Delightfully Wonky

I thought I was going to have to do it myself, but this slide-deck from the White House puts together the graphical evidence about economic performance under Obama quite nicely.  Highly recommended for people who want to get a sense of context for the economy.

http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf

Why do we disagree?

This question matters.  It determines the scope of debate and helps us understand differing viewpoints.  It is also answered with confusion or misinformation with hilarious frequency.  I'll touch on how to think about these disagreements and briefly highlight some examples of confusion in the tax and voter ID debates.  Anyway, why do we disagree?

In politics, it seems to come down to a few things:

1. Differing, empirically testable, ideas about the world (facts)
2. Differing, empirically testable, ideas about how the world works (models)
3. Differing ideas about the proper values and goals of society 
4. Differing ideas about the proper powers of government

or, if you like:

1. What is the world like?
2. What can we do about it?
3. What should we do about it?
4. How shouldn't we do it?

None of that is terribly controversial, but I think that people often confuse the origins of their disagreement.  

I often, for instance, hear conservatives saying that the government shouldn't raise taxes on the rich, but depending on who you talk to, the answer to why varies a lot.  For some it is "because they are job creators", but for others it is "because it isn't fair".  These world views have the same conclusion, but different implications.  We can, to some extent, test the proposition that raising taxes will mean less job creation.  If a person genuinely believes this to be the primary reason not to raise taxes on the rich, then empirical arguments are the most appropriate forum of discussion.  For the "it isn't fair" person, the proper arguments are philosophical--diminishing marginal utility, &c.  Of course, people often convolve many different types of reasons, or simply hold positions as an aspect of group identity, but the basic point still stands.

Now, I don't think it is impossible to convince people to change their positions in 3 & 4 type disagreements, but it's substantially harder.  It is, however, possible to give people better access to facts, and in many cases that changes the nature of the discussion for the better.

Presenting evidence of the extremely low incidence of voter ID fraud, for instance, seems to have shifted the debate from "we need to curb rampant voter ID fraud" to "it is right and proper for voters to show ID in order to vote".  In other words, the debate has shifted from an empirical one to an ideological one.  From my perspective, that is good, because ideological questions are the only valid questions to ask voters in my idealized constitutional anarchy model of government.   Voters are, in fact, quite bad at discerning which facts and models best reflect the real world.  But, they are excellent at determining what they think are good goals to focus on as a society, and what they think are categorically unacceptable ways of achieving those goals.

I'll have more on practical applications of this idea, and ways in which it might help move the debate forward in a later post.

Debunking the "US Budget is like a Family Budget" Nonsense

Because I'm fed up with hearing this crap from even my smart informed friends, I am doing you all the favor of collecting the relevant facts, figures, and context and systematically addressing the common objections.  Please don't make me do it again.

(Mini-Summary For Lazy Readers:
On its face, the Family Budget metaphor ignores assets and misrepresents the US debt situation to make it seem more severe than it already is.  Furthermore, countries that borrow in their own currencies (not the euro states, not most "3rd world" nations because no one trusts their money) need never default because they can print any amount of money they like to service their debt.   And, none of the things we might see if we were actually in "too much" debt are even close to happening.)

The annoying meme that is being passed around looks something like this if you use the CBOs numbers for 2011:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$147,900

Looks pretty ugly, right? But then why are there all these articles and op-eds about the debt thing being overblown?  Well, probably the first thing to look at is the "Total Credit Card Debt" thing.  It turns out that that can be split into "Debt Held by the Public" (money the government owes other people) and "Debt Held by Agencies and Trusts" (money the government owes itself), so maybe the budget should look like this:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$101,300
Money Dad Owes Mom:	$46,580

That 46k doesn't seem to be a real issue so long as Mom and Dad are on good terms, and thankfully, our government agencies can't divorce the treasury.  Say Mom paid Dad's way through lawschool; but hes only a legal clerk now.  This kind of stuff happens all the time in families and few think of it as part of their debt burden.

Now, absent from the Family Budget is the rather important aspect of "assets".  This isn't by accident... the credit card debt framing makes it seem like all the money was spent frivolously, that the interest rates are high, and that nothing of value is retained by the Family.  Of course none of this accurately reflects reality, and in no place is this more egregious than in the case of foreign debt.  It turns out that one of the assets that are left out of this budget is the foreign stuff we own. We own almost as much foreign debt as we owe:


And we're actually making more money on our foreign investments than it costs us to service the money we owe them:



So where does that leave our family again?  Well according to FRED, we owe 4,660 billion dollars to foreign investors, or in the parlance of our family: $46,600.  Since our income from foreign investments exceeds our payments to foreign investors and our total foreign debt is similar in size to our total foreign holdings, I think it's fair to say that debt is a wash.  Let's look at our family now:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$54,700 ( $101,300-$46,600 )
Money Dad Owes Mom:	$46,580

Well, that looks like a tough year (all that new debt), but pretty manageable in the long run so long as we can get spending under control, and that's just what we can do playing by the silly rules of the metaphor.

