Michelle Bachmann is still clueless

MPR's Mid-morning show interviewed Rep. Michelle Bachmann (and Rep. Tim Walz) yesterday. You can find the audio of the hour-long show here.

They both have interesting things to say about Iraq, though Bachmann continues to come across as a clueless right-winger. But for my money the best part starts at the 40:29 mark, when Kerri Miller asks Bachmann about the utterly, ignorantly crazy statement she made about Iran last year -- a statement she later claimed meant something entirely different.

In the interview, she spends 4 minutes babbling non sequiturs in response to Miller's question. Then she's handed an economic question, in which she says the best way to avoid a recession is to cut corporate taxes -- something that not even Bush or Ben Bernanke agree with.

Bachmann, politics, midtopia

Bernanke parody video

I'm enough of a politics and business junkie to find this pretty funny. Even if you don't like the economics jokes, it's a pretty slick video -- and the singer ain't bad, either.

The back story: Glenn Hubbard, dean of the Columbia Business School, was a candidate to replace Alan Greenspan as Federal Reserve chairman. The job ended up going to Ben Bernanke. The video purports to be Hubbard expressing his views on the subject, to the tune of the Police song "Every Breath You Take."

Hubbard, Bernanke, politics, midtopia

Supply-side math

An economist weighs in with a trashing of a Wall Street Journal editorial that uses atrociously bad math in defense of supply-side economics -- in particular, an attempt to at last locate the elusive Laffer Curve. There's a more detailed discussion over at Kevin Drum's blog.

The WSJ's purpose was to show a "sweet spot" for taxation, where if you raised rates beyond that tax revenue actually went down. But there are several problems with their chart.

One is that they're using corporate taxes as their yardstick. But corporate taxes make up a much higher percentage of revenue in a tiny tax haven like Luxembourg than they do in large, diversified economy like the United States. And the main outlier, Norway, has huge corporate tax revenues because of its state oil monopoly. Those factors should have set off alarm bells for whomever was preparing the chart.

They compound the problem by drawing their line through Norway instead of either throwing out that data point (as an obvious outlier) or at least averaging it with the other data points. Then, as Drum points out, if the curve is to be believed, tax revenue crashes to zero at around 33 percent -- even though the chart itself shows companies with rates higher than that having significant tax revenue.

Third, we have no idea how or why they chose the countries in the sample -- indeed, some of the data points are unlabeled. There's no way to tell if the sample is representative, complete, or meaningful.

But mostly, the graph doesn't show any significant conclusions. For example, Australia has one of the highest revenue figures with a corporate tax rate of about 31 percent. But three unnamed countries have significantly lower revenue with the same tax rate. The only possible conclusion is that corporate tax rate is simply not the major influence at play.

As one of the commenters at the first link points out:

This (the chart) is the dumbest thing I've ever seen, and I've seen a lot. You don't have to be an economist. All you have to be is somebody who knows what a scatter diagram is.

Silly people.

The basic idea of the Laffer Curve is reasonable -- that there's a sweet spot where taxation is high enough to generate substantial revenue, but not so high that it discourages work and investment. It's simply an expression of the law of diminishing returns. The devil is in the details: where exactly is that sweet spot? Nobody has yet shown it.

It doesn't help that one of the main assumptions behind the Laffer Curve probably is false: that a 100% tax rate will generate no tax revenue because nobody will work if all their earnings are confiscated.

It's false because many people work for reasons other than money. If you love the work, you'll do it for free. Work provides a sense of accomplishment, a chance to get out of the house, a sense of worth.

Further, the Laffer argument assumes that the confiscated money is poured down a hole in the ground. In reality, it's fed back into the economy -- where it may, for instance, provide a worker at a state-owned factory with food and shelter in return for work. In other words, there are ways to incentivize people to work that don't involve money.

I'm certainly not arguing in favor of state socialism. While revenue at a 100% tax rate wouldn't be zero, it wouldn't be very high, either. Money also is the best incentive for a free society, letting people make choices and reap the benefits or drawbacks of those choices. It also seems to work the best for unlocking creativity and hard work, or persuading people to go to the trouble of pursuing specialty training or performing dangerous or unpleasant jobs. I'm just noting the practical reasons why nobody knows whether the tax sweet spot is 25 percent or 80 percent.

The WSJ folks are still idjits.

Laffer Curve, economics, politics, midtopia

Cheney the tax wonk

Today's installment of the Washington Post series on Dick Cheney covers his influence over economic policy. (Comments on the first two installments are here.)

The vice president's staff encouraged people to cooperate on this part of the package, with unsurprising results: far fewer anonymous sources and a far more positive portrayal of the VP.

