Saturday, January 26, 2013

P.T. Clinton

Evidently the Secretary of State is a devotee of the carnival ringmaster P.T. Barnum.   Barnum actually had a brief run at politics but was more famous for bringing in the rubes and for the nostrom - "every crowd has a silver lining."   The news coverage of the hearings on Benghazi were an example of that saying.  Most of the media covered the emotion of the secretary reeling off her prepared indignation rather than concentrating on the problems that came to put four embassy personnel in mortal danger.

The testimony of Secretary Clinton at the Benghazi hearings was appalling.   There is no better word for it.   CNN wrote about how resolute she was; how she actually teared up.   But I found her disingenuous.

Clinton said she "took responsibility" for the problems in Benghazi.   Ron Johnson, who the CNN gratuitously described as a "tea party backed Republican senator" asked the secretary why the Administration had laid down a story that was untrue.  He described the comments by UN Ambassador Susan Rice as "purposely misleading."  Clinton blustered back "With all due respect, the fact is we had four dead Americans. Was it because of a protest or was it because of guys out for a walk one night decided they'd go kill some Americans?  What difference does it?   It is our job to figure out what happened and to do everything we can to prevent it from ever happening again, senator."

From my perspective it makes a lot of difference whether the Administration provided adequate security for embassy personnel in Libya.   The evidence at this point seems to indicate they did not.   It also makes a difference that Clinton argued she had no "direct" role in passing on the requests by Ambassador Stevens for additional security.   Isn't one sign of responsibility the ability to understand the difference between pressing and trivial needs?  Wouldn't a competent Secretary of State or her staff understand the Libya had the high potential for a problem based simply on the disruptions in the country?   The Secretary, despite claiming that she was taking responsibility, was merely passing on responsibility to the next secretary of state.

The University of Wisconsin's Initiative

Yesterday, the Wall Street Journal covered an announcement by the University of Wisconsin that they would begin offering a degree without classes.   The UW breathlessly announced that they would begin this "flexible option" to allow a student to take a series of exams to complete a degree.   They never have to enter a classroom or even meet another student.

There are many students across the country that have picked up units over their lifetimes that would like to get a degree and the UW option seems like something which will help a very small number of them.  So bully for this initiative.

But I began to wonder a bit about a more important indicator.   According to their own records, the University of Wisconsin Madison - the premier campus of the UW system has a four year graduation rate of 52%.   So if you actually do enroll in classes, you have just over a 50% chance of completing a degree in four years.   The UW claims that the six year rate moves up to a bit over 80%.   For the entire "system" (which includes the non-flagship campuses) the number dumps to about 60% for the most recent year available.   So 60% of the people who start a college degree in the UW system can obtain one in 150% of the expected time to degree.

UW Green Bay is a good example of what happens in the system.   Of frosh who are admitted, barely one student in five graduates in four years.  When you bump it up to six years that number skyrockets to 50.5%.   For transfer students, who might well have a bit more dedication, the six year rate goes to a whopping 62%.  

Kevin Reilly, the president of the system, comments on the website - "This UW System is focused on providing Wisconsin with world-class education, research and public service. We are growing Wisconsin’s knowledge economy by helping more state residents earn college degrees, and we are committed to opening the doors of the university to talented students from families across Wisconsin, regardless of background." (Emphasis added)   So president Reilly, wouldn't it be a better use of resources to try to move up the graduation rate for the entire system to something north of 3 students in 5 paying fees for six years to get a degree?

Friday, January 18, 2013

One Cheer on Accuracy

The Congressional Budget Office released a report which test the accuracy of their forecasts.  As someone who has opened many speeches with the line "Economists have projected 11 of the last 3 recessions" I read it with interest.

So how did the CBO grade itself.   Not surprisingly, pretty well.   As you can see from the chart, their forecasts are pretty much in line with what the Administration (through OMB) and the Blue Chip group (50 economists from across the country who do this kind of thing for a living) project.

Their 2 year forecasts are out of line with what happened on output by 1.4% and on inflation by .8%.   On 5 year forecasts their accuracy is even a bit better - 1.2% for output and .6% for inflation.   That is pretty good.   Both sets of forecasts from CBO have a slight tendency to overestimate wages and interest rates.  

