Ernskine Bowles and Sequestration

On Monday night, Ernskine Bowles spoke to a packed crowd at the Kimmel Center in Philadelphia. He vividly highlighted the long-term danger of a growing national debt, as well as broadly outlined the Simpson-Bowles plan. However quaint his sweeping generalizations seemed, his prescriptions hardly withstood even the most perfunctory stress test—both from a political and economic point of view. 

Simpson-Bowles marks another failure in an attempt to contain an economy that could eventually loose its traction. Which brings us to the sequester. Because an agreement couldn't be reached, we're now facing indiscriminate cuts in government spending. And if you think government spending are two words that should never be juxtaposed, consider the distinction between government consumption and government investment. 

The sequester means a slashing of R&D, a crucial element to future socioeconomic growth. It is a cut in investment that private enterprise will not offset. The ITIF has asserted that the sequester will mean an 8.7% cut in R&D in 2013 alone, stating that "reducing the budget deficit is important, but it should not and does not have to come at the expense of growth-inducing investments in areas like federal support for R&D. In fact, undermining growth capability is disruptive of a deficit control policy."

Sequestration also has unsavory implications for education. The NEA warns of growing class sizes, diminishing support for underprivileged schools and significant cuts in financial aid. While the magnitude of sequestration has been downplayed, it is without question an ominous shift towards austerity. We are undermining the future innovative capacity of our country

Government Spending vs. Tax Cuts

Part I: The Opposing Schools

Politicians, commentators, aunts and uncles, and other constituents of my favorite demographic—the questionably qualified—have been telling us we have a spending problem; they assert that we are running up a catastrophic deficit that will compromise the future for our children and send us, inexorably, down the ruinous path towards Greece.

Curiously, few of these commentators have economic backgrounds. Or read economic journals. Or participate in economic forums. Good gov’ner! Where then are these diagnoses about our destructive path, and the prognoses for its reconciliation, coming from! This whirlwind broaches two primary questions.

First, is our deficit actually that dangerous? Will we be able to service our debt obligations, or are we already facing the imminent demise of the full faith and credit of the United States? Second, if our deficit is indeed dangerous and requires immediate and significant action, how do we curtail it?  

We’ll start by looking at question two. Whether its warranted or not, the federal deficit is in the windshield of political discourse; it’s portrayed as the steadily approaching iceberg that will debilitate our economic system. So let’s pretend we’ve looked into question one and found that yes, we need to seriously chip away at our growing national debt. So, how do we do it?

Fiscal policy offers two approaches: We can cut spending and raise taxes. Through these approaches, we could stem the tide of our growing deficit by spending less, and pay down our debt by raising revenue through taxation. But this is complicated by the fact that our economy is still depressed. Cutting spending and raising taxes will curb growth, sending us further into depression. Thus, we are faced with a difficult balancing act: how do we continue to stimulate our economy while paying down our debt?

Harvard professor Christina Romer asserts that both spending cuts and tax hikes will damage our already frail economy. In deciding which fiscal policy measure to employ, we need to ask: “what will hurt more, raising taxes or cutting spending?”  According to Romer, “both tax increases and spending cuts will tend to slow the recovery in the near term, but spending cuts will likely slow it more.” In her view “if federal policy makers do decide to reduce the deficit immediately, reducing spending alone would probably be the most damaging to the recovery. Raising taxes for the wealthy would be least likely to reduce overall demand and raise unemployment.”

Romer cites a number of studies from economic forecasters who “estimate that a tax increase equivalent to 1 percent of the nation’s economic output usually reduces gross domestic product by about 1 percent after 18 months. A spending cut of that size, by contrast, reduces G.D.P. by about 1.5 percent — substantially more.”

Tax cuts can be hoarded, especially in a deflation-prone economy, preventing banks from greasing the wheels of investment. Moreover, financial intermediaries are bogged down with bad mortgages and—skeptical about demand—are hesitant to lend, thereby creating a self-fulfilling prophesy. Government expenditure, on the other hand, is paid directly to firms, leading to a larger and more effective multiplier.

Ultimately, Romer takes a balanced approach to deficit reduction, focusing on a combination of spending cuts and tax increases. She argues that to curb our deficit while simultaneously bolstering the recovery, it is necessary to cut wasteful government consumption and to focus on government investment in basic research, education and infrastructure. For these activities are essential to future productive capacity. Furthermore, Romer is unequivocal about taxation. “Nearly every economist I know agrees that the best way to raise revenue would be to limit tax breaks for households and corporations…the bottom line is that tax increases should be part of any comprehensive budget plan.”

However, her Harvard colleague and fellow economist, Alberto Alesina has a different opinion. Alesina espouses comprehensive cuts in government expenditure, stating that curtailing government spending is the essential ingredient for curbing the deficit and catalyzing economic recovery.  “Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.”

Citing his research with Silvia Ardagna, Alesina asserts that “over nearly 40 years, expansionary adjustments were based mostly on spending cuts, while recessionary adjustments were based mostly on tax increases.” Moreover, he argues that government spending signals impending tax increases, which will cause investors and consumers to tighten their purses. According to Alesina, “Stimulus spending means that tax increases are coming in the future; such increases will further threaten economic growth.”

