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

California’s Recovery

My comment that either Steve Westley and Phil Angelides would be more fiscally responsible that Governor Girlie Man drew fire from AB reader Muckdog that Angelides would simply spend our “$7 billion surplus”. Actually, I might just vote in the Republican primary (if they let me) for McClintock who is a bona fide fiscal conservative on the hope that we Californians would have a true choice between two fiscal responsible candidates: the low-tax budget cutting McClintock v. Angelides who wants to at least cover our current level of spending.

As I was searching our Department of Finance State Budget to show Muckdog that even the Governor’s Budget says we are still running deficits, I found some cool data on real personal income for both California and the U.S. Muckdog thinks California is booming on Arnold’s leadership.

Here are the facts in terms of real personal income relative to where we were in 2000. For the nation as a whole, real income in 2003 was about the same as it was in 2000. For California, however, we had experienced a 2.5% decline, which is not surprising as the recent recession was an investment-led recession, which hit California hard. The good news is that both the nation and California has enjoyed a recovery from the recession. Our 2005 real income per capita is now 2.5% higher than it was in 2000, whereas the nation’s real income per capita is now 4.1% higher than it was in 2000.

I know the Bush cheerleaders wish to credit his fiscal policy for the meager growth over the past five years, and I can see Arnold cheerleaders doing the same. But recessions came and go without tax cuts and the economic growth over the past 5 years is disappointing both for the nation as a whole and for California in particular.

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California’s Next Governor

Kos is frustrated with our primary race for the fellow who will challenge Arnold’s attempt to be elected to a full term:

So what do you do when your two gubernatorial aspirants, Steve Westley and Phil Angelides, let their primary battle degenerate into a disgusting, slimy pit of bullshit attack ads and surrogate whisper smear campaigns? I quit. I hate them both.

Jonathan Zasloff makes the case for Phil Angelides:

Angelides was the only statewide figure taking him on, and arguing that borrow-and-spend is not the responsible way to run a government. He’s saying the same thing now, and, yes, that means raising some taxes. But that’s what it means to be responsible.

The initial back and forth between Westley and Angelides involved which taxes the other one would increase. Of course, Arnold does not want to raise anyone’s taxes preferring to put my state’s government deeper into debt. It’s a pity when taking real responsibility is seen as a negative. Fellows – chill for a moment as either one of you would be a vast improvement over the panderer currently acting as if he were my governor.

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Medical Malpractice: Kevin Drum v. the National Review PLUS Bartlett on Bentsen

Deroy Murdock blames the trial lawyers for this:

consider the 406 percent increase in per-doctor malpractice insurance premiums between 1975 and 2003.

That’s a 406% nominal increase over a period when prices grew by 180% – so the real increase in premiums is closer to 80%.

Kevin Drum debunks this National Review spin by citing the results from this study:

A new study by researchers from the Harvard School of Public Health (HSPH) and Brigham and Women’s Hospital challenges the view that frivolous litigation is rampant and expensive.

Mind you, I have praised Deroy Murdock for some of his NRO opeds and I had hoped he would replace Bruce Bartlett as the lone sensible voice on economics. This attack on the trial lawyers is a real disappointment but then I noticed that Bruce Bartlett has returned with a tribute to Lloyd Bentsen.

Alas, I was very disappointed that Bruce choose to pay tribe to Lloyd Bentsen by praising the doctrine of supply-siders – especially since Bentsen helped reverse the fiscal insanity of the 1980’s by supporting Bush41’s decision to raise taxes in 1990 as well as pushing for the 1993 tax increase. But the point of high comedy came here:

Probably the high point for the committee came in 1963 when it provided much of the intellectual ammunition for the Kennedy tax cut. At that time, Rep. Wilbur Mills (D., Ark.) was a member of the JEC as well as chairman of the House Ways and Means Committee. He relied heavily on JEC economists, especially Norman Ture, to provide him with analysis and research that helped get the tax cut through Congress.

