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

The John and Cindy McCain Foundation

I’ve had a few posts over the years about how what we consider to be charitable contributions often are not charitable contributions… instead, they’re ways of getting a tax write-off for paying for expenditures that one would have paid for anyway. For instance, if you have a child that likes to play basketball, in many places you have an option of paying for membership in a private club that hosts an after-school or summer basketball league, or tithing to your church which hosts an after-school or summer basketball league. The only difference between the former and the latter is the tax write-off.

Via Tbogg, this article in Harper’s that shows John McCain has discovered a similar principal:

The charitable contributions of Barack Obama and Hillary Clinton have received a fair amount of press scrutiny. The same is not true of John McCain, which is somewhat surprising since he is essentially the sole donor to the John and Cindy McCain Foundation, and his wife is its chairman and president.

Between 2001 and 2006, McCain contributed roughly $950,000 to the foundation. That accounted for all of its listed income other than for $100 that came from an anonymous donor. During that same period, the McCain foundation made contributions of roughly $1.6 million. More than $500,000 went to his kids’ private schools, most of which was donated when his children were attending those institutions. So McCain apparently received major tax deductions for supporting elite schools attended by his children.

McCain has net assets of between $20 million and $32 million, making him the seventh wealthiest member of the Senate. His wealth is tied to Cindy Hensley McCain, his second wife and heiress to Hensley & Co., a major Anheuser-Busch distributor.

McCain has four children with Cindy, all of whom attended prep schools in Arizona. Meghan McCain, McCain’s eldest child from his current marriage, went to Xavier College Preparatory. McCain’s foundation has given about $50,000 to the school, mostly during Meghan’s years there. Donations to Xavier have dropped off since Meghan graduated (in 2003 or 2004) and went on to Columbia University. For 2006, the foundation cut Xavier a check for just $250.

McCain has two sons, Jim, who is now a private in the Marines, and Jack, who is attending the Naval Academy in Annapolis. Both previously attended Brophy College Prep in Phoenix, which received at least $267,000 from the senator’s foundation during the years that his sons were there.

The McCain foundation also donated money–roughly $128,000–to Christ Lutheran School, which the McCain’s 15-year-old adopted daughter, Bridget, and their son Jim both attended. In 2001, the foundation also donated $41,667 to the Phoenix Country Day School, another elite prep school where both Meghan and Jack had been students.

Collectively, McCain’s kids’ private schools rank as the largest recipient of his foundation’s money. The largest individual recipient is the U.S. Naval Academy Foundation, which received $210,000 in both 2001 and 2002. That money was earmarked for conferences that “bring together key military officers and civilian academics responsible for ethics education and character developments.”

Basically, if this article is accurate, McCain’s charity went toward improving his kid’s education. And I can’t imagine that donations to the Naval Academy hurt his son’s military career either. Which is all fine and good, and of course, other kids benefited from those donations as well. But its not charity when a donation is intended to benefit yourself and your family, even if others benefit incidentally.

And one shouldn’t be allowed to write this stuff off. For one thing, it could lead to abuses. Consider this… sooner or later, it will occur to a donor or a school (assuming it hasn’t already), that a tax deductible “charitable” donation can be exchanged for tuition.

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Science and regulation

The Union of Concerned Scientists has just published a paper on science and governmental regulatory bodies and policy advisory panels.

The United States has enjoyed prosperity and health in large part because of its strong and sustained commitment to independent science. As the nation facesnew challenges at home and growing competitiveness abroad, the need for a robust federal scientific enterprise remains critical. Unfortunately,an epidemic of political interference in federal science threatens this legacy, promising serious and wide-ranging consequences.Political interference in science has penetrated deeply into the culture and practices of federal agencies. These systemic problems cannot be resolved quickly or simply. Leadership and an unwavering commitment to scientific integrity from our next president, continued oversight from the legislative branch, and the persistent and energetic engagement of many different stakeholders are critical. The balance of poweramong the three branches of government should be restored, to enable each to playits part in keeping science independent.This interference in science threatens ournation’s ability to respond to complex challenges to public health, the environment, and national security. It risks demoralizing the federal scientific workforce and raises the possibility of lastingharm to the federal scientific enterprise. Most important, it betrays public trust in our government and undermines the democratic principles upon which this nation was founded.

