Rational Action

I didn’t intend to become another member of PK’s legion of defenders. But alas, Eidelblog leaves me no choice! He comes out first with this zinger:

…this fellow misrepresents what I said. I didn’t say Krugman “rambled incoherently” when he said this about the payroll tax. I said he “rambled incoherently” and then started talking about the payroll tax as “just another tax.” Come on, RA, are you writing for the Times or CBS that you must put words into my mouth?

The problem is that Krugman’s point didn’t begin with his assertion that “the payroll tax is just another tax”. In the section I cited, Eidelbus says…

Krugman rambled incoherently for a minute, and I really didn’t understand what his point was. Then he said the payroll tax is “just another tax.�

During this “incoherent” ramble, Krugman was laying the groundwork for his construct that we could view government as one giant cauldron or as a bunch of separate pots. When Krugman then said that the Payroll Tax was “just another tax,” he was explaining how it would work in the former view. Now, if you weren’t paying attention while Krugman laid the groundwork, then yes, it would sure sound like he wanted the Payroll Tax to be “just another tax.” Fortunately, I was listening.

Eidelbus continues, conflating my supposed views with those he projects upon PK:

It’s also fraud to claim that the system is solvent though the federal government has to use other sources of tax revenue to shore it up. Once again, if we’re going to raise other taxes to compensate for insufficient payroll taxes, can Krugman and others at least be honest about it? Can they at least admit that we have to raise taxes (or, I suppose, borrow money) if we’re not going to cut benefits?

Let’s be clear on this one. Once Social Security starts running yearly deficits, it will begin redeeming its treasury bills. As this happens, it will worsen the government’s fiscal position. Is there a soul who wouldn’t agree with that statement — Krugman’s soul included?

That said, the whole point of the Payroll tax hike of the early 1980’s was so that at some point in the future Social Security would be able to draw on its trust fund. If the rest of government ran any deficit at all during this saving period, then when it came time for Social Security to draw from the Trust Fund, other taxes would have to go up (or the Federal Government would have to issue public debt.)

Eidelbus wants to say that as long as paying out Social Security requires some kind of transfer into the system via any tax increase — even if money was transferred out of the program in the past — then the Social Security system is not solvent. I disagree. I say that Social Security is solvent until roughly 2041, because its deficits until that point equal its [I assume totally] transferred-away surpluses between roughly 1983 and 2017. I make this claim at the expense of the General Fund, which is currently a fiscal trainwreck in great need of repair. If we were to put the General Fund into balance until 2041, then Social Security would have no trouble paying its benefits.

The General Fund has been running especially large deficits because it could count on a portion of its budget to be financed by Social Security’s automatic investment in tresuries. General Fund taxes have been artificially low, as Payroll Tax income helped make the deficits smaller. To repair the General Fund, the taxes which pay into it must go up. As the General Fund pays down its debt, some of its income will be transferred into the Social Security program.

Eidelbus says: This is evidence that Social Security is not solvent, because taxes will have to go up! I say, this is evidence that Congress managed the money poorly and made the General Fund insolvent, using Social Security’s solvency as a mask.

P.S. No explicit personal insults! Perry Eidelbus, I see your “twerp” and I… fold!

I’ve been analyzing the WBAR server logs, trying to find out how popular we are and which browsers people use to access the site. Looking through the Browser report, I found something interesting…

Listing the top 20 browsers by the number of requests for pages, sorted by the number of requests for pages.

no.:    reqs:  pages: browser
---: -------: ------: -------
  1: 1682570: 249863: MSIE
  2:  568298: 152831: Mozilla
  3:  102801: 100051: msnbot
  4:   80980:  80920: Googlebot
  5:   70576:  65242: Netscape (compatible)
  6:  163830:  40430: Safari
...
 20:     246:    246: Jesus is the only way to God.

I’m not sure what to make of this, but it seems that a bunch of people have set their web browser’s referrer to “Jesus is the only way to God.” Thoughts?

The following is a short and unexpected rant about copyrights. Enjoy.

During a work’s copyright term, the author may control the publishing of his work. Once the term expires, the work falls into the public domain, and the author loses the right to control distribution. Copyright gives the author a monopoly on the production of the work, which allows him to earn rents on it.

If there were no copyright, others would simply copy the work and distribute it at a much lower cost, eliminating the author’s profits and thus making it impossible for him to earn a living by writing/composing/etc. During the copyright term, society pays a higher price for the work, so distribution of it is limited. But if there were no copyright, the work would never have come into existence, because the author wouldn’t have had the financial incentive to make it in the first place.