Some of the classic Cheney traits are there: a penchant for secrecy, and a profile so low he's invisible:

In a town where politicians routinely scurry for credit, Cheney more often kept his role concealed, even from top Bush advisers.

"A lot of it was a black box, and I think designedly so," said former Bush speechwriter David Frum. "It was like -- you know that experiment where you pass a magnet under the table and you see the iron filings on the top of the table move? You know there's a magnet there because of what you see happening, but you never see the magnet."

This segment also does an excellent job of illustrating how Bush's "CEO-style", big-picture approach leaves plenty of room for a detail-oriented vice president to amass power. Cheney immersed himself in the inner workings of the White House bureaucracy. He would attend low-level policy meetings, helping shape the menu of options that would eventually percolate up to Bush. Then he would sit in on the higher-level meetings, shepherding ideas he had helped germinate. Finally, of course, he almost always had the final word with Bush before decisions were made.

Possibly most important, Cheney was well positioned to simply block proposals he didn't like, because officials learned to run proposals past him before formally submitting them. A lot of things Cheney didn't like were simply never proposed.

The result was that while Cheney didn't win every battle, he won most of them -- and most battles were framed by him from the beginning, so even when he lost the final choice was within a range of options he had defined.

We also get a glimpse of Cheney the compromiser, problem-solver and peacemaker. He was responsible for resolving issues on subjects as diverse as the future of NASA, tax cuts, FBI searches of Congressional offices and what to do about Jim Jeffords -- with Cheney eventually persuading Bush to let Jeffords throw control of the Senate to the Democrats rather than meet his demands for new spending.

You also get a sense that the same traits that served Cheney, Bush and the country so badly in the realm of national security -- inflexible attachment to rigid principles, a push to win internal policy debates at all costs -- worked out better in the economic realm, where constitutional principles aren't at stake and there's a lot of incentive to abandon principles for mushy compromises, buying opponents and political capital with taxpayer money. One can dispute Cheney's principles -- the solution to everything is tax cuts for the wealthy! -- but it's hard to fault the dogged determination and bureaucratic skill with which he pursued them.

Tommorrow we'll cover the last segment.

Cheney, politics, midtopia

Is a recession in the cards?

Back in February I mused about the possibility of a mild recession this year, based on what I was hearing from economists I know.

It may arrive this summer.

The government cut in half its estimate of economic growth in the first quarter, reporting the slowest rate of expansion since the end of 2002....

Growth advanced just 0.6 percent, compared with an initial estimate of 1.3 percent. The chief reasons for the revisions were adjustments to the estimates of imports and business inventories. Imports, which subtract from the gross domestic product, were stronger than the government first thought. At the same time, businesses cut production and accumulated smaller inventory stockpiles.

If you glance at the accompanying graphic, you'll see that it's a big slowdown compared not just to a year ago but also compared to last quarter. And inflation remains a problem (rising at an annual rate of 2.2%), which limits what the Federal Reserve can do to stimulate the economy.

If the trend continues, the second quarter figures -- due out in July -- could show a contraction. The story notes, however, that most economists think the second quarter will show an improvement, thanks to positive news in consumer spending (up more than expected), the housing market (thus far, less bad news than expected), manufacturing output (expanding) and exports (thanks to a weakening dollar). In addition, employers added 157,000 jobs in May, up from 88,000 in April.

But they don't call economics "the dismal science" for nothing: that good news has clouds. Consumer spending, besides being fueled largely by debt, is expected to slack off, the housing market fallout is expected to deepen, a weaker dollar makes things more costly for consumers, and even at 157,000 the number of new jobs is barely keeping up with population growth. And inflation-adjusted median household income has only recently started to rise (see Page 5 of this Census report (pdf))after falling for five straight years.

So as is often the case with economics, there's plenty of data to support whatever prediction you care to make. The economy is clearly slowing down; the question is how quickly it is doing so and how far it will go. And of course, there's the far-more-fun secondary game of "who's fault is it?"

I don't play that game too much. The economy tends to do what it will with only limited influence by the administration. But it seems safe to say that Bush's economic policy has not been an unqualified success: in exchange for massive tax cuts and soaring deficits, we've endured a recession, an anemic recovery and now a slowdown, with wages lagging far behind productivity and corporate profits. Perhaps we cannot blame Bush for those mediocre results, but we can certainly blame him for the huge deficits incurred to no particularly good effect.

Meanwhile, wait for the July economic numbers and hope for good news.

Update: Changed the post title to better reflect the content.

economy, politics, midtopia

Rethink those truisms

A couple of doses of cognitive dissonance for certain quarters of the political sphere:

1. Trickle-down theory doesn't work in the real world. The most relevant fact: the reason we need to tax the wealthy is because that's where the money is: since 1980, the inflation-adjusted median wage has actually fallen, while incomes for those in the top 0.1 percent earn four times what they did then. It's not class warfare to tax that discrepancy. And as the article argues, it will not result in top earners working less or taking fewer risk. The rest of the article points out a long list of areas where trickle-down theory disagrees with both classic economics and real-world experience.

