Debt, Austerity and Iraq

The United States is in the middle of a major debt crisis that has both illiquidity and insolvency components. Illiquidity means some loans/bonds are unable to be paid off on time due to merely cash flow issues and thus can be worked out so that the NPV of the loan can be fully paid off at some point in the future. The collataral and cash flows will eventually be there, just not right now. Insolvency involves loans whose NPV will never be paid off. The borrower lacks any reasonable projection of being able to pay off their debts. The solution here is some type of shared pain agreement where the borrower pays what they can while taking a hit on their credit rating and the lender seizes the underlying collateral, and takes a loss on the difference between the loan amount and the collateral value.

Right now almost all of the carnage is occurring in the private markets, and the pain is going to be sharp and prolonged. However the pain and the costs of cleaning up are slowly moving away from the private markets and toward a public bail-out of the dumb decisions that have been made. The Term Securities Lending Facility where the Federal Reserve gives out very liquid and valuable US Treasuries in exchange for AAA rated (yeah right) mortgage backed securities for 28 days and the re-rolls them over is the first step of the public bail-out (the use of the Federal Home Loan Banks was a covert step of a bail-out). The Federal Reserve takes lipsticked pigs wallowing in MBS slop and calls it the equivilant of the full faith and credit of the US government.

I am assuming that this bail-out will continue and grow in size and scope for the near future. No one wants to account for the highly probable losses that should be massively marked-down. Instead being able to transfer assets to the Fed and allowing the Fed to by the crypt of zombie debt allows companies to ignore reality for a while longer. And that is attractive when your bonus structure is based on a pleasant reality at the end of the quarter.

So we could have a situation where a really nasty private sector debt crisis transforms itself into a really nasty public-private debt crisis. And here is where things could get really interesting, as the recent model for resolving national public debt crisi is for categorization (what's okay, what's illiquid, and what is insolvent), international bridge loans to carry over the okay and illiquid debt to better days, harsh liquididation of the insolvent debt, export led policies to generate more foreign currency, and severe austerity on the public budget which means cutting back almost everything except debt service.

There are a couple of big differences between this low probability, high cost scenario I am spinning right now and most traditional debt crisis resolved by the Washington Consensus prescription. The most important is that the US debt is denominated in US dollars; massive inflation is a viable option of avoiding some forms of policy pain. The other is that the groups with money to bail the US out are the mercantilist/Bretton Woods II countries (OPEC, China etc) and their strings being attached to any package are most likely different than the strings the US would attach.

Paul Krugman notes the interconnected relaionships of issue and policy space, and how the creeping bail-out will significant crimp option space of the next President:

I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.

If the US government embarks upon a significant bail-out of significant elements of the US financial sector, it will need massive injections of foreign capital. Most foreign capital that is willing to come into the US is not profit maximizing capital at this time; instead it is either risk averse capital or politically controlled capital. If the US is able to attract a massive lump of capital then few choices will need to be made. However if there are problems, austerity will be imposed to free up additional cash.

The Pain Caucus is much weaker today than it was five years ago or twenty years ago, so Baby Boomer retirement programs are relatively safe. The other big pool of cash floating around in the government is the defense budget and the biggest discretionary portion of that budget is Iraq. $200 billion per year is some serious money. There are already large pre-exisiting political groups (most of the Democratic Party) that thinks this is a damn dumb idea for one reason or another already, and as we move forward more people will be screaming for relief. The ability to propose non-trade-off solutions will decrease.

A debt crisis could provide very convienent political cover to withdraw from Iraq and save $150 billion per year in expenditures (some money will be spent to maintain 'containment forces', and other funds will be used to pork out the supplier's districts). And pulling out of Iraq could be one of the strings attached to any implicit or explicit foreign bail-out.

Price Elasticity of Booze in Allegheny County

Warning --- this post is pure geekery --- beware

From a policy analyst perspective, figuring out elasticities and policy impacts is a pain in the ass, especially at low levels of analysis as the substitution effects, non-compliance impacts, and border skipping can be a pain in the ass to fully disaggegate in your data. Furthermore, policies are seldom enacted in isolation and without other incentives being generated. Good analysis can and frequently does occur, but it costs money, takes time, and involves significant head-wall interactions.

I have to love the Allegheny County's 10% poured drink tax that went into effect on Jan. 1, 2008 as this is a great little experiment that naturally isolates a lot of confounding and correlating influences. It only taxes the booze at the point of sale, it is not a tax on the purchase of booze from the wholesaler so there is no buyer substitution effects going on by seeing restaurants buying booze in Butler County instead of Allegheny County for instance. No other major policy changes have occurred in the past three months impacting Allegheny County or any other surrounding counties. This is about as clean as an experiment as you can get if you want a quick and dirty elasticity of demand for restaurant served booze in Allegheny County.

And if you really want it, we have it, via the Tribune Review ---

The state sold $3.74 million of alcohol to liquor license holders in the
county in January, a nearly 3.5-percent drop from $3.87 million in January 2007,
said Francesca Chapman, a Liquor Control Board spokeswoman. At the same time,
sales to license holders statewide climbed about 4 percent, from $28.54 million
to $29.69 million.

If we assume that restauranteers have a good ability to project demand into the near future and that storage is expensive, we would expect a just-in time liquor purchase system for most restaurants, or at least just this week/month systems. They want to buy about the amount of booze that they will sell.

So at a wholesale level the crude elasticity of demand is about .35 --- a 10% increase in retail prices will produce a 3.5% reduction in demand. A slightly more sophisticated measure would that if the tax was not enacted, we would expect Allegheny County to pretty much follow statewide trend, so the elasticity of demand is roughly .70 --- a 10% increase in retail prices will produce a 7% reduction in quantity demanded.

Now there are a couple of provisos in here. The first is that it is a single data point, and a better analysis would look at some trend information to narrow the error band. Secondly, this is only for hard alcohol; there is no data to suggest if restaurants, taverns, and bars sold less hard booze (which the state has a monopoly on) but saw some substitution to cheaper beer. Third and most noticably, very few bars raised their prices by exactly 10% to cover the new tax. I know at a downtown bar my coworkers and I occassionally visit for happy hour that my $3.00 Penn Dark is now a $3.50 pint. That is a 16% increase in prices.

But this gives us a quick and dirty maximal number of the short run elasticity of demand for hard booze in the county is no more than .70. Since the elasticity is less than 1.0, the county could probably raise the rate a bit more and still take in more revenue.

Pittsburgh fiscal vulnerability assessment

This is the second in an indeterminate series of municipal finance stress testing posts. Yes, exciting, I know! I'm looking at locally controlled revenue streams and how a stagnant or recessionary economy could impact the Pittsburgh budget. Again, everything here is back of the envelope, and should not be construed as a forecast of doom or a gold star for fiscal rectitude.

Pittsburgh has its budget on the web, and it is very thorough although it has far fewer convienent graphs and summary tables that collapses information in a blogger friendly fashion. I'll survive. Pittsburgh has more short term downside exposure to its projected revenues than Allegheny County because a higher proportion of its locally controlled tax base is on shiftable consumption patterns. I'll be using the recently published 2008 budget for this analysis.

