Tuesday, April 26, 2011

What I Read Today - Tuesday April 26, 2011

From: The New York Times

The Big Disconnect


On one level, American politics looks amazingly stable. President Obama’s approval rating is about 47 percent, and it hasn’t changed much in well over a year. Health care reform is mildly unpopular, and the public’s view hasn’t shifted much since before it was passed.

According to Pew Research Center polls, the public is evenly divided over which party can do a better job of handling foreign policy, the job situation, Social Security reform, health care reform and many other issues. It looks as if we’re back to the 50-50 stasis that has been the norm for the past few decades.

Moreover, the two parties are about to run utterly familiar political campaigns. The Democrats are going to promise to raise taxes on the rich to preserve the welfare state, just as they have since 1980. The Republicans are going to vow to cut taxes and introduce market mechanisms to reform the welfare state, just as they have since 1980.

The country is about to be offered the same two products: one from Soviet Production Facility A (the Republicans), and the other from Soviet Production Facility B (the Democrats). It will react just as it always has.

From this you could easily get the impression that American politics are trundling along as usual. But this stability is misleading. The current arrangements are stagnant but also fragile. American politics is like a boxing match atop a platform. Once you’re on the platform, everything looks normal. But when you step back, you see that the beams and pillars supporting the platform are cracking and rotting.

This cracking and rotting is originally caused by a series of structural problems that transcend any economic cycle: There are structural problems in the economy as growth slows and middle-class incomes stagnate. There are structural problems in the welfare state as baby boomers spend lavishly on themselves and impose horrendous costs on future generations. There are structural problems in energy markets as the rise of China and chronic instability in the Middle East leads to volatile gas prices. There are structural problems with immigration policy and tax policy and on and on.

As these problems have gone unaddressed, Americans have lost faith in the credibility of their political system, which is the one resource the entire regime is predicated upon. This loss of faith has contributed to a complex but dark national mood. The country is anxious, pessimistic, ashamed, helpless and defensive.

The share of Americans who say they trust government to do the right thing most of the time is scuttling along at historic lows. Approval of Congress and most other institutions has slid. Seventy percent of Americans think the country is on the wrong track, according to The New York Times/CBS News poll. Nearly two-thirds believe the nation is in decline, according to a variety of surveys.

Over the past months, we’ve seen a fascinating phenomenon. The public mood has detached from the economic cycle. In normal times, economic recoveries produce psychological recoveries. At least at the moment, that seems not to be happening.

The U.S. has experienced nine straight months of slow economic growth. The unemployment rate has fallen, and, in March, the U.S. economy added a robust 216,000 jobs. Yet the public mood is darkening, not brightening. The New York Times/CBS News poll showed a 13 percentage point increase in the number of Americans who believe things are getting worse. The Gallup Economic Confidence Index is now as low as it has been since the height of the recession.

Public opinion is not behaving the way it did after other recent recessions.

If you dive deeper into the polling, you see the country is not mobilized by this sense of crisis but immobilized by it. Raising taxes on the rich is popular, but nearly every other measure that might be taken to address the fiscal crisis is deeply unpopular. Sixty-three percent of Americans oppose raising the debt ceiling; similar majorities oppose measures to make that sort of thing unnecessary.

There is a negativity bias in the country, especially among political independents and people earning between $30,000 and $75,000 (who have become extremely gloomy). It is hard to rally majorities behind immigration, energy or tax reform.

At some point something is going to happen to topple the political platform — maybe a debt crisis, maybe when China passes the United States as the world’s largest economy, perhaps as early as 2016. At that point, we could see changes that are unimaginable today.

New political forces will emerge from the outside or the inside. A semi-crackpot outsider like Donald Trump could storm the gates and achieve astonishing political stature. Alternatively, insiders like the Simpson-Bowles commission or the Senate’s bipartisan “Gang of Six” could assert authority and recreate a strong centrist political establishment, such as the nation enjoyed in the 1950s.

Neither seems likely now. But in these circumstances, rule out nothing.  

