Posted by Marc Hodak on May 30, 2008 under Politics | Comments are off for this article
Examination of a Witch, Thompkins H. Matteson, 1853
The government’s witch hunt for those behind the surge in oil prices continues. The CFTC, a regulatory agency, began its own investigation:
“The Commission is taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions,” CFTC Acting Chairman Walt Lukken said in the statement. The Washington-based regulator, which generally conducts inquiries on a confidential basis, didn’t say when the probe will end. The CFTC did not name any companies being targeted and said details of the investigation were confidential.
Translation: “We’re publicly announcing our investigation of the oil markets because this is the most effective way for us to communicate to Congress that we’re ‘doing something’. We can’t actually tell you anything about this investigation because it’s supposed to be confidential. Actually, it’s because we’ve got nothing, but can hide that fact by claiming confidentiality. Even though we’re talking to you in front of cameras and microphones. Confidential, you see.”
Of course, this new phase of the witch hunt won’t be costless:
The regulator will require traders to give monthly reports about their index-based trading and it plans further reviews of how these traders are classified, how they report their trading activity and how they behave, according to the statement.
I want to follow up on my last post with the unintended consequences of Congressional policy on global taxation of U.S. citizens. As I mentioned earlier, many U.S. citizens living abroad are tiring of dealing with the IRS and renouncing their citizenship. This NYT article includes some excellent vignettes along those lines.
The legal ritual of renunciation is largely unique to the United States because other countries base taxation on residency, not citizenship, according to Ingmar Dörr, a tax lawyer with Lovells in Munich.
“We don’t have that issue,” he said. “We only have the problem that rich people who don’t want to pay taxes in Germany just move to a lower-tax country in Switzerland.”
That’s precisely the choice that the U.S. Congress wishes to deny its wealthy citizens. So, beginning in 1996, they have enacted increasingly draconian laws to make renunciation for tax avoidance purposes as difficult and costly as possible. They are, in a sense, trying a Berlin Wall solution.
To understand why Congress feels it needs a Berlin Wall strategy for American taxpayers, one only need look beyond the populistrhetoric about our wealthy paying their “fair share” to realize that our top 1 percent of households pay 28 percent of all taxes collected by the U.S. government. Congress will complain all day about “the rich,” but it does not want to let these people go.
The problem with this strategy, of course, is that what looks like a Berlin Wall to your own citizens looks like a Hotel California to outsiders who have a choice of where to check in.
How has that been working? Well, it used to be that everyone I knew from abroad was looking forward to American citizenship. Now, not a single one of my professional acquaintances wants it. They don’t mind paying their taxes while they’re here, but would just as soon be left alone by the IRS once they have departed to Toronto, Dubai, Shanghai or wherever opportunity might take them in this big world.
This is more than just an anecdotal trend. In the five years before the 1996 change in the law, the ratio of professionals to total immigrants was a steady 15-16 percent. In the five years afterward, which included the dot-com boom that attracted so many of the world’s entrepreneurial types here, that ratio dropped to 12 percent. It is currently below 10 percent. In fact, the raw number of professionals naturalizing here in recent years is below those from the mid-1990s in the lead up to the new tax laws.
In other words, the new rules that have kept an extra few hundred of our professional class from checking out have likely scared away tens for thousands from checking in. I’ve done the math, and it’s crazy.
Posted by Marc Hodak on under Collectivist instinct | Comments are off for this article
The philosophy behind the Berlin Wall was straight-forward: Your person and your property belong to the state. Couldn’t happen here, right?
Well, Congress has just passed a law that goes half way–you can leave if you want, but we’ll tax everything on your way out, even if you haven’t realized the gain, even if that gain occurred in a foreign bank while you were living and working outside of the U.S., even if you have spent most of your life in another country–perhaps your birthplace–where you are also a citizen, from which you have filed a U.S. tax return because ours is virtually the only country on earth that taxes its citizens no matter where they earn their money.
Now, the only way to escape U.S. taxes is to leave the country and renounce your U.S. citizenship. The U.S. then refers to you, who gifted us with a lifetime of talent, hard-work, and tax payments as a “tax traitor,” bans you from re-entering the U.S., and claims tax on your future income, or all your assets upon death at a 45 percent rate, for the next ten years. What is about to change is that silly “next ten years” loophole. Congress no longer wants to wait; they intend to tax all unrealized gains immediately, and will tax your American children on your gifts at the 45 percent rate whenever you die.
“(The high rate of foreclosures) is a serious problem all across Las Vegas, all across Nevada, all across the nation,” the Illinois senator said. “A lot of this wouldn’t have happened if we would have done a better job regulating banks.”
Later, talking to supporters here at the College of Southern Nevada, Obama returned to the theme, noting that McCain said early in the campaign that “economics is not something I’ve understood as well as I should have.”