Update: MG sends additional links here and here.

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Thomas Sowell Should Not Become a Weather Man

Thomas Sowell writes:

It has almost become something of a joke when some “global warming” conference has to be cancelled because of a snowstorm or bitterly cold weather.

His context?

A new and very different conference on global warming will be held in New York City, under the sponsorship of the Heartland Institute, on March 2nd to March 4th – weather permitting. It is called an “International Conference on Climate Change” that will examine the question “Global Warming: Crisis or Scam?”

Having moved here three months ago – let me assure you that this NYC winter has been remarkably mild. And I just checked accuweather for zip code 10001. The highs will be near 50 degrees each day.

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Changes in Economic Conditions in Online Games

I confess I’m not as hip as my on-line persona might lead you to believe. So I probably am not fully appreciate the following message sent to me by Walker White which I edited very slightly:

The game Eve Online has a major virtual economy, and many of the players form corporations to handle space exploration, mining, and manufacturing. So, in August, they hired a economics professor to be their “Alan Greenspan”. He measures CPI and markets in the game, so that the game designers can institute virtual monetary policy. The PDF above is the latest quarterly report where he tries to address the debate about whether or not inflation exists in Eve Online.

How do you handle monetary policy in a game? In Eve, there is no loan system (though they are thinking about inserting one), so monetary policy consists of making minerals scare or more plentiful, or changing the powers of in-game objects, thus changing how players value them. For example, this PDF has a graph showing how changing the range of cruise missiles in the game affected their prices.

(Note from cactus… I believe this is the graph to which he alludes.)

Dr. Gumundsson gave an interesting talk at GDC last week, where he outlined some of the differences between virtual world goods and regular goods (e.g. homogeneous quality, lack of depreciation from use) and how this affected his design of the GUP (gross user product). I hope that he will eventually post these slides online.

I’ve heard about various economic issues associated with some of the on-line games. I wonder how useful they’ll turn out to be as sources of economic experiments.

Updates…

1. BTW, the pictures in the linked PDF file are gorgeous.
2. Walker adds in comments:

I have heard from sources in the industry that their is evidence of money laundering through World of Warcraft. Use real world assests to by in-game assets, exchange assets using the in-game economy, and then cash out.

Clearly the world is getting more complicated.

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Self-Fulfilling Expectations on Wine, Not on the Economy

A quick follow-up to my post about people’s tendencies to confirm their own expectations

Given that Republicans bill themselves as the Party of Economic Growth, and that many people seem to believe that billing, why do we generally see slower real GDP per capita growth under Republican administrations?

Put another way… why are expectations about the quality of wine self-fulfilling, but expectations about the economy not self-fulfilling?

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Expectations

Via Arts & Letters Daily, a story about Grape Expectations:

SCIENTISTS AT CALTECH and Stanford recently published the results of a peculiar wine tasting. They provided people with cabernet sauvignons at various price points, with bottles ranging from $5 to $90. Although the tasters were told that all the wines were different, the scientists were in fact presenting the same wines at different prices.

The subjects consistently reported that the more expensive wines tasted better, even when they were actually identical to cheaper wines.

The experiment was even more unusual because it was conducted inside a scanner – the drinks were sipped via a network of plastic tubes – that allowed the scientists to see how the subjects’ brains responded to each wine. When subjects were told they were getting a more expensive wine, they observed more activity in a part of the brain known to be involved in our experience of pleasure.

What they saw was the power of expectations. People expect expensive wines to taste better, and then their brains literally make it so. Wine lovers shouldn’t feel singled out: Antonio Rangel, the Caltech neuroeconomist who led the study, insists that he could have used a variety of items to get similar results, from bottled water to modern art.

The article also looks at other experiments…

Baba Shiv, a neuroeconomist at Stanford, supplied people with an “energy” drink containing a potent brew of sugar and caffeine. Some participants paid full price for the drinks, while others were offered a discount. The participants were then asked to solve a series of word puzzles. To Shiv’s surprise, the people who paid discounted prices consistently solved fewer puzzles than the people who paid full price for the drinks, even though the drinks were identical.

“We ran the study again and again, not sure if what we got had happened by chance,” Shiv says. “But every time we ran it we got the same results.”