Thursday, April 21, 2011

What I Read Today - Thursday April 21, 2011

From:  David Brooks Blog (NY Times)


Matter Over Mind

Over the next few weeks, this blog may have a distinct Harvard bias. This is not only because I am kissing up to the alpha school, but recently I had a fantastic visit to the Harvard Decision Science Lab, run by Jennifer Lerner, and I got to meet several of the researchers there.

For example, I got to hear Amy Cuddy of the Harvard Business School, describe her research. I pause to describe Cuddy’s background because I’ve been struck by the number of people I meet in the general field of brain and behavioral research who have suffered some form of personal trauma.

Daniel Kahneman is one of the several senior figures in the field who survived the Holocaust. Nassim Taleb, of Black Swan fame, had his homeland, Lebanon, ravaged by war. Dan Ariely, the prominent behavioral scientist, was badly burned while serving in the Israeli military. Cuddy was a student at the University of Colorado at Boulder who suffered severe head trauma as a result of a horrible traffic accident in Wyoming.

Her IQ temporarily fell two standard deviations. She had to struggle to regain the abilities she had lost, and when she returned to college as a 22-year old junior, she found she had a passion for social psychology.

The breadth of Cuddy’s research is described in a smart article in Harvard Magazine. For example, in cooperation with Susan Fiske and Peter Glick, Cuddy has thought a lot about the distinction between competence and warmth. People often assume that competence and warmth are inversely related, she points out. People seem to presume that people who are really competent don’t need to be nice. Warm people are often judged to be less competent than they really are.

We value warmth over competence when evaluating others, she has found, but when we judge ourselves, we value competence over warmth. We want others to see us as competent, not just nice.

The research Cuddy described to me has to do with how we present ourselves. In a paper published in Psychological Science, Cuddy, Dana R Carney and Andy J. Yap put research subjects in different poses and measured their hormone levels. They put 42 subjects in high-power poses (legs apart, hands assertively on hips, that sort of thing) for a mere two minutes and found that their testosterone levels shot upwards and their cortisol levels decreased. Then they gave these people a chance to play a gambling game and found that being in the high power pose made them much more aggressive later on.

In other words, changes in behavior create changes in mindset. If you act powerfully, you will begin to think powerfully. Cuddy theorizes that some people are a bit more assertive than others, naturally, but by behaving in assertive ways and adopted assertive poses, they magnify their advantages. Imagine, she asks, what sitting in a CEO’s chair must do to you after a few years.

She also found that at Harvard Business School male students were more likely to adopt power poses than female students. When they raised their hand to answer a question, their arm shot straight up. Women were more likely to bend their arm at the elbow, thus thrusting their hand more timidly and taking up less space.

If you want to improve your mentality, take up a lot of space. I do this through frequent trips to the Five Guys hamburger chain, but this is not the optimal method. It’s better to spread your arms and keep your feet apart on the floor.

This brings to mind a study I have long wanted some researcher to perform. I would like somebody to figure out when models in Vogue stopped smiling. What year did they adopt that harsh, aggressive look? Similarly, what year did they begin posing (in pants) with their legs spread aggressively apart? When, in short, did power poses replace warmth poses? And what does it say about social change? Cuddy could probably tell us.

Friday, April 15, 2011

What I Read Today - Friday April 15, 2011

From: The Wall Street Journal

Remembering the Real Ayn Rand

The author of "Atlas Shrugged" was an individualist, not a conservative, and she knew big business was as much a threat to capitalism as government bureaucrats.


Tomorrow's release of the movie version of "Atlas Shrugged" is focusing attention on Ayn Rand's 1957 opus and the free-market ideas it espouses. Book sales for "Atlas" have always been brisk—and all the more so in the past few years, as actual events have mirrored Rand's nightmare vision of economic collapse amid massive government expansion. Conservatives are now hailing Rand as a tea party Nostradamus, hence the timing of the movie's premiere on tax day.