The rational for the 1964 tax cut was that we needed a boost to aggregate demand in order to return to full employment. And let’s not forget that it was Norman Ture who told Wilbur Mills that we did not need to reverse this fiscal stimulus in 1966.

Bruce also writes:

In essence, the JEC’s 1980 report took supply-side economics from the fringe and made it part of the mainstream of economic and political thinking. It made it easier for establishment Republican economists like Alan Greenspan and Herb Stein to support Ronald Reagan’s proposed tax cuts, despite their qualms about the deficit. And it had a lasting impact even among Democrats. Long after Reagan’s victory, liberal congressman Henry Reuss (D., Wisc.), who succeeded Bentsen as JEC chairman, told the New York Times, “We have learned from our mistakes in the past. We’ve given up blind pursuit of Keynesian demand acceleration.”

Has Bruce forgotten about the 1982 recession and the chain of events that led up to it? The Federal Reserve viewed Reagan’s 1981 fiscal stimulus as excessive and renewed its monetary restraint to offset it. The goal was to do what the Federal Reserve started to do back in 1966 – let tight money reduce investment demand to offset the increase in the sum of consumption and government purchases. There was a difference, however. In the late 1960’s, the Federal Reserve did not stick to its guns, while in 1982, the monetary restraint was carried out sort of like the Powell Doctrine – with overwhelming force.

Supply-siders should learn from their mistakes – and refrain from trying to blame Keynesians for the poor advice that Norman Ture gave to Wilbur Mills.

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Does FISA Violate the Constitution?

Via Bush excuse maker extraordinaire Andrew McCarthy comes a brief from the Washington Legal Foundation:

Any interpretation of the Foreign Intelligence Surveillance Act (FISA), as applied to the precise facts and circumstances of the NSA Program (which cannot be determined on the present record), that would impair the President’s ability to carry out his constitutional responsibilities, would render FISA itself unconstitutional under the separation-of-powers doctrine. FISA could not, under such circumstances, constitutionally prevent the President from carrying out the NSA Program to collect foreign intelligence to prevent future terrorist attacks on our country.

The ACLU is challenging the Administration’s end-run of FISA, while the Washington Legal Foundation wants to defend the Administration. I don’t pretend to be a legal scholar but this argument (which we had to wade through almost four pages of puffery to get to) strikes me as self-defeating. The reason goes to something this brief said earlier (OK – not all of the first 3 plus pages constituted puffery as some of appears to be just spin):

Given the obvious and overriding concern about impending future attacks, and the ongoing threats by al Qaeda to strike at America and its citizens again, both here and abroad, the President authorized the National Security Agency (“NSA”) to “intercept international communications into and out of the United States of persons linked to al Qaeda or related terrorist organizations.” DOJ Memo, supra note 2, at 5 (emphasis added). Amicus henceforth will refer to this activity, further described below, as the “NSA Program.” In order to intercept international communications under the NSA Program, the government must have “a reasonable basis to conclude that one party to the communication is a member of al Qaeda, affiliated with al Qaeda, or a member of an organization affiliated with al Qaeda.”

So if the only thing the NSA wanted to do was to tap international calls that we had probable cause to believe were to or from a member of al Qaeda, the FISA Court would have granted a warrant in a New York minute. In other words, FISA would not prevent the Administration from carrying out its constitutional responsibilities. In a word – this brief strikes me as absurd on its face. But I’m not a Constitutional scholar – so those of you who may be – feel free to comment.

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Public Funding of Preschool Education

The National Review wants to 86 California’s Proposition 82, which they note is a a June 6 ballot referendum seeking to create a statewide universal-preschool program:

