Friday, March 27, 2009

The Emperor's New Budget

Everyone is focused on the fact that the Republican counter-budget has no numbers in it, as if that were just funny. (which of course it is) But seriously, how could we have expected that the Republican plan would have credible numbers in it? Their numbers have never added up. The Republican leadership has announced that their plan is to drastically cut taxes and reduce the deficit at the same time. There is no possible way to do that unless you either slash federal discretionary spending to the point where you practically have to shut the government down, or you make massive cuts in Medicare and Medicaid. Does anybody expect that the Republican leaders are going to go on television and announce that their plan is to make huge cuts in Medicare and Medicaid? That would be political suicide.

No, the only thing they can do is recite the same old platitudes about cutting taxes, reducing the size of government, getting government regulation off our backs, etc. When they actually tried to implement that program, under both Reagan and Bush, they created unprecedented new deficits. They cannot reveal the consequences of that strategy now because that would reveal either deficits similar to what the Democrats are proposing, or unacceptable cuts in federal programs. And if their proposed deficits are not very different from what the Democrats are proposing, then they have no argument against the Democrats' budget. So they have to stand there like the emperor with no clothes, and ask people to believe that their fictitious budget actually exists.

Thursday, March 26, 2009

Hope in Mexico

There was something tremendously refreshing about Secretary of State Clinton's statement yesterday taking some responsibility for the drug wars going on in Mexico. At one level, it is only stating the obvious to say that our country's insatiable demand for drugs leads to law enforcement headaches in Mexico, which is supplying the drugs. At another level, her recognition that American habits are causing problems in Mexico represents such a different, more constructive approach compared to the way we have dealt with drug enforcement and other issues of international relations, in the past. Instead of telling Mexico that we want them to do more to crack down on drug traffickers because they are causing drugs to flow into our country, we are now telling Mexico that we understand that we have caused a problem for them, and we want to help them solve the problem that we are in part responsible for causing. The net result, which will be a greater commitment of American military or police power to crack down on drug trafficking in Mexico, might be similar in some ways to what the Bush administration was doing. But there ought to be a lot less resentment of this kind of effort in Mexico after Clinton's admission of responsibility.

We are not used to hearing our government take responsibility for causing problems. We are used to hearing our government blame someone else for our problems. Even where the government clearly contributed to failures, whether in its abysmal response to Hurricane Katrina, or its failures to regulate the financial industry, or its disastrous handling of the occupation of Iraq, you rarely heard anyone in the Bush administration admit any mistakes or take any responsibility for anything.

The new administration is making one of its cleanest breaks with the past by accepting responsibility for just about everything. Republican critics have not been hesitant to heap blame on President Obama, even for things that occurred before he took office, and without ever acknowledging that the previous administration has any responsibility for any of our current problems. But he is out-foxing them by simply accepting responsibility, readily admitting to mistakes, and assuming the burdens of fixing the problems that he inherited.

Wednesday, March 25, 2009


President Obama seems to view the AIG bonus issue as a distraction, and keeps trying to deflect the media's obsession with it. He is rightly concerned with the bigger picture.

One of the AIG executives in question published his resignation letter in the New York Times yesterday. The letter is worth pondering, for it makes you consider that not only have we been making scapegoats out of the AIG execs who are receiving bonuses, but also that at least some of these people may not even be the right scapegoats. There is plenty of blame to go around for the financial crisis, and it should be very widely shared. It may be satisfying for people to try to blame everything on an evil Wall Street cabal, but it would not be accurate. Therefore, while certain reporters at the press conference last night were trying to hold Andrew Cuomo up as a hero for going after AIG executives, while trying to find President Obama at fault for not paying enough attention to this issue, perhaps it would be more accurate to view Andrew Cuomo as something of a demagogue and rabble-rouser who is distracting people from real problems, while the president is entirely focused on getting people to recognize and solve those problems.