When Rand created the character of Wesley Mouch, it's as though she was anticipating Barney Frank (D., Mass). Mouch is the economic czar in "Atlas Shrugged" whose every move weakens the economy, which in turn gives him the excuse to demand broader powers. Mr. Frank steered Fannie Mae and Freddie Mac to disaster with mandates for more lending to low-income borrowers. After Fannie and Freddie collapsed under the weight of their subprime mortgage books, Mr. Frank proclaimed last year: "The way to cure that is to give us more authority." Mouch couldn't have said it better himself.

But it's a misreading of "Atlas" to claim that it is simply an antigovernment tract or an uncritical celebration of big business. In fact, the real villain of "Atlas" is a big businessman, railroad CEO James Taggart, whose crony capitalism does more to bring down the economy than all of Mouch's regulations. With Taggart, Rand was anticipating figures like Angelo Mozilo, the CEO of Countrywide Financial, the subprime lender that proved to be a toxic mortgage factory. Like Taggart, Mr. Mozilo engineered government subsidies for his company in the name of noble-sounding virtues like home ownership for all.

Still, most of the heroes of "Atlas" are big businessmen who are unfairly persecuted by government. The struggle of Rand's fictional steel magnate Henry Rearden against confiscatory regulation is a perfect anticipation of the antitrust travails of Microsoft CEO Bill Gates. In both cases, the government's depredations were inspired by behind-the-scenes maneuverings of business rivals. And now Microsoft is maneuvering against Google with an antitrust complaint in the European Union.

The reality is that in Rand's novel, as in life, self-described capitalists can be the worst enemies of capitalism. But that doesn't fit in easily with the simple pro-business narrative about Rand now being retailed.

Today, Rand is celebrated among conservatives: Rep. Paul Ryan (R., Wis.) insists that all his staffers read "Atlas Shrugged." It wasn't always this way. During Rand's lifetime—she died in 1982—she was loathed by the mainstream conservative movement.

Rand was a devout atheist, which set her against the movement's Christian bent. She got off on the wrong foot with the movement's founder, William F. Buckley Jr., when she introduced herself to him in her thick Russian accent, saying "You are too intelligent to believe in God!" The subsequent review of "Atlas Shrugged" by Whittaker Chambers in Buckley's "National Review" was nothing short of a smear, and it set the tone for her relationship with the movement ever since—at least until now.

Rand rankled conservatives by living her life as an exemplary feminist, even as she denied it by calling herself a "male chauvinist." She was the breadwinner throughout her lifelong marriage. The most sharply drawn hero in "Atlas" is the extraordinarily capable female railroad executive Dagny Taggart, who is set in contrast with her boss, her incompetent brother James. She's the woman who deserves the man's job but doesn't have it; he's the man who has the job but doesn't deserve it.

Rand was strongly pro-choice, speaking out for abortion rights even before Roe v. Wade. In late middle age, she became enamored of a much younger man and made up her mind to have an affair with him, having duly informed her husband and the younger man's wife in advance. Conservatives don't do things like that—or at least they say they don't.

These weren't the only times Rand took positions that didn't ingratiate her to the right. She was an early opponent of the Vietnam war, once saying, "I am against the war in Vietnam and have been for years. . . . In my view we should fight fascism and communism when they come to this country." During the '60s she declared, "I am an enemy of racism," and advised opponents of school busing, "If you object to sending your children to school with black children, you'll lose for sure because right is on the other side."

If anything, Rand's life ought to ingratiate her to the left. An immigrant woman, she arrived alone and penniless in the United States in 1925. Had she shown up today with the same tale, liberals would give her a driver's license and register her to vote.

But Rand was always impossible to pin down politically. She loathed Dwight Eisenhower, whom she believed lacked conviction. And in 1975 she wrote, "I urge you, as emphatically as I can, not to support the candidacy of Ronald Reagan," primarily on the grounds that he didn't support pure laissez-faire capitalism. But she endorsed Richard Nixon in 1968 because he supported abolition of the military draft. Rand was especially proud of her protégé Alan Greenspan for serving with Milton Friedman on Nixon's Gates Commission, the findings of which led to today's all-volunteer army.