At some point the copyright term ends. Multiple publishers may now produce the work, and they compete for the market by lowering prices. Society now wins by being able to obtain the work at a lower price (average cost, even). But we’ve got a dilemma — on the one hand, a longer copyright term will create more rents for authors, and induce them to create more works. On the other hand, a shorter copyright term will put a greater share of recent works into the public domain, giving more people access to them. The tradeoff is between amount of works and the availability of them.

A caveat with this simple tradeoff: works of art tend to inspire other works of art. Having an overly long copyright term won’t necessarily cause authors to make more works — by limiting the availability of art, it could stifle creativity and result in fewer works being created.

As a society, then, where do we draw the line? What kind of copyright term length is just right? We want to maximize the amount of art created while ensuring that eventually this art gets widely distributed. Would the right term length be 20 years after the work is created? 40 years? The life of the author?

Surely it wouldn’t be longer than the life of the author. After all, would you really be a more prolific writer if I told you that you could earn profits from your works in the years beyond your death? Yes, these profits would go to whomever you assigned them — probably your family. But would that really alter your artistic calculus?

No, I say, it wouldn’t. If we extended the copyright term beyond your death, you would create the same amount of art, and yes, your family might end up richer. However, during these additional years of copyright protection, society would lose out. Fewer people would have access to your work, which would make society poorer in and of itself. Furthermore, fewer people would be inspired by your work to create new pieces of art. Society would be made poorer again.

It shouldn’t come as a surprise, then, that the current copyright term in the United States is the life of the author, plus 70 years. This situation is absurd. Copyright term lengths which extend beyond the lifespan of the author provide society with few benefits (by not increasing the amount of art) and heavy costs (stifled availability of art, fewer new works.)

The creation of the Internet makes these costs even more acute. Copying works of the public domain costs almost nil when it is done electronically, making distribution incredibly easy. Public domain works are for more available than ever before.

Yet the copyright term in the United States keeps getting longer. For decades now, Congress has voted to ensure that no new copywritten works fall into the public domain. In 1976, they voted to make copyright last the life of the author plus 50 years, and in 1998 they extended it to the life of the author plus 70 years.

I could accept that we might feel bad for the spouse of a deceased artist, and say that we will extend copyright for a short period beyond death. Life plus 50 years seems a bit much for me, but in order to comply with the Berne Convention, we must make it that long (although we did not sign the Berne Convention for more than a decade after the 1976 extension.) However, there is absolutely no reason to make it life plus 70. No reason, except that media companies contribute heavily to our Congressmen and Congresswomen, and it is media companies which earn profits from ancient creative works.

Blame Mickey Mouse, copyright 1928.

I had the pleasure of reading Donald Luskin today, and followed his link to a “remarkable” account of last week’s social security debate over at Perry Eidelbus’ Eidelblog. Then I came across this passage, and I got mad. Why? Read it first.

Krugman rambled incoherently for a minute, and I really didn’t understand what his point was. Then he said the payroll tax is “just another tax.” Aha! That brings us back to Krugman’s fallacial claim that there will be no Social Security “deficit.” There won’t be one, not once Krugman & Co. change the nature of the financing and lump Social Security in with general spending. It’s like saying 2 plus 2 equal five, once you’ve changed the rules of math. As I already said, isn’t Social Security supposed to be financed by a dedicated payroll tax? So if payroll taxes can’t pay all Social Security benefits, and we have to increase other taxes to make up the difference, what’s the difference, other than the economic incidence, between raising those taxes and raising the payroll tax? (Bolding mine)

I’m no blind follower of PK (Although I haven’t had the audacity to contradict him in this blog), but Mr. Eidelbus’ response completely misses Krugman’s point. That’s because Krugman wasn’t rambling incoherently: he was actually revealing a major problem in the way Michael Tanner had been discussing Social Security. Tanner wanted to say that there was no trust fund, but that there was still a looming Social Security crisis, and Krugman eloquently called him on it.

What Krugman actually said was that you could think of the government in two ways. In the first way, we have a set of taxes (payroll, income, capital gains, etc.). The money which these taxes reap from the citizenry flows into a giant pot, in which it gets mixed around until, as we peer into the pot, we can’t tell a payroll tax dollar from an income tax dollar from a capital gains tax dollar. When the government wants to fund a program, it scoops money out of the pot and plops it down on the program.

On the other hand, we could say that different taxes serve different purposes. The Income Tax could be linked to one part of government, and the Payroll Tax could be linked to another. This gives us a few separate pots, and while the government might be able to borrow between the pots, since each one has its own dedicated tasks, this borrowing is actually borrowing. It has to get paid back, or the pots aren’t really separate, and thus the taxes aren’t really dedicated.

