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

The Washington Post on Tax Cuts

Jonathan Weisman has an article entitled “President Says $550 Billion Reduction Would Create More Jobs“. Here’s a nice bit of reasoning by the president:

“Some members of Congress support tax relief but say my proposal is too big,” Bush said in his Saturday radio address. “Since they already agree that tax relief creates jobs, it doesn’t make sense to provide less tax relief and, therefore, create fewer jobs.”

If you have the sniffles, an ounce of Nyquil will make you feel somewhat better. The only logical conclusion is to drink the whole bottle. The article continues directly:

But few economists would argue that tax policy is so straightforward. Taken to its extreme, Joel Slemrod, a tax economist at the University of Michigan, said that Bush’s argument would support eliminating taxes altogether for the sake of job creation.

“Logically, the statement that more tax cuts are better is certainly wrong,” Slemrod said.

Finally, here are the president’s numbers:

Advisers calculated in February that the president’s full, $726 billion package would create 1.4 million jobs through 2004. The House’s trimmed down, $550 billion package would create just over a million jobs, by the White House’s calculation. A $350 billion package would create 425,000 fewer jobs, White House spokesman Ari Fleischer told reporters last week.

Doing a little math, these numbers translate into per-job-created costs of $518,000, $550,000, and $609,000 for the smallest tax cut. Note how the numbers assume increasing returns (i.e., lower cost-per-job) to tax cuts? Most things in economics are subject to diminishing returns (it’s such a common phenomenon that we call it The Law of Diminishing Returns).

I posted more on this story at It’s Still the Economy.

AB

UPDATE: CalPundit has more here, in a post that draws upon some excellent sleuthing by Max Sawicky, whose post is here.

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CEO Pay

For those who like to get outraged over CEO pay, take a look at this CNN/Money story. I actually have no problem with high CEO pay, as long as it is tightly linked to the performance of the company. I should probably also add, as long as the compensation committee is independent and not beholden to the CEO. Jack Welch, Lou Gerstner, and Stanley Gault all made huge contributions to their companies (the latter two saved their respective companies, IBM and Goodyear, from ruin), to their employees, and to the economy. When the pay is not linked to performance, as is the case with severance packages and to some degree stock options, then the pay levels are in fact pretty outrageous.

Why do companies offer generous severance packages? One theory is that the compensation committee is controlled by the CEO. Another is that it allows them to give lower pay during the CEO’s tenure by reducing the risk the CEO faces. Of course reducing the risk the CEO faces in this fashion reduces the link between CEO pay and company performance, to some extent invalidating the theory behind high pay in the first place.

AB

P.S. I talked about this issue in an earlier post on dividend taxes.

P.P.S. This post, and others by other bloggers (Wampum and To The Point, so far) available at http://www.itstheeconomy.blogspot.com/.

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PBS on Blogs

Josh Marshall posted yesterday that PBS’s Newshour would run a piece on blogs last night. Not reading TPM yesterday, I missed the show, but the transcript is up now. Who got the big plugs? Instapundit, Sully, Marshall (also quoted extensively), Salam Pax, John Irons (of ArgMax, but they don’t mention the name of his blog). The piece was actually filmed several months ago, possibly explaining why angrybear.blogspot.com didn’t make the cut. The story did cite an estimate that there are 5 million blog readers, which means there are approximately 4,999,800 blog readers not yet reading Angry Bear.

I did find one statement that I disagree strongly with, by Joan Connel, Exec. Producer, MSNBC.com:

One of the values that we place on our own weblogs is that we edit our webloggers. Out there in the blogosphere, often it goes from the mind of the blogger to the mind of the reader, and there’s no backup. And I would submit that that editing function really is the factor that makes it journalism. Are you making a mistake here? Do you really want to say that? Do you really want to use that word? Is that libelous? All of those basic journalism questions that we always ask.

And I thought MSNBC’s real value-add was not implementing permalinks. Seriously, Bloggers don’t need editors. The readers and other bloggers are the editors; when they find mistakes or omitted details, that’s what “UPDATE:” is for.

AB

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Economics, Straight Up, Please

Prefer your economics straight up, without political ramblings and me complaining about spam and such? Check out It’s Still the Economy. ISTE is a work in progress set up by M.B. of Wampum that is apparently developing into a team blog of left and center-left economic/political (but more economic I think) news. It’s a work in progress, but there are already good posts up and surely more on the way. Matt Stoller of To The Point is already contributing and I may also add some thoughts to the blog in the near future. If it’s me, MB, and Matt, I suspect I’ll occupy the enviable position of the “Righty” in the project.

AB

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Rumsfeld on Military History

I caught a clip on CNN of Rumsfeld saying something to the effect that the march to Baghdad was the fastest in history. That didn’t sound true, so with the help of Google I found the exact quote (near the end): “Baghdad was liberated in less than a month, possibly the fastest march on a capital in modern military history.” [emphasis mine]

I guess it all depends on the meaning of “modern” and “possibly”:

  • In Grenada, Marines were in the capital on the first day (the medical school that was evacuated was in St. George, the capital of Grenada).
  • In Panama, the US invaded on December 20, 1989 and Noriega surrendered on January 3, 1990–two weeks, start to finish.
  • In Poland, Germany invaded on September 1, 1939 and had Warsaw surrounded on September 17th–slightly more than two weeks (the Poles completely surrendered on September 28th, though heroic partisan activity continued throughout WWII).