Why did the cheaper energy drink prove less effective? According to Shiv, a kind of placebo effect is at work. Since we expect cheaper goods to be less effective, they generally are less effective, even if they are identical to more expensive products. This is why brand-name aspirin works better than generic aspirin and why Coke tastes better than cheaper colas, even if most consumers can’t tell the difference in blind taste tests.

“We have these general beliefs about the world – for example, that cheaper products are of lower quality – and they translate into specific expectations about specific products,” said Shiv.

One of the implications of Shiv’s experiment is that it’s possible to make a product more “effective” by increasing its price. A good marketing campaign can have a similar effect, as it instills consumers with lofty expectations about the quality of the product. For instance, Shiv cites research showing that cars made in the same factory, with the same parts, but sold under different brand names (such as Toyota and Geo) receive markedly different reliability ratings from consumers. When we drive a car with a less exalted brand name, we are more likely to notice minor mechanical problems.

Expectations can even play havoc with experts. A few years ago, Frederic Brochet, a cognitive psychologist at the University of Bordeaux, conducted a rather mischievous experiment. He invited 54 experienced wine tasters to give their impressions of a red wine and a white wine. Not surprisingly, the experts described the wines with the standard set of adjectives: the red wine was “jammy” and full of “crushed red fruit.” The white wine, meanwhile, tasted of lemon, peaches, and honey. The next day, Brochet invited the wine experts back for another tasting. This time, however, he dyed the white wine with red food coloring, so that it looked as if they were tasting two red wines. The trick worked. The experts described the dyed white wine with the language typically used to describe red wines. The peaches and honey tasted like black currants.

Back to the grapes…

After the researchers finished their brain imaging, they asked the subjects to taste the five different wines again, only this time the scientists didn’t provide any price information. Although the subjects had just listed the $90 wine as the most pleasant, they now completely reversed their preferences. When the tasting was truly blind, when the subjects were no longer biased by their expectations, the cheapest wine got the highest ratings. It wasn’t fancy, but it tasted the best.

Anyone find any of this surprising?

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Underestimating the Cost of the Iraq War

Peter Wilson of the Australian is really hard on those in the Bush Administration who forecasted a modest price tag for that stupid decision on March 19, 2003. Time out a second – why pick on them when you have Bill Kristol who said in 2002 that the cost of this war would be a mere 0.2% of GDP translating into a predicted price tag near $20 billion. But let’s give Peter the microphone:

The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US3trillion ($3.3 trillion) compared with the $US50-$US60-billion predicted in 2003 … Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen. The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said. The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit. “The regulators were looking the other way and money was being lent to anybody this side of a life-support system,” he said. That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said. Professor Stiglitz, an academic at the Columbia Business School and a former economic adviser to president Bill Clinton, said a further $US500 billion was going to be spent on the fighting in the next two years and that could have been used more effectively to improve the security and quality of life of Americans and the rest of the world. The money being spent on the war each week would be enough to wipe out illiteracy around the world, he said. Just a few days’ funding would be enough to provide health insurance for US children who were not covered, he said. The public had been encouraged by the White House to ignore the costs of the war because of the belief that the war would somehow pay for itself or be paid for by Iraqi oil or US allies. “When the Bush administration went to war in Iraq it obviously didn’t focus very much on the cost. Larry Lindsey, the chief economic adviser, said the cost was going to be between $US100billion and $US200 billion – and for that slight moment of quasi-honesty he was fired. “(Then defence secretary Donald) Rumsfeld responded and said ‘baloney’, and the number the administration came up with was $US50 to $US60 billion. We have calculated that the cost was more like $US3 trillion. “Three trillion is a very conservative number, the true costs are likely to be much larger than that.” Five years after the war, the US was still spending about $US50billion every three months on direct military costs, he said.

As an economist, however, I would think we should look at the benefits as well as the costs. After all, this war had revived Al Qaeda, made Iran the king of the hill in the Middle East, and made our own allies suspicious of our motives. Oh wait a second – these may not be benefits after all.

