Now Away

Call a Spade has closed for now. It's been fun looking at the news with you, calling a spade a spade.

Objective Government

What would Ayn Rand do?

Several months ago, my best friend called to ask if I could bring him the Emergency Room; he’d smacked his head hard after his bike tires got caught in railroad tracks.

Though Rand never wrote about bicycles in her several thousand pages of fiction, presumably she would have left my buddy lying dazed by the tracks. Helping him, she’d say, would only prevent him from taking responsibility for his own acts, dampening his ability to learn to avoid train crossings.

Some Rand followers would object to such a cold interpretation, but refusal to help others is the essence of her Objectivism philosophy, summed up by hero John Galt in Atlas Shrugged: “Do not cry that you need us. We do not consider ‘need’ a claim.”

Many say it less bluntly as, “Help others by helping yourself,” but however you phrase it, it has an appealing core. Be selfish! When you go after what you want, that’s also best for other people. Helping others hurts them, so don’t bother; just get what’s yours.

Does that sound too extreme? Former chairman of the Federal Reserve Alan Greenspan now suggests it is, a change of heart that Objectivists label “cowardly,” and “traitorous.” After decades of following Rand (she nicknamed him “the undertaker” because of his gloomy disposition), Greenspan admitted that unregulated derivative trading hurt markets in ways he hadn’t expected:

Rep. Henry Waxman (D-CA) pressed him to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,”

“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

It was going well until there was a crisis, as is true for many people’s lives. You may not often need medical malpractice laws, or environmental regulation, or a vibrant support system, but when you do, they prove their worth.

I don’t want a government dictating our every move. You should be free to bike where you want, for instance. But for those rare times you take a fall, it’s good to know that there’s a hand ready to help you get back on your feet.

The Smartest Supreme Court Choice of All

President Obama's smartest move on the Supreme Court would be to choose someone smart. The court is losing an articulate champion, and it needs a strong new voice - not just a vote - as balance.

Can Sonia Sotomayor out-reason Justice Scalia? More important, can she convince other justices, and other Americans, of her views?

Some liberals say that even asking the question is sexist or racist, though none of the other minority candidates, from Elena Kagan to Harold Koh, drew fire for perceived lack of intellect. And it's a good question to ask. A judge in the spotlight of history must be able to make not just the right decisions, but also convincing arguments.

Supporters of Sotomayor say the doubt is misplaced; after all, she went to Princeton and then Yale Law. But if a school record guaranteed intelligence, we could count on brains from anyone who attended Yale and Harvard, like our previous president. 

So what is a better measure?

Here are three good  yardsticks of intelligence:

First, an articulate speaker is a good sign. While some smart people can't express themselves well in words, you might consider it a requirement for a Supreme Court justice, who must convince a nation of the soundness of each judgement. Sotomayor's wooden reading of her dull acceptance speech doesn't bode well, though she may yet surprise us.

Second, the ability to see the implications of a choice matters greatly. Sotomayor will get grilled on her upholding of Ricci, the New Haven firefighter denied promotion when no minorities passed the advancement test. Whether the verdict is sensible or not, the opinion was a single, anemic paragraph - wholly unacceptable for a divisive, sensitive issue. She upheld the case but settled nothing.

Which brings us to the final yardstick for intelligence:  the ability to place decisions in the context of the most important principles.  Any tough decision has several principles in conflict, as does the Ricci case above. On the one hand, you want to promote someone who has earned the position, yet on the other, you want to encourage success for anyone of merit. A judge needs to define which principles are affected by each choice, preferably in a convincing opinion.

It's exceptionally easy to let lazy thinking overwhelm such reasoning. Even Antonin Scalia does it, as when he said,

'I suppose it's the same thing about so-called torture. Is it really so easy to determine that smacking someone in the face to determine where he has hidden the bomb that is about to blow up Los Angeles is prohibited in the constitution?'

While I actually agree that fair treatment varies with context, I've never railed against 'judicial activism,'  the interpretive reasoning applied by judges for such cases. Scalia hates it or endorses it, as the need suits him.

Would Sotomayor stand up to this inconsistency? Would she be convincing?

Look at this summary of her skills from today's Times:

Judge Sonia Sotomayor's judicial opinions are marked by diligence, depth and unflashy competence. If they are not always a pleasure to read, they are usually models of modern judicial craftsmanship, which prizes careful attention to the facts in the record and a methodical application of layers of legal principles.