Locally controlled levies make up 62% of the revenue. Property taxes make up about 46% of that 62% of locally controlled levies. The rest of the locally controlled revenue comes from a variety of real estate transaction, income, employment, business and parking taxes.



Property values are downwardly sticky due to psychology and the negative equity disencouragement for people who don't need to sell to keep their homes off the market. Furthermore, as I alluded to in the Allegheny County post, the county and thus the city assessment system is a fiasco that has no viable political incentive structure to fix. The county is the city's assessor, and since the county has decided to use 2002 as their base year, the city is using 2002 as their base year. Property taxes should be stable and near projection. There is a decent probability of increased deliquencies and non-recoverable amounts as foreclosed homes are increasing in the city, and the original mortgage payers have no incentive to continue paying their property taxes. But the estimates in this scenario should not be under significant stress.

Property taxes are the backbone of the city's locally controlled revenue and it is relatively strong. However the rest of the fiscal framework seems to be pro-cyclical in that revenue should be significantly higher in decent to good times, and lower in a recessionary/stagnant environment.

For instance, the deed transfer tax is 5% of locally controlled revenue. The city receives 2% of the value of a deed when a property is transferred. In a normal or above normal real estate market, there are significant number of transactions occurring from which the city derives revenue.
In a housing bust like we are in now, transaction volume decreases. And here is the problem for the city as the budget assumes transaction volumes will be similiar to a five year trending average when it is fairly evident that there is a discontinuity in trend.

Payroll preperation, income taxes, and the $52 per worker emergency service tax are all dependent on employment levels while the first two are also dependent on wage levels. The city is vulnerable here on three counts. The first is if we are in a recession or stagnation environment, employment is flat or decreases. Furthermore in a slow economic environment, wages don't increase. Both of these counts will lead to lower tax revenue. Further more as a macro trend, what real compensation gains are occuring are occuring in non-cash compensations such as health insurance premium payment. The city can not tax real compensation, only actual cash wages are taxable under the currently allowable tax structure.

Finally, the last big chunk of city controlled revenue is sales tax revenue, both general and specific. The city does not have a directly controlled sales tax; instead it receives funding from the Regional Asset District that controls the funds from the 1% Allegheny County sales tax. If consumer spending decreases, sales tax revenue decreases. The directly controlled sales tax revenue is the amusement tax. As you can assume from its name, it taxes truly discretionary spending. Movie tickets, Pirates tickets, for profit arts exhibitions are taxed. This is truly discretionary spending which is the first spending that will be cut when people become cash and credit constrained. I don't need to go to the Pirates game, but I do need to buy gas to go to work will be the format of the individual level decision matrix.

Pittsburgh is at risk on seeing downside surprises for the tax revenue that the city directly controls if we are in a regional or national recession or significant stagnation. The majority of the city tax revenue streams are based on pro-cyclical factors. Property taxes are the most likely group of taxes to meet their revenue projections.

Allegheny County fiscal threat assessment

Yesterday I highlighted a the general problem that most Southwestern Pennsylvania municipalities are operating on budgetary thin ice. Today and probably tomorrow, I will look at some of the bigger units of government and see if they could face revenue side problems if the economy significant slows down. All of my statements will be back of the envelope statements and should not be construed as an endorsement of doom or a gold star for fiscal rectitude.

I'll start with Allegheny County's 2007 budget as a decent baseline for where the money comes from and where it goes. The budget office has a good website, and I'm pulling everything from the Budget Summary. Here are last year's revenue sources:

• Property Taxes (45%)
• Passed through sales taxes (2%)
• Fees for services etc (7%)
• State Transfers (25%)
• Federal Transfers (16%)
• Other (interest earnings, foundation grants etc) 4%

The county has since raised two new taxes, the 10% poured alcohol tax and a $2.00/day car rental tax. These taxes will generate roughly 4.5% to 5% of FY-08 revenue and be passed onto the Port Authority (the local public transit agency).

Allegheny County is not particularly vulnerable to a temporary slowdown for its locally derived revenue. Few taxes are being levied on high substitution, voluntary goods such as alcohol. In this case people if they are feeling the pinch do not need to drink at a bar, as they could drink much more cheaply at home, or they can downshift their consumption at a bar. For instance instead of order two four dollar Troegs and generating $0.80 in tax revenue for the county, the same person could have ordered two two dollar Yuenglings, generating $0.40 in tax revenue for the county. The poured drink tax and the car rental tax are probably the most variable taxes that are dependent on the economic environment and mood.

The county does not significantly rely on sales taxes for revenue. It receives some money through the general 1% sales tax administered by the Regional Asset District, but this is a small source of funding. The sales tax is vulnerable to drops in consumer spending, but there is a rough baseline of staples that people must buy. A drop or decrease in growth for this revenue stream is very plausible, but it should not be severe.

The dominant tax under county control is the property tax. This tax should produce nearly constant revenue streams for at least FY-08. This will be the case for a couple of reasons. First Pittsburgh as a market has not been deflating as fast as the bubble markets because we really did not see the bubble. Secondly, and more importantly, no one at any level of politics who faces frequent election wants to touch the assessment debacle with a forty foot pole. Currently the county is assessing property taxes based on 2002 assessed values and dealing with appeals on a case by case basis. There is no likelihood of changing the assessment to see which homes increased and decreased in value in the past six years. This is stable for a year or two, although if significant number of people are underwater, growing political pressure will create strong incentives for county leadership to do something.

Overall, the revenue that the county controls should be fairly resilient for a single bad year with some slight decreases in trend lines and growth rates from the sales taxes. The county is still very dependent on state and federal appropriations but that is another post for another day.

Bond Ratings, Healthcare, and Social Security

Forbes.com is reporting that the Moody's rating agency is having concerns about the long term viability of the US government maintaining its AAA rating:

The US' ratings might be pressured in the very long term if medicare and social security reforms are not carried out, Moody's (nyse: MCO - news - people ) Investors Service cautioned, adding that subprime risks do not affect the government's rating.

'In the very long term... these two programs are the largest threats to the long-term financial health of the US and to the government's 'Aaa' rating,' said Moody's vice president Steven Hess (nyse: HES - news - people ).

This is an unfair statement. Over the long run, Medicare/health care in general AND ANYTHING ELSE is a fiscal problem/train wreck depending on your mood when you write about Medicare. Medicare/healthcare in general is its own massive problem. Grabbing a chart from Ezra Klein shows the different growth rates of entitlement spending projections:



Social Security in the intermediate case projections will grow by about 2% of GDP to 2075. President Bush's tax cut was roughly 1.3% of GDP, and President Reagan's tax cuts were roughly 1.9% GDP. 2.0% of GDP on a budget that is roughly 20% of GDP in long term trends is a marginal difference, especially if one believes that the productivity and immigration assumptions in the intermediate case are too pessimistic and that reality on those two fronts are closer to the low cost case. Social Security is a fairly inexpensive problem to fix if it needs to be fixed at all.