2. Voter fraud probe comes up empty. You may recall that worries about voter fraud were the rationale for what otherwise might look like political investigations of Democrats. Now it turns out that those worries were, charitably, overblown. After five years of investigating, the Justice Department has precious little to show for it.

Although Republican activists have repeatedly said fraud is so widespread that it has corrupted the political process and, possibly, cost the party election victories, about 120 people have been charged and 86 convicted as of last year.

Most of those charged have been Democrats, voting records show. Many of those charged by the Justice Department appear to have mistakenly filled out registration forms or misunderstood eligibility rules, a review of court records and interviews with prosecutors and defense lawyers show.

That's not all. To keep the charade going a little longer, a federal panel edited a report on voter fraud, changing the conclusion from "little evidence" of fraud to "the pervasiveness of fraud is debatable."

And then there are the clear miscarriages of justice:

Mr. Ali, 68, who had owned a jewelry store in Tallahassee, got into trouble after a clerk at the motor vehicles office had him complete a registration form that he quickly filled out in line, unaware that it was reserved just for United States citizens.

Even though he never voted, he was deported after living legally in this country for more than 10 years because of his misdemeanor federal criminal conviction.

Fabulous.

Voter fraud is a crime. True fraud should be prosecuted vigorously. But it makes no sense to destroy people's lives for making mistakes, especially small ones. And it's just plain irresponsible for the White House and other Republicans to keep flogging the "widespread fraud" line when it's just not true -- and firing prosecutors for not being zealous enough in bringing nonexistent cases.

voter fraud, politics, midtopia

Another stupid flag brouhaha

I've been focusing a lot on Washington and national news lately. I wonder what's been going on here at home. Let's see:

On Thursday, the Minnesota House, after a long and emotional debate that featured members quoting Abraham Lincoln, the Pledge of Allegiance, Ronald Reagan and the Declaration of Independence, approved a measure to require that all American flags sold in Minnesota be made in America.

The vote was 83-46. The bill awaits action in the Senate.

"It's time to bring the flag home," said Rep. Larry Howes, R-Walker.

Uh, wait. What was that? The state wants to wade into the marketplace and dictate where a particular product can be manufactured? Why?

Surely they're just expressing an opinion. I mean, they wouldn't actually throw someone in jail for this....

The measure would make it a misdemeanor to sell an American flag not made in the United States.... "It feels good to be for a bill like this," said Rep. Marty Seifert, R-Marshall. But he added, "This is serious business when we are talking about 90 days in jail and $1,000 fine."

Okay, they would.

You have to love the response by the bill's sponsor, DFLer Tom Rukavina:

"That's absolutely as absurd as putting a label on your pillow saying, 'Do not remove under penalty of law.' … You can try to pretend this is going to put people in jail. It isn't," Rukavina said.

Fabulous. Make a law that you know won't be enforced because it is unreasonable on the face of it. Yeah, I'm sure that will increase respect for the law -- not just this law, but the law in general.

Rukavina has a history of stupid bills. In this session, he also introduced a bill overruling a local zoning board's decision against a friend's house addition. After enduring withering criticism, he said he wasn't serious about the bill. Which, if true, again raises the question of why he was wasting taxpayer time and money by writing it.

In 2003 he proposed selling off state-owned land in the Boundary Waters to the highest bidder, an idea so bad that Gov. Tim Pawlenty -- not exactly a noted environmentalist -- suggested Rukavina had been "drinking too much swamp water."

Earth to the entire House: the state should intervene in the marketplace -- and restrict civil liberties -- only for good reason. Trying to dictate the origin of American flags does not constitute "good reason." Nor does the mental process involved in arriving at the conclusion that such a bill is worth discussing.

There was more silliness all around:

During the debate, legislators offered several amendments, including criminalizing the destruction of the American flag, making English the state's official language and requiring lawmakers to drive American-made cars. All were ruled out of order or voted down.

The next time legislators want a pay increase, point to this debate and say "not until you stop wasting time on stupidity like this." Meanwhile, hope the state Senate isn't infected by the same strain of brain cramp.

Rukavina, Minnesota, politics, midtopia

Recession ahead?

Some interesting economic news today.

Savings rates: It's the worst since the Great Depression, negative 1 percent. Meaning people are spending more than they're taking in and not putting money aside for a rainy day. But take that with a grain of salt, because the savings rate is a highly flawed statistic. it doesn't count home equity, for instance, or retirement accounts or stock appreciation. It's basically a measure of cash flow, not solvency. It's true we stink as savers, but not nearly as bad as the savings rate would indicate. A more accurate picture would rename the savings rate to "cash flow" and pair it with a net worth measurement.