That's another frightening sign of a mediocre mind,  however well-disciplined. Precedent matters, but so does sound reasoning. Look at these two smart opinions from Souter, one 'liberal' (attacking a death-penalty requirement) and one 'conservative' (setting limits on minority activism):

He dissented in a 5-4 ruling when the Supreme Court upheld the right of Kansas to require the death penalty in an unusual tiebreaker arrangement:

'A law that requires execution when the case for aggravation has failed to convince the sentencing jury is morally absurd, and the court's holding that the Constitution tolerates this moral irrationality defies decades of precedent aimed at eliminating freakish capital sentencing in the United States.'

Yet he also wrote the unanimous court ruling that St. Patrick's Day parade organizers could refuse to include a troop promoting gay rights. Look at how well he recognizes value in both sides, and how clearly he places the priority:

'While the law is free to promote all sorts of conduct in place of harmful behavior, it is not free to interfere with speech for no better reason than promoting an approved message, or discouraging a disfavored one, however enlightened either purpose may strike the government. ...'

Souter's elegant phrasing applies to all such cases, regardless of political bent; gay rights parades are not required to make room for a troop from the religious Right, nor must the NAACP provide a marching slot for the local Klan. Sensible, yes?

I'm skeptical that Sotomayor would be so clear.

But perhaps she'll convince me.

This post comes today for timely reasons, replacing next Monday's column. I'll post again the following Monday.

A Tax Conservatives Can Love

This week's Economist calls a spade a spade: the world needs a carbon tax.

That's right, a conservative magazine favors a tax. (This one puts a pollution surcharge on energy produced from burning coal and oil, among other things). And they should, for two good, conservative reasons.

• A carbon tax helps market forces work.

Usually, free-market advocates hate taxes because they introduce inefficiencies. But taxes can actually help set proper rates for items with societal costs.

If your neighbor buys a new lawn mower, you're better off when instead of a gasoline-powered one, he chooses a quieter, less-noxious electric model. But there's no price-cut for him if he does so, nor is there a surcharge for the gasoline model. There's a clear advantage to one choice, yet that isn't reflected in the price. The market needs a 'nudge' to set it right.

This is sometimes addressed through rebates, as with electric cars, but that's inefficient and far less precise than a tax. More often, the government steps in with an outright ban of the offending item, which brings us to the second reason to favor a tax:

• A carbon tax means less government interference.

Often, the offending item faces an outright ban, as with lighter fluid (in Los Angeles), fast-flow shower heads (in San Francisco),  and large-flush toilets (nationwide). That's both heavy-handed (I wish I could apply my fine water-saving habits toward a good shower) and unnecessary.

We face even worse with the cap-and-trade system proposed for carbon. Under that system, the government would issue permits to coal and oil and other companies, allowing them to pollute up to a certain amount. It's become popular in Congress because politicians feel, perhaps correctly, that they can steer credits to their own states.

But what conservative would trust the government to get the levels right? And what liberal trusts companies to pass on to consumers the value of their new permits they've received?

It's far better to let the market work. Set a simple tax on pollution, then apply some of the revenue toward green solutions. That means less government intervention, less bureaucracy, and a greater chance for the market to work its magic.

What conservative wouldn't love that?

The Doomsayers and the Retirees

How can opposite sides of a debate both be right?

Doomsayers insist that Social Security has no 'trust fund' and will run out of money sooner than 2037, the new date listed in this month's official new projections.

Optimists say Social Security is well-funded and can continue with little additional money, if any.

They're both correct, at least partially so.

The doomsayers have latched on to a concept few media outlets understand: we're spending the Social Security surplus, and that means there's no 'trust fund.' Currently, Social Security takes in more money than it spends; that will change as we get more retirees per worker. Most news sources then report that the extra money Social Security has taken in - including this year and last - can then be spent to cover the gap until 2037.

But since we're spending that money now, there isn't any 'saved.' The surplus money goes into the general fund, which is spent by Congress on defense, education, and the like (see 'Where do your Taxes Go?').

It's as if you give $100 to your best friend in exchange for an I.O.U. while he or she then spends that cash. When you turn in your I.O.U., your friend needs to get that new money from someplace, since it hasn't been saved.

For Social Security, the I.O.U.'s are notes from the Treasury Department (or technically, they're an accounting entry made in the ledger for Social Security). To pay them off, the government will either need to borrow more (by issuing Treasury Bonds), or raise the income through taxes. There just isn't any saved. Really.

Optimists say the Treasury Department never defaults on payments, and that's true, too. Next week, we'll see why they're right: even though there isn't money saved, Social Security is not in crisis.

