political decisions about deficits less likely. For example, 58 percent of respondents in a recent NBC News-Wall Street Journal poll said the president and Congress should worry less about bolstering the economy than keeping the deficit down, while only 35 percent said economic recovery was a higher priority. If we really want to bankrupt our grandchildren, that poll charts a promising course."

Much of Frank's argument is basic Keyensian economics: in a recession, government spending is needed to offset the decline in private spending. But whatever your feelings about Keynes' theories, Frank's basic point is quite intuitive. The vast majority of the deficit has been caused by a collapse in tax receipts, which were caused by the recession. That means that anything that will cause output to grow faster will reduce the long-term deficit by increasing tax receipts. That means that spending today won't necessarily "bankrupt our grandchildren".

The politics of deficit reduction are all too predictable: when a party is out of power, they seem to find that old religion. But that doesn't mean we can't have a rational discussion about budgets.

The trouble with tariffs

The stated logic behind tariffs is that they protect domestic jobs against international competition. That's the justification behind the recent tariffs on Chinese tire imports imposed by the Obama administration. Many people think this is a laudable goal; but is it worth the cost? As Brad DeLong explains, probably not:

"Let's see... 250 million cars in America... need 4 tires per car... need new tires every 2.5 years. 400 million tires a year... $1.4 billion dollars a year... 10,000 worker jobs saved... $140,000 dollars per worker-job per year.

Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.

But, you say, it would be stupid to impose a $2 a tire tax and use the money to pay each laid-off tire worker $100K a year.

That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid."

We should not ignore or diminish all concerns about free trade. But the trouble with tariffs is that they usually cost more than they're worth in terms of protecting domestic jobs*.

Some have suggested that this tariff is designed to boost support for healthcare reform among labor groups. In that case, the cost/benefit calculation changes depending on the desirability of the proposed legislation. However, the point is that tariffs are rarely justified by their overall economic impact.

*Not everyone would agree that protecting domestic jobs is a worthwhile public policy goal. Assuming that it is, however, we need to consider whether it's a cost-effective policy.

On the other hand...

Maybe President Obama doesn't have plans to euthanize the elderly and disabled.

Last week Iowa Senator Chuck Grassely seemed to agree with Sarah Palin's "death panel" accusation, saying:

"There is some fear because in the House bill, there is counseling for end-of-life... And from that standpoint, you have every right to fear. You shouldn't have counseling at the end of life. You ought to have counseling 20 years before you're going to die. You ought to plan these things out. And I don't have any problem with things like living wills. But they ought to be done within the family. We should not have a government program that determines if you're going to pull the plug on grandma"

Due to the outrage caused by Palin's asinine comment, Congress is no longer considering end-of-life counseling as part of the health care bill. But now that the faux controversy is over, Grassely can re-acquaint himself with reality:

"Grassley says he opposes that counseling as written in the House version of the bill, but a spokesman said the senator does not think the House provision would in fact give the government such authority in deciding when and how people die. The House bill allows patients to decide for themselves if they would like such counseling."

If someone proposed an bill covering end-of-life counseling in a different context (were we not debating health care reform), it would be overwhelmingly popular. Too bad.

Usually when people make comments as dumb as Grassely's, I'm left asking myself whether they are stupid, crazy or disingenuous. Fortunately, Grassely answered the question for us.

The way we count stuff matters

NYU Law professor Anthony Thompson points out an interesting quirk in the way the census works: prison inmates are counted as living in the same county as their prision, even if they will be released within a year or two. Why does this matter? It has a direct impact on how federal and state congressional districts are drawn and how government money is channeled:

"...the district of State Senator Elizabeth O'C. Little, a Republican in upstate New York, has 13 prisons, adding approximately 13,500 incarcerated "residents." Without the inmate population, Ms. Little would face an uncertain future. Her district would probably have to be redrawn because it wouldn't have enough residents to justify a Senate seat.

The residence rule raises two fundamental issues:

First, inmates in nearly all states aren't allowed to vote, yet their presence affects electoral representation in places where they do not live permanently.

Second, a disproportionate number of state prison inmates are from urban areas. Most state prisons, however, are in rural areas. As a result, resources and electoral authority are transferred from inner cities to rural jurisdictions.

The effects are plain to see. Cities lose out on funds that could be used both for crime prevention and prisoner rehabilitation; rural areas do their best to thwart reform because they don't want to lose the benefits that prisons confer on them."

