Empathy

The latest conservative buzz word is empathy. In particular the horror they feel at the prospect that a federal Judge might have the quality of empathy. The reason, according to such conservative leaders as Orrin Hatch, is

...the likelihood of a partisan debate over the president's first nominee for the high court already is clear, with a leading Senate Republican warning that Obama has spoken of finding a nominee with "empathy.''

"Usually those are code words for an activist judge... who is going to be partisan on the bench,'' said Sen. Orrin Hatch (R-Utah), on This Week. "We all know he's going to pick a more liberal justice.... A pro-abortion justice - I don't think anybody has any illusions about that.''

The implication here is that, to a conservative, and empathetic judge is going to be one sided in favor of liberal causes. Other conservative commentators have taken an even dimmer view of empathy in a judge. See, for example, this article from CAP. It would seem that to conservatives an empathetic judge must be completely unfair.

At first thought, however, this should seem like a pretty odd attitude towards empathy in a judge. The meaning of the word empathy would hardly support this conservative belief. Take, for example, this definition from dictionary.com. Empathy is "the intellectual identification with or vicarious experiencing of the feelings, thoughts, or attitudes of another." So, in conservative world, if a judge is able to identify with the attitudes of others in general, he or she will be able to understand the position of both litigants then she is unfairly biased, but if she can only appreciate the attitudes of a litigant like herself she will be fair. That doesn't make sense. In the real world things work the other way around.

I do not believe, however, that this is a dishonest put on by conservatives. This is really the conservative view of things. To a conservative the proper way to organize society is around privilege (see here and here). A judge ought to be favorably disposed toward the conservative and biased against the opponent of any conservative. To have judges that will consider the conservative's position on par with his opponent is indeed, to a conservative, unfair.

Give Them Money

I came across this article from the Boston Globe about Milton Friedman the other day and it struck me as quite in line with my own thinking (h/t to James Wimberley for leading me to it). Milton Friedman, an icon of conservative economic thinking, proposed a "negative income tax", best described in the article.

His proposal, which he called the negative income tax, was to replace the multiplicity of existing welfare programs with a single cash transfer — say, $6,000 — to every citizen. A family of four with no market income would thus receive an annual payment from the I.R.S. of $24,000. For each dollar the family then earned, this payment would be reduced by some fraction — perhaps 50 percent. A family of four earning $12,000 a year, for example, would receive a net supplement of $18,000 (the initial $24,000 less the $6,000 tax on its earnings).

Given the state of conservative thinking on economics, both liberals and conservatives are likely to be amazed. How could this champion of capitalism and markets propose a "give away" such as this?

It is my opinion that this conundrum can be understood by realizing that it is modern conservatism that has abandoned capitalism and markets, not Milton Friedman. Consider the idea that the governments relation to the economy is not as some intrusive external thing that "interferes" with the real market, but rather is simply part of the economy. The government provides services, such as security, copyright protection, incorporation, secure air waves, etc. each of which have value. The government then collects money from those who use the services. This company of the US Government is owned and operated by shareholders who are the citizens. Each citizen owns one share, each share is a voting share and the shares are not transferable. In this view of things, all of which is consistent with market principals, Milton Friedman's scheme is no more than having the company pay out a dividend to its shareholders. Hardly an anti-capitalist idea.

The one distinction between a simple dividend and Friedman's idea though is that his plan is targeted only at the poor. However, recognize that most middle income and wealthy folks derive other dividend benefits from being citizens, from student loans for the middle class to very low prices for the Government services to the wealthy, so they do receive a dividend. Friedman's plan simply is a means of paying the dividend to the poorer citizens as well.

Tax Increases

Just posting a comment I made to a post by Matt Yglesias here. Matt's post was a response to the conservative meme that the tax increase on folks making over $250k is unfair because these folks are so hardworking and necessary for society. My comment is in response to a bunch of other comments there where folks were comparing the difficulty of work done by lawyers and financiers on the one hand and roofers and movers on the other.