Words are Terroristical

Surprise! Barack Obama is a fascist, say GOP commentators, bloggers, and even politicians, including ex-presidential candidate Ron Paul.

Unless, of course, Obama is a socialist, as claimed by many of the same people, including Ron Paul and other folks at the first link above. Saul Anuzis, a contender for GOP party chair, explains that party supporters weren't getting enough traction from 'socialist,' so they're trying the new 'fascist' tag.

'We've so overused the word 'socialism' that it no longer has the bad connotation it had 20 years ago, or even 10,' says Anuzis. 'Fascism - everybody still thinks that's a bad thing.'

Or maybe President Obama is a Communist - people still hate Communists, right?

That link, like the previous one, comes from FreeRepublic.com, which used to be my favorite amusing conservative site until they kicked me off for offering opposing views. (Really! That's why you'll never read a dissenting opinion there. They don't allow them.)

Even if you can't ignore such trash (the above article states a KGB agent admits Obama is a secret Communist), you can use your head. Can he be all three at once?

Remember that it was the Communists who fought the Fascist government in Spain, and that makes sense. They're at opposite ends of the political spectrum; they combine no better than the Yankees and the Red Sox. Those pundits are just spouting play-yard taunts, and they might as well call Obama a 'poopy-head.'

We've seen this before, most recently with abuse of the word 'terrorism,' which has devolved into meaning only, 'something you don't like.' As you know, 'war is terrorism,' as is ignorance. Hate is terrorism, as are global warming, and of course - of course! - taxes.

Such word-napping aside, it's actually useful to have a word that describes the deliberate targeting of civilians. War is awful, of course, but there's a moral chasm between shooting an armed assailant and planting a bomb on a school bus. Equating the two elides an important distinction, and when we muddy the words, we cloud our thinking.

So don't believe the name-callers when they toss around the 'fascist' label, nor the 'socialist' one. You know the difference, or if you don't, you still know there is one.

After all, you're no poopy-head.

Handling Obama Derangement Syndrome

When conservative pundit Jonah Goldberg recently praised Barack Obama's handling of the Somali pirate incident, his email inbox overflowed with "snark and bile" from readers unable to stomach the good words.

Of course, there was nothing wrong with the actions themselves.

If Ronald Reagan had taken the same steps - sending Navy forces to the area and ultimately rescuing the American ship captain after killing his captors with astoundingly accurate sniper fire - conservative magazines would feature the Gipper on Mt. Rushmore.

What better response from the conservative perspective? We used military might to rescue an American hostage. You'd think that would win cheers from everyone without tie-dyed sheets, yet Republicans still sneer (see 'Obama Derangement Syndrome' in the Economist).

'There's no pleasing some people' takes on a special significance today, as the phrase has more literal meaning than in the past. The radical right will be pleased by nothing, absolutely nothing, undertaken by Barack Obama or his party, just as the radical left refused to endorse any action by George W. Bush (even such liberal-friendly acts as increasing AIDS treatment funding for Africa).

So why try to make the radicals happy? A better option is to ignore them completely.

No more trying to please the opposition. No more making tax cuts the single biggest part of the stimulus package, because the other guys will still hate you. No more resisting calls from both sides of the aisle to nationalize banks, because the opposition will still call you a socialist or a fascist or a communist... or even all three at once. (See the Economist article above.)

In fact, that's the very topic of next week's post, Words are Terroristical.

Microsoft Hobbles the Fun

Microsoft plans to limit your use of its next operating system, if you own a netbook.

Windows 7 may see limited release as early as this week. See my blog from earlier this month on why you may not get too excited, especially given its continued incompatibility with the tens of thousands of programs written for XP.

And now there's a new twist: Windows 7 will come hobbled for use on netbooks and other inexpensive computers, allowing use of only three applications at a time.

It's easy to get up to three applications at once, as I'm doing right now (my browser, a text editor, and Microsoft Word). If I go to site that opens Windows Media, I'd need to close one of the others, as I would to listen to music in the background, or to use a calculator, or open Excel tables or a Outlook/Mail.

While netbooks and small laptops have limited computing power, that's not the trouble here. Though Windows 7 is still bloated (using about the same memory as Vista. The 'improvement' is that it uses no more), it's still capable of running more than three applications, or at least it was, until Microsoft introduced this lock.

Why the change? Microsoft says it has a narrow profit margin on netbook operating systems, and while I have a hard time picturing it being as small as the $15 they claim, I do believe they should make money on their sales. We're used to demanding things for free - free shipping, free upgrades - but Microsoft has to pay developers to make a new OS, and by paying for our purchases, we support those improvements.