Other economic news: The same link shows the ISM manufacturing index falling below 50, an indication that the sector is contracting, while jobless claims also fell, indicating fewer workers being laid off. But job growth was a lower-than-expected 111,000 -- not enough to keep up with population growth -- and as a result the unemployment rate ticked up to 4.6 percent. Wages were essentially flat, rising about as much as inflation.

A couple of economists I know -- one a Republican, one a Libertarian -- think we're headed for a mild recession in 2007. The above numbers, plus the cooling of the housing market, generally lend credence to that view. An interesting thing to speculate about is the timing. In an expansion, wages typically lag overall economic growth. But this expansion has been unusual in the length of that lag, and overall wages are only now starting to rise in meaningful amounts -- just in time for a new recession to put an end to that. Which means we would have gone through an entire expansion cycle without much if any benefit trickling down to the workers. They aren't going to be happy about that. It also helps explain why a lot of people don't think the economy is all that fabulous even though the macro statistics are pretty good.

economy, politics, midtopia

Minimum wage bill passes Senate

After lots of wrangling the vote was 94-3. Among those voting against the bill was Jim DeMint. Presumably he was miffed that his line-item veto amendment failed.

The bill includes tax breaks for small businesses that must be resolved in conference committee, because the House version didn't include them. If the House goes along with the tax breaks, the bill will pass. If the conferees decide to strip out the breaks, then the "clean" bill will have to pass the Senate, a dicey proposition.

I urge Congress to keep the breaks. They are reasonable, and are paid for by eliminating various tax shelters and placing limits on tax-deferred compensation for executives.

BTW, today's political chuckle is provided by the White House. Remember when President Bush challenged Congress to balance the budget? Then consider this.

After the House passed its bill on Jan. 10, the White House issued a statement insisting that final legislation include small business tax breaks. It subsequently issued a statement supporting the Senate version, but said the revenue measures were not necessary.

Got that? Our newly minted deficit hawk of a president said the bill must include tax breaks, but didn't need to include revenue measures to pay for the tax breaks.

Perhaps someone needs to explain to Bush what "fiscal conservative," "balanced budget" and "deficit reduction" means.

Update: Here's a fun find: Two years ago, Republicans argued that a $2-an-hour minimum wage hike would cripple the economy. Now that the increase is a reality, let's see if they turn out to be right.

minimum wage, politics, midtopia

While Congress fiddles....

The minimum wage bill saw a lot of action in the Senate but few actual results.

As promised, Harry Reid let the Republicans propose a line-item veto amendment on the bill. That was rejected 49-48, but could come back up again because that vote was far less than the 60 needed to invoke cloture and cut off debate.

However, the immediate debate moved on to other grounds, namely Republican insistence that the wage increase be paired with tax breaks for small businesses to help cushion the blow. Senate Democrats are amenable, but the House could force the issue on two fronts: the House bill doesn't contain tax breaks, and it's the House's prerogative to propose tax measures.

The lack of tax breaks led Senate Republicans to block the wage bill, so it's currently at an impasse.

I would have liked to see the line-item veto pass, but it had its chance and is done. If there's a reasonable opportunity to revive it, fine, but it should not be used to hold up the wage bill.

Overall, the House should compromise in this case. The proposed tax breaks are reasonable: extending a tax credit for employers that hire low-income workers, and a simplified expense deduction for small businesses. Further, as required by the new pay-as-you-go rules, the $8.3 billion cost will be offset by a cap on tax-deferred executive pay and the elimination of an array of tax shelters. That provision alone is worth the price of admission, as such tax-deferred paydays are at the root of many a tax-avoidance scheme. House Democrats would be foolish to let a fit of pique get in the way of such progress.

Negotiations continue, and the Senate will take another crack at it soon. Let's hope reason prevails.

taxes, economy, politics, midtopia

Unpleasant math

What can $1.2 trillion buy?

Less than half of that would let us double cancer research funding, treat every American who has diabetes or heart disease and immunize every child on the planet against measles, whooping cough, tetanus, tuberculosis, polio and diptheria -- all for a decade.

$350 billion would provide a decade of universal pre-school.

$100 billion over a decade would be enough to fully implement the 9/11 Commissions recommendations and provide more aid to Afghanistan.

Or you could choose, as we have, to blow it all on Iraq. And that's a relatively conservative estimate.

The sheer scale of waste and forgone opportunities boggles the mind.