Proposition 82 proposes that California provide free preschool for any four-year-old whose parents request it. This generosity is expected to cost over $2 billion per year, to be extracted through an income-tax hike on individuals making over $400,000 annually … Around 65 percent of California’s four-year-olds already attend preschool. The goal of Proposition 82 is to enroll 70 percent of the state’s four-year-olds in the public-preschool program, while an additional 10 percent or so would attend private preschools. So why the huge cost for such a marginal increase in enrollment? Part of the reason is that Proposition 82 is not at all targeted to help those most in need. In fact, the plan is the opposite of targeted: It is blind, bloated, and indiscriminate. According to a study done by California’s former legislative analyst William Hamm, now a managing director with the independent consulting firm LECG, 75 percent of the massive universal-preschool budget would go to families who would send their children to preschool anyway, without the help of the program. Almost 25 percent of the program’s funding—more than $500 million—would subsidize families making over $100,000 a year. Only 8.4 percent of the budget would be spent on high-risk children who otherwise wouldn’t attend preschool. So Proposition 82 would create a massive state bureaucracy to provide a universal service that the vast majority of affected Californians already can—and already do—provide for themselves. Even if you saw nothing intrinsically wrong with targeting a tiny segment of private citizens for a $2 billion earned-income tax hit, this is a fiscal boondoggle. On top of its wastefulness, Proposition 82 would create a set of expensive and nonsensical requirements for California’s preschool teachers.

Odd – William Hamm did not say this program was wasteful. In fact, he has not said whether he was in favor of it or against it. The folks at RAND argue:

There is increased interest in California and other states in providing universal access to publicly funded high-quality preschool education for one or two years prior to kindergarten entry. In considering such a program, policymakers and the public focus on the potential benefits from a universal preschool program, as well as the estimated costs. This study aims to inform such deliberations by conducting an analysis of the economic returns from investing in preschool education in the state of California. The benefit-cost analysis undertaken in this study indicates that there can be positive returns for California society from investing in a one-year high-quality universal preschool program. The authors’ baseline estimate, which is arguably conservative, is that every dollar invested by the public sector beyond current spending will generate $2.62 in returns.

I’m glad the National Review is not disputing the benefits from preschool education and I welcome the debate as to how best to fund it. After all – our governor pretends we can have better education without raising taxes.

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New Treasury Secretary

President Bush did not pick my candidate. He did pick Henry Paulson:

There had been speculation in the press, including a Saturday report in the New York Times, that Paulson wasn’t interested in taking the job because of the limited role that Snow and his predecessor, Paul O’Neill, had in shaping administration policy … “I think getting Paulson is a bit of a coup for the Bush administration,” said Jeoff Hall, the chief U.S. economist for Thomson Financial. “You’ve got enough academics at the Fed right now. You need someone with a little Wall Street credibility.”

Paulson’s credibility will be destroyed if his only role is to sell the false notion that we can have permanent tax cuts without massively reducing Federal spending. I hope Paulson will have a substantive policy role and that he pushes for fiscal sanity.

Update: Just as I was posting, the President came out to introduce Mr. Paulson and to thank Dr. Snow – with the latter continuing to prostitute himself:

That surge in government receipts, along with the strict control on spending that you’ve advocated, are putting us on a path to not only meet your deficit reduction target, but to do so ahead of schedule.

Tax revenues have surged under President Bush while spending has been under strict control. That’s good to know as I’m sure glad we still have Federal surpluses!

Update II: Brad DeLong appears to be more hopeful than I am as to Paulson being able to make a difference. Rich Lowry writes:

Some people guess that Paulson taking the job might mean that the position will have more heft than it has had to this point in the Bush administration and also that there may be some significant policy proposals coming eventually. He has a reputation as a very smart guy and has been a defender of the Bush tax cuts. He should pretty quickly give Bush added credibility on the economy.

If Paulson is defending these tax cuts – then prey tell, what are those “significant policy proposals” going to be: (a) serious and specific reductions in Federal spending; or (b) a decision to default on Federal obligations? I guess “eventually” means after the November 2006 elections.

Update III: Kevin Hassett writes:

So if Snow does depart next month, I, for one, will be very sorry to see him go. When history hands down its marks for Bush administration officials, Snow will be one of the few to have deserved an A.

Talk about grade inflation!