The report also presents estimates of the sources of the errors.   What is amazing about the differences between what the CBO projected and what actually happened in all these categories is that the intensity of the errors is small by any account.

That being said there are two conclusions one should draw from this periodic exercise.   First, just because the CBO and the other major forecasters are pretty good at doing what we ask them to do does not mean that the way their forecasts are used is pretty good.   A whole bunch of economic pundits take these carefully drawn forecasts and misrepresent the results in minor and major ways.    Second, and most importantly, a forecast is just that, not a reality but the best estimate at the time.   Conditions change quickly and frequently in uncertain ways.   So while this report confirms that the CBO does a pretty objective job of projecting what might happen next, forecasts are not certainty.

Thursday, January 17, 2013

Gun Nuts

I must admit that I am not a gun nut on either side - I believe in the Second Amendment but I also think it is within the power of government to set reasonable limits on the types of weapons that individuals can own.  Therefore, I was amused by the President's press conference yesterday in part because I had read the list of his executive orders beforehand.   As you go through the list (presented below) they are an odd mix of things that Obama could do without issuing an executive order (#11 - Nominate an ATF Director - well duh! - and host of other equally compelling issues that are highlighted in GREEN) and also things that are so vague as to be meaningless (colored in RED).   So what we are left with is a short  list of initiatives that would strengthen the background checks for purchasers of guns and some more federal spending to beef up school safety officers.   Background checks could help - but based on prior experience the feds are not very good at doing them effectively.   And creating another federal program to "solve" a problem does not have much of a track record either.

Then you come to the legislative proposals which would reinstate an "assault weapons ban" and would establish a limit on the number of shells that a gun could hold in a clip.   Some gun advocates believe that any size clip is appropriate for private use. That is absurd. But let's face it, there is no evidence that the limiting the size of the clip will produce fewer tragedies like the recent ones in Connecticut and Colorado.   It also seems reasonable to limit the ability of private citizens to get automatic weapons (where the gun continues to fire until you let up on the trigger). I also think that some of the gun designs are downright ludicrous - but is it the province of the federal government to stipulate what products will look like?  And more importantly, will limiting whether one can have a weapon with a non-traditional stock actually reduce the level of mass shootings?   The evidence from a Department of Justice analysis suggests that these kinds of limits will not reduce the problems.

So do we just give up on gun violence or accept the idea that we should arm more people in schools?  Both positions seem off the mark.   We limit who can purchase alcohol in the country.  It seems appropriate to establish a reliable method of limiting firearms purchases by doing reasonable background checks.  (That could be done under existing law.)   It also seems reasonable to limit purchases by people with known mental problems.  (That can be done within existing law.)

What annoys me about the discussions from both the NRA and the President is that they seem to be involved in an elaborate game of policy kabuki rather than trying to seriously address a problem which we should be trying to solve.  The President, not something that is different from his other approaches to policy, thinks that if you just say something and spend north of $500 million you will make progress on the problem.  I doubt it.   But the NRA seems to think that by arming guards at schools that you will address the larger issue of gun violence.  Neither approach makes a lot of sense to me.

The President's Non-Legislative Proposals - 
1. Issue a Presidential Memorandum to require federal agencies to make relevant data available to the federal background-check system.

2. Address unnecessary legal barriers, particularly relating to the Health Insurance Portability and Accountability Act, that may prevent states from making information available to the background-check system.

3. Improve incentives for states to share information with the background- check system.

4. Direct the attorney general to review categories of individuals prohibited from having a gun to make sure dangerous people are not slipping through the cracks.
5. Propose rulemaking to give law enforcement the ability to run a full background check on an individual before returning a seized gun.
6. Publish a letter from the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF) to federally licensed gun dealers providing guidance on how to run background checks for private sellers.
7. Launch a national safe and responsible gun ownership campaign.

8. Review safety standards for gun locks and gun safes (Consumer Product Safety Commission).
9. Issue a Presidential Memorandum to require federal law enforcement to trace guns recovered in criminal investigations.

10. Release a Department of Justice report analyzing information on lost and stolen guns and make it widely available to law enforcement.
11. Nominate an ATF director.
12. Provide law enforcement, first responders, and school officials with proper training for active shooter situations.