According to Alesina, “Europe seems to have learned the lessons of the past decades: In fact, all the countries currently adjusting their fiscal policy are focusing on spending cuts, not tax hikes. The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.”

Romer and Alesina represent the polarized debate among economists and politicians. Europe has tended more towards Alesina, whereas North America has leaned more towards Romer. Part II will bring some more economists into the mix and investigate to what extent our increased deficit spending threatens future growth and prosperity. 

Why Is Gold Valuable?

Opponents of fiat money are often found looking whimsically to the past, longing for the days of commodity-backed money, particularly the gold standard. But why is gold so valuable? Is it a matter of perception? Could people not just as easily have decided that Boron would be the most valuable element? Greg Mankiw posted a great (4 minute) clip from NPR's Planet Money, which looked at this question through the lens of chemistry. 

Fragile Foundations

Let’s suppose a half-baked version of the Myan calendar thing came true, and we are now living in a post-apocalyptic dystopia in which roaming motorcycle gangs from Mad Max may, at any moment, descend upon our homes, pillage our belongings, kidnap our wives and daughters and leave us for dead. If, in this world, Barack Obama were to sign a directive mandating stricter gun control laws, I would very likely be acting the same way the conservatives are today.

But we don’t live in that world. Nor do we live in the world of our country’s founders, who were under very real threats from the British, the French and hostile Indian tribes, all of whom were on the continent and could attack—without the protection of a police force or a military. We also don’t live in a world devoid of Acme, Smith’s and Ralph’s.

Nevertheless, many opponents of gun control react heatedly to the prospect of stricter gun laws, fearing that we will be left vulnerable and unable to protect our families. For they believe that without firearms, we would be rendered susceptible to a host of dangers, from a 1984 style totalitarian government to roaming packs of bandits.

Among the opposition to possible regulations, perhaps the most difficult to understand is the resistance to a ban on assault weapons and high capacity magazines. The Obama administration posits that revolvers, shotguns and rifles are all sufficient for the purposes of protection. The response from the right, however, is an unequivocal “NO!”

When their usual platitudes and circular reason failed to gain traction, the right ramped up their efforts, employing their regular go-to strategy: fear. On America Live, Megyn Kelly asked conservative radio host Lars Larson about the story of a woman and her two children who were the victims of a home invasion. The woman defended her family when the assailant found them, shooting him five times with a .38 revolver—a firearm that would be perfectly legal under the new regulations.

When asked why we need assault weapons and high capacity magazines when a .38 revolver worked just fine, Larson responded: “The problem is she was confronting one intruder. If she had been confronting three people…she would have been out of bullets way to early. This president wants to take away people’s rights to own the appropriate tool to repel an invader or invaders.”

Heck, why stop at 3? During a congressional hearing, Gayle Trotter, founder of the Independent Women’s Forum stated that “an assault weapon in hands of a young woman who is defending her babies in her home becomes a defense weapon. And the peace of mind a woman has as she is facing 3, 4, 5 violent attackers…gives her more courage when she’s fighting hardened violent criminals.”

To substantiate her position, Trotter recounted the story of Sarah McKinley: “Home along with her baby she called 911 when two violent intruders began to break down her front down…As the intruders forced their way into her home Ms. McKinley fired her weapon, fatally wounding one of the attackers. The other fled.”

The purpose of the hearing was to ascertain whether an assault weapons ban was in fact prudent legislation. Trotter sought to proffer evidence underscoring the efficacy of assault weapons for defense purposes in order to impugn the proposed legislation. The problem with Ms. Trotter’s example is that Sarah McKinley used a Remington 870 Express 12-guage shotgun, which would not be banned under the new firearm restrictions.

In response to Trotter’s histrionic testimony, Senator Sheldon Whitehouse remarked: “the example you used is one that would not bear an argument against the proposal that is before us, because that Remington 870 Express is a weapon that would be perfectly allowed… she would clearly have an adequate ability to protect her family without the need for a 100 round piece of weaponry.”

In an emotive tone, Trotter responded: “how can you say that?”

Well…

Trotter attempted to substantiate her position by painting an illustrative image for Sen. Whitehouse. “You are not a woman stuck in her house having to protect her child, not able to leave her child, not able to go seek safety, on the phone with 911 and she cannot get the police there fast enough to protect her child. And she is not used to being in a firefight. “

While anyone of us would sympathize with the poor mother in this example, it is a wholly fictitious example conjured up by Trotter to support her own ideology. If Trotter had testified about instances in which revolvers, rifles and shotguns had been inadequate for protection, the new gun legislation would have been flummoxed and soon floundered. But no such example—not one instance—was reported throughout the course of the hearing.