But it's one thing to offer additional features for a cost, like a modest charge for improved releases, and another to disable features that already exist. Apple's Quicktime is a good example of the former: the basic program comes free with a computer, and advanced users can buy and download expanded editing tools.

Running multiple applications isn't an improved feature; it's a basic offering for any current operating system, and paying more to get it feels like a shakedown.

Saving More Gas than a Prius

Hybrids are popular, hybrids are hip. A Toyota Prius can get an impressive 50 m.p.g., prompting California to give them special driving exemptions: they can use the carpool lane with nothing more than the driver.

But that's not the road to big savings in gasoline.

It sounds like it - 50 mpg is double that of most passenger cars - but the measurement itself is misleading, as you can see from this little quiz:

     Which saves more gas?

• Replacing a 10 mpg S.U.V. with a 20 mpg station wagon?

or

• Replacing a 20 mpg sedan with a 50 mpg hybrid?

Surprise! It's the first option.

The S.U.V. uses 10 gallons to go 100 miles, while the station wagon (and sedan) use 5. The hybrid uses just 2, but that's a smaller savings than replacing the S.U.V.. If you drive a 200 miles a week, moving from the S.U.V. to the station wagon saves you 10 gallons, while moving from the sedan to the hybrid saves you 6 gallons.

It's the low mileage vehicles that add up. Moving from 10 mpg to 20 mpg saves a lot more than from 20 mpg to 40 mpg or even 50 mpg.

This would be easier to see, argue authors Richard Larrick and Jack Soll, if we replaced mpg with "gallons per mile," a measure that better shows the cost and savings of improved efficiency. You can read more about their idea or try a mini-quiz on the topic.

Next week's blog will address Microsoft's newly announced strategy for Windows 7: Microsoft Hobbles Your Fun.

Microsoft: No Worse than Before

From the headline reviews of the forthcoming Windows 7, you'd think Microsoft has a hit.

Walter Mossberg of the Wall Street Journal titled his preview 'Even in Test Form, Windows 7 Leaves Vista in the Dust.' He found it 'very promising' and 'a pleasure to use.' Could Microsoft have turned the corner?

Hold that thought.

Look more closely, and you see we have the same giant company with the same huge problems. 

What were those problems with Vista? Mossberg sums them up for us: an operating system that required huge amounts of memory, one that wasn't really compatible with the countless programs written for Windows XP.

How does Windows 7 compare? It uses the same amount of memory and also lacks compatibility with Windows XP.

What Microsoft proclaims, and Mossberg accepts, is that Windows 7 is no worse than Vista. Microsoft proudly touts that this operating system upgrade is fully compatible with the previous one, the one everyone hates, but it doesn't actually expand compatibility as hoped.

Nor does it reduce the memory costs. It doesn't make them any worse, says David Pogue of the New York Times, who calls Windows 7, 'Vista, Fixed.'

But what does it actually fix? None of the problems that Pogue notes made users 'beg, plead, and sign petitions to bring back the previous version of the product.' It just doesn't make matters worse.

Same system requirements. No improved compatibility with XP programs. And, like Vista, it will apparently be sold in six confusing versions, rather than a single, simple package.

That's progress?

This post is going up early, as I'll be away on Monday. Next week will go up as usual, and it will be on The Modern Gas Mileage Mystery.

Copyrights, Music, and 100 Percent of Nothing

Is Apple now the biggest music retailer on earth?

A memo leaked this week suggests they may have passed Wal-Mart in global music sales, and whether or not that's so, they earn quite a lot from MP3s, even as the music industry screams about declining sales.

There's a lesson there about the danger of over-zealous guarding of copyrights.

The music industry so jealously combats anything that might lead to copyright infringement that they missed the biggest source of music revenue in the world today. When Napster introduced the ability to trade songs, it quickly attracted millions of users, and instead of seeing this as a potential source of revenue, music labels fought to shut it down.

Then they offered half-baked 'rental' schemes through monthly subscriptions, and relatively few people took the bait. It wasn't until Apple offered the right to buy a song for around a dollar that online music stores became viable. Sales rose even further when Apple offered the songs without DRM copyright protection.

DRM protection is a hassle, requiring computer confirmation at best and phone-in verification at worst (as with the maligned DRM scheme for the popular game 'Spore'). Since the whole point of MP3s is convenience - they don't sound better than CD's, but they're easier to use - anything that complicates their use is unwelcome.

So here's a plea to the music industry: please, just let us buy the songs and leave your electronic policemen out of our homes.