13. Maximize enforcement efforts to prevent gun violence and prosecute gun crime.

14. Issue a Presidential Memorandum directing the Centers for Disease Control to research the causes and prevention of gun violence.
15. Direct the attorney general to issue a report on the availability and most effective use of new gun-safety technologies and challenge the private sector to develop innovative technologies.

16. Clarify that the Affordable Care Act does not prohibit doctors asking their patients about guns in their homes.

17. Release a letter to healthcare providers clarifying that no federal law prohibits them from reporting threats of violence to law enforcement authorities.
18. Provide incentives for schools to hire school resource officers.

19. Develop model emergency-response plans for schools, houses of worship and institutions of higher education.

20. Release a letter to state health officials clarifying the scope of mental health services that Medicaid plans must cover.
21. Finalize regulations clarifying essential health benefits and parity requirements within Affordable Care Act exchanges.

22. Commit to finalizing mental-health parity regulations.

23. Launch a national dialogue led by Secretaries Sebelius and Duncan on mental health.


The National Debt Clock a couple of years after
this speech soon after this speech was delivered

I came across a statement made on the Senate Floor about an proposed increase in the debt ceiling made on March 16, 2006.  I've updated it a bit and included both some highlights (in red) and some annotations (in green) to bring it up to date.
Mr. President, I rise today to talk about America's debt problem. The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies.
In my first two years federal debt increased by almost $3 trillion that amounts to a 10% advance in the percentage of GDP/debt in just two years.   By any measure that is a pretty stiff advance.  Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion ballooned to more than $16 trillion - or just a bit under double what I stated the debt was in 2006. (and then I thought it was a problem)  That is ''trillion'' with a ''T.'' That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President's budget will increase the debt by almost another $3.5 trillion.  If you divide all that up and assign it on a per capita basis - that amounts to more than $52,000 for each of us.  That would be bad in itself, but there is more, our debt estimates do not include the unfunded liability of federal pension obligations ($7.3 trillion) or the long term liabilities of the Social Security Trust Fund ($18 trillion) or the projected Medicare deficiencies ($24 trillion).  When you add all of that up it comes to more than 100% of our combined net worth.  
Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. According to Erskine Bowles that is expected to grow to $1 trillion by 2020. That is more money to pay interest on our national debt than we'll spend on Medicaid and the State Children's Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. . . .  Put another way debt payments are now the fourth largest spending category in the federal budget.
Our debt also matters internationally. My friend, the ranking member of the Senate Budget Committee, likes to remind us that it took 42 Presidents 224 years to run up only $1 trillion of foreign-held debt. This My administration did more than that in just 5 4years, a lot more. Now, there is nothing wrong with borrowing from foreign countries. But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours.
Increasing America's debt weakens us domestically and internationally. Leadership means that ''the buck stops here.'' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.
I therefore intend to oppose the effort to increase America's debt limit.
No, I won't even ask you to guess who said this (even unannotated).

Tuesday, January 15, 2013

An odd introduction to the job

The Huffington Post recently posted a slide from a briefing done by the Democratic Congressional Committee suggesting the ideal mix of jobs a member of congress should do.   This is not a political criticism - I suspect that the RCC probably makes something close to the same suggestion for their members.

So the DCC thinks that the most important job is raising money to get reelected?   Surprisingly (or actually not) they also believe that less than 20% of the job involves around legislating - which is the job that most constituents actually believe Members of Congress are hired to do.

I worked for two members of congress early in my career.  At that time members actually did spend about 20% of their time in constituent meetings but the share of time spent working on committee and floor activity was a lot higher than the DCC suggests it is now.

One other comment.  If this is how the DCC describes the job of a member of congress can you wonder why the quality of people who actually want the job, has declined?

Monday, January 14, 2013

We have a spending problem - the President's Press Conference on the Debt Ceiling

In 1995, the federal government spent just over $1.5 trillion with a GDP of more than $7 trillion.   Our deficit was $164 billion ($246 on inflation adjustment).   Last year our deficit had advanced a bit, to $1.1 trillion.   So in a bit more than 15 years, the deficit is close to what we spent for all of the federal government just 15 years ago.

In a feisty press conference today the President argued that "we are not a deadbeat nation" and that the Congress should adopt the new debt ceiling, pronto.   The President seems to think that all that polling on deficits does not matter.   The American people understand that you can just keep increasing your credit limit.