Now Medicare is a problem due to a combination of general health cost inflation AND demographics. Medicare by program design is targetted towards the high cost class of people (old people), and we are going to get more old people. But general healthcare costs society wide are increasing rapidly too.

Conflating medical/health expenditures and Social Security expenditures and then proclaiming a combined crisis is absurd and alarmist.

The Tax Revolt of 2010

I am fairly confident that a Democrat will win the White House and Democratic majorities in the Senate and the House will be maintained and most likely expanded in both. However as Stirling Newberry noted a few days ago, the Democratic Party is running as competent technocrats without seeking to diametrically upset the dominant paradigm:

all three top Democrats are proposing health plans which are to the right of what Mitt Romney signed into law as the Republican governor of Massachusetts, and to the right of what Richard Nixon proposed almost 40 years ago as a Republican President, then it is clear that change is what you have in your pocket, and it isn't worth much.

As a short term strategy, this probably will work as a 'Not Republican' is a decent qualification for public office, but as long as we stay within a mindset of zero-sum gamesmanship, reactionary and exclusionary politics is a much stronger hand to play as it is easier to assemble a narrow coalition to protect fixed slices of the pie. And as an intermediate term strategy this is a good way to reap a tax revolt within the next couple of years as the politics of pain will be too strong and the pallative of short term relief will be tempting; thus the symptoms of the underlying problems of short term pervese incentives, decreasing cutting edge productivity, loose credit and perpetual debt will be addresse without actually changing the actual structure of these trends.

I wrote in November that the local politics of housing and taxes will get increasingly nasty as there is a significant concentration of pain.

if you live in Pittsburgh like I do, the crushed speculator demographic is minuscule and politically irrelevant. However if you live on the East Coast, in California or on the Florida coasts, this demographic is going to be fairly large, and fairly loud because they are in significant pain

This concentrated dynamic of pain will produce people seeking anything that can shift some of their costs to someone else even if the long term trade-offs are remarkably poor as long as the short term breathing space is created in which a bet for improvement can be made:

People who are stuck with mortgages and houses that they can not sell, refinance or service will be looking for help. They will be looking for refinancing deals, special breaks, holds on foreclosures, delays on credit reporting, and most significantly at the local level, assistance on minimizing the quasi-fixed costs.... and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates......

Mish at Global Economic Analysis has flagged an interesting Yahoo article that is describing the start of the tax revolts as highly likely voters are seeking relief on their property taxes.

Falling home values and rising property taxes in many parts of the country are generating the loudest complaints about property levies since the 1970s, forcing state and local officials to address the outcry even as the housing-market slump eats into many sources of their revenue.

Indiana residents held public protests this summer against a surge in property taxes and acted on their frustration by ousting the mayor of Indianapolis. Florida voters will decide next month whether to adopt massive property-tax cuts, in a debate that has pitted part-time residents against full-time Floridians....

In Florida, where the falling housing market has gouged the state's economy, residents are debating massive property-tax cuts that will be voted on Jan. 29. Implementing the proposed changes would require amending the state's constitution. The plan, which strongly favors longtime homeowners over new buyers and part-time residents, has sparked opposition......

Across the U.S., concerns about property taxes have reached levels not seen since the passage of California's Proposition 13 in 1978. That landmark law capped property taxes at 1% of assessed value and said the base assessment on a home couldn't increase more than 2% a year until it is sold. A companion initiative, Proposition 8, allows homeowners to get assessments temporarily reduced during a weak housing market, until home prices recover.

The long established and previously protected are core voters and it is their power and interests that politicians cater too. Ian Welsh on the French elections noted that Sarzoky was elected by the death bet crowd --- the costs of their choices would be paid by others after they die:

the old folks telling the young folks that the protections the oldsters enjoyed their entire lives; the easy jobs they enjoyed their entire lives; are being taken away. It's real easy to vote for tough medicine for someone else, and that's what just happened in France.

Homes are the primary asset for most people, and right now homes are under systemic threat as a symptom of a greater problem. People want to make that pain go away without the costs of fixing the greater problems, and engaging in a local government financial death spiral and micro-local education arbitage seems like a decent short term fix, so we'll see a full scale tax revolt in 2010 or no later than 2012 as the last round of housing bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg....

More on Pittsburgh Municipal Bonds

I'm following up last week's post on the potential problem for the city of Pittsburgh and its mounds of debt. The city has a mediocre prime credit raiting and routinely uses bond insurance to improve its net interest rate and lower the total cost of borrowing money. In the last post I implied that FGIC is the primary insurer of a significant portion of the city's debt. However Chris Briem at Null Space actually hosts the city's bond agreements and offerings, and MBIA insured a massive 2005 bond issue.

As stated in that post, MBIA looks to be in trouble, and the bond insurance sector as a whole looks to be in significant trouble. Calculated Risk is posting this Bloomberg article on a potentially significant ratings downgrader for a major bond insurer:

Security Capital Assurance Ltd. may lose its AAA credit rating at Fitch Ratings, the first top-ranked bond insurer put on notice since the industry came under scrutiny last month because of rising defaults on subprime mortgages that back securities they guaranteed....Security Capital is among seven AAA rated bond insurers that being reviewed by Moody's Investors Service, Standard & Poor's and Fitch for the past month after declines in the credit quality of the securities they guarantee. A loss of its top ranking would wipe out XL's main business of using its AAA rating to guarantee $154.2 billion of debt....
MBIA this week raised $1 billion in a sale of stock to Warburg Pincus LLC to help avert a downgrade

Security Capital is not, as far as I know, an insurer of Pittsburgh debt, but its problems of insuring asset and collatoral backed debt obligations that were rated as AAA but are now either in junk status or worthless is a common problem throughout the entire bond insurance universe. This could be a significant problem for Pittsburgh especially as the 2005 bond issue has significant balloon payments due in the next three years that will require the city to issue roll-over debt at probably higher interest rates.

Rethinking Marriages' Tax Advantages

When I first moved in with my then girlfriend, and now wife, I quickly realized two things. First, this was the smartest thing I had ever done. And secondly I experienced a massive increase in my material standard of living. Some of that was my wife has far better tastes than I do but most of the increase was due to economic factors. I had just finished graduate school in the middle of the job loss recovery and my wife had one more year to go, so it was not because our income was extravagant. Instead economies of scale took over.

We rented a small one bedroom apartment for a little bit less than the rents for our two previous tiny places. But it was not the rent savings that were significant but all of the ancillary factors; buying food to cook for two people was much cheaper than buying for a single person, increased population to amortize the cost of a video rental, an electrical bill that was only slightly more than my old electrical bill, a cheaper heating bill than either of our old places [we had good windows and insulation], a single internet connection instead of two connections, a single renter's insurance policy instead of two... These advantages have only compounded since we have gotten married and bought a house. The quasi fixed costs of living increased far slower than household size so we effectively had higher disposable or at least not immediately accounted for cash flow as a co-habitating and now married couple than we would have had as single individuals.

The Michigan State University study on the environmental impacts of divorce lends some strong support to this idea by its finding that single people living alone consume more resources per capita than people living together.