Posts this month are on technology and society. We'll return to economics in May.

If you think the music industry is out-of-touch, please see next week's post on Microsoft: No Worse than Before.

Dump the Political Clowns

What's wrong with being smart?

Republicans used to like smart people, back when they offered effective leaders. Even Ronald Reagan gave insightful radio addresses while governor of California, and he wasn't afraid to work with strong intellects.

But the previous administration had such a severe anti-intellectual bent that presidential advisor Karen Hughes  "rarely read books and distrusted people who had," bemoans the Economist. Speechwriter David Frum noted that 'conspicuous intelligence seemed actively unwelcome in the Bush White House.'

We may be glad that president is gone, but have we left him behind?

We're still holding up GOP candidates who drop their g's and tout their down-home qualities. I don't mind a politician of the people, whether a boy from a log cabin or a peanut-farmer, and 'rural' doesn't mean 'dumb.'

So why do we support the yokels in dunce hats? Do we really want only one party in America to offer intelligent candidates?

Glenn Beck, a rising star for FOX News, recently asked aloud if disaster relief agency FEMA was setting up concentration camps, calling it a rumor he was unable to debunk. That's the oldest, lamest journalistic trick of all, applicable to any stupid statement you wish to make. I, for instance, am unable to dispel rumors that Glenn Beck is French.

He's full of nutty comments. Take the recent one that 'the U.S. is on the road to socialism,' and compare that to your feeling about Wall Street bailouts.  Would you describe a president who hands money to investment banks as 'socialist'?

Comedian Dennis Miller noted when Ann Coulter says such things, she's acting like a dunk tank clown 'trying to sell more baseballs.' The goal isn't to inform or instruct, but just to incite.

We have enough clowns. Give us thinkers, too. Please.

In April, each Monday's post will be about society and technology. We'll return to economic issues in May, with Who Pays the Taxes?

The Paradox of Thrift

This is the last post for awhile on why we need spending, so let's look at the clearest possible case: a village of three people who trade only with each other.

If some hold back on their spending, they all suffer. Why?

Suppose they each buy $5 of goods from the others, spending and earning $10. Peter bakes bread, Paul grows grapes, and Mary cooks casseroles, and everyone buys - and sells - two items each month.

This works fine until Peter begins to worry about the future and wants to save. He decides he can do without Paul's grapes for now, so he buys nothing more than the $5 casserole from Mary.

Paul now has just $5 to spend, since only Mary bought his grapes. Paul must cut back on his own spending as a result, and once he buys one loaf of bread from Peter - and nothing from Mary, since he has no more money - all trade is finished.

How much money does Peter now have to save?

Nothing. Zero. Zip. No one has more money in this situation, yet everyone has less to enjoy. How can that be?

This is what economist John Maynard Keynes called "the paradox of thrift." When people move too drastically to save, they can all end up saving less than if they were less thrifty. The problem results from a sluggish economy when everyone pulls back at once from their spending.

What can be done to get this village economy moving again?

Someone has to have confidence that things are improving, enough to promise purchases from both other merchants. Then the whole chain can begin moving again at full capacity. 

Saving isn't inherently evil. But if people leap too quickly to increase their saving habits, they can end up with less on the table and in the bank.

Who Laughs at the Laffer Curve?

You've found me: the one and only person in America who believes in the Laffer curve.

Ever since Reagan championed the idea that the government can earn more from lower taxes, liberals have shunned the concept.

Oddly, conservatives have, too, though they love part of the idea. You can read some near-religious praise for part of the Laffer curve at FreeRepublic.com, a site whose crazy fervor used to tickle me until they kicked me off for suggesting there's a role for good government.

One poster says, 'its logic continues to elude the class-warfare lobby' and another insists, 'Laffer curve should be pasted on the ceiling above every child's bed.'

But they don't really want a Laffer curve. They want a Laffer bulge, a curve with no left side.

Look closely at that left side: at that point, government receipts fall with further tax cuts. That fits both our historical data and plain logic. If you cut taxes to 0%, we'll clearly have no government revenue.

So where are we on the curve?

For us to expect more revenue by cutting taxes to 10%, from 40%, we'd have to expect that people would work four times as many hours. That's simply not possible, and the tax change does not imply any leap in productivity to fill the gap.

Could people work twice as many hours to compensate for a cut to 20%? Since the average employed American works between 46 and 50 hours per week, doubling their time would be exceptionally hard. Remember, that's an average. Yes, some people already work 100 hours a week, but they can't double their time to 200.

