Competition For The Worst Economics Writer In America

You probably think it is so obvious that Paul Krugman is the worst economics writer in America that the proposition is not even worth discussing.  But over at National Review Online, Kevin Williamson thinks he has a competitor for the prize:  Martin Crutsinger, Chief Economics Writer for the Associated Press.​

To his credit, Williamson nails the fundamental problem with the economics reporting by Crutsinger (and for that matter, the rest of the AP staff):​

You will be hard-pressed to find an Associated Press report acknowledging the fact that government spending is accounted for at cost when calculating GDP.​

It's not like Crutsinger ever makes a principled argument for why Fake Keynesianism is a good view of the economy.  It's just that he has so totally internalized the fallacy that it is everywhere in his reporting without his even seeing it.  So you get things like this whopper from his report of February 28:​

"the only impediment [to economic growth of around 2%] . . . may be the across-the-board government spending cuts that kick in Friday."​

Back to Williamson:​

The final product is an AP-distributed political worldview that government spending is always good for the economy, good for employment, good for construction, etc., with little or no contemplation of the possibility that government spending may be one of our more significant economic problems.​

OK, that's bad.  But could it really be worse than Krugman, who just takes everything about economics and turns it around a full 180 degrees?  Consider his recent column from March 28, entitled "Cheating the Children."  And how exactly are we cheating the children?  You might guess, by taking on huge amounts of debt that they will never be able to repay?  Wrong:​

Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.

So in Krugman's view, we are cheating the children by not having enough government spending and not taking on enough debt.  Got that?​

​Sorry, Kevin, but Krugman has Crutsinger beat by a mile.

There Is Nothing Like Going On "Disability"

Back in December 2012 I wrote a post titled "Who Could Be Against Disability Pensions?" pointing out the sad truth that the New York disability pension programs are riddled with unbelievable levels of fraud:  for example, 75% of New York City firemen retiring with supposed "disabilities"; 97% of Long Island Rail Road workers retiring with supposed "disabilities."  It seems that the temptations of a free check every month for life without having to do anything are just too great for many people.  The post concluded, 

I wonder if it's actually possible to have a government-run program for disability payments without having it explode because of endemic fraud.

Now comes along Chana Joffe-Walt at NPR (of all places) to write what promises to be a four-part series on the Social Security disability program.  Here is the first part. ​

Please read the whole thing.  Literally every line is a warning of how badly wrong good intentions can go.  ​

The concept behind Social Security disability is that if you are sufficiently disabled that you are unable to do productive work of any sort, you are an appropriate candidate for the safety net, in the form of "disability" payments, to sustain you at a minimum level for the rest of your life.  At first consideration, almost no one would disagree with the concept.  But the designers of the program seem to have given almost no thought to the problems that perverse incentives can cause.   

The result is a program that sucks people in, and from which almost no one escapes.  The number of beneficiaries continues to explode in good times and bad.  Rolls have about doubled during the Obama administration, increasing by some 5.4 million people over the past 4 years according to Investors Business Daily.​

Let's consider a few examples of perverse incentives and how they play out.  It turns out that the costs of welfare (now known as TANF) are shared between state and Federal governments; but SSDI is all on the Federal dime.  So states can save a buck by transferring people from TANF to SSDI.  How does that play out?  From NPR:​

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.  The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:  "The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

Of course, welfare/TANF has time limits, but disability is a lifetime entitlement where nobody so much as checks up on you once you qualify.  It's the ultimate poverty trap.​

Then there's the story of Charles Binder, SSDI attorney extraordinaire, whose firm in 2012 represented some 30,000 clients and earned some $68.7 million (!) in fees, in each case seeking SSDI benefits.  How much of an effort does the government put up to be sure that those seeking benefits are actually "disabled" in the sense commonly understood?  The answer is, when a claimant seeks a hearing to get benefits, the government does not even put on a defense, no matter how poor the claimant's case:​

Who is defending the government's decision to deny disability?  Nobody.  "You might imagine a courtroom where on one side there's the claimant and on the other side there's a government attorney who is saying, 'We need to protect the public interest and your client is not sufficiently deserving,'" the economist David Autor says. "Actually, it doesn't work like that. There is no government lawyer on the other side of the room."