The reason is simple — it's all about efficiency, says Jianguo Liu, lead author of the study who has the Rachel Carson chair in ecological sustainability at the university's department of fisheries and wildlife.

"In the divorced households, the number of people is smaller than in married households," Liu told ABCNEWS.com. "The resource efficiency used per person is much lower than in married households....n the United States, they found that divorced households spent 46 percent more per capita on electricity and 56 percent more on water than married households....if divorced households could have the same resource efficiency as their married counterparts, they would need 38 million fewer rooms, use 73 billion fewer kilowatt hours of electricity and 627 billion gallons of water in 2005 alone.

Other news reports highlighted the fact that these findings applied more generally to cohabitating couples as more resource efficient than single individuals and that single individuals once they became part of a long term couple showed nearly identical resource consumption patterns as other live-in partners. So the study is not a finding on divorce, but a finding on the economies of scale and fixed costs of living.

So how does this relate to the tax code? Well, marriage is also favored by the tax code. Her work benefits can easily cover me, and vice versa and we'll pay less in taxes than two single people with the same exact profile as us. But does this make sense as I feel that we have more disposable income than that counter factual scenario which means that marginal utility of our last dollar is probably a bit less than the marginal utility of the last dollar of a nearly identical single person. The nearly identical single person just has a much bigger chunk of their income covering nearly fixed costs.

If one believes in progressive taxation, one believes that there is a declining marginal utility of income and expenditures. This leads one to believe that tax rates should be at least equal if not effectively higher on income that has fairly low marginal utility than on dollars that have higher marginal utility. In the United States that is reflected in the fact that everyone has a personal exemption, and children are tax advantaged as they significantly decrease the disposable income of their caregivers. It is further reflected by the bracketing of rates -- someone who makes $500,000 most likely has a lower marginal utility for that last dollar than someone who makes $12,000 for the year, and thus should be taxed at a higher rate.

So should marriage be tax advantaged if the presumption of cohabitation in most cases is held? From a progressive taxation perspective on the probable marginal utility of income, there is an argument against this advantage.

Social Security, Prioritization, and Trust

I played a miniscule, nearly zero role in the progressive defense of leaving Social Security alone in 2005, and I am proud of the phone calls I made, the logic and cash flow models that I detailed, and the repeated explanations of acturial assumptions in the High cost, Middle Cost and Low costs cases and how those models are fairly sensisitive to changes in productivity assumptions and immigration rates. And right now, I believe that there are half a dozen Freeze Congress Solid for Two Years issues that need to be addressed before we should even think about talking about Social Security, as realistically, medical costs are the budget buster in the budget, as well as an aversion to actually pay for things with current taxes. Here's the relevant chart from the CBPP:



So when I see Kevin Drum saying the following, I get very frustrated on multiple levels:

But I'll add one thing. I'm on record (several hundred times, probably) saying that Social Security is basically fine and that the best thing we can do is just leave it alone and then revisit it in a decade or so. At the same time, I don't think any of us would (or should) have any serious problem with, say, a 1983-style commission that beavered away for a year and then recommended a basket of modest tax increases and benefit reductions to keep Social Security solvent for the rest of the century.

On a purely wonkish level, there is a reasonably strong argument that the policy of "Do Nothing" and allow for higher than middle case projected productivity growth and immigration to move us very close to the low cost case. The current low cost case has Social Security acturially balanced for another seventy years. On an operational policical level, Social Security will be a monster fight no matter what is put forth as there are so many diverse and opposing stakeholders. Assuming the Dems win the White House and expand their majorities in Congress in 2008, I really would like the one or two big initiatives that have a chance of being enacted in policy by 2010 to be useful initiatives.

Finally, let's take a look back at the 1983 Greenspan Commission and how their results have been used to justify non-progressive policies. The basic idea of the Greenspan Commission was for the Baby Boomers to partially pre-pay their Social Security benefits by increasing capped wage taxes in order to run massive Trust Fund surpluses. So far that portion of the plan has worked fairly well. The surpluses from OASDI taxes have been masssive. The next stage of this plan was to use these surpluses to provide a significant fiscal cushion and reduce future general fund obligations.

One party has tried to run general fund and unified budget surpluses to free up federal fiscal capacity for the highly predictable Baby Boom retirement wave, and had candidates propose 'lock boxes' and bond buybacks with the intent of reducing projected long term interest expenses. And the other party claimed that this was fuzzy math, and that the OASDI Surplus was merely paper, but that the unified budget surpluses morally neccessitated massively regressive tax cuts. And despite his protests of political naivity, guess which party's policies Greenspan effectively endorsed with his Congressional testimony.

So if there was to be another Greenspan commission that recommended slightly higher payroll taxes and a reduction in benefits through either a later retirement age or some type of graduated hair cut in the replacement rates, the Democratic Congress and White House would be paralyzed for most of a year to solve a problem that is not too pressing, and negoatiating with a coaltion of interests that has shown particurly high degrees of bad faith on this particular matter. That is why I oppose a blue ribbon Social Security commission in the next three or four years.

Parking, commuting and tax incentives

I was going through the Blogburst leaderboard and saw Don't Mess with Taxes and they had an interesting little explanation of a program that my employer offers and I take advantage of to pay for my monthly bus pass:

Transportation Reimbursement Incentive Programs (TRIP) can help you save tax dollars based on the cost of your daily commute. This essentially is an FSA for some commuting costs. Your pretax payroll deductions go into a TRIP account from which you are reimbursed to pay for transit passes or, in some cases, qualified parking expenses.

The monthly maximum you can contribute for mass transit (buses, trains, els, subways, etc.) is $105. The monthly maximum for parking-related expenses is $200. [emphasis mine]

This tax benefit buys me an extra lunch or two a month. For me it is a stupid benefit as it is not changing my behavior. I would still be taking the bus into work every morning even if I was not gaining a tax advantage as the bus stops within 50 meters of my house, drops me off three blocks from the office, and is reliably faster than sitting in traffic.

However the mixture seems a bit off to me on the disparity between the public transit versus the parking deduction limits. If one has a goal of reducing congestion, making it cheaper to drive into town does not do a whole lot towards that goal. If the goal is to reduce gas usage and carbon dioxide emissions, it is a bit trickier as the subsidy could be argued as a conservation measure if it means more people are willing to work in a dense central business district instead of in free parking suburbia where more driving is needed by most employees to get to the office.

On first glance, if I was a Congress critter, my idea would be to equalize the two benefits by dollar amount with the objective of being revenue neutral, so a slight bump up in the transit limit and a significant decrease in the parking limit with the idea of making the marginal incentive to drive alone into the central city slightly less attractive.

We should have it so 'bad' as Europe

By Libby
Updated below and again

If I had a nickel for every time someone sneeringly accused me of wanting to turn the US into a "failed socialist" state like they have in Europe, I'd be rich enough to quit my day job and blog full time. Today the WaPo explodes the myths of European socialism and it's worth a read through. We should be so lucky to fail like this.

