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

How Do You Decide on a New Constitution?

It’s not easy. Just take a look at what the EU is going through this weekend as they try to write their first Europe-wide constitution. The biggest issue is how much representation in the Council of Ministers to give to each country. They have to be careful to set it up right, or they could end up with a system that’s not very representative… maybe even one that allows a minority of population to control policy-making, or even elect the EU’s leaders…

Kash

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Into the Breach Again I Go…

Fight it… Fight it… No… Can’t… Resist… Must… Bring up… Trade… Again…

It’s not my fault. Blame Brad DeLong. He put up a provocative post yesterday about this week’s Economist piece (subscription required) on white collar jobs in the US being outsourced to places like India. DeLong’s point is that The Economist goofed. He says:

The fact that trade balances–that dollars paid to Indian call-center workers show up as demand for American exports or as funding for investments in America*–means that the Economist is doing a bad thing when it talks about “job loss” rather than “job shift.” Bad Economist! Go lie down now!! No biscuit for you!!!

Needless to say, Brad’s post has generated a storm of comments, many of which are intelligent, articulate, and almost all of which I’ve enjoyed reading. Numerous commenters raised the issue of the job losses that the IT sector in the US has experienced over the past 2 or 3 years. There are dozens of comments along this line, but I’ll reproduce one particularly persuasive comment by a contributor named Camille Roy to give you the flavor:

Dear Mr DeLong,

Love your blog, but this is bogus. In fact the stream of consciousness in this thread, in so far as it characterizes these out sourced jobs as low-skill jobs we may be better off without, is bogus. (The ivory tower mentality reflects poorly on your profession.) I am speaking from the line of fire, as a silicon valley software engineer with over a decade of advanced lab experience in the best companies in the valley. I know what’s going on and it is ugly. The wages dropping like a stone etc, etc. I know the companies around here are sending work off-shore as fast as they can and I know that there are very few replacement jobs. Job losses here are around 300K and there is nothing on the horizon for these highly trained unemployed.

I am completely sympathetic to the feelings and fears behind these types of comments. It is true that jobs have dramatically disappeared in Silicon Valley. And it is truly awful for those who lost jobs, or can’t find jobs.

I would like to pose two questions in response to these concerns.

First, how can one tell that outsourcing is responsible for recent job losses in IT? I would argue that nearly all of those job losses are due to the end of the massive internet technology bubble of the late 1990s, coupled with the general job market recession. In other words, I bet that job losses would be about the same in the industry if no new jobs had been created in India.

My second question is related: If outsourcing is responsible for the loss of jobs in IT, then what explains the job losses in other industries? Many have argued that manufacturing jobs have also disappeared because of international trade. But jobs have also disappeared in industries that face no international competition, such as transportation and retail trade.

The table below shows the percent change in total employment, given by the BLS, between September 2000 and September 2003. Jobs that face no international competition, such as courier services, rail transportation, and various wholesalers, have disappeared just as fast as (or faster than) jobs in software publishing, accounting, and research and development, which are supposed to be the major victims of outsourcing.

What explains this? It’s simple: the state of the economy is the reason for the loss of jobs in the US, not international trade.

As I argued at length a few weeks ago, the process of losing jobs to international competition is no different from the process of losing jobs to technological advances. They both cause pain and hardship for some people, and benefits for others. Why treat international trade any differently from technological progress? If you’re worried about the state of the job market in the US, then you should focus on the state of the economy, and the competence of the people running it. Don’t worry about international trade — it’s a red herring.

Let me end this post with another comment from DeLong’s post, by a contributor named Bulent Sayin:

Suppose, just suppose, that these whatchamacallit “call center” operations did not go offshore, instead, they were completely automated.

I mean suppose these call center jobs were lost to software, not to workers in India, with exactly the same effects on American call center workers. (If it is going to make you happy, assume that the conputers hosting that software is located in US; but that won’t make helluva difference, I can tell you.)

What would you say to that?

More importantly, what would you do about it?