So what are the things that qualify you as "disabled" and entitled to a monthly check for life?  Of course, they are largely subjective things that depend almost entirely on the claimant's word and cannot be objectively verified.  Number 1, at 33.8% of cases in 2011, is "back pain and other musculoskeletal problems."  Number 2 at 19.2% is "mental illness, developmental disability, etc."​

The incentives of this program are as thoroughly perverse as it is possible to imagine.  Absolutely no one involved with the system has any incentive to keep costs under control; rather, everyone has every incentive to milk the program for every cent possible.  Once on disability, virtually no one leaves -- the departure rate is barely 1%. Everyone involved -- the consultants like PCG, the lawyers like Binder, the states, the administrative law judges, and most of all the beneficiaries -- make lots of free Federal money.​  If you're curious, the annual cost of the program is currently running about $124 billion, according to Bloomberg here.  Real money.  Another 4 years of Obama are likely to add at least another 5 million to the rolls.

​The answer to my question, unfortunately, is that it is not possible to have a government-run disability program without having it explode with an epidemic of fraud.

​

Europe Bails Out Cyprus

The news on the Cyprus bank bail-out is that in its final iteration it is a lot closer to just letting the banks fail.  The question I have is, why didn't they go all the way?​

​The basic outlines of the deal, struck Sunday night, are here in the Guardian (and in many other sources):  Bank Laiki is being closed.  It's insured depositors will get their 100,000 euros, and above that depositors will lose much or all of their savings.  Bank of Cyprus will be "heavily restructured," so the details of who will end up where are much murkier.  Presumably, the 100,000 euro deposit guaranty will also be honored.  Oh, and the ECB coughs up 10 million euros.  Presumably the latter is "needed" because the tiny government of Cyprus does not have the money to pay off its 100,000 euro deposit guaranty.

This deal is much closer than the previous versions to what would have happened if the banks just failed under the existing rules and with no bailout.  In the "just fail" scenario, I would think that the under 100,000 euro depositors get paid until the government of Cyprus runs out of money.  Remaining unpaid depositors, both under and above 100,000 euros, become equity of the restructured bank.​  Non-depositor creditors and prior equity get wiped out.

There are lots of reasons why the "just fail" scenario is preferable.  ​In the "just fail" scenario, prior management has no right to continue, and the prior depositors, as new equity, can hire new people with a new approach.  In the "just fail" scenario, the cents on the dollar going to uninsured depositors turns on how under water the bank is, thus giving depositors the next time around an incentive to monitor the finances of the bank they invest in. 

So why not go that route?  It's the same story heard in the Greece/Spain crises over the past few months.  As articulated by Michalis Sarris, Cyprus' Finance Minister:​

It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone.

​Good threat Mr. Sarris.  But why exactly would Cyprus exit the euro?  None of the U.S. states that defaulted in the 1840s tried to exit the dollar.  (And at the time many thought they had a right to exit if they wanted.)   Frankly, I don't believe for a minute that Cyprus would have done it.  The benefits of being in the euro are too great.  Yes, you have to roughly balance your budget and not take on obligations far in excess of your GDP to foreign bank depositors.  That's the regime under which the U.S. states operate, and it's the best thing that ever happened to them.  The Eurozone's problem is that other countries, mostly Germany, are so committed to the concept of maintaining the euro that they cave at these threats.  My bet is that even if Cyprus had tried an exit, it would quickly have come crawling back, an event that would have greatly strengthened the euro.

​Well, at least this one wasn't a blank check.  The question is whether there was sufficient requirement of risk bearing to avoid providing the incentives for a bigger crisis the next time. 

Just How Free Is That Free Stuff?

The president's big pitch to the young generation in the last election was accurately summarized as "free stuff."  Remember Sandra Fluke and her theme of how important free contraceptives are to young women?​  And then of course we had the explosion of the handout programs during Obama's first term -- 20 million additional food stamp recipients, 5 million additional on Social Security disability, 5 million additional "Obamaphones."  What could be wrong with free stuff?

​Only that when you take the free stuff, you cede to the do-gooders the authority to run your life.  Take the Supplemantal Nutrition Assistance Program, aka SNAP, aka food stamps, just exploded from 27 to 47 million recipients in four years of Obamaism.  A few days ago a group calling itself Physicians Committee for Responsible Medicine came out with a proposal to limit the program to what they call "healthy" foods -- grains, vegetables, beans, fruits, and basic multiple vitamins.  Yum!  Don't worry, they include a link to a bunch of recipes.  No fat or sugar allowed, of course.