Krugman wasn’t advocating that we should take one particular view or another. In fact, I think Eidelbus must have zoned out, because when Krugman said that the payroll tax was “just another tax,” he was simply describing the mindset one would need in order to believe in the first viewpoint. The problem was that Tanner wanted to take both viewpoints at once.

Say that the Payroll Tax is just another tax, undifferentiated in the end from the Income Tax; okay, we’ve just eliminated the Trust Fund. But then we’ve also eliminated the Social Security crisis! After all, what do we hear about the crisis? “Starting in the year 2018, Social Security outgo will exceed income…” What income? Payroll Tax income!

But what if the Payroll Tax is just another way to raise money, and Social Security is just another way to spend it? Then we don’t have a Social Security crisis at all. In fact, we’ve got something must worse: a Federal Government crisis. Put simply, the government pulls in far less money than it spends, regardless of whether Social Security and the Payroll Tax balance out. “Fixing the Social Security shortfall” is about as significant here as “fixing the Defense shortfall,” since these programs are both part of the same behemoth.

You could take the second viewpoint and say that we need to keep Social Security and the Payroll Tax balanced. Then the Payroll Tax is no longer “just another tax” — it’s a dedicated one, specifically for Social Security. Since this dedicated tax has pulled in more money than Social Security could spend over the past two decades, the tax has created substantial reserves. Now we have a trust fund — it begins to diminish in 2018, and it’s exhuasted between 2042 and 2052. We’ve also got a Social Security problem, but it doesn’t strike for around four decades — hardly a crisis.

(Yes, thinking about the government this way makes Social Security seem more solvent at the expense of the General Fund [the rest of government.] I’m okay with that, because the payroll tax’s regressivity makes using it to finance the General Fund very problematic. I wrote about this problem)

You can’t have it both ways: you can’t say that we have specifically a Social Security crisis, but also say that there is no Trust Fund. Tanner claimed that there was no trust fund because Social Security’s income had been taken by the rest of the government. He also said that Social Security’s income exceeded its outgo beginning in the year 2018, and that thus we desperately needed reform. Krugman called him on this inconsistency. Meanwhile, Eidelbus woke up in the middle of one of Krugman’s sentences and completely missed the point.

Tonight I attended a debate about social security with my friends Matt and Karen (I doubt the names matter, but they could come in handy one day.) It was held at the NY Society for Ethical Culture (”They remind me of the unitarians,” said Karen), and the panelists were the honourable Paul Krugman, Joshua Micah Marshall of Talking Points Memo, and Michael Tanner, a proponent of Social Security Choice. The moderator was the toolish Vered Mallon, who has, I believe, appeared on some NYC broadcast network.

We all basically agreed that this debate failed to realize its potential, and we all blamed Mallon for this failure. As she introduced the issue of Social Security, it became clear that she didn’t intend to make herself a disinterested mediator — rather, as she stumbled through her lines, she pronounced the concept of privatization DOA, lacking any semblance of support from the public . What a great way to start off a debate on social security’s future: the other side’s position is politically impossible! So there!

Tanner was the first to present, and he did a pretty good job of parrying back against Mallon. He corrected her claim that he worked for the “Conservative CATO institute”: “Actually, it’s the Libertarian CATO institute.” That Mallon got the terms confused is telling.

Tanner had two primary arguments against Social Security. First that, as an investment, it got people a terrible rate of return. Putting the money in the stock market would increase the return, limiting the need to raise payroll taxes or cut effective benefits. His second point was that, as a social program, it made us all “supplicants” to the government. By taking away money from workers and redistributing it to the elderly, it pitted one generation against another, and dehumanized both. These are, respectively, the Republican and Libertarian positions (They are not mutually exclusive.)

Tanner advocated for a system where there were both a safety net and a forced savings program. Social Security, he said, attempts to do both but ends up doing neither well. This argument is intuitive and defensible. But there is a problem with it, specifically with Michael Tanner’s decision to argue it: Libertarians do not want the government providing a safety net nor a forced savings program! We felt like he was being a bit dishonest, betraying his beliefs in order to argue what was palatable in a public forum.

Krugman, in his delightful (yes, delightful) geeky-academic style, responded to Tanner comprehensively, and was extremely convincing in his tone and his message. I particularly liked his claim that saying that “social security gets a bad return” makes no sense: social security is designed to provide a safety net against misfortunate and old age, not to maximize returns for its participants. Once you show how privatization diminishes that safety net, he said, support for Bush’s vague restructuring diminishes greatly. And while the system has been in place for the past 70 years, Krugman explained that very few people have complained about feeling like they were “supplicants” to the almighty Federal Government.

