The main critique I have of the Obama Administration thus far is one that has been noted by many but which I believe has led him to embrace some seriously flawed policy positions: the advisors who most shape his policy are better at winning campaigns than actually governing and that his policies both foreign and domestic have generally reflected self-serving political calculation over advancing the economic, social and strategic goals of the nation as a whole. In my opinion it seems that the short-term political fortunes of a man who is temporarily occupying the Oval Office and his political allies in Congress have trumped the long-term interests of all Americans in living in a country that is defined by personal freedom, economic prosperity and international security. In my opinion, the result of having an Administration whose governance embodies a permanent-campaign weltanschauung is that politically inconvenient facts that can be glossed over when crafting a 90 second sound bite for use in a campaign debate are ignored, to the country's detriment, when charting the course of actual policy, where such realities become crucially important. What is politically popular and possible to implement, say, in a law passed by a partisan Congress must ultimately bow to the costs and benefits of the legislation in reality, and those who ignore that fact do so at their own peril. Nobody likes the sad fact that some fraction of society has always lived in poverty, but in retrospect you would be hard pressed to find someone who would not foresee the failure of LBJ's Great Society with the benefit of hindsight.

In his speech tonight where he pledged, albeit with some small hedges, to increase troop strength in Afghanistan to take the fight to the Taliban and Al Qaeda and strengthen our alliances both with the barely nominally legitimate government in Kabul as well as the much more geopolitically important regime in Islamabad. By committing more troops to "the good war" in Afghanistan at long last he finally seemed to embrace a policy that comes with no obvious political benefit, and which embodies the fact that sometimes there is no guarantee that a problem that faces our nation is soluble, let alone easily soluble. Presidents must sometimes stake themselves to positions that are fraught with risk of failure, are politically unpopular, and yet represent the best, most viable policy option to take. Until tonight I had not seen Obama tread this obviously much more perilous road, even though both domestically and politically he has had opportunities to tackle problems head on and instead has deferred to politically easy "solutions" that will create problems for the country down the road.

I do not believe that this steely resolve to deal with the facts, no matter how unpleasant they may be has been present much, if at all, previously on the signature domestic and foreign policy challenges his Administration has tackled. Briefly consider, for example, how he has handled his signature domestic issue: reforming health-care policy. It has long been a dream of those in his political base to implement some form of nationalized health-care, or something functional identical, that guarantees health-care as part of the safety net offered to all American citizens--or all American residents, to some. It would seem obvious to anybody in the "reality based community" that extending care to millions of new people who don't get it now regardless of their ability to pay for it must necessarily come at some large societal cost, and that a frank discussion of what that cost will be and how we will pay it would be necessary to responsibly implement such a reform. Be it by decreasing the quality or nature of care generally, increasing the cost that most middle class people pay for that care either directly through higher premiums or indirectly through lower take-home wages or higher taxes, rationing non-emergent care, or some combination of all of the above, a realistic appraisal of the situation would admit that some cost will be borne. Instead, Obama took a hands off approach towards creating what he hoped would be a defining achievement by promising what a man as intelligent as he must have known could not realistically be possible: anybody who had care they liked would be able to keep it, we'd pay for the millions of new people whose health-care would be subsidized solely from cutting out inefficiencies in the current system, and that we'd do all this without increasing the deficit. Basically, we'd get something for nothing in a way no other country does--other countries pay doctors less, have rationing of all sorts of elective procedures, sometimes do not have the latest and most expensive treatments for certain afflictions available for all patients. When you're on the campaign trail promising a painless increase in health-care access to those who currently fall through the cracks is popular and can be relatively harmless if you don't tie yourself to a specific policy; actually promising to implement a policy that is essentially a free lunch--we'll expand health-care access but in a way that doesn't change anything if you like your current set-up and is deficit neutral--is reckless negligence since there is obviously some promise that will not be kept.

Similarly on foreign policy Obama has translated campaign slogans into an incoherent set of policies that are guided by domestic political impulses, seemingly, rather than a cogent geopolitical strategy to advance American interests. Presidential visits to foreign countries have largely come to be an opportunity for highly public, self-flagellating contrition, a belated apologia for George Bush's foreign policy decisions whose diplomatic purpose is unclear at best: no powerful country's history is pretty, and Obama is both not responsible for Bush's decisions and his election represents the fact that the American people had come to reject Bush and his approach to foreign policy. This has meant that he has given speeches whose intended audiences might have thought portended policy changes that were not actually forthcoming. These were political apologies for domestic consumption, a fact that might have been lost, for instance, on Arabs who were initially wowed by the debonair, young, worldly President but who have now become impatient as his initially contrite words have not been mirrored by substantive changes in U.S. policy on Israel. Contrition towards Latin America for Yanqui imperialism, from Monroe to Bush II, apparently, might have pleased the MoveOn.org crowd but it has also emboldened Hugo Chavez and his disciples to no clear benefit to the U.S. Campaign promise rhetoric to support human rights here and abroad has resulted in spite-your-face domestic policies like very publicly rehashing America's unsavory interrogation methods like waterboarding, which again serve no clear purpose in advancing America's interests, while the two most clear cases of human rights violations in Obama's Administration ran afoul of political and pragmatic needs of the Administration. In China there was the need not to alienate our biggest creditor and most disturbingly the political need not to commit a Bush era taboo by demonizing Iran meant the President sat mute even while the Ayatollah's goons cracked skulls to rig an election.

So it was refreshing, after Obama's months-long deliberation over Afghanistan, for him to finally take a policy stance that will not be politically popular that seems basically motivated by embracing the best policy after weighing, realistically, the costs, benefits and interests that our nation prioritizes. Finally, here, is a break with his governing-as-campaign school of decision making. Committing to any policy decision in either direction in Afghanistan would seem to mean running aground his administration on some politically unfavorable island, but he made the correct decision nonetheless, even though it was the more politically toxic policy in the short-term as it angers his anti-war base and puts young Americans in harm's way in what could be a failed campaign.

Going forward with the recommendations from his military advisors and his centrist campaign rhetoric that the Afghan war was "the good war" and that additional troops should be deployed there will anger his progressive supporters--especially since President Obama faces a much more dire and deadly situation for American troops in Afghanistan than Candidate Obama. Taking the suggestions of people frankly less familiar with the situation on the ground than others like Generals McChrystal and Patraeus giving counsel to double down, exemplified by Joe Biden who suggested we might remove our ground troops and fight the Taliban and Al Qaeda essentially remotely, e.g. with drones and cruise missiles, seems like it would have been a completely unworkable strategy. While it might have been temporarily popular for bringing the troops home and certainly would have been sweet nectar to the anti-war left, it almost certainly would have failed so utterly in advancing American strategic interests that all but the most doctrinaire pacifists would eventually have been horrified: think of the ineffectiveness of the Clinton era campaign in the Balkans, except where the target was not Slobodan Milosevic but Osama bin Laden.

Finally, it seems, even though it came with some hedging in the form of a tentative timeline for withdrawal and a politically motivated statement that our troops would very likely start coming home in less than two years, Obama made a decision in the foreign policy realm that is unlike those he has taken on domestic policy. The key difference is that he has stepped up to the plate when none of the options were obviously or immediately good, a situation that the Administration seems to believe exists distressingly little of the time. At home he has not only passed up making hard decisions that would address problems that existed before he took office (wrangling with burgeoning Federal debt) but supported policies that would create new problems that will be kicked down the line to be addressed by some future President who will "inherit" an untenable imbalance of insufficient revenue to fund new growth in entitlement obligations and market distortions (ObamaCare and increased power for unions.) As I outlined above I believe that thus far his foreign policy has been similarly averse to tackling real, difficult problems that offer limited political benefit but has rather been limited to ineffective and largely rhetorical gestures that seem to function mainly as counterpoints to the Bush Administration as opposed to decisions that genuinely advance the U.S.'s interests.

Here, though, as Obama himself said, the status quo on the ground in Afghanistan is not tenable--not just politically, but in fact, regarding American strategic interests to beat back Islamic extremism in those places where it might take a safe haven to attack the U.S. again or to undermine a critical, hugely populous, nuclear-armed ally that faces a radical fringe that threatens to undermine its democratic government, such as it is. Obama's outlining of what our interests are, what the costs will be, and what is reasonably attainable with the military resources we have and can dedicate to this conflict was a perfectly rational way to arrive at the conclusion that the status quo of piecemeal deterioration of our counter-insurgency mission in Afghanistan was fine, and frankly I have been astounded that this sort of frank, empirically guided decision making has been so utterly lacking in other spheres, where decisions have been taken for doctrinaire and partisan reasons.

The War on Terror is more important than health-care reform, and I am glad that President Obama has taken a rational approach to Afghanistan that was not guided by what will appease his base. That said, the current health-care reform bills could be hugely destructive and why such a frank accounting of unsustainable consequences, and a reasonable counterbalancing of costs and benefits is not so forthcoming. I think it's too late to hope for Obama to change course on health-care (although it's not too late to reasonably hope that a bill will not pass) and while I still think that drastically reducing Congressional Democrats power would be a very good thing for the country, as 9 painful years of experience have shown that political monopolization of the executive and legislative branches by either party is awful, Obama's Afghanistan policy is, essentially, the correct one.

Labels: obama, politics, war

On the National Education Foundation's web site it lays out a numbered list of priorities on its Federal Policy Guide, presumably an ordered list of educational legislation priorities for Representatives and Senators to refer to in judging whether their votes will be supported by the powerful union. One would think, though, that this represents, too, an ordered list of what the NEA sees as the most pressing issues in education reform are, with the general public also part of the intended audience in improving America's public education system.

Given that, one is not surprised to see that ideas like improving pre-K and early education, revitalizing elementary and high schools and increasing graduation rates top the list. Of the thirteen core issues only 3 or 4 could be characterized as tangentially being even indirectly related to teacher salary or collective bargaining for better contracts for teachers. Only issue #7 on a list of 13, "Support All School Staff, Vital Members of the Team" seems to be dedicated to the issue of compensation for education personnel directly, and does so in the context of discussing how the need is to make sure that not just teachers are compensated as well as they should be.

To be fair, on their main site's "Issues and Actions" page, "Professional Pay" does rate as one of five issues in the NEA's "Current Focus," alongside overall Education funding. However, if asked on the record, one assumes the NEA's position is that improving educational outcomes for children trump ancillary goals like increasing the Union's power to extract favorable treatment from legislators, and that goals like increasing teacher pay are meant to make sure that teacher's are compensated fairly so that competent individuals are attracted and retained as teachers. Basically, teacher pay matters because these are the people teaching your kids, not because how good a union contract is matters in and of itself.

Bizarre, then, that you can find in a story about the NEA playing political hardball with a Chicago pol that this local tactic is reflected by national leadership. The story references a speech given by retiring NEA exec Bob Chanin to the 2008 NEA annual conference where he explicitly places all goals related to educating children as subordinate to increasing the amount of money and bargaining power that the NEA can accumulate:

Despite what some among us would like to believe it is not because of our creative ideas. It is not because of the merit of our positions. It is not because we care about children and it is not because we have a vision of a great public school for every child. NEA and its affiliates are effective advocates because we have power.

And we have power because there are more than 3.2 million people who are willing to pay us hundreds of millions of dollars in dues each year, because they believe that we are the unions that can most effectively represent them, the unions that can protect their rights and advance their interests as education employees.

This is not to say that the concern of NEA and its affiliates with closing achievement gaps, reducing dropout rates, improving teacher quality and the like are unimportant or inappropriate. To the contrary. These are the goals that guide the work we do. But they need not and must not be achieved at the expense of due process, employee rights and collective bargaining. That simply is too high a price to pay.

That's a somewhat shocking admission for the NEA to make; these guys aren't mining coal or playing Major League Baseball. While every union's goal (as a sort of labor cartel) is to manipulate the market by coordinating the price at which labor will be supplied and thereby get more money for the same work by its members, the teachers union sells itself as nice. If your representatives craft a piece of education "reform" legislation in such a way that the NEA loves it the NEA would have you believe that this bill will do good at improving education in America: the NEA is concerned about teacher's pay, but it is also a group that advocates for improving educational outcome.

Strange, though, that a group that claims to care about educational outcomes would say that while those goals guide their efforts that reform "must not be achieved at the expense of due process, employee rights and collective bargaining." And of course, that the NEA's advocacy is effective not because of something as inane as having good ideas and a soapbox, but rather it stems from power, which stems directly from hundreds of millions of dollars in union dues.

So when education reformers not affiliated with the NEA suggest things like allowing competition between schools, giving parents the choice between their local public school or a voucher to be used to pay for tuition at a charter school or private school that does not employ Union members, or when a disinterested social scientist questions just how effective reducing class size from 25 to 15 is at improving outcomes, or when some other reformer suggests incentivizing teacher pay based on performance as measured by standardized tests, you have to question whether the NEA is following the creed that is embodied by its website or by a speech at their annual meeting that got a round of enthusiastic applause. If an effective education reform threatens to decrease the number of unionized teachers and therefore the amount of dues the NEA collects and therefore its power, does the NEA oppose that policy because it would decrease its collective bargaining power? If they do, do they say so openly or do they try to come up with confusing, bogus studies that come to opposite conclusions to muddy the waters and seem like they still care about the children.

If it is the latter, then it wouldn't really matter whether allowing parents who live in an area where their children would be forced to attend a failing public school to get a voucher to pay for private, non-union-supporting education was a great idea with the potential to drastically improve educational outcomes, the NEA would oppose it. The NEA's policy page on charter schools, which are publicly funded schools that are run without all the regulations of traditional public schools and sometimes outside the scope of traditional regulators, is instructive. While the NEA does not come out and demonize charter schools, it says that charter schools can only be supported if they fulfill a number of criteria:

• A charter should be granted only if the proposed school intends to offer an educational experience that is qualitatively different from what is available in traditional public schools. [In other words, a mere quantitative improvement in perforamance using non-union administrators and teachers would not be acceptable]


• Charter school funding should not disproportionately divert resources from traditional public schools. [Charter schools can't come to receive more than a small portion of public education dollars even if they do a better job at teaching children than traditional (NEA dominated) public schools]


• Local school boards should have the authority to grant or deny charter applications; the process should be open to the public, and applicants should have the right to appeal to a state agency decisions to deny or revoke a charter.[We should be able to apply political pressure against charter schools at either the local level or the state level, wherever we have more power]


• Charter schools should be subject to the same public sector labor relations statutes as traditional public schools, and charter school employees should have the same collective bargaining rights as their counterparts in traditional public schools.[Charter schools are really only good if they give more money to the NEA and function exactly like our failing public schools]

So while the NEA's position on Charter Schools seems superficially nuanced and appears to be guided only by a primary mission of improving outcomes--we tentatively support the idea of Charter Schools if they are implemented in a diligent fashion-- if you look at the fine print their support for Charter Schools hinges on their teachers and administrators being unionized. Increased power trumps even the ideological goals of the organization. Imagine if a large longitudinal study came out that showed that a key feature of successful charter schools was that teachers and administrators could be hired and fired much more easily than in a school with a collective bargaining agreement the NEA signed off on; the NEA's instinctive reaction would be vehement opposition to the validity of the data and if it came to it to legislation based on its conclusions. Such data and conclusions threaten its very rationale for existence--that well-paid and content teachers are needed to get good results and that collective bargaining and unionized teachers are required to attract and keep those teachers--and therefore the NEA, as it admits when the target audience is not the public, cares about improving education, but improving education must be prioritized below increasing the bargaining power and legislative influence of the union.

The NEA's political allies are mostly Democrats, but Republicans are far from being innocent when it comes to taking money from this union in exchange for compromising on key aspects of educational reform that would demand that, like in every private sector industry, that teacher's jobs and pay are related to their competence and performance, not how long they've been in the same classroom. Both parties bow to this powerful lobby: the Bush Administration's No Child Left Behind Act was full of concessions to the NEA and while the Union did not support many of the parts of the original bill that would attempt to add competitive pressure to public education outcomes in practice the NEA successfully watered down the changes it sought to implement in teacher incentives and objective measurement of performance of teaching basic skills. When you think about education reforms in the future think about who you're talking to and if their information you have or that you hear came from a source that was ultimately parroting the conventional wisdom of the NEA-- for instance the dogma that small class size is crucial certainly creates demand for more teachers but it's not clear it improves outcomes universally. If so consider that they support educational reforms that help educate America's children... so long as that policy happens to involve an increase in the number or salary of unionized teachers.