Europeans still enjoy universal cradle-to-grave social benefits in many areas. They get quality health care, paid parental leave, affordable childcare, paid sick leave, free or nearly free higher education, generous retirement pensions and quality mass transit. They have an average of five weeks of paid vacation (compared with two for Americans) and a shorter work week. In some European countries, workers put in one full day less per week than Americans do, yet enjoy the same standard of living.

Well doesn't that sound just dismal? Distributed wealth that benefits the entirety of civil society. And what is the secret behind this horrible failure?

Europe is more of a "workfare state" than a welfare state. As one British political analyst said to me recently: "Europe doesn't so much have a welfare society as a comprehensive system of institutions geared toward keeping everyone healthy and working." Properly understood, Europe's economy and social system are two halves of a well-designed "social capitalism" -- an ingenious framework in which the economy finances the social system to support families and employees in an age of globalized capitalism that threatens to turn us all into internationally disposable workers. Europeans' social system contributes to their prosperity, rather than detracting from it, and even the continent's conservative political leaders agree that it is the best way.

Yes, this is the horror that happens when you put people ahead of corporate profits. Worse yet, those poor Europeans have seen the Euro rise in value over the dollar and their foreign investments are showing better returns for international investors. How perfectly awful. We surely wouldn't want that to happen to us -- would we?

Update: All the great analysis of this piece is going on in the comment section. Don't miss it.

Update two: Dr. Taylor didn't find the piece to be especially analytical but Ezra found the stats meaningful and DWT adds, "Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar." That should tell you something about the Bushenomic plan. I mean if our free market capitalism is doing so all-fired great shouldn't our Vice President be buying American?

Death and Taxes and Profits

The taxpayer-funded subcontracting of the Iraq war and so-called ‘reconstruction’ is still vastly underreported and carefully hidden from scrutiny by the Pentagon and the White House, despite some relatively high-profile cases of massive fraud, over-billing, and criminal negligence—none of which have been prosecuted in the courts.

The most recognizable of these contractors are Halliburton, Bechtel, KBR, Custer-Battles and Blackwater, but through sub-contracting and sub-sub–contracting hundreds of corporations having been feeding at the Bush/Cheney trough that is Iraq—all with guaranteed profits, no accountability, no performance requirements, no legal liability or responsibility in any form and all paid for by US taxpayers.

One such contractor is Serco which until August 13th was advertising to fill the job (67 of them actually) of “Personal Effects Specialist” who “receives, inventories, sorts, cleans, photographs, packages, and ships to family members (next of kin) all personal effects belonging to military service members and others, including defense contractors, who are killed or severely injured worldwide, especially incident to military operations in Iraq and Afghanistan”

Such are the exigencies of war—except that traditionally, serving Army, Navy or Air Force COs and/or XOs and their staff would take care of such matters. But this being “the first war of the 21st Century” it seems that such somber tasks are better accomplished by temporary employees working “on-site in a fast-paced operational/warehouse environment for the US Army Casualty and Mortuary Affairs Operations Center at the Joint Personal Effects Depot (JPED)” at the Aberdeen Proving Grounds, Maryland."

In ordinary life we commit the tasks that surround death in significant part to our own private contractors—to funeral directors. Part of the process also includes government entities such as the coroner and police. Whether death is a result of local circumstance or foreign war, much of the process is—by law and by choice—contracted-out.

But what struck me about this Pentagon-contracted job is that it requires the employee to process not just the personal effects of US military personnel, but also “defense contractors who are killed or severely injured worldwide, especially incident to military operations in Iraq and Afghanistan.”

So should a contract employee be killed it isn’t the contractor/employer who pays the expenses incurred from a death in Iraq—the processing of official paperwork, the shipping of personal items---it is the US taxpayer who pays, through yet another “cost-plus” contract with the Pentagon.
So not only do these contractors profit outrageously from their live employees, they also profit from their deaths—and we pay the bill at both ends.

(hat-tip to Wonkette! for finding the ad)

Bush's Gilded Age

By Cernig

Ezra Klein is scathing today about this particular bit of idiocy from conservative op-ed writer George Will:

How do you exclaim, as Hillary Clinton does, that today's economy is "like going back to the era of the robber barons" and insist that the nation urgently needs substantial tax increases, in the face of these facts:

In the 102 quarters since Ronald Reagan's tax cuts went into effect more than 25 years ago, there have been 96 quarters of growth. Since the Bush tax cuts and the current expansion began, the economy's growth has averaged 3 percent per quarter, and more than 8 million jobs have been created. The deficit as a percentage of gross domestic product is below the post-World War II average.

Ezra correctly notes the logical ineptitude of this - that growth via increasing population and thus an increasing appetite has nothing to do with how much of the profits of that growth the "robber barons" are suckling out of the economy like fat capitalist piglets.

Kevin Drum, meanwhile, has some figures on just how much suckling is going on.

Two professors — Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley — have found that the share of gross personal income of the top 1 percent of American earners rose to 17.4 percent in 2005 from 8.2 percent in 1980.

....It is commonplace to hear that the current set of arrangements and policies is the only possible way the economy can work, given trends like the rise of China and global economic integration. As Professor Levy said, "That's a very convenient argument for people to make if they're doing very well."

But how about the rest of us, the ones that the current system doesn't do so well by?

Here's what we're facing (H/t Kat):

In the past year, food prices have increased 3.7 percent and are on track to jump by as much as 7 percent by year's end. The current increase is more than double the 1.8 percent jump seen the year before, according to the consumer price index.

...Prices are rising in each grocery aisle. In April, eggs cost 18.6 percent more than a year ago. Whole chicken prices increased 7 percent. Bread is up nearly 6 percent and beef steaks up 5.5 percent.

...many price increases haven't made their way to all stores yet, and many stores are absorbing the costs rather than passing them on to customers. "Right now the margins are simply being squeezed," he said.

"But that's not going to last forever," said Wells Fargo & Co. agricultural economist Michael Swanson, predicting no end in sight to food inflation. Swanson forecasts that food inflation will have risen at a rate not seen since 1990, when prices ended the year 5.8 percent higher.

The 'robber-barons" can afford that kind of increase, but the rest of us cannot. It will have an inevitable knock-on effect on other sectors of the economy.

Because food is a category that consumers can't cut from their budget, it's the cups of coffee, the entertainment dollars, and the clothes-and-jewelry budget that are scaled back first. In April, retail sales fell 0.2 percent, the first decline in seven months, according to the Commerce Department. Yet consumer confidence rebounded in May, mainly because of to consumers' cautiously optimistic view of business conditions. Still, a stew of high gas prices, food costs , a slumping housing market and adjusting mortgages could be a recipe for trouble for strapped Americans with little wiggle room in their budgets.

If CEO's are writing themselves wage hikes that now have to be expressed as a percentage of their company's profits to be comprehensible (the numbers having grown so large) while ordinary Americans are struggling to afford eggs...then yeah, the Bush administration has brought the nation back to the bad old days when the have-nots were ignored by the have-more-and-more-and-mores. Ezra even has a graph to prove it.

Pittsburgh Property Tax Fiasco in the works

The most reliable political landmine in Allegheny County politics is not failure to provide good care to the area's seniors, or running your municipality into bankruptcy or defunding the public employees' union pension funds or all three at once. Instead the biggest and most predictable landmine in the region is the property tax re-assessment debacle.