Iraq, budget, money, politics, midtopia

Democrats ease on down the sleaze trail

In the opening week of the new Congressional session, Democrats have generally kept to their promises, including their stated committment to clean up the ethics and pork-barrel mentality in Congress.

But now comes an example of why they should be subjected to close scrutiny.

The new minimum-wage bill, which would raise the wage from $5.15 to $7.25, fulfills one of their "100 hour" pledges. But dig into the details, and you find the wage doesn't apply to every location under American jurisidiction. For instance, it will affect the Northern Marianas, home of notorious garment sweatshops. But it specifically exempts American Samoa.

What's so special about Samoa? It has a Democratic delegate to Congress, for one thing. Further, it's dominated by the tuna industry. And one of the biggest tuna canners, StarKist, is owned by Del Monte, which has its corporate headquarters in Pelosi's San Francisco district.

The direct Pelosi link is a bit hyped -- Del Monte is a huge and geographically diverse company, and none of the StarKist operations are in San Francisco -- but the exemption makes no sense. If a minimum wage is good for the Marianas and the U.S. proper, it's good for Samoa.

And the Republicans don't escape untainted here, either. They opposed the minimum wage measure, so it's a bit disingenuous to see them complaining that it doesn't cover every last inch of U.S. territory. And they did pretty much nothing about the Marianas sweatshops when they were in power; at least the Democrats are doing something.

The story notes that canneries in Southeast Asia pay 67 cents an hour instead of the average of $3.60 that Samoan canneries pay, raising the concern that applying the new minimum wage to Samoa would cause the canneries to leave en masse and make Samoa one big welfare client, because the canneries employ about half of the Samoan workforce.

But is making people work for $3.60 an hour really a solution? Doesn't that just perpetuate a bad situation -- and, given the low Asian wages, one that isn't going to get better? Isn't the real answer to diversify the Samoan economy so it no longer has to rely on such low-wage jobs, especially jobs concentrated in a single industry?

The minimum wage should apply to Samoa. And if that causes the canneries to leave, then a two-pronged response is called for: a look at how to draw investment to Samoa to replace them, and an examination of the goals and economic rationale behind the minimum wage.

Opponents have long said that the minimum wage hurts small businesses and low-wage businesses and the workers they employ, both by making those businesses less competitive and by giving them incentive to hire fewer workers. If the canneries leave Samoa, that would seem to prove the opponents right. Supporters would then need to show why Samoa is an exception, or why such localized effects are outweighed by the overall benefit of a higher wage.

Those benefits are usually described in terms of overall benefit: 900,000 workers making $7 an hour collectively make more money ($6.3 million) than 1 million workers making $5 an hour ($5 million). So even though some workers are laid off, as a group minimum-wage workers are better off. And while those 100,000 laid-off workers may end up on welfare, a higher minimum wage makes getting a job an attractive alternative to remaining on welfare, so overall one should see a decline in welfare rolls as well.

Finally, the ripple effect of a higher minimum wage means wages higher up the payscale will likely see a minor bump, too, spreading the benefit to more workers and helping increase real wage gains in an economy, like this one, that has seen wage increases lag far behind corporate profits.

The question comes down to whether the benefits outweigh the costs, and that depends on the size of the various effects: In my example above, if raising the wage to $7 results in a 30 percent layoff rate instead of 10 percent, the group benefit for low-wage workers disappears.

Sorry for the tangent. Bottom line: if the Democrats want to apply the minimum wage, it should apply to all U.S. territories. Anything else is unfair.

ethics, Samoa, minimum wage, politics, midtopia

Edwards enters the race

John Edwards is officially in the 2008 presidential race -- a day earlier than planned, after his staff prematurely launched his campaign Web site.

I voted for him in the 2004 primaries, as the best of a bad lot. He was green, but he was smart and articulate and I liked many of his policy proposals.

In 2008, though, the field will be tougher. So he'll have to up his game and demonstrate that he hasn't been standing still in the last four years. Otherwise his main credentials are his single Senate term -- not a big foundation to build a campaign on.

For now it looks like he's going to trot out his "Two Americas" theme again. But he hasn't been standing still. He's focused his antipoverty message through the Center on Poverty, Work and Opportunity at the University of North Carolina, and has been lining up support among unions and other core Democratic constituencies.

He has some interesting ideas, like "Work Bonds" to encourage low-income workers to save money, "stepping stone" jobs to help welfare recipients earn work experience that will help them move up the pay scale, and push to get high-school dropouts back in school so they can earn diplomas.

He also has some standard social proposals, like universal health care and housing vouchers for poor families, for which the devil will be in the details.

