Relevant and even prescient commentary on news, politics and the economy.

7 Islands and 3 Branches

Jeff Sessions said “I really am amazed that a judge sitting on an island in the Pacific can issue an order that stops the President of the United States from what appears to be clearly his statutory and constitutional power,”

There has been considerable discussion of the phrase “an island in the Pacific”. With that phrase, Sessions made it clear that he considers Hawaii to be a second class state — not a real American state like Alabama. I have no doubt at all that he believes this largely because a majority of residents of Hawaii aren’t white. Our Attorney General is deeply racist and only sometimes able to hide this fact.

A Justice Department spokesperson added insult to insult by saying that Hawaii is indeed an island in the Pacific. This is true. Also Bora Bora is an Island in the Pacific. But Judge Watson didn’t issue his order while sitting on Bora Bora or the Island called Hawaii. he was sitting on Oahu, not Hawaii. The US State of Hawaii is an archipelago including 7 large islands only one of which is the island called “Hawaii” in the Pacific.

Sessions personally displayed spectacular geographic ignorance saying “I wasn’t diminishing the judge or the island of Hawaii, that beautiful place, give me a break.”

None of this is very important. What is important is that Sessions challenges the authority of a judge to declare an executive order to be unlawful. ““I was just making the point that’s very real: one judge out of 700 has stopped the President of the United States from doing what he believes is necessary to protect our safety and security.” Sessions has abandoned his claim that his view of what appears statutory and constitutional should count for more than a judges — that an attorney should be able to over rule a judge. Now he claims that the President’s judgement should count more than any (single) judges view of what the law says.

Judicial proceedings start with a single judge (whose judgments can be appealed). Plaintiffs do not have direct access to panels of judges. As noted by Hobbes roughly 370 years ago, the law without a judge amounts to mere ink on paper. Sessions’ clearly stated view is that the President should not be subordinate to any law or statute whatsoever. If no single judge can even temporarily stop him, the law can’t stop him. If no single judge can issue a preliminary injunction or a decision, then no panel of judges can hear the case.

Sessions declares that the USA is, and should be, an absolute monarchy.

He is an enemy of the constitution.

However, he has not committed treason (which requires making war not just declaring it) and has not committed another impeachable offence (he did commit perjury during his confirmation hearings and, of course, should be impeached, convicted, removed from office and, I think, disqualified “to hold and enjoy any Office of honor, Trust or Profit under the United States”).

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The Blood of Christ

I recently saw a rather alarming poster advertizing a blood drive

bloodofchrist

The title is “donate blood and follow your artistic inclinations” which, given the image, I interpreted as “donate blood and faint, so that you are inclined head down just like the recently crucified Christ. You will be resurrected too (by some fluids not the holy spirit).”

Oddly, it seems the advertizing agency didn’t notice the potentially alarming relationship between the image and a (rather rare) side effect of blood donation. They also didn’t consider the literal meaning of “inclinazione” when writing about an extremely inclined figure.

Closer reading reveals that The One True Catholic and Apostolic Church is, in a sense, paying for blood. “Donors” receive discounts on tickets to the vatican museums.

This raises an issue related to economic theory and justifies an AngryBear post. “Tranfused Blood, Serum Hepatitis, and the Coase Theorem” is a fundamentally important article about market failure in the presence of asymmetric information. The authors noted that it is much cheaper to buy blood than to convince people to give it. But the bought blood isn’t as good, being more likely to contain hepatitis virus. The point is that if someone gives with the intent to help, they care about the quality of their gift, and follow instructions to not donate if, for example, they self inject drugs. People who sell include many who care only about the money. Since the donor (or seller) knows more about the donor’s behavior and risk of hepatitis infection than the blood collectors, the market fails.

This is a really important article (or an early cite of an earlier really important article — Google Scholar gets weak going back to 1974).

But, it seems to me, that the One True Catholic and Apostolic Church has found a trick — a way to pay and select. The point is that intravenous drug addicts etc may be desperate for money and eager to sell blood for cash, but they are not so desperately eager to get discounts on tickets to art museums to be willing to lie and endager others to get them. Even the relatively art loving heroin addict will probably want to save the money rather than buy even discounted tickets to an art museum.

So paying with a “merit good” (don’t ask me to define or even type without scare quotes) can be a rational strategy to use the market even in this case of asymmetric information.

I do not have a rationale for bringing up crucifixion, when trying to convince people to let other people stick sharp things into them.