The Post Gazette has a history of the recent re-assessment schemas in place:

From a 1996 assessment freeze, to two years of court-imposed across-the-board increases, to two rounds of annual reassessments, to a three-year "breather," to a "base year," property owners have seen just about every trick or technique in the book except one: stability.

Everyone one of these systems has produced massive political outcries as someone's house is bound to be over-assessed, correctly assessed after being under-assessed, or magically relocated into another county by a drunk assessor. The current county executive, Dan Onorato, won his first term by running against the incumbent's failure to get a 'good' assessment in. Part of the 2002 assesment problem was that it showed rising property values for likely voters which neccessitated higher taxes if no other action was taken.

Onorato instituted a 'base year' system where all property values in the county were frozen at 2002 levels. Therefore the only way communities could raise new revenue was by increasing the millage rate. Local homeowners sued saying that the static picture does not capture the changes in value and thus effective tax rates as neighborhoods improve or decline.

The judge agreed with the homewoners in a massive ruling (big PDF) that also declared the base year system unconstitutional due to the Pennsylvania uniform taxation provision.

This will become a massive clusterfuck to end all regional clusterfucks, including the decision to raze a good chunk of the Central Northside to build Allegheny Center. As the Angry Drunk Bureaucrat points out, no one wants to be identified as being responsible for anything concerning a new property tax system:

Now, here's the bad news to homeowners: there is not going to be a simple resolution to this problem that actually complies the State constitutional uniformity clause. Somebody's going to be pissed no matter what decision and somebody is going to get screwed. No politician is going to take the blame for how screwed up everything is. It's an unwinnable situation....

The political impulses to run and hand this problem off to someone else will overwhelm the public policy interest of having a tax code that is reasonably fair, reasonably easy to implement, and reasonably transparent. No one will have any predictabilty for their property tax payment profile for the next five years.

Instead, everyone will blame Judge Wettick and he'll become the evil boogeyman. In a way this will be a good thing as the evil boogeyman role can be a useful advancer of needed public policy reforms when the individual political incentives are to demagogue against those reforms. However I also predict that there will be a significant and well supported recall effort against him the next time that he is up for retention. Additionally, the local political response will also include several variants of the plans in Harrisburg to abolish property taxes and replace the revenue with a combination of new income taxes, sales taxes, unicorns, and consumption taxes.

The Pennsylvania Supreme Court will have to review and hear the appeal. If they decide to re-affirm the portion of the decision that declares a base year assessment scheme to be blatantly non-uniform and thus unconstitutional, Allegheny County's political food fight will be a mild affair compared to some counties such as Mercer and Butler County that have not re-assessed since 1969 or 1970. This should be good blogging grist for the next decade at least as it works its way out.

Pittsburgh Primary election results

Yesterday was Pennsylvania secondary office primary day. I no longer live in the City of Pittsburgh, but since it is two hundred yards down the street from me, I have a vested interest in seeing good candidates elected there. It appears that is the case. The Post-Gazette was reporting that the early returns were looking really good for people I like:

Challenger Bruce Kraus has a lead over the incumbent Jeff Koch in City Council's District 3. In the city's District 7 race, school board member Patrick Dowd says he's eked out a win over Councilman Len Bodack. Mike Lamb looks to have defeated Tony Pokora, Doug Shields and others in the controller race. And city councilwoman Darlene Harris, on the job since January, has won by more than two-to-one over two challengers.

I know and worked with the folks who ran the Dowd campaign, and they are good people to work with and they have some pretty good progressive instincts. Right now the unofficial lead for Dowd is under 30 votes. Hopefully that holds up as the write-ins get counted and a second count is probably instituted.

Overall, for Pittsburgh it is a pretty good night for progressives and good-governance types. The council lost two incumbent machine hacks, and one alleged and indicted influence peddler. That is a pretty good night. It is also a warning across the bow to the Ravenstahl administration as he lost a couple of allies tonight and Bill Peduto most likely gained a pair of allies.

As for my borough, I actually voted for multiple candidates who won their primary, which is still an odd thing for me. I tend to vote and for people who get crushed. I did not do a whole lot of work on this campaign, that should change in the next couple of years as I complete my socio-political buy-in into my community.

The one big surprise to me was the massive defeat of the Act-1 proposal to raise income taxes to make a revenue neutral cut in property taxes. Evidently the bill was too complex and non-transparent for this tax shift to be understandable despite the fact that a shift from asset taxation to income taxation should usually positively impact seniors while harming younger working people. Interesting....

Instahoglets May 12th 2007

By Cernig

Something for the weekend? How about a link-dumping punchpost spectacular of blogroll goodies and news less travelled? Oh, and we may as well call this an open thread for links, blogwhoring, snark and flaming, too. Let 'em rip in comments.

Anything They Say - Dennis Kucinich rats out the Dems attempt to placate Bush by demanding enforcement of the Iraqi oil law.

Get all the background you need on Pakistan's current unrest from The Pagan Science Monitor - with poetry, yet.

Mr. M at Comments From Left Field gets lyrical too as he appeals for mercy and against the death penalty.

Richard Dawkins asserts his right to criticise "faith heads" and says "How dare you call me a fundamentalist."

Stranger at Blah3 notes that for all the talk of funding Bush's War, the actual numbers are rarely brought up. Every year in Iraq is "12 aircraft carriers' worth of dough, thrown down a hole in the sand."

Raw Story - Mary Cheney's book, for which she received a seven-figure advance, has hit the remainder bins bigtime

CIA man Kyle "Dusty" Foggo and defense contractor Brent Wilkes are dropping deeper and deeper into the sh*t, with new charges being brought that all told amount to 30 wide-ranging counts of fraud, conspiracy and money laundering.

Cut To The Chase - A U.S. soldier on trial in absentia in Italy for killing an Italian intelligence agent in Iraq two years ago filmed the scene moments after he opened fire.

Col. Lawrence Wilkerson, Colin Powell's right-hand-man during Bush's first term, has called for Bush's impeachment. Crooks and Liars has all the details. One personal observation - have you noticed how anyone who used to be in the Bush administration and then speaks out against the White House is instantly labelled as insane by the rightwing noise machine? But what does that say about the folks who are still there?

Shaun at Kiko's House notes that John "torture is legal" Yoo wishes bloggers didn't exist. Kinda worrying.

Ian at The Agonist - it's going to be a long, hot, expensive and unemployed summer for America.

And if all that isn't enough to keep you busy for an hour or two, you can always check out what's new and hot at Memeorandum, the "Bill and Ted" of blog aggregators.

Update And yet more linky goodness.

Ian Fleming, the creator of 007, was involved in the plot to frame the last person jailed as a witch in Britain, because the medium in question was revealing things the Admiralty wanted kept secret. So says a storyin tomorrow's Observer, at least.

