Archives: November, 2008

For the Good of Barack Obama, Mr. Rangel Should Step Aside

Or am I reading too much into the Washington Post editorial, “Step Aside, Mr. Rangel,” when it says:

At a time when President-elect Barack Obama is holding frequent news conferences to reassure the markets and the American people that he is ready to lead the nation to economic recovery, the last thing he will need is a chairman of Ways and Means caught up in a swirl of serious allegations.

The cult of the presidency, indeed.

Are We Keeping Gates’ Defense Budget?

Barack Obama’s apparent decision to retain Robert Gates as Secretary of Defense is popular in the Beltway. One thing pundits admire is Gates’ talk about sacrificing expensive weapons systems designed for peer competitors to pay for the counterinsurgency campaigns that we are fighting. What Gates’ fans don’t point out is he has done little more than talk. Under his watch, the Pentagon recently drafted a fiscal year 2010 defense budget that requests a $60 billion increase over FY 2009 spending, not including war costs. That is a departure from prior Pentagon plans that envisioned defense spending leveling off next year. The 2010 budget proposal comes with a new five-year plan that would boost spending by $450 billion. The increase would avoid the kind of painful choices that Gates has discussed.

This request sets up a dilemma for the Obama administration. There are indications that the Democratic leadership on the Hill wants to contain defense spending to help pay for the proliferating bailouts. But the Pentagon’s plan is, by most accounts, an attempt to box Obama in – even a decision to hold spending at last year’s level could be called a cut, and open the President up to attack from the right. The services and Bush administration, including Gates, would like to fix defense spending at over four percent of GDP, even if the wars wind down and GDP resumes its normal growth. This budget serves that purpose, which is devoid of strategic rationale.

Ideally, Obama would force massive cuts on the Pentagon. Its budget is already far too big. At a minimum, if only to demonstrate that he won’t be bullied by the bureaucracy, Obama should tell the Pentagon to rewrite its proposed budget without the increase. If Obama is keeping Gates’ spending ideas along with Gates, it is one more indication that Obama’s defense policy is likely to be a kindlier, gentler version of Bush’s, a more competent imperialism.

Larry Summers on Employer Mandates

President-elect Barack Obama has named former Treasury Secretary Larry Summers to head his National Economic Council.  Obama also wants to require employers to offer health insurance to their workers.

It is therefore instructive to recall what the head of Obama’s National Economic Council has written about employer mandates:

Economists have generally devoted little attention to mandated benefits- regarding them as simply disguised tax and expenditure measures. Uwe Reinhardt’s reaction is probably typical: “[Just because] the fiscal flows triggered by mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.”

Suppose, for example, that there is a binding minimum wage. In this case, wages cannot fall to offset employers’ cost of providing a mandated benefit, so it is likely to create unemployment….

Mandated benefit programs can work against the interests of those who most require the benefit being offered…

If policymakers fail to recognize the costs of mandated benefits because they do not appear in the government budget, then mandated benefit programs could lead to excessive spending on social programs. There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers…

It can plausibly be argued that mandated benefits fuel the growth of government.

Bailouts May Scare U.S. Economy to Death

A Pew Research poll conducted more than a week ago found that 57 percent of Americans are terrified by Bailout Mania 2008. That was several days, and many billions of dollars, before Bloomberg reported that U.S. taxpayers are now on the hook for $7.7 trillion in bailout bucks – half of the nation’s entire GDP for the past year. At this point, not even Carl Sagan could get a handle on the numbers we’re talking about.

What do people do when they’re scared about the state of the economy? They stop spending. With each new government “investment” announced by our new overlord Hank Paulson, Americans are going to clutch ever more fiercely at their wallets. They will eat out even less than they’ve been doing. They will rediscover the true spirit of Christmas and give each other hugs instead of Blue-Ray disc players. They will forgo that new coat or pair of winter boots. And they will bring the U.S. economy to a halt.

Even if all these bailouts could save the economy, other things being equal, other things are NOT equal. The bailouts themselves have an effect on consumer psychology, which has an effect on consumer spending. The Fed had better hire a shrink, quick, to let them know that they are on the brink of scaring the U.S. economy to death.

Google Flu Trends and Privacy

The recent privacy dust-up about Google’s Flu Trends service is interesting - and confounding.

Flu Trends is one of many cool things that can be done with data. By tracking searches that suggest the existence of flu symptoms, Google can identify influenza outbreaks about two weeks faster than the Centers for Disease Control, as illustrated by this video graph.

Searches reveal our interests, and this service highlights that fact. So the good folks at Patient Privacy Rights and the Electronic Privacy Information Center wrote a letter to Google asking for more information about the privacy consequences of Google Flu Trends. This kind of inquiry and exposure is important to the successful operation of markets because it helps educate both the public and businesses about the privacy consequences of services like Google.