As I've written before, most American live in what the Census classifies as urban areas. So the residence rule will skew public funds in an inefficient and non-representative way.

Conducting a census presents myriad conceptual issues, and no strategy is perfect. But there's something fundmentally wrong with counting incarcerated citizens who are legally barred from voting towards a district's population total. This will ultimately give voters in those districts disproportionate voting power and will result in policy choices that do not reflect the will of the majority.

We've been spending for a long time

David Leonhardt has a great piece in today's Times about where our tremendous deficit came from (here's the article and here's the accompanying Economix post). As he shows, the $1.22 trillion deficit for 2009 has many components:

"...we were [sic] able to construct a time series, showing how budget estimates for 2009-12 have changed over time. Because the C.B.O. attributes the changes in its estimates to specific causes — namely, changes in the economy and new legislation — we were then able to create four different categories to explain how the $846 billion annual surpluses that were forecast in 2001 for 2009-12 have turned into $1.22 trillion annual estimated deficits. Those four categories are: economic changes, which I refer to as the business cycle in my column; Bush administration legislation; Bush-era policies that are scheduled to expire but that Mr. Obama is extending; and new Obama administration policies."

While many are apoplectic about our current fiscal situation, it's important to distinguish between long-term and short-term deficits. Many, if not most, economists agree that it's a good idea to run short-term deficits during recessions. These deficits stem from a decline in tax revenue and from expansionary policy (eg the stimulus). Amazingly, the stimulus plan accounts for only 7% of our current deficit.

On the other hand, longer term deficit policies are a bigger concern. While the economy will recover and the stimulus will expire, spending on upper-income tax cuts (if made permanent) and long-horizon wars may haunt the government for years to come.

Governments run deficits all the time, so why worry now? The chief concern is that our creditors (countries like China and other foreign investors) may come to question our ability or willingness to pay them back. This could lead to sharply increased interest rates (which will hamper the economy) or necessitate the Fed to print money (which will cause a significant rise in inflation). UC Berkeley economist Alan Auerbach cites recent increases in interest rates on 5-year Treasury bills (a sign that investors worry about getting their money back) as evidence that this is already starting.

Like most American's, the US government will have to start tightening its belt sooner or later. What spending gets cut will likely be contentious. Some spending, such as universal healthcare, may be popular enough to maintain traction. Others, like extending the Bush tax cuts or some proposed Obama programs may not. It will be interesting to see our political system if it finally acknowledges we can't have it all.

Finding common ground between liberals and libertarians

Despite similar sounding names, liberals and libertarians are often at odds with each other. While the former favors a large welfare state and government intervention in the economy, the latter are loath to acknowledge any legitimate role for government. But as Bruce Bartlett points out, there may be more common ground than most think:

"On the surface, there would appear to be potential for an alliance. Libertarians tend to be liberal on social issues, favoring such things as gay marriage and drug legalization; and also liberal on defense and foreign policy, opposing the wars in Iraq and Afghanistan, and opposing torture and restrictions on civil liberties in the name of national security.

But libertarians are conservative on economic policy--favoring a free market with virtually no government intervention except the enforcement of contracts, and no government spending or taxes except those to pay for a very minimal police force and military.

Libertarians' views on social policy and national defense make them sympathetic to the Democrats, while their views on economic policy tend to align them with the Republicans. If one views social, defense and economic policy as having roughly equal weight, it would seem, therefore, that most libertarians should be Democrats. In fact, almost none are. Those that don't belong to the dysfunctional Libertarian Party are, by and large, Republicans."

Of course, Bartlett shows that these three areas do not have equal weight, as libertarians tend to emphasize economic freedom over all else.

For Bartlett, the dialogue between liberals and libertarians should involve each side conceding a little ground to the other:

"...many of the liberals persuasively argued that the pool of freedom isn't fixed such that if government takes more, then there is necessarily less for the people. Many government interventions expand freedom. A good example would be the Civil Rights Act of 1964. It was opposed by libertarians like Barry Goldwater as an unconstitutional infringement on states' rights. Yet it was obvious that African Americans were suffering tremendously at the hands of state and local governments. If the federal government didn't step in to redress these crimes, who else would?

...In return, liberals can learn something important about economics from libertarians. Liberals often turn to government to solve social problems simply because that is their default position. But often, there are private-sector alternatives that may in fact be superior. The rich diversity of America's states and localities shows there are many different ways of dealing with social problems that don't necessarily require more government."