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Swift Boat II: Jonah Goldberg as a Geographical Genius

Did Jonah Goldberg bore even himself with those pointless attacks on Al Gore? It seems he is now pointing to a redux of the Swift Boat Liars leading with some long-winded nonsense from Tom Maguire. The geography lesson from Confederate Yankee cracked me up:

John Kerry did not take anyone into Cambodia from his swift boat based at Ha Tien. The navigable Giang Thanh River runs near the Cambodian border, but at no point does it ever cross.

But look at Confederate Yankee’s own map – there are rivers that flow off the Giang Thanh that do cross into Cambodia.

Confederate Yankee did reply to my comment with a portion of the cited in the source that described part of the logistics. His devastating evidence is that Lt. Kerry did not mention entering another body of water. As Confederate Yankee stated – Kerry may not have had a map. Confederate Yankee also notes there were rivers to the east. Maybe he should check his own map – as there were rivers to the west as well.

But ask let’s brave soldier Jonah Goldberg if he ever ventured out in the jungles of Indochina along with Lt. Kerry. Maybe he might be able to settle this geographical dispute with his personal knowledge from the battlefield

Update: The August 15, 2004 article by Scott Canon may be a little help here:

Yet the Kerry campaign said it was far from rare for American forces to pursue Viet Cong over the border. “Swift Boat crews regularly operated along the Cambodian border from Ha Tien on the Gulf of Thailand to the rivers of the Mekong south and west of Saigon,” Michael Meehan, a senior adviser in the Kerry campaign, said Friday. “Boats often received fire from enemy taking sanctuary across the border. Kerry’s was not the only United States riverboat to respond, inadvertently or responsibly, across the border.” “Many times he was on or near the Cambodian border and on one occasion crossed into Cambodia at the request of members of a special operations group operating out of Ha Tien” on the Gulf of Thailand, Meehan said in his statement.

Confederate Yankee traces through the details of one trip up the Ha Tien where he notes Lt. Kerry’s boat went near the border. Kerry’s account seems to be consistent with that for some of his missions – but there were many such missions. If on any one such mission – Kerry’s crew crossed into Cambodia – he told the truth. But don’t expect Confederate Yankee to even acknowledge as much.

In addition, note that John O’Neill claimed he took the boat that Kerry used to command (before O’Neill did) into Cambodia. I guess Confederate Yankee will have some magic explanation as to how O’Neill is a better sailor than Kerry.

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Real Compensation in the Construction Sector

Dean Baker reads Stephen P. Gennett – president of the Carolinas chapter of the Associated General Contractors of America – arguing for more immigration on the grounds that there is a labor shortage in the commercial building sector. Dean reviews the data from the Bureau of Labor Statistics and writes:

inflation adjusted wages for construction workers have actually fallen about 5 percent since 1980, a period in which productivity has increased by more than 70 percent. So, we have wages falling in spite of a labor shortage – not where I learned my economics.

Now you might be thinking – what about total compensation which includes fringe benefits? Or – what has happened in the last couple of years. Checking the Employer Cost for Employee Compensation data for the construction sector, we see that nominal wages were $18.47 per hour two years ago and are $191.19 per hour now – a 3.9% increase. Fringe benefits rose from $8.57 per hour to $9.37 per hour over the same period – a 9.3% increase. Total compensation therefore rose from $27.05 per hour to $28.65 per hour – a 5.9% increase in nominal compensation. The consumer price index over the past two years has increased by 6.6%. Even when we include fringe benefits, real compensation in this sector has declined over the past two years. This does not sound like a shortage to me.

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Homer Simpson for Treasury Secretary

Mark Thoma has a nice idea in his Correlation is Not Causation: Bush, Spending, Tax Cuts, and Deficits:

I’m hoping to do more examples of “correlation does not imply causation,” so if you come across examples of spurious correlation

Given that Kash pointed to my ice cream as medicine example, I’ll return the favor by pointing to his mow the grass example. After all, it is the Memorial Day extended weekend.