When your case rests on a fictional anecdote and depends on fear, it is because actual statistically significant evidence does not exist. We’re not going to get evidence from the opponents of gun control. We’re not going to get statistics. We’re not going to get numbers. We’re going to get like likes of Larson and Trotter. We’re going to get the cool sensible Huckabee who leaves us with significant questions to marinate: "If a band of marauders comes kicking your door down and all you got is your double barrel shotgun with two shells, God help you because Joe Biden won't." Instead of real world examples, conservatives have only been able to offer ginned up imaginary dramatizations meant to inspire fear, because that is the only tactic they have left.

Here is what I know about assault weapons: they’ve been used to facilitate horrible massacres. On that basis, I’m led to believe they should be banned. If you can present compelling evidence demonstrating that the use of high capacity assault weapons plays a role in self-defense, then I’m wide open to changing my stance.

But no one has been able to do that. Whereas gun control advocates can easily point to instances in which assault weapons have been used in massacres, no one can point to a real world example outside of military combat in which they have been used for self-defense. The tired right-wing refrain “it’s not a massacre weapon, it’s a defense weapon” has yet to be corroborated.

There may be situations in which attacks by multiple assailants do occur. And it won’t matter if you have a revolver, a 12-gauge, an assault weapon, or a Gatling gun. So unless the Canadians determine that they have the resources and capabilities to invade Michigan, and for some reason our national guard goes on vacation to Jamaica, I’m going to support universal background checks, an assault weapons ban and a limit on high-capacity magazines.

The case for gun control has been made and substantiated. Its opponents are trying to proffer reasonable doubt. But they can’t, so they’re relying on fear.

Data Revolution

Good post in the Times today by David Brooks. How is the increasing ability to gather and synthesize data going to affect (and possibly improve) our analyses and decision-making? Big companies are spending a fortune on software than can process Big Data. 

Tidbits, Morsels and Jingles

A few days ago, Mike Huckabee stated on his show that more deaths were caused each year in the United States from hammers than from rifles. Let’s imagine for a minute that this is true (it’s not). It’s precisely the kind of obscure and misleading tidbit that diminishes the very important debate that we’re having in this country. More people were killed in 2011 from falling out of bed (400) than from explosives (2). Does this justify the widespread dissemination of dynamite? Huckabee’s trivia has already made the rounds on the blogosphere, and I’ve had the misfortune of being further enlightened about this by a certain unpleasant aunt.

Those on the right of the gun control debate soak up these little morsels, because they intimate what many believe to be the key logical trap of gun control advocates: If we get rid of guns, people will pick up knives; if we get rid of knives, people will pick up bats. Where does it end? Do we sequester ourselves in elaborate panic rooms?  These are feckless attempts to paint the position of gun control in a farcical light—one devoid of common sense.

And then, of course, we have the pabulum: “Violence isn’t in guns, it’s in people’s hearts.” “Guns don’t kill people, people kill people.” While both have some merit, neither denies that guns play a critical role in facilitating hatred, violence and exaggerating the consequences of emotional reactions and rash behavior.

The right wing rely on tidbits, morsels and jingles that are catchy and convenient, but neglect to tell the whole story. Huckabee, for instance, got his morsel of trivia from a Breitbart.com article by Awr Hawkins, which was then picked up by Fox news. It stated that “In 2011, there was 323 murders committed with a rifle but 496 murders committed with hammers and clubs.”

While the numbers are accurate, per se, they are selectively chosen, cherry-picking certain data and relegating others in order to support a desired thesis, which draws a deceiving picture. In science, we’re meant to disprove our hypotheses, or desired findings. Just the opposite is true of propagandistic commentators.

The truth is that in 2011, 32,163 people were killed by firearms in the United States. Of a total of 15,953 homicides in the same year, 11,101 were from firearms. Of 38,285 suicides, 19,766 were from firearms. Moreover, there were an additional 55,554 non-fatal gun injuries in 2011.

However, highlighting the preposterous amount of gun violence in the United States is not the priority (nor the job) of Hawkins, Huckabee, Brietbart or Fox News. Although they operate under the pretext of divulging information, they are actually concealing it. Consider Hawkins’ starting fact: “Think about it. In 2005, the number of murders committed with a rifle was 445, while the number of murders committed with hammers and clubs was 605.”

Sure I’ll think about it. In fact, I’ll go see what your source says.

These numbers come from an FBI report, which reveals that in 2005, there were in fact 445 people killed with rifles and 608 people killed with blunt objects, including hammers and clubs. What is also in the report—which neither Hawkins nor Huckabee mention—is that 522 people were killed with shotguns, 7,565 people killed with handguns, 1,488 people killed with an unidentified class of firearm, and 138 people killed with an uncategorized type of firearm, totaling 10,158 people murdered in 2005 with a gun.

So our 2005 homicide count? Blunt objects: 608. Firearms: 10,158. And that number has only increased in the past 7 years. When we look at all the facts, the gun control advocates don’t look so silly after all. Neither Hawkins nor Huckabee outright lied. What they’re guilty of is truncating the facts and omitting key elements of the truth…which is as good as lying.  

Neil Heslin on Gun Violence in America

Neil Heslin, father of one of the Sandy Hook victims, provides his heartbreaking, but incisive view on gun violence in America. I'm not going to comment on it. Check it out. He boils all the nonsense down to common sense.