"Liberalism", very broadly defined, is about promoting individual liberty and equality. But there are large differences within the philosophy. For modern American liberals, "equality" means a narrower distribution of incomes; for libertarians, "equality" means that everyone is free to pursue their economic interest, accepting a wide variation in individual outcomes.

Personally, I often find myself torn between these political views. I do favor a limited scope for government intervention, focused on expanding freedom rather than promoting traditional cultural institutions or engaging in social engineering.

Government should play a robust role in helping to alleviate freedom-reducing inequities in society; but we should also willingly acknowledge when government interventions in the economy privilege the few over the many, including regressive tax policies such as the mortgage interest deduction or the tax exemption on employer-provided health insurance. This is akin to Ed Glaeser's "libertarian progressivism", which is skeptical of certain government interventions because they favor the privileged over the poor.

Perhaps the key is avoiding falling in love with one's ideology. A dialogue between liberals and libertarians would involve the former admitting their great protagonist (government) is not always the best tool to enhance freedom, while the latter would admit that their great antagonist (government) sometimes is the best tool for enhancing freedom.

(HT: Mark Thoma)

Should we welcome the new climate bill?

After years of denial and feet-dragging, the US Congress may finally begin to deal with climate change. The Waxman-Markey bill now before Congress calls for a cap on carbon emissions, with tradable emissions permits distributed to industry. More energy efficient firms can sell their permits to less efficient firms, producing a financial incentive to reduce emissions.

"Cap and Trade" is not the only policy option out there. Many scholars have advocated a simple tax on carbon emissions.

On the surface, there's no theoretical reason for a carbon tax to be any better or worse than a cap and trade system. Both systems put a price on carbon emissions, which should lead to lower carbon emissions. But some people are worried about the process of permit distribution, which opens the door to political bribes, or as economists call it "rent seeking". Greg Mankiw puts it like this:

"Economists recognize that a cap-and-trade system is equivalent to a tax on carbon emissions with the tax revenue rebated to existing carbon emitters, such as energy companies. That is, 'Cap-and-trade = Carbon tax + Corporate welfare'."

However, not everyone is so down on the cap and trade plan. For Paul Krugman, cap and trade is a workable second-best strategy, which is more politically palatable to powerful groups weary of climate change legislation:

"...handing out emission permits does, in effect, transfer wealth from taxpayers to industry. So if you had your heart set on a clean program, without major political payoffs, Waxman-Markey is a disappointment.

Still, the bill represents major action to limit climate change. As the Center for American Progress has pointed out, by 2020 the legislation would have the same effect on global warming as taking 500 million cars off the road. And by all accounts, this bill has a real chance of becoming law in the near future.

So opponents of the proposed legislation have to ask themselves whether they’re making the perfect the enemy of the good. I think they are."

In my mind, the real debate is over which is worse: the dangers from climate change or the dangers from political corruption. If the only way to get a climate change bill passed is to risk some rent-seeking, then it may be worth the cost. If, however, your biggest concern is economic efficiency, then the downside risk of the Waxman-Markey bill is more than you're willing to pay.

The buck stops somewhere else (try Treasury... or the Fed)

Tyler Cowen says that Congress has opted out of much of the economic crisis. That might not be a bad move on their part:

While Congressional leaders are consulted on the major policies, Congress is keeping its distance, perhaps to minimize voter outrage. This way, Congress can claim credit if a recovery comes, but deny responsibility if the price tag ends up higher than advertised or if banks seem to be receiving unfair benefits from the government.

Of course, while this may be a smart decision for Congress, it might have serious consequences for economic policy in the future:

A Congress that won’t accept much responsibility for the financial bailouts, for example, is unlikely to rise to the occasion when the time comes to make tough decisions on the budget...

On any single policy, the abdication of Congressional responsibility may not be a problem. Sometimes it is good to let the technocrats have their way. In the longer run, though, the United States requires a Congress courageous enough to accept responsibility for potentially unpopular policies. We are moving further away from that every day.

Most economic models typically assume that government will follow some optimal policy. But in reality government is subject to incentives, and in this case Congress doesn't have much reason to get too involved in this crisis. This is why the Federal Reserve (and much of the bureaucracy) is insulated from political pressure: there are tough decisions to be made and no one up for re-election wants to make them.

As Cowen points out, the danger comes about when the elected body doesn't have to make the tough decisions. When the time comes and they have to address the budget deficit--or whether to nationalize part of the banking sector--they won't have built up political capital by leveling with the public about what needs to be done and what can be done.

It may be time for Congress to bite the bullet and, well, actually do something.