And those rules are very very silly.  US Government debt isn't like household or business debt for a few very important reasons.  First and foremost, the government happens to own a device called a "printing press" which is miraculously capable of printing any sum of money at virtually no cost.  Secondly, the government is capable (at least in theory) of giving itself a raise through increased taxation, and its revenue stream is much more secure than a regular family on account of it is very difficult to be fire the government, and if you did its debt would disappear anyway.  Finally, all that remaining debt ($54,700) is borrowed from US tax payers and will be payed off by US tax payers, so there's no money actually being lost to the US (though of course the US government would be better off without the debt, but that's very different from the nation of the US).  It might be more appropriate to say that the entirety of the debt in this family budget is owed between members of the family.

If that's true, though, then why would any level of debt be bad, and what signs could we see that we've really gotten to the bad level of debt?  Well, if you borrow in a currency you can't print, and primarily from other countries (like Greece) then your situation IS actually like the family budget, and you might be in trouble.  But, what if you are like the U.S.? What bad things could a large debt do to us?

1. It might increase borrowing costs or reduce access to credit by some other means (such as no one being willing to lend you money at any interest rate at all).
   
2. In the government case, it might "crowd out" business investment (by soaking up all the loan-able funds or by driving up interest rates for businesses and private citizens
   
3. It might transfer large amounts of wealth from our economy to some other nation's central bank.
4. It might transfer large amounts of money from some American Taxpayers to other American Taxpayers in a systematically destabilizing way (like maybe we give all the poor people's money to very rich people and impose huge hardships)
5. It might force us to engage in money printing at a scale which produces dramatic inflation

How does that stack up against our actual situation?

1. It is currently cheaper in real terms to borrow money to pay for things than to pay for things out of current tax revenue. (because the real interest rate on government loans is negative... you can buy a bridge for 100 inflation adjusted dollars now and charge tax payers 100 dollars for it, or you can build it for 100 inflation adjusted dollars on credit and pay back your creditor with 99 inflation adjust dollars later)
2. Banks have massive excess reserves available for loaning and borrowing costs are historically low... no crowding out
3. Our government spends the vast majority of its money on buying things in america, and our net foreign debt is close to zero, so none of this money is leaving our economy.
4. Hard to say on this one.  Our current tax code is mildly progressive (rich people pay a little more than poor people), and bonds are owned primarily by rich people, so it is likely that the wealth transfer caused by debt will be largely from rich people to rich people, but if the tax code got mixed up maybe something systematic and bad could happen.  Doesn't look like a big problem so far though.
5. Inflation is. you know, average...

US Inflation Rates

American Plutocracy

Basically, our laws and political structure give hilariously large amounts of power and protection to the wealthy.  This seems like a problem, because the vast majority of people aren't, you know, wealthy, and also because the wealthy already have a lot going for them without getting any help or special treatment.  I talked about this with respect to our tax code last post, but it applies in all sorts of venues.  Let's talk about them now:

1. Taxes - been here before but it's worth saying again.  The rich have an enormous advantage when it comes to taking advantage of tax exemptions.  Corporations (which are getting more and more like extremely wealthy people every court decision) are the most egregious example of this, with many "American" companies paying virtually no taxes as a result of complex accounting structures and multinational presences. All this made possible by complex tax codes and armies of lawyers and accountants.

2. Civil and Criminal cases - Legal fees make basically everything about the courtroom experience farcically favorable to the wealthy.  This is most awful in civil suits, where discrepancies in wealth lead to major corporations being able to bully people into settling cases that, given equal means, would assuredly go to court.  Recent examples: the GeoHotz fiasco, or any RIAA suit.  It's also pretty bad in criminal courts, where rich people have a great deal more access to effective legal council (there are public defenders, even really good ones, but that's a mixed bag), and can much more easily avoid the painful side effects of criminal suits because they can afford bail.  It's awful just how much time innocent poor people spend in prison waiting for their trial merely because they can't afford bail.  Likewise, rich people suffer significantly less from tickets and other fines and penalties, so they have much less incentive to obey laws whose violation results in such penalties.  All of this is before we even consider things like cronyism or bribery which are at least theoretically illegal.

3. Political Influence - I just recently was reading about a dinner party fundraiser hosted by the Obama campaign.  Tickets were going for 35,800 dollars.  For that price you got to eat and hobnob with the President of the United States, with only 60 other people around.  While I'm sure Obama has a fairly well established set of political views, it certainly can't hurt the agendas of the dinner guests to have a chance to chat with him.  If you consider the fact that all of the fund raising dinners, charity drives, and donation things that occur in the upper echelon of politics are attended more or less exclusively by people able to drop 35K on a dinner party then you can probably pretty quickly recognize why politicians might favor the agendas of the very wealthy.  It's almost an accident at this point, the very wealthy are the only people they're really hanging out and chatting with; how could they be expected to favor anyone else?  It get's a lot less accidental when you look at things like corporate giving and campaign donations and the like.  Money buys you media time, which gives you a disproportionately large voice in the public arena.  All of this rather handily explains items 1 and 2 in this list.  Turns out of wealth gives you a bigger voice in the making of laws, the laws will grow in favor of you.  I bet we are all surprised by this.