Kash

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Uncompetitive and Unmonitored

Josh Marshall has a lovely follow up to Kash’s earlier post on the likely impact of the administration reducing competition for reconstruction contracts in Iraq (illustrative example of this effect: importing gasoline from Kuwait costs $2.64/gallon). Here’s the news from Marshall:

When Congress voted the $87 billion for military expenditures and reconstruction in Iraq they were keen to create an office of Inspector General at the Coalition Provisional Authority (CPA) to watch out for all manner of waste, fraud, abuse, price gouging and various other shenanigans.

Now it seems that Paul Wolfowitz has gutted that provision. …

I still try to picture Wolfowitz as a misguided idealogue, but damn it if he doesn’t make it tough to see him as anything other than a naked shill for war profiteers.

AB

UPDATE: Wolfowitz must have been anticipating this morning’s NYT, which alleges more attempted profiteering:

Kellogg, Brown & Root, also submitted a proposal for cafeteria services that seemed to be inflated by $67 million, the officials said. The Pentagon rejected that proposal, they said.

The problems involving Halliburton, where Vice President Dick Cheney was chief executive, were described in a preliminary report by auditors, the officials said. The Pentagon contracts were awarded without competitive bidding and have a potential value of $15.6 billion; recent estimates by the Army have put the current value of the Halliburton contracts at about $5 billion.

The solution to inflated bids? More competition? No. Less auditors!

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Medicare, continued

Reader and commenter Greg refers me to this important story on Medicare in the Boston Globe. It’s an oped by two professors, Jacob S. Hacker, assistant professor of political science at Yale and Theodore R. Marmor, professor at Yale School of Management. There’s a lot of good stuff in the piece, some of which I’ve touched on already, but there’s one little piece that I hadn’t heard about until now:

In a relatively unnoticed provision that wasn’t in either the original House or Senate legislation, the bill creates a new standard for Medicare “insolvency.” It would define the program as insolvent whenever, in two consecutive years, more than 45 percent of its spending comes from general income tax revenues (not incidentally, the most progressive source of Medicare financing) rather than payroll taxes and premiums. When this ceiling is hit, which is likely to happen sometime in the next decade, the law will require the president to propose spending cuts and tax increases within the program.

What this provision means is that if premiums do not cover 55% of the costs of the programs, then the president has to cut benefits or increase payroll taxes (which are a flat 2.9%), rather than income taxes (which are progressive). And the adverse selection problem seems almost certain to ensure that enrollees’ premiums do not cover 55% of the costs.

AB

P.S. All of these posts are not intended to endorse a broad and generous Medicare drug benefit. In fact, my feelings about this issue are quite mixed. I’m in favor of coverage for poor seniors (as measured by wealth, not income) and even catastrophic coverage for most seniors, but there are a number of other social programs that may deserve even more attention. For instance, education and health care for children. What I am definitely opposed to is the media systematically overstating the benefits and understating the costs of the plan (Hint: if it truly is fantastic, then why delay implementation untill after the 2004 election?)

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Best Lefty Blogs

Wampum is now taking nominations for the “Koufax Awards,” a set of awards for various outstanding achievements in the field of excellence by lefty blogs. In most of the categories, the competition is likely to be fierce (but friendly).