Can we get a little objectivity, please?

Is economic analysis driven by science or by ideology? That seems to be a hot topic this week.

In the New York Times today, Paul Krugman claims that many anti-stimulus arguments are not made in "good faith":

"Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to 'spend hundreds of millions of dollars on contraceptives.'"

On the opposite end of the ideological spectrum, Russ Roberts argues that economists' positions on the stimulus have less to do with their reading of the empirical data than their feelings about markets in general:

"As far as I know, no prominent market-oriented economist has come out in favor of a trillion dollar increase in government spending as a way to improve the economy. Every market-skeptical economist that I have heard is in favor of it on the grounds that it will improve the economy. Each side claims to have empirical support for its position."*

Additionally, the focus of this week's episode of EconTalk, Robert's weekly economics podcast, is the role of empirical evidence in economics.

How pervasive is the issue of bias within economics? Nate Silver over at FiveThirtyEight.com has some evidence on the subject. Looking at the Wall Street Journal's monthly economic forecasting survey, Silver produces the following chart of growth forcasts by economists in different sectors, including finance, consulting and academia:



It's a small sample (55 economists), but it illustrates the point. The most optimistic growth forecasts come from economists in the financial sector, who perhaps have institutional incentives pushing them toward optimism, while the most pessimistic forecasts come from academia. Typical liberal academics, some might say!

This is not entirely new. In 2006, David Lereah, former Chief Economist for the National Association of Realtors, wrote "Why the Real Estate Boom Will Not Go Bust - And How You Can Profit From It". This was hardly an unbiased work. An economist representing the interests of realtors has a strong incentive to promote the real estate industry. Of course, less then a year after the book was published, the market started to go south and... well, you know the rest.

It's entirely likely that ideology clouds the minds of even the best economists. But is it just economists who suffer from a lack of objectivity? A recent survey of scientists' views on global warming suggests not:

"In analyzing responses by sub-groups, Doran found that climatologists who are active in research showed the strongest consensus on the causes of global warming, with 97 percent agreeing humans play a role. Petroleum geologists and meteorologists were among the biggest doubters, with only 47 and 64 percent respectively believing in human involvement." (emphasis added)

Scientists and economists are people too. People are affected by biases in subtle and unconscious ways. This, however, does not mean that there is no objectivity out there. The peer review process, for example, is designed for just this purpose: to reanalyze and replicate results and to ferret out unsubstantiated claims. As long as everyone gets to look at the same data, we should be able to find some areas of common understanding.

That being said, it's wise to listen to more than one expert and more than one perspective.

____________________________________________________________
*It should be noted that Martin Feldstein, a prominent center-right economist at Harvard, has come out in favor of fiscal stimulus.

The change we can realistically expect

Today is a proud and profound moment in American history.

But shortly after being sworn in, Barack Obama will go from "the change we've been waiting for" to "the change we expect right now". Ed Glaeser has some wise words on what we can and should expect from the new president:

"Americans cannot afford to treat the president as their personal ideological champion, or to judge him on economic conditions that he cannot control. Let’s hope that this president is as competent as he seems, and let’s judge him on that competence."

There is a strong tendency to give presidents too much credit (or blame) for economic conditions. Glaeser cites research suggesting that people tend to base their votes on the economic growth performance of the president's first three years--I assume this refers to economic conditions in general, not that people are pouring over GDP data while waiting in line to vote.

Politicians promise more than they can deliver and people expect it. But there is real danger in that. One of President Bush's failings was being overly ambitious, taking on the democratization of the Middle East and overhauling Social Security at the same time, ultimately not accomplishing either. Hopefully the Obama administration will avoid this pitfall. Their task is to set a realistic and attainable agenda and look for the places where government action is the most effective.

Obama is a smart, thoughtful, and capable person. He has the chance to be a great president. But there's only so much even a great president can accomplish.

Should the Department of Agriculture have a new mission?

Nicholas Kristof argues that instead of an Secretary of Agriculture, we should have a "Secretary of Food":

"Renaming the department would signal that Mr. Obama seeks to move away from a bankrupt structure of factory farming that squanders energy, exacerbates climate change and makes Americans unhealthy — all while costing taxpayers billions of dollars."

Kristof points out a number of absurdities of our system of agricultural subsidies, including the fact that he himself receives $588 from the government, "in exchange for me not growing crops on timberland I own in Oregon (I forward the money to a charity)."