The letter is a little confounding, though. It asks, “Would you agree to publish the technique that Google has adopted to protect the privacy of search queries for Google Flu Trends?”

It’s an inartfully drawn question. Search queries don’t have privacy - they’re inanimate character strings. What the letter intends, I think, is to ask how the privacy of Google users is protected in developing the data for Google Flu Trends. Still, the request is a bit incoherent.

Google said in response to the letter:

Flu Trends uses aggregated data from hundreds of millions of searches over time. Flu Trends uses aggregations of search query data which contain no information that can identify users personally. We also never reveal how many users are searching for particular queries. The only information released publicly or to the CDC is what is seen on the Flu Trends website now: estimates of the percentages of people with influenza-like illnesses.

It’s essentially a given that drawing aggregated data from hundreds of millions of searches produces data that is not identifiable. The data relevant for display by Google Flu Trends is not identifiable. Google Flu Trends doesn’t affect the privacy of Google users. It’s using Google at all that affects their privacy.

There’s value in exploring these issues though, and here’s where I think there is pay dirt in the PPR/EPIC letter:

[T]he question is how to ensure that Google Flu Trends and similar techniques will only produce aggregate data and will not open the door to user-specific investigations, which could be compelled, even over Google’s objection, by court order or Presidential authority.

The rule of law has fallen this far: Advocates must cite the privacy threat from unconstrained, unilateral “Presidential authority.” The letter is also right to point out that courts can strip away Google’s control of the information it collects about its users.

This is a problem with use of all Google services, and a problem with the use of all Internet services. The heart of the problem lies not with the current leader in search, or any other Internet innovator. The problem lies with our unconstrained government.

Yes, Google is playing a dangerous game with the data it collects from us. It has nonchalantly beaten the CDC at its own game, and one can’t predict how the agency will respond. CDC may seek to deputize Google as its public health agent. As the PPR/EPIC letter points out, it may drive Google to reveal more precise - and identifiable - information about health-related searches.

Any agency could do this to any Internet service provider while our law about privacy/search and seizure is in such a shambles.

Again, I think advocacy of this type is a valuable part of market processes because of its educational value, but if I had written the letter, I would have written it to the head of the Centers for Disease Control asking for a pledge that the agency will not use any informal or extra-judicial means to collect personally identifiable health information.

What Exactly Does “Cost Neutral” Mean?

I won’t pretend to be the least bit able to keep track of who is getting bailed out how and at what price anymore. When we were talking about a nice, simple, $700-billion bailout of some type to someone, sure, that was easy to follow. But there’s practically a new proposal involving hundreds-of-billions of dollars every day now, and at this point it just seems that Hank Paulson is throwing out dollar signs like a random number generator set between $100 billion and $800 billion. Forget about any average taxpayer being able to figure it all out, especially how much he is ultimately going to be on the hook for.

One would hope that just a small piece of the action — in my area, student loans — would be easier to follow. It isn’t. Since May the U.S. Department of Education has been erecting financial Rube Goldberg devices of all sorts to ensure that no potential student goes without money for college. You can catch up on all the goings-on here, but one thing in particular concerns me: Who, ultimately, is going to pay for all this? Unfortunately, like the overall bailout (or bailouts? or rescues? or giveaways? whatever…) federal officials give vague promises not to hurt taxpayers, but how that miracle will be accomplished basically comes down to “trust us.” Witness the Education Department’s description of all that the feds will do to keep loan dough flowing. It promises that “these programs will be cost neutral and in the best interest of the taxpayer,” but how, exactly, will that cost neutrality be achieved? For those minor details, we’ll all just have to stay tuned:

To assure cost neutrality, different parameters may be placed on the terms for these programs. The Federal Register notice will include the final prices, terms, and conditions, as well as the Department’s methodology for determining cost neutrality.

Pardon me and my aching head if I don’t find this either helpful or reassuring. For some reason I just don’t trust these people.

Pointless, Political, and Pork-filled

Greg Mankiw speculates on the best alliterative description of the stimulus package:

Instead of fiscal stimulus that is temporary, targeted, and timely, John Taylor suggests that it be permanent, pervasive, and predictable.

What the Obama administration is aiming for, it seems, is helpful, hopeful, and humongous.

Critics fear it might end up pointless, political, and pork-filled.

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Update: A reader emails me that Larry Summers now calls for stimulus that is speedy, substantial, and sustained.

Other readers think it will be:

big, bloated, and borrowed.
immodest, immoral, and imbecilic.
clumsy, corrupt, and counterproductive.
expansive, extensive, and expensive.
weighty, worrisome, and wayward.
politicized, pandered, and pathetic.
socialized, silly, and sorry.
random, record-setting, and ridiculed.
ultimate utilitarian utopianism.
absolutely abjectly apocalyptic.

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