Labels: ballyhoo, economics, politics

When the popular narrative of our 44th President coalesces, it will no doubt start with the following: President Obama "inherited" the worst financial crisis since the Great Depression from President Bush and that much of the increase in Federal spending that ensued was an attempt to inject capital into the economy to jump-start economic growth. What even happens in reality has yet to unfold, let alone how it will be remembered in the public consciousness, and issues like whether the stimulus was a Keynesian policy (let alone whether it was a good decision or if the stimulus funds were spent wisely) or whether it was justified by newer theories of economics, like those that emphasize the importance of irrational behavior of market participants, emphasizing how our "Animal Spirits" can function to impel us foolishly towards the cliff, en masse. While I quibble with the idea that anyone who undertakes the arduous, lifelong project of becoming a successful politician and then knowingly seeks and wins every phase of an arduous, nearly two year process to become President can "inherit" anything, and I would argue that no single person or even a single President was responsible for the economic crisis, one thing that seems certain is that Obama will be judged largely for how he fixes the economy, both in terms of spurring it to recovery and in preventing such "bubbles" from rocking the foundations of our economy ever again.

Americans are a fickle bunch, as evidenced by the fact that they seem to blame or credit Presidents for macroeconomic events that often had little or nothing to do with their fiscal policies (did Herbert Hoover cause the Depression in his 10 months in office before the market crashed? Did Bill Clinton cause the internet to cause a massive expansion in productivity and wealth? Did George W. Bush cause investors to overestimate just how productive and wealthy the internet would make us?) They also give answers to pollsters that at best would be described as confused, if not indicative of societal cognitive dissonance: 63% of Americans like the idea of expanding health-care to those who can't afford it, but only 28% are willing to pay higher taxes to achieve that goal. It may be what the polls say is wanted, but it is not a very brave or prudent policy stance to say that you favor free lunches, unfortunately.

That seems to be what we are being promised, however. Engaging in fraudulent "creative accounting" to deceive the public into thinking your organization is fiscally solvent when it's not or running an elaborate, long-term billion dollar Ponzi scheme are infuriating crimes when done by corporate types like the guys at Enron or Bernie Madoff, but apparently they are an acceptable way to attempt to buy votes when they are done by elected officials in Washington. Giving the very high quality medical care received by most Americans who have health insurance to the millions of people who currently only get health-care when they are so sick they have to go the emergency room will be very, very costly. The numbers given to the public about what that cost will be are huge, but even still are almost certainly underestimates of the actual cost, both because if an accurate, objective assessment of the cost was given the bill would die but also if you look historically at Medicare and Medicaid, long-term estimates of those costs were off by nearly an order of magnitude. As I mentioned, the government has created several Ponzi schemes, namely Medicare and Social Security: a relatively small payroll tax on the relatively small number of workers under 65 cannot pay for even a fraction of the costly health benefits and direct cash payments to all of the elderly now, let alone as the demographics change so that the ratio of elderly to working age people shrinks and the elderly live longer and collect more and more in benefits. This is absurd, and anyone who knows the key variables--the amount we owe, what we take in, the number of projected workers and retirees-- would recognize that it's a Ponzi scheme and the only question is when did people who continue to participate in the system turn from the winners who got in on the Ponzi scheme early to the pigeons who don't get back anything they pay. I certainly have no expectation that the money that comes out of my paycheck for Social Security or Medicare is money that is being set aside for me somewhere that I will someday see again and anyone my age who believes that is a fool.

And "creative accounting," I mean, jeez, we're told this is "deficit neutral" even though a key feature of the first ten years of the programs is that the taxes run for all 10 years but the benefits only start after 4 years. Despite having all of the general qualities of these other massively indebted social programs that are huge, failing Ponzi schemes we're supposed to believe this thing won't add a dime to the debt. So much of what the Government does now that has been developed as the Federal Government grew exponentially in the 20th Century is to function as a sort of the world's most massive charity that gives out cash to promote specific social goals and the interests of small but politically influential groups, except its "donors" don't give by choice, they can't choose how much they give and they can go to jail if they don't pay what they're told.

And for some time we got away with it. Aside from a one year respite in the Clinton Administration we've accumulated debt continuously since the Roosevelt Administration due to bipartisan,non-stop government social engineering and vote buying. This "charity" likes policies that are politically popular in their results (Social Security recipients like getting checks) but doesn't like paying for the stuff it gives away (those recipients would dislike cuts in the size of their checks and workers would dislike a payroll tax hike.) It was a looming problem, but economic growth kept pace, give or take, with entitlement spending and debt growth and meant that while our debt was getting bigger our creditworthiness was never really becoming more questionable. Things have changed, quickly.

Debt as a fraction of annual GDP stayed under 2/3, and generally was much lower, from when we were still paying down all those WWII war bonds in the early 1950s until last year. Now we're on pace to go to over 100% before Obama leaves office. It's unprecedented and staggering to comprehend the magnitude of the change. At the start of the 90s the debt was a little more than $3 trillion, total. A dozen years later in 2002 debt had doubled to $6 trillion. By the time Obama took office, in the midst of the financial crisis, at the start of 2009 another doubling had taken place this time in less than 7 years as debt had climbed to about $12 trillion. By the end of Obama's first term we'll hit 100% of GDP at $16.5 trillion and by the end of the Obama's second term or the first term of the next President debt is projected to be somewhere at or above $20 trillion.

A lot of the deficit spending that took place during and immediately after the period of chaotic financial instability when huge Wall Street firms were flaming out, being bailed out or having shotgun weddings to keep from going under was meant to prevent an economic meltdown (Bush's TARP) and to inject capital into the broader economy to try to insulate main street from the massive beating Wall street had just taken (Obama's stimulus). As time has gone on, despite an unprecedented, very destabilizing amount of debt, a good enough reason for deficit spending has been watered down from making sure the economy doesn't implode to making sure Americans don't have to deal with the consequences of the bad fundamentals in the economy to just generally pursuing liberal social and political goals. The consequences of the recession would be painful: the big three auto makers and other inefficient companies would go out of business and those people would have to try to find new jobs, just like the people who are being laid off from companies that are downsizing to try to cut costs. The government seems intent on not allowing permanent reallocation of capital to more productive uses (in other words to let the market figure out if renewable energy is actually a profitable thing for Americans to spend their time working on in the 21st century, and if not, what is) since it will be painful for those who lose their jobs and more importantly it would be politically unpopular.

We've essentially nationalized two unprofitable buggy-whip auto manufacturers, we provided a subsidy to those companies and consumers by hastening people's decision to buy cars with "Cash for Clunkers", and now we're trying to offer palliative care to make sure nobody suffers adverse consequences from a disaster with seemingly interminable unemployment benefits, Obamacare and changing the rules so Big Labor can make unions bigger. And we also want to pay for "green jobs" the market didn't demand and increase the cost of energy for environmental reasons. The plan to terraform Mars will be unveiled any day.

There's a problem or two, though. (Surprising.) A seemingly completely political obedient Federal Reserve, as opposed to acting independent of political goals and serving as a guardian of the strength of the U.S.'s currency, is irresponsibly both printing huge sums of money and keeping its lending rates rates very, very low, seemingly at a level that will keep market interest rates artificially low, apparently thinking it will know exactly when to flip off the switch on the printing press when there's just enough dollars chasing just enough goods. What are we doing? A few very shallow economic indicators look positive, with the Dow now back over 10,000 and GDP growth having gone positive in the 3rd quarter. But virtually all that GDP growth was due to increased productivity of people who were already employed, as businesses trimmed the fat and got more output from less labor as they fired presumably the least cost-effective portion of their work-force, capital investment was not particularly robust--nobody's out there building factories or buying huge new equipment to expand their business--and clearly employers weren't keen on taking on new workers as unemployment has now gone over 10%. This when at the beginning of the year unemployment was around 6% and Obama laid out 8% as a benchmark for success of the stimulus. Perhaps he should put himself in a business owner's shoes for a second: the government might raise my personal income taxes and take away more of the profits I make, I may be forced to either provide health-insurance that will cost a lot more than it does now for any and all employees I have or pay a penalty (or both) and I don't know what my energy costs will be, but oil will likely not be cheap and electricity could go up by a little or a lot. If you were facing all those uncertainties do you think your mindset would be "I see an opportunity here" or "It's time to hunker down and try to keep what I have?" Do you think you'd be expanding and creating jobs?

A few tax hikes will hit: the Bush tax cuts will "expire" (as if only tax increases count as permanent changes to tax rate) and the capital gains tax on the wealthy will go up significantly (up a third from 15 to 20%) but with the weak economy a set of tax hikes that make our tax system ever more progressive and seek to raise revenues from capital gains will likely do little to raise revenues to a level that makes a big dent in future deficits. This fiscal policy will also likely end up working completely at cross purposes to the goal of our expansionary (and inflationary) monetary policy as tax hikes discourage both labor and investment at the margins, and if the wealthy are given an additional 5.4% surtax on both income and capital gains to fund Obamacare if it passes, this effect could be significant. One might say well that surtax will effect only a very small minority of the public, which is true, but generally it is the wealthy who have the ability to give people jobs. Is anybody thinking about it like this: if that tax passes and the rate of capital gains tax on those who have lots of money to invest increases from 15% to 25.4% then risky investments like decisions to throw money behind an idea for a new small business or to invest in a small business that seems poised to grow will need need to be something like 10% more profitable per unit of risk to make worthwhile the kind of capital investment that you know, creates jobs.

So, what could be the worst outcome here? Stagflation and implementation of a more European panel of social policies, meaning permanently higher rates of taxation, lower rates of GDP growth and a higher "natural" rate of unemployment? That would seem to be the best case scenario. However, if real economic recovery does start to come, or even if it does not, the combination of drastically increasing the money supply along with increasing the amount of government borrowing, which could crowd out whatever amount of private demand for loans there is, could mean that inflationary pressure and aggregate demand for loans could cause interest rates to rise dramatically. A frightening set of possibilities appear to be taking shape: if you're feeling conspiratorial perhaps the Obama Administration has figured out that the most realistic way for the Federal government to ever get out from under its tremendous debt (which is mostly held by foreigners and which will not involve a very politically unpopular policy combination of increased taxes and massive cuts in entitlement spending) is to simply devalue the dollar so much that our $15 trillion dollar debt that was worth $10 trillion euros in 2009 can go to 20 trillion nominal dollars in 2015 at which point it's worth $8 trillion euros, and similarly devalued against all other major currencies; in real terms the debt has gone down! So too, of course, has the net worth of everyone who has a bank account with dollars in it or owns dollar denominated assets. Buy gold. Hell, buy real estate.

More realistically and less out on the fringe is the idea that Obama and Congressional Democrats simply are ignoring or prioritizing as less important than systemic reforms that can only be enacted during some sort of societal crisis the fact that a few positive economic indicators may mask a reality that is far more dire than they believe. They may also fail to believe some of the following, which of course, I might be wrong about: that the costs of their social policies are far greater than they believe, that the "bold, persistent experimentation" that their agenda embodies has put a large amount of uncertainty into the business community at large which will hurt GDP growth and delay a sustained recovery, and that the combined effect of trying to put ever more goodies on the national credit card, proposing new taxes which may or may not come to be and doing so while the government's cash flow dries up means that the the figurative repo man is coming for the car.

The irony here is that the Obama Administration's attempts to provide stability in the life of the individual where you're guaranteed ever more just for being alive (at the cost of ever more personal and economic freedom) are so expensive to the national treasury and have unbalanced our books to such an extent that we could wind up doing severe damage to the creditworthiness of the country, the dollar could mirror the fate of the Yen in the 80s and 90s or worse suffering damage that would destroy vast amounts of American wealth and could end the reign of the dollar as the de facto global currency, and consequently could knock the United States off its pedestal as by far the most important economy in the world. Ours may be a fate like that of the British Empire at the end of World War II, except that unlike the decline in their economic and military supremacy, ours will not come from having made very important and noble decisions: to borrow exorbitant sums of money to destroy Nazi Germany and abandoning its policy of colonizing and exploiting the resources of foreign lands. Our debt will not be from having killed Hitler's empire, it will be from decades of being unwilling to be responsible and pay for the things we want in our domestic policy, and the end of American exceptionalism, unlike the end of British exceptionalism, will have been both deliberate and avoidable.

That's a hell of a double dip. Are you willing to risk the (already shrinking) value of your savings account, the #1 spot in global geopolitics and economics, the solvency of our government, and another sustained period of economic contraction so that we can have Obamacare and Cap and Trade?

Labels: ballyhoo, economics, obama, philosophy, politics

The Twins, in contrast to several recent off-seasons, have emerged as one of the most active teams in the early off-season in less than a week since the wrap of the post-season they have made two moves that quickly answered possible questions about how the Twins will build their lineup for 2010 as well as what players they prioritized keeping most.

Unsurprisingly they picked Michael Cuddyer's club option for the 2011 season as they were both under a time-crunch to make a decision about that year since they had to make up their minds on the 2011 option year within 5 days of the end of this year's World Series and they retain for a relatively competitive price a player who will be 32 in 2011 who is coming off a very productive and cost-effective year. Their choice boiled down to letting him walk as a free agent after next year after having paid him $24 million for the three years from 2008-2010 or pick up the option and pay him another $10.5 million for the final year when he will be 32. For the $8 million annualized salary they paid him in 2009 they got what was likely an outlier of a season, but for $8 million getting 32 HR, 73 XBH and 94 RBI is an extremely high return on their investment. While his career totals suggest that his SLG of .520 in 2009 is likely about .050 higher than what the Twins can expect out of him in 2010 and 2011 this move was a no-brainer from both a public relations standpoint and team building standpoint. Making the choice to not commit beyond 2010, for a relatively affordable price, to the player who is the the only right-handed power bat on the team and who is coming off a stellar, 30+ HR season would show little commitment to building on this year's success in 2010 and beyond. As the Twins move into their new largely publicly funded stadium, showing that the increased revenues from higher ticket prices, team-controlled luxury suites, et cetera, will be used to prevent teams from poaching our best players who are allowed to hit free agency thus keeping us in constant semi-rebuilding mode will be an important PR goal. While Cuddyer is a nice start obviously the real litmus test here will be if Joe Mauer can be resigned. More important than the PR relevane of the move, though, at 32 Cuddyer's production will likely not be significantly worse than his career mean, and with inflation between now and 2011 $10.5 million for a dependable, above average right-handed power bat will at least be justifiable if not somewhat of a bargain, especially considering the need to insert a rightie into the lineup whose most talented hitters are all left-handed--Mauer, Morneau and Kubel. The Twins thus keep an important role-player and a guy who while far from a gold-glove fielder has both an above average arm in right and some defensive versatility that he displayed by doing a competent job filling in for Morneau at first base at the end of this last season.

Much less predictable and a much less typical move for the Twins to make, especially so early in the off-season, was a somewhat unusual deal where the Twins sent a young but still very far from developed outfield prospect in Carlos Gomez to the Brewers for a former All-Star shortstop J.J. Hardy who has struggled mightily his last two seasons after appearing in 2008 to be part of a core of young talent around which the Brewers would build their team. While neither player seems like particularly attractive trade bait (Hardy is coming off an abysmal year and Gomez has not blossomed into a productive hitter since being acquired in the Santana deal) the trade does actually make a fair amount of sense for both clubs who may both benefit, and in my opinion, particularly the Twins could have pulled off a real coup here even if the likely outcome is marginal improvement. I believe this trade has more inherent risk for the Brewers since Hardy's abilities have been borne out by real world experience and him performing at a high level would be returning to a previous level of performance as opposed to having a breakout season, but either team could in retrospect appear very foolish if one of these players surprises and plays especially well. However, I think it is more likely that a year from now this trade may have improved both teams in a measurable but not profound way and will not be seen as mistake (at least not a major mistake) for either front office.

While Gomez was the most prominent player acquired in the Santana trade and the only player from that deal to see significant MLB playing time, he was in practice a 4th outfielder and with usual DH Jason Kubel's ability to play a passable if mediocre right-field if needed due to an injury to an outfielder, he was really one of 5 viable options in the outfield, of which he was by far the weakest at the plate. While his fielding was so stellar as to make up in large part for his lack of production at the plate and in my opinion justified his playing time over Delmon Young when the latter was struggling offensively, Gomez will likely never be more than a defensive specialist center fielder on a team that lacks a more offensively productive player at that position unless he significantly improves his plate discipline. While Gomez exuded sheer athleticism and at times was an extremely exciting offensive player (for instance, hitting for the cycle in 2008 and often taking an extra base on sheer speed) at the plate in just over 1000 big league at bats he's had rather mediocre numbers, unable to translate his athletic gifts into MLB production, batting just .248, getting on base less than 3 of 10 trips to the plate at .292 and OPSing a mere .638. As he will only be 24 next season and he already has been playing in the bigs for 3 seasons, it might be the case he has suffered from overly fast promotion, and that he may develop a better ability to translate muscles and speed into power, on base percentage, and base-stealing prowess, but so far he has not shown signs of being on the cusp of being an important MLB talent.

In Hardy the Twins acquire a player who has proven that he has the ability to put together a productive full season at the plate while playing at an above average level at the crucial defensive position of short-stop. He played nearly all of 2007 and 2008 (playing 151 and 146 games respectively) and putting up a total line of .280/.340/.470 averaged over those two full seasons, hitting 26 and 24 HR and making the All-Star team in 2008. In those two seasons his fielding was at least above average, 10th best in MLB at SS at +7 for 2007 based on The Fielding Bible's +/- system, and even at an outstanding level, +19 in 2008 and 4th in MLB. Even if his 2009 struggles at the plate were more than a fluke (his line at the MLB level last year was a disappointing .229/.302/.357 that earned him a demotion to AAA 2 days before he would accrued enough playing time to have qualified for Free Agency after 2010 instead of after 2011) he nets the Twins at least a possible medium-term solution at short-stop, a position that aside from Orlando Cabrera's brief tenure there in this year's pennant race has been a constant source of instability and has featured a revolving door of players, none of whom were particular talented hitters, since Jason Bartlett was dealt along with Matt Garza for Delmon Young and Brendan Harris. A note on Hardy's demotion last year: as mentioned in passing, while going from being an All-Star to earning a demotion to AAA in a year doesn't generally make them more attractive trade fodder, Hardy's demotion could have been strategic on Milwaukee's part, as Alcides Escobar's breakout year allowed the Brewers the flexibility to demote Hardy which resulted in the Brewers or now the Twins maintaining control over Hardy for two years instead of one, surely a huge factor in this trade.

This trade does not look unbalanced for either team from the outset, as both teams traded from positions of relative strength: the Brewers gave up a player who would have become a possibly divisive clubhouse presence as well as likely ending up a relatively expensive back-up shortstop for the youngster Escobar (Hardy is set to make $4.65 million in 2010 and has another arbitration year in 2011.) The Twins will retain control of Hardy for two years at least and will get a full two seasons to see if 2009 was flukishly bad and even if he can't repeat the .821 OPS of his 2008 season if a .750ish OPS-hitting, above average fielding SS could be part of their long-term plans.

In exchange for this buy-low addition for the Twins, they give up 4 years of control of an athletically gifted prospect who once was projected to have a very high ceiling, but who has had a lot of that promise fade now after about 2 full seasons worth of at bats over 3 years at the MLB level where his production has never surpassed mediocre for any extended period of time. On the other hand, while the Brewers are not exactly lacking for an outfield Mike Cameron is getting older and having Gomez on the bench gives the Brewers a number of advantageous ways to use Gomez's speed, stellar defense and skill at bunting for hits (bizarrely accompanied by an unacceptable lack of skill at executing a sacrifice bunt) all mean he could find a niche as a bench player in Milwaukee, potentially being used as a pinch runner, late game defensive replacement and perhaps as a pinch hitter in certain situations with less than two outs where the Brewers want to put pressure on a team's infield. He also gives the Brewers outfield depth they were lacking by providing top-tier defense and at least intermittent offensive production as a potential replacement for an injured player. Gomez's speed and ability to read the ball off the bat have lead him to rack up in full-time play in 2008 and part-time play in 2009 +/- numbers of +29, easily #1 in MLB in 2008, and +17, #4 in MLB in 2009 while only playing about 2/3 of a season's worth of innings. While not making up for his below-average plate performance, as an overall player the number of runs he takes away from other teams relative to the average CF's performance are significantly above average and partially compensate for a lack of consistent output at the plate thus far in his young career; all in all even if he doesn't break out and develop significantly he gives the Brewers a very solid and versatile bench player and a serviceable backup if they have injuries in the outfield.

After the Garza/Bartlett for Young/Harris debacle, this is really the second major trade of the Bill Smith era that is a talent-for-talent deal where both teams could have walked away but in the end thought they they each will benefit; the Santana trade certainly might have played out better but the strategic disadvantage of being unable to resign Santana forced Smith to strike some deal sending away his ace pitcher. While the talent involved in this deal is not as valuable or high-profile as the Tampa Bay deal, in this case the Twins are on the right side of a trade where a proven but somewhat inconsistent MLB talent is dealt for a young, unproven outfield prospect who has shown promise but not real production in the show. In the near-term the Twins gain two years of a cost-controlled player who could easily shore up or at the outer edge of probability provide above average play at short-stop, a position that has been a consistent liability for the Twins. If Hardy can prove that 2009 was in fact merely a fluke year and Smith can extend him he may come away from this deal looking very smart indeed. If Hardy's struggles prove more permanent then the Twins are basically where they were before since both players on the left side of their infield (1 year rentals in Orlando Cabrera and Joe Crede) are almost certainly not going to be resigned as free agents. In exchange for this low-risk, high-reward potential Smith dealt a nice player in Gomez, but a player who, even with injuries in the outfield, was hard to find playing time for due to the glut of more talented outfielders the Twins carry; while Gomez's defense was stellar, unless he can make a drastic improvement at the plate, hit for more power, better average, and draw more walks, he will never be the type of valuable everyday CF that the Twins already have in Denard Span. While the Twins outfield defense with both Span and Gomez patrolling seemed that nearly any fly ball that was not a homer would be caught, the Twins will go forward with a more productive offensive outfield and a center-fielder who is no defensive slouch in Denard Span, accompanied by Young and Cuddyer in left and right with Kubel able to fill in if there is an injury.

So while both teams seem like they will be improved by this deal as they trade from areas of redundancy for areas of want, the Brewers seem to be at much greater risk of looking foolish a few years from now. Hardy was an All-Star the year before last, is a very talented fielder, and if he proves that 2007 and 2008 are better reflections of his actual skill level than a lost year in 2009, the Twins could come away from the deal with a very talented everyday player at a difficult to fill position. If Hardy does not pan out the Twins will only come away looking like losers in this trade if Gomez dramatically improves his offensive performance which would involve improving such basic skills as learning how to better identify strikes, take more pitches and work counts, predict what pitch is likely coming, protect the plate with two strikes, and develop power to boot. It's a tall order, but time is on Gomez's side: he's still only 23. However, the chance that a 28 year old former All-Star will play at a reasonably high level after one off year seems much greater than the chances that an offensive work in progress will turn raw athleticism into consistent production. It's sad to see Go-go go (my one very nice Twins jersey is a Gomez jersey, ironically enough) I'm very excited that Smith pulled off a seeming coup in getting a player with the upside and proven record of Hardy for a guy who has not shown any real reason to expect development into a team-changing producer. While I loved Gomez's defense, hustle and occasionally very exciting play, he has never shown an ability to cope with MLB pitching in 1000+ at bats over three seasons; he still does not see enough pitches, looks confused or simply over-matched throughout at bats, and frequently winds up striking out after 3 or 4 pitches hacking wildly at strike three or conversely being frozen by a pitch far too close to take.

With the shortstop situation in Milwaukee along with the Brewer's keen decision to keep control of Hardy through 2011 it is obvious that they had an eye on trading him this off-season, however, for Smith to work out a deal for a former All-Star SS for a redundant and purely speculative talent whose entire hitting approach is seriously flawed is something of a coup, if a small one, as it would seem that Hardy's 2007 and 2008 production, despite his recent struggles, would be enough to net at the very least a single, younger blue chip prospect or a group of prospects. That the deal was worked out without sending away any young pitching is a pleasant surprise. It could turn out that this deal is forgettable if Hardy turns out to be an average or below average SS for two years and Gomez is a passable bench player or fill-in in Milwaukee, but the likely upside seems to be all on the Twins side. Smith's second decision to pull the trigger on a major trade, in short, seems to have been informed by the backward risk-reward picture embodied in the Garza trade, as this time we are highly unlikely to be the team regretting this trade in a year.

Labels: baseball, twins

Harry Reid announced yesterday that the "Public Option" was back in play in the Senate, but his apparent ace in the hole (pardon the awful Nevada gambling puns) was that states could opt out of the public option if they so chose. What wasn't outlined was how states would opt in or out (would it be an executive branch decision? Would opting out or in be a permanent decision or could it be reversed if the state's government later changed hands to elected officials with a mandate for changing the state's status? Could you opt out after you opted in?) but a much more fundamental problem makes me question how this plan is in anyway practicable. First, to dispatch with the obvious, the "opt out" plan is a clear political triangulation, which might not work anyway, meant to satiate progressives who think the public option is the whole point but to give political cover to blue dogs who, if the opt out plan actually made sense might be able to sell it at home as having gotten health-care but having not forced the most heavy handed government regulation on their constituents.

The problem, though, is this thing called the Constitution. Specifically the very first clause of Article 1, Section 8 which gives the Congress power to levy taxes and excises, but which specifies that "all Duties, Imposts and Excises shall be uniform throughout the United States."

I'm not sure that the details of how the plan will be paid for have been laid out in their final form, but the gist is a penalty for those who can afford insurance but don't get it (which Obama argues is not a tax--hard to follow his logic there) but much more importantly a tax of at least 8% on medium to large employers who provide health-care to all their employees and then an alternative tax that will cost presumably approximately the same as paying for employee's health-care for employers who don't. There will also probably be some sort of tax incentives and penalties for small business owners, too, and there might also be other taxes like something of a luxury tax on "Cadillac" health plans that provide too good of coverage and cost too much.

It's hard to understand how states could allow their citizens to opt out of these taxes; I'm no lawyer but it seems like a pretty clear breach of the aforementioned clause of Article 1 Section 8 to not have these taxes not apply uniformly to all the states, whether they've opted out or not. Given that, if the "opt out" option is that your constituents pay exactly the same amount of taxes to fund federal health care as they would whether you've opted in or out, and the only difference is whether those constituents are eligible for Federal largess which is being paid for out of (in theory) the taxes that they're paying anyways, it seems pretty implausible that even the most live-free-or-die, libertarian polity would support its government hamstringing their state relative to all others by sending tax dollars out of the state to subsidize all the other states' ability to offer "free" health-care, and even the most principled, Federalist state government would be able to justify a policy that would be so costly to state residents.

The opt out plan is basically like an offer from one of your friends who has season tickets for a baseball team to let you and some other friends split the cost and then each get a share of the tickets. Except your friend is forcing you to pay for the tickets anyways and the only thing you can opt out of is accepting the tickets once they're bought and paid for. You might not like baseball, but since you were forced to pay anyways the offer of being able to "opt out" of getting what you paid for is not exactly the same as being able to "opt out" of the whole scheme to share season tickets in the first place.

Until I hear somebody explain how a state would not have to pay for the public option even if they opted out, or if they did, what incentive they would have that would help make up for the shortfall from their decision to opt out it seems like a completely unworkable plan. That's not to say the rest of the plan makes sense, but this feature seems particularly egregious in the way that it has not been thought out, and how a lack of detailed consideration of incentives and understanding of economics seem to make this health-care sage an exercise in political farce bound to turn into legislative nightmare.

Labels: ballyhoo, government, health-care, politics

Populists left and right are supporting "Pay Czar" Kenneth Feinberg's slashing of the pay of top executives at 7 companies that have been propped up by a ton of taxpayer bailout money by about 90% as well as rules for those firms that are designed to incentivize long-term success by making sure that, for instance, stock-linked compensation is pegged to long-term stock performance, presumably to avoid short-term risks that promise a quick buck by piling on long-term systemic risk. That left-leaning folks would support any move to slash CEO pay is unsurprising, but that folks who are generally in favor of a free market are on board with this is a bit more surprising, although not particularly hard to understand.

Bill O'Reilly gave the typical conservative populist justification for this move in a discussion with Neil Cavuto, whose concerns about a slippery slope were dismissed by O'Reilly as paranoid and misplaced. The conservative explanation generally goes something like this: these executives' companies were saved by the government and therefore the taxpayers are essentially the ultimate shareholders and the government is sort of a super-board of directors that looks out for those ultimate shareholders. By making sure that money isn't wasted by paying these executives the gaudy sums of their non-government-money owing counterparts at other firms the government is ensuring that these firms run lean and mean and get paid back more quickly. The reason a conservative like O'Reilly supports the move is that he doesn't want to see taxpayer dollars squandered by lining the pockets of fat cat executives, who by inference, when they work for other firms that are not subject to government regulation, are compensated to a degree that is essentially 10-fold greater than what their performance justifies.

Goldman Sachs's notable success, its many powerful alumni in positions of public service, often regulating both their friends and former competitors (e.g. John Corzine being a Senator and Governor and Hank Paulson being the head of Treasury) and its receipt of public money (both as one of the 9 banks forced to take government capital to shore up public confidence during the crisis last fall and as a very large creditor of AIG) all mean that it is the poster child for the greedy, corrupt, firm whose executives are paid too much because of a friendly system whose rules they control. Despite being held up as one of the worst offenders against any form of social conscience, but having paid back its government obligations, Goldman is more or less back to business as usual both in terms of its business operations and more pertinently to why they're being vilified, in terms of compensation for top employees of the firm. After 2008 when they paid out very little (relative to other years) in base comp and no executive bonuses (they were holding TARP cash at the time) they will be back to paying out millions upon millions in comp for top execs this year with big bonuses too after a boom year for the firm where their stock gained ground amid a bull market. One can see why this situation pisses people off: who decides how much Goldman execs get paid? Goldman execs. The fox doesn't just guard the henhouse... he runs it.

The thing is that Goldman Sachs has been a publicly traded company for a decade now, and it while its top execs are still called "partners" the name is purely symbolic: the company is publicly traded and ultimately the "partners" are not a small group of owners who can act without oversight, but rather they act with the oversight of a board of directors and ultimately the votes of their shareholders. The situation is complicated by the fact that Goldman's IPO was so recent that some larger than normal fraction of shares are held by current or former Goldman execs, but in general at other large companies like Morgan Stanley and dozens of other huge corporations that have been publicly traded companies for a long time, the number of shares that are in the hands of people who don't work for the company is generally the large majority. If the route to profitability were to slash executive pay it seems like that plan would have been pushed for by shareholders at one of the hundreds of institutions set up in this fashion, doesn't it?

And yet there has never been a successful shareholder push at a major publicly held company, even on Wall Street, in the wake of this most recent financial crisis, which in the popular narrative was caused by the incompetence of these well paid plutocrats, where a company's shareholders to voted to slash executive compensation in a manner even remotely similar to the government plan. If it made sense though, you'd think shareholders would be all for this; money not paid out in compensation, especially at a firm without any significant capital costs like a financial firm, would be essentially pure profit and could be distributed to the shareholders as dividends. Yet even as income inequality has risen, the income of the very top portion of earners has exploded, examples arose of extremely dire consequences being the result of decisions made by well-paid, strongly recruited chief executives, still no company took this route. Many of the firms that were run by these very well paid individuals either took a big hit in earnings and market capitalization, had to be saved by government intervention, or went completely belly up, and yet shareholders at GS, Morgan Stanley or any of the hundreds of other corporations in other sectors fail to see the wisdom of demanding that their employees be paid 10% of what they have previously been paid.

Having known many Yankees fans who were generally left leaning, I find it somewhat surprising that for some reason most people I've met who oppose the discrepancy between the pay of say, a chief executive at a large manufacturing corporation and the pay of a blue collar worker at that same company have ever complained to me about the discrepancy of the pay between the players on the Yankees and say, the food vendors at Yankees Stadium. Now I have no problem with this discrepancy; I recognize that the ability to play baseball at the level of a Major Leaguer is an incredibly rare skill. Ironically, of course, their skill is at playing a trivial game, but since millions of people enjoy watching that game and will pay for the privilege, their skills generate wealth and improve the quality of the lives of people who happily exchange hard earned money for game tickets, Yankees caps, etc. But perhaps it is merely because people intuitively understand that Alex Rodriguez's ability to hit a baseball is exceedingly rare it is the reason that they do not complain that he is paid tens of thousands of dollars per hour of game time. They understand that the idea that the Yankees would try to slash costs to improve their team is ludicrous. As in real life, in Major League Baseball, human capital is mobile; an inability to pay people well will lead to a lack of talent (see the consistent failure of teams like the Pittsburgh Pirates that chronically cannot pay as well as the Yankees) and people interested in seeing the Yankees be successful on the field and at making money obviously think that their massive payroll to get and keep top talent is justified.

In the realm of finance, it seems, people are under the impression that CEOs are replaceable, a dime a dozen, interchangeable, and that systems of evaluating and pricing talent in positions of crucial importance for the success of the organization are disconnected from incentives like seeing the firm succeed or control risks. But just as sometimes the Yankees misallocate large amounts of payroll (see Carl Pavano) and such examples and tales of golden parachutes on Wall Street show that such systems are obviously imperfect and sometimes absolutely wrong, and just as the Yankees don't always win the World Series just because they pay their players several fold more than most other ball-clubs, that doesn't mean that the entire premise of incentivizing performance with pay is flawed.

For now, the fate of these 7 firms will be interesting to watch; as financial wards of the state the mobility of their top executives and the autonomy of decision-making of the firms' employees both in staying or leaving and in day to day operations is unclear; it would seem to me that the best executives, who suddenly find themselves being compensated for the foreseeable future at a level that a competitor could easily double, triple, or increase nearly 10-fold, would jump ship if they could. If they can't, their incentive to try to rise up within the organization and put forth the extraordinary effort of the stereotypical workaholic businessman glued to his blackberry seems like it would only be to maintain their reputation so that their pay will increase relative to past levels once they can either be paid in the old way by their firm once they're out from under government regulation or once they can leave their current firm.

So at best there are reasons for the best workers to try to leave the firm, for other firms to poach talent at bargain basement prices, and only weak incentives to continue putting forth full effort that would increase profits and get the taxpayers their money back that are contingent on the idea that their pay will someday be back to near what it would have been. The automakers regulated under this plan can be discounted; they will never be profitable for reasons unrelated to executive compensation. But the performance going forward of Bank of America will set a bad precedent no matter what happens; if the pay cuts decrease the quality of employees or the quality of their work then capital will flow out of the firm, the firm will be less profitable, and taxpayers will wait longer to get their money back. Further, if there is a massive flight of talent from these firms then the incentive for the government will be to somehow level the playing field and limit executive pay more broadly. If the firms exceed expectations then the government will be emboldened to curb CEO pay more broadly and more worrisome, the model of a firm "too big to fail" seems like it will be proved viable and government will inextricably become more intertwined with business.

The latter scenario seems very hard to fathom, however, and I doubt that this experiment will do anything but prove that while imperfect and probably permeated by a significant fraction of misses, the system of rewarding outstanding performance abilities held by a limited number of highly talented individuals with a a very rare skill with outstanding compensation will be vindicated. While no one questions that Alex Rodriguez has a very rare skill that is therefore worth very high compensation in a free market, seeing why some white guy in a suit is so special is less easy to accept; if it weren't him it would be somebody else, it seems, but the number of individuals with the intelligence, experience, leadership and interpersonal skills to successfully create business strategies for an extremely complex business like an investment bank that deals with billions of dollars daily is few, and those who do so successfully must be compensated well to maintain competitiveness in a global marketplace. While there will be unsuccessful individuals and they should be sacked, while it's no more fair than the gaudy sums that Alex Rodriguez is paid for playing a children's game very very well, you should be paid a competitive rate if you possess the ability to successfully helm a company that facilitates trillions of dollars of global capital flows in a given year and creates massive amounts of wealth for those who work for the firm and, in the case of say, a successful investment bank or fund management firm, for the businesses who are their clients or the investors who trust them with their money, often including large institutional investors such as state or union pension funds.

Is it justified? It depends. But while money talks, it also walks these days. If the U.S., for instance, were, hypothetically, I stress, to cap CEO pay, it seems likely that foreign firms like UBS and Deutsche Bank would feel that the skills of the executives at competing firms like Morgan Stanley and Goldman would be valuable enough that they would pay them a large amount of money to jump ship. It's like the Yankees and Red Sox, now, but we could make it like the Yankees and Pirates. Why we would think that would be the way back to competitiveness, I have no idea.

One final comment, to paraphrase a quote from the man behind this decision to cut CEO pay at these government indebted firms, Special Master for compensation Kenneth Feinberg, he says he doesn't want to be called the Pay Czar because that suggests imperial powers whereas his job has involved months upon months of negotiations and meetings and haggling and this number and plan were reached in a process that resembled a negotiation. There's only one problem. The final decision rested in the hands of one Kenneth Feinberg, and while the companies can appeal this decision, the appeal goes to... Kenneth Feinberg. That sounds like an imperial power to me, no?

Who is John Galt?

Labels: ballyhoo, baseball, economics, government, politics

Two hundred twenty-five individuals possess half of the privately held wealth in the world, at least that's what two protesters on TV said as a reason why capitalism is bad. The two young women were protesters of the G20 summit and the system of mixed markets and government regulated global capitalism that has, through historical trial and error, proved to be the worst system of capital distribution other than any other one that's ever been tried. Sadly, while I didn't catch the vocation of one of the two ladies one identified herself as a graduate student (subject left unspecified) at the University of Pittsburgh.

It seemed hard to believe that there are people who are in line to earn post-graduate degrees who say things as banal with regards to capitalism as a system as "why does anyone need to make more than $500,00 a year?" and when asked what their alternative system of wealth distribution would be they would be for not centralized government based control of the economy but "people-based distribution of wealth." It's one thing to distrust that corporations will not use power they accumulate for nefarious purposes, or to think that our country doesn't do enough to provide enough social welfare programs by taxing the rich further. But how can someone who graduated from high school and then college not make basic observations like: living standards for people generally are highest in countries that, while they have greater or lesser amounts of government redistribution of wealth, are fundamentally market capitalist systems (with regulation) and that furthermore this economic system is compatible with representative forms of democracy that generally promote the greatest amounts of personal freedom of any historical political entity? Did they not pick up the independent thinking skills to follow their thought process of "people-based distribution of wealth" and "why should anybody make more than $500,000 a year?" and get to the conclusions that people work based on incentives, that in a "people-based wealth distribution system," the incentive will be to get non-monetary perks in the form of political power, that history has shown that this inevitably leads to a powerful elite and an enslaved population and finally that if you don't let people make (and keep) more than $500,000 they won't go out and do the work that creates the wealth that make all of our lives so much better than they would be if we didn't have this society.

Sadly, too, the grad student at the end launched into a maudlin story at end of her interview about how she came from working class stock and cared about the poor and that if all America's wealth were split up evenly that a family of 4 would have nearly $200,000. Sigh. Of course, after that year where you confiscated all the peoples' money the massive disincentive on wealth creation would cause the amount of money available to a family of four next year to be a much, much smaller number. Further, she didn't seem to understand the beauty of a system that allowed her, the descendant of poor people who had struggled through life with much more difficult conditions of living and no time to ponder the evils of capitalism, to have in a few short generations to have, based on her own intelligence (such as it is) to have a life in academia where, due to capitalism, she will live in relative comfort and that her capitalist stooge grand parents would be very pleased that their toil within the capitalist system allowed her to live in comfort.

With fundamental tenets of capitalism under threat in less inane and more reasonable ways, though, the general anti-capitalist mood of the country is depressing. Barack Obama pledged today to end the cycle of boom and bust and to regulate executive pay. Why? To what end? The ability to pay large sums of money for extremely rare, high wealth generating talent is a fundamental aspect of capitalism. Is it a surprise that the Yankees and Red Sox, the two highest paid baseball teams in the Major Leagues, are going into the playoffs as the favorites... again. If CEOs are ineffective then that is a failure of the market and the answer is to empower competitors of the company who is squandering money on an overpriced CEO. In baseball it seems to work well enough; sometimes baseball players have flukish prior performance and they get lucrative contracts that are too rich for their talents, in general quite a bit of research is dedicated to allocating salary so that the competitive value added to the team is worth the outlay.

Booms and busts are another feature of the capitalist system; the worst system except for all the other ones. For all the complaint about stagnation of median wage growth--which is a valid concern, and is a symptom, I believe, of the U.S. not embracing the knowledge economy in deeds actively enough, as the financial difference between the intellectual/educational "haves" and "have nots" ever starker--the U.S. still has a higher median income (not mean, median) of any major industrialized country (I believe Luxembourg beats us.) So are there problems with the system? Of course; they're just much, much more manageable than those of any other system of economic arrangement. Financial regulation is fine, but as I've written before, it's naive to think that you can have only the boom part of capitalism. You can ratchet down the amount of risk people can take... and of course thereby ratchet down their ability to make a strong return on investment. This is a question we should have frankly; in Europe they all already had slightly less, were more equal to each other in wealth, but were still often wiped out by the global crash; Iceland--the whole country--had to declare bankruptcy. We can go to a more European, regulated, less income inequality, less free market system, but we do so by sacrificing GDP growth, innovation, speed of increase in quality of living conditions, and ability to provide fuller employment. France has been at about 10% unemployment for years. Are we so short sighted that having, for most of us in society, not lived through the Great Depression, not having felt the down-side of a system that gives people an essential quality to be free economic actors who can take risks (which--I guess people forgot this--can end badly) once they taste that dark side that manifests itself cyclically, they're ready to give up on the whole thing. They're ready to throw away the booms in order to throw away the busts. Like the girl who asks why we anyone should have more than $500,000 a year and wishes that everyone just had an equal share of the $200,000 we generate per 4 people in this country, there's very little understanding that the convictions that those who went before us and created the greatest wealth creation engine in the history of the world are being cast aside for a vision of benefits without costs that will never materialize.

Labels: ballyhoo, economics, government

In the debate over health-care, many other countries are held up as models of systems that, while not perfect, don't let anyone fall through the cracks and do a better job at avoiding preventable deaths than the U.S. The implication: keep your massive insurance premiums and plastic surgery and give me an effective, government regulated program.

The other industrialized nations seem to get more bang for their buck; across the entire 25 nations of the EU, according to an EU analysis of health-care spending and effectiveness, a mere 8% of GDP is spent on health as opposed to the US where we spend nearly double that at 15%. They don't give a tabular form of health-care spending as a percentage of GDP but it seems that in the EU15 (i.e., the Western European countries with whom our economies are most comparable) they spend more than the EU average; the text mentions that France and Germany both spend approximately 10% of GDP on health-care. However, one questions their metric on the rate of avoidable deaths when they note that

Spain and Greece, which spend much less on health care than Germany (approximately 8% of GDP), do a much better job of avoiding mortality. Similarly, levels of avoidable mortality do not always refl ect levels of spending in the newer Member States either (Newey et al. 2004).

Whoa. So the German model of state-regulated organization of people into what are essentially health-care co-ops that get treatment from for-profit providers, is inferior to the public option model of Spain, a public insurance scheme in which most Spaniards take part? Or that the newer members (i.e. countries in Southern and Eastern Europe) are better too? Not to slander places like Spain and Greece and Slovakia (from where some of my ancestors trace their roots) but would you rather have the health-care accessible in Spain and Greece and the newer members of the E.U. than that, not of the U.S., but of Germany or France? Greece and Slovakia and Spain simply don't have the GDP and general level of technological advancement that make me confident that this metric is accurate.

But let's take the into account some other issues. One issue conservatives in opposition to the current legislation proposals bring up over and over is tort reform. One they do not is intellectual property. I have not heard once mentioned that one of the few sectors of the global economy where free trade has not been on the march as we've globalized the economy is pharmaceuticals. I heard some people ask at the health-care town halls why the U.S. government doesn't use its considerable bargaining power to get us the cheap drugs they have access to in Canada. The short answer is that if we paid the same as Canada for drugs there would be a lot less money for drug R&D. As a research scientist I'll tell you the way that funding is doled out by the Federal government via the NIH, sometimes the National Endowment for the Sciences and private foundations while meritocratic and not bad attempt at reaching an optimal distribution of limited public and charitable resources looks, in scale, like absolutely small potatoes next to what even a pilot program co-development contract with a big Pharma company looks like. Furthermore, even though an academic who, say, discovers a drug does not actually own the intellectual property rights to his discovery (generally the University or other research institution that employs him does) but if that drug goes on to be profitable, even though the revenue for the institution is only a royalty paid to license the drug, and then somewhere generally around 50-75% of the net revenue to the institution goes to the department, further research funding, etc, so a small fraction of a small fraction ends up with the inventor, that can still be enough to make that guy a millionaire many times over. (Note: this is an exceedingly rare consequence of becoming an academic scientist.)

At any rate, Big Pharma has that money to offer scientists with potential drugs to develop and the money to pay for licensing of basic science (they do their own proprietary, non-published R&D too) and also do things like have some of the most impressive biomedical journal libraries I've ever seen because they make a lot of money, it's true. They make most of their money in the United States market because a) it's a huge market and b) consumers or their insurers pay a lot more than people in other countries. In other countries, first of all, patent law differs and any disclosure of things like the molecular formula of a drug before an international patent is filed renders it public domain, whereas in the U.S. a placeholder can give drugs that were not developed in house at big Pharma R&D labs about a year of protection between say, publication or presentation at a conference and patenting. This is a small part of the problem, but it puts some drugs into the public domain in other countries that are profitable in the U.S. More importantly, other countries with nationalized health systems can basically make the pharmaceutical companies a pretty difficult to refuse offer (although not impossible; sometimes the most modern drugs for treating, say, a relatively rare cancer are not available in places like the UK because reasons of cost dictate that the national health-care system doesn't buy the drug) But generally, the offer is something like this: give us your drug at a price that is far below what it is in the U.S. but is still going to make you a profit in the sense that now that you've got the ability to mass produce the drug, the cost to make a pill is far less than the price on offer, or don't sell your drug in our country and reap no money at all. Let's see... the choice, after you've already done the R&D and built the factories is between: large volume of sales that generate far more revenue than they do expenditures on things like labor and materials, or have invested all that money in R&D and manufacturing and don't sell it to a huge swath of the world... Of course, that "profit" that the companies make when you look solely at the cost of making a pill versus how much the pill is sold for is not enough to both fund R&D and actually create real, net profits for the company which has to do lots of expensive R&D before it has a pill to offer,. Generally the difference is made up when companies recoup their less profitable sales with higher prices on U.S. consumers, who fortunately for big Pharma and foreigners but sadly for Americans, live in a country that does not engage in government price controls of pharmaceuticals (yet, anyways.)

We hear often asked "Why can't Americans pay what Canadians do for prescription drugs?" I think a better question is: Why can't the Canadians, the British, the Germans, the French, etc., pay as much in the future as Americans, which would be less than we pay now, but more than they do. Am I being unfair? Am I claiming that the Europeans are basically cherry-picking of expenditures made by the U.S. to sustain health care programs for a lower cost than they could if the U.S. didn't do what it does? Basically, yes. Let's take a look at, say, military expenditures. They slice a full fifth of the pie (20%) of the U.S. government's expenditures and the U.S. military frankly provides protection (sometimes literally, as in Germany and Japan and South Korea) and figuratively by providing a military option to deal with any rogue states who engage in aggressive acts for many countries whose health-care systems we can attempt to emulate like Germany, the UK, Canada and Taiwan. Taiwan is an exception to the following statement, but it certainly spends less on defense than it would if the U.S. didn't keep carrier groups in the western Pacific. With that exception, expenditures in the European and other industrialized countries by the government must be topped by the UK, which at 6.6%, spends almost exactly one third as much of its government expenditures as the U.S. spends about 4.5% of its GDP on its military; Germany spends a good bit less than a third of that at 1.3%. If we were in the opposite position and the EU spent so much on keeping the peace via military spending that we could go from 4.5% of GDP on defense to 1.3% and shifted that peace dividend to paying for health-care we'd basically have the disposable income of a country that spent a shade under 12% of its GDP on health-care, comparable to the 10% Germany spends.

The military situation is a non-sequitur, you might argue, we chose to be the global policeman or at the very least chose to invade Iraq, and at any rate we were the ones who demilitarized Germany and Japan and attempted to avoid military build-ups in other industrialized countries in the first place. True enough. A more direct issue of cherry-picking is the fact that as alluded to before in terms of prescription pharmaceuticals, all sorts of biomedical innovation takes place disproportionately in the U.S., where we spend more money per capita on R&D, driven by our more profit-driven health-care system, and the rest of the world reaps the benefits as medical devices, techniques, and basic knowledge generated in the U.S. become available for use in countries that have eliminated a powerful incentive to innovate from their health-care systems.

First of all, looking at research across a wide panel of biomedical research categories, using a metric of average impact of the research done in a field in a country (specifically "transferred Normalized Mean Citation Rate"--the world mean is 0 as will become obvious), the U.S. out competes every country in the world, with a mean of .155, versus a respectable .118 in the UK, but of the 6 large, industrialized countries in the study (the US, UK, Germany, France, Italy and Japan) the next highest value is Germany at .026, followed by France at .012, Italy at -0.052 and Japan at -0.111. That America's research would generally have an impact that much greater than Germany, original home of Merck (now an American company, natch) and once the land whose language was the lingua franca of science says quite a bit about their innovation. This measure in the field of Clinical Medicine is even more striking, with only the UK being competitive with the U.S., with the U.S. 0.165 and the UK at 0.093; Germany, France and Japan, all considered model health systems? They respectively come in at -0.029, -0.07, -0.10. Worse than the global average of scientific papers written.

OK, well, that's a metric about how good countries are at writing papers. What about the whole kit and caboodle of biomedical research. Glad you asked. Two countries in Europe outspend us on R&D as a percentage of GDP: Sweden and Finland. They spend 4% and 3%, admirably, compared to the U.S.'s 2.7%. The only model system frequently mentioned that comes close the U.S. is Germany at 2.4%, but as shown above, their bang for their buck is questionable. The study from which I'm quoting these new figures found something similar to Hu and Russeau, which is that per billion dollars of R&D dollars spent Germany generates 1200 and change citiations, compared to over 2600 for the U.S. Research spending in the original 15 EU countries (essentially Western Europe plus Greece) is 1.9% of GDP throughout the region compared to America's 2.7%, with generally less productive research, with 2665 citations per billion dollars spent in the U.S. versus 1723 for the EU-15.

This doesn't explain all the discrepancies but it points to the sources of some of them. We spend more on R&D because the market demands it as opposed to the state mandating how much we get. We get more bang for the buck because, heavily regulated though it is, U.S. research Universities and hospitals still are under more consumer pressure than their European counterparts to innovate. We pay more than we should because of a trade status quo where Pharmaceutical companies make up for nationalized price controls in the rest of the world by making up the difference by tapping the U.S. consumer. In other countries more regulated economic systems provide for less disincentive to becoming a doctor relative to the drop in pay (doctors in Germany and Japan make about half of what their counterparts in the U.S. do) because there is less income inequality. Regardless of how you feel about income inequality, it seems axiomatic that in a country with greater income inequality implementing cost controls to reduce the percentage of GDP spent on health-care by lowering doctors salaries will, ceteris parabis, mean more people dissuaded from becoming a doctor than in a country where more lucrative options are less plentiful and less profitable.

Health-care must be reformed. No one disputes this. But I question whether it's fair to argue, by implication alone, that the reason the U.S. spends so much more on health-care as a percentage of GDP is merely that we are lining insurance company CEO's wallets with profits. A number of structural factors mean that we spend more on research, are more productive in that research and therefore drive medical innovation in the rest of the world, and the cost of that innovation is therefore born disproportionately by the U.S. Similarly with prescription drugs, a trade regime that allows for price controls around the world leaves the U.S. consumer in a position where they pick up the slack for the a world of patients who are free riders. Simple structural differences in the countries like what a young person looking to make a career's options are, and the financial reward they will receive in relation to the amount of work they will do if they enter a health-care profession versus another profession all make U.S. health-care more expensive. We could nationalize health-care and control costs; in this country, though, doctor shortages of the type seen in Canada and Germany and Japan where their economic structures and socioeconomic and demographic pictures are more egalitarian and homogeneous than ours, would probably arise, and probably be worse than in those countries. In other words, before you say that big, industrialized countries aren't in financial ruin because they have more highly regulated health-care structures (and they spend less money, too) jumping to the conclusion that if we adopted the same structure that we could afford it (and the corollary that we'd actually save money) is far from obvious to me. I'd like to see these questions addressed before analogies to systems in other countries that differ in so many ways from our own are tossed about.

Labels: ballyhoo, economics, health-care

Today in a speech that was basically a stern lambasting of Wall Street that described similar regulatory structures to those he's proposed before, Obama claimed that Wall Street would retain robust "choice and competition," a phrase we've heard quite a bit recently in the health-care debate. The irony, to me, when the phrase is used in that political context is that some new government run system of providing health insurance to those who either are unemployed and don't qualify for a government subsidized program like Medicare or Medicaid, or don't get insurance through their job and can't afford or choose not to buy health-insurance, often have few choices in private plans to buy and have to "pay retail" for an individual plan precisely because Federal and State governments restrict competition between insurers to sometimes a very large extent. At the very least, plans must be provided by an in-state provider, the provider must cover a minimum list of procedures, the composition of which is subject to the manipulation of special interests (should your health insurance be forced to cover your Chiropractic appointment?) and in some states like New York, "community rating" in addition forces a maximum price differential for the most and least risky insurance buyers in order to pool the risk.

Now the community rating laws work to increase access to insurance--the net income on a young healthy person who pays a minimum premium helps subsidize the premium of an older, sicker person who the insurance company knows would be a net loss at almost any premium rate. Competition in the general sense when talking about economics is the idea that when a market has a level playing field and there are low barriers to entry, the more players in a market there are the more pressure there is to drive down prices to win market share. The idea that this would be the effect of a public option is hard to fathom, and the result seems to be to redefine the meaning of "competition" as that the existence of a public option that could in theory run at a loss and even if it didn't exist, if it could be "triggered" if insurance companies don't mean targets, is that "competition" means providing monopoly pressure to get all insurance companies to provide uniform coverage that satisfies political objectives of expanding coverage, etc.

Similarly, Obama wants to maintain competition and choice in the financial sector. Unfortunately, recent financial history seems to show a problem with robust competition in financial markets and the kind of sensible regulation that Obama wants to prevent this type of crisis from occurring again. Again unfortunately, if anything seems to be apparent from the history of bubbles, from speculators driving the price of some tulip bulbs above that of a house in 17th century Holland, to a rogue Scotch murderer bankrupting the French Monarchy by selling colonial estates on Louisiana swamp land to having two real-estate speculation driven crisis in about 20 years the ingenuity of greedy people to avoid the gaze of financial regulators seems boundless. And of course, greed is a part of human nature that will not go away after this economic crisis.

More than a year ago, before Lehman was allowed to collapse, Hank Paulson, then Treasury Secretary and former CEO of Goldman Sachs (a rival of Bear Stearns) had two conflicting problems that would define the initial phase of the crisis. First, he didn't seem to understand both the scope of the interconnectedness of the various "shadow banks," that is, financial institutions that held deposits and loaned out money to make a return on investment that were not commercial banks, and also failed to perceive the degree to which their mortgage-backed securities were vastly overvalued. His second problem was that he wanted to avoid a problem that has been and remains a fundamental tenet of management of risk management in a system of interconnected entities: moral hazard. As Americans learned in a visceral manner, moral hazard is the risk that if an entity that takes an overly large risk is about to go bust but is saved by intervention from overseers--in the case of Bear the Federal regulators at Treasury--in other words, if regulators act on the belief that some group of entities are "too big to fail," that action sends a strong message to similar entities that they will not be allowed to fail either. This creates perverse incentives for, in this case, the firms in the shadow banking sector not to perform sufficiently rigorous and conservative internal risk management. While ratings agencies had given nearly worthless paper grades of A, AA and AAA, truly prudent firms would not have relied on a few outside opinions and examined the fundamentals of these securities, especially before betting on them in such a highly leveraged manner (i.e. with borrowed money, meaning that if the investment goes completely belly up then the loss can exceed the amount of money that was put in by a large multiple.)

When Bear was stuttering Hank Paulson tried to split the difference by basically trying to create what he thought was a bailout that no other business would want to undergo; a company whose share price was about $60 a month before its crisis was told it was not going to be allowed to go bankrupt by Treasury, but instead of being bought out at the taxpayer's expense at what people were predicting would be something like $20 a share, the grim news was that the buyout would be $2 a share. People with large positions in Bear had significant fractions of their portfolio wiped out. If Bear had been a single rogue company that had been betting on these treasury backed securities and other companies had been more responsible, perhaps this bailout nobody else would want would have circled the square of avoiding moral hazard and allowing Bear to survive and eventually recover.

Of course that didn't happen. Many other firms were staring oblivion in the face. A year ago today, due to the lack of understanding of the interconnectedness of the banks, Paulson did not repeat the action with Lehman. Merrill Lynch had to have a hastily financed sale to Bank of America to avoid completely evaporating. At this point Treasury realized its colossal error and prevented one of the largest insurers in the world, AIG, from collapsing, and forced a number of other firms to take government money to back up confidence that the firms were solvent. In further actions the Obama government would attempt a Keynsian injection of a similar but slightly smaller scale to the original emergency backstop of TARP and diverse firms in other sectors of the economy were further deemed too big to fail for political reasons: some banks but most notably GM, which has essentially been nationalized.

Meanwhile, in the year since the crash, a vague sense of normalcy (and salaries) have return as Wall Street has rebounded and markets have recovered. Obama's scolding of the businessmen who he addressed today, unfortunately, is perhaps the best he can do in terms of trying to circle the square that Paulson could not. Overly burdensome regulation could stifle one of the most productive sectors of the U.S. economy; while liberals might glee in the idea of the downfall of Wall Street, without the income taxes on the high incomes of individuals in a sector of the economy that in the boom years of the early 2000s was 20-30% of the economy financing government programs seems even more problematic. The idea that we can eliminate systematic risk by limiting executive compensation or with more moderate reforms (like the type Obama has proposed) like increased transparency in hedge funds or limits on the degree to which investments can be levered might be true; the idea that these reforms would both have a benign effect on the financial sectors' profitability and perhaps more importantly prevent systematic risk in the future are overoptimistic.

In this global economy capital can easily flow out of the country in order to seek a greater return if American funds are limited in their suite of investment tools, and if a new regulatory structure is backward looking and regulates the sectors of the economy where high-risk, high-reward strategies were tried in the past allows the same high-risk, high-reward strategies to simply flow somewhere else, then you've simply shut the barn door after the horses left. One more problem is that a contributing factor to the crisis was that the mortgage was far from free--two of the biggest nominally private firms that were government creations, Fannie Mae and Freddie Mac, combined held over 50% of U.S. mortgages and contributed to the sense that the whole panoply of financial institutions could not be allowed to fail. A year in retrospect, some argue that this might not have been entirely true. While the depth and severity of the crisis probably would have been significantly worse if the government had simply sat and watched as huge firms holding a large fraction of U.S. mortgages went broke, the fact that massive spending, monetization of debt, and domestic reforms have trumped reform of Wall Street's rule in the wake of the crisis signal that for all the talk of getting tough with Wall Street that the end result of this once in a lifetime crisis might be little more than talk.

I'll be honest: it's talking out of both sides of your mouth to oppose regulations that meaningfully eliminate systemic risk and to outright oppose any further government intervention into the financial sector: if the government hadn't provided a backstop for the financial sector then much of it wouldn't exist anymore to have gotten back to generating large revenues again. This is a case where bi-partisan efforts can truly be useful, if we come at the problem from the perspective that capitalism is generally a good thing, but like any system that allows actors significant freedom, is prone to those actors either intentionally breaking the rules or making stupid decisions. If the government can recognize that the point is not to punish Wall Street for its perceived sins but to try to fix problems where they exist and to try to allow Wall Street firms to thrive while decoupling their actions from a system where risk is so intertwined and massive that a speculative bubble in one firm can trigger a systematic collapse, change, of the good kind, could result.

Labels: economics, government

It's been 8 years now since the singular tragedy where for the first time since Pearl Harbor a foreign attacker killed thousands of Americans in a sneak attack. For the first time since the War of 1812 an external force both visited this kind of carnage on the U.S. mainland and succeeded in destroying iconic symbols of our nation. The combination of the targeting of civilians, the scale of the attack and the modern history of the U.S. where even "total war" never extended to the home front all combined to make the events of that day sui generis.

At the time it seemed that we had reached a point unmoored from any traditional construct of history, foreign policy, even domestic politics. The end of the Cold War had led to a unipolar world where the U.S. and U.S. led international institutions like NATO, the IMF and the World Bank would take the lead and gradually the entire world would abandon liberal democratic values, centrist trade policies and open, mixed economies. The U.S. would maintain its military for rising threats such as China, a resurgent Russia, etc., but diplomacy would steer the world through an era of indefinite peace, where the flash-points would be amenable to negotiation like the disputes between India and Pakistan or China and Taiwan. If rogue regimes acted out broad international consensus would develop to set the situation right, such as during the First Gulf War after Iraq invaded Kuwait. By 2000, the apparent peace dividend was such that even conventional domestic policies were changing in new ways. While Republicans had, since Reagan, abandoned their mantle as deficit hawks, the point was to permit tax cuts, not to expand social entitlements. George W. Bush, however, ran in a climate that's hard to remember now, where "compassionate conservatism" was an idea that at least the press treated with some seriousness (and which was embodied in No Child Left Behind and Medicare Part D.) The biggest political issues at the time were whether the Federal Government would fund embryonic stem-cell research as well as the Education and Medicare initiatives; Google was filing a patent for its search algorithm; in the developed world less than 60% of people had cell phones, a figure being rapidly approached by the entire world's population. For me personally, as a 24 year old, 9/11 currently marks about 2/3 of the way into my life, and about half of my life that I consciously remember occurred before and after.

Just to try to define the epoch-making quality of the events of that day, consider the following: by a fluke of luck, an explosive laden van parked in a fortuitously strong point in the structure of the WTC parking garage, one of the towers destroyed on 9/11 escaped annihilation less than a decade before a different method would be successful in destroying it. The death toll from the first WTC attack was tiny in comparison to 9/11, but make no mistake, it was the placement, not the lack of energy in that bomb that made that event only a minor tragedy. In the interim between the attacks on the WTC, American government institutions were attacked in Saudi Arabia, Kenya, Tanzania and Yemen with at least a dozen American fatalities in each instance and in the U.S. In the pre-9/11 world direct attacks on U.S. institutions abroad--a troop barracks, two of our embassies and a warship--that killed nearly one hundred Americans and hundreds more citizens of other countries made less of an impression on the average citizen than an Islamist attack aimed at Australian vacationers at a nightclub in Bali that killed 4 Australians, 1 Japanese and 15 Indonesians.

Pearl Harbor is often thought of an analogue to 9/11, and in a very important sense that's true: a surprise attack killing thousands of Americans forced America into a struggle which it had thus far stayed out of. On the other hand the analogy is significantly flawed; World War II was a global military conflict and Washington was involved in providing the British materiel and was far from neutral, unknowing or unaffected before being drawn into the war; whether or not isolationism was a good policy was a subject of impassioned debate. People were arguing against going to war after one country had conquered or pacified virtually all of Continental Europe. On 9/11 the American people had little idea--unlike their attackers--of the geopolitical conflict that had been swirling for (depending who you ask) years, decades, or centuries of which the 9/11 attacks were a piece. Americans were vaguely aware of a history of assassinations and coups in the Islamic world, of the wars and negotiations between the Israelis and their Arab neighbors, the Soviet Invasion of Afghanistan, the Iranian revolution and subsequent hostage crisis, Iran-Contra and perhaps the Iran-Iraq War, the First Gulf War and perhaps our military presence in Saudi Arabia, but few had an intuitive feeling that these historical events were tied up in some arc, much less some over-arching struggle. Whether such a struggle exists is questionable, but on 9/11 it is clear that our attackers and their sympathizers who cheered in the streets of Arab cities were aware of it very acutely, whereas Americans generally were entirely oblivious.

These facts raise some pertinent questions about the two wars that we have embarked upon since the attacks. In the immediate aftermath of 9/11 the invasion of Afghanistan was inevitable; while the hijackers were Arabs all but two were from the Arabian Peninsula proper, Al Qaeda has a return address in the incredibly extremist Taliban, the de facto government of Afghanistan at the time. Visiting military action upon the Taliban after it failed to hand over Bin Laden and continued to provide a haven for Al Qaeda was both justified and a political inevitability. However, conditions in Afghanistan at the time obscured the difficulty in imposing sustained military-imposed regime change (especially when a "democracy" must be installed) and this temporary appearance of success prevented us from asking hard questions about what we hoped to achieve by invading Afghanistan. On the surface, this might seem obvious: dismantle Al Qaeda by capturing or killing as many of its leaders and foot-soldiers as possible, and deny it a safe haven in Afghanistan by exterminating the Taliban.

This seemed plausibly easy; when we went in and invaded Afghanistan we did so by allying ourselves with an embattled alliance of ethnic majorities in a small redoubt in Northern Afghanistan--the Northern Alliance--and forging to the southeast. These warriors were in dire straits on 9/11: Less than a week before, Al Qaeda had succeeded in a long-term goal of assassinating their brilliant military commander Ahmad Shah Massoud in a suicide bombing, and the coincidence in timing perhaps saved the alliance, as it was disintegrating in the wake of the assassination, rapidly decreasing territorial control, and a worsening military position. For them, the reaction of America was a god-send, and the initial reason why the war seemed such a success was due in large part to their help. Their soldiers, comprised mostly of Afghan ethnic minorities like Tajiks and Uzbeks, put an Afghan face on the initial and apparent destruction of the Taliban, reducing Western casualties, and creating less tension with local civilian population.

Being released from such a tyrannical regime also provided a backdrop of euphoria and optimism upon which the initial impressions of the Afghan campaign as "the good war" were built.

Almost all the benefits afforded us in Afghanistan were completely the opposite in Iraq. Instead of having a ready, indigenous force to do most of the fighting, the "shock and awe" and Humvees rolling up Highway 1 had the appearance of an invasion, not a liberation. While Saddam had been a monster, his wrath had been exercised in full on only a minority of the population. The regime was mainly secular and interested in political enemies, not infidels, and its intrusion into daily life, while evil and tyrannical, was far from the atavistic public executions of the Taliban. While the Shi'a and Kurds were in general probably genuinely glad to be freed from Saddam, the Sunnis probably were not, and even amongst those who disliked Saddam, the unknown of a U.S. military occupation was fraught with risk and must have seemed a grim prospect. While in Afghanistan only a handful of extremely religious Pashtuns presented a hard corps of Taliban "dead-enders," in Iraq a chaotic mix of Baathist holdouts, Sunni hard-liners soon to become allied with international jihadists, and Shi'a militias all provided ready candidates for insurgency and insurrection. Given these starting points, it's almost impossible to understand how 8 years on from the invasion of Afghanistan and 6 and a half years from the invasion of Iraq that soldiers in Afghanistan are now more than 10 times likely to be a combat casualty. Whatever our goal was in invading Iraq--the big lie of their regime posing some imminent threat to the U.S. having been exposed and their having no relation to 9/11--it seems at least plausible that we might extricate ourselves from that country in a situation where security will remain a major concern, but not immersed in civil war, and with a relatively stable regime (for the experiment of a Federalist system in a tribal, multi-factional Arab country.)

The fact that the war-like Pashtuns in the "tiger park" of the Hindu Kush are proving even more difficult to pacify is no surprise to any student of history. Where the British failed twice and the Soviets failed we seek success. But what is that success? Killing Osama Bin Laden? Dismantling the Al Qaeda? The Taliban?

The unfortunate fact is that while in Iraq we are fighting Arabs whose nationals did not attack us, in Afghanistan we are not attacking Arabs, unless they are foreign jihadists, at all. Bin Laden is a Saudi of Yemeni heritage, and the connections of radical Islam spread throughout the Islamic world. Bin Laden's previous patron was the half-Arab half-black-African nation of Sudan, and the Taliban--while made up of Pashtuns itself-- was in large part the creation of a radical faction of Pakistan's intelligence service, the ISI, a body mostly made up of Punjabis who happen to be Muslms. These radical Islamists feel that (like most of Pakistan's army, probably) Pakistans interests are served by an anti-India neighbor in Afghanistan, a state of affairs ensured if they are radical Islamists like the Taliban.

What am I getting at? For all those who say that there is no battle with Islam, that is true, but unlike in World War II we are not fighting a single clique or political entity. Al Qaeda is more like a franchise--radical jihadist terrorism against the West--than it is a single group of individuals. There can be no equivalent to VE day when Bin Laden is killed or captured and the resistance melts away. So we must ask ourselves: what do we hope to accomplish in Afghanistan and Pakistan? I would argue that we are serving our strategic goal of protecting our country by continually disrupting Al Qaeda's ability to organize, organize people and money, because they're too busy scuttling from safehouse to safehouse. This open-ended conflict against a self-renewing, ideological opponent might seem like it parallels Vietnam. But there's a crucial difference: Vietnam, in hindsight, didn't matter. The domino theory was sort of correct... Laos and Cambodia became Communist, but those countries were of little strategic import and eventually doctrinaire Communism failed there and world-wide anyways.

Islamism is not going away and the Al Qaeda brand, given a home, will metastasize and give those who would slaughter each and every one of us a haven from which to plot that slaughter. The initial campaign in Afghanistan may have seemed like it was too easy, in retrospect, and now we are seeing what happens when a group of people who have been at war for damn near 40 years in a row now do when they feel the oppressive jackboot of an invading army--any invading army--and ideology plays a strong role in this too. Whether we like it or not we will face the threat of attack from those who do see history as a narrative where the West in general and America and Israel in particular are villains that have conspired to oppress and destroy Islam, and who in turn must be murdered. We can start rolling up the carpet in Iraq and Afghanistan, but before we do, we must understand this, and be ready to deal with the consequences of those decisions.


However, while we

Labels: politics, war

I watched another C-SPAN televised town hall today and they've done the country and those who care to pay attention a huge service by doing so. The narratives that the meetings are either infiltrated by unhinged, astroturf Republican sycophants shouting down Democrats or that ACORN or SEIU or other community organizations or unions have organized a massive, concerted counterattack both overstate the case. There are varying degrees of rancor depending on the position of the member of Congress and the political leanings of their constituents, and while there is anger and there are occasionally small groups of people shouting or a large portion of the audience booing, out of turn and in anger, for the most part these incidents result in brief delay in the proceedings, not any sort of effective "shouting down" of the opposition in the sense that those with opposing viewpoints are allowed to express them--they have the microphone--after a brief outburst. Similarly, while those who support the bills seem to be slightly more organized than those who oppose it--often a number of are carrying multiple copies of the same sign, and others who are in their camp have hand-made signs, all of which are held up when the anti-reform crowd cheers in an (ineffective) attempt to create a confusing visual image. References to Nazism have not been present in several meetings I've seen, and the most outlandish thing a supporter on the right said was to question whether Barack Obama was, in fact, a patriot. Jim Webb--whose town hall this view was expressed at--said this was beyond the pale of civil discussion, although permissible under free speech, but that he disagreed with questioning our President's patriotism. Overall the impression I got was that while there is a lot of anger that the idea that the protesters on either side are political pawns or crazy people was completely wrong.

Most opponents were concerned about the general contradiction of how we can save money by expanding care to millions of new people--the Democratic argument basically seems to be that the $1000 tacked onto most folks' health insurance premiums annually to provide acute, emergency care to people who have no general health coverage is equal to or greater to the cost of both insuring them all and also paying for the subsidies of the insurance premiums for all that seem like they must go up if the whole country basically adopts community rating--health insurance companies must charge people more or less the same rate within some relatively narrow band whether they are healthy or not--and furthermore those companies must accept people with pre-existing conditions. The math doesn't seem to work out; you're going to make insurance a lot more expensive for everyone, promise that the government will pay for the part that people can't afford, and put a lot more people into the program, those of whom are the horror stories that necessitate this reform are those who will cost the most to provide care for and/or are the least able to pay for their insurance.

Jim Webb's answers to the hard questions seemed to make much more sense than the Senior Democratic leadership--although to be frank, the partisan anti-health-care reform crowd didn't seem to buy his arguments--but his arguments provided some serious questions about the role of government. His good ideas, first of all, were that he would oppose specifics about proposed legislation that seem to violate the pledge to make this plan pay for itself. Specifically, he opposed the public option at first and if it were to be implemented later to increase pressure to drive down costs it would have to compete on a level playing field and not run at a loss subsidized by taxpayers; he recognizes that this simply continues the failed premise of entitlements like Medicare and Social Security and would lead to a massive budget shortfall in a short period of time. I wasn't quite sure what to make about his proposal that doctors be compensated differently, with the general idea being that the incentives be changed from procedures performed to overall outcomes of patients--an idea which both in theory and as Webb explicitly pointed out would steer more people into becoming GPs and would reduce the disparity in compensation between hot-shot specialists like brain surgeons and the doctors in the trenches of pediatric medicine and general practice. This seems like a necessary type of reform to do something about runaway costs of medicine, but unfortunately it takes a lot more work and years of schooling and skill and is generally something that in the free market would be compensated more richly to be a brain surgeon than to be a pediatrician. Social engineering to encourage the few people who want to be doctors to be GPs by changing the financial incentives so that even when the objectively measured amount of training and difficulty of performing brain surgery is greater by a fair amount than that to become a GP that the discrepancy in pay will be lessened seems like it will lead to a shortage of brain surgeons and therefore waiting and rationing of brain surgeries. And this would apply to all acute and semi-acute specialties where the U.S. truly leads the world... orthopedic and trauma and cardiac surgery, surgical oncologists cutting out tumors, oncology in general.

At least, though, Webb claims he would not vote for a bill that would increase the deficit and laid out specific ways in which the overall cost of health-care must be cut in order for him to believe that the bill will be paid for. He also proposed some unpopular revenue sources to pay for the inevitable short-fall in savings and the cost of the new program (in addition to the $200-$500 billion in cuts to Medicare in the several bills) such as taxes on those who have really expensive "Rolls Royce" health-care plans that cover virtually everything. As a believer in markets one would think that would create a massive niche market for insurance providers who provide the richest possible coverage that isn't taxed and would therefore generate less revenue than the government will predict, but at least he's thinking about it.

As a sidebar one thing he seemed somewhat less dismissive than most Democrats of including Republican ideas that are largely structural changes that are free to the taxpayer such as serious tort reform, truly pro-competition and anti-defensive medicine provisions in a final bill. He did say that 35 states had caps on malpractice awards, but seemed to fail that this was not the only way to reduce the massive malpractice premiums doctors pay. I've found the absolute demonization of insurance companies understandable, but have found the lack of any noise about trial lawyers or any movement by Democrats to throw them under the bus surprising. Loser pays rules, limits on non-economic damages, more stringent rules for what constitutes malpractice such as necessarily including some deviation from a well-defined standard of care could all drive down the massive cost of malpractice suites which manifest themselves both in insurance costs but also in the defensive medicine that doctors practice--this seems like pure common sense--Webb was not dismissive of it, but on the other hand, he was very, very far from promising that he was going to go back and take the word of the people to Harry Reid and make sure that every member of his party would have to vote up or down on including such reforms.

In general his business experience and experience successfully running Virginia's state government with a heavily Republican legislature was clear, and we would do well to elect more officials in every branch of Congress who have actually run things and understand--apparently contrary to many on both sides of government--that waving a wand and declaring something so by fiat is very different from getting in the trenches and making something work. One thing I wonder about, though, is that as a businessman why he doesn't ask why health-care costs are rising so much faster than inflation: how much of it is it due to waste, fraud, deceitful practices of insurance companies and pharma companies and other economic players in the industry and how much is it due to innovation, increased amounts of expensive care being given, and a general rise in the number of transactions where people willingly get effective, life-extending treatment from doctors? A novel proposal he brought up that I've thought about previously but which I've never heard a serious national politician bring up is to address through trade policy the fact that government-run health-care systems in foreign countries (including in the first world) generally have price controls in place and give U.S. Pharmaceutical companies a choice: sell us the drugs at a deep discount and take a small profit margin or we'll wait til they go generic or (in some cases in some countries) circumvent your intellectual property rights and you'll get no profit. That does not spread the burden of paying for massively disproportionately U.S. based pharmaceutical R&D across the industrialized world and is why drugs cost so much less in Canada than in the U.S.--the current model is to get the U.S. market to support the rest of the world by paying retail while they all get the drugs at just above cost. He deflated the can-do spirit of liberal questioners who asked why we don't do what Canada does and use the U.S.'s massive "bargaining power" to negotiate for better drug prices like every other country. Short answer: if there's no profitable market for big pharma, they'll stop producing new drugs. This is a very good idea, but why we can't institute the trade reforms to make the Europeans pay their fair share for drugs outside the scope of a massive overhaul of the entire U.S. system of how health-care reimbursements are paid is beyond me, though.

I still see serious problems with this much less drastic, much more acceptable plan that Webb outlines the broad strokes of, as opposed to HR 3200, though. First, one of the details he outlines for driving down costs is not only having community rating but FORCING those young people who have the money to buy health insurance but choose not to to do pay for a plan (or part of a plan since the plans they can buy in most states now are much, much cheaper than they would be under the Webb plan.) This seems blatantly Unconstitutional, and in the way that gets overturned by Supreme Courts, especially conservative ones, which unless one of the 5 conservatives dies or retires, we will have for the foreseeable future. I say "in the way that gets overturned" because there are many Unconstitutional laws--say Medicare and Social Security-- for which no Federal government mandate exists in Article 1, Section 8 of the Constitution but which give people free money. People generally don't complain about those. When you go from allowing people to make a choice as a free person in a free country not to buy something (health insurance) and live with the risk, such as it is, that you might go bankrupt and be a burden to society if you got hit by a bus, to forcing them to buy such insurance basically in an indirect and somewhat bizarre form of taxation to decrease the overall risk of an average person in the insurance pool to try to keep the premiums of the new insurance companies who are community-rated, allowing prior-existing-conditions, and denying less procedures, those people are going to be upset and ask where the Constitution allows the government to force them to buy something they don't want. Can you think of another good the government makes you buy? Car insurance, yes, but the whole problem with that analogy is that you don't buy a car and drive it around on your own property... you drive it around public roads. In other words, you're taking advantage of a government maintained road network to get to useful places, your driving affects others safety, you have to be licensed to drive on that network, and therefore increased regulation is permissible. Driving on publicly funded and maintained roads is a privilege, not a right. Living and choosing not to buy insurance, thus far in our country's history, has been.

In response to the specific question of what Article and Section of the Constitution Webb would cite to justify the government's takeover of the health-care choices of virtually all Americans in some sense--even if they don't immediately change the structure of coverage for most Americans--his answer was not only a red herring and a total dodge in a format where the questioner could not respond, it was highly insulting. He responded that since this law clearly cannot be justified by the Constitution and since Medicare and Medicaid and Social Security cannot either that he "assumed that the questioner wants Medicare and Medicaid and Social Security to be repealed." The questioner was not allowed to say if they would repeal those programs if they could or--in a rhetorical stance similar to one Webb used before saying that if we were starting over that he would not link health-care to employment--would do so ideally but in the real world recognize that this is unworkable. In addition to blind-siding this woman who asked a legitimate and fair question with no chance to respond, he demands of the questioner an ideological coherence that he exempts himself from. While the questioner must by virtue of asking what the Constitutional justification is of this law support the immediate repeal of every Unconstitutional social program written into law that is essentially Unconstitutional--the good Unconstitutional laws as mentioned above-- Webb can take the stance that since a previous government passed an Unconstitutional law every future government can do so, as well, and not have to answer to their constituents. By defying her to support the destruction of other programs--by which he presumably meant to say that since these laws that many people like aren't justified by the Constitution that we've come to a consensus that the Constitution can be ignored--he essentially openly defied his oath of office: to protect and defend the Constitution. I guess they should add a codicil "unless people get free money."

Our founders were clever in writing the Constitution and they anticipated the very dangers of Unconstitutional, popular laws like Medicare and Social Security. The power of the many who stand to gain is in theory checked by the fact that the power to create a national system of social insurance or medical coverage is, in fact, not among the powers listed to Congress and therefore is reserved to the states and ultimately the people. Unfortunately, previous generations of lawmakers have taken the easy way out and ignored their oath to defend and protect the Constitution. If we're ever going to get on the road to sustainable financial demands on our citizenry and paying off our debt, sticking to the powers enumerated by law and reforming the massive body of Unconstitutional but popular law--and not passing any new, Unconstitutional entitlement programs--would seem to be a good start.

Labels: ballyhoo, constitution, government, philosophy, politics

The health-care system is this country is far from perfect. That's true of essentially every country's health-care system: in countries with single payer elective procedures that massively affect one's quality of life like joint replacements are rationed--but everyone gets general care from a general practitioner, not a doctor in the Emergency Department who shouldn't have to be a GP. Aging populations in the first world are going to stretch these entitlement schemes to unprecedented levels; some countries face doctor shortages due to price controls altering incentive structures; tax rates in countries with socialized medicine are typically higher than they have been in the U.S. in the last 30 years--and most of those countries essentially have their national defense subsidized by the U.S., which spends more on its military than all of the EU combined ($311 billion in the entire EU, population about 500 million, $713 billion in the US, population about 300 million.)

The U.S. faces other problems that arise from its less government controlled structure (it's far from a free market, and the degree of government intervention varies from state to state.) Some people can't get health insurance coverage despite all their efforts because they don't qualify for Medicare or Medicaid, they don't have the money to pay for private insurance (a problem exacerbated by having a pre-existing condition) and their employer (if they have a job) doesn't provide them coverage. Others are uninsured because they either don't know how to or chose not to take advantage of government programs they qualify for, or choose not to buy private insurance that they could afford (the latter class being mostly young, healthy people who rarely need medical attention and who on average are probably making a rational financial decision not buying insurance.) This lack of universal coverage means that instead of problems like worse cure rates for many types of cancer and long waiting times for scans and surgeries that the problems are more like the some in the middle class and lower class either having to use ED's for primary care or being financially ruined by an illness or injury.

The case for reform is there to be made, but the case for non-incremental, whole-cloth, very expensive reform during a time of unprecedented deficits is hard to make, in my opinion. There's not a crisis in health-care, to be frank; the reality is that the status quo, which was never a perfect system, continues unabated. That said, the vast majority of Americans are happy with their coverage, so the emergency is hard for me to recognize. A national emergency that calls for massive government spending would seem to be a problem that affects more than a small minority of people, puts the people it effects in danger, and not fixing it now could lead to a much greater expense to fix it later. Health-care seems to meet none of those criteria; our nation's crumbling infrastructure, however, does.

This post was inspired by watching a PBS NOW documentary about the way that standard shipping containers (one of the most unsung technological advancements of the 20th century) are moved across the country, by truck or by railroad. Basically everyone interviewed was loathsome for trying to influence the government in order to further their personal interests, but the general tenor of the writing seemed to be (surprise) against trucks, and frankly, highways in general. One prominent interviewee was Bill Graves, former Governor of Kansas and now the head American Trucking Association, who started off the show by noting something that the PBS narrator described as if it happens almost "magically:" technology in the form of tractor trailers, freight trains, shipping containers, container ships and modern port infrastructure lead to a massive flow of goods across America allowing almost anything we want to be accessible at at most a few days' notice. In other words, technology has made the standard of living in America, in real terms, better than almost anywhere in the world, even for those who are relatively poor... Imagine the reaction you'd get if you could go back in time to say, the 1950s and tell a poor American that 60 years later that even most people who society considers poor would have at least one color television (possibly one that is 3 inches deep) and a phone that is portable, fits in their pocket, and works virtually anywhere in the country.

From the narration, however, it seemed like the fact that America is rich enough that it has a problem that it needs to figure out how to deal with distributing TOO MUCH STUFF was not just a logistical problem, but a moral one. Especially when tied into environmentalism, you'd think that our nation's prosperity was at best a necessary evil, not something to celebrate. Trains were favored to move containers since they use about 1/3 as much fuel per container... but there were a few problems they noticed. Government price controls in the 1970s killed most of America's private railroad companies and left behind only a shell of an industry that once embodied private capitalism accomplishing massive feats (the race to build the transcontinental railroad, the gorgeous and iconic Penn Stations in Newark and New York built by the Pennsylvania Railroad company.) Virtually all passenger railroads today are government run either as local public transportation systems (like NJ Transit, which runs along many of the same routes as the old Pennsylvania Railraod) or else old private railroads folded into Amtrak. The lack of investment in railroad infrastructure and in further the deprecation or outright abandonment of much old railroad infrastructure means that that the super-efficient, green solution of putting freight on rails is a pipe-dream with our current infrastructure. Freight rail-lines are just as clogged as the highways--on the tracks down the street from my house freight trains go by at a brisk walking pace, a situation reflected around the nation, and in Chicago containers are taken off of trains and put on trucks to be put back on trains once they pass the bottleneck of the city.

So is the answer the status quo, or just add more trucks to our interstate system? Living in Minneapolis, Northern New Jersey and New York City, I have lived in places where both the inadequate capacity and dangerous levels of depreciation of our highway infrastructure have been driven home very clearly. Driving to New York City from New Jersey or to Queens for a Mets game from NYC both show how the interstates in highly populated areas are hopelessly over-crowded. Rush hour is now a general time of day that starts at about 5 AM and last til about midnight. In Minneapolis while the highways aren't as crowded they're falling apart. The 35W bridge over the Mississippi River literally collapsed, but what many people who don't live around here don't realize is that the collapse triggered an investigation into the stability and safety of all the bridges in the area and that many either required extensive maintenance work to to repair them or, in the case of a bridge just down the road from my house on Lowry Ave, a year and change of initial repair work and inspection led to the conclusion that the bridge simply was so decayed that it could not be repaired and had to be demolished and rebuilt from scratch. The bridge in that picture no longer exists and there's no river crossing at the location currently (the new bridge should be done next fall.)

While Minneapolis is particularly hard on bridges due to the cold winters (meaning many freeze/thaw cycles for concrete, steel, etc.) the idea that the 35W bridge collapse was an isolated incident or that similar initiatives in other cities wouldn't find decaying infrastructure seems hard to believe. This infrastructure needs to be repaired and upgraded no matter how freight is moved since they're used for personal transportation as well as moving freight. Unfortunately for a community organizer in Newark's Ironbound district who blame increased asthma rates on the large number of trucks driving around to get from the Port of Newark to the interstates we're not going to stop having car and truck traffic (and in Newark I'd posit that there are more pressing problems regarding young people's safety than smog... namely bullets.) But the truckers aren't some sort of breed of genuine altruist, either; when a truck school instructor was asked about upgrading infrastructure to accommodate more efficient kinds of trucks--specifically trailers that can carry two containers and increase fuel efficiency per container moved--she opposed it because the brakes would get too hot (a problem which technology certainly could not ever address) and that decrease the need for truck drivers. She's right about that, of course, but it would benefit everyone who's not a truck driver.

Basically, everyone except for an engineer who studied freight transportation logistics (including PBS) had an interest in benefiting a certain class of people at the expense of everyone else. Barack Obama,-shortly after signing the stimulus bill which allocated funds which are largely unspent-- said that some of the money in the bill would go towards the largest overhaul of infrastructure in the U.S. since the interstate highway system was built under Eisenhower. Of course while the interstate was designed both to move people and as a strategic military asset to move missiles and so forth quickly during the Cold War it was an actual investment by the government that yielded a huge benefit to the nation as a whole. In short, it was one of the few occasions when the government spent money in a way that benefited nearly everyone and harmed only a few (the people whose land was bought or seized to create the right of way) which is the exact opposite of most laws written before or since then which benefit the few (sugar farmers in Louisiana and Hawai'i) at the small cost of the many (everyone who doesn't farm sugar.) While one sugar tariff is hardly noticed, the piling up of these awful laws is a massive problem and is coming to a head in the health-care debate, as people finally notice the cumulative debt that these laws generate and the harm to them is not as small as normal.

In spending some of the already allocated money on repairing and expanding the capacity of our nation's infrastructure, both road and rail--since both are currently used and will continue to be used to move freight-- and then letting the free market allocate where and how to move the freight, he'd had have a chance to take something of a government boondoggle and do something truly rare for a politician: spend taxpayers' money in a way that actually benefits more than a tiny fraction of the taxpayers.

Labels: government, politics

It's often accused that us anti-big-government, little-L libertarian, classical liberal, currently anti-Democratic types are little more than stubborn, contrarian obstructionists with no new ideas to bring to the table regarding how to solve the nation's problems. And to some extent that's true; personally I would rather not see any new spending on health-care until the ratio of debt to GDP stops being in unprecedented territory. According to the CBO's most recent projection of what will happen as Fiscal Year 2009 draws to a close on October 1 and the President's 2010 budget goes into effect, we will have a public holdings of government debts equal to 56.7 percent; to understand why this is in uncharted waters in post-Depression, post-WWII history, the last time public debt as a percentage of GDP was this high was as the country paid off its massive war-time debts (buy T-bills, remember?) during the prosperous 1950s, in 1955, if you believe the data in historical table 7.1.

Some frightening things to notice here... I don't know precisely when the aforementioned compilation of historical economic statistics was compiled, and the different tables could have been made at different times, but you'll notice it wasn't released, in total, until some time in 2008, and that the table for public debt only includes more or less status-quo-ante projected data for 2008 as well 2009 which indicates to me that before this table was compiled before the crash. Of course, the folly of projecting only the middle of road estimate becomes obvious here--projected public debt holdings as a percentage of GDP were estimated to top out in fiscal year 2009 (i.e. 10/1/2008 - 9/30/2009) at 39% and then start dropping next year. The real data as shown in table 1.1 of the newest CBO projections are 56.7% for 2009 and 64.9% for 2010, which are probably underestimates since while revised downward from the last budget projection the CBO is still using rosy GDP projections, such as a gain of 2.4% for next year.

See why us obstructionist, "Dr. No" types worry about completely overhauling, in toto, 16% of GDP and making much of it liable to be paid for by the government, before even hearing about the specific plan? Public debt to GDP is a proxy of debt to income, equivalent to something like your the ratio between your after-tax income versus your total debt, and I don't know many folks earning $50k a year who'd be comfortable holding roughly $30k in debt, which is where we're heading, and beyond, as a country, without even accounting for the cost of whole-cloth health-care reform. It's scary that the last time the percentage of GDP accounted for by public debt, in 1955, it was during a time of sustained economic expansion, with that number shrinking dramatically each year after we had financed, on credit, a very expensive and necessary endeavor, World War II. The number had topped out at 120% and yet a decade after the war was over we had paid down that debt and grown our economy at such a rate that we wouldn't hit the same level of debt again until the worst recession since the Great Depression combined with the most spendthrift peacetime Administration since--well, ever. Technically, we are at war, but if you look at a breakdown of the budget and what has added to the debt, the total costs thus far of both the wars in Iraq and Afghanistan are roughly the size of the stimulus allocation, and it is costly domestic programs to both try to jump-start the economy--defensible in principle--and to for some reason enact costly new reform programs at a time of fiscal crisis that has caused this budgetary instability.

Perhaps it's time to rein in the spending when the Congressional Budget Office notes, buried in a footnote which belies the the insane warning-bell, blinking red light, the submarine hull is about to be breached alarm blaring that should be set off in every citizen's mind when they read things like this (see note 4):

Increased deficits and the attendant increases in interest payments must be offset by policy changes at some point or interest costs would compound relative to output over time, driving the debt-to-output ratio ever higher (under the assumption, which CBO’s findings incorporate, that the rate of interest on government debt is higher than the rate of economic growth).

So before we even get to health-care, think about that: increased deficits must be offset by policy changes at some point or the debt-to-output ratio will grow ever higher, which is essentially walking off into certain economic and national annihilation: if we are no longer a serious creditor, not only will the value of the dollar and all dollar-denominated savings plummet, but the very country itself could find itself without the money to operate; if at some point there's no interest rate at which someone with enough cash to finance our annual deficit will take a risk on us as a debtor since we've proven so fiscally irresponsible--and just imagine how fun watching interest rates rocket up in a matters of weeks would be--then what's the Administration's plan for paying for essential government services? Do you stop paying soldiers or do you stop paying out Medicare and Social Security pensioners? In other words, we've got to make sure that we don't buy something we can't afford and thereby lose what we've got.

But beyond the fact that adding to deficit spending at the moment seems absolutely insane and reckless beyond belief, let's talk about health-care reform. Obama talks about how the system is "broken," but most people are happy with their current care, and those who aren't are not denied care, even for a sore throat, if they walk into an Emergency Department at a hospital and not their GP's office. Is that a good thing? No, it is not; it is a problem. Is there any country in the world that does not have problems with it's health-care systems? No, there is not. Canada and Britain, the two most fully socialized, single-payer systems with which Americans seem to be remotely familiar, have long waiting lists for "elective" procedures like knee replacement or drug treatment, which as at least one woman in a video I saw needed both after gradually getting addicted to painkillers while spending 16 months waiting for them to replace her bum knee with essentially no padding left in the joint. In other countries, other problems exist; in Germany doctors unions--in a country already much more used to income equality and unionization--are complaining that their wages are too low, which they almost certainly are, since a main feature that makes Germany's public health-care system more financially sustainable is capping doctors' pay. In an increasingly globalized economy where many brilliant people are currently drawn to America, would you like to shut off that flow and have your quadruple bypass done by somebody who wouldn't be a doctor except he got into med school because his more competent peers decided either not to come to this country in the first place or not to go to med school and instead went to work at Goldman Sachs? In Japan doctors don't get paid as much as here, but there's less anger about it than in Germany; they are, after all, almost all in private practice. However, since the government mandates how much they can charge for any procedure--based on patients' ability to pay, not how much it costs the doctor to discharge the service--almost all of these clinics are in the red. Government bailout, anyone? And then my favorite foreign health-care problem comes from Taiwan, where a rapidly industrializing Asian Tiger economy developed its health-care system essentially from scratch in the mid 1980s under the guidance of the leftist-academic public health scholars who probably believe the same things and in some cases are probably the same people who had a role in crafting the ideas behind the goals embodied in the current Obamacare plan(s): in Taiwan, health-care is "free," doctors are government-paid, but instead of rationing care (directly limiting the supply of health-care) or capping procedure prices or doctor compensation (indirectly limiting the supply of health-care) they have gone after the demand side of the equation. How can you make people demand less health-care, you ask? Well, if you go to see the doctor an inordinate amount of times in Taiwan you, no joke, get summoned to talk to a government bureaucrat about why you're consuming so many limited resources and to tell you not to go to the doctor unless it's absolutely necessary. Of course when it is absolutely necessary, and if there aren't enough surgeons, say, then things like elective surgeries are rationed.

So here the problem is, in contrast to the rest of the industrialized world, not that there's not enough health-care, but that its quality is unevenly distributed. The wealthiest can get every life-prolonging preventive measure they can afford, paying for full body scans to look for cancer, just in case. People with good jobs that provide either very good or not-so-good health-care plans at least can get things like colonoscopies. The young often don't have insurance, but many of these people either are poor enough to qualify for Medicaid, or have enough discretionary income to afford private insurance (which for a young, healthy person is relatively dirt-cheap, at least if they live in a state without community-rating.) Those with pre-existing conditions often can't find an insurer who will take them at anything less than an astronomical cost, since the likelihood of having to pay for expensive doctors visits is essentially 100% for the insurer. And of course, those who are both poor and unable to navigate the bureaucracy and sign up for Medicaid wind up using the Emergency Room as their GP, a situation that is bad for everyone, as Emergency nurses shouldn't be wasting time on triage of non-emergent patients and ER docs shouldn't have to treat strep throat.

But the American people have lived with this system for years, decades, even. Why is it essential to overhaul it--other than for political reasons--in one fell swoop? Why can't we attack the problems incrementally? There are several main problems that could be addressed one by one, and we could see the results of the fixes as we try to navigate towards a health-care landscape where a country as wealthy as the U.S. is able to provide a minimum level of care for those who cannot afford it themselves. First, a huge cost-cutting measure we could try would be tort reform; malpractice awards could be capped, the incentive structure for attorneys to win massive settlements could be changed, or the burden of proof in malpractice cases could be made higher; any of these reforms seems like it would be likely to cause the number of successful, massively expensive lawsuits to drop. This would be a double-win, since it would directly lower the rates that doctors pay for malpractice insurance--which gets passed along to the consumer, which of course gets passed along to his insurer-- but it would also limit the practicing of "defensive medicine," where expensive tests are ordered not because they are really necessary, but because they provide cover if something goes wrong and a malpractice suit gets filed.

Second, we could go about reforming insurance so that it acts more like other forms of insurance. Think about how absurd it would be if car insurance or homeowner's insurance worked like health "insurance." If you had to get a new tire because you hit a pothole, instead of just paying for the tire, you'd pay a $10 copay and file a claim with your insurance company. Also consider if you could sue the mechanic if your car had a problem regarding its wheels or tires later. Think about the incentives that would create; the mechanic would not only replace the tires, but check your alignment; if he found that your wheels were misaligned and needed to be re-aligned, would you have had any incentive to question whether his price for checking your alignment and then aligning the wheels was competitive with other mechanics, let alone a reasonable price relative to the time and materials he needed to use to perform the service?

The majority of Americans are healthy. Think about what would happen if Americans, instead of having their health-insurance paid for by their boss and getting a smaller take-home paycheck, if--like for car insurance or homeowners' insurance--they simply paid for it with the money that businesses could add to their salaries if they didn't have to buy insurance packages. Like car drivers, it might be necessary to compel people to buy insurance both to pool risks and to avoid free riders, but that would cost much less than providing a government umbrella over the whole system. Imagine, too, if, unless you got some very expensive illness or injury that required many, expensive treatments or hospital stays or surgeries, you paid out of pocket for your annual physical or appointment with the dermatologist to check out and cut off a mole. You'd be much more cognizant of what services you were consuming, what they cost, and would have a vested interest in getting efficient, quality medical care that wasn't full of charges consisting of needless tests and outrageously high overhead due to things like exorbitant malpractice awards and outright medical insurance fraud. This would serve to drive prices down, as doctors who could provide a checkup for less money and still turn a profit would see more patients come through their doors, and there would be a political constituency to fight the trial-lawyers persistent ability to lobby congress to prevent any sort of tort reform.

Health-care insurance would therefore become dis-attached from one's employer, would cost less as prices were driven down and claims for all but catastrophic care were eliminated. Once you let the free market bring some more sense to the incentive structure for determining which services are provided and how much they cost, you could then use government subsidies in a much more targeted fashion to help equalize access to coverage; if you could successfully drive down costs, subsidizing the purchase of an insurance plan or reimbursing people for primary care, especially preventive care, for the lower class and lower middle class would both require much less money, it'd be much simpler. Consider food-stamps or now EBT cards; neither are free of problems; both are vulnerable to fraud. But what do you think is the more cost effective way of subsidizing food for the poor? Giving someone a card that they can give as payment to privately run supermarkets and trying police fraud in that system or creating an entire government bureaucracy to set up "free" supermarkets where the poor could "shop" and then have the government look at how much they bought, how much of their subsidy is left, etc.? Think about the overhead that it would take to create an entire shadow system of government run supermarkets that only serviced the poor and weren't open to other individuals to come in and try to pay for things with cash. With health insurance there's no prominent public building like a bizarro supermarket where everything's free but only the poor can shop there, but the institutions of Medicaid and Medicare, and possibly the "public option," all are real analogues to the imaginary bizarro supermarket. There's nothing wrong with the wealthiest country in the world subsidizing the health-care of its poorest citizens; it's down-right noble and a good idea. But I quarrel with the idea both that this is some fundamental human right--just exactly, how much money does your "right to health-care" entitle you to have spent on your behalf--or more importantly that massive, whole-cloth government reform is the only way to attack the problem of unequal access to care.

Those who are lobbying for the defeat of Obamacare do not necessarily hate the idea of reform, but the idea of attacking this with a one-off, whole-shooting-match reform of our entire health-care system is both not a good way to get better results for Americans regarding health-care, and it's not something we can in any way, shape or form afford to pay for right now.




Unless you're willing to go the route which Canada went and pass a law--until it was recently struck down as Unconstitutional--which bans people from buying health-care outside of the government system (thus thriving clinics in places like Buffalo and Seattle, which are close to wealthy Canadian population centers) then you're always going to have a problem of disparate care between the haves and have-nots.

Labels: economics, health-care, politics

Congratulations to White Sox pitcher Mark Buerhle who by retiring the last hitter of his outing 11 days ago, then throwing a perfect game, and then throwing a perfect 5 2/3 innings to start a game at the Dome tonight set the Major League record--all-time, like, Cy Young, Walter Johnson, Christy Matthewson, Babe Ruth, Don Drysdale, Whitey Ford, Tom Seaver, Nolan Ryan, Greg Maddux, Roger Clemens, Randy Johnson... none of them ever did this.

In his post-game comments, Buerhle, who gave up a walk to the number 9 hitting Alexei Casilla who is hitting about .165 right now to end his streak, and who after retiring 45 straight failed to retire 7 of 9 in order to finish with a line of 5 2/3 IP, 5 ER, L, thought that the Twins fans were cheering that a Twin had finally reached base. As the cheering continued, however, and the almost packed Metrodome stood in near total unison to give Buerhle a standing ovation for his historic acheivement, which I believed was displayed on the scoreboard at the Dome, he realized that they were cheering for him.

It was a nice moment and Buehrle was classy in his reaction of not wanting to show up the fans by tipping his cap to what he thought might have been a cheer for the home team (the Twins were losing 1-0 at the time) but also wanting to display his gratitude to the fans for celebrating the achievement of the best starter on our most hated rival for an historic accomplishment, even while he was besting us in a pitcher's duel. Of course, it's easy to be magnanimous after the Twins wound up winning 5-3, tying the White Sox for second place and slipping only 2 back of the Tigers who lost for a second straight night against the Rangers.

I wonder what would have been the reactions of the douchebag White Sox fans had a Twins pitcher--or any visiting pitcher--completed such a feat while beating them 1-0 and I also wonder what their even more godawful broadcasters DJ & the Hawk would have said, if they would have, like Dick and Bert did tonight, expressed a pure love of the game and awe at having seen such an incredible record set. Now I dispute my friend Dave's contention that it's "arguably the greatest baseball acheivement"--I'd say it was more good pitching combined with good luck--especially considering that he clearly hit a wall after walking Casilla by failing to retire 7 of the next 9--but it was certainly a moment for recognition of a tremendous individual achievement which I'm proud to say Dick and Bert gave its due amount of respect and admiration. Bert, especially, as a former pitcher, was effusive in his praise for Buerhle throughout the night even after he was knocked out of the game in his discussion of how incredibly difficult retiring 45 straight batters is to do.

Labels: musings, twins

Intro, caveat, info for geeks

The good news first: I've made significant progress towards getting the program launched towards completion. (If you just can't wait here's a link to the test version of the application which has no guarantee of functioning as intended.) While probably not dangerous to your computer (it's always practiced safe sex with other programs, so the odds of you getting a virus are pretty low) the program is not yet actually functional (but certain exciting new parts are) and you should probably read on to know where to expect it to stop working and what the issues are... skip ahead to the next section if you're just interested in using the site and not the whole back-story...

The bad news: As mentioned, still not even at alpha level functionality in the sense that while a lot more stuff WORKS there isn't a cohesive whole that *does* anything yet, per se, but you can definitely start to what the user experience will be like and how the thing will work now than you could before some recent coding. Piece of bad news #2: if you use Internet Exploder the site will act funky and not quite as described below since I haven't yet worked out the cross-browser bugs. There are a bajillion reasons you should use Firefox and not IE (and I say this as a Microsoft-defender and Mac-hater) and you can find out how and why you should switch here. So while I've discovered a few minor bugs that pop up infrequently in Firefox (most of which go away by reloading the page as far as JavaScript) and I'd be interested to hear about the site just not working in older versions of FF particularly, it should work for the most part for FF, but in IE it won't work properly, and I know this and will get to that.

That said, let me get this out of the way right here. Officially as of this blog-post we're open-source! Click here to download a .zip which mirrors the file structure of all the various files for the site exactly (which, online, are all just dumped unceremoniously into the /ta directory for the most part except for a few image directories.) For any tech-geeks interested in helping out shoot me an email at adam dot litterman at Gee, mail! dot com with what you're interested in working on... I'll write a bit towards the end towards future directions where I want to take this thing which might whet your interest. As for any JavaScript gurus the cross-browser issue has to do with the different way which IE7 and IE8 parse the Document Object Model. It's a bit frustrating b/c the bug is in a beta version of Yahoo's very awesome free suite of user JavaScript user interface tools; I mean that only in the sense that I have no clue how to go into their code and hack it and I (irrationally) hoped that they had totally written their code so it was at least IE7/8 & Firefox 3.x compatible so I have to rewrite a bunch of my code at a fairly deep level. Definitely for the final product while I obviously will get it to work in IE the real focus on having everything spot on will be for Firefox since IE sucks--but that's beyond the scope of this article.

New features and instructions on using the site!

OK, so what's new? Well, the basic system of user interaction and identification with the site is essentially completely functional (the one exception is the password reminder page which I haven't had time to write yet... if you need your password send me an email at adam dot litterman AT g to the mizzail and I'll friggin' look it up for you. But anyways, aside from that on the to-do list, you can importantly: sign up and create an account (I decided that you're going to have to at least pick a username and password, it's just too damn confusing to keep track of people without a login page to kind of lassoo who they are for technical reasons to do with how the database will work.) As you'll be warned by the signup form this ain't online banking... while I'm not a cyber-criminal it's my database so don't use your friggin' e-mail adress and its password. You don't HAVE to give a real e-mail but I'm hoping this site will actually be used by more than a few individuals eventually so there will be an automated password reminder system so you know, it will need to be real if you want that to work. You can also logout which deletes your cookies and protects your sensitive, sensitive data about how you think Jermaine Dye will hit for the rest of the year.

OK, great, you can log-in, then what? Well, once you sign up and login you'll see that the top menu bar goes from Joe Mauer's gorgeous visage to the same image with some translucescent buttons show up, the most important of which, for now, being the one that says "Configure a team." This is what the site is based off of, and here's how the idea works.

You click "Configure a team." You're brought to a page that contains pictures of the logos of all 30 MLB teams. Click on any one of them and you're brought to the heart of the simulation, the team configuration page. There are three main sections to this page. At top is a box with the players currently on the active roster (this is up to the second from MLB.com...and yes, I'm eventually going to try to figure out how to get the whole 40 man roster up there so if for some reason Justin Morneau's on the DL for 2 weeks you can still put him in your simulation.) Each one appears in a box with a colored gradient for a background (check out the Yankees'. I don't like the Yankees.) Below the 25 man roster are two boxes one containing room for 9 players to form a batting order and another containing a general schematic for how managers use pitchers with 5 starters, a set-up man and a closer and then typically 5 other pitchers (sometimes 4, sometimes 6) who are used less the less successful they are. How to populate those spaces will be explained in a minute.

First, it's important to note that to stick a player into a role on the team you will first need to "configure" him. You do this by clicking the gray button labeled "CFG" that occurs to the left of each player's name and which pops up an interactive window which allows you to see both their performance this year and over the previous 3 years (or however long they've played in MLB if they're younger) which are all combined to show you a projection for their performance. Please note: this projection for their performance is a projection over 700 plate appearances. This is equal to 4.3 plate appearances per game played, so only players who miss no time and hit fairly high in the lineup acheive 700 plate appearances. If you can wrap your head around thinking of David Eckstein like that, then you can treat his HR numbers accordingly--if not, just look at the rate stats like batting average and so forth. In reality, the projections for both hitters and pitchers are just useful to help you intuitively understand the projection you're creating--the actual nuts and bolts of the Markov Chain mathematical model of the simulation. Something similar happens with pitchers.

Once you click "CFG" you'll see that in addition to this year's stats, the previous years' stats, and this year's current projection there are also two buttons; one says "Configure Prediction" and one says "Use Default Projection." If you click on the former 3 sliders will pop up which will intuitively shape things like a hitter or pitcher's ability to hit for power or throw with control; as you slide these sliders up or down (left or right, technically) you can see in real time how the underlying values that will go into the simulation would translate into real-world type statistics as far as things like batting average, slugging percentage, on base percentage, ERA, WHIP, etc. Once you're satisfied you can click "Save and Close" and suddenly which will save this projection (for now just in the cache of your browser) and also close the window. Once closed, the box of the player you just configured will change in appearance; it will have a new background with a similar gradient but a steel-plate like texture which is meant to visually connote something grippy, since as you'll see if you mouseover it, the mouse changes to a four-way arrow indicating it can now be dragged, obviously, to one of the lineup spots. If you're happy with the default projection as it is, you can skip that whole business of futzing with the sliders and just hit "Use Default Projection" and essentially it will be the same as if you'd opened the sliders, done nothing, and hit "Save and Close."

Constructing the lineup is straightforward enough (leave space #9 blank for the NL teams--even Cardinals fans--just because your manager's a retard and wants to increase the number of plate appearances his teams' pitchers have doesn't mean I'm specifically programming that stupid special case into my program.) The pitchers are straightforward enough as far as the starters, set-up man and closer, and for the 5 relievers just rate them in order of who you think will be used less, so that the guy who always gets the call in the 6th or 7th inning of a tight game is reliever #1 and the guy who only gets in for mop-up duty or the 17th inning is reliever #5. Also note that for now the complexity of pitchers hitting is not accounted for so pitchers won't stick in the spots in the lineup even on NL teams (just leave #9 blank for now--I'll simulate a league average #9 NL hitter somehow... hopefully won't leave too big of an artifact) and obviously position players won't stick as pitchers.

What it doesn't do yet but will do

OK, don't go crazy just yet configuring all 30 teams. So what happens right now is that unseen (unless you look at the source code of the webpage and know how to read javascript) is that when you drag a configured player onto an appropriate target it sends a message to the server without you leaving the page containing the mathematical bits and pieces (likelihoods that players will triple or walk etc.) that will make up the model. Again if you want to read more about how a markov chain of baseball works this is a good primer and a couple other blog posts also discuss it in more depth.

My immediate next step in the project (after finishing this blog post which will form the text on the intro page of the web-site since right now it's just boilerplate text) is to start working on MySQL database to keep track of that information-- the database is already set up storing the data necessary to maintain usernames and passwords and email addresses and miscellaneous other data about which I'm curious which you can provide or not (like where people who use the site live, generally) for an arbitrary number of users. These databases are lean and mean and will be able to dynamically be updated so that I'm pretty sure I'll be able to set it up so that if you drag configure A-Rod and drag him from to the #3 spot in the lineup and then reload the page he'll still be there, and then if you drag him from the #3 spot to the cleanup spot and reload the page, he'll be in the cleanup spot. In other words, every time you lock a player into place it'll be automatically saved, so there won't be any need to worry about the page crashing or closing the window while forgetting to save your work.

Once you've configured enough of a team (say, the batting lineup and 4 starters and 4 relievers should be enough--the pitching part is more for completeness than necessity) it should be able to do an interesting and robust--but still relatively simple-- simulation. By modeling how many runs pitchers allow per inning, how pitchers are used by managers generally (which, for purposes of simulation, is happily rather orthodox and often stupid) and then obviously modeling hitting by modeling innings as Markov processes and simulating N games, say, 10,000, we can get a robust idea of how many runs a team should score and allow against a league average opponent. This is interesting on opening day, since at that point in the schedule this approximation is good enough for a first order idea of who's going to win what. But look at this year and the schedule; with about 60 games to left to play the Twins have 0, count 'em, 0 games against the Yankees, Red Sox and Rays left, whereas the White Sox have a 14 game stretch (including 11 on the road) where they play no teams other than the Red Sox (@ for 4 games, hosting 3) @Yankees (3 games) Twins (at the dome for 3 games) and Cubs (1 makeup game which washes out a travel day off. Simulating against the league average team and saying well against a league average team over 60 games the Twins win 32 games and the White Sox win 31 isn't particularly interesting at this point in the season.

For that, I'd need to have a database that included the entire MLB schedule, some way of modeling the performance of opposition teams in a Markov process so that each game could say be simulated 100 times in order to compute things like expected final standings and probabilities of teams making the playoffs based on different performances of individual players and different batting orders or uses for bullpen arms. I intend to tackle those problems, but getting the website in working order as far as the nuts and bolts obviously comes first. Look for this stuff to be in like a 1.0 Alpha version by Opening Day 2010. I think right now I'm at like Version 0.3.12 or something, but who's counting?

That's why currently there's a space for "My Sims"--while the first alpha version of the web-site that's "done" will have the much more bare-bones simulation upon which all others must be built--the goal will eventually be to have several more complicated simulators. Beyond simulating who will make the playoffs is getting a little too detailed and this post is long enough, so I'll leave it at that. But if that piques you're interest and you enjoy PHP programming, MySQL and no pay, please let me know and you can help me create something with no chance of financial remuneration! But the bare bones simulator ain't too shabby... try to find another website that let's you see what the effect of shifting Joe Mauer in the order or him hitting 30 dingers is on the won/loss record of the team or the average runs scored?

-A.L. 7/27/09

Important note

In order to keep track of your movements at all times and control your mind make the fun website work(!) WE WILL leave dangerous "cookies" of information on your hard drive. If you remember the hysteria from the early 2000s while seemingly an innocuous way to anonymously and durably identify you when you login by storing 6 characters of data on your computer this is actually a form of government mind control and/or one link in a vast international criminal conspiracy, I haven't decided which. Which is a poor attempt at humor which means: you need to have JavaScript (no shit) and cookies enabled for the site to work. It will even throw errors(!) if you don't have your cookies turned on.

Labels: baseball, databases, instructions, markov chain, markov chain web application