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To me the common assertion about health care reform reform and tax reform makes no sense

Various people have argued that Republicans decided to repeal and (very partially) replace Obamacare before moving on to tax reform, because Obamacare repeal (aka the American Health Care Act aka AHCA) would make it easier to permanently cut tax rates. To me this makes less than zero sense. The argument is that, since AHCA includes tax cuts, tax reform would start from a lower base, so it would be easier to write a tax reform bill which doesn’t add to the deficit after 10 years. It is, in fact, necessary that bills not add to the deficit after 10 years for them to be passed using the budget reconciliation process which makes them invulnerable to filibusters.

However, I don’t see how preceding tax cuts make new tax cuts budget neutral. No one has explained how the exact same tax reform bill could be passed using reconciliation if it followed passage of the AHCA but not if it preceded passage of the AHCA. I know of no one who has argued that the CBO score of the effects of tax reform would be markedly different, or even argued that the sign of the change in the score would be favorable.

Rather the argument seems to be that with the AHCA tax cuts and the tax reform tax cuts, rich people will pay lower taxes than with the tax reform tax cuts alone. This is obviously true and has nothing to do with the order in which the bills are signed into law.

Jonathan Chait has been a prominent proponent of the view which makes no sense to me at all.

The next source of money is repealing Obamacare. The connection between the two issues might seem obscure, but it matters technically. The Republican plan to repeal Obamacare would eliminate all the taxes that were raised to help pay for the benefits — about $1.2 trillion over the next decade. This would lower the baseline of tax revenue, meaning that Republicans would need to design a tax code that raises $1.2 trillion less in revenue in order to be “revenue-neutral.” That makes it crucial for them to repeal Obamacare before they cut taxes.

I can cut and paste his argument. I can read it. But I can find no sense in it at all. Yes if taxes have been cut by $1.2 trillion, then a revenue neutral tax reform needs to raise 1.2 trillion less. But nothing whatsoever justifies Chait’s use of the word “before”. I can’t refute his argument, because I can’t detect it.

This matters, because it now turns out that Donald Trump is one of the people who have been convinced (presumably by Paul Ryan not Jon Chait).

“We haven’t failed — we’re negotiating, and we continue to negotiate, and we will save perhaps $900 billion … we have to do health care first to pick up additional money so that we get great tax reform.”

This argument too makes no sense (very much less surprising in the case of Trump than of Chait). For the reconciliation process, money can’t be picked up with one bill and spent on another. Each bill taken alone must not increase the deficit after 10 years. Now reactionaries consider the AHCA to include great tax reform, since it includes reductions in taxes on high incomes. But this doesn’t make further reductions easier. The order in which the bills are passed doesn’t matter.

In fact, the AHCA makes tax reform more difficult. The reason is that the AHCA benefit cuts are even larger than the tax cuts. So the maximum allowed fiscal 2027 deficit would be smaller if the AHCA were law. A bill which combined health care reform reform and tax reform could include even larger tax cuts than simple repeal of the ACA tax increases and be passed using reconciliation.

I honestly don’t get it. I’m sure I’m missing something. I am also sure, 100% sure, that, even if passage of the AHCA were to make it easier for the GOP to pass a tax reform bill, this wouldn’t be because the AHCA includes tax cuts or deficit reduction.

update: minds think alike.

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Crazification Factor Smashed

Kung Fu Monkey has a sad. Paul Ryan has totally crushed his crazification factor

h/t Kerry Eleveld

This issue has made Paul Ryan into the most unpopular politician in the country. At the start of the Trump administration he had a 33% approval rating, with 43% of voters disapproving of him. Now his approval has plunged to 21%, with his disapproval spiking all the way up to 61%.

I count this as a new event, because Ryan is very famous and 82% is respectably close to 100 %

But mostly, because I want to post this here

blue-eyesA

blue-eyesB

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Blinded by the Right — Literally

Patrick Ruffini tweeted a graph showing a break in the trend of health care cost inflation with the ironic comment “The “Affordable” Care Act sure has bent the cost curve.” In the graph he posted, it is broken not bent.

ruffini2

h/t @ChrisDeLong_

The trick is that the graph starts in 1996 & includes college tuition and software, so the huge change looks tiny.

In comments, it is clear that other people can’t see what is right in front of their eyes (good thing the ACA covers eye exams).