  • Best Blog: Likely to be a close race between Atrios, Marshall, CalPundit, and Kos.
  • Best Writing: Looks like Dave Neiwert will start with a slight edge, but Jeane DÂ’Arc and Digby are right on his tail.
  • Best Post: This one is tough, I’ll have to ponder it for a while. A number of people have nominated Orcinus’ The Political and the Personal for Best Post, which truly is a great post and shows why Dave belongs in the “Best Writing” category.
  • Best Series: You guessed it, Dave Neiwert’s is again a top contender; this time for his Rush, Newspeak, and Fascism series. Deltoid’s merciless dismantling of the fraudulent John Lott is another popular nominee (and Dave can’t win everything, can he?) Charles Kuffner’s coverage of the Texas Redistricting Boondoggle was also impressive. Finally, there’s Slacktivist’s ongoing heroic effort to read, analyzye, and blog the disturbing bestseller, Left Behind–so you don’t have to.
  • Best Single Issue Blog: I’m assuming that “politics” doesn’t count as a single issue, because all the nominees are political blogs. But if by single issue they mean, for example, “Law” then Mark Kleiman is a good candidate, as is last year’s winner Jeralyn Merritt. Hmm, I wonder if two economists blogging about politics and economics counts as a single issue blog?
  • Best Group Blog: This is the only category where there’s little doubt over the outcome. Crooked Timber wins by a mile.
  • Most Humorous Blog: I don’t really read blogs that are just humor, all the time. But TBogg and Roger Ailes consistently crack me up. So does Jesse.
  • Most Humorous Post. Those with very short memories have an easy decision, Atrios’ Preznit Giv Me Turkee. But if you think back to October when Luskin had his lawyer send a threatening letter to Atrios, the decision becomes much more difficult. The Poor Man’s parody of that letter (“…tricksyness in the first degree, and we hates you”) is a hilarious classic.
  • Best Design: Ampersand won last year. Blah3 seems to be giving Barry some competition this time around.
  • Best New Blog: I don’t remember whether they qualify (the first post must be on or after 7/1/03), but 18 Minute Gap and Suburban Guerilla are strong contenders. Ruy Teixeira may prove even stronger. Ruy T. would also be strong in a most difficult to spell category.
  • Best Special Effects: Uggabugga looks like this year’s strongest contender–it’s the go-to blog for great graphs and figures. (Speaking of which, if you haven’t ever taken a look at the Four Views of the Red/Blue states maps to your left, give it a click.)

The nominations are open throughout December and the voting starts in January.

AB

P.S. Where’s the “most charts and graphs” category?

P.P.S. Every time I hit “Publish” I remember one more great blog or post that I forgot to mention. You can corrrect my omissions in comments here or at Wampum.

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Real or Parody?

I really can’t tell. Read No More Mr. Nice Blog’s for an (alleged) exchange between Tim Russert and Hillary Clinton on the subject of her being the nominee and see if you can tell whether it’s a parody or if Russert is that much of a moron.

AB

P.S. Sure, I could go to msnbc.com and find the transcript, but that would take the fun out of it.

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Thoughts on Campaign Finance

I used to be a huge supporter of campaign finance reform. I love the ideal of reducing the influence of money in politics, and the unseemly quid pro quos that it engenders. But I’m starting to wonder.

So far, the efforts to temper the importance of money in the political process have primarily addressed the source of money. The campaign finance law upheld yesterday by the Supreme Court, for example, is chiefly significant for its ban on soft money contributions, which had no legal limit and were thus generally enormous.

But, as the LA Times notes today, the law will probably have minimal effect in reducing the importance of money in politics. They’re right.

The law wiped out a vast source of unregulated funding, known as “soft money,” that became a subject of scandal in the 1990s as corporations, unions and wealthy individuals wrote large checks to political parties. But as opponents of the law predicted, much of that money is finding its way back into the political system through other means.

“This law will not remove one dime from politics,” said Sen. Mitch McConnell (R-Ky.), the law’s leading congressional opponent. “Outside special interest groups have become the modern-day political parties. Soft money is not gone — it has just changed its address.”

I can’t believe I’m saying this, but I have to agree with McConnell on this one. (Just goes to show that this universe is indeed big enough that everything happens at least once.)

I think that our efforts to date to limit the influence of money in politics have been very much like our efforts to reduce the amount of illegal drugs consumed in the US. This campaign finance law almost exclusively addresses the supply of money, just as the “war on drugs” tries to reduce the supply of drugs. As in the drug issue, however, trying to limit supply but not demand will do very little to the overall quantity consumed, because the supply is virtually perfectly elastic. For all practical purposes there’s an infinite supply of both drugs and political money.

As one piece of evidence simply take a look at the quantity of money that will be raised and spent in the 2004 election cycle. It will be far greater than the amount raised in 2000, despite the campaign finance reform. I doubt the reform has even dented the rate of growth.