Mark draws from the Simpsons:

Homer: Not a bear in sight. The “Bear Patrol” is working like a charm!
Lisa: That’s specious reasoning, Dad.
Homer: [uncomprehendingly] Thanks, honey.
Lisa: By your logic, I could claim that this rock keeps tigers away.
Homer: Hmm. How does it work?
Lisa: It doesn’t work; it’s just a stupid rock!
Homer: Uh-huh.
Lisa: But I don’t see any tigers around, do you?
Homer: (pause) Lisa, I want to buy your rock.

Wasn’t it Homer Simpson that got excited about a $5 tax rebate as he failed to understand the looming deferred tax liability brought to him by the large tax shifts (not cuts) that favor the well to do? President Bush is looking for a new Treasury Secretary to market his fiscal policies. I can’t think of a better candidate than Homer Simpson.

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Greed Is Good

Lawrence Kudlow will use any excuse to falsely claim that Reagan’s fiscal stimulus increased long-term growth. His latest uses the convictions of Ken Lay and Jeff Skilling as the backdrop to write:

Capitalism in this country has been under assault ever since FDR’s New Deal 1930s, a time when a number of alphabet agencies attempted to control America’s industrial and farming sectors. The experiment soon proved a dismal failure, with unemployment running 20 to 25 percent up until WWII. It was only when Roosevelt started unleashing businesses to produce wartime goods that the economy ultimately resurrected. Still, the American welfare state would grow. In the 1960s and 1970s, the murderer’s row of economic morons – LBJ, Nixon, Ford, and Carter – in allegiance with their liberal Keynesian advisors, concocted a socialist policy mix that ultimately led to wealth-destroying big-government stagflation. Providentially, Ronald Reagan changed all that in the 1980s. The Gipper slashed tax rates, deregulated industries, and rescued the dollar, unleashing the forces of entrepreneurial capitalism. As a result, for the first time since the post-Civil War period (but for the brief Coolidge-Melon period in the 1920s), the American economic system became the envy of the world. Since the early 1980s, more than 46 million new jobs have been created, with inflation-adjusted GDP increasing $6.2 trillion, or 120 percent.

Where to begin? Real GDP in 2005 was 115% higher than it was in 1980, which translates into an average annual growth of only 3.12%. Kudlow forgets to mention that real GDP growth during Clinton’s tenure – where tax rates were increased – was 3.7%. Real GDP growth under Reagan, Bush41, and Bush43 has averaged less than 3% per year. He also fails to mention that real GDP in 1980 was 133% higher than it was in 1955 – another time span of 25 years. In other words, real GDP growth averaged 3.45% per year during a period that included those “economic morons”. And when Kudlow criticizes LBJ’s Keynesian advisors for the acceleration of inflation, he should be criticizing Norman Ture – the mentor of all free lunch supply-siders.

Kudlow should also be careful tossing around the term economic morons given his spin on whether we should go back to the “Coolidge-Melon period” that predated SEC type regulations. Kudlow would have his readers believe that the only corporate crooks in the history of time were the executives of Enron. Excuse me for saying this – but even the readers of the National Review are not that ignorant. Finally, Kudlow fails to mention the Republican President who took office in 1929 as he tries to blame the Great Depression on FDR. Ah Larry, the stock market crashed in 1929 – not 1933.

Update: Brad DeLong has more criticism of Kudlow’s insanity noting that the unemployment rate increased to 33% under Hoover’s Administration and declined during FDR’s first two terms in office. Over the 12 years that FDR served as President, real GDP increased by over 180%. Compare that to the 115% increase over the past 25 years. To be fair, we shuold really be comparing real GDP in 1954 v. real GDP in 1929 as 1933 was the bottom of the Great Depression and 1945 was the tail end of World War II. OK, real GDP grew by 139% over this 25-year period.

Brad adds:

As I’ve said before, the country is full with lots of excellent, thoughtful right-wing economists who would love to write for National Review.

Thoughtful economists might be better described as conservative rather than right-wing. With that said, John Stuart Mill’s March 1866 letter to Sir John Pakington may apply:

I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.

No one can deny two propositions: (1) there are many smart conservative economists; and (2) not one of them write for the National Review – at least on a regular basis.

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