So what's the reaction in the official precincts of the Left?  Charles Lane has a column in the Washington Post of March 18.   First this: ​

No doubt such limitations would entail a change in habits for many SNAP recipients — perhaps too much change. Fish and poultry, as well as lean red meat, should probably be included.

I love the casual assumption that of course these are appropriate decisions to be made by Washington bureaucrats, presumably sitting around some conference table at the appropriately acronymed DOA:  "Should we let them have red meat that's 7% fat, or should we cut it off at 6.874%"  Well, let's let Lane articulate the Stalinism a little more explicitly:​

Of course the federal government should be able to leverage its purchasing power for socially beneficial purposes. If you take Uncle Sam’s help, you play by his rules.

Have you thought that one through Charles?  At least food stamps you are still allowed to refuse.  But how about the big ones -- Social Security, Medicare and Obamacare?​  With them the whole idea is that you are not allowed to say no.  Young people, that is the Left's vision of your future:  If you take Uncle Sam's help, you play by his rules.​  Oh, and by the way, you must take his help, and you are not allowed to say no.​  ​Nothing like a little free stuff!

The NYT Publishes An Op-Ed Proposing More Cuts Than The Ryan Budget Plan

A Congressman named Paul Broun has an op-ed in today's New York Times titled "Paul Ryan's Ax Isn't Sharp Enough," and proposing substantial cuts in Federal spending beyond Ryan's budget proposals.   Actually, as Broun points out, Ryan's budget doesn't propose net cuts at all, but rather proposes modestly to restrain increases in the level of spending to 3.4% a year.  Broun, whose district lies east of Atlanta, is trying to make himself some reputation as a spending hawk.  I say bravo!  But even his proposals are extremely modest.​  This discussion need to be fundamentally re-oriented.

Basically, Broun proposes (1) eliminating two Federal departments, Education and Energy. (2) making Medicaid and SCHIP block grants to the states, and (3) repealing Obamacare.  Numbers (2) and (3) do not constitute reductions in current spending, but only avoidance of future increases.  Education is currently running at about $77 billion per year, Energy only at about $27 billion.  The Education budget could well be zeroed out.  Energy is a mixed bag.  The destructive "green energy" and efficiency programs turn out to be a very small part of the budget -- under $3 billion per year.  Most of the budget is involved in defense-related activities, particularly producing and securing atomic weapons.  Broun concedes that that's not so easy to get rid of and proposes transferring it to Defense.  OK, but that doesn't lead to much spending reduction.  We're only up to about $80 billion.  The loan guarantees should be wiped out, but of course they are off budget to begin with.  I'm looking for cuts of at least $1 trillion!

So come on, Congressman Broun.  Let's get a table of Federal departments and agencies and start drawing a line through them.  It's not hard:​

Agriculture:  Proposed 2013 spending is $155 billion.  Farm subsidies of $20+ billion per year clearly need to go.  The big item is food stamps -- $80 billion per year.  Food stamp spending has doubled in Obama's four years, all of which were supposed to be an economic "recovery."  It should be an immediate priority to get back to the 26 million recipients of just a few years ago.  Where does the other $55 billion go?  To lots and lots of stuff the government should not be doing and that almost nobody would miss if it disappeared over night.  Here is a list of agencies and offices in the DOA (good acronym).  Agricultural Marketing Service, Agricultural Research Service, Animal and Plant Health Inspection Service, Center for Nutrition Policy and Promotion, etc., etc., etc., etc.  OK, we need to figure out a way to do food inspection, although I don't see why it has to be the government.  The rest is dead loss.  There is easily $100 billion per year to be saved in this department.

Housing and Urban Development.  ​The spending by this department is not just wasteful, but actively destructive, acting as a poverty trap for a large portion of the intended beneficiaries.  It should all be zeroed out:  $27 billion annually for rental subsidies, $13 billion for "community development" grants, $12 billion for housing finance programs, $9 billion for public housing projects.  This could start to be some real money!

I'm barely getting started, and already I'm up to $240 billion!  ​How about eliminating all job training programs and "trade adjustment assistance" in the Labor Department (about $8 billion)?  Getting rid of the Drug War (about $15 billion per year at the Federal level according to drugsense.org)?  I'll bet it's a lot more than that if you count how much of the U.S. Attorneys' offices, the FBI, the Federal courts, and prisons go into this useless effort.  NASA is running about $18 billion per year.  I can never understand the attachment of otherwise libertarian-oriented people to NASA, which, as a government entity, is way too risk averse to run a high risk program.