When corporate profits take an offshore vacation - why Merck is about to pay $2.3 billion in back taxes, interest and penalties to the IRS and why other big corporatations are legally depriving the feds of billions more with bush's approval.
Jack Blum, an expert on tax evasion and former counsel for the Senate Foreign Relations Committee, said, "Since the 1960s the percentage of tax revenue at the federal level that comes from corporations has declined from around 30 percent to around 8 percent. A substantial portion of this decline is the consequence of the ability of companies with global operations to shift income to jurisdictions where tax collectors cannot find it."

Hookers, spies, cases full of dollars...how BP spent £45m to win 'Wild East' oil rights.

The head of one of the most influential Evangelist groups, the Evangelical Theological Society, has converted back to being a Catholic.

In a Washington Post op-ed tomorrow Paul Bremer, former head of the Coalition Provisional Authority in Iraq, says he won't be everyone's punching bag and tries to explain what he got right in Iraq - but falls victim to Godwin's Law within the first two paragraphs. Yet another in the WaPo's series of "It was everyone else's fault, not mine" op-eds by former and current Bush administration cronies.

Now come one...what have you got?

European Left Isn't Dead Yet

By Cernig

As American rightwingers cackle over the supposed demise of a socialist France (that has been run by conservatives since the mid -80's) and newly minted President Sarkozy gets into "egalite" trouble for relaxing on a billionaire's massive yacht, Johnathan Freedland at the Guardian writes that the Left isn't dead in Europe yet.

Start with the home front. Last week's most significant defeat came in Scotland, where Labour had dominated for 50 years. Yet it was not the right who won. It's true the Scottish Nationalists promised a cut in corporation tax, but in almost every other area the SNP attacked Labour from the left - from opposition to the Iraq war and the renewal of Trident to promises to wipe out student debt. And remember, the SNP fought not the government in London but Scottish Labour, which was already to Blair's left. In other words, Scots were choosing between two shades of centre-left and they chose the redder of the two.

In Wales, there was a similar story. Rhodri Morgan's administration was also of deeper red than Blair's in London. And while it lost three seats in the assembly, Plaid Cymru, which sits to Labour's left, gained the same number. Thursday was certainly a bad night for Labour, but that's not quite the same as a pendulum swing to the right.

It's harder, admittedly, to draw that conclusion about France. (Tony Blair's YouTube message of beaming congratulations to Sarkozy is confirmation that the prime minister is leaving office utterly unrepentant, as heedless of Labour party members' feelings now as when he holidayed with Silvio Berlusconi or locked shoulders with George Bush.) Sarko looks every inch the hardman of the right. Yet even he, for all his rage against the 35-hour week, does not buy into the full Blair package. "I want Europe to protect us from globalisation, not let in globalisation as a Trojan horse," Sarkozy declared during the campaign. Rather than let the chill winds of market forces and free trade blow, Sarkozy proposes new barriers to imports from outside the European Union, all in the name of protecting jobs. Not quite one of les Anglo-Saxons, then.

Freedland connects the dots with American progressives like Edwards, Obama and Senator Jim Webb who are concerned with the increasing fact of "two Americas" and resurgent robber barons. Also to Zbigniew Brzezinski who in his latest book talks about:

"global political awakening", a stirring across much of the developing world, among those who are "conscious of social injustice to an unprecedented degree and resentful of its deprivations and lack of personal dignity".

and concludes with another factor - the failure of aggresive capitalism and conservativism in economic and foreign policy terms.

Last weekend a clutch of political scholars gathered in Oxford for a New York Review of Books conference on "The new face of American capitalism". Several suggested that, thanks to a weakening dollar and a narrowing in the performance gap between the US and Europe, the US model was beginning to lose its shine. The debacle in Iraq had also badly damaged American prestige.

...As one speaker, Simon Head, put it: "The UK has staked much on being the best European emulator of the American model. But if that model is looking jaded, where does that leave us?"

...Is it possible that the...era of neoliberal certainty is coming to a close, that there are stirrings abroad that call for something else? Might there not be a demand for action, as there was when the last intolerable gap in wealth opened up nearly a century ago - a demand, in short, for a battle against inequality?

Scottish voters and Americans at the midterms alike are reacting to the same signs, the same injustices. The Left is not dead - not even in Europe.

Component Analysis Snark

A competent analyst looking at a complex problem often is able to break things down into more manageable chunks. Some of these chunks are constants which can be skimmed over, while other components are highly variable and deserve an in-depth inquiry to figure out what is actually going on and what probable future scenarios could look like. Good analysts are then able to pull together a coherent story to tell their boss, to tell their clients, or to inform their own actions. This story incorporates the known realities and does not exclude unfavorable data.

The NewsBusters is reputedly a conservative analytical site. One of their posters took a look at the State Department's annual terrorism report and thinks he has a story that the media is overly trumpeting the worldwide increase in incidents and deaths from terrorism. The story he is trying to tell is that if you exclude a couple of components the rest of the report is not that bad.

State Department released its annual Country Reports on Terrorism showing a number of interesting findings, including steep declines in terrorist attacks and murders in many regions of the globe......

Instead of saying that terrorism has increased markedly in Iraq (the truth), the media are extrapolating beyond that to claim that, as Reuters puts it, "U.S. sees sharp rise in global terrorism deaths."

Once you get past the lede of these Reuters and Associated Press pieces, you'll discover the small detail that the increase in terrorism was almost entirely due to Iraq. Nowhere in either piece do you learn the fact that aside from the Middle East (which does not include Afghanistan according to State), the number of terrorist attacks worldwide is down from a year ago by over 300 incidents. The number of deaths from terrorism was only up 14 percent.

So if you exclude Iraq, he argues that Bush's strategy is successful as we only saw a global increase in fatalities by 14%. This 14% increase in fatalities is the good news that the guy is trying to sell.

On the other hand, a good analysis of the economy by Caroline Baum [h/t Barry at the Big Picture]uses component analysis to look at the impact of housing on the broader economy. The picture is not pretty but I just want to pull one great quote on the limitations of component analysis from her.

"Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success."

Being able to exclude data to illustrate points, to find strengths and weaknesses and look for underlying trends is a good thing. However the best analysts remember that they made these exclusions and include this information when they actually think about their recommendations and descriptions of reality. Permanently excluding Iraq from any broad discussion of terrorism, national security or foreign policy instantly marks the analyst as incompetent.

Instahoglets 28th April 07

By Cernig

A quick roundup of news and blog reactions for the weekend.

Matt Bastard pulls together both of this week's stories about rightwing homegrown terrorism and points out the willful indifference of the LGF crowd. It's ok to have IED's if you're name is Bubba.

Steve M at No More Mister Nice Blog adds the story of the man who shot himself in a police stand-off after rolling a pig's head into a mosque. According to the Freepers the man's a hero and "the libruls made him do it". If it had been a synagogue he targeted...

Tim F at Balloon Juice - when the next Shakespeare pens the epic tale of the Dubya Years, the tragic flaws of the central character will be to numerous to easily track - but his insistence on fealty over competence would be the central theme.

When I want an insight into how US politics plays at the personal level, I always read Mr. M over at Comments. Here, he gives his impressions of the Dem nominee debate.