I agree that it is pointless to argue who actually works “harder”. Both because it is not really possible to assess who works “harder” and because it is hardly the government’s job to figure out who is worthy and unworthy and reward the former and punish the later. But given that, the anti-Obama argument takes the bigger hit. Conservatives are arguing that the folks making more than $250k are too worthy to be taxed. If we can’t really assess that, how do they make the argument?

But the free market argument against Obama’s policies is also problematic. First, in my opinion, because the government already seriously distorts the price of things by providing extensive services to the wealthy at absurdly low prices. How valuable is copyright protection to Disney, Microsoft television networks and the like? Do we really charge full market value for that service? I doubt it. How about the value of sharing risk with the community via incorporation or having guaranteed sole use of a frequency of the radio spectrum for broadcasting? I would argue that these are only a small portion of the services provided by the federal government for which we charge very low rates. How much then of the high income of the finance and legal folks here complaining of Obama’s tax policies in turn depends upon the government providing these services at the extremely low rates it does?

But the higher rates on the salaries of folks making over $250k can, I think, be defended even more directly. If the mover roofer had to rely solely on cash for his pay and transactions, he would still be able to do his job and earn the salary he does. But how many of the folks in law or finance depend upon the trustworthiness of many other people to handle large sums of money. A trustworthiness that can no doubt be accounted for to a great extent by peoples natural sense of morals, but which ultimately relies heavily too on the existence of the FBI, the Justice Department and the Federal Penal System, to keep everyone focused on right and wrong? Indeed, if given the choice how many of you in finance would forgo paying the taxes you do now, plus those proposed by Obama, at the mere cost of giving up any such federal protection to your assets? If no one would actually take that deal, then you are not being overcharged.

Incorporation is Social Insurance

Strictly speaking the title is not true. A well accepted definition of social insurance can be found here at Wikipedia, and incorporation would not quite meet the definition. However, I will argue that the incorporation is essentially a type of insurance supplied by the government, and therefore should be considered the same sort of thing as social insurance. The reason for making the connection is the right wing's supposed horror at the existence of social insurance while at the same time adoring incorporation.

When a business is incorporated only the assets of the business are subject to being seized to pay off creditors or to satisfy other debt and payments. But the debts and payments still exist, they are effectively paid off by some other members of society. Generally they are not paid off by the government itself, rather by various members of society who get caught by the falling company. The various assets of the owners of the company are not subject to paying off the debts, with the exception of the money invested in the corporation. Essentially, if you are an owner or part-owner of a corporation, due the intervention of the government you are insured against the failure of the company, with your investment being the deductible.

While not strictly "social insurance" according to the Wikipedia definition, it is, in substance, a government run insurance program.

My point is to note that this then is really the first major government insurance program created by the U.S. government, far predating Social Security, unemployment insurance, or any of the other bugbears of conservative angst. The implication of this observation is that the main dispute between conservatives and liberals is not whether the government should provide social insurance, but rather whether it should be supplied only to a select group of privileged individuals. The liberal position is that government is well suited to provide insurance like incorporation, as well as the others, that are valuable to people throughout the entire income scale. The conservative position is that it should be reserved only for a special, privileged portion of society. I am not a conservative.

Rush Rules

This is amazing. (For the original see here). It would appear that Michael Steele has already caved-in on his criticism of Rush Limbaugh on Saturday. No one, it would seem, dares to criticize the great Rush Limbaugh, who now clearly is the voice of and intellectual (as it were) center of the Republican party. What is truly increadible about this is that Rush has never commanded, or spoken for, more than a large fraction of the Republican party. He might well have been, over the years, the effective leader of the largest faction within the Republican party, but I doubt that it has ever been that a majority of Republicans identify with him as the effective leader of the Party. Additionally, of course, to be effective the Republican party needs to capture the support of a fair number of non-Republicans. In spite of this the party is now effectively welded at the hip to Rush Limbaugh. No part of the part, nor its leadership, dare cross his will. I think that the Republicans will once again, in 2010, go with a crazed right winger. We shall see.

Financial Crisis Timeline

A timeline of the financial crisis can be found here.  Very useful source.  I found this on the blog Later On, a very good source.  There is also a link to an RSS feed for getting updates as the crisis unfolds.  No need to miss a minute of the agonizing holocaust.