Then here's where we are on the Laffer curve: we're close to the optimum level for receipts. We can't cut the top tax rate to 20% and expect people to double their work week, nor should we hike it to 60% while hoping it doesn't reduce hours. Neither is reasonable.

We can argue over whether we should shift 5% one way or another, but we're no longer at the punitive 80% top tax rate that existed when Reagan took office. The level now is close to where it needs to be.

So let's put away the Laffer bulge and call a spade a spade: lowering taxes now is liking taking medicine for last year's cold.

Shouldn't We Be Saving?

Let's start with a great graphic:

This is a hugely informative piece for comparing consumer spending during past economic crises. The 'Peak' line intersects with '1' in the middle, so anything to the left is before the worst of the recession, and anything toward the bottom reflects less spending. That sagging red line shows our current decline.

Now it's clear: recessions deepen until spending picks up.

That makes sense. What employer wants to hire more workers without more customers?

Once answer to that question could be 'the government,' when suggesting that federal money be used to build more bridges, upgrade the electrical grid, and improve schools. All those will indeed create jobs and ease the recession.

But if we want more jobs in the private sector, we need consumer demand, and as long as it keeps falling, we're going to lose more jobs. 

Don't take those jobs lightly. One reader responded to the above graphic by saying, 

'So what if it gets worse? Standard of living is all relative, anyway. You don’t mind not having as long as your neighbor can’t have it, either. Find other things to enjoy in life besides more stuff.'

But we're not just talking about the amount of 'stuff' you have. We're following people's ability to earn a living. Before we start telling others how they ought to handle their money and values, let's reverse the loss of millions of jobs.

Maybe you think people shouldn't be buying junk, but while they refuse to buy anywhere, America will continue to lack jobs.

So do you have to run out and spend? No, do what you see fit: no one knows your needs better than you do. But don't feel guilty for spending when you do, and above all, join me for a cheer when that red line starts to rise.

The Guilt-Free Stimulus

Do we really build debt when we move to increase spending?

In my column in today's Washington Post,  'Stimulating our Inner Consumer,'  I propose that we can use human nature to encourage consumer demand, easing the loss of jobs until longer-term stimulus projects take root.

If people find it easy to spend with a $2000 prepaid American Gift Card, we're likely to see such a boost, as convenience is hard to resist. People are likely to eat more when seated by a bowl full of chips, and many diners wave away bread to remove that very temptation.

But some people still wonder how much new spending a gift card would encourage. What if consumers ended up buying the same groceries as usual and saving more of their paychecks?

The answer is: that's fine. Doing so costs nothing, and it doesn't build real debt.

If you save the equivalent $2000 then repay it through taxes years from now, there's no cost to you or the government.

Even interest on the debt goes to you and back. When the government borrows money, it issues Treasury bills mainly to Americans; only one in six is held abroad. That means it borrows from you before loaning that same money back. If you save all the money, the result is exactly the same as if you got a $2000 IOU and then returned it a few years later.

In such a case, issuing the Gift Card truly does cost nothing (save administrative costs, which have tended to be low for past rebate checks), as it does nothing.

Fortunately, such absolute saving is unlikely, and we can expect real results. If you hand $2000 to the man on the street, he'll have a strong incentive to spend at least a portion more than usual. The 'marginal propensity to consume' varies with income - a gift card may have less influence on Bill Gates than on me - but it's always more than zero.

We really can encourage more consumer demand, just as surely as people will eat from a bowl of chips.

Ronald Reagan's Favorite Joke

Reagan used to quip that 'the most terrifying words in the English language are: I'm from the government and I'm here to help.'

The funny thing is that government can indeed help people to help themselves, and that's a lesson worth remembering in tough economic times.

Look at the recent proposal in Fairfax County, VA, to trim the budget through elimination of Adult Daycare Centers. Their daytime services help not just the elderly, but their grown children who are then free to go to work.

Without such services, alternatives are bleak. Private elder care can cost upwards of $10,000 a month, and it's rarely covered by insurance. It's far cheaper for most people to quit their jobs to care for needy parents than to try to pay for assistance at market rates.

Those centers offer more than care for the elderly and more than positions for the people providing the care. They give other people the chance to pursue their own jobs, and we can hardly ask for a wiser form of government spending.

I'm not advocating a hand-out. I'm not suggesting that the government should provide everything we need.

But it should sure give people the chance to provide for themselves. If we cut back on people's opportunities, they'll end up in even greater need.

Funny how that works.

Next Monday's post will be on Who Laughs at the Laffer Curve?