Rand was not a conservative or a liberal: She was an individualist. "Atlas Shrugged" is, at its heart, a plea for the most fundamental American ideal—the inalienable rights of the individual. On tax day, with our tax dollars going to big government and subsidies for big business, let's remember it's the celebration of individualism that has kept "Atlas Shrugged" among the best-selling novels of all time.

Mr. Luskin is chief investment officer at Trend Macrolytics LLC and the co-author with Andrew Greta of "I Am John Galt," out next month by Wiley & Sons.

Friday, April 8, 2011

What I Read Today - Friday April 8, 2011

From: The New York Times

The Ryan Journey


For decades, academics and think tankers have been proposing plans to avert a fiscal catastrophe. The ensuing debates were always sedate, high-minded affairs. Now Republican political leaders have come up with a bold proposal of their own and the atmosphere is totally different. Liberals are on the warpath. Republicans are aroused. This is great. It’s democracy — how change begins.

The best thing about the long-term budget proposal from Paul Ryan, the Republican chairman of the House Budget Committee, is that it forces Americans to confront the implications of their choices. If voters want taxes that amount to roughly 18 percent of G.D.P., then they are going to have to accept a government that looks roughly like what Ryan is describing.

The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs.

Raising taxes on the rich will not do it. There aren’t enough rich people to generate the tens of trillions of dollars required to pay for Medicare, let alone all the other programs. Democrats, thus, face a fundamental choice. They can either reverse President Obama’s no-new-middle-class-taxes pledge, or they can learn to live with Paul Ryan’s version of government.

Until they find a way to pay for the programs they support, they will not be serious players in this game. They will have no credible plans and will be in an angry but permanent retreat.

Because he had the courage to take the initiative, Paul Ryan’s budget plan will be the starting point for future discussions, at least as long as Republicans control at least one house of Congress. But it should be acknowledged that the Ryan plan has several grave weaknesses.

As presently configured, it is unacceptable to moderate voters and stands no chance of passage. Substantively, it does not address the structural problems plaguing the American economy: wage stagnation, inequality, declining growth rates. It doesn’t have an answer to rising health care costs. Nor does it leave room for future policy creativity; there’s no money to allow future generations to rise to unforeseen challenges. So, while acknowledging that Ryan has done the nation a great service by providing a starting point, we should expect his budget to evolve as the debate goes forward.

First, though Ryan is absolutely right to call for a fundamental reform of the tax code, we should probably aim to generate tax revenues equal to 20 percent of G.D.P., not the 18 percent he proposes. This would allow us to preserve some of the discretionary spending programs that Ryan cuts.

For example, Ryan would cut Pell grants back to their 2008 levels. This is not the horrendous monstrosity some liberals are screaming about. But the economic challenge from China and India demands that we spend more on Pell grants, scientific research, early childhood education and other investments in human capital than Ryan proposes.

Second, we can’t let the oldsters get off scot-free. As my colleague David Leonhardt reported in The Times, two 56-years-olds with average earnings will pay about $140,000 in dedicated Medicare taxes over their lifetimes. They will receive about $430,000 in benefits. This is an immoral imposition on future generations. The Ryan budget wouldn’t touch this generation, but a bipartisan budget deal should ask middle-class and affluent boomers to make a sacrifice for their country. Slow the growth in health care benefits now and dedicate that money to paying down the debt and investing in the young.

Third, we still need a calm discussion about controlling health care costs. Just about every expert agrees with the following proposition: We can’t afford to have Medicare pay for every new procedure that medical technologists devise. The president’s health reform plan relies on a centralized board of technocrats to restrict choices. The Ryan plan relies on a premium support model that would allow individuals to exercise greater control over what sorts of procedures they would not be covered for. As the economist Tyler Cowen writes on his Marginal Revolution blog, we probably need a mixed system that takes advantage of both the technocratic and individual rationing models.

Ryan has moved us off Unreality Island. He is forcing Americans to confront the implications of their choices. With a few straightforward changes, his budget could be transformed into a politically plausible center-right package that would produce a fiscally sustainable welfare state while addressing the country’s structural economic problems. I suspect the process Ryan has started will take us back toward the moderate framework the Simpson-Bowles deficit commission proposed a year ago.