There’s only one way to reduce equilibrium quantity when supply is infinitely elastic – reduce demand. So to reduce the influence of money in politics, I’m convinced that we will have to directly address the demand for money. Since the lion’s share of political money is spent to buy TV ads, I would argue that the only solution is to start limiting the quantity and/or timing of TV ads that candidates can run. Do that, and you have huge and meaningful campaign finance reform, because you’ll be cutting the demand for political money.

First amendment problems? Sure – huge ones. Which is why I don’t see it happening without a constitutional amendment, which means it will probably never happen in my lifetime. Which is also why I was basically agnostic on the Supreme Court’s decision on campaign finance reform. Neither decision would have made a difference to the amount of money in politics.

Kash

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Be Famous!

Not really, but you can be famous for fifteen minutes, or more accurately, famous for fifteen people. For various vacation and job-related reasons, Kash will be posting rarely from around 12/25 to 1/8 and I won’t be able to post much during the first week in January. But you can.

My first guest-blogging experiment was a smashing success (it brought Kash to the blog), so bringing in a guest-blogger or two seems like a much better idea than going on hiatus. If you’re interested, email me a sample post. Regardless of who wins, I’ll definitely post every reasonable entry (perhaps with some editing), so there’s nothing to lose.

There are few requirements. An interest in economics is important but a Ph.D is not. Acceptable political views range from a bit right of Nader to John McCain, which probably encompasses at least 70% of the population. And it’s definitely open to people with their own blogs. In fact, it’s probably a great way for a new blog to gain a modest amount of exposure.

AB

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If You Thought Ari Fleischer Was Good

Susan, in her run-down of the candidates, has an idea for an even better press secretary, though I’d replace “Dean” with “any Democratic President”:

Al Sharpton. Rev, I like your style. I really do. But I wish you’d answer questions directly, it’s really annoying. However, my fondest wish would be to see you as White House press secretary under President Dean’s first administration.

AB

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A New Transfer from US Taxpayers to Corporate America

This newly announced transfer is more subtle than some of the Bush administration’s many, many actions that have transferred wealth from US taxpayers to a few select corporations – and thus to those few individuals who own and run them – but it’s a transfer nonetheless.

What am I referring to? I’m referring to the Bush administration’s announcement that firms from Canada, France, Germany, Russia, and other war-opposers are not allowed to bid for the $19bn in Iraq reconstruction contracts. The result of such a ban will be to reduce the competition that the various contracts will be subject to. And when competition is reduced, prices almost always go up. A perfect example of what happens when contracts are awarded with less-than-full competition can be found in today’s NYTimes:

The United States government is paying the Halliburton Company an average of $2.64 a gallon to import gasoline and other fuel to Iraq from Kuwait, more than twice what others are paying to truck in Kuwaiti fuel, government documents show…

A company’s profits on the transport and sale of gasoline are usually razor-thin, with companies losing contracts if they overbid by half a penny a gallon. Independent experts who reviewed Halliburton’s percentage of its gas importation contract said the company’s 26-cent charge per gallon of gas from Kuwait appeared to be extremely high.

Less competition (and Halliburton faced none in receiving its contract), higher prices.

But who pays these higher prices? Naturally, the US taxpayer. Nearly all of the money for Iraq’s reconstruction is coming from US taxpayers, as we all know. And where does the extra money go? In this case, Halliburton will earn increased profits, most of which will probably go to its executives and largest shareholders.

With the Bush administration’s newly announced rules regarding bidding for future reconstruction contracts, we can be sure that the winners of future contracts to rebuild Iraq will also face less competition, charge higher prices, earn higher profits, and accomplish less than they would have if they had faced full international competition. Of course, some bids may still face competition, either between competing US firms, or with firms from the other members of the coalition such as the UK, Micronesia, or Albania. But many contracts will doubtless face less competition than they would have otherwise.

That’s why these new rules mean that US taxpayers will have to pay more money to get less rebuilding done in Iraq — and the difference will end up as increased profits for a few big American corporations. As AB put it yesterday in his excellent analysis of Medicare reform, I will leave it as an excercise for the reader to figure out which US firms will gain the most.

Kash

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