More on Ruffini

I had some thoughts on a few other points in Mr. Ruffini's post. Mr. Ruffini claims that

Put another way, Republicans thrive as the party of normal Americans -- the people in the middle culturally and economically. This is true of our leadership as well -- we have a history of nominating figures who came first from outside politics. Our base is the common-sense voter in the middle who bought a house she could afford and didn't lavishly overspend in good times and who is now subsidizing the person who didn't.

But this is profoundly wrong. The Republican party would very much like to think of itself as the party of ordinary Americans, but their problem stems from the fact that their outreach to ordinary Americans has for so long been without substance. It has been no more than packaging. When it comes to questions of subsidies the Republican party is ready to throw any ordinary American overboard, no matter how common-sense the voter might be, should she have any degree of difficulty or problem. Yet, when it comes to the executives of major corporations whose business model is completely dependent upon sharing risk via incorporation, or who need copyrights protected, or trade deals with foreign nations or need to have guaranteed sole use of part of the radio spectrum, the Republican party is insistent that those services be provided at as low a charge as possible, preferably for free. This, to anyone of sense, is a subsidy. That they can do, again, however much it puts the burden of supporting these services upon our common-sense voter.

Mr. Ruffini goes on to say:

This sense of frugality, orderliness, and personal responsibility is something everything aspires to in difficult times. This is why Obama's pitch is fundamentally off-key if framed correctly. People's first instincts in a recession are not to overspend, but to tighten their belts.

But this again shows how the Republican party is out of step with the times and why they are no longer in a leadership position. Yes, indeed, it is the first instinct of most people to tighten their belts and this is what people do. That is what makes recessions bad. The nation will be much better off if people took this as a time to start spending. The belt tightening is what causes the pain. What is needed is a leader, a president say, or a political party, that can lead the country better than to follow our first instincts and worst judgment.

Mr. Ruffini goes on to say

Obama's address last night assumed that no one is responsible for anything, except maybe corporate CEOs. The banks as institutions are not ultimately responsible. People who took out risky mortgages are not responsible. The Administration is not responsible for sharing in the pain by postponing longer-term projects like health care. And even if they are, everything in a recession is subsumed to the need to throw money at the problem in an attempt to stabilize the system. The risk for Obama in embracing the bailout mentality is that it catches up to you: this is not how ordinary people act in their daily lives without major consequences down the road.

but this is simply not true. Obama did not say that no one is to blame, rather he spread blame around quite liberally. Rather the distinction is Mr. Ruffini's conservative habit of insisting that those in charge (the corporate CEO) cannot be to blame. Given this attitude (which is ruinous to both responsibility and to a free society) Mr. Ruffini is offended that the CEO is blamed at all and responds as if all the blame were placed on this one individual. That simply was not done.

Republican Gimmicks

In this post Matt Yglesias notes another piece of evidence in the absurdity of the current Republican party. Matt is commenting on this post by Patrick Ruffini who is noting the oddity (and lack of seriousness) in the current Republican Party's current obsession with Joe the Plumber. I agree with Mr. Ruffinin in general, although most of his specific comments are far off the mark, but he doesn't seem to get the problem with the current Republican predicament, nor why they cannot escape Joe the Plumber.

The problem Ruffini is facing in trying to pull the Republican party away from gimmicks is that the Republicans are at this point in a bind. Their ideology is tied two unshakable beliefs 1) the government does nothing of value, does nothing to support business, it just ‘interferes’ in the market 2) government functions like copyright protection, licensing the radio waves, and incorporation are absolutely necessary for business to exist. We on the left are pretty sure one of those must be false, and generally believe that the second is true, therefore it makes sense to charge business money to get these services. The Republican party is still wedded to policies which depend upon both being true. The American people are catching on to the absurdity of the conservative position on this. Given that their position is absurd, they have no choice but gimmicks.

On top of that, as Matt notes, Newt’s 80/20 issues are useless for the Republicans. They are 80/20 precisely because they are peripheral and not central to people’s interests. Yes, they are popular, but the 80 percent who favor them are also not really concerned about them.