Some strategists have suggested that his antipoverty message will seem dated, and won't play well among an electorate obsessed about Iraq. I disagree; while the war will be a major issue, a pure antiwar play isn't likely to be a winner. Even though there is widespread opposition to the war, and a growing sense that it was a mistake and badly botched in the bargain, there remains ambivalence about exactly how to get out, and when. Any candidate that calls for an immediate pullout will run into opposition (although by 2008, the scenario will be quite different). Further, any candidate that promises an immediate pullout must still answer the question of "Okay, you've pulled out of Iraq; what are you going to do for the rest of your term?"

So Edwards is being savvy by running against the grain. He has an Iraq plan, of course -- cutting forces by 40,000 immediately, followed by a gradual drawdown -- but by not focusing on it he distinguishes himself from the crowd that is focused on it. And that lets him keep presenting the upbeat, optimistic attitude that is one of his winning traits.

For now he's short on specifics on a lot of issues, but he's worth watching. He has clearly put a lot of thought and effort into planning the campaign; let's see where he takes it.

Edwards, politics, midtopia

How much does the government owe?

Would you believe $53 trillion?

And the 2006 deficit alone? $4.6 trillion.

That's based on a GAO analysis (pdf) that looks at the present value of future liabilities the government has racked up over the next 75 years.

Are the numbers real? Yes. Are they meaningful? Sort of.

The figures come in answer to the following question: "If the current budget situation continues, what will be the cumulative difference between federal revenue and federal outlays in the next 75 years?"

Note all the important qualifiers: "If the current situation continues" and "75 years." The estimate ignores things like economic growth and population growth and then projects current conditions out over a very long time frame.

That time frame is important, because the longer the time period, the less accurate the projection becomes. It is extremely unlikely that current conditions will prevail for the next three quarters of a century, and even small changes can have big effects on such long-term guesses. Do the same projection in five years and you'll get a much different answer.

Further, the time frame makes the numbers look more scary than they really are. The $4.6 trillion deficit for 2006, for example, works out to about $61 billion a year -- big, but manageable.

Finally, this is not money actually spent; it's money we've implicitly promised to spend, assuming federal policy doesn't change in the next seven decades. Most of it represents Social Security and Medicare payments that won't come due for years -- but for which we've made no preparation, in part because we're using the Social Security "surplus" to pay for current government operations. So far the government has borrowed nearly $2 trillion from Social Security; if that money were instead held in trust, the multiplier effect of 75 years would go a long way toward reducing that $53 trillion.

So we're not really $53 trillion in the hole. What the figure mostly shows is the difference between our promises and our willingness to pay for them.

But they do serve as a wakeup call. The longer we run deficits and refuse to start saving for our long-term obligations, the greater the pain will be in the end -- either through higher taxes or greatly reduced government services. We need to end deficit spending sooner rather than later, start paying money back into the Social Security reserves and make some decisions about the intent and breadth of entitlement programs.

President Bush's tax cuts, mind-bogglingly expensive invasion of Iraq (with a final price tag estimated to be in the trillions) and ill-considered Medicare drug benefit have certainly worsened the problem, but he's not the only one to blame. We all share the blame to one extent or another, for wanting more government than we're willing to pay for.

I've commented before on how unethical it is to live large now and leave the bill for our grandchildren. What the GAO report demonstrates is how large that bill actually is. It's time to act like grownups and pay our own way. Anything else is simply unconscionable.

Social Security, GAO, deficit, budget, politics, midtopia

China's global reach

China, obviously, will be our strongest long-term competitor in the world, both economically and militarily. But the form that competition will take isn't always clear.

A lot of alarmists like to point to China's growing military muscle. They're modernizing their army and air force, expanding their navy and improving their missile technology.

But while the numbers can be impressive, most people overestimate China's military strength because they underestimate the effects of technology and the more prosaic arts of transport and logistics, both of which fall under the heading of "force projection."

Let's look at technology. China's air force, for example, contains about 2,000 fighters, bombers and attack planes, and is being modernized. But as you may notice from the link, that's largely because obsolete planes are being dropped from the inventory, not because large numbers of advanced planes are being added. And the technology of those "advanced" planes still trails ours by a generation or more. The backbone of its fighter fleet, for instance, remains the MiG-21, a design that is more than 50 years old.

Similarly, the Chinese navy is trying to build the first Chinese aircraft carrier. Sounds impressive until you realize it's based on the never-finished hull of an old Soviet carrier, the 67,500-ton Varyag. Meanwhile, we've got 12 carrier battle groups, built around 100,000-ton Nimitz-class and CVN-21 ships. That doesn't even count the various minicarriers we've got, like our amphibious assault ships.

And while the Chinese Army musters an impressive 2 million or so, it's mostly infantry, without decent transportation options. And their heavy units are armed with largely obsolete tanks and artillery.