It does seem strange that we have a whole department devoted to agriculture when we don't have one devoted to other specific industries or even economic sectors. After all, 98% of Americans work outside of the agricultural industry.

It's important to remember why the government got so involved in agriculture in the first place. According to Bruce Gardner and Daniel A. Sumner:

"Poverty in rural America was a major force behind the original establishment of commodity programs in the 1930s. Rural poverty remains a blight in the American economy to this day, and the idea that higher commodity prices could reduce that poverty attracts support to these programs. Evaluating farm policies therefore must be considered in light of their effects on farm and rural incomes, and especially on the effectiveness at dealing with rural poverty compared to other approaches to this concern."

Rural poverty is still very much a concern, but agricultural supports are clearly not a good way to solve it. First, 75% of agricultural production comes from family farms with over $250,000 in annual revenue. These are not people who need government support. Smaller family farms derive a majority of their income from non-farming activities. And these families still earn well above the average US household:

We spend over $300 billion in agricultural subsidies, which ultimately go to agricultural corporations and families that are comfortably above the average US household income. So I agree with Kristof: it's time to shift the focus of the Department of Agriculture towards the needs of the nation's 300 million consumers of food.

Should we prop-up the housing market?

Given the current crisis, it seems natural for Congress to want to prop-up housing values in order to prevent further losses of wealth. But according to Harvard economist Ed Glaeser, this could be ineffective at best, and would likely be counterproductive:

"One of the clearest lessons of the past year is that these lending policies are anything but cheap. To get banks to lend at below-market rates, the government must insure mortgages against default. When those mortgages do default, as they have in droves over the past two years, taxpayers are on the hook. Ordinary taxpayers are currently facing the prospect of paying for the last rash of government-subsidized lending. No one should be thrilled at the idea of a new government guarantee program that makes us liable for billions, or trillions, of dollars of new, bad mortgages...

In fact, the government shouldn't really be in the business of making housing more expensive at all. Price supports are usually a bad idea, because they distort supply decisions and redistribute from buyers to sellers. Why, exactly, should the government be encouraging more overbuilding in Las Vegas? Why, in an age of global warming, should the government subsidize more McMansions? Some economists argue that price supports are needed because prices are below fundamentals, but prices today remain significantly higher than either historical norms or supply costs."

As right as we are to blame the financial crisis on the baffling decisions made on Wall Street, we shouldn't ignore the long history of government policy designed to encourage home buying, which exposed taxpayers and the financial system to an enormous amount of risk.

Additionally, much of the environmental critique of the American landscape is the direct result of conscious public policy efforts, as described above.

Are you smarter than a politician?

Courtesy of Marginal Revolution.

Yes, this is real. As bad as it is that the average score on the civic knowledge test was 49%, it's worse that elected officials scored 44% on average. Here's one of the questions they got wrong:

"Asked about the electoral college, 20 percent of elected officials incorrectly said it was established to 'supervise the first televised presidential debates.'"

Didn't we just have an election?

Here's a copy of the test. Some of the questions at the end are a little specific to economic policy, including questions on free trade and the difference between market and centrally planned economies. In the interest of full disclosure, I got a 97%.

Perhaps we shouldn't be all that surprised that elected officials scored worse than ordinary citizens. While people often compare the political process to high school student council (where it's all a popularity contest), I liken it more to college student council, where the people who get elected are the only ones interested in having the job. Far from getting the best and brightest, many of our politicians are simply the ambitious and power-hungry; and in some cases, they're simply people who couldn't get hired to do anything else.

All this points to one conclusion:

"Those who can't do, legislate"

World Philosophy Day

It's that time of year again. The time to ponder life's greatest questions, paradoxes, and puzzles. World Philosophy Day.

This years it's in honor of the 60th anniversary of the Universal Declaration of Human Rights, an international pact that guarantees the rights of individuals around the world.

Which leads to this little noodle cooker posted by the BBC today:

1. SHOULD WE KILL HEALTHY PEOPLE FOR THEIR ORGANS?

Suppose Bill is a healthy man without family or loved ones. Would it be ok painlessly to kill him if his organs would save five people, one of whom needs a heart, another a kidney, and so on? If not, why not?

Consider another case: you and six others are kidnapped, and the kidnapper somehow persuades you that if you shoot dead one of the other hostages, he will set the remaining five free, whereas if you do not, he will shoot all six. (Either way, he'll release you.)