Jon Chait helps out by graphing inflation not the price level and leaving out other goods and services with huge changes.

chaitonruffini

I just asked Fred. I look at the ratio of health care PCE chained indes to the overall PCE deflator. Chait shows a huge decline in overall inflation, which isn’t relevant. Here is an (admittedly annual graph) which sure looks bent to me

fredonruffini

Ideology prevents people from seeing what’s right in front of their eyes.

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On @UnlearningEcon

Unlearning Economics is a person somewhere on planet earth. He or she has been debating with Simon Wren-Lewis and Nick Rowe (on twitter). Brad DeLong joined the discussion.

But what about me. Elisabetta Addis (we’re married) just returned from Palermo. I was eager to talk with a physically present human being having not done so all day. First I said “Hodor” (and had to explain). Then, looking for a topic, I said, “Unlearning economics is someone who is debating”.

She said “incredibile” and showed me her smart phone. On the small screen I could read (barely) the post by unlearning economics which I was planning to discuss.

OK now we are reading the post so that we can discuss it.

The world is highly connected. The 21st century is very strange.

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Accountability Bond Accounting

Recently I learned about a proposal for Euro denominated “accountability bonds”. They are basically a clever way to enforce the stability and growth pact. I don’t like the pact, so I don’t support the proposal which I made by Clemens Fuerst here . The idea is that borrowing beyond the level allowed by the stability and growth pact could be financed only by special junior bonds. Owners of those bonds would lose everything before owners of senior bonds lose or taxpayers who finance the ESM risk anything.

The key part (which I don’t support) is that currently outstanding bonds are senior to these new bonds. This means that the reform will cause a windfall gain to current bond owners. The value of their bonds will not be diluted by the junior bonds. The risk that it would be diluted by regular bonds issued above the stability and growth pact levels would vanish. Importantly, this windfall would not be openly paid by the Treasury issuing the junior bonds – on its face, the reform regulates only the interaction of those Treasuries with new investors. The windfall would be paid by other investors who value the old bonds more highly. The old bonds will be more valuable in case of default, because they will be more senior than the average outstanding bond (the average including the junior bonds). Since investors in junior bonds won’t pay this cost in (at least subjective) expected value, the issuing Treasury will.

If no junior bonds are issued, old bonds are average bonds so there is no windfall and no cost. Byt the reform appears to only regulate the interaction between issuing treasuries and investors in new bonds. It is a penalty to be levied by investors thinking of their own interests, so it is a penalty which will actually be levied.

I don’t like the windfall (which Fuerst might consider the whole point of the reform). It implies giving people who are on average wealthy something for nothing. It isn’t hard to come up with a proposal for junior and senior bonds, related to the stability and growth pact, which does not create a windfall. The problem (or whole purpose) is that old bonds are senior to the average bond. The solution is to require that, in case of default, recovery ratios for old bonds are equal to average recovery ratios.

My proposal is that as of the start date T, there is a limit on the issuance of new senior bonds. Beyond that limit, new bonds must be new junior bonds. In case of default, first payments (coupons plus face values of maturing bonds) are divided into the proportions due to newer than T and older than T bonds – so payments to old bonds are
(total payments)(amount owed on old bonds)/(total amount owed).

The remaining payments must first go to new senior bonds and any money left goes to new junior bonds.

Discussion of the effects of such a plan after the jump.

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Poor Salesman Great Grasp of Policy

I am aware of all internet traditions (with notably rare exceptions) and I think this might be another classic.

In a generally very good article in Politico Tim Alberta wrote “Ryan is poor salesman with a great grasp of policy” [skip] “After he unveiled the bill, leading health care experts on the right like Yuval Levin and Avik Roy trashed it as a poorly conceived mess; ”

So having a great grasp of policy is consistent with writing an immensely important poorly conceived mess. I am googling [Ryan salesman "great grasp of policy"] which only gives 142 results. Does seem twitter has taken over the snark industry. This thread burns. Also at least 1% of the US Senate took Alberta to task.

update: I was wrong. The classic is actually

TimAlberta

So the fact that Ryan’s polics don’t withstand scrutiny shows that Ryan has a great grasp of policy. OK I fell for it. Tim Alberta is just trolling me. He. will. not. make. my. head. explode. No he won’t.

end update:

I think the crazy claim shows a few things. One is that conventional wisdom is invulnerable to evidence. Ryan has been declared a super wonk by the cool kids, so the assertion is riskless. Another is that Alberta wasn’t thinking about policy (he wrote almost nothing about the content of the AHCA). Another is that he assumes that the problem for Ryan with Levin and Roy was that he didn’t flatter them enough and not that his bill was a poorly conceived mess (the preceding sentence was “There was no such effort on Ryan’s part, and it showed. (Several allies argued he had done some outreach, but they failed to provide any specific examples.)”). Finally, symmetry is dangerously tempting. The whole crazy claim is “If the bill failed because Trump is a great salesman with a poor grasp of policy, it also failed because Ryan is a poor salesman with a great grasp of policy.” This is symmetry at the expence of accuracy. Ryan is a brilliant salesman who has a weak grasp of policy.