Tuesday, March 24, 2009

Hope on Wall Street

Yesterday, the Dow Jones Industrial average shot up nearly 500 points after the announcement of the details of the Treasury's new plan to buy up troubled bank assets. The purpose of this plan is to rescue the banks and restore the confidence of Wall Street, so the market's reaction to the plan must be seen as the best possible measure of its potential success. So let's not wring our hands over whether the plan is approved by Paul Krugman or Arianna Huffington. Those are not the people the plan is aimed at. In any event, those people have no hope of getting their preferred ideas accepted by either Wall Street or Congress.

If this plan is not sufficient to do the job, we will try something else. The president has a gigantic reservoir of public trust, and his supporters should encourage that trust to continue.

Ultimately, the people's belief that things are getting better is the only thing that will revive our economy. So why would anyone on the left want to try to shake that confidence and thereby act in league with the prophets of doom on the right, whose announced intention is to cause the new administration to fail?

Friday, March 20, 2009

Hope in Iran

President Obama recorded a video message yesterday of peace and friendship to the people and government of Iran, inviting a dialogue over the many issues that have divided our countries. While many on the right will no doubt attack Obama's gesture as hopelessly naive, there is reason to think that an appeal to moderate elements in Iran could strike a chord. Even the most radical Islamists in Iran are probably having more trouble demonizing an America with Barack Obama as its leader than the America represented by a Bush, Clinton or Reagan.

I saw a very interesting documentary about Iran over the weekend, called Letters to the President. The filmmaker was given unique access to follow President Ahmadinejad in his travels around the country, and shows how skillful and charismatic a politician he is. He presents himself as an ordinary man, a servant of the people who wants no special treatment, and the poor in the countryside especially, love him for that. President Ahmadinejad encourages people to send him letters, and has set up a special office to answer the millions of messages he receives. He gives hope to many people who have very little. On the other hand, as the film also shows, many more sophisticated Iranians, primarily in the cities, have no use whatsoever for Ahmadinejad, and understand how isolated the government's policies have made their country.

Obama's appeal could break down some barriers to both elements within Iran. Obviously, those who want the country to accept more modernity and better relations with the West will be receptive to such a message from the United States. But even those who are encouraged to hate America may find it a little harder to hold onto their hate. Such an appeal at least seems worth trying.

Why You Should Buy A Hybrid Car

Hybrid sales are plummeting since gas prices dropped back down below $2 a gallon. Obviously, this represents a triumph of short-term thinking, as gas prices are likely to go back up again sometime in the next few years. But it also represents a failure to perceive all of the benefits of driving a hybrid vehicle, beyond fuel economy. For some reason, car buyers look at the cost of an "extra" electric motor in an entirely different way from all other options. Buyers think that a hybrid engine must start paying for itself right away, and must cost less than nothing in the medium to long term. By contrast, when buyers are deciding whether to go for the sunroof, or the leather seats, or the premium sound system, or the V6 engine, they never expect these options to pay for themselves. Buyers understand the benefits of better performance or luxurious amenities, and they are willing to pay for them if they think it is worth it.

I have been driving a hybrid vehicle for three years now (a Toyota Highlander Hybrid), and I can testify that it is just plain more fun to drive a car with two motors. It is thrilling to turn the key and hear nothing. It is a kick to stop at a traffic light and hear the gasoline engine shut down. And it is even fun to get stuck in traffic on the freeway because you have the satisfaction of knowing that you are coasting much of the time or running on electric power, and you are getting awesome mileage. Plus, the hybrid engine gives the car an extra kick in performance similar to the difference between driving an 8 cylinder car over a 6 cylinder car. The hybrid version drives more smoothly than a pure gasoline engine, and would be worth paying something for even it did not also save me gas.

In addition to all that, I get the satisfaction of knowing that I am helping to save the planet, because my car is emitting less carbon dioxide than a similar car without the electric motor. And I also get the satisfaction of knowing that I am helping to wean the country from its addiction to oil, and helping reduce the nation's trade deficit. These pleasures must also be worth something.