Obama's Budget Plans

We can see Obama's budget plans in this article in the Washington Post. His plan is indeed ambitious, but I for one certainly think it sounds very good. Borrowing the WaPo summary of the plan

To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from "winding down the war" in Iraq, a senior administration official said. The budget assumes continued spending on "overseas military contingency operations" throughout Obama's presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.

Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.

Obama also proposes "a fairly aggressive effort on tax enforcement" that would target corporate loopholes, the official said. And Obama's budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent capital gains rate.

All of these are appropriate and helpful steps to take. From my position on the role of government in society and the economy (see here, here and here for example) it is my opinion that the taxes we charge to middle and lower income citizens are way too high and the rates we charge to wealthier citizens, those whose income and wealth are most dependent upon the services provided by the government are way too low. Increasing taxes at the high end and lowering them at the low end of the income range will only serve to boost the economy. There are plenty of folks at the lower end of the income scale who are interested in expanding their economic activity, people who wish to be wealthy but who are not, but have limited access to fresh capital needed to do so.

Look, as a general rule, folks will do more work, and create more new wealth as their expenses rise in comparison to their income. As that difference narrows, people will, whatever their income, do more work and take less leisure. Likewise, as the gap grows (in favor of higher income and lower costs) they will trade further increase in income for leisure time. This is as true of the corporate CEO or fund manager as it is of the hourly wage earner and everyone in between. For people at the lower end of the income range the options when expenses are high compared to income are to take another job or to work more hours or the like. For the manager of a business the options are to also work more hours, but that entails using the resources of the business to create and sell more product. This, in turn, involves hiring more people, paying more wages and stimulating the economy.

So we can see why our economic policies of the past eight years are so foolish. As I have argued in the links above, part of the cost of running a large business in this country are services provided by the Federal Government. Services like copyright protection, incorporation, licensing the electromagnetic spectrum (radio and TV), etc. The Bush era plan to stimulate the economy then has been to consistently cut the costs the businesses have. But this can only serve to increase the gap between income and costs and thus decrease the manager's interest in working to create new and more product. Now in any plan that involves cutting taxes, some additional money will be spent and some stimulus to the economy will be observed. However, the effect will be weak, as it has been for the past eight years. The other effect that I am discussing here, the reduced willingness of the business manager to produce, will also be observed, and it has.

This chart (h/t to Mark Kleiman and Quincy Adams) illustrates what I am discussing. The upper chart shows industrial production, capacity and utilization over time since 1965. The striking thing about the chart is the high level and rapid increase in these value during the Clinton years and the subsequent slowdown and then drop off during the Bush years. With tax rates higher during the Clinton years, people running large businesses needed to produce more and create better products if they were going to enjoy an increase in personal income and wealth. Under the Bush administration, with a nearly guaranteed increase in personal income for the people owning and running the businesses (an increase in their income because the government would certainly reduce their costs, even if they worked and produced less) we see they took more leisure time, produced less and production and utilization slowed down.

Another example of the result of the Bush policies is the quality of our broadband services in this county, discussed by Matt Yglesias, here for example. For a telecom company to improve the boradband services it provides would require a fair amount of efffort to be supplied by the owners and operators of the business. In a capitalist, market based system, the people running a telecom company are motivated to put forth the effort needed to improve broadband service (or any other service for that matter) by a desire to increase their own income and wealth. For the past eight years we have, however, been guaranteeing that they will see an increase in their wealth and income even if the don't do this work, and shock of shocks they have been, by and large, taking the increase income without doing the incrrease effort. The policies of the past eight years have been for the general citizens to do with poorer service and lower value to the products in order to guarantee that the owners of these firms can enjoy great wealth without having to work. This is a foolish policy.

A return to higher taxes for these folks will not raise prices, it will increase the amount of production. To do that will require an increase in employment. All to the good for we citizens who have the responsibility to set the prices that government charges industry for government services. We can also see the effect of these policies in the income and wealth of citizens across the income spectrum in these charts provided by Nate Silver. As indicated, the wealth and income of everybody was higher during the Clinton years, and more equally distributed. This is the expected effect of Obama's plans on taxes and Federal spending. All to the good, again, for the vast majority of citizens.