So yes, it is “possibly” the fastest in history, but it’s “factually” not. This is something of a minor point, but the invasion went smoothly enough that it doesn’t need to be exaggerated (and I suppose we could reasonably hold Secretary of Defense to a high standard on the subject of military history). Similarly, the extent of the looting after the takeover of the capital should not be minimized (in case you missed it, Rumsfeld recently said “The images you are seeing on television, you are seeing over and over and over. It’s the same picture of some person walking out of some building with a vase and you see it twenty times. And you think, my goodness, were there that many vases? …[pause for laughter]…Is it possible that there were that many vases in the whole country?” Given 5,000 years, I hypothesize that a nation the size of California can in fact accumulate many, many, vases.

AB

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More on Spam

ZDNet is your Spam Info Central, for those interested. They have a page dedicated to “Spam 2003: A progress report. The amount of spam grew in March and has almost doubled from last year, threatening to cost businesses $10 billion in 2003. The best tech minds are working feverishly to help you perform one simple task–read your e-mail.“.

AB

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Spam and Taxing Emails

Every so often I get a chain email that alleges that Congress is about to levy a tax on email. Then I think to myself, “this email is proof of why that tax might not be such a bad idea”. Not only would an emal tax cut down on chain letters, it would also keep my acquaintances from sending me the latest list of jokes that was forwarded to them, or the fake picture of the tourist on the tower, or the crying eagle. On the other hand, I would get less exciting opportunities to embezzle funds from Nigeria (which I talked about here and here). Firms will engage in an activity, for example, spam, if the incremental revenue exceeds the incremental cost. In the case of spam, the cost is roughly zero. So any proposal that, if disseminated far enough and wide enough, can generate any positive amount of revenue gets sent out to the In Boxes of the world.

Take the Nigerian Bank emails that I get nearly every day, and imagine that 1 in 50 million such emails find a sucker who ends up losing their life savings of $50,000. To curtail such emails, the tax only has to be high enough that the cost of sending out 10 million emails exceeds $50,000, or 1/10th of a penny. I’m not quite ready to endorse an email tax, but it would go a long way towards reducing spam. I guess the only down side would be the sharp reduction in the number of opportunities See Anna Kournikova topless!!!!!!, Refinance my Home!!!!!!!!!!!!!!, Order Toner Cartridges in Bulk!!!!!!!!!!!!!, and to Enlarge my Penis!!!!!!!!!.

Or I could just adopt the AOL approach and sue the spammers for $10 million each.

AB

P.S. Imagine that telemarketers had to pay 5 cents for every call they made. If such a tax could be enforced then there would be a dramatic reduction in the number of calls. Because of the costs, only higher yield pitches (meaning those that result in a sale more often) could profitably be made; other telemarketers would be driven out of business. The high yield pitches have higher yields for a reason: they are offers that people like or find valuable–good telemarketing calls. So if telemarketing calls were taxed, most of the crappy ones would be eliminated, and only the valuable ones would remain, and we would all actually like getting telemarketing calls (but we’d get a lot less of them).

Think about that: tax something and it becomes valuable, rather than annoying! (Or at least becomes much less annoying).

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Slow Day

No topic for a new post leaps to mind, but I do try to put something up every day. So instead of insightful commentary and analysis, I’ll just link to this, which I think is funny. (I linked to this back in the first days of the blog, but since I had no readers then, it is new to most of you).

AB

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No More Deficits

The IRS has come up with a clever plan to offset the deficit-creating effects of the Bush tax cuts: More scrutiny of the poor!

The Internal Revenue Service is planning to ask more than four million of the working poor who now claim a special tax credit to provide the most exhaustive proof of eligibility ever demanded of any class of taxpayers….The I.R.S., trying to prevent errors and cheating, says it needs greater proof of eligibility months before people claim the credit on their tax returns because its efforts to find errors through audits after the fact have not worked. Treasury officials estimate that $6.5 billion to $10 billion is lost to improper payments each year…President Bush has praised the tax credit. But his administration has also complained about fraud, and the president has asked Congress for $100 million and 650 new employees to identify potentially erroneous claims before any money is paid out. There is a similar effort with federally subsidized school lunches.

The program they are referring to is the Earned Income Tax Credit (EITC), a program both sides of the aisle have long applauded. The logic of the EITC, as opposed to welfare, is that it increases rather than decreases the benefit of working. Suppose a person could work or not work. If they work then they get $1000; if they don’t work, they get $600 in welfare benefits. That makes the pecuniary value of work $400, and it costs the government $600 per person who decides not to work. The EITC turns this math around, by paying poor people (only those with children, I think) to work. Say we give $300 to every family that works under the EITC, while still offering $600 in benefits for the unemployed. Then by working, this hypothetical person gets $1300 a month total, which is $700 more than what they get by not working. Since $700 is a lot more than $400, more people will choose to work. And for each person that works instead of taking the $600, the government saves $300 (the difference in the $600 cost of welfare benefits vs. the $300 cost of the EITC). So discouraging use of the EITC could actually end up costing the government more money, not less (though EITC costs come out of the Federal budget; a large part of welfare benefits is paid out of state coffers). To understand the type of dollars the IRS is looking at, the total cost of the EITC is around $30b or so, about 1/10th of the deficit this year.

AB

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