If you want to ignore all that and calculate the benefits of a hybrid car purely in monetary terms, it goes something like this: Say your car payment is $50 per month higher if you choose the hybrid over the pure gasoline engine. At $4 per gallon, you were probably saving $50 a month or so in gasoline because of the improved mileage, so the hybrid was a no-brainer since it was essentially free. So now that gasoline costs only $2 per gallon, you might have to shell out $25 per month extra per month in the short term for the privilege of driving a hybrid car. But that does not factor in the added trade-in value for the car after you are done paying for it, or the fact that you keep saving money on gasoline for the life of the car even after you are done paying for it. Most importantly, it does not factor in the joys of driving a hybrid vehicle, and the satisfaction you get from saving the planet and promoting energy independence. Surely those things are worth paying for.

Tuesday, March 17, 2009

The Yes Men Fix the World

At South by Southwest this weekend, I saw the new documentary by the Yes Men, who stage elaborate pranks in which they purport to represent corporations or government agencies at conferences and such. One of their most famous stunts was to appear on a live BBC television broadcast promising on behalf of Dow Chemical finally to accept full responsibility for the Bhopal disaster and devote $12 billion to compensation and remediation. In another prank, one of the Yes Men went to a reconstruction conference in New Orleans posing as a HUD official, wherein he publicly promised to re-open the public housing projects that the federal government has been in the process of closing. You might call these kinds of activities spreading false good news.

What struck me was the reaction of many of the forces of propriety and respectability, including some journalists, to these antics. Although most journalists simply reported the hoaxes, as they should, some expressed outrage that the Yes Men would so cruelly raise the hopes of the poor victims of these disasters. In some of the most satisfying parts of the documentary, the Yes Men actually travel to India and the most down-and-out neighborhoods of New Orleans to verify that far from being made distraught by their actions, the victims instead of course heartily approved of anyone calling attention to their plight. They got the joke.

Why the outrage at satire? Is it simply a reaction to being taken in by a con artist? Or is it an instinctive rush to defend the status quo, and attack anyone who challenges it? Or is it chagrin that jokers like the Yes Men sometimes do a more effective job of reporting the news than respectable journalists?

We saw a similar reaction in some quarters last week when Jon Stewart lacerated CNBC for touting the stocks of many of the companies that crashed and burned last fall. People like Joe Scarborough immediately began to question Jon Stewart's credentials to address the serious subject of financial reporting. Lighten up, Joe. Jon Stewart doesn't have to be a certified expert on the financial markets to do the important job that he is doing. I was worried that Jon Stewart wouldn't have a job at all after the election, but I shouldn't have worried. We always need satirists, and we should treasure them.

Wednesday, March 11, 2009

Wall Street still doesn't understand what wealth is.

The head of Blackstone Private Equity Group said that he is shocked, SHOCKED, to discover that 45% of the world's wealth has been destroyed in the past year or so. This strikes me as a pretty stupid thing to say.

Compared to last year, the world has about the same amount of productive capacity, about the same quantity of goods, about the same amount of every kind of resources. When I look around, I see the same buildings and factories and people and everything else that I saw last year. The only difference is that all of that stuff was vastly over-valued last year, driven up in value by Wall Street wizards like Blackstone, and the rest of us who were caught up in speculative bubbles. This year everything is probably a bit under-valued. What all the money managers and financial experts don't seem to realize--still!--is that nothing that they created is real. It all meant nothing more than the price of tulips. If they understood that, they would not be surprised to find that most of the phony values they helped create have disappeared.

The real losses of wealth happen when real people actually lose their jobs due to the financial collapse, and our farms and factories actually produce fewer goods. But the "wealth" represented by our previous valuations of our homes and our stock portfolios has not disappeared. Most of us still own the same homes and hold the same portfolios. Only our inflated view of the value of those assets have come down to earth. Once we adjust to that reality, values will start creeping back up again.

Saturday, March 7, 2009

Private is Always Better, Even if it's Not?

In the Republican response to President Obama's health care conference this week, Representative Roy Blunt said that he was "concerned that if the government steps in it will eventually push out the private health care plans millions of Americans enjoy today. This could cause your employer to simply stop offering coverage, hoping the government will pick up the slack.”