But let's use some logic here.  Assume for a moment that we were a family rather than a government.   And also assume that one in the family spent in the same way that the government has.   We ran up the credit card and the outstanding credit balance has reached its limit.  Does the family simply keep increasing its line of credit?  Of course not, while they probably try to increase their income some, the first solution for spending gone wild is not to increase credit.   Even with all the dough that the fiscal cliff produced(and all the extra spending that the deal actually produced), you can't match the dark blue (outlays) to the light blue line by increasing the light blue line.   We need to get back to fiscal balance.

You've seen the CBO chart on the left before but it bears repeating.  We have a spending problem.   In spite of the claims made by the President today, the way to solve that problem is not to let him demagogue the debt ceiling issue as if it did not matter.   It does.

Friday, January 11, 2013

So what about the Fiscal Cliff?

As I watched the Congress try to reconcile the Fiscal Cliff Discussions (from my perspective the President did little negotiation) a couple of things were clear.

First,  let's reconcile some numbers.  In January 2001, CBO produced a forecast that projected $5.6 trillion in surplus.  So what happened.  Well first of all the economy did worse (by $3.3 trillion) than the CBO projected - that was caused by two recessions (one mild, one terrible).   Then we adopted $2.8 trillion of tax cuts (the Bush Tax bill)- that is about half of what the CBO originally projected as surplus.  Then Congress appropriated a total of $4.3 trillion more than they had (or almost 50% more than the costs of the Bush tax) to things like Homeland Security, a couple of wars and the prescription drug benefit.   Finally, as a result of all that profligacy we paid $1.4 trillion in additional debt.  So that left us with $6.2 trillion of additional debt.  (Less than a third was the Bush tax cuts.)

Now to the deal.   The chattering class has said it was a disaster for the GOP but I would think that it is a mixed deal for both parties.   Perhaps 82% of the Bush tax cuts were retained as "permanent" including a generous death tax exclusion (albeit with a slightly higher rate which is still below the rate before the Bush changes).   Both sides will still have to deal with entitlement reform.  As the chart to the right suggests what the deal did not do was actually reduce the deficit by any meaningful numbers (some have suggested that the pork in the bill actually spent more than will be collected if the revenue assumptions are actually real.

What is also troubling is that without substantial entitlement reform we will continue on the trend of increasing the ratio of our total debt to GDP.   Even the Center on Budget and Policy Priorities (which is not exactly a conservative organization) argues that the curve needs to be brought down by another $1.4 trillion over the next 10 years if we are to stabilize the long term prospects of government.

There are a couple of conclusions.  First, if we want decent economic growth it is unlikely that we would stabilize tax revenue at a level which is a significantly larger share of GDP than the numbers we had for the last couple of decades (18-20%).   Second, when even the CPPB begins to talk about significant entitlement reforms as a way to stabilize, it should be a wake up call.   Will Washington figure this one out?

Thursday, January 10, 2013

James Buchanan

When I was doing my doctoral work, I had a professor who made the outrageous suggestion that when I wrote a paper that discussed the work of a living scholar that I send the person a copy of my paper.   Utterly absurd, I thought.   But when I wrote a first paper on public choice economics, I sent the paper to James Buchanan, who with his colleague Gordon Tullock, developed the field.  Professor Buchanan died on the 9th.  after a long and distinguished career that assiduously avoided direct involvement in politics.

Professor Buchanan was kind enough to respond with some comments and suggestions and we began some dialogue via snail mail for most of the rest of my program.   A few years after those exchanges, Buchanan won the Nobel in Economics for the body of his work.

Much of Professor Buchanan's work is not easily accessible.   His basic premise is that politicians do not check their self interest at the door when they enter public service.  Common knowledge now but not when he began to write.   If you are interested in getting a flavor of the field try The Calculus of Consent.  His work in a number of fields (including public finance, taxation, debt, logrolling in public decisions and constitutional theory) helped to open new dialogues.

I had friends who worked directly with Buchanan and said he was a terror.  But he is also a key figure in the development of the fine economics department at George Mason University.   I was enormously appreciative of his willingness to offer ideas to a doctoral student.   It is a good mark of a true professional.