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Playing the Role of Stereotypes

There is a stereotype that Republicans care about big business but not the little guy. Here is a story of GW living up to that stereotype, courtesy of Steve Benen:

A reporter at this morning’s White House press conference asked the president an interesting question I haven’t heard Bush respond to before: “You can get the Congress to protect telecom companies from lawsuits, but then there’s no recourse for Americans who feel that they’ve been caught up in this. I know it’s not intended to spy on Americans, but in the collection process, information about everybody gets swept up and then it gets sorted. So if Americans don’t have any recourse, are you just telling them, when it comes to their privacy, to suck it up?”

Steve Benen then has this video…

And this transcript:

THE PRESIDENT: I wouldn’t put it that way, if I were you, in public. Well, you’ve been long been long enough to — anyway, yes, I — look, there’s — people who analyze the program fully understand that America’s civil liberties are well protected. There is a constant check to make sure that our civil liberties of our citizens aren’t — you know, are treated with respect. And that’s what I want, and that’s what most — all Americans want.

Now let me talk about the phone companies. You cannot expect phone companies to participate if they feel like they’re going to be sued. I mean, it is — these people are responsible for shareholders; they’re private companies. The government said to those who have alleged to have helped us that it is in our national interests and it’s legal. It’s in our national interests because we want to know who’s calling who from overseas into America. We need to know in order to protect the people.

It was legal. And now, all of a sudden, plaintiffs attorneys, class-action plaintiffs attorneys, you know — I don’t want to try to get inside their head; I suspect they see, you know, a financial gravy train — are trying to sue these companies. First, it’s unfair. It is patently unfair. And secondly, these lawsuits create doubts amongst those who will — whose help we need.

I guess you could be relaxed about all this if you didn’t think there was a true threat to the country. I know there’s a threat to the country. And the American people expect our Congress to give the professionals the tools they need to listen to foreigners who may be calling into the United States with information that could cause us great harm. So, on the one hand, the civil liberties of our citizens are guaranteed by a lot of checks in the system, scrutinized by the United States Congress.

And secondly, I cannot emphasize to you how important it is that the Congress solve this problem. The Senate has solved the problem. And people say, would you ever compromise on the issue? The Senate bill is a compromise. And there’s enough votes in the House of Representatives to pass the Senate bill. It’s a bipartisan bill. And the House leaders need to put it on the floor, let the will of the House work. In my judgment, it happens to be the will of the people, to give the professionals the tools they need to protect the country.

Long story short, GW is telling us that our civil liberties are well protected, and we should just trust him. No recourse is necessary because… he tells us no recourse is necessary.

GW has also managed to get his stereotype of a Republican attitude onto the Supreme Court, according to this story by Dana Milbank at the Washington Post (hat tip: Think Progress):

Exxon Mobil, the giant oil corporation appearing before the Supreme Court yesterday, had earned a profit of nearly $40 billion in 2006, the largest ever reported by a U.S. company — but that’s not what bothered Roberts. What bothered the chief justice was that Exxon was being ordered to pay $2.5 billion — roughly three weeks’ worth of profits — for destroying a long swath of the Alaska coastline in the largest oil spill in American history.

“So what can a corporation do to protect itself against punitive-damages awards such as this?” Roberts asked in court.

The lawyer arguing for the Alaska fishermen affected by the spill, Jeffrey Fisher, had an idea. “Well,” he said, “it can hire fit and competent people.”

The rare sound of laughter rippled through the august chamber. The chief justice did not look amused.

Perhaps, though, his consternation was misplaced. Everybody knows the wheels of justice turn slowly, but in the case of the 1989 Exxon Valdez spill, things have dragged on so long that Lady Justice’s blindness could reasonably be attributed to cataracts.

Nineteen years after the Valdez ran aground in Prince William Sound and spilled 11 million gallons of oil, the 32,000 plaintiffs — mostly fishermen, cannery workers and Native Alaskans — have received no punitive damages from Exxon.

A jury awarded them $5 billion in punitive damages — a record level, for a record disaster — and an appeals court cut that in half. Now, the Supreme Court seems inclined to deal another insult to the victims (as many as a fifth of whom have already died) by cutting the award further.

Basically, its simple. A lot of damage was done. 1,200 miles of coastline were covered with oil. Livelihoods were destroyed. Someone has to bear the burden. In theory, it can be the company that caused the damage, or it can be everyone else. So far its been everyone else. Our esteemed Supreme Court Chief Justice, and several of our other esteemed Justices apparently intend to keep it that way.

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