Let's think about the implications of this remark for a minute. How would a government-sponsored health insurance plan "push out" private health care plans? Presumably only if the government plan offered better and/or cheaper coverage than the private plan. If the private plan were better or cheaper, employers would have no reason to offer a government-sponsored plan instead. So what Representative Blunt is really saying is that the Republicans are opposed to government-sponsored benefits even if they are superior to what is being offered by the private sector. In other words, we should prefer market-based solutions even if they cost more and do not work as efficiently as government-sponsored solutions. This is not an argument based on logic, but rather on ideology. Also, has Congressman Blunt noticed that lots of employers are reducing or eliminating their health coverage options even without the competition of a government-sponsored plan? What are the Republicans offering for the millions of Americans without any health insurance?

If Republicans truly believe that private health insurance is superior to government-sponsored health insurance, they should have the courage of their convictions and call for the abolition of Medicare. But for all the Republican worries about the spectre of socialized medicine, you never hear them call for the abolition of the socialized system that we already have for everyone over 65. You rarely hear seniors clamoring to trade in their Medicare coverage for private insurance. It is the rest of us having to deal with the endless complications of private insurance plans who are complaining.

Photo from Sacramento Bee

Tuesday, March 3, 2009


The LA Business Journal printed a letter I wrote commenting on a reported study about how to reduce traffic problems in LA. The text as it ran in the March 2 edition is as follows:

"If we really want to reduce traffic, we should all figure out ways to drive less. If for some reason we can't expect ourselves to do our part voluntarily to reduce traffic, then we should recognize that the best thing the government could do would be to incentivize all of us to drive less. That would certainly cost less than paving every available inch of the city, and might actually make this city, and the planet, more livable.

To reduce congestion, all we need to do is charge the drivers using the streets what it actually costs to set aside that much real estate for automobiles, plus the other associated costs of pollution and congestion.

If we required city drivers to install a transponder and charged appropriate tolls for using the most congested city streets, as has been done very successfully in London, or if we substantially increased charges for parking, or if we substantially increased the taxes on gasoline, we would easily be able to reduce the amount of traffic to whatever level we desire."

Unfortunately, somebody saw fit to title my letter: "Pay Us to Park Our Cars." This title seems completely contrary to what I was suggesting. Also, the same day the paper ran an op-ed piece suggesting that the way to deal with freeway congestion is to add more lanes to all of the most congested freeways in LA. That seems like adding fuel to the fire.

We need to move away from the idea that are entitled to cheap gasoline and free parking. We need to reduce the number of cars on the road, not encourage more of them by widening the freeways. What we don't always realize is how much it costs to us to live this way: air pollution that is making us sick; delays that are making us late; urban sprawl that is destroying our landscapes; the loss of public and private space that is now given over to crowded streets and freeways; carbon dioxide that is going to make our planet uninhabitable. If we want to create a more livable world, we ought to think about reducing our dependence on automobiles, and investing more in public transportation. The first step toward that goal is to make drivers pay for all of the negative externalities they are creating, which would reduce many of the above costs created by our over-dependence on cars.

Of course increasing gas taxes or tolls or parking charges would be a hardship for many people, but those costs of driving are already a hardship for many people now. Punitive taxes on cigarettes are also a hardship for smokers, most of whom are not wealthy people, but that hasn't stopped us from jacking up the taxes on cigarettes to exorbitant levels. It is politically difficult to tax gasoline to the same extent as cigarettes, only because more of us are addicted to oil than to nicotine. Also, we don't always recognize that our oil addiction is at least as harmful to our health as smoking. But, like smoking, people are capable of reducing the costs of driving by driving less, by car-pooling, or by buying more fuel-efficient cars. When gasoline went up to $4 per gallon, ridership on the buses and trains increased tremendously. When gas prices went back down, we should have seized the opportunity to increase taxes on gasoline, which would have reduced the shock of those new taxes, and which would have generated a tremendous amount of revenue that could have been used for the benefit of everyone.