I foolishly said that ignoring policy and discussing inside baseball is what Politico does, then found out that they also published an excellent article by Harold Pollack “Paul Ryan Failed Because his Bill was a Dumpster Fire”

update: Ouch

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No One Knows What It’s Like to be Paul Ryan

Who can tell us how he feels knowing that no one likes his health care reform ?
The Who can tell us how he feels knowing that no one likes his health care reform !

This is some cause for optimism, as we can note The Who’s further forecast that, by the last verse, he will recognize the importance of access to emergency medical care and the moral imperative to share with those in need.

No one knows what it’s like
To be the bad man
To be the sad man
Behind blue eyes

ryan

No one knows what it’s like
To be hated
To be fated
To telling only lies

But my dreams
They aren’t as empty
As my conscience seems to be
I have hours, only lonely
My love is vengeance
That’s never free

ryansad

No one knows what it’s like
To feel these feelings
Like I do
And I blame you

No one bites back as hard
On their anger
None of my pain and woe
Can show through

But my dreams
They aren’t as empty
As my conscience seems to be
I have hours, only lonely
My love is vengeance
That’s never free

ryanlaughs

When my fist clenches, crack it open
Before I use it and lose my cool
When I smile, tell me some bad news
Before I laugh and act like a fool

And if I swallow anything evil
Put your finger down my throat
And if I shiver, please give me a blanket
Keep me warm, let me wear your coat

coats

No one knows what it’s like
To be the bad man
To be the sad man
Behind blue eyes

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Constitutional Crisis ?

To Recap what everyone knows now (in case anyone reads this months from now)

On January 27th Donald Trump signed an executive order suspending the refugee admission program for 120 days and blocking US entry for citizens of 7 countries for 30 days.
The order was written without input from the Justice, Homeland Security, State and Defence departments. As written it banned entry for legal permanent residents (with green cards) who were travelling abroad when it was issued. It also banned entry for people who were on airplanes flying to the USA when it was signed.

On January 28th dozens (to hundreds ?) of people were detained in Airports. Tens of thousands of ordinary Americans went to the airports to protest the new policy (there is hope). Also hundreds of lawyers spontaneously went to airports to attempt to represent (pro bono) the people who were detained and at risk of being put on planes returning to the foreign point of departure.

Early January 29, some aspects of the execution of the executive order was temporarily stayed by a judge


Judge Ann Donnelly of the U.S. District Court in Brooklyn granted a request from the American Civil Liberties Union to stop the deportations after determining that the risk of injury to those detained by being returned to their home countries necessitated the decision.

3:00 AM January 29th, the Associated Press reported — something. It is not clear to me if the recent event is a constitutional crisis or just an absurd lie alternative fact.

The Ap reported

Stephen Miller, a senior adviser to the White House, said that nothing in the judge’s order “in anyway impedes or prevents the implementation of the president’s executive order which remains in full, complete and total effect.”

If Miller meant what he said, he has declared that the Trump administration will order the executive branch to ignore the stay (that is the only way the order could remain in “total effect”. If so, there would no longer be rule of law in the USA. There would only be Trump’s orders and the decision by people in uniforms whether to obey them.

I am fairly confident that the US is still a nation of laws. I think that Miller’s statement is a simple blatant lie not the declaration of a coup. I think he is sayign that the Judges order would have no effect even if it were obeyed. I am pretty sure Miller is insisting that Donnelly didn’t order what Donnelly ordered.

In contrast the more official response by the DHS noted that the stay applies only to people in the USA or in the air at the time it was granted.

Also the DHS didn’t mention legal permanent residents. It is very clear that the DHS can’t block their entry to the USA. In fact, it is known that the DHS argued this immediately and was over-ruled by White House staff. The application of the order to legal permanent residents is very clearly blatantly illegal. Arguably, the executive order is completely illegal, but to ignore green cards is very clearly illegal.

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