Where does force projection come in? Well, in order to fight a war in the Middle East, for example, a military needs to be able to get the troops there and then supply them with food, ammunition and equipment. That takes a staggering number of ships, airplanes and trucks, not to mention the warships, fighter planes and security troops needed to protect the supply routes.

It's such a staggering job that there is currently only one country with the ability to fight a war anywhere in the world: the United States. China may be growing powerful, but they simply are unable to invade, say, Canada. And they will remain unable to project serious force for a long, long time.

So militarily, China poses only a regional threat. Fight in the Mideast? We win. Fight in countries neighboring China? More of an even match, with quality and long supply lines squaring off against quantity and short supply lines. Invade China? We lose. The initial fighting aside, there's simply no plausible way to occupy and pacify 1.3 billion people.

But if China isn't a serious military threat, it still poses an interesting economic and diplomatic challenge.

There is no way that China can provide a U.S.-style standard of living to all of its people. 300 million Americans consume a quarter of global GDP doing so; lifting 1.3 billion Chinese to that level would take more than the global economy currently provides.

But the Chinese leadership is sitting on a powder keg of divisions: ethnic, regional, rich/poor, rural/urban, coastal/interior. China may look solid, but it's really more of an unstable empire than a unified nation.

That empire is held together with a promise: As long as nobody challenges the ascendancy of the Communist Party, they will provide improved standards of living. The populace has essentially agreed to trade political freedom for economic freedom.

But if the Party cannot keep holding up its end of the bargain -- and it can't, as I explained above -- that agreement will come into question.

So even though it's impossible to keep raising living standards, the Party will try for as long as possible. And that will take resources -- a staggering amount of it.

We've already seen some of the effect of this policy: bottomless Chinese demand has driven up prices for a range of commodities, from oil to steel to shipping. We can expect that to continue into the future, raising the prospect of regional conflicts over scarce resources.

Beyond that, though, Chinese diplomacy is shaping up as a tool China uses to secure the resources it needs to fuel its growth. And that is posing challenges to our interests that go beyond economics.

For instance, China appears to be well on its way to supplanting the West as the biggest aid provider to Africa. How is it doing it? By being cheerfully amoral about how and with who it does business. The West tends to tie aid to structural reform, like transparency, rule of law, elimination of corruption. There are many cogent criticisms of this approach -- not least that it sometimes hurts more than it helps, at least in the short term -- but at least it is attempting to reform broken systems.

China, by contrast, simply doesn't care. They've signed aid and construction agreements with a range of corrupt African governments, pouring billions into the continent, all for two things: business for Chinese companies, and building relationships with countries that have resources China will need in the future.

So China is rebalancing the world. Countries rich in natural resources suddenly find themselves with more negotiating power, as they can play China and the West off against each other while enjoying high prices for their exports thanks to the increased demand.

It can be viewed as a positive thing to see power shift from the developed countries to the Third World. But it can also be viewed less benignly, as power shifting from generally transparent and democratic economies to generally corrupt ones, overseen by tyrants, with very few of the benefits trickling down to the general populace.

That's how the world operated for much of human history, of course. But whatever damage China's rise may do to our own interests, the greatest loss may be the bungled opportunity to reshape the world in a way that increases justice and human happiness.

It may be inevitable. That "opportunity" might have been ephemeral, judged against the long march of history. But as the world plunges back into a modern version of the Great Game -- where the United States and China, along with Europe and possibly India, vie for economic and military supremacy around the globe -- it pays to reflect on how we need to adjust our goals and tactics. Not simply to survive and remain relevant, but also to see if we can achieve some part of that vision even as we compete, bare-knuckled, with a country that doesn't seem to share it.

Africa, China, politics, midtopia

Making policy on the fly

Didn't get to this yesterday:

One might wonder why Senate Republicans haven't yet formally killed their gas tax proposal, given the near-unanimous condemnation it's receiving.

Besieged with complaints about political pandering, GOP lawmakers now say the rebate idea is a non-starter. As Sen. Trent Lott (R-Miss.) explained yesterday, "When my own daughter harasses me, you know you're in trouble."

So declare it dead already, and let's move on.

The reason they haven't might be that lawmakers haven't come up with something equally pandering to replace it. But the real problem, which is the linked article's main point, is that legislators were making this stuff up on the fly.

The response so far has been profiles in panic. Some conservatives dropped their philosophical opposition to tax hikes and business regulations and began complaining loudly about oil companies and the auto industry. ... A few days earlier, Bush backed diverting crude oil from the Strategic Petroleum Reserve, an idea he dismissed less than two years earlier as a political stunt. ... Republican lawmakers likewise have responded with a mishmash of solutions -- some barely vetted, others with little chance of becoming law.

The Democrats get points for at least being consistent, even though their ideas are no more effective or on point than the GOP's.