Making Sense of Really Big Numbers

Pundits had laser-like criticism of Louisiana Gov. Bobby Jindal and his televised address on Tuesday.

They focused on his "folksy" style and his wobbly command of facts when criticizing parts of the stimulus bill, particularly those for 'volcano monitoring' and 'magnetic trains.' Of course, here in the Northwest, we don't find monitoring of volcanoes any more wasteful than a hurricane watch in the South, but much worse than Jindal's ridicule is his math.

$140 million for volcano monitoring is less than one tenth of one-percent of the spending bill. It doesn't deserve any greater portion of our attention.

Then what about the 'MagLev' train in Las Vegas? Its aim of linking working-class neighborhoods with jobs deserves better than Jindal's jibes, as you might expect given its support by the chairman of California's portion of the long rail line, Quentin Kopp.  Kopp, who served for years as San Francisco's most conservative council member, is whip-smart and one of my favorite politicians. He's been called a lot of things, including "biting," and "a force of nature," but he's never been accused of being a dreamy liberal.

And again, the best perspective of all comes from looking at the numbers. $8 billion for the train is just over 1% of the spending package.

When is the last time you saw any large project, public or private, that was more than 99% efficient?

Does Jindal really mean to imply that he agrees with nearly all of it? If not, why doesn't he address the big-number items?

I expect it's because it is hard to disagree with most of the stimulus package (whose components you can see clearly laid out in my earlier post, Components of the Stimulus.

Complaining about waste in 1% of the bill is like complaining about "pork" in politics. Yes, it's there, but only as a small fraction of the total (see my earlier post,  Where Do Taxes Go? ).

Let's call a spade a spade: $785 billion in stimulus is a lot of money, no doubt. But it's not too much to keep in proper perspective.

One Port in a Storm

Where do we run in a crisis?

Home, of course. Under fire, people fall back on beliefs they have long held, and that's exactly what they're doing in this economic crisis.

The same people who cried out for lower taxes three, five, and ten years ago say that's exactly what what we need now. And the same people who have long demanded more government entitlement programs say that's just what we need today.

They may or may not be good ideas in themselves, but that doesn't make them the right medicine for the current problem. There's a strong tendency to use a crisis in support of an agenda. As Mark Twain noted, 'To a man with a hammer, everything looks a nail.'

We're far more likely to get out of this mess if we focus on the actual, live problem in front of us, the collapse of consumer confidence and the resulting jobs lost.

We may never agree on who caused the crisis - subprime lenders? eager homeowners? profligate consumers?  greedy bankers?- but we'll know it's behind us once consumers buy without fear, allowing businesses to add the jobs that provide all goods and services.

That should be our aim, breaking the cycle of fearful retreat. From there we can move forward, toward whatever agenda we please.

Next Monday's post will be on Making Sense of Really Big Numbers.

The Smartest Spending of All

So why not boost spending with $2000 gift card for each American?

Here are the most common objections and questions I've received about my article in this weekend's Washington Post:

  - Didn't spending get us into this mess? We need jobs, not cash!

We do need jobs, and the gift card helps us get there, during the months that job programs get underway. This week and next, there's only one thing that keeps businesses from folding, and that's consumer demand.

To help in the short-term, the Senate has proposed nothing but tax cuts, and that's disingenuous. While some other problems may be averted with appropriate breaks, like expanding exemptions from the Alternative Minimum Tax, we shouldn't confuse those with immediate stimulus.

When your house is on fire, there are things to do before choosing a new sprinkler system. The 600,000 jobs lost last month represent only one sixth of the the total losses since the start of the recession. We need relief soon, while all other plans take root.

The $2,000 gift card isn't a full solution, but it's a strong tool we can put in the hands of every American right now, this week.

   - What if I just save the money?

Fine. If people save every penny of it, the program carries no cost: $2,000 goes to you, then back to the government years later. Even the interest goes to you and back. The Treasuries used to finance our debt are sold overwhelmingly to Americans. Despite the huge foreign reserves of Japan and China, we borrow mainly from ourselves.

But while rebate checks were saved at too high a rate to help boost the economy, the American Gift Card can do better, as it never sits in a bank. In our house, grapes get eaten a lot faster when they're out on a plate than when they sit in the bottom drawer of the 'fridge.

   - Won't the money just go to China?

Amazing at it seems, given that half the things on my desk were made in China, well over 80% of dollars are spent on domestic goods and services. Even without restrictions on the card, it really will help Americans.

   - Why not $2 million, so we're all rich?