Dare anyone ask how the number of recipients of Social Security Disability went from about 3 million in 1990 to over 8.5 million today, just 23 years later?  Does the current generation really have three times as many disabled people as the prior generation?  By the way, this program is running at $124 billion per year and metastasizing at an accelerating rate.  In a remarkable event, mainstream press organs like NPR and the Atlantic have started noticing in just the past few days. ​ Read those two articles and then tell me whether a rational version of the program could not save half of the $124 billion.

I'm not going to make this post into a full-blown new budget for the Federal government, but it's clear that if one is prepared to seriously consider eliminating the wasteful programs, it is not difficult to get the Federal budget to a size commensurate with its revenues.​  When can we get started?

Federal Judge Rules National Security Letters Unconstitutional

If you don't know about National Security Letters, you should.  They are the missives sent by the FBI to the institutions that hold your electronic information -- mainly banks, telecoms, ISP providers.​  The gist is, provide us all the information you have about Mr. or Ms. X, and, by the way, you are not allowed to mention to anyone, most particularly Mr. or Ms. X, that you are doing this, and if you so much as breathe a word it is a felony and we will prosecute you.  So this is all done behind your back, without any ability on your part to object or even to know that it is going on.  (The existence of these NSLs is the principal reason why you should assume that all your electronic communications and bank transactions are monitored by the government at all times.  Use cash.)

The authority for this is found in the so-called USA PATRIOT Act, ignominiously signed by George W. Bush in 2001.  Needless to say, the sanctimonious Barack Obama has continued issuing the letters and enforcing the gag orders with the same frequency and enthusiasm as his predecessor.

I have always believed that when this issue reached the courts the statute would immediately go down, and particularly that the part prohibiting the recipient of the letter from telling anyone including the subject could not possibly survive First Amendment scrutiny.   But it has been a long twelve year wait.  Why?  Because not a single one of the weasels otherwise known as the banks, telecoms and ISP providers has stepped up to the plate to mount a challenge.  But now an unnamed telecom, backed by the Electronic Frontier Foundation, has finally taken on the government in a case that has gone to decision before Judge Susan Illston in the Northern District of California.  Result:  statute unconstitutional. ​  Among many reports on the internet, here is one from Wired.

A comment about the conduct of the banks, telecoms and ISPs in this matter:  All of them are highly "regulated" by the government.  Do you indulge in the illusion that "regulation" is no more than oversight by neutral, disinterested experts who assure that the evil capitalists do not overreach into exploitation of the weak and helpless?  What we have gotten for ourselves are sniveling government supplicants who do whatever the bureaucrats say and are completely willing to spy on the American public behind their backs in the effort to win bureaucratic favor for approval of the next merger or spectrum purchase or whatever.​

Judge Illston has stayed the effectiveness of her injunction for 90 days.  After that, perhaps we will start to get some insight into the dark world of government surveillance on the public.  The Act was sold to the public as a response to terrorism.  What is the chance that these NSLs are limited to that arena?  I would say zero.  What percentage are actually part of the drug war as opposed to the war on terrorism?  My bet is the majority have nothing to do with terrorism.  Prove me wrong!  Use in the drug war may well be the least of the abuses.  Given the fallen character of all humans, what is the chance that no NSL has ever been used to investigate the guy that some FBI agent suspects of having an affair with his wife; or worse, to investigate some political opponents of the current administration.  Many human beings given this kind of power are just not capable of resisting these sorts of temptations.  Time will tell.​

Meanwhile, Wired reports on a few abuses of the NSLs that have already come to light.  For example, from an IG report in 2007:​

In 2007 a Justice Department Inspector General audit found that the FBI had indeed abused its authority and misused NSLs on many occasions. After 9/11, for example, the FBI paid multimillion-dollar contracts to AT&T and Verizon requiring the companies to station employees inside the FBI and to give these employees access to the telecom databases so they could immediately service FBI requests for telephone records. The IG found that the employees let FBI agents illegally look at customer records without paperwork and even wrote NSLs for the FBI.

Not much chance that the banks don't do the same thing.  How exactly are we better than say, East Germany in the Communist era?​

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