Obama is accusing McCain of being weak on economics? Maybe the article should have been titled “Economics, Obama campaign on different planets.” Obama is clearly failing to distinguish economics and politics.
Economics is about relationships between X and Y. For instance, it might be economically true that greater regulation of banks would have led to fewer foreclosures. On the other hand, it’s at least as possible that the degree of bank regulation had no net impact on foreclosures, or that the regulation that existed may have enhanced the likelihood of foreclosures. I can 100 percent guarantee that Obama doesn’t know which is true. He is only asserting something that sounds good to his audience. That’s politics, an area in which Obama is clearly strong. McCain at least admits he is ignorant about economics, which may or may not be good politics.
Politics is about government intervention in private decisions. Such intervention has economic consequences, but it is not itself “economics.” For instance, let’s assume that Obama is right that better bank regulation might have forestalled the mortgage crisis; two questions remain about the wisdom of such regulation. First, all government interventions–like treatments for an ill patient–have central effects and side effects. The side effects of government intervention are generally known as unintended consequences. Assuming they are known, however, it’s a reasonable question to ask if the side effects will be worse than the central effects in this instance. Second, all government action is subject to non-economic considerations. So, what makes Obama so certain that better regulation in this instance will even create the intended central effects? Maybe that’s what he means by the audacity of hope.
This gem comes from Henry Stern, New York City’s living institutional memory:
When James Wechsler was editor and Dorothy Schiff was the owner of the New York Post, there was a dispute over whose articles were more popular, Wechsler’s editorials or the paper’s regular columns. At the time the Post had two magnificent columnists, Murray Kempton on public affairs and Jimmy Cannon on sports. These men were great writers and if you can find any of their books in print or articles about them on the web, you should read them.
At any rate, Ms. Schiff was persuaded (which was not easy) to spend some of her money on a survey to find out the most popular column in the Post. The study discovered that it was the daily horoscope that most people read. That is understandable, the rest of the paper tells you what is happening in the present, or what took place in the past. Only the horoscope will tell you the future.
Stern, a stickler for facts, doesn’t assure us this is true (he heard this second-hand). Unfortunately, it sounds plausible. You can’t find this on Snopes.
Posted by Marc Hodak on May 26, 2008 under Unintended consequences | Comments are off for this article
Clinton or Obama? Obama has the nomination in his pocket; even Hillary knows it. Still, the super-delegates must make their choices known, and it appears that they will be compelled to choose the most popular candidate of their party–Obama–even if he is less likely to prevail in November.
Hillary, of course, has been arguing all along that she is more electable than Obama against McCain. The evidence shows that she is right: According to polls tracked by the non-partisan electoralvote.com, Obama is barely ahead of McCain, and neither has enough to claim an electoral majority. Hillary Clinton versus McCain is a lock. She owns every major state with over 15 electoral votes except Texas. She could lose every toss-up state and still win the presidency.
One can imagine the agony it must be for Hillary to know this, and yet face an almost certain upcoming defeat in her party’s primary. What I wonder, though, is how her party’s leaders feel about this? They must know the numbers, too, and yet have their hands tied. Many of them are probably telling themselves, “Screw it. Obama will win, too.” The Iowa Electronic Market is on their side, for now. But that market is thin, and doesn’t necessarily reflect the best bet for the Dems.
Posted by Marc Hodak on May 25, 2008 under Movie reviews | Comments are off for this article
Too late for the epidural.
Like most romantic comedies, Knocked Up is basically about placing mismatched elements A and B in a crucible, throwing in a catalyst, and watching the crazy reaction as they become a bonded pair. In this case element A, Allison Scott, played by the stunning Katherine Heigl, is a girl that pretty much has it all together; she’s a junior producer on E! network who just got a promotion. Element B, Ben Stone, played by the lumpy Seth Rogan, is as his last name implies someone who would rather wake up to some good weed, and without much of a planning horizon beyond that.
I’ve never seen Heigl before on TV or in film. Now, I could watch her all day long. I hear she plays a doctor on TV. In this film she plays a patient looking for a decent Ob-Gyn. But this film is really about what she’s looking for in the man who impregnated her. Decency is a given. Ben is immediately taken with Allison–who wouldn’t be–and quickly owns up to his responsibility. Allison is a decent person, too, so it’s not like he has to take the good with the bad on that count.
The “baby on the way” is, of course, the catalyst in this crucible. The pregnancy establishes the timetable for this relationship as well as the pace of this movie. The birth itself happens at such a pace that the doctor must tell Allison that there is no time for the epidural. That’s how comedy works–we laugh at the pain of the characters. The acting and writing was uniformly good–a perfect Apatow blend of goofy and grounded.