Joshua Micah Marshall provided some interesting analysis at the beginning, but he really didn’t fit into the debate. His leftish stance also made the debate into a three-on-one, since Vered Mallon felt inclined to moderate by effectively telling the audience just how wrong Tanner was.

Marshall explained Bush’s problems in pushing privatization by distinguishing between the interests of the administration and those of the Congressional Republicans. On one hand, Bush has a legacy to pursue, and changing social security will put him in the history books as one of the “Great Presidents.” On the other hand, for the Senators and Representatives, fundamentally tinkering with Social Security probably won’t net them any gains in the electorate, but it has the potential to make them lose big. The mindset is, “we’ve got a good thing going, and this plan just might screw it up.”

It seemed to me that Marshall would have been an excellent moderator for the debate. While we know he’s not as econ-minded as Krugman or Tanner, he certainly understands the issues at hand and would know how to ask tough questions to both sides. At least it would have given him a role and taken away Vered Mallon, who felt the need to ask, every so often, “So Joshua, how is [current topic of discussion] playing out in the public’s eye?”

In an act which made me want Marshall as her replacement even more, Mallon decided to interrupt Tanner’s closing statement to ask the question (paraphrased), “What about Abraham Lincoln, who talked about letting the government do what the people cannot?!” Well, Mr. Tanner?! Don’t you see?! Your libertarian ethic doesn’t jibe with our great big-government President, Abraham Lincoln! So there!

The debate really should have been about ideology. Even Mallon wanted it to head in that direction, as she asked while introducing the panelists, “Do we want our children to live in a country based on FDR’s New Deal, or Ronald Reagan’s Morning in America?” Yet Krugman and Tanner were stuck responding to questions which danced around pesky ideological differences — I suspect Mallon didn’t prepare to ask anything remotely stimulating because doing so would have precluded her view of Democrat-style liberalism as a foregone conclusion. Only in his closing statement did Krugman begin to explain his ideology of strong worker rights and a stable safety net. Meanwhile, Tanner was always on the defensive, and probably a bit dishonest to beliefs to boot.

I should note that it was wonderful to finally see Paul Krugman in person, and I liked Joshua Micah Marshall’s presentation a bit more than I like his blog. The debate just had a lot of untapped potential. The experience was fun, but it lacked soul.

The Time magazine from March 14 flaunts excerpts of Jeffrey Sachs’ latest book, The End of Poverty. Sachs believes that if the rich nations of the world donate $150 billion every year to a wide range of developmental projects, the UN could meet its goal of halving world poverty by 2015. $150 billion may sound like a lot, but it only represents .7% of the output of the countries which would be doing the donating. In other words, ending world poverty would be an insanely cheap endeavor.

I stumbled across a scathing review of the book in yesterday’s Washington Post. It’s written by Bill Easterly, an econ prof at NYU who believes in taking a less ambitious approach…

Bill Easterly: A Modest Proposal [Sachs] seems unaware that his Big Plan is strikingly similar to the early ideas that inspired foreign aid in the 1950s and ’60s. Just like Sachs, development planners then identified countries caught in a “poverty trap,” did an assessment of how much they would need to make a “big push” out of poverty and into growth, and called upon foreign aid to fill the “financing gap” between countries’ own resources and needs. This legacy has influenced the bureaucratic approach to economic development that’s been followed ever since — albeit with some lip service to free markets — by the World Bank, regional development banks, national aid agencies like USAID and the U.N. development agencies. Spending $2.3 trillion (measured in today’s dollars) in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.

I saw Easterly speak last semester because Xavier was off in Africa or something. He advocated identifying specific objectives which would help to reduce poverty, then trying to achieve those objectives through methods whose success could be easily quantified (Think vaccinations against certain diseases, then measuring the incidence of those diseases in the population.) Sachs, on the other hand, wants to tackle the whole problem in one fell swoop. I’m tempted by Easterly’s position, but it seems like Sachs’ book would be a good read — if only to get me thinking about the problem of world poverty, prior to its solutions.

For some other commentary on the book, see Tyler Cowen (at Marginal Revolution) and Daniel Drezner. And on a side note, the book’s introduction is written by Bono!

Apologies to all readers of Mozilla Planet. I changed my blog so that it used permalinks, and now my old Mozilla posts are flooding the main page. This is probably due to a bug in the Planet software.

For those interested, I’ve got a thesis for a new Mozilla post bumping around the walls inside my skull. Let’s hope Tor doesn’t kick me off Moz Planet just yet.