Great journeys begin with one bold step.  

Tuesday, April 5, 2011

What I Read Today - Tuesday April 5, 2011

From:  The New York Times

Who Could Blame G.E.?


With tax day fast approaching, many Americans are thinking hard, and perhaps a little creatively, about finding deductions to help lower their tax bills. Nobody, after all, likes paying more taxes than they have to. So why in the world should we expect the mighty General Electric to act any differently?

Because it’s a giant, profitable multinational corporation? If anything, the fact that G.E. is a big company should give it even more incentive than we mere human taxpayers to minimize its tax bill. The executives who run America’s corporations have a fiduciary duty to maximize profit for their shareholders. That’s what they’re programmed to do. One way to maximize profits is to minimize taxes, something G.E. does better than just about any other company. If I were a G.E. shareholder, I would be thrilled to learn that its vaunted 1,000-person tax department is viewed within the company as a profit center.

Yet the article The New York Times published a few weeks ago — saying that G.E. was likely to pay no federal income tax at all in 2010 — has landed like a bombshell, arousing the kind of populist outrage that hasn’t been seen since those derivatives traders at A.I.G. got their last big bonuses. In responding to the article, G.E. did not exactly help itself with its defensive tweets and conflicting statements. A week ago, a G.E. spokeswoman told a reporter that “G.E. did not pay U.S. federal income taxes last year because we don’t owe any.” On Monday, its tune changed. In an article jointly published by Fortune and ProPublica, a company spokesman said, “We expect to have a small U.S. income tax liability for 2010.”

Whatever. The point remains that the company is going to pay little or nothing in federal income taxes for 2010. And the unambiguous reason for this is that G.E. took full advantage of the various tax loopholes in the U.S. tax code that are available to it. Wouldn’t you? The real villain here isn’t G.E. for gaming the corporate tax system. Rather, the villain is a political system that makes the corporate tax system so easy to game.

There are two primary reasons why G.E.’s 2010 tax bill is so low. The first is pretty straightforward: its finance arm, G.E. Capital, lost billions of dollars during the financial crisis. Like any business entity, it is allowed to use those losses to help reduce its tax bill. This is known as a tax-loss carry-forward, and it isn’t remotely controversial.

The second tax break, though, called the active financing exception, is a whole different kettle of fish. According to Robert Willens, a corporate tax expert, this tax break was first enacted in 1997. It allows companies to avoid paying U.S. taxes on overseas profits — if those profits were derived by “actively financing” some activity or deal. (The rationale is that this is supposed to help “equal the playing field” with foreign multinationals that get the same tax breaks from their home countries. Yadda, yadda, yadda.)

The active financing exception was never supposed to be a permanent part of the tax code. Indeed, it still isn’t. But every year or two — after the usual campaign contributions and arm-twisting — it winds up back in the tax code “temporarily.” The Treasury now estimates that it costs the government $5 billion a year.

Is G.E. one of the companies that lobbies for the active financing exception? You bet it is. As Willens nicely puts it, “They are taking advantage of a loophole they helped create.”

But G.E. has also taken the next obvious step: It has managed, over time, to shift billions of dollars in profits from its U.S. income statement to its overseas income statements. Wouldn’t you know it? Most of their profits are also financing related. There is nothing illegal or even unethical about any of this. It’s Congress — the same Congress that is now screaming bloody murder about the deficit — that has paved the way for G.E.’s tax creativity.

The corporate income tax rate for American corporations is around 35 percent. If you talk to American executives for more than five minutes on the subject, they’ll tell you it’s too high. Andrew Liveris, the chairman and chief executive of Dow Chemical, claims in his new book, “Make It In America,” that the U.S. has the “second-highest corporate tax rate in the world.” A lower tax rate, he argues, could help spur a manufacturing revival in America.

And, maybe, just maybe, if American multinationals actually paid 35 percent of their profits in taxes, he might have a case. But it’s not just G.E. — none of them do. Mr. Willens told me that the typical multinational pays about half the stated tax rate. As for G.E., it says that its worldwide tax burden for 2010 was far lower than that: 7.4 percent.