$2000 is a good figure: $200 is too little and $20,000 is excessive. It's also the right amount to replace the $275 billion in proposed corporate and other tax cuts, some of which have merit but none of which have a stimulus effect with the promised speed.

$2000 per taxpayer provides a solid short-term stimulus while other programs begin, even though the mere issuing of a card doesn't create wealth. It is indeed money we're borrowing from ourselves, and for these next few months, that's a good thing. While there may be benefits to a higher rate of saving in America over the long term, the sudden drop in spending is causing substantial pain.

We can start cheering about reduced consumption after people stop losing their jobs.

- Can't we keep the government from telling us what to do or giving handouts?

Unlike other spending projects, the Gift Card program doesn't rely on the government to decide which business or industry should receive the money. You do.

There's no handout. Stores still have to attract your business if they want a boost in their bottom line. The difference between this an industry bailout is that you get to decide where the money goes.

And that's the smartest spending of all.

Boost the Economy, Today

Thanks for the many positive notes about my article in today's Washington Post, suggesting a short-term stimulus through a $2000 federal Gift Card.

It's a short-term boost, not a fix for all the long-term problems with the economy, nor to replace useful infrastructure spending or appropriate financial regulation.

Tax cuts can help avoid some problems, particularly if we wisely expand exemptions from the misguided Alternative Minimum Tax,  but we shouldn't confuse tax breaks with immediate stimulus.

The store on the corner struggles when there is a fall in consumer demand. That's true whether taxes are high or low, whether subprime lenders are spinning their evil ways, or whether or not the financial markets need more regulation.

And so do the store employees. The 600,000 jobs lost last month are most remarkable in that they represent only one sixth of the the total losses since the start of the recession. We need relief now, while all other plans take root.

The $2,000 gift card isn't a full solution and isn't meant to be. It's a tool we can put in the hands of every American, right now, this month.


On Monday, I'll post answers to the most common questions about the idea, plus a response to some objections. Or you can read hundreds of differing opinions on the idea at several blogs including that of MadDogMedia, Reddit, Scott Loftesness, and The Washington Post comment board.

The Truth, Plus Distortion

There's no reason for news media to treat Americans like dunces.

This week's shameful partisan spat over the stimulus plan is shocking enough. “Not one person felt his or her district needed to have any of this assistance?” Representative Rosa DeLauro, Democrat of Connecticut, asked of Republicans. “That can’t be.”

Even papers that generally keep a high standard have played loose with the facts in their summaries of the stimulus bill.

It's misleading to overlook the huge scope of proposed tax cuts, which even if they were reduced by half would still be the largest portion of the package. See the previous blog for details). The only programs mentioned there are $50 million for the NEA, $335 million for family planning, $70 million for a supercomputer for a weather facility, and $75 million for smoking treatment.

Let's put that in proper perspective. Added together, all of those programs total less than one percent of the proposed package. In fact, they aren't even one-tenth of one percent of the proposed package. That's right: 99.95% of it passes without criticism.

There's simply no need to distort a bill to emphasize old grievances like funding for the National Endowment for the Arts. That money isn't even one-thousandth of one-percent of the proposal, so it deserves no greater proportion of our attention.

We Americans can handle the truth. Give us the facts in proper perspective and we'll make our own judgments. If a party, or a paper, can't win our approval without tricks, they don't deserve it.

Components of the $825 billion stimulus package

Item                                                 Amt ($billion)

Tax Cuts                                        275

  $500/person, plus expansion of business loss writeoffs

Aid to States 119

   $87bn Medicaid, $25bn public safety, $7bn law enforcement

Education                                 117

   $41bn low-income support, $39bn secondary, $22bn college

Unemployment Aid                  106

  $43bn  jobless benefits extension, $39bn health coverage

Infrastructure                                                                  90

  $30bn highways, $31bn building repair, $19bn water, $10bn transit

Energy Investments                     54

$32bn grid upgrade, $22bn housing weatherizing

Investments in Science and Technology 16

  $10bn research facilities, $6bn rural broadband Internet expansion

Other 48

You can see more detailed figures in the actual proposal (.pdf document hosted by the Wall Street Journal).

Note how conservative this is - 'conservative' in the political sense. Tax cuts are not only the largest portion of the package, they're twice the size of the next largest item. More than twice the size.

And look at where the other big expenditures are: public safety, law enforcement, infrastructure. Even some of the liberal-sounding titles actually house conservative projects. 'Energy investments' isn't going toward solar-powered smiley buttons. It's primarily for upgrading the nation's electrical grid.

Good for President Obama for reaching across the aisle. Let's see how it works.