Memo to all of our elected leaders: Calm down.

The thing about high gas prices is that it is not a crisis. It is (hopefully) a new chronic condition. So hasty, temporary measures to deal with it are ill-conceived at best.

Forget the attempt at short-term, short-sighted fixes. You can't do much anyway. Instead, take a deep breath and do the things that need to be done to assure our long-term energy security -- which means taking steps to reduce our oil dependence.

Do a good job at that -- show that you are sober, smart and willing to take risks to do what must be done -- and maybe your prospects in November will improve.

gas tax, gas prices, oil, energy, politics, midtopia

Gas prices start to pinch

The Star Tribune today had a big A1 centerpiece on how higher gas prices are affecting homeowners and commuters.

The main revelation to me is that some people spend $500 a month on gas alone, not to mention the hour or two spent in traffic each day. That doesn't count the cost of buying, maintaining and insuring a car or two.

Are they insane?

It also cites a couple of studies that try to measure the transportation cost of living in various parts of the Twin Cities. One is by the Center for Neighborhood Technology; the other is by the Brookings Institution.

A lot of people decided to buy in the far-flung exurbs because the houses were a lot cheaper there. But there's a reason they're cheap, and many homeowners are now figuring out why.

If gas prices remain high, home prices will rise in the central cities and decline further in the sticks. But they're not going to fall enough to totally offset the ongoing cost of commuting, year after year.

The long-term implications could be interesting.

For starters, the "sweet spot" -- where combined housing and commuting costs are the most affordable -- will move inward somewhat. If mass transit gets a renewed lease on life, it will move in even closer, as those "expensive" homes in the city turn out to be cheaper in the long run. Even far-flung development will be affected, as it follows bus and rail lines rather than highways. That's one reason communities along the proposed Northstar commuter line strongly support its creation.

Meanwhile, businesses may seek to reduce transportation costs by locating near a rail line in the exurbs. That will allow residents to stop commuting into the city and instead drive to a local workplace. The small-town downtown may flourish again, creating a ring of minicities around the large central ones.

High gas prices may, in the end, achieve what government could or would not: curbing sprawl and the inefficient use of resources that goes with it. Yet another example of how dealing with the true cost of gasoline helps society as a whole make more rational choices.

Separately, MPR's Midmorning show had an interview with Oregon Rep. Earl Blumenauer, who's in town to take part in the Great Conversations series at the University of Minnesota. Blumenauer helped develop the Portland, Ore., transit system and is something of an expert on urban management and growth. They discussed several things, but Blumenauer made two points that resonated with me:

Zoning laws need to change. As long as we require people to drive to the mall or strip mall to shop, car usage remains necessary. A better idea is to have local stores within neighborhoods for small needs, and transit-linked shopping destinations for more regional draws. Right now, though, that's almost impossible because many zoning laws -- most of them drawn up decades ago and altered little since then -- still require sharp separations between commercial and residential districts.

Commuters deserve options. Blumenauer noted that the Twin Cities are less densely populated than Portland and have far more miles of highway. Yet we have more traffic congestion. That should be a flashing red sign that more highways are not a solution.

He expressed surprise that the Twin Cities is so far behind the rest of the country in the adoption of light rail, when even once-adamant opponents such as Phoenix, Denver and Houston now have systems. He said the goal should not be to force people to use mass transit; it should be to give them options, so they can decide what to use. Over time it leads to fewer roads, less traffic and less sprawl.

We have high gas prices to thank for the re-emergence of this sort of conversation. And it's yet one more reason why we should not be trying to lower those prices.

light rail, mass transit, Blumenauer, energy, oil, transportation, gas prices, sprawl, politics, midtopia

Creative professions oppose gay-marriage ban

The Twin Cities is one of the few nationally recognized centers of the ad industry outside of New York and Los Angeles. Twin Cities ad offices have billings of about $2 billion a year, and provide thousands of well-paying jobs.

That's why we should care about the letter that 50 local ad agencies sent to Gov. Pawlenty.

The letter says that such a constitutional amendment could undermine a creative business climate, stifle recruitment and send the wrong message to potential clients.

The agencies are self-interested to a degree, since many creative fields such as advertising have a higher-than-average percentage of gay employees. But when that industry is a major part of the state economy, we all have an interest in it.

There's research that shows a correlation between a region's gay population and its cultural and economic vibrancy. One can debate the causality -- do concentrations of gays create such vibrancy, or does the vibrancy create an environment that is attractive to gays? -- but the correlation is clear.

A gay marriage ban is not only unjust; it would be economically damaging to the state, chasing away the sort of high-paying jobs that we should be trying to attract.

creative class, gay marriage, politics, midtopia