I think that romantic comedy endings are scarce in real life because people are too impatient to let a relationship grow, or tend to succumb to the destructive fantasy of “the one for me.” I’ve always believed that two strangers stranded on an island would figure out how to make it work happily ever after…or there would soon enough be only one left. But no two people are on an island. We’re inundated with choices and friends and relatives and all the rest of civilization telling us “you can do better.” And lots of unhappy relationships.
I read that Heigl got banged up a little about comments about this films “sexism.” I’m sure the public reaction was overly politicized and highly unfair. She clearly liked making this film, and did a fabulous job. One of the things I have liked about Apatow films have been their apolitical nature, which is often misinterpreted as “politically incorrect.” Politically incorrect is what a Mel Brooks did. Everyone else is just a pretender.
The Renewable Energy and Job Creation Act, among other things, reduces taxes on lawyers with an offsetting increase in taxes on investment managers and corporations. If that doesn’t sound like the kind of bill a Republican would vote for, think again:
Republican Congressman David Hobson supported the bill with the following justification:
“Probably the responsible vote is ‘no,’ but how do you explain that in a media that’s frantic over gasoline prices? Frankly, this has nothing to do with gasoline prices, but you can’t explain it, and it taxes the rich guys,” Hobson said.
As it turns out, most of this bill was aimed at extending tax breaks to a myriad of industries. Would he be inclined to support those? Well, let’s just toggle over to his list of biggest campaign donors to see who we meet. Hey, there’s PMA Group, one of the largest industry lobbyists on K Street pushing those production incentives for renewable fuels. Hi PMA! Then we meet Forest City Enterprises, a major beneficiary of R&D tax credits. Hi FCE! So, you see, Hobson wasn’t compromising his supposed principles, he was just showing gratitude to his biggest supporters.
Then, we meet Pioneer PAC. Hi Pioneer! Wait, whose Pioneer?
As Ted Kennedy begins his battle with cancer, we’re treated with a story about how his work in the Senate may be paying off in the form of his treatment choices:
“It’s really hard to think of anyone who’s helped biomedical research in this country or the National Institutes of Health more than he has, and hopefully he’ll get some benefit from how he’s helped others,” said Dr. Patrick Wen, clinical director of the Center for Neuro-Oncology at the Dana-Farber Cancer Institute in Boston.
Personally, I would consider it somewhat vindictive to wish upon Ted Kennedy the fruits of his health care policies. The good news is that Kennedy, like nearly all sufferers, will have no idea which of dozens or hundreds of treatments for his condition don’t exist today because of the costs of regulations that Kennedy supported over the last several decades (see below the fold).
I also hope that Dr. Wen is much better at connecting the dots in his research than he is between his last statement and this one:
Economics comes into play, as well. Simply put, the market for brain cancer drugs pales, compared with that for other malignancies, with only 9,000 people a year in the United States diagnosed with the kind of cancer that has beset Kennedy.
“Because the numbers are relatively small,” Wen said, “the incentive to develop drugs for brain tumors is less than for breast cancer or prostate cancer.”
Posted by Marc Hodak on under Invisible trade-offs | Comments are off for this article
Lou Pearlman was given an unusual sentence for defrauding investors of $300 million. He was nominally sentenced to 25 years in prison. However, the judge offered to reduce his sentence by one month for every $1 million Pearlman was able to return to his victims.
I’m not sure what the legal implications of such an offer might be, but the incentive issues are compelling. The first-order incentives are pretty clear: Pearlman has a strong incentive to return most, but not all of the money. Why not all? Because of economic laws, which are not subject to negotiation.
Pearlman is currently 53, so a 25 year sentence pretty much takes up most of his remaining life expectancy. I would bet that if he could buy his way out of that sentence in an all-or-nothing transaction, he would do so at any price. But most economic decisions are at the margin, and this one is one of them. As the sentence gets reduced, the marginal value of each month in prison is likely to go down. For instance, he may well decide that six months in prison is worth $6 million. I probably would. This remains true even if he’s resource constrained. For instance, if he only has enough to buy his way out of 15 years, he might still decide that the 121st month is worth an extra million, especially if he’s able to realize some returns on that million during the 10 years and a month he’d spend in the slammer.
The second-order incentives are a little more problematic. Regardless of whether Pearlman is resource-constrained or not, he’s simply paying for his crime at cost. If I defraud someone of a million, I shouldn’t be given the option of giving back that million and calling it even; there should be some extra penalty, either in cash or prison time (except that I personally don’t believe in swelling our prisons with non-violent offenders).
Also, is a million per month the right price? Or does the routine fraudster get a lower rate? Maybe it’s $100,000 per month for an executive? Or $10,000 per month for Guido? (Hey, I’m just sayin’.) More importantly, how much are prosecutor’s going to be selling freedom for? Government agents, like economic agents, will go with what the traffic will bear. So the question won’t be, “What is the appropriate price of freedom in this case?” It will be, “How much you got?”
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