If in this case you should kill one to save five, why not in the previous, organs case? If in this case too you have qualms, consider yet another: you're in the cab of a runaway tram and see five people tied to the track ahead. You have the option of sending the tram on to the track forking off to the left, on which only one person is tied. Surely you should send the tram left, killing one to save five.

But then why not kill Bill?

This is not merely a little mind melter to while away a few minutes, this is about the rights of the individual versus the rights of the collective. This has a dramatic effect on policy as governments wrestle with questions of when to punish groups or individuals for human rights violations. Where one stands on this question leads to different policies on a group's religious right to polygamy versus a woman's right to choose her mate, for example.

Voice your right to an opinion and let us know other instances of group vs. individual rights issues.

A response from Patri Friedman

In a recent post about Congressman Paul Broun's comments comparing Barack Obama to Hitler, I made reference to "Seasteading" and linked to an interview with Patri Friedman, one of its main proponents. The reference was really just a way of intriducing the topic of politicians saying and doing rediculous things. However, Mr. Friedman posted a comment that takes issue with how I characterize Seasteading:

"Compared to other industries, government is huge, inefficient, and slow to change. There is very little competition and innovation. If it was a minor area of life, this might not matter, but its huge! Why are you skeptical of the idea of improving this area of life? Isn't it the *most* important are for progression?

If I thought things could be fixed on land, I would be proposing an easier solution. Sure, its a weird solution - but if the answer to such an old and huge problem was easy, we would have found it."

I did not intend to be quite so flippant about Mr. Friedman's ideas. In fact, I think everyone should listen to his discussion of Seasteading with Russ Roberts on EconTalk. Friedman outlines a very extreme approach to the problem of poor governance. I do not feel qualified to comment on the technical and engineering challenges involved with Seasteading, but I would like to open a discussion on the issue.

Friedman's basic point is that poor governance stems not from the particular people in power, but from the incentives they face. So it's not a matter of throwing the bums out of office, but rather having a system where the bums' self-interest alligns with that of the public. One possible answer to this problem is competitive government. Government is the ultimate monopoly: barriers to entry are extremely high (imagine trying to start your own government) and consumer choice is very limited. If you don't like a particular store you can shop at their competitor; if you don't like your government, it's a lot harder to "shop" elsewhere.

By lowering these barriers to entry and increasing consumer choice and mobilty, better incentives for those in power will develop. Governments will have to compete for citizens by providing better services at lower cost.

Seasteading is an interesting and provocative idea. But whether or not you think it could possibly work, the critique of government as a monopoly is a profound one. If Seasteading accomplishes nothing more than a real discussion of these issues, it should be regarded as a success.

Big Think

Still thinking about the end of anti-intellectualism in US politics I came across this great site. A sort of You Tube for politiphiles and citizens called Big Think.

Here's an introductory video that sums up the site's mission:

Is Barack Obama a Fascist Communist?

A few weeks ago, I listened with quiet bemusement to an interview with Patri Friedman. Friedman is the main proponent of "Seasteading":

"Seasteading means to create permanent dwellings on the ocean - homesteading the high seas. A seastead, like in the picture above, is a structure meant for permanent occupation on the ocean...

...the world needs a new frontier, a place where those who are dissatisfied with our current civilization can go to build a different (and hopefully better) one.

Currently, it is very difficult to experiment with alternative social systems on a small scale. Countries are so enormous that it is hard for an individual to make much difference. Seasteaders believe that government shouldn't be like the cellphone or operating system industries, with few choices and high customer-lock-in. Instead, they envision something more like web 2.0, where many small governments serve many niche markets, a dynamic system where small groups experiment, and everyone copies what works, discards what doesn't, and remixes the remainder to try again."

It's crazy. I mean, I'm a frequent skeptic of government, but have things really gotten so bad that we need to create new, floating societies? If we keep electing people like Congressman Paul Broun, I might just grab a life-preserver:

A Republican congressman from Georgia said Monday he fears that President-elect Obama will establish a Gestapo-like security force to impose a Marxist dictatorship.

"It may sound a bit crazy and off base, but the thing is, he's the one who proposed this national security force," Rep. Paul Broun said of Obama in an interview Monday with The Associated Press. "I'm just trying to bring attention to the fact that we may — may not, I hope not — but we may have a problem with that type of philosophy of radical socialism or Marxism."

Read the whole article to see what Broun was talking about. I like his mixing of metaphors. Somehow Obama can be both a Marxist and a Fascist at the same time. He truly is a post-partisan president.

The Daily Show's John Oliver explains the many interesting parallels between Obama and Hitler: