The Reconstruction

The other day, a friend of mine sent me a link to Malcom Gladwell’s most recent article, entitled “The Risk Pool“. I thought it fell short of Gladwell’s usual quality, and sent to my friend the e-mail that I’ve included below the fold. I’m not the first to get around to criticizing this article, though, so if you want to see the back-and-forth:

1. “Worst Malcom Gladwell article ever?”
2. Malcom Gladwell’s first response
3. Gladwell’s second response
4. Jane Galt’s critique
5. Gladwell’s first response to Jane Galt
6. Gladwell’s final comments

Having read through the back-and-forth, I’m a little disappointed in Gladwell. The basic premise of his article– drawing a parallel between the macro-level phenomenon of dependency ratios and the micro-level failures of a few firms– doesn’t hold up, and he seems either to not understand why or not want to admit having written something so bad. To me, the other disputes are a side issue. That, in combination with the contempt he seems to hold for anyone who happens to critique his work through a weblog, takes my opinion of him down a notch. Of course, that’s only going from “huge fan” to “big fan, with a couple reservations”.

If anything, the existence of such a fundamental error in an article written by a talented and intelligent journalist underscores for me the difficulty of writing about economics. Most economists can’t write well, and most journalists, even the smart ones, don’t have enough economic training to be able to write accurately about it. The subject is a minefield, and there are a lot of people who would like to lead a journalist astray– astray in a minefield is a bad place to be. For that matter, a minefield is also a bad place to be drawing inaccurate parallels…

My own thoughts on the piece follow.I think we both love Gladwell for the same reason– he has an amazing ability to pull together related concepts that haven’t been examined together before and use them to shed new light on a narrative. In this case, though, I think he’s fallen into a bit of a trap. There are similarities between the effects of demographic bubbles on national output growth and thus on social welfare obligations and those of firm output growth on pension obligations, but though they’re similar, they’re not at all the same. The causal relationship is really quite different in the two situations…

In the case of national output growth, it’s true by definition that:

Total Nation Output = Average Hourly Output Per Worker (a measure of productivity) * Average Number of Hours Worked * Number of Workers

Productivity tends to growth with time, and there are a number of things we can do to affect productivity levels, but we only have limited control over it. Likewise, it’s difficult to significantly increase the average number of hours worked, particularly as large increases tend to negatively impact average hourly productivity. Thus, in the case of a demographic bubble, the effects of the bubble will also be seen in total national output. There won’t necessarily be a decrease in total output as the bubble workers age and retire, as much of their impact will be swallowed by productivity growth, but output growth will almost certainly slow significantly. In any situation, though, demographics are a constraint on national output. Holding all else equal, fewer workers means less output.

This is, of course, the “problem” with Social Security. Social Security was designed so that the current generation of workers pays for the current generation of retirees. Moreover, it’s indexed to wages, not inflation– so current retirees don’t just receive benefits that are adjusted for changes in the price level, they also receive much of the benefit of increased productivity, as well. This is great for the recipients as long as it stays solvent, but it makes the funding problem a little trickier because we can’t just count on productivity growth making benefits relatively cheap to pay. That’s why Social Security set up a trust fund to cover the demographic bubble– a system similar to one used by pensions, except fully funded (key point). When that awful year 2040 or whatever rolls around and the trust fund is bankrupt, that shouldn’t be a surprise, because all the people who funded it and whose retirement it was helping to support will be dead. No need for the trust fund, as it got us past the bubble. So long as the population grows on average over any given 80-year span (so far not a problem), bubbles can be dealt with easily.

Gladwell doesn’t address Social Security except to offer it as a solution to the pension situation, though, and instead relates national output and demographics to issues with private company pensions through the idea of dependency ratios. The problem, of course, is that dependency ratios aren’t particularly relevant to private firms. In the following passage, he makes his critical mistake:

“Bethlehem, just shy of its hundredth birthday, declared bankruptcy. It had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker.

“What happened to Bethlehem, of course, is what happened throughout American industry in the postwar period. Technology led to great advances in productivity, so that when the bulge of workers hired in the middle of the century retired and began drawing pensions, there was no one replacing them in the workforce. General Motors today makes more cars and trucks than it did in the early nineteen-sixties, but it does so with about a third of the employees. In 1962, G.M. had four hundred and sixty-four thousand U.S. employees and was paying benefits to forty thousand retirees and their spouses, for a dependency ratio of one pensioner to 11.6 employees. Last year, it had a hundred and forty-one thousand workers and paid benefits to four hundred and fifty-three thousand retirees, for a dependency ratio of 3.2 to 1.”

Pulling this passage out, the error should be obvious: the retirement of former employees isn’t paid for by the number of current workers, it’s paid for by their output. If workers today are three times as productive as workers 50 years ago, and the demand for cars is the same, one-third the number of workers are necessary to produce the same level of output– and pay for the same level of retirement [note: I am ignoring elasticity and capital costs, etc]. Adding more workers wouldn’t increase output, it would only add costs and reduce the company’s ability to pay pension costs. Thus, with the case of private firms, national demographics is not a relevant concern.

If Gladwell wants to argue that demographics were a relevant concern, it would be possible to do so, because there’s a particular signature to that sort of problem. Namely, we’d see employers bidding up wages in an effort to attract workers from the shrinking labor pool. However, it would be incumbent upon him to explain why it affected General Motors and Bethlehem Steel, but somehow didn’t have any impact on their successful competitors.

The only reason for having a paragraph break right here is that I wanted to give you the opportunity to say in your head, “Hey, wait a minute, but all the American auto and steel manufacturers are having these problems. Doesn’t that undermine your argument?” This would give me the chance to throw out a laugh that was at once haughty and carefree and say, “But they’re losing to Japanese companies, and Japan is actually suffering the effects of a more pronounced demographic ‘bubble’ than the United States.” That’s right– Japan’s bubble is bigger.

So, oddly enough, Gladwell identifies the problem with private pensions as being an issue of demographics, when it is not, and has prescribed as a solution more broadly-based social welfare systems, which are more vulnerable to the problem that he incorrectly diagnoses. The truly strange part is that his essay is littered with the evidence necessary to draw the correct conclusions:

“But Big Steel didn’t get bigger. It got smaller. Imports began to take a larger and larger share of the American steel market. The growing use of aluminum, concrete, and plastic cut deeply into the demand for steel. And the steelmaking process changed. Instead of laboriously making steel from scratch, with coke and iron ore, factories increasingly just melted down scrap metal. The open-hearth furnace was replaced with the basic oxygen furnace, which could make the same amount of steel in about a tenth of the time. Steelmakers switched to continuous casting, which meant that you skipped the ingot phase altogether and poured your steel products directly out of the furnace.”

The problem with the US steel industry wasn’t an issue of demographics, it was the simple fact that it had massive fixed costs in the form of investments in outdated technology that became a liability when the then-infant Japanese steel industry began competing using newer, more flexible methods of production and business methods to match. The same thing has occurred in the US auto industry, which, as a byproduct of the interplay between technology and labor contracts, has so far been unable to create flexible methods of production to respond to shifts in consumer demand.

Likewise, the problem with pensions isn’t a complicated issue of dependency ratios and Debsian Socialists. The problem is twofold: one, companies do fold, and that risk isn’t appropriately addressed by most pension systems; two, for pensions to work over the long run, they have to be fully funded.

Just my thoughts.

In May 12th’s Wall Street Journal, the Science Journal feature considered how “Scientists Explain How They Attribute Climate-Change Data”. Subscribers can read the article online. It’s short, but fascinating for two reasons: it’s a succinct rebuttal to a few of the popular arguments used to try to convince people that the science of climate change is unsettled, and it’s directly in conflict with the WSJ’s editorials, which seek to dimiss the scientific consensus on global climate change.

Why the Science Journal is Cool

The piece explains the argument that the sun’s variability could be the cause of much of the rise in global temperatures, then offers the evidence for why this argument is flawed: if the sun were the cause of warming, the stratosphere should warm along with the troposphere, but instead, the stratosphere has cooled while the troposphere warmed– exactly what would happen if greenhouse gases trapped more heat in the troposphere. Additionally, the article notes that the change in heat energy in the oceans is far greater than what could be explained by the variability in the sun’s output.

It goes on to note the basic thermodynamic concept that many people seem to miss– in the absence of global warming, heating and cooling in one ocean basin would have to be matched by the opposite in other basins. Instead, a warming in all basins has been observed, a fact that can only be explained by global warming. It then notes that if the extra heat were the result of an increase in geothermal output on the ocean floor, as some have suggested, the warming would be greater near the floor– which it is not.

Why the WSJ’s Op-Ed Section is Not Cool

Meanwhile, the Opinion Journal publishes pieces like this, which are convenient for those who wish to ignore a problem, but offer nothing but misinformation to the reader. The author of the piece, Pete Du Pont, promotes his own think tank’s “study”, while ignoring the massive body of peer-reviewed scientific research on climate change.

The sophistry at the beginning of Mr. Du Pont’s piece is amusing. He talks about the dire warnings of environmentalists in the 1970s and how many measures of environmental quality have improved since then as the economy has expanded– as though these improvements aren’t the result of environmental legislation. In mentioning our economic growth, Mr. Du Pont actually almost manages to make a good case for environmental protections– after all the screaming about how much damage pollution controls, endangered species protections, and other measures would do to the domestic economy, the economy has grown nicely as environmental quality has improved. Does this say anything about claims that regulating CO2 emissions would destroy our economy? [The answer, I think, is that the reality of the economic impact of CO2 regulations is unknown and dependent on the nature of the regulations-- but certainly less than whatever industry groups claim.]

The meat of Mr. Du Pont’s editorial, however, is in what he claims to be “the reality about global warming and its impact on the world”. It’s an ideal opportunity to look at how misinformation about climate change and other issues is generated and propagated. What follows is fairly long; this is a reflection of why climate “skeptics” have so much staying power– a bogus claim can be made in a sentence, but takes time and effort to effectively rebut.

I’m feeling saucy today, though, so here we go with a rebuttal:

Misleading, Cherry-Picking, and Lying: From Whence the Claims in the WSJ Op-Ed Come

There are substantial differences in climate models–some 30 of them looked at by the United Nations Intergovernmental Panel on Climate Change–but the Climate Science study concludes that “computer models consistently project a rise in temperatures over the past century that is more than twice as high as the measured increase.” The National Center for Atmospheric Research’s prediction of 1.8 degrees Fahrenheit warming is more accurate. In short, the world is not warming as much as environmentalists think it is.

This is a confusing paragraph, given that the author speaks of a rise over the past century and then suggests that the National Center for Atmospheric Resarch (NCAR) predicts a warming of 1.8 degrees Fahrenheit. He can’t possibly be referring to the rise in average temperatures over the past century, as the observed rise during the 20th century was about 0.6 degrees Celsius, or about 1.1 degrees Fahrenheit.

We can, at least, gather from it that he rejects the IPCC’s analysis in favor of NCAR’s. The author must, then, love this paper, which is featured on NCAR’s Climate and Global Dynamics Division web page on global warming. The paper, entitled “How Much More Global Warming and Sea Level Rise?” begins:

Two global coupled climate models show that even if the concentrations of greenhouse gases in the atmosphere had been stabilized in the year 2000, we are already committed to further global warming of about another half degree and an additional 320% sea level rise caused by thermal expansion by the end of the 21st century. Projected weakening of the meridional overturning circulation in the North Atlantic Ocean does not lead to a net cooling in Europe. At any given point in time, even if concentrations are stabilized, there is a commitment to future climate changes that will be greater than those we have already observed. 

The authors were even nice enough to provide us with a figure illustrating their predictions:

If we throw out the high-end estimate (derived from extrapolating the rate of increase of greenhouse gas emissions) and the low-end estimate (derived by assuming that humans ceased all greenhouse gas emissions from industrial activity) and take the average of the other two models under both remaining scenarios, we arrive at approximately a 3.6 degree Celsius rise in temperature by the year 2100, and a 7-inch increase in sea levels by the same time. Dropping NCAR’s name to increase his credibility was a cute ploy, but if Mr. Du Pont were serious about debating climate change, he’d honestly represent their findings.

Next, he (quoting his own think tank’s “study”) comes into direct conflict with the Science Journal piece:

What warming there is turns out to be caused by solar radiation rather than human pollution. The Climate Change study concluded “half the observed 20th century warming occurred before 1940 and cannot be attributed to human causes,” and changes in solar radiation can “account for 71 percent of the variation in global surface air temperature from 1880 to 1993.” 

The National Center for Policy Analysis study derives this conclusion from a single paper that has been shown to rely on an incomplete, flawed data set. That paper, incorrectly cited as “Inference of Solar Radiance Variability from Terrestrial Temperature Changes, 1880-1993: An Astrophysical Application of the Sun-Climate Connection” (the correct title uses the word “irradiance”, not “radiance”) has been surpassed by advances in data collection and analysis during the past ten years, and the author’s choice to rely on this paper alone is telling. With respect to the correlation between solar irradiance and warming trends, if one considers the satellite data (versions combining the different observations, with discussion, are available here) on solar irradiance, then compares this to the trend in global average temperature, the claim that 71% of the temperature variation can be explained by solar irradiance becomes obviously false.

He continues:

As for hurricanes, 2005 saw several severe ones–Katrina and Rita both had winds of 150 knots–hitting New Orleans, the Gulf Coast and Florida. But there is little evidence linking them to global warming. A team of National Oceanic and Atmospheric Administration scientists concluded that the increased Atlantic hurricane activity since 1995 “is not related to greenhouse warming” but instead to natural tropical climate cycles. 

Of course, it’s impossible to conclusively link the small sample representing hurricane activity during the past ten years to the larger phenomenon of global warming. However, it’s not even hurricane activity that is the relevant question– it’s hurricane strength:

Although we cannot say at present whether more or fewer hurricane will occur in the future with global warming, the hurricanes that do occur near the end of the 21st century are expected to be stronger and have significantly more intense rainfall than under present day climate conditions. 

This is from– who else?– NOAA scientists. The name-dropping-for-credibility game really is a dangerous one, isn’t it?

After the aforementioned misdirection play, he tries another:

Regarding Arctic temperature changes, the Study found the coastal stations in Greenland had actually experienced a cooling trend: The “average summer air temperatures at the summit of the Greenland Ice Sheet, have decreased at the rate of 4 degrees F per decade since measurements began in 1987.” Add in Russian and Alaskan temperature data and “Arctic air temperatures were warmest in the 1930s and near the coolest for the period of recorded observations (since at least 1920) in the late 1980s.” 

So, there’s a cooling trend in the arctic, right? Well… no. The “Study” got this information from a paper that tracked data from 1951-1990 (where the 1930s came from, I cannot say, as I do not have a copy of the paper). What happens when we look at the picture out to the year 2005? Again, NASA provides truth, this time in the form of an animation (quicktime, MP4) . It’s worth watching once or twice, then scrolling through– you’ll see the anomalies, get a feel for the long-term warming trend, and have the opportunity to decide for yourself whether you think, based on the evidence at hand, that the arctic is warming.

Mr. Du Pont then misrepresents the conclusions of the Intergovernmental Panel on Climate Change (IPCC) and demonstrates a willful ignorance of the dynamics of sea level rise:

As for sea ice, it is not melting excessively. Canada’s Department of Fisheries and Oceans concluded that “global warming appears to play a minor role in changes to Arctic sea ice.” The U.N.’s IPCC Third Assessment Report concluded that the rate of sea level rise has not accelerated during the last century, which is supported by U.S. coastal sea level experience. In California sea levels have risen between zero and seven millimeters a year and between 2.1 and 2.8 millimeters a year in North and South Carolina. 

First, note that sea level rise and sea ice are related, but that sea level rise is not the product of melting sea ice. To prove this, try an experiment– fill a glass with water, float a few ice cubes in it, and see if, when the ice melts, the level of water in the glass rises. It won’t. Melting ice only affects sea level if the melting ice is on land. The two major components of sea level rise are melting ice on land and thermal expansion; the latter being simply the slight expansion of the water in the seas as it warms– which is subtle, difficult to observe with the small volumes of water we use at home, but a relevant factor when dealing with approximately 361.2 quintillion (3.612 x 10^20) gallons of water.

Second, Canada’s Department of Fisheries and Oceans did not “[conclude] that ‘global warming appears to play a minor role in changes to Arctic sea ice.’” This claim is derived from a study by Greg Holloway and Tessa Sou that was funded in part by Canada’s Department of Fisheries and Oceans, but does not represent the official position of the department. It’s also worth nothing that, in addition to misrepresenting the role that Canada’s Department of Fisheries and Oceans played in the study, the quoted text stating that “global warming appears to play a minor role in changes to Arctic sea ice” does not exist in the paper (a note: the link in the footnote included in the “Climate Change Study” cited by Mr. Du Pont does not even lead to the paper, so it is possible that this text does exist in a different version of Holloway’s paper than the one available online).

It’s worth understanding what Holloway’s paper states, because doing so provides some insight into how those with agendas attempt to twist scientific evidence. Holloway’s paper does not conclude that arctic sea ice is not thinning, nor does it conclude that global warming is not one of the primary causes of this thinning. It concludes that the extent of thinning between 1970 could be overstated due to the role that certain conditions (changes in arctic wind patterns) could potentially play in biasing measurements. He arrives at this conclusion by running what amounts to a monte carlo simulation (the irony of climate change skeptics who reject computer simulation as valid relying on papers that employ computer simulations to support their claims is rich indeed) that produced sea ice thickness results for randomly generated virtual survey tours through a reconstructed arctic environment (the reconstruction being based on a series of assumptions that we can simply accept for the time being). It’s a valid scientific method for determining potential bias, if interpreted properly. The result of this, assuming that the underlying assumptions are accurate, shows that the observations made in the real world (showing a 45% reduction in ice volume) could be seen when ice volume actually fell by only 12 to 34 percent. That’s right– even when cherry-picking their data, Mr. Du Pont’s staff at NCPA choose papers that show that arctic sea ice may have fallen by “only” 12 to 34 percent over three decades. All of this, of course, is ignoring the impact of the anomalous cool arctic temperatures during the late 80s that we already discussed, and the significant warming that has occurred since the sample period– the loss of arctic sea ice volume has accelerated since the publication of this paper.

For an interesting simulation of where the situation with arctic sea ice may be headed, check out the results from a series of simulations at NOAA’s Geophysical Fluid Dynamics Laboratory.

Third, the UN IPCC’s Third Assessment Report (TAR) did not “[conclude] that the rate of sea level rise has not accelerated during the last century”, and this isn’t entirely relevant anyway, given that the observed rate of sea level rise during the past century is consistent with models and that the IPCC report also notes that:

The large heat capacity of the ocean means that there will be considerable delay before the full effects of surface warming are felt throughout the depth of the ocean. As a result, the ocean will not be in equilibrium and global average sea level will continue to rise for centuries after atmospheric greenhouse gas concentrations have stabilised. 

Yes, Virginia, there’s a delay before the effects are seen. Further, the TAR’s conclusion was that

Comparison of the rate of sea level rise over the last 100 years (1.0 to 2.0 mm/yr) with the geological rate over the last two millennia (0.1 to 0.2 mm/yr; Section 11.3.1) implies a comparatively recent acceleration in the rate of sea level rise. 

So, given that sea level has been rising during the past century at an order of magnitude faster than it has in the past, why is Mr. Du Pont unsatisfied? Because, of course, he’s set the bar at a level where statistical significance is particularly difficult to establish:

There is no evidence for any acceleration of sea level rise in data from the 20th century data alone… Models of ocean thermal expansion indicate an acceleration through the 20th century but when the model is subsampled at the locations of the tide gauges no significant acceleration can be detected because of the greater level of variability (Gregory et al., 2001). Thus the absence of an acceleration in the observations is not necessarily inconsistent with the model results. [Emphasis mine] 

The final claim made in Mr. Du Pont’s op-ed is perhaps the most ridiculous:

Finally come the polar bears–a species thought by global warming proponents to be seriously at risk from the increasing temperature. According to the World Wildlife Fund, among the distinct polar bear populations, two are growing–and in areas where temperatures have risen; ten are stable; and two are decreasing. But those two are in areas such as Baffin Bay where air temperatures have actually fallen. 

We’re supposed to believe that the crazy environmentalists think that polar bears are threatened because they’re going to get too warm and die of heat stroke or something? The threat to polar bears is a product of the amount of their lives that Ursus martimus spends out on sea ice, fishing and mating. Their range is determined by the extent of sea ice– which, as we already discussed, is receding.

A Conclusion, of Sorts

It’s easy to see how intelligent people, especially those of a contrarian nature, could be taken in by the arguments that climate change “skeptics” present. Without a good background understanding of the dynamics of climate change, combined with some basic research into the sourcing of the claims, they seem to be valid arguments. Unfortunately, most people don’t have the time or inclination to read skeptically into the skeptics’ claims, or the background understanding necessary to evaluate claims on either side. As a result, groups like the NCPA can pollute the flow of information to the extent that the public at large believes that there is honest disagreement about climate change, and some are even willing to sign on to the belief that it doesn’t exist.

This takes us back to where we were before– Individuals who don’t want to believe that climate change is occurring will seize on the claims made by groups who have a vested interest in perpetuating the belief that it’s not happening. They won’t seek to challenge their beliefs, and even if they do encounter information that challenges their beliefs, they will set a different standard for the rebuttals than for the initial claims. Thus, studies like the NCPA’s “Climate Change Study” and op-eds written about them like Mr. Du Pont’s can create enough fodder to feed individuals’ desire to ignore objective reality.

To conclude, a question: Let us suppose for a moment that the effects of climate change will in fact be devastating for some significant fraction of the world’s population. If this were the case, and action that could have mitigated some of these effects were prevented by a campaign of disinformation, how morally culpable would be the agents of this campaign?

Brad DeLong asks, over his morning Diet Pepsi, if it is time to create a fiscal stabilization board to control government spending in the way that the Federal Reserve controls monetary policy.

His argument is simple and practical. He argues that politicians, for the most part, have proven themselves incapable of addressing the problem. He also lays out his argument that a balanced budget amendment is not the solution– there are legitimate reasons to run deficits, i.e. for fiscal stimulus and during wartime, but to provide the flexibility to do so without the amendment losing its force is nearly impossible. Thus, the need for independent oversight. I’ll let you watch for yourself.

I’ll admit, I find the idea attractive. At the same time, though, I don’t see how it could ever be enacted, nor am I certain that a fiscal stabilization board could remain independent of the political process to the degree necessary. It’s an attractive idea because, at least in theory, an FSB could, as an independent body, impose fiscal discipline that is lacking in Congress.When we consider why this is, though, the problems with creating an FSB become clear.For an FSB to perform as we desire, it would have to be competent, free from political intervention, and able to overrule the Congress.

To ensure its competence, the officials responsible for FSB decisions would have to be vetted and approved somehow– either through a public vote, the decision of a private body, or the traditional method, Senate approval. A public vote, while free from direct political intervention, would still be subject to political influences. Moreover, if the public were sufficiently educated about fiscal policy to be making such a decision, the appropriate pressure would have already been brought to bear on elected officials, and we would not be entertaining the notion of an FSB. The choice being handled by a private body may be the secret fantasy of some economists, but even if the public would accept the infinite wisdom of the American Economic Association (or a similar body), removing all power from the hands of the people and their representatives is incompatible with the American system. The alternatives aren’t good, and thus, we would most likely have to use the method we use for most other positions, Senate approval. It works for the Fed (contrary to what some of the more conspiratorial responses to DeLong’s post imply), why not for an FSB?

Because while the economic power wielded by the Fed is similar to what an FSB would have, an FSB would have, at all times, far greater near-term political import than the Fed.

To understand why, we must return for a moment to the fact that the FSB, to be effective, must be able to overrule the Congress. An FSB would be ineffective if it could be overruled by even a supermajority. The implicit belief, often invoked by politicians, that a bipartisan consensus lends legitimacy to a decision is incorrect. Politician’s interests are only those of their constituents to the extent that they are held accountable by their constituents. Consider New Jersey’s attempt to repair the redistricting process, as described in Slate:

New Jersey has made the boldest effort. It has a redistricting plan that seems perfect on paper but turns out to suffer from an unanticipated fatal flaw. The Garden State has a bipartisan redistricting commission equally divided between the two parties. It is chaired by an impartial tiebreaker-historically, a professor from Rutgers or Princeton University. Each party drafts its own map. Whichever map wins a majority is approved. Both parties thus have an incentive to court the tiebreaking chairman, encouraging them to draw a map that reflects the state’s true political leanings. 

But the New Jersey process has a loophole: If the two parties collude they can draw a map that protects all the incumbents and outvote the tiebreaker. That’s what happened after the 2000 census. The GOP wanted to protect its six incumbents, while Democrats wanted to protect their seven seats. The two parties came up with their incumbent-protection plan and outvoted the tiebreaker, Rutgers University political science professor Allen Rosenthal. It was a bipartisan solution to be sure, but one that protected politicians’ interests rather than voters’.

Incumbents have a shared desire to remain in office, and they are willing to work together to guarantee their job security. Voters, for their part, don’t get angry about paying lower taxes or about pork coming in to their own district. They like fiscal responsibility, but only in the abstract– only in the way that a six-year-old doesn’t want mommy and daddy to go bankrupt, but still wants more toys. Thus, if a majority vote were enough to overrule the FSB, such a vote would become as cursory as each time the House raises the debt limit. Even if a supermajority were required, it would empower the minority party, but there’s little doubt that a compromise could be reached. Thus, the FSB must have the absolute power to set spending limits.

How, though, would it deal with taxation? Clearly, spending is only half the equation of fiscal responsibility. Pork is a problem, but so are irresponsible tax cuts. To give the FSB the authority to approve or deny individual changes to the tax code would be an unacceptable subversion of the will of the Congress. Granting the FSB only the authority to address spending without addressing taxation would leave the FSB open to two dangers: the “starve the beast” approach wherein tax cuts are used to force down spending and create cuts to popular, successful programs; and the opposite, wherein taxes are raised to finance every Congressman’s pet project. The only other approach would be to allow the FSB to set target taxation levels and require the Congress to meet them– the problems with making such an approach result in anything other than a potentially dangerous power struggle should be obvious.

Under any of these scenarios, the FSB’s power is enormous, and we can see how it could easily control the political landscape. Imagine, for example, that the FSB were created today, and its members selected by the Republican party. It could then comply with the current regime of irresponsible spending, only tightening Congress’ constraints when Democrats took control. If the Democrats had the ability to remove FSB members, it would certainly correct this problem, but it would create a compliant and ineffective FSB. The same problem does not exist with the Fed because while the Fed has the power to affect the economy, its mechanisms act more slowly and consist of a relationship wherein the Fed may or may not accomodate Congress– not one wherein the Fed may directly constrain Congress. As a result of the political import of an FSB, it’s unrealistic to expect that Congress would hand over power to one, let alone to do so without hopes of manipulating it.

Thus, what we have is a situation in which the economics of the situation indicate that a Fiscal Spending Board might be a good idea, but the political economy of the situation shows us that it would be impossible to create the body that we would need. I’m unable to suggest any better short-term solutions; however, in the long term, improving economic literacy among the electorate could help foster the understanding necessary to improve our handling of fiscal policy.

Rush Limbaugh issued a press release today over PRNewswire stating, “Reports Stating Rush Limbaugh Was Arrested Are Inaccurate; Limbaugh’s Attorney Holds Press Conference at 8:00 pm Tonight”.

The release is clearly designed to lead the reader to believe that Rush was not arrested. He was. A quick check with the Palm Beach County Sheriff’s Office confirms this. The only shame is that the prosecutor who cut a deal with him was obviously not a Rush fan– otherwise, he might have taken Rush at his word: “Too many whites are getting away with drug use…Too many whites are getting away with drug sales…The answer is to go out and find the ones who are getting away with it, convict them and send them up the river, too.”

The full press release is below the fold.Press Release
Source: Rush Limbaugh

Reports Stating Rush Limbaugh Was Arrested Are Inaccurate; Limbaugh’s Attorney Holds Press Conference at 8:00 pm Tonight
Friday April 28, 7:55 pm ET

WEST PALM BEACH, Fla., April 28 /PRNewswire/ — A spokesman for Rush Limbaugh said some news reports that state Mr. Limbaugh was arrested are inaccurate.

Separately, Rush Limbaugh’s attorney, Roy Black will hold a press conference at 8:00 pm this evening at the Marriott Hotel at 1001 Okeechobbee Road in West Palm Beach, Florida.

Mr. Black will discuss the agreement reached today with the State Attorney’s Office whereby a single count charge of doctor shopping that was filed today by the State Attorney will be dismissed in 18 months.

As previously announced, a primary condition of the dismissal, Mr. Limbaugh must continue to seek treatment from the doctor he has seen for the past two and one half years. This is the same doctor under whose care Mr. Limbaugh has remained free of his addiction without relapse.

Mr. Black stated, “Mr. Limbaugh and I have maintained from the start that there was no doctor shopping, and we continue to hold this position. Accordingly, we filed today with the Court a plea of ‘Not Guilty’ to the charge filed by the State.

“As part of this agreement, Mr. Limbaugh also has agreed to make a $30,000 payment to the State of Florida to defray the public cost of the investigation. The agreement also provides that he must refrain from violating the law during the 18 month period, must pay $30 per month for the cost of “supervision” and comply with other similar provisions of the agreement.

“Mr. Limbaugh had intended to remain in treatment. Thus, we believe the outcome for him personally will be much as if he had fought the charge and won,” he said.

Contacts: Sitrick And Company
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I’ve been quiet as of late because I’ve been applying to master’s programs in economics (and econ-related jobs), in addition to a bit of travel. I expect my life to continue to be unusually busy for some time, as I will be starting my new job as an economist with the Bureau of Economic Analysis in mid-May. Until then, packing and moving to the capital are my highest priorities. I haven’t disappeared, though, and am looking forward to writing a bit of new material.

Over at Salon, also known as the land of the most annoying advertising model ever, is a fascinating interview with law professor William Ian Miller. His new book,”An Eye for an Eye”, describes talionic law, a legal system most famously described by Exodus 21:22-25:

“When men have a fight and hurt a pregnant woman, so that she suffers a miscarriage, but no further injury, the guilty one shall be fined as much as the woman’s husband demands of him, and he shall pay in the presence of the judges. But if injury ensues, you shall give life for life, eye for eye, tooth for tooth, hand for hand, foot for foot, burn for burn, wound for wound, stripe for stripe.”

As it is not the topic at hand, we will leave aside for the moment the fact that this passage clearly prescribes different standards of legal protection for the born and unborn.

Miller explains that talionic law was not a criminal system, but rather a tort system that assigned the property rights equal to the tort to the victim of the tort. From the interview:

Your book argues that we often use the term “eye for an eye” to describe a harsh kind of justice from the past. But talionic societies could be said to put a higher value on human life and the human body than we do. They were much more committed to finding the exact worth of body parts and lives. So, let’s say you poke out my eye…

Then, instantly, my eye becomes yours. To get the value exactly right, we say an eye is worth an eye. You have a right to my eye. Now you can say to me, “I’m going to take your eye.” Then I’m going to say, “Hey, what would you be willing to accept instead?” It becomes an initial bargaining position.

If you want victims to be more highly valued and you want real, adequate compensation, this is how to do it. Now if I offer you what some lousy insurance company says your eye is worth — say, $100,000 — you’ll say, “No way! I would never have let you take my eye for that.” Instead, you can be sure I’ll put the same value on not losing my eye that you would have put on yours, and I will pay you that amount to keep my own eye. How about $5 million? Let’s start there. And we’ll bargain it out.

The efficiency is incredible. Rather than having lawyers argue before a judge or jury as to the extent of harm caused by a tort, they used a system that, by simply assigning property rights, accurately determines the proper value of the restitution. Lower transaction costs and efficient allocation– Coase would be proud.

Some of Miller’s comments, such as his disparagement of what he sees as modern society’s inability to accurately value the lives of individuals, aren’t entirely convincing. Overall, however, the interview is worth reading. The insight offered into the economics of law through his comparison of the modern tort system with the talion is worth Salon’s Site Pass system.

Some time ago, an acquaintance related a story to me that captures a lot of the thinking in environmental circles. Forgive me all the details, but it apparently happened something like the following. She was in an environmental engineering course, and the professor invited in a mid-level executive from Ford to speak with the class. When the time came for questions, one of the other students took the opportunity to ask the executive how long Ford had known how to make hybrids and been sitting on the technology. This was said with the implication that Ford was being environmentally irresponsible by not bringing hybrids to market sooner. The Ford executive was somewhat flustered, and wasn’t able to respond with anything more than a contrived and tangental answer.

The story has all the elements of a classic environmental tale: the David-versus-Goliath nature of the interaction between the student and a representative of Ford; the evil corporation ignoring environmental concerns; the notion that if we just did this, or this, then our problems would be solved; and so on. Unfortunately, one of the elements is that it shares with many other streams of thought in the environmental community is that the speaker hadn’t bothered to understand the underlying forces at work. He seemed to impress the person who related the story to me, but had the executive been on his toes at all, a far more valuable conversation could have ensued.

The problem with hybrids is threefold: the demand is still more for power than fuel economy, there’s a bit of an elasticity effect that reduces the amount of fuel saved from hybrids being on the road, and hybrids “cover” for gas guzzlers under the Corporate Average Fuel Economy (CAFE) standards.The first problem with hybrids is exactly what the Ford executive should have pointed out to the young man asking the question. Simply put, customers want faster cars more than they want cars with better fuel economy. Given their other desires (wanting a relatively large car, etc) and the fact that they have a limited amount of money to spend, fuel economy takes a back seat. This has two implications. First, the lack of demand for high-efficiency automobiles up until this point is exactly why Ford shouldn’t have been building them. Asking a struggling automaker why it isn’t making even more cars that nobody wants is like asking a man bleeding from a gunshot wound why he doesn’t feel like hunting today. Second, hybrid technology increases the efficiency of a car– it allows the car to produce more useful power from a gallon of fuel. This can be used in one of two ways: it can be used to raise the car’s gas mileage, or it can be used to make the car more powerful. There’s reason to believe that those hybrid tax credits might not all be going toward reducing greenhouse gas emissions. Consider the 2007 Lexus GS 450h. It’s not out yet, but notice that the advertising isn’t as concerned with the fuel economy as it is with the 300hp engine/motor combination.

The second problem with hybrids is a much less important one, but one that is still worth mentioning. Demand elasticity exists, and it matters. Just as people tend to drive less when gas is more expensive, they tend to drive more when it’s cheaper. The same phenomenon applies when a car gets better fuel economy. Because the incremental cost of driving an extra mile is lower with a hybrid, that mile gets driven more often. This doesn’t negate the clean-air benefits of hybrids, but it does reduce it to less than what one might expect.

The third problem received a mention in the New York Times recently. Namely, for every super-efficient hybrid sold, an extra gas guzzler can be produced and sold without penalty. CAFE works based on fleet averages– so, for example, that Ford Escape hybrid you bought just lowered the fleet average just enough for an extra Navigator to be produced without any concessions to efficiency. Or, to put it more dramatically, the hybrids are subsidizing the Hummers.

These aren’t problems with hybrids per se, they’re rather problems with the incentive structure that’s currently in place. Watch what happens when, instead of placing our faith in technology and railing against corporate giants, we play economist and adjust the incentives by replacing CAFE with a gas tax… The first problem disappears, as the cost of a gallon of gasoline has increased substantially. Sure, everyone wants power, but they also want a flat-screen TV, and they can’t afford both. The second problem is no longer really a problem– it’s the phenomenon we’re using to our advantage. An individual with a more efficient car can certainly afford to drive a little more than one without, but this is occuring in a situation in which everyone– including the hybrid owners– is driving less. Finally, since CAFE doesn’t even exist, and it’s been replaced with Hummer owners paying the real cost of driving those vehicles, the third problem vanishes as well.

I don’t know who the student was who asked the question of the Ford executive, but I hope he learns the power of incentives, and how important the economics of environmental issues can be. New technologies can be great, but they exist in a larger context, one that is defined by market forces and politicans who set the rules of the game. That Ford executive didn’t deserve a grilling for his company’s decision not to bring hybrids to market sooner, he and his company are just playing the game as best they can. In other words…

Don’t hate the player, hate the game.

I read Andrew Sullivan regularly, in large part because he does a good job of doggedly following one or two stories at a time, in-between his other random comments. I always hesitate to recommend his weblog, though, because his style of posting results in a lot of content-poor posts and I sometimes find his positions to be poorly-considered. The result is a lot of posts simply consisting of links to news coverage and a short comment about why Andrew’s right, requiring the reader to go through a large volume of posts to determine exactly where he stands on an issue, as he seems to explicitly state his position only reluctantly. This isn’t the result of an attempt to avoid being nailed down– he tends to be consistent in his views and devoted to his principles– it’s more, I think, a product of laziness and a desire to maintain a high output.

That said, he’s been doggedly following the Muhammed cartoon controversy, and it would be a pleasure to see him develop a slightly more mature view of press freedom. In a post yesterday, he noted the suspension of two student editors:

Their offense? They provided information to their readers, critical to understanding a major global story. That’ll teach them to commit journalism.

Of course, he’s referring to the editors’ decision to publish the cartoons that sparked the current worldwide controversy. He’s at least consistent; he would have also published the photos from Abu Ghraib and aired the video of Nick Berg’s beheading. He’s failed on two counts, however.

First, for someone who prides himself on his journalistic credibility, he’s done an absolutely awful job of accurately representing the story. These two students who were “practicing journalism” ran the cartoons as an editorial statement without consulting the rest of the editorial board. Further, from the editorial board’s statement:

We want to make it clear that while we do not necessarily disagree with the decision to print these cartoons, we disagree with how they were run. There was a tactful way to do this, and it is unfortunate it was not run in that manner….

This situation was bad enough, but Gorton tried to make it worse by writing yet another hasty column. He also brought in Humair Sabir to write the reaction in the Muslim community. With all due respect to Sabir, he has been friends with Gorton for one-and-a-half years, and one of the primary pillars of journalism is to NEVER interview one’s friends. This newspaper is appalled that Gorton would even consider using his friend in the newspaper as a voice for the Muslim community. To actually do it is beyond embarrassment.

This isn’t a case of the students being punished by the administration for exercising their right to freedom of speech. This is a case of students being punished by their peers for acting in a deceitful manner and engaging in poor journalistic practices. By representing the situation differently, Mr. Sullivan has failed his readers.

Second, his conception of press freedom is simply immature. Freedom of the press is freedom from prior restraint, it is not freedom from the consequences of one’s actions. To argue that everyone should publish cartoons that some find offensive to assert press freedom is silly, at least in America. How many editors feel that they cannot publish the cartoons for fear of repercussions to themselves or their papers? Not many– at worst, they might lose the subscriptions of some devout Muslims and their sympathizers. This is hardly censorship; individuals have a right to choose what they do and do not purchase, and some choose to stop purchasing newspapers because they dislike what they perceive as an anti-Christian bias, or because they can’t stand Sally Forth.

In fact, there’s a good reason other than fear to decide not to publish the cartoons: it would be bad journalistic practice. This is a rather unique situation, as the press is covering a press controversy, and by displaying the cartoons, a paper sacrifices its neutrality– it has cast its lot with those who approve of the publication of the cartoons. For Andrew’s sake, I’ll highlight two basic rules of journalism:

1. Don’t create news, report it.
2. Don’t become the news.

Finally… for my readers’ edification, the cartoons in question can be viewed by those who do not consider the depiction of Muhammed to be a sin (and even by those who do) here. I’m not personally offended by them, and I find the violence that is occurring overseas abhorrent. I simply find that the controversy created by publishing the cartoons in the United States would overshadow the informative value provided by their display; that because the act of publishing them is in large part the whole story, doing so again would sacrifice a paper’s neutrality; and that they’re easily found on the internet anyway, if someone is interested. Crying “press freedom!” as an excuse for ignoring these other considerations is immature– it reflects an unwillingness to accept the responsibility that comes along with freedom.

MSNBC, which apparently adheres to the “repeat what one side says, then repeat what the other side says” model of journalism, is running a story on Attorney General Alberto Gonzales’s appearance before the Senate Intelligence Committee today. In it is this gem:

News accounts have suggested the program vacuums up vast amounts of communications and sifts through them for possible links to terrorists. Gen. Michael Hayden, the nation’s No. 2 intelligence official, rejected that, saying on Sunday that the NSA first establishes a reason for being interested in the calls or e-mails. 

“This isn’t a drift net over Lackawanna (N.Y.) or Fremont (Calif.) or Dearborn (Mich.), grabbing all communications and then sifting them out,” Hayden said of three U.S. cities with sizable Muslim populations.

There are two problems with this passage. First, the news reports haven’t suggested that the program involves scanning large volumes of communications, they’ve explicitly stated it. Second, the passage is terribly uncritical of the General’s statement. For a sampling of what good reporting looks like, turn to the Christian Science Monitor:

On Jan. 23, former NSA director Gen. Michael Hayden, in an appearance at the National Press Club, said that the program “is not a drift net over Dearborn or Lackawanna or Fremont, grabbing conversations that we then sort out by these alleged keyword searches or data-mining tools.” 

The implication is that this eavesdropping is analogous to old- fashioned FBI mob wiretaps, in which law enforcement first identifies a target person or number, and only then affixes alligator clips to a phone line somewhere to listen in.

But it’s possible that General Hayden has just chosen his words carefully, some experts say. Given the NSA’s massive size, and the dire nature of the terrorist threat, it would be surprising if the agency had not tried to develop cutting-edge techniques that old gumshoes might not recognize.

NSA has had the ability to do automatic speech and voice recognition for at least a decade, says John Pike of GlobalSecurity.org. It may have the technical capability to essentially monitor all electronic communications crossing US borders.

The key here may be what Hayden meant when he said “grabbing conversations.” Having phone and e-mail traffic flow though NSA computers may be one thing. A computer identifying something that might be important, such as a combination of phrases that could indicate a sleeper cell communication, and pulling it out, is another.

The difference is obvious– The Christian Science Monitor, instead of reading into the General’s words and assuming them to be a flat denial, took the General for what he said and considered how his words might be intentionally misleading. It’s not unlikely that the General is simply repeating a phrase that is carefully crafted to be literally true but highly misleading. It certainly wouldn’t be the first time this has happened.

Stories like this one in the Christian Science Monitor provide a little more hope for the situation in Iraq. To me, stories of this sort also add an important bit of perspective to the situation and underline the fact that Iraq is not Vietnam, despite what some have suggested. The most fundamental difference is the simple fact that in Iraq, we’re not the bad guys. While I take nothing away from the U.S. servicemen who fought in Vietnam, we were the bad guys there. At worst, we targeted civilians, and we were poor at differentiating between enemy and friend at best. In Iraq, however, we try very hard to avoid killing civilians. Some are killed by accident, which is tragic, but it’s important to emphasize that these are accidents. When jihadists target civilians in a marketplace, on the other hand, that’s not an accident.

The increasing cooperation signals that this distinction is increasingly clear in the minds of some groups of Iraqis. It’s not surprising, as a comparison of our goals with those of the Iraqi people shows:

Our goals:

1. Eliminate jihadists from Iraq.
2. Stablize Iraq.
3. Rebuild Iraq’s infrastructure.
4. Get out of Iraq as soon as practicable.

Their goals:

1. Eliminate from Iraq the people who keep killing innocent people in marketplaces.
2. Stablize Iraq.
3. Rebuild Iraq’s infrastructure.
4. Get the United States out of Iraq, the sooner the better.

There’s no reason we shouldn’t be able to figure this one out. I must say, however, that it might be a good idea to stop kidnapping people’s wives and children– it won’t exactly help win hearts and minds.