The bonuses should be pretty good this year in the G.E. tax department.

What I Read Today - Tuesday April 5, 2011

From: The New York Times

Moment of Truth


It was a season of fiscal perestroika. Last fall, the Simpson-Bowles deficit commission released a bold report on how to avoid an economic catastrophe. For a few weeks, the think tanks and government offices were alive with proposals to reduce debt and reform entitlements, the tax code and just about every other government program.

The mood did not last. The polls suggested that voters were still unwilling to accept tax increases or benefit cuts. Smart Washington insiders like Mitch McConnell and President Obama decided that any party that actually tried to implement these ideas would be committing political suicide. The president walked away from the Simpson-Bowles package. Far from addressing the fiscal problems, the president’s budget would double the nation’s debt over the next decade, according to the Congressional Budget Office.

But the forces of reform have not been entirely silenced. Over the past few weeks, a number of groups, including the ex-chairmen of the Council of Economic Advisers and 64 prominent budget experts, have issued letters arguing that the debt situation is so dire that doing nothing is not a survivable option. What they lacked was courageous political leadership — a powerful elected official willing to issue a proposal, willing to take a stand, willing to face the political perils.

The country lacked that leadership until today. Today, Paul Ryan, the Republican chairman of the House Budget Committee, is scheduled to release the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes. Ryan is expected to leap into the vacuum left by the president’s passivity. The Ryan budget will not be enacted this year, but it will immediately reframe the domestic policy debate.

His proposal will set the standard of seriousness for anybody who wants to play in this discussion. It will become the 2012 Republican platform, no matter who is the nominee. Any candidate hoping to win that nomination will have to be able to talk about government programs with this degree of specificity, so it will improve the G.O.P. primary race.

The Ryan proposal will help settle the fight over the government shutdown and the 2011 budget because it will remind everybody that the real argument is not about cutting a few billion here or there. It is about the underlying architecture of domestic programs in 2012 and beyond.

The Ryan budget will put all future arguments in the proper context: The current welfare state is simply unsustainable and anybody who is serious, on left or right, has to have a new vision of the social contract.

The initial coverage will talk about Ryan’s top number — the cuts of more than $4 trillion over the next decade. But the important thing is the way Ryan would reform programs. He would reform the tax code along the Simpson-Bowles lines, but without the tax increases. (It’s amazing that a budget chairman could include tax policy in his proposal, since it’s normally under the purview of the Ways and Means Committee.)

The Ryan budget doesn’t touch Medicare for anybody over 55, but for younger people it turns it into a defined contribution plan. Instead of assuming open-ended future costs, the government will give you a sum of money (starting at an amount equal to what the government now spends) and a regulated menu of insurance options from which to choose.

The Ryan budget will please governors of both parties by turning Medicaid into a block grant — giving states more flexibility. It tackles agriculture subsidies and other corporate welfare. It consolidates the job-training programs into a single adult scholarship. It reforms housing assistance and food stamps. It dodges Social Security. The Republicans still have no alternative to the Democratic health care reform, but this budget tackles just about every politically risky issue with brio and guts.

Ryan was a protégé of Jack Kemp, and Kemp’s uplifting spirit pervades the document. It’s not sour, taking an austere meat ax approach. It emphasizes social support, social mobility and personal choice. I don’t agree with all of it that I’ve seen, but it is a serious effort to create a sustainable welfare state — to prevent the sort of disruptive change we’re going to face if national bankruptcy comes.

It also creates the pivotal moment of truth for President Obama. Will he come up with his own counterproposal, or will he simply demagogue the issue by railing against “savage” Republican cuts and ignoring the long-term fiscal realities? Does he have a sustainable vision for government, or will he just try to rise above the fray while Nancy Pelosi and others attack Ryan?

And what about the Senate Republicans? Where do they stand? Or the voters? Are they willing to face reality or will they continue to demand more government than they are willing to pay for?

Paul Ryan has grasped reality with both hands. He’s forcing everybody else to do the same.