Cut To The Chase and the odd tale of two millionaire tax-evaders holed up in their mansion who say that the federal government is a fiction. If it's a fiction, why are they hiding from it?

Shaun Mullen says it all in one beautiful paragraph. "I have been reluctant to join the David Broder lynching party. First of all, the guy obviously has lost a step or two and is in the twilight of a distinguished career. Second, I never thought that he was as important as he is given credit for, but that’s because "Dean of the Washington press corps" is about the same as "Dean of a Midwestern cow college" to me." This graph will henceforth be found in the dictionary as the definition of "damned with faint praise".

SWOPA at Needlenose is just fine with moves to include slippery-slope benchmarks in any future funding bills and explains: "The important step right now is to get as many GOPers as possible on record as moving toward ending the war. Even if they think it's non-binding, Democrats should surprise them by insisting on revisiting the enforcement issue as early and often as possible. Once they've stepped into the trap, each month closer to the 2008 elections will make it harder for Republicans to turn back." Put some velvet around the noose to make it more comfortable.

Ron has charts. "As you can see in the chart Halliburton began a descent towards bankruptcy shortly after Cheney became VP, largely as a result of things that happened while Cheney was CEO, and was only able to pull out of the downward spiral after the start of the invasion of Iraq. Cheney of course profited from this and yes this would be war profiteering by any definition."

The incomparible Heretik on George Tenet's slam dunk - maybe someone could now ask Bush about his "F**k Saddam, we're taking him out" a year before the war began. Don't hold your breath, H. For the reason why this won't happen, refer to the Shaun Mullen quote above.

Meanwhile, Smintheus at Unbossed connects the dots between Tenet and the (belated) announcement of Abdul al-Hadi al-Iraqi. "American news corporations can be proud that they employ the best stenographers in the world."

Michael at The Reaction has a hard look at the popularity of Fred Thompson with Republican hardliners and concludes that they are indulging in imaginary politcs - a fake being better than a failure.

Last, and by no means least, Zenpundit has your weekend book review - J.R.R. Tolkien's "The Children of Hurin".

Old Roomates, Dirty Dishes and Budget Policies

During my senior year of college, I was lucky. I had two great living arrangements with good friends. During the school year I lived with my friend M in a little apartment two blocks from a trendy neighborhood, our campus was a brisk fifteen minute walk on a flat street away, and there were a couple of clean bars that had amazing specials within staggering distance. We split the kitchen work on the basis of cleaning up your own mess as soon as you made it, and if we were sharing a meal, the person who cooked did not have to clean. Every now and then dishes might have piled up for a day or two, but there usually was a good reason like finals or major papers taking up all available time.

At the end of my senior year, M moved away from Pittsburgh to go to grad school and the lease was up, so I moved in with half a dozen friends, acquaintances, their significant others, and a few drifters. The new place was a shit-hole, but I ended up paying less than $100 per month for a place to sleep and hangout. I had a blast, as the new place was in a dense mixed-use neighborhood with a couple of good sports bars and I was spending the summer with a bunch of people who knew where to find fun.

The biggest problem was a collective action problem. The house had enough people paying rent that the informal social pressures and ties that encouraged individual responsibility started to break down. One roommate, X, in particular refused to do dishes, or to clean the collectively used George Foreman grill after he used it, no matter how disgusting it was. This pattern of behavior was well known when I moved into the place, and as the summer wore on and as third level subleasers moved in and out, the place became a pigsty as people stopped cleaning up their entire mess or doing any additional cleaning. Several of us eventually had to waste a weekend cleaning just to avoid the potential for pests, food poisoning and general grossness.

So by now you ask, how the hell does my living situation in college relate to budget deficit policy analysis? Simple, these two cleaning dynamics illustrate two very different political systems. M and I were able to maintain a structurally clean apartment, sometimes we over cleaned, and sometimes we under cleaned, but over a reasonably short period of time, the apartment was tidy. The combination of her ability to arch an eyebrow when I left my plate on the coffee table and clear levels of accountability made this arrangement work pretty well. We respected each other and the common understanding that the apartment should be reasonably clean.

The second house was running a perpetual cleaning deficit as there were numerous defectors from any cooperative strategy of minimizing health code violations. Any one who took the time to clean the kitchen and scrape the dirty plates of four days worth of food was being played as a sucker as responsibility dodging defectors would continue to use the recently cleaned plates without doing dishes for the next three months.

Robert Kutner at the American Prospect believes, with very good reason, that the American political-fiscal discourse resembles my second set of roommates. Republicans wreck the place, distribute spoils to their buddies and supporters, and then the Demcrats who are elected afterwards have to spend most of their time cleaning up the mess so that the next Republican can promise to be irresponsible again and throw a good old party. This is a nasty cycle and it is an irresponsible cycle.

The relevant question is what should the general thrust of Democratic fiscal and budgetary policy be in the next four to eight years? Should the Democrats again be the responsible party, raise some taxes, cut some expenditures on the military, and try to re-achieve a structurally balanced budget so that over the course of a business cycle the budget is even, or even be slightly ambitious and run a structurally surplus budget to get ready for the Medicare freight train coming down the pipe? Or is this a sucker's bet that the responsible actions will just allow another Republican to run against the tax and spend Democrats who are not even able to enact significant and popular social programs because they are being responsible? And therefore the smarter policy and political play is to screw the deficits and keep on spending?

I personally lean towards deficit control as I am particularly worried about the anticipated increase in Medicare expenditures in the next couple of years. Assuming a Democratic President with a Democratic Congress in 2009 means a massive wind-down of spending in Iraq by FY-10 and most of the Bush tax cuts are sunsetted, getting to a closer to balanced budget will not be that difficult. One of my major long term concerns over perpetual deficits is the interest expense which is the way of the present hogtying the future. Hilzoy at Obsidian Wings looks at the cost of interest on the federal budget and it is a significant fraction of total expenditures

I thought I'd post some simple figures from the Treasury Department's figures for FY 2006. All figures are in billions of dollars.
Total Receipts: 2,407
Total Outlays: 2654
Total Deficit: 248
Total Spent On Debt Service: 405.9

Yes, that's right: had we simply paid our bills on time, more or less, we would not only not be running a deficit, we would have $157.9 billion dollars to either refund to taxpayers or spend on some new program.

Balancing the budget, or at least substantially reducing recurrant deficits will not eliminate the interest expense, but it will decrease its share of GDP which should free up other resources. This was essentially the Clinton-Gore economic plan, get the country's finances back to a structural balance, or even better to run a slight surplus to reduce the impact of long run interest expenses so that when the Baby Boomers retire the future will be only concerned with itself and not paying off the trip to Tijuana that was the Reagan-Bush era.

The crux of the question for Democratic leaning policy-political wonks is an estimation of the probability of a Republican being able to win on a platform of "Party On in '12." If one thinks that this is a reasonably likely event, than paying attention to the deficits in the short to medium term makes no sense if you assume that the GOP is more like my roommate X than my roommate M. If one thinks that this is a low probability event, the time and effort spent in cleaning up the budgetary mess of the Bush error will lead to enough highly probable and significant long term rewards to be worthwhile.